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 second quarter ended June 30, 2021. The filing, submitted on August 13, 2021, highlights a recovery in core business demand exceeding pre-pandemic levels. The company operates in a hyperinflationary environment, applying IAS 29 accounting standards, though it also provides figures excluding these adjustments for comparability.
Key Financial Metrics
- Revenue: Net revenues increased 46.6% year-over-year (YoY) to AR$ 14.3 billion (approx. US$ 147 million).
- Profitability: Adjusted EBITDA rose 74.1% YoY to AR$ 4.3 billion (approx. US$ 48 million). Consolidated Adjusted EBITDA margin expanded 483 basis points to 30.5%.
- Net Income: The company reported a net majority loss of AR$ 1.2 billion, primarily due to a one-off AR$ 3.0 billion deferred tax charge resulting from an income tax rate increase.
- Margins: Gross margin expanded 664 basis points to 30.1%.
- Debt and Liquidity: Net debt stood at AR$ 2.5 billion (US$ 26 million) as of June 2021. The Net Debt to LTM Adjusted EBITDA ratio was 0.13x. Cash and cash equivalents totaled AR$ 2.9 billion.
- Cash Flow: Operating cash flow was negative AR$ 28 million, driven by income tax payments and seasonal working capital needs. Investing activities used AR$ 1.2 billion, and financing activities used AR$ 2.3 billion.
Material Changes vs. Prior Period
- Volume Growth: Cement, masonry, and lime volumes grew 39.5% YoY. Concrete volumes surged 583.6% as lockdown restrictions eased. Aggregates volumes increased 620.1%.
- Segment Performance:
- Cement: Revenue up 43.4% with positive pricing and operational leverage.
- Concrete: Revenue up 491.7%, though margins remain negative (-6.8%) due to recovery costs.
- Railroad: Revenue up 23.5% with volume growth of 69.2%, though margin deteriorated to 4.9% due to sales mix.
- Aggregates: Revenue surged 1,000.1% with margin improvement to 7.7%.
- Financial Expenses: Net financial expenses declined by AR$ 381 million to AR$ 453 million, aided by lower foreign currency debt and a real appreciation of the peso.
- Capital Allocation: The company repurchased shares totaling AR$ 511 million in the quarter.
Outlook, Risks, and Management Commentary
- Guidance: Management expects moderate growth versus pre-pandemic levels by year-end 2021, driven by continued cement demand recovery and improvements in the bulk segment.
- Operational Updates: A new kiln at the L'Amalí plant started up in June, with the second line expected to reach full start-up in September. A new cement mill and dispatch center are nearing completion.
- Risks: Key risks include Argentina's high inflation, exchange rate fluctuations, changes in construction demand, and raw material/energy price volatility. The company notes that forward-looking statements are subject to these uncertainties.
- Unusual Items: The net loss for the quarter was significantly impacted by a non-recurring deferred tax expense of AR$ 3.0 billion due to legislative changes in income tax rates.
Investor Verification Checklist
- Verify the impact of the AR$ 3.0 billion deferred tax charge on the reported net loss versus underlying operational performance.
- Confirm the sustainability of the 30.5% Adjusted EBITDA margin given rising energy input costs mentioned in the cement segment.
- Monitor the timeline for the full start-up of the L'Amalí second line and its contribution to capacity.
- Assess the company's exposure to Argentine peso devaluation and inflation given the hyperinflationary accounting adjustments (IAS 29).
- Review the status of the Ferrosur Roca railway concession, which expires in March 2023.