Cemex SAB de CV (CX) 2004 Q1 法說會逐字稿

Good day ladies and gentlemen and welcome to the CEMEX Q1 2004 Earnings Conference Call. [Operator's Instructions] I would now like to introduce your hosts for today's call, Mr. Hector Medina, Executive Vice President of Planning and Finance, and Mr. Rodrigo Trevino, Chief Financial Officer. Mr. Medina, you may begin.

Thank you. Good morning and thank you for joining us for this first quarter conference call. I will first comment on the company's performance during the quarter, and our outlook for 2004 in the different markets in which we operate. Then our CFO, Rodrigo Trevino, will follow with a discussion of our financial results.

I would like to begin by sharing my thoughts on what was for CEMEX a very strong and successful quarter, with an improving economic outlook as the backdrop. Led by the strong visibility growth in the United States, the global economic environment has seen an improvement that offers the markets in our portfolio better prospects for the year ahead. Volume growth rates in both Mexico and the United States exceeded our initial expectations for the first quarter, and even surpassed GDP growth levels.

This performance, coupled with moderately stronger pricing in dollar terms in Mexico, resulted in double digit growth in both net sales and EBITDA versus the same period in 2003. Additionally, the health of the business is further evidenced by the double digit EBITDA growth to our portfolio. We are particularly encouraged with our better than planned performance for the quarter on a consolidated basis.

For CEMEX as a whole, EBITDA grew 24% versus the same quarter last year or almost twice the rate of net sales, which grew by 13%. The marked improvement in our EBITDA for the quarter was primarily as a result of strong volume growth, price recovery across our portfolio, and by efficiency gains. As a result of this we expect to achieve a consolidated EBITDA margin in excess of 30% during the year. Given the pace of economic expansion we are experiencing, we view the remainder of the year with greater optimism.

We now expect EBITDA growth to be in the double digit range, excluding any additional growth to acquisitions. Free cash flow growth for the year is now expected to be in the high teens, and exceeding the rate of growth in our EBITDA. This will be achieved through more efficiency capital budgeting and working capital management, as well as lower capital funding costs. In the absence of acquisitions that meet our strict development criteria, we will continue in our bias towards deleveraging during the year.

This was clearly demonstrated during the first quarter as we used 100% of free cash flow towards net debt reduction. Needless to say, we continue to monitor the cement market for opportunities that would create even greater shareholder value and add to our organic growth trajectory.

Here I would like to take the opportunity to highlight our belief that the economic recovery in the US, and its positive impact on most of our markets in America, is here to stay for the rest of the year. For 2004 we anticipate the following performance in our major markets. In Mexico we continue to expect moderate activity growth slightly above 3% for the year. This being driven by greater output links with the United States as a result of the material expansion in US manufacturing.

Also, the Mexican manufacture continues to benefit from the US expansion, as demonstrated by a higher export sector output. On the back of this macroeconomic performance, we expect cement volumes to be in line with our full year guidance of about 5%. This being driven mainly by continued infrastructure spending, low and middle income housing, and a stable but growing self-construction sector.

During the first quarter our volumes grew almost 7%. Our performance was driven mainly by important infrastructure projects. But, however, we maintain our expectation of 5% growth for the year, as the self-construction shows moderate growth associated with the overall economic activity.

On the infrastructure side, we expect continued cement demand growth driven by government spending on highways and public buildings. As a result, we expect cement consumption from government and other ready-mix intensive projects to grow in the high single digits during 2004. Despite the absence of the structural reforms, we expect the government finances to continue to remain sound, as a result of continued fiscal prudence and higher average oil prices, as well as an improved economic environment.

Low income housing should continue on its growth path as employment recovers towards the second half of the year. This year we expect slightly more than 575,000 mortgages to be originated, representing slightly more than 10% over last year's level. We also expect the commercial banking sector to significantly improve its mortgage re-origination levels, albeit from a low starting point.

Cement demands in the self-construction sector is expected to be up by 2%. This is basically driven by recovery in the industrial area and the resultant higher employment levels.

Our multi-product strategy for 2004 continues to be on track, with full year sales expected to improve by 30% for the full year, to $220m at an EBITDA margin of approximately 4%. Although EBITDA margins are slightly better year-on-year, we do expect the margins to be modestly effected by higher ready-mix sales and the success of our multi-product strategy. However, return on capital employed in our Mexican business is expected to be improving due to the higher asset utilization rate.

Now I would like to discuss our second largest market, the United States. During the first quarter of 2004, our volumes increased about 17%, or close to 15% excluding the effect of the Dixon-Marquette acquisition, which was fully consolidated in October of 2003. This spike in growth was due to excellent weather patterns in March, during which volumes grew at four times the level of volume growth in January and February.

For 2004 we believe that the fundamentals continue to be strong. Spending on construction put in place has continued to grow, as demonstrated by the 5% growth in January/February. The main driver behind this growth was the residential sector, which grew close to 13%, and partially offset the decline in the public works, and street and highways sectors, of 4% and 2% respectively. For the remainder of the year, we expect the residential sector to slow down as a result of the likely increase in interest rates. This may lead to approximately a 3% decrease in cement consumption for the segment of our market.

The industrial and commercial sector is expected to recover during the year, with growth of about 4%, due to improved vacancy rates combined with higher capital expenditures, resulting from higher economic activity. Volumes in the public works and street and highway segments are expected to increase by about 4%. This is being driven primarily by the generally improving economic environment, and better than expected fiscal conditions of the States.

We are pleased to note that during this month both the Senate and the House have approved important increases in the budget of the TA21 successor, safety. These increases are likely to lead to demand volume growth to this sector in excess of 3% per annum over the next six years. Final approval of this program by President Bush is expected well before the election. And having said this, spending in this area, of course, is benefiting from the electoral cycle.

As a result, we expect our cement volumes to increase in 2004 by about 5% over those of 2003, including the effect of our acquisition of Dixon-Marquette, and about 2%-3% on a like-to-like basis.

With respect to our national average pricing, we sent price increase notifications to all of our markets, with an average price increase of $4. This is predicated on stable demand conditions and supply pressures on inventories, which at the extreme are being manifested to shortages in many of our markets. The shortages are being driven basically by very tight and significantly more expensive shipping markets, as well as the difficulty of sourcing imported cement.

Although we experienced a slight EBITDA margin deterioration in the first quarter as a result of a change in the product mix and higher chipping and energy costs, we are expecting the EBITDA margin for the remainder of the year to exceed 2003 levels, if we achieve price increases in excess of our budgeted 1.5% average.

In Spain, our cement sales decreased 2%, which was a very strong first quarter in 2003. Although the GDP growth during the quarter was robust, the public construction sector is low due to the transitional phase, following the first quarter elections and the adverse weather conditions in the last weeks of the quarter. Public works spending and housing continue to be the primary drivers of domestic cement demand. The public works sector main underpinning continues to be the government's infrastructure plan which, although currently running at a slower pace due to the transition, is expected to continue until 2007.

And more than 630,000 starts last year, the housing sector remains very strong. This growth has been driven by a favorable mortgage environment, and the immigration of Northern Europeans. Although we do not expect housing starts to surpass this level in 2004, we see them continuing at the relatively high level. On a macro level, we expect GDP growth for the year to be about 3%, one of the healthiest growth rates in Europe.

For the rest of the year, we expect average prices to be relatively flat in euro terms compared to those of last year. And for cement demand, we think consumption will flatten or slightly decrease, and that our volumes will range from flat to minus 1%.

In Venezuela, we saw significant increases in demand during the first quarter. This compares quite favorably to the same period last year, when consumption all but stopped in the face of a very challenging economic and social environment during that period. In 2004 we continue to expect cement demand to resume its growth path and to increase by about 12%. The primary spot behind demand growth is the self-construction sector. To a lesser extent, infrastructure investment from the public and private sectors are driving consumption. But we expect demand from both infrastructure sectors to slow throughout the year as ongoing projects are completed.

We are continuing our measures to keep costs and expenses in check, and to increase exports during 2004, in order to sell more cement elsewhere in the CEMEX system. As a result of these efforts, we expect EBITDA to remain roughly flat versus 2003. I want to note that this expectation assumes, for planning purposes, an additional depreciation of Bolivia of approximately 15% during the rest of the year. We view this assumption as conservative in the light of the country's current level of foreign exchange reserves, relative to the size of its economy and the price of Venezuelan exports.

Finally, in Colombia we expect GDP growth in 2004 of about 3%, which we think will translate into rising volumes of about 6%. Growth will be driven primarily by the formal sector, mostly on the commercial side and to a lesser extent on the residential sector. The self-construction sector will continue to grow but at a slower pace, while the public works sector will remain at the same level as last year due to ongoing projects. We expect Colombia to remain a stable cash flow generator and should continue to see healthy pricing in dollar terms.

And now I would turn the call over to Rodrigo.

Thank you Hector. Good morning everyone, and again thanks for joining us today. We are very pleased with our first quarter performance, which strongly indicates our emergence from the trough of the business cycle in most of our portfolio. With this in mind, I will briefly summarize our first quarter results.

EBITDA for the quarter increased 24% versus the same period a year ago, while the EBITDA margin rose by close to three percentage points. These increases were due mainly to higher volumes throughout our portfolio, higher prices on average, and lower SG&A expenses, which decreased 134 basis points as a percentage of net sales, despite higher transportation costs. This reduction in SG&A is due to greater efficiencies throughout our network, as our efforts to reduce corporate expenses and overheads have more than offset higher transportation costs.

The improvements in EBITDA margins in 2004 are expected to be driven principally by lower energy costs per ton, higher utilization rates, lower redundancy costs and price recovery. Our net income increased by almost 300%, due to a 31% rise in our operating income, as well as some more favorable foreign exchange and equity market conditions. Our free cash flow for the quarter was three times the level for the same period in 2003, due primarily to higher EBITDA and lower investments in working capital and fixed assets.

In line with our continued efforts to strengthen our capital structure and improve our financial flexibility, we used $289m, representing all of our free cash flow from operations, towards a reduction of net debt. During the quarter we also executed a tender offer for our outstanding appreciation warrant. In that transaction we purchased approximately 87% of the warrant for about $46m. In the first quarter we also executed the first tranche of our CEMEX Asia Holdings purchase agreement, which settled the first week of April.

Looking at our capital structure, our interest coverage for the trailing 12 months was 5.7 times, putting us on track to achieve our objective of exceeding six times coverage during the course of this year. Our leverage ratio improved significantly, from 3.2 times a year ago to 2.4 times, as measured by net debt to EBITDA. The improvement was as a result of using 80% of trailing 12 months free cash flow to pay down debt.

It was also enhanced by our strong operating performance as we emerged from the bottom of the cycle. Because we continue to believe that debt reduction is the best way to create shareholder value in the absence of investments that meet our strict capital allocation criteria, we will continue to favor using our free cash flow to de-leverage in the near-term. And while we are not lowering our steady state net debt to EBITDA target, we feel comfortable in the short-term approaching a ratio of two times.

In so doing, we expect to significantly strengthen our capital structure, and should soon see interest coverage exceed six times. We remain committed towards attaining BBB equivalent ratings by the three major rating agencies, as we demonstrate the strength of our balance sheet and capital structure vis-à-vis the other major multinationals in our sector.

With respect to our liability structure, we do not expect any major shift in our currency and interest rate mix. Having said that we will, of course, continue to secure the lowest cost funding available within our desired overall currency, interest and maturity profile.

Due to recent changes in accounting rules in Mexico, we have reclassified our preferred equity obligations, which had been previously classified as a minority interest on our balance sheet, as a liability. We should note, however, that for presentation purposes we had always included the preferred equity in our leverage and coverage ratios. We view this change positively, as it represents one more step towards greater simplicity of our capital structure.

In an effort to improve the alignment between management and our shareholders, we offered our executives the opportunity to exchange their options for new options that can only be exercised into restricted stock. Furthermore, and to better align our executives' interests with those of our stockholders, we will offer a new executive stock ownership plan. The planned goal is to move our company to long-term compensation from stock options to programs based on restricted stock, which will be another important step to simplify our capital structure.

We intend to continue to reduce the derivatives notional amount as we use our free cash flow to pay down debt, and the need for financial derivatives is diminished. This was again demonstrated by a further reduction of slightly over $200m during the first quarter.

In closing, I would like to say that we are pleased with CEMEX's performance during this quarter especially because we have been operating under a challenging macro-economic environment during the past couple of years. The investments we made in the past, and the efforts to improve our productivity have clearly started to pay off, and they will have important lasting benefits. These initiatives and investments have strengthened our business model and increased our efficiency, better preparing us to reap the benefits of the upturn in the business cycle.

Throughout this period we have generated strong free cash flows, and have achieved returns in excess of our weighted average cost to capital. As the cycle improves, and as we continue to capture the benefits of our investments and initiatives, the spread between our return on capital and our weighted average cost to capital, should continue to improve. And thus enhance the value proposition for our shareholders.

Like always, I have been asked to tell you that any forward looking statements we make today are based on current knowledge of the markets in which we operate and could change in the future due to a variety of factors beyond our control as we have explained in great detail in our filings with the SEC.

Thank you for your attention and now we will be happy to take your questions. Alicia.

[Operator's Instructions]. The first question is from Gonzalo Fernandez with Santander. Please go ahead.

Hi, good morning everyone and congratulations on the results. I have one question about Mexico. I do not know if you can give us an update about the price increase that you were trying to implement, and you were targeting a 6% increase? And how is that, the evolution of that, and if that is holding up?

The February increase, in fact late February increase, was around 5%. So this has resulted in around 3% increase, quarter-to-quarter, in nominal peso terms. So, essentially that is the effect that has been achieved up to now. So it is about 3% out of a 5% increase. There was an announcement late February on average. That is between bag and bulk cement. Then there was a ready-mix increase of about 2% on average also compared to last year.

Okay, thank you.

You are welcome.

The next question we have comes from Steve Trent with Smith Barney. Please go ahead.

Good morning, gentlemen, and once again congrats on the solid quarter.

Thank you.

Just a quick question on the US. With respect to your volume growth expectations for this year, what is your prediction with respect to the Bush administration passage of Safety 21. AKA, when do you think it is going to happen?

Well, one is certainly the wish, which is the higher of the alternatives. But, I mean, it will be whatever the Bush administration is able to fit comfortably into the budget and the electoral situation. But what is important is that whatever it is, even it is the lowest of the increases, it will have a very favorable impact on demand for the following years in the US.

If I may add to that, Hector. We estimate that if the House's proposal, which was recently improved, is the one that eventually is approved by the Bush administration, the increase in volumes for demand for this sector of cement consumption will increase at a pace of 3% per annum for the next five or six years of course, starting in 2005 and beyond.

If the Senate proposal is approved, then it would be close to a 6% increase in cement volumes for this sector of cement consumption in the US per annum, for the next five to six years. Safety does not have an impact on cement volumes for 2004, and we do feel comfortable with guidance for volumes in the US for 2004. In fact, we have increased our guidance for volumes in the US as a result of the very strong performance in the first quarter.

But the outlook is positive, going forward, even without considering potential gains in market share for cement away from asphalt in the paving needs in the US.

Great, very clear. Thanks very much gentlemen.

Thank you, Steve.

The next question comes from Valentina Casmarlo with JP Morgan. Please go ahead.

Yes, good morning. I was wondering if you could give us all a bit more detail of what happened in the US market during the quarter? In particular, I was wondering if you could talk a little bit about the different geographic regions, which ones outperformed versus others? And if there were any particular large projects that may have helped you achieve such large volume growth in the US?

Certainly. Well, of course, our performance in the US regionally does not entirely follow the demand patterns, as we have different capabilities in different parts compared to the rest of the industry. But I can tell you that certainly, in terms of our performance, the Mid-West was, of course, the largest. But that is even accounting for the Dixon-Marquette acquisition. In that region we essentially viewed the demand overall throughout the market as the driver of the increase.

The South-East also had a very good performance and that is mainly essentially better weather patterns at the last part of the quarter, as did the western side of the country, where we also regained a large customer. Now perhaps the not so good performer was South Central where essentially we found some import competition in the quarter - that was at the beginning of the quarter - which was compensated towards the end of the quarter.

But the expectation of this performance throughout the US is, going forward we view the performance essentially the same all around the market.

Okay, thank you and now if I could just follow up with just one question on your balance sheet. Now that you have surpassed your 2.7 times, net debt to EBITDA target and I know you mentioned during your comments that you would be comfortable with a two times net debt to EBITDA ratio. Assuming that you get there before the end of the year, assuming that there are no attractive acquisitions out there, what are the chances that you would be considering a share buyback program or is there a possibility of an extraordinary dividend?

Yes, that is a good question, and we do have a share buyback program that has been approved by our shareholders, which is outstanding. In Mexico, as you probably know, we do not have an issue with double taxation of dividends. And so, when a shareholder receives cash from an issuer in Mexico, there are no tax obligations. There are no taxes for dividends received by shareholders in Mexico, and there are no taxes on capital gains in Mexico.

And so when a company gives money back to the shareholders, if the company does not have retained earnings after taxes, then the company has to pay the tax at that time. And so in our case it is onerous to consider a share buyback program because of the potential tax consequences of it. We think a better way in which to create shareholder value in the near-term, as we have indicated, is to use our free cash flow to pay down debt.

We believe that that is the best usage of free cash flow in the very near-term, and that is why we provided the guidance to that effect. Of course, we continue to monitor opportunities to investment, and continue to diversify our asset base, and to continue to complement our growth trajectory from organic growth. But, in the absence of accretive acquisitions, we think in the very near-term the best usage of free cash flow would be to continue to pay down debt, and that is what we intend to do.

Thank you very much.

Welcome.

The next question comes from Carlos Pereylongue with Merrill Lynch. Please go ahead.

Good morning gentlemen. A quick follow-up on prices in Mexico. You mentioned that at the end of February prices increased in cement by about 5%. However, looking at the increase or decrease of the first quarter of this year versus the fourth quarter of last year, we see prices going down 1%. Would you comment a bit more on prices, whether the price increase that you implemented in February has stuck or not in Mexico?

Could you repeat the last part again please, Carlos?

Yes, when I look at the price increase of 1%, I am sorry the price decrease of 1% of this quarter versus the fourth quarter. It appears that the price increase has not - that you implemented in February - probably has not been absorbed by clients. So I wondered if you had any comments on that.

Yes, part of the explanation, Carlos, has to do with the timing of the price increase. If you recall, last year the price increased happened a little bit earlier in the quarter, versus the time at which prices increased this first quarter of 2004. And so that is why, when you look at the price increase, quarter versus quarter, year-over-year, you do not see the full impact. You know, from one month after the price increase versus one month after the price increase in 2003 versus 2004, which you will see in the year as a whole. But you do not see it in the first quarter because the price increase that we announced was for bag cement. And, of course, this is expressed in real peso terms.

Thank you.

Let me add there that my answer prior to this one was that the increase was in nominal pesos close to 3%. So we need to turn that into constant peso translation, you have a reduction.

Okay.

The next question is from Ken Rumps with Merrill Lynch. Please go ahead.

It is Ken Rumps here. If I could ask a couple of questions. One was just clarification. I was not sure if I heard the like-for-like volumes excluding the Dixon-Marquette figure for the first quarter. Was it 15% versus the 17% reported?

That is correct, just over 15%.

Right, okay. Then the question goes on to pricing. You said you had notified price rises averaging $4. Is that all at April or were some of those at January? And going from that, you know, that would be an increase of 5%, 6%, 7% on where prices are. Your comment that your EBITDA margin would rise if you got more than the 1.5% you were budgeting gives us a good idea of what costs are doing, obviously. But is there a reason to suppose that -- the implication surely is that you should be able to get a decent part of that $4 price rise.

What would that leave the average? If you got all of it, what would the average increase for the year be? Just to understand the timing issues.

Well, the increase in -- At the beginning of the year that had been announced -- As we sent all the letters to all of our customers in all the regions --would imply for us, and if we finally get what we are thinking the market is today, would mean a 5% average increase for the year.

Now that, of course, is with the visibility we have now, which is has been changing and the dynamics of the market in the US because of again the cost of freight for imports. It has been a very tight market to get imported cement into the US. As we said, it has created some shortages. So what is going to come ahead in terms of potential supply and demand imbalances that could lead us to additional price increases? But we do not have that visibility today. But what we are looking at the market and we seeing our competitors also going ahead and announcing price increases all throughout the market. So, well, I mean, that would be my answer.

Okay, if I could ask one further follow-up just on the regions that sort of get them together you did not mention in particular. Big turnaround in Asia, which I guess the main element of which is the Philippines. Could you just sort of separate out the sort of Philippines price and volume effect? And I guess the volumes are down partly because trade volumes have fallen, or is that actually a market development in Philippines and Thailand?

Well, total market development in the Philippines is down by around 3%. But our pricing is better, of course, because of our marketing arrangements in the region. We stopped selling [indiscernible] from the Philippines, so our volume went down more than the market in general. Prices in the Philippines, as we said, went also up throughout the market, around - prices right now at around $50 which is an increase of probably more than 10% of last year. $10, I am sorry, which is quite significant.

Absolutely. No, we see the big improvement in the market chain. Thanks very much for that.

Sure.

The next question is from Marcelo Telles with Credit Suisse First Boston. Please go ahead.

Hi, good morning gentlemen. First of all congratulations on the results. I have two questions. The first one is in terms of your acquisition strategy. I mean which markets do you see as the most attractive ones for CEMEX in the medium to long-term. And my second question is what is your assumption in terms of oil prices for 2004 in your budget?

Sorry, what is the last one?

Your assumption for oil prices, i.e., in your budget for 2004?

Your prices where, I am sorry?

Oil prices.

Oil prices?

Yes.

Sure. Well, you know, in terms of our acquisition strategy, really we call this the growth of strategy which is not organic. As we mentioned in the initial remarks, we continue to monitor the market but as attractive opportunities do not appear, we are very happy with our bias towards deleveraging our balance sheet.

Now, the issue with our acquisitions is that we are very disciplined, and we have very strict guidelines as to what we consider an attractive opportunity. There are many things that we take into consideration but, of course, in the end is the value creation opportunity that we finally - where we finally put everything that we consider. And the fact is that there are many attractive markets today around the world. What you do not see is willing sellers at the right price.

So when that happens that becomes an attractive opportunity for us. That is where we would act. In that sense, in terms of geographic expansion we, of course, consider those markets adjacent to the markets where we are, to the regions where we are today, those are more attractive in terms of trading opportunities or complementing our system approach to a region. But other than that, also isolated, attractive opportunities in isolated markets could also become attractive for us. Now let me turn to Rodrigo for the oil prices.

Yes, Hector. We are not exposed to oil prices and so it does not affect our outlook for the rest of the year. In fact, we estimate that, regardless of what oil prices might be, our energy cost - that is total fuel and electricity worldwide - will be down 1.5% per ton in dollar terms for 2004 versus 2003. This is as a result of the investment we made in the past to change to alternative fuels, to be able to burn petroleum coke at the kilns where we had been previously exposed to fuel oil, and the price volatility of fuel oil.

It is also thanks to the multi-year contract that we have put in place, precisely to take away the volatility in the cost of energy, as we felt it was quite volatile in years past. But also as a result of the electricity plant that is ready to start supplying close to 80% of our needs in Mexico. A significant saving vis-à-vis the cost of electricity for us in Mexico last year

And so the net result of all the investments and initiatives that we have put in place is that we have significantly reduced the exposure we have to the volatility of energy prices worldwide. And thanks to the multi-year contract that we put in place, we feel confident that we can manage against volatility in the markets, and not be exposed to it.

Okay, thank you.

Of course, just to follow up on that question. We actually benefit from high oil prices for our portfolio as a whole because, of course, many of our markets are countries that export oil products. And, of course, they benefit at the macro level when oil prices are high. And it also does have an impact -- it tends to correlate with shipping costs. And so that should have a positive impact on prices for many of our markets.

And so the net effect or the scenario where you maintain and you have sustained high oil prices, is actually a positive effect for CEMEX's portfolio as a whole.

Yes, my question was more -- I mean the reason I asked that is just to know, I mean, what sort of impact you could expect in terms of electricity costs in Mexico? But from what you're saying, so probably this electricity plant may help margins for CEMEX in Mexico, right?

Definitely. We have put in place natural hedges into our operations so that we are not exposed to this volatility going forward.

Okay, great. Thank you.

Thank you.

The next question is from Daniel Altman with Bear Stearns. Please go ahead.

Hi, congratulations on the great result.

Hector Medina. Thank you.

Regarding the US, obviously a shocking volume number for the quarter. When I hear your 5% number for the year, just using my grade ten math, it looks like you are not assuming very much year-over-year growth for the rest of the year. Just wondering if that is correct?

Well, the first thing that you have to look at is that the first quarter of 2003 was not that great, so the comparison with this year's volume is certainly very good. And this will happen in the later part of the year quarters as we have stated. Essentially because of great weather in most of the regions and from demand pick up.

But going forward, I mean, what we see is in the rest of the year some growth, of course, but towards the end of the year, essentially because of the belief that after the electoral effect we have some relapse potentially. That will carry out onto a better than expected demand, better than we had expected. But nothing -- I mean just wonderful. It is very good though but not as great as you have seen today.

Let me just add to that also. I think we are being cautious towards the latter part of the year, assuming that the consensus estimate for higher rates in the dollar will have an impact on mortgage rates. And that should have an impact on a slowdown on the residential sector which was very strong in the second half of last year. We expect that to be partially offset by a rebound in commercial industrial demand for cement, which is reaching, you know, relatively low vacancy rates.

But, yes, the US is the most difficult market to have visibility on. The first quarter does tend to have the smallest weight because it is the most seasonal business that we have. And so when you look at the full year volumes, you need to consider all of these factors. And we have increased our guidance for volumes in the US as a result of the strong first quarter. But we remain cautious in our outlook in the US.

Okay and my second question is regarding these infrastructure projects and highway projects in Mexico, can you give us and idea of what your market share is in terms of winning contracts with these projects? I am going to assume - anticipate your answer that it is a very high number. I am just wondering how you are able to maintain such a high number vis-à-vis your overall market share in the country?

Well, I mean we do not really measure market share in a very short time or segmentation basis. We really are concerned with the market share longer-term. But what I can tell you that, of course, we have a very proactive attitude towards these new projects. I mean, highway paving for us is a very important product in Mexico, and we dedicate a lot of effort to promoting this product. More than on the short-term perspective because we believe that longer-term this is a source of growth for this market [inaudible] the US included.

We seem to have a bad connection there. But, anyway, so we do have, as we said, as we mentioned, high market share in this product. But that comes substantially for being top proactive and having a very strong emphasis towards increasing the market in this type of project.

But are your competitors, Holmium, [Mepasco](ph.) and everybody else, are they winning some of these highway tenders as well?

I am sure they are. I mean I do not exactly what conditions but I am sure they are winning some of them. I have seen some of the competitors' ready-mix structure supplying highway paving projects and urban paving projects. So I guess they must have [indiscernible] too.

Okay, thanks very much.

You are welcome.

The next question we have is from Tad Vensel with BB&T Capital Markets. Please go ahead.

Thanks very much. Morning gentlemen. Not to beat this one to death but with regard to the price increase in the US, was that the one that has already been implemented [indiscernible]? When was the effective date for that increase?

When was the effective date?

Yes.

I mean it varies. I mean this differ, of course. They tend to individually to each of our customers. And different regions have different patterns for the price increases. I can tell you what the average was, maybe by region. I think it was about $4 in the South and Mid-West, I think.

I was actually just asking about the timing.

I am sorry.

I am actually just asking about the timing rather than the [inaudible].

Well, again, the timing is also variable but I guess it must have been, on average, mid April.

Okay. That is for the first quarter in general?

Yes.

Okay. So we did not see the impact in the first quarter?

Certainly but you will not see that impact yet.

And given the, you know, of course we have been hearing this from the other suppliers as well. But given, you know, what you said about potential shortages, I assume that this is sticking fully? This is being accepted fully at this point?

Well, you know, the issue in the US is that the use in the industry is that you send these letters, you give your customers some slack to adjust for the pricing situation. These conditions that we live in today are maybe a little bit pressured in terms of this use. But, at least from our perspective, today we are following the normal course of events with a normal price increase in the US. So that is going to take effect we hope fully, given the current market conditions. But that is for us yet to see.

Okay.

But, of course, I mean all this could change if the conditions that we have lived through in the past change. For example, if there are shortages, if there are inventory problems, if there is lack of, you know, available exportable cement, if freight costs continue to be as high as they, or they move higher. All of these things could alter, you know, price behavior in the US in the future. And we do not discard, you know, further price increases later in the year.

Sure. To that point, you have mentioned that your competitors have generally increased price. Has anybody announced a second round for some time this summer, or are all the price increases you referred to more spring increases?

Well, I think there is - I am not totally sure - but I think someone in Florida already announced a second one. But I am not sure whether it is the second one in the year or it is the second one coming from last year. I mean the last six months or so. So, yes, but there might people already announcing. We get to know that only after the fact, of course.

Okay.

In California it is also very dependent on imports from Asia, and Asia has been growing at a fast rate. Volumes in Asia and many of the markets are growing at a fast pace and there is less available cement to be exported out of Asia and that may have an impact in California.

Okay. And then I just want to touch on something that you mentioned in your prepared comments. You talk about, you made a comment to the better than expected fiscal conditions of the States, and that was interesting. I mean, can you just talk about what you are seeing there?

It is about the States' fiscal condition in the sense that they are able to carry out infrastructure projects at a factor or investment factor basis.

Well, and of course if you look at the fiscal deficit of the states in the US, and you look at where they were at the beginning of last year on an annualized basis, and where they are now, they have significantly improved as the economy rebounds. We expect this will have an impact on many of the projects that are needed, you know, which can be funded through higher taxes. You know, all of these incremental revenues are improving the fiscal accounts of the States and, of course, the safety and the budget at the federal level seems to also be improving.

And so all of these factors lead in the right direction.

Okay, right. I just wondered what you were looking at. Thanks very much.

Thank you.

Thank you. I think we have time for one more question. Alicia?

And that question comes from Peter Luber with Rheintraub Capital. Please go ahead.

Yes, I guess all my questions have been answered. Thank you.

Okay, one more then.

[Operator's Instructions]. That question is from Ken Rumps with Merrill Lynch. Please go ahead.

Hello again, gentlemen. My question, actually just looking a bit further out at Mexican capacity. We have had expansions from Apasco, [Crutozal](ph.), [Montezuma](ph.) is coming with more capacity. You have been perhaps willing to run up utilization and let some of the other guys build plants. Do you have any plans on the horizon for capacity or are there any places where, perhaps, a modernization and expansion would make sense for you?

Well, you know the issue for the main capacity in Mexico, because of the geography and power position in the geography, it is something that we continuously monitor. And, of course, very interested in looking at opportunities for growth in this market. But, you know, we feel that we are essentially on the right utilization path. There is no major project but we have several projects in each of our plants to complete efficiency. And, therefore there are minor increases in capacity that people are making here and there.

So all throughout the country we do still have, let us say, capacity that we can put in place very quickly but it is already there. So some of it is being utilized for exports when that is something that is called for in our trading networks. But, as I said, we are currently very happy with the situation.

Okay, thank you.

You are welcome. Well thank you very much everyone and I want to tell you that we thank you for your time and attention. We do look forward to your continued participation again. And please feel free to contact us directly or visit our website at any time. Thank you and good day.

Ladies and gentlemen, thank you for joining today's conference. This concludes the program, you may now disconnect. Good day.