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1
Extraction
The process begins with the exploitation and extraction of limestone, gypsum, and pozzolan.
Extraction
The process begins with the exploitation and extraction of limestone, gypsum, and pozzolan.
CONTENT
LETTER FROM THE CHAIRMAN OF THE BOARD
THE COMPANY AND ITS SUBSIDIARIES
01
THE COMPANY
AND ITS SUBSIDIARIES
  • MACROECONOMIC
    ENVIRONMENT
  • OPERATIONS
  • SUBSIDIARIES AND
    AFFILIATES
ONGOING PROJECTS
02
ONGOING
PROJECTS
  • CARPAPATA III HYDROELECTRIC PLANT
  • WORKS FOR TAXES
STAKEHOLDERS
03
STAKEHOLDERS
  • OUR EMPLOYEES
  • SAFETY AND OCCUPATIONAL HEALTH
  • ENVIRONMENTAL MANAGEMENT
  • DEVELOPMENT OF OUR COMMUNITIES
ECONOMIC AND FINANCIAL RESULTS
04
ECONOMIC AND FINANCIAL
RESULTS
MANAGEMENT
05
MANAGEMENT
  • BOARD OF DIRECTORS
  • MANAGEMENT
  • GOOD CORPORATE GOVERNANCE
ES
ANNUAL REPORT 2016
Slide to continue
CONTENT
LETTER FROM THE CHAIRMAN OF THE BOARD
THE COMPANY AND ITS SUBSIDIARIES
01
THE COMPANY
AND ITS SUBSIDIARIES
  • MACROECONOMIC
    ENVIRONMENT
  • OPERATIONS
  • SUBSIDIARIES AND
    AFFILIATES
ONGOING PROJECTS
02
ONGOING
PROJECTS
  • CARPAPATA III HYDROELECTRIC PLANT
  • WORKS FOR TAXES
STAKEHOLDERS
03
STAKEHOLDERS
  • OUR EMPLOYEES
  • SAFETY AND OCCUPATIONAL HEALTH
  • ENVIRONMENTAL MANAGEMENT
  • DEVELOPMENT OF OUR COMMUNITIES
ECONOMIC AND FINANCIAL RESULTS
04
ECONOMIC AND FINANCIAL
RESULTS
MANAGEMENT
05
MANAGEMENT
  • BOARD OF DIRECTOS
  • MANAGEMENT
  • GOOD CORPORATE GOVERNANCE
LETTER FROM THE CHAIRMAN
OF THE BOARD

To the Shareholders of UNACEM

2016 was a challenging year, the international environment was a complex and volatile one, in both economic and political terms, due primarily to the geopolitical changes in the European Union and the elections in the United States. The world economy grew at a moderate rate of 3.1%, according to IMF estimates, marked by a contraction in international trade, reduced investment, and the uneven performance of each country.

Perú also faced its own challenges. The first half of the year was marked by political uncertainty and lower investment, both public and private. Nevertheless, its GDP grew by 3.9%, the highest rate in the region, mainly due to the startup of major mining projects.

In a complex environment, in which the construction sector contracted by 3.1% compared to 2015, our dispatches fell by 7.9% and our revenues by 4.5%, but we managed to maintain our margins thanks to the implementation of important measures aimed at adequately managing our operating costs and our expenses. Additionally during 2016, we maintained strict control over CAPEX disbursements, which were allocated exclusively for completing those projects that we had already begun implementing in prior years, and that would allow us to increase efficiency and improve our competitiveness. As for our debt, in 2016 we continued to amortize our obligations in accordance with their payment timeline. Our objective is to reduce the Company’s leverage rates as quickly as possible. We also refinanced liabilities worth S/ 240 million, which helped improve our debt maturity profile at a lower financial cost. The generation of cash flows in the coming years will be important in order to meet the objective set forth above.

As a result of the Company’s solid fundaments and its growth potential, the credit rating agencies Moody’s and Standard & Poor’s maintained their ratings of Ba2 and BB+ in October and December 2016, respectively, despite the volatility of the international environment, although Standard & Poor’s changed its outlook from “Stable” to “Negative”, mainly due to the drop in sales volumes. We believe that this decrease in sales will gradually be reversed in the medium term, as public and private sector activity increases. Investors’ confidence in the Company’s fundaments was exhibited in the stable price of our international bonds, which remained above par nearly the entire year.

Our operations at the Atocongo and Condorcocha plants maintained stable levels of efficiency, with combined utilization ratios of 71.0% in clinker production and 61.9% in cement production. Additionally, with the entry into operation of the Carpapata III hydroelectric plant, together with Carpapata I and II, 55.0% of the energy necessary for our Condorcocha operations is self-generated, thus contributing to our efficiency and competitiveness. It is important to note that we worked very hard during the year to improve our safety practices, emphasizing training and implementing measures that have been reflected in improvements in our occupational health and safety indicators. We have a long way to go to achieve the standards we seek to reach, but we are convinced that we will succeed.

One of the pillars of our business is our customers’ satisfaction, and we continue to optimize our portfolio of products in order to adequately meet their needs. In this regard, we launched the new Cemento Andino Ultra HS in the market in October. Meanwhile Cemento Sol also celebrated 100 years in business in the Peruvian market, and continues to be recognized as one of the most preferred cement brands nationwide. The Progresol Network maintained its position as the largest network of home improvement stores in Peru, helping us—along with our direct points of sale in the central highlands and northeast of the country—to enjoy a close relationship with consumers.

In a sector that is increasingly consolidated at the international level, last year we focused on working on our Strategic Plan 2016-2021. This process allowed us to define our objectives for the next five years, materializing them in short-, medium-, and long-term initiatives, which will allow us to continue creating value through our products and services. We will achieve all of this while acting in accordance with our values of excellence, responsibility, ethics, commitment, innovation, and lawfulness, characteristics that we have interiorized in our organizational culture. It is our belief that only through the competition, hard work, and daily commitment of each one of our employees will we be able to achieve the objectives we have set and maintain the excellence of our operations. Our work during the coming years will be focused on the implementation of this Strategic Plan.

As for our subsidiaries, all of them managed to tackle the challenges posed by the environment, both operationally and economically. UNICON and CONCREMAX remain leaders in the ready mixed industry nationwide, despite the major drop in demand due to delays in large-scale infrastructure projects, which led to an 8.4% drop in their volumes. Nevertheless, a consistent policy focused on efficiency helped mitigate the impact on their operating margins.

CELEPSA registered an electricity production that was 22.0% higher than last year. However, in contrast to its higher revenues, it experienced a contraction in its margins due to the negative commercial situation in the electricity market. In 2016, CELEPSA continued with the construction of the Marañón hydroelectric plant, a project that is being financed with the company’s own funds, and which is scheduled to enter into operation in March 2017. It should also be noted that at the end of the year, it refinanced its debt under favorable conditions, from both a quantitative and qualitative standpoint.

In the United States, Drake Cement achieved a clinker production that was 20.0% higher than in 2015, as well as increasing its sales volumes by 17.2%. With these increased volumes, it has stabilized its operational efficiency, and is now focused on making improvements to its energy matrix in order to reduce its costs in the future.

In Ecuador, despite the drop in oil prices and their impact on the drastic reduction in the country’s national budget, which led to lower public investment in infrastructure, UNACEM Ecuador successfully reported a solid performance. In spite of the 14.7% decrease in its sales volumes, it was able to improve its EBITDA margin, thanks to the timely management measures taken.

Our PREANSA Perú and PREANSA Chile subsidiaries continue working on engineering solutions custom-designed for each client. During the third quarter, the construction of PREANSA Colombia was completed, and the plant manufactured and assembled its first pieces in November.

Through the Asociación UNACEM, we continue to work on a sustainable management that will enable the development of all of our stakeholders. We are convinced that, in order to be sustainable over the long term, we must remain committed to building capacities and fostering the development of social and infrastructure projects, especially in the communities closest to us, as well as strengthening our entire value chain

Finally, I would like to thank the Board of Directors; Sindicato de Inversiones y Administración S.A., which remained in charge of UNACEM’s General Management; Inversiones Andino S.A., for its administrative and financial advisory services; and especially, each one of our employees, whose loyalty, hard work, and enthusiasm will allow us to tackle all the challenges that await us.

At UNACEM, we remain firmly committed to the development of a responsible industry, seeking to reduce our impact on the environment and create value for all of our stakeholders, while taking on the challenges of development growth posed by today’s fast-changing environment. Our new products and services will help us to forge an even closer relationship with our customers.

We head into 2017 with optimism, and we remain committed to the consolidation of our operations, promoting the development of our country and region and building opportunities for all.

I invite you to learn about the most important events in UNACEM’s performance during 2016.

Sincerely,


Ricardo Rizo Patrón de la Piedra
Chairman of the Board
RESULTS
SALES
(IN MILLIONS OF SOLES)
EBITDA
(IN MILLIONS OF SOLES)
CAPEX
(IN MILLIONS OF SOLES)
DEBT / EBITDA
(TIMES)
RESULTS
SALES
(IN MILLIONS OF SOLES)
EBITDA
(IN MILLIONS OF SOLES)
CAPEX
(IN MILLIONS OF SOLES)
DEBT / EBITDA
(TIMES)

CEMENTO SOL CELEBRATED ITS 100th ANNIVERSARY IN THE PERUVIAN MARKET, WHERE IT IS ONE OF THE MOST VALUED BRANDS.

AFTER THREE YEARS OF PARTICIPATIVE DIALOGUE, THE COMPREHENSIVE AGREEMENT WAS EXECUTED WITH THE PEASANT COMMUNITY OF HUANCOY, ESTABLISHING COMMITMENTS FOR THE PROMOTION OF THE COMMUNITY'S SUSTAINABLE DEVELOPMENT.

IN OCTOBER, WE LAUNCHED CEMENTO ANDINO ULTRA HS, DESIGNED TO FIGHT SALTPETER, HUMIDITY, AND REACTIVE ALKALI AGGREGATES.

UNACEM RECEIVED THE GRAN EFFIE LATAM AND EFFIE PERÚ AWARDS FOR CEMENTO APU'S “AS STRONG AS YOU ARE” ADVERTISING CAMPAIGN.

OUR SAFETY INDICATORS IMPROVED SIGNIFICANTLY DURING THE YEAR, THANKS TO THE IMPLEMENTATION OF PROACTIVE INDICATORS AND OUR EMPHASIS ON TRAINING PROGRAMS.

CEMENTO
SOL CELEBRATED
ITS 100th
ANNIVERSARY
IN THE
PERUVIAN MARKET,
WHERE IT IS
ONE OF THE MOST
VALUED BRANDS.
AFTER THREE YEARS OF PARTICIPATIVE DIALOGUE, THE COMPREHENSIVE AGREEMENT WAS EXECUTED WITH THE PEASANT COMMUNITY OF HUANCOY, ESTABLISHING COMMITMENTS FOR THE PROMOTION OF THE COMMUNITY'S SUSTAINABLE DEVELOPMENT.
IN OCTOBER,
WE LAUNCHED
CEMENTO
ANDINO ULTRA
HS,
DESIGNED
TO FIGHT
SALTPETER
HUMIDITY
AND REACTIVE
ALKALI AGGREGATES.
UNACEM RECEIVED
THE GRAN EFFIE
LATAM AND EFFIE
PERÚ AWARDS
FOR CEMENTO APU'S
“AS STRONG
AS YOU ARE”
ADVERTISING
CAMPAIGN.
OUR SAFETY INDICATORS
IMPROVED SIGNIFICANTLY
DURING THE YEAR,
THANKS TO
THE IMPLEMENTATION
OF PROACTIVE INDICATORS
AND OUR EMPHASIS
ON TRAINING PROGRAMS.
THE COMPANY
AND ITS
SUBSIDIARIES
MACROECONOMIC
ENVIRONMENT

In 2016, worldwide economic activity continued to exhibit signs of recession, with a still-hesitant recovery of the advanced economies and a decidedly uneven behavior in emerging economies. International growth has been estimated at just 3.1%, explained primarily by worldwide political and macroeconomic turbulence, which led to a significant contraction in international trade and a lower investment level in general.

The advanced economies also experienced uneven growth: the Euro Zone, despite the negative effects of Brexit, achieved an estimated growth of 1.7% thanks to fiscal and monetary expansion policies that sought to bolster consumption and maintain internal demand as the driving force of growth. The United States, on the other hand, reported a lower level of activity compared to 2015, with a growth of 1.6% (2.6% in 2015), despite job creation, improvements in the housing market, and consumer spending.

MACROECONOMIC ENVIRONMENT

For their part, the emerging economies registered an estimated growth rate of 4.1%, thanks to gradual recovery of commodity prices and heterogeneous financial conditions. Even so, growth varied by region: the Asian economies brought the average up, together with India and the Middle East, while other economies reported an unfavorable performance during the year. According to the IMF’s most recent estimates, China grew by approximately 6.7% in 2016, maintaining its emphasis on the consumer and service sectors, as well as expanding credit and adopting policies to drive growth, which allowed the country to soften concerns regarding its slowdown.

The Peruvian economy, on the other hand, led the region in growth, with a rate of 3.9%. The first half of the year was marked by political uncertainty and a reduction in public and private investment, which could not be reversed during the second half of the year. Greater dynamism in traditional exports (primarily from mining) served as a counterweight to the contractions in the fishing and agricultural sectors.

The main economic activity indicators during 2016 were as follows:

  • With a volatile behavior during the year, the sol had appreciated against the dollar by 1.6% as of the close of 2016, as a result of the rise in commodity prices and the fiscal measures implemented in the advanced economies, attenuated by the intervention of the Peruvian Central Reserve Bank (BCRP). The closing exchange rate for the period was S/3.360 per U.S. dollar (S/3.413 as of the close of 2015).
  • An inflation rate of 3.2%, above the target range set by the BCRP but less than that registered in 2015 (4.4%), mainly due to fluctuations in the exchange rate and the rising price of fuel, electricity rates, and food products.
  • A trade balance surplus of US$ 1.730 billion due to lower net imports and higher mineral exports (33.1%), as well as a fiscal deficit equivalent to approximately 2.7% of the GDP, mainly explained by non-financial expenses.
  • Net international reserves of US$ 61.686 billion, a 0.3% increase from the US$ 61.485 billion as of the close of 2015.

The construction sector closed out the year with a contraction of 3.1%. This result was due to the 5.0% reduction in the physical progress of works, caused by the decrease in public investment, mainly by the central government, which led to lower cement consumption.

OPERATIONS

PRODUCTION AND DISPATCH IN THE LOCAL MARKET

During 2016, our operations at the Atocongo and Condorcocha plants reported stable operating results, and operated at a combined utilization rate of 71.0% in clinker production (82.3% in 2015) and 61.9% (71.6%) in cement production, considering the capacity added with the entry into operation of mill 8 in the Condorcocha plant at the start of 2016.

Total clinker production came to 4,750,298 t, 13.9% lower than that achieved in 2015 (5,516,496 t). This decrease was primarily due to the fact that kiln 2 at the Atocongo plant had a scheduled stoppage for a total of 132 days, from March to July, together with the stoppage (also scheduled) of kiln 3 in the Condorcocha plant. Both stoppages were scheduled for the performance of major maintenance, also taking into consideration the drop in demand during the first half of the year, as well as the fact that both plants had sufficient clinker stock for cement production.

In terms of cement, our production totaled 5,137,688 t, registering a decrease of 7.7% compared to 5,564,807 t in the previous year. The drop in production was due to the contraction of demand in the local market, as a result of the contraction of the construction sector.

As of the close of 2016, production at the Atocongo plant (Lima) came to 3,395,855 t, and 1,741,833 t at the Condorcocha plant (Junín), which allowed us to fully meet the local demand for cement.

CEMENT PRODUCTION BY PLANT, 2012-2016
(IN THOUSANDS OF METRIC TONS)

Over the course of the year, we continued working to optimize operations and their associated costs:

  • At Atocongo, we continued to optimize the use of raw materials in our clinker manufacturing process, which allowed us to reduce the waste/limestone ratio to 0.15 in the Atocongo quarry. Taking the other operations into account, this gave us an average ratio of 0.24, all with adequate quality control.
  • At Condorcocha, cement mill 8 registered an excellent performance throughout the year, producing 686,000 t, at a production rate of 121.3 t/hr., with a specific consumption of 47.8 kWh/t, thanks to which the Condorcocha plant was able to improve its average production indicators.

Additionally in 2016, we focused our efforts on defining our Strategic Plan for the 2016-2021 period. This project, which involved various work teams, allowed us to establish our objectives for the next five years, materializing our capacities in a highly competitive environment, based on the pillars that define our identity as a company: excellence, responsibility, ethics, commitment, innovation, and lawfulness. As a result of this process, we defined a series of short-, medium-, and long-term initiatives on which we will work in the coming five years, thus maintaining our position as leaders in the sector through an ever more efficient operation.

OPERATIONS

During the year, the total volume dispatched came to 5,109,203 t, a figure 7.9% lower than the dispatch registered in 2015, which totaled 5,546,155 t. This decrease was reported as a result of the contraction in the sector, which had a greater effect in our area of influence, compared to the other regions of the country, above all during the first half of the year.

DOMESTIC CEMENT DISPATCHES, 2007-2016
(IN THOUSANDS OF METRIC TONS)

On the other hand, the nationwide demand for cement, according to the Cement Producers’ Association (ASOCEM), was 9,643,095 t, 3.4% less than the demand in 2015, which totaled 9,978,467 t. This demand includes dispatches by local producers.

Our Strategic Plan
2016 - 2021 defines
the short-, medium-, and long-term
objectives on which we will work
during the coming five years.
We continue to focus on
creating more and more
value through our brand
portfolio. In October, we
launched Cemento Andino
Ultra HS.
OPERATIONS

SALES

We sell our products through two business units: bagged cement and bulk cement, which accounted for 77.0% and 23.0% of the total dispatched in 2016, respectively. It is important to note that the bagged business unit registered a favorable performance, while the bulk cement business unit contracted by 18.0%.

The products sold by the bagged cement business unit are as follows: Cemento Andino, Cemento Sol, Cemento Atlas, Cemento Andino IP, Cemento Andino IPM, Cemento Andino Type V, Cemento Andino Ultra HS, and Cemento Apu.

The portfolio of our bagged products is primarily sold through two distribution channels: the traditional home improvement store channel (consisting of the Progresol Home Improvement Store Network and other home improvement stores that are not members of this network) and the modern home improvement store channel (consisting of large self-service home improvement stores).

During 2015, we continued to focus on the objective of optimizing our portfolio of bagged products. In October 2016, we launched a new product in the market: Cemento Andino Ultra HS. This cement features special characteristics, designed to fight saltpeter, humidity, and reactive alkali aggregates. This product has an auspicious launch, growing 7.2% in three months in a market in decline.

During this year, we continued to focus on the objective of creating more and more value through our portfolio of brands, successfully remaining market leaders and maintaining preference among consumers on the coast, as well as in the highlands and jungle.

In 2016, Cemento Sol celebrated its 100th anniversary in the Peruvian market. It is recognized as one of the most valued cement brands nationwide, confirming our customers’ and final consumers’ preference for our products.

The bulk cement business unit, on the other hand, sells Type I, IP, IPM, GU, V, and now Type HS cements, mainly supplying companies engaged in the sale of ready mixed, hydroelectric plants, mining and oil companies, construction companies, and companies that manufacture cement byproducts.

Over the course of the year, the dispatches of this business unit fell by 18.0% compared to 2015, due to the fact that the real estate market in Lima experienced a contraction, as well as the completion of two of the largest hydroelectric projects in the departments of Huánuco (Chaglla hydroelectric plant) and Huancavelica (Cerro El Águila hydroelectric plant).

Our sales strategy continues to focus on innovation, not only in goods and services, but also in new business models that enable us to continue strengthening sustainable business relationships throughout our value chain (from our plants to the home improvement points of sale). For this reason, we will continue strengthening the bonds and loyalty of home improvement store owners, through our outstanding business management and greater coverage thanks to the Progresol Home Improvement Store Network.

We also have direct points of sale through distributors located in the largest cities of the central highlands and the northeast region of the country.

OPERATIONS

EXPORTS AND PORT OPERATIONS

During 2016, the clinker exports performed through our pier in Conchán fell by 33.7% compared to the previous period, for a total volume of 210,504 t (317,349 t in 2015). This was largely due to the excess supply of product around the world and low export prices, especially with regard to clinker coming from Asia. Our main export destination in 2016 was Chile.

For its part, the tonnage of bulk solids handled by the Conchán pier fell by 50.2% compared to 2015. In addition to export clinker, the main products unloaded at the Conchán pier during 2016 were gypsum and coal, for a total of 273,866 t.

INTEGRATED MANAGEMENT SYSTEM (IMS)

Our Integrated Management System enables us to optimize our extractive, production, logistics, commercial, and legal management processes throughout our operations, in order to improve our competitiveness in the sector. This system, which has now been in place at the Company for some time, allows us to set objectives and goals with regard to quality, occupational health and safety, the environment, and protection management, among other aspects.

We currently hold ISO 9001, ISO 14001, and OHSAS 18001 certifications for the Atocongo and Condorcocha plants, and Business Alliance for Secure Commerce (BASC) and Ship and Port Facility Security (SPFS) certifications for the Conchán pier.

In 2016, at Atocongo, we conducted customer satisfaction surveys for both domestic and international customers. The domestic satisfaction survey was entrusted to an independent consulting firm, while international satisfaction was determined through direct surveys. Both studies confirmed that we have continued to meet our customer satisfaction objectives in terms of market coverage and the presence of our products, as well as maintaining our ship loading and unloading speed, among other achievements.

At Condorcocha, on the other hand, we performed comprehensive internal audits, as well as comprehensive audits on our contractors, in order to verify their compliance in matters of environmental management and occupational health and safety. This year, we were recertified under ISO 9001:2008 and OHSAS 18001:2007 standards for this plant.

Planta Atocongo
Atocongo Plant
Villa María del Triunfo, Lima (1974)
> ESTUDIO BRAND
GRAPH-IPSOS PERÚ:

MOST WIDELY
PREFERRED CEMENT BRAND
IN THE PERUVIAN MARKET.
> MILLWARD BROWN:
TOP 10 MOST
VALUABLE PERUVIAN
BRANDS.
CEMENTO SOL
TURNS 100 YEARS
First design for the Cemento Sol bag, created in 1916.
Cemento Sol has now played a part in Perú’s development since 1916, helping to build thousands of homes and many of the country’s greatest feats of architecture and engineering. Thanks to its widely-recognized strength and coolness, it has remained the preferred brand of construction specialists for all these years. Today, it is one of the most highly valued brands in the country.
Second Cemento Sol packaging design. Right: Current presentation of Cemento Sol, designed in 2016.
SUBSIDIARIES
AND AFFILIATES

INVECO S.A. / UNICON S.A.

(Ownership: 93.4% of INVECO / 100.0% of UNICON)

UNICON is the Peruvian leader in the production, distribution, and sale of ready mixed and related goods and services. In May, it celebrated 20 years in the Peruvian market.

During 2016, it continued to use its brand in the sale of aggregates, pumps, concrete prefabs (cobblestones, blocks, bricks), pavement and concrete for mining. The company provides shotcrete services for tunnel support, as well as cemented backfill.

Ready mixed dispatches nationwide totaled 2,012,037 m³, 6.0% lower than the dispatch registered in 2015. This is mainly explained by the sector’s slowdown, especially with regard to large-scale infrastructure projects.

The most important commercial milestones achieved by UNICON in 2016 include:

  • Launch of the Unibase ready mixed concrete product at the beginning of the year, designed for bases, pedestals, foundations, and/or footings, thus complementing the line especially aimed at medium- and small-scale works, together with the Unitecho and Uniplaca products.
  • Inauguration of the new Maravillas plant, especially designed for the UNICON Pumps business unit. This location, as its name in Spanish (“miracles”) suggests, will serve as a hub for all operations, as well as the maintenance of vehicles used in the pumping service, thus improving dispatch efficiency and allowing for greater control of vehicles.
  • Continued reinforcing the use of the “SI UNICON” online information system for our customers, widely praised as an innovative tool, which was named a finalist in two categories of the Entrepreneurial Creativity Contest organized by the Universidad Peruana de Ciencias Aplicadas: “Intermediate Goods and Services” and “Customer Service”.

As part of our commitment to sustainability, during 2016, SGS del Perú was invited to perform the certification process for the measurement of the carbon footprint at the San Juan and Materiales plants. UNICON obtained ISO 14064-1 certification, backing the adequate emissions level in the plants’ production and distribution processes. It should be noted that our optimal resource management is due mainly to the increased use of vehicular natural gas (VNG) instead of diesel, which resulted in a 50.0% reduction of fuel costs.

In terms of management, in 2016, UNICON was recognized by Perú 2021 as a socially responsible company (SRC) 2015-2016; obtained recertification under the ISO 9001:2008 Standard in Design, Manufacture, Sale, and Supply of Ready Mixed Concrete at its fixed plants nationwide; and was recertified under ISO 9001 and OHSAS 18001 standards.

The audited financial statements of UNICON, as of December 31, 2016, show the following results:

  • Net sales of S/629.6 million (S/712.1 million in 2015).
  • Net profit of S/25.2 million (S/32.0 million in 2015).
  • Net shareholders’ equity of S/360.6 million (S/367.5 million in 2015).
UNICON launched Unibase
ready mixed concrete,
designed for bases,
pedestals, foundations
and footings.
SUBSIDIARIES AND AFFILIATES

CONCREMAX S.A.

CONCREMAX S.A. (formerly Firth Industries Perú S.A.) is a subsidiary owned entirely by UNICON. At present, CONCREMAX has three business units: ready mixed concrete, under the CONCREMAX brand; the hollow-core slab system for roofs, under the TECHOMAX brand; and its line of bagged dry mixes, under the TROMIX brand.

CONCREMAX launched the hollow-core slabs, under the TECHOMAX brand, in the market in October. For its part, TROMIX launched a spray-on render, which is a ready-to-use cement mortar that can be sprayed on, suitable for both indoor and outdoor surfaces.

In 2016, CONCREMAX’s ready mixed dispatches nationwide totaled 592,051 m³, a volume 16.0% lower than the dispatch registered in 2015.

The audited financial statements of CONCREMAX, as of December 31, 2016, show the following results:

  • Net sales of S/214.8 million (S/261.7 million in 2015).
  • Net profit of S/2.1 million (S/8.3 million in 2015).
  • Net shareholders’ equity of S/88.8 million (S/86.7 million in 2015).

BASF Construction Chemicals Perú S.A.

UNICON holds a 30.0% share in the capital stock of BASF Construction Chemicals Perú S.A.

BASF is a multinational German company, present in over 170 countries around the world, which manufactures and supplies additives for concrete, as well as adhesives and grouts for masonry, grouts for industrial equipment mounting, and products for the repair of concrete structures, among other products.

The audited financial statements, as of December 31, 2016, show the following results:

  • Net sales of S/58.7 million (S/63.8 million in 2015).
  • Net profit of S/7.1 million (S/6.9 million in 2015).
  • Net shareholders’ equity of S/20.7 million (S/20.5 million in 2015).

Entrepisos Lima S.A.C.

UNICON holds a 50.0% share in the company Entrepisos Lima S.A.C.

This company offers prefabricated concrete products as a construction solution for different structural elements in building and infrastructure works. It is a specialist in lightweight prefabricated products, with unit weights of up to 10 tons.

The audited financial statements, as of December 31, 2016, showed the following results:

  • Net sales of S/26.0 million (S/31.1 million in 2015).
  • Net profit of S/2.3 million (S/3.9 million in 2015).
  • Net shareholders’ equity of S/8.9 million (S/9.8 million in 2015).
SUBSIDIARIES AND AFFILIATES

COMPAÑÍA ELÉCTRICA EL PLATANAL S.A. – CELEPSA

(Ownership: 90.0%)

In 2016, CELEPSA’s net revenues for power and energy totaled US$ 46.8 million, due to the El Platanal hydroelectric plant’s production of 909 GWh. This result is 22.0% (264 GWh) lower than the production for 2015, due to the lower volume of water in the Cañete River Basin during 2016.

As a result of its contractual commitments, CELEPSA sold 1,657 GWh of energy, of which 768.2 GWh were sales in the regulated market, while 888.8 GWh went to its customers in the free market. In total, the power supplied to its free and regulated customers ranged from a high of 208 MW to a low of 167 MW.

In terms of energy produced in 2016, CELEPSA produced 909 GWh of a national total of 48,326 GWh. This put CELEPSA in twelfth place in national production for the National Grid System (SEIN), with a share of 1.9%. Among hydroelectric plants, its 4.0% share situated it in eighth place.

Over the course of the year, CELEPSA’s management prioritized its compliance with the environmental impact assessment and environmental management. It also continued to develop its Community Relations Plan, which emphasizes communication and citizen participation, contributing to local development, compliance with commitments, and social monitoring. It should be noted that the company is also the promoter of the Trust Fund of the Nor Yauyos Cochas Scenic Reserve, the first private trust fund dedicated to conservation and recognized by the National Service for State-Protected Natural Areas (SERNANP).

Over the course of 2016, CELEPSA continued with its objective of increasing its energy generation capacity and EBITDA using its own resources gained through its performance, obtaining new, favorable conditions for its existing financing with Banco de Crédito and Scotiabank.

CELEPSA’s audited financial statements, as of December 31, 2016, show the following results:

  • Net sales of S/351.9 million (S/307.9 million in 2015).
  • Net profit of S/2.6 million (S/1.6 million in 2015).
  • Net shareholders’ equity of S/701.8 million (S/676.3 million in 2015).

Hidro Marañón S.R.L.

Construction of the Marañón hydroelectric plant continued in 2016. As of December, the project was 87.0% physically complete.

Hidro Marañón requested the modification of the technical characteristics of Marañón hydroelectric plant contained in the concession agreement, in order to ensure the rational use of hydropower resources. On May 16, 2016, the Ministry of Energy and Mines issued Ministerial Resolution No. 171-2016-MEMIDM, approving the reduction in the project’s installed power to 18.4 MW as a generation project with renewable energy resources (RER).

The Marañón hydroelectric plant uses the water of the Marañón River at 2,900 meters above sea level, near the town of Nuevas Flores, in the province of Huamalíes, region of Huánuco. The plant is expected to be in operation by the end of the first quarter of 2017.

CELEPSA continued with
the construction of the
Marañón Hydroelectric
Plant, which will begin
operating in 1Q17.
SUBSIDIARIES AND AFFILIATES

CELEPSA Renovables S.A.C.

With the goal of developing new hydroelectric projects, CELEPSA Renovables is currently working on the evaluation and implementation of new hydroelectric plants with renewable energy resources (RER).

Among the works it has directed and supervised, together with ARPL, is the construction of the Carpapata III hydroelectric plant property of UNACEM.

Ambiental Andina S.A. – AMBIAND

Engaged in the provision of meteorology and hydrology services, as well as the evaluation and development of hydroelectric projects, AMBIAND is a company incorporated in April 2013, in which CELEPSA holds a 50.0% stake in its capital stock, which totals S/802,000 as of December 31, 2016.

In 2016, AMBIAND achieved net sales of S/2.4 million. The company mainly serves customers in the energy, agriculture, and consumer sectors, as well as services and infrastructure, which seek to minimize risks and reduce the impacts of climate on their operations thanks to the timeliness and accuracy of AMBIAND meteorology area, which has cutting-edge weather monitoring and prediction tools.

SUBSIDIARIES AND AFFILIATES

SKANON INVESTMENTS, INC. / DRAKE CEMENT, LLC

(Ownership: 85.0% of Skanon Investments / 94.1% of Drake Cement)

UNACEM holds 85.0% of the shares of its subsidiary Skanon Investments, Inc. Additionally, our related companies hold 13.1% of said shares. Skanon Investments, in turn, owns 94.1% of Drake Cement and 100.0% of the companies grouped together under the Drake Materials brand.

According to the estimates of the Portland Cement Association (PCA), the cement market in Arizona shrank by 0.5% in 2016 compared to the previous year. The clinker production volume totaled 503,226 t, 20.0% higher than the 419,656 t produced in 2015. As a result, Drake Cement’s net cement sales volume was 546,301 short tons, representing a growth of 17.2% over the 465,984 short tons sold in 2015. Thus, Drake Cement’s estimated market share in Arizona was 24.2% in 2016.

This growth in sales volume was mainly due to the agreement reached in 2015 with California Portland Cement (CPC), a subsidiary of the Taiheyo Corporation of Japan, by virtue of which CPC undertakes to purchase a significant quantity of Drake Cement’s cement production through the end of 2018, in addition to purchasing aggregates from Drake Materials.

On the other hand, construction was completed on a high-efficiency separator in the cement mill in July 2016, thus improving our production efficiency and strengthening the control of our processes.

In terms of its energy matrix, Drake has replaced up to 30.0% of the coal used with pet coke, resulting in a reduction in its costs. It is also currently conducting tests with other types of alternative fuels, which may lead to improvements in the plant’s environmental standards.

The Portland Cement Association remains optimistic with regard to the growth of the cement market in Arizona, estimating that it may grow by around 4.1% in 2017. However, the market in this state has not yet recovered in terms of consumption levels and cement price registered prior to the real estate crisis of 2007.

The consolidated financial statements of Skanon Investments, Inc., as of December 31, 2016, showed the following results:

  • Net sales of US$83.3 million (US$83.1 million in 2015).
  • Net loss before taxes of US$38.2 million (US$41.0 million in 2015).
  • Net shareholders’ equity of US$253.4 million (US$291.6 million in 2015).

PREFABRICADOS ANDINOS PERÚ S.A.C. – PREANSA PERÚ

(Ownership: 50.0%)

2016 was an important one for PREANSA Perú. Despite the problems in the construction sector, the company achieved record production and turnover levels during the year, positioning itself as a safe, flexible alternative in the Peruvian market that offers long-term savings in time and costs for its customers. Just as importantly, it offers solutions for large-scale infrastructure projects through industrialized concrete structures.

Assembly works performed represented a total turnover of S/30.9 million, higher than the S/23.7 million registered in 2015. Production surpassed 8,900 m³, making it possible to achieve a solid cost management by scale.

During 2016, PREANSA Perú exhibited outstanding growth in the performance of large-scale works, completing the parking garage project on Avenida Rivera Navarrete in the district of San Isidro and starting the manufacturing process for the maintenance shop building of Line 2 of the Lima Metro, among other private contracting projects.

The audited financial statements of PREANSA Perú, as of December 31, 2016, showed the following results:

  • Net sales of S/31.5 million (S/25.2 million in 2015).
  • Net profit of S/2.9 million (S/1.3 million in 2015).
  • Net shareholders’ equity of S/42.0 million (S/39.0 million in 2015).
The construction of
the Preansa Colombia
plant was completed
in July.
SUBSIDIARIES AND AFFILIATES

PREFABRICADOS ANDINOS S.A.S. – PREANSA COLOMBIA

(Ownership: 100.0% by PREANSA Perú)

At the close of 2016, PREANSA Perú made capital contributions of US$ 8.3 million to its subsidiary Prefabricados Andinos S.A.S. (PREANSA Colombia), completing the construction of the large-scale industrialized concrete structures factory in the zone of Cundinamarca, on the outskirts of Bogota, which has an annual capacity of 15,000 m³.

The factory’s construction began in 2015, and the roof was finished in July 2016, after which the machinery was commissioned during that same month.

In August, the first pieces were manufactured as part of a contract for 42 beams for the construction of an urban tunnel in the city of Armenia, Quindío, whose construction was complete in November. In December, the contract for a 52,000 m³ industrial project was awarded in the zone of Zipaquirá, which will commence in March 2017.

PREFABRICADOS ANDINOS S.A. – PREANSA CHILE

(Ownership: 51.0%)

During 2016, PREANSA Chile concentrated its activities on the performance of public works promoted by the Chilean government, as part of its economic reactivation plan.

PREANSA Chile continued supplying pre-stressed concrete beams for Chile’s largest road concessions, Ruta Concepción Cabrero and Ruta 60 San Felipe; and completed the supply of beams for the remodeling of the Rotonda Pérez Zujovic traffic circle, the largest work in the capital. The company was also present at the Santiago Metro work, supplying the roof beams for seven stations, most notably Lo Valledor, Cerrillos y Franklin, and Línea 6.

In the private sector, it performed the additive and solvent factory project of the COPEC group and the Camanchaca fishery group, which was completed in record time.

Turnover during 2016 totaled US$ 11.0 million, while contracting of new works came to US$ 7.7 million (36.0% lower than in 2015). Annual production was 9,603 m³.

The audited financial statements of PREANSA Chile, as of December 31, 2016, showed the following results:

  • Net sales of S/36.9 million (S/42.0 million in 2015).
  • Net loss of S/5.9 million (S/10.5 million net loss in 2015).
  • Net shareholders’ equity of S/11.5 millions (S/17.3 million in 2015).
SUBSIDIARIES AND AFFILIATES

INVERSIONES IMBABURA S.A. – UNACEM ECUADOR S.A.

(Ownership: 100.0% of Imbabura / 98.6% of UNACEM Ecuador)

In Ecuador, during 2016, the construction sector was one of the production sectors hardest hit by the economic slowdown, in terms of both construction volume and job creation. However, thanks to its sound costs and business management, as well as the efforts by all of the company’s areas to maintain its operating excellence, UNACEM Ecuador successfully retained its market share, with a sales volume of 1.18 million tons of cement, a result 14.7% lower than the 1.38 million tons sold in 2015.

In terms of operations, health and safety remained the fundamental values throughout the company’s value chain. In 2016, its “Maestro Seguro” (“Safe Foreman”) program trained 1,538 construction workers, for a total of 5,480 beneficiaries since the program was started in 2012. This achievement, together with its “Volante Seguro” (“Safe Driver”) program, helped it to close out 2016 with 1,285 days without injuries in road accidents.

UNACEM Ecuador also continued to work on substituting fossil fuels with alternative fuels such as biomass and used oil, achieving a new record in 2016 of 19.1% biomass in its processes. It also continued to implement the project for the overhaul of the bag filter, which will require a total estimated investment of US$ 9.0 million.

The company is also participating in the construction of the iconic Quito Metro, with its Magno HE product, a high-performance cement at early ages, which will be used in the keystones of the tunnels through which this new transportation system will move throughout Ecuador’s capital.

At the community level, UNACEM Ecuador S.A. continued working together with the town councils of the communities in its area of influence on six pillars of action: human resources and social development; investment in social issues, health, and the environment, socioeconomic development; jobs and transportation; communication and dialogue; and strategic alliances. Additionally, in July 2016, it declared its adherence to the United Nations Global Compact, as a founding member of the local network.

The audited financial statements of UNACEM Ecuador S.A., as of December 31, 2016, showed the following results:

  • Net sales of US$ 152.3 million (US$178.1 million in 2015).
  • Net profit of US$ 35.8 million (US$38.3 million in 2015).
  • Net shareholders’ equity of US$115.9 million (US$134.2 million in 2015).

Canteras y Voladuras S.A. – CANTYVOL

CANTYVOL S.A. is a subsidiary of UNACEM Ecuador S.A. engaged in the extraction and sale of raw materials for the manufacture of cement.

During 2016, CANTYVOL S.A. produced 965,000 tons of crushed limestone, 283,000 tons of pozzolan, and 223,000 tons of clay.

In its Selva Alegre mining concession, thanks to the operation of the innovative Quinde Project, it achieved an average monthly production of 773 t/hr., compared to 723 t/hr. in 2015. The Quinde Project consisted of the construction of a tunnel and a vent inside the mountain for the safe extraction of limestone, known as a glory hole system. The project also made it possible to eliminate potential environmental impacts caused by the natural transfer system. As an additional contribution to the operations’ safety, a moving barrier was installed at the tunnel’s entrance in 2016, to protect against falling rocks.

After successfully passing the audits for the certification of its environmental management system, on January 15, 2016 CANTYVOL S.A. received its ISO 14001 certification, which validates the rigorous performance of administrative and operating procedures, protocols, and controls in all of the activities inside the Cumbas (pozzolan), Selva Alegre (limestone), and Pastaví (clay) mining concessions.

The audited financial statements of CANTYVOL, as of December 31, 2016, showed the following results:

  • Net sales of US$ 6.7 million (US$7.7 million in 2015).
  • Net results of US$ 0.5 million (US$0.7 million in 2015).
  • Net shareholders’ equity of US$2.7 million (US$3.6 million in 2015).
UNACEM Ecuador continued
working on substituting
fossil fuels with alternative
fuels, achieving a new
record of 19.1% biomass
substitution in the process.
ONGOING
PROJECTS
ONGOING PROJECTS

In 2016, we limited our investments to completing the Carpapata III project, which was already underway. The completion will result in significant savings in costs, operating efficiency, and improved competitiveness.

We also continued to participate in public infrastructure projects, under the Works for Taxes Act. We firmly believe that our active participation in these types of government initiatives is an important tool for being more active in the performance of works around our areas of influence.

Of the total energy
consumed in both
plants, 95.0% came from
renewable sources.
CARPAPATA III
HYDROELECTRIC PLANT

During the first half of 2016, we continued with the construction of the works of the new Carpapata III hydroelectric plant project. The construction of the canal and the 1.4 km headrace tunnel, as well as the box cross-section in the rock mass, was successfully concluded in March.

After that, we continued with the construction of the forebay and the spillway, with the installation of the penstock inside the sloped, concrete-lined tunnel. These works were completed in June.

The civil works for the engine room, located on the surface, concluded in March, after which we immediately proceeded with the assembly works of the two Francis turbines and the rest of the equipment over a period of three months. At the same time, works were performed for the floodgates, intake, desander, electrical substations, and transmission lines from Carpapata III to Carpapata I. These works were completed in June.

The new plant thus began its test period during the second half of 2016, successfully performing synchronized generation.

Carpapata III has a generation capacity of 12.8 MW, using a net water height of 123.4 meters and two Francis turbines, with a plant factor of 70.0%. We have thus achieved a major milestone by incorporating this new energy into the self-generation capacity of our facilities at the Condorcocha plant.

WORKS FOR TAXES

We implemented the following projects under this mechanism:

PAVING OF AVENUES IN THE DISTRICT OF SHANGUACHI, OYÓN

In June 2016, as part of an agreement with the Provincial Municipality of Oyón, we completed the construction works for 2.5 km of concrete pavement on the two main roads in the district of Shanguachi. The works included the construction of retaining walls along some stretches, as well as sidewalks and gutters to dispose of rainwater.

This project, which represents a major contribution to the development of this community’s infrastructure, required a total investment of S/8.0 million.

PUBLIC SAFETY IN VILLA MARÍA DEL TRIUNFO, LIMA

As part of an agreement with the District Municipality of Villa María del Triunfo, in May 2016 we completed the works for a public safety system by installing 38 video cameras in the seven zones of this district, on concrete posts measuring up to 11 meters high. These cameras are interconnected by a fiber optic network, and are monitored from a control room constructed at the municipal offices, equipped with a cutting-edge technological system made up of a series of monitors, computers, servers, and other equipment.

This agreement—which includes the purchase of three vehicles for the municipal police force, as well as financing for four years’ maintenance—required an investment of S/3.4 million, making a major contribution to public safety supervision in the district.

STAKEHOLDERS
STAKEHOLDERS

We continue to be committed to the country’s economic and social development. As such, we have prioritize actions aimed at responsible operations, with high standards of quality, safety, care for the environment, and labor and human rights. Through the Asociación UNACEM, we also manage and promote social responsibility and investment initiatives.

MAIN STAKEHOLDERS
OUR
EMPLOYEES

UNACEM’s leadership in the sector is possible thanks to our highly skilled team, which allows us to successfully tackle the new challenges posed by the economy and our industry. We have implemented a training strategy that allows our employees to develop both personally and professionally within the organization, providing them with a safe and healthy workplace environment that meets their individual needs.

In 2016, we worked with a total of 761 employees, including the Company’s entire payroll.

CLASSIFICATION OF EMPLOYEES IN 2016
Clasification Otocongo Plant Condorcocha Plant Total
Administrative 153 52 67 2 274
Employees 85 27 39 3 154
Workers 139 0 193 1 333
Total 377 79 299 6 761
Leyendas:    Men     Women
OUR EMPLOYEES

At UNACEM, we use a competency-based management model, which includes processes for job profile analysis, recruitment and selection, performance evaluation, and the training and development of our team.

As part of our training process, we implement an Annual Training Plan (PACE), aimed at bettering our employees’ personal and professional competencies in order to improve their performance and growth within the organization.

The type of training received by our employees is classified according to the topics that must be addressed in order to ensure the Company’s optimum performance:

  • Organizational training: related to strategic issues.
  • Specific training: related to job positions.
  • Skill-based training: addresses topics for the personal development and growth of each employee.

In 2016, we provided a total of 20,300 training hours, equivalent to an average of 26.67 man-hours per employee. Of the total training hours, 73.0% were focused on occupational health and safety, as reflected in the fact that we had several months during the year with zero accidents.

We have been adherents to the United Nations Global Compact since 2004, thus evidencing our commitment to the unrestricted respect for fundamental human rights. Our compliance with these rights is regulated by our Internal Code of Conduct and our Internal Work Regulations (RIT).

In 2016, we maintained a positive relationship with our two unions. In May 2016, the collective bargaining agreement was executed with Sindicato Único de Trabajadores de Unión Andina de Cementos S.A.A., at the Condorcocha plant, which is valid for three years. This agreement, along with that entered into 2015 with Sindicato de Trabajadores de Unión Andina de Cementos S.A.A. – Canteras de Atocongo, guarantees our mutual commitment, between employees and the Company, to achieving the objectives we have set for ourselves.

CLASSIFICATION OF TRAINING MAN-HOURS IN 2016
Inside the Company Outside the Company Total
In-Person Online In Perú Abroad
11,809 6,052 2,144 295 20,300
OCCUPATIONAL HEALTH
AND SAFETY

Our occupational health and safety management system is certified under the OHSAS 18001 standard, enabling us to identify the main risks in each area; assess the risks; and carry out a timely management for the prevention and mitigation thereof. This system is based on the development of a risk prevention culture, which seeks to promote the responsible conduct of our employees and contractors with regard to safety.

This year, we bolstered our health and safety training program through online and in-person platforms.
The Central Occupational Health and Safety Committee, whose members were appointed for a period of 2 years, was jointly elected by the Company’s management and the workers at both plants, via a voting process, thus guaranteeing that all parties are represented. This year, we also implemented new proactive safety indicators, which will allow us to verify compliance with safety standards, as well as improving our control systems. These indicators include the following:

  • Planned work observation (PWO).
  • Five-minute safety talks.
  • Safety inspections by a representative of the senior management.
  • Scheduled inspections by the Central Occupational Health and Safety Committee.
ACCIDENT FREQUENCY AND SEVERITY RATE
Atocongo 2015 2016
Frequency rate 11.7 6.6
Severity rate* 2,375.3 6.6
Accident rate* 27.8 0.2
Number of fatal victims 2.0 0
Condorcocha 2015 2016
Frequency rate 10.2 3.61
Severity rate* 6,731.7 60.3
Accident rate* 69.0 0.20
Number of fatal victims 4.0 0
UNACEM 2015 2016
Frequency rate 11.1 5.5
Severity rate* 4,187.0 44.7
Accident rate* 46.5 0.2
Number of fatal victims 6.0 0
(*) The high severity and accidents rates for 2015 are due to fatal accidents.
ENVIRONMENTAL
MANAGEMENT

Our environmental management system, certified under the ISO 14001 standard, is aimed at efficiency and the reduction of environmental impacts related to all of our operations. As such, we take care to minimize particulate matter emissions, which are below the Maximum Permissible Limits (MPL); and greenhouse gases, such as carbon dioxide (CO2), nitrogen oxide (NOx), and sulfur oxide (SOx), as well as reducing our energy and water consumption, among other aspects that help us improve our environmental performance.

Our management strategy is based on four lines of action:

  • Environmental quality.
  • Natural and cultural resources.
  • Capacity building.
  • Environmental certifications.

Emissions and Climate Change Management

At UNACEM, we continue to work to reduce the concentration levels of greenhouse gas emissions for each ton of cement produced. With this goal in mind, we have taken the following actions:

  • At Atocongo, the use of clean fuels, as well as the partial replacement of coal with natural gas in the kilns for the clinkerization process.
  • At Condorcocha, the operation of cement mill 8, with a production of 351,118 t of blended cements.

Through a joint project implemented by the Ministry of Industry and Fisheries, the Ministry of the Environment, and the Cement Producers’ Association (ASOCEM), we are working to draft a document containing the nationally appropriate climate change mitigation actions (NAMA). As part of the strategy of these NAMAs, the cement sector in Perú is in the process of acquiring the calculation methodology of the Inter-American Cement Federation (FICEM) known as “Getting the Numbers Right (GNR) LATAM”, for the calculation of greenhouse gas emissions. This methodology is used by 68.0% of all cement plants in Latin America.

Environmental monitoring reviews of our emissions sources were performed twice a year. In all of these reviews, our results were below the Maximum Permissible Limits established in Supreme Executive Order (Decreto Supremo) 003-2002-PRODUCE.

RESOURCE CONSUMPTION AND MANAGEMENT

Our process requires large quantities of thermal and electric energy. For this reason, we seek out technologies that help us incorporate improvements to our processes and reduce our consumption. We also use clean energies, such as hydroelectric power. During 2016, the Carpapata III hydroelectric plant entered into operation to supply the Condorcocha plant. We are working on a prefeasibility study for the co-processing of urban solid waste, with the goal of identifying renewable sources of energy for the thermal consumption of the kilns at the Atocongo plant.

Our energy consumption results in 2016 were as follows:

  • At Atocongo, an average consumption of 93.33 kW-h per ton of cement produced. This value is below the target established in the Integrated Management System, which was 98 kW-h per ton of cement produced.
  • At Condorcocha, which operates at 3,950 meters above sea level, an average consumption of 163 kW-h per ton of cement produced, which is beneath the target of 165 kW-h.
  • Of the total energy consumed at both plants, 95.0% came from renewable sources.

We are conscious of the fact that water is a scarce resource. For that reason, we have developed a strategy for its efficient use. During 2016, we continued with the process of measuring our water footprint and monitoring the water and effluent quality, through a certified consulting firm.

WATER CONSUMPTION AND MANAGEMENT, 2016

 

2016

Atocongo

Plant

(m3)

Condorcocha

Plant

(m3)

Total water consumption

518,150.0

187,238.0

Total Groundwater Consumption 518,150.0 -
Total Consumption of Springwater and Creeks - 187,238.0
Total Consumption of Water for Domestic Use 353,464.0 131,470.0
Total Consumption of Water for Industrial and Mining Use 164,686.0 46,414.0
Firefighting System and Replacement of Refrigeration Tanks - 9,354.0

Volume of Water Reused

132,551.0

105,176.0

Percentage of Water Reused

25.6

56.2

Solid Waste Management

We promote the reduction, reuse, and recycling of solid waste. Our solid waste management results during 2016 were as follows:

  • At Atocongo: Of the 3,767 t of waste generated, 77.0% was recycled and 23.0% disposed of in an authorized sanitary landfill. A total of 612 t of waste was recycled, and 1,292 t reused through collection by the industrial sweeper.
  • At Condorcocha: Of the 1,611 t of waste generated, 80.0% was recycled and 20.0% disposed of in an authorized sanitary landfill. In the process, we made use of waste such as glass, contaminated soil, and construction debris. We also used organic waste to make compost.
DEVELOPMENT OF
OUR COMMUNITIES

Through the Asociación UNACEM, we formed strategic alliances with different local, national, and international actors, which allow us to coordinate collective initiatives to promote the development of our area of influence.

AREAS OF INFLUENCE

Our direct area of influence comprises five districts in Lima and three in Tarma, where we carry out our main social investment activities.

The UNACEM Community
Atocongo Plant - Lima Condorcocha Plant - Tarma
  • Villa María del Triunfo
  • La Unión Leticia: populated center of Condorcocha and peasant communities of Chancha and Huancoy
  • Pachacamac
  • Villa El Salvador
  • San Juan de Miraflores
  • Palca
  • Lurín
  • Acobamba
DEVELOPMENT OF OUR COMMUNITIES

MAIN PROJECTS AND INITIATIVES WITH OUR COMMUNITIES

We strengthen the economic and social dynamic of the neighboring communities through programs and initiatives carried out by the communities themselves. We perform our projects based on five lines of social investment:

Social Infrastructure

During the year, we carried out 28 pre-investment studies for profiles and technical files—22 at Atocongo and 6 at Condorcocha—which were delivered as donations to community authorities and leaders, to be processed by different public and private entities.

Health

We promote health lifestyles and habits in families, as well as helping to strengthen health establishments, in alliance with the organized community and the Ministry of Health (MINSA), benefiting over 11,000 people.

Education

Through our projects, we promote the development and strengthening of vocational and entrepreneurial capacities, personal and social skills, and the productive use of free time among residents of our neighboring communities. In 2016, we continued with the art, culture, and sports programs, as well as training 60 youths from the community of La Oroya through the Youth Employability Promotion Program (in alliance with FONDOEMPLEO), among other initiatives.

Environment

We contribute to the improvement of environmental management in the towns located near our operations, acting in coordination with the communities and local and sector authorities.

Community Relations

To ensure a positive rapport with our communities, we strengthen, manage, and monitor our ties with the residents, organizations, and institutions present near our operations, with the goal of establishing bonds of trust and cooperation that contribute to sustainable development. In 2016, our local initiatives directly benefited over 17,000 people.

One major milestone was the execution of the comprehensive agreement with the peasant community of Huancoy, in the area of influence of the Condorcocha plant. Following three years of participative dialogue with the Board of Governors and its Agreement Review Commission, major agreements were reached for the promotion of sustainable development.

For more details on our corporate social responsibility, please see the Sustainability Report attached to this report.

ECONOMIC AND FINANCIAL
RESULTS
ECONOMIC AND FINANCIAL RESULTS

The audited separate financial statements of UNACEM, as of December 31, 2016, show the following results:

  • Net sales of S/1.865 billion (S/1.949 billion in 2015).
  • Net profit of S/312.2 million (S/130.6 million in 2015).
  • Net shareholders’ equity of S/3.896 billion (S/3.670 billion in 2015).

Net sales fell by 4.3% compared to sales reported in 2015. This drop was mainly due to the lower volume sold, net of a higher average price, during the year.

For its part, the cost of sales was 2.4% lower than in 2015, due largely to the lower volume, which offset the increase in variable costs for the period.

As a consequence of the foregoing, the gross profit fell slightly, by 6.9%, compared to 2015. The operating profit totaled S/714.4 million, 4.9% lower than in 2015, due to the lower volume of sales as a result of the slowdown of the construction sector during the year. The EBITDA margin was 49.4% in 2016 (48.7% in 2015). This margin includes the dividends received from subsidiaries for a total amount of S/212 million.

Foreign exchange losses were drastically reduced compared to the previous year, as a result of the lower exchange rate as of the close of 2016. In 2015, foreign exchange losses totaled S/379.4 million, while in 2016, they dropped to S/ 17.6 million.

During the year, we paid our debt amortizations in accordance with the established timelines, reducing our total debt by 6.7%, additionally considering variables such as foreign exchange fluctuations over the course of the year. In October, the Board of Directors approved the refinancing of S/240 million in short-term liabilities at a lower financial cost, which helped us improve our debt maturity profile for the coming years.

Due to the Company’s solid fundamentals, and despite the volatile international political and macroeconomic circumstances, in October 2016 the credit rating agencies Moody’s and Standard & Poor’s maintained UNACEM’s Ba2 and BB+ ratings, respectively; in the case of the former, with a stable outlook, and in the latter, with a negative outlook, due to the drop in sale volumes during the year.

The net profit for the year came to S/312.2 million, 139.1% higher than the previous year, due primarily to the drastic reduction of foreign exchange losses from S/379.4 million in 2015 to S/17.6 million in 2016.

ECONOMIC AND FINANCIAL RESULTS

The separate financial statements for fiscal year 2016 were prepared in accordance with International Financial Reporting Standards (IFRS).

By delegation of the Shareholders’ Meeting, the Board of Directors, acting throughout fiscal year 2016, adopted the decisions summarized below, with their respective effects on the Company’s equity:

  • March 2: Payment to the shareholders of UNACEM S.A.A. of dividends equal to S/0.013 per common share, charged to the cumulative results for fiscal years 2008 and 2009.
  • June 2: Payment to the shareholders of UNACEM S.A.A. of dividends equal to S/0.013 per common share, charged to the cumulative results for fiscal year 2009.
  • August 26: Payment to the shareholders of UNACEM S.A.A. of dividends equal to S/0.013 per common share, charged to the cumulative results for fiscal year 2009.
  • December 5: Payment to the shareholders of UNACEM S.A.A. of dividends equal to S/0.013 per common share, charged to the cumulative results for fiscal year 2009.

The fully subscribed and paid-in capital stock is S/1,646,503,408 (One Billion, Six Hundred Forty-Six Million, Five Hundred Three Thousand, Four Hundred and Eight Peruvian Soles), represented by 1,646,503,408 (One Billion, Six Hundred Forty-Six Million, Five Hundred Three Thousand, Four Hundred and Eight) common shares with a face value of S/1.00 each.

In light of the foregoing, and in accordance with International Financial Reporting Standards (IFRSs), the figures in Peruvian soles as of December 31, 2016 and 2015, respectively, are as follows:

 
Equity Account As of 12.31.16 As of 12.31.15
Capital Stock 1,646,503,408 1,646,503,408
Legal Reserve 329,300,686 312,272,618
Unrealized Profit (Loss) 279,287 330,960
Cumulative Profit (Loss) 1,920,069,913 1,710,488,020
Total Equity 3,896,153,295 3,669,595,006

Currently, there are several tax, legal, and labor proceedings pending resolution in relation to the Company’s operations. In the opinion of the Management and its legal advisors, the final results of these proceedings will not involve significant expenses. Thus, as of December 31, 2016, we have not booked any provision whatsoever in relation to said proceedings.

The external auditing duties during fiscal year 2016 were entrusted to Messrs. Paredes, Burga & Asociados (a member firm of Ernst & Young). The firm’s opinion on the separate statement of financial position, profit and loss statement, comprehensive profit and loss statement, statement of changes in net shareholders’ equity, and cash flow statement as of December 31, 2016, which form part of this Report, have been issued without objections.

MANAGEMENT
BOARD OF DIRECTORS

Chairman
Mr. Ricardo Rizo Patrón de la Piedra

Vice Chairman
Mr. Alfredo Gastañeta Alayza

Directors
Mr. Marcelo Rizo Patrón de la Piedra
Mr. Jaime Sotomayor Bernós
Mr. Carlos Ugás Delgado
Mr. Roque Benavides Ganoza
Mr. Diego de la Piedra Minetti
Mr. Oswaldo Avilez D’Acunha
Mr. Hernán Torres Marchal
Mr. Martín Naranjo Landerer
Mr. Roberto Abusada Salah
Mr. Jaime Raygada Sommerkamp

MANAGEMENT
SINDICATO DE INVERSIONES Y ADMINISTRACIÓN S.A. (SIA)

General Manager
Mr. Carlos Ugás Delgado Representante del SIA en la Gerencia General

Legal Manager
Mr. Julio Ramírez Bardález

Finance and Corporate Development Manager
Mr. Álvaro Morales Puppo

Central Manager
Mr. Víctor Cisneros Mori

Investments Manager
Mr. Francisco Barúa Costa

Administrative Manager
Mr. Jorge Trelles Sánchez (until 10.31.2016)

Business Manager
Mr. Kurt Uzátegui Dellepiane

Project Execution Manager
Mr. Jeffery Lewis Arriarán

Atocongo Operations Manager
Mr. Juan Asmat Siquero

Condorcocha Operations Manager
Mr. Ricardo Ramírez Zurita

Human Resources Manager
Mr. Pablo Castro Horna

ASOCIACIÓN UNACEM
General Manager

Mr. Armando Casis Zarzar

TECHNICAL ADVISORS
ARPL Tecnología Industrial S.A.

ADMINISTRATIVE AND FINANCIAL ADVISORS
Inversiones Andino S.A.

GOOD CORPORATE
GOVERNANCE

We carry out our management under the framework of the Principles of Good Corporate Governance, which is regulated by our bylaws and normative documents. Through our good business practices and our emphasis on transparency, we seek to earn the trust of all of our stakeholders and guarantee the strong performance of UNACEM at all management levels.

Thanks to this approach, UNACEM creates value for all of its shareholders and stakeholders. Good corporate governance increases our efficiency and performance, while reducing risks and capital costs, because it fosters investors’ confidence in the Company, thus guaranteeing UNACEM’s sustainable economic growth.

On March 29, 2016, the Mandatory Annual Shareholders’ Meeting approved the separate financial statements for fiscal year 2015, as well as the report, issued without objections, by the external auditors. The Meeting also appointed the twelve members of the Board of Directors for the 2016-2018 period and delegated to it the power to appoint the external auditors for fiscal year 2016.

As established, the Board of Directors met on a monthly basis, striving to safeguard the interests of all the Company’s shareholders on an equal basis, and above all, the interests of UNACEM as a value-creating entity.

UNACEM also has an Auditing Committee, consisting of three directors, two of whom are independent directors from the controlling shareholder. This Committee met six times throughout the year. The Committee’s duty is to review the information provided by the Company and reviewed by the external auditors, overseeing the internal control and risk management systems. Furthermore, during the year, said Committee has sought to implement and promote management initiatives that allow the Company to improve its competitiveness.

During 2016, we continued our policy for the quarterly distribution of dividends in March, June, August, and December.

Additionally, as part of our transparency practices, we published the Annual Report, the quarterly interim financial statements, and the quarterly reports, which include a summary of the Company’s most significant activities during the quarter, all of which are available on our website. Furthermore, through our Investor Relations team, we seek to maintain direct ties to our investors by participating in local and international conferences, meetings, visits, phone calls, and quarterly conference calls.

GOOD CORPORATE GOVERNANCE

As established in the Articles of Incorporation of our Company, granted on December 28, 1967, and in accordance with the mandate of the Shareholders’ Meeting held on December 28, 1981, the General Management of Unión Andina de Cementos S.A.A. continued to be entrusted to Sindicato de Inversiones y Administración S.A., under the agreement in force as of this date.

Inversiones Andino S.A. provided administrative and financial advisory services, under the agreement in force as of this date.

ARPL Tecnología Industrial S.A. was responsible for the technical advisory service, under the agreement in force as of this date.

The Board of Directors recognizes and values the important contributions of these three companies throughout 2016.

ACKNKOWLEDGEMENTS

The Board of Directors would like to give a special thanks to each one of UNACEM’s employees for the hard work and commitment they have exhibited every single day, thanks to which the Company has obtained its satisfactory results. Together with them, we remained firm in our commitment to create value for all of our stakeholders, and we are now ready to tackle the challenges that lie in store for us in 2017.

Our strategic plan
2016-2021 defines
the short-, medium-,
and long-term
objectives on which
we will work
during the coming
five years.
We continue to focus on
creating more and more
value through our brand
portfolio. In October, we
launched Cemento Andino
Ultra HS.
UNICON launched Unibase
ready mixed concrete,
designed for bases,
pedestals, foundations
and footings.
CELEPSA continued with
the construction of the
Marañón Hydroelectric
Plant, which will begin
operating in 1Q17.
The construction of
the Preansa Colombia
plant was completed
in July.
UNACEM Ecuador continued
working on substituting
fossil fuels with alternative
fuels, achieving a new
record of 19.1% biomass
substitution in the process.
Of the total energy
consumed in both
plants, 95.0% came from
renewable sources.