Cemex SAB de CV (CX) 2012 Q1 法說會逐字稿

Good day. Welcome to the CEMEX first-quarter 2012 conference call and video webcast. My name is Alicia, 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, Alicia. Good day to everyone, and thank you for joining us for our first-quarter 2012 conference call and video webcast. I will start with the highlights of the quarter, 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 the year. After that, we will be happy to take your questions.

Regarding our results, we are very pleased to report that our consolidated sales within the first quarter increased by 4% in US dollar terms versus the same quarter in 2011. This is the sixth consecutive quarter of recovery in our top line.

Operating EBITDA showed double-digit growth on a like-to-like basis and adjusting for foreign exchange effects. This was the third consecutive quarter with an increase in year-over-year EBITDA. Operating EBITDA margin was also higher for the second consecutive quarter. Infrastructure and housing continued to be the main drivers of demand for our products.

Consolidated prices for our core products increased on a quarter-on-quarter basis both in US dollars and in local currency terms. We are pleased that we continuing to recover the accumulated input-cost inflation for our products. As you know, ours is a highly capital-intensive industry, so we look forward to enhanced pricing dynamics that allow us to achieve an adequate return for our shareholders on our invested capital.

In addition, on a consolidated basis, we saw year-over-year growth in our cement volumes within the quarter, while ready-mix and aggregate volumes declined due in part to unfavorable weather in Europe, which affected our northern Europe regions.

On the financing side, we have now addressed substantially all of our refinancing requirements until 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. Our consolidated funded debt-to-EBITDA ratio as of the end of March was in line with the required leverage covenant of 6.5 times for June 30, 2012. We remain confident in our ability to comply with our financial covenants for this year.

We expect to continue to sell assets that will improve our return from capital employed. The amount of asset sales that we will undertake during the year will be substantially less than what we originally expected in light of the improved operating environment.

We remain focused on our transformation program. We continue to anticipate an incremental improvement of $200 million in our steady-state EBITDA during 2012. During the first quarter, we achieved about half of this improvement. However, it was partially mitigated by an increase in energy, maintenance and raws material costs. We expect to reach the run rate of $400 million by the end of the year.

Another important component of our transformation process is our efforts to increase the use of alternative fuels. The substitution rate reached 25% during the first 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 roughly equal to coal as our second-most important fuel source, just behind pet coke. We are well on our way in meeting our alternative fuel substitution target of 35% by 2015.

Now I would like to discuss the most important development in our market. In Mexico, cement volumes during the first quarter of 2012 increased by 4% on a year-over-year basis, reflecting positive performance from the infrastructure and industrial and commercial sectors. The quarterly declines in ready-mix volumes was the result of a very strong first quarter 2011, which provides a difficult comparison. However, we continue to expect ready-mix volumes to grow by 8% for the full year.

In addition, we have improved our guidance for gray cement volumes to an increase of 4% during 2012.

Last week, we announced a price increase of 120 pesos per ton of bagged cement, equivalent to about 7%. Bagged cement represents about two thirds of total cement sold in the country.

For this year, we expect investments in the residential sector, both formal and informal, to grow by about 2.5%. The double-digit decline we saw in housing starts in 2011 reflected the working capital financing constraints that homebuilders continued to face. This, together with the fact that a higher percentage of mortgages from INFONAVIT and other entities have been applied to purchase existing houses rather than to construct new ones, has dampened road and cement consumption from the formal residential sector.

The informal residential sector is expected to be fueled by robust employment levels and the forecasted increase in remittances from the US. For 2012, we expect total investment in infrastructure will increase by about 4.5% in real terms. Most of this growth is anticipated to occur in the first half of the year.

The industrial and commercial sector is forecasted to grow by about 3.5% this year, responding to the expanding economy.

Regarding our energy consumption, we have continued to increase the use of alternative fuels in Mexico, reaching 15% substitution last year and 17% during the first quarter. We expect to increase this utilization rate to about 23% for the full year 2012.

One of our alternative fuel optimization projects in Mexico at our Zapotiltic plant has gone through the full CDM registration process and is already generating carbon emission credits. Similar credits in our Tepeaca and Merida plants are expected to be implemented over the next two years. In addition, with our cogeneration facility and EURUS windfarm, we are practically self-sufficient in electricity consumption in the country.

In the United States, quarterly cement volumes were up 22% on a year-over-year basis due to favorable weather conditions and higher demand from the residential and industrial and commercial sectors. March was the eighth consecutive month of year-over-year growth in our cement volumes.

With the consolidation of Ready Mix USA joint venture in the second half of 2011, our reported quarterly ready-mix volumes increased by 53% on a year-over-year basis, while aggregate volumes were up 14%. On a like-to-like basis, adjusting for the consolidation, Ready Mix and aggregate volumes increased by 21% and 11%, respectively.

While the good weather brought some future 2012 demand forward in the year, we are cautiously optimistic that our first-quarter results indicate that recovery in the US construction sector is under way.

We successfully implemented our January 1st cement price increases in the Midwest, Colorado and West Texas markets. As a result, sequential consolidated cement prices to external customers increased by 2%. This increase was 6% for the markets in which we announced the price increases. Ready-mix and aggregate prices were stable to slightly positive in the same period.

On a year-over-year basis, prices during the quarter were up 1% from cement external sales and 4% from both ready-mix and aggregates. On April 1st, we implemented a cement price increase in the rest of our markets. As of today, the effort looks successful in all markets except Florida and Southern California.

As we look into the remaining quarters of 2012, we remain firmly committed to recovering input cost inflation and improving our return on invested capital to pricing. We believe we may have to increase prices again in the second half of the year to do so.

We also expect to see improved market conditions resulting from the capacity rationalization in the industry and increased demand. Specifically, supply in some markets like Texas is starting to tighten. Housing activity in the US continues its positive trajectory. On the heels of a 4% increase in housing starts in 2011, year-to-date, March 2012 starts were up 18% versus the prior year. Public construction spending was up 6% for February 2012, with streets and highways up 4%. We still expect cement demand from the public sector to decrease slightly in 2012, largely due to the winding down of ARRA spending and continued uncertainty regarding the Federal Highway program.

With regard to the Federal Highway Bill status in March, the US Congress extended the existing funding for the ninth time for another three months. This opens up the possibility for a new highway bill before the elections.

The industrial and commercial sector continues to contribute positively to construction activity. On a year-over-year basis, spending rose 14% in the first two months of this year, after an 11% year-over-year increase in the fourth quarter in 2011. Contract awards were up 7% year to date March 2012.

In summary, for 2012, we expect volumes in the US to grow by mid-single digits in each of our three major business segments and prices to continue improving.

In our Northern Europe region, we are pleased with the quarter-on-quarter increase in the prices for our three core products. Our volumes were affected by unfavorable weather conditions, especially within the month of February. As you may recall, first quarter 2011 had a very favorable weather, which makes a difficult year-over-year comparison.

In two of our major countries in the region, Germany and France, the residential sector was the main driver for volumes during the first quarter. In Germany housing permits, a leading indicator, increased by 19% in the fourth quarter. Despite the slowdown in economic activity in the country, favorable conditions for this sector continue, including low mortgage rates, stable prices for construction, low unemployment and increasing wages and salaries.

In France, during the 12 month ended in February, housing starts increased by 10%, and permits were up 13%. 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 continue to expect construction activity in the region to be flattish to slightly negative from a very high base in 2011.

In our Mediterranean region, during the first quarter of 2012, positive ready-mix volumes from our operations in Israel, Croatia, Egypt and the Emirates partially mitigated the decline in volumes from our Spanish operations.

In cement, we saw declines in our yearly domestic gray demand volumes in Spain, Egypt, Croatia and the United Emirates. Prices in local currency terms were higher for our three core products on a quarter-on-quarter basis.

In Spain, the continued lackluster performance of the residential sector, as well as the adoption of austerity measures by the government, continued to put downward pressure on our volumes during the quarter. Housing starts reached [87,000] (corrected by company after the call) during 2011 and could be even lower this year compared with an estimated household formation period of about 300,000, reflecting the high level of home inventories in the country.

Public investment for this year is expected to be reduced from last year's levels, as the government continues to focus on fiscal consolidation at the national, regional and local levels. To mitigate the decline in domestic cement volumes, we continue to export from Spain to other countries, with exports accounting for roughly one third of our volumes during the quarter.

In the case of Egypt, volumes performed better than expected given the challenging operating environment. Our cement volumes declined by 1% during the quarter, while ready-mix and aggregate volumes increased by 36% and 53%, respectively. The impact of new cement capacity in the country has been dampened by energy shortages, which affected production. Prices for cement in both local currency and US dollar terms increased by 4% sequentially.

In our South, Central America and the Caribbean region, we continue experiencing a positive economic growth environment, which has resulted in very strong results this quarter. This conditions, in conjunction with our capacity, de-bottlenecking efforts, as well as value-added proposals to our customers, had a favorable effect on our regional volumes and prices. This effort led to an improvement in our quarterly net sales and operating EBITDA of 30% and 66%, respectively.

Columbia and Panama, our two largest markets in the region, enjoyed robust domestic-gray cement and ready-mix volume growth during the quarter due to the execution of infrastructure projects, as well as the positive momentum from the residential sector.

In Colombia, new housing permits increased by more than 50% during 2011. We believe this positive trajectory in the country will continue. In Panama, we enjoyed double-digit growth in volumes and high single-digit growth in prices in our cement operations. The infrastructure sector continued to be the main contributor to cement consumption during the quarter, driven by projects such as the hydroelectric plant in the western part of the country, the Panama City Metro, as well as the ongoing canal expansion.

In Asia, the 10% increase in domestic cement volumes during the quarter reflects the positive performance of the Philippines and Bangladesh. During the first quarter, maintenance shutdowns in our two plants in the Philippines led to unfavorable effects in the year-over-year operating EBITDA comparison.

The Philippines continued volume recovery trends which began in fourth quarter of last year as the government reactivated public spending in infrastructure, specifically roads and highways. In addition, new public and private partnerships and other government projects are expected and should help maintain the favorable volume trend during this year.

In summary, the favorable performance in most of our regions leads us to believe that we are in the initial stages of a turnaround. And now, I will turn the call over to Maher to discuss our financials. Maher.

Thank you, Fernando. Hello, everyone. Before I begin with our financials, I would like to mention that as required by the Mexican Banking and Securities Commission starting this quarter, we are reporting our results under IFRS. The 2011 amounts which appear in our quarterly reports have also been restated under IFRS for comparison purposes.

Now let me begin. Our operating EBITDA increased by 14% on a like-to-like basis for the ongoing operations, adjusting for FX as well as for extraordinary items. These extraordinary items include, first, a change in a pension plan in our Northern Europe region, which resulted in an extraordinary effect in EBITDA of $69 million during this quarter; and second, CO2 sales for $82 million during the first quarter of 2011.

Operating EBITDA margins increased by 0.5 percentage points on a year-over-year basis, to 16.2% from 15.7% in the first quarter of 2011. On a like-to-like basis and adjusting for the extraordinary effects mentioned earlier, this increase was 1.2 percentage points. This margin expansion is driven by the favorable effect of our volumes and prices on our top line, as well as the continued results of our transformation process.

Cost of sales plus SG&A as a percent of net sales decreased by 1.6 percentage points during the quarter versus the first quarter of 2011. Excluding distribution expenses, the decrease is 2 percentage points. This improvement reflects higher consolidated cement volumes resulting in better economies of scale, higher consolidated US dollar prices in our three products, as well as the continued success of our transformation program, which offset the increase in fuel and raw material costs.

Our kiln and electricity bills on a per-ton-of-cement-produced basis increased by 6% during the first quarter. This increase was due to a geographic mix, where we had higher levels of production in regions with higher energy prices, including the US, South Central America and the Caribbean and Asia, and lower volume in regions with lower energy prices, like Northern Europe.

During the quarter, our free cash flow after maintenance CapEx was negative $287 million versus a negative $300 million last year. The year-over-year variation in free cash flow is due mainly to higher operating EBITDA and lower investment in working capital, which more than offset the higher cash taxes and maintenance CapEx, and, to a much lesser extent, higher financial expenses.

The lower year-over-year working capital investment during the quarter is a result of lower receivables and inventories. Adjusting for the negative effects of the change in the pension plan mentioned earlier, investment in working capital declined by close to half from first quarter last year's levels, despite the increase in sales.

Working capital days decreased to 28 days from 32 days in the same period of 2011. As in prior years, we expect to recover most of the investment in working capital in the second half of the year.

Our cash taxes paid during the quarter reflect an extraordinary payment of $72 million in Mexico, as filed on March 9 this year.

In the income statement, we recognized an exchange gain of $150 million due primarily to the appreciation of the euro and Mexican peso versus the US dollar. We also recognized a gain on financial instruments, up $29 million, related mainly to CEMEX shares.

During the quarter we had a controlling interest net loss of $26 million versus a loss of $229 million last year due to better operating income, higher exchange gains, a gain on financial instruments, which more than offset the higher interest expense in the quarter. This translated into our narrowest quarterly net loss since third quarter of 2009.

Regarding our debt, during the first quarter of 2012, we announced separate offers to exchange our 2014 Eurobonds and outstanding series of perpetual debentures for new senior secured notes denominated in dollars and euros. Approximately 53% of the outstanding 2014 Eurobonds and 48% of the outstanding perpetual debentures were exchanged into new senior secured notes maturing in 2019, resulting in a reduction of CEMEX's overall indebtedness, including perpetual debentures, of approximately $131 million.

In addition, at the beginning of this month, we paid our Certificados Bursatiles that matured in April and September, using the reserves that we had already created for this purpose.

Furthermore, we sold assets for $27 million during the quarter. As Fernando mentioned earlier, our asset sales for this year will be substantially less than what we originally expected in light of the improved operating environment.

With the payment of our Certificados Bursatiles, we have addressed substantially all of our debt payments until December 2013. Our consolidated funded debt, as calculated for covenant purposes, was reduced by $67 million. The reduction in debt related to the exchange offers as well as the improvement in the mark-to-market of our derivatives positions was partially offset by a negative conversion effect.

Regarding our consolidated funded debt to EBITDA levels, using IFRS as the applicable GAAP, we reached 6.4 times as of March 2012. We estimate that calculating such a ratio under Mexican GAAP would not result in significant differences with respect to the calculation under IFRS. For covenant purposes, adoption of IFRS requires an agreement with creditors under the financing agreement. We expect to finalize this process within the next 90 days.

Of course, another important priority is to ensure that we continue to have adequate liquidity for seasonal needs and to continue to meet our financial covenants. We ended the first quarter, which is the most challenging in terms of liquidity, with close to $700 million in cash, excluding the reserve created to pay the Certificados Bursatiles.

As Fernando mentioned earlier, we believe that our recent results are the beginning of a turnaround in our performance. Now, Fernando will discuss our outlook for this year. Fernando.

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, the Caribbean region and Asia will more than offset an expected weaker Mediterranean region, as well as a sub-base 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 strategy to recover input cost inflation for our three core products. We also plan to continue to keep capital expenditures and other investments at a minimum. Also, CapEx is expected to be about $600 million, including $465 million in maintenance CapEx and $135 million in strategic CapEx.

Regarding our cash taxes, we anticipate no major change from 2011 levels, excluding the March payments in Mexico mentioned by Maher earlier. We also expect no significant difference in our working capital investment versus 2011, excluding the effect of foreign exchange fluctuations. Similarly, we do not foresee a significant change this year in the cost of debt, including our perpetual and convertible securities.

In closing, I want to emphasize three points. First, as I said at the beginning of the call, we have seen six consecutive quarters of top-line growth. During 2012, the anticipated recovery in many of our markets should produce consolidated volume on price increases to improve our return on invested capital.

Second, we continue to work hard to ensure we achieve the affected $200 million in incremental savings from the initiatives and in our transformation program during 2012. 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 principal debt payments until December 2013, and proactively bolstered our liquidity mix. Thanks for your attention.

Before we go into our Q&A session, I would like 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. And now, we will be happy to take your questions. Operator?

(Operator Instructions) Carlos Peyrelongue, Merrill Lynch.

Thank you. Good morning, gentlemen. Thank you for the call. Two questions, if I may. First one related to Northern Europe. I was not able to catch the explanation you provided regarding EBITDA that was higher than expected, considering the drop of 11% in revenues. If you could explain that again, I would appreciate it.

And the second question relates to asset sales and liability management. You mentioned that you expect the sale of assets -- (inaudible) to assets to be lower than previously guided. Would you consider as part of your asset sales and liability management the possibility of listing either your Colombian or your US subsidiary? Thank you.

Carlos, for the first, one of the things that we mentioned -- I guess just to kind of recap -- because I was not hearing you very well -- in terms of the Northern Europe EBITDA, the most important component that drove the strength of that EBITDA, that was (inaudible) to the EBITDA, is the $69 million EBITDA effect that we had due to a change in one of our pension funds in that region.

Now, of course, also prices have offset some of the higher costs. And the volume effect was roughly about $44 million. But prices completely offset the higher variable costs in that region. But the biggest factor was really the pension fund effect in one of our countries there.

Okay, got you. Thanks, Maher.

And the second question, I think Fernando --

About asset sales, yes. What we are saying is that given that things have improved further than expected, we think that the asset divestments that we are covering for the year will be lower than the $500 million that we commented in our last call.

Now, you know, asset divestment is -- for instance, you were mentioning the possibility in Colombia. We are continuously exploring different options for different reasons, either because of strategic reasons or other reasons. So we don't think we will be proactively divesting assets in large quantities, but at the same time, we need to keep options and we need to explore options permanently.

Okay. Great. Thank you.

Gordon Lee, BTG.

Good morning. Just two quick questions. First, just a follow-up on the Europe -- the boost to EBIDTA from the change in the pension plan. Is that a one-time one-off, meaning is this the only quarter where we'll see an adjustment to SG&A resulting from that, or should we expect additional adjustments in the coming quarters?

And then just on Asia, you mentioned that there was maintenance in the Philippines which reduced margins in the quarter. Is that maintenance now complete, and should we expect a rebound in margins in Asia similar to the levels we were seeing last year? Thank you.

Let me start with the effect of the pension. It is a one-time effect. It is related to changes that were done in a defined benefit program that was already closed. It was to be closed even before we acquired those businesses from RMC in 2005. But there were some additional changes to each in the sense of -- or with the final impact of reducing the liability of that fund in the future materially.

So that is what happened. It is a unique thing. It is a one time and is fully allocated to the first quarter of this year. So we don't think something like that might repeat.

And on the second part, in the Philippines, maintenance in the Philippines, it is 100% a timing issue. Most of maintenance or the maintenance of our biggest kilns in the Philippines this year were done in the first quarter. You know maintenance of cement kilns are more or less in the range of every 12 months, but it can vary.

So last year, maintenance of these kilns were not performed during the same quarter, meaning they were not performed during the first quarter of 2011. They were performed in November and December of 2010. So the comparison is full maintenance costs in the first quarter 2010 compared with none in the first quarter 2011. So it is a substantial effect. It is done. It is finished. So we would not have that effect in the rest of the year.

Perfect. That's great. If I could just have one quick follow-on, just to confirm. You had mentioned in the previous conference call that you didn't expect any meaningful CO2 emission rights sales. Did you have any during the quarter?

No.

Perfect, great.

We do not expect to have any material sales of CO2.

Perfect. Thank you very much.

Eduardo Couto, Goldman Sachs.

Hi. Good morning, Fernando. Good morning, Maher. My question is regarding the US. When we look to the results or the numbers of CEMEX in the US, one thing that caught my attention was that the sales, they grew almost $200 million year on year in the first quarter, but the EBITDA grew only $20 million.

So I was expecting stronger leverage on the -- stronger operating leverage on the recover. So I was just wondering if the reason for this much stronger growth on revenues than EBIDTA comes from the Ready Mix USA Corporation or if there is any other reason. I just want to understand if we may really expect a strong operating leverage as sales and volumes recover in the US. That's the question. Thank you.

Let me take that question. First, I think it is important to highlight that the US EBITDA margins improved from close to negative 9% in the first quarter of last year to the 3.5% down that we saw in the quarter.

In the case of the US, we saw a similar effect as we just discussed in the Philippines. There were two effects that were happening there that are temporary and will flow through during the next three quarters. One is maintenance. And the other, because of the unexpected growth in volumes, we had to draw down on inventory. And when you do that, it essentially increases the cost of the product that you are putting out.

If we exclude the maintenance and the inventory effect, that would translate to close to about three percentage points impact on the EBITDA number, and it would virtually take us to a breakeven position for the quarter, slightly below breakeven for the quarter. Now of course, it is very important to highlight that this is a temporary effect, and it will be normalized during the course of the year.

Now, fortunately, this has a positive effect on working capital, and of course we saw that in the first quarter. And of course, it is also important to mention that the sensitivity of the EBITDA margin is probably at its highest in the first quarter, because it happens to be also the weakest quarter of the year for us.

Now, of course, as you also mentioned, the difference is also there is a consolidation effect of Ready Mix USA which needs to be taken into consideration when you take a look at top line versus EBITDA. But what's really important to highlight is the gaining traction in price; that is definitely happening.

Maher, just one point on that. So probably the margins of Ready Mix USA are very negative. Do you guys have any expectations in terms of turning around the margins and the results of Ready Mix USA? Because looking at those numbers, it really gave me the impression that the consolidation of Ready Mix USA didn't help the results of the United States this quarter.

Eduardo, I don't think -- it is not the Ready Mix USA. I think the challenge we have in the US is the ready-mix business. And since Ready Mix USA is substantially -- it is a ready-mix business, that is one segment in our US business where we continue to experience a negative EBITDA margin.

Having said that, we've cut that negative EBITDA margin in half due to better volumes and prices. So we are definitely on a positive trajectory. And clearly, as the year by, we expect continued improvement in the ready-mix business.

So it is really not the consolidation -- just the consolidation. It is really adding more ready-mix to the product mix in the US business.

Okay. No, it is clear. And just a final question, Maher, on the debt side. Can we expect to see more debt operations like the ones done in March to reduce the 2014 amortizations? Or, no, the ones in March are pretty much the ones that you guys were expecting to do for this year?

Can you repeat the question please, Eduardo?

Are we expecting more liability management (multiple speakers).

I thought the question was in terms to additional debt.

No, it's regarding the debt operation that you did, that you postponed the amortizations of 2014. Can we expect to see more of that?

As you know, we have also mentioned that our next payments for bank debt in December '13 and February '14 and part of the Eurobond -- the remaining part of the Eurobond is in March '14. So we don't have any, let's say, specific short-term refinancing needs. In that sense, we are not, let's say, trying to do nothing in particular on the liability management side.

Now having said that, as you know, the markets from time to time do present opportunities. So on the basis of an opportunistic approach, we might do some additional movement.

Okay. Thank you, guys.

Vanessa Quiroga, Credit Suisse.

Thank you. Good morning, Fernando, Maher. How are you? I have more questions about the US. Just understand better the maintenance that you did in the first quarter. Are these maintenance exercises -- were these maintenance that you did also last year? Or was this something that happens every couple of years? Just understand. And if you did it last year, was it in a different quarter?

Vanessa, the maintenance that was performed was the regular maintenance. As you know, and as I already mentioned, cement kilns get a annual major maintenance, and most of our kilns go through this maintenance in the first quarter of the year, particularly in the US and the north part of Europe. There is an issue of timing, the same way I commented in the case of the Philippines.

Most of maintenance on capacity that is currently used is done, so the effect shouldn't repeat in the next quarter.

And Vanessa, if I could just add, the maintenance component was really the smaller component of the adjustments. Really the biggest component that happened was the impact of the inventory drawdown because of the unexpected growth in volumes. And we were being cautious, I guess, going into the quarter, and so we decided to have the bulk of the maintenance being done in that quarter. So that kind of exacerbated the situation for us.

At the same time, just an additional note, is that the US has been -- as part of the transformation initiative and their recovery program, they have been in the mood of trying to optimize different issues, and the working capital is one of them. In the last few months, the US has been really optimizing their working capital. They have been reducing their inventory. So there is also an impact because of that reason.

By the way, the precise of the optimization of the working capital in the US is the main reason why we are setting new records in our working capital measure in days the Company to about 28 days during the quarter.

Okay, that's very useful. Just to understand what has been the progress in terms of the cost savings programs you've been implementing, transformation programs in US. By how much do you think or do you estimate the breakeven point in terms of volumes has been reduced?

In other words, in 2011, maybe you would reach the breakeven point in EBITDA with say 11 million tons of volumes, and probably for 2012, with a few less volume, you could be reaching that breakeven point thanks to the transformation process. Do you have any such estimate?

I think we don't have it handy, but we can provide that to you. But what I can say is that we are very, very close to it.

Vanessa, as I mentioned, if you adjust for the maintenance costs -- for the maintenance and the inventory effect in the first quarter, we are awfully close to breakeven in a quarter that is the weakest quarter of the year.

So you can do a little bit of back-of-the-envelope analysis and you could figure out that at those levels -- at those run rate levels, we are almost there.

In previous calls, we have shared how particularly in the case of the US and Spain, with are the markets were hit the most in our portafolio-- we've been sharing how we through time, did the rightsizing needed to manage and to have a profitable business even though we have lost more than 60% of volumes in those markets since the peak in 2007.

So all that rightsizing effort has been done in the US. As you know there is a new management team in place in the US since April last year, they've added additional ways to improve profitability. And again, I think we are already in breakeven or will be very, very soon.

Okay. Thanks. That's very useful.

At this time, we have a question from our Webcast audience.

Thank you, operator. The next question is from Robert Gardner (inaudible). The question is cement prices appear to have improved from fourth quarter 2011 across all regions except the US. Have recent price increases been unsuccessful in this country?

Robert, there is a peculiar dynamic in the US. When we talk about prices, we are talking about weighted-average prices, both internal and external prices. As you may know, roughly one third of our cement in the US, one third of our volume goes into our ready-mix businesses. And so the price that we report to the market is a weighted average price of the internal transfer price to our ready-mix business and the external price that we sell to our customers.

Over time, those two prices are the same, but of course, we don't do the transfer pricing on a spot basis every day. That just -- it makes it just quite impossible to manage. So sometimes there are lags or there are leads.

In the case of the first quarter, when you take a look at it sequentially, there is a bit of a difference between the two. And that is why we decided to give a little more granularity to the pricing dynamic, and breaking out prices, taking into effect the price that is to be external to third parties, adjusting for the effect of the internal transfer price.

And so if we take a look at those prices, those on a consolidated basis in all of our markets were 2% up sequentially.

What is more important, though, and more meaningful is taking a look at price increases in markets where we actually raised prices. And as we mentioned, in that case, we've increased -- we were able to increase prices by 6% sequentially.

Now just to recap, importantly here, some of the pricing increases that Fernando mentioned earlier in the call, we announced a pricing increase of a little bit shy of $9.00 per metric ton January 1 in the Midwest, Colorado and West Texas. Those markets represent about 20% of our volume. And there, the price increase achieved was about 6%.

Now, we have another pricing increase that took effect beginning of this month, and that is about $5.50, and that is in the rest of the US, excluding Florida. And there, we feel quite comfortable with the success of the second increase, I would say, with the exception of the Southern California market and -- right -- Northern California market. So that is kind of the overview on US pricing. I don't know if there is a follow-up on that or not. I know you are on the webcast.

Operator, next question.

Dan McGoey, Citi.

Thanks. Maher, if I could just follow up on the line that you just commenting. I guess that means for Florida -- could you just comment on Florida specifically, given its importance in both a volume and pricing front?

And the other question, just circling back to the divestitures -- and sorry if I missed it, Fernando. But the reduced number in terms of divestitures -- or why the change in divestiture amount for 2012. And if we can presume it is more confidence in the covenant ratios for the end of the year, can you walk us through your current thinking on the December covenants?

Definitely it has to do with the fact that things are improving and we feel quite confident on our margins complying with covenants in June, which by March we are almost there -- we are there --I and in December.

Now, if you remember, in last year CEMEX said -- I think it was around September -- we mentioned at that time that we might need to divest of about a billion dollar of assets. Then in the last call, we corrected that figure for about 500. And what we are saying now is given how things are improving, and particularly in the US, we think we are at the initial stages of our recovery or our turnaround.

Remember that in our last call we felt confident to say that we were in an inflection point at that time. Now, when we see volumes growing in US, Mexico -- another important market for us, but let me refer in particular to the US -- when you see those volumes growing slightly at the beginning, eight months ago, and then high to double digits now, after eight, nine months, we do think that it is definitely a tendency on the recovery. And on top of that we will be improving our EBITDA Generation.

So again, there might be a reason to divest assets, as I already mentioned in the previous question. There are always reasons, like if we think the business really doesn't fit properly in our product portfolio (inaudible), those type of divestments can be done at any time.

But right now, we believe that by divesting, let's say, between $250 million and $300 million of non-EBITDA generation assets, we will be on the safe side. That is, by the way, the amount of assets we do foresee we might be divesting this year, again, this type of pieces of land, properties, small to medium size properties. But that is our plan for the year on asset divestment.

Okay, thanks.

Just to respond to your first question regarding the US and more color on Florida, Florida volumes have been not as strong as other states. In California, if we take a look at cement volumes for the quarter, we were about 27% up year on year. In Texas, we were up about 23%. The case of California, this is the third consecutive quarter where we see year-on-year growth. In Texas, this is probably -- certainly we've seen all of last year and the first quarter.

Florida has been weaker. We are on our third consecutive quarter of higher volumes in cement. But for the first quarter we were up about 5%. Positive outlook, however. Florida housing permits for the first couple of months are up 40% year on year. So as you recall, many months ago -- it seems like a long time ago, when Karl Watson, our US CEO, said that he is following a micro market pricing strategy. And so clearly at this point in time, we just feel that it is not warranted. And pricing has been flat over the past couple of months, it's stabilized.

So we will have to wait and see, and we will stay in touch. I don't know if that is enough color, Dan.

Yes, that's perfect. Thank you.

Benjamin Theurer, Barclays.

Good morning, everybody. I have actually one question regarding on the Mediterranean region. If we look on the presentation, you have the breakdown on the same volume. I suppose this is only -- if you could clarify if this is only Spain domestic for all three business lines or if this includes what is on (technical difficulty) overall for the Spanish (technical difficulty).

Sorry, the line (multiple speakers).

Better now?

No, I cannot understand what you are saying.

(technical difficulty) better?

Benjamin, is it possible that you can (technical difficulty).

I'm sorry, I cleared his line. We have a current question from the webcast, please.

We will take that question from the webcast and then we will come back to you -- the operator will come back to you. The question is from the webcast is from Gonzalo Fernandez from Santander. And the question is -- are margins in South America sustainable?

The answer is yes, they are. Both because of price increases peaking higher than our cost inflation and because of transformations having an impact that you saw in SG&A. So South America in general, particularly in Colombia and Panama, as we mentioned, are growing, and we have reasons to believe they will continue growing.

If I could add a little bit more, Gonzalo. As you know, there is a very aggressive housing program in Colombia over the next four years. There is an incredible amount of infrastructure construction that is taking place in Panama. So that just bolsters the point that Fernando was making, and that is why we feel the outlook is going to continue to be rather positive for that region.

Operator, I don't know if we can go back to Ben's question from Barclays.

Benjamin Theurer, Barclays.

(technical difficulty)

That line is still very loud.

He can call us.

Ben, sorry about that. We will try to take -- we will take your question afterwards. Apologize about that.

Ben, if you would like, shoot us a question through the webcast. We will answer it that way. Thank you. Operator, can we go to the next question please?

Jacob Steinfeld, JPMorgan.

Congrats on the improved results. I had a quick question on the transformational savings. You mentioned that $100 million was included in the first-quarter results. Just wanted to understand a bit better. You said there were some offsetting effects. Just wanted to get some more color on that if possible.

I guess we can break them very broadly -- a couple of things. One, we had some in the quarter, we had some variable costs that were going up. And primarily I would say energy in all of its flavors, whether it is kiln fuels, electricity, distribution, all of that was very important.

The other component of variables that was offsetting some of the savings was -- in variable was maintenance costs -- you know, refactories and other materials that are used for maintenance in some of our grinding facilities. And then we've had, to a much lesser extent, some component of our fixed costs also going, offsetting the savings that we had.

And of course, one thing that happened -- I mean it is difficult to talk about transformation costs, because it is not a static world. I mean, you have savings and then you have many other things that are also increasing. And one of the things of course that we did is increasing salaries last year, in April. And that comparison also is creating a negative effect on a year-on-year basis for the first quarter.

So those are the major elements that had overshadowed a little bit the savings that we had realized under the transformation program. I don't know if that answers your question, Jacob.

I guess in the next nine months, do you expect to capture a greater proportion of the, I guess, additional $100 million of cost savings through lower energy or input costs? Or do you expect some of the $100 million of savings to continue to be offset by some of these factors?

I think, as Maher mentioned, these factors are not permanent. Some of them, as we have clarified are particularly -- or typical from the first quarter of the year, mainly maintenance. Some impact from inventories taken, particularly in the US. But most of those factors would not continue having relevant offset of savings for the rest of the year.

Okay, great. Thanks. And one additional question. I was wondering if you could provide an update on the PDVSA bonds that are held by the Company.

Pardon?

Provide an update on the amount of PDVSA bonds that are held by the Company.

We have cashed some of them and we still keep around $100 million of PDVSA bonds.

So you disposed of about $100 million in the first quarter?

Yes.

Okay, thanks.

Well, first quarter and part of it in April.

Okay, great.

Operator, I will take the question -- I will take Benjamin from Barclays question. It came through on the webcast, so if I could do that.

Ben, sorry about your line breaking down. I just want to make sure it is not us, it's you. Just kidding, Ben. Okay, the question is can you clarify if sustained volumes in the presentation are only the domestic volumes. How much can you currently sell into other markets via exporting? That's the first question.

The second question is on Egypt. The stabilization in cement and increase in ready-mix and aggregates, do you think that there is a turnaround and should continue going into the remaining quarters for the year?

If I take the one in Egypt. There are -- there is consumption, and that is why volumes have not dropped in the case of cement more than 1%. There are other factors related to the industry. On the one hand, it is new capacity. There are issues on how this capacity is located in comparison to our locations in Assiut in the south of the country. There are issues related to energy availability. So there are several issues that have allowed us to keep -- or to have stable, flat volumes in cement, and, as previously mentioned, in the case of ready-mix and aggregates.

In the case of the detractors of the consumption in the country, it has been changing from, let's say, infrastructure, large infrastructure projects to smaller construction of the formal and informal housing, and other factors. So so far Egypt is performing better than what we originally thought.

At the end, it is no different to what happened in Egypt last year. Last year, earlier in the year, even before the revolution, we were expecting our volumes to drop about 4% -- I think that was the figure. And they ended up falling only 3%.

So volumes are holding. There are changes in how that is composed on a sector-by-sector basis. On the particular dynamics of the industry, there are different issues, like new capacity but shortages on energy, and again, our locations that give us advantage to the rest of the players that are in the North, in the Cairo area.

Is this sustainable? We think it is, although the situation -- you know the situation, that there are going to be elections pretty soon in Egypt. So far, it has been sustainable, so we have to monitor the situation very carefully in the next few months.

And if I could take the first portion. Ben, on Spain, the number that you -- well, all of the finance numbers that you see are domestic-gray cement. So all of the statistics that you see on our volumes are domestic-gray cement, and that goes, of course, for Spain. So we don't include the export part of the business.

Exports are about one third right now of the total production of the country. And they grew by mid to slightly higher single-digit -- exports grew by a mid to high-single-digit in the first quarter year on year. And if we include exports into the mix, the performance of volume in the first quarter would be significantly better than what we saw in terms of the domestic volumes.

Now, in terms of ability to continue to export, we are currently operating at probably 70% of our active capacity in Spain. So to the extent that demand -- and we feel that demand is there in many of the markets. As you know, most of the markets we export to are West Africa, North Africa. And for a variety of reasons, those supply/demand conditions in those markets continue to be attractive. And so we have the capacity and we are likely to continue to benefit from that platform that we have in Spain, and making sure that we get better economy of scale on our fixed assets there.

I hope that answers the question. I'm sorry that we cannot interact over the phone and we have to do it over the webcast. Thank you very much, Ben, for your patience.

I would now like to turn the call over to Fernando Gonzalez for closing remarks.

Thank you very much. In closing, I would like to thank you all for your time and attention, and 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, and you may now disconnect. Good day.