Business Context and Reporting Period
Cementos Pacasmayo S.A.A. (Pacasmayo Cement Corporation), a Peruvian cement manufacturer, filed this Form 6-K on November 13, 2018. The filing discloses the monthly position of financial derivatives as of October 31, 2018, in compliance with local securities regulations and SEC requirements for foreign issuers.
Key Financial Metrics
The filing focuses exclusively on financial derivative instruments rather than comprehensive operational results. Key figures include:
- Derivative Instrument: Cross Currency Swaps.
- Purpose: Coverage for a USD 300 million corporate bond liability.
- Fair Value (Current Month): PEN 29,610,000 (Liability).
- Fair Value (Previous Month): PEN 11,436,000 (Liability).
- Cumulative Profit/Loss (Year-to-Date): PEN -27,525,000 (Loss).
Material Changes
The fair value liability associated with the Cross Currency Swaps increased significantly from PEN 11,436,000 in the previous month to PEN 29,610,000 as of October 31, 2018. This increase reflects a deterioration in the valuation of the hedging instruments, contributing to a cumulative year-to-date loss of PEN 27,525,000.
Management Commentary and Unusual Items
The cumulative loss of PEN 27,525,000 is composed of the following components:
- Unrealized Exchange Rate Loss: PEN -36,600,000 due to holding U.S. dollar-denominated bonds.
- Accrued Commissions: PEN -22,252,000 recorded as interest expense in the profit and loss account.
- Fair Value Increase: PEN +29,121,000 (includes PEN 1,841,000 for counterparty risk).
- Deferred Income Tax: PEN +2,206,000.
Management notes that fair value estimates are internal, based on IFRS and market data, and are preliminary. Most items are recorded in equity accounts, except for counterparty risk (financial cost) and commissions (interest expense).
Investor Verification Checklist
- Verify the impact of the PEN 22,252,000 in accrued commissions on the company's reported interest expense and net income.
- Confirm the exchange rate assumptions used to calculate the PEN 36,600,000 unrealized loss on USD bonds.
- Review the full 2018 financial statements to understand the total exposure of the USD 300 million corporate bond.
- Assess the liquidity implications of the increasing fair value liability on the Cross Currency Swaps.