Loma Negra Compañía Industrial Argentina Sociedad Anónima (LOMA) Q1 2023 Earnings Report, Transcript and Summary

Good morning. And welcome to the Loma Negra First Quarter 2023 Conference Call and Webcast. All participants will be in listen-only mode [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. 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 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. As usual, I would like to begin my presentation with discussion of the highlights of the quarter and then Marcos would take you through our market review and financial results. After that, I will provide some final remarks and then we will open the call to question. Starting with Slide 2. We started the year in a very good shape and we are very pleased to share with you another quarter of solid results and meet increasing macroeconomic uncertainty. The industry remained [recently] maintain the positive momentum and setting another quarter of growth. Bulk cement demand is contributing to this trend boosted by private and public small interest return works. Our top line for the quarter increased 2.9% with same volume growing above the industry and boosted by the increased activity of concrete and [aggregates]. Our segment EBITDA for the first quarter stood at $63 million, up 15% from first quarter 2022. When measured in pesos, it showed a decrease of 19.7% compared to the same quarter last year adjustment by inflation. Although margins [suffered] some compression due to higher energy inputs in the cement segment and increasing participation in the top line of the other segments with lower margin. We keep on delivering world class EBITDA margin. In the sense the US dollar EBITDA per ton stood at [indiscernible] $40 for the quarter, 1.6% above 2022 first quarter. Continuing lower focused maximizing value to our shareholder at the beginning of the year we distributed a dividend payment of $19.5 million. Additionally, we recently announced and distributed in kind another dividend for the amount of ARS22.2 billion, always maintaining a strong balance sheet with a low [6.37] [Indiscernible] of 0.46 times. I will now hand off 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 4. As you can see on Slide 4, even though 2022 ended posting a 5% growth, the first quarter started to show a deceleration. The last market expectation report from the Central Bank shows a shift in estimations for 2023. Driving the growth expectation to negative territory and reflected an increase in economic uncertainty. While the construction activity shows mixed results for the first month of 2023 with a reduction in February, the cement national industry sales shows a [resulting] growth of 3.1% for the quarter despite a strong base of comparison and the challenging environment. Although still in high figures bulk cement shows a year-on-year contraction, while bulk segment continues to be the dispatch polarity posting growth. Concrete producers’ demand is a principal contributors to bulk performance, driven mainly by private infrastructure projects, both residential and industrial, coupled with a smaller mid-sized public works that are gaining more incidence in the shipments. In this sense we're seeing the breakdown by the patch model shipments continues to gain tariff, showing a participation of 43% against 40% in first quarter of last year. Given this positive start of the year, we remain cautiously optimistic for the upcoming month as economic volatility will probably increase as we approach the elections and this might affect the level of activity. Turning to Slide 5 for a review of our top line performance by segment. Top line was up 2.9% in the first quarter, mainly due to the increase in concrete and aggregates revenues, that more than compensated the decrease in the cement segment. Cement, masonry cement online segment was down 3.5% with volumes growing 4.3% year-on-year with a softer pricing dynamic. Concrete revenues increased sharply 32.8% in the quarter. Volumes were up 26.2% in line with the strong momentum of bulk cement coupled with good pricing performance. In the [same way], aggregate show a significant top line expansion of 65.3% with the sales volume increasing 47%, primarily on the back of concrete demand coupled with strong price performance. Finally, record revenues decreased 5.7% in the quarter year-on-year. Transported volumes were down 7.4% while the strong transported volumes of aggregates partially offset the decrease in cement and frac sand. Despite the negative effect in price of the lower volume of frac sand due to its higher transported distance, the prices had a good performance in this quarter. Moving on to Slide 7. Consolidated gross profit for the quarter declined 15.3% year-on-year with margin contraction by 591 basis points to 27.5%, mainly impacted by a lower price performance of our core segment, higher costs related to higher thermal energy inputs, mainly due to stimulus plans to increase natural gas production, partially compensated with a decrease in electrical energy inputs and depreciations. The significant increase in sales volumes in segments with lower margin also contributed to the compression of the consolidated figure. The contraction in cement, railroad and concrete gross margin was slightly offset by a better performance of aggregates. Finally, SG&A expenses as a percentage of revenues decreased 44 basis points to 9% from 9.5% in the first quarter 2022. Please turn to Slide 8. Our adjusted EBITDA for the fourth quarter stood at $63 million, up 5.8% from $60 million in the same quarter a year ago. In pesos, adjusted EBITDA was down 19.7% in the quarter, reaching ARS10.6 billion with consolidated EBITDA margin of 26.2%, contracting 738 basis points year-on-year, mainly affected by cement margin contraction and the higher participation in the top line of the other segments with lower margins. Cement adjusted EBITDA margins stood at 31.2% contracting 625 basis points, mainly affected by softer pricing dynamics and hydrothermal energy inputs. In a per ton basis, EBITDA reached $40 per ton, increasing 1.6% for the first quarter of last year. Concrete adjusted EBITDA decreased ARS21 million compared to first quarter 2022, mainly explained by higher cost of aggregates and freights, partially compensated by a positive price performance and higher volumes, margin [construction] of 33 basis points reaching in a negative 1.2%. Aggregates adjusted EBITDA improved ARS272 million this quarter for negative ARS37 million in the first quarter 2022, reaching a margin of 17.6%, reaffirming the good momentum for the segment coupled with our better operational performance. Finally, railroad adjusted EBITDA decreased ARS237 million to negative ARS38 million for the quarter with a negative margin of 1.2%, mainly explained by lower transported volumes that would pressure on cost, partially compensated with better price performance. Moving on to the bottom line on Slide 10. This quarter, we posted a net profit attributable to owners of the company of ARS5.3 billion compared with ARS6.5 billion on first quarter 2022 where the lower operational result was coupled with higher financial cost. Total financial costs stood at ARS19 million this quarter from a total financial gain of ARS452 million the same quarter last year where the positive effect of the result of the monetary position partially compensated decrease of the net financial expense generated due to the higher debt position and the higher negative effects of the exchange rate. Moving on to the balance sheet. As you can see on Slide 11, we ended the quarter with a cash position of ARS19.4 billion and total debt at ARS42.3 billion. Consequently, our net debt to EBITDA ratios to that 0.46 times compared to 0.47 times at the end of 2022. Our [operation] cash generation stood at ARS4.43 billion with increase in the net profit adjusted with the noncash effects partially compensated the negative effect of the changes in operating assets and liability. Regarding capital expenditures, we allocate ARS1.8 billion mostly for maintenance CapEx. During the quarter, we increased our debt in [$19 million] outstanding our net debt at $109 million at the end of this quarter. Breaking it down by currency, the dollar denominated debt represents 30% of the total debt while the rest is in pesos. As we mentioned before, in the quarter, we distributed dividend for $94.5 million and we recently approved a new dividend of ARS22.2 billion that was paid in kind through Argentine Treasury Bills. Additionally, in the quarter, the company issued its class one domestic bonds for the total amount of ARS25.6 billion with maturity in August 2024. This first issuance was well received by the market and is a sign of the trust placed in our company. Now for our final remarks, I would like to hand the call back to Sergio.

Thank you, Marcos. Now to finalize the presentation, I please ask you to turn to Slide 13. To wrap up this presentation, I would like to highlight a few final takeaways. We are pleased to see how far the industry remaining at the start of the year positing growth figures despite the already strong base of the corporation. We are following with [addition] the evolution of the economy as we approach the presidential election, which could affect the volume of the industry for the remainder of the year. In this context, we remain focused on managing the business to keep on delivering strong results. We consider the maximization of value generation to our stakeholder one of our main objectives. This is why in addition to the dividend payments that we distributed in January, we recently approved a second dividend payment that was distributed in kind, seeking to follow our goal in the most efficient way. I would like to conclude by thanking all our people and stakeholders for their commitments and support. This is end of our prepared remarks. We are now ready to take your questions. Operator, please open the call for questions.

[Operator Instructions] And the first question comes from Alberto Valerio with UBS.

One thing that I was a little bit surprised on the results was the increase on the energy expense. On the other hand of the global energy price, maybe Argentanian dynamics is a little bit different. So if you could give some color about the [contract] that we had for the remainder of the year, and what we should expect on this line?

…and actually thermal energy, we've had an increase this year and also by the end of last year. The good news there is that this increment was lower than you could see in other regions and the outcome for the near future is also positive. [Indiscernible] this year we should be around $3.2 million BTU. [Several] contracts that we already signed for the next few years are below $3.

Our next question will come from Daniel Rojas with Bank of America.

Just a follow-up on the last question in terms of thermal costs. That contract you say you signed below $3, is it related to the gas pipeline expansion and can we assume that going forward, one of your competitive advantages will be your ability to tap into much lower gas costs coming from Vaca Muerta? And I know it might be too early, but can you share with us the savings in terms of EBITDA or EBITDA margins that you think you can gain from these competitive advantages?

The pipeline is moving forward as scheduled. The forecast production in Vaca Meurta for this year are very good, and several of the contracts that we signed are linked to this improvement in production. [The comment] before the improvement in the price of the gas that we are paying is going to lead to and improve also in our margins for the next few years. Regarding gas supply, we don't see any competitive advantage with the other cement producers in Argentina.

A follow-up, if I may. I don't want -- I'm sorry for trying to -- for you to become political analysts. But if you could gauge a little bit of what's happening in the political scenario in Argentina. One of the candidates that's leading ground lately has talked a lot about changing the dynamics of how public bidding is done in Argentina or how public constructing is done. I know it's early but what are your thoughts on the political change that may come and the implications for public spending?

The [macro] political scenario is very volatile these days due to the elections. I would like to remark that the participation of expanding the total volume of [cement] demand is vital, for every government, public spending and incentive are a way to raise the level of activity of the economy. In the infrastructure deficit in Argentina it's the point that we can see even in housing and infrastructure in general. The final point between all the political parties. It's how this infrastructure issue should be financed, it's obviously the public sector, the private sector or a mix [indiscernible]. [We should] all agree that if we think of Argentina and is to grow in the next few years that this infrastructure deficit should be taken care of.

[Operator Instructions] Our next question will comes from Rodrigo Nistor with Latin Securities.

Given the current [elevated] inflation environment, could you please discuss your pricing strategies, specifically, the frequency of price increases and how these adjustments are impacting demand for your cement products? Also, if you have observed any changes in demand as a result of the recent fluctuations in the [indiscernible]?

Could you repeat the last line, we didn't hear you well?

The last part?

Yes, the whole question please.

If you're observing changes in demand as a result of the recent fluctuations in the [blue chip shortage]?

Regarding prices, we are increasing prices in a monthly basis. We always say it's a combination between our cost inflation and for the inflation in general and the -- this part of the year for the late of the year, we are mostly in line with inflation. Regarding the volatility of the market, the macro political situation always brings some noise. On the other hand, when the gap between the official effects and the blue chip effects widens, this typically brings some -- it's a driver for the…

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

Thank you all for joining us today. As always, we really appreciate your interest in Loma. As always, we will remain available for any other questions that you may have. Have a nice day. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.