Business Context and Reporting Period
Company: Loma Negra Compania Industrial Argentina Sociedad Anonima (NYSE: LOMA)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Third Quarter (3Q) and Nine Months ended September 30, 2019.
Business Overview: Loma Negra is the leading cement producer in Argentina, with operations in cement, masonry, lime, concrete, aggregates, and railroad logistics. The company also holds a 51% stake in a cement plant in Paraguay. Financial results are reported applying International Accounting Standards 29 (IAS 29) for hyperinflationary economies, though certain tables present figures excluding IAS 29 for comparability.
Key Financial Metrics (3Q19)
| Metric | 3Q19 (Ps. Millions) | 3Q19 (US$ Millions) | YoY Change (Ps.) |
|---|---|---|---|
| Net Revenue | 9,178 | 172 | -7.6% |
| Adjusted EBITDA | 2,645 | 52 | +2.7% |
| Adjusted EBITDA Margin | 28.8% | 30.0% (Excl. IAS 29) | +289 bps |
| Net Profit | 60 | (8) | Turnaround from Loss |
| Net Debt | 9,062 | 157 | +29.1% |
| Net Debt / LTM Adj. EBITDA | 0.87x | 0.87x | 0.13x Increase |
| Cash Flow from Operations | 3,577 | N/A | +18.2% |
Note: US$ figures are derived using average exchange rates and exclude IAS 29 impacts where noted in the source text.
Material Changes vs. Prior Period
- Revenue Decline: Net revenue decreased 7.6% YoY to Ps. 9,178 million, driven by lower volumes in the Cement and Concrete segments in Argentina due to macroeconomic volatility and softer demand.
- Profitability Expansion: Despite revenue declines, Adjusted EBITDA increased 2.7% YoY to Ps. 2,645 million. Adjusted EBITDA margin expanded 289 basis points to 28.8% (or 30.0% excluding IAS 29 effects), driven by cost-control initiatives and production footprint optimization.
- Net Profit Recovery: The company returned to profitability with a Net Profit of Ps. 60 million, compared to a loss of Ps. 144 million in 3Q18. This was aided by a gain on net monetary position of Ps. 276 million.
- Volume Trends: Cement sales in Argentina dropped 7.5% YoY. Concrete volumes fell sharply by 33.9% YoY. Conversely, Aggregates volumes increased 4.7% YoY.
- Debt Position: Net Debt increased to Ps. 9,062 million (from Ps. 7,022 million in 3Q18), primarily due to capital expenditures for the L'Amalí plant expansion and lower cash balances.
Guidance, Outlook, and Risks
- Management Commentary: CEO Sergio Faifman noted that unexpected election results in August caused high financial and economic volatility, eroding incipient recovery. The company remains focused on cost control and optimizing its production footprint.
- Capital Projects: The L'Amalí plant expansion is on schedule to kick in during 2Q20. This project aims to add 2.7 million tons of annual capacity. Total estimated capital expenditure is approximately US$350 million. In 3Q19, Ps. 2,336 million was allocated to this project.
- Outlook Factors: Future performance depends heavily on policies adopted by the new Argentine administration to reestablish financial stability and economic growth.
- Risks: Key risks include macroeconomic volatility, exchange rate fluctuations (Peso depreciation), changes in inflation rates, and fluctuations in construction demand. The company faces significant exposure to foreign exchange differences, which resulted in a Ps. 1,510 million loss in 3Q19.
- Unusual Items: The quarter included non-recurrent production-footprint adequacy costs of approximately Ps. 61 million related to the reconversion of the San Juan facility.
Investor Verification Checklist
- IAS 29 Impact: Verify the distinction between reported figures (including IAS 29 hyperinflation adjustments) and operational figures (excluding IAS 29) to accurately assess underlying business performance.
- Exchange Rate Sensitivity: Monitor the Argentine Peso/USD exchange rate, as significant depreciation impacts reported USD revenue and creates substantial foreign exchange losses in the P&L.
- L'Amalí Project Execution: Confirm the timeline and cost adherence for the L'Amalí expansion, which is critical for future capacity and margin growth.
- Debt Maturity and Currency Mix: Review the debt composition (42% USD, 28% Guaraníes, 26% Pesos) and the average duration (1.4 years) to assess refinancing risks in a volatile currency environment.
- Concrete Segment Volatility: Investigate the 33.9% drop in concrete volumes to understand the extent of the slowdown in public and private infrastructure projects.