Cemex SAB de CV (CX) 2014 Q4 法說會逐字稿

Good morning and welcome to the CEMEX fourth-quarter 2014 conference call and video webcast. My name is Sylvia and I would be happy to assist you.

Our hosts for today are Fernando Gonzalez, Chief Executive Officer, and Maher Al-Haffar, Executive Vice President of Investor Relations, Communications, and Public Affairs.

Now, I will turn the conference over to your host, Fernando Gonzalez. Please proceed.

Thank you. Good day to everyone and thank you for joining us for our fourth-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 fourth-quarter results. We had good topline growth with operating EBITDA generation growing by 16% on a like-to-like basis.

Fourth-quarter EBITDA was the highest since 2008, despite adverse currency fluctuations. EBITDA margin expanded by 1.7 percentage points.

Full-year operating EBITDA grew for the fourth consecutive year, reaching $2.74 billion. Improvement in volume in most of our regions, better pricing in the US and the Mediterranean region, the favorable operating leverage effect in the US, as well as our continuing initiatives to improve our operating efficiency, led to this EBITDA growth. Operating EBITDA margin for the year remained flat.

We had significant achievements during the year. We generated positive free cash flow during the quarter and full year, achieving a record low level of working capital days.

Full-year free cash flow generation was the highest since 2010. In addition, we had the lowest SG&A-to-sales ratio in the last 10 years. This is also our third consecutive year of narrowing net loss. Controlling interest net loss for the full-year 2014 was 40% lower than in the previous year.

On the financing side, last year we reduced total consolidated debt by close to $1.2 billion. We continue to reduce our financial expenses through the refinancing of $5 billion of our liabilities in the public and syndicated bank loan markets. We also concluded our efforts to address the contingent maturity of our March 2015 subordinated convertible notes.

We are pleased with the way our credit continues to re-rate. We continue to be vigilant and prepare for windows of opportunity to reduce interest expense at the margin. Earlier this month, we closed three transactions with Holcim in the Czech Republic, Germany, and Spain. As part of these transactions, we paid about $40 million in cash. We expect a recurring improvement in our EBITDA, including synergies of about $20 million to $30 million, starting this year. In addition, during the year we sold non-operating assets for about $250 million.

Consolidated cement, ready-mix, and aggregates volumes increased by 5%, 3%, and 1%, respectively, during the quarter. All of our regions enjoyed higher cement and ready-mix volumes, with the exception of the Mediterranean in cement and north Europe and Asia in ready-mix.

For the full year, cement and aggregates volumes increased by 4%, while ready-mix volumes rose 3%. During the year, we achieved record high cement volumes in Colombia, the Philippines, and Nicaragua, and record ready-mix volumes in Colombia, Dominican Republic, Guatemala, Israel, and Croatia.

Both quarterly and full-year consolidated prices for cement, ready-mix, and aggregates in local currency terms are higher on a year-over-year basis. Sequentially, our consolidated local currency prices for cement grew by 1%, mainly driven by increases in the US and the northern Europe region, while consolidated ready-mix and aggregates prices remained flat. The decline in sequential prices in US dollar terms reflects weaker currencies in some of our markets.

We continue with the implementation of our Value Before Volume strategy in all of our regions, focusing our efforts on achieving sustainable higher margins and returns in all of our business lines. We will continue to improve the transparency on the value we provide to our customers through our products and services by focusing on our surcharges and service fees in each market.

Now, I would like to discuss the most important developments in our markets. In Mexico, demand conditions improved during the second half of the year. After a flat performance during the first half of the year, cement volumes increased by 4% during the third quarter and by 6% during the fourth quarter.

In the fourth quarter, we saw an acceleration of demand from October through December, with that growing trend continuing into January. During the quarter, we saw continued strong growth in the formal residential sector and a slight recovery in the infrastructure and self-construction sectors.

For the full year, cement and ready-mix volumes increased by 2% and 3%, respectively.

Cement prices as of December 2014 were 7% higher than in December 2013, recovering most of our 2013 price erosion. Now, our prices and results expressed in US dollar terms have been affected by the recent devaluation of the Mexican peso. A mitigant to this effect is that on the cost side, about 80% of our costs of producing cement are denominated in local currency.

At the end of December, we announced a nationwide 7% price increase on domestic gray cement. We aim to recover our input cost inflation in cement and ready-mix production.

Now, talking about the different segments, the formal residential sector was the main driver for cement volumes during 2014. High level of housing registries and starts in recent months should lead to continued growth into 2015, although at a more moderate rate, reflecting an adjustment in government subsidies and INFONAVIT credits to the sector.

The government recently announced new initiatives to promote homeownership for different groups, including armed forces, young and elderly people, single mothers, people with disabilities, migrants, and others. These plans, if materialized, could bring an additional boost to the sector.

Regarding infrastructure, the government announced last week a 2.6% reduction in this year budget as a preventive measure in light of a more challenging macroeconomic scenario. As per the Minister of Finance, the impact on the expected growth in the economy for this year should be marginal. The impact on infrastructure spending should also be limited.

In light of this and our current project pipeline, our volumes to this sector should grow in the mid to high single digits, driven by increased investment, especially in transportation projects, including highways, rural roads, and airports.

The industrial and commercial sector should be driven by stronger industrial activity, derived from the manufacturing sector and continued strong commercial projects. After the temporary negative impact of the fiscal reform on self construction, this sector should return to its low single-digit growth trend this year, driven by improved consumer confidence, as well as positive job creation and remittances.

In light of all this, in Mexico we expect to achieve annual cement volume growth in the mid-single digits.

Our US business expanded steadily during the fourth quarter, despite poor weather conditions in some of our states. On a year-over-year basis, cement volumes rose by 6%, while ready-mix volumes, adjusting for the transfer of our ready-mix assets to the joint venture in the Carolinas, were up 10%.

Aggregates volumes were flat year over year when adjusted for the Fort Lauderdale airport project in Florida in 2013. For the full year 2014, cement and pro forma ready-mix volumes grew by 7%, while aggregates volumes rose 1%.

Volume growth in the quarter continued to be driven primarily by the industrial and commercial and residential sectors. The infrastructure sector also contributed positively.

Housing permits in our four key states -- Texas, Florida, California, and Arizona -- are up 8% year to date November, compared with a 3% increase at the national level. Texas and Arizona showed the most dynamism during the year, driven by the multi-family sector, but California is not far behind with almost 10% permit growth year to date.

Construction spending for industrial and commercial rose 16% in 2014. National contract awards for this sector grew by 8% in the same period. Both Florida and Texas continue to outperform the national average of growth in contract awards.

The public sector contributed to volume growth during the quarter. Public infrastructure spending is up 3%, while highway and bridge investment rose 4% in 2014 versus the same period last year. Highway and bridge spending has been driven by increased state activity, fueled by improved fiscal conditions and ongoing TIFIA projects.

Contract awards were down 16% in 2014. While a large part of this decline in contract awards is explained by several large multiyear projects approved in 2013, this weak performance also reflects lack of visibility on the future of the federal highway program.

With the Highway Trust Fund expected to face funding shortfall in May and national elections coming up in 2016, we expect the new Congress will move quickly to provide a new two-year federal highway program. Passage of a new program, even if fairly short term in nature, would likely support some incremental new road projects.

The Value Before Volume initiative continued to deliver during the quarter. On the back of our successful summer/fall price increases, cement prices rose 3% sequentially. Due to product and geographic mix issues, as well as the reversal of some diesel surcharges, ready-mix and aggregate prices were flat sequentially.

We have implemented cement prices increases of $11 per metric ton in January for Florida, Colorado, and the Midwest region. In addition, we have implemented ready-mix price increases in Florida and the southeast region in the range of $4 to $6 per cubic meter, as well as aggregates prices increases in Florida of $0.50 per metric ton. While it is still early, we are confident these increases will gain traction.

The US consolidated incremental margin during both the fourth quarter and full-year 2014 was approximately 50% on a year-over-year basis. The margin was bolstered by strong pricing in all products. In our efforts to prepare for higher expected volumes, we did incur incremental cost due to higher transportation and input costs.

Given the outlook for the US economy, we remain confident of the sustainability of our US volume growth as we begin 2015. We expect mid single-digit growth in cement and aggregates volumes and high single-digit growth in ready-mix. This guidance factors in the impact of the decline in oil prices on our US business in 2015.

The forecast reflects a slightly stronger recovery in the residential sector, a vibrant industrial and commercial sector, and a marginal contribution from infrastructure.

In our northern Europe region, we ended 2014 with growth in our cement volumes, despite the adjustment in macroeconomic expectations during the second half of the year. For the full year, cement volumes grew in Poland, the UK, Scandinavia, and the Czech Republic. Yearly ready-mix volumes were up in Poland, the UK, Austria, and Hungary.

Quarterly regional cement and ready-mix prices increased by 2% and 1%, respectively, on a sequential basis and in local currency terms.

In Germany, we expect the infrastructure and residential sectors to drive demand for our products this year. Infrastructure should benefit from higher tax revenues translating into incremental spending, especially in transportation projects, as well as an additional boost from public/private partnership projects.

Residential activity should continue to benefit from low mortgage interest rates, low unemployment, rising purchasing power, and growing immigration into the country, which should more than offset restrictions, such as land availability and regulatory caps on rental increases.

In Poland, favorable weather conditions contributed to growth in volumes during the quarter. In addition, in cement we continued to gain back our market position, which resulted in better than market performance. For 2015, we expect demand growth from all sectors.

Infrastructure should be driven by projects, including highways, power plants, railways, and others. Activity in this sector during the second half of the year should be stronger.

The residential sector should benefit from the growth in permits, increased consumer confidence, and the introduction of some programs which should boost the sector.

Growth in the industrial and commercial sectors should come mainly from industrial, warehousing, and office spaces.

In France, our ready-mix and aggregate volumes during the fourth quarter were affected by continued macroeconomic weakness. The only sector expected to show a slight recovery this year is the residential sector. The introduction of the new fiscal package to reactivate the property market, expected for later this year, should translate into back-ended growth.

In the United Kingdom, we ended 2014 with growth in volumes and local currency prices in our three core products, resulting into a 70% increase in EBITDA generation for the country. For this year, the residential sector should continue to contribute to demand growth, driven by low unemployment and inflation, as well as higher wages and consumer confidence.

In the industrial and commercial sector, higher activity should come from office projects, retail, and warehouses.

In the Mediterranean region, we saw cement and ready-mix volume growth during the fourth quarter and full year in all countries in the region, with the exception of cement in Egypt. In this country, we continued to see electricity disruptions during the quarter, as well as an increase in cement production capacity as some competitors have moved to more available energy sources.

Sequential cement prices in local currency terms were slightly down during the quarter, but still 19% higher than in the year before, reflecting higher energy prices. This year should be better politically and economically for Egypt.

The informal residential sector should continue to be the main driver of cement demand. We also expect continued downward pressure on our volumes, reflecting the increased cement production capacity.

In Israel, we ended the year with a 5% increase in ready-mix volumes, reaching historically high levels in the country. In Spain, macroeconomic conditions continued to improve during the quarter. Our domestic gray cement volume showed year-over-year growth for the third consecutive quarter, resulting in a 2% growth for the full year.

Considering our export activity, total cement volume increased by 23% during the quarter and by 36% during 2014. In infrastructure, the increase in biddings observed during the last 12 months is starting to translate into activity in this sector. Easing of fiscal austerity measures, reduction in sovereign spreads, and local and general elections later this year should benefit this sector.

Housing is also improving. Investment in residential construction showed a positive quarter-on-quarter growth during the third quarter of 2014 for the first time since 2006. Activity in this sector this year should continue to recover, driven by the recent increase in housing permits and expected improvement in credit conditions.

In our South, Central America, and the Caribbean region, quarterly cement, ready-mix, and aggregate volumes increased by 2%, 7%, and 11%, respectively. Full-year regional cement and ready-mix volumes were up 5% and 8%, respectively. We are pleased with the positive demand environment during the year, especially in Colombia, the Dominican Republic, Nicaragua, and Guatemala.

I will give a general overview of the region. For additional information, you can also check CLH full-year results, which were reported yesterday. The regional decline in 2014 margins reflects higher maintenance in the region. As scheduled maintenance is done every 12 to 18 months. Maintenance expenses for this year should be lower in the region.

In Colombia, we saw strong levels of construction activity across all sectors during 2014. We ended up surpassing our volume expectations provided at the beginning of the year, achieving double-digit volume growth in our three core products, volume records for all of them.

Sequential prices for cement in local currency terms remained stable. In January, we implemented an 8% price increase in our bagged cement in several markets in Colombia. We also announced a 5.5% price increase in ready-mix.

The government is working on new housing initiatives, which should continue to support the favorable performance of the residential sector. This includes the second phase of the free home program for an additional 100,000 houses, as well as the construction of the 86,000 homes under a subsidy program.

The infrastructure sector has also contributed to strong demand conditions. This trend should continue this year with a continuation of some projects and the initiation of new ones. In addition, some projects under the 4G infrastructure program could start toward the end of this year.

In Panama, we continued to see positive performance in our ready-mix and aggregates operations during the quarter. Our daily cement volumes, adjusted for the volumes to the Canal project, declined by 5%, reflecting the conclusion of the Cinta Costera 3 highway project.

The residential sector was the main driver for cement demand in Panama during 2014, supported by middle-income housing activity. Infrastructure has also been an important driver for our products, supported by ongoing projects like a 100-megawatt wind farm being built in the central region of the country, as well as a second line of the subway, which should start construction in the short term.

In general, we continue to expect strong demand levels from these sectors over the medium term.

In Asia, cement volumes increased by 21% during the quarter and by 9% for the full year 2014. In the Philippines, we saw double-digit growth in cement volumes during both the quarter and the full year of 2014, driven by continued strong demand from public and private spending. The introduction of the new 1.5 million ton cement-grinding capacity, which started operations at the end of the second quarter, contributed to this growth.

The positive volume trends in the Philippines should continue this year. The residential sector should continue to be supported by incremental remittances, stable inflation, and low mortgage rates, as well as by higher housing demand from foreigners.

Continued growth in the industrial and commercial sectors should come from expansions in different industries, including manufacturing, automotive, business process outsourcing, gaming and hospitality, among others.

In summary, we are pleased with the growth in volumes and local currency prices in most of our regions, reflecting the continued positive outcome of our Value Before Volume strategy. In addition, we continued to see the favorable operating leverage effect in the United States.

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 5% for the quarter and by 6% for the full year 2014.

Operating EBITDA increased by 16% with a margin expansion of 1.7 percentage points. There was higher EBITDA contribution from Mexico, the US, northern Europe, and Asia. For the full year, operating EBITDA on a like-to-like basis increased by 6% with flat EBITDA margin.

As you know, during 2014 currencies in some countries in which we operate depreciated last year versus the US dollar. These currency fluctuations had a negative impact during the year of about $250 million on our sales and of close to $80 million in our EBITDA.

Typically, currency devaluations translate into input cost inflation, which tends to put upward pressure on prices, with some lag effect. In addition, in several countries in our portfolio, like Mexico and Colombia, about 80% of the cost base is in local currency, which partially mitigates the negative effect of a devaluation.

Cost of sales as a percentage of net sales decreased by 2 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 declined by 0.3 percentage points, as efficiencies were partially offset by higher distribution expenses.

Our kiln fuel and electricity bill on a per ton of cement produced basis increased by 1% during the fourth quarter and was flat for the full year 2014.

During the quarter, our free cash flow after maintenance CapEx was $421 million, compared with $216 million in the same period in 2013. During the quarter, we had higher EBITDA, lower financial expenses, a higher reversal in working capital, as well as lower maintenance CapEx and other expenses.

Due to the seasonality of our business and our continued efforts to lower investment in working capital, we recovered most of the year-to-date investment in working capital as of September during the fourth quarter. For 2014, working capital days declined to 26 days, a new record from 28 days in 2013.

Other expenses net during the quarter or 360 -- $306 million were mainly due to impairment of assets, a loss in sale of fixed assets, and severance payments. We had a foreign-exchange gain of $152 million, resulting primarily from the fluctuation of the Mexican peso versus the US dollar.

We also recognized a loss on financial instruments of $182 million related mainly to CEMEX shares. During the quarter, we had a controlling interest net loss of $178 million, compared with a loss of $255 million in the same quarter of 2013. This is primarily due to higher operating earnings before other expenses, higher foreign-exchange gain, and lower income tax, mitigated by higher other expenses and a loss on financial instruments. Full-year controlling interest net loss was 40% narrower than in 2013.

We continue with our initiatives to improve our debt maturity profile and strengthen our capital structure. During the quarter, we obtained $1.87 billion under a new syndicated-bank loan facility with improved terms, when compared with the existing facilities agreement. Enhancements of that facility include longer term, lower interest rate, with grid pricing tied to our leverage ratio; a revolving credit tranche; and improvements in certain conditions that provide more flexibility to CEMEX.

We also obtained the required consents to amend the facilities agreement so the covenants and undertakings under the facility are conformed to those with the syndicated bank loan facility.

Total debt plus perpetual securities decreased by $658 million during the quarter and by close to $1.2 billion during the year. The quarterly decline in debt reflects a non-cash positive conversion effect of $91 million. During the quarter, we also unwound the zero strike call options initially related to the 2015 convertible notes, resulting in an inflow of $105 million.

Free cash flow during the quarter, plus the reduction in cash balance and the proceeds from the unwinding of the call options, were mainly used to pay down debt. Pro forma average life of debt is currently at 4.9 years.

Our next significant maturity is the floating-rate bond, which matures in September 2015.

Liability management exercises during 2014, include the new syndicated bank loan facility at its current interest rate, are expected to represent annual cash interest savings of approximately $120 million.

We continue to be comfortable with our liquidity position, with cash and cash equivalents reaching $850 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 our interest expense, lengthen the average life of our debt, and reduce refinancing risk.

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

For 2015, we expect our consolidated cement and ready-mix to grow in the mid single digits, while aggregate volumes should grow in the low to mid single digits.

Regarding our cost of energy on a per-ton of cement produced basis, we expect no major changes from last year's levels.

Guidance for total CapEx for 2015 is about $800 million. This includes $500 million in maintenance CapEx and $300 million in strategic CapEx. The increase in strategic CapEx guidance reflects the ongoing expansion projects announced last year.

Regarding working capital, we anticipate the working capital investment during this year to be about $150 million. We expect cash taxes for 2015 to reach about $650 million, reflecting mainly the increase in this year's scheduled payment related to the change in fiscal consolidation regime in Mexico.

As a result of our liability management initiatives, we anticipate a reduction in financial expenses for this year of about $100 million.

In closing, one of our most important priorities is to recover our investment-grade capital structure. As we have demonstrated, we have been recovering. However, in light of the recent volatility in the financial markets, we have decided to embark on a 2015 program to further bolster our road to investment grade.

The most important components of this program are, first, $300 million which include cost and expense reduction, as well as free cash flow initiatives, such as a reduction in financial expenses from the liability management done last year and others. In addition, we still have more than $3 billion of notes with coupons higher than 9%.

Second, as part of our ongoing efforts to optimize our portfolio, we expect to sell assets for $1 billion to $1.5 billion in the next 12 to 18 months.

Third, we are targeting to pay at least $500 million of debt this year.

Thank you for your attention. Now I will turn the call back to Maher.

Thank you, Fernando.

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.

Now we will be happy to take your questions. Operator?

(Operator Instructions). Carlos Peyrelongue, Merrill Lynch.

Thank you for the call. Two questions, if I may. First one related to the US. You mentioned that you expect mid-single volume growth. Can you comment on what's your expectation on Texas? I understand that there was a Proposition 1 approved last year that should funnel quite a bit of money to the highway fund, so it would be interesting to have some guidance on what you expect for Texas overall.

The second, as you mentioned, the FX movements in some of the key markets you operate have had consequences on your consolidated EBITDA in dollar terms. Can you comment if the FX remains where they are today, what do you expect the impact in dollar terms to be on your consolidated EBITDA? Thank you.

Okay, Carlos, let me just take a stab at the Texas question. I think in order to address the Texas question, it is important to step back for a second and take a look at the market segments.

Roughly half of the business in Texas is infrastructure, and two-thirds of that is the highway -- streets and highway construction activity. Residential is about one-quarter and industrial and commercial is about the other quarter.

You are very right to point out the Proposition 1. There is an oil stabilization fund that has about $8.5 billion in it, and for the first time, there was a vote last November in Texas under Proposition 1, which allocated, I believe, close to about $1 billion from the stabilization fund directly to the highway trust fund of the state.

Now that is a big number. I mean, that represents -- if all that money spent in 2015, which is -- that's what it was allocated for, that would translate to about a 10% growth in volumes going to that sector. That's one thing which is extremely important that is expected, and if you note that, if you take a look at the TIFIA projects that have been given out under TIFIA, a number of them actually are in the state of Texas as well. So infrastructure should be doing reasonably well.

Now residential, we believe coming into this slowdown residential has had a deficit, in fact, in the state of Texas, and the demographics in the state of Texas have been extremely positive. The level of immigration last year into Texas was probably the highest in the nation. We had almost 450,000 people coming into the state of Texas, resulting very positive demographics and very high employment. It was probably the highest employer in the state with about 450,000 to 470,000 jobs. So we expect the housing market to be pretty good this year.

Now, of course, the west Texas market, which is probably the most volatile market and which is, relatively speaking, is fairly small from a construction activity, is likely to be suffering from the oil situation.

In industrial and commercial, we also expect -- there is a pent-up demand for schools, for retail, for warehousing, for storage and logistics. We expect that definitely to drive demand.

One of the most important things to keep in mind in the state of Texas is that for years, because the state of Texas has not gone through a major economic downturn, is that the state actually brought in cement from outside of the state because capacity was fully utilized or substantially fully utilized. Roughly 10% to 15% of the cement that is consumed in the state is brought in from outside the state, and at the margin, the profitability of those tons are fairly low.

Bottom line, obviously we are cautious on the volume outlook in Texas, but in terms of the effect that it has on our business, it should not -- it should be fairly limited. On the other hand, we believe nationwide and in Texas, in particular, transportation costs should be positively impacted from the lower cost of fuel, and that should play in our favor, frankly.

I don't know if that's sufficient of an answer.

Very comprehensive, thank you. With regards to the FX question?

Regarding -- I understand your question is related to 2015.

Yes.

That will definitely impact us, just comparing current FX to what we used to have last year, but the impact will depend on your assumptions.

And what we have decided, Carlos, is to prepare ourselves for the risk of losing some of our EBITDA to FX reasons. That's why we defined this special program, this set of actions that will help us to properly manage the risk of our EBITDA and, in general, our financial results to be impacted by FX.

As I mentioned, we are prepared to manage or to increase $300 million of free cash flow, and to give some additional information, I think is out of the $300 million, about $100 million will be -- will have an EBITDA impact, meaning it will be related to our Value Before Volume strategy, plus additional costs and expenses cuts. Then the other $100 million will be mostly related to continue reducing our interest expense, and the last $100 million is mainly related to additional gains or optimization of our working capital, which, as we mentioned, this last year we set a new record of 26 days and we are expecting this year to finish at a lower figure.

It will have a negative impact. It's very challenging to calculate. It depends on FX assumptions for the year, and with the high volatility at the end, what we said, we better focus on what we control and let's do some risk management on this side and that's what we are preparing ourselves to do.

Perfect, thank you. Thank you for the answers.

Vanessa Quiroga, Credit Suisse.

Thanks for the call. My question, first question is regarding the price implementation. Just to confirm first, in the US, you -- in January, you announced price increases in Florida, Colorado, and the Midwest for $11 per ton. Is that correct?

Yes.

Yes.

Okay. Just to understand about the benefit from lower fuel costs and the surcharge that -- for fuel that is included in your pricing, how much of that surcharge has been already reflected to clients, and so, how much impact should we expect from the lower fuel prices now, if you could explain that, please?

Vanessa, just to clarify, you are talking about specifically the US?

Yes.

We haven't broken it -- we have not broken it out, but we expect -- we did, obviously, have to reverse some of the fuel surcharges as a consequence of diesel prices coming down. But by and large, we will be experiencing a fairly material savings on the cost side in the US as a result of lower diesel and other transportation fuels.

But we have not broken out specifically how much of the fuel transportation surcharges have been actually implemented or passed on to our clients.

Okay. That is enough clarification. Regarding the asset sales that you mentioned, what kind of assets do you plan to sell?

As you can imagine, it's very difficult to give additional information on asset sales, but what I can tell you is that we have options. As you know, in average we have been divesting between $200 million to $300 million of nonproductive assets, meaning assets we no longer need to operate our business.

We think we will repeat, and we're almost finishing an exercise on making a deeper review on all those assets and see if we can increase that amount a little bit for 2015.

But the largest part will be done divestments. Now on divestments, we might divest the business itself, and candidates are related to, let's say, non-core activities. We also have the option, schemes similar to the one we did in a couple of years ago in CLH, so that's still an option either in CLH or in other assets. So that's as far as we can disclose on this program of divesting $1 billion to $1.5 billion of assets. I'm reminding you that it will be in the next, let's say, 12 to 18 months.

Okay, great. Finally, on working capital, for the $100 million working capital optimization that you are expecting to achieve, is that -- would that be a consequence of what you have already achieved through 4Q, which was an impressive improvement in the cycle, or is there additional efforts that you can do?

I feel so confident on continue setting new records on working capital because we have been working on optimizing it in all its elements -- a better collection, reducing risk of collection, better inventory management, everything, and we have achieved very low levels of working capital in most of our businesses and we still have two or three businesses in which I think we can materially improve and optimize our working capital.

It is just advancing in our initiative, which has been -- it's not a new one -- of improving it, and I don't have in my memory the numbers from the last whatever number of years -- three, four, five years, but every year we have been setting a new record on working capital. Last year, it was 26. That means we should expect a lower figure, one, two days lower in 2015.

But it's because of the -- of an initiative that's going on, that has been implemented, that has been successful, and that we still think we have an upside on that side for two or three material countries.

Great, thank you very much.

Ben Theurer, Barclays.

Congratulations, first of all, on the results. Let's switch a little bit gear and go over to the other side of the Atlantic. A couple of questions. Could you give a little bit of a guidance, now having closed the deal with Holcim, how this is -- how do you expect this is going to affect what you're going to report in the different regions, i.e., northern Europe and Mediterranean, because clearly there is more gear shift now into the Mediterranean region, with Spain becoming more important due to the consolidation of the assets of Holcim you acquired, but at the same time, you may have a little less in the northern European part through the assets with Germany, Czech Republic, et cetera? So that's one part.

And then, second, down to the Mediterranean on Egypt specific, obviously we had a little weakness here during the quarter and you gave some explanation that basically electricity shortages, but also the supply. But if you could give a little bit in outlook what you're seeing for the market here, demand in the different segments, and, obviously, that electricity issue, and the overall demand situation in Egypt with still some noise going on there, so those two questions on my side.

Okay, regarding the integration of businesses or the Wellington transaction, as we mentioned, we think we will have additional EBITDA of $20 million to $30 million during the year. We are not breaking the numbers. We are just integrating the businesses as we speak. We started early last month, and during the year and once we have much more information, we will be giving some indication, but so far we are not breaking that numbers.

Okay, so just to understand, the $20 million to $30 million additional EBITDA is basically -- if I were to sum today northern Europe and Mediterranean just through synergies (technical difficulty) that figure, everything else equal, will be round about $20 million, $30 million more, with obviously different (technical difficulty) correct?

Yes, correct.

Okay, thanks.

Marimar Torreblanca, UBS.

It was the Egypt one, I think.

Operator, maybe before we go to the next question, I think we still had a portion of the question pending. Would you like me --

Okay.

Ben, also on Egypt, you mentioned on the outlook. We are expecting both the political and the economic situation in Egypt to actually get better this year.

We think residential will continue to be doing reasonably well -- population growth, urbanization rates will continue to improve. The political stability, frankly, should translate to better drivers, especially for low and middle income consumers and buyers of our business.

On the industrial and commercial side, we've started seeing momentum, again, on back of this stability -- increased stability. We have seen a pickup in demand from that segment. In infrastructure, we're also seeing a pickup there.

When you take a look at our guidance, which is showing a drop in volumes, it's really more reflective of what we are expecting to happen in the market. As we -- as the other producers in the market switch to more available fuels and as energy situation gets better, we expect those producers to play a bigger role in the market, and as a consequence, we are seeing a little bit of a drop in our volumes.

But by and large, we have a relatively positive outlook for the market. I hope that answers your question, Ben.

Yes, thank you very much.

Operator?

Marimar Torreblanca, UBS.

Thanks for the call. I have two quick questions, the first one on Mexico. How fast do you think that EBITDA margins can recover or go back to the levels that we used to see in Mexico before, considering both the price increases that you have announced and the cost environment that you've described?

Then the second one, going back to the US, if you could discuss the premiums you have on the products that you sell to the energy industry, so like oil-related cement, how much higher margins you get from that. And if that demand suffers, what do you think will be the impact on your margins for the overall US operation?

Going to the first question, I don't have a direct answer on the margins, but I think what we can comment is that we are on the way to recovery it, not just in Mexico, but in CEMEX as a whole, as you saw in the last quarter, and that will continue happening.

We have been since -- when was that -- 2012, I think, 2011 or 2012, we started recovering our EBITDA and our margins have been slightly improving. That will continue happening and we should move to current levels to the levels we used to have, 20-something, 21%, 22%, but hard to say when is it going to happen. But it will happen.

Now particularly in Mexico, as you know, the thing in Mexico is that in 2013 we lost like 7% volumes and some prices. 2014, first half was kind of stable. Third quarter, we already mentioned, volumes growing. Fourth quarter, growing even faster, and January this year even better than last quarter. Prices last year, we managed to increase prices by about 7%, which is not recovered in the previous level before the erosion in 2013, but again we already mentioned that we have increased prices in January and they seem to be sticking, so that the good news is that we are gaining traction and we are little by little gaining back our margins.

Marimar, could you just repeat the question on the US? I would appreciate it.

Yes, of course. On the US, you have a portion of your volume that goes to oil wells and I understand that these products have a higher margin?

Right.

And a higher price?

Right.

So I was wondering if you lowered that portion of your sales or you start to sell -- the product mix changes, what the impact could be on margins or how big is that premium, in other words?

Right. First, I think it's very important to note, last year, meaning 2014, we sold just a little bit over 12 million tons of cement in the US, about, if I recall correctly, about 12.1 million or so.

Total oil well cement production and sales for us in the whole US is around 700,000, 800,000 tons. Most of that is in Texas. Some of it is up in Pennsylvania and Ohio as well.

Yes, you're right, the margin on that product is higher. The cost is roughly the same as our other products, so the margin is probably -- we don't break out by product, but it's fairly high, obviously.

Now clearly if we lose some of that, you need to ask the question, where are we losing that? The area that is probably most exposed to drop in those volumes is probably Texas, and in Texas, as I mentioned earlier, there is an important of cement that is brought from neighboring states. For instance, we bring oil well cement from Colorado to the Panhandle and to west Texas.

That cement is -- its impact on margin is fairly limited, frankly, because of transportation costs and because of production costs.

So at the end of the day, the impact on margin should be rather limited at the end of -- once we take a look at that. Then again, let's not forget as the other thing that I mentioned is that we are going to be benefiting in an important way on transportation costs from a countrywide basis.

Thank you. This is very helpful.

Gordon Lee, BTG.

Just two quick questions. The first, just to follow up on the asset divestments and the guidance. I just want to see how much one depends upon the other, but specifically you say you plan to sell $1 billion to $1.5 billion over the next 12 to 18 months and that you expect to retire $500 million worth of debt in the 12 months -- in the next 12 months. Are those connected?

And the question obviously is if you sell $1 billion to $1.5 billion, significantly in excess of $500 million, but your CapEx plans wouldn't seem to suggest that you need that amount of cash. So is that $500 million on the conservative assumption of asset sales or is there something else in the middle that we are missing?

The second point on the liability management, could you repeat what -- in the next 12 months, say, what of your outstanding trading debt is callable, and so what the opportunities are for refinancing of that type, let's say, in the next 12 months? Thank you.

Okay, on the first question, Gordon, maybe what is conservative is the amount of debt that we will pay. But that's why we said that we were going to reduce debt at least by, so it might be higher than $500 million. Then, let's say if we manage to divest $1.5 billion, we don't know it's going to be during the year or 2015 and 2016, that's why we said that we -- the divestments will happen during mainly this year and some of them might happen next year. We cannot make the subtraction of the $1.5 billion minus the $500 million directly.

Now the other thing is that, as we mentioned, we have $300 million of strategic investments that we need to fund, and if -- again, if we manage to divest the high side of the divestments, meaning the $1.5 billion, we might use part of the proceeds to do additional strategic investments, particularly in the aggregate reserves, for instance.

It's not a -- you cannot directly subtract the numbers, at least not for 2015, but that's the objective, $1 billion to $1.5 billion. Debt is at least $500 million, so it might be higher than that. It will depend on how fast or how successful we are in the divestments, and if we have the flexibility, we might use part of those proceeds to other investments, like the ones I have already mentioned.

Gordon, on the callability of our notes, most of our notes, if not all of them, have fairly typical high-yield call features, which start at half coupon and then fade away as time goes by.

Several of our notes, we would be more than happy after the call to send you a schedule of the calls by note, but we have roughly about $1.6 billion equivalent, because some of it is in euros, that is callable in 2015.

The biggest component that is callable is the FRN, which is due in September. That's callable in June at par, and then there is -- we can send you the details, frankly, note by note on the call schedule for each of our notes.

But yes, I think perhaps the point that you are aiming at is do we have an opportunity to further reduce our interest expense at a relatively manageable cost through calls that are available to us contractually, and the answer is yes. I don't know if that addresses your question, Gordon.

That was probably a much better way of putting it than I did. Thanks.

Just one final follow-up, just on the guidance as well. You mentioned that you expect your energy cost per ton to more or less be flat, which, given the decline in energy prices, would seem either conservative or maybe there is a reflection of the stickiness of contracts that you may have. Could you comment on what assumptions you're making that would result to an expectation of flat energy costs on the production side? Thanks.

Sure, I think regarding fuels on the production side, as you know most of our fuels are either coal or petcoke or alternative fuels, which account for close to 30%, and none of those fuels have a direct correlation with oil.

Petcoke is tied to coal and coal in certain cases, it has certain correlation to oil. If there is a risk to our assumption, it might be on the side of certain costs being slightly lower than what you are assuming today. But it might be conservative, but the thing is that we have to take into consideration that we have, in some cases or in most of the cases, mid-term contracts on prices on these fuels and also we have inventories of either coal or petcoke or alternative fuels.

So even if prices start being impacted, there will be a sort of a delay, a three- to six-month delay on seeing those prices really affecting our cost on fuels.

On the other side, fuels for transportation, I think we have a mix effect on fuels for transportation. We have markets in which fuels have been going down materially, like the US and Europe, and we have markets in which diesel and gasoline just don't change as fast, and thus, for instance, as an example, we can mention Mexico in which it's not going down, it's going up. It went up by, I think, 1.9% or so last January.

There will be an impact on transportation. On the side of transportation related to customers, we don't expect an impact because that's translated to customers, so it would be adjusted. So the impact is only for the internal transportation or transportation we have for our raw materials and products.

That's why we are not -- it will improve slightly, but we are not counting with a material amount. We will be -- as you can imagine, being energy is such an important factor for us, we will be monitoring how the prices of our fuels behave and we will be updating you accordingly.

That's perfect. Thank you very much.

Jacob Steinfeld, JPMorgan.

Congrats on the results. I just had a quick follow-up on one of the prior questions. The $500 million in debt reduction you plan from this year, do you expect to reduce any of that from free cash flow this year? Or is it basically tied to some percentage of the asset sale you expect over the next 18 months?

We can use part of our free cash flow this year, yes. We can do that. We did it last quarter to some extent, so we will do it again.

But most of the funds will come from asset divestments. But, again, part will be because our free cash flow generation.

Okay. Then could you please explain a little bit more the higher distribution expenses you referred to in your presentation?

Higher distribution expenses? In --

It was one of the reasons on the -- the mitigants for the reduction of margins.

In some of our markets, that may be the case because our products are traveling longer distances. That's probably it.

Of course, in some places like the US, for example, there has been definitely quite an important pressure on drivers. There has been definitely driver inflation, but I think in general when we talked about SG&A, SG&A as a percentage of sales is probably the lowest that we've seen in, I don't know -- for a very, very long time.

It's very market specific and it's mostly markets that are very tight in supply and where we are having to move the product longer distances, and in the case of the US, I think we definitely have a slightly higher cost in terms of driver costs, but that's about it.

Okay, great. Lastly, I just wanted to understand a little bit better the demand for formal housing in Mexico. You mentioned that was one of the key drivers and I'm just trying to understand a little bit more of the dynamics in the market, given some of the larger players have been out of the market, so if you could talk a little bit more about that, I would appreciate it.

I think last year, to some extent, it was -- at least to us, it was a nice surprise. If you remember at this point in time last year, we were all concerned about formal housing, specifically all the adjustments, changes, and implications for large construction companies.

At the end, it ended up growing about 13% or so, having a weight of close to 20% of total demand.

Housing starts did accelerate and were up 60% for the year, and as we mentioned, it will continue growing, of course, at a lower pace, but it will be -- continue being positive.

There was another feature that supported growth in 2014 for formal housing, which was subsidies that were up between 40% and 45% during the year.

Again, it was not our expectation at this time of the year last year, but that's the way it evolved, and now we know that it will continue evolving positively for this year, 2015.

Great, thanks. Good news.

Yes.

Yassine Touahri, Exane.

A couple of questions. You discussed about oil well cement in the US. Do you have any oil well cement sales elsewhere, in Mexico, Colombia, or Egypt? That would be very helpful if you could give us an indication of your exposure.

Then on the US, you mentioned some price increases. I am not sure I have got all of them. Have you announced price increases in Texas, California, and Arizona?

Then the last question, on your target to improve EBITDA by $100 million through savings, how much of this $100 million is related to cost reductions and how much is related to your strategy of prices versus volume?

On the last one, on the $100 million, we are not breaking the figure, but we think most of it or the most important part will come from cost and expenses. That's the part related to the $100 million that will impact EBITDA, and as I mentioned, the other $200 million, that related to lower interest expense and continue optimizing our working capital.

Regarding oil well, I might not have the specific numbers for the rest of the countries in which we produce oil well cement, but what I can tell you is that it's not that material, it's not that relevant, but if needed we can, I suppose, provide additional information on our volumes in, for instance, in Mexico.

On the pricing in the US, maybe just by way of summary -- summarizing, we have two pricing -- two waves, I would say, of pricing increases. We have the winter/spring pricing increase, and then we have the summer/fall pricing increase, depending on the conditions of our markets.

We have already announced the pricing increases for the US, and in January, as you know, we had a pricing increase that was announced for Colorado, Florida, and pretty much most of our Atlantic markets. Those are the markets that have shown the most interesting supply/demand dynamics. The pricing increases were somewhere between $11 and a little bit over $17 per cubic meter.

We have had very good response on those pricing increases in terms of traction in those markets, and then there are price increases that have been announced in spring for Texas and California.

Would you have the other [mention] of the price increases announced for spring?

It's just a little bit (multiple speakers)

(multiple speakers) $10?

No, it's a little bit less than that. It's about -- a little bit under $17 for California and Texas.

Last year, how much of your price increases stuck? Is it half, two-thirds? Does it depend by region?

Last year, we probably had on average -- we have actually quite a substantial percentage of the increases did go through at the end of the day, and if we take a look at pricing last year, at the end of the day we were up about -- close to about -- just one second, I'm trying to take a look at the prices here. We're up about 8% -- sorry, 6% for the year. 6% for the year.

The price increases that you are announcing in 2015 are higher than the ones that you announced at the beginning of 2014? Is that correct?

Yes. The one thing that you have to consider is that the market is -- the capacity utilization in the market is continuing to edge upwards and we continue to see very positive demand dynamics in most of our markets, and so we think that plus our Value Before Volume efforts worldwide, but in the US as well, we think, should translate to good improvement in terms of our pricing dynamics.

Thank you very much.

I think we should add a piece of information regarding prices in the US. Don't forget that the US used to be -- before the crisis, 2008, used to be a structural importer, so we're getting close, and in some markets, we are already there, to very high-capacity utilizations.

The US, the figure I remember, is that the US used to import like 20 million, 25 million tons of cement per year, so it won't take too much for the pricing dynamic to match in volume, I am referring -- for the pricing dynamic to improve even further than what it has already improved.

As Maher mentioned, for instance, in the case of Texas, we're sold out and we're importing to the state cement from other parts of the US.

That's the context in which we think the pricing dynamics will continue evolving, and we are quite confident that it will continue evolving as positive as it has happened or even better.

Thank you.

Thanks, Yassine. Have we addressed all the points, Yassine?

Yes, you did.

Great, thank you very much. Operator?

Lillian Starke, Morgan Stanley.

My question is this. Most of them have been answered, but I have a question on your guidance for Spain. You highlight on the cement market and report an increase in volumes. However, you are expecting a significant decline on the ready-mix and aggregates. Just wanted to understand what's sort of the rationale behind this or what were the dynamics for ready-mix and aggregates?

Sure. It's fairly simple. Part of our value before volume, or I should say value and volume strategy, we are looking at rationalizing some of our portfolio in that business to the most profitable or the areas that we feel that we're adding most value to our customers, and so there are certain areas that we feel we are not adding as much value and, therefore, we are deemphasizing that part of our business. That's where the disparity comes in. But that's about it. It's really part of rationalizing our business.

Okay, perfect. Thank you very much.

Anne Milne, Bank of America.

Two questions this morning. One has been largely answered, but I do want to go back to the question of the high coupon bonds and the call options that you have. It does look like you have been paying, as per the note on your debt profile in your presentation, smaller incremental pieces of some of the bonds that were callable. You talked about $227 million of the 2018 bond, the 9%. I know there still is a balance of that left, I think $455 million.

The first question would be if you could, given the capital markets, would you repay or call all of the high coupon bonds this year and replace it with lower coupon securities, if that were an option? It seems like there is at least three, if not four or five, that might be outstanding, small amounts on some of them.

Then the second question is on Mexico. I know it was at least a stabilization year for 2014. Maybe you could update us on CEMEX's market share in Mexico and what the competitive environment looks like at the moment. Thank you.

Want to take the one on debt?

Yes, sure. Obviously, when we are looking at liability management, we are looking at a combination of things. Obviously, we like to call at call dates. That's the most efficient process, but also, certainly if we have on a net present value basis calculation it makes sense because the opportunity is there, then certainly we will do that.

Obviously, we're biased towards bonds that have the highest coupons. We're also looking at extending maturities as much as possible and removing refinancing risk.

To answer your question, there is no -- there isn't a one kind of size fits all. We are looking at a portfolio approach. We are constantly looking at opportunities. As you can imagine, we have many banks that are leaders in the capital markets and they're constantly coming to us with proposals. We will execute in the order and whichever makes sense in terms of adding value on a net present value basis to the Company.

Which is basically what we have been doing --

Exactly, yes.

-- in the last few years. So it would be -- it is consistent with our objective of reducing our interest expense.

Yes.

Regarding Mexico, again, 2013 -- well, the adjustments in Mexico really started the second half of 2012. It did materialize in 2013. Again, first half of 2014, stable; third quarter, growing 4%; fourth quarter, 6%. January, which is just one month, but it's even higher than the 6%, so we think that all segments of all sectors are increasing -- formal housing, infrastructure, informal activity, and commercial/industrial, everything is contributing in the last quarter and January of this year.

Regarding market share, market share we are always between 40% to 45%. We don't have any specific figure until -- for current figure until we get the information -- the public information we need in order to make calculations. But you should consider that we should be in that range.

Thank you very much.

Now I will turn the call over to your host, Fernando Gonzalez, for closing remarks.

Thanks for your participation, and as you know, more than welcome to call us or to contact us at any time for any other further question. Thank you very much and bye now.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.