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 six months ended June 30, 2015.
Filing Date: July 22, 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 Peru's northern region. It is a subsidiary of Inversiones ASPI S.A., which holds approximately 50.94% of the Company's shares.
Key Financial Metrics (Six Months Ended June 30, 2015)
| Metric | 2015 (S/. 000s) | 2014 (S/. 000s) |
|---|---|---|
| Revenue (Sales of Goods) | 567,066 | 603,343 |
| Gross Profit | 244,618 | 244,210 |
| Operating Profit | 145,251 | 133,677 |
| Profit Before Tax | 134,958 | 118,095 |
| Net Profit (Period) | 96,524 | 80,797 |
| Net Profit Attributable to Parent | 98,485 | 82,363 |
| Earnings Per Share (Basic/Diluted) | S/. 0.17 | S/. 0.14 |
| Cash and Term Deposits | 430,271 | 785,111 (as of June 30, 2014) |
| Interest-Bearing Loans (Non-Current) | 941,385 | 883,564 (as of Dec 31, 2014) |
| Net Cash Flow from Operating Activities | 86,010 | 74,875 |
| Net Cash Flow from Investing Activities | (420,278) | (266,604) |
Note: All figures are in thousands of Peruvian Nuevo Soles (S/.). Gross margin for the six months ended June 30, 2015, was approximately 43.1%.
Material Changes vs. Prior Period
- Revenue Decline: Total sales decreased by approximately 6.0% (S/. 36.3 million) compared to the same period in 2014, driven primarily by a decline in the "Cement, concrete and blocks" segment (down 6.6%) and "Construction supplies" (down 22.0%). However, the "Quicklime" segment saw a significant revenue increase of 28.3%.
- Profitability Improvement: Despite lower revenue, Net Profit attributable to equity holders of the parent increased by 19.6% (S/. 16.1 million). This was driven by a reduction in Cost of Sales (down 10.2%) and lower total operating expenses (down 10.1%), alongside a net gain on disposal of property, plant, and equipment of S/. 8.8 million.
- Cash Position: Cash and term deposits decreased significantly from S/. 785.1 million (June 30, 2014) to S/. 430.3 million (June 30, 2015). This reduction is largely attributed to heavy capital expenditures and the acquisition of time deposits with maturities greater than 90 days (S/. 157.8 million).
- Debt Levels: Interest-bearing loans increased to S/. 941.4 million from S/. 883.6 million at the end of 2014. The Company maintains US$300 million in Senior Notes issued in 2013.
Outlook, Risks, and Contingencies
- Capital Expenditures: The Company is heavily investing in the construction of a new cement plant in Piura. Additions to property, plant, and equipment totaled S/. 239.3 million for the six months ended June 30, 2015. Remaining capital commitments for this project are approximately S/. 97.0 million.
- Foreign Exchange Hedging: To mitigate foreign currency risk associated with its US$300 million Senior Notes, the Group utilizes cross-currency swap contracts. As of June 30, 2015, these hedges resulted in a net unrealized loss of S/. 7.2 million recognized in other comprehensive income.
- Legal and Tax Contingencies:
- Legal Claims: Third parties have commenced actions against the Group totaling S/. 16.3 million, including labor claims and property tax assessments. Management believes it is only possible, but not probable, that these actions will succeed; no provision has been recorded.
- Tax Audits: Tax returns for various subsidiaries remain open for review by Peruvian authorities. Management believes any potential additional tax payments would not have a material effect on the financial statements.
- Commitments: The Group has a commitment to contribute up to US$100 million to the Salmueras Sudamericanas S.A. brine project, of which US$18.8 million has been contributed as of June 30, 2015.
Key Facts for Investor Verification
- Revenue Mix Shift: Verify the sustainability of the revenue decline in the core cement segment versus the growth in quicklime, and assess market conditions in northern Peru.
- Cash Burn Rate: Confirm the timeline for the completion of the Piura cement plant and the impact of continued high capital expenditures (S/. 254.7 million in six months) on liquidity.
- Debt Covenants: Monitor compliance with Senior Notes covenants, specifically the fixed charge ratio (minimum 2.5:1) and debt-to-EBITDA ratio (maximum 3.5:1).
- Legal Exposure: Track the status of the S/. 16.3 million in legal claims, particularly the property tax assessment from the Pacasmayo District Municipality.
- Exchange Rate Sensitivity: Assess the effectiveness of the cross-currency swaps in protecting against volatility between the US Dollar and the Peruvian Nuevo Sol.