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 six-month periods ended June 30, 2019 (2Q19). The filing, submitted on August 8, 2019, covers operations in Argentina and Paraguay. The Company applies International Accounting Standards 29 (IAS 29) for financial reporting due to Argentina's hyperinflationary economy, though certain comparative figures are presented excluding this impact.
Key Financial Metrics
| Metric | 2Q19 (3 Months) | 2Q18 (3 Months) | YTD 2019 (6 Months) | YTD 2018 (6 Months) |
|---|---|---|---|---|
| Net Revenue (Ps. Million) | 7,470 | 7,637 | 15,615 | 15,495 |
| Net Revenue (US$ Million) | 165 | 202 | 347 | 430 |
| Adjusted EBITDA (Ps. Million) | 1,929 | 1,801 | 4,268 | 3,785 |
| Adjusted EBITDA Margin | 25.8% | 23.6% | 27.3% | 24.4% |
| Net Profit (Ps. Million) | 1,100 | 176 | 2,268 | 967 |
| Net Profit (US$ Million) | 16 | 8 | 42 | 34 |
| Earnings Per Share (Ps.) | 1.79 | 0.29 | 3.65 | 1.52 |
| Net Debt (Ps. Million) | 6,967 | 5,874 | 6,967 | 5,874 |
| Net Debt / LTM EBITDA | 0.76x | 0.62x | 0.76x | 0.62x |
| Cash from Operations (Ps. Million) | 986 | (164) | 1,597 | (256) |
Material Changes vs. Prior Period
- Profitability Surge: Net profit increased 525.4% year-over-year in 2Q19 to Ps.1,100 million, driven primarily by a significant gain on the net monetary position (Ps.349 million) and favorable exchange rate differences (Ps.290 million) due to exchange rate stability, compared to losses in these categories in 2Q18.
- Revenue Decline: Net revenue decreased 2.2% YoY to Ps.7,470 million. In US dollar terms, revenue fell 18.4% due to the depreciation of the Argentine Peso against the US Dollar (average rate Ps.44.04 vs. Ps.23.54).
- EBITDA Expansion: Adjusted EBITDA rose 7.1% YoY to Ps.1,929 million. Excluding non-recurrent production-footprint adequacy costs of Ps.188 million, Adjusted EBITDA would have been Ps.2,117 million with a margin of 28.3%.
- Volume Trends: Cement, masonry, and lime sales volumes in Argentina declined 10.4% YoY to 1.33 million tons. Concrete volumes dropped 12.8% YoY. Conversely, Aggregate volumes increased 18.5% YoY.
- Debt Position: Net Debt increased 18.6% YoY to Ps.6,967 million, reflecting capital expenditures. The Net Debt to LTM Adjusted EBITDA ratio increased to 0.76x from 0.62x.
Guidance, Outlook, and Management Commentary
- Operational Efficiency: Management highlighted a strategic adjustment of the production footprint by reconverting the Barker facility into a grinding and distribution center to improve efficiency and agility.
- Market Outlook: While cement demand in Argentina declined in 2Q19, it remained flat sequentially. Management noted recent months of year-over-year growth and expressed optimism that this trend will continue.
- Expansion Project: The L'Amalí expansion project is on schedule to commence operations in 2Q20. This project aims to add 2.7 million tons of annual capacity. Total capital expenditure is estimated at approximately US$350 million. Additions to Property, Plant, and Equipment related to this project in 2Q19 amounted to Ps.2,279 million.
- Risks: The filing includes standard forward-looking statement disclaimers regarding risks such as changes in economic conditions in Argentina, inflation rates, exchange rate fluctuations, and construction demand levels.
Investor Verification Checklist
- IAS 29 Impact: Verify the distinction between reported figures (including hyperinflation adjustments) and non-IAS 29 figures, as the latter shows significantly higher growth rates (e.g., Adjusted EBITDA up 69.8% excluding IAS 29).
- Non-Recurrent Costs: Confirm the nature and timing of the Ps.188 million non-recurrent charge related to the Barker facility reconfiguration.
- FX Sensitivity: Assess the impact of the Argentine Peso's volatility on US dollar-denominated revenue and debt service, noting the average exchange rate moved from Ps.23.54 in 2Q18 to Ps.44.04 in 2Q19.
- Capital Expenditure: Monitor the progress and cost overruns of the L'Amalí expansion, which consumed Ps.2,279 million in 2Q19 alone.
- Debt Maturity: Review the debt composition, noting 65% of borrowings bear floating interest rates and the average duration is 1.4 years.