2009...2009 annual report av. atocongo nº 2440, villa maría del triunfo, lima 35 telephone: (511)...

2009

An

nu

al R

epo

rt

Av. Atocongo Nº 2440, Villa María del Triunfo, Lima 35Telephone: (511) 217 0200 Fax: (511) 217 1496

www.cementoslima.com.pe

Annual Report 2009

Annual Report 2009

EFFICIENCY AND SUSTAINABILITY


Atocongo Plant.

Results

Years Years

PRICE OF TYPE I CEMENT

(In Nuevos Soles, ex-works per metric ton, excluding packaging, distribution fee and VAT)

TOTAL LONG TERM DEBT AT CONSTANT VALUE

as of December 31st 2009 (S/. 000)

Average current pricesAverage constant prices as of December 31st 2009

INVESTMENT PERFORMANCE

as of December 31st 2009 (S/. 000)

DOMESTIC MARKET DISPATCHES PER YEAR

(in thousands of tons)

The results for 2009 included record dispatches, considerable investment, higher profits, a significant reduction in greenhouse gas emissions and successful social responsibility management, all achieved sustainably and efficiently

Domestic Abroad Total

Atocongo Plant.

Maintenance work above ground level – Atocongo Plant.

Board of Directors and Management

National and international environment

Investment, operations and administration

Projects

Subsidiaries and affiliates

Economic and financial aspects

Financial statements

Index

09101634405663

Annual Report 20098

Annual Report of the Board of Directors of Cementos Lima S.A.For Fiscal Year 2009

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 2009 were submitted to the general meeting of shareholders together with this Annual Report summarizing the most important events affecting the Company during 2009 and up to the 19th of March 2010, 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 2009.

Board of Directors of Cementos Lima.

Cementos Lima 9

PresidentEng. Jaime Rizo Patrón

Vice-PresidentEng. Ricardo Rizo Patrón

DirectorsEng. Juan de la PiedraDr. Oscar de Osma Dr. Alfredo Gastañeta Dr. Julio RamírezEng. Marcelo Rizo Patrón Eng. Jaime SotomayorLic. Alfredo Miguel Torres Eng. Carlos Ugás Eng. Jesús Antonio Zamora

Board of Directors ManagementSindicato de Inversiones y Administración S.A. (SIA)

General Manager Eng. Carlos Ugás Representative of SIA in the General Management

Administration ManagerMr. Jorge Trelles

Corporate Development ManagerEng. Jaime Bustamante

Financial ManagerMr. Álvaro Morales

Project ManagerEng. Aldo Solimano (until 04/30/09)

Eng. Jeffery Lewis (from 05/01/09)

Legal ManagerDr. Julio Ramírez Operations Manager Eng. Evor Velezmoro Marketing Manager Mr. Kurt Uzátegui

Technical AdvisorsARPL Tecnología Industrial S.A.

Management of Cementos Lima.

Local traders in Cuzco – Peru.

Efficiency and sustainability

“Creating progress within our borders and abroad,

benefiting our shareholders, collaborators and community,

as well as proper protection for the environment”


Annual Report 200912 New Cronos Business Center, Lima – Peru.


Cementos Lima 13

The Peruvian economy has had one of the highest growth rates in the world maintaining its trend of the last 11 years

During 2009 the world suffered the consequences of a global financial crisis, with a deceleration estimated at 1.0%. The Peruvian economy was not immune to these consequences and its rate of growth fell very significantly. Nevertheless, the end of the year saw an increase of 0.9% in gross domestic product (GDP). Thus our economy was one of the fastest growing in the world, maintaining the trend seen over the last 11 years.

The construction sector achieved growth of 6.1%, a figure well below the 16.5% achieved in 2008. Even so, it was still the sector with the second highest growth in the Peruvian economy.

Inflation, according to the Consumer Prices Index, ended the year at 0.25%, a percentage not only much lower than in 2008, but the lowest in 10 years. Wholesale prices, according to the Wholesale Prices Index, fell by 5.05%. This shows that inflation was below the target range set by the BCR, as well as below the rate of inflation in the majority of Latin American countries. It is estimated that inflation in Peru in 2010 will be around 3.0%, still one of the lowest figures in Latin America.

In general, the Peruvian economy achieved an acceptable performance; among its most important achievements were:

For the eighth successive year the country achieved a trade surplus, which was 90.0% higher than in 2008. Although exports fell by almost 15.0% (from 31,529 million dollars in 2008 to 26,885 in 2009), this fall was offset by a greater fall in absolute terms in imports (more than 25.0% compared with the previous year).

Annual Report 200914

Net international reserves also reached a new record level of 33,135 million dollars (6.0% higher than at the close of 2008).

Private consumption grew by more than 2.0% despite the crisis, and public sector consumption rose by more than 16.0%, due to the fiscal stimulus introduced to counteract the crisis. For this reason public investment rose substantially (more than 25.0% compared with 2008).

In 2009 there was a fiscal deficit of 2.1% of GDP (exactly counterbalancing the previous year’s 2.0% of GDP surplus), caused by higher public spending and a reduced tax take.

As far as the exchange rate was concerned, the nuevo sol strengthened by 8.0% during the year, based on the average selling rates at the end of 2008 and 2009.

Growth in the construction sector resulted from the good performance of the Peruvian economy and government support programs, which helped to stimulate private and self-build projects. During 2010, the sector should take advantage of central government funds destined to prevent the economy decelerating as a result of the global crisis, and we therefore expect progress to be made in the modernization of the country’s road and port infrastructure aimed at increasing its competitiveness and underpinning future development.

The global economic crisis continues and the United States and various other developed countries in Europe remain in recession, in contrast to China and part of Asia, whose economies have returned to growth. This crisis caused a severe contraction in global demand, resulting in a fall in most metal prices; a fall that was only reversed in the second half of 2009.

After being awarded the much-desired “investment grade” by two of the world’s three most important ratings agencies, Fitch Ratings and Standard & Poors, the third agency, Moody’s, awarded a similar rating before the end of 2009.

Country risk, measured by the EMBI+ Peru (Emerging Markets Bond Index Plus published by JP Morgan), improved notably during the year, ending 2009 at 165 pbs, compared with 509 pbs at the close of 2008.

Cementos Lima 15

Active consumption, Lima – Perú.

Implementation of the Free Trade Agreement with the USA culminated during the year; it took effect on the 1st of February 2009. In addition, a similar agreement with Canada took effect on the 1st August 2009 and one with China, which was signed on the 28th of April 2009, took effect in March 2010.

Natural gas supply to Atocongo Plant.

Efficiency and sustainability

“The change in energy supply for the kilns produced a

reduction of more than 100,000 tons of CO2 equivalent

in 2009”


Annual Report 200918 Premises of authorized distributor PROHKASSA – Progre-Sol network.


Cementos Lima 19

For the fourth consecutive year, cement dispatches to the domestic market hit a historic high at a total of 2.94 million tons

The Board of Directors and General Management exercised by Sindicato de Inversiones y Administracion S.A. (SIA) supervised investment and investment performance throughout the year.

Investment in the country continued, principally the hydroelectricity project for which our subsidiary CELEPSA is responsible, and work to increase the capacity of Kiln I by more than double, relying on efficient fund management in a year of generalized uncertainty caused by the global crisis.

In the second half year of 2009, sustained growth in the demand for cement returned in Peru and it was decided to accelerate work on the Kiln I capacity increase to bring it on line within two years; this is explained in the relevant section of this Annual Report.

Production and despatch in the domestic market

Domestic cement sales by the Company reached a historic record for the fourth year running, with a total of 2,935,060 t, a figure 2.1% higher than the previous record of 2,875,105 t achieved in 2008. Despite global and domestic crises, this increase was possible thanks to the performance of the construction sector and the agility and efficiency of the existing marketing and distribution system. Furthermore, it is important to highlight the fact that growing domestic demand has been fully satisfied by the Company, as shown by the explosive growth in the construction sector in recent years.


The Company’s production versus dispatches is shown in Figure 1.

Demand for cement in Peru reached a historic record for the fifth consecutive year, totaling 7,254,307 t, a figure 3.9% higher than the previous record achieved in 2008 (6,981,631 t). This figure includes cement dispatched from Peruvian factories and an estimate of imported cement dispatches using information from INEI and SUNAT (Customs).

Thousands of metric tons

Year

s

1,5

00

1,0

00

50

00

2,0

00

2,5

00

3,0

00

Cement dispatchesCement production

Cement production vs. local cement dispatches

Figure Nº 1

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

Cementos Lima 21

Sale of Sol brand cement at self-service store.

Marketing

Sales

Cement is sold through two business units: Bagged cement and cement in bulk. These units were responsible for 77.0% and 23.0% of total sales, respectively.

The Bagged Cement Business Unit handles two brands: “Cemento Sol” (Portland type I) and “Cemento Atlas” (Portland type IP). Both products are sold through two channels: modern outlets (consisting of large self-service hardware stores) and traditional outlets (the Progre-Sol network and independent hardware stores).


The Bulk Cement Business Unit sells Portland cement types I, IP, II and V, principally to makers of premixed concrete and products derived from concrete.

The Company did not increase its cement prices at all during 2009, continuing with its policy of keeping its retail prices the most competitive in the domestic market and always below the regional average.

Relationship with clients

Progre-Sol hardware store network (sub-distributors authorized by Cementos Lima)

Cementos Lima’s sales strategy seeks to integrate clients, purchasers and end users of cement in order to forge an efficient and long-lasting commercial relationship throughout the value chain, from factory to point of sale.

The Progre-Sol network consists of more than 160 hardware stores, located mainly in Lima, Ancash and Ica.

Furthermore, the principal clients of the Progre-Sol network are more than 6,500 independent hardware stores, which have as their customers builders and self-builders, who are responsible for between 50.0% and 60.0% of construction activity in Peru.

The Company’s bagged cements “Sol” and “Atlas” have a very strong presence on coast and in the central highlands, where they are the market leaders, competing mainly with bagged cements by Cementos Andino S.A., produced in Tarma and by Caliza Cemento Inca S.A., produced in Huachipa, as well as cement imported from the Dominican Republic. We also have a presence in areas far from our plant, provided that freight charges permit a competitive price for end users.

In order to compete successfully in the domestic and international markets, the Company concentrates on maintaining the quality of its cements, efficient

Cementos Lima 23

The “Build your Dreams with Sol Cement” campaign, 2009.


production and a speedy and versatile dispatch and distribution system so that customers can have access to the best cement at the lowest prices, in the quantities and at the opportunities they require it. In this way it maintains clear leadership in the domestic market and over the last decade has exported a significant part of its production to satisfied customers abroad.

The Company is always prepared and ready to compete with other producers and distributors in our own markets and in new markets in Peru and abroad, defending its rights in the face of unfair practices and demanding impartial treatment from the competent authorities for all competitors, without privileges for anyone.

For this very reason the Company protested publicly when, in October 2007, Supreme Decree Nº 158-2007-EF was promulgated reducing the duty payable on most imports in the 12.0% band from 12.0% to 9.0% and the rest to 0.0%, among them being cement and clinker, a failure to comply with a basic legal requirement to provide technical and economic grounds for treating certain items differently to others.

This unjustified discriminatory treatment also contravenes the Customs Policy Guidelines approved by Ministerial Ruling Nº 005-2006-EF/15, which establishes among other things that duties must not be reduced in an arbitrary fashion and that both the average duty and scope should be reduced for all customs tariff items or a very wide range of items. Furthermore, as this was a unilateral reduction Peru lost the opportunity of obtaining reciprocal duty reductions for Peruvian products entering other countries.

As the competition authorities did nothing when presented with the Company’s claim in January 2008, it sought a restoration of the position before the tariff reductions were introduced from the courts. On the 10th of March a ruling was issued upholding the Company’s claim, in which the Constitutional Court said that the reduction in duty was disproportionate and arbitrary and, therefore, constitutionally prohibited.

Cementos Lima 25

Exports

No cement was exported during 2009 as a result of the Company’s decision to give priority to the domestic market. A single shipment of 8,160 t of clinker was dispatched in September to Mejillones, Chile.

Conchan Pier

Total cargo handled by Conchan Pier fell by 78.7% compared with 2008, as there were no cement exports and fewer shipments of clinker, coal and iron ore.

The annual variation in tonnage broken down by products shipped or discharged is shown in table Nº 1.

Port operations by product

in metric tons

Table Nº 1

Product

Cement

Clinker

Coal

Gypsum

Grains

Iron Ore

Total Handled

2009

0

8,160

28,604

59,987

8,000

0

104,750

Vessels

0

1

1

2

1

0

Nº of

5

2008

62,316

336,292

65,017

0

0

27,721

491,346

Vessels

2

12

2

0

0

1

Nº of

17

Tonnage

-78.68

Variation %

-100.00

-97.57

-56.01

---

---

-100.00


Carbon bonds

On the 10th of November 2008, the Executive Board of the United Nations Framework Convention on Climate Change UNFCCC) registered our project “Fuel Switching at Atocongo Cement Plant and Natural Gas Pipeline Extension, Cementos Lima, Peru”. This was the start of a process of verifying a reduction in emissions.

February 2010 saw the conclusion of the verification process for the first period of MDL monitoring and Tüv Süd (a technical body contracted by the Company for the purpose), sent an application to the Executive Board of the UNFCCC for the issue of 66,207 Certified Emission Reductions (CER). Furthermore, at the beginning of March 2010 the verification of voluntary emission reductions or pre-MDL concluded with the issue by Tüv Süd of a verification certificate for 297,495 voluntary reductions (VER).

The process for issuing CERs continues with a review by the Executive Board of the UNFCCC, which is expected to be completed in April 2010. For the group of pre-MDL credits, the process continues with an inscription in the APX VCS Registry and then issue of the VER and this is also expected in April 2010.

We have reached an agreement with Messrs EDF Trading, which belongs to the EDF Group, (a world leader in nuclear energy generation and one of Europe’s major energy generators), covering the sale of the CERs we obtain up to December 2012.

We have also started the process of selling the VERs by contacting potential buyers.

Principles of good corporate governance

The Company applies the Principles of Good Corporate Governance to all its activities, and these are part of our organizational culture and are binding upon all our collaborators.

Cementos Lima 27 Inspection of cleaner, more stable flame with new energy supply.


The Internal Conduct Regulations, approved by the Board of Directors on the 17th of March 2003, contain policy and procedure guidelines regarding Significant Events, legal standards of conduct and ethics applicable to the Company’s activities, steps required in the event of conflicts of interest, rules regarding fair competition and respect for the rights of clients and consumers in general, as well as protection of the environment.

These regulations establish that the Company must be active and vigilant in respecting public authorities and third parties in general, the constitutional and legal rights of the Company and its property and its collaborators.

The audit committee, whose statute was approved by the Board of Directors on the 26th of April 2006, is made up of three members, of which at least two are chosen from the non-executive directors. In 2009 this committee examined the Company’s finances before submission to the board of directors and has reviewed operations with non-arm’s length parties to ensure compliance with the rules concerning conflicts of interest. It also approved the appointment of the external auditors, examined the audit processes, both internal and external and met the external auditors to analyze the information published and notes to the interim and annual financial statements position. Furthermore, the committee gave a favorable opinion to the board on the Company’s individual and consolidated financial statements as at 31st December 2009.

The Obligatory Annual General Meeting of Shareholders held on the 30th of March 2009 approved a modification to the dividend policy, necessary to meet the requirements of significant investments in Peru and abroad. This new policy empowered the Board of Directors to distribute quarterly cash dividends using between 30.0% to 60.0% of freely available earnings accumulated at the close of the previous quarter. Complying with this policy, the Company distributed quarterly cash dividends in the months of May, August and November 2009 and February 2010, which represented a little more than 30.0% of freely available profits for the respective quarters.

Cementos Lima 29

Integrated Management System (IMS)

The Company’s Integrated Management System (IMS) is designed to direct and control the organization in matters of quality, the environment and risk relating to health, safety and protection at work.

The IMS has been developed and is maintained in accordance with the following international standards: ISO 9001, ISO 14001, OHSAS 18001 and BASC.

Internal Audits

Fifteen internal audits were carried out in accordance with the annual program. During these audits, all the relevant IMS processes were reviewed to determine whether they were operating effectively and whether they comply with the system regulations and have been adequately implemented.

Assessment of Environmental Impacts and Risks

Environmental impacts and process risks continued to be evaluated to ensure that they remained up to date. These evaluations form the basis for planning the IMS as far as environmental aspects and risks to health, safety and protection at work are concerned, as they enable the necessary operational controls to be determined.

Management Review of the IMS

With the support of the IMS Committee, the Management carried out eleven programmed reviews of the system to ensure that it remained adequate, appropriate and effective. Among others matters, the feedback from clients and other interest groups was examined, as well as the Company’s quality, environment, safety and occupational health policy.


Certification

ISO 9001:2008

In September 2009, SGS carried out a re-certification audit of the Company’s

quality management, as a result of which its ISO 9001:2008 certification was

renewed. This certification shows that the IMS complies with the relevant

requirements and is capable of consistently meeting the parameters agreed

for the company’s products and services.

BASC

In May 2009, BASC Peru carried out a re-certification audit of the plant,

which led to the corresponding certificate being renewed. In October this

certification was also renewed for Conchan pier. BASC certification is granted

in recognition of the ability of the IMS to address threats relating to potential

use of the company’s operations or installations for illegal purposes.

PBIP

The National Port Authority audited Conchan pier in September to verify

compliance with the International Ship and Port Facility Security Code (ISPS)

and renewed the respective certification.

Cementos Lima 31 “Plant a Tree” campaign, 2009


Changes in Payroll Numbers

Table Nº 2

Classification

Administrative Staff

Employees

Workmen

Total

2007

140

95

111

346

2008

148

97

107

352

2009

156

101

105

362

This list includes personnel working in the Atocongo plant, Conchan pier and administration offices.

Labor Unions

The three-year agreements reached with the Company union in 2008 helped to keep industrial relations favorable to the productive development of the Company as a whole, as well as the technical and personal development of all our collaborators. The collective bargaining agreement expires on the 30th of June 2011.

Human resources

Personnel

Table Nº 2 shows the change in the number of collaborators during 2007, 2008 and 2009 (as at the 31st of December each year).

Cementos Lima 33

In compliance with the corporate social responsibility plan, September saw the end of the 17th Professional Training Program, involving 33 young people from different professions. At the same time we opened the 18th Program in which 33 recently qualified professionals are taking part.

Furthermore, as part of the program of support for university education for the young people of our country, the Company was visited by 861 students from different universities.

Classification of Man-Hours Devoted to Training

Table Nº 3

In-House

8,301 H-H 8,406 H-H 56 H-H

Outside the Company Peru Abroad

16,763 H-H

Total

Personnel Training and Development

During 2009 the Company continued with its strategic aims of training its labor force, imparting a total of 16,763 man-hours (M-H); that is an average of 46.3 M-H per employee.

The classification of man-hours devoted to training is given in table N° 3.

New multi-purpose silo, Atocongo Plant.

Efficiency and sustainability“We are concentrating our investment on projects that are

economically viable, socially responsible and environmentally

sustainable”

Projects

Annual Report 200936 Project to increase the production capacity of Atocongo Plant.

Projects

Cementos Lima 37

Investment in the Atocongo Plant Extension Project worthing US$ 230 million will increase clinker production to 4.5 million tons a year

The following is a brief description of the most important projects started, continued or completed during 2009.

Increase in the production capacity of the Atocongo Plant

In 2009 we continued with the work required to increase the production capacity of the Atocongo plant. This includes an increase in the production capacity of Kiln I from 3,200 to 7,500 t of clinker a day, an increase in crude production through the installation of a new 310 t/h roller mill and an increase in cement production capacity through the commissioning of a new 120 t/h roller mill.

The cost of this investment, including a multi-silo, amounts to US$ 230 million, of which Cementos Lima S.A. had, by the close of 2009, already committed US $ 44 million for the multi-silo, preliminary work, engineering and acquisition of the main mechanical and electrical components, as well as the start of the roller mill building.

As already stated in this Report, it is envisaged that this work will be accelerated so that Kiln I can operate at its new capacity of 7,500 t of clinker a day from 2012 onwards. For this reason disbursements of US$ 81 million are budgeted for 2010, principally for the civil engineering work on the mill buildings and new cooling tower.


Within this project the Company has given priority to the construction, erection and commissioning of the cooler electrofilter for Kiln I, aimed at reducing emission levels and meeting the requirements of the Environmental Update and Management Program (PAMA) and our responsibility for and commitment to the environment.

Multi-silo for 20,000 MT of cement

In August the civil engineering work on the reinforced concrete multi-silo was completed, the effective capacity of the silo is 20,000 MT of cement (four peripheral silos and one central silo).

The multi-silo will have two loading systems: one at the top of the existing silos and the other by means of a direct conveyor belt from the mill building. The multi-silo will feed the bagging lines, bulk cement systems and the tubular conveyor.

The total investment will be US$ 20 million and the project is expected to be completed by the end of 2010. When the multi-silo is commissioned this will optimize the simultaneous dispatch of different types of cement and it will treble the storage capacity for daily cement dispatches, which will substantially reduce the consumption of electricity at peak hours, when its cost is considerably higher.

Waste water treatment plant

In 2009 the civil engineering work was completed and the mechanical and electrical components of the water treatment plant installed; this will enable waste water to be treated for use as industrial water, irrigation of parks and gardens and fire fighting.

It is estimated that the total investment in the project will reach US$ 2,500,000, including the treatment plant, 1,000 m3 reservoir, access roads to the reservoir and feed line.

The plant is almost ready for operation.

Cementos Lima 39 Waste water treatment plant, Atocongo Plant.


Capillucas dam, El Platanal hydroelectric power station.

Cementos Lima 41

Efficiency and sustainability“El Platanal hydroelectric power station began operations in

March 2010, providing Peru’s national grid with a total of

756,000 MW-H a year of renewable energy”


Annual Report 200942 San Juan Plant, UNICON.


Cementos Lima 43

For the sixth consecutive year dispatches of premixed concrete by UNICON increased to a total of 1.5 million m3

INVECO S.A. / UNICON S.A.

Production of premixed concrete by UNICON in 2009 amounted to 1,530,186 m3 (an increase of 6.0% compared with 2008); thus production reached record levels for the sixth consecutive year, despite a reduction in dispatches to the mining industry as a result of the global financial crisis. In Lima 1,156,536 m3 were produced (7.0% growth compared with 2008) and 373,650 m3 outside the capital (3.0% growth compared with 2008).

The increase in premixed concrete dispatches in Lima was due mainly to infrastructure construction projects, such as completion of COSAC Centre and North, the new container terminal at Callao South Pier, public hygiene works in marginal areas of the capital, the new wholesale market in Santa Anita, etc.

As far as the provinces were concerned, growth by UNICON was based on two large projects: the Peru LNG gas liquefaction plant and jetty, and the El Platanal hydroelectric power station complex.

The company has six permanent plants strategically located in Greater Lima and four permanent plants in the interior of Peru. Furthermore, it has a series of mobile plants dedicated to specific clients.

Work started on the implementation of two new systems that will optimize the use of the company’s fleet of mixer trucks and pumps:


Concrete despatch control software known as Command Series.

The Trimble vehicle satellite positioning and location system.

These systems include changes in procedures in all areas of the company, which will help to improve punctuality and client service, and reduce costs.

The company acquired 5 city pump concrete pumps (without booms) for work in confined spaces. The fleet of pumps was thus increased to 69 units. As far as the mixer truck fleet was concerned, orders were placed for 12 mixer trucks, 3 pumps with 32 m booms and one concrete plant.

The Block Business Unit sold 22,594,000 units, representing a turnover of more than 11 million soles or an increase of 13.0% compared with 2008. Furthermore, 362,503 m² of paving blocks were sold, 31.0% more than in 2008, principally due to work being carried out by different district municipalities.

The financial statements as at the 31st of December 2008 were audited by PricewaterhouseCoopers and approved by the board of directors on the 21st of January 2010, with the following results:

Net sales of S/. 434 million (S/. 438 million in 2008).

Net results of S/. 36.3 million (S/. 37.4 million in 2008).

Net equity of S/. 146.8 million (S/. 110.5 million in 2008).

BASF Construction Chemicals Peru

UNICON holds 30.0% of the stock of BASF Construction Chemicals Peru S.A., a supplier of concrete additives, masonry adhesives and grout for the erection of industrial equipment, as well as products to repair concrete structures, among others.

Cementos Lima 45

Javier Prado bus station, Lima Metropolitan Transport System.

The company recorded turnover of S/. 37,169,000 (S/. 34,794,000 in 2008), making a net profit of S/. 4,486,000 (S/. 3,362,000 in 2008) with net equity valued at S/. 15,733,000 (S/. 13,814,000 in 2008) as at the 31st of December 2009.

Companía Eléctrica El Platanal S.A. (CELEPSA)

The hydroelectric project is divided into three phases: design, construction and erection, and testing and commissioning. The construction and erection phase was completed in December 2009, when testing of each component of the


“Experimental crayfish Cryphiops Caementarius nursery”, a sustainable project by Catahuasi Rural Community and CELEPSA.

station, both on and off load, began in coordination with COES, so that the corresponding corrections, calibration adjustments and operating trials could be carried out. During this testing process a number of problems with the turbines were corrected, as were certain leaks in the penstock and feed tunnel; repairs were carried out as quickly as possible so that the commissioning phase could continue.

As a result of these repairs, the project’s first turbine and all its components (110 MW of a total of 220 MW generating capacity) began continuous experimental operation in February 2010 and the commissioning process was completed satisfactorily at the beginning of March. The second turbine, having the same

Cementos Lima 47

capacity as the first, started the testing and commissioning process at the start of March. The station should start commercial operation in this same month, thus complying with the terms of the hydroelectricity generating concession contract.

The delay caused by adjustments to the equipment and repairs to the civil engineering work, produced a financial shortfall for CELEPSA between December 2009 and March 2010 consisting of reduced earnings, lower reimbursement of VAT paid on acquisitions and higher costs and expenditure on the above-mentioned modifications and repairs. In order to cover this shortfall, CELEPSA’s shareholders envisage capital contributions during 2010 of US$ 40 million in addition to the capital contributions made during 2009 and amounting to US$ 78.8 million.

Commercial Commitments

CELEPSA has entered into electricity sales contracts with Cementos Lima, Cemento Andino and Luz del Sur amounting to 756,000 MWh per year and power of up to 196 MW per month.

In January 2010, the month in which the power station was not operating commercially, CELEPSA honored its sales commitments by selling energy and power of up to 135 MW at non-peak times through a backup agreement with another generator.

Concessions, Licenses and Permits

During 2009 the construction license for works in the district of Zúñiga, which originally expired in December 2009, was renewed.

Furthermore, in October 2009 an application was made for a permanent water use license to the Local Water Authority in Cañete (ALAMOC). So far a favorable opinion has been given by the National Water Authority (ANA).


Furthermore, in December 2009 the differentiated valuation process was started to enable the final consent dossiers to be submitted.

Land and Easements

At the beginning of 2009 it was found that additional land needed to be acquired; the most suitable being in Tanta, where 14 hectares were bought, which would enable work on the left sill buttress of the Paucarcocha North dam to continue.

Carbon Bonds

In May 2009 CELEPSA and Endesa Carbono entered into an Emissions Reduction Purchase Agreement (ERPA) and committed itself to the sale of the first million CERs generated by the project at a set price, in order to ensure an income flow for this concept for approximately two years.

On the 21st of October 2009 CELEPSA was informed by the Executive Secretary of the United Nations Framework Convention on Climate Change that the “El Platanal” project had been registered with the United Nations as a CDM (Clean Development Mechanism) project, with the registration backdated to the 17th of September 2009.

On the 16th of February 2010, the Spanish Environment Ministry granted El Platanal a letter of approval for compliance with the criteria of the World Commission on Dams (WCD), which is an essential requirement for the sale of emissions reductions in the European market and will enable CELEPSA to obtain additional income from the sale of CERs from fiscal year 2010.

Financing

The initial financial leasing was for US$ 120 million (US$ 80 million from the Banco de Credito del Peru and US$ 40 million from Scotiabank Peru), which was

Cementos Lima 49 “Experimental trout Onchorynchus Mykiss farm”, a sustainable project by Apuri Rural Community and CELEPSA.


Drake Cement LLC plant, Arizona – USA.

Cementos Lima 51

disbursed at the same time as the capital contribution from shareholders valued at $ 60 million. On the 30th of June 2009 new financial leasing contracts were signed, valued at a total of US$ 60 million (US$ 40 million from the Banco de Credito del Peru and US$ 20 million from Scotiabank Peru), because of the increase in value generated during the development of the project.

Furthermore, on the 24th of December 2009 addenda to the financial leasing with the Banco de Credito del Peru and Scotiabank Peru were signed to define the total value of these operations and update the payment schedules.

Skanon Investments, Inc. / Drake Cement, LLC

Drake Cement is currently implementing a project in Yavapai County in the State of Arizona, which consists of the construction of a cement factory having a production capacity of 660,000 short tons of clinker. Construction of the plant started in May 2008 and by March 2010 it was approximately 90.0% completed. It is estimated that the testing and commissioning phase will start in June 2010.

Because of the global economic crisis, which hit the United States particularly hard, demand for cement and construction materials fell significantly in 2008 and remained low during 2009. Nevertheless, the stimulus package announced by the government should enable the market to recover somewhat in the second half of 2010, when the plant starts operating. This package consists principally of investment in public infrastructure projects.

Successive rises in the cost of steel, copper, oil and oil-based products has increased the investment in this project by US$ 255 million. Bank financing of US$ 83 million has been obtained, therefore capital contributions to Drake Cement should total approximately US$ 172 million, of which a total of US$ 25 million has yet to be disbursed.


Sunshine Concrete & Materials, Inc.

Sunshine has three plants producing aggregates and concrete in the main cities of Mohave County in the State of Arizona. In April 2008 a new concrete plant was installed at Drake, as well as an aggregates plant in the neighboring town of Paulden, both in Yavapai County. These plants have been exclusively supplying the concrete and aggregates required for the new Drake Cement plant and, to a lesser extent, the local market.

Sunshine’s sales in 2009 of 68,000 m3 of concrete (95,493 in 2008) and 89,421 short tons of aggregates generated net income of US$ 10.1 million and a loss of US$ 2.89 million. During 2009 the company’s management carried out an exhaustive cost reduction exercise that included temporary plant closure, refinancing of bank debt under better terms and a search for new markets. Furthermore, unused fixed assets were sold off to improve Sunshine’s cash position.

Maricopa Ready Mix

On the 19th of November 2009, Skanon acquired the assets of Maricopa Ready Mix L.L.C, Maricopa Ready Mix Leasing L.L.C, Maricopa 5475 L.L.C., as part of its acquisitions program aimed at consolidating its distribution channel. It is expected that this operation will improve its share of the concrete market in the State of Arizona by providing seven further plants in Maricopa and Pinal Counties. These plants have an annual production capacity of 688,000 m3 of concrete.

Staten Island Terminal, LLC

In July 2008 Cementos Lima S.A. approved investment in the project being implemented by Staten Island Terminal LLC in New York, USA, for the unloading, storage and despatch of bulk cement and aggregates for the construction industry.

Cementos Lima 53

View of the city of New York where the Staten Island Terminal will be built.

The investment budget for the project is estimated at US$ 50 million. Transportes Lurín S.A., a subsidiary of Cementos Lima S.A., will be the senior partner with 80.0% of the stock, while Liberty Cement LLC, of New York State, USA, will be the minority stockholder.

Staten Island has obtained the permits and licenses required for the construction and operation of this terminal from the relevant authorities; the last one was obtained in November 2008.

At present the existing installations on the land where the terminal is to be built are being demolished. In parallel, access to long-term finance is being negotiated


Electricity generating sets belonging to GEA with the new natural gas feed line.

as part of a development program sponsored by the authorities of the City of New York.

Generación Eléctrica de Atocongo S.A. (GEA)

In 2009 five of the seven generating sets were converted to dual fuel use (94.0% natural gas and 6.0% Diesel 2) to replace the traditional system which used only

Cementos Lima 55

Diesel 2. Conversion of the remaining two sets should be completed in April 2010

and they will enter operation immediately.

The five sets entered continual production in July, enabling GEA to produce a total

of 15,927 GWh of electricity in 2009, a figure 402.3% higher than the 3,802 GWh

generated in 2008.

Prefabricados Andinos Peru S.A.C. (PREANSA)

2009 was not a favorable year for private investment and construction; as a result of

the global crisis large private prospects were mothballed to await improved prospects

for the national and global economy.

Because of this, during the year PREANSA made a concerted effort to seek new business

by participating in designs for the state and contacts with a variety of professionals

and businessmen in the sector.

The second half year was more encouraging, as projects were given completion

dates and, therefore, tenders were implemented; the Company was awarded some

important projects (including the design, construction and erection of fabricated

structures).

2010 looks favorable as we are working on different private projects (underground

parking lots, apartment buildings and others) and public sector projects (principally

road building).

Depósito Aduanero Conchán S.A.

This subsidiary, in which we hold 100.0% of the stock, provided services during

2009 principally to Cementos Lima S.A. and, to a lesser extent, to Cargill Americas

Peru S.R.L.

Gardens, Atocongo Plant.

Efficiency and sustainability“Management aims to maximize economic results without

adversely affecting nature”




Administration offices, Atocongo Plant.

Cementos Lima 59

Net profit amounted to S/. 190 million, a figure 1.4% higher than in 2008

The balance sheet and profit and loss account as at the 31st of December 2009, which we submit to the Annual General Meeting for approval, shows a turnover of S/. 921 million, 3.0% less than in 2008, because no exports were programmed for this year.

Furthermore, the local cost of sales increased by 9.9% because of the greater physical volume dispatched and the increased cost of fuel used in the production of clinker and in the packing process for dispatch. In addition, because of higher distribution and sales costs, operating profits, amounting to S/. 291 million, was 13.9% less than in 2008.

Finally net profit, amounting to S/. 190 million, was 1.39% higher than in 2008 because of significant exchange rate gains that offset increased financial expenditure.

Throughout the year, the General Meeting of Shareholders and the Board of Directors delegated by it, took the decisions summarized below, which had an effect on the Company’s equity:

21st January: payment of dividends amounting to S/. 0.18 per ordinary share and S/. 0.018 per investment share, charged to retained profits from fiscal year 2008.

16th April: issue of the sixth series of corporate bonds entitled “Cementos Lima Corporate Bonds – Sixth Issue, First Program”


valued at S/. 55,000,000. The resulting interest rate was 6.8125% per annum for a “bullet” payment at the end of the fifth year.

22nd April: payment of dividends amounting to S/. 0.16 per ordinary share and S/. 0.016 per investment share, charged to interim profits for fiscal year 2009.

7th May: issue of the fifth series of corporate bonds entitled “Cementos Lima Corporate Bonds – Fifth Issue, First Program” valued at S/. 55,000,000. The resulting interest rate was 6.3125% per annum for a “bullet” payment at the end of the third year.

25th June issue of the seventh series of corporate bonds entitled “Cementos Lima Corporate Bonds – Seventh Issue, First Program” valued at S/. 55,000,000. The resulting interest rate was 6.59375% per annum for a “bullet” payment at the end of the fourth year.

22nd July: payment of dividends amounting to S/. 0.16 per ordinary share and S/. 0.016 per investment share, charged to interim profits for fiscal year 2009.

23rd October: issue of the eighth series of corporate bonds entitled “Cementos Lima Corporate Bonds – Eighth Issue, First Program” valued at S/. 55,000,000. The interest rate was 6.34375% annually, for a bullet payment at the end of the fifth year.

28th October: payment of dividends amounting to S/. 0.16 per ordinary share and S/. 0.016 per investment share, charged to interim profits for fiscal year 2009.

The year 2009 saw movements that affected the capital accounts and investment shares, resulting from the capitalization of capital readjustment and part of the accumulated profits as at the 31st of December 2008, agreed at the Obligatory Annual General Meeting of Shareholders held on the 28th of March 2009, so that the figures in nuevos soles at the close of the year were as follows:

Cementos Lima 61

As at the 31st of December 2009 the 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 labor proceedings in progress relating to the Company’s operations. In the opinion of the Management and legal advisors, the final results will not show significant expenditure, therefore as at the 31st December 2009 we have not made any provision for such expenditure.

External audits during fiscal year 2009 were carried out by Dongo Soria, Gaveglio Sociedad Civil (a member firm of PriceWaterhouseCoopers).

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 2009, which forms a part of this Annual Report, was issued without reservations.

As at the 31st December 2009

Capital 756,995,900

Investment Shares 97,787,186

Legal Reserve 111,846,436

Reserve to be Capitalized 4

Other Reserves (63,434,799)

Accumulated Results 218,779,302

Total Equity 1,121,974,029


Administration, management and technical assistanceIn 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 y Administración S.A., through a contract renewed until the 12th of April 2012.

Technical advice is once again the responsibility of ARPL Tecnología Industrial S.A., in accordance with a contract that is renewed automatically every two years and remains in force until the 31st of December 2011.

The Board of Directors recognizes the significant contribution made by both companies during 2009.

Acknowledgements

The Board of Directors would like to acknowledge the efforts and loyalty of each of its employees and collaborators during the year, which made possible these satisfactory results in a context of global crisis and a notable drop in Peru’s rate of growth.

The Board of Directors

Lima, 19th March 2010

Eng. Jaime Rizo Patrón Eng. Carlos Ugás Chairman of the Board of Directors Director-General Manager

Cementos Lima 63

Financial statementsDecember 31st of 2008 / December 31st of 2009

New multi-purpose silo, Atocongo Plant.

Financial Statements 200966

Cementos Lima S.A.Balance Sheet

ASSETS As of December 31, 2009 2008

S/. 000 S/. 000

CURRENT ASSETSCash and cash equivalents (Note 5) 60,250 6,911 Trade accounts receivable (Note 6) 46,143 47,147 Accounts receivable from related companies (Note 26) 15,962 15,539 Other accounts receivable (Note 7) 12,684 10,626 Inventories (Note 8) 215,113 230,248 Prepaid expenses 18,761 7,878 Current portion of the deferred cost of preparation of quarries 13,957 27,734

Total current assets 382,870 346,083

OTHER ACCOUNTS RECEIVABLE (Note 7) - 2,738

INVENTORIES (Note 8) 32,579 31,926

INVESTMENTS IN SUBSIDIARIES (Note 9) 858,582 579,817

PROPERTY, MACHINERY AND EQUIPMENT, NET (Note 10) 764,508 672,459

INTANGIBLES (Note 11) 53,213 51,976

GOODWILL 9,745 9,745

DEFERRED COST OF PREPARATION OF QUARRIES 153,962 78,416

2,255,459 1,773,160

The accompanying notes on pages 74 to 132 are an integral part of the financial statements.

Cementos Lima 67

LIABILITIES AND NET STOCKHOLDERS’ EQUITY As of December 31, 2009 2008

S/. 000 S/. 000

CURRENT LIABILITIESBank overdrafts (Note 12) 113,327 160,702Current financial obligations (Note 12) 106,967 28,278 Trade accounts payable (Note 13) 54,676 63,830 Accounts payable to related companies (Note 26) 18,097 17,588 Income tax and workers’ profit sharing (Note 14) 11,516 19,302 Other accounts payable (Note 15) 29,476 28,345

Total current liabilities 334,059 318,045

FINANCIAL OBLIGATIONS (Note 16) 754,187 408,520

DERIVATIVE FINANCIAL INSTRUMENTS 8,070 13,078

DEFERRED INCOME TAX AND WORKERS’

PROFIT SHARING (Note 17) 37,169 18,793

STOCKHOLDERS’ EQUITY (Note 18)

Capital 756,996 756,996 Investment shares 97,787 97,787 Legal reserve 111,846 92,681 Unrealized earnings ( 35,762) ( 36,577)Retained earnings 218,779 101,718 Translation adjustment ( 27,672) 2,119 1,121,974 1,014,724

2,255,459 1,773,160


Cementos Lima S.A.Statement of Income

Net sales (Note 21) 945,156 969,731Operating costs (Note 22) ( 483,382) ( 479,155)

Gross profit 461,774 490,576

Operating expenses:Administrative expenses (Note 23) ( 105,828) ( 113,700)Selling expenses (Note 24) ( 61,426) ( 44,899)Other income 3,153 10,467Other expenses ( 6,020) ( 3,845)

Operating profit 291,653 338,599

Other income (expenses):Financial income 36,045 3,796Financial expenses (Note 25) ( 46,333) ( 48,181)Share in the results of the subsidiaries under the equity method (Note 9) 16,291 8,070

6,003 ( 36,315)

Profit before workers’ profit sharing and income tax 297,656 302,284Workers’ profit sharing (Notes 17 and 20) ( 28,948) ( 30,906) Income tax (Notes 17 and 20) ( 78,159) ( 83,445)

Net profit of the year 190,549 187,933

Basic profit per common share in new Peruvian soles (Note 28) 2.23 2.20

Basic profit per investment share in new Peruvian soles (Note 28) 0.22 0.22


Cementos Lima 69

Net sales (Note 21) 945,156 969,731Operating costs (Note 22) ( 483,382) ( 479,155)

Gross profit 461,774 490,576

Operating expenses:Administrative expenses (Note 23) ( 105,828) ( 113,700)Selling expenses (Note 24) ( 61,426) ( 44,899)Other income 3,153 10,467Other expenses ( 6,020) ( 3,845)

Operating profit 291,653 338,599

Other income (expenses):Financial income 36,045 3,796Financial expenses (Note 25) ( 46,333) ( 48,181)Share in the results of the subsidiaries under the equity method (Note 9) 16,291 8,070

6,003 ( 36,315)

Profit before workers’ profit sharing and income tax 297,656 302,284Workers’ profit sharing (Notes 17 and 20) ( 28,948) ( 30,906) Income tax (Notes 17 and 20) ( 78,159) ( 83,445)

Net profit of the year 190,549 187,933

Basic profit per common share in new Peruvian soles (Note 28) 2.23 2.20

Basic profit per investment share in new Peruvian soles (Note 28) 0.22 0.22

For the year ended December 31,

2009 2008

S/. 000 S/. 000


Cementos Lima S.A.Statement of Changes in Stockholders’ Equity

Balances as of January 1, 2008 393,168 50,789 73,853 ( 8,347) 447,406 ( 8,245) 948,624

Dividends declared - - - - ( 104,001) - ( 104,001)

Capitalization of retained earnings 363,828 46,998 - - ( 410,826) - -

Translation to presentation currency - - - - - 10,364 10,364

Reserve for fluctuation in the market value of hedging swaps - - - ( 28,230) - - ( 28,230)

Other smaller adjustments - - 34 - - - 34

Profit for the year - - - - 187,933 - 187,933

Transfer to legal reserve - - 18,794 - ( 18,794) - -

Balances as of December 31, 2008 756,996 97,787 92,681 (36,577) 101,718 2,119 1,014,724


Translation to presentation currency - - - - - ( 29,791) ( 29,791)

Reserve for fluctuation in the market value of hedging swaps - - - 12,387 - - 12,387

Other prior year adjustments - - - ( 11,572) 1,982 - ( 9,590)




Balances as of December 31, 2009 756,996 97,787 111,846 (35,762) 218,779 ( 27,672) 1,121,974

Investment Legal Unrealized Retained Translation Capital shares reserve results earnings adjustment Total

S/. 000 S/. 000 S/. 000 S/. 000 S/. 000 S/. 000 S/. 000


For the years ended December 31, 2009 and December 31, 2008

Cementos Lima 71

Balances as of January 1, 2008 393,168 50,789 73,853 ( 8,347) 447,406 ( 8,245) 948,624


Capitalization of retained earnings 363,828 46,998 - - ( 410,826) - -

Translation to presentation currency - - - - - 10,364 10,364

Reserve for fluctuation in the market value of hedging swaps - - - ( 28,230) - - ( 28,230)




Balances as of December 31, 2008 756,996 97,787 92,681 (36,577) 101,718 2,119 1,014,724


Translation to presentation currency - - - - - ( 29,791) ( 29,791)

Reserve for fluctuation in the market value of hedging swaps - - - 12,387 - - 12,387

Other prior year adjustments - - - ( 11,572) 1,982 - ( 9,590)




Balances as of December 31, 2009 756,996 97,787 111,846 (35,762) 218,779 ( 27,672) 1,121,974

Investment Legal Unrealized Retained Translation Capital shares reserve results earnings adjustment Total

S/. 000 S/. 000 S/. 000 S/. 000 S/. 000 S/. 000 S/. 000


Cementos Lima S.A.Statement Of Cash Flows

OPERATING ACTIVITIESCollections from customers 1,096,752 1,115,580Other collections related to the activity 36,141 25,638Payments to suppliers ( 636,123) ( 661,772)Payments to workers ( 85,346) ( 84,101)Payments of interest ( 45,709) ( 27,289)Payments of taxes ( 117,444) ( 171,454)

Net cash provided by operating activities 248,271 196,602

INVESTMENT ACTIVITIESPurchase of subsidiaries and other business units ( 294,450) ( 260,603)Dividends received 1,827 5,616Purchase of property, machinery and equipment ( 50,161) ( 10,424)Sale of property, machinery and equipment 415 1,154Disbursement for work in progress in property, machinery and equipment ( 105,335) ( 102,331)Disbursement for the purchase and development of intangible assets ( 5,031) ( 5,939)Additions to the deferred cost of preparation of quarries ( 77,813) ( 40,774)

Net cash used in investment activities ( 530,548) ( 413,301)

FINANCING ACTIVITIESBank overdrafts - 65,766Financial obligations 439,416 238,860Payment of overdrafts ( 47,375) -Amortization of financial obligations - -Payment of dividends ( 56,425) ( 103,979)

Net cash provided by financing activities 335,616 200,647

Net (decrease) in cash 53,339 ( 16,052)Cash and cash equivalents at the beginning of the year 6,911 22,963

Cash and cash equivalents at the end of the year 60,250 6,911


2009 2008

S/. 000 S/. 000


Cementos Lima 73

RECONCILIATION OF NET INCOME WITH THE CASH FLOWSFROM OPERATING ACTIVITIESNet profit of the year 190,549 187,933 Adjustments to net income not affecting cash flows fromoperating activities:Depreciation and impairment loss 63,088 66,189Amortization of intangible assets 3,794 4,529Amortization of other assets 16,044 26,134Profit from sale of property, machinery and equipment ( 56) ( 330)Share in results of subsidiaries under the equity method ( 16,291) ( 8,070)Liabilities for income tax and deferred shares 14,527 -Deferred income tax and workers’ profit sharing - ( 5,288)Other - 2,616Increase (decrease) in cash flow from operations due tonet changes in assets and liabilities:Trade accounts receivable 1,004 ( 4,255)Accounts receivable from related companies ( 423) ( 13,823)Other accounts receivable 2,473 2,959Inventories 14,482 ( 65,632)Prepaid expenses ( 10,883) ( 1,158)Trade accounts payable ( 9,154) 24,542Accounts payable to related companies 509 ( 2,346)Income tax and workers’ profit sharing payable 11,516 19,302Other accounts payable 1,454 ( 3,140)Payment of income tax and workers’ profit sharing ( 19,302) ( 43,220)Exchange difference ( 15,060) 9,660 248,271 196,602 NON-CASH TRANSACTIONSDerivative financial instruments ( 5,008) 13,039Liabilities from deferred income tax and workers’ profit sharing 1,852 ( 4,839)Net equity - unrealized results 815 ( 28,230)Net equity - translation differences ( 29,791) 10,364Net equity - retained earnings 1,982 -Investments in subsidiaries 30,150 9,666 - -


2009 2008

S/. 000 S/. 000

Continued


Cementos Lima S.A.Notes to the financial statements

1. ECONOMIC ACTIVITY

Cementos Lima S.A. (hereinafter the Company), was established in December 1967 and is a subsidiary of Sindicato de Inversiones y Administración S.A. (hereinafter the Parent Company), which has a 68.03 percent interest in the Company’s capital stock, and is, in turn, a subsidiary of Nuevas Inversiones S.A., ultimate parent company of the economic group. Its legal address is Av. Atocongo 2440, Villa Maria del Triunfo, Lima, Peru.

The Company is mainly engaged in the production and trading, locally and for export, of all types 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. At the Board of Directors meeting held on October 28, 2006, the decision was made to expand the production capacity of kiln 1. With this plant expansion, the production capacity of clinker and grinding of cement will be 4.8 and 5.5 million tons per year, respectively and the project is expected to be completed in late 2011.

In addition, the Company is authorized to invest in other companies dedicated to similar activities and/or which assist, develop or supplement the achievement of its objectives either, locally or abroad. At the General Stockholders’ Meeting held on November 4, 2005 the extension of the Company’s business purpose was approved so that it become allowed to make investments in other companies dedicated to electric power activities. In this regard, an Investment Agreement Framework was approved between the Company, Cemento Andino S.A. and Corporación Aceros Arequipa S.A. for the incorporation of Compañía Eléctrica El Platanal S.A. - CELEPSA, the entity that will develop and operate the, G-1 El Platanal electric power generation concession (Note 9).

Furthermore, in 2007, the Board of Directors authorized the Company’s participation in the project to be implemented by Drake Cement LLC - Drake, (a company established in the United States of America - USA), comprising the construction and operation of a cement plant, in the Yavapai County located in Northern Arizona, USA (Note 9).

At the meeting of the Board of Directors dated July 23, 2008 the decision was made to invest up to US$ 24 million in the project to be implemented by Staten Island Terminal, LLC. based in New York, USA comprising the construction and operation of a sea port terminal for unloading, storage and dispatch of cement and by-products (Note 9).

At the General Stockholders’ Meeting held in May of 2006 the proposal of the ‘First Issue of Debt Instruments’ was approved for up to US$ 150 million. As of December 31, 2009 four issues totaling S/. 440 million were placed. (See Note 16).

74 Estados Financieros 2009

December 31, 2009 and 2008

Cementos Lima 75

The Company’s General Management function is fulfilled by the Parent Company, pursuant to public deeds dated December 28, 1967, renewable for five-year periods, the effective period presently in progress expiring in April 2012. As established in the respective agreement. The Parent Company receives as the single annual fee of up to a 10 percent of the Company’s net profits (calculated before workers’ profit sharing and income tax).

The accompanying financial statements as of December 31, 2009 have been issued prior Management’s authorization they will be submitted to the Board of Directors for approval and will be subsequently submitted for the consideration of the Annual General Stockholders’ Meeting within the term established by law. The financial statements for the year ended December 31, 2008 were approved by at General Stockholders’ Meeting held on March 30, 2009.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The most significant accounting principles applied in the preparation of the financial statements are detailed below. These policies have been consistently applied to all the years presented, unless otherwise indicated.

a) Basis of preparation -

The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in Peru. The accounting principles generally accepted in Peru include the International Financial Reporting Standards (IFRS) approved by the Contaduría Pública de la Nación and endorsed through Resolutions issued by the Peruvian standard-setter Consejo Normativo de Contabilidad.

The financial statements have been prepared under the historical cost convention, as modified for the revaluations of buildings and machinery and in 2008 for the recognition of a derivative financial instrument at fair value.

The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are described in Note 4.



The variation in the purchasing power of Peru’s currency for 2009 and 2008, based on the Wholesale Price Index according to official statistics, was -5.05% and 8.79%, respectively:

i) Amendments to standards issued and interpretations approved by the Consejo Normativo de Contabilidad adopted by the Group as of 2009 -

The Consejo Normativo de Contabilidad issued Resolution Nº 040-2008-EF/94 dated March 14, 2008 which approved the application of the following standards, amendments to standards and interpretations for the preparation of the financial statements at December 31, 2009. These interpretations have been adopted by the Company to prepare its financial statements.

• IAS 32, “Financial instruments”: Presentation (amended in 2006). This standard has beenamended to make it consistent with IFRS 7, described below.

• IFRS7,“Financial Instruments:Disclosures”.ThisStandardrequirestheentity toprovidemoreextensive disclosures to enable the users of the financial statements to reasonably assess the significance of the financial instruments in its financial condition and performance. This standard requires management to disclose the analysis performed of each financial risk to which the entity is exposed. The standard describes financial risk such as credit risk, liquidity risk and market risk. The standard requires qualitative and quantitative disclosures to be made on the entity’s financial instruments based on the information provided internally to the entity’s key management personnel. This standard applies to:

- Recognized and non-recognized financial instruments.

- Agreements to buy or sell non-financial products that are within the scope of IAS 39.

• IFRS8,“Operatingsegments”,IFRS8replacesIAS14,“Segmentreporting”.

• IFRIC 13, “Customer loyalty programs”. This standard is not applicable to the Company’soperations, because it does not operate this type of program.

• IFRIC14,IAS19-TheLimitonaDefinedBenefitAsset,MinimumFundingRequirementsandtheir Interaction. This standard is not applicable to the Company’s activities.

Since the change in accounting policies only resulted in additional disclosures, there was no impact in earnings per share.

Cementos Lima 77

ii) Shares, amendments to standards and interpretations effective internationally as of January 1, 2009 and pending approval from the Consejo Normativo de Contabilidad that the Company has not approved -

The following standards, amendments to effective standards and interpretations have been published and are mandatory internationally for accounting periods beginning on or after January 1, 2009 but the Group has not anticipated their application and will apply them when formally endorsed for application in Peru:

• IFRS7(amended),“FinancialInstruments:disclosures”.

• IAS1(amended),“Presentationoffinancialstatements”.

• IFRS2(amendment)“Share-basedpayments”.

Other standards, amendments to standards and interpretations pending approval from the Consejo Normativo de Contabilidad, which impact is of less significance for the Company’s financial statements are:

• IFRS3(revised),“Businesscombinations”(effectiveasofJuly1,2009).

• IFRS 5 (amended) “Non-current assets held-for-sale and discontinued operations” (and thesubsequentchangetoIFRS1,“First-timeadoptionofIFRS”(effectiveasofJuly1,2009).

• IFRS 5 (amended) “Non-current assets held-for-sale and discontinued operations” (and thesubsequent change to IAS 7, Cash flow statements) (effective as of January 1, 2009).

• IAS19(amended),“Employeebenefits”(effectiveasofJanuary1,2009).

• IAS23(amended),“Borrowingcosts”.

• IAS27 (revised), “Consolidatedand separatefinancial statements” (effective asof January1,2009).

• IAS 28 (amended), “Investments in associates” (and consequential amendments to IAS 32,“FinancialInstruments:Presentation”,andIFRS7,“Financialinstruments:Disclosures”.

• IAS36(amended),“Impairmentofassets”(effectiveasofJanuary1,2009).



• IAS36(amended),“Impairmentofassets”(effectiveasofJanuary1,2009).

• IAS 36 (amended), “Impairment of assets: Recognition and Measurement” (effective as of January 1, 2009). Several minor amendments were made to IFRS 7, ‘Financial instruments: “disclosure”,IAS8,“Accountingpolicies,changesinaccountingestimatesanderrors”andIAS10,“Subsequentevents”,NIC18,“Revenue”andIAS34,“Interimfinancial information”,whicharepart of the annual improvement project of IASB published in May 2008.

The impact of these standards, amendments and interpretations in the financial statements of the Company will be assessed by Management as they are endorsed in Peru.

iii) Standards, amendments and interpretations to existing standards not yet effective internationally, that have not been approved by the Consejo Normativo de Contabilidad and that have not be anticipated by the Company -

The following standards and amendments to existing standards have been published which application is mandatory internationally for the accounting periods as of January 1, 2010 and which the Company has not anticipated their application.

• IFRIC17,“Distributionofnon-cashassetstoowners”(effectiveasofJuly1,2009).Theinterpretationis part of the annual improvement project of IASB published in April, 2009, but it is not applicable to the Company’s operations.

• IAS27(revised),“Consolidatedandseparatefinancialstatements”,(effectiveasofJuly1,2009).

• IFRS3(revised),“Businesscombinations”(effectiveasofJuly1,2009).

• IAS38(amended),“Intangibleassets”.Theamendmentispartoftheannualimprovementprojectof IASB published in April 2009.

• IFRS5,(amended),Disclosuresrequiredinrespectofnoncurrentassets(ordisposalgroups)classifiedas held for sale or discontinued operations. The amendment is part of the annual improvement project of IASB published in April 2009.

• IAS1 (amended),“Presentationoffinancialstatements”.Theamendment ispartof theannualimprovement project of IASB published in April 2009.

• IFRS 2 (amendment), “Share-based payment” (effective 1 January 2009) deals with vestingconditions and cancellations.

Cementos Lima 79

• IFRS 2 (amended) “Share-based Payments”. This standard is not applicable to the Company’soperations.

b) Foreign currency translation -

Functional currency and presentation currency -

Items included in the financial statements of the Company are measured in the currency of the primary economic environment in which the entity operates (functional currency). The financial statements are presented in the Peruvian Nuevo Sol, which is the Company’s functional currency and presentation currency.

Transactions and balances -

Transactions in foreign currency are translated into the functional currency using the exchange rates prevailing at the date of the transactions.

The gains and losses due to exchange differences which result from the payment of these transactions and from the conversion at the year-end closing exchange rate of monetary assets and liabilities denominated in foreign currency are recognized in the income statement, except when deferred in equity as qualifying net investment in foreign subsidiaries.

c) Cash and cash equivalents -

Cash and cash equivalents include cash on-hand, highly liquid short-term bank deposits with original maturities of three months or less. Bank overdrafts are shown in current liabilities in the balance sheet.

d) Trade accounts receivable and provision for impairment -

Trade receivables are initially recognized at fair value and subsequently measured at amortized cost, less provision for impairment.

Management reviews, on a monthly basis, the aging of trade accounts receivable. The provision for impairment of the trade receivables is established when there is objective evidence that the Company will not be able to collect all amounts due in accordance with the original terms of the receivable, considering the following: i) the aging of past-due accounts is of more than one year, ii) legal and administrative action has been brought against debtors, or iii) knowledge of any external event demonstrating that the debtor will not be able to honor its accounts. The amount of the



provision is recognized in the income statement. The subsequent recoveries of amounts previously written-off from the financial statements are credited to the income statement.

e) Inventories -

Inventories are stated at the lower of cost or net realizable value. The cost is determined under the weighted-average method. The cost of finished products and in process products comprises the cost of raw materials, direct labor, other direct costs and overhead production costs and excludes financing costs and exchange differences. The net realizable value is the estimated selling price in the normal course of operations, less variable sales costs. Management periodically evaluates the impairment and obsolescence of these assets. Impairment and obsolescence is recorded as a charge to income. In-transit inventories are recorded at cost using the specific purchase identification method.

f) Deferred cost of preparing quarries -

The Company defers the stripping cost (waste material extraction) incurred by the expansion of the exploitation area of Atocongo, Cristina and Pucara quarries. In order to determine the deferred cost of extraction, Management calculates a coefficient which is the result of dividing the total waste material to be removed by the total tons of limestone estimated to be extracted during the useful life of the quarry. Costs are deferred or amortized when the actual waste material vis-a-vis the estimated waste material according to the mentioned coefficient, is greater or less, respectively. In accordance with estimates from the Company’s management, part of the deferred preparation cost of quarries is associated with the limestone which will be incorporated into the productive process in year 2010 and, therefore, is presented in current assets.

g) Investments in subsidiaries -

Investments in which the Company has an interest of more than 50.0% or over which it exercises control (subsidiaries) are recognized under the equity method, by which the share in the profits obtained by such entities are charged to or credited to, as appropriate to the carrying amount of such investment. Dividends received in cash from subsidiaries are credited to the balance of the investment.

Also, since the financial statements of the foreign subsidiary are issued in foreign currency, prior to the recognition of the value on equity, the differences arising from accounting principles effective in a the country where the financial statements are issued and those effective in Peru are reconciled and the subsidiary’s financial statements are restated from US dollars to Peruvian nuevos soles, translating all monetary and non-monetary assets at the exchange rate prevailing at year-end; equity items are translated at the historical exchange rates. The resulting exchange difference is shown in translation effect under shareholders’ equity.

Cementos Lima 81

h) Property, plant and equipment and depreciation -

Recognition and measurement -

Land and buildings mainly comprise plants and offices. Property, machinery and equipment are recorded at plus the revaluation of certain assets and are shown net of the corresponding depreciation and losses for impairment. Cost includes the disbursements directly attributable to the acquisition of these items.

Subsequent expenses -

The cost incurred in replacing a component of an item or element of property, machinery and equipment is capitalized separately, writing down the book value of the component. Other subsequent expenses are capitalized only if future economic benefits are expected to flow to the Company. All other expenses, including repair and maintenance expenses, are recognized in the income statement when they are incurred.

Work in progress -

Assets in the construction stage are capitalized as a separate component of property, machinery and equipment. Upon their completion, its cost is transferred to the appropriate category. Works in progress are not depreciated.

Depreciation -

Land is not depreciated. Depreciation on other assets is recognized as cost or expense and is calculated using the straight-line method to allocate their cost over the estimated life of the assets, as follows:

Years

Buildings and mine camps 33Roads 33Sundry facilities 10Machinery 5 and 10Transport units 5Furniture and fixtures 10Other equipment 4 and 10

The residual values and the useful life of the assets are reviewed and adjusted, if appropriate, at each balance sheet date.



Impairment and disposal -

The carrying amount of an asset is immediately written down to its recoverable value if the carrying amount of the asset is greater than its estimated recoverable value as described in the following paragraph k).

Gains and losses on disposals are determined by comparing proceeds with carrying amounts. These are included as other income in the income statement.

i) Intangibles -

Mining concessions -

Major expenses in the acquisition of mining concessions are capitalized and amortized over a 10 year period.

j) Goodwill -

Goodwill represents the amount paid by the Company in the acquisition of Lar Carbón over the fair value of the Company’s share in the net identifiable assets of that Company. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed.

Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose, identified according to operating segment.

k) Impairment of non-financial assets -

Impairment of property, plant and equipment is reviewed whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. If impairment indicators do exist, the carrying amount is tested to determine whether it exceeds its recoverable amount. Such a determination is made on an individual basis, except for those assets that do not generate cash flows independently of other assets, for which impairment testing is made at the level of the cash-generating unit.

If the carrying amount of an assets or cash-generating unit exceeds its recoverable amount, a provision for impairment is recorded by the Company. Impairment losses are recognized in the income statement.

Cementos Lima 83

Determination of the recoverable amount -

The recoverable amount is the higher of an asset’s fair value less costs of selling and value in use. In determining the value in use, the estimated future cash flows are discounted to their present value, reflecting the current market values and the risks associated to the asset. Fair value is determined on the basis of an estimate of the amount that the Company would obtain when selling such asset in an arm’s length transactions. Regarding assets that do not generate cash flows and that are very independent of the cash flows other assets, the recoverable amount is determined at the level of the related cash-generating unit. The Company’s cash-generating unit is the lowest level for which there are separately identifiable cash flows that are independent of the cash flows of other assets or group of assets.

Reversal of an impairment loss -

An impairment loss is reversed if changes have occurred in the estimates used to determine the recoverable amount and only to the extent the carrying amount of the asset does not exceed its related fair value that would have been determined, net of depreciation and amortization as if no impairment loss would have been determined.

l) Financial assets -

Classification -

The Company classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables held to maturity, and available-for-sale. The classification depends on the purpose for which the financial assets were purchased. Management determines the classification of its investments at the date of initial recognition and re-assesses such classification at each reporting date. At December 31, 2009 and 2008, the Company only has financial assets classified as loans and accounts receivable.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Company provides money, goods or services directly to a debtor and it does not intend to trade such account receivable. They are included in current assets, except for maturities greater than 12 months after the balance sheet date.

Recognition and measurement -

Loan and trade accounts receivable are stated at their amortized cost under the effective interest



method. The Company assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. Impairment testing on accounts receivable is described in Note 2-d).

m) Derivatives financial statements and hedging activities -

The derivative financial instruments described in Note 3.1-a) iii), are initially recognized at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Company holds an interest rate swap to hedge a debt with a foreign financial institution. The Company has designated this derivative as a hedging instrument on highly probable forecast transactions (cash flows hedge).

The Company documents, at the inception of the transaction, the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Company also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

Cash flow hedge -

The derivative financial instruments described in Note 3.a) iii), are initially recognized at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Company holds an interest rate swap to hedge a debt with a foreign financial institution. The Company has designated this derivative as a hedging instrument on highly probable forecast transactions (cash flows hedge).

The Company documents at the inception of the transaction the relatonship between hedging instruments and hedged items as well as its risk management objectives and strategy for undertaking various hedging transactions. The Company also documents its assessment both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

Cementos Lima 85

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognized when the forecast transaction is ultimately recognized in the income statement.

The amounts accumulated in net shareholders’ equity are then carried in the income statement in the periods in which the hedged item affects profit or loss.

n) Borrowings -

Bank loans are initially recognized at their fair value, net of transaction costs. These loans are subsequently recorded at their amortized cost; any difference between the funds received (net of transaction costs) and the redemption value is recognized in the profit and loss statement during the term of the loan using the effective interest method.

Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

o) Income tax -

Tax expense for the period comprises current and deferred tax. Income tax is recognized in the income statement.

Current income tax is determined and recognized in accordance with tax legislation applicable to the Company considering Management’s interpretation of the legislation applicable to the Company.

Deferred income tax is recorded under the liability method, recognizing the effect of the temporary differences which arise from the tax base of the assets and liabilities and their balances in the financial statements, applying the legislation and tax rate in force at the date of the balance sheet and which are expected to be applicable when the deferred income tax will be realized or paid.

Deferred income tax is recognized to the extent to which it is probable that future tax benefits will be produced against which the temporary differences can be used.

The effect of these temporary differences is also considered in the calculation of the workers’ profit sharing.



p) Provisions -

The Company makes a provision whenever it has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are reviewed in each fiscal year to reflect the best estimate at the balance sheet date. When the effect of the time value is significant, the amount of the provision is the present value of the expenses expected to be incurred to settle such obligation. The specific discount is determined before taxes for the future cash outflows expected to be incurred.

The provision for employees’ severance indemnities is made for the whole amount of indemnity rights as established under current laws and regulations, net of the deposits made as definitive payments.

Personnel’s annual vacation leave is recognized on the accrual basis. The provision for the estimated obligation due for annual vacations of the personnel resulting from services provided by the employees is recognized at the date of the balance sheet.

q) Dividend distribution -

The distribution of dividends to stockholders is recognized as a liability in the financial statements in the period in which dividends are approved by the stockholders of the Company.

r) Contingent liabilities and contingent assets -

Contingent liabilities are not recognized in the financial statements and they are only disclosed in a note to the financial statements, unless the possibility of the use of resources is remote. Contingent assets are not recognized in the financial statements and are only disclosed when it is likely that an inflow of resources will be produced.

s) Capital -

The common and investment shares are classified as stockholders’ equity.

As of December 31, 2009 and 2008, the Company does not have financial instruments with a dilutive effect, for which reason the basic and diluted earnings per share are the same.

t) Revenue recognition -

Revenue comprises the fair value of collections or balances receivable in the normal course of the Company’s business. Revenue is shown net of sales taxes.

Cementos Lima 87

Sales -

Sales are recognized when all of the risks and benefits inherent to the delivered good have been transferred, it is likely that the economic benefits associated with the transaction will flow to the Company and the amount of the income can be reliably measured.

Interest -

Interest is recognized on a time proportion basis, in a way that reflects the effective performance of the financial instrument.

u) Leases -

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on the straight-line basis over the period of the lease.

v) Recognition of costs and expenses -

Cost of sales, which comprises the production cost of the items sold by the Company, is recorded when the products are delivered, and the related sale is simultaneously recognized.

The other costs and expenses are recognized when accrued, independently of the date when they are paid, and are recorded in the periods to which they relate.

3. FINANCIAL RISK MANAGEMENT

Financial risk factors -

The Company’s activities expose it to certain financial risks, the potential adverse effects of which are permanently evaluated by the Board of Directors and Management in order to minimize them. Major financial risks (including exchange rate risk, price risk, and interest rate risk) credit risks and liquidity risks.

Risk management is carried out by Management under policies approved by the Board of Directors. Management identifies, evaluates and hedges financial risks based on the Board’s guidelines.



The Board provides written principles for overall risk management and exercises oversight and periodical monitoring.

The following are the financial risks to which the Company is exposed:

a) Market risk -

i) Exchange rate risk -

The Company’s activities and its foreign currency debt expose it to the risk of fluctuations in the exchange rates of the United States dollar. In order to reduce this exposure, the Company makes efforts to maintain an appropriate balance between assets and liabilities, as well as income and expenses in foreign currency.

Asset and liability items correspond to operations in foreign currency, as well as the net situation is summarized as follows:

2009 2008

$ 000 $ 000

Assets -Cash and cash equivalents 213 278Trade accounts receivable 207 2,909Accounts receivable from related parties 207 74Other accounts receivable, net (including non-current portion) 2,396 3,469

3,023 6,730

Liabilities -Overdraft and current bank loans 76,200 60,146Trade accounts payable 9,133 12,739Other accounts payable 1,538 1,984Liabilities per derivative financial instrument 2,518 4,162Non-current financial obligations 57,000 60,000

146,389 139,031

Foreign currency position - Liabilities, net (143,366) (132,301)

Cementos Lima 89

As of December 31, 2009, the exchange rates used by the Company to record the balances in foreign currency comprises the rates publised by the Peruvian banking, insurance and pension fund regulator (SBS, Spanish acronym) of S/. 2.888 and S/. 2.891 per US$ 1 for assets and liabilities, respectively (S/. 3.137 and S/. 3.142 per US$ 1 at December 31, 2008, respectively).

As of December 31, 2009 and 2008, the Company recorded exchange gains for S/. 63,714,000 and S/. 46,027,000 and exchange losses for S/. 30,643,000 and S/. 63,523,000, respectively.

Company Management has decided to accept the exchange rate risk of this position; therefore, no hedging transactions with derivatives have been arranged.

At December 31, 2009, if the Peruvian Nuevo Sol had stregthened / weakened by 11.0% against the U.S. dollar, with all other variables held constant, post-tax profit for the year would have been higher by S/. 2,292,000 (lower by S/. 1,212,000 in 2008), mainly as a result of financing via US dollar-denominated. Profit is more sensitive to movements in currency/ foreign exchange in 2009 than 2008, because of the fluctuation of the U.S dollar against the local currency.

ii) Price risk -

The Company has little exposure to price risk due to the fact that the Company maintains a tight control of its operating costs and carries out important productive and technological investments that enables it not only to maintain its prices but also the quality of its products (export quality). Even within the economic slowdown, the Company’s costs have not changed significantly; this also has allowed it to maintain its cement sales prices the same for 9 years.

iii) Cash flows and fair value interest rate risk -

Since the Company does not have significant interest-bearing assets, revenues and operating cash flows are substantially independent of changes in the market interest rates.

The Company maintains financial assets in top rate financial institutions earning interest at current market rates. The Company does not act as a speculative investor when managing its excess liquidity investments.



The Company’s borrowing policy establishes the use of floating and fixed rates for reimbursable funds over the short, medium and long-terms. In order to manage risk for the long-term loans subscribed at variable interest rates, the Company uses swaps to convert the floating rates of the subscribed loans into fixed interest rates.

b) Credit risk -

Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to wholesale and retail customers, including outstanding receivables and committed transactions. For banks and financialinstitutions,onlythoseindependentlyratedatleastas“A”areaccepted.Forcustomers,the Company has established certain policies to make sure its sales are made to customers with an adequate credit history.

The risk of credit concentration may arise from the placement of cash surplus. In mitigating such risk, the Company has established a maximum amount of cash to be placed in one single financial institution for its day-to-day operations, ranging between 25.0 and 30.0%. The table below shows the level of concentration of the time deposits at December 31:

(*) Risk rating of local financial institutions is made locally; that for international financial institutions is performed by international risk rating agencies.

Banco de Crédito del Perú A+ 50,000 34,600 50,000 2,213Banco Continental A+ 35,000 17,000 35,000 3,094Banco Interbank A 45,000 3,300 45,000 31Banco Scotiabank A 25,000 - 25,000 15

54,900 5,353

2009 2008

Credit Carrying Credit Carrying Rating (*) limit amount limit amount

S/. 000 S/. 000 S/. 000 S/. 000

Cementos Lima 91

c) Liquidity risk -

Prudent liquidity risk management implies maintaining sufficient cash and cash equivalents and the availability of funding through an adequate amount of committed credit facilities. The Company maintains adequate levels of cash and available credit lines.

The Company maintains an ongoing management and monitoring of its liquidity reserves based on cash flow projections.

The following chart analysis the financial liabilities according to the remaining balance at the balance sheet date according to the established contractual investments:

Bank overdrafts 113,327 - - -Current financial obligations 98,294 - - -Foreign loans 8,673 69,384 69,384 26,019Local loans - 74,700 74,700 -Corporate bonds - 55,000 285,000 100,000Trade accounts payable 54,676 - - -Other accounts payable 59,089 - - -

334,059 199,084 429,084 126,019

Less than Between 1 Between 3 Over 1 years 2 years 5 years 5 years

S/. 000 S/. 000 S/. 000 S/. 000As of December 31, 2009

Bank overdrafts 160,702 - - -Current financial obligations 28,278 - - -Foreign loans - 47,130 113,112 28,278Corporate bonds - 120,000 100,000 -Trade accounts payable 63,830 - - -Other accounts payable 65,235 - - -

318,045 167,130 213,112 28,278

As of December 31, 2008



Capital risk management -

The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to provide returns for stockholders, honor obligations and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

Consistent with others in the industry, the Company monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including “current and non-current borrowings” as shown in the consolidatedbalancesheet)lesscashandcashequivalents.Totalcapitaliscalculatedas“equity”asshowninthe consolidated balance sheet plus net debt.

The Company’s strategy is to maintain a capital structure of 60.0% debt and 40.0% equity. The gearing ratios at December 31, 2009 and 2008 were as follows:

2009 2008

S/. 000 S/. 000

Current financial obligations (Note 12) 220,294 188,980Non-current financial obligations (Note 16) 754,187 408,520Cash and cash equivalents (Note 5) ( 60,250) ( 6,911)

Debt, net (A) 914,231 590,589

Total equity 1,121,974 1,014,724

Total capital and investment shares (B) 854,783 854,783

Gearing ratio (A) / (B) 1.07 0.69

The higher gearing ratio in 2009 mainly resulted from the higher financial obligations to finance the investment program, working capital and other corporate endevours.

Cementos Lima 93

Cash flow and fair value interest rate risk -

The Company’s interest rate risk arises from its financial obligations. Certain financial obligations are agreed at floating interest rates and expose the Company to the risk of fluctuations in the related interest rates affecting the cash flows and the fair value of its borrowing.

The Company manages its cash flow interest rate risk by entering into fixed-to-floating interest rate swaps to hedge the cash flow interest rate risk. Such interest rate swaps have the economic effect of converting borrowings from floating rates to fixed rates. Under the interest rate swaps, the group agrees with other parties to exchange, at specified intervals (primarily quarterly), the difference between fixed contract rates and floating-rate interest amounts calculated by reference to the agreed nominal amounts.

On October 6, 2008, the Company signed an interest rate swap effective from September 30, 2008 to September 30, 2015, the Libor applicable to the quotes was fixed at 3.68% annually, as described in Note 16.

4. CRITICAL ACCOUNTING ESTIMATES AND CRITERIA

Certain balances included in the financial statements involve the use of judgments and estimates in the application of the accounting policies. These judgments and estimates are based on previous experience and other factors, including the expectation of occurrence of future events that are considered probable in the circumstances. The resulting accounting estimates will, by definition, seldom equal the related actual results.

The information regarding judgments and estimates is included in the accounting practices and/or in notes to the financial statements. The critical areas are summarized below.

The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are as follows:

- Functional and presentation currency (Note 2-f).

- Goodwill (Note 2-j).

- Review of carrying amounts and provision for impairment (Note 2-k).



Bank checking accounts are deposits in local banks and are freely available and non-interest bearing.

Temporary deposits comprise deposits in local banks with original maturities of less than three months, with interest accrued current market rates and which freely available.

- Fair value of derivatives and other financial instruments (Note 2-m).

- Income tax (Note 2-o).

5. CASH AND CASH EQUIVALENTS

As of December 31 this item comprises:

2009 2008

S/. 000 S/. 000

Cash 674 720Bank checking accounts 3,888 5,464Time deposits 55,688 727

60,250 6,911

Cementos Lima 95

6. TRADE ACCOUNTS RECEIVABLE


2009 2008

S/. 000 S/. 000

Invoices receivable from third parties 34,537 33,765Invoices receivable from subsidiaries, Note 26 12,091 13,486Notes receivable from third parties 241 622

46,869 47,873

Provision for doubtful accounts ( 726) ( 726)

46,143 47,147

2009 2008

S/. 000 S/. 000

Current 46,143 47,147Past due for more than 360 days 726 726

46,869 47,873

Invoices receivable from third parties are denominated in Peruvian nuevos soles, except for those originating from exports, which are denominated in United States dollars and which, as of December 31, 2009 have no outstanding balance (S/. 7,874,000 as of December 31, 2008). These balances have current maturities, are no interest-bearing and have no specific guarantees.

Management considers that the provision for doubtful accounts adequately covers the risk of collection as of December 31, 2009 and 2008.

The detail of aging of trade accounts receivable is the following:



As of December 31, 2009 and 2008, loans to third parties mainly include the account receivable from San Martín Contratistas Generales S.A. for the sale of machinery and loans granted. The loans were granted based on the development and exploitation contract of the mining concession in the quarries of Atocongo, by means of which San Martín Contratistas Generales S.A. engages to provide services of exploitation and transportation of limestone from the Company’s quarries to its processing plant. The agreed annual interest rate is 7.0% and the last installment falls due on December 31, 2010.

Management considers that the balance of the provision for doubtful accounts covers adequately the risk of collection as of December 31, 2009 and 2008.

2009 2008

S/. 000 S/. 000

Loans to third parties 2,978 5,177Claims to the Tax Administration 2,724 931Claims to third parties 720 471Accounts receivable from personnel 1,504 1,394Interest receivable 1,077 288Other accounts receivable 3,814 5,237

12,817 13,498

Provision for doubtful accounts ( 133) ( 134)

12,684 13,364

Current portion 12,684 10,626

Non-current portion - 2,738

7. OTHER ACCOUNTS RECEIVABLE


Cementos Lima 97

8. INVENTORIES


2009 2008

S/. 000 S/. 000

Finished products 2,263 2,137In process products 91,960 71,917Raw and auxiliary materials 39,161 63,476Containers and packing 21,921 20,162Spare parts, materials and supplies 83,723 84,910In-transit inventories 8,664 19,572

247,692 262,174

Current portion 215,113 230,248

Non-current portion 32,579 31,926

In-process products include clinker in production and limestone extracted from the Company’s quarries ready to enter the production process. As at December 31, 2009, this balance included high-grade limestone extracted from the Pucará quarry amounting to S/. 32,579,000 which, according to the Management estimates will be used in the production process in the medium-term and; therefore, is presented as non-current inventory (S/. 31,926,000 as of December 31, 2008).

The raw and auxiliary materials used include plaster, silica, iron and coal among others, which will be used in the production process.

Management considers that based on the evaluation carried out with the participation of the operating areas, it is not necessary to record a provision for certain spare parts and slow-moving materials, since these are expected to be used in the normal course of the Company’s business.



Subsidiaries

Skanon Investments Inc. A share of 90.28% in Drake Cement LLC, engaged in manufacturing and selling clinker and cement. 89.65 89.38 410,626 310,714

Compañía Eléctrica El Platanal S.A. Electric power generation. 60.00 60.00 285,216 139,787

Inversiones en Concreto y Afines S.A. Share in Unión de Concreteras S.A. -UNICON, mainly engaged in manufacturing and selling concrete. 73.52 73.52 122,589 96,131

Transportes Lurín S.A. Share of 80.0% interest in Staten Island Terminal LLC project project. and 2.86% interest in Skanon Investments Inc. 99.99 99.99 29,731 23,636

Generación Eléctrica de Atocongo S.A. Generation of electrical energy 99.85 99.85 5,695 5,305

Depósito Aduanero Conchán S.A. Port services warehousing of raw materials and materials 99.00 99.00 2,709 1,434

Others 1,893 2,687

858,459 579,694

Smaller non-available-for-sale investments 123 123

858,582 579,817

Company Main activity Percentage of participation in the net equity Amount

2009 2008 2009 2008

S/. 000 S/. 000

The share in the profits (losses) of the subsidiaries as of December 31 is the following:

Inversiones en Concreto y Afines S.A 26,356 27,824Generación Eléctrica de Atocongo S.A. 2,462 2,986Transportes Lurín S.A. ( 1,539) 783Skanon Investments Inc. (10,368) (22,288)Depósito Aduanero Conchán S.A. 181 ( 847)Other subsidiaries ( 801) ( 388)

16,291 8,070

2009 2008

S/. 000 S/. 000

9. INVESTMENTS IN SUBSIDIARIES


Cementos Lima 99

Subsidiaries

Skanon Investments Inc. A share of 90.28% in Drake Cement LLC, engaged in manufacturing and selling clinker and cement. 89.65 89.38 410,626 310,714

Compañía Eléctrica El Platanal S.A. Electric power generation. 60.00 60.00 285,216 139,787

Inversiones en Concreto y Afines S.A. Share in Unión de Concreteras S.A. -UNICON, mainly engaged in manufacturing and selling concrete. 73.52 73.52 122,589 96,131

Transportes Lurín S.A. Share of 80.0% interest in Staten Island Terminal LLC project project. and 2.86% interest in Skanon Investments Inc. 99.99 99.99 29,731 23,636

Generación Eléctrica de Atocongo S.A. Generation of electrical energy 99.85 99.85 5,695 5,305

Depósito Aduanero Conchán S.A. Port services warehousing of raw materials and materials 99.00 99.00 2,709 1,434

Others 1,893 2,687

858,459 579,694

Smaller non-available-for-sale investments 123 123

858,582 579,817

Company Main activity Percentage of participation in the net equity Amount

2009 2008 2009 2008

S/. 000 S/. 000

Inversiones en Concreto y Afines S.A 26,356 27,824Generación Eléctrica de Atocongo S.A. 2,462 2,986Transportes Lurín S.A. ( 1,539) 783Skanon Investments Inc. (10,368) (22,288)Depósito Aduanero Conchán S.A. 181 ( 847)Other subsidiaries ( 801) ( 388)

16,291 8,070

2009 2008

S/. 000 S/. 000



The following is a summary of the nature of major investments made:

Skanon Investment Inc. - Skanon.-

As mentioned in Note 1, in 2007, the Board of Directors authorized the participation of the Company in the project carried out by Drake Cement LLC - Drake, (a company incorporated in the United States of America - USA), consisting of the construction and commissioning of a cement plant in the Yavapai county, in the northern region of Arizona, USA. The Company participates as a majority shareholder with 90.28% of Skanon (company established in the state of Arizona, USA), that is the majority shareholder of Drake (89.65% interest). The project is expected to be completed during the first quarter of 2010.

Also, in June 2007, Drake acquired Sunshine Concrete & Materials, Inc, a company established in the state of Arizona, USA and engaged in the production of pre-mixed concrete and by-products. The cost of acquisition of such company amounted to US$ 20 million. Drake has a 100.0% participation in such company.

At the meeting of the Board of Directors held on August 20, 2008, a capital contribution made by Skanon was approved for up to US$ 61 million to cover the higher cost estimated of the construction and for the equipment necessary to carry out the project. In this regard, during the month of October 2008, the contribution was made with funds from a foreign loan (see Note 16).

Additionally, at the same meeting, a capital contribution of US$ 112 million was approved to settle the acquisition of 70.0% of an ongoing project of pre-mixed concrete and by products, supplementary to the Drake project. For such purpose Skanon signed a letter of intent and provided a non-refundable deposit of US$ 3.6 million. Due to the international financial crisis, Skanon did not complete the acquisition transaction and accounted for a resulting penalty which partially explains the loss reported by that subsidiary during the fiscal year.

Cementos Lima 101

As of December 31, 2009, contributions to Skanon totaled US$ 157 million (equivalent to S/. 476,000,000). At December 31, 2008, the contributions to Skanon amounted to US$ 108 million (equivalent to S/. 336,000,000).

Compañía Eléctrica El Platanal S.A. - CELEPSA.-

On December 28, 2005, CELEPSA was formed to engage in implementing and operating the electric power concession G-1 El Platanal, as mentioned in Note 1. The total investment was estimated to be US$ 210 million that will be financed by a bank loan and a contribution from the founding stockholders, Cementos Lima S.A., Cementos Andino S.A. and Corporación Aceros Arequipa S.A. at an interest: of 60, 30 and 10 percent, respectively (see Note 11). As of December 31, 2009, the contribution made by the Company amounted to US$ 101 million (equivalent to S/. 311,000,000).

Transportes Lurín S.A. -

As mentioned in Note 1, at the meeting of the Board of Directors held on July 23, 2008 the decision was made to invest US$ 24 million through its subsidiary Transportes Lurin S.A. in the project that will be implemented by Staten Island Terminal, LLC, comprising the construction and operation of a sea terminal in Staten Island, in New York, USA, to unload, store and dispatch cement and by-products. The estimated cost of the project is US$ 50 million. Transportes Lurin S.A. will be the majority shareholder with an 80.0% interest, and Liberty Cement, LLC, of New York, USA, will be the minority shareholder.

Construction work will start during the first quarter of 2011 and the terminal will begin operating two years later. As of December 31, 2009, the contribution made by the Company to its subsidiary amounted to US$ 11 million (equivalent to S/. 33,000,000).



10. PROPERTY, PLANT AND EQUIPMENT

The movement in cost and accumulated depreciation is as follows:

Year 2009:Cost -Land 39,010 4,548 101 - 43,659Buildings and camps 333,415 51 10,500 ( 108) 343,858Roads 33,026 - - - 33,026Sundry facilities 47,162 94 1,080 - 48,336Machinery 1,452,954 859 18,032 ( 77) 1,471,768Vehicles 16,053 252 453 ( 1,901) 14,857Furniture and fixtures 13,101 163 231 ( 30) 13,465Other equipment 34,166 622 1,058 ( 1,453) 34,393Replacement equipment 21,249 5,016 ( 980) - 25,285Work in progress 153,686 143,891 (30,475) ( 8) 267,094

2,143,822 155,496 - (3,577) 2,295,741

Accumulated depreciation -Buildings and camps 154,325 7,993 - ( 9) 162,309Roads 4,883 887 - - 5,770Sundry facilities 39,440 654 - - 40,094Machinery 1,215,807 47,884 - ( 21) 1,263,670Vehicles 10,446 1,690 - ( 1,721) 10,415Furniture and fixtures 11,545 238 - ( 30) 11,753Other equipment 25,809 2,002 - ( 1,437) 26,374

1,462,255 61,348 - (3,218) 1,520,385

Provision for impairment -Replacement equipment ( 9,108) ( 1,740) - - ( 10,848) ( 9,108) ( 1,740) - - ( 10,848)

Net cost 672,459 764,508

Opening Additions Final balance at cost Transfers Deductions balance

S/. 000 S/. 000 S/. 000 S/. 000 S/. 000

Cementos Lima 103

Opening Additions Final balance at cost Transfers Deductions balance

S/. 000 S/. 000 S/. 000 S/. 000 S/. 000

Year 2008:Cost -Land 35,419 3,473 118 - 39,010Buildings and camps 277,130 29 56,256 - 333,415Roads 5,495 286 27,245 - 33,026Sundry facilities 45,459 50 1,653 - 47,162Machinery 1,386,560 25 66,665 ( 296) 1,452,954Vehicles 13,142 1,069 2,668 ( 826) 16,053Furniture and fixtures 12,778 146 231 ( 54) 13,101Other equipment 29,308 758 4,220 ( 120) 34,166Replacement equipment 21,810 729 ( 589) ( 701) 21,249Work in progress 208,749 106,190 (158,467) ( 2,786) 153,686

2,035,850 112,755 - (4,783) 2,143,822

Accumulated depreciation -Buildings and camps 147,171 7,154 - - 154,325Roads 4,341 542 - - 4,883Sundry facilities 37,553 1,887 - - 39,440Machinery 1,164,512 51,591 - ( 296) 1,215,807Vehicles 9,529 1,631 - ( 714) 10,446Furniture and fixtures 11,369 228 - ( 52) 11,545Other equipment 24,403 1,509 - ( 103) 25,809

1,398,878 64,542 - ( 1,165) 1,462,255

Provision for impairment -Replacement equipment ( 7,461) ( 1,647) - - ( 9,108)

Net cost 629,511 672,459



Totally depreciated assets -

As of December 31, 2009, totally depreciated assets amounted to approximately S/. 1,163,833,000 (S/. 957,819,000 as of December 31, 2008).

Revaluation -

Additionally, during 1988, 1997 and 1999 the Company revalued certain fixed assets which at December 31, 2009 and 2008 have a net value of S/. 65,948,000 and S/. 77,198,000, respectively.

Interest -

As of December 31, 2009 and 2008, the item property, plant and equipment includes costs of loans, net of accumulated depreciation totaling S/. 4,070,000 and S/. 4,888,000, respectively.

Work in progress -

Work in progress comprises investments made by the Company, mainly in the construction of the Atocongo - Conchán conveyor belt and extension of the production capacity of kiln 1.

The Company maintains insurance on its main assets in accordance with the policies established by Management. In this respect, the Company has contracted insurance for all of its properties for a maximum amount of up to US$ 85 million as of December 31, 2009 (US$ 65 million as of December 31, 2008). The reference value of the goods insured is US$ 544 million as of December 31, 2009 (US$ 457 million as of December 31, 2008).

Management considers that its insurance contracting policies are consistent with international practices in the industry and the risk of eventual losses for disasters covered by insurance is reasonable considering the type of assets that Company owns.

11. INTANGIBLE ASSETS

The following is the movement in cost and accumulated amortization:

Cementos Lima 105

Opening Additions Deduc- Final balances at cost tions balances

S/. 000 S/. 000 S/. 000 S/. 000Year 2009:Cost -El Platanal Hydroelectric power station project 40,452 422 - 40,874Other concessions 14,861 1,217 - 16,078Quarry closure 2,817 - - 2,817Deferred charges 42,286 3,392 - 45,678

100,416 5,031 - 105,447Accumulated amortization -El Platanal Hydroelectric powerstation project - - - -Accumulated amortization 6,605 909 - 7,514Quarry closure 366 122 - 488Deferred charges 41,469 2,763 - 44,232 48,440 3,794 - 52,234

Net cost 51,976 53,213

Year 2008:Cost -El Platanal Hydroelectric power station project 38,648 1,804 - 40,452Other concessions 14,739 122 - 14,861Quarry closure 2,817 - - 2,817Deferred charges 38,273 4,013 - 42,286

94,477 5,939 - 100,416Accumulated amortization -El Platanal Hydroelectric powerstation project - - - -Other concessions 5,929 676 - 6,605Quarry closure 244 122 - 366Deferred charges 37,738 3,731 - 41,469 43,911 4,529 - 48,440

Net cost 50,566 51,976



El Platanal Hydroelectric Project -

This substantially comprises the feasibility studies prepared by the Company for this Project.

12. OVERDRAFTS AND CURRENT FINANCIAL OBLIGATIONS


The trade accounts payable to third parties originate, mainly, from the acquisition of materials, supplies, containers and packaging for production, they are denominated in local and foreign

As of December 31, 2009 and 2008, bank overdrafts have been obtained for working capital, they are denominated in foreign currency, have a current maturity, do not have specific guarantees and bear interest at current market rates.

13. TRADE ACCOUNTS PAYABLE


2009 2008

S/. 000 S/. 000

Bank overdrafts 113,327 160,702Bank loans 98,294 28,278Current long-term financial obligations, Note 16 8,673 -

220,294 188,980

2009 2008

S/. 000 S/. 000

Third parties 48,031 51,643Subsidiaries and related parties, Note 26 6,645 12,187

54,676 63,830

Cementos Lima 107

currency, have current maturities, do not bear interest and no guarantees have been granted for these obligations.

14. CURRENT INCOME TAX AND WORKERS’ PROFIT SHARING


15. OTHER ACCOUNTS PAYABLE


2009 2008

S/. 000 S/. 000

Income tax - 1,846Workers’ profit sharing 11,516 17,456

11,516 19,302

2009 2008

S/. 000 S/. 000

Taxes and contributions 5,076 1,692Provision for closing quarries 1,965 2,790Advances to customers 3,993 6,479Remunerations payable 6,985 6,269Pension funds administrators 291 541Interest payable 5,789 5,772Contributions to social security 254 468Employees’ severance indemnities 466 426Dividends payable 28 37Provision Plant closure 68 27Other 4,561 3,844

29,476 28,345



16. LONG-TERM FINANCIAL OBLIGATIONS


a) Foreign loan -

At the meeting of the Board of Directors dated June 18, 2008 it was approved the financing proposal totaling US$ 60 million from Scotiabank, was approved for a period of 7 years with 2 years of grace and which will be used for corporate purposes, mainly in the investment in Skanon (See Note 9).

Foreign loan -Bank of Nova Scotia Libor + 1.95 September 2015 173,460 188,520

Local loan -BBVA – Banco Continental 6.00000 June 2015 149,400 -

Corporate bond -First issue 6.12500 January 2015 50,000 50,000Second issue 5.90625 March 2015 50,000 50,000Third issue 5.93750 June 2014 60,000 60,000Fourth issue 6.71875 May 2013 60,000 60,000Fifth issue 6.31250 May 2012 55,000 -Sixth issue 6.81250 April 2014 55,000 -Seventh issue 6.59375 June 2013 55,000 -Eighth issue 6.34375 October 2014 55,000 -

762,860 408,520

Current portion, Note 12 8,673 -

Non-current portion 754,187 408,520

Annual nominal interest rate Maturity 2009 2008

% S/.000 S/.000

Cementos Lima 109

In this regard, on September 24, 2008 the Company signed a loan agreement with the Bank of Nova Scotia - Canada (Scotiabank) for a total US$ 60 million, to be repaid in twenty quarterly equal installments of US$ 3 million. The installments fall due consecutively starting December 30, 2010 up to June 30, 2015.

Interest agreed on this borrowing are at an annual rate of Libor+1.95%.

The Company has to maintain certain financial ratios as established in the loan agreement, which are mainly as follows:

- Maintaining a maximum debt ratio of up to 1.50 times

- Maintaining at all times a debt service ratio of not less than 1.30 times and

- Maintaining a debt / EBITDA ratio of not more than 3.75 times until year 2010 and 3.5 times from 2011.

- The afore-mentioned ratios will be reviewed by Management on a quarterly basis, who will, in turn, submit such information to Scotiabank.

Compliance with the covenants described in the previous paragraphs will be monitored by the Company s which Management considers that as of December 31, 2009 and 2008, the Company has complied with the financial commitments and indicators required under the loan agreement.

The above loan agreement establishes additional guarantees:

i) Establishing a mining mortgage on the ‘Atocongo 5’ non-metallic mining concession for a total US$ 75 million to secure repayment.

ii) As a way to hedge the risk of fluctuations in interest rates on the portion of the loan agreed at floating interest rates, on October 6, 2008 the Company signed with the same foreign financial institution an interest rate swap effective from September 30, 2008, for which the Libor rate applicable to interest installments was set at an annual rate of 3.68%.



In making sure compliance with the financing obligations described in Note 8, the Company signed a interest rate swap (from variable to fixed interest rate) raising certainty on the cash flows required for loan repayment.

The Company has designated its interest rate swap contract as a cash flow hedge and as established under IAS 39 - Financial instruments: Recognition and Measurement, has recognized the market value of such derivative in the account reserve for hedge of interest rate in equity totaling S/. 5,084,000 (S/. 8,239,000 in 2008), which is shown net of deferred income taxes totaling S/. 2,986,000 (S/. 4,839,000 in 2008). The effect on equity of such reserve will change to the extent the interests on the bank obligations are realized and to the extent the market value of the derivative changes.

b) Local loan -

At the Board meeting dated May 28, 2009, the decision was made to approve the financing proposal in Peruvian nuevos soles for a total US$ 50 million to be obtained from BBVA Banco Continental, coming due in 5 years with a 1 year of grace period, which will be used to refinance short–term debt, finance the Company’s investment program and other general corporate uses. At December 31, 2009, the Company has received the total loan agreed totaling S/. 149,400,000. The loan comes due in sixty months and will be amortized in eight equal installments, starting in month eighteenth as from the agreement closing date.

The interests agreed on this loan were set at an annual 6.00%.

The Company has engaged to maintain certain financial ratios as part of the contractual commitments: Major features as follows:

- Maintaining at all times ratio of interest rate coverage of not less than 4.0 times and

- Mantaining a debt / EBITDA ratio of not more than 3.50 times up to 2010 and 3.0 times as from 2011.

- These ratios will be monitored and reviewed by Management on a quarterly basis, and it will subsequently submit this information to BBVA Banco Continental.

Cementos Lima 111

This loan agreement is secured with a mining mortgage on the non-metallic mining concession “Atocongo5”foruptoUS$75million.Atthecurrentdate,formalizationisinprogress.

c) Corporate Bonds -

At the General Stockholders’ Meeting held on May 9, 2006 the decision was made to approve the ‘First Program of issue of Debt instruments’ for a maximum amounts of outstanding instruments of US$ 150 million, or its equivalent in new Peruvian soles.

On August 24, 2006, the Company signed with BBVA Banco Continental, as a Representative of Bondholders,anindentureagreement,and,inOctober,theMasterProspectusforthe”FirstProgramforIssueofCorporateBondsandShort-TermInstrumentsforCementosLimaS.A.”wassigned.

The first and second issue amounted to S/. 50 million; each of them was placed in the first quarter of 2007. The third issue amounted to S/. 50 million and was placed in the second quarter of 2007; the fourth issue amounted to S/. 60 million and was placed in the second quarter of 2008. All of the placements were granted using the Dutch auction model.

The main obligations that the Company should comply with during the outstanding period of the securities are as follows:

- Maintaining the relation between assets (carrying amount) of the Issuer free of liens or specific guarantees (assets free of lien) on the total debt of the financial debt of the Issuer at more than 1.20 times, unless prior written consent, is obtained from the Assembly of bondholders.

- Maintaining a debt ratio of no more than 1.50 times at each quarter ending March 31, June 30, September 30, and December 31.

- The total amount of accounts receivable from related parties shall not exceed, at any time, the equivalent of 8.0% of the total assets.

- Contracting and maintaining in full force and effect insurance policies covering the Issuer’s tangible assets.

- These ratios will be reviewed, on a quarterly basis, by the Representative of bondholders, who will then report to the Peruvian securities regulator CONASEV.



Compliance with the restrictive clauses described above will be overseen by Management and the Representative of the Bondholders. Management considers that at December 31, 2009 and 2008 the Company has complied with the financial indicators committed as per the bond issue agreement.

d) Payment schedule -

The payment schedule of long-term financial obligations at December 31, 2009 up to maturity is as follows:

e) Fair value -

The fair value of the long-term debt approximates its fair value, which is calculated based on the discounted cash flows using the weighted-average cost of capital.

17. DEFERRED INCOME TAX AND WORKERS’ PROFIT SHARING

Deferred income tax and workers’ profit sharing at December 31 has been determined as follows:

Foreign Local CorporateYears borrowing borrowing bonds

US$ S/. S/.

2010 3,000,000 - -2011 12,000,000 37,350,000 -2012 12,000,000 37,350,000 55,000,0002013 12,000,000 37,350,000 115,000,0002014 12,000,000 37,350,000 170,000,0002015 9,000,000 - 100,000,000

Total 60,000,000 149,400,000 440,000,000

Cementos Lima 113

2009 2008

S/. 000 S/. 000

Workers’ profit sharing 9,155 4,673Income tax 28,014 14,120

37,169 18,793

2009 2008

S/. 000 S/. 000

Temporary differences (assets) liabilities:

- Higher value of fixed assets 65,948 77,198- Quarry preparation expenses 57,906 -- Capitalized interest 4,070 4,888- Provision for impairment of replacement units ( 10,848) ( 9,108)- Fair value of derivative financial instruments ( 8,070) (13,078)- Other ( 8,549) ( 9,108)

100,457 50,792

Combined rate of income tax (30.0%) and worker’s profit sharing (10.0%) 37.0% 37.0%Deferred income tax and worker’s profit sharingat end of year ( 37,169) 18,793Deferred income tax and worker’s profit sharingat beginning of year ( 18,793) (29,098)Effect of the year 18,376 (10,305)Adjustment ( 1,997) 178Applied to equity ( 1,852) 4,839

Applied to results of the year 14,527 (5,288)

The balance of deferred income tax and workers’ profit sharing at December 31 comprise the following:



18. STOCKHOLDERS’ EQUITY

a) Capital -

As of December 31, 2009 and 2008 the subscribed and paid social capital is represented by 75,699,590 common shares, the nominal value of which is S/. 10 per share, which are fully issued and paid.

As of December 31, 2009 and 2008 the stock exchange quotation of the shares of the Company was S/. 28.60 and S/. 22.00, respectively.

As of December 31, 2009, the shareholding structure of the Company is the following:

Percentage of individual Number of Percentage Interest in capital Stockholders of interest

%

More than 10 per cent 1 68.03From 5 to 9.99 percent - -From 1 to 4.99 percent 8 24.44Less than 1 percent 827 7.53

Total 836 100.00

2009 2008

S/. 000 S/. 000

Deferred income tax credited to results of the year:- Worker’s profit sharing ( 3,926) ( 1,429)- Income tax ( 10,601) ( 3,859)

(14,527) (5,288)

The effect of the annual change in deferred income tax and workers’ profit sharing in the equity account and in results of the year for the year ended December 31 is broken down as follows:

Cementos Lima 115

b) Investment shares -

As of December 31, 2009 and 2008, this item is represented by 97,787,186 investment shares, with a par value of S/. 1 each.

c) Legal reserve -

According to the Peruvian Companies Act, the legal reserve is made with the transfer of 10.0% of the net profit until it reaches an amount equivalent to 20.0% of the paid-in capital. In the absence of non-distributed profit or freely available reserves, the legal reserve should be applied to oiffset losses, and it should be restored with the profits of subsequent financial periods. This reserve can be capitalized and it has to be subsequently restored.

d) Other reserves -

This item comprises the special reserve that its subsidiary CELEPSA has recognized as a result of the interest rate swap contract signed with Banco de Crédito del Perú S.A.A. and the Bank of Nova Scotia (Note 16). This transaction has been designated as a cash flow hedge and, in accordance with IAS 39 - Financial Instruments: recognition and measurement, the market value of this derivative has been recognized as a charge to the reserve for interest rate hedge within stockholders’ equity, net of its related deferred income tax. The effect of this reserve on equity will be modified as the interest on the bank obligation maintained by said subsidiary is realized and to the extent to which the market value of the derivative instrument changes. With respect to CELEPSA, the Company has recognized the special reserve proportionately to its share in such subsidiary.

e) Payment of dividends -

At the Board of Director’s Meeting held on January 23, 2008 the decision was made to distribute dividends with a charge to undistributed earnings of previous financial periods for approximately S/. 34,535,000, which were actually paid out on February 26, 2008. At the Board of Directors’ meeting held on April 23, July 23 and October 22, 2008 a dividend distribution was agreed with a charge to undistributed earnings of the current financial period for approximately S/. 69,466,000, which were paid out on May 27, August 27 and November 25, 2008, respectively.

At the Board of Director’s meeting held on January 21, 2009 the decision was made to distribute dividends with a charge to undistributed earnings of previous periods for approximately



S/. 15,386,000, which were actually paid out on February 24, 2009. In the Board of Directors’ meetings held on April 22, July 22 and October 28, 2009 the decision was made to distribute dividends with a charge to undistributed earnings of the current period for approximately S/. 41,030,000, which were paid out on May 26, August 26 and December 1 , 2009, respectively.

f) Translation difference -

Exchange rate differences result from the revaluation or devaluation of the Peruvian nuevo sol against the US dollar of investment in the foreign subsidiary as well as from the differences resulting from translating the subsidiary’s financial statements for inclusion in the Company’s financial statements.

g) Retained earnings -

As of 2003, dividends distributed in favor of stockholders other than domiciled juridical persons, are subject to a rate of 4.1% for the concept of income tax for account of these stockholders; this tax is retained and liquidated by the Company.

19. WORKERS’ PROFIT SHARING

As established under relevant laws and regulations, the workers’ profit sharing is set at 10.0% of the Company’s taxable income. This profit sharing is a deductible expense for income tax purposes.

As of December 31, 2008, the Company determined a current profit sharing of S/. 25,022,000 which was recorded as a charge against results of the year (S/. 32,335,000 in the year 2008).

20. TAX POSITION

a) Management considers that it has determined the taxable income under the general regime of the income tax in accordance with the current tax legislation, which requires adding to and deducting from the result shown in the financial statements those items which said legislation recognizes as taxable and non-taxable, respectively.

The income tax rate has been set at 30.0%.

Cementos Lima 117

2009 2008

S/. 000 S/. 000

Profit before workers’ profit sharing and income tax 297,656 302,284

Plus:

Depreciation of fixed assets 11,250 12,144Depreciation of capitalized interest 818 1,133Provision for impairment of replacement units 1,740 1,647Long-term debt expenses intended to finance investments abroad - 12,415Back and/or additional taxes 1,055 1,350Other additions 7,348 6,212

22,211 34,901

Less:

Quarry expenses ( 51,930) -Result attributable to subsidiaries ( 16,291) ( 8,070)Return of taxes ( 359) ( 2,833)Other deductions ( 1,070) ( 2,935)

( 69,650) ( 13,838)

Taxable income 250,217 323,347Workers’ profit sharing (10.0%) ( 25,022) ( 32,335)Net taxable income 225,195 291,012

Income tax (30.0%) 67,558 87,304

As of December 31 taxable income has been determined as follows:



2009 2008

S/. 000 S/. 000

Income tax:Current ( 67,558) ( 87,304)Deferred ( 10,601) 3,859

(78,159) (83,445)

Workers’ profit sharing:Current ( 25,022) ( 32,335)Deferred ( 3,926) 1,429

(28,948) (30,906)

b) The (expense) income from income tax and workers’ profit sharing shown in the income statement comprises:

c) Income tax on profit before taxes differs from the theoretical amount which would have resulted if the income tax rate used by the Company would have been applied, as follows:

2009 2008

S/. 000 S/. 000

Profit before workers’ profit sharing and income tax 297,656 302,284Tax calculated applying the rate of 30.0% 89,297 90,685Net non-deductible expenses and income ( 2,453) 2,032Workers’ profit sharing ( 8,685) ( 9,272)

Income tax of the year 78,159 83,445

d) Peru’s tax authorities have the right to examine, and, if necessary, amend the income tax determined by the Company in the last four years, as from January 1 of the year after the date when the tax returns are filed (years subject to examination). Fiscal years 2006 to 2009 are open to tax examinations. Since differences may arise over the interpretation by the tax authorities of the regulations applied to the Company, it is presently not possible to estimate

Cementos Lima 119

if any additional tax liabilities will arise as a result of any eventual examinations. Any additional tax, fines and interest, if arising, will be recognized in the results of the period when such differences are resolved. The Company’s Management considers that no significant liabilities will arise as a result of these eventual tax examinations.

e) As established under regulations in force until 2001, for the purpose of determining income tax and VAT, transfer pricing among related and non-related parties should have adequate supporting documentation as well as information supporting the methods and valuation criteria used. Peruvian tax authorities are entitled to request such information from the taxpayer.

f) Temporary Tax on Net Assets -

A temporary tax on net assets has come into effect as from January 1, 2005 affecting those corporate income-earners subject to the Peruvian General Income Tax Regime. Effective 2009, the tax rate is 0.4%, applicable to the amount of the net assets exceeding S/. 1 million.

The amount effectively paid may be used as a fiscal credit against payments in advance of the income tax under the General Regime or against the regularization payment of the income tax of the related period.

21. NET SALES

Sales for the year ended December 31 comprise:

2009 2008

S/. 000 S/. 000

Local -Cement and clinker 919,702 895,619Others 24,152 20,063Export 1,302 54,049

945,156 969,731



22. SALES EXPENSES

Sales expenses for the year ended December 31 comprise:

2009 2008

S/. 000 S/. 000

Opening balance of finished and in-process products, 74,054 69,958Deferred cost of quarry preparation 106,150 91,510

180,204 161,468

Consumption of raw materials 135,952 93,018Fuel 107,164 101,703Electric power 45,570 48,269Labor 28,340 26,346Packaging 42,245 34,035Depreciation 44,656 46,074Other manufacturing expenses 161,393 148,446

565,320 497,891

Final inventory of finished and in-process products, ( 94,223) ( 74,054)Deferred cost of quarry preparation of current andnon-current portion (167,919) (106,150) (262,142) (180,204)

483,382 479,155

Cementos Lima 121

Operating costs comprises:

2009 2008

S/. 000 S/. 000

Local -Cement and clinker 455,984 411,387Others 26,520 20,719Export - 878 47,049

483,382 479,155

2009 2008

S/. 000 S/. 000

Depreciation 16,692 18,467Management services 33,445 33,964Personnel charges 16,612 16,030Services provided by third parties 9,263 11,918Other management charges 13,672 15,346Amortization 3,794 4,529Taxes 8,043 9,181Remuneration of the Board of directors 3,344 3,396Provisions of the year 963 869

105,828 113,700

23. ADMINISTRATIVE EXPENSES

Administrative expenses for the year ended December 31 comprise:



25. FINANCIAL EXPENSES

Financial expenses for the year ended December 31 comprise:

2009 2008

S/. 000 S/. 000

Exchange loss - 17,496Interest on loans on long-term debt 37,850 16,528Interest on bank overdrafts and bank loans 7,070 12,297Other financial expenses 1,413 1,860

46,333 48,181

24. SALES EXPENSES

Sales expenses for the year ended December 31 comprise:

2009 2008

S/. 000 S/. 000

Sales commissions 25,363 20,509Services provided by third parties 30,218 19,656Sundry management charges 4,440 3,832Personnel charges 1,326 846Provisions for the year 79 56

61,426 48,899

Cementos Lima 123

2009 2008

S/. 000 S/. 000

Sale of goods and services

Sale of cement 117,425 111,065Sale of blocks, cobbled pavement and pavements 18,507 15,159Rental service of thermal plant and equipment 2,974 2,346Interests 1,572 316Reimbursement from power and water supply 658 499Management service 566 366Other sales for less than S/. 500,000 713 913

Purchase of goods and services

Management service 25,652 27,367Purchase of electrical energy 11,256 9,794Engineering and technical assistance services 13,731 8,469Maquila service 7,398 5,237Warehouse management service 6,217 4,389Project management 5,486 9,278Purchase of auxiliary materials 1,762 2,196Purchase of concrete 1,633 3,227Expense reimbursement 1,591 1,270Other sales for less than S/. 500,000 2,272 3,830

26. TRANSACTIONS WITH RELATED PARTIES

Major inter-company transactions for the period ended December 31 were as follows:

Sale of cement comprises the sales made to its subsidiary UNICON, which are carried out under the same conditions as those carried out with third parties; therefore, there is no difference in the pricing policies or the liquidation and tax base used for inter-company transaction.



As a result of these and other smaller transactions, the Company maintains the following accounts receivable and payable:

2009 2008

S/. 000 S/. 000

Trade accounts receivable - Note 6Unión de Concreteras S.A. - UNICON 12,091 13,486

12,091 13,486

Other accounts payableDepósito Aduanero Conchán S.A. 10 29Generación Eléctrica de Atocongo S.A. 288 125Sindicato de Inversiones y Administración S.A. 120 147Unión de Concreteras S.A. - UNICON 114 107Prefabricados Andinos Perú S.A.C - PREANSA 15,423 15,126Other 7 5

15,962 15,539

Trade accounts payable, Note 13Depósito Aduanero Conchán S.A. 602 453ARPL Tecnología Industrial S.A. 2,561 7,223Unión de Concreteras S.A. - UNICON 2,344 3,073Generación Eléctrica de Atocongo S.A. 1,138 1,438

6,645 12,187

Other accounts payableSindicato de Inversiones y Administración S.A. - SIA 18,054 17,544ARPL Tecnología Industrial S.A. 43 44

18,097 17,588

The cost of worker’s profit sharing, remuneration and other items relating to the members of the Board of Directors and key Management totaled S/. 9,092,000 during 2009 (S/. 9,450,000 in 2008). The Company does not provide management officials with post-employment or contract termination benefits or share-based payments.

Cementos Lima 125

27. CONTINGENCIES

The Company presently has several legal actions, tax and labor-related, in progress and arising from its operations. Management and the legal advisors of the Company, consider that the final result of these proceedings will not represent cash outflows for the Company; accordingly, no provision has been made for these proceedings as of December 31, 2009 and 2008. Major court actions are as follows:

a) On December 19, 2003, the Company was served notice of Resolution Nº 000-ADF/2003-000700, issued by Peruvian customs oversight agency (Intendencia de fiscalización y Gestión de Recaudación Aduanera) by which the order is given to the Company to return the drawback benefit used, plus the related fine and interests on arrears, totaling approximately S/. 10,355,000. This Resolution considers that the Company used improperly this benefit to obtain an undue return of customs duties of fiscal years 2001 and 2002. The tax proceeding was reviewed by the Tax Court, which, in its Resolution Nº 07238-A-2005 dated November 25, 2005, confirmed the resolutions originally issued by the Tax Administration, as a result of which, the Company brought an administrative dispute lawsuit and filed recourse. In this regard, the 2nd. Permanent Administrative Dispute Division of the High Court of Justice of Lima declared the demand founded in first instance, declaring void the Resolution issued by the Tax Court sending the case back to in the Tax Court for it to issue a new resolution, on the grounds that the first resolution was not adequately supported, given the fact that the Tax Court had not ever make a pronouncement on the distinct treatment to be applied to Customs’ franchises and tariff preferences. The Tax Court then filed an appeal with the Supreme Court and on October 2, 2008, the Second Administrative Dispute Division of the Peruvian Supreme Court (‘Sala Transitoria en lo Contencioso-Administrativo’) confirmed the resolution was justified. This resolution was communicated to the Company on January 07, 2009. However, Peruvian Tax Authorities have the right to submit the case to arbitration by the Supreme Court. Management and its legal counsel consider the outcome of this legal action will be favorable to the Company.

b) On July 16, 2004, the Company was served notice of Resolutions of Determination issued by the Municipality of Villa María del Triunfo for approximately S/. 10,759,000 of property tax, municipal tax, fines and interest on land in concession and property built within the concession area. The Company presented on August 13, 2004, a Clear Right Appeal, considering that the



intended collection is inadmissible. The District Municipality of Villa María del Triunfo issued Management Resolution Nº 2249-2005-GR/MVMT, on December 1, 2005, declaring the claim unfounded. The Company filed on December 28, 2005 an appeal, which is presently pending. On May 30, 2008, the Tax Court issued a Resolution of Mandatory Compliance Nº 06906-12008 ordering that properties existing or built within the area are not subject to property tax, and therefore the resolutions issued establishing the property tax and the related fines are unfounded. Management and its legal advisors have evaluated the impact of this contingency and consider that the position adopted by the Company should prevail in the respective court instances.

c) After the effective date of the merger between Lar Carbón S.A. and the Company, March 1, 2003, the Tax Administration issued Resolutions Nº 012-03-0002378 to 012-03-0002380 in which it determined a debt of Income Tax and VAT of fiscal year 2001 plus fines, originating from the discounts granted for the Company’s exports as well as an assumed under-valuation of assets and calculation of depreciation of Lar Carbón S.A. for a total amount of approximately S/. 1,652,000. On March 31, 2003, the Company filed a partial Protest Appeal against the claims made. On March 18, 2009, notice was served to the Company with Resolution SUNAT Nº 015-01-40008065, declaring partially unfounded the claim, the accepted part relating to the sale of a vehicle. With respect to the other assessments, the claim was determined to be unfounded. On April 07, 2009 the Company filed an appeal for the unaccepted claims, an appeal which the Company and its legal counsel considers will be resolved favorable at the Tax Court.

d) On December 16, 2004, the Company was served notice of Resolutions involving fines totaling approximately S/. 12,763,000 resulting from unpaid income tax and VAT of fiscal years 2000 and 2001. These resolutions contained adjustments to the export revenue (cement and clinker from USA) reported by the Company as well as the expense arising from the effect of recalculation of fiscal credit pro-rata determination, and the revenues from the adjustment of Type II cement sales and the cost of Camp and Teaching Services and three other matters which the Company accepted at the time of filing the Protest Appeal, described below. On January 12, 2005 the Company filed a Protest Appeal for the unaccepted tax assessments

Cementos Lima 127

totaling approximately S/. 10,682,000. On September 12, 2007, the Tax Administration issued Resolution Nº 015-01-40006649, by which it eliminated the adjustments in the cement and clinker revenues obtained from the USA and that of the cement Type II sales, but maintaining firm the tax assessment of the recalculation of fiscal credit prorata determination and expense in Camp and Teaching Services, for an approximate amount of S/. 8,507,456. On October 1, 2007, the Company filed an Appeal, for the other items still assessed but the resolution of the appeal is still pending; however, Management and its legal advisors consider that the outcome will be favorable to the Company.

e) On October 26, 2006, the Company was served notice of several resolutions involving tax penalties totaling S/. 13,644,676, relating to VAT and income tax of 2002 and 2003. These resolutions contained adjustments to the export revenue (cement and clinker to USA and Chile) reported by the Company, stating that the prices agreed for such sales transactions were below market value, the expense incurred in a no purchase option for mining concession rights as well as the expense in camp and teaching services. On November 23, 2006 the Company filed an appeal and on November 28, 2007, the Tax Administration issued Resolution Nº 015-01-40006757, eliminating the adjustments in the USA and Chile cement export revenues but maintaining firm the adjustments in revenue from USA clinker exports, the expense in a right with no option to purchase mining concession rights and the expense in camp and teaching services totaling S/. 2,397,488.On November 9, 2007, the Company filed an appeal for the tax assessments not eliminated, the outcome of which, according to Management and its legal advisors will be favorable to the Company.

f) On December 17, 2009, notice was served to the Company with several SUNAT’S resolutions of tax determinations and fines totaling S/. 81,157,685, relating to the Income Tax of fiscal years 2004 and 2005. These resolutions adjust the income from cement and clinker exports to the United States on the grounds that such sales have been entered into at prices below market prices, the excess depreciation expense of other installations intended for camp and supervised school. On January 15, 2010 the Company filed a claim for such assessments, which Management and legal counsel consider will be resolved in the Company’s favor.



28. BASIC AND DILUTED EARNINGS PER SHARE

Basic earnings per common and investment share have been determined as follows:

2009 2008

S/. 000 S/. 000

Attributable profit of the year (in thousands of nuevos soles) 190,549 187,933Profit attributable to common shares (in thousands of nuevos soles) 168,750 166,433Profit attributable to investment shares (in thousands of nuevos soles) 21,799 21,500

Number of shares outstanding:

- Common shares 75,699,590 75,699,590- Investment shares 97,787,186 97,787,186

Basic earnings per common share (in Peruvian nuevos soles) 2.23 2.20

Basic earnings per investment share (in Peruvian nuevos soles) 0.22 0.22

The basic profit per share is calculated dividing the profit atributable to the common stockholders and investment stockholders by the weighted-average number of common and investment shares outstanding at the date of the financial statements.

Since the Company has not contracted instruments with dilutive potential, no dilutive share calculation was required.

Cementos Lima 129

29. MINING ROYALTIES

On June 24, 2004, the Congress of Peru approved Law 28258 - Mining Royalty Law. This law is intended to establish the mining royalties that should be paid by holders mining concessions as economic consideration for the exploitation of the metallic and non-metallic mineral resources. The mining royalty will be determined by applying rates ranging from 1 to 3 percent on the value of concentrate or equivalent, as per the international quotation of these items, as published by the Ministry of Energy and Mines. On November 15, 2004, the rules of application of this piece of legislation were approved. As of December 31, 2009 and 2008 the Company has complied with paying the related mining royalties.

30. ENVIRONMENTAL ADEQUACY AND MANAGEMENT PROGRAM

The Company’s activities are subject to environmental protection standards and regulations. The following are some regulations with which the Company has to comply with:

a) Manufacturing activity -

Manufacturing activity - In compliance with Supreme Decree Nº 019-97-ITINCI Regulation of Environmental Protection for the Development of Activities of the Manufacturing Industry dated September 26, 1997, the Company filed with the Ministry of Production - PRODUCE (previously MITINCI) on January 29, 2001, its environmental assessment report (PAMA the Spanish acronym), which was approved by the ministry of Production on February 1, 2002.

Management’s estimate of the disbursements required to address the situations identified in its PAMA totals approximately US$ 10.8 million which, over a term of five-years from its approval, are intended mainly to the improvement and installations of dust purifiers in the production of clinker and cement, construction of an effluent treatment plant, investigation projects of hill flora and fauna, environmental monitoring of water, emissions, biological, air quality, among others. On May 30, 2008, the Ministry of Production sent the Company Communication Nº 01821-2008-PRODUCE/DVI/DGI/DAAI approving the Company’s environmental assessment (PAMA) to continue with monitoring emissions, air quality, noise and disposal of solid waste.



As of December 31, 2009, the accumulated investment in the industrial PAMA amounted to approximately US$ 12.8 million (US$ 11.5 million as of December 31, 2008).

b) Mining and port activity -

With regard to its mining and port activities, the Company has presented to PRODUCE the corresponding Environmental Impact Studies (EIS), which it has been complying with within the established term based on the amounts determined in such studies, with an accumulated investment as of December 31, 2009 of approximately US$ 11.8 million (approximately US$ 10.6 million as of December 31, 2008).

Furthermore, on October 14, 2003 the Congress of Peru issued Law 28090, which governs the activities involved in mine closures. This law is intended to govern the requirements and procedures that should be followed by the holders of mining concession rights involving the preparation, presentation and implementation of the Mine Closure Plans, and the provision of the respective environmental guarantees, securing compliance with the committed investments, in strict adherence to the principles of protection, preservation and remediation of the environment. The Company has submitted its studies on Mine Closure Plans for each of its Mining Production Units for the consideration of the Ministry of Production and Ministry of Energy and Mines, within the term established by the applicable laws and regulations. The Studies of Mine Closure Plans have established the guarantee and the investment to be made in the future, to the extent that mine closing activities are progressively performed and at the completion of the closing activity for each mining unit. During August 2006, the independent advisors contracted by the Company completed a Study of the Mine Closure Plan for the quarries managed by the Company. This study contains the items established in Supreme Decree Nº 033-2005-EM, Regulation for the closing of Mines (‘the Rules for application) published on August 13, 2005. As of December 31, 2008 the total provision for the liability for closure of quarries totals approximately S/. 2,790,000 and it is shown in the item other accounts payable in the balance sheet (approximately S/. 2,661,000 as of December 31, 2007). The provision for closure of mining units comprises mainly activities that should be carried out for the remediation of quarries and areas affected by the mine exploitation. Major work involved comprises land removal and reforestation.

c) Use of hydrocarbons -

Supreme Decree Nº 046-93-EM Regulation for Environmental Protection in the Activities of Hydrocarbons of November 12, 1993 governs the activities carried out by the Company regarding

Cementos Lima 131

the use of hydrocarbons as end user. In compliance with this regulation, the Company has a PAMA approved by the Ministry of Energy and Mines in 1996. As of December 31, 2009, the Company has an accumulated investment of approximately US$ 84.2 million (US$ 81.2 million as of December 31, 2008), in said PAMA.

Special projects -

As of December 31, 2008, the Company is implementing the following projects:

i) Upgrading the production capacity of the Atocongo plant -

A project comprising the extending the production capacity of kiln 1 from 3,200 to 7,500 tons clinker/day, increasing the crude oil production capacity, installing a new ‘roller press’ of 310 tons/hour and increasing cement production capacity by setting up a new ‘roller press’ of 120 tons/hour. As of December 31, 2009, expenses totaled US$ 17.6 million and commitments signed totaled US$ 43.8 million.

ii) Conversion of the plant power generators from oil to gas -

This project continued to be implemeted during 2009 and the conversion of five of the seven engines was completed; the entire pipeline system was built in for the distribution of natural gas to the engines; the cooling toser was assembled, the tubing system was built in and the combustion air cooling pumps was assembled. The project is estimated to be completed the first quarter of 2010.

iii) Carbon trading (Clean Development Mechanism) -

On December 4, 2008, the Company was informed by the United Nations that the registration date of the project ‘Fuel Switching to Natural Gas at the Atocongo Plant - Cementos Lima - Perú’ was November 10, 2008.

At December 31, 2009, the Company is in the final stage of the Clean Development Mechanism of the Kyoto Protocol (CDM), consisting of the testing and certification of the reduction of emissions within the project of gradual change of solid fuel to natural gas.



The emissions reductions resulting from this project have two classifications:

•VoluntaryreductionsorPre-CDM(CleanDevelopmentMechanism):thesearetheemissionsreductions arising outside the UN Clean Development Mechanism, that is, those generated as from the starting date of the fuel change project implementation (August 1, 2006) up to one day before the date of registration with the United Nations (November 9, 2008). These reductions totals 297,621 tons and are actually being evaluated by the Company’s Corporate Board of the certification company Tüv Süd. After such testing is completed, subsequent review and issue of the VCS (Verified Carbon Standard) standard is expected. The reduction of this type of emissions is expected in early 2010.

• CDMarethereductionsofemissions(equivalenttocarbontrades)generatedunderMDLand which can be issed as from the date of registration with the United Nations. The first periodic certification includes the reduction obtained from November 10, 2008 to April 30, 2009 totaling 66,209 tons. Same as for voluntary reductions, the group of regulated emission reductions arising from the first periodic certification is currently being evaluated by the Corporate Board of the certification company Tüv Süd. Once such evaluation is completed, evaluation will be started by the United Nations Framework Climate Change Convention - UNFCCC for subsequent release, which is estimated to take place early 2010.

Cementos Lima supports preservation of the environment, and the Annual Report and Sustainability Report for 2009 are printed on Cyclus Print Matt paper, made from 100% recycled fiber, chlorine free and optical whiteners, certified by NAPM (the National Association of Paper Merchants).

It has also be drawn up using bio energy (non-polluting energy) and is certified by Ecoflower and Blue Engel, which identify products made under appropriate environmental conditions, in a socially responsible manner and with economically viable resources.

This paper is made in Denmark, using the paper manufacturers own natural gas fired power station – by one of the world’s best-known contributors to environmental protection, this paper not only uses recycled material, but all waste is also reused: 60% to make more paper, 37% in cement manufacture and the rest for heating and biological fertilizers.

The benefits in using paper made from 100% recycled fibre are a lower impact on the ecosystem, equivalent to:

883 kg. of solid waste not generated.

383 kg. greenhouse gasses not emitted.

2,736 km. vehicle travel avoided.

20,068 l. of water not consumed.

5,140 KWh of energy not used.

1,600 kg. of timber not used.

Other certifications:

Licence 544.021 Nordic Swan.

ISO 9001 Quality management.

EMAS, ISO 1400 EU environmental management / certification scheme.

DIN 6738 Archive properties, LDK class 24-85 (> 200/g years).

EN 71-3 Safety of toys, migration of certain elements.

Editorial team: Cementos Lima team

Concept, design, layout and revision: www.khameleonworld.com

Photography: Daniel Giannoni

Press and printing: Comunica 2

2009

An

nu

al R

epo

rt

Av. Atocongo Nº 2440, Villa María del Triunfo, Lima 35Telephone: (511) 217 0200 Fax: (511) 217 1496

www.cementoslima.com.pe

Annual Report 2009

2009...2009 annual report av. atocongo nº 2440, villa maría del triunfo, lima 35 telephone: (511)...

Documents