PHINIA Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 7, 2024

There are 9 speakers on the call.

Operator

Good morning, and welcome to the Loma Negra Third Quarter 20 24 Conference Call and Webcast. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Also, Mr. Sergio Feifman will be responding in Spanish immediately following an English translation.

Operator

Please note that this event is being recorded. I would now like to turn the conference over to Mr. Diego Holon, Head of IR. Please, Diego, go ahead.

Speaker 1

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 Feifman, our CEO and Vice President of the Board of Directors and our CFO, Marco Hradein. Both of them will be available for the Q and A session.

Speaker 1

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 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 earnings press release.

Speaker 1

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

Speaker 2

Thank you, Diego. 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 through our market review and financial results. Following that, I will share some final remarks before opening the call to our questions.

Speaker 2

Starting with slide 2, we are pleased to present Loma Negra 3rd quarter results. This quarter, industry volume showed a strong sequential improvement, increasing by 25%, while still below last year level. The style recovery in activity indicates that we move past the most challenging period. Steeping into the number, our top line reached MXN 180,700,000,000, marking a 21.2% decrease in the quarter, primarily due to the lower cement dispatches. This quarter, Loma achieved a consolidated assessment EBITDA of $55,000,000 or Ps.

Speaker 2

43,000,000,000, down 18.5 percent compared to the same period last year. Our EBITDA margin stood at 24%, reflecting an improvement of 78 basis points year over year, which is a micro given the challenging scenery and this impact on demand. On a per ton basis, EBITDA was $35.4 also maintaining a very solid performance. It's important to note that 3rd quarter margins are lower due to the seasonality factor such as higher energy cost. However, our flexibility and production strategy allow us to mitigate the full impact of winter cost.

Speaker 2

On the financial side, our balance sheet continued to strengthen, with net debt at $177,000,000 As mentioned in our last call, this quarter recur less capital, enabling us to deliver and achieve a net debt ratio of 1.03 times. I will now hand off the call to Marco Gradin, who will walk you through our market review and financial results. Please, Marco, go ahead.

Speaker 3

Thank you, Sergio. Good morning, everyone. Please turn to slide 4. When looking at evolution of MAPFRE 7 sets for the industry, it is clear that 7 dispatches have reached a significantly better level than in the previous two quarters. Volumes have increased by 25% sequentially.

Speaker 3

The same sequential comparison show an improvement of 6% in 2023. And recent figures for October are in line with September figures despite the impact of a national strike that affected the dispatches. Bag cement dispatches are recovering more quickly, gaining ground in the dispatch mode breakdown and reaching 62%. In contrast, bagged cement has been more affected by the economic environment. The sunset in public works and lower activity levels in larger private projects.

Speaker 3

The Central Bank's market expectation reports also points to an improved economic outlook, suggesting that the recovery will begin in the second half of this year, marking the end of the recession most challenging phase. The construction activity indicator, though still below 2023 levels, reflects this trend as well, gradually narrowing the year on year comparison gap. Positive indicators such as a steady recovery of real wages, the downward trend in inflation, fiscal surplus and lower interest rates are key factor that could enable a broader growth for credit in our economy and encourage and accelerate foreign direct investment inflows. While macroeconomic conditions remain challenging, stable economic variables are essential for driving sustainable growth. Turning to Slide 5 for a review of our top line performance by segment.

Speaker 3

The 3rd quarter top line showed a decrease of 21.2 percent, mainly due to a lower top line performance of the Cement business, also followed by the rest of the segments. The Cement, Mesury Cement and Lime segment declined by 21%, with volumes contracting 17.1% year on year, coupled with softer price performance. Although the construction impacted both dispatches mode, bagged cement is performing significantly better, showing only a moderate decline, while bagged dispatches are lagging. Demand for bagged cement is more closely tied to larger projects, which typically require additional time planning and stable market conditions to consolidate. Concrete revenues decreased by 29.7% in the quarter, primarily due to a 22% drop in dispatches.

Speaker 3

The type of projects that are central to our Concrete segment are still struggling to gain traction, mirroring the trends seen in bulk segment sales. Similarly, the Aggregates segment experienced a 42.7% decline, with sales volume down by 29%, reflecting the pattern of the Concrete segment. The reduced level of activity has resulted in a more challenging competitive landscape. Finally, railroad revenue saw a modest decline of 4.7 percent in the quarter. Transported volumes dropped by 7%, mainly due to the reduced activity in the construction sector.

Speaker 3

However, this was partially offset by increased volumes of grains and chemicals. The positive trend also helped mitigate the impact of lower transported volumes. Moving on to Slide 7. Consolidated gross profit for the quarter declined 23.5 percent. With a margin contraction of 69 basis points to 22.6%.

Speaker 3

Margins remained stable despite the volume contraction of our core business. In the segment segment, our cost management efforts helped mitigate the impact of our lower top line. Although higher thermal and electrical energy inputs tightened margins on a sequential basis, this effect was partially offset year over year by our production strategy of halting several kilns and utilizing clinker stock produced at lower energy cost during the warmer seasons. In the year over year comparison, thermal energy cost showed considerable improvement. Additionally, reduced electrical energy needs from an extended hold in the lifetime grinding phase increased the share of renewable energy in our energy metrics to 66%, up from 39% in Q3 'twenty 3, further contributing to lower energy cost.

Speaker 3

On the other hand, the railroad and concrete segment experienced margin expansion, while aggregates, more impacted by current economic conditions, posted a significant contraction. For railroad, the moderate decrease in volumes combined with positive price performance helped boost its margins. Finally, SG and A expenses fell by 12.9% primarily because of reduced salaries, a lower cost from turnover tax and freight due to decreased volumes. As a percentage of sales, it stood at 9.2%, an increase of 87 basis points from 8.3% because of the decline in revenues. Please turn to Slide 8.

Speaker 3

Our consolidated adjusted EBITDA for the quarter stood

Speaker 2

at $55,000,000 while in pesos adjusted EBITDA reached 43,000,000,000 dollars down 18.5%.

Speaker 3

Despite the volume decline and the challenging scenario, the consolidated EBITDA margins remained resilient and stood at 24%, expanded by 78 basis points from last year. On a sequential basis, it's important to note that the Q3 showed our order margin due to higher seasonal costs. The segment segment's adjusted EBITDA margins stood at 25.5%, a slight drop of 20 basis points. Tight cost management and improved energy inputs helped mitigate the impact of a lower top line. Concrete adjusted EBITDA increased ARS484,000,000 compared to the same quarter of last year, with a margin expansion of 3.55 basis points, reaching 4%.

Speaker 3

Cost control measures and gain from the sale of obsolete assets offset the lower top line. The adjusted EBITDA margin of aggregates contracted to negative 70% from 4.8% in Q3 'twenty three. The low level of activity and more complex competitive environment affected the segment operational results. Finally, the Railroads segment adjusted EBITDA margin expanded by 8.40 basis points in the quarter, reaching 12.6%. 6%.

Speaker 3

Transported volumes experienced a moderate decline, mainly due to increased grain transport, while prices showed solid growth. Expected cost control further supported these positive results. Moving on to the bottom line on Slide 10. This quarter, we posted a net profit attributable to owners of the company of Ps. 20,900,000,000 compared to a net profit of ARS22,900,000,000 in the Q3 of 2023.

Speaker 3

The lower operational results, mainly due to the drop in volumes, was partially compensated with a higher total financial gain. Financially, we posted a total net financial gain of ARS 12,600,000,000 for the quarter compared to a financial cost of ARS 4,900,000,000 in the same period last year. Key variations include the reduced impact of exchange rate difference due to a slower devaluation pace and a lower net financial expense primarily driven by lower interest rates. This was partially offset by a smaller gain on the net monetary position as we held a lower passive monetary position during the quarter and by a softer effect from inflation adjustments. Moving on to the balance sheet.

Speaker 3

As you can see on Slide 11, we ended the quarter with a net debt of ARS 172,000,000,000 bringing our net debt to EBITDA ratio to 1.03x, down from 1.4x at the end of 2023. As anticipated in our last call, we reduced our indebtedness by $40,000,000,000 during the quarter, further strengthening our balance sheet. Cash generation from operating activities reached ARS 64,000,000,000, up from ARS 45,000,000,000 in the same period of 2023, primarily driven by positive working capital effects. During the quarter, clinker production was minimized to lower energy inputs, resulting in reduced inventory levels. This was further supported by decreased account receivables and reduced income tax payments.

Speaker 3

We allocated ARS 17,400,000,000 to capital expenditure this quarter. Approximately 40% of this amount was invested in the 25 kilogram Bax project, with the remainder primarily directed towards maintaining CapEx. During the quarter, the company used Ps. 34,800,000,000 in financial activities, primarily for the repayment of borrowings and interest payments. In dollar terms, our debt debt reached $177,000,000 at the end of this quarter, with a duration of 1 year.

Speaker 3

Breaking it by currency, the dollar denominated debt represents 77 percent of the total debt, while the remaining portion is in pesos. This cover, we address the maturity of the Class I bond issued in pesos, thereby reducing the weight of our local currency debt. Regarding the remaining bonds, the Class II bonds are set to mature in the Q4 of 2025, while the Class III and Class IV bonds will mature in 2026. We have a very clear horizon ahead in terms of our structure debt. Now for our final remarks, I would like to hand the call back to Sergio.

Speaker 3

Thank you.

Speaker 2

Thank you, Marcos. Now to finalize the presentation, I please ask you to turn to slide 13. The Q3 showered a significant sequential improvement, Kari moving past the world's fast organization. However, the recovery is still in its early stage for future progress needed to full close the year over year gap. Our personal flexibility and production strategy enable us to maintain healthy margins, mitigating the full impact of winter coal despite the lower dispatch level and difficult economic condition.

Speaker 2

We are closely at optimistically monitoring the evolution of the economic challenges. As inflation and interest rate decline, the real economy and activity level will have a more solid foundation for growth. The expansion of the credit and mortgage loan could be a significant drive for the construction sector in the near future. Similarly, the reduction in country is now below 1,000 points for the first time since 2019, signaling a positive step toward attracting foreign investment. Amid all the challenges, the country hold vast growth potential ready to be unlocked, and Loma is well positioned to support and drive the short note forward.

Speaker 2

To conclude, I would like to thank all our employees and stakeholders for their commitment and continued support. This is end of our prepared remarks. We are now ready to take questions. Operator, please open the call for questions.

Operator

Thank you. We will now conduct a question and answer you. Also, please note that Mr. Sergio Feifman will be responding in Spanish immediately following an English translation. Please hold momentarily as we assemble our roster.

Operator

And our first question today will come from Marina Mertens with Latin Security. Please go ahead.

Speaker 4

Hi, good morning. Thanks for taking my questions. I have two questions. The first one on prices. So with inflation slowing, prices are becoming less frequent.

Speaker 4

How do you see these pricing dynamics moving forward? And what effect could it have in volumes and revenues? And the second one, the bags segment continues to be more depressed than the bag segment. So what catalyst do you see as necessary for larger construction projects to begin and for demand in this segment to pick up? Thank you.

Speaker 5

Regarding price dynamic, we are looking closely the evolution of how can we continue to follow on our dynamic on adjusting prices. Besides the lower inflation in the last 3 months, we have continued to adjust our prices on a monthly basis. Maybe with inflation of 2% or 1% per month, we can start thinking about adjusting prices on a 3 month or 4 month basis. With this level of market inflation, if we made them too spaced in time, when we have to increase our prices, we would be in a 2 digit figure and that would be difficult for the market to take that adjustment.

Speaker 6

Regarding

Speaker 5

volumes, as you mentioned, bagged cement has been recovering more fast and bulk cement is still lagging. Regarding larger projects, which is the target of bulk cement with the RIGI and other bigger projects that are starting to gain piece, they are probably going to affect or impact the bulk cement sales. Many private projects were monitoring the evolution of the effects and with this with the steady evolution of the effects in the last couple of months, we are starting to pick up Another important driver for bulk cement is public works. And in that case, we are seeing how the new scheme involving the private sector in public works, how is this going to evolve. So we are going to we are expecting this to start impact volumes next year.

Speaker 5

But these two variables should have an impact on bulk cement dispatches in the upcoming months.

Speaker 4

Thank you. Very clear.

Speaker 2

No luck.

Operator

And our next question today will come from Marcelo Forlan with Itau BBA. Please go ahead.

Speaker 7

Hi, everyone. Good morning. Thanks for taking my question here. I have one question related to dividends. I mean, you guys posted deleveraging in this queue at one time net debt to EBITDA sorry, at one time net debt to EBITDA.

Speaker 7

And you guys don't have any major projects under race. So my question is related to if you could see some improvement in dividends maybe for the 4th Q or for 2025. As you know, you guys still have with a healthy capital profile. So this is my question. Thank you.

Speaker 5

Historically, 3rd quarters are the ones that have lower EBITDA margin. That's basically due to increased costs during the winter season. Additionally, this year we had some extra hike on some costs that impacted during the 2nd and third quarter. For example, the impact of the hiking prices of transport, the energy that we had between 400% and 700% impacted between May and those and that effect impacted the 2nd and third quarter. In general, as it typically happens in this process of high inflation.

Speaker 5

Loma gains margin because we tend of we have the capability of moving our prices weaker than our costs. So if you look at the margins of the 3Q, they are impacted due to higher winter costs and probably you're going to see an improvement in the next in the coming quarter. Basically, due to the that now we are not going to have the impact on the winter cost, primarily in energy, not because of the other costs that have been moving following inflation.

Speaker 7

Okay. Thank you, guys. And a follow-up question here. What are you thinking about dividends going forward?

Speaker 5

So far we have we don't have anything planned for this year. For the upcoming months or next year, we are analyzing the capital allocation alternatives, thinking about the better alternative for our shareholders.

Speaker 7

Okay. Thank you so much,

Speaker 5

guys. You're welcome.

Operator

And our next question today will come from Esteban Arrieta with Balenci. Please go ahead.

Speaker 8

Good afternoon. Thanks for taking my question. Does Inter cement situation impose any debt repayment covenants on Loma Negra if our control changes? And additionally, I'll connect you to that. Would our control shift to another company would trigger a tender offer for Loma Negra shares?

Speaker 2

Hi, Stefan. Thank you for your question.

Speaker 5

There is no covenant regarding change of control that may have an impact on the company. Regarding a tender, then the regulations of the NYSE and CMV will apply considering that if an operation occurs. Thank you.

Speaker 2

You're welcome.

Operator

And our next question today will come from Daniel Roxas with Bank of America. Please go ahead.

Speaker 6

Hello, Sergio and Marcos here. Thanks for taking my call. Those are my questions I have asked, but I was curious and I was hoping to get a little bit more detail on the 25 kilo bag project you mentioned on the presentation. Does it make part of our strategy of selling smaller bags to get better prices? What are you hoping to get in that sense from selling that type of rate?

Speaker 6

Any color you can give us? And additionally to that, you've been very specific about the sequential recovery of cement volumes. I know you've given some details on the call, but could you give us any additional color? Thank you.

Speaker 2

Hi, Daniel. Thank you for your question.

Speaker 5

The profitability of cement and bulk are very close and more or less the same. Obviously, bags had more price and also more costs. So the margins are better in bulk and profitability is more the same. Regarding volumes, we can see one first stage until June and then a hike in volumes starting in July. That recovery that we are seeing starting in July is more or less 30% up the figures of the first 6 months.

Speaker 5

So only keeping this tendency, we are speaking about a recovery of or an increase in volumes for next year on a 2 figure digit.

Speaker 6

Great, great. And if I may follow-up, a lot of news has been published around the potential recovery of the mortgage market in Argentina. Can you give us some color on what you're seeing on the ground? How strong this recovery might be? Are banks jumping into the mortgage market?

Speaker 6

And are you starting to see permit activity, construction activity related to that or is it too early? Thank you.

Speaker 5

Yes, clearly that's something that we have always said that would be very important for growth. Last few months, there has been a recovery on real estate sales. And there is a lot to grow in that matter as well. And many of those sales and those operations end up boosting future construction projects. So this continues and growth for sure is going to have an impact on future salmon sales.

Operator

We'll conclude our question and answer session. I would like to turn the conference back over to Diego Halon for closing remarks.

Speaker 5

Hi. Thank you everyone for joining us this morning. It was a pleasure for us to having this call and we look forward to meeting you again in our next call. Thank you very much.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines and have a pleasant day.

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Earnings Conference Call
PHINIA Q3 2024
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