MEXICO, D.F. Could 23, 2020 (Thomson StreetEvents) — Edited Transcript of Elementia SAB de CV earnings convention name or presentation Thursday, April 30, 2020 at 5:00:00pm GMT

Elementia, S.A.B. de C.V. – CEO

Elementia, S.A.B. de C.V. – Director of Cement Division

Elementia, S.A.B. de C.V. – CFO

Crédit Suisse AG, Analysis Division – World Head of Rising Markets Company Credit score Analysis & MD

i-advize Company Communications Inc. – Co-Founder & MD

Good day, everybody, and welcome to Elementia’s First Quarter 2020 Earnings Convention Name. Becoming a member of us immediately is Chief Government Officer, Fernando Ruiz Jacques; Chief Monetary Officer, Juan Francisco Sánchez Kramer; and Jaime Rocha, Head of the Cement Enterprise.

Please be suggested that this name is for buyers and analysts solely. Throughout this name, they are going to be discussing Elementia’s efficiency as per the press launch launched yesterday. In case you didn’t obtain the report, it’s out there on the corporate’s web site within the Investor Relations part. All figures mentioned immediately are unaudited and in Mexican pesos, except in any other case acknowledged. And all development comparisons are associated to the corresponding interval of final yr.

Let me remind you that forward-looking statements could also be made throughout the convention name. That is based mostly on info that’s at the moment out there and are topic to alter attributable to quite a lot of components. For a extra detailed and full disclaimer, please check with the earnings launch.

With that, I will flip the decision to Fernando.

Fernando Benjamín Ruiz Jacques, Elementia, S.A.B. de C.V. – CEO [2]

So thanks. Thanks, Mariana, and good morning, everybody, and thanks for being right here with us immediately. All of us at Elementia ship you our ideas, and we hope that you simply and your family members are secure throughout this pandemic.

So let me begin with this unprecedented and surprising occasion, a world pandemic that, definitely, will mark a earlier than and after for humanity. The unfold of the COVID-19 all through the world and in our territories, specifically, will convey many, many challenges, impacting our outcomes for 2020 and sure past.

I need to use this chance to guarantee you that we’re taking the precise measures to face these challenges, and our actions are being guided by four key pillars to assist our long-term success. So the primary pillar is to take care and defend our individuals. And due to this fact, we instantly deployed our disaster protocols to make sure the well-being of our collaborators whereas persevering with our operations wherever it’s allowable.

At the moment, each administrative workers within the Eight nations the place now we have operations are working from house. In all operations, each worker that has a situation that makes them extra susceptible has been despatched house. And when every nation authorities has declared a quarantine, now we have adopted diligently to assist mitigate the unfold of the virus. I’ll talk about key measures taken at our open vegetation in a while. Lastly, we activated an emergency helpline for help to our workers relating to COVID-19.

The second pillar is a pillar to make sure the monetary viability of the corporate. We created a company and regional contingency committee that meets each day. We’re devoted to strengthening our money stream by way of methods to speed up collections and management credit score strains to particular purchasers, make use of inventories, aligning procurement to demand and limiting CapEx to solely upkeep, compliance and strategic initiatives.

We initiated applications to speed up the stock discount goal we talked about in our fourth quarter report and executed an all-country expense discount program that reaches each single space of the corporate. We began by triggering the ring-fences established within the annual finances, however we’re going a lot deeper, all the best way to non permanent wage reductions.

I’m proud and touched to report that when once more, the workforce is exhibiting an impressive dedication and dedication to the corporate. I am additionally proud to say that now we have had a terrific assist, not solely from our controlling shareholders, however from most of our collectors who’ve granted us particular phrases to beat the money stream challenges the pandemic is inflicting. So I need to thank each member of the Elementia workforce, our shareholders and all our collectors for believing in us and giving us their assist.

The third pillar is to keep up our operational continuity. By authorities decree, now we have stopped all of our Central and South American operations, aside from Costa Rica, which is working usually. Within the U.S., now we have been labeled as a vital business. And in Mexico, we’re linked to numerous important sectors designated by the Well being Ministry. So we proceed to function, however now we have applied particular measures like dividing the services by zones to limit private mobility and scale back the danger of contagion. Likewise, everybody’s temperature is scanned earlier than getting into our services. And if signs are detected, they’re instantly examined and handled, adopted up by contact tracing, after all.

Different measures embody staggered hours and shifts, necessary use of masks and antibacterial gel, further transport and staggered hours for canteens to ensure secure distance is stored always. We’re often sanitizing widespread areas amongst many, many different measures and, after all, following all of the provisions really helpful by native authorities.

And final however not least, the fourth pillar, which is to rework challenges into alternatives. We’re adapting shortly to the fixed modifications within the international economic system and these new circumstances. We’re enacting methods to show them into alternatives to proceed creating worth, and now we have strong foundation in every enterprise line to surpass this occasion. We now have maintained contact with our distributors and native governments to supply options which might be rigorously required, like vital infrastructure, together with hospitals, non permanent shelters, water storage and conductions, amongst many others, trying at all times for the event of latest merchandise, channels and markets.

Turning now to the primary quarter outcomes. Let me start with supplies, which is the best way we name now the Constructing Programs and Steel enterprise models. So beginning with Constructing Programs U.S. or distribution U.S., how we name it now, we’re transferring on the precise path, reaching an 11% quantity development and 15% income development within the first quarter, because of the worth proposition of our product providing in addition to the industrial technique applied since final yr.

However, our EBITDA dropped 83% as a result of class motion provisions we made, plus the capitalization bills which have been returned to final yr outcomes. It’s value mentioning that proper from COVID-19 and the impact it has had and could have on the demand for development supplies within the U.S., now we have determined to idle the Indiana plant. We are going to restore operations there as soon as the market returns to regular. In the meantime, this choice will assist us scale back our working prices throughout the low-demand interval since we’ll consolidate quantity into the opposite Three vegetation.

Likewise, now we have put in place completely different measures to decrease our prices and enhance our money place. A few of these measures are an aggressive program to speed up stock discount and SG&A discount, value discount on account of R&D, and restrict CapEx solely to upkeep and important initiatives. By way of the category motion swimsuit filed towards Allura, we count on to succeed in an settlement within the following months. We’re striving to proceed rising when it comes to each quantity and profitability.

Going now to Constructing Programs or distribution LatAm. As I discussed, since mid-March, all of the operations, besides Costa Rica and Mexico, have been halted by authorities decree. This affected the figures for the quarter even supposing the pattern up till February was a strong development for the area. Due to this, revenues registered a 5% decline, whereas quantity was 9% down. EBITDA registered a 60% discount versus first quarter 2019.

Money stream is and shall be our prime precedence, and we’re strongly working in that sense. The ring-fence has been activated together with a a lot deeper discount of bills and CapEx. However the very fact of this difficult time, we managed to proceed progressing in our goal to produce constructing options by way of efforts reminiscent of superior. Advance is our new enterprise mannequin we have talked about. We’re delivering development kits to development websites. To this point, the outcomes have been above our expectations. At the moment, now we have greater than 40 initiatives in pipeline, together with shelters and well being clinics for presidency well being methods and multifamily buildings.

Turning to industrial metals. We’re targeted on operational effectivity in an effort to show across the low availability of the precise charges of uncooked supplies and the ensuing incremental value. For sure, right here is the place now we have the best problem. The worldwide state of affairs is just not serving to in any respect. It’s inflicting volatility in copper costs, which have a direct influence on each working value by way of inventories and promoting worth since it’s assigned utilizing COMEX as its reference.

Regardless of this, we’re taking many actions reminiscent of new — a brand new administration workforce, value reductions, uncooked materials yield enhancements, operational efficiencies, amongst many others. The outcomes for the primary quarter are usually not on the ranges we need to obtain with a 12% lower in income year-over-year, however the efforts are starting to repay with a 13% enhance in comparison with final quarter. EBITDA confirmed a 59% lower versus first quarter 2019, affected by greater metallic prices and nonrecurring bills, reminiscent of severance bills.

On the street to reinvention, we’re discovering alternatives and wish issues to use copper’s antimicrobial properties by launching new merchandise. Moreover, we’re working across the clock on a list discount plan to assist money stream and liquidity. We are going to proceed to seek for new alternatives overseas by way of our U.S. metallic industrial operation and assist to strengthen this market as now we have the know-how and functionality to make this occur. This, mixed with a powerful operation, offers us the boldness that there’s an unlimited potential. And as soon as the COVID state of affairs is over, we count on a powerful restoration in our outcomes.

Turning to our Cement enterprise unit, let’s start with Mexico. Within the first quarter, we continued working below a weak economic system, which is slowing down additional as a result of pandemic. So as to assist our outcomes, we’re aiming for an accurate combine between luggage and bulk. Likewise, now we have been in a position to provide a few of the Mexican authorities initiatives, that are serving to us as nicely to assist our volumes.

Within the first quarter, quantity confirmed a small enhance of 5% versus first quarter 2019. However, revenues decreased 5% versus first quarter 2019, which led to a 7% lower in EBITDA. We maintained our concentrate on enterprise profitability by optimizing bills and prices. With that, now we have been in a position to obtain a margin of 41%. That’s greater than what we achieved within the first quarter of 2019.

For the Cement enterprise within the U.S., we registered a 15% enhance in income as a result of mixture of pricing and quantity enhance, which, mixed with a greater local weather and management in bills, allowed us to put up a 157% development in EBITDA in comparison with the identical interval of 2019. Throughout this era, our predominant markets within the Southeast and Maine weren’t affected by the pandemic. Nevertheless, the Mid-Atlantic market introduced some decreases in volumes for the reason that final week of March as a result of well being measures made by governors of every state, and this does have some potential threat. We’re conscious that these circumstances could change. So we proceed with our dedication to cut back value with an emphasis on producing money stream.

Final, we stay engaged in finishing the event of Keystone within the second half of the yr and stay dedicated to utilizing the proceeds of this transaction to cut back our leverage ranges. Going to the Cement operations in Costa Rica, this enterprise proves that our technique is working with a 15% greater quantity. However, our EBITDA decreased 3% versus first quarter 2019 due to FX influence. As of immediately, we proceed to function usually in Costa Rica. Nevertheless, this might change within the coming months.

Earlier than asking Juan Francisco Sánchez Kramer to elaborate on the primary quarter figures, the spin-off course of and the Keystone growth, I wish to share with you our expectations for the remainder of the yr. First, we imagine that the financial influence of the pandemic won’t solely have an effect on this yr, however seemingly 2021 to recuperate total ranges by 2022. This, after all, shall be completely different for every nation and the measures that every of them take with the intention to management and overcome the pandemic and its uncomfortable side effects.

Moreover, the second quarter would be the one that can present the worst a part of the consequences of the pandemic, on condition that total demand is reducing sharply in each sector and each nation. And final however not least, now greater than ever, money is king.

So with this, I flip the decision over to Juan Francisco Sánchez Kramer for additional particulars on the financials. So please, Juan Francisco, go forward.

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Juan Francisco Sánchez Kramer, Elementia, S.A.B. de C.V. – CFO [3]

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Thanks, Fernando, and welcome, Mariana. Mariana joined Elementia simply a few months in the past as Company Treasurer and Investor Relations Officer. She has greater than 11 years of expertise, primarily in finance, treasury and threat administration. I am positive her expertise and capabilities shall be key throughout these difficult instances.

Earlier than going into the figures, let me attempt to summarize each the impacts and actions now we have taken associated to the COVID pandemic. As Fernando talked about, money is king, so we’re managing in a money stream mode. For starters, we executed a number of applications to cut back SG&A, amongst which, first, we canceled or diminished companies that third events used to produce, which can convey financial savings of near $50 million on an annual foundation.

Second, in making an attempt to determine what would be the required organizational construction for the approaching months, we diminished headcount and could have financial savings of near $120 million per yr. After all, it had a onetime value of near $40 million throughout the first quarter.

Third, we executed the ring-fence that have been — we included within the finances course of to get rid of the bills that have been good to have however not most has. Additionally, specializing in money stream, now we have established particular applications which might be decreasing the necessity for money, like we did a CapEx assessment and redefinition focusing solely on strategic initiatives, upkeep and compliance that can scale back the money necessities by near $20 million for the yr or roughly at 30% of our common CapEx.

Second, stock optimization acceleration plan. Within the fourth quarter convention name, we talked about the plans we established to cut back inventories. In abstract, we’re accelerating these plans, primarily specializing in Metals and Constructing Programs U.S. Additionally, now we have put in place new methods to speed up assortment and being extra cautious on our evaluation of credit score strains. Lastly, now we have obtained assist from our collectors to ease amortizations for the next quarters or by way of working capital strains to guard money.

Concerning the spin-off course of, there’s probably not any information from the fourth quarter report. In abstract, it has been postponed with the intention to execute it below the absolute best phrases and circumstances. As now we have beforehand talked about, an intermediate step is to conclude the divestment of the Pennsylvania cement facility. It’s nonetheless below assessment by the antitrust authorities. And contemplating the COVID implications, we’re altering our estimated time-frame to the top of the third quarter. You will need to point out that each events stay and dedicated.

Shifting to the outcomes of the primary quarter, I’ll start with the consolidated figures. In the course of the first quarter of this yr, revenues have been 2% decrease than the identical quarter of 2019, primarily as a result of cessation of operations in LatAm since mid-March. The 15% incremental gross sales within the U.S. for each Cement and Constructing Programs helped scale back the unfavourable influence of the market contraction in different areas.

Consolidated EBITDA confirmed a 23% lower, primarily attributable to shut of $65 million influence from COVID coming from the demand contraction and manufacturing well being in LatAm; roughly $60 million of unfavourable influence on inventories due to the downward pattern of copper worth; and near $65 million from one-offs associated to the headcount discount and sophistication motion provisions. Financing prices represented a 34% discount, primarily due to charge reductions and the overseas trade charge revenue.

Shifting on to money stream. Earlier than CapEx, it was greater than $100 million unfavourable, primarily due to a nonrecurring cost on money taxes coming from the top of the fiscal disconsolidation program in Mexico, which nearly doubled the determine of the final quarter of final yr. Decrease EBITDA and dealing capital consumption primarily due to, at first of the pandemic, we determined to accumulate security inventory of merchandise we convey from China. Additionally, we started the constructing of inventories, making ready for the seasonally greater demand, primarily within the U.S., and have forex fluctuations from the dollar-based operations.

In hindsight, these selections weren’t the most effective ones as a result of unprecedented state of affairs. And as I discussed, we’re accelerating plans to cut back inventories. Capital structured operations embody debt compensation in response to maturities, and inventory buyback consumed near $300 million and CapEx totaling roughly one other $300 million within the quarter. Because of this, free money stream was a consumption of near $700 million.

By way of our stability sheet, round 90% (sic) [94%] of our debt is long run. And our leverage ratio, contemplating the final 12 months of EBITDA, was 5.42x (sic) [5.14x], which is above our leverage ratio of three.5x, whereas the curiosity protection ratio was 2.29x. The rise of web debt was primarily due to trade charge impacts on money consumption.

Shifting now to figures by enterprise models. Shifting now to figures by enterprise models, and beginning with Constructing Programs U.S., let me offer you an replace on the standing of the category motion lawsuit. Contemplating the dedication within the state of affairs, we expect that the method may decelerate. However, we expect we might be able to attain a proper settlement settlement throughout this yr. Revenues for the primary quarter present a 15% development by a mixture of 11% extra quantity and pricing, however EBITDA was down by 83%, primarily as a result of class motion provision on the Indiana facility not reaching but the breakeven level. The components talked about earlier than, together with the sluggish in demand as a result of COVID-19 disaster, have been a few of the info that result in the choice to shut the Indiana plant in the meanwhile.

For Constructing Programs LatAm, revenues decreased 5%, however EBITDA was down 60%, primarily as a result of halt in operations we did since mid-March and the ensuing much less mounted value absorption, together with the severance prices. In accordance with the most recent official info, a few of the services may resume operations at first of Could. It is essential to say that in some nations, we took some authorities stimulus reminiscent of a delay in utilities or tax funds which have helped us to retain liquidity.

Shifting to Metals. Revenues have been 12% decrease than the primary quarter of final yr, and EBITDA was 59%, primarily coming from slower market dynamics and decrease stock prices within the first quarter of ’19. It is essential to say that regardless of the market contraction, now we have a restoration in comparison with the final quarter exhibiting an EBITDA development of 150% on account of the seasonality, operational efficiencies, SG&A discount, the launching of latest merchandise and a extra selective SKU mannequin.

Now on to Cement. Cement U.S. confirmed a 15% enhance in revenues and a formidable 157% enhance in EBITDA, primarily stemming from value and bills rationalization. The U.S. authorities is contemplating cement manufacturing as a vital exercise. And due to that, we did not have a COVID influence within the quarter. For the next quarters, we count on some market contraction with the Mid-Atlantic area being essentially the most affected. For the Cement enterprise in Mexico, there was a slight lower of 1% in quantity in comparison with the final quarter and a lower of 5% in comparison with the identical interval of final yr, in keeping with the anticipated financial slowdown printed by a number of corporations, together with Moody’s, as a result of COVID-19.

It is essential to say that the manufacturing of cement was additionally thought of as important. Our enterprise focus shall be [premiums], these sustaining credit score strains, monitoring money stream, rationalization bills, benefiting from the low oil costs and preserve manufacturing and stock ranges in keeping with the market demand.

Lastly, our Cement enterprise in Costa Rica confirmed a 2% lower in revenues and a 3% contraction in EBITDA, primarily coming from forex fluctuation. In {dollars}, the enterprise confirmed a 6% and 30% enhance in revenues and EBITDA, respectively, primarily coming from worth and quantity will increase.

With this, I conclude my remarks and ask the operator to please proceed with the Q&A session. Thanks.

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Questions and Solutions

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Operator [1]

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We are able to take our first query from Alejandra Obregon with Morgan Stanley.

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Alejandra Obregon Martinez, Morgan Stanley, Analysis Division – Analysis Affiliate [2]

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I simply have one associated to Mexico. I used to be simply making an attempt to grasp what you meant in your working charges in Mexico. So you probably did point out that you’ve been allowed to function to service particular initiatives or areas. So I used to be simply making an attempt to grasp what meaning to your volumes and working charges in your vegetation. So should you might assist us quantify that and provides us extra coloration on what vegetation are you working and at what charges, after all? And possibly simply give us some coloration on how is that taking part in out in April, that will be very useful.

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Fernando Benjamín Ruiz Jacques, Elementia, S.A.B. de C.V. – CEO [3]

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Okay. Thanks. Thanks, Alejandra, to your query. First, I wish to apologize for the audio. As you already know, the state of affairs is making us — make us name from our properties. So please relaxation assured that in a few days, we’ll make the total transcript out there in our IR web site. So relaxation freed from that. Now turning to our query, Alejandra, let’s break up it in what’s cement and materials. So Jaime, would you want to leap in, Cement, and tell us your reply, please?

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Jaime Emilio Rocha Font, Elementia, S.A.B. de C.V. – Director of Cement Division [4]

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Sorry, I used to be on mute. So the reply for that about Mexico, we’re all open. We now have the three vegetation open in Mexico. We simply closed thus far 2 [labor] days, as an example, it was began within the 2nd and the Monday, the 4th of April. And we have been included into the [intuit] during which cement was thought of as a vital exercise. So for cement, the manufacturing and the open actions is just not a problem.

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Fernando Benjamín Ruiz Jacques, Elementia, S.A.B. de C.V. – CEO [5]

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Okay. Thanks. Thanks, Jaime. And relating to, Alejandra, the Materials enterprise. At the moment, now we have Eight of the 21 vegetation — 22 vegetation closed. So principally, all Central and all South America is closed, besides Costa Rica. So immediately, we’re working, I might say, Metals at 80%, Constructing Programs at 59%. So the virus has unfold loads, as you already know, in principally all of the nations the place we at the moment function. And in Costa Rica and in Salvador, they’ve had a very good contagion technique, and it hasn’t unfold that a lot. So given — having mentioned that, our gross sales have — this has impacted our gross sales. So within the U.S., it has impacted us round 22% of gross sales; in Mexico, I might say round 20%; and in Latin America, as I mentioned, principally all gross sales are frozen. So I do not know if we answered your query, Alejandra.

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Operator [6]

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And we are able to take our subsequent query from Jamie Nicholson with Crédit Suisse.

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Jamie Nicholson-Leener, Crédit Suisse AG, Analysis Division – World Head of Rising Markets Company Credit score Analysis & MD [7]

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You talked about that you simply had renegotiated a few of your amortizations. Are you able to inform us what proportion of your short-term debt coming due this yr has been renegotiated? After which associated to that, do you will have any — do you will have entry to any undrawn dedicated credit score line?

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Fernando Benjamín Ruiz Jacques, Elementia, S.A.B. de C.V. – CEO [8]

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Thanks, Jamie. Juan Francisco, do you need to tackle that query, please?

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Juan Francisco Sánchez Kramer, Elementia, S.A.B. de C.V. – CFO [9]

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Certain. Thanks, Jamie, to your questions. So now we have been in discussions with our operators, the…

(technical issue)

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Fernando Benjamín Ruiz Jacques, Elementia, S.A.B. de C.V. – CEO [10]

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Juan Francisco, we’re having downside listening to you. So are you able to converse louder, please, and nearer to the mic?

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Juan Francisco Sánchez Kramer, Elementia, S.A.B. de C.V. – CFO [11]

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Certain. Are you able to hear me higher now?

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Fernando Benjamín Ruiz Jacques, Elementia, S.A.B. de C.V. – CEO [12]

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Sure, sure.

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Jaime Emilio Rocha Font, Elementia, S.A.B. de C.V. – Director of Cement Division [13]

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A lot better.

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Fernando Benjamín Ruiz Jacques, Elementia, S.A.B. de C.V. – CEO [14]

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So Jamie, thanks to your query. So now we have been in discussions with all of the banks. And all of the bilateral services, which has a maturity schedule, that’s clearly quarterly or twice a yr due. So now we have negotiated with most of them a 6-month time-frame. So it’s not that a lot when it comes to proportion, however it actually helps to work by way of the vital second a bit bit.

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Jamie Nicholson-Leener, Crédit Suisse AG, Analysis Division – World Head of Rising Markets Company Credit score Analysis & MD [15]

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After which entry to any dedicated undrawn credit score strains?

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Juan Francisco Sánchez Kramer, Elementia, S.A.B. de C.V. – CFO [16]

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Certain. So now we have a few uncommitted credit score strains. We now have already drawn certainly one of them. That’s roughly $13 million, and it is simply to guard money. We now have one other that’s nonetheless out there and diminished to that dedicated credit score line that we are going to do it at first of the yr.

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Jamie Nicholson-Leener, Crédit Suisse AG, Analysis Division – World Head of Rising Markets Company Credit score Analysis & MD [17]

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So I am sorry, I did not fairly hear. So what’s the precise quantity you mentioned you had in that one undrawn credit score line? What magnitude is that?

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Juan Francisco Sánchez Kramer, Elementia, S.A.B. de C.V. – CFO [18]

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It’s roughly $50 million.

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Jamie Nicholson-Leener, Crédit Suisse AG, Analysis Division – World Head of Rising Markets Company Credit score Analysis & MD [19]

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Are you able to say it like 1-5 or 50?

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Juan Francisco Sánchez Kramer, Elementia, S.A.B. de C.V. – CFO [20]

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5-0.

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Operator [21]

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And we are able to take our subsequent query from Elizabeth Gunning with Prudential.

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Elizabeth Gunning, [22]

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I simply have a follow-up query on some debt additionally. Bear with me. You mentioned you have been renegotiating your short-term debt. Do you will have any financial institution mortgage covenants that is perhaps prone to being breached?

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Fernando Benjamín Ruiz Jacques, Elementia, S.A.B. de C.V. – CEO [23]

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Juan, can you’re taking that query, please?

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Juan Francisco Sánchez Kramer, Elementia, S.A.B. de C.V. – CFO [24]

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Certain. Sure. Thanks. Thanks, Elizabeth, for the query. Sure, I imply, now we have not coated the covenants or not fulfill the covenant for the reason that third quarter ’19. So now we have requested for the waivers, the waivers discussions. And now we have nearly all of the waivers for final yr, and now we have already let know the banks what our views for 2020. So they’re all conscious of what are we seeing when it comes to covenant.

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Elizabeth Gunning, [25]

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Okay. And what — are you able to inform us what these covenants are? What’s the metric?

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Juan Francisco Sánchez Kramer, Elementia, S.A.B. de C.V. – CFO [26]

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Certain. It’s a web debt-to-EBITDA ratio that ought to be in 3.5x. Within the first quarter, greater than that, 5.63x.

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Elizabeth Gunning, [27]

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I am sorry, might you say that once more? And may you get on speakerphone by likelihood? That is perhaps useful. It is onerous to grasp you.

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Fernando Benjamín Ruiz Jacques, Elementia, S.A.B. de C.V. – CEO [28]

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Sure, converse louder, Juan.

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Elizabeth Gunning, [29]

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So it is going from 5x to what?

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Juan Francisco Sánchez Kramer, Elementia, S.A.B. de C.V. – CFO [30]

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Are you able to hear me higher now?

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Elizabeth Gunning, [31]

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Sure.

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Juan Francisco Sánchez Kramer, Elementia, S.A.B. de C.V. – CFO [32]

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Nice. So the covenant is 3.5x web debt to EBITDA. And we’re within the first quarter exhibiting greater than 5x.

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Operator [33]

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And we are able to take our subsequent query from [Andre Gonzales] with [Siquer].

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Unidentified Analyst, [34]

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I simply wished to ask should you might present some coloration on what number of COVID instances you will have within the firm thus far? And what are the protection measures you’re taking?

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Fernando Benjamín Ruiz Jacques, Elementia, S.A.B. de C.V. – CEO [35]

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Thanks. Thanks, [Andres], to your query. To this point, now we have four instances inside the firm. And sadly, as you could know, certainly one of our Board members died 2 weeks in the past. It is a very unhappy story, Jaime Ruiz Sacristán, which was a terrific man that we liked loads. And we’re taking many, many, many actions to stop it. So let me inform you, I imply now we have divided our services by tranche to limit private mobility and scale back the danger of contagion. We’re taking all people’s temperature, and they’re scanned earlier than getting into our services. And in the event that they current signs, they’re instantly examined and handled, adopted up by contact tracing, as I mentioned.

Additionally, like I discussed throughout my speech, now we have staggered hours and shifts. We now have necessary use of masks and antibacterial gel. We now have further transport. We now have staggered hours for canteens to ensure now we have a secure distance and it is stored always. We’re often sanitizing widespread areas. And in addition, one thing essential is that now we have an inner disaster response workforce. So we’re assembly each day at 8:30 a.m. with this COVID committee. We now have already deployed our disaster protocol, and now we have documented all this in some type of politics and procedures, and our inner auditor is getting full follow-up to this. So I do not know if I answered your questions.

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Operator [36]

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And we’ll take our subsequent query from Sean Glickenhaus with AIG.

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Sean Glickenhaus, [37]

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I’ve 2 questions. One, you talked about the extraordinary bills associated to layoffs. However I am sorry, I did not hear how a lot that one-off expense was. And the second query is at first of the decision, you talked about assist out of your — sure, assist out of your predominant shareholders. Are you able to clarify what meaning precisely?

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Fernando Benjamín Ruiz Jacques, Elementia, S.A.B. de C.V. – CEO [38]

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Certain. Do you need to tackle the primary one, Juan, and I will tackle the second?

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Juan Francisco Sánchez Kramer, Elementia, S.A.B. de C.V. – CFO [39]

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Certain. Thanks, Sean, to your query. The layoff value was near MXN 40 million, and that’s all registered within the first quarter. We count on to have financial savings from that of near MXN 120 million for the yr.

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Fernando Benjamín Ruiz Jacques, Elementia, S.A.B. de C.V. – CEO [40]

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And relating to your second query, Sean, after I say that now we have the assist of our shareholders, what I imply is now we have their complete dedication to the corporate. They’re extra concerned than ever. So they’re very concerned. They — as you already know, they’re very sturdy enterprise individuals in Mexico and on this planet. So they’re right here for the long run. And they’re serving to us negotiate with banks. And as I instructed you, very, very concerned. So they’re over the enterprise.

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Operator [41]

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And we’ll take our subsequent query from Jean Bruny with BBVA.

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Jean Baptiste Bruny, BBVA Company and Funding Financial institution, Analysis Division – Chief Analyst [42]

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Only a fast one possibly on the spin-off course of. I perceive in your commentary that it isn’t promising to occur fairly quickly, in all probability not earlier than the opposite sale of the property in Pennsylvania, as you talked about, within the third quarter. Did you will have a timing in thoughts? Otherwise you’re seeing one thing can occur by since this yr, [I doubt it] however really 2021? Or when you will have some restoration, you are saying that you can be again to regular in 2022. Can we undertaking ourselves in anticipating for the operations to open in ‘2022?

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Fernando Benjamín Ruiz Jacques, Elementia, S.A.B. de C.V. – CEO [43]

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Okay. Thanks, Jean. Sadly, I’ve a horrible time understanding your query. So I do not know, Juan Francisco and Jaime, should you have been in a position to catch that query and should you can tackle it. I simply hear speaking concerning the Pennsylvania property, however I do not know what else. So should you received the query, Juan Francisco, please tackle it.

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Juan Francisco Sánchez Kramer, Elementia, S.A.B. de C.V. – CFO [44]

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The primary query, if I perceive accurately, Jean, it was concerning the Pennsylvania time-frame that we’re anticipating?

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Jean Baptiste Bruny, BBVA Company and Funding Financial institution, Analysis Division – Chief Analyst [45]

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Really, I do not know should you hear me higher now. It is really on the timing of the spin-off, the execution between one asset and the opposite one. So should you can count on it to occur in 2021, ’22 or the place will probably be.

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Fernando Benjamín Ruiz Jacques, Elementia, S.A.B. de C.V. – CEO [46]

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Okay. Okay, I can tackle that, if you’d like, Juan. Or go forward, Juan. Go forward.

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Juan Francisco Sánchez Kramer, Elementia, S.A.B. de C.V. – CFO [47]

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Okay. Thanks. So relating to the spin-off time-frame, as you already know, now we have postponed it, ready for higher circumstances for each events. And as — I imply we did not count on or no one anticipated this COVID disaster or pandemia. So in all probability, it’ll take longer than what we first anticipated. So there isn’t a exact date. The newest which have is that it’ll bounce into ’21 at the least. However we’ll see how the circumstances are in ’21. If the circumstances are higher, then we’ll execute it. If not, it’s seemingly that we wait a bit bit longer.

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Operator [48]

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And we’ll transfer subsequent to Coleman Clyde with HSBC.

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Coleman Lee Clyde, HSBC, Analysis Division – Analyst, World Shopper and Luxurious Manufacturers [49]

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I simply puzzled should you might possibly give a bit bit extra coloration on U.S. Constructing Programs. I do know EBITDA — on margins, specifically, which have been down. I do know that you simply talked about that a part of that was provisions made for the category motion course of. But additionally, you talked about the Indiana plant not reaching its breakeven level despite the fact that volumes have been up. So just a bit bit extra coloration on that will be useful. After which as nicely, the second query can be, how a lot of your U.S. Cement EBITDA got here out of your Pennsylvania plant?

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Fernando Benjamín Ruiz Jacques, Elementia, S.A.B. de C.V. – CEO [50]

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Okay. So let me tackle the primary query, after which I depart the second query to Jaime. And please, Juan Francisco, bounce in, so if you wish to — in case you have any further feedback. In order I discussed throughout my intervention remark, we’re transferring on the precise path in Allura. We confirmed quantity and income development within the first quarter. Crucial factor is that now we have a terrific worth proposition in a rising market. So our industrial technique applied since final yr has confirmed to achieve success.

However, as you noticed, our EBITDA dropped 83% due primarily to the category motion provision we made, plus the capitalization bills which we returned from — to final yr outcomes. So possibly after I end addressing these questions, Juan Francisco, you may bounce in and elaborate on that.

Going to the Indiana plant, idling this plant, Coleman, will assist us scale back our working prices throughout this low-demand interval since we’ll consolidate volumes into the opposite Three vegetation. So I feel we could have a pleasant margin enchancment there. In order now we have been mentioning all through all the decision, now we have been putting in lots of completely different measures to decrease our prices and enhance our money place. At the moment, in Elementia, money is king, and each choice we’re taking is in the direction of that. So we’re striving to proceed rising in — as I mentioned in my presentation, evolve the quantity and profitability.

So Juan Francisco, are you able to elaborate on the EBITDA decrease? Thanks.

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Juan Francisco Sánchez Kramer, Elementia, S.A.B. de C.V. – CFO [51]

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Certain. Thanks. So Coleman, thanks for the query. There have been 2 predominant components that affected the outcomes of the Constructing Programs U.S., as you talked about. One is the category motion that’s roughly MXN 50 million for the quarter. We’re build up the availability that we count on to make use of as soon as that we attain a remaining settlement there.

The second influence is the Indiana facility. It’s shedding cash or the consequence for the quarter was unfavourable, and it was near $2.5 million on this case. So it’s the largest influence. Additionally, as Fernando talked about, final yr, now we have a optimistic one-off that got here from capital leasing within the a part of the start-up of the ability.

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Coleman Lee Clyde, HSBC, Analysis Division – Analyst, World Shopper and Luxurious Manufacturers [52]

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Understood.

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Jaime Emilio Rocha Font, Elementia, S.A.B. de C.V. – Director of Cement Division [53]

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The one which’s impacting concerning the Keystone outcomes?

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Fernando Benjamín Ruiz Jacques, Elementia, S.A.B. de C.V. – CEO [54]

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Sure, please, simply take it, Jaime. Please.

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Jaime Emilio Rocha Font, Elementia, S.A.B. de C.V. – Director of Cement Division [55]

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Okay. Thanks for the query as a result of it’s totally related to spotlight that Big Cement within the U.S. had the most effective quarter ever in — okay, not ever, however within the final 12 years was the most effective one. And Keystone was at the most effective consequence within the final 17 years for the primary quarter. So the query about which proportion was Keystone on the overall consequence, it is a bit tough as a result of now we have negatives and positives. And company value has a related level there. But when we isolate the consequence from the company bills, the Keystone consequence, first, was optimistic within the quarter; and second, it was about 25% of the overall operational EBITDA.

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Operator [56]

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And we are able to now take a follow-up query from Alejandra Obregon with Morgan Stanley.

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Alejandra Obregon Martinez, Morgan Stanley, Analysis Division – Analysis Affiliate [57]

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My query has been answered.

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Operator [58]

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Presently, there are not any further cellphone questions. I would like to show this system over to Melanie Carpenter to deal with any internet questions.

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Melanie Carpenter, i-advize Company Communications Inc. – Co-Founder & MD [59]

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Certain. Thanks. We now have one from [Nicholas Fabianish] from Jefferies. He is asking if there’s any risk that the M&A of Pennsylvania is canceled.

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Fernando Benjamín Ruiz Jacques, Elementia, S.A.B. de C.V. – CEO [60]

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Okay. Jaime, do you need to tackle that one?

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Jaime Emilio Rocha Font, Elementia, S.A.B. de C.V. – Director of Cement Division [61]

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Okay. Certain. The reply to this query can be that immediately, each events are enforced to do the deal. We now have nonetheless many months togo to cancel — or to not cancel, to the settlement, the PPA remains to be legitimate till a number of months. And we’re ready for the FTC to approve. It had been taking some months — additional months to be authorised as a result of our first was Christmas and New Yr holidays, after which now we have the COVID and FTC was not working often. And now we have a second request on detailed info in each firms. In order that delayed a bit the method. However immediately, FTC is within the course of of study of all this detailed info they requested within the second request, and it is a matter of couple of months to have a solution from them. And we’re going to be — nonetheless implement each events to do the deal.

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Melanie Carpenter, i-advize Company Communications Inc. – Co-Founder & MD [62]

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Okay. And he additionally had a query. Possibly Juan Francisco can take this one. What further measures might you’re taking to spice up liquidity? You already mentioned the assist from the collectors, however he is asking if there’s element you might present on assist from the shareholders that you simply talked about.

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Juan Francisco Sánchez Kramer, Elementia, S.A.B. de C.V. – CFO [63]

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Most likely, I’ll let Fernando to reply the assist on shareholders, however I’ll actually go into deep on what we’re doing relating to money stream. In order we talked about, we’re decreasing SG&A and COGS closely. We now have lower third-party companies, and we expect to do $50 million financial savings for the yr. Additionally, as I discussed, we did a headcount discount. We expect $120 million for the yr. That comes with the one-off for severances. And as Fernando talked about, now we have additionally quickly diminished salaries for the total group.

By way of working capital, we’re accelerating vegetation that now we have to cut back inventories, and we’re anticipating to get — and there is some $25 million for the yr. On prime of that, as we talked about, now we have had discussions with collectors. And so we’re working additionally in working capital strains. And that can actually assist to ease these in all probability extra vital months.

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Fernando Benjamín Ruiz Jacques, Elementia, S.A.B. de C.V. – CEO [64]

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So Melanie, if I might step in, simply elaborating on Juan Francisco’s response, I wish to summarize that now we have been taking all of the actions in our energy to maximise our money stream. In order that’s together with all of the actions that Juan Francisco has been speaking about. So we’re working very, very onerous to strengthen our stability sheet. And so in just a few phrases, inside this current uncertainty, we see viability for the three divisions, for the Cement, Constructing Programs and Metals.

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Melanie Carpenter, i-advize Company Communications Inc. – Co-Founder & MD [65]

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Okay. Glorious. There was a query from Autumn Graham from Schroders. He is asking if there is a break payment for the asset sale within the U.S. And if that’s the case, how a lot is that?

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Fernando Benjamín Ruiz Jacques, Elementia, S.A.B. de C.V. – CEO [66]

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Juan?

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Juan Francisco Sánchez Kramer, Elementia, S.A.B. de C.V. – CFO [67]

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I feel Jaime can reply that higher.

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Jaime Emilio Rocha Font, Elementia, S.A.B. de C.V. – Director of Cement Division [68]

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Possibly I did not perceive the query. Might you repeat it, please?

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Melanie Carpenter, i-advize Company Communications Inc. – Co-Founder & MD [69]

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If there is a payment for breaking the asset sale within the U.S.?

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Jaime Emilio Rocha Font, Elementia, S.A.B. de C.V. – Director of Cement Division [70]

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Extra, you imply different (inaudible)?

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Fernando Benjamín Ruiz Jacques, Elementia, S.A.B. de C.V. – CEO [71]

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No. If I perceive proper, accurately, the query is that if there’s a penalty for a payment if the divestment is just not executed.

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Jaime Emilio Rocha Font, Elementia, S.A.B. de C.V. – Director of Cement Division [72]

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In accordance with my information, it isn’t. There is no penalty.

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Melanie Carpenter, i-advize Company Communications Inc. – Co-Founder & MD [73]

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Okay. Glorious…

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Fernando Benjamín Ruiz Jacques, Elementia, S.A.B. de C.V. – CEO [74]

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Sorry, Melanie, simply I need to make clear, please. In case you can make clear for us concerning the $50 million line that we’re engaged on, now that we’re optimistic that we are going to renovate this with out a downside. So are you able to remark a little bit of that — on that, please?

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Juan Francisco Sánchez Kramer, Elementia, S.A.B. de C.V. – CFO [75]

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Sure, after all. In order I discussed, we’re — now we have an uncommitted credit score line for $50 million. And in addition, we’re engaged on different options on working capital services. So with all of this, we imagine that we will undergo the 5x growth, defending the money and defending the corporate.

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Melanie Carpenter, i-advize Company Communications Inc. – Co-Founder & MD [76]

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Okay. There was a follow-up from Autumn relating to — possibly this one is for Jaime Rocha right here. Do you see resilience in Mexico bag cement? And what’s the distinction in infrastructure demand in comparison with bag demand?

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Fernando Benjamín Ruiz Jacques, Elementia, S.A.B. de C.V. – CEO [77]

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Jaime, are you able to tackle that one, please?

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Jaime Emilio Rocha Font, Elementia, S.A.B. de C.V. – Director of Cement Division [78]

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Certain. Effectively, the primary quarter, I might say, was the market transferring in the identical approach as usually normal. I might say bag and bulk have been roughly in the identical proportion than earlier quarters. After the COVID, pricing was established and plenty of development work began to cease, then we had, after all, a lower on the majority demand. The latest bag demand, that was extra concentrated in particular cities and states, not total. And I might say additionally an increase within the demand on bag cement additionally in some particular states.

What’s supporting the demand, in my view, immediately is especially the sub-construction, the bag cement and in addition the governmental infrastructure initiatives that — during which we’re, I might say, much less nicely positioned in response to the entire market and dealing within the new airport development and in addition within the essential freeway that’s constructed within the Southeast. So I might say, immediately, bulk, in complete, possibly have dropped 50% of the common numbers. And a few of the — some quantity or some proportion of this complete lower was compensated by greater demand in bag cement.

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Fernando Benjamín Ruiz Jacques, Elementia, S.A.B. de C.V. – CEO [79]

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Okay. The rest on the road?

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Melanie Carpenter, i-advize Company Communications Inc. – Co-Founder & MD [80]

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Sure. There’s one other query that got here from [Greg Laurimar] from [Poncho Investment Research]. And he requested, how lengthy do you suppose your operations shall be affected in Costa Rica? And the way a lot will this influence your exercise?

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Fernando Benjamín Ruiz Jacques, Elementia, S.A.B. de C.V. – CEO [81]

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Okay. Let me tackle that one. And possibly I used to be not clear throughout my speech. Costa Rica is working, likewise for Cement and Constructing Programs. So it is working. So these operations which aren’t working are Salvador, the Colombia, Ecuador, Bolivia and Peru. With the data that now we have immediately, we count on these operations to be again on monitor within the following 2 weeks. Which may change due to governments’ decrees. However with the data now we have immediately, all of these operations ought to be again on at 100% in a 2-week time-frame. As we converse, this week, Barranquilla already started operations. And yesterday, we had the approval of the Colombian authorities to proceed operations in Bogotá and in Cali. So Three vegetation are already going again to work. And the opposite one, as I instructed you, it is a matter of a 2-weeks time-frame with the data now we have immediately.

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Melanie Carpenter, i-advize Company Communications Inc. – Co-Founder & MD [82]

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Okay. And all the opposite questions have been answered, so I will flip it again to our operator. Aaron?

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Operator [83]

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There are not any further cellphone questions right now. I would now like to show this system again over to Fernando Ruiz for any closing remarks.

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Fernando Benjamín Ruiz Jacques, Elementia, S.A.B. de C.V. – CEO [84]

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Thanks. Thanks, operator, and thanks all as soon as once more to your curiosity in Elementia. I wish to thank once more our shareholders and administrators for supporting us all through these difficult instances.

So let me simply shut the decision with 2 remaining ideas. First, COVID-19 is a black swan. I’ve little question that when the storm is over, it’ll convey new and higher alternatives. Within the meantime, relaxation assured we’re taking each required measure to guard our individuals, make sure the monetary viability of the corporate and preserve operational continuity. We’re prepared to maneuver ahead because the sand firm that we’re. And second, we’re dedicated to discovering the most effective methods to ship worth to all our shareholders.

In order that concludes our name. Please be at liberty to contact me or Juan Francisco in case you have any additional questions. We hope that you simply and your households keep secure. Have a pleasant remainder of the day.



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