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 at the moment is Chief Govt Officer, Fernando Ruiz Jacques; Chief Monetary Officer, Juan Francisco Sánchez Kramer; and Jaime Rocha, Head of the Cement Enterprise.

Please be suggested that this name is for traders and analysts solely. Throughout this name, they are going to be discussing Elementia’s efficiency as per the press launch launched yesterday. In the event 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 acknowledged. 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 throughout the convention name. That is primarily based on data that’s at present obtainable and are topic to vary because 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 at the moment. All of us at Elementia ship you our ideas, and we hope that you just and your family members are protected throughout this pandemic.

So let me begin with this unprecedented and surprising occasion, a world pandemic that, certainly, 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 need to use this chance to guarantee you that we’re taking the best measures to face these challenges, and our actions are being guided by four key pillars to assist our long-term success. So the primary pillar is to take care and defend our folks. And subsequently, we instantly deployed our disaster protocols to make sure the well-being of our collaborators whereas persevering with our operations wherever it’s allowable.

Presently, each administrative workers within the Eight international locations the place now we have 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, now we have adopted diligently to assist mitigate the unfold of the virus. I’ll focus on key measures taken at our open crops in a while. 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 each day. We’re devoted to strengthening our money move by way of methods to speed up collections and management credit score strains to particular purchasers, make use of inventories, aligning procurement to demand and limiting CapEx to solely upkeep, compliance and strategic initiatives.

We initiated 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 funds, however we’re going a lot deeper, all the way in which to momentary 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 now we have had a terrific 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 need 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 keep up our operational continuity. By authorities decree, now we have stopped all of our Central and South American operations, aside from Costa Rica, which is working usually. Within the U.S., now we have been labeled as a necessary trade. And in Mexico, we’re linked to varied important sectors designated by the Well being Ministry. So we proceed to function, however now we have carried out particular measures like dividing the amenities by zones to limit private mobility and scale back the danger of contagion. Likewise, everybody’s temperature is scanned earlier than getting into our amenities. And if signs are detected, they’re instantly examined and handled, adopted up by contact tracing, after all.

Different measures embody staggered hours and shifts, necessary use of masks and antibacterial gel, further transport and staggered hours for canteens to verify protected distance is stored always. We’re recurrently sanitizing frequent areas amongst many, many different measures and, after all, following all of the provisions really helpful 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 adjustments within the world economic system and these new circumstances. We’re enacting methods to show them into alternatives to proceed creating worth, and now we have stable foundation in every enterprise line to surpass this occasion. We’ve maintained contact with our distributors and native governments to supply options which are rigorously required, like vital infrastructure, together with hospitals, momentary shelters, water storage and conductions, amongst many others, wanting all the time for the event of latest merchandise, channels and markets.

Turning now to the primary quarter outcomes. Let me start with supplies, which is the way in which we name now the Constructing Methods and Metallic enterprise models. So beginning with Constructing Methods U.S. or distribution U.S., how we name it now, we’re shifting on the best 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 industrial technique carried out since final yr.

Nonetheless, 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 value mentioning that proper from COVID-19 and the impact it has had and may have on the demand for development supplies within the U.S., now we have 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 determination will assist us scale back our working prices throughout the low-demand interval since we’ll consolidate quantity into the opposite Three crops.

Likewise, now we have put in place completely different measures to decrease our prices and enhance our money place. A few of these measures are an aggressive program to speed up stock discount and SG&A discount, value discount because of R&D, and restrict CapEx solely to upkeep and important initiatives. When it comes to the category motion go well with filed towards Allura, we count on to succeed in an settlement within the following months. We’re striving to proceed rising by way of each quantity and profitability.

Going now to Constructing Methods or distribution LatAm. As I discussed, since mid-March, all of the operations, besides Costa Rica and Mexico, have been halted by authorities decree. This affected the figures for the quarter even though the pattern 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 will probably be our prime precedence, and we’re strongly working in that sense. The ring-fence has been activated together with a a lot deeper discount of bills and CapEx. However the actual fact of this difficult time, we managed to proceed progressing in our goal to produce constructing options by way of efforts comparable to superior. Advance is our new enterprise mannequin we have talked about. We’re delivering development kits to development websites. Up to now, the outcomes have been above our expectations. At present, now we have greater than 40 initiatives in pipeline, together with shelters and well being clinics for presidency well being techniques and multifamily buildings.

Turning to industrial metals. We’re targeted on operational effectivity in an effort to show across the low availability of the precise charges of uncooked supplies and the ensuing incremental value. For sure, right here is the place now we have the best problem. The worldwide state of affairs shouldn’t be serving to in any respect. It’s inflicting volatility in copper costs, which have a direct influence on each working value by way of 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, value reductions, uncooked materials yield enhancements, operational efficiencies, amongst many others. The outcomes for the primary quarter usually are not on the ranges we need to obtain with a 12% lower in income year-over-year, however the efforts are starting to repay with a 13% improve in comparison with final quarter. EBITDA confirmed a 59% lower versus first quarter 2019, affected by larger steel prices and nonrecurring bills, comparable to severance bills.

On the street to reinvention, we’re discovering alternatives and wish issues to take advantage of copper’s antimicrobial properties by launching new merchandise. Moreover, we’re working across the clock on a list discount plan to assist money move and liquidity. We are going to proceed to seek for new alternatives overseas by way of our U.S. steel industrial operation and assist to strengthen this market as now we have the know-how and functionality to make this occur. This, mixed with a robust operation, provides us the arrogance that there’s an infinite 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. In an effort to assist our outcomes, we’re aiming for an accurate combine between luggage and bulk. Likewise, now we have been capable of provide among the Mexican authorities initiatives, that are serving to us as properly to assist our volumes.

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

For the Cement enterprise within the U.S., we registered a 15% improve in income as a result of mixture of pricing and quantity improve, which, mixed with a greater local weather and management in bills, allowed us to submit a 157% development in EBITDA in comparison with the identical interval of 2019. Throughout this era, our essential markets within the Southeast and Maine weren’t affected by the pandemic. Nonetheless, the Mid-Atlantic market introduced some decreases in volumes because the final week of March as a result of well being measures made by governors of every state, and this does have some potential threat. We’re conscious that these circumstances might change. So we proceed with our dedication to scale back value 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 scale back our leverage ranges. Going to the Cement operations in Costa Rica, this enterprise proves that our technique is working with a 15% larger quantity. Nonetheless, our EBITDA decreased 3% versus first quarter 2019 due to FX influence. As of 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 improvement, I wish to share with you our expectations for the remainder of the yr. First, we imagine that the financial influence of the pandemic is not going to solely have an effect on this yr, however probably 2021 to recuperate general ranges by 2022. This, after all, will probably be completely different for every nation and the measures that every of them take with a view 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 general 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 will probably be key throughout these difficult occasions.

Earlier than going into the figures, let me attempt to summarize each the impacts and actions now we have taken associated to the COVID pandemic. As Fernando talked about, money is king, so we’re managing in a money move 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 produce, which is able to convey financial savings of near $50 million on an annual foundation.

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

Third, we executed the ring-fence that have been — we included within the funds course of to remove the bills that have been good to have however not most has. Additionally, specializing in money move, now we have established particular applications which are decreasing the necessity for money, like we did a CapEx assessment and redefinition focusing solely on strategic initiatives, upkeep and compliance that can scale back the money necessities by near $20 million for the 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 Methods U.S. Additionally, now we have put in place new methods to speed up assortment and being extra cautious on our evaluation of credit score strains. Lastly, now we have obtained assist from our collectors to ease amortizations for the next quarters or by way of working capital strains 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 with a view to execute it below the absolute best phrases and circumstances. As now we have beforehand talked about, an intermediate step is to conclude the divestment of the Pennsylvania cement facility. It’s nonetheless below assessment 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.

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 Methods helped scale back the unfavourable influence of the market contraction in different areas.

Consolidated EBITDA confirmed a 23% lower, primarily because of 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 pattern of copper value; and near $65 million from one-offs associated to the headcount discount and sophistication motion provisions. Financing prices represented a 34% discount, primarily due to charge reductions and the overseas alternate charge revenue.

Transferring on to money move. 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 nearly doubled the determine of the final quarter of final yr. Decrease EBITDA and dealing capital consumption primarily due to, initially 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 larger demand, primarily within the U.S., and have forex fluctuations from the dollar-based operations.

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

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

For Constructing Methods LatAm, revenues decreased 5%, however EBITDA was down 60%, primarily as a result of halt in operations we did since mid-March and the ensuing much less mounted value absorption, together with the severance prices. In response to the most recent official data, among the amenities would possibly resume operations initially of Might. It is vital 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 vital to say that regardless of the market contraction, now we have a restoration in comparison with the final quarter exhibiting an EBITDA development of 150% 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% improve in revenues and a powerful 157% improve in EBITDA, primarily stemming from value and bills rationalization. The U.S. authorities is contemplating cement manufacturing as a necessary exercise. And due to that, we did not have a COVID influence within the quarter. For the next quarters, we count on some market contraction with the Mid-Atlantic area being essentially the most affected. For the Cement enterprise in Mexico, there was a slight lower of 1% in quantity in comparison with the final quarter and a lower of 5% in comparison with the identical interval of final yr, in keeping with the anticipated financial slowdown revealed by a number of corporations, together with Moody’s, as a result of COVID-19.

It is vital to say that the manufacturing of cement was additionally thought of as important. Our enterprise focus will probably be [premiums], these sustaining credit score strains, monitoring money move, rationalization bills, making the most of the low oil costs and hold manufacturing and stock ranges in keeping with the market demand.

Lastly, our Cement enterprise in Costa Rica confirmed a 2% lower in revenues and a 3% contraction in EBITDA, primarily coming from forex fluctuation. In {dollars}, the enterprise confirmed a 6% and 30% improve in revenues and EBITDA, respectively, primarily coming from value and quantity will increase.

With this, I conclude my remarks and ask the operator to please proceed with the Q&A session. Thanks.

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Questions and Solutions

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Operator [1]

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We are able to take our first query from Alejandra Obregon with Morgan Stanley.

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

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I simply have one associated to Mexico. I used to be simply attempting to grasp what you meant in your working charges in Mexico. So you probably did point out that you’ve got been allowed to function to service particular initiatives or areas. So I used to be simply attempting to grasp what which means on your volumes and working charges in your crops. So should you might assist us quantify that and provides us extra colour on what crops are you working and at what charges, after all? 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, on your query. First, I wish to apologize for the audio. As , the state of affairs is making us — make us name from our properties. So please relaxation assured that in a few days, we’ll 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 the three crops 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 have been included into the [intuit] during which cement was thought of as a necessary exercise. So for cement, the manufacturing and the open actions shouldn’t be a problem.

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Fernando Benjamín Ruiz Jacques, Elementia, S.A.B. de C.V. – CEO [5]

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Okay. Thanks. Thanks, Jaime. And concerning, Alejandra, the Materials enterprise. At present, now we have Eight of the 21 crops — 22 crops closed. So mainly, all Central and all South America is closed, besides Costa Rica. So at the moment, we’re working, I’d say, Metals at 80%, Constructing Methods at 59%. So the virus has unfold quite a bit, as , in mainly all of the international locations the place we at present function. And in Costa Rica and in Salvador, they’ve had a great contagion technique, and it hasn’t unfold that a lot. So given — having stated that, our gross sales have — this has impacted our gross sales. So within the U.S., it has impacted us round 22% of gross sales; in Mexico, I’d say round 20%; and in Latin America, as I stated, mainly all gross sales are frozen. So I do not know if we answered your query, Alejandra.

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Operator [6]

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And we are able to take our subsequent query from Jamie Nicholson with Crédit Suisse.

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

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You talked about that you just had renegotiated a few of your amortizations. Are you able to inform us what proportion of your short-term debt coming due this yr has been renegotiated? After which associated to that, do you could have any — do you could have entry to any undrawn dedicated credit score line?

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

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

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

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Positive. Thanks, Jamie, on your questions. So now we have been in discussions with our operators, the…

(technical issue)

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

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Juan Francisco, we’re having 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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A lot better.

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

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So Jamie, thanks on your query. So now we have been in discussions with all of the banks. And all of the bilateral amenities, which has a maturity schedule, that’s clearly quarterly or twice a yr due. So now we have negotiated with most of them a 6-month time-frame. So it isn’t that a lot by way of proportion, however it definitely helps to work by way of the vital second a bit of bit.

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

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After which entry to any dedicated undrawn credit score strains?

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

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Positive. So now we have a few uncommitted credit score strains. We’ve already drawn considered one of them. That’s roughly $13 million, and it is simply to guard money. We’ve one other that’s nonetheless obtainable and diminished to that dedicated credit score line that we’ll do it initially 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 are able to take our subsequent query from Elizabeth Gunning with Prudential.

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Elizabeth Gunning, [22]

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I simply have a follow-up query on some debt additionally. Bear with me. You stated you have been renegotiating your short-term debt. Do you could have any financial institution mortgage covenants that is likely to be prone to being breached?

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Fernando Benjamín Ruiz Jacques, Elementia, S.A.B. de C.V. – CEO [23]

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Juan, can you are taking that query, please?

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

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Positive. Sure. Thanks. Thanks, Elizabeth, for the query. Sure, I imply, now we have not coated the covenants or not fulfill the covenant because the third quarter ’19. So now we have requested for the waivers, the waivers discussions. And now we have nearly all of the waivers for final yr, and now we have already let know the banks what our views for 2020. So they’re all conscious of what are we seeing by way of covenant.

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Elizabeth Gunning, [25]

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

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

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Positive. It’s a web debt-to-EBITDA ratio that ought to be in 3.5x. Within the first quarter, larger than that, 5.63x.

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Elizabeth Gunning, [27]

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I am sorry, might you say that once more? And may you get on speakerphone by likelihood? That is likely to be useful. It is arduous to grasp you.

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

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Sure, converse louder, Juan.

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Elizabeth Gunning, [29]

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So it is going from 5x to what?

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

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Are you able to hear me higher now?

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Elizabeth Gunning, [31]

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Sure.

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

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Nice. So the covenant is 3.5x web debt to EBITDA. And we’re within the first quarter exhibiting larger than 5x.

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Operator [33]

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And we are able to take our subsequent query from [Andre Gonzales] with [Siquer].

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Unidentified Analyst, [34]

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I simply wished to ask should you might present some colour on what number of COVID instances you could have within the firm up to now? 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], on your query. Up to now, now we have four instances inside the firm. And sadly, as it’s possible you’ll know, considered one of our Board members died 2 weeks in the past. It is a very unhappy story, Jaime Ruiz Sacristán, which was a terrific man that we cherished quite a bit. And we’re taking many, many, many actions to stop it. So let me inform you, I imply now we have divided our amenities by tranche to limit private mobility and scale back the danger of contagion. We’re taking all people’s temperature, and they’re scanned earlier than getting into our amenities. And in the event that they current signs, they’re instantly examined and handled, adopted up by contact tracing, as I stated.

Additionally, like I discussed throughout my speech, now we have staggered hours and shifts. We’ve necessary use of masks and antibacterial gel. We’ve further transport. We’ve staggered hours for canteens to verify now we have a protected distance and it is stored always. We’re recurrently sanitizing frequent areas. And likewise, one thing crucial is that now we have an inside disaster response group. So we’re assembly each day at 8:30 a.m. with this COVID committee. We’ve already deployed our disaster protocol, and now we have 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’ll take our subsequent query from Sean Glickenhaus with AIG.

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Sean Glickenhaus, [37]

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I’ve 2 questions. One, you talked about the extraordinary bills associated to layoffs. However I am sorry, I did not hear how a lot that one-off expense was. And the second query is initially of the decision, you talked about assist out of your — sure, assist out of your essential shareholders. Are you able to clarify what which means precisely?

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Fernando Benjamín Ruiz Jacques, Elementia, S.A.B. de C.V. – CEO [38]

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Positive. Do you need to tackle the primary one, Juan, and I 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, on your query. The layoff value was near MXN 40 million, and that’s all registered within the first quarter. We count on to have financial savings from that of near MXN 120 million for the 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, after I say that now we have the assist of our shareholders, what I imply is now we have their whole dedication to the corporate. They’re extra concerned than ever. So they’re very concerned. They — as , they’re very robust enterprise folks in Mexico and on this planet. So they’re right here for the long run. And they’re serving to us negotiate with banks. And as I informed you, very, very concerned. So they’re over the enterprise.

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Operator [41]

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

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

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Only a fast one perhaps on the spin-off course of. I perceive in your commentary that it isn’t promising to occur fairly quickly, most likely not earlier than the opposite sale of the property in Pennsylvania, as you talked about, within the third quarter. Did you could 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 could have some restoration, you are saying that you may be again to regular in 2022. Can we challenge 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, should you have been capable of catch that query and should you can tackle it. I simply hear speaking in regards to the Pennsylvania property, however I do not know what else. So should you received the query, Juan Francisco, please tackle it.

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

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The primary query, if I perceive accurately, Jean, it was in regards to the Pennsylvania 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 should 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 should 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 , now we have 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 most likely, it should take longer than what we first anticipated. So there is no such thing as a exact date. The newest which have is that it’ll leap into ’21 a minimum of. However we’ll see how the circumstances are in ’21. If the circumstances are higher, then we’ll execute it. If not, it’s probably that we wait a bit of bit longer.

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Operator [48]

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

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

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I simply questioned should you might perhaps give a bit of bit extra colour on U.S. Constructing Methods. I do know EBITDA — on margins, particularly, 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 though volumes have been up. So just a bit bit extra colour on that might be useful. After which as properly, the second query could be, how a lot of your U.S. Cement EBITDA got here out of your Pennsylvania plant?

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

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Okay. So let me tackle the primary query, after which I depart the second query to Jaime. And please, Juan Francisco, leap in, so if you wish to — when you have any further feedback. In order I discussed throughout my intervention remark, we’re shifting on the best path in Allura. We confirmed quantity and income development within the first quarter. Crucial factor is that now we have a terrific worth proposition in a rising market. So our industrial technique carried out since final yr has confirmed to achieve success.

Nonetheless, as you noticed, our EBITDA dropped 83% due primarily to the category motion provision we made, plus the capitalization bills which we returned from — to final yr outcomes. So perhaps after I end addressing these questions, Juan Francisco, you’ll be able to leap in and elaborate on that.

Going to the Indiana plant, idling this plant, Coleman, will assist us scale back our working prices throughout this low-demand interval since we’ll consolidate volumes into the opposite Three crops. So I believe we may have a pleasant margin enchancment there. In order now we have been mentioning all through all the decision, now we have been putting in a number of completely different measures to decrease our prices and enhance our money place. At present, in Elementia, money is king, and each determination we’re taking is in the direction of that. So we’re striving to proceed rising in — as I stated in my presentation, evolve the quantity and profitability.

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

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

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

The second influence is the Indiana facility. It’s dropping cash or the outcome 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, now we have a constructive 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 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 extremely related to focus on that Large Cement within the U.S. had one of the best quarter ever in — okay, not ever, however within the final 12 years was one of the best one. And Keystone was at one of the best outcome within the final 17 years for the primary quarter. So the query about which proportion was Keystone on the whole outcome, it’s kind of tough as a result of now we have negatives and positives. And company value has a related level there. But when we isolate the outcome from the company bills, the Keystone outcome, first, was constructive 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 are able to now take a follow-up query from Alejandra Obregon with Morgan Stanley.

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Alejandra Obregon Martinez, Morgan Stanley, Analysis Division – Analysis Affiliate [57]

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My query has been answered.

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Operator [58]

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At the moment, there aren’t any further cellphone questions. I would like to show this system over to Melanie Carpenter to handle any net questions.

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

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

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

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

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

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Okay. Positive. The reply to this query could be that at the moment, each events are enforced to do the deal. We’ve 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 now we have the COVID and FTC was not working recurrently. And now we have a second request on detailed data 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 data 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 further measures might you are taking to spice up liquidity? You already mentioned the assist from the collectors, however he is asking if there may be element you might 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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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 decreasing SG&A and COGS closely. We’ve minimize third-party providers, and we predict to do $50 million financial savings for the yr. Additionally, as I discussed, we did a headcount discount. We predict $120 million for the yr. That comes with the one-off for severances. And as Fernando talked about, now we have additionally briefly diminished salaries for the complete group.

When it comes to working capital, we’re accelerating crops that now we have to scale back inventories, and we’re anticipating to get — and there is some $25 million for the yr. On prime of that, as we talked about, now we have had discussions with collectors. And so we’re working additionally in working capital strains. And that can definitely assist to ease these most likely extra vital months.

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

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So Melanie, if I might step in, simply elaborating on Juan Francisco’s response, I wish to summarize that now we have 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 arduous to strengthen our steadiness sheet. And so in a couple of phrases, inside this present uncertainty, we see viability for the three divisions, for the Cement, Constructing Methods and Metals.

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

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Okay. Wonderful. There was a query from Autumn Graham from Schroders. He is asking if there is a break price for the asset sale within the U.S. And 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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Possibly I did not perceive the query. Might you repeat it, please?

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

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

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

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Extra, you imply different (inaudible)?

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

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No. If I perceive proper, accurately, the query is that if there’s a penalty for a price if the divestment shouldn’t be 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 response to my information, it isn’t. There is not any penalty.

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

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Okay. Wonderful…

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

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Sorry, Melanie, simply I need to make clear, please. In the event 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’ll renovate this with no drawback. So are you able to remark a little bit of that — on that, please?

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

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Sure, after all. In order I discussed, we’re — now we have an uncommitted credit score line for $50 million. And likewise, we’re engaged on different options on working capital amenities. So with all of this, we imagine 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 concerning — perhaps this one is for Jaime Rocha right here. Do you see resilience in Mexico bag cement? And what’s the distinction in infrastructure demand in comparison with bag demand?

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

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

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

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Positive. Nicely, the primary quarter, I’d say, was the market shifting in the identical manner as usually normal. 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 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 general. 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, at the moment is principally the sub-construction, the bag cement and likewise the governmental infrastructure initiatives that — during which we’re, I’d say, much less properly positioned in response to the entire market and dealing within the new airport development and likewise within the vital freeway that’s constructed within the Southeast. So I’d say, at the moment, bulk, in whole, perhaps have dropped 50% of the common numbers. And among the — some quantity or some proportion of this whole lower was compensated by larger demand in bag cement.

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Fernando Benjamín Ruiz Jacques, Elementia, S.A.B. de C.V. – CEO [79]

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Okay. 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 assume your operations will probably be affected in Costa Rica? And the way a lot will this influence your exercise?

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

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Okay. Let me tackle that one. And perhaps I used to be not clear throughout my speech. Costa Rica is working, likewise for Cement and Constructing Methods. So it is working. So these operations which aren’t working are Salvador, the Colombia, Ecuador, Bolivia and Peru. With the data that now we have at the moment, we count on these operations to be again on observe within the following 2 weeks. That may change due to governments’ decrees. However with the data now we have at the moment, all of these operations ought to be again on at 100% in a 2-week time-frame. As we converse, this week, Barranquilla already started operations. And yesterday, we had the approval of the Colombian authorities to proceed operations in Bogotá and in Cali. So Three crops are already going again to work. And the opposite one, as I informed you, it is a matter of a 2-weeks time-frame with the data now we have 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 cellphone 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 on your curiosity in Elementia. I wish 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 last ideas. First, COVID-19 is a black swan. I’ve little question that when the storm is over, it should convey new and higher alternatives. Within the meantime, relaxation assured we’re taking each required measure to guard our folks, make sure the monetary viability of the corporate and preserve operational continuity. We’re prepared to maneuver ahead because the sand firm that we’re. And second, we’re dedicated to discovering one of the best methods to ship worth to all our shareholders.

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



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