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.

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.

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…

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…

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.

Hi. Thanks for taking the question and congrats on the results. I was just -- I want to understand better the growth in gross margins. So you mentioned lower energy costs and the lower cost of production from the new kiln. Just how many percentage points came from lower energy costs and how many from the new kiln? Just to understand where can it go going forward.

Yeah. We can consider going forward. It's -- we expect the whole year, we should be around 28% EBITDA margin, basically because we're -- as we mentioned, the cost of the -- of the coal has gone extremely down from one year level. And also, we are not using any more imported clinker. So that should be if we compare it with EBITDA of last year, that was around 25.5% average. We should have this year 2024 whole year around 24% -- sorry, 28%.

Okay. Great. Understood. And if I may have another question, I was just wondering, how do you see volumes for 2024, the impact from El Nino, could they decrease even more this year or should we expect maybe flattish volumes?

I think volumes will be between -- would be a moderate growth. I don't see them going down. El Nino will not be happening in the north unless something dramatic occurs. But I mean chances of an extreme El Nino in the North are 0% right now according to the authorities. So the El Nino will not impact. And we have a lot of positive news in the North, the government-to-government agreement to develop Chavimochic with Canada has been signed. And I think that's going to be the way to go. So I would think that volumes unlike the past two years will grow according to Apoyo, they talk about 4%. I don't know I'm going to be that optimistic but between 2% and 4% will be my guess.

Great. Thank you so much.

You’re welcome.

Okay. Thank you. So our next question, we have a text question. from John Elco from Seminerio, and he asks regarding Pacasmayo's dividend policy, is there any limit to distribute previous year's retained earnings?

Technically, there is no limit. I mean, we've been very consistent in our dividend policy over the last, I believe, five to seven years. The philosophy behind that. I mean, first of all, it's not the CEO to decide, it is for the Board to decide, and eventually for shareholders meeting to ratify. But our idea is, I mean, we have no need for cash, and we have in excess that we're giving out in dividends. So if anything, the biggest limitation would have been the cash position of the company. But in terms of accumulated profits there is no limitation.

Great. Thank you. [Operator Instructions] So we've got a question from Gerard Fort from AFP Integra. Hello. I have a few questions regarding the vertical kilns impairment for this quarter. Are you expecting more impairments in the first quarter 2024? What's the impact of this impairment regarding the clinker capacity in Pacasmayo? In the MDA report, you said the total capacity in Pacasmayo plant was 1.8 million, below the 2.1 million expected with the new Pacasmayo kilns. Why did you report the impairment inside the operating income? Since it's a nonrecurrent nonoperating expense, it shouldn't impact the EBIT to EBITDA numbers, same with donations, which are being considered as an operating expense. Thank you.

Thank you for the question. I mean we expect no further impairments. The virtual kilns now having completely -- its value has been taken completely to zero. And like I said, I mean, we talk about the capacity of Pacasmayo. We have taken away and now you have to take away vertical kilns -- eight vertical kilns were supplying and you have to add 600,000 tons of capacity that kiln number four.

Perfect. Thank you. So we have a voice question now from Karely Medina from Interseguro. Please go ahead. Hello. Karely, can you hear us? Hello, can you hear us? So we'll just give it a few minutes just to see if any more questions come in and then perhaps we can go back to Karely.

And just as we wait for the question, I mean, one thing to extend to the answer to the last question, when asked me, I mean, why do we register the impairment in operating expenses, that's according to the accounting principles. I mean, that's the way it's supposed to be.

Understood. Thank you. Look, I'm not seeing any more questions. So at this stage, perhaps I can hand back to Humberto and Manuel for closing remarks.

Thank you. Well, in closing, I have to say that 2023 was indeed a very challenging year. Social unrest, inclement weather and the overall slowdown of economic growth in Peru affecting cement and building solutions demand. Nevertheless, we were able to achieve record results in terms of EBITDA and remarkable profitability by focusing on operational efficiencies and our long-term strategy with an enormous component of digital commercial tools. We foresee a more favorable demand environment in 2024 and feel we are very well prepared with kiln number four in Pacasmayo to take fully advantage of this scenario. As our focus on digital as mentioned innovation and the business sustainability has provided us with the tools to do so. And let me close by saying we remain extremely optimistic about the future of our country and particularly on the future of our region. Thank you, everybody, for joining us today and always thank you all for your renewed interest in our company. Have a very nice day.

Thank you. That concludes the call for today. Thank you, and have a nice day.