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Edited Transcript of CLH.BG earnings conference call or presentation 30-Apr-20 3:30pm GMT

Q1 2020 CEMEX Latam Holdings SA Earnings Call

Madrid May 8, 2020 (Thomson StreetEvents) -- Edited Transcript of Cemex Latam Holdings SA earnings conference call or presentation Thursday, April 30, 2020 at 3:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jesús Vicente González Herrera

CEMEX Latam Holdings, S.A. - CEO & President of CEMEX in South, Central America & Caribbean, MD and Executive Director

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Conference Call Participants

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* Antonella Rapuano

Santander Investment Securities Inc., Research Division - Research Analyst

* Eric Neguelouart

BofA Merrill Lynch, Research Division - Research Analyst

* Fernando Froylan Mendez Solther

JP Morgan Chase & Co, Research Division - Analyst

* Juliana Aguilar Vargas

Bancolombia S.A., Research Division - Cement and Infrastructure Analyst

* Roberto Carlos Paniagua Cardona

Corporacion Financiera Colombiana S.A., Research Division - Variable Income Analyst

* Rodrigo Sanchez

Corredores Davivienda S.A., Research Division - Senior Equity Research Analyst

* Steffania Mosquera

CrediCorp Capital, Research Division - Senior Analyst of Transport, Telecom, Media and Technology and Information Technology

* Vanessa Quiroga

Crédit Suisse AG, Research Division - Head of Mexico Equity Research & Co-Head of the Housing & Infrastructure in LatAm excluding Brazil

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Presentation

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Operator [1]

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Good morning. Welcome to the CEMEX Latam Holdings' First Quarter 2020 Conference Call and Webcast. My name is Carol, and I will be your operator for today. Please note that by providing your personal information to register into CEMEX Latam Holdings' First Quarter 2020 Conference Call and Webcast, you authorize that such information be processed according to the CEMEX Latam Holdings' privacy policy available on the company's website. (Operator Instructions)

Our host for today is Jesús González Herrera, Chief Executive Officer at CEMEX Latam Holdings. And now I will turn the call over to your host, Jesús González. Please proceed, sir.

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Jesús Vicente González Herrera, CEMEX Latam Holdings, S.A. - CEO & President of CEMEX in South, Central America & Caribbean, MD and Executive Director [2]

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Thank you. And thank you, Carol. Good day to everyone, and apologies for this small delay. I hope that you are in good health and adapting in the best possible way to the extraordinary situation we're experiencing due to COVID-19. Thank you for joining us for our first quarter 2020 call and webcast. I will be happy to take your questions after my initial remarks.

Before I start, I would like to thank the whole CLH team and especially our frontline employees who have kept us running during this crisis. The world is going through an unprecedented time due to the COVID-19 pandemic. Construction activity across most of the markets in which we participate is being impacted in different degrees. However, it is important to highlight that construction, together with our industry is being prioritized to reactivate by governments in the geographies where we operate and around the world because of 2 main characteristics. First, construction activities can be performed with low risk of COVID-19 transmission.

Construction work sites as well as the production sites for our products are tightly controlled and not open to the general public. Work is carried out in the outdoors with low personnel density and aiming for strictest health and safety standards to prioritize the safety of our workers. And second, its economic and social contribution. The construction industry provides essential infrastructure requirements to support the vital needs of the markets in which we operate. It is a critical component of local and national economies, and represents an important percentage of GDP. It is also a fundamental engine for reactivating economies and generating employment.

We have responded rapidly to the COVID-19 crisis, focusing on 3 main priorities. First, health and safety, our #1 priority. We have complemented our existing protocols by developing and implementing over 50 new protocols and guidelines designed to protect our employees, customers and communities from the risk that COVID-19 presents. As part of these measures, we have established a rapid response team in the country, designated to mitigate risk and ensure business continuity. We have appointed a COVID-19 coordinator in all our sites. We have applied strict hygiene protocols in all our operations and modified processes to implement physical distancing.

We have made arrangements so that employees can work remotely where possible, restricted travel and enhanced our internal information campaigns on recommended practices for health, hygiene and social interaction. We are developing, with the assistance of volunteer employees, several actions to support our surrounding communities. Among these, are the delivery of groceries, drinking water, hand disinfectant and other essentials to vulnerable families. Additionally, we're mobilizing our ready-mix trucks filled with a soap and water solution to sanitize strategic open public spaces.

We have sanitized more than 340,000 square meters of areas such as hospital entrance, food markets, train stations, among others. As an example of our actions, the cover page photo in this presentation was taken during the sanitization of Corabastos in Bogotá, one of the biggest wholesale markets in the region.

Second, we are trying to support our customers and suppliers as much as possible in a responsible way. We have designed measures seeking to maintain business continuity and to reduce any disruptions in our business. We are supporting our customers' businesses through safe digital needs. With our CEMEX Go platform, we are uniquely positioned to protect not only our workers but also our customers. CEMEX Go facilitates physical distancing by allowing us to continue our sales, payments and customer service operations in a virtual and safe manner that eliminates any risk of virus transmission.

Please note that as of March, we are receiving about 80% of our total cement purchase orders through CEMEX Go. Also, we're sharing to clients our world-class safety protocols and other topics of interest through webinars and social media. In Colombia, for example, we are offering webinars to our customers about how to access government-supported loans to the construction sector and in supply chain, which has been impacted by the COVID-19.

And third, to strengthen our cash position, we have implemented the following measures: on the operating side, we are suspending or reducing, with emphasis on the next 3 months, operating expenses, production and inventory levels and corporate activities. With respect to CapEx, we are reducing total capital expenditures by $20 million from our February guidance. This represents a reduction of around 60% in non-committed CapEx for the rest of the year. Also, CLH Board of Directors, voluntarily waived 25% of their allowances from May through July; while the senior executive team, including myself, voluntarily waved between 15% and 25% of our salaries, respectively, for the same period. Other salaried employees voluntarily deferred 10% of their salaries for the next 3 months.

I would like to take this opportunity to thank my colleagues for their support in these challenging times. We are also taking additional measures to respond to the crisis, such as lowering fees and expenses, hiring and salary freezes, maintenance adjustments, collected vacations, among others. As of today, the total savings of these measures are expected to reach around $8 million during 2020, additional to the CapEx reduction previously commented. Later during the presentation, I will address the financing measures we have taken to strengthen our cash position.

Regarding our financial results, we came into 2020 with favorable demand momentum in Colombia, Nicaragua, Guatemala and El Salvador and a stabilizing trend in Costa Rica. These positive developments began to be impacted in March as the COVID-19 pandemic spread and governments started implementing restrictions. Our consolidated sales during the quarter declined by 11% in local currency terms and by 70% in U.S. dollar terms. Only in March, our consolidated sales declined by 27% due to the impact of COVID-19.

Our EBITDA during the quarter declined by 12% and 16% in local currency and U.S. dollar terms, respectively. Our consolidated EBITDA margin during the quarter increased by 0.2 percentage points year-over-year to 21.4%. This improvement was due to high cement prices and lower energy cost as well as our efforts in SG&A and fixed cost optimization, despite lower volumes.

During this quarter, our consolidated gray cement, ready-mix and aggregate volumes declined by 11%, 25% and 33%, respectively. Our cement volumes during January and February were in line with our estimates. However, they declined by 27% during March on a year-over-year basis. Quarterly consolidated prices in local currency terms for cement and aggregates improved by 3% and 11%, respectively, while ready-mix prices declined by 1% on a year-over-year basis. Sequentially, our quarterly cement, ready-mix and aggregates price improved by 3%, 2% and 8%, respectively, in local currency terms. In the cement business, Colombia was the main driver of the improvement as our prices in this country increased in local currency terms by 9% year-over-year and by 2% sequentially. The EBITDA decline during the quarter was mainly due to lower volumes, increased distribution cost and depreciation of the U.S. dollar. These impacts were partially offset by a positive price effect as well as lower operational cost and SG&A savings. Most of the negative foreign exchange effect was due to the 17% appreciation of the U.S. dollar versus the Colombian peso during the quarter on a year-over-year basis.

Now I will discuss the main operating and financial results in our markets. Activity in Colombia was strong before the impact of COVID-19. Industry volumes improved by around 7% year-to-date February, with an estimated 30% decline during March. The government of Colombia announced an initial period of quarantine from March 25 to April 13, period in which we halted our operations.

During the quarter, our cement volumes declined by 15%, while our cement prices in local currency terms improved by 9% year-over-year and by 2% sequentially. The cement price improvement on a sequential basis reflects our price increases implemented during the quarter.

Regarding our financial results, net sales during the quarter declined by 8% in local currency and by 21% in U.S. dollar terms. The decline was due to lower volumes despite increased prices in our 3 core products in local currency terms. Our EBITDA during the quarter declined in local currency and U.S. dollar terms by 14% and 24%, respectively. Quarterly EBITDA margin declined by 0.8 percentage points to 16.3%. The margin impact of higher prices resulted in a 5 percentage points improvement, which was offset by lower volumes and higher distribution cost, which accounted for a decline of 2 and 3 percentage points, respectively. The negative impact in distribution was mainly due to lower productivity, the annual inflation effect and to road blocks in some of our strategic routes.

In Colombia, the initial period of quarantine from March 25 to April 13 was extended until April 26. However, infrastructure-related activity was allowed during the extension, and we partially resume operations. Subsequently, the quarantine was extended again until May 11. However, the construction sector in general and its supply chain is expected to resume activities during this period, although gradually and with some restrictions.

It is very encouraging that the construction sector was prioritized to restart activities in Colombia. As mentioned, infrastructure activity resumed operations starting in April 13 and 4G projects were among the first to reactivate. We're dispatching our products to several 4G projects, including Pasto-Rumichaca, Autopista Mar 2 and Autopista Mar 1, among others. We expect total ready-mix demand from this program to reach 1.2 million cubic meters during 2020, an increase of more than 50% compared with that of the previous year. We expect to maintain a level of participation on this program of around 40% this year.

With respect to the infrastructure sector in Bogotá, we expect projects already awarded to continue. Among these are 3 hospitals, 2 community centers and a water treatment plant. However, projects which have not been awarded yet are at risk of delays. Other regional projects could also be delayed in the short-term as mayors and governors are redirecting resources previously budgeted for infrastructure projects to fight the COVID-19 crisis.

Regarding demand from the self-construction sector, while it's typically resilient during times of crisis, it could be impacted in coming months by an expected increase in unemployment, lower remittances and economic uncertainty. With respect to the formal construction, in the residential and industrial and commercial sectors, which were allowed to resume activities earlier this week, we expect ongoing projects to gradually reactivate. On formal housing, ongoing project should restart soon. Low-income housing is supported by guaranteed government subsidies and lower interest rates. However, new projects could be delayed until there is more economic visibility.

In the industrial and commercial sector, projects should also restart gradually. Nevertheless, new project starts will depend on the presence of the right conditions for the investment. Furthermore, lower oil prices could impact business sentiment and delay industrial investments.

With respect to our volumes expectations for the rest of the year, it is still too early to assess the speed of recovery in the construction industry. In Panama, the COVID-19 crisis intensified an already weakened demand environment. We estimate that industry volumes were around 30% lower during the quarter on a year-over-year basis. The government of Panama announced an initial period of quarantine from March 25 to April 25, period in which we suspended operations. Cement demand continued to be affected by infrastructure project delays, high inventories in apartments and offices as well as by the deceleration of the economy.

Our cement volumes during the quarter declined by 30%, while our cement prices declined by 1% sequentially. During the quarter, our sales and EBITDA declined by 31% and 25%, respectively, on a year-over-year basis. EBITDA margin increased by 2.3 percentage points, reaching 30% during the quarter. This improvement was driven by our efforts to optimize variable, fixed and SG&A costs, despite lower sales and increased distribution cost.

With respect to cement imports, we are encouraged by the government announcement to implement a temporary 30% tariff to imported cement, which started early this month and will be in place for the rest of the year. This temporary measure is to protect employment in the local cement and construction industries during the crisis.

Regarding the status of our operations. After the initial period of quarantine from March 25 to April 25, the government extended the suspension of the construction industry until May 24. During this extension, only public projects with exemptions can continue construction activities. For the rest of the year, visibility for cement demand is very limited because of COVID-19. However, it is encouraging that the government has stated that the infrastructure sector will be prioritized to restart as this sector represents a countercyclical measure to reactivate the economy. Among the projects that we expect could restart soon are the Fourth Bridge over the canal and the Corredor de las Playas highway. Additionally, other relevant projects in the pipeline are the third line of the metro and the metro line 1 extension, among others.

In Costa Rica, we estimate our industry volumes declined by 4% during the quarter. The government has taken decisive actions to limit the spread of the coronavirus, while avoiding a complete shutdown of economy. So far, these measures have been effective. Economic and construction activity were showing signs of recovery before the COVID-19 containment measures, which were implemented in mid-March. For instance, construction permits and consumer confidence improved year-to-date February.

Our cement volumes declined by 4% during the quarter and by 9% during March. Quarterly volumes were supported by our reactivation in the residential sector and infrastructure projects. In the infrastructure sector, projects such as Circunvalación Norte, Ruta 32, Río Frío- Limón, Rio Virilla bridge and the Garantias Sociales bridge, provided volume support.

Regarding cement pricing, our quarterly prices in local currency terms decline by 9% year-over-year and by 2% sequentially, reflecting challenging competitive dynamics. Net sales during the quarter declined by 9% in U.S. dollar terms and by 13% in local currency terms. EBITDA declined by 21% and 24% in U.S. dollar and local currency terms, respectively, during this period.

The EBITDA margin during the quarter declined by 4.7 percentage points on a year-over-year basis to 30.9% mainly due to lower volumes and prices as well as to increased distribution cost. It is worth mentioning that our tentative fuel substitution project in Costa Rica is showing significant progress. Our substitution rate in the country reached 33% during the quarter from 24% in the full year 2019. Going forward, this project will allow us to reduce our fuel cost.

Cement demand prospects were improving before COVID-19. Construction permits increased by 7% year-to-date February. Permits for offices as well as for industrial and commercial buildings improved in the double digits during this period. Building activity has not stopped so far. However, some private investment projects which were about to start are temporarily on hold.

In the infrastructure sector, online projects should continue supporting cement volumes. Additionally, relevant projects such as Ruta 1: Limonal-Barranca, which was recently awarded, and the Taras-La Lima overpass should start soon. We're encouraged by the recent government announcement of a new public-private partnership program of $2 billion for infrastructure projects. This program is designed to act as a countercyclical measure to reactivate the economy. The impact of COVID-19 in the Costa Rican tourism industry is a relevant rate for the country, as tourism represents a mid- to high single-digit percentage of GDP. However, if the coronavirus remains under control, we expect a relatively milder impact in the economy as shutdowns have so far been avoided.

In the rest of the CLH region, our cement volumes improved by 5% during the quarter on a year-over-year basis. Higher cement volumes were observed in all 3 countries of this region. Cement volumes increased by 7%, 5% and 2% in Guatemala, El Salvador and Nicaragua, respectively. Quarterly, regional cement prices declined by 2% year-over-year and remained stable, sequentially, in local currency terms. Net sales during the quarter in local currency and U.S. dollar terms improved by 3% and 1%, respectively. EBITDA during the quarter improved by 4% in local currency terms or by 2% in U.S. dollar terms, driven by increased volumes and lower SG&A.

In Nicaragua, our cement volumes improved by 2% during this quarter. This is the first year-over-year increase since the fourth quarter of 2017. Our volume performance was better than expected, driven by a mild reactivation of the self-construction sector as well as by government-sponsored projects, such as hospitals, highways and a social housing complex. Activity remains relatively normal in the country as schools, shops and sporting events have remained open. And this relative normality implies higher rates of coronavirus transmission, we have enforced all our protocols in the country, seeking to protect the health of our employees, surrounding communities and others interacting with our operations.

In Guatemala, our cement volumes improved by 7% during the quarter, showing a double-digit increase year-to-date February and a low single-digit decline during March. The Guatemalan government in coordination with the private sector has been proactive dealing with the COVID-19 crisis without paralyzing the economy. Since early March, the government announced mobility and other restrictions and a 1-week quarantine starting on March 22.

During the quarter, our cement volumes were supported by the self-construction sector as well as by industrial and commercial projects in Guatemala City and other main cities. Going forward, a steep decline in remittances is a relevant risk for the economy and cement demand of Guatemala as well as for Nicaragua and El Salvador. However, in the case of Guatemala, we expect a milder impact in the economy and construction activity.

Our quarterly free cash flow after maintenance CapEx was $2 million compared with $17 million in the same period for last year. The free cash flow decline is mainly explained by lower EBITDA and higher working capital investment. Other -- our financial expenses were $30 million during the quarter, 4% lower on a year-over-year basis, driven by our debt reduction efforts. We had a controlling interest net loss of $30 million during the quarter compared with an income of $16 million during the same period of last year. This net loss was mainly due to lower sales and a negative effect in the other financial income and expense net line. These effects were partially offset by lower cost of sales and taxes.

The other financial income and net expenses net line reflects an expense of $39 million during the quarter compared with an income of $3 million during the same period of last year. The impact was due to a negative foreign exchange effect on the financial balances, mainly from the 24% appreciation of the U.S. dollar versus the Colombian peso from December 2019 to March 2020.

As of March, our debt maturity profile is manageable, and we do not have material maturities until December 2022. Our net debt-to-EBITDA ratio increased to 3.9x in March from 3.7x in December mainly due to lower EBITDA. In order to strengthen our cash position during the following months and as a precursory measure, we are tapping our financing capabilities in local currency. During April, CLH subsidiaries in Colombia and Panama obtained bank financings, for the equivalent of $29 million, which -- with a maturity of 3 to 6 months.

Furthermore, we are currently negotiating additional finances with banks in Colombia, Panama, Costa Rica and Guatemala. Please note that in addition to our local financing capabilities, we have $457 million in available credit under our current loan facilities with CEMEX, our parent company.

Now I would like to discuss our 2020 guidance. Given the continued uncertainty due to COVID-19, it is difficult to resume our 2020 volume guidance at this point. However, we're providing estimates on some of the items below the EBITDA line that we consider we have more control. Our total capital expenditures are expected to reach $30 million, $25 million in maintenance and $5 million in strategic. As mentioned, this represents a $20 million reduction compared with that of our previous guidance and a reduction of about 60% in the noncommitted CapEx for the rest of the year.

We expect no significant change in cash taxes compared to our previous guidance. Full year taxes should reach around $50 million. Regarding our cement plant maintenance activities, we expect around $9 million in operational expenses this year, mostly during the third quarter, compared with $14 million during 2019. Given the challenging and uncertain times caused by this pandemic, we will continue to monitor developments and act decisively, seeking to ensure the health and safety of our employees, customers and communities; serve and support our customers in these difficult times and strengthen our cash position.

Thank you for your attention, and I would like to take this opportunity to wish everybody good health and to please keep safe. Before we go into our Q&A session, I would like to remind you that any forward-looking statements we make today are based on our current knowledge of the markets in which we operate, and could change in the future due to a variety of factors beyond our control. In addition, unless the context indicates otherwise, all references to pricing initiatives, price increases or decreases refer to prices for our products.

And now I will be happy to take your questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we have a question from Roberto Paniagua.

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Roberto Carlos Paniagua Cardona, Corporacion Financiera Colombiana S.A., Research Division - Variable Income Analyst [2]

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I have a few questions. And the first one, can I ask a question regards to...

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Jesús Vicente González Herrera, CEMEX Latam Holdings, S.A. - CEO & President of CEMEX in South, Central America & Caribbean, MD and Executive Director [3]

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Roberto?

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Roberto Carlos Paniagua Cardona, Corporacion Financiera Colombiana S.A., Research Division - Variable Income Analyst [4]

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(foreign language)

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Jesús Vicente González Herrera, CEMEX Latam Holdings, S.A. - CEO & President of CEMEX in South, Central America & Caribbean, MD and Executive Director [5]

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Yes. We're here.

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Roberto Carlos Paniagua Cardona, Corporacion Financiera Colombiana S.A., Research Division - Variable Income Analyst [6]

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Okay. Okay. Sorry. I have 3 short questions. The first one, I want to know what are you going to do to protect your margins. And if the 21% EBITDA margin that we saw this quarter can be a floor for the year. My second question is pricing strategy in Colombia, Panama and Costa Rica. And third one, maybe you can give us an update about Maceo plant and Corantioquia.

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Jesús Vicente González Herrera, CEMEX Latam Holdings, S.A. - CEO & President of CEMEX in South, Central America & Caribbean, MD and Executive Director [7]

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Okay. Well, I didn't hear the questions very well, but I understand the first question was about the margins and if these margins in this quarter are kind of the floor -- should be the floor for us. Unfortunately, I'm expecting second quarter worse than the first quarter, you know, because of many of the volume -- operations impacted by volume shutdown -- construction shutdowns due to the COVID-19 situation started to happen in the second half of March. So we had a limited impact in our Q1 results. So we should see a higher impact in the second quarter, and also, that would, for sure, impact margins.

On the other side, as I mentioned in my remarks, we are -- we have put together a plan to reduce our cost base, working on reducing maintenance cost, reducing CapEx, reducing operating expenses, and that could help us to partially offset this margin decline. But the volume effect is going to be relevant, especially in the month of April and the first half of May.

With regards to pricing strategies, well, it's too early to say what is going to happen to prices. I think that first, we need to wait and see how the volumes evolve in the coming weeks and months. What I can tell you is that in the case of Colombia, for example, as a result of the devaluation of the Colombian peso, the gap between prices in local currency terms and import parity prices has increased. It's around $20 in the central part of the country. So that is -- could give us an opportunity to increase prices in the second half of the year and partially offset the increase in input costs and devaluation of the Colombian peso.

Costa Rica and Panama, I would say that our strategy is to keep prices flat in U.S. dollar terms, at this point of time. With regard to Maceo, well, we are very close to submit our application to increase -- to modify our environmental license in the coming weeks. And if everything goes according to plan, we will have the permits or the approval by the end of the year. So that's the immediate next step is to be sure that we have that environmental permit increase.

And then we need to -- based on the scenarios and the evolution of demand, we need to address when we're going to need to start investing CapEx to finish the project. As you can imagine, the demand projections have been affected or are going to be affected by this pandemic, and we need to wait and see what are the scenarios going forward. But for sure, we're moving ahead on getting -- or finishing our permits or getting our permits by the end of the year.

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Operator [8]

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And we have a question from Juliana Aguilar.

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Juliana Aguilar Vargas, Bancolombia S.A., Research Division - Cement and Infrastructure Analyst [9]

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I have a question regarding the resumption of activities, especially in Colombia. How are you seeing this resumption in a scenario of lower demand? Are you going to concentrate operations in your own plant? Or you might be planning to -- on building inventories and then shutting down the kiln? Any additional color you could give us will be very helpful.

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Jesús Vicente González Herrera, CEMEX Latam Holdings, S.A. - CEO & President of CEMEX in South, Central America & Caribbean, MD and Executive Director [10]

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Okay. Thank you for the question, Juliana. Well, yes, as I mentioned in my remarks, we -- this week, we -- well, we started the previous week resuming our operations in the -- for the infrastructure projects and this week for residential industrial projects. What we're doing in the short term is -- well, first of all, we have to be sure that we comply with all the protocols, health protocols, that are required to start operations, which is something that we were ready for this, something that we are pushing very hard to get the approval from the local authorities to start supplying these projects. In the short term, as you mentioned, the -- we have inventories in our plants, clinker and cement, and the idea is not to resume operations in our kilns until we use all the inventory that we have in our plants. That, for sure, is going to help us on the -- on managing working capital, reducing inventories and preserve cash. That's the strategy in the short term.

In the medium term, depending on the demand scenarios that we are running, we could have impact in some operations with regards to shutting down operations or having those operations closed for a period of time depending on the demand conditions. One situation that is worth to mention in Colombia is the high cost of transportation to move our products throughout the country. So that works in favor to keep more operations open to minimize distribution cost, but there is a fixed cost component that we need to put into the equation. And everything is conditioned to the demand forecast, which still is too soon to predict. We would like to wait until the end of this quarter, the second quarter, to have all of our options open, and then we will react in the second half of the year.

So in the short term, in summary, is to get ready to start supplying projects with -- ensure that we follow all the health protocols, to use inventories of clinker and cement and delay the start of operations to preserve cash. And in the medium term, we need to wait and see for the second quarter how demand evolves to take more permanent decisions on capacity.

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Operator [11]

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And the next question is from Rodrigo Sanchez.

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Rodrigo Sanchez, Corredores Davivienda S.A., Research Division - Senior Equity Research Analyst [12]

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Yes. I have got 2 questions. The first one, if you could maybe expand a little bit on your cash tax expense guidance, considering the lower profits that one could expect after the first quarter. And also your comments on the expectations for the second quarter. If you could expand a little bit on that, it'll be great. And my second question is, are you foreseeing any additional financing needs in the coming months on top of that funding already secured in April?

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Jesús Vicente González Herrera, CEMEX Latam Holdings, S.A. - CEO & President of CEMEX in South, Central America & Caribbean, MD and Executive Director [13]

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Sorry, Rodrigo, the first question is guidance on what? Can you repeat your question?

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Rodrigo Sanchez, Corredores Davivienda S.A., Research Division - Senior Equity Research Analyst [14]

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Cash tax expense guidance. Yes, if you could expand on your cash tax expense guidance?

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Jesús Vicente González Herrera, CEMEX Latam Holdings, S.A. - CEO & President of CEMEX in South, Central America & Caribbean, MD and Executive Director [15]

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Okay. Thank you. Well, the -- as I mentioned, cash tax guidance is $50 million, and that is pretty much the same as we announced at the beginning of the year. And that -- the guidance is not going to be affected very much by the pandemic because remember that as the -- it's related to the results from 2019. So we're expecting to keep our guidance around $50 million. With regard to financing, we may -- as I mentioned, we have secured additional line of credits with local banks for $29 million. We may increase that number a little bit. We are working with other banks to -- on similar credit lines for short-term coverage positions. But in terms of financing with our parent company, we feel very comfortable with the more than $450 million that we have as our line of credit open. So we don't see a major change in that regard. So maybe additional line -- credit lines in -- from local banks in -- for the Q2 quarter, but not very relevant. It could be $10 million, $20 million, no more than that.

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Operator [16]

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And the next question is from Steffania Mosquera.

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Steffania Mosquera, CrediCorp Capital, Research Division - Senior Analyst of Transport, Telecom, Media and Technology and Information Technology [17]

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I have several questions regarding cost structure. My first question is what percentage of your cash cost is variable? And then I would like to have more detail on the increase in distribution costs in Colombia and Costa Rica. And also, I would like to understand a little bit more about this quarter's cash flow and the increase in working capital needs.

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Jesús Vicente González Herrera, CEMEX Latam Holdings, S.A. - CEO & President of CEMEX in South, Central America & Caribbean, MD and Executive Director [18]

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Thank you, Steffania. Okay, on the percentage of variable versus fixed cost, more or less, it's around 50-50, 50% variable with a big part of that in energy, fuel and electricity; and the other 50% is fixed, which is mainly related with salaries and planned fixed cost. With regards to distribution cost increases in Colombia and Costa Rica, Colombia, in the first quarter, on top of our traditional increase in -- inflation-related increases in transportation costs, which has been very -- a recurring topic in the previous quarters, we have 2 major issues. The first one is as a result of the decrease in volumes in March, our productivity has been lower in terms of distribution, and that has impacted our unitary cost of transportation. And the other factor impacting the first quarter was some of -- we had -- some of our routes were affected by landslides, and we had to take different routes, and that has created an increase on transportation cost as a result of those market -- road conditions.

In terms of increase in working capital, what I would say is that the majority of the difference that you see comparing the first quarter of 2020 versus the first quarter of 2019 is related to a onetime effect -- positive effect that we had in the first quarter of 2019 in Colombia. It's normal to have an increase of working capital in the first part of the year. Of course, as a result of the lower activity due to COVID-19 pandemic, we -- and the reduction in eliminating -- or reduction in operating cost, our suppliers' accounts were lower, and that has also an impact on our working capital balance because, as you know, we have a negative working capital position. So that also impacted the additional increase in the first quarter, but it's mainly due to the positive effect that we had in the first quarter of 2019.

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Steffania Mosquera, CrediCorp Capital, Research Division - Senior Analyst of Transport, Telecom, Media and Technology and Information Technology [19]

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Great. And now last question, if I may. Did you have any maintenance costs for this quarter?

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Jesús Vicente González Herrera, CEMEX Latam Holdings, S.A. - CEO & President of CEMEX in South, Central America & Caribbean, MD and Executive Director [20]

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Do I have what? Sorry?

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Steffania Mosquera, CrediCorp Capital, Research Division - Senior Analyst of Transport, Telecom, Media and Technology and Information Technology [21]

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Any maintenance in...

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Jesús Vicente González Herrera, CEMEX Latam Holdings, S.A. - CEO & President of CEMEX in South, Central America & Caribbean, MD and Executive Director [22]

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Our maintenance? No, no, no. As part of our efforts to preserve cash in the second quarter, there are no big maintenance in the second quarter. The first one is going to start in one of our plants in Colombia, according to the current schedule at the end of the Q2. And also most of the expenses are going to be reflected in Q3. So no major expenses in -- or maintenance expenses in Q2.

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Operator [23]

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And the next question is from Vanessa Quiroga.

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Vanessa Quiroga, Crédit Suisse AG, Research Division - Head of Mexico Equity Research & Co-Head of the Housing & Infrastructure in LatAm excluding Brazil [24]

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My question is regarding the price traction that we saw in local currency in Colombia in the first quarter. Can you explain what made it possible to have this positive change quarter-on-quarter in pricing? Was it a mix of product or was it your strategy regarding pricing?

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Jesús Vicente González Herrera, CEMEX Latam Holdings, S.A. - CEO & President of CEMEX in South, Central America & Caribbean, MD and Executive Director [25]

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Thank you, Vanessa. No, it was not mix effect. It was real increases happening in the first 2 months of the year, especially on bagged cement of around 5%. This is part of the strategy that we have followed in the previous months and quarters. As you know, we have been increasing prices for the past 5 quarters, in part, in local currency terms to -- well, to close the gap that we have with import parity prices. As I mentioned, there is still a big gap in central part of the country, and we believe that there is an opportunity to increase prices. So that's part of the -- that's the strategy.

And I can tell you that, as I mentioned in my remarks, that our prices are 9% above Q1 prices of 2019. And we may see in the second half of the year more opportunities to keep increasing prices in Colombia because, again, we still have around $20 import parity gap with our prices in Colombia. So that's an opportunity to push for price increases.

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Vanessa Quiroga, Crédit Suisse AG, Research Division - Head of Mexico Equity Research & Co-Head of the Housing & Infrastructure in LatAm excluding Brazil [26]

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What's the import parity price right now?

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Jesús Vicente González Herrera, CEMEX Latam Holdings, S.A. - CEO & President of CEMEX in South, Central America & Caribbean, MD and Executive Director [27]

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Well, right now, the import parity price in dollar terms is around 100 and -- according to our estimates, in the central part of the country it's around USD 105, USD 110.

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Vanessa Quiroga, Crédit Suisse AG, Research Division - Head of Mexico Equity Research & Co-Head of the Housing & Infrastructure in LatAm excluding Brazil [28]

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Okay. Okay. And can we -- can I ask you also about energy cost?

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Jesús Vicente González Herrera, CEMEX Latam Holdings, S.A. - CEO & President of CEMEX in South, Central America & Caribbean, MD and Executive Director [29]

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Yes. Energy cost. Well, starting with fuels. We -- let me start explaining to you that our fuel mix in CLH. The fuel mix is mainly pet coke in all operations, but Colombia, where we're using local coal. Thanks to the reduction in pet coke prices, we have seen in this quarter a big reduction in fuel cost on a per unit basis, so -- or more than 20% reduction. So that's helping us to keep margins in our operations. And also in the other part of energy cost, which is electricity, we also have a good decrease of around 8% in the first quarter. And this is mainly due to some renegotiation on our electricity contracts in Panama mainly that we closed last year, and we're starting to see the benefits of those new conditions on our electricity contracts. So in general terms, energy costs on a per unit basis are going down 15%, and we're expecting to keep going down in the coming months.

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Operator [30]

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And the next question is from Froylan Mendez.

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Fernando Froylan Mendez Solther, JP Morgan Chase & Co, Research Division - Analyst [31]

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Can you please describe how the competitive environment has evolved in Costa Rica and Colombia amid the COVID-19 crisis? Do you think that the new players are suffering more or less than you? And how do you see the competitive landscape being accommodated after the crisis?

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Jesús Vicente González Herrera, CEMEX Latam Holdings, S.A. - CEO & President of CEMEX in South, Central America & Caribbean, MD and Executive Director [32]

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Okay. Well, let me start with Colombia. Well, the competitive environment, as you know well, we had the start of a new competitor in Colombia in the fourth quarter of last year. And so far, the transition has been very smooth. That competitor has increased -- grown market share. And we estimate, and this is just an estimate, that is around 4% to 5%. And other companies in the sector have adjusted volumes to absorb that new capacity, including ourselves. So far, as I said, a smooth transition, with increasing prices, as I mentioned in the previous question. So we don't see a big impact related to this situation at this point of time. The other effect also is the imports in Colombia. As I mentioned also in the previous question, the import parity cost have increased in U.S. dollar terms because of the devaluation of the peso. So that's also giving us another opportunity to increase prices in local terms because there is still a gap with import parity. So in terms of competitive landscape, so far so good in Colombia. We are not expecting new players or more imports at this point of time.

Costa Rica, well, we had a new player, a new company operating in Costa Rica, starting at the end of 2018. That year was a year of transition. And at this point of time, there is a like a balance of the 3 players in terms of market positions, and that -- with very little effect on pricing. It's true that when this new competitor entered the market in Costa Rica, there was a decrease of prices due to this new competitive dynamics. And that's why you see a decline of -- I think it's around 7% of prices this quarter versus last year's quarter. Because last year, prices were higher because we were -- this new competitor were entering the market. So now the situation is stable. And again, we don't see a source of instability in Costa Rica due to competitive dynamics.

So that's the situation in both markets, Froylan.

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Fernando Froylan Mendez Solther, JP Morgan Chase & Co, Research Division - Analyst [33]

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And if I may, just an additional question. Can you quantify the amount of cost reductions that you can tap, given all this COVID-19 situation? And how much of this was already reflected in the first quarter?

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Jesús Vicente González Herrera, CEMEX Latam Holdings, S.A. - CEO & President of CEMEX in South, Central America & Caribbean, MD and Executive Director [34]

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Yes. Well, I mentioned in terms of cost reduction, this -- as we speak, we are working on new initiatives. But so far, we have identified almost $10 million, or $8 million of cost reductions in our plans. For the rest of the year, I don't see the effect -- or the effect in the first quarter is minimum. So most of that should be reflected in the rest of the year because we put this plan at the end of March, beginning of April, as a reaction of the -- of COVID-19. So that's where we are now.

And as I said, we keep looking for new opportunities, more opportunities that depends a lot on the second half of the year. If there is a recovery to the volumes that we had before this pandemic, that would be one scenario. If the recovery is more like a U-shaped recovery, and it takes longer to get back to the volumes that we had before in -- before the COVID-19, then we'll have to take more cost out of our P&L. So we are evaluating different scenarios, and still it's too early to see what is going to be the impact in the second half of the year. But we keep looking for more opportunities, for sure.

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Operator [35]

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And our next question is from Antonella Rapuano.

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Antonella Rapuano, Santander Investment Securities Inc., Research Division - Research Analyst [36]

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Just a follow-up on margins. We'd like to see if you could give us some insight of the sensitivity of the margins to potential volume drops.

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Jesús Vicente González Herrera, CEMEX Latam Holdings, S.A. - CEO & President of CEMEX in South, Central America & Caribbean, MD and Executive Director [37]

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Well, if you take into consideration that our cost structure is, as I said, 50% more or less variable, 50% fixed, you can start playing with the numbers. We are -- the challenge that we have is to reduce the fixed cost part if we keep having volume declines again, and we are working on several initiatives to reduce fixed cost. So margins, if we don't react on the fixed cost part, of course, margins will go down. And the challenge that we have is precisely working on the fixed cost side, but it's too early. As I said, we don't know yet what will happen with construction activity in the second half. We are working on different scenarios depending on market declines on a market-by-market basis.

And again, we don't want to react very quickly. We will act only once we have better visibility on what is the magnitude of the decline. It's very important that we continue monitoring order books. Also, we need to protect our capacity also to respond to an increase in demand once the pandemic is controlled. That could happen as well in some markets. So that's what we -- that we see. For sure, what we're doing, as I mentioned in my remarks, is reducing CapEx. That's something that we need to do, and we have done very quickly. And as soon as we have visibility, we will react in the markets where we have visibility and take fixed cost out of our P&L to reduce the impact on margins.

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Operator [38]

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And we have one more question from Eric Neguelouart.

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Eric Neguelouart, BofA Merrill Lynch, Research Division - Research Analyst [39]

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Just a quick question. Your volumes in Colombia dropped 30% year-over-year. And we heard some -- from other competitors that EcoCementos had some issues starting their plant, and they only started up until late February or the beginning of March. How much of the 30% drop can be related to the shutdowns? And how much of that is related to market share loss to the new player?

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Jesús Vicente González Herrera, CEMEX Latam Holdings, S.A. - CEO & President of CEMEX in South, Central America & Caribbean, MD and Executive Director [40]

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Well, just to correct, our volumes in the first quarter went down 15% versus last year, not 30%. 30% was...

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Eric Neguelouart, BofA Merrill Lynch, Research Division - Research Analyst [41]

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I'm speaking of March, March specifically. March was down 30%, right?

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Jesús Vicente González Herrera, CEMEX Latam Holdings, S.A. - CEO & President of CEMEX in South, Central America & Caribbean, MD and Executive Director [42]

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That is correct. That's correct. Yes, well, March is mainly -- the effect in March is mainly due to the COVID-19 pandemic. It started -- Bogotá started with a shutdown of the construction industry in March 19 and the rest of the country followed in March 22. So it was a complete shutdown. I want to emphasize that part. In other countries, in Europe or in the U.S., there was some kind of a impact on volume. And here, it was -- we went from 10,000 tons per day to 0. It was a dramatic reduction in volumes to 0. So that had a big impact on the volume figures in the month of March.

On top of that, and this is more for the quarter than for March, as I explained, the entrance of the new competitor implied some loss of market share in our case, and we were ready to absorb that new capacity. So that could have had some impact on the reduction in March. We don't have numbers for the whole industry, official numbers yet for the month of March. So we don't know what is the impact of the loss of market share related to the new competitor. But most of the impact is due to the shutdown of the industry. It was a total shutdown from 10,000 to 0.

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Operator [43]

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And I have no further questions at this time. I would like to turn the call back over Jesús González for closing remarks.

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Jesús Vicente González Herrera, CEMEX Latam Holdings, S.A. - CEO & President of CEMEX in South, Central America & Caribbean, MD and Executive Director [44]

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Well, thank you very much, Carol, and thank you, everyone. I would like to, again, to take the opportunity to wish everybody good health in these challenging times, and please keep -- everybody, please keep safe. And we look forward to your continued participation in these calls, in CEMEX Latam Holding calls. Also please feel free to contact us either directly or visit our website. So take care and see you soon.

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Operator [45]

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Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a good day.