Cementos Argos Reports Third Quarter 2016 Financial
Results
US, Caribbean and Central America partially offset results in Colombia
November 22, 2016
Cementos Argos S.A. (Argos) is a geographically diverse rapidly growing cement and ready mix concrete
(RMC) company with leading market positions in the US, Colombia, Caribbean & Central America (CCA)
and total annual capacity of approximately 21M tons of cement and 18M m3 of concrete.
BVC: CEMARGOS, PFCEMARGOS
ADR LEVEL 1: CMTOY / ADR 144A: CMTRY - Reg-S: CMTSY
Key Highlights
 Acquisition of the cement plant of 2.2 M MT and 8 terminals in Martinsburg, West Virginia.
We have received the approval from the FTC, and the transaction is expected to be closed
the 30th of November.
 To date, we have achieved tangible results with our Argos BEST program:
 We transformed the Sabanagrande’s and San Gil’s plants, with estimated savings of
more than COP 30 billion per year.
 We started the process to turn off the Cartagena’s wet lines, with expected savings of
around COP 15 billion per year.
 On the ready-mix business, we halted operations at the Mamonal plant, in the north of
Colombia.
 In Colombia, our headcount between direct and indirect employees decreased
considerable.
 We successfully closed the sale of 20% minority interest in Argos Panama and
advanced in the sale of real estate assets for ~USD 25 million, expected to be closed
before the year end.
 The Shared Service Center started operations, with expected savings of more than
USD 3.5 million for 2017.
 Additionally, we finalized a comprehensive update of our long term Master Plan. In that
analysis, we considered changes in demand projections in Colombia, taking into account
construction schedules of infrastructure projects, and also the macroeconomic scenario.
 The results motivated us to accelerate the expansion through lighter and innovative
technologies. Therefore, as part of BEST, we are developing initiatives to reduce the
clinker-to-cement ratio and expand our capacity by approximately 1 million tons in the next
24 months, with a capex around USD 120 per ton.
 For this reason, we have decided to postpone the expansion of our Sogamoso plant.
 We are confident that we will continue playing a relevant role in infrastructure in Colombia,
while increasing our Return on Capital, optimizing our cash flow and increasing value for
investors.
"Cementos Argos is a company that has based its growth strategy through geographic
diversification and continuous development of value propositions that meet the needs of our
customers. This, coupled with the results that our Building Efficiency and Sustainability for
Tomorrow, or BEST program, has allowed us to continue to generate satisfactory results for
our shareholders and other stakeholders. The United States, Honduras, and Panama,
continue to drive company’s results and offer great opportunities for growth, offsetting the
slowdown in demand we faced in the Colombian market as a result of the delay in the start of
the construction of the 4G projects during the second half,” stated Juan Esteban Calle, CEO of
Cementos Argos.
Third Quarter Key Results
 Dispatched volumes down for both cement and ready mix, 7.4% and 11.9%, respectively.
 Consolidated revenues of COP 2.1 trillion1, down 7.6% Y-o-Y. US, Caribbean and Central
America regional divisions partially offset the challenging conditions of the Colombian
market.
 Consolidated EBITDA COP 395 billion, achieving an EBITDA margin of 18.7%.
 Net income of COP 113 billion.
Note: Figures under auditing process.
1 For the purpose of this report 1 billion = 1.000.000.000 and 1 trillion = 1.000.000.000.000
Consolidated Results
2015
3Q
2016
Var
2015
YTD
2016
Var
Key Figures
Cement Volume
RMC Volume
Revenues
Ebitda
M MT
M m3
COP Bn
COP Bn
3,843
3,224
2,284
433
3,557 -285 -7.4%
2,840 -383 -11.9%
2,111 -173 -7.6%
395 -39 -8.9%
Ebitda margin
%
19.0%
18.7%
Net Income
COP Bn
Net Margin
%
146
113
6.4%
5.3%
-
27.4
-33 -22.7%
- 104.2
10,685
8,685
5,760
1,104
19.2%
10,539 -146 -1.4%
8,602 -83 -1.0%
6,513 753 13.1%
1,256 152 13.8%
19.3%
331
393
5.8%
6.0%
11.7
62 18.7%
28.5
For the third quarter, cement and ready-mix volumes decreased by 7.4% and 11.9%,
respectively. We highlight the good performance of the USA regional division, where cement
dispatches increased by 5.7%.
Regarding the financial results, we registered consolidated revenues of COP 2.1 trillion and an
EBITDA of COP 395 billion, resulting in an EBITDA margin of 18.7%.
Our consolidated results showed resilience during the third quarter, due to a successful
strategy of geographical diversification. The US, Central America and the Caribbean regional
divisions, partially compensated the challenging conditions in the Colombian market, as well
as the delay in construction of the 4G infrastructure projects. Additionally, results were
impacted by non-recurrent expenses of approximately COP 15.6 billion related to the
execution of the BEST program, which had a direct impact in EBITDA and Net Income
margins.
Results per Regional Division
Colombian Regional Division
Volumes and market performance
Volumes
Cement
RMC
000 MT
000 m
3
2015
3Q
2016
1,687
1,063
1,314 -373 -22.1%
809 -254 -23.9%
Var
2015
YTD
2016
4,606
2,767
3,781 -825 -17.9%
2,444 -323 -11.7%
Var
As a result of the price competitive dynamics in the market and the effect of the transportation
strike in the country, our dispatched cement volume in 3Q16 decreased by 22.1%, reaching a
total of 1.3 million metric tons.
The Colombian National Administrative Department of Statistics (Departamento Administrativo
Nacional de Estadística, “DANE”) reported a contraction in cement volumes of 11% for the
whole industry, affected mainly by a decrease in bulk dispatches of 15%. The decrease was
explained by the delay in the 4G infrastructure projects, and the post-regional election period
effect in public contracting in most municipalities.
As market leaders in the infrastructure segment, we were the company that suffered the most
from this bulk cement`s demand slowdown. Nonetheless, we remain optimistic about the
future upturn of the Colombian market, considering that we have the best value proposition
and products designed specifically for infrastructure. As of today, we have been selected to
supply cement or ready mix to 25 functional units of the 4G first wave out of a total of 44 units,
considering that some 10 units are still under negotiation.
We are also well positioned to supply solutions for the 48 functional units of the 4G second
wave, as well as the 40 functional units of the private sponsored PPP’s, the majority of them
still under negotiation. Additionally, we are in a negotiation process with sponsors of relevant
hydro-power plants, bridges, tunnels and ports, among other major infrastructure projects.
Finally, we are very optimistic about Bogota, where the recently elected mayor released a
USD 7 billion infrastructure plan and the City Council recently approved the sale of a 20%
stake in Empresa de Energia de Bogota, to finance part of this ambitious plan.
In the ready-mix concrete business, we dispatched 809 thousand cubic meters, down 23.9%,
explained by a decrease in infrastructure.
Financial results
3Q
2015
2016
YTD
Var
Var
2015
2016
2,174
623
1,993 -181 -8.3%
543 -80 -12.9%
28.7%
27.3%
Key Figures
Revenues
EBITDA
COP Bn
COP Bn
EBITDA margin %
838
237
28.3%
663 -175 -20.9%
169 -69 -29.0%
25.4%
- 290.1
- 142.0
Revenues, as well as EBITDA, showed a decrease of 20.9% and 29.0% respectively. The
EBITDA margin was impacted by the effect of lower volumes on operational leverage, as well
as the non-recurrent expenses of COP 15.6 billion related to severance payments and
anticipated pensions derived from a considerable decrease in headcount, including direct and
indirect employees. Nevertheless, this adjustment will generate savings of around COP 9
billion per year.
Through the implementation of BEST, we aim to reduce the cost per ton around 6 dollars
before the end 2017.
USA Regional Division
Volumes and market performance
3Q
Volumes
Cement
RMC
000 MT
000 m 3
2015
2016
958
2,050
1,012 55
1,924 -127
YTD
Var
5.7%
-6.2%
Var
2015
2016
2,502
5,591
3,005 503 20.1%
5,837 246 4.4%
Cement dispatches increased by 5.7%.Year-to-date, our volumes are growing faster than the
3.4% average for the whole market. However, weather conditions, particularly in the South
Central Region, explained the 6.2% drop in the ready-mix business.
The US continues on a recovery trend with solid fundamentals, despite the weather conditions
observed during this quarter. For the 3Q16, the US GDP grew 2.9%, higher than the 1%
average seen during the previous 3 quarters, driven by consumer spending and a strong labor
market. The residential market continues to show a positive trend in building permits, housing
starts, home sales and inventories.
Financial results
3Q
Key Figures
Revenues
USD M
EBITDA
USD M
EBITDA margin %
2015
2016
355
37
351
49
10.5%
13.9%
YTD
Var
-4 -1.1%
12 30.8%
340.3
2015
940
86
9.2%
2016
Var
1,051 111 11.8%
137 51 59.0%
13.1%
387.8
During the 3Q16, EBITDA showed a solid performance and increased by 30.8%, reaching
USD 49 million. The EBITDA margin for the period was 13.9%, 340 bps higher than
3Q15. These results were driven by price increases in cement and RMC of mid-single digits
and higher operational leverage on the regional.
Based on the recovery of the labor market and wages, consumer spending and the required
investments in infrastructure, we continue optimistic about the long term prospects for the US
economy. Also, the Martinsburg`s acquisition and the sign of a long term contract to buy
cement for our RMC in Texas, are proofs of our confidence in that market. Given that, we
reiterate our guidance for our EBITDA between USD 150 and 170 million for 2016.
Caribbean and Central American Regional Division
Volumes and market performance
3Q
Volumes
Cement
RMC
000 MT
000 m 3
2015
2016
1,198
110
1,231
108
YTD
Var
34
-3
2.8%
-2.4%
2015
2016
3,577
327
3,753 176
321
-6
Var
4.9%
-1.8%
We commercialized 1.2 million metric tons of cement in 3Q16, with an increase of 2.8% in
comparison to 3Q15, mainly due to the good performance of Honduras, Haiti and trading
operations.
In Panama, when we eliminate the canal-base effect, our volumes grew by 6%. We continue
with our positive perspective towards this market. There is a big pipeline of projects to be
executed like: the fourth bridge over the canal, the renewal of the Colon City, the Tocumen
airport, energy transmission projects, a copper mine and improvements for several roads.
During 1H16, the construction GDP and bank loans granted for construction, both increased
9.4%.
Also, in Honduras, both the market and our cement volumes grew 6% during 3Q16. We have
a triple advantage in this country. We are now the best positioned player to attend this growing
market, with a grinding facility in the south which was recently reopened, our integrated plant
in the center and a distribution center in the north.
Financial results
3Q
Key Figures
Revenues
USD M
EBITDA
USD M
EBITDA margin %
2015
2016
141
49
140
47
34.7%
33.7%
YTD
Var
-2
-2
-1.2%
-3.9%
-
93.8
2015
2016
418
139
422
146
33.3%
34.6%
Var
4
7
1.0%
5.0%
130.0
We registered an EBITDA of USD 47 million, with a very attractive margin of 33.7%, driven by
positive margins in Honduras and Panama of 56% and 35%, respectively.
We highlight the excellent improvements in our operational indicators in both Honduras and
Panama. For example, in Honduras, the usage of alternative fuels reached 26.9% and the
clinker-to-cement ratio was reduced by 160 basis points. Furthermore, in Panama, operating
costs per ton decreased by 2 dollars and the clinker ratio declined 300 basis points.
Summary of Results
Below, a summary is presented of the main consolidated figures per regional division, as of
September 30th, 2016:
Revenues
EBITDA
2015
2016
Var (%)
2015
Mgn (%)
2016
Mgn (%)
Var (%)
COP Bn
Colombia
USA
Caribbean & CA
Subtotal
2,174
2,482
1,104
5,760
1,993
3,223
1,295
6,511
-8.3%
29.8%
17.3%
13.0%
623
228
368
1,220
28.7%
9.2%
33.3%
21.2%
543
422
448
1,413
27.3%
13.1%
34.6%
21.7%
-12.9%
84.6%
21.9%
15.9%
Corporate
Other Businesses
Consolidated Results
-2
1.6
5,760
0
2.2
6,513
N/A
31%
13.1%
-113
-3
1,104
N/A
19.2%
-150
-7
1,256
N/A
N/A
19.3%
-33.1%
-139.0%
13.8%
USD million
Colombia
USA
Caribbean & CA
Corp. & other bus.
Consolidated Results
823
940
418
-0.1
2,181
650
1,051
422
0.7
2,124
-21.0%
11.8%
1.0%
N/A
-2.6%
236
86
139
-44
418
28.7%
9.2%
33.3%
N/A
19.2%
177
137
146
-51
410
27.3%
13.1%
34.6%
N/A
19.3%
-24.9%
59.0%
5.0%
-17.0%
-2.0%
Note: All figures under IFRS
Cash Flow as of September 30th, 2016
(COP Billion2):
Cash Flow
at Jan. 2016
530
EBITDA
+1256
Net Op.
Working Capital
-151
Maintenance
CAPEX
-338
Strategic
CAPEX
-133
Taxes
-360
Net Financial
Expenses
-250
Net
Dividends
-248
Net Other
Non-Operating
-7
Net Financial
Op.
-188
Disinvestments
+276
Exchange rate
effect
-15
Cash Flow
at Sept 2016
373
0
400
800 1200 1600 2000
2 For the purpose of this report 1 billion = 1.000.000.000 and 1 trillion = 1.000.000.000.000
Investment Portfolio as of September 30th, 20163:
% Stake
Price per Share
(COP)
Value
(COP million)*
Value
(USD million)*
Grupo Sura
6.0%
37,620
1,060,254
368
Bancolombia
4.0%
26,100
533,410
185
Cartón de Colombia
2.1%
5,200
12,006
4
1,605,670
558
Company
Total
th
* FX Rate as of September 30 , 2016: COP 2,880/ USD
Indebtedness and coverage Ratios *:
As of September 30th, 2016, Cementos Argos’ consolidated financial debt rose to USD 1,817
million, of which 44% was denominated in Colombian pesos and 56% in US dollars. The
average annual cost of debt in Colombian pesos closed at 13.0%, while in US dollars was
2.9%.
On a consolidated basis, as of September 2016, debt coverage ratios continue to show
adequate levels: Net Debt / EBITDA + Dividends registered a value of 3.07x and the EBITDA /
Financial Expenses ratio closed at 4.44x.
* Note: Since 2Q15, for Net debt to EBITDA + Dividends ratio, Net debt and EBITDA are calculated with the same FX closing rate.
3 The variations of the non-cement investment portfolio do not affect the income statement of Cementos Argos, but they do have an effect on the
figures of the general balance sheet, through the account of valuations and depreciations. All of these companies periodically report their results, for
which there is no detailed information about them in this report.
CEMENTOS ARGOS S.A.
Consolidated Statement of Income
For the nine months ended 30 September
Million of Colombian pesos or million dollar
2016
Continuing operations
Revenue
US$ dólares
Cost of sales
Cost of sales
Depreciation and amortization
Gross income
Administrative expenses
Selling expenses
Depreciation and amortization
Other income (expense), net
Depreciation and amortization non-operating assets
Asset and goodwill impairment
Operating income
Operating EBITDA
US$ dólares
Financial expenses
Foreing currency exchange
Share of profit of associates and joint ventures
Income before income tax
Income tax expense
Income from continuing operations
Net income (loss) from discontinued operations
Net consolidated income
Attributable to:
Owners of the parent company
Non-controlling interests
Net consolidated income
US$ dólares
Additional Information:
Gross margin
Operating margin
Net margin
Operating EBITDA
EBITDA margin
$
$
$
$
$
$
$
6,513,053
2,124
4,979,009
4,619,330
359,679
1,534,044
427,704
171,320
88,253
(39,928)
43
6,129.00
800,667
1,256,036
410
242,625
12,410
(3,213)
567,239
66,587
500,652
500,652
393,170
107,482
500,652
128
23.6%
12.3%
6.0%
1,256,036
19.3%
$
$
$
$
$
$
$
2015
Variation %
5,760,201
2,181
13.1
(2.6)
4,440,055
4,113,140
326,915
1,320,146
368,831
162,150
83,300
(11,943)
80
693,842
1,104,137
418
12.1
12.3
10.0
16.2
16.0
5.7
5.9
(234.3)
(46.3)
15.4
13.8
(1.9)
196,904
27,771
(860)
523,849
131,381
392,468
(13,315)
379,153
23.2
(55.3)
(273.6)
8.3
(49.3)
27.6
100.0
32.0
331,292
47,861
379,153
125
18.7
124.6
32.0
2.4
22.9%
12.05%
5.8%
1,104,137
19.2%
CEMENTOS ARGOS S.A.
Consolidated Statement of Financial Position
For the nine months ended 30 September and December 31
Million of Colombian pesos or million dollar
2016
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Derivative instruments
Other financial assets
Trade and other accounts receivable, net
Current tax assets
Inventories, net
Biological assets
Prepaid expenses
Non-current assets held for sale
Total current assets
NON-CURRENT ASSETS
Other non-current accounts receivable
Investments in associates and joint ventures
Derivatives financial instruments
Other financial assets
Other intangible assets, net
Biological assets
Property, plant and equipment, net
Investment property
Goodwill
Activo por impuesto diferido
Prepaid expenses and other non-current assets
Total non-current assets
TOTAL ASSETS
US$ dólares
LIABILITIES
CURRENT LIABILITIES
Financial liabilities
Trade and other payables
Tax payables
Employee benefits
Provisions
Other financial liabilities
Derivative instruments
Bonds and other instruments
Income received in advance and other liabilities
Liabilities associated to non-current assets held for sale
Current liabilities
NON-CURRENT LIABILITIES
Financial liabilities
Trade and other payables
Employee benefits
Other financial liabilities
Derivative instruments
Tax payables
Provisions
Bonds and other instruments
Other liabilities
Deferred tax
Non-current liabilities
LIABILITIES
US$ dólares
$
$
$
$
$
$
$
SHAREHOLDERS EQUITY
Non-controlling interest
SHAREHOLDERS EQUITY
US$ dólares
$
LIABILITIES AND SHAREHOLDERS' EQUITY
$
$
287,760
13,901
15,113
1,355,056
345,872
751,397
92,369
8,596
2,870,064
34,545
78,677
1,631,948
1,045,142
20,242
8,977,960
150,930
1,666,472
469,394
3,045
14,078,355
16,948,419
5,777
455,890
1,093,885
321,376
139,194
82,043
382,761
480,910
824
2,956,883
2,297,284
6,366
256,989
90,432
184,016
2,155,158
27,625
470,800
5,488,670
8,445,553
2,879
$
$
$
$
$
$
$
7,903,001
599,865
8,502,866
2,898
$
16,948,419
$
$
2015
Variation %
545,708
22,114
3,676
1,071,587
278,959
727,709
0
64,268
10,114
2,724,135
-47.27
-37.14
311.13
26.45
23.99
3.26
0.00
43.72
-15.01
5.4
35,628
81,857
324
1,466,654
1,202,700
20,242
9,373,182
153,033
1,836,087
550,883
2,273
14,722,863
17,446,998
5,540
(3)
(4)
(100)
11
-13.10
0.00
-4.22
-1.37
-9.24
-14.79
33.96
-4.38
(2.9)
4.28
1,186,029
988134
323,805
145,041
86,055
45,019
0
426,638
154,955
856
3,356,532
-61.56
10.70
-0.75
-4.03
-4.66
-100.00
0.00
-10.28
210.35
-3.74
(11.9)
2,243,125
10,495
245,395
0
172,156
0
186,920
1,822,157
8,720
663,992
5,352,960
8,709,492
2,765
2.41
-39.34
4.72
0.00
-47.47
0.00
-1.55
18.28
216.80
-29.10
2.54
(3.0)
4.12
8,105,460
632,046
8,737,506
2,774
-2.50
-5.09
(2.7)
4.47
17,446,998
(2.9)
Results Conference Call Information
The conference call to discuss 3Q16 results will be held Wednesday, November 23rd, 2016 at
8:00 a.m. Colombia Time (8:00 am Eastern Time).
Conference ID #: 12526804
Telephone numbers:
United States / Canada:
(866) 837-3612
Colombia:
01 800 913 0176
UK Toll-Free:
08000 288 438
International (outside U.S):
(706) 634-9385
3Q16 results presentation and report are available from today Tuesday, November 22nd, 2016
at Cementos Argos’ Investor Relations website:
www.argos.co/ir/en/financial-information/reports
IR Cementos Argos – Contact Information
Manuela Ramirez - IRO
[email protected]
Catalina Ricaurte – IR Director
[email protected]
Ana Catalina Castaño - IR Leader
[email protected]