CEMENTOS ARGOS S.A.
Report for Q1 2011
BVC: CEMARGOS / ADR LEVEL 1: CMTOY.PK
For Q1 2011, Cementos Argos obtained more than COP 787 thousand million (USD
419 million) in consolidated revenues, showing a growth of 13% in pesos or 16% in
Consolidated operating earnings came to COP 48 thousand million (USD 25 million)
again showing a growth of 10% in pesos or 13% in dollars.
Consolidated EBITDA totaled more than COP 139 thousand million (USD 74 million)
showing a growth of 13% in pesos or 17% in dollars. The Company’s EBITDA margin
for Q1 remained stable at 18%.
The Company’s consolidated net income came to COP 29 thousand million (USD 15
million), which was slightly below those obtained for the same period last year, that is
to say COP 33 thousand million (USD 18 million).
Assets, on a consolidated basis came to COP 15 billion (USD 8 billion) showing an
increase of 0% in pesos or 1% in dollars compared to year-end 2010. During this
same period liabilities rose by 8% in pesos or 10% in dollars, for a total of COP 4
billion (USD 2 billion). Shareholders´ Equity came to COP 11 billion (USD 6 billion)
showing an increase of 4% in pesos or 2% in dollars.
REPORT ON 1Q2011
Cementos Argos got off to a good start to the year, with the majority of its operating figures
showing increases compared to the first quarter of last year. This was not only due to our
markets picking up steam in both Colombia and the Caribbean, but also to the unwavering
efforts we have been making over the last several months for more efficient, standardized
operations. With this we are striving to become an Organization that is more capable of
responding swiftly to market changes, allowing us to maximize our synergies together with
our sources of operating leverage during the different economic cycles within our areas of
influence both at home and abroad.
Firstly we are pleased with the results obtained in Colombia during this past quarter,
especially the volumes sold in March, which rose to levels never before seen in the history of
our Company, both in terms of tons of cement as well as cubic meters of concrete.
On the other hand, and in spite of the heavy rainfall at the end of last year which affected our
plant in Cartagena, our Caribbean Division obtained an important improvement in its results
for these first three months. Although our cement volumes to the US continue to be affected
by the low demand in this part of the world as well as low prices within the construction
sector, we have managed to ship cement to other export markets besides taking on a larger
portion of the market on the northern coast of Colombia.
Our results in the US continue to mirror the weak performance of the US construction sector,
which also had to contend with adverse weather during the early part of this year. Although
our concrete volumes in the Gulf region and Southeastern part of the US have begun to rise,
compared with last year, market prices per cubic yard continue low in spite of demand finally
beginning to show signs of improvement, mainly due to the scheduled investment in
COLOMBIA REGIONAL DIVISION
Our Colombia Division posted quite gratifying results for this first quarter. For several
months now we have been talking of rising activity in the country´s construction sector
and how Cementos Argos is playing an active role in the different infrastructure projects
that are being carried out. Nevertheless, the results of these past quarters have not
faithfully reflected how the Colombian market is picking up steam, since last year we
had no revenues coming in from our coal export business that we had divested the year
before, and therefore last year´s results cannot be compared with those of 2009. Also,
and as we mentioned in our last teleconference, the results of Q4 2010 although
positive from the revenue and sales standpoints were nevertheless affected by the
adverse weather patterns within the entire region, which in turn had a negative impact
on our margins.
Having said that, however, during these past three months we have worked hard to
further our positioning amongst our clients and have made important investments in
equipment and mobile concrete plants so as to attend the construction projects being
conducted both on an urban and nationwide level. In this way we are consolidating our
leadership of the cement, concrete and aggregate markets in Colombia and becoming
an indisputable ally for the infrastructure projects being carried out throughout the
For Q1 2011, our Colombia Division obtained COP 426 thousand million in revenues for
a growth of 16%. EBITDA reached COP 129 thousand million, rising 16% over and
above the figure for the same period last year. The Division´s EBITDA margin remained
stable at 30%.
It is important to mention that the Colombia Division´s operating margins were affected
by a transport strike early on in the year which had a significant impact on the cost of
transporting the finished product and raw materials; nevertheless, they were still higher
than those obtained for the same period last year. Thanks to the Division´s ongoing
savings initiatives and the optimization of its corporate structure, it was able to
neutralize and overcome the overall effect on its margins.
With regard to sales, volumes of Argos grey cement in Colombia for Q1 2011 came to
1,2 million tons, showing a YoY increase of 27%. Out of this entire volume and as you
requested at our last quarterly teleconference, Cementos Argos sold 197 thousand tons
of cement through its subsidiary Concretos Argos; that is to say 17% of the total amount
of cement sold by Argos in Colombia was shipped via our concrete business.
Concrete sales in Colombia came to 587 thousand cubic meters, showing an increase of
48% compared to the same period last year.
In March as well as for the entire first quarter of this year, Cementos Argos reached a
historic milestone, with cement and concrete sales reaching the highest levels ever
recorded by this Division.
Based on the above, we continue to uphold a positive outlook for the Colombian market,
since besides the momentum gained over the last few months by the civil engineering
and infrastructure subsector, we also are seeing incipient signs of rising activity with the
building and minor construction subsector
This is mirroring an important increase in building permits being issued in this country
over the last few months. Land being approved for construction purposes on a monthly
basis, as reported by the Colombian Statistics Bureau (DANE) has risen by a YoY 50%
over the last three months (December 2010 to February 2011). Upon calculating the
amount of land for which building permits have been issued during the 12 month-period
ending February 28, 2011, we see a 40% increase compared with the same period a
It is worthwhile noting that although building permits do not necessarily produce sales of
construction materials there and then, they do clearly mark the trend of the market in
the mid- to long-term. This is because construction does not automatically begin as
soon as building permits are issued.
As for the housing market, a record number of new homes were approved in November
and December of last year, with housing for the lower-income brackets playing an all-
important role as the Government brings down the housing deficit in Colombia.
Furthermore, the figures reported for January and February of this year have also gone
beyond the maximum levels recorded for the last 24 months.
USA REGIONAL DIVISION
The Q1 results for this Division, were far from satisfactory. Not only was it hit hard by
sluggish prices, but also shipments declined due to the adverse weather conditions in
February, mainly in Little Rock, Arkansas and Dallas, Texas, which held up operations
on two occasions for 8 and 3 days respectively.
On a more positive note, during the first quarter in the US we were awarded more than
650 thousand cubic meters of concrete to be shipped over the next few months to
various infrastructure projects. These include the North Tarrant Expressway, costing
USD 2 billion, where Argos shall be supplying 25% of the concrete required, for a total
of 100 thousand cubic meters. Also we were hired to supply 30% of the concrete
required by the second largest highway concession in the US, the Lyndon B. Johnson
Freeway, costing USD 3 billion which shall require a total 765 thousand cubic meters of
concrete. Both of these projects are being built in Texas, which at December 2010 still
had 46% of the stimulus funds provided by the ARRA to spend on infrastructure.
In response to the interesting amount of activity going on in the US civil engineering
sector, mainly in our own areas of influence, in January 2011 we created a new
Infrastructure and Special Projects Area within our US Division so as to better cater to
the different infrastructure projects that are scheduled for this part of the world. This
forms part of a wider sales and market positioning strategy, given the changes in our
sales mix for this sector, where infrastructure is set to be the main source of demand, in
contrast with just a slight rise with the housing sector.
During the first quarter of this year, we sold in the US 828 thousand cubic meters of
concrete, showing a 3% increase compared to 2010. The Division´s revenues
consequently reached USD 84 million, showing a 6% decline compared to the same
period last year. The Division posted a negative EBITDA of USD 6 million.
In addition to lower margins given the drop in average selling prices and the disruptions
in operations caused by adverse weather conditions, it is important to note that although
we had forecast a 6% increase in fuel prices at the beginning of the year, this based on
the figures forecast by the Energy Information Administration, in just the first three
months of this year, diesel and other fuels rose by more than 18%, which is exerting
greater pressure on the Division’s margins.
Nevertheless we remain firm to our long-term strategy and vision for the US, in spite of
the economic slowdown in this part of the world having taken longer than initially
expected, which is why we do not feel comfortable committing ourselves to certain
targets and forecasts However, it is vital that our shareholders and investors realize
that our day-to-day performance in the US offers constant challenges in terms of
maximizing efficiencies and focusing our sales efforts on gaining greater ground on
what has after all become a very difficult market. Having said that however, we are
convinced that the US market shall recover the drive it enjoyed in the past, this sooner
rather than later. Although these last two years have been difficult, thanks to initiatives
such as having centralized the Division´s administrative operations in one single
operations center in Houston, Texas, creating new sales areas and detecting new
market niches, Cementos Argos has now built up sufficiently robust operating
capabilities in the region, and with its ongoing financial stability, can afford to weather
the current difficulties while the country´s construction materials market begins to
recover slowly but surely.
CARIBBEAN REGIONAL DIVISION
In spite of a difficult year-end 2010 for the Caribbean Division with numerous disasters
caused by the heavy rainfall in November and December, it managed to post a positive
level of results with important increases in terms of its volumes, margins and financials.
Firstly, and we are very pleased to report that as of January 2011 we began to ship
cement and pozzuolana for the widening of the Panama Canal, shipments which
according to the consortium in charge of the project, shall continue until early 2014. We
would like to remind you that this material is supplied from our Cartagena Plant along
with clinker and from our grinding facilities in Panama the actual finished product is
shipped to the contractor. As a result of this, month by month our new production line in
Cartagena has been producing more and becoming much more stable from the
operational standpoint, running at 95% of its nominal capacity at the end of Q1 2011,
that is to say 1.8 million tons a year.
Generally speaking, the three main markets attended by the Caribbean Division
performed well. Firstly in Panama, cement sales rose by 15%, driving up revenues and
EBITDA by 18% and 40% respectively. On the other hand, cement sales in the
Dominican Republic and Haiti rose by 15% and 40% respectively, however, the basis for
comparison for this latter country was affected by last year´s earthquake. In both
countries, revenues rose by 7% and 39%, with EBITDA running at -12% and 59%
respectively. This drop in EBITDA in the case of the Dominican Republic was mainly
due to higher distribution costs, after transport costs went up increasing domestic
haulage by 2 dollars a ton.
Outlook for this Division remains good, this based on an interesting amount of activity in
the construction material sector throughout the region. We hope that the President elect
of Haiti shall be able to commence his reconstruction plan without delay. Also, current
prospects show that Panama and the Dominican Republic are on a firm path to
economic growth, this bolstered by foreign direct investment, its external demand and
the construction sector itself. In fact, according to its latest Global Economic Outlook
report, the IMF is expecting growth rates in this part of the world of 4.2% and 4.5% for
2011 and 2012 respectively It is worthwhile mentioning that a large part of this growth
is due the robust performance of the Dominican Republic and the reconstruction efforts
in Haiti. If we were to exclude these countries the growth forecast for the Caribbean
Division for 2011 would come to just 2.2%.
For Q1 2011, the Caribbean Division posted consolidated revenues of USD 98 million
for a growth of 44% compared to the same period last year. EBITDA, on the other hand
went from USD 14 million in 2010 to USD 23 million for this past quarter, representing a
total growth of 65%. The Division´s EBITDA margin rose to 23% compared to 20% for
the same period last year.
For Q1 2010, we obtained COP 20 thousand million in revenue from our Other
Businesses, which was lower than the COP 25 thousand million posted last year.
EBITDA therefore came to COP XXX thousand million, which was COP 3 thousand
million less than last year.
It is important to note that the results obtained from our Other Businesses are largely
dependent on the Company's real estate business. As to be expected, although our
horizontal land development business is already up and running and has its own
exclusively dedicated personnel, it nonetheless depends on sporadic transactions and
not a regularly recurring flow of such. This is the main reason for the decline in the
operating figures for our Other Businesses.
The following table contains a summary of the main indicators posted by all three Divisions
for Q1 2011.
YTD at March
2011 2010 Var (%) 2011 Mgn (%) 2010 Mgn (%) Var (%)
COP$ thousand million
Colombia 426 368 16 129 30.3 111 30.1 16
United States 158 174 -9 -11 -7.1 -1 -0.8 -694
The Caribbean 184 132 39 43 23.3 27 20.3 60
Sub-total 767 674 14 161 20.9 136 20.2 18
Overhead 0 1 -94 -23 N/A -18 N/A 26
Other Businesses 20 25 -20 1 4.0 4 15.7 -80
Consolidated 787 699 13 139 17.6 122 17.5 13
Colombia 227 189 20 68 30.2 57 30.1 20
United States 84 90 -6 -6 -7.1 -1 -0.8 -787
The Caribbean 98 68 44 23 23.3 14 20.4 65
Corp. & Other Business, Net 11 13 -19 -12 -109.4 -7 -54.2 -63
Consolidated 419 360 16 74 17.6 63 17.5 17
+3 +41 293
Cash at EBITDA WK CAPEX Taxes Financial Dividends, net Other non- Financing Cash at
Dec. 10 Expense operating Operations Mar. 11
PORTFOLIO OF NON-CEMENT INVESTMENTS1:
At the end of 2011, Cementos Argos’ investment portfolio came to COP 6.1 billion.
For more information on our portfolio of investments please refer to the presentation of
our Q1 2011 results published on Cementos Argos’ Investor Website, under the tab
“Communications / Presentations”
DEBT AND COVERAGE INDICATORS:
At March 31, 2011, Cementos Argos´ consolidated net debt came to COP 2.4 billion, 72% of
which was denominated in pesos and the remaining 28% in dollars.
The average annual cost of debt in pesos came to 6.4% at the end of Q1 2011 while that in
dollars reached 2%
On a consolidated basis, coverage continues at adequate levels as can be seen in the
following ratios: Net Indebtedness / EBITDA + Dividends: 3.7; EBITDA / Financial Expense:
3.2 times and Net Indebtedness / Equity: 22%.
1 Fluctuations in the portfolio of non-cement investments did not affect Cementos Argos' income statement, however they did
affect its balance sheet, specifically the appreciation /depreciation account. All these non-cement companies periodically report
their results and for this reason the corresponding information is not included in this report.
A teleconference shall be broadcast over the Internet next Monday May 2 at 8 a.m. Colombian time, at
which we shall be discussing our Q1 results.
Conference ID: 61.436.211
Tel – United States / Canada: (866) 837 - 3612
Tel - Colombia: 01800.518.01.65
Tel - International/Local: (706) 634 - 9385
This conference shall be rebroadcast on Tuesday May 3 Tels: (800) 642-1687 and (706) 645-9291.
A more detailed presentation of these results has been made available on Cementos Argos’ Investor
Webpage (www.argos.com.co/cemargos) in the section Communications / Presentations
Tel: (574) 319.87.12
CEMENTOS ARGOS S.A.
CONSOLIDATED P&L STATEMENT
In m illions of Colom bian pesos or US dollars
Mar-11 Mar-10 Var. (%)
Operating revenues 787,451 699,442 12.6
US$ Dollars 419 360 16.4
Variable costs 650,289 563,944 15.3
Cost of goods sold 573,013 504,544 13.6
Depreciation and amortization 77,276 59,400 30.1
Gross profit 137,162 135,498 1.2
Gross Margin 17.4% 19.4%
Overheads 89,350 92,172 -3.1
Administrative expense 54,854 49,384 11.1
Selling expense 21,043 23,321 -9.8
Depreciation and amortization 13,453 19,467 -30.9
Operating Profit 47,812 43,326 10.4
US$ Dollars 6.1% 6.2%
EBITDA 138,541 122,193 13.4
US$ Dollars 74 63 17.0
EBITDA Margin 17.6% 17.5%
Non-operating revenues 88,668 92,494 -4.1
Dividends and participations 70,296 70,714 -0.6
Profits from sales of investments 3,158 0 n.a.
Other income 15,214 21,780 -30.1
Non-operating expense 99,647 98,711 0.9
Net financial expense 41,282 43,480 -5.1
Losses (profits) on sales of fixed assets (469) 766 -161.2
Other expense 58,834 54,465 8.0
Exchange difference 1,207 2,241 -46.1
Pre-tax earnings 38,040 39,350 -3.3
Provision for income tax and deferred tax 5,891 3,451 70.7
Minority interest 3,148 3,004 4.8
Net Income 29,001 32,895 -11.8
US$ Dollars 15 18 -16.1
Net Margin 3.7% 4.7%
CEMENTOS ARGOS S.A.
CONSOLIDATED BALANCE SHEET
In millions of Colombian pesos or US dollars
Mar-11 Dec-10 Var. (%)
Cash, banks and negotiable investments 550,960 476,130 15.7
Trade receivables 388,491 381,922 1.7
Accounts receivable, net 403,450 305,951 31.9
Inventories 318,174 289,475 9.9
Prepaid expense 20,916 23,617 -11.4
CURRENT ASSETS 1,681,991 1,477,095 13.9
Permanent investments 334,077 340,108 -1.8
Accounts receivable 40,849 38,230 6.9
Inventories 39,412 39,412 0.0
Deferred items and intangibles 1,600,270 1,634,481 -2.1
Property, plant and equipment, net 2,804,050 2,870,683 -2.3
Valuations 8,873,107 9,036,539 -1.8
Other assets 22,026 44,319 -50.3
NON-CURRENT ASSETS 13,713,791 14,003,772 -2.1
TOTAL ASSETS 15,395,782 15,480,867 -0.5
US$ Dollars 8,192 8,088 1.3
Financial obligations 690,516 682,182 1.2
Commercial paper 199,030 250,000 -20.4
Suppliers and accounts payable 414,517 398,389 4.0
Dividends payable 163,958 47,778 243.2
Taxes and rates 202,504 46,445 336.0
Labor liabilities 101,071 36,419 177.5
Sundry creditors 49,196 54,582 -9.9
Other liabilities 266,884 249,145 7.1
CURRENT LIABILITIES 2,087,676 1,764,940 18.3
Financial obligations 797,589 700,167 13.9
Labor liabilities 225,788 224,990 0.4
Deferred items 96,571 160,869 -40.0
Bonds outstanding 1,240,000 1,240,000 0.0
Bond placement premium -11,084 -11,494 3.6
Sundry creditors 134,382 136,850 -1.8
NON-CURRENT LIABILITIES 2,483,246 2,451,382 1.3
TOTAL LIABILITIES 4,570,922 4,216,322 8.4
US$ Dollars 2,432 2,203 10.4
MINORITY INTEREST 73,711 88,468 -16.7
US$ Dollars 39 46 -15.2
SHAREHOLDERS´ EQUITY 10,751,149 11,176,077 -3.8
US$ Dollars 5,720 5,839 -2.0
TOTAL LIABILITIES + SHAREHOLDERS' EQUITY 15,395,782 15,480,867