Executive Summary / Key Takeaways

• Loma Negra, Argentina's leading cement producer, is strategically positioned to capitalize on the nation's anticipated economic recovery in 2025, driven by stabilizing macroeconomic conditions and a resurgence in private and public construction.
• Despite a challenging start to 2024, the company demonstrated remarkable operational resilience, maintaining healthy EBITDA margins through stringent cost control, production flexibility, and a growing reliance on renewable energy, with Q3 2024 EBITDA margin expanding 78 basis points year-over-year to 24%.
• Loma Negra's investment in a 25-kilogram bag project and its 2030 climate roadmap, targeting carbon neutrality in concrete by 2050, highlight a commitment to innovation and sustainability that enhances its competitive moat and long-term efficiency.
• The company's balance sheet remains strong, with net debt reduced to $177 million and a net debt-to-EBITDA ratio of 1.03x in Q3 2024, providing financial flexibility to pursue growth opportunities and manage upcoming debt maturities.
• While the recovery is in its early stages, with bulk cement demand lagging bagged cement, the potential for increased credit, mortgage loans, and large-scale projects like RIGI are expected to drive significant volume growth in 2025, with management anticipating a "two figure digit" increase in volumes for next year.

Argentina's Foundation: Loma Negra's Strategic Resilience and Technological Edge

Loma Negra Compañía Industrial Argentina Sociedad Anónima, established in 1926, stands as Argentina's preeminent cement producer, a foundational pillar in the nation's construction and infrastructure development. The company's comprehensive portfolio, encompassing cement, masonry cement, lime, aggregates, and ready-mix concrete, is distributed under well-recognized brands such as Loma Negra and San Martín. Beyond core materials, Loma Negra extends its reach into vital rail transportation services and industrial waste treatment, showcasing a vertically integrated model that underpins its operational efficiency and market leadership. This strategic integration, particularly its 3,100km railway concession, provides a significant logistical advantage, enabling efficient raw material procurement and product distribution across Argentina.

The company's overarching strategy centers on leveraging its leadership position, operational flexibility, and efficiency to navigate Argentina's dynamic economic landscape. This approach has been critical in responding to the country's recent macroeconomic shifts, including a sharp devaluation in late 2023 and subsequent stabilization plans. Loma Negra's historical journey, marked by significant capacity investments, has cultivated a robust operational framework that now contributes to its resilient results through enhanced efficiencies.

A key differentiator for Loma Negra lies in its commitment to technological advancement and sustainable practices, which are increasingly integrated into its core operations. The company has made substantial strides in optimizing its energy matrix, a critical factor in a cost-sensitive industry. In the third quarter of 2024, Loma Negra significantly increased the share of renewable energy in its electrical energy metrics to 66%, a notable rise from 39% in the third quarter of 2023. This improvement was partly achieved by strategically halting the primary grinding phase in cement production during periods of higher energy costs, thereby reducing overall electrical energy needs. The tangible benefit of this approach is a direct reduction in energy costs, which contributes to margin resilience, particularly during challenging economic cycles.

Furthermore, Loma Negra's "climate roadmap to 2030" outlines an ambitious goal of achieving carbon neutrality in concrete by 2050. This roadmap is supported by an action and investment plan focused on four key dimensions: clinker factor optimization, thermal efficiency, electric efficiency, and fuel mix diversification. These initiatives are not merely environmental commitments but strategic investments designed to enhance long-term operational efficiency and reduce the company's carbon footprint. For instance, the company reported a 15.5% reduction in water extraction and a 10% decrease in solid waste generation in 2023. These efforts contribute to a sustainable competitive advantage by aligning with global environmental standards and potentially attracting customers with similar sustainability goals. The ongoing investment in adapting dispatch facilities for 25-kilogram bags, which accounted for approximately 40% of Q3 2024 CapEx, also reflects a focus on operational innovation and worker safety, enhancing efficiency in product delivery.

Financial Resilience Amidst Economic Headwinds

Loma Negra's financial performance in late 2023 and the first three quarters of 2024 reflects a period of significant macroeconomic volatility in Argentina, yet demonstrates the company's underlying resilience. The first quarter of 2024 was particularly challenging, with top-line revenue at ARS 114.9 billion, a 27% decrease, and cement volumes down 31% year-over-year. Despite this sharp decline, the consolidated adjusted EBITDA margin remained stable sequentially at 22.6%, contracting 360 basis points year-over-year. This stability underscores the effectiveness of the company's cost control initiatives and operational flexibility.

The second quarter of 2024 began to show clear signs of recovery. While the top-line still decreased by 28% to Ps. 166.1 billion, and cement volumes were down 32.5% year-over-year, the consolidated adjusted EBITDA margin expanded significantly by 520 basis points year-over-year to 28.1%. This expansion was primarily driven by the Cement segment, with EBITDA per ton reaching $45, a 23% increase year-over-year. This improvement was largely attributed to favorable price trends, tight cost management, and better energy inputs, including the strategic use of clinker stock produced at lower energy costs during warmer months.

The third quarter of 2024 further solidified the recovery trend, with industry volumes showing a strong sequential improvement of 25%. Loma Negra's consolidated adjusted EBITDA reached $55 million (ARS 43 billion), an 18.5% decrease year-over-year, but the EBITDA margin improved by 78 basis points year-over-year to 24%, which management deemed "remarkable given the challenging scenario." This margin resilience, despite seasonally higher energy costs, highlights the success of its production strategy and cost mitigation efforts. The Cement segment's adjusted EBITDA margin stood at 25.5%, a slight drop of 20 basis points, while the Concrete segment saw a margin expansion of 355 basis points to 4%, aided by cost control and asset sales. The Railway segment also expanded its adjusted EBITDA margin by 840 basis points to 12.6%, benefiting from increased grain transport and solid price growth, offsetting reduced construction-related volumes.

Loma Negra's liquidity and capital structure remain robust. In Q3 2024, net debt stood at $177 million, bringing the net debt-to-EBITDA ratio down to a comfortable 1.03x from 1.4x at the end of 2023. This deleveraging was supported by strong cash generation from operational activities, which reached ARS 64 billion in Q3 2024, up from ARS 45 billion in Q3 2023, primarily due to positive working capital effects. The company has a clear debt maturity schedule, with Class 2 bonds maturing in Q4 2025 and Class 3 and Class 4 bonds in 2026, indicating a manageable financial horizon. While no dividends are planned for the current year, management is actively evaluating capital allocation alternatives for the future, signaling a disciplined approach to shareholder returns.

Competitive Landscape and Strategic Positioning

Loma Negra operates in a competitive environment, primarily against global giants like CEMEX (CX) and Holcim (HOLN), and other regional players. As the leading cement producer in Argentina, Loma Negra leverages its established brand recognition and efficient vertical integration across cement, concrete, and aggregates. This strong local market position provides a qualitative advantage in customer relationships and distribution networks, fostering customer loyalty and potentially enabling more robust revenue streams in regional markets.

Compared to a multinational like CEMEX, Loma Negra's offerings are competitive in quality and regional expertise, but it may not match CEMEX's global scale and diversification, which can lead to cost advantages in procurement and distribution. However, Loma Negra's integrated services, particularly its rail transportation and waste recycling capabilities, offer a differentiated value proposition. These services can provide qualitatively lower operating costs and greater supply chain efficiency, appealing to customers seeking comprehensive logistics solutions. This strategic focus helps Loma Negra counter the scale advantages of larger competitors by offering more reliable and integrated local services.

Against Holcim, a leader in sustainable building materials, Loma Negra's product quality in ready-mix concrete and aggregates is comparable, but Holcim's advancements in technological integration and eco-friendly products might give it an edge in attracting premium, environmentally conscious projects. Loma Negra's 2030 climate roadmap and efforts to increase renewable energy use are direct responses to this competitive dynamic, aiming to close any technological gaps and enhance its sustainability credentials.

A key vulnerability for Loma Negra is its regional focus, which, while providing deep local market penetration, can limit scalability and expose it to concentrated economic downturns. The reduced market activity has intensified the competitive landscape, particularly affecting segments like aggregates, where margins contracted significantly in Q3 2024 to negative 17% from 4.8% in Q3 2023. Management has explicitly stated that it does not pursue market share growth through price reductions, believing such a strategy would destroy long-term value. This disciplined pricing approach, coupled with a focus on cost control, is critical in maintaining profitability amidst a challenging competitive environment.

Outlook and Growth Catalysts

Loma Negra's outlook is cautiously optimistic, underpinned by expectations of a gradual economic recovery in Argentina. The Central Bank's market expectation report suggests that the economy has moved past its deepest contraction in Q1 2024, with a more optimistic forecast for the second half of the year and projected growth in 2025, primarily driven by private construction. Management anticipates a "two figure digit" increase in volumes for next year, signaling a significant rebound.

Several key drivers are expected to fuel this recovery and benefit Loma Negra:

• Macroeconomic Stabilization: The steady recovery of real wages, a downward trend in inflation, fiscal surplus, and lower interest rates are creating a more stable foundation for economic growth.
• Credit Expansion: The expansion of credit and mortgage loans is seen as a significant catalyst for the construction sector. Recent news on mortgage loan offerings and a recovery in real estate sales are expected to boost future construction projects and cement demand.
• Foreign Direct Investment (FDI): A reduction in country risk, now below 1,000 points for the first time since 2019, is a positive signal for attracting foreign investment, which could translate into new construction projects.
• Strategic Projects: The RIGI (Regime for Large Investments) program and other large-scale private projects, particularly in the mining sector, are starting to gain pace and are expected to significantly impact bulk cement sales. Public works, especially those involving private sector participation and provincial-level initiatives supported by the omnibus bill, are also anticipated to boost volumes starting next year.

While the recovery is still in its early stages, with bagged cement recovering faster than bulk cement, management expects bulk cement dispatches to pick up in the upcoming months as larger projects consolidate. The company's operational flexibility and production strategy, including the ability to maintain margins despite seasonal cost fluctuations and the benefits from new energy contracts, are expected to support profitability through the anticipated recovery.

Conclusion

Loma Negra stands at a pivotal juncture, emerging from a period of significant economic headwinds in Argentina with its operational integrity and financial strength intact. The company's disciplined approach to cost management, strategic investments in efficiency and sustainability, and a clear focus on leveraging its market leadership have enabled it to maintain robust margins even amidst volume contractions. The anticipated macroeconomic stabilization, coupled with a resurgence in private and public construction, positions Loma Negra for a compelling growth trajectory in 2025 and beyond.

The company's commitment to technological differentiation, particularly in renewable energy integration and its ambitious carbon neutrality goals, not only enhances its competitive moat but also aligns with evolving industry demands for sustainable building solutions. While risks associated with the nascent economic recovery and competitive pressures remain, Loma Negra's strong balance sheet and strategic agility provide a solid foundation. Investors looking for exposure to Argentina's infrastructure development and a resilient market leader with a clear path to leveraging an economic rebound should consider Loma Negra's long-term potential, especially as credit expansion and large-scale projects begin to materially impact its core segments.