Loma Negra - Earnings Call - Q4 2024

Transcript

Operator (participant)

Good morning and welcome to the Loma Negra Fourth Quarter 2024 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 IR. 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)

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 result. Following that, I will share some final remarks before opening the call to your questions. Starting with slide two. We are pleased to present Loma Negra's fourth and final quarter of the year. 2024 was a year of challenges that stressed our capability, and once again, we demonstrated what we can achieve. I mean, the downturn in the construction industry that reduced demand for our products. We navigated multiple obstacles. While facing moments of uncertainty, we reaffirmed our resilience, adaptability, and commitment to continued improvement, further solidifying our leadership in the Argentina cement market.

In terms of our four-quarter performance, we take great pride in delivering strong results despite the difficult environments. One of the key highlights of the quarter was the significant expansion of our EBITDA margin by over 600 basis points, even with lower volumes. We embrace this challenging year as an opportunity to enhance efficiency, staying true to one of our core principles: constantly pushing our cement to improve. While volumes continue their gradual recovery, narrowing the year-over-year gap, the decline in dispatch for the quarter impacted our top line. Despite this, we delivered an assessed EBITDA of $15 million, up 2.4% in peso terms. Our EBITDA margin reached 29%, a substantial improvement from 22.8% in the same quarter of 2023. On a per-ton basis, EBITDA was $39, remaining nearly flat year-over-year but increasing 10% sequentially.

For the full year 2024, we achieved an EBITDA of $198 million, with a margin of 25.9%, improving by 211 basis points. On the financial side, both this quarter and throughout the year, we strengthened our balance sheet. During the quarter, net debt declined by an additional $20 million, reaching $157 million, and lowering our net debt ratio to below 1x. Please turn to slide three for a review of our ESG highlights for the year. We take great satisfaction in releasing a new edition of the Loma Negra Sustainability Report, aiming to share our journey and dedication to sustainable development with all stakeholders. This report is aligned with our 2030 goals and the work of the entire company, guided by senior management commitment to sustainable development. It has been prepared based on the non-financial information disclosure standard of the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board.

For the second year, we have audited 13 GRI indicators by an external consulting firm. Environmental sustainability is one of the main pillars on which all our growth and value creation are based. That is why we work every day on the continuous improvement of our operation by optimizing the use of energy and water, preserving air quality and biodiversity, and implementing actions aimed at reducing our carbon footprint. Regarding this matter, our total greenhouse gas emission intensity Scope 1 and 2 stood at 506.96 kg CO2 per ton of cement materials, reflecting a 3% year-over-year decrease. On measured per ton of the cement equivalent, the reduction was 1.16%. This relates to an absolute emission reduction of 907,000 tons of CO2 equivalent compared to 2023. Along with our 2030 sustainability commitment, we also achieved a 31% reduction in water extraction, while our solid waste valorization rate reached 84%.

On the social side, we are convinced that through strategic partnerships, we can transform reality to ensure a more inclusive future. We maintain the implementation of our program in different territories of the country, benefiting almost 90,000 people directly and 57,000 people indirectly. Guided by our principle, we are all Loma. We held the Second Diversity and Inclusion Week. This year, 15 employees from different Loma Negra plants shared their experience of inclusion and diversity in the company. Regarding the governance aspect, we have a new code of ethical conduct where we incorporate a chapter of commitment to sustainability with a clear goal to reduce our environmental impact and promote sustainable development in our operation. We continue training our people on the company integrity program, where we cover 100% of our employees, reinforcing the commitment to ethical transparency.

We also held the Compliance Week for the third time, which was an opportunity to reinforce messages and share content related to ethical integrity issues, anti-trust, ethical line, ethical behavior, and cybersecurity. We are committed to the principle guiding our action inclusive of our purpose of transforming people's lives by promoting sustainability growth. 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. Good morning, everyone. Please turn to slide five. When analyzing the evolution of monthly sales across the industry, we can clearly see an improvement between the first and second half of 2024, as represented by the red line. While the first half of the year saw a 31% decline, the second half narrowed the year-on-year gap to minus 17%. Furthermore, the fourth quarter continued this trend, with a 14% year-over-year drop, closing the year with December volumes just 5% below the same month in 2023. Similarly, January 2025 saw nearly 9% growth in dispatches, marking the first year-over-year increase since March 2023 and breaking a streak of over a year of negative results, as shown in the bottom right chart. Although rainy weather is expected to impact February, we anticipate this positive trend to continue.

Bulk cement dispatches continue to show greater resilience, declining less than the industry average, while bulk cement remained the most affected mode of dispatch. As large private construction projects and public works represent its primary market, bulk cement ended the year with low activity levels but is expected to regain momentum in 2025. While 2024 was a challenging year for the industry, with volumes declining 24%, we believe the most difficult period is now behind us. The Central Bank's Market Expectations Report also suggests an improved economic outlook, projecting positive growth in the fourth quarter of 2024 and a 4.6% expansion in 2025. This forecast, combined with the expected impact of credit availability and renewed interest in large-scale projects, will likely drive a recovery in cement dispatches throughout 2025.

The consolidation of economic policies is expected to support the industry's reactivation and lay the groundwork for a new cycle of sustainable growth. Turning to slide six for a review of our top line performance by segment. The fourth quarter top line declined 19.5%, primarily due to a weaker performance in the cement segment, followed by declines across the other business segments. The cement, masonry cement, and lime segment saw a 19.9% drop, with volume contracting 14.1% year-over-year, coupled with softer pricing. Bulk cement continues to show greater resilience, declining 9% year-over-year, outperforming the industry average, while bagged cement remained the most affected category. Concrete revenues fell 26.9% in the quarter, with volumes down 14.4% and prices impacted by a more competitive market in the segment.

On the positive side, the decline in sales volume was less pronounced than in bulk cement sales for the ready-mixed concrete sector, supported by increased infrastructure activity and renewable energy projects in Buenos Aires Province, which helps support concrete operations. Similarly, the aggregates segment recorded a 34.2% revenue decline, with sales volume down just 3.1%, supported by increased road construction activity in Buenos Aires Province. However, persistently low overall activity levels weighed on price dynamics. This effect was further amplified by a shift in the sales mix, with a higher proportion of final aggregates, which have a lower average price. Railroad revenues experienced a moderate decline of 3.2% in the quarter. Higher transported volumes of up 3.1% helped offset softer pricing. The increase in grain transport helped compensate for the decline in construction materials but negatively impacted the average price, as grain generated lower revenues per kilometer transported.

Finally, for the fiscal year 2024, consolidated revenues declined 23.9% to ARS 699 billion, down from ARS 919 billion in 2023, with cement volumes contracting 23.7%. Moving on to slide eight, consolidated gross profit remained stable, edging up 0.1%, while gross margin expanded by 640 basis points year-over-year, reaching 32.6% despite lower volumes. In the cement segment, cost management once again played a key role in mitigating the impact of a weaker top line in the fourth quarter, supported by lower depreciation expenses. The fourth quarter marks the end of the winter season, typically associated with higher energy costs. Regarding energy inputs, the company began leveraging new thermal energy contracts that benefit from year-over-year reduction in tariffs, including short-term agreements linked to oil production.

On the electricity side, despite higher costs from a shift to more expensive generating sources, with less hydro and nuclear and more thermal, the company secured short-term contracts with renewable energy producers, allowing it to partially offset the impacts by utilizing surplus generation. Margins also expanded in the railroad segment, supported by cost controls and higher volumes, though they remained in negative territory. On the other hand, concrete and aggregates saw margin contractions, more affected by market conditions. Finally, SG&A expenses fell 3.9%, primarily due to lower turnover tax and freight costs driven by lower volumes, as well as reduced insurance and service expenses. As a percentage of sales, SG&A stood at 12%, up 195 basis points from 10%, mainly due to the declining revenue. For fiscal year 2024, gross profit declined 18.9%, though gross margin expanded 166 basis points to 26.7%. Please turn to slide nine.

Our consolidated adjusted EBITDA for the quarter stood at $50 million, while in ARS it reached ARS 50.6 billion, up 2.4%. This increase was primarily driven by a stronger performance in the cement segment, which boosted the consolidated EBITDA margin to 29%, expanding 623 basis points year-over-year. The cement segment's adjusted EBITDA margin surged to 33.7%, up 815 basis points, driven by tight cost management and improved energy inputs. Meanwhile, the concrete segment saw its adjusted EBITDA margin contracted by 760 basis points, turning negative at -6.1% compared to 1.5% in the fourth quarter of 2023, as cost control efforts were not enough to offset revenue declines. In the aggregates segment, the adjusted EBITDA margin dropped to -8.9%, down from 14.2% in the fourth quarter of 2023, while higher volumes helped narrow the year-over-year gap. A highly competitive market and an unfavorable product mix weighed on profitability.

The railroad segment saw an adjusted EBITDA margin improvement of 372 basis points, reaching minus 0.4% compared to minus 4.2% in the fourth quarter of 2023. Moderate growth in transported volumes, primarily from increased grain shipments, supported performance. However, the higher share of grains negatively impacted the average price, as they generate lower revenue per kilometer. Effective cost control helped mitigate this effect, improving overall performance. For fiscal year 2024, adjusted EBITDA totaled $198 million or ARS 181 billion, down 17%, but with a margin expansion of 211 basis points to 25.9%. Moving on to the bottom line on slide 11, this quarter net profit attributable to owners of the company totaled ARS 22.4 billion, compared to a net loss of ARS 43 billion in the fourth quarter of last year. The stronger operational performance, despite lower volumes, was further supported by an improved financial result.

On the financial side, the main reason of the variation was the impact of the devaluation in December 2023 that affected the base of comparison. We posted a net financial gain of ARS 0.9 billion for the quarter, compared to a financial cost of ARS 81.3 billion in the same period last year, primarily due to the lower impact of exchange rate differences. Additionally, lower net financial expenses, driven by declining interest rates and a reduced debt position, further strengthened financial recovery. However, these impact effects were partially offset by a lower gain on net monetary position, reflecting a weaker impact of inflation adjustments. For the full year 2024, net income attributable to the owner reached ARS 153.8 billion, up from ARS 22.4 billion in fiscal year 2023.

Moving on to the balance sheet, as you can see on slide 12, we ended the quarter with a net debt of ARS 162 billion, reducing our net debt to EBITDA ratio to 0.89 times, down from 1.4 times at the end of 2023. Cash flow from operating activities reached ARS 47.8 billion, compared to ARS 57 billion in the fourth quarter of 2023, primarily due to a less favorable impact from working capital. We invested ARS 21.2 billion in capital expenditure this quarter, with approximately 40% allocated to the 25-kilogram bulk projects and the remaining primarily to work-maintaining capex. During the quarter, the company used ARS 31.2 billion in financial activity, mainly for the repayment of borrowings and interest payments. In dollar terms, net debt stood at $157 million, with a duration of almost a year, reflecting a $20 million sequential reduction.

Dollar-denominated debt accounts for 91% of our total debt, with the remainder in pesos. The company's debt maturity profile remains well-balanced, with no bond maturities until the fourth quarter of 2025. Now, for our final remarks, I'll hand the call back to Sergio. Thank you.

Diego Jalón (Head of Investor Relations)

Thank you, Marcos. Now, to finalize the presentation, I'd please ask you to time to slide 14. We are very proud of the result achieved in 2024. As we mentioned before, this was a particularly challenging year for the construction sector, as its key economic variable impacted private cement consumption. This effect was further intensified by the suspension of many public works as they were awaiting the establishment of the new framework. We wish 2024 as a transition year for the industry, on that, with a more stable economic environment, now has a solid foundation for the future growth.

Challenging and difficult for us means opportunity. Opportunity to rethink our approach, drive improvements, and still to be the most efficient company we can be, always guided by our strong corporate principles. Looking ahead, 2025 is poised for growth. This year is set to deliver double-digit growth. If forecast for the Argentine economic materials, this expansion is supported by renewed rules for credits and the initiation of a RIGI project could further boost cement consumption. Cement consumption per capita hit historical lows in 2024, while the 10-year average remained among the lowest compared to similar economies. This presents significant room for growth, while a substantial housing and infrastructure gap to bridge. In the recent year, we have made significant investments in capacity, positioning us to play a major role in Argentine development. We are ready.

Finally, I would like to thank all our employees for their commitment and effort throughout the year. I also want to express my gratitude to our stakeholders for staying close and supporting each other, especially in challenging times. This was defined as. This is the end of our prepared remarks. We are now ready to take questions. Operator, please open the call for questions.

Thank you. We will now conduct a question-and-answer session. If you would like to ask a question, please press star, then one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star, then two if you would like to remove your line. For participants using speaker equipment, it may be necessary to pick up your handset prior to pressing the keys. Once again, star one on your telephone keypad.

We would also 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. The first question is from Alexandra Obregon with Morgan Stanley. Please go ahead.

Alexandra Obregon (Analyst)

Hi, good morning, Loma Negra team. Thank you for taking my question. I would like to talk about pricing and how you're thinking about it for 2025. On one side, we have demand troughing and starting to look a little bit better, but also, as we look at inflation, it looks like it appears to be slowing down. How should you think, or how should we think of strategies for pricing into 2025?

If you can also talk about competitive dynamics, do you think that is still supportive of pricing action into 2025? Thank you.

Sergio Faifman (CEO)

Good morning, Alexandra. Thank you for the question. 2025, creemos que la dinámica de precios va a ser similar a los últimos años. In 2025, we believe that the pricing dynamic is going to be similar to the one we saw in the last couple of years. Quizás con una desaceleración de la inflación, en lugar de tener aumentos mensuales, seguramente pasaremos a bimestrales y trimestrales. Maybe with a deceleration of inflation, we're going to have more space between price increments, tal cual como era la situación hace un par de años antes del aumento de la inflación, similar to the years that we had in the past with low inflation.

Estamos previendo un escenario donde el precio acompaña inflación, that we are foreseeing a scenario where prices go along with inflation, siempre suponiendo que esta inflación va a ser superior a la devaluation del peso, and always supposing that inflation is going to be above the devaluation of the peso. Posiblemente, como en otros escenarios, si la devaluation del peso fuese muy superior a la inflación, ahí seguramente el aumento de precios sería superior a la inflación. Possibly, if we have an event of a major inflation, then the price adjustment would be above the inflation.

Alexandra Obregon (Analyst)

Gotcha. That was very clear. Thank you very much.

Operator (participant)

De acuerdo. The next question is from Marcelo Furlan with Itaú BBA. Please go ahead. Hi, everyone. Good morning. Thanks for taking my question here. The question is just a follow-up also for 2025.

Marcelo Furlan (Analyst)

If you guys could please give a little bit more color related to volumes. Volumes in the industry declined by 24-25% in the last year. I'd like to hear from you guys what we expect for volumes this year. This is my follow-up. My question here is related to capital allocation. Once maybe 2025 would be a better year compared to 2024 in terms of volumes, prices, margins, and so on, if you guys see room for dividend distributions in 2025 as we saw in 2023. This is my question as well.Thank you.

Sergio Faifman (CEO)

Hi, Marcelo. Thank you for the question. Durante el año 2025, estamos previendo un crecimiento de dos dígitos respecto del 2024. For 2025, we're expecting an increase of two digits year on year.

Básicamente, con mantener el volumen de los últimos meses del 2024, ya ese crecimiento estaría en dos dígitos. Basically, if we maintain the volumes that we had in the last part of 2024, that would give us this two-digit expansion. Adicionalmente, estamos viendo varios proyectos privados que están por arrancar en los próximos meses. Additionally, we are seeing some private projects that may start in the last couple of months. Y también algunas otras obras públicas que serán municipales, provinciales o en esquemas privados que también estarían arrancando los próximos meses. Some public works at municipal or provincial level that may be combined with the private sector could be starting in the next few months. ¿Y podrías profundizar la segunda pregunta que no se entendió bien? Can you repeat the second part of the question because we didn't get it right?

Marcelo Furlan (Analyst)

Oh, yes, sure.

The second part of the question is related to dividends for 2025. If we could expect dividends for this year, this is also the question.

Sergio Faifman (CEO)

Disculpa, dividendos? No se entendió. It's about dividends or we didn't get it? Yes, it is about dividends, yes. Okay. Ahí, un poco volviendo a lo que fue el pasado, nosotros seguimos analizando año a año la estructura de capital y la mejor alocación para los accionistas. We look years back and we still are analyzing the best way to allocate our capital. 2022, 2023, hemos pagado dividendos que entendíamos que era el mejor capital allocation para los accionistas. In 2022 and 2023, we paid dividends because we considered it was the best way to return value to shareholders.

El inicio del 2024 fue con una caída importante de volumen y, sin tener claras las perspectivas del año, preferimos, como directorio, no avanzar en el pago de dividendos. During 2024, with the drop in volumes, especially in the first semester and the uncertainty behind that, the board decided not to move forward on paying dividends. Luego, durante el año, se dio un proceso desconocido tanto en la compañía como en la accionista controlante, y no hemos avanzado en pago de dividendos en el 2024. Additionally, there was this process with our controlling shareholders, so we decided not to move forward in 2024. Ya con un escenario más claro, local, y unas perspectivas mejor para este año, estamos analizando en el directorio cuál es el mejor capital allocation para los próximos meses. We have a more clear scenario in terms of volume for 2025.

We are analyzing with the board the best way to go in terms of capital allocations for 2025.

Okay. Thank you so much, guys. De acuerdo.

Operator (participant)

The next question is from Daniel Rojas with Bank of America. Please go ahead. Buenos días.

Daniel Rojas (Analyst)

My question is regarding your cost structure for 2025. I was just curious if you see any points of pressure, and if you could compare it to 2024, do you see any sources of opportunity to increase margins further, or what should we be concerned for the next years? Thank you.

Sergio Faifman (CEO)

Good morning, Daniel. Thank you for your question. Sí, la verdad que estamos viendo, tanto en el inicio del año, el final del año pasado y el inicio de este año, algunas reducciones importantes en lo que tiene que ver con costos de energía térmica y eléctrica.

Yes, we are seeing, we saw it by the end of 2024 and continues in this year. We have seen some improvements in terms of energy inputs. Así mismo, como en los últimos años, estamos trabajando fuertemente en eficiencia y en control de costos. And we are working very hard in terms of efficiency and cost management. Creemos que estos márgenes del último quarter son sostenibles y, lógicamente, con un aumento de volumen, poder incrementar los mismos. And we do believe that the margins that we show in the fourth quarter are sustainable. Furthermore, if we start seeing some improvements in volumes, we are going to see some improvements in margins as well. Siempre recordando que hoy estamos trabajando cerca del 50% de nuestra capacidad instalada y, prácticamente sin inversiones, podemos capitalizar cualquier crecimiento del mercado.

You have to consider that we are working almost at 50% of our capacity, and with no major capex, we can absorb future growth.

Daniel Rojas (Analyst)

Thank you. Along those lines, for 2025, could you guide us on capex? Since you are working at 50% capacity and you can ramp up quickly, do you have any large maintenance, or should we expect a nice bump in cash flow as a consequence? Thank you.

Sergio Faifman (CEO)

Básicamente, para este año tenemos capex de mantenimiento. Basically, for this year, we have only maintenance capex. Y después, terminando la inversión para bolsas de 25 kilos que arrancaría en julio y que estamos llegando bien con las inversiones para ese plazo.

We are also finalizing the projects of the shift to 25 kilograms bags that's going to start, we are going to start dispatching them in July.

Una vez terminado el bolsa de 25 kilos para los próximos años, no estamos previendo inversiones importantes, básicamente en mantenimiento.

Once finalized this project, we are not expecting any further disbursement in capex, just the maintenance capex. Could you give us a ballpark number, an estimate of how much in maintenance for 2025, just to give us an idea? En total, entre todos los negocios, entre $55 y $60 millones. Between all the business, between $55 and $60 million approximately. Thank you.

Daniel Rojas (Analyst)

Thank you very much.

Diego Jalón (Head of Investor Relations)

De acuerdo.

Operator (participant)

The next question is from Esteban Arrieta with Balanz. Please go ahead. Esteban, your line is open on our end. Perhaps it's muted on yours.

Esteban Arrieta (Analyst)

Hi, good morning. Sorry, I was mute. My question is also on capex. What is the remaining capex to complete the 25 kilo back project? Thanks. Hi, Esteban. Thank you for your question.

Marcos Gradin (CFO)

Lo que está remanente de la inversión de capex para bolsa de 25 kilos son aproximadamente $20-$22 million. The remaining capex for the 25 kilograms bag project is approximately $22 million. Thank you. De acuerdo. 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 very much for joining us this morning. We really appreciate your interest in our company, and we expect to meet you again in our next call. Thank you very much.

Operator (participant)

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