Cemex SAB de CV (CX) 2011 Q4 法說會逐字稿

Good morning, and welcome to CEMEX fourth-quarter 2011 conference call and video webcast. My name is Stacy, and I will be your operator for today. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions). Our hosts for today are Fernando Gonzalez, Executive Vice President of Finance and Administration; and Maher Al-Haffar, Vice President of Corporate Communications, Public Affairs and Investor Relations.

And now, I will turn the conference over to your host, Fernando Gonzalez. Please proceed.

Thanks. Good day to everyone. Thank you for joining for joining us for our fourth-quarter 2011 conference call and video webcast.

I will start with the highlights of the quarter and the full year, as well as our key regional developments. I will then ask Maher to go over the financials, and I will end with our outlook for 2012. After that, we will be happy to take your questions.

We are very pleased to report that our consolidated sales during the fourth quarter increased by 6% in US dollars terms, versus the same quarter in 2010. This is the fifth consecutive quarter of recovery in our top line.

We also saw double-digit growth in our consolidated operating EBITDA generation, even after adjusting for CO2 sales and foreign exchange effects.

We now have experienced in operating EBITDA growth year over year in four out of the five last quarters. In addition, this is the first quarter in which EBITDA margin has been higher on a year-over-year basis since the first quarter of 2009.

Margins for our three core products on a consolidated basis were also higher during the quarter versus the same quarter in 2010. In addition, quarterly free cash flow after maintenance CapEx increased by 51% on a year-over-year basis.

Regarding our full-year results, consolidated sales and EBITDA during 2011 reflected growth for the first time in four years. Infrastructure and housing continued to be the main drivers of demand for our products.

On a consolidated basis, we saw year-over-year growth in our cement and ready-mix volumes during the quarter, while aggregate volumes remained flat. Cement volumes grew in all of our regions except the Mediterranean. This is the fifth consecutive quarter with year-over-year growth in our ready-mix volumes, mainly as a result of favorable performances from the United States, Northern Europe, and the South, Central America and the Caribbean region.

Consolidated prices on a quarter-over-quarter basis increased in local currency terms by 1% and 2% respectively, for cement and ready-mix, while aggregates' prices were flat.

We saw sequential price increases for cement and ready-mix in Mexico, the Northern Europe and South, Central America and Caribbean regions, while prices for these products in the United States remained flat. We continue to be encouraged with higher cement prices in local currency terms during the quarter than at the beginning of the year in all our main markets, except Egypt and the Philippines.

Price increases during 2011 more than offset fuel and transportation cost increases in our ready-mix and aggregate businesses. Unfortunately, price increases in cement only partially mitigated input cost inflation.

We continue to aim to more than recover input cost inflation across all three major business lines.

On the financing side, we have now substantially met our refinancing requirements through December of 2013, while keeping our interest expense relatively stable. We have maintained sufficient liquidity to support our operations, and continue to comply with our financial obligations. We are pleased to have concluded negotiations with the Venezuelan government over the nationalization of our assets in that country. But the compensation for our close to 76% participation in CEMEX Venezuela was $754 million, which included $240 million in cash, $360 million in various negotiable securities issued by Petroleos de Venezuela, as well as the cancellation of $154 million of accounts payable by CEMEX subsidiaries to CEMEX Venezuela.

We complied with our year-end leverage covenant of seven times by a significant margin. It is important to highlight that we would have complied with this covenant even without the proceeds from the compensation of our Venezuelan assets.

Later in the call, I will provide some building blocks for the compliance with our 2012 covenants.

We remain focused on our transformation program. As a result of this process, during the second half of 2011 we achieved a recurrent improvement in our steady-state EBITDA of about $150 million. We expect an incremental improvement of $200 million in 2012, and to reach a run rate of $400 million by the end of this year.

We also sold $225 million in assets in 2011, and expect to raise an additional $500 million during this year. We will be focused on selling assets that will improve our return on capital employed, and which will help us delever.

Another important component of our transformation process is our efforts to increase the use of alternative fuels. The substitution rate increased from 20% in 2010 to 24% in 2011, with substitution reaching close to 27% in the fourth quarter.

This reduces the cost of production and dampens the impact of rising energy prices, as well as reduces our CO2 footprint.

Alternative fuels are now approximately equal to coal as the second-most-important fuel source for us, just behind pet coke. It is likely that alternative fuels will surpass coal utilization in our operations at some point this year.

Now, I would like to discuss the most important developments in our markets.

In Mexico, we are pleased with the growth in operating EBITDA and operating EBITDA margin for the full year 2011. This improvement reflected new operating efficiencies and was captured despite volumes that were significantly below expectations. During the year, we saw robust performance from the infrastructure and the industrial-and-commercial sectors, while investment in the form of residential sectors remained flat versus 2010.

According to the National Housing Registry, housing starts decreased by about 14% in the first 11 months of 2011, versus the same period of the previous year, reflecting the working capital financing constraints that homebuilders continued to face last year. Credits for home acquisitions granted by Infonavit reached about 448,000 during 2011, substantially in line with their target of 450,000. However, a higher percentage of mortgages from Infonavit and other entities is being applied to purchase existing houses rather than new construction. This percentage reached close to 30% last year.

For this year, we anticipate investment in the formal residential sector to grow by about 2.5% in real terms, driven by continued economic growth.

The self-construction sector grew by about 3.5% last year, fueled by robust employment levels and remittances in US dollars, which were even higher in local currency terms, due to the depreciation of the Mexican peso.

During this year, investment in the informal sector is expected to grow by 2.5%, reflecting the continued rise in employment and aggregate wages.

Preliminary 2011 numbers indicate an increase in infrastructure investment of more than 4% in real terms from the previous year. In the first nine months of 2011, non-energy public investment increased by about 16%. For 2012, we believe total investment in infrastructure will again increase by about 4.5%.

The industrial-and-commercial sector is expected to enter 2011 with an increase in investment of 4%. For this year, investment in this sector is expected to grow by about 3.5%, in line with the economy.

In the United States, quarterly cement volumes were up 5% on a year-over-year basis, primarily due to higher demand from the residential and industrial and commercial sectors, and favorable weather conditions. With the consolidation of the ReadyMix USA joint venture in the second half of 2011, our reported quarterly ready-mix volumes increased by 50% on a year-over-year basis, while aggregate volumes were flat, reflecting the effect of our Arizona strategy.

On a like-to-like basis, adjusting for the consolidation, ready-mix and aggregate volumes increased by 10% and declined by 4%, respectively. Pricing was stable, with all three products showing essentially flat pricing in the fourth quarter compared to third quarter 2011. On a year-over-year basis, four-quarter prices are up 1% in cement, 4% in ready-mix, and 6% in aggregates.

As we look to 2012, we remained firmly committed to recovering input cost inflation. We also expect to see improved market conditions relative to the last two years, as the supply/demand balance has stabilized after companies have rationalized capacity during the downturn.

We are encouraged by recent price increase announcements in many of our markets. It is too early to predict the ultimate outcome, but we feel confident of a positive result, based on our discussions with our customers.

Housing activity in the US started to trend better in the second half of the year. Housing starts for the fourth quarter were 7% higher sequentially and 22% higher on a year-over-year basis, mainly due to increased multifamily activity. For the full year 2011, starts were up 3% versus 2010.

Public construction spending was down 2.5% in 2011, with streets and highways down 4.5%. This decline is largely attributable to the winding-down of our infrastructure spending in 2011.

With regard to the Federal Highway Bill status, we have seen some positive momentum in Congress with both the House and the Senate moving forward on proposals. With the latest extension set to expire at the end of March, we believe the most likely scenario is another short-term extension, with a possible window for passage of a new highway bill prior to August.

A positive trend has begun to emerge in the industrial and commercial sector. On a year-over-year basis, spending rose 8% in the first two months of the fourth quarter, after a 5% over-year increase in the third quarter. After three years of consecutive declines, contract awards were up 3% in real terms during the first 11 months of last year. For 2012, we expect volumes in the US to grow by low- to mid-single-digits in each of our three major business segments.

While we agree with PCA's forecast of relatively flat demand for the US, we believe we'll do somewhat better than PCA's projected 1.5% growth for our markets, based on recent trends.

In our Northern Europe region, we were pleased with the double-digit growth for our three core products during the fourth quarter, with continued healthy pricing, driven, in part, by favorable weather conditions in most countries in the region. In two of our major countries in the region, Germany and France, the residential sector was the main driver for volumes in 2011. In Germany, housing permits increased by 11% in the third quarter, and by 8% during October, 2011. This growth continued to be fueled by low mortgage interest rates, relatively stable prices for construction, and improved employment.

In France, during 12 months ended November, housing starts increased by 20% and permits were up 16%. In Poland, and to a lesser extent, the UK, infrastructure was the main driver of demand for our products, fueled mainly by the building of roads and highways.

For 2012, we expect construction activity in the region to be flattish to slightly negative, from a very high base in 2011. In our Mediterranean region, for the full-year 2011, positive ready-mix volumes from our operations in Israel, Russia and the United Emirates almost fully offset a decline in volumes from our Spanish operations.

In cement, we saw declines in our yearly domestic gray cement volumes in Spain, Egypt, Croatia, and the United Emirates. In Spain, demand for our products was affected by the lackluster performance of the residential sector, as well as the adoption of austerity measures by the government. These forces will continue to put downward pressure on volumes this year.

To mitigate the decline in domestic cement volumes, we continue to export from Spain to other countries, with exports accounting for roughly 30% of our volumes last year.

In the case of Egypt, last year's political unrest adversely affected government spending on infrastructure projects and cement consumption. Residential construction -- the sector that contributes the most to Egyptian cement consumption, on the other hand, remained relatively stable during this period.

For this year, no major infrastructure activities are expected prior to the presidential elections currently scheduled for June, 2012. This, together with the increased cement production capacity in the country, is expected to put downward pressure on our volumes.

In our South, Central American and Caribbean region, positive volumes and pricing conditions continued during the fourth quarter. For the full year, all countries in the region experienced gray cement volume increases, with the exception of Dominican Republic and Puerto Rico. In Colombia, our largest market in the region, domestic gray cement and ready-mix volumes showed robust growth during 2011. Stable interest rates, controlled inflation, and favorable economic conditions have supported the residential sector.

In addition, infrastructure projects, including reconstruction work to repair damage caused by floods in the first half of 2011, also boosted volumes. This positive trajectory is expected to continue during this year. In Panama, the infrastructure sector was the main contributor to cement consumption during the quarter, driven by new projects, including hydroelectric plants and the Panama City Metro, as well as the ongoing canal expansion.

Most projects will continue their construction phases this year. For this year, we expect mid-single-digit growth for cement in the region.

Now, in Asia, the increase in domestic cement volumes during the quarter reflects positive performance in the Philippines and Bangladesh. In the Philippines, cement volumes during 2011 were greatly affected by delays in the release of government budget funds and the postponement of public/private partnership infrastructure projects, in a government effort to clean house in line with the administration anti-corruption policy. Cement volumes during the fourth quarter, however, showed double-digit growth. This positive trend is expected to continue during 2012, as volumes this year should be positively impacted by the reactivation of public spending in infrastructure projects.

And now, I will turn the call over to Maher to discuss our financials. Maher?

Thank you -- thank you, Fernando. Hello, everyone. Let me start by saying that we are pleased with the 13% year-over-year growth in our quarterly operating EBITDA. On a like-to-like basis for ongoing operations, and adjusting for foreign exchange, EBITDA increased by 22%.

For the full-year, EBITDA grew 1%. Operating EBITDA margin increased to 14.6% during the quarter, from 13.8% in the fourth quarter of 2010.

Adjusting for CO2 sales, the increase in margin is 0.4 percentage points. Now this margin expansion is driven by an improvement in our top line, a drop in energy prices, and the initial results from our transformation process.

The reason why we did not see more of a margin expansion was primarily due to changes in product and geographic mix. However, I would like to stress the point that, on our quarterly consolidated margins for our three core products, were higher than in the previous year. In fact, quarterly margins, on a consolidated basis, for cement operations increased by close to one percentage point on a year-over-year basis. This is the first margin increase in more than two years.

The year-over-year margin expansion for ready-mix and aggregates was even larger. Now if we go to a cost of sales plus SG&A as a percentage of net sales, decreased by 2.5 percentage points during the quarter, versus the fourth quarter of 2010. This improvement reflects higher consolidated volumes, and consolidated US dollar prices of ready-mix and aggregates, as well as the continued success of our transformation program, which offset the increase in fuel and raw materials, as well as higher distribution expenses.

For kiln fuel and electricity bill, on a per-ton-of-cement-produced basis, and excluding foreign-exchange fluctuations, increased by 12% during 2011. If we include FX, the increase was 14%.

During the quarter, energy prices continued to trend downward. Pet coke prices, as of December, had dropped by close to half from their peak in April. In addition, as Fernando commented earlier, we continued to increase the utilization of alternative fuels. We are on target for a 35% substitution by 2015.

During the quarter, our free cash flow after maintenance CapEx increased by 51%, reaching $374 million. Higher operating EBITDA generation, lower maintenance CapEx, and lower cash taxes offset the lower recovery in working capital, as well as higher financial and other expenses during the quarter. The year-over-year increase in our net financial expenses is primarily due to the continued substitution of financing-agreement debt with long-term, higher-coupon bonds.

Now, as we had anticipated last quarter, due to the seasonality of our business and the efforts to lower investment in working capital as part of our transformation process, the year-to-date investment in working capital as of September was reversed during the fourth quarter, despite an 8% increase in sales.

For 2011, working capital days, excluding securitization, remained flat at 31 days versus 2010. The other cash items line during the quarter included $130 million in proceeds from asset sales.

In the income statement, other expenses during the quarter resulted in an income of $13 million, which include the net effect of the compensation for Venezuela, and asset sales, which more than offset impairments of fixed assets and severance payments. We recognized an exchange loss of $42 million, due primarily to the depreciation of the euro versus the US dollar. We also recognized a gain on financial instruments of $71 million, related mainly to CEMEX shares.

During the quarter, we had a controlling interest net loss of $146 million, versus a loss of $574 million in the fourth quarter of 2010, due to better operating income, a contribution from the other expenses line, higher gain on financial instruments, and lower income taxes, which more than offset the higher interest expense and exchange loss in the quarter.

During 2011, we continued to delever and reduce our refinancing needs through different initiatives. As many of you know, we issued $2.6 billion in senior secured notes, as well as $1.7 billion in subordinated convertible securities. We received compensation for the nationalization of our Venezuelan assets. We sold $225 million in assets. And we also generated free cash flow, after maintenance CapEx, of $386 million. In the process, we addressed substantially all of our maturities through December 2013. We have now paid close to $7.7 billion, or more than half of the original balance outstanding under the financing agreement.

During the quarter, we used our free cash flow proceeds from asset sales as well as some of the proceeds from the compensation received for our Venezuelan assets, to prepay debt under the financing agreement, increase the reserves for the payment of our Certificados Bursatiles or CBs, which matured this year, as well as some liability management initiatives. As a result, our consolidated funded debt was reduced by $812 million. And we had a better-than-expected improvement in our leverage ratio, reaching 6.64 times, well below our 7 times leverage ratio covenant for December 2011.

Of course, another important priority is to ensure that we have adequate liquidity. And to this end, we maintained cash levels above $600 million during the year. At the end of 2011, we had close to $1.2 billion in cash and cash equivalents, which includes close to $300 million in reserves to pay our 2012 CBs.

We also maintained working capital facilities to support the funding requirements of our business cycle, through our committed securitization programs and other facilities. This gives us a cushion for seasonal liquidity needs, and to continue to meet our financial covenants throughout the year. Our 2012 debt maturities are primarily CBs, for which we now have created reserves to cover this payment entirely, as well as working capital lines. We will continue to pay down debt with proceeds from asset sales and free cash flow generation. We also still hold some of the PDVSA bonds received as compensation for our Venezuelan assets, which we can also use toward this end.

Bottom line, we are pleased with last year's performance, and expect 2011 to be an inflection point.

And now, Fernando will discuss our outlook for this year. Fernando?

Thanks, Maher.

For 2012, we expect consolidated volumes for cement to grow by 2%, ready-mix volumes to grow by 5%, and aggregate volumes to grow by 3%. Estimated higher volumes and increased profitability from our operations in Mexico, the US, the South, Central America and the Caribbean region and Asia, more than offset an expected weaker Mediterranean region as well as [thought] base of comparison in northern Europe. Our cost of energy, on a per-ton-of-cement-produced basis, is expected to decline by approximately 2% during 2012.

For the full year, we expect our pricing strategies to recover input cost inflation for our three core products. We also expect to continue to keep capital expenditures and other investments at a minimum. Total CapEx is expected to be about $600 million, including $465 million in maintenance CapEx, and $135 million in strategic CapEx. We anticipate no major change in cash taxes from 2011 levels. Regarding our working capital, during 2011 we had an impact from the extension of some of our securitization programs. Excluding the impact of these programs, as well as foreign exchange fluctuations in the year-over-year comparisons, we also expect no significant difference in our 2012 working capital investment versus 2011.

Similarly, we do not foresee a significant change this year in the cost of debt, including our perpetual and convertible securities.

With respect to our financial obligations, I would like to reiterate our confidence in meeting our financial covenants. For this purpose, and similar to what I did last quarter, I would like to walk you through a simple calculation explaining why and how we expect to meet our 2012 covenants.

Regarding our June 2012 leverage covenant of 6.5 times, we ended the quarter with consolidated funded debt at close to $15.5 billion. If consolidated, funded debt during the first half of this year is reduced by up to $200 million, our operating EBITDA for this period would need to grow by somewhere between 1% to 4% over year. Our confidence in being able to achieve this operating EBITDA growth during the first half of this year stems from, first -- and as I mentioned earlier -- expected stronger performance in most of our portfolio; second, incremental transformation savings of close to $200 million versus modest savings in the first half of 2011; and third, we are beginning the year with higher prices in local currency terms compared with the yearly average prices in most of our markets.

Now, let me go through a similar exercise for our December 2012 consolidated funded debt to EBITDA covenant of 5.75 times. If we use the current market consensus for operating EBITDA for 2012 of about $2.55 billion, the consolidated funded debt level needed to be in compliance would be about $14.7 billion, implying a reduction of about $800 million from December 2011 levels. This debt reduction is expected to be achieved with several initiatives.

First, as discussed earlier, we still have some of the proceeds received as compensation for our Venezuelan assets, as well as higher-than-usual cash and other investments on our balance sheet as of December. Second, we will also continue to generate free cash flow. And third, as mentioned earlier, we expect to realize about $500 million from additional asset sales during this year.

In closing, I want to emphasize three points. First, as I'd said at the beginning of the call, we have seen five consecutive quarters of topline growth. In 2011, we saw growth in yearly sales and operating EBITDA for the first time in four years. During 2012, the anticipated recovery in many of our markets should produce consolidated volume and price increases. Second, we expect to see $200 million in incremental savings from the initiatives under our transformation program during 2012. And third, for reasons we explained earlier, we continue to be confident in our ability to meet all of our financial obligations.

We have substantially prepaid all of our maturities until December 2013, and proactively bolstered our liquidity needs.

Thank you for your attention.

(Operator Instructions). Esteban Polidura, Deutsche Bank.

Two questions, please. Would you be so kind to explain a bit more the strength in the northern Europe region? And second question -- is there, Fernando, a plan to securitize a specific amount of receivables throughout the year? Thank you.

Thanks, Esteban. To start with the first question, the northern European region, we are quite pleased with the performance of our business in the northern European region. And as you know, we are referring to the UK, France, Germany, Poland, and Latvia, Czech Republic, -- those are more or less the businesses.

What we saw -- it was during the fourth quarter and, as commented, also because of good weather -- we saw very robust performance in markets like, for instance Germany, in which volumes at the end of all year grew on high-double-digits. And the same for the market in France and the UK. And as I already mentioned, at least in the case of France and the UK, is the residential sector, the one that boosted volumes.

So it is, for sure, a contrast to the news we received from the financial situation of Europe as a whole. But our sector -- particularly, again, in this region in northern Europe, for the whole year -- and the fourth quarter as not an exception -- was very robust. Now, as commented, that in (technical difficulty) posting a high base comparison for 2012.

Now, related to plans on securitization, I think we are always trying to find the best option during the year. For instance, we started or extended our programs to the UK for an amount little bit higher of $100 million. And we increased the program we have in Mexico for a little bit more than 30%. So, for sure, we will continue looking for opportunities on this aspect.

Excellent. Thank you very much, Fernando.

Carlos Peyrelongue, Merrill Lynch.

Good morning, gentlemen, thank you for the call. Two questions, if I may. First one, on asset sales -- you saw, I believe, about $130 million on the four quarter. If you could give us some light as to what were the things that were sold, whether these were the corporate offices that you have. And if you could also provide some color as to the -- some general color as to the asset sales for the $500 million, in terms of what type of assets. Are we talking more real estate? Are there are some plans that are closed in some parts of the world? Something general, but if you could provide some more specifics, it would be appreciated.

And lastly, on Mexico -- in terms of the drop in volumes, in both ready-mix and aggregates, besides the weak demand from the residential sector, is there anything else that can explain the drop in volumes from a year-over-year basis? Thank you.

Thanks, Carlos. Let me start with asset sales, if I understood correctly the question, because there was some noise in the line. But we ended up selling about $200 million of real estate last year, and most of it was during the fourth quarter. If that was your question.

And for this year -- and it is real estate, meaning pieces of land coming from mainly ready-mix and aggregate queries, and other pieces of land that you might know already.

For 2012, we are expecting to sell between $250 million and $300 million of the same type of assets.

Now, related to -- does that answer your question on assets, Carlos? Because again, there was some noise in the line?

Yes, yes, yes it does, yes it does.

Okay. I think you also mentioned something about the $500 million. The $500 million, that's what, in the example we were using, is what we think is needed to comply with certain margin on our covenants of June and December next year. And that is a whole portfolio of possibilities.

But again, let me let me remind, or to clarify, that we are still -- we still keep about 2/3 of the PDVSA bonds we received as part of the payment of the nationalization of our assets in Venezuela. So that's part of the $500 million. Plus real estate that I already mentioned, close to $300 million, plus other possibilities that we will be exploring during the year.

Now, on Mexico -- do you take that one, Maher?

Sure, sure. I mean, as we saw, ready-mix volumes were down versus last year by about 10%, and agg volumes were down by about 23%. Cement volumes were up 1%. Just to summarize.

Now, sequentially, versus the third quarter, volumes showed the typical seasonality that you would see, decreasing by somewhere around 2% to 4%. However, on a year-over-year basis, the comparison was pretty challenging for ready-mix and ags. If you recall, last year, the fourth quarter of 2010 was a pretty strong quarter, due to new infrastructure projects starting. Also, if you remember the relief efforts for the Hurricane Alex and some of the other natural disasters that we've had prior to the end of the year.

I mean, if you recall, just to put it into context, in ready-mix, for instance, year on year volumes in the fourth quarter of last year were up by close to 24%, and ags were up by close to 30%. So the comparison is very strong.

Now, for this year, I mean, we are expecting volumes to rise in all sectors. We are expecting infrastructure to be up by slightly less than 5%, about 4.5%. Residential -- because of employment and credit, and the new Infonavit law that allows people to pay down their loans and draw them again, we are expecting residential to be up by about 2.5%. And industrial and commercial, we are expecting it to be up about 3.2%, and pretty much in line with what GDP is expected.

I don't know if that answers -- if that covers your concerns.

Yes, it does. Sorry, if I -- for Mexico, we should expect volumes to be growing somewhere between 3% to 5%, given -- understanding correctly the assumptions you are using?

(multiple speakers) I think what we indicated is -- expectation is for 3%.

For 3%?

Yes (multiple speakers) 3%.

Okay, great, thank you very much. I appreciate, Maher and Fernando -- thanks.

Thank you, Carlos.

Operator, before we go to the next question, I think we just -- we skipped one portion of the thing, which is the warning. I mean, what I would like to say is that -- just to remind everybody -- that, as you can imagine, we are making some forward-looking statements. And it's based on current knowledge of the markets that we operate in. And, of course, there's a lot of variables that may change, and so please bear that in mind.

And Operator, now if we could continue with the Q&A.

Vanessa Quiroga, Credit Suisse.

Hi, can you hear me? Hi, good morning, great. So, thanks for the call. My question is regarding the improvement in margins for Mexico. Can you walk us through what was the driver, given that declining volumes and a slight increase in prices? What was the main driver for that margin improvement, and if that driver is sustainable?

And another question would be, regarding the seasonality that you expect for the additional savings for 2012? And if you expect carbon credit sales for 2012? Thanks.

Thanks, Vanessa. Let me start with margin improvement. We are very pleased, as we have been commenting. In April last year we started an initiative that we called transformation. And since then, we've been in the face of, at the very beginning, trying to understand new ways of to make CEMEX more competitive, in the sense of having a lower cost and expense base on the business activity we currently have. And most of the findings and most of the initiatives have been already executed. And if we started in April, as you can imagine, most of them were executed by the third quarter of last year.

What shows in Mexico is an improvement, as you mentioned, even with lower volumes and prices. We show close to 6% margin improvement during the last quarter, and that is -- most of it, not to say all of it, attributable to the lower-cost SG&A and distribution expenses by 9 percentage points, and all included in the initiatives of transformation that were executed. There is some negative impact of about 3 percentage points in volumes and prices.

Is that sustainable? It is sustainable, and it will tend to increase because, again, not 100% of all the initiatives of transformation were executed during the fourth quarter.

Then, about your second question on savings, I think what we will -- what we should be seeing in the next couple of quarters, is that we will be showing about, or little bit more than, $200 million of savings that we didn't have, or not fully, in the first half of 2011 -- again, because of the timing of our transformation initiative.

Is that sustainable? Yes, we think that's sustainable because it's -- the initiatives are headed to impact structurally to the way we do things and the way we manage the Company.

Sales on CO2 -- just reminding a little bit -- we had sales in the last quarter for about $35 million. That compares to CO2 sales in the last quarter of 2010 of about $20 million. And so we have a delta there of about $15 million. And as of 2012, at this point in time, we do not foresee and we don't think we will have a surplus of CO2 to sell.

As you know, these are estimates which depends mainly on CO2 that we were credited, mainly in Europe. Plus the progress of our CDs, our six and other -- another half of those CDs projects that we are putting in place, compared to our production volumes, again, mainly in Europe. But, for the time being, we don't foresee CO2 sales in the near future.

Thank you. Just to follow up on the Mexico margins, I thought that the main surprise was coming from gross profit. So I'm a bit surprised that you mentioned that you saw most of the improvement in SG&A and distribution. I think the gross margin increased a lot as well, and so if you could just explain a little bit more -- or if distribution is included in gross margin.

And then, just to clarify, on the savings -- so by June 2012 you expect to run rate of $315 million, is that correct?

What was the second part, sorry?

Sorry, on savings. The run rate by June 2012 will be --

Okay, on the first part, Vanessa, we might need to go back to you with more detailed information. But part of distribution is included in cost of goods sold. So it is not completely excluded. But if you need more detailed information, we can elaborate that for you.

Now, on the run rate for this year, what we are saying is, during the year we will think we will get between $200 million and $225 million of savings, during the year.

At the end of the year, we think we will be at about $400 million to be saved during 2013. But for 2012, what we are considering is, again, $200 million, $225 million.

Is that on top of what you achieved in 2012 -- sorry, 2011?

Yes, yes, it is on top.

Gordon Lee, BTG.

Just a couple quick questions on the balance sheet. Looking at -- it seems to me like, if you look at the 12-month trailing EBITDA for the third and fourth quarters, they were essentially flat. I think the fourth quarter was maybe 1% higher, but they were both hovering around $2.3 billion. So I guess my question is, to have achieved the reduction in the leverage ratio, it seems like you are your fully-funded debt must have declined by a touch over $1 billion. And if I look at the different sort of inflows we've spoken about -- free cash flow, the $240 million from Venezuela asset sales -- and even if you adjust for currency movement, I still don't quite get there. So I was wondering if you could walk us through the deleveraging for the quarter.

And then the second question, just on cash balances -- are you including the Venezuelan bonds that you received as cash, at face? Thanks.

I will take the second one and --

Okay.

-- please elaborate on the first one.

The Venezuelan bonds are included in other assets. It is not really cash. We are not including it as cash. But that's for your second question.

On the first question?

Yes, I mean if you are looking at the -- how did we reduce consolidated funded debt -- I believe is what you meant, which is the term that is in the financing agreement, consolidated funded debt -- which was reduced by slightly over $800 million, Gordon. It was about, to be precise, it was $813 million, as I mentioned in my portion of the presentation. And that is broken down, roughly -- I mean, if you take a look at the drop there -- roughly, close to about $300 million in some liability management transactions that we did in our perpetuals and in our fixed-income securities.

We had close to about $225 million in incremental reserves for our CBs. And as you recall, we also had -- I forget now, it was probably October -- when we had the $131 million payment that we made to the banks under the financing agreement.

We had some conversion effects of about $125 million. And then we had an improvement in the mark-to-market of our derivatives that is just a little bit under $60 million.

So that, if you add all that up, that should get you roughly to the $813 million.

I don't know if that answered -- does that address your question, or is there another follow-up there on the debt reconciliation?

I think that answers most of them. Maybe I have a couple questions that I will just get back to you with. And so, just to confirm, so none of the bonds are reflected anywhere in cash? They are in other assets?

No, that is correct. Yes.

Perfect.

No, it is other assets, and we have about 2/3 of the original amount. That's close to $200 million -- other assets.

Perfect. Okay, that's great; thank you very much.

And the next question is from the Web. And it's from Jose Bernard from BBVA securities. And the question is, what is the liability management initiative on slide 19? Is it related to the decrease in perpetuals to $938 million in the four-quarter '11, from $1.161 million in three-quarter '11?

And the answer is -- partly, it is that. And partly, as I mentioned earlier in the previous response, is some of the -- some other liability management that we have done. But the perpetuals are the majority; it is a little bit over $200 million that we exchanged. And then there were some other bonds that we also had liability management on, that -- probably roughly close to about $70 million.

And we used some of the facilities that are provided in the financial agreement to (inaudible) certain extent, to limited amounts.

Yes, yes.

Operator, the next question, please?

Jacob Steinfeld, JPMorgan.

Hi, good morning. (multiple speakers) I had one more question on the liability management exercises. It says here that, I guess, you had $287 million liability management, but there was $223 million reduction in the perpetual notes. So I was wondering, what was the difference between the two? And what did you exchange for the perpetual bonds?

If I understood correctly the question, and I think it is quite related to the previous one -- what we did, most of it was an asset swap of our PDVSA bonds with CEMEX bonds. That's most of the -- what explains the difference.

Okay, great. And in terms of the PDVSA bonds that you said you are keeping as other assets --

Yes?

Are those marked at face value, or the -- based on the $360 million -- or is it marked at market prices?

At face value, right now, they should be around $200 million. So, it's about 2/3 of what we received.

Okay. And my final question was, obviously the share price increased pretty substantially in fourth quarter. So I was wondering how much cash was released from the margin calls on -- related to some of your derivatives. And how much do you have currently in margin on those, as of the end of the year?

Yes, roughly, Jacob, it's roughly about 40 -- close to $40 million.

Was released?

Yes, yes.

Okay, and do you have an estimate of what the amount is currently? That you have as margin?

You mean as of today?

Yes. It's -- just one second -- let me take a look here, just one second.

I mean, it's close -- it's a little over, it's a little bit over -- a little bit over $200 million. It's about $230 million. But to give you the exact number, if you get in touch with us -- but it is roughly around that level.

And that's excluded from your cash balance?

Yes.

Gonzalo Fernandez, Santander.

I have two questions. One is a follow-on on the margin in Mexico. And just to clarify if that includes CO2 sales, or if they'd be in operating or operations? And the second is, if can show your outlook for Spain and Egypt after yesterday's event. What would be the outlook? And if margins in the Mediterranean group really are sustainable considering this situation?

On the first question, Gonzalo, no, there is no CO2 effect in the margins in Mexico. And I'm not sure what was the question related to Egypt and Spain.

I think the outlook -- you are saying, like, the outlook for demand, you mean? Or --?

Yes, for demand, and the margins in that region are sustainable.

I think, on Egypt, we are not providing --

We gave some demand --

Yes, but not on the margins (multiple speakers) -- not on margins.

Gonzalo, I mean, the Egypt is -- I mean, we gave guidance, as you know, this morning. And we are expecting roughly a drop of about 8% in cement. And a low single-digit, as you saw, a low single-digit drop in ready-mix and ags. And as we mentioned, as Fernando mentioned, the situation in Egypt obviously is -- especially in terms of infrastructure -- is challenging, pending the elections towards the middle of, towards the middle of the year.

As far as margins, we haven't provided that. And on Spain, you know, we are expecting -- again as Fernando said in his talk, I mean, we are expecting things to be, to continue to be challenging in the domestic market. We believe the housing market has pretty much bottomed out. I mean, we -- it's gone, it's run its course, I would say.

Infrastructure is suffering from the austerity measures that are being put into place. And as you saw from our guidance, I mean, we are expecting a significant drop in volumes, close to 23% in cement and a little bit more than that in ready-mix and ags.

Now, fortunately, we continue to use Spain as an export platform. Of course, those tons are not as profitable as any of the domestic volumes that we do. So -- and we don't provide guidance on margins by country. Well, we don't provide guidance on margin, period. (multiple speakers) I do know if that's helpful, Gonzalo.

(multiple speakers) -- guidance for volumes in Spain? Can you repeat that?

Say it again? Gonzalo?

Guidance for volumes in Spain, (inaudible) that?

Yes. Guidance, as you saw, is about -- it's minus-23 for cement, and a little bit more than that in ready-mix and ags, about 25% in ready-mix and about 30% in ags. Very important to note, that is domestic volumes, right? This excludes any of the -- in the case of cement, excludes any exports. Because if you add the exports to that -- which last year, as you recall, represented close to about 30% of the volume -- the difference gets narrowed quite significantly from this level.

Thank you, Maher and Fernando.

Dan McGoey, Citigroup.

Sorry to go back to Venezuela -- just one additional question. The remaining $200 million that you are offloading on the balance sheet, can you just give rationale as to why to hold it? Are you encumbered from selling it? And then you won't, or is that pre-selling in the first half if you wanted to?

And then, also, on the real estate transactions, can you just talk a little bit about the nature that the asset sales or the real estate sales, how many transactions were comprised in those real estate sales? Or do you have a bulk buyer that might make sales of your expectations for 2012 a bit easier?

Your first question, on Venezuela, we -- I already mentioned we still have around $200 million, and it's an asset and it is there. And it's available for -- you know -- different purposes. So we will decide what to do with those bonds whenever we think we need it. We don't have any specific or immediate need in order to sell them. So for the time being, and until there is any additional news, we will give them.

Now, related to real estate, I think I said that last year we sold about 200, close to $200 million in real estate. I don't have the specific list of properties, but the most relevant ones were in the US, in California. Another one is in our headquarters here in Monterrey. And then there are several others in Colombia and in other places. How many, I don't have the quantity. But the most relevant ones -- let's say the 80/20 -- is perhaps 8 to 10 transactions.

Now, related to our expectations in 2012, as mentioned before, we think we are going to divest -- it is not that precise. But our divestments, again, on this type of assets -- real estate, properties -- will be between $250 million and $300 million during the year.

And if I could just add, Dan, I mean -- and I know that a lot of folks in this kind of market are little cynical about selling real estate assets. But as Fernando said, I mean, I'm looking at matrix here that is 5 x 7, and most of the boxes are filled with transactions. That gives you an idea of how broad the number of assets that we are talking about.

So when we give this amount, $500 million, it's a broad-based, it's highly distributed. And we have a very high level of confidence that it's going to happen. I mean, it's not concentrated, and that's what gives us the confidence that it is likely to occur.

Now, if you allow me the clarification, I should say that -- why were we able to divest this $200 million of this type of assets last year? Why is it going to be even higher this year?

I think I have not mentioned that asset sales is one of the components of our transformation initiative. So the whole Company is properly organized and focused on divesting assets that we own and definitely we do not need for our -- in order to run or to operate our businesses.

Very clear. Thanks for the additional detail.

Mike Betts, Jefferies & Co.

I had two areas of questioning, if I could, please. Firstly, just on Egypt -- and you've talked about the volume, but could we just touch on pricing? I think prices were off 7% in Q3, they are off 13% in Q4. My question is, is there any sign of those price falls not getting any worse? Any sign of a stabilization in pricing? Or is it still deteriorating?

I think, difficult to give a guidance on Egypt. Prices have deteriorated, mainly because of the competitive landscape in the country, more than through the political issues. Same for -- volumes dropped to some extent. Last year our volumes dropped for about 3%. And there is, there is a dynamic going on, with new capacities coming on stream in the market. So it's very difficult to guide on that regard, Mike.

Okay. And then, just on Spain, I mean your volumes are off 40% I think in Q4. And the guidance, the minus-23% I think you said, for 2012. I mean, those seem to be much worse numbers than the market. I mean, is that regional, the parts of Spain that you are in are much weaker?

Well, it has some regional component, but that reflects our views, particularly after the behavior of the Spanish market in the last quarter, last year.

Okay, and then just a final question. I mean, zero carbon dioxide in 2012? Does that mean you've sold the permits that you would have had in 2012 -- you sold them in 2011? Because I presume that your volume of cement production, particularly in Northern Europe and the Mediterranean, is going to be lower in 2012. Does that mean you sold the 2012 permits ahead of 2012?

No, it means -- let me try to clarify what has been our policy on CO2 sales. We have never sold CO2 that -- with a very, very, very high probability, it is really a surplus. So we have never committed the CO2 position the Company needs to properly operate in the markets.

What we are saying now is that according to our estimates -- which is what we always do, and review almost every month -- right now we do not consider that we might have a significant -- we might have some surplus, but we might not have a significant CO2 surplus for the year.

Now, again, this is the way -- you know the way surplus is calculated. You have credits already assigned, and you have your volume estimates. And those are the ones that we review almost every month.

If it happens that there is a material amount of CO2 available -- and again, available meaning a surplus to what we need -- we might proceed to sell it. But right now we don't think we have a material amount. And at current prices of CO2, even assuming we had some, we are not that incentivized to sell them.

Okay. Maybe I will push to ask a bit further off-line, but I'm struggling with the volume of permits. I understand the pricing. I mean, if you are indicating that volumes in Spain are going to be off 23%, and expect volumes in Northern Europe to be lower, shouldn't you have more, by volume, of permits than you had last year? Am I missing something?

If you want, we can have a conversation, yes, about it. But remember, Maher said that the 23%, I think, on drops on Spain in cement is domestic. We are producing cement to be exported. So the reduction in us is, in total production, is not 23%.

Now, your next question might be, then why is it that you are exporting instead of selling that CO2? And that might need a longer meeting. Because Spain, in particular, has certain rules on what is it that you need to do, in order not to lose your credits. So things like, if you produce less than X amount in the plant, you might lose your rights for the next year.

So it is a little bit complicated. But, again, our latest estimates calls for no significant surplus of CO2 during the year. If that is changed because of a different decision in production, that might happen. Then, we will gladly communicate that.

Mike, also (multiple speakers) --

Again, good points on the exports; I forgot that. Sorry.

Yes, Mike, just another point. Just to clarify for everybody that is on a call -- I think I heard you mention Spain in connection with Northern Europe region. And, of course, it is not part of the Northern Europe region. It is part of the Mediterranean. So, I hope -- I mean, I just don't want anybody to be confused by the classification.

My comments on Northern Europe, Maher, was more that the volume is (multiple speakers) of cement (multiple speakers) expected to be lower there.

Okay, okay, thank you, thank you. I just wanted to clarify -- thank you.

We have time for one more question.

Anne Milne, Bank of America Merrill Lynch.

Thank you for the call this morning. I just want to follow up on a few questions that were asked earlier on the liability management, the reduction of the perpetuals. Was that in exchange into the 2020, as the previous ones?

And then, on the large cash balances that CEMEX had at year-end -- I think it was over $1.1 billion -- I know there's a liquidity reserve for $600 million. I was wondering how much of that is a reserve for the CBs in Mexico?

I also just want to confirm what the year-end balance was on the FA. My numbers give me about a $7.4 billion figure, but I would like to confirm that with you guys.

And then, finally, I guess -- what are your expectations for working capital in 2012? Will you be able to maintain it over the course of the year? And also, your comments and outlook for additional liability management in 2012. Thank you.

I'll start with the last one, because I didn't have the chance to write the first one (laughter).

Thanks for your questions.

Working capital in 2012, as you saw, our working capital -- even in 2011, even our sales increased by 8%, it was kept stable, even. I think the Company has done lots of effort to optimize working capital. In some regions, in some areas, we have working capital of about between 15 and 20 days. And we are working in two or three relevant countries in -- again, through our transformation initiative -- in finding additional ways to optimize our working capital. So our internal objective is, again, to increase sales during 2012 without increasing working capital.

On the other hand, we also mentioned that we will continue looking for ways either to increase our current securitization programs, or to add new ones whenever we think that's attractive and feasible. That's for working capital.

Now, related to additional liability management, I think that, at this point in time, we don't have any additional information to disclose. But let me take the opportunity to remind that, given we have already made -- fully made -- the reserve for Certificados Bursatiles that are due in April and September of 2012, which by the way, I think it was one of your questions. The full reserve, I think, is around $300 million.

So given that we have fully reserved, our next FA payment is December '13. And then we have the Eurobond that is due, I think, in March of '14. So we might be doing some liability management. But we are not, let's say, in a hurry or against any wall in order to, let's say no execution pressures on that side.

We will do if we think that market conditions are favorable and improve our position. That's for your fourth question.

And then, Anne, I think you mentioned -- you inquired about the FA balance as of the end of December, and it is $7.19 billion.

Okay, lower than I expected.

And what was the other question?

I think one question you may have had, which we have really not answered -- but I would advise to stay tuned for the filing of our 20-F sometime by the end of the month, in conjunction with our annual shareholder meeting, which is kind of more color or more detail on the liability management process. But as of now, we have not really provided any additional detail on that.

Was there any -- I'm sorry, I mentioned 20-F. What I meant to say is, the annual report. Is there any other question that we've missed out on?

Well, just maybe, just one final clarification. You have the liquidity facility, $600 million, and I think you mentioned $300 million is a reserve for CBs. So that means you have an additional $200 million in your cash balances right now.

Just a question -- do you need to repay the FA if you have additional cash? Or can you just maintain that in your cash balances for other purposes?

No, I think we don't, -- we are not exceeding the amount, the current amount for a cash sweep, which is about $650 million. So we are not, we didn't exceed that amount in the last quarter. And we do not foresee to exceed that amount during the year.

And, Ann -- historically, if you take a look at our cash balances, they've -- I don't want to say consistently, but we've had many quarters where we've had cash balances that were way above the limitation for the liquidity cash sweep, under the financing agreement. So it's not out of the ordinary.

Of course, we do have a little bit more now. But again, that's one of the reasons, one of the added reasons, why we feel quite comfortable about liquidity. And quite comfortable -- in addition to all the things that we discussed on the call -- being able to meet our covenants this year.

Yes, you've done a great job. Thank you very much.

And at this time I would like to turn the call back over to Mr. Fernando Gonzalez for closing remarks.

Thank you very much.

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

Thank you, and good day.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. And have a good day.