Business Context and Reporting Period
Loma Negra Compania Industrial Argentina Sociedad Anonima (NYSE: LOMA), the leading cement producer in Argentina, reported financial results for the three-month and twelve-month periods ended December 31, 2019. The filing, submitted on March 10, 2020, covers the fourth quarter (4Q19) and full year (FY19) performance. The company operates in a hyperinflationary environment, applying International Accounting Standards 29 (IAS 29) for its subsidiaries, though certain comparative figures are presented excluding this impact to facilitate analysis.
Key Financial Metrics
| Metric | 4Q19 (3 Months) | FY19 (12 Months) | Unit |
|---|---|---|---|
| Net Revenue | Ps. 9,074 million (US$147 million) | Ps. 38,952 million (US$660 million) | Pesos / USD |
| Adjusted EBITDA | Ps. 2,887 million (US$49 million) | Ps. 11,206 million (US$199 million) | Pesos / USD |
| Adjusted EBITDA Margin | 31.8% | 28.8% | % |
| Net Profit | Ps. 1,126 million | Ps. 4,044 million | Pesos |
| Net Profit Attributable to Owners | Ps. 1,050 million | Ps. 3,839 million | Pesos |
| Earnings Per Share (EPS) | Ps. 1.76 | Ps. 6.44 | Pesos |
| Net Debt | Ps. 9,659 million (US$161 million) | Ps. 9,659 million (US$161 million) | Pesos / USD |
| Net Debt / LTM Adjusted EBITDA | 0.86x | 0.86x | Ratio |
| Cash and Cash Equivalents | Ps. 2,567 million | Ps. 2,567 million | Pesos |
Material Changes vs. Prior Period
- Revenue Decline: 4Q19 net revenue decreased 15.0% year-over-year (YoY) to Ps. 9,074 million, driven by lower activity in Argentina's construction sector. FY19 revenue declined 5.5% YoY.
- Profitability Pressure: 4Q19 Adjusted EBITDA fell 13.1% YoY to Ps. 2,887 million. However, margins expanded 69 basis points to 31.8% due to cost-control initiatives. FY19 Adjusted EBITDA rose 2.3% YoY.
- Net Profit Volatility: 4Q19 Net Profit dropped 42.2% YoY to Ps. 1,126 million, largely due to higher financial expenses and exchange rate impacts. Conversely, FY19 Net Profit increased 34.8% YoY.
- Debt Increase: Net Debt more than doubled YoY to Ps. 9,659 million (from Ps. 4,709 million), raising the Net Debt/LTM Adjusted EBITDA ratio from 0.43x to 0.86x. This reflects increased capital expenditures and working capital needs.
- Volume Contraction: Cement, masonry, and lime sales volumes in Argentina fell 11.1% in 4Q19. Concrete volumes plummeted 51.5% YoY due to the suspension of public and private infrastructure projects.
Guidance, Outlook, and Management Commentary
Management highlighted that Argentina's business was impacted by macro-economic instability and political transition following the October 2019 elections. Despite these challenges, the company maintained profitability through cost-control and production footprint streamlining. Excluding non-recurrent costs related to these initiatives, FY19 Adjusted EBITDA would have been approximately US$209 million with a margin of 31.6%.
Outlook and Projects:
- L'Amalí Expansion: The company is proceeding with a US$350 million expansion project at its L'Amalí plant, expected to add 2.7 million tons of annual capacity. Start-up is projected for mid-2020. Significant progress was made in 4Q19, including the completion of kiln system erection.
- 2020 Focus: Management identified the policies of the new Argentine administration regarding financial stability and economic growth as key factors for 2020 performance.
- Capital Allocation: The Board recommended fully re-investing 2019 earnings and proposed a global program to issue Negotiable Bonds up to US$150 million.
Risks: The filing notes significant risks including global uncertainty, Argentina's economic conditions, inflation rates, exchange rate fluctuations, and changes in construction demand.
Investor Verification Checklist
- IAS 29 Impact: Verify the distinction between reported figures (including IAS 29 hyperinflation adjustments) and the "ex-IAS 29" figures provided in Table 1b and Table 11, as the latter often show stronger growth trends.
- Debt Composition: Confirm the currency breakdown of the Ps. 9,659 million net debt (43% USD, 26% ARS, 25% Guaranies, 6% EUR) and the 64% exposure to floating interest rates.
- Segment Performance: Review the divergence between the Cement segment (which saw EBITDA growth excluding IAS 29) and the Concrete segment (which turned negative in 4Q19).
- Capital Expenditure: Validate the allocation of Ps. 11,835 million in FY19 capex, 73% of which was dedicated to the L'Amalí expansion.
- Shareholder Meeting: Note the upcoming General Annual Ordinary and Extraordinary Shareholders' Meeting scheduled for April 16, 2020, to approve the bond issuance program.