Cementos Pacasmayo S.A.A. — 2019 Form 20-F
Reporting period: Fiscal year ended December 31, 2019; filed May 1, 2020. Although the request metadata says “2019 Q4,” this is an annual report, and the supplied filing does not provide a clear standalone fourth-quarter financial summary. Financial statements are consolidated, prepared under IFRS in Peruvian soles (S/), and audited by EY’s Peruvian member firm with an unqualified opinion.
Business context and operating performance
Pacasmayo produces and distributes cement, concrete, precast products and quicklime, principally in northern Peru. It reported cement shipments of approximately 2.6 million metric tons, an estimated 22.2% share of national cement shipments, and 10.6% shipment growth. Growth reflected reconstruction-related public works, self-construction and concrete sales to smaller projects. Peru’s GDP growth slowed to 2.3% in 2019 from 4.0% in 2018.
Revenue was concentrated in cement, concrete and precast, which accounted for 92.6% of sales. Self-construction represented an estimated 60.3% of cement sales; public and private construction represented 19.8% and 19.9%, respectively. Installed annual cement capacity remained 4.94 million metric tons, with production of 2.623 million metric tons.
Key financial metrics
| Metric (S/ millions unless stated) | 2019 | 2018 | Change |
|---|---|---|---|
| Sales of goods | 1,392.7 | 1,262.9 | +10.3% |
| Gross profit | 486.9 | 466.7 | +4.3% |
| Gross margin | 35.0% | 37.0% | -2.0 percentage points |
| Operating profit | 270.5 | 241.8 | +11.9% |
| Profit for the year | 132.0 | 75.1 | +75.8% |
| EBITDA, non-IFRS | 400.3 | 371.6 | +7.7% |
| EBITDA margin, non-IFRS | 28.7% | 29.4% | -0.7 percentage points |
| Operating cash flow | 205.1 | 203.6 | +0.7% |
| Capital expenditures | 87.1 | 107.3 | -18.8% |
Finance costs were S/78.0 million, down from S/87.3 million. Earnings per share were S/0.31 versus S/0.18. EBITDA is a company-defined non-IFRS measure and should not be treated as a substitute for IFRS profit or operating cash flow.
At year-end, cash and term deposits were S/68.3 million; current assets were S/748.3 million and current liabilities S/352.7 million. Total interest-bearing debt was S/1,101.9 million, including S/98.8 million current and S/1,003.1 million non-current. Reported equity was S/1,421.7 million. Net working capital was S/395.7 million.
Changes versus the prior comparable year
- Sales growth was led by cement, concrete and precast, up 13.6% to S/1,289.0 million. Cement sales volume increased 8.3%, while average cement price rose 0.9%; concrete and pavement sales increased 44.6%.
- Cost of sales rose faster than revenue, up 13.8% to S/905.8 million. Cement and related product costs increased amid higher volume and production costs; transportation costs for Type V cement were a notable pressure. Gross margin consequently declined to 35.0%.
- Annual profit increased substantially, partly because 2018 included unusual non-cash charges: a provision against a tax receivable and accounting losses associated with the repurchase of international notes and related derivatives. Finance costs also decreased in 2019.
- Operating cash flow was broadly stable, while inventories increased to S/519.0 million from S/424.8 million. Cash increased to S/68.3 million from S/49.1 million.
- The company issued S/570 million of local bonds in January 2019—S/260 million at 6.6875% due 2029 and S/310 million at 6.84375% due 2034—to refinance bridge financing used in the partial repurchase of its U.S.-dollar notes. Management said the refinancing extended maturities and reduced currency exposure and financing costs.
Outlook, risks and unusual items
COVID-19: The Peruvian state of emergency halted cement production and sales at the company’s plants beginning in mid-March 2020. The filing says there had been no production or revenue since March 16 and that the shutdown would materially affect 2020 results, but management could not quantify the impact. The company took short-term loans as a precaution for working capital, reported that liquidity and capital resources were affected, and stated it believed it could meet existing debt covenants. Management described restart protocols and remote-work measures; supply-chain continuity after reopening was not then expected to be materially affected, subject to transportation restrictions.
The company disclosed that first-quarter 2020 revenue and EBITDA decreased 4.4% and 22.8%, respectively, versus first-quarter 2019, reflecting the halt during the final 15 days of the quarter. This preliminary comparison is distinct from the audited 2019 results.
Management expects approximately US$25 million annually in recurring maintenance capital expenditures over the next five years, to be funded from current and future cash flows. It provided no quantified 2020 earnings guidance. Principal risks include the pandemic and its effect on household income and public infrastructure spending; reliance on northern Peru and self-construction demand; energy, raw-material and transportation costs; currency mismatch on U.S.-dollar debt; political, regulatory, environmental and tax uncertainty; natural disasters; and debt covenants. Cross-currency swaps were used to hedge U.S.-dollar debt exposure.
Other notable matters: the company discontinued its brine project in 2017 and recorded a S/47.6 million impairment that year; it reported no material legal or administrative proceedings, but disclosed S/12.9 million of aggregate third-party claims, for which management considered an adverse outcome possible but not probable. The 2019 dividend was S/0.36 per share, totaling approximately S/154.1 million. Management reported effective disclosure controls and internal control over financial reporting as of year-end.
Important facts for investors to verify
- Whether and when operations resumed after the COVID-19 shutdown, and the realized effects on volumes, revenue, margins, cash flow and liquidity.
- Near-term borrowing, cash use and covenant headroom, including repayment or refinancing of S/98.8 million of current debt and the effects of any further precautionary loans.
- Whether cost growth—especially transportation and production costs—continues to outpace sales growth and pressure gross margins.
- The effectiveness and accounting treatment of currency hedges relative to U.S.-dollar-denominated debt, including the disclosed swap amounts and exposures.
- Collection of receivables, inventory levels and any material changes to credit-loss provisions or the disclosed tax and other claims.
- The filing’s audited FY 2019 statements and notes for definitions and reconciliations of non-IFRS EBITDA, debt, cash flow and the 2018 comparison items.