Cementos Pacasmayo S.A.A. (CPAC) on Q1 2021 Results - Earnings Call Transcript
Operator: Good day, ladies and gentlemen. Welcome to Pacasmayo’s First Quarter 2021 Earnings Conference Call. At this time, all participants are on a listen-only mode. And please note that this call is being recorded. At the conclusion of our prepared remarks, we will conduct a question-and-answer session. I would now like to introduce your host for today's call Ms. Claudia Bustamante, Investor Relations Manager. Ms. Bustamante, you may begin.
Claudia Bustamante: Thank you very much. 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.
Humberto Nadal: Thank you, Claudia. Welcome everyone to today's conference call. We hope all of you and your families continue to stay safe in this difficult time. This quarter cement shipments were strong and proved once again our resilience. Despite partial lockdowns for the country in February, the main sales volume at the natural level increased by 42.7% in the first Q of 2021 compared to the previous year. The north clearly outperformed the rest of the country once again as our shipments increased by 67.4% this quarter compared to the same period in 2020. Although, this increase is partially due to the lack of sales during the last two weeks of the quarter in 2020, most of this growth comes from increased sales year-over-year without taking into account the holding operations. If we compare only January and February of both years where there was no lockdown before there is still an increase of almost 40% in cement sales volume when comparing both periods, really remarkable. Although, sales of cement have been and continue to be the main driver of our growth, we are very pleased with the results of concrete and precast. As we mentioned last quarter, concrete sales had already started picking up. And during this quarter, they reached the peak levels we achieved in 2019 and we are confident that these levels are sustainable and to even accelerate in the upcoming quarters. We are specially confident in this because as opposed to 2019 where we were serving demand from medium and large infrastructure and private projects, the demand now comes from small construction companies. We have generated a new customer base that is much more optimized and therefore be less volatile, as it's less reliant on government spending, owner investment decisions by large private companies, which is especially important we need them certain times. As the construction spending materializes during the upcoming quarters, concrete volumes should further accelerate. I would also like to mention the increasing sales of light precast materials such as precast blocks. Although, this is a smaller percentage of our sales, I strongly believe its performance illustrates our successful strategy to transform ourselves and provide the construction and building solutions and market needs.
Manuel Ferreyros: Thank you, Humberto. Good morning, everyone and I hope all of you and your families are staying safe and healthy. First quarter of 2021 revenues were as Humberto mentioned, extraordinary, S/464.8 million, a 55.3% increase when compared to the same period of last year, mainly due to an increased baggage cement shipments, as well as to the hold in commercialization during the last two weeks of the first quarter of 2020. The gross profit increased 44.8% in the first quarter of 2021, compared to the same period of 2020, mainly due to increased sales mentioned before. Partially, offset by higher costs, as we had to use imported clinker to support our growth. Consolidated EBITDA was S/105.1 million in the first quarter of 2021, representing a 45.4% increase, when compared to the first quarter of 2020, mainly due to the increased sales under halt in commercialization during 2020. Turning to operating expenses. Administrative expenses for the first quarter of 2021 increasing 16.9% compared to the first quarter of 2020 in line with increased sales. However, if we look at administrative expenses as a percentage of our sales, it decreased compared to the same period of 2010, as we continue striving for savings. Selling expenses in the first quarter of 2021, only increased 3.6%, compared to the first quarter of 2020, mainly due to an increase in advertising and promotion, offset by a decrease in the allowance for expected credit losses. Moving on to a different segment. Cement, concrete and precast sales increased 55.2% during the first quarter of 2021, compared to the same period of 2020, mainly due to increased sales of baggage cement, as well increased sales of concrete and light precast materials, slightly offset by lower sales of heavy precast. Gross margin decreased 2.1 percentage points in the first quarter of 2021, when compared to the same period of 2020, mainly due to the higher cement production costs as a result of the use of imported clinker, as well as slightly lower average prices for cement and concrete due to the sales mix, as we sold more of our lower priced products.
Operator: Thank you. The floor is now open for questions. . And we'll go to the line of Andres Soto with Santander. Please go ahead.
Andres Soto: Good morning, Humberto, Manuel and Claudia. I hope you and your families are well. Maybe the natural question that I want to ask is what has changed since February that makes you guys decides to postpone the capacity expansion and rather make a dividend distribution? I suspect I know the answer to the question. So I will rather ask if the same level of caution is what you guys are seeing among your customers and if we should expect this to affect Pacasmayo's volumes in the second quarter?
Humberto Nadal: Hello, Andres, I hope you are doing well your family. I mean, let's face it. I mean what I said it's absolutely true. Last year our dividend that was normally running around $150 million, we lowered it by half. And the fact of the matter is I mean sales remain strong. We're very confident about that. But if you see our debt level considering that a potential expansion in the Pacasmayo plant is going to spread over the next three years. We feel like, we have enough room in our balance sheet to accommodate and investment of that sort. So nothing has really changed in terms of that. And in terms of the dividend, I mean, of course I mean, we have to take into consideration everything surrounding us. But we have always, and we've talked about this in the past many times. We strongly believe that the cash that is not needed by the company belongs to shareholders. So we have only acted upon, what we have always predicated.
Andres Soto: Perfect. So you are not seeing a slowdown in volumes related to the political uncertainty to put it in different words?
Humberto Nadal: Not at all.
Andres Soto: Perfect. My second question is related to outsource of clinker. I would like to understand, you have already depleted the expensive inventory you had, or if, you continue expecting the -- we should expect to this -- to continue to be a factor in your margin performance over the next few quarters?
Manuel Ferreyros: Yes, Andrea, hello, this is Manuel. Yeah, what we -- we should expect the same percentage of gross margin in this second and -- basically in the second quarter, because we have the May maintenance of kiln in Pacasmayo and the kiln in Piura. This should pick up again in the third and fourth quarter of this year.
Humberto Nadal: And if I may complement that question Andres and I mentioned it in my speech, but I think it's very important to realize that, when we analyze, I mean, the over cost of imported clinker which runs around probably $20 to $21 per ton, we compare it to how much are we saving in terms of financial cost of deferring the investment for the time being, until we have a higher need. And if we think that the Pacasmayo expansion is going to take, between $220 million $250 million at a take 6% or 11% interest. We believe that, as long as we are south of 700,000 tons, we are more or less neutral to both positions. And at this time, I mean we are still very south of that. We did it for Piura and only when we are importing over 0.5 million tons at that moment with the amount a little bit higher then we tried to move into investment. So we are very positive of our investment, but we're always watching the sales to see what, is the exact moment to trigger the decision.
Andres Soto: That's very clear. Thank you so much.
Operator: Next we go to the line of . Please go ahead.
Unidentified Analyst: Hi. Thank you very much for taking my question. Could you provide a view of these political situations and if the outcome favor, Pedro Castillo left wing candidate? Do you see any potential risk for your business?
Humberto Nadal: That is a very good question. And I mean -- and if I was a political analyst . But the way, I see it, is I mean the country has to decide five weeks from now, what kind of model, in terms of political economic was for its future. I think if we take what has been going on over the last elections Peru has been usually a country that's more on the moderate center to center left. I believe that this will be also the way the country will go. Of course, I have no guarantee of that. But my experience tells me that, in the event that Mr. Castillo becomes the President, we would need more clarity on exactly what he is intending to do. As of only now we are still finding out, this potential government plan. And what he's trying to do. So I think at this point, I mean there's no much I can comment on that.
Unidentified Analyst: Okay. Thank you very much.
Humberto Nadal: You're welcome.
Operator: And that is all the signals we have at this time. We'll return to, Humberto Nadal for closing remarks.
Humberto Nadal: Thank you very much. I want to thank everybody today for their continued interest in Pacasmayo. Pacasmayo has 65 years we have sailed through different kinds of orders, storms, the peaceful waters, but we are very positive both on the fundamentals of the company and we will always remain very positive on the potential this country offers and has offered in the past for our businesses. We remain committed to our country. We remain committed to our regions in which we operate. We are committed to our clients, our customers, our workers, as we did during the pandemic and the COVID times. So we are always cautiously optimistic. The numbers give us a reinforcement of why we should remain optimistic. And we will keep working no matter who wins elections, we will keep working very strongly to deliver always the best results, in the value creation for our shareholders that we have been doing over the last 65 years. Thank you very much for your time, and your interest.
Operator: Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time. Have a great day.
