Loma Negra Compania Industrial Argentina Sociedad Anonima (LOMA) CEO Sergio Faifman on Q1 2022 Results - Earnings Call Transcript

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Loma Negra Compania Industrial Argentina Sociedad Anonima (NYSE:LOMA) Q1 2022 Earnings Conference Call May 9, 2022 4:00 PM ET

Company Participants

Diego Jalon - Head of IR

Sergio Faifman - Vice-President of Board and CEO

Marcos Gradin - CFO

Conference Call Participants

Alejandra Obregon - Morgan Stanley


Good afternoon, and welcome to the Loma Negra First Quarter 2022 Conference Call and Webcast. [Operator Instructions]

Also, Mr. Sergio Faifman will be responding in Spanish immediately following an English translation. [Operator Instructions]

Please note that this event is being recorded. I would now like to turn the conference over to Mr. Diego Jalon, Head of IR. Please go ahead, sir.

Diego Jalon

Thank you. Good afternoon, 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 last Friday after market close.

Joining me on the call this afternoon 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 I turn the call over to Sergio, 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 filings 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 to the corresponding financial measures is included in the earnings press release.

Now I would like to turn the call over to Sergio Faifman.

Sergio Faifman

Thank you, Diego. Hello, everyone, and thank you for joining us today. I will 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 3. We are glad to witness a robust start of the year in this first quarter. Segment volumes are growing strongly, and we are enthusiastic about our business performance. As you all saw from our release issued on Friday, our adjusted EBITDA for the quarter reached $60 million compared with $52 million in first quarter '21, when measured in pesos it showed a decline of 11% year-on-year, sustained by our operational standard and production efficiency, we managed to continue delivering world-class profitability results.

With consolidated adjusted EBITDA margin of 33.6%, a remarkable U.S. dollar EBITDA per ton of $39.5, 3% above 2021 first quarter. During this quarter, our teams worked at a good pace to strengthen our clinker stock that will allow us to attain demand in winter months and minimize the impact of switch to more expensive energy input.

Finally, leverage on the solid balance sheet of Loma in April, we paid a dividend of approximately $45 million. 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

Thank you, Sergio. Good afternoon, everyone. As you can see on Slide 4, after the GDP growth of 2021, that stood at 10.3%, recovering the growth of 2020, 2022 shows a more moderate growth for the economy with estimates reaching 3.2%. In this context, construction activity measured by the ISAC still shows a strong momentum for the sector, with figures above general economy level, particularly regarding the cement national industry sales, we are off to a good start for the year. After January, that was affected by the weather, February and March showed a solid demand that pushed the industry growth near 7% for the quarter. April figures showed a same tendency, increasing 9.8%. What make us believe that if this trend continue, 2022 is going to set an industry record.

Bagged cement volumes remain solid on the back of residential demand. But this quarter, growth came especially from the bulk dispatches. Medium and small-sized infrastructure works, both public and private, added [Indiscernible] to the industry and made bulk cement recovered 3 points against bag cement when we saw the breakdown by dispatch mode.

For the year, we remain causally optimistic as economy growth in Argentina is overshadowed by short-term macroeconomic challenges and its outcome will surely impact future level of activity.

Turning to Slide 5 for a review of our top line performance by segment. Top line was down 5.5% in this quarter, mainly due to a decrease in cement and concrete revenues, partially offset by aggregates and railroad. Cement, masonry cement and lime segment was down 6.5% with volumes expanding 6.6% year-on-year with a softer pricing dynamic.

Concrete revenues decreased 17.5% in the quarter. Volumes dropped due to an extraordinary infrastructure work in first quarter 2021, partially compensated by a good price performance. Concrete segment is still affected due to the lack of relevant infrastructure work in the markets where we operate.

Aggregates showed sharp revenues recovery of 89%. Volumes expanded 35.6% on the back of roadworks demand in the province of Buenos Aires, coupled with our recovery in pricing. Finally, Railroad revenues increased 10.8% during the quarter versus the same quarter in 2021. Transported volumes were up 6.2%, boosted by construction materials coupled with a good price performance.

Moving on to Slide 7. Consolidated gross profit for the quarter declined 13% year-on-year with margin contracted by 288 basis points to 33.4%, mainly impacted by a lower top line performance of our core segment, a higher depreciation to the completion of L´Amalí second line.

Cement gross margin contraction was slightly offset by a better performance of concrete and aggregates.

SG&A expenses as a percentage of revenues increased by 127 basis points to 9.5% from 8.2%, mainly due to higher marketing, insurance and IT expenses.

Please turn to Slide 8. Our adjusted EBITDA for the fourth quarter stood at $60 million, up 13.9% from $52 million in the same quarter a year ago, boosted by our top line. In pesos, EBITDA was down 11.2% in the quarter, reaching ARS 6.5 billion with consolidated EBITDA margin of 33.6%, contracting by 214 basis points year-on-year.

Cement segment adjusted EBITDA reached 37.4% margin contracting by 332 basis points, mainly due to a softer pricing dynamic, partially offset by lower production costs due to principally lower maintenance costs and an increase in sales volume.

On a per ton basis, EBITDA reached a top-notch level of $39.5 per ton, increasing 3.3% from first quarter of 2021. Concrete adjusted EBITDA increased by ARS 166 million compared to first quarter '21, mainly explained by a positive pricing performance with margin expansion of 924 basis points, almost reaching positive grounds from last year's negative figures.

Aggregates adjusted EBITDA improved by -- from negative ARS 23 million in first quarter of 2021 to negative ARS 18 million in first quarter '22, showing still a negative margin of 4.6%, favored by a pricing mix and higher sales volume.

Finally, railroad adjusted EBITDA increased ARS 51 million to ARS 97 million for the quarter with a margin of 5.9%, mainly due to the impact of its top line performance.

Moving on to the bottom line on Slide 10. Our profit from continuing operations stood at ARS 3.1 billion, decreasing 21% year-on-year, mainly due to a lower operating result.

Total finance gains stood at ARS 0.2 billion in first quarter 2022 with no significant changes when compared to the same quarter last year where the decrease of the net financial expense compensated the loss in exchange rate difference.

As mentioned, our net financial expense decreased by ARS 0.2 billion to ARS 0.5 billion compared to same quarter last year, driven by lower average debt and lower FX depreciation effect compared with the evolution of inflation rate. Measured in U.S. dollars, our net income for the first quarter was $41 million compared to $37 million in the first quarter 2021.

Moving on to the balance sheet and cash generation. As you can see on Slide 11, we ended the quarter with a cash position of ARS 5.1 billion and total debt at ARS 1 billion. Consequently, our net debt-to-EBITDA ratio stood at negative 0.15x compared to negative 0.12x at the end of 2021. During the quarter, we continued reducing our debt in $15 million, standing at just $9 million, most of which is denominated in U.S. dollars.

Additionally, we continue with our share repurchase program. We acquired shares for a total amount of ARS 0.6 billion in the quarter. Our operational cash generation stood at ARS 2.3 billion reflecting a lower profitability, coupled with higher working capital needs.

Regarding capital expenditures, we spent ARS 0.6 billion, significantly reducing the capital requirements after the completion of the L´Amalí expansion approach.

Leverage on our strong balance sheet and continuing with actions standing to return value to our shareholders. In April, we decided to pay a $45 million dividend.

Now for our final remarks, I would like to hand the call back to Sergio.

Sergio Faifman

Thank you, Marcos. Now to finalize the presentation, I please ask you to turn to Slide 13. As we mentioned before, 2022 is off to a good start after the strong volume of 2021. The first 4 months of the year show a significant growth with a tendency that we believe is going to continue [Indiscernible] macroeconomic uncertainty show us a new record for the industry at the end of the year. The geopolitical disruption that affect, in particular, the energy market and put pressure in our industry is yet to be resolved, but we leverage in our recent increase in capacity and operational efficiency to continue delivering strong results.

On the local side, political and macroeconomical challenge could overshadow economic growth. Present high inflation [Indiscernible] in the FX side could hurt the level of activity. As always, Loma we'll continue to focus on delivering [consistent] results.

Last but not least, I would like to thank all our people and stakeholders without whom this set of solid results will have been very difficult to achieve. We are now ready to take your questions. Operator, please open the call for questions.

Question-and-Answer Session


[Operator Instructions] Also, please note that Mr. Sergio Faifman will be responding in Spanish immediately following an English translation.

[Operator Instructions] And our first question today will come from Alejandra Obregon with Morgan Stanley.

Alejandra Obregon

So you mentioned, I think, in your release in your earlier remarks about softer pricing dynamics. So I was just hoping if you could elaborate a little bit more on what you're seeing in terms of pricing strategies. What you're expecting in terms of pricing for the following quarters and more specifically around competitive dynamics and what's driving these softer trends? And then I have a follow-up, but I might ask that after this question.

Sergio Faifman

Alexander, thank you for your question. As always, we say that our policy about pricing is based in 3 concepts. Inflation in general, inflation of internal cost of Loma Negra and EBITDA margin.

Regarding pricing is in line with these 3 concepts that I mentioned before. And some of these concepts are going to probably impact more ahead in the year.

Alejandra Obregon

Understood. That was clear. And maybe a second question, if I may, that has to do with the strong performance, your balance sheet that is very solid and your cash generation. I was just trying to understand if there could be more buybacks or perhaps more dividends or maybe you could be thinking about growth on bolt-on acquisitions or particular or specific investments, anything that can help us understand what you're thinking in terms of cash allocation and your future opportunities that will be very helpful?

Sergio Faifman

All the items that you mentioned are in our radar. We Continue with the program of buyback shares. We are analyzing future dividend payments. And also M&A acquisitions even in Argentina or abroad. And maybe, as we mentioned before, some investment in energy, electric energy.

Alejandra Obregon

Understood when you say electric energy, does that mean shifting into renewables or any other type of project?

Sergio Faifman

Yes, renewable energy [Indiscernible].

Alejandra Obregon

Congratulations on the numbers.


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

Diego Jalon

Thank you. Well, I would like to thank you all for joining us today. We really appreciate your interest in our company. And we are looking forward to meeting you again in our next conference call. Till then, the team remains available for any questions that you may have. Thank you. Bye.


The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.

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