Cementos Pacasmayo S.A.A. (NYSE:CPAC) Q4 2023 Earnings Call Transcript
Cementos Pacasmayo S.A.A. (NYSE:CPAC) Q4 2023 Earnings Call Transcript February 15, 2024
Cementos Pacasmayo S.A.A. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, ladies and gentlemen. Welcome to Pacasmayo's Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode and please note that this call is being recorded. At the conclusion of our prepared remarks, we will conduct a question-and-answer session. I would now like to introduce your host for today's call, Mrs. Claudia Bustamante, Sustainability and Investor Relations Manager. Mrs. Bustamante, you may begin.
Claudia Bustamante: Thank you, Tim. 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 our 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'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 Nadal: Thank you, Claudia. Welcome, everyone to our quarterly results conference call, and thank you so much for joining us today. This quarter, we continued to focus on our strategy which led us to deliver outstanding results in terms of profitability. We reached a gross profit margin of 39.4%, almost 9 percentage points higher than the same quarter of last year. This significant increase in margin was mainly due to the lower production cost of our new kiln in Pacasmayo, which also allowed us to replace imported clinker with our own clinker as well as to the decrease in the cost of coal. Considering that we now have this additional capacity that is both efficient and more environmentally friendly, we decided to make an impairment to our vertical kilns.
This non-cash effect affected EBITDA but our adjusted EBITDA increased 29% year-over-year this quarter, and adjusted EBITDA margin reached 30.5%, is outstanding, and I want to stress outstanding quarterly results have allowed us to reach a record adjusted EBITDA of PEN518.3 million in 2023, the highest in all the history of Pacasmayo. We firmly believe these are remarkable achievements, especially considering that in terms of demand, it was a very challenging year as well as social conflict and Cyclone Yaku that affected our sales in the first half of the year. We are convinced that efficiencies achieved will be sustainable over time, making for a very promising 2024 as volumes should continue the positive trend we started seeing in the second half of last year.
In terms of our long-term strategy, I'd like to take this opportunity to look back on our digital strategy and how we have progressed over time. If you look at the digitalization of our commercial strategy, we have now migrated completely from a traditional model to a fully digital one. For example in Construction segment, we continue to enhance Mundo Experto, an ecosystem of digital solutions that targets the needs of foremen, self-builders and individual consumers. We also have ConstruyeXperto, a digital platform for foremen that provides them with daily tools and training to have them improve professionally. For hardware stores, we have Ferrexperto to help them grow their business, digitalize the orders and get training on topics linked to the main needs.
For our concrete clients, we have PacasPro a platform that provides comprehensive solutions for each project, including online scheduling and real-time tracking of orders. This year, we are focused on improving our service to the Concrete segment, adapting concrete segment, adapting it to the unique needs of its clients, creating new tools to start with different prices according to what each client requires. Finally, we know that digitalization is needed not only for commercialization, but also to enhance internal processes. This is why we are taking the steps needed to become a fully data driven organization. We have created a data and analytics committee to prioritize on sponsored initiatives and create the first agile unit in Pacasmayo.
We are also in the process of designing and making available a corporate data ecosystem and implementing solutions that generate value for our business. We are convinced that these tools and surely more to come in the future, along IA, will be key to the success of our business in the upcoming years. I would like now to briefly now, but no less very importantly, mention an important milestone for IO. Our solution aimed at families that need help to finance their construction needs. Through an intelligent purchasing method, people are able to define a building project and buy the materials that they need on a monthly basis at their own pace until they have all of the materials needed to carry out their chosen projects. In December, after consistently making these monthly payments, one of our clients was able to build this new roof.
We are very proud, extremely proud of his achievement, and we'll continue to promote IO so more families can build a safe home. Finally, I would like to highlight our continued and renovated commitment and belief in our country. Despite the instability and extremely complex political scenario, we have been immersed in since 2020, we decided to bet on the future growth of Peru as we have been doing for over 65 years and invested around $85 million to optimize our clinker capacity and a further $3 million to restore our old Piura to improve connectivity in the event of heavy rains. We firmly believe that the country holds great potential and by standing by on good times and bad times we will see it reach the potential in the near future. I will now turn the call over to Manuel to get into more detailed financial analysis.
Manuel Ferreyros: Thank you, Humberto. Good morning, everyone. Our fourth quarter 2023 revenues were PEN511.4 million, a 4.2 percentage decrease when compared to the same period of last year. Gross profit, however, increased 23.6%, achieving PEN200.16 million, mainly due to lower costs as we discontinued the use of imported clinker now that our new kiln is fully operational as well as lower cost of coal. Consolidated EBITDA decreased 1.2%, mainly due to the impairment of our vertical kilns as Humberto mentioned before. But without this effect, the adjusted EBITDA was PEN156.1 million, 29% increase compared to the previous year. Despite the decrease of revenues, mainly due to operational efficiencies and lower raw material costs mentioned before.
For 2023, revenues decreased 7.8% when compared to the same period of 2022, mainly due to lower levels of public and private investments as well as the negative impact of Cyclone Yaku during the first quarter of the year. However, gross profit increased 5.7% when compared to the previous year, mainly due to efficiencies achieved during the second half of the year as well as higher average prices. Adjusted EBITDA increased 4.9% and adjusted EBITDA margin increased 3.2 percentage points when compared to the same period of last year. Turning to operational expenses. Administrative expenses increased 3.8% this quarter compared to the fourth quarter of 2022 and 3.1% in 2023 compared to the same period of last year, in line with inflation. Selling expenses increased 12.8% this quarter when compared to the fourth quarter of 2022, mainly due to an increase in advertising expenses as well as expenses related to the advancement of our digital strategy.
During 2023, selling expenses increased 2.1% when compared to the previous year. Moving on to the different segments. Sales of cement decreased 7.3% in the fourth quarter of 2023 compared to the fourth quarter of 2022 and 5.8% in 2023 compared to 2022, mainly due to the decreased demand from self-construction segment as well as from private and public works. However, gross margin increased 11.7 percentage points during the fourth quarter of 2023 and 5 percentage points during the whole year when compared to the fourth quarter of 2022 and 2020 -- sorry, fourth quarter 2022 and the whole year, respectively, mainly due to cost optimization as we reduced the consumption of imported clinker and replaced it with clinker produced in the new and much more efficient kiln in Pacasmayo as well as lower cost of raw material, such as coal.
During this quarter, we are glad to report that sales of concrete pavement and mortars continued their positive trend, increasing 34.3% when compared to the fourth quarter of 2022, mainly due to increased sales of payment for the Piura Airport. During 2023, sales of concrete, pavements and mortar decreased 4% when compared to the same period of last year, mainly due to decrease in public and private investment during the first half of the year. Gross margin decreased 1.8 percentage points in the fourth quarter of 2023 compared to the fourth quarter of 2022 and 4.1 percentage points in 2023 compared to 2022, mainly due to lower margin for larger infrastructure projects. Sales of precast materials also increased 19.8% compared to the fourth quarter of 2022, mainly due to increased public investment this quarter for the construction of related projects.
Gross margin increased by 26.6 percentage points in the fourth quarter of 2023 and 10.7 percentage points in 2023 compared to the fourth quarter of 2022 and the whole year, respectively, as higher sales volumes allows for dilution of fixed costs. The net profit increased -- decreased 7.7% this quarter when compared to the same quarter last year and 4.5% in the whole year compared to last year, mainly due to the noncash effect of the impairment of our vertical kilns. However, if we do not consider this effect, net profit for the year would have been PEN194.7 million, a 10.1% increase when compared to the previous year, mainly due to operational efficiencies mentioned before. In terms of debt, our net debt to adjusted EBITDA ratio was 3 times, which is a level we expect to sustain and progressively decrease as EBITDA increases since we currently do not plan to incur an additional debt.
To summarize, this quarter results shows the continued benefit of focusing on cost management and operational efficiencies, preparing as improving demand -- for an improving demand environment. We are confident that we will continue delivering positive results during the following quarters. Please can we open now for questions.
Operator: Yes, of course. Thank you. So we will now move to the question-and-answer session. [Operator Instructions] So our first question comes from Fernando Romero from Abaco Capital. Hi, Fernando, can you hear us? Perhaps we can move on to another question in the meantime. Fernando, are you there? Sorry, let's move on to another question quickly first, and maybe we can get the question from Fernando later. [Operator Instructions] So let's move on. We've got a question from Natalia Leo from JPMorgan. Please go ahead.
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