Cemex SAB de CV (CX) 2012 Q4 法說會逐字稿

Good morning and welcome to CEMEX's fourth-quarter 2012 conference call and video webcast. My name is Jasmine 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 us for our fourth-quarter 2012 conference call and video webcast. After Maher and I discuss the results of the quarter, we will be happy to take your questions.

We are pleased with our 10% growth in operating EBITDA on a like-to-like basis, on the back of essentially flat consolidated net sales. This is the sixth consecutive quarter with a year-over-year EBITDA increase.

For the full year, operating EBITDA grew by 14% on a like-to-like basis, reaching $2.6 billion. Improvement in pricing and volume in several of our regions, as well as the continued success of our transformation effort, has led to the highest operating EBITDA and operating EBITDA margin since 2009.

Infrastructure and housing continue to be the main drivers of demand for our products. The US, as well as the South, Central America and the Caribbean, and Asia regions contributed strongly to our fourth-quarter and full-year 2012 consolidated cement volumes. The favorable volumes from these regions partially mitigated the declines we experienced in the Northern Europe and the Mediterranean regions and, to a lesser extent, Mexico.

In the case of the US, we had double-digit growth in our full-year cement, ready-mix, and aggregate volumes. Prices for domestic gray cement on a consolidated basis increased by 1% sequentially in local currency terms, while ready-mix and aggregates prices were stable.

For the full-year 2012 we saw low to mid single-digit increases in consolidated prices in local currency terms for our three core products. Although we are recovering part of input cost inflation, we continue to be at levels below our targeted return on capital employed.

On this front, execution of our Value Before Volume strategy continues, with the primary focus on greater transparency in pricing and enhancing our customer relation experience. This should in the medium term translate into the desired returns on investment in our core businesses.

As part of this strategy, in our Northern Europe region we have now put in place the elements of our new pricing standards and principles in our cement business. We have introduced a structured price system and energy cost surcharges effective January 2013.

We have also informed our customers of biannual price negotiations in April and the second half of the year, as well as new service price lists. To support this strategy, we continue training our sales force and have adjusted their compensation mechanism.

In Europe, we have also been working on pricing strategies for our ready-mix and aggregates businesses. In the case of ready-mix, we already are in the implementation phase in some countries.

Our Value Before Volume strategy is also quite advanced in the US, where we have initiated the implementation in our cement business. In Mexico and other regions, we will move to the implementation soon.

2012 was a year of recovery for CEMEX. Our close to 2 percentage point margin expansion during the year, which translates into an incremental EBITDA contribution of about $300 million, was a result of significant operating leverage in our US, South, Central American and the Caribbean, and Asia regions.

Our US operations showed annual growth in volumes for the first time since 2005. Higher volumes plus a strong operating leverage effect led the US to be EBITDA profitable for the first time since 2009.

In addition, during the year, we reported record volumes in some of our operations. We had record high cement volumes in Colombia, Panama, Nicaragua, and the Philippines as well as record high ready-mix volumes in Israel.

Moreover, improved operating efficiencies and the success of our commercial and pricing strategies also contributed to EBITDA margin expansion. Regarding our transformation program, we achieved our targeted incremental improvement of $200 million in our steady-state EBITDA during 2012, while reaching the run rate of $400 million by the end of the year.

Although we finished the implementation of the initiatives of our transformation program, our cost-reduction effort is ongoing. We are pursuing additional efforts designed to improve our operating efficiencies and the value we generate from our asset base, while delivering better value to our customers. We will keep you informed on these efforts.

2012 was also a landmark year on the financing side. During the year, we executed several major transactions, including the refinancing of close to $6.7 billion of debt under the financing agreement into a new Facilities Agreement with a final maturity in 2017, and $500 million in new senior secured notes due 2018; the issuance of $940 million in new senior secured notes due in 2019 in exchange for perpetual debentures and 2014 Eurobonds, resulting in a reduction in our overall indebtedness of $131 million; the issuance of $1.5 billion in new senior secured notes due in 2022; and the initial share offering of a 26.65% minority position in CEMEX Latam Holdings, resulting in net proceeds of about $960 million.

Under our 2012 financial plan, we significantly improved our debt maturity profile and strengthened our capital structure. Maher will provide more details on this topic later in the call.

In addition, we are pleased with the way our credit risk has rerated. We continue to be vigilant and prepared for windows of opportunity to reduce interest expense at the margin.

We also continue with our efforts to increase the use of alternative fuels. Our substitution rate for alternatives reached 27% during 2012, surpassing coal as the second most important fuel for us, behind pet coke.

Now, I would like to discuss the most important developments in our markets. In Mexico, we are pleased with the growth in operating EBITDA on a like-to-like basis and the EBITDA margin expansion for the full-year 2012. This improvement reflected new operating efficiencies and was captured despite volumes that were below our expectations.

During the year, we saw robust performance from the industrial and commercial sector, while cement volumes to the formal residential sector declined on a year-over-year basis. Cement volumes to informal residential and infrastructure sectors remained flat versus 2011.

Regarding the formal residential sector, homebuilders face working capital constraints which translated into weak cement volumes going to this sector. Housing inventories held by homebuilders are still high, although we have seen reductions in the past few months. In addition, an increasing number of mortgages are used to finance existing homes and housing improvement.

For this year, we estimate the investment in the formal residential sector to grow by about 1.5% in real terms. We expect a gradual reduction in homebuilders' inventories, although some of these inventories of homes and land may take longer to clear, as some of these home developments are in places where public services are still inadequate.

The self construction sector was weaker than expected. Year-to-date, remittances as of November 2012 are 6% higher in peso terms on a year-over-year basis, despite a decline in the last four months. During 2013, investment in the informal residential sector is expected to have a positive performance, reflecting the continued strong levels in employment and aggregate wages and a better performance in remittances due to improvements in the US economy.

Investment in infrastructure during 2012 grew by about 9% in real terms driven to a great extent by oil and energy projects, which are not intensive in cement consumption. During the first half of the year, we saw a more cautious than expected stance from the government towards infrastructure spending during the electoral period. For this year, investment in infrastructure is expected to grow by about 2% in real terms.

The industrial and commercial sector was the most dynamic during 2012, driven by private consumption and manufacturing activity. We estimate this trend to continue during this year, reflecting good expected macroeconomic performance.

We continue with our efforts designed to increase our operating efficiencies through all of our businesses, focused primarily on synergies amongst all areas to maximize value. For example, we have been able to increase the use of alternative fuels in Mexico, reaching an 18% substitution rate during 2012 from 15% the year before.

In the United States, the recovery in our markets continued to gain momentum during the fourth quarter. Cement volumes were up 9% on a year-over-year basis, driven by higher demand in the residential and industrial and commercial sectors.

On a year-over-year basis, fourth-quarter ready-mix and aggregates volumes increased by 10% and 20%, respectively. The strong growth in aggregates volumes in the quarter reflects our ongoing work on a large infrastructure project in Florida.

The residential sector in the US continued to outpace our growth expectations. In 2012, work began on 780,000 homes, a 28% jump from 2011.

Housing starts gained steam throughout the year, reaching a seasonally adjusted annualized rate of 954,000 in December, the highest rate since June 2008. In our key states of California, Florida, Texas, and Arizona, housing permits grew 39% for 2012, significantly in excess of the national growth rate of 29%.

The industrial and commercial sector contributed to growth during the year. On a year-over-year basis, nominal spending rose 14% year-to-date November.

Contract awards are up 14% for this period. The infrastructure sector displayed the slowest growth of the three sectors in 2012, attributable to the uncertainty surrounding the reauthorization of the highway bill earlier in the year, as well as concern regarding the fiscal cliff.

Public construction spending increased by 4% through November 2012, with streets and highways up 1%. With the new highway bill in place, some resolution of the fiscal cliff, as well as the improving financial condition of the states, we expect highway spending to show more growth in 2013.

In 2012 we adopted our Value Before Volume pricing initiative. This strategy produced some initial gains in cement and ready-mix prices.

Our cement prices to external customers increased by 3% during the year. Our ready-mix prices also went up 4% during 2012, due in large part to our success in charging fees and surcharges for fuel, environmental compliance costs, less-than-full truckload deliveries, and other value-added services. Our aggregates prices were flat due to product mix variation.

In the coming years, we are determined to not only recover input cost inflation but also to recover our margin erosion and secure a reasonable return on capital for our business. We have announced price increases for our cement of $8.80 per metric ton for both January and July.

Our January increases are sticking in the Midwest, California, and Florida markets, but at varying rates of success. In the South Atlantic, the prices increase has been regrettably rolled back and will now coincide with the scheduled Texas price increase in April.

In Texas, we successfully implemented two price increases in 2012, with the most recent increase introduced last October. As recovery takes hold and capacity utilization rates rise, we will seek to announce similar pricing strategies for our cement in the rest of our markets.

In our ready-mix business, we have announced January price increases between $6.50 and $10.00 per cubic meter. The increases applied to all our markets except Texas, where our increase is again set for April.

Our increases have been sticking, and we will see prices drift up in the coming months as contracts secured at higher prices substitute older contracts. While there has been a favorable pricing trend emerging, our products remain chronically underpriced and there is still a long way to go to recover the margins necessary to earn satisfactory returns on our invested capital.

During the quarter, we experienced significant operational leverage. The leverage performance was partially offset by the high volume growth in lower-price aggregates associated with the large infrastructure project in Florida.

Optimizing our energy mix remains a key objective in the US business. Our alternative energy usage for the full-year 2012 was 22%, 4% higher than in the prior year. Nine of our 11 active plants can use alternative fuels.

We are optimistic with regard to the US recovery as we enter 2013. We expect high single-digit volume growth in cement, ready-mix, and aggregates in 2013. This forecast reflects a continued strong recovery in the residential sector, a vibrant industrial and commercial sector, as well as better demand from the infrastructure sector.

In our Northern Europe region, the economic slowdown during 2012 affected private and public construction spending and, consequently, the volumes for our products. On a year-over-year basis, operating EBITDA margin in the region improved during the fourth quarter, reflecting our continued cost-reduction initiatives, which have offset lower volumes.

In Germany, Poland, and the UK, we recovered the slight, temporary losses in cement market shares we lost in early 2012. In the region, we continue with our Value Before Volume strategy.

During 2012, we went through cement capacity shutdowns and closing of ready-mix plans to support this strategy. We continue to adapt our cement production to customer needs.

In Germany, the residential sector was the main driver of demand for our products during 2012. Residential permits increased by 8% during the second and third quarter, and 10% during the month of October. The environment for residential construction continues to be positive, with low mortgage rates and low unemployment.

In contrast, the industrial and commercial sector has begun to slow down. Permits during the second and third quarters increased by 17% and 7%, respectively, and declined by 25% during October. This slowdown in permits will likely continue this year, reflecting the economic environment.

On the infrastructure side, after seeing volatility in new orders as well as bottlenecks in the German construction industry that affected some projects during 2012, we expect to this sector to be stable this year.

In Poland, we saw a sharp reduction in infrastructure spending during the second half of 2012, from a very high consumption base in 2011, and as road and sports-related infrastructure projects built in anticipation to the Euro 2012 Championship came to an end.

During 2012, the decline in EU funds for capital investments in the public sector and the liquidity problems faced by some construction companies also affected infrastructure construction. Housing starts also ended at a lower level than in 2011, as some of the growth registered during the first half of the year was artificially driven by the changes in the developers act that were introduced at the end of April. For this year, the slowdown in infrastructure and housing is expected to continue, although at a more moderate rate than in 2012.

In France, the infrastructure sector showed slight growth in 2012, driven by highway and high-speed railway projects. Activity was impacted by financing constraints faced by local administrations as well as deficit reducing targets. Activity in this sector should continue this year, with a continuation of some projects as well as expected spending in anticipation of municipal elections next year.

The housing sector, on the other hand, declined during 2012, reflecting the decrease in the tax benefit on buy-to-let investments and tight credit availability. A new, less attractive buy-to-let scheme has been introduced for this year. Despite this, a slight decline in housing starts is expected for 2013.

In the United Kingdom, the decline in our volumes during 2012 reflects the economic slowdown as well as cuts in public spending. We do not expect a change in trend during 2013.

In our Mediterranean region, positive ready-mix volumes from our operations in Israel, Croatia, and Egypt partially mitigated a decline in volumes from our operations in Spain and the Emirates during 2012. In cement, we saw declines throughout the region. Regional prices in local currency terms during 2012 were higher for ready-mix and aggregates, while the 1% decline in cement was due to the decline in Egyptian prices.

In the case of Spain, cement prices for the year ended up 2% higher on a year-over-year basis. In Spain, demand for our products continued to be affected by low construction activity in the different sectors. The continued fiscal austerity measures keep infrastructure spending at very low levels.

Preliminary housing starts estimates for 2012 suggest that starts dropped by about 40%, a reflection of high existing home inventory levels. For 2013, the residential sector should stabilize at a very low level, while investment in infrastructure should continue to decline, reflecting continued budget cuts.

We continue to export from Spain to other countries in order to mitigate the decline in domestic cement volumes. During 2012, exports accounted for about a third of our volumes.

We continue to implement commercial initiatives to grow our pie, including the increased utilization of ready-mix for road construction, new potential market niches, and introduction of new premium products, among others. In addition and as part of our Value Before Volume strategy, we have gone through cement capacity adjustments.

In Egypt, the decline in our volumes and prices during the quarter reflects the increasing cement capacity in the country. Shortage of energy continues to impact the delivery of cement, partially mitigating the impact of this new capacity.

The main driver of cement consumption remains the informal sector. There was increased residential activity during the quarter, as some developers moved to restart unfinished residential developments.

Infrastructure activities continue to be low. For this year, we continue to expect downward pressure on our volumes, reflecting the increased cement production capacity in the country and potentially lower exports resulting from higher energy prices.

In our South, Central America and the Caribbean region, we are pleased with the operating EBITDA expansion seen during the quarter and full year. Infrastructure, low-income housing, and to a lesser extent renewable energy projects were the main drivers of growth.

In the region, 2012 was a record year in terms of cement volume and operating EBITDA generation in Colombia, Panama, Nicaragua, and Brazil. In addition, Costa Rica showed double-digit growth in cement volumes during the year on a year-over-year basis.

In Colombia our cement and ready-mix volumes during 2012 grew by 5% and 14%, respectively. The higher growth in ready-mix reflects our increased coverage in the country, with the addition of 32 plants and 200 new mixer trucks.

During the year, the residential sector enjoyed stable interest rates, controlled inflation, and favorable economic conditions. However, we saw a decline in permits resulting from the high activity seen during 2011 in anticipation of the change in the building code.

For this year, we expect healthy activity in the sector, especially low-income housing, resulting from the $780 million approved by the government to extend the interest rate subsidy. In addition, housing construction is expected to grow further due to the 100,000 units of free housing for low-income families announced by President Santos. This represents an investment of $2.3 billion starting this year.

Infrastructure in the country should continue to be a driver for growth, with a $19 billion program which will be invested during the next three years. The industrial and commercial sectors saw a recovery in permits during the second half of 2012, especially for industrial buildings.

For this year, we expected this favorable trend to continue as a result of the recently signed trade agreement with the US and the European Union. This should boost demand for this type of buildings, particularly in coastal cities in the north, like Barranquilla, Cartagena, and Santa Marta.

In Panama, the infrastructure sector was the main contributor to cement consumption during the year. There were many projects in addition to the ongoing Canal expansion that drove this growth, including the Panama City's Metro project and the expansion of its airport. The third bridge over the Canal, the Cinta Costera 3 highway, as well as different hydroelectric plants. Most of these projects will continue their construction phase this year.

The industrial and commercial sector also grew during 2012, driven by the construction of office building, hotels, shopping centers, and stores. The positive trend in the sector is expected to continue during this year, as demand for commercial areas continues with still relatively low available inventories.

In Asia, operating EBITDA increased by 49% during the quarter, with EBITDA margin expanding more than 5 percentage points. For the full year, EBITDA grew by 20% with a margin expansion of 2.1 percentage points.

The regional increases in domestic cement volumes during the quarter and full-year 2012 reflect the positive performance of our operations in the Philippines and Bangladesh. Regional prices in local currency terms also increased by 2% sequentially.

The Philippines enjoyed record cement volumes during 2012, increasing 15% on a year-over-year basis. Prices in local currency terms show a favorable trend during the year.

The increase in volumes in the country was driven by the continued recovery in infrastructure as well as favorable performance from the residential and industrial and commercial sectors. During 2013, we expect these sectors to continue to contribute to volume growth.

The residential sector will continue to benefit from stable inflation and mortgage lending rates as well as strong remittances. Infrastructure spending is expected to remain strong, with infrastructure projects still in the pipeline and the upcoming midterm elections. To satisfy the fast-growing market in the country, our new grinding capacity in the Philippines of 1.5 million tons per year is expected to be operational during the first quarter of 2014.

In summary, during 2012 we were able to offset the weakness that we are experiencing in our Northern Europe and Mediterranean regions with the favorable market dynamics and strong operating leverage evidenced in the rest of our portfolio. And now I will turn the call over to Maher to discuss our financials. Maher?

Thank you, Fernando. Let me start by saying that we are very pleased with the 13% year-over-year increase in our EBITDA in the quarter. On a like-to-like basis for ongoing operations, and adjusting for foreign exchange as well as the CO2 credits sold in 2011, EBITDA during the quarter actually increased by 18%.

For the full year, we also saw double-digit growth increase in operating EBITDA generation. Operating EBITDA margin increased by nearly 2 percentage points on a year-over-year basis during both the quarter and the full-year 2012.

If we adjust for CO2 sales in 2011, the EBITDA margin expansion during the quarter was 2.9 percentage points. This margin expansion results from higher volumes and prices in some regions; the continued results of our transformation process; as well as a favorable operating leverage effect in several of our markets, especially the US, South, Central America and the Caribbean, and Asia. In the case of our Northern Europe and Mediterranean regions, we had resilient margins despite the decline in volumes.

Cost of sales plus SG&A as a percentage of net sales decreased by 1.6 percentage points during the quarter and by 2.3 percentage points during the year versus the same periods in 2011. The decrease in these costs and expenses reflects the savings of our initiatives to improve our operating efficiencies, lower fuel costs, and increased utilization rates.

During the quarter, about two-thirds of the growth in SG&A as a percentage of net sales was due to higher transportation costs. Our kiln fuel and electricity bill on a per ton of cement produced basis fell by 1.4% during the full-year 2012. This decline was due to drops in the price of pet coke and coal from 2011 levels, an increase in the use of alternative fuels, and the introduction of natural gas as part of our fuel mix in the US.

Substituting primary fossil fuels with alternative fuels has several advantages, as we have said before. First, they are cheaper; during 2012 we calculate savings of about $130 million achieved by using alternative fuels instead of fossil fuels.

Second, when using alternative fuels with biomass content, a portion of the CO2 emissions are considered carbon-neutral, reducing the number of emission allowances utilized by some operations. And third, alternative fuels are generally quoted and purchased in local currencies, reducing the volatility of our margins resulting from foreign exchange rate fluctuations.

During the quarter, our free cash flow after maintenance capital expenditures was $228 million, compared with $379 million in the same period in 2011. During the quarter we had higher financial expenses in maintenance CapEx as well as lower recovery in working capital, which offset the higher operating EBITDA generation.

Due to the seasonality of our business and the effort to lower investment in working capital as part of our transformation process, about 60% of the year-to-date investment in working capital as of September was reversed during the fourth quarter. For 2012, working capital days declined to a record low 30 days, from 32 days in 2011.

In the fourth-quarter income statement, other expenses net of $231 million include mainly severance payments, impairment of fixed assets and goodwill, as well as losses in sales of fixed assets. We recognized an exchange gain of $66 million due primarily to revaluation of the euro. We also recognized a loss on financial instruments of $18 million related mainly to options embedded in our convertible securities.

For the full year, net loss was reduced by more than half from that of 2011. In fact, during the quarter we narrowed our net loss to $489 million from $761 million in the fourth quarter of 2011. This is primarily due to higher operating earnings before other expenses, higher other expenses, and exchange gain and lower income taxes, which more than offset the higher interest expenses and loss on financial instruments.

Under our 2012 financial plan, we executed several transactions, including the refinancing of our bank debt, issuance of new senior secured notes, and the CLH initial public offering, which improved our debt maturity profile and strengthened our capital structure. During the quarter, we used proceeds from CLH's initial share offering, free cash flow, as well as the sale of our remaining PDVSA bonds to pay debt and replenish our cash balance.

Total debt plus perpetual securities declined by about $1 billion. During the quarter, the debt reflects a negative foreign exchange conversion effect of $65 million.

As a result of the $2 billion debt payments we made to the new Facilities Agreement during the quarter, the spread over three months' LIBOR under this agreement reverted back to the 450 basis points of our original financing agreement. In addition, as a result of the refinancing into the new Facilities Agreement, the final maturities of this debt was extended by three years.

Looking at our debt maturity profile, we have addressed all our required amortizations under the new Facilities Agreement until February 2017, and we have increased the average life of our debt to 5 years from 3.8 at the beginning of 2012 with no significant change in yearly interest expense. We continue to be comfortable with our liquidity position, with cash and temporary investment reaching $970 million as of the end of the quarter.

Now Fernando will discuss our outlook for this year. Fernando?

Thanks, Maher. For 2013 we expect consolidated volumes for cement, ready-mix, and aggregates to improve by 2%, 3%, and 1%, respectively. We expect the improvement in volumes from our operations in Mexico, the US, the South, Central America and the Caribbean region, and Asia will more than offset the expected weaker Northern Europe and Mediterranean regions.

Our cost of energy on a per ton of cement produced basis is expected to increase by approximately 1% during 2013. Total CapEx for this year is expected to be about $700 million, including $525 million in maintenance CapEx and $175 million in strategic CapEx. We expect cash taxes for 2013 to be slightly higher compared to last year.

Regarding working capital, we expect the working capital investment during this year to be similar to last year. We also anticipate no major change in this year cost of debt, including our perpetual and convertible securities, from 2012 levels.

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 operating EBITDA growth. During 2012, the improvement in pricing and volume in several of our regions as well as the continued success of our transformation effort led to the highest operating EBITDA and operating EBITDA margins since 2009.

Second, our cost-reduction effort is ongoing. We are pursuing additional efforts to improve our operating efficiencies and the value we generate from our asset base, while delivering better value to our customers.

And third, we continue to be confident in our ability to meet all of our financial obligations. We have substantially pre-paid all of our principal debt payments until February 2014 and proactively bolstered our liquidity needs. Thank you 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) Vanessa Quiroga, Credit Suisse.

Yes, hello, Fernando, Maher. Congrats on the good results. My question is regarding the pricing strategy.

Basically, in the US is the pricing increase that you implemented in January, did that have to do with the surcharging, new pricing scheme? Or haven't you started implementing this business scheme at all so far?

And how have the discussions evolved with customers regarding this new price scheme so far in the US and in Europe? Thanks.

Do you want me to take a step?

Maybe I can start and I can partially answer the question, Vanessa. I think at the end it is a combination of factors, but I think I could highlight the differences and what is different.

Our objectives on prices are different, because we are clearly pursuing a strategy on price needed to cover our capital costs, which currently we are not doing in the case of the US. The other factor that is different is that the Value Before Volume strategy is already in implementation. We have not finished in the case of the US, but it is already impacting.

So we have implemented, as I commented, in ready-mix as well as other sectors, surcharges, meaning -- trying to make a simple explanation, it is we have been providing certain services to our customers, valuable services to them, that we were not properly reflecting in our prices. Now given that these services are very specific to the requirements of customers, we are doing that on a case-by-case situation.

So as commented, if we have been serving customers requesting partial loads and things like that, now we are charging for that type of services. As you can imagine, transporting a truck with half the load is more expensive than one full load.

So we have been changing our system, pricing system, our objectives, our platform to properly support these new objectives. We have been training our salesforce. We have been making efforts to communicate to our customers these new charges.

So at the end, as commented, we have several things combined; but what is new is that we have a clearer objective on prices needed. And we are already -- we have not finished -- but we are already in implementation mode on the Value Before Volume strategy in the case of the US.

Maher, you want to add?

Yes, if I can add to what Fernando mentioned, as you saw we did make, towards the end of last year, two pricing increases. Right? Slightly close to $9.00 -- $8.80 per ton in January and July, as Fernando mentioned earlier, in all markets, except in Texas where we delayed the pricing increase till April.

In ready-mix, we actually made pricing increases -- we announced pricing increases in all markets, except for Texas and the Midsouth region, of 10%. In aggregates, we increased prices by 5% pretty much across the board in all markets.

On the surcharge issue, what is really important is that we have always had surcharges, energy and environmental surcharges; it is just that perhaps we were not being as disciplined in enforcing them. As a consequence of the pricing strategy that we are adopting, we have been, in fact, collecting these surcharges more proactively.

In fact, if you take a look at the pricing -- and this is particular to ready-mix, where these surcharges apply most, at least for now. If you take a look at price of ready-mix, fourth-quarter 2012 versus fourth-quarter 2011, prices were up about 6%; and roughly a quarter of that pricing increase is due to the collection of these surcharges.

So it is actually -- it is really working. I think we are getting traction. It is not happening -- obviously it doesn't happen overnight, but we are definitely getting traction on the pricing strategy that has been implemented in the US. I don't know if that addresses your question, Vanessa.

Yes, it does. And within Europe, we see that similar strategy. Similar response so far?

Yes, we do. By the way, the Value Before Volume strategy started in Europe, in our North European region. And from there, we are -- we have been extending it to the rest of the Company.

It is nowadays a global initiative for us that will be implemented. It started in cement in North Europe and it has been extended to ready-mix and aggregates as well.

Just to add to Fernando, we did have effective surcharges in Germany, primarily energy surcharges because of the dynamics of the market. We have had energy surcharges in both Germany and Poland; and certainly other markets are being evaluated for appropriateness.

The charges were in the magnitude of EUR2.50 to slightly above that. So yes, it is being implemented.

Excellent. Thank you very much.

Eduardo Couto, Goldman Sachs.

Hi, good morning, guys. I have one question, Maher and Fernando, regarding the free cash flow, actually the EBITDA to free cash flow conversion. Now despite the improvement in the EBITDA last year, now your EBITDA to free cash flow conversion fell and I think was the lowest level I have ever seen for the Company.

I just want to hear your thoughts on that, if we may expect a better conversion of the EBITDA into free cash. You mentioned that the working capital should remain more or less the same this year. But any other lines on the free cash flow that could help to improve this conversion?

Because I think it was around 6% or so; it was quite low. Just wanted to understand a little bit better how the free cash flow will be if we continue to see an improvement in EBITDA.

I guess one of the -- and Fernando did go through the guidance of the main drivers of free cash flow for 2013. Clearly in the fourth quarter the driver for free cash flow variance was primarily, I would say, maintenance CapEx was particularly higher. We had kilns in Mexico and Panama and other places that were being maintained, where we ran maintenance on in the fourth quarter, that we did not have last year.

So that is one issue, and that is probably one of the biggest drivers I would say for the, let's say less than expected from your perspective free cash flow for the quarter. And for the year, a similar -- the biggest difference really is certainly taxes, and again maintenance CapEx is being the big culprit there. So that is the -- those are the two.

Going forward for 2013, we did talk about slightly higher maintenance CapEx and strategic CapEx, and we are expecting taxes to be slightly higher. Working capital, we are always working on reducing it. So that gives you an idea about the outlook for free cash flow for 2013 and what happened this quarter and for the year.

Regarding the taxes, Maher, there was a big jump in 2012 versus '11, the tax paid. Can you expect another increase on tax paid this year versus 2012? Or is $400 million more or less a reasonable level?

Yes, I mean -- the tax difference for this year is a little bit over $100 million, about $106 million this year compared to 2011 -- meaning 2012 compared to 2011. Close to $90 million of that is due to a recent tax settlement in Mexico, which is related to the preferential tax regimes that were in place for the years of 2005 and 2006.

I mean, just to put it into perspective, we constantly have issues that we are pursuing discussions, or there are legal actions that are being taken all over the world. Sometimes you get those in your favor, sometimes you don't. Sometimes when you get them in your favor you don't get them 100%.

So in 2012, I think we were -- we settled on a couple of those situations and we ended up playing paying close to $90 million on one and about $15 million on the other. Both of those two situations were in Mexico, and that constituted the majority of the increase in taxes.

Now for next year, for 2013, we are expecting a slight increase in our tax bill. The predictability of the tax bill is very difficult, because you have processes that are ongoing and in many instances they are not resolved until towards the end of the year. Sometimes they are reserved earlier; so it is difficult to predict. But at this point in time we are expecting, I would say, a slight increase over this year's tax bill, essentially.

Okay. Thank you, guys.

If I may add, I would like just to highlight that the working capital, you know that we have been working on optimizing it. In 2012 we set a new record for CEMEX, 30 days of working capital.

And the reason I mention it is because this initiative of optimizing working capital has lots of traction. So we do expect to improve our working capital ratio for 2013.

Okay. Thank you. Very clear.

Gonzalo Fernandez, Santander.

Good morning, Maher and Fernando and all the team. I just have two questions. In the USA, you already have a good recovery in volumes plus all the cost-cutting efforts. Both margins in 2012 were still below 2%. Going forward, how dependent on the success of the price increases are margins in order to get to another level You are forecasting high single-digit volumes and [at close] the price increases, what level of margins can you reach in the US? And what percentage of that increase in margins would depend on the price increases?

Well, if I understood correctly the question, because the connection was not that good -- but in the US, there are different factors impacting our margins -- product mix, operating leverage on our, let's say, new pricing strategy. In the case of the US, cement and ready-mix are increasing margins; that is what I have in memory.

And in the case of aggregates, that was not the case in 2012 for different factors. We have mentioned one of the most relevant ones, the kind of material we are selling for the Fort Lauderdale Airport in Florida.

We are not sharing the targeted margin in the case of the US, but we do expect margins to increase particularly because of operating leverage. In the last quarter of 2012, just as an example, compared to last quarter in '11, incremental sales were $74 million while incremental EBITDA was $29 million. That is 39%.

So as we continue seeing increases in our volumes, prices we have already commented, we do have a special strategy. We will see more and more operating leverage in the case of the US. I don't know if you have anything else to add, too.

Yes, I mean, I think I would just like to re-emphasize what Fernando was saying. The margin is very, very impacted by product mix. If you take a look at the -- especially if you're talking about the growth in ready-mix versus aggregates and cement, where you have greater asset density and you have bigger margin, obviously, to compensate, but also probably where you have the highest operating leverage in place.

So, it is a -- I think when you're -- in answering your question about where margins are likely to be at the end of the day, it is difficult. We are not shying away of answering the question. It is difficult at the end of the day.

It depends which of -- what is the product mixes going to be at the end of the day. But clearly the operating leverage and the volume effect in general is going to be very important in the next few years, and perhaps maybe not as important as the price contribution, but certainly both are going to be quite important.

Thank you all. That's very clear.

Benjamin Theurer, Barclays.

Hello, good morning, everybody. First of all, congrats. I have actually one question related on the Mexico outlook for 2013.

We have seen these continued issues especially in the formal housing sector having a negative impact on volumes in Mexico. What is your expectation in terms of how they may recover in terms of volumes? What is your demand outlook, especially, and how is the composition, like formal housing sector versus informal and infrastructure? Where do you think the demand is coming from in order to support the 2% consolidated volume growth which is partially driven by a strong performance in Mexico? Thanks.

Well, (technical difficulty) and the informal residential sectors will continue growing. Infrastructure, because of higher investments in highways will also continue growing. So in different proportions, but as mentioned, all combined we think it's going to be a growth of about 2%.

Ben, does that answer your question? Operator, have we lost the connection? (technical difficulty) Much better now. Yes, sorry about this.

I guess we are -- for those of you who watched the Super Bowl, maybe we are -- we have been blessed by enjoying something like that. So anyway, we will continue. So, Ben, I don't know where we got cut off.

The question was basically, what is your expectation for -- well, the volume expectation for Mexico? How does that -- what is your [behind] expectation in terms of the residential housing sector, which has been a drag on volume in the past? So what is your expectation for 2013 for the residential housing sector in order to supply the 2% you expect Mexico cement volumes to grow in 2013?

Okay, well, given that I'm not sure where we were cut, I was saying that both the residential and informal sectors, we do expect them to grow by 1% or 2%, respectively. In the case of the informal residential it's because of economic expansion; there are higher wages and lower unemployment in the country.

The other sector that we do expect to grow, which will grow about 5%, is the industrial and commercial sector, although it has a lower weight, much lower weight than residential. But during 2013 we do expect more investments, and we also have the base effect of 2012 in which in this sector volumes were lower than our expectations. So everything combined, given that all sectors will grow, we do expect a growth of 2% in 2013.

Okay. Thank you very much.

Jacob Steinfeld, JPMorgan.

Hey, guys. Morning. Two questions. One was I guess a follow-up on Mexico. In fourth quarter, there was a decline in margin; so I just wanted to understand the driver of that, given that volumes were up in ready-mix and aggregate, and pricings were up in all product mix in local currency terms.

Yes, well in the case of margins, if you see the margins all over the year you will see that they have been stable. Now, comparing fourth-quarter '12 with '11, there are mainly two factors. There is a mix factor, a much, much higher proportion of our ready-mix business activity in 2012 compared to 2011.

If you remember in 2011, there was a significant drop of our ready-mix volumes compared to its previous period. So that is one part of the explanation.

The other part is that in fourth-quarter 2012 we had the annual, the major maintenance of three kilns in Mexico compared to one kiln that was maintained during the same quarter of 2011. So that is why I was mentioning that at the beginning. If you look at the margins all over the year, they are stable and we do expect for these margins to continue being stable.

Okay. So it was more of a one-time?

Yes.

Then just, it follows on the last question (technical difficulty). In terms of the formal housing sector, what percentage of your revenue would you say that represents?

Percentage?

I don't think we break it down by revenue. But in terms of demand it is roughly -- it is about a third. Demand for cement is about a third.

Okay. Then I had a question on the debt side. Could you help? What is the balance of the old financing agreement and the new Facilities Agreement as of the end of the quarter? And how many -- do you still own any of the PDVSA bonds?

The PDVSA bonds, we already sold them, so we don't have any. We managed to sell them at very close to par, which we managed through time to do that. I'm sorry, the other question was?

The balance.

(multiple speakers) an outstanding amount under the Facilities Agreement and the old financing agreement?

It is about $4.1 billion, $4.1 billion.

And under the old agreement, is it still going to [retire]?

Pardon?

The old facility, the old financing agreement; roughly how much is the amount?

It is about $50 million, $55 million. It was close to $600 million, but we have been using the proceeds of all the transactions we did, and we managed to pay $500 million or so of the holdout; so there is a remaining $50 million -- around $55 million.

Okay, great. Thank you very much.

And now we will take a question from the webcast.

Yes. The next question is from the webcast, and it is from Celina Merrill from Credit Suisse. The question is -- can you discuss any other potential financing plans you may have in 2013? Maybe to term out additional debt, for instance, your bonds due in 2014 and 2013.

Yes. I think as the question says, we have bonds due, a euro bond due in March 2014, and also this $50 million, $55 million of the old agreement in February 2014. So that makes, let's say in rounded figures, about $600 million. So that is what we will need to refinance during the year.

Fortunately, the markets are there. Our credit conditions have improved. So we will -- at some point in time during the year, we will refinance those needs.

And that is the only thing -- that is the only refinancing need that we foresee in '13 and '14, so that is 24 months. '15 is still too far away.

But anyhow, as you know, we constantly monitor the markets, and you have seen that we have been always very proactive on plan and trying to find the best ways to solve our refinancing needs.

Eric Ollom, Citi.

Yes, hi. Good morning, everybody. Congratulations on the results.

Thanks.

Many of my questions have been answered. But perhaps you could just touch base on what, if anything, you can tell us about the convertible bonds. There was a press report out, and I think you denied that refinancing was in the works. If you could just elaborate perhaps?

And then, second question would be -- can you just give us an update on your current utilization rates, if you can, in your main regional markets? Broadly US, Europe, etc. Thank you.

Utilization rates means cement?

Cement utilization rates, yes.

Cement utilization rates?

Yes.

Let me start with the first one.

Okay, very good.

Well, currently, we don't have any plans to act on convertible bonds. The notes you have seen in the press are related to the information we need to release for our ordinary and extraordinary shareholder meetings that we will have the third week of March, I think.

Even though the first convertible is to be converted in, I think it is March '15, the reason why we would like to ask shareholders for authorization is to be able to make a transaction, if needed, any time. Any time meaning if we don't request this authorization in this shareholder meeting, we won't be able, for instance, to execute or to consider exchanging a convertible by another convertible.

So we can do that -- we could have done that later during the year with an extraordinary shareholder meeting; but it was much more practical to do it right now. If we don't do it now, and we do it, let's say in our shareholder meeting of March 2014, then we will have from April or May '14 to March of '15 to consider any possibility with convertibles. So this is just a way for us to be prepared and to have our hands free in case we consider convenient doing something about it.

If I could add, Eric, to what Fernando said, it's very important to note -- first, I mean we didn't deny; we just said that this was just an announcement for the extraordinary shareholder meeting, and it is not an announcement of a specific liability management transaction.

But very importantly to note is that the approval that we would be seeking would not be to increase the number of shares that underlie the current convertibles. So if we do something as Fernando said, depending on market conditions, if we do something it would be using the same number of shares. It would not translate to additional issuance of new shares.

Okay, I understood. It is all being quite reasonable and proactive. What about the utilization rates?

What I can mention in general terms is that -- and through time we have been commenting -- is that in the case of Europe, Spain, and other countries we have been rationalizing capacity, shutting down plants, which is no different to what all businesses do whenever you don't have economic activity enough. But the situation regionally is different.

So in the case of Europe, Spain, and other countries we have been shutting down plants. In the case of the Philippines, you know we have been announcing capacity increases, because we don't have capacity enough to cope with record volumes in the case of the Philippines. I mean we do have capacity now, but we need to get prepared for additional volumes next year and the years to come.

Same thing for South America. South America, it is tight. We have already announced some investments there.

In the case of Mexico, I don't have the specific number, but we can provide that if needed. I don't have the specific number right now with me.

In case of the US, in the case of cement, I think it is changing very fast. As you know, the US, when the volume started falling down in the US, the first volume that went out of the market was imports. So with the current estimates for volume growth in 2013 -- we still don't have a specific estimate for '14 -- but we do expect volumes to continue growing.

So we are going to start seeing in the US in certain regions capacity being very tight, either late this year or 2014. Now unfortunately, I don't have very specific figures with me now to share; so that's something we might be able to --

Yes. I mean maybe I could just mention the US. The Mexico number we will get back to you on, Eric.

The US number, as you know last year the country as a whole closed the year with close to 80 million tons of consumption in cement. If you take a look at what the PCA, which is -- I'm not saying that that is necessarily in line with our expectations; but certainly if you take a look at their expectations, which they are expecting about an 8% growth in volumes for 2013. That takes us to kind of mid-80s consumption for the year.

And if you take out the requirement to idle capacity for maintenance, and if you consider that some capacity has been shut down now for a while and would be quite -- it would not be inexpensive to bring it back; it would require significant pricing increases before we would bring it back. You are talking about now in the US we are getting close to 90%, maybe 95%, say 90-plus-% capacity utilization, which should be quite healthy and supportive of some of the pricing strategies that we have been implementing.

Yes. No, that is what I would think. Okay, good. Well, I know you are doing the CEMEX Day next week. Perhaps it might be a good venue to delve into it a little bit deeper. Okay, great. Thank you, gentlemen.

Thank you, Eric. And yes, you're right, we will look forward to seeing you all over there. Operator, next question?

Santiago Perez Teuffer.

(technical difficulty) My question will be related to discretionary spending. How do you expect it to evolve in the next two years? And what effect will it have on your sales mix? (multiple speakers)

I didn't hear it.

I cannot -- sorry. Can you repeat the questions, the question from the beginning? Because it was not clear to us.

Of course. It is related to discretionary spending (inaudible). How do you expect it to evolve in the next two years, and what effect could it have on your sales mix?

I'm sorry, are you talking about like in -- you said discretionary spending?

Yes, that's right.

You mean like -- are you talking about CapEx? Or are you talking about --?

No, at the US level.

Oh, at the US. You mean US by like infrastructure or something?

Yes, exactly.

Right. Well, I mean --

What is -- yes, how do you expect it to evolve in the next two years?

Yes. Would you like me, Fernando, to take a stab at that?

Yes, please.

Well, I mean if you take a look at both infrastructure and industrial and commercial, I mean infrastructure, frankly, despite the fact that we expected it to be slower in 2012, we ended up the year, I believe, close to 4% growth in infrastructure spending. The biggest area there, frankly, was spending under the highway bill, which lagged a little bit because of the conversations that were being had about the extension. Now that we have the extension of the highway bill, we think that -- not we think, we have also seen contract awards are beginning to improve.

The other issue, frankly, is that we have seen increased mix of the spending going -- being done by states as opposed to just the federal government. And states -- biggest example is California -- have been improving their fiscal balance dramatically in some instances. Such as California going from an estimated fiscal deficit of $35 billion to now we are looking at almost flat, and certainly 2013/'14 there may be even a surplus.

So clearly the spending on infrastructure is being diversified away from the federal side, which is where a lot of the discussions of cost cutting has taken place. The highway bill, which is a very important part of that, has been renewed; and now we think that we are going to see a growth in.

So we are actually reasonably constructive on both infrastructure and industrial and commercial, which also has been very healthy, frankly, in the US and continues to be so going forward. That is at least our outlook.

And residential, of course, we don't need -- we can certainly discuss, but that has certainly been growing, I would say, ahead of our expectations and in particular in our markets. Our markets have been growing both in terms of actual construction activity and in terms of permits. I'm sorry we couldn't hear you initially, but I hope we answered the question, Santiago.

Yes, perfect. I don't think the last question. Do you have any updates on your asset sale targets, any new guidance? Or how much were you able to cash in related to the core sale of non-strategic assets?

Well, after the refinancing and the transactions we did, as you can imagine we do continue with the efforts of divesting assets that we believe don't fit well with the portfolio, meaning assets that we don't consider that strategic. We do continue -- this is a permanent effort.

We do continue selling real state, meaning pieces of land, which we normally have available because of the characteristic of our business. I mean, I'm referring to the land we need to buy for reserves in aggregates and cement and for our ready-mix plants. So that will continue.

What we don't have nowadays is a specific, let's say quantified target on divestments. I think nowadays, and according to the way markets have evolved and our financials have evolved, our leverage ratio at the end of 2012, our expectations for 2013, we don't have -- although we continue looking at opportunities, we don't have any specific quantified target moving forward.

Helpful. Great. Thanks a lot for your time.

Ladies and gentlemen, this concludes the Q&A portion. I would like to turn the call over to Mr. Fernando Gonzalez for closing remarks.

Thanks, operator. Well, thank you very much; and in closing I would like to take thank you all for the 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. Good day.