Business Context and Reporting Period
Company: Cementos Pacasmayo S.A.A. (NYSE: CPAC)
Filing Type: Form 6-K (Report of Foreign Issuer)
Reporting Period: Second Quarter (2Q) and Six Months (6M) ended June 30, 2015
Reporting Date: July 22, 2015
Currency: Peruvian Nuevos Soles (S/.)
Cementos Pacasmayo is a leading cement producer in Peru, primarily serving the northern region. The company operates cement plants in Pacasmayo and Rioja and is in the final construction phase of a new facility in Piura.
Key Financial Metrics
| Metric (in millions S/.) | 2Q 2015 | 2Q 2014 | 6M 2015 | 6M 2014 |
|---|---|---|---|---|
| Sales of Goods | 276.5 | 303.3 | 567.1 | 603.3 |
| Gross Profit | 119.5 | 122.5 | 244.6 | 244.2 |
| Operating Profit | 73.0 | 68.4 | 145.4 | 133.7 |
| Net Income | 44.3 | 41.0 | 96.5 | 80.8 |
| Consolidated Adjusted EBITDA | 89.3 | 83.9 | 178.5 | 164.6 |
| Cash Position (as of June 30, 2015) | 430.3 | |||
| Total Debt (as of June 30, 2015) | 953.1 (US$ 300.0 million) |
Margins (2Q 2015 vs 2Q 2014):
- Gross Margin: 43.2% (up from 40.4%)
- Operating Margin: 26.4% (up from 22.6%)
- Net Income Margin: 16.0% (up from 13.5%)
- Consolidated EBITDA Margin: 32.3% (up from 27.7%)
Material Changes vs. Prior Period
- Revenue Decline: Sales of goods fell 8.8% in 2Q15 and 6.0% in 6M15 compared to the prior year. This was driven by weaker demand from the public sector and a 9.4% reduction in cement volumes sold.
- Profitability Expansion: Despite lower volumes, Net Income increased 8.0% in 2Q15 and 19.4% in 6M15. Gross margins improved by 2.8 percentage points in 2Q15 due to cost-cutting initiatives, lower use of imported clinker, and price increases.
- One-Time Gains: Results included S/. 8.8 million in income from the sale of a real estate asset.
- Segment Performance:
- Cement: Sales down 6.6%, but gross margin improved to 51.4%.
- Concrete: Sales down 20.8% and gross margin declined to 26.7% due to delays in infrastructure projects.
- Quicklime: Sales up 2.5% with improved margins due to operational efficiencies.
Guidance, Outlook, and Management Commentary
- Piura Plant Status: The new US$ 386 million plant in Piura is in the final construction phase. Cement production is expected to begin in 3Q15, with clinker production starting in 4Q15. The plant is projected to reach 60% capacity by year-end.
- Full-Year Outlook: Management expects full-year cement volumes to be similar to 2014 levels. They anticipate a recovery in Peruvian infrastructure spending in the second half of the year.
- Cost Expectations: Additional costs related to the Piura plant start-up are expected in the second half, but management believes efficiency measures will allow them to maintain full-year margins comparable to 2014.
- Debt Management: The company has hedged its entire US$ 300 million debt exposure using cross-currency swap contracts.
- Capital Expenditure: Capex for the first six months of 2015 was S/. 247.5 million, primarily allocated to the Piura plant (S/. 219.6 million).
Investor Verification Checklist
- Piura Plant Timeline: Verify the commencement of cement production in 3Q15 and the achievement of 60% capacity by year-end.
- Public Sector Demand: Monitor the recovery of infrastructure spending in Peru, which is critical for reversing the volume decline seen in the first half of 2015.
- Imported Clinker Reduction: Confirm the elimination of imported clinker usage once the Piura plant is fully operational, a key driver for future margin expansion.
- Debt Servicing: Review the impact of the US$ 300 million bond (4.50% coupon, 10-year maturity) on cash flows, noting the current Net Debt/EBITDA ratio of 1.4x.
- Concrete Segment Volatility: Assess the impact of infrastructure project delays on the concrete segment, which saw significant margin compression.