Loma Negra Compania Industrial Argentina SA (LOMA) 2025 Q3 法說會逐字稿

Good morning and welcome to the Loma Negra third-quarter 2025 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 Jalon, Head of IR. Please, Diego, go ahead.

Thank you. Good morning and welcome to Lumanegra'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'll refer you to the forward-looking statements section of our earnest 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 earnest press release.

Now, I would like to turn the call over to Sergio.

Hello everyone and thank you for showing 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, I will share some final remarks before opening the call to your question.

Starting just like you. During the third quarter, industry activity lost momentum as the broader economy is slower, the electoral process, and uncertainty around the sustainability of the economic framework. Combined with higher interest rates in pesos ended up negatively affecting shipment levels for both the industry and for Roma, which declined 5% year over year. That volume recorded in September and October provide encounish signs as we look ahead.

In terms of results in this more challenging context, our consolidated assessment EBITDA margin contracted to 20.8% in the quarter. However, it remained almost double versus the previous quarter, despite the higher cost pressure than the typical oaks in the third quarter. Please bear in mind that energy costs are seasonally affected by the winter period. As reed $36 million reflecting a 23.7% reduction with emissions in pesos.

On the balance sheet side, net debts declined by $9 million quarter over quarter to $206 million. In addition, following the class 5 bond insurance, we significantly improve our maturity profile, and our level asymmetric remain at a comfortable level for the company.

I will now hand off the call to Marcos Gradin, who will for our market review and financial result. Please, Marcos, go ahead.

Thank you, Sergio. Good morning, everyone. Please turn to slide 4. After a solid first half of the year, forecast for the third quarter 9. To a weaker performance of the Argentine economy and full growth expectations were revised down to around 3.9%. This dynamic is fully reflected in construction and the 70 industry. The recovery trend began to lose some steam, mainly due to uncertainty around the election process and questions about the sustainability of the economic program.

After two quarters of growth, 7 dispatches for around 1% in the quarter. Largely explained by a soft July. And although September volumes were the highest in 22 months, they weren't enough to upset the quarterly decline. Back cement remains the most impact format as it's more tied to retail and residential demand.

On the other hand, bug dispatches continue to perform well in line with what we saw in the second quarter and reached 44% of total industry dispatches. Looking at the most recent data, October's volume showed renewed strength, with a 7.4% year over year increase, and year-to-date volumes are also up 7.4%.

Now, with the election behind us, we expect uncertainty to start easing. The outcome of the election could be seen as a validation of the government's policy direction, which may help unlock investment projects that have been waiting for a more stable framework. So, overall, we remain optimistic that this renewed confidence will gradually put the industrial recovery back on track.

Turning to slide 5 for a review of our top-line performance by segment. Second quarter top-line, declined by 12.1%. Primarily due to weaker performance in the 7th segment, followed by softer results across the remaining segments. Revenue in the 7 measured in the seventh and 9th segment declined 13.2% year over year, driven by a 5.4% contraction in volumes and software pricing year over year.

As we mentioned this quarter, we saw a halt in the recovery trend that has started in the 1st half. Bug 7 dispatches continue to be the dispatch mode, showing the best dynamics supported by industrial and commercial projects and by larger housing developments. In addition, provincial level public works began to gain momentum, adding volume to the dispatch mode. Back cement remains more pressured as weaker overall consumption continues to impact retail and residential demand.

When comparing Lomas's performance with the industry, our bulk dispatches grew below the industry this quarter. It is also important to note that our segment includes measuring cement and lime and lime, which behave more similarly to bug cement, while industry statistics disclose volumes exclusive, exclusively for gray cement.

In the same sense, top-line was also affected by softer pricing conditions ver versus 33 coup 2024, although salmon prices in pesos deliver a positive quarter over quarter performance when adjusted by inflation. Concrete revenues remain broadly flat versus first quarter 24 as a 47.8% increase in volumes offset software pricing dynamics in a highly competitive environment. Volume growth was supported by private developments, mainly in logistic infrastructure and residential construction and also benefit from higher activity in public infrastructure projects across the metropolitan Buenos Aires area and in the province of Santa Fe.

Similarly, the aggregate segment also remained flat, both in a slight 0.8% revenue decline. Sales volumes rose 26.3%, driven by higher activity in road construction and railroad projects, partially offsetting the impact of softer pricing. Pricing was also affected by the sales mix as road construction projects primarily require fine aggregates which carry a lower unit price and reduce the overall average.

Railroad revenues declined 14.9% in the quarter. A 3.9% decrease in supported volumes only partially mitigate the effect of weaker pricing. In addition, the ongoing disruption of the railway line in Bahia Blanca continues to affect, longer haul traffic, mainly grains, gypsum, and fraxsan, reducing 10 kilometers transported and consequently revenue generation.

Moving on to slide 7. Consolidated gross profit declined 32.5%, while gross margin contracted by 524 basis points year over year, reaching 17.3%. In the sevent segment, cost of sales decreased 8.7% year over year, with a 3.5% reduction in unit cost. Despite the seasonal impact of higher winter energy costs, a higher depreciation associated with the completion of the kgs25 project.

Effective cost management helped to offset the weaker pricing environment, lower maintenance costs and improved thermal energy inputs, prices also supported the quarterly cost structure. Continue the trend from previous quarter, thermal energy contract signed last year, which included year over year tariff reduction, together with short-term agreements linked to oil production at tariffs below $1 per billion BTU, help contain variable cost.

On the electrical energy side, lower consumption help offset higher electricity tariffs as the company continued to face the impact of increased transmission and distribution costs. The contraction in cement was accompanied by a decline across the remaining business segment.

Finally, SG&A expenses decreased. 11.7%, mainly due to lower freight and sales tax expenses resulted from reduced sales volumes, as well as a lower impact on salaries and professional consulting fees. As a percentage of sales, SG&A stood at 9.1%, remaining flat year over a year.

Please turn to slide 8. Consolidator adjusted the BTA for the quarter stood at $36 million while in pesos it reached $43 billion reflecting a 23.7% year over year decline. This decrease was primarily driven by lower LBTA generation in the second segment, followed by weaker results in the concrete and regular segments.

In line with this performance, the consolidated the beta margin contracted to 20.8%, representing a 315 basis point declines year by year, while remaining broadly in line quarter over quarter, despite the typical cost pressure of the third quarter.

In the seven segment, adjusted BTA margin, contraction was more moderate, reaching 24.2%, down 129 basis points year over year, mainly due to a softer price pricing environment which, despite showing an improved sequential trend, still lacks on a year over year basis.

Cost on a per-ton basis, excluding depreciations declined 6.5% supported by lower thermal energy prices and maintain a cost which partially offset offset the weaker top la. The concrete segment saw its adjust BTM margin decline by 1,093 basis points, reaching 6.8% versus 4.2% in the first quarter of 2024. As cost controls and higher volumes were not sufficient to upset softer pricing dynamics in a highly competitive environment.

In the aggregate segment, the adjusted BTA margin improved by 36 basis points to 16.7% compared to 17 in the same quarter of last year. Although volumes continue to improve during the quarter, the persistent market challenges and an unfavorable product mix continue to wait on the segment's profitability.

Regarding the one segment, the PDAersion contracted to 920 basis points to 3.4% in third quarter 25 from 12.6 a year ago. Transporter volumes improved slightly, mainly driven, By heer shipments of granite teak aggregates. However, the ongoing disruption of the railway line in Bahia Blanca continued to affect longer haul traffic, primarily grains, gypsum, and fraxan, producing 10 kilometers transported and consequently revenue generation. These impacts were partially upset by cost reductions.

Moving to the bottom line of slide 10, net loss attributable to the owner of the company total 8.5 billion pesos. For the quarter compared to a net gain of 27.9 billion pesos in the third quarter of last year. This decline was primarily driven by a lower financial result, reflecting a more moderate inflationary effect and a higher impact from FX exposure. Combined with weaker operational performance, however, the decrease was partially offset by lower income tax expenses.

On the financial front, the main driver of the year over year valuation was a reduced gain from the net monetary position, as inflationary effect of monetary liability was significantly lower than in the same period last year. In addition, the exchange rate difference had a higher impact due to the evaluation of the peso during the period.

As a result, the company reported a net financial loss of 28.7 billion pesos for the quarter compared to a gain of 16. 0.6 billion pesos for the same period of 2024. Additionally, net financial expenses increased 7.5%, reaching 17 billion pesos, primarily due to higher interest rates in pesos during the quarter.

Moving on to the balance sheet, as you can see on slide 11, we ended the quarter with a net of 281 billion pesos and a net to a BTA ratio of 1.49 times, up from 0.89 times at the end of 2054. We're still maintaining a comfortable leverage profile. Cash flow generation from operation activities, total 32 billion pesos compared to 84 billion pesos in third quarter 24. This mainly reflected higher working capital requirements and a lower operational results.

On the working capital side. The economic uncertainty during the quarter and the higher interest rate environment increased working capital needs. This was coupled with higher income tax payments since the company did not make a advance payment during 2024. On the other hand, inventories decrease during the quarter due to seasonality, as clinical production is minimized during the winter months, while inventory consumption increases.

Regarding investment activities, the company allocated 62 billion pesos in a quarter, primarily due to the short-term allocation of the process from the Class 5 bond issuance. On the other hand, CapEx decreased by 14.6 billion pesos following the completion of the 25 kg bagging projects.

During the quarter, the company generated 74 billion pesos from financial activities, mainly from the bond issued in July. The class 5 corporate bond amounted to $114 million with a two year tenure and an 8% interest rate.

The new bond was partially subscribed through exchanges withholder of Class 2 and class 3 bonds. Proceeds will be primarily used to repay the remaining balance of the class 2 bonds maturing in December. In US dollar terms, the stood at $206 million with valuation close to one year. At the end of the quarter, dollar denominated debt represents 81% of total debt, while the remaining is in pesos.

Now for our final remarks, I will hand the call back to surgeon. Thank you.

Thank you, Marcos. Now, to finalize the presentation, I please ask you to turn to slide 13. During the third quarter, the volume recovery trend lost momentum am mean unsultory linking to the electoral process. The recovery experienced a temporary slowdown, but they believe the underlying road driver remained intact.

Looking forward, the recent electoral outcome and identification of the government economic plan could provide the stability needed to unlock investment projects that have been on hold. And although many of the economic and political challenges remain in place, the election result brought trending new optimist, which we expect to see reflected in higher activity levels.

I would like to highlight that during the quarter we begin dispatching the new 25 kg bags. After hard work and meaningful investment effort, the new pack format hit the market successfully and was very well received by both our customer and final customer. I would like to congratulate everyone involved in the project.

As we approach the end of the very challenging transition here, we remind optimists about the outlook for more protestant Argentina. And Loma continue to focus on optimizing performance and being ready to support the country's development and conditions normal.

This is the end of our prepared remark. We are now ready to take questions. 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.

Marcelo Furlan, Itau BBA.

Thank you guys. So thanks for taking my questions. My question is related to, pricing going forward. So we saw in the third queue actually prices, declined by almost $10 when you look into dollars specifically. So, and you guys mentioned that it was partly explained by the macro environment and due to uncertain related to challenge momentum, so on and so forth, but also. Due to competition, so I'd like to understand that moving forward, how are guys seeing the pricing approach for the company? How could you see the evolution for prices in dollar terms, moving forward.

And in my second question, just a follow-up regarding capital location. So you guys mentioned, that these two healthy financial structure and so on and so forth. So I'd like to understand how does the management see the opportunity or the likelihood of this dividend distributions for this year or maybe for 206. So thank you.

(interpreted) Hi. Thank you for your question. Regarding prices, the dynamic is similar to the one that we, spoke about last quarter. As we talked about in the during the second queue we spoke about adjusting prices above inflation this second half of the year and the quarter this quarter we had a correction in the in the effects that obviously impacted the price in dollar terms. But we expect to see the same tendency going forward, increasing prices, above inflation, and with a more, stable, scenario on the effects, probably we will recover prices in other terms.

And regarding dividends, given the situation, the macro situation in Argentina with the hike in the interest rates and the political uncertainty, we didn't advance in paying dividends so far and we are not expecting to do so in the remaining of the year. And with this new macro scenario and from what we expect going forward, we'll reassume the thinking about paying dividends next year.

Okay. Thank you so much, guys.

Andres Cardona, Citigroup.

Good afternoon. I would like to ask about early color for volumes for the 4Q. We saw a nice print for October. I would like to understand what drives that better than expected performance and if you see those dynamics is still in place for November, December. Okay. Thank you.

(interpreted) Hi, Andres. Thank you for your question. Volume for October that were recently published showed a recovery in the market. Our vision is that there were two main drivers there. One was that before the elections, many people, hold, on investing in infrastructure. And also with the adjustment in the effects with a lower cost in dollar terms, some other projects are gaining pace. And seeing the volumes of, October and November so far, we are optimistic looking ahead.

If we continue this scenario of, low rates and stable effects, and a more stable macro. That that should give more dynamic to to investment projects and and increase the level of activity and as is is public in in recent news, there are some also some, public works going on that are going to add, more volume and increase the level of activity as well.

Thank you, guys.

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

Hi. Thank you very much, everyone, for joining us this morning. It's always a pleasure. And we are here if you have any other concerns or questions regarding the quarter. And we'll see you again in the upcoming quarter. 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.