Business Context and Reporting Period
Company: Loma Negra Compania Industrial Argentina Sociedad Anonima (NYSE: LOMA)
Filing Type: Form 6-K (Press Release)
Reporting Period: Fourth Quarter (Q4) and Full Year (FY) ended December 31, 2017.
Business Overview: Loma Negra is the leading cement producer in Argentina, with operations in cement, masonry, lime, concrete, aggregates, and railroad transport. The company also holds a 51% controlling stake in Yguazu Cementos in Paraguay, which was fully consolidated starting January 1, 2017.
Key Financial Metrics
All figures in millions of Argentine Pesos (Ps.) unless noted.
| Metric | Q4 2017 | Q4 2016 | FY 2017 | FY 2016 |
|---|---|---|---|---|
| Net Revenue | 4,452 | 2,834 | 15,287 | 9,874 |
| Gross Profit | 1,295 | 826 | 4,436 | 2,610 |
| Gross Margin | 29.1% | 29.1% | 29.0% | 26.4% |
| Adjusted EBITDA | 1,199 | 765 | 3,942 | 2,350 |
| Adjusted EBITDA Margin | 26.9% | 27.0% | 25.8% | 23.8% |
| Net Profit | 692 | 225 | 1,700 | 502 |
| Net Profit Attributable to Owners | 665 | 207 | 1,591 | 491 |
| Earnings Per Share (EPS) | 1.14 | 0.37 | 2.79 | 0.87 |
| Net Debt | 1,184 | 3,536 | 1,184 | 3,536 |
| Net Debt / Adjusted EBITDA | 0.30x | 1.50x | 0.30x | 1.50x |
Cash Flow (FY 2017): Net cash generated from operating activities was Ps.3,220 million. Net cash used in investing activities was Ps.1,258 million (primarily capital expenditures). Net cash generated from financing activities was Ps.298 million, driven by Ps.1,867 million in net IPO proceeds.
Material Changes vs. Prior Period
- Revenue Growth: Q4 2017 revenue increased 57.1% YoY, driven by a 14.0% increase in sales volume in Argentina and price increases. FY 2017 revenue grew 54.8%.
- Profitability Surge: Net profit increased 207.7% in Q4 and 238.7% for the full year. This was aided by a decline in the effective tax rate to 14% in Q4 (from 37% in Q4 2016) due to Argentina's tax reform and the consolidation of Yguazu Cementos (10% tax rate).
- Debt Reduction: Net debt decreased 66.8% to Ps.1,184 million, reducing the Net Debt/Adjusted EBITDA ratio from 1.50x to 0.30x. This improvement reflects Ps.1,867 million in net proceeds from the company's IPO.
- Volume Expansion: Total cement, masonry, and lime sales volume increased 22.5% in Q4 (1.89 million tons) and 18.6% for the full year (6.99 million tons). Concrete volumes in Argentina surged 53.8% in Q4.
- Consolidation Impact: Starting Jan 1, 2017, Yguazu Cementos (Paraguay) was fully consolidated, contributing Ps.284 million in revenue and Ps.120 million in Adjusted EBITDA for Q4 2017.
Guidance, Outlook, and Management Commentary
- Outlook: Management expects the Argentine economic recovery to continue in 2018, particularly in the construction sector (private and infrastructure), though growth may not be as rapid as in 2017.
- Expansion Projects:
- L'Amalí Plant: Expansion to increase capacity by 2.7 million tons annually (40% increase). Estimated cost is US$350 million, with completion expected in early 2020.
- Aggregates: A new crusher is anticipated to begin production in Q2 2018, doubling production capacity.
- Capital Allocation: The Board recommended fully re-investing 2017 earnings. Capital expenditures for FY 2017 totaled Ps.1,261 million.
- Risks: Forward-looking statements are subject to risks including changes in economic conditions in Argentina, inflation rates, exchange rate fluctuations (Peso vs. USD), and changes in construction demand.
Investor Verification Checklist
- Exchange Rate Sensitivity: Verify the impact of Argentine Peso devaluation on USD-denominated financial metrics and future debt servicing costs (43% of debt is USD-denominated).
- Tax Rate Sustainability: Confirm the long-term impact of the new Argentine tax reform (rates dropping to 30% in 2018/2019 and 25% thereafter) on future net profit margins.
- Capital Expenditure Execution: Monitor the progress and cost overruns of the L'Amalí plant expansion (US$350 million project) and the new aggregates crusher.
- Debt Maturity Profile: Review the average duration of debt (2.0 years) and the proportion of floating-rate debt (57%) to assess interest rate risk.
- Volume vs. Price Mix: Analyze the sustainability of the 14% volume growth in Argentina and the ability to maintain price increases in a recovering market.