Cementos Argos S.A.

Manuela Ramirez - Investor Relations Juan Esteban Calle - Chief Executive Officer Carlos Yusty - Chief Financial Officer

Andres Soto - Santander Mauricio Serna - UBS Nikolaj Lippmann - Morgan Stanley Vanessa Quiroga - Credit Suisse Carlos Rodríguez - Credicorp Germán Zúñiga - Bancolombia Luisa Arce - Davivienda

Thank you, Samuel. Good morning and thank you for joining us for the Cementos Argos’ first quarter results.

On the call today are Juan Esteban Calle, our CEO; Juan Luis Munera, our Chief Legal Officer; Carlos Yusty, our CFO; and Tomas Restrepo, our Vice President of the Colombian Regional Division. We have posted English and Spanish versions of the presentations and reports at www.argos.co/ir.

We will upload the conference in audio format to our website. It is now my pleasure to turn the call over to Mr.

Calle.

Thank you, Manuela, and good morning, everyone. I would like to begin on the Slide 3 with the key highlights for the quarter.

We completed a first full quarter since the Martinsburg plant was consolidated to our footprint at the end of 2016. The acquired assets strengthen our business in the U.S.

and we are now the fourth largest cement producer in the rapidly growing market. The U.S.

was the main region in terms of revenues for the quarter despite the market seasonality, especially in the northern region. Central America and the Caribbean was the main generator of EBITDA posting strong margins.

In Colombia, the construction of the 4G projects continues advancing. In April, we had the first massive pouring of ready-mix to Flandes bridge of the Honda-Puerto Salgar project.

As illustrated in Slide 3, concrete was at constant flow over three consecutive days. This is a significant milestone for our participation in the 4G projects.

Considering our divestment strategy, we sold our entire our position in Bancolombia raising $172 million. Finally, at our annual general assembly, our shareholders approved the distribution of a total ordinary and extraordinary dividend of 240 Colombian pesos, 20% higher than the previous year.

On the next slide, we will discuss our consolidated results. In general, this quarter presented several challenges, particularly in Columbia, yet we maintain a positive outlook for the year and we continue accelerating the execution of BEST.

The U.S. continued a steady recovery in terms of cement volumes and revenues.

The results were on budget in a quarter with difficult weather conditions in Texas and in the northern region. We experienced slightest maneuver days in Dallas and Houston areas during the quarter compared with the first quarter of 2016, and lost one week of cement sales in Martinsburg due to Stella snowstorm in the northeast.

As anticipated, with the consolidation of Martinsburg, results in the U.S. reflect the seasonality of business in the Mid-Atlantic and the northeast.

This consolidation also explains the increasing depreciation that significantly impacted our consolidated net income. In Columbia, results were as challenging as expected, however our strategy is succeeding.

Our volumes are growing at a higher rate than the industry and imports are declining. Based on the DANE figures through March, our price strategy and value proposition allowed us to report 320 basis points of market share in the cement business year-to-date and 160 points in the ready-mix business through February, the latest figures published for this segment.

The execution of BEST has allowed us to reduce SG&A by 7% and the cement cash cost per ton in Columbia by $3. In the ready-mix business, we captured savings of around 5 billion pesos including margins by 250 basis points.

In order to close the year with an estimated EBITDA of between 490 billion to 500 billion pesos in Columbia and maintain our guidance of between 1.2 billion to 2.0 billion consolidated EBITDA, we are accelerating some components of BEST anticipating savings of 120 billion pesos for the remainder of 2017. Those savings equivalent to $6 per ton are already budgeted and are prominent in the KPIs of our compensation.

Additionally, as part of our royalty optimization strategy, we are fully committed to reducing working capital as evidenced in our reduction from 181 billion pesos in the first quarter of 2016 to 56 billion pesos in the first quarter of 2017. On Slide 6 are our consolidated cement volumes were 3.8 million tons increasing a 11.5% due to market share gains in Columbia and the positive dynamics in the U.S.

In ready-mix, we commercialized 2.6 million cubic meters, 6% less compared with the first quarter of 2016 mainly due to the circumstances in Texas. On the next slide we will discuss our results for U.S.

operations. We started 2017 with our cement volumes growing at 43%, 14% if we exclude Martinsburg.

This is considerably higher than the 1.7% growth of the U.S. market.

We gained 160 basis points of market share in our regions of the influence excluding Texas. As far as our ready-mix business, our volumes were affected by Texas, our most representative market.

Houston is still impacted by low oil prices and particularly this quarter by average rain level. Yet the PCA project at 3.3% increase in cement consumption for 2017 after two consecutive years of contraction.

The increase in ready-mix volumes in Houston also affected our EBITDA because of operational leverage. We expect volumes to start recording in the coming quarters once demand accelerates.

The $32 million of EBITDA for the quarter fully reflect seasonality as 90% of budgeted EBITDA for the region is anticipated between April and December. Through March, we remained above budget as mentioned with the integration of Martinsburg, the seasonality of our business in the Mid-Atlantic and northeast regions will be an ongoing component of our results.

Martinsburg was closed [indiscernible] during the quarter and expected to generate most of the EBITDA through the year until November. We maintain our guidance of between $280 million to $300 million EBITDA for the year.

Moving on to Slide 9 the fundamentals of the U.S. market, the positive dynamic of the residential and non-residential markets as well as the potential demand for infrastructure are expected to expand cement consumption with the CAGR of 5% through 2021.

The amount is expected to reach the pre-crisis level of 103 million tons per year. As a local producer, Argos will benefit from the rise in consumption.

The industry utilization rate is still low at 79%, when compared with the pre-crisis level of 95%. Argos utilization rate mirrors the industry at 79%.

As utilization increases, we expect our 10 ports to play a vital role because of their capacity to import more than 4 million tons. The residential market is expected to continue as the main driver for cement demand.

Leading indicators such as housing inventories in the month are at their lowest level since the crisis boosting home prices. Regarding infrastructure Florida, our largest state in terms of cement dispatches released $11 billion fighting for Florida’s future to be executed between 2017 and 2018.

Execution of the plan will boost the construction of highways and improvement of bridges and sea port structures including the state’s annual spending by close to 30%. On Slide 11, we will discuss our results in Columbia.

Our commercial and price strategy allowed us to significantly recover market share. In cement, we gained 320 basis points boosted by the gain of more than 520 basis points in bagged cement.

We regained almost 500 basis points in the central region and more than 340 basis points in the northern region where imports decreased close to 40%. Based on the DANE figures through February, in the ready-mix business, we reported 160 basis points of market share driven by 200 basis points increase in the housing sector.

Our revenues and EBITDA were below our expectations before slightly lower than anticipated prices. Higher cement volumes did not compensate this erosion.

We expect prices to start slow recovery once the additional demand from 4G projects materializes. Our EBITDA was affected by a maintenance halt of 20 days in Riclaro and Cartagena, and non-recurring charges of around 15 billion pesos mainly for severance payments and anticipated pensions related to the execution of BEST.

Through March, we had a reduction in our headcount of 700% in Columbia when compared with the start of the program in June of 2016. Our commitment to efficiency is reflected in a reduction of $3 in our cash cost per ton in Columbia.

The initial goal was $6 through December. This also reflected in the additional 120 million pesos of savings in cost and SG&A that we have already budgeted for the remainder of 2017.

Our main goal for this region are the recovery of market share and the acceleration of BEST to adjust our cost and expense structure to challenging market conditions. The EBITDA guidance for Columbia in 2017 is between 490 billion and 500 billion pesos.

Moving on to Slide 12 and 13, I will present the highlights for the Columbian market. After a challenging period for the cement industry in 2016, we are optimistic about our volumes in Columbia based on our backlog.

Up to date, we have 60% or 70% of our budgeted ready-mix volumes for 2017 in the residential, commercial and infrastructure segments. In the residential sector, we see positive dynamics mostly in the middle income and social housing markets.

In Bogotá, a number of social housing units starts in 2016 increased by 25% and we are participating in the development of macro projects such as Ciudad Verde in Soacha. This project is [indiscernible] for urban development.

It is unusual city within the Ciudad Verde with more than 50,000 housing units, three schools, two shopping centers and one hospital, ample urban spaces, cycling path, first we’re going to serve this in prime access for public transportation. Additionally, in [indiscernible], the central government has a plan to boost social housing in 2017 with 100,000 subsidies, 33% more compared with 2016.

Regarding the commercial business, Argos’ plain cement and ready-mix for these three largest shopping malls currently under construction in Columbia including El Edén in Bogota, the biggest mall to be built in the country with more than 300,000 square meters. We will supply 120,000 cubic meters of concrete to this project equivalent to 15,000 mixtures.

We are also suppliers to EAFIT [ph] mall, the largest under construction Medellín. In the infrastructure, we have secured the leadership position in the first wave of 4G projects with a market share of 82% in cement and 70% in ready-mix based on functional units.

It is important to highlight that after a couple of years of delay in the construction schedule of the 4G projects, we are currently dispatching for projects to access Honda-Puerto Salgar, Cartagena Barranquilla, Perimetral de Oriente, Santa Ana, Mocoa and the three Pacifico projects. On Slide 13 you will find the approval.

We have just start to dispatching micro cement to emblematic projects such as Tunel de Oriente and our suppliers to the longest bridge being built in Columbia between Mompox and Magangué part of Puerto Salgar. On Slide 15 we will discuss results for the Caribbean and Central America.

Our cement volumes in local markets increased 8.6%, 4% excluding the effect of our acquisition in Puerto Rico. The organic growth was driven by 20% growth in Honduras and 2% growth in Panama excluding the canal’s effect.

Our trading business and export which are usually high but really attribute to seasonality affected the total cement volumes of the division. The ready-mix business continues showing a positive trend explained by the reactivation of Panama.

The region generated $45 million of EBITDA with a healthy margin above 30% boosted by the efficiency of our operations in Honduras and Panama. In Honduras, the energy consumption and the clinker to cement ratio decreased by 450 basis points and 50 basis points respectively.

In Panama, fixed cost per ton decreased by 11% and variable cost decreased by 4%. On the next slide we will comment on the fundamentals of our main markets in Central America and the Caribbean.

In Honduras and Panama, the economic forecast is positive for 2017. GDP in Honduras is expected to grow 3.6% and in Panama 5.1%.

Fiscal deficit in both countries are expected to decline. Panama is placing the infrastructure plan of $2.7 billion for 2017 equivalent to 3% of GDP.

Through March, there was a 17% increase in total revenues generated by the expansion of the canal and rise in tourism. Honduras has regained international credibility.

Inter-American Development Bank and the World Bank granted the government credit lines of more than $900 million for infrastructure. The positive dynamic in cement consumption is expected to last as the government executes its plan to invest $1.3 billion in infrastructure.

On the next slide we will discuss our debt level. Improvements in working capital deposit from the sale of our stake in Bancolombia and a favorable FX rate explain the reduction of 300 billion pesos in total debt outstanding at the end of March compared to December of 2016.

However, the seasonality of our operations in the U.S. and the strategy we are executing in Columbia impacted our EBITDA increasing the net debt to EBITDA plus dividends ratio to 4x.

We continue implementing our business strategy to reduce our non-core assets that will allow us to reach our target leverage ratio of around 3.5x by year end. In Columbia, we are moving ahead with the sale of the first three inside the fence generation assets.

We have signed more than 20 NDAs with interested counterparties. We are also moving ahead with the sale of real estate assets for an amount between $30 million and $40 million.

In my closing remarks, I would like to emphasis that we went through a difficult quarter in Columbia but we remain optimistic of our strategy in the market. It’s medium and long terms prospect are with the guidance we provided for our consolidated results for 2017.

We are fully committed to improving our efficiency and increasing return on capital. We have a well diversified portfolio of operations in the Americas and a unique footprint in the U.S.

market, one of the most attracted globally in the cement business. Our pipeline of projects in Columbia and leadership and the infrastructure statement allow us to visualize an improvement trend in volumes and a growing market in 2018 and onward.

We are confident that at the end of this low cycle, we will be stronger and more competitive than ever. Thank you very much.

I’d like to open now the call for questions.

Thank you, Juan Esteban, for the presentation. My question is regarding your full year guidance.

Based on this guidance which you rate the rate gain now, I understand that you are expecting your EBITDA to grow at above 30% in the next three quarters. It looks quite ambitious particularly after your results in Columbia.

I’ve around some numbers and in order to achieve that you will need to reach an EBITDA margin of at about 20% in Columbia in the next few quarters. And in terms of cement volumes, you will need to grow at high single digit level for the full year; I mean almost double digit growth for the remaining quarters.

Is that consistent with what you are expecting and how you are planning to achieve these goals?

Yes, thank you, Andres. We are expecting an extremely good year in our U.S.

operations and our guidance remains to have an EBITDA of between $280 million and $300 million. We are also expecting extremely good results in the Caribbean and Central American region.

And for Columbia, we are foreseeing a better second half of the year once the demand from the 4G projects start to recap. So the reality is that we remain fully confident that we will reach the 1.8 billion to 2.0 billion pesos of EBITDA guidance for Argos as a whole.

Okay. And I understand that the improvement that you’re expecting is also driven by your best initiatives.

However, as we have seen over the past couple of quarters, BEST has an upfront cost that you are reflecting in your numbers. Should we expect more of these upfront costs in your first and second quarter results?

Yes. The reality is that through 2017 we will continue reflecting some charges to our P&L related to execution of BEST.

Okay. Thank you very much.

Thanks for taking my question. Just a couple of things, just go over Columbia a little bit more.

Just to understanding you’re saying that probably the second half is going to be better there. Is that probably meaning that by then we’re going to see a shift away from this market share play and probably going to see the market again going more doing more pricing to recover the value that’s been lost over the past few quarters, so just to make sure I get this right, in the second half we will see the EBITDA margin improvement because of the pricing also and if the 4G projects get executed on the second half?

And also, if you could comment a little bit on the Caribbean and Central America performance, the exports fell massively, just want to understand this – is this like a one-off or something in particular that’s happened this quarter or should we expect a similar effect throughout the year? Thank you very much.

Yes. Thank you, Maude.

Our strategy in Columbia is to position ourselves to take advantage of the growing volumes that are going to come in the second half of the year. With growing volumes, we are expecting a slight improvement in prices as well.

Regarding Central America, it’s still one-off. There is some seasonality in the export shipments basically but we are expecting a strong year from Central America and the Caribbean.

Great, thank you. And I guess just on the prices in Columbia, it’s been probably like pricing going up like mid single digits or what do you mean with the improvement in pricing or just meaning declining like we’ve seen in the last quarters.

We are completely sure that we are at the bottom of the cycle in terms of pricing and price increases will depend on the materialization of the stronger demand.

Great, thank for the color.

Good morning. Thank you [indiscernible] for the call and for taking my questions.

I have three questions all of them actually on the U.S. On a like-for-like basis your cement volume is up I think 14%, your ready-mix volumes are down, would you be able to – and I think I understand some of the seasonality in Martinsburg, but would you be able to provide a bit of color on what your margins would have been like on a like-for-like basis.

So that’s number one. And really what I’m looking for is more than send us an exact number.

Number two, can you provide further color on demand especially in North Florida or the southeast region if you will? And then finally, congratulations and maybe that’s actually more on Columbia.

Congratulations on your achievement in terms of cost reduction. You are sort of halfway through there.

Can you talk a little bit about a bit more detail in terms of what you’re actually doing to reduce cost for this final leg and when we should expect some of this additional cost reduction? Thank you very much.

Thank you, Nikolaj, and I will start talking a little bit more about our BEST program especially BEST in Columbia. We have stated that we have our gap of more or less $18 per ton in our cost structure and we are fully committed to becoming the cost champions in Columbia.

We are doing things such as streamlining our footprint of plants in Columbia, doing some transformation especially in the humid hills. We are also reducing headcount in an important way and up to date we have 700 less people in our structure as we had one year ago and we will continue to win that direction, and we are increasing the use of alternative materials and alternative fuels as well.

So by 2018, we fully expect to have close that $18 gap in our cost structure. In terms of the U.S.

cement, cement volumes were strong as we stated. Martinsburg was about breakeven.

It was expected because the first quarter in Martinsburg is affected by the winter in the northeastern, Mid-Atlantic regions. So we are fully confident that we will reach that target of between $280 million and $300 million in our U.S.

operations. Volumes in the ready-mix business were a little bit down specifically because the Houston market.

As you know, the Houston market has been facing some headwinds because of the oil prices but we have started to see a recovery in that market as well.

Thank you, Esteban. Would you be able to give a sense of what the margins would have been like without Martinsburg because I can do my own calculation in terms of just cleaning out it was breakeven?

But will the margins be up if we take out Martinsburg?

We are looking to have normalized margins as close to 30% as we can for full year of cementing our U.S. operations and margins are close to 8% in our ready-mix operations for the full year.

Very helpful, thank you. And can you comment on how Florida is doing in terms of the demand, Northern Florida?

Florida is doing extremely well. The margin is stronger and we have been able to increase prices as well, so we are extremely happy with our – with the dynamic in the Florida market.

Very helpful. Thank you very much.

Thanks a lot, Nikolaj.

Thank you. Good morning.

My first question is regarding margins in general in Columbia. I wanted to know if you have any idea of where the margins of competitors are right now.

I understand or I believe that given that of a situation in terms of demand and pricing in the country, competitors are probably struggling. So I’m wondering if you have any idea of what the margins are and if you think that any of them are having to close operations or reduce capacity in general.

Thank you.

Thank you, Vanessa. What we know is that enforcing cement into a Columbian market is no longer profit now, import had been decreasing in a significant way.

We also know that we have the most efficient cement plants in the country in Rio Claro, Cartagena and Sogamoso. And we are fully committed to becoming the cost champions in Columbia because of that.

That is all that I can tell you.

Thank you. That’s helpful.

And do you have any update on the competitive landscape, what capacity are you expecting to come on line in the next 12 months to 24 months?

In our case, we announced that we will bring 1 million tons operational capacity between Rio Claro and Cartagena using technologies with lower CapEx.

Okay. And do you have any feedback on competitors?

In the next 12 months to 18 months, we don’t see any additional capacity coming into the Columbian market.

Okay. That’s interesting.

And in the U.S. can you give any details regarding the price increases that you are planning to announce for the next few quarters?

We announced price increasing starting April 01 in most of our markets of between $6 to $8 and the prices are speaking, the price increases are speaking.

Okay, great. Do you expect to announce other ones in the second half of the year?

So far we don’t have any other plants to price increase in the U.S.

Okay. Thank you very much.

Thanks a lot.

Hi, good morning. This is actually [indiscernible].

Very quick, just if you allow me to explore a little bit on the competitive landscape, if you could give a very color on how prices in Columbia are doing in April and May versus March. What I’m trying to assess is that if you think that the second quarter, the bottom of price of pesos still decreasing or if we could maybe see a stabilization of prices with a gradual improvement throughout the rest of the year as you mentioned.

And the second question would be, are you – congrats on the recovering of market share of more than 3 percentage points, are you already comfortable with the current level of market share you have right now or do you – in your view, you would be more comfortable with a slightly higher market share position than maybe you could fight to increase it slightly over the next quarters until reaching a level you feel is adequate for the [indiscernible] there. Those would be my questions.

Thank you.

Thank you for your questions. I mean we think that the prices there reach a bottom between March and April.

We don’t foresee any further deterioration of prices and as I said, we expect the prices to start showing a better trend once demand start picking up in the second half of the year. We are always looking to take full advantage of the opportunities in the market but we are comfortable at the moment with the dynamics that we are seeing in the market and with the value proposition that we are bringing to our clients in Columbia.

Sorry, just to follow-up, you are comfortable with the market share you have right now?

We are okay with our market position in Columbia and we hope to take full advantage of the recovery of demand in the second half of the year.

Perfect. Thank you.

Good morning, gentlemen. Thank you for the conference call.

I have a couple of questions. The first one is, I would like to know the pricing dynamics in Columbia little bit better.

How prices are compared to the fourth quarter of last year and year-over-year and just to confirm, I mean I heard that it might be by the bottom of price there. Should we expect a better pricing in the second half?

Yes, prices are 25% lower year-over-year first quarter of 2017 to first quarter of 2016 and they are 7% lower than what they were at the end of December of last year. And in our opinion they have reached the bottom already, so we are expecting there is a better pricing starting in the second half of the year.

Okay, perfect. And regarding the debt, do you have any covenants in terms of net debt related to EBITDA?

Yes, Carlos Yusty, our CFO will answer that question.

Yes, Carlos, we have a covenant in front of our debt and the covenant level is at 4x net debt to EBITDA.

Okay, is it bonds or just financial debt?

Just financial debt.

Okay, just one last question regarding imports, have you seen any reduction in clinker imports as you have seen in cement?

We have seen a significant reduction in import of cement. The last quarter of 2015, they were close to 280,000 tons.

The first quarter of this year, they were lower than 80,000 tons. So there is a significant reduction in import of cement.

The import of clinker have remained stable over this period of time.

Okay. Thank you very much.

Good morning. Thank you taking my questions.

I have two questions. The first one is regarding April performance.

You have been presenting any price recovery? And the second question is related to 4G constructions.

So far you are the leaders on delivery on cement and ready-mix volumes, we would like to know those 70% roughly cement volume represents just for make some numbers and I’m getting down to the model. Thank you so much.

Thank you, Germán. The dynamic in April has been similar to the one that we experienced in the first quarter of the year but prices are no lower than the prices we were seeing during March, that is why we are completely sure that we are reaching the bottom of the price cycle.

In terms of extra demand from an extra consumption from 4G projects, we’re expecting an additional 350,000 tons of dispatches of cement to 4G projects in the second half of this year.

Okay. Thank you so much.

Hi, good morning. Thank you for the question.

So I have a follow-up question on prices actually. I was wondering if you could open up just as you did for Columbia, how much of your prices changed on that year-on-year basis and on a quarter-over-quarter basis for the U.S.

and the Caribbean region? And as a second question, I just wanted to know how do you see the next waves of the 4G program if you already have secured any position for the project result?

Yes. Thank you for the question.

Prices in the Central America and the Caribbean are similar to the prices that we had last year, no price increases in that region and prices in the U.S. increase in the low single digits.

And the next wave of 4G projects, I mean we have secured some contracts to supply cement and ready-mix to projects with the second wave of the 4G project specifically to two of them. But the main driver of demand for cement is going to be the first wave of the 4G projects in the near future.

That’s perfect. Thank you so much.

[Foreign Language]

[Foreign Language]

[Foreign Language]

Thank you very much to all for joining our conference call and looking forward to the next conference call at the end of the second quarter. Have a great day.