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: Unaudited interim condensed consolidated financial statements for the three and nine months ended September 30, 2016.
Business Overview: The Company is a Peruvian open stock corporation primarily engaged in the production and sale of cement, blocks, concrete, and quicklime in northern Peru. It is a subsidiary of Inversiones ASPI S.A., which holds a 50.01% stake as of September 30, 2016.
Key Financial Metrics (Nine Months Ended Sept 30, 2016)
| Metric | Value (S/ '000) | Notes |
|---|---|---|
| Revenue (Sales of Goods) | 925,440 | Up 5.2% vs. prior year |
| Gross Profit | 373,991 | Gross Margin: 40.4% |
| Operating Profit | 202,121 | Operating Margin: 21.8% |
| Net Profit (Total) | 102,385 | Down 32.6% vs. prior year |
| Net Profit (Parent Equity) | 105,456 | EPS: S/ 0.19 |
| Operating Cash Flow | 149,216 | Down 12.1% vs. prior year |
| Total Assets | 3,443,187 | As of Sept 30, 2016 |
| Total Liabilities | 1,473,977 | Includes S/ 1,010,638 in long-term debt |
| Cash and Term Deposits | 174,621 | Liquidity position |
Material Changes vs. Prior Comparable Period
- Revenue Growth: Sales increased by S/ 45.4 million (5.2%) to S/ 925.4 million, driven primarily by the "Cement, concrete and blocks" segment which saw revenue rise to S/ 823.6 million.
- Profitability Decline: Despite revenue growth, Net Profit attributable to the parent decreased by S/ 49.3 million (31.9%) to S/ 105.5 million. This was largely due to a significant increase in finance costs (S/ 55.4 million vs. S/ 25.5 million in 2015) and a net loss on exchange differences (S/ 1.5 million vs. a gain of S/ 7.3 million).
- Cost Structure: Cost of sales increased by 11.6% to S/ 551.4 million, compressing the gross margin slightly from 43.8% in 2015 to 40.4% in 2016.
- Balance Sheet: Total liabilities increased by S/ 106.3 million, primarily due to a rise in trade and other payables (S/ 283.7 million vs. S/ 170.8 million), largely driven by declared dividends payable of S/ 159.4 million.
Guidance, Outlook, Risks, and Unusual Items
- Capital Projects: Significant additions to Property, Plant, and Equipment (S/ 80.2 million for the nine months) relate to the construction of a cement plant in Piura, which began partial operations in September 2015 and saw significant launch in February 2016.
- Dividends: The Company declared dividends for 2016 totaling S/ 165.9 million. As of September 30, 2016, S/ 159.4 million remained payable.
- Financial Hedging: The Company utilizes cross-currency swaps (notional US$ 300 million) to hedge US Dollar-denominated Senior Notes. These hedges resulted in an unrealized loss of S/ 38.9 million recognized in Other Comprehensive Income (OCI) for the nine-month period, impacting total comprehensive income.
- Legal and Tax Contingencies:
- Legal Claims: Third-party claims totaling S/ 16.5 million exist (including labor and property tax assessments). Management deems it "only possible, but not probable" that these will succeed; no provision has been made.
- Tax Disputes: The Group has a formal disagreement with Peruvian tax authorities regarding VAT refunds from 2005-2007. Recovery is expected in the long term.
- Commitments: The Group has a capital commitment of up to US$ 100 million for a brine project (Salmueras), with S/ 54.6 million contributed to date.
Investor Verification Checklist
- Debt Covenants: Verify compliance with Senior Notes covenants (Fixed charge ratio ≥ 2.5:1; Debt-to-EBITDA ≤ 3.5:1), especially given the high finance costs.
- Dividend Payout: Confirm the timing and cash impact of the S/ 159.4 million in unpaid declared dividends.
- FX Hedging Effectiveness: Monitor the impact of cross-currency swaps on OCI and future P&L as the hedges mature through 2023.
- Legal Resolution: Track the status of the S/ 16.5 million in legal claims and the long-term VAT refund dispute.
- Segment Performance: Analyze the margin compression in the core "Cement, concrete and blocks" segment (Profit before tax dropped from S/ 222.7M to S/ 158.8M YoY).