Good morning. Welcome to the CEMEX First Quarter 2019 Conference Call and Webcast. My name is Richard, and I'll 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 host 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: Good day to everyone, and thank you for joining us for our first quarter 2019 conference call and webcast. We will be happy to take your questions after our initial remarks. We are pleased with the 1% top line growth we achieved during the first quarter, despite important volume declines in our two most important markets, Mexico and the U.S. During the quarter, we enjoyed improved pricing performance in all our regions with favorable volume dynamics in Europe. In the U.S., ready-mix and aggregate volumes also grew despite adverse weather in part of our footprint. In addition, operating cash flow performance was bolstered by the ongoing successful implementation of our stronger CEMEX initiatives, realizing close to 1/4 of the targeted savings for this year. We were negatively impacted by lower volumes in our other regions, higher energy cost on purchased cement as well as increased raw material cost in our ready-mix business. This led to a 3% decline in our operating EBITDA and a 0.5 percentage point drop in our EBITDA margin. We expect our performance to improve in the following quarters. Our free cash flow after maintenance CapEx reached negative $337 million during the quarter. The deficit in free cash flow reflects the seasonality in our working capital needs. Average working capital days reached minus 10…

Thank you, Fernando, and hello, everyone. Before I start the discussion of our detailed financials, I would like to mention some changes to our reporting starting this quarter. First, we have changed our reporting currency from the Mexican peso to the U.S. dollar. The U.S. dollar is the currency that CEMEX management uses to operate the company and under International Accounting Standards we have the option to adopt this currency for reporting purposes. This should improve and facilitate the analysis of our consolidated financial statements. Second, our first quarter 2019 financial information as well as comparable first quarter 2018 figures, now reflects the introduction of IFRS 16, under which there is now a single accounting treatment for all leases. As of the end of last year, the U.S. and Europe each had about 40% of our operating leases while 15% were in Mexico. And third, as we have commented before, as a part of our Stronger CEMEX plan, we have changed the way that we are managing our European region. Going from a country-based to a functional product-focused organization across the whole region, further strengthening our customer-centric organization and improving our commercial offering while achieving operational efficiencies. As such, starting this quarter, our discussion and disclosure of information on this region will be in line with these recent changes. And now to our financials. On a like-to-like basis, our net sales increased by 1% during the quarter, while operating EBITDA declined by 3%. Our quarterly operating EBITDA margin declined by 0.5 percentage points, despite significant volume declines in our two largest markets and was supported by an important contribution from Stronger CEMEX savings offsetting other cost headwinds. During the quarter, we had favorable impact of foreign exchange fluctuations on our EBITDA of $16 million. Cost of sales as a percentage…

Before we go into our Q&A session, I would like to remind you that any forward-looking statements we make today are based on our current knowledge of the markets in which we operate and could change in the future due to a variety of factors beyond our control. In addition, unless the context indicates otherwise, all references to pricing initiatives, price increases or decreases refer to our prices for our products. And now we will be happy to take your questions. Operator?

[Operator Instructions] And our first question online comes from Mr. Dan McGoey from Citigroup. Please go ahead.

Good morning, gentlemen. Thanks for the call. First question is on pricing. The pricing in Mexico looks to have been short of the inflation and input cost. I'm wondering if you could talk about whether it fully reflects what was implemented in the first quarter. And then also, if you could talk a little bit more about on the energy cost front, we kept some of the – you mentioned in terms of how much was secured for the remainder of this year and where we should see declines? Fernando González: So regarding pricing in Mexico, as we commented, during the first quarter 2019 in local currency terms, prices were up 4% sequentially. As we – I think we also commented, this is – we did comment again that our pricing strategy is offsetting input cost inflation and we have not managed to achieve that yet. So we need to continue paying attention to our pricing strategy in the country. But at the same time, we are pleased with the price increases that we manage to get during the first quarter, particularly when considering the situation in the market. So again, in – we have not offset completely the input cost inflation, 4% sequentially, it's – again, considering market conditions, we were very pleased with it.

And Dan, I just wanted to clarify on the energy. You're talking about on a consolidated level, right?

That's right, on a consolidated basis.

Yes. I mean the first quarter was a bit of an aberration because, as you know, we're guiding for the full year energy, which is fuels plus electricity to be somewhere between 0% to plus 3%. And of course, our expectation for the full year is for fuels to be declining. Unfortunately, in the first quarter, fuels were up 6%, electricity was down 3%. The primary driver I would say on the increases in fields was coming out of our U.S. operation partially and to some extent also from Mexico because we are continuing to consume some higher inventories, higher cost inventories, which we – as you know, we, kind of, have inventories for fuels, somewhere between three to six months but closer to the six months period. So it takes us a little bit of time to digest. In the case of the U.S., we had some one-offs, where we had to purchase some fuels on the spot market and arrange for the relevant transportation. And then a tight transportation situation in the U.S., translates to slightly higher fuel cost. But we think that situation is going to reverse itself, and we should be well within the guidance for our energy for the rest of the year.

Thank you.

Thank you. Operator?

Thank you. We currently have a question from the webcast. Please go ahead.

Yes, the question that we have from the webcast is from Paul Roger from Exane BNP Paribas, and it's a three-part question. Maybe what I'll do is I'll read each one of the questions and then we'll answer them. The first question is, this was the first yearly increase in South America margins since mid-2016, given there isn't historically much margin seasonality, should we assume 24% is now the floor and divisional margins improved further from here through 2019? And yes. Paul, I mean, as you know, we don't guide to EBITDA and certainly we didn't do it by regions, but certainly, we're quite encouraged with what's happening in Columbia. We think situation both on the volume side and on the pricing side is improving and Columbia is obviously the biggest mover there. In addition to that, Colombia is a very important contributor to the Stronger CEMEX initiatives. In the quarter, we estimate about $7 million of contribution and we do see the situation stabilizing in Panama, which is the offsetting market to some of the positives that we are seeing in Columbia. So well, I don't want to guide you, but we do think that we are kind of stabilizing this quarter on a regional basis. The second question is how broad-based were European price increases? Was the 5% sequential cement prices rise typical? Or were there some outliner countries? And I would say that we had – I mean, as you know, of course, first in Europe, we're not – we don't lead the pricing increases, we tend to follow our European competitors. But prices were, I would say, fairly universally in the just kind of mid- to low single digit increases for the UK, Germany, Poland, Spain was a little bit better but we're coming down from…

Operator, next question?

Yes. Our next question on the line comes from Vanessa Quiroga from Crédit Suisse. Please go ahead.

Thank you. Hi Fernando and hi Maher.

Hi Vanessa.

First question is about Mexico, Mexico's industries volumes in 2019. What's your assumption for that, for industry volumes in Mexico? And the second one – the second question that I have is regarding working capital. If there were any specific regions that affected on the inventories' and suppliers' changes in days that you mentioned on the script? Fernando González: Okay. Vanessa, regarding Mexico volumes as you know with public information coming from [indiscernible] January and February, volumes dropped about 10%, 10 and a fraction or nine and a fraction. And also our modified guidance now for Mexico for the full year is minus 5% or mid-single-digit. So that's our current expectation on Mexico. As you can imagine, there is still – we don't have as much transparency or clarity on what might happen as we mentioned the speed at which is the infrastructure expenditure comes, will be key to volume development during the year. As well as expenditure in social housing, which as we mentioned, we are expecting for a program to be announced or policies to be announced late this month or early May. So let's see how that goes. There are indicators like the budget of the secretariat in the Communication and Transportation Ministry that, in the first quarter was to – execution on the budget was too low, really low. So again, with what I just mentioned, let's see how fast the expenditure comes from infrastructure and social housing. But currently that's our estimate. And as you know, our volumes during the first quarter dropped more than what the estimate for the market is which is, let's say, minus 10% for the whole quarter. And as we have explained, that is an implication or a consequence of our pricing strategy. We are – through our value-before-volume strategy we are training to offset input inflation. And during the first quarter, there was an impact in our market position, in our market share. As we have commented before, the market dynamics and pricing strategies go beyond the quarter, meaning in a quarter you can see prices increase as market share being deteriorated, but we are constantly monitoring the situation and we will continue making decisions on these value-before-volume strategy.

Yes, if I can add maybe just a couple of points to what Fernando said. I think it's also very important, is that leading up to the year through out our commercial strategies, I think we were successful in reaching probably a market position that was the best position we have had for about 2.5 years. So it's from a fairly, let's say, solid position that we focused on our value-before-volume strategy, and we do expect, as Fernando said, for things to revert during the course of the year. And also another positive, frankly, that we are seeing that is very important in terms of the infrastructure and housing, particularly in housing, the data on mortgages for the first two months of the year is showing somewhere around 11% to 12% growth, specifically to the middle-class housing segment, which is probably the more – the bigger portion and that drives the needle. Now we do expect, again, social housing programs to resume growth after the rules are put out. So – and then on the infrastructure side, rural roads is something that we know the government is very keen on starting ASAP and so we thing we should be benefiting from that. And just as an indication, I mean, of what's been happening, we have been seeing a very nice improvement in our average daily sales sequentially from the beginning of the year until the first couple of weeks of this month, in fact. So we are encouraged, I mean – obviously, we did expect this kind of slowdown due to the transition. It's not a surprise to us, and of course, there is the added element of the pricing strategy that Fernando talked about. As far as the working capital is concerned, I mean, if we take a look at purely year-over-year basis, the increase was driven primarily by supplier days payable, essentially, which in a few of our markets, the main markets that were impacted was the U.S., Mexico and, to a lesser extent, the Philippines. I think what's more meaningful, however, in my view is to take a look at the average working capital days for payables and inventories, looking at the fourth quarter versus the first quarter. And what we have seen is, as I said in my remarks, a two to three day increase in inventories primarily in the U.S., Mexico and the Philippines, either because of weather or because of anticipation of market improvements. And then we have seen literally about two to three days deterioration in days payable. Again we think both of these two dynamics are temporary, and we do expect things to improve during the rest of the year and be within our guidance for working capital. I hope that answers your question, Vanessa.

Okay. Okay, yes. For sure, Mahar. And regarding Tepeaca, so your estimate is that it's going to be operational by the end of this year still, right? Fernando González: No, I think it's mid 2020. I'd say first half of 2020 or second quarter 2020.

All right, thank you. Fernando González: Thanks Vanessa.

Thank you very much, Vanessa. Operator?

Yes. Our next question on the line comes from Daniel Sasson from Itaú. Please go ahead.

Hi everyone. Good morning, thanks for taking my question. My first question actually comes on the divestment front. You mentioned at your CEMEX Day that you had something around $700 million in binding agreements and in MBOs and there was $1.2 billion already under negotiation. If you could provide us an update on that, how are the binding agreements going? And the deals under negotiation, if those amounts that you previously reported have changed meaningfully or if they are closer to becoming final and better agreements? And my second question would be on U.S. volumes. You mentioned that the residential segment is not that strong, but on the other hand you are seeing a higher infrastructure activity with increased state spending. The question is, how much of a drag do you think can be the retail sector or – sorry the residential sector would it be for the U.S.? And are you concerned about the potential deceleration in the U.S. construction industry, maybe not for 2019 but starting to look already for 2020? Those would be my questions. Fernando González: Okay, on your first question, there are no major changes of what we have already announced. So on the target of divesting until December 2020, $1.5 billion to $2 billion. We have achieved about half of the – it's close to $800 million, which is half of the lower figure in the range. We continue negotiating other options in our divestment strategy. And we think that we will achieve the divestment program timely. I don't have any specific concern on being able to do that, divesting some assets, some additional assets at reasonable prices.

And I think to add to Fernando's point, I mean, of course, we did – just as a reminder, I mean, we mentioned the France disposal, which probably is the only thing that was different from what we had, but it's not a material amount, but still that's a difference. But I think what's really important here is that we – virtually all of our divestitures have been in double-digit multiples – I'm sorry, I hope you heard me, I think, my mic was off. But what I was saying is that the only – probably small difference from what we talked about in CEMEX Day was a small divestment in France for about $36 million. And I think the – what's really important here, Daniel, to mention is the multiples at which we are divesting our assets. They are well into the double digits and we're – and it's very important to stress the none of these assets are at trough earnings. So these are very attractive businesses that are being sold at very attractive multiples. And we feel they will be very valuable to the folks that are purchasing these assets as they probably extract from some important synergies. If we can go to the U.S., clearly the biggest driver that is expected to continue to drive our business is infrastructure. I mean infrastructure represents a little bit over 50% of volumes, in particular, streets-and-highway construction spending, it was up 5% year-to-date February. More importantly in our own states, contract awards have been consistently double digits, with less data at 17% versus the national average of 3%. This is very much a reflection of what's happening in places like California, Texas and other states that have been very proactive in raising very specific taxation for infrastructure projects and…

It does, Maher. Thank you.

Thank you very, Daniel. Operator?

Our next question on the line comes from Adrian Huerta from JPMorgan. Please go ahead.

Thank you. Good morning and thank you for taking my call. My question is also on Mexico. You mentioned, Maher, that volumes, mainly volumes started to recover in April versus what you saw in early January. Have you seen years – as well as increasing prices, because when we look at the next year's prices, I mean, it feels like they have been rising, even as of March, increases that you have done. And so that's my first question. And if you don't see competitors increasing pricing in the next couple of quarters and you continue to lose market share, is there any chance that you could reduce prices? And the other question is just margins. You mentioned that on a quarter-over-quarter basis, margins in Mexico were up – I think you said up 0.5 or 0.6 percentage points despite the very weak volumes, benefited by prices. But can you give us more details on what else benefit margins on a sequential basis in Mexico? Fernando González: Thanks, Adrian. I will take your first question on prices in Mexico. Again, if you look at the pricing strategy what you have seen, not just this quarter but in other quarters, is we are timely announcing the market what our pricing strategy is, meaning, offsetting our cost inflation and we do increase prices accordingly. As we have mentioned before, during the first quarter and for the whole 2018, we didn't succeed on offsetting cost inflation, not last year, and not during the first quarter. So we will continue insisting in our pricing strategy. The dynamics in the market are complex, in the sense different players do have different strategies. So what we do is that we monitor market conditions, we monitor our market position and we will be reacting accordingly. Now are we willing to change our pricing strategy because of our quarter? No, we are not doing that. So will continue insisting in this strategy and we will continue monitoring market dynamics.

And Adrian, on the issue of the – on the sequential analysis, we thought that is very important to look at because, as you know, seasonality is not that big fourth quarter to first quarter. And that's – we thought that it was really impressive. And if you take a look at the volume declines from the fourth quarter to the first quarter, they were actually a little bit above the volumes that we experienced on a year-over-year basis. And despite that, we were able to deliver growth in margin. And that's got to be driven by – not got to be, is driven by two items. Number one is the pricing that we were able to realize, which testifies to our – the validity of our value-before-volume strategy. And second, and very importantly, is the stronger CEMEX cost-cutting initiatives. I mean, Mexico has been very diligent, I mean, everybody has been, but they have been specifically putting a lot of effort and we guesstimate SG&A savings are slightly below 1%. So a combination of those two things is what's driving that sequential improvement in EBITDA margin. And that's why we are also comported with our performance during the course of the year, both in terms of the demand outlook, pricing strategy and, of course, the cost initiatives that we have put in place. I hope that answers your question.

Yes, it does. Very good. Thank you, Fernando and Maher. Appreciate it. Fernando González: Thanks Adrian.

Thanks a lot, Adrian. Operator?

Our next question on the line comes from Carlos Peyrelongue from Bank of America Merrill Lynch. Please go ahead.

Thank you. Our question has been answered. Thank you. Fernando González: Thanks Carlos.

Operator?

Our next question online comes from Rodolfo Ramos from Bradesco BBI.

Good morning and thanks for taking my question. My first question is a follow-up to the previous question on Mexico and the housing program. Is this program that you are mentioning, that should be announced early next month, if this is a federal new program? Or is this related to an existing government program? If you can give more detail on that, that would be greatly really appreciated. And secondly, we saw that your maintenance CapEx for this year was increased 350 million, and you mentioned the IFRS change. Is this merely an accounting change? Or is there a cash outlay competent ascribed to this new estimate? Fernando González: On the first question, we are referring to – when we are referring to the social housing program, we are referring to the federal social housing program. Amd there is permanently a policy and a program on supporting social housing in Mexico. It is just that, according to the political times we are going through, meaning we are starting – we are just starting a new government in the country. So whenever there is a new federal government in place, they do make a deep review on all type of federal programs, just to check if the programs are according to their specific policies or intents as a federal government. I think it's no different to what happened in 2013 when the new government then made a deep review on housing policies and – by the way, I remember there were major changes then, conducive to some sort of instability in housing. So it is federal, we believe there is a – it's taking sort of a reasonable time for them to make this review. We are not – I'm not exactly sure when this will be communicated but I suppose that will be either sometime in April or early May and then we will have much more information to better understand the expectations on that segment of the market.

And Rodolfo, if I – just to clarify and maybe I will take a minute extra to just go beyond your question. First, just to clarify on the CapEx, the IFRS impact is $300 million, and if you recall in February when we gave our guidance for the year, we gave maintenance CapEx guidance of $550 million. So the guidance is not changed. There is only a $300 million IFRS adjustment, and that's really the only difference. And just for the rest of the audience, if you – just to recall, we did indicate that for 2018 at the EBITDA level, the IFRS adjustment was $280 million. We expect that adjustment to be roughly the same, maybe a little bit higher for this year. And we expect it, roughly, to be spread out evenly on a quarterly basis. And then the other thing on the debt side that was added was the leases which, obviously, impact the debt side and it impacts the interest cost on our free cash flow number. So I hope that answers your question, Rodolfo.

Okay, so it's not a cash...

No. It's not.

All right. If I may just squeeze in a follow-up. We have been tracking sales prices for cement in Mexico at the retail level, and we've seen prices increase over – quarter-over-quarter basis this quarter over January, February, March, below from the prices you announced. Are you seeing distributors eating up some of the margin? Or do you have any insight as to what is happening at that level and the retail distribution network? Fernando González: No. I don't have any specific info to share in that regard. Maybe just imagining a mix of regions can play a role. So I don't know the scope of the study, but I don't think there is a major issue on margins from distributors or other type. It is just different micromarkets. We do have pricing strategies on a micromarket level. I don't know the story so I just cannot compare – I cannot add the info to your question.

And also Rodolfo, I mean, the IMEI numbers are in line with what we are reporting. So I don't think there is that big a difference. So it could be a sample thing on your side.

Okay, all right. Thank you, Maher.

Thank you very much. Operator?

We have time for one more question. Our question comes from Cecilia Jimenez from Santander. Please go ahead.

Hi, good morning. Thanks for taking my question.

Good morning.

I have two very small questions. Number one is on U.S. volumes. I'm just making sure the contraction volume comes from mostly from weather effects and their underlying trends in the market continue to be robust, if you can confirm that? And number two, in Mexico, what kind of input cost inflation are you looking at for the – basically for the pricing strategy? So just to make sure what number are you actually seeing in terms of input cost? Those are my two questions.

Cecilia, on the U.S. volumes, it's pretty much all weather, I mean, and it's very important to note that to take the average daily volume differences, it's 2% versus the reported 4%. And it's very important that the impact of weather, impacted roughly 50%, a little bit under 50% of our cement sales in the U.S., and the precipitation that took place in that portfolio – in that part of the portfolio, was close to 90% increase versus last year. So it's all weather, and we think it's going to be reverting. So we don't see any structural changes in the demand outlook for the U.S. market from our perspective. And on the – I'm sorry, the other question was on the inflation. I mean, it's...

Input cost inflation…

Yes. It's – I have to say, it's very difficult to say, but when you take a look at – I mean, you have to take a look at what's happening to fuels and to diesel and to electricity prices. And it's – all of that is well above the increases that we're seeing in pricing. So we don't guide to inflation, but energy, for instance, was up 7%. And so you can kind of get an idea of roughly where that could translate, too, right? So I hope that answers your question, Cecelia.

So – partially, okay, I will follow up offline on the input cost part, just to hear a little bit more detail. Thank you very much.

Thank you very much, Cecilia. Fernando González: Thank you.

And thank you. I would like to turn the call over to Fernando González for closing remarks. Fernando González: Well, 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 good day.

And thank you, ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.