Credit Risk

Midterm Presentation
Outline
Carla Tello
Nicole Lopez
Renzo Manrique
 1.2 Industry Analysis
Market Overview
1.1 Macroeconomic Analysis  UNACEM: The largest cement producer in Peru.
Peru Overview (40.8%) Operations focused in the central region​.

• Pacasmayo has a large market share in northern Peru with  Cementos Yura: A subsidiary of Grupo Gloria.
annual capacity of 4.9mt as of 2Q, which could impact its ability (20.5%)
Predominately serving the southern region​.
to increase prices in a context of an increasing infrastructure-
related demand in the housing sector.
 Cementos Pacasmayo: Operating mainly in the
Inflation and Monetary Policy (27.5%)
northern region.
• Peru's inflation rate is within target ranges, currently at Barriers to Entry
2.03% annually, and is expected to reach 2.44% by the
end of this year.
 High barriers due to vertical integration (control over supply
• The reference interest rate stands at 5.50%. chain) and localized production.
• The unemployment rate in Aug was 6.1%
 Limited competition in northern Peru due to regional market
Exchange Rate and Currency segmentation.
• The Peruvian Sol has been relatively stable, although any Economic Outlook
future volatility in global markets could affect its value.
• A stronger Sol would reduce import costs, while depreciation
 Despite challenges like climate change, socio-economic inequalities, and
a weak political structure, Peru continues to be a favorable destination
could make imports more expensive. for foreign investment.
Economic and GDP  This appeal is underpinned by its robust macroeconomic policies,
substantial international reserves, and the credibility of its central bank.
• Peru's economy has Inflation Rate Country risk premium of Peru is 2.34%
been
gradually
recovering
from the
3.1%
3.0%
3.1% 3.1%
3.0%  Upside risks:
pandemic-induced 1) Volumes recovering at a faster pace than expected and not declining
slowdown, with growth 2.8% much after their 2021 peak, with 2H24 and FY25 posting solid growth
rates of around 2.3% in and also supported by strong RM vols. 2) Awards to supply cement or
2024 and 2.8% in 2025. Mar-24 Apr-24 May-24 Jun-24 Jul-24 Aug-24 concrete to additional large infrastructure projects (besides the Piura
airport)
 2. Company Description

Description Key Financials (2023 – 2024)

Cementos Pacasmayo S.A.A. is a Peruvian cement company with operations divided into USD 520 MM USD 136 MM USD 45 MM -7.8% 2.9xDebt/
four segments: Revenues 2023 EBITDA 2023 Net Income 2023 Sales Growth EBITDA margin
i) Cement Concrete
ii) Mortar and Precast
USD 524 MM 27.3% MargIn 8.6% 5.1x Int. USD 367 MM
iii) Quicklime Revenues 24 LTM EBITDA 2023 Net Margin 2023 Coverage Ratio Total Debt 2023
iv) Sales of Construction Supplies.
It serves the construction and industrial sectors and sells products through a network of EBITDA (US$ 000) Net Income (US$ 000)
retailers and hardware stores. Founded in 1949, the company is headquartered in Lima, 22.91% 26.14%
8.36% 8.66%
23.85% 22.97% 4.47% 7.90%
Peru, and is a subsidiary of Inversiones ASPI S.A. CAGR: CAGR: 47,154 45,040
18.13% 129,231
135,912 42.88% 40,845
118,686
3 plants Production Market Share 82,453
Located in Annual production 24% in the northern region of 15,438
Pacasmayo, Piura, capacity of 4.94 million Peru, continuing to serve as
and Rioja metric tons the primary cement supplier
in this area
2020 2021 2022 2023
Ownership 2020 2021 2022 2023
Net Income Mg Net Income
EBITDA Mg EBITDA

Controlled by the Hochschild Group. Minority shareholders include JP Morgan Chase Bank
N.A., RI – Fondo 2 , and the remaining is held by other investors. Recent News
8.27%
4.88%
Hochschild Group
JP Morgan Chase Bank Efficiency Strong Performance in Sustainable practices
N.A.
RI – Fondo 2 50.01% Enhancements Building
Eduardo Hochschild Other Investors
Beeck The company achieved a Sales of concrete, mortar, The reduction of 4.6% in
36.84%
+6% increase in consolidated and pavement increased Scope 1 CO2 emissions
General Director
EBITDA, attributed to +91% YoY, with significant and an 11.7% decrease in
operational efficiencies from contributions from the non-renewable energy
Credit Rating a new kiln and favorable raw ongoing construction consumption compared to
material prices, which are phases of the Piura 2022.
Cementos Pacasmayo's corporate bonds have been rated AA+ (pe) with a Stable Outlook expected to sustain over time Airport. Expectation for
by Apoyo & Asociados. This rating reflects the company's strong market position, efficient continued demand
cost structure, and solid financial metrics.
 3. Economic Group & Management
Analysis

Executive Resume The board of directors of Hochschild Group

• The Hochschild Group is a conglomerate based in Peru, founded by the Hochschild
family. The group’s primary activities focus on mining precious metals, such as gold
and silver, as well as other industrial metals.

• Hochschild Mining, one of its main subsidiaries, is known for its underground and
open-pit mining operations in Peru and Argentina.

Entities Comprising the Economic Group

 CEMENTOS PACASMAYO S.A.A.
 CEMENTOS SELVA S.A Eduardo Landin – CEO
Eduardo Hochschild Beek – President
 DINOSELVA IQUITOS S.A.C. or the board

 HOCHSCHILD MINING ARES (UK) LTD.

 HOCHSCHILD MINING CANADA CORP
 HOCHSCHILD MINING (PERU) S.A • Executive Chairman of Cementos Pacasmayo and Hochschild Family since 1998.

 INVERSIONES ASPI S.A • He graduated from Tufts University in Boston with a degree in Mechanical
Engineering and Physics.

• Founder of UTEC University in Lima, Peru.

Highlights • He is a director of several companies and institutions, such as COMEX Peru, Banco
de Crédito del Perú, Pacífico Peruano Suiza Compañía de Seguros y Reaseguros,
TECSUP, and the National Society of Mining, Petroleum, and Energy.
Majority of INEDs Supervised Independent
The board is composed of Various controls and Audit and remuneration
a majority of independent mechanisms to ensure committees are fully
non-executive directors. ongoing independence. independent.
 4. ESG

Overview of ESG Strategy Key Environmental Initiatives (Environmental)

 Sustainability Vision 2030: Cementos Pacasmayo integrates  Carbon Neutral by 2050:

environmental, social, and governance goals across its operations. Active participation in the Global Cement and Concrete Association
 Member of the Dow Jones Sustainability Index since 2019, reaffirming (GCCA) roadmap to decarbonization​.
its commitment to sustainability​. Use of green hydrogen and carbon capture technologies as part of
 ESG Leadership: Recently included in S&P Global's “The Sustainability medium- to long-term emission reduction efforts.
Yearbook 2024”​.  Circular Economy: Increased use of blended cements, aiming for 95% of
sales to come from low-carbon varieties by 2028​.

Social Governance

 Affordable Housing Initiatives:  Strong Corporate Governance: Continuous inclusion in ESG rankings and
Developing solutions for Peru’s self-construction segment, addressing a high governance standards​.
1.8 million housing deficit​(2T24.)  Digital Innovation: Leveraging AI and machine learning for project
Programs like AYU, providing financing solutions for low-income families​. prospection and optimization of construction solutions.
 Community Infrastructure: Contribution to major infrastructure projects,
such as the Piura Airport, enhancing local economic growth​.
 5. Porter Analysis

Porter's Five
Pacasmayo Analysis Perception
Forces

Threat of New High due to capital-intensive investments (specialized assets), economies of

Entrants scale, and extensive distribution networks.

Buyers have moderate power due to price sensitivity and the ability to switch.
Bargaining
Still not in foreign markets like UNACEM. However, Pacasmayo’s economies of
Power of Buyers
scale, product differentiation, and loyalty programs reduce this risk.
Bargaining Limited supplier options for raw materials like limestone and gypsum.
Power of Pacasmayo’s vertical integration (own clinker production) and high switching
Suppliers costs reduce supplier leverage.
Moderate. Alternatives such as other cement brands and alternative
Threat of
construction materials exist. Price and product similarity (in construction
Substitutes
materials) increase substitution risk.
Competitors: UNACEM (44.5%), Yura (21.3%). Intense rivalry with major
Competitive
competitors like UNACEM and Yura Group. High fixed costs and market
Rivalry
saturation drive fierce price-based competition.
 6. Financial Historical Data

2Q24
Income Statement (USD MM) 2019 2020 2021 2022 2023
LTM
Revenues 371.4 345.7 516.7 564.2 520.0 524.0
Revenue Growth 10.3% -6.9% 49.5% 9.2% -7.8% -4.4%
Operating Income 72.1 47.0 84.9 94.8 90.0 90.5
Operating Margin 19.4% 13.6% 16.4% 16.8% 17.3% 17.3%
Depreciation and
34.6 37.1 36.2 36.9 38.5 40.8
Amortization 2Q24
EBITDA 106.6 82.5 118.7 129.2 135.9 137.7 Free Cash Flow 2019 2020 2021 2022 2023
LTM
EBITDA Margin 28.7% 23.9% 23.0% 22.9% 26.1% 26.3% EBITDA 106.6 82.5 118.7 129.2 135.9 137.7
Net Income 35.2 15.4 40.8 47.2 45.0 43.3 Operating Cash
Net Margin 9.5% 4.5% 7.9% 8.4% 8.7% 8.3% Flow 81.85 19.70 17.91 95.47 83.49 31.4
CAPEX -20.8 -12.5 -22.9 -43.5 -72.8 -10.9
Dividend Payout 1.2 1.7 2.2 1.0 1.0 1.1
Interest Expenses -5.54 -6.18 -6.15 -6.48 -7.31 -7.38
2Q24 Dividends paid 41.1 26.3 90.2 47.9 46.8 46.8
Leverage 2019 2020 2021 2022 2023
LTM NOPAT 49.3 31.6 57.5 63.5 68.3 67.2
Short Term Debt / EBITDA 0.25 0.21 1.01 1.28 0.75 0.51 Effective Tax Rate 32.1% 32.6% 31.7% 32.6% 31.3% 32.7%
Total Debt / EBITDA 2.76 4.10 3.47 3.29 3.09 2.67 - △ Working Capital -8 12 -33 -59 11 53.8
Net Debt / EBITDA 2.59 3.13 2.87 3.13 2.93 5.80 - CAPEX -21 -13 -23 -43 -73 -72.8
Total Debt 293.8 338.3 412.1 424.8 619.5 367.3 Free Cash Flow 55.4 68.2 37.9 -2.1 45.3 48.2
Short Term Debt 26.3 17.4 120.3 165.0 102.2 70.7
Long Term Debt 267.5 320.9 291.8 259.8 317.3 296.6
Cash + Mkt Securities 18.2 82.4 72.9 21.8 24.1 23.3
Net Debt 275.7 257.7 340.7 404.2 397.6 799.0
 7. Debt Repayment Capacity

Total Debt (US$ MM) EBITDA & FCF (US$ MM)

800 722
619
556 700 619
600 564
484 471 515
431 500 386
377 377 400 356
419
283 283 283 283 283 300
150 174 192 211 345 380
200 257 284 313
200 233
41
100 -19 5 12
0
Series1
-100
2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034

TOTAL DEBT EBITDA FCF

FCF (USD Million) 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034
NOPAT 73 85 94 103 432 477 526 580 640 705 778
Effective tax Rate (%) 32.70% 32.70% 32.70% 32.70% 32.70% 32.70% 32.70% 32.70% 32.70% 32.70% 32.70%
Non cash accounts 40.8 42.4 41.87 41.7 42 41.8 41.8 41.9 41.9 41.9 41.9
- Var WK 31 -7 -7 -2 -6 -6 -6 -7 -7 -8 -9
- Capex -47 -52 -58 -64 -70 -77 -85 -94 -104 -115 0
FCF 97 69 71 80 398 435 477 521 570 625 811
Total Mandatory Repayments -52 -72 -54 -54 0 -69 0 0 0 0 -83
Interest Expense -4.4 -16.05 -12.35 -14.89 -11.77 -10.28 -5.65 -5.65 -5.65 -5.65 -5.65
FCE 40.6 -19.26 5.01 11.52 386.23 355.83 470.98 514.91 564.4 618.87 722.3
 8. Peer Competitive Analysis

Company and Peers Cementos Pacasmayo UNACEM Cementos YURA

Units (US$ 000 000) US$ (000 000) US$ (000 000)
Date 2Q LTM 2024 2Q LTM 2024 2Q LTM 2024
Revenue 424 1,704 851
EBITDA 137 390 239
EBITDA Margin 31.6% 22.9% 28.0%
Deuda 367 1,520 714
Debt / EBITDA 2.67 3.89 2.98
ROA 4.65% 4.88% 4.41%
ROE 12,7% 9.15% 7.31%

Pacasmayo is a leading cement producer in northern Peru, though smaller in revenues and EBITDA compared to larger
competitors. Its strong regional focus, robust distribution network, and control over local raw materials provide cost
advantages and operational efficiency. The company's brand is well-established, benefiting from customer loyalty,
particularly in underserved regions. Pacasmayo’s diversified product range and sustainability initiatives further strengthen
its position. Despite its smaller scale, it maintains significant barriers to entry, ensuring stable margins and market
leadership in its core areas.
 9. Financial Projections

Income Statement (USD MM) 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034
Revenues 564.61 622.71 686.79 757.46 835.41 921.37 1016.18 1120.75 1236.08 1363.28 1503.56
Revenue Growth 10.29% 10.29% 10.29% 10.29% 10.29% 10.29% 10.29% 10.29% 10.29% 10.29%
Operating Income 108.41 126.41 139.42 153.76 171.26 188.88 208.32 229.75 253.40 279.47 308.23
Operating Margin 19.20% 20.30% 20.30% 20.30% 20.50% 20.50% 20.50% 20.50% 20.50% 20.50% 20.50%
Depreciation and
Amortization 41.78 47.95 52.88 57.57 61.82 68.18 75.20 82.94 91.47 100.88 111.26
EBITDA 150.19 174.36 192.30 211.33 233.08 257.06 283.52 312.69 344.87 380.35 419.49
EBITDA Margin 26.60% 28.00% 28.00% 27.90% 27.90% 27.90% 27.90% 27.90% 27.90% 27.90% 27.90%
Interest Expense 4.40 16.05 12.35 14.89 11.77 10.28 5.65 5.65 5.65 5.65 5.65
EBT 104.00 110.36 127.07 138.88 159.49 178.60 202.66 224.10 247.74 273.82 302.58
Tax Rate 32.70% 32.70% 32.70% 32.70% 32.70% 32.70% 32.70% 32.70% 32.70% 32.70% 32.70%
Net Income 70.00 74.27 85.52 93.46 107.33 120.20 136.39 150.82 166.73 184.28 203.63
Net Margin 10.40% 10.40% 10.70% 10.50% 10.53% 10.58% 10.54% 10.55% 10.55% 10.55% 10.55%
 10. Key Risk and Mitigants

Factor Risk Mitigants

Competitors Direct competition from other major
cement companies in Peru (such as
Pacasmayo can maintain its competitive
advantage in northern Peru, where it has a
UNACEM and Yura) could affect strong market presence, and differentiate
Pacasmayo's sales, particularly if through value-added products.
competitors lower prices or increase
capacity

Raw Material Supply Cement production relies on the

availability of key raw materials such as
Pacasmayo could secure long-term supply
contracts with raw material providers or
limestone, clay, and gypsum. Disruptions invest in its own raw material reserves to
in the supply chain or rising raw material reduce dependency on third-party
costs could impact production. suppliers.

Political Risk Changes in government policies or political

instability in Peru could impact
Adapting to changes in policies.

Pacasmayo's operations.

Enviromental Regulations Cement production is a high-emission

industry, and tightening environmental
Investing
technologies
in
and
cleaner production
adopting more
regulations could lead to increased sustainable practices can mitigate this
compliance costs or require operational risk. Additionally, Pacasmayo could explore
adjustments. producing lower-emission cement types to
meet future regulatory standards

Operational Disruptions: Unexpected events such as natural

disasters, strikes, or equipment failure
Implementing robust risk management
systems, emergency response plans, and
could disrupt production, leading to delays regular maintenance of production
or additional costs. facilities could mitigate the impact of
operational disruptions.
 11. Credit Risk

Factor Weight Sub-Factor Sub-Factor Weight Current Score Score with Debt

Scale 10% Revenue 10% B Baa

Business Profile 15% 15% Aa Aa

Profitability and 20% Operating margin 5% Baa Baa

Efficiency
Operating Margin 10% Baa Baa
Stability
EBIT/Average Assets 5% Baa Baa

Leverage and 40% Debt/Book 10% Ba Baa

coverage Capitalization
Debt/EBITDA 10% Baa Ba

EBIT/Interest Expense 10% Ba Ba

RCF/Net Debt 10% Ba Ba

Financial Policy 15% 15% Aa Aa

Total 100% Total 100% Ba Baa

 12. Recommendation on Transaction Structure

Description

Issuer Bank BBVA

Type of Security Corporate Bond

Size $200M

Tenor 2038

Rate 5.25%

Amortization No

Guarantees No