Good morning and welcome to the Cementos Pacasmayo First Quarter 2016 Results Conference Call. With us today are Humberto Nadal, Chief Executive Officer, and Manuel Ferreyros, Chief Financial Officer. As a reminder, all participants will be in listen-only mode. After today's presentation there will be an opportunity to ask questions. [Operator Instructions] Please note that today's conference is being recorded. During the conference call management will make forward-looking statements to assist you in understanding its expectations for future performance. These statements are subject to a number of risks that could cause actual results and events to differ materially and I refer you to the Company's press release of April 25, 2016, and the company's future developments may cause these views to change. Please consider the information presented in the slide. The company may at some point elect to update the forward-looking statements made today, but specifically disclaims any obligation to do so except where required by law. I'll now turn the call over to Mr. Humberto Nadal, Chief Executive Officer.

Thank you, operator. Good morning everyone and thank you for joining our conference call. Cementos Pacasmayo made important progress in its operations in the first quarter of 2015 and entered the quarter in a very strong position. The high quality operations and the market for Cementos in Northern Peru is growing at a healthy phase. Financial results for the quarter lack our operations, but we're confident in the financial outlook for the rest of the year. In terms of operations, the biggest development of the quarter was at Piura plant. As you know this is Latin America's most advanced cement production facility. It has already had a positive impact on Cementos Pacasmay's operations in terms of volume, margins and logistics. The biggest development at Piura in the first quarter was that we started producing clinker at the end of January. Piura is now producing clinker at a rate of 800,000 tons per year. That means we'll have no need to import clinker for the foreseeable future even where Piura is undergoing maintenance. So without much greater visibility on to the expenses and we expect to maintain a sustainable gross margin in the quarters. The other important development at Piura was the end of a ramp-up year. We've now reached initial capacity of close to 60% Cement EBITDA profit at this time. In the first quarter, Piura accounted for approximately 20% of total volumes. The majority of cost associated with the Piura ramp up are now behind us. During our operation we have regular maintenance at Pacasmayo facility, specifically in our kiln number three, as you all know accounts for two thirds of our production capacity in Pacasmayo. That maintenance is now complete and Pacasmayo is running as normal. It's important to remember that with Piura up and running, Pacasmayo will…

Thank you, Humberto. As Humberto mentioned, the first quarter numbers were affected by the number of one-off expenses, all of which were predicted and planned by the company. Revenues in the first quarter were up 6.5% to $309.6 million led by higher cement volumes. Our gross margin fell this quarter to 36.9% despite positive revenues growth. Gross profit decreased 8.6% to $114.3 million from $125.1 million. There were several factors in the decline. Firstly, as expected we continue using the import clinker during the quarter. We have since then stopped all clinker imports and are producing enough clinker to element the need for imports going forward. Second, we had cost as of change with the ramp-up of Piura. Also we have extraordinary expenses reducing headcount. Again these are non-recovering expenses. Finally, they were increased deprecation cost following the startup of the Piura operation. These deprecation costs will be recurring even so we expect we will have a sustainable growth margin in the quarter. Turning now to operating expenses, they remain stable year-over-year. In the first quarter, we did see significant variations in below the line expenses. Financial expenses rose to $16.8 million compared to $5.1 million a year earlier. This increase was due to expensing of financial cost related to Piura. These costs were capitalized while Piura was in the construction phase. With Piura now up and running, we are accounting for them in the income statement. Moving now to the effect of exchange rate cost, variation in the dollar ForEx change rate leads to a revaluation of our dollar cash balance, generating a non-cash expense of $4.9 million, compared with a non-cash gain of $4.8 million solid a year earlier. Net income for the quarter decreased 47% to $27.7 million from $52.3 million in the first quarter of 2015. Consolidated EBITDA, which gives a better view of our operating performance, sales 4% to $85.6 million from $89.2 million in the first quarter of 2015. The EBITDA margin was 27.6% down from 30.7%. As I said, this was primary view to the weaker gross margin. It is important to mention that the normalized EBITDA excluding non-recurrent events and the temporary use of import of clinker would have been $104 million and on EBITDA margin of 33.7%. Our balance sheet remains very strong with a net adjusted debt-to-EBITDA ratio of two times. To sum up, profit sale mainly as a result of our non-recurrent cost and some below the line expense. Our operations remains strong and we expect our financial results to reflect this in 2016. I will now turn the call back over to Humberto for closing remarks.

Thank you, Manuel. To sum up, our operations were strong in the first quarter and we ended the quarter with increased production capacity of both cement and clinker. The market in Northern Peru continuous to grow, so we're affirming our expectations of growing cement volumes within 1% to 3%, which is a conservative estimate at this point and for sure we will meet the demand with a leaner cost base. We remain very optimistic about the result that will be achieved during the rest of the year. Now we will open the discussion for questions.

Thank you. [Operator Instructions] We’ll take our first question from Andres Soto. Your line is open.

Thanks you Humberto and Manuel for this presentation. In your past conference call you mentioned political uncertainty as your main reason of very cautious about 2016 volumes. However, you are now reiterating the 1% to 3% guidance that you gave before. What is now the uncertainty that prevents you to be more aggressive in terms of your guidance for 2016?

Thank you for the question Andres. Really what keeps us is our conservative view on site I would say, I agree that the first quarter has shown very positive results and even though the relations looking forward have reduced operating uncertainty, we feel as our second quarter in the middle of elections which are always in terms of self-construction and all things a little more complicated. So at this point, that's what I will say we still think about 1% to 3% on a very conservative basis. So we think this will be higher if we were to be more optimistic yet, but at this point we would rather be conservative than not.

Perfect, thank you. And can you please also comment on pricing dynamics? Based on your comments in February I was expecting to see sequential increasing prices. But apparently that was not the case. Are you expecting to be able to increase prices in line with inflation in 2016?

The answer is yes and I think we're being very focused in a market share. We've obtained the highest market share the company has seen in the last four or five years, but I would say for the remaining of the year for sure we should be seeing some increase on the price.

And to that point, some competitors are becoming more and more aggressive, I mean in terms of pricing in the center of the country or what is driving the pricing dynamics these days?

Yeah, I see much more aggressiveness in the Lima market and eventually that also would help us -- will help us push our prices in that region.

Okay. Thank you.

Thank you.

We’ll take our next question from Francisco Suarez of Scotiabank. Your line is open.

Thank you for the call. The question that I have is relates with what you stated on your utilization rates at Piura. You mentioned that you're operating at 60% capacity utilization. That is cement capacity utilization, isn’t it, because you also say this in your press release that you are operating already at 2,800 tons per day on clinker capacity, so that puts you roughly at full capacity over there. So if I am wrong, the question is, by how much you will be sending clinker to Pacasmayo to grant that and produce cement? And what are your expectations on how to properly integrate both operations?

Hello Francisco. Thank you for the question. Only to answer your question we are already at 80% utilization capacity of the clinker. That doesn’t mean that we're going to use the full clinker or few. We're going to use -- Pacasmayo is self sufficient clinker in Pacasmayo now that we finished the maintenance of kiln number three and Piura will be self sufficient of clinker in Piura. What we said is that the Piura plan will be working at the normal basis at around 50% to 55% utilization rate.

Okay. Got it. Thank you. And also, a follow-up on Andres' questions on pricing dynamics. And I guess that now that we -- I mean, you typically like to improve prices on February but that didn’t happen. One of the reasons because I was a little bit surprised as well of not seeing a sequential improvement in prices overall.

Hi Francisco, this is Humberto. Like I said before, we've been very focused on first quarter, our market share with a very high number and also I think competition was a little bit harder on our Southern cities like Puquio. So that’s how we were cautious about price. We're consolidating more the position, but like you see for sure when you see on a yearly basis by the end of the year our pricing will be the one we said at December conference call, which should be a little bit above inflation. For sure we will get there.

Got it. Perfect. Thank you very much. Take care.

Thank you, Francisco.

We’ll take our next question from Eric Neguelouart of Bank of America. Your line is open.

Good morning. Congratulations on the results. I would like to know if we could have more guidance on the phosphates business and anymore guidance you may have. In the press release you mentioned there is going to be evaluation of next steps, but I don’t know if there is more visibility we could have from you. Thank you.

Sure, thank you for your question. Like I mentioned in the last call, December of last year we finished the final operation of basic engineering and since then we're working very heavily with our partners to identify next steps, which are basically are going to be between two or three alternatives. We are studying the possibility of bringing in a new partner also there is a possibility we may exit the project. But we are evaluating it at this stage the same way we did at four years ago which is the best way to capture the value for the Pacasmayo shareholder. But will decide which of the alternative way out is one that’s one we’re going to take and all I would say no matter what the decision we will wait, we'll be very conservative about it. I would only take the one that we think balances the risk and their values rate, value capture for the shareholder.

Okay. Thank you.

We will take our next question from Benjamin Theurer of Barclays.

Hey, good morning, Humberto. Good morning, Manuel. Just a quick follow up on what you've mentioned, if you could potentially quantify a little bit the impact here on gross margins. So you've mentioned that there were a couple of headcount reductions, but also additional costs associated to Piura. So thinking of that headcount reductions, so first of all, why does that show up in gross profit, so what's the relation here? And then second now did you really stop importing clinker or is there still something left which is going to be reflected in second quarter results? But basically started April 1 onwards is 100% produced at one of your plants? So that would be like first part of the question.

Hello Benjamin this is Manuel. Yes I sold on what we state is gross margins a normalize gross margin should be at on -- little bit high from 40% and on 42% and that means and the reason of this is that we have, as I mentioned in the press release we are -- we've been using import to clinker because we had the maintenance of the Pacasmayo plant and also the beginning of the Piura plant. That means that today we stop using all the import clinker. We're using only the clinker that we are producing in Piura and in Pacasmayo. We have left around 30,000 tons of clinker in stock, imported clinker in stock that we're not going to expect to use it. This is only back-up or an emergency stock that we have just in case, but what we expect for the rest of the whole year to use our own clinker that we produce in the two plants.

Okay. So that 30,000 tons basically going to be placed into inventory and in case you need it because of whatever incident that might happen, be it weather related or whatsoever, you have a little bit of the backup, correct?

That’s right, yes.

Okay. Understood. And then, well, on those one-time costs associated with headcount reduction all that, can you quantify that a little bit and where was that coming from, so why headcount reduction, which area, was it in the sales channel, was it general admin costs, people who got laid off or was it just because of reallocation now and the shifts in where you have different production, be it between Piura and Pacasmayo plant?

Okay. Basically the non-recurrent costs has been around PEN30 million. That means a bit more than PEN30 million. That means the clinker that we are not going to use because we're going to use local clinker or our producing clinker that you produce. We have some reduction costs of headcounts and that means basically or from the operations, sections and this is because we're making more efficient the plant in Pacasmayo mainly. We've reduced used 40 people on the first quarter of this year.

Okay, perfect. And then lastly, can you share a little bit an update on the phosphate project, how you are moving forward, etcetera? If you could give a little bit of a guidance, what you are seeing here? Is this still something you are working on and what are basically the next steps because what's somewhat stated in the press release its more like past-looking but a little bit of forward-looking what you are planning to do on the phosphate project in specific?

Sure, like I said before, we’re completed all the basic engineering studies for the phosphate and at this point we're analyzing strategic alternatives to capture the value for our shareholders. These alternatives include bringing a new partner. These alternatives include selling the project and that’s where we are right now. We expect to take somewhere in the reminder of the year our final decision, but you have to rest assure that the decision will be made in whatever we think at this point capture the most value for our shareholder.

Okay. Perfect. Thank you very much.

We’ll take our next question from Gabriela Benjamin of Newfoundland. Your line is open.

Hi, yes thank you. I have a question on the strategy. The reason why you guys had to import more clinkers, could you have the Pacasmayo's main kiln waited for maintenance and so that Piura plant was actually producing clinker. That way you wouldn't have to import. So kind of the strategically there if -- or did demand come back suddenly and you guys hadn't expected such a pickup in demand?

Yes in the past, normally the kiln number three would last 11 months for every month of maintenance. We were at month number 18, because last time we did a really good job with the maintenance. So, we stretching it very thin at the end. So the decision has been made already in November of last year has been number three would stop the first quarter of this year. So to answer your question, from an engineering point of view, we had to make that decision. At that point it was already program like Manuel mentioned and yeah, we've didn't foresee the pickup in demand, but how we ended up using money for the clinker but we always want to make our decisions based on whatever fits for the plant.

Perfect, that makes sense. And then also I saw a pickup in advertising and selling cost. Can you speak a little bit to that, was that to protect market share in the borderline cities that you have with Central Peru or what their increase came from?

Yes, basically you answer is in the question. We like I mentioned before, we're seeing a little bit more competition on our Southern cities. So we're making a bigger effort to defend our market share.

Okay. Perfect. And one more question, just there is a significant increase in the balance sheet in prepayments, I was just wondering what those related to?

Yes, that's basically payment of insurance in -- of all our facilities.

Okay, and that increased because now Piura is covered under it?

That includes Piura, yes.

Okay.

We’ll take our next question from Miguel Ospina of Compass. Your line is open.

Yeah, good morning. why are you saying that gross margins should be normalized at 20%, last year you posted 42%, why the Piura plant is not impacting positively the margin?

Yes basically the cost of Piura plant is not at full utilization capacity. As I mentioned the Piura plant will be at 50%. The most important one is the precision. The precision for the Piura plant is around $7 million solid, so that has impacted in the quarter. That’s the main reason why you see that the EBITDA, the normalized EBITDA even we have $7 million solids in that impact the precision in the margin is going up in a bigger portion.

And the other question would be, you were saying that EBITDA margin should be now normalized, so we can assume that the margins during the second quarter and going forward should be close to 34%?

Yes, that’s right.

Perfect. Thank you.

We’ll take our next question from Samuel Bevan of Aberdeen Asset Management.

Hi good afternoon. Thank you for the call. My previous question was on the phosphate project which has been answered. I was wondering if you could provide some guidance for cement volumes going forward in 2016? Thank you very much.

Sure, like I said earlier on, we're because since we're optimistic about volumes, we've seen guidance, we're hearing guidance more on 3% and the reason being because last year second semester had quite a higher base. Being conservative I think 3% is okay. We could be surprised a bit what happens with the final and just make sure and how quickly the next government begins to unveil the infrastructure there.

Thank you very much.

[Operator Instructions] We’ll move next to Jacqueline Heng of Credicorp Capital. Your line is open.

Hi, good morning. My question relates to the admin expenses, year on year we saw that it was flat. But actually in terms of -- compared to the previous quarter there has been a significant increase. Is there something we can expect going forward or is this just a one-off for this period? Thanks.

Yes. Hello Jacqueline. Yes we see the transit hasn’t gone up. The only one what has gone up is the sales expenses. As Humberto explained because of the competition in the area of the southern area of our territory. Administrative expenses are quite stable.

Yes, related to last quarter that was quite a large increase.

That's compared you mean with the December, last quarter in December.

Yeah.

Well the numbers got to be steady and it's going to be a normalized is the one of this quarter.

Okay, perfect thank you.

We’ll take our next question from Carlos Rojas of Andino. Your line is open.

Hi Manuel. I have a couple of questions, most of them have been already answered. But you mentioned that you had competition in Trujillo. Can you just tell us a little bit about who is entering to the market, is it the big player, is it small players and if you can keep your prices in that zone or just lowering to keep your market share? And the second question goes related to the FX loss, I believe that what you are doing is you are keeping your cash in dollars, is that something that we should expect for this year, keeping your cash in dollars?

I’ve got closer to first question, what we are seeing is increased competition from very smaller players but there is no real attack from any small player. It's just normally on that basis some trucks that go to Lima with some products. Come back empty and if we leave it there, we have not lower prices and we have just based our trust in our based on commercial position in many other marketing tools we'll expand the market share, but that’s really, we still have an extremely high market share, but any for increased competition if you we're going to back for whatever we see is just a fight for in our market share.

Look Carlos, answering the FX is basically we have dollars and we expect to maintain our main cash in dollar during the year.

Okay. Thank you.

Thank you. We’ll take our next question from Froilan Mendez of JPMorgan. Your line is open.

Hi, thank you very much for the question. Just to make clear, so Piura and Pacasmayo will each supply their own produced clinker for their own cement production, right, and at 50% to 55% capacity utilization. Is that right?

Yes, that’s correct.

Great. And any color for reducing leverage going forward?

No, I think we have a very healthy cash flow generation this year. We have not studied specifically any anything in terms of that direction because we have for our comfortable level. That's something that may be we'll start looking little bit next year.

Okay. Thank you very much.

[Operator Instructions] we do have a follow up from Francisco Suarez of Scotiabank. Your line is open.

I have a doubt on based on what you answered to Benjamin few moments ago, on the inventories of imported clinker. You mentioned you have roughly 30,000 tons of inventories, but usually clinker doesn't last forever. So I guess that the rational thing to do is to use it anyway regardless of having an inventory there for any potential contingencies or, I mean what my question actually refers to is that if we should be seeing perhaps even you are not using that clinker, we should be -- we should be seeing a write-off of inventories for the amount of the value of those inventories, isn't it?

Francisco, this is Humberto. No. there is absolutely no chance or right off and clinker cannot provide very long time. So, rest assured that like Manuel mentioned this is only an emergencies stock. We’d only use it if something happens but we don’t intend to use in the using coming years and like I said clinkers can last quite a few years.

Okay. Got it. And lastly, in the case again going to Trujillo, I guess Trujillo has a port there and is it easier to ship by sea imports to Trujillo?

I know really Trujillo has no port. The closest port is Salaverry, which is almost 200 kilometer away from Trujillo. So I think it's very uneconomic to ship through Salaverry.

Okay. Got it. Thank you.

Thank you, Francisco.

And there are no further questions at this time. I’ll happy to return the conference over to Mr. Humberto Nadal for any concluding comments.

Thank you very much and thank you everybody for joining today the call. Thank you for your continued interest in our company. Like I mentioned before, this was a quarter that really -- this was very optimistic in terms of what’s ahead of the future for Peru and specifically for the northern region. We will have our new President in the next two months and we're very confident at this point that the infrastructure spending will pick up heavily in the next three to five years and that’s why we're very optimistic about the performance of our company and specifically because now in Piura up in running and being such an efficient number of clients, I’m sure the company will be in a position to capture a lot of the value created in marketing in coming years. Thank you very much once again for your time and as always Manuel, Claudia and myself, we're here if you have any follow-up questions. Thank you very much.

Thank you. This does conclude today’s conference. You may now disconnect your lines and everyone have a great day.