Business Context and Reporting Period
Company: Cementos Pacasmayo S.A.A. (Cementos Pacasmayo)
Reporting Period: Three months ended March 31, 2018 (Q1 2018).
Filing Date: April 24, 2018 (Form 6-K).
Business Overview: The Company is a Peruvian open stock corporation primarily engaged in the production and commercialization of cement, blocks, concrete, and lime in northern Peru. It is a subsidiary of Inversiones ASPI S.A., which holds a 50.01% stake. The financial statements are unaudited and prepared in accordance with IAS 34.
Key Financial Metrics
| Metric (S/ in thousands) | Q1 2018 | Q1 2017 |
|---|---|---|
| Revenue (Sales of Goods) | 315,251 | 279,453 |
| Gross Profit | 120,408 | 112,263 |
| Operating Profit | 62,601 | 51,756 |
| Profit Before Tax | 43,006 | 34,466 |
| Net Profit (Continuing Ops) | 29,792 | 22,445 |
| Net Profit (Total) | 29,792 | 21,691 |
| Earnings Per Share (Basic/Diluted) | S/ 0.07 | S/ 0.04 |
| Cash and Cash Equivalents (End of Period) | 32,952 | 18,544 |
| Net Cash from Operating Activities | 40,373 | 31,327 |
| Total Debt (Interest-bearing loans) | 970,830 | 965,290 |
Note: All figures are in Peruvian Soles (S/). Q1 2017 figures are restated for the adoption of IFRS 15.
Material Changes vs. Prior Period
- Revenue Growth: Sales increased by approximately 12.8% (S/35.8 million) compared to Q1 2017, driven by higher volumes in cement, concrete, and blocks.
- Profitability: Net profit attributable to equity holders rose by 33.4% (S/7.5 million) year-over-year. Operating profit increased by 21%.
- Cost Management: Administrative expenses decreased by S/6.4 million (13.3%) despite revenue growth, contributing to margin expansion.
- Working Capital: Trade and other payables decreased significantly by S/53.1 million compared to year-end 2017, largely due to dividend payments and operational settlements.
- Accounting Changes: The Group adopted IFRS 15 (Revenue from Contracts with Customers) and IFRS 9 (Financial Instruments) effective January 1, 2018. The adoption of IFRS 15 resulted in a reclassification of S/676,000 from revenue to sales expenses in the comparative 2017 period, with no net impact on profit.
Outlook, Risks, and Contingencies
- Guidance: The filing does not contain specific forward-looking financial guidance or management commentary regarding future quarters beyond the current reporting period.
- Debt Covenants: The Company holds US$300 million in Senior Notes (maturing 2023). Covenants require a fixed charge ratio of at least 2.5:1 and a debt-to-EBITDA ratio not exceeding 3.5:1. The Company is currently in compliance.
- Legal and Tax Contingencies:
- Legal Claims: Aggregate third-party claims total S/16.5 million, including labor disputes and property tax fines. Management deems it "possible but not probable" that these will succeed; no provision has been recorded.
- Tax Audits: Income tax returns for years 2012–2017 and VAT returns for Dec 2013–2017 remain open to review. Management believes potential additional liabilities would not be material.
- Operational Risks: The Group utilizes cross-currency swaps (notional US$300 million) to hedge foreign exchange risk on its Senior Notes. The brine project (Salmueras Sudamericanas) was abandoned in December 2017, eliminating related capital commitments.
Investor Verification Checklist
- Debt Compliance: Verify continued adherence to Senior Notes covenants (Fixed Charge Ratio & Debt/EBITDA) given the high leverage profile.
- Legal Exposure: Monitor the status of the S/16.5 million in legal claims, particularly the property tax fines and labor disputes, to assess potential future provisions.
- Revenue Quality: Review the impact of IFRS 15 adoption on revenue recognition timing and variable consideration (discounts/loyalty programs) in future periods.
- Cash Flow Sustainability: Assess the ability to service debt and fund dividends (S/24.3 million paid in Q1) given the net decrease in cash and cash equivalents of S/16.3 million during the quarter.
- Segment Performance: Analyze the divergence in segment profitability, noting that the "Supplies for construction" and "Cal" (Quicklime) segments reported net losses for the period.