Cementos Pacasmayo SAA (CPAC) 2013 Q4 法說會逐字稿

Good morning and welcome to Cementos Pacasmayo's fourth quarter 2013 conference call. All lines have been placed on mute to prevent any background noise. After the presentation, we will open the floor for questions. At that time instructions will be given as to the procedure to follow if you would like to ask a question.

It is now my pleasure to turn the call over to Rafael Borja of i-advize Corporate Communications. Sir, you may begin.

Thank you, Jennifer and good morning everyone. I'm very pleased to welcome you to Cementos Pacasmayo's conference call to discuss its fourth quarter and year-end results for 2013 on this day 14th of February 2014. This call is for investors and analysts only. Therefore questions from the media will not be taken. If you're a member of the media and have questions please contact i-advize following the call at 212-406-3693.

I will now introduce our speakers. Presenting on behalf of Cementos Pacasmayo are Mr. Humberto Nadal, Chief Executive Officer; Mr. Manuel Ferreyros, Chief Financial Officer; and Ms. Claudia Bustamante, Head of Investor Relations. They will be discussing Cementos Pacasmayo's results per the press release distributed yesterday. If you have not yet received a copy of the earnings report, please visit www.cementospacasmayo.com.pe in the Investor Relations section to download a copy or contact i-advize in New York.

Comments made today by Cementos Pacasmayo's management may contain forward-looking statements, which are subject to various conditions that may differ materially. We ask that you refer to this disclaimer as guidance on these matters.

It is now my pleasure to introduce Mr. Humberto Nadal, Chief Executive Officer of Cementos Pacasmayo for his presentation. Humberto, please go ahead.

Thank you very much, Rafael, and good morning to everyone. As well as we appreciate your participation and interest in our Company. Now I'd like to begin with an overview of our 2013 performance, mostly operational highlights, and then provide an update on Pacasmayo's projects before I turn it to Manuel, who is going to be going over the financial review for the full year. Then of course we'll be more than happy to take all of the questions.

During 2013, we have continued growing and have once again had a very solid performance in terms of sales, volumes, and more specifically, and what I would try to focus in terms of operating results. Even though the second half of the year saw more moderate growth both in terms of GDP and cement volumes, we managed to grow 4% in cement sales volumes for the year.

The Peruvian economy, as we all know, has experienced a slight slowdown but continuing at the central bank estimate that the annual growth for the year was 5.1%, it's still a very solid growth compared with other countries in both the region and the rest of the world.

Moving now to results; as I mentioned before cement sales volume increased 4% in the year compared to the previous year. Even though as volumes were slower towards the end of the year we managed to pull out a very interesting figure. This was mainly explained towards year end by [decline] in business and consumer confidence, but signs of recovery in cement consumption begin to show and we should see their effect in the second quarter of this 2014.

As we mentioned in our last call, the current administration has expressed its intention to increase and accelerate the investment infrastructure. You have to recall that most of cement sales have been driven by housing in the previous years; the infrastructure deficit of the country still stands at $90 billion and we are convinced that the government is going to be -- doing enormous efforts to try to unlock part of this investment.

In [Specificano] region there are currently three projects that are worth mentioning because of their [crucial] stage. First, the government recently passed a law declaring a public need, the modernization of Talara Refinery, [upgrading] Piura, which represents an investment of approximately $3.5 billion.

Secondly, the construction of the third phase of the irrigation project called Chavimochic which is tremendously important for the country and the region was not only approved but was already awarded in December 2013. And finally, the Northern [Island] Highway which will constitute around 900 kilometers to connect the province of La Libertad, Huanuco has already been approved and the construction was also awarded in December.

To have an idea in terms of magnitude, these three projects added together would bring in an additional 0.5 million tons of cement sales in the coming two or three years.

I think it is also important to highlight this significant improvement in operational results achieved during the past year. And like I said, I mean, for us this is -- this is extremely good news. Despite the sales volume growing at a lower pace we have managed to increase our consolidated EBITDA in over 25%. This we think is even more impressive considering that we imported 350,000 tons of clinker during the past year.

Once our Piura plant comes in next year this will mean an increase in our EBITDA operating and gross margins which I think is very important. It's very --- it's been an enormous effort in -- from the part of all the operation and management of the Company to be able to achieve the results even though we're still importing 350,000 tons of clinker. And also, we have to reflect that this was -- we believe are absolutely sustainable and we will continue to reiterate stable costs.

In term of our projects regarding the Piura plant, we are very pleased to inform that everything is running according to schedule both in terms of budget and in terms of timing. And the startup of the plant will be during the second half of 2016 as we have been previously announcing in the last calls.

The construction (inaudible) was awarded to the consortium of [Hotakamate and SSK] and they started building in October of last year. Most of the main equipment has already arrived on this site and it's, as we speak, being assembled. I believe we have to include some pictures of the progress of that plant in our press release and like I say we're very confident that the plant will be producing by the second semester of next year, and most importantly so -will be around the budget of [$385] million which we announced last year.

Regarding the phosphate project, as we informed in our last conference call, the basic engineering was completed in the fourth quarter of last year and is in the process of revision by our partner Mitsubishi. That being said, and as I'm sure we are all aware, over the last month the international price of phosphate has declined substantially. We have decided to develop what we call a value engineering that we'll revise in depth the basic engineer to identify further areas of improvement both on the CapEx and the OpEx level.

Our intention is to ensure the highest profitability while lowering the market risks. This process is already underway and in January of this year almost a month ago, we connected [Hoch] as a company in terms of third-party engineering. We're very confident in extensive financials and experience that Hoch brings to the table and specifically to this phase of the project.

In the meantime we have to inform of the critical path of our project, meaning the environmental impact studies find in May of last year has made substantial progress and we are very confident that they will be approved as estimated around May of this year. We want to reassure the market that Pacasmayo's approach to this project is always prudent and analytical and we will only go forward when we assess that it is the right moment to move ahead and create value for our shareholders.

That being said also we remain absolutely convinced of the long-term value of our project. We think that this large kind of deposit in the location of the Pacific is extremely competitive and we continue --- or will create value for our shareholders in the coming future.

Before turning the call to Manuel, I wanted to also share with you some excellent news. Some of you may be aware in December of 2011 we filed a claim against a new mining regulation because we believed that certain portions of the regulation of this law were unconstitutional and they were importing, on mining, royal tax -- on all mining activities basically the conversion of lime into cement.

On November of last year, the Peruvian constitutional court which is the last (inaudible) founded, meaning that the Company will continue to use as a basis for the calculation of the mining royalty, the value of the mining component and not the value of the product obtained from the industrial and manufacturing process. This ruling is not only absolute justice but it is un-appealable and sets a very important precedent looking towards the future.

In conclusion, our outlook for 2014 remains positive although more moderate than in the previous years. We expect the Peruvian economy will continue to grow at the highest rate than any other Latin American economy. And despite the recent challenges regarding overall confidence in the country, we report a positive financing performance for the quarter and continue working towards achieving the goals and executing our projects.

I will now turn the call over to Mr. Manuel Ferreyros, our CFO who will review in detail the financial performance for the period. Manuel, please go ahead.

Thank you, Humberto. Good morning everyone. Thank you for joining us on the call today. I will be discussing the fourth quarter and full-year results in more detail as per the earning release issued yesterday, focusing mainly on the financial highlights before we proceed to the Q&A session.

Despite the slight slowdown in the global economy, Cementos Pacasmayo delivered outstanding financial results for this year -- for last year sorry -- reaffirming our growth and the consolidation of our leading position in the Northern region of Peru.

For the full year, cement sales increased 4% compared to 2012, while for the fourth quarter we have a slight decrease of 1.9%. Our main driver continues to be the [south] construction segment, which grows as a consequence of economic growth and job creation.

In terms of operational result, as Humberto mentioned, 2013 has been an outstanding year. Gross profit increased 14.6% compared to 2014, the operations profit increased 27.1% in 2013 compared to 2012. It went from PEN230.5 million to PEN293 million. Net income decreased by 2.1% in 2013 compared to previous years mainly due to the exchange rate fluctuation. Since we have debt in dollars, we are exposed to fluctuation and exchange, which during 2013 the amount of the loss was [PEN48.4] million.

Consolidated EBITDA increased 17.1% compared to the fourth quarter of 2012 reaching PEN85.8 million. For the full year the consolidated EBITDA, as Humberto mentioned, increased 25.3% when compared to the previous year. It went from PEN278.5 million to PEN348.9 million.

In terms of results by product, during the fourth quarter sales of cement, concrete and blocks reached PEN285 million representing an increase of 4.2% compared to the 4Q of 2012. This increase was mainly driven by cement sales which rose 5.6%, for the full year this figure accumulated PEN1.1 million, an increase of 13.4% compared to the same period of last year.

The gross profit for cement, concrete and blocks increased by PEN2.3 million, an increase of 1.8% compared to the fourth quarter of 2012. For the full year, the increase was 16.9% compared to 2012. It is important to note that this improvement was given despite a larger consumption of imported clinker and mainly due to operational improvements made through 2013 as Humberto mentioned.

Now, moving on to sales of construction supplies, during the last quarter, this figure decreased 18.7% compared to the same period of previous year, and 29.7% in the whole year compared to 2012. It is important to note that the reaction is exclusively in construction materials and does not reflect lower cement sales to (inaudible) affiliates.

Similarly quicklime sales decreased 49.5% in the fourth quarter mainly due to a lower demand from the mining industry, which has decreased production as a consequence of lower metal prices.

In terms of operating expenses, administrative expenses decreased 7% in the fourth quarter of 2013 compared to the previous year mainly explained due to a lower expense in professional fees given in 2012 incurred basically by extraordinary expenses for the IPO on the New York Stock Exchange. For the full year expenses remained stable.

Selling and distribution expenses declined 16.1% compared to the fourth quarter of 2012 due to a decrease in advertising and promotional expenses. For the full year selling and distribution expenses remained flat.

In terms of CapEx, as of December 31 of 2013, the Company invested PEN210 million allocated towards the following. The new Piura plant, investments in Pacasmayo and [Dreho] plant, construction of the diatomite brick plants, concrete and aggregate equipment, the phosphate and brine projects as well as some minor activities.

With this results we have proven that despite negative external factors, and the slowdown in the global economy, we have once again achieved strong financial numbers and Cementos Pacasmayo will continue delivering value to our shareholders.

This concludes my portion of the presentation. Thank you all for your attention.

Operator, may we begin with the Q&A session please.

Thank you. (Operator Instructions) Andres Soto, Santander.

Thank you, Humberto for the presentation. Can you give us an idea of what are your expectations in terms of volumes and margins for 2014?

Sure, I mean, in terms of volumes, I mean, I think will be around 3%, in terms of margins I think we should keep the margins that we have obtained this year (inaudible). I think those will jump once Piura comes in because it's our important clinker. But for the time being I think we should have a pretty stable margins.

Thank you. And regarding CapEx?

Regarding CapEx, yes, regarding CapEx for 2014, we will spend in the Piura and phosphate the projects altogether are around $245 million and including the maintenance, the [current] maintenance, it's $20 million in addition. In 2015, our total CapEx between the Piura and the phosphate is around $130 million and maintenance CapEx around $20 million.

Thank you very much.

(Operator Instructions) [Alex Richie], JP Morgan.

Thank you, Humberto, for the call. I was wondering if you could give a little insight into taxes for the fourth quarter and why they were up so much. Thank you.

Yes, taxes for the fourth quarter, basically the difference between taxes and the financials is that taxes are linked to the -- not to the accounting financial, it's linked to the tax result of the Company. Maybe you can have [defer] taxes from one quarter to the other one and that happens to be the main difference for this last quarter.

Okay. Thank you.

[Sona Azadi], PIMCO.

Just a couple of questions. First on the phosphate project. As I understand, I mean, in October and sort of late last year you were saying that, I mean, all these studies are done and currently your partner is reviewing the project, but now you just made the comment that there are further studies going on. So, I just want to understand, are these the next phase of studies after the partner has reviewed, so where are you in terms of getting the approval from them or getting their okay?

Well, both things kind of go together, I mean, basic engineering studies are being studied by our partner of Mitsubishi, and at the same time we have decided to engage in value engineering which is, I would have to say an addition to the basic engineering, to ensure that all the opportunities of CapEx and OpEx have been explored. This is a decision we took jointly with Mitsubishi, and is part of a review they are doing.

Okay. So, should we interpret this as, I mean, you guys moving forward, the fact that you are conducting these studies, or I mean, this is part of their review process, Mitsubishi's review process?

I think both things are correct. We are moving forward with the project, and like I said, Mitsubishi has their own ways and times of doing their review process.

And do you have any, I mean, in the press release you mentioned, I mean, some time this year, so any sense of what timing that would be, first half, second half?

Unfortunately, I don't control the times of my partner, so I would not like to give a date that I don't control.

Okay. Just lastly on the guidance, I just want to confirm, you said volume guidance around 3%, so if you could confirm that and tell me, give me a little bit color on the pricing, what kind of pricing you expect, inflation?

No, I think, yes, I did say 3% on the volume, we should be around there. And in terms of the price, I think a little bit under inflation probably should be the number that should be obtained.

Okay. So 2%, 2.5%.

More or less.

Okay. Thank you so much, I really appreciate it. Thanks a lot.

Thank you.

Dario Valdizan, BTG Pactual.

Hi, Manuel (inaudible) that you got dropped in the last few -- thank you very much for the time and the opportunity. I just wanted to -- a quick followup. You were saying regarding guidance for sales volume, about 3%. I wonder if that was including the infrastructure projects? And if it was not, what it could be you think if once Chavimochic and the Highway begin in the second half of this year. Thank you.

Sure, I mean, that does not include infrastructure project because -- and the reason for that being is that we don't control the timing for that. To give you an idea, Dario, next year, if we go 3%, we should be a little north of 2.4 million tons. These three projects put together mean 0.5 million ton of cement, depending on how long they take to (inaudible) it, I don't know, but that's the kind of volume they could add to the sales.

Okay. Thank you very much.

(Operator Instructions) We have a followup question from Sona Azadi, PIMCO.

Sorry to jump back in, but just a question on the margin. So, if you were to use the same amount of clinker as you guys used last year, that's in 2012, I mean, what would have been the margin improvement, so just want to get a sense of that.

Manuel?

Well yes, basically the (inaudible) clinker per ton the cost is around $15 per ton.

Okay, okay, perfect, got it. Thank you.

You are welcome.

(Operator Instructions) We have no questions at this time. I would like to turn the call back over to Mr. Nadal for closing remarks.

Thank you very much. I want to, as always, thank everybody for their continuing interest and trust basically on our Company. Please do not hesitate, if you have any questions, I mean, myself, Manuel and Claudia are always available. Like I said, I mean, this has been a very important year for Pacasmayo because I think profitability in the end is what counts and what buys long term. I think despite the fact we have to import clinker, we were able to push those margins higher and I think this will be a big (inaudible) space when Piura comes in. We are very happy with the Piura project and like I said, we are very prudent and moving ahead. We have phosphate project in a [best way] containing the risk and trying to build shareholder value in the future. Thanks everybody for your time.

Thank you. Ladies and gentlemen, this concludes today's teleconference, you may now disconnect.