Cementos Pacasmayo SAA (CPAC) 2021 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to Cementos Pacasmayo's Fourth Quarter 2021 Earnings Conference Call. (Operator Instructions) And please note that this call is being recorded. (Operator Instructions) I would now like to introduce our host for today, Ms. Claudia Bustamante, Investor Relations Manager. Ms. Bustamante, you may begin.

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, both within 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.

Thank you, Claudia. Welcome, everyone, to today's conference call. This quarter, we saw a slight decrease in volumes, which was offset by higher prices of both cement and concrete as well as improved sales mix favoring higher-margin cement and building solutions. This all led us to an increase in revenues of 10.4%. This improvement was also reflected in quarterly EBITDA, which reached an outstanding PEN 141.5 million, the highest in company history. In terms of annual results, revenues increased almost 50% compared to 2020. Although bagged cement continues to represent most of our sales, it is important to mention that in 2021, concrete, pavement and mortar sales increased almost 70% when compared to the same period last year.

This is truly remarkable and aligned with our strategy to become a building solutions provider. We're extremely pleased with these results, but we are also aware that it's going to be a very difficult task to surpass these record levels. So our goal for 2022, which is still an extremely challenging one is to maintain current sales volume levels. You have to keep in mind that we went from sending 2.6 million tonnes in 2019 or '20 to 3.6 million tonnes in 2021, which means an increase of almost 40%.

I would like to take this opportunity to review the year as a whole and to focus on our strategic view for the future. As mentioned before, this year, we reached unprecedented sale levels of sales and EBITDA. This is undeniably exceptional and beyond any estimates we could have rationality calculated at the beginning. As we have mentioned before, the market conditions have boosted sales for the country. As it is evidenced by our increased national market share, we have also managed to grow above the national average. Part of this is a rise from public spending for the reconstruction of the North, but we believe it is fair to say that our strategy has also generated additional demand.

By maintaining and reinforcing our client-centric vision, we have been able to develop a variety of products and services that respond to their unique needs. For Industrial segment and under our Pacasmayo Professional brand, we continue digitalizing the purchasing process and the uses of our products and services. We have digitalized almost entirely our transactional relationship with our clients. For our self-builders on the other hand, we have Mundo Experto, an ecosystem that integrates physical and digital solutions, improves the purchasing experience and contributes to the professionalization and formalization of the construction market.

Although we have been working with sustainability at our core for many, many years now, we believe that COVID-19 pandemic has exacerbated its relevance and the pressing need to show significant improvements in this part. We have always -- and I mean always strive to reach the high standards, always looking to compare ourselves with the global leaders despite our size and more localized nature. Evidence of this is the fact that we have been included in the Dow Jones Sustainability Index for 3 consecutive years, improving our ranking every year to reach the eighth place in our industry during the past year.

We have also been included in a Sustainability Yearbook for 2 consecutive years. Our first year, we were awarded the Industry Mover status, as we recorded the strongest year on year core improvement in our industry. This makes us extremely proud. This year, we remain in the Index as well as one of the only 8 cement companies included. We are very pleased to see that more proven Peruvian companies are joining the index and Yearbook and hope the number will continue increasing.

At the national level, we are recently named the top cement company in ESG by Merco and reached 15 places in the overall ranking improving 24 spot since last year, the strongest improvement of any top 100 companies. We are very proud of this achievement and are pleased to see that our efforts carried out through many, many years are recognized and rewarded. We will continue to strive for improvement as we know that there are always things we can do better, and we are constantly challenging ourselves to reach those highest scores. I will now turn the call over to Manuel for a more detailed analysis of the financial results. Manuel?

Thank you, Humberto. Good morning, everyone. Fourth quarter 2021 revenues were PEN 524.9 million, a 10.4% increase when compared to the same period of last year, mainly due to increased bagged cement prices as well as concrete sales, which performed very well this quarter. Gross profit increased 7.6% in the fourth quarter compared to the same period of last year, mainly due to the increase in sales mentioned before, partially offset by higher costs as we had to use imported clinker. Consolidated EBITDA was PEN 141.5 million in the fourth quarter of 2021, the highest in the history of the company and a 10.5% increase when compared to the fourth quarter 2020, mainly due to increased sales.

For the full year, revenues increased 49.5%, as Humberto mentioned, and EBITDA increased 44%, mainly due to increased sales volume, pricing of both cement and urine as well as a more favorable sales mix since we sold higher margin types of cement. This is the highest EBITDA in the company history despite having use of significant amount of imported clinker, which increased our production costs.

Turning to operating expenses. Administrative expenses for the fourth quarter decreased 4.7% compared to the same period of last year, mainly due to a decrease in personnel expenses and donations, which were high due to COVID-19 during 2020. During 2021, administrative expenses increased 20% when compared to 2020, mainly due to increased workers' profit sharing, in line with increased income tax base, increases in the exchange rate as well as an increase in third-party services, mainly COVID-related expenses to comply with protocols to ensure the safety of our workers. It is also important to note that administrative expenses during the period of 2020 were low due to budget restrictions after the halt in production and commercialization.

Selling expenses for the fourth quarter increased 3.4%, mainly due to an increase in variable salaries in line with increase of sales. During 2021, selling expenses increased 28.1% compared to 2020, mainly due to the increase in variable salaries mentioned before as well as increase in advertising and promotion as we recover from an exceptional low base during 2020 because of COVID-19.

Moving on to the different segments. Cement, concrete and precast sales increased 9% during the fourth quarter of 2021 compared to the same period of 2020, mainly due to increased sales price of bagged cement as well as higher volumes and price of concrete. Gross margin during the fourth quarter of 2021 remained in line with the same period of 2020, mainly due to higher cement production costs as a result of the use of imported clinker, which were partially offset by higher prices. For the full year 2021, cement, concrete and precast sales increased 50.6% driven by the substantial increase in sales volume as well as an increase in prices of both cement and concrete to offset cost inflation. Gross margin in 2021 remain in line with 2020.

Sales of cement increased 10.4% in the fourth quarter, mainly due to the increased prices and a more favorable sales mix as we sold more of our higher-margin type of cement. Gross margins increased 0.8 percentage points, mainly due to the increase in average prices mentioned before. For the full year 2021, cement sales increased 49.9%, mainly due to increased sales volume during most of the year as well as an increase in prices. Gross margin decreased 0.5 percentage points, mainly because of increased costs derived from the use of imported clinker to satisfy this increased demand.

Concrete, pavement and mortar sales increased 9.7% this quarter mainly due to the increase in volume. Gross margins decreased 1.8 percentage points in the fourth quarter compared to the same period of last year, mainly due to higher margins in the fourth quarter of 2020 due to shipments of special concrete for the Salaverry port. For the full year 2021, sales of concrete increased 69.3% compared to 2020, mainly due to the sharp increase in sales, both in volumes and in terms of pricing, as well as the low comparative base due to complete stop in sales during the second quarter of 2020.

Precast sales decreased 28.4% compared to the fourth quarter of 2020, mainly due to a higher comparative basis from the fourth quarter of 2020, pent-up demand from the second quarter of 2020 when commercialization was halted. Gross margin was negative this quarter mainly due to a write-off of some past inventories, which generated an increase in costs as well as less dilution of fixed costs. For the full year 2021, precast sales increased 2.6% when compared to the same period of last year, mainly due to the increased sales of light precast products such as blocks and pavements, for reconstruction-related projects. Gross margin for 2021 decreased 12.2 percentage points when compared to 2020, mainly due to write-off of inventories mentioned before.

The quicklime sales in the fourth quarter of 2021 increased 49% when compared to the fourth quarter of 2020. This last quarter, we have increased the volume against our average since we have been able to sell to regain some past clients. However, these are more distance, so costs are higher, but they had a large contribution margin since there was plenty of spare capacity. During the full year of 2021, quicklime sales increased 20.3% compared to the same period of 2020, mainly due to the increased sales volume mentioned before. Gross margin, however, decreased 1.1 percentage points during the full year 2021 compared to the same period of last year, mainly due to the freight costs mentioned before.

Sales of construction supplies during the fourth quarter of 2021 increased 17.1% in the fourth quarter of 2021 and 45.7% in the whole year when compared with the same period of last year, respectively, mainly due to increased sales as well as an unusually low sales during the second quarter of 2020. Gross margin in the fourth quarter of 2021 and 2021 remained in line with the same period of last year, mainly due to exchange rate that affected the cost of imported materials such as steel bars.

During the fourth quarter of 2021, the profit for the period was PEN 51.6 million, an 8.6% increase compared to fourth quarter 2020, primarily due to the increased revenues from higher average prices. For the full year 2021, the net profit was PEN 153.2 million, a 164.5% increase compared to 2020, mainly due to increased revenues as well as the effect of the loss during the -- of the losses during the 2020 during the lockdown period.

To summarize, this quarter's results continue to show our strength despite some slowdown in volumes as a comparative basis become more complex. For the full year 2021, results are outstanding and show our resilience and prudent financial management during the difficult times payout substantially. We believe that we are in a strong financial position to face future demand and to continue growing with some financial flexibility as cash generation is steadily increasing and focuses on operational efficiency. We can now please open the call to questions.

(Operator Instructions) Your first question is coming from Adrian Huerta.

Adrian Huerta from JPMorgan. Congrats on the results. My question has to do with demand. If you can just tell us what was the growth on cement demand from self-construction during the full year? And what percentage of your volumes last year was for the reconstruction efforts done in the country?

Adrian, good to hear from you. I think, I mean, the increase in demand was really outstanding. Like I mentioned, in 2019, which was the previous record year, we were around 2.6 million tonnes. In 2020, even through after 2 months of lockdown, we were close to 2.6 million. And last year, we crossed 3.6 million, which is 38% higher.

Reconstruction was not that relevant. I mean it was probably under 2%. So really, what we were seeing is a extremely strong demand from the informal sector. We're going to see much more construction coming on this year when all other projects materialize. But like [I see, I mean,] we have to do a lot with high employment levels in terms of agriculture or fishing even construction, and that's generating demand and also we believe that when people -- you lock people in the houses for so many months, they realize that the houses probably need some improvement, some things need to be made or even some younger families try to find a new home.

So I think our firm demand has been from there. And point number two, I mean, we've been pushing through 2017 in building solutions. That is also very important. So we were selling cement in places that probably before we were still was being sold or clay bricks were being sold so I think it's a combination of all those things.

Excellent. Thank you, Humberto. And if I may add another question. Good growth on prices throughout the whole year, 3%, 4% a quarter, it was even a bit stronger in the fourth quarter. Was there another increase this year? And what is the -- and are you going to try to catch up at least with the inflation that you had last year for this year.

Last year, overall, in the year, we -- our price increase was above 15%, which I think was very important to keep profitability, it was way above the inflation rate of 7%. I don't recall in all the years as CEO, we were able to do that. And we will keep this year seeing as well opportunities to raise prices, but we're already at a level that we think is extremely, extremely competitive.

So no price increases so far this year, even in January, you did not have a price increase in January.

We have moved a little bit of price on January, yes.

Thank you. There are no further questions in the queue at this time. We now proceed to webcast questions.

Okay. We have a question from Pablo Ricalde. Can you provide additional information on the changes in sales mix you saw during the quarter? And if you expect this favorable mix effect to continue in 2022.

So yes, the public infrastructure, they spend more expensive or more -- yes, more profitable type of cement. And also the self-construction they are pushing into the (inaudible) cement, that is a little bit more profitable than the all-purpose cement. Hopefully that answers the question.

The next question is from Luis Ramos. What are your expectations for volumes in 2022? How much of this dynamic will come from reconstruction projects? And the second part, could you provide more color on the mix improvement, which I think we just answered.

In terms of volume, like I said in my presentation, I mean, 3.6 million tonnes of cement is really an incredible volume. I mean, we used to have 20% of the national demand and we are up to 27%. So I think if we manage to keep the volumes at higher prices, it will be an outstanding result. In terms of our construction, 2022 will be south of 2%. So it's not really a relevant number. In 2023, we go up to close to 5%.

Another question, we have one on what are your targets for sales and margins for 2022?

In terms of sales, like I mentioned, million, 3.6 million tonnes. In terms of margins, our idea is to have around 25.2%, EBITDA margin, I mean.

Regarding prices, do we foresee them to remain? Or will competition drive prices down, supply chain return to pre-pandemic levels?

Like I mentioned before, we were able to have a very substantial price increase over the last year. Even in the last quarter, the reason the revenues went up 10%, even though sales were down 6% had to do fundamentally with price. We have started moving a little bit on January and February this year. So we're going to keep watching the competitive situation. And depending on that, we're going to see if prices can still be increased.

Moving on to a couple of questions on the dividend. We have a first question from [Carlos Kadasa] from [Seminario]. Regarding dividends, you mentioned a dividend of PEN 0.75 per share. that is about PEN 330 million. 2022 accumulated results are not enough from which account will you take given that...

You have to keep in mind that, I mean, the dividend payout of this year was absolutely exceptional for many, many reasons, and I'm sure our investors understand. This year, we should go back more to what were normal levels in the past, but we are still recovering from a very high dividend this past year and also the fact that we gave out most of our return earnings. So we're going to have to see how the results coming in the first 2 quarters of this year and probably we'll go to a level somewhere south of what it was before the pandemic.

Moving on to a question from Sebastian Gallego from Ashmore. How do you see competition under this environment of strong demand and higher prices? Could you provide financial guidance for '22 and CapEx needs for 2022?

Well, in terms of competition, I mean, with the dollar hitting for (inaudible) and those one back to PEN 3.80, it's very -- it's much less competitive for people to import either clinker or cement. So I think we are pretty much -- I'm not saying not concerned, but less concerned then we were pre-pandemic levels, and it seems to us that the logistic chain in the world still remains extremely, extremely expensive and confusing. So I -- this year, I think competition will be a huge issue. In terms of in terms of CapEx...

In terms of CapEx this should be similar to last year as 2021 of around PEN 100 million.

Yes, it's basically around PEN 20 million...

Well, that doesn't include the additional CapEx for the Pacasmayo upgrade of Q# 4.

And then finally, from Steffania Mosquera from CrediCorp. What are the expected levels of SG&A? Do we expect these levels to be recurrent? So similar to...

Yes, it should be similar to 2021.

Okay. In terms of -- I mean, thank you, thank everybody. Thank you, everybody, for the questions. And closing up to say 2021 has been remarkably successful year in so many fronts. We saw record sales volume that led us to decide in this Pacasmayo optimization investment in order to supply the clinker needed. This decision was taken within an uncertain macro environment and much in line with what is the DNA of the company, which is the long term, which is the confidence that it will be very profitable for the company and it really ratifies our commitment to the country's development.

I think commitment has to be ratified when things are maybe shady, may be complicated, may be uncertain, but we are here more than 60 years, I am absolutely convinced we will remain here in Peru, fully committed to our country for many more decades to come. I have to really mention also that none of these achievements, let me stress the word none, could have been possible without the talented and outstanding group of professionals that make up Pacasmayo. They are the reason we achieve every single goal we achieved every year. The past 2 years have been extremely challenging for all of us, both at the personal and professional level and the commitment and the level of engagement from our team is undoubtedly the biggest source of our success.

We will be absolutely nothing with our team, without our people. Our challenge now is to sustain our current financial results and continue improving our sustainability management laying the present foundation that we allow for a prosperous future. As we now prepare to hopefully leave COVID behind. Also, we have an enormous challenge in the way we're going to go back to office in a way you're going to go back and fundamentally centered in our people's well-being and fundamentally centered in always being close to our clients. Thank you very much for taking the time today. And as always, Manuel, Claudia and myself, we are always here should you have any more questions. Have a nice day, and please stay safe.

Thank you. Ladies and gentlemen, this concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.