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3 Annual Report 2007

4 ETTING

5 BETTER together with Peru

6 Results 2007 PRICES OF TYPE I CEMENT (in Nuevos Soles, ex-works per metric ton, excluding packing, distribution fee and VAT) TOTAL LONG TERM DEBT AT CONSTANT VALUE As of December 31st Average constant prices as of December 31st 2007 Average current prices

7 Better results, with record production, sales and profits, generating large investment because we are backing Peru and are committed to its future. total exports (Thousands of tons) DOMESTIC MARKET DESPATCHES PER YEAR (Thousands of tons)

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9 Index Board of Directors / Managment National and international environment Investments, operations and administration Projects Subsidiaries and affiliates Economic and financial aspects Financial statements San Isidro

10 Annual report of the Board of Directors of Cementos Lima S.A. for fiscal year 2007 In accordance with the law and the by laws of our Company, the Balance Sheet, Profit and Loss Account, Changes in Net Equity and Cash Flow for the fiscal year ending on the 31st of December 2007 are submitted to the General Meeting of Shareholders together with this Annual Report summarising the most important events affecting the Company during 2007 and up to the 11th of March 2008, the date on which they were approved by the Company s Board of Directors. In addition, we submit the company s Sustainability Report, which describes the most important activities in support of the community carried out during 2007.

11 Board of directors President Eng. Jaime Rizo Patrón Vice-President Eng. Ricardo Rizo Patrón Directors Eng. Juan de la Piedra Dr. Oscar de Osma Dr. Alfredo Gastañeta Eng. Marcelo Rizo Patrón Dr. Julio Ramírez Eng. Jaime Sotomayor Lic. Alfredo Miguel Torres Eng. Carlos Ugás Eng. Jesús Antonio Zamora Sindicato De Inversiones Y AdministraciOn S.A. (SIA) General Manager Eng. Carlos Ugás Representative of SIA in the General Management Administration Manager Mr. Jorge Trelles Corporate Development Manager Eng. Jaime Bustamante Project Manager Eng. Aldo Solimano Financial Manager Mr. Álvaro Morales Legal Manager Dr. Julio Ramirez Operations Manager Eng. Evor Velezmoro Marketing Manager Mr. Kurt Uzátegui (from 02/04/08) TECHNICAL ADVISORS ARPL Tecnología Industrial S.A.

12 01national and international environment

13 Central Station, Metropolitan Lima

14 12 Annual Report 2007 National and international environment The Peruvian economy continued to expand during 2007 with gross domestic product (GDP) growing by 8.99%. Growth exceeded that of 2006 to reach the highest annual rate of growth since In nominal terms, Peru s GDP exceeded 100 billion dollars for the first time. Furthermore, the construction sector grew by 16.5%, also the highest rate since Inflation during the year, measured by the Consumer Price Index, was 3.93% at the close of the year, considerably higher than in 2006 but still one of the lowest rates in Latin America. Wholesale prices, according to the Wholesale Price Index, rose by 5.24%. Although inflation exceeded the target range set by the CRBP, the determining factor was the imported component, caused by price increases for various commodities, principally oil and wheat. During 2007 the Peruvian economy continued to perform as well as in previous years; among its most important achievements were: The highest fiscal surplus in its history, equivalent to 2.3% of GDP. A fiscal surplus and current account surplus for the second consecutive year. Exports reached a new record level of 27,956 million dollars (17.5% growth compared with 2006). This produced a trade surplus for the sixth year running, though smaller than that of 2006 because of a large increase in imports.

15 Cementos Lima 13 Intake at River Chillon Dam A new record for Net International Reserves, which reached 27,689 million dollars (60% higher than at the close of 2006). Consumption and private investment once again greatly exceeded forecasts made at the beginning of the year, as well as the rates achieved in 2006, growing by 7.5% and 25.7% respectively. In general, most economic indicators (as in 2006) surpassed the estimates made at the beginning of the year by all economic analysts. As far as the exchange rate was concerned, the sol strengthened once again, this time by 6,0%, causing concern among a number of economic agents because of the resulting reduced competitiveness by some nontraditional export products. Country risk, measured by the EMBI+ Peru (Emerging Markets Bond Index Plus) published by JP Morgan, fell during the first half of the year before increasing, following international trends, and ended the year at 178 bps (higher than the level of 118 bps at the close of 2006). It should be noted that on the 12th of June the EMBI+ Peru fell to its lowest level ever, of 95 bps. Once again the construction sector led the country s growth due to the economy s good performance and government aid programmes which increased private construction and self-building. Nevertheless, neither the central government nor the regional governments are

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17 Cementos Lima 15 addressing deteriorated port and highway infrastructure with the necessary diligence, which is the most serious obstacle to Peru s competitiveness and future development. The international environment continued favourable to the Peruvian economy, despite the financial turbulence caused by the sub-prime mortgage crisis in the USA and the cooling of that country s economy, which could lead it into recession. Metals prices remained high and this helped to create a 3.6% improvement in Peru s terms of trade, according to the Central Reserve Bank of Peru s weekly bulletin. But perhaps the most important achievement for the economic future of Peru was the approval, finally, by the US Congress, of a Free Trade Agreement between our two countries. This agreement is currently being implemented and it is expected to take effect by the beginning of 2009, though exports to the USA will not be affected in the interim, because the ATPDEA has recently been extended until the 31st of December 2008.

18 02 investments, operations and administration

19 River Chillon Dam

20 18 Annual Report 2007 Investments, operations and administration The Board of Directors and General Management exercised by Sindicato de Inversiones y Administracion S.A. (SIA) supervised investment progress and performance throughout the year. The initial work necessary to start the main construction of the plant in Arizona is making rapid progress, almost all the equipment contracts have been entered into and the contractors responsible for building and equipping the plant will be chosen shortly. Furthermore, our plant in Peru began using natural gas as the fuel for Kiln I in June. Kiln II recommenced the use of natural gas in the main burner in July. The good performance of the plant, increased sales in the domestic market and higher export prices meant that fiscal year 2007 closed with a 50% increase in operating profit and a 48% increase in net results compared with the previous year. Production and despatch to the domestic market Excellent performance of the Atocongo plant, added to significantly higher exports of clinker, meant that in 2007 the Company achieved a new record for clinker production, totalling 3,032,224 t and exceeding the record of 2,646,393 t obtained in 2006 by 14.6%. The company s cement dispatches to the Peruvian market also reached a new record of 2,234,591 t, an increase of 15.1% compared to the figure of 1,941,700 t for 2006.

21 Cementos Lima 19 Better despatches, covering domestic demand plenty and keeping our cement prices stable. Cement production remained stable compared with 2006, showing a slight reduction of 0.1% to a total of 2,576,657 t. This was the result of the company s decision to encourage higher exports of clinker and reduced exports of cement. Domestic demand is well covered by the Company and there is not the slightest risk of a shortage, indeed, we have the production capacity and stock necessary to meet domestic demand even if it were to exceed the most optimistic forecasts. Domestic demand for cement also reached the record level of 5,943,069 t, 16.3% higher than the previous record of 5,081,061 t obtained in Calculation of this demand included for the first time the cement output of Peruvian factories, including cement produced by a small new plant in Lima, which started operating in 2007, and imported cement. In the latter case, in addition to the usual cement imports into the jungle region, which come from Colombia by river, since July 2007 Cementos Mexicanos SAA (Cemex) has been importing cement through the port of Callao, with respect to which our Company has brought a charge of dumping, currently being reviewed by the competent authorities. A few weeks after Cemex started exporting cement to Peru, on the 13th of October 2007, the government reduced duty on cement and clinker from 12% to 0% with no bilateral or reciprocal agreement whatsoever.

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23 Cementos Lima 21 Some authorities attempted to justify this sudden reduction in duty by saying that it would benefit the State and Peruvian consumers by reducing the price of cement to the public. However, in the five months since the measure was introduced the Peruvian State has lost approximately S/. 2 million in revenue and the price of imported cement has not fallen despite the devaluation of the dollar compared to the Peruvian sol. As far as our cement sales were concerned, we met our aim of maintaining the prices of the different cement types at the same levels as 2001, in a context of greater dynamism in the domestic market and rising inflation (3.93% during 2007 according to the CPI). Exports For the seventh consecutive year we were the leading exporter in Peru s non-metallic mining sector. The company s total exports amounted to US$ 35,021,216, which represents 21.4% of total exports in that sector. Expressed in US dollars, exports grew by 10.1% compared with 2006, even though tonnage exported fell by 18.6% (from 855,024 t in 2006 to 695,595 t in 2007). This reduced export tonnage was the result of the company giving priority to satisfying growing domestic demand. During 2007 exports went to six countries, all on the American continent. The United States was our principal market, taking 43.8%, followed by Panama with 31.8%. Export destinations are shown in figure Nº 1. Of the total dispatched, 207,539 t equivalent to 30%- was sold on the spot market, while the remaining 70% was sold under annual contracts. With regard to forecasts for 2008, a total of 500,000 t of exports has been budgeted for, in order to maintain sufficient stock to supply the domestic market throughout the Peruvian territory. Fi g u r e 1 Exports destinations Dezavala / Channelview / Texas / USA 29,711 t Bahia Las Minas / Panam 221,490 t Guayaquil / Ecuador 84,256 t Cement T-II Clinker T-I Ventanas/Chile 28,032 t Providence / Rhode Island / USA 244,268 t Pensacola / Florida / USA 29,711 t Manzanillo / Dominican Republic 26,488 t Buenos Aires/ Argentina 30,347 t

24 22 Annual Report 2007 Conchan port facility The tonnage handled by the Conchan port facility fell by 1.8% compared with 2006, as a result of lower cement exports and, to a lesser extent, because no gypsum or grain was discharged and less coal was imported. The annual variation in tonnage broken down by products shipped or discharged is shown in table No 1. Cost and productivity improvements Given the important influence of the energy factor on the cost of producing cement, the Company makes a continual effort to improve its energy efficiency. The year 2007 was no exception, the new mixture of solid fuels (domestic and imported coal), added to the start of the partial use of natural gas in kiln I in May, permitted a reduction of 17.7% compared with the previous year, in the cost of fuel per ton of clinker. Because kiln II started using natural gas in 2006 cost improvements from this kiln were not significant. On average, the cost of fuel for both production lines fell by 6.0% compared with Principles of good corporate governance During 2007 we continued to apply the principles of good corporate governance in fields such as equal treatment for shareholders, management of conflicts of interest, capital structure and the revelation of information, among others, thus ensuring the security and

25 Gráfico 2 Cementos Lima 23 Ta b l e 1 Variation in port operations (in t) As at the 31st December 2007 Number of vessels As at the 31st December 2006 Number of vessels Percentage variation in tonnage Cement 333, , Clinker 632, , Coal 159, , Petcoke , Metallurgical Coke 9, Gypsum , Grains , Iron ore 29, Total handled 1,163, ,185, Better energy efficiency, reducing the costs of fuel and improving care for the environment. confidence of all economic agents with any connection to the Company. The audit committee created by the Board of Directors in 2006 met in January 2007 to review the opinion of our external auditors, Ernst & Young on the financial statements for fiscal year 2006, which were provided by the management of the Company. The auditors opinion was without reservations and representative in every particular. Also, at a meeting in March 2007 the Board of Directors agreed that the financial statements of subsidiaries would be submitted by the company management every three months, to provide a continual and detailed picture of how each one is performing. Furthermore, at a meeting in July 2007 and at the behest of the audit committee, the Board of Directors agreed to engage the services of new external auditors to review the financial statements for 2007, both individual and consolidated, as well as the financial statements of its subsidiaries. We have maintained our policy of paying quarterly dividends in the months of February, May, August and November. We also continue to send all shareholders a copy of the Annual Report and quarterly reports with interim financial statements and a summary of the quarter s activities.

26 24 Annual Report 2007 National Library

27 Cementos Lima 25 Integrated Management System The management and control of the Company, as far as quality, the environment and occupational health and safety are concerned, are accomplished by means of the Integrated Management System (IMS). This system is structured in accordance with a series of international standards (ISO 9001, ISO 14001, OHSAS 18001, BASC and ISPS) and necessarily includes certain processes, which were applied during the course of the year to achieve its objectives: management reviews, audits, monitoring and measuring, risk evaluations and others. Reviews of the IMS With the aid of the IMS Committee, the Management carried out three partial reviews of the system in These meetings examined the results of the audits that had been carried out, corrective and preventive action taken, feedback from stakeholders, process results, management policy, objectives, management programme, changes that could affect the IMS and recommendations for improvements received, as well as other activities planned during previous reviews. As a result, some decisions were taken relating to policy, objectives, goals and resources required. Activities were also planned to increase the effectiveness of the IMS on a continual basis and to satisfy the requirements of our clients. Client satisfaction As programmed, in April and October client satisfaction was measured using surveys. The results obtained were analyzed and used as a basis for proposing improvement options and applying these improvements in a sustained manner. Internal audits Three internal audits of the IMS were carried out in March, June and September, covering quality management, the environment, occupational health and safety and protection for the Company. These activities evaluated compliance with the provisions established for the management and control of the relevant processes; furthermore, action was taken to correct existing deviations and to prevent others in the future. Risk evaluation and environmental impacts Identification of environmental aspects and risks was completed, together with an evaluation of the respective impacts and risks involved in the IMS processes; the same has yet to be done with projects implemented by the Project Manager and those under way at the time. Management standards and the IMS require that these evaluations be reviewed and updated every year by those responsible for the processes, as they constitute the basis for environmental and occupational health and safety management. Certification The BASC certification covering the plant was renewed for a period of one year in May and that covering the Conchan port facility was renewed in October. SGS carried out an external follow-upaudit of the IMS in August, covering the company s quality management in accordance with its ISO 9001 certification. In September, Peru s National Port Authority audited the Conchan facility and approved a renewal of its ISPS certification. In November, SGS carried out a preliminary evaluation of the IMS as

28 26 Annual Report 2007 Better training, with new programmes that enable us to improve our workers skills continually. applicable to environmental management and occupational health and safety, through a process known as Phase 1 Certification Auditing. This evaluation detected a need to make certain changes to the management system to bring it fully into line with the requirements of ISO and OHSAS standards, in order to continue with the respective certification process. Personnel The following table shows the changes in the number of our employees during fiscal years 2005, 2006 and 2007 (as at the 31st of December each year). Ta b l e 2 Variation in payroll personnel numbers Classification Administrative staff Employees Workmen Labour unions Our policy of maintaining harmonious relations with our collaborators enabled us to achieve high levels of production and productivity during Collective agreements signed in July 2005 for a period of three years, are an important factor in this achievement. Training and Personnel Development Complying with our commitment to continuous improvement, we focus our efforts in developing the skills of our collaborators through the use of regular training programmes. Within this framework, during 2007 we arranged courses totalling 19,362 man-hours, equivalent on average to hours per employee, 13.7% more than in Table N 3 shows this in detail. Table 3 Classification of man-hours devoted to training In-House Outside the Company Peru Abroad Total 4,412 M-H 14,614 M-H 336 M-H 19,362 M-H Total This list includes personnel working in the Atocongo plant, Conchan port facility and administration offices. The 15th Training Programme for Professionals, involving 33 young professionals in different specialities ended in September. At the same time we started the 16th Programme, in which 27 recently graduated professionals are taking part. Furthermore, and as part of our commitment to support youth training in Peru, we hosted visits by 1,212 students from various universities.

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30 03Projects

31 Eduardo de Habich Interchange

32 30 Annual Report 2007 Projects Atocongo - Conchan conveyor belt This major environmental project, which began in May 2005, is practically finished. Testing under load conditions transporting cement to Conchan has been concluded successfully. Furthermore, work on the clinker storage area at Conchan is nearly completed, so that transport of clinker to Conchan can be tested, followed by transport of coal and limestone to the Atocongo plant. Use of natural gas as fuel As we mentioned earlier, we have been using natural gas as the main fuel in both clinker production lines since the middle of the year, thus helping to reduce greenhouse gas emissions. However we are still involved in the slow and tedious process of registering the project of fuel conversion from coal to natural gas with the UNFCCC (United Nations Framework Convention on Climate Change) within the framework of the Clean Development Mechanism. We hope to conclude this process in the second quarter of 2008, when we will be authorized to issue the so-called Emissions Reduction Certificates or carbon bonds which can then be traded on the international carbon market. The conversion of the MW electricity generator sets at our GEA plant (Atocongo Power Station), which currently use Diesel 2, has already started and is being carried out in stages (two sets at a time), and we

33 Cementos Lima 31 Better installed capacity, through a new project to increase clinker production by 30%. expect to complete the conversion work before the end of Project to increase the installed capacity of the Atocongo plant ARPL Tecnologia Industrial S.A. is developing a project to increase the production capacity of the plant by 1,200,000 t. The project involves increasing the production capacity of the kiln I line, as well as improvements in the Pucara Quarry and to the transport of limestone to the plant. A crushing plant is being installed at Pucara Quarry to reduce crushed limestone to a maximum size of 75 mm. A crushing plant having a capacity of 1,000 t/h is planned, together with a 90,000 t storage area. The limestone will be carried in trucks to the Conchan facility, where a 10,000 t storage silo is planned. The silo discharge will be connected by conveyor belts to the Atocongo-Conchán tubular conveyor, which is now in operation. A new 150,000 t storage area for limestone from Pucará has been prepared at Atocongo. The project also includes the relocation of the existing primary crusher in order to increase the limestone extraction area. New raw and clinker milling modules are being developed; it has been agreed to purchase the principal items of equipment, such as presses, separators

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35 Cementos Lima 33 and deagglomerators from Messrs Polysius A.G. in Germany. The calcination system will include two new 6-stage heat exchange towers and an in-line calciner. The corresponding separate gas systems are also being designed. Furthermore, a cooling system has also been designed considering the lowest plant downtime. Requisition documents are being prepared for the other necessary equipment, such as weighing machines, elevators, dust filters, conveyor belts, motors, converters and transformers, among others. Quotations from suppliers are expected by the middle of the year. It is calculated that the civil engineering work will start in the second half of The first line is expected to start work in the third quarter of 2008 and the second, in the first half of The multi-silo equipment, having a capacity of 20,000 t of cement storage, was bought from Messrs Claudius Peters and the structural engineering work was given to the Peruvian firm Gallegos, Casabonne, Arango, Quesada Ingenieros Civiles S.A.C. The silo will be 65 metres high and 24 metres in diameter, it will be able to cope with three bulk cement discharges simultaneously and will have a weighbridge for self-service. Two new bagging lines and a multi-silo The two bagging lines capable of filling 3,000 bags an hour each supplied by Haver & Boecker, will arrive at the plant in the first quarter of The civil engineering work for the first line is completed and the machinery will be erected immediately; the second line will be installed when erection of the first one is completed.

36 04Subsidiaries and affiliates

37 Parques de Surco Condominium development

38 36 Annual Report 2007 Subsidiaries and affiliates Inveco S.A. / Unicon S.A. In 2007, 782,040 cubic metres of concrete were dispatched in Lima, which represents a 20.3% growth compared with 2006; and 155,761 m 3 in the interior, a figure % greater than the amount dispatched in the previous year. It is important to point out that ready-mix concrete production has increased for the sixth consecutive year. The increase was driven principally by the construction of apartment buildings, roads, industrial premises, shopping malls and large stores. During 2007 commercial agreements were also entered into with domestic clients for 975,000 cubic meters. Of this volume, a balance of 386,400 cubic meters remains to be delivered, equivalent to 4.5 months of Peruvian production. To meet the growing demand for ready-mix concrete and pumping services, 44 mixer trucks were acquired, increasing the fleet to 176 vehicles. Likewise, 2 pumps were also imported; bringing the number of pumps to 43 units. To serve the tunnelling work at El Platanal, 6 tubular mixers were built and to improve the efficiency of concrete transport inside the mines, two mining mixer trucks were acquired, increasing to 6 the number of units of this type. In order to increase production in Lima, two new concrete plants were ordered. The production of each

39 Cementos Lima 37 Construction at Pampa La Melchorita Camisea project, Cañete Better concrete production, with a 20% increase in despatches in Lima and 161% in the rest of the country. one is 150 m 3 /h, and they should be installed during the first quarter of 2008 on the new premises in Villa El Salvador. UNICON expanded and optimized its ready-mix concrete plants in Lima and signed important exclusive service agreements in the interior. Total Peruvian production of ready-mix concrete rose by 33% in 2007, making it necessary to implement optimized loading systems through reorganizing the fleet traffic within the plant, relocating finished product inspection points and installing a third mixing plant in San Juan, having a capacity of 60 m 3 /h. In Lima, various monthly production records were broken. In September 77,522 m 3 were delivered and in October, 77,579 m 3. Daily production levels also rose significantly, with 3,528 m 3 being poured in a single working day. Ready-mix concrete paving systems made progress in 2007, with two large projects completed and another under way (COSAC II): As shown in Table Nº 4, on the next page. In 2007, 56,000 cubic metres of concrete for shot - crete were produced, 163% more than in This Business Unit was the one that made the greatest contribution to the company s results. The wet shotcrete system was used for civil engineering works and for dams and associated infrastructure and mining. Automated equipment of the latest generation was used with advanced

40 38 Annual Report 2007 Ta b l e 4 Projects with ready-mix concrete pavement systems Client Project Construction time (months) Extension to North & South APRON - LAP Lima Airport Partners SRL Southern Expressway - Section I Conalvias S.A. Peru Branch LP1 N o MML/IMPL COSAC Southern Expressway Sect. II Altesa - EIVISAC Consortium Total vol (m 3 ) 9, , ,200 Vol dispatched (m 3 ) 9, , ,735 Linear meters (ml) 4,019 23,249 5,462 Carriageway width (m) and 7.00 mixture design technology, using additives produced by BASF Construction Chemicals Peru. In its fifth year of operation, the Blocks Unit sold 11 million units of different products (paving blocks and bricks) valued at S/ million, 17% higher than turnover in In November, Cementos Lima ordered to Columbia Machine, a second block machine similar to the first one, which is also being installed in the Ancieta plant. During 2007, the Research and Development Department concentrated on the strategic goals established for the period, for which it employed the synergy with CITEDEC (Centre for Cement and Concrete Research) as a practical tool in its relations with clients. The financial statements as at the 31st of December 2007 were audited by PWC and approved at a meeting of the Board of Directors on the 4th of February 2008; the results were as follows: Net sales amounted to S/. 264 million (S/. 177 million in 2006). Net results of S/ million (S/. 9.4 million in 2006). Net equity of S/ million (S/ million in 2006). Basf Construction Chemicals Peru UNICON holds 30% of the shares in BASF CONSTRUCTION CHEMICALS PERU, supplier of concrete additives, adhesives and grouts, and the erection of industrial equipment, products for repairing concrete structures and others. The company recorded turnover of S/ million (S/ million in 2006), made a net profit of S/ million (S/ million in 2006) and had net equity of S/ million (S/ million in 2006), as at the 31st of December The obligatory annual general meeting on the 26th of March 2007 approved a modification of the trading name of the company from MBT UNICON S.A., to BASF Construction Chemicals Peru S.A.

41 Cementos Lima 39 Compañia Electrica El Platanal S.A. (CELEPSA) Construction of hydroelectric power station The construction timetable is being met as programmed and the fourth quarter of 2009 should see the power station in commission. Progress made on the principal items as at the 10th of March 2007 was as follows: Underground work: 64% Surface installations: 26% Generator hall and electromechanical installations: 54% Engineering and supervision: 65% According to the latest estimates, the total investment has increased from the initial calculation (US$ 210 million) to US$ 256 million. This is due mainly to the higher cost of underground work caused by problems now overcome when excavating the tunnels and generator hall cavern, as well as the substantial devaluation of the

42 40 Annual Report 2007 Sand trap, surface infrastructure at Capillucas, El Platanal. Better electricity generation, by investing US$256 million dollars in a project that will generate 1,063 gwh / year of saleable energy.

43 Cementos Lima 41 US dollar, which has fallen more than 15% since the project was approved. Despite the estimated increase in investment, the project s rate of return remains the same, given that over the same period forecasted income has increased by more than 20% as the prices of electricity and emissions reduction certificates (CER s), also known as carbon bonds within the Clean Development Mechanism have also risen. Furthermore, during 2007 the following principal agreements were entered into: A contract for steel armouring of the vertical section of the penstock and tunnel of CH G1 with Graña y Montero, under which work will start in February A contract for the construction of surface works at the Paucarcocha sector, signed with Graña y Montero, that started in January 2008 with improvements and maintenance of the access roads. This agreement includes construction of the north and south reservoirs, discharge system and spillway, among other works. Concessions, licences and permits The Government issued Supreme Ruling No EM on the 25th of July 2007, approving a modification of concession contract No covering the G-1 El Platanal electricity generating concession, extending the period for completion of construction until the 30th of March Contributions and increase in capital As at the 31st of December 2006 the shareholders had made contributions amounting to US$ 30 million. In the months of February, April and October 2007 additional contributions amounting to US$ 30 million were made, thus completing the contribution of US$ 60 million, approved by the general meeting of shareholders on the 6th of March Given the increase in the investment costs of the project, a general meeting of shareholders on the 11th of January 2008 approved an increase in capital of US$ 20 million, which increased paid -up capital to US$ 80 millions. Financing On the 12th of April 2007 Celepsa signed financing contracts with the Banco de Credito del Peru and Scotiabank for financing via leasing and syndicated loans for a total of US$ 120 million plus pre-operating interest, which will be capitalized. As at the 31st of December 2007, the following amounts had been disbursed by the banks: Banco de Credito del Peru US$ 52.6 million of the US$80 million committed. Scotiabank Peru: US$ 7.4 million of the US$ 40 million committed. Land and easements During 2007 CELEPSA successfully completed direct negotiations for the purchase of land with the different communities, and obtained administrative easements from several of them. Carbon bonds Celepsa has applied for certification of the El Platanal Hydroelectric Power Station project as a Clean Development Mechanism (CDM) project which, when the plant is

44 42 Annual Report 2007 Better presence abroad, by the construction of a factory Drake Cement and the purchase of Sunshine Concrete and Materials, in the state of Arizona, USA. operational, will enable emissions reduction certificates (CER) to be issued and traded. In November 2007 Celepsa entered into an agreement with the National Environment fund (FONAM) which will lead to a letter of approval from the project s host country. Then, in December 2007, Celepsa sent the PDD (Project Design Document) to the validator designated by the United Nations, for validation and later registration. Skanon Investments, Inc. / Drake Cement LLC The Company holds 78.74% of the shares in Skanon Investments, which in turn holds 77.14% of Drake Cement, the company currently implementing a project in Yavapai County in the State of Arizona, which consists of the construction of a complete cement factory with a production capacity of 660,000 short tons of clinker. To date finance has been secured, the principal items of equipment acquired and contractors chosen for the civil engineering, electrical and mechanical work. Construction should start in May 2008 and the plant should be in production at the beginning of The cost of the investment, initially estimated at US$ 140 million, will increase by approximately 30%, mainly as a result of the dollar s fall against strong currencies and the marked increase in the prices of steel and copper. Sunshine Concrete & Materials, Inc. In July 2007, Drake Cement acquired 100% of this Company, which produces and sells aggregates and concrete, the largest in Mohave County in the north west of Arizona. The aim is the vertical integration of Drake Cement to ensure a future market for the cement manufacturer. Sunshine currently has three aggregate and concrete production plants in the main towns of Mohave County. It has started a process of expansion in the area of influence of Drake Cement and in April 2008 will open a new plant in Drake to provide aggregates and concrete for the construction of the cement factory and to supply the local market. In 2007 Sunshine sold 133,760 cubic yards (208,000 cubic yards in 2006) and 371,291 short tons of aggregates, it had a turnover of US$ 15.2 million and losses amounting to US$ 2.65 million, principally caused by once-only costs of administrative and operational restructuring after the acquisition, and also by a drop in sales as the United States economy cooled down. Generacion Electrica de Atocongo S.A. (GEA) Annual electricity production of GEA, which is wholly owned by the Company, totalled 1.5 gwh, 88% less than the gwh generated in This considerable reduction was the result of the company s cost reduction policy deriving from the high price of fuel used for the electricity generation. The power station will be converted to use natural gas instead of the Diesel 2 currently used. The cost of the change is US$ 8,000,000 and the work will be carried out in stages in order to affect generating capacity as little as possible, so that the plant can be used in the event of an emergency. The first two generating sets have already been dismantled and sent for conversion to the supplier, Indequipos in the USA; they should be commissioned using natural gas in June This total conversion will enable electricity to be generated efficiently to supply the Atocongo plant at a lower cost than is currently being paid at peak times.

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46 44 Annual Report 2007 Prefabricados Andinos Peru S.A.C. This company, incorporated in September 2007, has as its shareholders Cementos Lima and a subsidiary of Spanish group PRAINSA, each holding 50% of the shares. The main purpose of the company is to invest in a new project to manufacture concrete or prestressed concrete structures and other large prefabricated concrete items to compete by means of lower costs with steel structures. PRAINSA has more than thirty years of experience in this activity and has manufacturing plants in Spain, France, Portugal and several countries in the Americas. An immediate start was made on the construction and equipping of a factory on land adjacent to the Atocongo plant, to facilitate the administration of the business and the supply of cement and other principal materials. The cost of this investment is estimated to be around US$ 3 million. The civil engineering work was practically completed by March 2008; almost all the imported equipment has been delivered to the plant and its installation has begun within the approved timescale. The factory should start production in May 2008 and its market will be assured by the different construction projects now getting under way: mainly shopping malls, factories, warehouses, bridges and underpasses, etc.

47 Deposito Aduanero Conchan S.A. This subsidiary, in which we hold 100% of the shares, provided services during the year, mainly to Cementos Lima and, to a lesser extent, Cargill Americas Peru S.R.L. and Corporacion de Cereales S.A. Cementos Lima 45

48 05economic and financial aspects

49 El Monumental Stadium

50 48 Annual Report 2007 Economic and financial aspects The balance sheet and profit and loss statements as at the 31st of December 2007, submitted to the annual general meeting for approval, reveal a turnover of S/. 864 million (15% higher than in 2006) and net profit of S/. 202 million (48% higher than in 2006). The Board of Directors, on behalf of the shareholders, took the following decisions in 2007, the effects of which on the company s equity are also shown below: 19th January: issue of the first series of corporate bonds, known as Cementos Lima Corporate Bonds First Issue, First Programme valued at S/. 50,000,000. The interest rate was % annually for a bullet payment at the end of the eighth year. 24th January: the Board of Directors agreed to pay dividends of US$ 0.20 per ordinary share and US$ per investment share, on account of retained profit from fiscal year rd March: issue of a second series of corporate bonds, known as Cementos Lima Corporate Bonds Second Issue, First Programme valued at S/. 50,000,000. The interest rate was % annually for a bullet payment at the end of the eighth year. 26th April: the board of directors agreed to pay dividends of US$ 0.19 per ordinary share and US$ per investment share, on account of the interim profits for fiscal year nd June: issue of a third series of corporate bonds, known as Cementos Lima Corporate Bonds Third

51 Cementos Lima 49 Better by intent, with encouraging, transparent and representative results that provide security and confidence to all economic agents and interest groups involved with the company. Issue, First Programme valued at S/. 60,000,000. The interest rate was % annually, for a bullet payment at the end of the seventh year. 18th July: the Board of Directors agreed to pay dividends of US$ 0.23 per ordinary share and US$ per investment share, on account of the interim profits for fiscal year th October: the Board of Directors agreed to pay dividends of US$ 0.26 per ordinary share and US$ per investment share, on account of the interim profits for fiscal year During 2007 there were no movements that affected capital accounts and investment shares, therefore the figures in nuevos soles at the close of the year were as follows. As at the 31st December 2007 Capital 369,266,290 Capital adjustment 23,901,879 Investment shares 47,701,066 Adjustment to investment shares 3,087,596 Legal reserve 73,853,258 Reserve to be capitalised 4 Other reserves (16,592,012) Accumulated results 245,326,988 Results of the fiscal year 202,078,994 Total equity 948,624,063

52 50 Annual Report 2007 At the 31st of December 2007, 88.56% of equity continued to be held by the ordinary shareholders, with 11.44% held by investment shareholders. At present we have a number of tax, legal and labour proceedings in progress, relating to the company s operations. In the opinion of the management and legal advisors, the final results of these proceedings will not represent a significant cost to the Company, therefore no provision was made for them as at the 31st of December External audits during fiscal year 2007 were carried out by Dongo Soria, Gaveglio Sociedad Civil (a member firm of Price Waterhouse Coopers). The auditors opinion on the balance sheet, profit and loss account, changes in net equity and cash flow accounts as at the 31st of December 2007, which forms a part of this Annual Report, was issued without reservations. y Administración S.A., through a contract renewed until the 12th of April Technical advice is once again the responsibility of ARPL Tecnología Industrial S.A., in accordance with a contract automatically renewable every two years, in force until the 31st of December The Board of Directors acknowledges the valuable contributions of both companies during Acknowledgements The Board of Directors appreciates the hard work of the company s employees and collaborators in achieving the records set, for which it would like to express its heartfelt thanks. Board of directors Lima, 11th March 2008 Administration, management and technical assistance In accordance with the company s articles of incorporation dated the 28th of December 1967, and with the wishes of the general meeting of shareholders held on the 28th of December 1981, the general management of Cementos Lima S.A. remains in the hands of Sindicato de Inversiones Eng. Jaime Rizo Patrón Chairman of the Board Eng. Carlos Ugás Director General Manager

53 Financial statements December 31, 2007 December 31, 2006 El Monumental Stadium

54 52 Annual Report 2007 Report of the independent auditors 1

55 2 Cementos Lima 53

56 54 Annual Report 2007 CEMENTOS LIMA S.A BALANCE SHEET ASSETS As of December 31, CURRENT ASSETS Cash and banks (Note 5 ) 22,963 27,517 Trade accounts receivable (Note 6 ) 42,892 12,071 Sundry accounts receivable (Note 7) 12,934 10,453 Accounts receivable from related companies (Note 28) 1,716 6,956 Inventories (Note 8) 167, ,870 Prepaid taxes and expenses 6,720 7,067 Current portion of the deferred cost of preparation of quarries (Note 2-g) 29,399 26,954 Total current assets 284, ,888 SUNDRY ACCOUNTS RECEIVABLE (Note 7) 3,350 6,665 INVENTORIES (Note 8) 28,903 32,860 INVESTMENTS IN SUBSIDIARIES (Note 9) 326,426 97,152 PROPERTY, MACHINERY AND EQUIPMENT, NET (Note 10) 629, ,994 INTANGIBLES (Note 11) 50,566 49,907 GOODWILL 9,745 9,745 DEFERRED COST OF PREPARATION OF QUARRIES (Note 2-g) 62,111 51,688 1,394,892 1,068,899 The accompanying notes from page 62 to 107 form part of the financial statements.

57 Cementos Lima 55 LIABILITIES AND NET STOCKHOLDERS EQUITY As of December 31, CURRENT LIABILITIES Bank overdrafts and loans (Note 12) 123,214 63,947 Trade accounts payable (Note 13) 39,305 27,758 Accounts payable to related companies (Note 28) 19,934 14,086 Income tax and current participations (Note 14) 43,220 24,195 Sundry accounts payable (Note 15) 31,497 22,841 Total current liabilities 257, ,827 LONG TERM DEBT (Note 16) 160,000 - INCOME TAX AND DEFERRED WORKERS PARTICIPATION (Note 17) NET STOCKHOLDERS EQUITY (Note 18) 29,098 38,181 Capital stock 393, ,168 Investment shares 50,789 50,789 Legal reserve 73,853 73,853 Other reserves (8,347) - Accumulated results 447, ,081 Differences of conversion (8,245) - 948, ,891 1,394,892 1,068,899

58 56 Annual Report 2007 CEMENTOS LIMA S.A PROFIT AND LOSS STATEMENT Net sales (Note 21) Operating costs (Note 22) Gross profit Operating expenses: Administrative expenses (Note 23) Selling expenses (Note 24) Other income Other expenses Operating profit Other income (expenses): Financial income (Note 26) Financial expenses (Note 27) Result attributable to subsidiary companies (Note 9) Exchange difference, net (Note 3) Profit before workers participation and income tax Workers participation (Notes 17 y 20) Income tax (Notes 17 y 20) Profit of the year Basic profit per common share in Nuevos Soles (Note 30) Basic profit per investment share in Nuevos Soles (Note 30) The accompanying notes from page 62 to 107 form part of the financial statements.

59 Cementos Lima 57 For the year ended December 31, , ,801 (424,991) (420,755) 439, ,046 (105,250) (96,428) (30,178) (27,426) 4,502 5,793 (2,715) (7,551) (133,641) (125,612) 305, ,434 1,921 2,167 (12,479) (6,760) 13,089 6,049 4,641 7,819 7,172 9, , ,709 (29,892) (20,471) (80,709) (55,271) 202, ,967 4,85 3,28 0,49 0,33

60 58 Annual Report 2007 CEMENTOS LIMA S.A STATEMENT OF CHANGES IN NET STOCKHOLDERS EQUITY FOR THE YEARS ENDED DECEMBER 31, 2007 AND DECEMBER 31, 2006 Capital stocks Investment shares Balances as of January 1, ,168 50,789 Dividends declared and participations agreed during the year Other increments or reductions in the net stockholder s equity items Profit of the year - - Balances as of December 31, ,168 50,789 Dividends declared and participations agreed during the year - - Conversion to presentation currency - - Other increments or reductions in the net stockholders equity items - - Profit of the year - - Balances as of December 31, ,168 50,789 The accompanying notes from page 62 to 107 form part of the financial statements.

61 Cementos Lima 59 Legal reserve Others reserves Accumulated results Conversion differences Total 73, , , (73,834) - (73,834) , ,967 73, , , (114,819) - (114,819) (8,245) (8,245) - (8,347) 65 - (8,282) , ,079 73,853 (8,347) 447,406 (8,245) 948,624

62 60 Annual Report 2007 CEMENTOS LIMA S.A STATEMENT OF CASH FLOWS For the year ended December 31, OPERATING ACTIVITIES Collections from customers 960, ,989 Other collections of cash related to the activity 35,829 - Payment to suppliers (525,848) (442,492) Payment to workers (73,077) (65,713) Payment of interest (10,500) (6,895) Payment of taxes (125,998) (88,712) Net cash provided by operating activities 261, ,177 INVESTMENT ACTIVITIES Purchase of subsidiaries and other business units (232,756) (60,952) Purchase of property, machinery and equipment (8,807) (10,922) Disbursement for work in progress in property, machinery and equipment (83,973) (56,436) Disbursement for the purchase and development of intangible assets (3,532) (5,826) Additions to the deferred cost of preparation of quarries (41,416) (46,634) Net cash used in investment activities (370,484) (180,770) FINANCING ACTIVITIES Bank overdrafts 123,207 - Long-term debt 160,000 - Payment of long-term debt (63,940) (47,098) Payment of dividends (114,736) (73,798) Net cash provided by (used in) financing activities 104,531 (120,896) Net reduction in cash in the year (4,554) (3,489) Cash balance at the beginning of the year 27,517 31,006 Cash balance at the end of the year 22,963 27,517 The accompanying notes from page 62 to 107 form part of the financial statements.

63 Cementos Lima 61 CEMENTOS LIMA S.A STATEMENT OF CASH FLOWS (Continued) For the year ended December 31, RECONCILIATION OF THE NET RESULT WITH THE CASH FLOW OF OPERATING ACTIVITIES Profit of the year 202, ,967 Adjustments to net results not affecting cash flows from operating activities Depreciation and value impairment 67,226 91,615 Amorization of intangible assets 2,873 3,906 Amortization of other assets 28,549 29,854 Loss on sale of property, machinery and equipment 36 2,047 Result attributable to subsidiary companies (13,089) (6,049) Deferred income tax and workers participation (8,852) (8,171) Others (20) - Increase or reduction in the flow from operations due to net variations of assets and liabilities: Trade accounts receivable (30,821) 18,792 Accounts receivable from related parties 5,240 (3,532) Other accounts receivable 835 (123) Inventories (37,829) 25,404 Deferred expenses 347 2,398 Trade accounts payable 11,547 (8,968) Accounts payable to related parties 5,848 3,564 Income tax and current participations 43,220 24,530 Sundry accounts payable 8,405 2,604 Payment of income tax and workers participation (24,195) (16,661) Net cash provided by operating activities 261, ,177

64 62 Annual Report 2007 CEMENTOS LIMA S.A. NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2007 AND ECONOMIC ACTIVITY Cementos Lima S.A. (hereinafter the Company ), was constituted in December of 1967 and is a subsidiary of Sindicato de Inversiones y Administración S.A. (hereinafter The Principal ), company which possesses percent of its capital stock. Its legal domicile is Av. Atocongo 2440, Villa Maria del Triunfo, Lima, Peru. The main activity of the Company is the production and commercialization for local sales and export of every type of cement and clinker. For this purpose, the Company has a plant located in the department of Lima, the capacity of which is 3.6 million tons of clinker and 4.5 million tons of cement. In the Board of Directors meeting of October 28, 2006, it was agreed to expand the production capacity of kiln. With this expansion the production capacity of clinker and grinding of cement will be 4.8 and 5.5 million tons per year, respectively. The estimated investment is US$ 120 million and it is expected that the project will be completed in the year Furthermore, the Company is authorized to invest in other companies dedicated to similar activities and/or which assist, develop or complement the achievement of its objectives, locally or abroad. In the Extraordinary General Shareholders Meeting on November 4 of 2005 the expansion of the Company s business purpose was approved so that it may make investments in other companies dedicated to electrical activities. In this sense, the Framework Investment Agreement was approved for signature between the Company, Cemento Andino S.A. and Corporacion Aceros Arequipa S.A. for the construction of Compañia Electrica El Platanal S.A. CELEPSA, the company which will develop and operate the electricity generation concession, G-1 El Platanal. The total estimated investment is US$ 210 million to be financed by means of a bank loan and the contribution of the founding shareholders, Cementos Lima S.A., Cemento Andino S.A. and Corporacion Aceros Arequipa S.A. based on a participation of 60, 30 and 10 percent respectively. As of December 31, 2007 the contribution made by the Company totals US$ 36 million. In 2007, the Board of Directors authorized the participation in the Project which will be executed by Drake Cement LLC - Drake, (a company constituted in the United States of North America - USA), consisting of the construction and operation of a cement plant, in the County of Yavapai, in the northern part of the state of Arizona, USA. The Company will participate as major shareholder with 78.74% of Skanon Investments, Inc. Skanon (a company constituted in the State of Arizona, USA), and is the majority shareholder with 77.14% of Drake. It is expected that the project will be completed in the first semester of the year 2010.