Loma Negra Compania Industrial Argentina SA (LOMA) 2022 Q3 法說會逐字稿

Good morning, and welcome to the Loma Negra Third Quarter 2022 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 Jalon, Head of Investor Relations. 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 market 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 filing 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 on 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 today. 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.

Starting with Slide 3. We are glad to present a very good third quarter with a result that shows the reverses of Loma on the back of positive momentum for the Cement industry despite the challenging macroeconomic scenario. Leverage in our recent capacity expansion that got us more productivity, flexibility and more efficiency. We are accompanying the growing demand with solvency, being prepared to observe future market growth.

As you will see from our release yesterday, our adjusted EBITDA for the quarter reached $68 million compared with $51 million in the third quarter of 2021, achieving a record for the quarter. When measured in pesos, this showed a decline of 12.7% compared with the third quarter 2021 adjustment by inflation. Our third quarter are usually impacted by higher energy inputs. Our consolidated adjustment EBITDA margin stood at 22.1%, while the U.S. dollar EBITDA per ton reached 34.9%, 16% above 2021's third quarter.

We mentioned in our last call, in July, we distributed a second dividend of $81 million for an accumulated total of $126 million this year. In the same sense, we recently approved a new share repurchase program for ARS 1 billion that will be in place till the end of the year.

I will now hand off the call to Marcos Gradin, who will take you through our market review and financial results. Please, Marcos. Go ahead.

Thank you, Sergio. Good morning, everyone. As you can see on Slide 4, the GDP forecast for 2022 was adjusted upwards in the last market affectation report from the Central Bank, reaching 4.1% from the previous 3.4% as the premium figures for the second quarter stood at 6.9% growth. While looking at the construction activity figures, the level of activity measured by the ISAC shows that the tendency of the previous quarter remains strong, show residence, I mean political and macroeconomic turbulence. In particular, cement national industry sales are going through an outstanding momentum, and in this quarter in a new historical level, up 10% from third quarter '21, while the 9-month accumulated volumes show an increase of 11%. Sales of bulk cement maintained a solid evolution supported by the robust demand of the retail sector. While bulk cement continues to be dispatch modality that is exhibit integrated dynamism, driven by a higher level of activity in private infrastructure projects, residential and industrial, accompanied by a moderate level of activity in public works mainly in the municipal and provincial levels.

When seeing the breakdown by dispatch amount, bulk shipments continue to gain turn, showing a participation of 43% against 40% in third quarter of last year. The (inaudible) period quarter continues.

Even though the rest in October data show a slight decline compared to October 2021 and also a sequential decline against September, this is mainly explained by the lease work in basis October while looking at the average daily volume dispatch, October remains above September figures. We are optimistic that the industry will break the 14 million tons for the first time in history this year.

As we mentioned before, even though we are optimistic for the quarter, the microeconomic challenges, especially decreasing inflation and the FX distortion could overshadow future growth. On the other hand, the political scenario will probably increase extension as we approach the coming presidential election of next year.

Turning to Slide 5 for a review of our top line performance by segment. Top line was up 4.2% in the third quarter, mainly due to the increase in cement revenues, coupled with a positive performance of concrete and aggregates that compensated the decrease in revenue. Cement measuring Cement online segment was up 4.8% with a strong expansion of volume of 12.9% year-on-year with a softer pricing dynamic. Concrete revenues increased sharply 40.7% in the quarter. Volumes were up 35.6%, in line with the strong momentum of bulk cement coupled with good pricing performance. In the same way, aggregates show a robust revenue expansion of 54.7%, volumes increased 65% primarily on the bulk of concrete demand, while average price performance was affected by product mix.

Finally, railroad revenues decreased 7% in the quarter year-on-year. Transported volumes were up 5.5%, boosted by construction materials, while price was negatively impacted by product mix that conducted to a lower average transported distance due to the construction of transported volumes of fracsand.

Going to Slide 7. Consolidated gross profit for the quarter declined 13.9% year-on-year with the margin contraction by 448 basis points to 21.3%, mainly impacted by a lower price performance of our core segment, highest depreciation to the competition of the L'Amalí second line and higher energy inputs related to the winter period, partially offset by appropriate cost management due to our operational improvements and more natural gas availability.

Selling and gross margin contraction was slightly offset by a better performance of concrete and good results in aggregates, both reverted negative margins in third quarter '21. SG&A expenses as a percentage of revenues remained flattish, slightly increasing by 11 basis points to 7.8% from 7.6%.

Please turn to Slide 8. Our adjusted EBITDA for the second quarter stood at $68 million, setting a new record for the quarter, up 33.9% from $51 million in the same quarter a year ago, boosted by our top line and other great cost management. In pesos adjusted EBITDA was down 12.7% in the quarter which is ARS 7.5 billion with consolidated EBITDA margin of 22.1%, contracted by 426 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 segment adjusted EBITDA margins reached 24.3%, contracting 516 basis points, mainly due to a softer pricing dynamic and higher energy inputs, partially offset by an increase in sales volume. In a per ton basis, EBITDA reached $34.9 per ton, increasing 16% from third quarter '21. Concrete adjusted EBITDA increased ARS 155 million compared to third quarter '21, mainly explained by a positive price performance and higher volumes, with margin expansion of 637 basis points, reaching 2.4% and reverting negative figures. Aggregate's adjusted EBITDA improved from ARS 1 million in third quarter '21 to ARS 101 million this quarter, reaching a margin of 12.2% and showing a great recovery for the segment, where higher sales volume was supported by strong productive performance coupled with logistic efficiencies.

Finally, railroad adjusted EBITDA decreased to ARS 104 million to negative ARS 3 million for the quarter, with a negative margin of 0.12%, mainly due to the impact of price performance affected by product mix and a lower average transported distance despite the volume expansion.

Moving on to the bottom line on Slide 10. This quarter, we posted a net loss of ARS 12.2 billion compared with ARS 2.7 billion profit of third quarter 2021, primarily affected by the financial results. Total financial costs stood at ARS 15.3 billion this quarter from a total financial cost of ARS 0.6 billion the same quarter last year, primarily explained by the factors used by the cancellation of dollar-denominated debt with local funding coupled with the increase of the total debt position. This increase in net financial expense was partially compensated by the gain on the net monetary position.

Moving on to the balance sheet. As you can see on Slide 11, we ended the quarter with a cash position of ARS 3.5 billion and total debt at ARS 23.2 billion. Consequently, our net debt-to-EBITDA ratio stood at 0.54x compared to minus 0.12x at the end of 2021. Our robust operation cash generation stood at ARS 11.4 billion, reflecting a positive effect of taxes paid in the comparison year-on-year that compensated higher working capital needs. Regarding capital expenditure, we spent ARS 1.6 billion, mostly for maintenance CapEx after the termination of the L'Amalí expansion and the corresponding reduction in capital requirements.

During the quarter, we increased our debt in $48 million, standing our net debt at $134 million at the end of the quarter. Breaking it down by currency, we reduced our exposure to dollar-dominated debt that now represents 40% of total debt, while the rest is in pesos. This rebalancing also seeks to take advantage of the current negative real rates in short-term pesos. Additionally, in July, we distributed a dividend of $31 million that considers the dividend paid in April represents a dividend yield of approximately 17% and $1 per ADR outstanding. Although the slight increase in dividends, the balance sheet of Loma remains very strong with low leverage ratios.

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. As you could see, the cement market is maintaining its good momentum, and we are confident that this tendency is going to continue as the main driver remains in place. Probably this year, the industry is going to set a new record reaching for the first time the 13 million tons mark. In this context, we are profiting for our recent invested in capacity that not only allow us to at attend the high level of activity shown by the industry but also give us the platform to observe future growth. On the other hand, the current political and macroeconomic situation remains very dedicated, the FX restriction and the increase in inflation are difficult challenging for the economy in the short term.

In addition, the political scenario could turn more complex as we get closer to the presidential election. Regardless of this difficult context, we are confident in the resilience of the industry, and we are causally optimistic for the upcoming quarter.

Finally, this November, Loma commemorates its 5-year listing anniversary, both in the New York Stock Exchange and the Buenos Aires Stock Market. Without a doubt it has been (inaudible) where we have grown and evolved as a company. And for that, I want to thank you our people and stakeholders for making this possible.

This is then of our prepared remarks. We are now ready to take questions. Operator, please open the call for the questions.

(Operator Instructions) Also, please note that Mr. Sergio Faifman will be responding in Spanish immediately following an English translation. (Operator Instructions) The first question today comes from Daniel Rojas with Bank of America.

Your cash flow generation has been benefiting from your lower CapEx requirements after finishing L'Amalí. My question is regarding what level of CapEx should we expect going forward? Basically, if it's just going to be maintenance, the absolute level. Any color that you can give us.

Daniel, this is Marcos. I would say that maintenance CapEx should be on the order of $40 million to $45 million for a year. And additionally, in the upcoming years, in this year -- in 2023 and 2024, where we're investing in equating our facilities to 25 kilos bags, yes, and that's going to be a total sum of nearly $50 million for the next 2 to 3 years.

Okay. And in terms of pricing, it's been soft throughout the year in real terms. Going forward, do you see any possibility to recuperate pricing in real terms? Or how do you think the challenging environment will make that more difficult?

Daniel, prices are moving by inflation or slight of inflation. And we are not seeing this year any delay in that moment.

(Operator Instructions) This concludes our question-and-answer session. I would like to turn the conference back over to Diego Jalon for any closing remarks.

Thank you for joining us today. As always, we really appreciate your interest in Loma, and we look forward to meeting you again in our next call. In the meantime, the team remains available for any questions that you may have. Thank you, and have a good day.

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