Earnings Call Transcript - CPAC Q4 2025

Operator, Operator

Good day, ladies and gentlemen. Welcome to Pacasmayo's Fourth Quarter 2025 Earnings Conference Call. Please note that this call is being recorded. I would now like to introduce you to your host for today's call, Ms. Claudia Bustamante, Investor Relations Managing Director. Ms. Bustamante, you may begin.

Claudia Bustamante, Investor Relations Managing Director

Thank you, Louis. Good morning, everyone. Joining me on the call today is Mr. Humberto Nadal, our Chief Executive Officer; and Ms. Ely Hayashi, 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. Ms. Hayashi 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.

Humberto Reynaldo Nadal Del Carpio, CEO

Thank you, Claudia. Welcome, everyone, to today's conference, and thank you for joining us today. As I'm sure most, if not all of you, already know by now, on December 16, a significant milestone was achieved with the announcement of an agreement for Holcim to acquire Inversiones Aspi, which owns a 50.01% controlling stake in Cementos Pacasmayo. The agreed-upon valuation of PEN 5.1 billion represents a strong multiple of 9x record EBITDA calculated based on the last 12 months ending July 2025. This transaction is pending regulatory approvals and is expected to close in the upcoming months. However, much more relevant than this final evaluation is the fact that Holcim's decision serves as a powerful endorsement of Pacasmayo's long-term strategy, its operational excellence, and the consistent hard work delivered by generations of employees over nearly 7 decades. This milestone underscores the strength of our team, our commitment to our values, and our dedication to building a profitable, ethical world-class company with a clear sales purpose. We are immensely proud that a global leader like Holcim, which we have admired for so long, has placed its trust in Pacasmayo and in Peru. Looking forward, we'll collaborate to promote sustainable development, create new opportunities, and contribute to the growth of both the country and the wider region. That being said, I would like now to move on to a quick overview of our results for the quarter and for the full year 2025. We continue to see very strong momentum in sales volumes with an 8.2% decrease this quarter compared to the same period last year and a very solid 7.2% increase from the full year 2025 relative to 2024. This growth was driven mainly by stronger demand for infrastructure projects and a very consistent performance in the always reliable self-construction segment. Our excellent financial performance this quarter was driven by disciplined execution and a relentless focus on cost efficiencies. Excluding the one-off expenses related to the share purchase agreement signed with Holcim, EBITDA reached $158.7 million, an 11.4% increase compared to the same period last year. This growth confirms the success of our efforts to permanently enhance profitability across our market. This strong quarter capped off a record-breaking year once again, as we have done in 2024. We achieved an all-time high EBITDA of PEN 594.2 million for the full year, marking a 6.4% year-over-year increase when excluding one-off expenses. Given our commitment to operational excellence and climate action, we are continuously making progress in decarbonizing operations. We are proud to have announced that we have achieved three-star recognition from Peru's Minister of Environment, MINAM, through the Peru carbon footprint program. This recognition is awarded for demonstrating consecutive years of reduced greenhouse gas emissions and it followed a collaborative effort with MINAM, including the submission of verified data for the 2022-2024 period. Specifically, our Rioja plant recently earned its recognition for 2024 emission reductions, building upon the recognition previously secured by both our Pacasmayo and Piura plants for our 2023 performance. In the same spirit, we are very pleased to highlight our continued leadership in the Merco ESG responsibility ranking. For a tenth consecutive year, we are recognized as an industry leader in this evaluation, which assesses the three dimensions of sustainability: environment, society and customers, and ethics and corporate governance. Furthermore, we maintained a top-tier position in the general ranking of the most responsible companies in Peru, placing ninth overall this year, which is a tremendous achievement for a regional company like ours. This recognition strongly reinforces our commitment to our sustainability strategy, which remains central to our core business operations. We are confident that these positive results are only the beginning and that the momentum we've built will continue to strengthen in the future. At the same time, the confidence placed in us by such a prestigious global cement player reinforces our focus on operational excellence, profitability, disciplined execution, and always keeping people at the center of every strategy. We're confident that the momentum we have built is there and we remain motivated to keep improving our performance while continuing to serve our clients, support our communities and, most of all, continue the development of our country. I will now turn the call over to Ely, our CFO, to go into a more detailed financial analysis. Ely?

Ely Hirahoka, CFO

Thank you, Humberto, and good morning, everyone. For the first quarter of 2025, revenues increased by 6.2% year-over-year, reaching PEN 559.5 million. This growth was primarily driven by higher sales of cement along with increased sales of concrete and materials for infrastructure projects. We delivered strong profitability this quarter with gross profit increasing by 11.4% year-over-year. This improvement was mainly due to a lower cost of raw materials, greater consumption of our own clinker, and operational efficiencies resulting from our maintenance and production plans. Consolidated EBITDA excluding transactional expenses also rose by 11.4% to PEN 158.7 million. Looking at the full year 2025, revenues grew by 7% compared to 2024. Gross profit increased by 10.8% driven by the same factors as the quarter: lower raw material costs, higher use of our own clinker, and operational efficiencies from our production plan. Full year EBITDA, after excluding the one-off transactional expenses, increased by 6.4% over 2024. Turning now to operating expenses. Administrative expenses for the first quarter 2025 increased by 5.7% and by 50% for the corresponding period in 2024. This was mainly attributable to higher personnel expenses resulting from negotiations with our labor union. Selling expenses decreased by 8.3% in the fourth quarter compared to the previous year, primarily due to lower depreciation and reduced advertising and promotion expenses. However, for the full year 2025, selling expenses increased by 40% driven by higher advertising and promotion expenses during the first nine months of the year as well as the union negotiations mentioned before. In the first quarter of 2025, cement sales saw a notable increase of 30.6%. This growth was primarily fueled by robust demand for fast-setting cement within the construction sector. Likewise, for the full year 2025, cement sales increased by 8.7% when compared to 2024. This elevated demand is linked to the continued strength of the agro, industrial, and fishing sector, which are key income drivers in the North. Regarding profitability, the gross margin increased by 0.4 percentage points in the fourth quarter of 2025 compared to the fourth quarter of 2024. Over the full year, gross margin increased by 1.9 percentage points versus 2024. These margin improvements are mainly attributable to a reduction in raw material costs and lower consumption of imported clinkers. During this quarter, concrete, pavement, and mortar sales decreased by 25.1% year-over-year. This decline was mainly due to lower sales volume as the Motupe riverbank defense project was put on standby. We note, however, that this project has been prioritized to restart in the near future. Conversely, for the full year 2025, sales increased by 6.3%, mainly due to higher volume of mortar and concrete for infrastructure projects. Gross margin decreased by 7.8 percentage points in the fourth quarter of 2025 and 3.2 percentage points for the full year. This contraction was primarily due to the execution of the Piura airport project and lower cost dilution reported from the halted Motupe project. During 2025, sales of concrete, pavement, and mortar increased by 6.3%, mainly due to higher sales volumes of mortar and concrete for infrastructure projects. Gross margin decreased by 7.8 percentage points in the fourth quarter of 2025 compared to the fourth quarter of 2024 and 3.3 percentage points compared to 2024. This decrease was mainly due to the execution of the Piura airport project as well as lower dilution of the stock from the halted Motupe project as mentioned before. Regarding precast materials, sales decreased by 16% in the fourth quarter compared to the fourth quarter of 2024, mainly due to lower sales volume and a high comparative base in the fourth quarter of 2024 from a road improvement project. However, full year 2025 sales increased by 3% driven by higher demand from the public sector. Gross margin improved by 5.4 percentage points in the fourth quarter of 2025 and 1 percentage point in 2025, mainly due to relative pricing and higher dilution of fixed costs. Consolidated net income for the quarter was negative due to the transactional expenses mentioned before. Excluding these one-off expenses, net income would have been PEN 59.8 million, marking a 19.6% increase over the same period last year. Similarly, for the full year 2025, net income would have been PEN 231.8 million, an increase of 16.5% compared to 2024. Our net debt to EBITDA ratio grew to 2.8x. We continue to lower our debt through amortization payments, although it was partially offset by a lower EBITDA figure. To summarize, we continue to deliver solid financial results this quarter by capitalizing on favorable market positions while significantly managing costs to achieve sustained profitability.

Operator, Operator

Our first question is from Johan Clavijo from Sagil Capital. Thank you for the call. Could you please provide more details about the transaction with Holcim? What steps are planned to close the transaction? Is there any risk we should be aware of? And how do you feel about the regulatory approvals for the deal?

Humberto Reynaldo Nadal Del Carpio, CEO

Thank you. Like I explained in the transaction, Holcim has acquired Inversiones Aspi, which controls 50.01% of the common shares of Pacasmayo. We are waiting for regulatory approval. The process is running smoothly, and we expect it to be approved in the coming months. That's why we can't comment at this point, but we don't see anything coming up.

Operator, Operator

Thank you. Our next question is from Mariane Tadeo from CreditCorp. Thanks for the presentation. Please, could you explain why your acquisition-related expenses are assumed by Pacasmayo and why are they so high?

Humberto Reynaldo Nadal Del Carpio, CEO

Yes. Most of the agreed transaction expenses are related to change of control issues that were part of contracts that have been in the company for a very long time. Part of these transaction expenses will be assumed by Holcim. All of it was approved by our Board, and we consider that, given the price achieved for the sale of the company, this was very reasonable and had to do with contractual obligations. As I said, part of these expenses will be the responsibility of the next governing entity.

Operator, Operator

Our next question is from Gerald Fort from AFP Integra. Could you help us understand why Pacasmayo had to recognize the PEN 77 million to PEN 80 million in expenses related to the Holcim transaction, considering that Holcim is acquiring Aspi's majority stake, not the company itself? And the deal is still pending approval depending on the regulatory authority's decision. What about the obligations required Pacasmayo to incur these costs?

Humberto Reynaldo Nadal Del Carpio, CEO

Like I said, this was discussed in the Board meeting and the decision was made to proceed in this manner. We don't foresee any impediments from the authority. I mean, we're very respectful of all the legal frameworks and we think this will be approved. And this was a decision that I can say has to do with contracts that are already in place for many, many years and pertain to change of control. And if I may add, please realize that after this transaction, Holcim is required by law to launch a buyout for part of the remaining shares. So we consider that this transaction will benefit all shareholders and not just the controlling shareholder. The price has to be at least the amount paid by the controlling shares.

Operator, Operator

We have a question from Gabriel Ramos from Kallpa. Given the pause of the Motupe River Bank protection project and its impact on volumes and margins in the fourth quarter of 2025, should we expect similar project-related disruptions or margin pressures in the coming quarters? Additionally, how could this affect concrete pavements and mortar performance and overall margins looking into 2026?

Humberto Reynaldo Nadal Del Carpio, CEO

I think margins—every concrete project has particular realities regarding margins. Looking forward, we believe EBITDA margins should remain at the levels we've achieved over the last year, maybe a little bit higher. We have some energy-saving projects coming in the second semester of this year to enhance margins. So we have a very positive outlook for what's going to happen in this year regarding margins. Also, we've observed that public spending traditionally begins to slow at the start of the year; however, this should pick up after the second or third quarter of this year due to upcoming elections.

Operator, Operator

We have a follow-up from Gerard Fort from AFP Integra. Could you provide any guidance on revenue growth and EBITDA margins expected for 2026?

Humberto Reynaldo Nadal Del Carpio, CEO

Well, we can't say definitively. I mean, we achieved a record EBITDA year in 2025, and we believe that this year should be stronger than the last one in terms of volumes. We also think prices will remain in a very competitive space that will continue to provide us good margins. The results coming forward have us optimistic about volume growth for the year, and we are also very optimistic that the EBITDA margins will remain stable while pointing towards an increase due to efficiencies, energy savings among them in the second semester of this year.

Operator, Operator

Thank you very much. We would like to thank everyone for the questions and the participation. I'll now hand it to Humberto for the closing remarks.

Humberto Reynaldo Nadal Del Carpio, CEO

We are indeed deeply proud that global leaders such as Holcim have placed their trust in Pacasmayo and, more importantly, in Peru. This investment is a very strong validation of what we have long believed and consistently communicated: that Peru's long-term growth potential remains solid and that the country offers meaningful opportunities for sustainable development and value creation. I think as CEO, this is a consequence of the effort displayed by thousands of employees over the years, and we are all extremely proud of this transaction. I'm sure it will bring only good news for all stakeholders: the shareholders, the employees, our communities, and the country. Thank you, everybody, for today, and always thank you for your renewed interest in our company. Have a very nice day.

Operator, Operator

We'll now be closing out the lines. Thank you, and have a nice day.