Title

Presentation

Operator: Good morning and welcome to the Loma Negra Second Quarter 2024 Conference Call And Webcast. All participants will be in a listen-only mode. [Operator Instructions] Also Mr. Sergio Faifman will be responding in Spanish immediately following an English translation. [Operator Instructions] Please note this event is being recorded. I would now turn the conference over to Mr. Diego Jalón, Head of Investor Relations. Please Diego go ahead.

Diego Jalón: Thank you. Good morning and welcome to Loma Negra’s earnings conference call. By now, everyone should have access to our earnings press release and the presentation for today’s call, both of which were distributed yesterday after market close. Joining me on the call this morning will be Sergio Faifman, our CEO and Vice President of the Board Of Directors; and our CFO, Marcos Gradin. Both of them will be available for the Q&A session. Before we proceed, I would like to make the following Safe Harbor statements. Today’s call will contain forward-looking statements and I refer you to the forward-looking statements section of our earnings release and recent filing with the SEC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances.

This conference call will also include discussion on non-GAAP financial measures. The full reconciliation of the corresponding financial measures is included in the earnings press release. Now, I would like to turn the call over to Sergio.

Sergio Faifman: Thank you, Diego. Hello everyone, and thank you for joining us this morning. I would like to start my presentation by discussion, the highlights of the quarter. Then Marcos will take you through our market review and financial results. Following that, I will share some final remarks before opening the call to your questions. Starting with Slide 2. We are glad to report another set of solid results after starting the year in a very challenging scenario with significant year-on-year volume and decline. Our business delivery in the second quarter and assessment EBITDA margin expansion, driven by our constant focus on profitability and cost control initiative. This demonstrates our strong capability for efficiency and flexibility in adapting the challenging scenarios.

Fortunately, we are starting to see a gradual, but consistent recovery in Cement volumes. But before diving into the detail of the industry, let’s review the financial highlights of the quarter. As I mentioned before, in the second quarter, Loma has demonstrated resilience and its operational and competitive strength. Our top-line stood at Ps. 166.1 billion, decreasing 28% in the quarter with Cement volume down 32.5%. The consolidated adjustment EBITDA reached $51 million or Ps. 38 billion, in the second quarter, only down 11.7% despite the hard drop of volume dispatch. This result was possible due to the good expansion of the EBITDA margin of the Cement segment. The push the consolidated EBITDA margin to 28.1%, expanding 520 basis points year-on-year.

In the same sense, EBITDA per ton reached the rate mark of $45, up 23% year-on-year and 16% on the sequential basis. On the financial side, our balance sheet remains strong with net debt of $270 million on the upcoming quarter with less the mining capital needs, we will use our cash generation to gradually reduce our short-term pesos indebtedness. I will now hand off the call to Marcos Gradin who will look you through our market review and financial results. Please Marcos, go ahead.

Marcos Gradin: Thank you, Sergio, good morning everyone. Please turn to slide four as shown in the chart on the lower left, the Central Bank market expectations report suggests that the economy might have experienced its most significant quarterly downturn in the first quarter of this year, with a more optimistic forecast for the second half. When we examine the figures for our industry, the construction activity indicator reveals a gradual improvement after hitting a low in March. The monthly Cement search chart for the industry reflects the same pattern of continuous sequential recovery even though June seems to break the trend when removing the effect of fuel and working dates during the month, the average daily dispatches show that the positive trend is in place.

Additionally, this July data suggest we are reaching a new level for the second half of this year. The macroeconomic conditions remain challenging, but as economic variables stabilize, the industry can find a solid foundation for growth. The industry’s bulk Cement dispatches remain the most affected by this context, down 41% year-on-year while bagged cement posted a construction of 24%. When looking at the breakdown by dispatch mode for the quarter, bulk shipments represent 39% of the total dispatches, while the bulk format gain terrain reaching 61%, six percentage points above the second quarter of 2023. Turning to Slide 5 for our review of our top-line performance by segment, the first quarter top line showed a decrease of 28%, mainly due to a lower top-line performance of the Cement business followed by the rest of the segments.

The Cement, masonry & lime segment was down 26.1% with volumes contracting 32.5% year-on-year. The decline in volume was partially offset by a strong price performance, although the contraction affected both dispatch modes bulk cement was hit the hardest. In our bulk client segmentation industry and construction companies remained significantly down while public works only began to show some early signs of activity towards the end of the quarter. Concrete revenues decreased by 47% in the quarter, mainly due to the 45% decrease in dispatches. The type of projects that are the core of our business are still lagging behind in terms of activity reactivation. Aggregate segments show a decrease of 36% with state volumes down 25% following the trend of the Concrete segment.

Finally, Railroad revenues decreased by 14.5% in the quarter. Transported volumes were down 22.5%, primarily affected by the lower level of activity in the Construction sector, partially compensated by improvements in transported volumes of fracsand and grains. The positive price dynamics also helped compensated for the lower volume. Moving on to Slide 7, the consolidated gross profit for the quarter declined 18.1% with a margin expansion of 329 basis points to 27%. That partially offset the volume contraction on our core business. Regarding the Cement segment, the favorable price trend and strict cost management along with reduced appreciation partially mitigate the impact of lower sales volume. Consolidating the cost of Cement sales, the clinker used during this quarter was mostly produced during the warmer months when energy inputs were lower.

To mitigate higher energy costs and a potential natural gas shortage, most of our kilns were shut down during this quarter. We plan to utilize our clinker stock anti-spring at which point we will restart kiln [ph] operations. In terms of electrical energy, the company decreases energy requirements by halting the primary grinding phase on the Cement production process. This enables us to increase the proportion of renewable energy in our matrix to 61%, up from 36% in the second quarter of 2023, consequently reducing energy costs. Railroad also show a margin expansion while Concrete and Aggregate posted significant construction as these segments were more affected by a current context. Finally, while SG&A expenses decreased sharply by 28.5%, mainly due to lower salaries, a decrease in turnover tax and freight costs related to lower volume and a decrease in insurance costs.

As a percentage of sales, it remains flat at 9.4% despite the decrease in the top-line. Please turn to Slide 8. Our consolidated adjusted EBITDA for the quarter stood at $51 million. In pesos adjusted EBITDA was down 11.7%, reaching Ps. 38 billion with a consolidated EBITDA margin of 28.21% showing an expansion of 520 basis points year-on-year. On a sequential basis, the margin showed an even higher increase jumping 552 basis points. Cement segment adjusted EBITDA margins stood at 31.5%, expanding 565 basis points. The positive prior performance at tight cost management and better energy inputs mitigates the lower sales volume. In a per ton basis EBITDA reached $45 per ton, increasing 22.6% year-on-year. Concrete adjusted EBITDA decreased Ps. 1.1 billion compared to the same quarter of last year with a margin contraction of 796 basis points reaching minus 5% it is primarily due to the sharp drop in dispatches as the recovery of these types of works that are targeted by these segments are still lagging behind in the recovery.

The adjusted EBTIDA margin of Aggregates contracted to minus 10.8% from 5.3% in the second quarter of 2023, mainly due to lower volumes, lower fixed cost absorption and a price performance affected by product mix. Finally, the adjusted EBTIDA margin of the Railroad segment expanded by 153 basis points in the quarter to 6.3%, primarily due to the positive price performance and boosted by an increase on the average transported distance. Moving on to the bottom line on Slide 10. This quarter, we posted a net profit attributable to owners of the company of Ps. 29.6 billion compared to a net profit of Ps. 9.5 billion in the second quarter of 2023. The solid operational performance despite reduced volumes and a higher overall financial gains account for the improved results.

Financially, the positive effect of inflation on the net monetary position is a primary factor for this variation along with a reduced impact from exchange rate difference due to the reduced pace of the valuation and lower net financial cost. However, this gain was partially offset by increase in income tax expenses. Moving on to the balance sheet. As you can see on Slide 11, we ended the quarter with a net debt of Ps. 119 billion consequently, our net debt to EBITDA ratio stood at 1.26 times compared to 1.4 times at the end of 2023. Maintaining a comfortable indebtedness position, our operating activities cash generation stood at Ps. 16 billion pesos compared to a cash generation of Ps. 44 billion [ph] in the same period of 2023. While the decrease is mainly due to a lower waiting performance at higher working capital needs.

Our clinker inventories will mostly be used during the winter seasons when most of the kilns will remain shut down. Regarding capital expenditures, we allocated Ps. 16.3 billion pesos monthly for maintaining CapEx and for the 25 kilns back projects. During the quarter, the company used Ps. 2.1 billion in financial activities, primarily for interest payments, which were mostly offset by proceed from borrowings net of repayments. In dollar terms, our total debt reached $220 million, standing our net debt at $217 million at the end of this quarter with a duration of one year, breaking it down by currency, the dollar denominated debt represents 63% of the total debt, while the rest is in pesos. The company will address the maturity of the Class 1 bond issued in pesos during this third quarter.

As the second half of the year require less capital due to the utilization of stocks during the winter we will meet the short term obligation with our cash generation and our bank credit lines. Now for our final remarks, I would like to handle the callback to Sergio. Thank you.

Sergio Faifman: Thank you, Marcos. Now to finalize the presentation, I please ask you to turn to Slide 13. Following a challenge start to the year where the macro environment had a significant impact on the Cement part, the second quarter started to show clear sign of recovery, which have continued to strength in the recent months with July being very promising. By leveraging our expertise and operational efficiencies, Loma achieved another robust quarter by notable margin growth. We are hopeful that the activity level will maintain the encouraging recovery trajectory. With the stabilization of crucial economic factors, including a significant reduction in inflation, the attractive foreign direct investment, among other initiatives, we are confident that the construction industry has a remarkable opportunity on the horizon.

Finally, I would like to thank all our employees for their commitment and extend my gratitude to the rest of our stakeholders. This is end of our prepared remarks. We are now ready to take questions. Operator, please open the call for questions.

Operator: [Operator Instructions] And the first question comes with Paul Smith with UBS.

Alberto Valerio: Hi. Good morning. Actually, it’s a Alberto Valerio [indiscernible] on our number. Thank you, Sergio and Marcos and Diego for taking my question. I had two. The first one, it’s about July, volumes and price. We see a much better reach for the north. It’s a trend or it was a one off, not. And if you permit my second question, it’s about margins in terms of we see volumes dropping strong, more than 30% year-over-year, but we see margin increase. My question is if this is sustainable for the future. Was amazing job done for you guys in terms of energy savings given the inventory on the summer, but I would like to see for the future if you can keep on this pace or if you could see some reversal on margins? Thank you very much.

Sergio Faifman: Hi, Alberto, thank you for your question. Volumes of July, as you have seen, had a very interesting recovery from the volume show in June. [Foreign Language] We believe that this trend is going to continue with similar volumes of the ones that we saw in July. [Foreign Language] We believe that due to several steps that we have achieved in Argentina, we are reaching a new level of dispatches. [Foreign Language] The consolidation of lower inflation, the gap between FXs and are some of the factors that are improving the situation in Argentina. [Foreign Language] The recovery of real wages and the increase in credit, especially in mortgage loans are also factors that are boosting the dispatches. [Foreign Language] We are starting to see some moderate increases in the level activity of public works and we expect to see that trend also improving in the second semester.

[Foreign Language] We believe that it will improve in the upcoming months. [Foreign Language] Regarding prices we expect to maintain this level of prices. [Foreign Language] Our politic regarding prices, as we always say, it follows different issues as the effects, but also the evolution of our internal costs. [Foreign Language] And we are not seeing any change in this strategy for the future. [Foreign Language] Regarding margins, even though we might see some impact in the upcoming quarter due to thermal energy. [Foreign Language] But this effect must be very soft. We don’t expect a huge change there. And also you have to consider that in September we are going to start using the contract that we already signed. And this contract showed a very significant increase from the levels of the energy inputs that we have been using.

[Foreign Language] So for the rest of the year, we are expecting to maintain our margins and even see some improvement in the fourth quarter of the year.

Alberto Valerio: Thank you.

Sergio Faifman: [Foreign Language]

Operator: Thank you. And the next question comes from Maria Matema [ph] of Latin Securities.

Unidentified Analyst: Hi, good morning. Thanks for taking my question. So, you mentioned that you expect the recent uptick in activity to continue during the second half of the year. What do you believe will be the main drivers of recovery? Would it be the resumption of public works or private projects? And could the approval of the Rige [ph] have any positive impact on cement dispatches?

Sergio Faifman: Hi Marina, thank you for your question. [Foreign Language] The drivers are the ones that we just mentioned and they are impacting more in private works than in public works. [Foreign Language] As we believe in the next two weeks we are going to see what the recommendation for the Rige program. [Foreign Language] And there are projects, especially in the mining sector that are standby, and probably with this new regime, they will be ready to start. [Foreign Language] So with the Rige and also with the increase in credit lines and with the start of several private works that we have been seeing in the past few weeks or months, are the pillars that we expect to see the future world to sustain with.

Unidentified Analyst: Thank you.

Operator: Thank you. And the next question comes from [indiscernible] with Itau BBA.

Unidentified Analyst: Hi, Sergio. Hi, Marcos. Hi, everyone. Thanks for taking my question. Here. I have two. The first is related to capital allocation. I mean, the company has been able to deliver is still decent results during the first half of this year, despite the economic headwinds and so on. And also the company still have a strong and healthy capital structure. So I’d like to understand, in terms of capital allocation, what are the companies or management’s views regarding dividends and CapEx for this year? So this is my first question. And the second question is related to market share. You guys mentioned that you expect to maintain such price levels for the second half of this year. So I’d like to understand, how is the company thinking about maintaining its market share in the summit market in Argentina? So these are my two questions. Thank you, guys.

Sergio Faifman: Hi, Marcelo. Thank you for your question. [Foreign Language] I’m going to start with the second question. [Foreign Language] The level of prices and market share are two things that we follow up close. [Foreign Language] And the market share obviously have monthly variations in a plus or minus variation where we feel comfortable. [Foreign Language] But we don’t have a policy of growing market share with lowering prices, because we believe that this will destroy value for the company in the long term. [Foreign Language] So the price in this quarter and the prices that you will see in the future are going to be alongside a level of market share where we feel comfortable. [Foreign Language] Regarding capital allocation in the next quarter we have some maturities of short term debt, and we expect to address that with some cash generation and short term lines with banks.

[Foreign Language] And regarding also capital allocation, we are seeing all the alternatives that might add value to the shareholders. [Foreign Language] So in the upcoming months, we will decide what is going to be the destiny of the cash generation of second semester.

Unidentified Analyst: Okay, thank you so much, guys, and congrats on the results.

Sergio Faifman: You’re welcome.

Operator: And the next question comes from Alejandra Obregon with Morgan Stanley.

Alejandra Obregon: Hi, good morning, Loma Negra. Thank you for taking my question. I was wondering if you can give us some color on the mix of your volumes, meaning bag versus bulk today. And where do you see that going towards 2025? And finally, when you talk about maintaining prices for the second half of the year. Just curious if there’s a mixed effect embedded into that comment as you shift away from that. Thank you.

Sergio Faifman: Hi, Alejandra. Thank you for your question. [Foreign Language] After that, I’m going to ask you to repeat the second question, because we didn’t actually get it. Regarding the first one, the percentages or the participation of buck and bulk are within the historic parameters. [Foreign Language] But in the case of actually what is happening in this past quarter in June and July, we saw a recovery, a more sharp recovery of the back mode of dispatch, and that should be due to a recovery of the real wages and also the positive impact of the increased credit lines, mortgage lines. [Foreign Language] But the percentages are still 60% box and 40% bag with some minor variations month to month.

Alejandra Obregon: Got it. That’s very clear. So perhaps a follow up. So when you’re mentioning 60% to 40% mix today, but I would assume that maybe as we move forward into 2025, then bulk will start to contribute more to the mix. So how should we think of pricing, given that there’s a shift in mix where bulk will likely have a negative effect on the price mix? So when you talk about maintaining prices, does that mean that you are expecting perhaps more price increases on that side of the mix? I don’t know. That’s perhaps a little bit more clear.

Sergio Faifman: [Foreign Language] The strategy of pricing is very similar in both modes of dispatch. [Foreign Language] And the margins in bulk and bags is also very similar. [Foreign Language] And our market share in both dispatch modes are also very similar. [Foreign Language] We have seen cases in the past where we saw a variation in the participation of these two modes of dispatches, and we didn’t see any impact on pricing.

Alejandra Obregon: Gotcha. That’s very clear. Thanks again for taking my questions.

Sergio Faifman: You’re welcome, Alejandro.

Operator: Thank you. And this concludes our question-and-answer session. I would like to turn the conference back over to Sergio Faifman for any closing remarks.

Sergio Faifman: Thank you all for joining us today. We really appreciate your participation, and we expect to meet you again in our next call. Thank you very much and have a nice morning.