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].
Cementos Pacasmayo(CPAC) - 2024 Q4 - Annual Report