Good day. Welcome to the Loma Negra Fourth Quarter 2018 Earnings Conference Call. All participants will be in a 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. 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 would now like to turn the conference over to Mr. Gastón Pinnel , Head of Investor Relations. Please go ahead, sir.
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. Speaking during today's call will be Sergio Faifman, our CEO, and Vice President of the Board of Directors, and Marcos Gradin, our CFO. 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 filings with the SEC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances.
I would also like to remind you that the following recent categorization of Argentina as a hyperinflationary economy in accordance with IFRS standards, starting in this fourth quarter of 2018, we began applying IFRS rules, IAS 29. For comparison purposes and a better understanding of our underlying performance, in addition to presenting as reported results, we are also disclosing selected figures as previously reported, excluding rule IAS 29. Additional information in connection with the application of rule IAS 29 can be found in our earnings report. Now, I would like to turn the call over to our CEO, Sergio Faifman.
Thank you, Gastón. Hello, everyone. Thank you for showing up today. It's a pleasure to welcome you to Loma Negra fourth quarter and full year 2018 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 closed the year with another solid quarter in what has been a challenging year for our industry in Argentina. Importantly, we achieved this despite a 15.3% year-on-year contraction in industry cement demand during the quarter. Our top- line for the quarter increased by 2.8% year-on-year to almost ARS 7 billion.
While 2018 turned out to be significantly different on the macro and FX fronts than what we expected at this time last year. We delivered an increase in adjusted EBITDA of around 21%, achieving a margin expansion of 459 basis points. This is a testament to our continued effort on balancing growth and profitability. Our core Argentine cement business remains the main driver behind this strong result, further supported by our operation in Paraguay. Let me also highlight the strong performance of our concrete segment, which posted another quarter of record high sale volume, achieving in 2018 the record volume of more than 1 MCM . Year-on-year, however, our bottom line fell 29%, impacted by a negative variance in the income tax line, resulting from the tax reform approved in 2017.
As you can see on the slide, measuring in U.S. dollar and using the prior accounting methodology, in this quarter, we achieved an adjusted EBITDA of $58 million, down only 15% year-on-year, despite the 18% contraction in the cement volume and the sharp peso depreciation. Net majority income of $34 million versus $38 million a year ago, despite the strong devaluation experienced in 2018. Additionally, our robust balance sheet with net debt to last 12 months EBITDA of 0.43 x provide us with a solid position to face the current volatility of the local financial markets. The expansion of our L'Amalí plant is on schedule and continue to be a key element of our long-term strategy, which will contribute to support production efficiency and profitability, along with additional capacity when demand recovers. 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. We ended the year with unexpected GDP for 2018 declining by 2.4%, slightly below consensus expectation at the time of our prior earnings call. Economists expectation and ours now call for a 1.3% contraction in GDP for this year, recovering gradually, reaching growth of 2.5% in 2020.
Against this backdrop, as anticipated, we saw contraction in overall private construction activity in the quarter, particularly in November and December. This brought about in a 15.3% decline in industry cement sales for the quarter and a 2.6% year-on-year construction for the full year. By contrast, bulk cement demand continues to gain traction during the quarter, supported by public infrastructure works, gaining share over total cement sales. Looking into 2019, we expect the negative cycle that began in the second quarter of 2018 to turn around by mid-year following conception's expectation of an overall macroeconomic recovery in Argentina. We see industry cement demand following these macro trends. While current public works are expected to continue moving ahead, particularly in the Buenos Aires metropolitan area, although facing tougher comps. For the full year, we expect an industry decline of a low- single- digit.
Now please turn to slide five for a review of our top-line performance by segment. Consolidated revenues were up 2.8% in the quarter and 7.9% for the full year, despite softer cement sales volumes. For the quarter, cement sales volumes in Argentina dropped 18% year-on-year, impacted by overall weaker demand. Thus, revenue fell only by 6% year-on-year, partially offset by the healthy pricing environment. Paraguay revenues were up 57%, driven by the strong recovery in sales volume experienced in the quarter, up 13%, and the guarani appreciation against the Argentine peso. We are particularly pleased with the results achieved in our concrete business that reached record high volume levels in October and November, driven by the sustained execution of current public infrastructure works in the Buenos Aires metropolitan area, coupled with healthy pricing dynamics.
With our new crusher up and running, our aggregates business reached record high sales volume in October, mainly driven by higher dispatches to the concrete segment, which resulted in a 9% year-on-year increase during the quarter, driving revenues up 20%. Lastly, revenues from our railroad segment decreased 3% year-on-year. While we continue to benefit from strong prices, transported volumes of cement and aggregates were impacted by the slowdown in the construction activity, partially offset by higher growth of frac sand transportation for the Vaca Muerta oil and gas basin. Moving on to slide six, consolidated gross profit for the quarter was up slightly over 14% year-on-year, with a margin expansion of almost 270 basis points, reaching 29.5% in the quarter. This was mainly driven by our core cement operation in Argentina and further supported by our cement business in Paraguay and our concrete segment.
The application of IAS 29 impacted in a reduction of 380 basis points in the consolidated gross margin during the quarter, affected mainly by an increase in depreciation amortization by the inflation adjustment of fixed assets. For the full year, gross profit was up 8%, with gross margin remaining stable at almost 26%. SG&A expenses as a percentage of revenues declined over 80 basis points to 7% in the fourth quarter and 71 basis point to 7.2% for the full year 2018, driven by successful cost management and a lower effective sales tax rate. Please turn to slide seven. Despite weak industry demand, we achieved consolidated adjusted EBITDA growth of 21% in the quarter, reaching nearly ARS 2.2 billion or $58 million with margin expanding 459 basis points to 31%, mainly driven by the cement segments in Argentina and Paraguay, and further supported by growth across all other segments.
The application of IAS 29 impacted in a reduction of 75 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 almost 70% year-over-year, and the margin expanded by 554 basis points to 34.6%, while Paraguay posted around 120% growth in adjusted EBITDA, with the margin remaining almost flat at 40.3%. Adjusted EBITDA margin for our concrete segment expanded over 210 basis points compared to the year-ago quarter, mainly driven by sales volume growth. We continue to post margin expansion in our railroad segment with adjusted EBITDA margin up almost 380 basis points year-on-year, benefiting from higher revenues and lower fixed costs. Lastly, our aggregates segment adjusted EBITDA margin show a strong recovery to 12% on the back of higher sales volume and favorable pricing environment.
Importantly, despite the strong devaluation of the Argentine pesos in the fourth quarter year-over-year, around 111%, our cement business in Argentina remained relatively stable in terms of EBITDA per ton measured in U.S. dollars, at $32 per ton when compared to the year-ago quarter and improving from $26 per ton in the third quarter of 2018. For the full year, consolidated adjusted EBITDA reached ARS 7.1 billion. Measured in U.S. dollars, consolidated adjusted EBITDA reached $220 million, down 7.9% year-on-year, with adjusted EBITDA margin expanding by 204 basis points from 25.8% - 27.8%. Moving on to the bottom line on slide eight, net majority income for the quarter were impacted by non-recurring results from previous year, resulting in a 29% year-on-year decline, reaching ARS 1.1 billion. In addition to adjusted EBITDA growth, net majority income benefited from higher total net financial gains.
This, however, was more than offset by a positive income impact of the tax reform approved at the end of 2017 in the 2017 deferred tax provision. Measured in U.S. dollars and excluding the application of IAS 29, our net majority income decreased 10% to $34 million in the quarter from $38 million in the year-ago quarter. For the full year 2018, net majority income declined 49% to ARS 1.8 billion, or 23% when measured in U.S. dollars, impacted mainly by exchange rate difference and income tax expenses. Moving on to the balance sheet. As you can see on slide nine, our vast 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 closed the year with a net debt to adjusted EBITDA ratio of 0.43 x compared to 0.28 x in December 2017. For the full year 2018, we generated cash flow from operating activities of ARS 4.2 billion compared to ARS 5.1 billion in 2017. This was mainly explained by higher income taxes paid. We continue to make progress in our capital expenditure plan, with investments for the full year reaching ARS 4.2 billion, or approximately $124 million. Of the total amount in pesos, around 35% was invested in the second production line at our L'Amalí plant.
During the quarter, we continued to move ahead with civil works, and many equipment were under the delivery to site process. We are moving according to our schedule and within budget. As of December, we were at the 47% of the execution of this project. We foresee savings in U.S. dollars mainly impact by cost tied to Argentine pesos. I will now hand over the call back to Sergio.
Thanks, Marcos. Please turn to slide 10. To wrap up this presentation, I would like to make a few final remarks. Despite the challenging macroeconomic environment in Argentina, we closed the year with another solid quarter. In particular, our core Argentine cement business delivered both adjusted EBITDA growth and margin expansion, even with weaker volume demand in the country. We are also pleased to see that our concrete operation continued to deliver a strong result, reaching record quarterly and annual volumes. Looking into 2019, we expect a turnaround in cement demand in Argentina starting mid-year following the economic environment, which is anticipated to begin to recover in the second half of the year. In this context, we remain focused on managing the business to deliver a strong result despite the macro environment.
Our history and leadership position provide us with a strong base to continue balanced 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 provide much needed capacity 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.
We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question today comes from Dan McGoey with Citigroup. Please go ahead.
Great. Thank you. Good morning, gentlemen. Congratulations on the results. First question I have is basically on the EBITDA margin expansion. I understand IAS 29 mostly affected depreciation, so therefore not EBITDA. Given the strength of the margin expansion, I am wondering if you could comment whether the accounting change helped at all that margin. Assuming that the answer is quite little, I wonder if you could talk a little bit about how much of that expansion is related to the cost side of the equation. Have cash cost per ton come down, either on the energy side or not? Or is it mostly pricing? Let me stop there. Thanks.
Hi Dan, this is Marcos. The IAS 29 impacted negatively in our margins. Yes, it's impacted by 75 basis points, reducing our margin for the quarter on a consolidated basis.
Got it. That margin expansion is primarily on the price front, the price increases. On cash cost of production, is there anything that helped lower cash cost production in the period?
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Good morning, Dan.
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For the quarter, we have a double impact: on one hand, the increase in prices and, on the other, the cost control for the company.
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Regarding costs, as we were talking in the previous calls, the lower volume has a benefit on the better logistics and the way we operate our plants.
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Another point is that in Argentina we are having some improvements in tariffs, both for electrical energy and thermal energy.
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The high volatility in inflation and FX let us negotiate in a better way the other costs.
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Also we have an enhancement of our labor cost, both in amount and also in quantity of headcount.
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The drop in volume let us be more efficient in terms of logistics costs.
Great. Thank you. One last follow-up. I don't have it at hand, but cash cost of production per ton, was it stable year-on-year, or was it up, but just considerably less than the price increase?
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The cash cost year-over-year, there is a reduction in dollar terms.
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The cost of our inputs, those that are in dollars, they were reduced and of course, the ones that are in ARS, they were also reduced measuring dollars.
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Regarding the EBITDA per ton in U.S. dollar, it remained practically the same compared to the last year.
Understood. Great. Thank you very much.
Once again, if you would like to ask a question, please press star, then one. Our next question comes from Alejandra Obregon from Morgan Stanley. Please go ahead.
Hi, good morning and thank you for the call. My question is related to cement volumes in Argentina. Looks like your figures for the quarter came slightly below the industry average. I was just trying to understand if this could be related to market share losses maybe, or just exposure to an underperforming region. Any color on your granular performance by province perhaps would be great. Thank you.
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Good morning, Alejandra. Thank you for your question.
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Last year, when we take a look to the volumes of Loma Negra, it is important to bear in mind the price movements that we did.
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As we always mention, we are always the first mover and our competitors follow us a few days afterwards.
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That leads the premium price to increase during that time where the competitors prices.
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During those periods, we tend to lose that we afterwards tend to recover.
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With high inflation, price increases are more often, they tend to be every month, and that is this effect in market share is more permanent.
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There are other factors, and there is also a difference within regions in the country.
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Our market share values for current and from last year make us feel comfortable in terms of our short, medium, and long term.
Thank you. This is very helpful. A follow-up, if I may. In terms of demand, could you give us some color on what you've been seeing so far into the first quarter?
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That we are observing, we need to keep in mind that last year until April, the demand was rather high.
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It could be expected that until April, the volumes should have a drop.
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However, since mid-January, the volumes that we are observing are slightly better than what previously expected.
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As you could see from today's release, the February figures remain almost flat compared to last year.
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Therefore, this value makes us feel more confident that our expectation for the whole year should be something like a slow drop compared to the previous year for the full year.
Thank you very much. This was very helpful and congratulations on the results.
Thank you, Alejandra.
Once again, if you would like to ask a question, please press star, then one. This will conclude our question and answer session. I would like to turn the conference back over to Mr. Gastón 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 interim, the team remains available to answer any question 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.