Cementos Argos S.A.

Manuela Ramirez - Investor Relations Juan Esteban Calle - Chief Executive Officer Eric Flesch - VP of the U.S. Division Carlos Yusty - Chief Financial Officer

Andres Soto - Santander Juliana Aguilar - Bancolombia Daniel Sasson - Itau BBA. Carlos Rodriguez - Ultraserfinco Alejandra Obregon - Morgan Stanley Adrian Huerta - Morgan Stanley Francisco Suarez - Scotiabank Alejandro Lavin - Citibank

Thank you, Thomas. Good morning and thank you for joining us for the Cementos Argos Second Quarter Results.

On the call today are Juan Esteban Calle, our CEO; Carlos Yusty, our CFO; Rafael Olivella, the VP of Legal Affairs; and Tomas Restrepo, the VP of Colombia. We also have for the first time Bill Gardner, our new VP of the US.

We have posted English and Spanish versions of the presentations and reports at www.argos.com/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. We closed the second quarter with an increase in revenue and EBITDA across all regions.

We continue working on implementation of our customer centric strategy with our focus on digitalization and the execution of BEST, with emphasis on cost, SG&A and working capital optimization. The goal is to make our business leaner and more competitive and increasingly cash flow to reduce leverage.

In this sense last June we completed our COP500 billion bond placement with bid -to-cover of 1.8x. Those proceeds will substitute current financial debt and allows us to increase our debt's average life from 4.8 to 5.3 year.

We are receiving the full backing of the market on financial investors with an oversubscribed [Indiscernible] and very competitive rate. It is highly motivating to trusting the company and the execution of this strategy.

This bond offering allows us to achieve greater financial flexibility and benefit to our debt maturity profile. We will update our 2018 guidance at the end of the call, but for now let me say that for the second half of the year, we expect to remain on budget in the US, to see improvements in the Colombia, benefiting from a modest stable political environment that is boosting consumer confidence.

And to continue experiencing stable results from Central America and the Caribbean. Where Puerto Rico on the Eastern Caribbean operations are compensating this lower demand that we are facing in Panama.

On a Slide 5, we present our consolidated financial results with our revenues grew by 1.4% and the adjusted EBITDA by 5.9%, resulting in a 78 basis points improvements of the EBITDA margin. Our result of the EBITDA and net income level were affected by the non recurring charge of $24 million fine imposed by the Superintendence of Industry and Commerce in Colombia, which was paid last April.

However, on a cash flow basis, these effects were partially offset by the proceeds from our tax reimbursement of around $17 million already approved by the Colombian tax agency. We are currently preparing the anti-trust lawsuit taking judicial review and --the Superintendence of Industry and Commerce fine.

In this case, we will present all the relevant arguments and evidence which demonstrate our innocence and good behavior. We won't rest until justice is served.

This quarter show the massive effort for cost discipline as part of our best program in all regional divisions and especially in Colombia were as long as the demand continues is lower than our expectations, we have to overlap on any effort to make sure that we continue improving profitability. On Slide 6, our total cement dispatch reaches 4.2 million tons increasing 1% when compared to the second quarter of 2017.

And ready-mix dispatch posted a positive 1% by the --as well. The cement volume reflects the challenging conditions in Colombia that were offset by the positive performance in the US and the Eastern Caribbean.

The ready-mix was in someway similar to one observed in cement. Industry in Colombia and Panama is increasing double digit while the market strong in the US.

In this geography we are observing very positive signs in our core market, especially in the South Central zone; we are experiencing improvement market conditions in Houston where we posted double digit volume growth during the quarter. Our total fuel and electricity cost in the US per zone was 10% higher when compared to the second quarter of 2017.

The Colombian and the Caribbean and Central American region was only increase of 18% and 13% respectively, mainly due to increasing coal prices and gas shortage in the North of Colombia. On the other hand, in the US region we highlight a 4% decrease explained by energetic efficiencies in our operation and our pricing natural gas that allow us to reach 15% coal substitution.

Now let's move on the Slide 8 to discuss our results in the US. Our cement business reported a 3.2% growth in dispatch mainly driven by Florida and Texas, with high single digit growth and double digit growth in the Deep South area.

On the ready-mix segment, we are optimistic with the 4.2% recovery of cement volumes. We are starting to get turnaround in the South Central zone, where the Houston and Dallas operations reported up 24.2% and 5.4% volume growth respectively.

During the second quarter, revenues for the US stood at $417 million with an increase of 5% and the EBITDA reached $75 million with a 13% growth and 18% growth in EBITDA margin. Based on the budget results year-to-date and the positive lead indicators for the US economy, we maintain our EBITDA guidance of $270 million to $280 million for 2018.

With continued strength in our value proposition after the successful implementation of our digital platform Argos one Colombia we launched a platform in the US with a rapid adoption and positive feedback from our clients. Only six months after the initial pilot, 15% of our total dispatches were ordered through the platform.

After the construction of the Mercedes Benz stadium with Argos supplied more than 150,000 cubic meters of concrete under very challenging technical specifications, we are extremely excited with the opportunity to supply ready-mix for [Indiscernible] project in the US. We are aware that the contract to supply concrete to renew Facebook Data Center located in Atlanta.

These projects will have an estimated consumption of 180,000 cubic meters for the year. On the Slide 7 of the presentation you can appreciate the magnitude of the project.

I also want to highlight that tremendous effort in this region for the improving cash cycle. The business has received receivables turnover by almost 11 days when compared to last year.

As we mentioned before, we see great potential in optimizing working capital days to increase free cash flow generation and reduce leverage. On Slide 9, we will discuss the fundamentals of US market, where we have a positive outlook in the residential and non-residential segment.

Days on the current fundamentals and the momentum of the housing segment. Consumer confidence is at level not seen since 2004.

The unemployment rate close at 4% in June, the lowest since 2008. We see construction dynamics into residential and non-residential construction spending which increase around 9% and 3.6% in June year-over-year respectively.

Moreover, housing start and building permits have increased up 7% and 5% respectively year-to-date, supporting our positive expectations for the market in the coming months. In our state, we highlight strategic project as the Houston Methodist Hospital and FedEX Distribution Center, both located in Texas and the Facebook Data Center in Georgia, which showcase our leadership in the non-residential segment and will demand around 300 meters of ready-mix.

On Slide11, I'll discuss our results in Colombia, where we continue facing slower than expected demand. The weak market conditions resulted in a 2.1% decrease in volumes for the quarter below the [Indiscernible] of positive 2.6%.

On the ready-mix business, our dispatch is fell by 3%. Average performance in the industry due to our strongly achieved municipal work which fueled our digit.

On the 4G functional units, we have achieved our market sharing in excess of 70% and continue to grow dispatches to this project over 6% year-to-date. As of June 30, we have dispatched just over 100,000 tons of [Indiscernible] projects with about 60% to 4G.

For the year end Argos expect to dispatch over 200,000 tons of [Indiscernible] cement. The lower volume was offset by slight reprises resulting in revenue growth close to 1% which together with continued execution of BEST continue to our adjusted EBITDA of COP96 billion.

After correcting for the payment of the aforementioned fine. 4.3% higher than in the second quarter of 2017.

The margin for the quarter is showing some improvement was impacted by a shortage of gas in the Northern region of Colombia, increasing our fuel electricity cost by 18%. During the quarter, property price remained stable compared with the first quarter of 2018.

Mainly due to increasing oil prices and sea freight, also we observed a 10% decrease on cement input compared with the same period in 2017. Now on Slide12.

I will expand on the fundamentals of the Colombian market. We expect our second half of the year days improving consumer confidence index and encouraging sign in the residential segment, specifically in social housing.

As of June, consumer confidence reached 15.5 a level not seen since 2015. As you all know, these indicator is key for our back business and in general for the residential sector.

Although the performance of the housing market has been disappointing during the year, the 19% rise in intention to purchase home indicator in June, the subsidies -- government subsidies program and 6% increase in social housing permit in May, US positive reassurance for our outlook for the upcoming months. On the Slide14, I will present the results for the Caribbean and Central America.

Our cement volumes grew 1% even taken into consideration the 37 day construction strike in Panama. This increase was driven by a remarkable recovery in market in the Eastern Caribbean such as Haiti, Dominican Republic and Puerto Rico with increases of 29%, 14% and 16% respectively.

Honduras reported a 3% expansion in cement volume. Regarding financial performance, the region reported revenues of $151 million, increasing 2.7%.

EBITDA for the quarter was $49 million, a 4.1%, a very positive figure considering the impact of around $6 million in Panama due to strike. The EBITDA margin stood at 32.4%.

On the next Slide I will review the outlook for the Caribbean and Central America. Our Caribbean and Central American markets provide us with stable cash flow, even the well diversified footprint of the region.

While this year we are seeing positive development in Honduras and Puerto Rico, related to strong ties to US economy, Panama has been affected by the construction strike, its low pace of the housing market and delays in infrastructure projects. In Honduras, quarterly construction in 2018 increased by 5% year-over-year, benefited by 2% increase in foreign direct investment and a 9% increase through June remittance, which given the healthy labor market in the US, we expect them to continue growing.

In Puerto Rico, we see tailwinds in the cement market due to a launching of the post hurricane recovery plan are an estimated investment of $400 million over the net for the year. These signs together with positive price performance in the Eastern Caribbean market allow us to remain comfortable with the region's stability despite expected pressures we foresee from the performance of the Panamanian economy for the remaining of the year.

Moving on to the balance statement on Slide17. I will present our debt structure and average level.

As of June 20, 2018 our net debt to EBITDA plus dividend ratio closed at 4.35x including the effect of the payment of the anti-trust fine. Excluding this effect from the calculation, the ratio stood at 4.14x.

We were extremely focused during this quarter and expanded our debt average life. We completed our successful bond issuance in Colombia and closes syndicated loan both with very competitive rate.

We continue working on optimizing our EBITDA to cash ratio. We are using working capital needs by close to $40 million and achieving reduction of 4.3 days in our receivable turnover.

We also conducted a comprehensive review of our CapEx requirements for the remaining of the year. We are changing our CapEx guidance to between $120 million $130 million for 2018, including between $50 million and $60 million commitment related to the on hold expansion of Sogamoso.

These efforts allow us to maintain our target leverage of between 3.5x to 3.6x by the end of the year. On Slide 19, I would like to review our consolidated EBITDA guidance for the full year.

To account for this lower than expected market conditions, we are experiencing in Colombia. We are now estimating a year end EBITDA between COP1.6 trillion and COP1.75 trillion.

To our right we see, we are maintaining the guidance of between $270 million to $280 million for the US, and are keeping intact our expectations for stable resource for the Caribbean and Central American operations. However, in Colombia we are changing our view.

We now expect mid single digit decrease in cement and ready-mix volumes for the year considering the challenging market conditions. We will continue working now our value proposition to maintain our participation on implementing project such as Colombia while ensuring the materialization of our best related efforts.

Finally, I'd like to thank you for your time today. And welcome all your questions.

Operator, you may now open the line for questions.

Good morning, everyone and thank you for the presentation. I have two questions.

The first one is related to your Colombian operations. On the one hand you are guiding to mid single digit decline in full year 2018, which basically implies no growth for the second half of the year.

And on the other hand we saw sequential market share recovery this quarter probably helped by your sequential decline in prices which I estimate in my numbers. Can you please help us reconcile these two data points?

In other words, will your strategy be focused on recovering market share and or in sustaining current prices?

Andres, thank you again for the question. The reality is that we don't see volume growth in Colombia for the remaining of the year.

In our opinion the market will end up decreasing low single digits taken into account import and our strategy will continue to be to try to record prices in the market, to reflect import parity prices and cost inflation.

Perfect and my second question are related to your US operations. Based on my estimates your cement volume growth at this quarter was twice as big as that one of the states where you operate, which suggest some market share gains there.

At the same time, price appears to have improved sequentially this quarter. So can you please comment on the strategies that you're implementing that are driving this positive commercial performance?

The realities that we saw recording the Houston market specifically and we foresee that the market will continue performing well for us in the US. So we expect sequential volume growth in the US, and prices have been behaving in an extremely good way.

In this context are you expecting to continue implementing price increases this year?

We don't want see more price increases in the US this year. I mean the prices will increase in April, and in our opinion they will continue at the same level until next year.

Hi, good morning, everyone. And thanks for the call.

I have a follow-up on the previous question regarding pricing in Colombia. Do you see room for further price increases this year giving the challenging market environment?

And I have a second question regarding your EBITDA guidance. Is there any more divestment included in this year's guidance you plan to execute during the second half of the year?

Thank you.

There might be an additional price increase in Colombia before the end of the year. The reality starting import prices and cost inflation allow us to continue increasing --prices gradual in Colombia.

And regarding our EBITDA guidance, we are considering some divestment in Colombia and Panama before the end of the year.

Hi, thank you for the call and for taking my questions. My first question is on the cost front regarding our operations in Colombia.

We saw few attrition and coal price in Colombia rising this quarter. If you could give us more color on how the project for alternative fuels in Colombia is growing?

The potential improvements in EBITDA per ton and how quick do you think that you could increase the use of alternative fuels that would be great. Thank you.

Thank you, Daniel. Cost increases in Colombia related to electricity cost and fuel cost in our operations.

Cost per ton increase more or less $3 from $16 per ton to $19 per ton in Colombia. We are increasing the use of alternative fuels, but we still have a lot of room to improve in that regard.

We have started the operations of the alternative fuels line in Cartagena, and we are using already alternative fuels in Rio Claro, but so far our alternative fuels using Colombia is close to 5%. Our goal and our target are to increase at least to 20% before the end of 2020.

Thank you and my second question is related to Panama, Panama performed a little bit worse than your other operations in the region. How are you seeing demand recovering after the one-month strike that we saw in the country?

And I remember that we talked about the competition with Chinese imports in the first quarter. Are there Chinese or are the Chinese imports still come into Panama or how if the competitive landscape in Panama currently?

Thank you.

Thank you. The reality is that after the strike demand hasn't recovered completely, but we are foreseeing better second half of the year in Panama.

Regarding imports, Panama has been resumed low levels of input from China, and so far we haven't seen any changes in that regard.

Good morning, gentlemen. My --I would have first question on freight rate.

We've seen that freight rates have increased quite substantially over the past three -four months. Is this something that could have a positive impact on our pricing for the operation or in the second part of the year?

And my second question is on the US. When I look at your volumes, the volumes were of 3% -4% your sales were up only 5%.

This suggests that the price increase in the US was only at 1%. How come you are not able to increase prices more in the US?

Is it because the volume are not picking up as much as expected? Is it because of the behavior of competitors?

Thank you. Yes, freight rates have been increasing, but the reality at the same time there has been more devaluation in sourcing.

So at the end of the day it will be prized --it hasn't changed that much. Regarding more price increase in the Use in our opinion, prices are already quite good in the US and we prefer to be conservative in terms of increasing price in the US.

And is there any reason for being conservative? Is it because of the risk of new entrants in ready-mix increase is it because of the risk of import?

Or -- because I can imagine that the hotel investment acquiring asset is quite expensive in the US. So we could imagine that's prices need to be higher to get a good hotel on the asset you acquire [Indiscernible]

In reality the price has been increasing on a sequential basis in the US. In our opinion prices are at the right level.

Hi, thank you for the call. My question is regarding your US guidance for EBITDA.

And you had given this imply that you have been tending around 61% EBITDA during the second half of the year roughly translate more or less 80% growth year-over-year in the second half. Where do you see this growth coming from?

Would it be centered around the third quarter and the seasonality? or the projects you see in [Indiscernible]

Hi, Eric. We would appreciate if you repeat the question.

I mean there is some noise in the line. So we didn't hear you well.

Can you please repeat your question?

Sure. If you can't hear me out I'll just call after the call but your EBITDA guidance for 2018 in the US, average generating 61% of EBITDA during the second half of the year.

Where do you see that growth coming from?

Yes. The growth in EBITDA in the US basically because of the seasonality.

The first quarter of the year --due to the winter it is always lower than the second half. So that is why you will see that growth in EBITDA in the second half of the year.

No additional budget?

No. It's basically a normal behavior of the US market

Maybe

And we are planning to be on budget with the guidance what we provided to the market of between $270 million to $280 million.

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

I would like to know in Colombia that if you have seen any different dynamic in Colombia since the elections took place in Colombia? I mean have you seen a bearish sentiment driven by this macro --pair of fundamentals?

Thank you.

Yes, Carlos. In realities that we have started to see a much better dynamic in Colombia.

After the elections July was a good month I mean the margin was strong in July than it has been in a long time. And we expect that optimism in the new government to start materializing in 2019.

Thank you, good morning. Good morning, Juan.

One question on Colombian another one the US. No sorry two questions on the US; one is what was the impact on margins from the higher energy cost in the quarter and the second question is how much cement did you input in the first half of this year in the US and how does that compare to year ago?

Thanks.

Okay, Adrian. Thank you for the question.

The reality in the u.s. the energy cost decreases during the quarter almost by $1.

There was a decrease of almost 4% in the total cost of energy plus electricity cost in the US. We were able to replace almost 15% of our energy consumption with natural gas in the US.

We didn't see cost inflation in the US in that regard. Regarding import during the quarter, we imported close to 100,000 pounds of cement for the first half of the year in the US.

That is more same inputs that we had the first half of last year.

Good morning. Thanks for taking my call.

My question is related to a $20 million tax reimbursement you showed for this quarter. I was wondering if this amount was included in the EBITDA calculation or in any line of the P&L.

And if you're expecting any further reimbursements in the next quarters. And also I would like to know if you can give us more details about the divestments you're expecting to make in Colombia and Panama.

Thank you.

Sure. The tax reimbursement didn't affect EBITDA or net income; just cash item improve our cash flow but didn't have any impact on our results during the quarter.

And regarding the divestment in Colombia and Panama, we are looking to the BEST umbrella stating in Colombia and Panama. Realistic target that we still have in our balance.

Hi, good morning, Juan. Thank you for the call and congrats on the -- great execution despite the challenging environment.

The question that I have in the US, what is exactly driving this huge decline in SG&A in the US operations? Is that -- does that relates with a restructuring of your ready-mix operations in Houston and Dallas?

Can you elaborate a little bit of that? And secondly, if you could walk me a little bit too how your overall gross debt evolved from the first quarter and to the second quarter?

Even though that sold assets and get this cash reimbursement from taxes, it doesn't seems that your overall cost debt is improving. If you can guide me a little bit on that that will be very helpful.

Thank you so much.

Thank you, Francis for your question. You may be aware I mean we started the execution of BEST in the US at the beginning of the year, and the realities got that execution of pace is starting to show results.

That is why you are seen decline in SG&A and we foresee an improvement cost as well going forward. Regarding our gross debt I would like Carlos Yusty, our CFO to answer the question.

Hi. We are working -- for us it is very important the participation of US denominated dollars and the Colombian denominated dollars in this case, we have been working in both sides trying to optimize the cost of every one of --every in every day-- rate in every currency like when we mentioned before the issuance that we had a two months ago was very successful without very efficient rate in Colombian pesos.

And right now we are working to revolve or to allow for our syndicate with all that would have our balance sheet. Remember, that we have a syndicated loan of $600 million and we are working on it and really we consider the reason this is an excellent moment or excellent time to do really we are working very hard in the efficiency and cause that.

Got it, thank you. The reason why gross it hasn't improved much or hasn't come down, it will --your overall liability management efforts that and eventually in the third quarter and we may actually see a decline on gross debt.

Yes. And I think that is very important like when external well mentioned in the optimization of a financial cycle the working capital it is very important and all of our regions has a very important focus in the reduction of the financial cycle unlike you can see in the presentation.

In the case of the US, we have reduced 11 days but on consolidated basis we have reduced more than six days. And that's very important in order to reduce the outstanding --the outstanding debt.

Due to seasonality of our operations I mean you will see the reduction in the second half of the year as well.

Yes. We have all the progress in order to reduce much more in the financial cycle in the second half.

Hi, good morning. I have two questions.

Number one, I want to know if you can tell us the parity price for the second quarter in Colombia. And the second one, can you tell us what are you expecting about 2019 infrastructure volumes in Colombia?

Thank you very much.

Thank you, Roberto. Input parity in Columbus is between $80 and $90 per ton depending on where it is cement inputs or clinker inputs to produce cement.

And regarding infrastructure volumes in Colombia for 2019, we expect to dispatch close to 200,000 tons to infrastructure project in Columbia in 2018 and for 2019 we expect at least to double that amount. So we are expecting between 400,000 and 500,000 tons of dispatches to infrastructure projects in 2019.

Hi, good morning, everyone. Thanks for the call.

I have a couple of questions on EBITDA margins. The first one on Columbia.

I mean under this current environment still challenging environment. Do you still think we could or you could reach 20% EBITDA margin by the end of this year?

And the second question would be longer-term margins like stabilized normalized steady-state margins for each of your three divisions what would this look like? Thank you.

Yes. Margins in Colombia for 2018 will be a little bit lower than 20% on a consolidated basis.

Margins in cement, we are seeing margins close to 27% by the end of the year. And in our remix-operation, a close to 6%.

Mid term, we still think that Colombia will be able to be recovering margins at least to a level of 25% on a consolidated basis. In the US our margins for cement and remix are fairly similar to the ones that we are seeing in Colombia, 27% for cement; 6% for remix on a consolidated basis because of the higher exposure to remix in the US.

We are foreseeing margins close to 16% for 2018 in our opinion. They will continue improving and in Central America and the Caribbean our margins are closer to 30%.

Midterm our [Indiscernible] tall is to bring our margin at least 20% on a consolidated basis.

I would like to thank you all for connecting to our conference call. And look forward to speaking to you in our next conference call for the third quarter of 2018.

Have a great day.