Cemex SAB de CV (CX) 2015 Q4 法說會逐字稿

Good morning. Welcome to the CEMEX fourth-quarter 2015 conference call and webcast. My name is Sylvia and I will be your operator for today. (Operator Instructions)

Ours host for today are Fernando Gonzalez, Chief Executive Officer, and Maher Al-Haffar, Executive Vice President of Investor Relations, Communications, and Public Affairs. And now I will turn the conference over to your host, Fernando Gonzalez. Please proceed.

Thank you, operator, and good day to everyone. Thank you for joining us for our fourth-quarter 2015 conference call and webcast. We will be happy to take your questions after our initial remarks.

2015 was a challenging year, with China's slowdown and the oil price decline adversely affecting many of our markets, leading to lower government spending, especially on infrastructure, and ultimately to weaker economic growth. The financial markets have also been impacted significantly by divergent monetary policies in developed markets, leading to an unprecedented appreciation of the US dollar versus most of our currencies, particularly in Mexico and Colombia, and hurting corporate earnings across many industries.

Despite this challenging environment we were able to deliver strong underlying operational and financial results by remaining focused on the variables that we control. Our volumes increased in our core businesses. Our prices in local currency terms increased as well, reflecting the implementation of our pricing strategy and exceeding input cost inflation.

Overall, our cost increases were contained as we delivered on our cost-reduction program of $150 million and benefited from operating leverage in several markets. As a result of our favorable volumes and price performance, during 2015 we increased sales by 5% on a like-to-like basis. Since prices increased more than our costs and we had a favorable operating leverage in many of our markets, we increased EBITDA by 9% like-to-like and generated a 1.1 percentage point improvement in EBITDA margin.

Lastly, net income for the year was $75 million and was positive for the first time in six years. We expect to continue this positive performance for our shareholders for years to come.

Like many companies, our operating EBITDA was negatively impacted by the unprecedented strength of the US dollar. The FX impact on our EBITDA during 2015 was $317 million, excluding the impact of the dollarized costs in our operations which represented an additional $85 million.

Our free cash flow after total CapEx reached $628 million during 2015. We generated this increase of more than $400 million over 2014 levels even though our operating EBITDA was $60 million lower last year. This increase reflects our success in reducing our working capital investment by $306 million, our financial expenses by $184 million, and cash taxes by $72 million.

The result is that we converted slightly more than 30% of our EBITDA into free cash flow after maintenance CapEx. This is the highest conversion rate since 2009.

Our free cash flow generation plus proceeds from divestments enable us to reduce total debt by approximately $1 billion. In fact, over the past two years, we have reduced debt by more than $2 billion despite stable EBITDA generation.

As a consequence, we lowered our total financial leverage by about 0.15 times, while maintaining our leverage ratio as defined in our financing agreement stable. I want to stress that our most important priority is to reach an investment-grade capital structure as soon as possible. We are still not satisfied with our leverage ratio, and reducing it continues to be our primary concern.

However, through proactive liability management we have achieved a manageable maturity profile, with no major maturities for 25 months, until March 2018. We continue to maintain a strong liquidity position with cash on hand of close to $900 million, plus more than $1.5 billion in available bank facilities.

In addition, we are very pleased that Standard & Poor's has affirmed our credit ratings, currently B+ for our global scale rating, as well as the positive outlook on these ratings. This reflects their view that we should be able to continue to improve our credit metrics during the next 12 months.

Now I would like to discuss the most important developments in our markets. In Mexico, economic fundamentals continue to be strong. We believe that the Mexican government will remain focused on investment in housing and infrastructure, both of which have a high local content and contribute significantly to economic growth.

This is reflected in the robust growth in demand for cement and ready-mix. Now, our cement volumes declined by 6% during the quarter due to a higher base of comparison in the fourth quarter of 2014 as well as our pricing strategy.

However, the good news is that, on a sequential basis, prices in local currency terms were flat while volumes grew 4%, with our market position remaining stable. We expect our growth to gradually be more in line with the markets in the coming quarters.

Our EBITDA margin increased by 3.5 percentage points during the quarter and by 2.6 during 2015. This is the highest margin in three years.

The industrial and commercial sector was the main driver for our cement volumes during 2015, with a moderation in activity during the fourth quarter. Commercial activity continues to be strong.

On the industrial side, construction activity should improve with a pickup in the manufacturing sector.

The formal residential sector also had a strong performance during 2015. Demand indicators including housing credit investment and subsidies improved in recent months.

In addition, credit investment from the banking sector continues to grow in the double digits. This sector should continue to be an important driver during this year.

In the infrastructure sector, investment continued to be muted, reflecting delays in the execution of the revised 2015 budget, which resulted in only 88% of the year's Communications and Transportation Ministry budget being actually spent.

For 2016, the budget for this Ministry reflects an 8% increase versus 2015 spending level, which should translate into higher growth in the sector. Furthermore, other investment vehicles for infrastructure projects like the FIBRA E could further boost this sector in the midterm.

For the self-construction sector, prospects remain favorable given continued improvement in indicators including job creation, which grew 4% in 2015, as well as remittances, which increased 25% in peso terms in the same period, with minimal inflation pull-through as a consequence of the Mexican peso weakness. In light of all of this, during 2016 we expect our cement volumes to grow in the mid-single digits, a healthy multiple of GDP, although lower than that in 2015.

Our operations in the United States accelerated in the second half of 2015 after a slow start due to weather. On the back of an unseasonably warm fourth quarter, cement volumes improved 5% year-over-year, or 10% excluding oil-well cement. Ready-mix volumes grew 9%, while aggregate volumes increased 8%.

For the full-year 2015 we also saw favorable growth in our three core products. Cement prices are flat sequentially, while ready-mix prices rose 2% in the quarter. Aggregate prices are down 1% due to product mix, and we have announced for both pricing increases for January and April 2016 and we expect they will gain traction.

Full-year EBITDA margin expanded by 3 percentage points and was the highest since 2008. Incremental margins continue to reflect significant cost containment and continued healthy operational leverage.

Regarding residential activity, housing starts increased 11% in 2015 driven by low inventories, stronger job creation, and household formation. Importantly, there was a pickup in single-family construction, with double-digit growth after relatively a flat performance in 2014.

Housing permits in three of our four key states, Florida, California and Arizona, are outperforming the 12% national growth for 2015. In Texas, while permits have slowed in 2015, they still show mid-single-digit growth. We remain encouraged by the momentum in the residential sector as we enter 2016.

In the industrial and commercial sector, construction spending for the cement-intensive segments is up 18% year-to-date November, reflecting solid growth in the lodging and office space markets. National contract awards are up 12% in the same period, largely as a consequence of bad weather in the first half of the year and a slowdown in the manufacturing sector.

Public sector activity picked up during the last half of 2015, driven by state spending and TIFIA funding. Highway and bridge spending registered an increase of 7% year-to-date November. Contract awards for highways and bridges are up 10% in the same period due largely to approval of over $17 billion in TIFIA projects over the last year.

Regarding US highway spending, we are encouraged by the passing of a five-year $305 billion transportation bill with a 3% growth in yearly spending. This bill marked the first time since 2005 that the US Congress has passed a transportation program that exceeds two years. The combination of growth in spending and certainty of funding should translate into more demand for our products and services.

For 2016 we continue to be confident of the sustained recovery in the US construction market. Volumes are expected to be bolstered by growth in single-family construction and rising household formation, as well as by the new federal highway program. We expect mid-single-digit volume growth in cement, ready-mix, and aggregates for this year.

In our Northern Europe region, fundamentals in our portfolio remain positive with cement volumes increasing by 9% on a like-to-like basis within 2015, with flat ready-mix volumes. Cement volumes increased in all our operations with the exception of Latvia.

Quarterly regional like-to-like cement and ready-mix prices in local currency terms are both up 1% sequentially, while for the full year cement and ready-mix prices remained flat and declined by 1%, respectively. Operating EBITDA for the region grew in 1.6 percentage points to 10.6% and was the highest margin in more than five years.

In Germany, we expect the favorable volume dynamics seen in 2015 to continue this year. In the residential sector, fast-growing immigration and continued favorable conditions, such as low mortgage interest rates, low unemployment, and rising purchasing power, should continue driving this sector and more than offset limited capacity of local construction industry and public health authorities' restrictions. Regarding infrastructure, although there have been some delays in the ramping of projects, this sector should benefit from a 9% increase in the public budget for traffic infrastructure as well as higher tax revenues.

In Poland, the increase in volumes during the quarter was driven by favorable weather conditions. Our market presence remained stable during 2015 despite slower than anticipated demand and challenging market dynamics.

For this year, we expect demand growth from the infrastructure and residential sectors. Infrastructure activity should be supported by recent road construction tenders and delayed projects from 2015. The residential sector should benefit from the increase in construction permits and the support from government programs.

In France, our ready-mix and aggregate volumes increased during the quarter. For this year, the residential sector is expected to be the main driver of demand, supported by the recent pickup in construction permits and government's initiatives, which included buy-to-let programs and new zero-rate loans for first-time buyers.

In the United Kingdom, we achieved the highest volumes and local currency prices in our cement and aggregate businesses since 2008. For this year, demand growth is expected from all sectors.

The residential sector should be supported by economic expansion, accelerating home prices, and government-sponsored programs such as the Help to Buy and affordable Starter Homes programs. Higher activity in the industrial and commercial sector should come from office buildings, warehouses, and factories. Also, the infrastructure sector should continue to grow, supported by public and private spending in highways, energy, and water network projects.

In the Mediterranean region, like-to-like domestic cement volumes declined by 3% and 9%, respectively, for the quarter and the full year. Regional ready-mix volumes increased by 8% and 5% during the quarter and the full year, respectively, driven by improved performance in Israel, Egypt, and the Emirates.

In Egypt our cement volumes during the quarter benefited from continued continuity of government projects. The sequential decline in cement prices reflects additional capacity coming onstream. Regarding energy, with the start of our pet coke grinding mill we successfully started this switch of our kiln fuel from mazot to pet coke, which should translate into reduced production costs of about $40 million for this year and $60 million on an annualized basis.

For 2016, we expect our volumes to grow by about 3%, driven by the former residential and infrastructure sectors. The residential sector should be supported by governments' housing projects, while the infrastructure sector should benefit from projects related to the Suez Canal expansion.

In Israel, we ended the year with a 3% increase in ready-mix volumes, reaching historically high levels in the country.

In Spain, macroeconomic conditions continued to improve during the year resulting in a mid-single-digit growth for the cement industry. Our like-to-like domestic cement volumes declined 9% in this period, mainly due to our focus on more profitable volumes.

Total cement volumes including clinker and export cement, however, increased by 10% during the year on a comparable basis. During the year, like-to-like gray cement prices in local currency terms increased by 10%. During the quarter, sequential cement prices increased by 1% in local currency terms, despite pricing pressure in the central region.

Operating EBITDA in Spain has been improving as a result of higher volumes and prices, a favorable operating leverage effect, and our focus on profitability. Looking into 2016 we expect our cement volumes to grow in the high single digits, in line with national cement consumption, supported by solid demand from the residential sector.

In our South, Central America, and the Caribbean region, full-year cement, ready-mix, and aggregate volumes declined by 4%, 3%, and 2%, respectively, primarily due to Colombia and Panama. In the case of Colombia, cement demand dynamics continue to be favorable, with industry volumes growing at approximately 4% during 2015.

I will give a general overview of the region. For additional information you can also see CLH's quarterly results, which were also reported today.

In Colombia, economic growth in the country continues to be driven in great part by construction, including housing and infrastructure, which translate into increased demand for our products. Now, the decline in our cement volumes for the quarter and full year reflects the effect of our pricing strategy as well as the high base of comparison. Our cement market position stabilized sequentially, with an increase in local currency prices of 5% in this period and by 18% year-over-year.

The residential and infrastructure sectors were the main drivers of demand growth last year and should continue with a positive trend during 2016. Residential activity for 2016 should continue to be supported by the different low-income housing programs from the government as well as growth in middle-class segments supported by interest rate subsidies.

In infrastructure, during this year we should see the continuation of several projects as well as new ones related to the government's plan to promote employment and productivity. In addition we expect the initiation of the first highway projects related to the 4G program. In light of this, we expect cement volumes in our Colombian operations to grow in line with the market in the low to mid single digits during 2016.

In Panama, our cement volumes declined by 9% during 2015, reflecting lower volume sold to the canal expansion project as well as the end of some infrastructure projects such as the Corredor Norte. Adjusting for the canal project, our cement volumes were flat.

The year-over-year increase in cement prices mainly reflects a mix effect from lower volumes to the canal project. During 2016 we expect the residential sector to continue to be the main driver for cement demand. In infrastructure, there should be an improvement in public investment this year.

In Asia, cement volumes increased by 10% during the quarter and by 15% for the full-year 2015.

In the Philippines, we also saw double-digit growth in cement volumes during both the quarter and the full-year 2015 driven by improved demand in all sectors. The positive volume trends should continue this year.

The housing backlog in the Philippines should positively impact the residential sector performance. Growth in the industrial and commercial sector should come from the expected expansions in business process outsource and services. For this year, the government's budget includes an increase in infrastructure outlays expected to reach 5% of GDP, which should further support this sector.

In summary, we had strong fundamentals in most of our operations, which translated into positive volume and pricing dynamics. These favorable trends should continue through this year.

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

Thank you, Fernando. Hello, everyone. It is important to note that in our fourth quarter report the results of our Croatian operations for 2014 and 2015 have been reclassified as per IFRS accounting standards and are now reflected in a discontinued operations line item in our financial statements.

Our net sales and operating EBITDA on a like-to-like basis increased by 2% and 7%, respectively, during the quarter. There was higher like-to-like EBITDA contribution from Mexico, the US, and the Northern Europe and Asia regions.

Our operating EBITDA margin during the quarter increased by almost 1 percentage point. Full-year EBITDA margin is the highest since 2008. This margin expansion reflected better prices and volumes as well as greater operating efficiencies.

As Fernando mentioned, during the quarter we continue to see the effect of the appreciation of the US dollar versus some currencies in our markets. The full-year FX impact on our EBITDA was about $317 million, excluding about $85 million of the effect of dollarized costs in our operations. If we include this effect on costs, the increase in like-to-like EBITDA would have been about 12%.

Of the full-year FX impact on EBITDA, about 40% was related to the Mexican peso, 30% to the Colombian peso, and 20% to the euro and euro-like currencies. Our increase in prices during the year in countries that have been impacted by FX volatility, adjusted for the effect of variable costs and freight rate increases, has offset close to three-quarters of the adverse FX impact.

Cost of sales plus operating expenses as a percentage of net sales declined by 1.1 percentage points during 2015. Our kiln fuel and electricity bill on a per-ton of cement produced basis declined by 10% during the fourth quarter and by 6% in 2015.

During the quarter, our free cash flow after maintenance CapEx was $566 million. This is an increase of 35% compared with the $421 million in the same period in 2014. This is mainly explained by lower financial expenses and taxes, as well as a higher reversal in the working capital investment.

During the fourth quarter, we recovered the year-to-date investment in working capital as of September and even more, ending the year with a reduction in working capital investment of close to $300 million. For 2015, working capital days declined to 20, a new record from 27 days in 2014.

Other expenses net during the quarter for $92 million were mainly due to impairment of assets and severance payments. We had a loss on financial instruments of $21 million related mainly to CEMEX shares. We also recognized a foreign-exchange gain of $21 million resulting primarily from the fluctuation of the Mexican peso versus the US dollar, partially offset by the fluctuation of the euro versus the US dollar.

During the quarter, we had a controlling interest net income of $144 million, which resulted in a positive full-year net income for the first time in six years.

Free cash flow during the quarter plus proceeds from divestments were used mainly for cash replenishment and debt reduction. Total debt plus perpetual securities decreased by $254 million during the quarter. The quarterly decline in debt reflects a noncash positive conversion effect for $71 million. As Fernando mentioned earlier, we managed to reduce debt by close to $1 billion during 2015 despite slightly lower EBITDA.

Regarding leverage, the negative impact that FX fluctuations had on our leverage ratio was offset in great part by our pricing strategy and cost-reduction efforts, as well as the positive effect of our euro-denominated debt and asset divestments. Average life of our debt is currently at 5.1 years.

Our maturity profile is very manageable, with $352 million of convertible notes maturing two months from now, which we will pay with cash on hand, and $373 million corresponding to the first amortization under the syndicated bank loan facility in September 2017. We have no significant maturities until March 2018. Of course, as we have done in the past, we will be proactive in taking market opportunities to manage our maturities and ensure that our debt profile will continue to be manageable.

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

For 2016 we expect consolidated cement volumes to grow in the low single digits, while ready-mix and aggregate volumes should grow in the mid single digits from last year's levels. Regarding our cost of energy, on a per-ton of cement produced basis we expect a 10% reduction from last year's levels.

Guidance for total CapEx for 2016 is about $700 million. This includes $450 million in maintenance CapEx and $250 million in strategic CapEx.

Regarding working capital, we anticipate the working capital investment during this year to be flat to marginally higher. We expect cash taxes for 2016 to be under $400 million. We also anticipate a reduction in financial expenses for this year of about $50 million.

Based on these expectations and despite continued FX volatility, we expect our EBITDA in US dollar terms to grow this year.

In closing, I want to emphasize that we continue to see profitable demand growth throughout our portfolio. We have delivered strong results during 2015, despite headwinds caused by currency fluctuations and volatility in the financial markets.

Our EBITDA margin during the year was the highest since 2008. We also have the highest free cash flow levels since 2009, reflecting our initiatives to reduce financial expenses and improve working capital, translating into a record-low 20 working capital days.

We delivered on the targets we provided at the beginning of 2015. We reduced costs and expenses, improved working capital, and lowered financial expenses. We also sold assets and reduced debt.

For this year, we are setting new targets to respond to the continued volatile environment and further bolster our road to investment grade. First, we are announcing a cost and expense reduction target of $150 million.

Second, we expect free cash flow initiatives of $200 million. Our guidance for our free cash flow items reflects these initiatives.

Third, we are targeting to pay between $500 million and $1 billion of debt this year, and up to $2 billion by the end of 2017. Fourth, we expect to sell assets for $1 billion to $1.5 billion in the next two years.

Thank you for your attention.

Before we go into our Q&A session, I would like to remind you that any forward-looking statements we make today are based on our current knowledge of the markets in which we operate and could change in the future due to a variety of factors beyond our control. In addition, unless the context indicates otherwise, all references to pricing initiatives, price increases or decreases refer to our prices for our products.

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

(Operator Instructions) Ben Theurer, Barclays.

Hey, good morning, Fernando; good morning, Maher. Well, first of all, congratulations on those results. I actually have a couple of questions, so one operationally in the US and one pricing.

We've seen a minor decrease on a sequential basis, fourth quarter versus third quarter, on cement prices. Just my suspicion is that because of a mix shift in the different regions, if you could clarify that quickly, where that sequential decline is coming from.

Then looking into 2016, you said already you're looking for price increases in January, April. But are you also targeting something for July, October as you've done in some years? Like just in order to push further on the pricing side in order to implement the value-before-volume strategy? That would be question number one.

Yes, thanks, Ben. I'll take the answer. First, very quickly for the first part of the question, it is a geographic mix that is translating that, and primarily Texas essentially having had higher prices because of the oil component of it.

In terms of the pricing increases, the pricing increases that were announced last year for January of this year affected roughly half of our markets. That's Colorado, Florida, Midwest, and Southeast -- that's half of our volumes, I should say.

And we had fairly good reception to those pricing increases. Roughly two-thirds of the affected markets experienced about a 70%-plus realization, which is very good.

In Florida, unfortunately, we got less pricing traction. Florida is about a third of the affected markets, and there we had somewhere around 35% realization. Now of course we will continue -- in the case of Florida, we will continue with our very strong and focused efforts to execute our pricing strategy.

In April, obviously the April increases, we will discuss that when that happened. Second-round pricing, frankly, we haven't announced it; it's questionable, but we're certainly evaluating the conditions right now.

Okay, perfect; thanks for that. Then just a question on free cash flow outlook. Clearly two things that are to some -- well, some sort of related to your target for over $200 million improvement in free cash flow in 2016.

Number one, you had a tremendous improvement on the working capital cycle. You've mentioned down to 20 days now from the 27. Actually there was a bigger reversal, so it went very positive in 2015.

How many -- how much room do you think you're still having within improvements on working capital, and where was that mainly coming from? Was that an improvement in the US, where we know it used to be in the past a little weaker? And what's the outlook on that?

Then second, one of the initiatives -- what I've realized is you're lowering by about $100 million your maintenance CapEx. The question here is the $100 million reduction on maintenance CapEx: is that temporarily, because you don't sense you have to go through that maintenance in 2016 and it's likely to revert in following years? Or has that to do that you just can save money because of the asset divestments you had, especially in Europe and the Mediterranean region? Thanks.

Let me start with ways that we believe we can enhance the free cash flow for $200 million this year. It will come mainly because of an expected increase of our nonproductive asset sales. It will also come to some extent because of reduction we mentioned of about $50 million of financial expense.

There will be some taxes lower, also compared to last year. And on CapEx, we're expecting like $50 million less compared to last year. So that will make about a $200 million.

Now, on CapEx and the amount of CapEx maintenance or strategic, we feel comfortable with the amount we have. From year to year we can increase or decrease it slightly. But I don't -- I think the current amount again is sustainable with some variations, slight variations in the near future.

Now regarding the possibility of continued improving working capital, well, let me put it this way. I think in 2014 we were very happy with the new record of 27 days, and as far as I understand it's the lowest in the industry or one of the lowest; and last year we even improved that to 20 days.

Can that be improved materially in 2016? I think the answer is yes, and improvement will mainly come from the US and Mexico. When you count working capital in CEMEX and you look at Mexico and the US, we have a higher investment in working capital in those countries compared to others. So the initiative to continue improving it will allow us to continue optimizing the investment in working capital in 2016.

Now, is that going to provide a large amount of free cash flow compared to last year? I don't think so. That is not the reason why or not the main component of the $200 million we think we can increase.

That's great. Perfect.

As commented, we will have either flat or an investment in working capital this year.

Okay, perfect. Thank you very much for clarification and, once again, congratulations.

Adrian Huerta, JPMorgan. Dan McGoey, Citigroup.

Morning, gentlemen. Congratulations on the results. Two questions from me. If I could ask on US, the margin: the EBITDA margin in the US, 17.9%, was particularly strong for the fourth quarter, with pricing up only I guess you would say about 3% in volumes. But I'm wondering with 17.9% margin in US in the fourth quarter, if you could talk a little bit about what helped that margin, and then outlook for 2016.

Then secondly, Fernando, you comment on the asset divestiture program. I think it was the new target of $1 billion to $1.5 billion over the next one and half years. Can you give us an update on how far you are through the original program and whether or not this would be in addition to that $1 billion to $1.5 billion which was outlined previously?

Sure, let me start with the asset divestment question. In February 2015 we announced a divestment in the range of $1 billion to $1.5 billion in the period of 18 months. That means June 2016.

In 2015, we successfully divested close to $700 million. So what we are doing today is increasing the amount of assets to be divested, meaning that the new $1 billion to $1.5 billion in the next two years are on top of the $700 million that we have already sold. So that will make a total of $1.7 billion to $2.2 billion, counting last year, up to 2017.

Now we have several business units and not productive assets in a divestiture process since February last year. So I feel confident that we will manage to divest what is missing for the new period or what is missing for the 2015 period.

As you can imagine, the volatility and current conditions in the market are not necessarily the best conditions in order to divest. So we don't -- we are going to divest but we are not in a position to divest at unconvenient prices.

So we are doing that. We have shown that it can be done, even in the moments with uncertainty on investors. And we will continue doing it this year.

Okay. When you say nonproductive, can we take that to mean basically non-EBITDA contributing at this point?

Exactly, exactly. It could be real estate and other investments that from time to time we get, because our business activity; and we are proactively divesting those. In the last few years we normally divest from $150 million to $250 million of those type of assets.

Got it.

And, Dan, on the questions on the US, yes, going forward -- first, I mean maybe going back to what was driving it, the important driver there was pricing. That was roughly 2 percentage points improvement.

And you had volumes, 1.4 percentage point improvement. And then you had obviously some variable cost inflation bringing it down, and there were some other items which took us to close to about 18%, which represented about a 3 percentage points improvement.

Obviously, we continue to benefit from operating leverage. Operating leverage, I believe, for the quarter was more than 50%; and many of our markets continue to have low capacity utilization.

So going forward, frankly, we definitely look forward to expansion of the EBITDA margin in the US, driven by really three factors. Number one, especially in 2016 we're not going to have the big oil headwind that we had in 2015, so that should translate to expansion of the margin.

The other component is that we do expect to continue to see growth in markets that have lower capacity utilization in the system, which means you're going to get a bigger kick of operating leverage. So essentially you have operating leverage, lower capacity utilization markets, and then the absence of the oil headwinds.

So all those three should continue to have positive impact on our EBITDA margin into 2016. I don't know if that addresses the question.

It does. Great; thank you.

Vanessa Quiroga, Credit Suisse.

Hello. Good morning; and Fernando, Maher, thanks for the call. My question is probably more specific for Fernando.

Fernando, during your mandate and since you possess the position there has been a big emphasis in reaching investment-grade faster for CEMEX. Microeconomics and market volatility haven't helped. What if this volatility continues, if currency weakness lasts for longer, or a US slowdown prevented CEMEX to grow in EBITDA in dollar terms going forward? What else could CEMEX do to reduce debt faster than $1 billion per year?

Well, thanks for your question, Vanessa. What can I say?

To start with, as we have said, 2014 in 2015, which is the first couple of years in my new position, have been EBITDA neutral. EBITDA has really not grown. And even with EBITDA not growing we have managed to reduce to -- slightly more than $2 billion of debt.

What if the economic contests continue being about the same? Well, let me start by saying that I don't believe that the current economic conditions for 2016 will have a negative impact the size of last year.

For sure, the dollar might continue being very strong, but very hard to believe that it will continue getting stronger as much as it was last year. So we will not have -- remember the amount that we mentioned on FX impact for last year in EBITDA is $300 million. So we might have an additional impact on FX this year, because of when you compare the expected FX for this year compared to the average FX of last year. But not as much as that amount. So I feel confident that EBITDA this year will grow.

Now what else can we do? At this point in time, to start with we are confirming our objective of being focused on gaining back our investment-grade. That's a way to say that we are -- our interpretation is that that is the way to create value for our shareholders, changing our capital structure, and we're focused on doing that.

Given that the EBITDA has been flat, we are helping our sales with asset divestments. And of the different options we have evaluated, that is the way to go.

It is working. It worked last year.

As I mentioned, there are several units or businesses that we're in the process of divesting. We think that it's going pretty well, and so we are confident that we'll continue divesting assets at reasonable prices. So for the time being, that will continue being the strategy.

Now if everything fails, well, we will see. But so far we think that the way we are -- the strategy we are following, it is working. Again, we believe that the strategy, the business model, and the specific actions we are taking are working.

Thank you for that color, Fernando. Could we probably change a little bit more to the operations in the US? Given the situation or risk of further slowdown in China, deceleration, can you remind us of the barriers to entry for China imports today in the US, and if there has been any important change given M&A occurring recently in the region? Thanks.

Well, as you know, Vanessa, the US little by little is getting to a point in which most of cement capacity is the utilized. I mean it is not spread all over the country, but in some parts it's already high and getting higher. The markets continue increasing.

As you know, the US is a country that traditionally -- let's say before the 2007 crisis -- was what we call a structural importer. Out of the 120 million or 130 million tonnes the US was consuming before the crisis, about 25 million were imported.

So, what we have been seeing in 2015 -- perhaps even since second half of 2014 -- is that imports started increasing in the US little by little. Now, most of the imports in the US are done by local producers. Most of facilities, most of permits, most of integrated value chains are owned and managed by local producers. So, so far, even before the crisis and currently I do believe that imports will follow the logic of local producers instead of, let's say, independent traders that might have different economic views or objectives.

So I don't see a major impact, let's put it that way, because of imports. Imports in the US are needed at certain, let's say, on top of -- between $100 million and $110 million of consumption, imports are needed and they will come.

Thank you very much for your answers, Fernando.

Gordon Lee, BTG.

Yes, hi, good morning, gentlemen. Thanks for the call. Two quick questions both related to the balance sheet.

The first, just reading the footnotes in the release, the section on the Mexican tax reform, I see that it looks like you significantly reduced the tax liability, the pending tax liability from back taxes.

Is that correct? Could you just maybe walk us through how that occurred, and what the pending liability is, and when you would expect to pay that?

Then just final question, just following up on your comments in terms of the use of cash and the paydown of the convert. What would be a normal run rate cash level for you once you pay down this debt? That's just obviously for purpose of computing the leverage ratio going forward. Thank you.

Okay, Gordon, just on the tax change, first, just to reiterate the guidance for the year, we're guiding just slightly under $400 million in taxes, and that includes taxes that are payable under the consolidation regime. Now what happened is that under the tax reform laws of 2016 that were approved in 2016, there are two important changes that took place in that regime.

Number one was allowing the use of tax loss carryforwards at a punitive rate to defease tax obligations that were assessed under the consolidation regime. And the punitive rate, meaning -- I believe it was almost a 2-to-1. In other words, you need to use twice as much tax loss carryforwards for every dollar of liability under the tax consolidation regime that was in place. So we took advantage of that.

The other component of the tax reform is that there were certain deductions that were disallowed under the consolidation regime, that were then either determined to be inappropriate -- we think, we believe -- and they were -- that was changed. We're talking specifically about the intercompany dividends element.

So the combination of those two translated to a reduction in that amount from a little bit over $1 billion to the $226 million that we have with, I believe, a similar payment schedule as the original amount that we had outstanding under the consolidation regime. Which translates to somewhere around $40 million to $50 million payments per annum.

Gordon, I'm sorry. Did you have another? The other question was the cash balance?

Basically just to (technical difficulty) stand. Obviously I know that you're accumulating cash now to pay for the convert in a couple months' time or a months' time. But my question is, because the leverage ratios are calculated on a gross basis, as we model for the leverage ratio going forward, obviously to ensure that you're in compliance with the covenant test, my question was: What would be, under normal circumstances, a cash level that you would be happy with running the operations at? If you weren't planning on cash to deal with maturities.

Well, just to start with -- just to be sure on the calculations. Cash that's not going to fund the debt calculation, it is total debt minus converts plus perps, and some other adjustments. But it's not included.

Now, currently cash balances, we can run with less than previously because of the committed credit facility. Now, on the other hand, because of our cash cycle, cash needs are different. I will say they are larger during the first half and then lower during the second half.

But what you want is, let's say, a range of cash needed in average? It is between $300 million, perhaps $400 million.

Perfect. That's exactly what I needed. Thank you very much.

Yassine Touahri, Exane BNP Paribas.

Yes, good morning. A couple of questions. First, a question on the US. I think you mentioned a couple of markets being impacted by your January price increase. That's Colorado, Florida, and the Midwest. I just wanted to understand how much -- what's the proportion of this market as a percentage of your US sales?

Then the other question, what's the proportion of your US sales -- what is the proportion of the markets in which you have announced a price increase in April?

Yes, hi, Yassine. The amount -- the markets that were affected by the January pricing increase -- which again just to repeat for clarity's sake are Colorado, Florida, our Midwest markets, and our Southeast markets, which of course including Florida, as I mentioned. The combined volumes from these markets are 50% of our volumes in the US market.

Roughly two-thirds of that affected amount -- so two-thirds of the 50% -- actually achieved a pricing realization of close to 70%. And April --

(multiple speakers) price increase --?

And April, the April pricing increase which affects California and Texas and other unaffected markets, represents the other 50%. California and Texas just by themselves are roughly around 45% of the volumes.

Another question on the level of the price increase. Was it something like $10, $15? Or what's the average price increase (multiple speakers)?

Well, we announced mid-teens, low to mid-teens. Now of course, we -- that's what we've announced, but obviously since we're not interested in the case of -- I mean, we're not willing to impact our market position. Clearly what happens is that prices will tend towards whatever is the lowest clearing price. So there would be some adjustments obviously in different markets.

But if I understand what you mentioned, it is that in January, prices will have increased by a bit more than $7 in Colorado and the Midwest, and a bit more than $4 in Florida. Is that the correct way to understand what you said?

Yes, I would say probably a little bit higher in the Midwest and -- yes, I would say a little bit higher than that. And Florida is pretty close; it's a little bit higher than the number that you're coming up with. It was around $5, $6.

Okay; that's very clear. Then I would have question on your pricing strategy in Mexico and Colombia. I think you're forecasting a slight volume growth in those two markets in 2016. Do you expect to grow with the market, or will you continue to focus on pricing?

Just to clarify, Yassine, you said flat for 2016?

No, no, you are expecting slight volume growth I understand in Mexico and Colombia, in mid-single-digits, low-single-digits volume growth. I just wanted to understand what is going to be your pricing strategy. Do you want to grow with the market, or will you continue to focus on pricing?

Well, on market growth and our growth, we are expecting mid-single-digit, low- to mid-single-digit. And our expectation is to grow according to the market.

If the question is referring to the impact on our pricing strategy, I think -- and as you can imagine, a pricing strategy like the one we started mid last year, it takes time and in our opinion is evolving in the right direction. So we do -- and as you know, we already announced price increases in Mexico in January for both bulk and bag. So we do expect for prices to increase and for us to grow at least at the same pace than the market.

Yassine, if I could just add to that perspective, the volume growth by the industry in Mexico was quite encouraging for 2015. It was almost close to -- we guesstimate; we have to wait to see how everybody else does, but we guesstimate that it's growing in the high single digits, which is an important multiple of GDP, close to -- between 2.5 to 3 times GDP growth in 2015.

Frankly, we may see a drop in that ratio to GDP. But the expectation for GDP in Mexico for 2016 is somewhere around 3%; and even if it deteriorates a little bit less than that, the multiple is continuing to be certainly higher than 1, right?

So in Mexico, we solidly expect the mid-single-digit growth in volumes, just to put it into perspective. Okay?

Thank you very much.

Jorg Friedemann, Goldman Sachs.

Thank you very much. Congratulations for the results. I have two questions.

First, coming back to the effect of the New Mexican tax regime that you mentioned already, I am intrigued by the guidance of lower than $400 million of cash taxes this year. I'm coming from the fact that you paid over $350 million of cash taxes in Mexico in 2015, and you just guided for something around $40 million to $50 million, if I'm not mistaken.

So could you elaborate further if there is room for your cash taxes this year to be under $400 million, or maybe even below $200 million? Or if we are losing something else, maybe an increasing tax effect in other countries that you are at.

And then I come to my next question. Thank you.

Okay. Let me start by saying, as Maher already explained, the tax reform is benefiting us in a significant way. That has been already explained.

Because it allows -- the tax reform it allows us to use the tax loss carryforwards to settle the tax consolidation regime at a discount factor. So that has been already commented.

Now the direct answer to your question is that -- if the $400 million could be lower, the direct answer is yes. It is a possibility.

Now as you might have seen in previous years, there are several uncertainties in our tax planning schemes. Early in the year we prefer to give an amount that will be adjusted, let's say, favorably. We don't want to provide much lower guidance just to find out midyear that we need perhaps to make higher payments in taxes.

So for the time being, we feel comfortable with this guidance that it might be lower than $400 million. But definitely there is the possibility of, yes, being much lower. But too early to say.

No, that's perfect. I just found it too conservative given the potential for decline in cash taxes that you could have in Mexico, just that.

But going to my second question, I noticed the strategic CapEx guidance of $250 million. So just wondering if this will come from already announced projects such as Colombia, if there is any missing investments to be done, maybe even at Tepeaca if you want to restart that process, or if we could expect new announcements in the near future. Thank you.

No, there are no new strategic CapEx that we have not described before. Most of the expenditure is related to our Colombian plant.

There is also some amount in aggregate reserves. Every year we do invest an amount. This year it might be $30 million and $40 million in aggregate reserves.

And there are still some expenditures, for instance, in the case of the pet coke project in Egypt. So this year there is a small amount, but it still counts as one of the strategic projects.

Our projects in Mexico, in Tepeaca, and the Philippines, this year will not require a significant amount of CapEx. We are going through all the engineering phase; and in the case of the Philippines we will be using some equipment that we have available from other projects. So I don't think there will be any significant requirement from these expansion projects for this year.

Perfect. But still on the Tepeaca project, should it still count? I know that given the current market conditions, I know this would be expected for the next two, three years?

Sorry. Can you repeat the question?

Yes, just if you -- given market conditions in Mexico and overall market conditions, if this expansion is still on.

It is still on. But as I mentioned, it will not require significant CapEx this year.

I would say we have not canceled the project if that is the question. We have not canceled the project in Tepeaca; we have not canceled the one in the Philippines.

Perfect. Okay, great. Thank you very much.

Jon Brandt, HSBC Securities.

Hi, good morning, Fernando; good morning, Maher. My first question is related to the oil price.

I know you said you are expecting the cost of energy on a per-ton basis to fall by about 10%. I'm wondering if you could elaborate on that a little bit.

Is there one country or one region that will be able to take advantage of the lower oil and energy prices disproportionally to the others? Does this include distribution in ready-mix expenses, which I would assume would be more advantageous in the US?

Then secondly, just a question on refinancing. I know you're paying off the convertibles in March. I'm wondering if you are expecting or wanting to go to the credit market to refinance any securities, if it makes sense to do that. I know you still have some high-coupon debt out there, so if you could maybe touch on that a little bit as well. Thank you.

Sure. Let me start with energy. As we mentioned, we do expect savings of about $100 million. That's about 10%, the 10% we mentioned.

As you know, the fuels we use are pet coke, coal, and alternative fuels. There are some others, but mainly these are the fuels.

The country that is going to reduce the cost of fuel significantly is Egypt, as we mentioned, in 2016, given that we are starting using our pet coke grinding mill and substituting the mazot, which is a fuel oil that is more expensive. We will save $40 million out of the $100 million.

So if you're looking for a specific country where these savings are going to occur, that's Egypt. And again it's mainly because of the switching from this fuel oil to pet coke.

Then there is a reduction that is spread all over the cement businesses because the price of pet coke is lower than last year. There was not a -- we didn't see a direct relation of the reduction in oil prices compared to coal; and pet coke compares more to coal than to anything else. But it is already happening.

So coal and pet coke have been reducing prices. And as you know by now, we have made all the contracts for the year. So we will be savings let's say around -- on top of the $40 million from Egypt, $60 million in the rest of the countries.

Now, this is part of our $150 million planned reduction in our cost structure. I think it's quite, quite secure in the sense that these are prices already contracted and they should happen as we advance during the year.

Okay. Then I don't know if you had any -- so maybe I'll address the bond question. Clearly you know -- I don't need to tell you -- that the high-yield market has been quite negatively impacted in the US by what's happening in the energy and mining sectors. As you know, energy and mining represent almost a third of the US high-yield market, and that is the market that we trade in and that we raise capital in mostly, I would say.

So that market has widened quite a bit. In fact, spreads have gone up by almost -- quite a bit, let's say close to 30%, 40%.

So today as we sit here, we don't see a lot of opportunities of doing things. But of course we're always monitoring the markets, and we hope that things will stabilize and normalize down to where we were prior to the last, say, 12 months when those markets widened quite a bit.

Now, this year we do have $1.2 billion of callable bonds, three bonds actually that are callable in April, June. So there's an opportunity there, but we have to see if it makes sense.

In terms of total opportunity to reduce our funding cost, we have $2.8 billion of bonds that are in excess of 9% coupon. So that's clearly an opportunity.

If you take a look at our cash cost of debt today, it's slightly under 6%. So there's clearly -- as we get better conditions in those markets and we are able to take advantage of the opening of the markets, there's clearly an opportunity to reduce our interest expense further. And we will do that, as I said in the initial remarks.

Okay. Sorry, just to follow up on the energy price, the cost of energy, the reduction that you're expecting, that does not include distribution expenses. Is there a potential saving there?

I'm thinking more from the US side. And does that help impact margins in the fourth quarter in the US?

Yes, it's not -- distribution expenses are not included. And it might be -- it will depend on what happens during the year. But it might be -- there might be additional savings on that part in countries where there is a free market these type of fuels.

Okay. Was there a big impact from lower oil prices on distribution expenses in the US in 4Q?

There was an impact, but I wouldn't say it was an outsized impact. We didn't -- it doesn't move that quickly. And because obviously we're talking about refined products and there's definitely a benefit there, but not particularly outsized impact in the fourth quarter.

But for the full year, it was a big number, I mean throughout the system. As Fernando stressed, in markets where there is free markets for those fuels -- like the US, like Europe, like parts of Asia, the Philippines, for instance -- so does that -- I don't know if that addresses the second part of the question.

Yes, yes. No, that's helpful. Great. Thank you.

Lillian Starke, Morgan Stanley.

Hi. Thank you for taking my call. I'd just wanted to follow-up on the three drivers that you mentioned that could expand margins in the US. When you say that we will not see the big headwinds this year, obviously that's -- I suspect you make it in reference to the volume pressure in certain markets, or maybe in Texas more specifically. Would you say that as you go forward, to compensate for that is simply the fact that you are seeing volume recovering in other markets? Or -- I just wanted to understand what would be the benefit of not having the oil headwinds? Is it simply a driver of demand, or is there something else?

Then the other question that I had is, are you importing into the US from any other markets at this moment or not? I mean, you prefer rather to move the volume around within the country first.

Okay, well, thank you for the two questions. For the first question, oil-well cement volumes dropped by more than 60%; in 2015 that I think we were around 65%. So we think we pretty much bottomed out.

As you know, that market is highly correlated to oil well, oil rig counts, and you could monitor that. But there have been relatively reasonable amount of stability.

Now, to your question: are there other markets that are offsetting that? The answer is yes.

Today if you take a look at -- California is now almost the size of Texas in terms of volume consumption, and that's growing very nicely. Florida is getting there in terms of proportionality, and that's also growing very nicely, actually.

And there are other markets that are doing very well. So in that respect, we think that -- could we see more impact in Texas? Could be, could be. But I mean in Texas there are many mitigants to further negative impact of the economy because of the oil market.

As you know, last year, there was a particular law that was initiated that transferred some money out of an oil rainy-day fund, that transferred about $1.7 billion into the highway fund or highway trust for the state. A lot of that amount was not spent last year, so that's likely to be spent this year and beyond.

We expect a similar amount -- not a similar amount, a slightly lesser amount to be transferred this year. So we have some very good support on the infrastructure side.

The other thing is that there has been taxing events at the local level, again to support projects in the infrastructure side. Then the most important thing that we need to remember in Texas is that despite all of this activity the market is sold out. It's actually continuing, albeit at a much lesser amount, continues to transport cement from other markets, neighboring markets into the state.

So in reality the negative impact of losing those volumes at the margin from oil well, the impact on EBITDA has been limited. And if we take a look at what happened to transportation costs in the US, that's more than offset the loss of volume.

Okay, perfect.

Now, in terms of imports, we take a look at it at a system basis and we do sometimes move cement volumes from neighboring areas. But there are no big imports coming from -- across oceans that is meaningful.

I don't know if we mentioned this in the call: it's very important that 97%, 98% of the imported cement into the US is being brought in by producers, which is -- that's very favorable as well. We don't see that, frankly, changing.

As Fernando said, the infrastructure, the market access, and all of that is really in the hands of the local producers. And there is -- it's difficult to see that changing very quickly in the near future.

Okay, perfect. Thank you very much.

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

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

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