CEMEX, S.A.B. de C.V. (CX) Q1 2018 Earnings Report, Transcript and Summary

Thank you, Fernando. Hello, everyone. I would like to emphasize that our performance during the quarter was affected by fewer business days and inventory effect. Adjusting for these our EBITDA remained flat during the quarter on a year-over-year basis. The impact for these effects was intensified by adverse weather conditions which led to our reported decline in EBITDA. On a like-to-like basis, our net sales increased by 2% during the quarter while operating EBITDA declined by 6%. We had higher like-to-like EBITDA contribution from our operations in Mexico. Typically our first quarter EBITDA generation represents about 20% of our full year results because of seasonal effects. This quarter the seasonal effects were higher than usual, as such EBITDA generation is expected to be stronger in the upcoming three quarters. This is the third quarter in a row that we have a favorable effect from foreign exchange fluctuations in our EBITDA. This quarter excluding $8 million from the effective dollarized costs in our operations we have had a positive contribution of $10 million because of FX. Our quarterly EBITDA margin declined by 1.9 percentage points, the favorable impact of our pricing strategies was offset mainly by higher costs of energy as well as freight and raw materials in our ready mix operations. Cost of sales as a percentage of net sales increased by 0.4 percentage points during the first quarter, driven by higher energy costs. Operating expenses also as a percentage of net sales increased by 0.9 percentage points as a result of higher distribution expenses. Our kiln fuel and electricity bill on a per-ton of cement produced basis increased by 11% during the first quarter. This double-digit increase is the result of a low base of comparison in the first quarter of last year. We expect a moderation in energy price increases during the rest of the year to reach our guidance of 4% to 6% increase for the year, which is less than half of the 13% increase we experienced in 2017. Our quarterly free cash flow after maintenance CapEx was negative $154 million, practically flat from last year's level. Average working capital days were negative 13 days for the quarter, and a 12-day improvement from the level in the same period last year. The first quarter was the sixth consecutive quarter with negative average working capital days, and a record level for a first quarter. We had a gain on financial instruments of $34 million resulting mainly from derivatives related to CEMEX and GCC’s shares. Foreign exchange results for the quarter resulted in a loss of $82 million mainly due to the fluctuation of the Mexican peso versus the U.S. dollar, partially offset by the fluctuation of the euro and Colombian peso versus the U.S. dollar. During the quarter we had a controlling interest net income of $26 million compared with $336 million in the same quarter last year, which included extraordinary gains from the sales of the Fairborn plant and end of GCC shares as well as a favorable impact from discontinued operations related to the sale of our concrete pipe business in the U.S. We continue with our initiatives to improve our debt maturity profile and strengthen our capital structure. During the quarter, we fully redeemed our 4.75% euro denominated notes due in January 2022, as well as our 7.25% notes due in January 2021. In addition, we paid the full outstanding principal amount of the 3% and 3.75% convertible notes due in March 2018 that did not convert. To pay the securities and to meet the free cash flow deficit during the quarter, we used the $350 million cash reserve we created in December. We also drew down $377 million under a previously unused facility of our credit agreement. And lastly, we also drew down $700 million under our revolving credit facility. During the quarter, our total debt plus perpetual securities remained flat compared with the level as of the end of December. That variation during the quarter includes a negative translation effect of $79 million. As we have done in the past, we will be proactive in taking market opportunities to make our maturities and – to manage our maturities and reduce financial expenses ensuring that our debt profile continues to be manageable. Our leverage ratio calculated using our total debt plus perpetual remained flattish compared with that as of December 2017. However, leverage as defined under our credit agreement, which uses consolidate funded debt increased during the quarter reaching 4.22 times. This higher leverage ratio mainly reflects an increase in consolidated funded debt due to first, because of their subordinated nature our convertible securities are not part of the consolidated funded debt, paying the 2018 convertibles during the quarter by using debt from our credit agreement increased consolidated funded debt. Second, the negative free cash flow and the negative conversion effect on debt during the quarter also impacted consolidated funded debt. And lastly there were other factors, which increased consolidated funded debt including the mark-to-market of our derivative instruments. The increase in our participation in Lehigh Cement as well as other expenses, despite this temporary increase in our leverage under our credit agreement deleveraging and returning to an investment grade capital structure remain our main priority. For the remainder of the year, as we use our free cash flow generation to reduce debt and EBITDA improves, we expect the downward trend of our leverage ratio to continue. And now Fernando will discuss our outlook for this year. Fernando Ángel González Olivieri: On a consolidated basis, we anticipate our cement volumes to grow from 2% to 3%. Our ready-mix volumes to increase from 3% to 4% and our aggregate volumes to be 1% to 2% higher from last year’s levels. Regarding our cost of energy on a per ton of cement produced basis, we now expect a 4% to 6% increase from last year’s level. Guidance for total CapEx for 2018 is about $800 million. This includes $550 million in maintenance CapEx and $250 million in strategic CapEx, which includes investments in the expansions of our Tepeaca plant in Mexico and our solid plant in the Philippines. We also anticipate the reduction in financial expenses for this year of about $125 million. With respect to working capital, we anticipate no variation in total investment from last year levels. Cash taxes for 2018 are estimated to be between $250 million and $300 million. In closing, I would like to mention that this by the higher than usual seasonal affects we had during this quarter. We are pleased with our consolidated volume performance and pricing dynamics. As I mentioned earlier, we expect the impact of the fewer business days and the inventory cost in variation effect to revert in upcoming months and most of the pent up demand from a best weather conditions to be recovered during the rest of the year. We also anticipate a moderation in energy cost increases during the next three quarters. In addition, foreign exchange fluctuation resulted in a positive contribution to our EBITDA generation for the third quarter in a row. For the rest of 2018, we expect favorable consolidated volumes and improving price in dynamics in most of our markets. This together with the moderation in energy cost increases on our initiatives to contain other cost should translate into increase operating EBITDA generation for the full year. Lastly I want to reiterate the message we deliver at CEMEX Day. We remain highly focused on the leverage in our balance sheet and on our goal of achieving an investment grade capital structure as our top priority. Thank you for your attention. Operator?

[Operator Instructions] And the first question comes from Cecilia Jimenez from Santander.

Hi gentlemen, thanks for taking my question. I have two questions actually. Regarding the U.S. you mentioned, inventory impact and maintenance should be consider one half. So my question is, how much could that represent out of the 150 basis points of margin contraction that you posted. And the same question for Europe, out of that 150 margin contraction, how much would be one half. Thanks. Fernando Ángel González Olivieri: In the case of the U.S., the impact because of inventory, let's say excess maintenance when comparing to last quarter. We believe that is around $20 million – $20 million, $21 million, the inventory drawdown being about 60% of their amount. And this inventory drawdown, as you can imagine need to happen in the markets with the highest growth in the U.S. in the first quarter, mainly was California, Arizona and South of Florida. And inventory variations, we can expect reversing that effect in the rest of the year. The first quarter is always – during the first quarter we make most of maintenance – major maintenance, annual maintenance in over some implants and they can buy significantly year-by-year. That's why maintenance also this time did cause some negative variation in the U.S. when comparing to last year. And on top of that, difficult to quantify, but we are sure because of what we see in the first few days of April is that volumes in the areas that were affected by the weather. To some extent, they will come back in the next few quarters. So that's for the U.S.

Okay, thanks. And in the case of Europe.

Yes, the case of Europe, I mean we haven't broken it out, but there's obviously some offsetting elements, but the weather was quite important and in fact that’s almost absent the other components that were helping, whether it was almost accounting for all of the drop in EBITDA year-over-year. So it was quite a material and I don't know if you, I mean not to inundate folks by weather, but we’ve had many storms that affected all of our portfolio. I mean, we had one very significant Siberian storm that was called the Beast from the East and some other things. And I don't know if you also remember as a consequence of some of these storms there was a huge flooding in the Sand River, which precluded us despite the fact that we have a great business in Paris. It precluded navigation on the river for quite a bit of time. We had four snowstorms in the month of March only in the UK market. And then temperatures frankly in Europe were actually colder than the North Pole for some periods of time, which also impact demand. So I think that weather really had – inclement weather was quite unseasonably worse than previous years. And because of the pent up demand, which is similar to what we're seeing in the U.S. we're expecting as weather gets better, that demand that diminished because of the weather conditions coming back essentially. Does that answer your question, Cecilia?

Okay. Thank, Maher. Thanks, Fernando.

Thank you. Fernando Ángel González Olivieri: Welcome.

It does. It does. I was just concern about Europe considering that it becomes that you had, but if it’s mostly whether than we should see the region improving in the coming quarters.

It is, yes. It is. And also, I mean, one that I don't have here handy, but if we were to take a look at the U.S. for instance and take a look at what's happening to other building materials than cement and ready mix. I mean, prices have been just absolutely off the charts. I mean, wallboard for instance in the U.S. is up 9% to 10%, framing wood is up in the mid-teens, steel was also very high. And I would imagine a similar kind of situation maybe not to the same extent as happened in Europe. So with that kind of demand and that kind of input cost dynamics, we should see certainly that being reflected in our pricing strategies going forward even more.

Perfect, thanks.

Thank you. Fernando Ángel González Olivieri: Thank you. Operator?

Our following question comes from Nikolaj Lippmann from Morgan Stanley.

Thank you. Good morning, thanks for the call and to taking my question. Just on the inventory control drawdown, just to see if I get it right. You're seeing very strong demand in California and I would guess in Colorado, you drawdown the inventory. So is that a double booking of the fixed cost in the sense that you have to have to fixed cost of this plus the fixed cost update, whenever you've built that inventory. Is that the right way to think about it? So that’s question number one. Question number two relates to demand. If you can provide any color on U.S. cement demand in particular some of the regions in the southeast corner of the U.S. where we saw very strong demand up until the hurricanes last year? And then final question relates to the cost and especially energy costs in Mexico. If you see any light at the end of the tunnel there with regards to Pemex? Thank you very much. Fernando Ángel González Olivieri: So Nik, I’ll address the U.S. piece. I mean, your interpretation or understanding of the inventory dynamics are correct. And in terms of the growth, I mean it’s very important that California last year grew by double digits and this is kind of the second year that the first quarter, I mean, the numbers were kind of north of 20% growth in California. So clearly when you have a maintenance outage that does hurt a little bit. Obviously and distorts the dynamics we had a similar situation in Florida as Fernando said. And so yes, and so I think that the situation should be reverting in those markets during the course of the year.

And the amount $20 million was that – that was maintenance plus the impact of inventory slowdown. Fernando Ángel González Olivieri: Yes.

Could we just isolate inventory because it’s kind of a counter-intuitive, kind of bad news and good news if you will. Fernando Ángel González Olivieri: Yes. I think Fernando mentioned that the inventory drawdown was roughly about 60% of that – about that number.

Got it. Okay. Thanks.

And the reason why we are saying Nikol, it will be reversed because through the year production will replace those inventories and negative impact of taken those inventories in the first quarter will be reduced. Fernando Ángel González Olivieri: It is just that increasing volumes higher than what we expected for instance in California 20 something, 22%, 23%. It just took much more inventories then the ones we would be expecting. At end you just say it, it is really good news and the negative part of it because of the good inventories will be – will come back in the coming months.

It’s kind of a high class problem to have Nik. And then you had a question on energy in Mexico.

Got it, U.S. demand question if you could provide any color on what you’re seeing in terms of all the indications especially the southeast I guess the lagging part of the portfolio in the U.S. the southeast corner the area that was really affected by all the hurricanes last year and then the energy question.

Yes. I mean, California just to kind of go through the whole country. I mean, California obviously continues to be very strong, Texas is continuing to benefit from better pricing, better oil pricing dynamics and we’re encouraged by what’s happening in the residential and industrial and commercial. And Florida is also doing well, I mean pretty much all of the markets are actually doing a little bit kind of better than we had expected. And of course, the Midwest and the mid south were hit by literally I mean double digit and in some instances it’s triple digit percentage increase in precipitation year-over-year. And we think that as those situations change during the course of the year we’re definitely seeing construction activity recovering. Then if we take a look at the housing inventories I mean we are at – I think decade or more than a decade low levels of inventory and we’re seeing pricing input costs – actually housing prices are catching up with input cost inflation. So there’s pricing power on the housing side as well. And so we believe that this is going to bode fairly well for demand through the course of the year.

Got it. Thanks. On the energy side in Mexico. Fernando Ángel González Olivieri: Yes. I think on that regard there are good news because in the case of Mexico did in the quarter energy cost declined by 2%. And as you can imagine the reason being the refineries restarted operations during March after beginning full maintenance since mid last year. So we can expect these trends in Mexico to continue or even perhaps to slightly improve during the rest of the of the year. At the same time I think we a dimension, in the case of Mexico we are increasing materially the use of alternative fuel so that will be a kind of double impact, positive impact because of both actions.

Yes. I mean, just to give you an idea Nik. I mean, on the alternative fuels we went from last year first quarter 18% to this year first quarter substitution up to 25%. So that’s a huge dampener. Now we are also lowering clinker factor but that’s a volatile number that may change from quarter to quarter. But we are also working on that as well. And there was an important improvement there as well.

Got it. Thank you very much, guys. Fernando Ángel González Olivieri: Thank you.

The next question comes from Ben Theurer from Barclays.

Good morning, Fernando and Maher. Thanks for the call. Just quick question on the U.S. following up on the environment there, I mean, we seen actually some decent price on a year-over-year basis and you mentioned that you've just raised about a 25% of the market. And that you've now raised – started prices in April and the rest of the markets. Could you share a little bit of color around the magnitude of the price increases in the different regions. I know it's most likely just too early to say about attraction. But just to get a little bit of a sense, where we’re going in terms of pricing? And then I have a follow-up question after that. Thanks. Fernando Ángel González Olivieri: Okay, well. I mean, I think we've gotten as we mentioned, okay, attraction, I would say on the pricing increases that took place in January. It's a bit early on the April pricing increases but actually given the demand dynamics on the ground. We feel reasonably comfortable with getting attraction frankly. And one thing that is very important to note here is the first quarter was a bit distorted because of the geographic mix, okay. I mean the West Coast, California prices are significantly lower than say the rest of the country certainly lower than say that Colorado or the East Coast prices. And as we mentioned earlier, California has been growing for the second year in a row. I think last year I forget the exact number but we were almost like 20% plus growth in volumes for the whole year. And then this year, it's growing north of 20%, of course, with good weather but I think there's fundamental growth in that in that economy. And prices there are lower, so there's a price mix effect. And then in general, I think what we've also been seeing is and that's happening not just in the U.S. It's happening also in Mexico. You're seeing faster growth in ready mix volumes then in cement volumes. And again, that's very positive because that's shoring up ready mix prices unfortunately it does dilute margin a little bit in both of those two markets. And I don't mean to segue into Mexico here. But I think that's something that we should all keep in mind that some of the EBITDA margins are being diluted by the product and the geographic mix in both of those two countries particularly in the U.S. I would say.

Okay. And on the price increases, you've just started to implement besides magnitude, I mean in dollar-terms… Fernando Ángel González Olivieri: They're high teens target. Yes, they're high teens.

High teens. Fernando Ángel González Olivieri: High teens, yes.

Okay. Across the board, if it's not a market, where you had to go with a lower intention at the beginning? Fernando Ángel González Olivieri: Well. I mean as you know, we have been adjusting our pricing indications very rapidly to whatever the lowest common denominator, unfortunately. So we definitely are quite protective of our market position and we're not about to kind of be hanging out there providing anybody any free meal.

Okay. All right. And just one last thing, just quickly, with the energy prices and you've mentioned energy cost as headwind during the quarter call in profitability in plenty of regions. Any update quick number how much you've reached now with alternative fuel and how much potential you see to further increase that share to potentially take away a little bit of that energy cost exposure that has created a headwind lately. Fernando Ángel González Olivieri: Yes. I mean, we're definitely looking at continued improvement in that. I mean, we last year the full year for waste fuels was ended around 26% and we're not guiding but certainly, if we were to take a look at the first quarter of last year versus this year's first quarter, we're almost 3 percentage points higher. So whether that will hold through to the whole year and translate to an important increase in waste fuels for the whole year remains to be seen. But we are aggressively, wherever we can to increase waste fuels in Mexico is one very good example of that. We're trying to do it as aggressively as possible. And that definitely is offsetting the continued rising prices of fossil fuels.

Okay, perfect. Thank you very much Fernando.

Our next question comes from Dan McGoey from Citigroup.

Good morning, gentlemen. Thanks for the call. If also a question on pricing, if you can talk a little bit about Mexico pricing and from the 10% to 12% that was announced at the start of the year. What you feel, you've achieved and where it may not have been achieved, what are the some of the resistance factors. And then on the U.S. pricing, you mentioned the 75% of the markets that were increasing in April in the teens, it seems a bit higher percentage of markets left to an increase in April and Maher has given it, would you mentioned a lot of the building cost inflation or increases we're seeing in other products? I’m curious as to whether or not or why you shoot for more of those markets are earlier in the year. Thanks. Fernando Angel González Olivieri: Let me take the first one in Mexico. I think the price we have realized when comparing quarter-over-quarter is 2%, year-over-year is 5%. And the reason why he didn't stick most of the announcement with these, because of competitive environment not all players follow the increase – and we need to protect our market share as you know we been already for some time and trying, we're pricing strategy and from time-to-time we need to make adjustments to preserve our market share. We still think that during year, but we’ll try and we will achieve the strategy of increasing prices the level of our input cost inflation. So we will continue with that effect during the year.

Thanks, Fernando. Just to be clear on that. So is that basically a blend of the just certain regions where it wasn't successful or is it more flat in that this – magnitude of increase was just scaled back a bit? Fernando Angel González Olivieri: Well. I think it's most – more in the central area than anything else, but that's a huge area. So it's kind of general.

Okay. Thank you. Fernando Angel González Olivieri: And then on the U.S. market I mean – we often get asked why are you announcing pricing increases of the magnitude that you are and sometimes the realization is less than that. I mean because frankly we think that prices given other building materials dynamics in the market we think that our products should in fact enjoy better pricing situation. So number one, we wouldn’t leave the – we wouldn’t close the door on additional, potentially additional pricing announcements during the course of the year. And obviously it goes without saying, I mean the success of our pricing increases is highly dependent on what others do frankly and local competitive dynamics. I mean – so we try as much as possible and we definitely – I mean when we take a look at what's happening to wallboard I mean some of the major players in the industry reported over the last couple of days. And when we take a look at prices they are at 9% to 10% when we take a look at framing wood in the mid teens and steel similar numbers we kind of scratch your head and wonder why – why are we as an industry are not enjoying similar kind of pricing. So we'll try, we keep on trying and we're optimistic about the April increases.

Great. Thank you. Fernando Angel González Olivieri: Thank you. Operator?

And the next question comes from Vanessa Quiroga from Credit Suisse.

Hi, thank you for the call. My first question is about the information that you provide about EBITDA like-to-like that it declined 4% year-over-year. Can you tell us how much of that is related to energy costs rising and how much was whether – I mean – to understand how recurring and that 4% decline could be. And the other question is about energy cost again and I noticed that you increased a little bit the expectation of energy cost rising per ton. And so I want to know what region or what type of specific fuel was the driver of that adjustment in guidance. Thank you. Fernando Angel González Olivieri: So excuse me, Venessa. So yes, I mean the – if we were to take a look at consolidated margins the prices obviously in volumes were the big drivers on the positive side and then in terms of energy I mean higher fuels were about half a percentage point impact and ready-mix transportation is also another half a percentage point. And we did mention that energy for cement is increasing by a 11%, but that's because if you recall energy prices didn't really start escalating in a material way until the second quarter, third quarter and fourth quarters of the year. And we are expecting the increases to moderate during the course of the year to within the guidance which is 4% to 6%. And we're providing a range because it's a bit of a – it's a bit. We certainly bit surprised by what's happening in the markets now there's a number of moving pieces. I mean we have the lower base comparison, the biggest impacts came in EMEA you have almost 28% increase your-over-year. And also you have Egypt, I mean Egypt, we've been going back and forth between Mazot and Petcoke we are – so that's another, we're switching back to Mazot, because it's currently cheaper Petcoke. And in the case of Mexico actually where last year was the biggest driver for energy input cost increases, this year actually is a contributor to the decline in energy costs. We were expecting, I mean at least year-over-year for the first quarter energy cost in Mexico declined by a couple of percentage points about 2%. So we'll have to wait and see. Fernando Ángel González Olivieri: Now Vanessa, your first questions were referred to variances of EBITDA, because of the different impacts or is the question already answered?

Yes, well, I want to understand better to like some of the like-to-like numbers that you provided. In the script you said that EBITDA like-to-like it was flat year-over-year, but on the presentation on Page 4 you mentioned that daily operating EBITDA declined 4% on a like-to-like basis, so where are reconcile between those two important that you're providing? Fernando Ángel González Olivieri: Okay, I think that I refer flat when comparing EBITDA for this quarter to first quarter last year. Taken into account the losses on business days and inventories drawbacks, which is in the presentation there is a slide there in the presentation with $12 million because of business days we do calculate, we lost two days compared to first quarter last year and inventory drawn, so that that's what makes let’s say EBITDA kind of like-to-like because of the impact of these two issues during the quarter. We have not been commenting, because it's very – very tricky or very hard to calculate, is the impact of bad weather. So if you are looking at this chart in the presentation, just this to very specific impacts take us to a flattish EBITDA when compared to last year, but if we take into account volumes coming back in the next quarter or two that will – again we don't have a quantity, specific quantity, but it should be sizable April the volumes we see during April in Europe as well as the U.S. in the markets that were impacted because of bad weather, and we feel very confident that that volume is going to be coming back. So that should go on top of these comparisons.

And Vanessa, just to clarify and for everybody else on the call, I mean that the like-to-like is really adjusting – neutralizing effects of facts and any divestments or acquisition of assets, so it's kind of a same store comparison, so it does not include you know number of business days that's why you know when we talked about this frankly during the call in the comments, we decided to talk about average daily volume, because that's kind of the best way to decipher how much was a business days was impacting the business, and we felt it was a better way to understand the underlying dynamics of the business. So and that's why we're – the adjustment is just the suggestion of course to the number of business days, and the inventory drawdown. And whether as Fernando said is going to difficult to gauge obviously. I know if that helps Vanessa.

Yes, yes. It helps. And on that whether issue of the U.S., how much of a risk you think there is to really recover some of them work loss due to the weather given the labor constraints in the construction industry in the U.S. Fernando Ángel González Olivieri: Well, I think that's why we're not provided the specific guide or figure in that regard, is very challenging to calculate the weather, what we can comment with information. We cover today that the volumes in April, again in weather affected areas in the U.S. and Europe are encouraging. So let see how it goes, but most probably we do believe, most probably volumes loss during the first quarter will come back during the second and perhaps the third quarter.

Okay, thank you very much. Fernando Ángel González Olivieri: Great thank Vanessa.

Our next question comes from Adrián Huerta from JP Morgan. Adrián Huerta: Thank you, good morning Fernando. Most of my questions were answered, but just one addition on one of the energy cost. And you just share with us what was the increase in energy costs in the U.S. last year, and also in this first quarter? Thanks. Fernando Ángel González Olivieri: Just give us one moment to take a look at to get you the energy cost in the U.S. last year in the quarter. Just one second Adrián. Adrián Huerta: Sure. Fernando Ángel González Olivieri: Maybe well, what we'll do is well, Alfredo is feverishly trying to get the number here. So last year last year Adrián was 10%, last year was 10%. Adrián Huerta: Okay.

Okay. Adrián Huerta: And in this – in 1Q you have there as well?

1Q, we have that, it’s flat for 1Q. Adrián Huerta: Excellent. Thank you, Maher.

Thank you, Adrián. Anything else? Adrián Huerta: No.

Great. Thank you very much. Operator?

Our next question comes from Francisco Suárez from Scotiabank. Francisco Suárez: Hi, thank you for the call again. Good morning. many things from that, on the new airport from Mexico City, have you seen any decline in overall construction activity, because of the political noise that we are hearing here in Mexico?

No. not really, but we don’t have any indication or any changes to the current execution of the price itself. So the basis is… Francisco Suárez: Okay, thank you. and lastly – okay, got it. And lastly, what are your overall liability management efforts. Considering that now, the short-term interest rates in the U.S. has climbed so much. Is there room for you guys to increase the amount of potential issuance in euro denominated debt for instance? Fernando Ángel González Olivieri: Well, we are considering different options, Francisco and we will see the pension, so many things, but that for sure is one possibility the one you’re pointing out, but there might be others. So that… Francisco Suárez: Okay.

Not decision made yet and nothing specifically to communicate during this call. Francisco Suárez: Got it. because you didn’t change your overall guidance on interest expense reductions for that matter. isn’t it?

Exactly. We are keeping it. Francisco Suárez: Fantastic. thank you. Fernando Ángel González Olivieri: thank you, Francisco.

thank you, Francisco. Operator?

Our final question comes from Mauricio Serna from UBS.

Hi. good morning. thanks for taking my question. Fernando, you just implicitly kind of lowered the guidance for the Mexico volume. So two questions on that front, what changed, I guess over the last couple of months since your Investor Day in New York and second, what actions will management take and how confident are you to deliver the new implied 4% to 5.5% increase in Mexico cement volume for the remaining of 2018. This is a mid-single-digit volume growth of cement, so what would drive this acceleration? Fernando Ángel González Olivieri: Got it.

Thank you. Fernando Ángel González Olivieri: So the adjustment with it is mainly because of the performance of the first quarter and as we mentioned, we are still expecting in housing commercial, a good year in Mexico. As you know this year, because of being an anecdotal year, it has been challenging to estimate exactly what might happen. there are pluses and minuses on how the demand will perform during the rest of the year, but that’s our current estimate and of course, we are including in that estimate potential, market share variations, because of – as I mentioned before, we are always trying to cover our pricing strategy this year, the objective being gaining our input cost inflation. but at the same time, the impact in our market share. So, a plenty of buyables this year that make the estimates very challenging, but we will try our best.

Got it and market share variation you’ve been regaining market share or… Fernando Ángel González Olivieri: Well, we are always doing it. It’s a process, we increased our – we announced our prices – price increases and we see the response of the market itself and different competitors and we adjust accordingly. We don’t have – let’s say and of course, we don’t disclose the specific dynamics that might – that are currently happening or that might happen. but what I can tell you is that the pricing strategy again, is to record our input cost inflation and paying lots of attention of the potential impact of that pricing strategy in our market share and we are constantly adjusting price increases depending on results, market share, sometimes as you have seen in the last few months and years, there are times and quarters in which we lose market share, and there are times and quarters in which we gain it back, so that you can expect that process to continue in Mexico.

Got it. Thank you very much. Fernando Ángel González Olivieri: Thank you.

I will now turn the call over to Fernando González for closing remarks. Fernando Ángel González Olivieri: in closing, I would like to thank you all for the 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 have a good day.