Loma Negra Compania Industrial Argentina SA (LOMA) 2023 Q2 法說會逐字稿

Good morning, and welcome to the Loma Negra Second Quarter 2023 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 like now to turn the conference over to Mr. Diego Jalon, 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 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 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 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.

Starting with Slide 2. I'm very pleased to present you this second quarter as we are highly satisfied with the results achieving during this period. The macroeconomic struggle and the increasing political uncertainty as we approach the presidential election has started to affect the level of economic activity. In this context, the construction activity of the cement industry remains resilient, with sales volume tracking second for the second quarter in historical terms despite showing a decrease year-on-year.

Moreover, for first 6 months of the year set a new record, slightly surpassing the mark reached in 2022. Our top line for the quarter reached ARS 51 billion, decreasing 6.5%, primarily due to the contraction of our core segment, Cement, partly compensated [for] the good performance of Concrete, reflecting the positive momentum of the bulk dispatch model.

Our adjusted EBITDA for the second quarter stood at $63 million, flat from the second quarter 2022. When measured in pesos, it showed a decrease of 26.1% compared the same quarter last year adjusted by inflation. Consolidated margin suffered some compression primarily due to decrease in the Cement segment and the increase in 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. In this sense, the U.S. dollar EBITDA per ton stood at $36.80 for the quarter, 1% above last year second quarter. This set of results allow us to keep on maximizing value to our shareholders. In this sense, this quarter we announced 2 dividend payments (inaudible) the one we distribute in January [sums] the total amount of approximately $120 million, representing approximately $1 per ADR.

And we achieved -- we always maintain a strong balance sheet with a low [net debt] ratio to stood at 0.82x. I will now hand off the call to Marcos Gradin, who will help you through our market review and financial results. Please, Marcos, go ahead.

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 2023, the cement national industry sales show resilience. Despite posting a decrease of 1.9% for the quarter, this second quarter is the second best in history, only behind second quarter of 2022. And the cumulative figure for the first half of this year is a record for a semester for the whole industry.

Although still in high figures, bag cement is a dispatched mode showing contraction, reflecting lower demand from the retail sector. On the other hand, bulk cement continues to show solid growth, underpinned by [concrete per] user demand, boosted mainly by private infrastructure projects and public works. In this sense, when seeing the breakdown by dispatch mode, bulk shipments continue to gain terrain, showing a participation of 45% against 43% in second quarter 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. 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 second quarter, where the good top line performance of Concrete and Aggregates partially offset the declines in Cement and Railroad. Cement, masonry and lime segment was down 12.4%, with volume contracting 3.6% year-on-year, mainly due to a decline in bagged cement sales coupled by a softer price dynamic that, even moving with inflation, show a decrease due to higher monthly inflation figures and price adjustment timings.

Concrete revenues strongly increased 26.6% in the quarter. Volumes were up 14.8% in line with the strong momentum of bulk cement coupled with good pricing performance. Private construction and public works, especially urban pavement and road projects in the [boroughs] of Buenos Aires, boosted dispatches.

Aggregate segment showed 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 fracsand and aggregates.

The lower volumes of fracsand 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 declined 21.1% year-over-year with margin contracting by 437 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 a compression of the consolidated figure.

Finally, SG&A expenses as a percentage of revenues increased 68 basis points to 9.4% from 8.7% in the second quarter of 2022. Please turn to Slide 8. Our adjusted EBITDA for the quarter stood at USD 63 million, 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 11.7 billion, with consolidated EBITDA margin of 22.9% 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 536 basis points, mainly affected by lower top line performance. On a per ton basis, EBITDA reached USD 368 per ton, increasing 1% from last year's second quarter. Concrete adjusted EBITDA increased ARS 287 million compared to second quarter 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 million this quarter from ARS 138 million in second quarter 2022, reaching a margin of 5.3%. The segment's positive momentum encountered some operational setbacks in the quarter, which momentarily affected dispatches.

Finally, Railroad adjusted EBITDA decreased ARS 125 million to ARS 42 million for the quarter, with a margin of 0.8%, mainly explained by lower transported volumes of fracsand and aggregates that put pressure on costs and the incidence of the decrease in fracsand in the average transported distance that negatively impacted 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 2.5 billion compared with ARS 5.4 billion on the second quarter of last year, where the lower operational result was coupled with higher financial costs. Total net financial costs stood at ARS 3 billion in this quarter from a total financial cost of ARS 0.7 billion the same quarter last year, mainly due to an increase in financial expenses [related] to a higher debt position and a higher negative effect the exchange rate variation, partially compensated by a positive effect as a result on the 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 24.1 billion and a total debt of ARS 71.7 billion. Consequently, our net debt-to-EBITDA ratio stood at 0.82x compared to 0.37x at the end of 2022. Our operating cash generation stood at ARS 11.9 billion, while the increase in the net profit adjusted with noncash effects, coupled with the positive effect of the change in operating assets and liabilities, explain the positive valuation against second quarter 2022.

Regarding capital expenditures, we allocated ARS 3.1 billion, mostly for maintenance capital expenditures. During the quarter, we increased our debt in USD 77 million, standing our net debt at USD 186 million 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 a not significant part in euros.

As we mentioned before, in the quarter we announced dividends payments for ARS 35.9 billion. 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 USD 120 million, which is equivalent to approximately $1 per ADR.

Additionally, during the quarter, the company issued its Class 2 domestic bond denominated in U.S. dollars, for a total amount of USD 71.7 million 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 ratified the investors confidence in Loma. 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 14. To finalize this presentation, I would like to highlight a few final takeaways. We managed to achieve a solid result despite the prevailing political and macroeconomic challenges during the period that are already affecting the economic, as indicated the last monthly estimate of economic activity published by the index.

As we approach the presidential election, we are aware of the growing political uncertainty, which adds complexity to the business environment. Nevertheless, the industry remained resilient and 2023 will probably end up being the second best year in history in terms of sales volume. This robustness, coupled with our strategic approach, puts us in good shape to navigate through these obstacles and maintain a strong performance.

We have reached significant milestones, reflecting the hard work and dedication of our [internal] teams. We extend our gratitude to our employees, customers, business partners and the communities where we operate for their ongoing support, and we look forward to a prosperous and sustainable future. This 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). The first question comes with Rodrigo Nistor with Latin Securities.

This is (inaudible) filling in for Rodrigo Nistor. I have two. Given the industry's recent deceleration, what are your perceptions for demand in the second half of the year, especially regarding the balance between bag and bulk sales? That's the first one.

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

[Interpreted]. Thank you for your question. Regarding volumes for the next of the -- for what remains of the year, we are expecting a slight deceleration, more or less what we have seen in the last couple of months. Particularly in July, the volume was affected due to the bad weather.

If we see what is going on in August, we can say that volumes are more like of June where the volumes were slightly low 2022. With these projections, we expect to end 2023 even down 2022 figures, but still remaining the second best year in the 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 we have some delay in adjusting prices, we may have some temporary impact in margins. We are not expecting any competitive change of what we have been seeing in the last couple of weeks.

The next question comes with Daniel Rojas with Bank of America.

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.

[Interpreted]. Daniel, thank you for your question. Regarding natural gas, we had last year an increase in the contracts that we closed. Those prices were up to this winter. Starting September and 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 than the ones that we signed in 2022. Looking forward, margins should be better than the ones we saw, because we are not going to see the effect of the winter energy terms.

Margins should be more like the ones we saw in the first Q of this year and the last Q of 2022. Obviously, considering that if the businesses with lower margins increase their weight in the accumulated figures, that is going to impact the consolidated margin.

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?

[Interpreted]. We think that the Concrete business has room to still growing. If the industry gets more professionalized, this channel of Cement should increase its participation.

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

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.

This 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.]