About Cementos Pacasmayo S.A.A.

Cementos Pacasmayo S.A.A. operates as a cement manufacturer in the northern region of Peru. The company is a subsidiary of Inversiones ASPI S.A. The company produces, distributes and sells cement and cement-related materials, such as precast products and ready-mix concrete. The company's products are primarily used in construction, which has been one of the fastest growing segments of the Peruvian economy in recent years. The company also produces and sells quicklime for use in mining operations, although it represents a very small percentage of its overall revenues. The company owns three cement production facilities, its flagship Pacasmayo facility located in the northwest region of Peru, its Piura facility located around 300 kilometers north of Pacasmayo, and its smaller Rioja facility located in the northeast. The company's facilities have total installed annual cement production capacity of approximately 4.9 million metric tons. The company also has installed annual production capacity of 240,000 metric tons of quicklime. The company owns concession rights to several quarries with reserves of limestone and other raw materials located near its facilities. During 2021, the company decided to optimize its capacity at its Pacasmayo plant, in order to add an estimated 600,000 metric tons of clinker capacity per year. This should be completed during the second half of 2023. The company provides consumers with high-quality and value-added cement products and, as a result, it has developed strong brand recognition and customer loyalty in its market. The company has developed one of the largest independent retail distribution networks for construction materials in Peru. Through its network of 240 independent retailers and 341 hardware stores as of December 31, 2022, the company distributed its cement products, as well as other construction materials manufactured by third parties, such as steel rebar, cables and pipes, in the northern region of Peru. The company also sells its cement products directly to other retailers that are not part of its distribution network and to private construction companies and government entities. The following is a brief description of the principal activities of the company's consolidated subsidiaries: Cementos Selva S.A.C. is engaged in the production and marketing of cement and other construction materials in the northeast region of Peru. It also owns Dinoselva Iquitos S.A.C. (a cement and construction materials distributor in the north of Peru, which also produces and sells precast, cement bricks and ready-mix concrete) and in Acuícola Los Paiches S.A.C. (a fish farm entity). Distribuidora Norte Pacasmayo S.R.L. is mainly engaged in selling cement produced by the company. Additionally, it produces and sells precast, cement bricks and ready-mix concrete. Empresa de Transmisión Guadalupe S.A.C. is mainly engaged in providing electric energy transmission services to the company. Other immaterial, non-operating subsidiaries Salmueras Sudamericanas S.A. (Salmueras) was engaged in the exploration of a brine project located in the northern region of Peru. In December 2017, the company decided not to continue with the activities related to this project. Soluciones Takay S.A.C. is a platform that connects families that want to build with certified professionals. 150Krea Inc. seeks to develop a business in the United States relating to digital innovation in the construction industry. Corporación Materiales Piura S.A.C. is a non-operating company that owns some mining properties located in Piura. Products The company's core products are cement and other cement-related materials. It also produces quicklime. In 2022, cement, concrete, mortar and precast accounted for 92.1% of the company's net sales and quicklime accounted for 2.0%. The company also sells and distributes construction materials, such as steel rebar, cables and pipes, manufactured by large third-party manufacturing companies, and others which in 2022 represented 5.8% of its net sales. Cement Cement is a powdered mixture of ground minerals that, when mixed with water, adheres to other materials and hardens to form a rock-like substance. Cement is generally mixed with other materials, such as gravel and sand, forming concrete with a high degree of compressive strength that is able to withstand substantial pressure. Cement types are generally classified as either Portland cement or blended hydraulic cement. Portland cement is a hydraulic cement produced by pulverizing clinker, consisting essentially of crystalline hydraulic calcium silicates and calcium sulfate. Blended hydraulic cement consists of a mixture of Portland cement clinker and mineral admixtures, such as blast furnace slag, pozzolanic materials and limestone. The company produces predominantly blended cement, which represented 83.5% of its cement sales in 2022. This type of cement requires less clinker and reduces carbon dioxide emissions of its operations and production. The company produces a range of cement products suitable for various uses, such as residential and commercial construction and civil engineering. It offers the following six types of cement products designed for specific uses: Type ICo: This type of cement is used for general purposes and is similar to Portland Type I cement. It is widely used in the company's market due to its effectiveness and low hydration heat. Type MS/MH/R (called Fortimax3): This is the new formula for the type of cement that is used to protect against moderate sulfate action, such as drainage structures, with higher-than-normal, but not unusually severe, sulfate concentrations in ground water. It is designed for sites and structures in humid areas that are exposed to sulfates and sea water. It also prevents thermal contraction cracking due to moderate heat hydration and is resistant to contact with alkaline reagents. Type I: This type of cement is for general purposes and suitable if special properties are not needed. It is generally used for constructing pavements, floors, reinforced concrete buildings, bridges, reservoirs, pipes, masonry units and precast concrete products. Type V: Type V cement is used in concrete exposed to severe sulfate action, principally in places where soil or ground water has high sulfate content. It is generally used in hydraulic construction, such as irrigation canals, tunnels, water conduits and drains. Type HS: Type HS cement is used in concrete that is exposed to severe sulfate action, principally where soil or ground water has high sulfate content. It is recommended for port construction, industrial plants and construction of sewage sites. The company's Portland Type HS cement has low reactivity with alkali-reactive aggregates, making it more durable than other types of cement. Type IL: Type IL cement is a blended Portland limestone cement. These cements are more environmentally friendly than Portland cements and have very similar performance to Portland Type I/II cements. The company's Type V, Fortimax and HS cement products are particularly suitable for construction in the northern coastal region of Peru, where sulfate and chloride concentrations from soil, ground water and sea water affect the durability of construction structures. The company's research and development department is equipped to produce custom-tailored cement products on demand. The company markets and distributes its cement primarily in 42.5 kilogram bags. Most of the company's bagged cement is sold to the retail sector consisting primarily of households that buy bags of cement to build or expand their own homes over time with little or no formal technical assistance (commonly referred to as auto-construcción). The bags are made of Kraft paper to preserve the quality of the cement. The company's bags include information relating to the composition of its cement, handling instructions, production dates and storage instructions. The company's cement bags have different colors to easily identify the different types of cement. Once bagged at its Pacasmayo, Rioja and Piura facilities, the company's cement is loaded onto trucks operated by third parties. Cement in bulk is sold to large industrial consumers. Concrete Products The company also produces and sells concrete products principally in the form of ready-mix concrete used in large construction sites, as well as precast, bricks, pavers and other precast materials. Ready-mix Concrete: Ready-mix is a blend of cement, aggregates (sand and stone), admixtures and water. It is manufactured and delivered to construction sites in a form that is ready to use. This mixture hardens to form a building material, ranging from sidewalks to skyscrapers. The company has 19 fixed and mobile ready-mix plants. Concrete Precast: The company produces and sells concrete precast, such as paving units, or paver stones for pedestrian walkways, as well as other bricks for partition walls and concrete precast for structural and non-structural uses. New Cement Based Products: The company has developed, and is in the process of developing more cement-based products that are innovative and easy building solutions. Some of these products are: Mortar for Brick Laying: Pre-dosed and bagged dry masonry mortar for block and brick laying. Mortar for Plaster: Pre-dosed mortar to plaster interiors and exteriors, walls and ceilings. Allows smooth finishes and thin applications Caravista Concrete: Concrete designed to be exposed without any additional coating or paint. Tremie Concrete: Concrete designed to be placed under water at depths greater than 1.5 meters. New Jersey Walls: Safety barriers used to separate traffic flows. Mortar for Brick Laying: Pre-dosed and bagged dry masonry mortar for block and brick laying. Viaforte Type MH: Cement of moderate heat of special hydration for stabilization of soils and road bases. The cement provides greater workability and less risk of cracking on site, also ensuring greater durability to the structure Bagged Dry Concrete: Pre-dosed mixture of cement, aggregates (Stone and Sand) and additives, that only requires the addition of water indicated on the package and mixing (manual or mechanical) to be used immediately Corner Block: Product that complements the structures built with the company's precast, giving better functionality to any corner. Beam Block: Product that is used to confine the upper part of walls built with the company's precast. Concrete Pipes: Precast reinforced concrete pipes that are installed without the need to open pit ditches or dredging of maritime floors. The main use of the driving pipe is to collect seawater (inlet pipe) and to bring brackish water back out to sea (outfall pipe). The company has built a 1.5 kilometer long underwater outfall project for the Talara Refinery, where it is necessary to build a water collection system for its fire and cooling system. Sheet Piles Presented and Assembled: Concrete piles that can be pre-stressed or reinforced (they are two different types of manufacturing) that sink one alongside the other, forming a containment structure, used as riparian defenses. The company manufactures pre-stressed and reinforced sheet piles that can form a coastal defense for rivers, ensuring the containment of water during rainy events, reducing the vulnerability of cities to floods. Quicklime The company produces and distributes quicklime, which has several industrial uses. Quicklime serves as a neutralizer, lubricant, drying and absorbing material, disinfectant, and as a raw material. Quicklime has various applications, including in the steel, food, fishing and chemical industries. It is also used in mining operations to treat water and industrial residues, in agriculture as a fertilizer enhancer and, to a lesser extent, in other industries. In Peru, quicklime is mainly used in the mining industry, as an additive to treat water residues. The company produces quicklime in finely and coarsely ground varieties and sell it either in bags of one metric ton or in bulk, according to clients' requirement. Suppliers As of December 31, 2022, all of the electricity requirements for the company's Pacasmayo and Piura facilities were supplied by Electroperú S.A. (Electroperú) and for its Rioja facility by ELOR. The company has a long-term electricity supply contract with Electroperú valid until 2026. In addition, the company has a medium-term electricity supply contract with Electro Oriente S.A. (ELOR) to supply the Rioja facility, which was recently extended until 2024. Consumer Base The company's retail marketing plans typically target the maestro de obra (foreman) who is usually the decision maker when buying cement and other related construction materials. The company also sells directly to small, medium and large private construction companies working on a variety of construction projects, from housing complexes to commercial developments. In the public sector, the company provides cement for national, regional and local governments carrying out construction projects, including housing complexes and public construction, ranging from local schools and hospitals to large infrastructure. Sales and Distribution Distribution The company's market extends from the Ecuadorian border in the north of Peru to the city of Barranca in the south (approximately 180 kilometers north of Lima), to the rainforest in the east and the Pacific Ocean in the west. Its market covers the provinces of Amazonas, Cajamarca, La Libertad, Lambayeque, Piura and Tumbes in the north; and San Martín and Loreto in the northeast. The company's Pacasmayo, Piura and Rioja facilities supply the entire northern region of Peru, interchangeably subject to where it is most efficient to ship from at the moment, depending on the distance and type of cement being produced, among other factors. In 2022, approximately 88.3% of the company's total cement shipments were in the form of bagged cement, substantially all of which was sold through retailers both within and outside of its distribution network. The remaining 11.4% of the company's cement was sold in bulk or in shipments of precast products or ready-mix concrete directly to large construction companies. The company has developed one of the largest independent retail distribution networks for construction materials in Peru, consisting of 341 local hardware stores, with which it has a distribution agreement. In addition, the company distributes to other independent retailers located throughout the northern region of Peru with whom it does not have contractual relationships. The company has built its distribution network by investing in strengthening its relationship with retailers. Even though its ready-mix sales are still a small proportion of its sales, the company expects this trend to change as infrastructure becomes a bigger driver of demand in the upcoming years. Additionally, the company sells and distributes other construction materials manufactured by third parties that are used alongside cement, such as steel rebar, plastic pipes and electrical wires, among others. Marketing and Brand Awareness The company uses its distribution network, together with its strategically located local commercial offices, to promote its products and brands, as well as to keep it informed of market developments. The company's distribution network has enabled it to build strong recognition for its Pacasmayo brand among maestros de obra, retailers and end consumers is important to its business, particularly because its cement is principally sold in bags to retail consumers. The company develops strong ties with its distributors by promoting income generating opportunities for them. For instance, the company gives them priority when hiring transportation to distribute its cement throughout its territory. Also, the company's large salesforce has the ability to cover most of the construction sites in northern Peru generating business opportunities that are then channeled through its distributors. Finally, the company's distributors enjoy various commercial and marketing benefits, such as rebates, special promotions, special credit conditions, and loyalty programs. The company has developed Mundo Experto, which is a virtual ecosystem made up of digital solutions that serves to join supply and demand and offers a superior purchasing experience leveraged on intensive use of technology to generate more value for its users. The digital solutions are targeted and customized for the different users, such as foremen, hardware stores, and the self-builder. Strategy The key elements of the company's strategy are to continue to focus on its core business of supplying the rising demand for cement; deepen its commercial relationship with retailers and end-consumers; continue to focus on being the preferred provider of building solutions; selectively pursue acquisitions; continue to strengthen its enterprise risk management; and maintain high environmental, social and governance standards. Properties The company owns and operates three cement production facilities. Its largest facility is located in the city of Pacasmayo, department of La Libertad. The second facility is located in the city of Piura, department of Piura. The company also owns and operates a smaller cement facility, located in the city of Rioja, department of San Martín. From the company's Pacasmayo and Piura facilities it supplies cement principally to the coastal and highland regions of northern Peru, including the cities of Piura, Chiclayo, Cajamarca, Trujillo and Chimbote. From its Rioja facility, the company supplies cement to the northeastern region of Peru, including the cities of Moyobamba, Tarapoto, Loreto, among others. Pacasmayo Facility As of December 31, 2022, the company's Pacasmayo facility had 9 kilns, which produce clinker (one of which is also equipped to produce quicklime), and an additional Waelz rotary kiln that produces quicklime. Additionally, the company's facility has a primary and secondary cone crusher located near its Acumulación Tembladera limestone quarry. The main crusher has installed crushing capacity of 800 metric tons per hour and the secondary crusher has installed crushing capacity of 170 metric tons per hour. The company's Pacasmayo facility operates with three horizontal rotary kilns with total installed annual clinker production capacity of 1,034,880 metric tons and six vertical shaft kilns with total installed annual clinker production capacity of 465,120 metric tons. The total installed annual clinker production capacity at the company's Pacasmayo facility is 1.5 million metric tons. The company's Pacasmayo facility also features three cement finishing mills with installed annual cement production capacity of 2.9 million metric tons. Its Pacasmayo facility is also equipped with silos containing storage capacity for 26,700 metric tons of cement. As of December 31, 2022, the company's Pacasmayo facility had installed production capacity of approximately 240,000 metric tons of quicklime per year, including the annual installed capacity of one of its clinker kilns and its Waelz rotary kiln, which are equipped to also produce quicklime. Piura Facility Annual installed production capacity of the company's Piura plant is 1.6 million metric tons of cement and 1 million metric tons of clinker. The company's Piura plant operates with a horizontal kiln with installed clinker production capacity of 1 million metric tons per year, as well as a cement mill with installed cement production capacity of 1.6 million metric tons per year. The company's Piura plant also has two storage silos with storage capacity of 240,000 metric tons of cement. Rioja Facility Annual installed production capacity of the company's Rioja plant is 440,000 metric tons of cement and 280,000 metric tons of clinker. Its Rioja facility operates with a small cone crusher and four vertical shaft kilns with total annual installed clinker production capacity of 280,000 metric tons and three cement finishing mills with total annual installed cement production capacity of 440,000 metric tons. The company's Rioja plant is also equipped with silos with storage capacity of 1,750 metric tons of cement. Ready-Mix Concrete Facilities The company also has 22 fixed and mobile ready-mix concrete and precast facilities located in the northern cities of Chimbote, Trujillo, Chiclayo, Piura, Cajamarca, Pacasmayo and Tarapoto among others. These facilities allow the company to supply ready-mix concrete and precast materials to small, medium and large construction projects throughout the entire northern region of Peru. As of December 31, 2022, the company's ready-mix operations had 191 mixer trucks, 34 concrete pumps and 2 pavers available to deliver ready-mix concrete. Mining Concessions The mining properties are located in Piura, Lambayeque, Cajamarca, Amazonas, Ica, Cusco, San Martin, La Libertad and Ancash Region. Tembladera The Tembladera property is located in Yonan district, Contumaza province, Cajamarca region, Peru. The area of the mining concession is 3,390.97 Hectares. The mining rights are granted by INGEMMET through a Presidential Resolution. Cementos Pacasmayo S.A.A. owns the mining concession and it is registered as 'Acumulación Tembladera' as a non-metallic mining concession. Virilá The Virilá property is located in the Sechura District, Sechura Province, Piura Region, Peru. The concessions are registered in INGEMMET as Virrilá 3, Virrilá 4, Virrilá 6, Virrilá 7, Virrilá 8, Virrilá 9, Virrilá 10, Virrilá 11, Virrilá 12, Virrilá 13, Virrilá 14, Virrilá 15, Virrilá 16, Virrilá 17, Virrilá 18, Virrilá 19, Virrilá 20, Virrilá 21, Virrilá 22, Virrilá 23 and Bayovar N° 4 with mining activity. The area of the mining property is 38,226.00 hectares. The mining rights are granted by INGEMMET through a Presidential Resolution. Cementos Pacasmayo owns the mining concession and it is registered as 'Unidad Económica Administrativa (UEA) Virrilá' as a non-metallic mining concession. Tioyacu The Tioyacu property is located in Elias Soplin Vargas district, Rioja province, San Martin region, Peru. The area of the mining concession is 400 hectares. The mining rights are granted by INGEMMET of the Energy and Mines Sector through a Presidential Resolution. Cementos Selva S.A.C owns the mining property and it is registered as 'Calizas Tioyacu' a non-metallic mining property. Regulatory Matters Mining concessions are granted by the Geological, Mining and Metallurgical Institute (Instituto Geológico Minero y Metalúrgico, or 'INGEMMET'), and all other concessions, including the company's mineral processing concessions, are granted by the Directorate General for Mining of the MEM. The environmental authority that monitors the company's operations, considering that cement production represents the highest proportion of its gross profit, is the Ministry of Production. The company is also required to register with the Ministry of Production any Insumos Químicos y Productos Fiscalizados (IQPF) activities they plan to carry out (Registro Único para el Control de IQPF). History Cementos Pacasmayo S.A.A. was founded in 1949. The company was incorporated in Lima, Peru in 1949.