Loma Negra - Q1 2022

Transcript

Operator (participant)

Good afternoon, and welcome to the Loma Negra first quarter 2022 conference call webcast. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. 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. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note that this room event is being recorded. I would now like to turn the conference over to Mr. Diego Jalón, Head of IR. Please go ahead, sir.

Diego Jalón (Head of Investor Relations)

Thank you. Good afternoon, 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 last Friday after market close. Joining me on the call this afternoon 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 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 to the corresponding financial measures is included in the earnings press release. Now, I would like to turn the call over to Sergio.

Sergio Faifman (CEO and VP of the Board of Directors)

Thank you, Diego. Hello, everyone, and thank you for joining us today. I will begin my presentation with a discussion of the highlights of the quarter. Marcos will take you through our market review and financial result. After that, I will provide some final remarks. We will open the call to your question. Starting with slide three. We are glad to witness a robust start of the year in this first quarter. Cement volumes are growing strongly, and we are enthusiastic about our business performance. As you can see through our release issued on Friday, our adjusted EBITDA for the quarter reached $60 million, compared with $52 million in first quarter 2021. When measured in pesos, it shows a decline of 11% year-over-year. Sustained by our operational standard and production efficiency, we managed to continue delivering world-class profitability results.

With consolidated adjusted EBITDA margin of 33.6%, a remarkable US dollar EBITDA per ton of $39, which withstood more expensive energy inputs. Finally, leverage on the solid balance sheet of Loma. In April, we paid a dividend of approximately $45 million. 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.

Marcos Gradin (CFO)

Thank you, Sergio. Good afternoon, everyone. As you can see on slide 4, after the GDP growth of 2021, that stood at 10.3%, recovering the growth of 2020. 2022 shows a more moderate growth for the economy, with estimates reaching 3.2%. In this context, construction activity measured by the ISAC still shows a strong momentum for the sector, with figures above general economy level. Particularly, regarding the national cement industry sales, we are off to a good start for the year. After our January that was affected by the weather, February and March showed a solid demand that pushed the industry growth near 7% for the quarter.

April figures show the same tendency, increasing 9.8%, which makes us believe that if this trend continues, 2022 is going to set an industry record. Bag cement volumes remain solid on the back of residential demand, but this quarter, growth came especially from the bulk dispatches. Medium and small size infrastructure works, both public and private, added dynamism to the industry and made bulk cement recover 3 points against bag segment when we saw the breakdown by dispatch mode. For the year, we remain cautiously optimistic as economic growth in Argentina is overshadowed by short-term macroeconomic challenges, and its outcome will surely impact future level of activity. Turning to slide 5 for a review of our top-line performance by segment.

Top line was down 5.5% in this quarter, mainly due to a decrease in cement and concrete revenues, partially offset by aggregates and railroad. Cement, masonry cement and lime segment was down 6.5%, with volumes expanding 6.6% year-over-year with a softer pricing dynamic. Concrete revenues decreased 17.5% in the quarter. Volumes dropped due to an extraordinary infrastructure work in first quarter of 2021, partially compensated by a good price performance. Concrete segment is still affected due to the lack of relevant infrastructure work in the markets where we operate. Aggregates showed sharp revenues recovery of 89%. Volumes expanded 35.6% on the back of roadworks demand in the province of Buenos Aires, coupled with a recovery in pricing.

Finally, railroad revenues increased 10.8% during the quarter versus the same quarter in 2021. Transported volumes were up 6.2%, boosted by construction materials, coupled with a good price performance. Moving on to slide seven. Consolidated gross profit for the quarter declined 13% year-on-year, with margin contracted by 288 basis points to 33.4%, mainly impacted by a lower top-line performance of our core segment and higher depreciation due to completion of L'Amalí second line. Cement gross margin contraction was slightly offset by a better performance of concrete and aggregates. SG&A expenses as a percentage of revenues increased by 127 basis points to 9.5% from 8.2%, mainly due to higher marketing, insurance, and IT expenses. Please turn to slide eight.

Our adjusted EBITDA for the fourth quarter stood at $60 million, up 13.9% from $52 million in the same quarter a year ago, boosted by our top line. In pesos, EBITDA was down 11.2% in the quarter, reaching ARS 6.5 billion, with consolidated EBITDA margin of 33.6%, contracting by 214 basis points year-over-year. Cement segment adjusted EBITDA reached 37.4% margin, contracting by 332 basis points, mainly due to a softer pricing dynamic, partially offset by lower production costs due to principally lower maintenance costs and an increase in sales volume. On a per ton basis, EBITDA reached a top-notch level of $39.5 per ton, increasing 3.3% from first quarter of 2021.

Concrete adjusted EBITDA increased by ARS 166 million compared to first quarter 2021, mainly explained by a positive pricing performance with margin expansion of 924 basis points, almost reaching positive grounds from last year's negative figures. Aggregate adjusted EBITDA improved from negative ARS 23 million in first quarter of 2021 to negative ARS 18 million in first quarter 2022, showing still a negative margin of 4.6%, favored by a pricing mix and higher sales volume. Finally, railroad adjusted EBITDA increased ARS 51 million to ARS 97 million for the quarter, with a margin of 5.9%, mainly due to the impact of its top line performance.

Moving on to the bottom line on slide 10, our profit from continuing operations stood at ARS 3.1 billion, decreasing 21% year-on-year, mainly due to a lower operating result. Total finance gains stood at ARS 0.2 billion in first quarter 2022, with no significant changes when compared to the same quarter last year, where the decrease of the net financial expense compensated the loss in exchange rate difference. As mentioned, our net financial expense decreased by ARS 0.2 billion to ARS 0.5 billion compared to same quarter last year, driven by lower average debt and lower FX depreciation effect compared with the evolution of the inflation rate. Measured in U.S. dollars, our net income for the first quarter was $41 million compared to $37 million in the first quarter of 2021.

Moving on to the balance sheet and cash generation, as you can see on slide 11, we ended the quarter with a cash position of ARS 5.1 billion and total debt at ARS 1 billion. Consequently, our net debt to EBITDA ratio stood at negative 0.15 times compared to negative 0.12 times at the end of 2021. During the quarter, we continued reducing our debt in $15 million, standing at just $9 million, most of which is denominated in US dollars. Additionally, we continue with our share repurchase program. We acquire shares for a total amount of ARS 0.6 billion in the quarter. Our operating cash generation stood at ARS 2.3 billion, reflecting a lower profitability coupled with higher working capital needs.

Regarding capital expenditures, we spent ARS 0.6 billion, significantly reducing the capital requirements after the completion of the L'Amalí expansion project. Leveraging our strong balance sheet and continuing with actions tending to return value to our shareholders, in April, we decided to pay a $45 million dividend. Now for our final remarks, I would like to hand the call back to Sergio.

Sergio Faifman (CEO and VP of the Board of Directors)

Thank you, Marcos. Now, to finalize the presentation, I please ask you to turn to slide 13. As we mentioned before, 2022 is off to a good start. After the strong volume of 2021, the first 4 months of the year showed a significant growth with a tendency that we believe is going to continue overall amid macroeconomic uncertainty to show a new record for the industry at the end of the year.

The geopolitical disruption that affects, particularly, the energy market and put pressure on our industry is yet to be resolved, but we leveraged our recent increase in capacity and operational efficiency to continue delivering strong results. On the local side, political and macroeconomic challenges could overshadow economic growth. Recent high inflation figures and tensions in the FX market could thwart the level of activity. As always, Loma Negra will continue focus on delivering consistent results. Last but not least, I would like to thank all our people and stakeholders, without whom this set of solid results could have been very difficult to achieve. We are now ready to take your questions. Operator, please open the call for questions.

Operator (participant)

Thank you. We will now conduct the Q&A session. If you would like to ask a question, you may press Star then one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press Star then two if you would like to remove your line. For participants using speaker equipment, it may be necessary to pick up your handset prior to pressing the key. Once again, Star then one on your telephone keypad. We would also like to ask that you please limit your questions to one question and one follow-up, please. If you have additional questions, you may queue for those questions and they will be addressed. Also, please note that Mr. Sergio Faifman will be re-responding in Spanish immediately following an English translation. Please hold momentarily for the first question.

Our first question today will come from Alejandra Obregon with Morgan Stanley. Please go ahead.

Alejandra Obregon (Equity Research Analyst)

Hi, Loma Negra team. Thank you for the call and for taking my question. You mentioned, I think in your release, in your earlier remarks about softer pricing dynamics. I was just hoping if you could elaborate a little bit more on what you're seeing in terms of pricing strategies, what you're expecting in terms of pricing for the following quarters, and more specifically around competitive dynamics and what's driving these softer trends. I have a follow-up, but I'll, I might ask that after this question. Thank you.

Sergio Faifman (CEO and VP of the Board of Directors)

Hi, Alejandra. Thank you for your question. Como siempre decimos, nuestra política de precios está relacionada con, básicamente tres puntos. As always, we say that our policy about pricing is based in three concepts. Inflación general, inflación de costos de Loma Negra y el mantenimiento del EBITDA por tonelada y margen EBITDA. Inflation in general, inflation of internal costs of Loma Negra. Margin, EBITDA margin. Entonces nuestros aumentos de precios en lo que viene del año están en línea con esos costos, algunos de los cuales todavía no impactaron y impactarán más en el invierno. Regarding pricing, is in line with these three concepts that I mentioned before, and some of these concepts are going to probably impact more ahead in the year.

Alejandra Obregon (Equity Research Analyst)

Understood. That was clear. Maybe a second question, if I may, that has to do with the strong performance, your balance sheet that is very solid and your cash generation. I was just trying to understand if there could be more buybacks or perhaps more dividends or maybe you could be thinking about growth bolt-ons and acquisitions or particular or specific investments. Anything that can help us understand what you're thinking in terms of cash allocation and your future opportunities. That will be very helpful. Thank you.

Sergio Faifman (CEO and VP of the Board of Directors)

Sí. La verdad que todos los items que mencionaste están en nuestro radar. All the items that you mentioned are in our radar. Continuamos con programa de recompra de acciones. We continue with the program of buyback shares. Estamos analizando, como ya hicimos, política de dividendos. We are analyzing future dividend payments. También adquisiciones de compañías en Argentina o en el exterior, como integración o alguna otra alternativa. Also M&A acquisitions even in Argentina or abroad. También, como mencionamos en algún momento, alguna inversión relacionada con lo que tiene que ver con energía eléctrica para Loma Negra. Maybe, as we mentioned before, some investment in energy, electric energy.

Alejandra Obregon (Equity Research Analyst)

Understood. When you say electric energy, does that mean shifting into renewables or any other type of project?

Sergio Faifman (CEO and VP of the Board of Directors)

Renovable, eólica más precisamente. Yes. Renewable energy and eolic.

Alejandra Obregon (Equity Research Analyst)

Thank you. That was very helpful.

Sergio Faifman (CEO and VP of the Board of Directors)

Thank you for joining us today. We really appreciate your interest in our company, and we are looking forward to meeting you again in our next conference call. Till then, the team remains available for any question that you may have. Thank you. Bye.

Operator (participant)

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.