Cemex SAB de CV (CX) 2016 Q2 法說會逐字稿

Good morning. Welcome to the CEMEX second-quarter 2016 conference call and webcast. My name is Hilda 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. Good day to everyone and thank you for joining us for our second-quarter 2016 conference call and webcast. We will be happy to take your questions after our initial remarks.

Our solid second-quarter and first-half results demonstrate the resilience of our portfolio, which is largely comprised of high-growth markets that are experiencing attractive supply/demand conditions. Overall, we saw higher consolidated cement and aggregates volumes during the quarter, as well as continued favorable results from the implementation of our value-before-volume strategy.

Year-over-year pricing is higher for our three core products. Sequentially, cement prices increased by 1%. Higher consolidated volumes and prices led to a growth in sales of 6% on a like-for-like basis during the quarter.

Volumes and prices also had a significant impact on our EBITDA generation. In the case of pricing, the impact was of $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 16% growth in operating EBITDA on a like-to-like basis.

Even in US dollar terms, our EBITDA increased by 6%. In addition, EBITDA margin expanded by 1.3 percentage points. All regions reflected increases in margins during the quarter. Both EBITDA and EBITDA margin were the highest achieved in a second quarter since 2008.

Year-to-date free cash flow after maintenance CapEx reached $488 million, a positive swing of $662 million from last year's level as a result from the higher EBITDA generation as well as our initiatives to reduce interest expense, working capital investment, and taxes.

Conversion of EBITDA into free cash flow after maintenance CapEx reached 36% during the first half of the year. In addition, net income for the quarter increased by 81%, reaching $205 million. This was the highest net income in a second quarter since 2008.

Our pro forma debt plus perpetual notes, including, among other items, the utilization of the proceeds from our Philippines transaction, is close to $1.3 billion lower than that at the end of 2015. This represents an 8% reduction from the debt level as of the end of 2015. This is an additional step in our path to reach an investment-grade capital structure as soon as possible.

We are also very pleased with the successful IPO of CEMEX Holdings Philippines, which started trading a week and a half ago. This was the largest ASEAN building and construction IPO and the largest Philippines IPO since 2013. It was also the first IPO after the Brexit referendum worldwide.

Despite the impact of Brexit on markets worldwide and significant volatility, the transaction was 2.6 times oversubscribed with about 90 investors participating on the institutional tranche. Net proceeds from the transaction are $507 million.

Now I would like to discuss the most important developments in our markets.

In Mexico, the economy is expected to continue growing at a stable pace, mainly driven by private consumption. Cement volume growth during the second quarter reflects increased demand, as well as better market dynamics and an improvement in our market position, both sequentially and on a year-over-year basis. Our estimated market position during the second quarter reached levels similar to those observed in the first quarter of 2015.

Regarding ready mix, the decline in our volumes was mainly due to a high base of comparison in the same quarter of last year, which benefited from an important industrial project as well as delays in new infrastructure projects.

Our cement and ready mix prices increased by 2% sequentially. On a year-over-year basis, cement and ready mix prices increased by 18% and 9%, respectively. Additionally, we just announced and implemented price increases for bagged and bulk cement, as well as for ready mix, all of which became effective July 1.

Our EBITDA margin increased by 3.6 percentage points and was the highest second-quarter margin since 2009. Strong commercial activity, as reflected in retail sales data, is supporting the industrial and commercial sector. Additionally, private investment projects related to commercial and industrial developments as well as auto sector projects should contribute to growth in the sector.

In the formal residential sector, commercial banks, which represent about [45]% of total mortgage investment, keep supporting activity with increases in new home mortgage lending and credits to homebuilders. Total investment from Infonavit is down close to 7% May year to date, but should pick up in the second half 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 first six months of this year. Also, some homebuilders have been gradually shifting from low income housing to the mid-level residential segment which is more cement-intensive.

For the self-construction sector, prospects remain favorable given continued improvement in demand drivers, including job creation as well as remittances, which increased by 31% in peso terms during the first five months of the year.

Regarding infrastructure, the communications and transportation ministry investment budget for this year after the second preemptive cut is close to 6% lower than 2015 expenditures. Overall, recent public sector spending cuts heavily target current spending rather than investments. In addition, the budget for highway construction is still about 30% higher than last year's investment.

Although there have been delays, major projects in our pipeline have not been affected and increases in pavement projects have been observed. We expect that activity in the sector should pick up in upcoming quarters. In light of this, we maintain our full-year mid single-digit growth guidance in our cement volumes, a healthy multiple of GDP.

In the United States we continued to see healthy demand pricing traction and margin expansion during the second quarter on a year-over-year basis. Despite an unseasonably warm winter that brought some demand forward into first quarter, cement volumes increased 5%. Pro forma cement volumes, adjusting for oilwell cement, increased 7%. Ready mix and aggregates volumes grew by 6% and 4%, respectively.

Regarding pricing, cement prices rose 2% sequentially, reflecting the April price increase in roughly half of our portfolio. Both ready mix and aggregates prices were up 1% sequentially. We have implemented a 7% cement price increase in Florida in early July and believe it should gain traction.

In the residential sector, housing starts increased 1% in the quarter due to a slowdown in multifamily starts. Single-family activity, the most cement-intensive, grew 7% in the quarter, offset by a 10% decline in multifamily. Market conditions of stronger job creation, low interest rates, high rents, and years of deferred home purchases have resulted in stronger single-family home construction growth this year for the first time since 2011.

Housing permits for the US are down 1% year-to-date June, due again to a decline in the multifamily segment. Permits in three of our four key states -- Florida, California, and Arizona -- continue to expand faster than the country as a whole.

Texas is the exception. The decline in the energy sector has led to a slight contraction in the residential sector in the state, with permits down 2% year-to-date. Overall, the US residential sector continues its steady gradual recovery.

Construction spending in the industrial and commercial sector continues to slow down, reflecting a headwind from energy, agriculture, and manufacturing investment. We estimate national cement consumption for this sector grew in the low single digits during the quarter, reflecting growth in the lodging, office, and commercial segments. National contract awards are down 8% in the year ending May, partially as a consequence of the slowdown in manufacturing.

On the infrastructure side, highway and bridge spending registered an increase of 7% year-to-date May. We have noted a pickup in road and highway spending since 2014 on the back of higher state spending and a new federal highway bill. This acceleration in infrastructure spending has manifested itself in the results of our concrete pipe business, where volumes increased 14% year-to-date.

During the quarter, EBITDA margin expanded by 1.1 percentage points year over year, reaching 16.6%. On the back of mid-single-digit volume growth and pricing traction in all our products, operating leverage was close to 60%. Dynamics in the US continue to support our mid-single-digit volume guidance for 2016 and our medium-term expectations for the business.

In our South, Central America and the Caribbean region, second-quarter cement volumes increased by 2%, while ready mix and aggregates volumes declined by 12% and 11%, respectively. The increase in cement volumes reflects improvements in Colombia, Dominican Republic, Nicaragua, and Guatemala. This resulted in an increase in operating EBITDA for the region of 3% on a like-to-like basis with a margin expansion of 1.9 percentage points.

I will give a general overview of the region and for additional information you can also see CLH's quarterly results which were also reported today. In Colombia, we continued to strengthen our market presence on a year-over-year basis. Cement volumes increased by 2% with prices 10% higher in local currency terms. Sequentially, cement volumes increased by 4% with a 2% decline in prices.

The residential and infrastructure sectors should continue to drive demand during 2016. In residential activity, there has been an increased focus on the middle income housing segment. We expect this segment to be more dynamic during the second half of the year, supported by interest rate subsidies. In addition, the low income segment should be supported by the recently approved 30,000 free home subsidies and other programs.

In infrastructure, there was a slowdown in activity during the first months of the year related to the start of new terms of regional majors and governors. For the full year, we should see growth in the sector with the initiation of new projects including 4G projects.

In light of this, we expect cement volumes in our Colombian operations to grow in the low single digits during 2016.

In Panama, our cement volumes declined by 21% during the second quarter, reflecting a high base of comparison last year when the Panama Canal expansion project was still ongoing, as well as slowdown in the approval process of construction licenses and slow execution of 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 with year-to-date permits growing in the double digits.

In our Europe region, volumes for our three core products increased during the quarter. Operating EBITDA for the region increased by 4% with an EBITDA margin expansion of 0.7 percentage points.

In the United Kingdom, our cement and aggregates volumes grew 11% and 7%, respectively, while ready mix volume remained flat. The increase in year-over-year cement volumes reflects two additional working days, higher sales of CEM II cement, which is blended with fly ash, as well as nonrecurring industry sales.

Uncertainty surrounding the EU referendum affected construction activity in the country. The leave negotiations and their economic implications are weighing down consumers' and developers' confidence, but it is still too early to quantify the impact in our business.

In Spain, our domestic cement volumes increased 4% during the quarter. The residential sector is benefiting from favorable credit conditions and income perspectives, job creation, and pent-up housing demand. Higher numbers of credits for home purchases and housing permits, together with an upturn in home prices should continue to have a positive effect on the sector for the remainder of the year.

The industrial and commercial sector should be supported by increases in offices and retail construction permits issued during the first months of the year.

In Germany, our cement volumes during the quarter decreased 4%, while our aggregates volumes increased 8%. This cement volume decline reflects a high base of comparison as well as challenging market dynamics. Fundamentals remained positive during the quarter and are expected to improve further in the second half of the year.

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. The industrial and commercial sector should benefit from growth in building permits. 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 increased 8% during the quarter, partly due to additional working days and the start of one important infrastructure project in the north of the country, while year-to-date cement volumes increased by 2%. We have broadly maintained our market position with a 2% increase in cement prices as of June versus December levels. In addition, we announced a 4% increase in cement prices implemented this month, with similar price increases in our other core products.

The residential and infrastructure sectors were the main drivers of demand during the quarter. For the full year we have adjusted our growth expectations, given visible delays in starts of a few important infrastructure projects in the country.

In France, our ready mix and aggregates volumes increased during the quarter, reflecting additional working days and despite the impact of floods which affected construction activity. 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 remained flat and decreased 3%, respectively, during the quarter. Regional sequential prices increased by 5% for cement and by 1% for ready mix. Operating EBITDA increased by 6% on a like-to-like basis with a margin expansion of 0.6 percentage points.

In the Philippines, cement volumes remained flat during the quarter due to a temporary slowdown in construction activity surrounding the general elections in June.

In Egypt, our cement volumes increased 7% during the quarter despite lower activity in June due to Ramadan, which started 11 days earlier in the quarter. As mentioned last quarter, we expect our new pet coke grinding mill to translate into about $40 million in cost reductions for this year and $60 million on an annualized basis.

For the rest of the year, the formal residential and infrastructure sectors should continue to drive cement demand. The residential sector should be supported by high-end developments and government's low-cost housing projects. The infrastructure sector should benefit from ongoing projects, such as the tunnels under the Suez Canal and new port platforms in the city of Port Said.

In Israel, our ready mix volumes had a slight decrease, mainly due to our value-before-volume strategy and to delays in starts of some major building projects. The residential sector was the main driver of demand during 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.

And 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 second-quarter report the results of our operations in Croatia, Austria, Hungary, 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 6% and 16%, respectively, during the quarter. There was higher like-to-like EBITDA contribution from all regions in our portfolio.

Our operating EBITDA margin increased by 1.4 percentage points and was the highest second-quarter EBITDA margin since 2008. This margin expansion mainly reflects better volumes and 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 $69 million, excluding about $17 million of the effect of dollarized costs in our operations. As Fernando mentioned earlier, this was more than offset by the favorable contribution of higher prices on our EBITDA.

Cost of sales plus operating expenses, as a percentage of net sales, declined by 1.5 percentage points during the quarter, reflecting our cost reduction initiatives as well as lower energy costs. Our kiln fuel and electricity bill on a per ton of cement produced basis declined by 17% in the same period.

Our quarterly free cash flow after maintenance CapEx was $478 million, $376 million higher from last year's level. This is the highest free cash flow in a second quarter since 2008. This is mainly explained by a higher reversal in working capital as well as higher EBITDA generation, lower taxes, and financial expenses.

Free cash flow after total CapEx was $422 million, an improvement of $359 million compared with the second quarter of last year and the highest in a second quarter since 2006. During the first six months of the year, working capital days declined to 10, a new record from our 23 days in the same period last year. This translated into a reduction in our average year-to-date working capital investment of close to $480 million compared with the same period last year.

Other expenses net during the quarter for $40 million were mainly due to impairment of assets and severance payments. We had a loss on financial instruments of $24 million related mainly to CEMEX shares. Foreign-exchange results for the quarter resulted in a gain of $108 million mainly due to the fluctuation of the Mexican peso versus the US dollar.

During the quarter, we had a controlling interest net income of $205 million, the highest generated in a second quarter since 2008. This higher net income mainly reflects higher operating earnings before other expenses and positive effect in foreign exchange results and lower income tax, partially offset by higher other expenses.

We continue with our initiatives to improve our debt maturity profile and strengthen our capital structure. During the quarter we also issued EUR400 million in eight-year senior secured notes with a coupon of 4 5/8%. We used the proceeds from these notes plus free cash flow and other cash resources to reduce debt. During the quarter we repurchased more than $1.7 billion of our senior secured notes.

We also created a cash reserve for $270 million for further debt reduction. Pro forma total debt plus perpetual securities, adjusted for this cash reserve and the proceeds from the Philippines IPO, decreased by close to $1.3 billion year-to-date.

Our reported leverage ratio as of the second quarter reached 4.93 times from 5.21 times as of the end of 2015. This already reflects the utilization of the created cash reserve. If, in addition, we include the proceeds from the Philippines transaction for debt reduction, the pro forma leverage ratio goes down to 4.75 times.

As you know, total commitments on our credit agreement are currently about $4 billion, including the revolving facility. The spread over LIBOR on this debt is determined by a grid based on our leverage ratio. Now that our leverage has dropped below 5 times, the interest rate we will pay on our bank debt drops from LIBOR plus 350 to LIBOR plus 325 basis points starting in the next interest period.

As per the pricing grid, every 0.5 times drop in our leverage ratio translates to an additional 0.25 basis point reduction in our spread. The minimum interest rate on the grid is LIBOR plus 250 basis points, which is reached when leverage drops below 3.5 times. We are very pleased with the loan of EUR106 million we obtained from the IFC in July to support our sustainable investment programs in emerging markets.

In addition, two days ago Fitch ratings affirmed CEMEX's credit rating at BB- with a stable outlook and upgraded CEMEX's national scale long-term rating to A from A-.

We have included a pro forma debt maturity profile which shows the utilization of the cash reserve plus the proceeds from the Philippines IPO, the IFC financing, as well as a portion of our revolving credit facility to: first, fully redeem our 2019 5 7/8% senior secured notes, which have already been called and will be paid on July 29 and August 15; second, the payment of $353 million of our 2022 9 3/8% senior secured notes; and, third, the payment of short-term bank debt of $155 million related to the Philippines transaction. Pro forma average life of debt is currently at 5.5 years.

In addition, we are pleased with our bonds now trading at pre-Brexit levels. Our 2026 7 3/4% bonds we issued last March are trading at their lowest yield levels since issuance at around 6.4%.

Our maturity profile has no significant maturities in the short term. 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 consolidated cement remains unchanged. We now expect consolidated ready mix and aggregates volumes to grow in the low to mid single digits during the year.

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 $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 $150 million from last year's level. We expect cash taxes for 2016 to be under $350 million.

Regarding financial expenses, we now anticipate a reduction of about $100 million to $150 million for this year. Due to the seasonality of our operations, we anticipate stronger EBITDA and free cash flow generation during the second half of the year.

In closing, I want to emphasize that in a world of declining GDP forecasts, we continue to see profitable demand growth throughout our portfolio. We generate about 70% of our EBITDA in countries with favorable growth prospects and favorable supply/demand dynamics. 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 second-quarter EBITDA as well as the highest EBITDA margin since 2008. We also had the highest year-to-date free cash flow level since 2006, reflecting our initiatives to reduce financial expenses and improve working capital, translating into a record-low 10 working capital days.

I would like to reiterate the messages and targets we have provided since the beginning of the year related to complement our growth in EBITDA and free cash flow and to dampen the effects of the continued volatile environment in our business. We are well on track to reach our cost and expense reduction target of $150 million. We now expect free cash flow initiatives of $500 million to $550 million, reflecting our lower anticipated investment in working capital and lower financial expenses, as I mentioned earlier.

We are updating our debt reduction target for 2016. As of the second quarter, we have reduced debt on a pro forma basis by close to $1.3 billion. Debt reduction for the second half of the year should come from additional free cash flow generation and, subject to closing conditions, the proceeds from pending divestments, including our Croatian operations and the announced sale of some US assets to Grupo Cementos de Chihuahua.

Based on this, we now expect to decrease our debt by $1.5 billion to $2 billion during 2016, up to 13% reduction from end of 2015 levels. This should bring our leverage ratio, as defined under our credit agreement, to below 4.5 times by the end of this year.

We are also increasing our divestments target for 2016 and 2017 and now expect to sell assets for $1.5 billion to $2 billion. So far, we have completed the sale of a minority stake in our Philippines operations, the sale of our assets in Thailand and Bangladesh, plus some additional fixed asset sales. We have also announced the sale of some US assets to Grupo Cementos de Chihuahua and we are working on additional initiatives to achieve this target.

With higher debt reduction this year, as well as our increased divestments target and continued favorable free cash flow generation for next year, we have also updated our two-year debt reduction target. We now expect to reduce debt by $3 billion to $3.5 billion during 2016 and 2017, or up to 23% from the debt level as of December 2015. 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 products.

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

(Operator Instructions) Benjamin Theurer, Barclays.

Good morning, Fernando. Good morning, Maher. First of all, congratulations on the results.

I just wanted to ask two questions; one on the market dynamics in Mexico. Clearly, the growth that we've seen here, especially in cement volumes, is tremendously strong.

Could you share a little bit what you have been seeing for the market: how you have potentially gained, from my suspicion, market share against peers and how do you see the second half-year in terms of potential further market share gains or what you expect in terms of capacity to come on stream or potentially some re-ramping of capacity? That will be my first question and then I have one on financing, but maybe we can take that one first.

On Mexico, Benjamin, we have been describing our strategy since we started early last year and the process that has been happening and the process we were expecting is that we started according to our value-before-volume strategy adjusting our prices for several reasons. In previous years cement prices in Mexico did erode because of market conditions, meaning volumes declining; you remember 2013 was a challenging year for Mexico.

And dynamics are different nowadays. The market is growing. Last year it was a high-growth market. This year it continues growing and we do expect the market to continue growing. Not as much as last year, but it will continue growing.

So capacity utilization in the country is different than what it was in previous years and that has helped us to recuperate prices lost compared to whatever: compared to general inflation, compared to inflation of our own materials in consumption, compared to inflation of other construction materials. So that's what it's going through.

In the first phase and for the whole second half of last year, we lost market share. We were expecting certain loss of market share because of our strategy. And at the end, little by little, we are partially gaining back that market share with the -- and at the same time being able to maintain the prices that we had increased.

So this has been kind of a very extended or long strategy and it is this type of strategies cannot be executed in a quarter or two. It takes time; it takes patience. And, finally, seems that we are getting the benefits of this strategy.

Is this strategy sustainable in the sense of competitive dynamics in the future, which I think is also part of your question? I think it is. I think the market in Mexico will continue growing low single digit, but it will continue growing. And that will be more than enough to absorb additional capacity increases that are to come in the next months or years.

So if we draw figures for the Mexican market in around 40 million tons of consumption, let's say a growth of 3% to 4%, that is a growth of $1 million to $1.5 million per year, which we think will be, again, enough to absorb capacity increases. As you know, we are in the process of also expanding our Tepeaca capacity. That will be one of the capacities to be increased in the next few months.

But again, taking into consideration that general inflation, inflation of our consumptions, the raw materials and other fuels and others, in the last few years -- I'm not referring to this quarter compared to last quarter -- and taking into account also inflation of other construction materials, I think we still have a way to go. I think we still can increase prices for another 15% or 20% in months and years to come. I'm not referring to any specific period of time.

But I feel confident that as long as the market continues growing this low-digit number, the dynamics will continue being supportive for a strategy like ours.

Okay, perfect. Very clear; thank you very much, Fernando.

And then one in regards to the credit agreements. We all know that in 2017 the first part of that renegotiated credit agreement is due with a little over $400 million. Right now it's my understanding you run at about a quarter of your total financing is with banks and I remember you have said in the past that you are looking to have somewhere around 30% of financing with the banks.

So is that something where we should expect some renegotiation or do you plan to repay or pay that $400 million-and-change in 2017 because of cash you're going to have and then issue potential or negotiating something like a new debt with banks going forward in order to maintain that share? Just to get a little bit of a sense of how your financing structure is going to look like in coming years. That would be the second question.

Okay, so there are several things involved in your question, Benjamin. Let me start trying to provide context so I can clarify that.

In our strategy, of course we have been reducing or refinancing the one that is more expensive or that it's the one to be refinanced in the shortest period of time. Now, we have reduced our debt already, but as commented in the forecast of debt reduction for the whole year, in the second half we will be also very active on reducing that debt. Again, the most expensive one.

So by the end of the year or at least a year -- I'm not sure on a specific date -- but I think most of that for the next three years or four years perhaps is going to be bank debt. Are we going to pay the around $400 million that are due in September next year? Are we going to refinance? That will depend on conversations with the banks that we have not started already, because we are concentrated again in other liability management transactions before getting into a position of having almost only bank debt in the very short term.

Now if we continue reducing our most expensive debt, just by doing it proportionately our bank debt will be higher. On the other hand, as you know, we increased bank debt with EUR106 million debt we just added. So the proportion we will be changing because of different reasons.

Would I like to see a larger proportion of bank debt compared to our total debt? Yes, I think that it's -- it would be beneficial for us to improve the sources and the proportion of different sources of financing. But it will not come necessarily only by increasing bank debt. Again, we are working all the angles and, at the end, it will cost a slightly higher proportion of bank debt compared to total debt.

Okay, very clear. Thank you very much, Fernando.

Vanessa Quiroga, Credit Suisse.

Thank you for taking my question. Congratulations on the results.

First of all, I want to ask you about the Mexico volumes. What is your estimate for the industry growth on the quarter on a year-over-year basis, please?

And the other question I have is regarding pricing in Europe. We did see some repricing for the regions, so I was wondering what countries drove this weakness in preferential prices in local currency? Thank you.

In the case of Mexico volumes for the second quarter, we still don't have all the information. All the information is not yet available, Vanessa, so we don't have -- and we are not disclosing because of that -- any information on industry numbers for the second quarter. Whenever we have them, we will gladly communicate those.

And the second question was about --?

Pricing in Europe.

So pricing in Europe, Vanessa, I would say the two main markets where we have seen a little bit weaker pricing in the European markets were Germany. We saw a drop of about 2%. Spain was about a 4% drop. And we have had some other actions in some of the other, but those are the two major markets that were not supportive of the pricing dynamics in Europe.

Are those sequential declines, Maher? And what can you tell us about that competitive landscape there or do you think it was an industry-wide dynamics?

I think that in Germany we've had some competitive dynamics that were taking place and we have had some change in ownership in the positions there, and so it's adjusting as we speak. On a year-over-year basis, we had high base of comparison also, but it's important that we have a new player there and they are adjusting kind of their feel for the market.

But we continue to feel the fundamentals for Germany to be fairly positive and we have seen a lot of immigration, which should be supportive for the residential sector. And infrastructure continues to do fairly well as well. So we think that probably the pricing dynamics that we are seeing are hopefully of a temporary nature, because the fundamentals of the business continue to support very positive pricing dynamics.

And in Spain?

Spain, it's probably mostly a geographic footprint mix. I would say that there again, there's some political uncertainty in terms of -- that is putting a little bit of pressure on the consumer and business confidence, but on the residential side we continue to see very positive behavior.

Industrial and commercial, the nonresidential permits grew quite a bit in 2015 and so there's a tail effect to that. In the first quarter of the year things slowed down a little bit.

And obviously what is -- in terms of the expectations of the political situation there is probably creating a little bit of a headwind in terms of new construction activity.

All right. Okay, thanks, Maher. Maybe if I could also add a question about the working capital improvements. What were the countries or regions that drove the improvements, the meaningful (inaudible)?

Per region? I think in the process we are following, and we had the chance to elaborate in our CEMEX Day, the two countries where we were expecting contributions in this front last year, this year, and next year are US and Mexico. What we have seen in the first half of this year and during the second quarter included is that US and Mexico have improved materially the working capital numbers.

The rest of the Company have also improved their levels. But if you remember, Vanessa, CEMEX, excluding Mexico and the US, already had working capital levels between zero and 10 days. And the upside, we thought, was coming from the US and Mexico and that is what was happening.

So for instance, year-to-date working capital in the US, it's 31 days compared to 46 last year. So that's a material contribution.

On the other hand, Mexico saw working capital this year is 18 days and that compares very favorable to 33 days last year. So we are very pleased with the ambitious targets that our management teams in Mexico and the US, they are set and they are following. Because of the numbers I just mentioned, 31 days for the US and 18 days for Mexico compared to 0 to 10 days for the rest of the Company, I do believe that these numbers will continue being reduced. Meaning improving in the months and, perhaps, years to come.

As you know, US and Mexico are the largest business units in CEMEX, so this change will be very material on a consolidated basis.

Okay, thanks, Maher. Yes, that's impressive, especially given the higher volumes in Mexico in the quarter. Thank you.

Nikolaj Lippmann, Morgan Stanley.

Good morning. Congratulations on the numbers and thanks for taking my question.

I have three questions. The first is on the level of profitability in the US and then some on taxes and the Tepeaca. In the US, if I just take your reported EBITDA number and divide it by the cement volume in the quarter, I get that you make -- cement prices look to be about $15, $20 higher on a ton base in the US. But it looks like, just with this simple analysis, that you are making about $10 less per ton of cement sold in the US.

I was wondering if you could comment a bit on your cost structure in the US; if there's an opportunity perhaps to do some -- to lower cost and increase US profitability. So that's question number one.

Question number two, if you can remind us, finally, of your tax loss carryforward for the US and what we should expect or look after taxes towards the second half this year. Finally -- sorry I have all these questions -- what's the status on Tepeaca in Mexico? Thanks.

What is the what? Sorry.

The status on the Tepeaca expansion in Puebla.

You know, we are doing progress with the project. We still don't have a very specific date, but it should be next year.

We will be, in quarters to come, clarifying when are we going to start up the expansion in Tepeaca, which --. What I can tell you is that our 4 million tons of additional capacity in Tepeaca will come in two phases with a different timing. So the expansion that I am preparing to be ready for next year will be around 1.5 million tons of cement. So that's for your Tepeaca question.

Nick, if I can address the US, first, it's very difficult to compare across regions. And it also has to do a lot with footprint changes in terms of where the growth is coming during a particular quarter. But also very important, the margin dynamics between first quarter and second quarter had a lot to do that we had a volume pull-through from the second quarter into the first quarter.

So kind of looking at the cost structure quarter to quarter is very tricky in the US because of seasonality and because of the pricing dynamics and because of weather. If we take a look at the first half, EBITDA margin was up about 2.7 percentage points year over year. And, frankly, we're expecting it to do much better in the second half of the year.

Also, if you take a look at just the consensus number, so that I don't give you any kind of guidance on the full-year expectations for the US, the first half EBITDA generation this year is very much in line with kind of what we had last year. Maybe there's a difference of half a percentage point. It's around 38%, 39% of the total EBITDA, as expected by consensus.

So the second half of the year will be a significantly higher EBITDA-generating portion of the year and that will reflect, obviously everything else being equal, will reflect an important improvement in EBITDA margin. I think that's the -- those are the factors that are driving that structure. It's really not that we have a structurally different cost structure.

Now, we do have some issues, for instance -- like carrying our import terminals, for instance, that has not been utilized. That's kind of -- until that capacity utilization increases to require us to use those, that will have a headwind on our margin, but that should improve. So I don't know if that addresses your question, Nik.

It does; thanks, Maher. One -- and I don't want to kick the dead horse, but if we think about your original guidance of $1.6 billion, $1.2 billion into this year, with halfway through 2016 -- I know that has been revised and the world has changed. But when we think about -- you don't like giving details on the business lines.

But can you reflect on just where things very different from that initial guidance in terms of margins, cement margins, ready mix margins, aggregate margins? I don't know if you want to comment on that.

I would say that probably -- when we talk about that $1.2 billion kind of more -- I don't want to call it steady state, but say the medium-term expectations for the US's EBITDA generation, I think that volume are probably a little bit lower than expected. And certainly I would say that pricing is probably ahead, but still short of where we would like to be in the next two to three years.

If we take a look at a real-term basis, we are still a good $25 to $30 per ton below where we should be in the US. And we do expect -- like I said, we do expect an important -- based on consensus, the market is telling us that we are following a trajectory similar to last year where we had EBITDA growing kind of mid-30%s. This year the consensus is somewhere around 30% and the pricing dynamics should get better as supply demand tightness in the US market gets more favorable, frankly.

Now, when are we going to get to $1.2 billion? Frankly, we will have to wait and see.

Okay, thanks. Just a reminder, now that your profitability level in the US is increasing if you can just remind us of the tax loss carryforwards you have there and when they start expiring.

Unfortunately, Nik, we have not been disclosing the tax loss carryforwards by region.

Thank you very much.

[Ann Mill], Bank of America.

Thank you very much and congratulations on the good results. One of my questions was on working capital, which I think you've already answered. I guess I would like to ask is if you think this number of days can be sustained in the second half of the year and going forward.

Also, I'd like it if -- to see if you could just remind us again of what the EBITDA sensitivity is to the move in the peso since we've seen quite a bit of volatility there. Then, thirdly, just more generally, in previous US election years, could you -- is there any trends you could comment on in terms of performance in the US in terms of home building or construction activity leading up to the elections or following the elections? Thank you.

Yes, on working capital, the direct answer to your question is, yes, these levels of working capital are sustainable. And I have reasons to believe that for the rest of the year it will continue improving, not just maintaining them.

The main reason is that for some time we have already gone with a global initiative on working capital optimization, which has been executed in most of the Company. As I mentioned, CEMEX has said for US and Mexico is currently in the range of zero to 10 days of working capital and it's been in that range for some time already. And still improving slightly.

In the case of Mexico and the US we started this initiative in the late 2014. You saw the changes in 2015 and those improvements continue this year. Because of the numbers that we are showing in the first half in working capital, 31 days for the US and 18 days for Mexico, again compared to the rest of the Company I think -- I do have solid reasons to believe that the US and Mexico will continue improving and, therefore, contributing to free cash flow in the next -- in the rest of the year and to some extent next year. If we take 31 days or 18 days to a range of zero to 10, which is what we have in the rest of the Company, that will continue being a sizable contribution.

And in terms of the impact of the Mexican peso movement to our EBITDA from Mexico, roughly MXN1 drop from the levels that we are at around now, which would represent somewhere around 5% to 6% move, that would roughly have an impact somewhere between $50 million to $60 million on our EBITDA out of Mexico.

Okay, great.

Did you have another portion of the question? Just remind me of that, please.

It was just about the impact on business in a US election cycle.

Right, right. Look, who knows? We can't opine. All I can tell you is that we feel that there's a lot of momentum in the major drivers. There shouldn't be any impact from elections on the Federal Highway Bill, which is in place for the next five years, and that -- we don't anticipate any changes.

I think we've had fairly good bipartisan support for that. In fact, if we didn't, it wouldn't have happened. And, frankly, I think most central banks around the world are talking about exhausting monetary policy and maybe looking at fiscal stimulus policies. Maybe in the US we are not saying that, but there is certainly an enormous pressure in that direction.

So on the infrastructure side we don't see major changes and on the housing side we continue to see fairly decent legs to the expansion there, driven by continued improvement on the employment side, lower interest rates. Your analysts, actually, at Bank of America Merrill Lynch is one of the good guys that cover that and she has some very good expectations on the residential side. And we are seeing that in our markets.

I would say that the only market, micro market that has seen a softness has been the Houston market. Virtually everywhere else we have seen some fairly healthy growth, even in Texas. If you take a look at Dallas and Houston -- I'm sorry, Dallas and Austin, the markets are doing quite well.

So we think that, in general, most of the drivers of our business are relatively independent -- relatively, I put that in quotation marks because nobody knows what's going to happen and how either of the candidates will behave -- are fairly insulated from that. But, generally speaking, we are reasonably positive either candidate.

Thank you very much and congratulations on the good results again.

Dan McGoey, Citigroup.

Morning, gentlemen. Congratulations on the results. A question on US pricing.

You had relatively mild expansion quarter on quarter in pricing and you were due to implement price increases in 50% of the markets where you operate. Can you talk a little bit about on the take-up and where you had success?

And then also on -- I think you mentioned the Florida price increase effective July 1, which wasn't successful in the first quarter. Can you talk a little bit about what may have changed in Florida that gives you confidence to achieve it in the second half?

Sure. Just, first, year-over-year prices were up, as we've announced, 4% in the quarter and sequentially up 2%. What's really -- just as a reminder, all of our prices that we report are CIF prices for gray cement. In the case of the US and some other markets, the transportation element is an important element. In the US, particularly important because of the distance that our products travel.

So if we take a look at the pricing dynamics in the US, point-to-point on an FOB basis, which is probably the best way to look at it, is about 9%. So that's a very high realization to the announcements that we have made, we believe. And so we continue to be quite constructive and optimistic about the pricing increases.

We have had pricing increases in January. We have had pricing increases in April. The April pricing increases I think we're getting fairly good realization in California, South Atlantic.

Probably a little bit weaker in Arizona. Fairly successful in North and Central Texas; in Houston, for obvious reasons, not particularly good. But in general, I think the April pricing increase held up quite well.

The only incremental pricing increase that we have going into the second half is the July pricing increase in Florida. That's up mid single-digit percent increase that we've announced.

I would like to say that we are cautiously optimistic about Florida. It's a market that is growing quite a bit. Capacity utilization has picked up considerably. We have had some issues in supplying that market; not necessarily ourselves, but the industry. So the questions, we believe, are favorable to absorb that July pricing increase.

If I can follow up on that, Maher, would you say -- each region market is different would you say the bigger impediment to putting through price increases is now growing imports or is it still pockets of spare capacity on domestic producers?

Imports, as a percentage of total consumption, are pretty stable. They represent, roughly, kind of low to mid teens of total consumption. The makeup of importers has not changed in any material way. We continue to have north of 95%, 96% of imports being brought in by local producers.

For us, in our markets within our four key states, 60% of the imports are coming into Texas, which is a sold-out state. So imports have not been disruptive and certainly have not been putting an upper limit on pricing. I think pricing dynamics are very much driven by the competitive dynamics in each one of our micro markets.

If I may add some additional context on pricing in the US, which is what you are asking and I'm trying to better understand, I think, and you know, that we are getting close to full capacity utilization all over the US. That might happen sometime next year and that's why you might observe some additional inputs coming into the market.

But having full capacity utilization -- and we are already very close to full capacity utilization; in some markets we are already at full capacity utilization -- that will be the best context for being able to recuperate prices in the US that we have lost in several years because of all the --. I need to go back to lots of years already to 2007 and even years before. The peak in prices in the US has been $30 to $40 higher than current average cement prices in the country.

So I think that the context for next year full capacity utilization with an upside in prices, at least compared to historical ones, I think it is a very interesting formula and a situation to contribute to EBITDA in the US next year and in the years to come.

Great, thank you.

Rene Kleyweg, Deutsche Bank.

Morning, gentlemen. Maher, just curious if you could put a bit more color on the drag that the carrying the import terminals at the moment, either in terms of what their running costs are or what their, let's say, negative EBITDA is after profitability on imports. Just some sort of context on that would be useful, thank you.

Hi, Rene. First, it's good to hear your voice after such a long -- I guess being away from the business and covering us.

Look, I mentioned that just by the way, frankly. It's not a material number, but it does differentiate us from some of our peers. But, unfortunately, we don't breakout that number. But it's not a material mover, frankly, at the end of the day as far as we're concerned.

I don't mean to disappoint you with the first question that you're asking us publicly like this.

Don't worry. It was worth a try.

Great. Anything else, Rene?

No, that's it. Thanks.

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

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

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