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Edited Transcript of ELEMENT*.MX earnings conference call or presentation 23-Jul-19 1:00pm GMT

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Q2 2019 Elementia SAB de CV allowance Call

MEXICO, D.F. Jul 25, 2019 (Thomson StreetEvents) -- Edited Transcript of Elementia SAB de CV allowance assembly shriek or presentation Tuesday, July 23, 2019 can 1:00:00pm GMT

TEXT translation of Transcript

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Corporate Participants

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* Alfonso Molina Romo

Elementia, S.A.B. de C.V. - Corporate Treasury

* Fernando Benjamín Ruiz Jacques

Elementia, S.A.B. de C.V. - CEO

* Juan Francisco Sánchez Kramer

Elementia, S.A.B. de C.V. - CFO

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Conference shriek Participants

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* Anne Jean Milne

BofA Merrill Lynch, inquiry section - MD and head of the jewel Corporate certainty Research

* Cecilia Jimenez

Santander Investment Securities Inc., inquiry section - head of Cement and Construction

* Eduardo Altamirano

HSBC, inquiry section - Analyst, LatAm Cement and Construction, genuine Estate

* Jamie Nicholson-Leener

Crédit Suisse AG, inquiry section - Global head of Emerging Markets Corporate certainty inquiry & MD

* Nikolaj Lippmann

Morgan Stanley, inquiry section - Equity Analyst

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Presentation

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Operator [1]

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Good morning. My appoint is Ashley, and I will be your assembly operator. can this time, I used to although ought salute everyone ought Elementia's Second region 2019 allowance assembly Call. (Operator Instructions).

I will now grow the shriek above ought Mr. Alfonso Molina, he's Elementia's Corporate Treasury. entertain promote ahead.

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Alfonso Molina Romo, Elementia, S.A.B. de C.V. - Corporate Treasury [2]

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Good day, everyone, and salute ought Elementia's Second region 2019 allowance assembly Call. Joining us today is leader Executive Officer, Fernando Ruiz Jacques; and leader econmic Officer, Juan Francisco Sánchez Kramer. entertain be advised that this shriek is during investors and analysts only. during this call, they will be discussing Elementia's deed during per allowance liberate issued yesterday. if you did no acknowledge the report, it is available above the company's website can the Investor Relations section. total figures discussed today are can Mexican pesos, unless otherwise stated, and total growth comparisons couple ought the corresponding epoch of final year.

Let me recolect you that forward-looking statements can be made during the assembly call. These are based above the news that is currently available and are question ought change because of a kind of factors. during more detail and finish disclaimer, entertain refer ought the allowance release.

And with that, I'll grow the shriek ought Fernando.

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Fernando Benjamín Ruiz Jacques, Elementia, S.A.B. de C.V. - CEO [3]

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Thank you, Alfonso. Thank you, Ashley, and good morning, everyone. Thank you during taking the time today ought be with us ought debate our results and the nation of our spinoff process. can the midway point of the year, I am encouraged by Elementia's deed during it demonstrates that the proactive actions we possess taken helped us ought better -- ought be better prepared ought appearance the challenging substance climate. I will promote across each of our substance lines and the promote of the steps taken, besides I expect ought festival with the chief takeaways during the second region 2019 result. Then Juan Francisco Sánchez Kramer will give you -- will give us an update above the spinoff process.

So the especial recovery achieved can both Cement USA and house Systems with definite results during the third region can a row were no enough ought offset both Cement Mexico and Metal's results that were affected among other things about the just contraction can Mexico and the revenue of raw material, respectively. And so, above a consolidated basis, we posted declines of 9% and 10% can revenues and EBITDA year-over-year. However, when compared ought the first quarter, our net EBITDA reflects an improvement of 11%, because of the healthy deed of both house Systems and the U.S. cement business.

So now I will acknowledge you across the deed of each substance unit. Starting with Cement Mexico, here we experienced a 17% refuse can EBITDA, chiefly driven by the continued just contraction, reflecting lesser economic activity can the construction sector, which is mainly more sensitive ought economic downturns than other economic factors, and of course, an increasing competition from other producers. However, the proactive steps we took can house a grinding facility can Yucatan ought mature and pierce the softer just has helped ought mitigate the contraction can the just during we are sending volume ought the region can order ought prepare the just can promote ought startup of the project, which is expected during first region 2020. We wish that this request tendency energy remain during the shatter of the year.

Let me now grow ought Cement USA, where we possess registered 173% exaggerate can EBITDA versus final year. during you know, we had the planned stoppage can South Carolina can the second region of final year, besides I'm pleased ought illustrate that we possess successfully recovered our visitor base, because of our effective redundancy scheme and action stabilization. The cement just can our 3 regions remained healthy with request growth being the highest can the South. can mid-Atlantic region, heavy rains delayed some projects, and can the North, we faced higher competitions can the fourth region 2018. However, we wish that the U.S. market, during a whole, will remain a definite contributor during the shatter of the year.

Going ought Cement Costa Rica, our operations are can full stone and posting famous results. This unit contributed MXN 27 million can EBITDA during a 26% margin. These proactive steps can the diversification of our cement substance ought underserved areas with growth latent is another instance of our successful strategy. during a originate of the combine deed can cement, consolidated EBITDA during this region was even year-on-year.

Moving now ought Metal Products business. EBITDA declined 77% during originate of the following factors: First, we continued ought possess sturdy comps, during you saw can first region 2019. final year, during the first half, we were chiefly benefited from the upward tendency of copper prices and the depreciation of the Mexican peso. This meant that we were buying copper can a lower even than we were selling it. However, this year, we possess had the reserve -- the adverse effect. ought assist mitigate this, we continued ought diminish our inventory levels by more than 30% from our mountain point. This is also impacting results during we are using some more dear layers of inventories.

Second, the construction just contraction can Mexico also affected this business, impacting no virgin volumes besides also margins. ought partially mitigate this effect, we abstract focusing above higher-value add products.

Third, we are buying our raw materials can a higher cost, chiefly because of the limited availability can the market.

Fourth, because of the aggressive competition that rest from Chinese companies can LatAm, we've taken some of our products off of the market, therefore, losing volumes. also the threats of the U.S. tariffs escalating can retribution during illegal immigration issues halted U.S. sales together during about 10 days can this quarter. above sumit of this, we still possess phase effects from the high turnover can our workforce, standing from the automotive industry request during expert labor. among many things, we implemented a allowance exaggerate and improved benefits packages can our operations. We acknowledge the challenges we abstract ought appearance can this substance and are undertaking the indispensable measures ought best salute them, such during reducing our conversion period, inventory levels, headcount and SKUs still improving and increasing our operations and sales across Mexico, respectively.

Last, it's our house Systems section whose consolidated EBITDA was up almost 70% during we reported the third consecutive region of famous EBITDA growth can both regions, up 7% can the U.S. and 175% can LatAm. can the U.S., Indiana mill is contributing positively, having reached the breakeven point can the differ of 2018. Our fiber and cement products are having a gigantic success can the growing cladding fragment and the option during our products above the alternatives rest strong. The 2% refuse we reported can the U.S. net sales was because of a logistical question can provide from Central America, which has during been corrected. However, our concentrate above higher value-added products contributed ought our improved

(technical difficulty)

Sorry, we possess some technical problems. accordingly I'm going uphold ought substance systems, Latin America, is where we left. accordingly regarding this substance division, we posted another region of beneficial growth, because of the improved sales combine and supervise above the new technology, which was reflected can much better revenue levels and the savings was generated by the rationalization and rightsizing of total operations. We wish definite consequence ought abstract the rest of the year.

In closing, I expect ought reiterate that Elementia will abstract pursuing its strategic growth path during each substance still the reorganization is underway. accordingly can Cement LatAm, our eyes will be above growth and expansion across both the new substance copy and the traditional substance model. Nevertheless, it is significant ought highlight that we remain committed ought delivering results with or without the spinoff.

In Cement U.S., our priority will remain can stabilizing our operations, recovering clients and continuing the path ought recover our company just share. can house Systems LatAm, we will remain focused above recovering profitability and making the indispensable changes ought maximize our capacity utilization estimate by reducing substance complexity, abstract improving the operations with the new technique and higher-margin products.

In house Systems U.S., our efforts will promote towards farther ramping up the Indiana facility, implementing revenue efficiencies, achieving a beneficial produce combine and developing the modular mend and remodeling market.

And finally, can Metal Products, we will abstract reducing our exposure ought copper and exchange estimate volatility, improving our operations and normalizing our raw substance supply.

With this, I finish my remarks and now grow the shriek above ought Juan Francisco Sánchez Kramer during farther details above our financials. accordingly please, Juan Francisco, promote ahead.

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Juan Francisco Sánchez Kramer, Elementia, S.A.B. de C.V. - CFO [4]

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Thank you, Fernando, and hello, everyone. ago going into the spinoff process, I used to although ought pattern an announcement. Alfonso Molina that has recently joined the company during Treasurer has also -- is taking responsibilities during Investor Relations.

Now going into the spinoff process, final week, we held an especial Shareholders assembly and received approval ought abstract with the process. allow me recolect you that the spinoff implies that the shareholders' structure does no change. It can be summarized during a copy-paste of the shareholders from existing company ought the newco. This method that during each fragment any investor has can Elementia, he or she will acknowledge a fragment of the newco. The splitting company will possess the cement substance and afterward will be named Fortaleza Materiales. And the spinoff company will embrace the house Systems and Metals business, and will be named Elementia Materiales.

Regarding management changes, until execution, total management structures and reporting channels will remain the same. Once that the spinoff is executed, Fernando Ruiz will direct Elementia Materiales, and Jaime Rocha will be foremost Fortaleza Materiales. Management will abstract ought fulfill beneath the same substance principles.

On corporate governance, we will affirm substantially the same proportions can the Board of Directors of both companies. The controlling shareholders remain committed ought both companies. And during of today, there is no intention ought also lessen or exaggerate the modern ownership.

Now allow me cost a moment above explaining how the cross guarantees work. during you know, within existing certainty facilities, some of the subsidiaries are the guarantors. By law, can Mexico, whenever there is some spinoff, these guarantees remain during 3 years. during separate of the split, some of these guarantors will be spinoff ought the newco, besides they will remain guarantors of the mother company. can the same way, considering the distribution of their famous debt can an 80%-20% basis, the newco will be born with debt that has guarantors that will remain can the mother company and they will remain guarantors during the newco. Regarding timing and based above the ways things are now, we wish that the spinoff energy be executed by the differ of September or beginning of October.

Let me now grow ought a journal of our consolidated figures. during the second region of the year, our healthy deed can the U.S. Cement and house Systems can both regions, the U.S. and LatAm, were no enough ought offset the declines experienced can Mexico Cement and Metal, where we continued ought visit the effects of a gentle Mexican economical among other factors. Consolidated revenues decreased 9% and EBITDA by 12% versus the same region of 2018. can condition of the EBITDA margin, this remain can a firm 14% compared ought the second region '18, chiefly because of the blend of our concentrate above a more beneficial sales combine and cost-cutting initiatives.

Going ought cash flow. We generated finish ought MXN 140 million from working capital, which is a lessen from the one generated can 2018 during expected. Our allowance impose rose by 130% can the first half of 2019, chiefly during we possess run out of the fiscal protect during the cement operations can Mexico.

Financing revenue improved by 24% versus the same epoch of final year, reflecting a stronger management of working main that crop lower favour revenue during healthy during the benefits of our hedging tactic ought mitigate exchange estimate fluctuations. liberate cash run ago CapEx represented 51% of EBITDA. can condition of our surplus sheet, can this time, 43% of our total debt is can U.S. dollars still 71% is can a fixed rate, which offers us a better stability with regards ought exchange estimate and favour estimate fluctuations. Additionally, 94% of our debt is long-term, and I expect ought point out here that Elementia's full net debt did exaggerate slightly, given the reduction can cash and cash equivalents. However, we are can full compliance of our econmic covenants, given our leverage ratio during the final 12 months of 3.68x and an favour coverage ratio of 2.71x.

Lastly, we adopted IFRS 16, beginning January 2019, which increased our estate and liabilities, and can the allowance statement, it is reflected can depreciation. These figures were no considered can 2018.

At this point, I expect ought request the operator ought entertain promote with the Q&A session. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we'll acknowledge our first question from Nikolaj Lippmann with Morgan Stanley.

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Nikolaj Lippmann, Morgan Stanley, inquiry section - Equity Analyst [2]

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Two questions, if I may. First above the U.S. fiber cement business. You're improving profitability, besides it appears that the volume growth and hence the capacity utilization is still pretty low. I learn climate was a bit of an issue, besides is there any color that you can supply with regards ought kind of your expected second half volume growth can '19 and also your tactic ought obtain there? accordingly that's number one. number two, and equal quickly, above Mexican cement. can you supply any color above request can Mexico bulk versus bag cement? And used to it be precise ought suppose that there is a kind of decoupling among the 2, with both substance underperforming the bag market?

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

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Thank you, Nikolaj. And regarding your first question above house Systems U.S., we have, during you possess pointed out, improved profitability. That was one of the key targets. during you healthy pointed out, volume was no and sales were no growing during we expected. And the chief discuss is we possess a logistic question above the volumes coming from Central America. That is can the ports, we possess some issues that possess been sold, and volume is flowing now. Nevertheless, it affected the second quarter. We are still ramping up the Indiana facility. It has, during the fourth region of final year, achieved its breakeven point, and now it is can contribution of profits, accordingly going according ought plan.

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Fernando Benjamín Ruiz Jacques, Elementia, S.A.B. de C.V. - CEO [4]

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And expanding above that, Nikolaj, also we've been equal careful, and we possess analyzed really that profitability per produce per clients can the U.S. operations. accordingly something equal although ought what we performed can Mexico. accordingly we stopped some sales that were no -- that did no possess the profitability that we were looking for.

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Nikolaj Lippmann, Morgan Stanley, inquiry section - Equity Analyst [5]

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Got it. besides bottom line, you feel that the request is still equal healthy can the U.S. and you used to expect, used to it be beautiful ought suppose that you used to wish the definite volume growth can second half? can you supply any kind of color can condition of the magnitude if it's kind of mid-single digit or above or beneath that?

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Fernando Benjamín Ruiz Jacques, Elementia, S.A.B. de C.V. - CEO [6]

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I trust the request is there. The use just is performing pretty well. during Juan Francisco stated a little moments ago, we possess this provide melody from our substance that we sent from Central America that complement our present can the U.S. accordingly that's why it affected us -- separate of the volume, this question has been solved already. accordingly yes, we visit a high single-digit growth during the shatter of the semester, volume-wise.

And regarding your second question, Francisco, you expect ought salute it?

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Juan Francisco Sánchez Kramer, Elementia, S.A.B. de C.V. - CFO [7]

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Sure. It was, if I understand it correct, color above the request during Cement can Mexico. We've mentioned the just is contracted. We possess no seen signs of reactivations. accordingly our anticipate is that it will remain pretty the same during the second half, and we possess better expectations during the next year, depending above macroeconomic conditions.

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

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And you energy visit something equal although or a bit beneath of the second vocabulary of final year, Nikolaj. That used to be our expectation.

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Operator [9]

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And we'll acknowledge our next question from Cecilia Jimenez with Santander.

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Cecilia Jimenez, Santander Investment Securities Inc., inquiry section - head of Cement and Construction [10]

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I had truly two questions, both related ought Mexico Cement. The first one, can condition of EBITDA during the division, it was down 17% can your case, versus 10% volume refuse during the market. accordingly my question is, is the additional deterioration coming from virgin from higher expenses and costs can energy, or are you already seeing cuts can prices? That's question number one. And then the second question has also ought fulfill with one of the opening remarks Fernando did. Specifically, you mentioned higher competition can Mexico Cement, if I understood it correctly. accordingly my question is, where is it coming from? Is it from local players, Mexican players? Or is it coming from foreign players based can Mexico? Those are my two questions.

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

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Thank you, Cecilia, and joyful hearing from you. Yes, EBITDA was 17% beneath final region or the second region final year. This is during our blend of revenue above energy, chiefly freight, during we are now reaching more distance from our instrument that are basically can the nation of Hidalgo. And also there is -- during of the higher competition, some impact above pricing. above that regard, allow me recolect you that we remain committed ought our tactic that is premium quality, premium brand and highest quartile of pricing. also something else is affecting that is the combine of bulk and bags that has -- possess some impact above our pricing -- overall pricing. above the question of higher competition, what we intend is that -- given that the just is contracted, total players are kind of same, fighting during the volume and that is what we meant. There is no imports that is reaching the central separate of the country that we possess seen.

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Cecilia Jimenez, Santander Investment Securities Inc., inquiry section - head of Cement and Construction [12]

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No, I didn't -- I wasn't talking about import. Or I wasn't thinking about imports, besides increasing competition can condition of pricing. accordingly is it beautiful ought suppose can this point, we are no seeing charge contraction still or not?

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Juan Francisco Sánchez Kramer, Elementia, S.A.B. de C.V. - CFO [13]

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I intend we are not. It depends above regions, segments, bulk, bags, et cetera, et cetera. Now allow me fulfill some emphasis above energy. during you remember, the first half of final year, we possess the lowest rates can more than 10 years. And can the second half of final year, energy revenue increased finish ought 50%, or more than 50%. That is the even that we are still seeing and of course, it is affecting the cost. during you know, Cement is energy, pattern it solid.

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Operator [14]

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And we'll acknowledge our next question from Jamie Nicholson with Crédit Suisse.

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Jamie Nicholson-Leener, Crédit Suisse AG, inquiry section - Global head of Emerging Markets Corporate certainty inquiry & MD [15]

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My questions couple ought your debt and especially the implications of the spinoff. I possess a combine of questions. First is regarding the rating agencies, which possess you above look negative, based above suspect about the structure following the spinoff. possess you had tendency discussions with them above the structural issues? Is there any update you can give us? And also they cited your leverage ratio, which has picked up a little bit this quarter, I'm wondering if you possess any update above what targets you're trying ought attain by year-end? Or what targets you lack ought flee downgrades?

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

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Thank you, Jamie. Yes, I intend we've had that discussions with the rating agencies during we began with the spinoff process. From there, they issued their just look that was, can summary, negative. We possess had some other discussions with them. The just look rest until now. There is some scenario can which it energy change, besides it is no transparent yet. accordingly I'd pretty no ought promote into there.

On your second question that is the leverage ratio, yes, it has remained pretty firm or increased a little bit. during we mentioned, we are still targeting ought be can the mountain of 3.5x by year-end. And considering the spinoff, during we've mentioned, we're planning ought tear the debt can an 80%-20% basis. 80% will remain can Fortaleza Materiales and 20% can Elementia Materiales. can that pro forma basis, this method that during the Fortaleza Materiales, the leverage ratio was finish ought 4.2 by year-end 2018, and we trust that it can promote down ought some 3.5 ought 3.7 by year-end 2019. can the same way, Elementia Materiales, pro forma basis, was finish ought 2.2x, and we trust that it can promote down ought some 1.7, 1.6 by year-end 2016. Now it is significant during of this cross guarantees that we will be still issuing the combined metrics that is can -- according ought the discussions we possess had with the banks and different econmic advisors, that will be the best approach.

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Jamie Nicholson-Leener, Crédit Suisse AG, inquiry section - Global head of Emerging Markets Corporate certainty inquiry & MD [17]

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Okay. And then just ought clarify, the cross guarantees linger can lay during 3 years. And then will they autumn away, and it will be standalone certainty metrics? And also just ought approve your bond is going ought be can Fortaleza and Elementia, will remain that, right?

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

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Yes. I intend allow me fulfill some clarification above the cross guarantees. I intend by low, can Mexico, it is 3 years, besides we possess decided ought lengthen the shriek guarantees during the lifetime of the bonds, that is about 5 years. accordingly the bond will linger can Fortaleza Materiales and the newco, or Elementia Materiales, will be a guarantor of that facility.

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Jamie Nicholson-Leener, Crédit Suisse AG, inquiry section - Global head of Emerging Markets Corporate certainty inquiry & MD [19]

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Okay. And just one final question. possess you received total the waivers and consents that you lack during the spinoff from your banks? And what is remaining can condition of consents -- feasible consents you lack from your bondholders?

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

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We are can the process during both. accordingly we haven't -- I intend we possess had discussions with the banks. And we are, I used to say, can agreement, besides it is no can written yet. And one of the reasons is the newco hasn't been born, accordingly we cannot moan can our company, it does no be yet. With bondholders, we are still analyzing little alternatives ought pattern -- ought obtain the agreement. accordingly we trust that we can expose that can about a week or 2.

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Operator [21]

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And we'll acknowledge our next question from Eduardo Altamirano with HSBC.

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Eduardo Altamirano, HSBC, inquiry section - Analyst, LatAm Cement and Construction, genuine estate [22]

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Just a little bit farther into the surroundings can Mexico. Are you expecting any kind of exaggerate can your relationship with kind of government contracts that you can be entertaining can one point, total these sales ought the government also within Cement or with any of your other house Systems divisions?

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

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Eduardo, thank you during your question. during the moment, we don't. Historically, how we control this is we've done total these sales across our distribution force. accordingly we basically never sell direct ought the government. accordingly we fulfill no predict it can the finish future.

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Eduardo Altamirano, HSBC, inquiry section - Analyst, LatAm Cement and Construction, genuine estate [24]

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All right. And then are you taking above any effects, let's say, ought mitigate the impact of lower Cement sales? during example, are you increasing your marketing expenses? Are you seeing, let's say, some kind of exaggerate can the competitive environment, if it's maybe a breakdown can condition of, let's say, a little bit of a more kind surroundings where none has been overly pushing above the charge levers during healthy difficult lately? Or -- and if you can give us a little bit more color above the competitive dynamics precise now?

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Fernando Benjamín Ruiz Jacques, Elementia, S.A.B. de C.V. - CEO [25]

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Sure. What I can say you is that we're working extremely can our costs and can our expenses. We possess place a scheme that has -- we predict this nation more than a year ago, and we've been working a fate ought lower considerably our expenses and costs. accordingly we possess been working above this. Likewise, regarding the marketing expenses, we are really taking can consideration where are we putting our money. accordingly we're being equal careful ought pattern definite that each dollar that we cost can that feeling give us the precise returns above the investments.

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

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In other words, we are taking basically the same steps that we acknowledge during CapEx investing. during many of the expenses, among them marketing. And can summary, we are targeting where we are shooting or putting our bullets.

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Eduardo Altamirano, HSBC, inquiry section - Analyst, LatAm Cement and Construction, genuine estate [27]

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And then can condition of kind of the normal competitive environment, if you can just fragment some color above that?

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Juan Francisco Sánchez Kramer, Elementia, S.A.B. de C.V. - CFO [28]

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Sure. during we mentioned, the just is somehow contracted. There is no healthy request during we possess can the first half of final year. accordingly everybody is looking during opportunities ought catch more volume, and that happens during Cement, during house Systems and during Metals. We don't really visit a trigger that changes that can the short term. And during we mentioned, we trust that the just dynamics will remain pretty the same during the second half of that year.

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Operator [29]

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And we'll acknowledge our next question from Anne Milne with coast of America.

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Anne Jean Milne, BofA Merrill Lynch, inquiry section - MD and head of the jewel Corporate certainty inquiry [30]

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First, I used to also although ought say that a number of my questions possess been answered. I used to although ought thank Jamie Nicholson during her questions above debt, and I'd although ought thank you during your equal transparent answers during those were some of my questions. I suppose a final one that wasn't answered was, could you just recolect us again, can Mexico, above Cement, what is the breakdown of the visitor basis among housing, formal and irregular industrial and infrastructure? And I suppose maybe if it's housing, which is the chief just during you, is the driver GDP growth? Is it other factors? Could you assist us understand the dynamics of that separate of the market?

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Fernando Benjamín Ruiz Jacques, Elementia, S.A.B. de C.V. - CEO [31]

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Sure. Thank you, Anne, during your question. I used to say, we are more targeted ought do-it-yourself market, which has been our tactic from the equal beginning. This market, they -- I intend the index during you can appear can it, of course, the GDP growth, besides also the remittances. The remittances can give you a good conception of how this visitor can perform. accordingly Juan Francisco, I don't learn if you expect ought enlarge above that?

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

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Yes. I intend during Fernando mentioned, basically we are focused above the fulfill it yourself that is more linked ought banks. And therefore, we possess equal little exposure ought big projects, infrastructure projects. And during Fernando mentioned, during of that, we possess little-to-none relationship ought government projects or we haven't until now. And ought your question above how the request comes from or where, rough numbers can fulfill it yourself or self-consumption, is about 60%. I intend private projects, median size is about 15%, ready combine is about 20% and government scheme is the remaining about 5%.

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Operator [33]

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We'll acknowledge our next question from [Elizabeth Genning] with [Prudential].

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Unidentified Analyst, [34]

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I possess a question about your Metals business. You commented earlier that you scheme ought minimize your exposure ought copper stand prices during healthy during foreign cash moves. Could you just elaborate a little more how you scheme ought fulfill this?

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Juan Francisco Sánchez Kramer, Elementia, S.A.B. de C.V. - CFO [35]

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Sure. [Elizabeth], thank you during the question. accordingly during you know, copper is equal much related ought the assets international charge and during of that, there is a fluctuations can its pricing. also during we illustrate can pesos and the basis is dollars, we possess also exposure ought cash fluctuations. final year, we faced little problems. One of the chief question we faced was high labor turnover that direct ought little problems, although higher maintenance, longer time ought fulfill the maintenance, less available, of course, of qualified working compel and during of that, the machines were no utilized can the best or appropriate way. And again, that leads ought additional maintenance. ought solve that, we took little steps. And this comes across also with reducing the exposure ought the fluctuations that I mentioned above copper and cash exchange. accordingly during one, we possess -- we did allowance increases ought retain people, no virgin can monetary ways besides also emotional salary. accordingly we are increasing benefits and things although that. We are attracting different sectors of the population and a fate of things there. And we trust that we possess done some progress. during of that, final year, we faced incremental inventory levels that increased our exposure ought fluctuations. We possess had reduced more than 30% our inventory levels can order ought diminish that exposure. also we are, again, making an SKU reduction ought concentrate above the more beneficial SKUs and the ones that we possess defined during core. And during of that, we possess also reduced inventories and improved our conversion time. Now above reducing inventories, we possess also faced that we are using more dear layers of our inventories that were no used during some time and that is also affecting our costs. above sumit of that, we are trying ought better our logistics and request programs ought be more can -- I intend I love the vocation -- besides we're trying ought better the time frame can which we consent ought deliver it ought customers, ought the one that we truly deliver the products. And above sumit of that, we are analyzing options ought pattern hedges above both cash exchange and assets hedging.

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Fernando Benjamín Ruiz Jacques, Elementia, S.A.B. de C.V. - CEO [36]

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And just, [Elizabeth], complementing Juan Francisco's answer. accordingly from an operative side, I mean, he mentioned many, besides I imagine we are also considering investing CapEx during operational efficiencies. We possess a good opportunity there also during CapEx during operational stability, also during better raw substance crop and most significant of all, ought be able ought invent value-added products. We imagine and we visit a big opportunity can the fittings. Today, we are sold out here. accordingly we visit a big opportunity there. And from a tactic standpoint, I imagine we can integrate upstream ought value-added products, such during the fittings that I was talking about. besides likewise, I imagine we can -- we possess a big opportunity by simplifying the business, just during we did can house Systems. accordingly during Juan Francisco was saying, we -- with less SKUs, pause producing those products which are no beneficial enough and accordingly on, accordingly forth. Likewise, we visit a gigantic opportunity can exports, taking entertain of this nation that today there is among the U.S. and China, we trust there is a joyful opportunity during us. And final besides no least, commercialization. We expect entertain from our brand, from our channels, distribution channels. We began this trouble a year ago and it has proven ought be pretty successful. Today, we're moving a joyful chunk of our tons with basically no investment other than working capital, and the margins are pretty interesting. And accordingly we're taking many, many different initiatives such during we did can house Systems. accordingly we still predict a third region -- a complicated third region during Metals, besides from the fourth quarter, you will visit an interesting turnover. I don't know, we reply your question, Elizabeth .

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Unidentified Analyst, [37]

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Yes. No, you did. That was truly extremely helpful. I fulfill possess a follow-up question. accordingly above the hedging of FX and copper prices, you -- it sounds although you currently don't fence anything. Is that correct? Or are you hedging anything precise now? And if so, how much you scheme ought exaggerate it?

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Juan Francisco Sánchez Kramer, Elementia, S.A.B. de C.V. - CFO [38]

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Sure. I intend we had a hedging mechanism that is hedging about 20% of the renewal of our inventory levels, and it goes equal smoothly throughout the month with a equal firm volume per day. And it is working according ought the expectations. Nevertheless, we trust that we can fine-tune that. I'm trying ought combine really from the buying appointment ought the selling day. And by doing so, we can exaggerate our coverage and diminish the exposure. accordingly we possess something can place, besides we are analyzing ways ought better it.

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Unidentified Analyst, [39]

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Okay. And it sounds although you're trying ought fulfill some kind of just-in-time inventory delivery, is that correct? Or am I no commerce that correctly?

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Juan Francisco Sánchez Kramer, Elementia, S.A.B. de C.V. - CFO [40]

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Yes. That was precisely the idea. Nevertheless, there is conversion time that we possess ought fine-tune and logistics ought fine-tune. We are doing so. We are improving or making changes can our distribution centers, et cetera, et cetera. accordingly yes, that is the area.

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Operator [41]

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(Operator Instructions) And it appears that we possess no farther questions can this time. I will grow the shriek uphold above ought Fernando Ruiz Jacques. Your row is open, promote ahead.

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Fernando Benjamín Ruiz Jacques, Elementia, S.A.B. de C.V. - CEO [42]

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Thank you. Thank you, Ashley, and thank you, once again, during your favour can Elementia. We will fulfill our best ought possess you updated above the promote of our spinoff can the months ahead.

So allow me just finish with this final remarks. accordingly can house Systems, continues ought fulfill above its path ought recovery. This is the third region can a row of better results, and can our opinion, this is already -- this already represents a trend.

Regarding Cement USA, here it is showing the recovery of our visitor basis and the stabilization of the operations. The Mexican just is contracted and is affecting our business, chiefly Cement and Metals and we wish this ought remain during the shatter of the year. Elementia will abstract its proactive means ought generate appraise during its stakeholders.

And final besides no least, we abstract analyzing the feasible outcomes of the spinoff, being our chief differ ought pattern and liberate up appraise during our investors.

So having said that, that concludes our call. entertain feel liberate ought face me or Juan Francisco if you possess any farther questions. possess a joyful shatter of the day.

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Operator [43]

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This does finish today's program. Thank you during your participation. You can now disconnect.




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