MEXICO, D.F. Might 26, 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 at the moment 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. If you happen to didn’t obtain the report, it’s out there on the corporate’s web site within the Investor Relations part. All figures mentioned at the moment are unaudited and in Mexican pesos, until in any other case acknowledged. And all progress 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 at present out there and are topic to vary as a consequence of quite a lot of elements. For a extra detailed and full disclaimer, please seek advice from the earnings launch.

With that, I am going to 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 at the moment. 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, undoubtedly, 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 deliver many, many challenges, impacting our outcomes for 2020 and certain 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 folks. And subsequently, 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 present, each administrative workers within the Eight international locations the place we’ve got operations are working from dwelling. In all operations, each worker that has a situation that makes them extra susceptible has been despatched dwelling. And when every nation authorities has declared a quarantine, we’ve got adopted diligently to assist mitigate the unfold of the virus. I’ll focus on key measures taken at our open vegetation in a while. Lastly, we activated an emergency helpline for help to our workers concerning 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 day by day. We’re devoted to strengthening our money movement 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 initiatives.

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 best way to short-term 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 got had an awesome assist not solely from our controlling shareholders however from most of our collectors who’ve granted us particular phrases to beat the money movement challenges the pandemic is inflicting. So I need to thank each member of the Elementia staff, our shareholders and all our collectors for believing in us and giving us their assist.

The third pillar is to take care of our operational continuity. By authorities decree, we’ve got stopped all of our Central and South American operations, apart from Costa Rica, which is working usually. Within the U.S., we’ve got been categorized as a vital trade. And in Mexico, we’re linked to numerous important sectors designated by the Well being Ministry. So we proceed to function, however we’ve got carried out particular measures like dividing the amenities by zones to limit private mobility and scale back the danger of contagion. Likewise, everybody’s temperature is scanned earlier than getting 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, necessary use of masks and antibacterial gel, extra transport and staggered hours for canteens to verify secure distance is saved always. We’re usually sanitizing widespread areas amongst many, many different measures and, after all, following all of the provisions advisable 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 we’ve got 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 are rigorously required, like vital infrastructure, together with hospitals, short-term shelters, water storage and conductions, amongst many others, trying all the time for the event of recent 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 Methods and Metallic enterprise items. So beginning with Constructing Methods U.S. or distribution U.S., how we name it now, we’re transferring on the precise path, reaching an 11% quantity progress and 15% income progress within the first quarter, due to the worth proposition of our product providing in addition to the business technique carried out since final 12 months.

Nonetheless, our EBITDA dropped 83% as a result of class motion provisions we made, plus the capitalization bills which have been returned to final 12 months outcomes. It’s value mentioning that proper from COVID-19 and the impact it has had and may have on the demand for development supplies within the U.S., we’ve got 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 through the low-demand interval since we are going to consolidate quantity into the opposite Three vegetation.

Likewise, we’ve got 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 class-action swimsuit filed towards Allura, we anticipate to achieve an settlement within the following months. We’re striving to proceed rising by way of each quantity and profitability.

Going now to Constructing Methods 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 if the pattern up till February was a strong progress 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 movement is and will probably 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 produce constructing options via 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. Immediately, we’ve got 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 centered on operational effectivity in an effort to show across the low availability of the particular charges of uncooked supplies and the ensuing incremental value. Indubitably, right here is the place we’ve got the best problem. The worldwide scenario is just not serving to in any respect. It’s inflicting volatility in copper costs, which have a direct impression on each working value via inventories and promoting value 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, value reductions, uncooked materials yield enhancements, operational efficiencies, amongst many others. The outcomes for the primary quarter aren’t 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% 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 take advantage of copper’s antimicrobial properties by launching new merchandise. Moreover, we’re working across the clock on a list discount plan to assist money movement and liquidity. We are going to proceed to seek for new alternatives overseas via our U.S. steel business operation and assist to strengthen this market as we’ve got 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 scenario is over, we anticipate a powerful restoration in our outcomes.

Turning to our Cement enterprise unit, let’s start with Mexico. Within the first quarter, we continued working beneath a weak economic system, which is slowing down additional as a result of pandemic. In an effort to assist our outcomes, we’re aiming for an accurate combine between luggage and bulk. Likewise, we’ve got been in a position to provide a number of the Mexican authorities initiatives, that are serving to us as properly to assist 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 got been in a position to 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% progress in EBITDA in comparison with the identical interval of 2019. Throughout this era, our primary markets within the Southeast and Maine weren’t affected by the pandemic. Nonetheless, 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 danger. We’re conscious that these situations could change. So we proceed with our dedication to scale back value with an emphasis on producing money movement.

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 scale 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 impression. As of at the 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 growth, I want to share with you our expectations for the remainder of the 12 months. First, we consider that the financial impression of the pandemic won’t solely have an effect on this 12 months, however probably 2021 to get better total ranges by 2022. This, after all, will probably be completely different for every nation and the measures that every of them take in an effort to management and overcome the pandemic and its unintended effects.

Moreover, the second quarter would be the one that can present the worst a part of the consequences of the pandemic, provided 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 danger administration. I am certain her expertise and capabilities will probably be key throughout these difficult occasions.

Earlier than going into the figures, let me attempt to summarize each the impacts and actions we’ve got taken associated to the COVID pandemic. As Fernando talked about, money is king, so we’re managing in a money movement mode. For starters, we executed a number of packages to scale back SG&A, amongst which, first, we canceled or diminished providers that third events used to produce, which can deliver 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 may have financial savings of near $120 million per 12 months. After all, it had a onetime value of near $40 million through the first quarter.

Third, we executed the ring-fence that have been — we included within the funds course of to remove the bills that have been good to have however not most has. Additionally, specializing in money movement, we’ve got established particular packages which are 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 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 scale back inventories. In abstract, we’re accelerating these plans, primarily specializing in Metals and Constructing Methods U.S. Additionally, we’ve got put in place new methods to speed up assortment and being extra cautious on our evaluation of credit score strains. Lastly, we’ve got acquired assist from our collectors to ease amortizations for the next quarters or via working capital strains to guard money.

Relating to the spin-off course of, there’s probably not any information from the fourth quarter report. In abstract, it has been postponed in an effort to execute it beneath the very best phrases and situations. As we’ve got beforehand talked about, an intermediate step is to conclude the divestment of the Pennsylvania cement facility. It’s nonetheless beneath 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 12 months, 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 Methods helped scale back the destructive impression of the market contraction in different areas.

Consolidated EBITDA confirmed a 23% lower, primarily as a consequence of shut of $65 million impression from COVID coming from the demand contraction and manufacturing well being in LatAm; roughly $60 million of destructive impression on inventories due to the downward pattern of copper value; 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 alternate price revenue.

Shifting on to money movement. Earlier than CapEx, it was greater than $100 million destructive, primarily due to a nonrecurring fee 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 12 months. Decrease EBITDA and dealing capital consumption primarily due to, at first of the pandemic, we determined to amass security inventory of merchandise we deliver from China. Additionally, we started the constructing of inventories, getting ready for the seasonally larger demand, primarily within the U.S., and have forex fluctuations from the dollar-based operations.

In hindsight, these choices weren’t the perfect ones as a result of unprecedented scenario. And as I discussed, we’re accelerating plans to scale back inventories. Capital structured operations embody debt reimbursement in line with maturities, and inventory buyback consumed near $300 million and CapEx totaling roughly one other $300 million within the quarter. In consequence, free money movement 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 alternate price impacts on money consumption.

Shifting now to figures by enterprise items. Shifting now to figures by enterprise items, and beginning with Constructing Methods U.S., let me offer you an replace on the standing of the category motion lawsuit. Contemplating the dedication within the scenario, we predict that the method may decelerate. Nonetheless, we predict we could possibly attain a proper settlement settlement throughout this 12 months. Revenues for the primary quarter present a 15% progress 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 elements talked about earlier than, together with the gradual in demand as a result of COVID-19 disaster, have been a number of the information that result in the choice to shut the Indiana plant in the meanwhile.

For Constructing Methods 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 value absorption, together with the severance prices. In response to the newest official info, a number of the amenities may resume operations at first of Might. It is essential 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.

Shifting to Metals. Revenues have 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 essential to say that regardless of the market contraction, we’ve got a restoration in comparison with the final quarter exhibiting an EBITDA progress of 150% on account of the seasonality, operational efficiencies, SG&A discount, the launching of recent 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 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 impression within the quarter. For the next quarters, we anticipate 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 printed by a number of companies, together with Moody’s, as a result of COVID-19.

It is essential to say that the manufacturing of cement was additionally thought-about as important. Our enterprise focus will probably be [premiums], these sustaining credit score strains, monitoring money movement, rationalization bills, benefiting from the low oil costs and maintain 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 value 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 making an attempt 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-specific initiatives or areas. So I used to be simply making an attempt to know what meaning to your volumes and working charges in your vegetation. So when you may 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 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, to your query. First, I want to apologize for the audio. As you already know, the scenario is making us — make us name from our properties. So please relaxation assured that in a few days, we are going to 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, for example, it was began within the 2nd and the Monday, the 4th of April. And we have been included into the [intuit] wherein cement was thought-about as a vital exercise. So for cement, the manufacturing and the open actions is just not a difficulty.

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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 concerning, Alejandra, the Materials enterprise. Immediately, we’ve got Eight of the 21 vegetation — 22 vegetation closed. So mainly, all Central and all South America is closed, besides Costa Rica. So at the moment, we’re working, I might say, Metals at 80%, Constructing Methods at 59%. So the virus has unfold rather a lot, as you already know, in mainly all of the international locations the place we at present 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, mainly 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 simply had renegotiated a few of your amortizations. Are you able to inform us what share of your short-term debt coming due this 12 months has been renegotiated? After which associated to that, do you’ve got any — do you’ve got 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 we’ve got been in discussions with our operators, the…

(technical problem)

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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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Significantly 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 we’ve got 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 got negotiated with most of them a 6-month time-frame. So it isn’t that a lot by way of share, nevertheless it definitely helps to work via the vital second a bit of 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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Certain. So we’ve got a few uncommitted credit score strains. We now have already drawn one in every 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 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;Prudential Monetary, [22]

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I simply have a follow-up query on some debt additionally. Bear with me. You stated you have been renegotiating your short-term debt. Do you’ve got 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 are 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, we’ve got not lined the covenants or not fulfill the covenant for the reason that third quarter ’19. So we’ve got requested for the waivers, the waivers discussions. And we’ve got virtually all of the waivers for final 12 months, and we’ve got 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;Prudential Monetary, [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, larger than that, 5.63x.

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Elizabeth Gunning;Prudential Monetary, [27]

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I am sorry, may you say that once more? And may you get on speakerphone by likelihood? That is likely to be useful. It is exhausting 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, converse louder, Juan.

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Elizabeth Gunning;Prudential Monetary, [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;Prudential Monetary, [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 may present some coloration on what number of COVID instances you’ve got within the firm up to now? And what are the security 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], to your query. To this point, we’ve got four instances throughout the firm. And sadly, as it’s possible you’ll know, one in every of our Board members died 2 weeks in the past. It is a very unhappy story, Jaime Ruiz Sacristán, which was an awesome man that we cherished rather a lot. And we’re taking many, many, many actions to stop it. So let me let you know, I imply we’ve got divided our amenities 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 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 got staggered hours and shifts. We now have necessary use of masks and antibacterial gel. We now have extra transport. We now have staggered hours for canteens to verify we’ve got a secure distance and it is saved always. We’re usually sanitizing widespread areas. And in addition, one thing essential is that we’ve got an inside disaster response staff. So we’re assembly day by day at 8:30 a.m. with this COVID committee. We now have already deployed our disaster protocol, and we’ve got 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;AIG, [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 primary 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 am going to 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 anticipate 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 concerning your second query, Sean, after I say that we’ve got the assist of our shareholders, what I imply is we’ve got 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 robust enterprise folks in Mexico and on the 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 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 belongings in Pennsylvania, as you talked about, within the third quarter. Did you’ve got 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’ve got 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 have been in a position to catch that query and when you can tackle it. I simply hear speaking in regards to the Pennsylvania belongings, however I do not know what else. So when you obtained 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 appropriately, Jean, it was in regards to 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 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 anticipate it to occur in 2021, ’22 or the place it is going to 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 concerning the spin-off time-frame, as you already know, we’ve got postponed it, ready for higher situations for each events. And as — I imply we did not anticipate or no person anticipated this COVID disaster or pandemia. So in all probability, it’ll take longer than what we first anticipated. So there isn’t any exact date. The most recent which have is that it’ll bounce into ’21 at the very least. However we are going to see how the situations are in ’21. If the situations are higher, then we are going to execute it. If not, it’s probably that we wait a bit of 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 Client and Luxurious Manufacturers [49]

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I simply questioned when you may possibly give a bit of bit extra coloration on U.S. Constructing Methods. 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 although volumes have been up. So just a bit bit extra coloration on that may be useful. After which as properly, the second query could 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, bounce in, so if you wish to — when you’ve got any extra feedback. In order I discussed throughout my intervention remark, we’re transferring on the precise path in Allura. We confirmed quantity and income progress within the first quarter. An important factor is that we’ve got an awesome worth proposition in a rising market. So our business technique carried out 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 possibly after I end addressing these questions, Juan Francisco, you possibly can 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 are going to consolidate volumes into the opposite Three vegetation. So I believe we may have a pleasant margin enchancment there. In order we’ve got been mentioning all through all the decision, we’ve got been setting up a whole lot of completely different measures to decrease our prices and enhance our money place. Immediately, in Elementia, money is king, and each choice 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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Certain. Thanks. So Coleman, thanks for the query. There have been 2 primary elements that affected the outcomes of the Constructing Methods U.S., as you talked about. One is the category motion that’s roughly MXN 50 million for the quarter. We’re increase the supply that we anticipate to make use of as soon as that we attain a ultimate settlement there.

The second impression is the Indiana facility. It’s shedding cash or the consequence for the quarter was destructive, and it was near $2.5 million on this case. So it’s the largest impression. Additionally, as Fernando talked about, final 12 months, we’ve got 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, International Client 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 in regards to 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 Large 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 share was Keystone on the overall consequence, it’s kind of tough as a result of we’ve got 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 aren’t any extra cellphone questions. I would 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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Certain. Thanks. We now have 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 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 could be that at the moment, each events are enforced to do the deal. We now have nonetheless many months to go 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 permitted as a result of our first was Christmas and New Yr holidays, after which we’ve got the COVID and FTC was not working usually. And we’ve got a second request on detailed info in each corporations. In order that delayed a bit the method. However at the 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. Perhaps Juan Francisco can take this one. What extra measures may you are 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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In all probability, I’ll let Fernando to reply the assist on shareholders, however I’ll definitely go into deep on what we’re doing concerning money movement. In order we talked about, we’re decreasing SG&A and COGS closely. We now have minimize 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 got additionally quickly diminished salaries for the total group.

By way of working capital, we’re accelerating vegetation that we’ve got to scale 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 got had discussions with collectors. And so we’re working additionally in working capital strains. And that can definitely 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 may step in, simply elaborating on Juan Francisco’s response, I want to summarize that we’ve got been taking all of the actions in our energy to maximise our money movement. In order that’s together with all of the actions that Juan Francisco has been speaking about. So we’re working very, very exhausting 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 Methods 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 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 believe 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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Perhaps I did not perceive the query. May 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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Further, you imply aside from Keystone?

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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, appropriately, the query is that if there’s a penalty for a price 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 response to my information, 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 need to make clear, please. If you happen to can make clear for us in regards to 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 — we’ve got an uncommitted credit score line for $50 million. And in addition, we’re engaged on different alternate options on working capital amenities. So with all of this, we consider that we can 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 concerning — 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. Properly, the primary quarter, I might say, was the market transferring in the identical approach as usually typical. I might say bag and bulk have been roughly in the identical proportion than earlier quarters. After the COVID, pricing was established and lots of development 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, in my view, at the moment is principally the sub-construction, the bag cement and likewise the governmental infrastructure initiatives that — wherein we’re, I might say, much less properly positioned in line with the entire market and dealing within the new airport development and likewise within the essential freeway that’s constructed within the Southeast. So I might say, at the moment, bulk, in complete, possibly have dropped 50% of the common numbers. And a number of the — some quantity or some share of this complete 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 will probably be affected in Costa Rica? And the way a lot will this impression 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 Methods. 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 got at the moment, we anticipate these operations to be again on observe within the following 2 weeks. That may change due to governments’ decrees. However with the knowledge we’ve got at the moment, 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 advised you, it is a matter of a 2-weeks time-frame with the knowledge we’ve got at the 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 am going to flip it again to our operator. Aaron?

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Operator [83]

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There aren’t any extra 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 want to thank once more our shareholders and administrators for supporting us all through these difficult occasions.

So let me simply shut the decision with 2 ultimate ideas. First, COVID-19 is a black swan. I’ve little doubt that after the storm is over, it’ll deliver 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 preserve 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 when you’ve got any additional questions. We hope that you simply and your households keep secure. Have a pleasant remainder of the day.



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