Business Context and Reporting Period
Company: Cementos Pacasmayo S.A.A. (Pacasmayo Cement Corporation)
Filing Type: Form 6-K (Unaudited Interim Condensed Consolidated Financial Statements)
Reporting Period: Three months ended March 31, 2016
Filing Date: April 25, 2016
Business Overview: The Company is a Peruvian open stock corporation primarily engaged in the production and sale of cement, blocks, concrete, and quicklime in northern Peru. It is a subsidiary of Inversiones ASPI S.A., which holds a 50.01% stake. The Group operates three reportable segments: Cement/Concrete/Blocks, Construction Supplies, and Quicklime.
Key Financial Metrics
| Metric (S/ in thousands) | Q1 2016 | Q1 2015 |
|---|---|---|
| Revenue (Sales of Goods) | 309,600 | 290,604 |
| Gross Profit | 114,285 | 125,086 |
| Gross Margin | 36.9% | 43.0% |
| Operating Profit | 61,383 | 72,227 |
| Profit Before Tax | 39,921 | 72,311 |
| Net Profit (Period) | 27,741 | 52,257 |
| Net Profit Attributable to Parent | 28,459 | 53,232 |
| Earnings Per Share (Basic/Diluted) | S/ 0.05 | S/ 0.09 |
| Cash and Term Deposits (End of Period) | 110,952 | 504,528 |
| Net Cash from Operating Activities | 27,994 | 47,426 |
| Total Debt (Interest-bearing loans) | 987,317 | 1,012,406 |
Material Changes vs. Prior Period
- Revenue Growth: Sales increased 6.5% to S/309.6 million, driven primarily by the Cement, concrete, and blocks segment (up 10.9%).
- Profitability Decline: Net profit attributable to the parent dropped 46.5% to S/28.5 million. This was primarily due to a significant increase in finance costs (S/16.8 million vs. S/5.1 million) and a net loss from exchange differences (S/4.9 million vs. a gain of S/4.7 million).
- Margin Compression: Gross margin decreased from 43.0% to 36.9% as Cost of Sales rose faster than revenue.
- Liquidity Reduction: Cash and cash equivalents decreased by S/46.6 million to S/110.9 million, reflecting a net cash outflow driven by investing activities (S/60.8 million) and financing activities (S/13.7 million).
- Debt Reduction: Interest-bearing loans decreased slightly by S/25.1 million to S/987.3 million.
Outlook, Risks, and Unusual Items
- Capital Projects: The Group continued construction of a cement plant in Piura, which was fully launched in Q1 2016. Additions to property, plant, and equipment totaled S/54.8 million in cash outflows.
- Hedging Activities: The Group utilizes cross-currency swaps (notional US$300 million) to hedge US Dollar-denominated Senior Notes. An unrealized gain of S/25.5 million was recognized in Other Comprehensive Income (OCI) due to favorable exchange rate movements.
- Legal Contingencies: Third-party claims totaling S/16.1 million exist, including labor claims and tax assessments. Management deems it "only possible, but not probable" that these will succeed; no provision has been recorded.
- Commitments: The Group has a capital commitment of up to US$100 million for a brine project (Salmueras Sudamericanas S.A.), with S/54.6 million contributed to date.
- Taxation: The applicable income tax rate is 28% for 2016. Future rates are scheduled to decrease to 27% (2017-2018) and 26% (2019 onwards).
Investor Verification Checklist
- Debt Covenants: Verify compliance with Senior Notes covenants (Fixed charge ratio ≥ 2.5:1; Debt-to-EBITDA ≤ 3.5:1).
- Exchange Rate Sensitivity: Assess the impact of Sol/USD volatility on future finance costs and the effectiveness of the cross-currency swap hedge.
- Capital Expenditure: Monitor cash burn related to the Piura cement plant expansion and the brine project commitments.
- Legal Exposure: Track the status of the S/16.1 million in legal claims, particularly the tax assessments from 2009-2014.
- Segment Performance: Analyze the margin compression in the core Cement segment versus the growth in volume.