Q1 2020 Earnings Call
It's it's best for the debt reduction goal.
Given the challenging conditions, we do not the specs to reduce our debt by the end of the year as originally planned.
Reaching an investment grade capital structure continues to be a top priority, but clearly it will take us more client.
Regarding our cost reduction initiatives as I mentioned earlier.
We are continuously evaluating our markets and we will be act as needed.
Now I would like to this caused the most important developments in our markets.
In Mexico, our cement volumes grew 2% during the quarter.
Driven by higher consumption of back summit.
Demand during March continue to be strong.
And then prices grew by 3% sequentially, reflecting the price increase implemented at the beginning of the year.
Despite this resin prices are still lagging I will input cost inflation since the beginning of 2018.
The decline in EBITDA margins reflect our favorable contribution from volumes and fuels offset mainly by higher raw material cost in ready mix and higher freight costs.
While cement continues to be considered essential the construction industry is experiencing restrictions with only the following sectors being allowed to operate.
First.
Tom several projects, including the Mexico City Airport, both Baucus refinery demand train and projects related to hospitals clinics rural grows on other projects from see that essential.
Construction activity will rise widely from state to state.
And second.
The 10 safe.
Flash, we continue supplying back cement through most of our distributors.
We relate back cement activity may experience some headwinds in the following months.
Affected by unexpected increase in unemployment declined in remittances and current uncertainty.
The continuation of government programs, including Google gross my mitigate these declines.
In addition, the recently announced credit programs for set for structure should also supporting formal demand.
Regarding former construction, we should see suspended broke starts to reactivate once the declare test emergency ends.
Infrastructure activity could be bolstered by the government Alpha counter cyclical nature, we're assuming current projects and continue to establish the conditions for the private investment needed and as infrastructure agreements.
Suspended industrial and commercial projects should gradually restart as restrictions are lifted.
New projects, we continue to depends on the branches of right conditions for investment.
It's too early to assess the speed of recovery of the construction industry and cement demand for the rest of the year.
However, we expect construction to be one of the first sectors is flat recovery.
In addition, we are coming from very low levels of infrastructure in housing activity last year.
The government recently announced at $36 billion stimulus programs, which will be used to increased spending on social programs and infrastructure projects to help mitigate the impact of for these 19.
Great.
With any additional stimulus put in place to reactivate construction should reflect positively on cement demand.
The United States, the strong results of our operations within the quarter reflect the continuation of the demand momentum we experienced in the fourth quarter copel with better weather conditions improve logistics management and lower energy costs.
The strong demand picture of the side of the year moderated in the second half of March as covered 19 distractions.
In certain California markets impacted volumes.
Cement and aggregates volumes increased trend, 10% on the light light basis, we're ready mix volumes rose 9%.
The drivers of the man in the quarter, where the residential and infrastructure sectors.
Texas, California, and Florida contributed to volume growth.
Pricing for cement ready mix on aggregates in the quarter was stable sequentially.
And with the margin for the region growth 2.6 percentage points due primarily to improved volumes and pricing.
Definitive for Twentytwenty has been substantially reduce glued to the health crisis.
As of today construction in all our market continues to be considered essential and all our facilities can operate.
And Additionally, our diversified years footprint implies that the trajectory of buying some pager regulatory response and recovery will affect each individual market on its own timeline.
While business month to date April has been resilient, we anticipate that our volumes are likely to be impacted over the years.
April price increases in several markets were postponed until summer.
With infrastructure accounting for over half of cement demand.
Recent strengthened counter cyclical nature should provide some cushion for our volumes.
Additionally, we.
We are increasingly hopeful that we see an economic stimulus package that includes includes significant federal infrastructure spending as the government acts forget the economy moving again.
We do however, despite the weakness in the residential and industrial and commercial sectors.
While the continuation of projects in progress will provide support to our volumes for the next few months.
Initiation of new projects may be delayed until there is greater economic visibility.
The majority of our US operations added markets that are sold out and delay on equal to meet demand.
This imports served as an important offer and allow us to continue operating our cement plants at high capacity levels, while responding to our potential decline in activity.
We are analyzing several recently announced the government programs to both to assist our employees and to facilitate our U.S operations.
In our Europe region quarterly domestic Ray cement volumes were up 1% year over year with solid growth in our central European markets.
Driven primarily by continue working the structure sector.
Partially offset by declines in the UK in Spain, We recorded 19 measures during March.
The declines in regional ready mix and aggregates volumes also reflect the impact of restrictive measures in France and Spain.
Which offset the growth in our central European markets.
Domestic gray cement prices were up in all of our markets both sequentially and on a year over year basis.
During the quarter, we implemented successful price increases in the United Kingdom and Spain.
In April we also implemented implemented price increases in Germany, Poland, Czech Republic inspiration.
Regional ready mix and aggregate prices were also higher.
Although each coordinating the beacon has imposed different degrees of lockdown measures to mitigate the crisis.
The construction sector has been dean annotation activity in non level our geography.
In Spain construction stock for two weeks.
Hi, due to sections at the end of March.
Activity restarted on April 13.
In France.
Same and the UK, we observed significant deceleration in construction activity as a result of implementation of stringent covered 90 measures during March.
Poland, Germany, and the Czech Republic authorities have imposed fewer restrictions and the impact has been much less disruptive to the industry.
While we expect many of the restrictions in our footprint to be gradually lifted over the next few weeks.
The economic soul of the pandemic should continue to challenge the industry's four months.
While European governments have been some of the most active in announcing monetary and fiscal measures to mitigate the economic impact for forbid 19.
Private sector projects should continue to face uncertainty.
Infrastructure stimulus spending is expected. However, it may take time on may not fully compensate for the sexes decline in private consumption.
It is very hard at this point in time to quantify the regional impact that copied 19 and potential mitigation actions and governments, we have on demand from the full year.
In the South Central America, and the Caribbean region, we continued to experience favorable pricing dynamics during the quarter. Despite the significant declining demand.
Due in part to governments measures to contain the spread of hobbies 19.
The drop in regional sales and EBITDA was mainly driven by the clients in Colombia and Panama.
For additional details from this region and invited to reduce your latest quarterly results, which were also published today.
Our team is in Colombia was strong before the implementation of provisioning intersections.
Industry volumes in growth by around 7% year to date February with an estimated 3% decline due in March.
Our quarterly domestic gray cement volumes declined by 15%.
While our prices improved by 9% year over year on 2% sequentially.
The Dominican Republic cement volumes declined by 7% during the quarter.
Volume restrictions implemented since since mid March slow down the demand for our products.
Cement prices continue their positive trend increasing in the double digits during the quarter.
Our operations in Panama continue to suffer from delays in infrastructure projects.
Hi, inventories in apartments, and offices as well as by the deceleration of the economy.
The call with 19 crisis intensified analysed ready weaken demand environment.
In our Asia Middle East Africa region, we experienced favorable volume dynamics in the quarter.
Entre regional cement prices declined due to competitive dynamics in the Philippines and league.
EBITDA margins for the region increased 1.5 percentage points, mainly due to an energy tenants lower raw material cost instruments on higher volumes.
In the Philippines.
Domestic rate cement volumes declined by 4% during the quarter, while cement prices declined 6% due to increased competitive dynamics.
For the first and most of the year, our cement volumes increased by 8%. However, the persistence transmission of Cogs 19 trunk with the government to pull the medium office on into our strict locked down which began on March 16.
Our solid cement plant with the capacity of roughly 2 million that axles on tumor in terminals located in the different region are currently close.
Our operations in the desire from in the now region are functioning at a low utilization level.
Activity for the remainder of the year will be subject to the reopening of the currently but we expect that runs returned to operations and to normalize around the third and fourth quarter of the year.
For additional information on our Philippines operations Fleece C.C.H. fees for in the results, which will be available on Sunday may 3rd in the evening mundane modeling in Asia.
Needed cement volumes increased by 11% during the quarter support maybe mainly by the informal sector, while our prices remain relatively stable sequentially.
The addition, bowerman has been taking very decisive actions to limit the strength of devices, but avoiding a complete shutdown of the economy.
Perfuse have been imposed however, our industry has been dean essential.
The Israel ready mix and aggregate volumes increased by 11, and 8% respectively during the quarter.
The infrastructure sector was the main driver for growth closely followed by housing and commercial activity.
Prices also improved during the quarter.
Although we saw as light declining activity during the month of March we have not seen a significant impact from the public 19 pandemic.
Construction has been considered an essential activity.
In addition, strong economic fundamentals higher activity in office buildings in Tel Aviv on clients, bringing consumption forward in anticipation of potential closures.
Well maintained demand for our products in the country.
And now I will turn the call over the matter to discuss our financials.
Thank you Fernando Hello, everyone.
Turning to first quarter of Twentytwenty operating EBITDA increased by 1% on a like to like basis with a reduction in margin of 8.3 percentage points.
The favorable impact of consolidated prices and fuel during the quarter was offset by increased freight and transportation costs high raw material in ready mix as well as increased purchase cement.
Reported EBITDA also reflects an unfavorable effect from currency fluctuations of $16 million.
We continued to see Tailwinds from lower energy cost during the quarter.
Our unitary energy cost of producing cement, including kiln fuel and electricity was 12% lower during the quarter.
This includes a 21% reduction in fuels and a 2% decline in electricity.
Our quarterly free cash flow after maintenance Capex was negative $215 million compared with negative $337 million in the same period last year.
This is mainly explained by a lower investment in working capital due to aggressive receivables and inventory management as a result of the health crisis.
We expect a portion of this working capital investment to reverse during the second half of the yet.
As Fernando mentioned earlier, we took important measures to improve our overall cash position in anticipation of potential disruption in the capital markets.
These measures helped us improve our cash level as of the ended the quarter.
But also increased overall debt.
As a result of expected higher total debt for the year on average we now anticipate a slight increase in our full year financial expense.
Net debt plus perpetual securities, which adjusts for the effect of the higher cash balance was reduced by a $112 million.
During the quarter total debt reflects a favorable translation effect of $100 million.
We ended the quarter with a strong liquidity position and a manageable debt maturity profile with no significant debt maturities through July 2021.
Our leverage ratio ended at 4.4 times at the end of the quarter.
Before I turn the call back to Fernando I would like to mentioned that starting next quarter, the Europe and the Asia Middle East and Africa regions will be consolidated into one reflecting the recently announced changes in senior management.
Now I will turn the call to Fernando Fernando.
Thank you marketing given the continued certificates of covered 19, it is difficult to resume EBITDA on volume guidance at this point.
However, we are providing estimates for energy and some of the items, we cannot we can't control below the EBITDA online.
Regarding cost affinity per ton of cement to boost we now forecast a decrease of 4% to 6%.
We now expect Capex investment to be around 700 million bars for this year.
Reduction of 60% in our non committed capex for the rest of the year.
During the next three months, we will be reducing these expenditures through very minimal.
On financial expense, we now expect an increase of $25 million to $50 million as a result of higher average debt for the year to improve our cash position as well as higher rates.
We expect no significant change in cash taxes, we should reach about 200 million bars for the year.
Due to lack of visibility on our top line growth, we believe that working capital investment will be higher than the one provided at the beginning of the year.
However, we are not in a position to provide the new estimate at this point in time.
Given the challenging and uncertain times caused by disciplined dynamic we will continue to monitor the development of copied 19 and act decisively.
To ensure the health and safety of our employees customers suppliers on communities.
Serve and support our customers in this difficult times.
Im protect the future of our company.
We are encouraged by the historical scope of the fiscal and monetary measures that are being implemented by governments in a significant portion of our core portfolio.
We expect additional measures to address badly needed infrastructure to support housing activity in most of our markets.
Thank you for your attention and I would like to take this opportunity to wish everybody looks healthy and if it's safe.
Okay.
Before we go into our QNX session.
I would like Q 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 indicate otherwise all references to pricing initiatives price increases or decreases refer to prices for our products and now we will be happy to take your questions operator.
Ladies and gentlemen, if you wish to ask a question. Please press Star then one on your Touchtone phone. It's have question has been answered all you wish to withdraw your question. Please press Star then too.
Plus one.
Well start to one till we get please stand by for the first question.
Our first question is from capital, although the older from Bank of America going off.
Thank you. Thank you Fernando Maher her for further call.
Can you comment on many initiatives.
In the us or Europe to approval infrastructure packages and so far how there and we'll be has there been any package being approved the in either the USA Europe. Thank you.
Carlos Thank you.
And there hasn't been.
Pacific.
Packages yet.
But there is definitely conversations.
In the U.S. certainly bipartisan conversations there are definitely conversations in Europe as well.
Now very major potential infrastructure.
Additional infrastructure packages to it to to be developed.
Having said that.
And we are encouraged I mean, this is probably of all of all things I mean, what we think this is something that has definitely needed as soon as the as soon as the markets normalize now it is important however dimension that as as.
Government strike and normalize this process they have committed and historic as Fernando said in the remarks and historic amount of of stimulus close to eight trillion dollars.
Stimulus has been announced than is currently being on being implemented on an accelerated.
Manner.
This is on top of that we have major additional monetary policies to through central banks.
The markets in which we operate have announced probably over five trillion to date of fiscal stimulus, including things like individual subsidies barrel support deferred taxes and some markets have have.
Hey proved to be west for answers are committed to close to 3 billion. So far and of course, Mexico has also announced a few days back a 26 billion.
Program in loans to small and medium sized businesses and individuals and social program. So where we are encouraged we think the next stage for governments in most markets would be too to start looking at infrastructure related.
Project, which which we we believe is very likely to happen.
I don't know if that answers your question.
Carlos sure turned those thank you. Thank you very much Carlos operator.
Our next question from Nicola among from Morgan Stanley Go ahead.
Oh.
Thank you very much and good morning sample on why everyone.
We will all trying to handicap you are in the future performance in key markets such as the USA was just looking.
You are strong performance I looked at the date, Texas that kind of showed at least with regards to your numbers.
At January February was very strong and then March ABR, although our Basel, albeit genius performance hybrid one but is that something you you can savings with GBC ended last month this quarter a general.
Slowdown in United States or is there anything you can say about how this quarter kind of set out.
In the U.S specific it.
Yeah, nickel I think I think.
And with Nielsen like the recent one mean the bay area in California on three activating the construction activity that might be.
Maybe those sites both ER positive news web mountain DNS returns.
What we've seen in the very short term is that the.
Construction companies the.
I've been crime is speeding up there jump science there there's been a works.
And.
So that there are that are positive reasons, why we're seeing volumes can be resilient.
But as you know the the U.S. is still in its way to get to the big on an additional measures of easing the locked down my sake.
I know that the two three weeks.
A very challenging to give you guidance on volumes, but but they could be stable and bring apps.
To time after the execution of some projects that might be.
A slight decline.
Okay can you give a sense of how much is saying the first quarter was flex and.
And the 10 by construction companies to perhaps finished suffer any some some initial walk and therefore, they they sort of for the most amend the all in.
Because forward would activity in the quarter.
Yes, but it really is there a challenge is to deviate from.
Additional guidance on the second quarter April April optimal about mid April volumes have been stable.
But again in video for you to give you a.
Our guidance on on the second quarter, but I can't comment perhaps is that you know a few weeks of goal was whether its vaccine in the U.S., but I mean flexing the into second quarter, So not know because of these.
A recent them commencing I've seen Vince that reduction in volumes that is that it's not necessarily happening is going to be happening.
In the second quarter or they might be.
Divided between the second part of the per quarter.
And and if I can look and then the first quarter. So yeah, Nick maybe if I can not just add complement what.
Fernando was saying is also I mean, it's especially in infrastructure.
We're finding is that deal team is pretty much all over our markets now of course as you can imagine I mean, we have our footprint is quite big and the actions for the limitations, let's say on mobility or construction activity has been very.
Most of our markets a bit opened the exception as Fernando set as a as the bay area, but but the the interesting part is that on the infrastructure side. It seems like deal teas.
Our taking advantage of.
Lighter traffic to actually accelerate.
Most projects and that's probably true for for other.
You know construction projects as well I mean, certainly in residential industrial and commercial I mean, we're seeing generally speaking.
Builders and contractors.
Trying to accelerate as as quickly as possible not knowing what lies ahead now.
Okay. Thank you guys in such a thank you very much nickel.
Okay.
Hi, Brad and and now we will have a question from the webcast our house told me that.
Okay. The.
First question from the webcast is it's going to be from.
Mike Beth.
From data based analysis.
And the question is have you adjusted your payment terms.
For covet 19 in order to reduce risk of bad debt.
Okay, I can take a that wouldn't matter I think as the.
The answer to that question, Mike is that we are in constant flux with several customers.
We have not necessarily bake in a non across the board decision on on payments during <unk>, but we being.
Making decisions individually and depending on market conditions in be sort of seasonal dip in market speeds gap that it is getting conditions.
On on we have been in March and an agreement with them. The best way to go particularly through the first couple or three months of the impact of all they're putting advisors. So far so we still don't see any major impact in these in this regard.
Operator.
Operator.
Next question I next our next and his from eight and went south from JP Morgan. Please go ahead.
Thank you hi, something on the on might have.
Thanks, so much for the call.
One or if you can just comment a little bit more on on the margins in Mexico was quite surprised on the sequential improvement on on margins.
And also in the U.S., where the margin for was well above what we have seen the last four years in enough in the first quarter what else on top of 'em volumes on the on prices impacted positively margins on on just the markets.
I doubt if I can just in the case up and the case of Mexico, while we had.
Fuel.
You know tailwinds, which were significant.
Close to you know more.
Far more than half than the total decline and margin.
And the reason for that as because of Petcoke met coal prices dropped.
Importantly, almost 50%.
The.
Cement volumes also did well.
As you can imagine prices were kind of flattish I mean, they there's a little bit of deterioration there and that's primarily because of a mix effect, we had a higher proportion of of exports and exports happen at a slightly lower price. So that it's more of a mix effect that.
That anything.
But anything else and then and then we had some.
Items like up freight for instance, transport in the case of ready mix some negative impact in electricity.
And and some some.
Cost in some of the material that we use in maintenance like refractory bricks and so those are kind of the the reasons you know where we've had a benefit on the energy side and volumes in cement and and to some extent prices, but were offset by these other items I.
I don't that if thats sufficient up breakdown on on.
On Mexico, you as much.
In terms of the U.S. I mean, you know we had a terrific [laughter], we had a terrific quarter [laughter], that's all I can say and and obviously you.
You know we had up at close to three percentage point a expansion in margin a big chunk of that is because the volumes I mean, we had cemented ags were up.
10% ready mix was close you know close second plus 9%, we had good pricing performance plus 3% year over year and then also very importantly, you know the organization was that the U.S. organization was very good add on making sure it.
But are stronger semex initiatives are coming through and so we had.
So that's also an important an important driver.
The improvement there lower energy cost for the production of cement you know offset that a little bit likely we continued to just switch more to petcoke, how we did have some.
Purchase cement and and imports.
Because in several of our markets, where we're sold out. So we have two we had to do that.
And.
Also another contributor.
That was offsetting the positives where the at the increase in in raw material in ready mix I mean, when you have.
Aggregates and and cement prices a strong as that.
With that impacts obviously, the raw material input and then transportation on in freight cost has been has been also fairly strong and so the combination of all of this.
Translated to an improvement of close to three percentage points in our EBITDA margin in the U.S. business.
I don't know thanks, sorry, yeah. So the higher freight goes are you there that you had in the past there were still on.
There were still this quarter my huh.
Yes, I mean, we have a two new terminals in California, and Texas that were not operating last year and so you know, so clearly and there's more travel distances and our Florida market as well.
Okay perfect.
Thank you.
Thank you very much of the on.
Operator.
Our next question is from last season, a lot from on.
Field investment research go ahead.
Good morning, it'll come in a sort of question.
First could you quantify the volume they've looked around that you've seen.
The first two weeks over a period.
Maybe in the U.S., Mexico and Colombia.
If you could also a give us some color what happened in France, the UK Cds.
That would be very very helpful.
And then my second question wouldn't be on though your covenants.
Yes.
The look donweb or less seemed to be doing though argue or are you already discussing with your bunks habit potentially.
It seems your covenants.
If you have that issue of they took of them to what could be to what could be the cost for you.
The limiting the first slipped in a theme.
I just sort of the presentation that it's a chart showing the.
Sure.
Mhm, which we believe each country each market.
Moving to the they make.
And I think a the defers the volumes.
During the first.
Couple of weeks of April.
And I'm, most notably for the or.
April after a month.
And we see volume is a behaving according to the or so leases in the case, so ah well to Mexico.
The as you know.
The construction activity, what not fully whatnot concede that really essential meeting that award of the one had some infrastructure.
As I spoke projects.
That continue its a its operations I.
No the older and it'd be days stores or back some men.
We're into that essentially.
What we have seen east precisely because that's a nation is that in schemes that you'd the last few days.
And.
We have seen decline in a in both cement, which is mainly use or.
Lots of works, particularly infrastructure works.
On on we have seen its banks than men.
Hey, good morning.
Again it.
That's I think you'd see we leased cranial trial.
Be reflected.
All over the whole the month of Oh people.
But all in all volumes in Mexico. The last few base have shown a decline.
I'm, assuming no the lockdown, the social book down in Mexico.
Then that made the 30 to 30.
But some decisions might be nice he needs me some decisions, meaning depending on the evolution over the impact to the they me.
I will afford it is my my part.
A progressive type or.
Also.
Well off of the economy or to be fair enough to these got coming but that's that's the scene.
The case of the U.S. as the first couple of weeks volumes.
Our steel.
Stable from stable to slice growth.
Again. This is the first couple of weeks, so let's see let's see.
[noise] probably goes into next week I find mentioned that are some positive like.
Sheltering the bay area opening like won't matter, the safe and on infrastructure.
What I also mentioned in forgot to be it.
Construction companies willing to speed up.
Construction.
Well, yes.
Well it did see that see how it goes.
Forward.
I would also good movies field is stable.
Warm there if you know some economic indicators like permits among others.
That allow us to better understand the.
He gave you don't demands in the next three.
Three too.
Excellent.
In Europe, I see what what are what we.
What we see on seems like that bluestem team's been yeah.
The behavior of the eat breakfast. The reason that being said that are that are that are two europe's.
And so an evil I've not been and that's eagerly boxes and even in April.
Countries, like Germany, or Orlando or steel.
And with a positive behavior positive growth.
But clearly the UK, which we would hope the UK networks case.
I have a marquee wins with Google UK, France and Spain.
Our I've a declining.
The first a couple of weeks or.
April.
Good.
Due to the degree of most probably that would be the pace Little April hopefully we've referred to the shot that we showed before ultimately you if the trends continue being the same we'd see if you go.
Exceeding our order or.
Leaving the appeared to have after the they'll be who choose when do seem to be stuck like movies will start eating.
Look down those levels.
Countries.
I see the most things Didnt natures, you need to look down at least with industry have been baking into emerging markets for most of US South Americans Gedeon region.
We have and it seems as though along the other many of the politics et cetera.
Friction on.
Junction.
Unfortunately. These these two countries that I mentioned also accessing the that say after peak.
Hopefully on again, if trends continue they wouldn't be able to open for longer FEMSA amounts of gravy.
Paul system start opening the construction industry the Dominican Republic.
As well the Philly piece as you know it's possible that this long island.
The strict it will be the fix it.
And.
You may know.
The second lien or was there island in the month with one Linda.
It's located.
It's a loan degenerative terms, it's around 70% of the economy in the Philippines.
HM Okay.
Again, it has one already.
That way forward about a month so.
He is april's feeling and.
As ive anymore because of that.
Again trends continue thinking through we've been seeing opening of that market.
You know before policeman being you know with what's going on.
Yeah I mean.
He was growing at.
I don't know objectives.
Thanks.
Well, that's that's more or less deployments I can make them on April.
We will be a updating as much as possible and we'll probably see this again disease.
This is the.
The kind of white apples, but we are observing.
Currently.
Yeah, meaning.
We have implemented.
In mid March about mid March you decided to.
Looking at the eat breakfast will be common theme.
We decided to make a the way I call. It is a hot spot.
Which is must not be producing pizza hut's fault on business substitutional cycles.
On the.
Concentrate on the swine what is it that is essential weather was essential.
Over the next 90 days.
We saw that whatever was another essential.
The company of the fee should become to maybe basically just hoping.
That's how we managed to reduce capex by 60%, 60%, meaning Apis that wasn't that spans gingerly national meter.
So much.
Right now we are Philip serving different scenarios, we put that are that are.
You know that does that our decisions additional decisions to be made depending on the scenarios that unfolds in each of the market. So as you can imagine.
We are monitoring we ought to move.