a50459652.htm

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

Cementos Pacasmayo S.A.A. and Subsidiaries

Interim consolidated statements of comprehensive income

For the three and nine-month periods ended September 30, 2012 and 2011 (both unaudited)

	Note	For the three-month periods ended September 30,						For the nine-month periods ended September 30,
		2012			2011			2012			2011
			S/.(000)			S/.(000)			S/.(000)			S/.(000)

Net income (loss)			46,879			(35,728	)		116,660			39,358

Other comprehensive income
Change in fair value of available-for-sale financial assets			2,585			516			9,799			(8,201	)
Deferred income tax related to component of other comprehensive income	8		(780	)		(155	)		(2,940	)		2,460
Exchange differences on translation of foreign operation			(162	)		(50	)		(180	)		(98	)
Other comprehensive income (loss) for the three and nine-month periods, net of income tax			1,643			311			6,679			(5,839	)

Total comprehensive income (loss) for the three and nine-month periods, net of income tax			48,522			(35,417	)		123,339			33,519
Total comprehensive income attributable to:
Owners of the parent			49,457			(35,348	)		125,847			33,620
Non-controlling interests			(935	)		(69	)		(2,508	)		(101	)

			48,522			(35,417	)		123,339			33,519

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

Cementos Pacasmayo S.A.A. and Subsidiaries

Interim consolidated statements of changes in equity

For the nine months ended September 30, 2012 and 2011 (both unaudited)

	Attributable to owners of the parent
	___________________________________________________________________________________________________________________________
	Capital stock		Investment shares		Additional paid-in capital		Legal reserve		Available-for-sale reserve			Foreign currency translation reserve			Retained earnings			Total			Non-controlling interests			Total equity
		S/.(000)		S/.(000)		S/.(000)		S/.(000)		S/.(000)			S/.(000)			S/.(000)			S/.(000)			S/.(000)			S/.(000)


Balance as of January 1, 2011		418,777		49,575		-		74,145		15,374			(983	)		435,668			992,556			739			993,295
Net income (loss)		-		-				-		-			-			39,442			39,442			(84	)		39,358
Other comprehensive income		-		-				-		(5,741	)		(81	)		-			(5,822	)		(17	)		(5,839	)
Total comprehensive income		-		-		-		-		(5,741	)		(81	)		39,442			33,620			(101	)		33,519

Dividends, note 6		-		-		-		-		-			-			(56,000	)		(56,000	)		-			(56,000	)
Appropriation of legal reserve		-		-		-		3,275		-			-			(3,275	)		-			-			-
Incorporation of non-controlling interest, note 1		-		-		-		-		-			-			-			-			4,779			4,779

Balance as of September 30, 2011		418,777		49,575		-		77,420		9,633			(1,064	)		415,835			970,176			5,417			975,593


Balance as of January 1, 2012		418,777		49,575		-		90,451		9,257			(1,228	)		473,721			1,040,553			33,032			1,073,585
Net income (loss)		-		-		-		-		-			-			119,144			119,144			(2,484	)		116,660
Other comprehensive income		-		-		-		-		6,859			(156	)		-			6,703			(24	)		6,679
Total comprehensive income		-		-		-		-		6,859			(156	)		119,144			125,847			(2,508	)		123,339

Issue of common and investment shares, note 1		111,484		928		561,191		-		-			-			-			673,603			-			673,603
Appropriation of legal reserve		-		-		-		10,630		-			-			(10,630	)		-			-			-
Contribution of non-controlling interests, note 1		-		-		-		-		-			-			-			-			28,557			28,557
Other adjustments of non-controlling interests		-		-		-		-		-			-			(2,713	)		(2,713	)		2,713			-

Balance as of September 30, 2012		530,261		50,503		561,191		101,081		16,116			(1,384	)		579,522			1,837,290			61,794			1,899,084

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

Cementos Pacasmayo S.A.A. and Subsidiaries

Interim consolidated statements of cash flows

For the three and nine-month periods ended September 30, 2012 and 2011 (both unaudited)

	For the three-month periods ended September 30,						For the nine-month periods ended September 30,
	2012			2011			2012			2011
		S/.(000)			S/.(000)			S/.(000)			S/.(000)

Operating activities
Profit (loss) before income tax		68,172			(48,800	)		165,993			58,159
Non-cash adjustment to reconcile profit before income tax to net cash flows
Depreciation and amortization		13,315			12,268			37,337			34,294
Long-term incentive plan		403			-			3,403			-
Finance costs		400			4,594			18,935			13,116
Finance income		(5,730	)		(117	)		(17,945	)		(1,963	)
Net loss on sale of assets		1,054			-			1,054			-
Other operating income		273			(27	)		1,137			(4	)
Impairment of zinc mining assets, note 5		-			96,100			-			96,100
Recovery of obsolescence of inventories, net		-			(344	)		-			(344	)
Working capital adjustments
Decrease (increase) in trade and other receivables		17,476			3,275			19,389			(16,303	)
Increase in prepayments		(2,552	)		(1,444	)		(10,881	)		(4,040	)
Increase in inventories		(11,774	)		(10,952	)		(22,882	)		(26,039	)
(Decrease) increase in trade and other payables		4,284			41,584			(19,882	)		13,949
		85,321			96,137			175,658			166,925

Interests received		1,547			(299	)		6,233			1,871
Interests paid		(402	)		(2,401	)		(18,496	)		(11,860	)
Income tax paid		(23,286	)		(28,465	)		(76,393	)		(59,956	)

Net cash flows provided by operating activities		63,180			64,972			87,002			96,980

Interim consolidated statements of cash flows (continued)

	For the three-month periods ended September 30,						For the nine-month periods ended September 30,
	2012			2011			2012			2011
		S/.(000)			S/.(000)			S/.(000)			S/.(000)

Investing activities
Purchase of property, plant and equipment		(50,519	)		(79,096	)		(140,924	)		(183,692	)
Capital contribution from non-controlling interests		10,248			4,779			28,557			4,779
Increase in time deposits with original maturities greater than 90 days		-			-			(403,950	)		-
Acquisition of evaluation and exploration assets		(4,172	)		3,130			(13,021	)		(922	)
Proceeds from sale of property, plant and equipment		609			5			609			1,348
Net cash flows used in investing activities		(43,834	)		(71,182	)		(528,729	)		(178,487	)

Financing activities
Payment of borrowings		-			(97,574	)		(388,394	)		(138,210	)
Proceeds from issuance of common and investment shares		3,474			-			666,180
Dividends paid		(76	)		(96	)		(364	)		(56,000	)
Proceeds from borrowings		-			120,364			-			162,364
Net cash flows provided by (used in) financing activities		3,398			22,694			277,422			(31,846	)

Net (decrease) increase in cash and cash equivalents		22,744			16,484			(164,305	)		(113,353	)
Net foreign exchange difference		(367	)		(11	)		(1,202	)		(134	)
Cash and cash equivalents at the beginning of the period		175,395			24,533			363,279			154,493

Cash and cash equivalents at the period end, note 3		197,772			41,006			197,772			41,006

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

Cementos Pacasmayo S.A.A. and Subsidiaries

Notes to interim condensed consolidated financial statements

As of September 30, 2012, September 30, 2011 (both unaudited) and December 31, 2011 (audited)

1.	Economic activity

Cementos Pacasmayo S.A.A. (hereinafter "the Company") was incorporated in 1957 and, under the Peruvian General Corporation Law, is an open stock corporation, with publicly traded shares. The Company is a subsidiary of Inversiones Pacasmayo S.A. (IPSA), which holds 51.57% of the Company’s common and investment shares and 53.32% of its common shares as of September 30, 2012 (63.92% and 67.47%, respectively as of December 31, 2011). The registered office is located at Calle La Colonia No.150, Urbanizacion El Vivero, Santiago de Surco, Lima, Peru.

The Company’s main activity is the production and marketing of cement, blocks, concrete and quicklime in Peru’s northern region.

The interim condensed consolidated financial statements of the Company and its subsidiaries (hereinafter “the Group”) as of September 30, 2012 and for the three and nine-months periods then ended, were authorized for issue by the management of the Company on October 29, 2012.

As of September 30, 2012, there were no changes in the main activities of the subsidiaries incorporated in the interim condensed consolidated financial statements of the Group, in relation to December 31, 2011.

Issuance of new common and investment shares

Common shares -

In Board of Directors´ Meeting held on January 6, 2012, directors agreed in issuance of new common shares through a public offering of American Depositary Shares (“ADS”) registered with the SEC. As a consequence, on February 7, 2012, the Company issued 100,000,000 new common shares, equivalent to 20,000,000 ADSs, with a unit price of US$11.5, resulting total proceeds of US$220,345,000 (net of related commissions and costs).

On March 2, 2012, the Company issued 11,484,000 additional shares, equivalent to 2,296,800 ADSs pursuant to an overallotment option granted to the underwriters in that offering, resulting total proceeds of US$25,489,000 (net of related commissions).

The total outstanding common shares as of the date of this report are 531,461,479 shares, from these 111,484,000 are listed in the New York Stock Exchange.

The excess of the total proceeds obtained by this transaction in relation to the nominal value of these shares amounted to S/.556,424,000 (net of commissions and other related costs for S/.27,490,000 and tax effect for S/.7,423,000) and was recorded in the additional paid-in capital caption of the interim consolidated statement of changes in equity.

Investment shares -

In March 30, 2012, the Company issued 927,783 investment shares, pursuant to a preemptive right offer in connection with the issuance of ADSs, so the holders of investment shares have rights to maintain their proportional ownership in the share capital of the Company. The total investment shares offer by the Company were 13,574,990, from these only 927,783 were exercised.

Notes to interim condensed consolidated financial statements (continued)

The excess of the total proceeds obtained by this issuance of investment shares and the nominal value of these shares amounted to S/.4,767,000 and was recorded in the additional paid-in capital caption of the interim consolidated statement of changes in equity.

Contributions of non-controlling interest -

Salmueras Sudamericanas S.A.

In order to finance the Salmueras project, the General Shareholders´Meeting of the subsidiary Salmueras Sudamericanas S.A. held on January 9, 2012, agreed a contribution of S/.20,000,000 to the subsidiary, to be held in two parts of S/.10,000,000 on the following dates: February 15 and May 15, 2012. These contributions are partial payments of the capital commitment assumed by the Company and Quimpac S.A. for the Salmueras project up to US$100,000,000 and US$14,000,000, respectively, to maintain its interests in this subsidiary. During the nine-month period ended September 30, 2012 the contribution made by Quimpac S.A. amounts to S/.2,307,000 (S/.4,779,000 during the three-months ended as of September 30, 2011).

Fosfatos del Pacifico S.A.

The General Shareholders´Meeting of the subsidiary Fosfatos del Pacifico S.A. held on February 29, 2012 agreed a contribution of US$33,000,000 to the subsidiary, to be held in two parts of US$20,000,000 and US$13,000,000 on the following dates: April 15 and July 15, 2012, respectively. As of the date of this report, the contribution made by MCA Phosphates Pte. amounts to US$9,900,000 (equivalent to S/.26,250,000).

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

2.1

Basis of preparation -

The interim condensed consolidated financial statements of the Group have been prepared in accordance with IAS 34 Interim Financial Reporting issued by the International Accounting Standards Board (IASB).

The interim condensed consolidated financial statements have been prepared on a historical cost basis, except for available-for-sale financial investments that have been measured at fair value. The interim condensed consolidated financial statements are presented in nuevos soles and all values are rounded to the nearest thousand (S/.000), except as otherwise indicated.

The interim condensed consolidated financial statements do not include all the information and disclosure required in the annual financial statements, and should be read in conjunction with Group’s annual consolidated financial statements as of December 31, 2011.

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group´s annual financial statements for the year ended December 31, 2011.

New standards, interpretations and amendments

The following amendments to IFRSs standards did not have any impact on the accounting policies, financial position or performance of the Group:

-

IAS 12 - Deferred Tax: Recovery of Underlying Assets (Amendment)

This amendment to IAS 12 includes a rebuttable presumption that the carrying amount of investment property measured using the fair value model in IAS 40 will be recovered through sale and, accordingly, that any related deferred tax should be measured on a sale basis. The presumption is rebutted if the investment property is depreciable and it is held within a business model whose objective is to consume substantially all of the economic benefits in the investment property over time, rather than through sale. Specifically, IAS 12 will require that deferred tax arising from a non-depreciable asset measured using the revaluation model in IAS 16 should always reflect the tax consequences of recovering the carrying amount of the underlying asset through sale. Effective implementation date is for annual periods beginning on or after 1 January 2012.

Notes to interim condensed consolidated financial statements (continued)

-

IFRS 7 - Disclosures - Transfers of financial assets (Amendment)

The IASB issued an amendment to IFRS 7 that enhances disclosures for financial assets. These disclosures relate to assets transferred (as defined under IAS 39). If the assets transferred are not derecognised entirely in the financial statements, an entity has to disclose information that enables users of financial statements to understand the relationship between those assets which are not derecognised and their associated liabilities. If those assets are derecognised entirely, but the entity retains a continuing involvement, disclosures have to be provided that enable users of financial statements to evaluate the nature of, and risks associated with, the entity’s continuing involvement in those derecognised assets. Effective implementation date is for annual periods beginning on or after 1 July 2011 with no comparative requirements. 

The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.

2.2

Basis of consolidation -

The interim condensed consolidated financial statements comprise the financial statements of the Company and its subsidiaries as of September 30, 2012 and 2011.

2.3

Seasonality

Seasonality is not relevant for the activities of the Group.

Notes to interim condensed consolidated financial statements (continued)

3.	Cash and short-term deposits

(a)

This caption consists of the following:

	September 30, 2012		December 31, 2011		September 30, 2011
		S/.(000)		S/.(000)		S/.(000)

Cash on hand		1,991		2,786		2,903
Cash at bank (b)		65,805		228,150		35,603
Short-term deposits (c)		129,976		132,343		2,500
Cash balances included in the consolidated statements of cash flows		197,772		363,279		41,006
Time deposits with original maturity greater than 90 days (c)		403,950		-		-
		601,722		363,279		41,006

(b)

Cash at banks is denominated in local and foreign currencies, is deposited in local banks and is freely available. The demand deposits interest yield is based on daily bank deposit rates. As of December 31, 2011 these bank accounts include approximately US$46,100,000 (equivalent to S/.124,399,000), as a result of the sale of minority interests of the subsidiary Fosfatos del Pacífico S.A.

(c)

As of September 30, 2012 and December 31, 2011, the short-term deposits held in local banks were freely available and earned interest at the respective short-term market rates. Time deposits, with original maturities of less than three months, were collected in October 2012 and January 2012, respectively.

As of September 30, 2012, the long-term deposits were saved in local banks, were freely available and earned interest at the respective market rates, and have original maturities of 18 months.

These short and long-term deposits include part of the proceeds obtained through the issuance of new common shares, see note 1 and S/.202,200,000 related to a loan received in December 31, 2011.

4.	Inventories

During the three and nine-month periods ended September 30, 2012 the Group does not have additions or recoveries of the provision of inventory obsolescence (a recovery of S/.344,000 during the three and nine-month periods ended as of September 30, 2011).

Notes to interim condensed consolidated financial statements (continued)

5.	Property, plant and equipment

Additions -

During the three and nine-month periods ended September 30, 2012, the fixed asset additions of the Group amounted approximately to S/.50,519,000 and S/.140,924,000 (S/.240,598,000 during the year 2011), which are mainly related to improvements in the cement plants located in Rioja and Pacasmayo.

Impairment of zinc mining assets -

Due to a sharp drop in the international price of zinc in September 2011 and based on management’s expectations on future zinc prices, the Group recorded an impairment of approximately S/.96,100,000 related to the zinc mining assets. This was recorded in the interim consolidated income statement for the nine months ended September 30, 2011 under the caption ”Impairment of zinc mining assets”.

6.	Dividends paid and proposed

			S/.(000)

Declared dividends during nine months ended September 30, 2011
Dividends approved on February 28, 2011: S/.0.12 per share			56,000

As of September 30, 2012, dividends payable amounted to S/.4,103,000 (December 31, 2011: S/.4,467,000).

7.	Provisions

The decrease is explained mainly for the payment of the workers´ profit sharing accrued during 2011, made in the first quarter of 2012.

8.	Income tax

The major components of the income tax expense in the interim consolidated income statement and statement of comprehensive income are:

	For the three-month periods ended September 30,						For the nine-month periods ended September 30,
	2012			2011			2012			2011
		S/.(000)			S/.(000)			S/.(000)			S/.(000)

Current income tax (expense)		(23,393	)		(17,816	)		(57,877	)		(51,293	)
Deferred income tax		2,100			30,888			8,544			32,492
Income tax expense, net		(21,293	)		13,072			(49,333	)		(18,801	)
Income tax recognized in other comprehensive income		(780	)		(155	)		(2,940	)		2,460

Total income tax		(22,073	)		12,917			(52,273	)		(16,341	)

Notes to interim condensed consolidated financial statements (continued)

9.	Related party disclosure

Transactions with related entities -

During the three and nine-month periods ended September 30, 2012 and 2011, the Company carried out the following transactions with Inversiones Pacasmayo S.A. (IPSA) and other related parties:

	For the three-month periods ended September 30,					For the nine-month periods ended September 30,
	2012		2011			2012		2011
		S/.(000)		S/.(000)			S/.(000)		S/.(000)

Income
Income from land rental services		104		140			328		364
Fees for management and administrative services		91		95			274		278
Interest income on loans to IPSA and an affiliate		6		(114	)		8		12
Interest expense on loans from IPSA		-		(12	)		-		(12	)

Other transactions
Dividends delivered to IPSA		-		-			-		35,795
Loans to IPSA		-		100			-		7,065
Loans from IPSA		-		6,700			-		6,700
Loans to Servicios Corporativos Pacasmayo S.A.		160		-			200		-

As a result of these and other transactions, the Company had the following rights and obligations with Inversiones Pacasmayo S.A. and other related parties as of September 30, 2012 and December 31, 2011:

	2012				2011
	Accounts receivable		Accounts payable		Accounts receivable		Accounts payable
		S/.(000)		S/.(000)		S/.(000)		S/.(000)

Inversiones Pacasmayo S.A.		101		14		170		14
Other		270		-		252		216

		371		14		422		230

The sales to and purchases from related parties are made on terms equivalent to those that prevail in arm’s length transactions. Outstanding balances are unsecured and interest free. There have been no guarantees provided or received from any related party receivables or payables with respect to any related parties. For the periods ended September 30, 2012 and December 31, 2011, the Group has not recorded any impairment of receivables owed by related parties. This assessment is undertaken each financial year by examining the financial position of the related party.

Notes to interim condensed consolidated financial statements (continued)

Compensation of key management personnel of the Group -

The expenses for profit-sharing, compensation and other concepts for members of the Board of Directors and the management payroll amounted to S/.5,935,000 and S/.18,652,000 during the three and nine-month periods ended September 30, 2012 (S/.13,193,000 and S/.25,278,000 during the three and nine-month periods ended September 30, 2011). The Group does not compensate management with post-employment or contract termination benefits or share-based payments.

10.	Earnings per share

Basic earnings per share amounts are calculated by dividing net profit for the three and nine-month period attributable to common shares and investment shares of the parent by the weighted average number of common and investment shares outstanding during the period.

The Group has no dilutive potential common shares as of September 30, 2012 and 2011.

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

	For the three-month periods ended September 30,					For the nine-month periods ended September 30,
	2012		2011			2012		2011
		S/.(000)		S/.(000)			S/.(000)		S/.(000)
Numerator
Net profit (loss) attributable to common and investment shares of the Parent		47,794		(35,666	)		119,144		39,442

	For the three-month periods ended September 30,				For the nine-month periods ended September 30,
	2012		2011		2012		2011
	Thousands		Thousands		Thousands		Thousands
Denominator
Weighted average number of common and investment shares		580,764		468,352		565,409		468,352

There have been no other transactions involving common shares or potential common shares between the reporting date and the date of completion of these financial statements.

	For the three-month periods ended September 30,					For the nine-month periods ended September 30,
	2012		2011			2012		2011
		S/.		S/.			S/.		S/.

Basic and diluted earnings for common and investment shares		0.08		(0.08	)		0.21		0.08

Notes to interim condensed consolidated financial statements (continued)

11.	Fair value of financial instrument

Hierarchy of fair value of financial instrument

The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities.

Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly.

Level 3: valuation techniques (no observable market value).

As of September 30, 2012 and December 31, 2011, the Group held the following instruments carried at fair value on the consolidated statement of financial position:

	September 30, 2012		December 31, 2011
		S/.(000)		S/.(000)
Available-for-sale financial investments:
Level 1		759		526
Level 2		31,113		21,548
Level 3		-		-
Total		31,872		22,074

During the nine-month period ending September 30, 2012, there were no transfers between Level 1 and Level 2 fair value measurements.

12.	Commitments and contingences

Operating lease

As of September 30, 2012 the Group, as lessor, has a land lease with Compañía Minera Ares S.A.C. a related party of Inversiones Pacasmayo S.A. This lease is annually renewable and for the three and nine-month periods ended September 30, 2012 provide a rent of S/.104,000 and S/.328,000, respectively (S/.140,000 and S/.364,000 as of September 30, 2011).

As lessee, the Group does not hold any long-term lease agreement as of September 30, 2012 and 2011.

Capital commitments

As of September 30, 2012, the Group had the following main commitments:

-Expansion of the cement plant located in the northeast of Peru by S/.14,340,000.

-Construction of the cement plant located in the north of Peru by S/.7,690,000.

-Commitment for development of brine Project up to US$100,000,000. In connection with this commitment, as of September 30, 2012 the Group has made contributions for approximately US$12,300,000, see note 1.

-The Group maintains long-term electricity supply agreements which billing is determined taking into consideration consumption of electricity and other market variables.

Notes to interim condensed consolidated financial statements (continued)

Others commitments

The Group has a commitment of future sales of phosphoric rock to Mitsubishi Corporation when the project starts production.

Environmental matters

The Group’s 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, 2011 and there have not been significant changes on this subject in the interim consolidated financial statements as of September 30, 2012 in comparison to the consolidated financial statement as of December 31, 2011.

Tax situation

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. 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

Cemento Pacasmayo S.A.A.	2007-2008/2010-2011	2007-2012
Cementos Selva S.A.	2007/2009-2011	2007/2009-2012
Distribuidora Norte Pacasmayo S.R.L.	2007-2008/2010-2011	2007-2012
Corianta S.A. (*)	2007-2011	2007,2008, from January to May 2010 and from June to December 2011
Empresa de Transmision Guadalupe S.A.C.	2007-2011	2007-2012
Tinku Generacion S.A.C. (*)	2007-2011	2007-2011
Fosfatos del Pacifico S.A.	2009-2011	2009-2012
Salmueras Sudamericanas S.A.	2011	2011-2012
Dinoselva Iquitos S.A.C.	2007-2011	2007-2012
Acuicola Los Paiches S.A.C.	2007-2011	2007-2012

(*) These subsidiaries were merged with the Company in December 2011.

Through the date of these financial statements, Zemex LLC is an inactive subsidiary with no debts to fiscal authorities of United States of America and Canada (countries where Zemex LLC had operations until 2007).

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 consolidated financial statements as of September 30, 2012 and the consolidated financial statements as of December 31, 2011.

Notes to interim condensed consolidated financial statements (continued)

Legal claim contingency

As of September 30, 2012 and December 31, 2011, some third parties had commenced actions against the Group in relation with its operations in the amount of S/.4,990,000. Of this total amount, S/.1,223,000 correspond to a tax originated by the import of coal, S/.1,469,000 correspond to labor claims from former employees and S/.2,298,000 related to the income tax assessments received from the Tax Administration corresponding to 2009 tax period that was audited 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

Third parties

Cementos Pacasmayo S.A.A. is required to pay a royalty to Compañia Pilar del Amazonas S.A., which is the owner of the surface mining unit in which the subsidiary Corianta S.A. made its operations (before the merger explained in Note 1 to the annual consolidated financial statements as of December 31, 2011, this obligation was for Corianta S.A.). This royalty is equivalent to 4% of net revenue obtained as a result of commercial exploitation carried out within the mining unit, and may not be less than US$300,000 annually. This royalty expense amounted to S/.184,000 and S/.602,000 for the three and nine-month periods ended September 30, 2012 (S/.205,000 and S/.623,000 for the three and nine-month periods ended September 30, 2011, respectively).

The subsidiary Fosfatos del Pacífico S.A., signed an agreement with the Peruvian Government, Fundación Comunal San Martin de Sechura and Activos Mineros S.A.C. related to the use of the Bayovar concession, which contains phosphoric rock and diatomites. As part of this agreement, the mentioned Subsidiary Fosfatos del Pacífico S.A. is required to pay to Fundación Comunal San Martin de Sechura and Activos Mineros S.A.C. an equivalent amount to US$3 for each metric tons of diatomite extracted. The annual royalty may not be less than the equivalent to 40,000 metric tons during the second year of production and 80,000 metric tons since the third year of production. The related royalty expense amounted to S/.97,000 and S/.294,000 for the three and nine-month periods ended September 30, 2012 ( S/.272,000 for the three and nine-month periods ended September 30, 2011).

Interest-bearing loans and borrowings covenants

In March 2012, the Company subscribed a credit line agreement with Banco de Crédito del Perú for an amount equivalent in nuevos soles of up to US$75,000,000. Pursuant the terms of the credit line agreement the funds will be available for a two year period and the Company has to pay a commitment fee of 0.25% during such period. If the funds are disbursed, the loan will accrue interests at an annual rate of 7.50% and will mature in 2022. This credit line agreement is secured by current collateral trust, which holds all the main assets of the Company. As of September 30, 2012 the Group has not yet used these funds. This loan includes the following financial restrictions:

The liquidity ratio must be greater than 1.0 times during the term and in each one of the financial years, based on the separate financial statements of the Company.

The financial debt-to-EBITDA ratio must be lower than 3 times, during the term and in each ratio measurement date, calculated using the Company´s separate financial statements.

Notes to interim condensed consolidated financial statements (continued)

The EBITDA-to-Debt Service ratio must be greater than 1.50 times during the term and in each ratio measurement date, taking the last twelve (12) months elapsed as calculation basis, based on the separate financial statements of the Company.

In Management’s opinion, as of September 30, 2012 the Company has complied with these financial restrictions.

Prepayment of debts

During the nine month period ended as of September 30, 2012, the Group has made prepayments for S/.388,394,000 corresponding to three loans with BBVA Banco Continental, three loans with Banco de Credito del Peru and a finance lease with Banco de Credito del Peru. As of September 30, 2012 the Group maintains only one debt with BBVA Banco Continental.

Notes to interim condensed consolidated financial statements (continued)

13.	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 blocks 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. Segment performance is evaluated based on profit before income tax and is measured consistently with profit before income tax in the interim condensed consolidated financial statements.

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

	Revenues from external customers		Revenues from inter segments			Total revenue			Gross margin			Profit before income tax			Income tax			Profit for the period			Segment assets		Other assets		Total assets
		S/.(000)		S/.(000)			S/.(000)			S/.(000)			S/.(000)			S/.(000)			S/.(000)			S/.(000)		S/.(000)		S/.(000)
2012
Cement, concrete and blocks		698,548		1,300			699,848			313,820			175,948			(52,291	)		123,657			1,886,691		-		1,886,691
Construction supplies		111,651		980			112,631			3,549			(262	)		78			(184	)		23,264		-		23,264
Quicklime		41,609		-			41,609			10,757			2,298			(683	)		1,615			133,696		-		133,696
Other		1,042		1,927			2,969			(183	)		(11,991	)		3,563			(8,428	)		266,716		31,872		298,588
Adjustments and eliminations		-		(4,207	)		(4,207	)		-			-			-			-			-		-		-
Consolidated		852,850		-			852,850			327,943			165,993			(49,333	)		116,660			2,310,367		31,872		2,342,239

2011
Cement, concrete and blocks		576,303		737			577,040			296,308			168,321			(54,418	)		113,903			1,587,083		-		1,587,083
Construction supplies		105,050		3,505			108,555			3,241			(356	)		115			(241	)		12,741		-		12,741
Quicklime		34,309		-			34,309			5,517			(2,653	)		858			(1,795	)		139,855		-		139,855
Other		2,004		1,707			3,711			(2,676	)		(107,153	)		34,644			(72,509	)		178,259		22,074		200,333
Adjustments and eliminations		-		(5,949	)		(5,949	)		-			-			-			-			-		-		-
Consolidated		717,666		-			717,666			302,390			58,159			(18,801	)		39,358			1,917,938		22,074		1,940,012

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

Other assets

As of September 30, 2012 corresponds to the available-for-sale investments caption for approximately S/.31,872,000 (S/.22,074,000 as of December 31, 2011) which is not allocated to a segment.

Geographic information

All revenues are from Peruvian clients.

All non-current assets are located in Peru, except for a land of Zemex LLC. amounting to S/.2,228,000 that is located in United States Of America (its only non-current asset). For the statement mentioned in this paragraph non-current assets consist of property, plant and equipment.

	Note	As of September 30, 2012		As of December 31, 2011
			S/.(000)		S/.(000)

Assets

Current assets

Cash and short-term deposits	3		601,722		363,279

Trade and other receivables			66,720		78,377

Income tax prepayments			13,774		705

Inventories	4		228,984		206,102

Prepayments			22,510		11,629

			933,710		660,092


Non-current assets

Other receivables			33,126		29,146

Available-for-sale financial investments	11		31,872		22,074

Property, plant and equipment	5		1,299,325		1,197,401

Exploration and evaluation assets			42,916		29,895

Other assets			1,290		1,404


			1,408,529		1,279,920


Total assets			2,342,239		1,940,012