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

Elementia, S.A.B. de C.V. – CEO

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

Elementia, S.A.B. de C.V. – CFO

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

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

Good day, everybody, and welcome to Elementia’s First Quarter 2020 Earnings Convention Name. Becoming a member of us in the present day 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. When you didn’t obtain the report, it’s out there on the corporate’s web site within the Investor Relations part. All figures mentioned in the present day are unaudited and in Mexican pesos, except in any other case said. 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 throughout the convention name. That is based mostly on info that’s at present out there and are topic to vary as a consequence of a wide range of elements. For a extra detailed and full disclaimer, please consult with 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 in the present day. All of us at Elementia ship you our ideas, and we hope that you simply and your family members are protected throughout this pandemic.

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

I need to use this chance to guarantee you that we’re taking the correct 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 individuals. 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 the moment, each administrative employees within the Eight international locations the place now we have operations are working from residence. In all operations, each worker that has a situation that makes them extra weak has been despatched residence. And when every nation authorities has declared a quarantine, now we have adopted diligently to assist mitigate the unfold of the virus. I’ll talk about key measures taken at our open vegetation in a while. Lastly, we activated an emergency helpline for help to our workers relating to COVID-19.

The second pillar is a pillar to make sure the monetary viability of the corporate. We created a company and regional contingency committee that meets every day. We’re devoted to strengthening our money movement via methods to speed up collections and management credit score traces to particular shoppers, make use of inventories, aligning procurement to demand and limiting CapEx to solely upkeep, compliance and strategic tasks.

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

I’m proud and touched to report that after once more, the workforce is exhibiting an impressive dedication and dedication to the corporate. I am additionally proud to say that now we have had a fantastic help, 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 workforce, 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, now we have stopped all of our Central and South American operations, aside from Costa Rica, which is working usually. Within the U.S., now we have been categorized as an important business. And in Mexico, we’re linked to numerous important sectors designated by the Well being Ministry. So we proceed to function, however now we have carried out particular measures like dividing the amenities by zones to limit private mobility and cut 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, in fact.

Different measures embrace staggered hours and shifts, obligatory use of masks and antibacterial gel, extra transport and staggered hours for canteens to ensure protected distance is saved always. We’re usually sanitizing frequent areas amongst many, many different measures and, in fact, following all of the provisions beneficial by native authorities.

And final however not least, the fourth pillar, which is to rework challenges into alternatives. We’re adapting rapidly to the fixed adjustments within the world economic system and these new circumstances. We’re enacting methods to show them into alternatives to proceed creating worth, and now we have strong foundation in every enterprise line to surpass this occasion. We have now maintained contact with our distributors and native governments to supply options which are fastidiously required, like important infrastructure, together with hospitals, short-term shelters, water storage and conductions, amongst many others, wanting 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 Methods and Metallic enterprise items. So beginning with Constructing Methods U.S. or distribution U.S., how we name it now, we’re shifting on the correct 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 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 had been returned to final 12 months outcomes. It’s value mentioning that proper from COVID-19 and the impact it has had and could have on the demand for development supplies within the U.S., now we have determined to idle the Indiana plant. We’ll restore operations there as soon as the market returns to regular. In the meantime, this choice will assist us cut back our working prices throughout the low-demand interval since we’ll consolidate quantity into the opposite Three vegetation.

Likewise, now we have put in place totally 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 tasks. When it comes to the category motion swimsuit filed in opposition to Allura, we count on to achieve an settlement within the following months. We’re striving to proceed rising when it comes to 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, 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 movement is and might 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. Thus far, the outcomes have been above our expectations. Right this moment, now we have greater than 40 tasks in pipeline, together with shelters and well being clinics for presidency well being programs and multifamily buildings.

Turning to industrial metals. We’re targeted on operational effectivity in an effort to show across the low availability of the precise charges of uncooked supplies and the ensuing incremental value. Surely, right here is the place now we have the best problem. The worldwide state of affairs isn’t serving to in any respect. It’s inflicting volatility in copper costs, which have a direct influence on each working value 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 workforce, value reductions, uncooked materials yield enhancements, operational efficiencies, amongst many others. The outcomes for the primary quarter will not be 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 street to reinvention, we’re discovering alternatives and wish issues to take advantage of copper’s antimicrobial properties by launching new merchandise. Moreover, we’re working across the clock on a listing discount plan to assist money movement 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 now we have the know-how and functionality to make this occur. This, mixed with a powerful operation, offers us the boldness that there’s an infinite potential. And as soon as the COVID state of affairs is over, we count on a powerful restoration in our outcomes.

Turning to our Cement enterprise unit, let’s start with Mexico. Within the first quarter, we continued working below a weak economic system, which is slowing down additional as a result of pandemic. In an effort to help our outcomes, we’re aiming for an accurate combine between baggage and bulk. Likewise, now we have been in a position to provide a few 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 give attention to enterprise profitability by optimizing bills and prices. With that, now we have 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 put up a 157% development in EBITDA in comparison with the identical interval of 2019. Throughout this era, our fundamental 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 threat. We’re conscious that these circumstances 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 influence. As of in the present day, 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 want 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 doubtless 2021 to get better total ranges by 2022. This, in fact, might be totally different for every nation and the measures that every of them take in an effort to management and overcome the pandemic and its negative effects.

Moreover, the second quarter would be the one that can present the worst a part of the results of the pandemic, on condition 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 positive her expertise and capabilities might be key throughout these difficult occasions.

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

Third, we executed the ring-fence that had been — we included within the finances course of to remove the bills that had been good to have however not most has. Additionally, specializing in money movement, now we have established particular applications which are decreasing the necessity for money, like we did a CapEx evaluation and redefinition focusing solely on strategic tasks, upkeep and compliance that can 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 scale back inventories. In abstract, we’re accelerating these plans, primarily specializing in Metals and Constructing Methods U.S. Additionally, now we have put in place new methods to speed up assortment and being extra cautious on our evaluation of credit score traces. Lastly, now we have obtained help from our collectors to ease amortizations for the next quarters or via working capital traces to guard money.

Relating to the spin-off course of, there may be probably not any information from the fourth quarter report. In abstract, it has been postponed in an effort to execute it below the very best phrases and circumstances. As now we have beforehand talked about, an intermediate step is to conclude the divestment of the Pennsylvania cement facility. It’s nonetheless below evaluation 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.

Shifting to the outcomes of the primary quarter, I’ll start with the consolidated figures. Through 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 Methods helped cut back the destructive influence of the market contraction in different areas.

Consolidated EBITDA confirmed a 23% lower, primarily as a consequence of 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 fee reductions and the international trade fee 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 tip of the fiscal disconsolidation program in Mexico, which just about 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 accumulate 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 foreign money fluctuations from the dollar-based operations.

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

When it comes to 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 trade fee 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 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 may decelerate. Nonetheless, we predict we might be able to attain a proper settlement settlement throughout this 12 months. Revenues for the primary quarter present a 15% development by a mixture of 11% extra quantity and pricing, however EBITDA was down by 83%, primarily as a result of class motion provision on the Indiana facility not reaching but the breakeven level. The elements talked about earlier than, together with the sluggish in demand as a result of COVID-19 disaster, had been a few of the details that result in the choice to shut the Indiana plant in the intervening time.

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 accordance with the newest official info, a few of the amenities may resume operations at first of Could. It is vital 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 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 vital to say that regardless of the market contraction, now we have a restoration in comparison with the final quarter exhibiting an EBITDA development of 150% on account of the seasonality, operational efficiencies, SG&A discount, the launching of latest merchandise and a extra selective SKU mannequin.

Now on to Cement. Cement U.S. confirmed a 15% 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 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 essentially the most affected. For the Cement enterprise in Mexico, there was a slight lower of 1% in quantity in comparison with the final quarter and a lower of 5% in comparison with the identical interval of final 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 vital to say that the manufacturing of cement was additionally thought of as important. Our enterprise focus might be [premiums], these sustaining credit score traces, 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 foreign money 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 are able to take our first query from Alejandra Obregon with Morgan Stanley.

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

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I simply have one associated to Mexico. I used to be simply 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 which means in your volumes and working charges in your vegetation. So in the event you may assist us quantify that and provides us extra coloration on what vegetation are you working and at what charges, in fact? 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, in your query. First, I want to apologize for the audio. As you recognize, the state of affairs is making us — make us name from our houses. So please relaxation assured that in a few days, we’ll make the total transcript out there in our IR web site. So relaxation freed from that. Now turning to our query, Alejandra, let’s 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 thus far 2 [labor] days, as an instance, it was began within the 2nd and the Monday, the 4th of April. And we had been included into the [intuit] through which cement was thought of as an important exercise. So for cement, the manufacturing and the open actions isn’t 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 relating to, Alejandra, the Materials enterprise. Right this moment, now we have Eight of the 21 vegetation — 22 vegetation closed. So mainly, all Central and all South America is closed, besides Costa Rica. So in the present day, we’re working, I’d say, Metals at 80%, Constructing Methods at 59%. So the virus has unfold rather a lot, as you recognize, in mainly all of the international locations the place we at present function. And in Costa Rica and in Salvador, they’ve had an excellent 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’d 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 will take our subsequent query from Jamie Nicholson with Crédit Suisse.

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

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You talked about that you simply had renegotiated a few of your amortizations. Are you able to inform us what proportion of your short-term debt coming due this 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 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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Positive. Thanks, Jamie, in your questions. So now we have been in discussions with our operators, the…

(technical issue)

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

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

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

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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 now we have 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 now we have negotiated with most of them a 6-month timeframe. So it’s not that a lot when it comes to proportion, nevertheless it actually helps to work via the important second a bit of bit.

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

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After which entry to any dedicated undrawn credit score traces?

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

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Positive. So now we have a few uncommitted credit score traces. We have now already drawn one in all them. That’s roughly $13 million, and it is simply to guard money. We have now one other that’s nonetheless out there and decreased 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 – World Head of Rising Markets Company Credit score Analysis & MD [17]

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So I am sorry, I did not fairly hear. So what’s the precise quantity you 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 – World Head of Rising Markets Company Credit score Analysis & MD [19]

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

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

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5-0.

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Operator [21]

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And we will 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 liable 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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Positive. Sure. Thanks. Thanks, Elizabeth, for the query. Sure, I imply, now we have not coated the covenants or not fulfill the covenant for the reason that third quarter ’19. So now we have requested for the waivers, the waivers discussions. And now we have nearly all of the waivers for final 12 months, and now we have already let know the banks what our views for 2020. So they’re all conscious of what are we seeing when it comes to covenant.

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Elizabeth Gunning, [25]

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

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

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Positive. It’s a web debt-to-EBITDA ratio that must 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, may you say that once more? And might you get on speakerphone by likelihood? That is likely to be useful. It is laborious 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, [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 will 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 in the event you may present some coloration on what number of COVID circumstances you will have within the firm to date? 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], in your query. Thus far, now we have four circumstances inside the firm. And sadly, as you might know, one in all our Board members died 2 weeks in the past. It is a very unhappy story, Jaime Ruiz Sacristán, which was a fantastic man that we liked rather a lot. And we’re taking many, many, many actions to stop it. So let me let you know, I imply now we have divided our amenities by tranche to limit private mobility and cut back the danger of contagion. We’re taking everyone’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, now we have 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 now we have a protected distance and it is saved always. We’re usually sanitizing frequent areas. And in addition, one thing essential is that now we have an inside disaster response workforce. So we’re assembly every day at 8:30 a.m. with this COVID committee. We have now already deployed our disaster protocol, and now we have 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’ll take our subsequent query from Sean Glickenhaus with AIG.

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Sean Glickenhaus, [37]

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I’ve 2 questions. One, you talked about the extraordinary bills associated to layoffs. However I am sorry, I did not hear how a lot that one-off expense was. And the second query is at first of the decision, you talked about help out of your — sure, help out of your fundamental shareholders. Are you able to clarify what which means 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 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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Positive. Thanks, Sean, in your query. The layoff value was near MXN 40 million, and that’s all registered within the first quarter. We count on to have financial savings from that of near MXN 120 million for the 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, once I say that now we have the help of our shareholders, what I imply is now we have their complete dedication to the corporate. They’re extra concerned than ever. So they’re very concerned. They — as you recognize, they’re very robust enterprise individuals in Mexico and on this planet. So they’re right here for the long run. And they’re serving to us negotiate with banks. And as I instructed you, very, very concerned. So they’re over the enterprise.

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Operator [41]

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

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

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Only a fast one possibly on the spin-off course of. I perceive in your commentary that it is not 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 will have a timing in thoughts? Otherwise you’re seeing one thing can occur by since this 12 months, [I doubt it] however really 2021? Or when you will have some restoration, you are saying that you’ll be again to regular in 2022. Can we venture 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, in the event you had been in a position to catch that query and in the event you can tackle it. I simply hear speaking in regards to the Pennsylvania belongings, however I do not know what else. So in the event you received the query, Juan Francisco, please tackle it.

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

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The primary query, if I perceive accurately, Jean, it was in regards to 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 in the event you hear me higher now. It is really on the timing of the spin-off, the execution between one asset and the opposite one. So in the event you can count on it to occur in 2021, ’22 or the place it will likely 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 need, 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 recognize, now we have 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 is going to take longer than what we first anticipated. So there isn’t a exact date. The most recent which have is that it’s going to leap into ’21 no less than. However we’ll see how the circumstances are in ’21. If the circumstances are higher, then we’ll execute it. If not, it’s doubtless that we wait a bit of bit longer.

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Operator [48]

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

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

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I simply puzzled in the event you may possibly give a bit of bit extra coloration on U.S. Constructing Methods. I do know EBITDA — on margins, specifically, which had 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 in addition, you talked about the Indiana plant not reaching its breakeven level though volumes had been up. So just a bit bit extra coloration on that may be useful. After which as nicely, 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, leap in, so if you wish to — you probably have any extra feedback. In order I discussed throughout my intervention remark, we’re shifting on the correct path in Allura. We confirmed quantity and income development within the first quarter. Crucial factor is that now we have a fantastic 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 once I end addressing these questions, Juan Francisco, you’ll be able to leap 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’ll consolidate volumes into the opposite Three vegetation. So I feel we could have a pleasant margin enchancment there. In order now we have been mentioning all through all the decision, now we have been putting in loads of totally different measures to decrease our prices and enhance our money place. Right this moment, in Elementia, money is king, and each choice we’re taking is in the direction of that. So we’re striving to proceed rising in — as I stated in my presentation, evolve the quantity and profitability.

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

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

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Positive. Thanks. So Coleman, thanks for the query. There have been 2 fundamental 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 count on to make use of as soon as that we attain a ultimate settlement there.

The second influence is the Indiana facility. It’s dropping cash or the end result for the quarter was destructive, and it was near $2.5 million on this case. So it’s the largest influence. Additionally, as Fernando talked about, final 12 months, now we have 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, World Shopper and Luxurious Manufacturers [52]

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Understood.

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

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The one which’s impacting 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 is very related to spotlight that Large Cement within the U.S. had the most effective quarter ever in — okay, not ever, however within the final 12 years was the most effective one. And Keystone was at the most effective end result within the final 17 years for the primary quarter. So the query about which proportion was Keystone on the entire end result, it is a bit difficult as a result of now we have negatives and positives. And company value has a related level there. But when we isolate the end result from the company bills, the Keystone end result, 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 will 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 aren’t any extra cellphone questions. I might like to show this system over to Melanie Carpenter to deal with any internet questions.

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

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

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

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

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

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Okay. Positive. The reply to this query could be that in the present day, 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 permitted as a result of our first was Christmas and New 12 months holidays, after which now we have the COVID and FTC was not working usually. And now we have a second request on detailed info in each corporations. In order that delayed a bit the method. However in the present day, 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 may you are taking to spice up liquidity? You already mentioned the help from the collectors, however he is asking if there may be element you can present on help 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 help on shareholders, however I’ll actually go into deep on what we’re doing relating to money movement. In order we talked about, we’re decreasing SG&A and COGS closely. We have now reduce third-party providers, and we expect to do $50 million financial savings for the 12 months. Additionally, as I discussed, we did a headcount discount. We expect $120 million for the 12 months. That comes with the one-off for severances. And as Fernando talked about, now we have additionally quickly decreased salaries for the total group.

When it comes to working capital, we’re accelerating vegetation that now we have 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, now we have had discussions with collectors. And so we’re working additionally in working capital traces. And that can actually 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 may step in, simply elaborating on Juan Francisco’s response, I want to summarize that now we have 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 laborious to strengthen our steadiness sheet. And so in a number of 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 charge 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. 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 charge 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 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 charge if the divestment isn’t completed.

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

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In accordance with my information, it is not. 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. When you 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, in fact. In order I discussed, we’re — now we have an uncommitted credit score line for $50 million. And in addition, we’re engaged on different alternate options on working capital amenities. So with all of this, we consider that we will 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 — 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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Positive. Effectively, the primary quarter, I’d say, was the market shifting in the identical method as usually normal. I’d say bag and bulk had been kind of in the identical proportion than earlier quarters. After the COVID, pricing was established and plenty of development work began to cease, then we had, in fact, a lower on the majority demand. The latest bag demand, that was extra concentrated in particular cities and states, not total. And I’d say additionally an increase within the demand on bag cement additionally in some particular states.

What’s supporting the demand, in my view, in the present day is especially the sub-construction, the bag cement and in addition the governmental infrastructure tasks that — through which we’re, I’d say, much less nicely positioned in response to the entire market and dealing within the new airport development and in addition within the vital freeway that’s constructed within the Southeast. So I’d say, in the present day, bulk, in complete, possibly have dropped 50% of the common numbers. And a few of the — some quantity or some proportion of this complete lower was compensated by 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 might be affected in Costa Rica? And the way a lot will this influence your exercise?

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

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Okay. Let me tackle that one. And possibly I used to be not clear throughout my speech. Costa Rica is working, likewise for Cement and Constructing Methods. So it is working. So these operations which aren’t working are Salvador, the Colombia, Ecuador, Bolivia and Peru. With the knowledge that now we have in the present day, 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 now we have in the present day, all of these operations must be again on at 100% in a 2-week timeframe. As we converse, this week, Barranquilla already started operations. And yesterday, we had the approval of the Colombian authorities to proceed operations in Bogotá and in Cali. So Three vegetation are already going again to work. And the opposite one, as I instructed you, it is a matter of a 2-weeks timeframe with the knowledge now we have in the present day.

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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 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 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 is going to deliver new and higher alternatives. Within the meantime, relaxation assured we’re taking each required measure to guard our individuals, make sure the monetary viability of the corporate and keep operational continuity. We’re prepared to maneuver ahead because the sand firm that we’re. And second, we’re dedicated to discovering the most effective methods to ship worth to all our shareholders.

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



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