Cemex SAB de CV (CX) 2016 Q4 法說會逐字稿

Good morning. Welcome to the CEMEX fourth quarter 2016 conference call and webcast. My name is Richard, and I'll 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 call over to your host, Fernando Gonzalez. Please proceed.

Thank you. Good day to everyone, and thank you for joining us for our fourth quarter 2016 conference call and webcast. We will be happy to take your questions after our initial remarks.

2016 was a very good year for CEMEX. Despite the continued volatility and uncertainty in the markets, we were able to deliver strong underlying operational and financial results by remaining focused on the variables that we control.

Our consolidated cement and aggregates volumes grew during the year. Our consolidated prices in local currency terms for our three core products increased as well, reflecting the success of our pricing strategy and exceeding input cost increases. Overall, our cost increases were contained, as we delivered on our cost reduction program of $150 million and benefited from operating leverage in several markets.

As a result of our favorable volume and price performance, during 2016 sales increased by 4% while operating EBITDA grew by 15%, on a like-to-like basis. The impact of higher pricing on EBITDA generation for the full year was close to $500 million, materially exceeding the increase in our costs.

This, together with a positive operating leverage effect in many of our markets, led to an EBITDA margin expansion of 1.7 percentage points. All regions reflected margin improvements during the year. We achieved the highest EBITDA since 2008 and the highest EBITDA margin since 2007.

Our free cash flow after maintenance CapEx was close to $1.7 billion, almost double last year's level. This was driven by higher EBITDA generation, as well as our initiatives to reduce interest expense, maintenance CapEx, and working capital investment.

In the case of working capital, we achieved negative 4 working capital days during the fourth quarter and ended the year with 4 average days.

Conversion of EBITDA into free cash flow after maintenance CapEx reached 61% during 2016.

In addition, net income increased tenfold, reaching $750 million for the full year, and was the highest net income generation since 2007.

We have announced asset sales for about $2 billion during the year: of which, slightly above $1 billion closed during 2016; $500 million related to the US concrete pipe business closed two weeks ago; and the rest should close during the first quarter. These assets were sold at double-digit multiples, on average.

In line with our communicated targets, we applied the proceeds from our free cash flow generation and asset sales mainly for debt reduction. Our total debt is close to $2.3 billion lower than at the end of 2015. This represents a 15% reduction from the debt level as of the end of 2015 and a 25% reduction since the end of 2013.

We are pleased to see our discipline and consistency in reducing our leverage is translating into an improvement in our credit ratings. Last week, Standard & Poor's upgraded our corporate credit rating to BB- for its global scale and to mxA- for its national scale. This upgrade should allow us to access the institutional Mexican fixed income market.

Now, I would like to discuss the most important developments in our markets. In Mexico, we ended 2016 with good volume performance in all of our market segments, except infrastructure. We also had favorable pricing dynamics, with our cement and ready mix prices increasing by 18% and 8%, respectively, during the full year. Effective January 1, we announced a 12% price increase in bagged cement and a 15% in bulk cement and ready mix.

Our operating EBITDA margin reached 36.4% during 2016, an increase of 2.4 percentage points and the highest margin in seven years.

The industrial and commercial sector was the main driver for our cement volumes during 2016 and is expected to continue growing this year, albeit at a slower pace. Private investment projects related to commercial developments are being supported by strong private consumption indicators.

The formal residential sector benefited from the banking sector's double-digit growth in mortgage investment and stability in INFONAVIT's funding, despite a decline in housing subsidies. For 2017, we expect banks to continue expanding credit to this sector and that INFONAVIT's mortgages will increase participation in higher-value and more cement-intensive home investment, as stated in their five-year financial plan.

Regarding the self-construction sector, prospects remain favorable given continued improvement in demand drivers, including job creation, consumer credit, as well as remittances, which increased 28% in peso terms during 2016.

Infrastructure activity experienced a mid-single-digit decline during 2016 and is not expected to improve this year. The physical investment budget for this year shows a decline on a year-over-year basis. In light of this, during 2017 we expect our cement volumes to be flat to growing in the low single digits.

In the United States, cement and ready mix volumes on a pro forma basis including our west Texas operations fell 2% and 4%, respectively, while aggregate volumes were up 1% on a year-over-year basis. After a strong first half of the year, we saw a general slowdown in consumption due to the US elections.

Cement prices rose 5% in 2016 on a pro forma basis, excluding our west Texas operations. For 2017, we announced price increases in Florida, Colorado, and North Atlantic starting in January and in California, South Atlantic, and east Texas starting in April. These price increases were in the high teens in all regions, with the exception of Texas which was in the high single digits.

Fundamentals in the residential sector continued to improve during the fourth quarter, with housing starts increasing 9%. For the year, housing starts were up 5%, with the more cement-intensive, single-family starts up 9%. Outlook for housing continues to be healthy, underpinned by expected wage growth, job creation, healthy consumer sentiment, and improved lending conditions.

In the industrial and commercial sector, construction spending for the cement-intensive segments was up 1% in 2016, with strong cement consumption in office and lodging offset by drops in energy, agriculture, and manufacturing.

On the infrastructure side, streets and highways spending picked up during the fourth quarter after weak pre-election performance. National streets and highways spending for the fourth quarter was up 6%, while cement consumption for this sector is estimated to be 1% higher.

During the quarter, EBITDA margin expanded by 2.8 percentage points year over year, reaching 20.8%. Full-year EBITDA margins reached 16.9%, the highest level since 2007.

Operating leverage for the full year was slightly above 75%.

For 2017, we remain confident in the sustained recovery of our business. With healthy consumer and business confidence, we expect the residential and industrial and commercial sectors to be the biggest contributors to growth. Infrastructure will benefit from the FAST Act as well as infrastructure initiatives in certain of our key states.

Dynamics in the country continue to support our medium-term growth expectations, especially as it relates to infrastructure. For 2017, we expect 1% to 3% volume growth in cement, ready mix, and aggregates.

In our South, Central America, and the Caribbean region, cement volumes during the year increased by 1%, while yearly ready mix and aggregate volumes declined by 13%. Cement volumes improved in the Dominican Republic, Nicaragua, Guatemala, and Haiti.

Operating EBITDA for the region declined 1% on a like-to-like basis, with a margin expansion of 1.3 percentage points.

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

In Colombia, we strengthened our market presence during the first months of 2016 and maintained it during the rest of the year. Our cement volumes for the full year remained flat, compared with an expected mid-single-digit decline for the overall industry.

The decline in sequential and year-over-year cement prices reflects softer demand dynamics in the country as well as a more difficult competitive environment. For the full year, cement prices were 1% higher in local currency terms, while ready mix and aggregates prices increased by 4% and 11%, respectively.

Regarding the residential sector, after a low-single-digit decline in activity last year, we anticipate a better performance during 2017. The investment budget of the housing ministry is expected to grow almost 18%. In addition, as of today there are over 100,000 available housing subsidies under different government programs.

In infrastructure, during 2016 we saw lower-than-expected execution of projects due to the transition of new local and regional administrations, as well as a delay in execution of 4G and PPP projects, which resulted in a decline in cement volumes to this sector. For this year, infrastructure activity should grow as local and regional projects pick up and the cement-intensive phase of the 4G projects accelerates.

Cement volumes in our Colombian operations are expected to remain flat during 2017.

In Panama, our cement volumes declined by 14% during 2016 -- adjusting for volumes to the canal project, the decline was 8% -- and cement prices grew by 2% in this period.

The residential sector was the main driver for cement demand in the country. For this year, continued favorable activity in housing projects sponsored by the government, as well as middle-income housing developments, should offset an expected decline in demand from the high-income segment.

We have seen increased activity in the infrastructure sector from different projects, including the second line in the Panama City subway. Additional projects are expected to start during this year.

In our Europe region, fundamentals in our portfolio remained stable during 2016. Domestic-gray cement volumes remained constant, while our ready mix and aggregates volumes increased 2% and 3%, respectively, during the full year.

Quarterly regional cement prices are up by 1% both on a sequential and on a year-over-year basis. For the full year, cement and ready mix prices increased by 1% and declined by 2%, respectively.

Regional operating EBITDA margin for 2016 improved in 0.2 percentage points, to 11.6%.

In the United Kingdom, we achieved the highest volumes in our cement business since 2007. Cement volume growth during the quarter and the full year was driven by increased demand from all sectors. In addition, cement volume growth during the year benefited from higher sales of blended cement that resulted from domestic fly ash scarcity.

The recently announced GBP23 billion national productivity and investment fund will, if fully implemented, result in around 2.5 extra percentage points of cement consumption growth in 2017, with potentially a larger impact in subsequent years. However, due to continued uncertainty around Brexit implementation and decelerating GDP growth, we expect a slight decline in our cement volumes during 2017, in line with industry prospects.

In Spain, political uncertainty for most of last year weighed on consumer sentiment and construction activity. For this year, the residential sector should continue to advance on favorable credit conditions and income prospects, job creation, pent-up housing demand, improved housing permits, and home prices. In light of all of this, we expect a 2% growth in cement volumes, in line with the industry, during 2017.

In Germany, solid economic fundamentals supported industry cement volumes during 2016. Our cement volumes in this period remained flat, with an improvement in competitive dynamics towards the second half of the year. We expect these favorable trends to continue this year, resulting in an expected 2% growth in our cement volumes.

In the residential sector, immigration and continued favorable conditions such as low mortgage interest rates, low unemployment, and rising purchasing power should continue driving this sector and offset limited capacity of local construction industry and public authorities' restrictions.

Regarding infrastructure, although there have been some delays in the granting of projects this sector should benefit from higher tax revenues and announced projects funded by federal government.

In Poland, the slight decline in our yearly cement volume reflects a sluggish infrastructure sector and a minor loss in our market position. Our cement prices during the quarter remained stable sequentially, while prices from December 2015 to December 2016 increased by 1%.

For this year, we expect our cement volumes to grow by 2%, driven by increased demand from all sectors, mainly from increased infrastructure investment. Activity in this sector has been slower in anticipation of the new public tenders law and should improve with its enactment expected in the first half of 2017. The residential sector should benefit from the increase in construction permits and the support from government programs.

In France, our ready mix and aggregates volumes increased during the full year by 4% and 6%, respectively. We expect the positive volume trends to continue this year, mainly driven by the residential sector. This sector is supported by the increase in construction permits and governments initiatives, which include buy-to-let programs and new zero-rate loans for first-time buyers. In the infrastructure sector, works related to the Grand Paris project and the new motorway investment plan should support volume growth.

In our Asia, Middle East and Africa region, cement volumes remained flat, while ready mix volumes decreased 4%, respectively, during the full year 2016. Operating EBITDA margin for the quarter and the full year increased in 1.8 and 2.5 percentage points, respectively.

In the Philippines, our cement volumes increased 1% during the full year. Cement demand was weaker in the second half of 2016, mainly due to the new government's transition. Our volumes in the fourth quarter were significantly impacted by La Nina-like weather. Rain and harsh wind conditions affected offshore distribution and construction activity in our core markets.

In 2017, cement volumes are expected to grow by 7%, in line with the anticipated growth in the economy. Second half construction activity should be stronger, driven by the government's plans for infrastructure projects. Private construction will continue to be robust, led by more investments in the residential and commercial segments.

For additional information on our Philippines operations, you can also see CHP's quarterly results, which will be available late tonight -- early Friday, in Asia.

In Egypt, our cement volumes declined by 20% during the quarter and increased by 2% during 2016. National cement consumption during the quarter was affected by the sharp currency depreciation in early November which triggered inflation and reduced purchasing power. Our cement volumes in the same period also reflect a slight loss in our market position due to our higher announced price increase as well as a seven-day haulers strike in mid November. During the quarter, our cement prices increased 9% on a sequential basis.

For 2017, we are guiding to a flat performance for our cement volumes in the country, but there is continued uncertainty. We expect the initial part of the year to be challenging for cement consumption. We anticipate that as the year progresses, macroeconomic reforms should allow the country to return to sustained growth, mainly driven by governments housing activity, projects related to the new administrative capital, the Suez Canal tunnels, and the new port in the city of Port Said.

In Israel, ready mix volumes remained constant during 2016, maintaining the historical high levels in the country reached in 2015.

In summary, we had strong fundamentals in most of our operations, which translated into positive volumes and pricing dynamics. This, together with our operating efficiencies, resulted in stronger EBITDA generation during the fourth quarter and full-year 2016.

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 fourth quarter report the results of our concrete pipe business in the US, as well as 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 4% and 10%, respectively, during the quarter. There was higher like-to-like EBITDA contribution from Mexico, the US, and our Asia, Middle East and Africa region.

Our operating EBITDA margin increased by 1 percentage point and was the highest fourth quarter EBITDA margin since 2006. For the full year, EBITDA margin reached 20.5%, the highest since 2007. The quarterly and yearly margin expansions mainly reflect the positive effect of our pricing strategies.

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 full-year FX impact on our EBITDA was $220 million, excluding about $61 million of the effect of dollarized costs in our operations, which mainly consist of energy and maintenance-related parts. 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 1.7 percentage points during 2016. Our kiln fuel and electricity bill on a per-ton-of-cement-produced basis declined by 10% during the fourth quarter and by 15% in 2016.

Now, regarding the EBITDA related to our asset sales, it is important to highlight that our reported 2016 EBITDA excludes the EBITDA generated by our concrete pipe business in the US. We are providing a pro forma EBITDA for 2016 adjusting for, first, the asset sales which include the Fairborn plant in the US and the concrete pumping business in Mexico; second, 11 months of the Texas assets sold to Grupo Cementos Chihuahua which were a part of our 2016 reported results; and third, the additional EBITDA contribution related to the consolidation of the Trinidad cement assets. We are using last-12-months EBITDA as of the third quarter of 2016, as this is the most recent public data on TCL. This pro forma EBITDA remains practically unchanged from our reported 2016 figure.

Our quarterly free cash flow after maintenance CapEx was $617 million, $51 million higher from last year's level, mainly explained by lower financial expenses and lower CapEx. This is the highest free cash flow in a fourth quarter since 2007.

Our free cash flow initiatives during 2016 led our free cash flow after maintenance CapEx to reach close to $1.7 billion, the highest level in the last decade and close to double than that of 2015.

As a result of our working capital initiatives, the fourth quarter was the first quarter in our history that we achieved negative working capital days, reaching minus 4 days. For the full year, we had, on average, 4 days of working capital, compared with 19 in 2015. The average monthly investment throughout the year was $170 million, a reduction of about $600 million compared with the investment in 2015 and $950 million from 2014 levels.

We had a loss on financial instruments of $14 million, related mainly to CEMEX shares. Foreign exchange results for the quarter resulted in a gain of $67 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 $214 million.

Net income for the full year increased tenfold, reaching $750 million, and was the highest since 2007.

We continue with our initiatives to improve our debt maturity profile and strengthen our capital structure. During the quarter, we used free cash flow and the proceeds from certain assets in the US sold to Grupo Cementos Chihuahua for debt reduction. In November, we prepaid $373 million corresponding to the 2017 maturity under the credit agreement, and now we have no significant maturities through March of 2018.

Also, the committed revolving credit facility was enlarged from $749 million to $1.4 billion, of which $664 million mature in 2018 and $749 million in 2020. This provides us with greater flexibility to optimize the use of proceeds from our asset sales effort and free cash flow generation until we can efficiently prepay outstanding notes.

During 2016, our total debt plus perpetual securities decreased by close to $2.3 billion. Our leverage ratio as of the fourth quarter reached 4.22-times, from 5.21-times as of the end of 2015.

Total commitments under our credit agreement are currently at about $4 billion, including the revolving facility. The pricing on this debt is grid based and is a function of our leverage ratio. At our latest leverage ratio, the spread over LIBOR on this debt drops from 325 to 300 basis points starting in the next interest period. As per the pricing grid, every 0.5-time drop in our leverage ratio translates into an additional 25 basis points reduction. The minimum interest rate on the grid is LIBOR plus 250 basis points, which is reached when leverage drops below 3.5-times.

The average life of our debt is currently at 5.2 years. As we have done in the past, we will be proactive in taking market opportunities to manage our maturities and reduce financial expenses, ensuring that our debt profile continues to be manageable.

Now, Fernando will discuss our outlook for this year.

For 2017, we are constructive on our volume outlook for our biggest markets, leading us to expect consolidated cement and ready mix volumes to grow in the 1% to 3% range, while aggregates volumes should be from flat to up 3% compared with last year's levels.

Regarding our cost of energy, on a per-ton-of-cement-produced basis we expect a 5% increase from last year's levels.

Guidance for total CapEx for 2017 is about $730 million. This includes $520 million in maintenance CapEx and $210 million in strategic CapEx.

We also anticipate a reduction in financial expenses for this year of about $125 million.

With respect to working capital, we anticipate an investment during this year of about $50 million.

Cash taxes for 2017 are estimated to be under $325 million.

As regards one of our most important priorities, which is regaining our investment grade, I am very happy to report that we are well ahead of our expectations on all fronts. We almost doubled our free cash flow during this year as a result of the implementation of different initiatives which improved all drivers of free cash flow generation.

We have announced asset sales for about $2 billion, out of which about $1 billion closed during 2016 at average multiples in the double digits.

We reduced our total debt by $2.3 billion, in line with our estimates, reducing our leverage ratio to 4.22-times.

On back of this performance, we are increasing our asset divestment and debt reduction targets for the two-year period ending in 2017. We are increasing our 2016-2017 divestments target and now expect to sell assets for about $2.5 billion in this period.

We are also updating our debt reduction target for 2017. We now expect to decrease our debt by about $3.5 billion to $4 billion during 2016 and 2017. Debt reduction for this year should come from free cash flow generation, as well as the proceeds from pending to close and other divestments, as well as fixed asset sales. We will keep you updated on the progress of our different initiatives.

In closing, I would like to reiterate that we continue to deliver strong results by focusing on the variables we can control. Since 2014, we have made significant progress to regain our investment-grade capital structure despite the FX headwinds we have experienced in this period.

Regarding EBITDA, we have delivered growth in the past three years despite these headwinds. On a like-to-like basis, adjusting for FX and discontinued operations, our operating EBITDA grew by 32% from 2013 to 2016. EBITDA margins have expanded by 3.1 percentage points in this period, reflecting our pricing policies, cost and expense reduction initiatives, as well as our customer-centricity efforts.

Our free cash flow has been gradually improving, and last year's free cash flow generation was the highest since 2008, reflecting our initiatives to reduce financial expenses and improve working capital. Conversion of EBITDA into free cash flow after maintenance CapEx reached 61% during 2016.

In the past three years, we have sold assets for more than $3.1 billion. These asset sales have been done at double-digit multiples, on average.

We have used free cash flow generation and proceeds from asset divestments for debt reduction. Since the end of 2013, we have lowered our total debt by $4.4 billion, a reduction of about 25%. This percentage is expected to increase to more than 32%(corrected by company after the call) by the end of this quarter once we apply the proceeds from pending asset sales.

Regarding our financial leverage, including our perpetuals and convertible securities, we saw a reduction in leverage of close to 2-times in the last three years, compared with a 1-time reduction in the previous three years, reflecting our free cash flow and divestment initiatives. We will continue with our efforts to reach an investment-grade capital structure as soon as possible.

Thank you for your attention.

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

In addition, unless the context indicates otherwise, all references to pricing initiatives, price increases or decreases refer to our prices for our products.

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

(Operator Instructions) Carlos Peyrelongue, Bank of America.

Congratulations, Fernando and Maher, on the strong 2016 results. Two questions, if I may? First one, on Mexico. On your volume guidance for Mexico from zero to 3% growth, how much of that comes from the new Mexico City airport? Are you considering demand from that particular infrastructure project?

And the second question is related to the US. During 2016, volumes increased 2% and prices 4%. For this year, your midpoint of the guidance is 2% for volumes. Can you see different drivers this year versus last year that can support higher price increases in the US this year versus the 4% increase last year?

If I take the question on the US, I think the drivers in 2017 will continue being about the same than 2016, plus the additional volumes that the whole market or the industry will get from higher infrastructure expenditure.

And I think your question was related also on how that could affect pricing, if I understood that correctly? Well, you know that capacity utilization in the US little by little it's been increasing and is getting very close to full utilization in total, the whole market. But as you know, there are some markets which are sold out already; some others are not that close to that situation.

But I think as far as volumes continue growing, which we believe it will continue being the case, that will be very supportive of a price increases announcement sticking much better than previous years.

If I can add also, Carlos, to what Fernando was saying, I think it's important to note that if we take a look at point-to-point pricing increases in the US, if we adjust for divestments, they were 8% for cement. So, that has been attractive.

And in terms of the drivers, talking to our customers very recently and, particularly, in the south to a large extent, there is quite a bit of cautious optimism or optimism, in general, in terms of what's happening in the US in terms of deregulation, energy sector improvements, potential deregulation on the credit side. So, when we talk to our end clients, at the end of the day there's definitely a sense that things are going to or about to get better.

The drivers for this year, for 2017, the residential market is going to continue to be a very important driver. We're expecting residential to probably be our fastest growing segment, at mid-single-digit growth. And just as by way of a reminder, single-family starts are running almost at 60% of the 35-year average. And let's not forget that during the last 35 years the population of the US have increased quite a bit. So, we expect that segment to do quite well.

Industrial and commercial is probably the second largest contributor to growth, and we definitely expect to see some increased private sector expansion there.

On the infrastructure side, I think you've cited in your own report, frankly, the FAST Act. We expect that certainly to start contributing this year. And all of this conversation, by the way, does not include any potential upside from the new administration's -- and, actually, bipartisan -- support to infrastructure spending. And we can discuss that a little bit more in terms of our outlook later, if you wish.

That's very clear. And the question on Mexico?

The Mexico -- I think the part of the question that perhaps we have not answered is the part on the Mexico City airport. We definitely -- the Mexico City airport is part of our expectations. Of course, it could be accelerated or decelerated, but it's definitely part of our expectations. As you know, the first phase -- which includes the one terminal and two commercial runways and there's a military runway and a couple of platforms -- that's on its way.

We are in a favorable position, frankly, given our footprint and our ability to supply some specialty products. So, we should definitely be benefiting from that contract. And that is within our expectations that we mentioned.

And the construction is advanced enough that you will see demand from the runways, etcetera, this year already? That's the expectation?

That is our expectation, yes.

Understood. Perfect. Thank you very much.

Benjamin Theurer, Barclays.

As well, congratulations on the result. I have a question around the free cash flow and the outlook. Clearly, we've had a very strong performance on the release of the working capital over the last couple of years, and you're now expecting for 2017 (inaudible) investments. Could you give a little more detail around the actual drivers of that significant working capital improvement in 2016: the quarter at minus 4 days, the full year at 4? What's a healthy level? Are you going to stay at those levels and, hence, now expect some investments? Or, what could we expect on that side? That would be my first question, and then I have one other question afterwards.

I think, Benjamin, that the way to answer that is that the initiative of working capital is not a new one in CEMEX, as you may know, and we have done progress at different paces in different businesses. And I think what we saw last year was it was mainly Mexico and the US, the two largest business units, making very material progress on our initiative of optimizing working capital, as well as South America also improving even further to the levels they used to have.

The drivers -- the idea of optimizing is concentrated in the three main variables of working capital: it's collections of receivables, payment terms, and inventories. And what we have done is to change paradigms on inventories, to change the processes that we use, the way we program our exportation production and transportation of products and materials to the market. So, it's -- everything has been contributing.

It is different on a per-country basis. For instance, in some countries there is a large contribution of better payables or payment terms with suppliers, of course without affecting prices of the goods and services we buy.

So, I think, again, what you saw last year, it was Mexico turning to -- it's a milestone. Mexico turned for the first time in history into negative working capital numbers, negative working capital days. And the US making very significant progress, also.

Now, what is that we can expect for 2017? I think we can expect for the US to do further progress and for the rest of the Company to be more or less stable compared to last year.

Okay. Perfect. And then, one other question I had and it's a little unrelated to that one. On your pricing strategy in the different markets, with the still ongoing devaluation in many of the EM currencies markets but also within Europe, you've had some very decent success already with local price increases over the last couple of quarters.

Now, with the, let's say, rather low-growth outlook for Mexico in terms of volumes -- zero to 3% -- remind me quickly about the competitive environment and how you see with a more muted growth outlook for Mexico what you think can be achieved or should be achieved on the pricing side, just to offset some of that FX pressure? So, any initiatives you're looking at for price hikes in Mexico on the different products for 2017?

Well, in general terms, what do we see in 2017 compared to 2016 in the market? What is different? What is different is that the market is going to be growing less than last year. That's an important variable. And the other one is that there is new capacity coming on stream in the market. Meaning, the combination of both are going to impose a different competitive dynamics in 2017 compared to 2016.

Now, our strategy is not changing. As we have been saying, particularly in the case of Mexico, because of different reasons, we lost in the several previous years and, again, because of market conditions we did lose significant pricing in constant pesos, and that's what we have been trying to recover.

We have recovered that to some extent, but there is still opportunity or room in order to bring prices to a higher level. How fast? It will depend again on competitive dynamics in 2017, which I already said are different to 2016. But we have not changed our intent and our strategy in Mexico.

Okay. Perfect. Thank you very much.

Gordon Lee, BTG Pactual.

A couple of questions, really more on the cash flow side and the asset divestiture side, etcetera. First, on the sort of new guidance of $2.5 billion, which is an extra $500 million, really, from what you've completed already, it looks like $400 million of that might be completed tonight, assuming a successful share sale with GCC. So, from that should we imply that after all of this wave of divestments, we should go back to the sort of more real estate type of asset sales where we see smaller numbers but nothing that really impacts EBITDA?

And then, the second question -- and I'm going to ask something that maybe a few years ago was unthinkable -- but as you move towards 3-times leverage and we think about, say, 2018, is CEMEX paying a dividend, something that we could see as a plausible scenario in the midterm?

Gordon, if I can take the second question, on the dividend side, that's a high-class problem to have once we get to 3-times leverage. The unfortunate thing, as you may know, that we do have in our bond indentures a limitation on being able to pay dividends or what resembles a dividend payment, requiring two investment-grade ratings prior to being able to do that. So, we're constrained by that. But certainly as we -- we're working very hard in that direction, and we'll see how we achieve that.

If I could just follow up on that before we go to the divestiture question, if that's okay? But just to clarify, the constraints is on the covenant side? It's not something sort of strategic or philosophical at the Board or management level? Because if I had asked this question, let's say, seven, eight years ago, the answer would have been: Companies that don't grow, pay dividends; companies that grow, do pay dividends. Has that changed? Has that mindset changed?

I think I'm going to turn it over to Fernando to comment on that point. And then, I will address the guidance on the asset sales.

Well, as Maher said, this is a high-class problem to have. But I think there has been changes in mindset in the Board, nothing that we will see being executed in the very short term. Again, Maher already clarified that we have an indenture that doesn't allow us to do that.

But clearly, once we get into our investment grade, or even before that, we will be disclosing communicating what is it that we are willing to do different. What I mean is, whenever we get to our investment grade the Company will be different. We will resume growth. Yes, the idea is to pay dividends again whenever that is feasible.

But as of today, there is nothing specific or a policy or something that we can communicate. It will take some time, but we will communicate that in due time. How to do it, how to do better risk management, how to better reward shareholders -- so, all of that it's on the table to be, let's say, rethink and modify.

Gordon, on the asset divestments, just to summarize for everybody's interest, as we mentioned, we've announced divestments to date of $2 billion; a little bit over $1 billion, the transactions have been closed and proceeds were received in 2016. Then, as you know, we received the payment for the concrete pipes, which was $500 million.

We have two additional transactions that we have announced that are also in the pipeline that, as Fernando mentioned in his remarks, are also expected to be completed fairly soon -- we expect that to happen certainly within the quarter that we're in right now -- and that's the Fairborn assets and the Mexican ready mix pumping business. And that's for around a little bit under $500 million, as has been previously announced.

So, you're correct in saying that the incremental amount to meet that target of $0.5 billion should be easily achievable from the many opportunities that we will have between now and the end of the year.

I think the one thing that I would like to stress -- and certainly, hearing Fernando -- is that because we're so well ahead of what we want to achieve on this and on the deleveraging side -- but, particularly, on the asset side -- obviously, we're going to be even more vigilant on the value at which we are conducting these asset divestments. And as we've seen, we probably -- compared to the market, the average was well above a double-digit number, and we would like to maintain that track record to the extent possible.

But we feel very comfortable that we're going to be able to achieve that asset divestment number.

Perfect. Thanks very much.

Vanessa Quiroga, Credit Suisse.

I have a question regarding the guidance that you're giving for a debt reduction in the cost of debt of about $125 million. Are you --? I believe that you are not considering for that guidance the reduction in debt that you will be able to do with proceeds from divestments that are still to be collected. Is that correct? You're only including about $2 billion of debt reduction that you've done for which you already received proceeds. Is that correct?

We have not -- one thing, of course, is this is an early part of the year. So, we are being cautious in terms of what markets are going to be available and refinancing opportunities. So, there's definitely a bit of cautiousness in that.

We do have still $2 billion of bonds that are callable this year, as you know: $1 billion of the $2 billion have a coupon that is a little bit over 9%; $1 billion is around 6%. And then, of course, depending on what happened to our asset divestments and free cash flow.

So, all I can say is that there's definitely a bit of cautiousness in that number, and we will revisit it as the year goes by and as we see what happens in the capital markets in terms of liability management and asset divestments and, of course, our free cash flow generation, as well.

Okay. And regarding CapEx, Maher, the drivers for the increase in maintenance CapEx that you are expecting, what are the countries where you are investing right now in the maintenance CapEx?

And also, I guess, I want to understand better the number that you posted in 2016. Because it seems that you actually exceeded the CapEx guidance that you had provided for 2016, already adjusting for the asset divestments, if I'm correct? So, I just want to make sure that I understand the CapEx number that is posted in 2016 and the increase that you are guiding for in 2017.

Right. So, just for the benefit of everybody, the actual maintenance CapEx for 2016 was $450 million, and our guidance is $520 million. So, we're talking about a difference of $70 million.

An important difference --. And you're right, Vanessa: we are talking about adjusting for two plants that have been sold in the US -- the Odessa plant and Fairborn.

We are, on the other hand, adding three additional plants from TCL. And the TCL plants require probably slightly higher maintenance CapEx, just because they're under different type of management, different standards, and so forth and so on. So, there's -- a little bit of the increase is attributable to that.

And then, again, as you have seen, historically that number could be better at the end of the year. We'll have to wait and see.

It is targeted -- there's some timing issues, as well. There is a small investment in the US that we have to finish on the environmental regulation side.

So, you've got, essentially, the three TCLs, a little bit of environmental, and timing. And frankly, there is the possibility of an adjustment by the end of the year. We'll have to wait and see.

Thanks, Maher. If I could add just a question about the investment grade discussion? What metric do you think the rating agencies will be focusing on to give you the investment grade? I remember that when we were talking about the downgrade some years ago, they were focusing a lot on the returns, return on invested capital. So, in your discussions with the rating agencies, what are they focusing right now to make that decision?

Rating agencies are fairly holistic in their approach. There is not one, single metric that they focus on. And obviously, leverage is extremely important. And I would say that typically if you're somewhere below the 3 you start getting into that area.

But again, the agencies are much more holistic. They will take a look at the environment. They will take a look at the markets that we're in, part of the cycle that we're in, and so forth and so on.

All I can tell you is that we have a very good, consistent, and fluid dialogue with the rating agencies. They're all on confidentiality agreements with us, and they see more numbers than anybody sees. And we have a very good relationship that goes back for close to two decades now, if not more.

So, we feel very comfortable that -- hopefully, we will not surprise them on the negative side, and we will surprise them on the positive. But that's, in general, and that's what we're managing towards.

Now, what's probably as important is the capital markets. The capital markets are probably a little bit more anticipatory, as perhaps they should be, compared to the rating agencies. And so, our average cost of debt as of the end of the quarter is below 6%, and we've had very good access to the bond market, quite a bit of liquidity, and very, very good price discovery of our creditworthiness in the high-yield markets, which we are very, very proud of.

I don't know if that answers your question, Vanessa?

Great. Yes. Thank you very much, Maher and Fernando.

Adrian Huerta, J.P. Morgan.

Congrats as well on the results. Two questions, also on prices. First, on Mexico. The increase that you did in January of this year, was that more to compensate for a lack of traction on the October increases that you did, given that the quarter-over-quarter increase in 4Q was only 1%? That's my first question on Mexico. And the second one is how effective were these increases so far, that you did in January?

And then, in the US, if you can talk a little bit what do you think could be the role of imports in the US, going forward, considering the US dollar is strengthening and the difference of cement prices in US dollars in the US versus many other countries that could import cement to the US has expanded a lot over the last two years, making it more profitable imports than in the past?

Adrian, I'll address your first question, and then you'll have to remind me of the second question. But on the first question, remember that our October pricing increase that we did was a follow-on to others that were catching up in their pricing strategies in the country. And if you take a look actually at the markets that have been affected, both by product and by geography, although it seems like the realization is small, actually when it comes to effective realization it was close to 50%.

Now, you have to also take into consideration what was happening for the whole year. Point-to-point pricing increases for the year were close to 20% for us.

So, we think actually that pricing increases is not really indicative of any trends. It was kind of more filling in certain gaps within our pricing strategy within the portfolio. So, I wouldn't draw that many conclusions.

Now, we, as you know, announced pricing increases of 12% and 15% -- 12% in bag cement and 16% in bulk cement and 15% in ready mix. So, kind of the weighted-average pricing increase for cement is close to about 13%, and that was effective January. And all I can tell you is that we've gotten a very good response; we've gotten good traction. What we understand from our clients is that others have made similar moves to a greater or slightly lesser extent.

So, we're optimistic, frankly, about the traction, and we'll just have to wait and see.

Perfect. Thanks so much. Now, my second question was --.

On the US.

What do you think about -- yes, correct -- the role of imported cement in the US, going forward, considering the strengthening of the US dollar and considering that if you continue increasing prices in the US the difference versus cement prices in other countries that could import cement to the US, even in US dollar terms, will be wider? So, with that in mind, when imports come in to supply this additional demand, those could come in lower prices and prevent potentially further price increases in the US. What's your general view on that?

I will take that one, Adrian. My view on imports in the US, at least in the case of our markets -- meaning, let's forget for the moment on the imports coming from Canada to the US, because we are not part of those markets, and so those dynamics don't affect us -- but I think most of imports in the US, either through California or to Texas, Florida, historically has been done mainly by local producers. Meaning, most of import facilities -- and remember, the US is a bulk cement market; it's not a bag market -- so, most of imports are done by local producers as part of their plans on capacity usage or how to serve customers, combining local production with imports.

If you remember, the US until the 2007-2008 crisis used to be a structural importer; meaning, most of the time demand is much higher than the local production capacity. I think the numbers, rounded figures, were 125 million or 130 million tons of consumption with a capacity of around 100 million tons per year.

So, I think in general terms the dynamics of imports will follow the logic or the economics of local producers; not 100% of it, but a very large percentage -- let's say 90% of it. Now, that doesn't mean that there won't be, let's say, impacts because of imports, because there are different strategies per player. But as long as we see most of local production capacity being utilized, we will see more and more imports coming into the markets.

Do I see that as a threat for the future price increases in the US? I don't see it. I don't believe that it's really a threat. Again, I think they are complementary, and little by little they -- in the US, the market will go back to the pre-crisis supply structure, let's put it that way.

And Adrian, if I can just add, actually we see it, frankly, as an opportunity, and I'll tell you why. Number one, we probably have the best import infrastructure in the country on both sides of the coasts of the country. And so, I think that to the extent that demand continues to grow -- and we do expect it to grow.

Just to throw a few numbers at you, which are important, we think total installed capacity in the US is just a tad above 100 million tons. And 2016 probably is going to end up with total consumption of around 96 million, a little bit more or a little bit less. So, if you assume that imports are around 14 million tons last year, you're talking about a kind of low- to mid-80s consumption.

Now, despite the fact that we're expecting the growth that we commented on, 2018 and 2019 the outlook actually -- if you take a look at the bipartisan support to the infrastructure program, even if you haircut those numbers materially, if you haircut those numbers by half or by two-thirds, and if you take a look at the PCA's outlook in terms of the types of projects that are likely to be used under those infrastructure programs, as proposed by both Republicans and Democrats, 75% of the amounts are going to high cement-intensity projects, whether it's streets and highways, airports, bridges, tunnels, water purification facilities, and so forth and so on -- 75%.

So, no matter how much you haircut the $100 billion per year, if you haircut it by half or by two-thirds, and if you assume some degree of sterilization by the states -- and what I mean by sterilization is that sometimes when these higher spending levels take place at the federal level, the states tend to trim back a little back. Now, that trimming back tends to be higher in bad times and lower in good times; meaning, when states are in better fiscal conditions they tend to not cut back as much.

But even if you assume the number that the PCA talked about in their November of last year analysis of 20%, you're talking a potential additional demand from that infrastructure anywhere from 6 million - 6.5 million tons per year to close to 10 million tons per year. Now, that is with a fully ramped-up spending level, like I said, at a third to a half of what is being proposed.

So, when you're talking about that, if we get a little bit of that, that is going to translate definitely to better pricing dynamics.

And that's not to mention any potential impact of tariffs. We're not taking sides one way or the other on tariffs, but if there are any border adjustment tariffs on our product, that will even exacerbate the pricing situation even more, frankly.

So, that's why -- I don't want to sound too optimistic, but that's how we feel about the imports, frankly.

Very clear, Maher and Fernando. Thank you so much.

Yassine Touahri, Exane.

A few questions on my side. First, a question on pricing. We've seen the competitive situation becoming a little bit tougher in Colombia and the Philippines in the first quarter. Could you give us a little bit more color? Is it related to imports? Is it related to local players being a little bit more aggressive on pricing?

Then, my second question is on your cost inflation target. I think your cost inflation guidance is approximately 5% for energy. It's much lower than the 10% guidance given by LafargeHolcim. How should we think about that? Is that because in some of your regions you are fully hedged? Or, is it because of your contracts in Mexico? And should we expect any big difference in inflation from one region to another when we are looking at energy costs for 2017?

And a very last question, on the UK. You are expecting a slight decline in volume this year. Could you tell us where do you expect this volume decline to come from? Is it residential, non-residential, infrastructure?

Let me start with your question on cost inflation. Of course, I cannot compare our guidance with Lafarge, just because I don't know their numbers. But what I can tell you is that our guidance comes from the information we have on our fuel mix, the type of contracts we have managed already to agree with different suppliers, and with current trends of different fuels.

Just to give you an example, in the case of petcoke, we saw petcoke prices increasing very materially last year point to point. And we have seen again a trend on these prices to being reduced.

Again, very difficult to compare with a figure that I don't know, but trying to find explanations. As you may know, our fuel mix is different compared to other companies. Our alternative fuel usage is much higher with a better economics than primary fuels.

So, we feel comfortable with the figure that we are using for guidance. But again, I just cannot compare with others.

And Yassine, if I can talk about Colombia? Colombia, as you know, first -- I don't want to make a broad comment about the whole year, because you know that we had fairly weak GDP. We had -- interest rate environment was not very attractive. Inflation was not that attractive. And frankly, the government against that backdrop had some challenges on the infrastructure side and spending side. And so, in general, the market, I would say, was down, as you know.

We outperformed a little bit. We had a big strike, frankly, that also impacted the demand dynamics. So, I would say that the fourth quarter kind of exacerbated all of that with higher fragmentation and some competitive dynamics.

The way that we're trying to differentiate ourselves, frankly -- and I think we have done so successfully -- is through a number of customer-centric strategies. By offering more specialty products, by improving our services that we're giving to our customers, and really increasing customer loyalty, that is getting us to outperform, frankly, our pricing dynamics to the market.

So, I would like to think that both in terms of the volume perspective and the pricing perspective we are better than the market. But the reality is that the situation in Colombia for the year has been challenging.

Now, looking forward to 2017, we think things are going to be a little bit better. Again, we're very cautious about the outlook on Colombia, because a lot of the investment there has been delayed because of the tax reform. And that is impacting consumer sentiment; it's impacting industrial and commercial investments. So, we'll have to wait and see.

The government is definitely favorably looking at subsidies for housing sector, which could be a very positive component for next year. So, we'll just have to wait and see. Like I said, we're cautious on the volumes and we're continuing to very, very vigilantly monitor and execute our pricing policies there.

And in the Philippines, I was also surprised to see a minus 5% decline in prices in Q4, when prices were up at the beginning of the year.

I think the Philippines you had some -- the weather played a very big factor there. And so, I would say that those adjustments were -- again, I think it's primarily the weather and the competitive dynamics that were caused as a consequence of that, just in the different markets.

(multiple speakers)

But again, in the Philippines we are constructive about demand for next year, and certainly we're expecting as a consequence of that to have a positive impact on pricing.

Okay.

Anything else?

The last question was on the UK, on the outlook for a small decline this year? Where does it come from?

Well, again, it's caution. There's the uncertainty of -- so far, the whole Brexit thing had fairly minimal impact on our business. We've been benefiting, frankly, from being able to sell blended product, fly ash availability. So, that's helped us. So, we're being a little bit cautious about that.

We don't know how this GBP23 billion, five-year national productivity and investment fund is going to be allocated. We did say that if it does get ramped up, it should translate to somewhere between 2.5 to possibly higher percentage points in growth in cement.

We're quite constructive, frankly, about the residential sector. The housing deficit, there's a chronic housing deficit in the UK market that has not been met that is close to 100,000 units. So, you may have the high-end London market not being that great, but certainly the greater UK market, we think, is pretty good.

So, I think we're cautious, but there are these elements that may translate into upside during the course of the year.

That's very clear. Thank you very much.

Nikolaj Lippmann, Morgan Stanley.

First -- and congratulations on the better ratings -- could you give us some color on the magnitude or any potential move towards peso financing or any concrete plans or sense of how you would think about that? So, that is number one.

And number two, I know you don't give the margin for your ready-mix business, but could you give us a sense of how that is trending? And also, if it's sort of moving above the 5% level in the US, or if it's still below? Those are my questions.

I will take -- I'm sorry. Just the second half, you said --. Just to make sure that I heard you right, you're talking about ready mix business in the US?

Correct.

Okay. So, I'll take the first part. We're obviously very excited with the mxA- rating in Mexico. That will definitely open up the possibility for us to raise some funding in the local markets, although the depth of that market at that rating is relatively shallow. So, whether at the end of the day we will put our toe in that market, we're certainly conscious of the fact that there are benefits to that.

But also, clearly, as we deleverage and given the outlook that we've just discussed about potentially deleveraging even more during the course of this year, we're going to be very vigilant on the borrowing rates we get. So, we're going to be evaluating the situation. It's very difficult to commit today. But clearly, to the extent that we get another upgrade on the local side, that will get us into the deeper markets for the domestic market, which will get us probably more efficient pricing for our credit in the market.

So, we're evaluating. We like it. We will certainly consider it. But again, given the trajectory of deleverage for us for this year, we're going to be very careful on the cost side. So, that addresses your question.

On the second part, the ready mix margins, we continue to see a recovery. We don't disclose margins, but we are coming awfully close to margins that we have seen close to peak levels in 2006.

And what's also important here is that we're seeing reasonably -- in several of our markets we're seeing actually good traction on pricing, which is very important because that is kind of a leading indicator, frankly, on what's likely to happen on the cement side. And so, we've seen good traction on pricing and have for a number of years, frankly, in the ready mix business.

So, I think the story there is positive. Can we do more? Can we get better? The answer is of course, yes, to both of those questions. And frankly, again, we're quite, let's say, cautiously optimistic about the potential infrastructure project flow that is likely to happen.

And also, frankly, we're starting to hear in markets like energy-, let's say, dependent markets -- like a Texas market, for instance -- you're beginning to see people, instead of looking at the market kind of as a glass half empty, starting to look at it as a glass half full. So, there's definitely optimism about what could possibly happen to energy prices and what that could mean for the Texas economy and then how would that work in our favor, frankly, in terms of that business.

Got it. Very clear. Just one very final question, if I may? Of your strategic CapEx, can you give us a sense of how much of that goes to the Tepeaca plant close to Puebla? And where that stands on your list of priorities?

On Tepeaca, we're obviously --. In today's world, in general -- this has nothing to do with Tepeaca, but in general -- we are being as stingy as one can be on CapEx. So, we're constantly monitoring and reassessing.

I think that we have some opportunities of potentially investing much less in one of our other plants that are in the vicinity -- if I can call that vicinity -- the Huichapan plant. And with a relatively small investment, below $10 million, we can increase our capacity there, de-bottleneck our capacity there, by slightly under 0.5 million tons.

So, because of that, we're probably assessing the situation in Tepeaca and seeing whether we -- how we do the timing there.

In terms of other CapEx, clearly, where we're looking at is essentially finishing up the Colombia expansion. We have some investment in the Philippines, in Solid. We have some investment in TCL. We have some investments in Poland. We're supplementing our aggregate reserves in many of our markets. And then, there's a few other things that we're spending on.

So, that's kind of roughly -- it's Colombia, Philippines, small investment in Poland and TCL, very small investment in Tepeaca, and aggregate reserves replenishment.

Got it. Very clear. Thank you very much.

We have no more questions at this time.

Well, thank you very much. In closing, I would like to thank you all for 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, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.