Cementos Pacasmayo - Q3 2022
October 27, 2022
Transcript
Operator (participant)
Good morning, ladies and gentlemen, and welcome to the Cementos Pacasmayo third quarter 2022 earnings conference call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Claudia Bustamante. Ma'am, the floor is yours.
Claudia Bustamante (Head of Investor Relations and Sustainability Manager)
Thank you, Matthew. Good morning, everyone. Joining me on the call today is Mr. Humberto Nadal, our Chief Executive Officer, and Mr. Manuel Ferreyros, our Chief Financial Officer. Mr. Nadal will begin our call with an overview of the quarter, focusing primarily on our strategic outlook for the short and medium term. Mr. Ferreyros will then follow with additional commentary on our financial results. We'll then turn the call over to your questions. Please note that this call will include certain forward-looking statements. These statements relate to expectations, beliefs, projections, trends, and other matters that are not historical facts and are therefore subject to risks and uncertainties that might affect future events or results. Descriptions of these risks are set forth in the company's regulatory filings. With that, I'd now like to turn the call over to Mr. Humberto Nadal.
Humberto Nadal (CEO)
Thank you, Claudia. Welcome everyone to today's conference call, and thank you for joining us today. This quarter's results show our ability to sustain profitability, even in the light of a slowdown in demand. Even when there has been a slight deceleration in terms of volumes, consolidated EBITDA was PEN 124.9 million, a 6.5% increase when compared to the same period of last year, achieving a margin of almost 23%. This is especially relevant considering that during the quarter, we performed preventive maintenance on our kiln in Piura and also our main kiln in Pacasmayo. We were able to shorten the scheduled maintenance time in Piura from 30 days-20 days, therefore performing it with our own clinker instead of using imported clinker. We are certain that this approach and our sustained focus on efficiency will continue to reap benefits.
As you have mentioned many times before, we are absolutely convinced that operating with sustainability at our core is the only way to ensure a profitable and successful future without sacrificing the well-being of our planet for future generations. In order to continue aligning our efforts in this front with our overall company strategy and to foster a culture of sustainability for the organization, we have decided to appoint a dedicated management team for this purpose. Along those same lines, and considering the relevance of climate change in our line of business, we have also appointed a dedicated management team for climate change matters. That is the case, so we have both managers appointed by now. This team will focus primarily on achieving our net zero ambitions, considering that one of the biggest challenges we face now is the decarbonization of our operations.
Having specific management in climate change will allow us to separate the necessary resources and streamline decision-making process to achieve our emissions reductions objectives. Likewise, we want to consolidate ourselves as a benchmark leader in the construction materials industry for its good climate action practices, actively contributing to benefit our country and protect our planet. We believe that we have always strived to compare ourselves to the leaders in both the industry and globally. This is why we actively participate in organizations such as FICEM, the Inter-American Cement Federation, that represents the cement producing companies, institutes, and associations all across Latin America, the Caribbean, Spain, and Portugal. FICEM also leads the efforts of the regional cement industry in terms of adaptation to climate change and mitigation of emissions. This year, we are taking an even more active role in FICEM.
That is why I am part of the 2022-2024 Board of Directors, and other members of our company have presented significant initiatives, such as our experience in the use of green cement in the North of Peru and our success in the accident rate reduction to safety action plan. We will actively continue to take a role in international platforms that allows us to both share our own experience and to learn from others, as well as to work as an industry to achieve the best possible solutions, creating an enabling environment for innovation, progress, and sustainability.
Finally, I would like to say that we are extremely proud to call ourselves leaders in the Peruvian cement industry once again, as we have achieved the 15th place in the Merco Empresas y Líderes 2022 ranking, an outstanding benchmark in Spain and Latin America for the performance of company reputations. The ranking evaluates the policies and initiatives of the main companies in the country through a survey of opinion leaders, journalists, and executives. In particular, the ranking highlights the protection of the company's reputation. Being in the top 15 for us is also very especially relevant for a company like ours that operates in only one region of the country, unlike most companies that operate at the national or even international level. This achievement is a result of a combined and sustained effort of years by every member of our company, and we strive to continue improving.
I will now turn the call to Manuel to go into a more detailed financial analysis. Manuel?
Manuel Ferreyros (CFO)
Thank you, Humberto. Good morning, everyone. Third quarter 2022 revenues were PEN 553.6 million, a 9.1% increase when compared to the same period of last year, mainly due to increased prices of bagged cement in line with increased inflation. Gross profit increased 11.8%, mainly due to the increased revenues, as well as some cost reduction as we were able to prioritize our own clinker, decreasing the overcost of using imported clinker. Consolidated EBITDA was PEN 124.9 million in the third quarter of 2022, an increase of 6.5% when compared to the same period of last year, mainly due to increased prices and operational efficiencies.
During the nine months of the year, revenues increased 12%, gross profit increased 22.8%, and consolidated EBITDA increased 19.4% when compared to the same period of last year, mainly due to increased sales and decreased cost of sales, as mentioned before. Turning to operating expenses, administrative expenses for the third quarter of this year increased 14.6% and 14.8% for the first nine months of the year compared to the second quarter and the first nine months of last year, respectively. This increase is in line with higher sales and increased salaries, as well as an increase in personal expenses due to the union bonus that is negotiated every three years and has a larger impact during the first year.
Selling expenses in both the third quarter and during the first nine months of this year increased 21.1% and 20% when compared to the same period of the previous year, respectively, mainly due to the higher salaries and the union bonus, as mentioned before. Moving on to the different segments. Sales of cement increased 14.1% in the third quarter of 2022, and 15.3% during the first nine months of the year when compared to the third quarter of 2021 and to the first nine months of last year. As bagged cement sales continue to be the biggest driver of demand. Gross margin also remain in line with the same period of 2021, despite we had a preventive maintenance of our kiln in Piura, of our main kiln in Pacasmayo and in Piura.
However, during the first nine months of the year, gross margin increased 2.9 percentage points as we were able to mitigate some of the increase in the cost of raw material with lower use of imported clinker and optimization of our own capacity. During the third quarter of 2022, concrete, pavements, and mortar sales decreased 15% and 10.2% in the nine months of 2022 when compared to the same period of previous years, mainly due to a significant slowdown in sales volume for private and public works. However, the gross margin increased 1.3 percentage points and 3 percentage points during the same period, mainly due to our decision to focus on higher margin products.
Sales of precast materials during the third quarter of this year and during the first nine months of this year increased by 5.5% and 10.8% compared to the third quarter and first nine months of last year, mainly due to a slowdown in public sector spending. Gross margin was negative for both the quarter and the first nine months, mainly due to the write-off of past inventory, which generate a cost increase as well as the overall increase in prices for raw material. However, it is very important to note that margin for blocks and other light precast materials has already turned positive this quarter and should continue slightly improving in the upcoming months.
The net profit for the period increased 5% in the third quarter of this year as compared to the same period of last year, mainly due to the higher operating profit mentioned above. During the first nine months of the year, net profit increased a substantial 35.7%, mainly due to increased revenues and lower costs, resulting in higher operating profit, as mentioned above. In terms of debt, our net debt to EBITDA, our net adjusted net debt to EBITDA ratio was 2.4x, which is a level we feel very comfortable. To summarize, this quarter results shows our ability to find efficiencies in times of cost and inflation, inflationary pressure, allowing us to continue delivering substantial profitability. We can now please open the calls to questions.
Operator (participant)
Certainly. Ladies and gentlemen, the floor is open for questions. If you have any questions or comments, please press star one on your phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. Once again, if you have any questions or comments, please press star one on your phone. Please hold while we poll for questions. There are no questions in the queue at this time. I will now hand the floor over to Claudia Bustamante. Please go ahead.
Claudia Bustamante (Head of Investor Relations and Sustainability Manager)
Our first question is, we saw weaker margins compared to the first half of the year due to the higher energy costs. Do you see a stronger impact in the upcoming quarters? What is your strategy to manage costs?
Humberto Nadal (CEO)
Thank you for the question. No, we don't see any further increases. I mean, like, we all know energy price increase has been a worldwide phenomenon, but for now I think they're leveled and I think we've been able to keep a healthy pricing strategy that has allow us to, within a difficult situation, maintain pretty competitive margins.
Claudia Bustamante (Head of Investor Relations and Sustainability Manager)
The next question. We have seen an increase in CapEx in this quarter, mainly in Pacasmayo's plant. Which were the main projects regarding this CapEx increase, and what is your guidance for 2022?
Humberto Nadal (CEO)
Well, as you all know, I mean, on November of last year, our board approved the building of kiln number four in Pacasmayo with an approximated budget of $75 million. This project is well on their way, and we are very happy that we will be on time operating this kiln by third quarter of next year. Most of the CapEx related to Pacasmayo has to do with this project.
Claudia Bustamante (Head of Investor Relations and Sustainability Manager)
Next question is, do you expect to continue increasing prices, or are you considering, yeah, increases for the remainder of the year or going into next year?
Humberto Nadal (CEO)
As we all know, I mean, this is, these are inflationary times, and we've been very careful to keep a balance between meeting our consumer needs, defending the market share, and defending profitability of the company. Those three things will remain our guidelines for the coming months. Depending on how they move, we will consider changing our prices.
Claudia Bustamante (Head of Investor Relations and Sustainability Manager)
Could you please comment on your energy matrix?
Humberto Nadal (CEO)
Sure. We're fundamentally based in the terms of electricity. We have a long-term contract with Electroperú S.A. In terms of the kiln usage, we are mostly in coal, even though we've been negotiating over the last weeks for the Piura plant for gas, and we hope before the end of the year, we should be able to switch to gas in terms of Piura.
Claudia Bustamante (Head of Investor Relations and Sustainability Manager)
How do you see self-construction going into 2023, considering higher financing costs, inflation, and lower household income?
Humberto Nadal (CEO)
I used to keep in mind that self-construction is mostly informal sector. This is a sector that has a very few bancarization effect. I think as long as there's employment, and we believe that employment in the north, thanks to agriculture, fishing, construction, and commerce, is gonna be very strong, we remain optimistic that self-construction building will keep being a very strong driver for our demand.
Claudia Bustamante (Head of Investor Relations and Sustainability Manager)
Okay, I have two similar questions on guidance for dispatches for 2023, in sort of pricing and volumes for 2023.
Humberto Nadal (CEO)
Well, prices, I think I said that before. We wanna be very attentive what happens with our market share, our costs, and inflation. In terms of guidance, as you all know, last year, we grew 42%, going from 2.6 or 3.6 million tons, which is really a revolutionary number. Our aim this year and the aim next year is to remain very close, between the 3.5 or 3.6 million tons, which I think it's a fantastic platform where to start.
Claudia Bustamante (Head of Investor Relations and Sustainability Manager)
The next one is regarding the infrastructure plan. It says the infrastructure plan was recently updated. What is the impact you are seeing in your area of influence?
Humberto Nadal (CEO)
I would love to say that we see some, but the reality is we see none. I mean, this is a plan that has been updated for the last 35 years, probabby 5x or 6x. It's not about having a plan, it's about execution. We don't see any execution coming in the near future. Hopefully, I'll be wrong.
Claudia Bustamante (Head of Investor Relations and Sustainability Manager)
Do you plan other maintenance of any of your clinker or cement plants in the following quarters?
Humberto Nadal (CEO)
No, like I mentioned, I mean, last month, we did maintenance in our two largest kilns, which is the Piura kiln and kiln number three in Pacasmayo. There's no more maintenance, preventive maintenance considered for this year.
Claudia Bustamante (Head of Investor Relations and Sustainability Manager)
When do you plan to have the new kiln in Pacasmayo operational?
Humberto Nadal (CEO)
Like we announced on, when we made it, the announcement in November last year, we mentioned the third quarter of 2023. At this point, we are on time and on budget.
Claudia Bustamante (Head of Investor Relations and Sustainability Manager)
Finally, regarding financial liabilities, what is the proportion of fixed variable rates on your debt? Would we expect further impacts from interest expenses in line with higher rates?
Humberto Nadal (CEO)
All the interest in our debt is fixed. We have no variable interest.
Claudia Bustamante (Head of Investor Relations and Sustainability Manager)
Could you further explain the increase in inventories affecting cash flow from operations? Should we expect a reduction in the coming months?
Humberto Nadal (CEO)
Yeah. What we've been working on is increasing inventories because what we're seeing, it's more community issues along the country. In a preventive way, we have increased our pozzolanic material, our clinker, our coal, to be prepared if something happens in the country.
Operator (participant)
Thank you. That concludes our Q&A session. I'll now hand the conference back to Humberto Nadal for closing remarks. Please go ahead.
Humberto Nadal (CEO)
Thank you. The level of uncertainty the world is experiencing today is unprecedented, especially considering the ever-increasing ease of access to information we have become used to. It is understandable and expected that higher inflation rates and lower growth rates have made investment in emerging markets less attractive. Although this is also the case for Peru, it is important to highlight that the macroeconomic figures continue to be very solid, with inflation rates way below that of our neighboring countries, a very strong currency, and debt levels, which still are very conservative levels. Despite the lower growth predictions, our company continues to deliver in terms of profitability. Moreover, once the optimization of our plant is ready in the third quarter of 2023, we'll be able to increase profitability, as we're no longer strongly dependent on imported clinker to produce the cement that the market demands.
We are convinced that if we continue to focus on what we know best, but also constantly analyzing and investing, investigating potential improvements and innovations, we will be able to continue delivering outstanding results for our stakeholders like we've been doing for the last 10 years. This concludes. Thank you very much. We are always at your disposal should you have any further questions. Thank you for the interest in our company.
Operator (participant)
Thank you. Ladies and gentlemen, this concludes today's event. You may disconnect at this time, and have a wonderful day.