Cementos Argos Reports Second Quarter 2017 Financial Results

Transcription

1 Cementos Argos Reports Second Quarter 2017 Financial Results Efforts in efficiency and geographic diversification revert the trend during the second quarter August 11 th, 2017 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 24M tons of cement and 18M m 3 of concrete. BVC: CEMARGOS, PFCEMARGOS ADR LEVEL 1: CMTOY / ADR 144A: CMTRY - Reg-S: CMTSY Key Highlights Successful COP 1 Tn bond placement in the Colombian market, allowing us to increase our debt average life by two years, with a 1,3x bid to cover and attractive CPI linked interest rates. Inside the fence generation assets divestment process advancing on schedule to be completed before year end. Negotiation of a waiver with our banks to increase the maximum leverage ratio allowed for our loan agreements to 4,5 times Net Debt to EBITDA plus dividends. Publication of our Value-Added Statement: monetizing our externalities to increase transparency and strengthen our commitment to generate a positive impact on society and the environment. The positive results in the US and the Caribbean and Central America region, compensated the challenges that we are facing in the Colombian market. As of 30 of June, 73% of our revenues and 77% of the EBITDA were generated abroad, in dollars or related currencies. Additionally, we expect a better second half of the year in Colombia driven by dispatches to the 4G projects and a recovery in consumption driven by the reduction in interest rates.

2 Consolidated Results Var Var Key Figures Cement Volume M MT ,9% ,7% RMC Volume M m ,0% ,0% Revenues COP Bn ,6% ,9% Ebitda COP Bn ,9% ,6% Ebitda margin % 19,9% 17,0% -290,9 19,6% 15,1% -442,4 Net Income COP Bn ,5% ,2% Net Margin % 8,2% 2,2% -602,1 6,4% 0,1% -632,4 Consolidated cement volumes reached 4,1 million tons, a 17,9% growth driven by positive dynamics in all our regions. Our concrete volumes decreased by 8%. Our consolidated revenues were COP 2,1 trillion, 1,6% YoY less and the EBITDA closed at COP 367 billion, with a 17% margin. The US was our main contributor to both, revenues (54%) and EBITDA (47%). The US and the Caribbean and Central America partially offset the still challenging dynamics in Colombia resulting in a positive net income for the quarter (COP48 billion). Improved results derived from our focus in efficiency through our BEST program: Consolidated 17 SG&A decreased by 3,8% YoY boosted by Colombia (-24%) EBITDA in June was COP 155 billion, with an 8% growth YoY, and a margin above 21% (the highest recorded year to date). Non-recurring expenses of COP M related to severances and anticipated pensions in Colombia. Execution of the Fit to Grow Program to redesign our administrative structure and adjust headcount.

3 Results per Region USA Region Var Var Volumes Cement 000 MT ,1% ,8% RMC 000 m ,4% ,5% Var Var Revenues USD M ,7% ,4% EBITDA USD M ,5% ,5% EBITDA margin % 15,1% 16,7% 155,9 12,6% 13,0% 37,2 Volumes and market performance Cement dispatches grew 46,1% and 5,5% excluding the Martinsburg operation, well above the total US market growth (3,5% 17 through May). On the ready-mix business, volumes sold decreased by 8,4%, given the adverse weather in the South East and difficult market conditions in the South Center, mainly in Texas. We have put in place a set of actions to improve profitability on the ready-mix business in Texas, including a reduction in headcount, an adjustment to our structure, the optimization of our plants network and a shift in focus from the commercial towards the residential sector. On the other hand, in our cement operation in the South East, demand growth is coming mainly from the residential sector. Nevertheless, infrastructure programs such as the FAST ACT and the Florida`s infrastructure plan may become a mid-term catalyst for the industry. Financial results During the first quarter, our revenues and EBITDA increased 8,7% and 21,5% respectively, driven by the acquisition of Martinsburg, the positive dynamic in cement dispatches and a 5% price increase in our operation (excluding Martinsburg). The EBITDA margin increased to 16,7%, the highest ever recorded for a second quarter in our operations. We expect a further EBITDA expansion during the second half of the year given the normal seasonality of the market.

4 Colombian Region Var Var Volumes Cement 000 MT ,9% ,6% RMC 000 m ,1% ,3% Var Var Key Figures Revenues COP Bn ,3% ,7% EBITDA COP Bn ,3% ,4% EBITDA margin % 25,6% 14,4% ,0 28,2% 14,1% ,0 Volumes and market performance Cement dispatches in 17 increased by 6,9% YoY, while the Colombian National Administrative Department of Statistics (Departamento Administrativo Nacional de Estadística, DANE ) reported a 5,8% drop in volumes for the industry. Imports continue decreasing, with a 47% reduction in cement and 26% in clinker, year to date. Our ready-mix business volumes decreased by 8,1% YoY, which compares fair to the 16% reduction posted by the market during the quarter to May. The latter, explained by the performance of the nonresidential and civil works segments, which has been partially offset by social housing. On the infrastructure sector, we continue strengthening our leadership, securing 5 new functional units during the quarter and reaching a share of 70% of the 4G s awarded units. Additionally, our dispatches for the 4G projects continue growing steeply, although they are still not material for our entire operation. Financial results The decrease in revenues and EBITDA was explained by cement prices, that reached a bottom between April and May of Besides, the EBITDA has the effect of COP M non-recurring expenses derived from severance payments and anticipated pensions. The savings achieved through BEST partially offset the prices effect on our EBITDA, and were materialized in the following: Reduction of USD 7 per metric ton in cash cost YoY, more than half of the USD 12 per ton extended goal for 2017.

5 SG&A decreased 24% YoY with a noticeable drop of 37% YoY in June. EBITDA margin of 14,4%, compared with the 13,7% reported in 1Q17. Margin in June was 20,1%, the highest. Caribbean and Central America Regional Division Var Var Volumes Total Cement 000 MT ,9% ,0% Local markets 000 MT ,5% ,6% Trading and Exports 000 MT ,5% ,7% RMC 000 m ,9% ,5% Var Var Key Figures Revenues USD M ,6% ,0% EBITDA USD M ,8% ,4% EBITDA margin % 34,8% 31,6% -319,2 35,1% 31,5% -353,7 Volumes and market performance Cement volumes increased 4,9%, and 1,3% excluding the newly acquired operation in Puerto Rico. The organic growth was driven by Honduras, the Eastern Caribbean, and trading and exports while Panama posted stable volumes. In Honduras, the construction sector continued posting an upward trend given the positive performance of the residential segment and the 1,3 trillion-dollar infrastructure plan. The positive outlook is supported by a healthy fiscal balance, which was ratified by the increase in the sovereign rating from B+ to BB- by S&P. In Panama, we highlight the 18% rise in toll revenues from the Canal expansion, boosting the economic growth. Besides, we expect an acceleration in the execution of infrastructure projects during the second half of the year.

6 Financial results The EBITDA for the region was USD 47 million, with an attractive margin of 31,6%. The margin s yearly decrease is explained mainly by a maintenance halt at the integrated plant in Honduras between May and June, as well as the effect of the reopening of San Lorenzo s grinding facility in the same market. Also, the quarter s results reflect the consolidation of the integrated plant we acquired in Puerto Rico. We are working to increase the profitability of the new 800-thousand-ton plant in a market where we see opportunities in the long-term. Summary of Results Below, a summary is presented of the main consolidated figures per regional division, as of June 30 th, 2017: Revenues EBITDA Var 2016 Mgn (%) 2017 Mgn (%) Var COP Bn Colombia USA CCA Subtotal Corporate Other Businesses Consolidated Results ,7% ,2% ,1% ,4% ,4% ,6% ,0% 12 4,4% ,6% ,1% ,5% ,4% ,9% ,8% ,0% ,0% NA ,7% NA ,1% ,9% ,6% ,1% ,6% USD M Colombia USA CCA Corporate Other Businesses Consolidated Results ,7% ,2% 56 14,1% ,4% ,4% 89 12,6% 99 13,0% 10 11,5% ,0% 99 35,1% 92 31,5% -7-7,4% NA ,0% NA ,7% ,8% ,6% ,1% ,5%

7 Cash Flow as of June 30 th, 2017 (COP Billion 1 ): Cash Flow at Jan Cash EBITDA Cash flow (COP Mill) Total Net Op. Working Capital -95 Maintenance CAPEX -241 Profitability CAPEX Taxes Net Financial Expenses Net Dividends -191 Net Other Non-Operating -7 Net Financial Operations -42 Divestments +279 Acquisitions Exchange rate effect Cash Flow at June Investment Portfolio as of June 30 th, : Company % Stake Price per Share (COP) Value (COP million) Value (USD million) Grupo Sura 6,0% Cartón de Colombia 2,1% Total * FX Rate as of June 30 st, 2017: COP 3.038,3/ USD 1 For the purpose of this report 1 billion = and 1 trillion = 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.

8 Indebtedness and coverage Ratios *: As of June 30th, of 2017, Cementos Argos consolidated financial debt rose to USD million, of which 43% was denominated in Colombian pesos and 57% in US dollars. The average annual cost of debt in Colombian pesos closed at 9,1%, while in US dollars was 2,9%. Our Net Debt to EBITDA plus dividends ratio was affected by the results of our Colombian operation. Therefore, we negotiated a waiver with banks to increase to 4,5 times the maximum leverage ratio. This agreement shows the confidence on our ability to reduce our leverage to levels between 3,5 to 3,8 times before year end, given the progress of our divestment plan, the materialization of BEST in our cost structure and a better outlook for the second half of * Note: Since 15, for Net debt to EBITDA + Dividends ratio, Net debt and EBITDA are calculated with the same FX closing rate.

9 CEMENTOS ARGOS S.A. Y SUBSIDIARIES Consolidated Statement of Income For the six months ended 30 June Million of Colombian pesos or million dollar Variation Continuing operations Revenue $ $ (3,9) US$ dólares ,8 Cost of sales ,1 Cost of sales ,3 Depreciation and amortization ,1 Gross income $ $ (29,9) Administrative expenses (4,7) Selling expenses (3,4) Depreciation and amortization (12,1) Other income (expense), net (4.884) (9.212) 47,0 Depreciation and amortization non-operating assets (34,0) Asset and goodwill impairment Operating income $ $ (50,4) Operating EBITDA (25,6) US$ dólares (20,5) Financial expenses ,9 Foreing currency exchange (850) (264,9) Share of profit of associates and joint ventures (698) (2.743) 74,6 Income before income tax $ $ (78,8) Income tax expense (10,6) Income from continuing operations $ $ (84,5) Net income (loss) from discontinued operations Net consolidated income $ $ (84,5) Attributable to: Owners of the parent company ,2 Non-controlling interests ,6 Net consolidated income $ $ (84,5) US$ dólares - Owners of the parent company 1 90 (99) Additional Information: Gross margin 17,1% 23,4% Operating margin 6,5% 12,6% Net margin 0,1% 6,4% Operating EBITDA EBITDA margin 15,1% 19,6%

10 CEMENTOS ARGOS S.A. Y SUBSIDIARIES Consolidated Statement of Financial Position For the six months ended 30 June and December 31 Million of Colombian pesos or million dollar Variation % ASSETS CURRENT ASSETS Cash and cash equivalents $ $ ,36 Derivative instruments ,58 Other financial assets ,73 Trade and other accounts receivable, net ,50 Current tax assets ,31 Inventories, net ,62 Prepaid expenses ,56 Non-current assets held for sale or for distribution to owners ,99 Total current assets $ $ ,13 NON-CURRENT ASSETS Other non-current accounts receivable (1,33) Investments in associates and joint ventures ,37 Derivatives financial instruments (15,69) Other financial assets (16,93) Other intangible assets, net (2,47) Biological assets Property, plant and equipment, net ,92 Investment property ,63 Goodwill ,58 Activo por impuesto diferido ,22 Prepaid expenses and other non-current assets ,04 Total non-current assets $ $ (0,70) TOTAL ASSETS $ $ ,23 US$ dólares (1,01) LIABILITIES CURRENT LIABILITIES Financial liabilities ,22 Trade and other payables ,82 Tax payables ,52 Employee benefits ,69 Provisions ,50 Derivative instruments ,0 7,01 Bonds and other instruments ,95 Income received in advance and other liabilities ,28 Liabilities associated with assets held for sale or for distribution to owners ,00 Current liabilities $ $ (12,5) NON-CURRENT LIABILITIES Financial liabilities ,93 Trade and other payables ,95 Employee benefits ,53 Derivative instruments ,12 Provisions ,93 Bonds and other instruments ,26 Other liabilities ,67 Deferred tax ,32 Non-current liabilities $ $ ,19 LIABILITIES $ $ ,43 US$ dólares ,16 SHAREHOLDERS EQUITY $ $ ,37 Non-controlling interest ,36 SHAREHOLDERS EQUITY $ $ ,21 US$ dólares ,47 LIABILITIES AND SHAREHOLDERS' EQUITY $ $ ,23

11 Conference Call Information The conference call to discuss 17 results will be held on Monday, August 14 th, 2017 at 8:00 a.m. Colombia Time (9:00 am Eastern Time). Conference ID #: Telephone numbers: United States / Canada: (866) UK Toll-Free: International (outside U.S): (706) results presentation and report are available from today Friday, August 11 th, 2017 at Cementos Argos Investor Relations website: IR Cementos Argos Contact Information Manuela Ramirez - IRO mramirezm@argos.com.co Catalina Ricaurte IR Director cricaurte@argos.com.co

12 Appendix Separated Financial Statements In compliance of the letter 24 of 2017 and the regulation established in the decree 2555 of 2010, as mentioned in the article , is important to highlight that to have a better understanding of the financial information published by the company, both the consolidated and separated financial statements must be analyzed in conjunction including its respective appendixes and the solvency, profitability, liquidity and indebtedness are detailed in the respective document transmitted to the Superintendencia Financiera de Colombia. The separated financial statements of Cementos Argos S.A. reflect a similar trend to the one reported in the analysis of our Colombian operation in the consolidated financial statements and complementary analysis published to the stock market and reported to the Superintendencia Financiera de Colombia. In the same way, the separated financial statements include the corporate expenses of the operation that supports all the geographies. In this sense, and in order to have an appropriate understanding of the solvency, profitability, liquidity and indebtedness of the company, it is suggested to analyze the consolidated financial statements. Financial Ratios Separated Financial Statements As of June 30th of 2017, June 2016 and December 2016 (COP Millions, except when it is stated) June December Liquidity: Current Ratio times Current Asset / Current Liability 0,96 0,66 0,76 Acid Test Current asset inventory / current liability 0,90 0,59 0,66 Leverage: Asset leverage Total liabilities / Total assets 0,40 0,34 0,36 Equity leverage Total liabilities / Equity 0,67 0,52 0,57 Solvency: Leverage Total assets / equity 1,67 1,52 1,58 Financial leverage (EBT / Equity) / (EBIT / Total assets) 0,06 0,09 0,09 Profitability: Assets profitability Net income / Total assets 3,08% 5,44% 4,71% Gross margin Gross profit / Revenues 17,33% 31,44% 32,53% Operational margin Operational profit / Revenues (10,54%) 7,69% 9,66% Net margin Net income / Revenues (0,02%) 43,95% 31,70% Other: Working capital Current assets Current liabilities (93.599) ( ) ( ) EBITDA EBITDA (2.253) EBITDA margin EBITDA margin (0,32%) 19,53% 17.25% EBT = Earnings before taxes EBIT = Earnings Before Interest and Taxes June 2016