Earnings Call Transcript - CX Q1 2020

Operator, Operator

Good morning, welcome to CEMEX First Quarter 2020 Conference Call and Webcast. My name is Kate, and I'll be your operator today. [Operator Instructions] Our hosts today are Fernando González, Chief Executive Officer; and Maher Al-Haffar, Executive Vice President of Investor Relations, Communications and Public Affairs. And now, I'll turn the conference call over to your host, Fernando González. Please proceed.

Fernando González, CEO

Thank you. Good day to everyone. I hope you and your family are in good health. Thank you for joining us for our first quarter 2020 conference call and webcast. We will be happy to take your questions after our initial remarks. Before I start, I would like to thank the whole CEMEX family, 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 our markets has been impacted to different degrees. However, it is important to highlight that construction, together with our industry, has been considered essential in many countries around the world due to two characteristics. First, construction can be performed with a high degree of safety and low risk of transmission. Construction worksites, as well as our production sites, are effectively controlled and not open to the general public. Most work is done outdoors with low personnel density and under strict health and safety standards to prioritize the safety of workers. Second, construction activity contributes significantly to economies and society. 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 a significant percentage of their GDP. It is also a fundamental engine for reactivating economies and generating employment. Going forward, as fiscal and monetary measures take hold and economic activity starts to normalize, policymakers will need to move swiftly to boost demand. We believe that necessary infrastructure spending will represent a very effective way to reactivate the economy in a targeted manner. Now, regarding our operation, governments have adopted different measures throughout the past few months, designed to contain the spread of COVID-19. The construction industry and the cement industry have been considered essential activity in most of our operations. Under current restrictions, we are able to supply our products to about 90% of our customers worldwide. However, other COVID-19 measures, like physical distancing, stay-at-home orders, and limitations on non-essential activities, have significantly impacted demand. In this challenging time, we have responded in an agile manner, focusing on three main priorities. First, safety, our number one priority for many years. We have complemented our existing standards by developing and implementing more than 50 new hygiene and safety protocols designed to protect our employees, customers, suppliers, and communities from the risk of COVID-19. As part of these measures, we have applied strict hygiene protocols in all our operations and modified processes to ensure physical distancing. We have made arrangements for employees to work remotely where possible, restricted travel, and enhanced our internal information campaigns and recommended practices for health, hygiene, and social interaction. Our efforts are not limited to our operations; we are also taking actions to protect our community. We are using our ready-mix trucks to carry our soap and water solutions to clean and sanitize open areas like hospital entrances, healthcare facilities, urban places, and others. Some of our admixture plants are producing hand disinfectants according to World Health Organization's specifications to cover the needs of employees and neighboring local communities. We are delivering food, water, medical supplies, and other essentials to vulnerable groups. Also, we are donating personal protective equipment to local authorities and communities. Second, to support our customers as much as possible, we have enabled our service centers with a remote workforce and capabilities. We are also sharing best practices with our clients. 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 digital and safe manner that eliminates any risk of virus transmission. The only essential part of the customer journey where there is a physical touchpoint is at the pickup or delivery of our products. In both processes, we have established special health and safety protocols which include sanitary centers at pickup points in our facilities and limited interaction at pickup or delivery. Third, to protect the future of our company, we are taking steps to preserve and build our cash position. CEMEX's executive committee and senior leadership members have agreed to voluntarily waive a percentage of their salaries and fees within the next three months. Other salaried employees have voluntarily deferred a percentage of their monthly salary within the same period. I would like to take this opportunity to thank my colleagues for their support in these challenging times. Additionally, on the operating side, we are reducing total capital expenditures by $400 million from our February guidance. This represents a 60% reduction in non-committed CapEx for the rest of the year. Regarding operating expenses, the savings of $200 million intensify under our strong incentive plan for the year, based on our initial estimates. While we now expect lower activity, which results in headwinds to achieve the savings, we are taking additional measures to respond to the crisis. We also continue to monitor demand conditions and market positions in our different operations to be able to respond and adapt rapidly to any change in variables. On the financial side, we implemented measures to strengthen our cash position. During March and April, we drew down about $1.45 billion under our committed revolving credit facility and other credit lines. We also suspended our share repurchase program and will not pay dividends this year. Additionally, to increase the margin for compliance under our financial covenants, we have officially initiated a request for the amendment of our leverage and coverage ratio under our facilities agreement. The response from the banks to this request is expected by May 26. We'll update you on this process as soon as possible. As a result of the above, as well as the receipt of $500 million in proceeds from asset divestments, pro forma cash as of the end of the quarter reached about $1.7 billion. This represents about five times our average cash on hand during the last two years. In addition, we have pending proceeds from divestments for about $400 million, which are expected to close during the second half of this year. Regarding our financial results, we entered 2020 with favorable demand momentum, which began to be impacted in March as COVID-19 spread. The timing and magnitude of this impact vary throughout our portfolio; each market has experienced a unique trajectory of virus transmission, as well as different environmental responses to mitigate the spread of the virus. During the first quarter, our consolidated cement volumes increased by 1%, while prices improved in the 1% to 4% range for our three core products, leading to a 2% like-for-like increase in sales. EBITDA also improved by 1%, while margins declined by 0.3 percentage points. During the quarter, we had our free cash flow after maintenance CapEx best case of $215 million, compared to a deficit of $337 million in the same quarter last year, mainly due to a lower investment in working capital as a result of timely management of receivables and inventory as the crisis unfolded. With regards to our strongest CEMEX plan, we have substantially met most of our desired target assets for the debt reduction goal. Even in the challenging conditions, we do not expect 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 time. Regarding our cost reduction initiatives, as I mentioned earlier, we are continuously evaluating our markets, and we will react as needed. Now I would like to discuss the most important developments in our market. In Mexico, our cement volumes grew 2% during the quarter, driven by higher consumption of bagged cement. The month of March continued to be strong. Cement prices grew by 3% sequentially, reflecting the price increase implemented at the beginning of the year. Despite this, overall cement prices are still lagging our input cost inflation since the beginning of 2018. The decline in EBITDA margin reflects a favorable contribution from volumes and fuels, offset mainly by higher raw material costs 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, from several projects including the Mexico City airport, the robust Baucus refinery, the mining drain, and projects related to hospitals, clinics, rural roads, and other projects considered essential. Construction activity varies widely from state to state. Second, retail sales; we continue supplying bagged cement to most of our distributors. We believe bagged cement activity may experience some headwinds in the following months affected by an expected increase in unemployment, a decline in remittances, and current uncertainty. The continuation of government programs, including global growth, should also support formal demand. Additionally, the recently announced ready progress for set structures should support it further. Regarding formal construction, we should see suspended sites reactivate once the declared emergency ends. Infrastructure activity could be bolstered by the government as part of its counter-cyclical nature. We are assuming COVID projects will continue to establish conditions for the private investment needed under the infrastructure agreement. Suspended industrial and commercial projects should gradually restart as restrictions are lifted. New projects will continue to depend on the presence of the right conditions for investment. It is 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 to start recovering. Furthermore, we are coming from very low levels of infrastructure and housing activity last year. The government recently announced a $26 billion stimulus program, which will be used to increase spending on social programs and infrastructure projects to help mitigate the impact of COVID-19. Any additional stimulus put in place to reactivate construction should reflect positively on cement demand. In 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, coupled with better weather conditions, improved logistics management, and lower energy costs. The strong demand picture at the start of the year moderated in the second half of March as COVID-19 restrictions and certain California markets impacted demand. Aggregate volumes increased 10% on a like-for-like basis, while ready-mix volumes rose 9%. The drivers of demand in the quarter were the residential and infrastructure segments. Texas, California, and Florida contributed to volume growth. Prices for cement, ready-mix, and aggregates in the quarter were stable sequentially. The EBITDA margin for the region improved by 2.6 percentage points, primarily due to improved volumes and pricing. The stability for 2020 has been substantially reduced due to the health crisis. As of today, construction in all our markets continues to be considered essential, and all our facilities can operate. Additionally, our diversified U.S. footprint implies that the projected recovery will affect each individual market on its own timeline. While business month-to-date in April has been resilient, we anticipate that our volumes are likely to be impacted over the year. April price increases in several markets were postponed until summer. Infrastructure, accounting for over half of cement demand, its recent strength and counter-cyclical nature should provide some cushion for our volumes. Additionally, we are increasingly hopeful that we will see an economic stimulus package that includes significant federal infrastructure spending as the government acts to get the economy moving again. We do expect 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 due to greater economic visibility. The majority of our U.S. operations are in markets that are sold out or delayed on inputs to meet demand. These inputs serve as an important buffer and allow us to continue operating our cement plants at high capacity levels while responding to a potential decline in activity. We are analyzing several recently announced government programs aimed at assisting our employees and facilitating our U.S. operations. In our Europe region, quarterly domestic cement volumes were up 1% year-over-year, with solid growth in our Central European markets, driven primarily by continuing work in the construction sector, partially offset by declines in the UK and Spain due to COVID-19 measures in March. The declines in regional ready-mix and aggregate 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 increased in all our markets both sequentially and on a year-over-year basis. During the quarter, successful price increases were implemented in the United Kingdom and Spain. In April, price increases were also implemented in Germany, Poland, Czech Republic, and Croatia. Regional ready-mix and aggregate prices were also higher, and each government in the region imposed different degrees of lockdown measures to mitigate the crisis. The construction sector has been deemed essential activity in all our geographies. In Spain, construction stopped for two weeks to tighten restrictions at the end of March. Activity restarted on April 15. In France, Spain, and the UK, we observed a significant deceleration in construction activity as a result of stringent COVID-19 measures in March. Poland, Germany, and the Czech Republic 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 toll of the pandemic should continue to challenge the industry for months. European governments have been particularly active in announcing monetary and fiscal measures to mitigate the economic impact of COVID-19. However, private sector projects will continue to face uncertainty. Infrastructure stimulus spending is expected; however, it may take time and may not fully compensate for the expected decline in private consumption. At this point, it is very hard to quantify the regional impact that COVID-19 and potential mitigation actions from governments will have on demand for the full year. In the South Central America and the Caribbean region, we continue to experience favorable pricing dynamics during the quarter despite a significant decline in demand due in part to government measures to contain the spread of COVID-19. The drop in regional sales and EBITDA was mainly driven by declines in Colombia and Panama. For additional details in this region, I invite you to review CLH's results, which were also published today. Activities in Colombia were strong before the implementation of COVID-19 restrictions; industry volumes improved by around 7% year-to-date, but there was an estimated 30% decline during March. Our quarterly domestic gray cement volumes declined by 16%, while our prices improved by 9% year-over-year and 2% sequentially. In the Dominican Republic, cement volumes declined by 7% during the quarter. Government restrictions implemented since mid-March slowed down the demand for our products. Cement prices continue their positive trend, increasing in double-digits during the quarter. Our operations in Panama continued to suffer from delays in infrastructure projects, high inventories in apartments and offices, as well as a deceleration of the economy. The COVID-19 crisis intensified an already weak demand environment. In our Asia, Middle East, and Africa region, we experienced favorable volume dynamics in the quarter. In contrast, regional cement prices declined due to competitive dynamics in the Philippines and Egypt. EBITDA margins for the region increased by 1.5 percentage points, mainly due to an energy balance, lower raw material costs in cement, and higher volume. In the Philippines, domestic gray cement volumes declined by 4% during the quarter, while cement prices declined by 6% due to increased competitive dynamics. For the first two months of the year, our cement volumes increased by 8%. However, persistent COVID-19 transmission prompted the government to put the region under strict lockdown, which began on March 16. Our solid cement plant with a capacity of roughly 2 million metric tons and two marine terminals located in the region are currently closed. Our operations in the region are functioning at a low utilization level. Activity for the remainder of the year will be subject to the reopening of the economy, but we expect that activity will return to normal around the third and fourth quarters of the year. For further information on our Philippines operations, please see CHP's quarterly results, which will be available on Sunday, May 3 in the evening, or Monday morning in Asia. In Egypt, cement volumes increased by 11% during the quarter, mainly supported by the informal sector, while our prices remained relatively stable sequentially. The Egyptian government has been taking decisive actions to limit the spread of the virus while avoiding a complete shutdown of the economy. Curfews have been imposed; however, our industry remains essential. In 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, and while we saw a slight decline in activity during the month of March, we have not seen a significant impact from the COVID-19 pandemic. Construction has been considered an essential activity. In addition, strong economic fundamentals, higher activity in buildings in Tel Aviv, and clients bringing consumption forward in anticipation of potential pressures have helped maintain demand for our products in the country. Now I will turn the call over to Maher to discuss our financials.

Maher Al-Haffar, Executive VP of Investor Relations

Thank you, Fernando. Hello, everyone. During the first quarter of 2020, operating EBITDA increased by 1% on a like-for-like basis with a reduction in margin of 0.3 percentage points. The favorable impact of consolidated prices and fuel during the quarter was offset by increased freight and transportation costs, high raw materials in ready-mix, as well as increased purchased cement. Reported EBITDA also reflects an unfavorable effect from currency fluctuations of $16 million. We continue to see tailwinds from lower energy costs 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 year. As Fernando mentioned earlier, we took important measures to improve our overall cash position in anticipation of potential disruptions in the capital markets. These measures help us improve our cash level as of the end of 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 costs. 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 mention 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 González, CEO

Thank you, Maher. Given the continued uncertainty due to COVID-19, it is difficult to resume EBITDA and volume guidance at this point. However, we are providing estimates for energy and some of the items we can't control below the EBITDA line. Regarding costs of energy per ton of cement produced, we’ll now forecast a decrease of 46%. We now expect CapEx investments to be around $700 million for the year, a 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 to a minimum. 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 for the year. Due to lack of visibility on our topline 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. Given the challenging and uncertain times caused by this pandemic, we will continue to monitor the development of COVID-19 and act decisively to ensure the health and safety of our employees, customers, suppliers, and communities. Thereby support our customers in these difficult times and protect the future of our company. We are encouraged by the historical scope of the fiscal and monetary measures being implemented by governments in a significant portion of our portfolio. We expect additional measures to address the need for infrastructure and support housing activity in most of our markets. Thank you for your attention. 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 we will be happy to take your questions.

Operator, Operator

[Operator Instructions] Our first question is from Carlos Peyrelongue from Bank of America. Go ahead.

Carlos Peyrelongue, Analyst

Thank you, Fernando, and Maher for the call. Can you comment on any initiatives, either in the U.S. or Europe to approve new infrastructure packages, and so far has there been any package been approved in either the U.S. or Europe? Thank you.

Maher Al-Haffar, Executive VP of Investor Relations

Carlos, thank you. There haven't been specific packages yet, but there are definitely conversations in the U.S. and certainly bipartisan discussions, as well as conversations in Europe about potential infrastructure packages to be developed. Having said that, we are encouraged. This is something that is definitely needed as soon as the markets normalize. It is important to mention that as governments strive to normalize, they have committed an historic amount of stimulus, close to $8 trillion, which is currently being implemented on an accelerated manner. On top of that, we have major additional monetary policies through central banks. The markets in which we operate have announced probably over $5 trillion to date in fiscal stimulus, including individual subsidies, unemployment support, deferred taxes, and some markets have improved – like the U.S. has committed close to $3 billion so far, and Mexico has also announced a $26 billion program in loans to small and medium-sized businesses and social programs. We are encouraged and believe that the next stage for governments will likely focus on infrastructure-related projects.

Carlos Peyrelongue, Analyst

Sure, thank you.

Operator, Operator

Our next question is from Nikolaj Lippmann from Morgan Stanley. Go ahead.

Nikolaj Lippmann, Analyst

We were trying to handicap your huge future performance in key markets such as the U.S. I was just looking at the data that showed that January and February were very strong, and then March showed homogeneous performance by everyone. But is that something you can say? Did we see a general slowdown in the United States in the last month of this quarter? Or is there anything you can say about how this quarter kind of played out in the U.S. specifically?

Fernando González, CEO

Yes Nikolaj, I think with news like the recent one in the Bay Area in California activating construction, those types of positive news are encouraging. In general terms, what we've seen in the very short-term is that construction companies have been speeding up their job sites and their work. Therefore, there are positive reasons why we're seeing volumes be resilient. However, as you know, the U.S. is still on its way to reach the peak of the crisis, and additional measures of easing the lockdown might take another two or three weeks. It's very challenging to give you guidance on volumes, but if there is a reduction in volumes that is not necessarily happening in the second quarter; it might be divided into the second and third quarters.

Nikolaj Lippmann, Analyst

Okay. Can you give us a sense of how much you think the first quarter looks like an attempt by construction companies to perhaps finish some initial work and therefore they needed more cement going forward?

Fernando González, CEO

Yes, it is very challenging to give you additional guidance on the second quarter. Up until mid-April, volumes have been stable. However, we feel it is too early to provide guidance for the rest of the second quarter. A few weeks ago we expected an impact in the second quarter in the U.S. because of what was happening. But now, because of positive signs, I think if there is a reduction in volumes, it is likely not happening exclusively in the second quarter; it might be divided into the second and third quarters.

Maher Al-Haffar, Executive VP of Investor Relations

Yes, if I may complement what Fernando was saying, especially on the infrastructure front, it seems that departments of transportation are taking advantage of lighter traffic to accelerate most projects. This is true not only for infrastructure projects but also for construction projects as well. Builders and contractors are generally trying to expedite their work as quickly as possible, not knowing what lies ahead.

Operator, Operator

And now we will have a question from the webcast. Our host will read it.

Maher Al-Haffar, Executive VP of Investor Relations

The first question from the webcast is going to be from Mike Betts from Data Based Analysis. And the question is, have you adjusted your payment terms before COVID-19 to reduce the risk of bad debt?

Fernando González, CEO

Okay. I think the answer to that question, Mike, is that we are in constant touch with our customers. We are not necessarily making across-the-board decisions on payment terms; instead, we are deciding individually based on market conditions in different areas. We have been in touch and agreeing with them on the best approach to move forward during the first couple of months of COVID-19's impact, but so far, we don't see any major impact in this regard.

Operator, Operator

Our next question is from Adrian Huerta from JPMorgan. Go ahead.

Adrian Huerta, Analyst

If you can just comment a little bit more on the margins in Mexico. I was quite surprised with the sequential improvement in margins. Also, in the U.S., where the margins were well above what we have seen in the last four years in the first quarter. What else, on top of volumes and prices, impacted positively margins in these two markets?

Maher Al-Haffar, Executive VP of Investor Relations

Adrian, in the case of Mexico, while we had fuel tailwinds, which were significant—close to more than half of the total decline in margin is due to pet coke prices dropping by nearly 50%. Cement volumes also did well, and prices were relatively flat, with a slight deterioration likely due to a mix effect; we had a higher proportion of exports that happened at a slightly lower price. Additionally, we faced some negative impacts in terms of freight and transport, as well as increased electricity costs and costs in maintenance materials. In the U.S., we had a terrific quarter - we had a close to one percentage point expansion in margin, mostly due to volumes; cement and aggregates were up 10%, while ready-mix was up 9%. We had solid pricing performance, along with strong initiatives led by the organization that positively influenced results. Also, lower energy costs for cement production offset that a bit, but we continue to switch more to pet coke.

Adrian Huerta, Analyst

So the growth you had in your margins is still there this quarter?

Maher Al-Haffar, Executive VP of Investor Relations

Yes, we have two new terminals in California and Texas that were not operating last year, and there are also more travel distances in our Florida market.

Operator, Operator

Our next question is from Yassine Touahri from On Field Investment Research. Go ahead.

Yassine Touahri, Analyst

Yes, good morning gentlemen, a couple of questions. First, could you quantify the volume development that you've seen in the first few weeks of April, maybe in the U.S., in Mexico, and in Colombia, and if you could also give us some color on what happened in France, the UK, and the Philippines? That would be very, very helpful. And then my second question would be on your covenants; if the developments were as substantial as last year in Colombia, are you already discussing with your banks about potentially updating your covenants? If you update your covenants, what could be the cost for you?

Fernando González, CEO

Yes, let me take the first question, Yassine. As you saw in the presentation, there is a chart showing the curve which suggests how we believe each market is evolving in relation to the pandemic. In the case of Mexico, as construction activity was not considered fully essential, meaning some infrastructure-type projects continued their operations while retail sales of bagged cement were considered essential, we have seen a decline in both cement volumes and a sizeable growth in bag demand. Overall volumes in Mexico have declined, though with the lockdown extended until May 30, we can observe further effects. In the U.S., for the first couple of weeks, volumes have remained stable, and there are some positive indicators, such as construction activity in the Bay Area opening up and infrastructure projects accelerating their timelines. In Europe, we've seen divergent effects based on the region; Central and Eastern Europe have not been as materially impacted, and countries like Germany and Poland showed positive growth while the UK, France, and Spain saw declines in the first weeks of April. In Asia, specifically regarding the Philippines, the situation is more severe, with strict lockdown measures affecting the market significantly. Puerto Rico also had significant restrictions but is beginning to see recovery signs. We continuously monitor the situation to determine how conditions will unfold in each market.

Maher Al-Haffar, Executive VP of Investor Relations

Regarding your other question about covenants, we have formally approached the banks for an amendment to our current covenants, and we expect a response by May 26. There are about 20 banks in the syndicate, and we expect to receive continued support from our syndicate based on our good track record in securing amendments in the past. We will provide updates when we have more news.

Operator, Operator

And now we will have a question from the webcast. Our host will read it.

Maher Al-Haffar, Executive VP of Investor Relations

Our next question is from Paul Roger from BNP Exane Paribas. The question is, how radical could you be when considering divestments? Is everything outside of Mexico and the U.S. on the table? What does the crisis mean for your sustainability efforts?

Fernando González, CEO

The approach regarding divestments has always been consistent; we do not pursue fire sales. Even though COVID-19 has increased liquidity needs short-term, we do not necessitate divestments as a financing means. As I mentioned, we have enough cash on hand accumulated through rigorous measures taken over recent months. Our focus will remain on maintaining liquidity without rushing into poorly timed divestments. However, if opportunities present themselves that align with our strategic vision, we would consider them.

Maher Al-Haffar, Executive VP of Investor Relations

For your question regarding sustainability, even though we have postponed certain capital expenditures, we are not abandoning our sustainability goals. We will return to those investments when the economic conditions improve and it is prudent to do so. While we are prioritizing cash flow now, our commitment to sustainability remains a core part of our strategy.

Ben Theurer, Analyst

Yes, good morning Fernando and Maher. Thanks for taking my question. I hope you both are safe and sound. I wanted to dig a little bit into your medium-term strategy. It’s obvious that some of the volume losses in the second quarter may not be immediately recovered. We are seeing significant FX headwinds impacting your pricing in dollar terms across several emerging markets. How do you think about your pricing strategy in order to recover that in light of what is likely to be a lower demand environment in the coming quarters?

Fernando González, CEO

These times are truly challenging due to the depreciation of currencies affecting our major markets like Mexico and Colombia. We must assess the overall market dynamics. In Mexico, we expect performance to stabilize as per our hedging measures. Pricing is a key concern; regardless of FX performances, we need to assess our market dynamics and seek to recover our input cost inflation as soon as market conditions stabilize.

Maher Al-Haffar, Executive VP of Investor Relations

We initiated hedging strategies for our peso income in Mexico around 20 pesos per dollar, which helps to mitigate some risks associated with currency fluctuations. We are closely monitoring developments and intricate patterns of demand that enable us to adjust our strategies accordingly.

Fernando González, CEO

To summarize, we will prioritize recovery efforts while using tailored pricing strategies informed by dynamic market conditions. It is a delicate balancing act, aiming to sustain operational stability while navigating the challenges of currency fluctuations and maintaining competitiveness.

Operator, Operator

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