UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

 

FORM 6-K

 

REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15b-16 OF
THE SECURITIES EXCHANGE ACT OF 1934

 

For the month of July 2020

 

Commission File Number 001-35401

 

CEMENTOS PACASMAYO S.A.A.
(Exact name of registrant as specified in its charter)

 

PACASMAYO CEMENT CORPORATION
(Translation of registrant’s name into English)

 

Republic of Peru
(Jurisdiction of incorporation or organization)

 

Calle La Colonia 150, Urbanización El Vivero
Surco, Lima
Peru
(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

 

Form 20-F  ☒          Form 40-F  ☐

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐

 

 

 

 

 

 

CEMENTOS PACASMAYO S.A.A.

 

The following exhibit is attached:

 

EXHIBIT NO.   DESCRIPTION
99.1   Superintendencia del Mercado de Valores - SMV

 

1

 

 

Signatures

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

CEMENTOS PACASMAYO S.A.A.  
   
By:

/s/ CARLOS JOSE MOLINELLI MATEO

 
Name:  

Carlos Jose Molinelli Mateo

 
Title:

Stock Market Representative

 
     
Date:

July 24, 2020

 

 

 

2

 

 

Exhibit 99.1

 

 

 

 

 

 

 

Cementos Pacasmayo S.A.A. and Subsidiaries

 

Unaudited interim condensed consolidated financial statements

as of June 30, 2020 and for the three and six-month periods then ended

 

 

 

 

 

 

 

 

 

 

  

Cementos Pacasmayo S.A.A. and Subsidiaries

 

Unaudited interim condensed consolidated financial statements as of June 30, 2020 and for the three and six-month periods then ended

 

Content

  

Report on review of interim condensed consolidated financial statements F-2
   
Interim condensed consolidated financial statements  
Interim condensed consolidated statements of financial position F-3
Interim condensed consolidated statements of profit or loss F-4
Interim condensed consolidated statements of other comprehensive income F-5
Interim condensed consolidated statements of changes in equity F-6
Interim condensed consolidated statements of cash flows F-7
Notes to the interim condensed consolidated financial statements F-9

 

F-1

 

  

Report on review of interim condensed consolidated financial statements

 

To the Board of Directors and Shareholders of Cementos Pacasmayo S.A.A.

 

Introduction

 

We have reviewed the accompanying interim condensed consolidated statement of financial position of Cementos Pacasmayo S.A.A. (a Peruvian company) and its Subsidiaries (together the "Group") as of June 30, 2020, and the related interim condensed consolidated statements of profit or loss, other comprehensive income, changes in equity and cash flows for the three and six-month periods then ended, and explanatory notes. Management is responsible for the preparation and presentation of these interim condensed consolidated financial statements in accordance with IAS 34 Interim Financial Reporting (IAS 34). Our responsibility is to express a conclusion on these interim condensed consolidated financial statements based on our review.

 

Scope of review

 

We conducted our review in accordance with International Auditing Standard on Review Engagements (ISRE) 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity. A review of interim financial information consists of making inquiries, primarily of the persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

 

Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim condensed consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting.

 

Lima, Peru

July 23, 2020

  

Countersigned by:

 

   
Mayerling Zambrano R.  
C.P.C.C. Register No.23765  

 

F-2

 

 

Cementos Pacasmayo S.A.A. and Subsidiaries

 

Interim condensed consolidated statements of financial position

As of June 30, 2020 (unaudited) and December 31, 2019 (audited)

 

   Note  As of
June 30,
2020
   As of
December 31,
2019
 
      S/(000)   S/(000) 
Assets           
Current assets           
Cash and cash equivalents  3  202,950   68,266 
Term deposits with maturity greater than ninety days  3   81,000    - 
Trade and other receivables, net  4   84,293    120,530 
Income tax prepayments      45,302    30,191 
Inventories  5   526,862    519,004 
Prepayments      9,754    10,339 
Total current asset      950,161    748,330 
Non-current assets             
Trade and other receivables, net  4   7,152    4,681 
Prepayments      56    151 
Financial instruments designated at fair value through other comprehensive income  16   18,224    18,224 
Derivative financial instruments  16   34,530    - 
Property, plant and equipment  6   2,044,041    2,100,682 
Intangible assets      51,064    47,366 
Goodwill      4,459    4,459 
Deferred income tax assets      15,032    7,419 
Right of use asset  7   6,769    46 
Other assets      180    200 
Total non-current asset      2,181,507    2,183,228 
Total assets      3,131,668    2,931,558 
Liability and equity             
Current liabilities             
Bank overdraft  9   70,691    - 
Trade and other payables  8   165,105    237,299 
Interest -bearing loans and borrowings  10 and 16   316,751    98,774 
Lease liabilities  7   1,479    57 
Provisions  11   3,222    16,603 
Total current liabilities      557,248    352,733 
Non-current liabilities             
Financial obligations  10 and 16   1,033,020    1,003,130 
Other financial instruments  16   -    1,302 
Lease liabilities  7   5,732    - 
Other non-current provisions  11   8,139    7,643 
Deferred income tax liabilities      139,453    145,099 
Total non-current liabilities      1,186,344    1,157,174 
Total liability      1,743,592    1,509,907 
Equity             
Capital stock      423,868    423,868 
Investment shares      40,279    40,279 
Investment shares holds in treasury      (121,258)   (121,258)
Additional paid-in capital      432,779    432,779 
Legal reserve      168,636    168,636 
Other accumulated comprehensive results      (18,603)   (19,853)
Retained earnings      462,375    497,200 
Total equity      1,388,076    1,421,651 
Total liability and equity      3,131,668    2,931,558 

 

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

 

F-3

 

 

Cementos Pacasmayo S.A.A. and Subsidiaries

 

Interim condensed consolidated statements of profit or loss

For the three and six-month periods ended June 30, 2020 and June 30, 2019 (unaudited)

 

      For the three-month
period ended
June 30,
   For the six-month
period ended
June 30,
 
   Note  2020   2019   2020   2019 
      S/(000)   S/(000)   S/(000)   S/(000) 
                    
Revenue from contracts with customers  13  114,345   322,061   413,603   635,308 
Cost of sales      (112,203)   (208,018)   (319,450)   (409,198)
Gross profit      2,142    114,043    94,153    226,110 
                        
Operating income (expense)                       
Administrative expenses      (33,263)   (41,957)   (73,578)   (82,983)
Selling and distribution expenses      (8,268)   (10,636)   (21,993)   (21,011)
Other operating (expense) income, net      (848)   760    (644)   1,693 
Total operating expenses, net      (42,379)   (51,833)   (96,215)   (102,301)
Operating (loss) profit      (40,237)   62,210    (2,062)   123,809 
                        
Other income (expenses)                       
Finance income      1,163    472    1,697    819 
Finance costs      (23,184)   (18,984)   (43,813)   (38,466)
Net gain (loss) on the valuation of trading derivative financial instruments      1,445    (31)   4,391    (1,025)
Gain (loss) from exchange difference, net      (2,746)   123    (6,896)   1,276 
Total other expenses, net      (23,322)   (18,420)   (44,621)   (37,396)
(Loss) profit before income tax      (63,559)   43,790    (46,683)   86,413 
Income tax benefit (expense)  12   18,010    (11,604)   11,858    (24,082)
                        
(Loss) profit for the period      (45,549)   32,186    (34,825)   62,331 
                        
(Loss) earnings per share                       
Basic (loss) profit for the period attributable to equity holders of common shares and investment shares of the parent (S/ per share)  15   (0.11)   0.08    (0.08)   0.15 

 

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

 

F-4

 

 

Cementos Pacasmayo S.A.A. and Subsidiaries

 

Interim condensed consolidated statements of other comprehensive income

For the three and six-month periods ended June 30, 2020 and June 30, 2019 (unaudited)

 

      For the three-month
period ended
June 30,
   For the six-month
period ended
June 30,
 
   Note  2020   2019   2020   2019 
      S/(000)   S/(000)   S/(000)   S/(000) 
                    
(Loss) profit for the period     (45,549)  32,186   (34,825)  62,331 
                        
Other comprehensive income                       
Other comprehensive income not to be reclassified to profit or loss in subsequent periods:                       
Change in fair value of financial instruments designated at fair value through other comprehensive income      -    -    -    (8,302)
Deferred income tax  12   -    -    -    2,449 
Other comprehensive income to be reclassified to profit or loss in subsequent periods:                       
(Loss) gain net  on cash flow hedges  16(b)   (3,015)   3,859    1,773    4,440 
Deferred income tax  12   888    (1,139)   (523)   (1,310)
                        
Other comprehensive income for the period, net of income tax      (2,127)   2,720    1,250    (2,723)
                        
Total comprehensive income, net of income tax      (47,676)   34,906    (33,575)   59,608 

 

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

 

F-5

 

 

Cementos Pacasmayo S.A.A. and Subsidiaries

 

Interim condensed consolidated statements of changes in equity

For the six-month periods ended June 30, 2020 and June 30, 2019 (unaudited)

 

   Attributable to equity holders of the parent 
   Capital
stock
   Investment
shares
   Treasury
shares
   Additional paid-in capital   Legal
reserve
   Unrealized gain on financial instruments designated at fair value   Unrealized gain on cash flow hedge   Retained earnings   Total 
   S/(000)   S/(000)   S/(000)   S/(000)   S/(000)   S/(000)   S/(000)   S/(000)   S/(000) 
                                     
Balance as of December 31, 2018  423,868   40,279   (121,258)  432,779   168,356   4,002   (15,948)  519,285   1,451,363 
Change in accounting policy   -    -    -    -    -    -    -    (15)   (15)
                                              
Balance as of January 1, 2019   423,868    40,279    (121,258)   432,779    168,356    4,002    (15,948)   519,270    1,451,348 
Profit for the period   -    -    -    -    -    -    -    62,331    62,331 
Other comprehensive income   -    -    -    -    -    (5,853)   3,130    -    (2,723)
                                              
Total comprehensive income   -    -    -    -    -    (5,853)   3,130    62,331    59,608 
                                              
Appropriation of legal reserve   -    -    -    -    6,233    -    -    (6,233)   - 
Expired dividends   -    -    -    -    280    -    -    -    280 
                                              
Balance as of June 30, 2019   423,868    40,279    (121,258)   432,779    174,869    (1,851)   (12,818)   575,368    1,511,236 
                                              
Balance as of January 1, 2020   423,868    40,279    (121,258)   432,779    168,636    (2,103)   (17,750)   497,200    1,421,651 
Loss for the period   -    -    -    -    -    -    -    (34,825)   (34,825)
Other comprehensive income   -    -    -    -    -    -    1,250    -    1,250 
                                              
Total comprehensive income   -    -    -    -    -    -    1,250    (34,825)   (33,575)
                                              
Balance as of June 30, 2020   423,868    40,279    (121,258)   432,779    168,636    (2,103)   (16,500)   462,375    1,388,076 

 

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

 

F-6

 

 

Cementos Pacasmayo S.A.A. and Subsidiaries

 

Interim condensed consolidated statements of cash flows

For the three and six-month periods ended June 30, 2020 and June 30, 2019 (unaudited)

 

      For the three-month
period ended
June 30,
   For the six-month
period ended
June 30,
 
   Note  2020   2019   2020   2019 
      S/(000)   S/(000)   S/(000)   S/(000) 
Operating activities                   
(Loss) profit before income tax     (63,559)  43,790   (46,683)  86,413 
Non-cash adjustments to reconcile the (loss) profit before income tax to net cash flows                       
Depreciation and amortization      34,539    32,054    68,652    64,054 
Finance costs      23,184    18,984    43,813    38,466 
Officers compensation provision  14   1,440    2,502    2,879    4,876 
(Profit) loss on the valuation of trading derivative financial instruments      (1,445)   31    (4,391)   1,025 
Allowance for expected credit loses  5   1,054    249    2,176    498 
Unrealized exchange difference related to monetary transactions      5,567    305    6,014    375 
Finance income      (1,163)   (472)   (1,697)   (819)
Net gain on disposal of property, plant and equipment  6   (456)   (51)   (1,632)   (297)
Other operating, net      255    839    (1,290)   399 
                        
Working capital adjustments                       
Decrease (increase) in trade and other receivables      22,870    (18,984)   35,479    (16,991)
Decrease (increase) in prepayments      5,970    (4,956)   680    (16,230)
Increase in inventories      (898)   (13,178)   (6,674)   (44,223)
Decrease increase in trade and other payables      (4,807)   (15,648)   (43,375)   (43,493)
       22,551    45,465    53,951    74,053 
                        
Interests received      76    198    594    599 
Interests paid      (1,727)   (936)   (31,438)   (15,750)
Income tax paid      (591)   (2,352)   (14,594)   (22,615)
                        
Net cash flows provided from operating activities      20,309    42,375    8,513    36,287 

 

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

 

F-7

 

 

Interim condensed consolidated statements of cash flows (continued)

 

      For the three-month
period ended
June 30,
   For the six-month
period ended
June 30,
 
   Note  2020   2019   2020   2019 
      S/(000)   S/(000)   S/(000)   S/(000) 
Investing activities                   
Opening of term deposits with original maturity greater than 90 days.     -   -   (208,990)  - 
Redemption of term deposits with original maturity greater than 90 days      127,990    -    127,990    - 
Purchase of property, plant and equipment      (6,016)   (20,235)   (18,226)   (32,101)
Purchase of intangibles      (1,247)   (1,089)   (2,809)   (1,899)
Loans granted to third parties      (1,695)   -    (2,413)   - 
Proceeds from sale of property, plant and equipment      960    798    1,801    1,843 
Collections of loans granted to third parties      -    -    91    - 
                        
Net cash used in investing activities      119,992    (20,526)   (102,556)   (32,157)
                        
Financing activities                       
Loan received      -    30,450    212,350    44,010 
Bank overdraft      57,184    -    70,691    - 
Dividends paid      (15)   (182)   (45,906)   (13,278)
Dividends returned      240    302    240    328 
Payment of commissions of financial instruments of hedge      -    -    (7,732)   (7,612)
Lease payments  7   (71)   -    (531)   - 
Proceeds from bonds issuance in soles  10   -    -    -    570,000 
Payments for issuance costs from bonds issuance in soles      -    (101)   -    (1,304)
Loan paid      -    (30,230)   -    (610,999)
Proceeds from settlement of derivative financial instruments      -    -    -    1,458 
                        
Net cash flows provided from (used in) financing activities      57,338    239    229,112    (17,397)
                        
Net increase (decrease) in cash and cash equivalents      197,639    22,088    135,069    (13,267)
Net foreign exchange difference      62    (305)   (385)   (375)
Cash and cash equivalents at the beginning of the period      5,249    13,642    68,266    49,067 
                        
Cash and cash equivalents at the end of the period  3   202,950    35,425    202,950    35,425 
                        
Transactions with no effect in cash flows:                       
Unrealized exchange difference related to monetary transactions      5,567    305    6,014    375 

 

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

 

F-8

 

 

Cementos Pacasmayo S.A.A. and Subsidiaries

 

Notes to interim condensed consolidated financial statements (unaudited)

As of June 30, 2020 and 2019, and December 31, 2019

 

1.Economic activity

 

(a)Economic activity -

 

Cementos Pacasmayo S.A.A. (hereinafter "the Company") was incorporated in 1957 and, in accordance with the General Law of Peruvian Companies, is an open stock corporation with publicly traded share in the stock exchange of Peru and New York. The Company is a subsidiary of Inversiones ASPI S.A., which holds 50.01 percent of the Company's common shares as of June 30, 2020, December 31, 2019 and June 30, 2019.

 

The address registered by the Company is Calle La Colonia No.150, Urbanización El Vivero, Santiago de Surco, Lima, Peru.

 

The main activity of the Company is the production and commercialization of cement, precast, concrete and quicklime in the northern region of Peru.

 

The interim condensed consolidated financial statements of the Company and its subsidiaries (hereinafter the "Group") as of June 30, 2020 and for the six-month period then ended, were approved for issuance by the Company’s Management on July 23, 2020. The consolidated financial statements as of December 31, 2019 were approved by the Annual General Shareholders’ Meeting on July 9, 2020.

 

(b)COVID 19 -

 

A new strain of coronavirus (COVID-19) that was first identified in Wuhan, China in December 2019, and subsequently declared a pandemic by the World Health Organization, has surfaced in nearly all regions around the world and resulted in travel restrictions and business slowdowns or shutdowns in affected areas. On March 15, 2020, the Peruvian government declared a nationwide state of emergency, effectively shutting down all business considered non-essential (with exception of food production and commercialization, pharmaceuticals and health). As a result, since that date, we shut-down our three plants until the Peruvian government allowed us to restart production and commercial activities on May 20, 2020.

 

The Government has decided to maintain the nationwide state of emergency until July 31 of this year, but has allowed the restart of economic activities in certain industries and has imposed additional restrictions on the regions of Ancash, Arequipa, Ica, Junín, Huánuco, Madre de Dios and San Martin which recorded the highest number of COVID-19 infections.

 

F-9

 

 

Notes to interim condensed consolidated financial statements (unaudited)

(continued)

 

During the halt period, we were unable to generate income, but we have fulfilled our obligations, thus our liquidity and capital resources were affected, however, to date, we have not yet seen any changes in our access and cost of funding. Accordingly, at the beginning of the nationwide emergency state we took a bank overdraft line and short-term loans as detailed in notes 9 and 10, respectively, as a precautionary measure in order to cover our working capital needs. To the date of this report and having already started commercial activities, production in our plants and all of our business segments, we will be able to meet the commitments of our outstanding debt. We do not expect COVID-19 to affect the value of our assets nor anticipate any material impairment or changes in accounting judgments.

 

We continue to monitor the rapidly evolving situation and guidance from international and domestic authorities since events outside our control might arise that require us to adjust our operating plan. The further spread of COVID-19, and the consequent Government measures to limit the spread of the illness, will impact our ability to carry out our regular business and may adversely affect our business, operating results and financial position.

 

2.Basis of preparation and changes to the Group’s accounting policies

 

2.1Basis of preparation -

 

The interim condensed consolidated financial statements of the Group have been prepared in accordance with IAS 34 Interim Financial Reporting as issued by the International Accounting Standards Board (IASB). The interim condensed consolidated financial statements have been prepared on a historical cost basis, except for financial instruments designated at fair value through other comprehensive income (OCI) and derivatives financial instruments that have been measured at fair value. The interim condensed consolidated financial statements are presented in soles and all values are rounded to the nearest thousand (S/000), except when otherwise indicated.

 

The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with Group’s annual consolidated financial statements as of December 31, 2019.

 

New standards, interpretations and amendments

 

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with the policies considered in the preparation of the consolidated financial statements of the Group at December 31, 2019. The standards and interpretations relevant to the Group, that are effective since January 1, 2020 are disclosed below.

 

-Amendments to IFRS 3: Definition of a Business

 

The amendment to IFRS 3 clarifies that to be considered a business, an integrated set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. Furthermore, it clarified that a business can exist without including all of the inputs and processes needed to create outputs. These amendments had no impact on the consolidated financial statements of the Group, but may impact future periods should the Group enter into any business combinations.

 

F-10

 

 

Notes to interim condensed consolidated financial statements (unaudited)

(continued)

 

-Amendments to IAS 1 and IAS 8: Definition of Material

 

The amendments provide a new definition of material that states “information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.”

 

The amendments clarify that materiality will depend on the nature or magnitude of information, either individually or in combination with other information, in the context of the financial statements. A misstatement of information is material if it could reasonably be expected to influence decisions made by the primary users. These amendments had no impact on the consolidated financial statements, nor is there expected to be any future impact to the Group.

 

-Conceptual Framework for Financial Reporting issued on March 29, 2018

 

The Conceptual Framework is not a standard, and none of the concepts contained therein override the concepts or requirements in any standard. The purpose of the Conceptual Framework is to assist the IASB in developing standards, to help preparers develop consistent accounting policies where there is no applicable standard in place and to assist all parties to understand and interpret the standards.

 

The revised Conceptual Framework includes some new concepts, provides updated definitions and recognition criteria for assets and liabilities and clarifies some important concepts. These amendments had no impact on the consolidated financial statements of the Group.

 

The Group has not adopted early any standard, interpretation or modification that has been issued but is not yet in force.

 

2.2Basis of consolidation -

 

The interim condensed consolidated financial statements comprise the financial statements of the Company and its subsidiaries as of June 30, 2020 and 2019.

 

As of June 30, 2020 and 2019, there was no changes in the participation of the common shares that the Company’s had on its subsidiaries; the main activities and information about subsidiaries are revealed on the consolidated financial statements as of December 31, 2019.

 

2.3Seasonality of operations -

 

Seasonality is not relevant to the Group's activities.

 

F-11

 

 

Notes to interim condensed consolidated financial statements (unaudited)

(continued)

 

3.Cash and cash equivalents

 

(a)This caption consists of the following:

 

   As of
June 30,
2020
   As of
December 31,
2019
 
   S/(000)   S/(000) 
         
Cash on hand  161   149 
Cash at banks (b)   22,769    16,617 
Term deposits with original maturities of 90 days or less (c)   180,020    51,500 
           
Cash balances included in statements of cash flows   202,950    68,266 
           
Term deposits with original maturities greater than 90 days (c)   81,000    - 
    283,950    68,266 

 

(b)Cash at banks is denominated in local and foreign currencies, is deposited in domestic and foreign banks and is freely available. The cash at banks interest yield is based on daily bank deposit rates.

 

(c)The short-term deposits held in domestic banks and are comprised of S/ 74,000,000 with an annual interest rates between 0.05 percent and 0.10 percent and US$ 30,000,000 with an annual interest rate of 1.05 percent and are unrestricted.

 

As of June 30, 2020, long-term deposits with original maturities greater than ninety days comprehend S/50,000,000 and S/ 31,000,000, with an annual interest rates of 2.80 and 3.00 percent, respectively, and original maturities of 360 days.

 

The funds used for the constitutions of these deposits proceed from banks loans obtained in March 2020, see note 10.

 

4.Trade and other receivables

 

As of June 30, 2020 and December 31, 2019 this caption mainly includes trade receivables, value-added tax credit (VAT), interest receivables and accounts receivables from related parties. At those dates, approximately 62 percent and 65 percent of the trade receivables were guaranteed by banks guarantees and mortgages amounting to S/45,237,000 and S/65,508,000, respectively.

 

F-12

 

 

Notes to interim condensed consolidated financial statements (unaudited)

(continued)

 

On the other hand, due to the national health emergency and halt of the Group’s commercial operations, see note 1(b). Group’s Management decided to grant its clients an extension over trade receivables maturities as long as the mandatory detained is in force. However according to the management assessment, the aging analysis of trade and other accounts receivables as of June 30, 2020 compared to December 31, 2019 has not changed significantly. Group’s Management will continue to closely evaluate the effects of health emergency on national economy, as well as actions taken by Peruvian Government in order to mitigate them and, in particular, the effects on its client portfolio and its credit behavior.

 

Accordingly, as of June 30, 2020, the Group recorded an S/2,176,000 allowance for expected credit losses on trade receivables, which is presented in the “Selling and distribution expenses” caption in the interim condensed consolidated statement of profit or loss, and corresponds to the best Management’s estimate considering current situation. The Group’s Management will continue to evaluate its client portfolio conditions and, if necessary, will recognize the corresponding allowance.

 

The movement of the allowance for expected credit losses on trade and other receivable for the six period ended as of June 30, 2020 and 2019 is as follows:

 

   2020   2019 
   S/(000)   S/(000) 
         
Opening balance  12,781   11,329 
Additions   2,176    498 
Recoveries   (4)   - 
           
Ending balance   14,953    11,827 

 

5.Inventories

 

As of June 30, 2020 and December 31, 2019 includes goods and finished products, work in progress, raw materials and other supplies to be used in the production process.

 

6.Property, plant and equipment, net

 

During the three- and six-month periods ended June 30, 2020, the Group's additions amounted to approximately S/4,391,00 and S/13,354,000, respectively (S/22,559,000 and S/30,370,000 during the three- and six-month periods ended the June 30, 2019, respectively).

 

Assets with a net value of approximately S/1,091,000 were written off for sale to third parties during the six-month period ended June 30, 2020, (S/325,000 for the six-month period ended June 30, 2019) , resulting in a net profit from the sale of assets amounting to S/1,632,000 (S/297,000 for the six-month period ended June 30, 2019).

 

As of June 30, 2020, the Group maintains accounts payable related to the acquisition of property, plant and equipment for S/3,826,000 (S/8,698,000 as of December 31, 2019). Likewise, the accounts receivable related to the sale of property, plant and equipment amount to S/2,676,000 as of June 30, 2020 (S/1,754,000 as of December 31, 2019).

 

7.Leases

 

The Group has lease contracts with third parties, mainly a 5-year lease contract of trucks. The annual incremental interest rate used for the initial recognition of the right of use asset and the lease liability ranges from 5.2 to 6.2 percent.

 

The Group also leases certain minor equipment for less than 12 months, the Group has decided to apply the recognition exemption for short term leases (less than 12 months) and for leases of low value assets. The expense for this type of lease amounted to S/725,000 for the six-month period ended June 30, 2020 and was recognized in the “Administrative expenses” caption of the interim condensed consolidated statement of profit or loss.

 

F-13

 

 

Notes to interim condensed consolidated financial statements (unaudited)

(continued)

 

The movement of the right of use assets recognized by the Group is shown below:

 

   Transportation units   Other   Total 
   S/(000)   S/(000)   S/(000) 
Cost -            
Balance as of January 1, 2020  -   109   109 
Additions   7,504    -    7,504 
Sales and/or retirement   -    (72)   (72)
                
Balance as of June 30, 2020   7,504    37    7,541 
                
Accumulated depreciation -               
Balance as of January 1, 2020   -    63    63 
Additions (c)   750    20    770 
Sales and/or retirement   -    (61)   (61)
                
Balance as of June 30, 2020   750    22    772 
                
Net book value               
As of December 31, 2019   -    46    46 
                
As of June 30, 2020   6,754    15    6,769 

 

The movement of the lease liabilities recognized by the Group is shown below:

 

   2020 
   S/(000) 
     
Balance as of January 1  57 
Additions   7,504 
Disposals   (19)
Financial interest expenses   200 
Lease payments   (531)
      
Balance as of June 30   7,211 
      
Maturity     
Current portion   1,479 
Non-current portion   5,732 
      
Balance as of June 30   7,211 

 

The future cash disbursements in relation to lease liabilities have been disclosed in note 10.

 

8.Trade and other payables

 

As of June 30, 2020 and December 31, 2019, this caption includes trade payables, account payables to related parties, interest payable, dividends payable among other minor payables.

 

As of June 30, 2020 dividends payable amounted to S/6,856,000 (S/52,523,000 as of December 31, 2019).

 

F-14

 

 

Notes to interim condensed consolidated financial statements (unaudited)

(continued)

 

9.Bank overdraft

 

As of June 30, 2020 the Company maintains a bank overdraft in Banco de Crédito del Perú for S/70,691,000 with maturity of 180 days and an annual interest rate of 4.75 percent.

 

10.Interest-bearing loans and borrowings

 

On January 31, 2019, senior notes were issued for: i) S/260,000,000 at a rate of 6.688 percent per year and maturity of 10 years and; ii) S/310,000,000 at a rate of 6.844 percent per year and maturity of 15 years. As of June 30, 2020 and as of December 31, 2019 the senior notes denominated in US dollars amounts to US$131,612,000 with an annual rate of 4.5 per cent and maturity in 2023.

 

For the six-month period ended June 30, 2020 and 2019, the senior notes generated interests that have been recognized in the interim condensed consolidated financial statement of profit or loss for S/30,314,000 and S/26,311,000, respectively.

 

In March 2020, the Company received loans from Banco de Crédito del Perú amounting to S/75,000,000 and US$30,000,000 (equivalent to S/106,350,000) destined for working capital, which has a maturity of 360 days and accrues an annual effective interest rate of 4.95 and 2.99 percent, respectively. Also, in March 2020, the Company received a loan from Banco Scotiabank Perú amounting to S/31,000,000 destined for working capital, which has a maturity of 360 days and accrues an annual effective interest rate of 4.16 percent.

 

Financial covenants –

 

Contracts for senior notes issued in US dollars and soles have the following covenants to limit indebtedness in the Company and its guarantor subsidiaries, which are measured before the following transactions; issue debt or equity instruments or merges with another company or dispose or rent significant assets. The covenants are the following:

 

-The fixed charge covenant ratio would be at least 2.5 to 1.

 

-The consolidated debt-to-EBITDA ratio would be no greater than 3.5 to 1.

 

F-15

 

 

Notes to interim condensed consolidated financial statements (unaudited)

(continued)

  

The table below summarizes the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments:

 

   Less than 3
months
   3 to 12
months
   1 to 5
years
   More than 5
years
   Total 
   S/(000)   S/(000)   S/(000)   S/(000)   S/(000) 
As of June 30, 2020                    
Bank overdraft   -    70,691    -    -    70,691 
Financial liabilities   130,777    185,974    413,993    570,000    1,300,744 
Interests   30,475    34,998    196,356    212,755    474,584 
Trade and other payables   80,678    74,650    -    -    155,328 
Hedge finance cost payable   -    15,696    31,392    -    47,088 
Lease liabilities   489    1,423    6,429    -    8,341 
                          
As of December 31, 2019                         
Interest-bearing loans adjusted by hedge   -    98,774    400,671    570,000    1,069,445 
Interests   29,124    31,265    203,525    232,057    495,971 
Trade and other payables   174,888    50,364    -    -    225,252 
Hedge finance cost payable   -    14,703    36,757    -    51,460 
Lease liabilities   15    45    -    -    60 

 

11.Provisions

 

As of Junio 30, 2020 and December 31, 2019, this caption includes workers’ profit sharing, long-term incentive plan and rehabilitation provision. The decrease in this liability is mainly explained by the payment of the workers’ profit sharing and the long-term incentive plan.

 

12.Income tax

 

The Group calculates income tax expense of the period using the tax rate that would be applicable to the expected total annual earnings.

 

The major components of the income tax expense in the interim condensed consolidated statement of profit or loss and statement of other comprehensive income are:

 

   For the three-month
period ended June 30,
   For the six-month
period ended June 30,
 
   2020   2019   2020   2019 
   S/(000)   S/(000)   S/(000)   S/(000) 
                 
Current income tax   1,400    (5,384)   (1,913)   (10,516)
Deferred income tax   16,610    (6,220)   13,771    (13,566)
Benefit (Expense) tax recognized in the consolidated statements of profit or loss   18,010    (11,604)   11,858    (24,082)
(Expenses) benefit tax recognized in other comprehensive income   888    (1,139)   (523)   1,139 
                     
Total benefit (expense) tax   18,898    (12,743)   11,335    (22,943)

 

F-16

 

 

Notes to interim condensed consolidated financial statements (unaudited)

(continued)

 

Following is the movement of deferred income tax asset and liability for of the Group:

 

   For the three-month
period ended June 30,
   For the six-month
period ended June 30,
 
   2020   2019   2020   2019 
   S/(000)   S/(000)   S/(000)   S/(000) 
                 
Increase of deferred income tax asset (*)   5,516    639    7,613    1,921 
Increase of deferred income tax liability (**)   11,982    (7,998)   5,635    (14,348)
                     
Total variation of benefit (expense) deferred income tax   17,498    (7,359)   13,248    (12,427)
Deferred income tax benefit (expense) recognized in interim condensed consolidated statements of profit or loss   16,610    (6,220)   13,771    (13,566)
Deferred income tax (expense) benefit recognized in other comprehensive income   888    (1,139)   (523)   1,139 
                     
Total variation of benefit (expense) deferred income tax   17,498    (7,359)   13,248    (12,427)

 

(*)Corresponds to the increase of tax-loss carry forward in Cementos Pacasmayo S.A.A and in the subsidiaries Distribuidora Norte Pacasmayo S.R.L. and Dinoselva Iquitos S.A.C., in the Management’s opinion these tax losses will be recovered.

 

(**)Corresponds to base differences.

 

Following is the composition of deferred tax related to items recognized in the interim condensed statement of other comprehensive income:

 

   For the three-month
period ended June 30,
   For the six-month
period ended June 30,
 
   2020   2019   2020   2019 
   S/(000)   S/(000)   S/(000)   S/(000) 
                 
Unrealized (loss) gain on financial instruments designated at fair value through other comprehensive income   -    -    -    2,449 
Unrealized loss on derivative financial instruments   888    (1,139)   (523)   (1,310)
                     
Total deferred income tax in OCI   888    (1,139)   (523)   1,139 

  

F-17

 

 

Notes to interim condensed consolidated financial statements (unaudited)

(continued)

 

13.Revenue from contracts with customers

 

This caption is made up as follows:

 

   Cement, concrete and precast   Quicklime   Construction Supplies   Other   Total 
   S/(000)   S/(000)   S/(000)   S/(000)   S/(000) 
                     

For the three-month period ended June 30, 2020

                    
Revenue from external customers   102,285    6,300    5,736    24    114,345 

For the six-month period ended June 30, 2020

                         
Revenue from external customers   379,715    13,246    20,391    251    413,603 
                          

For the three-month period ended June 30, 2019

                         
Revenue from external customers   296,436    10,239    15,279    107    322,061 

For the six-month period ended June 30, 2019

                         
Revenue from external customers   586,190    17,585    31,411    122    635,308 

 

14.Related party transactions

 

During the six-months periods ended June 30, 2020 and 2019, the Group carried out the following main transactions with Inversiones ASPI S.A. and its related parties:

 

  

For the three-month

period ended June 30,

   For the six-month period
ended June 30,
 
   2020   2019   2020   2019 
   S/(000)   S/(000)   S/(000)   S/(000) 
                 
Income                
Inversiones ASPI S.A.                
Fees from office lease   3    3    6    6 
Fees for management and administrative services   136    136    272    272 
                     
Compañía Minera Ares S.A.C. (Ares)                    
Fees from land rental services   333    86    660    172 
Fees from leasing of parking   83    81    165    161 
                     
Fosfatos del Pacífico S.A. (Fospac)                    
Fees from office lease   7    7    14    14 
Fees for management and administrative services   290    290    580    580 
                     
Fossal S.A.A.  (Fossal)                    
Fees from office lease   4    4    8    8 
Fees for management and administrative services   10    10    20    20 
                     
Expense                    
Security services provided by Compañía Minera Ares S.A.C.   475    425    950    972 

 

F-18

 

 

Notes to interim condensed consolidated financial statements (unaudited)

(continued)

 

As a result of these and other transactions, the Group had the following rights and obligations with Inversiones ASPI S.A. and its related parties as of June 30, 2020 and December 31, 2019:

 

   June 30, 2020   December 31, 2019 
   Accounts
receivable
   Accounts
payable
   Accounts
 receivable
   Accounts
payable
 
   S/(000)   S/(000)   S/(000)   S/(000) 
                 
Fosfatos del Pacífico S.A.   1,142    103    543    - 
Compañía Minera Ares S.A.C.   1,255    1,163    207    1,772 
Inversiones ASPI S.A.   96    -    157    - 
Other   33    -    264    - 
                     
    2,526    1,266    1,171    1,772 

 

Outstanding balances are unsecured and interest free. There have been no guarantees provided or received from any related party. For the periods ended June 30, 2020 and December 31, 2019, the Group has not recorded any allowance for expected credit losses on receivables from related parties.

 

Compensation of key management personnel of the Group -

 

The compensation paid to key management personnel includes expenses for profit-sharing, compensation and other concepts for members of the Board of Directors and the key management. The total short term compensations expense amounted to S/5,179,000 and S/12,491,000 during the three and six-month periods ended June 30, 2020, respectively (S/5,192,000 y S/10,646,000 during the three and six-month periods ended June 30, 2019) , and the total long term compensations expense amounted to a S/1,440,000 and S/2,879,000 during the three and six-month periods ended June 30, 2020, respectively (S/2,502,000 y S/4,876,000 during the three and six-month periods ended June 30, 2019). The Group does not compensate Management with post-employment or contract termination benefits or share-based payments.

 

15.Earnings per share (EPS)

 

Basic earnings per share amounts are calculated by dividing net profit for the six-month period ended June 30, 2020 and 2019 attributable to common and investment shares of the parent by the weighted average number of common and investment shares outstanding during those periods.

 

The Group has no dilutive potential common shares as of Junio 30, 2020 and 2019.

 

Calculation of the weighted average number of shares and the basic earnings per share is presented below:

 

  

For the three-month

period ended June 30,

  

For the six-month

period ended June 30

 
   2020   2019   2020   2019 
   S/(000)   S/(000)   S/(000)   S/(000) 
                     
Numerator                    
Net (loss) profit attributable to ordinary equity holders of the Parent   (45,549)   32,186    (34,825)   62,331 

 

F-19

 

 

Notes to interim condensed consolidated financial statements (unaudited)

(continued)

 

   For the three-month period
ended June 30,
   For the six-month period
ended June 30,
 
   2020   2019   2020   2019 
                 
Denominator                    
Weighted average number of common and investment shares (thousands)   428,107    428,107    428,107    428,107 
Basic (loss) profit for common and investment shares   (0.11)   0.08    (0.08)   0.15 

 

There have been no other transactions involving common and investment shares between the reporting date and the date of completion of these interim condensed consolidated financial statements.

 

16.Financial assets and liabilities

 

(a)Financial asset –

 

Derivatives assets of hedging -

 

Foreign currency risk -

 

As of June 30,2020 and as of December 31, 2019, the Group maintains Cross currency swap contracts for a nominal amount of US$150,000,000, of which US$131,612,000 have been designated as hedging instruments for Senior notes that are denominated in U.S. dollars, with the intention of reducing the foreign exchange risk.

 

The cash flow hedge of the expected future payments was assessed to be highly effective and an unrealized gain of S/1,773,000 for the six-month period ended June 30, 2020 (unrealized gain of S/4,440,000 for the six-month period ended June 30, 2019) is included in the interim condensed consolidated statement of other comprehensive income. The amounts retained in other comprehensive income as of June 30, 2020 are expected to mature and affect the consolidated statement of profit or loss in 2023, settlement year of cross currency contracts.

 

Derivate assets from trading -

Cross currency swaps that do not have an underlying relationship amounts to US$18,388,000 and have been designated as trading. The net gain recognized in profit or loss for the change on their fair value amounts to S/4,391,000 for the six-month period ended June 30, 2020 (net loss of S/1,025,000 for the six-month period ended June 30, 2019).

  

(b)Fair values and fair value accounting hierarchy –

 

Set out below is a comparison of the carrying amounts and fair values of financial instruments of the Group, as well as the fair value accounting hierarchy:

 

   Carrying amount   Fair value   Fair value hierarchy
   2020   2019   2020   2019   2020/2019
   S/(000)   S/(000)   S/(000)   S/(000)    
                    
Financial assets                   
Cash and cash equivalents   202,950    68,266    202,950    68,266   Level 1
Term deposits with original maturities greater than ninety days   81,000    -    81,000    -   Level 1
Trade and other receivables   91,445    125,211    91,445    125,211   Level 1
Derivative financial assets -"cross currency swaps"   34,530    -    34,530    -   Level 2
Financial instruments at fair value through other comprehensive income   18,224    18,224    18,224    18,224    Level 3
Total financial assets   428,149    211,701    428,149    211,701    
                        
Financial liabilities                       
Trade and other payables   165,105    237,299    165,105    237,299   Level 1
Derivatives financial liabilities – Cross currency swaps   -    1,302    -    1,302   Level 2
Senior notes   1,033,020    1,003,130    1,073,226    1,048,484   Level 1
Promissory notes   387,442    98,774    389,189    99,333   Level 2
                        
Total financial liabilities   1,585,567    1,340,505    1,627,520    1,386,418    

 

F-20

 

 

Notes to interim condensed consolidated financial statements (unaudited)

(continued)

 

All financial instruments for which fair value is recognized or disclosed are categorized within the fair value hierarchy, based on the lowest level input that is significant to the fair value measurement as a whole, as follows:

 

Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities.

 

Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.

 

Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

 

For assets and liabilities that are recognized at fair value on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy. As of June 30, 2020 and December 31, 2019, there were no transfers between the fair value hierarchies.

 

Management assessed that cash and term deposits, trade and other receivables and other current liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.

  

The following methods and assumptions were used to estimate the fair values:

 

-The fair value of cross currency swaps is measured by using valuation techniques where inputs are based on market data. The most frequently applied valuation techniques include swap valuation models, using present value calculations. The models incorporate various inputs, including the credit quality of counterparties, foreign exchange, forward rates and interest rate curves.

 

A credit valuation adjustment (CVA) is applied to the “over-the counter” derivative exposures to take into account the counterparty’s risk of default when measuring the fair value of the derivative. CVA is the mark-to market cost of protection required to hedge credit risk from counterparties in this type of derivatives portfolio. CVA is calculated by multiplying the probability of default (PD), the loss given default (LGD) and the expected exposure (EE) at the time of default.

 

A debit valuation adjustment (DVA) is applied to incorporate the Group’s own credit risk in the fair value of derivatives (that is the risk that the Group might default on its contractual obligations), using the same methodology as for CVA.

 

-The fair value of the quoted senior notes is based on the current quotations value at the reporting date.

 

-The fair value of the promissory note is calculated using the results of cash flow discounted at the indebtedness market rates effective as of the date of estimation.

 

-The fair value of financial instruments designated at fair value through other comprehensive income has been determined using the income approach and discounted cash flow method. The quantitative information about the significant unobservable inputs used in level 3 fair value measurements as of June 30, 2020 and as of December 31, 2019 are described as follows:

 

  Significant unobservable inputs   Weighted average   Fair value sensitivity
           
  Earning growth factor   4%   5% (2019 and 2020) increase or decrease in the factor would result in an increase (decrease) in fair value of S/11,012,000 and (S/11,381,000), respectively.
  WACC   8.9%   10% (2019 and 2020) increase or decrease in the discount rate would result in an increase (decrease) in fair value at (S/11,222,000) and S/15,352,000, respectively.

 

F-21

 

 

Notes to interim condensed consolidated financial statements (unaudited)

(continued)

 

17.Commitments and contingencies

 

Operating lease commitments – Group as lessor

 

As of June 30, 2020, the Group, as lessor, has a land lease with Compañía Minera Ares S.A.C., a related party of Inversiones ASPI S.A. This lease is annually renewable, and provided a rent for the six-month period ended June 30, 2020 and 2019 for S/659,000 and S/172,000, respectively.

   

Finance lease commitments - Group as lessee

 

As of June 30, 2020, the Group has lease contracts with third parties, the main contract corresponds to trucks lease with a maturity of 5 years, accounting records generated by these transactions are disclosed in note 7.

 

Capital commitments

 

As of June 30, 2020, the Group had no significant capital commitments.

 

Other commitments

 

On August 29, 2018, the Company signed a gas supply contract with Olympic Peru that entered in force during 2019 by which we started to use gas in our Piura plant. The supply contract is for 18 years and covers most of our energy needs in the Piura plant. The contract has two phases: 1) “the spot phase”, in which the Company pays for the gas it uses; and the contract can be terminated at any time by either party without penalties and 2) “take or pay phase”, in which the Company is obliged to pay for a minimum amount of gas established as a percentage of maximum gas requested to Olympic Peru (this percentage varies from 60 to 70 percent depending on the year), this phase has penalties by either party if any cancel the contract.  The unit prices of the gas are fixed for each year despite it is in the “spot” or the “take or pay” phase. The Company is currently in the spot phase, the contract enters in “take or pay” phase when the following conditions are met by Olympic Peru: 1) The Peruvian Government signs a gas distribution contract with a concessionaire (third party) in the Piura region, 2) Olympic Peru transfers the pipe to said concessionaire, and 3) commercial conditions to transport the gas between Olympic Peru and the distribution concessionaire are agreed. The three mentioned conditions are not under our control and we cannot reasonable estimate when they will be set.

 

Environmental matters

 

The Group exploration and exploitation activities are subject to environmental protection standards. Such standards are the same as those disclosed on the consolidated financial statement as of December 31, 2019.

 

Tax situation

 

The Company is subject to Peruvian tax law. As of June 30, 2020 and 2019, the income tax rate is 29.5 percent of the taxable profit after deducting employee participation, which is calculated at a rate of 8 to 10 percent of the taxable income.

 

It should be noted that of January 1, 2019, a series of tax benefits for Loreto region is eliminated, eliminating the tax refund of the Value added tax (it was the only region that maintained this benefit) and the exemption of the Value added tax for the importation of goods that are destined for consumption in the Amazon. Likewise, as of January 1, 2020 the exemption of the Value added tax for the import of goods that are destined for consumption in the Amazon for the rest of the region (Ucayali, San Martín, Amazonas and Madre de Dios) was eliminated.

 

For purposes of determining income tax, transfer pricing transactions with related companies and companies resident in territories with low or no taxation, must be supported with documentation and information on the valuation methods used and the criteria considered for determination. Based on the analysis of operations of the Group, Management and its legal advisors believe that as a result of the application of these standards will not result in significant contingencies for the Group as of June 30, 2020 and December 31, 2019.

 

During the four years following the year tax returns are filed, the tax authorities have the power to review and, as applicable, correct the income tax computed by each individual company.

 

F-22

 

 

Notes to interim condensed consolidated financial statements (unaudited)

(continued)

 

The income tax and value-added tax returns for the following years are open for review by the tax authorities.

 

   Years open to review by Tax Authorities
Entity  Income tax  Value-added tax
       
Cementos Pacasmayo S.A.A.  2015-2019  Dec.15-2019
Cementos Selva S.A.  2015-2019  Dec.15-2019
Distribuidora Norte Pacasmayo S.R.L.  2015-2019  Dec.15-2019
Empresa de Transmisión Guadalupe S.A.C.  2015-2019  Dec.15-2019
Salmueras Sudamericanas S.A.  2015-2019  Dec.15-2019
Calizas del Norte S.A.C. (on liquidation)  2015-2019  Dec.15-2019
Soluciones Takay S.A.C.  2019  May-Dec.2019

 

Due to possible interpretations that the tax authorities may give to legislation in effect, it is not possible to determine whether any of the tax audits that may be performed will result in increased liabilities for the Group. For that reason, tax or surcharge that could arise from future tax audits would be applied to the income during the period in which it is determined. However, in management’s opinion, any possible additional payment of taxes would not have a material effect on the interim condensed consolidated financial statements as of June 30, 2020 and the consolidated financial statements as of December 31, 2019.

  

Legal claim contingency

 

As of June 30, 2020, some third parties have commenced actions against the Group in relation with its operations which claims in aggregate represent S/12,940,000. From this total amount, S/2,961,000 corresponded to labor claims from former employees; S/7,681,000 linked to resolutions of determination and fine on the property tax of the periods 2009 to 2014 issued by the District Municipality of Pacasmayo and S/2,298,000 related to the tax assessments received from the tax administration corresponding to 2009 tax period, which was reviewed by the tax authority during 2012.

 

Management expects that these claims will be resolved within the next five years based on prior experience; however, the Group cannot assure that these claims will be resolved within this period because the authorities do not have a maximum term to resolve cases.

 

The Group has been advised by its legal counsel that it is only possible, but not probable, that these actions will succeed. Accordingly, no provision for any liability has been made in these interim condensed consolidated financial statements.

 

Mining royalty

 

The Group signed agreements with third parties and with Peruvian Government related to the use of concessions for extraction activities on process of cement production. The information of the payment of royalties are reveled on the consolidated financial statements of the Group as of December 31, 2019.

 

F-23

 

 

Notes to interim condensed consolidated financial statements (unaudited)

(continued)

 

18.Segment information

 

For management purposes, the Group is organized into business units based on their products and activities, and have three reportable segments as follows:

 

-Production and marketing of cement, concrete and precast in the northern region of Peru.

 

-Sale of construction supplies in the northern region of Peru.

 

-Production and marketing of quicklime in the northern region of Peru.

 

No operating segments have been aggregated to form the above reportable operating segments.

 

Management monitors the profit before income tax of each business units separately for the purpose of making decisions about resource allocation and performance assessment.

 

Transfer prices between operating segments are on an arm’s length basis in a similar manner to transactions with third parties.

 

   Revenues from external customers   Gross margin   Profit (loss) before income tax   Income
tax
   Profit (loss) for the period 
   2020   2019   2020   2019   2020   2019   2020   2019   2020   2019 
   S/(000)   S/(000)   S/(000)   S/(000)   S/(000)   S/(000)   S/(000)   S/(000)   S/(000)   S/(000) 
                                         
For the three-month period ended June 30,                                        
Cement, concrete and precast   102,285    296,436    1,877    112,061    (61,445)   44,463    17,642    (11,757)   (43,803)   32,706 
Construction supplies   5,736    15,279    (409)   1,031    (1,663)   (24)   402    (7)   (1,261)   (31)
Quicklime   6,300    10,239    879    910    423    386    (136)   (114)   287    272 
Other   24    107    (205)   41    (874)   (1,035)   102    274    (772)   (761)
                                                   
Total   114,345    322,061    2,142    114,043    (63,559)   43,790    18,010    (11,604)   (45,549)   32,186 
                                                   
For the six-month period ended June 30,                                                  
Cement, concrete and precast   379,715    586,190    92,616    223,999    (43,035)   89,523    10,931    (24,949)   (32,104)   64,574 
Construction supplies   20,391    31,411    578    1,097    (1,842)   (983)   468    274    (1,374)   (709)
Quicklime   13,246    17,585    1,178    971    171    (67)   (44)   19    127    (48)
Other   251    122    (219)   43    (1,977)   (2,060)   503    574    (1,474)   (1,486)
                                                   
Total   413,603    635,308    94,153    226,110    (46,683)   86,413    11,858    (24,082)   (34,825)   62,331 

 

F-24

 

 

Notes to interim condensed consolidated financial statements (unaudited)

(continued)

 

   Segment
assets
   Other
Assets (**)
   Total
asset
   Total liabilities
by segment
 
   S/(000)   S/(000)   S/(000)   S/(000) 
                 
As of June 30, 2020                
Cement, concrete and precast   2,888,604    30,297    2,918,901    1,651,375 
Construction supplies   48,783    -    48,783    91,644 
Quicklime   88,544    -    88,544    - 
Other (*)   52,983    22,457    75,440    573 
                     
Total   3,078,914    52,754    3,131,668    1,743,592 
                     
As of December 31, 2019                    
Cement, concrete and precast   2,714,888    -    2,714,888    1,409,596 
Construction supplies   51,376    -    51,376    99,934 
Quicklime   93,812    -    93,812    - 
Other (*)   53,258    18,224    71,482    377 
                     
Total   2,913,334    18,224    2,931,558    1,509,907 

 

(*)The “other” segment includes activities that do not meet the threshold for disclosure under IFRS 8.13 and represent non-material operations of the Group.

 

(**)As of June 30, 2020 corresponds to the financial instruments designated at fair value through OCI and to the fair value of derivative financial instruments (cross currency swap) for approximately S/18,224,000 and S/34,530,000, respectively. As of December 31, 2019 corresponds to the financial instruments designated at fair value through OCI for approximately S/18,224,000. The fair value of hedge derivative financial instruments is allocated to the segment of cement, and the financial instruments designated at fair value through OCI and the fair value of the trading derivative financial instrument are presented as “Other”.

 

Geographic information

 

As of June 30, 2020 and December 31, 2019, all non-current assets are located in Peru and all revenues are from Peruvian clients.

 

19.Financial risk management, objectives and policies

 

The Group´s main financial assets include cash and short-term deposits (with maturity less than 360 days) and trade and other receivables that derive directly from its operations. The Group also holds financial instruments designated at fair value through OCI, cash flow hedges instruments and derivative financial instruments of trading. The Group’s main financial liabilities comprise trade payables and other payables, loans and borrowings, with short-term and long-term maturities. The main purpose of these financial liabilities is to finance the Group’s operations.

 

F-25

 

 

Notes to interim condensed consolidated financial statements (unaudited)

(continued)

 

The Group is exposed to market risk, credit risk and liquidity risk. The Group’s senior management oversees the management of these risks. The Group’s senior management is supported by financial management that advises on financial risks and the appropriate financial risk governance framework for the Group. The financial management provides assurance to the Group’s senior management that the Group’s financial risk-taking activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with the Group’s policies and risk objectives.

 

The Management reviews and agrees policies for managing each of these risks as mentioned in the consolidated financial statements as of December 31, 2019. Due to the current situation explained in detail in note 1(b), we have carried out the update of relevant financial risks, which are shown below.

 

Foreign currency risk -

 

Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group’s exposure to the risk of changes in foreign exchange relates primarily to the Group’s operating activities (when revenue or expense is denominated in a different currency from the Group’s functional currency).

 

The Group hedges its exposure to fluctuations on the translation into soles of its Senior Notes which are denominated in US dollars, by using cross currency swaps contracts, see note 16.

 

Foreign currency sensitivity

The following table demonstrates the sensitivity to a reasonably possible change in the US dollar exchange rate, with all other variables held constant. The impact on the Group’s profit before income tax is due to changes in the fair value of monetary assets and liabilities.

 

As of June 30, 2020  Change in
US$ rate
   Effect on
consolidated profit
before tax
 
U.S. Dollar  %   S/(000) 
        
   +5    (1,730)
    +10    (3,459)
    -5    1,730 
    -10    3,459 

 

As of June 30, 2019  Change in
US$ rate
   Effect on
consolidated profit
before tax
 
U.S. Dollar  %   S/(000) 
         
   +5    272 
    +10    546 
    -5    (272)
    -10    (546)

 

F-26

 

 

Notes to interim condensed consolidated financial statements (unaudited)

(continued)

 

Liquidity risk -

 

The Group monitors its risk of shortage of funds using a recurring liquidity planning tool.

 

The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank loans and debentures of long term. Access to fund sources is sufficiently available and debt maturing within 12 months can be rolled over under the same conditions with existing lenders, if necessary. The detail of the credit line and financial liabilities is shown in notes 9 and 10, respectively.

 

In Management opinion the Group has sufficient financial strength to face short-term obligations in the event of an extension of the nationwide state of emergency, considering that it maintains S/202,950,000 in cash and banks, S/81,000,000 in time deposits with maturities greater than 90 days that are freely available and a bank overdraft with a credit line amounting to S/71,000,000. Likewise, it is relevant to indicate as of June 30, 2020 and December 31, 2019 no portion of Senior Notes will mature in less than one year.

 

Risk management activities –

 

As a result of its activities, the Group is exposed to the foreign currency exchange rate risk, thereof the Company has acquired hedging financial instruments to cover this risk. Since November 2014, the Group has hedged its exposure to foreign currency from its corporate bonds (denominated in US dollars). During the six--month period ended June 30, 2020, there was moderate volatility in the US dollar exchange rate with respect to the soles, whose effects were partially mitigated by the exchange rate hedge maintained by the Company.

 

As of June 30, 2019 and December 31, 2019, except for the derivatives financial instruments (cross currency swaps) signed by the Company to hedge the foreign currency risk of its Senior Notes, the Group had no other financial instruments to hedge its foreign exchange risk, interest rates or market price (purchase price of coal) fluctuations.

 

20.Subsequent event

 

On July 8, 2020, the Company refinanced 3 loans in soles for a total of S/159,689,000, which are included in notes 9 and 10, with maturities between July 2020 and March 2021 with interest rates between 4.64 and 4.95 percent annually, for a loan amounting to S/159,000,000 maturing in December 2021 with an annual interest rate of 2.92 percent. Likewise, on that date it also refinanced loans in US dollars for a total of US$36,551,000, also included in notes 9 and 10, with maturities between August and October 2020 with interest rates between 2.99 to 3.23 percent per year, for a loan amounting to US$36,000,000, maturating in June 2021 with an interest rate of 2.5 percent per year.

 

 

F-27