Loma Negra C.I.A.S.A. — FY 2017 Form 20-F
Reporting period: Fiscal year ended December 31, 2017. This is an annual report, not a standalone fourth-quarter earnings filing; the supplied filing text does not provide separate Q4 financial results. Financial statements are consolidated and prepared under IFRS, in Argentine pesos (Ps.). Amounts below are in millions of Ps. unless stated otherwise.
Business context and key metrics
Loma Negra is Argentina’s leading cement producer, with cement, concrete, aggregates, lime and railway businesses, and a 51% controlled cement subsidiary in Paraguay. Management estimated 45% cement sales-volume share in Argentina and 44% in Paraguay. Argentine cement consumption rose 12% in 2017, according to AFCP.
| Metric | FY 2017 | FY 2016 | Change |
|---|---|---|---|
| Net revenue | 15,286.5 | 9,874.4 | +54.8% |
| Gross profit / gross margin | 4,436.5 / 29.0% | 2,609.9 / 26.4% | +70.0%; margin +2.6 points |
| Profit before tax | 2,285.9 | 759.8 | +200.9% |
| Net profit / net margin | 1,700.4 / 11.1% | 502.0 / 5.1% | +238.7%; margin +6.0 points |
| Adjusted EBITDA / margin | 3,941.9 / 25.8% | 2,350.1 / 23.8% | +67.7%; margin +2.0 points |
| Net cash from operating activities | 3,220.3 | 1,612.9 | +99.7% |
| Cash and cash equivalents | 3,179.7 | 803.3 | +2,376.4 |
| Total borrowings | 4,363.9 | 4,339.0 | +0.6% |
| Net debt | 1,184.2 | 3,535.7 | −66.5% |
Adjusted EBITDA and net debt are non-IFRS measures as defined by the company and may not be comparable with similarly named measures at other issuers. Cash and cash equivalents include short-term investments. The current ratio improved to 1.19 from 0.58; reported working capital was a surplus of Ps.1,044.2 million.
Changes versus prior year
- Revenue growth reflected higher average selling prices, higher volumes in Argentina and consolidation of Yguazú Cementos, which contributed about Ps.1,153 million of revenue. Segment price increases ranged from 6.0% to 33.4%; sales-volume increases ranged from 0.3% to 36.6%.
- Cost of sales grew 49.4%, slower than revenue. Management cited consolidation of Yguazú, inflation-linked wage increases, higher freight and maintenance costs. Gross and adjusted EBITDA margins expanded.
- Net profit rose substantially alongside operating growth and lower net finance costs; the effective tax rate declined to 25.6% from 33.9%. FY 2017 also included a favorable deferred-tax effect and the impact of Argentina’s enacted tax-rate changes.
- Operating cash flow increased to Ps.3,220.3 million. Investing cash outflow was Ps.1,258.1 million, including Ps.1,246.1 million of property, plant and equipment additions. Financing cash flow was Ps.297.8 million, including net IPO proceeds of Ps.1,866.7 million, alongside debt repayments and dividends.
- Borrowings were broadly flat, but net debt fell as cash and short-term investments rose, substantially reflecting the IPO and cash generation. About 57% of borrowings carried floating rates; 76.8% were denominated in foreign currencies, principally U.S. dollars and Paraguayan guaraníes.
Outlook, investment, risks and unusual items
- Outlook and investment: Management expects cement demand to benefit from Argentine economic recovery, construction and infrastructure activity, and continued growth in Paraguay, but provides no quantified earnings or revenue guidance. It planned approximately US$350 million of investment from 2018–2020 to add 2.7 million tons of annual capacity at L’Amalí, targeting completion by early 2020. Execution, financing, demand and cost outcomes remain uncertain.
- Argentina exposure: Risks include inflation, peso depreciation, fiscal and political uncertainty, interest rates, possible renewed exchange controls and weaker construction demand. Argentina’s CPI rose 24.8% in 2017; the peso depreciated about 17.5% against the U.S. dollar during the year. The company did not apply IAS 29 hyperinflation accounting, while noting that a future change in classification could require restatement.
- Operating risks: Energy was a significant cost driver; electricity tariffs were rising as subsidies were reduced. Cement demand and pricing are cyclical, and the business is exposed to fuel and input costs, labor pressure, operational interruptions, environmental obligations and competition.
- Debt and currency sensitivity: A 25% peso depreciation was estimated to increase the peso value of U.S.-dollar debt by about Ps.470 million. A 1-point increase in LIBOR was estimated to add about US$1.5 million to annual financial expense; a 1-point increase in BADLAR was estimated to add about Ps.6.3 million.
- Contingencies: Legal and administrative claims totaled approximately Ps.306.4 million; Ps.80.5 million was provided for claims management considered probable. The filing describes ongoing antitrust inquiries and a class action for which the company considers its exposure remote. Ferrosur Roca’s concession expires in 2023; a 10-year extension request filed in March 2018 was pending.
- Other notable items: The 2017 IPO generated approximately US$106 million of net proceeds for the company; the controlling shareholder also sold shares, and the company received no proceeds from that secondary sale. The board allocated Ps.1,590.2 million of 2017 earnings to an optional reserve for the investment plan. Argentina’s tax reform reduced the corporate income tax rate to 30% for 2018–2019 and 25% from 2020, and introduced dividend withholding taxes.
Important facts for investors to verify
- Reconcile FY 2017 results with the acquisition and consolidation timing of Yguazú Cementos; 2016 comparatives do not include its operating results on a consolidated basis.
- Review the composition and liquidity of the Ps.2,990.9 million of short-term investments, foreign-currency debt exposure, floating-rate borrowings and scheduled maturities.
- Track L’Amalí expansion spending, total project commitments, funding needs, construction progress and the assumptions behind expected demand and cost savings.
- Monitor Argentine inflation, exchange rates, energy tariffs, construction demand and any renewed exchange or capital controls.
- Confirm developments in the Ferrosur concession extension, antitrust matters and other legal claims, including whether provisions remain adequate.