Cemex SAB de CV (CX) 2009 Q1 法說會逐字稿

Good day ladies and gentlemen, and welcome to the CEMEX First Quarter 2009 Conference Call. My name is Jasmine and I'll be your operator for today. At this time, all participants will be in a listen-only mode. We will conduct a question-and-answer session towards the end of the conference. (Operator Instructions).

I would now like to turn the presentation over to your host for today's call, Hector Medina, Executive Vice President of Planning and Finance. Please proceed.

Thank you. Good morning and thank you for joining us for our First Quarter Conference Call.

I will briefly review our first quarter results and will share with you our outlook for 2009. Then our CFO, Rodrigo Trevino, will follow with a discussion of our financial results.

During the first quarter of 2009, the business environment continued to be challenging. Our EBITDA was significantly impacted by the continued overall tightening in the global credit markets, lower consumer confidence and lowered activity across all sectors in most of our markets.

Foreign exchange fluctuations also had a negative impact on our results. Given the continued volatility in exchange rates in our markets, we have decided to enhance our reporting starting this quarter by including the variations in the main items in the income statement, adjusted to currency fluctuations and asset investments and divestments.

First quarter 2009 results compare negatively with those of last year. This was due to the substantially better trading environment that prevailed in the same period last year and the expropriation of our Venezuelan assets, which were deconsolidated starting August last year. Additionally, we experienced bad weather in several of our markets during the first two months of the year.

During the quarter, on a pro forma basis, consolidated domestic cement, ready-mix and aggregates volumes were down 17%, 23%, and 23%, respectively.

Adjusting prices for foreign exchange fluctuations during the first quarter; consolidated prices increased by 5% for domestic cement, 3% for ready-mix, and 4% for aggregates.

In US dollar terms, consolidated prices for cement, ready-mix and aggregates declined by 13%, 14%, and 14%, respectively; this was driven by the weakening of several currencies versus the US dollar. For the full-year 2009, we now expect EBITDA to be about $3.3 billion at the prevailing foreign-exchange rates.

These new estimates reflect lower expected volumes, predominantly in the US and Spain. The deterioration in volumes is being partially mitigated by the additional $200 million in cost reductions from the downsizing of our business.

Similarly, we now expect free cash flow, after maintenance and capital expenditures, to reach $1.7 billion during the year.

Now I would like to discuss the first quarter performance of our principal markets and our outlook for these markets for 2009.

In Mexico, our cement volume increased by 3% and ready-mix volume increased by 4% during the quarter. Adjusting for additional working days in the quarter related to the Holy Week holiday, cement volume increased by 2% and ready-mix volume increased by 3%. We saw an above trend increase in volumes during the first quarter, as infrastructure spending did not kick in until the second half of last year.

Infrastructure and housing continued to be the main demand drivers for our products in Mexico, while demand from the industrial-and-commercial sector is expected to remain subdued.

Based on data from the INEGI, infrastructure spending in 2009 is expected to increase by 25% versus last year, driven by the national infrastructure plan and other programs announced last year. These include the Program to Promote Growth and Employment or PICE, which is expected to allocate about MXN 27 billion for cement-intensive infrastructure projects; and the National Agreement to Promote Family Well-Being and Employment which allocated MXN 14 billion for state infrastructure and MXN 17 billion for PEMEX infrastructure.

During the first quarter, we continued to see a slowdown in the formal residential sector, mostly as a result of credit restrictions from financial institutions which originate about 20% of the total number of mortgages granted in Mexico each year.

The National Housing Council, CONAVI, expects a 13% increase in spending in the formal residential sector to reach about MXN 300 billion for 2009. Demand from the formal residential sector is expected to represent nearly a third of cement consumption during this year.

Investment in the self construction sector is expected to be flat compared to last year, as lower disposable income, affected by lower employment and wages, is being offset by higher remittances from the US in peso terms. We now see cement and ready-mix volumes declining by about 3% and 2%, respectively, during the year.

In the United States, first quarter cement sales volume fell 33% versus the same period in 2008, while both ready-mix and aggregates volumes decreased by 41%. The drop in sales volume was driven mainly by the continued decline in the residential sector and tighter credit conditions which have negatively impacted other demand factors.

In response to the severe decline in demand for our products, we are pleased with the commensurate adjustment in the level of cement imports and capacity rationalization. Lower input costs have allowed us to improve cement operating cash flow margin, despite lower volumes and a slightly lower cement price.

The public sector has been more stable, historically speaking, than the residential and the industrial-and-commercial sectors. Construction put in place for the first two months of the year, remains flat in nominal terms, versus the same period last year. However, input cost inflation and poor fiscal conditions in some states have affected spending in real terms.

Public spending, however, is expected to improve in the second half of this year from the $787 billion economic stimulus package, which provides $85 billion in public infrastructure funding and $144 billion in aid to the states which will help stabilize their fiscal conditions.

Tight credit conditions and the uncertain economic environment continue to negatively impact the industrial-and-commercial sector during the quarter. Contract awards, a leading indicator for construction activity, declined 61% in the first two months of the year.

The residential sector continued to contract. Housing starts decreased by 51% during the first quarter versus the same period last year. Our markets continued to see a steeper decline due to higher speculative investments which led to higher inventory levels. We are encouraged, however, by the improving affordability of houses, driven by a significant drop in prices and lower financing costs. This should lead to higher sales as the economic environment stabilizes.

Overall inventories have shown signs of stabilization in spite of historic levels of foreclosures. The US Treasury Department recently introduced a homeowner affordability and stability plan to mitigate foreclosures and facilitate refinancing. Under this program, the US Treasury will use $75 billion in funds from the TARP to provide incentives for all parties to facilitate loan workouts.

This program will also increase the loan-to-value requirement and lower interest rates to Fannie Mae and Freddie Mac. The government has also increased its program to purchase mortgage-backed securities from Fannie Mae and Freddie Mac from $500 billion to $1.25 trillion, which will free up capacity in the secondary mortgage market and help credit flow again.

The government took similar action in the secondary market for consumer loans and commercial real estate by expanding its term asset-backed lending facility from $200 billion to $1 trillion.

For 2009, we expect cement volume to decline by about 16%, ready-mix volume to decrease by about 28% and aggregates volume to decline by about 19%. These estimates assume some benefits from the various recently announced stimulus programs.

In Spain, cement volume decreased by 52% and ready-mix volume decreased by 55% during the first quarter. On a like-to-like basis for the ongoing operations, both cement and ready-mix volumes decreased by 48%.

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

The residential sector continues to contract. For 2009, housing starts are expected to decrease to 180,000, from 360,000 in 2008. Investment in the residential sector is expected to fall by about 23% during 2009.

The non-residential sector is also expected to decline during 2009 because of lack of confidence and tight credit conditions, as a consequence of the recessionary economic environment.

The infrastructure sector has been relatively more stable. However, demand in this sector was insufficient to compensate for the fall in the other segments. We are still cautiously optimistic about the contribution of this segment to our business in light of the EUR 8 billion program for local infrastructure projects to be put in place over a one-year period. Demand from this program is not expected to kick in until the fourth quarter.

Despite the weaker demand, prices in euro terms continue to be resilient, reflecting lower cement imports and capacity rationalization. We now expect cement volume and ready-mix to decline by about 25% to 30%, on a like-to-like basis for the ongoing operations.

In the United Kingdom, cement volume decreased by 22%, ready-mix volume declined by 27% and aggregates volume decreased by 24% during the first quarter. Volumes during the quarter were affected by adverse weather conditions. For 2009, we expect weakness across all of our business segments. We now expect cement volume decreasing by about 15%, ready-mix volume dropping by about 19%, and aggregates volume decreasing by about 15%.

In France, our ready-mix operations fell 18% during the first quarter. The slowdown in economic activity, as well as bad weather compared to exceptional weather in the first quarter of 2008, affected consumption in relative terms.

Investment in the residential and industrial-and-commercial sectors decreased during 2008 by 22% and 25%, respectively. During the first quarter, the residential sector maintained this trend while the industrial-and-commercial sector started to reduce its rate of decline with investment in this sector dropping 8%.

The main driver for volume growth in the country continues to be the public works sector. There are some infrastructure projects in the pipeline for the year. However, timing for execution of these projects is still up in the air. In light of the whole, we see ready-mix volume for the full-year 2009 declining by about 12%.

In Germany, our domestic cement volume decreased by 25% during the first quarter versus the same period last year. The number of residential permits continues to decrease and home builders continue to be cautious despite low interest rates.

The non-residential sector showed a marginal increase in permits. However, cancellation and delay of some projects is at risk.

The public work sector continued to decline during the quarter, although growth is expected during the second half of the year as a result of the initiation of projects under the stimulus program. About EUR 14 billion out of a total of EUR 50 billion announced for the program will be spent on infrastructure-related projects during 2009 and 2010. For 2009, we now see a high single-digit decline in our domestic cement volume.

In Eastern Europe, namely Poland, Croatia, the Czech Republic and Latvia; domestic cement consumption decreased by 38% during the first quarter due to declining confidence, tight credit and adverse weather in some regions. For 2009, infrastructure-related projects supported by EU structural funds are expected to mitigate the decline in demand in the residential and industrial-and-commercial sectors.

In Colombia, we saw cement volume decline by 14% in our operations during the quarter as a result of the more difficult economic conditions. The main drivers of cement consumption during the year are expected to be the formal residential sector, benefiting from a drop in interest rates; and to a lesser extent, the infrastructure sector. The industrial-and-commercial and self-construction sectors are expected to remain weak. Overall, in Colombia, we now see a decline of about 6% to 8% in domestic cement volume for 2009.

In Egypt, domestic cement volume increased by 18% during the first quarter versus the same period in 2008. The formal housing and infrastructure sectors are the main drivers of cement demand. We now expect cement volume to grow by 8% in 2009.

In our operations in Australia, ready-mix volume for the first quarter of 2009 decreased by 13% and aggregates volumes decreased by 12%. Lower economic and construction activity, coupled with adverse weather conditions such as flood and extreme heat in some regions, affected volumes during the quarter.

The public works sector will be the main driver of consumption during 2009. The government has announced three different stimulus packages totaling AUD 57 billion, with about one half of expenditure earmarked to stimulate construction activity. This spending will take place during a three-year period.

We now expect ready-mix volume to decline by 14% and aggregates volume to decline by 16% during 2009.

In response to the challenging times we are facing, we're first and foremost committed to significantly reducing our debt level. We will accomplish this to the realization of $900 million in cost-reduction efforts, the rationalization of our maintenance and expansion capital expenditures to a maximum of $650 million and our asset divestment initiatives.

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 first quarter was affected by the general slowdown in the global economy and adverse weather conditions in many of our markets.

EBITDA declined as a result of lower volumes, which were partially mitigated by a resilient pricing environment in local currency terms, in all of our markets except for the US and Spain.

In addition, our results expressed in US dollar terms have an unfavorable effect due to the depreciation of many of the currencies of the countries in which we operate. Adjusting for currency effects, the expropriation of Venezuelan assets, and the divestment of our Islas Canarias assets, EBITDA was down 3%.

Our cost-savings and right-sizing initiatives are paying off. Our consolidated EBITDA margin for the first quarter increased by close to 2 percentage points; reaching 19.5%.

Our operations in the US, Spain and the rest of Europe region had lower margins, resulting from the seasonality effects seen during the first quarter of the year and are expected to improve for the full year.

Lower margins in these operations were offset by better margins in the rest of our businesses, except for Mexico, where margins remained stable.

SG&A expenses as a percentage of sales declined from 21% to 19.7%, due mainly to the cost-reduction initiatives that we currently have in place and which more than compensated for lower economies of scale, resulting from lower volumes.

During the quarter, our free cash flow after maintenance capital expenditures, reached $118 million, 76% less than year; mainly as a result of lower EBITDA and higher investments in working capital, which were partially mitigated by lower interest expense and lower taxes.

The lower investment in working capital last year was due to the one-off effect of selling the Rinker US accounts receivable for the first time through our US securitization program.

Regarding our input costs; during the first quarter, our kiln fuel and electricity costs on our per-ton-of-cement-produced basis, declined by 10% versus the same period in 2008 and we continue to expect our energy costs to decline by 11% for the full year of 2009.

We continue to develop new ways to lower our energy input costs and their volatility. We remain committed to increasing the use of alternative fuels in our operations and continue pursuing clean development mechanism projects. The wind-driven 250 megawatt power plant in Mexico is a good example of that. For more on this and other sustainable development initiatives, I invite you to take a look at our just-released 2008 Sustainability Report which you can find on our website.

During the quarter, we recognized an exchange loss of $138 million, primarily as a result of the depreciation of the Mexican peso. We also recognized a loss on financial instruments of $139 million, resulting mostly from the equity derivatives related to CEMEX and Axtel shares.

Since the beginning of the year, we have closed most of our derivative positions. The notional amount as of April 27th was $966 million; down from $17.8 billion as of December 31st. This will reduce the risk of future margin calls and it was required in the context of our refinancing discussions with our banks.

As a result of the closing of our derivative positions, we documented $417 million through promissory notes. The total effect to net debt in the first quarter was an increase of $238 million, as the mark-to-market of our cross currency derivatives was already included in the calculation of net debt. However, it is important to note that this effect is fully offset by the conversion effect as we translate our debt in euros, pesos and other currencies into US dollars.

In the first quarter income statement, the income tax line shows a positive contribution of $190 million. The positive effect is mainly the result of expected tax losses in many of our operating jurisdictions due to reduced operating results combined with local foreign exchange losses.

During the first quarter, our majority net income was $3 million. The decline was due to lower operating income, the foreign exchange losses and the loss in financial instruments; all of which were partially offset by the deferred tax benefit.

Looking at our capital structure, our interest coverage for the trailing 12 months through March decreased to 4.8 times from 4.9 times last December. This is the result of lower interest expenses, given the floating rate nature of our debt.

Our leverage ratio increased to 4.3 times from 4.0 times last quarter, due primarily to lower trailing 12-month EBITDA. Net debt increased by $126 million during the quarter. This net debt increase includes the cost of closing out derivative positions.

Addressing our refinancing plan, we're very encouraged by the amount of support that we have received from our banking community. This is demonstrated by the extension of most of our immediate debt maturities and obtaining sufficient short-term lines of credit to support our operating needs.

This is providing us with the needed time to achieve a comprehensive refinancing plan. We expect this refinancing process to conclude in the near term. We will update you as material developments occur. In the interim, we're very pleased to report that we are in compliance with all of our obligations and covenants.

During the quarter, we also issued under our Certificados Bursatiles program, we issued short-term notes with a partial guarantee of the Mexican government through NAFIN. The outstanding amount of these notes was MXN 877 million at the end of the quarter.

Our priorities in the short term will continue to be to pay down debt. To do this, we will significantly reduce our capital expenditure program, we will continue to implement our global cost-reduction and right-sizing initiatives, and we will use as much of our free cash flow as possible to reduce debt.

Finally, and as always, I've 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 could change in the future due to a variety of factors beyond our control.

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

(Operator Instructions). Your first question comes from the line of Nick Sebrell of Morgan Stanley. Please proceed.

Hi, gentlemen. Just a couple of questions; one of the items in your-- I was looking at the pricing in your different regions and I was kind of curious how is it possible that you got double increases in prices both in the South American region and the African/Middle East region? That's one question.

And then the second question; looking at your operating summary per country; whether it's in the gross profit section or in the EBITDA section; we were trying to figure out an unusual-- if you look at the gross profit section-- $55 million gain. That's line usually a loss, so we were curious-- what that was all about? Is that something to do with one-time gains or with restructuring or cost cutting or--? Just curious, thank you.

So the first one-- you referred to the pricing in South America and Africa regions; that is --looking at the local currency pricing and there are some improvements in some cases, reflecting some of the input cost inflation in some of these markets. That is in, of course, local currency. When you look in terms of US dollar terms, those prices would reflect the depreciation of these local currencies.

So if we looked in real terms, taking inflation out, those numbers would be say-- considerably smaller?

Well, I would have to check. I don't have the real numbers with me, but we can follow up with you on each case.

Okay, sure; no problem.

Then on the second part of the question, Rodrigo do you have-?

Well, it mostly has to do with the-- yes; part of it is the reduction in our constant expenses and all the initiatives that were put in place late last year. Part of it is also due to the deferral or the reversal rather, of reserves that had been created in relation to variable compensation. And so that is a one-time effect, yes.

Okay, so looking forward we can probably-- it would be best to model in the kind of historical pattern that was before, as opposed to something that's changed in the operations? Okay.

Yes, unless there are other one-time issues; but we cannot foresee that.

Okay, great. Thanks.

Thank you.

Your next question comes from the line of Gordon Lee of UBS. Please proceed.

Yes, hi; good morning. Just a couple questions; first, I was wondering if there are any relevant costs or effects on the debt balance that we could expect from closing of the derivative transactions since the first quarter-- which I think is close to-- I think it's about $5 billion and change that you reduced that derivative exposure by.

And then the second question is just in terms of-- you said that you managed to have extensions to the immediate maturities that you've been facing. Could you comment at all on what terms those taking extensions taking place? Is it just a continuation of the existing terms or are the terms as far as the cost changing and also how far are those being extended out? Thanks.

Now on your first question on the closing out of the derivatives; most of the derivatives were closed out during the first quarter. As you point out, some of them were closed out during April. I believe the net effect of the closing out of the derivatives during April was an additional $100 million that was documented through promissory notes. It is important to note, however, that there will be again conversion effect during April and beyond, as the euro and the peso are moving-- the exchange rate is moving. And so as we highlighted in the first quarter, most of the effect on net debt of the closing out of the derivatives was fully offset by the conversion effect. We'll have to wait and see what the end exchange rate for the peso and the euro and the other currencies is going forward.

Regarding your second question relating to the cost of the extension, I can say that the cost of extending the debt is in line with our weighted-average cost on our income statement, both for dollars and pesos. So there is no expected increase in cost of borrowing as a result of that, vis-a-vis the average weighted or average cost of borrowing.

Perfect, thanks very much. And if I could just have one follow up; is there any update that you can provide on the sale of the Austrian and Hungarian assets, just in terms of where we are in the process and when we could expect that to close and see the inflows on the balance sheet?

This is in the final stages of approval from the competition authorities in Austria and we are expecting that that will happen soon. I cannot commit to any timeframe now, but it's in the hands of government authority. But we expect it to be pretty soon.

Great. Thank you very much.

Thank you, Gordon.

Your next question comes from the line of Vanessa Quiroga of Credit Suisse. Please proceed.

Yes, thank you. Good morning. My question is regarding the closing out of derivatives, about how this reflects in the first quarter results. You mentioned in your cash flow summary that part of the uses of cash was to close out derivatives but when showing the notional amounts as of March 2009, they are still higher than the ones that you showed for April. So I just wanted to understand what exactly was reflected in the first quarter and if you could be more specific about what should we expect in terms of the impact on that in the second quarter.

And my other question is regarding the Rinker impairment last quarter-- if any of the expect tax benefits were reflected in this quarter. Thanks.

Regarding your first question on the closing out of derivatives, net debt increased by about $240 million during the first quarter as a result of closing out the derivatives and documenting the closing out of these derivatives through promissory notes.

I also highlighted in my opening remarks that the conversion effects, however, have been in the order of the same magnitude. And so as we convert the peso debt and the euro debt into dollar, it's lowered by a similar amount.

Of course there are other uses of cash that affect the first quarter. For example, sometimes we pay more or less of interest than is accrued during the quarter. Sometimes we have investments, divestments during the quarter of obsolete non-operating assets. And so the net result in net debt was as we highlighted in the report, an increase of about $120 million in total. And this includes clearly the effects of closing out the derivatives as well.

The second question, Vanessa- could you repeat it please?

Yes, sure. I remembered you mentioned last year or well-- on the results of last year, that there would be tax benefits from the impairment of part of the Rinker goodwill. So I was wondering if we already saw part of this benefit in the first quarter.

Well, you're going to see that for quarters or perhaps years ahead. So it's not going to be in any one single quarter. But as a result of that, we needed to change the deferred taxes, reflecting the expectation that we would have a lower cash tax base going forward as a result of that charge.

Okay, very well; thanks.

Your next question comes from the line of Dan McGoey of Deutsche Bank. Please proceed.

Good morning. Rodrigo, I was wondering if you can-- in your mid-February filings, you outlined the next several quarters' maturity schedules. And with these most recent extensions, I was wondering if you provide an update on the second, third and fourth quarter maturities; whether those have changed as a result of these extensions?

And then also, if you can just talk a little bit more broadly since the refinancing strategy looks to have taken a few different turns from when the bond filings were announced, if you can talk I guess about the total amount of refinancing that you're negotiating, what you hope to accomplish in terms of whether it improves some of the 2011 maturities already?

And then finally, whether or not the Company is more open to an equity or equity-linked financing?

Well, the debt maturities for this year, the heaviest were toward the end of the year, toward the end of the fourth quarter; and of course those remain as they were. The strongest free cash flow generation for the Company every year happens during the months of April, May, June, July, August, September, October, November. And we hope to achieve a comprehensive solution as quickly as possible, and of course we'll update you on the market on the event that we make the solution that eventually is put in place to address the short-term nature of our debt maturity.

But we are encouraged by the constructive dialog with our bank and we hope to be able to give you details soon.

But clearly in this process, we are looking at the best combination of different sources to integrate this comprehensive solution. And this should be the combination that guarantees the best execution and addresses all the items in our capital structure. But that's as far as I can tell you.

Okay, thank you.

Thank you.

Your next question comes from the line of Carlos Peyrelongue of Merrill Lynch. Please proceed.

Thank you. Good morning, gentlemen. Could you give us some guidance with regards to working capital? We saw the first quarter with a $200 million negative; can you give us an idea for the full year what you expect on working capital? Thank you.

Well, usually the working capital and the cash flows of the Company tend to be stressed during the first quarter as we have the seasonality effect in many of our markets. Last year we did benefit a one-time as for the first time we were selling the accounts receivable in the US that we bought when we acquired Rinker. And so that's why you see a significant variation between this year versus last.

Of course in today's environment of tight credit conditions, we will do everything we can to reduce the number of days in working capital that we maintain. And we will achieve this objective by, for example, reducing inventories in aggregates where we have in some places significantly more than we need. But it is normal for us, given the seasonality, to see this kind of working capital behavior during the first quarter.

Okay. Thank you.

We don't see anything unusual this first quarter versus other first quarters, adjusted for the one-time effect that I mentioned.

Understood. Thank you.

Your next question comes from the line of Gonzalo Fernandez of Santander. Please proceed.

Hi, good morning, everyone. I have two questions. You have the intention of increasing significant prices in the US in the first quarter and it effectively went down. I don't know if you will step back on those increases or you are still trying to apply it. And can you repeat the changes in your guidance? I didn't get it, sorry.

And just to confirm; the closing of the exchange rate derivatives; you don't expect that to have an impact on your cost of financing, because all those (inaudible) contributed to maintain the cost low. So now that they are gone, what will be the effect?

Would you repeat the first part of the question?

The prices in the US, Hector--

Yes, the prices in the US.

Well, the situation of course in the US is in very abnormal. And so we, as part of our practices, have to be watching the market very carefully and see what are the local situations; each different market has their own dynamics and so we have to be looking at everyone. We have observed in that past few months, some changes because of the cement supply situation with pressures for pricing in Florida and California. But it's an improved situation in Texas. So it is a local decision that needs to be taken with everything into consideration.

Well, also I think it's important to highlight that when we look at prices, we also need to look at costs. And even though prices may be slightly lower in the US as you point out, Dan, so are our costs of production-- I'm sorry, Gonzalo-- and so our costs of production. And in fact margins for our cement operations in the US during the first quarter are up vis-a-vis last year, so nothing unusual there.

You had a question on guidance? We'll follow up with you on that with the detail-- specifics that you were not able to get down.

Regarding the question on the closing out of derivatives; yes, as we switch a little more of our US dollar debt into peso debt, of course peso interest rates are higher than US dollar rates. But at the same time, exchange rates moved and so conversion effect, translation effect as we convert the peso debt into US dollars may offset some of that higher interest expense that we may face in the local currency.

But at any event, one of the things that we continue to do was to continue reduce dollar debt. And of course we do have the peso cash flows to support the peso debt that we now have on the balance sheet. I don't know what-- what was the other part of the question that you made, Gonzalo?

No, that was it. Thank you very much.

Your next question comes from the line of Stephen Trent of Citigroup. Please proceed.

Good morning, guys. Most of my questions have been answered. One or two follow ups; with respect to CapEx, if I'm not mistaken for this year, you're saying $600 million total which includes maintenance and expansion? I just wanted to confirm I understood that correctly.

Yes, the maximum CapEx for maintenance and expansion we have is a target of $650 million, which is more or less-- I think it's $400 million for maintenance and $250 million for expansion CapEx which is dedicated to the termination---I'm sorry, $300 million maintenance, $350 million for expansion which this last one is for the termination of some of the projects that we had to start like the case of Panama where the plant is clearly a necessity for the supply of infrastructure projects that are happening in Panama. But it's $650 million. That's the target.

Okay. Thanks, Hector. And with respect to some of these expansion programs, of course, a lot of this has been put off. Can you give us a sense as to your long-term expansion CapEx programs if some of these programs have simply been postponed for a few years or if they're now completely off the books and completely off the shelf?

Well, you know, the current market conditions in most of our markets are really difficult and challenging. So it's very difficult to foresee any continuation of these projects that we postponed. But of course if when we see that the market starts to grow, we will clearly evaluate the contribution of these projects against their impact in our capital expenditures. But for the short term foreseeable future, we will keep our capital expenditures to a minimum in terms of expansion projects.

In fact, we call them like that but most of these capital expenditures are of the type of efficiencies that weren't of course an investment because they produced significant cost reductions.

Okay, great. I appreciate that. And just one last question; I'm looking at page two of your release where you footnote your interest coverage calculation. Could you refresh my memory with respect to the way you guys are calculating that? Is it just a matter that you're still employing inflation accounting or are there certain obligations that you're excluding from that calculation?

No. I mean we calculate the net interest expense and we compare it to the operating cash flow of the Company; so that's basically it. Maybe the only important difference is that instead of using gross interest expense, we use net interest expense because this is the way it's defined in our contractual agreements.

Okay, very clear. Thanks very much, guys.

Thank you.

Your next question comes from the line of Mike Betts of JPMorgan. Please proceed.

Good morning. I have four hopefully brief questions, if I could, please. First one; weaker cement prices in Spain mainly seem to occur in Q1 of this year; there hadn't been much of a fall up to that point. I mean how confident are you that it's just a one-off and not the start of a much weaker trend?

Second question; the additional $200 million of cost savings; do you expect to get all of that in 2009? I think the expectation was on the $700.

Third question; maybe Rodrigo could just clarify just on the tax situation-- the P&L tax charge; do we regard that as just a one-off credit that occurs in Q1 and therefore for the rest of the year, the other three quarters we'll see in the P&L a more normal charge? I'm just-- some of my European companies for example, had given an indication of the full charges-- and the US ones-- as they report individual quarters. So that's really the basis of that question.

And then finally, just on divestments; there have been none in the first four months of the year, pretty much from all of the cement majors-- there have been no major announcements. How confident are you of that $2 billion target now? And maybe you could explain why you think there have been no major divestments so far this year announced.

Okay, in the case of Spain-- there is of course pressure on prices because of the very steep decline in volumes, but this on the other hand rationalization of capacity and imports and that is I guess producing some local stability. But nevertheless, there is also some local volatility that you would expect from the situation.

Now we have to-- as we do in every market, very careful observation of how the situation develops so that we will update you on the next quarter as to whether this is a trend or not.

Do you know how much capacity is being closed, Hector?

Sorry?

Do you know how much capacity is being closed in Spain?

Not-- I don't have the market data but I can tell you in our case, if you give me a second, we have reduced the clinker capacity by about 20-something percent-- 24%; that is two out of 15 kilns that have more than six months closure programmed. And most likely for this year it will reach about 30% reduction in clinker capacity.

In terms of the ready-mix plant, we have shut down around 18% of our volume of capacity in ready-mix.

Okay.

In terms of the $200 million in additional savings that we have targeted, this we expect to achieve in full in '09. Now this $200 million are derived from two sources. One is the overshooting of some of the cost efficiencies that we achieved on the $700 million list of initiatives that we put in place over the last quarter of last year. And the other source is the fact that we have said, we are experiencing steeper declines in terms of volumes so we had to right-size further some of our operations. And so that's the origin of-- the sources of the $200 million in savings; again, as I said, we expect to achieve in full in 2009.

Okay.

Now there's another question for Rodrigo--

Yes, regarding the taxes, clearly when you have high volatility there is likely to be a one-off effect in any given quarter, as we had or in any one given year, as we had last year and we had this first quarter. And so it's difficult to forecast what's going to happen going forward and so therefore what the impact is on our taxes for both the income statement as well as cash taxes.

Now the divestment question Mike; the fact is that as we all know, the current environment is very challenging in that respect. What I'd like to say though is that we keep clearly our intention to deleverage the Company as much as we can and as fast as we can. And so, we will keep that target going as much as we can.

Okay, one follow up question which could be either to you or Rodrigo; and you may not want to answer at this stage; but your interest costs-- as you're talking about the refinancing, is that going to be very much linked to the amount of debt outstanding? Will there be various ratchet layers where the cost of debt comes down? Will you have any encouragement to do divestments as part of that process?

Well, we cannot give you details on the refinancing that will be the subject of conversations with the banks over the coming weeks. Of course when we have a comprehensive solution, we'll communicate that. The cost of the extension so far has been in line with our weighted average cost of borrowing for both dollars and pesos. The actual cost of whatever comprehensive solution will be communicated when it is finally put in place. So unfortunately we cannot give you much more detail than that at this point in time.

I guess it is important to highlight again that most of our debt, close to 90% of our debt, is at a floating rate, and so we do benefit from the lower base rate. And to a very large extent, this has helped us to offset whatever increase in the weighted average spread that we're paying on our debt has been.

Okay, thank you very much.

Thank you, Mike.

Your next question comes from the line of Jack Kasprzak of BB&T Capital Markets. Please proceed.

Thanks, good morning. I thought I heard you guys say with regard to cement pricing in the US, to an earlier question, that there was some weakness in Florida and California, I suppose not surprisingly, but improvement in Texas. Is that-- did I hear that correctly? And if so, what's happening in Texas? Was there a price increase or was it just due to some mix shift-- if you could elaborate?

Well, I would have to follow up with you in terms of that increase; it's a relatively small one-- it's a 3% increase in the mix of our Texas operations. But I mean it could be several reasons-- we will follow up with you, to that. But there's not a major increase. The fact that I was trying to point out was that we have different behaviors in different markets so it's difficult to ascertain a particular behavior in general in the United States.

Okay, that's helpful; thanks. And secondly, the SG&A expense in the quarter of $719.5 million is that-- you've announced some additional cost savings, so can we assume that on a dollar basis, throughout the rest of '09, SG&A expense can come down some more from that level in the first quarter?

Well, I think what is important here are two things. One is that yes, while everything that we're doing in terms of cost savings, includes of course SG&A; but this is happening in different parts of the world, so there are some currency fluctuations. But as a percentage of sales, SG&A went down from 21% in the first quarter of '08 to 20% in this quarter, so I think that that trend, even though we're losing economy of scale in our operations, in our system; we're still getting this savings and we trust, as I was mentioning earlier, that we will achieve the full $900 million of cost savings. Of course some of it comes from downsizing-- the rightsizing of the Company, that we will achieve those along the year in 2009.

Okay. Thank you very much.

Thank you, Jack.

Your next question comes from the line of Nicolas Godet of Exane. Please proceed.

Yes, good morning. I have three questions, please. The first one; when you talk about your cost cutting, you're targeting $900 million. This is close to six points of margins. When we look at your peers, they are much more targeting like two points margin. So what is the difference between you and the other guys? I mean I think they are closing capacity as much as you're doing, so what is the X factor you can cut that they're not cutting? That is my first question.

My second question regards refinancing. We're talking about your refinancing meeting with your bankers, but you don't mention the possibility of a capital increase, in spite of your high leverage. Is that something that you would exclude-- doing a capital increase? That's my second question.

And the last one is on the volume trends. I mean you had very strong volume trends in the Middle East in Q1. I would just like to understand if this is continuing in April-- have you had a good month in April in the Middle East as well? Thank you.

Well, I'm inclined to ask you-- what do see in the differences between us and our competitors in that respect? Because we know what we do, but it's very difficult for us to tell what they do. We know that we look everywhere. We don't leave any stone unturned, as they say and we keep looking. And it's been always part of the culture of this company and I don't know if we've talked about this, but you know this program we call internally Global PMI; and it's-- what we said is let's look at this company as we would if we had just acquired it and see what we can extract in terms of value, additional value. And that's the way we do it. Other than that, I can give you very little else in terms of comparison.

And could you remind us how much you have achieve in Q1 already of the $900 million?

Well, it's difficult to say, because of the differences in volumes, but it is significant to say that we have achieved in terms of cost of goods sold, a decline of four percentage points in terms of sales. And this is mostly in fixed cost, which declined again as I said, four percentage points as a percentage of sales.

Okay, but you couldn't quantify the impact-- the remaining impact of the $900 million for Q2, Q3 and Q4?

Well, one of the things that would be difficult to account today-- it would be because of the different exchange rates in different places. But if you measure it as a percentage of sales, then you can eliminate that distortion and I think that is a significant figure.

Okay. Thank you.

Now regarding your question on refinancing; of course we don't discard anything. But I think it's important to highlight that we have historically had a high conversion rate of operation cash flow to free cash flow and that free cash flow to a very large extent has stayed in the Company and can be used to pay down debt and we will use to pay down debt, and also of course we have significantly cut our CapEx program for last year, more than $2.2 billion to $650 million, so that also releases more of the free cash flow to pay down debt. And so organically, we know that we can regain our financial flexibility in a reasonable period of time, but of course we want to gain our financial flexibility as quickly as possible; and that is why we will continue with the previously-announced asset disposal program and hopefully regain our financial flexibility much sooner than what organically would allow us to do.

Your last question-- if you could repeat if for Hector; I think it had to do with volumes?

Well, I guess you had very strong volumes in the Middle East in Q1. Do you still have those strong volumes in the month of April?

Well, this is-- in terms of cement, we only have Egypt in the Middle East so it is certainly something that is happening. We have significantly increased; mostly it comes from investment in the commercial sector. We have increased our guidance in fact from 1% to 8% this year because we see the market reacting both to private residential and also public investment that are coming on stream.

So good private investments; okay, thank you very much.

Thank you, Nick.

(Operator Instructions). The last question comes from the line of [Alejandro Alucia] of Credit Suisse. Please proceed.

Hi, thanks a lot for taking my call. First of all, I wanted to ask the $417 million that was turned into debt; was that completely financed by short-term promissory notes? That's my first question.

My second question; can you give us a number for your outstanding amount of short-term promissory notes?

And lastly, I believe you have-- I think at CEMEX Day you gave that CEMEX Espana has a 15% permitted level of assets that could be used as guarantees of debt and you said that you were below 8%. Is that number still good or has that number increased? Thanks.

Yes, the closing out of our derivative positions was documented primarily through promissory notes and the amount of promissory notes after closing out all of the derivative positions through April was $417 million. That's correct.

The last question you asked on whether we had more-- less debt as a subsidiary than 8% of the total assets of CEMEX Espana continues to be the case. It is correct and I'm sorry, you had another question there.

Yes. What is the outstanding amount of short-term promissory notes?

Well we had maturities for '09 in the order of $4.1 billion for the full year and of course we're now sitting down with our bank to look at the short-term nature of our maturities and to refinance some of these short-term maturities. Once we have a comprehensive solution that we intend to put in place, of course we will communicate it to the market.

And sorry, just one follow up; these short-term promissory notes; they're all basically at CEMEX Mexico, right?

No. They're primarily in CEMEX Espana.

CEMEX Espana, okay.

Well yes because many of them have-- are related to the acquisitions of both Rinker and the RMC Group which originally were financed for the medium and long term, but of course now they're coming due toward the end of the year.

So these-- so the $417 million of short-term promissory notes; those are actually at CEMEX Espana, then?

Yes, that is correct. The closing out of derivatives is not a CEMEX Espana. The closing out of derivatives is on the Mexican side of the balance sheet. That is correct.

And there is no additional sort of guarantees with that closing out of the debt?

What do you mean additional guarantees?

For the $417 million, there is no debt additional debt related to--

Well we maintain the equity derivatives that we have in place and of course we'll maintain those going forward.

Alright, thank you very much.

Thank you.

Thank you.

This concludes are question-and-answer session today. I would like to turn the call back to Hector Medina for closing remarks.

Thank you very much. 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 you all.

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