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: Three months ended March 31, 2015
Filing Date: April 27, 2015
Business Overview: The Company is a Peruvian open stock corporation primarily engaged in the production and marketing of cement, blocks, concrete, and quicklime in Peru's northern region. It is a subsidiary of Inversiones ASPI S.A., which holds approximately 52.63% of common shares. The financial statements are prepared in accordance with IAS 34 and presented in Peruvian Nuevos Soles (S/).
Key Financial Metrics
| Metric (S/. in thousands) | Q1 2015 | Q1 2014 |
|---|---|---|
| Revenue (Sales of goods) | 290,604 | 300,082 |
| Gross Profit | 125,086 | 121,688 |
| Gross Margin | 43.0% | 40.6% |
| Operating Profit | 72,227 | 65,232 |
| Profit Before Tax | 72,311 | 57,708 |
| Net Profit (Period) | 52,257 | 39,803 |
| Net Profit Attributable to Parent | 53,232 | 40,593 |
| Earnings Per Share (Basic/Diluted) | S/. 0.09 | S/. 0.07 |
| Operating Cash Flow | 44,547 | 15,217 |
| Cash and Term Deposits (End of Period) | 504,528 | 876,486 |
| Total Debt (Interest-bearing loans) | 916,375 | 883,564 |
Material Changes vs. Prior Period
- Profitability Increase: Net profit attributable to equity holders of the parent increased by 31.1% (from S/. 40.6M to S/. 53.2M) despite a 3.2% decline in revenue. This was driven by improved gross margins (up 2.4 percentage points) and a significant net gain on exchange differences (S/. 4.7M gain in 2015 vs. S/. 2.4M loss in 2014).
- Revenue Decline: Sales of goods decreased to S/. 290.6M from S/. 300.1M. The "Cement, concrete and blocks" segment saw a revenue drop of 4.9%, while the "Quicklime" segment revenue grew significantly by 75.6%.
- Cash Position: Cash and term deposits decreased by S/. 76.0M (13.1%) to S/. 504.5M. This reduction was primarily due to heavy investing activities (S/. 137.0M outflow) related to the construction of a cement plant in Piura, partially offset by strong operating cash flows.
- Debt Levels: Interest-bearing loans increased slightly to S/. 916.4M from S/. 883.6M. The Company holds US$300M in Senior Notes issued in 2013.
Outlook, Risks, and Contingencies
- Capital Expenditures: The Company is heavily investing in the construction of a cement plant in Piura, with additions to property, plant, and equipment totaling approximately S/. 146.5M in Q1 2015. Remaining capital commitments include S/. 66.8M for the Piura plant and up to US$100M for the brine project (S/. 18.1M contributed to date).
- Foreign Exchange Hedging: The Company utilizes cross currency swaps to hedge US Dollar-denominated Senior Notes. A net unrealized loss of S/. 4.5M was recorded in other comprehensive income for the period. On April 20, 2015 (subsequent event), the Company closed a new cross currency swap for US$20M.
- Legal and Tax Contingencies: Third-party legal claims aggregate S/. 16.1M, including labor claims and tax assessments. Management deems it "only possible, but not probable" that these actions will succeed; no provision has been recorded. Tax returns for years 2010–2014 remain open to review by authorities.
- Debt Covenants: Senior Notes require a fixed charge ratio of at least 2.5 to 1 and a debt-to-EBITDA ratio no greater than 3.5 to 1. The Company is currently in compliance.
Investor Verification Checklist
- Revenue Mix: Verify the sustainability of the revenue decline in the core cement segment versus the growth in quicklime.
- Capex Execution: Monitor the progress and cost overruns of the Piura cement plant construction, which is driving significant cash outflows.
- FX Exposure: Assess the effectiveness of the cross currency swap hedging strategy given the volatility of the Peruvian Sol against the US Dollar.
- Legal Risks: Track the status of the S/. 16.1M in legal claims, particularly the tax assessments from 2009–2014.
- Cash Burn: Evaluate the impact of continued heavy investing on liquidity levels, noting the 13% drop in cash reserves in Q1.