Cemex SAB de CV (CX) 2017 Q3 法說會逐字稿

Good morning. Welcome to the CEMEX Third Quarter 2017 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 third quarter 2017 conference call and webcast. We will be happy to take your questions after our initial remarks. Let me start by saying that over the last 2 months, a series of tragic natural disasters have impacted our communities in Mexico, the United States, Central America and the Caribbean. We are deeply saddened and sympathize with all the people in affected areas as they suffer the terrible consequences of these hurricanes and earthquakes.

At CEMEX, we have undertaken different initiatives in response to these disasters, including donations for construction materials, matching programs for employee donations, supply of basic goods and others. We will continue these efforts and remain committed to support these affected communities.

Now, regarding our results. Our third quarter operating and financial performance was affected by in part by these disasters as well as by continued challenges in Colombia and Egypt. Our consolidated cement and ready-mix volumes on a like-to-like basis declined by 1%, while consolidated aggregate volumes decreased by 3%. Favorable cement volume dynamics in the U.S. and our Europe and AMEA regions were offset by a decline in Mexico and our SAC region.

Year-over-year, consolidated pricing for our 3 core products increased in the low-single digits. As a result of these volume and price dynamics, sales increased by 1% while operating EBITDA declined by 8% on a like-to-like basis.

EBITDA margin declined by 2.2 percentage points, reflecting in part, higher energy and freight costs and increase in raw materials in some of our ready-mix operations, as well as the impact of lower volumes.

Free cash flow after maintenance CapEx reached $435 million during the third quarter compared to $548 million in the same period last year. The delta is mainly explained by a lower EBITDA and a lower reversal in working capital as we are operating at very efficient levels of working capital utilization.

We expect the total year-to-date investment in working capital to be reversed during the fourth quarter to reach our guidance of no additional working capital needs during the full year 2017. Our free cash flow year-to-date puts us on target to reach our full year free cash flow expectations. In addition, net income reached $289 million during the quarter. This was the eighth consecutive quarter with positive net income.

During the first 9 months of the year, net income reached $916 million and was the highest year-to-date net income since 2008.

Regarding our debt, we are pleased to see that our efforts to reduce our leverage continue to translate into an improvement in our credit ratings. During the quarter, Standard & Poor's upgraded our corporate credit rating from BB- to BB in its global scale and from mxA- to mxA in its national scale, both with a stable outlook.

In line with our communicated targets, we applied the proceeds from our free cash flow generation and asset sales mainly towards debt reduction. Our total debt declined by $369 million during the quarter and by close to $3.8 billion since the end of 2015, putting us on track to reach our 2-year debt reduction target of $4 billion by the end of this year.

During the quarter, we entered into a new facilities agreement for $4.05 billion under enhanced conditions, reflecting our improved credit profile, extending the average life and reducing the cost of our debt. Also between September and October, we fully redeemed our highest coupon bond. Maher will provide more details on these transactions later in the call.

Our expected free cash flow generation during the rest of the year will help us continue to delever, reach our debt reduction target for this year and bring us closer to an investment-grade capital structure.

Now, I would like to discuss the most important developments in our markets. In Mexico, quarterly volumes for domestic grade cement, ready-mix and aggregates decreased by 10%, 6% and 4%, respectively, on a year-over-year basis. National disasters, including earthquakes, hurricanes and heavy rains affected demand during the quarter.

In the case of cement, our market position was affected during the quarter by our value-before-volume strategy. As a result, cement and ready-mix prices are higher both on a year-over-year and on a sequential basis. During September, we initiated a volume recovery plan that was delayed by national disasters I mentioned. We feel comfortable in responsibly executing this strategy in relevant markets as we have done in the past.

Our operating EBITDA during the quarter increased by 7% on a like-to-like basis. EBITDA margin increased by 2 percentage points, mainly due to our value-before-volume strategy as well as cost-reduction initiatives. This favorable performance was achieved despite a 25% increase in kiln fuel and electricity costs.

In the industrial and commercial sector, while recent indicators reflect a slowdown in activity, favorable dynamics continue in hospitality and tourism-related construction. In addition, economic activity in the manufacturing segment continues growing at a steady pace.

Regarding the self-construction sector, while disposable income has been affected by higher inflation, other indicators including employment levels and remittances continue to be solid. This should translate into steady growth for this sector going forward.

In the formal residential sector, there has been a recent shift in mortgage dynamics between banking and government-related entities. Mortgage credits from the banking sectors, which represents about half of total mortgage investment in the country have reflected a recent slowdown in credits, while mortgages from INFONAVIT have rebounded. This is in part explained by INFONAVIT, now offering mortgages for higher value-homes as well as replacing its inflation-linked interest rate loans with fixed-rate loans.

Lower income housing has been affected by the decline in granted subsidies. Infrastructure spending continues to be affected by budgetary constraints. Our quarterly volumes were impacted by 2 earthquakes that hit Mexico. According to government figures, it is estimated that about 180,000 homes were affected, 50,000 of which were completely lost. Additionally, residential and commercial buildings as well as schools were affected. The reconstruction effort, especially housing, is one of the top priorities of the federal and local governments. We expect that this reconstruction effort could translate into about 500,000 tons of cement to be consumed in the next 12 to 18 months.

In light of all this, we now expect our cement volumes to decline by 1% to 3% during 2017. This represents a slight underperformance versus expected 1% growth for overall national consumption as a result of our value-before-volume effort, which affected our market position.

Current cement price levels now reflect most of the historic lag in input cost inflation. So we are recalibrating our strategy to a more moderate approach to price increases and an increased focus towards recovering our market position. We have done it in the past and we expect to do it again.

In the United States, cement volumes on a pro forma basis, excluding the Odessa and Fairborn cement plants, increased 2% on a year-over-year basis. Ready-mix volumes and aggregate volumes declined 2% and 4%, respectively, on a proforma basis, excluding the West Texas operations.

Our reported results reflect the treatment of the Pacific Northwest asset sale as a discontinued operation. Year-over-year, volume performance was impacted by significant precipitation in the quarter as well as 2 hurricanes. Hurricane Harvey affected our Houston operations while Hurricane Irma hit Florida, Georgia and Tennessee.

Our volume performance and EBITDA generation were remarkably resilient despite these major events and related outages that affected markets accounting for more than 50% of our demand.

During the quarter, like-to-like cement and aggregate prices rose 5% while ready-mix prices were flat. In light of the national disasters as well as competitive pressures, we were not successful with our October price increases previously announced for Texas and California. We have begun to roll out our 2018 price announcements for January in Florida, Colorado and the North Atlantic markets. During the quarter, the residential sector continued to provide the catalyst for growth in U.S. construction market.

Single-family construction and improvements were the key drivers. While housing starts for the quarter were up 1% year-over-year, the cement-intensive single-family sector grew 11%. With solid job creation, low inflation, direct credit availability and significant pent-up demand, the outlook for single-family remains positive with housing permits up 10% year-to-date September. For our 4 key states, housing permits as of August were up 10%, materially outpacing national demand.

In the industrial and commercial sector, while national contract awards were down 3% year-to-date August, awards for our 4 key states rose 8%.

Florida and California are showing particular strength with solid demand in office, lodging and commerce.

On the infrastructure side, streets and highways spending is down 4% year-to-date August. The performance reflects poor weather, reduced state spending and slow deployment of FAST Act funding due to the federal budget uncertainties. Our federal budget resolution by year-end would pave the way for improved disbursement of FAST Act moneys.

We believe, however, that the biggest impetus for infrastructure demand over the next years lies with the states and local governments. The California transportation bill and other state highway spending initiatives should support infrastructure demand over the next few years.

During the quarter, proforma EBITDA margin declined by 0.3 percentage points, the first year-over-year margin decline since third quarter 2011. This decline is primarily due to higher inputs to meet demand, lower volumes translating into a higher fixed unitary cost as well as geographic mix.

We continue to see steady recovery in the U.S. business with good supply/demand dynamics, healthy consumer and business confidence, rising income, low unemployment and renewed investment in energy. While the hurricanes presented a significant headwind for volumes in the quarter, we are confident that we will not only make up lost third quarter volumes in future periods but also benefit from the reconstruction effort.

We remain comfortable with our guidance of 1% to 3% growth in volumes for our 3 core products in 2017.

In our South Central America and the Caribbean region, cement volumes on a like-to-like basis including TCL decreased by 2% during the quarter, reflecting declines in Colombia, Panama and Guatemala as well as the impact of the hurricanes in cement consumption in Puerto Rico and to a lesser extent, to Dominican Republic.

Operating EBITDA for the region decreased by 28% on a like-to-like basis, with a margin decline of 9.3 percentage points. The decline in margin mainly reflects lower consolidated volumes, lower prices in Colombia as well as higher energy costs.

I will give a general overview of the region. For additional information, I invite you to review CLH's quarterly results, which were reported today. In Colombia, cement and ready-mix volumes declined by 4% and 16%, respectively, reflecting the continued macroeconomic challenges the country is facing.

Regarding pricing, we believe we have reached an inflection point in price dynamics in the country. Local currency prices as of September are 2% higher than they were in June. This translates into an increase of about $5 per ton, reflecting the August price increase in bagged cement.

Additionally, we have implemented a second price increase in bagged cement starting in October. If feasible, our current intention is to continue implementing our value-before-volume strategy going forward. We expect infrastructure activity to be the main driver for demand for our products during the year. Construction works for 4G projects, which have secured financing have started to demand volumes for our products, although still at low levels. These volumes should grow in significance starting next year. All the important fully funded projects such as the [Via es Delikidad] and the government-sponsored school infrastructure programs are increasingly consuming construction materials and should contribute to demand for our products in upcoming quarters.

In the residential sector, social housing continues to drive the month, supported by government programs. Cement volumes in our Colombian operations are now expected to decline by about 5% for this year.

In Panama, our cement volumes during the third quarter declined by 3%, affected by a slowdown in the high income residential and industrial and commercial sectors. Year-to-date, cement volumes are up 5%. Regarding the residential sector, demand from low and middle income segments remain strong.

Going forward, the healthy fiscal situation of the country and increasing revenues from the Canal expansion should contribute to healthy infrastructure activity.

In our TCL operations, domestic grade cement volumes increased by 4% during the third quarter on a like-to-like basis. This mainly reflects a double-digit growth in volumes in Jamaica, driven by infrastructure and commercial activity in the tourism and retail sectors.

With regards to our operations in the Caribbean, the region was affected by 2 major hurricanes during the quarter. The first one, hurricane Irma came around our operations in the region and fortunately, it did not have a significant impact in any of our business units. The second one, hurricane Maria, affected Puerto Rico and to a much lesser extent, the Dominican Republic, Haiti and the Bahamas.

In Puerto Rico, our operations only suffered minor damages. Our cement kiln was undergoing planned maintenance when the hurricane happened and is scheduled to begin production this week.

We have enough capacity in the island to meet any incremental demand coming from potential reconstruction efforts. In general, we believe we are best positioned to serve the Caribbean in their reconstruction efforts.

In our Europe region, domestic gray cement volumes show a double-digit growth during the quarter, supported by favorable volumes mainly in Poland, Germany, Spain, Croatia and the Czech Republic. EBITDA declined by 7% during the quarter on a like-to-like basis while EBITDA margin contracted by 1.3 percentage points, mainly as a result of higher energy costs, increased raw materials in ready-mix as well as country mix effect, with a lower contribution from the U.K. operations.

In the United Kingdom, cement, ready-mix and aggregates volumes decreased 6%, 4% and 6%, respectively, during the quarter. The decline reflects softening market conditions due to political uncertainty. The residential sector was the main driver of demand during the quarter, supported by government's Help-to-Buy program.

Considering our year-to-date performance, we now expect cement volumes for 2017 to decline by 5%. This translates into flat volumes if we adjust for the nonrecurring industry sales, which took place during 2016.

In Spain, domestic gray cement volumes increased by 40% during the quarter, albeit from a low base of comparison in the same period last year. Additionally, cement volume growth reflects favorable activity in the residential and industrial and commercial sectors. For the rest of this year, the residential sector should be supported by healthy credit conditions, job creation, pent-up housing demand as well as the recent double-digit growth in housing permits. The industrial and commercial sector should remain supported by the improved business conditions and the recent double-digit growth in construction permits.

In Germany, cement volumes during the quarter increased by 13%, with stable pricing. Cement demand was driven by ongoing infrastructure projects as well as strong demand from the residential sector. Infrastructure activity should continue to benefit from our project pipeline and increase federal government spending. In the residential sector, immigration and supportive economic conditions such as low mortgage interest rates, low unemployment and rising purchasing power should continue driving demand.

In Poland, volumes for domestic gray cement increased by 8% and 3% during the quarter and the first 9 months of the year, respectively. Our quarterly cement prices increased 3% on a year-over-year basis and remain stable sequentially. The residential sector was the main driver of demand during the quarter, supported by low-interest rates, low unemployment and government-sponsored programs.

In addition, infrastructure projects are expected to continue and accelerate during the rest of 2017. In France, our ready-mix and aggregate volumes, increased by 3% during the third quarter. Volume growth reflects continued activity in the residential sector as well as our participation in the Grand Paris-related projects.

For the rest of the year, the residential sector should be the main driver of demand for our products, supported by the recent increase in housing permits and government initiatives like the buy-to-let and first-time buyer 0 interest rate programs.

In the infrastructure sector, continued works related to Grand Paris, the A63 highway in Toulouse and other projects like the land reclamation development in Monaco should support volume growth.

For our Europe region, we are encouraged by the favorable demand conditions, which should translate into better supply/demand dynamics that would help us offset input cost inflation going forward. In our Asia, Middle East and Africa region, domestic gray cement volumes increased by 1% during the third quarter, with improved volumes in the Philippines and the UAE.

Regional ready-mix volumes were 10% higher in the same period, with favorable contribution from Israel, the Emirates and Egypt. The decline in EBITDA reflects lower contribution from our operations in Egypt and the Philippines. In the Philippines, cement volumes increased by 2%, supported by improved infrastructure activity and modest growth in the residential and industrial and commercial sectors.

Our cement prices reflect heightened competitive conditions. For the rest of 2017, we expect continued favorable infrastructure activity as a result of incremental government spending and the initiation of large projects.

The residential sector should be supported by higher remittances and the recent double-digit growth in mortgages. For additional information on our Philippines operations, please see CHP's quarterly results, which will be available late tonight, Friday morning in Asia.

In Egypt, cement volumes declined by 2% during the third quarter, with a sequential 8% price increase with partially offset -- which partially offset input cost inflation.

The slight cement volume decline reflects a decline in purchasing power as well as the increase in the interest rate on cash deposits, which has temporarily reduced incentives for real estate investments. For the rest of the year, the infrastructure sector should benefit from government activity in ongoing projects related to the Suez Canal, the new port platforms in Port Said City as well as the new administrative capital.

In the coming months, the ongoing implementation of economic reforms should improve the government's ability to execute infrastructure projects. In Israel, our ready-mix and aggregate volumes during the quarter increased by 10% and 2%, respectively, reaching quarterly and year-to-date record levels. Solid economic growth and low unemployment continue supporting improved demand from all our main demand sectors.

Israel represented more than 1/3 of the EBITDA generation of our EMEA region during the third quarter.

In summary, we are pleased with the continued execution of our value-before-volume strategy and the improvement in consolidated prices for our 3 core products. Regarding volumes, while our quarterly results reflect the impact of natural disasters in several of our operations, we anticipate that pent-up demand together with reconstruction efforts should translate into improved dynamics in these operations in upcoming quarters.

And now, I will turn the call over to Maher.

Thank you, Fernando. Hello, everyone. Now, I will go over our financials and debt information in a little bit more details. On a like-to-like basis, our net sales increased by 1% during the quarter while our operating EBITDA declined by 8%, reflecting lower contribution from our Europe, SAC and AMEA regions. Our quarterly operating EBITDA margin declined by 2.2 percentage points. This is due to higher energy and freight cost and increase in raw materials in some of our ready-mix operations as well as the impact of lower volumes. Cost of sales as a percentage of net sales increased by 1.4 percentage points during the quarter, mainly due to higher energy costs. Operating expenses also as a percentage of sales increased by 0.4 percentage points, reflecting higher distribution expenses.

Our kiln fuel and electricity bill on a per ton of cement produced basis increased by 15% during the third quarter, reflecting double-digit increases in fuels in Mexico, EUROPE and the SAC region. As regards free cash flow, we generated $435 million in free cash flow after maintenance CapEx during the quarter. This is lower than last year's generation, mainly due to lower EBITDA and a lower reversal on working capital.

We are pleased with the 62% EBITDA to free cash flow conversion rate for this quarter. During the first 9 months of the year, working capital declined to negative 2 days, a new record, from 5 days in the same period last year. This was mainly driven by continued improvements in Mexico and the U.S. business. This translated into a reduction in our average-to-date working capital investment to close to $300 million and compared with the same period last year. We expect to fully reverse the year-to-date investment in working capital during the fourth quarter to reach our yearly guidance.

Regarding other items in the third quarter income statement, the other expenses net line was $68 million, which mainly included impairment of assets and severance payments. We had a gain on financial instruments of $95 million, mainly related to the GCC transaction. Foreign exchange results for the quarter resulted in a gain of $31 million, mainly due to the fluctuation of the Mexican peso versus the U.S. dollar. The income tax line during the quarter was positive $28 million. We recognized more deferred tax assets in our balance sheet in anticipation of better operations in markets where we have tax loss carryforwards. As a result of this, we recognized an income tax gain in our P&L during the quarter. Controlling interest net income reached $289 million during the quarter and $974 million year-to-date.

Regarding our debt, as we mentioned during our last call in July, we entered into a new facilities agreement for $4.05 billion. With our leverage ratio now below 4x, the spread over LIBOR or EURIBOR under this agreement is 212.5 basis points.

In addition, under the agreement, we now have more flexibility to return capital to shareholders and enter into M&A transactions. However, as we have repeatedly stated in the past, our priority continues to be to get back to an investment-grade capital structure as soon as possible. During September, we launched a cash tender offer to repurchase our 9.375% senior secured notes due in 2022. The aggregate principal amount of notes outstanding was $1.03 billion. Through the cash tender offer, we repurchased approximately $700 million of the total and the remaining amount was redeemed on October 12.

During the third quarter, total debt plus perpetual securities decreased by $369 million, translating into a year-to-date debt reduction of more than $1.5 billion. In addition, debt variation during the quarter reflects a noncash negative translation effect for $95 million. Our leverage ratio as of the third quarter reached 3.98x from 4.52x a year ago. This the first time that our leverage is below 4x since the third quarter of 2008. We have included a proforma debt maturity profile, which shows the redemption on October 12 of the remaining of the 9.375% senior secured notes due in 2022, which were not tendered in September. About half of this payment was made with a cash reserve, which was created for this purpose and the other half using our revolving credit facility. Upcoming maturities in years 2018 to 2020 should be well below our expected free cash flow generation for these years. With our liability management efforts, we continue to reduce our weighted average cost of debt, improve our debt maturity profile and strengthen our capital structure.

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

Thanks, Maher. For 2017, we now expect our consolidated cement volumes to be flat and our consolidated ready-mix and aggregate volumes guidance remains unchanged. Regarding our cost of energy on a per ton of cement produced basis, we now expect a 12% increase from last year's levels.

In financial expenses, we anticipate a reduction of about $175 million for this year, reflecting our liability management efforts. Guidance for total CapEx for 2017 remains unchanged at about $730 million. This includes $520 million in maintenance CapEx and $210 million in strategic CapEx.

Regarding working capital, we anticipate no change in working capital investment from last year's level. We now expect cash taxes for 2017 to be about $275 million. As regards to one of our most important priorities which is regaining our investment grade, we continue to make important progress during the quarter. On our 2016, '17 divestment target of $2.5 billion, we have now surpassed this target and have closed asset sales for about $2.7 billion. These asset sales have been down to average multiples in the double digits. This 2-year asset divestment target was put in place to bolster our path to investment-grade.

Going forward, we do not anticipate any further material asset divestments for deleveraging purposes. Regarding debt, we have reduced our total debt by close to $3.8 billion since December 2015, and we are on track to reach our 2-year target of $4 billion. Debt reduction for the rest of 2017 should come mainly from free cash flow generation.

In closing, let me emphasize 3 things. First, EBITDA in our operations in Mexico and the U.S. has increased in double digits year-to-date on a like-to-like basis with improving margins. These 2 businesses represent about 2/3 of our year-to-date consolidated EBITDA. In addition, the challenge in demand environment in Colombia and the Philippines seems to be reaching an inflection point.

Second, we anticipate that in the operations which were affected by natural disasters during the quarter, pent-up demand as well as reconstruction efforts should translate into improved dynamics in upcoming quarters. And third, we have lowered total debt by close to $5.2 billion since the end of 2014. This represents a reduction of close to 1/3 of our debt during this period. Our leverage ratio is now below 4x. Our liability management efforts have resulted in stronger capital structure and improved debt maturity profile and lower average cost of debt.

These efforts have translated into improvements in our credit ratings throughout the year. We will continue with our efforts to reach an investment grade capital structure as soon as possible.

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) We have a question from Benjamin Theurer from Barclays.

First of all, congratulations on the results and congratulations on your management on the Forbes rankings list, very surprised with the strong outcome here, so congrats on that.

Now going into the quarter, 2 questions, if I may. So first of all, thank you for giving the amount in Mexico, where you mentioned about 500,000 additional tons of cement demanded for reconstruction. Is there a similar estimate for the U.S. business? Because clearly, with the hurricanes Harvey in Texas and Irma in the region of Florida, Georgia, Tennessee having -- caused some damage, do you have an estimate about the potential additional demand for cement in that region as well? That will be question number 1. And question number 2, you mentioned you're going to basically reramp your operations in Puerto Rico. Now, my question is do you actually have electricity? And how are roads for distribution and so on? So how is the infrastructure in place? Just to understand if it actually makes sense to ramp up production in Puerto Rico.

Thanks, Benjamin. On your question on Puerto Rico, yes, we are prepared to run the plant. Of course, there will be challenges and difficulties because of distribution drove some things. But little by little, the activity will be coming back. On the first question...

And electricity is reestablished, right?

Yes, it is.

Okay.

And Ben, if I can address your first question. I mean, it's very difficult at this point in time to estimate, but what I can tell you is that just in terms of outages, we've had, in the case of Texas, somewhere around 6 to 7 days of outages. And then it would probably took us up to about maybe 10-plus days before we got to historic levels. In the case of Florida, the outages were a little bit longer. So if we take both of those 2 -- and by the way, Florida and Texas account for about 40% to 45% of our volumes in cement in the U.S. during the quarter. So if we do just the adjustment for the amount of business that was not done during the period, we're talking about somewhere around 4% volumes for the quarter that are being pushed forward, right?

Now in terms of the reconstruction activity, it's very difficult to guesstimate right now, but clearly, there will be some reconstruction activity. It will vary obviously from Houston to Florida, but it's not going to be insignificant. I mean, it will be an important number.

The next question comes from Carlos Peyrelongue from Bank Of America.

Three questions, if I may. First one related to the FAST funds, can you provide some update as to how things are going, whether there is any light at the end of the tunnel to see these funds? I understand the funds are there, but just with the disbursement that hasn't occurred. And if you could, in that question, comment on what you think will drive cement volumes next year. You mentioned that the permits for single homes are quite strong, so that might be part of the answer, but if you could comment further on that, it would be very helpful.

The second question is related to interest expenses. As you mentioned, debt is coming down, expected to come down further next year. Can you give us an idea of what interest expenses might drop next year versus this year? It would also be helpful.

And lastly, on prices, you mentioned in the U.S. that you have sent letters for price increases for next year. Can you comment as to what is the average price increase that you're announcing on those letters, please?

So Carlos, thank you. I think that was 4 questions. I was taking some notes. I mean, on the first one, the FAST funds money, I mean, the disruption was mainly due to federal budget negotiations. And so if we get some kind of an agreement in December, we think we should get the release fairly soon thereafter. But having said that, Carlos, I think that what we think is that the biggest area of upside in terms of infrastructure is -- obviously, FAST will continue to be important, but we're quite encouraged by some of the activity that is happening at the state and local level and particularly, California, which of course, the California highway bill will translate to probably about -- I mean, once it's in full swing, probably about 5% increase per annum in cement consumption for California and about maybe a 1 percentage increase on a national level. So again, we do expect some resolution on the budget side by December at the federal level, but we're also encouraged by the activity that is taking place at state and local level.

In terms of housing. I mean, we -- as we said, I mean, we continue to be quite constructive on the housing market, inventories continue to be tight, there are shortages of labor. Actually, some -- one of the biggest challenges that home builders are having in the U.S. to meet demand is really materials and labor. And when we take a look at single-family housing construction, I mean, the growth has been in the low-double digits against a very tight market. So we think that, that is likely to continue. Industrial-and-commercial is doing well and really, the big drag has been -- I shouldn't say big drag, but the drag has been the infrastructure side of the equation.

Now in terms of interest expense, I mean, it's kind of difficult to give you a number for next year but what I can -- I mean, what I would suggest that you would do is just take a look at our potential free cash flow generation, reduction in debt and the impact that, that would have on our interest expense, so -- and you -- that will give you a rough guide. I mean, so -- and what was the fourth question? I'm sorry. I took note, I forgot.

The last one was related to...

The pricing increases in the U.S.

The price increases announcement for next year, you sent the letters.

Right, yes. I mean, the pricing increases are in the mid-teens and we're quite encouraged. I mean, let's not forget that pretty much, the U.S. by 2018 is going to get to practical full capacity utilization. And so we're encouraged that we should start seeing a decent traction on that.

Now, to be very precise that our pricing increases were affecting all of our markets except for Texas and Arizona.

Okay. In those 2 areas, you haven't sent...

We have not. Yes. I mean, yes, I mean, I would say that Texas announcements are pending. And obviously, the weather activity that has taken place is probably giving us some time to pause a little bit. Does that answer your questions?

Yes, it was perfect.

Great. Thanks a lot, Carlos.

We have a question from Adrian Huerta from JPMorgan.

Two questions, first one on maintenance CapEx and you gave the guidance and changed to $520 million. So even what you have done already in the first 9 months, that implies almost half of that amount to be spent in the fourth quarter. Is that going to be the case? And if that happens, does that mean that we could expect larger planned shutdowns in the quarter versus a year ago impacting margins? That's my first question and the second one is just on Spain. We saw very strong cement volume growth for the past 3 quarters. If you can tell us if you think the price could start growing soon more rapidly in Spain? And what is the current EBITDA margin that you're generating in Spain and would that get you way far from a potential EBITDA or recycled EBITDA in Spain? But given that you added more assets from Holcim a few years ago, what do you think could be the mid-cycle EBITDA for Spain?

Thanks, Adrian. On your first question on maintenance CapEx, it is natural on part of the yearly cycle that we spend, let's say, a larger amount of CapEx in the last quarter of the year. It doesn't translate, or it doesn't mean that we are having more shutdowns during the quarter. It is just the way moneys are committed with suppliers and with services and that kind of thing. So it is not reflecting any operational activity, it is just how we spend the money, how we commit the money and how we paid for those CapEx.

And on the Spanish question, I mean, one important thing to note is that last year, we -- our market position suffered a little bit as a consequence of our pricing strategy, and the reverse is happening this time around. So partly, that is affecting it but also, I think we cannot belittle the higher level of economic activity. I mean, on the residential side for instance, which really continues to be the big driver in Spain for this year, the performance of that sector has been very good. Housing permits are up 24% year-to-date July, mortgages are up 8% year-to-date July and should support that activity going forward.

On the industrial and commercial side, permits increased almost 12%, July year-to-date, and we do expect positive performance for the remainder of the year. And so we think there's definitely fundamental improvement in the economic situation in Spain.

Now on the pricing side, it's very difficult to tell. All I can tell you is that in several of our markets in Europe, as you saw from our results with the exception of the U.K., most of our markets experience very healthy volume growth. And so we would expect the outlook for supply/demand dynamics going forward to be better. But again, I mean, it's very important to note that we're not market leaders in most of these markets and we hope that everybody else kind of sees it that way as well. Does that answer your question?

Yes. But in Spain, you are a market leader, is that correct?

Yes. I mean, in Spain, I prefer not to frankly comment on the outlook on prices because we don't do that. But you can imagine, I mean, with this kind of growth, there should be a positive outlook going forward.

The next question comes from Nikolaj Lippmann from Morgan Stanley.

I have 3 questions, all of them are actually on Mexico. Could you comment a little bit on the -- I think in the note, you had a little comment on weak infrastructure spending continuing in Mexico. In your -- are you assuming that we're seeing a bit of a pickup there towards the end of the year, maybe into '18? So that's question number one.

Question number two, we see now the very aggressive allocation of cement from the new line from one of the competitors. Is it just them or are you seeing a response from all the players in Central Mexico in a similar fashion? And finally, if you could just comment about the rise in electricity cost. You produce a lot of electricity yourself, you have long-term pet coke contracts. Can you comment a bit on the nature of that pretty steep increase in electricity cost in Mexico?

Maybe, let's just -- I think we couldn't hear you very well. So just the first question was...

Just on infrastructure spending in Mexico. Even though it looks like it's still weak, are you assuming that it will pick up a little bit towards the end of the year?

Well, I mean, the airport certainly is part of that happening and reconstruction. I mean, we think that whatever damage that has taken place, I mean, both housing and infrastructure will definitely take place, yes. And if you take a look at our volumes year-to-date and the guidance that we're giving, clearly, we're looking at an improved volume situation in the fourth quarter, potentially. And then, the next question was on other...

The competition race in Central Mexico. I'm asking because one of your competitors reported last night and it looks like they have been quite aggressive in -- Fortaleza has been very aggressive in Central Mexico. Now, my question is, is it sort of just them or are you seeing other competitors also being relatively aggressive both in price and volume in Central Mexico?

Okay. I think we don't have information, specific information in the market on top of public information, of course. But what you can expect and one of the reasons why our volumes were negative in Mexico in the third quarter, is pricing dynamics and our value-before-volume having an impact in our market position.

So what you saw in the third quarter and what you can expect for next quarter or the next few quarters is no different to what you have seen since early 2015. We lose market share because of our pricing intents. And then little by little, we try to regain that market share lost in the following quarters. I don't have the specific numbers with me now but if you review our volumes in Mexico for the last 6, 8 quarters, what you will see is positive or negative numbers.

So it's a kind of an unstable situation, unstable because of what I'm saying is pricing dynamics. I think we commented that we now think that we have recovered our inflation in our cost. So moving forward, what we can expect in Mexico is a more -- at least in our case, is a more stable market position.

Got it. And on the electricity side, can you comment a bit on what's going on? Why you're seeing these very steep increases in electricity in Mexico, specifically?

I would say that just in general, I mean, cost of energy has been going up, and that's what's been driving that. I mean, but other than that frankly, no particular reason.

The next question comes from Vanessa Quiroga from Crédit Suisse.

My first question is about Mexico. Can you share your estimated market share for CEMEX as of third quarter in Mexico? And the second one is about consolidated CapEx. So far, I mean, you invested less than what would be implied from the guidance for full year. So do you expect to reach your guidance of CapEx for the full year in the fourth quarter?

Regarding your first question on market share in Mexico, no, we cannot estimate market share of the third quarter. There is just not info available to do that at this point in time. But we do believe that again, because of our value-before-volume strategy in the last few months, we have lost market share. And again, that is not different, Vanessa, to what we have been commenting and you have asked before. I think since early 2015, we are trying to gain back pricing to pay for our cost inflation. And there are dynamics in the market, we insist in the pricing strategy then we lose market share. And then little by little, with certain strategies directed on a very precise micro market to recover that market share.

So I think what you saw in the third quarter is that we suffered a loss of market share. We don't know to what extent yet. But we know that happened and we are already in the mood of little by little and very responsibly trying to get that part of the totality of that market share loss. But unfortunately, I cannot -- we don't know, we don't have a figure. We don't know it ourselves. We will know in a few months from now.

Regarding your question in CapEx, we are not changing our guidance in CapEx, regardless of the amount that we have spent year-to-date, because we believe that most of the CapEx has been already committed. Meaning, we have committed those moneys, and they will be paid in the fourth quarter. There might be some variation but we don't expect for that to be significant.

We have a question from Alan Alanis from UBS.

In a way, it's related to Mexico and it has to do with the market share losses that you've been having. I guess there's 2 questions implied on this. One of them is, we're also noting that some of your competitors have better margins, even though they're much smaller than you. So I guess the first question is, how much of the profit pool have you think have you giving up in tandem with the market share losses? And the second question related to that is, how much would you have to invest? I guess, this is more of a follow-up of what Adrian was asking earlier. In terms of the CapEx not only for the fourth quarter for the coming years in order to catch up with this level of efficiencies of these newer plants that seem to be more profitable.

Yes. Okay, let me start with your first question on margins. I'm not sure our competitors do have better margins than ourselves when you compare them business line for business line. What it is real is that our portfolio in Mexico is different to the one that our competitors have. And as you may know, cement being the most capital-intensive business is the one with the highest margins, and our competitors tend to be more concentrated in cement.

Ready-mix, because again, it's a kind of a light capital business, has much lower margins and we think we have a larger position than our competitors. So I think the explanation on differences in margins are more related to mix of the different -- the 3 businesses we are in, cement didn't commit on the [market] which tends to be in the middle between ready-mix and cement and ready-mix. So that's for margins and I think the other question was related to market share.

Yes. The investment in CapEx that you will have to -- need to be doing in the coming...

Sorry, yes. In the case of CapEx, we decided not to change our guidance that the CapEx we're guiding is very similar to what we have spent the years before. And even though the year-to-date figure suggest the possibility of a lower number there, we believe that all the money for this CapEx has been already committed and will be spent during the fourth quarter. As I told Vanessa, there might be some minor adjustments, but we don't feel that we should change our guidance in that variable.

Got it. And if I may, just one last quick question regarding the turning of the cycle. Which indicators do you use for anticipating a change in the cycle? We've been seeing a lot of growth, particularly in Mexico. And if we take a look at the real interest rates right now, Fernando, I mean, they have been the highest that they have been in 15 years or something in Mexico in terms of the interest rates relative -- the real interest rate relative to the inflation, and we're seeing a deceleration in overall credit in Mexico because of that. Is it fair to say that we are -- I mean, how far are we in terms of a change in the construction cycle for you in Mexico?

Well, that's very challenging, but I think what I can tell you is that we constantly monitor and follow the main variables affecting each segment or sector of our 3 business lines. And in the case of Mexico, what we have seen this year and what we most probably see next year is that the market will continue growing. We tend to be, how to say it, either realistic or optimistic about Mexico because of -- Mexico is not growing 5% per year but we are growing 2% per year, which is more than what other countries have been able to grow than the last few years. But if we think on different sectors, think on the unemployment rate in Mexico, think on how remittances have been developing. So it's very -- a consumption, private consumption. So those are variables that have -- that continue being very positive. We don't see why they cannot continue being very positive in the months to come. And that, for sure, affects the informal sector in Mexico as well as the formal part of housing and others. The economy in general, tourism, other activities are doing well, so there is construction in industrial and the commercial sector.

The sector that is changing its cycle, let's put it that way and let's see how far it goes, is infrastructure. We have seen in the last few months, a lowered infrastructure spending because of all the budgetary constraints that the government has been dealing with in the last few months. But despite of those constraints, you see investments like the airport, the new airport in Mexico City. So all in all, we do believe that the cement market in Mexico will continue growing.

And if I can add, Alan. I mean, there's also a very important dynamic which we alluded to in our conversation earlier, which is the switch of lending from the private banking sector to INFONAVIT. And the INFONAVIT has introduced some interesting products for the larger, let's say, customers, players in the market. And that's probably actually, competing with some of the private bank lending. Now having said that, private credit mortgages are up about 5% year-to-date. I mean, granted they are slowing but -- so I think there's probably a little bit of that switch effect more than a reluctance on the banking side to provide credit in the economy.

Got it. Yes, I mean, it has to report with the real interest rates. I mean, I agree that 5% growth is still healthy. We're still seeing growth there. It's 1/3 in real terms than it was last year, but the comments that you made were very useful and I thank you.

The next question comes from Daniel Sasson from Itaú BBA.

My first question actually comes from -- it is related to the pricing side in Mexico. You have been successfully implementing the price -- the value-before-volume strategy for quite some time now, over 18 months or almost 2 years. So the first time you actually mentioned that your market share position might have been weaker versus previous quarter. Do you think that your competitors are not following suit on your price increases in Mexico anymore? And if that's the case, why -- what's your reason? What would be the reason for that? Do you think that the capacity additions that we've been seen in the industry since the end of 2016 might help to explain that?

And my second question is more on a broad view. It seems that your businesses in Colombia and Philippines are finally improving and should not be a concern or a drag to results in the coming quarters. So what would you say is your main concern today? Or what's the region that you're less comfortable with the outlook for? Those would be my questions.

Yes, thank you for asking. I will try to -- maybe, it might be helpful to try to summarize our value-before-volume strategy in Mexico. I remember since early '15, communicating that our pricing in Mexico precisely because Mexico is an open market in cement as well as in any other business sector, did suffer in a long period of time in the sense of us not being able to recover our inflation year-after-year for several years. And then, we saw that -- because of the market growing and everybody utilizing either all or most of capacity installed, we decided to try this value-before-volume strategy and trying to gaining back all the inflation that we didn't manage to recover the years before. The amount of the loss in previous years was not insignificant, it was a very material one.

Then what happened and what has been happening since '15 and is not different to what happened last quarter is that us being the largest supplier of cement in Mexico and trying to recover our input cost inflation, we -- the arithmetics are very simple. You try that and you lose customers, you lose market share. The competitors with capacity available, they have been taking them. So what you can see in market shares in Mexico, it's almost quarter-after-quarter is us losing market share. We don't communicate market share figures, but we do communicate volumes figures. So you can see every quarter-to-quarter, losing volumes materially like last quarter. And then the following quarter or the couple of quarters after, you can see our volumes growing more than what the market is growing, suggesting that little by little, with very precise strategies, we'll gain back our market position, that has been the case in the last 2 years.

Right now, during this quarter, we believe that because of our volumes dropping the amount we have already communicated, we do believe that again, this quarter we -- our market share position was eroded and we are already again, in a very precise manner, gaining back our position. So that's the dynamics that we have been going through since early 2015. And as I commented before and because of program prices in Mexico, we do believe that we are done with it. Done with it meaning, we have gained back the inflation that we have not been able to recover in years past because of the market decreasing and new entrants and different dynamics in the market.

So on the one hand, the explanation is it's been sort of unstable because we try to increase our prices eroding our market position and then little-by-little, with very specific commercial strategies, to trying to gain back that market share and then pushing again and again. Again, we are done with it and what you can expect -- you can never be 100% sure but my expectation is that our market position on pricing in Mexico moving forward will be more stable than what you have seen in the last couple of years.

And Daniel, I think you wanted to -- you had some questions on Columbia and the Philippines?

No, actually I just wanted to know what you're -- in the region, now that Colombia and the Philippines seem to be -- that the outlook seems to be getting clear and they seem to be getting more comfortable with the results going forward. My question was more related to what's the region that you currently have more concerns with regarding recovering results? What's your weakest region, currently? That would be it, Maher.

Well, I don't -- I was thinking while you were asking. I don't see any obvious -- we don't have any specific concern because of obvious economic indicators in different countries. I think we are more -- the situation is more the other way around in the sense of the markets or the countries that affected us and are affecting us this year, which are Columbia, Egypt and the Philippines, meaning those are the markets or countries subtracting EBITDA from us this year. What we see is that they have already bottom up, or they are about to have an inflection point in the 3 cases for different reasons. But the Philippines is growing, Egypt is still getting close to be stable in volumes but as you know, the Egyptian pound was appreciated and most probably will stay at current levels. And in the case of Colombia, you have seen already prices increasing again in local currencies and volumes, particularly because of the 4G project, is coming back.

So I do think on those 3 countries, which are the ones that are impacting in a negative manner the most this year, to be from neutral to very positive this year. So I think that will be a catalyst for our EBITDA growth next year. Again, I'm trying to think on any risky -- obvious risky situation in the market and I don't find it.

U.S. is going to continue growing. I think Maher explained already why. Mexico, we believe it's going to continue growing. We have already explained why. But Columbia, I just said it. Central America and the Caribbean, because of solid markets and the reconstruction, we believe they are going to grow. We believe that next year, Europe will continue with this strong volume story, perhaps except for the U.K. and you know the reasons why. Again, Egypt might slightly recover to 2017 conditions. Israel is booming. Emirates is booming. The Philippines, the country, GDP of the country is...

It's up 6%.

6%. The dynamics of the industry is getting more positive, more local production, less inputs into the countries, suggesting better pricing dynamics, which are the ones that have been suffering in the last few months. So maybe -- I just realized I'm making a kind of an outlook for next year, but I was not intending to do that, but that's what I see.

The next question comes from Yves Bromehead from Exane BNP Paribas.

My question would be on the U.S. You mentioned during the call that you saw some pressures on the ready-mix side in Q3. Can you maybe comment on that? And we've also heard that there could be also some pressures on the cement side. Is that something that you've seen recently? And as a follow up to that, I guess that your implied discussion on the letters that you sent with the -- you mentioned mid-teens price increases for next year. Does that kind of create any pressure in terms of the ability or the want from independents to build terminals or light side operations in the U.S. try to -- in event of the high margins right now that you're -- that you have in the U.S. Could you comment on that?

I don't think we commented -- I mean, volumes of ready-mix are performing not as well as what we've seen in cement, and that's probably more driven by weather than anything else. But we really don't see any particular pressure I mean, the pricing dynamics in ready-mix continue to be pretty good. We are quite exposed in our markets to hurricane-affected areas, I mean, Florida and Houston in particular are 2 very big markets for us in the ready-mix business. So I would say it's mostly reflective of weather. Pricing dynamics in ready-mix are pretty good, so I don't -- beyond that, I don't think we made any comments.

Now, in terms of terminals, I mean, terminals are almost as hard to come by in the U.S. as plants. I mean, there's a huge regulatory permitting availability of facilities to come by. And we have seen actually, I mean, if you take a look at the level of imports in the U.S., there have been fairly steady at around 13%, 14%. And if there has been an increase in imports as we have seen in our markets because we're sold-out, we're needing imports to supplement our domestic production like in places like California and Texas have been for a while, that's been done by local producers. I mean, we have not seen any impact from non-producers at the end of the day. So we don't see that impact. We don't see a negative impact there. I mean, could it happen? Of course, it could, but certainly for the time being, we don't see that happening. Now, I don't know if I addressed all of the question. Was there any part of the question I did not address?

No, absolutely, you did. I guess it was kind of a remark following what we're seeing from McInnis, riding in the new terminal in the Bronx. Just trying to understand whether or not this could be replicated by independents in the local markets.

I mean, that's not -- again, that's a very peculiar market situation and we're not present in that market. In the markets where we are in, we certainly don't see that.

Okay. And my second question is on Mexico. I just want to understand, I think you tried to increase prices in July throughout the industry, which didn't really stick. Just trying to understand, looking forward to next year, how do you see prices evolving in Mexico on a sequential basis? And do you expect to cover cost inflation into '18 at the current level of prices?

Yes. I think regarding July price increases, we got some tractions, but not as much as we were expecting. And regarding expectations on pricing -- pricing moving forward, I think that what you can expect or what we can expect, again, we don't -- this is our intent but we don't know, the market is a market. But our expectation is for prices to be stable at current levels. Of course, stable meaning you can see how our input cost inflation also we were trying to gain that back. But I think they intend to be much more stable than what they have been in the last 3 years.

Yves, does that address your question?

Yve, did you hear the response? I'm sorry, we may have had a little bit of a technical difficulty here. Did you hear Fernando's comments? Yves?

Apologies, he did disconnect right now. But we were not able to hear the reply, I'm sorry. It sounded very far away.

Okay, no problem. Well, operator, any...

We do have time for one more question and that question comes from Gordon Lee from BTG.

Two quick questions. The first is, I guess, more clerical, but do you have an estimate of what the last EBITDA was in dollar terms from all the natural disasters across the portfolio for the quarter? And then the second question is, Fernando, in the past in CEMEX say for instance, you've spoken about at some point in the not-too-distant future potentially returning cash to shareholders either through dividends or share buybacks or both. And I was wondering, given the achievements that you've had on the balance sheet side and given your outlook for 2018, which sounds relatively confident, is 2018 a year where we could see CEMEX returning cash to shareholders?

I think I cannot answer to that question at this point in time, Gordon. But yes, we are getting closer. I mean, I don't know if it's going to be 2018. Let's see how much progress we can continue doing. But yes, as we have commented before, we will continue with the same line. We will look for ways to return to our investors, either with share buyback programs or cash dividends as well as -- the more flexibility we have because of our much lower level of ratio, that the more free cash flow we will have, we can devote some of it to this topics. And on the other hand, we for sure also we'll selectively support organic growth. There are several opportunities in our current portfolio in order to that and also at the pace and at the level that we can manage and continue following our deleveraging intent is to invest also in some M&A. But yes, that's what you can expect. What I'm not sure if we would be able to do that next year.

Gordon, does that address your question? And then I will address the EBITDA impact question.

Yes, it does.

Okay, great. So on the EBITDA, I mean, we don't have a number but think if I can give you just a few data points that will probably allow you to kind of come to a fairly decent guesstimate on it, right? I mean, number one, the country that was most affected in terms of -- well, most important country that is affected in terms of outages obviously, is the U.S. business. And there, the outright outages were around 6 to 7 days in the 2 markets, in the Texas and the Florida markets. Now, that does not include the ramp up period, which in the case of Texas, it was a little bit over 10 days before we got to preweather activity production levels. In Florida, it took even longer, right?

So you can just calculate on the low-end of the side using the 6 to 7 days, and that just gives you the estimate of lost volumes, excluding -- we're talking only cement here, of course, you got a factor all the other products as well. And this excludes any potential reconstruction activity that may or may not happen in those markets, in those affected markets. Mexico, we did not have any material disruption there. There, the opportunity is from reconstruction. And as you know, we discussed that for the whole market, we guesstimate somewhere around 0.5 million tons of demand. And you could figure out roughly how much that would potentially be something that would impact our volumes.

In the case of the SAC region, the impact to volumes in the quarter is about 1.5% volumes. That is lost volumes due to the disruption. Again, that does not include any reconstruction activity, which would be on top of that.

That was our last question. I would like to turn the call over to Fernando González for closing remarks.

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