Business Context and Reporting Period
Company: Loma Negra Compania Industrial Argentina Sociedad Anonima (NYSE: LOMA)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Third quarter and nine months ended September 30, 2018.
Business Overview: Loma Negra is the leading cement producer in Argentina, with operations in cement, masonry, lime, concrete, aggregates, and railroad logistics. It also holds a 51% stake in a cement plant in Paraguay. The company operates in a hyperinflationary environment (Argentina) but has not yet adopted IAS 29 adjustments due to local regulatory prohibitions.
Key Financial Metrics (3Q18)
| Metric | 3Q18 (ARS Millions) | 3Q18 (USD Millions) | YoY Change (ARS) |
|---|---|---|---|
| Net Revenue | 6,131 | 192 | +47.2% |
| Gross Profit | 1,854 | - | +59.3% |
| Gross Margin | 30.2% | - | +229 bps |
| Adjusted EBITDA | 1,699 | 53 | +69.0% |
| Adjusted EBITDA Margin | 27.7% | - | +357 bps |
| Net Profit | 118 | 4 | -62.7% |
| Net Profit Attributable to Owners | 101 | - | -65.9% |
| Earnings Per Share (EPS) | 0.1691 | - | -67.6% |
| Net Debt | 4,573 | 112 | +12.5% |
| Net Debt / LTM Adj. EBITDA | 0.88x | - | -0.28x |
Material Changes vs. Prior Period
- Revenue Growth: Driven by a favorable pricing environment in Argentina (+41.5% revenue) and Paraguay (+72.7% revenue), despite volume declines in cement (-6.2% in Argentina, -4.8% in Paraguay). Concrete volumes in Argentina surged 42.7% to record levels.
- Profitability: Adjusted EBITDA margins expanded significantly (357 bps) due to price increases outpacing cost inflation. However, Net Profit declined 62.7% YoY primarily due to a massive non-cash foreign exchange loss of Ps.1,041 million caused by the Argentine peso depreciation (41.7% in the quarter).
- Cost Structure: Cost of sales rose 42.5% YoY, reflecting higher thermal and electricity costs driven by currency depreciation. SG&A expenses rose 32.3% but declined as a percentage of revenue to 6.7%.
- Balance Sheet: Total debt increased to Ps.7,334 million, with 49% denominated in USD. Cash and cash equivalents rose to Ps.2,760 million, improving liquidity.
Guidance, Outlook, and Risks
- Outlook: Management remains "cautiously optimistic," expecting full-year 2018 industry cement demand to be similar to 2017 levels despite recent contraction. The strategy focuses on balancing growth and profitability.
- Capital Projects: The L'Amalí plant expansion is progressing, with a total estimated cost of US$350 million and completion expected in early 2020. This will add 2.7 million tons of annual capacity.
- Accounting Risk (IAS 29): The filing explicitly states that financial results do not include adjustments for hyperinflation (IAS 29) as required by IFRS but prohibited by Argentine law. Management estimates the effect of adopting IAS 29 could be "significant," creating uncertainty regarding the comparability of reported figures to international standards.
- Macroeconomic Risks: Significant exposure to Argentine peso volatility, inflation, and changes in construction demand. The company faces high interest rate exposure on floating-rate debt (56% of total borrowings).
Investor Verification Checklist
- IAS 29 Impact: Verify the magnitude of potential restatements once IAS 29 hyperinflation adjustments are adopted, as current figures may not reflect economic reality under IFRS.
- Currency Exposure: Assess the sustainability of margins given the 41.7% peso depreciation in the quarter and the 49% of debt denominated in USD.
- Volume Trends: Monitor the divergence between revenue growth (price-driven) and volume declines (-6.1% cement volumes) to gauge market share retention.
- Debt Maturity: Review the average debt duration (1.8 years) and the proportion of floating-rate debt (56%) in the context of rising interest rates in Argentina.
- Capex Execution: Track the L'Amalí expansion progress and cash burn, as 39% of 9M18 capex was allocated to this project.