Cemex SAB de CV (CX) 2016 Q1 法說會逐字稿

Good morning. Welcome to the CEMEX first-quarter 2016 conference call and webcast. My name is Sylvia and I will be your operator for today.

(Operator Instructions)

Our hosts 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. Good day to everyone and thank you for joining us for our first-quarter 2016 conference call and webcast. We will be happy to take your questions after our initial remarks.

We are very pleased with our first-quarter results. We were able to deliver strong underlying operational and financial results by remaining focused on the variables we can control. We continue to see favorable results from the implementation of our Value Before Volume strategy.

Sequential pricing for our three core products increased in the low to mid single digits. In Mexico and Colombia we continue to see improvements in pricing with a gradual recovery of our market position.

Higher consolidated prices were the main driver for the growth in sales of 3% on a like-for-like basis during the quarter. Pricing also had a significant impact on our EBITDA of about $132 million which materially exceeded the increase in our costs. This together with a favorable operating leverage in many of our markets led to a 12% growth in operating EBITDA on a like-for-like basis.

Even in US dollar terms, our EBITDA increased by 3%. In addition, EBITDA margin expanded by 1.2 percentage points. Both EBITDA and EBITDA margin were the highest achieved in a first quarter since 2009.

The higher EBITDA generation together with our free cash flow initiatives to reduce interest expense, working capital investment and taxes led to the first positive free cash flow after maintenance CapEx in a first quarter since 2009. In addition, net income for the quarter was $35 million and was positive for the first time in seven years.

Now I would like to discuss the most important developments in our markets. In Mexico economic fundamentals continued to be strong. The economy is expected to continue growing at a stable pace.

Despite the recent budget cuts we believe that the Mexican government will continue supporting housing and infrastructure programs as well as promoting public-private partnerships. During the first quarter there was some moderation in cement consumption especially in infrastructure, the sector in which we have a higher participation. As you know, due to seasonality of our business, our volumes have been on average lower in the mid single digits during the first quarter of the year compared with the fourth quarter of the prior year.

On a sequential basis, our daily volumes for cement plus mortar were practically flat during the quarter. This represents a slight underperformance compared with the industry expected results in the same period.

Our market position was temporarily affected by the price increase we introduced at the end of last year for bagged cement and beginning this year for bulk. However, by March our market position was back to year-end levels.

On a year-over-year basis, our daily volumes for cement plus mortar declined by 10% during the quarter. Our cement prices increased by 8% sequentially and by 18% year over year. We did an additional price increase for bagged cement in March which will be fully implemented during the second quarter.

As we stated last quarter, we expect our growth to gradually be more in line with the markets in upcoming quarters. Our EBITDA margin increased by 1.7 percentage points and was the highest first-quarter margin since 2009.

In the former residential sector, commercial banks which represent about 45% of total investment kept supporting this market segment with increases in credit for home acquisition and for homebuilders. Total investment from INFONAVIT is down close to 8% February year to date and should pick up in upcoming quarters in line with the budgeted 3% growth for the full year.

Housing registers, which are a leading indicator, increased in the mid single digits during the quarter. For the self-construction sector, prospects remain favorable given continued improvement in demand drivers including job creation as well as remittances which increased 46% in peso terms during the first two months of the year.

The industrial and commercial sector is supported by strong retail sales. Additionally, recently announced private investment projects related to commercial development, tourism and the auto sector for the total investment of close to $6 billion should contribute to growth in the sector.

Regarding infrastructure, the Communications and Transportation Ministry budget for this year was recently reduced to a level close to 4% lower than 2015 expenditures. However, the budget for highways is close to 40% higher than last year's investment.

Although there have been delays, major projects in the pipeline have not been affected. We expect that activity in the sector should pick up in upcoming quarters. In light of all 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 US operations gained momentum in the first quarter due to a pickup in residential and infrastructure activity as well as unseasonably good weather in most of our portfolio relative to the prior year. Despite a continued headwind from oil-well cement, cement volumes increased 8% year over year. Ready-mix volumes grew 5% while aggregates volumes were up 6%.

Reflecting the January Price increase in roughly half of our portfolio, cement prices rose 3% sequentially. Ready-mix prices were flat while aggregates prices increased 1% during the period. We have implemented price increases in the remaining 50% of our portfolio in April.

In the residential sector, housing starts increased 15% year-to-date March, driven by low inventories, stronger job creation and household formation. Similar to fourth quarter, single-family construction registered an important increase with double-digit growth of 23% versus 2% for multifamily.

Housing permits for the US are up 7% year-to-date February. Two of our key states, California and Arizona, are outperforming the national growth rate.

As a consequence of the decline in energy investment we have noted some slowing in the residential sector in Texas with permits down 4% year to date. Overall, however, we have a high level of conviction regarding the ongoing recovery in the US residential sector.

Construction spending in the industrial and commercial sector including energy has slowed over the last year, reflecting a headwind from energy and manufacturing investment. Spending in this sector is up 3% year-to-date February, reflecting growth in the more cement intensive lodging, office and commercial segments. National contract awards are down 6% in the year ending February, largely as a consequence of a slowdown in manufacturing.

On the infrastructure side, highway and bridge spending registered an increase of 24% (corrected by company after the call) year-to-date February. While we recognize that part of this growth was due to demand being brought forward in the year given favorable winter weather conditions into a quarter where volumes are typically light we do believe that we have seen a pickup in road and highway spending. Moreover, our concrete pipe business, typically a precursor to highway paving, enjoyed a 25% increase in volumes year over year in the quarter.

The passage of the Federal Highway Bill in December may cause states to spend their own transportation funds more freely knowing that federal money is committed for a five-year period. Contract awards for highways and bridges were up 6% in 2015.

During the quarter, EBITDA margin expanded by 4.4 percentage points year over year to 11.8%, the highest first-quarter margin since 2008. On the back of 9% volume growth and efficiencies operating leverage in the business was high with an incremental margin of 85%. With one quarter behind us, we are optimistic regarding growth prospects for our US business in 2016.

In our South, Central America and the Caribbean region, first-quarter cement volumes increased by 3% while both ready-mix and aggregate volumes declined by 14%. The increase in cement volumes reflects improvements in Colombia, Dominican Republic, Nicaragua and Guatemala.

I will give a general overview of the region. For additional information you can also CLH 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 translates into increased demand for our products. We were able to strengthen our cement market position during the quarter while maintaining our pricing sequentially. On a year-over-year basis, daily cement sales improved by 10% while prices increased by 13%.

The residential and infrastructure sectors where the main drivers of demand growth last year and should continue with a positive trend during 2016. Residential activity for this year 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 the low to mid single digits during 2016.

In Panama our cement volumes declined by 21% during the first quarter, reflecting a high base of comparison last year when the Panama Canal expansion project was still ongoing as well as the end of some infrastructure projects. The year-over-year increase in cement prices mainly reflects a mix effect from lower volumes to the canal expansion project.

During 2016, we expect the residential sector to continue to be the main driver for cement demand. In infrastructure there have been delays in construction licenses for new projects. The situation should improve in upcoming quarters.

In our Europe region our cement and ready-mix volumes remained flat during the quarter. Lower activity surrounding the Easter holidays affected construction in some countries. Regional cement and ready-mix prices increased by 4% and 3% respectively on a sequential basis and in local currency terms.

In the United Kingdom, our cement and aggregates volume grew by 6% and 5% respectively. Our cement volumes reflect higher sales of CEM II cements which contain a high proportion of fly ash as well as nonrecurring industry sales. The decline in ready-mix volumes reflects challenging competitive dynamics especially in the London area.

Although the upcoming Brexit referendum in June remains an uncertainty factor in the short term, demand continued to grow in all sectors but at a slower pace. The residential sector continued to be the main driver of demand supported by economic growth, accelerating home prices and government-sponsored programs.

Activity in the industrial and commercial sector should come from office buildings, warehouses and factories. Also the infrastructure sector should be supported by public and private spending in highways, energy and water network projects.

In Spain, our domestic cement volumes increased 7% during the quarter despite lower activity surrounding Easter reflecting good weather and continued favorable macroeconomic conditions. The residential sector is benefiting from favorable credit conditions with low interest rates, improved salaries and job creation as well as pent-up housing demand.

Higher number of credits for home purchases and housing permits together with an upturn in home prices should continue to have a positive effect on this sector for the remainder of the year. The industrial and commercial sector should be supported by robust increases in construction permits during late 2015 and early this year.

In Germany daily cement volumes during the quarter remained flat. In the residential sector fast-growing immigration and continued favorable conditions should continue driving this sector and more than offset bottlenecks on the supply side and public authorities restrictions.

Regarding infrastructure, although there have been some delays in the granting 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 our cement volumes declined by 6% mainly due to the high base of comparison in the same quarter of 2015 which benefited from better weather conditions as well as the impact of the Easter holidays.

Cement prices remained relatively stable sequentially, adjusting for a product mix effect. For this year, we expect demand growth from the residential and infrastructure sectors. The residential sector should benefit from the increase in starts and permits as well as the support from government programs. Infrastructure activities should accelerate as a result of the recent road construction tenders and other projects expected to start during the second half of this year.

In France our ready-mix and aggregates volumes increased during the quarter. For the remainder of 2016, the residential sector is expected to be the main driver of demand supported by the recent double-digit increase in construction permits and government's initiatives which include buy to let programs and new zero rate loans for first-time buyers.

In our Asia, Middle East and Africa region domestic cement and ready-mix volumes during the quarter increased by 10% and 1% respectively. Improved performance in the Philippines and Egypt fueled cement volumes while Israel and the United Arab Emirates supported ready-mix volume growth.

In the Philippines, cement volumes grew in the double digits during the quarter driven by improved demand in all sectors. In Egypt our cement volumes increased 17% during the quarter. Volumes benefited from continued residential and infrastructure activity as well as improved weather conditions.

Regarding energy, with the start of our petcoke grinding mill late last year we expect to reach our production cost reduction target of about $40 million for this year and $60 million on an annualized basis. For the rest of the year, we expect the formal residential and infrastructure sectors to continue to be the main drivers of demand. The residential sector should be supported by government's housing projects while the infrastructure sector should benefit from supporting projects related to the Suez Canal expansion.

In Israel continuing with the momentum in local construction industry of last year, our ready-mix volume increased by 6%. The residential sector was the main driver of demand in the quarter.

In summary, we had strong fundamentals in most of our operations which translated into positive volume and pricing dynamics which together with our operating efficiencies resulted in stronger EBITDA generation during the quarter. We expect these favorable trends to continue for the rest of this year.

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

Thank you, Fernando. Hello everyone.

It is important to note that in our first-quarter report the results of our operations in Croatia, Bangladesh and Thailand 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 3% and 12% respectively during the quarter. There was higher like-to-like EBITDA contribution from all regions in our portfolio.

Our operating EBITDA margin increased by 1.7 percentage points and was the highest first-quarter EBITDA margin since 2009. This margin expansion mainly reflects better prices as well as greater operating efficiencies. On a year-over-year basis we continued to see the effect of the appreciation of the US dollar versus some currencies in our markets.

The quarterly FX impact on our EBITDA was about $50 million excluding about $17 million of the effect of dollarized costs in our operations. Cost of sales plus operating expenses as a percentage of net sales declined by 1.1 percentage points during the quarter. Our kiln fuel and electricity bill on a per ton of cement produced basis declined by 16% in the same period.

Our quarterly free cash flow after maintenance CapEx was $8 million. This is the first positive free cash flow in a first quarter since 2009. This is mainly explained by higher EBITDA generation as well as lower taxes, working capital investment and financial expenses.

As you know in our cash cycle, cash flow needs during the first quarter of the year are typically high. Despite this we reported a quarterly free cash flow after total CapEx of negative $35 million, an improvement of $322 million compared with the first quarter of last year.

During the quarter, working capital days declined to 11, a new record from 24 days in the same period last year. This translated into a reduction in our working capital investment during the quarter of close to $500 million compared to the same period last year.

Other expenses net during the quarter for $15 million were mainly due to severance payment. We had a gain on financial instruments of $22 million related mainly to CEMEX shares. During the quarter, we had a controlling interest net income of $35 million, the highest income generated in a first quarter since 2008.

We continue with our initiatives to improve our debt maturity profile and strengthen our capital structure. During March we successfully accessed the debt capital markets and raised $1 billion in 10-year senior secured notes with a coupon of 7.75%. With the proceeds we created a cash reserve to purchase in May the remaining 9 7/8% US dollar and euro denominated senior secured notes due in 2019 and intend to repurchase in June a portion of our 9.5% Senior secured notes due in 2018.

In addition, during the quarter we used cash to pay the remaining $352 million of optional convertible subordinated notes which matured on March 15. Also during the quarter we repurchased about $100 million of senior secured notes.

Total debt plus perpetual securities increased by $672 million during the quarter. This includes a non-cash negative conversion effect for $117 million.

Adjusting for the utilization of the created reserve to purchase the notes, pro forma debt plus perpetuals decreased by $324 million during the quarter. Our leverage ratio at the end of the quarter reached 5.17 times from 5.21 times as of the end of 2015.

We have included a pro forma debt maturity profile which shows the redemption of these notes. Pro forma average life of debt is currently at 5.5 years.

Our maturity profile is very manageable with $373 million corresponding to the first amortization under the syndicated bank loan facility in September 2017. We have no significant maturities until March 2018. 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.

For 2016 our volume guidance for cement ready-mix and aggregates both on a consolidated basis and for individual countries remains unchanged. Regarding our cost of energy, on a per ton of cement produced basis we expect a 10% reduction from last year's level.

Guidance for total CapEx for 2016 is about $650 million. This includes $430 million in maintenance CapEx and $220 million in strategic CapEx.

Regarding working capital, we now anticipate a reduction in working capital investment of $50 million to $100 million from last year's level. We expect cash taxes for 2016 to be under $350 million.

We also anticipate a reduction in financial expenses for this year of about $100 million. Based on these expectations and despite continued FX volatility we expect that EBITDA will increase in US dollar terms for the year.

In closing, I want to emphasize that we continue to see profitable demand growth throughout our portfolio. We continue to deliver strong results despite headwinds caused by currency fluctuations and volatility in the financial markets. Our EBITDA grew in US dollar terms and was the highest first-quarter EBITDA as well as highest EBITDA margin since 2009.

We also had the highest first-quarter free cash flow level in seven years, reflecting our initiatives to reduce financial expenses and improve working capital translating into a record low 11 working capital days. For this year we announced new targets to complement our growth in EBITDA and free cash flow and to dampen the effects of the continued volatile environment in our business.

First, we announced a cost and expense reduction target of $150 million. This includes $100 million coming from savings in energy and $50 million from operating efficiencies.

Second, we are updating our free cash flow initiatives and now expect them to reach $400 million to $450 million, reflecting our lower anticipated investment in working capital. This amount is broken down as follows: $100 million in lower CapEx, $100 million in lower financial expenses, $150 million in lower taxes and a reduction in investment in working capital of $50 million to $100 million from last year's level.

Third, we are targeting to pay between $500 million to $1 billion of debt this year and up to $2 billion by the end of 2017. And fourth, we expect to sell assets for $1 billion to $1.5 billion during 2016 and 2017. We are highly confident we will meet this target and currently we are working on different initiatives to achieve this including a potential sale of our minority stake in some of our assets in Asia as we have already communicated to the market.

We will keep you updated on the progress of our different initiatives. Thanks for your attention.

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

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

(Operator Instructions) Adrian Huerta, JPMorgan.

Thank you, good morning everyone and congrats Fernando and Maher on the results. My first question is just on this last point that you were discussing on the free cash flow initiatives.

Just to be clear, what changed from what you said last time on the Investor Day, it is basically just the reduction on working capital investments of -- of $50 million to $100 million. That was basically the only change from what you said on the Investor Day, is that correct?

It is correct, Adrian.

Thank you, Fernando.

We said flat to marginal investment and now we're saying we will have an inflow of between $50 million to $100 million.

Perfect. And then my other question is if it's not too early to tell us a little bit the traction that you have seen on the price increases that you announced in Mexico during your Investor Day and what your peers have done as well over the last month?

Well, it might be early Justas you said but so far so good. So we think it was successful and as we have done it since about mid last year we will continue our pricing strategy in Mexico.

Perfect. And then just the last question on volumes in Mexico. I mean I saw your bullish tone on spending the increase on highway budget for this year and also residential, but if you look at the last three quarters for the industry cement volumes have been down on a sequential basis for the last three quarters.

Likely going to increase in the second quarter at least benefited by the Easter effect. But what else gives you really confidence that we will see volumes marginally improving on a sequential basis for the industry in the coming quarters?

Well, let me comment, Adrian, you know that last year the highest growth in the market happened during the first quarter. And since then even though market continued growing the pace is lower than early stages of last year. That is the trend from first quarter to fourth quarter in 2015.

Then the adjustment for the first quarter of 2016 tends to be quite a natural seasonality pattern. If you check on volumes in Mexico in the first quarter compared to fourth quarter the previous year, it always -- it is always a reduction. I think the only exception being first-quarter 2015 compared to 2014 which again first-quarter 2015 was an exceptional quarter.

But normally we consider that a normal part of the cycle. It's always you know about mid-single-digit decline again first quarter compared to the fourth quarter of the previous year.

And if I could add --

The issue is that it's been down as well in the last two quarters as well sequentially.

I would like to also add, Adrian, I mean going forward we think the housing market is an area that probably slightly underperformed in the first quarter because of what INFONAVIT did. As you saw from Fernando's comments the amount of financing that has been extended was down. Their budget for the full year is plus 3% and historically, frankly, they always got to meet or exceed that budget.

So we are expecting that to improve during the next two to three quarters. And the other thing that we're very encouraged by in the housing side, also, is the commercial bank lending which we feel we have a bigger exposure to. And for the first couple of months -- and of course just to clarify, commercial banking represents almost half, it's around 45% of the funding for that segment.

And for the first couple of months of the year, bank mortgages grew by close to 28%. And bank lending had been growing in double digits over the last four years almost.

So we see that continuing as well. And that's what gives us the confidence that at the end of the day we are going to see attracted positive growth in our volumes as you see from our guidance, mid-single-digit growth.

Perfect, thank you Maher and Fernando. I appreciate it.

Eric Neguelouart, Bank of America Merrill Lynch.

Thank you. Hello Fernando and Maher.

I have some questions for you. So how many days do you believe you could reduce your total working capital cycle? And would the improvements come from the US and Mexico or where do you see them?

Well, the first question is kind of difficult to answer because we have been in this initiative of optimizing the working capital for some time now. And every year we have set new records and the 11 days in the first quarter it was better than I was expecting, slightly better than I was expecting.

How far we can go well? We have regions with zero, close to zero working capital investments. So that's a good reference.

Now where is this improvement coming from? It is not only but it's mainly from US and Mexico. The two largest business units we have and they are engaged and they have very comprehensive and pretty well defined working capital optimization plans, programs.

So can we go even below 11? Yes, we might. We have not done it before.

We didn't do 11 before. So it's something we're trying and we believe that it makes sense to do it.

As Maher mentioned we have reduced our working capital balance this quarter compared to first-quarter 2015 by almost $0.5 billion. So we will continue with the effort and hopefully we will continue improving.

Okay, what are the current levels for Mexico and the US, last question?

The current levels?

Working capital days.

Working capital days. We haven't given that level of breakdown, but for both the US and Mexico they are quite a bit higher than our average. So that's where the opportunity I would say and in SAC the opportunity is probably Colombia.

Okay, great. Thank you very much.

Benjamin Theurer, Barclays.

Hey, good morning Fernando and Maher, first congratulations on that result, especially free cash flow, that was impressive. Now clearly one of the big drivers, and we've been seeing it was that focus on value before volume and price increases, etc., so you've mentioned you did price increases on the upper half of your markets in the US.

Can you just give a little bit of an indication of the size of the price increases and I know very early still but maybe a little bit of what you're seeing in terms of traction, etc.? And lastly, on the price increases you've been mentioning that Florida has been always a little more difficult to get prices through.

How is the environment right now in Florida in terms of price increases? So that would be the first question. Thanks.

Yes, thank you, Ben. Well first, just to kind of summarize, as you saw our pricing increase during the quarter was 3% and if we were to take a look at it sequentially it's probably a little bit higher. And that's reflective of the probably 70% realization I would say of the mid-teen pricing increases that we announced in January.

The exception to the January pricing success as we said was Florida. We've probably gotten half of what we expected in Florida.

Having said that, the market has really tightened. This is the first time that we experienced the pricing not going through fully in January for Florida. But supply-demand dynamics in Florida have tightened quite a bit and you know that has caused us to actually announce a second pricing increase for beginning of July for which we have quite a bit of confidence that it will go through just because of what's happening in the market, the supply demand dynamics.

Now the other pricing increases that are coming in in April are going to be California, Arizona and East Texas. Very high conviction on California, Arizona. Texas we're fairly positive on East Texas.

West Texas, obviously, I mean that's the market that has been hardest hit. And we think that probably all of the markets are going to do well. We're a little bit cautious on Houston.

That's the market that has had kind of a derivative effect of the oil sector. But generally speaking I would say we have quite a high conviction on California and Arizona and the second pricing increase in Florida which is in July.

Okay. The size of those is going to be very similar to what you've done in January I assume, right?

Yes, mid-teens, exactly, mid-teens. And of course like I said in the markets where the pricing increases have taken place we've gotten on average about a 70% realization.

Now the second pricing increase in Florida is not going to be of that magnitude. It's going to be roughly half of that which complements what happened in the January pricing increase.

And Ben, in general in our markets if you take a look at the volume dynamics, you know they are very conducive. I mean many markets are getting to very tight capacity utilization levels.

And California we had particularly bad weather compared to the rest of the market, so we would expect things to be even better, frankly, hopefully. Again nobody knows but if weather holds better in the second quarter.

Okay, perfect. And then just a little bit around UK and obviously the talks around Brexit, the uncertainty.

Have you been seeing a significant slowdown in some of the activity, be it on the industrial commercial side or be it more on the public spending side just around the vote which is upcoming in June? And how long do you think this might be some of an overhang concern and just affecting what you may be able in terms of volume expansion especially over there?

Well as I mentioned, Ben, that we have seen a deceleration happening in the market. We are not getting into negative growth but clearly there's a deceleration. Very difficult to guess what is going to happen.

I think if it happens that our estimates of GDP reduction of 1%, 1.5% for the country as a whole, I'm not referring to our sector in particular. And now in our sector in the UK as well as in some other countries in Europe there is a deficit in house in which I don't think that part will be affected materially.

Yes, I guess housing is fine. It's more the industrial, commercial which might be affected from trade and obviously the government spending.

Exactly. I think more the industrial and commercial part. And how long this is going to last, well, let's see what happens in June.

Perfect. Well that will be all and congratulations again. Thank you very much.

Marcos Assumpcao, Itau BBA.

Good morning everyone. Congratulations on the results.

First question is related to the use of proceeds for the money of the sale of Croatia, Bangladesh and Thailand. Are you planning to use that also to prepay more expensive debt, maybe continue to prepay the 9.5% debt of 2018?

Second question is related to Colombia. Given that we saw a recent local currency appreciation are you seeing probably your price or your Value Before Volume strategy getting close to a limit there?

On the first question the answer is yes. As you know we are using all the cash we have available, either divestments or cash we generate in our operations, to reduce our debt.

That's the plan we have been announcing since mid-2014. So the answer is yes.

Now we still don't get the proceeds from Croatia. We are in the legal process and we are about to close Bangladesh also. But whenever we receive the proceeds those proceeds will be used to reduce debt.

On your second question, Marcos, on the Colombia, we have not had additional pricing increases as you know since the beginning of the year. And what we're experiencing is the momentum that we're seeing from prior pricing increases.

But having said that, volumes on a year-over-year basis as you saw have done quite well. And we continue to see strengthening in the market. And you know as we've said I think Jaime Muguiro said in our CEMEX Day that we want to be responsibly gaining market share and market position in Colombia and that's what we continue to do.

And if you see both on a year-over-year basis and sequentially, we have done so. So that's what we intend to do.

Okay, just to follow up here, but with the currency now below 3,000, are you seeing increasing risks of imports in Colombia or not necessarily?

No, I mean that's really not an issue. The currency issue is not really driving this. It's really the pricing strategy and what we think pricing should be in our markets.

Okay, perfect. Thank you very much. Thank you Fernando, thank you Maher.

Vanessa Quiroga, Credit Suisse.

Operator, maybe we can go to the next question and maybe Vanessa will catch up with us.

Adam Thalhimer, BB&T Capital Markets.

Good morning, congrats on the strong start to the year. In the Texas market, Maher, how big is residential for you? What percent of the mix?

Residential is I would say it's probably in line with the rest of our markets, frankly. I mean there is no big overweight related to Texas.

It's representational with our market. I mean there's no particular overweight in residential.

Okay. You just called out the weaker permits recently and I'm just wondering if there's some offsets there on the other facets of demand in Texas.

I mean actually I was meeting with our head of the Texas operation just probably about two weeks ago. And I'm using his words, okay, Dallas and Austin booming, Houston slowing down.

So I think that's really what's happening. And unfortunately our exposure is not as big in Dallas as we would like to be compared to Houston. But those markets continue to do, frankly, very well in all segments and Houston is slowing down a little bit.

Got it, okay. And then can you talk a little bit about in Mexico where the big cement players are in terms of capacity utilization, just a little bit more commentary on kind of the supply-demand in that market?

In general terms in several regions capacity utilization is very high not to say 100%. A couple of players, including ourselves, we do have excess capacity in some regions. But I think in general terms in the market capacity utilization is high.

Okay, thank you.

Mike Betts, Jefferies.

Yes, could I just kind of follow up initially on the Mexico question and ask you were down 13% in Q1 in volumes. What do you estimate the market was down?

And we talked at the Investor Day about competitive for funny behavior by one competitor. I got the impression that that had changed but did that change towards the end of Q1?

Well, it's difficult to say, Mike. But I think on all the process that we have followed on our pricing strategy in Mexico I think nowadays the process it is executed in much more smooth way than early stages, meaning third quarter, second or third quarter of last year.

But, yes, we do see changes in the process that make us believe that we are entering -- allow me to call it in a kind of a second phase of our pricing strategy in Mexico. The first phase has been the most challenging one mid last year and now little by little seeing the strategy is working.

We started losing market share in early stages and we have already stopped losing it with some changes because of the seasonality impacting first quarter. But in the last days or during March and the days we have gone in April we are encouraged because of the recovery we have had in market share.

And as you may know in a country the size of Mexico, with the type of strategy that we put in place, this takes time as it took in Colombia. But in Colombia you can clearly see that after increasing prices in a significant way we have already gained back market share. So that's what we believe is starting to happen in Mexico.

And Mike, if I can add also to Fernando's comments I think it's really important in this quarter to take a look at what was happening sequentially. I mean that we are reporting as you saw a 7% decline. We are rounding up, it's a little bit under that.

And if you consider the business days adjustment, we had three less working days. So if we take a look at the change on an average daily volume basis, which gives you kind of a better like-to-like comparison to the fourth quarter, that change sequentially is a drop of 1.6%. It's 1.5 percentage points drop.

Now if we add to that a very important element which we believe our competitors when they talk about cement volumes they talk about cement and water. Water is kind of a lower grade of cement but it's part of our products. We typically when we report volumes we are reporting gray cement.

The industry reports pretty much everything. So when you include that into the comparison we're almost flat sequentially with very healthy pricing improvement or let's say healthy pricing improvement. So I think that's probably a better way of looking at it.

I think January suffered a little bit because of the pricing increases that we announced in December and early January. And then our average daily volumes, frankly, recovered quite nicely. In February and in March we were almost back to end-of-year levels, which again making the point that Fernando was making, it's a process but even quarter to quarter we think we were doing well.

Now the numbers are not out on the industry as you know. I think one of our competitors just reported yesterday or today. We think we will underperform a little bit but that's part of that slow recovery process. And we think that in the next few quarters we will grow in line with the industry.

Understood. Thank you for that and apologies for sticking on the competitive situation but in Europe, and this is my final question, I just wanted to follow-up on the challenging competitive dynamics especially in London.

The question really is what is causing that? Is it new capacity? Is it changing behavior, etc.?

And then also I guess I was surprised by I think it was a 5% decline in local currency terms in prices in Poland. What was behind that? Thank you.

In the case of London that is not related to additional capacity. There has been some impacting in competitive dynamics in the country.

As we mentioned the main part was different but there is nothing structural related to it. I don't have any additional comment on the dynamics in the UK.

Okay. And Poland?

Poland I think that there's a bit of a mix effect that is taking place and that is I would say primarily is the reason. We've had --

And I presume --

We've had actually pricing increases in the beginning of the year on the order of low single digits. But if you take a look at prices sequentially in Poland, they've remained relatively stable which is really the fairest way of doing it. And like I said we did announce pretty much across the board in all of our products in Poland, both bagged and bulk, kind of low single-digit pricing increase.

Understood. And I assume --

Sequentially I think, Mike, the important thing is that sequentially, which is the better way of looking at pricing dynamics, we are seeing stable pricing increases. And the pricing increases that were put into effect were put into effect starting this month. So we'll have to wait and see how that unfolds.

And I presume the stable pricing in US aggregates was mix as well?

Yes.

Perfect. Thank you very much.

Yves Bromehead, Exane BNP Paribas.

Yes, hi there thank you for taking my questions. I just wanted to know if you could update us on the pricing environment in Egypt? I see that in local currency the prices are down 11%, so I just want to get a feel of how that will go in the next few quarters.

And then maybe if you could update us on the German market, what are you seeing there in terms of immigration and residential activity. And finally in Texas there was some severe rainfall in the past week.

Could you tell us if that had an impact on your activity levels? Thank you.

Let me start with the -- when you look at the prices sequentially in Egypt in local currency terms, first quarter is being compared to last quarter it is flat or it's increasing slightly by about 1%. So it's not declining further.

And then when you combine that with volume growth, the market is growing more than what we were initially expecting, volume grew 17% when comparing it to same quarter last year and it continues growing in April. So most probably that will end up also impacting a better pricing in the country in the months to come.

And on Houston, I mean we did, I think we had two days of shutdowns and I believe we're back up fully operational. Obviously it's going to take some time for things to dry out and get back to activity.

But I have to tell you that the business down there has been quite good so far. So we'll see. We'll have to wait and see what happens as a result of the effect in Houston in particular, okay?

Okay. Then just on Germany?

Germany, we will probably continue to see I mean a positive impact of what's happening there both from the inflow of folks and the need for housing. And the other thing that we mentioned in the early discussion of Germany is the spending that is expected to take place on the highway system. That should improve.

So between housing and infrastructure, demand continues to be good. Pricing has been fairly good as well and the budget for transportation I think was up about high single digits 9%. So we do see fairly decent drivers for continued demand supporting the pricing increases that we have put into place, low single-digit levels.

Okay great. Thank you very much.

Todd Vencil, Sterne.

Hi, thanks very much, good morning, guys. Drilling down just a little bit more on that Houston, I'm glad to hear the comments about the strength in Houston. You had mentioned that maybe it was less certain or the price increases that went through there, I can't remember exactly the language you used Maher.

Can you talk about what the range of outcomes on Houston is? I know it's early, but I mean are we talking about possibly no price increase or just only a smaller percentage of the announced level?

You know, I would say it's tough, especially because of the weather that has taken place. That's really thrown a little bit of an uncertainty there because I mean again like I said our operations are okay but it takes time to dry out and we have to wait and see. And it was pretty, it was a pretty big drench.

As you know better than most, right? So we'll have to wait and see.

I think we're cautiously optimistic. We're quite optimistic, let's say we're quite comfortable with the other markets. But Houston we have to wait and see.

Good. Okay, thanks. Then on the oil-well cement comment you talked about in the US that it was a continued drag in the quarterback I guess on a year-over-year basis. Can you talk about what your sort of levels are on oil-well cement in the US and whether you feel like you're at kind of now at a stable level sequentially or not or are we still falling off?

You know, I mean look, the drop is big but it's on a very small percentage. So frankly the impact is not moving the needle. I would say the only impact, well, I shouldn't say the only impact, but an important impact not to be forgotten when you take a look at our pricing is the fact that we lost a little bit more volume in oil-well cement.

The loss in oil-well cement would have -- or let's say without the loss in oil-well cement, our prices would have been about a percentage point higher than where we reported. But yes, we do think that the majority of the decline is behind us by now.

Good, thank you for that. Final question, you talked about one of the things I thought was interesting was in nonresidential in the US you talked about kind of a handoff if you will from with weaker demand on the energy manufacturing side but stronger demand emerging on the commercial and lodging side.

You said I think overall demand there was up 3%. Did I hear that right? And how is that balancing out and how do you look at that handoff balancing going forward in non-res?

Non-res, I mean if you include energy our expectation for the year is kind of a flattish performance. We continue to believe that the part of our business that is doing have done well and expect to continue to do well is residential.

And, frankly, public infrastructure in particular we think should start to get better. And as Fernando mentioned in his remarks I mean the passage of the Highway Bill we believe in and we are starting to see it, it's getting states to be let's say much more flexible with their project announcements and spending, using their own funds in expectations of getting funding at the federal level.

And on the non-res side I guess you want to look at the bright side, at least you're seeing some offsets to the obvious declines that people would have expected you to see on the energy manufacturing side. Is that fair?

I would say so.

Offset some of the commercial?

I would say so. The employment numbers they are not out of the ballpark or anything like that but we continue to see improvements there. And so we should continue to see kind of mild growth there, particularly I would say in office and hotels.

Good, thanks, Maher.

Lillian Starke, Morgan Stanley.

Hi, good morning and thank you for taking my call. I just have one question on Mexico and one on the US. On Mexico you mentioned that you expect around mid-single-digit growth for the year.

So I just want to understand where would you see the growth coming from considering the 13% drop this year -- sorry, this quarter. Roughly you would require around 10% volume growth over the next quarter just to meet that mid-single-digit level.

And then on the US, my question was if we look at the volume and pricing that you had across all products, that growth rate is above what you have reported as the consolidated level in the US in terms of year-on-year growth. So I just want to understand if there was any other sort of revenue that you have to adjust for that reduced the consolidated number?

Regarding your question in Mexico, because our guidance implied year-on-year growth for this remaining quarter it's about 9%. It is an aggressive target but the comparison of the first quarter of this year to first quarter last year as we have commented last quarter, sorry, first quarter last year was the strongest quarter of 2015. So from now on comparisons will get easier.

On the other hand, there are we believe like four additional days in the remainder of the year compared to last year: three of them in the second quarter and the rest I think it's about it's the last quarter. That will make a difference also.

And as we commented, we see an increased pipeline of projects in the industrial and commercial sector because of delays that we had in the first quarter. So those should start in second quarter. So that's why we believe it is achievable.

Okay, perfect. Thank you.

And on the US could you just -- I didn't quite understand the question fully. Could you maybe state it again?

Sure, sure. You had revenue growth of around 6% year on year and when we look at the combination of volume to price across the product the rate would be above that 6%. So I just wanted to understand what else was there that reduced the consolidated revenue level in the US to a growth rate of 6% whereas in the other products the combination of volume and price would have exceeded that 6% growth rate?

Right. I'm actually quite glad that you are asking that question because the big mover there that we typically don't track is our pipe business and that has been, volumes there are up year over year 25% and pricing has been fairly attractive in that market. And as you know, that is kind of the first leg of typically of infrastructure.

So it's also -- that's a good indicator of what's likely to happen on the infrastructure side. So I would say that's probably, if you're looking at the revenue and EBITDA generation that is probably the big driver that is complementing what's happening in our other products that we report volumes on.

Okay. Perfect. Thank you very much.

Sir, you have no questions at this time. I would now like to turn the call over to Fernando Gonzalez for closing remarks.

Thanks. In closing I would like to thank you all for your time and attention. We look forward to your continued participation in CEMEX.

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

Thank you for your participation on today's conference. This concludes the presentation.

You may now disconnect. Good day.