Loma Negra Compania Industrial Argentina SA (LOMA) 2021 Q1 法說會逐字稿

Good morning, and welcome to Loma Negra First Quarter 2021 Conference Call Webcast. (Operator Instructions) Please note that this event is being recorded. I would now like to turn the conference over to Mr. Gaston Pinnel, Head of Investor Relations. Please go ahead.

Thank you. Good morning, and welcome to Loma Negra's first quarter 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 I turn the call over to Sergio, 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 of non-GAAP financial measures. The full reconciliation to the corresponding financial measures is included in the earnings press release.

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

Thank you, Gaston. Hello, everyone, and thank you for joining us today.

First, I hope you and your family are safe and healthy. As always, I am going to mention a few highlights of the first quarter. And then Marcos will roll you for our market review and financial results. After that, I will provide some final remarks, and then we will open the call to your question.

As you could saw from our release issued yesterday, in the first quarter, we had a great performance, mainly on the back of our cement business. The strong momentum experienced in cement sale since last year's bottom is now just accelerating, and volumes are stabilizing around pre-pandemic levels. The higher operational leverage, together with good performance in production inputs, translate to world-class profitability levels, enabling us to grow our EBITDA by 49.6% and expand our margin by 341 basis points. Our segment EBITDA in the quarter was $52 million compare to $36 million in the first quarter 2020 when COVID-19 pandemic lockdown were established.

Our top-tier profitability levels, our focus on our working capital management and our recent deleveraging result into a strong cash flow generation and solid capital structure, with a net debt ratio of 0.04x.

Finally, we continue to move towards completion of our strategic L'Amali expansion project, which we expect to start processing clinker in the upcoming days. Full commissioning of the second line is programming for the next months.

Let me now hand off the call to Marcos Gradin, who will walk you through our market review and financial result. Please, Marcos?

Thank you, Sergio. Good day, everyone.

As you can see on Slide 4, leaving behind the [fierce] double-digit drops of beginning 2020, the year-end delivered estimate GDP drop of 4.3% in the fourth quarter of 2020. And in the first 2 months of 2021, the economic activity contracted around 2.4%.

In the case of the cement national industry sales, the recovery was much stronger, especially in the bag format. After a steady increase in sales volumes since the collapse of demand of the third and second quarter last year, demand seems to have stabilized around pre-pandemic figures. First quarter 2021 posted a total volumes of 2.7 million tons, up 38.6% higher than first quarter 2020, but only 2% lower than first quarter 2018. The main driver behind this trend is bag cement sales, which posted an increase of 35.6% year-on-year and almost 9% when compared to first quarter 2018. Bulk segment, which started to contribute with positive year-on-year growth, is still lagging behind first quarter '19 figures by around 16%. Consequently, the share of cement sold in bulk increased by almost 200 percentage basis point from 36% in first quarter '20 to almost 38% in first quarter '21. We expect this breakdown to remain very stable in the following months, with a moderate bulk recovery.

The macroeconomic context, together with COVID-19 second wave, could increase uncertainty and affect major construction project resumption. Naturally, when the total industry figures are compared to last year, March and April presented an outstanding 94% and 135%, respectively, as those months were the most affected by the initial lockdown.

Certainly, the economy as a whole still faces different tests, particularly on the macroeconomic outlook. Expectation about GDP growth for 2021 revolve around a mid-single-digit expansion, definitely far from pre-pandemic levels. In this sense, we carefully watch the terms of different economic sectors as they are reopening for businesses.

Turning on to Slide 5 for a review of our top line performance by segment.

Consolidated revenues increased year-on-year by 35.4%, mainly reflecting the positive momentum experienced by our core cement business, which is now stabilizing around pre-pandemic levels. Additionally, and bearing in mind that by the end of the quarter last year, it was established, the lockdowns to contain the COVID-outbreak. In the first quarter, all segments sales volumes experienced a strong recovery. Cement, masonry cement & lime segment was up 38.4%, with volumes expanded 38% with stable pricing. Concrete posted a revenue increase of 64.8%, continuing with demand recovery path in sales volume, yet distant from pre-pandemic levels, but with a negative pricing environment. By contrast, aggregate posted a revenue increase of 47.3%, as higher volume sales, coupled with a positive pricing mix. Railroad revenues decreased by 12.7% in first quarter '21 versus the same quarter in 2020, as the higher transported volumes were more than offset by poor pricing performance.

Moving on to Slide 7. Consolidated gross profit for the quarter was up 61% year-on-year, with margin expanding by 577 basis points, a result reinforced by the parts of our core cement business. Cement gross margin expanded in the back of higher operational leverage and profiting from cost discipline. Energy inputs benefit from early price renegotiations together with improvements in unitary energy consumption.

SG&A expenses as a percentage of revenues decreased by 57 basis points to 8.2% from 8.8%, mainly due to contribution from higher sales volume and higher level of costs compared to last year's level.

Please turn to Slide 8.

Our adjusted EBITDA was up 49.6% in the quarter, reaching $52 million, and consolidated EBITDA margin expanded by 314 basis points to 35.7%, mainly thanks to margin expansion in our core business. This segment expanded by 322 basis points to a best-in-class 40.8%, mainly due to an increase in sales volumes and improved energy inputs. In a per ton basis, EBITDA increased compared with the same period last year sequentially, around 6% and 5%, respectively, and stood at $38. Variable adjusted EBITDA margin deteriorated to 107 basis points, mainly impacted by pricing performance and partially offset by higher transported volumes. Concrete adjusted EBITDA decreased 63% compared to first quarter '20, as softer price and a higher SG&A cost [avoided] the increase in sales volumes and the reduction in unitary cost of sales. Finally, aggregate adjusted EBITDA margin improved to minus 11.2% from minus 25.2%, with better pricing that weighted, but still depressed sales volumes and no operational leverage.

Moving on to the bottom line on Slide 10. Driven by EBITDA growth and net finance gain, net profit surged by 104% to $47 million compared to first quarter '20 levels, affected by initial lockdowns. Total finance gains stood at ARS 141 million in first quarter '21 compared to a net loss of ARS 170 million in first quarter '20, as our net monetary position presented a gain of ARS 558 million in first quarter '21 compared to a ARS 176 million loss of first quarter '20. Additionally, the exchange rate difference also presented a gain of ARS 21 million, reverting a loss of ARS 239 million in first quarter '20. Finally, our net financial expense declined by ARS 70 million to ARS 438 million compared to same quarter last year, driven by lower total financial debt. Measured in U.S. dollars, our net income for the quarter was $37 million compared to $10 million in first quarter 2020.

Moving on to the balance sheet. As you can see on Slide 11, our top-tier profitability level, our focus on our working capital management and our recent deleveraging results into a strong cash flow generation and solid capital structure.

We ended the quarter with a cash position of ARS 6 billion and total debt at ARS 6.7 billion. Consequently, our net debt-to-EBITDA ratio stood at 0.04x compared to 0.16x at the end of 2020. During the quarter, we made capital expenditure for ARS 1 billion, which 1/3 was dedicated to the L'Amali expansion project. Additionally, we canceled ARS 443 million of financial debt, and repurchased share for a total amount of ARS 255 million.

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

Thanks, Marcos. Now to wrap up the presentation, I please ask you to turn to Slide 13.

Although we are guiding to coexist with the virus and the vaccination plan is progressing, cement demand seems to be stabilizing around pre-pandemic level. And we expect a moderate growth perspective for the remainder of the year. In this sense, current macroeconomic context, together with potential restriction related to a second wave cool increase can certainly and affect large construction project opening. Yet our world-class profitability level, our focus on our working capital management and our recent deleveraging result into a strong cash flow generation and solid capital structure. This, together with capital expenditure in L'Amali plant, which will start producing clinker in the next days and which will be fully commissioned in the next months are, for us, a solid ground to rely on the year to come.

Last but not least, I would like to thank all our people and stakeholders, without who, this set of solid results who have been very difficult.

We are now ready to take question. Operator, please open the call for question.

(Operator Instructions) Our first question comes from Nikolaj Lippmann from Morgan Stanley.

Congratulations on both the results and also on finishing the plant out in L'Amali. My question, and then it's hard just to go down to one. But my question is, you're generating a lot of cash, and it looks likely that you will continue to generate a lot of cash. What can you do? What are the potential M&A opportunities? I don't know if you had -- you've seen anything in aggregate. So now what is the thinking around your balance sheet and the use of cash over the next couple of years.

[Interpreted] Nikolaj, thank you for your question. Regarding the cash -- exceeding cash, we are working, as we mentioned before, we're working on the Board of Directors under the committee of Finance into a long-term plan. In the last time to now, we have been working with 2 banks in order to think about and to strengthen our strategy and to think what to do with this exceeding cash. So under this analysis, we are thinking on a more aggressive dividend policy, some acquisition locally or some deal abroad. So yet, the strategy is not defined. And in the short term, we are using our resources for the repurchase plan, and that is coming to an end by the end of the month.

Our next question is from Alberto Valerio from UBS.

Congrats on the results. I think it was the best results in Argentinian market ever. I would like to ask you one additional color on margin gains. I think was close to 3.5% year-over-year. And given with the prices in U.S. terms dropping a little bit, if you could provide additional color, it would be very helpful on these margin expansions.

Sorry, Alberto. We are not clear if we understood the question. It's regarding the margin expansion?

Exactly, Gaston. If you could just provide additional color how you achieved this 36% of EBITDA margin, nearly 3.5% expansion from first quarter 2020.

[Interpreted] Valerio, Thank you for your question. So regarding the margin expansion, there are a few factors playing in. First, we have to remember the lockdown that happened in March last year. So logically, the higher volume this year comes together with a higher cost dilution per ton. Additionally, last year, between April and May, we signed some natural gas contracts, which had an impact not only last year, but also in this first quarter. So and finally, our performance that we improved as a continuous operation and also the pricing policy, which was also positive during the period.

Just a follow-up. Can we have the level of capacity that you run at the moment? And at what capacity, if you will be running up to L'Amali, you want to start operating? That's all my questions.

[Interpreted] Currently, we are working at 80% to 85% of our capacity. And you should remember that the expansion of L'Amali is -- it represents additional 40% of our total capacity. Obviously, the second line will enable us to optimize -- to further optimize our production and to benefit from the costs -- the seasonality in our costs.

Our next question is from Nicolas Giannone from Balanz Capital.

I hope you're doing well, and congratulations on another great quarterly results. I have one question regarding your gas supply contracts. How do you see the new pricing environment on the gas market impacting on margins as you start to renovate these contracts? I don't know if you have meaningful maturities this year. And trying to understand if this is sort of a straightforward revolving of the contracts, or given your long-standing relationship with these suppliers, you usually are able to perhaps negotiate some discount versus market prices.

[Interpreted] Thank you for your question, Nicolas. So as you know, there has been some issues with the supply of natural gas deliberated from some contracts in the natural gas basins in Argentina. Last month, we had renovated our natural gas contracts for the next 12 months. Many of those contracts, we were -- they raised the awareness that we may have some issues of supply due to the supply program that we mentioned before. So given that situation, we took 2 concrete actions: one, related to the import of pet coke, yes, for -- to supply our -- or to guarantee our winter production, and the other one, to renew some of the contracts that we were mentioning. And as a consequence, the other risk that was mitigated is our capacity to produce cement during the winter.

This concludes our question-and-answer session. I would like to turn the call back to Gaston Pinnel for closing remarks. I'm sorry. There's more question. Nikolaj Lippmann from Morgan Stanley.

So sorry for coming back, but just a clarifying question here. Did I understand this correct that you're importing pet coke for the winter period, to some degree, but you don't expect to have a negative impact on your cash cost? It sounds very counterintuitive. I was just wondering if I got that correct.

[Interpreted] Thank you, Nikolaj. So yes, we are importing one vessel of pet coke. We're going to produce, during the winter, with a mix between pet coke and natural gas. Additionally, during winter, just to remember that we do the overhauling of our equipment, and that's why we typically, we produce in a lesser extent during winter. So with that mixture of pet coke and natural gas and the contract that we already have signed for natural gas, we do not expect a volatility in our production costs.

And so now it concludes our question-and-answer session. I would like to turn the conference back over to Gaston Pinnel for closing remarks.

Well, thank you for joining us today. We appreciate your participation and your interest in our company. We look forward to meeting more of you over the coming months and providing financial and business updates next quarter. In the meantime, the team remains available to answer any questions you may have. And thanks again, and stay safe.

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.]