Good morning. Welcome to the Cementos Pacasmayo Fourth Quarter and Full Year 2016 Results Conference Call. With us today is Humberto Nadal, Chief Executive Officer; Manuel Ferreyros, Chief Financial Officer; and Claudia Bustamante, Head of Investor Relations. As a reminder, all participants will be in listen-only mode. Before we begin, we like to remind you that this conference call includes forward-looking statements based on currently available information. Forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from those predicted in such forward-looking statements. Statements made on this conference call should be considered together with cautionary statements and other information contained within the Company's earnings release date February 14, 2017 and within the most recent regulatory filings for discussion of those risks. I will now turn the call over to Ms. Claudia Bustamante, Head of Investor Relations. Please proceed.

Good morning and thank you for joining us today for our fourth quarter and full year 2016 results conference call. We will begin with prepared remarks from Mr. Humberto Nadal, our Chief Executive Officer; and from our Chief Financial Officer, Mr. Manuel Ferreyros. Following the remarks, we'll have time for your questions. Before I turn the call over to Humberto, let me note that today's call is being recorded and that the content of this call cannot be reproduced in whole or in part without the company's consent. I will now turn the call over to Mr. Humberto.

Thank you, Claudia. Welcome everyone to today's conference call. Today, I will discuss our overall results and business performance. Manuel will cover financial details and we will as always then open the line for your questions. 2016 was an important year for Cementos Pacasmayo, one marked by considerable success in creating long-term value for our business and our shareholders. Despite the decrease in sales in the fourth quarter, compared with the same quarter of last year which included exceptional sales due to El Niño prevention projections, we were able to increase our revenue in almost 1% in the whole year. In the year, we focus our efforts on controlling and stabilizing cost, advancing our project, preserving our balance sheet and defending our market share in a very challenging environment, while investing in key areas important to our future. In 2016, we decided to spin-off our phosphate business into FOSSAL, which on March 1 of this year will be a separately traded company in the Lima stock exchange under the ticker FOSSALC1. This decision was made to better unlock shareholder value, taken two businesses that had fewer synergies and very different CapEx and risk profiles, and separating them, so they can realize their full potential based on the respective merits. Investors can now hold Cementos Pacasmayo, a well-established industry leader serving growing cement demand in Northern Peru or FOSSAL, the phosphate company with titled reserves that is addressing the world's ever-expanding need for phosphate based fertilizers. This year we also saw our efforts related to our Piura plant come through to success. It is a 1.6 million ton facility strategically located to serve demand in locations throughout Northern Peru. Piura, as you all know become fully operational February 2016 and today is making a meaningful contribution to our results in developing…

Thank you, Humberto. Good morning everyone. The fourth quarter 2016 revenue decreased by 9.8% to S/ 316.7 million from S/ 351 million in the fourth quarter of 2015, this was primarily, as Humberto mentioned due to a tax comparison as result of the extraordinary spending associated with El Niño prevention in fourth quarter of 2015. Revenue for 2016 rose 0.7% compared to 2015. The gross profit decreased 15% in fourth quarter compared to the same period of last year, as a result of the increase in depreciation from the Piura plant and higher percentage of fixed costs as a result of decreased sales volumes. Sales of cement, concrete and blocks decreased 12% in the fourth quarter of 2016 when compared to the fourth quarter of 2015, again related to the extraordinary increase in demand in the fourth quarter of 2015 due to the El Niño related investments. Sales of cement, concrete and blocks were roughly flat on a sequential basis. For 2016, sales of cement, concrete and blocks were up 1.3% year-on-year basis. On the expense side, last year we closed down a Pacasmayo's Calizas del Norte subsidiary, which operated our limestone one. One-off expenses related to the closure of this operation were reflected in our results. Our administrative expense increased 50% in the fourth quarter of 2016 on a year-on-year basis. This was largely the result of an accounting reclassification in the fourth quarter of 2015 along with surge in one-off increase, such as severance payments and an increase in workers profit sharing. Selling expenses for the quarter increased 19.8% year-on-year basis as we increased our advertising and promotion expenses budgets to successfully defend our market share during this period of decreased volume. Profit for the year, for the period decreased 82% during the fourth quarter of 2016 which…

Thank you, Manuel. Now, operator, please if you can open the call for questions.

[Operator Instructions] And our first question comes from the line of [Francisco Suarez of Scotiabank]. Please proceed.

Francisco Suarez with Scotiabank. Thank you good morning. Thanks for the color again. I just want to understand, what drove the closing of the Calizas del Norte? If I've not mistaking Calizas del Norte, half the Tembladera quarry. I mean this is the major sources of your limestone. So, I want to understand why the rational of doing that. I mean relying on third parties if I understood correctly? And secondly, related with closure of your zinc operations, can you give the – can you share the specific closing cost related with this, and of course if there is any other contingent playing related with an environmental issue. I mean what was driving the closure of that operation, because if I understood correctly, it seems that it was driven by an environmental matter, isn't it?

Hi Francisco, this is Humberto. I will tackle the first question and Manuel will give the specifics on the second one. Really what we did with Tembladera quarry, which is ours and Calizas del Norte owns the Tembladera quarry. We have changed the way of operating it. In terms of operating it ourselves, we have hired a third party that we believe is going to bring much more efficiency into operation the quarry. We still remain I mean owners of the whole company, but the operation itself is done now by a third party, which we think is in line with always looking for extra efficiency.

Okay.

And question number two, Francisco. We've just finished closing in the operation – zinc operation and we have pending cost of S/ 5 million for the environmental closure. So with this, we finished all cost for this operation.

Okay. Thank you so much.

Thank you.

The next question comes from the line of [Andres Soto of Santander]. Please proceed.

Andres Soto, Santander. Hi, Humberto, Manuel, Claudia. Thanks for the call. My question is regarding the ready-mix performance. If I look on a sequential basis, this is the only line where I see additional weakness in the fourth quarter compared to third quarter. I'd like to understand what is happening there, and this is in the context of what is, what Humberto commented at the beginning of the call related to order rate. Is this related to the suspension of any of the infrastructure project that you were supplying?

Andres, thank you for the question. Yeah. I mean, like I mentioned, and we're not going into specific, I mean, all these are corruption scandal and I don't want to be specific on the names of delayed something, [indiscernible] biggest example right now going on, I mean these was an undergoing project right now has for the time being stopped the buying of ready-mix, this has been happening for the last few months. The refinery also had a slowdown there, so what I am trying to say is, I mean, what you see in the ready-mix performance is really slowing down of many of our big projects.

Okay. Thank you. And related to the extraordinary charges that we saw during this quarter, can you give us an idea of how much this is non-recurrent when you forecast EBITDA margin for next year? How many points of EBITDA that represent?

Yeah. This year, 2016 for the whole year, we've closed with around 30%. The whole year excluding these extraordinary expenses, we should have gone to 31.5%. We expect next year – and our budget is should be around 33.5%.

Okay. Thank you, Manuel. And finally, any words in terms of guidance for 2017 in terms of our volumes?

It's Humberto again. I mean, we're cautiously optimistic, I mean, I know you guys want the number. I mean we hope to see positive numbers. It's going to be very related to how successfully the government handles all the noise around this corruption issues and how quickly they can – they're able to restart and selling more – trucks going around. So, I think, we should pick up strongly on the second semester, but we have to see what the government has to do.

Okay. Thank you very much.

The next question comes from the line of. Please proceed.

[indiscernible]. Good morning, Humberto. And thank you for the conference call. I have two questions. The first one is that, I would like to know – I would like to have more detail on tax payments of this quarter, it increased up to 75%. And the other question is, if there is delays or in infrastructure such as Chavimochic, Alto Piura are game changers for your guidance of this year? Thank you.

This is Humberto, I'll take the second part of the question, and then Manuel can give you the answer on the tax expenses for the quarter. I mean, let say, I mean here Chavimochic and their refinery, and here they almost altogether, I mean they can amount to 4% to 5% of our annual pay. So yeah, I mean, if all of them really get numbers late, they could impact on that amount. I don't think it's going to be the case. I think we have to realize that all these are very important project for the North and if you hold, specially they will try mostly try to find solutions. So hopefully, I mean, we are talking more of a delay, more of a short delay rather than a very long delay, but yeah, that's the level impact you'll have. Now Manuel will answer your question on the tax.

Yeah, basically on the tax, the fourth quarter has been basically because of the change of the tax that has been gone up from income tax, so the rate that has been gone up. Does that that answers your questions?

Yes. Thank you. That's all.

There are no further questions. Thank you at this time.

Okay. Well, once again, thanks everybody for joining the call. On closing, I mean, I think and I'd said at the beginning, this was a very important year in terms of the company doing every effort possible to be competitive to the defend our market share and I think we're successful in that by bringing in the Piura plant into production and by successfully defending the market share. Our outlook remains very positive towards the future, I think Peru still holds a very strong housing and I think infrastructure and I stated over the last 18 months, we'll be fundamental in the growth of a country and of course fundamentally in the growth of our industry. And we remain – I mean, even though we are cautiously optimistic because of all the corruption scandals going on, we are absolutely convinced that Peru will move on, and I think our government will do everything in their power to really move there. Thank you. I think there are more questions on the line, am I correct?

Yes. We have questions in queue.

Okay. Let's go ahead please. I though there are one or more question, so I gave my closing remarks.

Nicolas [indiscernible]. Hi. Good morning.

Hi. Go ahead, please.

Hi. Thank you very much for the conference call. I have a couple of quick questions. Firstly, can you give us some color about your coal provision policy? And taking into account the coal prices around $80 per metric ton, and has had increase of like 85% last year. How is your coal provision policy and how do you expect that could impact your margins going forward? My second question is about your couple of one-offs you have this quarter. If you can sort of update this is cash or non-cash effect. I cannot understand why the fact that you change from operating yourselves the Calizas del Norte to being operated by a third-party implies a one-off, what's the rationale behind that? And what would be the EBITDA, EBITDA generation decrease excluding this one-off? And my last question is about your administrative expenses this quarter that you had an increase of 50% year-over-year. What's the main reason behind that? Thank you very much.

Okay. We'll try to answer your questions in our basis. In terms of coal, we have to keep bear in mind that, when you talk about a big price increases, that took a lot with bituminous coal imported. We don't use that. We mostly use over 100% local anthracite coal. Normally, we have stock of, almost a year, so there should be almost no impact this year, and even there surprisingly, it should be around inflation, because a different kind of coal. That being said, what we always maintain our own mind and we hope to get into operation if the prices we feel will take a hike in the coming months. I'll switch to Manuel now to further questions.

Okay. Yes. Considering the question number two about the closure of Calizas del Norte, yes, this is all the costs that we have to spend in reducing all the personal that we used to have in Calizas del Norte.

And to complement what Manuel is saying, I mean, why do we think we're going to gain efficiency, yeah, it has to do with focus. I mean, we are a cement company and we have hired a company that has much more experience than us specifically operating quarry. So, by the contracts or the terms, we have agreed with them, we feel we are convinced, we're going to gain some profitability.

Okay. Considering the EBITDA, I think the question was, how much would be the EBITDA margin without exceptional expenses. The EBITDA margin for the whole year 2016 would have been 31.5%. So it should run up from 29% or 30% to 31.5%. That's concerning question two, and concerning question three, basically the main impact has been reclassification of – account reclassification that we had last year in the fourth quarter of around S/ 9.3 million.

Okay. Thank you very much.

Thank you.

You're welcome.

The next question comes from the line of. Please proceed.

Francisco Suarez, Scotiabank. Hi. Thank you, again. Just to comment on your statements related with the competitive environment that you are facing. Do you mention that you are – I mean it seems that more cement from other places is coming to your regions? So it is fair to assume that that cement is from UNACEM and perhaps more in near the Pacasmayo region. And what are the chances of seeing a decline in prices, I mean do think that you maybe actually conducting cuts in prices to keep your competitive position?

Francisco, no, this is not cement coming from UNACEM, this is cement coming from other small players out of Lima. If you see our prices, this year we had a nominal increase. I mean our policy has been and will remain in the future to increase prices over inflation. We don't see right now any probability of us having to lower prices, because I mean like I say, we believe the quality of our cement, we believe in communication and the marketing strategy and the positioning of a brand and we are very confident towards that. I mean we have to bear in mind that what we do in terms of increased marketing or deal activation is always preemptive. We always are just trying to consolidate our positions. It's not about specific.

Great to know, great answer. Last question if I may, have you seen any reluctancy from commercial banks to grant or change their origination loan policies related with construction loans as you've seen banks maybe more skeptical on granting loans for construction. Have you seen any effect on that out of excluding of course, [indiscernible] that at the moment is suspended, the third phase of construction there?

To be honest, my answer Francisco is not. I mean I see the banks, I mean I meet them on a regular basis. They are very bullish about concessions, about big loan operators for construction. And sort of more I mean this year we're going to hit a big in mortgage loans, which I mean is also a very ethical of your question. So my answer is no. I mean these are very specific projects that have been involved in this corruption scandal. Of course banks have to take down provisions. As a general, I mean banks believe that their growth will come greatly through concession loaning, through infrastructure projects and though housing.

Perfect. Thank you.

The next question comes from the line of. Please proceed.

Pablo Ricalde, Merrill Lynch. Hello Humberto, Manuel, Claudia. Thanks for the call. I have a follow-up question on volumes expectation for 2017 to be back loaded. I don't know if you can share how are you seeing volumes year-to-date, and which projects are you expecting to kick in this year? And my second question is regarding free cash flow generation. Are you considering further buyback or are you planning to increase your payout ratio?

Like I said I mean, as you know I mean we have discussed, it was a flat year, and you have to bear in mind, even though the fourth quarter saw negative volumes, and I think I made this clarification, you have to really, really be very clear about 2015, very important amount of funds, derivative to the El Niño prevention. If you exclude that, really I mean the quarter was may be -2, -3. Like I said not great, but was not as bad. So, we're seeing this year, I mean we're still in the aftermath of all these projects being stopped. So, I mean that tendency we're seeing, but I think this will pick up very quickly, because like I say and you mentioned, asked about the project, I mean like I mentioned the Chavimochic, make sure they are almost – these are all absolutely crucial, not only regionally but at a national level. So, I think how fast they start, buying cement is one other thing. On the willingness under the season above the local and the regional, sorry central government to really get past this corruption, these corruption scandals.

Regarding the buyback, I mean with the last buyback, talking about [indiscernible], we control close to 90% of them. For the time being we have now more appetite for any buyback. I think the payout ratio, like it is not my decision. We've been consistent over the last two years and probably we should remain somewhere along that.

The next question comes from the line of. Please proceed.

Amelia Carleton, Aberdeen. Hello, so I just had a quick call on the payout, the payable days, they increased a lot in 2015 full year, and I wonder if that was got to increase, it was going to stay or if it's going to get back what it was before previously? Thank you.

If I get it correctly, you mean the dividend payout we take $60 million in 2015. We did the same amount in 2016 and going forward, I mean with all our project behind us and I mean where we have withheld the future, we think it should remain somewhere around there. I mean that's not my decision to be made.

And so, I meant bit more repayable days?

Sorry, I didn't get that.

With your payable days?

Could you ask that once please, maybe I'm not getting this?

You've got increased amount of days that you were and allowed to pay before your suppliers, so your cash conversation cycle will improve? So there was more cash.

Okay, I got the question, Manuel will answer it.

Basically that's inventory, that's some type of inventory that we have to pay and we buy it in a long-term. It depends of sort of the products that we buy, there are some products we have to pay in basis of repayment in 15 days and there are some that we pay in 30 to 45 days. It depends on what's at the end, the negotiation with basically inventory.

Okay. Got it. Thanks you.

Thank you.

There are no further questions in the queue at this time.

I think I said in my closing remarks early on. Once again, thanks everybody for joining and if you have any further questions of course, myself, Claudia and Manuel are always at your disposal. Thank you very much.