Loma Negra Compañía Industrial Argentina Sociedad Anónima Q4 FY2023 earnings call

Management Statement and Operational Highlights

• Financial Performance: Despite challenging economic conditions, Loma Negra reported Q4 2023 top line of ARS 99 billion, a decrease of 13.2% y-o-y. Adjusted EBITDA stood at $61 million (ARS 22.7 billion) for the quarter. For FY 2023, consolidated EBITDA was $252 million with a margin of 23.8%.
• ESG Highlights:
  • Environmental: Total greenhouse gas emission intensity (Scope 1 and 2) was 527.36 kg of CO2 per ton of cementitious material, up 0.35% y-o-y, but excluding clinker stock comparison, it decreased by 1.4%. Water extraction was down 15.5% and solid waste generation down 10%.
  • Social: Over 80,000 people benefited from company programs. Held first diversity and inclusion week with over 50,000 hours of training on diversity, equity, and inclusion.
  • Governance: 100% of employees covered in Integrity Program, and Compliance Week held for the second time, reaching over 800 employees.
• Market Review: The industry concluded 2023 with dispatch volume second only to the record year of 2022, but political transition and economic uncertainty impacted activity levels.

Segment Performance

• Cement, Masonry, Lime Segment: Fourth quarter top line decreased by 16% with volumes contracting by 10.1% year-on-year. For the fiscal year 2023, consolidated revenues dropped 6.3% to ARS 422 billion from ARS 452 billion in 2022. Adjusted EBITDA for the cement segment contracted by 217 basis points when excluding the sale of assets.
• Concrete Segment: Revenues decreased by 12.3% in the fourth quarter, primarily due to a 17.5% decrease in dispatches. For the fiscal year 2023, consolidated revenues were down 6.3%.
• Aggregate Segment: Showed a decrease of 9.5% in the fourth quarter with sales volumes down 12.3%, partially offset by good price performance.
• Railroad Segment: Revenues decreased by 10.5% in the fourth quarter, with transported volumes down 9%. Affected by lower construction sector activity and a storm in December that temporarily knocked out plants transporting chemicals.

Guidance

• Forward Look: Upcoming months are expected to continue at current activity levels. The second half of 2024 may see a pickup as the economy improves. Dividends in the first months of the year, but recovery path has challenges due to ongoing uncertainties.

Risks

• Economic Uncertainty: Political transition and subsequent economic policy changes create uncertainty that impacts industry activity.
• Weather Impact: A storm in December temporarily knocked out plants in Bahía Blanca, affecting chemical transport to Buenos Aires.
• Volume Contraction: Lower volumes in core segments due to the challenging economic environment and political transition.

Question and Answer

Q: Looking at the contraction in margin, the 389 basis points excluding the asset sale. Could you please give a little bit more details on what's behind this? What factors lag behind the lower margin? And what we should expect going forward?

A: Margins are contracting because of lower volumes. Sequentially, margins are stable. The principal factor is lower volume, and volume will be key going forward.

Q: Now that the new President has been in office for a few months, can you give us some color on how you're seeing activity going forward, is your team already on board, do you see a faster or lower transition that you might have expected?

A: The first months have been hit, with activity at 20%-25% levels. Upcoming months are expected to continue at current space, but the second half of 2024 may see a pickup as the economy improves.

Q: Given the recessionary scenario, how is the pricing environment evolving and what should we expect for the next couple of quarters?

A: Prices are above inflation, and this trend is expected to continue. We will act accordingly to any quick movement of effects.