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: Fiscal year ended December 31, 2014 (Comparative data for 2013 and 2012)
Filing Date: February 13, 2015
Business Overview: The Company is a Peruvian open stock corporation primarily engaged in the production and marketing of cement, concrete, blocks, and quicklime in northern Peru. It also holds exploration and evaluation assets for phosphate and brine projects through subsidiaries.
Key Financial Metrics (2014 vs. 2013)
| Metric (S/. in thousands) | 2014 | 2013 | Change |
|---|---|---|---|
| Revenue (Sales of Goods) | 1,242,579 | 1,239,688 | +0.2% |
| Gross Profit | 518,431 | 523,449 | -1.0% |
| Operating Profit | 300,539 | 292,998 | +2.6% |
| Net Profit (Attributable to Parent) | 192,827 | 155,634 | +23.9% |
| Earnings Per Share (Basic/Diluted) | S/. 0.33 | S/. 0.27 | +22.2% |
| Net Cash from Operating Activities | 252,138 | 191,754 | +31.5% |
| Total Assets | 3,240,904 | 3,114,537 | +4.1% |
| Total Equity (Parent) | 1,992,540 | 1,930,840 | +3.2% |
| Interest-Bearing Debt (Non-Current) | 883,564 | 824,022 | +7.2% |
| Cash and Term Deposits | 580,499 | 976,952 | -40.5% |
Material Changes and Drivers
- Profitability Improvement: Net profit attributable to equity holders increased significantly by 23.9% to S/.192.8 million. This was driven by a reduction in the effective income tax rate (from 35% in 2013 to 29% in 2014) due to a legislative change in Peru, and a lower net loss from exchange differences (S/.14.8 million in 2014 vs. S/.48.4 million in 2013).
- Revenue Stability: Total revenue remained relatively flat (+0.2%). The "Cement, concrete and blocks" segment saw a slight decline in revenue, while the "Quicklime" segment revenue nearly doubled (from S/.31.9m to S/.61.1m).
- Capital Expenditure: Investing activities showed a significant cash outflow of S/.565.2 million, primarily due to the purchase of property, plant, and equipment (S/.586.6 million). This reflects heavy investment in the expansion of the cement plant in Piura.
- Liquidity Position: Cash and term deposits decreased by 40.5% to S/.580.5 million, largely due to the high capital expenditures and dividend payments (S/.115.8 million) during the year.
- Debt Structure: The Company holds US$300 million in Senior Notes (4.50% interest, maturing 2023). In 2014, the Company entered into cross-currency swaps to hedge foreign exchange risk on a portion of these notes, resulting in a net unrealized gain of S/.4.9 million recorded in Other Comprehensive Income.
Guidance, Risks, and Contingencies
- Future Tax Rates: Peruvian legislation approved a progressive reduction in the corporate income tax rate from 30% to 28% (2015-2016), 27% (2017-2018), and 26% (2019 onwards). This was recognized in the 2014 financials as a reduction in deferred tax liabilities.
- Dividend Policy: The Company declared a cash dividend of S/.0.20 per share for 2014, totaling S/.116.4 million. Dividends paid to non-domiciled shareholders are subject to increasing withholding tax rates starting in 2015.
- Capital Commitments: Significant future commitments include the completion of the Piura cement plant (S/.83.8 million), development of the brine project (up to US$100 million total commitment), and phosphate rock development.
- Legal and Tax Contingencies: The Company faces legal claims totaling S/.8.4 million, including labor claims and tax assessments for 2009-2010. Management believes these are not probable to succeed and has not recorded a provision. Tax returns for years 2010-2014 remain open to review by authorities.
- Environmental Obligations: The Company maintains a rehabilitation provision of S/.3.2 million for the closed Bongara zinc mine. Environmental Impact Studies for phosphate and brine projects were approved in 2014.
Investor Verification Checklist
- Capital Expenditure Progress: Verify the status and budget adherence of the Piura cement plant expansion, which drove the majority of 2014 investing cash outflows.
- Exchange Rate Hedging: Monitor the effectiveness of the cross-currency swaps (CCS) entered in late 2014 and early 2015 to hedge the US$300 million Senior Notes against Sol devaluation.
- Subsidiary Performance: Review the financial health of non-controlling interest subsidiaries (Fosfatos del Pacifico and Salmueras Sudamericanas), which reported losses in 2014 and require continued capital contributions.
- Tax Rate Impact: Confirm the realization of the lower effective tax rate (29% in 2014) and the impact of the legislated future rate reductions on future deferred tax calculations.
- Quicklime Segment Growth: Assess the sustainability of the revenue growth in the quicklime segment, which doubled in 2014, and its contribution to overall margins.