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 six-month periods ended June 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 northern Peru. It is a subsidiary of Inversiones ASPI S.A., which holds approximately 50.94% of the Company's shares.
Key Financial Metrics (Six Months Ended June 30, 2014)
| Metric | Value (S/. in thousands) |
|---|---|
| Revenue (Sales of goods) | 603,343 |
| Gross Profit | 244,210 |
| Gross Margin | 40.5% |
| Operating Profit | 133,677 |
| Profit Before Income Tax | 118,095 |
| Net Profit (Profit for the period) | 80,797 |
| Net Profit Attributable to Parent | 82,363 |
| Earnings Per Share (Basic & Diluted) | S/. 0.14 |
| Cash and Term Deposits | 785,111 |
| Total Assets | 3,184,224 |
| Total Liabilities | 1,094,615 |
| Interest-bearing Loans (Senior Notes) | 824,843 |
| Net Cash Flow from Operating Activities | 74,875 |
| Net Cash Flow from Investing Activities | (266,604) |
Material Changes vs. Prior Comparable Period
- Revenue Growth: Revenue increased by 2.9% to S/.603.3 million for the six months ended June 30, 2014, compared to S/.586.5 million in the same period in 2013.
- Profitability Improvement: Net profit attributable to equity holders of the parent rose significantly by 17.8% to S/.82.4 million (from S/.69.9 million in 2013). This was driven by higher operating profit and a substantial reduction in net exchange losses.
- Exchange Rate Impact: Net loss from exchange differences decreased dramatically to S/.3.2 million in 2014, compared to S/.45.0 million in 2013, reflecting reduced volatility in the US Dollar against the Nuevo Sol.
- Capital Expenditure: Cash used in investing activities increased significantly to S/.266.6 million (from S/.58.2 million in 2013), primarily due to S/.265.4 million spent on the purchase of property, plant, and equipment related to the new cement plant in Piura and the diatomites brick plant.
- Segment Performance: The "Cement, concrete and blocks" segment remained the primary revenue driver (S/.525.4 million), while the "Quicklime" segment saw revenue double to S/.30.5 million compared to S/.19.4 million in the prior year.
Guidance, Outlook, Risks, and Contingencies
- Capital Projects: The Company is actively constructing a cement plant in Piura (expected completion in 2015) and commissioning a diatomites brick plant. Capital commitments as of June 30, 2014, include S/.124.6 million for the Piura plant and S/.473,000 for the brick plant.
- Debt Covenants: The Company issued US$300 million in Senior Notes in February 2013 (maturing 2023, 4.50% interest). Covenants require a fixed charge ratio of at least 2.5 to 1 and a debt-to-EBITDA ratio not exceeding 3.5 to 1. The Company is currently in compliance.
- Legal and Tax Contingencies:
- Legal Claims: Third-party actions totaling S/.7.2 million are pending, including tax assessments for 2009 and 2010. Management deems it "only possible, but not probable" that these will succeed; no provision has been recorded.
- Tax Audits: Tax returns for years 2009 through 2014 are open to review. Management believes any potential additional tax payments would not have a material effect on the financial statements.
- Environmental: The Environmental Impact Study (EIS) for the Phosphates project was approved by Peruvian authorities in March 2014.
- Dividends: Dividends payable as of June 30, 2014, amounted to S/.2.7 million. S/.1.7 million of dividends with aging greater than ten years were capitalized into the legal reserve.
Key Facts for Investor Verification
- Capital Expenditure Execution: Verify the progress and budget adherence of the Piura cement plant construction, which accounts for the majority of the S/.265 million cash outflow in investing activities.
- Exchange Rate Sensitivity: Monitor the stability of the US Dollar/Nuevo Sol exchange rate, as the Company has significant USD-denominated debt (Senior Notes) and previously suffered large exchange losses.
- Debt Covenant Compliance: Confirm continued adherence to the Senior Notes covenants (Fixed Charge Ratio & Debt/EBITDA) as the Company continues to invest heavily in new capacity.
- Segment Margins: Review the margin compression in the "Cement, concrete and blocks" segment (Gross margin decreased from 47.7% in 2013 to 45.5% in 2014) to understand cost pressures.
- Legal Resolution: Track the status of the S/.7.2 million in legal claims, particularly the tax assessments, to ensure no unexpected provisions are required in future periods.