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, 2011
Filing Date: February 14, 2012
Cementos Pacasmayo is Peru's first cement company to list on the New York Stock Exchange (NYSE). The company operates primarily in the northern region of Peru, producing cement, concrete, blocks, and quicklime. In February 2012, the company completed a capital increase by issuing 20 million American Depositary Shares (ADSs) at $11.50 each, raising approximately $230 million for business expansion and new projects.
Key Financial Metrics (2011 vs. 2010)
| Metric | 2011 (S/. millions) | 2010 (S/. millions) | Change |
|---|---|---|---|
| Revenue | 994.97 | 898.05 | +10.8% |
| Gross Profit | 425.46 | 419.06 | +1.5% |
| EBITDA | 166.50 | 372.70 | -55.3% |
| Net Profit | 65.47 | 223.11 | -70.6% |
| Total Assets | 1,985.04 | 1,587.01 | +25.1% |
| Total Liabilities | 911.46 | 593.72 | +53.5% |
| Total Equity | 1,073.59 | 993.30 | +8.1% |
| Cash & Short-term Deposits | 363.28 | 154.49 | +135.1% |
Note: All figures in Peruvian New Soles (S/.) unless otherwise noted.
Material Changes and Operational Highlights
- Revenue Growth: Consolidated sales increased 10.8% to S/. 994.97 million, driven by cement, concrete, and blocks (80.7% of revenue). Cement shipments in Peru grew 5.1% to 8.9 million MT; the company's market share rose to 21.8%.
- Profitability Decline: Net profit dropped significantly from S/. 223.1 million to S/. 65.5 million. This is primarily due to non-recurring items:
- 2010 Positive Impact: S/. 53 million gain from the sale of the Raul mine.
- 2011 Negative Impact: S/. 67.3 million impairment charge on zinc mining assets (Corianta S.A.) due to low zinc prices. The zinc operation was suspended and the subsidiary merged into the parent company in December 2011.
- Excluding Non-Recurring Items: Adjusted net profit for 2011 was 16.5% lower than 2010, attributed to increased administrative costs (including executive retirement payments) and higher costs of sales and distribution.
- Liquidity Improvement: Cash and short-term deposits more than doubled to S/. 363.3 million. The Current Ratio improved from 1.39 to 2.13, and the Acid Test Ratio rose from 0.73 to 1.42.
- Debt Structure: Total liabilities increased, driven by new long-term borrowings (including a S/. 202.2 million loan from BBVA Banco Continental) to fund expansion. The Debt-to-Assets ratio increased from 0.37 to 0.46.
Outlook, Risks, and Contingencies
- Capital Raise: The company successfully raised $230 million via NYSE listing in February 2012 to fund expansion of cement business and new projects.
- Strategic Projects:
- Fosfatos del Pacifico: Mitsubishi Corporation acquired a 30% stake in December 2011. A diatomite brick plant is scheduled to begin operations in February 2012. Phosphate production is targeted for early 2016.
- Salmueras Sudamericanas: Joint venture with Quimpac to exploit brine deposits (Potassium Sulfate, Magnesium Chloride, etc.). Basic engineering is underway.
- Capacity Expansion: New production line at Rioja factory to double capacity to 400,000 MT/year; two new vertical furnaces installed at Pacasmayo.
- Regulatory Risk (Mining Royalties): The Peruvian government amended the Mining Royalty Law in October 2011. The company disputes the application of this law to cement sales (vs. raw mineral extraction) and has filed a claim. Management believes the current interpretation is unconstitutional. If the literal regulation is applied, royalty expenses for Q4 2011 would have been S/. 1.73 million instead of the S/. 0.078 million recorded.
- Environmental & Legal: No significant pending lawsuits identified. Environmental provisions for mine closure (zinc mine) total S/. 4.9 million.
Key Facts for Investor Verification
- ADS Listing: Verify the final settlement and use of proceeds from the $230 million ADS issuance completed in February 2012.
- Zinc Asset Impairment: Confirm the status of the Corianta S.A. zinc assets and the rationale for the S/. 67.3 million write-down given the suspension of operations.
- Mining Royalty Litigation: Monitor the outcome of the legal challenge against the Peruvian Ministry of Economy and Finance regarding the definition of "products" for royalty calculation in the cement industry.
- Debt Covenants: Review compliance with financial covenants (Liquidity Ratio > 1.0, Debt/EBITDA < 3.0) on the new BBVA and Banco de Crédito del Perú loans.
- Phosphate Project Timeline: Track progress on the Fosfatos del Pacifico project, specifically the 2016 production start date and the off-take agreement with Mitsubishi.