Loma Negra Compania Industrial Argentina SA (LOMA) 2024 Q4 法說會逐字稿

Good morning, and welcome to the Loma Negra fourth-quarter 2024 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 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 start my presentation by discussing the highlights of the quarter. Then Marcos will take you for our market review and financial results. Following that, we will share some final remarks before opening the call to your questions.

Starting with slide 2. We are pleased to present Loma Negra fourth and final quarter of the year. 2024 was a year of challenging that tested our capability, and once again, we demonstrated what we can achieve. I mean, the downturn in the construction industry that reduced demand for our products.

We navigated multiple obstacles while facing moments of uncertainty, we (inaudible) our resilience, adaptability and commitment to continued improvement solidifying our leadership in Argentina cement market. In terms of our fourth-quarter performance, we take great pride in delivering strong results despite a difficult environment.

One of the key highlights of the quarter with the significant expansion of our EBITDA margin by over 600 basis points, even with lower volumes remains the challenging year as an opportunity from high efficiency as tying through to the one of our core principles, constantly pushing our (inaudible) to improve. (inaudible) volumes continue the gradual narrowing the year-over-year gap. The decline in dispatch for the quarter impacted our top line.

Despite this, we delivered an assessment EBITDA of $50 million, up 2.4% in peso terms. Our EBITDA margin reaching 29%, a substantial improvement from 22.8% in the same quarter of 2023. On a per ton basis, EBITDA was $39, remaining nearly flat year over year but increasing 10% sequentially. For the full year 2024, we achieved an EBITDA of $198 million with a margin of 25.9%, improving by 211 basis points. On the financial side, both this quarter and throughout the year, we strength our balance sheet.

During the quarter, net debt declined by an additional $20 million, reaching $157 million and lowering our net debt ratio to below 1 times.

Please turn to slide 3 for a review of our ESG highlights for the year. We take great satisfaction in releasing a new addition of the Loma Negra sustainability report, aiming to share our (inaudible) and dedication to sustainable development with all stakeholders.

This report is aligning with our 2030 goals and the work of (inaudible) company guides by senior management commitment to sustainable development. It has been prepared based on the non-financial information disclosure standard of the global reporting initiative and the sustainability accounting standard boards.

For the second year, we have outdated 13 (inaudible) indicator by an external consulting farms. Environmental sustainability is one of the main pillars of which our growth and value creation are basis. That is why we work every day on the continuous improvement of our operation by optimizing the use of energy and water, preserving high quality and the biodiversity and implementing action and reduce our carbon footprint.

Regarding this matter, our total greenhouse gas emission intensity Scope 1 and 2 stood at 506.96 kilogram of CO2 per ton of cement materials, reflecting a 3% year-over-year decrease. Emission per ton of the cement equivalent, the reduction was 1.16%.

This relates to an absolute emission reducing of 907,000 tons of CO2 equivalent compared to 2023. Aligning with our 2030 sustainability commitments, we also achieved a 31% reduction in water extraction, while our solid cost valorization reached 84%.

On the social side, we are convinced that through a strategic partnership, we can transform reality to ensure a more inclusive future. We maintain the implementation of our program in different territory of the country, benefiting almost 90,000 people directly and 57,000 people indirectly. Guided by our principle, we are all Loma.

We held the second diversity and inclusion week. This year, 15 employees from different Loma Negra plant share the experience of inclusion and diversity in the company. Regarding the governance aspect, we have a new call of ethical and conduct where we incorporate a chapter of commitment to sustainability with clear goal to reduce our embedment impact and promote sustainable development in our own operation.

We continue trying our people on the company integrated program where we cover 100% of our employee reinforcing the commitment to ethical and transparency. We also held the compliance week for [self] time which was an opportunity to [reinforce a message] and share content related to ethical and integrity using antitrust ethical line, ethical behavior and (inaudible).

We are committed to the principle guiding our action, inclusive of our purpose of transforming people live by promoting sustainable growth. This report reflects such parts. I invite you to read it to know the most outstanding results of our company.

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

Thank you, Sergio. Good morning, everyone. Please turn to slide 5. While analyzing the evolution of monthly sales across the industry. We can clearly see an improvement between the first and second half of 2024, as represented by the red line. While the first half of the year saw a 31% decline, the second half narrowed the year-on-year gap to minus 17%.

Furthermore, the fourth quarter continued this trend with a 14% year-over-year drop close in the year with December volumes just 5% below of the same month in 2023. Similarly, January 2025 saw nearly 9% growth in this purchase, marking the first year-over-year increase since March 2023 and breaking a streak of over a year of negative results, as shown in the bottom right chart.

Although rainy weather is expected to impact February, we anticipate this positive trend to continue. Bulk cement dispatches continue to show greater resilience, declining less than the industry average, while bulk cement remained the most affected mode of dispatch.

As large private construction projects in public works represents its primary market. Bulk cement ended the year with low activity levels but is expected to regain momentum in 2025. While 2024 was a challenging year for the industry with volumes declining 24%, we believe the most difficult period is now behind us. The Central Bank's market expectation report also suggests an improved economic outlook, projecting positive growth in the fourth quarter of 2024 and a 4.6% expansion in 2025.

This forecast, combined with the expected impact of credit availability and renew interest in large-scale projects, will likely drive a recovery in some of these budgets throughout 2025. The consolidation of economic policies is expected to support the industry's activation and lay the groundwork for a new cycle of sustainable growth.

Turning to slide 6 for a review of our top-line performance by segment. The fourth quarter top line declined 19.5%, primarily due to a weaker performance in the cement segment, followed by declines across the other business segments. The cement, masonry segment, and line segment saw a 19.9% drop with volume contracting 14.1% year over year, coupled with softer pricing. Bulk cement continues to show greater residence, declining 9% year over year, outperforming the industry average, while bulk cement remained the most affected category.

Concrete revenues fell 26.9% in the quarter with volumes down 14.4% and prices impacted by a more competitive market in the segment. On the positive side, the decline in sales volume was [pronounced] than in bulk cement sales for the ready-mix concrete sector, supported by increased infrastructure activity and renewable energy projects in Buenos Aires province which helps support concrete operations.

Similarly, the aggregate segment recorded a 34.2% revenue decline with sales volume down just 3.1%, supported by increased road construction activity in Buenos Aires province. However, persistently low overall activity levels, weight on price dynamics. This effect was further amplified by a shift in the sales mix with a higher proportion of [final] aggregates, which have a lower average price.

Gravel revenues experienced a moderate decline of 3.2% in the quarter. higher transported volumes of up 3.1% helped offset softer pricing. The increase in grain transport helped compensate for the decline in construction materials but negatively impacted the average price as grain generate lower revenue per kilometer transported.

Finally, for the fiscal year 2024, consolidated revenues declined 23.9% to ARS699 billion, down from ARS919 billion in 2023, with cement volumes contracting 23.7%.

Moving on to slide 8. Consolidated gross profit remained stable, up 0.1%, while gross margin expanded by 640 basis points year over year, reaching 32.6% despite lower volumes. In the Cement segment, cost management once again play a key role in mitigating the impact of a weaker top line in fourth quarter. supported by lower depreciation expenses.

The fourth quarter marks the end of the winter seasons, typically associated with higher energy costs. Regarding energy inputs, the company began leveraging new thermal energy contracts that benefit from year-over-year reduction in tariffs, including short-term agreements links to oil production.

On the electricity side, despite higher costs from a shift to more expensive generating sources with less (inaudible) and nuclear and more thermal, the company secured short-term contracts with renewable energies producer, allowing it to partially offset the impact by utilizing surplus generation. Margins also expanded in the Railroad segment, supported by cost controls and higher volumes, though they remain in negative territory.

On the other hand, concrete and aggregates, so margin constructions more affected by market conditions. Finally, SG&A expenses fell 3.9%, primarily due to lower turnover tax and freight costs, driven by lower volumes as well as reduced insurance and service expenses. As a percentage of sales, SG&A stood at 12%, up 195 basis points from 10%, mainly due to the decline in revenue. For fiscal year 2024, gross profit declined 18.9%, though gross margin expanded 166 basis points to 26.7%.

Please turn to slide 9. Our consolidated adjusted EBITDA for the quarter stood at USD50 million, while in pesos, it reached ARS50.6 billion, up 2.4%. This increase was primarily driven by a stronger performance in the Cement segment, which boosted the consolidated EBITDA margin to 29%, expanding 623 basis points year over year. The segment's adjusted EBITDA margin surged to 33.7%, up 815 basis points, driven by tight cost management and improved energy inputs.

Meanwhile, the Concrete segment saw its adjusted EBITDA margin contracted by 760 basis points, turning negative at minus 6.1% compared to 1.5% in the fourth quarter of 2023 as cost control efforts were not enough to offset revenue declines.

In the Aggregates segment, the adjusted EBITDA margin dropped to minus 8.9%, down from 14.2% in the fourth quarter of 2023. While higher volumes helped narrow the year-over-year gap, a highly competitive market and an unfavorable product mix weight on profitability.

The Railroad segment saw an adjusted EBITDA margin improvement of 372 basis points, reaching minus 7.4% compared to minus 4.2% in fourth-quarter 2023. [Mortgage] growth in transported volumes, primarily from increased grade shipments supported performance.

However, the higher share of grains negatively impacted the average price as they generate lower revenue per kilometer. Effective cost control has mitigated this effect improving overall performance. For fiscal year 2024, adjusted EBITDA totaled USD198 million or ARS181 billion, down 17%, but with a margin expansion of 211 basis points to 25.9%.

Moving on to the bottom line on slide 11. This quarter, net profit attributable to owners of the company totaled ARS22.4 billion compared to a net loss of ARS43 billion, in the fourth quarter of last year. The stronger operational performance despite lower volumes were further supported by an improved financial result.

On the financial side, the main reason of the valuation was the impact of the [devaluation] in December 2023 that affected the base of comparison. We posted a net financial gain of ARS0.9 billion for the quarter compared to a financial cost of ARS81.3 billion in the same period last year, primarily due to the lower impact of exchange rate differences.

Additionally, lower net financial expenses driven by decline in interest rates and a reduced debt position [further extended] financial recovery. However, this impact effects were partially offset by a lower gain on net monetary position, reflecting a weaker impact of inflation adjustments.

For the full-year 2024, net income attributable to the owner reached ARS153.8 billion, up from ARS22.4 billion in fiscal year 2023.

Moving on to the balance sheet. As you can see on slide 12, we ended the quarter with a net debt of ARS162 billion, reducing our net debt-to-EBITDA ratio to 0.89 times, down from 1.4 times at the end of 2023. Cash flow from operating activities reached compared to ARS57 billion in fourth quarter '23, primarily due to a less favorable impact from working capital. We invested ARS21.2 billion in capital expenditure this quarter with approximately 40% allocated to the 25 kilogram bags projects and the remaining primarily toward maintaining CapEx.

During the quarter, the company used ARS31.2 billion in financial activity, mainly for the repayment of borrowings and interest payments. In dollar terms, net debt stood at $157 million with a duration of almost a year, reflecting a $20 million sequential reduction. Dollar-denominated debt accounts for 91% of our total debt with the remainder in pesos. The company's debt maturity profile remains well balanced with no bond maturities until fourth quarter of 2025.

Now for our final remarks, I'll 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. We are very proud of the results achieved in 2024. As we mentioned before, this was a particularly challenging year for the construction sector, I see it in key economic variables impacted provide cement consumption. This effect was [further] intensity by the suspension of many public work as they awaiting the establishment of the new framework.

We view 2024 as a transition year for the industry, on that it's a more established economic environment now has a solid foundation for the future growth. (inaudible) a difficult for us an opportunity. Opportunity to rethink our approach to improvement (inaudible) to be the most efficiency company we can be, always [light] by our strong corporate principle.

Looking ahead, 2025 is poised for the growth. This year is set to deliver two-digit growth is forecast for (inaudible). This expansion supported by renewed rules for credits and the (inaudible) further boost cement consumption.

Cement consumption per capita hit historically low in 2024, while the 10 years average remaining among the lower compared to similar economies. This present significant room for the growth, like a substantial housing and [interest] gap to breach. In the same year, we have made significant investment in capacity positioning us to play a major role in Argentine development. We are ready. (inaudible)

I would like to thank all our employees for their commitment and throughout the year. I also want to express my gratitude to our stakeholder staying close and supporting each other, especially in challenged time. This is what defines us.

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

(Operator Instructions) Alejandra Obregón, Morgan Stanley.

Thank you for taking my question. I would like to talk about pricing and how you're thinking about it for 2025. So on one side, we have demand troughing and starting to look a little bit better. But also as we look at inflation, it looks like it appears to be slowing down. So how should you think -- or how should we think of strategies for pricing into 2025? And if you can also talk about competitive dynamics? Do you think that is still supportive of pricing action into 2025?

Alejandra, thank you for the question.

(interpreted) In 2025, we believe that the pricing dynamic is going to be similar, the one we saw in the last couple of years. Maybe with a deceleration of inflation, we're going to have more space between price increments. (inaudible) to the years that we have in the past with low inflation. And we are foreseeing a scenario with prices go along with inflation. Always supposing that inflation is going to be above the devaluation of the peso. Also, if we have an event of a (inaudible) then the price adjustment would be above inflation.

Got it. That was very clear. Thank you very much.

Marcelo Furlan, Itau BBA.

Thanks for taking my question here. Just a follow up also for 2025. If you guys could please give a little bit more color related to volumes. I mean volumes in the industry declined by 24%, 25% in last year. So I'd like to hear from you guys what we expect for volume this year? So this is my follow up.

And my question here is related to capital allocation. So what maybe in 2025 would be a better year in comparison to 2024 in terms of volumes, prices, margins and so on. If you guys see room for dividend distributions in 2025 as we saw in 2023. So this is my question.

(interpreted) Thank you the question. For 2025, we are expecting an increase of two digits year on year. Basically, if we maintain the volumes that we had in the last part of 2024, that will give us this two-digit expansion. Additionally, we are seeing some private projects that may start in the last couple of months. Some public works, the municipal or provincial level that maybe combined with the private sector will be -- could be starting in the next few months.

Can you repeat the second part of the question because we didn't get it right?

Yeah, sure. The second part of the question is related to dividends for 2025. If we could expect dividends for this year. This is all the questions.

(interpreted) It's about dividend, sorry, we didn't get it.

Yes. It is about dividends, yes.

(interpreted) If you look years back and we still are analyzing the best way to allocate our capital. In 2022 and 2023, we paid dividends because we consider it was the best way to return value to shareholders. During 2024 with the drop in volumes, especially in the first semester and the uncertainty behind that, the Board decided not to move forward on paying dividends.

And additionally, there was this process with our controlling shareholders. So we decided not to move forward in 2024. With a more clear scenario in terms of volume for 2025, w we are analyzing with the Board the best way to go in terms of capital allocations for 2025.

Okay. Thank you so much, guys.

Daniel Rojas, Bank of America.

My question is regarding your cost structure for 2025. I was just curious if you see any points of pressure. And if you could compare it to 2024, do you see any sources of opportunity to increase margins further or where should we be concerned for the next year?

Thank you for your question.

(interpreted) Yes, we are seeing -- we saw it by the end of 2024 and continues in this year. We have seen some improvements in terms of energy inputs. And we are working very hard in terms of efficiency and cost management. And we believe that the margins that we show in the fourth quarter are sustainable.

Furthermore, if we start seeing some improvements in volumes, we are going to see some improvements in margins as well. You have to consider that they are working almost at 50% of our capacity and with no major CapEx, we can absorb future growth.

Thank you. And along those lines, for 2025, could you guide us on CapEx? And since you are working at 50% capacity and you can ramp up quickly, do you have any large maintenance? Or should we expect a nice bump in cash flow as a consequence?

(interpreted) Basically, for this year, we have only maintenance CapEx. We are also finalizing the projects of the shift to 25-kilogram (inaudible). That's going to start -- we're going to start dispatching them in July. Once finalized this project, we are not expecting any further disbursement in CapEx, just the maintenance CapEx.

Could you give us a ballpark number, an estimate of how much in maintenance for 2025, just to give us an idea.

(interpreted) Between all the business, between $55 million, $60 million approximately.

Thank you very much.

Esteban Arrieta, Balanz.

My question is also on CapEx. What is the remaining CapEx to complete the 25-kilo bag project?

(interpreted) Esteban, thank you for your question. The remaining CapEx for the 25-kilograms bag project is approximately [$20 -- $2 million].

Thank you.

And 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 very much for joining us this morning. We really appreciate your interest in our company, and we expect to meet you again in our next call. Thank you very much.

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.