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

Elementia, S.A.B. de C.V. – CEO

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

Elementia, S.A.B. de C.V. – CFO

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

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

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

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

Let me remind you that forward-looking statements could also be made throughout the convention name. That is primarily based on info that’s at the moment out there and are topic to vary on account of 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 right this moment. All of us at Elementia ship you our ideas, and we hope that you just and your family members are secure throughout this pandemic.

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

I wish to use this chance to guarantee you that we’re taking the proper 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 folks. And due to this fact, we instantly deployed our disaster protocols to make sure the well-being of our collaborators whereas persevering with our operations wherever it’s allowable.

At present, each administrative workers within the Eight international locations the place we’ve 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 adopted diligently to assist mitigate the unfold of the virus. I’ll talk about key measures taken at our open crops afterward. Lastly, we activated an emergency helpline for help to our workers relating to COVID-19.

The second pillar is a pillar to make sure the monetary viability of the corporate. We created a company and regional contingency committee that meets each day. We’re devoted to strengthening our money circulate 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 non permanent wage reductions.

I’m proud and touched to report that when once more, the group is exhibiting an excellent dedication and dedication to the corporate. I am additionally proud to say that we’ve had an excellent assist, not solely from our controlling shareholders, however from most of our collectors who’ve granted us particular phrases to beat the money circulate 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 stopped all of our Central and South American operations, apart from Costa Rica, which is working usually. Within the U.S., we’ve been labeled 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 we’ve applied particular measures like dividing the services by zones to limit private mobility and cut back the chance of contagion. Likewise, everybody’s temperature is scanned earlier than getting into our services. And if signs are detected, they’re instantly examined and handled, adopted up by contact tracing, in fact.

Different measures embrace staggered hours and shifts, necessary use of masks and antibacterial gel, extra transport and staggered hours for canteens to ensure secure distance is stored always. We’re repeatedly 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 remodel challenges into alternatives. We’re adapting shortly to the fixed modifications within the world economic system and these new circumstances. We’re enacting methods to show them into alternatives to proceed creating worth, and we’ve strong foundation in every enterprise line to surpass this occasion. We have now maintained contact with our distributors and native governments to supply options which can be fastidiously required, like important infrastructure, together with hospitals, non permanent shelters, water storage and conductions, amongst many others, wanting at all times for the event of latest merchandise, channels and markets.

Turning now to the primary quarter outcomes. Let me start with supplies, which is the way in which we name now the Constructing Techniques and Metallic enterprise items. So beginning with Constructing Techniques U.S. or distribution U.S., how we name it now, we’re shifting on the proper path, reaching an 11% quantity progress and 15% income progress within the first quarter, due to the worth proposition of our product providing in addition to the business technique applied since final yr.

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

Likewise, we’ve 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 category motion swimsuit filed towards Allura, we anticipate to succeed in an settlement within the following months. We’re striving to proceed rising when it comes to each quantity and profitability.

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

Money circulate 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 very fact of this difficult time, we managed to proceed progressing in our goal to provide constructing options via efforts comparable to superior. Advance is our new enterprise mannequin we have talked about. We’re delivering building kits to building websites. To this point, the outcomes have been above our expectations. As we speak, we’ve 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 price. Indubitably, right here is the place we’ve the best problem. The worldwide scenario shouldn’t be serving to in any respect. It’s inflicting volatility in copper costs, which have a direct impression 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 comparable to 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 steel prices and nonrecurring bills, comparable to severance bills.

On the street to reinvention, we’re discovering alternatives and want issues to use copper’s antimicrobial properties by launching new merchandise. Moreover, we’re working across the clock on a listing discount plan to assist money circulate and liquidity. We are going to proceed to seek for new alternatives overseas via our U.S. steel business operation and assist to strengthen this market as we’ve 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 scenario is over, we anticipate a robust restoration in our outcomes.

Turning to our Cement enterprise unit, let’s start with Mexico. Within the first quarter, we continued working underneath a weak economic system, which is slowing down additional as a result of pandemic. So as to assist our outcomes, we’re aiming for an accurate combine between baggage and bulk. Likewise, we’ve been capable of provide among 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 give attention to enterprise profitability by optimizing bills and prices. With that, we’ve 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 put up a 157% progress in EBITDA in comparison with the identical interval of 2019. Throughout this era, our important markets within the Southeast and Maine weren’t affected by the pandemic. Nevertheless, the Mid-Atlantic market offered some decreases in volumes because the final week of March as a result of well being measures made by governors of every state, and this does have some potential threat. We’re conscious that these circumstances might change. So we proceed with our dedication to scale back price with an emphasis on producing money circulate.

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 scale 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 impression. As of right this moment, we proceed to function usually in Costa Rica. Nevertheless, this might change within the coming months.

Earlier than asking Juan Francisco Sánchez Kramer to elaborate on the primary quarter figures, the spin-off course of and the Keystone improvement, I wish to share with you our expectations for the remainder of the yr. First, we consider that the financial impression of the pandemic won’t solely have an effect on this yr, however doubtless 2021 to get well total ranges by 2022. This, in fact, might be totally different for every nation and the measures that every of them take as a way to management and overcome the pandemic and its unwanted effects.

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

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

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

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

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

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

Third, we executed the ring-fence that have been — we included within the finances course of to eradicate the bills that have been good to have however not most has. Additionally, specializing in money circulate, we’ve established particular applications which can be lowering the necessity for money, like we did a CapEx overview and redefinition focusing solely on strategic tasks, upkeep and compliance that 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 scale back inventories. In abstract, we’re accelerating these plans, primarily specializing in Metals and Constructing Techniques U.S. Additionally, we’ve put in place new methods to speed up assortment and being extra cautious on our evaluation of credit score traces. Lastly, we’ve 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 may be probably not any information from the fourth quarter report. In abstract, it has been postponed as a way to execute it underneath the very best phrases and circumstances. As we’ve beforehand talked about, an intermediate step is to conclude the divestment of the Pennsylvania cement facility. It’s nonetheless underneath overview by the antitrust authorities. And contemplating the COVID implications, we’re altering our estimated time-frame to the tip of the third quarter. It is very important point out that each events stay and dedicated.

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

Consolidated EBITDA confirmed a 23% lower, primarily on account of shut of $65 million impression from COVID coming from the demand contraction and manufacturing well being in LatAm; roughly $60 million of unfavourable impression 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 price reductions and the international change price revenue.

Transferring on to money circulate. Earlier than CapEx, it was greater than $100 million unfavourable, 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 yr. Decrease EBITDA and dealing capital consumption primarily due to, at first of the pandemic, we determined to amass security inventory of merchandise we deliver from China. Additionally, we started the constructing of inventories, getting ready for the seasonally increased demand, primarily within the U.S., and have forex fluctuations from the dollar-based operations.

In hindsight, these selections weren’t the perfect ones as a result of unprecedented scenario. And as I discussed, we’re accelerating plans to scale back inventories. Capital structured operations embrace debt reimbursement in accordance with maturities, and inventory buyback consumed near $300 million and CapEx totaling roughly one other $300 million within the quarter. In consequence, free money circulate was a consumption of near $700 million.

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

Transferring now to figures by enterprise items. Transferring now to figures by enterprise items, and beginning with Constructing Techniques U.S., let me offer you an replace on the standing of the category motion lawsuit. Contemplating the dedication within the scenario, we predict that the method would possibly decelerate. However, we predict we could possibly attain a proper settlement settlement throughout this yr. Revenues for the primary quarter present a 15% progress by a mix of 11% extra quantity and pricing, however EBITDA was down by 83%, primarily as a result of class motion provision on the Indiana facility not reaching but the breakeven level. The components talked about earlier than, together with the sluggish in demand as a result of COVID-19 disaster, have been among the info that result in the choice to shut the Indiana plant in the intervening time.

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 line with the most recent official info, among the services would possibly resume operations at first of Might. It is necessary to say that in some international locations, we took some authorities stimulus comparable to a delay in utilities or tax funds which have helped us to retain liquidity.

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

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

It is necessary to say that the manufacturing of cement was additionally thought-about as important. Our enterprise focus might be [premiums], these sustaining credit score traces, monitoring money circulate, rationalization bills, making the most of 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 particular tasks or areas. So I used to be simply making an attempt to know what which means in your volumes and working charges in your crops. So for those who may assist us quantify that and provides us extra colour on what crops are you working and at what charges, in fact? And perhaps 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, in your query. First, I wish to apologize for the audio. As you understand, the scenario is making us — make us name from our houses. So please relaxation assured that in a few days, we are going to make the complete transcript out there in our IR web site. So relaxation freed from that. Now turning to our query, Alejandra, let’s break up it in what’s cement and materials. So Jaime, would you want to leap in, Cement, and tell us your reply, please?

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

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Sorry, I used to be on mute. So the reply for that about Mexico, we’re all open. We have now the three crops open in Mexico. We simply closed to this point 2 [labor] days, as an example, it was began within the 2nd and the Monday, the 4th of April. And we have been included into the [intuit] through which cement was thought-about as an important exercise. So for cement, the manufacturing and the open actions shouldn’t be 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. As we speak, we’ve Eight of the 21 crops — 22 crops closed. So principally, all Central and all South America is closed, besides Costa Rica. So right this moment, we’re working, I’d say, Metals at 80%, Constructing Techniques at 59%. So the virus has unfold so much, as you understand, in principally all of the international locations the place we at the moment function. And in Costa Rica and in Salvador, they’ve had 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, 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 just 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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Certain. Thanks, Jamie, in your questions. So we’ve been in discussions with our operators, the…

(technical problem)

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

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

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

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Certain. Are you able to hear me higher now?

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

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Sure, sure.

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

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Significantly better.

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

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So Jamie, thanks in your query. So we’ve 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 negotiated with most of them a 6-month time-frame. So it’s not that a lot when it comes to share, but it surely definitely helps to work via the important second a bit bit.

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

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After which entry to any dedicated undrawn credit score traces?

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

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

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

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

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

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It’s roughly $50 million.

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

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

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

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5-0.

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Operator [21]

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And we 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 have been renegotiating your short-term debt. Do you may have any financial institution mortgage covenants that could 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’re taking that query, please?

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

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

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Elizabeth Gunning, [25]

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

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

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Certain. It’s a internet debt-to-EBITDA ratio that needs to be in 3.5x. Within the first quarter, increased 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 probability? That could be useful. It is exhausting to know you.

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

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Sure, communicate louder, Juan.

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Elizabeth Gunning, [29]

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So it is going from 5x to what?

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

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Are you able to hear me higher now?

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Elizabeth Gunning, [31]

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Sure.

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

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Nice. So the covenant is 3.5x internet debt to EBITDA. And we’re within the first quarter exhibiting 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 for those who may present some colour on what number of COVID circumstances you may have within the firm up to now? And what are the protection measures you’re taking?

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

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Thanks. Thanks, [Andres], in your query. To this point, we’ve four circumstances throughout the firm. And sadly, as you could know, considered one of our Board members died 2 weeks in the past. It is a very unhappy story, Jaime Ruiz Sacristán, which was an excellent man that we beloved so much. And we’re taking many, many, many actions to forestall it. So let me let you know, I imply we’ve divided our services by tranche to limit private mobility and cut back the chance of contagion. We’re taking all people’s temperature, and they’re scanned earlier than getting into our services. And in the event that they current signs, they’re instantly examined and handled, adopted up by contact tracing, as I stated.

Additionally, like I discussed throughout my speech, we’ve staggered hours and shifts. We have now necessary use of masks and antibacterial gel. We have now extra transport. We have now staggered hours for canteens to ensure we’ve a secure distance and it is stored always. We’re repeatedly sanitizing frequent areas. And likewise, one thing essential is that we’ve an inside disaster response group. So we’re assembly each day at 8:30 a.m. with this COVID committee. We have now already deployed our disaster protocol, and we’ve documented all this in some 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, [37]

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I’ve 2 questions. One, you talked about the extraordinary bills associated to layoffs. However I am sorry, I did not hear how a lot that one-off expense was. And the second query is at first of the decision, you talked about assist out of your — sure, assist out of your important 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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Certain. 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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Certain. Thanks, Sean, in your query. The layoff price was near MXN 40 million, and that’s all registered within the first quarter. We anticipate to have financial savings from that of near MXN 120 million for the yr.

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

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And relating to your second query, Sean, after I say that we’ve the assist of our shareholders, what I imply is we’ve their whole dedication to the corporate. They’re extra concerned than ever. So they’re very concerned. They — as you understand, they’re very robust enterprise folks in Mexico and on the planet. So they’re right here for the long run. And they’re serving to us negotiate with banks. And as I 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 perhaps on the spin-off course of. I perceive in your commentary that it isn’t promising to occur fairly quickly, in all probability not earlier than the opposite sale of the property in Pennsylvania, as you talked about, within the third quarter. Did you may have a timing in thoughts? Otherwise you’re seeing one thing can occur by since this yr, [I doubt it] however truly 2021? Or when you may have some restoration, you are saying that you’ll 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, for those who have been capable of catch that query and for those who can tackle it. I simply hear speaking concerning the Pennsylvania property, however I do not know what else. So for those who received the query, Juan Francisco, please tackle it.

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

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

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

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

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

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

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

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

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Operator [48]

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

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

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I simply puzzled for those who may perhaps give a bit bit extra colour on U.S. Constructing Techniques. I do know EBITDA — on margins, specifically, which have been down. I do know that you just talked about that a part of that was provisions made for the category motion course of. But additionally, you talked about the Indiana plant not reaching its breakeven level despite the fact that volumes have been up. So just a bit bit extra colour on that might 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, bounce in, so if you wish to — in case you have any extra feedback. In order I discussed throughout my intervention remark, we’re shifting on the proper path in Allura. We confirmed quantity and income progress within the first quarter. Crucial factor is that we’ve an excellent worth proposition in a rising market. So our business technique applied since final yr has confirmed to achieve success.

However, as you noticed, our EBITDA dropped 83% due primarily to the category motion provision we made, plus the capitalization bills which we returned from — to final yr outcomes. So perhaps after I end addressing these questions, Juan Francisco, you’ll be able to bounce 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 crops. So I believe we could have a pleasant margin enchancment there. In order we’ve been mentioning all through all the decision, we’ve been putting in plenty of totally different measures to decrease our prices and enhance our money place. As we speak, in Elementia, money is king, and each choice we’re taking is in direction of that. So we’re striving to proceed rising in — as I stated in my presentation, evolve the quantity and profitability.

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

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

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Certain. Thanks. So Coleman, thanks for the query. There have been 2 important 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 anticipate to make use of as soon as that we attain a last settlement there.

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

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

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Understood.

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

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The one which’s impacting concerning the Keystone outcomes?

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

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

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

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Okay. Thanks for the query as a result of it is very related to spotlight that Large Cement within the U.S. had the perfect quarter ever in — okay, not ever, however within the final 12 years was the perfect one. And Keystone was at the perfect consequence within the final 17 years for the primary quarter. So the query about which share was Keystone on the whole consequence, it’s kind of difficult as a result of we’ve negatives and positives. And company price has a related level there. But when we isolate the consequence from the company bills, the Keystone consequence, first, was optimistic within the quarter; and second, it was about 25% of the whole 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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Presently, there are not any extra cellphone questions. I might like to show this system over to Melanie Carpenter to deal with any net questions.

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

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

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

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

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

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In all probability, I’ll let Fernando to reply the assist on shareholders, however I’ll definitely go into deep on what we’re doing relating to money circulate. In order we talked about, we’re lowering SG&A and COGS closely. We have now minimize 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 additionally quickly diminished salaries for the complete group.

When it comes to working capital, we’re accelerating crops that we’ve to scale 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 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 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 wish to summarize that we’ve been taking all of the actions in our energy to maximise our money circulate. In order that’s together with all of the actions that Juan Francisco has been speaking about. So we’re working very, very exhausting to strengthen our stability sheet. And so in a couple of phrases, inside this current 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. Glorious. 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 if that’s the case, how a lot is that?

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

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Juan?

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

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I believe Jaime can reply that higher.

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

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

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

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If there is a 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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Extra, you imply different (inaudible)?

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

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No. If I perceive proper, accurately, the query is that if there’s a penalty for a charge if the divestment shouldn’t be carried out.

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

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

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Okay. Glorious…

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

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Sorry, Melanie, simply I wish to make clear, please. In the event you can make clear for us concerning the $50 million line that we’re engaged on, now that we’re optimistic that we are going to renovate this and not using 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 — we’ve 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 improvement, defending the money and defending the corporate.

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

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

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

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

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

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Certain. Effectively, the primary quarter, I’d say, was the market shifting in the identical manner as usually regular. I’d say bag and bulk have been roughly in the identical proportion than earlier quarters. After the COVID, pricing was established and lots of building 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, right this moment is principally the sub-construction, the bag cement and likewise the governmental infrastructure tasks that — through which we’re, I’d say, much less nicely positioned in accordance with the entire market and dealing within the new airport building and likewise within the necessary freeway that’s constructed within the Southeast. So I’d say, right this moment, bulk, in whole, perhaps have dropped 50% of the common numbers. And among 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. 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 assume your operations might be affected in Costa Rica? And the way a lot will this impression your exercise?

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

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

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

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

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Operator [83]

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There are not any extra cellphone questions presently. I might now like to show this system again over to Fernando Ruiz for any closing remarks.

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

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

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

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



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