Loma Negra Compania Industrial Argentina SA (LOMA) 2023 Q4 法說會逐字稿

Good morning and welcome to the Loma Negra fourth 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 this event is being recorded.

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

Thank you. Good morning and welcome to the 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 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.

(interpreted) Thank you, Diego. Hello, everyone, and thank you for showing 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'll provide some final remarks and then we'll open the call to questions.

Starting with slide 2, I am delighted to share with you our performance for the final quarter of the year, despite some current challenging, resulting for the political transition and involving economic environments, which impacted second, some exit activity level, the industry concluded the year with dispatch volume that has only begun the record year of 2022.

In this context, Loma has once again demonstrated its resilience, delivering another solid set of results despite the decrease in our top line with reaching ARS99 billion, a decrease of 13.2%. This decline was primarily due to the volume contraction in our core segment.

Adjusted EBITDA stood at $61 million for the quarter or ARS22.7 billion. The year-over-year comparison is affected by the sale of non-core assets for $19 million in the fourth quarter of 2022. Excluding this effect, EBITDA decreased by 25.8%.

Consolidated assessment EBITDA margin for the quarter reached 22.8%, contracting by 389 basic points once we eliminated tax flow, the result for the base of combination. On the other hand the USD EBITDA per ton stood at $79 for the quarter, almost flat year on year once we subtracted the asset sale and improving by 7% secondary basis.

And looking to our annual fee raise in 2023, we reported a solid EBITDA of $252 million with an EBITDA margin of 23.8%, on the financial side uses our glass for domestic bonds, the year we have successfully you out for local bond issuance, taking advantage of the favorable moment for solid corporate credits during the quarter, we can sell all the remaining cross-border short-term debt reaching and net debt of $174 million.

Please turn to slide 4 for a review of our ESG highlights for the year. We take great satisfaction in releasing a new edition of the nominated our sustainability report, aiming to share our show me and dedication to sustainable development with all stakeholders.

Regarding[ Daimler], our total greenhouse gas emission intensity, Scope 1 and 2, it stood up at 527.76 kilograms of CO2 per tonne of sentimental material, increasing 0.75% year over year due to the variation of the clinker stock compare to 2022.

However without considering the [clinque] stock variation performance was positive with a reduction of 1.4% in kilogram of CO2 per tonne of cement equivalent in line with our 2030 sustainability commitments. We reduce the water extraction by 15.5% and increase 10% our solid was generation.

One of our main commitments in terms of environmental sustainability is the reduction of our carbon footprint and the goal of achieving carbon neutrality in concrete by 2015, we have a long way to go into the suite of these objectives that was consolidated in 2023 with the cumulative roadmap to 2030.

This commitment includes an action and investment plan basis, meaning on four dimensions, clinker factor settlement, Edison, electric efficiency and fuel mix. In pursuit of this goal, we ferment [interlaria] and interdisciplinary teams with the proposal of continuing to work on a portfolio of media solution and investments required to achieve the reduction goal set for 2030.

On the social side, we are convinced that through a strategic partnership, we can transform a reality transfer, a more inclusive future. We maintain implementation of our program in different territories of the country benefit more than 50,000 people guided by our principle.

We are all normal. We sell the first diversity and inclusion week, and we're reaching more than 50,000 hours of training for our employees, specifically in training of diversity, equity and inclusion topic speeches, 648 hours of training.

Regarding the government aspect, we continue pricing our people of the company interim products and is we cover 100% of our employee and reinforcing the commitment to ethical and transparency. We sell the complaint week for the second time, which was an opportunity to reinforce message and share content related to ethical integrity issue.

Antitrust ethical line, ethical behavior and cybersecurity with different tools and mechanisms, we're reaching more than 800 employees continue to evolve and thrive in the past commitment to the selling share that the context improves annually it is at, but that was through in an ethical responsible assistant 11 months. This report reflects such, but I invite you to read it to now the most outstanding result of our call.

I will now turn the call to Mike O'Grady, who will walk you through our market overview and financial results. Please, Marcos, go ahead.

Thank you, Sergio, and good morning, everyone. Please turn to slide 6, as you can see on the upper left chart, the most recent estimates indicate a negative performance of the economy for 2023 of around 1.6% in the same sense, the market expectation report from the Central Bank, Cygnus and negative performance for 2024 showing an increase of 3% and then a recovery in 2025.

When we dive into the numbers for our industry, we can see that after a positive October, construction activity indicator shows a significant drop in the last two months of the quarter. Deepening the drop in January following this trend segment, this budget show a double digit decrease in November and December and a sharp drop in the first half of 2024.

After several months of election process volatility, sales in international cement industry are being affected by the political transition and the consequent effects of tighter economic bodies. The industry spoke cement dispatches took a hit due to lower level of activity in the fourth quarter, decreasing by 12% year on year, while bulk segment posted a moderate construction of 5%.

When looking at the breakdown by dispatch mode for the quarter, while shipments represent 44% of the total dispatches, a line with a figure reached for the whole year, 2-percentage points above the fourth quarter of 2022.

After the conclusion of the electoral year, it would be necessary to the spend uncertainty about the economic direction and find a certain political balance to enable our activation of the industry and laid the foundations for a stage of genuine growth.

Turning to slide 7 for a review of our top line performance by segment, the fourth quarter top line show a decrease of 14.2%, mainly attributed to the decline in the cement segment, also followed by the other businesses, the segment measure is [79] segment was down 16% with volumes from contracted by 10.1% year on year, mainly due to the impact of the economic environment on both more dispatches.

[Maxim] and sales also decreased following the trend of previous quarter. Lower volumes were coupled with softer by dynamic, which disposal adjusted for inflation experienced a decline due to elevated monthly inflation figures and the timing of the price adjustments.

Concrete revenues decreased by 12.3% in the quarter, mainly due to the 17.5% decrease in dispatches major projects, which are their market target for our concrete operation experienced a slowdown due to macroeconomic certainty.

While public works and does standby mode after the elections awaiting future definitions. Aggregates segments show a decrease of 9.5%, with sales volumes down 12.3%, partially offset by a good price performance.

In the same day, railroad revenues decreased by 10.5% in the quarter, transported volumes were down by 9%, primarily affected by a lower level of activity in the construction sector, which impacted our main cargo shippers, especially in aggregates additionally the storm that hit back in December, temporarily knockout of service, the two plants for which our photochemical store sites.

For the FY 2023 consolidated revenues were down 6.3% to ARS422 billion from ARS452 billion in 2022, with some volumes contracted rate 4.5% from the record year of 2022.

Moving on to slide 9. Consolidated gross profit for the quarter declined 14.3% with a margin contraction of only 36 basis points to 26.2%, mainly due to the cost improvement in SME segment and lower depreciation.

Regarding the [cement] segment, the reduction of energy inputs were mainly driven by lower consumption of thermal energy per ton, coupled with a decrease in natural gas prices. In some sense, the cost of electrical energy improve as a proportion of hydraulic energy who had, which has a lower cost, increasing the country's electrical generation metrics.

Finally, while SG&A expenses remain on a flat level of coordination of only 0.1% year on year as a percentage of sales each, our year-over-year increase of 132 basis points reaching 10% due to the aggressive deadline. For the fiscal year 2023, gross profit was down 14.2% with a margin contraction of 192 basis points.

Please turn to slide 10. Our adjusted EBITDA for the quarter stood at $61 million, reaching a very robust figure amidst a challenging environment in pesos adjusted EBITDA was down 44.7% in the quarter, reaching ARS22.7 billion with accelerated EBITDA margin of 22.8%.

As mentioned earlier, the year-on-year comparison is affected by our non-core asset sale in the fourth fourth quarter of 2022 to eliminate that effect, adjusted EBITDA in pesos was down 25.8% with margin contracting by 389 basis points in line with previous quarterly results.

Cement segment adjusted EBITDA stood at 26.6%, contracted 217 basis points excluding the sale of assets. The cost improvement that I mentioned before, mainly in energy inputs, partially offset the lower top line performance.

In our per-ton basis, it reached $39 per ton with almost no variation year-on-year once we subtract asset sales has improved by 7% from the previous quarter. Concrete adjusted EBITDA decreased by [ARS161 million] compared to Q4 of a year ago.

We have a margin contraction of 129 basis points, reaching 1.5%. Deposit cost and access control keep couldn't fully offset the lower top line performance.

The adjusted EBIT margin of aggregates contracted to 14.2% from 25.9% in the fourth quarter of 2022, mainly due to higher sales costs and the effect of lower volumes partially compensated or compensated by a positive price performance.

Finally, the adjusted EBITDA margin of the railroad contracted 922 basis points to minus 4.2% in the fourth quarter from 5.1% in the first quarter of 2022, principally due to higher costs coupled with lower transported volumes. For the full year 2023 adjusted EBITDA reached the figure of USD252 million.

Moving on to the bottom line on slide 12, this quarter, which posted a net loss attributable to owners of the company of ARS19.8 billion compared to a net profit of ARS22.7 million in the fourth quarter of 2022. The higher total financial costs due to the December showed devaluation of the Argentine pesos, along with the sale of the non-core assets in the fourth quarter of 2022.

Other principal reasons for the average, total net financial costs stood at ARS14.3 billion this quarter from a total financial gain of ARS1.2 billion the same quarter last year, mainly due to the impact of the devaluation of the peso exchange rate difference, partially offset by a gain the net monetary position.

In some sense, we had an increase in financial expenses due to higher debt position for the full year, net income attributable to owner of the company increased 70.7% year on year to ARS10.3 billion from ARS6 billion in fiscal year 2022.

And then as a result of a lower total net financial costs, coupled with lower tax position, that's compensated a lower operational result. Moving on to the balance sheet as you can see on slide 14, we ended the quarter with a cash position of ARS6.7 billion and our total debt of ARS147.4 billion in this quarter.

Consequently, our net debt-to-EBITDA ratio stood at 1.4 times compared to 0.37 times at the end of 2022, our operation cash generation stood at ARS26.2 billion, further decrease in net profit adjusted to reconciled to net cash provided by operating activities was partially compensated by a positive effect of the working capital, mainly due to lower income tax advances.

Regarding capital expenditures, we allocated ARS18.2 billion, mostly for maintenance CapEx and ongoing projects of adapting our dispatch facilities to use 25 kilograms bags. During the quarter, the Company used cash in financing activities for ARS31 billion, mainly for the repayments of borrowings and interest.

We also issued a class four bond that, along with short-term borrowings partially offset this effect in dollar terms, our total debt reached $182 million funding our net debt at $174 million at the end of this quarter with a decrease of $41 million during the quarter.

During this period, we canceled the remaining short-term USD cross-border debt, extending the average duration and reducing the financial costs. Now in 2024, we only have maturity pesos. Breaking it down by currency, the dollar then we net the debt represents 76% of the total debt, while the rest is pesos.

Essentially, as we mentioned before, during the quarter, the company issued its class for domestic bonds denominated in USD for a total amount of $10 million with maturity in the second quarter of 2026 and accruing any service rate of 6% per year. 2023, we have paid approximately USD120 million in dividends, which represents $1 per year, similar to what we paid in 2022.

Now for our final remarks, I would like to hand the call back to Sergio. Thank you.

(interpreted) Thank you, Marcos. Now to finalize the presentation. I please ask you to time to slide 15. We were very proud of the result achieved by Noma in 2023, despite the lower volume of the fourth quarter that were more affected by the end of the period due to the political transition.

We must lose say that 2023 was the second-best year for the industry in terms of volume only behind the record achieving in 2022. Certainly, the electoral process and the subsequent change in administration have inclusive and certainly impacting the level of activity, industry stakeholder attention and awaiting the government initial action and the stabilization of key economic indicators.

Despite the significant drop in activity level evidence in the first months of the year, we remain optimistic, but I would say that the path to recovery are winning on food of the challenges. Argentina has great growth potential, which will we unleaded if the country managers just are moving along to the right band. In that scenario, Loma has the capacity to support and bolster the country development fulfilling and crawl industry leaders.

Finally, I would like to thank all our employees for the commitment they have shown throughout the year. I also want to express gratitude to the rest of our stakeholders for being close to us for another years. Under the lead together, we can face any change that this new year may brings.

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

Thank you. We will now conduct a question and answer session.(Operator Instructions)

Also, please note that Mr. Sergio Faifman will be responding in Spanish immediately following an English translation, please hold momentarily while we assemble our roster.

Daniel Ross, Bank of America. Please go ahead.

Good morning, gentlemen. Can you hear me.

Yes, sir, we can hear you. Please go ahead.

Hello. I'm looking at the contraction in margins, 389 basis points you mentioned that excludes the asset sale. Could you please give us a little bit more details on what's behind this and what factors lie behind the lower margin and what we should expect going forward? Thank you

(interpreted) Daniel, thank you for your question. And I will respond to that. The margins are not withstanding how obviously we compare year on year. They are contracting because of the lower volumes and hitting on the top line. But you saw it on a on a sequential basis. Quarter-over-quarter margins are are are in our stable, but the principal factor obviously is the the lower volume.

Okay, and if I may follow up on now that the new president has been in office for a few months, and can you give us some color on how you are seeing activity going forward. There is his team already onboard. Do you see a faster or lower transition that you I might have expected? We just want to get an idea of how we should expect the year to rollout?

(interpreted) Daniel, obviously, the volume is the sufficient level of 20%, 25% and we expect the upcoming months to continue more or less on this pace. But then for the second half of the economy began to pick up and as well, we are going to see a pickup of certain volumes, but obviously that number is going to be negative for a year.

Thank you.

(interpreted) You are welcome.

(Operator Instructions)

Jorge Viñas, Latin securities. Please go ahead.

Thank you, Good evening and thank you for listening to the presentation. The question is about the pricing environment in the current recessionary and is a scenario given the deepening of the contraction in dispatches. So with the pricing evolving, what should we expect for the next couple of quarters?

(interpreted) Hi, Jorge, thank you for your questions. In a scenario of an issue of a behemoth regarding most of our revised international assignment of regulations on regarding prices on since our December update, we are above our inflation in the pricing dynamic not terribly shocked while in Madison, similar until I would assume the AGM our actual price for is above.

And along with that, we had in December, you know with the scenarios, you know, see an operation we have and it has gone sideways, you know, your volumes as you on important.

And we expect this trend to continue on even though, if we see some the swift movement of the effects we will act accordingly.

Thank you very much.

(interpreted) You are welcome.

And 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. We truly appreciate your interest in our company. Allow me to remind you that we issue our certain edition of our sustainability report and it's available on our website, and we invite you to have a look ahead.

As always, we look forward to meeting you again in our next call. And in the meantime, we are available for any questions you may have. Thank you and have a nice day.

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. The interpreter was provided by the company sponsoring this event.