MEXICO, D.F. Could 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 traders and analysts solely. Throughout this name, they are going to be discussing Elementia’s efficiency as per the press launch launched yesterday. Should you didn’t obtain the report, it’s obtainable 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 said. And all development comparisons are associated to the corresponding interval of final yr.

Let me remind you that forward-looking statements could also be made in the course of the convention name. That is primarily based on info that’s presently obtainable and are topic to vary resulting from a wide range of components. For a extra detailed and full disclaimer, please seek advice from the earnings launch.

With that, I will flip the decision to Fernando.

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

So thanks. Thanks, Mariana, and good morning, everybody, and thanks for being right here with us 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 sudden occasion, a worldwide 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, particularly, will convey many, many challenges, impacting our outcomes for 2020 and sure past.

I wish to use this chance to guarantee you that we’re taking the fitting measures to face these challenges, and our actions are being guided by four key pillars to assist 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 present, each administrative workers within the Eight nations the place we’ve got operations are working from house. In all operations, each worker that has a situation that makes them extra susceptible has been despatched house. And when every nation authorities has declared a quarantine, we’ve got adopted diligently to assist mitigate the unfold of the virus. I’ll talk about key measures taken at our open vegetation afterward. Lastly, we activated an emergency helpline for help to our staff 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 move via methods to speed up collections and management credit score traces to particular purchasers, make use of inventories, aligning procurement to demand and limiting CapEx to solely upkeep, compliance and strategic tasks.

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

I’m proud and touched to report that after once more, the group is displaying an impressive dedication and dedication to the corporate. I am additionally proud to say that we’ve got had an amazing assist not solely from our controlling shareholders however from most of our collectors who’ve granted us particular phrases to beat the money move challenges the pandemic is inflicting. So I wish to thank each member of the Elementia group, 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, aside from Costa Rica, which is working usually. Within the U.S., we’ve got been labeled 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 services by zones to limit private mobility and cut back the danger of contagion. Likewise, everybody’s temperature is scanned earlier than coming into our services. And if signs are detected, they’re instantly examined and handled, adopted up by contact tracing, after all.

Different measures embrace staggered hours and shifts, obligatory use of masks and antibacterial gel, further transport and staggered hours for canteens to verify secure distance is stored always. We’re commonly sanitizing frequent 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 stable foundation in every enterprise line to surpass this occasion. We’ve got maintained contact with our distributors and native governments to supply options which can be fastidiously required, like essential infrastructure, together with hospitals, non permanent shelters, water storage and conductions, amongst many others, wanting at all times 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 Techniques and Steel enterprise items. So beginning with Constructing Techniques U.S. or distribution U.S., how we name it now, we’re shifting on the fitting path, reaching an 11% quantity development and 15% income development within the first quarter, due to the worth proposition of our product providing in addition to the business technique carried out since final yr.

However, our EBITDA dropped 83% as a result of class motion provisions we made, plus the capitalization bills which had been returned to final yr outcomes. It’s price 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’ll restore operations there as soon as the market returns to regular. In the meantime, this determination will assist us cut back our working prices in the course of the low-demand interval since we are going to consolidate quantity into the opposite Three vegetation.

Likewise, we’ve got 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, price discount because of R&D, and restrict CapEx solely to upkeep and important tasks. When it comes to the class-action 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 Techniques or distribution LatAm. As I discussed, since mid-March, all of the operations, besides Costa Rica and Mexico, had been halted by authorities decree. This affected the figures for the quarter although the development up till February was a stable 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 move is and shall be our high precedence, and we’re strongly working in that sense. The ring-fence has been activated together with a a lot deeper discount of bills and CapEx. However the very fact of this difficult time, we managed to proceed progressing in our goal to provide constructing options via efforts resembling 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, we’ve got greater than 40 tasks in pipeline, together with shelters and well being clinics for presidency well being techniques and multifamily buildings.

Turning to industrial metals. We’re centered on operational effectivity in an effort to show across the low availability of the particular charges of uncooked supplies and the ensuing incremental price. Certainly, right here is the place we’ve got the best problem. The worldwide state of affairs just isn’t serving to in any respect. It’s inflicting volatility in copper costs, which have a direct influence on each working price via inventories and promoting value since it’s assigned utilizing COMEX as its reference.

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

On the street to reinvention, we’re discovering alternatives and wish issues to use copper’s antimicrobial properties by launching new merchandise. Moreover, we’re working across the clock on a list discount plan to assist money move and liquidity. We’ll proceed to seek for new alternatives overseas via our U.S. metallic 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 robust operation, offers us the boldness that there’s an unlimited potential. And as soon as the COVID state of affairs is over, we count on a robust 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. With a view to assist our outcomes, we’re aiming for an accurate combine between baggage and bulk. Likewise, we’ve got been capable of provide a number of the Mexican authorities tasks, that are serving to us as nicely to assist our volumes.

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

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

Final, we stay engaged in finishing the event of Keystone within the second half of the yr and stay dedicated to utilizing the proceeds of this transaction to cut back our leverage ranges. Going to the Cement operations in Costa Rica, this enterprise proves that our technique is working with a 15% increased quantity. However, our EBITDA decreased 3% versus first quarter 2019 due to FX influence. 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 yr. First, we consider that the financial influence of the pandemic is not going to solely have an effect on this yr, however doubtless 2021 to get better total ranges by 2022. This, after all, shall be totally different for every nation and the measures that every of them take with a purpose to management and overcome the pandemic and its uncomfortable side effects.

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

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

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

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Thanks, Fernando, and welcome, Mariana. Mariana joined Elementia simply a few months in the past as Company Treasurer and Investor Relations Officer. She has greater than 11 years of expertise, primarily in finance, treasury and danger administration. I am certain her expertise and capabilities shall 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 move mode. For starters, we executed a number of packages to cut back SG&A, amongst which, first, we canceled or decreased providers that third events used to provide, which is able to convey financial savings of near $50 million on an annual foundation.

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

Third, we executed the ring-fence that had been — we included within the funds course of to remove the bills that had been good to have however not most has. Additionally, specializing in money move, we’ve got established particular packages which can be lowering 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 yr or roughly at 30% of our common CapEx.

Second, stock optimization acceleration plan. Within the fourth quarter convention name, we talked about the plans we established to cut back inventories. In abstract, we’re accelerating these plans, primarily specializing in Metals and Constructing Techniques 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 traces. Lastly, we’ve got obtained assist 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’s probably not any information from the fourth quarter report. In abstract, it has been postponed with a purpose to execute it below the absolute best phrases and circumstances. As we’ve got 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 time-frame to the tip of the third quarter. You will need to point out that each events stay and dedicated.

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

Consolidated EBITDA confirmed a 23% lower, primarily resulting from shut of $65 million influence from COVID coming from the demand contraction and manufacturing well being in LatAm; roughly $60 million of unfavourable influence on inventories due to the downward development 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 charge reductions and the international trade charge revenue.

Shifting on to money move. Earlier than CapEx, it was greater than $100 million unfavourable, primarily due to a nonrecurring cost on money taxes coming from the tip of the fiscal disconsolidation program in Mexico, which nearly doubled the determine of the final quarter of final yr. Decrease EBITDA and dealing capital consumption primarily due to, originally of the pandemic, we determined to amass security inventory of merchandise we convey from China. Additionally, we started the constructing of inventories, making ready for the seasonally increased demand, primarily within the U.S., and have forex 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 cut back inventories. Capital structured operations embrace debt compensation in keeping with maturities, and inventory buyback consumed near $300 million and CapEx totaling roughly one other $300 million within the quarter. In consequence, free money move 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 charge impacts on money consumption.

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

For Constructing Techniques LatAm, revenues decreased 5%, however EBITDA was down 60%, primarily as a result of halt in operations we did since mid-March and the ensuing much less fastened price absorption, together with the severance prices. In accordance with the newest official info, a number of the services would possibly resume operations originally of Could. It is essential to say that in some nations, we took some authorities stimulus resembling 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 yr, and EBITDA was 59%, primarily coming from slower market dynamics and decrease stock prices within the first quarter of ’19. It is essential to say that regardless of the market contraction, we’ve got a restoration in comparison with the final quarter displaying an EBITDA development of 150% because 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% enhance in revenues and a powerful 157% enhance in EBITDA, primarily stemming from price and bills rationalization. The U.S. authorities is contemplating cement manufacturing as a vital exercise. And due to that, we did not have a COVID influence within the quarter. For the next quarters, we count on some market contraction with the Mid-Atlantic area being 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 yr, in step with the anticipated financial slowdown revealed 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 shall be [premiums], these sustaining credit score traces, monitoring money move, rationalization bills, benefiting from the low oil costs and preserve manufacturing and stock ranges in step with the market demand.

Lastly, our Cement enterprise in Costa Rica confirmed a 2% lower in revenues and a 3% contraction in EBITDA, primarily coming from forex fluctuation. In {dollars}, the enterprise confirmed a 6% and 30% enhance in revenues and EBITDA, respectively, primarily coming from 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 are able to take our first query from Alejandra Obregon with Morgan Stanley.

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

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I simply have one associated to Mexico. I used to be simply making an attempt to 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 tasks or areas. So I used to be simply making an attempt to know what which means to your volumes and working charges in your vegetation. So when you might assist us quantify that and provides us extra colour on what vegetation are you working and at what charges, after all? And possibly simply give us some colour on how is that taking part in out in April, that might 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 recognize, the state of affairs is making us — make us name from our properties. So please relaxation assured that in a few days, we are going to make the complete transcript obtainable 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’ve got the three vegetation open in Mexico. We simply closed up to now 2 [labor] days, to illustrate, 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-about as a vital exercise. So for cement, the manufacturing and the open actions just 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 concerning, Alejandra, the Materials enterprise. Right this moment, we’ve got Eight of the 21 vegetation — 22 vegetation closed. So principally, 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 Techniques at 59%. So the virus has unfold quite a bit, as you recognize, in principally all of the nations the place we presently function. And in Costa Rica and in Salvador, they’ve had contagion technique, and it hasn’t unfold that a lot. So given — having mentioned that, our gross sales have — this has impacted our gross sales. So within the U.S., it has impacted us round 22% of gross sales; in Mexico, I might say round 20%; and in Latin America, as I mentioned, principally all gross sales are frozen. So I do not know if we answered your query, Alejandra.

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Operator [6]

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And we will 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 yr has been renegotiated? After which associated to that, do you may have any — do you may have entry to any undrawn dedicated credit score line?

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

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

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

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Positive. Thanks, Jamie, 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 drawback 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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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 services, which has a maturity schedule, that’s clearly quarterly or twice a yr due. So we’ve got negotiated with most of them a 6-month time-frame. So it isn’t that a lot when it comes to share, however it definitely helps to work via the essential second just a little 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 traces?

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

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Positive. So we’ve got a few uncommitted credit score traces. We’ve got already drawn one among them. That’s roughly $13 million, and it is simply to guard money. We’ve got one other that’s nonetheless obtainable and decreased to that dedicated credit score line that we are going to do it originally of the yr.

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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 mentioned you had in that one undrawn credit score line? What magnitude is that?

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

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It’s roughly $50 million.

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Jamie Nicholson-Leener, Crédit Suisse AG, Analysis Division – 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 will 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 mentioned you had been renegotiating your short-term debt. Do you may have any financial institution mortgage covenants that is perhaps 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, we’ve got not lined the covenants or not fulfill the covenant because the third quarter ’19. So we’ve got requested for the waivers, the waivers discussions. And we’ve got nearly all of the waivers for final yr, and we’ve got 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;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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Positive. It’s a web debt-to-EBITDA ratio that must be in 3.5x. Within the first quarter, increased than that, 5.63x.

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Elizabeth Gunning;Prudential Monetary, [27]

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I am sorry, might you say that once more? And may you get on speakerphone by probability? That is perhaps 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;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 displaying increased 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 wished to ask when you might present some colour on what number of COVID instances you may have within the firm thus far? And what are the protection measures you take?

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

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Thanks. Thanks, [Andres], to your query. Thus far, we’ve got four instances throughout the firm. And sadly, as you could know, one among our Board members died 2 weeks in the past. It is a very unhappy story, Jaime Ruiz Sacristán, which was an amazing man that we beloved quite a bit. And we’re taking many, many, many actions to stop it. So let me let you know, I imply we’ve got divided our services by tranche to limit private mobility and cut back the danger of contagion. We’re taking all people’s temperature, and they’re scanned earlier than coming into our services. And in the event that they current signs, they’re instantly examined and handled, adopted up by contact tracing, as I mentioned.

Additionally, like I discussed throughout my speech, we’ve got staggered hours and shifts. We’ve got obligatory use of masks and antibacterial gel. We’ve got further transport. We’ve got staggered hours for canteens to verify we’ve got a secure distance and it is stored always. We’re commonly sanitizing frequent areas. And likewise, one thing crucial is that we’ve got an inside disaster response group. So we’re assembly day by day at 8:30 a.m. with this COVID committee. We’ve got already deployed our disaster protocol, and we’ve got documented all this in some form 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 originally of the decision, you talked about assist out of your — sure, assist out of your predominant 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 wish to tackle the primary one, Juan, and I will tackle the second?

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

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

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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, once I say that we’ve got the assist of our shareholders, what I imply is we’ve got their whole 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 the earth. 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 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 property in Pennsylvania, as you talked about, within the third quarter. Did you may have a timing in thoughts? Otherwise you’re seeing one thing can occur by since this yr, [I doubt it] however really 2021? Or when you may have some restoration, you are saying that you can be again to regular in 2022. Can we mission ourselves in anticipating for the operations to open in ‘2022?

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

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Okay. Thanks, Jean. Sadly, I’ve a horrible time understanding your query. So I do not know, Juan Francisco and Jaime, when you had been capable of catch that query and when you can tackle it. I simply hear speaking in regards to the Pennsylvania property, 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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Truly, I do not know when 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 when you can count on it to occur in 2021, ’22 or the place will probably be.

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

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Okay. Okay, I can tackle that, if you would 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 recognize, we’ve got postponed it, ready for higher circumstances for each events. And as — I imply we did not count on or no one anticipated this COVID disaster or pandemia. So in all probability, it would take longer than what we first anticipated. So there isn’t any exact date. The newest which have is that it’ll soar into ’21 not less than. However we are going to see how the circumstances are in ’21. If the circumstances are higher, then we are going to execute it. If not, it’s doubtless that we wait just a little 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 puzzled when you might possibly give just a little bit extra colour on U.S. Constructing Techniques. I do know EBITDA — on margins, particularly, 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 additionally, you talked about the Indiana plant not reaching its breakeven level regardless that volumes had been up. So just a bit bit extra colour on that might be useful. After which as nicely, the second query can be, how a lot of your U.S. Cement EBITDA got here out of your Pennsylvania plant?

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

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Okay. So let me tackle the primary query, after which I go away the second query to Jaime. And please, Juan Francisco, soar in, so if you wish to — you probably have any further feedback. In order I discussed throughout my intervention remark, we’re shifting on the fitting path in Allura. We confirmed quantity and income development within the first quarter. A very powerful factor is that we’ve got an amazing worth proposition in a rising market. So our business technique carried out since final yr has confirmed to achieve success.

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

Going to the Indiana plant, idling this plant, Coleman, will assist us cut back our working prices throughout this low-demand interval since we are going to consolidate volumes into the opposite Three vegetation. So I 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 numerous totally different measures to decrease our prices and enhance our money place. Right this moment, in Elementia, money is king, and each determination we’re taking is in direction of that. So we’re striving to proceed rising in — as I mentioned in my presentation, evolve the quantity and profitability.

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

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

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

The second influence is the Indiana facility. It’s dropping cash or the consequence for the quarter was unfavourable, and it was near $2.5 million on this case. So it’s the largest influence. Additionally, as Fernando talked about, final yr, we’ve got a constructive 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 focus on that Big Cement within the U.S. had the most effective quarter ever in — okay, not ever, however within the final 12 years was the most effective one. And Keystone was at the most effective consequence within the final 17 years for the primary quarter. So the query about which share was Keystone on the overall consequence, it is a bit difficult as a result of we’ve got negatives and positives. And company price has a related level there. But when we isolate the consequence from the company bills, the Keystone consequence, first, was constructive 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 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 further telephone questions. I would like to show this system over to Melanie Carpenter to handle 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’ve got 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 wish to tackle that one?

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

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Okay. Positive. The reply to this query can be that at the moment, each events are enforced to do the deal. We’ve got 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 — additional months to be accepted as a result of our first was Christmas and New Yr holidays, after which we’ve got the COVID and FTC was not working commonly. And we’ve got a second request on detailed info in each firms. 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 further measures might you are taking to spice up liquidity? You already mentioned the assist from the collectors, however he is asking if there’s element you possibly can present on assist from the shareholders that you simply talked about.

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

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Most likely, I’ll let Fernando to reply the assist on shareholders, however I’ll definitely go into deep on what we’re doing concerning money move. In order we talked about, we’re lowering SG&A and COGS closely. We’ve got lower third-party providers, and we expect to do $50 million financial savings for the yr. Additionally, as I discussed, we did a headcount discount. We expect $120 million for the yr. That comes with the one-off for severances. And as Fernando talked about, we’ve got additionally briefly decreased salaries for the complete group.

When it comes to working capital, we’re accelerating vegetation that we’ve got to cut back inventories, and we’re anticipating to get — and there is some $25 million for the yr. On high of that, as we talked about, we’ve got had discussions with collectors. And so we’re working additionally in working capital traces. And that can definitely assist to ease these in all probability extra essential months.

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

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So Melanie, if I might step in, simply elaborating on Juan Francisco’s response, I want to summarize that we’ve got been taking all of the actions in our energy to maximise our money move. 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 just a few phrases, inside this present uncertainty, we see viability for the three divisions, for the Cement, Constructing Techniques and Metals.

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

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

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

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Juan?

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

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I 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. Might you repeat it, please?

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

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

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

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Extra, you imply 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 just isn’t finished.

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

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In accordance with my 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 wish to make clear, please. Should 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 and not using a drawback. So are you able to remark a little bit of that — on that, please?

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

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Sure, after all. In order I discussed, we’re — we’ve got an uncommitted credit score line for $50 million. And likewise, we’re engaged on different options on working capital services. 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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Positive. Nicely, the primary quarter, I might say, was the market shifting in the identical method as usually ordinary. I might say bag and bulk had been kind of 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, for my part, at the moment is especially the sub-construction, the bag cement and likewise the governmental infrastructure tasks that — through which we’re, I might say, much less nicely positioned in keeping 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 whole, possibly have dropped 50% of the common numbers. And a number of the — some quantity or some share of this whole lower was compensated by increased 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. Anything on the road?

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

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

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

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

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Operator [83]

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There aren’t any further telephone questions presently. 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 closing ideas. First, COVID-19 is a black swan. I’ve little question that after the storm is over, it would convey new and higher alternatives. Within the meantime, relaxation assured we’re taking each required measure to guard our individuals, make sure the monetary viability of the corporate and 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 secure. Have a pleasant remainder of the day.



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