Loma Negra Compañía Industrial Argentina Sociedad Anónima (LOMA) Earnings Call Transcript & Summary

Good morning, and welcome to the Loma Negra First Quarter 2023 Conference Call and Webcast. [Operator Instructions] Also, Mr. Sergio Faifman will be responding in Spanish immediately following an English translation. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Diego Jalón, Head of IR. Please Diego go ahead.

Thank you. Good morning, and welcome to Loma Negra's Earnings Conference Call. By now, everyone should have access to our earnings press release and the presentation for today's call, both of which were distributed yesterday after master close. Joining me on the call this morning will be Sergio Faifman, our CEO and Vice President of the Board of Directors; and our CFO, Marcos Gradin. Both of them will be available for the Q&A session. Before we proceed, I would like to make the following safe harbor statements. Today's call will contain forward-looking statements, and I refer you to the forward-looking statements section of our earnings release and recent filings with the SEC. We resumed no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances. This conference call will also include discussion of non-GAAP financial measures. The full reconciliation of the corresponding financial measures is included in the earnings press release. Now I would like to turn the call over to Sergio.

Thank you, Diego. Hello, everyone, and thank you for joining us this morning. As usual, I would like to begin my presentation with a discussion of the highlights of the quarter, and then Marcos Gradin will take you through our market review and financial results. After that, I will provide some final remarks, and then we will open the call to questions. Starting with Slide 2. We started the year in a very good shape and we are very pleased to share with you another quarter of solid results, amid increasing macroeconomic uncertainty, the industry remained rationally, maintained the positive momentum and setting another quarter of growth. Bulk cement demand is contributing to this trend, boosted by private and public small infrastructure works. Our top line for the quarter increased 2.9%, with same volume growing above the industry and boosted by the increased activity of concrete and aggregates. Our assortment EBITDA for the first quarter stood at $63 million, up 15% from first quarter 2022. When measured in pesos, it showed a decrease of 19.7% compared to the same quarter last year, adjusted by inflation. Although margin suffered some compression due to higher energy inputs in the cement segment and increased participation in the top line of the other segments with lower margin. We keep on delivering world-class EBITDA margin. In this sense, the U.S. dollar EBITDA per ton stood at some $40 for the quarter, 1.6% above 2022 first quarter. Continuing our focus of maximizing value to our shareholders at the beginning of the year, we distributed a dividend payment of $19.5 million. Additionally, we recently announced and distribute in kind another dividend for the amount of ARS 22.2 billion, always maintaining a strong balance sheet with a low net debt ratio of 0.46x. I will now hand off the call to Marcos Gradin who will walk you through our market review and financial results. Please, Marcos, go ahead.

Thank you, Sergio. Good morning, everyone. Please turn to Slide 4. As you can see on Slide 4, even though 2022 ended posting a 5% growth, the fourth quarter started to show a deceleration. The last market expectation report from the Central Bank shows a shift in estimations for 2023, driving the growth expectation to negative tariff and reflecting an increase in economic uncertainty. While the construction activity shows mixed results for the first half of 2023, with a [ retraction ] in February, the cement national industry sales shows a resulting growth of 3.1% for the quarter, despite a strong base of comparison and the challenging environment. Although still in high figures, bagged cement shows a year-on-year contraction while bulk cement continues to be [ dispatch polarity ] boosting growth. Concrete producer demand a principal contributors to bulk performance, driven mainly by private infrastructure projects both residential and industrial, coupled with a small and midsized public works that are gaining more incidents in the shipments. In this sense, we're seeing the breakdown by the dispatch mode, bulk shipments continues to gain tariff, showing a participation of 43% against 40% in first quarter of last year. Even this positive start of the year, we remain cautiously optimistic for the coming months as economic volatility will probably increase as we approach the elections and this might affect the level of activity. Turning to Slide 5 for a review of our top line performance by segment. Top line was up 2.9% in the first quarter, mainly due to increase in concrete and aggregates revenues that mobile compensated the decrease in the cement segment. Cement, masonry cement and lime segment was down 3.5%, with volumes growing 4.3% year-on-year with a softer pricing dynamic. Concrete revenues increased sharply 32.8% in the quarter. Volumes were up 26.2% in line with the strong momentum of bulk cement coupled with good pricing performance. In the same way, aggregate show a significant top line expansion of 65.3% with sales volume increasing 47%, primarily on the back of concrete demand coupled with strong price performance. Finally, railroad revenues decreased 5.7% in the quarter year-on-year. Transported volumes were down 7.4% while the strong transported volumes of aggregates partially offsets the decrease in cement and fracsand. Despite the negative effecting price of the lower volume of fracsand due to its higher transporter distance, the prices had a good performance in this quarter. Moving on to Slide 7. Consolidated gross profit for the quarter declined 15.3% year-on-year with margin contraction by 591 basis points to 27.5%, mainly impacted by a lower price performance of our core segment, higher costs related to higher thermal energy inputs, mainly due to stimulus plans to increase natural gas production, partially compensated with a decrease in electrical energy inputs and depreciation. The significant increase in sales volumes in segments with lower margin also contributed to the compression of the consolidated figure. The contraction in cement, railroad and concrete gross margin was slightly offset by a better performance of aggregates. Finally, SG&A expenses as a percentage of revenues decreased 44 basis points to 9% from 9.5% in the first quarter of 2022. Please turn to Slide 8. Our adjusted EBITDA for the first quarter stood at USD 63 million, up 5.8% from USD 60 million in the same quarter a year ago. In pesos adjusted EBITDA was down 19.7% in the quarter, reaching ARS 10.6 billion with consolidated EBITDA margin of 26.2%, contracting 738 basis points year-on-year, mainly affected by cement margin contraction and the higher participation in the top line of the other segments with lower margins. Cement adjusted EBITDA margin stood at 31.2%, contracting 625 basis points, mainly affected by a softer pricing dynamics and higher thermal energy inputs. On a per ton basis, EBITDA reached $40 per ton, increasing 1.6% from the first quarter of last year. Concrete adjusted EBITDA decreased ARS 21 million compared to first quarter 2022, mainly explained by higher cost of aggregates and freights, partially compensated by a positive price performance and higher volumes, margin construction of 33 basis points, reaching a negative 1.2%. Aggregates adjusted EBITDA improved ARS 272 million this quarter from negative ARS 37 million in the first quarter of 2022, reaching a margin of 17.6%, reaffirming the good momentum for the segment caters better operational performance. Finally, Railroad adjusted EBITDA decreased ARS 237 million to negative ARS 38 million for the quarter with a negative margin of 1.2%, mainly explained by lower transported volumes that put pressure on costs, partially compensated with better price performance. Moving on to the bottom line on Slide 10. This quarter, we posted a net profit attributable to owners of the company of ARS 5.3 billion compared with ARS 6.5 billion on first quarter of 2022, while the lower operational result was coupled with higher financial costs. Total financial costs stood at ARS 19 million this quarter from a total financial gain of ARS 452 million the same quarter last year, where the positive effect on the result of the monetary position, partially compensated decrease of the net financial expense generated due to the higher debt position and the higher negative effect of the exchange rate. Moving on to the balance sheet. As you can see on Slide 11, we ended the quarter with a cash position of ARS 19.4 billion and total debt at ARS 42.3 billion. Consequently, our net debt-to-EBITDA ratio stood at 0.46x compared to 0.37x at the end of 2022. Our operation cash generation stood at ARS 4.3 billion where as the increase in the net profit adjusted with the noncash effect, partially compensated the negative effect of the changes in operating assets and liabilities. Regarding capital expenditures, we allocated ARS 1.8 billion, mostly for maintenance CapEx. During the quarter, we increased our debt in $19 million outstanding our net debt at $109 million at the end of this quarter. Breaking it down by currency, the dollar-denominated debt represents 30% of the total debt, while the rest is in pesos. As we mentioned before, in the quarter, we distributed a dividend for $19.5 million, and we recently approved a new dividend of ARS 22.2 billion that was paid in kind to Argentina Treasury Bills. Additionally, in the quarter, the company issued its Class 1 domestic bonds for the total amount of ARS 25.6 billion with maturity in August 2024. This first issuance was well received by the market and is a sign of the trust place in our company. Now for our final remarks, I would like to hand the call back to Sergio. Thank you.

Thank you, Marcos. Now to finalize the presentation, I please ask you to turn to Slide 13. To wrap up this presentation, I would like to highlight a few final takeaways. [indiscernible], we are pleased to see how far the industry remaining at this start of the year, posting growth figure despite the already strong base of the operation. We are following with the attention the evolution of the economy as we approach the presidential election, which could affect the volume of the industry for the remainder of the year. In this context, we remain focused on managing the business to keep on delivering strong results. We consider the maximization of value generation to our stakeholder, one of our main objectives. This is why, in addition to the dividend payments that we distributed in January, we recently approved a second dividend payment that was distributed in kind, seeking to follow our goal in the most efficient way. I would like to conclude by thanking all our people and stakeholders for their commitment and support. This is the end of our prepared remarks. We are now ready to take a question. Operator, please open the call for questions.

[Operator Instructions] Also, please note that Mr. Sergio Faifman will be responding in Spanish immediately following an English translation. [Operator Instructions] And the first question comes from Alberto Valerio with UBS.

One thing that I was a little bit surprised on the results was the increase on the energy expense. On the other hand of the global energy price, maybe Argentina dynamic is a little bit different. So if you could give some color about the contracts that we have for the remainder of the year and what we should expect on this line?

[Interpreted] Financially thermal energy, we had an increase this year and also by the end of last year. The good news there is that this increment was lower than you could see in other regions and the outcome for the near future is also positive. Yes, this year, we should be around $3.2 million BTU. Several contracts that we already signed for the next few years are below $3.

Our next question will come from Daniel Rojas with Bank of America.

Just a follow-up on the last question in terms of thermal costs. That contract you say you signed below $3, is it related to the gas pipeline expansion? And can we assume that going forward, one of your competitive advantages will be your ability to tap into much lower gas costs coming from Vaca Muerta. And I know it might be too early, but can you share with us the savings in terms of EBITDA or EBITDA margins that you think you can gain from this competitive advantage.

[Interpreted] The pipeline is moving over in as scheduled. The forecasts of production in Vaca Muerta for next year are pretty good and several of the contracts that we signed are linked to this improvement in production. To comment before the improvement in the price of the gas that we are paying is going to lead to improve also in our margins for the next few years. Regarding gas supply, we don't see any competitive advantage with the other cement producers in Argentina.

A follow-up, if I may. I don't want -- I'm sorry for trying to -- for you to become political analysts. But if you could gauge a little bit of what's happening in the political scenario in Argentina. One of the candidates that's leading ground lately has talked a lot about changing the dynamics of how public bidding is done in Argentina, how public construction is done? I know it's early, but what are your thoughts on the political change that may come and the indications for public spending?