Good morning. Welcome to the Loma Negra second quarter 2019 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 0. After today's presentation, there will be an opportunity to ask questions. Also, Mr. Sergio Faifman will be responding in Spanish immediately following an English translation. To ask a question, you may press star, then 1 on your telephone keypad. To withdraw your question, please press star, then 2. Please note this event is being recorded. I would now like to turn the conference over to Mr. Gaston Pino, IR Manager. Please go ahead.
Thank you. Good morning, everyone, and thank you for joining us today. We appreciate everyone's participation. 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. Speaking during today's call will be Sergio Faifman, our CEO and Vice President of the Board of Directors, and our CFO, Marcos Gradin. Both 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. I refer you to the forward-looking statements section of our earnings release and the 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. Now, I would like to turn the call over to our CEO, Sergio Faifman.
Thank you, Gaston. Hello, everyone, and thank you for joining us today. It's a pleasure to welcome you to Loma Negra second quarter 2019 earnings conference call. I will begin my presentation with discussion of the highlights of the quarter, and then Marcos will take you through our market review and financial results. Afterwards, I will provide our outlook for the remainder of the year. Finally, we will open the call to your questions. Starting with slide three. We end the quarter with another solid set of results as we remain focused on looking for profitability and government initiative. Our top line decreased by 2.2%, still affected by a weak economy that start to show sign of stabilization. In the sense, in the last month, cement demand presented a couple of positive number in year-on-year basis, starting to observe anticipant recovery of private consumption.
In the back of a positive pricing environment and our cost efficiency initiative, because our EBITDA grew by 7.1%, a margin expansion of 225 basic points. During the quarter, we continued with our effort to streamline our production footprint, this is the reason why we converted the Barker facility into a grinding and distribution center. Consequently, we incurred in some non-recurrent costs. Excluding this effect, the EBITDA margin for the second quarter would have been 28.3% or 476 basic points higher than second quarter 2018. As shown on this slide, using the period accounting methodology and mainly in US dollar. In this quarter, we achieved an adjustment EBITDA of $44 million. Excluding the non-recurrent charge mentioned before, EBITDA in the second quarter would have been around $49 million, remaining flat year-on-year, despite the 10% contraction in the cement volume and the sharp peso depreciation.
The bottom line increased 525% year-over-year as a consequence of a good operation result and the reversal of the financial loss in the second quarter of last year. Additionally, our robust balance sheet with net debt to last 12 months EBITDA of 0.76 times provide us with a solid position to execute our strategy. Expansion of our L'Amalí plant continued to be a key element of our long-term strategy and will contribute to our production efficiency and profitability. The project continue on track, and the kick-in date is expected to be at the end of the second quarter next year. I will now hand off the call to Marcos Gradin. Please, Marcos, go ahead.
Thank you, Sergio. Good day, everyone. Turning to slide four, let me start by providing a quick overview of the macro environment and industry trends in Argentina. Construction activity measured through the ISAC declined in the second quarter of the year, signaling that the downturn started last year has yet a carryover. Economists' expectations still call for a 1.4% construction GDP for this year, recovering gradually only after the second half, reaching growth of 2.2% by 2020. During this second quarter, the cement industry declined by a rate of 5.4% year-over-year. In a sequential basis, the second quarter remained almost flat when compared to the first quarter of this year. Taking a closer look to the cement demand, bag and bulk segments continue to present different dynamics. Bag segment declined by 9%.
By contrast, bulk cement demand increased by 2.8%, continue to be supported by public works, coupled by increasing demand driven by private projects. Consequently, bulk cement demand continues to increase its share in total cement sales, reaching 44% of total sales.
According to recent data, we started to see some signs of stabilization with year-on-year growth in May and July, explained by a mild recovery of private consumption, driven by a higher purchasing power, as inflation keeps trending down and wages increase in real terms. Looking into 2019 second half, we still expect the negative cycle that began in this second quarter of 2018 to turn around following consensus expectation of an overall macroeconomic recovery in Argentina. Please turn to slide five for a review of our top-line performance by segment. Revenues were down 2.2%. For the quarter, cement revenues remain almost flat, impacted by sales volume drop of 10%, but compensated by a healthy pricing environment. In Paraguay, revenues were up 11%, driven by the guaraní position against the peso, with volumes rather stable.
Concrete segment present a decline of 17.6% in revenues, as both sales volume and prices were down when compared to the strong second quarter in the year ago period. Several large infrastructure projects that have commenced in recent years were in completion phase. During this year, other new large projects did not ramp up yet. Railroad revenues decreased 6.5% year-on-year, as price decreased in real terms and sales volume slipped 2%, mostly affected by lower transported cement. By contrast, Aggregates revenues were up 24.6% year-on-year during the period, driven by improving volumes and prices. Moving on to slide six, consolidated gross profit for the quarter was down by 4.9% year-on-year, with a margin expansion of 72 basis points, reaching 25.7% in the quarter. Non-recurrent costs related to reconverting Barker accounted approximately ARS 188 million or $4.2 million.
If excluded, gross profit would have grown by 4.5%, with margin expansion of 179 basis points to 28.2%. Energy cost continues to decline as a result of cost opportunities related to natural gas and as electricity supply, affecting positively our gross profit. G&A expenses, as a percentage of revenues, decreased by 108 basis points to 6.5%, positively impacted by previous structural equity measures are adopted in the first quarter of 2018, together with a further reduction in the effective sales tax rate. Please turn to slide seven. Despite the softer demand, we reached consolidated adjusted EBITDA growth of 7.1% in the quarter, over ARS 1.9 billion or $44 million, with margin expanding 225 basis points to 25.8%, mainly driven by the cement segment in Argentina and Paraguay, and further supported by growth in Railroad.
Excluding the non-recurrent charges, the EBITDA margin would have been 28.3%, reaching ARS 2.1 billion or $49 million. This EBITDA in US dollars remained flat when compared to a year ago. When excluding the application of inflation accounting, adjusted EBITDA for the cement segment in Argentina increased 62% year-on-year, and the margin expanded by 113 basis points to 29%. Excluding the non-recurrent cost, it would have been 32.6%. Also, Paraguay posted around 112% growth in adjusted EBITDA, with a margin of more than 41%, improving 745 basis points compared to second quarter 2018, when we had to acquire clinker to a third party. Our concrete segment reported a decline in adjusted EBITDA, reaching ARS 15.5 million with a margin contraction of 186 basis points, from 3.4% to 1.5%, mainly as a result of lower sales volume and a more competitive price environment.
We continue to post margin expansion in our Railroad segment, with adjusted EBITDA margin up more than 950 basis points year-on-year to 12.8%, as a result of structural and equity efforts. Aggregate segment adjusted EBITDA remained almost flat as higher volume and favorable pricing environment was compensated by higher cost of sales. Notably, despite the strong devaluation of the Argentine pesos in the second quarter year-on-year, around 90%, together with our decrease in volume, our cement business in Argentina remained relative stable in terms of recurrent EBITDA per ton measured in U.S. dollars, above $30 per ton, 8% over the year-ago quarter. Moving on to the bottom line on slide eight, net majority income for the quarter increased by 525% year-on-year, reaching ARS 1.1 billion, mainly due to an improvement in financial results.
Total financial results represented a gain of ARS 264 million compared to a loss of ARS 954 million in the second quarter last year, which have been impacted by FX depreciation. Accordingly, measured in US dollars, our net majority income increased by 5%.
114% to PYG 16 million in the quarter, from PYG 8 million in the year-ago quarter. Moving on to the balance sheet. As you can see on slide nine, our robust balance sheet provide us with a solid position to move ahead with our meaningful investment plan. We continue to make progress in our capital expenditure plan with investment for the quarter reaching ARS 2.7 billion, or approximately $61 million. We finished this quarter with a net debt to adjusted EBITDA ratio of 0.76 times, compared to 0.69 times in the previous quarter and 0.43 times in fiscal year 2018. Our net debt at the end of the quarter was $164 million, with a gross debt breakdown by currency of 37% in hard currency, 33% in ARS, and 30% in US dollars. I will now hand over the call back to Sergio.
Thank you, Marcos. Now please turn to slide 10. Before taking your question, I would like to mention that we are pleased to continue delivering strong results while executing on our immediate priorities. In this sense, on the last quarter, we put our effort in streamlining our production footprint in Buenos Aires region. L'Amalí plant expansion is part of this strategy and will allow us to continue increasing production efficiency and profitability while providing much needed capacity for when demand fully recovers. Certainly, some volatility could be expected associated with the election process in Argentina. Some signs of stabilization in the economy, together with the recovery momentum in the industry, are encouraging us to remain positive for the second semester of the year. Our history, leadership, and determination in the search for greater productivity provide us a solid base to keep on delivering strong results.
This end of our prepared remarks. We are now ready to take questions. Operator, please open the call for questions.
Thank you. We will now conduct a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star then two if you'd like to remove your question. 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 like to ask that you please limit your question 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 Faifman will be responding in Spanish immediately following an English translation. Please hold momentarily while we assemble the roster. Our first question today comes from Alejandra Obregon with Morgan Stanley.
Please go ahead.
Hi, good morning, thank you for taking my question. I have two, if I may. The first one is on the volume side. It seems like the negative 10% volume for the second quarter is lower than that for the industry. Just trying to understand if there's some share losses during the quarter or that's driven by regionality case, perhaps. My second question is with regards to the competitive environment. I was just trying to understand the pricing behavior in the cement space. Seems like cement inflation in the country is running at close to 84% for the quarter. If I'm not mistaken, price increases on your operations were somewhat below that. Just trying to understand if you saw some more aggressive pricing strategies in certain areas or maybe by certain competitors, perhaps. Thank you.
Good morning, Alejandra. Thank you for your question. Regarding the volume, we have in this quarter an impact in our market share, in line what we have been talking about. Basically, regarding the price increases, as we are the leaders, we are the first movers, and the competitors, they have a lag in the time that they increase prices. Additionally, we had two other impacts. One was regarding an adverse weather and the other one regarding the large infrastructure in certain regions that had a consequent impact in our national market share.
Temas que tuvimos sindicales en la operación. Seguramente ha impactado con algún impacto menor, pero ha tenido algún impacto en el volumen de provincia de Buenos Aires.
In particular, the reconversion of the Barker plant brought some issues with the unions, and this may have a minor impact in our market share as well.
Tanto la situación de Barker, resolvida, como también esos factores puntuales del trimestre, sumados a la inflación, que está siendo un poco menor y los aumentos de precios se dilatan un poco más en el tiempo, es que estamos esperando un cambio de tendencia en el market share para los próximos meses.
Considering both the market share, the Barker conflict, and the other two aspects that we mentioned, together with the inflation trending down, we expect this effect in our market share to reverse in the coming months.
Con respecto a la otra pregunta en cuanto a precio, no. En realidad, nuestro aumento de precios el último año estuvo bien arriba de la inflación. Si uno mira la inflación del último año, está cerca del 55%.
Regarding the other question about prices, actually our prices increased above inflation in the last year. Actually, the inflation number is 55%.
Understood. This was very helpful. Thank you very much.
Thank you.
Our next question comes from Mauricio Serna with UBS. Please go ahead.
Hi. Good morning. Thanks for taking my question. My questions are regarding the L'Amalí plant project. Just wanted to get a sense. You mentioned that the expansion line should be operational by the second quarter of next year. How much of the CapEx for this project has already been deployed? In that sense, how should we think about the ramp-up? I know you discussed about the lower variable cost per ton of production in this plant, but how fast will the company be actually able to materialize this lower variable production cost? On that note, what kind of utilization level should we think about? Meaning, are you pretty much reallocating a lot of the production from other plants to this one to fill up its capacity? How should we think about this project going forward? Thanks.
Buen día, Mauricio. Gracias por la pregunta.
Good morning, Mauricio. Thank you for your question.
Respecto del CapEx de L'Amalí, acumulado hoy al segundo quarter, llevamos cerca de $200 million de CapEx y la proyección sería que están faltando cerca de $50 million para el segundo semestre del año y cerca de $70 million-$80 million para el próximo año.
Regarding your first question about the CapEx accumulated until the second quarter this year, we already spent ARS 200 million. For the second semester, we expect ARS 50 million, and the reminder for 2020 would be around ARS 80 million.
La fecha estimada del proyecto va a ser a fines del segundo quarter del próximo año.
The estimated startup date for the project would be at the end of the second quarter next year.
Como todo proyecto de este tamaño, obviamente va a tener un periodo de dos o tres meses de setup de la fábrica y de ramp-up.
As any project of this size, it will have a ramp-up period of two to three months.
Con lo cual esperamos que las mejoras que tienen que ver básicamente con costo variable y posteriormente las de productividad se den recién en el último trimestre del próximo año.
Therefore, we expect that all the benefits coming from this project from productivity and variable cost will materialize by the second semester of fourth quarter of 2020.
Okay, thanks. Is that assuming it's on a high utilization level? I don't know, like 80%, 90%? How should we think about utilization of that capacity?
El volumen va a depender, lógicamente, del mercado, pero siempre la premisa va a ser utilizar al máximo la nueva línea, que es la más productiva, y bajar la producción de las otras fábricas.
The volume, of course, will depend on the size of the market, but we are always going to have this plant as the priority to produce on top of the other ones.
Okay. Makes sense. If I may, just very quickly on the restructuring costs, are we done with these or should we continue seeing more of these on the second half of the year?
La verdad es que nosotros continuamente tenemos el foco en buscar oportunidades. Hoy, en principio, no tenemos ninguna oportunidad que estemos haciendo mañana, pero sí continuamos buscando oportunidades en costo variable y costo fijo, y en la medida que podamos hacerlas por capacidad y por mercado, las seguiremos haciendo.
We are always seeking for these kind of opportunities in order to reduce our variable costs and our fixed costs. We're going to do as much as we can.
Thanks. Very helpful.
Our next question comes from Eric Ng-A-Luuard with Bank of America. Please go ahead.
Hi. Good morning. Thank you for the call. A couple of follow-up questions on Alejandra's point. Out of the three impacts you mentioned, could you maybe quantify how much comes from each impact or which of the three impacts is the most important for the decreasing in volumes? Regarding the lower demand from the large infrastructure projects you mentioned, should we expect seeing this during the second half of the year or at least until the elections go by and then the new administration takes office by the beginning of next year? Was this just a temporary situation that happened during the second quarter? Thank you.
Good morning, Eric. Thank you for question. We do not give specific numbers around the market share, but the order of priority is first the delay in prices, the impact of the delay in prices. Second, the impact of the adverse weather conditions. Third one, the completion phase of the large infrastructure projects. Finally, although it was a minor effect, the reconversion process of the Barker facility also had an an impact. Regarding the infrastructure projects, we are observing that the schedule is in line what it was previously expected, although new projects are lagging to ramp up, especially the large infrastructure projects. What we are observing now is an incipient growth in the private demand and also a reversion on the bag segment that is starting to grow again.
Understood. Thank you very much.
Thanks, Eric.
This concludes our question and answer session. I'd like to turn the conference back over to Mr. Gaston Pinnel for any closing remarks.
Thank you for joining us today. We appreciate your interest in our company, and we look forward to meeting more of you over the coming months and providing financial and business updates next quarter. In the meantime, the team remains available to answer any questions that you may have. Thank you very much, and enjoy the rest of your day.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time, and have a wonderful day.