Business Context and Reporting Period
Loma Negra Compania Industrial Argentina Sociedad Anonima, a leading cement and construction materials producer in Argentina, reported its financial results for the third quarter ended September 30, 2021, via a Form 6-K filed on November 15, 2021. The company operates in a hyperinflationary environment, requiring financial statements to be restated under IAS 29 to adjust for changes in the purchasing power of the Argentine peso. The report highlights strong demand in the construction sector, with cement volumes reaching all-time highs.
Key Financial Metrics
- Net Revenues: Ps. 17.8 billion (US$ 176 million), an 8.5% increase year-over-year.
- Adjusted EBITDA: Ps. 4.7 billion (US$ 51 million), a 9.1% decrease year-over-year.
- Net Profit: Ps. 1.5 billion (US$ 14 million), significantly lower than the prior year due to the absence of extraordinary gains.
- Margins: Consolidated Adjusted EBITDA margin contracted 512 basis points to 26.4%. Gross margin declined 222 basis points to 25.8%.
- Liquidity and Debt: The company maintained a net cash position of Ps. 0.3 billion (US$ 3 million). Total debt was Ps. 4.0 billion against cash of Ps. 4.3 billion.
- Leverage: Net Debt to Last Twelve Months (LTM) Adjusted EBITDA ratio was -0.02x, indicating a net cash position relative to earnings.
- Cash Flow: Operating cash flow generated Ps. 5.4 billion. Capital expenditures were Ps. 1.5 billion, with 36% allocated to the L'Amalí expansion.
Material Changes Versus Prior Period
- Revenue Growth: Driven by volume expansion across all segments. Cement, masonry, and lime volumes grew 8.4%. Concrete volumes surged 110.8% as the market recovered from pandemic lockdowns. Aggregates revenue jumped 47.5% due to volume and pricing recovery.
- Profitability Compression: Adjusted EBITDA declined 9.1% primarily due to higher energy costs, maintenance inputs, and a normalization of seasonal effects compared to an abnormally strong 3Q20. Cement segment margins contracted 484 basis points.
- Net Income Volatility: Net profit dropped from Ps. 9.8 billion in 3Q20 to Ps. 1.5 billion in 3Q21. The prior year included an extraordinary gain of Ps. 3,131 million from foreign exchange and a divestment in Paraguay, which were not present in the current quarter.
- Financial Costs: Net financial expenses increased to Ps. 323 million from Ps. 243 million in the prior year, driven by lower foreign exchange depreciation effects relative to inflation.
Guidance, Outlook, and Risks
- Outlook: Management expects cement demand to consolidate its positive trend, with ten-month accumulated figures near record levels. The L'Amalí expansion project's new line began dispatching cement in October with preliminary results exceeding expectations.
- Macro Risks: The mid-term growth path remains overshadowed by Argentina's macroeconomic challenges, including high inflation, exchange rate fluctuations, and general economic conditions.
- Operational Risks: Key risks include changes in construction demand, raw material and energy prices, and the impact of hyperinflation on financial reporting and purchasing power.
- Capital Allocation: The company repurchased shares totaling Ps. 630 million in the quarter and continues to invest in capacity expansion.
Investor Verification Checklist
- Verify the impact of IAS 29 hyperinflation accounting adjustments on reported revenue and profit figures versus "as previously reported" numbers.
- Confirm the sustainability of the 110.8% volume growth in the concrete segment as the market normalizes post-pandemic.
- Monitor the trajectory of energy costs and their effect on the cement segment's margin, which contracted significantly.
- Assess the company's ability to maintain a net cash position given the volatile Argentine peso and potential future debt maturities.
- Review the performance of the L'Amalí expansion project to ensure it meets the "above expectations" preliminary results cited by management.