Cementos Pacasmayo S.A.A. - 1Q17 Financial Summary
Business Context and Reporting Period
Cementos Pacasmayo S.A.A. (NYSE: CPAC) reported consolidated results for the first quarter ended March 31, 2017. The company is a leading cement producer in Peru, primarily serving the northern region. The reporting period was significantly impacted by the "Coastal El Niño" phenomenon, which caused severe flooding and landslides in northern Peru starting in mid-February. Additionally, the company completed the spin-off of its Phosphate Assets to FOSSAL effective March 1, 2017.
Key Financial Metrics
| Metric | 1Q17 (S/ millions) | 1Q16 (S/ millions) | Change |
|---|---|---|---|
| Sales of Goods | 280.1 | 308.8 | -9.3% |
| Gross Profit | 112.9 | 114.2 | -1.1% |
| Operating Profit | 51.8 | 63.3 | -18.2% |
| Net Income (Continuing Ops) | 22.4 | 29.5 | -24.1% |
| Consolidated EBITDA | 82.4 | 86.7 | -5.0% |
| Cash Position | 18.5 | 80.2 (Dec 2016) | N/A |
| Total Debt (Outstanding) | 974.4 | N/A | N/A |
Margins: Gross margin improved to 40.3% (up 3.3 pp). Cement EBITDA margin rose to 29.9% (up 1.8 pp). Operating margin declined to 18.5% (down 2.0 pp).
Liquidity & Debt: Cash and term deposits stood at S/ 18.5 million as of March 31, 2017. Total outstanding debt was S/ 974.4 million (US$ 300 million), consisting of international bonds with a 4.50% coupon and 10-year maturity. The Net Adjusted Debt/EBITDA ratio was 2.3x.
Material Changes vs. Prior Period
- Volume Decline: Sales volume of cement, concrete, and blocks decreased 12.2% to 521.6 thousand metric tons, primarily due to weather-related disruptions in the north.
- Profitability Pressure: Net income from continuing operations fell 24.1%. This was driven by increased depreciation from the new Piura plant and the cessation of borrowing cost capitalization following the project's conclusion.
- One-off Items: The prior year (1Q16) included a one-off income from the reversion of a 2015 provision, which inflated the comparison base.
- Segment Performance: Cement sales dropped 8.0% but gross margin improved 5.3 pp due to Piura plant efficiencies. Concrete sales fell 31.5% and blocks sales fell 42.5% due to project delays and infrastructure spending cuts.
Outlook, Risks, and Management Commentary
Management Outlook: Management expects volume recovery in the second half of 2017 as the Piura plant's increased capacity supports reconstruction efforts. Margins are expected to continue improving.
Risks and Contingencies:
- Natural Disaster Impact: The "Coastal El Niño" caused estimated infrastructure damages exceeding US$ 3.3 billion. While the government announced a S/ 5.5 billion recovery package, execution capacity remains a risk.
- Project Delays: Key infrastructure projects like "Longitudinal de la Sierra Highway" have seen slow execution due to rains, though pickup is expected soon.
- Market Conditions: The northern region, representing 13% of Peru's GDP, faces economic headwinds, though the government's fiscal position is considered relatively healthy.
Operational Highlights: The Piura plant operated without stopping despite the floods, demonstrating resilience. The company also mobilized resources for humanitarian aid and road clearing.
Investor Verification Checklist
- Verify the timeline for the resumption of major infrastructure projects (e.g., Longitudinal de la Sierra) in the northern region.
- Monitor the utilization rates of the Piura plant in 2Q17 to confirm the expected margin expansion.
- Assess the impact of the S/ 5.5 billion government recovery package on actual cement demand in H2 2017.
- Review the status of the Salmueras Sudamericanas project, which remains in pre-operating stages and is excluded from Cement EBITDA.
- Confirm the sustainability of the 40.3% gross margin given the volatility of raw material costs and exchange rates.