Good morning. Welcome to the CEMEX Second Quarter 2016 Conference Call and Webcast. My name is Hilda, and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] Our hosts for today are Fernando González, 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 González. Please proceed. Fernando González: Thank you. Good day to everyone and thank you for joining us for our second quarter 2016 conference call and webcast. We will be happy to take your questions after our initial remarks. Our solid second quarter and first half results demonstrate the resilience of our portfolio which is largely comprised of high-growth markets that are experiencing attractive supply-demand conditions. Overall, we saw a higher consolidated cement and aggregates volumes during the quarter as well as continued favorable results from the implementation of our value-before-volume strategy. Year-over-year pricing is higher for our three core products, sequentially cement price, the cement prices increased by 1%. Higher consolidated volumes and prices led to a growth in sales of 6% on a like-to-like basis during the quarter. Volumes and prices also had a significant impact on our EBITDA generation. In the case of pricing the impact was $132 million which materially exceeded the increase in our costs. This together with the favorable operating leverage in many of our markets led to a 16% growth in operating EBITDA on a like-to-like basis. Even in U.S. dollar terms our EBITDA increased by 6%. In addition, EBITDA margin expanded by 1.3 percentage points. All regions reflected increases in margins during the quarter. Both EBITDA and EBITDA margin were the highest achieve in…

Thank you, Fernando. Hello everyone. It is important to note that in our second quarter report the results of our operations in Croatia, Austria, Hungary, Bangladesh and Thailand have been reclassified as per IFRS accounting standards and are now reflected in a discontinued operations line item in our financial statements. Our net sales and operating EBITDA on a like-to-like basis increased by 6% and 16% respectively during the quarter. There was higher like-to-like EBITDA contribution from all regions in our portfolio. Our operating EBITDA margin increased by 1.4 percentage points and was the highest second quarter EBITDA margin since 2008. This margin expansion mainly reflects better volumes and prices as well as greater operating efficiencies. On a year-over-year basis, we continued to see the effect of the appreciation of the US dollar versus some currencies in our markets. The quarterly FX impact on our EBITDA was $69 million, excluding about 17 million of the effect of dollarized costs in our operations. As Fernando mentioned earlier, this was more than offset by the favorable contribution of higher prices on our EBITDA. Cost of sales plus operating expenses as a percentage of net sales declined by 1.5 percentage points during the quarter, reflecting our cost reduction initiatives as well as slower energy costs. Our kiln fuel and electricity bill on a per ton of cement produced basis declined by 17% in the same period. Our quarterly cash flow after maintenance CapEx was $478 million, $376 million higher from last year's level. This is the highest free cash flow in a second quarter since 2008. This is mainly explained by higher reversal in working capital as well as higher EBITDA generation, lower taxes, and financial expenses. Free cash flow after total CapEx was $422 million, an improvement of $359 million compared with the…

[Operator Instructions] Your first question comes from Benjamin Theurer from Barclays.

Hey, good morning, Fernando. Good morning, Maher. First of all congratulations on the results. Fernando González: Thank you.

I just wanted to ask two questions, one on the market dynamics in Mexico. So clearly, the growth, what we've seen here, especially in cement volumes was tremendously strong. Could you share a little bit what you've been seeing for the market, how you've potentially gained, from my suspicion its market share against peers and, how do you see the second half here in terms of potential for market share gains or what you expect in terms of capacity to come on stream or potentially some ramping of capacity. That will be my first question and then I have one on financing. But maybe we can take that one first. Fernando González: Okay. On Mexico, Benjamin, we have describing our strategies since we started it early last year and the process that has been happening and the process we were expecting is that we started according to our value before volume strategy, adjusting our prices. For several reasons in previous years cement prices in Mexico did eroded because of market conditions, meaning bonds declining. If you remember 2015 was a challenging year for Mexico. And dynamics are different nowadays. The market is growing. Last year it was a high-growth market. This year it continues growing and we do expect the market to continue growing not as much as earlier, but it will continue growing. So, capacity utilization in the country is different than what it was in previous years and that has helped us to recuperate prices lost compared to whatever, compared to general inflation, compared to inflation of our own materials and consumption compared to inflation of all the construction materials. So that's what it's going through. In the first phase and for the whole second half of last year, we lost market share we would expecting certain loss…

Okay. Perfect. Very clear. Thank you very much, Fernando. And one in regard to the credit agreements, so we all know that in 2017, the first part of that renegotiate credit agreement is due with a little over $400 million. Right now it's my understanding you run at about a quarter of your total financings is with banks. And I remember you said in the past that you're looking to have somewhere around 30% of financing with the bank. So is that something where we should expect some renegotiation or do you plan to repay or pay that $400 million and change in 2017 because you are going to have and then issue potential or negotiate something like a new debt with banks going forward in order to maintain that share to get a little bit of sense on how your financing structure is going to look like in coming years, that would be the second question. Fernando González: Okay. So there are several things embedded in your question, Benjamin. Let me start trying to provide context, so I can clarify that. In our strategy, of course, we have been reducing or refinancing debt the one that is more expensive or debt that it's the one to be refinanced in the very short – in the shortest period of time. Now, we have reduced our debt already, but as commented in the forecast of the production for the whole year in the second half, we will be also reactive on reducing debt, again, the most expensive one. So by the end of the year or at least a year, I am not sure on a specific date, but I think most of that for the next three years or four years perhaps is going to be bank debt. Are we going to pay the $400 million -- around $400 million that are due in September next year, are we going to refinance that, will depend on conversations with the banks that we have not started already because we are concentrated again in other liability management transactions before getting to into a position of having almost on the bank there in the very short-term. Now if we continue reducing our most expensive there just by doing it in proportionally our bank debt will be higher, on the other hand as you know, we increase bank debt with the €106 million that we just added. So the proportion we will be changing because of different reasons, what I'd like to see a larger proportion of bank debt the compared what would total debt yes, I think, I think that its – it would be beneficial for us, you know to improve the sources and the proportion of different sources of financing. But it will not come necessarily only by increasing back debt again, we are working all the angles and at the end it will cause a slightly higher proportion of buying debt compared to total debt.

Okay. Very good. Thank you very much, Fernando. Fernando González: Thank you, Benjamin.

Operator?

Your next question comes from Vanessa Quiroga from Credit Suisse.

Hi. Thank you for taking my question. Hi, Fernando and Maher. Fernando González: Hi, Vanessa.

Congratulations on the results. Fernando González: Thank you.

First of all, I want to ask you about that Mexico volume and what's your estimate for the industry growth on that quarter on that year-over-year basis, please. And the other question that I have is regarding pricing in Europe we did see some weak pricing for the regions, so I was wondering what countries, drove this weakness in sequential prices in local currency? Thank you. Fernando González: In the case of Mexico volumes for the second quarter we still don't have all the information, all information is not yet available Vanessa, so we don't have – and we are not disclosing because of that all information on industry numbers for the second quarter, whenever we have them, we will gladly communicate those. And the second question was about - Pricing in Europe – yeah, so pricing in Europe Vanessa, I would say that, the two main markets where we've seen a little bit weaker pricing in the European markets or Germany, we saw a drop of about 2%. Spain was about a 4 percentage drop and you know, we've had some other actions in some of the others but those are the two major markets that were not supportive of the pricing dynamics in Europe.

Are those the sequential declines in market and what can you tell us about that competitive landscape there, do you see it was an industry-wide dynamics?

I think that in Germany, we've had some competitive dynamics that were taking place, and we've had some change in ownership and the positions there and so it's adjusting as we speak. On a year-over-year basis, we had high base of comparison also but it's important that we have a new player there and they are adjusting kind of their feel for the market. But we continue to feel the fundamentals for Germany to be fairly positive and we've seen a lot of immigration which should be supported for the residential sector and infrastructure continues to do fairly well as well. So we think that probably the pricing dynamics that we're seeing are hopefully of a temporary nature, because the fundamentals of the business continue to support very positive pricing dynamics.

And in Spain?

Spain, it's probably mostly a geographic footprint mix. I would say that they are again – there are some political uncertainty in terms of – that is putting a little bit pressure on the consumer and business confidence, but on the residential side we continue to see very positive behavior. Industrial and commercial, the non-residential permits grew quite a bit in the 2015 and there's a tale – there's a tale effect to that in the first quarter of the year things slow down a little bit. And obviously in terms of the expectations of the political situation there is probably creating a little bit of a headwind in terms of new construction activity.

All right. Okay, thanks Maher. Maybe if I could also had a question about the working capital improvement. What were the concrete or regions that drove the improvements, spending improvements? Fernando González: I think in the process we are following and we had the chance to elaborate in our CEMEX day. The two countries where we were expecting a contributions this front last year, this year and next year are U.S. and Mexico. So what we have seen in the first half of this year during the second quarter included is that U.S. and Mexico have improved materially their working capital numbers. The rest of the company has also improved their labels, but if you remember Vanessa, CEMEX excluding in Mexico and the U.S. already had working capital labels between zero and 10 days. And on the upside, we thought it was coming from the U.S. and Mexico, and that's what is happening. So for instance year-to-date working capital in the U.S., its 31 days compared to 40 seeks last year. So that's a material contribution. On the other hand, Mexico's working capital this year is 18 days and that compares very favorable to 33 days last year. So we are very pleased with ambitious targets that our management teams in Mexico and the U.S. – the targets that they have set and they are following. Because of the numbers I just mentioned 31 days for the U.S. and 18 days for Mexico compared to zero to 10 days for the rest of the company, I do believe that these numbers will continue being reduced meaning improving in the months and perhaps years to come. And as you know U.S. and Mexico are the largest business units in CEMEX, so this change would be very material on a consolidated basis.

Okay. Thanks. I think especially given their higher volumes in Mexico in the quarter. Thank you. Fernando González: Thank you, Vanessa.

Your next question comes from Nikolaj Lippmann from Morgan Stanley.

Hi. Good morning. Congratulations on the numbers, and thanks for taking my question. I have three questions. The first is on the level of profitability in the U.S. and then some on taxes and Tepeaca. In the U.S., if I just take your EBIT – your reported EBITDA number and divide it by the cement volume in the quarter, I get that you make – cement prices look to be about $15, $20 higher a ton based in the U.S. But it looks like just with this simple analysis that you're making about $10 less a ton of cement sold in the U.S. So I was wondering, if you can comment a bit on your cost structure in the U.S., if there is an opportunity, perhaps, to lower cost and increase U.S. profitability? So that's question number one. And question number two, if you can remind us or remind me of your tax loss carry forward for the U.S. and what we should expect with regards to taxes towards the second half of this year? And, finally – I'm sorry about all these questions – what's the status on Tepeaca in Mexico? Thanks. Fernando González: What is the what? Sorry.

The status on the Tepeaca...

The status on the Tepeaca expansion in Puebla. Fernando González: Well, we are doing progress with the project. And we still don't have a very specific date, but it should be next year. We will be, in quarters to come, clarifying when are we going to start up the expansion in the Tepeaca, which – what I can tell you is that our 4 million tons of additional capacity in Tepeaca will come in two phases with a different timing. So the expansion that I'm referring to be ready for next year will be around 1.5 million tons of cement. So that's for your Tepeaca question.

Thanks. Fernando González: Yeah. And, Nik, if I can address the U.S., I mean, first, it's very difficult to compare across regions. Right. And it also has to do a lot with footprint changes in terms of where the growth is coming during a particular quarter. But also very important, the margin dynamics between first quarter and second quarter had a lot to do that we had a volume pull through from the second quarter into the first quarter. So kind of looking at the cost structure quarter to quarter is very tricky in the U.S. because of seasonality and because of the pricing dynamics and because of weather. If we take a look at the first half, EBITDA margin was up about 2.7 percentage points year-over-year and frankly we're expecting it to do much better in the second half of the year. Also, if you take a look at just the consensus number, so that I don't give you any kind of guidance on the quarter -- on the full-year expectations for the U.S. the first half EBITDA generation this year is very much in line with kind of what we had at last year, maybe there's a difference of half a percentage point, it's around 38%, 39% of the of the total EBITDA as expected by consensus. So the second half of the year will be up us a significantly higher EBITDA generating portion of the year and that will reflect obviously everything else being equal will reflect an improvement in EBITDA margin. So, I think that's those are the factors that that are driving that structure. It's really not that we have a structurally different cost structure. Now we do have some issues for instance like carrying our import terminals for instance that has not been utilized that kind of -- until that capacity utilization increases to require us to use those that will have headwind on our on our margin, but that should that should improve. So I don't know if that addresses your question, Nick.

Thanks. One that I don't want to kick that whole, but if we think about the original guidance 116 $1.2 billion into this year it means half through 2016 and I noted that has been revised while its changed, but when we think about you don't like giving the details on the business lines, but can you reflect on just the way things are very different from that original guidance in terms of margin cement margins, ready mix, aggregate margin if you want to comment on that? Fernando González: Yes. I would say that probably you know when we talk about that that 1.2 kind of more and I don't want to call it steady state but say that the medium-term expectations for the U.S. is EBITDA generation. I think that volumes are probably a little bit lower than, than expected. And certainly I would say that pricing is probably ahead, but still short of where we would like to be in the next two to three years. If we take a look on, on a real, real term basis we're still good $25 to $30 per ton below where we should be in the U.S.. And so, and we do expect like I said, we do expect an important – based on consensus the market is telling us that we're following a trajectory similar to last year where we had EBITDA growing kind of mid-30s. This year, the consensus is somewhere around 30% and the pricing dynamics should get better as supply demand tightness in the US market gets more favorable frankly. So now when are we going to get to 1.2 billion? I mean, frankly we'll have to wait and see.

Okay thanks. Just remind us that the tax is now into profitability level in the U.S. is increasing and if you could just remind us of the tactical start forwards you have there and when they start expiring? Fernando González: Unfortunately Nick we have not been disclosing the tax loss carry forwards by region.

Thank you very much. Fernando González: Thank you Nick. Operator?

Your next question comes from [indiscernible] from Bank of America.

Thank you very much and congratulations on the good result. One of my question is on working capital which I think you've already answered. I guess I would like to ask is if you think there's number of days can be sustained in the second half of the year and going forward? Also I would like it if you could just remind us again what the EBITDA sensitivity is to the moving the pace since you are seeing quite a bit of volatility there? And then thirdly, just more generally in previous U.S. election years could you – is there any trend you could comment on in terms of performance in the US in terms of home building or construction activity leading up to the elections or following the elections? Thank you. Fernando González: Yes. On working capital and the direct answer to your question is yes these levels of working capital are sustainable. And I have reasons to believe that for the rest of the year it will continue improving not just maintaining them. And the main reason is that, you know for some time we have already gone with an a global initiative on working capital optimization which has being executed in most of the company. As I mentioned Cemex as said forth U.S. and Mexico is currently in the range of 0 to 10 days of working capital and its being in that range for some time already and still improving slightly. And in the case of Mexico and the U.S., we started this initiative in late 2014. You saw the changes in 2015 and those improvements continued this year. And because of the numbers that the that we are showing in the first half in working capital, 31 days for the U.S. and 18 days for Mexico. Again, and compared to the rest of the company, I think, I do have solid reasons to believe that the U.S. and Mexico will continue improving and therefore contributing to free cash flow in the next -- in the rest of the year and to some extent the next year. I mean, it would take 31 days or 18 days to a range of zero to 10, which is what we have in the rest of the company that will continue being sizable contribution.

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

Okay, great. And did you have another portion of the of the question, just remind me of that please. Fernando González: It was about -- just about the impact on business in the U.S. and the U.S. election.

Right, right. I mean we -- look -- who knows, I mean we can't opine. All I can tell you is that we feel that there's a lot of momentum in the major drivers. I mean there shouldn't be any impact from the elections on the Federal Highway Bill which is in place for the next five years and that we don't anticipate any changes. I think we've had fairly good bipartisan support for that. In fact, if we didn't it would have happened. And frankly I think most Central Banks around the world are talking about exhausting monetary policy and maybe looking at fiscal stimulus policies. Maybe in the U.S. were not saying that, but there certainly an enormous pressure in that direction. So on the infrastructure side, we don't see major changes. And on the housing side, I mean, we continued to see fairly decent legs to the expansion there driven by continued improvement on the employment side, lower interest rates. I mean, your analyst actually, at Bank of America Merrill Lynch, is one of the good guys that cover that and she has some very good expectations on the residential side. And we're seeing that in our markets. I would say that that the only market – micro market that has seen softness has been the Houston market. And virtually everywhere else we've seen some very fairly healthy growth, even in Texas if you take a look at Dallas and Houston – I'm sorry, Dallas and Austin, the markets are doing quite well. So we think that in general most of the drivers of our business are relatively independent, relatively, I put that in quotation mark, because nobody knows what's going to happen and how either of the candidates will behave, are fairly insulated from that. But generally speaking, we're reasonably positive, either candidate.

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

Thank you, Anne. Fernando González: Thank you very much, Anne. Operator?

Your next question comes from Dan McGoey from Citigroup.

Good morning, gentlemen. Congratulations on the results. Question on U.S. pricing, you had relatively mild expansion quarter on quarter in pricing and you're due to implement price increases in 50% of the markets where you operate. Can you talk a little bit about on the take-up and where you had success? And then also on – I think you mentioned before the price increase effective July 1, which wasn't successful in first quarter. Tell me a little bit about what may have changed in Florida that gives you confidence to achieve it in the second half? Fernando González: Sure, just first, year-over-year prices were up us as we announced, 4% in the quarter and sequentially up 2%. And what's really, I mean, and just as a reminder, I mean, all of our prices that we report are CIF prices for gray cement. In the case of the U.S. and some other markets, the transportation element is an important element in the U.S. particularly important because of the distance that our products travel. So if we take a look at the pricing dynamics in the U.S. point-to-point on an FOB basis, which is probably the best way to look at it is about 9%. So that's a very high realization to the announcements that we have made, we believe, and so we continued to be quite constructive and optimistic about the pricing increases. We've had pricing increases in January. We've had pricing increases in April. The April pricing increases I think we’re getting fairly good realization in California, South Atlantic, probably little bit weaker in Arizona, fairly successful in North and Central Texas and Houston for obvious reasons not particularly good. But in general I think the April pricing increase held up quite well. Where the only incremental pricing increase that we have going into the second half is the July pricing increase in Florida, that's up mid-single-digit percent increase that we have announced. I would like to say that we're cautiously optimistic about Florida. It's a market that is growing quite a bit. Capacity utilization has picked up considerably. We've had some issues in supplying that market not necessarily ourselves but the industry. So the conditions we believe are favorable to absorb that July pricing increase.

And if I can follow up on that Maher, would you say each regional market is different but would you see the bigger impediment to do price increases is now growing imports or is it still pockets of spare capacity on domestic producers?

You know what imports as a percentage of total consumption are pretty stable. I mean, they represent roughly kind of low to mid-teens of the – of total consumption. The makeup of importers has not changed in any material way. We continued to have north of 95%, 96% of imports being brought in by local producers. For us in our markets within our four key states, you know 60% of the imports are coming into Texas, which is a sold-out state. So imports have not been disruptive and certainly have not been putting an upper limit on pricing. I think pricing dynamics are very much driven by the competitive dynamics in each one of our micro markets. And... Fernando González: If I may add some additional context on pricing in the U.S., which is what you're asking and trying to better understand. I think and you know that we are getting close to full capacity utilization all over the U.S. that my happen sometime next year, and that's why you might observe some additional inputs coming into the market. But having full capacity utilization and we had already very close to full capacity utilization and in some markets we are already improved capacity utilization. That will be the best context for being able to recuperate prices in the U.S. that we have lost in several years, because of all the, you know, I need to go back to lots of years already to 2007 and even years before the peak prices in the U.S. has been $30 to $40 higher than current cement prices in the country. So I think that the context for next year, full capacity utilization with an upside in prices at least compared to historical ones, I think is – it is a very interesting formula on a situation to contribute to EBITDA in the U.S. next year and in the years to come.

Great. Thank you. Fernando González: Thank you very much. Operator?

Sir, we have time for one more question. That question comes from Rene Kleyweg from Deutsche Bank

Good morning, gentlemen. Just curious if you could put a bit more color on the drag that the carrying import terminals at the moment either in terms of what their running cost are, or what the – let's say negative EBITDA is after profitability on imports? Just some sort of context on that would be useful. Thank you. Fernando González: Hi, Rene. First, it's good to hear your voice after such a long – I guess, being away from the business and covering us. Look we – I mentioned that just by the way frankly, it's not a material number, but it does differentiate us from some of our peers. But unfortunately we don't break out that number, but it's not a material mover frankly at the end of the day as far as we're concerned. So, I hope, I don't mean to disappoint you with the first question that you're asking us, what looks like this.

Don't worry. It's worth to try. Fernando González: Okay. Great. Anything else, Rene?

No. That's it. Thanks. Fernando González: Great. Thank you very much. Operator?

I will now like to turn the call over to – I will now like to turn the call over to Fernando González for closing remarks. Fernando González: Thank you all. And, in closing, I would like to thank you for all your time and attention. We look forward to your continued participation in CEMEX. And please feel free to contact us directly or visit our website at any time. Thank you and have a good day.

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