Loma Negra - Earnings Call - Q1 2025

Transcript

Speaker 1

Good morning and welcome to the Loma Negra First Quarter 2025 conference call and webcast. All participants will be in 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 this event is being recorded. I will now turn the conference over to Mr. Diego Jalón, Head of IR. Please, Diego, go ahead.

Speaker 0

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

Speaker 2

Thank you, Diego. Hello, everyone, and thank you for joining 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 your questions. Starting with slide two, we are pleased to present Loma Negra results for the first quarter of 2025. To begin the year with renewed optimism, supported by recent forecasts projecting approximately 5% GDP growth for the Argentine economy. In this encouraging environment, our industry continued its recovery, posting an 11% year-over-year increase in the first quarter, despite the impact of adverse weather conditions during the early months. However, this recovery remained in its earliest stage.

If the economy meets the projected growth, the real economy, particularly the construction sector, should benefit, potentially fueling a more robust and sustained recovery in the months ahead. As the year progressed, semiconsumption showed signs of improvement, which we believe will continue in the coming months. April and February were nearly 28% higher year-over-year and up 13% on a sequential basis. Diving into the quarterly results in the context of a gradual recovery within an industry style characterized by the high-tide capacity, we continue to focus on driving efficiency and controlling cost. These efforts enable us to improve our margin, which rose by 140 basis points compared to the same period last year. We achieved an assessment EBITDA of $40 million, although this represents a 3.2% decrease in pesos, highlighted into a solid US dollar 36 per ton.

We remain committed to protecting our profitability while maintaining strong and resilient balance sheets. On the financial front, our balance sheets remain solid. During the quarter, net debt increased sequentially to $174 million, as the first quarter is typically more capital-intensive. However, our net debt EBITDA ratio remained comfortably below one times. I will now hand off the call to Marcos Gradin, who will walk you through market review and financial results. Please, Marcos, go ahead.

Speaker 1

Thank you, Sergio. Good morning, everyone. Please turn to slide four. We started the year with positive forecasts for the Argentine economy, which is expected to grow around 5% following a 1.7% contraction in 2024. However, that contraction affected sectors unequally. While agriculture expanded by 31%, construction was the most affected, declining by 18%. Now, with the last two quarters showing signs of economy expansion, a recovery in construction activity is underway. Although the early months of the year were impacted by adverse weather conditions, the industry closed the quarter with an 11% year-over-year increase. Notably, the second half of March showed encouraging figures in daily dispatches. Furthermore, recent data from AFCP for April indicates a more robust recovery, with cement volumes growing 28% year-over-year and 14% sequentially. The breakdown of cement sales by dispatch mode remained consistent with historical trends.

Bulk cement accounted for 60% of total sales, while bagged cement represents 40%. We are cautiously optimistic about this start to the year. While we remain in the early stages of recovery, we expect the process to gain momentum and strengthen in the coming quarters. Turning to slide five for a review of our top-line performance by segment. First quarter top-line decreased by 8.9%, primarily due to the weaker performance in the cement segment, along with declines across other business areas. The cement, masonry cement and lime segment, posted a 10.9% revenue drop, despite an 8.9% year-over-year increase in volumes, extending the recovery trend observed in previous quarters. However, the positive effect of higher volumes was offset by a softer pricing environment. That said, prices remained above the evolution of our internal cost structure.

Concrete revenues declined by 1.4% in the quarter, as a 22.8% increase in volumes was offset by price pressures stemming from a more competitive market environment. The rising sales volume was driven by private infrastructure projects and renewable energy developments in the province of Buenos Aires, along with ongoing residential construction and a slight uptick in public works. Similarly, the aggregates segment posted a 14.2% revenue decline, despite a 29% increase in sales volumes, driven by higher road construction activity in the province of Buenos Aires and Santa Fe. However, a still overall weak market activity continued to weigh on pricing dynamics. Prices were also impacted by the sales mix, as road construction projects primarily require fine aggregates, which carry a lower average price. Railroad revenues saw a more moderate decline of 1.2% in the quarter. Higher transported volumes, up 19.9%, helped offset softer pricing.

Volume growth was primarily driven by increased transport of construction materials and grain. However, the rise in grain transport negatively impacted the average price, as grain generates lower revenue per kilometer transported. The main negative event of the quarter was the severe storm that struck Bahía Blanca on March 7, which disrupted the railroad-like connection in the city with Neuquén. This caused a negative impact on the transport of several products, as a disruption whose effects are expected to continue into the second quarter. Moving on to slide seven, consolidated gross profit declined 4.7%, while gross margin expanded by 116 basis points year-over-year, reaching 26.4%. In the cement segment, higher volumes and effective cost management play a key role in mitigating the impact of a softer top-line during this quarter.

Improved energy inputs cost had a positive effect on variable cost, as in the fourth quarter of last year, the company benefited from thermal energy contracts with year-over-year tariff reductions, including short-term agreements linked to oil production that presented spot opportunities. On the electrical energy side, the year-over-year comparison reflects an increase in prices in dollar terms, primarily due to adjustments in transport and distribution costs implemented last year. However, this effect was softened when measured in pesos. Additionally, lower maintaining expenses and a reduction in salary cost contributed further to overall cost efficiencies. Margin expanded across all segments except aggregates, which continues to be impacted by challenging market conditions despite volume growth. Finally, SG&A expenses decreased by 7.8%, mainly due to lower marketing and IT expenditures, as well as a reduced salary cost.

As a percentage of sales, SG&A reached 11.7%, representing a 14 basis points increase year-over-year, primarily due to the lower top-line. Please turn to slide eight. Consolidated adjusted EBITDA for the quarter stood at $40 million, while in pesos it reached ARS 39.2 billion, reflecting a 3.2% year-over-year decline. This decrease was primarily driven by lower EBITDA generation in the cement segment. However, the consolidated EBITDA margin expanded to 24%, representing a year-over-year increase of 140 basis points. In the cement segment, the adjusted EBITDA margin expanded to 28.9%, up 279 basis points, mainly driven by cost improvements. Cost declined by 21.9% on a per ton basis, supported by higher sales volumes, partially offset by softer pricing dynamics. The concrete segment saw its adjusted EBITDA margin improvement by 455 basis points, reaching minus 5.5% compared to minus 10% in the first quarter of last year.

While cost controls and increased volumes contributed positively, they were not sufficient to fully offset the impact of continuing pricing pressures. In the aggregates segment, the adjusted EBITDA margin fell sharply to minus 24.7%, compared to minus 1.1% in the same quarter of last year. Although volumes continued to recover, profitability was significantly affected by a higher competitive market and an unfavorable product mix. The railroad segment also reported a contraction in its adjusted EBITDA margin, while declining by 592 basis points to minus 5.5% from 0.4% in the first quarter of 2024. Volume growth, driven by increased shipments of construction materials and grain, helped support performance. However, the higher share of grain transport, which yields lower revenue per kilometer, pressured margins. This effect was partially mitigated by effective cost controls.

Moving on to the bottom line on slide 10, net profit attributable to owners of the company totaled ARS 21.5 billion for the quarter, compared to a net gain of ARS 79 billion in the first quarter of 2024. This decline was primarily driven by a lower financial result, while operation performance remained stable. On a financial front, the main driver of the year-over-year variation was a reduced gain on the net monetary position, reflecting a more moderate inflationary environment. The company reported a net financial gain of ARS 8.9 billion for the quarter, compared to ARS 103 billion in the same period of last year. Additionally, net financial expenses declined, supported by lower interest rates, a reduced debt position, and a smaller loss from exchange rate differences. Moving on to the balance sheet, as you can see on slide 11.

We ended the quarter with net debt of ARS 187 billion and a debt-to-EBITDA ratio of 0.96 times, slightly up from 0.89 times at the end of 2024, as this quarter is typically more capital-intensive. Cash flow used in operating activities totaled ARS 1.3 billion, a significant improvement compared to the ARS 12 million used in first quarter 2024, primarily driven by a reduced need for working capital. We invested ARS 11.1 billion in capital expenditure during this quarter, mainly directed towards the final stage of the 25 kilograms bag projects and maintaining CapEx. During the quarter, the company generated ARS 15 billion for financial activities, mainly from new borrowings, net of loan repayments, and interest payments. In US dollar terms, net debt stood at $174 million, with a duration of less than one year.

The sequential increase is linked to seasonal capital demands, as the third quarter tends to be more capital-intensive due to a more aggressive production strategy during the warmer months. Dollar-denominated debt represents 84% of our total debt, with the remaining in pesos. The company's debt material profiles remain well-balanced, with the class two bond scheduled to mature in December 2025. Now, for our final remarks, I will handle the call back to Sergio. Thank you. Thank you, Marcos. Now, to finalize the presentation, I please ask you to time to slide 13. As mentioned earlier, we begin this year with renewables optimistic, having left behind a challenging 2024. The consolidation of the stabilization plans, along with decreasing uncertainty and economic volatility, is creating a more promising outlook.

If Argentina achieves the project growth currently forecast as around 5% by market consensus and up to 5.5% according to recent EIF estimates, our industry is well positioned to enter a more sustained and deeper recovery in the coming quarter. Currently, the second half of March and the last figure eight for IP show promising signs in the positive trend taking hold. Furthermore, the same change in exchange rate policy and the easing of capital control represents long-wait measures that could play a pivotal role in accelerating the recovery process. This change may unlock investment projects that had been put on hold, awaiting greater clarity and flexibility. While there may be short-term impacts on the sector, as industry participants adjust to the new framework, we believe this is a critical step that will deliver significant long-term benefits.

While conditions remain challenging, following the sharp decline our sector experienced last year, we are still in the early stage of recovery, and the industry continues to operate with significant idle capacity. We remain focused on driving efficiency and controlling costs, with the clear objective of safeguarding our profitability while continuing to deliver excellent products and services to our clients. We have high expectations for the future and confidence in our ability to capitalize on the opportunity ahead. This is the end of our prepared remarks. We are now to take questions. Operator, please open the call for questions. Thank you. We will now conduct a question-and-answer session. If you would like to ask a question, please 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 keys. Once again, star then one on your telephone keypad. We also would like to ask that you please limit your questions to one question and one follow-up, please. If you have additional questions, you may re-queue for those questions, and they will be addressed. Also, please note that Mr. Sergio Faifman will be responding in Spanish immediately following the English translation. Please hold momentarily while we assemble our roster. The first question comes from Alejandro Obregón with Morgan Stanley. Hi, good morning, Loma Negra Team. Thank you for taking my question. My niece is perhaps on competitive dynamics.

I was hoping if you could elaborate a little bit on what you're seeing on the ground, especially on market share dynamics, perhaps demand at the regional level that could perhaps explain why Loma is growing slightly below industry as we enter into 2025, and if there is any particular trend that you think is starting differently into 2025 in terms of competitive dynamics. Thank you. Hi, Alejandra. Thank you for your question. La verdad es que los números de market share del primer quarter están en línea con nuestra estrategia. The truth is that the numbers of market share in the first quarter are according to or following our strategy. Nosotros, en general, trabajamos con una banda superior e inferior de market share en la cual estamos confortables con el mercado. In general, we work with a range of market share where within that range we are comfortable.

Estos cambios en los trimestres principalmente tienen que ver con varias razones, and these changes quarter to quarter could be regarding different reasons. En este primer quarter, básicamente tiene que ver con un tema climático diferente entre las regiones. In this first quarter, there were some climate issues that impacted differently in the different regions in Argentina. Y el otro punto tiene que ver con la estrategia de precios, and the other point is regarding the price strategy. Donde básicamente con los volúmenes del primer trimestre, sobre todo hasta mediados de marzo, que fueron bajos, cualquier diferencia de volumen implica una diferencia en market share importante. Where, and especially in the first months of the quarter, with volumes that were not so strong, any difference in volumes can imply a difference in market share.

Y donde lógicamente con un escenario con baja inflación, esos aumentos de precios demorados una semana o diez días impactan en volumen en ese mes. And additionally, with this situation of low inflation, if you delay, if you have some delay in an adjustment of pricing, that could also impact temporarily the market share. Y volviendo al inicio de la pregunta, no es un punto que nos preocupe hoy el market share, está dentro de los márgenes que trabajamos. And going back to the first part of the question, it's not something that we are worried about. Thank you very much. That was very clear. Hasta luego. Thank you. The next question comes from Marcelo Faifman with Itaú. Hi everyone. Thanks for taking my question here. Guys, my first question is a follow-up from Alejandro's one; it's related to top line going forward.

I'd like to understand in this competitive scenario, how are you guys seeing the pricing power here going forward? Could you expect the level that pricing per ton posted in the first quarter, which was similar to the average of 2024, to continue going forward? Could you expect prices in this range from $110-$115 per ton going forward? This is my follow-up. My question here, guys, is related to cement volumes for this year. What range of cement volumes are you guys expecting for this year as you have seen these strong volumes being posted by AFCP of 28% increase in April? I'd like to understand what range you guys are expecting for your budget for this year. Could you expect maybe a range from 15%-20% increase on a year-over-year basis? It would be helpful as well.

Thank you. Hi, Marcelo. Thank you for your question. Sí, la verdad que los precios que estamos hoy, como decía, están en un entorno de $115. Yes, pricing for this first queue, it's around $115. Es un precio que es sostenible. Posiblemente, si el costo argentino se sigue incrementando, pueda seguir aumentando. It's a price that is sustainable, and if Argentine costs keep going up, it could also go up as well. Por otro lado, creemos que hay costos que todavía necesitan acomodarse. Dentro del contexto argentino, venimos de un rebalanceo entre todos los costos, y algunos todavía necesitan ajustarse, quizás para abajo o para arriba, y eso puede impactar en el costo.

We also believe that in this reshifting of the Argentine economy, there are some costs that may need further adjustments, some going up, and maybe some others go down, and this could also impact in our total internal costs. Lógicamente, como nuestra estrategia de precios está relacionada con nuestros costos, dependiendo cómo evolucionen esos costos, va a ser la evolución de precios. As our pricing strategy is tied on what happened with our internal costs, these variations could also have some impact on pricing. Que es lo mismo que sucedió este año, donde el aumento de precio es superior a nuestro aumento de costo, y eso nos ha permitido mejorar nuestro margen. That's more or less what happened this year with pricing moving with a better dynamic than our internal costs. Respecto de volumen, yo creo que hay un escenario que fue hasta mediados de marzo regarding volumes.

We believe that there is one scenario until the first half of March. Donde todo febrero y la primera quincena de marzo estuvo muy afectada por lluvias, where especially February and the first half of March was very affected by weather. Después de ahí se ve una recuperación volviendo a los niveles de volúmenes de fin del año pasado, and after that we saw a recovery moving along the average volumes of the last part of 2024. Y en abril y mayo se nota aún un poco de crecimiento respecto de esos volúmenes. In April and May, we are seeing some improvement above these also improved volumes of late March. Lógicamente, el año pasado el crecimiento se dio más en el segundo semestre, por eso este crecimiento en abril del 28% respecto del año pasado.

In the last year, the recovery was more concentrated in the second half of the year, so that's why this jump in the year-year comparison in April. Es posible que otros meses veamos crecimientos menores a ese 28%, pero seguimos siendo optimistas con el volumen y pensando en un crecimiento de dos dígitos para el año. That's why it's possible that going forward we might see some lower increases in the year-year comparison, but we are optimistic and we maintain our expectations of growing on two digits in 2025. Okay, thank you so much, guys. You're welcome. Thank you. Thank you. The next question comes from Daniela Rojas with Bank of America. Good morning, gentlemen. Thank you for taking my question. I was hoping to drill down a bit more on volume outlook.

If we see all the headlines regarding the REGI project and how this is going to incentivize construction and therefore cement volumes, I was curious if you're starting to see orders and you can comment on your backlog regarding potential cement demand going forward from these projects. On the flip side, also discuss a bit more on mortgages and how this is also or might be pushing demand in the housing sector. I'm just trying to get a sense if we could split demand by sector to see where we can see opportunities or weakness. Thank you. Hi, Daniel. Thank you for your question. La verdad es que las perspectivas son buenas en cuanto a las proyecciones. The reality is that the forecasts are positive and we are optimistic about them.

En nuestra industria es muy difícil tener alguna obra puntual o algunas obras que van a mover la industria en su conjunto en volumen. In our industry, it's difficult to have just one or two works that per se are going to weight on the total volumes. Ninguna obra representa un porcentaje importante de volumen mensual para la industria ni para nosotros. There is no work that could represent a significant amount of volume, not for us and not for the industry. Lo que sí estamos viendo, por ejemplo, en el canal de hormigón, varias licitaciones para ahora, para empezar los próximos meses. What we are seeing, especially in the concrete segment, is a lot of tenders that are moving forward and for works expecting to start in the second semester.

Algunas tienen que ver con energía eólica, otras tienen que ver con algunas obras públicas que también están empezando a aparecer en algunas provincias y municipios. Some of those are linked with eolic energy projects, and some of those are linked with public works. Y lo otro que estamos viendo también son bastantes proyectos de minería que diría que están prácticamente aprobados para empezar y por ahí están esperando el momento en el cual arrancar. And we also have some projects linked to mining that are almost ready to start and waiting for the last stretch in order to start. Y varios de ellos en proceso ya de licitación, de apertura de caminos y demás que deberían acontecer en el segundo semestre del año. Many of these projects are starting to prepare, maybe open the roads and receiving quotes, so they are ready to start in the second semester.

En cuanto al futuro, yo diría que lo que más retrasado todavía viene es la parte de granel y hormigón, que todavía esa parte le falta recuperar para los próximos meses. What is still lagging is the part of bulk cement and concrete, which should start in the upcoming months. Thank you. If I may follow up, if I remember correctly, and please correct me if I'm wrong, you were planning a turbine program for La Malie. Is it still the case? Is this already in the works? Any update that you can give us? Por ahora no tenemos ningún avance. As for now, we don't have any updates on that. Tenemos todas las pruebas de viento y demás que dan para hacer un parque eólico, y de hecho hay algunos parques haciéndose en la misma zona.

We do have the tests of the winds in La Malie, and there are some other parks within the area. Un paso en esa línea similar, pero no de hacer un parque eólico, fue también avanzar en la firma de un contrato de energía eólica. A step in that direction, but not through making a park, was signing contracts of renewable energy, el cual nos permite seguir aumentando nuestra energía eólica, mejorando nuestros costos y avanzando en nuestra estrategia de sostenibilidad. That allowed us to increment our usage of renewable energy, not only improving our cost structure, but also going in the direction of our strategy in terms of sustainability. Y el precio de ese contrato es prácticamente similar a haber hecho un parque eólico del punto de vista de rentabilidad que precisa un parque eólico.

The price of that contract is similar to the price that we will get making our own park. Thank you, gentlemen. You're welcome, Daniela. Thank you. This concludes our question and answer session. I would like to turn the conference back over to Diego Jalón for any closing remarks. Mr. Jalón, do you have any closing remarks? Thank you very much for attending the call today. As always, we are here to, if you have any other questions or concerns, we are here to attend them, and we are looking forward to meeting again in our next call. Thank you. Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.