Loma Negra - Q3 2023
November 9, 2023
Transcript
Operator (participant)
Good morning, and welcome to the Loma Negra 3Q 2023 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 0. After today's presentation, there will be an opportunity to ask questions. Also, Mr. Sergio Faifman will be responding in Spanish, immediately followed by an English translation. To ask a question, you may press Star, then 1 on your telephone keypad. To withdraw your question, please press Star then 2. Please note that this event is being recorded. I would like now to turn the conference over to Mr. Diego Jalón, head of investor relations. Please, Diego, go ahead.
Diego Jalón (Head of Investor Relations)
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.
Sergio Faifman (CEO and VP of the Board of Directors)
Thank you, Diego. Hello, everyone, and thank you for joining us this morning. I would like to begin my presentation with a discussion of the highlights of the quarter, and then Marcos will 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 your questions. Starting with slide 2. I'm pleased to share the result of the 3Q with you today. The tendency for the volume of the industry persists amid the election period and the second and third, as we mentioned in the previous conference call, cement volume, although lower compared to the last year, still show strong shipment figures. The high records from the last year set a challenging benchmark for the comparison.
The volume reached in this period is the second best quarter of the history for the industry, and the recent figures of October compared almost flat with the same period of 2022. As we navigate this election period amidst economic challenges, both the cement industry and Loma have demonstrated resilience. When we dive into the numbers, we see another robust quarter for Loma, where our top line reached ARS 74 billion, decreasing 8.3%, primarily due to volume contraction of our core cement, cement. Despite this effect, EBITDA stood at ARS 70 billion with a margin expansion of 105 basis points and reaching a consolidated margin of 23.2%. Let's keep in mind, the 3Q are the most challenging in terms of EBITDA margin, due to the seasonal impact of higher energy inputs.
In this sense, the U.S. dollar EBITDA per ton stood at $36.5 for the quarter, 4.5% above last year per quarter, and stable on a sequential basis. On the financial side, we use our Class 3 domestic bond, receiving an outstanding response from the market. This enables us to refinance cross-border debts, thereby reducing our financial costs and extending the maturity, while keeping a strong balance sheet, with leverage ratio below 1x. Now hand over the call to Marcos Gradin, who will lead you through our market review and financial results. Please, Marcos, go ahead.
Diego Jalón (Head of Investor Relations)
Thank you, Sergio. Good morning, everyone. Please turn to slide 4. As you can see on the upper left chart, the market expectation report from the Central Bank indicates a negative performance for the economy for 2023, showing a decrease of 2.3%, where the results published by INDEC show a decrease of almost 5% for the second quarter. In a context where the construction activity indicator shows a decline for the sector, the national cement industry sales have demonstrated resilience. Despite a 5.6% decrease, this 3Q ranks as the second best in history, with accumulated volume just 1.8 below the same period in 2022. Furthermore, the recent figure published for October indicates a sequential recovery, with volumes slightly below the ones reached in 2022.
Bagged cement maintains its tendency, being the dispatch mode that is affected by the construction and the demand from the retail sector. On the other hand, concrete producers remain as a primary driver of growth for the bulk mode. In this sense, when seeing the breakdown by dispatch mode, bulk shipments now represent 44% of the total dispatches, from 43% in the 1Q of 2022. As we near the conclusion of a very challenging year, we foresee these trends for volumes to persist. We maintain a cautiously optimistic view that the resolution of the electoral process will alleviate volatility and pave the way for economic recovery. Turning to slide 5 for a review of our top-line performance by segment.
The 3Q top line saw an 8.3% decrease, mainly attributed to declines in the cement segment, followed by concrete and railroad, partially offset by the performance of aggregates. Cement, masonry cement and lime segment, was down 12.8%, with volumes contracting 7.1% year-on-year, mainly due to a decline in bag cement sales, coupled by softer price dynamic, which, despite adjusting for inflation, experienced a decline owing to elevated monthly inflation figures and the timing of price adjustments. Concrete revenues decreased 4.2% in the quarter. Volumes were down 9.4%, offset by a good pricing performance. Some major projects, which are the market target for our concrete operations, found their pace affected by the macroeconomic volatility. Aggregate segment show an expansion of 17.5%, with sales volumes almost flat.
The good price performance boosted the top line. On the other hand, railroad revenues decreased 4.5% in the quarter year-over-year. Transported volumes were down 4.2%, affected by a decrease in transported volumes of aggregates and frac sand, while the price remained almost flat. Despite the negative effect of the lower volume of frac sand, that negatively affects the average price per ton, as is a product with longer average transported distance. Moving on to slide 7, consolidated growth profit for the quarter remained almost flat, showing a slight increase of 0.2% year-over-year, with a margin expansion of 186 basis points to 23.3%, mainly due to cost improvements in the cement and railroad segments. Regarding the cement segment, a decrease in energy inputs compensated the lower top-line performance.
In the railroad segment, the lower cost was mainly driven by lower depreciations. The margin expansion of the cement and railroad segments was partially offset by constructions in concrete and aggregates, mainly due to cost pressures. Finally, while the SG&A expenses decreased by 1.8%, as a percentage of revenues, they increased by 55 basis points, rising from 7.8% in the quarter of 2022 to 8.3%. Please turn to slide 8. Our adjusted EBITDA for the quarter stood at $66 million, down 3.1% from the same quarter a year ago and reaching a very solid figure. In pesos, adjusted EBITDA was down 3.9% in the quarter, reaching ARS 17.2 billion, with consolidated EBITDA margin of 23.2%, boasting a year-on-year expansion of 105 basis point.
This is mainly attributable to improved margins in cement and railroad. Cement segment adjusted EBITDA margins stood at 26.8%, improving 252 basis points, mainly due to cost efficiencies that offset the lower top-line performance. Regarding cost, we saw a reduction of 9% in a per-ton basis. The primary reason for this was a reduction in energy inputs, primarily driven by increased utilization of natural gas in our thermal energy matrix, combined by a lower price for this input. Similarly, the cost of electrical energy is significantly decreasing as electrical generation take advantage of lower liquefied natural gas prices. Additionally, by the end of the quarter, the new pipeline began injecting natural gas from Vaca Muerta into the transportation system, gradually reducing the dependence of imported liquefied natural gas.
On a per-ton basis, EBITDA reached $36.5 per ton, increasing 4.5% from last year's 3Q. Concrete adjusted EBITDA decreased ARS 128 million compared to 3Q 2022, where the good price performance wasn't able to compensate the lower volumes and increasing cost. Margin contracted 179 basis points, reaching 0.6%. Aggregates adjusted EBITDA decreased ARS 130 million this quarter from ARS 242 million in second quarter 2022, reaching a margin of 4.8%, mainly due to higher sales costs that were partially offset by a positive price performance.
Finally, railroad adjusted EBITDA reached ARS 247 million from -ARS 7 million in the same period of 2022, with a margin of 16%, mainly explained by cost improvements that offset a weaker top line. Moving on to the bottom line on slide 10, this quarter, we posted a net profit attributable to owners of the company of ARS 7.4 billion, compared to a net loss of ARS 28.9 billion on 3Q 2022, mainly due to a lower total financial cost.
Total net financial costs stood at ARS 1.6 billion this quarter, from a total financial cost of ARS 36.4 billion the same quarter last year, primarily due to the impact of the cancellation of dollar-denominated debt with local funding that took place in the 3Q of 2022. Moving on to the balance sheet, as you can see on slide 11, we ended the quarter with a cash position of ARS 20.9 billion and a total debt of ARS 96.1 billion. Consequently, our net debt to EBITDA ratio stood at 0.97x, compared to 0.37x at the end of 2022.
Our operating cash generation stood at ARS 14.6 billion, where the decrease in the net profit adjusted with the non-cash effects, coupled with a lower positive effect of the working capital, mainly due to a lower utilization of inventories and higher income tax advances. Regarding capital expenditures, we allocated ARS 4.4 billion, mostly for maintenance CapEx. During the quarter, the company used cash in financial activities for ARS 19.8 billion, mainly due to the payment of dividends announced in late June, interest, and the repayment of borrowings, partially compensated by the issuance of the Class 3 bond and the net proceeds from borrowings. In dollar terms, our debt reached $274 million, standing our net debt at $215 million at the end of this quarter.
Breaking it down by currency, the dollar-denominated debt represents 64% of the total debt, while the rest is in pesos. Additionally, as mentioned before, during the quarter, the company issued its Class three domestic bond in nominated U.S. dollars for a total amount of $55 million, with maturity in the 1Q of 2026, and accruing an interest rate of 7.49% per year. This issuance gave us the possibility to cancel cross-border dollar-denominated debt, reducing the financial cost and extending its maturity. Now, for our final remarks, I would like to handle the call back to Sergio. Thank you.
Sergio Faifman (CEO and VP of the Board of Directors)
Thank you, Marcos. To conclude the presentation, I'd like to highlight a few key points. As we mentioned before, we can see a continuity of the trends from the previous quarter, where the industry volume have adjustment downwards from the record highs of the last year, reflecting the reduced economic activity. We are just days away from the presidential election, and we are currently navigating a period of high uncertainty in a very volatile economic environment, which poses significant challenges from decision-making. Yet, cement volume remains solid and Loma's robustness is unquestionable. As the year draws to a close, our confidence remains strong that even in this challenging environment, Loma will successfully attain its objective and continue to contribute to the industry development from our leadership position.
I'd like to convey my appreciation to our employees, customers, business partners, and the community in which we operate, for their continued support. I'm excited about the continuous journey ahead, building on the strong foundation we create together. This is the end of our prepared remarks. We are now ready to take questions. Operator, please open the call for questions.
Operator (participant)
Thank you. We will now conduct a question-and-answer session. I would like to ask, 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 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 followed by an English translation. Please hold momentarily while we assemble our roster.
Our first question comes from Alejandra Obregon of Morgan Stanley. Please go ahead.
Alejandra Obregón (VP and Equity Research Analyst)
Hi, good morning, Sergio, Marcos, Diego. Thank you for the call. My first question has to do with your energy matrix. So you did mention some that you foresee some changes in the future. So if you could just talk about how you see your energy mix evolving into 2024? I understand that you have some long-term contracts in some of your energy needs, but you also have a lot of moving parts for gas in the country. And of course, on top of that, you have your decarbonization targets. So if you can talk about how you see that landing in 2024, and where do you see your energy cash cost going for the year? That'll be very helpful.
Marcos Gradin (CFO)
... Hi, Alejandra. Thank you for your question.
[Foreign Language].
Speaker 7
This year, we accomplished to close some contracts, below the prices that we closed, the year before.
Marcos Gradin (CFO)
[Foreign Language]
Speaker 7
Some of those contracts are starting now in September, and they are for two or three years term.
Marcos Gradin (CFO)
[Foreign Language]
Speaker 7
And regarding our energy, thermal energy matrix, we are expecting a decrease in our costs.
Marcos Gradin (CFO)
[Foreign Language]
Speaker 7
Even below the numbers, the figures of this quarter that we are presenting.
Marcos Gradin (CFO)
[Foreign Language]
Speaker 7
And in electrical energy, we also had a reduced cost in prices.
Marcos Gradin (CFO)
[Foreign Language]
Speaker 7
And we are also foreseeing a reduction in costs in comparison with the cost of 2023.
Marcos Gradin (CFO)
[Foreign Language]
Speaker 7
And basically, for next year, we are foreseeing to use all of our energy, all of our energy matrix in natural gas.
Alejandra Obregón (VP and Equity Research Analyst)
That was very clear. And if I have a chance for another question, this one is related to Ferrosur. If I remember correctly, your concession might come due next year. So if you can just remind us, when is that being renewed? And if you think that could be renewed under the same terms, given that we are seeing a change in administration, is there anything that we should expect there for next year? Thank you.
Marcos Gradin (CFO)
[Foreign Language]
Speaker 7
Ferrosur was originally expected to end in March this year.
Marcos Gradin (CFO)
[Foreign Language]
Speaker 7
The government renewed the concessions for 18 months.
Marcos Gradin (CFO)
[Foreign Language]
Speaker 7
We are in conversations with the, with the government, regarding the characteristics of the, of the new contract, if it's going to be, an open access, scheme like the one they, they foresee before.
Marcos Gradin (CFO)
[Foreign Language]
Speaker 7
The pace is a little bit slower.
Marcos Gradin (CFO)
[Foreign Language]
Speaker 7
We expect this process to keep up next year, where the actual concessionaires will turn into operators.
Marcos Gradin (CFO)
[Foreign Language]
Speaker 7
Just as a reminder, with this Open Access Scheme, the national government will be in charge of the infrastructure, and the operators are the ones that are going to take care of the tracks and the wagons.
Alejandra Obregón (VP and Equity Research Analyst)
Thank you. That was very clear.
Marcos Gradin (CFO)
You're welcome.
Operator (participant)
Our next question comes from Rodrigo Nistor from Latin Securities. Please go ahead.
Rodrigo Nistor (Head of Equity Research)
Hi, good morning. Thank you for the opportunity. My first question is, what are your expectations for cement demand in 2024? And if you foresee any variation in demand contingent on which party or candidate wins the upcoming election?
Marcos Gradin (CFO)
Hi, Rodrigo. Thank you for your question.
[Foreign Language]
Speaker 7
We are working in our projections for next year.
Marcos Gradin (CFO)
[Foreign Language]
Speaker 7
And we don't give any guidance regarding volumes for next year.
Marcos Gradin (CFO)
[Foreign Language]
Speaker 7
And regarding the elections, we are not seeing much differences between the 2 candidates regarding volumes. They both have some pros and cons.
Marcos Gradin (CFO)
[Foreign Language]
And probably what we have, probably to expect is if there are any sudden changes at the beginning of the year, that might impact the volumes for the first Q.
Rodrigo Nistor (Head of Equity Research)
Okay. Thank you. I have another question, if I may. In the current high inflation environment, how are you adjusting your pricing strategy to sustain the profitability and also maintain your market share?
Marcos Gradin (CFO)
[Foreign Language]
Speaker 7
Our price strategy is linked to different factors.
Marcos Gradin (CFO)
[Foreign Language]
Speaker 7
General inflation, FX, and our internal inflation in our costs.
Marcos Gradin (CFO)
[Foreign Language]
Speaker 7
And our price dynamics are related to our cost, and that it's linked... And the competition keeps selling prices like we do.
Marcos Gradin (CFO)
[Foreign Language]
Speaker 7
The competitive dynamic makes the market share move slightly, but if you sum up in different regions, then you can see some more bigger movements.
Marcos Gradin (CFO)
[Foreign Language]
Speaker 7
From the last 2 months, we don't have any data from the market per region.
Marcos Gradin (CFO)
[Foreign Language]
So we are not able to estimate the market share per region exactly.
[Foreign Language]
Speaker 7
By way of our market intelligence, we are able to assume some of these movements, and we estimate that the national market share is. It's similar to the one we had previously.
Rodrigo Nistor (Head of Equity Research)
Okay. That, that was very helpful. Thank you.
Marcos Gradin (CFO)
You're welcome.
Operator (participant)
The next question comes from Daniel Rojas from Bank of America. Please go ahead.
Daniel Rojas Vielman (Markets Equity Analyst)
Good morning, gentlemen. Thank you for taking my questions. Going back to the first question regarding your energy matrix. It's very helpful for us to understand how the benefits you're seeing in natural gas will translate into margin expansion. I'm hoping not to drill down within a specific number, but if you can give us a range of where we can see margins next year, it will be very helpful. That's my first question.
Marcos Gradin (CFO)
Hi, Daniel. Thank you for the question.
[Foreign Language]
Speaker 7
The impact in our margins doesn't have to be. It, it's not entirely about cost efficiency, but also it's regarding our price strategy.
Marcos Gradin (CFO)
[Foreign Language]
Speaker 7
You also have to keep in mind that, with our last investment in L'Amalí 2, we do have a lot of efficiencies in term of of production.
Marcos Gradin (CFO)
[Foreign Language]
Speaker 7
We were able to stabilize the production in line 2 of L'Amalí, and now the numbers are pretty good.
Marcos Gradin (CFO)
[Foreign Language]
Speaker 7
And for next year, we are foreseeing EBITDA margins similar to the ones we are having now.
Daniel Rojas Vielman (Markets Equity Analyst)
Okay, could you remind us at what operational capacity you're running L'Amalí 2?
Marcos Gradin (CFO)
[Foreign Language]
Speaker 7
The capacity of L'Amalí, too, we bought a kiln of 5,800 tons of clinker.
Marcos Gradin (CFO)
[Foreign Language]
Speaker 7
We are working above 6,100-6,200 tons a day.
[Foreign Language]
It's a line of 2.8 million tons a year.
Marcos Gradin (CFO)
[Foreign Language]
Speaker 7
And we believe we can reach up to 3 million.
Daniel Rojas Vielman (Markets Equity Analyst)
Okay. Thank you. Thank you for answering my questions.
Marcos Gradin (CFO)
You're welcome.
Operator (participant)
This concludes our question and answer session. I would like to turn the conference back to Diego Jalón for closing remarks.
Diego Jalón (Head of Investor Relations)
Thank you all for joining us today. As always, we really appreciate your interest in our company. Remember that we remain in touch for any questions that you may have. Thank you very much, and have a nice day.
Operator (participant)
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.