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Argos shares Q1 2020 results and launches RESET strategy

Published by , Deputy Editor
World Cement,

The first quarter results of 2020 in terms of revenues and EBITDA were very similar to the same period last year, despite the impacts regarding the operation closure in Colombia and in some countries of the Caribbean and Central America that began during the last two weeks of March. The position of Argos’ cash flow, which accounted for around 615 billion pesos up to 30 April, reaffirms its sustainable economy and its capability to executive actions in order to protect its financial liquidity. In the midst of challenging market conditions, the Colombian Region reported an increase of 15% in EBITDA.

Update of the operations statements:

The USA region, which, in 2019, represented 39% of the cement volumes and close to 55% of Argos’ EBITDA, continues operating under strict protocols. In Colombia, for the infrastructure sector, the mandatory isolation was lifted on 13 April and for commercial construction on 27 April, which allows the company to gradually reactivate its operations.

The Caribbean and Central American region continue with regular dispatches in Haiti, and are showing positive signs of recovery in Honduras, since the market opening on 16 April. There has been a slight impact on demand in Suriname and French Guiana. Levels are still below 40% of the usual volumes in the Dominican Republic, Puerto Rico and the Antilles. Panama is still is not operating due to government restrictions, but there are signs of some reopening by mid-May.

In order to mitigate the risks associated with the coronavirus pandemic, Argos has implemented an integral action plan called RESET, to re-start safe and healthy to boost the economy, bring hope and transform lives. This plan takes into account the safe re-start of operations to protect the company’s people, finances and society in line with local regulations.

The main pillars of the RESET plan are:

  • Health and safety: Implementation of strict protocols and new measures with a goal of operating safely, under the guiding premise of protecting the lives, health and well-being of employees, customers, suppliers and neighbouring communities.
  • Financial liquidity: Cash flow conservation initiatives include capex reduction by US$40 million in 2020 and centralise all payment-related decisions. Likewise, the company has disbursed around US$110 million in credits in order to increase the liquidity position. As a result, Argos’ cash flow in April was around 615.000 million pesos, an amount significantly higher than the amount at the beginning of the year. As for capturing savings and efficiencies, they are projected to be between US$75 and 90 million. Argos expects to achieve around 84% of these efficiencies through a fixed costs reduction and the remaining 16% left through adjustments in administration and sale expenses.
  • Operational excellence: Redesign of the operating model to adapt to new market premises that will override once all the isolation measures are lifted.

“With the company's strong cash flow position, the savings initiatives within RESET, the support of our stakeholders and the passionate commitment of our more than 7 000 employees, we firmly believe that Argos is prepared to face the current challenging conditions of the market to continue building dreams that boost development and transform lives," said Juan Esteban Calle, Argos’ CEO.

Consolidated results:

In the first three months of 2020, Argos, a cement and ready-mix company of Grupo Argos, reported revenues of 2.2 trillion pesos, a figure that remains stable when compared to 2019. The EBITDA, including the effect of IFRS16, was 343 billion pesos, decreasing 1% when compared to the same quarter of the previous year. During the period, the total volume of cement dispatched reached 3.6 million t, 6.1% less, and ready-mix volumes decreased 10.7%, reaching 2.1 million m3.

In general, the results were impacted mainly because of the closure of operations in Colombia and in some countries of the Caribbean and Central America and, to a lesser extent, by the poor weather conditions experienced in some areas of the United States.

Performance of business by regions:

In the USA Region, Argos obtained revenues of US$350 million, with a decrease of 6.1% when compared to the same period in 2019. Likewise, EBITDA closed at US$38 million, experiencing a decrease of 6.1%, mainly due to the higher maintenance costs at Argos’ Martinsburg and Newberry Plants, which, in order to achieve operational efficiencies, were carried out during the first months of 2020.

During the first quarter, cement volumes decreased slightly by 1.2%, which shows resilience when facing the COVID-19 crisis in the states where the company has operations. On the other hand, ready mix dispatches decreased 5.5%, affected by the aforementioned weather conditions.

Argos is expecting demand to slowdown in the United States for employment, consumption, and residential and commercial construction between the end of the second quarter and the beginning of the third quarter. For its part in infrastructure, the organisation forecasts short-term impacts from liquidity shortages both on state and federal levels. According to discussions currently taking place within government, this segment could be key for reactivation of the economy in the medium term, based on the stimulus measures that are expected.

In the Colombia Region, revenues reached 523 billion pesos, which represents a fall of 6.1% when compared to the same period in 2019. EBITDA had an increase of 15% in comparable terms and totalled 122 billion million pesos. This improvement was mainly due to a significant reduction in maintenance costs and the efficiencies implemented starting in the second half of 2019, which led to a decrease in energy costs of 8.8%, when compared to the same quarter last year.

Cement dispatches were located at more than 1 million t, with a decrease of 13.9%, and ready mix shipments totalled 554 000 m3, 19.5% less. Both were impacted by the closure of operations towards the end of March, as a result of the government-mandated isolation. At the end of April, the retail segment had experienced a 50% recovery in its daily volumes, while the industrial segment slowed because of the strict protocols that must be followed to reopen its projects.

Regarding the prospects for this year, Argos recognises the need for compliance with the measures adopted by the government to successfully contain the spread and flatten the curve. With this in mind, Argos expects a quick recovery of the economy and is closely monitoring how low oil prices and the devaluation of the peso will challenge the return of the economy.

In the Caribbean and Central America Region, the general results were equally impacted to a large extent by the slowdown in the markets due to the COVID-19 and by the lower price pull in Honduras and Panama.

In accordance with the dynamics described above, revenues and EBITDA decreased 16.9% and 33.5% respectively, including the effect of IFRS16. For its part, shipments reached 1.2 million t of cement, with a decrease of 4.1%, and those of ready mix stood at 61 000 m3, 34.1% less compared to the same period of the previous year.

During January and February 2020, Honduras and the Dominican Republic had better market dynamics when compared to the last quarter of 2019. For its part, Haiti continued with constant growth. Lastly, the Panamanian government has demonstrated its drive to boost the local economy and protect national production by imposing a 30% tariff rate on cement imports into the country.

“It is time to renew hope and join efforts to allow the reactivation of our industry under two non-negotiable principles: collective well-being of our people and the implementation of strict personal hygiene measures. We return with greater strength and conviction. We are prepared, and we want to instil confidence in all our stakeholders,” mentioned Juan Esteban Calle, Argos CEO.

In the current context, the company expects a greater migration towards Argos ONE, its digital tool that allows customers to reserve, order and track their cement and ready-mix dispatches. During March, Argos ONE represented 70% of Colombia's cement shipments, 41% in the United States, 35% in Honduras, and 23% in Panama. On the ready mix side, it represented 49% in Colombia, 3% in the United States, and 33% in Panama.

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