Cemex SAB de CV (CX) 2009 Q2 法說會逐字稿

Good day, ladies and gentlemen and welcome to the second-quarter 2009 CEMEX earnings conference call. My name is Lacey and I will be your coordinator for today. At this time, all participants are in 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 would now like to turn the presentation over to your host for today's call, Mr. Hector Medina, Executive Vice President of Finance and Legal. Please proceed.

Thank you. Good morning and thank you for joining us for our second-quarter conference call. I will briefly review our second-quarter results and will share our outlook for 2009. Then our CFO, Rodrigo Trevino, will follow with a discussion of our financial results.

During the second quarter of 2009, we continued to face a challenging business environment. While the overall trade markets have improved considerably, lending standards for mortgages and real estate in general have been tightened creating a headwind for growth in the residential and industrial and commercial sectors.

Second-quarter 2009 results compared negatively with those of last year. This was primarily 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.

As a consequence of the drop in the residential and industrial and commercial sectors in several of our markets, we are seeing a favorable rotation towards infrastructure spending, which is now the biggest contributor to growth in our operations. Infrastructure spending tends to be more stable and it has a countercyclical stabilizing effect. Spending in this sector is a function of both ongoing infrastructure needs, as well as fiscal stimulus programs currently being rolled out in most of our markets.

During the first six months of the year, and on a like-to-like basis for the ongoing operations, consolidated domestic cement, ready-mix and aggregates volumes were down 17%, 24% and 23% respectively. Adjusting prices to foreign exchange fluctuations during the first half of the year, consolidated prices increased by 4% for domestic cement, 2% for ready-mix and 1% for aggregates. Because of the weakening of several currencies versus the US dollar, consolidated prices for cement, ready-mix and aggregates declined in US dollar terms by 11%, 14% and 14% respectively also during the first half.

For the full year 2009, we now expect EBITDA to be about $3.1 billion at the currently prevailing foreign exchange rates. This new estimate reflects our expectation for lower volumes, predominately in the US and Spain. Similarly, we now expect free cash flow after maintenance capital expenditures to reach $1.6 billion during the year.

CEMEX will continue to pursue its disciplined efforts to regain its financial flexibility through different strategic initiatives, including, first, the divestment of non-strategic assets. On this topic, as we announced on June 15, we have reached an agreement to sell our Australian operations to Holcim Group for approximately AUD2.02 billion subject to the fulfillment of various closing conditions.

With regards to our Austrian and Hungarian assets, on July 1, we received notice from Strabag SE that it was withdrawing from the share purchase agreement signed on June 30, 2008. The agreement is for the sale of CEMEX Austria and CEMEX Hungary to Strabag for a consideration of EUR310 million. The agreement contains a termination date of June 30, 2009 and the Cartel Court issued its decision before that deadline. But Strabag and the competition authority filed an appeal. Once the appeal is resolved, we will determine our next steps.

Second in our list of different strategic initiatives is the implementation of $900 million in recurrent cost savings. Third is the rationalization of our maintenance and expansion capital expenditures to a maximum of $650 million for this year. And fourth is a reduction of our total debt and the improvement of our debt profile. We are currently working with our banks and private placement note holders to extend repayment in relation to close to $15 billion in debt and provide for a revised maturity schedule running through February 2014 with periodic amortizations prior to this date.

Based on discussions to date with our creditors as of today, creditors representing more than 90% of the debt that is supposed to be refinanced have given us indications that they would support the refinancing plan. We intend to move directly to the documentation execution phase of the refinancing plan and as you will appreciate, for the documentation to become effective, this will require the satisfaction of various conditions, which are customarily required for transactions of this kind, including acceptance by all of our creditors under the proposed refinancing plan. Rodrigo will provide more details on this effort later in this call.

Now I would like to discuss the second-quarter performance of our principal markets and our outlook for these markets for 2009. In Mexico, our cement volume decreased by 1% and ready-mix volume decreased by 8% during the second quarter. For the first six months of the year, demand volume increased by 1% and ready-mix decreased by 2%.

Infrastructure continues to be the most active sector in our Mexican business, contributing to the above-trend performance of our volumes in the first half of the year. According to INEGI, infrastructure spending increased more than 30% in real terms during the first quarter. For the full year 2009, infrastructure spending is expected to increase by about 20%, driven by the national infrastructure plan and other programs announced last year. These include the program to promote growth and employment, which is expected to allocate about 27 billion pesos for cement-intensive infrastructure projects and the national agreement to promote harmony, well-being and employment, which allocated 14 billion pesos for state infrastructure and 17 billion pesos for PEMEX infrastructure.

Despite the fact that the CONAVI, the official housing authority, expects investments in the overall formal residential sector to increase by about 6% from 281 billion pesos last year to 297 billion pesos this year. Investment in new housing is expected to drop by about 12% during this year. This is due to more spending being directed towards the purchase of existing homes and renovations.

The number of residential mortgages granted by INFONAVIT decreased by 17% during the first half versus the same period last year. Commercial banks increased their mortgage financing by 5% during May on a year-over-year basis, while Sofoles are sharply decreasing their mortgage financing due to lower liquidity, higher delinquency levels and an increase in funding costs.

The formal residential sector is expected to be relatively flat during the year. Although remittances to Mexico are expected to decrease by about 10% in US dollar terms during the year, in real peso terms, they are expected to grow. In addition, there is a modest shift from the formal to the informal residential sector as credit restrictions continue.

Our ongoing efforts to implement our continuous improvement initiatives in Mexico to reduce costs and SG&A resulted in a stable EBITDA margin. In addition, we continue with our efforts to minimize CapEx and implement deficiencies in working capital to maximize our free cash flow.

We see cement volumes declining by about 3% during 2009 and ready-mix volumes are now expected to decrease by about 8% during the same period as ready-mix consumption has a higher exposure to the formal residential sector.

In the United States, cement sales volume fell 37% during the second quarter versus the same period in 2008. Ready-mix volume decreased 45% during the period and aggregates volume fell 40%. For the first half of the year, our cement, ready-mix and aggregates volumes declined by 35%, 43% and 40% respectively.

Prices have also been affected, although to a much lesser degree than volumes. Cement prices for the first half of the year declined 5% versus the same period last year. Despite the severe drop in volumes, we have noted continued resiliency in prices as evidenced by the modest sequential drop in cement prices of 3%. This is primarily driven by pricing weaknesses in our western region.

The public sector, which has been more stable than the residential and industrial and commercial sectors, is expected to represent about two-thirds of cement consumption this year. From January to May 2009, public construction spending was 5% higher in nominal terms while street and highways construction was flat compared with the same period last year.

Public spending is expected to improve in the second half of this year as a result of the $85 billion in public infrastructure stimulus funding. Out of the $85 billion, $27 billion has been earmarked for highways 60% of the money allocated for highways was approved for spending as of the end of June, 12% of projects underway and about 50% are in the beginning stage. We estimate that CEMEX's estate accounts for approximately 55% of the total highway funds available.

Highway contract awards were up 12% during the second quarter and 34% during the month of June on a year-over-year basis. Additionally, $144 billion have been earmarked in aid to the states to help stabilize their fiscal conditions. This should ensure that more of the federal stimulus funds would go toward incremental projects.

In addition, the six-year SAFETEA-LU highway program expires this September. There is the possibility that the program will be extended by 12 to 18 months at current funding levels. The House Transportation and Infrastructure Committee is proposing a $500 billion, six-year transportation program. This represents an increase of 74% over SAFETEA-LU.

Tight credit conditions and uncertain economic environment continued to negatively affect the industrial and commercial sector during the quarter. During the first five months of the year, industrial and commercial construction in nominal terms was 4% below that of the same period in 2008. Contract awards, a leading indicator for construction activity, declined 61% during the first five months of the year, but have been stable since February. Manufacturing and power generation projects have continued to partially mitigate the drop in industrial and commercial construction activity.

The residential sector continued to contract this year. Housing starts were down by 48% during the first half of the year and nominal construction spending was down 35% from May compared with the same period last year. However, it appears that the markets have found a bottom with housing starts at about the 500,000 level with June housing starts 10% above those in the first quarter.

Additionally, we are encouraged by the recent uptick in the Case-Shiller Home Price Index of 20 major cities, which yesterday posted its first sequential month-over-month increase in three years and has been declining at a slower pace on a year-over-year basis.

Improved housing affordability is leading to higher existing home sales. Overall inventories have shown signs of the stabilization despite historic levels of foreclosures with the June existing home supply dropping to 9.4 months from 9.8 months in May.

As part of our cost-cutting and cost-reduction initiatives in the United States, we have closed four cement kilns, 38% of our ready-mix plants, 49% of our block plants and 27% of our aggregates quarries. In September 2008, headcount in the country has been reduced by 25%. We expect that when the US market turns around, the current operating leverage will be a very positive element for fueling profitable growth.

For 2009, we now expect cement volume to decline by about 25% to 30%, ready-mix volume to decrease by about 38% to 43% and aggregates volume to decline by about 33% to 38%. These estimates assume some benefits from the fiscal stimulus program.

In Spain, during the second quarter and on a like-to-like basis for the ongoing operations, cement and ready-mix volume decreased by 35% each while aggregates volume decreased by 36%. For the first half of the year, also on a like-to-like basis, cement, ready-mix and aggregates volume decreased by 41%, 43% and 41% respectively. Cement consumption in our markets continued to fall at a rate faster than that of the overall market during the quarter as a result of lower construction activity, especially in the Central region, Levante and Baleares, which have shown above-average growth in previous years.

Despite the significant volume decline in our cement business, prices in Spain have remained resilient as demonstrated by the 7% drop in euro terms during the first half of the year. We have also experienced firm pricing conditions in our aggregates business as evidenced by the 3% increase in euro terms for the first half.

The residential sector continues to contract. Housing starts declined by 57% during the first quarter of 2009. For the full year, housing starts are expected to decrease to about 150,000 from 360,000 in 2008. Investment in the residential sector is expected to fall by about 23% during 2009.

Although housing prices have decreased by about 7% year-over-year, the decline, which is still low compared to countries like the US and the UK, is still not enough to reactivate this sector. The industrial and commercial sector has been affected by lack of confidence and tight credit conditions year-to-date. However, recent improvement in confidence is expected to lead to a reversal in this trend. We now expect the industrial and commercial sector to remain flat in terms of construction activity versus last year. The infrastructure sector has been relatively stable.

Looking forward, while Spain has announced an EUR8 billion stimulus program, we have yet to see any meaningful spending so far.

As part of our cost-cutting initiatives, in Spain, we have temporally closed about 58% of our cement capacity and 32% of our ready-mix capacity. Working capital optimization initiatives have also been carried out in the aggregates business. For the full year 2009 and on a like-to-like basis adjusting for the sale of our Canary Islands operations, cement and ready-mix volumes are expected to decline by about 30% to 35%.

In the United Kingdom, cement, ready-mix and aggregates volumes decreased by 25%, 29% and 25% respectively during the second quarter. During the first half of the year, our cement, ready-mix and aggregates volumes decreased by 23%, 28% and 24% respectively versus the comparable period in 2008.

For 2009, we continue to expect weakness across all of our business segments. We see cement, ready-mix and aggregates volumes decreasing by about 15%, 22% and 17% respectively.

In France, volumes in our ready-mix operations fell 18% during the second quarter and during the first half of the year versus the comparable periods in 2008. Investment in the residential and industrial and commercial sectors decreased during 2008 by 22% and 25% respectively.

During the first half of 2009, both sectors have started to reduce their rate of decline with investment in the residential sector declining by 19% and investment in the industrial and commercial sector dropping by 16%. The infrastructure sector is still the main driver for volume growth in the country. And while there are some infrastructure projects in the pipeline for the year, timing for execution of these projects is still up in the air. In light of the above, we now expect ready-mix volume for the full year 2009 declining by about 15%.

In Germany, our domestic cement volumes decreased by 18% during the second quarter and by 21% during the first half of 2009 versus the comparable periods last year. Residential permits declined by 9% in April, maintaining their trend over the last 10 months as homebuilders remain cautious despite low interest rates. Permits in the nonresidential sectors declined 25% during the month of April on a year-over-year basis reflecting the cancellation and delay of some projects as companies have reduced capital expenditures.

The infrastructure sector is expected to reverse its downward trend during the second half of the year as a result of the initiation of projects under the stimulus program. About EUR14 billion out of a total of EUR50 billion announced for the program are planned to be spent on infrastructure-related projects during 2009 and 2010. There have been delays in some projects however. Now we expect 25% of the stimulus funds to be disbursed in 2009 versus 40% previously.

For 2009, we now see our domestic cement volume declining by about 14% to 15% in Germany.

In Eastern Europe, namely Poland, Croatia, the Czech Republic and Latvia, domestic cement consumption decreased by 18% during the second quarter and by 26% during the first six months of the year.

The decline in confidence and tight credit conditions is propelling a sharp decline in the private construction segment. Additionally, cofinancing challenges -- challenges in the implementation of EU's structural funded projects are also restraining infrastructure development. We expect these problems to gradually resolve in the coming months, especially in Poland and the Czech Republic. This should lead to growth in infrastructure that will naturally compensate the decline in private construction.

In Colombia, cement volume in our operations declined by 8% during the quarter and by 11% during the first half of the year as a result of the more difficult economic conditions. The infrastructure sector is expected to be the main driver of cement consumption during the year. Spending in the sector is estimated to be 22% higher than last year in nominal Colombian peso terms. Colombia announced a stimulus plan of close to $23 billion at the year-to-date average exchange rate. As of May, about 34% of this program has been awarded, but the main infrastructure projects are not expected to begin until the second half of 2009.

The formal residential sector has benefited from a subsidy in interest rates for new home purchases, which started in April and its effect will be felt mainly during the second half of this year and the first half of 2010. In addition, the government has initiated several low income housing projects.

The industrial and commercial and self-construction sectors will likely remain weak, reflecting the decline in economic activity and higher unemployment rates. Overall, in Colombia, we expect a decline of about 6% to 8% in domestic cement volume for 2009.

In Egypt, domestic cement volume increased by 21% during the second quarter and by 19% during the first half of the year versus the comparable periods in 2008. The decrease in prices from building materials, especially steel, has fueled the construction sector. The informal housing and infrastructure sectors are the main drivers of cement demand. We now expect cement volume to grow by 9% to 10% in 2009.

In response to the challenging times we're facing and as I mentioned at the beginning of the call, we are first and foremost committed to significantly reducing our debt level. We will accomplish this through 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 on this call. Our performance during the second quarter was affected by the continued general slowdown in the global economy. 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 major markets except the US and Spain.

In addition, our results expressed in US dollar terms had an unfavorable effect due to the depreciation of the many currencies of the countries in which we operate. On a like-for-like basis, that is adjusting for currency effects, expropriation of our Venezuelan assets and the divestment of our Canary Island assets, EBITDA was down 27% during the quarter and down 17% for the first half of the year.

EBITDA margin for the first half of the year has remained relatively stable. It was 19.7% in the first half of 2008 and 19.4% in the first half of 2009, reflecting our cost-reduction initiatives, which contributed to mitigate the effects of the significant volume declines.

The increase in cost of sales and SG&A expenses as a percentage of sales during the quarter is the result of lower economies of scale, especially in the US and Spain. This effect was partially mitigated by our cost-reduction initiatives. SG&A as a percentage of sales increased sequentially from first to second quarter mainly as a result of a one-time reversal of the reserve for variable compensation, which positively contributed to our first-quarter results.

During the quarter, our free cash flow after maintenance capital expenditures reached $456 million, 38% less than last year, mainly as a result of lower EBITDA, which was partially offset by lower maintenance CapEx, lower interest expense and lower taxes. For the first half of the year, free cash flow after maintenance CapEx was $560 million. We expect free cash flow for the full year to reach $1.6 billion. This implies higher free cash flow generation during the second half of the year, which we expect to achieve through higher EBITDA generation during this period, as well as lower investment in working capital.

Regarding one of our most important input costs, during the first half of the year, our kiln fuel and electricity costs on a per ton of cement produced basis declined by 13% versus the same period last year. We continue to develop new ways to lower our energy input costs and to make them more predictable. We remain committed to increasing the use of alternative fuels in our operations and we continue pursuing clean development mechanism projects such as the wind-driven 250 megawatt power plant in Oaxaca, Mexico.

During the quarter, we recognized an exchange gain of $81 million, mainly as a result of the appreciation of the Mexican peso. We also recognized a loss on financial instruments of $5 million reflecting the closing out of most of our derivative positions, which was offset by gains on our equity derivatives.

As we mentioned in our first-quarter conference call, we closed most of our derivative positions by April. In addition, during June and July, we closed out the cross-currency derivative embedded in our perpetual securities. As a result of the unwinding of these derivatives, we received $94.3 million on behalf of the investors, which will be used to partially pay future coupons on the perpetual securities. All of our perpetual securities will now have coupons that are fixed in either US dollars or euros.

The income tax line shows an expense of $4 million for the quarter and a positive contribution of $194 million for the first half of the year. This positive effect results primarily from expected tax losses in many of our operating jurisdictions due to reduced operating results combined with local foreign currency losses.

In the second quarter, our majority net income decreased by 58% to $187 million. The decline was due mainly to lower operating income, partially offset by lower losses on financial instruments and the deferred tax benefit. Addressing our refinancing plan, we are working with our banks and private placement noteholders to extend repayment in relation to close to $15 billion.

As we are in the final stages of completing our refinancing plan, we are limited in the amount of detail that we can provide today. However, upon execution of the refinancing agreement, we will be hosting a dedicated communication to fully outline the terms and conditions and the consequences of the refinancing. At that time, we will be more than happy to entertain as many questions as needed. As such, today, we kindly ask you to limit your questions in this regard.

The proposed terms of this new facility include a revised maturity schedule running through February 2014 with periodic amortizations prior to that date. It is important to know that proceeds from the sale of our Australian assets, plus expected free cash flow generation, cover about 80% of our required amortizations through June 2011 and thus, we may be required to engage in additional asset sales or refinancing over the next couple of years. But we expect to accomplish this in an orderly manner.

A revised covenant package will put additional limits on investments in fixed assets or acquisitions and will have other restrictions. The objective of these covenants is to maximize our free cash flow and to apply it to reduce debt as quickly as we can in order to regain our financial flexibility and eventually our investment-grade capital structure.

As Hector mentioned earlier, based on discussions to date with our lenders as of today, creditors representing more than 90% of the total debt that is proposed to be refinanced have given us indications that they would support the refinancing plan. In connection with our refinancing plan, we currently have in place a conditional waiver and extension agreement and also lenders have agreed to temporarily suspend covenants. Both of these elements currently expire on July 31 and were put in place to provide us with the needed time to achieve a comprehensive refinancing plan.

Given the progress made and the fact that we need additional time to accomplish and satisfy the condition's precedent and all other legal requirements, we are requesting an extension of both the conditional waiver and extension agreement and the agreement to suspend covenants to allow for the refinancing agreement to become effective.

During the quarter, we also issued, under our Certificados Bursatiles program, short-term notes with a partial guarantee of the Mexican government through NAFIN. The outstanding amount of these notes was 863 million pesos at the end of the quarter. Additionally, on July 16, securities were issued in an amount of 2.2 billion pesos through the securitization of accounts receivable of our Mexican business units. To fund this transaction, a trust issued receivable back bonds maturing on December 29, 2011. Most of these proceeds were used to replace the previous account receivable program.

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

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 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. Lacey?

(Operator Instructions). Carlos Peyrelongue, Merrill Lynch.

Thank you, good morning, gentlemen. Two questions if I may. The first one with regards to free cash flow, can you give us an idea of your total CapEx for this year and the free cash flow estimate after expansion CapEx please? And the second question, if you could give us some color on what you expect for prices in the US and Spain this year. Thank you.

Thank you, Carlos. For CapEx, total capital expenditures for the year are to be not more than $650 million. We have significantly reduced the expansion CapEx to allow only for those -- for the termination of projects that make economic sense in the very short term. And of course, we reduced our maintenance capital expenditures to compensate, of course, for the fact that we have closed production capacity in many markets, the US and Spain mostly, because of the significant reduction in volumes. So we estimate that the free cash flow after maintenance capital expenditures to be $1.6 billion for the full year 2009.

So the $1.6 billion is already after expansion CapEx?

After maintenance capital expenditures. It is not after expansion CapEx.

Okay. Can you give us an estimate of what will be expansion CapEx this year so out of the $650 million?

It is about $350 million. So the total free cash flow after expansion CapEx would be around $1.2 billion.

Okay, great. And the second one on prices for the US and Spain?

Well, as we have indicated, looking at resilience in prices in the US, as indicated by the fact that we have gotten only marginal increases in sequential prices in most of our markets, of course, there is the effect of pricing mix and geographic mix of the total average prices. So reductions in some of our markets are motivated by the fact that infrastructure spending is growing and some infrastructure projects have lower prices or have contract prices that have remained fixed for the contract period. So I would say that the price situation is both somehow a factor of -- or influenced by the factors of geographic mix and product mix. Now we expect prices in the US to remain more or less at the same level.

In the case of Spain, the fact that volumes have declined so rapidly have affected prices. Our industry continues to be under a very difficult scenario. We expect prices to suffer a little bit more, but still we are seeing some resiliency also in prices in Spain.

Thank you very much.

Vanessa Quiroga, Credit Suisse.

Hi, good morning and thank you for the update. One quick clarification, please. Rodrigo, you commented about having enough resources to cover 80% of your amortization through June 2011. Would that be only with the proceeds from the Australian sale or are you including free cash flow? And my second question would be if you have any sense of the timing of when you will receive the cash from the Australian sale. And my third question would be about your savings program and synergies. How much of the total of $900 million should we expect to cut to be reincorporated in the Company's cost structure when the recovery -- when we are in a scenario of recovery? Thanks.

Yes, thank you for your questions, Vanessa. Let me take the first one. The estimate of being able to cover 80% of the amortization -- the new amortization schedule on the proposed refinancing plan through June 2011 includes both the proceeds from the sale of Australia and the proceeds from free cash flow to be generated from now until then. This was a very important element of the refinancing plan because we needed sufficient time to allow for our operations to begin to recover and to benefit from the operating leverage that clearly has affected us on the way down and will benefit us during the recovery as well. But also to give us sufficient time to sell some of the non-core assets that we continue to intend to sell, but we want to achieve in an orderly manner at the right price. And so we believe that, with the new amortization schedule, given the fact that we have sold the Australian assets and given the business plan for the Company to generate free cash flow, we will have sufficient time to do all the things we need to do in an orderly fashion in order to recover our financial flexibility and our capital structure in the medium term. Let me turn it over to Hector for the other two questions.

Thank you, Vanessa. In the case of the Australian sale, we expect to close the transaction between September and October. Now this is our estimate today. This, of course, may change as conditions precedent are being closed. So we would expect to receive the proceeds from the sale around September, October as we estimate now.

In the case of our cost-savings initiatives, we have achieved about half of the $900 million up to date. So we are on track to achieve the $900 million for the full year as we have initially stated. Now how much and when of that cost savings will find its way back into our cost structure when the recovery starts is more difficult to say, difficult to say up to what level. What I can assure you is that we will, of course, keep as much of the -- if not all of the efficiencies that we have achieved. Of course, as the recovery gets in, we will have to increase our volumes and so some of our fixed costs will have to increase. But certainly we hope and we will make sure that this is as little as possible.

Okay, thank you, Hector and Rodrigo.

Gonzalo Fernandez, Santander.

Yes, hi, good morning. I have two questions. On the operating side, you reported a negative operating margin in the US during the first half. Do you expect to reverse that or at least do you have a level of revenues that can provide breakeven in operating profit in the US and do you expect to achieve that this year? And the second question would be on the debt, 80% of the debt is a variable rate. This has benefited because reference rates are very low now. But are you planning to use the (inaudible) in the future to kind of log the rates or fix (inaudible) if we see the trend in rates reversing? Thank you.

Let me take the second one first on the floating versus fixed interest rate strategy. Yes, a very high percentage of our debt is at a floating rate, but do consider that 100% of our perpetual securities, which in total aggregate are close to $3 billion, now have coupons that are fixed rate. Whereas prior to closing out the embedded derivatives for floating rate and they were exposed to volatility on the yen rates and we know longer have that exposure and I think that is an important consideration from the shareholders' perspective as you look at our capital structure as a whole.

We closed out most of the derivatives on interest rates that we had in place to protect us against the potential rise in interest rates during the rest of this year and next year. As you know, during the month of April, given the fact that we entered into the negotiations with the bank to refinance the debt and of course, maintaining those derivative positions open, have the impact of potential margin calls and calls on liquidity and we wanted to preserve liquidity.

We will monitor the market going forward. We like the mix of floating versus fixed that we have today, but we will look for the opportunities to hedge and reduce the exposure to floating rates in the future. We don't have a decision in that regard and when we make a decision and begin to implement it, we will communicate it.

Now let me go through the US operating profit situation. We expect Gonzalo the second half in the US. As we mentioned, we will at least have some of the benefits of the stimulus package and infrastructure spending. And that, as prices remain resilient and as we still are progressing in the cost-reduction initiatives that we will begin to have a positive contribution in the second half of the year and because our EBITDA is also positive. So yes, we expect to recover some of the ground in the second half.

Okay. Just a quick follow-on. Your free cash flow estimate includes the proceeds of the securitization of receivables seen in Mexico, right?

Yes, that is correct and that will have a positive contribution in the free cash flow for the second half of the year as you would expect.

Thank you, Hector and Rodrigo.

Nicolai Sebrell, Morgan Stanley.

Good morning, gentlemen. Three questions. If you could first talk about your deleveraging outlook in terms of what goal you are aiming for either in a net debt to EBITDA ratio or however you think about it and then timing to get there, whether it is 2011, 2012. The second question, if you could discuss the Spanish price weakness. So I mean it sounds, in the US, there was a mix shift, there was a little bit something to do with government contracts, etc. In Spain, was it is a similar effect that led to the price decreases or was it competition or was it imports or was it something else?

And then the last question, the cement capacity, production capacity that you are shutting down, what is the conditions of those plants after you shut them down? In other words, do you mothball them so they can be reactivated quickly or is it more of a long-term shutdown?

Yes, on a capital structure targets, as we have stated in the past, our steady-state target for net debt to EBITDA is 2.4 times. If you include the perpetual securities and other obligations, the fully loaded or adjusted, if you will, net debt plus these obligations to EBITDA, steady-state target is 3.5 times. Clearly, now we are going to take longer to get there, but we do want to get back to that level as we intend to recover our investment-grade capital structure. And that is the objective.

3.5 -- the difference between the 2.4 and 3.5 is that 3.5 includes the perpetuals, yes?

Yes, that would include the perpetual securities and other obligations that are not included in the calculation.

Certainly, we will be able to talk about that in more detail when we are able to tell you all the details about the refinancing program.

Understood.

Now for the Spanish prices, yes, perhaps the most significant factor in the pricing situation in Spain is the fact that still, from 1/5 or 1/6 of the volumes, are imported cement volumes and that, of course, puts pressure on the pricing situation in Spain.

As for the cement capacity, it is, as we mentioned, a temporary shutdown. Our plants are ready and of course, staggered in case volumes come back to be online immediately.

Okay, thank you.

Diego Torres, ING.

Good morning. I do have two questions. The first one is, when you mentioned that 90% of the bank's creditors gave positive indications to support the debt extension plan, that 90% represents close to $13.5 billion, is that correct? And my second question is for how long do you request it to extend the debt extension agreement that expires on this Friday? Thank you.

Yes, I mean to answer your first question, yes, we have positive indications that would lead us to believe they will support the refinancing plan for debt representing more than $13.5 billion so far. And we will request an extension sufficient to allow for the refinancing agreement to become effective and we hope that that will be accomplished in the very short term.

Perfect. But there is no specific date so far?

No.

We can say is what we said that we are preceding through the documentation execution phase. So you can imagine there are some conditions that have to be met and so that is why the sense of the date is a very short time.

Perfect. Thank you.

Michael Betts, JPMorgan.

Yes, good morning. I've got three areas of questioning if I could. First, I would to just ask on the US. I mean I was a bit surprised the magnitude of the falls that you are forecasting for the year given that, as you go into the second half, the base is somewhat easier and the Portland Cement Association is only forecasting I think about minus 17 at the moment for the year.

I mean does that basically mean that you don't really expect any improvement even with stimulus or maybe housing in the second half? It is more 2010 that you would expect to see that improvement? And I think, Hector, you highlighted the operating leverage. You didn't actually give any kind of numbers. Are you willing to give any kind of numbers as to what the operating leverage would be as the first volume increases come through? I guess I am thinking of what sort of Vulcan and Martin Marietta have said in terms of they expect that 50% to 60% of their additional sales to come through.

My second question I guess is probably for Rodrigo. Rodrigo, you talked about the fuel costs being down 13% in the first half. I think the original expectation for the year was minus 11%. Is that that it has just been brought forward into the first half or is there now more to come for the year?

And then finally still on cost savings, could you -- and I apologize if you have given this before, but I have to admit I have missed it -- could remind me what the actual cost of achieving the $900 million of savings is this year? And also is that split pretty evenly between the two halves or is more of that in the first half? Thank you.

Well, I mean in the case of the US, we certainly are looking at deeper and faster erosion in industrial and commercial construction than we had originally anticipated and that comes on the heels of the tighter credit conditions and the economic outlook that is very uncertain.

Now as residential construction continues to be very depressed, we are, of course, as I mentioned in the initial remarks, looking at some signs of this hitting bottom. But certainly there is uncertainty as to whether that is going to pick up in the first of the year. And then there is the fact that over this part of the year, the first part of the year, the stimulus package has a very, very small, if any, impact. So we would assume that if you put all these components together, although the stimulus package would pick up -- would contribute to compensate the steeper fall in industrial and commercial construction and also the residential construction, that the volumes would still be very, very depressed on the origin -- in all the segments.

So the fact also that we have presence in states that were hardest hit in terms of the housing crunch, then what that means, of course, we have lower volumes in our geographies than the average that takes into consideration the fact that the PCA is forecasting perhaps less of a fall than we are. Now let me turn to Rodrigo to talk about the operating leverage.

Yes, I think on the operating leverage, it is fair to say that the fixed costs for our cement business are higher than for our ready-mix and other businesses, including aggregates. And so therefore, the operating leverage is higher for cement businesses than for the other businesses in the value chain. And as you know, our business model is more heavily weighted towards cement. And so therefore, you would expect to see higher operating leverage in the case of CEMEX, vis-a-vis other comparables that have a lesser weight of cement. So we do expect significant benefits on the way back as recovery takes place. Of course, we have suffered more than others on the way down, but by the same token, we should benefit to a greater extent.

On your question on the trend on energy input costs, we expect this trend to continue into the second half of the year. And so we would expect, for the full year, low double digit reduction in energy input costs and of course, this doesn't include transportation, but transportation costs are also down. Although in some instances, it may be higher if we have to travel a longer distance to satisfy the markets from a lesser number of plants or operations. But we expect, again, also as the recovery takes on to benefit from that trend as we can optimize the logistics part of our business as well.

For the third question in terms of the cost of those synergies, the investment that was needed for procuring those synergies. We estimated that it would be $18 million in 2008 and $40 million in 2009. That is more or less what still remains the estimation.

Okay, that's great. Just one clarification. I mean I mentioned the numbers of 50% to 60% that MLM and VMC were talking about. Were you suggesting that for your cement business it would be higher than those numbers?

Yes, we believe that the cement business does have a higher operating leverage than the other businesses we have.

Okay, thank you.

Dan McGoey, Deutsche Bank.

Good morning, gentlemen. Just a couple quick questions. First, Rodrigo, I think you mentioned there was an extension or you have requested an extension on the waivers. And if you could just talk whether -- when you expect to receive an answer on that and whether it will be communicated.

Also, regarding your cost of debt, if you could talk a little bit about the increase, I guess, in terms of basis points we might expect in the third quarter on the debt. Particularly I guess I am thinking about on a number of the loans that have been extended, what the basis point increase they may have experienced. The borrowing rate looks like it was still quite low in the second quarter and whether that will change significantly in the third.

And finally, just on the cash flow projection for this year, as you noted, working capital took a significant amount of free cash flow in the first half. If you could explain where that came from primarily and aside from the recent securitization receivables, what should cause a much better cash flow from working capital in the second half?

Yes, thank you, Dan. Let me see -- your second question was on the cost of debt. We will share the full details of the refinancing plan when that becomes effective. What we can say at the present time is that, yes, of course, we will pay a higher spread on the debt that is being refinanced. But also it is important to highlight that base rate, LIBOR rates, are significantly lower today than they were six months ago. And we will benefit from that. So the net increase on the average cost of debt will be less than the margin increase that we will be paying to our lenders. But we will share the full details with you when the agreement becomes effective.

We are requesting an extension clearly to allow for the refinancing agreement to become effective. I think important for you and for everybody to know is that we have positive indications from our lenders to support the refinancing plan. Clearly that means that the terms of that refinancing plan, which will supersede the existing agreements, will become effective when all the conditions, precedence and all the other legal requirements have been met.

To allow for that to happen, of course, we need to extend the existing maturities that have been extended and will become part of that refinancing agreement, as well as to suspend the measurement of the old covenants that we will now have new set of covenants and restrictions that we will comply with going forward.

Now, your third question was on working capital and thank you for that question because I think it is a very relevant point to highlight. If you go back to last year, and in fact the previous years as well, you will notice that our business is quite seasonal and we tend to have a much stronger free cash flow generation in the second half of the year versus the first half of the year. And that is because, during the first half of the year, we tend to either, because of seasonality, have to invest more in inventories and other working capital and we tend to have a much higher conversion rate, well in excess of 60% of our EBITDA during the second half of the year. We don't expect this year to be different than the others.

Okay, but should we expect any other one-off transactions, securitizations to help that number in the second half?

Not that I can think of right now. Clearly, whatever we can do to manage our working capital more efficiently to reduce inventories, to be more efficient at collecting our accounts receivable we will do. We have the objective of reducing debt as quickly as we can, generating free cash flow and stronger free cash flow is a very important component of that deleveraging strategy that we have. And so as you can imagine, all of our business units are quite focused in maximizing free cash flow and allowing us to use that free cash flow to pay down debt. And so that also helps.

Okay, thanks very much.

Christopher Buck, Barclays Capital.

Good morning. Most of my questions have been answered here. Just one quick clarification and one follow-up. In terms of the free cash flow number that you guys are assuming through June 2011 to get to the 80% of your amortization payments, did you provide that number?

We didn't provide it and we would intend to give you more details when we are able to communicate all the -- when the refinancing becomes effective.

Okay. And just in terms of an update on the Austrian and the Hungarian sales, is there any update there in terms of possible legal actions or what is the status there?

Well, as we said in the initial remarks, we are awaiting for the authorities -- for the appeals court to resolve the dispute that was lodged with Strabag on the competition authority to decide what would be the next step.

Okay. And there is no definite timeframe on that?

Unfortunately not.

Okay, great. Thanks for your help.

Jack Kasprzak, BB&T.

Thanks, good morning. With regard to pricing in the US for your materials, you guys seem to suggest that the declines are really due more to mix shift, geographic mix and product mix. So are you suggesting that volumes down 35% to 40% are not having a competitive response in terms of lower prices for the materials in the quarter?

No, what we are suggesting is that the average price, CEMEX's average price, the factors that intervene in that price average is the geographic mix, the product mix, but, of course, the local competing conditions, that they do have an impact certainly.

I mean, for example, one of the markets where cement prices are higher in the US is Arizona, as you know. And volumes have also dropped the greatest in Arizona. And so clearly, that has an impact in the weighted average price at which we sell our products.

By the same token, California is one of our biggest markets and there, we have seen important drops in prices; whereas we haven't seen drops in volumes. And so that also changes the weighted average price for our products.

Some of the markets where prices have been relatively stable have been Florida. And so what you see and what we report is the net effect of all of these geographic and product mix changes that we see as the market in the US evolves more towards public works and infrastructure and residential and commercial has a lesser weight. And also some of our markets have higher or lower volume performance.

Okay, thanks for that very much. And also I wanted to ask with regard to your aggregates business in the US, could you tell us the major markets, just broadly speaking, where you have your aggregates presence?

As you know, we have clearly stated that our strategy is to be positioned -- vertically integrated, positioned in markets like the US. And so we have large aggregate operations in Florida, also in California and Arizona as a portion of our aggregates operations in the US.

Great. Thank you very much.

Ladies and gentlemen, we have time for one final question. Gordon Lee, UBS.

Hi, good morning. Just a couple of questions, all of them or most of them related to the refinancing. First, just on the extension or on the consent of the extension for the waiver, I was wondering if you could tell us whether that requires unanimous approval of the bank creditors and if you were unable to get that consent, how much would become due immediately?

And the second question, in your 20-F, when you addressed the refinancing, there was a paragraph where you say that you will likely have to issue equity as a financing source. Is that still an assumption today? Is that still a risk that you would highlight? Thanks.

The first question, as you know, we have requested this conditional waiver and extension agreement from our lenders twice to allow us to have the sufficient time to reach an agreement on the refinancing plan. We now think we have a refinancing plan that makes a lot of sense, that creates a lot of value for all of the stakeholders of the Company and that we have positive indications for more than 90% of the lenders that they would support the refinancing plan.

So today, more than any time in the recent past, we are confident that we are close to a solution that works for everybody. So we are requesting a further extension to allow for the refinancing plan to become effective. And as soon as we know the outcome of that one way or another, you will know for certain.

But most importantly, as Hector highlighted, we expect to have the refinancing become effective soon and to provide all the details of that to you and the rest of the market as soon as possible thereafter. I don't know, Hector, do you want to address the second question?

Yes, well, as you mentioned, that is stated in our 20-F. So in addition to that, what I can tell you is that the refinancing plan, of course, is -- its objective is to reduce our debt and to do that, we are using all the initiatives that we consider that are viable, including, as we said, the sale of non-core assets, the increase of our free cash flow as much as we can to deficiencies in cost reductions that we have put in place and some other initiatives. So that is part of our refinancing plan.

Okay. Thank you very much.

Thank you, Gordon. And thank you very much. Go ahead.

Ladies and gentlemen, that concludes our question-and-answer session for today. I will now turn the call back over to Mr. Hector Medina for closing remarks.

Thank you, operator and thank you, everyone. I would like to thank you all for your time and attention and we look forward for your continued participation in CEMEX. Please, as always, feel free to contact us directly or visit our website at any time. Thank you. Good day.

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