Cementos Argos S.A. (CEMARGOS) Earnings Call Transcript & Summary

Good morning. My name is Indira Diaz, Cementos Argos' IRO, and I welcome you to our third quarter results release. On the call today are Juan Esteban Calle, our CEO; Carlos Yusty, our CFO; Maria Isabel Echeverri, the VP of Legal Affairs; Bill Wagner, the VP of the U.S. Division; Tomás Restrepo, the VP of the Colombian Division; and Camilo Restrepo, the VP of the Caribbean and Central America Division. Please note that certain forward-looking statements and information during the call or in the reports and presentations uploaded at www.argos.co/ir are related to Cementos Argos S.A. and its subsidiaries, which are based on the knowledge of current facts, expectations, circumstances and assumptions of future events. Various factors may cause Argos future results, performance or accomplishments to differ from those expressed herein. The forward-looking statements are made today, and Argos does not assume any obligation to update such statements in the future as a result of new information, future events or any other factors. Today, after the initial remarks, there will be a Q&A session. [Audio Gap] icon at the bottom of your screen at any time during the conference. We will record this Q&A session and upload it in our webpage. It is now my pleasure to turn the call over to Mr. Calle.

Thank you, Indira, and good morning, everyone. The third quarter of 2020 came along with the full reopening of all of our facilities together with strong trends of consumer positivism and market recovery in emerging markets, boosted by self-construction. This trend led to outstanding performance of countries such as Honduras, Dominican Republic, Haiti and Puerto Rico, which exceeded, during the quarter, cement volumes higher than last year's. Self-construction also had a positive impact in Colombia, as evidenced in the volume increase of 4.9% on September 2020, when compared to the same month of 2019. The U.S., on the other hand, continued to be resilient even in the midst of the spike in the pandemic and the political uncertainty that surrounded the presidential elections. Notwithstanding, we faced adverse weather conditions derived from 4 hurricanes, 2 storms and intense rain, which impacted our footprint. Internally, we continue to be fully committed with all the initiatives within RESET, focus on achieving remarkable results by year-end and encouraged by our vision of a strong recovery in all of our markets for the coming year. On the health and safety, I mentioned, we would like to highlight the successful restart of our operations in Panama during September, after 2 months of complete closure and 3 additional months of partial reopening. We also continue working on the projects associated with operational excellence, such as digital twins, that use artificial intelligence to analyze historical data from our kilns and grinding stations to obtain the optimal mix of energetics and raw materials to produce cement with lower variability and expected savings of $13 million per year by 2022. On liquidity, the initiatives continue to yield favorable results as evidenced by the robust free cash flow generation of COP 472 billion during the quarter. This cash surplus allow us to amortize debt for COP 288 billion, while closing the quarter with a cash position of COP 960 billion, which was very similar to the cash we had available at the end of June. Regarding SG&A and cost efficiencies. We obtained sales of $33 million during the quarter, of which 43% were obtained from personnel, 23% from maintenance, 19% from services and 16% from other expenses. We expect to obtain additional savings of at least $8 million during the last quarter of the year. Now moving to our consolidated results. I would like to start by clarifying that all percentage changes in ready-mix dispatches and EBITDA are calculated based on the pro forma numbers of 2019, which exclude the operations from the ready-mix divestiture carried out in the U.S. region on that year. The execution of RESET and the strong recovery of demand in most of our markets propel us to obtain a total consolidated EBITDA of COP 479 billion during the third quarter, increasing 9.5% on a like-for-like basis when compared to the same quarter of 2019. This quarterly results led to a year-to-date EBITDA of COP 1.24 trillion, representing an increase of 0.8% year-over-year on a comparable basis. Cement dispatches reached 3.9 million tons during the third quarter of 2020, decreasing 8.4% when compared to the same quarter of 2019; and ready-mix dispatches reached 2.0 million cubic meters, posting a 19.5% decrease on a like-for-like basis. These results were affected by the adverse weather conditions in the U.S. region, where the rainy days during the third quarter of 2020 exceeded last year's by 66%. The gradual recovery of cement and ready-mix volumes in Colombia, which has not yet reached pre-lockdown levels in housing infrastructure, also had an effect on these numbers. Now to start with our results in each regions, I would like to invite Bill to provide more context about the performance of the U.S. region and our mid-term view for the market.

Thank you, Juan, and good morning, everyone. I'd like to start by highlighting the strong EBITDA performance of the U.S. region, which reached $73 million during the third quarter of 2020. This represents an increase of 10.5% on a like-for-like basis versus the same quarter of 2019. These results were produced through strong teamwork and allowed us to implement the RESET program, which seeks to optimize our operations and generate savings. The program has generated $20.6 million during the quarter and has led to an EBITDA margin improvement of 470 basis points in a challenging market that experienced declining volumes across all our U.S. footprint. As a result of lower-than-expected volumes, total revenue decreased 16.7% on a year-over-year basis in both the cement and ready-mix concrete businesses. During the quarter, cement and ready-mix concrete volumes posted a like-for-like decrease of 14.2% and 19.7% year-over-year, respectively. The market-driven volume impact was compounded by significant increase in weather-related disruptions. During the 2020 Atlantic hurricane season, we had 6 major events being hurricanes or tropical storms that made landfall in quarter 3 alone. Average adverse weather days impacted our operations nearly doubled from 2019 going from 13 to 22 days for quarter 3. This weather pattern particularly affected Texas, which went from 13 to 26 weather days. Georgia also felt weather going from 14 to 33 weather days during the same quarter. Despite a quarter with severe weather, we have been fortunate as these events have not impacted the safety of our employees or materially impacted our facilities. In terms of pricing, our cement business rose slightly when compared to the same quarter of last year, posting a price increase of 0.5%. The ready-mix business was also positive with a year-over-year increase of 4.2% during the quarter. Despite the public health situation and severe hurricane season in the U.S., the general macroeconomic conditions show a slightly slower but resilient economy, specifically in the building and construction sector. On the residential segment, we continue to see favorable single-family housing dynamics, the 30-year fixed mortgage rates at record lows of 2.9%. In September 2020, improving unemployment conditions and low inventories continue to keep this segment on strong footing. Consumer confidence is being closely monitored as mixed signals in October 2020 reflected both positive ratings and consumers assessment of current business and labor market conditions, together with some negative expectations in the short term derived from the health crisis with the surge of the COVID-19 cases. Housing inventories show a year-over-year decrease of 32% at the end of the quarter, combined with a year-over-year increase of 11% in housing starts and 8% increase in permits. These are clear signs of the housing market positive trend. In terms of commercial and institution subsegments, industry indicators continue to reflect some deterioration. However, there are improvements versus previous months. The Dodge Momentum Index is in its third consecutive positive reading as of September 2020, mainly driven by activity associated to warehouses and data centers from e-commerce and tech companies would continue to push projects forward. Regarding the infrastructure segment, there is positive news concerning the renewal of the Fast Act for 1 more year with $13.6 billion added to the Highway Trust Fund and the announcement of Florida's 2020-2021 Bolder, Brighter, Better Future budget that includes $9.8 billion in funding for the Florida Department of Transportation. These initiatives will continue to boost infrastructure across our footprint until a comprehensive infrastructure plan is approved at the federal level. The reality is we don't know where things are going with this pandemic. We still lack visibility. We have been taking a proactive approach to protect our employees, customers and suppliers under the conditions in which we operate. We are feeling hopeful about the end of 2020, but we are remaining cautiously optimistic.

Thank you, Bill. As you mentioned, we remain hopeful about the last quarter of the current year and expect to see a more dynamic market for 2021, given all the improvements associated to the macroeconomic indicators within the U.S. regions. Moving to Colombia, I would like to highlight the progress of the cement volume during the quarter and its positive evolution when compared to the overall market. Tomás will now provide additional color on this region.

Thank you, Juan, and good morning. During the third quarter of 2020, the Colombian market presented a significant improvement in terms of volume and provided positive signals of recovery that indicate the proximity of an inflection point to our sustainable growth. The statistics published by DANE for the quarter account for a slight decrease of the cement market of 0.5% versus 2019, improving significantly versus the second quarter and demonstrating stability month after month. Our volumes in line with the market trend improved versus the last quarter, but still have not recovered to the same levels of 2019 due to the mix of demand of the industry. Our volumes are more tilted towards the infrastructure and housing segment of the market, which have not fully recovered yet. In that regard, the cement volumes fell 13.1% year-over-year, which compared with the overall market performance, represent a market share improvement for Argos versus the second quarter of 2020, given an important recovery trend towards the end of the quarter. The ready-mix volumes in that same line posted a year-over-year decrease of 12.8%. The volume decline was partially netted by the higher prices, ending in a year-over-year decrease in revenues and EBITDA of 9.1% and 21%, respectively, with a total EBITDA generated during the quarter of COP 106 billion. As previously mentioned, our pricing dynamic continued to be positive during the quarter, posting an increase of 8.6% year-over-year in cement and 3.5% year-over-year in ready-mix, consistent with our approach toward delivering value-added products to our clients, such as the green cement and the Ecocementos. The Ecocementos, a solution for low-cost paving in secondary and tertiary roads of the country that has been in the market for around 4 years, has been used for paving approximately 350 kilometers proving to be an alternative to dynamize the rural infrastructure with lower cost and durable results. Regarding the green cement. We continue to promote the product with good results accumulating as of September year-to-date sales of more than 300,000 tons of this product. We also continue to support our network of clients with programs such as the training of over 6,000 construction workers during 2020 and the donations made by our employees to provide over 15,000 packages of groceries and first necessity items for them. In terms of market dynamics, the retail segment continued to perform well due to the boom in self-construction that has prevailed since the market reopening. On the industrial segment, there were positive news that signaled a prompt recovery. During September, the sales of new houses in Colombia increased 34% versus September 2019, encouraged by the improvement in sales of social housing of 43% during this same period as a combination of the positive performance that has maintained this sector during the pandemic. Furthermore, the recovery of sales of nonsocial housing with a remarkable increase of 16% year-over-year during September, demonstrate the positive impact of the new housing subsidy provided by the government, together with the global trend of improvement of the residential segment during the COVID-19 crisis. Regarding the infrastructure sector, the Bogotá Metro executed on October 20, the work initiation act as the formal commencement of what's considered to be one of the most important projects within the country, with a total estimated consumption of 1 million cubic meters of ready-mix concrete. The procurement process is scheduled to finalize toward the end of next year, indicating the consumption of building materials associated to the project will more likely start on 2022. Additionally, the Colombian government has announced investments for more than COP 30 trillion divided in 3 groups. The first wave of 5G projects, the programs, "concluir, concluir, concluir" and Vías para la Legalidad, which are expected to boost the infrastructure sector from 2021 to 2030. Given the improvements experienced by the local market and the positive news that indicate further growth on the cement consumption within the country, we maintain our positive view regarding the near future, and we are firm our belief of having the construction sector as one of the main catalysts for the economic recovery of our country.

Thank you, Tomás. Before we move to the following region, I would like to take a moment to congratulate Tomás for his promotion to Chief People and Transformation Officer within our company and to thank him for all the achievements made during these 8 years in front of the Colombian region. I would also like to welcome Harry Abuchaibe, who has been in our company for almost 20 years and currently serves as the Country Manager of Panama to his new position as Vice President of the Colombian region. Both Tomás and Harry are key talent within our company and are equipped with the highest human professional qualities. We are confident about the excellent role that they will play in their new endeavors. Now moving on to the Caribbean and Central America region. I would like to highlight the improvement in terms of cement volumes and EBITDA during the quarter, despite the fact that Panama was only fully reopened on September 2020. Camilo will provide more information on the performance of the region.

Thank you, Juan, and good morning, everyone. The market dynamics during the third quarter of 2020 within the CCA region were mainly influenced by the self-construction trend, which represents an important portion of the market in the region. Countries such as Honduras, Dominican Republic, Puerto Rico and Haiti experienced year-over-year volume increases of 20%, 8%, 30% and 6%, respectively, during the quarter as a sign of rapid recovery after the lockdown in April. This remarkable behavior was able to compensate the decrease in volume of Panama that remained partially closed during July and August and experienced, in consequence, a year-over-year decrease of 43% in cement volumes during the quarter. As a result, the region had an overall improvement in cement volume up 4.7% when compared to the same quarter of last year. The pricing environment continued to be stable quarter-to-quarter, but it's still same quarter of last year. Countries such as Panama and Honduras posted a price decrease of 6% and 7% year-over-year, while Haiti and Dominican Republic on the other side posted [Audio Gap] when compared to the same quarter of 2019. This mixed trend of higher volumes and lower average prices led to a contraction of the revenue [Audio Gap] for $2.9 million, the EBITDA increased 3.3% year-over-year, and the EBITDA margin improved to 28.8%. It is important to highlight that this EBITDA was negatively affected by the 43% revaluation of the [indiscernible] during September 2020, with an estimated impact of $1.2 million. Our view for the Caribbean and Central America region continues to be positive with improving market dynamics accompanied by appropriate commercial strategies and cost-cutting initiatives. In Panama, which was finally reopened during September, we are implementing a new portfolio of ready-to-use products, aiming at capturing the self-construction trend that is prevailing in emerging markets. These products will delight our clients and help them with increasing productivity, reducing leftover product and reducing total cost of construction. In Puerto Rico, we have decided to change our business model from operating an integrated plant with high unitary costs to commercializing a wider portfolio of cements that will be produced in our grinding and blending facility that utilizes most of our already existing infrastructure. Our new portfolio will provide a wider solution to all of our clients' needs. This operational change will create important improvements in EBITDA generation. All these initiatives are part of a more comprehensive strategy of implementing local solutions to adapt to the changing market conditions of each country, aiming at maximizing our profitability on every operation. With regards to the short-term performance the region, we expect the self-construction trend to continue for at least the fourth quarter, but remain cautious about the following months given the macroeconomic impact arising from COVID-19 pandemic.

Thank you, Camilo. Now referring to our balance statement. I would like to highlight the improvement of the net-debt-to-EBITDA ratio that ended September at 4.08x, given the improvement in the EBITDA and free cash flow generation during the third quarter. [Technical Difficulty] EBITDA growth, the cash generation was positively impacted by working capital efficiencies of COP 164 billion, arising from inventory efficiencies in Colombia and in the U.S. for COP 61 billion. And non-recourse factoring line implemented in the U.S. for $16 million and additional improvements in collections in the U.S. region. We expect the leverage ratio to experience a slight increase towards the end of the year, given the nonrecurring EBITDA generated on the fourth quarter of 2019 for an amount of $23.6 million originated by the divestiture of a cluster of ready-mix plants in the U.S. Regarding the debt. The amortization of short-term facilities carried out during the third quarter for an amount of COP 288 billion together with the renegotiation of certain credit facilities, whose maturities were extended into the long term, improved significantly the average life of the total debt of the company, ending with a total short-term debt of 17% as of September 2020. Additional initiatives such as a local bond issuance and the negotiation of a long-term loan to replace short-term facilities are being evaluated to be carried out during the fourth quarter, generating the possibility of further improvements in this ratio towards the end of the year. In relation to the divestitures, we remain committed with the total target amount of $400 million but have decided to adjust this strategy regarding our ready-mix operations in Texas in light of recent market and operational developments. Given the expansion of capacity at our Cartagena plant, which was increased by 10% with a marginal investment in CapEx and the devaluation of the Colombian peso, we have started to export cement from Cartagena to our ready-mix business in Houston with the goal of improving its performance. As a result, we have decided to explore the potential divestment of our ready-mix business in Dallas, where we have not been able to integrate our operations with cement or aggregates. This new strategy would allow us to improve the profitability, the consolidated EBITDA margins and the return on capital employed in our U.S. business. Regarding the divestitures of the real estate assets, we have negotiated the sale of one asset located in Colombia for an amount of $10 million taking advantage of the momentum that the residential segment is going through. We expect to finalize the negotiations from these sales during the fourth quarter of the year. I would like to end these conversations by emphasizing how proud we are of our company and our more than 7,500 employees for their commitment and resilience, navigating of the challenges generated by the COVID-19 crisis. We have been able to continue operating in a bio-safe way, while significantly mitigating the impact of extended shutdowns in most of our operations. And at the same time, we have been taking advantage of all the opportunities that are arising from the improving market dynamics, contributing to the recovery of the economies, unemployment in most of our markets. Thank you all for your attention. Indira, we can now proceed with the Q&A section.

Thank you, Juan. For the Q&A session, please take into account that you need to raise your hand, and you need to unmute your microphone before you speak.

The first question comes from Juliana Aguilar from Bancolombia.

I have 2 questions. My first one is regarding the U.S. market. You have been strategically decreasing your ready-mix dispatches to the commercial segment and increasing the share of the residential and infrastructure segments. Do you have a mix goal you intend to achieve? And if so, when do you expect to reach it and how will these impact margins? And my second question is regarding Colombia. Why we didn't see any RESET savings in this region? And are you expecting any savings going forward?

Thank you very much, Juliana, for your questions. As you have seen, we have been trying to balance a little bit more of our portfolio in the U.S. towards infrastructure and the residential segment of the market. However, we are still confident about the commercial segment of the market. It probably will change a little bit from offices to logistics sectors and data centers and so on, but we expect the commercial segment of the market to continue performing going forward. So our goal is more or less to have 45% commercial down from 55% and then increase our share in residential and infrastructure. In Colombia, the reality is that we have a major maintenance in The Rio Claro plant in this quarter. So that is why the cost of the company didn't look that great. But in reality, that we are very pleased with the efficiency that we have achieved in Colombia. So going forward, we should expect better margins and better performance of the region.

Next question is from Yassine Touahri from On Field Research.

So first, I would have a question on Colombia, where I'm a little bit confused by the price and volume dynamic. So if I look at your sales, your revenue were down by 9%, and I understand that you had volume, which was down 13% across most of your business lines. So this would suggest that the price increase is only around 4%, but you are mentioning that the cement prices is up 9%. So am I missing something? Is there a mix effect that I am missing? That would be my first question. Then my second question is on your ready-mix concrete in -- business in Houston. Are you seeing more competition from other -- from independent ready-mix concrete producer that can import cheap cement from Turkey or Algeria? I understand, like, for example, Sesco Cement is ramping up a terminal in Houston. Is it something that could impact the pricing dynamic in ready-mix concrete in the following quarter and in 2021 because the pricing that you posted this quarter is quite impressive in ready-mix? And then my third question will be about your calcined clay initiative, which is very exciting. Could you give us an update on where you are? And are you already commercializing cements with calcined clay content?

Thank you very much, Yassine, for your questions. The performance of our volumes in Colombia is more related with the [ experience ] which these different segments are picking up. Recovery has been fully in the bag cement segment of the market, the consumer segment of the market. The housing segment of the market and infrastructure segment of the market are performing well but are yet not at the historical level. So that is why our volumes are a little bit lower than the volumes of our competitors. In terms of our pricing strategy, I mean, the reality is that prices are up 9%. And I would like Tom to give a little bit more color on that.

Thank you, Juan. So yes, the figures are correct. So our revenues are down 9%, and our volume in cement is down 13% in Colombia. But our revenues in ready-mix are also down 12.8% in Colombia. So the effect is indeed a mix effect between cement and concrete. And that's why the price --the FOB price that is growing at 8.6% is the cement FOB price. The ready-mix price is growing at 3.5%. So that's why you're seeing that effect. We're mixing -- in your question, there was a mix between FOB cement prices and then cement volumes, but we were missing in that equation in the ready-mix. Now on to your question about calcined clay cement production and distribution, we have already commercialized 300 -- 2,000 tons of cement with calcined clay content. It is going very smoothly into the market. We have done our -- really our best to keep it in the same specs as the traditional Portland cement. We started off with general-use cement, which is usually less demanding in terms of admixtures and technically speaking. But now we're starting to produce the ready-mix cement, the bulk cement from ready-mix manufacturing, also with very good results. Of course, the clay content in those products are lower, but the most important part of our transformation in the industry is being able to take those clays into the higher-performance cements. So we are very happy with the current performance, and costs are already very -- a little lower than clinker. And as we scale up the process, we should be getting more and more savings out of that project.

Just on the pricing, is it fair that there is also mix in cement, where when we look at, let's say, the third quarter versus second quarter, you might have sold a little bit more bulk cements, the mix between bag and bulk is a little bit more towards the bulk in the third quarter, which has also a negative impact on the mix.

That's right, Yassine, as well. Our mix between the -- what we call the retail business and the industrial business has usually been more towards the retail -- the industrial business than the retail. But as we've had much more trouble growing into the retail business lately, so we have been seeing more bulk cement or more industrial cement segment as a total of our sales. That's right. It's also -- so we have good FOBs, but of course, it's a different business.

Thank you, Yassine. About your question about the marketing in Houston, I mean, it has been our intention always to integrate our ready-mix operations in Texas. It hasn't been easy, but now with the additional capacity in Cartagena and the efficiencies that we have achieved in the Cartagena plant, I mean, we think that we are in the best position that we can be to be competitive in Houston. Bill will give you a little bit more color about the market in Houston.

Sure, Juan. Thanks. The competitive dynamics in Houston really haven't changed much. I mean there's a lot of downstream ready-mix players there. So your point is well taken. So it was important for us to do what Juan had suggested in terms of trying to integrate. The biggest move that we made, you commented on the pricing there, but the move release stems from pursuing a different strategy and looking maybe more to diversify our balance between segments there. And so as a result of that and focusing a little bit more in the residential sector, I mean, we've had some price improvement of just around 6% and -- which is pretty significant. So we feel now we're in a better position to compete and be more effective in that market so.

Is it fair to assume that in the third quarter, in Texas, you had a strategy where you were focusing more on pricing potentially at the expense of your market share?

No. I think the Houston volumes, and mainly in Texas, were highly dependent upon the weather situation that we had. We'd not really, in our estimation, experienced much market share deterioration. It's really more a shift of -- you have a commercial segment that we were very strong in that has shown some declines in demand, and we've had some improvements and increases in the residential segment. And we weren't quite as strong there as we could have been and so we shifted our focus, and that's really the dynamic that's happening in our business.

So which means that there is a positive mix effect, the opposite of what happened in Colombia?

Yes.

And the question about the ramping up of independent terminal, is it something that you observe and that would have an impact on the pricing dynamics going into the first quarter 2021?

I mean, we're aware. And I think we're monitoring it as time goes on to see. But as of right now, we don't see an immediate effect. I think our strategy is pretty solid there. There's a lot of room in the residential segment, and our -- we're just going to continue to focus there. And we believe that commercial will come back in some portions of that line, maybe not in office buildings, but in other pieces that we think like warehouse, data warehouse types of opportunities for us. So as that balance kind of shifts back, we'll monitor that, but we would like to be stronger in infrastructure, as we've said, and which we think is going to be good in Texas and specifically in Houston and Dallas. And we want to be stronger in residential. So we think we have the right strategy to mitigate any impact on the imports from smaller players.

Our next question comes from Alejandro Chavelas from Crédit Suisse.

Congratulations on the results. Perhaps if you could tell us a little bit more of these new programs, the "concluir, concluir, concluir" and Vías para la Legalidad, a lit bit more on pace and size that will be really useful. And with regards to Central American operations, perhaps, what do you believe these import parity levels for Panama right now because we are seeing obviously a challenging outlook in terms of prices. So where could we see prices stabilize there? And finally, I did not understand the change of business in Puerto Rico or business more than in Puerto Rico. If you could clarify a little bit, it would be very useful.

Thank you, Alejandro. Tom, can you expand a little bit more about the new programs of the government to incentivize the infrastructure to the recovery of the economy.

Sure. Thank you, Juan. And Alejandro, the program "concluir, concluir, concluir" is a COP 2 trillion program of lots of roads around the country. And Vías para la Legalidad should be around COP 4.5 trillion. But still we don't know -- we don't have the details of those programs, as you know, the quantities of cement that will be involved. What I want to emphasize is the 5 generation projects. So we're talking 12 new road projects for a total of COP 12 trillion in budget from which, as of today, it has been announced that the first 5 of them will start the adjudication process to be totally adjudicated in the beginning of next year, those 5 projects. And as well as at the beginning of next year, 5 more projects out of those 12 projects will start the adjudication process as well. In parallel, the government is moving a lot of new maintenance projects in roads that go both from a secondary and territory roads, and we are estimating more than 300,000 tons of cement going into those projects. So there's -- we still have to make all the math out of those projects and see -- to see at the end of the day with the designs, what's the cement and ready-mix consumption is going to look like. But from now, at least, from the budgeting point of view, there's a lot of cement that's going to be consumed, that's for sure. So in the next calls, we'll be updating you with our view on those programs, but we're very happy to see the Colombian government boosting the infrastructure sector once again.

Thank you, Alejandro. And regarding the prices in Panama, we think that the market has already bottomed in terms of volumes. I mean, October was a little bit better than that September. So we are seeing that the market is starting to pick up a little bit in volume. So it will help the prices. In our opinion, with the 30% tariff on cement imports plus the start of the recovery of volumes in Panama, we don't see any reason to the continuing deterioration of the prices. So in our opinion, they are close to the bottom of the cycle. Regarding Puerto Rico and the change in the business model, I would like Camilo Restrepo to give you a little bit more of information about the change that we are making.

Sure, Juan. And Alejandro, so the changes that we're doing in Puerto Rico, remember that we had initially entered the Puerto Rican market with the purchase of a terminal, which includes a warehouse and packing facility and then we purchased an integrated plant further in time. So due to the market that's not as large as we would have liked it to be profitable utilizing the integrated plant and due also to electricity costs in the island, we believe that changing of the model, which includes shutting down the kiln but making the Dorado plant still operational is the way to go. So what we're going to do is we're going to import cement through the terminal. We're going to sell our Type 1 cement from the terminal directly, and then we're going to do blending. And with that, we're going to utilize our existing mill and install a small blending equipment to sort of produce different types of cement using the blending equipment. So we'll do the Type 1 from the terminal and the general use and then expand to other products utilizing the blending facility in the terminal, I mean, in the plant. So we continue to use some of the equipment in the plant and the terminal, and we have a much lower cost of operation and a lower cost of serving the market as well.

Next question is from Rodrigo Sanchez from Davivienda Corredores.

Yes. I've got 2 questions. The first one is how much of your savings target for 2020 will be sustainable for next year? And how much of these efficiencies -- of the efficiencies achieved this year have come from lower volumes? And my second question is, is the $400 million divestment strategy a final figure? Or is it still possible to see this number going up to $700 million as it has been mentioned before? And I would also like to understand how is the export of cement from Cartagena strategic, if you're currently in the process to divest the ready-mix concrete assets in Texas?

Thank you for your questions. I mean our goal is to maintain at least 50% of the savings that we are having this year in 2021. More or less, 50% of those savings come from the shutdown of our operations for lower volumes, but our goal is to keep at least 50% of the savings that we are getting this year into the next year. In terms of the target, it's at least $400 million from divestments. I mean, we are still fully committed to deleveraging the company to bring in financial flexibility. So the $400 million is the lower range of the target that we would be looking for. And as we mentioned in the call, we will change our strategy in Texas. We want to keep the operation in Houston because we were able to integrate our operation with Cartagena. And in our opinion, there is no plant in the world more competitive than Cartagena to serve the Houston market. Our plant is as competitive on any plant in Turkey or in Greece or anywhere. The freight is lower than the freight that you can get from any other source. So reality is that we are very optimistic about the future of our business in Houston, and that is why we are planning to keep the operation.

Next question is from Andres Soto from Santander. Andres, we lost you.

Sorry, guys. Can you hear me now?

Yes, perfectly.

So you -- you said that you expect to maintain at least 50% of the savings towards 2021. When I look at my numbers, I expect volumes across geographies to be not that very different in 2021 from those in 2019. So assuming you keep 50% of the savings, that will mean that your EBITDA margin in 2021 will be close to 21%. I would like, first, to understand if that's the view that you have at this point? And my second question is regarding margins in Colombia. I was a little bit surprised to see that your EBITDA margin this quarter was just 19%. While when I compare your volumes to those in the first quarter, you are having increases in both ready-mix and cement and with a similar product mix. So I was expecting you to have a similar margin to that of the first quarter. But what I see here is a deterioration of 400 basis points in terms of EBITDA margin. So I would like to understand what is going on there and if we can expect some improvements towards the fourth quarter.

Thank you, Andres. I mean we are still working the numbers for the 2021 budget, but our goal is to that margins at least of 20% of consolidated mid-term going forward. So the reality is that, yes, we are looking to improve the profitability of our business across all the regions, but we cannot comment yet on the guidance for next year until we finish the construction of the 2021 budget. The impact in the margin in Colombia, we had some one-off items. On top of that, the major maintenance in The Rio Claro. But Carlos and Tomás can give you a little bit more color about why the margins were lower in the third quarter in Colombia.

Juan, this is Tomás. Yes, as you said, the third quarter is -- was full of maintenances in Rio Claro and Cartagena as well. We -- some of the maintenance were programmed for before. But given all the restrictions of the pandemic, we couldn't actually run them on the months before that. And we were also expecting to see how volumes ramped up to find the right spot and the right moment to conduct those maintenance. So that's why we are already seeing a much, much, much better situation in the months after that, and we should be getting much better margins by the end of the year. Carlos, if you want to comment on something?

No. No, not all. I think that's very clear, your answer.

Okay.

If you can just quantify exactly what was the impact coming from those maintenance in the third quarter?

In the third quarter, probably, Andres, is about $15 million, the impact of the maintenance. Because remember that we -- in the second quarter, obviously, we had the lockdown and the stoppage in the Colombian operation, like in the some of the -- in other countries. But in the third quarter, when we fully restarted our operations, probably, we -- and because we increased the volumes, in particular, in the Colombian market, as Tomás and his team, went to run the principal maintenance in the Rio Claro and Cartagena, isn't it?

That's right, Carlos.