Cementos Pacasmayo S.A.A. — FY 2018 Form 20-F
Reporting period: Fiscal year ended December 31, 2018; filed April 30, 2019. This is an audited annual report, not a standalone fourth-quarter filing. Consolidated financial statements are prepared under IFRS as issued by the IASB and reported in Peruvian soles (S/). Dollar equivalents are for convenience.
Business context and results
Pacasmayo produces and distributes cement, concrete, precast products and quicklime, principally in northern Peru. It reported an estimated 20.7% share of Peru’s cement shipments. Cement shipments increased 4.3% to about 2.4 million metric tons, while total installed cement capacity was 4.94 million metric tons per year.
| Metric | FY 2018 | FY 2017 | Change |
|---|---|---|---|
| Sales of goods | S/1,262.3 million | S/1,219.6 million | +3.5% |
| Cost of sales | S/796.2 million | S/732.9 million | +8.6% |
| Gross profit / margin | S/466.1 million / 36.9% | S/486.7 million / 39.9% | Profit −4.2%; margin −3.0 pp |
| Operating profit | S/241.8 million | S/198.6 million | +21.8% |
| Profit from continuing operations | S/75.1 million | S/81.4 million | −7.7% |
| Total profit | S/75.1 million | S/80.6 million | −6.8% |
| Adjusted EBITDA and margin | S/371.6 million / 29.4% | S/371.5 million / 30.5% | Flat; margin −1.1 pp |
| Operating cash flow | S/203.6 million | S/250.4 million | −18.7% |
| Capital expenditures | S/107.3 million | S/70.0 million | +53.3% |
Revenue growth reflected higher cement, concrete and precast sales, partly offset by lower quicklime sales. Cement volumes sold rose 3.8%, but average cement price fell 0.4%. Higher coal and raw-material costs, El Niño-related supply and road disruptions, and increased delivery costs for smaller concrete customers pressured margins. Administrative expenses fell 12.0%, helping operating profit rise; the comparison also benefited from the absence of the S/47.6 million brine-project impairment recorded in 2017.
Liquidity, debt and capital allocation
- Cash and cash equivalents were S/49.1 million; current assets were S/616.1 million and current liabilities S/258.6 million. Net working capital was S/357.6 million.
- Reported outstanding indebtedness was S/1,085.5 million at year-end, including S/60.8 million current and S/1,022.6 million non-current borrowings. Debt adjusted for currency hedges was S/1,042.3 million.
- Debt included 4.50% U.S.-dollar senior notes due 2023 and sol-denominated bridge loans taken to fund a bond repurchase. The company repurchased US$168.4 million, or about 56.1%, of the senior notes in December 2018.
- In January 2019, it issued S/570 million in local bonds: S/260 million at 6.6875% due in 10 years and S/310 million at 6.84375% due in 15 years. The filing says proceeds were used to repay the bridge loans and that the refinancing lowered cost of capital, extended maturities and reduced currency exposure.
- Dividends declared and paid for 2018 were S/0.38 per share, totaling S/161.4 million. Management expects recurring maintenance capital spending of approximately US$20 million annually over the next five years, funded from cash flows.
Outlook, commentary and risks
- Management expected public investment and northern Peru reconstruction spending to continue during 2019–2022 under the government’s S/25.7 billion “Reconstruction with Changes” plan. This is an expectation, not a quantified company earnings forecast. The filing cites a 4.0% Peruvian GDP growth projection for 2019.
- Management attributed flat adjusted EBITDA to higher early-year costs from El Niño-related road damage and alternate raw-material routes, increased coal prices, and a non-cash provision against a tax receivable. It stated that 2018 continuing profit excluding the tax-receivable provision and bond-repurchase accounting effects would have been S/106.1 million.
- The bond repurchase and associated derivative settlement generated a reported S/34.9 million cumulative net loss in the income statement. The filing also describes a S/27.0 million gain on settlement; the presentation and relationship of these amounts merit review.
- Key exposures include concentration in northern Peru and construction demand, public-project delays, competition, coal and electricity costs, natural disasters, political and regulatory uncertainty, taxes, environmental compliance and foreign-exchange risk. The company reported cross-currency swaps covering US$150 million of exposure at year-end; a portion no longer had an underlying debt obligation.
- Legal and tax matters: the company disclosed S/11.5 million of aggregate third-party claims, including labor, property-tax and tax-assessment matters. Management’s counsel considered success of the claims possible but not probable; S/0.42 million was provisioned in 2018. Tax audits remain open for multiple years. Management said there were no material legal or administrative proceedings and no off-balance-sheet arrangements with a material effect.
- Auditors issued an unqualified opinion on the IFRS financial statements; management and the auditor reported effective internal control over financial reporting as of year-end. The filing states that there were no defaults or dividend arrearages.
Most important facts for investors to verify
- Reconcile the cash-flow discussion: the filing’s narrative says operating cash flow “increased” in 2018, while reported figures show a decline from S/250.4 million to S/203.6 million.
- Review the tax-receivable provision, its recoverability and the stated adjusted continuing-profit figure of S/106.1 million.
- Reconcile the bond-repurchase and derivative-settlement accounting, including the S/34.9 million income-statement loss, S/27.0 million settlement gain, hedge balances and remaining U.S.-dollar exposure.
- Confirm post-year-end use of the S/570 million local bond proceeds, repayment of bridge loans, current debt maturities and compliance with debt covenants.
- Track gross-margin recovery, coal and logistics costs, cash conversion and the execution and funding of northern reconstruction projects.
- Assess the S/11.5 million claims, open tax reviews, and any resulting changes to provisions or cash obligations.