Cemex SAB de CV (CX) 2004 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the fourth quarter 2004, CEMEX Earnings Conference Call. My name is Alicia, and I will be your Operator. [OPERATOR 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, please proceed.

Thank you. Good morning, and thank you for joining us for this fourth quarter conference call. I will first comment on the company's performance during last year, and the outlook for 2005 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 briefly sharing my thoughts on what was a very exciting and successful year for CEMEX. During the month of September, we took a significant strategic step by reaching an agreement to acquire the equity of RMC Group for $4.1b. The acquisition of RMC and its integration into CEMEX will give us greater global reach, and stronger positions across the value chain, both of which will enable us to compete more effectively. It will also give us the financial strength to continue to grow profitably throughout the business cycle.

To effectively integrate RMC's operations, we will put to work all of our learning from the successful integration of 15 acquisitions since 1992, and that includes the integration of the Southdown operations, which were acquired in the year 2000.

In order to optimize the success of the integration process, we have established an office that reports directly to our Chairman and CEO and Executive Committee on all RMC integration matters. This office will have 2 major responsibilities. The first is to ensure that we meet, in a timely manner, our commitment for realizing the synergies inherent in this integration. We will accomplish this by identifying all possible sources of savings, and by centralizing decisions to achieve the highest possible return.

The second is to ensure that we are able to retain the most valuable resources within the company. We are also cognizant of the importance of cultural diversity through the success of this integration.

We are encouraged by the macro-economic prospects of some of the major RMC markets. GDP in the United Kingdom is expected to grow about 2.5% in 2005, with construction spending in line with GDP growth. In France, both GDP and construction spending are expected to increase by about 2%. Germany's GDP, which remained flat during 2002 and 2003, grew close to 2% in 2004, and is expected to continue to grow in 2005.

As we have said in the past, one of the particularly attractive aspects of RMC's portfolio is the company's presence in Eastern Europe. These countries, including Poland, the Czech Republic and Hungary, are expected to grow between 3% and 5% in 2005, and are likely to significantly increase their consumption of cement and cement products in the coming years.

I am not able to provide an outlook for RMC operations today, as at this time, such a discussion would be mostly speculative on our part. Instead, we will try to give you an update on our integration progress in April, and at that time, provide guidance for the consolidated operations.

Regarding the expected time lag for [processing] we remain confident that we will obtain the necessary clearance during February. Unfortunately, the sensitivity of the information surrounding clearance means that we cannot provide more details right now, but we will do so as and when material information becomes available. We would like to focus the rest of today's discussion on our performance and outlook.

Firstly, I would like to comment that as part of ongoing efforts to re-evaluate our portfolio of assets during the fourth quarter, we announced our intention to sell our cement plant and other associated operating assets in the Great Lakes area in the United States.

Also, we can confirm that since December of last year, we have been in conversations with the government of Indonesia to find an amicable resolution to the Semen Gresik transaction.

Now, I would like to talk about 2004 results, and I am happy to report that actual performance exceeded our expectations. The average realized price for the CEMEX portfolio increased 4% in cement, and 7% in ready-mix in U.S. dollar terms. This is partly as a result of the stronger exchange rates. As such, we are entering 2005 with high average dollar prices and a positive pricing momentum.

Domestic cement volumes growth for the aggregate CEMEX portfolio was 4%, with demand growing in 9 of our 14 largest markets. And for 2005, adjusting for the sale of our U.S. assets, we expect domestic volume growth to be close to 4%.

SG&A as a percentage of net sales declined last year by slightly over half a 100 basis points as a result of greater efficiencies throughout our network. Our efforts to reduce expenses at the corporate and operating levels more than offset the higher consolidated transportation costs incurred during the year.

We took drastic steps to minimize our energy costs per metric ton. These efforts, including shifting to fuels where prices are less [slightly less] correlated [core] to spot markets and developing self-supply power generation projects, have paid off. Despite significant increases in the various energy inputs, our average energy costs per metric ton in 2004 increased by only 3% and was more than offset by improving cement and ready-mix prices in many of our markets.

We believe that energy prices will increase by about 12% per metric ton in 2005, or about $1 per metric ton of cement produced. We expect this increase to be more than offset by our ongoing efficiency programs, and to a lesser extent, higher average prices.

Demand in markets such as Spain, whose outlook was negative at the beginning of 2004, grew significantly during the second half of the year. The housing and public work sectors continue to be primary drivers of demand. Demand volumes for CEMEX in the United States exceeded our initial expectations, growing in 2004 at close to 3 times the pace of GDP.

Supported by strong fundamentals, construction spending was driven by the residential and street and highway sectors. We believe the U.S. economic expansion continues to offer good prospects for the year ahead.

In Venezuela, volume growth was higher than expected, reaching 20%. The self-construction and commercial sectors were the primary drivers of this growth. In fact, domestic demand and prices improved for most of the markets in our portfolio, and we feel we are well positioned for mid-cycle organic growth during 2005.

I want to reiterate our EBITDA growth guidance for our existing operations in 2005. Under a stable foreign exchange environment, we continue to expect EBITDA growth to be in the mid single digit range, adjusting for the sale of existing operations, and this is of course before the consolidation of RMC or the realization of potential synergies.

We expect EBITDA to grow due to positive price momentum in many of our markets, and higher domestic volumes throughout the portfolio. We also expect to see additional efficiency gains at the corporate and operating level, which would partially offset higher energy costs. The results I've just mentioned, as well as our confidence in the benefits of the RMC acquisition, lead us to approach 2005 with optimism and enthusiasm.

And now, I'd like to give you the outlook for our major markets in 2005. Keep in mind that this outlook excludes the consolidation of RMC and its potential synergies.

With respect to our macro-economic outlook, we expect Mexico's GDP to grow 3.5% in 2005. GDP growth will continue to be driven in part by the healthy recovery in the United States manufacturing sector, which has been the main driver of exports from Mexico.

Remittances from workers abroad, which in 2004 reached a record $15b should also contribute to greater consumer spending. In 2004, cement and ready-mix volumes grew 2% and 16% respectively, driven mainly by government infrastructure spending and by low and middle income housing, both of which offset a flat self-construction sector.

The lack of growth in self-construction is due primarily to the fact that the moderate increase in aggregate disposable income was offset by the significant price increases in other building materials such as steel. In 2004, government spending benefited from a budget surplus of approximately $3.2b, resulting from oil prices that were higher than those assumed in the Federal budget.

Approximately $1.6b of that surplus was assigned to the States last year to be used for infrastructure development. We are optimistic about a positive trend in cement consumption. For 2005, we expect cement volumes to increase by about 4% and to be driven mainly by government spending on streets and highways, public buildings and other infrastructure projects and by low and middle income housing.

Demand will also benefit from increased government spending during the year, as the electoral cycle shifts into higher gear with the approaching 2006 Presidential election. In 2005, we expect the government's finances to remain sound as a result of fiscal prudence and robust oil prices, although slightly lower than in 2004.

We expect direct investment in remittances from the United States to remain on the same high level that we saw in 2004, contributing to higher economic activity. As a result, we expect cement consumption from government and other ready-mix intensive projects to grow during 2005, translating to an increase in our ready-mix volumes of 14% for the year.

And now let me talk about the residential sector. In 2004, 535,000 mortgages were originated, or about 2% more than in 2003. [Infonabit] awarded 205,000 mortgages last year and expects to award 375,000 mortgages in 2005, 23% more than last year.

The commercial banking sector has continued to improve its mortgage origination levels, albeit from a very low starting point. So the housing sector should keep growing as government spending continues and the commercial banking sector continues to increase its share of the mortgage market.

We expect cement demand in the self-construction sector to remain flat in 2005, as aggregate disposable income is likely to continue to lag increases in building material prices.

We will keep moving forward with our marketing strategies, which are designed to reinforce our commercial networks and will intensify our customer focus. In 2004, our multi-product strategy generated approximately $264m in sales, 53% more than in 2003, with an EBITDA margin of about 7%. We expect to reach more than $300m in sales in 2005.

In our Mexican operations, the EBITDA margin decreased by 110 basis points during the year, and by 230 basis points during the fourth quarter. This was due primarily to a change in the product mix, as we experienced higher ready-mix and multi-product sales. We saw increases in energy costs, which were offset by a better fuel mix, and outsourcing electricity from [Telmo Electrico Avalfo], a power plant built under our commission, which has started operations last year.

Now let me discuss our second largest market, the United States. In 2004, our volumes increased 9%, exceeding our expectations. The combination of a strong construction market throughout the year and better than expected December weather led to strong volume growth. The main drivers of demand were the residential sector, with construction spending up 14% for the first 11 months of the year, and also the public sector.

The industrial and commercial sector, which declined about 6% in 2003, made a strong recovery, with construction spending up 5% during the first 11 months of the year. The growth in the residential sector last year was driven mainly by a favorable interest rate environment, as well as positive demographics and household formation in the [Somble] region. For 2005, we expect this sector to decline by about 6%, due to stronger buying last year, and moderate mortgage interest rate increases in 2005.

Public construction spending put in place was up 3% for the first 11 months of the year, with the spending for streets and highways up 4%. Federal funding under the current expansion of the TA21 program is approximately $34.4b for fiscal year 2005, plus $2b that was left unused from fiscal year 2004.

Thus total Federal funding for 2005 is expected to be $36.4b, or 15% over 2003 TA21 levels, and gives a healthy amount of funds for infrastructure, coupled with the generally improving economic environment and fiscal condition of the States. We expect volumes in the public works and street and highway sectors to increase by about 5% in 2005.

Regarding safety, while the Senate and House are still in the process of reconciling the differences in their proposals, we remain hopeful that an agreement can be reached that will exceed the current administration's $256b proposal.

The downward trend in the industrial and commercial sector has stabilized during the second half of 2003, and recovered during 2004. We expect this sector growth to be about 10% in 2005, and to offset the expected decline in the residential sector.

We expect cement volumes to grow 2005 in line with GDP growth, or slightly in excess of 3%, adjusting for the sale of assets in the Great Lakes area that I referred to before.

While the average realized price increase for the year was 5%, point to point prices increased by 11% from December 2003 to the end of the year. The price outlook for 2005 indicates a continuation of this trend, due to favorable demand conditions, and relatively low inventories as a result of the high winter conditions during December. We have sent letters to our customers, announcing price increases averaging about $9 per metric ton, effective January 2005.

Our EBITDA margin improved by 210 basis points last year, as a result of higher prices and volumes, both of which more than offset higher transportation, energy and import costs.

Spain's GDP experienced one of the strongest growth rates in Europe in 2004, coming in at about 3%, and is expected to grow at a similar rate in 2005. The stronger than expected GDP growth, combined with the robust construction sectors during the year, and better than expected weather in November and December, led to a full year increase of 3% in cement volumes, exceeding our previous guidance. For the fourth quarter, cement volumes were up 5% versus the same period last year.

At close to 700,000 new housing starts last year, the residential sector was a stellar performer, and was one of the main drivers of cement demand. This number of housing starts represents an increase of about 10% over 2003 levels, and this growth has been driven by a favorable mortgage environment, positive economic performance, and migration dynamics.

Public works spending remains an important component of cement consumption. The successor to the 2000 infrastructure plan is being finalized, and is expected to start this year, and to run until 2020, with an estimated total size of $300b. The new program represents an annual increase of $4b over the previous one, or an increase of more than 25% per annum.

For 2005, we expect the residential sector to slightly decline, although housing starts will remain at high levels. On the public work side, we see a slight decrease as the new government revises its own infrastructure plan for the coming years.

So until we obtain a better visibility, we are cautiously assuming our cement volumes will decline by about 3% for the year. We also expect cement prices to increase slightly in euro terms during the year.

We are encouraged by the government's announced plan to legalize immigrants who can demonstrate their employment and speak Spanish. This plan will have a positive impact on demographics that will benefit cement consumption in the medium-term.

In Venezuela, domestic cement demand increased by 20%, as this market recovers from the very weak 2003. The self-construction and commercial sectors are the primary source behind demand growth. However, infrastructure investment from the public and private sectors are also driving the recovery. During 2005, volumes are expected to continue their strong growth and increase by about 15%.

The main demand driver will remain the self-construction sector, which is likely to grow by about 10%, with the public sector slowing down as current projects come to an end.

In Colombia, we saw volume growth of 8% in 2004, driven primarily by the formal sector, mostly on the commercial side, which grew about 30% during the year. The residential sector also contributed, albeit to a lesser extent, growing about 12%. Demand for middle to high income housing declined towards the end of 2004. We see this decline continuing in 2005, but to be partially offset by growth in low income housing.

The self-construction sector, which remained relatively flat in 2004, will grow slightly during 2005. The public work sector is also expected to grow over 2004 as we come closer to Presidential elections in 2006. All of this should translate into a 2% increase in volumes for 2005.

Our operations in the Caribbean increased EBITDA by 40% in 2004, due to both volume and price recovery, and we anticipate that volumes will increase by about 3% in the region for 2005. We are currently experiencing an increase in competitive pressures in our operations in Colombia and the Caribbean. If they were to continue, this would lead to a weaker price environment.

We are pleased with our Egyptian operations, as they are operating at full capacity utilization. Domestic volumes decreased 6% in 2004, mainly as a result of a slowdown in government infrastructure spending. The decrease in domestic volumes was partially offset by more than 170% increase in exports, versus 2003. Exports now represent close to one third of our production capacity.

Pricing experienced a healthy recovery in 2004, increasing 28% in dollar terms, and we see that trend continuing in 2005, albeit at a lower pace. We expect volume growth of about 1%.

Our Asian operations greatly recovered during 2004, growing EBITDA at a rate of 185%. EBITDA margin for the region increased by 15 percentage points, almost 3 times what it was in 2003, as prices continued to recover through 2004 and we achieved increased efficiencies in the region. For 2005, we expect volumes to increase and prices to maintain their positive momentum.

Before I turn over the call to Rodrigo, I would like to emphasize 3 important commitments to our shareholders. The first, and this is our immediate focus, is to successfully complete the acquisition of RMC. The second is to achieve the effective and timely integration of RMC into CEMEX and to realize the synergies that we have identified.

And the third is our commitment to apply as much of our free cash-flow as necessary to attain our target 2.7 times net debt to EBITDA by the end of 2005. Thank you for your time. I will now turn the call over to Rodrigo.

Thank you, Hector. Good morning, everyone. We appreciate that you have taken the time to join us today. We're very pleased with our 2004 performance, which strongly indicates our emergence from the trough of the business cycle in most of our portfolio.

We're also enthusiastic about our acquisition of RMC, and are confident that this acquisition and its successful integration will enable us to continue to produce the kinds of results that our shareholders have come to expect from CEMEX.

EBITDA for the quarter increased by 14% over the same period a year ago, and EBITDA margin grew by 60 basis points. EBITDA for the full year 2004 rose by 20%. These increases were the result of higher volumes and price recovery in many of our markets. We also improved operating efficiencies to reduce costs of goods sold and SG&A as a percentage of sales, to lower redundancy costs and to improve utilization rates. All of this was further enhanced by a strong peso and euro exchange rate.

As Hector mentioned earlier, we entered 2005 with better average prices. Average prices in December 04 were about $3 better than they were a year ago. Our net income for the year increased by 114%, reaching $1.3b, or about $4 per ADR, due to our strong operating performance and significantly lower foreign exchange loss and the positive effect of our derivative position, part of which passed to the income statement.

For the full year 2004, free cash-flow increased by 29%, reaching $1.48b, exceeding our previous guidance of $1.4b. Free cash-flow for the quarter decreased by 19%, due mainly to higher CapEx, and higher cash taxes during the quarter.

While it is premature to fine-tune the free cash-flow outlook for our existing operations in 2005, we expect the sum of our capital expenditures, working capital, cash taxes and interest expense to remain substantially flat compared with 2004.

At the beginning of 2004, we committed to use most of our free cash-flow to reduce debt, and we did. As of the third quarter, we have reduced our net debt by close to $1b by applying more than 80% of our free cash-flow for this purpose. At that time, our net debt to EBITDA ratio stood at 1.95 times.

During the fourth quarter, we drew about $800m from the RMC acquisition facility to acquire 50m shares of the RMC Group. Currently, our net debt to EBITDA ratio stands at 2.2 times, down from 2.7 times at the end of 2003. Our interest coverage for the trailing 12 months was 6.8 times, well above the level we had targeted at the beginning of the year.

During the year, we used our remaining free cash-flow to acquire minorities in CEMEX SA shareholdings, the payment of our appreciation warrant, and for other investments.

Looking at our capital structure, we successfully refinanced $1.55b of our short-term maturities during the year, while maintaining our current rating from Moody's, Standard & Poor's and Fitch.

As a result, the average maturity of our debt is now 3.2 years, and our strong free cash-flow and committed facilities in place means that we will not need to refinance debt maturing in 2005. We had committed credit lines in excess of $800m as of the end of last year.

As Hector mentioned, in November we signed a letter of intent with Votorantim Cimentos for the sale of the Charlevoix and Dixon-Marquette cement plants, and other associated operating assets in that region. The total production capacity of both cement plants is close to 2m metric tons a year, and represents about 10% of the operating cash-flow generation of our U.S. operations.

We decided to sell these assets because the Great Lakes area is not a core area of concentration in the United States. Also, the proposed value of the sale made sense for both parties. The transaction is valued at about $400m, and is expected to close this quarter. We will use the proceeds to either pay down debt or to reduce the level of incremental indebtedness required for the RMC acquisition.

During 2004, we implemented 2 initiatives designed to bring management and shareholder interest more in line with each other. Earlier in the year, we offered our executives the opportunity to exchange their options for new options that can be exercised only into restricted stock. And during the fourth quarter, we offered executives an early exercise program to accelerate the transition into restricted stock.

The acceleration program represented another important step in our efforts to simplify our capital structure. This should allow for a more orderly unwinding of the equity forwards, put in place to hedge the exposure arising from executive stock option programs. It will also generate savings for CEMEX in excess of $90m versus the previous program.

In the first quarter of 2004, we executed a tender offer for outstanding appreciation warrants. In that transaction, we purchased approximately 87% of the warrants for about $46m. The 9.2m appreciation warrants remaining from the cash tender expired in December of 2004. The holders of these warrants received approximately $19m in CEMEX stock.

The cash tendered offer resulted in savings for CEMEX of more than $80m at the expiration of the warrants. This was yet another important step in our efforts to simplify our balance sheet. There are no more appreciation warrants outstanding.

In November, we tendered for the remaining portion of our capital securities, which amounted to $66m. Again, this contributed to further simplifying our balance sheet.

Exposures for 2005 relate primarily to adverse movements in the exchange rates of the Mexican peso, the euro, the yen and the British pound versus the dollar, a slowdown in the U.S. economy and continuing increases in energy and transportation costs.

We believe, however, that our strong free cash-flow generation capacity, our portfolio diversification, the financial strategy put in place and our pro active approach to minimizing our energy costs, will continue to help us to mitigate these risks.

Regarding the acquisition of RMC, we successfully completed the underwriting syndication effort, the banks providing the required underwriting commitment with an over-subscription rate of 2 times the funds needed to complete the acquisition.

The committed term financing package, at a cost of about LIBOR plus 1, allows us to maintain our interest coverage at more than 5 times throughout 2005, and this package will allow us to meet our financial objectives and retain our financial flexibility.

The notional amount of our foreign exchange derivatives increased by more than $3b during the third and fourth quarters of 2004, as we protected ourselves against the exposure to the British pound arising from our offer to purchase the equity capital of the RMC Group.

As a result, in September and October, we secured an exchange rate of $1.795 per pound. As of the end of last year, this strategy had translated into a positive mark-to-market of $126m in our favor. These contracts will be fully unwound near the closing of the acquisition.

The mark-to-market of our total derivatives position improved by $294m during the fourth quarter, reversing from a negative $197m at the beginning of the quarter to a positive $97m at the end of the quarter. Close to $106m of that improvement positively affected our income statement during the quarter.

As we said earlier, our priority going forward will be to use our free cash-flow to pay down debt, until we have reached our desired capital structure. As there are no committed extraordinary uses of free cash-flow for 2005, we are increasingly confident that we will achieve a net debt to EBITDA ratio of 2.7 times by the end of this year, the same level as we had at the beginning of last year.

In closing, I would like to say that we are very pleased with CEMEX's performance during 2004. We continued to deliver in the aggregate, and our geographic diversification once again has proven to be quite effective.

Our performance shows that CEMEX continues to produce great results in good time. We're very excited about our prospects for 2005 and beyond, especially in light of our planned acquisition of RMC.

We believe that going forward, CEMEX will continue to deliver long-term value to our shareholders. To do this, we must invest our free cash-flow in projects that not only meet our investment criteria, but also contribute to the spread between our return on capital and our cost of capital. This is the case with the RMC acquisition.

Since 1998, our return on capital employed has been consistently above 10% and we expect that the RMC acquisition will offer returns of 10% or more once we realize the benefits of the RMC post-merger integration into CEMEX. We expect this to happen by 2007.

As we acquire Southdown, our weighted average cost of capital has come down by more than 100 basis points. We expect this figure to decrease further as a result of the RMC acquisition as we increase the weight of our assets in geography, with lower risk-free rates.

Our cost of borrowing to fund this transaction will be about 4% on average. That's half the rate of borrowing to acquire Southdown 4 years ago. This is because we are borrowing in an environment of historically low interest rates, and have substantially improved CEMEX's credit profile. We intend to borrow in dollars, yen, euros and sterling. And we are assuming that we lock in fixed rates for about half of the incremental debt, that is for all of the long-term U.S. dollar portion of the incremental debt.

Furthermore, CEMEX's weighted average cost of debt proforma, after the RMC acquisition, is expected to be about 100 basis points lower than in 2004, at about 5.5%. It bears repeating that we feel that this is the right acquisition, on the right terms and at the right time for CEMEX and its stakeholders.

As always, I've been asked to tell 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 several factors beyond our control.

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

[OPERATOR INSTRUCTIONS]. The first question is from Gordon Lee with UBS. Please go ahead.

Good morning gentlemen.

Good morning.

Good morning Gordon.

Just 2 quick questions, the first on the U.S. market. 1 of your larger competitors in that market is already talking about a second price increase in this year, some time in July. I guess the first question is whether you are considering that as well.

And then just a second question, and I guess this is more for Rodrigo on CapEx. CapEx jumped quite a bit relative to the fourth quarter last year and relative to the previous quarters this year. Was there any particular reason for that? And what's a reasonable CapEx trend rate to think of going forward when thinking of the organic operations?

Thank you.

Thank you Gordon. As I mentioned in the case of the U.S., the price increase we have in view now is the one announced for January. We have no other in the works now. When it comes available -- when different rates are available, of course we will let the market know. Up to now, we are watching the line demand conditions. Rodrigo?

I guess to the second question, on the capital expenditure program, during the first 9 months we were running slightly under the projected capital expenditures for the full year. And so it happened to coincide that many of the projects happened during the fourth quarter.

We do anticipate a slight increase in capital expenditures for 2005 versus 2004. And that is by nature of the increased capacity that we're adding in some of the markets where we participate. There are no major projects underway to expand capacity, other than the ones that were initiated last year. And will continue to be executed this year.

Perfect. Thank you. If I could just have 1 quick follow-up Hector. What is the actual level of dollar pricing per ton at the end of the year in the U.S.?

Actual level is around -- if I am not mistaken, 82 something, 83 something -- so it's around 82 or 83.

Perfect. Excellent. Thank you very much.

Thank you Gordon.

The next question is from Gonzalo Fernandez with Santander. Please go ahead.

Hi. Good morning and congratulations on your results.

Thank you.

I have a few questions regarding Mexico. During 2004 you weren't able to increase prices in line with inflation, as is your policy. And looking at 2005, you expect 4% volume growth but with still flat self-construction sector. Under those conditions do you expect to increase prices in line with inflation or do you expect that prices will continue flat in nominal terms?

And the second question is that we have seen a consistent decrease in margins in Mexico. Do you think that margins have touched bottom during this quarter or should we expect further margin contraction next one?

Okay. For the pricing situation, I would just say that in '04, as you mentioned, our objective was to increase -- to maintain prices in constant peso terms, that is, to increase them at the rate of inflation. Now, we did some increases. It so happens that inflation was a bit higher than we had expected. And that is a component of the difference.

Another component is the mix, because as we mentioned the self-construction sector remained relatively flat, but the formal sector grew significantly. That meant their sales of bulk were higher than expected. So the mix was on the side of bulk, which also has an influence on the actual level of prices. So that was for '04.

Now for '05, again, our long-term policy is to maintain prices in constant peso terms. And as we will see now whether inflation is what we expect -- is going to be what we expect today, whether the mix is going to change. We know that we expect now the self-construction sector to grow a little bit this year -- well, more than what it usually would be.

The cases have been a little bit depressed by, as we mentioned, the prices for all the construction materials. As they become more in line there should be a recovery of this segment. As such, we could say that we would expect, again, to maintain constant peso prices in Mexico.

If I may add, Hector, on prices in Mexico. So another consideration with [indiscernible], you know we have talked about this in the past, is the exchange rate. The peso/dollar exchange rate was actually stronger at the end of the year, during the year, than we had originally anticipated for the end of the year. So when you look at the prices, not in peso terms and in real terms, but in dollar terms, we are much closer to where we had expected to be towards the end of the year.

Our policy for prices in Mexico is driven by Mexican inflation. And we try to maintain them in real terms. But we also pay attention to peso/dollar exchange rate because, as you know, many rate could [cause] the dollar base.

Now for the margin question, in the case of Mexico, of course. As we mentioned, some of the effects that we had in '04 related to the mix. And that's because of our strategy -- our marketing strategy, the way we support our customers and service our customers implies that we sell a bit more of other products and good margins are relatively low. So when you see the mix, it has an influence on our margins.

Now we, of course, have an effect -- expect effect on energy costs. And that will, we expect, to upset by our energy strategy and also by savings that we want to achieve in other segments of our operations, like distribution and SG&A.

So what I can tell you is that the long-term effect of our product mix in Mexico is bound to have an effect on our margins. Now, when we look at our cement operations individually, we expect those margins to remain flat.

Okay. Thank you very much.

Thank you.

The next question is from Steven Trent with Smith Barney. Please go ahead.

Good morning gentlemen. And congrats as well on your solid quarter once again.

Thank you.

Thank you Steve.

A quick question for you. There's been speculation that 1 of your major global competitors suffered a very large number of casualties at one of its Indonesian plants during last month's awful events in the Indian Ocean. Do you believe that this global competitor's ostensible impairment in the region, and the region's need for reconstruction could have a positive material medium-term impact on your Asian operations?

Yes, unfortunately at least 1 of our competitors, as you mentioned, suffered a significant loss of life in the region. We are not -- we are all saddened by that. Now, the effect we believe is too early to evaluate, as all the reconstruction process is still to start as all the rescue operations are still going on.

So the effect on the capacity of the region of this particular asset that suffered significant loss is relatively marginal. The effect of the reconstruction, as I said, is probably too early to evaluate. But there's bound to be something, of course.

Okay. Great. Thank you very much.

Thank you Steve.

The next question is from Carlos Perezalonso with BBVA Bancomer. Please go ahead.

Yes. Good morning Rodrigo and Hector. I just have 1 question and maybe I know you cannot provide any details. But since you have a target of reducing your net debt to EBITDA to 2.7 times at the end of the year, and at the same time you were mentioning that you are in conversations with the Indonesian government, does these conversations could prevent any quotation risk for achieving these goals?

Well, the very short answer Carlos is no, all the scenarios that we have evaluated -- of course we cannot describe them today, but all the scenarios in the visibility that we have today and the potential resulting solutions to this situation show that there is no measured deviation from our target on the debt to EBITDA in 2005. So we are confident that we will achieve that target.

Do you have any expectations for these conversations to have any kind of outcome this year or this could be extended?

Well it is, of course, evident that the government of Indonesia is determined to reach some kind of agreement. That has been clearly stated by government officials in the media. Other than that, I would be speculating on something that is up to the Indonesian government to decide. And we are still in the midst of the negotiations so it would be inadequate for me to comment any further.

Okay. Perfect. Thank you.

Thank you.

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

Hi. Good morning. A couple of questions. First regarding your tax rate. It looks like it was a little higher in the fourth quarter. I wonder if you could give us guidance for a tax rate in '05 and also whether you are affected by the recent changes in taxation law in Mexico?

Secondly is market share in Mexico. Does your 2% year over year volume growth, does that more or less represent what the market as a whole grew at? And your 4% guidance for '05, are you also assuming growing in line with the market? Thanks.

So, you take up the tax question and let me just first answer the market share question. Well in other parts and in general, we do maintain the view that market share is something that we measure over the very long term. That is what is really significant. And, as we have maintained, and our market share in Mexico remains very stable year over year. And there is good regional and temporary margin movements, but we don't expect that to change. That is our target.

Yes, on the tax issue. The tax rate for the full year remained close to 10%. There is -- there are timing events on taxes that certain withholding taxes may fall on a given quarter. And so that may affect the actual tax rate for the quarter. You really have to look at the tax rate for the full year. We don't anticipate any major change in the short term.

So the changes in the corporate taxation in Mexico will have little impact on the company?

Yes. No, we don't expect any major impact as a result of that for us in the short term.

Okay. And just 1 other question, if I could. Obviously the European commission has given you the green light and the U.S. is still contemplating. Is this something that you thought might happen? Is there a scenario where this acquisition looks a lot less attractive if the U.S. imposes transfer or not in the company’s [indiscernible]license (ph).

Daniel, the line is very bad. Could you speak up a little bit please for the last part of the question.

Yes, I apologize. I was just wondering if there is a situation in which the U.S. comes down with a comment -- a proposal on the merger that changes CEMEX's view on the acquisition?

Well, there isn't any situation that changes our view on the acquisition. I cannot comment on the process of course. It would also be inadequate. But what I can tell you is that we are confident that over the month of February, we will receive clearance from the U.S. authorities. That's all I can tell you.

Okay. Thanks very much.

Thank you.

The next question is from Mike Betts with JP Morgan. Please go ahead.

Yes. Good morning. I have 3 questions, if I could. The first one, Hector, I think you referred to some competitive issues in Columbia and the Caribbean. I wonder if you could just explain a little bit more about what's going on there.

The second one was on the press release, the difference between the increases for the year in cement prices of 5% in the U.S. and 11% for ready-mix, maybe that's just a regional thing because I know that you're relatively small in ready-mix. But should I read anything into that that the ready-mix margins are picking up reflecting that or is that regional?

And then just thirdly, on the SG&A, obviously a good saving, a percentage point saving of sales in 2004. If we exclude RMC totally, how much more scope is there to reduce that SG&A percentage? Could that saving be repeated in '05 or are we getting towards the limit? Thank you.

Thank you Mike. Well, for the competitive issues in the Colombia and the Caribbean region, from time to time there is that sort of issues when either traders or new capacity is being put in place somehow. It's just like that. I could not comment on any specifics in addition to that. But, as I said, if this were to continue, we would expect some effect on the pricing -- on the average pricing of the region.

Okay. Let me ask the question maybe a slightly different way. How much lower was pricing at the end of the year than the average? Have you already seen a significant impact on pricing in Colombia, say?

Well, let me just check. We report average prices for the Caribbean. That is not really significantly affected. And in Colombia, I think we are -- the price at the end of the year was probably affected by --

Because it did drop 18% against 8% in the fourth quarter. So maybe -- against 8% in the year. So maybe I'm answering my own question. But minus 18% in the fourth quarter versus minus 8%. So maybe it has?

Well the average -- the average and it's around 1%. So it's not really -- do you have anything else, Rodrigo, on that?

No. Other than to say we do anticipate if there are competitive pressures, that may lead to weaker prices for '05 we see in Columbia and the Caribbean. Those are the regions. But there will be we believe in the aggregate offset by other markets where prices have been recovering. And that's where geographic diversification comes in and we have benefited from that in the past. We think '05 will not be different in that sense.

Okay.

Okay. Let's go onto the U.S. increase -- differential increase between ready-mix and cement. And yes, since we are in different regions, with different cement and ready-mix penetration, those tend to have different price behaviors. So it's a matter of regional behavior rather than anything else.

Now for the SG&A savings, as a company, you know we are constantly looking for new ways to save and to increase efficiency for operations. And we do that at the operations level and at the corporate level. So we are confident that -- it might not be the same amount, or it might be better or less, but we will constantly be looking for ways to save. And, of course, the effect of RMC will be felt on our consolidated operations.

But our unified platform or integral part platform being applied today [them] in this year should have an effect on SG&A. Savings -- we will talk about them when we realize them. That's the way we have somehow chose to report because we feel that this is something we need to show the money for.

Okay. 1 follow-up question, if I could. Or 1 additional question. On the divestment in the Great Lakes, is the margin on that business fairly similar to the Group-wide U.S. margin at the EBITDA level?

Say that again please.

Yes, the EBITDA margin on the business that you're selling to Votorantim, is that consistent with the EBITDA margin for the U.S. as a whole or is it higher or lower? Is it significantly different from that U.S. average?

Well, this is difficult to measure on a plan by plan basis Mike. The allocation of other fixed and corporate costs would make it difficult to do.

Okay. Thank you.

Thank you.

The next question is from Christian Audi with Morgan Stanley. Please go ahead.

Hi Hector and Rodrigo. I was wondering if you could expand a bit on your expectations on the margin front in the U.S. and Spain for 2005?

Well, of course as the positive pricing environment is there, we believe it is coming up. We, of course, have the effect of our imports in the consolidated margin of the U.S. operations. And we will have an effect of the divestitures we have announced.

All in all I would say that there is a positive margin increase in the U.S., of around --

Well, it's difficult to talk about margin improvement because there are assets and divestitures and we're buying assets from RMC there in the U.S. So it will be difficult to say.

But for the existing operations, what we can say is that the U.S. business is likely to be a high-growth region for us as prices have been recovering and we are starting the year with stronger prices than we have on average for '04. We believe that EBITDA for '05 for the existing operations in the U.S. will show a higher growth rate versus '04. And of course that means return on capital employed is improving and has a very positive contribution to shareholder value creation.

Okay. And in Spain?

Well, for Spain, given both the growth that we expect -- I'm sorry, the decline we expect in the demand, but the improvement that we feel that the market would have in terms of costs for us, we expect margin for Spain to remain relatively flat.

There is the potential consolidation of RMC, of course, and the RMC operations in Spain. But that is something that we will comment on probably in April.

Great. Thank you.

Thank you Christian.

The next question is from [Alan Massias] with Extravol (ph). Please go ahead.

Hello, this is Cecilia Del Castillo. How are you Rodrigo and Hector? I have a question on Mexico. It seems the government intends to reduce the import tariff on cement. Do you think this is likely to happen and if so, what would be the effect for CEMEX?

Well, I know there is a NAFTA or part of the NAFTA agreement a reduction of import tariffs. I don't know exactly. I can't remember what exactly was the rhythm of reduction. I don't know that there is any particular specific reduction other than that. But we don't view that as something that will have any material affect on the cement trading. Yes -- so --

Okay. Thank you.

Thank you.

The next question is from Dan Shedivi (ph) with Bestwood Partners. Please go ahead.

Hi. Good morning. Just 1 quick follow-up question on Mexican margins. Is it fair to say that ready-mix concrete margins are roughly half that of cement.

And then as a follow-up to that, just from a value creation standpoint, as you always focus on return on invested capital, is it fair to also say that RMC is also twice as efficient from a capital efficiency standpoint to offset that?

Yes. Ready-mix is a much less capital intensive business than cement. So in order to achieve the same return on capital employed you could do so with less than half the margins for cement.

Are those margins -- are those order of magnitudes correct though for the Mexican market? Is the margin half, but the capital efficiency twice as much? So it is truly a direct offset?

Less than half, yes. Margins on ready-mix business are less than half the margins of cement. And so of course as the mix changes and we sell more ready-mix as a percentage of the total, that has an impact on weighted average margins but it doesn't detract from return on capital employed.

Does that mean that capital efficiency is more than twice that of cement then to offset the less than half margins?

Well, ready-mix is probably even more difficult to generalize than cement because it purely depends by the market you're in. So some markets would have better returns than others. There are more competitive pressures in some markets. So in some areas you do have better capital efficiency and in others you don't. So you really cannot generalize in ready-mix. Ready-mix is even more of a regional business than cement.

Definitely. And the utilization of ready-mix assets changes from city to city, as a matter of fact, depending on the traffic and depending also on the development patterns in different regions. And so it would be very difficult to generalize.

And 1 last question, if I could. In Mexico, [especially] the specialty product sales segment, where do you expect that to be in 4 or 5 years. Or what's a good long-term growth rate for us to assume?

This is a strategy that supports our service objectives with the customers, which is designed to improve the service -- the quality of the service we offer to our customers. So we will carry it to whatever level it needs to be to complement our market mix. So the one we feel that best delivers value to our customers.

It's difficult to say today where it is going to land, because we keep finding interesting alternatives for our customers, and also profitable alternatives for the Company.

Fair enough. And the margins on that business though are significantly less than cement or ready-mix?

Much less than ready-mix. Much less than half the margins of ready-mix. But of course then the capital intensity is even lower than that. And so the return on capital employed for us is higher than ready-mix and higher than cement and so it contributes to our return on capital employed.

Not only does it strengthen our customer relationships and enhances the customer loyalty to our product, it also contributes to return on capital employed. So this has been a very successful part of our strategy -- commercial strategy in Mexico, which we hope will continue to expand.

So then you say that margins will be flat. Would you say that return on invested capital will improve or be flat for Mexico in, say, 5 years from now?

No, of course, we are striving for improvement on those. Because as I said, if you take the cement operations individually, margins have remained at very acceptable, let's say, levels. We will try to improve them individually. Now the consolidated margin of the Mexican operations, of course, that has had the effect of the mix. When you look at the capital invested in Mexico, it has remained relatively flat.

Of course, if you look by product families, and you look only at cement, to the extent that we reach higher utilization rates for our cement plant, yes, we will improve return on capital employed for the existing assets that we have installed in Mexico. Definitely.

Great. Thank you.

I think we have time for 1 more question.

The last question comes from [Alberto Bias] with GBN Securities. Please go ahead.

Yes gentlemen. Could you give me a breakdown of the CapEx that you had for the quarter?

We don't have any significant breakdown on that on a consolidated basis. We would have to follow up with you on that. But it's probably the best part of it goes [indiscernible] to augment CapEx for our operations today, both in cement and in ready-mix. And that's about it.

There's other CapEx that we have to do. But growth CapEx we are, as you know, building a new line in the Dominican Republic that's additional capacity CapEx. Some of the CapEx also are geared as the bottle necking of some of our plants so that creates some additional capacity. And other CapEx are destined for our trading network, so at first to improve our trading infrastructure.

But in terms of composition, as I said, I would have to follow up with that one.

Okay. Thank you very much.

Well, thank you very much to everyone. And I would like to thank you all for your time and attention. And, of course, we look forward to your continued participation in CEMEX. And we would like you to feel free to contact us directly or visit our website at any time.

Thank you and good day to you all.

Ladies and gentlemen. This concludes your conference. You may now disconnect. Good day.