CEMEX, S.A.B. de C.V. (CX) Q2 2013 Earnings Report, Transcript and Summary

Good morning, and welcome to the CEMEX Second Quarter 2013 Conference Call and Video Webcast. My name is Lalaine, and I will be your operator for today. [Operator Instructions] Our hosts for today are Fernando González, Executive Vice President of Finance and Administration; and Maher Al-Haffar, Vice President of Corporate Communications, Public Affairs and Investor Relations. And now I will now turn the conference over to your host, Fernando González. Please proceed. Fernando A. González: Thank you, operator. Good day to everyone, and thank you for joining us for our second quarter 2013 conference call and video webcast. After Maher and I discuss the results of the quarter, we will be happy to take your questions. During the second quarter, our operating EBITDA increased by 4% compared to the same period last year and by 2% when adjusting for the number of working days. We are pleased to report that this is the 8th consecutive quarter with a year-over-year growth in operating EBITDA. During the first 6 months of the year, operating EBITDA increased by 4% on a year-over-year basis, adjusting for the effect of the change in the pension plan in the Northern Europe region during the first quarter of 2012. Operating EBITDA margin, also on a comparable basis, increased by 0.8 percentage points. During this period, we saw improvement in pricing in several of our regions, as well as continued cost reduction efforts. Consolidated volumes for ready-mix and aggregates increased by 2% and 4%, respectively, during the quarter, while cement volumes remained flat. The higher number of working days during the quarter positively contributed in 1 percentage point to this volumes. Growth in cement volumes in the U.S., South, Central America and the Caribbean, Mediterranean and Asia regions offset lower volumes in Mexico and Northern Europe. Our consolidated prices in local currency terms for cement, ready-mix and aggregates increased by 2%, 3% and 3%, respectively, during the quarter on a year-over-year basis. If we look at year-to-date pricing dynamics from December 2012 to June 2013, cement prices are higher in most of our major countries with the exception of Mexico, the U.K. and Colombia. In the case of Colombia, prices were stable in this period. We continue with implementation of our value-before-volume strategy in all of our regions, focusing our efforts on achieving sustainable margins in all of our business lines. In cement, we are implementing the gross minus logic and price road map in countries that represent more than 80% of our volumes. We have also implemented surcharges and service fees where applicable. In ready-mix, we have set benchmarks and initiatives company-wide to promote the debundling of ready-mix prices through the promotion and enforcement of surcharges, partial load and service fees. In aggregates, a company-wide price management model has now been fully developed in line with the value-before-volume approach. This includes a methodology to set our revised price targets market-by-market. On the cost side, we remain focused on adjusting our operations to current market dynamics. In Mexico, we have quickly adopted our operations to the temporary slowdown observed after the transition of the new government. In Northern Europe, we continue to right-size our operations and implement further efficiency initiatives. The new cost reduction initiatives will result in savings of about $100 million during the second half of this year, about 60% in Mexico and the rest in Northern Europe. These savings include headcount reductions, capacity rationalization, freight optimization and cost management among others. Alternative fuel substitution initiatives remain a very high priority. On a consolidated basis, alternative fuel utilization increased to 28% during the quarter from 27% in the same period last year. Geographic mix has mitigated this growth as some European countries with higher substitution rates have grown less than our consolidated portfolio. However, year-over-year substitution rates in most countries in our portfolio continue to increase. In the Americas, we saw higher alternative fuel utilization in the U.S., Colombia, Nicaragua and the Dominican Republic during the first half of the year. In Europe, higher substitution was achieved in Poland, Germany, the U.K., Spain and Latvia in the same period. In addition, Egypt and the Philippines have also increased their alternative fuel usage. Now I would like to discuss the most important development in our markets. Mexico, our volumes during the quarter reflected to a large extent the delays in spending from the public sector on infrastructure, as well as by lower sales of bagged cement to government programs. In addition, the formal residential sector continued to be affected by financing constraints and the uncertainty of the rules under the new National Housing Program. Now talking about the different segments. The industrial and commercial sector grew in the mid-single-digits during the quarter. We expect this sector to continue having a positive trend during the second half of the year as manufacturing activity improves in tandem with U.S. economic recovery. Activity from the informal residential sector declined slightly during the quarter, reflecting lower inflows from remittances and more moderate increases in formal employment and aggregate wages. On the formal residential sector, activity during the quarter was affected by continued financing constraints, high inventories faced by some homebuilders, especially in light of a higher emphasis on higher-density urban planning by the government, as well as by the uncertainty of the rules under the new National Housing plan. At the end of last month, the ministry of land and urban development announced the operating rules for housing subsidies, which will apply starting in 2014. In addition, there was an increase in the subsidy program of the CONAVI. With this increase, the current budget for the subsidy program is now practically in line with the amount spent last year. There was an important pick up in the granting of subsidies during April and May. The average monthly amount of subsidies in these 2 months was 60% higher than during the first quarter. In addition, the average monthly amount of mortgages granted also increased by 20% during April and May compared to the first quarter. We are encouraged by the various initiatives from the government to support the activity in the formal housing sector, including the announcement of 2 new financing programs for homebuilders, representing a total amount of more than $750 million. Although the infrastructure sector continued to be a drag on our volumes during the quarter, we are encouraged by the recent acceleration in public spending. For instance, the department of communications and transportation had spent less than 1% of its annual budget as of February. As of May, the year-to-date execution of the budget have increased to 16%. Moreover, earlier this month, the federal government announced its 6-year national infrastructure plan. The total investment is about $315 billion, and this is close to 30% higher in real terms than the spending done under Calderón's period. Out of this amount, about $100 million will be dedicated to telecommunications and infrastructure projects, including roads, ports, airports and railways. While the other segments in the infrastructure program use less of our products, we expect important levels of demand we generated from the higher spending in these segments. We have been recently awarded several road and highway projects, including the Mexico City-Querétaro Highway, which will bolster our volumes during the second half of 2013. In addition, there are other projects which should be awarded shortly and are also expected to start this year. Given the positive trends in some of the indicators in the formal residential and increased spending in the infrastructure sector, we expect a better performance during the second half of the year and more importantly, in 2014 and beyond. However, in light of our year-to-date volumes, we have adjusted our guidance for the full year. On the pricing side, earlier this month, we announced a nationwide price increase of MXN 60 plus tax on domestic gray cement. This represents an increase of about 4%. We also announced a similar increase in ready-mix. These actions are aimed at recovering our input cost inflation in cement and ready-mix production. While we adopt the increases, we will actively monitor our market share in our different markets. Our U.S. business continued its strong recovery during the second quarter, propelled by healthy price performance and significant operating leverage. During the quarter, our cement, ready-mix and aggregate volumes increased by 3%, 14% and 8%, respectively, on a year-over-year basis. Quarterly cement volume growth was constrained by poor weather in some markets, as well as not pursuing less profitable volumes in some of our markets. Growth in cement and ready-mix continued to be primarily driven by residential and industrial and commercial sectors. The residential sector remained the largest contributor to growth during the quarter. Housing permits in our 4 key states, Texas, Florida, California and Arizona, are up 38% year-to-date May, compared to a 27% growth rate at the national level. We do not believe that the recent rise in interest rates has affected demand for new home purchases to date. While down from its peak first quarter levels, affordability still remains at historically high levels. The industrial and commercial sector continues to contribute to demand growth. On a year-over-year basis, construction spending for industrial and commercial rose 7% year-to-date May. While national contract awards are up 4% in real terms, contract awards for our key states are up 22%. Texas and Florida show the most dynamism. We have seen a slowdown in infrastructure activity this year. Actual spending for highways and ditches is down 5% year-over-year through May. We attribute this weakness in year-to-date highway spending to a reduction in state discretionary highway spending, bad weather in many of our markets during the second quarter and the continued withdrawal of federal stimulus infrastructure funding. Based on the spending to date, we have downgraded our infrastructure volume expectation to a low single-digit decline. We do, however, continue to expect that this sector will show positive growth next year as the expanded federal direct loan program for transportation infrastructure funding begins to take hold and economic recovery progresses. We have adjusted our volume guidance for the U.S., chiefly to reflect the state of the infrastructure spending this year and the impact of weather that may defer some volume into 2014. We now expect cement volumes to grow by mid- to high single-digit. Pricing continues to respond well to market dynamics. During the second quarter, cement prices are up 4% on a year-over-year basis and by 1% sequentially as a result of our successful April price increases in markets that accounts for 23% of our volumes. We are moving ahead with a second round of price increases in the range of $5.50 and $8.80 per metric ton in Florida, Texas and California during the third quarter. In our ready-mix business, we continue to benefit from successful price actions during last year and this year as our old contract business rose off and new projects start at higher prices. Ready-mix prices are up 5% on a year-over-year basis and up 3% since the beginning of the year. Fees and surcharges for value-added services account for roughly 1/3 of the year-over-year pricing increase. Second half pricing increases of $6.50 to $10.50 per cubic meter were announced for Florida, Texas, California and parts of Arizona. In our aggregates business, prices are up 7% sequentially and 3% on a year-over-year basis due to product mix, as well as to some traction of our January and April price increases. As we have stated previously, we are pleased with the pricing achievement to date, but we still have a long way to go to eliminate the chronic pricing deficit of our products over the last decade that is necessary to achieve a fair return on capital employed. We remain committed to this growth. During the second quarter, the U.S. business continued to enjoy significant operational leverage on a year-over-year basis. Pricing advances, as well as volume recovery, were important contributors. Optimizing our energy mix remains a key objective in the U.S. Year-to-date June, our alternative fuel utilization reached 25%, 3 percentage points higher than the same period last year. The U.S. recovery is progressing well, and we are encouraged by the pricing increases we have achieved to date, particularly in ready-mix at this early stage of recovery. As we reach higher capacity utilization rates in our markets, we will rapidly increase prices to reach levels that reflect our cost of invested capital. In our Northern Europe region, headwinds from the economic slowdown remains a drag on our volumes. However, we saw growth in our cement volumes during the quarter in the U.K., Germany, Scandinavia and the Czech Republic, as well as in our ready-mix volumes in the U.K. and Latvia. Regional cement prices in local currency terms declined sequentially by 3% for cement. However, this decline is mainly due to a country mix. Year-to-date, cement prices from December last year to June increased in Germany, Poland, Scandinavia and Latvia. Our ready-mix prices in the same period increased in the U.K., Germany, France, Austria and Hungary. Pricing in aggregates was higher in the U.K., France, Ireland, Latvia and Austria. Year-to-date EBITDA margins declined by less than 1%, adjusting for the favorable effect during the first quarter of last year, resulting from the change of a pension plan. Our cost reduction efforts and higher year-over-year ready-mix and aggregates prices have in large part mitigated the lower volumes in the region. The rollout of our value-before-volume strategy across all business lines is well on track. During 2012, we went through cement and ready-mix capacity shutdowns in support of this strategy. Year-to-date, we closed additional ready-mix plants in Germany and Poland. We also continued to adapt our cement production to customer needs. In the case of Poland, we are closely managing our capacity with actions, including additional key stoppages and cost optimization. In Germany, the residential sector remained the main driver of demand for our products during the second quarter, supported by low unemployment and mortgage rates and increases in wages and salaries. Residential permits increased by 17% year-to-date as of April. We expect this sector to show a mid- to high single-digit growth during 2013. In the industrial and commercial segment, we have seen a slight recovery in permits in the last few months after some months of volatility. We expect a slowdown in this sector, resulting from the current macroeconomic environment. Regarding the infrastructure sector, there have been some restraints in new projects. We expect this sector to be stable this year. In Poland, volumes during the quarter were affected by adverse weather conditions, especially in our home markets. Despite the decline in volumes, cement prices in local currency terms increased by 4% sequentially. During the quarter, there was a sharp reduction in infrastructure spending on a year-over-year basis. Second quarter 2012 is a difficult comparison due to the high level of construction activity related to the Euro 2012 Championship. In addition, a decline in EU funds for capital investment in the public sector is expected for this year. Regarding the residential sector, we saw a slight increase in activity starting in February with an increase in cash sales. Interest rates have declined more than 2 percentage points in the last 12 months, which should translate into stability in this sector for this year and a potential significant improvement in 2014. In France, our ready-mix volumes were affected by the weaker economic performance. Infrastructure activity continued to be supported by a number of highway and high-speed railway projects that started during 2012 and will last several years. Activity in the sector should show slight growth this year. As expected, spending in anticipation of municipal elections next year should mitigate the effect of the economic downturn. Regarding the residential sector, a declining housing starts is anticipated for this year, reflecting tight credit availability and the effect of the less attractive buy-to-let program introduced this year. In the United Kingdom, the 9% growth in cement volumes during the quarter was driven by growth in the residential sector and, to a lesser extent, to a catch-up effect on the adverse weather conditions seen in the previous year. The residential sector has been positively impacted by government policies to promote homeownership, including guarantees and interest-free loans, as well as low interest rates for home acquisition in an environment of high rental prices. In the Mediterranean region, we saw growth in volumes in Egypt and the Emirates, which more than offset the decline in Spain and Croatia. In ready-mix, we registered positive volumes in our operations in Israel, Croatia and the Emirates. Our value-before-volume strategy is delivering our respective results in the region. On a quarter-on-quarter basis, regional prices in local currency terms increased by 7% for cement and by 3% for ready-mix. In addition, we continue to go through capacity adjustments in all of our business. In Spain, demand for our products continued to be affected by low infrastructure activity. In contrast, prices continue to have a positive trend. Sequential domestic gray cement prices increased by 3% in local currency terms during the quarter, reflecting favorable traction from our March price increase. The continued fiscal austerity measures keep infrastructure spending at very low levels. In the residential sector, the market is gradually absorbing home inventories with close to 20% of home purchases currently done by foreigners. Home prices continued to be adjusted but at a slow pace. We expect the residential sector to stabilize at a very low level during this year, while investment in infrastructure should decline, reflecting continued budget cuts. We continue to export from Spain to other countries in order to mitigate a decline in domestic cement volumes. We also continued to sell clinker to third parties. In addition, during the quarter, we reached an agreement to sell our cement assets in our San Feliu plant together with the commercial activity down from this site. We have shut down production at this plant several months ago. We will continue to focus on markets with high strategic interest to us. In Egypt, our domestic gray cement volumes during the second quarter increased by 18%. Although there have been disruptions in energy supply in the country, as we have commented in the past, we have a domestic alternative fuel strategy, which we began in 2007 and is delivering results. This allows us to operate regularly during the quarter. Domestic cement prices increased by 10% in local currency on a sequential basis. The year-to-date price increases has offset the increase in fuel costs resulting from partial elimination of energy subsidies. In addition, more than 50% of our dispatches are related to our value-added grounded bagged cement, which also improves profitability. The main driver of cement consumption in the country remains the informal sector. Infrastructure activity continued to be low. For this year, we continue to expect downward pressure on our volumes, reflecting the increased cement production capacity in the country. Operating EBITDA in Israel grew by 22% during the quarter. Ready-mix volumes increased by 13% with stable pricing during the quarter. Aggregate volumes also increased by 9% in the same period. In our South, Central America and the Caribbean region, operating EBITDA margin grew by close to 2 percentage points during the quarter. For the first half of the year, EBITDA margin increased by close to 3 percentage points. These margin expansions reflect higher pricing levels, as well as our continuing initiatives to improve our efficiency and reduce costs. In Colombia, the demand environment improved during the second quarter with a sequential increase in cement, ready-mix and aggregate volumes, adjusted for working days of 20%, 16% and 18%, respectively. On a year-over-year basis, our cement volumes during the second quarter increased by 3% and remained flat when adjusting for the additional working days. Our ready-mix volumes for the first 6 months of the year increased by 5%, reflecting the benefits from our increased coverage in the country with the addition of 14 ready-mix plants, as well as our 23 CEMEX En Su Obra on-site project solutions. The residential sector was an important driver of cement demand during the quarter, and we continue to expect a positive performance during the rest of the year on the back of several housing initiatives that have been announced, including: first, the construction process of the 100,000 free home program, which continues according to scale and is expected to be completed by early 2014; second, on an additional 100,000 homes the government has announced subsidies on the mortgage rate and the actual cost of the house and will also provide a guarantee to ensure access to financing; and third, the government is also providing subsidies on the mortgage rates on 32,000 middle-income homes. Regarding the infrastructure sector, we expect increased activity during the second half of 2013 as some of the projects could be accelerated in anticipation of elections in May 2014. We remain very optimistic on the outlook for our operations in Colombia. We expect that the positive trend in the residential and industrial and commercial sectors, along with higher infrastructure activity in the second half of the year, will allow us to reach our full year volume expectations. In Panama, our domestic gray cement volumes increased by 6% during the quarter and by 3% during the first 6 months of the year versus the comparable periods a year ago. This growth is driven mainly by the favorable performance of the residential sector as well as expansion of the Panama Canal. The residential sector, particularly middle- to high-income housing, has continued its positive trend. Bank mortgages have grown by 10% in the January-May period. We expect this favorable performance to continue for the remainder of the year. In terms of infrastructure, demand growth has been supported by several ongoing projects, such as the canal expansion, the Cinta Costera project and the Corredor Norte Highway. Going forward, we expect infrastructure spending to continue driving demand, with new projects, such as the third and fourth bridges over the canal, the second and third lines of Panama City subway, the Mina de Cobre hydroelectric plant and others. In addition, the development of the copper mining sector in Panama should result in incremental spending with announced investments of about $6 billion over the next 5 years. In Asia, operating EBITDA margin expanded in 2.6 and 4.9 percentage points during the second quarter and the first half of the year, driven by strong prices and higher volumes. The regional increase in domestic cement volumes during the quarter reflects the positive performance of our operations in the Philippines. In this country, we registered record cement volumes during the second quarter. The growth in volumes was driven by the residential and, to a lesser extent, the infrastructure and industrial and commercial sectors. Prices were stable sequentially. In the residential sector, there has been increased activity from foreign buyers, especially from Hong Kong and Singapore. The residential sector will continue to benefit from stable inflation and low mortgage lending rates, as well as strong remittances. Infrastructure spending is expected to remain healthy with projects still in the pipeline and the upcoming mid-term elections. To satisfy the fast-growing market in the country, our new grinding capacity in the Philippines, of 1.5 million tons per year, is expected to be operational during the second quarter of 2014. In summary, we are pleased with the growth in volumes in most of our regions, which has translated into positive impact on our pricing and the implementation of our value-before-volume strategy. We expect the cost reduction initiatives we are implementing in Mexico and the Northern Europe region will keep us on track to meet our full year operating EBITDA expectations. And now I will turn the call over to Maher to discuss our financials. Maher?

Thank you, Fernando. Hello, everyone. Our quarterly operating EBITDA increased by 4% or by 2%, adjusting for the higher number of working days during the quarter. Operating EBITDA margin remained flat in the same period. During the first half of the year, operating EBITDA on a comparable basis grew 4% versus the same in 2012, while operating margin increased by 0.8 percentage points. This margin expansion was driven by higher prices in most of our region, as already discussed by Fernando, our continued cost reduction efforts, as well as the continued favorable operating leverage in the U.S. Cost of sales as a percent of net sales decreased by 2 percent points during the quarter. The decline includes a reduction in workforce related to our cost reduction initiatives and lower electricity costs. Our operating expenses as a percentage of net sales remained practically flat on a year-over-year basis. We also continue with our efforts to reduce these expenses. Our kiln fuel and electricity bill on a per ton of cement produced basis increased by 2% during the second quarter and was flat for the first 6 months of the year versus the comparable periods in 2012. The savings achieved from using alternative fuels during the first half of the year reached about $45 million, which is about 16% of the total cement fuel bill in the same period. During the quarter, our free cash flow after maintenance CapEx was negative $86 million versus a positive $21 million last year. The year-over-year variations in free cash flow is due mainly to higher CapEx, working capital and cash taxes, which were partially mitigated by higher operating EBITDA generation. The higher year-over-year working capital investment during the quarter is mainly a result of higher receivables, reflecting higher sales. However, days receivable declined by 2 days during the period, reflecting our tight working capital management. In fact, year-to-date, working capital days declined to 28 days from 30 days during the same period in 2012, representing a reduction in working capital investment of close to $80 million. As in prior years, we expect to recover most of the year-to-date investment in working capital during the second half of the year, and we feel very comfortable in achieving our full year guidance. About half of the $57 million increase in cash taxes during the quarter reflects a settlement with the Colombian tax authority as disclosed in our quarterly report. In the second quarter income statement, other expenses, net of $106 million, include mainly impairment of fixed assets, severance payments, as well as a loss in sale of fixed assets. During the quarter, we recognized a noncash exchange gain of $102 million due primarily to the fluctuation of the euro and the Mexican peso versus the U.S. dollar. We also recognized a loss on financial instruments of $52 million related mainly to CEMEX shares. We had a controlling interest net loss of $150 million -- $152 million during the quarter versus a loss of $187 million last year. The lower loss reflects higher operating earnings before other expenses and an FX gain, which more than offset the higher other expenses, the higher loss on financial instruments and higher income tax. During the second quarter, we had about $110 million in proceeds from our securitization programs in different countries. In general, these securitization programs help us manage our working capital cycle and they represent an efficient way of financing on attractive terms. Proceeds from our securitization programs plus cash on hand were used mainly to meet the negative free cash flow during the quarter, reduce debt and service our perpetual notes. As in previous years, the seasonally negative working capital is related to the business cycle and most of it is expected to be reversed during the second half of the year. Total debt plus perpetual securities declined by $51 million during the quarter. The debt reflects a negative foreign exchange conversion effect of $13 million. We continue to be comfortable with our liquidity position with cash and cash equivalents reaching $746 million as of the end of the quarter. In addition, we continue to maintain over $2 billion of working capital and receivables financing facilities, which further bolster our liquidity position. Now Fernando will discuss our outlook for this year. Fernando? Fernando A. González: Yes. Thank you, Maher. For 2013, our expectations for growth in our consolidated cement and ready-mix volumes remain unchanged at 1% and 2%, respectively. In the case of aggregates, we are improving our consolidated volume guidance for the year to 2% growth from 1% before. We expect the improvement in volumes from our operations in the U.S., the South, Central America and the Caribbean region and Asia will more than offset the expected weaker Northern Europe and Mediterranean regions. We also expect the performance of our Mexican operations to be better during the second half of the year. Our cost of energy on a per ton of cement produced basis is now expected to be relatively flat from last year's levels. Guidance for total CapEx for 2013 remains unchanged at about $700 million. This includes $510 million in maintenance CapEx and $190 million in strategic CapEx. We expect cash taxes for 2013 to be slightly higher compared to last year. This guidance depends on the outcome of pending legal proceedings. Regarding working capital, we expect the working capital investment during this year to be similar to last year's. We also anticipate no major change in this year's cost of debt, including our perpetual and convertible securities from 2012 levels. In closing, I want to emphasize 3 points. First, as I mentioned earlier in the call, during the quarter, we saw an increase in our consolidated prices in local currency terms for our 3 main products on a year-over-year basis. Pricing trends continue to be favorably with year-to-date prices higher in most countries in our portfolio. Second, we have seen 8 consecutive quarters of operating EBITDA growth. The year-to-date EBITDA growth and EBITDA margin expansion on a comparable basis reflect an improvement in pricing and the success of our continued cost initiatives, which more than offset the decline in volumes. And third, we remain vigilant about our cost base. We continue to be focused on our company-wide efforts to improve our operating efficiencies and the value we generate from our asset base while delivering better value to our customers. 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, that would be referring to our prices for our products. And now we will be happy to take your questions. Operator?

[Operator Instructions] And the first question comes from Nikolaj Lippmann from Morgan Stanley.

A couple of questions related to operations. In Mexico, you are -- your decline in volumes and ready-mix is significantly less than in cement. Can you comment on what's going on there? It seems a bit odd in the light of weak government spending. So that's question number one. And question number two is related to the U.S. Can you comment on the -- it looks like you're seeing really strong pricing in ready-mix. Can you maybe talk a little bit about that and especially how much of that comes out of Florida? Fernando A. González: Sorry. Just checking your question on Mexico because the connection was not that good. Is it related to margins in cement?

Not really. I'm just wondering in the light of the weak spending from the government, it surprised me to see that ready-mix doing, say, less than cement. Can you say what's going on there? Do you have a bigger decline in cement than in ready-mix? Fernando A. González: Okay. I think part of the explanation is because there was some spending last year that was not present this year related to bagged cement, which is not -- ready-mix is not related to that sector.

And Nick, if you could repeat your question about the ready-mix in the U.S? I didn't quite get that.

Can you just comment a little bit on how much of what we're seeing in terms of the improvement in probability is coming out of the ready-mix pricing? And maybe if you can give some color on the operating environment in Florida, in particular, if you can make breakeven there, for example.

Sure. Well, I mean, Florida, for this quarter, was probably one of the best performers in terms of volume. And of course, you have to remember is that we are probably most integrated in Florida into ready-mix and aggregates. And so clearly, there is a lot of operating leverage as a consequence of the volume behavior there. We continue to see good traction for our pricing. And as we mentioned last quarter, for the first time in many, many quarters, we began to see traction for our pricing in that market. So clearly, Florida was a very important contributor. By and large, our markets, I think, are doing as well or maybe slightly better, I would say, than some of the other markets that we're not in. And in terms of ready-mix pricing, frankly, because of the significant underinvestment historically in the area at the margin in order to justify investments, there's definitely pressure on pricing. And so we're seeing very important, I would say, price support from most of the players in the market in general as -- because of that dynamic. And we think that, that's likely to continue or should continue.

That's good news. One final question, if I may. Just in terms of the tax amnesty in Mexico, are you decreasing an existing liability on the basis of that?

Are we what, sorry? Did you say...

A decreasing -- you mentioned a tax amnesty in Mexico. Is that causing one of your tax liabilities to basically to decrease? And how much would that be? Fernando A. González: I'm not sure I got the question correctly. We're not having a good line, but...

Yes. I'll send an email after the call. Fernando A. González: Okay.

Our next question comes from Vanessa Quiroga from Credit Suisse. Vanessa Quiroga - Crédit Suisse AG, Research Division: My first question is regarding Mexico. This quarter, we saw similar trends in volumes and prices compared to first quarter, and yet EBITDA margin was lower both quarter-on-quarter and year-over-year. Can you explain what's happened there? Fernando A. González: Yes. In this second quarter, on top of, as you mentioned, the trends we saw in prices and volumes in the first quarter, what we have is 2 additional kiln maintenance. So this is a one-time effect that is due to this factor. The rest of the impact is quite similar to first quarter, meaning prices and volumes. Vanessa Quiroga - Crédit Suisse AG, Research Division: So could you quantify the effect of this one-time maintenance cost? Or would you say that the margins would have been similar quarter-on-quarter? Fernando A. González: Would be similar, I think the impact in margin terms of this maintenance is about 3 percentage points. So it's most of the variation compared to last quarter -- to first quarter. Vanessa Quiroga - Crédit Suisse AG, Research Division: Okay, great. My second question is regarding the savings that you announced on the presentation. This $100 million savings, are those for the first half -- sorry, for the second half only? So annualized, are we talking about $200 million savings from now, I mean, sustainable? Fernando A. González: Well, it's clearly $100 million for the second half of the year. And then given that none of them are recurrent, then not necessarily we can translate the $100 million to, let's say, full $200 million for next year. Some of these savings are related to the volume impact we have in the first half. And as we have commented, we do expect that trend in volumes to reverse during the second half. So we cannot say that you can multiply $100 million times 2 in order to get the savings for next year. Vanessa Quiroga - Crédit Suisse AG, Research Division: Okay, great. And then my third question about the U.S. pricing. So far, you have announced price increases totaling on average maybe 8%, 10% at least for each of the markets, so far. And we have seen 3% to 4% year-over-year increases. So would you say that your average seed ratio or success ratio is more or less 30%, 40% of the announcements and that success ratio should increase as utilization rates increase? I mean, I just want to understand how to model basically your price increases. I mean, how much of that is actually reflecting on your operation?

Yes. That's a very good question, Vanessa. And I think it's very important to keep in mind that if we take a look at our January pricing increase, that probably affected about 3/4 of our markets in the case of cement. And it probably affected a little bit more in the case of ready-mix. In the case of ready-mix, you need to take into consideration, of course, that we have a little bit under 1/2 of our businesses is a contract-based business. So the pricing taking into effect will happen over time and it should accelerate during the course of the year, everything else being equal. The April price increase, as Fernando mentioned, covers a little bit under 1/4 of our markets. And again, as Fernando mentioned, we think as -- and we've gotten traction on these pricing increases pretty much in all of our markets. So we're very happy with what's going on in all of our markets. The other thing, of course, is that we've announced a second set of prices. So we should definitely be extracting more pricing growth in the markets in the U.S.

And our next question comes from Gordon Lee from BTG.

Just a couple of quick questions on Mexico, following up on the margin question. The -- so let's say, 3/4 of the sequential contraction has to do with the extraordinary maintenance on those 2 kilns that you mentioned. Have you identified any additional such extraordinary maintenance that you might have to do on other kilns? In other words, is this going to be somewhat more recurring this year? Or is this about it as far as extraordinary maintenances that you have identified at least so far? And then the second question is on prices in Mexico, which were down 2% sequentially, obviously reflecting the impact of the introduction of the Fortaleza capacity, I would assume. But will the increase -- will the decreases in pricing concentrate on the Central region? Or did you see pressure on pricing in other regions as well? Fernando A. González: On your first question, Gordon, I think there might be one additional maintenance, meaning additional to the number of maintenance we did last year. So it might not be that relevant. The other thing I should add on margins in Mexico is that, to a lesser extent, during second quarter, there was also an impact on all the strategy in introducing our special cement products that will not be repeated, not to the level that we did during the second quarter. So we shouldn't expect a significant impact on margins moving forward because of these issues in Mexico.

And on the pricing -- could you repeat your question on the pricing? I think you had a...

The question on pricing was basically pricing fell 2% quarter-on-quarter, first quarter versus second quarter in Mexico in local currency terms. My question is was that concentrated, that decline, concentrated in the Central region? And you could assume it has entirely to do with the Fortaleza expansion being absorbed during the -- the Fortaleza greenfield being absorbed during the quarter. Or did you see generalized pricing pressure across the country? Fernando A. González: It is generalized. It's not specific to a region. It's generalized and it's mainly because of the dynamics in the market. When volumes are adjusted, they're going down. So nothing particularly specific to any region.

And we will now take a Web question from the Web.

Yes. The question from the website is from Yulia Veselova from Credit Suisse. And the question is, please could you explain the drivers behind an 18% year-on-year cement volume increase in the quarter in Egypt? Please could you tell us how tight energy supply impacts your operations in the country? Fernando A. González: Well, the 18% growth is mainly due to informal construction, informal housing construction in general terms. Now to some extent, as you know, because of the energy supply issues the country is going through, part of this increase in the case of our volumes is because of a combination of factors. Some of cement companies in the North of Egypt, our cement plant is located in the South are suffering from shortages, particularly from gas. And in our case, we aren't. I think we commented before, we have a combination, in the case of our plant in Egypt, that we use fuel oil, which as of today, it continues, available in that part of the country. And we have complemented the -- our energy strategy in Egypt with the use of alternative fuels. So our use of alternative fuels in Egypt in the second quarter was -- for the whole plant was close to 20%. So that combination is allowing us to do cement without any disruption or any negative impact because of the shortages of energy in the country.

[Operator Instructions] And our next question comes from Mike Betts from Jefferies.

Yes. I had 2 questions, if I could. The first one, I think, was on Slide 9, where you talk about Northern Europe and you talk about sequential pricing. It's at the bottom there, minus 3% cement sequentially Q2 versus Q1, minus 4% ready-mix, minus 7% aggregates. Is that all mix? Or is there really being -- given the weakness in volume, I see that there may have been some real weakness in pricing. So maybe just a little bit more on that. Are you talking about country mix? Are you talking about product mix? How confident are you that there's no real underlying deterioration there? And then secondly -- and I have to admit, I was hoping I'll be a bit later on the questions because I've just seen the data on the website. But you've changed your volumes down for Mexico, the guidance to the year. You've reduced it for the U.S. I'm still trying to work out how you've managed to keep the group volumes constant. So maybe you could summarize that in terms of cement. Fernando A. González: Okay. On prices, Mike, it's definitely a mixed effect because as we mentioned, the volumes in the U.K. grew less than volumes in Germany and Poland. And as you know, the U.K. has the highest prices, so there is an impact because of the mix in these regions. So it is basically mix. Now versus first quarter, for instance, in Poland, prices increased 3% and the U.K. and Germany were flat. So we can attribute that to mix.

Okay. And then my second question was the flat group volumes of cement guidance or plus 1%, which is what it was before, yet you've lowered the Mexican and the U.S. numbers. Where is the offsetting increase? I guess, I can go through it number-by-number. But overall, where is the increase? Fernando A. González: Can you repeat the question? Particularly in the case of Mexico, I'm not sure I got the...

Yes. I've just seen the slide. I think it's 26 on the website, which shows the new volume forecast by country. And as you said you've left the overall group of volume of plus 1%, but you have significantly lowered the Mexican forecast and the U.S. I'm struggling to see there where you've raised the forecast in other countries to offset it. Because, for example, I'm looking at Spain, it was minus 17%, it's now minus 25%. So I'm trying to work out which countries are offsetting the weaker outlook, particularly for Mexico and for the U.S. in terms of the 2013 cement volumes.

Yes, maybe I can... Fernando A. González: Yes, go ahead.

Mike, we're -- I mean, we were very pleasantly surprised with what happened in the U.K. So in the second quarter, as you saw, our volumes were up close to about 9%. And so on back of that, we improved our guidance from minus 2% to flattish guidance. So that was very helpful. And then of course, in Egypt, on back of the performance in the second quarter, we improved our guidance from the minus 7% to the minus 2%. And then in the Philippines, we also improved the performance from plus 4% to plus 5%. And we feel reasonably comfortable that those changes plus -- and of course, in the U.S., both in the U.S. and in Mexico, we're talking about ranges, right? So we think at the end of the day, the combination of our expectations from Mexico, U.S. plus the increases in these other countries, we should be flat in our volume performance for cement on a consolidated basis.

And in Mexico -- because obviously you need a quite a catch-up in H2 in Mexico to meet that guidance. That's primarily because of the lower base? Or it's the infrastructure program getting off? Or what's behind the confidence that you move from minus 7%, minus 8%, I think it was, in Mexico to down flat to low single-digits? Is it the base effect? Fernando A. González: Well, I think that the same way we have -- we did communicated in our first quarter call, and now this time on the impact on government expenditure. Clearly, by now, we can see a material change regarding expenditure. So in the case of infrastructure, for instance, with information we have available, April and May, it has increased 22%. So that's very material. And in the case of an internal indicator, which is our ready-mix contracted volume for infrastructure, since March, it has increased 14%, which is an increase of about 80% when compared to last December. Then we have the announcement of the national infrastructure plan and some of those projects are already projects that are developed as projects and they are having some traction. So that program, as you know, is about 50% higher than the previous program, the one under Calderón's term. This is in nominal terms. Then you have the impact in housing. Again, with information available, April and May, compared to the previous quarter that are -- like 20% additional mortgages. This is also a very positive indicator. And we're seeing that the industrial, the commercial sector in Mexico should continue behaving similar to previous quarters, meaning growth of 30%. So all combined, regardless of the reduction of volumes during the first half, that makes us believe that second half will be much, much better.

And maybe, Mike, if I can add also. I mean, if you do the arithmetic, we need about a mid-single-digit growth in the second half year-on-year in volumes and to get somewhere in the middle of the range of our guidance. And to your point about basis comparison, if you take a look at average amount of shipments per day in the second half last year, they were definitely weaker than the first half, so not only we feel that due to all of the reasons that Fernando mentioned but also the growth that is needed to get to our guidance is relatively manageable and the base comparison is going to be a little bit easier.

And we will now take a question from the webcast.

Yes. The question from the webcast is from Phil Dumas from Geode Capital. And the question is, any update on plans to address the convertible note maturities? Fernando A. González: We have not changed our minds. I think what we have communicated so far is that we did request authorization from our shareholders in the last AGM in order for us to be able to execute any type of transaction. But this is -- the first convertible is due in March 15, so we still have the time to see how it goes and act or react if needed. Our best case is that those convertibles are going to be converted. But anyhow, we do continue monitoring the situation, market conditions. But we have not changed our plans regarding those convertibles.

And we have time for one last question from Santiago Perez from Credit Suisse. Vanessa Quiroga - Crédit Suisse AG, Research Division: This is actually Vanessa. Santiago had to step out. Well, we just had probably one last question. Just to be very clear about the taxes, what kind of legal proceedings have to be solved to get to your guidance of a relatively stable cash tax payments for the full year?

I mean, we have a -- as you know, we've had a change in tax legislation, which was retroactive in Mexico. And we've been going through legal proceedings to address that. We will probably get resolution one way or another by some time in the fourth quarter of this year. Now we have gotten almost a unanimous opinion from our legal counsel, giving us the very strong comfort that the conclusion should be in the way that we understand it, which is favorable to us at the end of the day. It's difficult to comment on more details as this is an ongoing legal process, so it's difficult for us to do that. But we do expect -- we're quite comfortable in believing that we should get a resolution in our favor sometime in the fourth quarter. And to the extent that, that happens, then we should be comfortably meeting our guidance for the tax bill for this year.

I would now like to turn the call over to Fernando Gonzales for closing remarks. Fernando A. González: Thank you very much. In closing, I would like to thank you all for your time and attention. And we look forward to your continued participation in CEMEX. Please feel free to contact us directly or visit our website at any time. Thank you, and good day.

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