Loma Negra Compañía Industrial Argentina Sociedad Anónima Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 8, 2024

There are 10 speakers on the call.

Operator

Good morning, and welcome to the Noah and Leura Second Quarter 20 24 Conference Call and 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. Please note this event is being recorded. I would now like to turn the conference over to Ms.

Operator

Diego O'Haraon, Head of Investor Relations. Please hear 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 Jardin. 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 Marco will take you through our market review and financial results. Following that, I will share some final remarks before opening the call to your questions.

Speaker 2

Starting with slide 2, we are glad to report another set of solid results after starting the year in a very challenging scenario with significant year on year volume decline. Our business delivered in the 2nd quarter and assessment EBITDA margin expansion, driven by our constant focus on profitability and cost control initiative. This demonstrates our strong capability for efficiency and flexibility in adapting the challenging scenarios. Fortunately, we are starting to see a gradual but consistent recovery in cement volumes. But before diving into the detail of the industry, let's review the financial highlights of the quarter.

Speaker 2

As I mentioned before, in the Q2, Loma has demonstrated resilience in its operational and competitive strengths. Our top line stood at 166,100,000,000 pesos, decreasing 28% in the quarter, with cement volume down 32.5 percent. The consolidated adjustment EBITDA reached $51,000,000 or Ps. 38,000,000,000 in the 2nd quarter, only down 11.7% despite the hard drop of volume dispatch. This result was possible due to the good expansion of the EBITDA margin of the cement segment.

Speaker 2

We pushed the consolidated EBITDA margin to 28.1%, expanding 5 20 basis points year on year. In the same sense, EBITDA per ton reached the rate mark figures of $45 up 23% year on year and 15% on the secondary basis. On the financial side, our balance sheet remains strong with net debt of $270,000,000 on the upcoming quarter with less demanding capital needs. We will use our cash generation to gradually reduce our short term pesos internals. I will now hand off the call to Marco Rodin, who will welcome you for our market review and financial results.

Speaker 2

Please, Marcos, go ahead.

Speaker 3

Thank you, Sergio. Good morning, everyone. Please turn to Slide 4. As shown in the chart on the lower left, the Central Bank Markets Expectations report suggests that the economy might have experienced its most significant quarterly downturn in the Q1 of this year, with a more optimistic forecast for the second half. When we examine the figures for our industry, the construction activity indicator reveals a gradual improvement after hitting a low in March.

Speaker 3

The monthly segment sales chart for the industry reflects the same pattern of continuous sequential recovery. Even though June seems to break the trend, when removing the effect of fewer working dates during the month, the average daily dispatches show that the positive trend is in place. Additionally, this July data suggests we are reaching a new level for the second half of this year. The macroeconomic conditions remain challenging, but as economic variables stabilize, the industry can find a solid foundation for growth. The industry's bulk cement dispatches remain the most affected by this context, down 41% year on year, while bulk cement posted a contraction of 24%.

Speaker 3

When looking at the breakdown by dispatch mode for the quarter, bulk shipments represent 39% of the total dispatches, while the bulk format gained return reaching 61%, 6 percentage points above the Q2 of 2023. Turning to Slide 5 for a review of our top line performance by segment. The 1st quarter top line show a decrease of 28%, mainly due to a lower top line performance of the cement business, followed by the rest of the segments. The cement, major cement and line segment was down 26.1% with volumes contracting 32.5% year on year. The decline in volume was partially offset by a strong price performance.

Speaker 3

Although the contraction affected both dispatch modes, bulk cement was hit the hardest. In our bulk client segmentation, industry and construction companies remained significantly down, while public works only began to show some early signs of activity towards the end of the quarter. Concrete revenues decreased by 47% in the quarter, mainly due to the 45% decrease in dispatches. The type of projects that are the core of our business are still lagging behind in terms of activity reactivation. Aggregate segment showed a decrease of 36% with volumes down 25%, following the trend of the Concrete segment.

Speaker 3

Finally, railroad revenues decreased by 14.5% in the quarter. Transported volumes were down 22.5%, primarily affected by the lower level of activity in the construction sector, partially compensated by improvements in transported volumes of frac sand and grains. The positive price dynamics also help compensated for the lower volume. Moving on to Slide 7. The consolidated gross profit for the quarter declined 18.1% with emerging expansion of 3 29 basis points to 27% that partially offset the volume contraction on our core business.

Speaker 3

Regarding the cement segment, the favorable price trend and strict cost management along with reduced depreciation partially mitigate the impact of lower sales volume. Concerning the cost of cement sales, technical use during this quarter was mostly produced during the warmer months when energy inputs were lower. To mitigate higher energy cost and a potential natural gas shortage, most of our kilns were shut down during this quarter. We plan to utilize our clinker stock and the spring, at which point we will restart keel operations. In terms of electrical energy, the company decreased its energy requirements by halting the primary grinding phase on the cement production process.

Speaker 3

This able us to increase the proportion of renewable energy in our metrics to 61%, up from 36% in the Q2 of 2023, consequently reducing energy costs. Railroad also show a margin expansion, while concrete and aggregates posted significant construction as these segments were more affected by the current context. Finally, while SG and A expenses decreased sharply by 28.5%, mainly due to lower salaries, a decrease in turnover tax and freight costs related to lower volume and a decrease in insurance costs. As a percentage of sales, it remains flat at 9.4% despite the decrease in the top line. Please turn to Slide 8.

Speaker 3

Our consolidated adjusted EBITDA for the quarter stood at $51,000,000 In pesos, adjusted EBITDA was down 11.7%, reaching ARS 38,000,000,000 with a consolidated EBITDA margin of 28.1%, showing an expansion of 520 basis points year on year. On a sequential basis, the margin showed an even higher increase, jumping 5 52 basis points. 7 segment adjusted EBITDA margin stood at 31.5%, expanding 5 65 basis points. The positive bright performance, a tight cost management and better energy inputs mitigates the lower sales volume. In a per ton basis, EBITDA reached $45 per ton, increasing 22.6% year on year.

Speaker 3

Concrete adjusted EBITDA decreased ARS 1,100,000,000 compared to the same quarter of last year, with a margin contraction of 7.96 basis points, reaching minus 5%. It is primarily due to the sharp drop in dispatches as the recovery of these types of works that are targeted by these segments are still lagging behind in the recovery. The adjusted EBITDA margin of aggregates contracted to minus 10.8% from 5 point 3% in the Q2 of 2023, mainly due to lower volumes, lower fixed cost absorption and a price performance affected by product mix. Finally, the adjusted EBITDA margin of the railroad segment expanded by 153 basis points in the quarter to 6.3%, primarily due to the positive price performance and boosted by an increase on the average transported distance. Moving on to the bottom line on Slide 10.

Speaker 3

This quarter, we posted a net profit attributable to owners of the company of ARS 29,600,000,000 compared to a net profit of ARS 9,500,000,000 in the Q2 of 2023. The solid operational performance despite reduced volumes and a higher overall financial gains account for the improved results. Financially, the positive effect of inflation on the net monetary position is a primary factor for this variation, along with a reduced impact from exchange rate difference due to the reduced pace of the valuation and lower net financial cost. However, this gain was partially offset by increase in income tax expenses. Moving on to the balance sheet.

Speaker 3

As you can see on Slide 11, we ended the quarter with a net debt of ARS118,000,000,000. Consequently, our net debt to EBITDA ratio stood at 1.26 times compared to 1.4 times at the end of 2023, maintaining a comfortable indebtedness position. Our operating activities, cash generation stood at ARS16 1,000,000, compared to a cash generation of ARS44 1,000,000,000 in the same period of 2023, while the decrease is mainly due to a lower VAT performance and higher working capital needs. Our clinker inventories will mostly be used during the winter seasons when most of the kilns will remain shut down. Regarding capital expenditures, we allocated ARS 16,300,000,000 mostly for maintaining CapEx and for the 25 kilos bag projects.

Speaker 3

During the quarter, the company used ARS 2,100,000,000 in financial activities, primarily for interest payments, which were mostly offset by proceeds from borrowings net of repayments. In dollar terms, our total debt reached $220,000,000 standing our net debt at $217,000,000 at the end of this quarter, with a duration of 1 year. Breaking it down by currency, the dollar denominated debt represents 63% of the total debt, while the rest is in pesos. The company will address the maturity of the Class 1 bond issued in pesos during this Q3. As the second half of the year require less capital due to the utilization of stocks during the winter, we will meet a short term obligation with our cash generation and our bank credit lines.

Speaker 3

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

Speaker 2

Thank you, Marcos. Now to finalize the presentation, I please ask you to turn to slide 14. Following a challenging start to the year where the macro environment had a significant impact on the cemented parts, the second quarter start to show clear signs of recovery, which have continued to strengthen in the recent months, with July February being very promising. By leveraging our expertise on operational efficiencies, Loma achieved another robust quarter by notable margin growth. We are hopeful that the activity level will maintain the encouraging recovery trajectory With the evolution of crucial economic factors, including a significant reduction in inflation, emission among attractive foreign direct investment among other initiatives, we are confident that the construction industry has a remarkable opportunity on the horizon.

Speaker 2

Finally, I would like to thank all our employees for their commitment and extend my gratitude to the rest of our stakeholders. This is the end of our prepared remarks. We are now ready to take questions. Operator, please open the call for questions.

Operator

Yes. Thank you. And the first question comes with Paul Smith with UBS.

Speaker 4

Good morning. Actually, it's Alberto Valera. I think the research is on our number. Thank you, Sergio, Marcos and Diego for taking the question. I had 2.

Speaker 4

The first one, it's about July volumes and price. We see a much better print for the month. It's a trend or it was a one off month. And if you permit, my second question it's about margins. In terms of we see volumes dropping strong more than 30% year over year, but we see margin increase.

Speaker 4

My question is, if this is sustainable for the future, was an amazing job done for you guys in terms of any savings given the inventory on the summer. But I would like to see for the future, if you can keep on this space or if you could see some reversal on margins. Thank you very much.

Speaker 5

Hi, Alberto. Thank you for the question.

Speaker 6

Volumes of July, as you have seen, had a very interesting recovery from the volume show in June. We believe that this trend is going to continue with similar volumes of the ones that we saw in July. We believe that due to several steps that we have achieved in Argentina, we are reaching a new level of dispatches. The consolidation of lower inflation, the gap between FXs are some of the factors that are improving the situation in Argentina. The recovery of real wages and the increase in credit, especially in mortgage loans are also factors that are boosting the dispatches.

Speaker 6

We are starting to see some moderate increases in the level of activity of public works, And we expect to see that trend also improving in the 2nd semester. We believe that it will improve in the coming months. Prices. Our politics regarding prices, as we always say. It follows different issues as the effects, but also the evolution of our internal costs.

Speaker 6

And we are not seeing any change in this strategy for the future. Regarding margins, even though we might see some impact in the upcoming quarter due to thermal energy. But this effect must be very soft. We don't expect a huge change there. And also, you have to consider that in September, we are going to start using the contract that we have already signed.

Speaker 6

And this contract showed a very significant decrease from the levels of the energy inputs that we have been using. So for the rest of the year, we are expecting to maintain our margins and even see some improvement in the Q4 of the year.

Operator

Thank you. And the next question comes from Maria Marteva of Laden Securities.

Speaker 7

Hi, good morning. Thanks for taking my question. So you mentioned that you expect the recent uptick in activity to continue during the second half of the year. What do you believe will be the main drivers of recovery? Will it be the resumption of public works or private projects?

Speaker 7

And could the approval of the rig have any positive impact on cement dispatches?

Speaker 6

The drivers are the ones that we just mentioned and they are impacting more in private works than in public works. As we believe in the next 2 weeks, we are going to see what the recommendation for the RIGI program. And there are projects, especially in the mining sector that are standby and probably with this new regime, they will be ready to start. So with the RIGI and also with the increase in credit lines And with the start of several private works that we have been seeing in the past few weeks or months are the pillars that we expect to see the future growth to sustain with.

Speaker 7

Thank you.

Operator

Thank you. And the next question comes from Sal Farhan with Itau BBA.

Speaker 8

Hi, Sergio. Hi, Marcos. Hi, everyone. Thanks for taking my question here. I had 2.

Speaker 8

The first is related to capital allocation. I mean, the company has been able to deliver still decent results during the first half of this year despite the economic headwinds and so on. And also the companies do have a strong and healthy capital structure. So I'd like to understand in terms of capital allocation, what are the companies or management's views regarding dividends and CapEx for this year? So this is my first question.

Speaker 8

And the second question is related to market share. You guys mentioned that you expect to maintain such price levels for the second half of this year. I'd like to understand how is the company thinking about maintaining its market share in the semi market in Argentina? So these are my 2 questions. Thank you guys.

Speaker 5

Hi, Marcelo. Thank you for the question.

Speaker 6

We are I'm going to start with the second question. The level of prices and market share are 2 things that we follow up close. And the market share But we don't have a policy of growing market share with lowering prices because we believe that this will destroy value for the company in the long term. So the price in this quarter and the prices that you will see in the future are going to be alongside a level of market share in where we feel comfortable. Regarding capital allocation, in the next quarter, we have some maturities of short term debt, and we expect to address that with some cash generation and then our short term lines with the banks.

Speaker 6

And regarding also capital allocation, we are seeing all the alternatives that might add value to the shareholders. In the upcoming months, we will decide what is going to be the destiny of the cash generation of the 2nd semester.

Operator

Thank you.

Speaker 8

Okay. Thank you so much guys and congrats on the results.

Operator

Okay. Thank you.

Speaker 4

You're welcome.

Operator

And the next question comes from Alejandra Rigonde with Morgan Stanley.

Speaker 9

Hi, good morning, Loma Negra team. Thank you for taking my question. I was wondering if you can give us some color on the mix of your volumes, meaning bag versus bulk today and where do you see that going towards 2025? And finally, when you talk about maintaining prices for the second half of the year, just curious if there's a mix effect embedded into that comment as you shift away from that? Thank you.

Speaker 5

Hi, Alejandro. Thank you for your question.

Speaker 6

After that, I'm going to ask you to repeat the second question because we didn't actually get it. Regarding the first one, the percentages or the participation of bags and bulk are within the historic parameters. But in the case of actually what is happening in this past quarter in June July, we saw a recovery, a more sharp recovery of the back most of dispatch and that should be due to the recovery of the real wages and also the positive impact of the increased credit lines in mortgage lines. But the percentages are still 60 percent bags and 40% bag with some minor variations month to month.

Speaker 9

Got you. That's very clear. So perhaps a follow-up. So when you so you're mentioning 60% to 40% mix today, but I would assume that maybe as we move forward into 2025, then bulk will start to contribute more to the mix. So how should we think of pricing given that there's a shift in mix where bulk will likely have a negative effect on the pricemix?

Speaker 9

So when you talk about maintaining prices, does that mean that you are expecting perhaps more price increases on that side of the mix? I don't know if that's perhaps a little bit more clear.

Speaker 6

The strategy of pricing is very similar in both modes of dispatch. And the margins in both and in box is also very similar. And our market share in both dispatch modes are also very similar. We have seen cases in the past where we saw a variation in the participation of these 2 multiple dispatches, and we didn't see any impact on pricing.

Speaker 9

Got you. That's very clear. Thanks again for taking my questions.

Speaker 5

You're welcome, Marjandra.

Operator

Thank you. And this concludes our question and answer session. I would like to turn the conference back over to Yasser Halom for any closing remarks.

Speaker 6

Thank you all for joining us today. We really appreciate your participation, and we expect to meet you again in our next call. Thank you very much, and have a nice morning.

Operator

Thank you. The conference has now concluded.

Powered by Quartr
Earnings Conference Call
Loma Negra Compañía Industrial Argentina Sociedad Anónima Q2 2024
00:00 / 00:00