Business Context and Reporting Period
Company: Cementos Pacasmayo S.A.A. (Pacasmayo Cement Corporation)
Reporting Period: Unaudited interim condensed consolidated financial statements for the three and six-month periods ended June 30, 2019.
Filing Date: July 18, 2019 (Form 6-K)
Primary Activity: Production and commercialization of cement, precast, concrete, and quicklime in the northern region of Peru.
Ownership: Subsidiary of Inversiones ASPI S.A. (50.01% ownership).
Key Financial Metrics (Six Months Ended June 30, 2019)
| Metric | 2019 (S/000) | 2018 (S/000) |
|---|---|---|
| Revenue | 634,810 | 602,791 |
| Gross Profit | 225,612 | 224,925 |
| Operating Profit | 123,809 | 114,956 |
| Net Profit | 62,331 | 53,244 |
| Net Profit Margin | 9.8% | 8.8% |
| Operating Cash Flow | 36,287 | 80,660 |
| Cash and Equivalents (End of Period) | 35,425 | 66,333 |
| Total Debt (Interest-bearing) | 1,072,357 | 1,083,377 |
Note: Debt figures represent the sum of current and non-current interest-bearing loans and borrowings.
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased by 5.3% year-over-year (YoY) to S/634.8 million, driven primarily by the cement, concrete, and precast segment (up 9.8%).
- Profitability: Net profit attributable to equity holders rose 17.3% to S/62.3 million. Operating profit increased 7.7% to S/123.8 million.
- Cash Flow Decline: Net cash provided by operating activities decreased significantly by 55% to S/36.3 million. This was primarily due to a S/44.2 million increase in inventories and a S/43.5 million decrease in trade payables.
- Debt Restructuring: The company issued S/570 million in new senior notes in Soles in January 2019 to refinance a mid-term loan of S/580.8 million. Total interest-bearing debt remained relatively stable.
- Accounting Policy Change: Adoption of IFRS 16 (Leases) resulted in the recognition of S/148,000 in right-of-use assets and S/163,000 in lease liabilities.
Outlook, Risks, and Contingencies
- Guidance: The filing does not contain specific forward-looking financial guidance or management commentary on future earnings projections.
- Legal Contingencies: Third-party claims totaling S/11.8 million are pending, including labor claims (S/1.8 million) and tax assessments (S/9.9 million). Management deems it "only possible, but not probable" that these will succeed; no provision has been recorded.
- Tax Risks: Tax returns for years 2014-2018 remain open for review. Management believes potential additional tax payments would not have a material effect on financial statements.
- Market Risks: The company maintains cross-currency swaps to hedge foreign exchange risk on US$131.6 million of senior notes. Volatility in the USD/SOL exchange rate is partially mitigated by these hedges.
- Segment Performance: The Quicklime segment saw a significant revenue decline (51.5% drop YoY), while the Cement segment remained the primary profit driver.
Investor Verification Checklist
- Inventory Build-up: Verify the rationale behind the S/44.2 million increase in inventories and its impact on future working capital needs.
- Debt Covenants: Confirm continued compliance with financial covenants (Fixed Charge Ratio ≥ 2.5x; Debt-to-EBITDA ≤ 3.5x) following the new bond issuance.
- Quicklime Segment: Investigate the causes of the sharp revenue decline in the quicklime segment and its strategic implications.
- Legal Exposure: Monitor the status of the S/11.8 million in legal claims, particularly the tax assessments from 2009-2014.
- Cash Conversion: Analyze the divergence between strong net profit growth and the significant drop in operating cash flow.