Business Context and Reporting Period
Company: Loma Negra Compania Industrial Argentina Sociedad Anonima (NYSE: LOMA)
Filing Type: Form 6-K (Press Release)
Reporting Period: Second Quarter (Q2) and First Half (H1) ended June 30, 2018
Date of Filing: August 9, 2018
Loma Negra is the leading cement producer in Argentina, with operations in cement, masonry, lime, concrete, aggregates, and railroad logistics. The company also holds a 51% stake in a cement plant in Paraguay. The reporting period was characterized by a challenging macroeconomic environment in Argentina, including significant peso depreciation and the classification of the economy as hyperinflationary under IAS 29 effective July 1, 2018.
Key Financial Metrics (Q2 2018)
| Metric | Q2 2018 (ARS Millions) | Q2 2018 (USD Millions) | YoY Change (ARS) |
|---|---|---|---|
| Net Revenue | 4,757 | 202 | +37.2% |
| Gross Profit | 1,331 | - | +28.5% |
| Adjusted EBITDA | 1,153 | 49 | +26.9% |
| Net Profit | 178 | 8 | -39.3% |
| Net Debt | 3,772 | 131 | -15.2% |
| Net Debt / LTM Adj. EBITDA | 0.83x | 0.83x | -0.61x |
| EPS (Basic) | 0.3010 | - | -38.3% |
Material Changes vs. Prior Period
- Revenue Growth: Net revenue increased 37.2% year-over-year (YoY) to Ps.4,757 million, driven by price increases in the Cement, masonry & lime segment in Argentina (+33.4%) and Paraguay (+49.2%), as well as volume growth in Concrete (+80.3% revenue). However, in USD terms, revenue declined 8.2% due to peso depreciation.
- Margin Compression: Consolidated Adjusted EBITDA margin contracted 197 basis points to 24.2%. While the core Cement segment in Argentina expanded its margin by 65 bps to 28.0%, this was offset by poor performance in the Railroad segment (margin dropped to 3.2%) and the lower-margin Concrete business.
- Profitability Decline: Net profit fell 39.3% to Ps.178 million. This decline was primarily caused by a 295.3% increase in foreign exchange losses (Ps.515 million) due to the 43.3% depreciation of the Argentine peso against the dollar.
- Volume Trends: Cement volumes in Argentina remained flat (-0.6% YoY) due to the macroeconomic environment. Concrete volumes surged 23.7% YoY, supported by public infrastructure projects. Railroad volumes declined 6.1%.
- Balance Sheet: Net debt decreased 15.2% to Ps.3,772 million, improving the leverage ratio to 0.83x from 1.44x in Q2 2017. Cash and cash equivalents decreased to Ps.1,618 million due to capital expenditures and working capital needs.
Guidance, Outlook, and Risks
- Outlook: Management remains "cautiously optimistic" regarding cement demand in Argentina, believing the industry could reach record volumes similar to the previous year despite potential adverse macroeconomic impacts in the second half of 2018.
- Capital Projects: The company is proceeding with the expansion of the L'Amalí plant, a US$350 million project expected to add 2.7 million tons of annual capacity and be completed in early 2020. 52% of H1 2018 capex was directed to this project.
- Hyperinflation Accounting: Argentina has been classified as a hyperinflationary economy (cumulative inflation >100% over three years). The company will apply inflation accounting (IAS 29) for periods ending after July 1, 2018, which will impact future financial reporting.
- Risks: Key risks include fluctuations in the peso exchange rate, changes in inflation rates, raw material and energy price volatility, and general economic conditions in Argentina. The company noted that 53.7% of its debt bears floating interest rates, exposing it to interest rate risk.
Investor Verification Checklist
- FX Impact: Verify the magnitude of non-cash foreign exchange losses (Ps.515 million in Q2) and their impact on reported net profit versus operational cash generation.
- Hyperinflation Adjustment: Review upcoming filings to understand the specific impact of IAS 29 adoption on restated historical figures and future comparability.
- Segment Mix: Analyze the shift in revenue mix toward lower-margin Concrete and the underperformance of the Railroad segment, which dragged down consolidated margins despite strong core Cement performance.
- Debt Structure: Confirm the currency denomination of debt (38.5% USD, 39.6% Guarani, 21.9% Peso) and the implications of floating rate exposure (53.7% of total borrowings) in a high-inflation environment.
- Capex Execution: Monitor progress on the L'Amalí plant expansion, specifically the timeline for equipment arrival and civil works, to ensure the projected capacity increase is on track.