Business Context and Reporting Period
This Form 6-K filing by Loma Negra Compania Industrial Argentina Sociedad Anonima covers the second quarter of 2020 (ended June 30, 2020), with the report dated August 11, 2020. The company operates in the cement, masonry, lime, concrete, aggregates, and railroad sectors across Argentina and Paraguay. Financial results are presented in Argentine Pesos (ARS) and converted to U.S. Dollars (USD) for convenience, noting that Argentina is classified as a hyperinflationary economy under IFRS (IAS 29).
Key Financial Metrics
- Net Revenues: ARS 7.45 billion (USD 108 million).
- Adjusted EBITDA: ARS 2.08 billion (USD 32 million).
- Net Majority Income: ARS 0.08 billion (USD 10 million).
- Consolidated Adjusted EBITDA Margin: 27.9% (expanded 204 basis points year-over-year).
- Gross Margin: 24.1% (contracted 151 basis points year-over-year).
- Cash Position: ARS 3.4 billion (USD 48 million).
- Net Debt: ARS 14.1 billion (USD 200 million).
- Net Debt to LTM Adjusted EBITDA: 1.17x.
- Operating Cash Flow: ARS 3.13 billion.
- Capital Expenditures: ARS 1.0 billion.
Material Changes vs. Prior Period
Results for 2Q20 were significantly impacted by the Covid-19 pandemic and adverse economic conditions in Argentina.
- Revenue: Declined 30.1% year-over-year (YoY). Argentine cement revenue fell 25.8% due to a 24.5% volume contraction, primarily in the bulk segment. Conversely, Paraguay cement revenue improved 3.3% YoY.
- Segment Performance: Concrete revenue dropped 92.6% and Aggregates revenue dropped 94.0% due to halted public and private works. Railroad revenue fell 36.1%.
- Profitability: Adjusted EBITDA decreased 24.6% YoY, though margins expanded due to favorable input costs and structural adequacy efforts. Net majority income plummeted 94.6% YoY, driven by a shift from a net financial gain in 2Q19 to a net financial loss in 2Q20, including ARS 560 million in foreign exchange losses.
- Cash Flow: Operating cash flow increased significantly to ARS 3.13 billion from ARS 1.43 billion in 2Q19, benefiting from lower working capital requirements.
Guidance, Outlook, and Risks
Management expects a recovery pathway that remains uncertain, dependent on the local economic turnaround and the progression of the pandemic. The company continues to operate under strict biosafety protocols. A strong rebound in the bagged cement segment was observed starting in May 2020.
- Projects: The L'Amalí expansion project resumed after a temporary suspension; start-up is now expected for the beginning of 2021.
- Liquidity Strategy: The company is focusing on liability and liquidity management with controllable short-term debt maturities.
- Risks: Key risks include changes in general economic and political conditions in Argentina, inflation rates, peso exchange rate fluctuations, and changes in construction demand and raw material/energy prices.
Investor Verification Checklist
- Verify the impact of IAS 29 (hyperinflation accounting) on reported figures versus "as previously reported" figures.
- Confirm the sustainability of the bagged cement segment recovery observed since May 2020.
- Monitor the timeline and capital requirements for the L'Amalí expansion project start-up in early 2021.
- Assess the company's ability to manage foreign exchange losses and interest rate fluctuations in the Argentine market.
- Review the specific debt maturity schedule to ensure alignment with the stated liquidity strategy.