Loma Negra Compania Industrial Argentina Sociedad Anonima current report, Q2 FY2021

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SEC Filing Summary: Loma Negra Compania Industrial Argentina Sociedad Anonima

Business Context and Reporting Period

This Form 6-K, filed on June 8, 2021, contains the unaudited consolidated condensed interim financial statements for the three-month period ended March 31, 2021. Loma Negra is an Argentine industrial company primarily engaged in the manufacturing and sale of cement, masonry cement, lime, concrete, and aggregates, as well as rail freight transportation through its subsidiary Ferrosur Roca S.A. The financial statements are presented in thousands of Argentine pesos (ARS) and have been restated for inflation in accordance with IAS 29.

Key Financial Metrics

Metric Q1 2021 Q1 2020
Revenues 13,175,464 9,734,301
Gross Profit 4,775,645 2,966,385
Net Profit (Continuing Ops) 2,567,591 999,701
Net Profit (Total) 2,567,591 1,256,045
Operating Cash Flow 2,928,867 159,893
Total Assets 81,224,554 80,135,459
Total Liabilities 27,642,154 28,865,424
Shareholders' Equity 53,582,400 51,270,035
Net Debt 640,095 2,332,807
Net Debt to Equity Ratio 0.01 0.05

Note: All figures are in thousands of Argentine pesos.

Material Changes vs. Prior Period

  • Revenue Growth: Revenues increased by approximately 35% year-over-year, driven by a 38% increase in cement and lime dispatches (1.38 million tons vs. 1.00 million tons).
  • Profitability Surge: Net profit from continuing operations more than doubled, rising from 999,701 to 2,567,591. This was aided by a significant "Gain on net monetary position" of 558,022 due to inflation adjustments, compared to 176,321 in the prior year.
  • Financial Results: Net financial results improved from a loss of 570,294 in Q1 2020 to a gain of 141,410 in Q1 2021, largely due to reduced foreign exchange losses and lower interest expenses relative to the prior period.
  • Cash Flow: Operating cash flow improved dramatically to 2,928,867 from 159,893, reflecting strong operational performance and working capital management.
  • Discontinued Operations: The prior year included net profit from discontinued operations (Yguazú Cementos S.A.) of 256,344. This segment was sold in August 2020 and is not present in the current period.

Outlook, Risks, and Management Commentary

  • Capital Allocation: The Board approved a treasury stock repurchase plan in February 2021. As of March 31, 2021, the company acquired 2,644,608 shares for a total value of 475,945. The goal is to return value to shareholders given the attractive share price.
  • Dividend Policy: In April 2021, shareholders modified the "Optional Reserve" to allow for future dividend distributions, allocating 11,351,024 of unallocated results to this reserve.
  • Investment Projects: Construction of the L'Amalí II cement plant in Olavarría continues under strict health protocols. As of March 31, 2021, investments in this project totaled 27,043,056.
  • Risks:
    • Macroeconomic Environment: Argentina faces high inflation (13% in Q1 2021) and a significant gap between official and free-market exchange rates. The company is exposed to foreign currency risk, with liabilities significantly exceeding assets in USD and EUR.
    • COVID-19: While operations have resumed, the second wave of infections in early 2021 led to renewed restrictions in Buenos Aires, potentially impacting economic activity and the construction sector.
    • Rail Concession: The concession for Ferrosur Roca S.A. is subject to renegotiation with the government to mitigate business impacts, though no formal process has been initiated.

Investor Verification Checklist

  • Inflation Adjustments: Verify the impact of IAS 29 restatements on reported profits, specifically the "Gain on net monetary position," which significantly boosted Q1 2021 earnings.
  • Currency Exposure: Review the sensitivity analysis regarding a 25% increase in USD and EUR exchange rates, which could result in a loss of over 1.2 million ARS.
  • Treasury Stock: Confirm the remaining capacity under the 750 million ARS buyback plan and the impact on diluted earnings per share.
  • Discontinued Operations: Ensure comparisons with prior years exclude the Yguazú Cementos S.A. segment to accurately assess organic growth.
  • Debt Maturity: Assess the schedule of foreign currency borrowings, with significant maturities due in 2021 and 2022, against the company's liquidity position.