Cementos Pacasmayo - Q3 2024
October 29, 2024
Transcript
Operator (participant)
Good day, ladies and gentlemen, and welcome to Pacasmayo's third quarter 2024 earnings conference call. At this time, all participant lines are on listen-only mode, and please note that the call today is being recorded. At the conclusion of our prepared remarks, we'll conduct a question-and-answer session. I would now like to introduce you to our host for today's call, Mrs. Claudia Bustamante, Investor Relations Manager. Mrs. Bustamante, you may begin.
Claudia Bustamante (Investor Relations Manager)
Thank you, Michael. Good morning, everyone, and thank you for your patience. 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 findings. 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. My apologies for the delay or just I was landing on a plane. This quarter, we delivered very solid results in terms of margins, EBITDA, and profitability. Sales volumes this quarter recovered on a sequential basis, although still slightly behind the same quarter of 2023. Despite this slight decrease in demand, we were able to achieve a record consolidated EBITDA of PEN 154.6 million and an increase of almost 20% year-over-year, as well as a remarkable increase of 35.9% in net income, by basically focusing on operational efficiencies related to clinker production in our most efficient kilns, as well as cost efficiencies in our sourcing of raw material. In our journey to continue developing our building solutions, this quarter, we have embarked on two very relevant projects.
First, we designed an innovative solution for riverbank protection. As you probably already know, the north of Peru is consistently affected by El Niño, resulting in strong rains that overflow the rivers and therefore cause significant flooding. Traditionally, the riverbank protection is done with steel and rocks, but since there are parts of the north where rocks are not readily available, we designed a new solution using mainly cement, local materials, and mortar that is both most cost-effective and more durable. We are currently implementing this in Lambayeque, but the solution is scalable, and we look to expand it to other areas. Secondly, we have taken on a new challenge by collaborating with Newmont and Bechtel Corporation in the construction of a water treatment plant at the Minera Yanacocha operation.
The treatment of acidic water in mining is absolutely crucial for environmental sustainability and thus being able to maintain a balance between economic and social development in our country. Proper management of water resources not only minimizes the environmental impact but also generates efficient use of the natural resources we have today, preserving them for future generations. These two projects are other examples of how we are innovating and adapting our products and services to satisfy the current and potential demand for building solutions. Always, and I want to strengthen always with a client-centric view and aligned with our purpose. I would like now to focus on something that is absolutely crucial for the future of our business, including our own, artificial intelligence and machine learning. New technologies will bring a wide variety of opportunities, and there is no doubt that early adopters will be the biggest beneficiaries.
Pacasmayo's AI strategy has been crafted through a multi-phase approach, starting with a very deep understanding of the business and its needs. A robust operational and organizational model was designed, incorporating expansion and deepening strategies, capability assessment, and a clear governance model. Implementation goals are focused on three key points. We have three key fronts: preparing the organization for AI adoption, experimenting with AI solutions, and expanding the impact of AI across the enterprise. The strategy has resulted in high engagement and satisfaction, with 86% of employee participation and an 84% rate of satisfaction. We also developed several successful pilot projects, including a churn prediction model, a commercial virtual assistant, and an automatic back and front assistant.
Overall, we must say that this strategy has also allowed us to prioritize use cases across various departments and positively impact the value chain because it has not only delivered tangible results but has also laid the foundation for Pacasmayo to become a truly, and I mean truly, data and AI-driven company. The next steps involve defining the scope and resources of full-scale implementation in 2025, further cementing Pacasmayo's position as a leader in AI adoption within its industry. I would now like to turn over the call to Manuel to go into more detail on financial analysis. Manuel.
Manuel Ferreyros (CFO)
Thank you, Humberto. Good morning, everyone. This quarter's revenues increased 0.2% compared to the third quarter of 2023, reaching PEN 517.8 million. However, during this same period, gross profit increased 12.1% when compared to the previous year, mainly due to the cost efficiencies throughout our operations, including our new kiln in Pacasmayo, as well as lower cost of raw material, mainly coal. Consolidated EBITDA was a record of PEN 154.6 million this quarter, and EBITDA margin was 29.9%, a 19.9% and a 5 percentage points increase, respectively, when compared to the same period of 2023. The trend was similar for the first nine months of the year, with revenues increasing 0.9%, consolidated EBITDA 12.3%, and EBITDA margin 2.8 percentage points when compared to the same period of last year.
Turning to operating expenses, administrative expenses for the third quarter of 2024 increased 15.4% and 6.7% during the nine months of this year, when compared to the same period of the previous year, respectively, mainly due to an increase in personnel expenses as a result of increased workers' profit sharing and higher IT, research, and cybersecurity-related expenses. Selling expenses during this quarter increased 10.7% and 10.4% during the first nine months of the year, when compared to the third quarter of 2023 and the first nine months of 2023, respectively, mainly due to an increase in personnel expenses mentioned before. Moving on to different segments, sales of cement decreased 2.7% this quarter and 3.6% during the first nine months of the year, when compared to the same period of 2023, respectively, mainly due to a decrease in demand from the self-construction segment.
Nonetheless, due to our continued focus on efficiency, gross margin increased 7.3 percentage points in the third quarter of 2024 and 5.5 percentage points in the first nine months of this year, when compared to the third quarter of 2023 and the first nine months of last year, respectively, mainly due to a cost optimization and lower cost of raw material as mentioned before. During this quarter, concrete pavement and mortar sales increased 25.6% and 57.9% during the first nine months of the year, when compared to the same period of 2023, mainly due to increased sales volume as pavement for the Piura Airport project.
Gross margin decreased during the quarter and first nine months of the year, mainly due to a difference in exchange rate between the projected rate at the time that the contract was signed and the current rate. Most of this impact was already being accounted for, so we expect the margin to improve in the upcoming quarters. Sales of precast materials during the third quarter of 2024 and the nine months of 2024 increased 10.4% and 31% compared to the third quarter and first nine months of 2023, respectively, mainly due to increased demand from the public sector for the construction project, among others.
Moving back to our consolidated results, net profit increased 35.9% this quarter and 11.9% during the first nine months of the year, when compared to the same period of last year, respectively, mainly due to an increase in operating profit, as mentioned before. In terms of debt, our net debt/EBITDA ratio was 2.8x below the level obtained the previous quarter. To summarize, this quarter's financial results show our ability to manage costs and focus on efficiencies to provide outstanding profitability. We are confident that we will continue delivering positive results during the rest of the year. Can we please open the questions?
Operator (participant)
Thank you very much for the presentation. We'll now be moving to the Q&A part. If you're on the telephone, you may press star two on your keypad. That's star two on your keypad for any voice questions. If you're dialed in via the web, you may also ask a text question. And we also acknowledge the text questions that were already asked by Mr. Luis Ramos and Mr. Marco Mejia, which we'll get to in a moment. So just once again, star two for any voice questions. That's star two. You may also ask a voice or a text question if you are dialed in via the web. Our first voice question comes from Mr. Marcelo Furlan from Itaú BBA, Director.
Marcelo Furlan (Director)
Hello. Yes. Hello, Marcelo. Thank you for taking the call. My question is related to cement volume and the impact being done to the sales for the past several days. So I'd like to understand if you guys see the cement volume is in a better momentum going forward. So the next question. And also, if you guys could give us a sense of the expectations for cement volume here in the next few years, when you look to cement. My second question is margins. Margin changes around 40% this year, and this is now 28% for most of the numbers in cement and structures. What can we expect here in terms of margins or sustainable margins for Cementos Pacasmayo for the medium and long-term years? So these are my two questions. Thank you.
Claudia Bustamante (Investor Relations Manager)
Excuse me. We couldn't hear the question at all. There was a lot of interference. I'm not sure if you could ask the question again.
Marcelo Furlan (Director)
I'm sorry.
Operator (participant)
Dispatches of the concrete is going to replace in volume the dispatches to the project at Piura Airport. Hello.
Marcelo Furlan (Director)
Hello.
Operator (participant)
Hi, Claudia.
Claudia Bustamante (Investor Relations Manager)
Hello. Yes?
Operator (participant)
Yes. Hi, Claudia. So just once again, we will try to get in touch with Mr. Marcelo from Itaú BBA. He's reconnected with the telephone line. Mr. Marcelo?
Marcelo Furlan (Director)
Yes. Hi, guys. Can you hear me now?
Claudia Bustamante (Investor Relations Manager)
Yes.
Operator (participant)
We can hear you loud and clear. Please go ahead, Mr. Marcelo.
Marcelo Furlan (Director)
Okay. Thank you, guys. Sorry for the interference before. So, guys, I have two questions here. The first one's related to cement volumes. So we saw these volumes increasing by 16% on a quarter-to-quarter basis. And then my question here is, do you guys see, actually, these cement volumes in Peru on a better momentum versus what we have seen in the first half of this year? So this is my first question here. And then I'll follow up on that. How are you guys seeing cement volumes grow for 2025? So this is my first question.
My second question is related to margins. You guys reached this 30% margin in the third quarter, and cumulative numbers for 2024 is around 28%. So my question here is related to if you could expect now Cementos Pacasmayo with these margins or sustainable margins hovering around 30% or close to that. So could we expect these margins going forward? So this is my second question here. Thank you, guys. And I'm sorry for the interference before.
Humberto Nadal (CEO)
Let me take that question. Relating to volumes, I mean, we are seeing an increase in the third quarter. We had anticipated when I called in the second quarter that the second part of the year would be better. We're seeing increased government spending in many things, and next year, we are still running on the budget, but we have to bear in mind that there are very important public projects going on in the north.
The new Chavimochic phase that's going to be done under a G2G agreement with the Canadian government will be undertaken. So I think we're pretty optimistic that next year volumes should increase with respect to this year. We don't have a specific number right now. In terms of the margins, I think the increase we have seen has to be mostly with operational efficiencies with our new kilns and everything. So I think going to the future, they should remain.
Marcelo Furlan (Director)
Okay. Thank you so much, guys.
Operator (participant)
Okay. Thank you very much. We will now be reading out the text questions. The first text question is from Mr. Marco Mejia from Kallpa SAB. How long is it going to impact the new project of Yanacocha to the dispatches of the concrete? Is it going to replace in volume the dispatches to the project at Piura Airport?
Humberto Nadal (CEO)
Could you repeat the question, please? I couldn't hear it.
Operator (participant)
Yes. First question is, how long is it going to impact the new project of Yanacocha to the dispatches of the concrete? Is it going to replace the volume of the dispatches to the project at Piura Airport?
Manuel Ferreyros (CFO)
I can take that question.
Humberto Nadal (CEO)
Yeah. Go ahead, Manuel.
Manuel Ferreyros (CFO)
Yeah. I can take this question. Yeah. This project will last approximately 18 months, and the volume is going to be quite similar as the one that we've been in the Piura Airport.
Operator (participant)
Okay. Thank you very much. The next question is from Mr. Luis Ramos from LarrainVial. Hi, Humberto, Manuel, and Claudia. Congrats on the results. I have three questions. I'll read the first one. First one, regarding the volume dynamics. What are your expectations for 2025?
Humberto Nadal (CEO)
My expectation, like I mentioned before, 2025, we should see an increase in volumes compared to 2024.
Operator (participant)
Which are the drivers that should enable growth in self-construction?
Humberto Nadal (CEO)
The drivers in self-construction are fundamentally two. One, I mean, employment is very important, and I think the fishing and agriculture are extremely important for employment in our region. Fishing has had a tremendous year, and so has agriculture. So I think the big driver towards self-construction is the fact they want to have thousands of people very well employed and very well paid, and that usually translates into cement demand later in the year.
Operator (participant)
Okay. Thank you. The follow-up question from Mr. Luis. Regarding prices, it seems that the room for price hikes seems limited. What do you expect for the price mix improvements in 2025?
Humberto Nadal (CEO)
I think, I mean, there's no such thing as a limited space for price hikes. We're always very cautious about price in terms of taking care of the brand, in terms of profitability, and in terms of market share. And I think we've done a tremendous job in the past of maximizing price, bearing in mind the other two variables, and we're going to keep on the same policy.
Operator (participant)
Follow-up question from Mr. Luis Ramos. EBITDA margins hovered almost 30% this quarter. What is your guidance on margins for next year?
Manuel Ferreyros (CFO)
The guidance for next year is that.
Humberto Nadal (CEO)
Yeah.
Manuel Ferreyros (CFO)
As a comparison, EBITDA margin for the whole year should be a little bit over 29%.
Operator (participant)
Okay. Thank you very much. We have a text question from Mr. Gerardo Fort from AFP Integra. A few questions. Congratulations on the results. Number one, we have seen an improvement in gross margins throughout the year. However, this quarter's improvement has been above the improvement seen in recent quarters. While this is attributed to the efficiencies at the Pacasmayo plant and lower coal costs, this has also been the case in previous quarters. Could you comment on what has been the main driver for this quarter's improvement?
Humberto Nadal (CEO)
The main driver here, I mean, operational efficiency is something that I will keep pushing. So every trimester is an opportunity to keep increasing. I mean, you have to realize that there's always a process of learning. The new kiln number four now is really running like a fantastic ship. And in terms of coal, I mean, we also achieved interesting prices, and all those things translate to the fact of improved efficiencies.
Operator (participant)
The second question from Mr. Fort is related to the long-term expected margins for concrete and prefabricated products. Given that there is an effort to expand the participation of these businesses.
Humberto Nadal (CEO)
I think concrete profitability is going to have to do a lot with the size of the projects. I mean, when we get a Chavimochic in hand, when we get a Yanacocha cement plant in hand, those things are much more profitable than small concrete operations. As we see public and private investment hopefully picking up in the coming years, then the margins for concrete should increase accordingly.
Operator (participant)
Okay. Perfect. Thank you very much. Just once again, star two for any additional questions. Star two for any voice questions. You may also ask a voice or a text question if you're dialed in via the web. We'll give a minute or so for any final questions to come in. Okay. So it looks like we have no questions at this point. I'll pass the line back to the management team for the concluding remarks.
Humberto Nadal (CEO)
Thank you. I would like to finish.
Manuel Ferreyros (CFO)
Manuel, are you there?
Humberto Nadal (CEO)
Yeah. Sorry for the delay. I would like to finish by briefly sharing with you that last week I had the chance, along with several other Latin American CEOs, to visit three projects in Europe currently at the forefront of carbon capture. Although the reality of Europe is clearly very different from that of Latin America in terms of regulatory framework, economic incentives, research availability, and funding, it is nonetheless very gratifying to see such concrete steps towards carbon neutrality in the cement industry.
We are grateful for the opportunity to continue our learning journey in this field, consistent with our needs of our country. I think the balance is going to be between protecting the environment, between carbon neutrality, and being able to provide to those two million Peruvians without a home and home for the future. With this, thank you very much for your interest in our company. As always, should you have any further questions, we will remain here at your disposal. Thank you very much. Have a very good day.
Operator (participant)
Thank you very much. This concludes today's conference call. We'll now be closing all the lines. Thank you, and good.