Loma Negra C.I.A.S.A. — 2019 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2019; filed April 30, 2020. This is an annual report, not a standalone fourth-quarter report. Financial statements are IFRS, restated for inflation under IAS 29, and amounts below are Argentine pesos (Ps.) in millions at December 31, 2019 purchasing power unless stated otherwise. Comparisons are therefore in constant currency.
Business context
Loma Negra is Argentina’s leading cement producer, with cement, masonry cement, lime, concrete, aggregates, rail freight and waste-recycling operations. It also owns 51% of Paraguayan producer Yguazú Cementos. Management estimated 2019 cement market shares of 43% in Argentina and 42% in Paraguay. Argentina’s real GDP contracted 2.2% in 2019, while consumer inflation was 53.8% and the peso depreciated 58.4% against the U.S. dollar.
Key financial and operating metrics
| Metric | 2019 | 2018 |
|---|---|---|
| Net revenue | Ps. 38,952 | Ps. 41,238 |
| Gross profit | Ps. 10,810 | Ps. 10,498 |
| Profit before tax | Ps. 5,730 | Ps. 4,742 |
| Net profit | Ps. 4,044 | Ps. 3,001 |
| Net profit attributable to Loma Negra owners | Ps. 3,839 | Ps. 2,769 |
| Operating cash flow | Ps. 8,542 | Ps. 6,428 |
| Investing cash flow | Ps. (11,835) | Ps. (6,498) |
| Financing cash flow | Ps. 1,415 | Ps. (3,677) |
| Cash and cash equivalents at year-end | Ps. 2,567 | Ps. 4,464 |
| Total borrowings | Ps. 12,226 | Ps. 9,173 |
| Shareholders’ equity | Ps. 29,328 | Ps. 25,464 |
- Revenue fell 5.5%. Management attributed this mainly to lower volumes: cement, masonry cement and lime sales volume in Argentina declined 10.6%; concrete volume fell 25.1%; and railway volume fell 5.8%. Price increases partly offset the volume declines.
- Cost of sales decreased 8.5%, faster than revenue, and gross profit increased 3.0%. The filing states 2019 gross margin was 28.5%, versus 25.5% in 2018; however, the reported 2019 gross profit divided by reported revenue implies approximately 27.8%, so the margin disclosure does not reconcile to the listed figures.
- Net profit rose 34.8%; net margin calculated from reported net profit and revenue increased to about 10.4% from 7.3%. The filing’s narrative says the net margin decreased, which conflicts with those figures.
- Financial results were a net expense of Ps. 1,809 million, improved from Ps. 2,558 million in 2018. Lower foreign-exchange losses and a larger gain on net monetary position were partly offset by higher financial expenses; reported financial expenses increased to Ps. 1,793 million.
- Capital expenditures on property, plant and equipment were Ps. 11,813 million, primarily for the L’Amalí expansion. Operating cash flow did not cover investing cash outflows; cash declined by Ps. 1,878 million.
- Net debt was Ps. 9,659 million, calculated as borrowings less cash and cash equivalents, compared with Ps. 4,709 million in 2018. About 64% of borrowings carried floating interest rates; 74% of total borrowings were foreign-currency denominated.
- Current assets were Ps. 11,353 million and current liabilities Ps. 16,481 million; the current ratio was 0.69 and reported negative working capital was Ps. 5,128 million. Management described the shortfall as manageable given operating cash flows, but noted liquidity depends on performance and financing access.
Material changes and outlook
- Argentina’s recession and reduced construction activity weighed on domestic cement, concrete and rail demand. Cement prices in Argentina rose 8.0%, but the volume decline drove lower segment revenue; Paraguay revenue rose on higher pricing and broadly stable volume.
- Loma Negra reported 84% progress on the second L’Amalí production line at year-end 2019. The project is intended to add 2.7 million tons of annual cement capacity, with an estimated total investment of approximately US$350 million. Construction was temporarily suspended in 2020 amid COVID-19 restrictions; management said it would set a revised completion schedule when work could resume.
- Management said COVID-19 had not materially affected 2019 results, but by the report date it had caused suspensions of Argentine cement, concrete and aggregates production and dispatch, and the L’Amalí project. Some production facilities had resumed activity. Management expected weaker 2020 demand and could not reasonably estimate the pandemic’s full impact; it stated available resources were expected to cover liquidity needs for 12 months, subject to developments.
- Management’s response included cost control, tighter fixed costs, working-capital and liability management, supplier and tax payment deferrals, and reprioritizing maintenance capital expenditure. No quantified 2020 earnings or revenue guidance is provided.
- Major risks include persistent Argentine inflation, peso depreciation and exchange controls; foreign-currency debt and floating-rate exposure; recession and construction demand; short-term liquidity and refinancing needs; energy costs and availability; COVID-19 disruption; and regulatory, environmental, labor and litigation risks. Argentina’s sovereign debt restructuring and possible default were also identified as macroeconomic uncertainties.
- Legal and administrative proceedings involved approximately Ps. 449 million in claims; Ps. 166 million was provided for probable claims. The filing said no other material contingencies were identified. The federal U.S. securities class action was dismissed on April 27, 2020, subject to appeal; a separate New York state action remained pending at the report date.
Most important facts for investors to verify
- Reconcile the stated 2019 gross-margin percentage and the narrative describing the direction of net-margin change with the reported financial statements.
- Confirm current production, demand, cash generation, working capital and debt maturities after the COVID-related shutdowns and subsequent reopening.
- Check the revised cost, financing, construction schedule and expected returns for the L’Amalí expansion; the filing presents differing cumulative investment figures in different sections.
- Assess the ability to refinance short-term debt and manage foreign-currency and floating-rate exposure amid exchange controls and peso volatility.
- Monitor the outcome of the U.S. securities litigation, other legal contingencies, and the status of the Ferrosur Roca concession extension, which was requested but not formally granted.