Cementos Argos 2Q16 US results remain strong

Cementos Argos 2Q16 US results remain strong
Published: 17 August 2016

For the second quarter Cementos Argos' cement volumes decreased by 1.9 per cent, totalling 3.5Mt, as a result of a challenging market environment in Colombia. These results were compensated by the US regional division, where Cementos Argos grew 16.3 per cent. In the ready-mix segment the company sold 3Mm3, up 1.1 per cent from the previous year.

Cementos Argos registered double-digit growth in revenues, EBITDA and net income, driven by the US, Caribbean and Central America operations and higher efficiencies. The US reported the highest EBITDA margin since the assets were acquired (14.9 per cent).

Dispatched cement volumes in 2Q16 decreased 13.8 per cent, reaching a total of 1.2Mt. These volumes were affected by two main factors; the agriculture and transportation strikes during the months of May and June, without which, volumes would have decreased 8.3 per cent, and a challenging competitive environment that caused Argos to lose a portion of market share. The Colombian National Administrative Department of Statistics (Departamento Administrativo Nacional de Estadística, “DANE”) reported a contraction of 0.42 per cent in cement volumes for the industry.

In the ready-mix concrete business, Argos dispatched 834,000m3, down 8.2 per cent, explained by a decrease in infrastructure and social housing construction. May figures reported by Dane showed a 3.8 per cent drop, mainly impacted by 25 per cent less activity in civil works.

In Colombia revenues, as well as the EBITDA, showed a decrease of two per cent and 13.9 per cent, respectively. EBITDA was impacted by the effect of lower volumes and operational leverage, which caused margin contractions in both cement and ready-mix concrete. In order to offset the EBITDA margin pressures, the company has accelerated its BEST programme with the objective of improving Colombia´s EBITDA margin by 300-500 basis points and decrease the cash cost per tonne between US$4 and US$6 during the next 18-24 months. In addition, the use of alternative fuels in the second kiln of the Rio Claro plant reached 3.6 per cent after the project’s launch in April, using tyres as fuel.

Domestic cement dispatches increased by 16.3 per cent, reaching levels of 1.1Mt during the quarter. In the ready-mix business, more than 2Mm3 were sold, an increase of 5.3 per cent when compared to 2Q15. Growth in both segments is a consequence of market recovery, pent-up demand and better weather conditions.

Argos registered revenues of US$66m (13.8 per cent increase) during 2Q16 as a consequence of the positive trend observed in volumes and a low-single digit price increase.

Argos sold 1.2Mt of cement in 2Q16, with an increase of seven per cent in Panama, four per cent in Honduras and 24 per cent in exports. However, total dispatches of this regional division decreased by 1.6 per cent, explained mainly by our trading activity.

In Panama the group retained its solid market share and volumes increased faster than the four per cent reported by the market. Argos is optimistic about the canal’s expansion impact, which currently generates around eight to 10 per cent of the GDP and is expected to produce additional revenues of US$1.4bn for 2017, as well as around 200,000 new jobs across the next 10 years.

In Honduras the cement market grew 11 per cent for the quarter. This positive trend supports the decision to open a distribution center in San Pedro Sula with a capacity of about 1200Mt and to restart the San Lorenzo grinding facility during the 3rd quarter, which will bring an additional capacity of around 300,000tpa.

Argos registered revenues of US$144m, an increase of by 3.9 per cent when compared to the same period of 2015. EBITDA reached US$50m, representing an increase of 4.7 per cent. EBITDA margin for the period was 34.8 per cent.

As of 30 June 2016, Cementos Argos’ consolidated financial debt rose to US$1871m, of which 42 per cent was denominated in Colombian pesos and 57 per cent in US dollars.