Loma Negra Compañía Industrial Argentina Sociedad Anónima Q1 2025 Earnings Call Transcript

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Provided by Quartr
May 7, 2025

There are 9 speakers on the call.

Operator

Good morning and welcome to the Loma Negra First Quarter twenty twenty five Conference Call and Webcast. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Also, Sergio Faifman will be responding in Spanish immediately following an English translation. Please note this event is being recorded.

Operator

I would now turn the conference over to Mr. Diego Jalon, Head of IR. Please, Diego, go ahead.

Speaker 1

Thank you. Good morning, and welcome to Lumanegra'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 the Board of Directors and our CFO, Marco Hradin. 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 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 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 showing us this morning. I would like to start my presentation by discussing the highlights of the quarter. Then Marco will take you through our market review and financial results. Following that, I will share some final remarks before opening the call to your question.

Speaker 2

Starting with Slide two, we are pleased to present Loma Negra results for the first quarter of twenty twenty five. We begin the year with renewed optimism supported by recent forecast projecting approximately 5% GDP growth for the Argentine economy. This encouraging environment our industry continuing its recovery posting an 11% year over year increase in the first quarter despite the impact of adverse weather condition during the early months. However, this recovery remains in its earliest stage. If the economy meets the project growth, the real economy, particularly the construction sector, should benefits potentially fueling a more robust and system recovery in the months ahead.

Speaker 2

As the year progressed, cement consumption show signs of improvement, which we believe will continue in the coming months. April Fugue Day were nearly 28% higher year over year and up 13% on a sequential basis. Tailing into the quarterly results in the context of global recovery within an industry style characterized by the high capacity. We continue to focus on driving efficiency and controlling cost. These efforts enabled us to improve our margin, which rose by 140 basis points compared to the same period last year.

Speaker 2

We achieved an adjusted EBITDA of $40,000,000 although this represent a 3.2% decrease in pesos, translating into a solid US36 dollars per ton. We remain committed to protecting our profitability while maintaining a strong and resilient balance sheet. On the financial front, our balance sheets remain solid. During the quarter, net debt increased sequentially to $174,000,000 as the first quarter is typically more capital intensive. However, our net debt to EBITDA ratio remained comfortably below one times.

Speaker 2

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

Speaker 3

Thank you, Sergio. Good morning, everyone. Please turn to Slide four. We started the year with positive forecasts for the Argentine economy, which is expected to grow around 5% following a 1.7% contraction in 2024. However, that contraction affected sectors unevenly.

Speaker 3

While agriculture expanded by 31%, construction was the most affected, declining by 18%. Now, with the last two quarters showing signs of economy expansion, a recovery in construction activity is underway. Although the early months of the year were impacted by adverse weather conditions, the industry closed the quarter with an 11% year over year increase. Notably, the March show encouraging figures in daily dispatches. Furthermore, recent data from AFCP for April indicates a most a more robust recovery, with cement volumes growing 28% year over year and 14% sequentially.

Speaker 3

The breakdown of cement sales by dispatch mode remained consistent with historical trends. Bugged cement accounted for 60% of total sales, while bulk cement represents 40%. We are cautiously optimistic about this start to the year. While we remain in the early stages of recovery, we expect the process to gain momentum and strengthen in the coming quarters. Turning to Slide five for a review of our top line performance by segment.

Speaker 3

First quarter top line decreased by 8.9%, primarily due to the weaker performance in the Cement segment, along with declines across other business areas. The Cement, Measured Cement and Lime segment posted a 10.9% revenue drop despite an 8.9% year over year increase in volumes, extending the recovery trend observed in previous quarters. However, the positive effect of higher volumes was offset by a softer pricing environment. That said, prices remained above the evolution of our internal cost structure. Concrete revenues declined by 1.4% in the quarter as a 22.8% increase in volumes was offset by price pressures stemming from a more competitive market environment.

Speaker 3

The rise in sales volume was driven by private infrastructure projects and renewable energy developments in the province of Buenos Aires, along with ongoing residential construction and a slight uptick in public works. Similarly, the Aggregates segment posted a 14.2% revenue decline despite a 29% increase in sales volumes, driven by higher road construction activity in the province of Buenos Aires and Santa Fe. However, a still overall weak market activity continued to weigh on pricing dynamics. Prices were also impacted by the sales mix as road construction projects primarily require fine aggregates, which carry a lower average price. Railroad revenues saw a more moderate decline of 1.2% in the quarter.

Speaker 3

Higher transported volumes, up 19.9%, helped offset softer pricing. Volume growth was primarily driven by increased transport of construction materials and grain. However, the rise in grain transport negatively impacted the average price as grain generates lower revenue per kilometer transported. The main negative event of the quarter was the severe storm that struck Bahia Blanco on March 7, which disrupted the railroad light connection to the city with Neuquet. This caused a negative impact on the transporter of several products as a disruption, whose effects are expected to continue into the second quarter.

Speaker 3

Moving on to Slide seven. Consolidated gross profit declined 4.7%, while gross margin expanded by 116 basis points year over year, reaching 26.4%. In the Cement segment, higher volumes and effective cost management play a key role in mitigating the impact of a softer top line during this quarter. Improved energy inputs cost had a positive effect on variable cost. As in the fourth quarter of last year, the company benefit from thermal energy contracts with year over year tariff reductions, including short term agreements linked to oil production that presented spot opportunities.

Speaker 3

On the electrical energy side, the year over year comparison reflects an increase in prices in dollar terms, primarily due to adjustments in transport and distribution costs implemented last year. However, this effect was softened when measured in pesos. Additionally, lower maintenance expenses and a reduction in salary cost contributed further to overall cost efficiencies. Margin expanded across all segments except aggregates, which continues to be impacted by challenging market conditions despite volume growth. Finally, SG and A expenses decreased by 7.8%, mainly due to lower marketing and IT expenditures as well as a reduced salary cost.

Speaker 3

As a percentage of sales, SG and A reached 11.7%, representing a 14 basis points increase year over year, primarily due to the lower top line. Please turn to Slide eight. Consolidated adjusted EBITDA for the quarter stood at USD 40,000,000, while in pesos it reached USD 39,200,000,000.0, reflecting a 3.2% year over year decline. This decrease primarily driven by lower EBITDA generation in the Cement segment. However, the consolidated EBITDA margin expanded to 24%, representing a year over year increase of 140 basis points.

Speaker 3

In the segment, the adjusted EBITDA margin expanded to 28.9%, up two seventy nine basis points, mainly driven by cost improvements. Costs declined by 21.9% on a per ton basis, supported by higher sales volumes, partially offset by softer pricing dynamics. The Concrete segment saw its adjusted EBITDA margin improvement by four fifty five basis points, reaching minus 5.5% compared to minus 10 in the first quarter of last year. While cost controls and increased volumes contributed positively, they were not sufficient to fully offset the impact of continuing pricing pressure. In the Aggregates segment, the adjusted EBITDA margin fell sharply to minus 24.7% compared to minus 1.1 in the same quarter of last year.

Speaker 3

Although volumes continued to recover, profitability was significantly affected by a higher competitive market and an unfavorable product mix. The Railroad segment also reported a contraction in its adjusted EBITDA margin, while declining by five ninety two basis points to minus 5.5% from 0.4% in the first quarter of twenty twenty four. Volume growth, driven by increased shipments of construction materials and grain, helped support performance. However, the higher share of grain transport, which yields lower bulk revenue per kilometres, pressure margins. This effect was partially mitigated by effective cost controls.

Speaker 3

Moving on to the bottom line on Slide 10. Net profit attributable to owners of the company totaled 21,500,000,000.0 for the quarter compared to a net gain of ARS 79,000,000,000 in the first quarter of twenty twenty four. This decline was primarily driven by a lower financial result, while operation performance remained stable. On a financial front, the main driven driver of the year over year operation was a reduced gain on the net monetary position, reflecting a more moderate inflationary environment. The company reported a net financial gain of 8,900,000,000.0 for the quarter compared to ARS 103,000,000,000 in the same period last year.

Speaker 3

Additionally, net financial expenses declined, supported by lower interest rates, a reduced debt position and a smaller loss from exchange rate difference. Moving on to the balance sheet, as you can see on Slide 11. We ended the quarter with net debt of ARS 187,000,000 and a debt to EBITDA ratio of 0.96x, slightly up from 0.89x at the end of twenty twenty four as this quarter is typically more capital intensive. Cash flow used in operating activities totaled ARS 1,300,000,000.0, a significant improvement compared to the ARS 12,000,000 used in first quarter twenty twenty four, primarily driven by a reduced need for working capital. We invested ARS 11,100,000,000.0 in capital expenditure during this quarter, mainly directed towards the final stage of the 25 kilograms bag projects and maintaining CapEx.

Speaker 3

During the quarter, the company generated ARS 15,000,000,000 for financial activities, mainly from new borrowings, net of loan repayments and interest payments. In U. S. Dollar terms, net debt stood at 174,000,000 with valuation of less than one year. The sequential increase is linked to seasonal capital demands as the first quarter tends to be more capital intensive due to a more aggressive production strategy during the warmer months.

Speaker 3

Dollar denominated debt represents 84% of our total debt, with the remaining in pesos. The company's debt maturity profile remains well balanced with the Class II bond scheduled to mature on December 2025. Now for our final remarks, I will handle the call back to Sergio. Thank you.

Speaker 2

Thank you, Marcos. Now to finalize the presentation, I please ask you to turn to Slide 13. As mentioned earlier, we begin this year with renewables optimist having left behind a challenging 2024. The consolidation of the stabilization plans along with decreasing uncertainty and economic volatility is creating a more promised outlook. If Argentina achieve the project growth currently forecast as around 5% by market consensus and up to 5.5% according present EIF estimates.

Speaker 2

Our industry is well positioned to enter a more sustained and deeper recovery in the coming quarter. And currently, the March and the lesser fuel rates for April show promising signs in the positive trend taking hold. Furthermore, the same change in exchange rate policy and the easing of capital control represents long waits measure that could play a pivotal role in accelerating the recovering process. This change may unlock investment projects that have been put on hold, awaiting greater clarity and flexibility. While there may be short term impact on the sector as industry participant assess to the new framework.

Speaker 2

We believe it's a critical step that will deliver significant long term benefits. Oil conditions remain challenging following the sharp decline our sector experienced last year. We are still in early stage of recovery and the industry continuing to operate We remain focused on driving efficiency and controlling costs with a clear objective of safeguarding our profitability while continuing to deliver excellent products and service to our clients. We have high expectation for the future and confident in our ability to capitalize on the opportunity ahead. This is end of our prepared remarks.

Speaker 2

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

Operator

Thank you. We will now conduct a question and answer session. We also would like to ask that you please limit your questions to one question and one follow-up please. If additional questions you may re queue for those questions and they will be addressed. Also please note that Mr.

Operator

Sergio Faifman will be responding in Spanish immediately following the English translation. Please hold momentarily while we assemble our roster. And the first question comes from Alejandro Obregon with Morgan Stanley.

Speaker 4

Hi, good morning, Loma Negra team. Thank you for taking my question. Mine is perhaps on competitive dynamics. I was hoping if you could elaborate a little bit on what you're seeing on the ground, especially on market share dynamics, perhaps demand at the regional level that could perhaps explain why Loma is growing slightly below industry as we enter into 2025? And if there is any particular trend that you think is starting differently into 2025 in terms of competitive dynamics?

Speaker 4

Thank you.

Speaker 5

Hi, Alejandra. Thank you for your question. The

Speaker 6

truth is that the numbers of market share in the first quarter are according to or following our strategy. In general, we work with a range of market share. Within that range, we are comfortable. And this changes quarter to quarter could be regarding different reasons.

Speaker 5

In

Speaker 6

this first quarter, there was some climate issues that impacted differently in the different regions in Argentina. And the other point is regarding the price strategy. We're and especially in the first months of the quarter with volumes that were not so strong. Any difference in volumes can imply a difference in market

Speaker 5

share. And

Speaker 6

additionally, with this situation of low inflation, if you delay if you have some delay in an adjustment of prompt pricing, that could also impact temporarily existing market share. And going back to the first part of the question, it's not something that we are worried about.

Speaker 4

Thank you very much. That was very clear.

Speaker 5

Good luck.

Operator

Thank you. And the next question comes from Marcelo Farlan with Itau.

Speaker 7

Hi, everyone. Thanks for taking my question here. Guys, my first question is a follow-up for Alejandra's one. This is related to top line going forward. So I'd like to understand in this competitive scenario, if how are you guys seeing the pricing power here going forward?

Speaker 7

So could expect the level that pricing per ton posted in the first Q or in the which was similar to the average of 2024 to continuing going forward. So could expect no prices at this range from $110 1 hundred and 15 dollars per ton going forward? So this is my follow-up. And my question here guys is related to cement volumes for this year. So what range of cement volumes are you guys expecting for this year as you have seen this strong volume is being posted by FCP of 28% increase in April.

Speaker 7

So I'd like to understand what range are you guys expecting for your budget for this year? You could expect maybe a range from 15% to 20% increase on a year over year basis. So it would be helpful as well. Thank you.

Speaker 5

Hi, Marcelo. Thank you for your question.

Speaker 6

Yes. Pricing for this first Q, it's around 115. Surprise that it's sustainable. And if our Argentine costs keep going up, it could also as well. We also believe that in this re shifting of the Argentine economy, there are some costs that may need further adjustments, some going up and maybe some others go down.

Speaker 6

And this could also impact in our total internal costs.

Speaker 5

And

Speaker 6

as our pricing strategy is tied on what happened with our internal costs, these variations could also have some impact on pricing. And that's more or less what happened this year with pricing moving with a better dynamic than our internal costs. Regarding volumes, we believe that there is one scenario until the March, where especially February and the March was very affected by weather. And after that, we saw a recovery moving along the average volumes of the last part of 2024. And in April and May, we are seeing some improvement above this also improved volumes of late March.

Speaker 6

In the last year, the recovery was more concentrated in the second half of the year. So that's why this jump between the in the year comparison in April. So that's why it's possible that going forward, we might see some lower increases in the year on year comparison. But we are optimistic and we maintain our expectations of growing on two digits in 2025.

Speaker 7

Okay. Thank you so much guys.

Operator

Thank you. Thank you. And the next question comes from Daniel Rojas with Bank of America.

Speaker 8

Good morning, Thank you for taking my question. I was hoping to drill down a bit more on volume outlook. If we feel the headlines regarding the Rigi projects and how this is going to incentivize construction and therefore cement volumes. I was curious if you're starting to see orders and if can comment on your backlog regarding potential cement demand going forward from these projects. And on the flip side, also discuss a bit more on mortgages and how this is also or might be pushing demand in the housing sector.

Speaker 8

I'm just trying to get a sense, Steve, could split demand by sector to see where we can see opportunities or weakness. Thank you.

Speaker 5

Hi, Daniel. Thank you for the question.

Speaker 6

Reality is that the forecasts are positive, and we are optimistic about them. In our industry, it's difficult to have some just one or two works that per se are going to wait on the total volumes. There is no work that could represent a significant amount of volume, not for us and not for the industry. What we are seeing, especially in the cockpit segment, is a lot of tenders that are moving forward and for works expecting to start in the second semester. Some of those are linked with EOLIC energy projects and some of those are linked with public works.

Speaker 6

And we are also we also have some projects linked to mining that are almost ready to start and waiting for the last dredge in order to start. Many of these projects are starting to prepare, maybe open the roads and receiving quotes. So they are ready to start in the second semester. What is still lagging is the part of bulk cement and concrete, which should start in the upcoming months.

Speaker 8

Thank you. And if I may follow-up. If I remember correctly, and please correct me if I'm wrong, you were planning a turbine program for La Mali. Is this still the case? Is this already in the works?

Speaker 8

Any update that you can give us?

Speaker 6

As for now, we don't have any updates on that. We have we do have is the test of the wins in LAmali and there are some other parks within the area. A step in that duration, but not through making a part was signing contracts of renewable energy. That allowed us to increment our usage of renewable energy, not only improving our cost structure, but also go in the direction of our strategy in terms of sustainability. And the price of that contract is similar to the price that we will get making our own park.

Speaker 8

Thank you, gentlemen.

Speaker 5

You're welcome, Meny.

Operator

Thank you. And this concludes our question and answer session. I would like to turn the conference back over to Diego Harlon for any closing remarks. Mr. Jalon, do you have any closing remarks?

Speaker 6

Thank you very much for attending the call today. As always, we are here to if you have any other questions or concern, we are here to attend them. And we are looking forward to meet again in our next call. Thank you.

Operator

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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Loma Negra Compañía Industrial Argentina Sociedad Anónima Q1 2025
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