Loma Negra: FY2018 Form 20-F summary
Reporting period: Fiscal year ended December 31, 2018. This is an annual report, not a standalone fourth-quarter filing; the supplied filing does not provide clear Q4-only financial results. Financial statements are audited IFRS statements in Argentine pesos and apply IAS 29 hyperinflation accounting. 2017 comparatives are restated into December 2018 purchasing-power pesos; figures below are generally Ps. millions.
Business context and reporting basis
Loma Negra is Argentina’s leading cement producer, with cement, concrete, aggregates, lime, recycling and freight railway operations, plus a 51% interest in Paraguay’s Yguazú Cementos. It estimated 44% cement sales-volume market share in both Argentina and Paraguay. Argentine cement consumption fell 2.6% in 2018, amid recession, high inflation and peso depreciation. Argentina was classified as hyperinflationary for accounting purposes from July 1, 2018; the price index applied to restate the financial statements increased 47.65% in 2018.
Financial and operating results
| Metric | FY2018 | FY2017 | Change / note |
|---|---|---|---|
| Net revenue | Ps.26,806.9m | Ps.24,838.6m | +7.9% |
| Cost of sales | Ps.19,982.8m | Ps.18,509.9m | +8.0% |
| Gross profit / margin | Ps.6,824.1m / 25.5% | Ps.6,328.7m / 25.5% | Profit +7.8%; margin unchanged |
| Profit before tax | Ps.3,082.5m | Ps.3,899.7m | -21.0% |
| Net profit | Ps.1,950.6m | Ps.3,677.8m | -47.0%; net margin 7.3% vs. 14.8% |
| Adjusted EBITDA | Ps.7,120.7m | Ps.6,218.3m | +14.5%; margin 26.6% vs. 25.0% |
| Operating cash flow | Ps.4,178.8m | Ps.5,077.0m | Down about 17.7% |
| Investing cash flow | (Ps.4,223.9m) | (Ps.2,228.8m) | Higher investment outflow |
| Financing cash flow | (Ps.2,390.4m) | Ps.312.2m | Net cash used in 2018 |
| Cash and cash equivalents | Ps.2,901.9m | Ps.4,694.7m | Includes short-term investments |
| Total borrowings / net debt | Ps.5,962.7m / Ps.3,060.8m | Ps.6,443.1m / Ps.1,748.4m | Net debt increased; net debt/Adjusted EBITDA 0.43x vs. 0.28x |
Adjusted EBITDA and net debt are non-IFRS measures defined by the company and should not be treated as substitutes for IFRS results. Net profit was pressured by net exchange-rate losses of Ps.1,241.9m, versus Ps.124.4m in 2017, and the shift from a deferred tax benefit in 2017 to deferred tax expense in 2018. Finance costs, net, rose to Ps.1,662.6m from Ps.271.4m.
Cash capital expenditure on property, plant and equipment was Ps.3,417.0m, with a further Ps.743.2m of advances for property, plant and equipment. Current assets were Ps.9,127.6m against current liabilities of Ps.9,831.5m; reported working capital was negative Ps.703.9m and the current ratio was 0.93. Management said negative working capital was a deliberate operating feature and believed cash, operating cash flow and available borrowing capacity would meet foreseeable needs.
Changes versus the prior year
- Revenue grew as average selling prices rose, while total cement, masonry cement and lime sales volumes declined 4.3%. Cement consumption in Argentina contracted, and consolidated production of cement, masonry cement and lime fell to 6.6m tons from 7.0m.
- Concrete revenue increased to Ps.4,414m, supported by a 30% volume increase; railway revenue declined to Ps.2,587m as volumes fell 4.6%. Paraguay cement revenue rose to Ps.2,341m, primarily on higher average prices, while volume was nearly flat.
- Cost of sales rose 8.0%, including higher energy costs affected by peso depreciation, increased depreciation and amortization, contractor costs and packaging. The gross margin held at 25.5%.
- Net debt rose as cash and short-term investments declined and investment spending increased, despite lower total borrowings. The 2018 cash decrease was Ps.2,435.5m.
Outlook, risks, contingencies and unusual items
- Expansion: The company planned to invest approximately US$350m in the L’Amalí plant expansion, adding 2.7m tons of annual cement capacity, with completion expected by early 2020. It reported approximately Ps.3,400m invested by year-end 2018. Execution, cost, financing and demand risks remain.
- Management commentary: Management expected Argentine cement demand to benefit from eventual economic recovery and anticipated a structural supply deficit over time, but acknowledged dependence on economic conditions and construction activity. It also cited efficiency initiatives, renewable-energy sourcing and co-processing; co-processing accounted for 4.2% of thermal energy use in Argentina in 2018.
- Macro and currency exposure: Argentina’s real GDP contracted 2.5% in 2018; reported inflation was 47.6%, and the peso depreciated about 101% against the U.S. dollar by year-end. Approximately 84.8% of borrowings were foreign-currency denominated, in U.S. dollars or Paraguayan guaraníes; 51% of borrowings bore floating rates. The company had no foreign-currency derivative instruments at year-end.
- Liquidity and financing: More than half of borrowings were current, and the average debt maturity was 1.6 years. Contractual obligations totaled Ps.8,972.2m, including Ps.5,305.5m due in less than one year. Management reported compliance with debt covenants as of the filing date.
- Legal matters: Disclosed claims totaled about Ps.363.8m; Ps.106.5m was provided for probable claims, with Ps.139.9m categorized as possible. The company also described two U.S. investor lawsuits alleging IPO-related disclosure deficiencies; neither had been certified as a class action by the filing date. It reported no other material contingencies expected to negatively affect results.
- Other notable items: The Ferrosur Roca railway concession expires in 2023; a 10-year extension was requested and the regulatory framework was subject to renegotiation and possible open access. Argentina’s 2018 inflation adjustment materially affects comparability. The 2018 audit opinion was unmodified; the company also disclosed a change of independent auditor for 2019.
Important facts for investors to verify
- Use the audited statements and IAS 29 restated comparatives when assessing growth; do not interpret the annual figures as fourth-quarter results.
- Review the causes and sustainability of the net-profit decline, particularly foreign-exchange losses and deferred tax effects, separately from Adjusted EBITDA.
- Check L’Amalí expansion spending to date, remaining commitments, funding, construction schedule and expected capacity ramp-up.
- Assess near-term liquidity, debt maturities, foreign-currency and floating-rate exposure, and the consequences of further peso depreciation or weaker operating cash flow.
- Track Argentine construction demand, cement volumes and pricing, energy costs, and the railway-concession process; review developments in the disclosed litigation and contingencies.