CEMEX, S.A.B. de C.V. (CX) Q3 2019 Earnings Report, Transcript and Summary

Good morning and welcome to the CEMEX Third Quarter 2019 Conference Call and Webcast. My name is Hilda 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 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: Good day to everyone and thank you for joining us for our third quarter 2019 conference call and webcast. We will be happy to take your questions after our initial remarks. In the third quarter, the business environment continued to be challenging and negatively impacted by the weaker macroeconomic conditions in several of the markets we serve. In Mexico, the temporary government transition process still impacted our performance. However, we believe demand for our products is bottoming out and are cautiously optimistic on renewed activity going forward, given the expected announcement of a new infrastructure program. In the U.S., EBITDA improved during the quarter as a result of favorable pricing and despite weaker volumes mainly due to weather and competitive dynamics in some of our markets. In our Europe and EMEA regions, we are pleased with the solid growth in EBITDA and expansion in margins driven by favorable pricing and our cost-reduction initiatives. During the quarter, we enjoyed better pricing dynamics in all our regions. On the demand side, we saw weaker volumes in all our product segments except for cement in our SCA&C, region ready-mix and aggregates in the U.S. and ready-mix in our EMEA region. During the quarter on the back of a 7% decline in EBITDA, our margins narrowed by 1.1 percentage points, out of which 0.8 percentage points were due to the decline in volumes and 0.3 percentage points are explained by a mix effect. The combination of favorable pricing environment and cost reduction initiatives more than offset higher costs and distribution expenses. Our free cash flow after maintenance CapEx reached $290 million during the quarter. Average working capital days were minus six days. Our stronger CEMEX plan is well-advanced. On asset sales, we now have ongoing negotiations for additional divestments totaling about $2 billion and we are confident we will achieve a high percentage of these divestments in upcoming quarters to reach or exceed our target. Regarding our cost reduction efforts, during the first nine months of the year we achieved $128 million in savings from different initiatives, including operating expenses, lower-cost sourcing, energy, operations and supply chain. Total debt plus perpetuals declined by $162 million during the quarter, taking us to a $913 million performance reduction under our plan. On the last element of stronger CEMEX related to returning capital to shareholders, we paid half of the approved $150 million cash dividend during June. The other half will be paid in December. In addition, we repurchased $50 million in CEMEX CPOs in late August, early September, at an average price of MXN 6.26 pesos per CPO. Customer centricity and the understanding of the levers of growth of our customers is one of our top priorities. To this end, we are pleased to give you an update on how we are doing in providing a superior customer experience enabled by digital technology to our customers across the globe. In this regard, I am very pleased to report that CEMEX Go our end-to-end integrated platform has been successfully adopted by 93% of our recurring customer base worldwide. These customers are now conducting more than half of their purchases with us through this platform. This is an equivalent to about 46% of our sales. CEMEX Go covers the full customer journey and it includes all products and services, reaches all our markets and is compatible with all devices. Now I would like to discuss the most important developments in our markets. In Mexico, the third quarter was a difficult one. Demand from our most important customer segment, housing, continued to suffer as a consequence of muted public and private investment. Our daily cement volumes declined by 15% during the quarter on a year-over-year basis. However, we are encouraged by the stability in cement demand we have seen in the last two months. The sequential decline in volumes is mainly due to seasonality with higher precipitation in the third quarter. Regarding pricing, we continue to be focused on closing the gap with our input cost inflation. Current cement prices in real terms are still below the levels we had in the beginning of the year. In this context, we announced a price increase in bag cement in selected regions, effective October 15. We will continue to be very vigilant of our market position. Our operating EBITDA margin reached 33.5% during the quarter, 3.1 percentage points lower on a year-over-year basis, but one percentage point higher sequentially, reflecting a decline in energy costs on operating expenses. Activity in the industrial and commercial sector was driven by tourism-related investment as well as by commercial projects. Industrial activity however, remained muted during the quarter. In the residential sector, mid-to-high income housing continued to be supported by mortgages from both commercial banks and INFONAVIT. Social housing in contrast has been affected by the elimination of subsidies. The changes in housing policies have resulted in a reduction in supply of low-income housing. Developers have been gradually focusing more in the mid-to-high income segments, where they are seeing more activity. The self-construction sector also experienced a decline during the third quarter, primarily due to lower demand for bag cement related to government programs as well as a slowdown in job creation, currently at 1.9% year-to-date September. Remittances in contrast, remained solid growing at around 9.5% in Pesos year-to-date August. Infrastructure activity has been affected by the lowered budget for this year as well as a slower execution of this budget. While investment in communications and transportation is down during the first eight months of the year, we have seen some improvement in the last few months with year-over-year increases in spending during July and August. We are encouraged by recent announcements made by the government to reinvigorate infrastructure in the country, including a $24 billion stimulus plan, of which about 10% is allocated to infrastructure projects and an infrastructure plan for the next five years including about 1,600 projects in which both public and private sector will participate. We continue to focus on our operating efficiency initiatives, including streamlining our production logistics, increasing alternative fuels utilization as well as optimizing our ready-mix and aggregates networks. These initiatives together with our pricing strategy materially mitigated the impact of the higher-than-expected volume decline we experienced during the first nine months of the year. In summary, we have seen the rate of decline in year-over-year cement consumption get smaller in the last few months and believe demand for our products is bottoming out. In light of all this, we continue to expect our cement and ready-mix volumes to decline in the 12% to 15% range for 2019. In the U.S., while demand conditions in our industry remain strong, our third quarter results were impacted by a major hurricane threat in the southeast, unexpected maintenance costs and competitive dynamics in Florida. Our quarterly cement volumes declined by 1% year-over-year while ready mix and aggregate volumes rose 1% and 3% respectively. The infrastructure and residential sectors were the key growth drivers in the quarter. Our volumes in the quarter were disrupted as our southeast operations prepared for a category five hurricane in late August, early September. In anticipation of this powerful storm, construction in the region which represents approximately 40% of our total sales in the U.S. was significantly impacted for approximately one week. Cement pricing was up 4% year-over-year reflecting the success of our January and April price increases. Aggregates and ready-mix pricing increased 2% sequentially as contracts repriced to reflect the 2019 increases. We have announced our 2020 price increases which will take effect in January and April. These increases are in line with the strong fundamentals of the U.S. business and input cost inflation. The infrastructure sector which accounts for approximately half of our volumes in the U.S., remained the most dynamic sector in the quarter. The infrastructure spending is up 4% year-to-date August, while street and highway spending the most cement-intensive segment within infrastructure is up 11%. We continue to see the benefit of increased state transportation spending, which grew 20% year-to-date August. Several of our key states have been at the forefront in identifying new sources of transportation funding. Despite national trailing 12-months highway contract awards as of August turning negative year-over-year in third quarter, we continue to expect infrastructure to support volume growth going forward. First, 2018 is a difficult base of comparison as trailing 12-month highway contract awards were growing in the double digits year-over-year. Additionally, monthly contract start numbers record the full investment of multi-year projects in the month construction begins, even though cement consumption occurs over the life of the projects. We have seen a pickup in the residential sector in the last few months, with housing starts up 4% year-over-year during the quarter. We attribute this trend to improved housing affordability with significantly lower interest rates as well as an easier comparison base in the second half of 2018. Mortgage applications for purchase of new homes are up 10% from December to September. In the industrial and commercial sector, construction spending is down approximately 1% year-to-date August. The decline in commercial construction is significantly offset by growth in the office and lodging segments. EBITDA increased by 2% in the third quarter, while margins declined 0.6 percentage points due to lower cement volumes, and scheduled outages and that results in drawdown in inventory with higher fixed cost allocation. In light of our year-to-date performance we now expect our U.S. cement volumes to be flat to negative 2% for the year. Our muted cement volume performance year-to-date does not reflect the deterioration in underlying the main conditions, but rather it is a consequence of weather and challenges in our own operations, such as competitive dynamics and unexpected stoppages. We are focusing on these challenges and expect them to abate as we move into 2020. In our south Central America and the Caribbean region, our quarterly regional cement volumes increased by 1%, while ready-mix and aggregate volumes declined by 6% and 7% respectively. Cement volumes in the region increased in Colombia, the Dominican Republic and El Salvador, while ready-mix volumes grew in Colombia and Puerto Rico. During the first nine months of the year regional volumes for cement decreased by 1%. Cement prices in the region grew 2% during both the quarter and the first nine months of 2019 on a year-over-year basis. Regional ready-mix prices were stable while aggregate prices were up in the low single digits, during both the quarter and the first nine months of this year. Sequentially, local currency cement prices increased in the low single digits in Colombia, the Dominican Republic and the Bahamas. Operating EBITDA for the quarter declined by 6% on a like-to-like basis substantially because of lower contribution from Colombia, Panama, Costa Rica and Guatemala mitigated by better performance in the Dominican Republic. EBITDA margin declined by 1.2 percentage points, reflecting higher variable cost in our cement operations, including raw materials purchase clinker and others and higher transportation costs mitigated by the increase in regional prices. I will give a general overview of the region. For additional information, I invite you to review CLH's quarterly results, which were also published today. In Colombia growth was driven by strong infrastructure activity related to 4G and other projects as well as good performance in the residential, self-construction segment. In the Dominican Republic, our volumes benefited from strong activity in tourism-related projects around Punta Cana and a solid residential sector with government investment in social housing and growth in the high-end residential segment in Santo Domingo. Our operations in Panama have been affected by a slowdown in construction activity, due to high inventory levels in apartments and offices as well as delays in infrastructure projects. This has been exacerbated by higher cement imports into the country. In Costa Rica, we saw declines in cement volumes to all construction sectors. Our performance was also upset by the entry of a new competitor last year. In the TCL group, double-digit growth in domestic gray cement volumes in Guyana was more than offset by declines in Jamaica, Trinidad and Barbados. Given our year-to-date performance, we have improved our guidance for Colombia and now expect cement volumes to grow between 8% and 9%. We also adjusted Panama guidance downwards and now anticipate a decline in cement volumes in the 14% to 15% range. In our Europe region, we are pleased with the 18% year-to-date increase in EBITDA with a 1.7 percentage point expansion in margins resulting from our Stronger CEMEX initiatives, which include the restructuring of the region into a function-based organization, partially mitigated by an unfavorable country mix effect. In addition, our operating performance was bolstered by healthy pricing dynamics in our three core products during the third quarter. Regional cement prices increased by 7% year-over-year. Local currency prices grew in all countries in the region. The sequential decline in our regional cement price is mainly the result of a country mix effect. Regional ready-mix and aggregate prices in local currency terms increased by 4% and 2% respectively during the quarter on a year-over-year basis. Quarterly domestic gray cement volumes in the region were stable year-over-year, with mid single-digit growth in Germany, Spain and the Czech Republic offset by declines in the U.K., Poland and Croatia. During the first nine months of 2019, regional cement volumes remained flat. Ready-mix and aggregate volumes grew in the low single-digits. Our quarterly performance was affected by a market slowdown in Poland caused by delays in some infrastructure projects. In addition, activity in the United Kingdom continued to be affected by Brexit uncertainty. A strong infrastructure sector continues to be the main contributor to cement demand growth both during the third quarter and year-to-date supported by projects like Grand Paris, the German Federal Transport Infrastructure Plan, and U.K.'s Hinkley Point C power station and the Themes Tideway Tunnel. These projects should continue to support demand for our products. In the case of Poland, while E.U. fund related projects should continue to be a driver of the month, there were delays related to contract revisions, which affected activity during the quarter. This effect should be partially reverted over coming quarters. The industrial and commercial sector is expected to continue its favorable year-to-date performance. Cement volumes to this sector grew in all our countries except for the U.K. During the first nine months of the year, the residential sector has shown favorably activity in Spain, Poland, Germany and the Czech Republic. In Spain, the sector should continue to benefit from favorable credit conditions, but is expected to moderate its growth as consumption as job creation indicators have shown a recent slowdown. Given our year-to-date performance, we now expect regional volumes for our three core products to be from flat to growing 2% for the full year. We continue to see the benefits of the implementation of our Stronger CEMEX initiatives in the region, which together with improved pricing should translate into an increase in regional EBITDA margins of close to 200 basis points for the full year. In our Asia, Middle East and Africa region operating EBITDA increased by 4% during the quarter on a like-to-like basis, driven by increased contribution from the Philippines and Israel. Regional prices in local currency terms for our three core products were higher than in the quarter contributing to the 0.9 percentage point margin expansion. Regional domestic gray cement volumes decreased by 16% during the quarter. Regional ready-mix volumes increased by 6% in the same period, with a favorable contribution from Israel, partially offset by declines in Egypt and the United Arab Emirates. In the Philippines, domestic gray cement during the first nine months of the year decreased by 3% compared with the same period in 2019. During the third quarter, our cement volumes decreased by 6% due to lower construction activity, mainly related to public infrastructure. On a sequential basis, we had a slight recovery in our market position. Our quarterly cement prices in local currency terms increased by 3% compared with the same period last year. The latest infrastructure projects had a knock-on effect on private investment. The industrial and commercial sectors moderated its growth, while residential activity remained flat during the quarter. We expect our volumes to these two sectors to grow in the low single-digits for the full year. In light of our year-to-date performance, we now expect our cement volumes in the Philippines to be flat during 2019. For additional information on our Philippines operations, please see CHP's quarterly results, which will be available late tonight Friday morning in Asia. In Egypt, our cement volumes decreased by 30% during both the third quarter and the first nine months of the year. Difficult supply-demand conditions continue to affect the market coupled with a high base of comparison last year, when we sold more volumes to lower Egypt as a result of the temporary limited supply of cement plants in the Sinai region. Government actions to stop the construction of buildings that do not meet certain administrative requirements have continued to impact cement volumes. During the quarter, our prices for domestic gray cement in local currency terms increased by 1% sequentially and declined by 2% on a year-over-year basis. In Israel, our ready-mix volumes increased by 16% during the third quarter and by 5% year-to-date. The industrial and commercial sector was the main driver of demand during the quarter, which also benefited from a solid performance of the infrastructure sector and improved activity in housing. In summary, even the difficult economic environment, we continued to focus on our cost reduction initiatives and extract additional operating efficiencies. And now, I will turn the call over to Maher to discuss our financials.

Thank you, Fernando. Hello everyone. On a like-to-like basis our net sales decreased by 1% during the quarter, while operating EBITDA decreased by 7%, mainly due to lower contribution from Mexico. Our quarterly operating EBITDA margin declined by 1.1 percentage points, most of the drop was due to lower volumes. Favorable pricing and the contribution from stronger CEMEX savings offset the increase in some variable costs, such as raw materials and cement and ready-mix, purchased cement and transportation expenses. Our EBITDA was further impacted during the quarter by an $18 million negative FX effect half of which was due to weaker Mexican peso. Costs of sales as a percentage of net sales increased by 1.1 percentage points during the third quarter, driven mainly by the higher costs I mentioned earlier, partially offset by a lower energy bill. Operating expenses as a percentage of net sales grew 0.5 percentage points mainly due to higher selling expenses. Our unitary energy costs of producing cement including kiln fuel and electricity was 9% lower during the quarter. This includes a 12% reduction in fuels and a 4% decline in electricity. Year-to-date these costs per ton were down 3%. During the fourth quarter we expect fuel costs to continue to decline, but anticipate an increase in the electricity costs. We now forecast energy including kiln fuel and electricity on a per-ton-of-cement-produced basis to decline by 3% during 2019. Our quarterly free cash flow after maintenance CapEx was $290 million compared with $369 million last year mainly explained by the lower EBITDA generation during the quarter. The higher year-to-date working capital investment mainly reflects lower accounts payable from suppliers. We expect more than half of the year-to-date investment working capital to reverse during the rest of the year to reach our guidance. Working capital days reached a negative six days during the quarter from negative 10 days in the same period last year. Our total debt plus perpetual securities declined by $262 million year-to-date and by $162 million during the third quarter. The quarterly debt variation includes a favorable translation effect of $140 million. Under our stronger CEMEX plan, our debt reduction reached $733 million since the end of the second quarter of 2018. On a pro forma basis reflecting the use of proceeds from the divestment of most of our white cement operations which is expected to close during the fourth quarter, the debt reduction is $913 million. During the quarter we used our free cash flow to reduce debt to repurchase $50 million in CEMEX CPOs under our approved share repurchase program to repurchase $10 million in CHB shares and other corporate purposes. Our leverage ratio reached 4.05 times at the end of the quarter. Earlier this week we received approval for certain amendments to our 2017 facilities agreement. That will become effective subject to closing conditions which we expect to fulfill in early November. These amendments include first in an abundance of caution, we are making changes to our leverage and coverage covenants levels to increase our flexibility and leave an adequate margin for compliance. Second as part of our ongoing efforts to simplify documentation, better align our flexibility under the facilities agreement to that of our bond indentures, as well as reflect our improving capital structure over the past years, we have obtained the approval of other amendments which include an additional basket of up to $500 million exclusively for share repurchases during the life of the facilities agreement among other technical amendments. These amendments are intended to allow us to operate in a leaner and more efficient manner in line with our Stronger CEMEX objectives. We are grateful for the continued support from our lenders throughout the past years and more recently during this amendment process. Now Fernando will discuss our outlook for this year. Fernando. Fernando González: Thank you, Maher. Given our year-to-date performance, we have lowered our guidance for consolidated volumes and now expect cement volumes to decline from 3% to 6% while our consolidated ready-mix and aggregate volumes for the year should range from flat to minus 2% compared with those in 2018. In contrast, we have improved our guidance for cost of energy on a per ton of cement produced basis and now expect it to decline 3% from last year's level. On working capital, we now anticipate an investment of $150 million to $250 million during the year. We now estimate maintenance CapEx to reach $750 million and taxes to be about $250 million during the year. Our guidance for expansion CapEx and cost of debt remains unchanged from the one provided last quarter. 2019 has been a challenging and volatile year. Because of this and to provide additional information on our expected financial performance to our different stakeholders, we are providing guidance on our operating EBITDA, which we expect to reach around $2.45 billion in 2019 based on currently prevailing market conditions. As I mentioned at the beginning of the call, we believe demand for our products is bottoming out in Mexico. In addition, infrastructure and housing activity in the U.S. should continue to bolster growth in our markets. Pricing dynamics are expected to be favorable in the U.S. and Europe. We will continue to be disciplined and responsible with our pricing strategy always keeping sight of our participation in each market. We also expect our cost reduction initiatives and energy to continue to provide a daily win for our operating results in the next few quarters. And lastly, as part of our stronger CEMEX plan, we are committed to further strengthen our balance sheet through an important reduction in our debt and reposition our portfolio for higher growth. Thank you for your attention.

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

[Operator Instructions] Your first question comes from Vanessa Quiroga from Credit Suisse.

Thank you for taking my question. Good morning. The first one that I have is if you could help us understand Fernando Maher why the company was not able to revert working capital investment from the first half of the year as much as it was expected originally. And the other, the second question is regarding the EBITDA guidance. It implies a 15% year-over-year reduction for the fourth quarter, which compares to 11% decline in the first nine months of the year. So what would be the market that is dragging performance in 4Q according to your outlook? Thank you. Fernando González: Thank you, Vanessa. On working capital there are several reasons. One of them is for instance lower sales in Mexico, which is impacting. And we also have still some let's call them for one-off type of effects when last year we were still able to improve some of the variables some of the conditions of working capital that you cannot continue improving them indefinitely. So we have a one-off effect because of that reason. As you saw our working capital days here today is about minus seven days or so. So still a very good figure lower than last year. But you know I think those are the main issues. What we are expecting is for these levels of working capital to remain more or less at the same level.

And Vanessa regarding the fourth quarter, I mean obviously as Fernando said, we are providing the guidance for the full year which kind of you can get the readthrough for the fourth quarter because of the uncertainty and the volatility. And we wanted to make sure that we're a little bit more clear to everyone in terms of expectations. You're right that if we were to take a look at the first nine months' performance, the implied fourth quarter potentially could be worse. And there you know the only thing that we can say is that on the operating side, we really expect virtually all of our markets to be in line with the first nine months performance. So we don't expect things to be deteriorating in Mexico, the U.S. in fact in Europe, we expect things to be getting a little bit better. EMEA potentially could be a little bit slower, but in general, on a like-to-like basis, at the operating level, we're expecting things to be kind of in line with the first nine months' performance. The potential -- the area that could potentially impact the outcome is really in others and eliminations. And the reality is that last year we had some positive one-offs at the end of the year that we potentially don't expect to recur. And so last year the other eliminations number was lower. Now, again we don't know. These things really don't get finalized until the end of the year. But I would say that the primary potential difference for the quarter, and therefore for the full year, is coming below the operating results level. At the operating results level, we're expecting things to be pretty much in line with the first nine months. I don't know if that answers -- I don't know if that answers --

Thank you. I'm sorry just a follow-up.

Yes. Go ahead Vanessa.

Yes, it helps a lot. Can you remind us what last year's reason for the better inter-company and eliminations number?

Well, I mean we just--

The one-off.

Yes, I mean we just had some -- we haven't disclosed those numbers. All I can tell you is that we had some you know positive one-off provisions that we put into place. But we haven't given that breakdown.

Okay, great. And just to follow Fernando's answer regarding working capital, what is the implied number of days for the end of the year based on this guidance for your updated guidance for working capital?

Well, I mean it's very difficult. It varies because I mean we -- as you've noticed, we've given a change in guidance from 150 to 250. What I can tell you Vanessa is that if you take a look at the kind of -- even at the high end of our guidance, if you take the implied reversal in the fourth quarter versus last year's fourth quarter, it's awfully close. In particular if you consider that last year, we had the prepayment for our investment in the Philippines. So, we feel reasonably comfortable that with the new guidance that we're getting on working capital for the end of the year that we should get there.

Thank you very much both.

Thank you, Vanessa. Operator next question.

And now we will have a question from the webcast.

Thank you. And now I will take the question from Paul Roger from Exane BNP Paribas. And the question is-

What actions can you take to hit your net debt to EBITDA targets next year if Mexico does not improve? Fernando González: Well, I think we've been describing our stronger CEMEX program and you know it has different elements. But the ones related in order to improve our net debt to EBITDA ratio is savings on the operational side and free cash flow generation on divestments. So, I think that the savings that we have identified during the year they have been delivered. Of course we never stop trying to find additional ways. But on that part for this year, I don't see additional upside. I think the main lever for us in the near future is as divestments. So, what we are doing is monitoring the situation. I think we are delivering on our commitment to divest and to reduce up to $3.5 billion of debt by December 2020 and we will continue monitoring the situation. And if -- on an as-needed basis and if needed we might make some adjustments to our stronger CEMEX program.

Thank you, Fernando. Operator, next question please.

The next question comes from Adrian Huerta from JPMorgan.

Hi, good morning everyone. Thank you for taking my question. Two questions if I may. One if you can provide us with more details if you have on how quickly we can start seeing the investments on this new infrastructure plan in Mexico being deployed? And the second question is you mentioned about tougher competition in some markets in the U.S. Can you mention specifically where are you seeing this tougher competition? Thanks. Fernando González: Thanks Adrian. Regarding the potential investments in infrastructure, we don't have a specific date. I mean we don't know on a specific date what is -- what seems to be changing when compared to very early stages of our new government is there is the interest and the will to define an infrastructure plan where public and private investments are done hand-in-hand. And as you have heard no decision has been made but there has been discussions through mainly the Consejo Coordinador Empresarial with the government in order to put in place this infrastructure plan. What we know is that it is a very comprehensive one. It includes more than 1,600 relevant projects. And it's complementary to what has been made public, meaning the main projects supported by the government. I'm referring to the airport in Santa Lucia, the refinery, the train and the project in the Isthmus de Tehuantepec. So we don't have certainty. What we're saying is that, you know, compared to previous months it seems like there is the interest of considering a program like this one. We are not guiding assuming that these investments are going to happen. It is just a possibility. I tend to think that it will happen meaning some, sort of, infrastructure plan is going to be put in place. You know, what exactly is the content of that plan still too soon to know. That's under discussions as we speak.

And Adrian, regarding the U.S., the market that we specifically highlighted is Florida. As you know the Florida market is a very important market for us. It's a third largest for the cement business slightly under 20% in terms of our volume. And while the market has been growing, you know, because of our pricing strategies we did have -- what we believe are temporary market position adjustments. And obviously just as we do in all of our markets from time to time, we take the decision to frankly optimize for pricing. And we expect to regain the underperformance to the market in the upcoming quarters. I don't know if that answers your question.

It has. Thank you.

Thank you, Adrian. Fernando González: Operator, next question.

The next question comes from Yassine Touahri from On Field Investment Research.

Good evening, gentlemen. Couple of questions. First on the U.S., would you expect a little bit more competition from imports next year or in California and Texas from independent importers? And then second question on CO2 have you thought any CO2 allowance to share or could you consider selling any CO2 allowance in the future to reduce debt? And the third question, just on this elimination. I think on average it's between $50 million and $100 million of cost every quarter. Should we expect something to fall in the range of $70 million $75 million? If you could give us and also mention what you expect it to be that?

Yassine, I think we heard just the first part of the question. Maybe what I'll do is I'll answer that and then ask you again to give me -- and if you could give us the questions one-by-one I would appreciate it. The line quality is not great on your side. So the first question is regarding imports in the U.S. And imports in the U.S., Yassine have been fairly stable year-to-date. They've been around running at the 15% level slightly higher than last year. And we really have not seen a change in the percentage of imports that are attributable to producers in the U.S. And so we've seen a fair amount of stability. Now you know as far as California is concerned, I mean, as you know we did indicate that the California market demand has weakened a little bit. We think temporarily primarily because of the housing situation. Affordability has dropped materially. But we are seeing adjustment in the prices of housing and we do expect the situation to turn around. The market in California is quite robust and we do expect continued growth in that market. The other market that has been a continued importer is Texas and Texas is our second largest market. It's been an importer for quite a while. It's the fastest growing. Two or three of the cities in Texas, Dallas, Houston and Austin -- are three of the fastest-growing cities in the country. And so we do expect to some extent satisfying demand there through imports like everybody else, frankly. So I -- no major change other than this. Now could you please ask the second question that you had?

Yes. My second question was on CO2. Have you considered to sell -- as you say there is CO2 allowance and could you consider selling CO2 allowance in the future.

If I could understand you

CO2 allowance. CO2.

Do we consider -- this is I'm just mentioning it so we all here understand it. So you're asking is if we considered selling CO2 allowances. Fernando González: I see. Well, I think, that might be a possibility. We have not done it recently. Under certain conditions we did it in the past. As you may know we are long in our CO2 position for the fourth phase. So we might consider that as an option, but no specific actions have been taken on that regard.

And yes in the -- the last question. Was it on the change in the other eliminations? Did I understand that correctly?

Yes. Is it fair question that it could be in the range of 50 -- between $50 million and $100 million?

I mean we can't guide. I would say if you take a look at prior years, I mean last year like we said, earlier was particularly low. So I would take a look at a couple years back and you can extrapolate probably from that. But the average has been in the 60-plus range.

Very good. Thank you very much.

Thank you, Yassine. Operator, next question.

The next question comes from Francisco Suárez from Scotiabank. Francisco Suárez: Hi, thanks for the call. Asking about question on the government's programs in Mexico. It seems that the infrastructure programs in Mexico that should be announced, I mean it takes a while to be shown ready and to be felt directly not to mention that second points I'm not commenting there. But what can you tell us about the housing program that should be announced perhaps like November? Because that probably could be felt much more soon than -- sooner then compared to the problems on infrastructure that you mentioned. Thank you. Fernando González: You are right Francisco. Housing program should have a much faster execution than an infrastructure one. The infrastructure program, we still don't know if that is going to be approved and the content of it. But even if it is approved soon, let's say before year-end or early due to next year, it will take time for those projects to consume our products. In the case of the housing program, I don't have a specific date. I understand there has been some announcements in the sense of having a proposition by next month. That's the latest info that I have. Is that going to happen and what is the content of it? That I -- I don't have any additional info.

Yeah. Maybe I could also complement what Fernando was saying Paco is that, I think what we're seeing in Mexico interestingly enough is that because of the delay in the social housing program we’re seeing developers fairly rapidly focusing their businesses into the middle and upper-middle class housing business. That is a business that tends to be for higher -- for bigger houses has more intensity and of course the retooling is not going to happen overnight. Having said that, we're really encouraged by two things. We're encouraged by public sector mortgages growth. We have seen double-digit-growth CAGR from the beginning of the year in public sector individual mortgages that are being granted. More importantly, which addresses this let's say this refocus of developers into more of the middle market; we're seeing commercial bank mortgages for new homes growing significantly. And we've seen them growing at a CAGR of 10% since the beginning of the year. And actually for the first nine months of the year, we've seen growth year-over-year of 30% in that driver. And that's a very important driver of demand for the biggest segment of the housing section. So yes there is uncertainty and unfortunately the longer that uncertainty lasts, the longer -- the faster the market is going to switch to that middle market, which actually is higher intensity and could be better for us. But we look forward to that program being announced ASAP. Fernando González: Now if I may add to Maher's comment Francisco, as I mentioned before, without considering a social housing program or a new or a review infrastructure plan, we see volumes in Mexico bottoming out. Meaning even in the absence of this program, it seems like demand is not deteriorating further. It is true that there is a base effect because if you remember volumes last year for the first half were much stronger than the second half. So we are already in the middle of the second half. So that is impacting comparisons. But it seems like current demand is holding up. So it's -- we don't see a major deterioration. Now having said that, the reason why we provided guidance is we thought that even though in previous years there has been volatility and uncertainty. At this point in time, we do believe that uncertainty is really high. And not only for Mexico, because in Mexico we have several variables on market behavior, that will depend on the macroeconomic behaviour of the country. But we also have some uncertainties in the -- at a global level. I don't need to mention all of them but at a global level. And we see the U.S. starting to adjust. And I'm referring to the general economy, meaning, growing less than what it was growing, and with some risks in the horizon. Same for Brexit, so there are plenty of reasons that made us think, that uncertainty and volatility is too high. We are not particularly negative. We believe that 2020, on a very preliminary basis, meaning, still time to call additional info to be considered. But seems like under current market conditions 2020 will tend to be similar to 2019. Now, in our fourth quarter call, that will happen early February next year, of course we will provide much more info and much more color on this estimate or this comment. But that's why we decided to do it, because so many things going on making kind of challenging to properly estimate our performance. Francisco Suárez: Perfect. And thank you very much to Fernando and Maher for this great color. Thank you. Fernando González: Thank you very much.

Thank you, Francisco.

Operator next question.

And now we will have a question from the webcast.

So the next question is from Francisco Chavez from BBVA. And the question is can you give us a breakdown of the minus 1% year-over-year decline in volumes in the U.S. Paco the -- I think, it's very important before I give kind of the -- which markets that was impacted is that, I would say that the impact, the weather impact, that we had in the southeast region was quite material. It represents almost 40% -- the markets that were impacted represent close to 40% of our sales. And they represent close to 30% of our cement volumes. And we guesstimate the impact of Hurricane Dorian. And of course granted it did not hit many of these markets. But I don't know if you've seen the news programs during what was happening. People were busy shuttering down their houses and buildings and all of that. And not necessarily going out there and pouring concrete and using our products during that period. So we guesstimate roughly a seven-day impact, as a consequence of Hurricane Dorian which as we mentioned is a Cat-5 storm. In addition, and much less impactful was the quite-historic flooding that we had in the Houston area. So I think it's important to kind of use that as a backdrop. The hurricane probably impacted our volume somewhere between 2% to 3%. And then, we have the weakness in California, which we think is a temporary weakness as I mentioned, driven primarily because of the weakness in the housing market which is really due to affordability, not due to any structural weakness in the state. So -- and then we mentioned, Florida loss of market because of pricing, which we believe is also temporary. The state actually is doing quite well. And like I said, it's the third largest market for us, representing a little bit less than 20%. On the other hand, Texas has been booming, I mean frankly. And so we're excited about that and Houston in particular so -- and that's the market where we're highly concentrated so we benefit from that. Now having said all of that, we do think that this underperformance is not lost volumes. I mean we do think that at some point in time in the next quarters, we should see recovery in volumes in those markets, because of weather. So it's really, weather, a big chunk of our dynamic is weather-driven frankly. I don't know if that answers your question.

Operator next question.

Thank you. The next question comes from Mauricio Serna from UBS.

Hi. Good morning. And thanks for taking my questions. A couple of questions and first in Mexico, you were mentioning you source these things relatively stable for next year's demand. I was wondering if you'd comment maybe a little bit more, how you're seeing things evolving, maybe on a sector-by-sector basis? And thinking that maybe there could be something going on in infrastructure. I don't know how much that would be a trigger given that it's relatively small for you in terms of percentage of your demand if I recall 15%. And then just a couple of things regarding the credit facilities agreement. You were mentioning that there were some changes to some thresholds regarding the leverage. I don't know if you could elaborate a little bit more on that. And finally, if you could maybe provide an update on a divestment pipeline, it’s been you’ve announced so far $830 million of divestments. I recall several months ago you were talking about still around $400 million that were in the pipeline relatively close to reaching an agreement. I was just wondering how are those talks evolving? Thank you.

Mauricio, maybe I could address the sector performance. I mean, obviously, we don't give guidance I mean on performance until next year. But you know, the areas that we obviously, I mean it sounds like -- it sounds a bit simplistic but we do expect the housing segment which accounts for close to 60% of our volumes. And we do expect infrastructure which is probably mid-teens of our volumes. And these are the two segments that have underperformed dramatically. And the -- I should say underperformance not by us. This is underperformance because of the -- because of certain actions that are prevailing in the market. And we don't think that the underperformance is due to structural drivers. I mean it's not a shortage of credit. It's not a shortage of demand. In fact, if anything there's probably quite a bit of an overhang in both the housing market and the infrastructure market. And we are -- let's say we are hopeful, optimistic. I don't know how you want to call it. About the housing market picking up next year, we do expect some activity higher activity in infrastructure as a consequence of the fiscal stimulus and infrastructure programs that have been talked about. And we think that we have a particularly strong presence in those markets. And so to the extent that we see that lift in demand, it should impact us. But again as Fernando said, it's too difficult at this point in time to kind of say, it is definitely going to happen. And so I think we'd rather wait. We do have strength in those two particular segments and we would rather wait until we see a little bit more going forward to the end of the year and beginning of next year when we give guidance in February. Now as far as the credit facility, I think it's very important to note that the covenant that we sought and we appreciate our banks responding to is the leverage ratio. The coverage is not a -- is really not a big issue. But the coverage ratio -- I mean, the leverage ratio as you know and for all of the listeners I mean, we've essentially asked for a half a turn widening immediately and up to three quarters of a point on a -- three quarters of a turn on an ongoing basis. If you -- I mean for everybody that know us in the market we have that's one area that we have been extremely vigilant about. It's an area of risk that we like to manage well in advance and I'd like to highlight a couple of things that are kind of driving us to do that. Number one is as you know, we do have a convertible note that is coming due. To the extent that we use anything other than something similar to a convertible that has a potential impact of close to a you know a little bit under a quarter of a turn on our leverage. Just that. Seasonality of working capital in the first quarter. That could also contribute another quarter of a turn. And historically, we prefer to manage our business with you know, somewhere around a turn of cushion in our leverage ratio. And that's one of the reasons why we approached our banks and they were very accommodating in their approach. So that's really why we did it and that's the magnitude of doing it. Fernando González: Regarding divestments you know, we don't provide the info on the pipeline we are negotiating. What we mentioned is that we have a very sizeable portion of our assets in negotiations that we do believe they are going to be concluded before December 2020.

Thank you. Just a quick follow-up on Mexico though. You were mentioning the -- just wanted to get a sense you know that 15% volume decline. Do you have an idea of how that compares to the industry decline for the quarter? Fernando González: For the quarter, I'm not sure I do have here for the quarter. But year-to-date figure is around 10% more or less.

Okay, okay. That’s helpful. Fernando González: Yes.

Thank you Fernando González: Great. Thanks a lot Mauricio. Operator?

We have time for one last question that comes from Eduardo Altamirano from HSBC.

Hi, gentlemen. Thank you for taking my question. I actually have two. The first one is on the deferred -- well, it seems you change the maintenance CapEx outlook. You declined this by about $100 million. Is this something we’d expect to see in the following year? And the second question would be -- just, if you could provide more color on the rationale behind the share buybacks, especially keeping in mind with everything you just mentioned about the credit facility agreement, management of, let's say, any sort of leverage and expectations of -- or a commitment to having all of your cash flow designated towards deleveraging? Thanks.

Yeah. Eduardo, on the maintenance, I think that was more of a fine-tuning. I mean and whether -- I mean, first, I'd like to say that the guidance that we had was for fairly robust maintenance. And obviously -- I mean, as you know, we do have some flexibility in the timing of when and the scope of what we do. And given what was kind of happening on the -- in other elements below the EBITDA line, we felt it's probably prudent to maybe trim back a little bit on the maintenance levels. What could happen in 2020 and beyond, I mean can't comment on that. But it's not inconceivable that this level can be a run rate level for 2020. But, we'll disclose that or we'll discuss that when we talk about guidance for next year. Fernando González: Regarding the rationale on the buyback, the idea of returning capital to shareholders is one of the elements of our stronger CEMEX program that we communicated since mid-2018. Perhaps, one of the reasons why we decided to have much more flexibility compared to the one we had before the adjustments to the financial agreement, is because of the value of our share in recent times going, in our opinion, below its intrinsic value. So, we wanted to have the flexibility to act on an opportunistic way and whenever we believe that is convenient. If I -- just to reinforce the message, if I use the example of the buyback we did between August and September, we bought around 1% of CEMEX in $50 million. That's equivalent -- I'm making a big assumption here – but, at that price that is equivalent for us divesting one of our smallest business units and buying 10% of CEMEX. Again, I'm not saying we're going to do it. What I'm saying is at those values what we want is the flexibility to act for the benefit of our shareholders.

And just to complement what Fernando is saying, it's very important to note that this -- different from the basket that we had before, this is a basket that is available during the life of the facilities agreement. So -- and the facilities agreement mature by 2024. So, we're talking about four years. So, it's not a one-year limit. So, that's one of the reasons why it's also -- it seems like it's a big number, but it's also -- it's over the life of the facilities agreement. So, I don't know if that addresses your -- if you have any further clarification, of course, we'll be more than happy to address it.

No, that does it. And then just I appreciate the color on that. The only other follow-up would be that since you noted that it fell below intrinsic value, how are you seeing intrinsic value for the company based on where -- what is that sort of -- well, just not give the number exactly, but we can get sort of an idea of what that would be?

Yeah. Eduardo, you can imagine that that's a very delicate question, right. We're not going to -- we're not in the position to say below this or that target. So, I would prefer -- we'd prefer not to comment on it.

Understood. Okay. Thank you very much. Appreciate it.

Thank you very much, Eduardo. Fernando González: Thanks.

Operator?

Thank you. I would now like to turn the call over to Fernando González for closing remarks. Fernando González: Well, thank you very much. And 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.

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