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 – International 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 right this moment is Chief Govt 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 traders and analysts solely. Throughout this name, they are going to be discussing Elementia’s efficiency as per the press launch launched yesterday. Should you didn’t obtain the report, it’s accessible on the corporate’s web site within the Investor Relations part. All figures mentioned right this moment are unaudited and in Mexican pesos, except in any other case acknowledged. And all development comparisons are associated to the corresponding interval of final 12 months.

Let me remind you that forward-looking statements could also be made through the convention name. That is based mostly on info that’s presently accessible and are topic to vary attributable to a wide range of components. For a extra detailed and full disclaimer, please confer 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 right this moment. All of us at Elementia ship you our ideas, and we hope that you just and your family members are secure throughout this pandemic.

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

I wish to use this chance to guarantee you that we’re taking the fitting measures to face these challenges, and our actions are being guided by four key pillars to help our long-term success. So the primary pillar is to take care and shield our folks. 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 international locations the place we’ve operations are working from dwelling. In all operations, each worker that has a situation that makes them extra weak has been despatched dwelling. And when every nation authorities has declared a quarantine, we’ve adopted diligently to assist mitigate the unfold of the virus. I’ll focus on key measures taken at our open vegetation afterward. 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 every day. We’re devoted to strengthening our money circulation via 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 tasks.

We initiated packages 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 funds, however we’re going a lot deeper, all the way in which to non permanent wage reductions.

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

The third pillar is to keep up our operational continuity. By authorities decree, we’ve stopped all of our Central and South American operations, aside from Costa Rica, which is working usually. Within the U.S., we’ve been labeled as an important trade. And in Mexico, we’re linked to varied important sectors designated by the Well being Ministry. So we proceed to function, however we’ve applied particular measures like dividing the amenities by zones to limit private mobility and cut back the chance of contagion. Likewise, everybody’s temperature is scanned earlier than coming into our amenities. 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, obligatory use of masks and antibacterial gel, extra transport and staggered hours for canteens to ensure secure distance is stored always. We’re usually sanitizing frequent areas amongst many, many different measures and, after all, following all of the provisions really useful by native authorities.

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

Turning now to the primary quarter outcomes. Let me start with supplies, which is the way in which we name now the Constructing Techniques and Metallic enterprise models. So beginning with Constructing Techniques U.S. or distribution U.S., how we name it now, we’re transferring on the fitting 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 business technique applied since final 12 months.

Nonetheless, our EBITDA dropped 83% as a result of class motion provisions we made, plus the capitalization bills which had been returned to final 12 months outcomes. It’s price mentioning that proper from COVID-19 and the impact it has had and may have on the demand for building supplies within the U.S., we’ve determined to idle the Indiana plant. We’ll restore operations there as soon as the market returns to regular. In the meantime, this resolution will assist us cut back our working prices through the low-demand interval since we are going to consolidate quantity into the opposite Three vegetation.

Likewise, we’ve 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, price discount on account of R&D, and restrict CapEx solely to upkeep and important tasks. 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 by way of each quantity and profitability.

Going now to Constructing Techniques or distribution LatAm. As I discussed, since mid-March, all of the operations, besides Costa Rica and Mexico, had been halted by authorities decree. This affected the figures for the quarter even if the development 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 circulation is and shall be our high 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 actual fact of this difficult time, we managed to proceed progressing in our goal to provide constructing options via efforts reminiscent of superior. Advance is our new enterprise mannequin we have talked about. We’re delivering building kits to building websites. Thus far, the outcomes have been above our expectations. Right now, we’ve greater than 40 tasks in pipeline, together with shelters and well being clinics for presidency well being techniques 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 price. No doubt, right here is the place we’ve the best problem. The worldwide state of affairs just isn’t serving to in any respect. It’s inflicting volatility in copper costs, which have a direct influence on each working price via 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 staff, price reductions, uncooked materials yield enhancements, operational efficiencies, amongst many others. The outcomes for the primary quarter should not on the ranges we wish to obtain with a 12% lower in income year-over-year, however the efforts are starting to repay with a 13% improve in comparison with final quarter. EBITDA confirmed a 59% lower versus first quarter 2019, affected by larger steel prices and nonrecurring bills, reminiscent of severance bills.

On the highway to reinvention, we’re discovering alternatives and want issues to use copper’s antimicrobial properties by launching new merchandise. Moreover, we’re working across the clock on a listing discount plan to assist money circulation and liquidity. We’ll proceed to seek for new alternatives overseas via our U.S. steel business operation and assist to strengthen this market as we’ve 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 underneath a weak economic system, which is slowing down additional as a result of pandemic. As a way to help our outcomes, we’re aiming for an accurate combine between luggage and bulk. Likewise, we’ve been capable of provide a number of the Mexican authorities tasks, that are serving to us as nicely to help our volumes.

Within the first quarter, quantity confirmed a small improve of 5% versus first quarter 2019. Nonetheless, revenues decreased 5% versus first quarter 2019, which led to a 7% lower in EBITDA. We maintained our deal with enterprise profitability by optimizing bills and prices. With that, we’ve been capable of obtain a margin of 41%. That’s larger than what we achieved within the first quarter of 2019.

For the Cement enterprise within the U.S., we registered a 15% improve in income as a result of mixture of pricing and quantity improve, which, mixed with a greater local weather and management in bills, allowed us to submit a 157% development in EBITDA in comparison with the identical interval of 2019. Throughout this era, our major markets within the Southeast and Maine weren’t affected by the pandemic. Nonetheless, the Mid-Atlantic market introduced some decreases in volumes because the 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 price with an emphasis on producing money circulation.

Final, we stay engaged in finishing the event of Keystone within the second half of the 12 months 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% larger quantity. Nonetheless, our EBITDA decreased 3% versus first quarter 2019 due to FX influence. As of right this moment, we proceed to function usually in Costa Rica. Nonetheless, 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 improvement, I wish to share with you our expectations for the remainder of the 12 months. First, we consider that the financial influence of the pandemic is not going to solely have an effect on this 12 months, however seemingly 2021 to get well total ranges by 2022. This, after all, shall be completely different for every nation and the measures that every of them take to be able to management and overcome the pandemic and its unwanted effects.

Moreover, the second quarter would be the one that may present the worst a part of the consequences of the pandemic, provided that total demand is lowering 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 certain 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 we’ve taken associated to the COVID pandemic. As Fernando talked about, money is king, so we’re managing in a money circulation mode. For starters, we executed a number of packages to cut back SG&A, amongst which, first, we canceled or decreased providers that third events used to provide, which is able to convey financial savings of near $50 million on an annual foundation.

Second, in attempting to determine what would be the required organizational construction for the approaching months, we decreased headcount and may have financial savings of near $120 million per 12 months. In fact, it had a onetime price of near $40 million through the first quarter.

Third, we executed the ring-fence that had been — we included within the funds course of to eradicate the bills that had been good to have however not most has. Additionally, specializing in money circulation, we’ve established particular packages which can be lowering the necessity for money, like we did a CapEx overview and redefinition focusing solely on strategic tasks, upkeep and compliance that may cut back the money necessities by near $20 million for the 12 months 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 Techniques U.S. Additionally, we’ve put in place new methods to speed up assortment and being extra cautious on our evaluation of credit score strains. Lastly, we’ve obtained help from our collectors to ease amortizations for the next quarters or via working capital strains to guard money.

Concerning the spin-off course of, there may be probably not any information from the fourth quarter report. In abstract, it has been postponed to be able to execute it underneath the absolute best phrases and circumstances. As we’ve beforehand talked about, an intermediate step is to conclude the divestment of the Pennsylvania cement facility. It’s nonetheless underneath overview by the antitrust authorities. And contemplating the COVID implications, we’re altering our estimated timeframe to the tip of the third quarter. It is very important point out that each events stay and dedicated.

Transferring to the outcomes of the primary quarter, I’ll start with the consolidated figures. Throughout the first quarter of this 12 months, revenues had 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 Techniques helped cut back the destructive 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 destructive influence on inventories due to the downward development 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 price reductions and the overseas change price revenue.

Transferring on to money circulation. Earlier than CapEx, it was greater than $100 million destructive, primarily due to a nonrecurring fee on money taxes coming from the tip of the fiscal disconsolidation program in Mexico, which nearly doubled the determine of the final quarter of final 12 months. Decrease EBITDA and dealing capital consumption primarily due to, at the start 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 larger demand, primarily within the U.S., and have forex fluctuations from the dollar-based operations.

In hindsight, these selections weren’t the perfect 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. In consequence, free money circulation was a consumption of near $700 million.

By way of our steadiness 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 change price impacts on money consumption.

Transferring now to figures by enterprise models. Transferring now to figures by enterprise models, and beginning with Constructing Techniques U.S., let me provide you with an replace on the standing of the category motion lawsuit. Contemplating the dedication within the state of affairs, we predict that the method would possibly decelerate. Nonetheless, we predict we could possibly attain a proper settlement settlement throughout this 12 months. Revenues for the primary quarter present a 15% development by a mix 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 gradual in demand as a result of COVID-19 disaster, had been a number of the info that result in the choice to shut the Indiana plant in the meanwhile.

For Constructing Techniques 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 fastened price absorption, together with the severance prices. In accordance with the most recent official info, a number of the amenities would possibly resume operations at the start of Could. It is necessary to say that in some international locations, we took some authorities stimulus reminiscent of a delay in utilities or tax funds which have helped us to retain liquidity.

Transferring to Metals. Revenues had been 12% decrease than the primary quarter of final 12 months, and EBITDA was 59%, primarily coming from slower market dynamics and decrease stock prices within the first quarter of ’19. It is necessary to say that regardless of the market contraction, we’ve 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% improve in revenues and a powerful 157% improve in EBITDA, primarily stemming from price and bills rationalization. The U.S. authorities is contemplating cement manufacturing as an important 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 probably 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 12 months, consistent with the anticipated financial slowdown revealed by a number of companies, together with Moody’s, as a result of COVID-19.

It is necessary 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 circulation, rationalization bills, benefiting from the low oil costs and preserve manufacturing and stock ranges consistent 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% improve 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 will 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 attempting to know 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 tasks or areas. So I used to be simply attempting to know what meaning in your volumes and working charges in your vegetation. So when you might assist us quantify that and provides us extra colour on what vegetation are you working and at what charges, after all? And perhaps simply give us some colour on how is that enjoying out in April, that may 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, in your query. First, I wish to apologize for the audio. As you realize, the state of affairs is making us — make us name from our properties. So please relaxation assured that in a few days, we are going to make the complete transcript accessible in our IR web site. So relaxation freed from that. Now turning to our query, Alejandra, let’s cut 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 have now the three vegetation open in Mexico. We simply closed so far 2 [labor] days, for example, it was began within the 2nd and the Monday, the 4th of April. And we had been included into the [intuit] by which cement was thought of as an important exercise. So for cement, the manufacturing and the open actions just isn’t 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. Right now, we’ve Eight of the 21 vegetation — 22 vegetation closed. So principally, all Central and all South America is closed, besides Costa Rica. So right this moment, we’re working, I might say, Metals at 80%, Constructing Techniques at 59%. So the virus has unfold quite a bit, as you realize, in principally all of the international locations the place we presently function. And in Costa Rica and in Salvador, they’ve had a superb contagion technique, and it hasn’t unfold that a lot. So given — having stated 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 stated, 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 – International Head of Rising Markets Company Credit score Analysis & MD [7]

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You talked about that you just had renegotiated a few of your amortizations. Are you able to inform us what proportion of your short-term debt coming due this 12 months 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 wish 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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Positive. Thanks, Jamie, in your questions. So we’ve 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 drawback listening to you. So are you able to communicate 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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Positive. 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 in your query. So we’ve been in discussions with all of the banks. And all of the bilateral amenities, which has a maturity schedule, that’s clearly quarterly or twice a 12 months due. So we’ve negotiated with most of them a 6-month timeframe. So it’s not that a lot by way of proportion, however it definitely helps to work via the important second a little bit bit.

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Jamie Nicholson-Leener, Crédit Suisse AG, Analysis Division – International 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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Positive. So we’ve a few uncommitted credit score strains. We have now already drawn one among them. That’s roughly $13 million, and it is simply to guard money. We have now one other that’s nonetheless accessible and decreased to that dedicated credit score line that we’ll do it at the start of the 12 months.

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Jamie Nicholson-Leener, Crédit Suisse AG, Analysis Division – International 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 stated 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 – International 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 stated you had been renegotiating your short-term debt. Do you will have any financial institution mortgage covenants that is likely to be 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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Positive. Sure. Thanks. Thanks, Elizabeth, for the query. Sure, I imply, we’ve not coated the covenants or not fulfill the covenant because the third quarter ’19. So we’ve requested for the waivers, the waivers discussions. And we’ve virtually all of the waivers for final 12 months, and we’ve already let know the banks what our views for 2020. So they’re all conscious of what are we seeing by way of 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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Positive. It’s a web debt-to-EBITDA ratio that ought to be in 3.5x. Within the first quarter, larger 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 might you get on speakerphone by probability? That is likely to be useful. It is onerous to know you.

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

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Sure, communicate 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 larger 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 needed to ask when you might present some colour on what number of COVID instances you will have within the firm to this point? And what are the protection measures you take?

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

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Thanks. Thanks, [Andres], in your query. Thus far, we’ve four instances inside the firm. And sadly, as you could know, one among 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 beloved quite a bit. And we’re taking many, many, many actions to forestall it. So let me inform you, I imply we’ve divided our amenities by tranche to limit private mobility and cut back the chance of contagion. We’re taking everyone’s temperature, and they’re scanned earlier than coming into our amenities. And in the event that they current signs, they’re instantly examined and handled, adopted up by contact tracing, as I stated.

Additionally, like I discussed throughout my speech, we’ve staggered hours and shifts. We have now obligatory use of masks and antibacterial gel. We have now extra transport. We have now staggered hours for canteens to ensure we’ve a secure distance and it is stored always. We’re usually sanitizing frequent areas. And likewise, one thing crucial is that we’ve an inside disaster response staff. So we’re assembly every day at 8:30 a.m. with this COVID committee. We have now already deployed our disaster protocol, and we’ve documented all this in some type of politics and procedures, and our inside 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 are going to 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 the start of the decision, you talked about help out of your — sure, help out of your major 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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Positive. Do you wish 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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Positive. Thanks, Sean, in your query. The layoff price 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 12 months.

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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 we’ve the help of our shareholders, what I imply is we’ve their whole dedication to the corporate. They’re extra concerned than ever. So they’re very concerned. They — as you realize, they’re very sturdy enterprise folks 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 advised you, very, very concerned. So they’re over the enterprise.

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Operator [41]

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And we are going to 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 perhaps 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 12 months, [I doubt it] however truly 2021? Or when you will have some restoration, you are saying that you may 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, when you had been capable of catch that query and when you can tackle it. I simply hear speaking concerning the Pennsylvania property, however I do not know what else. So when you acquired 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 timeframe 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 when you hear me higher now. It is truly on the timing of the spin-off, the execution between one asset and the opposite one. So when 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 timeframe, as you realize, we’ve postponed it, ready for higher circumstances for each events. And as — I imply we did not count on or no person anticipated this COVID disaster or pandemia. So in all probability, it’s going to take longer than what we first anticipated. So there is no such thing as a exact date. The most recent which have is that it’s going to soar into ’21 at the very least. However we are going to see how the circumstances are in ’21. If the circumstances are higher, then we are going to execute it. If not, it’s seemingly that we wait a little bit bit longer.

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Operator [48]

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And we are going to transfer subsequent to Coleman Clyde with HSBC.

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

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I simply questioned when you might perhaps give a little bit bit extra colour on U.S. Constructing Techniques. I do know EBITDA — on margins, particularly, which had been down. I do know that you just 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 though volumes had been up. So just a bit bit extra colour on that may 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 go away the second query to Jaime. And please, Juan Francisco, soar in, so if you wish to — in case you have any extra feedback. In order I discussed throughout my intervention remark, we’re transferring on the fitting path in Allura. We confirmed quantity and income development within the first quarter. Crucial factor is that we’ve a terrific worth proposition in a rising market. So our business technique applied since final 12 months has confirmed to achieve success.

Nonetheless, 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 12 months outcomes. So perhaps after I end addressing these questions, Juan Francisco, you possibly can soar in and elaborate on that.

Going to the Indiana plant, idling this plant, Coleman, will assist us cut back our working prices throughout this low-demand interval since we are going to consolidate volumes into the opposite Three vegetation. So I feel we may have a pleasant margin enchancment there. In order we’ve been mentioning all through all the decision, we’ve been putting in a number of completely different measures to decrease our prices and enhance our money place. Right now, in Elementia, money is king, and each resolution we’re taking is in direction of that. So we’re striving to proceed rising in — as I stated in my presentation, evolve the amount 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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Positive. Thanks. So Coleman, thanks for the query. There have been 2 major components that affected the outcomes of the Constructing Techniques 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 last settlement there.

The second influence is the Indiana facility. It’s dropping cash or the consequence for the quarter was destructive, and it was near $2.5 million on this case. So it’s the greatest influence. Additionally, as Fernando talked about, final 12 months, we’ve a optimistic one-off that got here from capital leasing within the a part of the start-up of the power.

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Coleman Lee Clyde, HSBC, Analysis Division – Analyst, International 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 focus on that Big Cement within the U.S. had the perfect quarter ever in — okay, not ever, however within the final 12 years was the perfect one. And Keystone was at the perfect consequence within the final 17 years for the primary quarter. So the query about which proportion was Keystone on the entire consequence, it is a bit tough as a result of we’ve negatives and positives. And company price 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 entire 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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At the moment, there are not any extra cellphone questions. I might like to show this system over to Melanie Carpenter to handle any net questions.

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

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Positive. Thanks. We have now one from [Nicholas Fabianish] from Jefferies. He is asking if there’s any chance 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 wish 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. Positive. The reply to this query can be that right this moment, each events are enforced to do the deal. We have now nonetheless many months togo to cancel — or to not cancel, to the settlement, the PPA continues to be legitimate till a number of months. And we’re ready for the FTC to approve. It had been taking some months — further months to be accredited as a result of our first was Christmas and New Yr holidays, after which we’ve the COVID and FTC was not working usually. And we’ve a second request on detailed info in each corporations. In order that delayed a bit the method. However right this moment, FTC is within the course of of research 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 extra measures might you’re taking to spice up liquidity? You already mentioned the help from the collectors, however he is asking if there may be element you might present on help from the shareholders that you just 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 help on shareholders, however I’ll definitely go into deep on what we’re doing relating to money circulation. In order we talked about, we’re lowering SG&A and COGS closely. We have now reduce third-party providers, and we predict to do $50 million financial savings for the 12 months. Additionally, as I discussed, we did a headcount discount. We predict $120 million for the 12 months. That comes with the one-off for severances. And as Fernando talked about, we’ve additionally briefly decreased salaries for the complete group.

By way of working capital, we’re accelerating vegetation that we’ve to cut back inventories, and we’re anticipating to get — and there is some $25 million for the 12 months. On high of that, as we talked about, we’ve had discussions with collectors. And so we’re working additionally in working capital strains. And that may definitely assist to ease these in all probability extra important 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 we’ve been taking all of the actions in our energy to maximise our money circulation. 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 steadiness sheet. And so in a couple of phrases, inside this present uncertainty, we see viability for the three divisions, for the Cement, Constructing Techniques and Metals.

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

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Okay. Wonderful. There was a query from Autumn Graham from Schroders. He is asking if there is a break price for the asset sale within the U.S. And in that 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 price 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 price if the divestment just isn’t finished.

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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 data, it isn’t. There is not any penalty.

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

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Okay. Wonderful…

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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 wish to make clear, please. Should you can make clear for us concerning the $50 million line that we’re engaged on, now that we’re optimistic that we’ll renovate this with no drawback. 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 — we’ve an uncommitted credit score line for $50 million. And likewise, we’re engaged on different alternate options on working capital amenities. So with all of this, we consider that we can undergo the 5x improvement, 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 — perhaps 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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Positive. Effectively, the primary quarter, I might say, was the market transferring in the identical approach as usually standard. I might say bag and bulk had been roughly in the identical proportion than earlier quarters. After the COVID, pricing was established and plenty of building work began to cease, then we had, after all, a lower on the majority demand. The current 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, for my part, right this moment is especially the sub-construction, the bag cement and likewise the governmental infrastructure tasks that — by which we’re, I might say, much less nicely positioned in response to the entire market and dealing within the new airport building and likewise within the necessary freeway that’s constructed within the Southeast. So I might say, right this moment, bulk, in whole, perhaps have dropped 50% of the common numbers. And a number of the — some quantity or some proportion of this whole lower was compensated by larger 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 perhaps I used to be not clear throughout my speech. Costa Rica is working, likewise for Cement and Constructing Techniques. So it is working. So these operations which aren’t working are Salvador, the Colombia, Ecuador, Bolivia and Peru. With the knowledge that we’ve right this moment, 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 knowledge we’ve right this moment, all of these operations ought to be again on at 100% in a 2-week timeframe. As we communicate, 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 advised you, it is a matter of a 2-weeks timeframe with the knowledge we’ve right this moment.

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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 extra cellphone questions at the moment. I might 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 in 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 last ideas. First, COVID-19 is a black swan. I’ve little doubt that after the storm is over, it’s going to convey new and higher alternatives. Within the meantime, relaxation assured we’re taking each required measure to guard our folks, make sure the monetary viability of the corporate and keep operational continuity. We’re prepared to maneuver ahead because the sand firm that we’re. And second, we’re dedicated to discovering the perfect 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 just and your households keep secure. Have a pleasant remainder of the day.



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