Business Context and Reporting Period
Company: Loma Negra Compania Industrial Argentina Sociedad Anonima (Loma Negra Corporation)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Three months ended March 31, 2019
Business Overview: The Company manufactures and markets cement, masonry cement, lime, and by-products, and explores mineral resources. It operates 9 cement factories and 21 concrete plants in Argentina, with additional operations in Paraguay (Yguazú Cementos S.A.) and rail freight services (Ferrosur Roca S.A.).
Key Financial Metrics (Three Months Ended March 31, 2019)
All figures in Argentine Pesos (ARS) unless otherwise noted.
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Net Revenues | 7,437,581,594 | 7,175,980,991 |
| Gross Income | 2,144,599,654 | 1,667,101,188 |
| Net Income | 1,067,223,712 | 722,606,505 |
| Net Income (Parent Company) | 1,013,880,370 | 670,866,044 |
| Earnings Per Share (Basic & Diluted) | 1.7011 | 1.1256 |
| Operating Cash Flow | 557,571,286 | (83,843,062) |
| Investing Cash Flow | (1,904,363,668) | (1,407,819,882) |
| Financing Cash Flow | (421,620,353) | (246,891,205) |
| Total Debt | 6,404,108,966 | 6,664,972,011 |
| Cash and Equivalents | 1,496,526,826 | 3,243,645,399 |
| Net Debt | 4,907,582,140 | 3,421,326,612 |
| Net Debt to Equity Ratio | 0.25 | 0.18 |
Material Changes vs. Prior Period
- Revenue Growth: Net revenues increased by 3.6% to ARS 7.44 billion. This was driven by a marked increase in the concrete and cement channel in Paraguay, offsetting a decrease in cement sales volume in Argentina.
- Profitability Surge: Net income rose 47.7% to ARS 1.07 billion. Gross income increased 28.6% due to improved margins and volume in Paraguay.
- Volume Decline: Total cement and lime dispatches decreased 11.6% year-over-year to 1.52 million tons. Argentina sales volume dropped to 1.37 million tons from 1.58 million tons.
- Financial Expenses: Net financial loss widened to ARS 134.4 million (from ARS 72.8 million loss) primarily due to exchange difference losses of ARS 160.9 million caused by the devaluation of the Argentine Peso against the US Dollar.
- Capital Expenditure: Cash used in investing activities increased to ARS 1.90 billion, largely due to the L'Amali construction project and acquisition of property, plant, and equipment.
- Liquidity: The current liquidity ratio decreased from 1.23 in Q1 2018 to 0.80 in Q1 2019.
Guidance, Outlook, and Risks
- Economic Outlook: Management forecasts a decrease in Argentine GDP for 2019 compared to 2018. However, a trend change is expected in the second half of the year, supported by the regularization of economic variables and the historically positive impact of election years on the construction industry.
- Strategic Response: The Company is readapting production costs and structure expenses to align with expected production levels to maintain profitability.
- Key Risks:
- Currency Risk: Significant exposure to foreign currency fluctuations (USD, Guarani, Euro). A 25% increase in the USD exchange rate would negatively impact income and equity.
- Inflation: High inflation in Argentina affects cost structures and requires constant restatement of financial figures.
- Debt Servicing: A significant portion of debt is denominated in foreign currencies (USD and Guarani), increasing interest and principal repayment burdens in local currency terms.
- Subsequent Events: On April 25, 2019, shareholders allocated ARS 5.17 billion of retained earnings to an optional reserve for investment plans.
Investor Verification Checklist
- Currency Impact: Verify the sensitivity of net income to further devaluation of the Argentine Peso, given the significant foreign currency debt and exchange losses.
- Argentina vs. Paraguay Mix: Confirm the sustainability of the volume growth in Paraguay versus the contraction in the domestic Argentine market.
- Capital Expenditure Progress: Review the status and funding requirements of the L'Amali plant expansion, which is driving high investing cash outflows.
- Liquidity Position: Assess the implications of the declining current liquidity ratio (0.80) and the reduction in cash and cash equivalents.
- Debt Maturity: Examine the maturity schedule of foreign currency loans, particularly those due in 2019 and 2020, to evaluate refinancing risks.