Cementos Pacasmayo SAA (CPAC) 2021 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to your Cementos Pacasmayo Second Quarter 2021 Earnings Conference Call. (Operator Instructions)

At this time, it is my pleasure to turn the floor over to your host, Claudia Bustamante. Ma'am, the floor is yours.

Thank you, operator. 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 will 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, and thank you for joining us. This quarter, cement sales volume continued strong despite political uncertainty, proving the resiliency once again. After a very tight run of presidential election on June 6, yesterday, Mr. Castillo was proclaimed the next president of the country. There are claims of fraud from Keiko Fujimori and his supporters, which have brought people to the street to protest against the way the elections were conducted. On the other hand, Mr. Castillo saw mixed signal from (inaudible), so there is still no clarity on how the next round will conduct itself. Despite this uncertainty, we are confident that cement sales will continue strong this year, mainly because our current customer base is not very dependent on macro factors.

On the one hand, the self-construction segment continues to be our most relevant source of income, and we have historically had very minimum correlation with high-level macro factors, at least in the short term. On the other hand, the demand coming for the public sector is basically related to the government to government agreement between Peru and the U.K. for reconstruction of (inaudible) after El Niño, and some from the government bodies that were put in place to offset the effects of COVID-19. We strongly and firmly believe that neither one of these projects should be affected by change in government as they are well underway and have estimated finance.

Although sales of cement have been and continue to be the main driver of our growth, we are very pleased with the result of concrete and precast. As we mentioned last quarter, sales of light precast materials such as precast blocks have substantially increased in the past year. Although this is a smaller percentage of our sales, we believe its performance illustrates our successful strategy to transform ourselves and provide the construction solutions and market needs. We have generated a new customer base mainly expanding the sales of precast blocks in housing projects. We believe this strategy will bring significant increase in the sales volume, taking us one step closer to our long-term goals.

This quarter, we're also very proud to have obtained a Silver Effie in the brand experience category, for construyexperto.pe, an online platform created to redesign the foreman´s experience, with training and tools that help them to be very -- much more efficient. As we have mentioned in previous quarters, we are convinced that our solid results during these trying times come from the fact that we have been able to reinvent our sales to be one step ahead in terms of digitalization and of course, a depiction of how we can provide the best of our experience to all of our customers. This award is a clear recognition of these efforts.

Although sales are definitely important and absolutely (inaudible) for business continuity, solid results would not be possible if we did not look at our business in an integrated manner. This quarter, we have obtained 2 additional recognitions that are very relevant in terms of sustainability and business continuity. First, this year, we have improved 37 positions in the Merco Talento Perú, which aims to identify the 100 most attractive companies to work in our country. Clearly, we saw significant progress which shows our commitment to enhance human capital management, and we will strive to continue improving in this ranking every year.

Finally, and very importantly, this year, we have once again obtained the award for social responsible company, DESR for Spanish abbreviation. So now we are (inaudible) about every year (inaudible) near the goal. For each region, there is an evaluation of ESG parameters through specific indicators that are internationally aligned with the Global Reporting Initiative and Sustainable Development Goals of United Nations. We're particularly proud this year that we have obtained a special recognition in ethics and integrity categories, which are very important for us. Although 2021 is proving to be once again a very challenging year, we have continued to deliver substantial increases in cement, concrete and precast shipments that come as a result of our constant and determined efforts to innovate, expand our market, satisfy new niches always remember to be absolutely client focused.

I will now turn the call over to Manuel for a more detailed analysis of financial results. Manuel?

Thank you, Humberto. Good morning, everyone. Second quarter 2021 revenues were PEN 440.9 million, a 285.7% increase when compared to the same period of last year, mainly due to the halt in commercialization during most of the second quarter of 2020 as well as an increased baggage cement shipments. However, even if we compare this quarter revenue to those from second quarter of 2019, there is still a significant increase of 37%.

Gross profit increased substantially this quarter compared to the second quarter of 2020, mainly due to the fact that it was close to 0 during the same period because of the halt in operations and the subsequent effect in gross profit as there was no dilution of fixed costs. Consolidated EBITDA was PEN 90 million in the second quarter of 2021, representing a significant increase when compared to the second quarter of 2020, when EBITDA was negative for the above-mentioned reasons. We expect an important increase in EBITDA for the rest of the year.

During the 6 months of 2021, revenues increased 119% and gross profit increased 116% when compared to the same period of 2020, mainly due to the increase in sales as well as the above-mentioned halt in operations from mid-March to mid-May.

Turning to operating expenses. Administrative expenses for the second quarter increased 41.7% compared to the second quarter of 2020, in line with increased sales, but mainly due to the substantial reduction in expenses during the lockdown period in 2020 as well as an increase in workers profit sharing as a result of improved results. Selling expenses in the second quarter increased 71.1% compared to the second quarter of last year, mainly due to the above-mentioned decrease in expenses during 2020 and an increased profit sharing. During the 6 months of 2021, administrative expenses increased 28% and selling expenses increased 29% when compared to the same period of last year, mainly due to the increases in sales as well as savings implemented during the 6 months of 2020 after the negative effect of the halt in operations.

Moving on to the different segments. Cement, concrete and precast sales increased 296.5% during the second quarter of 2021 compared to the same period mainly due to the halt in operations during the second quarter of 2020 as well as increased sales of bagged cement. Gross margins increased 26.4 percentage points in the second quarter of this year compared to the same period of last year, mainly due to sustained fixed costs with virtually no selling during the second quarter.

During the 6 months of 2020, sales of cement, concrete and precast increased 120.1% and gross margin improved 5.1 percentage points, mainly due to the increased sales and the halt in commercialization during the second quarter of 2020. Sales of cement increased 261% in the second quarter of 2021 compared to the second quarter of 2020, mainly due to the halt in commercialization during the same period of last year as well as an increase in shipments of bagged cement as demand in the north continued booming during this quarter. Gross margin increased 19.2 percentage points, mainly due to the negative effect on cost during the halt in operations in the second quarter of 2020.

During the 6 months in 2021, sales of cement increased 121.8% and gross margin improved 2.1 percentage points when compared to the 6 months of 2020, mainly due to the halt in production and commercialization mentioned above.

During the second quarter of 2021, concrete and papers and pavement sales increased substantially since they were only PEN 3.3 million in the second quarter of last year because of the complete halt in commercialization. Gross margin increased 273.5 percentage points, mainly due to the significant costs that could not be diluted on last year. Similarly, sales of concrete and pavement for the 6 months increased 132% and the gross margin increased 20.2 percentage points compared to the same period of last year.

During the second quarter 2021, precast sales increased 347.4% compared to the second quarter of 2020, mainly due to a halt in operations. However, if we compare precast sales to the first quarter of 2021, we can see that the positive upward trend continues since sales increased 33.3% quarter-on-quarter. Gross margin increased 94.8 percentage points, mainly due to the negative margin during the second quarter of 2020 because of fixed costs without sales during that quarter. Similarly, during the 6 months, precast sales increased 31.6% and gross margin increased 20 percentage points as compared to the same period of last year.

Quicklime sales in the second quarter increased 20.6% compared to the second quarter of 2020 and gross margin decreased 7.7 percentage points compared to the second quarter of 2020, mainly due to the increased demand, but most of it from granulated quicklime, which has a lower margin than ground quicklime. During the 6 months of 2021, sales increased 22% and gross margin increased 0.6 percentage points.

During the second quarter of 2021 and the 6 months of 2021, construction supplies sales increased 384.2% and 161.3% compared to the same period of last year, primarily due to an increase in sales from the halt in commercialization. Gross profit improved 12.4 percentage points in the second quarter of 2021 compared to the same period of last year, mainly due to a low comparative basis. In 6 months 2021, the gross margin remained in line with the same period of last year. In terms of debt, our debt-to-EBITDA ratio has come down to 1.9x. But the important addition is that we have to know that we have been able to recover low indebtment levels quickly after the most trying times.

To summarize, this quarter results show the resiliency in volume despite political uncertainty, and we are convinced of the financial and operational strength of our company and expect to continue delivering solid results in the upcoming quarters.

Can now we please open the call to questions, operator?

(Operator Instructions) Our first question today comes from [Enrique Grau] with [Credico Capital.]

I have one question. And I was wondering if margins get being affected by clinker imports? If that is the case, how much does return of imported clinker costs?

Yes. Of course, I mean, we have to realize that we said 1.5 years ago when we were coming close to our (inaudible) of clinker capacity, it makes sense for us to import clinker (inaudible) volume that makes sense to build a new plant. Even though it affects the margins, I mean, we're still going to make more money in terms of sols or dollars. The thing is that margin will go down because imported clinker is more expansive. Regarding how much more expensive it is, normally around $20. It all depends on the exchange rate and it depends on the freight costs.

Okay. And can we expect these lower margins to remain for the rest of the year, and then they should -- gradually should go up?

I think, I mean the first part of the year, we have used an important component in imported clinker because we have the maintenance of our kilns in of Piura and Pacasmayo. This would be a lower rate in the second part of the year. And then like I said, it all depends, I mean, what happens to exchange rates and the freight rate. So yes, margins could remain the same or could go a little a little bit high.

(Operator Instructions) Sir, there appear to be no further questions at this time. And I apologize, we have one more question from Andres Soto with Santander.

Perfect. My question is, in your earnings release, you mentioned political uncertainty as some of the causes for slowdown in volumes in the second quarter compared to the first quarter of this year. I would like to understand, what are you seeing at this point? You believe that now that Pedro Castillo has been confirmed as President, we can expect an improvement in those projects that were sort on a standby at this point? Or you expect political uncertainty to persist? And if that's the case, what will you need or your clients will need to hear from Castillo's administration in order to become more constructive on Peru's political outlook?

Andres, thank you for the question. I think I said in my opening remarks, I think our sale builders and the G2G agreement have little to do with the macroeconomic fundamentals, but we are not expecting a lot of things to be announced from President Castillo. I think they are their own dynamics. I think when we see our daily dispatches, we are still at a very strong rate. And we think we're going to, for sure, close this year as being a record year in cement. And we think for the time being, and this is my personal interpretation, there are not so much waiting for the time. People will keep on working the same way they kept on working through the COVID-19 crisis and that the center economy, which is part of a robust economy of Peru.

(Operator Instructions) There appear to be no further questions at this time. We'll turn the floor back to Mr. Humberto Nadal for closing remarks. Please go ahead, sir.

Thank you so much. In summary, Pacasmayo has been in operation for 64 years in a wonderful and main (inaudible). So these peers has had -- we've had many kind of governments going from the left, center and right. As we know, we have not only prevailed, but accumulated valuable experience. We see every new chapter as an opportunity to learn and improve, and we are ready to take all the challenges that may come with the confidence that our solid fundamentals, our integrity and our capacity to adapt will lead the way for a promising and sustainable future. We remain extremely optimistic of our company, and we will always remain very optimistic about the future of our country. Thank you very much for your interest in our company, and as always, Manuel, Claudia and myself are always here in case you have any further questions. Thank you very much. Have a very nice day, and please stay safe.

Ladies and gentlemen, this does conclude today's teleconference. We thank you again for your participation. You may disconnect your lines at this time, and have a great day.