Good morning, and welcome to the Loma Negra Third Quarter 2023 Conference Call and Webcast. [Operator Instructions] Also, Mr. Sergio Faifman will be responding in Spanish immediately followed by an English translation. [Operator Instructions] Please note that this event is being recorded. .

I would like now to turn the conference over to Mr. Diego Jalón, Head of Investor Relations. Please, Diego, go ahead. .

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 filings 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. .

Thank you, Diego. Hello, everyone, and thank you for joining us this morning. I would like to begin my presentation with a discussion of the highlights of the quarter, and then Marcos will take you through our market review and financial results. After that, I will provide some final remarks, and then we will open the call to your questions. .

Starting with Slide 2. I'm pleased to share the results of the third quarter with you today. The tendency for the volume of this industry persist and in election period and the secondly uncertainty. As we mentioned in the previous conference call, cement volume also lower compared to the last year still show strong shipment [ levels ].

The high records from the last year set a challenging benchmark for the comparison the volume reached in this period is the second best quarter of the history for the industry and the recent few days of October compared almost flat with the same period of 2022. .

As we navigate this election period amidst economic challenges, both the cement industry and Loma have the most resilience. When we dive into the numbers, we see another robust quarter for Loma, where our top line reached ARS 74 billion, decreasing 8.3% primarily due to volume contraction of our core segment Cement.

Despite this effect, EBITDA stood at ARS 17 billion with a margin expansion of 105 basis points and reaching a consolidated margin of 23.2%. Let's keep in mind the third quarter are the most challenged in terms of EBITDA margin due seasonal impact of higher energy inputs. In this sense, the U.S.

dollar EBITDA per ton stood at $36.5 for the quarter, 4.5% above last year third quarter and stable in the secondary basis. .

On the financial side, we use our Class III domestic bond, receiving an outstanding response from the market. Issuance enable us to refinance cross-border debt that will be reducing our financial cost and extending the maturity will keeping a strong balance sheet with leverage ratio below 1x.

Now I hand off the call to Marcos Gradin, who will view through our market review and financial results. Please, Marcos, go ahead. .

Thank you, Sergio. Good morning, everyone. Please turn to Slide 4. As you can see on the upper left chart, the market expectation report from the Central Bank indicate a negative performance for the economy for 2023, showing a decrease of 2.3% where the results published by the INDEC show a decrease of almost 5% for the second quarter. .

In a context where the construction activity indicator shows a decline for the sector, the national cement industry sales have demonstrated resilience despite a 5.6% decrease, the third quarter ranked as the second best in history, with accumulated volume just 1.8% below the same period in 2022.

Furthermore, the recent figures published for October indicates a sequential recovery with volumes slightly below the ones reached in 2022. Bulk cement maintained its tendency being the dispatch mode that is affected by the construction of the demand from the retail sector. .

On the other hand, concrete producers remain as a primary driver of growth for the bulk mode. In this sense, when seeing the breakdown by dispatch mode, bulk shipments now represents 44% of the total dispatches from 43% in the first quarter of 2022. As we near the conclusion of a very challenging year, we foresee these trends for volumes to persist.

We maintain a cautious optimistic that the resolution of the [ electoral ] process will alleviate volatility and pave the way for economic recovery. .

Turning to Slide 5 for a view of our top line performance by segment. The third quarter top line saw an 8.3% decrease mainly attributed to declines in the Cement segment followed by Concrete and Railroad, partially offset by the performance of Aggregates.

Cement, masonry cement and lime segment was down 12.8%, with volumes contracting 7.1% year-on-year, mainly due to a decline in bag cement sales, coupled by softer price dynamic, which despite adjusting for inflation, experienced a decline owing to elevated monthly inflation figures and the timing of price adjustments. .

Concrete revenues decreased 4.2% in the quarter. Volumes were down 9.4%, offset by a good pricing performance. Some major projects, which are the market target for our concrete operations under base affected by the macroeconomic volatility. .

Aggregate segment showed an expansion of 17.5%, with sales volumes almost flat. The good price performance boosted the top line. On the other hand, Railroad revenues decreased 4.5% in the quarter year-on-year.

Transported volumes were down 4.2%, affected by a decrease in transported volumes of Aggregates and fracsand, while the price remained almost flat despite the negative effect of the lower volume of fracsand that negatively affects the average price per ton [ as it's a product ] with longer average transported distance. .

Moving on to Slide 7. Consolidated gross profit for the quarter remained almost flat, showing a slight increase of 0.2% year-over-year, with a margin expansion of 196 basis points to 23.3%, mainly due to cost improvements in the Cement and Railroad sectors.

Regarding the Cement segment, our decrease in energy inputs compensated a lower top line performance. In the Railroad segment, the lower cost was mainly driven by lower depreciation. The margin expansion of the Cement and Railroad segments was partially offset by contractions in Concrete and Aggregates, mainly due to cost pressures. .

Finally, while SG&A expenses decreased by 1.8% as a percentage of revenues, they increased by 55 basis points, rising from 7.8% in the quarter of 2022 to 8.3%. .

Please turn to Slide 8. Our adjusted EBITDA for the quarter stood at USD 66 million, down 3.1% from the same quarter a year ago and reaching a very solid fly. In pesos, adjusted EBITDA was down 3.9% in the quarter, reaching ARS 17.2 billion, with consolidated EBITDA margin of 23.2%, posting a year-on-year expansion of 105 basis points.

This is mainly attributable to improved margins in Cement and Railroad. .

Cement segment adjusted EBITDA margin stood at 26.8% and improving 252 basis points, mainly due to cost efficiencies that offset the lower top line performance. Regarding costs, we saw a reduction of 9% on a per ton basis.

The primary reason for the -- for this was a reduction in energy inputs, primarily driven by increased utilization of natural gas in our thermal energy metrics, combined by a lower price for this input. Similarly, the cost of electrical energy is significantly decreasing as electrical generation take advantage of lower liquified natural gas prices..

Additionally, by the end of the quarter, the new pipeline began injecting natural gas from Vaca Muerta into a transportation system, while reducing the dependence of imported liquefied natural gas. In a per ton basis, EBITDA reached $36.5 per ton, increasing 4.5% from last year's third quarter.

Concrete adjusted EBITDA decreased ARS 128 million compared to third quarter '22, where the good price performance wasn't able to compensate our volumes and increasing costs. Margin contracted 179 basis points, reaching 0.6%. .

Aggregates' adjusted EBITDA decreased ARS 130 million this quarter from ARS 242 million in second quarter '22, reaching a margin of 4.8%, mainly due to higher sale costs that were partially offset by a positive price performance.

Finally, Railroad adjusted EBITDA reached ARS 247 million from negative ARS 7 million in the same period of 2022, with a margin of [ 4.16% ], mainly explained by cost improvements that offset a weaker top line..

Moving on to the bottom line on Slide 10. This quarter, we posted a net profit attributable to owners of the company of ARS 7.4 billion compared to a net loss of ARS 28.9 billion on third quarter 2022, mainly due to a lower total financial cost.

Total net financial costs stood at ARS 1.6 billion this quarter from a total financial cost of ARS 36.4 billion the same quarter last year, primarily due to the impact of the cancellation of dollar-denominated debt with local funding that took place in the third quarter of 2022..

Moving on to the balance sheet. As you can see on Slide 11, we ended the quarter with a cash position of ARS 20.9 billion and a total debt of ARS 96.1 billion. Consequently, our net debt-to-EBITDA ratio stood at 0.97x compared to 0.37x at the end of 2022.

Our operating cash generation stood at ARS 14.6 billion, while the decrease in the net profit adjusted with the noncash effects, coupled with a lower positive effect of the working capital mainly due to a lower utilization of inventories and higher income tax advances. .

Regarding capital expenditures, we allocated ARS 4.4 billion, mostly for maintenance CapEx.

During the quarter, the company used cash in financial activities for ARS 19.8 billion, mainly due to the payment of dividends announced in late June, interest and the repayment of borrowings, partially compensated by the issuance of the Class III bond and the net proceeds from borrowings. .

In dollar terms, our debt reached $274 million, standing our net debt at $215 million at the end of this quarter. Breaking it down by currency, the dollar-denominated debt represents 64% of the total debt, while the rest is in pesos.

Additionally, as mentioned before, during the quarter, the company issued it's Class III domestic bond and [indiscernible] to U.S. dollars for a total amount of $55 million (sic) [ ARS 55 million ] with maturity in the first quarter of 2026 and accruing an interest rate of 7.49% per year.

This issuance gave us the possibility to cancel gross order dollar-denominated debt, reducing the financial cost and extending its maturity..

Now for our final remarks, I would like to hand the call back to Sergio. Thank you. .

Thank you, Marcos. Now to finalize the presentation, I please ask you to turn to Slide 13. To conclude the presentation, I'd like to highlight a few key points.

As we mentioned before, we can see a continuity of the trends from the previous quarter where industry volume have adjustment downwards from the record highs of the last year, reflecting the reduced economic activity.

We are [indiscernible] days away from the presidential election, and we are currently navigating a period of high and that in a very volatively (sic) [ volatile ] economic environment, which poses [indiscernible] challenges from decision-making, yet cement volume remains solid at Loma's [indiscernible]. .

As the year draws to close, our confidence remains strong that even in this challenging environment, Loma with [indiscernible] attain its objectives and continue to contribute to the industry development from the our leadership position.

I'd like to convey my appreciation to our employees, customers, business partner and the community in which we operate for their continue support. I'm excited about the continuous [indiscernible] ahead building on the strong foundation we create together..

This is end of our prepared remarks. We are now ready to take questions. Operator, please open the call for questions. .

[Operator Instructions] Also, please note that Mr. Sergio Faifman will be responding in Spanish immediately followed by an English translation. [Operator Instructions] Our first question comes from Alejandra Obregon of Morgan Stanley. .

My first question has to do with your energy metrics. You did mention some -- that you foresee some changes in the future. So if you could just talk about how do you see your energy mix evolving into 2024? I understand that you have some long-term contracts in some of your energy needs, but you also have a lot of moving parts for gas in the country.

And of course, on top of that, you have your decarbonization target. So if you can talk about how do you that landing in 2024? And where do you see your energy cash cost going for the year? That would be very helpful. .

[Interpreted] This year, we accomplished to close some contracts below the prices that we closed the year before. Some of those contracts are starting now in September, and they are for 2 or 3 years term.

And regarding our energy -- thermal energy metrics, we are expecting a decrease in the -- in our costs even below the number of the figures of this quarter that we are presenting. And in electrical energy, we also had a reduced cost in prices. And we are also foreseeing a reduction in cost in comparison with the cost of 2023.

And basically, for next year, we are foreseeing to use all of our all of energy -- all of our energy metrics in natural gas. .

That was very clear. And if I have a chance for another question, this one is related to Ferrosur. If I remember correctly, your concession might come due next year. So if you can just remind us when is that being renewed? And if you think that, that could be renewed under the same terms given that we are seeing a change in administration.

Is there anything that we should expect there for next year?.

[Interpreted] Ferrosur was originally expected to end in March this year. And we -- and the government renewed the concession for 18 months. And we are in conversations with the government regarding the characteristics of the of the new contract, if it's going to be an open access scheme like the one they foresee before.

And due to the election process in the last couple of months, this process has been -- the -- it's pace is a little bit slower. We expect this process to keep up next year, where the actual concession is will turn operators. Just as a reminder, with this open access scheme, the national government will be in charge of the infrastructure.

And the operators are the ones that are going to take care of the trucks and the wells. .

Our next question comes from Rodrigo Nistor from Latin Securities. .

My first question is, what are your expectations for cement demand in 2024? And if you foresee any variation in demand contingent on which party or candidate wins the upcoming election?.

[Interpreted] We are working in our projections for next year. And we don't give any guidance regarding volumes for next year. And regarding the elections, we are not seeing much differences between the 2 candidates regarding volumes. They both have some pros and cons.

And probably when we have -- probably to expect if there is any -- some changes at the beginning of the year that might impact the volumes for the first Q. .

Okay. I have another question, if I may.

In the current high inflation environment, how are you adjusting your pricing strategy to sustain the profitability and also maintaining your market share?.

[Interpreted] Our price strategy is linked to different factors. General inflation, FX and our internal inflation in our costs. And our price dynamics are related to our costs, and that is -- and the competition typically move prices like we do. And the competitive dynamic make the market share to move slightly.

But if you sum up in different regions, then you can see some more [indiscernible]. From the last 2 months, we don't have any data from the market by region. So we are not able to estimate the market share provision exactly. But we have a market intelligence, we are able to assume some of this movement.

And we estimate that the market -- the national market share is similar to the one we had previously. .

The next question comes from Daniel Rojas from Bank of America. .

Going back to your first question regarding your energy metrics, it is very helpful for us to understand how the benefits you're seeing in natural gas will translate into margin expansion. I'm hoping not to drill you down with a specific number, but if you can give us a range of where we can see margins next year, it will be very helpful.

That's my first question. .

[Interpreted] The impact in our margins doesn't have to be -- it's not entirely about cost efficiency, but also it's regarding our price strategy. You also have to keep in mind that with our last investment in L´Amalí. We will have a lot of efficiencies in term of production.

We were able to stabilize the production in the line 2 of L´Amalí and all the numbers are pretty good. And for next year, we are foreseeing EBITDA margins similar to the ones we are having now. .

Okay.

Could you remind us at what operational capacity you're running L´Amalí II?.

[Interpreted] The capacity of L´Amalí II, we bought a kiln of 5,800 tons of clinker. We are working above 6,000, 6,200 tons per day. It's a line of 2.8 million tons a year, and we believe we can reach 3 million. .

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

Thank you all for joining us today. As always, we really appreciate your interest in our company. And remember that we remain in touch for any questions that you may have. Thank you very much, and have a nice day. .

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

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.].