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, 2015 (Comparative data for 2014 and 2013)
Submission Date: February 16, 2016
Business Overview: The Company is a Peruvian open stock corporation primarily engaged in the production and marketing of cement, concrete, blocks, and quicklime in northern Peru. It also holds exploration and evaluation assets for phosphate and brine projects through subsidiaries Fosfatos del Pacifico S.A. and Salmueras Sudamericanas S.A.
Key Financial Metrics (2015 vs. 2014)
| Metric (S/ in thousands) | 2015 | 2014 | Change |
|---|---|---|---|
| Revenue (Sales of Goods) | 1,231,015 | 1,242,579 | (0.9%) |
| Gross Profit | 535,258 | 518,431 | +3.2% |
| Operating Profit | 318,887 | 300,539 | +6.1% |
| Net Profit (Attributable to Parent) | 215,532 | 192,827 | +11.8% |
| Net Profit Margin | 17.5% | 15.5% | +2.0 pts |
| Operating Cash Flow | 275,644 | 240,386 | +14.7% |
| Total Assets | 3,413,794 | 3,240,904 | +5.3% |
| Total Liabilities | 1,367,660 | 1,170,219 | +16.9% |
| Interest-Bearing Debt | 1,012,406 | 883,564 | +14.6% |
| Cash and Term Deposits | 158,007 | 580,499 | (72.8%) |
| EPS (Basic & Diluted) | S/ 0.38 | S/ 0.33 | +15.2% |
Material Changes vs. Prior Period
- Profitability Improvement: Despite a slight decline in revenue, Net Profit increased by 11.8% to S/215.5 million. This was driven by a S/12.4 million net gain from exchange differences (compared to a S/14.8 million loss in 2014) and improved gross margins.
- Cash Position: Cash and term deposits decreased significantly by 72.8% to S/158.0 million. This reduction was primarily due to heavy capital expenditures (S/471.2 million) and significant financing outflows including dividends (S/162.2 million) and treasury share purchases (S/108.2 million).
- Debt Levels: Interest-bearing loans increased to S/1.01 billion, reflecting the amortization of issuance costs on Senior Notes and the revaluation of the debt due to exchange rate fluctuations.
- Capital Expenditures: Investing activities consumed S/475.9 million, mainly for the construction of a new cement plant in Piura and exploration assets.
- Treasury Shares: The Company acquired 37.3 million investment shares for S/108.2 million in October 2015, reducing equity.
Guidance, Outlook, and Risks
- Capital Projects: Management expects the new cement plant in Piura to be fully launched in the first quarter of 2016. Significant work-in-progress (S/964.2 million) is recorded for this project.
- Dividends: Cash dividends of S/0.28 per share were declared and paid for 2015, totaling S/162.95 million.
- Debt Covenants: The Company holds US$300 million in Senior Notes due 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 reported no breaches in 2015.
- Foreign Exchange Risk: The Company utilizes cross-currency swaps to hedge US$300 million of Senior Notes. A 10% appreciation of the US dollar would increase profit before tax by approximately S/9.7 million due to the net monetary position.
- Legal and Tax Contingencies: There are pending legal claims totaling S/16.1 million (including labor and tax assessments). Management believes it is only possible, but not probable, that these actions will succeed, and no provision has been made. Tax returns for years 2011-2015 remain open to review.
- Exploration Projects: The Company has capital commitments for a brine project (up to US$100 million) and a phosphate project. These subsidiaries (Salmueras and Fosfatos) reported losses in 2015.
Investor Verification Checklist
- Cash Burn Rate: Verify the sustainability of the cash position given the 73% year-over-year decline and heavy reliance on operating cash flow to fund CapEx and dividends.
- Piura Plant Timeline: Confirm the Q1 2016 launch date for the Piura cement plant and the associated capital requirements to complete the project.
- Debt Hedging Effectiveness: Review the valuation of cross-currency swaps (S/124.8 million asset) and the impact of future exchange rate volatility on the US$300 million Senior Notes.
- Exploration Asset Impairment: Monitor the Fosfatos del Pacifico and Salmueras Sudamericanas subsidiaries, which reported losses and require significant future capital contributions.
- Tax Audit Exposure: Assess the potential financial impact of open tax audits for years 2011-2015, particularly regarding the S/7.7 million property tax assessment and other tax disputes.