Group 1 - Cementos Pacasmayo (NYSE: CPAC) reported positive Q1 2025 results, driven by increased demand from consumer self-construction and infrastructure projects [1] - The company experienced higher capacity utilization during the quarter, indicating operational efficiency [1] Group 2 - The focus of the analysis is on long-term operational aspects and earnings power of companies rather than market-driven dynamics [1] - The investment strategy emphasizes holding companies for the long term, with a preference for providing information that aids future investors [1]

Financial Performance - Sales volume reached S/ 499.2 million, a 4.8% increase compared to 1Q24[7] - Sales of goods amounted to S/ 134.7 million, showing a 1.4% increase compared to 1Q24[7] - EBITDA reached S/ 27.0 million[7] - EBITDA margin increased by 0.9 percentage points compared to 1Q24[7] Strategic Focus - The company is focused on building solutions[8] - Coprocessing is a key area of focus[10] Product Categories - Cement is a significant product category[21] - Concrete, pavement, and mortar are important product offerings[22] - Precast products are part of the company's portfolio[24]

Macroeconomic Conditions - The company is significantly affected by global macroeconomic conditions, particularly due to its reliance on exports to the United States, China, and Europe, which could impact demand for its products [24]. - The ongoing geopolitical tensions, including the Russia-Ukraine conflict, have led to increased inflation and volatility in global markets, adversely affecting the company's financial condition [29]. - Political instability in Peru, including potential impeachment motions against President Boluarte, could lead to unpredictable economic policies that may adversely affect the business [40]. - The Peruvian economy is highly susceptible to fluctuations in regional and global markets, which could adversely affect cash flows and securities, impacting the company's financial condition [55]. - The cement sector's performance is closely tied to macroeconomic variables such as GDP growth, domestic demand, and public spending, which could be adversely affected by prolonged global economic conditions [25]. Inflation and Costs - In 2024, inflation in Peru was recorded at 2.1%, below the previous five-year average of 4.4%, but future inflation rates may rise due to supply shocks and geopolitical conflicts [47]. - As of December 31, 2024, 20.5% of the company's costs were denominated in U.S. dollars, exposing it to currency mismatch risks, especially with potential depreciation of the Peruvian sol [44]. - Global freight prices have shown volatility, impacting the cost of raw materials sourced internationally, which could affect the company's operations [34]. - The cost of electricity represented approximately 14.3% of cement production costs, while coal accounted for about 17.0%, indicating significant exposure to energy price fluctuations [69]. - The company experienced a disruption in energy supply at the Rioja facility in 2023, lasting around seven weeks, which increased operational costs due to reliance on coastal plants for cement supply [70]. Competition and Market Dynamics - The company faces increased competition from Holcim Ltd., which entered the Peruvian market by acquiring two local companies, potentially affecting market share and profitability [61]. - The company has developed a strong retail distribution network with 289 independent retailers and 315 hardware stores as of December 31, 2024 [131]. - In 2024, the company shipped approximately 2.8 million metric tons of cement, concrete, and precast products, capturing an estimated 22.8% market share of total cement shipments in Peru [129]. - The retail cement sector in Peru is characterized by households investing a significant portion of their savings in home construction, known as auto-construcción [212]. Construction Sector Insights - In 2024, auto-construcción accounted for approximately 74.8% of the company's cement sales, highlighting the dependence on residential construction in northern Peru [65]. - Approximately 15.3% of cement sales in 2024 were derived from private construction, and 9.9% from public construction in northern Peru, emphasizing the importance of construction projects for revenue [67]. - The anticipated increase in Peru's large infrastructure projects has been delayed, with a budget of S/25.7 billion (US$7.6 billion) for reconstruction works due to Coastal El Niño, which may affect future public spending [68]. - The construction sector in Peru grew by 3.5% in 2024, indicating potential for future growth in cement demand [133]. Financial Performance - Gross profit for 2024 was S/728.5 million, with a gross profit margin of 36.8%, an increase from 35.4% in 2023 [133]. - EBITDA for 2024 reached S/549.3 million, resulting in an EBITDA margin of 27.8%, up from 24.7% in 2023 [133]. - The company reported a net profit of S/198.9 million in 2024, translating to a profit margin of 10.1% [133]. - Total net sales for 2024 were S/1,978.1 million, compared to S/1,950.1 million in 2023, indicating a growth of approximately 1.4% [168]. Environmental and Regulatory Factors - The company is subject to various environmental regulations, and any violations could result in substantial fines and operational disruptions [87]. - The company has been included in the Dow Jones Sustainability Index for the fifth consecutive year, highlighting its commitment to sustainability [128]. - The EcoSaco, a new cement bag that disintegrates within the concrete mix, won multiple awards for its sustainability impact, including the Semana Economica ESG Sustainability Prize [164]. - In 2024, the company implemented Environmental Product Declarations (EPDs) for its cement products, aligning with Peru's Sustainable Building Code [175]. Strategic Initiatives and Future Outlook - The company may pursue future acquisitions to diversify its product portfolio and expand geographically, but these acquisitions could expose it to new risks and may not achieve expected benefits [75]. - The company aims to selectively pursue strategic acquisitions to expand its geographic footprint and diversify its product portfolio [160]. - The company has implemented ISO 37001 and ISO 37301 certifications to strengthen its enterprise risk management and anti-bribery practices [162]. - The company has established four strategic objectives for community relations, focusing on trust-building and improving local infrastructure, with no community conflicts reported in 2024 [154]. Operational Challenges - The company faces risks from illegal mining activities in Peru, which pose environmental and economic challenges, potentially impacting its operations [38]. - Failures in information technology and cybersecurity systems could adversely impact the company's operations and reputation, as these systems are critical for efficient management [98]. - The company has local bonds due in 2029 and 2034, and a "club deal" loan from 2021, which contain covenants limiting additional indebtedness if certain financial ratios are not met [77]. - Significant capital expenditures are required to expand cement production capacity and distribution network, and the company may face challenges in obtaining necessary funding [76].

Financial Data and Key Metrics Changes - Revenues increased by 4.8% year over year, reaching $499.2 million, driven by stronger demand for bagged cement and concrete for infrastructure projects [4][11] - Consolidated EBITDA rose to $134.7 million, a 1.4% increase compared to the same period last year, despite higher expenses related to collective bargaining negotiations [4][11] - Net profit increased by 6.5% year over year, attributed to higher revenues and gross profit, along with a slight reduction in financing expenses [15] Business Line Data and Key Metrics Changes - Cement sales increased by 3.9% year over year, primarily due to increased demand [13] - Sales of concrete, pavement, and mortar surged by 22.3% year over year, driven by major infrastructure projects [5][13] - Precast material sales grew by 6.8% compared to the previous year, mainly due to increased sales volume to the public sector [14] Market Data and Key Metrics Changes - The company is experiencing a solid recovery in demand for construction materials, particularly in Northern Peru, where it has positioned itself as a preferred choice for infrastructure development [6][7] - The execution of significant infrastructure projects is expected to secure stable demand moving forward [5][6] Company Strategy and Development Direction - The company is focused on a long-term strategy to expand the use of concrete and related products, emphasizing early involvement in projects and leveraging technology to identify opportunities [6][7] - A decarbonization strategy is being implemented, with a focus on reducing coal usage and exploring cleaner alternatives such as biomass and end-of-life tires [8][9] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in maintaining positive momentum for the rest of the year, despite challenges such as weather impacts on sales [4][5] - The company anticipates an increase in concrete volumes for the remainder of 2025, supported by ongoing infrastructure projects [28] Other Important Information - Administrative expenses increased by 22.4% year over year, primarily due to personnel expenses related to union bonuses [12] - The net debt to EBITDA ratio improved to 2.6x, indicating continued deleveraging efforts [15] Q&A Session Summary Question: Is it worth continuing the sales of concrete pavements, precast, and construction supplies when you barely make any money on it? - Management emphasized that the overall company strategy focuses on building solutions, which justifies the continued sales despite lower margins in some areas [17][19] Question: Should we expect a similar year-over-year increase in SG&A in the coming quarters? - Management clarified that the $9 million external expense is a one-time occurrence, and EBITDA margins should remain stable for the rest of the year [22][25] Question: Do you expect to maintain this level of concrete volumes for the whole of 2025? - Management indicated that concrete volumes are expected to increase for the remainder of the year due to ongoing projects [28] Question: Will dividends be considered for capital allocation going forward? - Management confirmed a solid dividend policy will be maintained while also focusing on reducing debt [31] Question: Will the production and sale of lime continue to be reported? - Management stated that lime production will continue, although it may not be reported as a separate segment due to its materiality [32]

Financial Data and Key Metrics Changes - Revenues increased by 4.8% year over year, reaching $499.2 million, driven by stronger demand for bagged cement and concrete [3][10] - Consolidated EBITDA rose to $134.7 million, a 1.4% increase compared to the same period last year [3][10] - Net profit increased by 6.5% year over year, attributed to higher revenues and gross profit, along with a slight reduction in financing expenses [14] Business Line Data and Key Metrics Changes - Sales of concrete, pavement, and mortar surged by 22.3% year over year, primarily due to major infrastructure projects [4][12] - Cement sales increased by 3.9% compared to the same period last year, with gross margin rising by 2.6% due to lower raw material costs [12] - Precast material sales grew by 6.8%, although gross margin decreased by 1.8 percentage points due to lower fixed cost dilution [13] Market Data and Key Metrics Changes - The company is positioned as a preferred choice for infrastructure development in Northern Peru, with ongoing projects like the Motupe riverbank defenses and the Tarata Bridge [4][6] - The demand for concrete is expected to increase in the coming quarters due to the initiation of new projects [25] Company Strategy and Development Direction - The company is focused on a long-term strategy to expand the use of concrete and building solutions, which is seen as essential for future growth [5][38] - A decarbonization strategy is being implemented, with a focus on reducing coal usage and exploring cleaner alternatives like biomass [6][9] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in maintaining positive momentum for the rest of the year, despite challenges faced in the first quarter [3][14] - The company anticipates stable EBITDA margins moving forward, with a one-time expense related to labor union bonuses not expected to recur [21][22] Other Important Information - Administrative expenses increased by 22.4% due to personnel expenses related to union bonuses [11] - The net debt to EBITDA ratio improved to 2.6x, indicating ongoing deleveraging efforts [14] Q&A Session Summary Question: Is it worth continuing the sales of concrete pavements, precast, and construction supplies when you barely make any money on it? - Management emphasized that the overall company strategy focuses on building solutions, which is crucial for maintaining market presence despite lower margins in some projects [17][18] Question: Should we expect a similar year-over-year increase in SG&A in the coming quarters? - Management clarified that the recent increase in SG&A was a one-time expense and that EBITDA margins should remain stable for the rest of the year [21][22] Question: Do you expect to maintain this level of concrete volumes for the whole of 2025? - Management indicated that concrete volumes are expected to increase for the remainder of the year due to new projects starting [25] Question: Will dividends be considered as a capital allocation avenue going forward? - Management confirmed a solid dividend policy will be maintained while also focusing on reducing debt [28][29] Question: Will the production and sale of lime continue to be reported? - Management stated that lime production will continue, although it may not be reported due to its materiality [30] Question: Do you expect the trend of recovery in dispatches to continue? - Management affirmed that they expect to see continued growth in dispatches and concrete volumes throughout the year [35]

Financial Position - As of December 31, 2024, total assets decreased to S/3,166,043, down from S/3,221,735 in 2023, reflecting a decline of approximately 1.7%[30] - Current assets remained stable at S/992,496, slightly increasing from S/992,249 in 2023[30] - Total liabilities decreased to S/1,952,945, down from S/2,031,727 in 2023, representing a reduction of about 3.9%[30] - The company reported a total equity of S/1,213,098, an increase from S/1,190,008 in 2023, reflecting a growth of approximately 1.9%[30] - Cash and cash equivalents decreased to S/72,723 from S/90,193 in 2023, a decline of about 19.4%[30] - The Group's total assets in US dollars amounted to US$11,490,000 in 2024, up from US$9,146,000 in 2023[145] - The net book value of property, plant, and equipment as of December 31, 2024, is S/2,031,139,000, reflecting a decrease from S/2,099,351,000 in 2023[158] Profitability - Sales of goods for 2024 reached S/(000) 1,978,071, a slight increase of 1.4% compared to S/(000) 1,950,075 in 2023, but a decrease of 6.5% from S/(000) 2,115,746 in 2022[31] - Gross profit for 2024 was S/(000) 728,526, representing a 5.7% increase from S/(000) 689,452 in 2023 and a 11.7% increase from S/(000) 652,031 in 2022[31] - Operating profit improved to S/(000) 391,033 in 2024, up 15.7% from S/(000) 337,555 in 2023, but down 1.2% from S/(000) 355,318 in 2022[31] - Profit for the year increased to S/(000) 198,875 in 2024, a rise of 17.7% compared to S/(000) 168,900 in 2023, and a 12.5% increase from S/(000) 176,828 in 2022[32] - Basic earnings per share rose to S 0.46 in 2024, up from S 0.39 in 2023 and S 0.41 in 2022, reflecting a 17.9% increase year-over-year[31] Cash Flow - Net cash flows from operating activities for 2024 were S/(000) 321,141, a decrease of 22.1% from S/(000) 412,323 in 2023, but a significant increase from S/(000) 111,819 in 2022[36] Expenses - The company’s total operating expenses decreased to S/(000) 337,493 in 2024, down from S/(000) 351,897 in 2023, reflecting a reduction of 4.1%[31] - The company’s finance costs for 2024 were S/(000) 100,308, a decrease of 3.5% from S/(000) 104,045 in 2023[31] - Administrative expenses for 2024 totaled S/253,383,000, up from S/231,967,000 in 2023, reflecting an increase of approximately 9.2%[198] - Selling and distribution expenses rose to S/81,410,000 in 2024, compared to S/69,569,000 in 2023, marking an increase of around 17.0%[199] - Employee benefits expenses for 2024 were S/338,921,000, which is an increase from S/292,032,000 in 2023, representing a growth of approximately 16.1%[200] Taxation - The income tax expense for 2024 was calculated at an effective rate of 33%, totaling S/97,312,000, compared to S/76,808,000 in 2023[187] - The Company has tax loss carryforwards amounting to S/92,998,000 as of December 31, 2024, up from S/44,868,000 in 2023[188] Assets and Liabilities - The total carrying amount of trade and other accounts receivable is S/135,114,000, with an expected credit loss of S/11,486,000, representing an 8.5% expected credit loss rate[155] - The total inventory as of December 31, 2024, amounts to S/773,997,000, with a provision for inventory obsolescence of S/33,880,000[156] - Trade receivables increased to S/95,419,000 in 2024 from S/83,840,000 in 2023, indicating a growth of approximately 13.5%[148] - The allowance for expected credit losses rose to S/20,520,000 in 2024 from S/18,048,000 in 2023, reflecting an increase of 8.2%[153] - Trade payables decreased to S/(000) 96,549 in 2024 from S/(000) 107,327 in 2023, representing a decline of approximately 10.5%[164] Corporate Governance - The Company has complied with all financial covenants as of December 31, 2024, and 2023, without any activation of covenants due to non-compliance[181] - The Company maintained a fixed charge covenant ratio of at least 2.5 to 1 and a consolidated debt-to-EBITDA ratio of no greater than 3.5 to 1[182] Investments and Acquisitions - The Group acquired coal concessions in January 2023 for S/34,350,000, enhancing its exploration activities in areas of interest to the cement business[161] Dividends - Declared dividends per share for 2024 remained at S/.0.41000, consistent with 2023, while total declared dividends amounted to S/175,524,000[193]

Group 1 - The company's margins expanded during the year and quarter due to higher utilization of concrete projects [1] - The company announced more large infrastructure projects starting from FY25 in 3Q24, with confirmations expected in 4Q24 [1] Group 2 - The focus of the analysis is on operational aspects and long-term earnings power of companies rather than market-driven dynamics [1] - The investment strategy emphasizes holding companies independently of future price movements, with most calls being holds [1]

Group 1 - The conference call for Cementos Pacasmayo S.A.A. (NYSE:CPAC) Q4 2024 earnings took place on February 14, 2025, at 9:00 AM ET [1] - Key participants included CEO Humberto Nadal, CFO Manuel Ferreyros, and Investor Relations Manager Claudia Bustamante [3] - The call was structured to begin with an overview from the CEO, followed by financial commentary from the CFO, and concluded with a Q&A session [3] Group 2 - The company emphasized the importance of strategic outlook for both the short and medium term during the call [3] - Forward-looking statements were mentioned, indicating that expectations and projections are subject to risks and uncertainties [4]

Financial Data and Key Metrics Changes - In Q4 2024, revenue increased by 3% year-over-year, reaching PEN 526.7 million, while gross profit decreased by 2.1% due to higher costs related to the Piura airport project [19][20] - For the full year 2024, revenues increased by 1.4%, and consolidated EBITDA reached a record PEN 549.3 million with an EBITDA margin of 27.8% [8][20] - The net profit increased by 39.3% in Q4 and by 17.8% for the entire year compared to the previous year [27] Business Line Data and Key Metrics Changes - Cement sales increased by 1.8% in Q4 2024 compared to the same period in 2023, while for the full year, cement sales decreased by 2.2% due to lower demand from the self-construction segment [22][23] - Concrete payments and mortar sales surged by 30.9% and 48.8% for the full year 2024, primarily driven by increased sales volume for the Piura airport project [23] - Precast material sales increased by 18% in 2024 compared to 2023, with gross margin improving by 10.7 percentage points due to higher sales volume [26] Market Data and Key Metrics Changes - The company noted a positive trend in sales volumes for 2025, expecting similar growth rates as seen in Q4 2024 [36] - The company highlighted that 80% of its sales are directed towards self-construction, making employment levels a key indicator for demand [49] Company Strategy and Development Direction - The company is focusing on digital transformation, enhancing operational efficiency through AI and machine learning, and has achieved ISO 27001 certification for information security [10][13] - The company is committed to developing value-added building solutions, with significant projects like the Piura airport reconstruction, which involved direct participation in construction [14][16] - Sustainability remains a core strategy, with the company being the first Peruvian cement company to obtain environmental product declarations for three plants, representing 75% of its portfolio [17] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving better results in 2025 due to a stronger demand scenario and ongoing strategic initiatives [8][9] - The new Minister of Economics is expected to unlock infrastructure projects, which could further boost demand [51] Other Important Information - The CFO, Manuel Ferreyros, announced his retirement effective March 31, 2025, after a 17-year tenure, with Eli Hayashi set to succeed him [6][27] Q&A Session Summary Question: Expectations for sales volumes in 2025 - Management expects positive trends in sales volumes for 2025, similar to Q4 2024 [36] Question: Details on higher costs and expenses in Q4 - Increased costs were attributed to a larger workforce and higher personnel expenses due to company growth [38] Question: Capital allocation and CapEx forecast for 2025 - Sustaining CapEx is projected to remain around PEN 100 million, with no additional CapEx expected in the coming years [37] Question: Energy cost behavior in 2024 - Energy costs decreased in 2024 compared to 2023 and are expected to remain flat in 2025 [43] Question: Impact of upcoming elections on cement volume recovery - Management does not foresee upcoming elections as a significant risk to volume recovery, although security concerns may affect operations [71] Question: Cost overruns in the Piura airport project - All cost overruns have been accounted for in the results, and no future negative effects on gross margins are expected [72]

Group 1 - Pacasmayo (CPAC) is part of the Construction group, which consists of 88 companies and is currently ranked 8 in the Zacks Sector Rank [2] - Pacasmayo has a Zacks Rank of 2 (Buy), indicating a positive earnings outlook with a 30.6% increase in the consensus estimate for full-year earnings over the past quarter [3] - Year-to-date, Pacasmayo has returned 27.2%, outperforming the average return of 24.7% for Construction companies [4] Group 2 - Pacasmayo operates within the Building Products - Concrete and Aggregates industry, which includes 8 companies and is ranked 174 in the Zacks Industry Rank [5] - The average return for stocks in the Building Products - Concrete and Aggregates industry is 16.6%, indicating that Pacasmayo is performing better than its peers [5] - Emcor Group (EME), another strong performer in the Construction sector, has seen a year-to-date increase of 139.4% and has a Zacks Rank of 1 (Strong Buy) [4][5] Group 3 - The Building Products - Heavy Construction industry, to which Emcor Group belongs, is ranked 36 and has increased by 104.9% this year [6] - Investors should monitor both Pacasmayo and Emcor Group for potential continued strong performance in the Construction sector [6]