Cemex SAB de CV (CX) 2013 Q1 法說會逐字稿

Good morning. Welcome to the CEMEX first-quarter 2013 conference call and video webcast. My name is Sandra 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. Please note that this conference is being recorded. (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.

Thank you, operator. Good day to everyone and thank you for joining us for our first-quarter 2013 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 operating EBITDA generation during the quarter with a growth of 9% on a like-to-like basis adjusting for the favorable effect we had last year resulting from the change of a pension plan in our Northern Europe region as well as the fewer working days this quarter. This is the seventh consecutive quarter with a year-over-year growing in operating EBITDA.

In addition, on a comparable basis we had a 1.6 percentage point operating EBITDA margin expansion. Improvement in pricing in several of our regions as well as continued cost reduction efforts resulted in the sixth consecutive quarter of year-over-year growth in our EBITDA margin.

Prices in local currency terms for cement, ready-mix and aggregates increased by 1%, 3% and 4% respectively on a sequential basis. In addition, our year-over-year cement and ready-mix prices are also higher and in line with our 2016 plan presented during our CEMEX Day in February.

We are on track with execution of our Value Before Volume strategy with all of our regions already in the development stage except South, Central America and the Caribbean and Asia. The majority of our sales force has already completed training and compensation metrics have been adjusted.

On the volume side consolidated volumes for our products were materially affected by 2.5 fewer days -- fewer business days on average due to the holidays and lower activity in the working days surrounding these holidays. Consolidated cement volumes adjusted for working days declined by 4%. This adjusted decline was also affected by adverse weather conditions in some of our markets during the quarter.

On the financing side we issued $600 million of 5-7/8% senior secured notes maturing in 2019. We also successfully booked back 43% of our 2014 Euro bonds further reducing our debt maturities for next year. We also expanded the use of alternative fuels. Our substitution rate reached 28% during the first quarter and 29% during the month of March.

On the commercial side we continue to develop innovative higher margin specialty products to satisfy the changing needs of our customers. As you may know, during the last two years we have launched three global ready-mix concrete brands -- Promptis, Hidratium and Insularis. These products have now been deployed in more than 20 countries. During 2012 about 29% of our total ready-mix sales on a consolidated basis corresponded to these specialty ready-mix products compared to 9% in 2006.

Now I would like to discuss the most important developments in our markets. In Mexico, adjusting for the fewer working days during the quarter our cement and ready-mix volumes declined by 5% and 3% respectively while aggregate volumes increased by 7%.

The decline during the quarter for cement and ready-mix was due to -- first, a delay in infrastructure spending reflecting the transition process of the new government; second, the reduction in sales of bagged cement to social government programs from a high-level last year; and third, a decline in the formal housing sector resulting from a delay in subsidies granted by the government and a wait-and-see stance in anticipation of the new national housing program expected to be released on May 30.

Now talking about the different segments, we are pleased with the high-single-digit growth of the industrial and commercial sector during the quarter driven by private consumption and to a lesser extent by manufacturing activity. Growth in this segment is expected to reach 4% during the year. The informal residential or self-construction sector was stable during the quarter reflecting an increase in aggregate wages and employment levels, although at a more moderate rate.

On the formal residential sector the new national housing plan is expected to be very positive for the sector. However, the lack of detail on the new rules has created temporary uncertainty in the market. The first action already announced under this program is a new loan guarantee of up to MXN15 billion under which the federal mortgage agency, or Sociedad Hipotecaria Federal, will guarantee up to 30% of new construction loans extended by banks and other financial entities to home builders.

Initial loan demand under this program what was more than triple the amount of the program. First loans under the program the program were granted two weeks ago. For the full year 2013 we expect the residential sector including, formal and informal, to increase by about 1%.

In the infrastructure sector, as in prior changes in administration, spending dropped significantly during the first quarter. Year-to-date spending by the public sector, excluding energy, declined by 24%. However, we expect this sector to have a considerable recovery in the following quarters.

The transportation Ministry has announced the auction during the next first months of the 76 highway projects planned for this administration with the first auction happening no later than this month. For the full year 2013 we expect the infrastructure sector to grow by about 2%.

In general 2013 should be a transition year in infrastructure with a pickup in investment anticipated during the second half of the year. The new administration is given a high priority to infrastructure spending. In addition, in the residential sector the granting of subsidies is expected to resume and the announcement of the new policies under the national housing program bodes well for the formal housing sector over the medium-term.

As part of our Value Before Volume strategy we have adopted a micromarket pricing approach based on supply/demand conditions. In line with this strategy we implemented an 80 peso per ton price increase including taxes selectively in 13 states and which will apply to about 45% of our bagged cement. While we are adopting this approach we will actively monitor our marketshare in these markets.

During the first quarter in the US, adjusting for the fewer working days during the quarter, our cement, ready-mix and aggregates volumes increased by 4%, 9% and 17% respectfully on a year-over-year basis. The quarterly growth rate is from the prior year due to an unfavorable weather comparison as well as the loss of some industry sales during the quarter. Growth in cement and ready-mix was primarily driven by the residential and industrial and commercial sectors.

The housing sector remained the principal engine of growth in the quarter. Housing starts through March 2013 are up 36% on a year-over-year basis. Housing permits in our four key states -- Texas, Florida, California and Arizona -- are up 46% year to date February compared to a 32% growth rate at the national level.

The industrial and commercial sector maintained its momentum during the quarter. On a year-over-year basis nominal construction spending rose 10% year to date February while contract awards are up 17% in real terms for this period.

In the infrastructure sector, streets and highway spending increased by 3.5% through February 2013. Trailing 12 months nominal contract awards for highways are up 2% year over year February having turned positive for the first time in two years. We continue to believe that with the new highway bill in place and improving financial condition of the states highway spending should grow moderately in 2013.

We are pleased with cement prices increasing by 2% sequentially as a result of our successful January price increase and by 5% on a year-over-year basis. April price increases of $3.3 to $8.8 per metric ton have been implemented in the Southern California, Texas and the Midsouth states.

In our ready-mix business the January pricing increases are holding in all markets except Arizona where the increase was pushed back to April. Ready-mix prices are up 6% on a year-over-year basis as of March 2013, a consequence of our successful price actions over last year. We fully expect prices to continue to drift up in the coming months as our recently secured book of business reflecting the January increases substitute older projects.

Our pricing achievement in ready-mix substantially reflects our efforts to implement fees and surcharges for value added services. April pricing increases of $6.5 to $10 per cubic meter were introduced in Texas, the Midsouth and Arizona. Importantly, in March the US ready-mix business generated a positive EBITDA for the first time since December 2008.

In our aggregates business prices are down 2% on a year-over-year basis due to an important change in product mix resulting from the Fort Lauderdale airport project. Excluding this project aggregates prices actually went up by 3%.

While we have had some recent success in increasing prices, these steps have only begun to chip away at the chronic pricing deficit of our products over the last decade. We remain determined to not only recover input cost inflation but also recover our margin erosion and secure a reasonable return on our invested capital.

During the first quarter the US business enjoyed significant operational leverage on a year-over-year basis. While an easy 2012 comparison provided a tailwind, pricing advances in cement and ready-mix as well as volume recovery were decisive factors.

Optimizing our energy mix remains a key objective in the US business. Year to date March our alternative fuel usage reached 26%, 5 percentage points higher than the same period last year. Nine of our 11 active plants are using alternative fuels with five of the plants currently operating at a higher than 25% alternative fuel utilization.

We remain confident with regard to the US recovery and encouraged in our initial efforts to secure price increases in the current environment. As we reach a higher capacity utilization rates in key states we will rapidly increase prices to reach levels that reflect our cost of invested capital.

In our Northern Europe region, while the economic slowdown continues to affect our volumes, about half of the volume decline during the first quarter was due to two seasonal factors -- adverse weather conditions and the fewer number of working days in some countries.

Adjusting for the fewer business days during the quarter, regionally volumes for cement, ready-mix and aggregates declined by 11%, 11% and 7% respectively. In contrast our regional prices in local currency terms increased sequentially by 6% for cement, by 7% for ready-mix and by 11% for aggregates.

Regional operating EBITDA during the quarter, adjusting for the favorable effect last year resulting from the change of our pension plan, remained practically flat on a year-over-year basis. In the region we continue rolling out our Value Before Volume strategy across all business lines.

During 2012 we went through cement and ready-mix capacity shoot downs in support of this strategy. During the first quarter we closed additional ready-mix plants in Germany and in Poland. We also continue to adapt our cement production to customer needs.

In Germany the residential sector continue to be the main driver of demand for our products during the first quarter supported by low unemployment and mortgage rates. This sector is expected to have mid-single-digit growth during 2013. Permits in the industrial and commercial segment have been volatile in the past few months and a slowdown is expected for this year as a result of the current macroeconomic environment.

Regarding the infrastructure sector, there have been some restraints in projects despite the potential for energy-related construction such as wind parks and others. We expect this sector to be stable this year.

In Poland about half of the cement volume drop during the quarter was due to adverse weather conditions. In addition, we saw a reduction in infrastructure spending during the quarter on a year-over-year basis. First quarter 2012 is a difficult comparison due to the high level of construction activity related to the Euro 2012 championship. A decline in EU funds for capital investment in the public sector is expected for this year. A slowdown in the residential sector is also expected.

Going forward a combination of anticipated higher economic growth, the introduction of a home for the young program starting in January 2014 and a decline in interest rates would bring a significant improvement in this sector next year.

In France most of the drop in ready-mix volumes was due to snowy and cold winter conditions. Infrastructure activity is being supported by a number of highway and high-speed railway projects that started during 2012 and will last several years. Activity in the sector should show slight growth this year as expected spending in anticipation of municipal elections next year should mitigate the effect of the economic downturn.

Regarding the residential sector, a decline in housing starts is expected for this year reflecting tight credit availability and the effect of the less attractive buy-to-let the program introduced this year.

In the United Kingdom the decline in our volumes also reflects an adverse weather impact. For this year housing starts could be positively impacted by the recent government initiatives including guarantees on interest free loans designed to promote home ownership. The infrastructure sector has been affected by the economic slowdown and cuts in public spending.

In our Mediterranean region positive ready-mix volumes from our operations in Israel, Croatia and the Emirates offset the decline in volumes from our operations in Spain and Egypt during the quarter. In cement we saw declines throughout the region. Our Value Before Volume strategy is delivering our expected results in the region. On a quarter-on-quarter basis regional prices in local currency terms increased by 5% for cement, by 1% for ready-mix and by 3% for aggregates. In addition, we continue to go through capacity adjustments in all of our businesses.

In Spain demand for our product was affected by fewer working days, adverse weather conditions during most of the quarter and low construction activity. In contrast sequential domestic gray cement prices increased by 5% during the quarter. We announced a cement price increase in March which seems to be holding up in most of our core markets. The full impact of this increase will be reflected during the second quarter.

The continued fiscal austerity measures keep infrastructure spending at very low levels. The residential sector continues to absorb its inventory very slowly. While housing prices continue to decline greater reductions are needed to absorb the surplus inventory.

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 a decline in domestic cement volumes. In addition, we continue to sell clinker to third parties.

In Egypt the 3% decline in our volumes during the quarter reflects the increase in cement capacity in the country. Shortages of energy are impacting the production and delivery of cement partially mitigating the effect of this new capacity and resulting in better pricing dynamics during the quarter.

Cement prices increased by 7% on a sequential basis. This increase is offsetting the increase on fuel costs resulting from the partial elimination of subsidies. In addition, 51% of our dispatches are related to our value added branded bagged cement which also improved profitability.

The main driver of cement consumption in the country remains the informal sector. 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.

We are pleased with our operations in Israel with operating EBITDA growing by 40% and ready-mix volumes increasing by 10% during the quarter. In addition, prices in local currency terms increased by 2% on a sequential basis.

In our South Central America and the Caribbean region we are pleased with our close to 4 percentage points operating EBITDA margin expansion seen during the quarter despite lower volumes. Higher pricing levels as well as our continued initiative to improve our efficiency and reduce costs more than offset the lower volumes during the quarter.

In Colombia adjusting for the fewer working days domestic gray cement volumes declined by 10% during the quarter. This decline is due mainly to -- first, as we expected, our price increase in January resulted in a slight decline in our market share. Typically this marketshare reverts back to historic levels in the following few months.

Second, a delay in the start of new infrastructure projects.

And third, in Bogota there has been a slowdown in activity resulting from restrictions on new housing permits. The decline in residential activity in Bogota is been mitigated by higher activity in other cities in the country.

And fourth, lower activity from the self construction sector as some prospective home buyers have delayed their own purchasing decision awaiting the results of the government's 100,000 free homes program.

Going forward we expect healthy activity in the residential sector especially low income housing. The 100,000 units of free housing for the poor announced by the government represent an investment of $2.3 billion starting this year. In addition, housing permits have been strong in the first months of the year.

Moreover, as part of the new stimulus plan the government has announced subsidies for an additional 100,000 homes for low income housing that will further increase residential construction in the short term. Infrastructure in the country should also continue to be a driver for growth and pick up during the rest of the year and 2014 in anticipation to the elections and in accordance to the plans of the government to bring forward priority projects.

In Panama, adjusting for the fewer working days, domestic gray cement volumes increased by 8% during the quarter due mainly to the canal project. The year-over-year decline in cement prices reflects a product mix effect related to this project. Excluding volumes to the canal cement prices increased by 5% during the quarter.

The residential sector performed better than expected during the first quarter with a year-to-date increase in volumes to this sector of 27%. For the full year the residential sector is expected to continue this very favorable trend.

The infrastructure sector during 2013 will continue to be supported by both ongoing and new projects including the Panama Canal, Panama City's Metro Project and the expansion of its airport, the third bridge over the canal, the Mina de Cobre project and now especially the Corredor Norte Highway. With regard to this highway, we are the contractor for the paving of the 14 kilometers section between Brisas Golf and Panamericana which will start in May.

In Asia net sales increased by 7% in the quarter on a like-to-like basis while operating EBITDA increased by 86% driven by strong prices and to a lesser extent higher volumes despite the fewer working days in some countries in the region. Operating EBITDA margin expanded by more than 7 percentage points on a year-over-year basis.

The regional increase in domestic cement volumes during the quarter reflects the positive performance of our operations in the Philippines. Cement volumes in the Philippines grew by 4% during the quarter despite fewer working days. Prices in local currency terms also continue their favorable trend which, alongside efforts to minimize the impact of cost increases, has resulted in increased profitability in the country.

The growth in volumes was driven by sustained infrastructure spending as well as favorable performance from the residential and industrial and commercial sectors. The residential sector will continue to benefit from stable inflation and low mortgage lending rates as well as strong remittances.

Infrastructure spending is expected to remain healthy with projects still in the pipeline and the upcoming midterm elections. In addition, the recent investment rate rating from Fitch should also boost foreign investment in the country. 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, the lower volumes we saw during the quarter, which were in part a result of fewer business days and/or adverse weather conditions in some of our operations, were more than offset by more favorable price levels and our continued cost reduction on efficiency initiatives. And now I will turn the call over to Maher to discuss our financials. Maher, please.

Thank you, Fernando. Hello, everyone. Our quarterly operating EBITDA on a like-to-like basis adjusting for the pension fund effect and fewer working days increased by 9%. Operating EBITDA margin, also on a comparable basis, increased by 1.6 percentage points versus the same period last year. This margin expansion is driven by higher prices in some regions, as already discussed by Fernando.

Our continued cost reductions, as well as a favorable operating leverage effect in the US, cost of sales as a percentage of sales declined by half a percentage point during the quarter. The decline was mainly the result of lower energy costs including fuel and electricity as well as a reduction in work force.

Operating expenses as a percentage of net sales adjusted for the effect of change in the pension plan in Northern Europe last year declined by 1.8 percentage points. The reduction reflects savings from our cost reduction initiatives as well as lower distribution expenses.

Our kiln fuel and electricity bill on a per ton of cement produced basis declined by 3% during the first quarter. The savings achieved for using alternative fuels instead of fossil fuels during the quarter reached $25 million; this is close to 20% of the total cement fuel bill in the same period.

During the quarter our free cash flow after maintenance CapEx was negative $483 million versus a negative $287 million last year. The year-over-year variation in free cash flow is due mainly to lower operating EBITDA as well as higher financial expenses, investment in working capital and cash taxes.

The higher year-over-year working capital investment during the quarter is a result of higher inventories and lower payables. Working capital days remained flat at 28 days compared to the first quarter in 2012.

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 reflects a higher tax payment related to fiscal consolidation in Mexico as originally scheduled and as disclosed each quarter in the notes to our quarterly report. In addition, we had a one-time payment of $70 million under a Mexican amnesty provision.

In the income statement we recognized a non-cash exchange loss of $118 million due primarily to the fluctuation of the euro and the Mexican peso versus the US dollar. We also recognized a gain on financial instruments of $129 million related mainly to CEMEX shares.

During the quarter we had a controlling interest net loss of $281 million versus a loss of $30 million last year. This is due mainly to the non-cash foreign exchange loss and higher income tax which was mitigated by the higher gain in financial instruments.

Regarding our debt, we successfully priced $600 million of senior secured notes maturing in 2019 at a coupon of 5-7/8%. These bonds were placed at a yield of 350 basis points tighter than the notes we priced last October. We are very pleased with the way our credit risk has re-rated and continue to monitor the markets for further liability management opportunities to reduce interest expense and enhance our maturity profile.

We also completed a tender offer for our 4-3/4% 2014 Euro bond, reducing the outstanding amount under this bond to close to $300 million as of the end of the quarter. The increase in debt during the quarter plus the decrease in the cash balance we used to meet the negative free cash flow during the quarter. As in previous years, the seasonally negative free cash flow is part of the normal business cycle and most of it is expected to be reversed during the second half of the year.

Looking at our debt maturity profile, during the quarter we reduced debt maturing in 2013 and 2014 by $240 million. In addition, we have now fully paid the original 2009 financing agreement and have addressed all our required amortizations under the new facilities agreement until 2017.

We continue to be comfortable with our liquidity position with cash and cash equivalents reaching $817 million as of the end of the quarter. In addition, we maintain over $2 billion of working capital and receivables financing facilities which further bolster our liquidity position. And now Fernando will discuss our outlook for this year.

Thank you, Maher. For 2013 we expect consolidated volumes for cement, ready-mix and aggregates to improve by 1%, 2% and 1% respectively. We expect the improvement in volumes from our operations in Mexico, the US, the South Central America and Caribbean region and Asia will more than offset the expected weaker Northern volume 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's. 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 seven consecutive quarters of operating EBITDA growth. During the first quarter we saw an improvement in pricing and the success of our cost initiatives, which more than offset the decline in volumes and led to an expansion in our operating EBITDA margin on a comparable basis.

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. During the quarter we significantly reduced our maturities in 2013 and 2014 while bolstering our liquidity. 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.

In addition, unless the context indicates otherwise, all references to pricing initiatives, price increases or decreases refer to our prices for our products. And now we will be happy to take our questions. Operator.

(Operator Instructions). Carlos Peyrelongue, Merrill Lynch.

Thank you, Fernando, Maher, for the call. Two questions if I may. First one related to prices in the US. Can you give us some visibility as to whether you have announced price increases in Texas and California and the size of those price increases if you are implementing any changes there?

And second, on Mexican volumes you have 2% volume growth guidance, the first-quarter numbers of course point to a much weaker volume growth even if you strip out the calendar effect. Do you still think that that 2% is achievable or do you think that the volume growth is likely to be different than the 2%? Thank you.

Yes, Carlos, maybe I will take the first question. On pricing in the US for the -- first the pricing reaction from the market in January was quite positive. As you recall, we announced close to a $9 price increase in all markets except Texas because we had announced pricing earlier. And just wanted to emphasize that the pricing increase is holding in all of our markets, that's Florida, California, Colorado and some other states.

All of the states where we have increased prices in the first quarter represented close to about 60% of our sales. The area that we've had some pushback is the mid-South region and we realized price increases between I would say about $2.25 to close to $8.80 depending on the region. And that is evident in the sequential pricing increase.

What is really important in pricing increases both for cement and even more importantly for ready-mix is the year-over-year increases. We have had very positive year-over-year increases and, as Fernando mentioned in his conversation, that as we bring in new business into the book prices will drift upwards.

Now if we can go to the April price increase, we did announce some pricing increases there. We announced price increases in Southern California of close to about $3.30 and we did have a pricing increase in Texas of about $5.50. We're also pushing a price increase in the mid-South by about $5.50.

In terms of ready-mix, we have announced a $10 per cubic meter for Texas and Midsouth and we are also looking at a pricing increase in Arizona about $6.50 per cubic meter. And we are optimistic on the pricing increases. And it's very important to mention that in the case of Texas we are sold out and the market is getting awfully tight and being close to sold out. So we look forward to those pricing increases being successful.

Regarding your question on volumes and on Mexico, yes, we are not changing the guidance. We do think that it is feasible mainly because of the performance of the industrial and commercial sector is strong, self-construction is still there and the main cause of the decline in volumes eliminating working days effect is infrastructure.

And we do believe this is a temporary delay on government spending that for sure will come in the -- mainly in the second half of the year. So because of that we do believe it is feasible and we are not changing our guidance.

Understood. Thank you, Fernando; thank you, Maher.

Vanessa Quiroga, Credit Suisse.

Thank you and my question is just to clarify on the pricing. If all of these strategies are successful, all of these price increases that you intend to implement, what would be the blended increase in prices for the full year for cement and ready-mix in CEMEX USA?

Well, Vanessa, it's kind of tough. We never give, as you know, I mean -- and of course I don't blame you for trying, we -- it's very difficult to give expectations for pricing increases. I mean clearly our approach is not only to get inflation for the year because we think we have chronically underpriced our products now for quite a while.

So we are definitely shooting for pricing increases beyond input cost inflation for the period. But we will have to wait and see. There are a lot of dynamics that are in play. We are quite excited and pleased by the demand dynamics. But we will have to wait and see. I mean it is very difficult to give an outlook on pricing.

Okay, no problem. And for Mexico, the price increases that you intend to implement, I mean by how much are these price increases? And in what sectors, what type of clients are you implementing these prices to?

As commented, we just announced a price increase of 80 pesos, tax included, so that's about 5%. And as commented, it's not a general announcement, it's not all over the country, it is in 13 states in the country and it represents about 30% of our total volume.

Okay, great. Thank you.

Adrian Huerta, JPMorgan.

My question was regarding the US. I was just wondering despite continuing the weather conditions and the less working days in the quarter, it seems the 2% growth in cement volume is a bit low given the data you provide on housing, highway and infrastructure. So why do you think that the number was at this level, was that probably related to the price increases that you did in the -- early in the year? Can you just give more color on that, please? Thanks.

Yes, first I think it is important to mention that our volume growth is double the national average. Now of course our markets are quite positive and they're markets that have corrected the most. There was some specific dynamics in some of our markets in the southern region; there were some ownership changes in some of our clients, one client in Texas that translated to some loss of business.

But I would say that really when you adjust for working days, weather and that particular dynamic, we are quite pleased with the way that volumes are shaping up and we continue to be pleased by the way the housing market being ahead of our expectations frankly for the year and in particular, as we mentioned -- as Fernando mentioned, ahead of our -- the national average in the markets in the high-growth markets, California, Florida, Texas and Arizona.

So we -- we are still in line in our expectations, frankly, and we believe there is just some seasonality and, like I said, some specific issues in one market.

Thank you. And then can you just repeat what you mentioned about being positive on ready-mix? Is that in all of the states where you are present?

Well that -- I think the ready-mix business, very importantly, a little bit less than half of the ready-mix business is on a contract basis, right. And so, it is very important that while sequentially prices have only improved by 1%, on a year-over-year basis in ready-mix prices are up 6%.

And very interesting, contrary to previous cycles, we are seeing actually ready-mix kind of leading the tightening of pricing because of the significant shortage of trucks on the roads. I mean there has been significant underinvestment or shutdown of capacity in that segment in the US. And so we are seeing very healthy pricing increases, you are not seeing it yet because we need to see the new orders kind of flow through our order book.

So we are actually quite constructive on ready-mix prices during the course of the year. I don't know if that answers the question. And we did -- as I mentioned, we did announce pricing increases in all markets except for Texas and Midsouth in about $6.50 per cubic meter.

Excellent (multiple speakers) Thank you so much.

The other thing I want to mention -- the other thing I want to mention which is also very important is part of the value before volume strategy. As we mentioned, we are really focusing on surcharges and that's also been a very important area of success for us. We are getting those surcharges through and we are implementing them fairly -- I hate to use the word religiously, but fairly religiously.

Thank you and the next question we will have a question from the webcast.

Okay, the question from the webcast is from Mark Conway, from Arrowgrass. And the question is at our annual general shareholder meeting it was approved that a tender and exchange offer for the convertible notes currently outstanding issued by the Company -- I'm reading this question -- that were offered outside of Mexico in March 2010 due 2015 and March 2011. So essentially the question is, are we planning to do any liability management corresponding to these convertible notes?

Okay. Well as we have been explaining, what we did is to get the permit from our shareholders just in case it is advisable to -- for us to proceed with any transaction. Under Mexican law that permit was needed. It doesn't mean we are doing a transaction with our convertibles, it is just that we have -- by now we do have all the permits needed. Just in case we do think that because of the value of the share or market conditions it is viable -- it is advisable to do a transaction. But we have -- currently we have no plans.

Mike Betts, Jefferies.

Thank you very much and good mornings guys. I had three quick questions if I could. The first one was just a follow-up on Adrian's about the 2% volume growth in the US. We've obviously seen industry data for January and February and it was tracking a lot higher than that. Was there a big slowdown in US volumes in March? Is my first question, please.

My second question is when I add the country EBITDAs up I get a residual which at the moment for this quarter was about minus 30, it was running at about minus 50 for each of the four quarters or a bit more in 2012. Was there anything of a one-off nature in that other line item?

And then just finally, Northern Europe, I mean if you strip out the pension gain it was pretty flat and yet even if you take out weather and other distortions volumes were off mid- to high-single-digits and prices sequentially were only up 1% or 3%. Was there a very good cost performance in Europe? Was there something special going on in Northern Europe? Thank you.

How do you want to start?

Go ahead with number one.

Yes, Mike, -- no, there hasn't been a slowdown. I think, again, the performance has been frankly all over the place in the US. And like I said, very importantly, on a year-over-year basis our markets were quite a bit outperforming what the expectations are. And some markets we had better performance than others.

But at the end of the day I think that the 2% is definitely -- when you adjust again for less working days and seasonality and we still fairly -- we are still fairly comfortable about the full-year guidance that we have outstanding. This is in the case of cement.

Okay.

In the case of North Europe EBITDA, I think the EBITDA is almost flat as to some extent because of price increases, margin improvements. There is also some mix effect because some of the countries with the higher prices didn't -- volumes on countries with higher prices didn't adjust as much as other countries, with lower prices. But I think it's mainly additional contribution in North Europe.

And the third one --

Pricing?

-- on the EBITDA, yes pricing. And the question on US EBITDA. I didn't --.

I think you had a question, regarding, Mike, on the others and intercompany, right? Others and eliminations account?

That is correct. Yes, it was running at like minus 50 or minus 60 in 2012 and yet it was only minus 30 in Q1 this year.

Right. Well, it's primarily I would say a reflection -- I mean there are many items in that account obviously that are at play; head office cost allocations are getting better. But probably the most important is the historic amortizations of sales of CO2 credits historically. And so we have had a significant diminishing of those amortizations coming through.

We are -- I would say that going forward our -- that line -- although, as you know from prior years, it's very difficult to project -- should be stabilizing at quarterly levels that are in line with what we are seeing in the first quarter, maybe a little bit higher. But generally speaking that is where it should be.

Now it's also very important that the amortization of CO2 credits are really -- are regional. And then they are essentially taken out through this particular account, right. So there is no absolutely no impact to the consolidated EBITDA number at the end of the day.

Okay, thank you. And then just one very quick question to finish with. Egypt volumes minus 3%, I've heard a lot more negative numbers from other companies. Were you not impacted by any problems in terms of political? I think you are on a different fuel, aren't you? But no production problems in Egypt in Q1?

No, I think to some extent, as you are suggesting, our volumes to some extent were benefit by the situation. As you may know, there have been issues or shortages of energy in the country. Most of them or all of them affecting cement plants which produce cement out of gas, natural gas.

In our case and because of the locations of our plants we are using heavy fuel, what they call mazot, which has not had any let's say shortages so far. So our production has been stable, other productions on other facilities in the country, seems like they have not been as stable as ours and we have been benefiting from that situation.

May be I could add -- maybe I could just add to what Fernando was saying. I think it's important just to highlight that most of our sales are bags. And interestingly enough, talking to our guys in Egypt a couple of days ago, they were telling me that despite -- the chaos is actually causing some folks to take advantage of the situation to build outside code. And so, demand has been -- actually in our market has been pretty positive and we are sold out in that facility.

Understood. Thank you very much.

Gordon Lee, BTG.

Just two quick questions, the first on Mexico, which is I guess you must be monitoring closely what is happening to the publicly traded homebuilders and specifically the balance sheet deterioration seen in the very recent past. And so my question related to that is when you have your target of 2% growth in Mexico for the year, what are your assumptions for growth in the formal housing sector?

And related to that, what if any sort of steps have you taken to make sure you are not stuck with bad receivables from these customers? Because clearly they are having very serious liquidity constraints. And the second point just if you could remind us on the strategic CapEx, what the breakdown of that CapEx is for the different projects? Thank you.

Okay, on your first question, Gordon, on Mexico. We believe that for the year the formal residential is going to grow above 1%. The formal residential sector currently accounts for about a quarter of the total market and, again, we believe that the performance through the year will be around 1%.

There are issues in that sector, it has been public. The largest construction companies in the sector are going through some issues. Now those companies, let's say grouping the largest companies in the formal housing sector, they account for no more than 1% of total demand, so they are very relevant. But is not as bad as let's say some people can think.

On our exposure, as you can imagine, we do monitor that situation very closely and so far we have not had major issues with our receivables. We are in permanent contact with our customers and we -- business as usual. We have been dealing with the situation properly. So no major negative consequences for us so far.

Great, thank you. And would you be able to provide a breakdown of the $175 million strategic CapEx, how that is been directed to the different projects?

Well, I think one of the main strategic projects is the grinding mill in the Philippines, the grinding mill in Colombia. We do a have to some extent a portion for -- in order to continue with our alternative fuel program, as you heard initially during the call, we continue doing progress in this very relevant initiative for us, getting closer to 30% substitution, so we continue investing in this front. That accounts for most of the strategic CapEx. Now by the way, strategic is for in some cases expansion and in some cases profitability gains, not just expansion projects.

That is very clear. Thank you very much.

Yuri Serov, Morgan Stanley.

Good morning. This is Yuri Serov calling from Morgan Stanley in Europe. Could we please just talk a bit more about your pricing in Europe? You -- as far as I can read you are reporting a 6% sequential increase in cement prices across Northern Europe. Could you give us more details please as to in which markets is this? How you are you managing to do it given that you are seeing volume falls in the markets here in Europe and how sustainable is this? Thank you.

Okay. Well, to provide some color in North Europe, in the case of cement for instance, we are increasing prices in Norway by 7% -- by the way, in Norway we sell 50% of what Poland sells in volumes. In Poland we are increasing 2%, in Germany we are increasing 1% and that is for cement.

In the case of ready-mix, we are increasing in Poland 6%, in Austria 5%, Germany and France about 2% and that is for main countries in ready-mix. And in aggregates we are increasing in Austria about 5%, in France 2% and in other countries like the UK it's a negative figure by 1%. So that is about on a per country basis.

But as I also commented previously because of the question of how can we offset the close to $70 million effect of the pension fund in the UK is because there is also a mix effect because in general terms the -- our volumes in the UK in the three sectors dropped less than others and the UK having one of the highest prices in North Europe is affecting because of this volume mix. So that is about the -- let's say the information on prices for North Europe.

Okay. So if you exclude that mix effect, you may have said this already but I probably missed it. What is the increase across the countries if you just literally go average across all of them sequentially?

I don't have that information handy.

We would have to get back -- I mean I don't think we calculated that. We would have to get back to you on that.

I mean you are saying 2% Poland, 1% Germany. How much is it in the UK, how much are you increasing prices there?

Where?

In the UK in cement.

Your question is let's say eliminating the mix effect what is the price increase per sector (multiple speakers)?

I'm sorry, I've thrown too many questions here. Let's say the first question, when you were going through countries you didn't mention the UK, but can you tell us by how much you are increasing prices in the UK sequentially?

The prices in the UK, it is 2% down in the first quarter compared to fourth quarter of 2012, so it is a reduction. I think I mentioned (multiple speakers).

And what about sequentially?

This is sequentially, this is first quarter 2013 compared to fourth quarter 2012.

Oh, fourth quarter, sorry. I thought that you said first quarter. Okay, I understand. So much of the 6% improvement then is because of the mix effect I'm concluding?

Yes, there is an impact of this mix effect, yes.

Okay, that is very helpful. Thank you so much.

Fernando Ramos, GBM.

By what you have said I read through that most of the decline seen in Mexico was strictly an effect of a low era of government spending and more so than the tight environment of the formal housing sector. And I wanted to ask you if this assessment is correct?

And my second question is if you could talk to us a little bit about what kind of pricing environment you are seeing in Egypt and what has been the reaction of the industry as a result of the devaluation we've seen in the Egyptian pound? Thanks a lot.

Okay, I will take the first one. Just giving some additional color to the impact, the negative impact in the first quarter on volumes, cement volumes in Mexico. The main reason of this adjustment, again eliminating the working days effect and everything, is infrastructure spending. The new government has hardly exercised the budget and that is why there is a decline during the first quarter in infrastructure.

Infrastructure -- the weight of infrastructure in total demand is similar to the formal residential sector is about 25% and the drop in this sector is twice what the decline was in formal residential. So I think you were suggesting that or you were asking for clarification if infrastructure drop is -- accounts for more or is much more relevant than formal residential and the answer is, yes.

And the answer is also that we think it is quite normal we have checked data for previous administrations -- Federal administration changes and it is normal. And it is expected that this will come little by little during the rest of the year and related to the government expenditure. It will come, projects are there, they have been announced so it will come during the second half of the year.

If I could just add a little bit to what Fernando is saying, we are also fairly pleasantly surprised by the reaction that the government has taken in terms of the formal residential sector. They have been quite forthcoming in terms of making financing available.

I don't know if you saw, but just last night I think towards the end of the day Infonavit announced that they -- a more generous financing scheme for vertical housing, I think that there is -- we expect the subsidies for home purchases which have been reduced by the new administration to start flowing and that will have a positive impact on mortgage origination.

So we are -- I mean given the fact that they have been in office for such a short period of time, I think they have made a lot of indications that they are supporting both infrastructure and the formal residential sector so we're optimistic about it.

Now on the question of Egypt pricing, I think Fernando mentioned in the discussion, I think the whole market is reacting to the reduction in government subsidies for energy and that is likely to continue. I mean given what is happening over there, there is -- we certainly do not expect the reduction in subsidies to abate. So there is going to be a fair amount of pressure, frankly, to compensate for those increases.

And while there is new capacity in the background, that new capacity has not been able to come in to because of the energy situation as well. And so pricing has been tight and it is reflecting that situation and the whole market has reacted. And as you saw, our prices were up about 7% in the first quarter in local currency terms.

As you may know, the international monetary fund in Egypt are trying to put in place a facility of close to $5 billion. And part of the agreement is related or is conditional to eliminating energy subsidies in the country which account for about 20% of government expenditure.

And so, as long as these subsidies in energy are reduced or eliminated, that will be an increase in our construction. Energy is one of the most relevant costs in our cost structure. And it will be an incentive for us to again adjust because of inflation. So most of the increase most probably will come depending on how the energy subsidies evolved in the country.

Excellent, that is more than clear. Thanks a lot.

Josephine Shea, Hartford Investors.

Good morning. I still want to come back to Mexico. Since the housing -- residential housing is still 25%, could you perhaps highlight whether there has been on a monthly basis a slowdown more towards the end of the quarter? We've seen that there is a considerable slowdown in construction. And I was just wondering what your assumptions going forward are.

I understand infrastructure should come back, but in your guidance assumptions of 2% volume do you foresee a growth again in residential as well? Or are you keeping it at let's say March levels?

Yes, I think that what we saw in general both in infrastructure and formal residential, both of which are very much related to the transition process for the government and I'd just like to again reiterate what Fernando was saying earlier.

I mean, we not only have -- we have a change in administration and change in party. So the dynamics of that transition are very deeply felt. If you take a look at prior sexenios, we have seen drops in spending from the public sector in the first quarter anywhere between 70% to 80%. If we take a look at particularly for instance one area, transportation for instance. That ministry has hardly spent any of its budget in the beginning of -- in the first -- during the first quarter.

And then you had all of the issues that were taking place in the formal housing area and in particular in some of the top builders and also the delays in the subsidies. I mean what happened -- I don't know if you are aware, but last year or in the previous administration the subsidies were close to about 70,000 pesos, 75,000 pesos per house, that subsidy has been reduced to about 50,000 pesos. And there has been a delay in the approval process.

Now typically -- that's -- just to give you an idea, that is roughly 20% of the price, the acquisition price of a house. And so if you are not -- if you are a buyer, if you are getting that subsidy and it is not getting approved and you think it's going to get approved a month or two later, and based on that then you go get your mortgage, you are clearly not going to go and make the buy decision.

Now we certainly do not expect these delays to persist for the rest of the year. So we are quite constructive about that changing during the course of the year and we do expect the formal housing sector to certainly pick up in the three -- in the following three quarters of the year, as we do in the case of infrastructure as well. I don't know if that answers your question?

Well, you have to appreciate that of course when we look at the top four homebuilders it is an industry wide phenomenon that because of financial difficulties they are not able to finish their homes. So we are just wondering whether you can give a little bit more color. I mean I appreciate absolutely that the top four are only 1% of total demand. But a little bit more color would help, understanding the dynamics between the formal housing sector and your sales.

Yes, I mean it is also important -- first I think a lot of people sometimes think of the listed companies and they forget that we have about 1,600 homebuilders in Mexico. And so, the dynamics that you may be seeing for the top listed guys may be quite different from the rest.

And also it is very important to mention that about 30% of the formal construction side is not low income and it is not dependent on government spending. Some of that -- this is in terms of the cement volume, okay? When I talk about 30% it's cement volume.

And if you take a look at the differences in credit dynamics, if you take a look at what is happening to credits that are being extended by the government, those have dropped at a much higher rate than what we have seen from the private sector. The private sector decline as been close to about 1% to 1.5%.

And so we are seeing growth there and typically those mortgages are substantially higher than those mortgages that are given. In fact, if I remember from my memory it's close to 2.5 to 3 times as much in actual absolute amount. So that is why we are constructive. I mean --.

Yes, this is very helpful. Thank you very much.

Operator?

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

Thank you, Operator. Well, thank you very much and in closing I would like to thank you all for the time and attention. We look forward to your continued participation in CEMEX. And please feel free to contact us directly or visit our website at any time. Thank you and have a good day.

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