Cemex SAB de CV (CX) 2014 Q3 法說會逐字稿

Good day to everyone, and thank you for joining us for our third-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.

During the third quarter, we had good topline growth, and our operating EBITDA generation grew by 3% on a like-to-like basis, despite the slowdown in some of our markets. Consolidated cement and aggregates volumes increased by 3% and 1%, respectively, while ready-mix volumes were flat during the quarter. All of our regions enjoyed higher cement and ready-mix volumes, with the exception of the Mediterranean in cement and Northern Europe and Asia in ready-mix. For the remainder of the year, we expect consolidated volumes to continue performing well.

Quarterly consolidated prices for cement, ready-mix, and aggregates, in both local currency and US dollar terms, are higher on a year-over-year basis. Sequentially, our consolidated local currency prices for ready-mix grew by 1%, mainly driven by increases in the US and the South Central America and the Caribbean region, while consolidated cement prices remained flat.

On the financing side, we continue to proactively address our refinancing requirements, improving our debt maturity profile, further reducing our interest expense, and strengthening our capital structure. During the quarter, we raised about $1.6 billion equivalents at competitive yields. We also concluded our efforts to fully address the contingent maturity of our 2015 subordinated convertible notes.

In addition, we are pleased with our return to the syndicated bank loan market through a new $1.35 billion syndicated loan facility with a group of banks with improved terms, which reflect our better credit profile. Maher will talk in more detail about these transactions later in the call.

Also during the quarter, we announced that our subsidiary, CLH, has begun the construction of a new cement plant in the Antioquia region in Colombia with a production capacity of close to 1 million tons per year. The total investment is expected to reach approximately $340 million. This facility will operate with modern and efficient technology, with high quality and environmental standards and reduced production costs. In fact, we expect this new facility to consume 15% less fuel and 10% less electricity compared to our other cement plants in the country, all of which operate with dry technology.

Now, I would like to discuss the most important developments in our markets. In Mexico, our cement volumes increased by 4%, while ready-mix volumes grew by 5% during the quarter. This was due to higher activity in formal construction, especially in the formal residential and commercial sectors. Cement and ready-mix prices were flat sequentially in local currency terms. Cement prices as of September were 6% higher than December prices, recovering most of our 2013 price erosion. We aim to recover our input cost inflation in cement and ready-mix production.

Now, talking about the different segments, the formal residential sector continues to be the best-performing sector year-to-date, with housing starts, registries, and subsidies showing double-digit growth as of September. The prospects for the residential sector going forward continue to be encouraging, reflecting continued growth in housing mortgages and subsidies, as well as higher participation from medium and small homebuilders.

The self-construction sector showed slight growth during the quarter. Positive trends in job creation and remittances should lead to continued growth in the sector going forward. Industrial and commercial activity also improved during the quarter, driven mainly by the commercial segment. And, additionally, manufacturing activity indicators are showing signs of improvement. This sector should continue to grow in line with general economic activity.

Regarding the infrastructure sector, total infrastructure investment has grown by 31% year-to-date as of August, with about 65% of the 2014 budget completed. We continued to see a big difference between spending levels and our volumes to the sector, which declined slightly during the quarter due to a lag between the granting of federal resources and the actual spending at state and local levels. We should see increased demand from this sector during the last quarter. In fact, some highway projects that have been awarded to us should begin in this fourth quarter. We expect our volumes in the infrastructure sector to increase in the low-single-digits for 2014.

In summary, in Mexico, we expect to achieve annual cement volume growth in the low-single-digits. This growth will be mainly driven by a recovering residential sector, a positive industrial and commercial sector, and the expected pickup in infrastructure activity. The different reforms being implemented in the country should result in stronger volumes going forward.

Our US business saw stable volume growth and additional pricing inroads during the quarter. On a year-over-year basis, both cement and ready-mix volumes, adjusting for the transfer of our ready-mix assets to the joint venture in the Carolinas, were up 8%. Aggregate volumes increased by 1%, and grossed 2% when adjusted for the Fort Lauderdale airport project in Florida in 2013.

Volume growth in the quarter was driven primarily by the industrial and commercial sector and steady expansion in the residential sector. The infrastructure sector also contributed marginally. Housing permits in our four key states -- Texas, Florida, California, and Arizona -- are up 8% year-to-date August, compared with a 3% increase at the national level.

Texas and Arizona showed the most dynamism during the quarter, driven by multi-family construction. Construction spending for the industrial and commercial sectors rose 13% year-to-date August. While national contract awards rose only 1% in this same period, contract awards for our key four states increased by 4% on a year-over-year basis. Texas and Arizona are driving this outperformance with awards in excess of 10% year-over-year.

Office and manufacturing construction continues to be vibrant. The public sector also contributed to volume growth during this quarter. Public infrastructure spending is up 3% year-to-date August versus the same period last year. Highway and bridge investment increased 2% during the same period, primarily driven by state activity and the initiation of TIFIA projects. We attribute this increase to improving state fiscal conditions.

Despite a stopgap solution to the immediate issues of the federal highway program during the quarter, uncertainty surrounding this program remains high, and discourages the states from entering into long-term federal highway contracts.

Our value-before-volume initiative continued to produce results during the quarter. Ready-mix prices rose 2% sequentially. Due to product and geographic mix issues, prices for cement were flat, while aggregate prices fell 1% sequentially. Importantly, we did see traction on our summer pricing increases in Colorado and Florida. We remain quite optimistic regarding our October cement increases in Texas and California. With the ongoing improvement in demand and capacity utilization levels, we have already announced cement price increases for 2015.

The incremental margin for our US operations in the third quarter was above 50% on a year-over-year basis, bolstered by strong pricing in our products. During the quarter, we did incur incremental costs due to higher transportation costs and necessary investments to prepare for higher volumes.

In our Northern Europe region, cement volumes during the quarter increased by 1%. Improved volumes in Poland, Scandinavia, and Czech Republic more than offset declines in Germany and Latvia. In ready-mix, there were volumes declines in most countries in the region. Year to date, volumes are 4% higher for cement, and flat for ready-mix.

In Germany, we saw a decline in cement volumes during the quarter, reflecting the general change in economic outlook, as well as some construction workforce constraints. The backdrop for residential activity continues to be favorable, benefiting from low unemployment, low mortgage rates, growth in wages, and net immigration into the country. However, this sector is being challenged by limited land availability and regulatory caps on rental increases.

In the industrial and commercial sector, there have been postponements and cancellations of other projects in light of the current business climate. Infrastructure spending continues to be positive. However, there has been a shift from new projects to less cement-intensive repair and maintenance projects.

In Poland, we saw moderation in construction activity. Infrastructure spending was the main driver of consumption during the quarter. Going forward, this sector will continue to be driven by projects including power plants and railways. The residential and industrial and commercial sectors should also show some growth this year. In this country, our focus on more profitable volumes as part of our value-before-volume strategy had affected our quarterly cement volume performance in the past few quarters. During the third quarter, our volumes increased as we win back our market position, which resulted in our better-than-market performance.

In France, our ready-mix and aggregates volumes during the third quarter were affected by continued macroeconomic weakness. Infrastructure spending was lowered due to the government's deficit reduction program, as well as by the conclusion of some major highway and rail projects. Housing activity is also weak as a result of higher unemployment, loss of purchasing power, and tight credit availability.

In the United Kingdom, general confidence and market conditions continue to be favorable. The residential sector continues to be the main driver for growth in our cement and ready-mix volumes, positively impacted by the help-to-buy policy. Improved sentiment is also translating into increased activity in the industrial and commercial sector. In contrast, there are limited new projects in the infrastructure sector.

In the Mediterranean region, during the quarter we saw growth in cement volumes in Spain, Croatia, and the Emirates. Ready-mix volumes increased in all countries in the region.

In Egypt, there were frequent and generalized electricity disruptions during the quarter, especially at peak time during the end of August and September. Shortages were caused by high utilization rates during the summer months, shortages of natural gas, as well as damage to some power stations. As the weather improves, consumption of electricity should moderate. We had a preventive maintenance shutdown in one of our kilns, for which we had prepared with imported clinker. However, due to the electricity shortages, we were not able to fully grind the clinker into cement during this period.

Our local currency cement prices during the quarter increased by 2% sequentially, and by 22% on a year-over-year basis. Our prices should continue to reflect the reduction in subsidies and the future increase in energy prices.

The informal sector remains the main driver of cement consumption in the country. The formal residential sector should also benefit from the 1 million low-income housing program announced by the Egyptian army. Going forward, we expect some downward pressure on our volumes, reflecting the increased cement production capacity.

In Israel, ready-mix volumes increased by 8% during the quarter, and by 7% year-to-date as of September, reaching historical high levels. In Spain, macroeconomic conditions continued to improve during the quarter. Our domestic gray cement volumes showed year-over-year growth for the second consecutive quarter. Considering our export activity, total cement volumes increased by 28% during the quarter and by 40% year-to-date. In infrastructure, the increase in biddings observed in the past year should start to translate into increased activity in the sector by the end of this year.

In addition, there is lower pressure from fiscal austerity measures and municipal elections next year, which should also contribute to the sector. Housing sales and permits have shown some improvement, indicating that the residential sector might have reached bottom. The stabilization of home prices and increased housing demand from foreigners should contribute to the clearing out of inventory in some regions.

In our South, Central America, and the Caribbean region during the quarter, cement and ready-mix volumes increased by 3% and 5%, respectively. Year-to-date regional cement and ready-mix volumes are up 6% and 9%, respectively. As explained yesterday in CLH results call, the decline in quarterly margins resulted mainly from higher maintenance in Colombia and lower prices. In our operations in Colombia, we are encouraged by the double-digit year-to-date growth in volumes for our three core products, driven by positive dynamics in all demand segments.

During the quarter, our cement, ready-mix, and aggregate volumes increased by 14%, 8%, and 12%, respectively, reaching new volume records for all our products. The government is working on new housing initiatives which should continue to support the favorable performance of the residential sector. And there are expectations of a new free home program to be announced before the end of the year. The infrastructure sector has also contributed to strong demand conditions, driven by the new infrastructure law approved last year which has accelerated the execution of several highway projects.

Going forward, infrastructure is expected to become the most relevant driver for incremental cement demand, particularly on the back of the new $26 billion highway concession program.

In Panama, we reached record volumes in our ready-mix and aggregate operations during the quarter. Our daily cement volumes, adjusted for the volumes to the Canal project, increased by 8%. The residential sector continues to be the main driver for cement demand in Panama, supported by middle-income housing activity. Infrastructure has also been an important driver for our products, supported by ongoing projects like the Corredor Norte and the 100-megawatt wind farm being built in the central region of the country. In general, we continue to expect strong demand levels from these sectors over the medium-term.

In Asia, cement volumes increased by 5% during both the quarter and the first nine months of the year. Cement volumes in the Philippines during the third quarter grew 6%, driven by continued strong demand from both public and private spending. Demand from residential and commercial sectors continued to be strong, driven by favorable performance from business process outsourcing activities in the country. Increased remittances, stable inflation, and low mortgage rates have also benefited the housing activity. The infrastructure sector was also strong during the quarter, despite a lack in government spending.

In summary, we are pleased with the year-to-date trends in our consolidated volumes and prices, despite the more challenging economic conditions during the quarter, especially in Europe.

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

Thank you, Fernando. Hello, everyone. Net sales on a like-to-like basis increased by 4% for the quarter, and by 6% for the first nine months of the year. Operating EBITDA increases by 3%, and operating EBITDA margin declined by 0.1 percentage point during the quarter. Higher EBITDA generation in the US, Mediterranean, and Asia more than offset the decline in Northern Europe, South Central America and that Caribbean regions.

Cost of sales as a percentage of net sales decreased by 1.6 percentage points during the quarter, mainly driven by our continuous improvement operating efficiencies and product mix. Operating expenses, also as a percentage of net sales, were 1.3 percentage points higher in the same period, reflecting higher distribution expenses. Our kiln fuel and electricity bill, on a per ton of cement produced basis, increased by 1% during the third quarter, and is down 1% year-to-date. The increase during the quarter is due to high electricity costs, especially in the US and Egypt.

During the quarter our free cash flow, after maintenance CapEx, was $350 million compared with $245 million in the same period in 2013. During the quarter we had higher EBITDA, lower financial expenses, a higher reversal in working capital, which more than offset higher maintenance CapEx, taxes, and other expenses. The year-to-date investment in working capital is $116 million lower than last year. Working capital days in the first nine months of the year decreased to 27 days from 29 days in the same period of 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, during the quarter for $86 million were mainly due to impairment of fixed assets, a loss in sale of fixed assets, and severance payments. We also had a foreign exchange gain of $97 million, resulting primarily from the fluctuation of the Mexican peso versus the US dollar. We also recognized a gain on financial instruments of $8 million related mainly to CEMEX shares.

During the quarter, we had a controlling interest net loss of $106 million, compared with a loss of $155 million in the same quarter of 2013. This is primarily due to higher operating earnings before other expenses, lower other expenses, and a higher foreign exchange gain, mitigated by higher financial expenses, a lower gain on financial instruments, and higher income taxes.

We continue with our initiatives to improve our debt maturity profile and strengthen our capital structure. During September, we successfully accessed the debt capital markets for a second time this year, and raised $1.1 billion in senior secured notes due in 2025 with a coupon of 5.7%, as well as EUR400 million in senior secured notes due in 2022 with a coupon of 4.75%.

We used the proceeds from these notes to pay a portion of our higher-coupon 2018 and 2020 notes, $350 million under our facilities agreement, and created a reserve to pay additional debt. Also during the quarter, $116 million of our 2015 convertible notes were converted for approximately 11.14 million ADSs. After the quarter ended, we obtained $1.35 billion under a new syndicated loan facility, with improved terms over the existing facility's agreement, including longer term, lower interest rate, with a pricing grid tied to our leverage ratio, a revolving credit tranche, and improvements in certain conditions that provide more flexibility to CEMEX, some of which are subject to an amendment to the facility's agreement.

Total debt plus perpetual securities decreased by $96 million during the quarter. This decline in debt reflects the conversion of $116 million of our 2015 convertibles, discussed earlier, as well as a positive conversion effect for $152 million, both of which are non-cash.

Free cash flow during the quarter, plus the increase in debt, excluding non-cash items, was used mainly for cash replenishment, including a reserve for $227 million to pay additional indebtedness, and to pay the financial fees and refinancing premiums related to the issuances and tenders of different notes during the quarter. In addition, there was a decrease in the utilization of our securitization programs during the quarter.

We are including a pro forma maturity profile which shows the funds obtained from the new syndicated loan facility for $1.35 billion signed earlier this month, as well as the use of these funds to pay a portion of the facility's agreement. With this payment to the FA, we have now avoided a contingent payment of a quarterly fee of 0.5% over the outstanding amount under the FA, which could have started in the third quarter of 2015 under certain conditions.

Pro forma average life of debt is currently at five years. It's the highest level in at least a decade. Excluding the 2015 convertibles, for which we have already put in place a contingent convertible in case they do not convert, CEMEX's next significant maturity is the floating rate bond which matures in September of 2015. The September and October liability management exercises, including the new syndicated loan facility at its current interest rate, are expected to represent annual cash interest savings of approximately $50 million.

We continue to be comfortable with our liquidity position, with cash and cash equivalents reaching $1 billion as of the end of the quarter, which includes the $227 million reserve to pay existing indebtedness. 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 our interest expense, lengthen the average life of our debt, and reduce refinancing risk.

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

Thank you, Maher. For 2014, we expect our consolidated cement, ready-mix, and aggregate volumes to grow in the mid-single-digits, driven mainly by growth in the Americas and Asia. 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 about $765 million. This includes $505 million in maintenance CapEx, and $260 million in strategic CapEx. The increase in strategic CapEx guidance reflects the new cement plant in Colombia announced in August.

Regarding working capital, we anticipate 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. 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, we remain committed to our value-before-volume strategy. We are satisfied with the effects of this strategy on consolidated pricing for our three main products. I would like to stress that this strategy is a medium-term journey with very transparent price system for our three core products throughout all of our markets. Of course, we do not operate in a vacuum, so we need to be vigilant about market dynamics, and be agile to react. This strategy, in a way, translates into ceding market share.

Second, we continue to see favorable medium-term growth prospects for our regions, especially in the Americas, where we expect most of our mid-term EBITDA growth and where the demographic drivers and fundamentals for our customer segments remain intact.

And third, we are comfortable with the steps taken so far towards obtaining our investment-grade capital structure target, which, in addition to our efforts on the financial side, include our continued focus to improve our operating performance while 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 could of course 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 and for our products.

And now we will be happy to take your questions. Operator?

(Operator Instructions). Carlos Peyrelongue, Merrill Lynch.

Two questions, if I may. First one related to the asset sales of Lafarge and Holcim. I understand that the bids need to be presented by October 20. Can you tell us if you plan to present a bid? And if possible, if you -- if there any specific areas that you are interested on? That would be the first question.

And the second is related to US pricing. You mentioned that you have announced price increases for 2015. Can you give us an idea of timing as to the implementation of these price increases? Are there more in the first half of the year? Is it split -- I'd imagine probably in some in the first half, and some in the second. And any visibility on the implementation would be appreciated. Thank you.

Okay, if I might take the first question, Carlos. We review all the assets that are, or will be, available because of the Lafarge and Holcim merger. And after looking at the assets and after considering our main objective, which is continue deleveraging the Company and gaining back our investment grade as fast as possible, we have decided not to present any offer for any of the assets. So that was our decision.

And a complementary comment I can make is that we do believe that the upside we have, as we mentioned in one of the comments, mainly in the Americas, should be more than enough to grow above the average of the industry in general. So we believe that we don't -- at this point in time, we don't need additional assets or acquisitions to create value to our shareholders.

Great. Understood, thank you.

And would you like me to take the --?

Please.

Yes, Carlos, on the US pricing increases, first I'd like to say that we're coming into 2015 having had pretty good success in the first half of the year, and certainly we're getting very good traction in the second half of the year in the US. And based on the supply/demand conditions, we've announced pricing increases for 2015, as you know, at different timing. The winter pricing increase is January and April, depending on markets. The bigger markets -- I will just go through the major markets.

California, the pricing increase will happen in April, and it's about a $16.50 pricing increase per metric ton. In Texas, where we've seen some very good growth, pricing increase is going to be in April, and it's about $16.50. In Florida it's going to be earlier than that; it's going to be January, and it's somewhere between $11 and $16.50, depending on the supply/demand conditions in the markets. And we've had similar pricing increases throughout our markets, dispersed in January and in April. And then, of course, we also have -- and we feel very comfortable with those prices. We see that several of the markets have reacted in similar fashion.

We are also -- we've announced prices for the summer and fall that are of a smaller magnitude. And so far, we are taking a wait-and-see approach on those pricing increases. But we're quite constructive about the pricing increases that we've announced for the early part of the year, for the January-April pricing increases.

And I don't know if that answers your -- if that's ample response to your question, Carlos.

Adrian Huerta, JPMorgan.

It has been almost 2 years after you provided your expectations for what the mid-cycle EBITDA could be at some point in 2016. Obviously, since then, market conditions have changed. When we compare the last 12 months' EBITDA and 2012, which was the reference number when you gave that target, EBITDA has grown only 3%, with the Mexico and Europe down 12% to 18%. So how do you feel about your mid-cycle target of $4.7 million? Do you still think this is achievable at some point during 2016?

I'm saying this because if we look at the last 12 months' EBITDA, the implied growth that will be required on EBITDA, it's around 60% for Mexico and Europe, 40% for South and Central America, and 20% for the other regions. So which region do you think is less likely to reach this target? And if you can elaborate on the US as well, where obviously the implied increase is much larger. But as you were saying, with this increase in prices, it can move the needle quite a bit in the US. So if you can just elaborate a little bit on that. Thanks.

Sure. Well, let me start by saying when we started sharing the mid-term scenario or target, remember that as you said, it was 2012. And there has been some events, some markets have not evolved as, in the very short term, as positively as we thought. We still believe that the markets in which we depend, or the ones that are going to provide most of the upside, will continue -- are very solid, and will continue growing, and will provide that upside for CEMEX.

I might refer first to the adjustment that happened in Mexico in 2013, which in 2012 was not really that much expected. And Mexico was one of the countries that, in the very short term, didn't provide us for EBITDA growth. As we have commented, and as you have seen in volumes in the third quarter, Mexico is starting to respond, and demand started already growing. We saw it first in our ready-mix product -- which is a type of indicator of formal construction -- and now in cement.

So in the near future -- 2015, 2016, 2017 -- we do expect Mexico providing for a significant EBITDA in our upside. In general terms, we are dependent on the Americas for most of the upside we do expect for 2016, 2017. And in the case of the US, we still believe that the US can add like $1 billion from now to 2016, 2017. Mexico can provide another $400 million to $500 million to the same date. So, we might not be in the $4.7 million number specifically in 2016, but we have not changed our expectation and target because of the fundamentals in the US, and in Mexico mainly.

Great. Thank you, Fernando. Appreciate it.

Operator?

Vanessa Quiroga.

My question is regarding the trends in Mexico that you are seeing in 4Q. A recovery in self-construction would be positive for margins, obviously. And so what are you seeing so far into 4Q? Can there be expectations of self-construction recovering better in the fourth quarter, or should we expect it beyond 2014?

And another question that I have is regarding your negotiations with more banks, to be on board with a newer structure that you are proposing. I want to know if you can tell us about progress you have done there. Thanks.

On the first question, Vanessa, a couple of relevant indicators in the self-construction or informal sector. The first one is that remittances have been growing about 10% year-to-date August, and that's a very important indicator. And the other one, if you remember, the fiscal reform earlier during the year did impact consumption in general terms. And that impact is fading out. So just because of these two reasons we believe that the informal or the self-construction sector will start improving.

On the other one, on the other hand, we do expect that better performance, as you saw in the third quarter. We do expect a better performance of Mexico, fourth quarter. If we just manage to keep same pricing from now to December, that would be a price increase of 3% compared to last year. So, again, we believe -- if we summarize a little bit, the construction activity in Mexico started declining in 2012. 2013 was the very bottom of that decline.

We have the housing crisis, to call it in a way. We have all the process followed by a new government. But now I think that beyond the specific early indicators, we do see demand picking up. And that's what we have been expecting for some time now. So, it's happening; it's happening little by little; the question is the speed at which particularly the informal and infrastructure, which are the sectors that are lagging, will come back. But, for sure, it's happening; and 2015 we feel confident that would be a better year compared to this and 2013.

Anything to --?

Yes, sure. And Vanessa, on the new syndicated loan facility, the number of banks that we're inviting to participate, in addition to that core group that have already participated, is fairly small. We're looking at 15 to 20 banks. The process is ongoing, and we're quite encouraged by the feedback we're getting and the support we're getting from our bankers. And it's not -- we're not ready yet to give an update. But as soon as that is the case, we will be updating the market as quickly as possible. But we are getting quite a good feedback from the second group of banks that have been invited.

Excellent, thank you.

Operator?

Nikolaj Lippmann, Morgan Stanley.

Three questions, if I may. First, could you provide a little bit of color on the drop in the Mexican EBITDA margin? Is it related to the severance payments that you mentioned in the release? So that's question number one.

Question number two, first of all, congratulations on that volume growth in Spain. Could you provide a little bit of insight on how we should think about the EBITDA moving from Northern Europe down towards the Mediterranean, post the asset swap?

And finally, any thoughts -- you have a low capacity utilization, on average, where you are sort of sold out in a couple of regions; you are seeing growth in some areas. We know about Colombia. But are you thinking about adding new capacity anywhere? Those are the three questions, thanks.

I didn't listen very -- it was not clear. But I understand one of your questions was the EBITDA that could be provided by the asset swap.

Yes.

Well, given that we have not finished completely the negotiations, and we do prefer to comment on that point once we have, let's say, cleared what are the final conditions of this asset swap.

The other two questions, I didn't --.

One was the Mexico EBITDA margin. Would you like me to take that?

Okay.

Yes, Nik, on the Mexican EBITDA margin explanation, the most important thing is that we've had more maintenance in the third quarter than last year. We also are facing a little bit of an escalation in transportation costs. The diesel prices are higher. And labor costs are also a little bit higher; mid-single digits, essentially. And then the comparison towards last year is a little bit difficult, because last year we had operating efficiencies that translated into our pension liabilities being better or improved. And that's creating a bit of a negative comparison between last year and this year. That's really what explains the difference in EBITDA margin in the Mexican business.

Thanks. And in terms of planned expansions anywhere, can you give any color on your thinking in areas, maybe, where you are sold out? So any potential new plant expansions, apart from Colombia?

Well I think we already have commented the one in Odessa in Texas in the US. That's mainly for oil well cement. We have already commented the Philippines, Nicaragua, Colombia. So for the time being, those are the expansions. What we will need to review is -- and it would depend on market conditions, that it might be still soon to say it -- but depending on market conditions, next year we might need to review our capacity in the central region in Mexico because, as we commented, the market is starting to pick up. And you know the infrastructure program that the federal government put in place, plus the recent announcement of the airport in Mexico City. So we need to review and find out when is the best moment for us to think on additional capacity in the central part of Mexico.

Okay. Thank you very much.

Operator?

Benjamin Theurer, Barclays.

I have two questions, one on the US. Could you give us a little bit more of a detail how we have to think going forward on the ready-mix volumes? So you mentioned that ready-mix -- well, the state, it was basically up to 2% in the quarter. But adjusting for the joint venture here in the Carolinas and the concrete supply, it would have been 8%. So can you little bit of a more of a guidance how we have to think here of ready-mix going forward?

And then second is basically following up on the issues here in Mexico. We've seen margins coming down basically throughout the year. And we're now at a level which is, well, kind of far away of where we've been, back in 2012. If you talk more about your long-term targets and the additional potential of $400 million or $500 million here in Mexico, how much of that in Mexico is actually going to be driven by some sort of your expectation on margin expansion, or recovery of margin? What we used to see in the past, so just to get a little bit more of a sense here how much is actually driven by sales growth, and how much is maybe driven by operational efficiencies. So those would be the two questions, thanks.

Well, let me take the second one in Mexico. Margins -- as we commented, 2013 compared to the previous year was not a good year. The numbers I remember is that volumes went down for about 7%. So our margins were eroded because it was mainly volumes. But we did have also some impact in prices. And that is the part that is coming back, or is starting to come back, little by little.

The other thing that we have is, it's an impact which -- let's see how it goes, but it's an impact of the mix between cement and ready-mix. The ready-mix, as you know, has a much smaller margin than cement. And ready-mix was the business line or the sector that started reacting first during this year. So our expectation, with infrastructure and informal activities improving, is that our margins will come back to previous levels.

And just --.

Thank you very much.

Ben, just a clarification. Your question about ready-mix guidance, that was on the US or Mexico?

US.

No, that was US. Basically what we're seeing that -- because you said that ready-mix volume grew 8% in the US in the quarter. But the highlighted figure is just 2%, because it was basically there was this joint venture in Carolinas. Just to get an idea how we have to think of US ready-mix going forward because of a joint venture. So, shall we expect lower level of growth here, just because it's hidden in the joint venture? How to think of that, that's basically the question, it was specific US.

Yes. Clearly, going forward, we expect ready-mix -- as you see on a like-to-like basis, adjusting for the joint venture -- it's growing pretty much in line with cement. And in the US, our ready-mix businesses are exposed to residential, and industrial and commercial primarily; but also, we get our share of infrastructure, as well. But going forward, normalizing for the joint venture, it should be growing similar in volume terms should be pretty much along what we see in our cement business, frankly. So, that's what we see.

Now, in terms of how we should look at it, all of this should get normalized by the first quarter of next year, frankly. The comparisons should be cleaned out. So it should be a lot clearer for modeling, starting the beginning of next year.

Okay, perfect. So fourth quarter, still a little bit of noise. But basically going into 2015 we should see, again, more in tandem with what we've seen on the cement side?

Exactly, yes.

Thank you very much. That's all. Congratulations.

Operator?

Gordon Lee, BTG.

Two quick questions. The first is on the US, and specifically on operating leverage; which I think, given the magnitude of the increase in both volumes and prices, has maybe been a little less than what would have been expected. And you mentioned that it has to do with some additional transportation costs, and some costs associated with the preparation of some of your import infrastructure. But I was wondering if you could tell us, or give us a sense, more or less, of the magnitude of those expenses and what your view is on operating leverage going forward for the US business.

And the second question was on Northern Europe. Just on the sequential price decrease, if you look at 3Q versus 2Q, it was a 4% drop. And I was wondering whether that just had to do with a change in the mix of the regions, or whether there's actual price pressure in some of these markets. Thank you.

Yes. If I can just take the first question, the operating leverage. Operating leverage year-to-date is just a little bit over 40%; and for the quarter is 50%. And we still have the inventory effects -- the turnaround effect that remains from the beginning of the year that is likely to go through the fourth quarter. And obviously, operating leverage has been -- if you take a look at it sequentially -- has been dampened a little bit because of prices. That's probably one of the biggest issues.

And the other thing, of course, is as you said, freight costs have gone up. Our products are not only traveling longer distances -- and we're at a critical period when we're either thinking or are just starting to bring in additional capacity onstream. And so until that additional capacity actually comes onstream, there may be friction costs, let's say. So we have the product traveling longer distances. And, frankly, the cost per mile traveled is also increasing as a consequence of higher fuel costs and a tighter labor market, believe it or not. One of the toughest challenges for the ready-mix business today -- and that's also being reflected in the pricing environment -- is the ability to attract drivers back into the market. There are many of these guys that have left the market and have not made it back in.

The other thing, of course, that is also involved in the operating leverage -- and it's showing up in the very short term, but hopefully in the following few quarters as capacity picks up in ready-mix -- is that we've had to add additional trucks. After several years of not investing in trucks in the ready-mix business in the US, and there's -- as you know, there's a five-year lifetime for these things, we are having -- and not just us, the whole industry, is having to do that. And so there is that lag period between actually putting in the necessary assets that you need to ramp up the capacity, and as capacity ramps up you should recover some of that operating leverage as well.

Now, specific numbers, frankly, we haven't given that. But those are the major drivers, I would say, in terms of the operating leverage outlook.

I don't know if that answers your question, Gordon. There was another question that I --.

Prices minus 4%. Is that the -- was it about prices in Northern Europe?

Yes.

Okay. So, in the case of Northern Europe the impact is mainly mix, geographic mix, and weaker FX. To put it simple, the only significant market with price reductions in cement is Poland, which was minus 7%. And the rest is mainly mix. Volumes versus second quarter of this year, volumes in the UK -- which is the country where we have the highest prices -- grew only 3%, when the rest of the countries in North Europe combined grew by 18%. So that explains the variation in prices.

Perfect. Thanks very much. That's great.

Operator?

Dan McGoey, Citigroup.

A quick question on the EBITDA breakdown, and the others and eliminations was one of the costs that went up significantly. I was wondering if you could give a little bit of background on what caused that increase.

And then the second question on energy prices or fuel, if you could give an idea of what percentage of costs are related to diesel. I know, Maher, you just mentioned the transportation costs have been going up recently for the factors you mentioned. But I'm wondering if you could talk about whether or not you see any potential relief on that front looking forward, as maybe some of those costs will be coming down.

Regarding your first question, there are two issues impacting EBITDA. One is fierce CO2 amortizations compared to the previous year. And the expenses that we have commented, I think in our last call, related to our commercial reorganization in Mexico. That explains most of the variation.

Regarding diesel, I don't have the specific --.

Yes, we can get back to you on that. But in terms of the energy prices, as I think we commented on during the discussion earlier, is that it's really primarily electricity, and it's fairly localized. If we take a look at combustible fuels on a consolidated basis, actually it went down by, I believe, about 1%. But electricity in the US, in Mexico, in -- we've had pretty precipitous increases also in Egypt. So it's really electricity cost that has been the culprit. But the diesel, we'll have to get back to you on that. We don't have the breakdown at hand right now.

Okay, thank you.

Operator?

Anne Milne, Bank of America Merrill Lynch.

Some of my questions have been answered, but I will just ask a little bit more detailed information on -- congratulations on getting the new bank syndicated loan financing. I think that's a huge milestone, so that's wonderful. And I know you are trying to seek more flexible terms. I was wondering if you could give us a little information of what some of those more flexible terms would be. And also if you are simultaneously, or thinking about refinancing the FA agreement, as well, at any point in the near future. That's on the one side.

On the second side, following up on the energy-related questions, my guess is that it's probably too soon. But have you seen any changes in the demand for oil well cement as a result of the lower oil prices that we've been seeing? Or any other side effects from lower oil prices in any of your operations? Thank you.

If the second question refers to the US, that we have seen changes in oil well cement market, and those changes are very positive. Our Odessa plant is really -- we are sold out. And the estimates we started making about the oil well cement market growth have been short to what is really happening. So we are very happy with those events. But I don't see any changes in the oil well market, at least in Texas, where we have our most relevant position.

On the first one, Maher, if you want to elaborate on the --.

Sure. I just want to add one thing to Fernando's comment. One thing that is really important in our case is that the Texas production is probably one of the most efficient in the country. And it's probably the last likely to suffer in terms of -- depending on how far, of course, oil prices go down -- it's likely to be the last barrel not to be produced. So we are fortunate in both of those sense.

Now, in terms of the syndicated loan facility, it's very important, as just to mention also, is that this is the first opportunity that we have to truly take a step back and take a look at our covenants and conditions at which we borrow from the syndicated loan market. So we took advantage. We felt that we had a responsibility, frankly, to take advantage of the improving credit situation by negotiating slightly better.

The improvements are mainly in CapEx. We have slightly better CapEx levels, not that we need them. As you know, right now we have an $800 million basket. The increase is to $1 billion. And, again, it's very important; the fact that we gotten the limit doesn't necessarily mean we're going up to that limit. We also are getting, or have gotten, flexibilities in the basket for acquisitions and JVs and swaps, which is going from 250 to 400 for the purposes of acquisitions and JVs.

And there is now no restrictions on the utilization of asset swaps and/or proceeds from equity or equity-like securities for the purpose of paying down debt. We can use it to deploy them for acquisitions, for instance, if we want to do that. Again, that's not necessarily to mean that we are signaling anything, frankly. It's really we felt that the last time we had a review was sometime in March, August of 2009. That's five years ago. And we felt, frankly, a responsibility to make sure that our terms and conditions reflect the improved creditworthiness of the Company. And that's extremely important.

The other feature which is also important is that we're not going to have the cash sweep anymore or the mandatory prepayments, which should give us more flexibility in how we use the proceeds from fundraising activities.

I don't know if that answers your question.

Yes. No, that's great. Yes. And I'm not sure if you can still hear me, but when you need to get the approval from the FA creditors, will they also need to adopt these, or just approve these new terms?

Well, no. We are in the process of getting a -- there's a process that is ongoing, as we speak, for the covenant amendments of the FA lenders; and they are going to be conformed, essentially.

Okay, excellent. Thank you very much.

Operator?

Mike Betts, Jefferies.

I had three questions; two on the US, and one on finances, please. Just on the US, you talked about the cement price increase next year. I guess it's followed by similar increases for ready-mix. But on aggregates, have you announced price increases there? And maybe if you have some indication of the size.

My second question on the US was that -- I think, last year, you probably built up the inventory in Q4 with all the maintenance in Q1 of 2014. Is that the plan again this year? And I guess I'm particularly looking at last year, when Q4 was very strong in EBITDA terms. I'm still trying to understand that a bit.

And then finally on the interest costs, you've given guidance for 2014, but you've done an awful lot in recent times to try to reduce that interest cost. Is it 2015 that we start to see the benefit? Is it too early to ask what the finance costs might do in broad terms in 2015, just on the basis of what you've done so far? Thanks.

Yes. First the aggregates. No, Mike, we haven't announced any ag prices yet for 2015. So as soon as we do that, we will communicate it to the market.

So ready-mix, [doma hare] if you followed there.

In the case of ready-mix, just let me take a look a second. We have announced -- just one second. In terms of ready-mix prices, we also have not yet announced any pricing increases as well. But we expect, based on the performance that we have seen this year in our volumes and prices, we expect certainly to follow suit as well. So, yes, but we haven't announced them yet. As soon as we do that, we will advise the market of that.

And then the last question, Mike, was -- I'm sorry. I was listening (multiple speakers). The inventory. I think the --.

Inventories have been reduced to -- the negative impact has been reduced during the year. Now, it is very difficult to say what is going to happen at the end of the year. But I think we still have a negative impact of $12 million to inventories, and that might be reduced for the rest of the year.

And the other question I think was related to interest expense. Let me start with providing a figure. When we started, when our credit was significantly re-rated and after the refinancing in September 2012, and we started with all the liability management strategy, we thought that the potential of interest rate reduction -- because of the level of the coupons we have, and the type of conditions we can get now -- was between $200 million in $220 million in our interest expense account. And that is coming little by little. And, yes, next year it should be much clearer, that reduction. I don't have a specific number for next year yet, but it will continue improving.

Okay, thank you. And just a follow-up, if I may, on that inventory. I was really referring more to the maintenance. Do you plan, at this stage, to have a similar profile of maintenance in 2015 to 2014 -- so, in other words, very much at the start of the year?

We still don't have 2015 figures, and such specific figures. But what I can tell you is that in 2014 we had an impact because we did prepare all our -- particularly our cement assets -- for higher volume growth. So, a way to see it is that the maintenance has been already done. So we would not need additional special maintenance for volume growth in 2015 for about the same growth that we had in 2014. So it is not going to be, let's say, repeated. That's the US.

In other regions, there will be a favorable impact. Because as we have commented in the case of Colombia, maintenance costs in 2014 compares very unfavorable to 2013. Because in 2013, there were no major kilns maintained during the year. Maintenance in 2013 happened -- most of the kilns were maintained before December 2012, or after January 2014. But in 2015, it might happen the opposite. So in the case of South America, we should expect a reduction in maintenance costs.

Understood. Thank you very much.

Operator?

Yassine Touahri, Exane.

Yes, I've got a question on Colombia, and also on Poland. It seems that in Poland, prices are declining in the third quarter when your volume are a little bit better than the market. Do you have a strategy to get back the market share that you lost at the beginning of the year? Or is it the market which is becoming more competitive?

And in Colombia, and so we can see that the prices were a little bit under pressure. The prices of your key competitor in Colombia are under pressure, as well. I wanted to understand what is going on. What is creating this competitive pressure in Colombia? Is it something that could last in the next few quarters?

Okay, regarding your question on Poland, the answer is yes. We did increase our volumes when national consumption was dropping, and it was mainly some adjustments we did in order to gain back market share in the country.

And in the case of Colombia, the price erosion that you have seen is mainly the coastal area because of some capacity there that we think will be absorbed through time, given that volume growth that is happening in that region in Colombia. We do not expect, or we have not had, and we do not expect any impact in prices in other markets in Colombia, except for this coastal region.

And if we look at Poland, is your strategy to get back market share going to continue? Or are you happy with the current situation?

Well, it will depend on what happens in the market. So far, we are happy with the results, so we might review our adjustments from now on.

Thank you very much.

Operator?

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

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. Please feel free to contact us directly or visit our website at any time. Thank you, and have a good day.