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Edited Transcript of GRUPOARGOS.BG earnings conference call or presentation 27-Feb-20 12:30pm GMT

Q4 2019 Grupo Argos SA Earnings Call

Medellín Mar 11, 2020 (Thomson StreetEvents) -- Edited Transcript of Grupo Argos SA earnings conference call or presentation Thursday, February 27, 2020 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alejandro Piedrahíta

Grupo Argos S.A. - CFO and VP of Corporate Finance & Strategy

* Jorge Mario Velásquez Jaramillo

Grupo Argos S.A. - CEO & President

* Natalia Agudelo

Grupo Argos S.A. - IR Director

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Conference Call Participants

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* Daniel Guardiola

Banco BTG Pactual S.A., Research Division - Director of Equity Research

* Johanna Castro Castro

Itaú Corretora de Valores S.A., Research Division - Research Analyst

* Ricardo Sandoval;Bancolombia;Analyst

* Rodrigo Sanchez

Corredores Davivienda S.A., Research Division - Senior Equity Research Analyst

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Presentation

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Operator [1]

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Right now, I'd like to welcome you all to the conference to the fourth quarter earnings call for Grupo Argos. (Operator Instructions) Ms. Natalia Agudelo, Director of Investor relationships for Grupo Argos, you may begin this call.

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Natalia Agudelo, Grupo Argos S.A. - IR Director [2]

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Good morning. Thank you for participating on this call where we will discuss Grupo Argos results for the fourth quarter of 2019. Here, I have Jorge Mario Velásquez, Grupo Argos President; and Alejandro Piedrahíta, the Vice President of Corporate Strategy and Finances for Grupo Argos; Rafael Olivella, Vice President of Talent and Corporate Affairs with Grupo Argos; María Clara Aristizábal, Manager of the Real Estate Business; Mauricio Ossa, President of Odinsa; Pablo Arroyave, Vice President of Corporate Affairs for Odinsa. This teleconference is being translated into English simultaneously. And I remind you that all communications as well as the results report relevant information and presentation are published is Spanish and English on our investor portal in www.grupoargos.com. On our website, we have made available the presentation that we will follow during the conference call. To download it, go to the section financial information [indiscernible] the report section, where you will find to file called presentation 4T2019 (sic) [4T19.] I invite you -- I'll start the presentation on Slide 3. I give the floor to Jorge Mario Velásquez, President of Grupo Argos.

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Jorge Mario Velásquez Jaramillo, Grupo Argos S.A. - CEO & President [3]

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Thank you, Natalia, and good morning. Thank you for being here with us to share with you the results for the fourth quarter of 2019 and to [group] the results of the year 2019. This year was very relevant for consolidating our role as asset managers in Grupo Argos. This period was marked by the dynamism and the discipline that allowed us to achieve significant progress in strengthening the 3 main businesses of Grupo Argos and continue positioning ourselves as a relevant infrastructure platform on the American continent that acts in a disciplined manner, in capital execution and assignment and [viable] for simultaneous generation of development and well-being in the territories where we have a presence.

During the fourth quarter of last year, we continued making progress along this path. Over the last 3 months of the year, we achieved important milestones, on 2 fronts that we established for this organization: the first, by strengthening the profitability of our companies; and the second, continue moving forward in selective, profitable and strategic growth. To achieve this, we developed our platform schema that powers the growth of our business through the creation of vehicles with which we seek to attract first level partners that will contribute not only capital but also knowledge to the development of our project portfolio. This system allows us to capitalize on our pipeline by achieving decreasing capital costs letting us become -- be more aggressive with CapEx execution and take advantage of the best opportunities in the markets in which we participate. The first vehicles in this growth schema were constituted during the second half of last year, with partnerships for close to COP 1.4 trillion with Cubico Sustainable Investments, an important global investors with which we are developing 2 platforms. The first group's solar generation assets and begins with a plan for developing over 300 megawatts of energy. And the second [contemplates] investments in the transmission and distribution business and covers the assets that we will develop in -- under the framework of the Plan5Caribe and the new distribution, substations and projects in Tolima. On the selective growth front, profitable strategic growth front at the end of the year, we achieved a fundamental milestone with the approval of the beginning of the feasibility stage for the project for expanding the airport system in Bogotá, issued in December by the National Infrastructure Agency. This initiative will require investments for over $3.2 billion and will allow preparing Colombia's airport infrastructure for the growing demand that it has been registering. And so we are viewing this step with the greatest enthusiasm for the country and of course, for the organization. We are also moving forward with the consolidation of our portfolio of highway concessions by closing the purchase agreement of relevant share of the Aburrá Oriente tunnel. With this asset, we strengthened our future cash flows. We expand the duration of the portfolio and operation maintenance, we increased liquidity and improve our position facing global investors. Although traffic projections for so -- close to 25,000 vehicles a day circulating through this tunnel, the tunnel ended the year with close to 30,000 vehicles a day, 20% above estimates and a positive indicator that validates our investment thesis.

During this period, we also reprofiled the debt of the Autopistas del Café for COP 250 billion. And with this transaction, we add over COP 3 trillion in placements in local and international markets during 2019, achieving our objective of increasing profitability per asset and increasing financial flexibility for Odinsa. On this point, I would like to highlight that this corporate group has managed to access capital markets in an agile and efficient manner. These movements represented consolidated optimizations reflected in close to 60 basis points in rate reductions, while improving the maturity profile by close to a year. In total, we carried out portfolio issue, placements and turnover for over COP 11 trillion, which makes us driving agents within the financial markets. We made progress with the strategy of deleveraging our cement business with a disinvestment in the concrete cluster in the southwest of the United States for $95 million, which allowed us to end 2019, decreasing our financial debt in close to COP 430 billion, 6% lower than we closed in 2018.

Over the last 2 years, this company has achieved reductions in its gross debt of close to COP 950 billion. The milestones of last quarter that I have just mentioned, together with the executions that we communicated during 2019 are clear and solid proof of the consistency with which we are developing our strategy as asset managers. This progress analyzed over a longer time frame, evinced the transformation that we have achieved on a portfolio level and for each asset and are even more impressive when we compare the evolution of the financial results, returns optimization of the use of capital sources and cash generation for the company.

With this introduction of summary, I would like you to review the financial statements for Grupo Argos on Slide 6 of the presentation that we have shared with you. I am going to talk, first of all, about consolidated group level results. I would like to highlight our operations in 2019 since -- as this is the year closing conference call. I think it is proper to share with you how the progress of our operations begin to make sense as we see them over longer periods and do not just analyze them in quarterly cycles. In 2019 -- 2019 ended with income of COP 16.8 trillion, growing 18%. This figure brings together several effects of our business. Cement contributed strengthened operations in the United States and the recovery of the Columbian market in energy, the diversification of the database -- of the asset base was very relevant with income in 2019, included the entry of Plan5Caribe, and the greatest number of users in the distribution segment after the purchase of the assets in Tolima. In concessions, we highlight the consolidation of a platform that transported close to 40 million passengers in our airports and 37 million vehicles on highways, both inside and outside Colombia. These results also take into account the leadership of Grupo Argos regarding the optimization of profitability through a rigorous asset turnover exercise and disinvestments that during the year became most evident in the energy and cement businesses. The EBITDA -- consolidated EBITDA closed the year at COP 4.8 trillion, growing 21% during 2019, reflecting a more balanced operation, especially in the energy business, which after the capital turnovers managed to increase the distribution business EBITDA in 26%. The balance and diversification of results between generation and distribution, [besides] are realizing profit in the transmission business with the creation of the Cubico platform meant our contribution to the consolidated EBITDA of Grupo Argos of COP 1.8 trillion, COP 670 billion above the contribution of the same business in 2018.

In turn, the cement business continued leading efforts in efficiencies and added USD 10 million in the year, and this was translated to a greater contribution to the consolidated EBITDA of Grupo Argos for COP 222 billion for a total of COP 1.8 trillion during 2019, growing 14% year-on-year. Consolidated management expenses increased because of nonrecurring expenses that were part of the structural optimization, greater fees because of consulting performed for -- used for performing [necessary exercise] well as greater personnel expenses in the energy business after incorporating the Tolima assets, and this is more manpower intensive assets. Our efforts are still focused on achieving greater efficiencies in all our operations and we will continue working on this in 2020.

Within this context, the net profit reached COP 1.3 trillion as the net profit of the controlling company reached COP 690 billion. That asymmetric impact is explained because of greater income tax laws that grew -- compared -- that grew year-on-year, largely because of the calculation of deferred taxes, which do not represent our cash outlays as well as the growth of the capital gains tax, generated mainly by nonrecurrent operations arising from asset disinvestments that meant an additional registry of COP 147 billion. It is worth highlighting that a good part of this provision will be attended using our tax credits from previous periods in each of the business. And so the cash -- the effective cash outlay is substantially less.

Now let's look at the separate results statements. And these begin on Slide #9 of the presentation that you have been -- that we shared with you. To December 2019, Grupo Argos income was COP 846 billion, where it breaks down into COP 222 billion of income from financial activities, COP 190 billion income from the real estate business and COP 433 billion from the participation method. We observed a significant variation in the financial income that is due to disinvestment in Epsa shares. Almost all of these carried out in 2018. And that meant additional income during that year, during 2018 of COP 655 billion. Thus, the income due to participation methods and from the urban development business were stable during 2019.

Regarding the participation method, I would like to go into a little bit of detail in the -- regarding the variations arising from the different businesses. In Celsia, it is worth highlighting the growth of the net profit of the controlling that received -- that achieved $473 million, growing 108% during the year. This is one of the most important results achieved in this business and it shows that the transformation of the structure of the assets is generating greater volume for Grupo Argos and its shareholders and its other shareholders. In cement, although operational level results can be highlighted because they confirm profitability increases at 40 percentage EBITDA year-over-year. They have a decrease in net profit because of greater financial and tax expenditures that are impacted by exchange rate differences and by greater taxes associated with asset disinvestments. Finally for Odinsa, our concession business, we highlight a growth in the participation method, that is due greatly to a better operational performance in the road segment because of greater traffic and progress made with the construction of Pacifico 2. Its greater contribution can be highlighted despite a decrease in -- participated in airport assets where we optimized the structure, the capital structure via greater indebtedness, which derived in greater financial expenses, but increased the cash flow for investors. This impact, however, is [consequent] with our objective to generate value by maximizing the profitability of these concessions. Regarding administration and sales expenses. These have -- these increased, explained by greater depreciations and amortizations, which were equal to COP 16 billion during the year, deriving from the purchase of Opain and where it is important to highlight that these do not represent cash outflows. By excluding this accounting effect, the total administration expenses decreased 2% in real terms. Likewise, it is important to highlight that the components of manageable expenditures by Grupo Argos continues decreasing with a decreasing trend, with a 5% reduction in real terms, which reaffirms our commitment to optimum and efficient management. Thus, EBITDA ends the year at COP 615 billion, and net profit at COP 483 billion explained greatly, as I mentioned before, by portfolio disinvestments performed in the previous year. We continue committed with -- committed to very efficient cash management. And management of the capital structure, equity structure. Therefore, during 2019, we prepaid debt for COP 665 billion and increased its half-life (sic) [average life] from 4.9 years to 6.6 years. After placement of ordinary bonds to a tune of COP 450 billion, besides during the entire year, cash was maintained at minimum levels. And we closed the year with COP 2 billion in available cash and a balance of debt of COP 1.6 trillion. This gave a leveraging indicator of 2.5x net debt over adjusted EBITDA and 2.7x debt over received dividends.

Having reviewed the consolidated and separated results, now I would like to invite you to begin an analysis of the operational results of each of our strategic businesses, beginning with the concessions businesses, the figures of which you can find on Slide 14. During 2019, our concessions businesses expanded its strategic portfolio, optimized operation and strengthened its financial structure. In this manner, it ratified market confidence in the strategy that we began with the company since 2016 and which allows us to report favorable results that evince an ongoing evolution for positioning Odinsa as a powerful infrastructure platform in the region. Today, our concessions business is capable of attracting international players, both because of its capacity as an originator of infrastructure projects that are relevant for the region as well as due to the [moment] that the sector is undergoing in Latin America. We would like to highlight some of the main milestones for Odinsa during the fourth quarter of 2019. In December, the National Infrastructure Agency have proved the start of the feasibility period for the project for expanding the Bogotá airport system, an ambitious plan for doubling the passenger capacity of the El Dorado International Airport, which will require estimated investments of close to $3.2 billion. Also during the fourth semester, we closed the transaction for refinancing the Autopistas del Café concession for COP 250 billion in the Colombian banking market with which we consolidated 3 debt operations in the year for close to COP 3 trillion, and this capital was used to optimize the business' capital structure, equity structure.

Finally, the Aburrá Oriente tunnel concession began operations, the acquisition of which we had announced in November for COP 340 billion, and which we estimate will generate close -- will provide COP 130 billion to the EBITDA as of 2020. Moving on to operational results.

As you can observe on Slide 15. During the fourth quarter of 2019, we observed a very positive dynamic, especially in airport traffic with a consolidated growth of 6% highlighting 9% growth in Opain, of which with 9.1 million passengers over the last 3 months of 2019 to close the year with 35.1 million passengers, traveling through the Bogotá airport. In turn, the circulation on our highway concessions, both into and outside Colombia, reached an average of 114,000 vehicles a day, with a 14% growth compared to 2018 and 37 million vehicles over the year. We highlight the contribution of Túnel de Oriente that recorded a daily average of close to 30,000 vehicles a day over the quarter, 5% above original estimates.

Now to learn the financial results, I would like to invite you to look at Slide 16. In terms of income on a consolidated level, Odinsa registered COP 179 billion over the fourth quarter of 2019, 11% less compared to the same quarter of the previous year. This was an expected effect explained by the strategy of refinancing Quiport to optimize its capital structure. We highlight the greater contribution of the highway concessions that reached COP 197 billion, growing 50% year-on-year due to better results from Pacifico 2 and the entrance in operation of the Túnel de Oriente. EBITDA shows a 10% increase for the fourth quarter, reaching COP 131 billion, with a positive contribution from the highway concession segment that had a 134% variation year-on-year, reaching COP 129 billion and this result is explained mainly due to greater traffic flows. Regarding the airports segment, the contribution to the EBITDA was COP 6 billion as an effect of asset refinancing. These figures contribute to the annual results that closed the year with an income of COP 762 billion, and EBITDA of COP 543 billion, that grows 2%; and a net profit of COP 142 billion, growing 5%. The figures that we report at the end of 2019. For the concessions business evince our commitment to profitability that we have achieved by optimizing capital structures for the airport assets and AKF, profitable portfolio growth with the acquisition of the Túnel de Oriente concession, our progress in structuring future projects. Given that Odinsa's results are not -- do not consolidate Opain, I would like to invite you to a review the main operational progress made and the behavior of the figures of this corporation contained in -- contained on Slide 17. Income was equal to COP 311 billion for the quarter, growing 5% as compared to the same period in 2018. This increase is due to 11% increase in regulated income. In turn, EBITDA ended the quarter at COP 93 billion, a negative variation of 29% due mainly to the recognition of the future periods in the fourth quarter of 2018, which also generated a decrease in net profit. Although this income is contractual. They are not present in all years of operation. I would like to finally highlight that El Dorado was [located] as the third best airport in Latin America in 2019 and received a 4-star ratings from Skytrax, a product of optimum infrastructure management in the operation of this asset. Having reviewed the concessions business, I would like to invite you to continue with the cement business on the next slide.

As you know, over recent years, our strategy for the cement business has focused on profitability. Along these lines, Cementos Argos continues implementing rigorously its operational efficiency program, called BEST with which the United States region was a leading player in 2019 with savings that added up to $10 million. In a parallel fashion, we moved forward with disinvesting in nonstrategic assets. Adding close to $95 million in the last quarter with the sale of cluster of nonstrategic concrete plants in the southwest of the United States. These resources allowed decreasing our debt by COP 430 billion for the purpose of reducing our leveraging indicators to generate greater financial flexibility. We hope to reach the goal of achieving an indicator of 3.2x net debt over EBITDA at the end of this year. This decrease contemplates a -- a careful plan of asset disinvestment during the year as well as strengthening of the EBITDA. We also highlight rigorous cash management carried out by Cementos Argos during the previous year. The company was strengthened with efficiency initiatives that allow increasing EBITDA generation, increasing our returns on employed capital, reducing its working capital cycle by 8 days and maintaining a disciplined equity assignment. By the end of the year, the business had a positive cash flow of COP 375 billion, improving its capacity for adapting to cycle variations in the sector and a commitment to management with value generation. It is also good to show you that it recently launched into the market, the first green cement, our new production line from the Río Claro plant, this product decreases the use of clinker [indiscernible] incorporation of thermally activated clay, reducing up to 30% (sic) [38%] CO2 emissions and 30% energy consumption in comparison with the industry standards. Innovations like this are proof of the commitment we have to the environment, provide us with competitive -- long-term competitive advantages and continue positioning us as innovation leaders within the markets. On an operational level, cement dispatches reached 3.8 million tons during the fourth quarter, decreasing 0.5% in comparison with the same quarter in 2018. And concrete dispatches reached 2.4 million cubic meters, growing by 1.2%. These volumes reflect a positive growth of the demand in the United States. The challenging market conditions in Honduras and Panama, and the effect of becoming leaders through our marketing strategy in Colombia.

Regarding financial results, consolidated income closed -- ended the quarter at COP 2.3 trillion, growing 11% and COP 9.4 trillion over the entire year, growing by the same percentage.

In turn, the EBITDA for the quarter was COP 479 billion, 16% more than the same period for the previous year, including the effect of disinvestments, likewise the year's -- the cumulative amount for the year was COP 1.8 trillion, growing 14% compared to 2018.

Regarding the results, I want to highlight that the United States operations where we continue observing good dynamics in terms of the demand that has been impacted by great volumes and has allowed us to increase plant utilization. We continue moving forward with the efficiency plan that allowed us to close with an EBITDA in that region of $268 million, growing by 12% year-on-year.

Now let's look at Slides 23 to 25. So we can look at the results of the energy business. 2019 was a transformational year for Celsia. Within our long-term strategy, we made very relevant steps towards the consolidation of the company with a very solid asset base in generation, transmission and distribution, with a better balance between its sources of income and an optimum equity structure position. We also simplified the corporation that allows a better profit flow to final shareholders. During this quarter, we consolidated great milestones. In these, we highlight the creation of the Caoba investments platform with an initial value of COP 1.4 trillion, and this is a very important foundation for the company's growth because it validates this strategy by sophisticated investors. It quantifies value generation through recognition of the asset prices, which is reflected by a profit of COP 263 billion, and it empowers, simultaneously, the company's growth capacity, ensuring resources to move forward with the goal of converting Celsia into one of the main energy platforms in the region.

Moving on to the financial results that you can see on Slide 25. We can see a growth of 7% in the consolidated quarterly income equal to COP 967 billion of which Colombia contributed COP 814 billion favored by greater contributions from the transmission and distribution business. This income results are consistent with those registered for 2019, which ended the year at COP 3.7 trillion, growing 9% year-on-year.

EBITDA for the quarter was COP 379 billion, while the consolidated EBITDA for the year closed out COP 1.3 trillion, growing 11% for a 34% margin.

I would like to highlight the contribution of the Tolima operations, which over the first 6 years of -- 6 months of consolidation, added COP 125 billion to the year's EBITDA, including the retributions received over the final period because of Law 1715. It is important to highlight how a simplification of the corporate structure, together with progress based in asset turnover has been -- has resulted in a greater net profit for the controlling company, reaching COP 473 billion, growing 180%, which is a historic result for the company and which proves our commitment to the generation of value for shareholders.

In 2019, we made significant progress regarding the indebtedness profile for this business, thanks to deleveraging and reprofiling programs that were carried out together with the above-mentioned strategic projects. The half-life of the consolidated debt went from 6.2 years in 2018 to 8 years in 2019. In turn, the cost of the debt in pesos went down 60 basis points, while the cost of the debt in dollars went down by 23 basis points.

Celsia ended 2019 with a consolidated leveraging indicator of 2.7x net debt over EBITDA, significantly lower than the indicator of 3.9x registered at the end of 2018 and with a cash flow position of COP 385 billion, which allows the company to continue consolidating the -- its asset base and generating synergies through the transactions performed during the year. Moving on to Slide 27 and 28. I would like to invite you to look at the real estate business. As we have repeated on several occasions the dynamic of the urban development business is expressed most precisely in the behavior of its cash flow. Therefore, I would like to highlight that in 2019, this business has achieved a cash flow income of COP 92 billion, growing 12% compared to the same period of the previous year. 11 negotiations were closed during the year, equal to COP 120 billion, representing a growth of close to 20% over 2018. In 2019, we can highlight progress with our property in Baru, where we have begun to realize the dream of creating an international level destination that began with the construction of the Sofitel Calablanca hotel, which we hope will open its doors to tourists in Baru in 2021. This initiative, together with the new Grand Decameron hotel has activated interest in the market and has allowed us to move forward with additional negotiations for hotel projects that will expose us to different market segments, importantly, empowering the value of our assets on the island. Regarding the real estate, encompasses our partnership with Pactia, during the year, we registered income for COP 309 billion and EBITDA of COP 134 billion in EBITDA, and net operating income of COP 198 billion. The fund ended the year with managed assets of COP 3.9 trillion.

Finally, I would like to refer to the topic of sustainability, the results that we have seen up to now are the product of a comprehensive vision for value creation that we lead and promote in Grupo Argos with the objective of transforming financial resources, human resources and natural resources to generate development and well-being for our shareholders and investments and to all our stakeholder groups. Therefore, as an evolution of our market transparency practices and with the objective of allowing you to have comprehensive knowledge of our managed -- of our operations, I would like you to -- I would like to invite you to review the main progress we have made regarding our sustainability strategy. This effort is today recognized by RobecoSam and S&P Global, who, for the third consecutive year, highlighted us as global leaders because of our financial, social and environmental performance by giving us the gold seal in their sustainability annual publication. I would also like to highlight the recognition obtained by Cementos Argos, which also received the gold seal, while Celsia received a bronze seal in this global sustainability reference. We received these awards with humility, but with great satisfaction and responsibility as they reflect our conviction regarding doing business that will benefit all the environments where we act, so that our value generation can transcend our financial results and create more sustainable and prosperous societies.

Before opening up the question-and-answer session. I would like to refer to the announcement that was published yesterday regarding our proposal for dividends and share repurchasing, the repurchasing plan of over COP 400 billion over the next 3 years, indiscernible the conviction that we have regarding corporate management and the fundamental value of the same, highlighted by the results and by the milestones that we have achieved as asset managers. And which due to market reasons, have not been reflected by the fundamental share price. There is no doubt that repurchasing Grupo Argos assets is a responsible alternatives facing our investors who have trusted and continue to trust in the -- this company's capacity for generating sustainable value. We will also propose to the shareholder meeting, dividends that grow above inflation by 350 basis points, almost doubling inflation with which that management seeks to make shareholders have greater participation in the profits arising from the operations of Grupo Argos and its businesses during 2019. This was a year full of progress materialized in growing financial results and that we are proud today to share with you.

Looking back and seeing what we have achieved in the articulation of this portfolio that we received in 2012 fills us with satisfaction, but it also brings us great challenges regarding the vision we have for the future. Therefore, I would like to give the operator the floor to continue with the question-and-answer session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Now we are going to take questions from the Spanish participants. The first question comes from Ricardo Sandoval with Bancolombia.

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Ricardo Sandoval;Bancolombia;Analyst, [2]

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I have 2 questions. The first is, the first is I would like to hear your opinion. You're part of the board of my company. And why -- you want to repurchase shares in the 3 companies and not Cementos Argos taking into account that the share price is quite low. And I'm also on the board of directors of [indiscernible] That's the first question. And the second question is if Grupo Argos -- in its definition as holding -- has decided to -- wishes to increase its shares of Cementos Argos.

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Jorge Mario Velásquez Jaramillo, Grupo Argos S.A. - CEO & President [3]

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Thank you very much. I would like to answer these questions. They are very relevant. So the share repurchasing program. I forgot to give you some context. This is a very clear way in which the organization can invest in -- the price of shares -- the business of the company is not reflected properly by the share price because of different reasons because of imperfections in the market. [General market] did not reflect the -- the value. So this is a clear sign of confidence in its own business by repurchasing its own shares, and I would say simultaneously, it is a responsible option and a positive option for the capital outlays. The second thing that I would highlight here is that the operation that is -- that is being put to the shareholder meeting. It seeks to set up the proper reserves and delegate to the Board of Directors, the operation of this over the next 3 years.

This is COP 400 billion operation and that estimated several circumstances is an important relevant operation, but it also has to be adjusted to the specific requirements of each company and the cash possibilities of each company to be able to do this. Among several virtues that the program has, it is also a mechanism for improving -- and this is done efficiently when it uses our tax reserves that can be distributed with tax benefits to its shareholders.

So the condition of each company is not the same. The strategic [moment] to which company is not necessarily the same. And I'm going to refer to cement. Cement, the strategy that we have outlined, and that we are following up in the Board of Directors and defining in the Board of Directors, and it has been developed adequately by the -- administration has 2 clear focuses right now. The first is increasing operational efficiencies and adapting the businesses, operational and administrative, the structure to improve its profitability in a clearly dynamic and changing market. And the second has a purpose of deleveraging the balance sheet of Cementos Argos. So along these 2 lines, the company has been doing important work, as I mentioned of our increasing profits, lowering the debt through disinvesting strategically in nonstrategic assets. And the focus we have -- [we don't have control exhibits] as we are controlling the organization's cash flow to guarantee that it can simultaneously do 3 things.

The first is to cover the need -- the CapEx needs to maintain efficient operations. They can't stop investing in the CapEx. It needs to be a competitive organization. The second is to cover the taxes to service the debt; and third, to maintain dividends for shareholders. As a public company with -- that has a very important number of different types of shareholders, individuals, pension funds, public-private foreign investors. With all the strategy, the priorities in the -- for the use of cash in Argos are guided by these 3 pillars. So to be able to invest, and maintain the service of the debt and maintain dividends to its shareholders. So we are proposing an important increase in dividends and also a repurchase of shares because it’s responsible and also the cash flow [indebtedness] for Grupo Argos allow us to do this.

So in summary, it is an operation that transfers value appropriately to shareholders. It is based on a conviction that is a very good assignment of capital for Grupo Argos right now, but it also attends to the needs and specificities of each of the company. So at Cementos Argos, we think that the priority has to be applying its cash to these 3 elements that we defined before. So I would answer the first one like that. So can you repeat the second question?

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Ricardo Sandoval;Bancolombia;Analyst, [4]

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(inaudible)

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Jorge Mario Velásquez Jaramillo, Grupo Argos S.A. - CEO & President [5]

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The answer is implicit in the first answer in the sense that there’s the -- our priority of the assignment of resources and capital expenditures. That explains the reasons behind the actions of Grupo Argos and the actions of Cementos Argos. We think that it's an adequate balance to maximize allocation of the resources and the most efficient [indiscernible] [provides] also the best -- maintains sustainability and value construction in the long term.

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Operator [6]

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Second question comes from Johanna Castro with Itaú.

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Johanna Castro Castro, Itaú Corretora de Valores S.A., Research Division - Research Analyst [7]

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Continuing with the previous question. I think that I'm not very clear on the answer. Is the priority of Cementos Argos from what I've heard is deleverage? I don't understand why it has not sold office portfolio for Grupo Sura for the last year? And since we are in Board of Directors conversations, if the priorities of the company -- I do agree that the priority is to deleverage, then Grupo Sura should also have deleveraged instead of repurchasing shares because over the long term, as you mentioned, the added value is much larger and not the short-term effect on the share price of share repurchasing. So I don't understand the definition of priorities.

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Jorge Mario Velásquez Jaramillo, Grupo Argos S.A. - CEO & President [8]

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Thanks for your question, but with all due respect, I also want to suggest something. I would like to invite you to talk about the decisions and the [rationale] of Grupo Argos with all the transparency and openness. But I think that the strategies for Grupo Sura, where I sit on the Board, this is a topic that we should talk about at the conference call in Grupo Sura and not the conference call for Grupo Argos. However, so I would suggest that with -- what I would say that is that the operation of rep -- the decision to repurchasing Grupo Argos and Cementos. Look that what we just said is, even in an extremely dynamic activity, growth activity in concessions where we acquired a tunnel, we're [considering going] for restructured set of projects that require very, very important investments in the energy business. We grew our wind platforms, the dam in [indiscernible], solar panel generation throughout the [regions,] throughout the entire country where we purchased companies in Tolima. Within that dynamic of growth and expansion, the company's consolidated debt has stayed the same. It's not increasing in general terms. So in summary, the priority in deleveraging is not just a strategic decision, but is also a reality for 2019. So when you look at the growth of Argos, as you can see, we -- in the Cementos, we disinvested $95 billion in concrete plants that we could disinvest responsibly, maintaining our generation of integrated business in cement to deleverage. And this company has deleveraged close to COP 1 trillion in the -- over last 3 years. And today, the market has announced we are beginning a process that has extremely positive attraction to disinvest in concrete assets in Houston and Dallas. And this is an operation involving several hundreds of millions of dollars, and we are convinced that at a reasonable price, is the best decision for reducing the company's leverage. So I would -- the -- a message, I would like to [translate] is that we are [a point at which] deleveraging the companies to disinvest in assets make sense at the time because they have a fundamental [value] To the disinvestment because of the rationale for generating value for you, for shareholders, and which will also allow appropriately to retribute to our shareholders that have accompanied the story for decades. So it's a balance and conviction between deleveraging, selectively deinvesting in those assets, in those markets for the possibility to capture value is correct.

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Johanna Castro Castro, Itaú Corretora de Valores S.A., Research Division - Research Analyst [9]

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Okay. I understand that if you allow me to continue the question then. Given that we are about 1 year -- 1 week -- The process of selling [indiscernible] And the (inaudible). If you decide to participate from Celsia, could that be use of resources to continue growing in Celsia. I want to understand the rationale because I don't understand the use of the platforms and the use of the resources that are available in the market. Given that Grupo Argos would right now be assigning COP 400 billion to share repurchasing, but what I've also understood is that if it is necessary, at some time, and if the opportunity was in the correct price, existed, Celsia would also participate in this kind of opportunity. So I don't know if Grupo Argos leveraging will be enough to support this kind of CapEx operation.

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Jorge Mario Velásquez Jaramillo, Grupo Argos S.A. - CEO & President [10]

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This is -- give me the chance to go into greater depth in the [indiscernible] platforms and also talk about our position on the Board of Directors. [Everybody is] in the process of indiscernible what we're doing and what is the capital assignment for [Cementos Argos]. So I want to start with the second question, if you like. indiscernible we have said publicly, that this organization is evaluating all the angles that has to be taken into account with evaluating an opportunity like (inaudible) And this goes through a financial analysis, it goes through anthropological, sociological analysis to understand the culture embedded in those assets. It looks at the size of the investments that have been made long term.

It goes to an analysis whether the specific company is the best owner of those assets because these assets will generate value synergically with the existing portfolio, and within the framework of that discussion, that is where the Board of Celsia has been analyzing that process. We have not made a decision yet, and we've said this publicly regarding the acquisition, but any decision would be based on a foundation that this is the best financial investment option, that it will be a responsible investment and that it would bring the returns with the adequate profile of risk for the -- our company. And we have not made a decision yet, we have not decided to participate in the assets of indiscernible . And this, also relates to the platforms. What we do with the platform is we compare competencies of Grupo Argos. Grupo Argos is a very good manager of platform growth where we've seen with Plan5Caribe, seen with solar indiscernible what we can do in wind generation businesses by bringing in other institutional partners who will contribute low cost capital, but will also bring knowledge to cover -- to help with the competencies that Grupo Argos indiscernible has. So it's a virtuous multiplier of the -- for the assignation of capital and what Argos can do by taking on debt. And that -- in that sense, the -- our direct allocation of capital or via debt or via platforms or by a specific partners in specific [asset base] or mechanisms within the platform within the portfolio that the company has to invest in its assets. But all of these are related to a very careful analysis of financial & risk analysis, and this is the process with which we assign capital within Grupo Argos. We carefully analyze our capacity for extracting value and also the potential indiscernible potential increased value that we can obtain from each of these assets. That is how we look at things from Grupo Argos. So once again, the discussion -- If we decide to do it, it doesn't mean that Argos is going to have to provide the equity. There are other mechanisms, but we haven't made that decision, and we will only make it after analyzing all these variables.

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Operator [11]

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The next question comes from Rodrigo Sanchez with Davivienda Corredores.

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Jorge Mario Velásquez Jaramillo, Grupo Argos S.A. - CEO & President [12]

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I'm sorry, the line is very, very bad. And I can't understand what he's saying. Look, I am sorry because we have a lot of noise, and I can't understand you.

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Rodrigo Sanchez, Corredores Davivienda S.A., Research Division - Senior Equity Research Analyst [13]

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Just a minute. Okay. Is that better? Hello.

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Jorge Mario Velásquez Jaramillo, Grupo Argos S.A. - CEO & President [14]

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We had to mute his line. I can't understand the question because there's noise, [integrated] noise, on the line. I don't know if Rodrigo could dial-in again on a different line to be able to understand the question. Can we move on to the next question?

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Operator [15]

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And our next question comes from Daniel Guardiola with EPG (sic) [BTG].

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Daniel Guardiola, Banco BTG Pactual S.A., Research Division - Director of Equity Research [16]

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I have a couple of questions. My first question, I would like to better understand the rationale behind [subsidiary] Grupo Argos [indiscernible] Celsia. And specifically take in account [into the case] Cementos -- Cementos, as you have mentioned, has had some very complex operational years where EBITDA has gone down. And there is an increased leveraging. And I would also like to understand this high leveraging, where you're going to repurchase shares of COP 400 billion, what is the -- and in the case of Celsia, I understand that last year, you had nonrecurring income related to sales. But if you look at the profile of our free cash flow generation for the next 3 years in Celsia it's going to be negative because of the number of investments. And how is this going to [help?] Because in cases -- in Celsia, I'd like to understand the rationales for the [proposals] in the subsidiary. And the second one, Jorge Mario mentioning that one of the rationale's being -- behind the buyback is to indiscernible value for shareholders and in that sense, I would like to ask you if you have considered to carry out corporation reorganization specifically in the concessions business and look for some [assets] that will give you better pricing using some other mechanism? And those are my 2 questions.

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Jorge Mario Velásquez Jaramillo, Grupo Argos S.A. - CEO & President [17]

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Yes. I would like to start with the first part of the rationale, regarding dividends in affiliates. And based on a principle of multi-dimensional and simultaneous responsibility. And that means the capacity to be able to retribute the shareholders, while maintaining a yield to be attractive for all investors. All our companies have a large number of shareholders, not just one individual, one company, directly or indirectly. Tens of thousands of shareholders. So how do we keep -- maintain the same -- the right signals for profitability for the shareholders in the long term and the continuity provided by a trust in the long-term equity story, maintaining simultaneously those dividends for shareholders.

But acknowledging the specific needs of our period of time, and that's why I'd like to look at the case of Celsia. In the case of Celsia, what we are proposing, as you mentioned, and as proposed by the Board of Directors and the shareholder meeting, it is to acknowledge yield -- extraordinary yield because this investment in the free trade zone. Which created marginal results for the company, but simultaneously, maintaining the conviction that -- directly with the platforms, with the capacity for generation, the primary surplus of these companies is positive. The capacity to simultaneously attend the CapEx required to taxes, the dividends and the interest.

So in the case of Celsia, it's a recognition of partially acknowledging the sale of $420 million is giving us [uncertain] profit of [$3 -- $30 million] and it's generated a [indiscernible]. So a large part of the value generated by the disinvestment will be maintained within the company precisely to attend these future growth needs, and simultaneously deleverage it to a level that was lower than 3x, around 2.7x, which is the leveraging of Celsia. So that's the rationale in the case of Celsia in the case of Cementos. Once again, I'd like to repeat our considerations. The EBITDA generated by the cement's business are indiscernible million, with a very positive trend over the year in 2020. The signals that we are receiving that indiscernible has commented in the last quarter plus the signals that we're seeing regarding the Colombian and the United States markets allow us to [outfill] the cash flow -- projected cash flow for 2020, which is what we base on for -- we are basing. The dividend will be -- continue stable in 2020, and we will continue disinvesting, not -- just like this we are doing it but we [won't] have the same cash flow, and we will be able to cover the dividends for shareholders, which is part of indiscernible the business. So this is the rationale. It's also a long-term vision that will balance out the specificities of the business with its capacity for growth with its need to be deleveraged, but also its need to maintain dividends for shareholders.

Regarding Odinsa's question, the question -- directly -- question is, yes. We have been studying and looking at alternatives for a different type of structures that can accompany its future growth. At that time and when it's timely, we will let the market know, but the answer is yes. Mauricio has said this publicly, and I have said it too. We are looking for corporate and capital structures and equity structures that will allow leveraging the capacities of Odinsa. I would like to go back to the rationale that I mentioned. If there's one thing that this company does well, it is combined -- the transformation of our financial assets, our natural assets or human assets, like in the case of Odinsa, and its great competence is its man -- asset management and value creation abilities, and this is a very important competence that attract investors that can also contribute capital and knowledge to create growth and that I mentioned.

So the direct answer is yes. I don't have information, but I can give you -- and I can't give you any more information than that, but this is dynamic that we are looking at in the future.

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Daniel Guardiola, Banco BTG Pactual S.A., Research Division - Director of Equity Research [18]

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Can I have a very last -- a last very brief question to learn more questions about the buyback, I would like to -- I know it's a proposal, and it has to be approved by the shareholder meeting. But I don't know if you're going to give more details on this more than just a buyback proposal. One, whether that buyback could focus on preferential shares; and the other is that whether through this buyback, you plan to in the end cancel the shares or to leave them as treasury shares?

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Jorge Mario Velásquez Jaramillo, Grupo Argos S.A. - CEO & President [19]

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Thank you very much. 2 very relevant questions. And I would like to -- I will answer both. As you say, just so we all have the same information on what was being proposed. Is the proposal is the -- a shareholder [indiscernible] will approve a COP 400 billion project over -- program over 3 years with detailed regulations. And the Board of Directors will develop the mechanisms that will guarantee the equality of treatment to all the shareholders in the region.

So I -- regarding your first question, I would say that the concentration that the Board of Directors will take into account is that it will give an equal treatment to all investors, no matter their type or their condition, they should all have the same access to the conditions of this offer. This is natural. I'm pretty sure that the Board of Directors will look at the preferential shares and others regarding this option.

The second is whether they'll be canceled or not canceled, I think that question is very relevant. And the indiscernible answer is they will not be canceled. They will be left in the company's treasury and therefore, can be used for several purposes. Used as an asset, to return it to market when the conditions arise or use them as a means of payment in any operation that will be carried out, an asset of the company. And so this will not dilute the number of -- of subscribed and paid up shares. These shares will not be canceled.

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Operator [20]

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Our next question comes from Rodrigo Sanchez with Davivienda Corredores.

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Rodrigo Sanchez, Corredores Davivienda S.A., Research Division - Senior Equity Research Analyst [21]

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Continuing with the questions regarding the buyback. Although, I understand that there's no debt maturity in the -- in upcoming -- what resources would Argos use for this buyback, understanding it's over a period of 3 years, but also understanding the deleveraging strategy that the group has been carrying out and that you mentioned is not just for the holding, but for all its companies and also evaluating the current position of Grupo Argos individually? And the next question is that I would like to understand in more detail what -- what the assets, the COP 24 billion in assets that are now noncurrent assets, [indiscernible] [for sale.] Or do they come from indiscernible .

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Jorge Mario Velásquez Jaramillo, Grupo Argos S.A. - CEO & President [22]

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Thank you very much. And I'm sorry we couldn't hear you earlier on. So I'm going to give floor to Alejandro, who is here with me. Alejandro Piedrahíta, so he can give you details of the projected cash flow, how they're projected for 2020 and how we can maintain the flexibility for the buyback proposal. So I want to give the floor to Alejandro and then I'll tell you which are the assets that...

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Alejandro Piedrahíta, Grupo Argos S.A. - CFO and VP of Corporate Finance & Strategy [23]

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So from a point of view, cash flow point view, the projections that we have for 2020 is more or less the following: we have projected to receive dividends in 2020 about COP 530 billion approximately. Additionally, we have the urban development business, which we estimate cash flow of close to COP 115 billion. This gives us our income cash flow of close to COP 650 billion. There are other types of shares that we are developing, which are not public right now, but could be additional amounts that could be over COP 250 billion.

But if we just take those -- that income that we're looking at right now, we have COP 650 billion. Out of those COP 650 billion, if we talk about the dividend that we expect to receive were -- talk about the COP 350 million, taking the dividend from the last year. I'm looking at this, last year's financial expenses, income for Grupo Argos, taxes, et cetera. That means that we have for uses, we're talking of about COP 500 million -- COP 500 billion approximately. With those COP 500 billion, plus the COP 650 billion, we have a surplus of close to COP 150 billion that are liquid, add to these other COP 200 billion that could come in, that we can't really share right now. So we have a consolidated cash flow over the year of close to COP 350 billion. And within the proposal, and as Jorge mentioned, the COP 400 billion for the buyback, this is discretional over 3 years. It doesn't mean that in the first year, we're going to go in -- go out and buy COP 400 billion in buyback. So even in the event that we wanted to go out and buy COP 350 billion this year, we would not touch the Grupo Argos leveraging structure and the leveraging rate would be close to 2.5 to 3x debt over adjusted EBITDA, which is very in line with the rating ratios, where to maintain our AAA rating with Standard & Poor's, it's roughly around 3.5x leveraging. So we have enough leveraging in Grupo -- leverage in Grupo Argos to enter into this buyback. Basically, the COP 24 billion in assets, this is the reclassification of [Olempa,] which is a company, which is part of Carton de Colombia, where we have share and which is a sale that we are structuring right now.

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Rodrigo Sanchez, Corredores Davivienda S.A., Research Division - Senior Equity Research Analyst [24]

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Perfect. I want to understand is understanding the activation of cash flow that you have for this year. What needs or what contribution could Grupo Argos make to the projects that the investment needs? The Odinsa has over next years, understanding that it still has projects that are in pre-feasibility and feasibility stages.

And whether this was done via project finance, but I would like to know whether with these resources that you mentioned, in the cash flow, if Grupo Argos could be thinking of capitalizing or helping -- somehow helping Odinsa with fund raising for these future projects?

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Jorge Mario Velásquez Jaramillo, Grupo Argos S.A. - CEO & President [25]

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Thank you, Rodrigo. I would go back to the -- to what you said. The cash flow situation in the short to medium term, as Alejandro mentioned, it gives us important flexibility in a direct [flows] and also in the capacity that Grupo Argos has either to reconfigure it -- a surplus liquidity that has [weaker getting] certain assets where it doesn't need them or to attract platforms and partners that will accompany growth or to reassign the debt risk profiles versus equity in certain assets or -- and to structure the projects like we were talking about in Odinsa, and find partners for future developments.

So I would say that the key word that we think is important in this organization to date is flexibility. It's called optionalities. It's called having the capacity to use different financing sources and have the capacity to mobilize resources in an agile manner from the holding to the businesses and between the assets that the company has. And so it's a dynamic, medium and long-term vision, that goes through the [indiscernible] of the year and the indiscernible of the year. Look, we're comfortable and we're comfortable in the medium term because the appetite and the capacities for optimizing the assets portfolio for deinvesting in those areas where we are not the best owners, and we do not generate volume, that way we can have more value in the hands of other shareholders. So it's the case of the disinvestment in [Olempa] that Alejandro mentioned because it has more value for another [org] than for us. So it's flexibility to be able to do this, to be able to have the flexibility and access to investor equity to debt-to-capital reallocation. And we do this under a discipline for maximizing value and for -- and of responsibility towards our stakeholders. Thank you very much.

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Operator [26]

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Now we have no more questions. Do you have any other closing comments?

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Jorge Mario Velásquez Jaramillo, Grupo Argos S.A. - CEO & President [27]

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No. Thank you very much to all of you for accompanying us at this time. And once again, the entire team that is here, available for you, for any questions you may have, if you wish to go into greater depth. Alejandro, Mauricio, and Natalia and we are all available for you. Thank you very much, and have a very good day.

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Operator [28]

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This concludes today's conference. Thank you very much for your participation. Now you may disconnect.