Loma Negra Compañía Industrial Argentina Sociedad Anónima Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 10, 2023

There are 7 speakers on the call.

Operator

Good morning, and welcome to the Loma Negra Second Quarter 2023 Conference Call and Webcast. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Also, Mr. Sergio Faitzman will be responding in Spanish immediately following an English translation.

Operator

Please note that this event is being recorded. I would like now to turn the conference over to Mr. Diego Halon, Head of IR. Please, Diego, go ahead.

Speaker 1

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 will be Sergio Feifman, our CEO and Vice President of Board of Directors and our CFO, Marco Gradin. Both of them will be available for the Q and A session.

Speaker 1

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 filing with the SEC. We resume 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 of the corresponding financial measures is included in the earnings press release.

Speaker 1

Now I would like to turn the call over to Sergio.

Speaker 2

Thank you, Diego. Hello, everyone, and thank you for joining us this morning. I would like to begin my presentation with a discussion of the highlights of the quarter and then Marcos 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 your questions.

Speaker 2

Starting with the slide 2. I am very pleased to present you this Q2 as we are highly satisfied with the results achieved during this period. The macroeconomic struggle and the increasing political uncertainty as we approach the presidential election started to affect the level of economic activity. In this context, the contraction activity at the cement industry remain resilient with shale volume tracking 2nd for the Q2 in historical terms despite showing a decrease year on year. Moreover, for 1st 6 months of the year set a new record, slightly surprising the mark reached in 2022.

Speaker 2

Our top line for the quarter reached ARS51 1,000,000,000, decreasing 6.5 percent, primarily due to contraction of our core segment, Cement, partly compensated for the good performance of concrete reflecting the positive momentum of the bulk dispatch model. Our assessment EBITDA for the Q2 stood at CAD63 million flat from the Q2 2022. When measuring pesos, it showed a decrease of 26.1% compared the same quarter last year as affected by inflation. Consolidated margin suffered some compression primarily due to decrease in the cement segments and the increased participation in the top line of concrete with lower margin. Despite the contraction, the margin for the cement segment continued to rank among the world class EBITDA margin in the industry.

Speaker 2

In this sense, the U. S. Dollar EBITDA per ton stood at $36.8 for the quarter, 1% above last year's Q2. This set of results allow us to keep on maximizing value to our shareholder. In this sense, this quarter we announced 2 dividend payments that aiding the one we distributed in January sums the total amount of approximately $120,000,000 representing approximately $1 per hour And we achieved the always maintained a strong balance sheet with a low internets ratio to stood at 0.82 times.

Speaker 2

I will now hand off the call to Marcos Gradin, who will welcome you for our market review and financial results. Please, Marcos, go ahead.

Speaker 3

Thank you, Sergio. Good morning, everyone. Please turn to Slide 4. As you can see on this slide, the last market expectation report from the Central Bank worsened their estimates for 2023, reflecting the increase in economic uncertainty and a lower level of overall activity. While the construction activity shows mixed results for the first half of twenty twenty three, the semi national industry sales show resilience.

Speaker 3

Despite posting a decrease of 1.9% for the quarter, This Q2 is the 2nd best in history, only behind Q2 of 2022 and the cumulative figure for the first half of this year is record for a semester for the whole industry. Although still in high figures, bagged cement is at dispatch mode showing contraction, reflecting lower demand from the retail sector. On the other hand, bulk cement continues to show solid growth, underpinned by concrete producer demand, boosted mainly by private infrastructure, projects and public works. In this sense, when seeing the breakdown by dispatch mode, bag shipments continue to gain terror, showing a participation of 45% against 43% in Q2 of 2022 and reaching a record high for the quarter. Even considering the strong resilience of the cement industry, the lower activity level of the economy in the recent months, together with a high inflation, reflects the effect of the economic challenges coupled with an increased uncertainty driven by the upcoming elections.

Speaker 3

For the second half of the year, we expect volumes to be slightly below the 2022 figures, but to remain in robust shape in historic terms. Turning to Slide 5 for a review of our top line performance by segment. Top line was down 6.5% in the 2nd quarter, where the good top line performance of Croqueta and Aggregates partially offset the declines in Cement and Railroad. Cement, Mesoil Cement and Lime segment was down 12.4%, with volume contracting 3.6% year on year, mainly due to a decline in bad cement sales, coupled by softer price dynamics that, even moving with inflation, saw a decrease due to higher monthly inflation figures and price adjustment timings. Concrete revenue strongly increased 26.6 percent in the quarter.

Speaker 3

Volumes were up 14 0.8%, in line with the strong momentum of bulk cement, coupled with good pricing performance. Private construction and public works, especially urban pavement and routes projects in the province of Buenos Aires, boosted dispatches. Aggregate segments show an expansion of 1.8%, with a sales volume down of 8.3%, mostly due to operational setbacks that affected the dispatches, compensated with strong price performance. On the other hand, railroad revenues decreased 13.4% in the quarter year on year. Transported volumes were down 9.6%, affected by the decrease in transported volumes of Roxand and Aggregates.

Speaker 3

The lower volumes of Ruxant also affected the average price per ton, as it is by far the products with longer average transported distance. Moving on to Slide 7. Consolidated gross profit for the quarter declines 21.1% year over year with margin contracting by 4 37 basis points to 23.7%, mainly impacted by a lower price performance and sales volumes of our core segment, partially compensated by better performance in Concrete. Regarding the Cement segment, a decrease in electrical energy inputs and lower depreciations helped to mitigate the gross profit compression. Also, the increase in sales volumes in segments with lower margins, in this case concrete, also contributed to the compression of the consolidated figure.

Speaker 3

Finally, SG and A expenses as a percentage of revenues increased 68 basis points to 9.4 percent from 8.7% in the Q2 of 2022. Please turn to Slide 8. Our adjusted EBITDA for the quarter stood at $63,000,000 remaining flat from the same quarter a year ago and maintaining very strong figures. In pesos, adjusted EBITDA was down 26.1% in the quarter, reaching ARS 11,700,000,000 with consolidated EBITDA margin of 22 point 9%, contracting 608 basis points year on year, mainly affected by Cement margin contraction and the higher participation in the top line of Concrete, a segment with lower margins. Cement adjusted EBITDA margin stood at 27.1%, contracting 5 36 basis points, mainly affected by lower top line performance.

Speaker 3

In a per tonne basis, EBITDA reached US36.8 dollars per tonne, increasing 1% from last year's Q2. Concrete adjusted EBITDA increased to ARS 287 1,000,000 compared to Q2 of 2022, mainly explained by the positive price performance and higher volumes. Margin expanded 580 basis points, reaching 2.7%. Aggregates adjusted EBITDA decreased ARS 62,000,000 this quarter from ARS 138,000,000 in Q2 2022, reaching a margin of 5.3%. The segment's positive momentum encountered some operational setbacks in the quarter, which momentarily affected dispatches.

Speaker 3

Finally, railroad adjusted EBITDA decreased ARS 125,000,000 to ARS 42,000,000 for the quarter, with a margin of 0.8%, mainly explained by lower transported volumes of frac sand and aggregates that put pressure on cost and the incidence of the situation fraction in the average transported distance that negatively impact the average price per ton. Moving on to the bottom line on Slide 10. This quarter, we posted a net profit attributable to owners of the company of ARS 2,500,000,000 compared with ARS 5,400,000,000 on the Q2 of last year, where the lower operational result was coupled with higher financial cost. Total net financial cost to be adjusted with non cash effects, coupled with a positive effect of the changes in operating assets and liabilities, explained the positive aberration against Q2 of 2022. Regarding capital expenditures, we allocated ARS3.1 billion mostly for maintenance capital expenditures.

Speaker 3

During the quarter, we increased our debt in USD 77,000,000 standing our net debt at $186,000,000 at the end of this quarter. Breaking it down by currency, the total denominated debt represents 53% of the total debt, while the rest is in pesos and an up significant part in euros. As we mentioned before, in the quarter, we announced dividends payments for ARS 35,900,000,000. The one announced in May was paid in kind through Argentine T Bills, while the second one was announced in June and the payment was made effectively in July and it was paid in cash. So far this year, we have paid approximately US120 1,000,000, which is equivalent to approximately $1 per ADR.

Speaker 3

Additionally, during the quarter, the company issued its Class II domestic bond denominated in U. S. Dollars for a total amount of $71,700,000 with maturity in December 2025 and accruing interest at a rate of 6.5% per year. The response for the market from the market was very positive and ratifies the investors' confidence in Loma. Now for our final remarks, I would like to hand the call back to Sergio.

Speaker 4

Thank you.

Speaker 2

Thank you, Marcos. Now to finalize the presentation, I please ask you to turn to Slide 14. To finalize this presentation, I would like to highlight a few final takeaways. We managed to achieve this solid result despite the prevailing political and macroeconomic challenge during the period that are already affecting the economic as indicated, the last monthly estimate of economic activity published by the Indecra. As we approach the pressing selection, we are aware of the growing political uncertainty, which adds complexity to the business environments.

Speaker 2

Nevertheless, the industry remain resilient and 2023 will provide end up by the 2nd best year in history in terms of sales volume. This robustness coupled with our strategic approach put us in good shape to navigate through this obstacle and maintain a strong performance. We have reached significant milestone reflecting the hard work and dedication of our Engle teams. We extend our gratitude to our employee, customer, business partner and the community where we operate for their ongoing support and we look forward to a prosperous and sustainable future. This ends of our prepared remarks.

Speaker 2

We are now ready to take a question. Operator, please open the call for questions.

Operator

Thank you. We will now conduct a question and answer session. Also, please note that Mr. Sergio Feitman will be responding in Spanish immediately following an English translation. The first question comes with Rodrigo Nistor with Latin Securities.

Operator

Please go ahead.

Speaker 5

Hi, this is Pedro Moura filling in for Rodrigo Nistor. Thanks for the opportunity of asking questions. Well, I have 2. Given the industry's recent acceleration, what are your projections for demand in the second half of the year, especially regarding the balance between bulk and bulk sales? That's the first one.

Speaker 5

Well, the second one is additionally, considering the election year and ongoing inflation, what do you expect in terms of pricing and cost pressures? And what can you do to offset this negative impact?

Speaker 4

Regarding volumes for the next of the for what's remained for the year, we are expecting a slight deceleration, more or less what we have seen in the last couple of months. If we see what is going on in August, we can say that volumes are more like of June, where the volumes were slightly below 2022. With these projections, we expect to end 2023 even down 20, 22 figures, but still remaining the 2nd best year in history. Regarding prices and margins, we keep on our strategy of implementing prices, keeping our margins and considering what is going on with our costs. What happens with this high inflation period is when you have some delay in adjusting prices, you may have some temporary impact in margins.

Speaker 4

We are not expecting any competitive change of what we have been seeing in the last couple of years. Years.

Operator

The next question comes with Daniel Rojas with Bank of America. Please go ahead.

Speaker 6

Good morning, gentlemen. Thank you for taking my call. Along those lines for the second half of the year and the outlook regarding natural gas prices, what are you expecting the trend to be and how do you expect this to impact margins? And this in light of the fact that you've started hooking up to the Nestor Kirchner gas pipeline? Thank you.

Speaker 4

Regarding natural gas, we had last year an increase in the contracts that we closed. Those prices were up to this winter. Starting September October, we started new contracts with prices below the ones we closed last year. As a difference from what we did in the past, these new contracts have longer terms that the work has defined in 2022. Looking forward, margins should be better than the ones we saw because we're going to we're not going to see the effect of the winter energy returns.

Speaker 4

Margins should be more like the ones we saw in the 1st Q of this year and the last Q of 2022. Obviously, considering that if the businesses with lower margins increase their weight in the related fields, that is going to impact the consolidated market.

Speaker 6

And in the concrete business, the high growth we've been seeing, do you think it will continue into the second half and early part of next year? Or should we expect it to normalize from here on? Thank you.

Speaker 4

If the industry gets more professionalized, this channel of selling cement should increase its participation.

Speaker 6

Okay. Thank you.

Speaker 4

You're welcome.

Operator

Thank you. And this concludes our question and answer session. I would like to turn the conference back over to Diego Helen for closing remarks.

Speaker 4

Thank you for joining us today. We truly appreciate your interest in Loma. As we look forward to meet you again in our next call, we remain available for any questions that you may have. Thanks again, and have a nice day.

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Earnings Conference Call
Loma Negra Compañía Industrial Argentina Sociedad Anónima Q2 2023
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