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, 2015.
Filing Date: October 28, 2015
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. (52.63% ownership as of Sept 30, 2015).
Key Financial Metrics
All figures in thousands of Peruvian Soles (S/.), unless otherwise noted.
| Metric | 9 Months Ended Sept 30, 2015 | 9 Months Ended Sept 30, 2014 | 3 Months Ended Sept 30, 2015 | 3 Months Ended Sept 30, 2014 |
|---|---|---|---|---|
| Revenue (Sales of Goods) | 880,031 | 919,547 | 312,965 | 316,204 |
| Gross Profit | 385,694 | 373,287 | 141,076 | 129,077 |
| Gross Margin % | 43.8% | 40.6% | 45.1% | 40.8% |
| Operating Profit | 227,171 | 204,104 | 81,920 | 70,427 |
| Net Profit (Period) | 151,845 | 121,269 | 55,321 | 40,472 |
| Net Profit Attributable to Parent | 154,747 | 123,560 | 56,262 | 41,197 |
| Earnings Per Share (Basic/Diluted) | S/. 0.27 | S/. 0.21 | S/. 0.10 | S/. 0.07 |
| Cash & Term Deposits (Sept 30, 2015) | 405,611 | 580,499 (Dec 31, 2014) | - | - |
| Net Cash from Operating Activities (9M) | 153,816 | 146,177 | 67,806 | 71,302 |
| Total Debt (Interest-bearing loans) | 954,996 | 883,564 (Dec 31, 2014) | - | - |
Material Changes vs. Prior Period
- Revenue Decline: Revenue for the nine months ended September 30, 2015, decreased by approximately 4.3% compared to the same period in 2014 (S/. 880M vs. S/. 920M), driven primarily by a decline in the "Cement, concrete and blocks" segment.
- Profitability Improvement: Despite lower revenue, Net Profit increased by 25.2% (S/. 151.8M vs. S/. 121.3M). This was driven by a significant improvement in Gross Margin (from 40.6% to 43.8%) and favorable foreign exchange results (Net gain of S/. 7.3M vs. loss of S/. 9.4M in 2014).
- Capital Expenditures: Additions to Property, Plant, and Equipment (PP&E) totaled S/. 372.7M for the nine months, primarily related to the construction of a new cement plant in Piura, which began partial operations on September 1, 2015.
- Dividends: The Board approved dividends of S/. 162.95M on September 3, 2015, which were unpaid as of September 30, 2015, and recorded as a liability.
- Derivative Assets: Significant increase in "Other financial instruments" (cross currency swaps) from S/. 12.3M to S/. 108.3M due to unrealized gains on hedging instruments designated as cash flow hedges for Senior Notes.
Outlook, Risks, and Contingencies
- Guidance: The filing does not contain specific forward-looking financial guidance or management commentary on future earnings projections beyond the current operational status.
- Capital Projects: The Company is actively constructing a cement plant in Piura and commissioning a diatomite brick plant. Significant capital commitments remain for these projects and the brine project (Salmueras Sudamericanas S.A.).
- Debt Covenants: The Company holds US$300M 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 reported compliance as of September 30, 2015.
- Legal and Tax Contingencies:
- Legal Claims: Third-party claims totaling S/. 16.2M exist (including labor and tax assessments). Management deems it "only possible, but not probable" that these will succeed; no provision has been recorded.
- Tax Audits: Tax returns for years 2011-2014 are open to review. Management believes any potential additional tax payments would not have a material effect on the financial statements.
- Related Party Transactions: Significant transactions exist with Inversiones ASPI S.A. (parent), including unpaid dividends of S/. 83M and various service fees.
Investor Verification Checklist
- Dividend Payment Status: Verify the payment of the S/. 162.95M dividend declared in September 2015 and its impact on cash flow in Q4 2015.
- Piura Plant Progress: Confirm the operational ramp-up and revenue contribution of the new Piura cement plant, which started partial operations in September 2015.
- Debt Covenant Compliance: Monitor the fixed charge and debt-to-EBITDA ratios in the upcoming annual report to ensure continued compliance with Senior Note covenants.
- Shareholder Structure Changes: Note that post-reporting period (October 2015), Inversiones ASPI S.A. sold shares, reducing its common share ownership to 50.01% and investment share ownership to 0%.
- Legal Claim Resolution: Track the status of the S/. 16.2M in legal claims, particularly the property tax assessments and labor disputes, to assess potential future liabilities.