Cementos Pacasmayo S.A.A. — FY2020 Form 20-F
Filing and period. Annual report filed April 30, 2021, covering the fiscal year ended December 31, 2020; this is a full-year filing, not a standalone fourth-quarter report. Consolidated financial statements are prepared under IFRS in Peruvian soles (S/). The company manufactures and distributes cement and related building products, principally in northern Peru, and produces quicklime. Its audited financial statements received an unqualified opinion.
Key financial results
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Sales of goods | S/1,296.3 million | S/1,392.7 million | Down 6.9% |
| Gross profit / margin | S/375.3 million / 29.0% | S/486.9 million / 35.0% | Profit down 22.9%; margin down 6.0 percentage points |
| Operating profit | S/176.1 million | S/270.5 million | Down 34.9% |
| Profit for the year | S/57.9 million | S/132.0 million | Down 56.1% |
| EBITDA (non-IFRS) / margin | S/315.3 million / 24.3% | S/400.3 million / 28.7% | Down 21.2%; margin down 4.4 percentage points |
| Operating cash flow | S/331.4 million | S/205.1 million | Up 61.6% |
| Capital expenditures | S/62.7 million | S/87.1 million | Down 28.0% |
FY2020 cash flow was supported by lower inventories and receivables. Investing cash outflow was S/48.4 million and financing cash outflow was S/43.8 million; cash and cash equivalents rose to S/308.9 million from S/68.3 million.
At year-end, total assets were S/3,016.3 million, total liabilities S/1,648.7 million and equity S/1,367.6 million. Current assets of S/877.7 million exceeded current liabilities of S/265.1 million; reported net working capital was S/612.7 million. Financial obligations were approximately S/1,268.6 million, comprising S/65.2 million current and S/1,203.4 million non-current. Management reported S/1,208.2 million of debt adjusted for currency hedges. Cash was S/308.9 million. The company reported compliance with its debt covenants.
Operating changes and drivers
- The Peruvian government’s COVID-19 measures shut the company’s plants and commercial operations for about two months, beginning March 16, 2020. Management said fixed costs continued during the shutdown, while it maintained wages and avoided mass layoffs. Activity and demand recovered strongly after reopening, especially in the second half.
- Cement shipments were approximately 2.6 million metric tons, down about 1.2% from 2019, despite the shutdown. Cement, concrete and precast revenue fell 8.4%; quicklime revenue fell 10.0%. Construction-supplies revenue rose 22.3%.
- Lower cement, concrete and precast revenue reflected the disruption and product mix. Concrete revenue fell 38.2%, while cement revenue fell 3.9% despite higher cement volume, as average realized price declined with a shift toward lower-priced products. Precast revenue rose 36.4%.
- Cost of sales rose 1.7% while revenue declined. The cost-of-sales ratio increased to 62.8% from 57.9%, reflecting fixed costs during the shutdown and imported clinker used after the sales recovery. Gross margin consequently contracted.
- Operating expenses declined 7.9% to S/199.2 million, partly due to expense controls. Finance costs increased 13.9% to S/88.7 million, and the company recorded a net foreign-exchange loss of S/9.8 million, versus a gain in 2019.
- The self-construction segment represented an estimated 70.6% of cement sales in 2020 and was described as comparatively resilient. Cement shipments represented approximately 26.1% of Peru’s total, according to the filing.
Outlook, risks and unusual items
- The filing cites a BCRP forecast for Peru’s GDP growth of 10.7% in 2021. Management expected private and public construction spending to increase, but said it might not return to pre-pandemic levels until 2022. These are macro and sector expectations, not company earnings guidance.
- The company expects approximately US$25 million per year of recurring capital expenditures over the next three years, to be funded from current and future cash flows.
- COVID-19 remains a material uncertainty, including the possibility of renewed restrictions, operating interruptions, weaker demand or customer payment problems. The company said it had returned largely to pre-shutdown operating levels by August 2020.
- Other key exposures include concentration in northern Peru and the construction sector; political and economic uncertainty; exchange-rate movements; competition; coal and electricity costs and availability; natural disasters; environmental regulation; and community and labor relations.
- Approximately 42.6% of debt was described as U.S.-dollar denominated. The company had US$150 million of cross-currency swaps, of which US$131.6 million hedged underlying debt and US$18.4 million was held for trading. These instruments reduce but do not eliminate currency and valuation risks.
- Debt includes 4.50% U.S.-dollar senior notes due 2023 and local-currency notes due 2029 and 2034, plus working-capital borrowings. Debt documents include financial covenants; a breach could have material consequences.
- The board declared a FY2020 dividend of S/0.23 per share, totaling S/98.5 million, and shareholders delegated distribution decisions to the board. The filing also reports S/143.6 million of dividends paid during 2020, which includes payments relating to declared dividends.
- The filing reports third-party claims totaling S/11.7 million, including labor, property-tax and tax-assessment matters. Management, based on counsel, considered success of the claims against the company possible but not probable; it could not assure resolution timing. Tax years remain open to review, and management did not expect any additional tax payment to be material.
- No impairment loss on long-lived assets was recorded for 2020 despite COVID-related monitoring; this was identified as a critical audit matter. Auditors also reported effective internal control over financial reporting.
Important facts for investors to verify
- Confirm the audited financial statements and the reported FY2020 revenue, margins, earnings and cash flow against the full filing; use the audited statement values where summary text differs.
- Assess whether the recovery in cement demand and operating margins persisted after 2020, particularly in concrete and public and private construction.
- Review debt maturities, covenant headroom, refinancing needs and the extent to which currency swaps hedge the company’s dollar debt.
- Verify the timing and amount of dividends approved and paid, and distinguish FY2020 declarations from cash payments made during the year.
- Monitor the status and potential financial effects of the disclosed claims, tax reviews, environmental obligations and COVID-related operating risks.