Cementos Argos S.A.

Good morning. My name is Indira Diaz, Cementos Argos IRO, and I welcome you to our first quarter results release.

On the call today are Juan Esteban Calle, our CEO; Carlos Yusty, our CFO, Maria Isabel Echeverri, the VP of Legal Affairs; Bill Wagner, the VP of the U.S. division; Tomas Restrepo, the VP of the Colombia division; and Camilo Restrepo, the VP of the Caribbean and Central America division.

Please note that certain forward-looking statements and information during the call or in the reports and presentation are available at www.argos.co/ir are related Cementos Argos S. A.

and subsidiaries, which are based on the knowledge of core facts, expectations, circumstances and assumptions of future events. Various factors may cause Argos future results, performance or accomplishments to differ from those expressed herein.

The forward-looking statements are made today, and Argos does not assume any obligation to update such statements in the future as a result of new information, future events or any other factors. Today, after the initial remarks, there will be a Q&A session.

[Operator Instructions] We will record these questions and upload them in our webpage. It is now my pleasure to turn the call over to Mr.

Calle.

Thank you, Indi, and good morning, everyone. During the current market situation, I would like to start by giving you an update of the status of our operations today.

The U.S. region that represented last year 39% of our cement volumes and close to 55% for our consolidated EBITDA continues to operate under regulatory standards.

Market demand behaved normally and in relation to when we started to experience a slowdown in the regions segment mainly related to cement dispatches from our Martinsburg plant. On the Caribbean and Central America, we are dispatching cement from all of our facilities except from Panama.

That is still closed by governmental instructions. In most of these countries, the demand continues to be affected by the COVID-19 crisis with the exception of Haiti, which exceeded a satisfactory market performance.

The Colombian quarantine was lifted on April 13th for infrastructure and April 27th for the residential and commercial sector, allowing us to gradually restart our operations ever since. At the end of April, the retail segment had experienced a recovery of 50% on its daily volumes.

The industrial segment, on the other hand, started much slower given the higher complexity of restarting its operations. In light of this challenging market conditions, we have restructured and launched RESET, a comprehensive action plan to operate the Company during the next months.

RESET, which stands for restart safe and healthy to boost the economy, bring hope and transform lives, is a program that helps the Company to face the pandemic and the later gradual market recovery. RESET tackles 3 dimensions; health and safety, liquidity and operational excellence.

The health and safety dimension was built on our I Promise program to design and put in place all the health and safety protocols that are being implemented to protect our employees, clients, supporting communities and suppliers to be able to operate under the COVID-19 outbreaks. We are ready to safely restart operations in those facilities that are still closed or that are gradually going back to regular production standards while maintaining and improving the current safety protocols in countries such as the Honduras and [indiscernible], where we have not experienced any halt in production.

The liquidity I mentioned includes cash preservation and the construction of an operational model, built with a zero-based budget methodology for the rest of 2020. To improve our cash position, Argos disbursed around $160 million in short-term credit lines and consolidated payments related decisions from its local operations to have a more efficient use of liquidity.

As a result of these measures, the consolidated cash position of the Company stood at approximately COP 615 billion as of April 30, an amount significantly higher than the amount we held at the start of the year. Our new zero-based budget captures efficiencies that amount between $75 million to $90 million on 2020, of which 84% will be obtained from fixed cost and 16% from SG&A.

On top of that, the Company has decided to reduce $40 million in CapEx from the current year on projects that are not necessary to operate under the existing market conditions. The initiatives related to operational excellence aim and ensuring the optimal mix of assets, products, services, manpower and logistics to be deployed according to the evolution of demand in our different markets.

In this context, we expect a further integration to our technological tools in the future such as Argos ONE that enables our clients book contractors cement and ready mix dispatches through our digital platform. During March, Argos ONE accounted for 70%, 41% and 23% of the cement dispatches of Colombia, the U.S.

and Panama, respectively. And for 49%, 3% and 33% of the ready mix dispatches in these countries.

In relation to the divestitures announced to the market on our last earning call for $400 million, we would like to mention that after careful analysis, the transaction has been postponed based on the uncertainties surrounding the short-term impact of COVID-19 on the worldwide economy, but maintaining our commitment to carry them out as soon as the market returns to better conditions. We are aware of the impact that the decision has on leverage ratios of the Company.

And in that sense, we have been in constant discussions with both our rating agency, our lenders to make sure that they fully understand and support our decisions. Given the strong cash position of the Company, savings initiatives within RESET, the support from our stakeholders and the passionate commitment of our more than 10,000 employees, we firmly believe that Argos is fully prepared to face the current market conditions to continue building dreams that promote development and transform lives.

Now moving to our consolidated results, I would like to start by mentioning that all comparisons on this call will be made on the results including IFRS 16 as we now have comparable figures for the present year. Percentage changes in ready mix dispatches and EBITDA are calculated based on the pro forma numbers of 2019, which exclude the operations from the ready mix divestitures carried out in the U.S.

region during 2019 as well as the land appraisals registered in Colombia last year. Cement dispatches reached 3.6 million tons during the first quarter of 2020 decreasing 6.1% when compared to the same quarter of 2019, and ready mix dispatches reached a 2.1 million cubic meters, posting a 10.7% decrease on a like-for-like basis.

These results were affected mainly by the lockdown measures in Columbia and some [indiscernible] Central America and to a lesser extent, to the adverse weather conditions experienced in some regions of the U.S. Revenues closed in COP 2.2 trillion with an increase of 0.2% on a year-to-year basis driven mainly by the devaluation of the Colombian peso.

The EBITDA, on the other hand, it is 1% on a like-for-like basis in line with the declining volumes experienced in both segments during the quarter as a result of the shutdown of operations in Colombia and most of our markets in Central America and the Caribbean. Now to start with our results in each region, I would like to invite Bill to explain the performance of the business in the U.S.

and our view for the market.

Thank you, Juan, and good morning, everyone. I would like to start by providing some color on our volume performance.

Cement dispatches posted a slight decrease of 1.2% for the quarter, with low single-digit growth in our Deep South and Florida Cement districts of around 3% and 1% respectively. The North Sea reflected positive dynamics too but started to face the deterioration in volumes during March due to the health crisis situation, mainly in our mid-East markets.

For the ready mix business, we experienced a 5.5% decrease on a like-for-like basis when excluding the volume from the plant divested in December of 2019. This decrease is mainly due to adverse weather conditions in major markets during the quarter, where when compared to the first quarter of 2019, Georgia, Dallas and Houston experienced 13, 10 and 7 less operational days, respectively.

On pricing, based on healthy market dynamics during the first few months of the year, we achieved an improvement in our ready mix segment of 1.8% when compared to the same quarter of 2019. Cement prices on the other hand, stayed on similar levels to the ones observed in the same quarter of last year.

These results are aligned with our strategy to continue improving in terms of profitability, always monitoring market conditions, which is going to be key during the rest of the year due to the current challenging circumstances for the construction industry and the economy as a whole. EBITDA on a like-for-like basis decreased by 6.1% affected in part by lower ready mix volumes but mostly by higher maintenance expenses of $8.1 million for our Martinsburg and Newberry plants.

In terms of the market, I'd like to highlight the resilience of the U.S. demand during the first quarter of the year despite the COVID-19 outbreak presented throughout the country.

Even though construction has remained an essential activity, in the near future, we envision a slowdown of the residential and commercial segment based on weak readings of some indicators such as unemployment, housing starts, housing permits and the architectural billings index among others. On the civil and infrastructure front, we perceive a short-term impact due to financial constraints at a state and local government level, which based on construction spending readings since mid-2018, or supporting the positive dynamics seen from this segment until February 2020.

On the midterm, though, we expect a rebound based on potential stimulus measures from the government related to infrastructure, which would positively impact the construction sector due to its influence on employment and the multiplier effect on the economy as a whole.

To conclude on the U.S. region, I would like to emphasize on the fact that we are confident about the role that in the short-term we'll play on the recovery of the American economy.

And in that sense, we expect the government initiatives to be developed around that sector. Moving on to Colombia, I want to highlight the price improvement achieved during the first quarter of the year together with the efficiencies in the [indiscernible] captured since the second half of last year, which led to an increase in EBITDA margin, even in a scenario of lower volumes as a result of the quarantine.

Tom will now provide additional color on this region.

Thank you, Juan, and good morning. During the quarter, we continued implementing our strategy to recover value, which led to an increase in prices of nearly 13.5% versus the same quarter of last year with a temporary loss of volume.

Volumes were also affected by the quarantine including Colombia from March 25 on, which caused a reduction equivalent to 8% of the business working days in the first quarter. Through the quarantine, we were able to continue this practice to some essential infrastructure projects such as Túnel de la Línea, El Ituango and a few mining projects, as well as some exports from our Cartagena plant.

Demands from ready mix dispatches decreased 13.9% and 19.5%, respectively on a yearly basis. In line with the price improvement, our EBITDA posted a 15% growth during the quarter, resulting also from lower maintenance expenses as well as from our continuous efforts to renegotiate supply contracts from key materials such as coal, which led to the decrease in the cost of energetics of 8.8% versus the same period of 2019.

I would also like to emphasize on the EBITDA margin improvement of 4.3%, which is an important achievement in a scenario of lower volumes. In relation to the restarting of our operations, to the date of this call, we have restarted our renewals of Cartagena, Rioclaro, [indiscernible] as well as 17 of our ready mix plants across the country.

We will adjust our operations network as required by the growth of demand, always focused on implementing all the safety protocols to ensure the health of our employees, contractors, clients and suppliers. On the demand side, we expect further improvements on the industrial segment during the month of May as construction projects will be able to fully restart their operations, and hardware stores will become available in line with demand for construction materials.

Our clients from the industrial segment have been able to endure the quarantine measure by implementing a strict control on their costs and therefore, are ready to restart their projects. To the date of this report, important projects, such as Túnel del Toyo, Pacfico 1, 2 and 3 and Ruta del Sol 1 and 2 have already successfully restarted their cement and ready mix consumption.

In terms of competition, during the first quarter, the market experienced a decrease in clinical and cement imports of 35% and 56% respectively, when compared to the first quarter of last year. Additionally, between March and April, the import parity price has increased 17% due to the devaluation of the Colombian peso which adds more space for continuing our value recovery strategy once the market goes back to more normal standards.

Thank you, Tom. I would also like to highlight the early actions taken by the Colombian government in preventing the increasing the contagion curve within the country, which reaffirms our belief of upfront recovery on the local economy.

Moving on to the Caribbean and Central America, I would like to highlight the improvements that we saw on EBITDA margin when compared to the last quarter of last year. Despite the fact that our two biggest operations, Panama and Honduras were closed during the last week of the quarter due to the coronavirus crisis.

Camilo will provide more information on the performance of the region.

Thank you, Juan, and good morning, everyone. The first quarter of 2020 was positive in terms of market dynamics for the countries like Honduras and Dominican Republic during January, February and mid-March.

From the second week of March on, we had several affectations in demand in both countries due to the lockdowns declared by local government. These lockdowns have been partially lifted through the date of this call.

On April, we saw volumes in Honduras and Dominican Republic of around 40% of our regular month. Panama continued to have challenging market dynamics during the first two months of the year that worsened on March with COVID impact on the demand and the later quarantine measures implemented by the government.

We expect the lockdown measure for the construction sector to be lifted before mid-May in accordance with public statements made by the government, and in that sense, a reopening from our facility around that date. Haiti, on the other side, continued its positive trend, improving prices in 7.1% and volumes in 11.1% versus the first quarter of 2019.

Overall, we experienced increases in both the EBITDA and the EBITDA margin when compared to the fourth quarter of 2019 of 5.9% and 1.2%, respectively. Unfortunately, these results were still lower than the first quarter of 2019, in part due to the quarantine measures but mostly due to the overall market conditions.

In Panama, and the attractive prices in Honduras continue to be lower than the average price of 2019. As a result, cement volumes decreased 4.1% and ready mix volumes decreased 34.1% when compared to the first quarter of 2019.

This lower volumes led to a decrease of 16.9% in the revenues and 33.5% on EBITDA. During this quarter, we continue to work on obtaining further efficiencies on energetics on our local operations.

In Honduras, for instance, we inaugurated a solid fuel storage in the north of the country that will allow us to receive bigger amounts of fuel and, therefore, improve the purchase price. We also supplied, during the first quarter of the year, 11.6% of the energy from our Piedras Azules plant with a solar farm operated by Celsia, with lower costs together with environmental benefits.

This initiative lowered the CO2 emissions from our energy supply in around 1,500 tons during the first quarter of 2020, reinforcing our commitment towards sustainability. We believe that the second trimester of this year will continue to be challenging for the regional, but maintain our cautious optimism on the second half of the year due to the fact that economies such as Panama, Honduras and Puerto Rico took early actions on lockdowns and quarantine measures.

And in that sense, we expect an early recovery in those economies.

Thank you, Camilo. I would also like to highlight the effort of the Panamanian government to protect local economy by imposing a 30% tariff to the imports of cement to the country, which will have a positive impact on the competitive scenario for the country.

We expect similar strategies to be implemented from other governments in the Caribbean and Central American region. I would like to refer now to our balance statement.

We closed the first quarter with a net debt-to-EBITDA ratio of 4x, which is lower to the ratio for the last quarter of 2019. This result was driven by the fact that our dollar-denominated EBITDA was proportionately higher than our dollar-denominated debt.

Improving our leverage ratio in a scenario of similar investments and EBITDA. Regarding the commitment that we have previously made on deleveraging the Company and reducing our net debt-to-EBITDA ratio, I want to reassure you that even though the current market conditions won't allow us to do that as soon as we were expecting we continue focus on obtaining that result in the mid-term.

These temporary crisis has boosted our productivity, our innovation and our savings initiatives and has reinforced the commitment of our people to adapt Argos to the new market conditions. We are currently reviewing the guidance provided on our last earnings call taking into account the unprecedented market conditions that we are currently going through.

We expect to have our review on our next earnings call. Finally, I would like to close the call by asking you all to stay safe, to take care of yourself and your loved ones and to comply with all the recommendations from your local authorities on matters of social distancing.

Thank you all for your attention. Operator, we can proceed now with the Q&A section.

I have 2 questions. My first one is regarding the resumption of activities in Colombia.

How are you seeing this resumption in scenario of lower demand? Are you going to concentrate operations in the [indiscernible] plant, maybe planning and building new inventories and then shutting down the kilns?

Any additional color you could give us will be very helpful. And my second question is regarding your divestment plan that you have decided to postpone given market conditions.

Are you still seeing this? Are you still expecting this to be carried out this year?

Or you see them, you see it being executed more in 2021?

Thank you for your questions. In Colombia, [indiscernible] markets that are [indiscernible].

We are seeing [indiscernible] scenarios that we were expecting. [indiscernible] plant [indiscernible] initially [indiscernible] and going forward what we are foreseeing for the first few months [indiscernible] and Cartagena.

But in reality, the project in demand is [indiscernible]. The second question about [indiscernible] for the divestment for [indiscernible] section.

We have [indiscernible] projects, but [indiscernible] from the impact of [indiscernible] on U.S. economy.

[indiscernible] our divestment plan to [indiscernible] company to the levels that we want.

First of all, I would like to clarify a couple of points. I think you mentioned the target of reduction of CapEx of 40 million this year.

I just would like to understand if it's 40 million less than last year or 40 million less than the guidance that you have given in February. And the second point I would like to clarify is on pricing in Colombia.

I think you mentioned an improved...

Could you please speak louder? We can't listen very well around here?

Okay, first of all, I would like to clarify a couple of points. The first thing I'd like to clarify is on the CapEx reduction, reduction of 40 million CapEx in 2020.

Is it 40 million less than last year or is it 40 million less than the guidance that you gave in February? And the second point is on the pricing in Colombia.

I think an increase of 13.5% of prices in Q1. But you're mentioning FOB pricing, I would just like to understand, are these own selling prices or are we talking about import pricing?

Thank you for [indiscernible]. In CapEx, [indiscernible] $40 million is in respect to our guidance.

[indiscernible] $40 million [indiscernible] our guidance at the beginning of the year. And [indiscernible] second part of your question.

The second question was about the pricing in Colombia. You mentioned an increase of 13% of FOB prices in Colombia.

But just would like to understand whether you are talking about import prices or your own selling pricing.

[indiscernible] Columbia [indiscernible] March. And the [reality] is that we are [indiscernible] for the [indiscernible] starting in the third quarter of the year [indiscernible] in Colombia.

Now [indiscernible] price in Colombia [indiscernible] taking into account all the markets.

First, on the balance sheet. I was wondering what the plans are for the refinancing or the kicking back of maturities that are on the balance sheet for 2020.

And I guess, similarly, how conversations with creditors are going on weighting covenants? And then just on the operating side, you mentioned in the release and in your remarks on the call for [indiscernible] that you were expecting other countries in the Caribbean and Central America region to follow Panama's lead on imposing import tariffs for cement.

I was wondering whether that's sort of an expectation based on your reading of the markets or whether there's actual tangible comments or progress made by some of these markets already on this front.

Thank you [indiscernible] comments on our [indiscernible] strategy and our conversations [indiscernible] I mean the [indiscernible] we have seen increased [indiscernible] opportunity in Columbia and local markets. And [indiscernible] and we are seeing that [indiscernible] So we have high expectations based on [indiscernible] For the second question [indiscernible] Camilo just to give you more color.

Thanks, Juan. Gordon, I think it is important to point to start saying that when these crisis started for us in March 20th, we had about $330 million of maturities for the rest of the 2020.

So, far we have rolled over about $115 million with different tenors up to 3 years. In some in other cases, 2 or 3 months of maturity that we have launched over 100% of the facilities that we have to [indiscernible].

And really as Juan Esteban [ph] mentioned in the conference regarding permanent contract with the different banks, the [indiscernible] have been great on all of them. The second part of the question about the waiver.

We are starting the conversations with the creditors because we are reporting a waiver for some next quarter. Really, this is not just, this is not the result of the situation certain [indiscernible], this is really a very general situation in the market by now.

The good thing that remember there in the presentation that we were in a very good front in the net debt to EBITDA. We ended March with very close to 4 times the net debt to EBITDA [indiscernible] because of these prices.

We are expecting to increase this level of operations but we are very optimistic about the negotiation with our creditors.

I had one question on the cost savings. You can just provide us with more comments on where this fixed cost that you're planning to cut to come from.

And then the second question that I had was if you can just tell us what happened to the price increases that you had planned in the U.S. for April and which price increases that you have executed already and which ones you're planning to do for the rest of the year.

Good morning, Adrian, and thank you for the questions. I mean the reality that we have become really good at optimizing our operations in the last few years.

And with the challenges that we are facing from COVID-19 in our operations, we see the need to continue accelerating the optimization of our operations. The savings will come from savings and maintenance and services and SG&A, totaling close to between $75 million and $100 million.

We are fully confident that we will be able to achieve that target. And for the unknown scenarios that we are foreseeing going forward.

Those savings will come from the U.S. and from Central America, to Caribbean and Colombia.

In terms of the price scenario in the U.S., I would like Bill Wagner to give you more you color about the, what we have seeing in the market.

Yes. Adrian, as far as price, as you've suggested, we were looking for a price increase April.

The reality is that we had some good success early in a couple of markets, mainly Florida and down [ph]. Unfortunately, given the situation rolling into the spring, we pushed out the increase that was going to be a strong move in April.

And we're monitoring the situation the best we can to kind of see what [indiscernible] going down with what's happening with the virus and the impact. But right now, we're looking at something in the late second quarter, maybe to push another price increase.

Perfect. And maybe I can just, on the cost savings.

These, the lower cost on, for maintenance, are those just for this year or will those one-time we see real volume to have to be, will have to be expensed?

Adrian, it will depend on the scenario that [indiscernible]. But we are fairly confident that we will be able to achieve the savings for this year.

For the following year, it will depend on the number of plants that we will have in operations according to the report of the month.

It's really related to what you're seeing on the ground. So you did mention that volumes in Central America and the Caribbean are about 40% of bonds of a regular month.

So just wondering if you could add some commentary there for Colombia and the U.S. of what you're seeing for April and May.

So Alejandra, thank you for your questions. I would like Tomas Restrepo to give you an idea of how are we seeing things evolving in Colombia, first.

Alejandra, this is the Tomas Restrepo. So in April, we had, the first half of the month was pretty much at full stop, only a few dispatchers for infrastructure products that were able to continue operating, but by the end of the month, we were already reaching the 40% of our daily dispatches.

So April turned out better than we thought. Basically we have twice as much volume as we expected during the quarantine.

In the month of May, we are seeing our volumes around 50% of what they use to be. It could be a little more.

And to give you some more color about it: We're seeing surprisingly a great deal of activity compared to what we were expecting in the retail business, which has become so far the majority, the, larger than even the industrial dispatches we are doing right now. So as of May 11, when dispatchers in Bogota, in many other cities and then all retail stores around the country should become available and online, we are seeing volumes growing and, as I said, to a little bit more than half of what we were dispatching in the previous months.

And now Bill, could you provide us some color about then volumes in the U.S. in April which we are very pleased?

Yes. Thanks, Juan.

And Alejandra, thank you for the question. Actually, April was much stronger than we anticipated.

I think initially there were some forecasts where we may have weakening demand towards the latter half, but we were pleasantly pleased that our volumes ended very strong. As for May, so far this month, we're seeing another sign of optimism at least for the first week.

Our volumes are tracking pretty close to plan. And we do see in the future that there is going to be some level of slowdown in the residential segment, I think, probably, to begin with.

And then maybe, the commercial backlog, as it works off, it could slow, but at this point, it's kind of hard to predict when that might occur because at this point we thought we may see some slowdown already but we have not. The impact that we've had so far has been more weather related.

So again, we're encouraged at this point and looking forward to see what's going to happen in the rest of this month.

Thank you, Bill. And just to complement the answer, I mean, Camilo, can you provide is with some color about what's going on in our markets Central America and the Caribbean in April?

Sure, Juan, Alejandra. So before, we presented our broad estimates but in more detail: Honduras in 15 days are opening during April.

We were to dispatch around 50% of our budget. Panama, as we said, is still closed.

And we had still dispatches, but we have the moves that we currently will reopen on next week, starting with construction of one -- as one of the sectors that reopens. So that's a positive [indiscernible] moves .

Haiti is at 100% of budget and has been for the first four months of the year, and demand is still strong. For Dominican Republic, we did about 40% of our normal dispatches and this with the construction at a halt, and this was mainly due to dispatches to people that were doing inventory for bridge and other small construction.

So that's positives also for the country. Puerto Rico, who has -- well, has had a very low closure, but the government has at different points in time reopened some areas, for example, small hardware stores, with initial dispatches of 2 days a week.

And that, along with exports, represented about 25% of the budget. So it is also a positive that Puerto Rico will reopen the construction sector also starting next week.

The Antilles, which had also closures in most of the islands, the budget was around 40% as well. And then we have Suriname with 85% of our budgets and we just have 15% decline.

French Guiana was at 105% of the budget, so even though that there were measures taken by the government, we did not see a decrease in demand. And the rest of the export markets were about 70%.

So we are seeing a mainly better demand that we had before April. So that's encouraging news.

Thanks, Juan.

This was very clear. And just a quick follow-up on your savings.

Is it fair to assume that it will be proportionally split in all the countries? I mean the $75 million to $90 million.

Will it be proportional all across the U.S., Colombia and the Caribbean?

Yes. We are expecting the highest savings in Colombia, followed by the U.S.

and then by the CCA, Alejandra.

[indiscernible] The first one is related to the cement price in Colombia. I want to know...

Roberto, I'm sorry, but we can't listen to you. Can you speak louder, please?

Yes. I have just a few questions.

The first one, can you tell me the quarterly cement price valuations in Colombia? The second is about any market share loss that you could have in Colombia in the quarter due to the entrance of a new competitors.

And last one, the 4G projects estimations in Colombia.

Thank you, Roberto. Quarterly cement price valuation in Colombia was 5%.

And we continue deploying, with a lot of success, our strategy of leading the price recovery in the market. We may have lost a -- very slightly a market share in the cement business in Colombia.

It was growing in excess of 7% during months through the end of February. And we were basically flat, but we were very pleased with the success of our strategy on price recovery.

And we will have to wait until we have more visibility in the second quarter, but we are very pleased with our market position in Colombia. I don't know, Tom, if you would like to add a little bit more color to the -- yes, to the answer.

About the 4G projects estimation. We are seeing all of the projects going strong, financially solid still.

And we see our customers very busy taking care of their employees with all these very demanding protocols of health and safety. And then we are still seeing 4G as a main driver of demand.

That's pretty much what I wanted to add, yes.

I have two questions. My first question is could you expand more on the construction of the net debt-EBITDA, plus dividends, ratio in dollars.

And will this indicator be including IFRS 16 and using adjusted EBITDA? And what are the strategies to lower this indicator throughout the year with regard to rating agencies?

And my second question is, what is the medium-term liquidity strategy and outlook considering that the dividend payments that should happen in the second half of the year were to be supported by the postponed divestitures?

Thank you, Juan Carlos [ph] for these questions. Carlos, would you like to answer the first one, about the debt-to-EBITDA ratio?

Yes, Juan, but what exactly is it, what...

What I would like to know is, for example, in what I understood in the last report from rating agencies is they don't make a division on IFRS 16 or, and one for that side. And the other thing was on...

Okay. No, I get it.

I get it. Okay.

Basically because [ph] the rating agency, given we exclude the IFRS 16 assets or debt, yes, isn't it? No...

Yes.

[indiscernible] the fully IFRS 16 is really similar. It's pretty similar because our ratio, just taking into account the debt related to assets per use between us and divided by the depreciation, plus amortizations, plus the interest because of these leases, is right now 4 times.

For the division, including the IFRS 16, the ratio is really close to 4 times. That was the question, isn't it?

Yes. And what are the strategies to lower this indicator throughout the year?

Now through a year, this indicator, the idea, we're, I, we are mentioning there are, really the predictability of the EBITDA for the second quarter and the third quarter, obviously, right now we are seeing very complex. For that reason, we are taking on these measures like the CapEx costs and the cost savings and a lot of other measures in terms of the liquidity.

You ask, well, what are we doing? What, our current position in liquidity is about COP 500 billion, 550 billion, I don't know, billion pesos.

And really the idea is to end the second quarter with about, in a very expense-full [ph] scenario, with about COP 300 billion really, in a very speculate [ph] scenario. But it's very important to highlight what Juan Esteban, Tomas, Bill and Camilo have mentioned, that comparing the very speculate [ph] scenario, the, in the reality, April was by far better than our initial scenarios.

And May is going better, by far, as well. For that reason, we are expecting that we are ending in, with a better position in terms of liquidity.

And we will monitor the cash position of the Company week by week going forward, depending on how things will play out, but we are confident, as Carlos is saying, that we will be able to end the quarter with a very good cash position.

Yes. I also have 2 questions.

In addition to the funds already secured as of April and Carlos's comments on expected liquidity levels, are you expecting to report further debt increases throughout the rest of the year? And also, could you please mention the amount you still have available through secured credit lines?

And my second question is I understand that the shares you own in Grupo SURA are used as collateral for the credit lines you have in place. And then will you be restrained to sell them or at least part of it if you needed to do so?

For the first part of the question, Rodrigo, we are, we have obviously a high level of capabilities. We are disbursing tomorrow another extra $15 million.

And now, or in the, well, not now, but we operate as an insurance of liquidity really because of [indiscernible] and now we don't need this extra liquidity, but really we prefer to have this extra liquidity in our hands. And we are disbursing this extra amount.

This is not contemplated in the figures that we were mentioning. And with this new credit line, we really will be in a very good position of liquidity for very, for many months.

And Grupo SURA is a collateral on credit line? No, no, no.

We don't have any collateralized earnings placed.

Just on competitive dynamics in Colombia. I know you already mentioned a little bit, but if you could comment a little bit with regards to the improvement that you are seeing in import parity pricing and the slight market share loss that you had in the quarter.

Could you comment a little bit more on what you expect coming forward in terms of market share? Or what are you seeing from the market as a whole with the pricing increase that you made in the first quarter?

Thank you, Alejandro. The market in Colombia was behaving in a very good way until the first half of March with the increase in the amount of last year, close to 500,000 tons, plus the 7% increase in demand through February.

The reality is that the competitive landscape was, in my opinion, a positive. And nobody was really competing on price.

The huge gap in pricing that we have vis-a-vis import parity prices and the intention of everybody to reward the cost of capital of the assets that we have in Colombia. And I would expect that scenario to continue the same way going forward once the markets start to recover.

And so far, we are extremely pleased with the reaction of the market in April and in May. And in our opinion, our competitive position has strength in this restart of the economy because the close relationships that we have with our clients and the technical systems that we provide to them, in our opinion, have a superior value proposition for the industrial segment of the market.

And we are, in my opinion, the only cement player in Colombia who access directly a wider range of hybrid storage in the countries. We are going [indiscernible] for more than 5,000 hybrid storage .

So in our opinion, our value proposition will be an important asset for us going forward. We don't foresee anybody competing on prices no matter what scenario of demand plays out going forward.

This was to be an significant gap in prices vis-a-vis import parity prices.

And what I wanted to add, that during this quarter we gained market share in the industrial business, where we suffered the most by the end of last year, particularly in the ready mix business. So we are as strong as we've always been in the industrial part of the market.

The loss of market share has been mostly focused on the retail business. That is where we have been recovering prices faster.

We have done, as usual, faster than our competitors in that market. And I think it's pretty much a very good move to have done it before this crisis because otherwise our competitors will be, as Juan was saying, forced or incentivized to recover value as well for the companies in a more stressful market.

So we are poised to recover the market share with healthier prices and as we are seeing today. And import parity prices have been a very good indicator of the direction where national prices should go.

And in this case, this is pointing in the right direction.

I have 2 questions. My first question is regarding the distribution of your cash flows.

What proportion would you say is fixed, and what proportion would you say is variable? And then my second question is regarding the competitive dynamics in Honduras.

You mentioned in the presentation that you had price decreases, so I would like to have a little bit more of detail in that front.

Thank you, Steffania, for this question. The split of our variable and fixed costs is more or less 50-50.

And regarding Honduras, the reality is that we started to see better dynamics in the market in 2020. January and February were very good months in terms of demand.

So things were going way better in Honduras. And with the recovery of the market that Camilo mentioned in April, the -- we still don't have enough visibility.

And we need more weeks to really know what is going to be like a normal demand in Honduras again, but up to now we are pleased with the dynamics. If the market continues recovering, we foresee a scenario which we can start a price recovery strategy in Honduras similar to the one that we are executing in Colombia.

I don't know, Camilo, if you would like to add some color to that answer.

Well, I think, just to mention that -- this was previously addressed as well, but the tariff is something that is being discussed. So that could potentially benefit as well in the direction of the prices in the market.

And again, starting on December, following through to the middle of March, we had a very strong demand in the country, which I think is very positive. We will see how the recovery goes and what programs the government think of to sort of recover the economy, but definitely construction sector for a country like Honduras is a critical sector to restart and to secure as part of the jobs for the country.

I found very interesting your comments about significant decline of cement and clinker imports in Colombia this year and also the tariffs that were implemented in Panama and potentially to be implemented in Honduras as well, so I would like to understand how much imports represent from each of those markets. I mean, how much importers, either cement or clinker, represent of the Colombia cement market as of 2019?

And if you can share the same number for Panama and Honduras, it will be very helpful.

Thank you, Andres. Imports into Colombia, mainly clinker last year, close to 600,000; and imports into Honduras and Panama, close to 8% of the market in each of those markets, Panama cement and Honduras as well, only cement.

In our opinion, there is a trend in our countries towards supporting local industries just to protect employment. And especially in places such as Colombia where the prices are way below import parity prices, it doesn't make any sense for the country to use foreign reserves to import clinker when we have enough local capacity to supply the industry, local integrated producers.

So in our opinion, that is a trend that will prevail going forward and grows.

Congrats on the nice performance on margins in Colombia despite the huge drop in volumes. That tells you a little bit about what you're doing.

Congrats on that. The questions that I have are on the United States.

First, what would it take commercially to be ready, to be better positioned to sell more cement to, and ready mix to infrastructure projects? And secondly, do you think that the overall performance in densely populated regions in the United States might be affected more compared to other regions within the United States?

Thank you, Paco. Thank you for these questions.

And we're well, as well very pleased with the performance of our business in Colombia. Just to give you an idea what EBITDA margin per ton: In January and February, it was in excess of $30 per ton of EBITDA.

The reality is that, once the market start picking up, we are very confident that the profitability of our business in Colombia will continue improving in a significant way. To answer your question about the U.S.

market, I would like Bill to take the question.

Yes. Francisco, thank you.

Firstly, your question regarding the infrastructure, we feel like we are very well positioned to take on more of that opportunity as it presents itself. We think it's going to be much bigger going forward, but the reality is, as of now in Q1 '19, we had about 5%.

That represented about 5% of our volume. And in Q1 2020, it was representing about 8% of our volume.

So we have been focusing on that, so we feel like we're pretty, in a pretty good situation, and we do see some increased demand there to be able to take advantage of it.

So in other words, yes. And you don't see any differences in demand, from COVID-19, from densely populated regions compared to others that are not as densely populated regions.

Bill, I don't want to [indiscernible] I don't think that we are seeing any difference in demand from large metropolitan and densely populated regions vis-a-vis the more rural areas in the U.S., right?

Yes, that's correct.

I think there will be a difference, Juan. I think we're monitoring that as we go because, the local and state governments, they kind of make some of their own decisions.

And where we have revenue from tolls; and we have things that helps fund the highway, the gas tax and things like that, wherever there's differences there, there could be differences in demand as well. But we keep an eye on that by state.

My question is on energy costs, please. They were down, I think, in Colombia 8.8% in Q1.

What is the outlook for energy costs in Colombia, please, for the rest of the year? Secondly, in the U.S., were there any savings in energy or diesel costs of significance in Q1?

And again, what's the outlook for the rest of the year, if you could? And then finally, on your RESET initiative, does it include the benefit of lower energy costs expected this year, or will they be on top of the RESET initiative cost savings?

Thank you, Mark, Mike. The reality is that in Colombia energy prices are decreasing in a significant way from last year.

For the remainder of the year, we are seeing them on same level as we have this first quarter of the year. In the U.S.

we have seen significant savings in diesel from our ready mix fleet; and significant, I mean, very good performance because of the lower prices of oil. So in general we are foreseeing now much better scenario in terms of energy prices in all of our regions.

Similarly, in Central America and the Caribbean, the, all of the countries are oil importers and pet coke, in context, so the reality is, in terms of energy costs, I mean, they will be very favorable going forward in all of the 3 regions. If Tomas, Camilo or Bill would like to comment just a little bit more on the specifics of each region, more than welcome.

Juan, from my part, this is Tomas Restrepo. And I would just like to add that the impacts of this energy cost reduction on our variable costs in Colombia are very significant.

As of today, our variable cost per ton, including plants' decisions at Cartagena and others, sealing, wet process at Yumbo, so our average variable cost in Colombia is $20. And it goes very, very much lower in plants like Cartagena, for example.

So that is a great effect of the, of these prices. In Colombia, we are using mostly coal today, as gas is nominated in dollars, so, but there is a very good availability of coal at this moment.

And our strategy to diversify our fuel materials with alternative fuels is also paying back, as we are using cheap tires and biomass and other different types of fuels. And we're seeing good opportunities to start using urban residues converting into fuels for the future.

So we are seeing a good outlook in terms of fuels for this year in Colombia.

Thank you, Tom.

And Juan, I can complement on Honduras and Puerto Rico. We have, of course, implemented the solar generation field in Honduras, which has a significant [indiscernible] lower cost or lower [indiscernible] to the local area that's available.

So there we're seeing significant savings. We're also installed or putting in operation a solid fuel storage in the northern part of the country.

We were -- before we were buying pet coke from a local supplier. And now we are able to bring in ships of about 30,000 to 40,000 tons, which gives us a very good handle on negotiating prices.

So we're seeing prices reduced by $10 to $15 per ton. So that's going to have a -- also a positive impact on the costs of the operation.

And in Puerto Rico, we had negotiated the coal last year, which was much better to the prices that we had before, but we expects to have, of course, better pricing, due to the fuels or the commodity prices decline, in the future for the operation. And we're also looking at implementing or -- yes.

We're looking at different solutions for energy in countries which we still have high costs such as Honduras and Puerto Rico. In other countries such as Panama and Dominican Republic, we have a -- very competitive contracts negotiated with local energy suppliers.

Thank you, Juan. And thank you, Michael.

Yes. Thank you, Camilo.

Juan, just to complement what you said for the U.S. standpoint with respect to diesel.

I mean we have seen some movement at the comp, especially in our ready mix business, but again I think you're correct. We feel like we're going to see more of that as the year goes on just because of what's happening with the oil situation in general.

Thank you, Bill.

Can I just then follow up? Is -- are those savings -- from all those fuel savings you've been -- talked about, are they in the RESET numbers, or are they on top of the RESET numbers?

They will be on top of the RESET numbers because, as I said, these variable costs -- I mean in RESET we are basically averaging fixed costs and Capex.

Could you provide us with an overview for the working capital requirements of the business? We saw an increase in inventories and receivables, so can you tell us how these accounts are behaving?

Thank you, [Juan]. Thank you for your questions.

Carlos, can you give us some color on working capital management…

Okay. Juan, the working -- the behavior of the working capital so far from the beginning of this focus have been very good.

We are controlling almost a big level of the organization -- the excom, we are controlling almost every one of the rewards of the purchase orders. I think that that's necessary in a situation like this one, but just to give you a little bit more color: In the case of the Colombia, like Tomás has said a little while, we stopped the operations in the last 10 days of March, but we have collected about COP 90 billion or more than COP 90 billion during April; not selling, but we are collecting the receivables.

And we as well put in place a plan in order to reduce the level of the inventories in all of the 3 regions, and that is going well as well. For that reason, the idea is to have and really effect an strict control in the -- all of the three lines of the working capital.

And we consider that we have the -- we have structured a -- very good plans in all of the 3 regions, yes.

Once again, thanks a lot for connecting to our conference call today. Please stay safe.

And looking forward to seeing you all in our next conference call. Have a great day.