Cementos Argos S.A.

Good morning, everyone, and thank you for joining us today. My name is Indira Diaz, Cementos Argos' IRO, and I welcome you to our second 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; Tomás 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 uploaded at www.argos.co/ir are related to Cementos Argos SA and its subsidiaries, which are based on the knowledge of current 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.

If you have a question, please raise your hand by pressing the icon at the bottom of your screen at any time during the conference. We will record this Q&A session and upload it in our webpage.

It is now my pleasure to turn the call over to Mr. Calle.

Thank you, Indira, and good morning, everyone. The second quarter of 2020 exhibited positive results despite the challenging market conditions.

The results were driven mainly by the firm commitment of our employees in implementing the health and safety protocols and the savings initiatives contained within RESET, together better-than-expected market dynamics, particularly in the U.S. and some of our markets in the Caribbean.

RESET obtained remarkable results during the quarter. On the health and safety dimension, we were able to safely restart our operations in Colombia as well as the consulting from America and Caribbean when quarantine measures were implemented.

The business in the U.S. continued to operate with strict biosafety protocols, protecting the wellbeing of our employees and all the actors involved in our production chain.

On the liquidity dimension, the company closed with a record high cash position of COP940 billion as of the end of June due to the success of our savings initiatives and the strict control on cash management. During the quarter, we managed to capture $71 million, of which $30 million were related to labor costs, $23 million to maintenance and $18 million to other costs.

The total tariff for sales for 2020 stands at $94 million, giving a remaining of $23 million to be captured during the third and fourth quarter of the year. On the debt side, the company successfully secured the negotiation of the covenant waiver, setting a new threshold for the net debt-to-EBITDA plus dividend ratio that it is significantly above of the company's expectations with regards to the performance of the current year.

The new ratio limit was set at 6.5x until December 2020, gradually descending from thereon until 4x on December 2021. This negotiation is an important element of the support of the lenders of the company as well as its trust in the management and the strategy implemented during the current prices.

Regarding the operational excellence dimension, the company continued to successfully improve the efficiency with its manufacturing and distribution processes to ensure the delivery of our products and services under the current market conditions, while achieving all the savings contained within these additional initiatives have been implemented through the usage of data analysis and artificial intelligence to ensure the optimal mix of assets on the ready mix and cement operations. Based on historical data from each of our plants aimed at obtaining high-volume products with the most efficient combination of energetics and raw materials.

The achievements from RESET have been accompanied by a positive evolution of the market where Argos operates. To the date of this report, all of our cement and most of our ready-mix plants are operating and the demand continues to exhibit a positive recurring trend in those countries where production halts were presented.

The U.S. continues to display a resilient performance in terms of volumes despite the evolution of the pandemics in states such as Texas and Florida.

Colombia, on the other hand, has presented a steady recovery since April when the quarantine measure had its biggest impact on the local market. The statistics from local cement consumption presented by DANE in May and June as evidenced of market growth of 191% and 28%, respectively, versus the previous month, which clearly sets a positive trend in the country despite the fact that the monthly consumption still remains lower than the previous year.

On the Caribbean and Central America, countries such as Honduras and the Dominican Republic have already recovered 100% of their local cement consumption. We are record high in June, which is, in fact, higher than the same month of the previous year.

Panama has [indiscernible] stricter measures for construction and retail, allowing us to restart our plant and improve our monthly volumes. Haiti, on the other hand, continues to perform under regular conditions with improvements in both volumes and prices during the current year.

Now moving to our consolidated results. I would like to start by clarifying that all percentage changes in ready mix, dispatches and EBITDA are calculated based on the pro forma numbers of 2019 and 2020, which exclude for 2019 the operations from the ready-mix divestitures carried out of the U.S.

region on that year and impact from the [indiscernible] participation in Omya and Carton de Colombia. Cement dispatches reached 3.2 million tons during the second quarter of 2020, decreasing 23.3% when compared to the same quarter of 2019, and ready-mix dispatches reached 2 million cubic meters, posting an 18.8% decrease on a like-for-like basis.

These results were affected mainly by the lockdown measures presented during April in Colombia and some countries of the Caribbean and Central America and the gradual recovery of these markets during the month thereafter. Revenues closing at COP 2.1 trillion with a decrease of 9.1% on a year-to-year basis driven by a mix of lower volumes and the devaluation of the Colombian peso.

The EBITDA on the other hand was COP 414 billion, decreasing 6.4% on a like-for-like basis. As a result of the savings implemented with increases for the first half of the year, our consolidated EBITDA was COP 757 billion, decreasing 4% year-over-year.

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. During the second quarter of 2020, we had better results than initially anticipated.

As we all know, the COVID-19 pandemic [Indiscernible] at the end of the first quarter, and we began bracing our results for some economic impacts. Fortunately, we were deemed an essential business here in the states, and almost all of our markets were able to continue operating without interruption.

Cement dispatches posted a volume decrease of 5.8% versus last year, mainly caused by lower volumes in the Northeast due to strict COVID-19 lockdown measures compared to the rest of the country from April to June. Volumes were impacted by adverse weather conditions affecting ready-mix customers primarily in the Carolinas and Georgia.

Volumes took another hit by the reduced demand from wholesale segment and third-party customers in Texas. Ready-mix volume presented an increase of 2.8% on a like-for-like basis versus Q2 in 2019.

For this comparison, we have excluded the volume of the ready-mix operations divested at the end of 2019. Our ready-mix results are a reflection of the strong backlog we had coming into the second quarter of 2020.

We have been fortunate to maintain positive conditions in the U.S. construction industry through the pandemic thus far, but we are still expecting a slowdown to occur before the end of the fiscal year.

In regards to our pricing, we have seen an increase of 1.7% in cement and 0.2% in ready-mix versus the first quarter of 2020. Price improvements compared to the last quarter were driven mainly by our South Central Zone.

Despite the cement volume decrease, the region registered an increase of 2.3% on the year-to-year EBITDA on a comparable basis when excluding the EBITDA generated by the ready-mix plants divested in 2019. This positive result was achieved by implementing a number of efficiencies that have resulted in savings of $18 million in cost and $4 million in SG&A.

On the cost side, the efficiencies came from labor costs, freight, fuels and maintenance, while the SG&A efficiencies were mostly related to labor expenses. Although some of these savings were market-driven, for example, the decrease in fuel costs, which was generated by a lower oil price, mostly driven by our capacity to quickly adapt to the new global conditions.

And in that same sense, we expect these efficiencies to be maintained in the upcoming quarters. The evolution of some macroeconomic indicators, such as the unemployment rate, which has consistently decreased since April for 2 months in a row, indicates that the implications from the coronavirus outbreaks may not be as severe as the market was anticipated earlier.

So interest rates for mortgages available in the market provide some indication that residential sales may experience a positive behavior during the following months of 2020. On the commercial construction side, the slowdown highlighted by the Arquitectural Billing Index together with the Dodge Momentum Index, provide an indication about a possible tightening on this segment during the following months of 2020.

Civil and infrastructure construction may see limited deterioration, as highlighted by the public spending sector. For this segment, there could be good news in the way of a relief infrastructure package from the federal government arising in the form of either a new bill passed by Congress or some form of renewal of the Fast Act.

In terms of market expectations, we continue to be cautious on the short-term outlook of U.S. economy and the building sector.

Given the various economic and industry indicators, plus the market feedback, we would realistically expect some slowing in volumes into the next quarters.

Thank you, Bill. I would like to highlight one more time, the great results from the U.S.

region, consistent with our governance of quickly reshaping our cost structure to adjust to the new market dynamics. Moving to Colombia, I want to highlight the fact that our prices continue to exhibit improvements versus the same quarter of last year, even in a scenario market recovery that has not achieved its full potential yet.

Tomás will now provide additional color on this region.

Thank you, Juan, and good morning, everybody. We continue to concentrate our efforts in maintaining a strong price performance, consistent with our value-added strategy even in the midst of a market that still presents affected volumes by the evolution of the pandemic.

The outcome of this strategy was favorable, resulting in a price increase of 11.2% in cement and 5.6% in ready-mix versus the same quarter of last year, demonstrating Argos' capabilities to successfully engage in activities that tend towards the development of healthy market dynamics in the Colombian market. As previously mentioned, the local cement and ready-mix demand was heavily affected by the quarantine measures decreed during April, ending in a decrease year-over-year of 46.5% and 55.8% of cement and ready-mix dispatches, respectively, during the second quarter.

Revenues in line with the volume decrease posted a year-over-year reduction during the quarter of 44.2%, followed by a 61.9% decline of EBITDA in the same period. The EBITDA was positively impacted by the savings obtained within the regional, which accounted for $28 million, arising from $24 million in cost efficiencies and $4 million in SG&A savings.

These efficiencies were mostly generated by the strategy implemented to restart our plants once the quarantine measure was lifted in the country, aiming at optimizing labor costs, energetics and other production costs. It is important to highlight that with the progressive recovery of demand in the market, our volumes in June were already at close to 80% of the average demand during the months before the pandemic, and the EBITDA of the region was 15% higher than the result in the same month of 2019.

The market dynamics within the country have evolved at a faster pace than initially expected, but have not recovered yet to its full extent. This is partially due to the restrictions that the country still has on some economic sectors and our people's ability arising from the fact that the COVID contagion has not been controlled yet.

We expect this situation to remain at least during the third quarter of the year while the highest level of the contagion curve is expected to occur. Our response to the existing restrictions has been focused on the utilization of that process related to the commercial front, which can be evidenced in the evolution of the Argos ONE adoption, capturing a record of 72.5% and 49.1% of the cement and ready-mix concrete dispatched, respectively, during June 2020.

Regarding the competitive front, we have focused our strategy on reducing costs and providing added-value products to our customers. Projects such as the 10% capacity increase of the Cartagena plant that's being carried out since last year with a marginal cost, together with the successful marketing of our green cement, reaching a production of 70,000 tons during the second quarter support this strategy.

On the residential segment, the sales of new houses during June increased 60% versus May 2020, but still remain 13% below the sales of the same month during 2019. To boost this sector, which is expected to have the highest impact as a consequence of the health crisis, the government has recently announced a subsidy for 200,000 houses, equally split between social and nonsocial housing, which is expected to have a positive impact on the residential sales in the midterm.

On the infrastructure front, the government has announced that around 90% of all the construction sites related to the sector have been already reactivated in the country, in line with our expectations of a good performance of the sector during the current year. The government has also announced the 5G infrastructure projects with an estimated investment of COP 20 trillion on the first package of concessions to be awarded, which could start its structuring process in early 2021.

Thank you, Tom. I would also like to highlight the positive evolution trend in the Colombian market, which experienced during June a recovery of 92% when compared to the volumes of June 2019, setting a positive environment for continuing implementing our value-added strategy toward our customers.

Moving on to the Caribbean and Central America. I would like to highlight that despite the fact that Panama, one of our biggest operations in the region was closed during the month of April and May.

They reduced some minor expectations in terms of EBITDA margin. Camilo will provide more information on the performance of the region.

Thank you, Juan, and good morning, everyone. The second quarter of 2020 was framed by lockdown measures in most of the countries of the region during the beginning of April and the later opening of gradual recovery of all the local economies where we have presence in the Caribbean.

These lockdown measures ended in a volume decrease of cement and ready-mix dispatches year-over-year of 23.9% and 90.6%, respectively, mainly affected by Panama, which only started its partial reopening on the first weeks of June. I would like to highlight the fact that despite the very restrictive quarantines implemented at the beginning of the quarter, the pace of the recovery that had experienced most of the countries within the region is remarkable, to the point that some of them exhibit volumes during June 2020, which are higher than the volumes of June 2019.

This is the case of countries such as Honduras, Dominican Republic, Puerto Rico and French Guiana. In Honduras, the volume experienced during June 2020 surpasses in 7%, the one observed last year, encouraged by the fact that the total market within the country saw an increase during the month as a sign of a positivism and consumers' trust.

This was also the case of Dominican Republic, which experienced an increase in the monthly volumes of June of 16% year-over-year, encouraged by the consumers' need of recovering the volumes that were lost during the first weeks of the quarter. It is important to mention that in these 2 countries as well as in Panama, the infrastructure segment is not still fully recovered, which implies that this month's volumes have not achieved its full potential yet.

Revenue and EBITDA, in line with the volume decrease fell year-over-year, 38.8% and 40.6%, respectively, when compared to the same quarter of 2019. This similar [construction] of revenue and EBITDA led to an EBITDA margin during the quarter of 26.5%, posting a minor decrease due to all the costs and expense reduction and efficiency measures taken versus the 27.3% observed on the second quarter of 2019, which is considered to be positive in light of the current market conditions.

Margin stability was led by the performance of some of the countries within the region, such as Haiti, which experienced during the quarter, a 5.3% increase in volume and a 9.7% increase in prices when compared to the same quarter of last year. The volume recovery of other countries such as Honduras and Dominican Republic, together with the 65% volume recovery of Panama in June when compared to June 2019 and the higher proportion of [Indiscernible] cement in Panama also contributed to the EBITDA margin stability.

The CCA region also had important savings of $10 million during the quarter, obtained from $6 million efficiencies in costs arising from better prices in fuels such as pet coke, energy prices and maintenance expenses and $4 million in SG&A. Regarding the short-term outlook, we remain cautiously optimistic about the performance of the second half of the year based on the positive evolution that we have seen after the lifting of the lockdown measures, but also acknowledging the fact that these economies have less public funds available to boost local infrastructure projects that jump-start economies, if the mid-term impact of a pandemic results in significant deterioration of the macroeconomic indicators.

Thank you, Camilo. I would like to refer now to our balance sheet statement.

The net debt-to-EBITDA ratio, which now includes the IFRS 16 effect on both the EBITDA and the net debt closed during the second quarter in 4.35 times. This result reflects our disciplined strategy of savings and cash preservation, which ended in a record-high cash position as of the end of the quarter with a similar amount of net debt to the one discussed on our last earnings call.

Additionally, our average cost of debt has decreased significantly due to the fact that the LIBOR and the Colombia consumer price index decreased during the last month as a result of the crisis, ending in a [Indiscernible] of COP15 billion in financial expenses when compared with the same quarter of last year, even in a scenario of higher gross debt. Regarding the EBITDA guidance and given the high degree of uncertainty as to how this situation will evolve in our markets, we have decided to providing the further details to how we expect this year to close.

We remain committed towards the health and safety of all the actors involved in our production chain as well as with the savings and efficiencies that will enable our company to stay competitive in a constantly changing market. Thank you all for your attention.

Indira, we can proceed now with the Q&A session.

Thank you, Juan. [Operator Instructions] The first question we have is from Juliana Aguilar from Bancolombia.

I have two questions. The first one is regarding payment volumes in Colombia, which in June were significantly higher than those of May.

Do you think part of the recovery is related to the price demand from April and May and volumes could decrease in coming months? Or do you think volumes will continue growing sequentially?

And my second question is regarding the maximum payment term loan or ley de plazos justos recently approved in Colombia. Could you share with us what percentage of your suppliers in Colombia correspond to a small and medium companies?

And do you think -- or do you see any material impact on your working capital due to this low?

Thank you, Juliana, for your question. What we have seen in Colombia is that they will start increasing every single month.

So the volumes in July are current and the volumes in June and the volumes Argos are so far are better than the daily volumes in July. So the reality is that we expect the recovery of the Colombian market to continue evolving in the month ahead.

In terms of where the percentage of our supplies on a small business, I would like Carlos Yusty, our CFO, to answer your question.

Thanks, Juan. We are still measuring the impact of the ley de plazos justos in Colombia that will take in place in January of 2021.

And probably the impact could be around COP30 billion above that. Really, we have not the right number, but probably the impact will be around the $10 million or COP30 billion above that.

Two questions -- actually, three questions on the U.S. The first is, is it fair to say that your tone on the outlook of the market is perhaps a little bit more cautious than it was when you had your conference call in April, and I guess particularly with the commercial segment?

The second question, which is related to that is whether that caution is something that you're already seeing on the ground. Or is it simply concerned that backlog might not be refilled as projects are concluded?

And I'll ask the final question is with what you've seen now in terms of the post-COVID operating environment, what's the update or the status of the sale of the tax in ready-mix assets?

Thank you for your question, Gordon. The reality is there.

Up to now, the volumes of the activity in the U.S. remain strong and resilient.

But the reality is that with the evolution of the pandemic plus the hiccup that we have with the aid from the government, the extra $600 monthly payment to the people that are unemployed, the reality is that we still like visibility to have like a more optimistic and positive tone about the remainder of the year in the U.S. But so far, things are still, in our opinion, quite strong in terms of demand.

In terms of the [indiscernible] assets in Texas, the reality is that we decided to postpone the divestment process of the assets. We're having a lot of interest from several parties and the assets are extremely attractive.

But because of the pandemic, we decided to postpone the divestment process until some month ahead. We have been receiving interest from the players involved in the market.

So most likely, we will continue ahead with the process, but we have not yet stated that we will be able to close that transaction before the end of the year. I would like Bill Wagner to give you a little bit more color about these times of our backlog and the [indiscernible] operations in the U.S.

Sure. Thanks, Juan.

And Gordon, just to kind of further that question a little bit on the backlog. I mean we saw some flattening and reduction in backlog earlier in the year, February and March, but we're somewhat encouraged.

In the last couple of months, it's been relatively flat. So again, I think Juan's point about the lack of visibility and to project going forward, I think there's some optimism in some markets and a little bit slowing in others, specifically in the commercial segment.

And I think on the residential side, what we're seeing is still a lot of really good fundamentals, and there's a lot of interest on buying going on. And so we saw a little bit of dip in residential.

But right now, we're seeing some positive signs in the last few months on the residential side as well. So all in all, I think it's neutral.

We're still keeping an eye on it on a very regular basis. And it's kind of hard to say with the increasing cases what's actually going to happen with COVID.

But again, it's something that we're monitoring daily. So thank you for your question.

I only have one related to the U.S. and perhaps a follow-up on the previous question.

So you did mention that backlog remains strong, but I was wondering if you could provide some color of what you're seeing, specifically in the Northeast in July and August. Have you seen a rebound in this region?

And perhaps in pricing, some of the U.S. peers have announced price increases all across.

So I was just wondering where you guys stand in this area.

Thank you for your question, Alejandra. Bill, can you add a little bit more color to the answer of this?

Sure. Yes, Alejandra, as far as the backlog situation, specifically in the Northeast, I mean, we were certainly slower earlier in the year, but we've really begun to rebound.

So our backlog is improving pretty good up there. So we're a little bit more optimistic maybe than we were on our last call about where that might lead us.

So again, I think things are kind of coming back to a little bit more normal level based on some opening up of the economies up there. So as far as pricing increases in that market, I mean, we're continuing to monitor what our opportunities are in all of our markets.

And I think where we see some ability to raise prices, we're certainly going to do the best we can to do that. And again, that's something that we're monitoring very closely and we have already increased in some markets already.

Yes. So a couple of questions.

Could you give us a bit more of color on the infrastructure in the United States? I understand that the Department of Transportation of Texas has voted its budget for next year, and it's going to be stable because they've got some [rainy fund].

But who are the Department of Transportation of Florida, Georgia and South and North Carolina dealing with the short term of revenue -- do you see any projects being postponed or canceled because they're waiting for Washington?

Yes. Thank you, Yassine.

I think, Bill, you can take that question as well, please.

Yes. Yassine, thank you for the question.

If I understood correctly, I was missing a little bit of the question. But with respect to the DOTs and the local markets, yes, I think that they have had some impact because of loss of revenues generated from tolls and things such as that, the gas tax.

And so there's a lot of conversation state by state as to how they get around that. We've seen some slowdown in projects that have been postponed.

But there are some discussions about restarting that program even with a lower tax revenue base, and there's a lot of conversations going on about how -- just how to do that. I can't answer anything specifically at this point, but I think we're still going to see a little bit of a slowdown at a local level in all of the states you mentioned.

But I think probably in the fourth quarter and the beginning of next year, I think we'll see that kind of come back a little bit. So again, we're monitoring that pretty closely, but your question is a very valid one.

And the other question I would have is on the clinker price in Turkey. They declined by a few dollar, I think, they're close to $24, $25 per ton.

Could it impact the pricing in Colombia in the second part of the year? And also, there are 2 independent import terminal in the U.S.

that we are planning to ramp up the operation, I think, in Houston and in Corpus Christi in Texas. Do you think that this could have a negative impact on cement prices and ready-mix prices?

Or do you think it's an opportunity for you to purchase cement at a lower price and lower your cost?

Thank you for your questions. We have seen that Turkey is basically sold out in terms of clinker.

I mean if you want to get clinker out of Turkey, nowadays, most of the producers are sold out. And what we have seen is that the freight prices are starting to increase.

So the reality is that we are not expecting any impact on prices in Colombia. Moreover, we think that all the conditions are set for the prices to continue its recurring trend in Colombia.

And in Texas?

In Texas, we ins information about your perspective on Texas.

No, on the independent import terminals.

Yes. Sure, Juan.

No, I mean, I think, again, we still -- we monitor the pricing coming into Texas because we buy independently there. I think there's something that we just need to monitor.

My view is it could have an impact on the local market and local market pricing. But again, we haven't seen that thus far.

So again, it's just something that we have to keep an eye on and try to stay ahead of.

But so far, there have been -- the impact have been missed. Is it fair to assume that the import operations have been somewhat disrupted by the COVID?

I think the port of Houston, at some point, was closed and that it has delayed some of the [indiscernible] patrons?

Yes, that's a valid point, for sure.

I have three questions. First one, I want to know about current prices in Colombia, United States, Central America and the product strategies in the two regions for the second semester?

And my second question is related with what are you expecting Bogotá Metro ready-mix volumes and the schedule of these projects?

Thank you, Roberto. I mean we don't give like specifics on prices, but the [indiscernible] price in Colombia has been increasing.

In our case, 7% vis-a-vis last year. We are starting to see a recovery of prices in Honduras and Panama, more on Panama, because of the import tariffs was 30% that the government implemented until the end of December of this year.

Similarly, we have the recovery of prices -- a very good recovery of prices in Haiti and in the Dominican Republic. And In the case of the U.S., as was explained during the call, our average selling prices have been increasing in the U.S.

as well, slightly by increasing.

Yes. And my second question is about the Bogotá Metro.

What are you expecting about the ready-mix volumes and the schedule of this project?

Thank you, Roberto. I think that Tomás can give a little bit of color about this Bogotá Metro [indiscernible] infrastructure in Colombia.

Sure. Roberto, the Bogotá Metro is the largest product Colombia has seen in terms of ready-mix volumes.

We expect to be a little bit above 1 million cubic meters. And that volume, I'm saying -- I'm speaking in cubic meters because it's mostly expected to be delivered in ready-mix as it is a city project, an urban project.

The volumes -- we are foreseeing the first volumes for the end of last year because as you all know, the project will take a while to be fully structured. We are seeing not only an opportunity in cement or in ready-mix, but also in a series of other value-added products such as precast and different kind of applications of our products.

Infrastructure, in general, is having a very good momentum. We are seeing the record volumes in some of the projects.

For example, in Pacifico 1, we had a record volume of ready-mix poured during last month. And we are seeing projects getting in line very fast after the first month of the COVID crisis during April.

The 5G program is also a great expectation for us. Many things should be improved in how projects are awarded and structured.

So we expect that wave of new projects to be faster than even the other 40, which has been successful so far.

Yes. The other one, one last thing.

I want to understand. I'm expecting that the Bogotá Metro will start demand ready-mix in 2021 or maybe in 2022?

I want to know what are you talking about in that situation.

Sure, sure. We are expecting the first volumes to be by the end of next year, sorry, of 2021.

But most of the histogram of consumption will be on 2022 and 2023, but those are expected to be the big years.

Can you hear me?

Yes, we can.

I have 3 questions, if I may. My first question is what proportion of the savings that you achieved in the second quarter will be sustainable throughout the second half of the year and next year?

My second question is regarding the negative variation of cement volumes in Colombia, taking into account that interest levels had a 40% decrease, could you give us on cement volume, sorry, could you give us more detail on this negative variation? And if there was any impact of Ecocementos participation in those volumes decrease.

And my third question is, if you could explain a little bit on why the debt net over EBITDA to EBITDA indicator didn't include the IFRS 16 prior to June.

Thank you, Juan Pablo, for the questions. I mean our goal is at least to make 40% of our savings sustainable going forward.

You will notice that some of these savings are related to maintenance. And once we start increasing volumes, and we will not be able to keep all the savings, but the reality is that with the methodology and the process that we have put in place, we expect that this will continue capturing the 40% of the savings that we have been able to capture so far.

In terms of volumes in Colombia and the competition, I mean, the reality is that the recovery of the market after the shutdown was more significant in the consumer segment of the market where we are not as strong as we are in the infrastructure and the housing sector of the market. So that is why we're going see a little bit more than the industry after the near start of the economy.

But going forward, I mean with this [indiscernible], which the protocols were implemented by the infrastructure projects and the large housing projects, we expect that to correct going forward. I don't know, Tom, if you would like to add a little bit of a color to my answer.

That's right, Juan. The most part of the effect on Argos' volume are higher exposure to more formal consumption, as Juan said, infrastructure and formal construction, which took a little more time to reestablish their usual volumes.

For example, in the first month, in April for example, the consumer -- so the mass consumption in hardware stores accounted for up to 80% of the whole consumption. Of course, there is more pressure given a new player coming in, but we are already seeing our market share restructuring to reach its historic levels in this last month as former construction is getting a higher share of the market.

And your last question on in terms of the IFRS 16 and the indicators. Carlos, can you answer that question, please?

Yes. I think that -- I don't know if I understand, [Juan Pablo], that the opportunity -- why we didn't include the IFRS 16 before June?

Yes. That is my question.

Okay. Now really because in the 2019 was the first year of the implementation of the IFRS 16.

Really we consider that this year, it's easier for us to include these [Indiscernible] as part of the liabilities as well as part of our EBITDA. Really, like many other companies in the last year, many other companies exclude as well the impact of the IFRS 16.

But really now and with the amendment that we did with the banks in this amendment that we got the waiver. We prefer to include the -- all the effects of the IFRS 16.

That is easier for us. It's easier for the banks.

It's easier for debtors and you. I think that is easier for everyone, Juan?

But the impact is really not relevant because it's -- well, right now, if you calculate, do the numbers with just the IFRS 16 impact that is really below 4 times, just taking into account the debt because of the IFRS 16, and the impact of the EBITDA is a little less than 4 times. And included in the IFRS 16 that you can see or you can show in the presentation, the ratio is 4.35 times.

That is really -- is more clear for everyone. And for the reason, we prefer to include the impact of the IFRS 16 into the calculation of the ratio.

Next question is coming from Rodrigo Sanchez from Davivienda Corredores.

I also have 3 questions. The first one is you finished the quarter with a strong cash position.

But could you comment on your expectations about the funds required for the second half of the year considering the dividend schedule, the debt maturities, expected maintenance and maybe some working capital needs? My second question is, what will your strategy be regarding your debt maturities in the short term, in particular, the bonds that will mature in the first half of 2021?

Are you expecting to maybe issue new bonds or maybe use any additional capacity with banks? Or maybe you're seeking to reissue bonds in USD considering the low interest rates.

And my third question is, would you please comment on your covenants or the waivers obtained for 2021 and onwards?

Thank you, Rodrigo, for your questions. And I think Carlos, you can answer all of them.

Okay. Okay, Juan.

Thanks, Rodrigo, and starting with the first one. I'd like to mention, we finished the -- we finished June with a very strong position of cash.

And we are thinking and according with our forecast for the second half of the year, we can maintain a similar level of cash for the end of the year, taking into account the dividends that we would have to pay starting in the next week, the first installment. And the second installment is in October.

And taking into account all of this, we can say that we -- our [indiscernible] that we can finish the year with a very strong position in cash. The other point that we are analyzing right now is we need to have an amount.

We need to have, in cash, an amount similar to this one because remember that obviously the negative cover right now is very high because the rates for the time deposits are very low. Pesos are low and then dollars are close to zero.

For that reason, we are thinking probably to pay off some short-term debt and to have probably to be more -- to have in our -- in cash, leave around COP700 billion instead of COP900 billion that we had at the end of June. And to use this for -- to pay the short term, I think the one very important point that we have rolled over a 100% of the facilities that had a maturity during this period.

That is very, very important for us because the confidence of the bank system has been very, very strong with Cementos Argos. The second question is about the debt maturities and the bonds that we have that have maturity in the 2021, isn't it Rodrigo?

And in that time, we have about COP300 billion -- COP310 billion that we have the maturities in bonds in that year. And right now, we are analyzing.

We're analyzing what is the best way to refinance these maturities on these facilities. Probably one is to roll over to issue new bonds in the local market, in the local market or there, like you mentioned, is to analyze the issuance in the international bond market or another is bilaterals.

We are working and we are extending the maturities of our short-term debt with our current banks. And the idea is to [indiscernible] in these next coming months and to make the better decision for us.

Really, I think that is very important to say as well that we are extending or we have extend, for instance, in July about $35 million in maturities replacing the short-term for long-term maturities. Right now, probably the next week, we are extending as well about $60 million excuse me, $50 million to $60 million from our short term convert into long-term debt.

And in 2021, besides these bonds, we have about $200 million of maturities of other banks that we are right now talking with that bank in order to extend as well the maturity from now. That I don't know, and the waiver for 2021 onwards, the waiver is like a step up.

Really, we have a covenant of 4x the net-to-EBITDA. The ratio of net debt-to-EBITDA from June to December, it has increased up to 6.70 -- 6.75x and decreased from December to December 2021 and back to 4x in December 2021.

Next question is coming from Antonella Rapuano from Santander.

Just a couple of follow-ups from previous questions. The first one is regarding the U.S.

operations, but specifically in Florida, you already gave some color in Texas and in the northeast of the U.S., but I was wondering if you could comment a little bit more on the Florida region. How have you seen the volumes, but also the pricing dynamics considering the imports in Florida?

And my second question is on the working capital that you had in the second quarter. I was wondering if the COP 300 billion was due to some seasonal effect.

Or you see that this capital -- working capital requirements could be higher in the following quarters?

Thank you, Antonella. Let's start with, Bill, giving you more color about the market volume.

Yes. Juan, thank you.

Antonella, I think our perspective in Florida is -- it's a very strong demand state. They've had a lot of COVID-related situations and then a lot of growth, which, I think, has kind of slowed momentum a little bit.

There's still a lot of good indicators there, and our volume there is actually up through July this year versus last year, around 5%. And prices have shown some improvement as well at a state level.

So again, I mean, we're still pretty optimistic. I mean Florida's a very important asset to us.

And I think, slowed a little, but we do think that it's going to be good for the balance of this year, barring any additional hurricane activity or strong storm activity because we're coming into the season, and we just have one come through the coast. So again, we're -- we think Florida is important and it's going to be a pretty good asset for us.

Thank you, Bill. Carlos can you give the answer for the working capital, please?

Yes. Yes, yes, Antonella.

In the second quarter, we had an impact in our working capital because we had a nonrecourse factoring for our collections in the -- for our receivables, excuse me, in the U.S., that it had a value of $60 million up because of some issues related to COVID for the bank. We have to dismantle this operation in the second quarter.

Obviously, we have to use, what I was saying, about $60 million from our money to cover these needs in the second quarter. But the good news is that we are working with the same bank in order to establish this program, probably starting at the end of this month of -- or in early September in order to get this probably 60 to -- from $50 million to $60 million in this -- in a new nonrecourse factoring program for the fourth quarter.

But we are not seeing another extra needs for the rest of the year in terms of the working capital. Obviously, the seasonality in the U.S.

is important, but really we are -- that is very important to say that we have had the record collections in our U.S. operation during this -- the last 3 months has been the record of collections in the U.S.

for the reason we have not been impacted for the seasonality because the collection has been the most ever.

Our next question is coming from Alejandro Chavelas from Crédit Suisse.

Okay. Just if you could provide us with some more color on Panama, how are you looking at the situation now?

Yes, that will be my only question. The rest have been asked.

Thank you, Alejandro. Yes, Panama has been our most challenging market so far.

It was the one that was closed for the longest. I would like Camilo Restrepo to give you a little bit more color about the situation in Panama.

Yes, Alejandro. Yes, we see a very difficult situation in Panama.

Currently, the government has not had a successful strategy in dealing with the COVID prices. We see the market very sluggish, but we still remain positive in the mid-term and long term.

Panama has a lot of infrastructure to be still developed. We have in line the fourth of bridge over the canal, and we have the third line of the metro and other many projects that were in line to start before the pandemic hit.

So we remain optimistic. But in the short term, we do see a difficult situation in terms of how the economic restrictions have been implemented by the government in terms of the shutdown, which still continues.

As we mentioned, it has reopened, but not fully. We still don't have infrastructure fully reinstated as such.

And we have still limitations on mobility for people and businesses. So in the short term, still a difficult situation, but a very positive outlook in the future.

Next question is coming from [Gabriel Hemofarm] from Scotiabank.

Just a quick follow-up question. Can you give us a bit of color about the cement volume levels in the U.S., basically in the North Atlantic states like North Carolina, in the mid-Atlantic North Carolina, Southwest Virginia, et cetera?

I think there have been some delays in several projects, which can impact the demand. Do you have a bit of color for the levels in July?

Thank you, Gabriel, and Bill will answer your questions.

Gabriel, thank you. We just had this call with our team the other day, and we did see some slowdown in the North Atlantic and somewhat in the mid-Atlantic, a few months back, but we're very optimistic.

Things have already started to recover. So I guess, looking forward to your question, we feel like there's an opportunity to continue to grow and to return back to a normal level.

So we're pretty optimistic about the recovery in the North and mid-Atlantic.

The next question is coming from Steffania Mosquera from Corficolombiana. Steffania, you need to unmute your microphone so we can hear you.

Can hear you me?

Yes, we can.

Okay. I'm from CrediCorp.

My question is, what are your expectations for EBITDA margin for 3Q '20, especially in the U.S. considering the surge in oil prices?

Thank you for your questions. The reality is that our margins in the U.S.

have been improving due to the successful execution of our RESET and debt programs. Both in ready-mix and in cement, we are seeing that [indiscernible] are increasing.

So the reality is that we are expecting at least a [indiscernible] margins at the ones that we posted in the second quarter of the year. I don't know Bill if you would like to add a little bit more to my answer.

Juan, I mean, I guess, my position would be similar to Juan, except I think the point that we made earlier about the lack of visibility, and there's really no strong feeling about what the COVID situation could be and what -- how it could impact the performance side. But we feel like that we have the key processes in place and good action plans in place.

So if demand stays the same, which we're hopeful that that's the case, we think we can do exactly what Juan said, so I will support his comments.

Thank you all. Juan, we have no more questions.

Okay. Indira and everyone, thank you very much for connecting to our conference call.

We're extremely proud of the results of the company during the second quarter of the year in such a challenging condition. We are looking forward to seeing you all in the conference for the third quarter.

And please stay safe and have a great day.