Business Context and Reporting Period
Company: Loma Negra Compania Industrial Argentina Sociedad Anonima (Loma Negra)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Nine months ended September 30, 2018 (Unaudited Condensed Interim Financial Statements)
Business Overview: Loma Negra is an Argentine corporation engaged in the manufacturing and marketing of cement, masonry cement, lime, and by-products. It operates 9 cement factories and 19 concrete plants in Argentina, with additional operations in Paraguay (Yguazú Cementos S.A.) and rail freight transportation (Ferrosur Roca S.A.).
Key Financial Metrics
All amounts in Argentine Pesos (ARS) unless otherwise noted.
| Metric | Nine Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2017 |
|---|---|---|
| Net Revenues from Sales | 15,421,825,073 | 10,834,120,934 |
| Gross Income | 4,484,947,429 | 3,141,370,994 |
| Net Income for the Period | 844,584,883 | 1,008,041,164 |
| Total Comprehensive Income | 2,170,212,225 | 1,113,624,009 |
| Net Cash Flows from Operating Activities | 1,845,877,705 | 1,583,676,550 |
| Total Assets | 18,924,098,342 | 12,972,263,667 |
| Total Liabilities | 12,338,091,959 | 8,556,469,509 |
| Shareholders' Equity | 6,586,006,383 | 4,415,794,158 |
| Net Debt | 4,573,049,551 | 1,184,191,530 |
| Net Debt to Equity Ratio | 0.69 | 0.27 |
Material Changes vs. Prior Period
- Revenue Growth: Net revenues increased 42.3% year-over-year, driven primarily by a 38.1% average increase in cement prices in Argentina. Concrete revenues surged 110.7% due to volume and price growth.
- Profitability Decline: Despite revenue growth, Net Income decreased 16.2% to ARS 844.6 million. This was primarily due to a massive increase in Net Financial Losses (ARS 2.08 billion vs. ARS 675 million in 2017), driven by a 119% devaluation of the Argentine Peso against the US Dollar.
- Comprehensive Income: Total Comprehensive Income increased 95% to ARS 2.17 billion, largely due to a positive exchange difference of ARS 1.33 billion recorded in Other Comprehensive Income.
- Debt Expansion: Total loans increased from ARS 4.36 billion to ARS 7.33 billion. The increase is attributed to new borrowings and the revaluation of foreign currency-denominated debt due to peso devaluation.
- Capital Expenditure: Significant investing outflows (ARS 1.99 billion) were recorded, primarily for the L'Amalí plant expansion project (approx. USD 350 million total investment).
Outlook, Risks, and Contingencies
- Hyperinflation Accounting (IAS 29): Management notes that Argentina's economy meets the criteria for hyperinflation (cumulative inflation >100% over three years). While the company has not restated these specific statements due to local regulatory constraints (Decree No. 664/03), they estimate the effects of applying IAS 29 will be significant, potentially increasing non-monetary asset values and impacting equity.
- Subsidiary Solvency: Ferrosur Roca S.A. (rail freight subsidiary) reported a net loss of ARS 282 million and a shareholders' equity deficit of ARS 97.8 million. Under Argentine law, this deficit could trigger dissolution, though the Board is analyzing action plans to address this.
- Regulatory Changes: A new decree (1027/2018) regarding the "Open Access" modality for rail transport was approved, potentially affecting concession terms and infrastructure readoption by the government. The company is analyzing the impact.
- Future Prospects: Management remains cautiously optimistic, expecting cement volumes in 2018 to be near 2017 levels despite recent demand decreases. Growth is expected in Paraguay due to construction and infrastructure investments.
- Ownership Change: On October 25, 2018, Loma Negra Holding GmbH transferred its 51.04% stake to its parent, Cauça Austria Holding GmbH.
Investor Verification Checklist
- Exchange Rate Sensitivity: Verify the impact of the 119% peso devaluation on future financial reporting and the potential restatement of financials under IAS 29.
- Ferrosur Roca Status: Monitor the resolution of the equity deficit at Ferrosur Roca S.A. and the outcome of the new rail transport regulations.
- L'Amalí Project Progress: Track the execution and funding of the USD 350 million L'Amalí plant expansion, including the status of customs duty exemptions.
- Debt Servicing: Assess the company's ability to service increased debt levels (Net Debt to Equity rose to 0.69) amidst high inflation and currency volatility.
- Volume vs. Price: Distinguish between revenue growth driven by price increases versus actual volume growth, as cement dispatch volumes remained relatively flat compared to the prior year.