MEXICO, D.F. Could 26, 2020 (Thomson StreetEvents) — Edited Transcript of Elementia SAB de CV earnings convention name or presentation Thursday, April 30, 2020 at 5:00:00pm GMT

Elementia, S.A.B. de C.V. – CEO

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

Elementia, S.A.B. de C.V. – CFO

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

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

Good day, everybody, and welcome to Elementia’s First Quarter 2020 Earnings Convention Name. Becoming a member of us right now 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. Should 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 now are unaudited and in Mexican pesos, except in any other case acknowledged. 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 through the convention name. That is primarily based on data that’s at present out there and are topic to vary attributable to a wide range of components. For a extra detailed and full disclaimer, please discuss with 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 now. 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, no doubt, will mark a earlier than and after for humanity. The unfold of the COVID-19 all through the world and in our territories, particularly, will convey many, many challenges, impacting our outcomes for 2020 and sure past.

I wish to use this chance to guarantee you that we’re taking the suitable 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 employees within the Eight international locations the place we have now 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 have now adopted diligently to assist mitigate the unfold of the virus. I’ll talk about key measures taken at our open crops in a while. Lastly, we activated an emergency helpline for help to our staff 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 circulation via methods to speed up collections and management credit score strains to particular shoppers, make use of inventories, aligning procurement to demand and limiting CapEx to solely upkeep, compliance and strategic tasks.

We initiated packages to speed up the stock discount goal we talked about in our fourth quarter report and executed an all-country expense discount program that reaches each single space of the corporate. We began by triggering the ring-fences established within the annual price range, however we’re going a lot deeper, all the best way 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 have now had an ideal assist not solely from our controlling shareholders however from most of our collectors who’ve granted us particular phrases to beat the money circulation 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 have now stopped all of our Central and South American operations, aside from Costa Rica, which is working usually. Within the U.S., we have now been categorized as a vital business. And in Mexico, we’re linked to numerous important sectors designated by the Well being Ministry. So we proceed to function, however we have now carried out particular measures like dividing the amenities by zones to limit private mobility and cut back the chance of contagion. Likewise, everybody’s temperature is scanned earlier than coming into our amenities. And if signs are detected, they’re instantly examined and handled, adopted up by contact tracing, in fact.

Different measures embrace staggered hours and shifts, obligatory use of masks and antibacterial gel, extra transport and staggered hours for canteens to verify secure distance is saved always. We’re frequently sanitizing widespread areas amongst many, many different measures and, in fact, following all of the provisions really helpful by native authorities.

And final however not least, the fourth pillar, which is to rework challenges into alternatives. We’re adapting rapidly to the fixed adjustments within the international economic system and these new circumstances. We’re enacting methods to show them into alternatives to proceed creating worth, and we have now stable foundation in every enterprise line to surpass this occasion. We now have maintained contact with our distributors and native governments to supply options which are fastidiously required, like important infrastructure, together with hospitals, non permanent shelters, water storage and conductions, amongst many others, trying 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 best way 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 suitable path, reaching an 11% quantity progress and 15% income progress within the first quarter, because of 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 had 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 building supplies within the U.S., we have now 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 cut back our working prices through the low-demand interval since we’ll consolidate quantity into the opposite Three crops.

Likewise, we have now put in place completely different measures to decrease our prices and enhance our money place. A few of these measures are an aggressive program to speed up stock discount and SG&A discount, value discount on account of R&D, and restrict CapEx solely to upkeep and important tasks. When it comes to the class-action swimsuit filed in opposition to Allura, we anticipate to achieve an settlement within the following months. We’re striving to proceed rising when it comes to each quantity and profitability.

Going now to Constructing Techniques or distribution LatAm. As I discussed, since mid-March, all of the operations, besides Costa Rica and Mexico, had been halted by authorities decree. This affected the figures for the quarter even if the pattern up till February was a stable 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 circulation 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 via efforts corresponding 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. At present, we have now greater than 40 tasks in pipeline, together with shelters and well being clinics for presidency well being techniques and multifamily buildings.

Turning to industrial metals. We’re targeted on operational effectivity in an effort to show across the low availability of the particular charges of uncooked supplies and the ensuing incremental value. No doubt, right here is the place we have now the best problem. The worldwide scenario just isn’t serving to in any respect. It’s inflicting volatility in copper costs, which have a direct impression on each working value via inventories and promoting value since it’s assigned utilizing COMEX as its reference.

Regardless of this, we’re taking many actions corresponding to new — a brand new administration group, value reductions, uncooked materials yield enhancements, operational efficiencies, amongst many others. The outcomes for the primary quarter will not be 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 greater steel prices and nonrecurring bills, corresponding to severance bills.

On the street to reinvention, we’re discovering alternatives and want issues to take advantage of copper’s antimicrobial properties by launching new merchandise. Moreover, we’re working across the clock on a list discount plan to assist money circulation and liquidity. We are going to proceed to seek for new alternatives overseas via our U.S. steel industrial operation and assist to strengthen this market as we have now the know-how and functionality to make this occur. This, mixed with a robust operation, offers us the boldness that there’s an infinite 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. To be able to assist our outcomes, we’re aiming for an accurate combine between baggage and bulk. Likewise, we have now been in a position to provide a few of the Mexican authorities tasks, that are serving to us as effectively to assist our volumes.

Within the first quarter, quantity confirmed a small enhance of 5% versus first quarter 2019. Nonetheless, revenues decreased 5% versus first quarter 2019, which led to a 7% lower in EBITDA. We maintained our give attention to enterprise profitability by optimizing bills and prices. With that, we have now been in a position to obtain a margin of 41%. That’s greater 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 most important markets within the Southeast and Maine weren’t affected by the pandemic. Nonetheless, the Mid-Atlantic market offered some decreases in volumes for the reason that final week of March as a result of well being measures made by governors of every state, and this does have some potential danger. We’re conscious that these situations might change. So we proceed with our dedication to scale back value with an emphasis on producing money circulation.

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% greater quantity. Nonetheless, our EBITDA decreased 3% versus first quarter 2019 due to FX impression. As of right now, we proceed to function usually in Costa Rica. Nonetheless, this might change within the coming months.

Earlier than asking Juan Francisco Sánchez Kramer to elaborate on the primary quarter figures, the spin-off course of and the Keystone growth, I want to share with you our expectations for the remainder of the yr. First, we imagine that the financial impression of the pandemic is not going to solely have an effect on this yr, however probably 2021 to recuperate general ranges by 2022. This, in fact, will probably be completely different for every nation and the measures that every of them take to be able to management and overcome the pandemic and its uncomfortable side effects.

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

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

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

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

Earlier than going into the figures, let me attempt to summarize each the impacts and actions we have now taken associated to the COVID pandemic. As Fernando talked about, money is king, so we’re managing in a money circulation mode. For starters, we executed a number of packages to scale back SG&A, amongst which, first, we canceled or lowered companies that third events used to produce, which is able to convey financial savings of near $50 million on an annual foundation.

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

Third, we executed the ring-fence that had been — we included within the price range course of to remove the bills that had been good to have however not most has. Additionally, specializing in money circulation, we have now established particular packages which are decreasing the necessity for money, like we did a CapEx evaluation and redefinition focusing solely on strategic tasks, upkeep and compliance that may 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 have now put in place new methods to speed up assortment and being extra cautious on our evaluation of credit score strains. Lastly, we have now acquired assist from our collectors to ease amortizations for the next quarters or via working capital strains to guard money.

Relating to the spin-off course of, there may be not likely any information from the fourth quarter report. In abstract, it has been postponed to be able to execute it underneath the absolute best phrases and situations. As we have now beforehand talked about, an intermediate step is to conclude the divestment of the Pennsylvania cement facility. It’s nonetheless underneath evaluation by the antitrust authorities. And contemplating the COVID implications, we’re altering our estimated timeframe to the top of the third quarter. You will need to point out that each events stay and dedicated.

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

Consolidated EBITDA confirmed a 23% lower, primarily attributable to shut of $65 million impression from COVID coming from the demand contraction and manufacturing well being in LatAm; roughly $60 million of detrimental impression on inventories due to the downward pattern of copper value; and near $65 million from one-offs associated to the headcount discount and sophistication motion provisions. Financing prices represented a 34% discount, primarily due to charge reductions and the international change charge revenue.

Shifting on to money circulation. Earlier than CapEx, it was greater than $100 million detrimental, primarily due to a nonrecurring cost on money taxes coming from the top of the fiscal disconsolidation program in Mexico, which nearly doubled the determine of the final quarter of final yr. Decrease EBITDA and dealing capital consumption primarily due to, initially of the pandemic, we determined to accumulate security inventory of merchandise we convey from China. Additionally, we started the constructing of inventories, getting ready for the seasonally greater demand, primarily within the U.S., and have foreign money 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 compensation in line with maturities, and inventory buyback consumed near $300 million and CapEx totaling roughly one other $300 million within the quarter. Consequently, free money circulation 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 change charge impacts on money consumption.

Shifting now to figures by enterprise items. Shifting now to figures by enterprise items, and beginning with Constructing Techniques U.S., let me provide you with an replace on the standing of the category motion lawsuit. Contemplating the dedication within the scenario, we predict that the method may 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% progress 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, had been a few of the details that result in the choice to shut the Indiana plant in the interim.

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 value absorption, together with the severance prices. Based on the newest official data, a few of the amenities may resume operations initially of Could. It is essential to say that in some international locations, we took some authorities stimulus corresponding to a delay in utilities or tax funds which have helped us to retain liquidity.

Shifting to Metals. Revenues had been 12% decrease than the primary quarter of final yr, and EBITDA was 59%, primarily coming from slower market dynamics and decrease stock prices within the first quarter of ’19. It is essential to say that regardless of the market contraction, we have now a restoration in comparison with the final quarter exhibiting an EBITDA progress of 150% on account of the seasonality, operational efficiencies, SG&A discount, the launching of 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 value and bills rationalization. The U.S. authorities is contemplating cement manufacturing as a vital exercise. And due to that, we did not have a COVID impression within the quarter. For the next quarters, we anticipate some market contraction with the Mid-Atlantic area being probably the most affected. For the Cement enterprise in Mexico, there was a slight lower of 1% in quantity in comparison with the final quarter and a lower of 5% in comparison with the identical interval of final yr, consistent with the anticipated financial slowdown revealed by a number of companies, together with Moody’s, as a result of COVID-19.

It is essential to say that the manufacturing of cement was additionally thought-about as important. Our enterprise focus will probably be [premiums], these sustaining credit score strains, monitoring money circulation, rationalization bills, benefiting from the low oil costs and preserve manufacturing and stock ranges consistent with the market demand.

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

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

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I simply have one associated to Mexico. I used to be simply making an attempt to grasp what you meant in your working charges in Mexico. So you probably did point out that you’ve been allowed to function to service-specific tasks or areas. So I used to be simply making an attempt to grasp what meaning on your volumes and working charges in your crops. So for those who may assist us quantify that and provides us extra coloration on what crops are you working and at what charges, in fact? And perhaps simply give us some coloration on how is that taking part in out in April, that will 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 want to apologize for the audio. As , the scenario is making us — make us name from our houses. So please relaxation assured that in a few days, we’ll make the total transcript out there in our IR web site. So relaxation freed from that. Now turning to our query, Alejandra, let’s cut up it in what’s cement and materials. So Jaime, would you want to leap in, Cement, and tell us your reply, please?

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

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Sorry, I used to be on mute. So the reply for that about Mexico, we’re all open. We now have the three crops open in Mexico. We simply closed so far 2 [labor] days, for instance, it was began within the 2nd and the Monday, the 4th of April. And we had been included into the [intuit] wherein cement was thought-about as a vital exercise. So for cement, the manufacturing and the open actions just isn’t 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 relating to, Alejandra, the Materials enterprise. At present, we have now Eight of the 21 crops — 22 crops closed. So principally, all Central and all South America is closed, besides Costa Rica. So right now, we’re working, I’d say, Metals at 80%, Constructing Techniques at 59%. So the virus has unfold rather a lot, as , in principally all of the international locations the place we at present function. And in Costa Rica and in Salvador, they’ve had a superb contagion technique, and it hasn’t unfold that a lot. So given — having stated that, our gross sales have — this has impacted our gross sales. So within the U.S., it has impacted us round 22% of gross sales; in Mexico, I’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 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 – World 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’ve gotten any — do you’ve gotten 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 deal with 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 we have now been in discussions with our operators, the…

(technical issue)

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

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Juan Francisco, we’re having downside listening to you. So are you able to 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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Positive. Are you able to hear me higher now?

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

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Sure, sure.

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

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Significantly better.

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

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So Jamie, thanks on your query. So we have now 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 we have now negotiated with most of them a 6-month timeframe. So it isn’t 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 – World 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 we have now a few uncommitted credit score strains. We now have already drawn one among them. That’s roughly $13 million, and it is simply to guard money. We now have one other that’s nonetheless out there and lowered 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 – World Head of Rising Markets Company Credit score Analysis & MD [17]

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

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

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It’s roughly $50 million.

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

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

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

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5-0.

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Operator [21]

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And we are able to take our subsequent query from Elizabeth Gunning with Prudential.

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Elizabeth Gunning;Prudential Monetary, [22]

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I simply have a follow-up query on some debt additionally. Bear with me. You stated you had been renegotiating your short-term debt. Do you’ve gotten any financial institution mortgage covenants that may be vulnerable to being breached?

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

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Juan, can you are taking that query, please?

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

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

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Elizabeth Gunning;Prudential Monetary, [25]

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

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

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

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Elizabeth Gunning;Prudential Monetary, [27]

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

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Elizabeth Gunning;Prudential Monetary, [29]

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So it is going from 5x to what?

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

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Are you able to hear me higher now?

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Elizabeth Gunning;Prudential Monetary, [31]

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Sure.

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

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Nice. So the covenant is 3.5x web debt to EBITDA. And we’re within the first quarter exhibiting greater 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 for those who may present some coloration on what number of COVID instances you’ve gotten within the firm up to now? And what are the security measures you take?

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

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Thanks. Thanks, [Andres], on your query. To this point, we have now four instances throughout the firm. And sadly, as chances are you’ll know, one among our Board members died 2 weeks in the past. It is a very unhappy story, Jaime Ruiz Sacristán, which was an ideal man that we liked rather a lot. And we’re taking many, many, many actions to forestall it. So let me let you know, I imply we have now divided our amenities 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 coming into our amenities. And in the event that they current signs, they’re instantly examined and handled, adopted up by contact tracing, as I stated.

Additionally, like I discussed throughout my speech, we have now staggered hours and shifts. We now have obligatory use of masks and antibacterial gel. We now have extra transport. We now have staggered hours for canteens to verify we have now a secure distance and it is saved always. We’re frequently sanitizing widespread areas. And in addition, one thing essential is that we have now an inner disaster response group. So we’re assembly each day at 8:30 a.m. with this COVID committee. We now have already deployed our disaster protocol, and we have now documented all this in some form of politics and procedures, and our inner 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;AIG, [37]

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

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

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Positive. Do you wish to deal with the primary one, Juan, and I will deal with 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 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 have now the assist of our shareholders, what I imply is we have now their complete 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 advised 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’ve gotten 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’ve gotten some restoration, you are saying that you may 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 had been in a position to catch that query and for those who can deal with it. I simply hear speaking in regards to the Pennsylvania property, however I do not know what else. So for those who acquired the query, Juan Francisco, please deal with it.

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

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The primary query, if I perceive accurately, Jean, it was in regards to the Pennsylvania timeframe that we’re anticipating?

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

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Really, I do not know for those who hear me higher now. It is really 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 deal with 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 relating to the spin-off timeframe, as , we have now postponed it, ready for higher situations for each events. And as — I imply we did not anticipate or no person anticipated this COVID disaster or pandemia. So most likely, it’s going to take longer than what we first anticipated. So there isn’t a exact date. The newest which have is that it’ll leap into ’21 not less than. However we’ll see how the situations are in ’21. If the situations are higher, then we’ll execute it. If not, it’s probably that we wait a bit bit longer.

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Operator [48]

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

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

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I simply puzzled for those who may perhaps give a bit bit extra coloration on U.S. Constructing Techniques. I do know EBITDA — on margins, particularly, which had 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 in addition, you talked about the Indiana plant not reaching its breakeven level though volumes had been up. So just a bit bit extra coloration on that will be useful. After which as effectively, the second query can be, how a lot of your U.S. Cement EBITDA got here out of your Pennsylvania plant?

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

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Okay. So let me deal with the primary query, after which I go away the second query to Jaime. And please, Juan Francisco, leap in, so if you wish to — you probably have any extra feedback. In order I discussed throughout my intervention remark, we’re shifting on the suitable path in Allura. We confirmed quantity and income progress within the first quarter. A very powerful factor is that we have now an ideal 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 cut 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 we have now been mentioning all through all the decision, we have now been putting in numerous 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 amount and profitability.

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

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

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Positive. Thanks. So Coleman, thanks for the query. There have been 2 most 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 increase the availability that we anticipate to make use of as soon as that we attain a remaining settlement there.

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

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

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Understood.

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

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The one which’s impacting in regards to the Keystone outcomes?

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

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

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

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Okay. Thanks for the query as a result of it is very related to focus on that Big 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 end result within the final 17 years for the primary quarter. So the query about which share was Keystone on the entire end result, it’s kind of difficult as a result of we have now negatives and positives. And company value has a related level there. But when we isolate the end result from the company bills, the Keystone end result, first, was optimistic within the quarter; and second, it was about 25% of the entire operational EBITDA.

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Operator [56]

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And we 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 extra telephone questions. I might 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 now have one from [Nicholas Fabianish] from Jefferies. He is asking if there’s any chance that the M&A of Pennsylvania is canceled.

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

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Okay. Jaime, do you wish to deal with that one?

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

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Okay. Positive. The reply to this query can be that right now, each events are enforced to do the deal. We now have nonetheless many months to go to cancel — or to not cancel, to the settlement, the PPA continues to be legitimate till a number of months. And we’re ready for the FTC to approve. It had been taking some months — additional months to be accepted as a result of our first was Christmas and New 12 months holidays, after which we have now the COVID and FTC was not working frequently. And we have now a second request on detailed data in each firms. In order that delayed a bit the method. However right now, 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. Perhaps Juan Francisco can take this one. What extra measures may you are taking to spice up liquidity? You already mentioned the assist from the collectors, however he is asking if there may be element you may 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 relating to money circulation. In order we talked about, we’re decreasing SG&A and COGS closely. We now have minimize third-party companies, 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 have now additionally briefly lowered salaries for the total group.

When it comes to working capital, we’re accelerating crops that we have now 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, we have now had discussions with collectors. And so we’re working additionally in working capital strains. And that may definitely assist to ease these most likely extra important months.

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

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So Melanie, if I may step in, simply elaborating on Juan Francisco’s response, I want to summarize that we have now been taking all of the actions in our energy to maximise our money circulation. 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 steadiness sheet. And so in a number of phrases, inside this present uncertainty, we see viability for the three divisions, for the Cement, Constructing Techniques and Metals.

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

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

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

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Juan?

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

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I believe Jaime can reply that higher.

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

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

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

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

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

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Extra, you imply aside from Keystone?

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

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No. If I perceive proper, accurately, the query is that if there’s a penalty for a price if the divestment just isn’t accomplished.

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

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Based on my information, it isn’t. There isn’t any 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. Should you can make clear for us in regards to the $50 million line that we’re engaged on, now that we’re optimistic that we’ll renovate this with out a downside. So are you able to remark a little bit of that — on that, please?

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

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Sure, in fact. In order I discussed, we’re — we have now an uncommitted credit score line for $50 million. And in addition, we’re engaged on different alternate options on working capital amenities. So with all of this, we imagine that we can undergo the 5x growth, defending the money and defending the corporate.

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

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Okay. There was a follow-up from Autumn 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 deal with 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. Properly, the primary quarter, I’d say, was the market shifting in the identical approach as usually traditional. I’d say bag and bulk had 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 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, right now is principally the sub-construction, the bag cement and in addition the governmental infrastructure tasks that — wherein we’re, I’d say, much less effectively positioned in line with the entire market and dealing within the new airport building and in addition within the essential freeway that’s constructed within the Southeast. So I’d say, right now, bulk, in complete, perhaps have dropped 50% of the common numbers. And a few of the — some quantity or some share of this complete lower was compensated by greater demand in bag cement.

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

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Okay. Anything on the road?

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

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

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

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Okay. Let me deal with 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 have now right now, 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 have now right now, all of these operations needs to be again on at 100% in a 2-week timeframe. 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 advised you, it is a matter of a 2-weeks timeframe with the data we have now right now.

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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 extra telephone questions at the moment. I might now like to show this system again over to Fernando Ruiz for any closing remarks.

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

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Thanks. Thanks, operator, and thanks all as soon as once more on your curiosity in Elementia. I want 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 remaining ideas. First, COVID-19 is a black swan. I’ve little doubt that when the storm is over, it’s going to 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 keep 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 you probably 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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