Loma Negra - Q4 2022

Transcript

Operator (participant)

Good morning, and welcome to the Loma Negra Q4 2022 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 that this event is being recorded. I would now like to turn the conference over to Mr. Diego Jalón, Head of IR. Please, Diego, go ahead.

Diego Jalón (Head of Investor Relations)

Thank you. Good morning, 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.

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)

Thank you, Diego. Hello, everyone, and thank you for joining us today. As always, I would like to begin my presentation with a discussion of the highlights of the quarter. Then Marcos will take you through our market review and financial results. After that, I will provide some final remarks. Then we will open the call to your questions. Starting with slide two. We are satisfied to share another solid quarter that lead to closing a year that, amid challenging macroeconomic environments, from the industry setting a new record in volume term on the back of the dynamics showed by the construction sector. In this context, our results show that Loma was up to the challenge, not only with the volumes growing more than the industry, setting a record in shipping, but also reaching an all-time high figure rise in terms of EBITDA generation.

These results would have not been possible without the strong commitment to invest in greater capacity and efficiency that the company has carried out in recent years. As you could see from our release yesterday, our adjusted EBITDA for the quarter reached $91 million, compared with $63 million in the Q4 of 2021. When measuring pesos, it show an increase of 5.4% compared with Q4 of 2021 assessment by inflation. Please note that the result of the quarter was boosted by the sale of non-strategic property for $19 million. When looking for our annual figure rise, we reached $289 million for the fiscal year 2022, from $215 million in 2021, achieving a new record for our company.

We are focused to continue delivering strong results and maintain a world-class EBITDA margin despite the turbulence that we face this year in term of energy inputs and high inflation scenario. In this sense, the US dollar EBITDA per ton reached $39 in the Q4, excluding the property sale, 2.4% above 2021's Q4. In this fiscal year, with the major expansion in capacity concluded, we focus our capital allocation on maximizing value to our shareholder. Based on this, in 2022, we distribute dividends for $126 million and complete share buybacks for $10 million, always maintaining a strong balance sheet with low indebtedness ratio. Please turn to slide four for a review of our ESG highlights for the year. We have a clear purpose that sets our course. We transform life by fostering sustainable growth.

That is why we are very pleased to present the second edition of Loma Negra's sustainability report, maintaining our commitment to inform and share with our stakeholder the impact of the company along with our goals and expectations. Regarding the environmental aspect, our direct greenhouse gas emission intensity stood at 503 kilograms of CO2 per ton of cement, improving 2.3% year-on-year. The incident of the second line of L'Amalí in our operational efficiency lead to better electrical and thermal intensity. Both improving 3% year-on-year. Thermal energy intensity was also favorable due to an increased participation of natural gas in our energy matrix. Clinker factor stood at 69%, slightly above 2021.

Our emission and the methodology used to calculate them were revised by third parties, and we are convinced to be in the right track to achieve the goal of 470 kilograms of CO2 per ton by 2030. On the social side, I would like to highlight three of the more relevant projects that we carry on in 2022. Understanding that the construction industry need to improve in term of gender equality. For the first time, we incorporate women as mixer trucks operators. In the same sense, 40% of our new employee were women, increasing 50% the participation of women in the payroll compared to December 2021. Regarding the government spec, we moved forward on training our people on the company's integrity programs, where we cover 100% of our employee, reinforcing the commitments to ethics and transparency.

Additionally, we held the first edition of the compliance week, where we discussing about the importance of following the good practice and an ethical approach on decision making. We also held the program, Impulsar Loma, where we invited 43 companies within customer and supplier to an awareness based on ESG methods. We know that in addition to knowing and managing, we must communicate in transparent and clear way the impacts of our operation. For that, I invite you all to read Loma's sustainability report and join us in the challenge of improving every day of being a more sustainable company. 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 morning, everyone. Please turn to slide 6. As you can see on slide 6, the GDP forecast for 2022 is expected to be about 5%, adjusted upwards from the latest micro expectation reports from the Central Bank, as the preliminary figures for the Q3 stood at 5.9% growth. Construction activity measured by the ISAC increased 3.5% for 2022, with a retraction in December, where the level of activity of the industry was mainly affected by less working days. Regarding cement national industry sales, despite the retraction shown in the last quarter, the solid demand pushed 2022 accumulated figures to record highs, growing 7% and almost reaching the 13 million tons mark. While the first month of 2023 shows again a strong figure.

While bag cement remains strong, bulk cement is the dispatch modality, showing greater dynamism and growth on the back of concrete producers demand and private infrastructure projects, both residential and industrial, coupled with moderate level of activity in public works, mainly at the municipal and provincial levels. When seeing the breakdown by dispatch mode, bulk shipments continues positive trend, showing a participation of 44% against 40% in the Q4 of 2021, closing the year with a participation of 42%, showing 3 percentage points growth from 2021. The first two months of this year are showing a moderate growth. For the year, we remain cautiously optimistic as economic growth in Argentina faces many challenges in the short term, while the election year may add more volatility to an already turbulent scenario.

Turning to slide 7 for a review of our top line performance by segment. Top line was down 2% in the Q4, mainly due to the decrease in cement and railroad revenues, partially compensated by the positive performance of concrete and aggregates. Cement, masonry cement and lime segment was down 4.8%, with volumes almost flat, growing 0.9% year-over-year with a softer pricing dynamic. Concrete revenues increased sharply, 29.4% in the quarter. Volumes were up 17.5% in line with the strong momentum of bulk cement, coupled with good pricing performance. In the same way, aggregates show a great revenues expansion of 44.5%. Volumes increased 30%, primarily on the back of concrete demand, coupled with strong price performance. Finally, railroad revenues decreased 5.5% in the quarter year-over-year.

Transported volumes were down 3.2%, while the strong transported volumes of aggregates partially offset the decrease in cement and frac sand. The decrease in frac sand also impacted the price performance due to its negative impact on the average transported distance. For the fiscal year 2022, consolidated revenues were up 1.1% to ARS 145.1 billion from ARS 143.5 billion in 2021. Where volumes expanded significantly across all segments. Moving on to Slide 9, consolidated gross profit for the quarter declines 24.9% year-on-year, with margin contraction by 810 basis points to 26.5%.

Mainly impacted by a lower price performance of our core segment, higher costs related to higher thermal energy inputs, mainly due to the Plan Gas.Ar to increase natural gas production, an increase in maintaining costs and a higher inflation scenario that was partially compensated with a decrease in electrical energy inputs. The contraction in cement and concrete gross margin was slightly offset by the better performance of aggregates and a slight improvement in railroad. SG&A expenses as a percentage of revenues decreased 119 basis points to 8.7% from 9.9%. For the year 2022, gross profit was down 13.6% with a margin contraction of 1,060 basis points. Please turn to slide 10.

Our adjusted EBITDA for the quarter stood at $91 million, up 42.7% from $63 million in the same quarter a year ago, where the operational performance was boosted by the sale of a non-strategic property. In ARS, adjusted EBITDA was up 5.5% in the quarter, reaching ARS 13.2 billion with consolidated EBITDA margin of 45.8%, expanded 252 basis points year-on-year. Without the property sales, adjusted EBITDA would have stood at ARS 9.8 billion with an EBITDA margin of 26.7%, mainly affected by cement margin contraction and the higher participation in the top line of the other segments with lower margins. Cement adjusted EBITDA margin reached 39.1%, expanded 170 basis points.

Without the property sales, this margin would have stood at 28.7%, affected mainly by a softer pricing dynamic and higher thermal energy inputs. In a per ton basis, EBITDA reached $39.1 per ton, net of the extraordinary property sale, increasing 2.4% from Q4 2021. Concrete adjusted EBITDA decreased ARS 67 million compared to Q4 2021, mainly explained by extraordinary results in other gain that affected the quarterly comparison. A positive price performance at higher volumes compensated the cost increase. Margin contraction of 334 basis points, reaching 2.7%.

Aggregates adjusted EBITDA improved ARS 278 million this quarter from negative ARS 9 million in Q4 2021, reaching a margin of 25.9% and showing a great recovery for the segment, where the good momentum of the sector is being accompanied by a great operational performance. Railroad adjusted EBITDA improved ARS 537 million to ARS 146 million for the quarter, with a margin of 5.1%, mainly explained by a recognition of an allowance for doubtful receivables that impacted the result in Q4 2021. For the year 2022, adjusted EBITDA reached a standing figure of $289 million, setting a new record half of the company and widely surpassing the previous record accomplished in 2021. Moving on to the bottom line on slide 12.

This quarter, we posted a net profit attributable to owners of the company of ARS 7.5 billion, compared with ARS 5.7 billion on Q4 2021, where the operational result was boosted by the sale of this non-strategic property, coupled with positive financial results and less income tax effect. Total financial gains stood at ARS 0.3 billion this quarter, from a total financial cost of ARS 0.3 billion the same quarter last year, primarily explained by the gain on the net monetary position that more than compensated the higher financial expense of the exchange rate difference effect.

For the full year, net profit attributable to owners of the company reached ARS 2.1 billion, decreasing from ARS 12.8 billion in 2021, mainly due to the impact in the financial results generated with the cancellation of US dollars denominated debt with local funds in Q3 of 2022. Moving on to the balance sheet. As you can see on slide 13, we ended the quarter with a cash position of ARS 4.9 billion and total debt at ARS 20.8 billion. Our net debt to EBITDA ratio stood at 0.37 times compared to -0.12 times at the end of 2021, and also showing a sequential decline from 0.54 times at the end of the Q3 2022.

Our robust operation cash generation stood at ARS 11.3 billion, where the performance of operational results was boosted by a positive effect of working capital. Regarding capital expenditure, we spent ARS 5.7 billion, mostly for maintaining CapEx. During the quarter, we reduced our debt in $40 million, standing our net debt at $90 million at the end of the quarter. Breaking it down by currency, the dollar-denominated debt represents 52% of the total debt, while the rest is in pesos. As we mentioned before, during 2022, we distributed dividends for $126 million. That represents $1 per ADR outstanding.

With the share repurchase program and in December, we acquired shares for a total amount of ARS 0.8 billion in the quarter and ARS 1.9 billion for the whole year of 2022. For our final remarks, I would like to handle the call back to Sergio.

Sergio Faifman (CEO and VP of the Board)

Thank you, Marcos. To finalize the presentation, I please ask you to turn to slide 15. 2022 was a year of many challenges and opportunities. At the company level, we achieved historic economic and operational results, and with the effort and commitment of all our collaborators, we continue to consolidate our position as a leader in Argentine cement market. Looking ahead, we expect growth to continue in 2023, with a more moderate pace considering the high level of activity of the sector that we saw in 2022. Always subject to the outcome of local political and macroeconomic challenges that usually are central in election years. In this context, we remain focused on delivering strong results, and with our increased capacity, we are in an excellent position to capture future growth.

We are very pleased to present the second edition of our sustainability report, maintaining our commitment to inform and share the impact of our organization management on people, development, and the economy. We know that we must transparently and clear communicate our operation and each part. Again, I would like to invite you all to read this report and join us in the journey of building a sustainable future. I would like to conclude by sharing our satisfaction with the results obtained in 2022. I thank all our people and stakeholders for their commitment and support. This is the end of our prepared remarks. We are now ready to take a question. Operator, please open the call for questions.

Operator (participant)

Thank you. We will now conduct a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 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 following an English translation. Please hold momentarily while we assemble our roster. Our first question is from Alejandra Obregón with Morgan Stanley. Please go ahead.

Alejandra Obregón (Executive Director)

Hi. Good morning, Sergio, Marcos, Diego. Thank you for the call today. I have a question on the specific asset that was sold at Olavarría, whether you could elaborate on what was the asset and if there could be any more non-core sale asset sales of this kind in the future that could be worth considering. That's my first question.

Sergio Faifman (CEO and VP of the Board)

Hi, Alejandra. Good morning. Thank you for your question. El activo que vendimos es un activo que tenía parte de las reservas de nuestra ex fábrica de Sierras Bayas. The property that we sold, it was linked to our former facility in Sierras Bayas. Una fábrica que fue cerrada hace un par de años y cuyas reservas no serían utilizadas en ninguna otra fábrica de la compañía. It's a facility that we are not going to plan to use it in further exploitation of our other properties. La compañía dispone de muchas propiedades a lo largo del país. The company has some other properties along the country. Algunas que tienen algunas materias primas o reservas para utilizar en algún momento.

Some of those have potential reserves to be used in the future. Y siempre estamos analizando si ese contexto cambia, si eso pueden ser vendidas y generar valor para la compañía. We are always analyzing if the context changes, if those properties could be add value in some other way for the company.

Alejandra Obregón (Executive Director)

Thank you. That was clear. Maybe a follow-up here. What does this sale and proceeds mean from a cash management perspective? Should we perhaps rethink the dividends and buybacks for the year or even your M&A strategy ahead as cash position grows for 2023?

Sergio Faifman (CEO and VP of the Board)

igual que como venimos comentando, seguimos buscando la maximización de valor para los accionistas

Marcos Gradin (CFO)

As always, that we mentioned before, we keep looking for maximizing value for our shareholders. We are always analyzing share buyback programs and further dividend payments. If we don't have any other project that demands our cash flow generation, probably we are going to keep on focusing on maximizing value to shareholders. We think that that's the way that we add more value to our shareholders.

Alejandra Obregón (Executive Director)

Understood. That was very clear. If I still may. I'm very curious about the outperformance of the concrete and the aggregates division. I was wondering if you could provide some color on what are you seeing on the ground with regards to permitting of infrastructure and non-resi construction ahead, and whether this could be something that could continue to contribute more than you were expecting for 2023. Thank you.

Marcos Gradin (CFO)

By the end of last year, concrete and aggregates were improving its performance. We have been seeing an increase in bulk cement demand. That, along with an increase in infrastructure projects that give to those businesses a boost. With the last crisis that we came through, many small aggregates producers were closed or they decreased their production. We kept on investing in those businesses, so we are taking advantage of them now. In both businesses, we expect a 2023 also better than what we saw in 2022.

Alejandra Obregón (Executive Director)

Understood. That was very clear. Thank you again, and congratulations on the numbers.

Marcos Gradin (CFO)

Thank you. You're welcome.

Operator (participant)

The next question is from Rodrigo Nistor with Latin Securities. Please go ahead.

Rodrigo Nistor (Institutional Sales)

Hi, good morning. Congratulations on the results. I have a question regarding the dynamic between price and volumes for the year. I mean, given the high volatility of this election year, do you believe that Loma can replicate or exceed last year's volumes? If you've seen a pickup in demand from the public sector already. With regards to pricing, how are you adjusting your strategy to address the current high inflation environment? Thank you.

Marcos Gradin (CFO)

Hi, Rodrigo. Good morning. Thank you for your question. Regarding volumes, we are expecting a level similar for what we saw in 2022 with some slight or moderate growth. Considering what happens in election years, we could expect some demand from the public sector, principally at municipal or provincial level. We have many works in the pipeline, basically in the bulks dispatch mode. Regarding our price strategy is, we are following the same trend what we have been following in the past quarters. Which is to maintain our price dynamics, following the different variables that we have in our P&L, like inflation and devaluation.

In the last month, the price was in line with the dynamics of inflation.

Rodrigo Nistor (Institutional Sales)

That was really helpful. Thank you.

Marcos Gradin (CFO)

You're welcome.

Operator (participant)

If you have a question, please press star then one. Please stand by as we poll for questions. Showing no further questions, this concludes our question and answer session. I would like to turn the conference over to Diego Jalón for any closing remarks.

Marcos Gradin (CFO)

Thank you, Barry. Thank you all for joining us today. We really appreciate your interest in our company, and we hope to meet you again in our next earnings call. In the meantime, we remain available for any questions that you may have. Have a nice day. Bye.

Operator (participant)

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