Cemex SAB de CV (CX) 2004 Q3 法說會逐字稿

I would now like to introduce your hosts for today's call; Mr. Hector Medina, EVP of Planning and Finance, and Mr. Rodrigo Trevino, CFO. Mr. Medina, you may proceed.

Thank you. Good morning and thank you for joining us for this 3rd Qtr conference call. I will first comment on the company's performance during the Qtr and the outlook and for 2004 in the different markets in which we operate, then our CFO, Rodrigo Trevino, will follow with the financial results.

Before going into the details of the 3rd Qtr and the outlook for the rest of the year, let me begin by saying that this has been a very good Qtr for CEMEX. As we took a significant strategic step by reaching an agreement to acquire the R&C group equity for $4.1b during the month of September. The combination of CEMEX and R&C will produce a company that will have a stronger position of growth and value--greater global reach which will able us to compete more effectively. The financial strength will continue to grow profitably throughout the business cycle. The acquisition will be immediately (inaudible) in terms of both free cash flow and cash earnings. We anticipate that it will provide positive returns on our weighted average cost of capital by 2006. We expect to reach our 10% return on capital target by 2007. Obtaining our return on capital target will be achieved to the realization of significant synergy and activity gains in the order of 200m per annum by 2007. This is around 2.5% of R&C's total sales in 2003.

One of the principal contributions of R&C and CEMEX is the contract portfolio that will give us more cash flow diversification and stability-as well as derived by high growth emerging markets and more stable developed market economies. This should lead to (inaudible) portfolio forces and a higher degree of practical integration in several of our markets. This should lead to a greater valuable position for our customers and CEMEX.

We are confident that with this acquisition we will continue to produce the kind of results our shareholders have come to expect from CEMEX. In regards to the R&C transaction, we keep moving forward. The 28 day period set by the UK (inaudible) code on takeovers and mergers for posting the scheme documents for R&C shareholders (inaudible) expires on the 25th of October. Naturally, R&C will have to close the document on or before Monday.

For the details on the separate timetable of principal events, will be sent out in the scheme documents. These will include the date for the board meeting and the extraordinary general meeting of R&C have been convened, and the expected effective date. Better, Rodrigo will talk briefly about the financing of the acquisition. Any other than that, I will please ask you to refer to our announcement presentation of September 27th. We will, of course, inform you of any developments as soon as we are able in due course. Turning to our 3rd Qtr results, we are encouraged by our better than planned consolidated performance for the Qtr. For CEMEX and as whole, EBITA grew 15% vs. the same Qtr last year, where the net sales grew 12%. For the first nine months EBITA grew at 19% and sales increased at a rate of 11%. The marked improvement of EBITA for the Qtr., resulted primarily from higher domestic volume, efficiency gains, and a price recovery for the average of our portfolio. It is important to note that these results are being achieved without the benefit of any acquisitions YTD.

Regarding our 2004 guidance, our YTD results give us greater confidence that we can achieve EBITA growth of about 11% to around $2.4b. We now expect free cash flow growth to be greater than 22% for the year, and to reach about $1.4b. We will achieve this through continued discipline in capital budgeting and working capital management as well as lower cost of funding costs.

Now I want to share with you the outlook for the rest of the year in our major markets:

In Mexico, we maintain our expectation for GDP growth at close to 4% as a result of the healthy recovery in the U.S. manufacturing sector, which has been the main driver of exports for Mexico. We expect that (inaudible) the micro economic performance, cement demand will increase at about 2%. This noted growth will continue to be expected mostly from government spending on streets and highways, public building and other infrastructure projects-and also by low and middle income housing. All of this is affecting a weak construction sector with the outlook for the year continues to be stable to slightly decreasing.

We expect government spending on infrastructure to benefit from a budget surplus of approximately $2b resulting in oil prices that were assumed in the federal budget. Approximately $800m was distributed to the states to be used for spending exclusively on infrastructure projects. As a result, we continue to expect demand consumption from government and other redi-mix construction projects to continue to grow in 2004, translating to an increase in our redi-mix volume of 13% for the year, in line with our YTD performance.

Regarding the housing sector, this year we continue to expect about 575,000 mortgages to be originated; that is about 10% over last years spending. At the end of the 3rd Qtr, (inaudible) has awarded around 70% of the target of 305,000 mortgages, putting them on tract to achieve their objective for the year. We also expect the commercial banking sector to continue to improve its mortgage origination levels from the low starting point. We are also encouraged by the recent offering of mortgage-backed securities that have been originated recently in the Mexican capital market.

We expect cement demand in the self-construction sector to be flat or slightly increasing. This is due to a moderate increase in the aggregate disposable income in this sector which has not kept up with significant price increases of building materials, and other chemical dependant products such as paint, glass, ceramic, etc. The rise in the (inaudible) has translated into a more than 20% increase in per unit costs since the beginning of the year. Our multi product strategy continues to be our plan. We expect full year sales to increase to about 4 or 5% over last year close to $270m and generate a healthy and better than expected EBITA margin.

Now we would like to discuss our second largest market, the U.S. During the 3rd Qtr of 2004, our volumes increase 9% (inaudible) for the Qtr, despite the rainy weather in the Southeast region, which was affected by the hurricane season. We believe that there are fundamentals that continue to be strong for the rest of 2004 and onwards. Construction spending has continued to grow this year, as demonstrated by a growth rate of 9% from January through August. The main drivers of this growth were the residential and the street and highway sectors. The downward trend in commercial and industrial sector stabilized in the 2nd half of last year and the sector is now in a recovery mode. While we expected residential growth to moderate during the 2nd half of the year, its YTD performance give us cause for more optimism. We now expect full year growth and demand consumption for this segment to be around 4%. Our forecast for the industrial and commercial sector remains the same as it continues to recover during the year. It is growing by about 4% due to lower banking interest rates and higher construction expenditures resulting in increased economic activity.

We continue to expect volumes in the public works and the street and highway sectors to increase by about 4%. A generally improving economic environment and the states (inaudible) conditions, which have improved to a surplus of approximately $20m, are driving these increases.

Also, encouraging is the fact that congress approved another extension of the (inaudible) program to May 31, 2005 and that, at an annual run rate, is approximately $34.5b which is $3b more that the 2003 levels. Regarding safety, while the senate and the house are still in the process of reconciling the differences in their proposal, we are confident that an agreement will be reached in this current administrations; a $256m proposal. As a result, we expect demand for our redi-mix product to increase in 2004 by 7% and 6% respectively over those of 2003. While the average realized price increase YTD has only been 3%, point-to-point prices have increased by 10% from December of 2003 to the end of the 3rd Qtr. A third price increase has already been in effect since the beginning of October in several local markets.

Additionally, we have sent letters to our customers with average price increases of our product of about $8 dollars per metric ton effective, January 2005. These price increases are supported by federal demand conditions and supply pressures on inventories. The relatively tight supply conditions are being driven principally by significantly more expensive shipping and ground transportation markets, as well as the difficulty of outsourcing poured cement. Given the domestic recovery in many of the 14 markets, our EBITA margins improved in the 3rd Qtr as a result of higher prices and volumes, both of which mitigated higher transportation, energy, and import costs.

In Spain, our cement volume sales grew at a healthy pace of 9% during the 3rd Qtr and increased by 2% for the first 9 mo of this year. As a result of this strength, we expect that our cement consumption will increase by about 1% to 2% during 2004, while total cement demand in Spain should exceed 47m tons--a record year in terms of consumption.

The housing and public work sectors continue to be the primary drivers of the (inaudible) demand. The housing sector performed better than expected in the beginning of the year supported mainly by a (inaudible) interest rate environment and also by immigration. We now see the number of housing starts topping 2003 levels-ranging from 630,000 to 650,000 housing starts for the year as a whole.

The public works sectors main underbidding continues to be the current government infrastructure plan which has mitigated the slow down in (inaudible) standing. The (inaudible) to the current infrastructure plan which is now under evaluation, is expected to be finalized by the end of the year. On the macro level, we expect the same GDP growth, one of the healthiest in Europe to come in at about 2.6%. For the 1st 9 months of the year, our prices have increased by about 3% in euro terms and 12% in dollar terms. These increases are ahead of plan and are expected to remain at these levels for the rest of the year.

In Venezuela, we expect domestic and (inaudible) demand to increase by more than 20%, due primarily to a very weak 2003. The primary source behind demand growth is the self-construction sector. Also construction investments from the private and public sector are driving consumption, but we expect demand from both of these sectors to slow down as on-going projects are completed.

In Columbia, we see volume growth of about 6%, which will be driven primarily by the (inaudible) sector. Mostly, on the commercial side, and to a less extent, the residential sector. The self-construction sector will continue to grow, but at a slower pace, while the public works sector will remain weak versus last year due to the finalization of on-going projects.

We are pleased with our Egyptian operations that they are operating at full capacity utilization. We expect our domestic volume to increase to about 8% in 2004, due mainly to slow down in government infrastructure spending as well as private spending. This has been partially offset by a more than 150% increase in exports versus last year, which now represents close to one third of our production capacity. This pricing continues to under go a healthy recovery. Before I turn the call over to Rodrigo, I would like to emphasize three things. First, our immediate focus is to essentially complete the R&C acquisition process. Second, to achieve the effective and time integration of R&C into CEMEX. And Lastly, we are committed to obtaining our target 2.7 times net sales to EBITA by the end of 2005-by applying as much of our operations free cash flow as needed towards net debt reduction. Thank you for your time. Now I will turn the call over to Rodrigo.

Good morning everyone and again, thank you for joining us today. EBITA for the Qtr, increased 15% versus the same period in 2003, while the EBITA margin rose by 100 bp. These increases were due mainly to domestic increases in our volume throughout our portfolio, a pricing recovery in many of our markets, lower COGS and lower G&A expense. As a percentage of net sales- (inaudible) by 121bp. This, despite the rise in transportation costs, increased domestic sales volume. The reduction in (inaudible) results is due to greater efficiency throughout our network. Our effort to reduce our expenses on the corporate and operating level, more than offset the higher consolidated transportation costs that occurred during the 3rd Qtr.

We continue to expect that improvements in EBITA margins in 2004 will be driven principally by higher utilization rates, lower (inaudible) costs, and price recovery. We have also benefited from the pro-active steps we have taken in the past to lower the cost of energy on a first time basis.

Our free cash flow for the Qtr was 17% higher than the same period in 2003, due primarily to higher operating cash flow, lower financial expenses, but also lower investment working capital. Of the $451m of free cash flows that we generated from operations in the 3rd Qtr, we used $302m to reduce debt. We used the balance to acquire minority (inaudible) holdings and to make other investments. Free cash flow for the 1st nine months reached $1.2b-a 38% increase versus the same period in 2003. The fact that our free cash flow for the 12 months ending in December is approximately $1.46b, gives us confidence that we will achieve our free cash flow target of $1.4b for the full year 2004. In the first 9 months, we used more than 80% of our free cash flow to reduce debt. The result is a consolidated net debt reduction of close to $1B in December of 2003. Looking at our capital structure, our interest coverage for the trading 12 months improved to 6.7 times. Our leverage ratio is measured by net debt to trading 12 month EBITA, improved significantly from 2.8 times a year ago and 3.2 times 18 months ago to less than 2 times for the trading 12 months ending in September. These improvements were the result of our decision to use most of our free cash flow to pay down debt until attractive investment opportunities became available.

Other contributing factors for our strong operating performance and we continue to emerge from the bottom of the cycle and as we achieve greater efficiencies throughout the network.

We are very pleased with the support we have received from the financing community for the acquisition of the R&C group. We successfully completed this indication effort with the banks required underwriting commitment this week with an average subscription rate of double the amount needed. The committed term financing package is at a cost of about LIBOR plus one, and to allows us to maintain our interest coverage at more than 5 times throughout 2005.

This package will allow us to keep our financial objectives and maintain our financial stability. The (inaudible) of our foreign exchange (inaudible) increased more than $3b for the 3rd Qtr as we have hedged the exposure to the British pound (inaudible) offered to purchase the equity capital of the R&C group. As a result, we have secured an exchange rate of the dollar vs. the pound that will not be greater than 1.795 dollars per pounds. A much better exchange rate for us than today's market rate of about or close to 1.83. This translates to a positive (inaudible) market in excess of $50m in our favor. These contracts will be fully unwound upon the closing of the acquisition of the R&C shares.

Our priority going forward will be to use our free cash flow to pay down debt until we have reached our desired capital structure. We expect to reach a net debt EBITA ratio of 2.7 times by the end of 2005. This would be the same level as we had at the beginning of this year. We are pleased with some of this performance during the 1st nine months of the year. Some markets have slightly under performed versus our original estimate at the beginning of the year. However, others are doing much better, so we continue to deliver in the (inaudible) and our geographic diversification, once again, has proven to be very effective.

We are very excited about our prospects for 2005 and beyond, especially in light of the recent announced acquisition of the R&C group. As we have said before, we believe that going forward CEMEX has the potential to deliver profitable growth to our shareholders and this requires us to invest our free cash flow into projects that not only meet our investment criteria, but also contribute the spread between our return on capital and our cost of capital as a short medium and long term. This is the case with the R&C acquisition. In 1998, our return of capital has been consistently above 10% and we expect that the R&C acquisition will offer returns of 10% once the merger integration of benefits are realized. We expect this to happen by 2007.

Since the acquisition, our weighted average cost of capital has come down more than 100 bp. We expect this to decrease further as a result of the R&C acquisition as we increase the weight with the assets of geography, with a lower (inaudible) rate. Because we are borrowing in an environment of low interest rates, our cost of funding this transaction will be about 4% on average, but if considering the incentive (inaudible), and also based on the assumption that we intend to lock in fixed rates for about half of the incremental debt. This is, nevertheless, half the rate of borrowing costs, that we had to pay when we acquired (inaudible) 4 years ago. Furthermore, the weighted average cost of debt with the R&C acquisition, is expected to be about 100bp lower than our existing average interest expense.

We have said this before, but I think it is worth repeating, we feel that this is the right acquisition on the right term and the right time for CEMEX and it's shareholders. As always, I have been asked to tell you that any forward looking statement we make today are based on our current knowledge in the market in which we operate, and good 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.

I have two questions for you. One, looking at the U.S. growth numbers for the Qtr, to what extent do you think that it could have been even higher had we not had the heavy amount of hurricane activity in September, and what portion of that growth might be attributable to Dixon Marquette.

The volume that we lost can be more or less taken to be relatively small because of the impact of the area pacific region. I do not know that we can quantify the growth without this impact. But certainly that affects demand on a very specific geography. Now the impact of the Florida market, we calculate to be around 30,000 tons, not more than that. So, maybe the growth would have been another half percent-maybe 1%. We don't really know. As for the Dixon Marquette acquisition, the impact on the U.S. growth is about 2%.

Congratulations on the very good results. I have two questions, the first regarding the price performance in the U.S. You mentioned a third price increase that has already been implemented in some states in the U.S. market. I was wondering how much this price increase was, and if the $8 dollar price increases that you are forecasting for the beginning of next year is in addition to the third price increase you just mentioned.

My second question is regarding the (inaudible) the shares in the London stock exchange, what are the plans in terms of the shares going forward with the acquisition of R&C.

The price increase that you mentioned we estimate to be around $2 dollars-an average for the Florida, California, and Arizona markets. . For the price increase I mentioned, that has already been stated-we have said that this is to be around $8 dollars that would be effective January 2005. That is as much as I can tell you in that respect. The second question I wish Rodrigo to elaborate on that.

One of the interesting developments that we noticed in when we acquired the assets (inaudible) Again, one of the most important producers and distributors in the U.S., was that our shareholder base continued to evolve during 2001, 2002, and 2003. For example, our U.S. retail shareholder base that has more than tripled in the past four years. I think this is partly the result of our greater exposure in the U.S. market. I think that the acquisition of R&C improved given the geography that it has, also poses the opportunity for us to enhance our shareholder base. How to achieve that is an open question, and whether we need to list in London or elsewhere, we do not know that. What we know is that places where liquidity is greatest, and we would expect the New York stock exchange has the market with the most liquidity for our shareholders and that we are encouraged by the developments in the Mexican capital markets-allowing pension funds to start buying equity starting in December of this year. We have not made a decision to list elsewhere for the moment.

Hi, good morning everyone and of course congratulations on the results. I have 2 questions regarding the operations in Mexico. The first, we continue to see a sequential reduction in the average price in comparison does that mean that you were not able to implement the price increases that you were expecting for Mexico, or what is the reason? And the second, if you can expand more on the significant decrease in the EBITA margin in Mexico, which region is that, and what are you expecting going forward?

The prices in Mexico in (inaudible) terms. Let me remind you of what our policy is to keep these prices flat over the mid to long term. So small variations from time to time, we think are normal. In this particular case, I will give you two main reasons for this. The pricing decrease you are noticing Qtr to Qtr, that is essentially a mix change, we are selling less mix cement and more box cement and essentially we see some slight decrease in the self construction sector of box cement so that affects the average prices of cement. On the other hand, we also have regional effects. We have different prices in different parts of the country that also effect margin and prices in Mexico. I would also say that there are different competitive pressures in different parts of the country so that also affects the average price--but again, our pricing policy is to preserve constant (inaudible) prices throughout the mid and longer term. In terms of the EBITA margin, certainly there was an affect that have created changes of our mix of businesses in Mexico. First of all, our redi-mix have seemed larger than cement in terms of volumes given the margins of retime have affected our total YTD margins in Mexico. In addition to that, we have increased our sales multi-products which have a lower margin than cement, and that affects our mix. Certainly going forward, we expect to compensate all of this margin loss by greater efficiencies, but in the end we see increases in products that are lower margin products, as an increase in our overall (inaudible) employed, then we are not too concerned that our margins could be affected by that. Nevertheless, we would expect prices to remain low going forward.

First question is on the Spanish volumes which came in much better for the Qtr than the guidelines-9% and I would like clarifications as to why they were so strong and clearly with your forecast for the year, you are not expecting that to continue. Secondly, I would like to understand what the impact might be of higher energy costs next year, and specifically, when you actually sign the contracts to buy the main energy sources, what you are doing in terms of offsetting these with cost cutting, and what indications can you give us now regarding the rising energy costs?

The effect of the change has been affected by the strength of the local markets in many exporting countries, so we had a unfavorable affect in terms of volumes in Spain-that imports were reduced that might have been explained by both export prices and also by the volatility of transportation and the extent of the price of transportation for export cement into Spain. So that reduced the import market in Spain and the main reason for the increase in volumes. Also (inaudible) of the Spanish market were better than expected. Could you repeat the second question?

Yes, the increase in energy costs; I am not particularly expecting you to give me a figure. Help me to understand how much you might have hedged and what sort of cost savings you were able to offset it with, and also the timing of when you purchase coal and other sources of energy.

We did not expect energy costs to be as high as they are today. We did take significant steps to lower our input for the last 5 to 7 years. We have been preparing ourselves for a higher energy cost environment and so we have been switching to petroleum (inaudible) in Mexico-to being as much as we can self sufficient in electricity in Mexico, switching to alternative fuels where that makes sense and where we can make a contribution to the community and become more efficient in our production facilities. We feel that we are not as exposed as we would have been had we not taken these steps--that is why our energy costs for the first 9 months of the year are actually down on a per ton basis where as in the same period a year ago despite the higher cost of energy environment. We tend to negotiate multi-year contracts when we can for the purchase of input energy sources that we use, and that is the case for (inaudible) and for coal, so we are not as exposed as you would imagine with the volatility on the stock market. We also believe that we have a natural hedge in our business portfolio, because many of the countries in which we operate are countries that are energy reach. Countries like Mexico and Venezuela that tend to do better at the macro level when energy levels are high, because they tend to have longer foreign exchange rates and we also tend to have more public works infrastructure spending in those markets and those kinds of environments because resources available to the public sector as a result of the greater price of oil which some of these countries export. We do not believe we are exposed to high-energy prices and environment, but we are very pro-active in addressing this exposure so that our margins do not suffer. In fact, this year our margins are improving despite the higher energy prices

Good morning. I was asked by Ricardo (inaudible) to ask three crucial questions for CEMEX. I am not going to do that. Could you comment on what seems to be a pretty significant public relations campaign being done CEMEX regarding the ship-the (inaudible) ship. It seems to me that it is pretty damaging and pretty widespread. We have not seen a response from CEMEX and could you take this opportunity to defend yourselves?

Yes, well there is one clear factor and we have to protect our rights and started legal action when we thought our rights were threatened in the case of the berthing of the ship in the shallow where our export terminal is. We obtained an injunction there and we also filed a suit in terms of libel because of the charges that the other company was making. So other than that, we feel that this is an issue that has to be dealt with by the authorities, and not by us and also the industry in Mexico that is being somehow threatened by this. Let me just refer you for a brief moment to a fact that we have been enduring for the past 14 years; a dumping charge for CEMEX (inaudible) but nevertheless, it affects CEMEX. All throughout this time we have maintained that is an unfair situation. Much more today, where we have significant investment in the U.S. We play with the law of the land and feel this is something that is not fair but keep paying the duties that are charged at the U.S. Mexican border. All we ask is that people do the same; they follow the law of the land. If they follow the law of the land, any ship, including the (inaudible) can, when it does not affect other peoples rights, companies rights, and also, they can import (inaudible) whenever they can, as they have demonstrated (inaudible)--which is of course not news because more than 100,000 tons of cement cross that border every year because that is a natural market and no one is saying anything to anyone. So it is only when our rights are threatened that we react. Yes, there is a very strong PR campaign, but what can we do? What is strange is that how can a company that is supposedly following all of the steps, have made so many mistakes in terms of coming into Mexico. Anyway, that is all I can tell you.

Two quick questions. First, if you could tell us in terms of dollars per metric ton what your average price were in the U.S. in the 3rd Qtr and what it is today? The 2nd question is regarding a potential CEMEX listing in Europe-you are talking about listing a CEMEX listing and re-visiting listing your European operations.

We are not considering either.

The U.S. 3rd Qtr average price is around 81.5 dollars. I do not have a precise figure for the average today, but is should be around that.

I just have one more questions regarding Mexico, Are you giving up share on the bagged cement coming on stream or focusing on the redi-mix where service is more important, or is the overall mix for the industry changing as rapidly as you suggest

That is something to be expected as the company grows and develops. Potentially higher growth in redi-mix is related to more form of construction, which means more infrastructure, more formal housing projects, and that is essentially what is happening in Mexico-where market mix is changing. We measure our market share really on a very long-term basis and a wider geographical basis--so we do not feel that we are losing any market share anywhere. What I can tell you is that you see our efforts in bagged cement and we want to service that market to our customer approach to our (inaudible) market strategy--they will tell you that we are being successful in that but we believe the market mix is changing we don't really think that is affecting our market share in any way--but rather we think that we are servicing both ends of the market in a better way.

If I may also add to that, we think that this year, our weakness in the self-construction sector is primarily a result in the increase in the cost of building. The cost of building a square meter over the past year or so, went up over 20% because of the cost of the many materials that are used. Not cement of course. Cement prices are flat or slightly down but people that do self construct that do not have access to mortgage financing yet and have to do it with equity, can get impacted by the higher cost of building. So they tend to either delay their construction projects to save more, or they tend to build a slightly smaller unit. The other sectors of consumption, they benefit from the strong fiscal position that we have as a result of the high price of oil. So, we do tend to see more of infrastructure spending, public works, as different government entities have more funds to do it with. We also see the growth in the (inaudible) sector for federally sponsored programs such as (inaudible) that provide more funds for this sector to continue to expand. So I think what we have seen this year is the one time effect of the sharp increase of energy costs, and the driver of growth for the economy which would take mortgage financing to be available to the majority of Mexicans, we don't yet see it in the aggregate numbers (inaudible)

Going back to the U.S. We consider that price increases are coming through in the U.S., but it appears less than the $4 dollars per ton announced in April and August of this year. Is that consistent with your figures and why the full affect of those two price increases been realized. If you agree, how do you feel that a $8 ton increase might be able to Be past due in its entirety in January. And also, the U.S. margin was the strongest we have seen in some time. What material cost reductions in the U.S. you might highlight that might drive that margin?

I think that the numbers you had given for the first two price increases this year were $4 dollars per ton in April and $4dollars per ton in August. Based on the numbers you had reported in the 1st and 2nd Qtr's, but I had only cumulative $4 to $5dollars of $8 having been achieved so I am wondering where the leakage or the shortfall has come through -is it regional differences or so forth and what does that say in terms of the ability to pass on $8 in 2005?

Our numbers show that our average price --point to point from December to September price increase is about $7.4 dollars so it is almost the full effect of the two $4 price increases that you mentioned-we will have to follow up on that number.

A second questions--the multi-product sales, what are the EBITA margins you are seeing on the multi product sales in Mexico?

It's improving, I think we will be able to let you know more about that when we have a full evaluation of that market. It is certainly much better than it was in 2002 when we started developing the small sales around $100m probably break even in EBITA--and then in 2003 it went up to $272m in terms of sales with an overall margin of around 4%. The market is around 4% with another 2 to % more perhaps.

BB&C: The $8 increase in January, is that in all of the markets?

It is an average in mostly the regions that we are-but mostly that is the average.

Can you tell us if the other U.S. producers are raising prices in January?

Yes, there are some others who have joined.

The bad weather during the 3rd Qtr might have delayed the impact of shortages in some markets, particularly Florida and allowed producers to build up some inventory. Have the shortage conditions eased up somewhat?

Some construction companies were able to make up some but the effect is temporary.

First Rodrigo, you mentioned earlier, the guidance for Mexican margins?

44% of pre cash flow sales margins.

I am trying to get a better sense of the mix impact in Mexico, first of all what was the average price per ton in Mexico:

Price pre ton, in US dollars it was around $111 in the 1st Qtr and in dollar terms it has been more or less flat Throughout the year.

Also, one has to bear in mind that the average price per ton, but the (inaudible) changes and that tends to impact the price.

What is the breakdown of bagged vs. non-bagged?

We do not have the details right now, but we can follow up with you. Close to 70% is bagged and the remainder is bulk-the bulk segment has grown at a faster pace than bagged just a little bit. We will have to get back to you on that-but it does have an effect on average prices or the country as a whole.

Can you tell me a rough estimate on the premium of bagged versus bulk?

It is comparable to what you see in the U.S. In the U.S. there is also a big difference in the price per ton in bagged versus the price per ton in bulk? It also makes a big difference if you are quoting it at a plant or quoting it at a distribution center. There are many things that do impact this average price?

There is no rough range of premiums for on bagged vs. bulk?

Just to give you an idea, in the U.S. market, the price per ton of bagged cement at the store is probably close to or more than $140 per ton--where as bulk cement is around $80-so there is a huge difference. That is what explains most of the differences between average prices in Mexico and the U.S. The mix is much different. In the U.S. bulk is (inaudible) where as Mexico is the other way around--30% bagged and 70% bulk (inaudible).

Do you have a sense for what the growth rates are on bag vs. bulk going forward? I can make my own estimates as to what residential is going forward--do you have any guidance for planning purposes

Over the very long term, I would say that bulk cement would grow at double the rate in Mexico. (inaudible)

No more questions.

Very good, let me just in closing remind you of the three things again that we think are very important to us and our priorities are very well set. In terms of the R&C transaction-we need to first and foremost, need to close this transaction and then to integrate R&C operations (inaudible) the priority is to also lower debt and to reach our 2.7 net debt to EBITA target by 2005.

Thank you very much for your time and attention and we look forward for your continued participation in CEMEX. Please feel free to contact us directly at any time. Thank you and good day.