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, 2018 (Comparative data for 2017 and 2016 included)
Submission Date: February 14, 2019
Business Overview: The Company is a Peruvian open stock corporation primarily engaged in the production and marketing of cement, blocks, concrete, and quicklime in the northern region of Peru. It is a subsidiary of Inversiones ASPI S.A. (50.01% ownership).
Key Financial Metrics (Year Ended Dec 31, 2018)
| Metric | 2018 (S/ '000) | 2017 (S/ '000) | Change |
|---|---|---|---|
| Revenue (Sales of Goods) | 1,262,251 | 1,219,560 | +3.5% |
| Gross Profit | 466,045 | 486,604 | -4.2% |
| Operating Profit | 241,773 | 198,560 | +21.8% |
| Profit Before Tax | 116,141 | 128,417 | -9.6% |
| Net Profit (Continuing Ops) | 75,146 | 81,385 | -7.7% |
| Net Profit (Total) | 75,146 | 80,631 | -6.8% |
| EPS (Basic & Diluted) | S/ 0.18 | S/ 0.21 | -14.3% |
| Cash & Equivalents | 49,067 | 49,216 | -0.3% |
| Total Debt (Interest-bearing) | 1,083,377 | 965,290 | +12.2% |
| Operating Cash Flow | 203,628 | 250,408 | -18.7% |
Note: All figures in Peruvian Soles (S/). Debt includes current and non-current interest-bearing loans and borrowings.
Material Changes vs. Prior Period
- Debt Restructuring: In late 2018, the Company repurchased approximately 56.13% of its outstanding US$ Senior Notes (US$168.4 million) via a private offer. This was financed by bridge loans (promissory notes) totaling S/580.8 million. Consequently, non-current debt increased significantly in the balance sheet due to the new bridge loans, while the US$ Senior Notes liability decreased.
- Derivative Settlement: Following the bond repurchase, the Company settled US$150 million of cross-currency swap derivatives. This resulted in a cumulative net loss on settlement of S/34.9 million recognized in the income statement, significantly impacting profit before tax.
- Acquisition: In October 2018, a subsidiary acquired assets from a third party for US$12.3 million, resulting in S/6.3 million of goodwill and S/25.2 million of intangible assets (brands).
- Discontinued Operations: The Company fully exited the "brine project" (Salmueras Sudamericanas S.A.) in 2017, recognizing a significant impairment charge of S/47.6 million in that year. No such charge occurred in 2018.
- Revenue Mix: Cement, concrete, and blocks remained the primary revenue driver (S/1.13 billion), while quicklime sales decreased to S/57.6 million from S/80.7 million in 2017.
Guidance, Outlook, and Risks
- Subsequent Event (New Debt Issuance): On January 31, 2019, the Company issued new corporate bonds in Soles totaling S/570 million (10-year and 15-year maturities) to refinance the bridge loans used for the bond buyback. Interest rates range from 6.69% to 6.84%.
- Strategic Focus: Management is prioritizing investments in cement and construction solutions, having divested from non-core projects like the brine initiative.
- Key Risks:
- Foreign Exchange: The Company maintains a net monetary liability position in US Dollars. A 5% appreciation of the US Dollar would negatively impact pre-tax profit by approximately S/3.2 million (2018 sensitivity).
- Commodity Prices: Exposure to coal price volatility; a 10% increase in coal prices would reduce pre-tax profit by S/6.6 million.
- Regulatory/Tax: Tax audits are open for years 2013-2018. Management believes potential additional tax liabilities would not be material.
- Environmental: Ongoing obligations for mine closure and rehabilitation, with a provision of S/1.5 million as of year-end.
Investor Verification Checklist
- Debt Refinancing Execution: Verify the successful closing and terms of the S/570 million bond issuance in January 2019 intended to replace the bridge loans.
- Derivative Hedging Strategy: Confirm the current status of remaining cross-currency swaps and their effectiveness in hedging the remaining US$ Senior Notes.
- Coal Cost Management: Review operational reports for coal consumption and pricing, given the significant sensitivity of margins to coal price fluctuations.
- Customer Concentration: Monitor the top 6 customers in the quicklime segment, which accounted for significant revenue exposure.
- Dividend Policy: Note the 2018 dividend payment of S/0.38 per share; assess future payout capacity given the increased interest expense from new debt.