Cementos Pacasmayo S.A.A. (CPAC) on Q1 2023 Results - Earnings Call Transcript
Operator: Good morning, everyone, and welcome to the Cementos Pacasmayo First Quarter 2023 Earnings Conference Call [Operator Instructions]. Please note, this conference is being recorded. I will now turn the conference over to your host, Ms. Claudia Bustamante, Investor Relations. Claudia, you may begin.
Claudia Bustamante: Thank you, Denny. 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 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: Thank you, Claudia. Welcome, everyone, to today's conference call, and thank you for joining us today. This quarter, we had to face a challenge of inclement weather. As you probably already know, during March, our country and specifically the northern region were deeply affected by a cyclone. This is an extremely rare occurrence that left many without a home or livelihood. So I would first like to take a moment to extend our deepest sense of solidarity with them and the families and the promise that as a company, we will always continue helping as much as possible. Cyclone Yaku mainly affected the regions of Tumbes, Piura, and Lambayeque and La Libertad. This phenomenon and the rainy season in general have [led] so far economic losses estimated at $4 billion. Our sales this quarter were understandably affected by this event temporarily, mainly during March when sales volume decreased by 23% as compared to the same period of 2022. Nonetheless, due to proper cost management and the decrease in the use of imported clinker, we were still able to increase our EBITDA margin by almost [1%] point reaching 25.1%. I would like now to focus first on our capacity to respond like other occasions to a crisis like this and then to focus on the future and how we can all make sure that we are better prepared for the next time this happens. As soon as we realized that the amount of rain, especially in the Pacasmayo area, which is not usually as vulnerable -- the flooding was going to have severe consequences, we promptly -- I would say, immediately deployed our crisis management plan. This plan addresses the effects of climate-related events through our strategy that involves immediate action in coordination with local authorities and neighborhood [countries] in our areas of influence. The first step in this plan is to pump the water out, and we used our mixer trucks to store this water. Once everything was dry, we have to remove any solid waste to clear the way for proper transit and to prevent diseases. Only then, and let me stress this, only then could we provide clean drinking water. In many areas of our country, the sewage system is still undeveloped. And when floods and landslides occur, there's a possibility of collapse posing a very alarming safety threat. We can say we successfully focused on preventing this [from] happening. [I could then] move on to sanitizing the streets. Luckily, our experience with COVID was extremely valuable here as we are already sanitized street using our own mixer trucks. We believe that our crisis plan worked, and we were able to mitigate and reduce the risks in an effective manner. Now that the immediate crisis has, for the time being, subsided, we need to focus on prevention straightaway so that we can be certain that when other weather-related disaster comes, we are better prepared than this time. Although, there has been much ill talk about the inefficiency of the reconstruction plan called [Indiscernible], the reality is really different. And the reality is that part of this plan has in fact been successfully executed, although much lower than initially proposed. The reconstruction plan included hospitals, schools and preventive works such as dams, river defenses and [spraying] systems. The schools and hospitals have been built and were very needed. Now the preventive works are pending. Given the current state of structure in the North and considering that there is a possibility that [Indiscernible] may happen soon, this preventive works have to be prioritized. Pacasmayo has plenty of evidence to support that building with the proper materials and designing correctly makes a world of difference in terms of resilience. We have designed and built using the infrastructural taxes scheme part of the Avenida Bayovar, Avenida Vicente Suarez, and Avenida Jose Lama all of them in Piura. These roads were built using concrete and designed after our extremely careful analysis of the type of salt in order to enter the potential natural disaster, including proper drainage. The results speak of themselves. These roads have endured the recent heavy rains without any important damage and much better than any other alternative. We need to insist on the importance of building resilient infrastructure since extreme climate patterns will continue, and we need to make sure that as a country we are prepared to face it. This has been indeed a different quarter. I will now turn the call over to Manuel to go into more detailed financial analysis.
Manuel Ferreyros: Thank you, Humberto. Good morning, everyone. As Humberto mentioned, our first quarter 2023 revenues were affected by the temporary decrease in demand, reaching PEN 480 million, an 8.6% decrease when compared to the same period of last year. The gross profit also decreased but significantly less, achieving PEN 160.6 million, a 2.7% decrease when compared to the same period of last year, mainly affected by decreased sales, partially offset by lower costs from decreased use of imported clinker. Consolidated EBITDA was PEN 120.7 million this quarter, a 5.3% decrease when compared to the first quarter of 2022. However, it is important to note that EBITDA margin was 25.1%, a 0.8 percentage point increase when compared to the first quarter of 2022. Turning to operating expenses. Administrative expenses for the first quarter of 2023 increased 8.1% when compared to the first quarter of 2022, mainly due to an increase in personnel expenses as a result of increasing workers' profit sharing and an increase in salaries in line with inflation. Selling expenses during this quarter increased slightly, only 2.9% when compared to the same period of last year, mainly due to expenses related to the development of digital platforms. Moving on to a different segment. Sales of cement decreased only 4.2% this quarter when compared to the same period of last year, mainly due to the temporary decrease in demand because of the flooding and landslides caused by cyclone Yaku and intense rainfall afterwards. However, gross margin increased 1.1 percentage points in the first quarter of 2023 when compared to the first quarter of 2022, mainly due to reduction in the use of imported clinker. During this quarter, concrete, pavement and mortar sales decreased 22.3%, mainly due to a significant slowdown in sales volume for private and public works which deepened due to the interruption in construction due to the heavy rains. Gross margin decreased 1.6 percentage points in the first quarter of 2022 when compared to the same period of last year, mainly due to the lower dilution of fixed costs because of the decreased sales volume. Sales of free cash materials during the first quarter of 2023 also decreased, affected by the rain. The decrease in sales was 30.9% when compared with the same period of last year, and gross margin was negative, mainly due to lower dilution of fixed costs as heavy free cash demand was stored for the lack of larger projects and the effect of flooding during the quarter. Net profit decreased 4.8% this quarter when compared to the same period of last year, mainly due to a temporary decrease in sales. In terms of debt, our net debt-to-EBITDA ratio was 3.2x, which is a level we expect to sustain. It is important to mention that this February we paid the remaining $132 million of our 10-year international bond without incurring any additional cost due to the exchange rate effect. As I mentioned before -- as we mentioned before, we have already obtained a loan to pay for this bond. To summarize, this quarter results show our ability to manage cost and seek for profitability when faced with challenge on the demand side. We are confident that we will continue delivering positive results during the rest of the year. Thank you, and please, Humberto.
Humberto Nadal: Now we are open to questions.
Operator: [Operator Instructions] Okay. Claudia, I don't have any questions on the phone lines. Do you have any via the webcast?
Humberto Nadal: For the past couple of years, it seems that we have been faced with a whole spectrum of challenges. First, a global pandemic, then the constantly changing political environment in Peru and instability disposes and now extreme weather patterns that are very harmful to our countries and very limited infrastructure. But we have taken these challenges as we should, as learning opportunities, and we can now adapt and react faster, make us feel more confident we are well prepared to face the future. These are crucial moments for our country. Let us take the recent flooding as a sign and opportunity to actually push for all of the structural needs, [roughing] and planning for many years. If anything, besides resilience or other resilience comes extreme positive outlook for our country, and that's where we are. We have been more than 65 years [paying] in Peru, paying in north of the country. And I think this, if you ask me, are the most optimistic moments over the last 10 years. Thank you, everybody, for your remaining interest in our company. And as always, we remain at your disposal. Thank you.
Operator: Thank you very much, everybody. This does conclude today's conference. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.
