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 period ended March 31, 2020 (1Q20). The filing, submitted on May 11, 2020, reflects the severe impact of the global COVID-19 pandemic and Argentina's fragile macroeconomic environment. The Company applies International Accounting Standards 29 (IAS 29) for financial reporting in hyperinflationary economies, though certain comparative figures are presented excluding IAS 29 effects.
Key Financial Metrics
| Metric | 1Q20 (Ps. Millions) | 1Q19 (Ps. Millions) | YoY Change |
|---|---|---|---|
| Net Revenue | 7,765 | 11,034 | -29.6% |
| Gross Profit | 2,366 | 3,182 | -25.6% |
| Adjusted EBITDA | 2,602 | 3,169 | -17.9% |
| Adjusted EBITDA Margin | 33.5% | 28.7% | +479 bps |
| Net Profit | 881 | 1,583 | -44.4% |
| Net Profit Attributable to Owners | 857 | 1,504 | -43.0% |
| Earnings Per Share (EPS) | 1.4383 | 2.5237 | -43.0% |
| Net Debt | 14,562 | 7,281 | +100.0% |
| Net Debt / LTM Adjusted EBITDA | 1.26x | 0.89x | +0.37x |
| Cash and Cash Equivalents | 2,232 | 2,220 | +0.5% |
Cash Flow: Operating cash flow was Ps.295 million (down from Ps.854 million in 1Q19). Investing activities used Ps.4,061 million, primarily for the L'Amalí expansion. Financing activities generated Ps.3,311 million through net borrowings.
Material Changes vs. Prior Period
- Revenue Decline: Net revenue dropped 29.6% year-over-year, driven by a 26.9% decline in cement sales volumes in Argentina and a 70.4% plunge in concrete volumes due to construction halts.
- Margin Expansion: Despite lower volumes, Adjusted EBITDA margin expanded by 479 basis points to 33.5%, attributed to rigorous cost control and higher margins in the core cement segment.
- Debt Increase: Net debt doubled to Ps.14,562 million (from Ps.7,281 million in 1Q19) as the company secured working capital and funded capital expenditures. Total debt reached Ps.16,794 million.
- Profitability: Net profit fell 44.4% to Ps.881 million, impacted by lower revenues and higher financial expenses (up 42.5% YoY) due to increased interest rates and debt levels.
Outlook, Risks, and Management Commentary
Management Commentary: CEO Sergio Faifman highlighted the company's resilience during the pandemic. Production and the L'Amalí expansion project were temporarily suspended in March due to government lockdowns but resumed in early April under strict sanitation protocols. Management remains cautious regarding the speed of demand recovery.
Capital Expenditures: The company continues the L'Amalí plant expansion, originally estimated at US$350 million, which will add 2.7 million tons of annual capacity. 79% of 1Q20 capex was allocated to this project.
Risks and Contingencies:
- Pandemic Impact: Ongoing uncertainty regarding the breadth of demand recovery and potential delays to construction projects due to health protocols.
- Macroeconomic Conditions: Fragile economic situation in Argentina, high inflation, and exchange rate volatility.
- Debt Structure: 76% of total borrowings bear floating interest rates, exposing the company to interest rate fluctuations. 39% of debt is denominated in U.S. dollars.
Investor Verification Checklist
- Verify the sustainability of the 33.5% Adjusted EBITDA margin as construction volumes remain depressed.
- Monitor the trajectory of Net Debt, which doubled to Ps.14.6 billion, and the company's ability to service floating-rate debt in a high-interest environment.
- Assess the timeline for the L'Amalí expansion completion given potential pandemic-related delays.
- Review the impact of IAS 29 (hyperinflation accounting) on reported figures versus the non-IAS 29 figures provided in Table 1b.
- Track the recovery of concrete and aggregates segments, which saw volume declines exceeding 50%.