Loma Negra Compañía Industrial Argentina Sociedad Anónima (LOMA) Q4 FY2025 Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the Loma Negra Fourth Quarter 2025 Conference Call and Webcast. [Operator Instructions] Also, Mr. Sergio Faifman will be responding in Spanish immediately following an English translation. [Operator Instructions] Please also note, today's event is being recorded. At this time, I'd like to turn the conference call over to Mr. Diego Jalon, Head of IR. Mr. Diego, please 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 market close. Joining me on the call this morning are Sergio Faifman, our CEO and Vice President of the Board of Directors; Marcos Gradin, our CFO; and Lucrecia Loureiro, our Human Capital, Sustainability and Legal Affairs Director. Sergio and Marcos 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 assume 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 on non-GAAP financial measures. The full reconciliation to 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. I would like to start my presentation by discussing the highlights of the quarter. Then Marcos will take you through our market review and financial results. Following that, I will share some final remarks before opening the call to your questions. Starting with Slide 2. We are pleased to present Loma Negra's fourth and final quarter of the year. In terms of volume, the fourth quarter [indiscernible] the trend seen in pure quarters with cement dispatch declined 1.2% year-over-year. Overall, 2025 represents a year of gradual recovery for Argentine economy and to a lesser extent for the cement industry. While volumes show a year-over-year improvement, the rebound progressed more slowly than the initially anticipated and some momentum in the second half of the year. Against this backdrop, net revenue totaled ARS 225.2 billion for the quarter, equivalent to USD 152 million, reflecting a 1.7% year-over-year decline versus fourth quarter 2024. On a sequential basis, however, performance remained broadly stable, [indiscernible] narrowing the gap [ observer ] early in the year. In this challenging demand environment, consolidated adjustment EBITDA reached $37 million with a margin of 19.7% for the quarter. It is important to note that the comparison base was particularly demanding as margin in the same period last year were exceptionally strong, sequentially fourth quarter profitability remaining in line with recent quarters. For full year 2025, adjustment EBITDA amount to $146 million with a margin of 21.3%, representing a contraction of 454 basis points compared to 2024. Turning to the balance sheet. Net debt declined by $23 million quarter-over-quarter to $183 million, resulting in a net debt-to-EBITDA ratio of 1.4x, reforcing the company's solid financial position. I will now turn the call over to Lucrecia, who will present our newly revised sustainability report and its key highlights. Please, Lucrecia, go ahead.

Thank you, Sergio. Good morning, everyone. Please turn to Slide 3 for a review of our ESG highlights for the year. We take great satisfaction in releasing the [ 5 ] vision of our sustainability report, which details our environmental, social and governance management and the actions we carry out to build the company prepared for the challenges of the future with a focus on ethics transparency and long-term sustainable value creation. In 2025, we achieved significant progress across of our environmental priorities. Compared to our 2021 baseline, CO2 equivalent emissions were reduced by 22% reflecting our ongoing decarbonization efforts. We also advanced our circular economy strategy by valorizing 85% of the waste generated, recovering more than 270,000 tons of [ weight ] and by products using alternative materials and fuels, including biomass in cement production. In terms of water stewardship, total water withdrawal decreased by 3.5% with a notable 21% reduction in water stressed area compared to 2024. Additionally, air quality improvement continue with PM10 emissions from cement production declined by 9.3% year-over-year, underscoring our commitment to responsible low-impact operations. Turning to our social impact and community engagement. 2025 was a year of a strong collaboration and meaningful outreach. We worked alongside 700 partner organizations to implement social programs and projects, while 172 initiatives were supported through the different programs of the Fundacion Loma Negra, reaching a total of more than 90,000 beneficiaries. We reached a historic milestone, the launch of a new 25-kilo bag. This initiative safeguards the health and well-being of industry. Over the course of 5 years, we invested more than $65 million in our plans. This year marks a significant milestone for our company. Loma Negra celebrates 100 years of contributing to Argentina's sustainable and productive development. We are committed to the principles that have guide our actions for a century in pursuit of our purpose of transforming people's lives through sustainable growth. Built on 100 years of legacy, we honor our past while continuing to build the future with responsibility ambition. Our fifth sustainability report reflects that path. I will now hand off the call to Marcos, who will walk you through our market review and financial results. Please, Marcos, go ahead.

Thank you, Lucrecia. Good morning, everyone. Please turn to Slide 5. The latest release of the MI, Argentine's monthly economic activity indicator show a 3.5% year-over-year increase, reversing the downward trend observed in the previous couple of months. As a result, full year 2025 economic growth reached 4.4%. However, a deeper look at sector level performance reveals significant divergences. Agriculture, mining and financial intermediation rank among the strongest contributor to growth. In contrast, industry and commerce continue to show constructions. For construction, activity remained broadly flat, showing virtually no change compared to the previous year. Within this macro backdrop, the cement industry posted a broadly flat quarter, reversing the decline recorded in previous period and closing the year with 5.6% growth. After a more encouraging start to the year, growth expectations were affected by the [indiscernible] process and the uncertainty surrounding it together with financial and FX tensions that weighted on the recovery momentum. Looking at dispatch dynamics, bulk segment outperformed, supported by larger scale projects, including residential development as well as logistics and infrastructure works. In contrast, bulk cement volumes contracted, reflecting weaker retail demand. The individual and small contractor segment remains more subdued in the current environment, of monetary tightening and interest rate volatility. As we move into 2026, we expect the sectors that have lagged behind to gradually catch up, supported by a more flexible monetary stance. Given that these sectors are among the most employment intensive, their recovery should contribute to greater dynamism in overall economic activity. It will also be important to closely monitor cement demand in March and April. The start of the year has been relatively weak, not only due to typical summer seasonality, but also reflecting still cautious activity levels. Looking ahead, we expect recently announced investment initiatives, including infrastructure programs, road corridors and mining and energy projects to gradually begin supporting dispatch volumes as we move past the summer period. Turning to Slide 6 for a review of our top line performance by segment. Fourth quarter revenues declined 1.7% year-over-year, continuing the sequential improvement trend and meaningful narrowing the contraction observed early in the year. The performance was mainly explained by the Cement segment, while Concrete delivered strong growth. In Cement, Masonry, Cement and Lime, revenues decreased 4.4% year-over-year, mainly reflecting softer pricing conditions compared to the same period last year. Sequentially, prices improved for the second consecutive quarter, extending the real-term recovery and reducing the year-over-year gap. Volumes declined 1.2% year-over-year. Bulk cement continued to outperform, supported by stronger activity from concrete producers, large-scale projects and public works. In contrast, Bulk cement volumes continue to lag as retail demand remains subdued and economic soften and financial volatility. Since our segment also include masonry, cement and lime products that tend to follow dynamics similar to bulked cement, this mix effects weighs on our segment performance when compared to industry statistics, which reflects only [indiscernible] cement volumes. Concrete revenues increased 37% year-over-year, driven by a 62% expansion in volumes, partially offset by competitive pricing dynamics. Growth was mainly supported by infrastructure works in Santa Fe and private logistics-related developments. Aggregates revenues were essentially stable, down 0.9% year-over-year. Volumes increased 8.2%, reflecting stronger road construction and railroad-related activity. However, pricing and product mix, particularly a higher share of fine aggregates with lower average prices offset the positive volume contribution. Railroad revenues declined 8.9% in the quarter. Although transported volumes increased 2.8%, weaker pricing and the continued disruption of the Bahia Blanca rail line impacted longer-haul traffic, particularly grain, gypsum and frac sand, reducing [ ton ] kilometers and overall revenues. For full year 2025, consolidated revenues declined 7.8% to ARS 848 billion from ARS 920 billion in 2024, while cement volumes increased 2.5%. Moving on to Slide 8. Consolidated gross profit declined by 29.1%, while gross margin contracted by 906 basis points year-over-year to 23.5%. However, margins show a sequential recovery compared to the previous quarter. Cost of sales increased by 11.5% year-over-year, primarily driven by higher cost in the Cement segment, along with a greater depreciation impact following the completion of the 25-kilogram [indiscernible] project. Additionally, cost performance in fourth quarter '24 represented a challenging comparison base. Regarding the Cement segment, cost of sales increased by 12% year-over-year. Higher maintenance expenses and increased utilization of spare parts and supplies, together with a greater impact from packaging costs related to the implementation of 25 kilo program put upward pressure on our costs. On the other hand, energy inputs continue to support cost management efforts, particularly thermal energy. On a sequential basis, unit cost, including depreciation, remained almost flat, increasing only 0.8% quarter-over-quarter. The contraction in cement was followed by a decline in aggregates, while the concrete and Railroad segments posted improvements. Finally, SG&A expenses increased by 6.3%, mainly driven by a higher allowance for doubtful accounts and increased IT expenses, partially offset by lower freight and marketing costs. As a percentage of sales, SG&A stood at 12.9%, up 97 basis points from the fourth quarter of 2024. For fiscal year 2025, gross profit declined by 24.8%, while margin contraction by 493 basis points to 21.8% . Please turn to Slide 9. Consolidated adjusted EBITDA for the quarter stood at $37 million, while in pesos, it reached ARS 44 billion, reflecting a 33.4% year-over-year decline. This decrease was primarily driven by lower EBITDA generation in the Cement segment, while the remaining segments posted improvements. Consequently, the consolidated EBITDA margin contracted to 19.7%, representing a 938 basis points decline year-over-year. On a sequential basis, the margin remained broadly stable, decreasing 114 basis points quarter-over-quarter. Additionally, the higher contribution from other segments, which operate with structurally lower margins also weighed on the consolidated margin. In the segment, adjusted EBITDA margin came in at 22.7% compared to 37.7% in the fourth quarter of 2024, which represented a particularly strong comparison base. The year-over-year decline was largely explained by higher cost of sales and softer pricing dynamics. While pricing has shown a sequential improvement, it still remained below prior year levels. Performance was also impacted by higher SG&A expenses and a lower contribution from other gains and losses during the quarter. In the complete segment, adjusted EBITDA margin improved by 326 basis points, but remained in negative territory, coming in at negative 2.8% compared to negative 6.1% in the fourth quarter of 2024. The recovery in sales volumes helped diluted fixed costs. However, softer pricing dynamics in a highly competitive environment continued to weigh on the segment's performance. Turning to aggregates. Adjusted EBITDA margin improved by 80 basis points year-over-year to negative 8.1% from negative 8.9% in the same quarter last year. Although volumes continue to expand, profitability remained constrained by a competitive pricing environment and unfavorable sales mix with a higher share of lower-margin products. Finally, in the Railroad segment, adjusted EBITDA margin improved by 233 basis points year-over-year, reaching 1.9% in the fourth quarter of 2025 compared to negative 0.4% in the prior year period. Volumes posted a modest decrease, mainly driven by higher shipments of granitic aggregates. However, the continued disruption of Bahia Blanca railway line constrained longer-haul traffic, particularly grains, gypsum and frac sand. These challenges were partially offset by ongoing cost control initiatives. For fiscal year 2025, adjusted EBITDA totaled $146 million or ARS 181 Billion, down 24% with a margin contraction of 454 basis points to 21.3%. Moving to the bottom line on Slide 11. Net profit attributable to the owners of the company totaled ARS 6.2 billion compared to ARS 29.5 billion in the fourth quarter of 2024. The decline was primarily driven by weaker operating performance, along with a lower net financial results, reflecting a reduced impact on inflation. This was partially offset by lower income tax expenses. On the financial side, the company reported a net financial loss of ARS 9.8 billion for the quarter compared to a net financial gain of ARS 1.1 billion in the same period of 2024. The year-over-year variation was mainly explained by a lower gain from the net monetary position reflected a more normalized inflation environment. Additionally, net financial expenses decreased 2.1% to ARS 14.4 billion, primarily driven by higher financial income as a result of stronger cash during the period. For full year 2025, net income attributable to owners of the company totaled ARS 23.6 billion compared to ARS 202.3 billion in 2024. The year-over-year decline was primarily driven by the negative impact of the financial result, particularly the reduced contribution from the net monetary position along with a weakened operation performance. Moving on to the balance sheet. As you can see on Slide 12, we ended the quarter with net debt of ARS 266 billion and a net debt-to-EBITDA ratio of 1.47x, up from 0.89x at the end of 2024 and maintaining a comfortable maturity profile. Cash flow generated from operating activities totaled ARS 58 billion compared to ARS 62.8 billion in the same period of last year. The weaker operating performance was partially offset by a favorable working capital dynamic. Inventories increased at a lower pace than in fourth quarter '24, releasing cash together with lower income tax payments. This more than offset the additional cash requirements for higher trade receivables and a lower contribution from accounts payable. Regarding investment activities, the company generated ARS 34.9 billion during the quarter, primarily driven by the liquidation of short-term investments that have been funded with the proceeds from the Class 5 bond issuance and were subsequently used to repay the Class II bond at maturity. CapEx totaled ARS 17.5 billion, decreasing quarter-over-quarter following the completion of the 25-kilogram [indiscernible] project. In financing activities, the company used ARS 129 billion during the quarter, mainly related to repayment of borrowings, particularly the December maturity of the Class II corporate bonds. In U.S. dollar terms, net debt stood at $183 million with an average duration of 1 year. As of quarter end, 85% of total debt was denominated in U.S. dollars with the remaining balance in pesos. Subsequent to quarter end in January 2026, the company issued a new Class 6 corporate bond for USD 60 million with a 33 months tenure. The transaction was multiple times oversubscribed, reflecting the strong investor demand and allowed the company to secure a 6.5% interest rate. This issuance fully covers the company's U.S. dollar maturities for this year. Now for our final remarks, I will hand back the call to Sergio. Thank you.

Thank you, Marcos. Now to finalize the presentation, I please ask you to turn to Slide 14. Following a solid first half of the year, the recovery lost momentum in the second semester as politically following the election period together with financial and FX tension affect overall activity level through the economy is estimated to have expanding by around 4% in 2025. The rebound in the cement industry was more moderate than anticipated with [indiscernible] still recover from the sharp contraction of 2024. Within this context of tight monetary condition, margin remained under pressure. Loma Negra strong focus on cost discipline, operational efficiency was essential to preserving profitability in a challenging demand environment. We remain confident that the structural growth driver of the industry are intact. However, the normalization process and the transmission of macroeconomic improvement should the real economy may take longer than previously expected. Looking ahead to 2026, we are optimistic the continued macro stabilization and a gradual easing of monetary constraint will help restore dynamics to economic activity. That said, with several investment initiatives have been, particularly in infrastructure, road [indiscernible], [indiscernible] and energy. This process have not yet translated into higher volume. We expect their impact to materialize progressively as execution advance throughout the year. Argentina continues to face innovative instruct gaps that must be addressed to sustain long-term growth, and Loma Negra is well positioned to play a central role in this next phase of development. This is the end of our prepared remarks. We are now ready to take questions. 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. And our first question comes from Alejandra Obregon from Morgan Stanley.

My question is on the energy side. I was wondering if you can talk about your approach on energy management this year, particularly in terms of energy mix, fuel contracting, hedging, perhaps shifting into renewables and alternatives and all these sorts of things and what energy cash cost trends should we be thinking about for the year ahead of perhaps additional volatility in this particular theme?

Thank you Alejandra. Thank you for the question. With respect to thermal energy, in the last few years, we are utilizing an energy metric that is primarily natural gas. The cost of natural gas due to the improvements in production with [indiscernible], we commented last year that we started signing contracts at lower prices. This year, it's happening the same. Generally, our contracts go from October to April of next year. And we already closed our contract starting October of this year and until April of 2027 with prices even lower from the contracts we signed a year ago. [indiscernible] lower percentage, we already signed contracts for 2 or 3 years. And regarding electricity, we are already having some improvements improving the last year, and we are above that in the first quarter of 2026, -- last year, we signed another contract of renewable energy will start this year with very good prices.

Our next question comes from Andres Cardona from Citigroup.

I have a question about 2026 guidance. If you could comment a bit about volumes and margins maybe in addition to that, give us some color about the first Q specifically.

Thank you. As you know, [indiscernible] we do believe that this year, we are going to see going to be a year of growth [indiscernible] even though January and February figures were below in the year-over-year comparison, I believe that it's mainly due to the -- activities for this year lagged in time, and we did have some festivities during February that also affected the dispatches for February. But when we see the average daily dispatches are similar to the ones we saw last year. We believe that many projects that are about to start and we are participating in many tenders that should start impacting volumes in the and this should be translated into growth of a single digit but in the high range. In terms of margins, as we also commented in our last call. We were in a process of improving prices and that was translated in the figures of the last quarter that we presented. And we expect this process to continue in the upcoming months. And this should have an impact in the recovery of margins for the upcoming quarters.

And our next question comes from Marcelo Furlan from Itau.

There are just 2 follow-ups. The first regarding the sales volumes expected for 2026. When you look into the [indiscernible] data, it is showing a 6% decline for the first 2 months on a year-over-year basis. So I'd like to hear from you guys what could we expect in terms of sales volumes on Argentina in 2026? And my second question is related to prices. You guys posted an increase in the price realization in the 4Q. I just would like to understand what are the company's expectations regarding prices, especially in dollar terms moving through 2026. That's pretty much it.

Well, regarding volumes, as I just mentioned, we are seeing the first 2 months of the year, 6% below on the year-on-year comparison. If you see historical figures, January of last year was a pretty sound month in terms of volume dispatches. And we are seeing that the activity levels are lagging, are still lagging after the holiday season and the start of the year, it's been a little bit delayed. Regarding specifically in February, we have holidays that last year were in March. So that impacted the figure for February. And what we are expecting for the volumes for the upcoming months, we are expecting to see a recovery from the volumes we saw last year. Regarding prices, as you know, we don't give any guidance in terms of pricing. But as we commented last year, by the second half of the year, we started a recovery process that was -- that you could see in the figures of the situation will continue in the first month of this year. We expect this tendency to continue. If there is no sudden changes in the FX, this tendency should continue in the upcoming quarters.

And this concludes the question-and-answer session. I'd like to turn the floor back over to Diego for closing remarks.

Thanks again for joining us today. We appreciate your continued interest in Loma and look forward to reconnecting with you on our next call. Have a great day.

The conference has now concluded. We do thank you for attending today's presentation. You may now disconnect your lines.