Business Context and Reporting Period
Loma Negra Compania Industrial Argentina Sociedad Anonima, a leading cement and construction materials producer in Argentina and Paraguay, reported its second-quarter 2019 results on August 9, 2019. The company operates in a hyperinflationary environment, applying IFRS IAS 29 rules starting July 1, 2018, which requires restating results to adjust for changes in the purchasing power of the Argentine peso. The filing includes both "As Reported" figures and selected figures excluding IAS 29 adjustments for comparability.
Key Financial Metrics
- Net Revenues: Ps. 7.5 billion (US$ 165 million), down 2.2% year-over-year.
- Adjusted EBITDA: Ps. 1.9 billion (US$ 44 million), up 7.1% year-over-year.
- Adjusted EBITDA Margin: Expanded 225 basis points to 25.8% (28.3% excluding non-recurrent costs).
- Net Majority Income: Ps. 1.1 billion (US$ 16 million), up 525% year-over-year.
- Cash Position: Ps. 1.2 billion as of June 2019.
- Net Debt: Ps. 7.0 billion (US$ 164 million).
- Net Debt to LTM Adjusted EBITDA: 0.76x.
- Operating Cash Flow: Ps. 1.0 billion for 2Q19.
- Capital Expenditures: Ps. 2.7 billion, primarily for the L'Amalí expansion.
Material Changes Versus Prior Period
Revenue declined 2.2% primarily due to a 17.6% drop in the Concrete segment, where volumes fell 12.8% as major projects neared completion. Argentine cement volumes contracted 10.4%, though this was offset by a healthy pricing environment, resulting in flat revenue for that segment. Conversely, Aggregates revenue grew 24.6% driven by favorable pricing and volume dynamics, and Paraguay cement revenue rose 11.0% due to currency appreciation.
Adjusted EBITDA grew 7.1% despite non-recurrent production-footprint adequacy costs of approximately US$ 4.2 million. Excluding these costs, the margin would have expanded 476 basis points to 28.3%. Net income surged 525% largely due to a reversal in financial results: the company recorded a total finance gain of Ps. 264 million in 2Q19 compared to a loss of Ps. 954 million in 2Q18, driven by foreign exchange gains and a higher gain on net monetary position.
Guidance, Outlook, and Risks
Management expects cement demand to recover in the second half of 2019, citing an overall economic turnaround. The L'Amalí Expansion Plant remains on track for a start-up in the second quarter of 2020, with completion expected in June 2020. The company is focused on productivity gains and leveraging its market leadership.
Key risks include Argentina's high inflation rate, exchange rate fluctuations, and the general economic and political conditions in the region. The filing includes standard forward-looking statement disclaimers, noting that actual results may differ materially from projections due to changes in construction activity, raw material prices, and energy costs.
Investor Verification Checklist
- Verify the impact of IAS 29 hyperinflation accounting adjustments on reported margins and year-over-year comparisons.
- Confirm the sustainability of the 525% net income increase, which was heavily influenced by one-time financial gains and FX movements rather than core operational growth.
- Monitor the progress and capital requirements of the L'Amalí expansion plant scheduled for 2Q20 start-up.
- Assess the recovery trajectory of the Concrete segment, which currently faces volume headwinds due to project completion cycles.
- Review the company's exposure to Argentine peso volatility and its ability to maintain pricing power in a stabilizing but weak economy.