Business Context and Reporting Period
Loma Negra Compania Industrial Argentina Sociedad Anonima (NYSE: LOMA), the leading cement producer in Argentina, reported financial results for the three-month period ended March 31, 2019 (1Q19). The filing, submitted on May 9, 2019, applies International Accounting Standard 29 (IAS 29) for financial reporting in hyperinflationary economies. The company operates vertically integrated cement, concrete, aggregates, and railroad logistics businesses in Argentina and Paraguay.
Key Financial Metrics
| Metric | 1Q19 (Ps. Millions) | 1Q18 (Ps. Millions) | YoY Change |
|---|---|---|---|
| Net Revenue | 7,438 | 7,176 | +3.6% |
| Gross Profit | 2,145 | 1,667 | +28.6% |
| Adjusted EBITDA | 2,136 | 1,812 | +17.9% |
| Adjusted EBITDA Margin | 28.7% | 25.3% | +347 bps |
| Net Profit | 1,067 | 723 | +47.7% |
| Net Profit Attributable to Owners | 1,014 | 671 | +51.1% |
| Earnings Per Share (EPS) | 1.7011 | 1.1256 | +51.1% |
| Net Debt | 4,908 | 3,504 | +40.0% |
| Net Debt / LTM Adjusted EBITDA | 0.59x | 0.49x | +0.10x |
Cash Flow: Net cash generated by operating activities was Ps.558 million, a significant improvement from a negative Ps.84 million in 1Q18. Net cash used in investing activities was Ps.1,904 million, primarily driven by capital expenditures for the L'Amalí plant expansion.
Material Changes vs. Prior Period
- Revenue Growth: Driven by a 10.6% revenue increase in the Concrete segment and a 33.9% increase in Cement revenues in Paraguay. This offset a 0.9% decline in Argentine Cement revenues due to a 13.4% volume drop.
- Margin Expansion: Gross profit margin expanded 560 basis points to 28.8%, and Adjusted EBITDA margin expanded 347 basis points to 28.7%. Excluding non-recurrent structure adequacy costs of Ps.135 million, Adjusted EBITDA margin would have been 30.5%.
- Volume Trends: Cement volumes in Argentina declined 13.4% YoY, while Concrete volumes rose 1.8% and Paraguay Cement volumes rose 7.8%.
- Debt Profile: Net Debt increased to Ps.4,908 million. Total debt is composed of 45% USD, 40% Guaraníes, and 14% Argentine Pesos. The average duration of total debt is 1.6 years.
Guidance, Outlook, and Risks
- Outlook: Management expects the trend of declining cement demand in Argentina to continue in the following quarters, though seasonally-adjusted volumes showed an increase compared to the previous quarter. The L'Amalí expansion project remains on track with a start-up date expected in the second quarter of 2020.
- Operational Efficiency: The company implemented structure adequacy measures, reducing administrative and commercial headcount by approximately 10% to improve agility.
- Risks: The filing highlights risks related to Argentina's macroeconomic environment, including high inflation, exchange rate fluctuations (Peso depreciation), and changes in construction demand. Forward-looking statements are subject to these uncertainties.
- Unusual Items: Results include a Ps.135 million charge for non-recurrent structure adequacy costs. Additionally, finance costs included a Ps.161 million loss on exchange rate differences due to Peso depreciation.
Investor Verification Checklist
- IAS 29 Impact: Verify the distinction between reported figures (IAS 29 adjusted) and non-IAS 29 figures (Table 1b), as the latter shows significantly higher growth rates (e.g., Adjusted EBITDA +81.6% vs +17.9%) due to inflation adjustments.
- Volume vs. Price: Confirm the extent to which revenue growth is driven by price increases versus volume declines in the core Argentine Cement segment.
- Capital Expenditure: Review the progress and cost overruns of the L'Amalí expansion project, which consumed Ps.1,904 million in 1Q19 alone.
- Currency Exposure: Assess the impact of the Argentine Peso's depreciation on future debt servicing costs, given that 85% of debt is denominated in foreign currencies (USD and Guaraníes).
- Liquidity: Monitor the reduction in cash and cash equivalents from Ps.3,244 million (Dec 2018) to Ps.1,497 million (Mar 2019) and its effect on working capital flexibility.