Cemex SAB de CV (CX) 2008 Q2 法說會逐字稿

Good day ladies and gentlemen and welcome to the CEMEX second quarter 2008 conference call. My name is Silvana and I will be your coordinator for today. At this time, all participants are in a listen only mode. We will be facilitating a question and answer session towards the end of this conference. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded for replay purposes.

I will now like to turn the presentation over to your host for today's call, Mr. Hector Medina, Executive Vice President of Planning and Finance. You may proceed sir.

Thank you. Good morning and thank you for joining us for our second quarter conference call. First, I will review our second quarter results. I will share with your our estimates for 2008 in light of our performance for the first half of the year. Then our CFO, Rodrigo Trevino, will follow with a discussion of our financial results.

During the quarter, we had better than expected performance in most of our regions. This performance has not, however, fully compensated for the downturn in the United States and Spain and the negative impact from higher energy input costs. We continue to face a difficult economic environment in the United States with demand for construction falling more than we had originally anticipated.

During the quarter, and on a like to like basis for the ongoing operations, consolidated cement volume was down 6%, ready-mix volumes declined 10% and aggregates volume decreased 9%. However, consolidated prices in US dollar terms, also on a like to like basis, during the second quarter, increased by 10% for cement and 12% for both ready-mix and aggregates.

Cement, ready-mix and aggregates price increases still fall short of the price increases for other building material products, such as the steel and asphalt. Steel prices, for instance, have doubled in the past 12 months. And the California Paving Asphalt Price Index has also doubled in the same period.

Our EBITDA during the second quarter reached $1.4b, an increase of 21% versus the same period last year. On a pro forma basis for the ongoing operations, adjusting for the consolidation of Rinker, EBITDA decreased by 2%. For the first half of the year, and on a like for like basis for the ongoing operations, our consolidated EBITDA decreased 10% versus the same period last year reaching $2.3b.

The underperformance in the United States and Spain has been substantially mitigated by better than expected performance in other regions, as I mentioned earlier.

For the full year 2008, we continue to expect EBITDA of about $5.3b at the currently prevailing foreign exchange rates. This represents close to $3b in EBITDA generation during the second half of the year. We expect to achieve this goal organically from our global markets, including Mexico, the Central, South American and Caribbean regions, Eastern Europe and Australia.

For most of our portfolio we expect favorable pricing environment to offset the significant portion of input cost inflation. This, along with realized synergies and productivity improvement initiatives, is expected to mitigate lower volumes.

We expect synergies from the Rinker integration to reach a run rate of $400m per year by early 2009. About half of these synergies will be realized during this year. And we continue with other cost containment initiatives Company wide.

Free cash flow after maintenance capital expenditures is expected to exceed $3b in 2008.

Now I would like to discuss the second quarter performance of our principal markets and our outlook for these markets for 2008.

In Mexico, cement volume remained flat, while ready-mix volume declined by 7% during the second quarter. The decline in volumes is mainly due to delays in infrastructure spending. Given the backlog of projects that have already been approved and assigned to us, we expect a recovery in the second half of the year.

Higher than normal rain during the end of the quarter, especially in the Southeastern and Central regions, where we have many of the most important recently ordered supply contracts for housing and infrastructure projects, affected volumes during the quarter.

For the first six months of the year, cement volume decreased by 3% and ready-mix volume declined by 11% versus the first half of 2007.

Two factors will continue to influence cement sales for the rest of the year. The first is federal spending on streets and highways, public buildings and other infrastructure projects. The national infrastructure program 2007 to 2012 announced by President Calderon represents an investment of about $230b. This program includes public and private spending on oil, power, railroads, telecommunications and others.

For cement intensive projects such as highways, the investment under the program is expected to be $38b. During 2008, the regional plan for total spending on cement intensive public works projects, including the national infrastructure program and other local investments, is expected to reach $15.3b versus $11b last year, a 41% increase, which implies a very strong second half. Growth in this sector will be supported by the results of the fiscal reform approved in 2007 and higher oil revenues.

The fiscal reform, and other initiatives, will provide the federal government with approximately $14b in additional funds for the 2008 budget, a 10% increase versus last year.

Oil revenues for the 2008 federal budget were approved with a surplus base and a budget that's basically an oil mix price of $49 per barrel. In contrast, the year to date average is about $97 and is expected to remain at higher than budgeted levels for the rest of the year. The additional oil revenues are being used for oil exploration and gasoline imports, as well as for state infrastructure projects.

The second factor, housing, continues to grow through the number of mortgages sponsored by Infonavit commercial banks, SOFOLES and other institutions. This year, the goal is to reach 820,000 mortgages, versus 730,000 granted last year.

Construction put in place in the formal housing sector lags the performance of home builders in the first half of the year due to an inventory buildup over the year end 2007. This buildup was driven in part by fiscal benefits as a consequence of the newly approved fiscal reform laws.

We believe this inventory buildup has been cleared and we now expect to see growth in this segment during the second half of the year.

Mexico is better prepared today to withstand the US economic slowdown than it was at any time in the recent past. This is due to the high level of international reserves, stable exchange rate, a steady public external debt, improved current account deficit, sustained flows of remittances from growth, as well as higher oil revenues.

EBITDA margin in Mexico has improved by 100 basis points during the first half of the year, despite increasing input costs. This increase is the result of continuous improvement initiatives, including fuel substitution, self generated electricity and optimization of our distribution channels.

Volumes during the second half of the year are expected to improve significantly, due to the execution of delayed infrastructure projects that have already been awarded or assigned to us. In addition, formal housing is also expected to be better due to an expected increase in the granting of mortgages during the second half of the year in several important states, including Jalisco, Estado de Mexico, Tabasco, as well as Mexico City.

In light of the above, we now see cement and ready-mix volumes increasing by about 2% and 4%, respectively for the full year 2008.

In the United States, cement volume fell 7%, ready-mix sales volume increased by 27%, and aggregates volumes increased by 111% during the second quarter, versus the same quarter last year. Ready-mix and aggregates volumes increases resulted mainly from the acquisition of the Rinker operations, which expanded these businesses.

On a like to like basis for the ongoing operations, during the second quarter our cement volume decreased by 20% our ready-mix volume decreased by 29%, and our aggregates volume declined by 26%, versus the same period in the prior year.

The second quarter like to like decline in volume was driven mainly by the continued decline in the residential sector and the integration of Rinker's operations into our results, starting July 2007. This is because Rinker's operations have a higher proportion of sales in markets that have attracted the highest amount of the speculative investments, especially in Florida, which is currently experiencing the deepest correction in the country. In addition, adverse weather conditions primarily in portions of the Southeast and Midwest regions also negatively affected our volumes during the quarter.

For the first half of the year, and on a like to like basis, our cement volume declined 20%, our ready-mix volume decreased 29% and aggregates volume decreased 26% versus the first half of 2007.

Despite these historic declines across our core businesses, prices for most of our products remained resilient. Prices for imported cement have been escalating in 2008, due largely to higher freight and fuel costs, as well as tight shipping conditions. Higher energy and other input costs are contributing further to pricing resilience.

There is continued uncertainty about the economic outlook in the United States. As such, our guidance for the US operations is particularly sensitive to changes in this outlook. The public sector has been more stable historically, than the residential, industrial and commercial sectors.

We have continued to see increases in construction put in place, in nominal terms, for the public sector, including street and highways and other public construction. However, these increases have been reduced and sometimes, in some instances, fully offset by input cost inflation.

Contract awards for streets and highways have decreased by 12% through May, versus the prior year. This decrease is primarily due to uncertainty of continued input cost inflation, as well as little visibility going forward related to the renewal of SAFETEA-LU which expires in September 2009.

While there is little visibility at this point over the size of the next federal highway programs we're confident that the substantial need for infrastructure investment will drive many states to seek additional funds from their own bond programs, as with the recent cases of California and Texas and through public/private partnerships.

We now see volumes in the public sector, which is expected to represent about 60% of total cement demand, declining by 3% to 4% in 2008.

In the industrial and commercial sector, while nominal construction spending is still up for the first five months of the year, contract awards for new projects declined by 26% in the same period. Growth in this sector is expected to slow down as credit conditions have tightened and contractors have become more cautious in the current economic environment.

In 2008, we expect volumes in the industrial and commercial sector, which is expected to represent about 20% of cement demand, to decline by approximately 12% as a result of the decline in new projects. This decline is expected to continue, due to tight credit conditions and the uncertain economic environment.

The residential sector continued to decline during the second quarter. Housing starts, the fundamental driver of cement demand in this sector, decreased by 31% in the same period. Our markets have seen an even steeper decline, as the high growth residential markets have decreased at a more rapid pace.

Existing vacant home inventories continued to increase with the acceleration in foreclosure activity, and represents an excess inventory level of approximately 900,000 homes. However, we are encouraged by the improving affordability which should lead to higher sales as the economic environment stabilizes.

The timeframe for excess inventory absorption will depend on further price reductions, interest rates, credit availability, job creation and the magnitude of home foreclosures.

For 2008, we expect the US residential sector, which this year will represent roughly 20% of our cement demand, to continue its downward trend, declining by about 30%. In light of the above, we expect that on a like to like basis for the ongoing operations in 2008, our cement volume in the United States declines by about 12%. Our ready-mix and aggregates volumes are expected to decline by about 21% and 20%, respectively.

We see our year over year volume performance improving in the second half of the year as the residential decline will likely moderate.

EBITDA generation in the United States has been affected mainly by our ready-mix and other products operations. These operations, which include concrete blocks and other building materials, are driven more by the residential sector than our cement and aggregates operations. The ready-mix and concrete block operations suffered, due to lower sales volumes and higher material costs.

We have taken steps to reduce the cost in the ready-mix, aggregates and concrete block operations, including plant closures and reduced property and headcount. In addition, we have identified substantial synergies during the post merger integration process that will further reduce our costs going forward.

We look positively towards the future in the United States. We recognize the current downturn is temporary and we know that the integration of Rinker prepares us for long term growth and gives us a more balanced position throughout the cement value chain.

EBITDA margin in the United States decreased to 17.9% during the quarter, from 25.7% in the second quarter of 2007. The year over year margin drop was a result of the change in product mix resulting from the integration of Rinker, as well as lower volumes and higher energy and transportation costs.

In Spain, cement volume during the second quarter decreased by 26%, while ready-mix volume decreased by 23%. Cement volumes for the quarter ended slightly above our most recent guidance, due to a lower than expected impact from the transportation strike during the month of June.

For the first six months of the year, cement volume decreased by 21%, while ready-mix volume declined by 19%.

Cement consumption in our markets continued to fall at a faster rate than the overall market during the quarter as a result of lower construction activity, especially in the Central region, Levante, Baleares and Canarias, which had shown above average growth in previous years.

We now expect the GDP growth rate to be lower than 1.7% for 2008, compared with the 3.8% growth registered last year. This is a reflection of the lower than expected economic activity.

The residential sector continues to decline. Housing starts in 2007 declined 19% versus the previous year, reaching 616,000. For this year, we expect housing starts to decline an additional 45%, to about 340,000. This will translate into significant decline in cement consumption in the sector.

Infrastructure projects continue to be on standby as a result of the general elections in the country. Additionally, some construction companies want to renegotiate some of these projects given the high increase in building costs. We expect the reactivation of the sector to start around the fourth quarter of this year.

Construction in the non-residential sector is also expected to reflect a decline during 2008. Stable supply/demand dynamics, cost reduction initiatives, optimization of our production and distribution networks, higher use of alternative fuels and utilization of much less imported clinker in our operations have partially offset lower volumes and higher energy and transportation costs.

Additionally, the import buffer is expected to continue to be sizeable, as a percentage of total consumption.

We expect demand conditions in the second half to be better, because of an expected increase in activity in the infrastructure side. Additionally, sequential comparisons should be easier as a consequence of the bad weather in May and the transportation strike in June.

Year over year comparisons should also get easier due to the deterioration in volumes we experienced in the second half of last year. In light of the above, we estimate that during 2008, cement volume will decrease by about 18% to 20%, and ready-mix volume will decline by about 17% to 19%.

During the second quarter of 2008 in the United Kingdom, cement volumes decreased by 10%. Ready-mix volumes declined by 11% and aggregates volumes decreased by 5%. Adjusting for the divestments completed during 2007, ready-mix volume decreased by 6%. Weaker than expected housing markets and sizeable home builders' restructuring during the back tail of the second quarter resulted in a stronger than expected downturn in orders and higher than expected pricing pressure.

For the first half of 2008, cement volume decreased by 10%. Ready-mix volumes declined by 14%, 9% when adjusting for the divestment. And aggregates volumes were 5% lower than the same period last year.

For 2008, in the United Kingdom, we expect cement volumes to decline by about 10%, the volume of ready-mix to drop by about 9% and on a like to like basis and -- on a like to like basis, and the volume of aggregates to decrease approximately 4%.

In France, our ready-mix volumes increased by 3% during the second quarter and 5% during the first half of the year. During the second and third quarters of 2007, we began consolidating into our operations five ready-mix plants that we had acquired.

On a like to like basis for the ongoing operations, our ready-mix volume would have increased by 2% for the second quarter, and by 3% for the first half of 2008.

Aggregates volumes increased by 1% during the second quarter and by 2% during the first half of the year, versus the comparable periods last year. The main driver for volume growth in the country continues to be the public works sector. The residential and non-residential sectors are reflecting a decline in building permits.

For 2008, we now see ready-mix volumes, on a like to like basis for the ongoing operations growing by about 2%.

In Germany, our domestic cement volume increased by 11% during the second quarter and by 2% during the first half of the year, versus the comparable periods of last year. Supply/demand conditions continued to be favorable. We continued to export part of our production to the Netherlands, which should improve our profitability.

For 2008, the main driver of cement demand will continue to be the non-residential sector and, to a lesser extent, the civil engineering sector. We continue to expect a mid single digit increase in our domestic cement volume in Germany.

In Eastern Europe, namely Poland, Croatia, the Czech Republic and Latvia, domestic cement volume declined by 3% during the quarter and increased by 1% during the first half of 2008.

For the full year 2008, we expect the weighted average GDP growth rate for the aforementioned countries to come in at about 4%. This is lower than the initial expectations at the beginning of the year, reflecting the impact of credit restraints and inflation.

The prospects for the region remain attractive. Cement consumption is expected to increase and supply/demand dynamics are expected to continue to be favorable as the convergence of these countries into the European Union accelerates.

Regarding the nationalization of the cement industry in Venezuela, on June 18, 2008, the government of Venezuela issued the Nationalization decree, mandating that the cement production industry in Venezuela be reserved to the State and ordering the conversion of foreign owned cement companies, including CEMEX Venezuela into State controlled companies with the Venezuelan government holding an equity interest of at least 60%.

The Nationalization Decree provides for the formation of a transition committee to be integrated with the Board of Directors of the relevant cement company and to guarantee the transfer of control over all activities of the relevant cement company to Venezuela by December 31, 2008.

The Decree further establishes a deadline of August 17, 2008 for the shareholders of foreign owned cement companies to reach an agreement with the government of Venezuela on the compensation for the nationalization of their assets. The Decree also provides that this deadline may be extended by mutual agreement.

Pursuant to the Decree, if an agreement is not reached, Venezuela shall assume exclusive operational control of the relevant cement company. And the Venezuelan National Executive shall decree the expropriation of the relevant shares according to the Venezuelan expropriation law.

No assurance can be given that an agreement with the government of Venezuela will be reached. The government of Venezuela has been advised by our subsidiaries in Spain and the Netherlands, our investors in CEMEX Venezuela that these subsidiaries reserve the right to bring expropriation claims and arbitration under the bilateral investment treaties Venezuela signed with those countries.

In Colombia, cement volumes in our operations declined by only 2% during the quarter, despite bad weather and increased by 1% during the first half of the year versus the comparable periods of last year.

Supply/demand conditions continued to be very favorable in the country. The main drivers of cement demand continued to be infrastructure spending, middle and high income housing and non-residential construction.

Infrastructure projects continue, including those for roads and highways, airports, ports and others. In the residential sector, especially, low income housing, is experiencing a slowdown resulting from an increase in interest rates and higher home supply. The non-residential sector should continue its strong performance.

These trends in the different sectors are expected to continue throughout the year. For 2008, we expect an increase in domestic cement volume of about 2%.

In Egypt, domestic cement volume was flat during the second quarter, and increased by 2% during the first six months of the year with continued favorable supply/demand conditions.

The private sector, especially upper and middle class housing, continues to be the main driver of cement demand. For 2008, we expect cement volume to grow by about 3%.

In our operations in Australia, ready-mix volume increased by 23% and aggregates volume increased by 12% during the second quarter of 2008. For the first six months of the year, ready-mix volume increased by 15% and aggregates volume increased by 7%, versus the comparable period last year.

Supply/demand conditions continued to be favorable.

The public works sector is benefiting from major road and water storage supply infrastructure projects. Significant increases in contract price for commodities, especially iron ore and coking coal, are underwriting private investment in the resource sector. Office, hotel and warehouse construction, supported by strong employment and growth in real wages, is driving growth in the commercial sector.

The main drivers of growth in ready-mix and aggregates volumes for 2008 will continue to be the commercial and public works sector. Given the positive year to date performance of our Australian operations, we now expect ready-mix volumes to increase by 8% and aggregates volumes to increase by 4%.

As usual, and before I turn the call over to Rodrigo, I would like to reiterate an important commitment to our shareholders, which is to ensure that our capital allocation strategy remains on course, and to sustain a record of disciplined, profitable growth in the short, medium and long term.

Going forward, we intend to invest our free cash flow in two ways. First, and foremost, we will use our free cash flow to strengthen our capital structure. We remain committed to achieving net debt to EBITDA capital structural level of three times by the end of 2008. To reach this target, we will use free cash flow, as well as more than $500m in asset sales during the second half of the year to continue reducing debt.

Second, we intend to invest part of our free cash flow to increase our production capacity, primarily in the cement and aggregates in the markets that we currently serve. We will do this in order to further integrate our position along the value chain and to ensure our ability to participate in the future growth of our markets.

In light of this, we are on track with our expansion capital expenditure projects announced during 2006 and 2007. We are currently increasing cement production capacity by about 13.5m metric tons in Mexico, the United States, Panama, Spain and Latvia.

In addition, we are increasing cement grinding capacity by 3.2m tons in Spain, the United Kingdom and the United Arab Emirates. We expect these expansion projects to provide on average return well in excess of our stated acquisition investment criteria.

We have the people, the culture and the opportunities to continue on our path of disciplined, profitable growth.

Thank you for your time. I will now turn the call over to Rodrigo.

Thank you, Hector. Good morning everyone, and thank you for joining us today.

Our performance during the second quarter was supported by the integration of the Rinker operations beginning July 1 of last year.

EBITDA for the quarter increased by 21%, reaching $1.4b. On a like to like basis for the ongoing operations, EBITDA would have decreased by 2%. Most of our countries and regions registered growth during the quarter. The exceptions being the United States, Spain and the United Kingdom.

In the case of the United States and Spain, EBITDA fell mainly as a result of the ongoing correction in the residential sector. In the United Kingdom, EBITDA declined due to lower volumes, reflecting a general slowdown across all sectors.

Our consolidated EBITDA margin decreased from 23.1% in the second quarter of 2007 to 21.6% this second quarter. This drop in EBITDA margin is due to higher kiln fuel, electricity and transportation costs, and also higher fixed costs due to lower economies of scale resulting from our lower volumes, primarily in our US operations.

For 2008, as Hector mentioned, we expect to reach our EBITDA target of $5.3b at the currently prevailing exchange rates. This implies a close to $3b during the second half of the year.

We expect four sources to get there -- sources of growth. Growth organically from our diversified portfolio. Two, the realization of synergies from the integration of Rinker. Three, other productivity initiatives that we have implemented. And four, the strong currency exchange rate in most of our markets.

Since June 30, the Mexican peso exchange rate has strengthened from over MXN10.30 to less than MXN10.10 per dollar. Furthermore, based on the fact that the interest rate differential between the peso and the US dollar is expected to widen, and considering Mexico's strong foreign exchange reserves and strong external account balances, we do not expect the peso to weaken going forward.

From a capital structure perspective, we are not exposed to the movements in the euro exchange rates, as we maintain a portion of our debt funded in euros. Therefore, the net debt to EBITDA ratio at the end of the year will be unchanged at different euro/dollar exchange rates.

SG&A expenses as a percentage of sales decreased from 19.2% in the second quarter of last year to 19% this second quarter.

We're very pleased with the year to date results of our cost containment initiatives, and are on track to achieve our objectives for the full year. Higher distribution expenses have been partially offset with the savings from these initiatives.

During the quarter, our free cash flow after maintenance capital expenditures reached $739m, 31% more than last year as a result of higher EBITDA and lower investment in working capital, which together more than offset higher financial expenses related to the higher debt level after the Rinker acquisition.

For the first half of the year, free cash flow after maintenance capital expenditures was $1.2b, 42% higher than in the same period last year. We expect free cash flow for the full year to exceed $3b. This implies a generation of about $1.8b during the second half of the year, which we expect to achieve with greater EBITDA generation in this period and lower financial expenses.

Because most of our interest in dividend coupons fall in the second and fourth quarters, we expect the availability of free cash flow to be strongest during the third quarter, allowing us to continue to deleverage towards our capital structure targets.

With regard to our input costs, our estimates at the beginning of the year for increases in energy, including kiln fuel and electricity were significantly lower than what we have seen year to date. There has been a dramatic change in the energy commodity markets compared to that expected at the beginning of the year with substantial price increases in oil, coal, natural gas, pet coke and other fuels. These increases have also impacted the electricity markets.

During the second quarter, our kiln fuel and electricity cost on a per ton of cement produced basis, increased by 20% over the same period last year. Given year to date performance, as well as the continued price volatility in the international energy markets, we now expect an increase in these energy input costs of about 25% for the full year, or about $4 per ton produced.

We continue to develop new ways to increase the predictability and to reduce the volatility of our energy input costs. We remain committed to increasing the use of alternative fuels in our operations and to continue pursuing clean development mechanism projects, such as the wind driven 250 megawatt power plant in Mexico.

This wind farm, together with the Termoelctrica del Golfo power plant, will allow us to self-generate the majority of our current power needs in CEMEX Mexico.

During the second quarter, freight rates, as measured by one year Handymax time charter rate remain at high historical levels. About 40% more than the levels seen during the second quarter of 2007.

The Handymax rate declined at the end of last year, but has since rebounded. New capacity coming on-stream has been lower than expected, due to order cancellations because of the tight credit markets, as well as cost overruns.

We also continued to see important increases in ground transportation costs in our markets. These cost increases, which are highly correlated with oil prices, reflect that continuing rise in fuel costs and tight supply in most markets. Higher energy, shipping and transportation costs in tight supply globally translate into higher average equilibrium market prices for our products. Historically, our price increases in cement, ready-mix and aggregates have more than offset the input cost inflation.

However, ready-mix price increases fell short of input cost increases during the first half of this year. During the rest of the year further price increases across our products and geographies might be necessary to compensate for continued input cost inflation.

During the quarter, there was a loss in financial instruments of $159m mainly due to a negative, non-cash impact arising from the rise in the long yen interest rates embedded in our perpetual securities. It is important to highlight, however, that for the first half of the year the loss in financial instruments was $19m and was more than fully offset with foreign exchange gains.

Our majority net income decreased by 27% during the quarter to $444m and this was due mainly to a drop of $94m in the monetary position gain as inflationary gains are no longer being recognized under Mexican accounting standards. And also, as a result of the drop in operating income in our US operations.

Looking at our capital structure, our interest coverage for the trailing 12 months through June decreased to 4.4 times from 8.9 times a year ago. The decline in interest coverage is the result of the addition of debt related to the Rinker acquisition. We now expect our trailing 12 months interest coverage to improve going forward. As a result of both, the drop in our interest expense due to the recent six month Libor recess, at lower Libor rates, and the expected growth in consolidated EBITDA going forward.

Our leverage ratio is measured by net debt to trailing 12 month EBITDA using inflationary accounting, end of the period convenience translation and the addition of financial income for the denominator, in accordance with our contractual obligations, the decrease is slightly below 3.5 times from 3.7 times at the end of the first quarter.

Similarly we are confident this ratio will improve going forward as we use more of our free cash flow and asset divesture proceeds to pay down debt and also as we expect our trailing 12 months EBITDA to improve going forward.

We expect our net debt to EBITDA ratio to reach 3.0 times by the end of the year. To achieve this we intend to reduce debt by using about $1b from free cash flow generation and an additional more than $500m from asset sales during the second half of the year.

On the denominator side, the trailing 12 months EBITDA used to calculate the leverage ratio as per our contractual obligations, is expected to improve from $5.05b as of June to more than $5.4b in December at currently prevailing exchange rates.

Improvement in our capital structure through June resulted mainly from the issuance during the quarter of two identical $525m perpetual note facilities. The cost for this $1.05b capital raising transaction has been locked in US dollar terms at about 2.6% for the first 12 months and 2.9% for the second 12 months.

During the quarter we also completed under our Certificados Bursatiles Program an issuance of medium term notes with an outstanding amount of close to MXN1.9b. Additionally, we entered into a $500m bank facility with a bullet maturity in April 2011.

For the rest of 2008, our available committed facilities in place exceed our maturities. We will use proceeds from asset sales and free cash flow to prepay other short term maturities. And we will continue to lengthen the maturity profile of our obligations.

About 60% of the requirements for next year will not come due until December of '09. In the meantime, net debt will be further reduced from three sources of funds. First, cash flow generation from organic growth and the marginal contribution from our expansion CapEx projects coming on stream. Second, our continued, strong free cash flow generation, most of which will be allocated to pay down debt. And third, from proceeds of asset sales.

Our priorities in the short term will continue to be to regain our financial flexibility and to achieve the cost savings from the Rinker synergies and other productivity enhancing initiatives that have been put in place.

Finally, and as always, I have been asked to remind you that any forward looking statements we make today are based on our current knowledge of the markets in which we operate. And of course, could change in the future due to a variety of factors beyond our control.

Thank you for your attention and now we'll be happy to take your questions. Operator?

(OPERATOR INSTRUCTIONS). And the first question comes from the line of Mr. Carlos Peyrelongue from Merrill Lynch. You may proceed.

Thank you. Good morning gentlemen. Could you provide us some visibility regarding prices in Mexico? Whether you have implemented any price increase in the second half?

And could you also give us some guidance on the US? As you mentioned energy price has increased materially so would you try to implement any price increases in the US in the second half? Thank you.

Yes, thank you Carlos. In the case of Mexico there was a 5% price increase announced for Cement, on July 4th. Of course we are hoping that this -- expecting that this increase will hold. But it's too soon to tell.

And in the US, as in any other place, the increases in energy cost and other raw materials have been very significant. And as we mentioned in the initial comments, price resilience has been the issue in most of our markets. Going forward we continue to watch the market and see how this situation develops. We have not announced a second round of nationwide increases in the US for Cement. But we have announced some price increases where demand allows us to. For example, in East Texas in July we announced a price increase of about $6 and some in Colorado also, with regard to a small one of $2. But that's about it.

Hector, if I may add in on Mexico, in addition to the price increase that Hector mentioned, which of course is in local currency, while the peso today is close to 5% stronger than it was for the average over the first half of the year, and so in dollar terms of course it affected prices for the second half and it should be appropriately higher in the first half.

Understood. Thank you very much.

Thank you Carlos.

And the next question comes from the line of Marcello Telles from Credit Suisse. You may proceed.

Hello. Good morning gentlemen, I have a follow up question on Carlos' question regarding cement prices. First, in Mexico you said you expect to implement a price increase in July. But when you look in the second quarter there was actually a 2% decline in Cement prices in Mexico. So what is the likelihood that you attribute -- that you're going to actually be able to successfully implement that price increase?

And what segment led to this 2% decline in Cement prices in the second quarter versus the first quarter and all -- in local currency?

The other question I have is you've also lowered slightly your forecast for Mexico in terms of cement volumes versus your previous guidance and I think especially ready-mix. Which segment explains that reduction?

And a final question what is your assumption for the self-construction sector for Mexico for 2008 that is embedded in your guidance? Thank you.

As for the sequential price decline in Mexico in the first quarter, well there is of course the issue of geographic mix of prices. Then, as we mentioned demand was weaker. We expect demand to strengthen in the second half of the year, as we mentioned in the initial comments. We are already seeing some of the large infrastructure projects coming on stream and so that will strengthen consumption of cement in some of our markets, as we mentioned.

And so that's where both the prices and volumes expectations are based on. It is infrastructure spending that we see increasing in the second half of the year. So that in fact goes to the third part of your question which is the self-construction segment that we expect to remain productively stable.

And again, I mean it's essentially the second half of the year, strengthening because of the infrastructure projects. Also, as we mentioned, some of the housing inventories that were created towards the end of 2007, because of the IETU tax benefit, we see that already somehow being worked out. So we expect housing also to pick up in the later part of the year.

Thank you. Just one follow up question on the US market still regarding prices. I mean we also saw a 2% decline in cement prices in the US. Can you elaborate? I mean which markets have enough base -- have less of that decline in cement prices? Thank you.

As I already mentioned, we did put up some price increases in Texas, in East Texas and Colorado. So those are the markets that are stronger. But of course, opposed to that we have some pricing pressures because of increased capacity in some of the markets in California, in fact.

And that brought down the average prices 2%, as you mentioned. But we don't see a major issue of pricing in the US today. That is essentially a localized situation.

Okay. Thank you very much.

Thank you.

And the next question comes from the line of Nick Sebrell from Morgan Stanley. You may proceed.

Hello gentlemen. A couple of questions. First, if you could talk about progress on the Venezuelan sale, particularly what happens after the government deadline? I believe it's in August. Is there an extension that's automatically granted or do they give you a price that is somehow defined by a formula? I know there is a law that is associated with that deadline.

And then second, you mentioned 12%, I believe, expected decline in the US on a like for like basis. What does that work out to on a reported basis? Thanks.

So, for the Venezuelan situation, you would understand that we cannot comment any further than I did in my initial comments. Because of the seriousness of the situation, this is as much as we can say.

Okay. So then as far as people -- I mean, there isn't a known action that happens after the deadline. If there's no agreement up until the deadline then is there anything you can say about that just, you know, for people that are asking?

According to the Nationalization Decree the deadlines can be extended for another 60 days if the parties agree.

Got it.

Now, for the 4% decline in cement on a like for like basis, that translates into a 4% decline on a reported basis in 2008.

Great. Thank you.

And the next question comes from the line of Gonzalo Fernandez, from Santander. You may proceed.

Hello. Good morning, Hector, and Rodrigo.

You mentioned that you are assuming in your estimates an improvement in the second half of the year. I don't know if you can elaborate on -- in which regions are you are seeing improvements? Because my feeling is that, at least in Spain and the UK are not improving. They are worsening.

And if then the better EBITDA for the second half of the year will come basically for -- from revenues or from increased margins, and in which regions?

And if you're already witnessing some kind of improvement in July, I'm aware that it's too early, but you're witnessing signs of improvements already?

Well, one of the biggest increases in the second half versus the first half of course, is Mexico where we're seeing an implied growth of 7% in volumes of cement in the second half and we saw a contraction the first half. Which is also what supports the recent price increases that we are seeing in Mexico and announced in Mexico.

Where is it coming from? Well, as Hector mentioned, it's coming primarily from public works and infrastructure projects, large projects that had been delayed but have now been started.

I mean, some of you that live in Mexico City are probably acutely aware of the Circuito Interior Project that is undergoing reconstruction. That is a very large project.

There are other large projects that have also started and are consuming our products, such as the Arco Norte or the Tijuana re-paving project. You know, these projects, in and of themselves account for a significant contribution to the growth in the second half.

So when we estimate the full year growth and the growth in the second half, it is based on the actual back log of projects that we have in the market. Other markets have also been growing in the first half and are expected to continue to grow into the second half. You know, markets in Eastern Europe and elsewhere. So, that's where the growth is coming from.

But also, in the second half, part of the growth comes from the strength in the foreign exchange rates. Many of the currencies around the world today are stronger than they were at the beginning of the year or last year and of course, that will be an additional source of growth.

And of course then, the contribution in terms of EBITDA growth will also come from the cost savings initiatives that we have implemented. Not just in the synergies of the Rinker acquisition but also across our operations and corporate overhead. Not just in Central but also in the different regions and countries in which we operate.

So those are the sources of growth.

Okay. That's very clear, Rodrigo. Did I get it wrong or did you mention that in your net debt to EBITDA calculation, you are using $5.4b of EBITDA while your guideline is $5.3b? I didn't get that quite right.

Yes, we have to calculate our net debt to EBITDA in accordance with our contractual obligations with our bank covenants. And for those, we need to continue to use inflationary accounting and end of the period exchange rates. And when you do that, or course, there is some inflation around the world and there are stronger currencies today than there were, say over the last 12 months.

And so, therefore, the EBITDA that is used to calculate the net debt to EBITDA covenant is greater than the actual nominal US dollar, in some of the months EBITDA that you would see by just adding the quarters.

That's correct. So, that's why say that -- we expect it to be at prevailing exchange rates more than $5.4b. Whereas we expect the nominal reported EBITDA to be about $5.3b.

That's very clear, Rodrigo. Thank you very much.

Thank you, Gonzalo.

And the next question comes from the line of Mike Betts, from JP Morgan.

You may proceed.

Yes, good morning. I had, I guess, a three part question all related to cost cutting really to try to get an indication of, I think in Monterey you indicated that the Rinker synergies this year would contribute an extra about $180m. Could you give us some idea of how much of that came in the first half?

The second part, also relates to a similar issue on the SG&A savings that you indicated. Roughly, how much of that would you have got in the first half?

And then finally, could you indicate whether you're putting any further cost cutting programs in place given the deterioration in the markets in the last few months?

Thanks.

Yes. For the US Rinker synergies, first half if I remember right was around $80m. Let me check the price. But -- we stated that about half of the $400m would kick in this year. I would expect that that will be around $200m for the full year of synergies between the US and Australia.

And you've got about 80, 8 0 in the first half?

About 8 0. I will have to confirm that. Let me get back to you on that.

And on the SG&A?

About the SG&A, I think Rodrigo mentioned the SG&A reduction -- 40? It's about $40m that kick in the first half of the year. That's about the number.

Okay. Thought I missed that.

And of course, I mean, further cost cutting in the Company, it goes on always. We are always reviewing our operations and trying to improve as much as we can, of course, with the reduction of volumes in some of our markets like the US and Spain. As I mentioned in the initial comments, we are doing as much as we can in terms of cost containment and cost cutting and resizing our operations according to the situation of demand.

Because, I mean, when you indicated, Hector, the three or four reasons why the H2 would be a lot greater than H1, one of them was the synergies. But you know that's only an extra $40m if -- you know. If you use your number of 80 and the 200, that's 120 in the second half. It's 40. I mean, it's an additional 40. I mean it's still useful but it's a relatively small additional contribution.

Is it the SG&A that really kicks in -- in the second half? And if it is, can you give me an idea of what that saving in H2 might be on SG&A?

Certainly, the SG&A Company wide, we expect to be reduced significantly in the second half. It is in addition to the synergies so it should also bring us increases in EBITDA.

Well, but it's also important to highlight, Mike, that as you know our business is quite heavy -- has heavy seasonality to it. So the second half, usually as it is, everything else being equal is always much stronger than the first half.

So, we wouldn't say that's a source of growth. That's just the way our business behaves. You know we have the winter months in Europe in the first quarter and of course we have better weather conditions across our geographies in the second half. And that always happens.

Now the other major source of growth this year is the strong foreign exchange rates. Currencies are today stronger, not just in Europe but also in Colombia, in Mexico and elsewhere. And that is an important source of growth in operating cash flow when we report it in US dollar terms.

Okay, and then the final question, the $500m of divestments. I mean, obviously you haven't announced it so they're not completed yet, but I mean, what sort of confidence do you have in being able to complete that divestments? I mean, is most of it in the due diligence stage or would you rather not comment given the uncertainties at this point?

Well, what I can tell you is that we are quite confident that we can achieve those divestments. Of course, any additional comment would be inappropriate given the state of the processes that we are running. But I would stop at that.

Okay. And last question, the ones that you identify in the press release, can you tell us how much EBITDA they contribute? Three in Hungary, Austria and the UK?

Well, that I mean, I could tell you that the margins in these operations are about -- around lower teens in terms of sales.

That's great. That's perfect. Thank you very much.

You're welcome.

And the next question comes from the line of Mr. Steve Trent from Citigroup. You may proceed.

Good morning, gentlemen. Most of my questions have been answered at this point, but just one or two items. Looking at your comments about importation and import costs supporting prices, we've heard from some of our local contacts that they expect maybe some elevated import prices on the West Coast. Given the terrible tragedy that occurred in China this past May with that big earthquake they had that maybe some of the importation gets diverted. I'm wondering what you guys are hearing about that, if anything?

And my second question relates to Mexico. You mentioned new projects kicking in DF and Jalisco and some other areas. I'm wondering if you could identify one or two big projects which you've already been awarded?

Certainly. On the case of the trading situation in the Pacific Coast, you have some -- and we've noticed, and the Trading group has indicated that they see some reduction of exports from China due to several things. One, of course is the earthquake consequences and the fact that a lot of cement is being diverted to the reconstruction after the earthquake.

So, that in fact, is putting pressure in terms of import prices in the region. But, I mean there is also the fact that shipping costs are being increased as Rodrigo mentioned in his initial comments.

Now as for projects, specific projects that have been awarded to us, we have supply contracts awarded to us. One, of course, as Rodrigo already mentioned is Circuito Interior. Then there is Presa El Cajon in Michoacan and the La Yesca Dam also in the Southwest Mexico.

There are many other relatively small projects in states and municipalities. There is the Arco Norte also in Mexico City, and then another, the Aguascalientes libramiento is another large project where we are participating in the supplier of the concrete.

Great. As these projects get underway for example, any possibility of at least a marginal benefit with respects to taxation given the Calderon administration's adjustments to tax bills this year?

I would have to follow up with that answer Steve. I don't know that there is any specific issue, fiscal issue in that respect.

No problem. Thanks very much, guys.

Thank you.

At this time we have time for one more question and it's from the line of Dan McGoey from Deutsche Bank. You may proceed sir.

Good morning. My question is related to fuel and energy costs. You made a pretty material upward revision to unit energy costs for this year. Wondering if you could talk a little bit about specifically where you're seeing them and why such a substantial revision now in the second quarter? What fuels specifically, are driving those increases and just a little bit about the nature of any long term price contracts and pricing that you have in place?

Second question is just on the UK. Margins continued extremely low in the UK. I think you had once provided guidance for at least double digit EBITDA margins this year having solved some of the raw material bottlenecks from last year. Are double digit margins in the UK business out of reach at this point? Thanks.

Well, for energy costs, Dan, naturally, we hedged some of our fuel costs, but not all of them are hedged. And some of the spot prices, as you know, have been increasing in practically all of the fuels.

And then there is the case of electricity, which is also very important and we have to pay spot prices in a good portion of our needs. Some of it, as in the case of Mexico, we have been able to practically supply, or self supply those needs. But in other markets, we have to pay spot prices. So that is part of the expected increase in energy costs for our markets.

Now, in the case of the UK, the fact is that volumes as, I've mentioned, declined more than we had originally expected and that is affecting our margins further. In spite of the fact that we have solved some of the cost problems, we keep, of course, doing as much as we can to contain costs and restructure our operations in the UK so that we can increase our profitability.

Okay. One follow up on the energy cost question. I mean, you know in the US I think the fuel remains primarily coal. So, I guess in part of those energy costs, is it the spot price of coal that you're seeing the most effect from or is it diesel transportation, electricity costs?

And then, specifically, what are some of the principal cost minimization strategies, in the US in particular, that you might be putting into place?

Well, you know it's a market wide increase in terms of energy costs and coal has not been the exception. During 2008 the spot pricing for coal has been escalating and so renegotiation of some of the contracts have driven the price of coal for our operations higher.

Now we have locked in the costs for the rest of the year. And of course we continue with our efforts to switch to alternative fuels where we can so as to reduce the input costs of the fuels we use.

But of course the energy price increases, also fuel through the cost of electricity that we have to pay in the US and that has been an important source of the growth in the cost of energy, particularly for the second half of 2008.

Can you give, for instance, a specific price of coal at which you're locked in or hedged for this year?

I don't have that. We can follow up and give you a percentage change, '08 versus '07.

Okay, perfect. Thank you.

And at this time, I will pass the call over to Mr. Hector Medina, for closing remarks.

Thank you very much. In closing, I would like to thank you all, for your time and attention. We look forward to your continued participation in CEMEX. Please feel free to contact us directly or visit our website at any time.

Thank you and good day to all.

Thank you ladies and gentlemen for your participation on today's call. You may now disconnect.