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: Unaudited interim condensed consolidated financial statements for the three and nine months ended September 30, 2014.
Business Overview: The Company is a Peruvian open stock corporation primarily engaged in the production and sale of cement, blocks, concrete, and quicklime in Peru's northern region. It is a subsidiary of Inversiones ASPI S.A., which holds approximately 50.94% of the Company's shares.
Key Financial Metrics (Nine Months Ended Sept 30, 2014)
| Metric | Value (S/. in thousands) | Notes |
|---|---|---|
| Revenue (Sales of Goods) | 919,547 | Flat compared to prior year |
| Gross Profit | 373,287 | Gross Margin: ~40.6% |
| Operating Profit | 204,104 | Operating Margin: ~22.2% |
| Net Profit (Profit for the Period) | 121,269 | Attributable to parent: 123,560 |
| Net Cash from Operating Activities | 146,177 | Positive cash flow |
| Total Assets | 3,271,366 | As of Sept 30, 2014 |
| Total Liabilities | 1,142,592 | Includes 854,054 in interest-bearing loans |
| Cash and Term Deposits | 664,652 | Down from 976,952 at year-end 2013 |
| Debt (Senior Notes) | 854,054 | Carrying amount; US$300M issued in 2013 |
Material Changes vs. Prior Comparable Period
- Revenue: Sales of goods decreased slightly by 0.4% to S/.919.5 million for the nine months ended Sept 30, 2014, compared to S/.923.0 million in 2013.
- Profitability: Net profit increased by 3.4% to S/.121.3 million (from S/.117.3 million in 2013), driven by lower operating expenses and reduced exchange losses.
- Exchange Rates: Net loss from exchange differences improved significantly, dropping from S/.46.0 million in 2013 to S/.9.4 million in 2014, despite volatility in the USD/PEN rate.
- Capital Expenditure: Significant increase in investing outflows. Purchases of property, plant, and equipment totaled S/.474.1 million in the first nine months of 2014, compared to S/.145.5 million in 2013. This is primarily due to the construction of a new cement plant in Piura.
- Liquidity: Cash and cash equivalents decreased by approximately S/.312 million during the period, largely due to the heavy capital investment program.
Guidance, Outlook, Risks, and Unusual Items
- Capital Projects: The Company is heavily investing in a new cement plant in Piura (expected completion in 2015) and a diatomites brick plant. Capital commitments as of Sept 30, 2014, include S/.115.4 million for the Piura plant and S/.3.4 million for the brick plant.
- Dividends: On October 23, 2014, the Board agreed to distribute dividends of approximately S/.116.4 million, payable after November 28, 2014.
- Debt Covenants: The Company holds US$300 million in Senior Notes (4.50% interest, maturing 2023). Covenants require a fixed charge ratio of at least 2.5:1 and a debt-to-EBITDA ratio not exceeding 3.5:1. The Company is currently in compliance.
- Risks and Contingencies:
- Legal Claims: Third-party actions totaling S/.7.2 million are pending, including tax assessments and labor claims. Management deems it "only possible, but not probable" that these will succeed; no provision has been made.
- Foreign Exchange: The Company remains exposed to USD/PEN volatility, particularly regarding its USD-denominated debt, though no hedging instruments were held as of Sept 30, 2014.
- Environmental: The Environmental Impact Study (EIS) for the Phosphates project was approved by Peruvian authorities in March 2014.
- Post-Reporting Event: On October 10, 2014, the Company sold available-for-sale financial investments in Sindicato de Inversiones y Administracion (SIA) for approximately US$6.5 million (S/.18.9 million).
Investor Verification Checklist
- Capital Expenditure Progress: Verify the timeline and budget adherence for the Piura cement plant construction, which is consuming significant cash reserves.
- Debt Service Coverage: Monitor the fixed charge and debt-to-EBITDA ratios to ensure continued compliance with Senior Note covenants amidst high interest payments.
- Exchange Rate Exposure: Assess the impact of future USD/PEN fluctuations on the S/.854 million debt burden and future earnings.
- Dividend Payout: Confirm the cash impact of the S/.116.4 million dividend distribution approved in October 2014.
- Legal Resolution: Track the status of the S/.7.2 million in pending legal and tax claims to ensure no material provisions become necessary.