Cemex SAB de CV (CX) 2014 Q1 法說會逐字稿

Good morning. Welcome to the CEMEX first-quarter 2014 conference call and video webcast. My name is Lorraine and I will be your operator for today. (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 2014 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 15% on a like-to-like basis adjusting for the higher number of business days during this quarter as well as higher maintenance and negative inventory drawdown effect, which Maher will explain later in the call.

Consolidated cement, ready mix, and aggregate volumes increased by 8%, 8%, and 12%, respectively, during the quarter. Adjusting for the higher number of business days, all of our regions enjoy higher cement volumes with the exception of Mexico, where we had a decline of 1%. We expect Mexican volumes to gradually pick up throughout the rest of the year.

In the case of our Northern Europe and South Central American and the Caribbean regions, adjusted cement volumes enjoyed double-digit growth. On a sequential basis and in local currency terms, our consolidated prices for cement, ready mix, and aggregates increased by 3%, 2%, and 6%, respectively, during the quarter. Cement prices are up in most of our major countries with the exception of Spain, Colombia, and Germany, where sequential pricing was flat.

We continue with implementation of our Value Before Volume strategy in all of our regions. In cement, we are pleased to report that we are now in the implementation stage throughout all of our portfolio. In addition, we are making significant advances in the implementation of this strategy in ready mix and aggregates.

We also remained focused on improving the transparency of the value we provide our customers through our products and services by having mutually productive conversations about surcharges and service fees in each market.

On the financing side, we continue to improve our debt maturity profile, reduce our interest expense, and strengthen our capital structure. During the quarter we entered into private agreements for the early conversion of approximately $280 million of our 2015 convertible notes.

In addition, in April we raised $1 billion and EUR400 million at yields of 6% and 5.25%, respectively. We are pleased with the way our credit continues to re-rate. We remain vigilant and prepared for windows of opportunity to reduce interest expense at the margin.

Now I would like to discuss the most important developments in our markets. In Mexico, adjusted volumes for cement decreased by 1% while ready mix volumes grew by 1% during the quarter. The higher increase in ready mix volumes corresponds to higher activity in formal construction. During the quarter there was increased demand from both the infrastructure and formal residential sectors.

On the pricing side, we had positive traction from our cement price increases in December and January for bag and bulk cement and again in March for bag cement, recovering most of the pricing loss during 2013. Cement prices as of March were 7% higher than December prices in local currency terms.

Now talking about the different segments, we saw slow growth in the industrial and commercial sector during the first quarter. Manufacturing activity indicators, such as manufacturing exports and confidence, are starting to show signs of improvement. These sectors should continue to benefit from expansion in the US economy growing in the low single digits during 2014.

The sales construction sector remained relatively stable during the quarter. Job creation continues to be positive, but at low levels. In contrast, remittances from the US to Mexico, also an important driver of this sector, have increased 12% during the first two months of the year and have shown year-over-year growth for six out of the seven last months since August after more than one year of declines.

For this year, job creation should improve and demand from the formal residential sector should continue growing in the low single digits.

On the formal residential sector, housing starts and housing registries grew sequentially from October to February with the exception of January, which was affected by the anticipation of a change in the subsidies rules starting in 2014. The prospects for the residential sector for this year are more stable, reflecting an expected increase in housing subsidies, more clarity regarding the new housing program and fiscal reform, and higher participation from medium and small homebuilders.

However, in the first few months of the year there has been a slight delay in the allocation of housing credits and subsidies. As a result, we cautiously expect performance in this sector to be from flat to a low single-digit decline during this year.

Regarding the infrastructure sector, public investments started the year with a very positive performance, increasing more than 50% during the first two months of the year. We are pleased with the announcement earlier this week of the 2014-2018 national infrastructure plan with an expected investment of approximately $575 billion during this period, a significant increase from that of the prior administration.

Energy represents about half of this investment, growing close to 90% from the previous six-year plan. Investment in transportation and communications, about 70% of the total investment, is expected to grow by 34%. In addition, for the first time there is an allocation under this plan to urban development and housing, representing about 24% of the total investment.

The government expects that the approved reforms and the investments related to this new plan should contribute an incremental 1.8 to 2 percentage points to economic growth towards the end of the period.

On the cost side, we continue with our productivity improvement initiatives, especially in the enhancement of equipment productivity, fuel consumption mix, sales generation of electricity, and sourcing of the rest of our main inputs. We remain focused on higher value-added products and services and we emphasize our customer loyalty with new programs through our dedicated distribution channels. We will continue to be vigilant about the pricing environment and look for opportunities to recover our input cost inflation in our core products.

In summary, first-quarter volume growth was in line with expectations. We see volumes picking up throughout the year and achieve annual growth in the mid-single-digits. This growth will be driven by higher infrastructure spending, a continued positive industrial and commercial sector, and a growing self-construction sector.

For 2015 and beyond, recently approved energy reforms should translate into higher infrastructure spending and lead to increased demand for our higher value-added products.

Our US operations during the first quarter turned in good results despite poor weather conditions in most of our footprint. On a year-over-year basis, cement volumes were up 9%. On a pro forma basis, adjusting for the transfer of our ready mix assets into the joint venture in the Carolinas, ready mix volumes were up 5% year over year.

Aggregate volumes declined 6%, due primarily to the completion of the Fort Lauderdale airport project in Florida in 2013. While all three consumption sectors contributed to volume growth during the quarter, the residential and industrial and commercial sectors drove volume performance. Housing permits in our four key states -- Texas, Florida, California, and Arizona -- are up 7% year-to-date February compared with a 5% increase at the national level.

Florida and Arizona led the way with growth rates in excess of 15%. While the base of residential recovery softened somewhat during the first quarter -- due to weather and other factors, the US residential recovery story remains intact.

Construction spending for industrial and commercial rose 18% year-to-date February. Activity in this sector for our key states continued to outperform national levels. Contract awards for our key states are up 18% compared with 6% nationally for the trailing 12 months ending February.

The public sector, which was a drag on spending last year, turned marginally positive this year with public infrastructure spending up 1% year-to-date February versus the same period last year. Highway and bridge investment, the most cement-intensive component of infrastructure spending, rose 10% during the period primarily driven by state activity. We attribute this increase to improving state fiscal conditions.

After an exceptional performance during the fourth quarter, highway contract awards on a trailing 12-month basis ending February are up 14% nationwide and 20% for our four key states. Consistent with the year-to-date trend in public spending, we continue to expect that cement volumes for the public sector should contribute marginal growth in 2014.

Our Value Before Volume initiative paid off during the first quarter with prices for cement, ready mix, and aggregates up 2%, 3%, and 6%, respectively, on a sequential basis. The increase in cement pricing is a result of our successful January pricing announcement in Colorado and Florida. The January pricing increases for ready mix and aggregates in Florida, Texas, and Northern California also had traction.

Cement price increases for the rest of our regions were introduced as scheduled on April 1 in the range of $7.70 to $8.80 per ton. Increases for ready mix and aggregates were also implemented.

We are dedicated to our goal of eliminating the chronic underpricing of our products over the last decade and seeking a fair return on the capital employed in this business. We are confident that April's cement price increases will achieve favorable traction and we remain committed to a second round of increases in the summer and fall months. We believe that the tailwinds of pricing demands in all three customer segments, as well as increasing capacity utilization, will support these efforts.

In terms of operating leverage, increased sales volumes and successful price increases were offset by a rise in scheduled maintenance cost as well as a seasonal inventory drawdown effect. During the quarter, we took advantage of the poor weather to bring forward most of our annual maintenance work. By the end of March, we had completed more than 85% of our scheduled outages for the year versus approximately 40% during the same period last year. While this strategy introduces higher costs during the first quarter, it will improve operating leverage in subsequent quarters.

Despite difficult weather conditions, our performance during the quarter only adds to our confidence regarding the pace of US recovery during 2014. In our Northern Europe region, quarterly consolidated cement, ready mix, and aggregates increased by 22%, 15%, and 26%, respectively, reflecting the economic recovery and favorable weather conditions. In fact, volumes for our three core products grew in all countries in the region.

On a sequential basis, regional cement prices increased by 2% and ready mix prices increased by 4% during the quarter in local currency terms. We are progressing with the rollout of our Value Before Volume strategy in the region, adapting our cement production to customer needs.

In Germany, the residential sector continued to be the main driver of demand for our products during the first quarter. Residential permits increased by 6% during the fourth quarter of 2013. Low mortgage rates and low unemployment drive residential construction. A growth in wages and net immigration into the country also contributed to housing demand.

For 2014, we expect this sector to continue its positive trend with volumes growing in the mid-single-digits. The infrastructure sector should be positively impacted this year by transportation infrastructure projects, financed in part by the expanded toll tax in the country.

In Poland, there are positive signs in the macroeconomic environment and general sentiment has improved in anticipation of the new EU investment budget, which started this year. The infrastructure sector is expected to be the main contributor to growth this year coming from a low base in 2013 and driven by transportation and other projects. The residential and industrial and commercial sectors should be relatively stable this year.

In France, infrastructure activity during the first quarter was limited in anticipation of the March 2014 municipal elections. In addition, financing constraints and the government starting to reduce deficit has also affected the sector. Infrastructure activity during the rest of the year will continue to be supported by multiyear highway and high-speed-railway projects that started in 2012.

Regarding the residential sector, housing starts declined by 1% last 12 months as of February, reflecting tight credit availability. In addition, the less attractive buy-to-let program introduced at the beginning of 2013 continues to have a negative impact as the tax effects of this program become more evident. A slight decline in housing starts is expected for this year.

In contrast with the other countries in the region, the United Kingdom was adversely impacted by poor weather and extensive flooding during the quarter. However, market conditions and general confidence remain good and cement and ready mix volumes were positive despite the cool weather.

The residential sector continued to be positively impacted by - the "Help to Buy" policy, which the government has now extended to 2020. The sector should continue to be the main driver for our products during the year. The infrastructure sector should also grow in anticipation of the 2015 elections driven by road and rail projects.

In the Mediterranean region, during the quarter we saw growth in cement volumes in Croatia and the Emirates, which more than offset the decline in Spain and Egypt. Ready mix volumes grew double digit in Israel and Croatia. We continue to modulate capacity in the region based on customer demand and in support of our Value Before Volume strategy.

In Egypt, energy and electricity disruptions continued during the quarter especially for natural gas. The government has recently approved the import of pet coke and coal; however, the conditions and environmental measures have yet to be determined. The gradual elimination of subsidies on energy will continue.

Our alternative fuel strategy allowed us to operate regularly during the quarter. On the electricity side, we have been managing our production capacity to reduce utilization during peak hours.

Our cement prices in Egypt increased by 4% on a sequential basis and by 15% compared with the same quarter last year. The year-over-year price increase has more than offset the increase in fuel costs resulting from the partial elimination of energy subsidies. Prices should continue to reflect the increase in energy prices going forward.

The informal sector remains the main driver of cement consumption in the country. During the quarter we also saw a slight reactivation in the formal residential sector.

Infrastructure activity continued to be low. Going forward, we expect some downward pressure on our volumes, reflecting the increased cement production capacity in the country. We will continue to focus on our Value Before Volume strategy and on the marketing of our value-added branded bag cement.

In Israel, ready mix volumes increased by 17% during the quarter, reflecting in part dry weather during the quarter. In Spain, macroeconomic conditions showed a slight improvement. Domestic demand for our products during the quarter, however, continued to be affected by low activity in all sectors.

Importantly, the rate of decline in volumes is moderating. Having said this, considering our export activity, total cement volumes increased by 38% during the quarter. There are better prospects now than a quarter ago for infrastructure activity during 2014.

There has been a strong increase in public buildings in the past few months from very low levels. Lower pressures from fiscal austerity measures and municipal elections next year have contributed to this improvement.

In the residential sector, both sales and permits remain at minimal levels. Bank financing is limited and home prices continue to decrease slightly. Nonetheless, there are some positive indicators -- a positive employment growth in the sector, the clearing out of inventory in some regions, and a recovery in housing demand from foreigners. For this year, we expect our volumes to the residential sector should stabilize.

In our South, Central America, and the Caribbean region during the quarter cement volumes increased by 16%, driven mainly by growth in Colombia, the Dominican Republic, Costa Rica, Nicaragua, El Salvador, and Guatemala. In our operations in Colombia, we are encouraged by the continued positive trend in construction activity.

The increase in cement and ready mix volumes during the quarter was driven by positive dynamics in the formal housing and infrastructure sectors. In addition, there is a positive base effect from a week first-quarter 2013, which also contributed to our quarterly performance.

The residential sector continues to benefit from different government programs that have been implemented over the past 10 months, including the 100,000 government-sponsored free homes program and other housing subsidies and initiatives. With these programs continuing into 2014 we expect the residential sector to grow in the mid single digits during the year.

In the infrastructure sector, many of the projects that were awarded in the past years, including the corredores de la prosperidad and Ruta del Sol, are now in execution. The new infrastructure law approved last year has been a key element in speeding the start of these projects. Cement volumes to this sector should grow by about 10% during 2014.

The industrial and commercial sector also continued its favorable performance during the quarter, with high levels of activity in office buildings and warehouses. We expect this sector to grow in the low to mid single digits during 2014.

In Panama, our cement volumes during the quarter declined by 17%, reflecting a reduced consumption rate in the Canal expansion project as well as the impact from the stoppages of this project. Adjusting for the Canal projects, cement volumes increased slightly during the quarter.

Prices increased by 15% during the quarter. More than half of this increase is due to a mix effect as there were lower volumes to the canal, which had lower-than-average prices. The rest reflects a price increase early this year.

The residential and industrial and commercial sector were key drivers of demand in the quarter. We expect these sectors to continue their positive trend with low single-digit growth in 2014. Infrastructure spending going forward should continue to be supported by projects such as Corredor Norte and expansion of the Inter-American highway, which could start construction works in the near term.

The decline in our cement volumes for Panama anticipated for this year reflects the expected completion of the Canal expansion. Excluding volumes related to this project, our cement volume estimates for this year are slightly higher than last year's volumes. As the Canal project phases out, weighted average prices should go up as we have seen during the first quarter.

In Asia, we had operating EBITDA margin expansion during the quarter, driven by strong prices and higher volumes. In the Philippines, cement volumes during the first quarter grew double-digit, driven by healthy strong demand from all sectors. During 2014, the residential sector will continue to benefit from stable inflation, low mortgage rates, and strong remittances. Infrastructure spending will remain healthy with projects still in the pipeline and reconstruction efforts.

The government is fast tracking projects and has allotted about $38 billion for the building and rehabilitation of roads destroyed by different natural disasters last year. 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 second quarter of this year.

In summary, we are pleased with the growth in operating EBITDA and the positive trends we have seen in volumes and prices. We expect the temporary negative maintenance and inventory effects during the quarter to reverse throughout the rest of the year.

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

Thank you, Fernando. Hello, everyone. Net sales increased by 9% on a like-to-like basis and adjusting for the number of business days. Operating EBITDA margin declined by 0.8 percentage points.

The decline in margin is mainly due to two seasonal factors, which should revert throughout the rest of the year. First, we took advantage of the bad weather in the US to bring forward some of our scheduled kiln maintenances. In addition, we have higher cement maintenance activity during the quarter in the Northern Europe and South, Central America, and Caribbean regions than in the first quarter of last year.

Second, favorable weather in Northern Europe and higher maintenance work in the US translated into an inventory drawdown effect in these regions which also affected margins. These two effects resulted in a negative impact of $54 million in our quarterly EBITDA. Adjusting for these effects and for business days, EBITDA on a like-to-like basis increased by 15% with an increase in EBITDA margin of 0.8 percentage points.

Cost of sales as a percentage of net sales decreased by 0.1 percentage points despite the higher maintenance and inventory drawdown effects. The decline also reflects a reduction in workforce. Operating expenses, also as a percentage of net sales, decreased by 0.2 percentage points during the quarter. Our kiln fuel and electricity bill on a per ton of cement produced basis decreased by 4% during the first quarter.

Alternative fuel substitution reached 28% during the quarter. The savings achieved for using alternative fuels instead of fossil fuels during the quarter reached $28 million, or about 28% of the total cement bill in the same period.

During the quarter our free cash flow after maintenance CapEx was negative $454 million compared with negative $483 million in the same period in 2013. During the quarter we had higher EBITDA and lower financial expenses, working capital, and cash taxes, partially offset by the higher maintenance CapEx and other expenses. The lower year-over-year working capital investment during the quarter is mainly due to a positive impact from payables and inventories.

Working capital days during the first quarter were 29 compared with 28 in the same period in 2013. As in prior years, we expect to recover most of the investment in working capital during the second half of the year.

Other expenses net of $38 million during the quarter include losses on sales of fixed assets as well as severance payments. We also recognized a gain on financial instruments of $44 million related mainly to CEMEX shares. During the quarter we had a controlling interest net loss of $293 million compared with a loss of $281 million in the same quarter of 2013.

This is primarily due to a smaller gain on financial instruments and higher financial and other expenses, which more than offset the higher operating earnings before other expenses and a lower FX loss. We continue with our initiatives to improve our debt maturity profile and strengthen our capital structure. During the quarter we entered into private transactions with some institutional holders of our 2015 convertible notes under which these holders converted approximately $280 million of these notes for approximately 27.73 million ADSs.

Also during the quarter we amended our 2015 capped calls. As a result of this amendment, CEMEX has the right to receive the market value of approximately 7.7 million ADSs.

We also continue to be able to access the global capital markets and are pleased with the strong support we have received. During April we issued $1 billion in senior secured notes due in 2024 with a coupon of 6%. In addition, we issued EUR400 million in senior secured notes due in 2021 with a coupon of 5.25%.

We used the proceeds for these notes to pay: one, $597 million of our 2020 notes with a coupon of 9.25%; two, $483 million of our 2018 notes with a coupon of 9%; and the remaining EUR130 million of our 9 5/8% 2017 notes. In addition, the remaining EUR115 million of our 8 7/8% 2017 notes will be paid at their call date on May 12.

Total debt plus perpetual securities decreased by $300 million during the quarter. The decline in debt reflects mainly the conversion of a portion of our 2015 convertibles discussed earlier. In addition, there was a negative conversion effect during the quarter of $4 million.

The negative free cash flow during the quarter was met with a reduction in the cash balance. In addition, there was an increase in the utilization of our securitization programs during the quarter.

We are including a pro forma maturity profile which shows the issuance of the senior secured notes in April as well as the use of proceeds to pay the higher coupon dollar and euro notes mentioned earlier. Pro forma average life of debt is currently at 4.7 years.

Assuming our 2015 convertibles convert, CEMEX will not have any significant maturity until September 2015. The April and May liability management exercises are expected to represent an annual cash interest savings of approximately $40 million.

We continue to be comfortable with our liquidity position with cash and cash equivalents reaching $844 million as of the end of the quarter. Furthermore, we maintain over $2 billion of working capital and receivables financing facilities, which further bolster our liquidity position. We continue with our liability management initiatives to lower interest expense, lengthen the average life of our debt, and reduce refinancing risk.

Now Fernando will discuss our outlook for this year.

Thank you, Maher. For 2014, we expect our consolidated cement, ready mix, and aggregate volumes to grow in the mid-single digits. As detailed in our per country guidance, we expect most of our major countries to exhibit volume growth during the year.

Regarding our cost of energy on a per ton of cement produced basis, we expect it to be relatively flat from last year's levels. Guidance for total CapEx for 2014 is expected to be about $645 million. This includes $505 million in maintenance CapEx and $140 million in strategic CapEx.

Regarding working capital, we expect the working capital investment during this year to be similar to last year's. We expect cash taxes for 2014 to reach about $600 million to $700 million. As a result of our liability management initiatives, we anticipate a marginal reduction in this year cost of debt including our perpetual and convertible securities from 2013 levels.

In closing, I want to emphasize three points. First, pricing trends continue to be favorable. Consolidated prices for our three main products in local currency terms increased both sequentially and on a year-over-year basis.

Second, we continue to see EBITDA growth in our operations. The temporary negative effects from maintenance and inventories on EBITDA margin should revert throughout the rest of the year.

Third, we remain focused on value creation, proactively improving our operating performance by focusing on pricing, value-added products and services, maintaining our cost discipline, and outsourcing support activities while at the same time looking for ways to optimize our portfolio. Thanks for your attention.

Before we go into our Q&A session, I would like to remind you that any forward-looking statements we make today are based on our current knowledge of the markets in which we operate and, of course, 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 your questions. Operator?

(Operator Instructions) Carlos Peyrelongue, Merrill Lynch.

Thank you. Good morning, Fernando and Maher. Two questions on Mexico, if I may.

First one related to pricing. You were able to increase on a sequential basis 6% cement prices in Mexico, but ready mix prices were up 1%. Should we expect there is some catch-up or is there any reason why the increase in ready mix was lower than that of cement? If you could provide some color on the ready mix market, it would be great.

The second question is related to volumes in Mexico. We look at the macro figures in Mexico and see that government spending is up 20% year-to-date, but we still haven't seen that in the construction sector. Can you provide any color as to whether you are starting to see movement in bidding projects, infrastructure? Anything you can comment would be helpful. Thank you.

Okay, so starting with your first question, Carlos, particularly on ready mix or comparing ready mix to cement. What I can tell you is that so far in the first quarter we had two price increases in cement and only one in ready mix, so it might be a matter of timing. And as you know and as we continue saying, we would like at least to recover inflation in all our products. So prices in ready mix should continue going up, more or less the same way that cement prices have already gone.

Regarding your second question, I didn't get specifically the number you were providing. What was it? Can you repeat it, please?

Government spending is up 20% and I believe that with regards to investments in infrastructure it's even more than that. This is national figures, no? So we see some figures that point to a recovery, but we still haven't seen much in both infrastructure, cement demand, housing, etc.

So just to get an idea of whether you are starting to see projects on the pipeline that would support volume growth in the second half. Any color you can provide would be helpful.

Yes, we definitely have seen, let's say, movement in the public sector. There are specific projects that are already in the mode of either assigned and ready to be started.

What we can comment is that we have already won important infrastructure projects ourselves. For instance, there is a dam in the state of Sonora called Pilares, the Pilares dam. We won that work and we are about to start.

Then we have also won a couple of highways, the Guadalajara-Colima highway and the Acapulco-Chilpancingo highway, so definitely we do see movement in infrastructure. What also we have seen -- this is not on a specific project -- but public investment in infrastructure is more than 50% higher. So that at some point in time, and you know we have commented more in the second half than in the first half, but those or that additional investment for sure will translate in additional infrastructure projects.

Another indicator it might help a little bit is that ready mix volumes to infrastructure are up 4% when we adjust that for business days. You know this year we have this Holy Week effect between March and April. So we do see very positive indicators of infrastructure works, new additional infrastructure works already being assigned and starting to be executed.

Perfect, thank you.

Vanessa Quiroga, Credit Suisse.

Great, thank you. Hello, Fernando, Maher. I wanted to ask you about the notes -- a comment that you make on your notes saying the last part of the press release regarding a reorganization in CEMEX Mexico. We were wondering if that is at all related to making your organization in Mexico more tax efficient and whether you could see any change in the payments that you have to make regarding the taxes going forward.

And then the other question would be more generally on pricing and your comment about currently having very constructive conversations with customers about services and surcharges. If you could provide any more specific comments about the feedback that you have received from customers and whether you see other competitors following that same strategy. Thanks.

I will take the questions. The first question, Vanessa, regarding the organization, the objective of this reorganization is that it's part of a commercial strategy that we are executing and we are taking steps on that commercial strategy.

What we would like or let's say the change -- what is it that we do today, what is it that we would like to do in the future -- is that we do approach the market product by product. And what we would like to do is to sort of reorganize the way we approach the market and approach the market by sectors, but including or offering to a sector all our products and services. So that's the main point in our reorganization in Mexico.

Now regarding your second question about prices and surcharges or the conversations and feedback. The way I see it, Vanessa, is that -- let's say if in a market your customers are used to receive certain services for free -- let's assume for a moment that that has been the case so far -- now we do see that certain services are valuable to customers. Those services have a cost and we want to recover that cost, meaning we are starting to charge for certain services that the customer has always received.

So we are having this conversation with customers pointing out why is it that we are charging for certain services. And what has happened -- and it's part of our expectation whenever we introduce this strategy in different markets. What is happening is a type of rationalization of services provided to our customers.

So if let's say -- let me try to give an example. If a ready mix truck in the past, a customer used to park it a couple of hours, three hours, four hours there at no cost. Then you talk to your customer, you're saying that is a service; it is a cost, so if you really need it, we are going to start charging for it.

The customer might say, well, I might need it but from now on I will pay much more attention to it. And perhaps the customer is going to organize in a different way and he might not be having any surcharge at all, but we will be rationalizing our cost of providing those services to customers.

So little by little and with conversation with customers we are introducing this practice, which by the way is not new in other markets. It might be new in Mexico, in certain geographies in the US, and in Latin America, but not new at all, for instance, in some geographies in the US or in Europe.

It is a process. We have to do it together with our customers. There is a rationalization process and we are recovering through price the value we are providing our customers.

I don't know if that answers your question, Vanessa.

Yes, that's very useful, Fernando. Lastly, if you could provide any comments about your views on the impact of the Lafarge/Holcim merger on the industry, whether you think if a more disciplined industry is a natural consequence or the outcome of some asset sales in certain markets could actually lead to more fragmented industry structures in some cases.

Well, as you saw, even the same day that was announced the market took this merger in a very positive way. I think there are different angles to the transaction and most of them are quite positive.

To us, one of the -- perhaps one of the most positive things is that it seems like -- we might not have all the information needed to make a judgment already -- but it seems like, because of Holcim's and Lafarge's portfolios, for this measure to be successful they would need to divest an important chunk of assets. So we do expect valuable assets to be in the market and some of them might be of our interest.

On the one hand, whatever transaction we ended up doing, if we end up doing a transaction, it has to follow the strategy that we have been following the last few years, which is strengthening our financial structure. Now on the other hand, as we have said, we have always said, we are always evaluating opportunities to optimize our portfolio.

And this is a very -- the merger between Holcim and Lafarge is a very important and material event in the sector, so for sure there will be assets to be analyzed. Now there might be other angles, positive angles to the transaction. I think until we know exactly how the transaction is going to proceed we don't have a final say on other issues.

Thank you very much for your comments, Fernando.

Gordon Lee, BTG.

Good morning, thank you for the call. Just two quick questions. First on the US -- well, assuming it's the US.

Is it fair to assume that the US was where all of the anticipated maintenance work was concentrated and so therefore that that forgone EBITDA would be primarily applicable to the US? Then the second question is: in Europe is there any way of giving us, more or less, a rough breakdown for how much of that rebound you think was related to weather on the volume front and how much to underlying improvements in economic activity? Thank you. In Northern Europe.

On the total amount, as you recall, we mentioned was $54 million maintenance and inventory effect. And it's roughly -- on a consolidated basis it's half and half, half maintenance, half inventory effect.

The bulk of the inventory effect was in the US and much less is in Northern Europe and we expect that most of that, if not all of that, frankly, to revert during the course of the year. I don't know if that makes -- I don't know if there's a follow-up to that or if that addresses your --.

Just whether you would say that most of the anticipated maintenance, so that half that's maintenance, was that mostly in the US as well?

Yes, a big chunk of that was in the US.

About two-thirds.

Yes, about two-thirds and we roughly did about 85% of the maintenance for the year in the quarter compared to last year it was around 40% of the maintenance. So it was a significant amount of bringing forward effect of the maintenance and that's because of the weather.

Now in the US and Europe the second question was the --.

Yes, a final comment on maintenance and the effect of inventories. Because most of the effect -- I think it was like $34 million out of the $54 million -- is the US, so most of the effect is coming from the US. And the reason why it's much higher than last quarter is because of -- basically it's weather.

You have bad weather; you are prepared for maintenance for the first half. Your inventories, if you continue producing your inventories go high, whatever. So they took the opportunity and they ended up making more than 80% of the yearly maintenance.

Of course that is affecting our first quarter materially in the US. Without this effect, the US -- EBITDA in the US should have been $34 million higher during the quarter, but on the other hand is an effect that is 100% reversible. We will recuperate that because maintenance was going to be done during the year and inventories were taken and inventories will be built. Not all facilities are properly maintained to work for the rest of the year.

Now on your second question on northern Europe, I don't have a way to really -- we don't have a way to really divide how much of it is weather and the markets, but what we have seen is that the markets are behaving better than what we expected. And on the other hand, it is true.

It is known that this winter in Europe was a dry winter with no snow or not that much and there were no extreme low temperatures, so the working days compared to previous quarter were much higher. But we don't have a way to specify how much of it was weather, how much of it was the market.

Also, if I can add, Fernando. Gordon, I don't know if you noticed but we've improved our volume guidance in the Northern European -- in most of the Northern European region on back of the performance of the first quarter. So it was not just a timing issue, there was definitely an underlying better economic activity in most of the countries in the Northern European region.

Perfect, that's very clear. Thank you.

Now will have a question from the webcast.

The question from the webcast is from Jose Bernal from BBVA and the question is about EBITDA margins in the Mediterranean and our South, Central and the Caribbean regions. Can you please give us more color why the margins deteriorated and if the Company expects to see going forward EBITDA margins below 20% in the Mediterranean and 35% in South, Central America, and the Caribbean?

In the case of the Mediterranean, there is one impact which is less amortizations of CO2 the first quarter of 2013 for about $9 million. And in the case of South America, we do have an effect which is again maintenance. The impacts on margins, either at consolidated level or in South America or in the case of US, are typical of a first quarter in the cement business.

So in the case of South America just to mention, we this year during the first quarter we made -- we did maintain three large kilns -- one in Colombia, one in Panama, and one in Costa Rica -- and that compares to none in first quarter of 2013. So does that translate to a reduction in margins for the rest of the year? No, it does translate to maintenance expenses done in different periods.

A cement kiln is maintained an average every 12 months, but sometimes it's a little bit less, sometimes it's a little bit more, assuming they work all year long. So there is not -- we don't have this precise comparison in the same periods of time. Again, in South America these three kilns compared to none in the same quarter last year.

On the other hand, in South America we also had the impact of the dollar strengthening. The peso devaluated for a little bit more than 10% and the colon for about 7% and other currencies were also affected.

Benjamin Theurer, Barclays.

Actually great and thanks. Congratulations, first of all. It's actually a follow up on South and Central America, Maher and Fernando.

The question is what we have seen is the relatively flattish pricing in local currency terms. I know that the margins were somehow affected by the currency depreciation, etc., but usually what you used to do in Mexico is trying to offset currency depreciation by increasing in local currency terms. Taking into consideration the investigation ongoing in Colombia because of price agreement and whatever we know that is still somewhere out there.

Are you somehow hindered to raise prices in local currency terms and then basically you are more exposed to FX volatility now just because you cannot catch up on pricing in Colombian peso terms here? And that's why we saw that impact here because volumes were pretty decent in the region. Your pricing strategy in Colombia, basically.

Ben, thank you. No, I don't think our behavior has anything to do with the pending situation in terms of the market.

Prices sequentially -- if we take a look at prices sequentially on cement in local currency terms, we are actually up in the region. The same thing for ready mix and the same thing for ags. So certainly we don't think that prices are behaving differently because of any of the investigations that are taking place.

We do have obviously new capacity that has -- grinding capacity that has come on stream, the 0.5 million tons that we brought in the north. But again it's market dynamics and whether that will change during the course of the year will remain to be seen.

Okay, but you also focus on your pricing before volume strategy in the region? Or is that a specific area where you say, okay, we first need to get the volume out because of the new capacity and don't focus that much on pricing as you are, for example, doing in Mexico, as you are doing in Europe, as you are doing in the United States?

No, the focus on the value before volume strategy is definitely being focused on -- in the region as well and we are looking at certainly growing the pie to achieve that. We are looking at having the conversations with our customers regarding services and fees and we are getting there.

So definitely, as we mentioned, certainly in cement we've implemented the strategy. We are in the process of rolling out the strategy on a global basis, so there is not a specific region where we say because of a certain effect we are not doing that.

(multiple speakers) But one thing that needs to be -- I think one thing that is important to comment on here is that we do have specific price maps per country, per local market, and that is the case for every market. Those price roadmaps are different from market to market and so you will see different dynamics, but the focus and the concentration on Value Before Volume is definitely throughout all of our markets.

Okay, perfect. Thank you for that and actually one follow-up on the question from Gordon Lee just to make the calc right on what you have in the US with that maintenance impact.

Fernando, you mentioned it was $35 million out of the $54 million was actually in the US, so if we were to adjust the US EBITDA, it would have been actually $63 million instead of $28 million. And with that in mind, the operating leverage would have been clearly much higher than it seems like right now because there was a big jump in sales expanding close to $60 million, but EBITDA went up only $10 million. So if we were to include that $35 million it would be more like as it was in the fourth and third quarter, Maher, correct?

It is correct. The amount I mentioned was $34 million. It was not $35 million, but it's okay. Yes, and operating leverage is (multiple speakers) if you are at that number to the reported EBITDA, yes, operating leverage is around 80% or so.

Also, Ben, if I can just add, it has less to do with the maintenance but the performance of the quarter also had something to do with pricing dynamics in the US. Last year we raised prices in close to 60% on 60% of our sales. Pretty much everywhere except for Texas and the Southeast region.

This year that number is 20% of sales. As you recall, the January pricing increases were only in Florida and Colorado and the rest of the pricing increases are going to happen in April. So that's another reason why you see the operating leverage broadly defined different.

Okay, great explanation. Thanks, Maher. Thanks, Fernando.

Marcos Assumpcao, Itau BBA.

Good morning, everyone. My first question, you just started to comment a little bit but if you could provide further update on the price increase implementation in the US; how much you are expecting for the coming quarters. And also if you could comment specifically on the month of April how the operations, how they are looking in the US and in Mexico as well, given the expected improvement in both operations?

Also, you did a good job on the cost side as well, like when we looked at the results on a year-on-year basis. If you could comment on further opportunities to reduce cost of sales and also operating expenses, it would be great.

And lastly, if I can, how you are expecting volumes to be in Spain. We already started to see lower year-on-year declines; if you are starting to see volumes are starting to bottom in Spain. And if you could comment, the pricing environment in the Mediterranean region which seems to be quite healthy as well. Thank you.

So the first one, just to address the pricing environment in the US, you can see from the pricing indications sequentially for the first quarter that our pricing increases in Colorado and Florida actually were successful, as we said. And that, especially the southern part of Florida on the supply side, is definitely getting quite tight and that should further support the pricing environment in that market.

The April pricing increases, just to remind everyone. We announced pricing increases for April 1 and they have been implemented between $8.80 per ton to $16.50 per ton in the Texas market, California market, Midsouth and Midwest.

And we have gotten a fairly good response. I would say we have a fairly high conviction that those pricing increases will and are getting traction in the markets. We are seeing certainly other players follow similar type of pricing increases. We have also announced ready mix pricing increases for April in California, West Texas, and Midsouth, so we have a high degree of confidence on those numbers.

In terms of the second set of pricing increases, the summer and fall pricing, as you recall we did announce in October of last year some pricing increases. Those range between the $5.50 to $8.80, and depending on markets, some markets will get those pricing increases implemented in -- as of July 1. Others in October, depending on historic pricing increases and supply/demand dynamics in those markets.

It is too early to tell, but we are optimistic and have seen others in our -- two of our biggest markets, Florida and California, follow similar strategies for the summer and fall pricing increases. And that's a positive indication from our perspective.

Regarding volumes in Spain, as we commented, volumes are still dropping, but much less than what they used to. So it seems like there is an inflection point to the trend that we've seen in the previous years.

There are some positive news in general terms in Spain and some positive news specifically in our sector as we commented. There is much more activity in housing for foreigners. And as you may know, in the case of Spain, houses owned by either British or Germans or French it's an important part of the sector and it seems like that activity is increasing.

On the other hand, we are improving our guidance in the sense of we thought or we guided early during the year for volume to drop about 14% and now we think it's going to drop less than that, like about 9%. So, yes, seems like in Spain there are indicators that point out to a less negative, a much less negative context than the one we still saw, let's say, during the last quarter of 2013.

Regarding the other issues you commented, we don't provide information on April. The month is hardly finishing today and we don't have any significant information to share.

Was there any part of the question that we did not address? Okay.

Mike Betts, Jefferies.

Thank you very much. I've got two areas of questioning if I could. One is to come back to this maintenance question and to ask you if you could split the remaining $20 million, which I think you were in northern Europe and South America, if you could split it between the two.

And maybe also give me an indication of why it occurred. Obviously in the US it's understandable because of bad weather, but obviously that wasn't the case in Northern Europe and South America.

Then the second part on the maintenance, the 60% last year that wasn't in the first quarter, could you give us some indication of when it occurred, in which quarters, so that we can kind of take some judgment on when we might get this $34 million come back?

And then the final question if I could, Lafarge/Holcim, two-part question. Clearly one of their major arguments is that there is significant economies of scale even above their current levels in the cement industry. I mean is that something that you would agree with and would you expect further consolidation in the industry?

If you do look at any of these assets -- I was not totally clear on the comment, I'm afraid. Were you saying that you would look to do asset swaps to participate in any transactions or did I misunderstand that? Thank you.

Let me start with Lafarge and Holcim. I think you were commenting on two specific issues. The first one is economies of scale and, yes, we do believe that in the industry there are economies of scale and Holcim and Lafarge [and us] and other companies are to our level, to our size. We are always trying to obtain as much economies of scale as possible.

So are they going to get these economies of scale because they will be a company much, much larger than what they used to be? Yes, we think they will. To what extent? That I don't know, but we will -- for instance, in our case we are -- this is not completely new, but we are working in an initiative that we are calling it leveraging global CEMEX.

Which the intent is to improve and to move forward on the idea of a global integration in the Company in different aspects: knowledge, best practices, and for sure economies of scale is part of -- is one of the topics that we include in this idea of optimizing and creating value because of the size or because of coverage we have globally.

So that's regarding the economies of scale. Now regarding assets, I think the question was if we were interested in acquisitions or swaps or --. I think at this point in time we are open to analyze whatever the opportunity.

We still don't know exactly what is going to happen. We don't know exactly the timing on things. As you know, the asset sales besides the consideration that Lafarge and Holcim have by themselves, we need to take into account the consideration that authorities like the European authorities or perhaps the ones in Brazil or other countries. We need to understand what will be the position of the authorities to allow this merger to happen.

So until we have a clearer picture, we need to be open to any possibility in the sense of geographies or in the sense of what type of transactions. So as time goes by and whenever we better understand the possibilities, we will be commenting on them.

Okay, thank you.

Regarding maintenance, I'm not sure I understood the whole thing, but repeating part of the information. Out of the $54 million, it's not only maintenance; it's maintenance and inventories that were taken.

In the case of the US we already mentioned the total impact is $34 million. I don't have a figure to compare on that one, but we can provide that to you later today.

And you were asking also for the remaining part. The remaining part is divided in -- the most important part is North Europe, and as you said and we said there's North Europe there was a good weather. But we also mentioned that in the case of the UK weather was not that good and most of that effect I think is -- $5 million out of the $8 million is in the UK and the rest is in South America.

We already mentioned that this quarter they had at least three kilns with major maintenance in Colombia, Panama, and Costa Rica, I think, compared to none last year. So that's about $6 million in that region.

And none -- there wasn't significant breakdowns or anything that caused this to happen? This was conscious decisions or --?

No, no, no. It is -- as I tried to explain, you have a kiln that operates 330 days per year and you have to maintain it once a year. So if -- but you have variations. It could be 10, 11 months. It could be 13, 14 months.

So if we made a maintenance, let's say, in Colombia to our biggest kiln, which is a real case. Let's say that we made that maintenance in April 2013, so the cost of the maintenance is in the second quarter. Then 11 months after -- I don't know exactly, but this is the exact example, meaning it could have been done that maintenance the quarter before or the quarter after, but just to illustrate.

This year let's assume 11 months after we made the maintenance in March, so you have the impact of that maintenance during the first quarter. This is the type of variances that -- most of them happen between first and second quarter of the year, because most of major maintenance in kilns -- I'm always referring to cement -- in kilns are made in the first quarter and the second quarter. So most of these timing issues are characteristic of this time.

I would -- just final follow-up point. Thank you for that. That would suggest then in the US there should be a major positive in the second quarter of this year.

Yes, second or third quarter because, as we mentioned, this year and because of rains --. There were almost like 10% more rainy days in the US in our markets compared to last year, plus some very low temperatures as you know. So this year because of that specific reason, I think I mentioned before it's about more than 80% of total maintenance for the year was done in the first quarter.

So, yes, we can expect that in the second quarter, mainly for cement, and then the rest of the year for cement, ready mix, and aggregates we should see those -- that impact coming back to EBITDA. This is not maintenance referred to, let's say, to a breakdown, to an anomaly or something that is not business as usual. This is just major maintenance anticipated because of those reasons.

Understood, that's great. Thank you very much.

More than welcome.

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

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

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