Business Context and Reporting Period
Company: Cementos Pacasmayo S.A.A. (Pacasmayo Cement Corporation)
Filing Type: Form 6-K (Report of Foreign Issuer)
Reporting Period: Three months ended March 31, 2017 (Unaudited)
Filing Date: April 25, 2017
Primary Business: Production and sale of cement, blocks, concrete, and quicklime in northern Peru.
Key Event: On March 1, 2017, the Company executed a spin-off of its interest in Fosfatos del Pacífico S.A. to a new subsidiary, Fossal S.A.A., to separate business lines.
Key Financial Metrics
| Metric (S/ in thousands) | Q1 2017 | Q1 2016 |
|---|---|---|
| Revenue (Sales of goods) | 280,129 | 308,768 |
| Gross Profit | 112,939 | 114,228 |
| Operating Profit | 51,756 | 63,299 |
| Net Profit for the Period | 21,691 | 27,741 |
| Net Profit Attributable to Parent | 22,305 | 28,459 |
| Earnings Per Share (Basic/Diluted) | 0.04 | 0.05 |
| Cash and Term Deposits (End of Period) | 18,544 | 110,952 |
| Net Cash from Operating Activities | 42,233 | 27,994 |
| Total Debt (Interest-bearing loans) | 965,259 | 998,148 |
Note: All figures are in Peruvian Soles (S/). The filing does not provide explicit margin percentages; they must be calculated from the table above.
Material Changes vs. Prior Period
- Revenue Decline: Sales decreased by approximately 9.3% (S/28.6 million) compared to Q1 2016, driven primarily by lower volumes in the cement segment.
- Profitability: Net profit attributable to the parent decreased by 21.6% (S/6.15 million). Operating expenses increased by 20.1% due to higher administrative and selling costs.
- Liquidity Impact: Cash and cash equivalents dropped significantly from S/80.2 million (Dec 31, 2016) to S/18.5 million (Mar 31, 2017). This was largely due to the transfer of S/34.2 million in cash to the spun-off entity (Fossal S.A.A.) and significant financing outflows.
- Equity Restructuring: Total equity decreased by S/356.7 million due to the spin-off, which reduced capital stock, investment shares, and legal reserves.
- Investing Activity: Capital expenditures (Purchase of PP&E) decreased significantly to S/13.3 million in Q1 2017 compared to S/54.8 million in Q1 2016.
Outlook, Risks, and Contingencies
- Spin-off Execution: The separation of the phosphate business (Fosfatos del Pacífico) into Fossal S.A.A. is complete. The Company received investment shares in Fossal valued at S/21.2 million.
- 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. Management states no covenant breaches occurred.
- Hedging: The Company maintains cross-currency swaps (notional US$300 million) to hedge USD-denominated debt. These generated an unrealized gain of S/8.4 million in OCI for the quarter.
- Legal and Tax Contingencies:
- Legal Claims: Third-party claims totaling S/8.8 million exist (including labor and tax assessments). Management deems success of these claims "possible but not probable" and has not recorded a provision.
- Tax Rate Change: Peruvian income tax rate increased to 29.5% for 2017 (from 28% in 2016) per Legislative Decree No. 1261.
- Capital Commitments: The Group has a commitment to contribute up to US$100 million to the Salmueras Sudamericanas S.A. brine project; S/55.3 million has been contributed to date.
Investor Verification Checklist
- Cash Position: Verify the sustainability of operations with cash reserves reduced to S/18.5 million following the spin-off.
- Debt Service: Confirm compliance with Senior Notes covenants (Fixed Charge and Debt/EBITDA) given the reduction in operating profit.
- Spin-off Accounting: Review the valuation of the S/21.2 million investment received in Fossal S.A.A. and the impact on future dividend flows.
- Legal Exposure: Monitor the status of the S/8.8 million in legal claims, specifically the tax assessments from 2009-2010.
- Segment Performance: Analyze the divergence between the profitable cement segment and the loss-making "Other" and "Construction Supplies" segments.