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Edited Transcript of GRUPOARGOS.BG earnings conference call or presentation 14-Nov-19 10:59am GMT

Q3 2019 Grupo Argos SA Earnings Call

Medellín Dec 7, 2019 (Thomson StreetEvents) -- Edited Transcript of Grupo Argos SA earnings conference call or presentation Thursday, November 14, 2019 at 10:59:00am 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

* Mauricio Ossa Echeverri Calle

Grupo Argos S.A. - CEO of Odinsa

* Natalia Agudelo

Grupo Argos S.A. - IR Director

* Pablo Arroyave Fernández

Odinsa S.A. - CFO

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Conference Call Participants

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* Juliana Aguilar Vargas

Bancolombia S.A., Research Division - Cement and Infrastructure 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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Good morning. My name is Andres, and I will be your assistant during today's conference. Right now, I would like to welcome you all to the earnings call -- second (sic) [third] quarter earnings call for 2019. (Operator Instructions) Natalia Agudelo, Director of Investor Relations, may begin her talk.

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

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Good morning. I am Natalia Agudelo, and we thank you for participating in this call where we discuss the results of Grupo Argos for the third quarter of 2019.

With me, I have Jorge Mario Velásquez, President of Grupo Argos; Alejandro Piedrahíta, Vice President of the Strategy and Corporate Finance of Grupo Argos; Rafael Olivella, Vice President of Talent and Corporate Affairs for Grupo Argos; María Clara Aristizábal, the Manager of the Real Estate Business; Mauricio Ossa, President of Odinsa; and Pablo Arroyave, Vice President of Corporate Finance for Odinsa.

This teleconference is being translated simultaneously into English. Please remember that all our communications as well as the results reports, interpretation and presentations are published in Spanish and English on our Investor portal on www.grupoargos.com. At the same Internet page, we have made available the presentation we will follow during the teleconference. To download it, go to the Financial Information section and then to the Reports section, where you will find a file called Presentation 3Q 2019.

Let us start looking at presentation on Slide 3. I will now 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 thank you for accompanying us on this teleconference where we will review the results achieved by Grupo Argos during the third quarter of this year 2019.

I would like to begin by highlighting that our financial results for this quarter as well as the consolidated results for the year show a positive behavior in all areas with double-digit growth in income, EBITDA and net profit. This growth is the product of disciplined, strategic execution both in the holding and in all our businesses, where coherence with the direction that we have defined is allowing us to achieve positive results. Therefore, before going into detail on the figures of the period, I would like to highlight 3 strategic facts that I believe are relevant and that show the power of Grupo Argos as an active holding first businesses and value generation that derives from this -- from its actions.

First of all, I'd like to look at the transformation of the energy business that closes an important cycle with the sale of the thermal generation units in the Celsia free trade zone during this quarter. And second, I would like you to right -- the right to review the strategic context of the concessions business to end by looking at how the strategic financial initiatives are always accompanied with our ongoing search for -- quest for sustainability.

Let's begin with the process of transformation of our energy business, where it is worth looking back at the strategic group that we have gone down over the past 2 years.

Along this path and hand-in-hand with the market, we have consolidated Celsia as perhaps the most innovative proposal of the energy sector in the country, and we have given how clearly defined path is today tangible reality that generates volume.

In 2017, we decided to reconfigure the energy business, strengthening and preparing it to face and to take advantage of important disruptions in this market. This strategic reconfiguration proposed 3 objectives: one, to consolidate Celsia as the sole Grupo Argos investment vehicle in that sector, optimizing its capital structure; second, for its equity structure executive balance, the income basics of Celsia reducing the thermal generation business towards a generation that was more based on renewable energy and increasing its presence in the distribution business; and three, building the most innovative supply in the country overcoming the traditional viewpoint of a utility towards a company that generates volume beyond the sale of (inaudible) to become closer to the end company -- to the end clients.

Today in Grupo Argos, we hold close to 53% of ownership in Celsia after having transferred our direct participation in Epsa, which has allowed us to simplify the equity structure of this business. Once we achieve the previous milestone and with the valuable push given by the market after our stock issue in 2018 this year, we took out the task of decreasing our exposure to the generation business, disinvesting in the assets in the Celsia free trade zone for a company volume of $420 million. These resources have served to defray the investment made in the distribution business with the purchase of assets in Tolima in an operation equal to COP 1.6 trillion that allows us to almost double the base of massive clients and increase the distribution EBITDA for Celsia in 30% -- by 30%. Today, the Celsia's income is much more balanced and diversified, going from 72% concentration in the generation business in 2018 to 62% in the third quarter of 2019.

Together with this progress, other achievements, such as the commissioning of over 100 megawatts of solar generation, the adjudication of 766 gigawatt hours per year in the renewable energy auction, the alliance with our partnership with Cubico to leverage solar projects and a decided focus on new services is allowing us to have the most innovative portfolio in the industry. This is reflected in a growing trend towards bi-generation as can be seen in the 24% growth in Celsia's EBITDA during the third quarter. This story reinforces that our value proposal as a holding company is made evident by being able to define the strategy of each business at a company, their execution firmly achieving results in the short, medium and long term. That same capacity of Grupo Argos as a holding company is being replicated in other business with evident achievements not just in energy but also in the concessions and portfolio and the cement business.

In Odinsa, this year, we have managed to optimize the capital structure of the airport concessions, leveraging concessions that generate income with a consequent release of resources for Odinsa. At the beginning of the year, Quiport issued bonds of -- for $400 million, improving the half-life of its debt and strengthening the profitability of this concession for its shareholders.

A similar operation was performed during the third quarter at Opain, a concession where we reprofile the debt in an operation equal to USD 415 million, improving its leveraging structure and releasing cash flow for its shareholders. This allowed growing the road portfolio or the highway portfolio in Odinsa after signing last October of the agreement to acquire the Túnel de Oriente concession in Antioquia for COP 335 billion in a process that we hope to close during the fourth quarter of this year. With this acquisition, we're managing to strengthen future cash flows for Odinsa, increasing the duration of its portfolio in operation and maintenance, increasing its liquidity and improving its position, facing global investors. These and other actions in other business of the group are deriving in a strengthened EBITDA of COP 1.4 trillion for the quarter and which achieved COP 3.5 trillion for September this year. And this figure represents almost 90% of the annual EBITDA achieved in 2018 and is entered the quarterly -- the highest quarterly EBITDA achieved in the history of our corporate group.

As we have mentioned, our other sites, our management focuses on making these good figures, these excellent figures consistent with our purpose to achieve a positive transformation for all our stakeholders within a framework of deep responsibility, ethics and conviction regarding sustainability. Therefore, it is especially good to receive recognitions such as that given by the Dow Jones Sustainability Index that for the third consecutive year places us as the most sustainable company in the world in the construction materials industry and recognizes our affiliate Cementos Argos and places -- ranking it #2 globally and ranks safely #2 on the Dow Jones Sustainable Indices for the Latin American integrated market.

After this brief summary of some of the most relevant facts occurred in -- that have occurred strategically during the quarter, let's look at Grupo Argos' consolidated financial results that you can find beginning on Slide 7 and to Slide 9 on your presentation.

Let's begin with the consolidated results of the group level. Our third quarter results as well as the cumulative results to September, another reflection of a disciplined strategy where income growth, EBITDA growth and net profit growth in the controlled company are the product of conscious decisions made and executed with discipline in each of the business.

At the end of September, quarterly income grew 44% year-on-year up to COP 5.2 trillion. This result includes the income, of course, received by Celsia after its disinvestment in the assets in the thermal generation assets in the free trade zone, but our (inaudible) was equal to COP 1.5 trillion. But even excluding this nonrecurring sale, income -- it was a very favorable trend with a 40% year-on-year growth with positive income from all strategic -- positive contribution from all strategic businesses, cement, energy and concessions.

In this regard, I would like to highlight some elements. Initially, the reconversion of the energy business towards more balanced and profitable income maintenance with relevant contributions to our Plan5Caribe and the consolidation of the distribution business in Tolima to the recovery of the cement prices in Colombia, improved cement volumes in the United States and strengthening of Cementos Argos' operational efficiency. In third place, the consolidation of concessions portfolio that is more balanced between construction assets and operational assets that provide stable income and that have strengthened Odinsa's financial position.

Regarding the EBITDA, this closes the quarter in COP 1.4 trillion, growing 39%, the highest registered consolidated level for a quarter, the history of this company. And by normalizing the effect of the disinvestment in the free trade zone and the growth of EBITDA under the 16 rules, the EBITDA growth for the third quarter would have been 2%, reaching around COP 1 trillion, an operational figure that continues to be outstanding for this corporate group, and we share it with you with satisfaction. As a consequence of the good execution, Grupo Argos closed the quarter with a net profit for the controlling company of COP 301 billion, equivalent to 30% growth year-on-year.

And having reviewed the consolidated results for the group, I would like to invite you to look at Slide 10 that has the separated results for Grupo Argos. The separate results for the group for -- during the third quarter of 2019 were COP 256 billion, 4% more than those registered during the same period of the previous year. This can be broken down into COP 213 billion for the participation method and COP 43 billion from the real estate business.

If we go into a little more detail, income for the participation method was maintained stable. The effects of the reversal of provisions of the -- on coal business were excluded the growth of income for the participation method would have been 38%. Regarding sale -- administration and sales, our expenses, these show growth explained mainly by greater depreciations and amortizations that reached COP 4 billion in the period derived from the purchase of the acquisition of Opain and do not represent any cash outlays. By excluding -- when excluding these effects, which are simply accounting effects, the expenditures for the quarter will be maintained stable. In other words, they would decrease in real terms. It is important to highlight that the manageable expenses continues showing decreasing trend with an accumulated reduction of 4% and for the fifth year running.

Looking at the EBITDA. It is closing the quarter in COP 238 billion business with a growth of 7% because of the greater contribution from the energy business.

Regarding net profit, the net profit was COP 199 billion for the quarter, 5% higher than 2018. This positive behavior reflects, among others, financial expenditure that is maintained at a historical minimum, 18% lower than the expenditure recorded in the same quarter of the previous years. In line with the permanent objective of optimizing cost of the debt, we performed successful placement of ordinary bonds for an amount of COP 450 billion that had (inaudible) 2.6x the amount offered, a record for the real sector in Colombia in 2019. These resources were used for debt substitution, providing financial flexibility to the holding by increasing the half-life of its debt from 4.3 to 6.6 years, maintaining practically the same cost of the debt and managing to eliminate cash flow pressures for 2019, 2020 and 2021, a period for which there will be no equity amortizations, providing great financial flexibility for the organization. Thus, leveraging indicators closed at 1.9x debt over adjusted EBITDA and 2.2x debt over received dividends, which allows us the flexibility required to continuing executing our vision and strategic plan for the future. And at the same time, we continue with our debt cost, the cost of debt lower than 7%.

Having reviewed the separated results, I would now like to invite you to begin an analysis of the operational results of each of our strategic businesses in summarized manner, beginning with the concessions business, and the -- you could find this on slide -- or starting on Slide 14. 2019 has been a relevant year for consolidating Odinsa's strategy as one of the most dynamic platforms -- concessions platforms in the region. During this period, progress was made with adding a new highway concession, optimizing -- leveraging of the 2 airport concessions and structuring 4 of the most relevant infrastructure projects in the country.

Going into detail. In October, we announced the signature of a purchase and sale agreement of stock for 53% -- of a 53% share in the Aburrá Oriente tunnel concession with an investment of COP 335 billion. This transaction will be financed by Odinsa by reassigning equity at its existing concessions and does not contemplate an increase in Odinsa's structural indebtedness. The investment in this project, which is a reference point for Colombian infrastructure, will allow us to be a part of the future of Antioquia by connecting 2 valleys with the highest growth in the region with over 60 kilometers of viaduct, highway interchanges, tunnels, which are the main access to the Jose Maria Cordoba international airport for over 25,000 vehicles that ride along these highways every day. I would like to highlight that Fitch Ratings consider this transaction has a neutral impact on the credit rating of the Odinsa's ordinary bonds, thanks to the deliberate strategy to finance this acquisition with the company's operational cash flow.

Regarding the project pipeline, I would like to highlight that Odinsa has been one of the most dynamic companies in structuring public, private initiatives before the national government -- private initiatives before the international government, and proof of this is a positive progress in the 4 private initiatives that are on the road to approve by the government to it. The first one is expansion and improvement of the flight deals of the El Dorado international airport. Second place, expansion of the Bogotá airport system. And third place, the new Cartagena airport. And finally, the construction of a private initiative called the [Lasawana] ring road in the south of the capital republic. We have also made progress with the commitment and construction of the Pacifico 2 construction, which has achieved 77% of construction, 9% above what was budgeted initially.

Moving to operational results that you can see on Slide 16. During the third semester 2019, we had healthy traffic along our highway concessions that grew 3% and achieved on average 77,000 vehicles daily with a greater growth in the concessions of the Dominican Republic, which are known as ADN and BTA due to greater flows associated with tourism that grew 18% and 19%, respectively.

Regarding airport concessions, these registered 11% growth, reaching 11 million passengers during the quarter with an excellent performance of the El Dorado Airport that registered a total movement of 9.5 million passengers, growing at a rate of 40% compared to the same period the previous year. And as I referenced, this is 4x the growth of the country's GDP.

Now I would like you to look at the financial results that you could find summarized on Slide 17. Income was COP 183 billion during the quarter, stable. Regarding the same quarter of the previous years, there is a decrease in the contribution from the airport business, explained mainly by a reduction on -- of the income on the equity participation method from Quiport, which is the management company of the Quito airport and a decrease in construction activities given optimization of the working capital in the Farallones Consortium in Pacifico 2, which, as I mentioned, is 9% ahead of the original budget. This same fact influenced the EBITDA of the quarter that closed COP 137 billion.

Regarding leveraging, our consolidated debt closed the third quarter within COP 2.5 trillion, a 5% increase year-on-year, explained entirely by the effect of devaluation. If we exclude the effect of the exchange rate, debt would have decreased by 8%.

Regarding the cost update, in the quarter, there was a decrease of 88 basis points in pesos and 285 basis points in dollars compared to the same period of the year before, a product of many of the transactions explained previously.

Given that the results of Odinsa do not consolidate the operations of Opain, let us now review the main operational progress and the behavior of the figures for this corporation, which you can find on Slide 18. In the third quarter of 2019, Opain ended the quarter with positive operational figures, with a 40% passenger growth in our consolidated level, which breaks down into an 18% growth for national passengers and 6% growth for international passengers.

Operational income for the quarter was COP 350 billion with a growth of 22% driven by regulated income that increased 90%, in line with the positive variation of airport traffic, the exchange rate and the expansion of commercial areas.

EBITDA reached COP 72 billion, which decreased slightly compared to the same period of the previous year, given the increased maintenance expenses resulting from the airport expansion. In turn, our net profit for the quarter closed at COP 19 billion. So it is important to point out that during the same period of the previous year, there were some tax -- deferred tax reversals equal to COP 14 billion that affect the basis for comparison between the 2 periods.

Having reviewed the concession business, let's continue with the cement operation. At Argos, we continue focusing our efforts on improving operational yield and efficiency, achieving greater levels of efficiency at the United States and decreasing leveraging by means of disinvestments and optimization of working capital, especially CapEx. And these are the main initiatives where we are focusing our attention right now.

And regarding the results, I would like to highlight that in Colombia, we continue leading the recovery of market prices with a cumulative increase of 11% throughout the year, which is providing a better profitability that is growing 340 basis points compared to this period in the immediately previous year and the immediately previous period. And the United States business is benefiting for the effects of consolidated company as reflected by great volumes of cement and concrete that grew 10% and 40%, respectively. However, it is important to point out that the results of this region were affected -- the EBITDA of this region were affected by several nonrecurring events, including the closing of the Harleyville front because of the Hurricane Dorian and which was closed preventively as well as extraordinary expenses of around $8 million.

In the Caribbean and Central America, we view the potential of these geographies with optimisms where we are adapting our operations to the economic dynamic of the different countries. Regarding indebtedness, we continue implementing our financial -- prudent financial policy with natural coverage of the exchange rate arising from our sources of income because a turnover that almost 75% of our income is in dollars. This is why 52% of the company's debt is in pesos and 48% is in dollars, which on accounting level means that this figure is impacted by changes of -- in the exchange rate between periods, and the debt at the end of September increases in Colombian pesos has an effect on devaluation even when the company has made amortizations for close to COP 217 billion versus during 2019, and the active part of the investment that also has -- suffers the same effect that can be seen on the general balance sheet. As support for this teleconference, you can find greater details on the figures for the Cement business on the -- on Slides 19 to 22.

And I would like to continue with a brief summary of the positive results of the energy business that you can find on Slide 23. The progress being made on a strategic level in Celsia, with which we began this call, are a clear example of the capacity that this organization has to transform businesses and make them profitable so they generate volume.

During the -- during this quarter, in particular, the financial results of Celsia are hard to compare as they include several movements, including the disinvestment of the free trade zone, consolidation of the distribution assets in Tolima and the entry into operation of the assets we call Plan5Caribe. However, I would like to highlight some strong facts regarding our financial results that show the power of this new structure in the first place.

Our base assets continue generating positive income and EBITDA related results, growing 16% and 24%, respectively. Although, Colombia is today the most representative market for this business, the results we are seeing in Central America despite difficult weather conditions and termination of the BLM contract, the Bahía Las Minas contracts are above those budgeted. In that region, we are working to make these assets an important income base that in normal conditions have a capacity for generating EBITDA close to $60 million if they had not been impacted by these specific conditions that we hope will not recur.

The business in Colombia is more and more integrated with a more balanced composition of assets between generation and our distribution to it. Today, they contribute to the EBITDA, [68% -- 62%] and 38%, respectively. This new structure starts to show its benefits regarding the generation of net results, which are cumulative to September registered COP 358 billion for net profit for the controller, more than doubling the figure to September 2018. This is a consequence of an optimum leveraging structure located in specific assets and lower tax expenses.

I highlight how agile the company has been in carrying out all these movements, which although they generated some short-term leveraging impacts to date just one quarter after having acquired the distribution asset in Tolima, debt has been decreased by COP 1.1 trillion to making deleveraging indicator at 3x net debt over EBITDA, 1.4x below the indicator registered in the immediately previous quarter. It is expected that this consolidated leveraging indicator by the end of the year will reach 2.2x net debt over EBITDA, which represents an additional payment of debt of COP 400 billion with a cash flow position of COP 1.2 trillion, which allows the company to continue consolidating its built-up asset base and generating synergies by transactions performed during the relocating its financial flexibility. I'm convinced that the reconfiguration of the business will allow us an explosion of value that will have an effect on the energy sector in Colombia and in the region, strengthening the -- its great innovation capacity and a talent of our people.

Now I would like to invite you to look at the real estate business on Slide 27. As we have repeated many times, the dynamics of the urban development business is most precisely expressed in the behavior of its cash flow. Therefore, I would like to highlight that during the quarter, this business has achieved income of COP 32 billion growing over 2.8x compared to the same period of the previous year. During the third quarter, COP 24 billion in sales were made compared to the COP 4 billion of the same quarter in 2018, and income was achieved equal to COP 54 billion representing 59% growth.

Regarding ongoing negotiations, during this quarter, we signed purposes of purchases of sale for about COP 50 billion, which we hope to turn into deeds at the end of this year or at the beginning of 2020.

Regarding the business of real estate income that we are partners in the Pactia private real estate fund, during this period, an equity contribution was made for COP 176 billion, which strengthened Grupo Argos' position equaling the share -- the 37.2% share belonging to Conconcreto. As we have done in other businesses, the next step after this investment will be decided drive to make Pactia's portfolio profitable, strengthening its figures and its value generation. Likewise, we announced that in other -- as we've announced in other businesses, in September, Pactia closed with income of COP 80 billion with an EBITDA of COP 38 billion and net operational income of COP 54 billion, which are very positive, although they decreased compared to the same period of last year. As we had mentioned in the third quarter of 2018, these results were influenced by non-recurring events, including nonrecurring disinvestments generated by the sales of the 3 VIVA shopping malls, disinvestments that allow distributions to Grupo Argos' of over COP 120 million. If we exclude this effect, the net operational income would have grown 17% and EBITDA would have grown 20% if we had the same basis for comparison.

Finally, and before moving on with the Q&A section, I would like to mention the end-of-year expectations, where we expect consolidated income of close to COP 15.5 trillion and an estimated EBITDA of COP 4.4 billion.

Few months before ending 2019, we could state strongly that this has been deeply a strategically coherent year, where despite having experienced mixed behaviors in some of the markets where we have a presence, the positive trend -- our portfolio has a generally positive trend, confirming the direction we have defined, and that is proof of the value that we have captured in our active management of this business.

Finally, I would like to tell you is that the nature of the operations of Grupo Argos as a holding is made up of the operational results of its businesses, but also by the generation of value deriving from acquisition, merger, sales and asset purchase operations.

So we have tried to provide to you in the most effective and clear transparent manner the full results, tried to include nonrecurring effects such as large and huge investments or IFRS Rules 16. But also, I would like to highlight that many of these operations are of the nature of the generation of an active holding, and so the integrated mission is made up of the ongoing businesses, plus the transformational activities and operations that we carry out.

So I would like to thank you for your attention, and I give the floor to the operator so that we can take questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Juliana Aguilar, Bancolombia.

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Juliana Aguilar Vargas, Bancolombia S.A., Research Division - Cement and Infrastructure Analyst [2]

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I have 2 questions related to Odinsa. The first one is regarding the acquisition of the Aburrá Oriente tunnel. I would like to know if you could give us a little bit more financial information on this concession. Maybe if there's an expectation of how much it could contribute to Odinsa's EBITDA, what's the capital structure of the concession among others?

And my second question is related to Opain. I would like to know the increased maintenance expenses that you mentioned, are recurring or if it was something very specific to the quarter.

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

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Thank you very much, Juliana. Yes, let's give -- we will give you some more details about these 2 topics. I'll give an introduction and to tell you where we are at the acquisition of the tunnel. The strategic buy of the tunnel is related, first of all, to the potential development, not just of this construction project and -- but other expansions to be able to attend the growth of the San Nicolás Valley, and which is one of the most important demographic development locations in the region. So here, there is an expectation that this will be a project, a spearhead for this company to build the infrastructure that will be required by this region in the near future.

The second question is that we have agreed to purchase 53% of ownership, which is pending its final closing, which we hope will happen during this quarter and which we are waiting for some prior conditions required by the concession there and by the seller. All of these are moving for -- all of these conditions are moving forward satisfactorily, and we hope to close this year.

I'm going to give the floor to Pablo Arroyave who's right beside me here so that he can give us some more elements regarding traffic and there is COP 335 billion for 53% of the equity in that concession. Pablo, so I'll give you the floor so you can tell us about other specific elements of the asset.

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Pablo Arroyave Fernández, Odinsa S.A. - CFO [4]

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Thank you, Jorge. Juliana, well, some additional elements to be able to have a better overview of the asset. It's a concession that runs until 2038. It's a concession that began operating in August 2019.

In terms of EBITDA, the first 5 years, we could talk of an average of COP 100 billion per year in EBITDA, and that same figure would be consolidated into Odinsa.

In terms of indebtedness, to date, the concession has a debt of COP 380 billion, all of them with national banks. And with our maturity, I think it's a half-life of 6 years.

Traffic is -- I'm going to mention is very healthy traffic. It's traffic that overall figures before opening the tunnel. First of all, this concession is a concession that has 3 tolls. Obviously, the new toll on the tunnel, the traditional tunnel toll that the people used to pay before to go to the airport, which is now on the locations beside restaurants. And Santa Elena toll. Before opening the tunnel, we had around 21,000 vehicles moving through those toll booths per day. And after opening the tunnel, depending on the whether it's weekdays or weekends during the first, we could have 27,000 vehicles on that ridge. And on weekends, they can go up to 30,000 on average with peak days of 32,000 to 33,000 vehicles.

The -- a fee -- the toll fee in the tunnel is COP 60,900 for a category one, which is most of the vehicles that go through that, through the concession. And it's COP 11,400 in the other 2 toll booths on Santa Elena and on the (inaudible). And I think that this summarizes the potential -- the financial potential and the potential value of this tunnel. And what's most important, I think, is traffic. Traffic is traffic that has been very solid and important growth. Beyond the first weeks it was opened, we have seen that this is traffic that has been sustained and is close to what we've seen. And during the first weeks, it was open because we expected a lot of traffic because of the novelty. But after 3 months, this traffic is still the same. And so that's the topic of the tunnel, I am going to give the floor to Mauricio. So -- to Mauricio Ossa so he can answer as to the questions on Opain.

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Mauricio Ossa Echeverri Calle, Grupo Argos S.A. - CEO of Odinsa [5]

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Juliana, regarding your second question related to Opain maintenance expenses and whether they're recurring or not, I would like to highlight that, first of all, they're not recurring. And the reason for this greater maintenance has to do with updating the baggage handling system. This year, we had to carry out important program repair of the baggage handling system, which is, as you know, is one of the most neurotic parts of an airport. And when we looked at whether we would just carry out this large repair or invest in a more robust, a more modern and newer system that would have a great share, a better performance towards forward. So this is a nonrecurring expense, which is very sensitive for the airport. And so it's maintaining, we are actually improving the operation of the airport.

In general, El Dorado airport, when one contrast it with the investments and OpEx in comparable airports in the region or even the world-class airports, the OpEx of the airport is very competitive and is, in fact, below the mean of other airports of this category.

And Juliana, I'm going to give the floor to Alejandro Piedrahíta so he can mention 2 things. Low, medium and high position is that we're incorporating into the asset [matrics] of our concessions that elaborate in a little more on the capital structure and the equity structure.

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Alejandro Piedrahíta, Grupo Argos S.A. - CFO and VP of Corporate Finance & Strategy [6]

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Yes. Complementing what Pablo was mentioning earlier, I think that there's a topic -- an important topic understand the way to study that Odinsa is doing in a recurring manner and which is one of the greatest capacities for value generation, and it has to do with optimization of the equity structure. One of the objectives within the acquisition process is to look at the maintenance operation in the capacity for debt that the tunnel has, and this quite allows us to reach a level of leveraging close to COP 100 billion. And the objective is to increase that capacity for operation, which has 2 objectives. The first is to anticipate flows for shareholders that has a positive effect on the expected generated return that could reach a rate of 80% of the business, similar to what was already done both for the Quito airport for the initial -- which had extraordinary returns and also with the financial optimization that was done recently with the Bogotá airport.

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Operator [7]

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The next question comes from Rodrigo Sanchez with -- from Davivienda Brokers.

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Rodrigo Sanchez, Corredores Davivienda S.A., Research Division - Senior Equity Research Analyst [8]

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I would like to ask you, first of all, which -- with the holding, if you could tell us what is the current level taking into account the results of the third quarter. And I would like to understand the results -- the rationale of a long-term capitalization of Pactia, understanding this is a business considered sticky by the group.

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Jorge Mario Velásquez Jaramillo, Grupo Argos S.A. - CEO & President [9]

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Rodrigo, thanks very much for your question. We decided -- we compared it without leveraging. The net gross to end of the year is a 9.01% in ROCE with the contribution of the different businesses proportionately to our partnership in each of them. Our generation is created by its businesses as well as its direct participation in the real estate businesses. It's our -- our expectation this year is to end the year about 30 points below the structural ROCE. And it depends on the dynamic of the cement business in Colombia, especially because, as you heard in the comments we made today, both at the conference that we've made today and the explanations the company has given to the market, the dynamics that we are feeling regarding our prices and as well as the growth in housing and the levels of dispatch in Colombia as well as the double-digit growth dynamic in the United States are things that we believe we are going to surpass the organization work. The company has a progressive growth strategy of 50% over those into achieving levels of above 11% in the compose or, say, of all the businesses. It has been growing over the past 2 years in a positive manner.

Regarding the topic of Pactia, I'm going to give the floor to Alejandro so he can give you some context.

With a historical note, the commitment when Pactia was created, you remember that what Grupo Argos did, contributions initiatives of assets that are maintaining a distinct effect in the portfolio and the balance of the company and some investment commitments that were made hand-in-hand with the other shareholder with who we created a fund, which was Conconcreto. These contributions we've been committed -- we are committed to make them 50-50. And Pactia has 2 corporate vehicles. Our management company, we're a 50-50, and another company where we manage the operational assets in the private capital fund. We used to have Protección. We had a commitment from Grupo Argos where we would match the contributions in cash made by the other two shareholders. So this is a commitment -- an investment commitment we had made in 2015 to match their participations, not 50% to the private capital fund because we invited Protección to become a part of the private capital fund, but not the management committee. So with that context, I would like to give floor to Alejandro.

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Alejandro Piedrahíta, Grupo Argos S.A. - CFO and VP of Corporate Finance & Strategy [10]

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And to complement what Jorge was mentioning, these equity contributions are very important to move forward with the portfolio profitabilization. Structurally, we have a portfolio of over COP 4 billion pesos, and we have also received income from Pactia to date. We have received close to COP 147 billion, over and above what we received in 2018 from the disinvestments we made, where we received close to COP 98 billion. So what we have received after the investment is close to COP 250 billion and we are making an investment of COP 170 billion, which is very relevant to move forward with the strategy for making a portfolio of COP 4 trillion profitable.

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Operator [11]

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(Operator Instructions) This next question comes from Steffania Mosquera with CrediCorp Capital.

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

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Sorry, I'm getting static over the line. Ms. Steffania, I'm sorry, there's static, and I can't hear you. I'm getting -- just getting noise. Now Steffania, I think that it's working now. Hello? Steffania's line is there, but it's having some technical problems. So let's move to the next question while Steffania looks for an alternative way to connect. Hello?

Let's move on to the next question while Steffania reconnects.

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Operator [13]

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There are no other questions.

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

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So I propose if Steffania is there, we can wait for a couple of minutes or seconds. And if not, I would offer that Natalia and Alejandro and myself, we are available not only for her but for everyone for any additional questions they may have. Okay.

Because we have no connection, I would like to thank you for participating and for your attention, and I would invite you to meet again at the beginning of 2019 to share with you the results for 2019.

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Operator [15]

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This is the end of today's call. Thank you very much for your participation. You may now disconnect.