Good morning, welcome to the Loma Negra first 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 zero. 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 one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I'd now like to turn the conference over to Mr. Gaston Pinnel , IR Manager. Please go ahead.
Thank you. Good morning, everyone, 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 statement. Today's call will contain forward-looking statements, 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.
Finally, I would like to remind you that the company is reporting results of its Argentinian subsidiaries by applying IAS 29, financial reporting in hyperinflationary economies. Now, I would like to turn the call over to our CEO, Sergio Faifman.
Thank you, Gaston. Hello, everyone, thank you for showing up today. It's a pleasure to welcome you to Loma Negra first quarter 2019 earnings conference call. I will begin my presentation with a discussion of the highlights of the quarter, Marcos will take you through our market review and financial results. Afterwards, I will provide our outlook for 2019. We will open the call to your questions. Starting with slide three. We ended the quarter with another solid set of results. Despite the economic slowdown, cement demand in the first quarter contracted year-on-year around 10.6%. Our top line for the quarter increased by 3.6% year-on-year to ARS 7.4 billion. We delivered an increase on adjusted EBITDA of around 18%, achieving a margin expansion of around 350 basis points to 28.7%.
During the quarter, we included some non-recurrent expenditure related to structural adequacy of administrative and commercial process, which result in a reduction of around 10% of this process headcount. Excluding this effect, the adjusted EBITDA margin will have been 30.6% or 528 basis points higher than one quarter 18. This is a demonstration to our continued focus on balanced growth and profitability. Our core Argentine cement business remaining the principal factor behind these strong results, together with a good performance in Paraguay, concrete, and Railroad. This resulting in year-on-year bottom line increase of 48%. As shown on this slide, using the IAS 29 accounting methodology and measuring in US dollars, in this quarter, we achieved an adjusted EBITDA of $54 million.
Excluding the non-recurrent structure adequacy costs, adjusted EBITDA in the first quarter will have been around $58 million, down by only 3% year-on-year, despite the 13% contraction in the cement volume and the sharp ARS depreciation. Additionally, our robust balance sheet with net debt to last 12 months adjusted EBITDA of 0.59 times provide us with a solid position to face the current volatility of the local financial market. The expansion of our L'Amalí plant continues 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 start-up date is expected to be in the second quarter of the 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 first three months of the year, signaling that the downturn started last year has yet to carry over at the beginning of 2019. In this regard, economists' expectation called for a 1.3% contraction in GDP for this year, recovering gradually only after the second half, reaching growth of 2.2% in 2020. During this quarter, the cement industry declined by a rate of 10.6% year-on-year, but showing a softer decline when compared to the same rate of the previous quarter. Taking a closer look at to the cement demand, bag and bulk segments continues to present different dynamics. Bag segment declined almost by 15%.
By contrast, bulk cement demand only by 3.5%, continued to be supported by public infrastructure work. Thus, bulk cement demand continued to increase its share in total cement sales, reaching 43% of total sales.
Looking into this year, we still expect the negative cycle that began in the second quarter of 2018 to turn around by mid-year, following consensus expectation of an overall macroeconomic recovery in Argentina. We see Industry seven demand following these macro trends, while current public works are expected to continue moving ahead, particularly in the Buenos Aires metropolitan area. Please turn to Slide 5 for a review of our top-line performance by segment. Revenues were up 3.6%, despite softer cement sales volumes. For the quarter, cement sales volumes dropped 13% year-on-year, impacted by overall weaker demand. Revenues fell only by 1% year-on-year, compensated by a healthy pricing environment. In Paraguay, revenues were up almost 34%, driven by the continued recovery in sales volumes that were up 8% in the quarter, and there was a near appreciation against the ARS.
The concrete segment continued to present good revenue generation with volume growth coupled with strong pricing. Revenues generated by the aggregate segment was also benefited by a positive pricing. By contrast, revenues from our Railroad segment decreased 1.6% year-on-year as a consequence of softer transported volumes. Moving on to Slide 6, consolidated gross profit for the quarter was up by 28.6% year-on-year, with a margin expansion of almost 560 basis points, reaching 28.8% in the quarter. This was mainly driven by our current cement operation in Argentina and further supported by our cement business in Paraguay and our concrete and Railroad segments. On the cost side, upward pressure continued due to the impact of the ARS depreciation and higher inflation in the company's cost structure, mainly in thermal and electricity cost. This impact was partially mitigated by savings in energy cost measured in US dollars, both thermal and electrical.
SG&A expenses as a percentage of revenues increased by 74 basis points to 8.4%, principally due to non-recurrent expenditures related to the structural adequacy in our administrative and commercial process of approximately ARS 95 million, and partially compensated by a reduction of effective sales tax rate. If the non-recurrent structural adequacy is excluded, SG&A as a percentage of revenues, which have declined to 7.1%. Please turn to Slide 7. Despite the softer demand, we reached consolidated adjusted EBITDA growth of 17.9% in the quarter, over ARS 2.1 billion or $54 million, with margin expanding 347 basis points to 28.7%, mainly driven by the cement segments in Argentina and Paraguay, and further supported by growth in concrete and Railroad. Excluding the non-recurring charges, the EBITDA margin would have been 13.5%, reaching ARS 2.3 billion or $58 million.
The application of IAS 29 impacted in a reduction of 98 basis points in the consolidated EBITDA margin in this quarter. When excluding the application of inflation accounting, adjusted EBITDA for the cement segment in Argentina increased 68.5% year-on-year, and the margin expanded by 310 basis points to 31.8%. Paraguay posted around 110% growth in adjusted EBITDA, with the margin improving 126 basis points to almost 45%. Adjusted EBITDA margin for our concrete segment presented a strong expansion of 620 basis points compared to the year-ago quarter, mainly driven by sales volume growth and favorable pricing. We continue to post margin expansion in our Railroad segment, with adjusted EBITDA margin up almost 518 basis points year-on-year, benefiting from higher revenues and a lower fixed cost structure. By contrast, aggregate segment adjusted EBITDA margin deteriorate as the favorable pricing environment could not compensate lower volumes and higher cost of sales.
Importantly, despite the strong devaluation of the ARS in the first quarter year-over-year, around 110%, together with our decreasing volumes, our cement business in Argentina remained relatively stable in terms of EBITDA per ton measured in US dollars, above $32 per ton, slightly over the year-ago quarter. Moving on to the bottom line on Slide eight, net majority income for the quarter increased by 51% year-over-year, reaching ARS 1 billion, resulted primarily from an adjusted EBITDA growth and a positive impact in the income tax line as we decided to exercise the tax evaluation option of the latest tax reform. Measured in US dollars, our net majority income decreased 6% to $25 million in the quarter from $27 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 face the current volatility of the local financial markets and more flexibility around the funding of our meaningful investment plan. We finished this quarter with a net debt to adjusted EBITDA ratio of 0.59 times, compared to 0.43 times in the fiscal quarter of 2018. Our net debt at the end of the quarter was $113 million with a gross debt breakdown by currency of 46% in US dollars, 40% in PYG, and 14% in ARS. We continue to make progress in our capital expenditure plan, with investment for the quarter reaching ARS 1.9 billion, or approximately $40 million. Of the total amount in ARS, around 67% was invested in the second production line at our L'Amalí plant. I will now hand the call back to Sergio.
Thanks, Marcos. Now please turn to Slide 10. To wrap up this presentation, I would like to highlight a few final takeaways. The challenging macroeconomic environment in Argentina makes us remain even more focused on our results, leveraging our leadership position while seeking productivity gains. We are pleased to see that our core Argentine cement business delivered both adjusted EBITDA growth and margin expansion, even with weaker volume demand in the country, and that Paraguay concrete and Railroad have strong performance. For the third quarter, cement demand in Argentina declined around 10.6% year-over-year. Also, in seasonally adjustment terms, volume presented an increase compared to the previous quarter. We expect this trend to remain in the following quarter. In this context, we remain focused on managing the business to deliver strong results.
We are going to continue optimizing our process and structure to make Loma Negra a more efficient and agile company, preparing ourselves for the challenges to come. In this direction is that we have recently adapted our administrative and commercial process. Our history and leadership position provide us with a strong base to continue balancing our growth and profitability. Part of our strategy is expansion in L'Amalí plant, which will allow us to continue delivering production efficiency and profitability while providing much needed capacity for when demand recovers. This is the 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 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 two if you would like to remove your line from queue. For participants using speaker equipment, it may be necessary to pick up your handset prior to pressing the keys. Once again, that is star one on your telephone keypad. We would also like to ask you to please limit yourself to one question and one follow-up. 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 on momentarily while we assemble the roster.
Our first question comes from Mauricio Serna with UBS. Please go ahead.
Hi, good morning, and thanks for taking my question. One question on demand is, you seem to be a little bit more optimistic on the second half of the year. I was just wondering what kind of guidance are you having for the Argentina volumes on a full year basis? On that same note, we've seen some volume underperformance over the last quarters, probably as you prioritize the pricing. Do you believe this market share losses will be recovered in the medium term, or how should we think about this, and should this be more structural share losses? Then finally, you also mentioned the restructuring affecting your expenses on the SG&A front this quarter. Just was wondering if this was only a one-quarter thing, or could it occur again in the following quarters? Thank you.
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Good morning, Mauricio. Thank you for your question.
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Regarding the volumes, we keep our estimations for the full year. We are observing certain recovery in volumes. We expect positive numbers from June.
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Regarding the market share, as we usually say, given the high inflation and the high turnaround in prices, we do have some impacts in our market share.
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These are temporary variations in our market share, but this is included in our strategy.
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Regarding the structural equity.
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Regarding our administrative and commercial structure, we have done all the adjustments that we needed to do to gain efficiencies in these areas.
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Regarding operational efficiencies, we are going to also take some measures in this direction, and they are going to be reflected in the coming times.
Thank you. Thank you very much. Very helpful. One follow-up, if I may, just on the margins, they've been doing very strong, especially on the gross profit level. Just want to understand how much of that was due to pricing and how much was it to actually better costs or better trends in terms of electricity and thermal fuels. Thank you.
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The improvement that we have is actually a combination of different factors.
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There is no doubt that pricing has an impact.
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As well, we also have many improvements regarding costs.
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Which are basically related to thermal and electrical energy.
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Also packaging and overall higher efficiency in our facilities.
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Specifically regarding thermal and electrical costs, we have reductions of around 10%.
Got it. Thank you very much.
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Once again, if you'd like to ask a question, please press star then one. Our next question comes from Antonella Rapuano with Santander. Please go ahead.
Hello. Well, thank you for taking my question. I was wondering on the latest news that they will publish this week on several media, that there were some rumors on the close of Barker plant and also that Loma Negra was going to fire around 100 employees. I think this is part of your restructuring plan. I think what I just want to know is, well, this is true in the first place. When do you plan to do so? How is the impact in the structure, in margins? If that is part of the L'Amalí expansion plan. You are going to transfer part of the production of the Barker plant to L'Amalí. Well, that's my third question. I have a second question. If you could give us an update on the class action against Loma Negra related to the IPO.
That would be helpful. Thanks.
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Good morning, Antonella. Thank you for your questions.
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The information about the Barker plant, they are correct. We do have a conflict with the union in that plant.
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It is within our measures to take regarding our operation structure, considering the current situation and the future situations in the market.
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Regarding the class action, it is over the regular process of the trial.
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There was an amendment to the demand, and actually there was new facts on top of the original facts.
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The next step is the company to answer this amendment.
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The lawyers are still optimistic regarding the results on this class action.
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One important concept here is that it is not yet a class action. For this, the judge needs to certify this class action, which didn't happen yet.
Okay, very clear. Thank you.
This will conclude 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 on next quarter. In the interim, the team remains available to answer any questions you may have. Thank you and enjoy the rest of your day.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.