Loma Negra - Earnings Call - Q2 2025

Transcript

Speaker 5

Good morning and welcome to the Loma Negra Second 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 would now like to turn the conference over to Mr. Diego Jalón, Head of Investor Relations. Please, Diego, go ahead.

Speaker 6

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 Isabelino 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 1

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 for 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. As the Argentine economy continues to recover, as reflected in the last GDP figures from the first quarter, cement dispatches in the industry are accompanying this trend, supporting the growth seen in the first three months of the year and maintaining a positive trajectory. That said, there is still a long way to go, and we are currently navigating the initial phase of recovery.

However, in terms of results, we think it's still an early-stage recovery for the sector, marching for the quarter at 21.2% on a consolidated basis, showing a year-over-year decline. This is mainly driven by the impact of a more challenging competitive environment, typical of the recovery that is not yet fully consolidated. An 11% increase in volumes during the quarter helped offset the more difficult pricing dynamic that affected the top line. We are transiting into a lower inflation scenario, where price adjustments are more expensive and more limited under current market conditions. We achieved an adjusted EBITDA of $34 million, down 31% in real terms when measured in pesos. The EBITDA margin contracted primarily due to a softer top line, but through strict cost control, helping mitigate the impact. On the financial front, our balance sheet remains solid.

During the quarter, net debt increased significantly to $215 million, as the first half of the year is typically more capital-intensive. Our net debt-to-EBITDA ratio remains at a comfortable level, reaching 1.34 times. Following the depth of the second quarter, we successfully issued a new Class V corporate bond for $112.9 million. The process will be used to address upcoming debt maturity, extending our debt duration, and improving our maturity profile. I will now hand over the call to Marcos Isabelino Gradin, who will go to you for our market review and financial results. Please, Marcos, go ahead.

Speaker 6

Thank you, Sergio. Good morning, everyone. Please turn to slide four. The results for the Argentine economy in the first quarter were very positive, with year-over-year growth reaching 5.8%. Current forecasts for the full year remain around 5%, sustaining optimism in this recovery process. However, it is important to note that the recovery is not uniform across all sectors. In particular, the ISAC, the Construction Activity Index, continues to signal a positive rebound in our industry. Regarding cement dispatches during the second quarter, volumes grew by 14% year over year, with a strong recovery in bulk cement compared to bag cement. As a result, bulk cement gained three percentage points in the overall dispatch mix, reflecting a rebound in this segment. For the first half of the year, cement growth reached 13%.

As we've mentioned previously, we are still in the early stages of recovery, with a midterm election on the horizon that could introduce some political volatility. Nonetheless, we remain optimistic that the consolidation of the current economic model will lead to a more stable environment, enabling sustained growth over time. Turning to slide five for a review of our top-line performance by segment. The second quarter top line declined by 8%, primarily due to a weaker performance in the cement segment, followed by softer results across the remaining segments. The cement, masonry cement, and lime segment posted a 9.9% revenue decline, despite an 11.1% year-over-year increase in volumes, continuing the recovery trend observed in the first quarter. Bulk cement dispatches began to show stronger momentum, driven by industrial and commercial projects, as well as larger housing developments.

Additionally, certain provincial level public works started to gain traction, although they remain at a very early stage. Bulk cement volumes continued the trend seen in the first quarter, posting single-digit year-over-year growth. However, the positive impact of higher volumes was offset by softer pricing conditions. In the context of an early-stage recovery and a new low-inflation environment, the competitive landscape continues to limit pricing dynamics. Concrete revenues declined by 1.1% in the quarter, as a 44% increase in volumes was offset by price pressures stemming from a more competitive market. Volume growth was supported by private projects, mainly related to logistic infrastructure and residential development, as well as a moderate uptick in public works. On the other hand, the aggregates segment posted a slight 0.8% revenues increase.

A 44% increase in volumes, driven mainly by higher road construction activity in the province of Buenos Aires and Santa Fe, offset the impact of softer pricing. Prices were also affected by the sales mix, as the road construction projects primarily require fine aggregates, which carry a lower unit price and reduce the overall average. Railroad revenues declined by 8.6% in the quarter. A 10.6% increase in transported volumes helped mitigate the effect of weaker pricing, with volume growth primarily driven by higher transport of construction materials. However, the disruption of the railway line in Bahía Blanca in March particularly affected longer haul traffic, mainly grains, gypsum, and frac sand, reducing tonne kilometers transported and consequently revenue generation. Moving on to slide seven, consolidated gross profit declined 30.5%, while gross margin contracted by 659 basis points year over year, reaching 20.4%.

In the cement segment, cost of sales increased by 0.8% year over year, despite decreasing sales volumes. Effective cost management and lower depreciation impact helped offset the weaker pricing environment. Additionally, lower maintenance costs and improved energy input prices contributed positively to the quarterly cost structure. Continuing the trend from the previous quarter, the company continues to benefit from thermal energy contracts with year-over-year tariff reductions, including short-term agreements linked to oil production. Margins also declined across the remaining business segments, with the exception of railroads, which experienced a margin expansion. Finally, SG&A expenses increased by 5.3%, mainly driven by higher salaries and insurance costs, partially offset by lower marketing expenses. As a percentage of sales, SG&A reached 10.7%, representing a year-over-year increase of 135 basis points. Please turn to slide eight.

Consolidated adjusted EBITDA for the quarter stood at $34 million, while in pesos it reached $37 billion, reflecting a 30.6% year-over-year decline. This decrease was primarily driven by lower EBITDA generation in the cement segment. In line with this, the consolidated EBITDA margin contracted to 21.2%, representing a 691 basis point decline year over year. In the cement segment, the adjusted EBITDA margin contracted to 24.8%, down 678 basis points, mainly due to a softer pricing environment. Costs declined by 10.7% on a per-ton basis, supported by lower energy input prices and maintaining costs. These efficiencies, together with higher sales volumes, partially offset the weaker top line. The concrete segment saw its adjusted EBITDA margin decline by 773 basis points, reaching -14% compared to -5.3% in the second quarter of 2024. Although higher volumes and cost efficiencies contributed positively, they were not sufficient to fully offset the negative pricing impact.

In the aggregates segment, the adjusted EBITDA margin fell to -27.3% compared to -10.8% in the same quarter last year. While volumes continue to recover, a still challenging competitive environment and an unfavorable product mix weigh on the segment's profitability. On the other hand, the railroad segment reported an adjusted EBITDA margin expansion, increasing by 351 basis points to 9.8%, up from 6.3% in the same period of 2024. Volume growth, driven by increased shipments of construction materials and cost control, supported the performance. However, the disruption of the railway line in Bahía Blanca continues to affect volumes, particularly in longer haul traffic such as grain, gypsum, and frac sand. Moving on to the bottom line on slide ten, net profit attributable to owners of the company totaled ARS 0.4 billion for the quarter, compared to a net gain of ARS 41 billion in the second quarter of 2024.

This decline was primarily driven by a decline in the financial results, combined with weaker operational performance. On the financial front, the main driver of the year-over-year variation was a reduced gain from the net monetary position, as the inflationary effect of monetary liabilities moderated significantly compared to the same period of last year. In addition, exchange rate differences had a higher impact due to the devaluation that followed the issuing of capital controls. As a result, the company reported a net financial loss of ARS 16.7 billion for the quarter, compared to a gain of ARS 33.5 billion in the same period of 2024. Additionally, net financial expenses declined by 50%, reaching ARS 9.8 billion, primarily due to lower interest rates.

Moving on to the balance sheet, as you can see on slide 11, we ended the quarter with a net debt of ARS 256 billion and a net debt-to-EBITDA ratio of 1.34 times, up from 0.89 times at the end of the quarter. As the first half of the year is typically more capital-intensive, cash flow views in operation activities totaled ARS 22.3 billion, compared to the ARS 22.3 billion generated in the second quarter of 2024. This performance was primarily driven by a lower operational result and a higher income tax paid. The income tax paid during the quarter stood at ARS 45.5 billion and mainly corresponds to the amount determined for the fiscal year 2024. Since the company reported a negative result in 2023, no advance payments were made for 2024 until the final tax was assessed and became due in May 2025.

Additionally, the company has already started making advance payments for the fiscal year 2025. This effect was partially offset by lower working capital needs in other areas. With the beginning of the winter season, we began to minimize clinker production and increase the use of inventories. Additionally, we invested ARS 18 billion in capital expenditure this quarter, primarily allocated to the 25-kilogram bagging project. During the quarter, the company generated ARS 45.6 billion from financial activities, mainly from new borrowing, net of loan repayments, and interest payments. In U.S. dollar terms, net debt stood at $215 million with a duration of less than one year. By the end of the quarter, dollar-denominated debt represented 71% of our total debt, with the remainder in pesos.

After the close of the quarter, the company successfully issued its Class V corporate bond for $113 million, with a two-year tenor and an interest rate of 8%. The new bond was partially subscribed through exchanges with holders of Class II and Class III bonds. Proceeds will be primarily used to repay the remaining balance of the Class II bond maturity in December, as well as other short-term debt. With this issuance, the company extended the average duration of its debt and continues to maintain a well-balanced maturity profile. Now, for our final remarks, I will hand the call back to Sergio. Thank you.

Speaker 1

Thank you, Marcos. Now, to finalize the presentation, I'd please ask you to turn to slide 13. The recovery trend observed in the first quarter has continued, and we are still in the early phase of the process, and market conditions remain challenging. The 5.8% GDP expansion in the first quarter is a very positive signal for what lies ahead. Based on that and on the evolution of the semi-dispatch during the first half of the year, we affirm our aspiration to achieve double-digit growth in 2025. While demand remains in the early stages of recovery, the industry is well-positioned for the future expansion. In this context, we continue to prioritize operational efficiency and remain fully focused on delivering solid results.

Despite the ongoing challenges, I want to highlight Loma Negra's strong commitment to innovation and the continued development of our industry, as well as the health and safety of everyone involved in construction activity. A clear example of this is the transition to 25-kilogram cement bags, a project that requires significant efforts and investment, and one we are proud to have successfully implemented. While the current environment remains demanding, we are encouraged by the road ahead and remain confident in Loma Negra's ability to thrive. This is the end of our prepared remarks. We are now ready to take questions. Operator, please open the call for questions.

Speaker 5

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, one on your telephone keypad. We also would like to ask that you please limit yourselves 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 an English translation. Please hold momentarily while we assemble our roster.

The first question will come from Mario Sergio Simplicio with Morgan Stanley. Please go ahead.

Hi. The timing of the price increase, were they closer to the end of the quarter, or are you guys seeing more structural trends that could make pricing more challenging in the near term? If possible, could you please also share how these competitive and pricing trends are behaving heading into the third quarter and the second half of the year? Thank you.

Hello, Mr. Diego Jalón. Your line may be muted.

Speaker 1

Hi, Mario. Thank you for your question. Con respecto al precio, tiene que ver con la dinámica competitiva de los últimos cinco meses. Regarding pricing, it has more to do with the competitive environment of the last five months. Lógicamente que tuvo un impacto cuando se salió el cepo y tuvo una variación en el tipo de cambio. Logically, once the cepo, the restrictions on contracts and contracts were lifted, that had an impact on the effects. Al igual que el último mes, el salto cambiario que hubo. This last month had a hike on the effects as well. No obstante eso, diría que en los últimos dos meses la dinámica competitiva en precio está mejor que los meses anteriores. I also say that in the last two months, the competitive environment is better than in the previous months.

Estamos previendo cerrar el año con un aumento de precios por arriba de la inflación. We are foreseeing to end the year with an increase in pricing above inflation. Y una recuperación para los próximos meses en el precio del último cuarto. A recovery in pricing is expected in the remaining months of the year. En cuanto a la dinámica competitiva, está estable. No estamos viendo ninguna situación complicada ni en los últimos meses ni para adelante. Regarding the competitive environment, it's stable. We have not seen major valuations for the months to come.

That's clear. Thank you.

You're welcome.

Speaker 5

Our next question will come from Sofia Vatta with Latin Securities. Please go ahead.

Hi. Thank you for taking my question. Regarding the sector, what is your outlook for the construction in the second half of the year, and which are the potential drivers?

Speaker 1

Hi, Sofia. Thank you for your question. La contracción que tuvimos estos meses está en niveles similares a los últimos meses. The contraction that we have in these past few months is similar to the one that we had previously. Estamos viendo una leve recuperación, pero muy leve, estos últimos meses. We are seeing a slow recovery, but a recovery in these last couple of months. En cuanto a los drivers para el futuro, hay muchos que deberían ser positivos. Regarding drivers looking forward, there are many of those that should have a positive impact. No obstante eso, estamos viendo que cualquiera de esos drivers va a llevar algunos meses para tener un impacto importante en el nivel de despachos. Nonetheless, obviously, those drivers, in order to have a significant impact on dispatches, it's going to take some time.

Mantenemos nuestras previsiones para este año, pero con crecimientos leves respecto a la situación actual de despachos. We keep our forecasts for the year, but considering that we should have a gradual and moderate growth for the remainder of the year. Recién en los últimos meses hemos visto algunas obras públicas puntuales en la provincia de Buenos Aires, Santa Fe. In the last couple of months, we are starting also to see some increase in the level of activity of public works in the provinces of Buenos Aires and Santa Fe. Creemos que en los próximos meses debería haber algún incremento en la obra pública y también en varios proyectos de inversión que están anunciados y comenzando. We do believe that this activity in public works should have a positive dynamic in the coming months.

Also, there are projects linked to private investments and infrastructure that should start in the remaining of the year.

Thank you.

You're welcome.

Speaker 5

Our next question will come from Marcelo Furlan with Itaú. Please go ahead.

Hi, everyone. Good morning. Thanks for taking the question. The first one is just a follow-up regarding volumes. You guys mentioned that you still expect volumes to increase by double-digit in 2025. I'd just like to give a more common sense that if you guys are expecting more close to no double-digits, you could expect meetings of cement volumes below for the year. My second question is related to the cost efficiencies that you guys expect to post ahead. I just would like to understand what is the company's perspective in terms of cost efficiencies for the second half of this year and also what could we expect in terms of margins? If I may, just one final question here is regarding dividends. I just would like to understand what is the management's view regarding quotation dividends for this year. These are my points. Thank you.

Speaker 1

Sorry, Marcelo, the audio is very bad. I don't know if you can repeat the question. I don't know if the first one was regarding volumes.

Oh, sure. Can you hear me better now?

Yes, that's better.

Okay. My question for volumes is if you guys are expecting volumes more close to no double-digit increase for this year, or could you expect volumes maybe increase by meetings for 2025? This is my first question. My second is related to margins. What could you expect for margins in the second half of 2025? Finally, if I may, one final question is regarding dividends. I'd like to understand the company's view for dividends this year. Thank you.

Hi, Marcelo. Thank you for the question. Un poco lo que decía, la previsión para el año, seguimos manteniendo la previsión que venimos hablando. As I mentioned before, regarding our expectations for the year, we are keeping this double-digit forecast for the year. Puntualmente, el número de julio por ahí de la industria, que es abajo del año anterior, tenemos que recordar que julio del año anterior fue el pico del año, por afuera de lo que fueron los volúmenes del año, y después volvió a caer. Specifically for the performance of July, which was below the year-on-year comparison. We have to remember that July of last year was one of the peaks of the year, so that was a very challenging base of comparison. Con los volúmenes del segundo semestre del año pasado, no estamos viendo que esa situación se vuelva a repetir.

With the volumes for the second half of last year, we are not seeing that situation to happen again. En cuanto a márgenes, estamos previendo, como decía, al igual que el precio, una recuperación para los próximos meses. Regarding margins, and along as what I mentioned about pricing, we are expecting a recovery in the coming months. En el próximo cuarto, aún con costos de invierno que son más caros, pero con alguna recuperación. Probably in the next quarter, even though we're going to have some impact of the cost of winter, we are expecting some recovery. Y continuando esa mejora de márgenes para el último cuarto. Continuing this tendency of recovery for the fourth quarter. The last question was about dividends?

Yes.

Seguimos analizando todas las alternativas de la parte financiera mejores para los accionistas. We are still analyzing every alternative on the financial front for our shareholders. Obviamente, con la estructura de capital de la compañía, analyzing the structure of capital of the company. Aún no tenemos una previsión de pago de dividendos para este mes ni para el próximo mes. We don't have any provision for paying dividends so far this year.

Okay, thank you so much, guys.

You're welcome.

Speaker 5

Our next question will come from Andres Felipe Cardona Gómez with Citigroup Inc. Please go ahead.

Hi. Good morning. I was wondering if part of the pressure on margin may have come from the readjustment in energy prices.

Hi, Andres. Sorry, you are asking for energy prices? We are not having the best outlook.

Yes, sorry. No, I am asking if the pressure on margins may be partially explained by the increase in electricity prices that we have seen in the year to date, or it's just a matter of the pricing strategy.

Speaker 1

Hi, Andres. Thank you for the question. Sí, un poco lo que comentaba. Fueron algunos meses con una dinámica competitiva respecto de lo que fue el crecimiento de volumen un poco más apretado. Yes, as I mentioned before, in these past few months, we have a competitive dynamic, which was more challenging. Lo cual, los últimos dos meses y la previsión para el resto del año es un escenario competitivo mejor. If we see what happened in the last two months and our forecast for the remainder of the year, we have a more positive expectation. También, cuando uno mira los números en pesos en nuestro balance, cuando ajusta a valores corrientes, el año pasado nosotros habíamos aumentado precios muy rápido y recuperado, con lo cual la comparación también queda con precios que no son razonables.

When you see the numbers that we publish that are adjusted by inflation, you also have to compare them. Given the increases on pricing in the first semester of last year, if you adjust those numbers by inflation, those numbers are not very accurate.

Clearly, in the upcoming months, there is going to be a recovery in terms of pricing. In these scenarios, when you see the comparison against adjusted by inflation figures in pesos, sometimes the comparison is difficult to assess. We are expecting that in a reasonable time, we expect to see again the figures of pricing in US dollar terms and cost and margins that we previously saw.

Speaker 5

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

Good morning. Can you hear me?

Speaker 1

Yes, Daniel, we can hear you.

I wanted to go back to the pricing question. I'm sorry for maybe it's the third time you've answered this, but I just wanted to get it very, very clearly. As the industry moves from this high inflation environment and then the competitive environment you discussed becomes more challenging, I just wanted to get a better sense of your commercial strategy. I'm guessing that previously you had to increase prices at a very high pace to keep up with inflation. Now maybe that changes, and structurally, the whole industry has to rethink their approach to pricing increments. Maybe that explains the pricing situation. Is it more of a competitive dynamic where the competition is not increasing prices and you're not able to increase as much?

I just wanted to drill down on those dynamics so we can get a better sense of how in the second half you're going to be able to catch up. Thank you, and sorry for asking this so much.

Hi, Daniel. Thank you for the question. Yo diría que es una combinación de ambas situaciones. I'll say that there is a combination of these two situations. Por un lado, la caída de la inflación te lleva a una estrategia de precios distinta en cuanto al tamaño del aumento y el periodo del aumento. On one hand, the sudden decrease in inflation, it changes the strategy in pricing, not only by the amount of these increases in prices that you can have, but also in the timing of the adjustments. Y al mismo tiempo, lo que sucede es que, como esos aumentos son más espaciados y por ahí la competencia demora un poco más en el aumento, al tener estabilidad, esas diferencias pequeñas pueden impactar en el mercado.

Also, at the same time, once these adjustments are more spaced out, the competition might not take these price adjustments with the same timing as before. Those little differences can impact the competitive environment. En un escenario con inflación alta, esa corrección era mucho más rápida y no impactaba tanto por ahí en nuestros clientes y clientes de la competencia. In a scenario of high inflation, this dynamic was very fast, and these variations didn't impact that much in our clients or clients of our competitors. Entonces, con esta caída de la inflación, los primeros meses eso generó algún problema competitivo en el mercado que llevó a poder tener este escenario de corrección de precios durante unos meses. In this first month of this transition from a high inflation scenario to a low inflation scenario, these new dynamics affected a little bit the competitive environment.

Como comentaba antes, ya una vez estabilizado, estamos viendo estos últimos dos meses a un escenario mucho más razonable con lo que venía en el pasado. Once the scenario is more stable, that's what we commented before of these last two months of having a different dynamic, and we expect that to continue in the coming months. Y es lo que estamos previendo para los próximos meses. That's what we are expecting for the remainder of the year.

Thank you for the additional caller. If I may have a follow-up, the president announced a privatization program for 10,000 kilometers of roads and other initiatives to try to push for an increment in public works in Argentina. I know it's early and there are few details, but I just wanted to get a better sense of how the public work program is recovering. You mentioned a couple of regions in the country that are seeing better prospects and more activity. What's your outlook for the second half and the outlook for these programs the president is announcing? Thank you.

Sí, un poco lo que comenté, nosotros creemos que hay mucho potencial en todo lo que tiene que ver con infraestructura o obra pública. What we believe is that there is a lot of potential in terms of public infrastructure. No tenemos duda que es algo que va a venir. We have no doubt that this will come. Quizás por la estructura que se necesita financiera y demás para esos proyectos, no siendo obra pública, sino siendo obra privada, entendemos que va a demorar algunos meses más en arrancar. As we do understand that, given that these projects need a framework to make the private sector access these projects, this might require some time. Quizás en el segundo semestre estamos viendo un impacto menor de eso, pero sí creemos que a futuro va a tener un impacto importante por todo el tema de infraestructura y desarrollo.

We think that probably the impact of this in the second semester is not going to be very high, but we do believe it is a very interesting driver for next year and so on.

Thank you. This is very clear.

Speaker 5

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

Speaker 1

Thank you once again for joining us today. We sincerely appreciate your continued interest and support. We look forward to reconnecting with you on our next call. In the meantime, please don't hesitate to reach out with any questions that you may have. Take care and have a great day.

Speaker 5

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