Loma Negra - Q4 2023

Transcript

Operator (participant)

Good morning and welcome to the Loma Negra Fourth Quarter 2023 conference call and webcast. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by 0. After today's presentation, there'll 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 1 on your telephone keypad. To withdraw your question, please press star, then 2. Please note, this event is being recorded. I would now like to turn the conference over to Mr. Diego Jalón, head of IR. Please go ahead, Diego. I'm sorry. Please stand by.

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)

Thank you, Diego. Hello everyone, and thank you for joining us this morning. I would like to begin my presentation with the discussion of the highlights of the quarter, and then Marcos will take you through our market review and financial result. After that, I provide some final remarks, and then we will open the questions. Starting with slide 2, I'm delighted to share with you our performance for the final quarter of the year, despite current challenges resulting from the political transition and the evolving economic environment, which impacted second semester activity level. The industry concluded the year with dispatch volume that ranked only behind the record year of 2022. In this context, Loma has once again demonstrated its resilience, delivering another solid set of results despite the decrease in our top line, which reaches ARS 99,000,000,000, marking a decrease of 13.2%.

This decline was primarily due to the volume contraction in our core segment. Adjusted EBITDA stood at $61,000,000 for the quarter, or ARS 22,700,000,000. The year-on-year comparison is affected by the sale of non-core assets for $19,000,000 in the fourth quarter of 2022. Excluding this effect, EBITDA decreased by 25.8%. Consolidated Adjusted EBITDA margin for the quarter reached 22.8%, contracting by 389 basis points once we eliminated the extraordinary results for the base of comparison. On the other hand, the US dollar EBITDA per ton stood at $39 for the quarter, almost flat year-on-year once we subtracted the asset sale and improving by 7% in sequential basis. When looking to our annual figures in 2023, we reached a solid EBITDA of $252,000,000, with an EBITDA margin of 23.8%. On the financial side, we used our Class IV domestic bond.

Throughout the year, we have successfully carried out forward local bond issuance, taking advantage of the favorable moments for solid corporate credits. During the quarter, we canceled all the remaining cross-border short-term debts, reaching a net debt of $174,000,000. Please turn to slide 4 for a review of our ESG highlights for the years. We take great satisfaction in realizing a new edition of the Loma Negra Sustainability Report, aiming to share our journey and dedication to sustainable development with all stakeholders. Regarding the environmental aspect, our total greenhouse gas emission intensity Scope 1 and 2 stood at 527.36 kg of CO2 per ton of cementitious material, increasing 0.35% year-on-year due to the variation of the Clinker stock compared to 2022. However, without considering the Clinker stock variation, the performance was positive, with a reduction of 1.4% in kilograms of CO2 per ton of cement equivalent.

In line with our 2030 sustainability commitments, we reduced the water extraction by 15.5% and decreased 10% our solid waste generation. One of our main commitments in terms of environmental sustainability is the reduction of our carbon footprint and the goal of achieving carbon neutrality in concrete by 2050. We have a long way to go in pursuit of these objectives that were consolidated in 2023 with the climate roadmap to 2030. This commitment includes an action and investment plan based mainly on four dimensions: clinker factor, thermal efficiency, electric efficiency, and fuel mix. In pursuit of this goal, we formed inter-area and interdisciplinary teams with the proposal of continuing to work on a portfolio of the idea, solution, and investment required to achieve the reduction goal set for 2030.

On the social side, we are convinced that through strategic partnership, we can transform reality to ensure a more inclusive future. We maintain the implementation of our program in different territories of the country, benefiting more than 80,000 people. Guided by our principle, "We are all Loma," we held the first Diversity and Inclusion Week, and we reached more than 50,000 hours of training for our employees, specifically in training on diversity, equity, and inclusion topics, reaching 648 hours of training. Regarding the governance aspect, we continue training our people of the company intern program, where we cover 100% of our employees and reinforce the commitment to ethical and transparency. We held the Compliance Week for the second time, which was an opportunity to reinforce messages and share content related to ethical and integrity issues: antitrust, ethical line, ethical behavior, and cybersecurity.

With different tools and mechanisms, we reached more than 800 employees. We continue to evolve and travel the path commitment to the challenges that the context imposes on us. It is a path that we walk through in an ethical, responsible, and sustainable manner. This report reflects such paths. I invite you to read it to know the most outstanding results of our company. I will now hand over 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, and good morning, everyone. Please turn to slide 6. As you can see on the upper left chart, the most recent estimates indicate a negative performance of the economy for 2023 of around 1.6%. In the same sense, the market expectation report from the central bank signals a negative performance for 2024, showing a decrease of 3% and then a recovery in 2025. When we dive into the numbers for our industry, we can see that after a positive October, the construction activity indicator shows a significant drop in the last two months of the quarter, deepening the drop in January. Following this trend, cement dispatches show a double-digit decrease in November and December and a sharp drop in the first month of 2024.

After several months of election process volatility, sales in the national cement industry are being affected by the political transition and the consequent effects of tighter economic policies. The industry's bulk cement dispatches took a hit due to a lower level of activity in the fourth quarter, decreasing by 12% year-on-year, while bulk cement posted a moderate contraction of 5%. When looking at the breakdown by dispatch mode for the quarter, bulk shipments represent 44% of the total dispatches, in line with the figure reached for the whole year and 2 percentage points above the fourth quarter of 2022. After the conclusion of the electoral year, it will be necessary to dispel the uncertainty about the economic direction and find a certain political balance to enable our activation of the industry and lay the foundations for a stage of genuine growth.

Turning to slide 7 for a review of our top-line performance by segment. The fourth quarter top-line showed a decrease of 13.2%, mainly attributed to the decline in the cement segment, also followed by the other businesses. The cement segment, cement and aggregates segment was down 16%, with volumes contracted by 10.1% year-on-year, mainly due to the impact of the economic environment on bulk cement dispatches. Bulk cement sales also decreased following the trend of previous quarter. Lower volumes were coupled with softer price dynamics, which, despite adjustments for inflation, experienced a decline due to the elevated monthly inflation figures and the timing of the price adjustments. Concrete revenues decreased by 12.3% in the quarter, mainly due to the 17.5% decrease in dispatches.

Major projects, which are the market target for concrete operation, experienced a slowdown due to macroeconomic uncertainty, while public works entered standby mode after the elections, awaiting future definitions. Aggregates segment showed a decrease of 9.5%, with sales volumes down 12.3%, partially offset by a good price performance. In the same vein, railroad revenues decreased by 10.5% in the quarter. Transported volumes were down by 9%, primarily affected by the lower level of activity in the construction sector, which impacted our main cargo shippers, especially in aggregates. Additionally, a storm that hit Bahía Blanca in December temporarily knocked out of service the two plants from which we transport chemicals to Buenos Aires. For the FY 2023, consolidated revenues were down 6.3% to ARS 422,000,000,000, from ARS 452,000,000,000 in 2022, with cement volumes contracted by 4.5% from the record year of 2022.

Moving on to slide 9, consolidated gross profit for the quarter declined 14.3%, with a margin contraction of only 36 basis points to 26.2%, mainly due to the cost improvements in the cement segments and lower depreciation. Regarding the cement segment, the reduction of energy inputs was primarily driven by lower consumption of thermal energy per ton, coupled with a decrease in natural gas prices. In the same sense, the cost of electrical energy improved as a proportion of hydraulic energy, which has a lower cost, increasing the country's electrical generation metrics. Finally, while SG&A expenses remain almost flat, with a variation of only 0.1% year-on-year as a percentage of sales, it showed a year-on-year increase of 132 basis points, reaching 10% due to the decrease in the top line. For the fiscal year 2023, gross profit went down 13.2%, with a margin contraction of 192 basis points.

Please turn to slide 10. Our Adjusted EBITDA for the quarter stood at $61,000,000, reaching a very robust figure amidst a challenging environment. In pesos, Adjusted EBITDA was down 44.7% in the quarter, reaching ARS 22,700,000,000, with a consolidated EBITDA margin of 22.8%. As mentioned earlier, the year-on-year comparison is affected by a non-core asset sale in the fourth quarter of 2022. Eliminating that effect, Adjusted EBITDA in pesos was down 25.8%, with the margin contracting by 389 basis points, in line with previous quarterly results. Cement segment Adjusted EBITDA stood at 26.6%, contracting 217 basis points, excluding the sale of assets. The cost improvement that I mentioned before, mainly in energy inputs, partially offset the lower top-line performance. In a per-ton basis, EBITDA reached $39 per ton, with almost no variation year-on-year once we subtract the asset sales and improved by 7% from the previous quarter.

Concrete adjusted EBITDA decreased $161,000,000 compared to the fourth quarter of a year ago, with a margin contraction of 129 basis points, reaching 1.5%. Despite the cost and excess control, it couldn't fully offset the lower top-line performance. The adjusted EBITDA margin of aggregates contracted to 14.2% from 25.9% in the fourth quarter of 2022, mainly due to higher sale costs and the effect of lower volumes, partially compensated by a positive price performance. Finally, the adjusted EBITDA margin of the railroad contracted 922 basis points to minus 4.2% in the fourth quarter, from 5.1% in the fourth quarter of 2022, principally due to higher costs coupled with lower transported volumes. For the full year 2023, adjusted EBITDA reached the figure of $252,000,000. Moving on to the bottom line on slide 12.

This quarter, we posted a net loss attributable to owners of the company of ARS 19,800,000,000, compared to a net profit of ARS 22.7,000,000 in the fourth quarter of 2022. The higher total financial costs due to December's sharp devaluation of the Argentine pesos, along with the sale of the known core assets in the fourth quarter of 2022, are the principal reasons for the variation. Total net financial costs stood at ARS 13,300,000,000 this quarter, from a total financial gain of ARS 1,200,000,000 the same quarter last year, mainly due to the impact of the devaluation of the peso in the exchange rate difference, partially offset by a gain in the net monetary position. In the same sense, we had an increase in the financial expense due to higher debt position.

For the full year, net income attributable to owners of the company increased 70.7% year-on-year to ARS 10,300,000,000, from $6,000,000,000 in fiscal year 2022, mainly as a result of a lower total net financial cost coupled with a lower tax position that compensated a lower operational result. Moving on to the balance sheet, as you can see on slide 14, we ended the quarter with a cash position of $6,700,000,000 and a total debt of ARS 147,400,000,000 in this quarter. Consequently, our net debt-to-EBITDA ratio stood at 1.4 times compared to 0.37 times at the end of 2022. Our operating cash generation stood at ARS 26,200,000,000, where the decrease in the net profit adjusted and reconciled to net cash provided by operating activities was partially compensated by a positive effect of the working capital, mainly due to lower income tax advances.

Regarding capital expenditures, we allocated ARS 18,200,000,000, mostly for maintenance CapEx and ongoing projects of adapting our dispatch facilities to use 25 kg bags. During the quarter, the company used cash in financial activities for ARS 31,000,000,000, mainly for the repayments of borrowings and interest. We also issued a Class IV bond that, along with short-term borrowings, partially offset these effects. In dollar terms, our total debt reached $182,000,000, standing our net debt at $174,000,000 at the end of this quarter, with a decrease of $41,000,000 during the quarter. During this period, we canceled all the remaining short-term U.S. dollar cross-border debt, extending the average duration and reducing the financial cost. Now, in 2024, we only have maturities of a debt in pesos. Breaking it down by currency, the dollar-denominated debt represents 76% of the total debt, while the rest is in pesos.

Additionally, as we mentioned before, during the quarter, the company issued its Class IV domestic bonds, denominated in U.S. dollars, for a total amount of $10,000,000, with maturity in the second quarter of 2026 and accruing an interest rate of 6% per year. In 2023, we paid approximately $120,000,000 in dividends, which represents $1 per year-year, similar to what we paid in 2022. Now, for our final remarks, I would like to handle the call back to Sergio. Thank you.

Sergio Faifman (CEO)

Thank you, Marcos. Now, to finalize the presentation, I please ask you to turn to slide 15. We are very proud of the result achieved by Loma in 2023, despite the lower volume of the 4 quarters that were more affected by the end of the period due to the political transition. We must note seeing that 2023 was the second-best year for the industry in terms of volume, only behind the record achieved in 2022. Thirdly, the electoral process and the subsequent change in administration have induced uncertainty, impacting the level of activity. Industry stakeholders are cautious and awaiting the government's initial action and the stabilization of key economic indicators. Despite the significant drop in activity level evidenced in the first months of the year, we remain optimistic but aware that the path to recovery will be winding and full of challenges.

Argentina has great growth potential, which will be unlocked if the country manages to start moving along to the right path. In that scenario, Loma has the capacity to support and bolster the country's development, fulfilling a role as industry leader. Finally, I would like to thank all our employees for the commitment they have shown throughout the year. I also want to express gratitude to the rest of our stakeholders for being close to us for another year. United together, we can face any challenge that this new year may bring. 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 the question-and-answer session. If you would like to ask a question, please press star, then 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star, then 2 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, 1 on your telephone keypad. We also would like to ask that you please limit your questions to one question and one follow-up. 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 Daniel Rojas of Bank of America.

Diego Jalón (Head of Investor Relations)

Please go ahead.

Daniel Rojas (VP and Equity Research Analyst)

Good morning, gentlemen. Can you hear me? Hello?

Operator (participant)

Yes, sir. We can hear you. Please go ahead.

Daniel Rojas (VP and Equity Research Analyst)

Hello. Looking at the contraction in margin, the 389 basis points you mentioned that excludes the asset sale. Could you please give us a little bit more details on what's behind this, what factors lie behind the lower margin, and what we should expect going forward? Thank you.

Marcos Gradin (CFO)

Daniel, thank you for your question. I will respond to that, that margins are not descending. Obviously, when compared year-over-year, they are contracting because of the lower volumes and the hitting on the top line. But if you saw it on a sequential basis, quarter-over-quarter, margins are stable. But the principal factor, obviously, is the lower volume.

Daniel Rojas (VP and Equity Research Analyst)

Okay. And if I may follow up, now that the new president has been in office for a few months, can you give us some color on how you're seeing activity going forward? Is his new team already on board? Do you see a faster or lower transition that you might have expected? We just want to get an idea of how we should expect the year to roll out.

Marcos Gradin (CFO)

Daniel, obviously, the year and the first month are being hit. Yes, the volume is in a level of 20%-25%. We expect the upcoming months to continue more or less on this pace. But then, for the second half of the year, the economy began to pick up, and that's where we are going to see a pickup on certain volumes. But obviously, the number is going to be negative for the year.

Daniel Rojas (VP and Equity Research Analyst)

Thank you.

Marcos Gradin (CFO)

You're welcome.

Operator (participant)

As a reminder, if you would like to ask a question, you may press star, then 1 on your telephone. Our next question is from Jorge Viñas of Latin Securities. Please go ahead.

Jorge Viñas (Equity Analyst)

Thank you. Good evening, and thank you for the presentation. The question is about the pricing environment in the current recessionary scenario, given the deepening of the contraction in dispatches, how is the pricing evolving, and what should we expect for the next couple of quarters?

Marcos Gradin (CFO)

Buen día, Jorge. Gracias por tu pregunta.

Speaker 6

Hi, Jorge. Thank you for your question. El escenario de precios desde diciembre para acá, venimos arriba de la inflación con los aumentos de precios.

Regarding prices, since December's up to date, we are above inflation in the pricing dynamic.

Nuestro precio actual en marzo es similar al antes de la devaluación de diciembre. Our actual price is above the one that we had in December. Y vemos un escenario siguiendo precio en línea con inflación, salvo alguna desvalorización importante donde también ajustaremos.

We expect this trend to continue, even though if we see some discrete movement of the effects, we will act accordingly.

Jorge Viñas (Equity Analyst)

Thank you very much.

Marcos Gradin (CFO)

You're welcome.

Operator (participant)

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

Diego Jalón (Head of Investor Relations)

Thank you for joining us today. We truly appreciate your interest in our company. Allow me to remind you that we issue our third edition of our sustainability report, and it's available on our website, and we invite you to have a look at it. As always, we look forward to meeting you again in our next call. In the meantime, we are available for any questions that you may have. Thank you, and have a nice day.

Operator (participant)

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