Loma Negra Cia Industria reports Q3 decline in revenue and EBITDA but anticipates recovery with improved market conditions following elections.

OPERATOR - (00:00:57)

Good morning and welcome to Loma Negra Cia Industria third quarter 2025 conference call and webcast. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation there will be an opportunity to ask questions. Also, Mr. Sergio Feisman will be responding in Spanish immediately following an English translation. To ask a question you may press star then one on your telephone keypad. To withdraw your question, please press Star then two. Please note that this event is being recorded. I would now like to turn the conference over to Mr. Diego Jalon, head of IR. Please Diego, go ahead.

Diego Jalon - Head of Investor Relations - (00:01:55)

Thank you. Good morning and welcome to Loma Negra Cia Industria'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 Feithman, our CEO and Vice President of the Board of Directors and our CFO Marco Radin. Both of them will be available for the Q and 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 Feithman - (00:03:03)

Hello everyone and thank you for joining us this morning. I would like to start my presentation by discussing the highlights of the quarter. Then Marco will take you through our market review and financial results. Following that, I will share some final remarks before opening the call to your question. Starting to slide 2. During the third quarter, industry activity lost momentum as the broader economy is lower. The electoral process and uncertainty around the sustainability of the economic framework combined with higher interest rates in Pesos ending up negatively affecting shipping level for both the industry and for Loma which declined 5% year over year. That sign volume recording in September and October provide encouraged signs as we look ahead in terms of resultss in this more challenging context. Our consolidated adjustment EBITDA margin contracted to 20.8% in the quarter. However, it remained almost stable versus the previous quarter despite the higher cost pressure than the typical oaks in the third quarter. Please bear in mind that energy costs are seasonally affected by the winter period Adjusted EBITDA reaching $36 million reflecting on 23.7% reduction with emissions in pesos. On the balance sheet side, net Debt declined by $9 million quarter over quarter to $206 million. In addition, following the Class 5 bond issuance, we significantly improve our maturity profile and our leverage metric remain at comfortable level for the company. I will now hand off the call to Marco Radin who will view for our market review and financial results. Please Marcus, go ahead.

Marco Radin - Chief Financial Officer - (00:05:07)

Thank you Sergio. Good morning everyone. Please turn to Slide 4 after a solid first half of the year. Forecast for the third quarter now point to a weaker performance of the Argentine economy and full year growth expectations were revised down to around 3.9%. This dynamic is fully reflected in construction and the cement industry. The recovery trend began to lose some steam, mainly due to uncertainty around the election process and questions about the sustainability of the economic progress. After two quarters of growth, cement dispatches fell around 1% in the quarter, largely explained by a soft July. And although September volumes were the highest in 22 months, they weren't enough to offset the quarterly decline. Bagged cement remained the most impact format as it is more tied to retail and residential demand. On the other hand, buck dispatches continue to perform well in line with what we saw in the second quarter and reached 44% of total industry dispatches. Looking at the most recent data, October's volumes show renewed strength with a 7.4% year over year increase and year to date volumes are also up 7.4%. Now with the election behind us, we. Expect uncertainty to start easing. The outcome of the election could be seen as a validation of the government's policy direction which may help unlock investment projects that have been waiting for a more stable framework. So overall we remain optimistic that this renewed confidence will gradually put the industry recovery back on track. Turning to Slide 5 for our review of our top line performance by segment. Second quarter top line declined by 12.5% primarily due to weaker performance in the cement segment followed by softer results across the remaining segments. Revenue in the cement measuring cement and line segment declined 13.2% year over year, driven by a 5.4% contraction in volumes and softer pricing year over year. As we mentioned, this quarter we saw a halt in the recovery trend that has started in the first half. Bulk seven dispatches continue to be the dispatch method showing the best dynamics supported by industrial and commercial projects and by larger housing developments. In addition, provincial level public works began to gain momentum adding volume to the dispatch method. Bagged cement remained more pressured as weaker overall consumption continues to impact retail and residential demand. When comparing Loma's performance with the industry, our bulk dispatches grew below the industry this quarter. It is also important to note that our segment includes masonry cement and lime, which behave more similarly to back cement, while industry statistics disclose volumes exclusively for gray cement. In the same sense, top line was also affected by softer pricing conditions versus Q3 2024. Although cement prices in pesos delivered a positive quarter over quarter performance when adjusted by inflation, concrete revenues remained broadly flat versus third quarter 24 as a 37.8% increase in volumes offset softer pricing dynamics in a highly competitive environment. Volume growth was supported by private developments mainly in logistic infrastructure and residential construction, and also benefit from higher activity in public infrastructure projects across the metropolitan Buenos Aires area and in the province of Santa Fe. Similarly, the aggregate segment also remained flat, posting a slight 0.8% revenue decline. Sales volumes rose 26.3% driven by higher activity in road construction and railroad projects, partially offsetting the impact of softer pricing. Pricing was also affected by the sales mix as road construction projects primarily require fine aggregates which carry a lower unit price and reduce the overall average. Aggregate revenues declined 14.9% in the quarter. A 3.9% increase in supported volumes only partially mitigate the effect of weaker pricing. In addition, the ongoing disruption of the railroad line in Bahia Blanca continues to affect longer haul traffic, mainly grains, gypsum and frac sand reducing ton kilometers transported and consequently revenue generation. Moving on to slide 7. Consolidated gross profit declined 32.5% while gross margin contracted by 524 basis points year over year reaching 17.3%. In the cement segment, cost of sales decreased 8.7% year over year with a 3.5 reduction in unit cost. Despite the seasonal impact of higher winter energy costs, a higher depreciation associated with the completion of the 25-kilogram project, effective cost management strategies helped offset the weaker pricing environment. Lower maintenance costs and improved thermal energy inputs. Prices also supported the quarterly cost structure continue the trend from previous quarter. Thermal energy contract signed last year which included year over year tariff reduction together with short term agreements linked to oil production at tariffs below $1 per billion BTU helped contain variable cost. On the electrical energy side, lower consumption helped offset higher electricity tariffs as the company continued to face the impact of increased transmission and distribution costs. The contraction in cement was accompanied by decline across the remaining business segment. Finally, SGNA expenses decreased 11.7% mainly due to lower freight and sales tax. Expenses resulted from reduced sales volumes as well as a lower impact from salaries and professional consulting fees. As a Percentage of sales SGA stood at 9.1%, remaining flat year over year. Please turn to slide 8. Consolidated adjusted EBITDA for the quarter stood at $36 million while in pesos reached 43 billion, reflecting a 23.7 year over year decline. This decrease was primarily driven by lower EBITDA generation in the cement segment followed by weaker results in the concrete and railroad segments. In line with this performance, the consolidated EBITDA margin contracted to 20.8%, representing a 315 basis point declines year over year while remaining broadly in line quarter over quarter. Despite the typical cost pressure of the third quarter. In the cement segment, adjusted EBITDA margin. Contraction was more moderate reaching 24.2%, down 129 basis points year over year, mainly due to a softer price pricing environment which despite showing an improved sequential trend, still lacks on a year over year basis. Cost on a per ton basis excluding depreciations declined 6.15%, supported by lower thermal energy prices and maintenance costs which partially offset the weaker top line. The concrete segment saw its adjusted EBITDA margin decline by 1093 basis points reaching negative 6.8% versus 4.2% in the first quarter of 2024 as cost controls and higher volumes were not sufficient to offset softer pricing dynamics in a highly competitive environment. In the aggregate segment, the adjusted EBITDA margin improved by 36% basis point 2. Minus 16.7% compared to minus 17 in. The same quarter of last year. Although volumes continue to improve during the quarter, the persistent market challenges ad a. Unfavorable product mix continue to weigh on the segment's profitability. Regarding the railroad segment, the adjusted EBITDA margin contracted to 920 basis points to 3.4% in Q4.25 from 12.6 a year ago. Transported volumes improved slightly, mainly driven by higher shipments of granite and teak aggregates. However, the ongoing disruption of the railway line in Bayablanca continued to affect longer haul traffic, primarily grains, gypsum and frac sand, reducing ton kilometers transported and consequently raised revenue generation. These impacts were partially offset by cost. Reductions moving to the bottom line on slide 10, net loss attributables to the owner of the company totaled 8.5 billion pesos for the quarter, compared to a net gain of 27.9 billion pesos in the third quarter of last year. This decline was primarily driven by a lower financial result reflecting a more moderate inflationary effect and a higher impact from FX exposure combined with weaker operational performance. However, the decrease was partially offset by lower income tax expenses. On the financial front, the main driver of the year over year variation was a reduced gain from the net monetary position as the inflationary effect of monetary liability was significantly lower than than in. The same period last year. In addition, the exchange rate difference had a higher impact due to the valuation of the pesos during the period. As a result, the company reported a net financial loss of 28.7 billion pesos. For the quarter, compared to a gain of 16.6 billion pesos for the same period of 2024. Additionally, net financial expenses increased 7.5%, reaching 17 billion pesos primarily due to higher interest rates in pesos during the quarter. Moving on to the balance sheet, as you can see on slide 11, we ended the quarter with a net debt of 281 billion pesos and a net debt to EBITDA ratio of 1.49 times, up from 0.89 times at the end of 2024. While still maintaining a comfortable leverage profile, cash flow generation from operation activities totaled 32 billion pesos compared to 84 billion pesos in Q4.24. This mainly reflected higher working capital requirements and a lower operational result. On the working capital side, the economic uncertainty during the quarter and the higher interest rate environment increased working capital needs. This was coupled with higher income tax payments since the company did not make a bad payment during 2024. On the other hand, inventories decreased during the quarter due to seasonality as cleaner production is minimized during the winter months while inventory consumption increases. Regarding investment activities, the company allocated 62 billion pesos in a quarter primarily due to the short term allocation of the process from the Class 5 bond issuance. On the other hand, CapEx decreased by 14.6 billion pesos following the completion of the 25 kilogram bagging projects. During the quarter, the company generated 74 billion pesos from financial activities, mainly from the bond issued in July. The class 5 corporate bond amounted to 114 million pesos with a two year tenure and an 8% interest rate. The new bond was partially subscribed through exchanges withholders of Class 2 and Class 3 bonds. Proceeds will be primarily used to repay the remaining balance of the Class 2 bonds maturing in December. In US dollar terms, net debt stood at $206 million with valuation close to one year. At the end of the quarter, dollar denominated debt represents 81% of total debt, while the remaining is in pesos. Now for our final remarks, I will hand the call back to Sergio. Thank you.

Sergio Feithman - (00:18:27)

Thank you, Marcos now, to finalize the presentation, I please ask you to turn to Slide 13. During the third quarter, the volume recovery trend lost momentum. I mean uncertainty linking to the electoral process. The recovery experienced a temporary slowdown, but they believe the underlying growth driver remains intact. Looking forward, the recent electoral outcome and redefinition of the government economic plan could provide the stability needed to unlock investment projects that have been on hold Annalfruh many of the economic and political challenges remain in place. The election result growth renew optimism which we expect to see reflecting in higher activity levels. I would also like to highlight that during the quarter we begin dispatching the new 25 kilogram bags. After hard work and meaningful investment effort, the new pack format hit the marker successfully and was very well received by both our customer and final customer. I would like to congratulate everyone involved in the project. As we approach the end of the very challenging transition year, we remain optimism about the outlook for more profitability in Argentina and Loma. Continue to focus on optimizing performance and being ready to support the country development and condition normalized. This is end of our prepared remark. We are now ready to take questions. Operator. Please open the call for questions.

OPERATOR - (00:20:12)

Thank you. We will now conduct a question and answer session. If you would like to ask a question, please press Star then one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star then 2. If you would like to remove your line. For participants using speaker equipment, it may be necessary to pick up your handset prior to pressing the keys. Once again, star one on your telephone keypad. We would also like to ask you to please limit your questions to one question and one follow up please. If you have additional questions, you may re queue for those questions and they will be addressed. Also, Please note that Mr. Sergio Fifeman will be responding in Spanish immediately following an English translation. Please hold momentarily while we assemble our roster. The first question comes from Marcelo Fiumo with ETAW bba. Please go ahead.

Marcelo Fiumo - (00:21:27)

Hi everyone, can you hear me?

UNKNOWN - (00:21:33)

Yes, we can hear you.

Marcelo Fiumo - (00:21:36)

Okay, thank you guys. So thanks for taking the questions. My question is related to pricing going forward. So we saw in the third queue actually prices declined by almost $10 per cent when you look into dollars specifically. And you guys mentioned that it was partly explained by the macro environment and due to uncertainty related to challenge momentum, so on and so forth, but also due to competition. So I'd like to understand that moving forward. How are guys seeing the pricing approach for the company? How could you see the evolution for prices in dollar terms moving forward. And my second question, just a follow up regarding capital allocation. So you guys mentionedioned these two healthy financial structure and so forth. I'd like to understand how does the management see the opportunity or the likelihood of dividend distributions for this year or maybe for 26. So.

UNKNOWN - (00:22:35)

Thank you. Hi Marcelo, thank you for your question.

Diego Jalon - Head of Investor Relations - (00:22:52)

Regarding prices. The dynamic is similar to the one that we spoke about last quarter. As we talk about during the second Q, we spoke about adjusting prices above inflation this second half of the year. This quarter we had a correction in dollar terms. FX that obviously impacted the price in dollar terms. But we expect to see the same tendency going forward, increasing prices above inflation. And with a more stable scenario on the FX. Probably we will recover prices in dollar terms.. Returns. Dividends without urgency. Given the situation, the macro situation in Argentina, with the hike in the interest rates and the political uncertainty, we didn't advance in paying dividends so far and we are not expecting to do so in in the remaining of the year. And with this new macro scenario and from what we expect going forward, we will reassume the thinking about paying dividends next year.

Marcelo Fiumo - (00:24:59)

Okay, thank you so much, guys.

Andres Caldona - (00:25:05)

The next question is from Andres Caldona with Citigroup. Please go ahead. Hi guys. Good afternoon. I would like to ask about early color volumes for the 4Q. We saw a nice spring for October. I would like to understand what drives. That better than expected performance. And if you see those dynamics still in place for November, December. Thank you.

UNKNOWN - (00:25:47)

Hi Andres, thank you for your question.

Diego Jalon - Head of Investor Relations - (00:25:56)

And the volumes for October that were recently published showed a recovery in the market. Our vision is that there were two main drivers there. One was that before the elections many people hold on investing in infrastructure. And also with the adjustment in the FX with a lower cost in the dollar terms, some other projects are gaining pace. And seeing the volumes of October and November so far, we are optimistic. Looking ahead, if we continue this scenario of low rates and stable effects and a more stable macro that should give more dynamic to investment projects and increase the level of activity. As is public in recent news, there are some also some public works going on that are going to add more volume and increase the level of activity as well.

Andres Caldona - (00:27:57)

Thank you guys. Good work.

OPERATOR - (00:28:01)

This concludes our question and answer session. I would like to turn the conference back over to Diego Jaylon for closing remarks.

Diego Jaylon - (00:28:14)

Hi, thank you very much everyone for joining us this morning. It's always a pleasure and. We are. Here if you have any other concerns or questions regarding the queue. And we'll see you again for the in the upcoming quarter. Thank you very much.

OPERATOR - (00:28:37)

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.