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 and six-month periods ended June 30, 2020. The reporting period was heavily influenced by the COVID-19 pandemic, which triggered an unprecedented nationwide lockdown in Argentina, significantly impacting construction demand and operations.
Key Financial Metrics
Revenue and Profitability (Three Months Ended June 30, 2020):
- Net Revenue: Ps. 7,453 million (US$ 108 million), a 30.1% decrease year-over-year (YoY).
- Adjusted EBITDA: Ps. 2,077 million (US$ 32 million), a 24.6% decrease YoY.
- Adjusted EBITDA Margin: Expanded to 27.9% (up 204 basis points YoY) due to cost control and efficiency measures.
- Net Profit: Ps. 111 million, a 93.0% decrease YoY, heavily impacted by foreign exchange losses.
- Earnings Per Share (EPS): Ps. 0.1371, down 94.6% YoY.
Balance Sheet and Liquidity (As of June 30, 2020):
- Net Debt: Ps. 14,123 million (US$ 200 million).
- Net Debt / LTM Adjusted EBITDA: 1.17x (improved from 1.26x in Q1 2020, but higher than 0.86x in FY19).
- Cash and Cash Equivalents: Ps. 3,383 million.
- Total Debt: Ps. 17,506 million (57% short-term, 43% long-term).
Cash Flow (Three Months Ended June 30, 2020):
- Operating Cash Flow: Ps. 3,131 million (up from Ps. 1,427 million in Q2 2019), driven by lower working capital requirements.
- Capital Expenditures: Ps. 1,013 million, primarily for the L'Amalí plant expansion.
Material Changes Versus Prior Period
The company experienced a sharp contraction in sales volumes and revenues due to the lockdown. Cement, masonry, and lime sales in Argentina declined 24.5% YoY to 1.01 million tons. The Concrete and Aggregates segments were hit hardest, with volume declines of 92.3% and 90.9% respectively, as private and public infrastructure projects halted. Conversely, the Paraguay cement segment showed resilience with a 0.8% volume increase YoY.
While revenue and gross profit declined significantly (30.1% and 34.2% respectively), the Adjusted EBITDA margin expanded. This was achieved through strict cost control, efficiency enhancements, and lower unitary energy costs in US dollar terms. However, Net Profit collapsed due to a Ps. 560 million loss on foreign exchange differences resulting from peso depreciation.
Guidance, Outlook, and Risks
Management Commentary: CEO Sergio Faifman noted that while the lockdown negatively impacted the quarter, the bag segment showed a strong recovery starting in May. The company maintained strict biosafety protocols and focused on financial strength.
Project Update: Construction on the L'Amalí expansion project resumed in late April after a 45-day suspension. Due to the delay and new protocols, the inauguration is now expected in early 2021 (previously anticipated sooner). The project aims to add 2.7 million tons of annual capacity.
Risks and Contingencies:
- Pandemic Uncertainty: Management remains cautious regarding the duration of the crisis and its impact on demand.
- Exchange Rate Volatility: Significant foreign exchange losses impacted net profit; future depreciation of the peso poses a risk to financial results.
- Construction Demand: Recovery is dependent on the easing of restrictions and the resumption of private and public works.
Investor Verification Checklist
- Verify the sustainability of the Adjusted EBITDA margin expansion (27.9%) given the severe revenue contraction.
- Monitor the timeline for the L'Amalí plant inauguration, currently projected for early 2021, and potential further delays.
- Assess the impact of the 76% floating-rate debt exposure on future interest expenses given Argentina's inflationary environment.
- Track the recovery of the Concrete and Aggregates segments, which saw volume drops exceeding 90%.
- Review the foreign exchange exposure management strategy, as FX losses were the primary driver of the 93% drop in Net Profit.