Loma Negra Compania Industrial Argentina Sociedad Anonima - 1Q23 Results Summary
Business Context and Reporting Period
Loma Negra, the leading cement producer in Argentina, reported financial results for the three-month period ended March 31, 2023 (1Q23). The filing was submitted on May 5, 2023. The company operates in a challenging macroeconomic environment in Argentina, characterized by high inflation and currency fluctuations, yet reported resilient demand in the construction sector.
Key Financial Metrics
| Metric | 1Q23 (Ps. Millions) | 1Q22 (Ps. Millions) | YoY Change |
|---|---|---|---|
| Net Revenue | 40,590 | 39,449 | +2.9% |
| Adjusted EBITDA | 10,636 | 13,247 | -19.7% |
| Adjusted EBITDA Margin | 26.2% | 33.6% | -738 bps |
| Net Profit | 5,208 | 6,403 | -18.7% |
| Net Debt | 22,858 | (8,075) | n/a |
| Net Debt / LTM Adj. EBITDA | 0.46x | -0.15x | n/a |
| Operating Cash Flow | 4,643 | 5,611 | -17.3% |
Note: In U.S. dollar terms (excluding IAS 29 impact), Adjusted EBITDA increased 5.8% YoY to $63 million, while Net Revenue increased 15.1% to $197 million.
Material Changes vs. Prior Period
- Revenue Mix: Total revenue grew 2.9% in pesos, driven by strong performance in Concrete (+32.8%) and Aggregates (+65.3%), which offset a 3.5% decline in the Cement segment and a 5.7% decline in Railroad.
- Margin Compression: Gross profit margin contracted 591 basis points to 27.5%, and Adjusted EBITDA margin fell 738 basis points to 26.2%. This was primarily due to higher thermal energy costs, freight expenses, and a shift in sales mix toward lower-margin businesses like Concrete and Railroad.
- Volume Growth: Cement volumes increased 4.3%, Concrete volumes surged 26.2%, and Aggregates volumes jumped 47.1%. Railroad volumes declined 7.4%.
- Financial Costs: Net financial costs turned negative (Ps. 19 million cost vs. Ps. 452 million gain in 1Q22) due to higher interest expenses and exchange rate losses, partially offset by a significant gain on net monetary position (Ps. 7,337 million) resulting from inflation accounting (IAS 29).
- Balance Sheet: Net debt increased from a net cash position of Ps. 8,075 million in 1Q22 to Ps. 22,858 million in 1Q23, following a new bond issuance.
Guidance, Outlook, and Management Commentary
CEO Sergio Faifman described the company's start to the year as "very good shape" with solid cash flow and a robust financial position. Despite economic disorders, cement demand grew 3.1% YoY. Management expressed "cautious optimism" for the remainder of the year, anticipating healthy market dynamics but at slower rates as the country approaches presidential elections.
Capital Actions:
- Dividends: Paid Ps. 3,500 million in cash in January 2023. On May 2, 2023, the board approved a second dividend of Ps. 22.2 billion to be distributed in kind via Argentine Treasury Bills (LEDE S30J3).
- Debt Issuance: Issued Class 1 domestic bonds totaling Ps. 25.6 billion with an 18-month maturity (August 2024) to refinance short-term debt and fund working capital.
Risks: The filing highlights risks related to Argentina's general economic and political conditions, inflation rates, exchange rate fluctuations, and changes in construction demand and energy prices.
Investor Verification Checklist
- Verify the sustainability of the 47.1% volume growth in Aggregates and 26.2% in Concrete, as these segments currently have lower or negative Adjusted EBITDA margins.
- Monitor the impact of rising thermal energy and freight costs on the Cement segment's margin, which contracted 625 basis points.
- Assess the liquidity implications of the new Ps. 25.6 billion bond issuance maturing in August 2024 and the company's ability to refinance or repay it.
- Review the valuation and liquidity of the "in-kind" dividend paid in Argentine Treasury Bills (LEDE S30J3) maturing in July 2023.
- Track the exchange rate volatility and its effect on the "Gain on net monetary position," which significantly boosted net profit but is non-operational.