Business Context and Reporting Period
Loma Negra Compania Industrial Argentina Sociedad Anonima (NYSE: LOMA), the leading cement producer in Argentina, reported its first-quarter 2018 results for the three-month period ended March 31, 2018. The company operates vertically integrated cement, concrete, and aggregates businesses in Argentina and holds a 51% stake in a cement plant in Paraguay.
Key Financial Metrics
| Metric | 1Q 2018 (ARS Millions) | 1Q 2017 (ARS Millions) | YoY Change |
|---|---|---|---|
| Net Revenue | 4,534 | 3,202 | 41.6% |
| Gross Profit | 1,301 | 943 | 38.0% |
| Adjusted EBITDA | 1,166 | 829 | 40.6% |
| Net Profit | 549 | 399 | 37.4% |
| Net Profit Attributable to Owners | 526 | 354 | 48.6% |
| Earnings Per Share (EPS) | 0.88 | 0.63 | 41.1% |
| Net Debt | 2,265 | 3,954 | -42.7% |
| Net Debt / LTM Adjusted EBITDA | 0.53x | 1.48x | -0.95x |
Cash Flow: Net cash generated by operating activities was ARS 86 million. Net cash used in investing activities was ARS 862 million, primarily due to capital expenditures of ARS 854 million. Net cash used in financing activities was ARS 156 million.
Liquidity: Cash and cash equivalents totaled ARS 2,294 million as of March 31, 2018.
Material Changes vs. Prior Period
- Revenue Growth: Net revenue increased 41.6% year-over-year, driven by a 9.5% volume increase in Argentina's cement, masonry, and lime segment and favorable pricing. Concrete revenue in Argentina surged 96.5%.
- Margin Dynamics: While Adjusted EBITDA grew 40.6%, the consolidated Adjusted EBITDA margin contracted slightly by 18 basis points to 25.7%. This was due to the mix shift toward the lower-margin Concrete segment, despite the core Cement segment in Argentina expanding its margin by 207 basis points to 28.7%.
- Debt Reduction: Net debt decreased significantly by 42.7% to ARS 2,265 million, improving the leverage ratio to 0.53x from 1.48x in the prior year.
- Foreign Exchange Impact: The company recorded a foreign exchange loss of ARS 109 million due to a 7.3% depreciation of the Argentine peso, contrasting with a gain in the prior year.
Guidance, Outlook, and Risks
Outlook: Management expects healthy market dynamics with increasing demand for cement and concrete, though at slower rates than the prior year's recovery. The company is proceeding with the expansion of the L'Amali plant, a US$350 million project expected to add 2.7 million tons of annual capacity by early 2020.
Recent Events: Shareholders approved the full reinvestment of 2017 earnings and ratified the Board of Directors at the April 25, 2018 meeting.
Risks: The filing highlights risks related to Argentina's economic and political conditions, inflation rates, exchange rate fluctuations, and changes in construction demand and raw material prices. Forward-looking statements are subject to these uncertainties.
Investor Verification Checklist
- Verify the sustainability of the 9.5% volume growth in Argentina's core cement segment amidst potential economic slowdowns.
- Monitor the impact of the Argentine peso's depreciation on future foreign exchange gains/losses and debt servicing costs (43.4% of debt is USD-denominated).
- Track the progress and capital expenditure burn rate of the L'Amali plant expansion (US$350 million total).
- Assess the margin pressure from the rapidly growing but lower-margin Concrete segment.
- Confirm the stability of the Net Debt/LTM Adjusted EBITDA ratio given the recent IPO proceeds and working capital needs.