Loma Negra Compania Industrial Argentina SA (LOMA) 2022 Q4 法說會逐字稿

Good morning, and welcome to the Loma Negra Fourth 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 that 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 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 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. Now I would like to turn the call over to Sergio.

Thank you, Diego. Hello, everyone, and thank you for joining us today. As always, I would like to begin my presentation with the 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 2. We are satisfied to share another solid quarter that lead to closing a year that I mean, challenging macroeconomic environment from the industry setting a new record in volume term on the back of the dynamics showed by the construction sector. In this context, our result show that Loma was up to the challenge not only with the volumes growing more than the industry setting a record in shipping, but also reaching an all-time high field rise in terms of EBITDA generation.

The results will have not be possible without the strong commitment to invest in greater capacity and efficiency that the company has carried out in recent years. As you could see from our release yesterday, our adjusted EBITDA for the quarter reached $91 million compared with $63 million in the fourth quarter of 2021.

When measured in pesos which showed an increase of 5.4% compared with fourth quarter of 2021 adjustment by inflation. Please note that the result of the quarter was boosted by the sale of nonstrategic property for $19 million. When looking for our annual figures, we reached $289 million for the fiscal year 2022 from $215 million in 2021, achieving a new record for our company.

We are focused to continue delivering strong results and maintain a world-class EBITDA margin despite the turbulence that we faced this year's in term on energy inputs and high inflation scenario. In this sense, the U.S. dollar EBITDA per ton reached $79 in the fourth quarter, excluding the property side, 2.4% above 2021's fourth quarter.

In this fiscal year, with a major expansion in capacity concluded, we focus our capital allocation on maximizing value to our stakeholders. Based on this, in 2022, we distributed dividends for $126 million and complete share buybacks for $10 million. Always maintaining a strong balance sheet with low leverage ratios.

Please turn to Slide 4 for a review of our ESG highlights for the year. We have a clear purpose that sets our course. We transform life by (inaudible) sustainability growth. That is why we are very pleased to present the second addition of Loma Negra's sustainability reports, maintaining our commitment to inform and share with our stakeholder, the impact of the company, along with our goals and expectations.

Regarding the environmental aspect, our direct greenhouse gas emission intensity stood at 503 kilograms of CO2 per ton of cement, improving 2.3% year-on-year. The incidence of the second line of L´Amalí in our operational efficiency lead to better electrical and thermal intensity, both improving 3% year-on-year.

Thermal energy intensity was also favored due to an increased participation of natural gas in our energy metrics. Clinker factor stood at 69%, slightly above 2021. Our emission and the methodology used to calculate them were revised by third parties. And we are convinced to be in the right track to achieve the goal of 470 kilograms of CO2 per ton by 2030.

On the social side, I would like to highlight 3 of the more relevant projects that we carry on in 2022. Understanding that the construction industry needs to improve in terms of gender equality. For the first time, we incorporate women as mixer trucks operators. In the same sense, 40% of our new employee were woman, increasing 50% the participation of woman in the payroll compared to December 2021.

Regarding the government spend, we moved forward on training our people on the company's integrated programs, where we cover 100% of our employee reinforcing the commitments to ethics and transparency. Additionally, we held the first addition of the compliance week where we're discussing about the importance of following the good practice and analytical approach on decision-making.

We also held the program Impulsar Loma, where we invited 43 companies within customer and supplier joining awareness day on ESG matters. We know that in addition to (inaudible) and managing, we must communicate in (inaudible) and clear while the impacts of our operation. For that, I invite you all to read Loma's sustaintability report as shown us in the challenge of improving every day of being a more sustainable company. I will now hand off the call to Marcos Gradin, who will welcome you through our market review and financial results. Please, Marcos, go ahead.

Thank you, Sergio. Good morning, everyone. Please turn to Slide 6. As you can see on Slide 6, the GDP forecast for 2022 is expected to be above 5%, adjusted upwards from the listed market expectation reports from the Central Bank, as the preliminary figures for the third quarter stood at 5.9% growth.

Construction activity measured by the ISAC, increased 3.5% for 2022 with a retraction in December, where the level of activity of the industry was mainly affected by less working days. Regarding cement national industry sales, despite the retraction showed in the last quarter, the solid demand pushed 2022 accumulated figures to record highs, growing 7% and almost reaching the 14 million tons marked. While the most -- while the first month of 2023 shows again a strong figure.

While bulk cement remained strong, bulk cement is the dispatch modality showing greater dynamics and growth. On the back of Concrete producers demand and private infrastructure projects, both residential and industrial, coupled with moderate level of activity in public works mainly at the municipal and provincial levels. When seeing the breakdown by dispatch mode, bulk shipments continues positive trend. So in a participation of 44% against 40% in the third -- fourth quarter of 2021, closing the year with a participation of 42% showing 3 percentage points growth from 2021.

The first 2 months of this year are showing a more growth. For the year, we remain cautiously optimistic as economic growth in Argentina faces many challenges in the short term. While the election year may add more volatility to an already turbulent scenario.

Turning to Slide 7 for a review of our top line performance by segment. Top line was down 2% in the fourth quarter, mainly due to the decrease in Cement and railroad revenues, partially compensated by the positive performance of Concrete and Aggregates. Cement -- masonry cement and lime segment was down 4.8%, with volumes almost flat, growing 0.9% year-on-year with a softer pricing dynamic.

Concrete revenues increased sharply 29.4% in the quarter. Volumes were up 17.5%, in line with the strong momentum of bulk cement coupled with good pricing performance. In the same way, Aggregates show a great revenue expansion of 44.5%. Volumes increased 30%, primarily on the back of Concrete demand, coupled with strong price performance.

Finally, Railroad revenues decreased 5.5% in the quarter year-on-year. Transported volumes were down 3.2% where the strong transported volumes of Aggregates partly offset the decrease in Cement and fracsand. The decrease in fracsand also impacted the price performance due to its negative impact on the average transported distance.

For the fiscal year 2022, consolidated revenues were up 1.1% to ARS 145.1 billion from ARS 143.5 billion in 2021, while volumes expanded significantly across all segments. Moving on to Slide 9. Consolidated gross profit for the quarter declined 24.9% year-on-year with margin contraction by 810 basis points to 26.5% mainly impacted by a lower price performance of our core segment, higher costs related to higher thermal energy inputs, mainly due to the stimulus plan to increase natural gas production, an increase in maintenance cost and a higher inflation scenario. That was partially compensated with a decrease in electrical energy inputs.

The Compression in Cement and Concrete gross margin was slightly offset by the better performance of Aggregates and a slight improving railroad. SG&A expenses as a percentage of revenues decreased 119 basis points to 8.7% from 9.9%. For the year 2022, gross profit was down 13.6% with a margin contraction of 460 basis points.

Please turn to Slide 10. Our adjusted EBITDA for the quarter stood at $91 million, up 42.7% from $63 million in the same quarter a year ago, while the operational performance was boosted by the sale of a nonstrategic property. In pesos, adjusted EBITDA was up 5.5% in the quarter, reaching ARS 13.2 billion, with consolidated EBITDA margin of 35.8%, expanded 252 basis points year-on-year.

Without the property sales, adjusted EBITDA would have stood at ARS 9.8 billion with an EBITDA margin of 26.7%, 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 reached 39.1%, expanded 170 basis points. Without the property sales, this margin would have stood at 28.7%, affected mainly by a softer pricing dynamic and higher thermal energy inputs.

In a per ton basis, EBITDA reached $49.1 per ton, net of the extraordinary property sale, increasing 2.4% from fourth quarter '21. Concrete adjusted EBITDA decreased ARS 67 million compared to fourth quarter '21, mainly explained by extraordinary results in other gains that affected the quarterly comparison. While a positive price performance at higher volumes compensated the cost increase. Margin contraction of 334 basis points, reaching 2.7%.

Aggregates adjusted EBITDA improved ARS 278 million this quarter from negative ARS 9 million in fourth quarter '21, reaching a margin of 25.9% and showing a great recovery for the segment for the good momentum of the sector is being accompanied by a great operational performance. Finally, Railroad adjusted EBITDA improved ARS 547 million to ARS 146 million for the quarter, with a margin of 5.1%, mainly explained by a recognition of an allowance for doubtful receivables that impacted the result in fourth quarter '21.

For the year, 2022 adjusted EBITDA reached outstanding figure of $289 million, setting a new record half of the company and widely surpassing the record accomplished in 2021. Moving on to the bottom line on Slide 12. This quarter, we posted a net profit attributable to owners of the company of ARS 7.5 (sic) [7.3] billion compared with ARS 5.7 billion on fourth quarter '21, while the operational result was posted by the sale of this nonstrategic property, coupled with positive financial results and less income tax effect.

Total financial gain stood at ARS 0.3 billion this quarter from a total financial cost of ARS 0.3 billion the same quarter last year, primarily explained by the gain on the net monetary position that [bond] compensated the higher financial expense of the -- and the exchange rate difference effect.

For the full year, net profit attributable to owners of the company reached ARS 2.1 billion, decreasing from ARS 12.8 billion in 2021, mainly due to the impact in the financial results generated with the cancellation of U.S. dollar-denominated debt with local funds in third quarter of 2022.

Moving on to the balance sheet. As you can see on Slide 13, we ended the quarter with a cash position of ARS 4.9 billion and total debt at ARS 20.8 billion. Consequently, our net debt-to-EBITDA ratio stood at 0.37x compared to minus 0.12x at the end of 2021. And also showing a sequential decline from 0.54x at the end of the third quarter 2022.

Our robust operation cash generation stood at ARS 11.3 billion where the performance of operational results was boosted by a positive effect of working capital. Regarding capital expenditure, we spent ARS 5.7 billion (inaudible) for maintaining CapEx. During the quarter, we reduced our debt USD 40 million, standing our net debt at USD 90 million at the end of the quarter. Breaking it out by currency, the dollar-dominated debt represents 52% of the total debt, while the rest is in pesos.

As we mentioned before, during 2022, we distributed dividends for $126 million. That represents $1 per year outstanding. Additionally, with the share repurchase program. And in December, we acquired shares for a total amount of ARS 0.8 billion in the quarter and ARS 1.9 billion for the whole year 2022. Now for our final remarks, I would like to hand the call back to Sergio.

Thank you, Marcos. Now to finalize the presentation, I please ask you to turn to Slide 15. 2022 was a year of many challenges and opportunities at the company level we achieved historic economic and operational results and with the fault and commitment of all our collaborators. We continue to consolidate our position as a leader in Argentine cement market.

Looking ahead, we expect growth to continue in 2023 with a more moderate pace considering the high level of activity of the sector that we saw in 2022. (inaudible) subject to the outcome of local political and macroeconomic challenges that usually ascent in election years. In this context, we remain focused on delivering strong results and with our increased capacity, we are in an excellent position to capture future growth.

Also, we are very pleased to present the second edition of our sustainability report, maintaining our commitment to inform and share the impact of our organization management on people, the environment and the economy. We know that we must (inaudible) and clear communicate our operation and each [stunt].

So again, I would like to invite you all to read this report and showing us in the (inaudible) of building a sustainability (inaudible). I would like to conclude by sharing our satisfaction with the results obtained in 2022. I thank 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) Our first question is from Alejandra Obregon with Morgan Stanley.

I have a question on the asset that was sold at Olavarría, whether you could elaborate on what was the asset? And if there could be any more noncore sale asset sales of this kind in the future that could be worth considering? So that's my first question.

[Interpreted]

Alejandra, thank you for your question. The property that we sold, it was linked to our former facility in Sierras Bayas This facility that we are not going to plan to use it in further exploitation of our other properties. The company has some other properties along the country. Some of those have potential results to be used in the future.

And we are always analyzing this context changes if those properties could be add value in some other way for the company.

That was clear. And maybe a follow-up here. What does the sale and proceeds me from a cash management perspective, should we perhaps rethink the dividends and buybacks for the year or even your M&A strategy ahead as cash position grows for 2023?

[Interpreted]

As always, that we mentioned before, we keep looking for maximizing value for our shareholders. And we are always analyzing share buyback programs and further dividend. If we don't have any other project that demands our cash flow generation, probably we are going to keep on focusing on maximizing value to shareholders. We think that, that's the way that we add more value to our shareholders.

Understood. That was very clear. And I have a second question, if I still may. So I'm very curious about the outperformance of the Concrete and the Aggregates division. So I was wondering if you could provide some color on what are you seeing on the ground with regards to permitting of infrastructure and non-resi construction ahead and whether this could be something that could continue to contribute more than you were expecting for 2023.

[Interpreted]

By the end of last year, Concretes and Aggregates were improving its performance. We have been seeing an increase in bulk cement demand. And that, along with an increase in infrastructure projects that give us to those businesses a boost. With the last crisis that we came through many small Aggregates producers were close or they decreased their production, and we keep on investing in those businesses. So we are taking advantage of that now. In both businesses, we expect a 2023 also better than what we saw in 2022.

Understood. That was very clear. Congratulations on the numbers.

Thank you.

The next question is from Rodrigo Nistor with Latin Securities.

I have a question regarding the dynamic between price and volumes for the year. I mean given the high volatility of this election year, do you believe that Loma can replicate or exceed last year's volumes. And then if you've seen a pickup in demand from the public sector already, with regards to pricing, how are you adjusting your strategy to address the current high inflation environment.

[Interpreted]

Rodrigo, thank you for your question. Regarding volumes, we are expecting a level similar to what we saw in 2022 with some slight or (inaudible). Seeing what happens in election years, we could expect some demand from the public sector, principally municipal or provincial level.

We have many works in the pipeline, basically in the bulk dispatch mode. Regarding our price strategy, it's -- we are following the same trend that we have been following in the past quarters. Which is to maintain our price dynamics following the different variables that we have in our P&L, like inflation and the valuation. In the last months, the price has kept -- was in line with the dynamics of inflation.

(Operator Instructions) Showing no further questions. This concludes our question-and-answer session. I would like to turn the conference back over to Diego Jalón for any closing remarks.

Thank you, Barry. Thank you all for joining us today. We really appreciate your interest in our company, and we hope to meet you again in our next earnings call. In the meantime, we remain available for any questions that you may have. Have a nice day. Bye.

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

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]