Cementos Argos S.A.

Good morning, everyone. Thank you for being here with us today to discuss our second quarter results. My name is Carolina Velasquez. I am Cemento Zargo's Investor Relations Officer, and I will be hosting today's call. On the call today are Juan Esteban Calle, our CEO, Felipe Aristizabal, our CFO, Marisabel Echeverry, the VP of Legal Affairs, Carlos Yusti, the VP of the Columbia Division, and Gustavo Uribe, the leader of Central America. First, I would like to ask you to carefully read the legal disclaimer that is currently being projected on the screen, which is also available on the presentation that is posted on our website. Please consider that all the discussions of the financial and operational results held during the call will be based on the adjusted figures, excluding non-recurring and non-core operations. For a detailed reconciliation of the adjustments, please refer to the annexes of our presentation. Today, after the initial remarks, there will be a Q&A session. If you have a question, please raise your hand by pressing the icon at the bottom of your screen at any time during the conference. We will record this session and upload it to our webpage. It is now my pleasure to turn the call over to Juan Esteban.

Thank you, Carolina, and welcome to everyone joining us today. Since our last conference call, we achieved three key milestones, and I would like to start by highlighting them. First, we completed the spin-off of Cementos Argos' portfolio in Grupo Sura. With this strategic decision, Cementos Argos becomes a pure player in the heavy business materials industry, concentrating all its investments and resources on it. Furthermore, as we have mentioned before, this distribution of 1.4 trillion pesos added to the 1 trillion pesos in cash dividends that are being distributed this year represents a dividend yield of 18%, well above the industry average of 2% and the highest among our peers. Finally, these transactions. in conjunction with Grupo Sur and Grupo Argos simultaneous spin-offs was a breakthrough in Colombia's business history. We are hopeful that it will increase liquidity and investors' interest in our company and in our capital markets. The second milestone is a major advancement in the first of the two-phase journey to re-enter the U.S. market, which is an essential part In this first phase that refers to the consolidation of the aggregates platform, we acquired a 60% stake and took control of the operations of a major aggregates asset in the Caribbean. reserves and access to a deep-water port, a long-term concession with more than 50 years remaining, and the potential to produce 8 million shore tons by 2030. Moreover, we secured a strategic lease option for a deep-water port location on the southeastern U.S. coast. With these two assets and others to come, according to our plan, we will serve the southeastern coastal region that has an estimated unmet demand by local supply of 93 million short tons. Our goal is to generate between $100 and $150 million in additional EBITDA by 2030. Finally, We are pleased to share that we were selected again to be part of the FTSE for Good Index, demonstrating strong environmental, social, and governance practices aligned with the highest global standards. In summary, we start the second semester with solid accomplishments in our plan to create sustainable value for our shareholders with clear strategic focus and long-term vision. We are confident that with all the different initiatives across the organization carried out with our expertise and best-in-class capabilities, we are in a strong position to continue cemented our growth and profitability path. Now I would like to invite Felipe to discuss further the execution for spring program.

Thank you Juan and good morning everyone. With Grupo Usura portfolio distribution, we reached a total shareholder return of 480% in U.S. dollars and 380% in Colombian pesos. Over the last few months, we've achieved tricky milestones, as Juan Esteban mentioned, and made relevant progress on the other pillars. Regarding our first pillar, in terms of financial results, we remain committed to our guidance towards achieving an EBITDA margin above 25% over the next two years. In this second quarter, we delivered a consolidated margin of 22%, driven by a consistent pricing strategy and efficiency initiatives to counteract the challenges experienced in volumes in the different markets. We also reached a return on capital of 14.8%, which is within our end-of-year guidance range of 14 to 15%. As part of the second pillar, related to distributions to our shareholders, we've paid out 385 pesos per share in dividends so far, for a total of 500 billion pesos, which is 50% from the 1 trillion pesos to be distributed this year as approved in the last shareholders meeting. Moving into the third pillar, which considers our share buyback program, we've executed 68% of the 500 billion pesos authorized under the current phase, equivalent to approximately 340 billion pesos. With respect to the fourth pillar, improving liquidity and market visibility, we keep advancing on our goal to be included in the MSCI Emerging Markets Standard Index. Given that trading volumes have been increasing consistently, we believe we are well-positioned for this to happen in the short term. Now, turning to the fifth pillar, we concluded a historical transaction in which Cementos Argos spun off Grupo SuperSure portfolio worth around 1.5 trillion pesos. This transaction marks another milestone in value creation for shareholders, delivering around 200 pesos per share for a consolidated even yield of 18% for 2025. It also enables the company to continue strengthening its strategic focus on the building materials industry. Also, reinforcing his words, this operation benefits Colombian capital markets by promoting greater liquidity and improved price discovery. Finally, on the sixth pillar, tied to our growth strategy, we acquired a prime export-oriented aggregates asset in the Caribbean and secured a list option for a port in the U.S. southeastern coast. This marks a significant step forward in a strategy to reestablish a presence in the U.S. market that comprehends both inorganic and organic initiatives aiming at rebuilding a sustainable asset-light operation capable of generating $300 million in Onalimida within the next three to five years. The concrete steps taken so far reflect our commitment to investing the proceeds from the summit materials take sale in a disciplined, thoughtful, and value-driven manner. In light with this, we've been investing those proceeds through a number of global asset managers in low-risk liquid investments, based on our Board of Directors mandate to have a maximum one-year duration portfolio as we prepare for redeployment. We expect to generate around $110 million in financial income from this portfolio over the next 12 months. Before concluding, I'd like to emphasize that we remain firmly on track to achieve the milestones included in each pillar based on a disciplined and focused execution of our strategy.

Thank you, Felipe, for your intervention. Before moving into the regions, I would like to share A few insights from our consolidated results for the second quarter of 2025. During the quarter, we reached revenues of 1.8 trillion pesos and an EBITDA of 295 billion pesos. This represents a 23% EBITDA margin, an expansion of 225 basis points in comparison to 2024. Although we experienced a challenging construction environment where both our cement and rodent mix volumes decreased by 4.4% and 19.7% respectively, this margin improvement was achieved by a solid pricing strategy and our consistent execution of efficiency initiatives. Net profit accounted for 245 billion pesos representing a 19.1 margin. The results for this first half of the year totalize 2.5 trillion pesos in revenues and 554 billion pesos in EBITDA, with a margin of 22%, demonstrating Cementos Argos' resilience to endure complex market dynamics and macroeconomic ambiguities. Net profit reached 381 billion pesos, almost two times the net profit of the same period of 2024, mainly explained by lower financial costs. As we move into the regions, we find mixed results with an overall positive balance. They include, on one side, the recoveries in volumes in June in Colombia, the continuous market growth of Puerto Rico and the Dominican Republic, and on the other side, the unmet demand in Guatemala due to lower exports from Honduras derived from the kiln stoppage and the still lagging Panamanian market. Now I would like to invite Carlos to discuss further on the performance of Colombia and our strategic view for the market.

Thank you, Juan. In Colombia, the second quarter, although challenging as the beginning of the year, finished with a promissory recovery. April marked the lowest point on volumes while June recorded the highest daily average sales of the year so far, a trend that has continued into July. We reached Revenues of 691 billion pesos for the quarter and 1.34 trillion pesos for the semester. A decrease of 9.5% versus 2024. Mainly explained by lower volumes in cement, ready mix, and aggregates. Dispatches were 1.23 million tons in cement and 518,000 cubic meters in ready mix. These results occurred in the context of extracting local industry as a consequence of higher interest rates and lower subsidies. EBITDA accounted for 172 billion pesos in the quarter and 343 billion pesos year-to-date. The latter represented a margin of 25.5%, an expansion of 90%. five basis points versus first half of 2024. This margin improvement was possible due to our focused pricing strategy carried out in conjunction with our go-to-market strategy, Mind2Market, to deliver our clients superior experience added to the operational excellence program that has brought efficiencies in the cost of goods sold of around 20 billion pesos this looks even more meritorious considering that part of the improvements was observed by higher than expected maintenance cost in our cartagena plant and certain non-recurring expenses including organizational adjustments aimed at strengthening our long-term efficiency lastly We reached the highest last 12 months free cash flow conversion ratio since 2021 over the big debt and 21.5 over revenues, well above global industry peers, average of around 8%. Looking ahead, we expect improved market conditions in the second half of the year, supported by a stronger performance on two fronts. First, some commercial and infrastructure projects that are carried out at a city level, especially in the center and northern area of the country. To support these improving demands, we are considering some capacity expansions in our ready mix business that entail minor capex investment and interesting returns. Second, the continuation of key infrastructure projects along the country such as Hidroituango and Bogotá Metro and the activation of others like Quora and Arena Primavera. Moreover, in the mid-term, we continue to envision improved dynamics in housing based on the increase of 25% in national housing sales versus the first semester of 2024.

Thank you, Carlos. Now, I would like to invite Gustavo to comment on the results of Central America and the Caribbean.

Thank you Juan, and good morning everyone. During the second quarterly year, we exhibited a slight improvement in our cement volumes, having an overall year-to-date growth of 1.9%, totaling 2.1 million tons. Revenues were 141 million for the quarter and 278 million for the semester. with EBITDA margins of 26.9% and 24% respectively. The expansion of 184 basis points in the margin this quarter was mainly due to initiatives implemented to lower the cost of SNPR, SCMA, and fixed costs all across our operations. Starting with Central America, revenues for the quarter accounted for $59 million, with an EBITDA of $18 million. The EBITDA margins stood at 30.4%, achieving an expansion of 175 basis points versus the same quarter of 2024. This significant improvement was a consequence of disciplined execution of right sizing and efficiency initiatives. As for regional cement volumes, we reached 400,000 tons during the second quarter, suffering a decrease of 4.8% on a year-to-date basis, explained by a lagged Panamanian market and lower destructions in Honduras derived from a killing stoppage in the first quarter. Cement prices remained stable during the first half of the year. By country, we found the following results. In Honduras, despite having a continued market growth of around 13%, we had lower dispatches locally, and to Guatemala, derived from the Hackeon stoppage in the first quarter. That led to lower inventory for the second quarter. We are already operating under normal conditions and expect to recover positive tracking. also supported in the postulant dryer project, which will help with more stable production. Moving to Panama, we are still navigating the contracted market, which has had a decrease in demand of around 12%. However, we have been strengthening and adjusting our business model to counteract this situation. As a result, we have the terminal experiencing a substantial growth in the sachet volumes, going from a negative EBITDA to 1 million in the first semester with a 40% margin. Businesses already contributing to revenues such as the aggregates. Moving to the Caribbean region, we experienced this year an impressive recovery after challenging post-pandemic years. Quarterly revenues reached 72 million, representing a growth of 6.9%. The EBITDA margin stood at 22.9%, which meant a 312 basis point expansion when compared to 2024. We observed an overall volume expansion of 1.7% for the quarter and 3.6% for the semester. This increase was driven primarily by solid market dynamics in the Dominican Republic, Puerto Rico, and strong recovery from Haiti as solids. In the Dominican Republic, the market continues to experience a growth of demand of around 2%. supported in tourism and other services, and we continue to operate at full capacity with our expansion project financials exceeding the business case. Our year-to-date cement volume grew 6.5%. In Puerto Rico, volumes continues to positively evolve, posting a 3.1% increase year-to-date. mainly driven by a booming touristic industry, as well as a growing entrepreneurial ecosystem that is generating new employment. Finally, I would like to highlight the encouraging news regarding AVIE, where we managed to stabilize the operations with an alternative business model that reached break-even and has had positive results for the last three months. In summary, Despite the challenges in the region, Cementor Argos has shown once more a resilient and flexible business model, able to adapt and maintain profitability despite the suboptimal market dynamics and unforeseen situations.

Thank you, Gustavo. Now, regarding our balance statement, our net debt to EBITDA ratio is standard minus seven times for the second quarter. reflecting our strong cash position derived from the summit transaction. Looking ahead, we want to reiterate our firm commitment to our 2025 guidance, supported by improved market dynamics, continuous optimization efforts, and our focus on making sustainable and profitable investments. Carolina, we can proceed now with the Q&A section.

Thank you, Juan. We'll proceed now with the Q&A session. Please remember that in order to ask a question, you need to raise your hand using the icon that is at the bottom of your screen. I will say your name and company and we'll enable your microphone. Take into account that you need to unmute your microphone before you speak. First question comes from Mario Simplicio from Morgan Stanley.

Thanks for taking my question. Congrats on the results. I have a question in Colombia. We're seeing some signs of improvement in the market, as you mentioned in the remarks. So I wanted to know what are the trends heading to the second half of the year and across which verticals are you seeing better trends? And my second question is on the exports in Colombia. We saw a significant decrease on volumes there over a year. So I just want to understand if this can be explained by the maintenance in the Cartagena plant, and what should we expect for exports in the remaining of the year? Thank you.

Thank you, Mario, for your questions. I mean, we are seeing positive dynamics in Colombia. As Carlos mentioned, starting in June, we saw a change in the trend of demand in Colombia. Daily average sales are even better in July. The consumer segment of the market continues performing well and the reality is that we see a bear trend in new housing sales with a 20% increase in sales in the second half of the year. The trend in housing starts is improving as well. And the reality is that local municipalities and local governments are starting to deploy more infrastructure projects. So the reality is that we are forcing a way better second half of the year in terms of demand in Colombia. In terms of exports, I mean, the reality is that we made the decision to shut down a wet kiln in Cartagena last year. So the reality is that we have a lower export capacity now out of Cartagena because of the decision to shut down kiln number three that was a wet kiln in Cartagena that we shut down for not only environmental reasons, but also to improve the cost profile of our export operation out of Cartagena.

Gosh, that's clear. Thank you.

Next question comes from Simon Londoño from Bancolombia.

Good morning, everyone, and thank you for the presentation and for taking my question. I would like to ask if you could provide more details about the cement industry in Colombia, considering that key sectors are still lagging behind, and what you believe could be the catalyst that drives cement demand in the short to medium term regarding to your prices strategy?

Thank you, Simone. And Carlos will provide more color. I mean, what is helping is that, in my opinion, interest rates have been decreasing and that has, you know, started to reflect in higher demand in the market. But Carlos will provide more color on the expectations for Colombia the second half of the year. Go ahead, Carlos.

Okay, Juan. Hi, Simon. We think that the catalyst would be the interest rate like Juan was mentioning and the inflation as well. When you see in the past when the inflation is really low, the retail segment would increase. And that is happening this year. In the last three months, the retail segment is increasing by... low single digit, but it's increasing when you compare it back to last year. The trend is changing, and it's because of inflation and the interest rate. As well, like Juan mentioned, in the second half of the year, it's starting a lot of infrastructure projects in the municipalities as well as the state level. For instance, here in Antioquia, the governor and the mayor of Medellín put some resources to finish the Tunel del Toyo. And in Bogotá, we are starting the service of a new project that is very important for Bogotá, It's called Quora. It's a very important project in Bogotá. The same is happening in Cartagena as well. and at the level of Campaena, but as well will happen at the level of the Bolivar state. And for that reason, we are optimistic. Obviously, we have not tremendous optimism, but we are optimistic that the trend is changing for these regions, I hope.

Okay, thank you.

Thank you. Next question comes from Santiago Villanueva from Da Vivienda Corredores.

Hi, good morning for the results. I have two questions. The first question is could you please tell us more about the impacts on net income from non-recurring items and whether we should expect more non-recurring items in the coming quarters. We also see an adjusted net income for this quarter of $245 billion, but what should the adjusted attributable net income be? And the second question is regarding this slide six, regarding this platform in what year should this EBITDA begin to be generated and how much should it be the first year? and what is the capex to reach that level of 150 million a bit down on this platform by 2030 and how will it be distributed by year thank you very much santiago felipe i will answer your call regarding the adjustments and the net income question thank you for thank you for your question uh

Regarding the first one, I mean, we're constantly optimizing and reviewing opportunities to fine-tune our operations in the process, some assets mine. be considered not necessary for for operations such was the case with the plant in Puerto Rico and this is what explains the the adjustment over the second quarter of the year. We're not expecting any further adjustments coming from the Puerto Rico operation, and this has no impact. on no negative impact on the capital of the company. Regarding your second question, we are expecting to reach this level of EBITDA over the next five years, and we expect that the total capital that is going to be needed execute this plan is going to be uh well below the half a million dollar mark okay thank you next question comes from marianne goni from credit court capital

Hi, good morning. Thank you for the presentation. I have two questions. The first one is how much of the proceeds from the summit sale went towards acquiring the new Caribbean platform? And also if you could give us more color about that acquisition. And the second one is regarding financial expenses. Could you explain why financial expenses were higher compared to the first quarter of this year? Thank you.

Thank you for your questions, Mariana. I mean, as Felipe was mentioning, I mean, we will deploy an insignificant portion of the proceeds from the sale of Summit to Quiklid. in the first phase of our export platform to the U.S. With the acquisition that we completed in the Caribbean, we have assets with export potential of aggregates to the U.S. now in Panama, Costa Rica, Colombia and the Dominican Republic. In the first phase, we are foreseeing CAPEX deployment of between 200 and 250 million pesos. That will include several terminals in the U.S. for the imports. The last acquisition that we made is a significant property. It has massive reserves. close to 4,000 acres of land for the concession, very, very close to the ocean, access to deep water ports, high-quality materials. I mean, the reality is that we have already conducted tests of the materials in U.S. labs. And we will start shipping in September to start building inventory to secure DOT permits in a few states in the U.S. So the reality is that we are extremely optimistic regarding the future of our export platform, but it will not require a significant amount of the resources that we received from the sell-off summit too quickly. Regarding the second question, Felipe will provide the answer of financial expenses.

So right now, we hold our gross level of indebtedness is 3.17 trillion pesos. The gross cost of debt for us is right now close to 11.5%. That level has remained very stable recently, but the interest expense represents around 80% of financial expenses. The remaining 20% is associated to the recognition of other expenses. Half of those expenses do not require cash at disbursements and they are associated to the recognition on some pension fund liabilities and other expenses paid. uh to to banks and financial institutions and this is it is in this latter category that the main difference uh uh it's which is what explains the main difference between the vis-a-vis the first part of the year it is the payment of certain fees to to financial institutions

Thank you all. Juan, there are no more questions.

Okay. Thank you so much for participating in our second quarter conference call, and we look forward to providing results in our third quarter conference call coming soon. Thank you so much, and have a great day. Thank you for your interest in Cementos Argos.