CEMEX, S.A.B. de C.V. (CX) Q4 2019 Earnings Report, Transcript and Summary

Good morning, everyone and welcome to the CEMEX Fourth Quarter 2019 Conference Call and Webcast. My name is Jamie, 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'll turn the conference call over to your host, Fernando González. Please proceed. Fernando González: Thank you. Good day to everyone, and thank you for joining us for our fourth quarter 2019 conference call and webcast. We will be happy to take your questions after our initial remarks. 2019 was very challenging, weaker macroeconomic and market conditions prevailing several of our businesses. Our EBITDA for the year reached $2.455 billion slightly better than the guidance we provided during our third quarter call. Adjusting for the sale of our Kentucky and certain U.K. assets, which are now accounted as discontinued operations, our reported EBITDA was $2.38 billion. During the year, we enjoyed better pricing dynamics for our three core products in all our regions. In contrast, volumes were weaker in most of our operations. While the combination of favorable pricing and cost reduction initiatives more than offset higher cost and distribution expenses during the year, the lower volumes affected EBITDA generation. The EBITDA margin declined by 1.8 percentage points during the year about one-third of the drop was due to product and geographic mix effects. During the year, we generated almost $700 million in free cash flow before expansion CapEx, which resulted in a conversion rate of EBITDA into free cash flow of 29%. We maintained the same conversion rate achieved in 2018 despite the lower EBITDA generation. On working capital, we reached negative 15 average days during the fourth quarter and negative nine average days during the full year. As regards to our stronger CEMEX plan, we are well advanced in meeting our targets. We met our cost reduction target for 2019. We achieved expected $170 million in savings from various initiatives, including operating expenses, low cost sourcing, energy, operations and supply chain. The combination of our cost reduction initiatives plus better pricing more than offset higher costs and distribution expenses. For 2020, we have identified an additional $200 million in cost reduction actions, including the continuation of our 2019 plan plus reduction of fees and travel expenses, headcount optimizations in corporate and our global services organization and increased operational efficiency in several of our sold out markets. On asset divestments, we have now achieved our target. We have closed or are in the process of closing divestments in excess of $1.7 billion at attractive multiples about 12 times on average. We believe these divestments are fortifying our balance sheet and will translate into better medium-term performance of our overall portfolio. We expect to continue our portfolio rebalancing efforts. Strategically, we maintain our strong bias towards additional strengthening of our capital structure and actions that enhance our organic growth potential. As regards to returning capital to shareholders, we delivered on our target to pay $150 million in a cash dividend last year. In addition, we have repurchased $125 million in CEMEX shares and $31 million in CHP shares since November 2018. We do not expect to pay dividends in 2020, as we intend to use our free cash flow mainly for debt reduction. Reaching an investment-grade capital structure continues to be a top priority. We are currently about $1.7 billion short from our debt reduction target. However, we remain committed to meet this goal. In order to further fortify our balance sheet, we continue to be focused on three initiatives. First, grow our EBITDA through further cost reduction efforts, operating efficiencies and customer-centric commercial strategies across all our core businesses. Second, maximize our free cash flow, which will be mostly used for debt reduction. And third continue to execute selective accretive divestments. I want to stress that we will remain disciplined sellers and will work to attain the highest possible value for these businesses. Our successful track record of asset sales underscores our commitment to this approach. By selling non-essential assets, we will free up more free cash flow to reduce debt. We want to focus on the markets with the greatest long-term EBITDA growth potential leveraging those assets that are best treated to achieve this. We want to be where our customers are and need us to be offering our full value propositions of products and services. We believe that climate change is one of the biggest challenges of our time and support the urgency of collective action to ensure compliance of the Paris agreement commitments. Climate change has been a priority for CEMEX for many years. Our efforts have brought significant progress to date, more than 22% reduction in our CO2 emissions from the 1990 baseline but we need to do even more. This is why we have defined a more ambitious target for CO2 emissions by 2030, a reduction of 35%. This new target is aligned with the science-based target methodology under the two-degree scenario. To reach our new target, we have a detailed CO2 road map by plant, to which we will accelerate the rollout of proven technologies so that we can reach alternative utilization of approximately 45% and reduce clinker factor to around 75%. In addition, we will continue our efforts to use renewable energy for it to reach 40% of our total electricity consumption by 2030. This global CO2 road map will require approximately $130 million in CapEx over the next five years with expected incremental annual savings of approximately $65 million per year from 2025 onwards. This will also help us increase the surplus of our CO2 allowances in Europe. CEMEX has a competitive advantage in the European emission trading system, as it enters its Phase IV, as we are long on CO2 allowances to cover our emissions throughout the whole fourth phase. This is an important element in the face of potential tougher rules, deriving from the new European Green Deal. I want to highlight that our efforts to disclose and reduce CO2 emissions have been recently recognized by CDP formerly Carbon Disclosure Project, as we have been included in the prestigious A list of companies in 2019. In our business, we believe concrete our end product has a key role to play in the transition to a carbon-neutral economy. As such, we are now establishing an ambition to deliver net-zero C02 concrete by 2050. Achieving this represents a significant undertaking, as we plan to take decisive actions to achieve it. It will be essential to have cross-industry action throughout the Global Cement and Concrete Association and its research network INNOVANDI, where we are starting to collaborate with academics non-profit organizations and multilateral institutions. We will continue to have the direct involvement in Research & Development efforts pursuing high impact technologies in carbon capture, use, and storage and others such as the LEILAC project in Europe, which is working on the direct separation of cement process emissions, which can be – which can then be captured and used or stored. Through CEMEX Ventures, we will continue to monitor and invest in the most promising start-ups related to CO2 reduction technologies. An example of this is the Synhelion project where solar calcination at an industrial scale could become feasible and it could radically change the need to use fossil or alternative fuels. We are also collaborating with the industry to find technology, which accelerate the carbonation of concrete, a process which normally happens throughout its life time and takes many years. Our participation in the FastCarb European project provide us with visibility on the development pathway of this technology. We will keep on innovating in our admixtures technology and the use of binders to reduce the clinker cement content in our concrete products. We will even be able to offer clinker free concrete soon. Finally, to offset any remaining CO2 emissions, we will intensify our reforestation efforts in our El Carmen nature reserve and in all our queries worldwide, looking for net positive growth of natural carbon sinks. This net-zero CO2 concrete pathway will require substantial investments. Therefore, we expect to use part of our respected surplus of CO2 allowances in Europe to invest in high potential technologies. Next week, we will publish a white paper the tailings CEMEX's position on climate action. In this document, we will elaborate in more detail how we intend to achieve the new ambitions. Now I would like to discuss the most important developments in our markets. In Mexico, 2019 was very challenging with a double-digit decline in our cement volumes, reflecting muted public and private investment during the transition year of the new government as well as some loss in our market share position resulting from our pricing strategy. We are pleased with the results of this strategy given the unfavorable demand environment. Last year, prices for our three core products increased in the low single-digits. However, prices as of December 2019 were still lower in real terms than December 2017 levels. We will continue our efforts to recover this lag as well as future input cost inflation. To this end, we announced price increases for bag and bulk cement as well as ready-mix effective January the 1st. We expect that a more stable demand outlook will translate into improved traction for price increases. Our operating EBITDA margin reached to 33.4% during 2019, a 3.5 percentage point decline versus 2018. The favorable contribution from our pricing strategy, cost reduction initiatives and energy tailwinds was more than offset by lower volumes, higher raw material costs and ready-mix and higher freight costs. The industrial and commercial sector was the main driver for cement volumes during 2019, supported by sourcing related investment and other commercial projects. For 2020, we expect commercial activity will continue to perform positively. In the residential sector, mid to high-end housing activity last year was supported by mortgages from commercial banks and INFONAVIT. Social housing in contrast was affected by the significant reduction in subsidies. Changes in housing priorities resulted in a reduction in supply of low-income housing and shipped by home builders to the more dynamic and profitable higher income segments. For 2020, we expect the mid to high-end housing segments will continue to grow. Low income housing activity could improve as the government implements new guidelines and development incentives. The self-construction sector also decreased during 2019, primarily due to lower bank cement volumes related to government programs as well as the economic slowdown. For 2020, the introduction of new social programs and initiatives to promote self-construction might provide some support to this sector. Infrastructure activity last year was affected by the transition period of the new government and a lower budget. For 2020, we expect to see some activity related to projects under the five-year national infrastructure agreement that could translate into renewed growth in this sector. We remain focused on our operating efficiency initiatives. These include streamlining production logistics, increasing alternative fuel utilization and optimizing our ready-mix and aggregate networks. These initiatives together with our pricing strategy materially mitigated the impact of the higher than expected volume decline in 2019. In addition, we also expect to have some tailwinds from lower pet coke prices during the first half of the year. For 2020, we expect volumes for our three core products to be from flattish to growing low single digits, principally from higher activity in infrastructure and continued favorable trends in demand from the commercial and mid to high income housing segments. In the United States, quarterly cement volumes adjusted for the sale of Kentucky operation increased by 4% on a year-over-year basis while ready-mix and aggregate volumes increased by 2% and 6%, respectively. The infrastructure and residential sectors remain the primary demand drivers for the full year our cement volumes were lower than national demand due to weather in our footprint, operational issues and loss in our market position in specific macro markets as a result of our pricing strategy. We were pleased to see improved pricing traction in 2019. Cement prices increased by 5% in the fourth quarter year-over-year, while ready-mix and aggregate prices increased by 5% and 2%, respectively. As we entered 2020, we are optimistic about our annual price increases as a result of higher industry capacity utilization and robust demand. The housing market, which represents about 30% of cement demand rebounded in the second half of 2019 and improve our profitability, a decline in interest rates and a healthy economy. Housing starts in the fourth quarter increased by 22% year-over-year. Importantly, the residential markets in our four key states continue to expand at a faster pace than the country as a whole. The outlook for 2020 remains promising with permits for our four key states up 13% in the fourth quarter. The industrial and commercial sector is the smallest of our sectors, representing approximately 20% of demand. This sector decelerated in 2019 and is likely to remain fairly muted in 2020. Industrial and commercial spending decreased 1% in 2019 with strength in office and lodging activity. Contract stands for industrial and commercial, a forward-looking indicator are up 1% nationally and up 4% for our four key states. In infrastructure, a sector that represents approximately 50% of U.S. cement demand, street and highway spending was up 9% in 2019. This is the highest rate of growth for streets and highways since 2006 and is driven by state transportation funding activities. While highway contract awards growth turned negative in 2019, we believe that delays in the conversion of contracts awarding to spending coupled with multiyear projects should continue to support transportation spending in 2020. Despite strong pricing performance, EBITDA margins for the U.S. decreased in the fourth quarter. This was due to uneven demand dynamics among our four key states which translated into higher supply chain and transportation cost and was further exacerbated by high maintenance during the quarter. In addition, we had some accruals at year end. Many of these headwinds are expected to abate in 2020. Our new management team who took over in the third quarter, enhanced and accelerated the execution of a strategic plan for the U.S. put into place in 2018. This plan which will be fully implemented in 2020 consists of three elements; new commercial initiatives, efficiency improvements, and cost savings. On the revenue side, we are responsibly regaining market share in certain micro markets. We are investing in our aggregate business and expanding our admixtures operations where we began to sell products to our clients this year. We are increasing our participation in direct work activity where we set up on-site concrete batching facilities for large projects. As regards to efficiency improvements, we are accelerating expenditures and then a three-year $50 million improvement program which started in 2018. This program is designed to boost the production of our plants as they move into sold out status. In the past two years, we have spent $27 million and intend to spend an additional $22 million in 2020. These efforts will bring significant improvements to plant efficiency as well as related supply chain benefits this year. Finally, we continue implementing several cost savings measures. We are optimizing our kiln fuel mix and have locked in lower fuel prices for most of 2020. We are taking greater advantage of our low-cost country sourcing initiative. We also expect important savings in operating expenses due to restructuring actions we took in the fourth quarter. Most of these efforts are expected to be substantial contributors to EBITDA generation this year. In 2020, we expect higher demand from the residential and infrastructure sectors. We estimate cement, ready-mix, and aggregate volumes to be from flat to growing in the low single-digits. This guidance reflects a pickup in residential growth due to improved profitability while infrastructure demand growth slows from its 2019 pace. In the South, Central America, and the Caribbean region, operating EBITDA for the fourth quarter grew by 8% on a like-to-like basis, mainly driven by higher contributions from Colombia and the Dominican Republic. This was the first quarter with year-over-year EBITDA growth in the third quarter of 2016. The EBITDA margin expanded by 2.7 percentage points in this period. We experienced favorable pricing dynamics during 2019 with local currency prices for cement and aggregates growing by 2% and 3% respectively, while ready-mix prices remained flat. Regional cement volumes declined by 2% during the fourth quarter while both ready-mix and aggregate volumes decreased by 12%. For the full year, domestic gray cement volumes declined by 2%, while ready-mix and aggregate decreased by 7% and 11% respectively. During 2019, we experienced cement volume growth in Colombia, the Dominican Republic, and El Salvador. However, strong decreases in Central America more than offset their contribution. Ready-mix volumes grew in Colombia and Puerto Rico. For additional detail on this region, I invite you to review CLH's quarterly results which were also published today. In Colombia, full year cement volumes grew by 9% year-over-year supported 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 for the year increased by 6% as a result of strong activity in tourism-related projects and a solid residential sector. In contrast, our operations in Panama were affected by a slowdown in construction, high inventory levels for apartments and offices, and leasing infrastructure projects. Higher cement imports also negatively impacted industry dynamics. Costa Rica's performance last year was also affected by a slowdown in all construction sectors and new cement grinding capacity. In the TCL group, domestic gray cement volumes during the year declined by 4%, mainly to our performance in Jamaica and Trinidad. For 2020, while we expect the cement industry in Colombia to grow by low single-digits, we are guiding to a mid-single-digit decline in volumes due to new cement production capacity entering the market. We expect the Dominican Republic to continue its growth trend driven by the commercial sector, mainly tourism and additional activity related to election year spending. In Panama, we expect the cement industry to continue to contract this year. We anticipate our volumes to decrease in the 11% to 13% range. In the Europe region, we are pleased with 19% EBITDA growth and the 180 basis point EBITDA margin expansion for the full year. This resulted from strong pricing performance in our three core products and our stronger CEMEX initiatives, which includes the restructuring of the region into a function-based organization. Regional cement prices in local currency terms increased by 4% and 6% in the fourth quarter and full year, respectively. The quarterly sequential decrease in our regional cement price is mainly the result of a country mix effect. Regional ready-mix prices increased by 24% during the quarter and full year, respectively, while aggregates prices increased by 3% in both periods. Quarterly domestic gray cement volumes in the region were up 2% year-over-year, with solid growth in Poland, Germany and Spain. This performance was partially offset by declines in the U.K., Czech Republic and Croatia. During the full year 2019, regional cement volumes were flat year-over-year, with positive volumes in all countries, except for the U.K. due to Brexit uncertainty and Croatia, which benefited from the cement intensive phase of a large highway project in 2018. In France, our volumes during the fourth quarter were impacted by weather in the south. Our full year ready-mix and aggregate volumes in the country were stable year-over-year. Our strong infrastructure sector was the main contributor to cement demand growth in 2019 in the region. This sector was supported by multi-year projects such as Grand Paris, the German Federal Transport Infrastructure Plan, U.K.'s Hinkley Point C power station and the Themes Tideway Tunnel, as well as highway projects in Poland partially funded by the EU Cohesion Fund. We also saw a growth in the residential sector in Spain, Poland, Germany and the Czech Republic. While the industrial and commercial showed positive performance in all countries, except for the U.K. For 2020 we expect regional volumes for cement and ready-mix to range from a 2% decline to 2% growth and for aggregates to be between 3% decline, a 1% growth. We continue to expect the infrastructure sector to support demand in most of our markets this year, based on expansionary, monetary and fiscal policies across the region. In our Asia, Middle East and Africa region, regional prices in local currency terms during 2019 increasing the mid-single digits for cement and aggregates and in the low single digits for ready-mix. In contrast, cement volumes declined by 11% mainly due to competitive dynamics in Egypt, while ready-mix and aggregate volumes decreased by 2% and 5% respectively. Operating EBITDA in the region declined by 5% during the year, mainly due to a lower contribution from our operations in Egypt. EBITDA margin remained practically flat. In the Philippines, domestic gray cement volumes declined by 3% during both, the quarter and full year, while quarterly activity improved during October and November, two typhoons hit Luzon and Visayas, our most important markets during December, negatively impacting our operations. Our cement prices increased by 4% in local currency terms during 2019. For 2020, we expect cement volumes in the Philippines to grow by 3% to 7%, mainly driven by a recovery in public infrastructure activity, supported by a 7% increase in the 2020 budget, plus the unutilized portion of the 2019 budget. For additional information on our Philippines operations, please see CHP's quarterly results, which will be available late tonight, Thursday morning in Asia. In Egypt, cement volumes increased by 10% during the quarter supported by improved growth in the economy. Fourth quarter 2019 was the first in the last six quarters with year-over-year growth in national cement volumes. The full year cement volume decline reflects a negative impact of new production capacity. This also affected cement prices, which decreased by 5% sequentially and 13% on a year-over-year basis in local currency terms. For 2020, we expect our cement volume to be in the minus 2% to plus 2% range, in line with the market. In Israel, ready-mix volumes increased by 6% during the quarter and by 5% in 2019. All sectors contributed to volume growth. Industrial and commercial activity was especially positive. For 2020, we expect this favorable demand trends to continue. And now, I will turn the call over to Maher to discuss our financials. Maher?

Thank you, Fernando. Hello, everyone. During 2019, net sales declined by 1%, while EBITDA fell by 10%, both on a like-to-like basis. Our consolidated price increases, plus our cost reduction initiatives during the year, more than offset input cost inflation. However, lower consolidated volumes impacted negatively our EBITDA. During the quarter, net sales were flat, while operating EBITDA declined by 15%, resulting in a margin drop of 2.9 percentage points. This was due mainly to lower EBITDA contributions from Mexico and the U.S. Cost of sales as a percentage of net sales increased by 2.9 percentage points during the fourth quarter, driven mainly by higher maintenance costs, an increase in prices of raw materials and higher freight cost in ready mix, partially mitigated by lower energy costs. Operating expenses as a percentage of net sales grew by 0.8 percentage points, mainly due to the impact of inflation in personnel costs, as well as higher freight rates in several of our markets. During 2019, we started to see some tailwind from lower energy costs. In addition, we increased pet coke utilization to capitalize on lower prices, while also increasing the use of alternative fuels. As a result, our unitary energy cost of producing cement including kiln fuel and electricity was 7% lower during the fourth quarter and 4% lower for the full year. For 2020, we expect tailwinds in fuels to continue. However, we anticipate increases in power costs mainly in Europe, Egypt and the Philippines. In addition about 40% of our estimated diesel consumption for 2020 is already hedged. Our quarterly free cash flow after maintenance CapEx was $526 million compared with $380 million last year. This is mainly explained by a higher reversal in working capital which more than offset lower EBITDA generation. We continue to improve our debt maturity profile and strengthen our capital structure. During the quarter, we issued $1 billion in dollar-denominated senior secured notes due in 2029 with a coupon of 5.45%. We used the proceeds from this bond plus our free cash flow generation during the quarter to mainly first repay debt including the repurchase of $350 million of our 6% notes due 2024, $200 million of our revolving credit facility and other debt. Second pay a $75 million cash dividend in December. And third increase our cash balance in anticipation of the scheduled payment of our convertible securities in March of this year. Our net debt plus perpetual securities declined by $163 million during the fourth quarter, despite an unfavorable translation effect of $126 million. During 2019, total debt plus perpetual securities decreased by $1.36 billion on a proforma basis bringing the reduction under our stronger CEMEX plan to $1.84 billion, since June 2018. After the expected payment of the March 2020 convertibles, we have a manageable debt maturity profile with no significant debt maturities through July 2021. Our leverage ratio reached 4.17 times at the end of the quarter. And now Fernando will discuss our outlook for this year. Fernando? Fernando González: Thanks Maher. As you'll recall, during our third quarter results call I commented that for 2020 we expected a similar EBITDA performance done in 2019. Now with better visibility, we are expecting 2020 EBITDA on a like-to-like basis to be from flattish to growing in the low single digits. EBITDA should be supported by volumes which we expect to be from flat to growing 2% for our three core products, as well as by our cost reduction initiatives under our stronger CEMEX program. As regards to pricing we will continue to aim to recover input cost inflation in our products. Mexico should reach an inflection point during the first half of the year followed by growth in the second half. The U.S. is expected to contribute to higher EBITDA throughout the whole year. Our Europe region should maintain its positive trend. For cost of energy per ton of cement produced, we forecast a decrease of between 2% to 4%. Guidance for maintenance and strategic CapEx is $800 million and $300 million respectively for a total of $1.1 billion. Total CapEx includes about $240 million in leases. We also expect an investment in working capital of $100 million during the year. Cash taxes are estimated to be about $200 million. And on financial expenses, we expect a $40 million reduction from last year. As I mentioned earlier in the call, we are encouraged by the better prospects for growth in Mexico, the U.S. and Europe. We will stay disciplined and responsible with our pricing strategy always keeping sight of our participation in each market. We also expect our cost reduction initiatives to bolster our EBITDA generation. We remain committed to our stronger CEMEX initiatives which will further help in strengthening our capital structure and reposition our portfolio for higher growth. Thanks 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 prices for our products. And now we will be happy to take your questions. Operator?

[Operator Instructions] And our first question today comes from Adrian Huerta from JPMorgan. Please go ahead with your question.

Thank you. Good morning, Fernando and Maher. And thank you for taking my question. Fernando González: Good morning.

Hi, good morning. My question has to do with the – with the performance in the U.S. last year. How much of I mean you mean that there were a lot of expenses and were taken during 2018 and also additional maintenance as well. How much of that was expected and how much was not? And maybe if you can give us further breakdown on what really happened and that drove margins at 2.5 percentage points and EBITDA for the full year 8% down on a like-to-like basis? Thank you.

Yeah. Adrian, I'll take that. I mean, I think that, I would like just to kind of refer you to what Fernando said during the comments. There was a few things that were going on during the quarter. I mean, first we certainly don't think the fourth quarter to be indicative of full year performance going forward. We've had quite a patterns in difficult – more difficult comps in California and Florida. We had fairly uneven growth. I mean, we had more than 20% growth in our Texas operation, while we had some negative growth in some of the other big states. Plus we – when Hima via our new President of the U.S. moved in towards the end of the year. One of the things that – in expectations of better performance going through next year decided to accelerate maintenance and do some preemptive maintenance and do some investment in operating efficiencies. All of those, plus the weather pattern and the uneven growth in the market translated to higher-than-expected freight and distribution. I mean, we knew of course that that is likely to have that knock-on effect is likely to happen. So it is expected, but it is not ordinary. We had probably a little bit worse than expected in terms of inventory draw downs both in cement and in ready-mix. On the positive side, we have a number of our markets are sold out. So we've had to purchase cement from third parties in order to satisfy that. So that's not part of that effect. And then, we had really – it really – inflation in raw materials particularly in ready-mix all over the place. When we go through the cost increases compared to the realization of close to more than $45 million of price effect and close to $20 million in volume effect. We guesstimate somewhere between $30 million to $35 million of the expenses during the quarter, are non-recurring or are extraordinary, what I would call extraordinary expenses. If we adjust for those, we would have had essentially a flattish quarter year-over-year. And we would have had a flattish EBITDA margin which I think is what would be more indicative going forward during the course of the year.

Clear Maher. And those $30 million to $35 million in the quarter, how much would that was for the full year? Now you would consider as well extraordinary one-offs.

Well, for the full year, I mean for the full year the difference was – I mean, I don't have the breakdown on the number. But I would say that, it should be a obviously not as big as that because the number is quite exacerbated in the fourth quarter. But I can come back to you and give you the breakdown of those numbers for the full year.

Thank you, Maher.

And our next question comes from –

Did I answer – sorry, did I answer all the questions Adrian or –

Yeah, Maher thank you.

Thank you very much.

And our next question comes from Carlos Peyrelongue from Bank of America. Please go ahead with your question.

Thank you. Thank you, Fernando and Maher for the call. Could you provide any color on a target for asset sales and debt reduction for 2020? Thank you. Fernando González: Yes, well, Carlos as mentioned, we have already achieved some of the targets on our stronger CEMEX. The one that are – we still have a gap is debt reduction of about $1.7 billion. We intend top line free cash flow this year. Remember our targets are for December 2020. And as I mentioned, we will continue with selective divestments. We are not disclosing any specific amount, or either specifically, which divestments we are going to be pursuing, but we continue the process and trying to achieve the target by December 2020.

Okay. Perfect. And with regards to Mexico, have you started to see any movement in terms of demand either from low-income housing or infrastructure? Fernando González: Well, it's too soon to say, but what we have seen so far this year and our expectation is for Mexico to – during the first quarter, I mentioned the first half seems like we're starting to see early indicators of the first quarter. I mean, a tough inflection point compared to the trend of last year, but definitely a different performance of the market. Our volumes did drop about 50% last year. And this year, again first half most probably perhaps first quarter, we will see a neutral situation meaning, not additional drops and perhaps little by little an increase as I mentioned from 0% to 2% in total volumes. That's how currently our most updated estimate.

And maybe if I could Carlos add to Fernando. Carlos, maybe if I could just add to what Fernando is saying. Also I think we are -- if we need to take a look at what's happening to the mortgage markets. And we've seen some fairly positive pickup in mortgages, which we think is a leading indicator to what's likely to happen in both self-construction and flat housing.

Okay, perfect. Thank you both.

Thanks a lot Carlos. And the next question is going to be from the webcast from Mike Betts from Data Based Analysis.

And there are two questions. The first question is 45% alternative fuel usage by 2030 requires a significant increase in usage outside Europe. Have you -- do you have contracts in place to cover the supply of these additional alternative fuels? What does the 45% include for Mexico and the U.S.? And what was the usage there in 2019? So that's the first question. And maybe we could stop there and then follow-up. Fernando González: Okay. Well, if I may. Mike, the target -- as you know we currently are in the range of 28% that kind of change a little bit every year. But in the case of Europe, the situation is quite stable because of the wage directives that are valid in the EU and that is in the -- it has promoted the development of a whole economic sector around waste. In the case of other markets what we have done and this is not the overall. I mean, we started doing this since 2006 or so. We started learning from the use of alternative fuels. And it's -- the logic of procurement using everything from Europe. And we started exporting that knowledge and technology to other emerging markets. That's why in markets like -- emerging markets like Mexico, for instance, we already have -- we have been in the range of 25% to 30%. And we have done that with a combination of sources from alternative fuels. Some of them do come with short, mid-term agreements from municipalities in the use of -- and treatment and use of waste. So that is what we will continue doing. Remember that a long time ago that alternative fuel use away from Europe and in other geographies was almost nonexistent. And nowadays I think having a target of 45% is reasonable. I mean, on the time horizon we are defining, because we already know what is needed and how to do it, 20% in the U.S. or even more to 25%, 30% in Mexico, more than 60% in Europe. So I think it is something that is doable. We know how to do it. Technology is available. And so I don't see an issue. And an additional comment Mike is that as you might have realized, we are focusing on alternative fuels with high content of biomass. That's an important element of our strategy because of CO2 issues. So that's the first part of your -- or the first question.

Second question is how the savings of $65 million starting 2025, if annual savings are calculated? Is the estimated saving in carbon permits that we will no longer need part of that calculation?

Mike the $65 million actually is a cautious estimate. And it's essentially looking strictly on the savings that we gained from the switching, from the current fuel mix that we have to alternative fuels. So it does not. So it's quite conservative. It translates to a payback period of two years. It does not include the monetization of any either prolongation or creation of additional CO2 credits and it does not also include the impact of reduction in clinker factor as well that we talked about. Operator, next question.

And our next question comes from Vanessa Quiroga from Credit Suisse. Please go ahead with your question.

Hi. Thank you. Hi, Fernando. Hi, Maher. My first question is regarding free cash flow, because the base -- the EBITDA base is lower now given the sales, but it doesn't seem like working capital investments, CapEx and taxes are going down. So, based on the guidance that you provided, so I want to get my -- more color on -- I mean any comment on that? And then also regarding something a chart you inserted on page 19 on the building blocks for the lower debt. There's a number labeled as other $424 million that led to a lower reduction in debt. And also I would like some details on what that other means? Thank you. Fernando González: Thank you, Vanessa. Let me take your first question on free cash flow. I think if I referred to major changes in free cash flow having, let's say, having a flat EBITDA in the last few years, the main contribution has been working capital. As you know we have reduced our working capital investment from around 30 days or so four or five years ago to negative nine last year. And I think we are done with the initiative of optimizing working capital, meaning there won't be -- or you have seen every year lower contributions coming from that optimization. So, that's one of the considerations that we have to make on the evolution of our free cash flow. The other one that I think I should mention is when referring to total CapEx is that it's been a long time that we have not invested in capacity expansion and we are currently financing or funding the expansion of Tepeaca -- the expansion of Tepeaca in Mexico and Solid in the Philippines. The rest of the free cash flow accounts are I think kind of stable. So, I don't have any additional comments on them.

And Vanessa if I can just address the other number. I mean there are some -- the impact of financial derivatives a little bit over $50 million; financial fees and premiums roughly similar amount. We have the perpetual notes coupon which is around $30 million which is there as well. And some operating leases in there. And then we have some other capitalized expenses in some of our operations in other areas and that's roughly kind of the breakdown. And we could give you more color offline if you wish.

Okay. Thank you very much. And just for a follow-up on questions related to the higher distribution costs. On one of your charts for -- on page 4, on the EBITDA variation, there's something labeled as costs and distribution for $509 million. So, thinking of regions, would you say that the major region that had this negative effect was the U.S. in 2019 cost distribution and other? Or are you including there just about everything energy cost?

Vanessa no. I think Vanessa you're right. I mean I would say that the U.S. is in particular and I'd tell you the very important leading indicator there is the ability to hire and retain drivers. I mean we have seen freight rates going up. So, there's an outright inflation in freight rates and personnel cost in the whole transportation food chain if you will. In addition as I mentioned throughout the year, but particularly, in the fourth quarter, we had the fact that we were moving our products longer distances because of some of the enhanced and accelerated maintenance and productivity gains that we have. But also frankly -- and for instance, Texas I mean when we take a look at the quarter we had I think close to 24% growth in volumes which was just huge. And that was not just in cement. It was across that type of growth was very healthy across all of our products. And honestly, we're very encouraged by what's the outlook for the U.S., for instance, we're seeing an important recovery in housing in California and pretty much throughout the states into 2020. So, we do expect to continue to see pressure on the transportation and distribution side. And also in Mexico, I mean, now we are trying to recover some of the distribution and transportation costs at least from our main distribution collection areas to the customer. And we have been substantially successful. And the margin impact was close to up, close to one percentage point in terms of margins for the period. Does that address your… Q – Vanessa Quiroga: Thank you very much.

Thank you. Thanks a lot, Vanessa. Operator, next question please? Sorry, the next question is – sorry, the next question is from the webcast and it's from Francisco Chávez from BBVA. Francisco Chávez: Can you provide some color on the percentage and timing of the price hikes that you have announced in Mexico and the U.S. any color on traction?

So in the U.S. Francisco, we announced pricing increases as you know, last year for effect into this year. Most of our markets would be impacted in April. Some of the markets that were impacted since the beginning of the year is Florida. And I'll start with Florida and then give you some color on the rest of the markets. Florida we're getting – I would say we're getting price traction – fairly positive price traction in all of our markets because of the sold out position and because of the growth prospects by us and other places. Now there are very specific micro markets in our portfolio that perhaps the pricing for us is a little bit different from the markets because we had pricing strategies last year that translated into some weaker market positions. And as we said, we are working on regaining some of those market positions responsibly. And in those markets, our pricing is likely to be a little bit weaker. But in general, for instance Northern Florida, we're seeing very healthy price traction. The indications is that most of the markets are factoring in and digesting kind of high single-digit percentage price increases starting in April of this year. So we'll wait and see. But we did see better pricing in 2019 compared to 2018. We don't know what's going to happen in 2020. But when we take a look at the outlook for growth and we take a look at the continued increased capacity utilization. We do expect the pricing dynamic in the U.S. to be robust. In the case of Mexico, as you know, we are still trying to recover pricing, which we will try and to recover input cost inflation, frankly. And as we said, as Fernando said in the remarks that our prices at the end of the year continue to be in real terms lower than the end of 2017. So we've announced pricing increase effective January for a bag of cement of 8% and for bulk 9% and ready mix 7%. We're optimistic about the pricing increase but it's too early to tell. And we do see the market stabilizing and from our perspective sequentially. And we'll have to wait and see frankly on how that performs. But we do expect most players to try to extract input cost inflation because that has been an issue for the whole industry. So I don't know if that answers – I hope that answers your question Francisco. Operator next question, please.

Our next question comes from Yassine Touahri from On Field Investment Research. Please go ahead with your question.

So a couple of questions. First on the United States. I understand that you had a very strong growth in Texas and probably a little bit of a decline in California. Is it fair to assume that because you're sold out in Texas, the EBITDA generation in the fourth quarter in Texas was not up that much and that you had a decline in California or am I mistaken?

I'm sorry Yassine could you – what was the question?

The question is, is it fair to assume that you had a lot of growth in – you had a lot of volume growth in Texas. But is it fair to assume that because your cement plant is sold out. You could not translate this volume growth into EBITDA growth. And that in California, where the volume were declining, you had some EBITDA decline? Is that fair to us to estimate that?

Yes. Thanks for the question Yassine. I think, one very important thing is that, actually our margins in Texas are quite attractive and probably a little bit better than in California. So if you're looking at operating leverage I mean, we're – yes we're sold out in Texas and the operating leverage potentially is a little bit less than California, but at least for the quarter. But going forward, I think that Texas margins are very healthy, likely to continue to be healthy and the California operating leverage is likely to be a little bit higher going forward as we see demand turning around as a consequence of housing and better weather during the course of the year. Does that answer your question, Yassine.

Yes. It does, yes. And then the other has – you've got the three business in the U.S. cement, aggregates and concrete. And when we look at the EBITDA decline in 2019, in which business was it the most pronounced?

I mean I would say, we don't break out the different businesses. But what I can tell you is that, in the case of the U.S. you're talking about the U.S. still here. In the U.S. definitely -- we're definitely in anticipation of better growth in 2020. As we said, we have invested in the fourth quarter in preventive maintenance as well as investing. This is not an EBITDA impact. This is a CapEx impact. We're investing in operating efficiencies in terms of cement production, as well as we invested in additional aggregates terminal facilities which in the fourth quarter, we incurred the operating cost but had not yet benefited from the revenue. So aggregate is another area that we are looking at growing. And of course aggregate has a very attractive margin. And it should have a positive impact during the course of the year.

And the last question which is maybe a bit more long term. You're talking about the recycled aggregates and also clinical-free concrete. And I understand that yesterday, for example, Martin Marietta was suggesting that recycle aggregates is very difficult to sell in the U.S. because you don't have the construction regulation in place. So what is the time line for this new product to arrive on the market? Is it something that we could see as soon as 2020? Or is it something which is more likely to have an impact on your business in the next 5 to 10 years? Fernando González: Yes. And I think what the targets that we are defining and the variable sort of the elements that we can -- the levers we can use to reduce CO2 are the ones that we mentioned recycling aggregates is one of the venues in order to reduce CO2 content. Can that be done massively in the very short term? That is not necessarily the case. What we believe is that, we better pay attention invest and part increasing our activity in aggregate recycling because through time that is going to be happening. Now that is only one of the levers that are lots of others. But for instance what we commented on net CO2 concrete, we are planning to launch very soon. In ready mix that is -- that it might comply with the current definition of net fuel. But does that mean that all our ready-mix is going to comply with that definition? Now that is not the case. These are first steps. We have the targets for 2030 and the intention or the ambition for 2050. So it's a progressive move in aggregate recycling and all the levers that we can use to reduce CO2 content.

And when you look at the very long-term, do you see any -- do you see any possibilities that let's say this zero-CO2 concrete and recycled aggregate would be let's say more than 50% of the overall market? Or do you think that's because of the technical limitation. It's only going to remain a niche market? Fernando González: As of now, it's not that easy for us to make calculations on percentages on each of the levers we are going to be using. But as we already mentioned, very soon we are going to be publicizing what paper with much more details on this. But just to keep in mind Yassine, you know the industry very well is working on clinker factor additional -- additions like slack, fly ash, through to limestone and other fields other raw materials producing the CO2 changes or adjustments to the process itself to the production process itself that can be done. And in the case of concrete recycling different materials is the reorganization of the concrete up to 25% of the CO2 emissions that are on the cement that was used to produce per cubic meter offset with other type of offset that we can match. So for the time being, we are not that precise, but we feel very comfortable particularly with our targets of 2030 because with our targets for 2030, we have an investment plan as we mentioned plant to plant. And the levers we are going to be developing there are all known. These are not new technologies to be discovered. The one -- the road map to 2030 is kind of known and it's a matter of making investments and executing. The additional reduction from 30 to 50, we will need and we are already working on it, but we would need new ways of technologies to capture CO2 from cement and to use it -- use it to start it but that will come afterwards.

Thank you very much. Fernando González: Thank you. Operator next question please.

Our next question comes from Francisco Suarez from Scotiabank. Please go ahead with your question.

Hi. Thanks for the call. Thank you, gents. Your guidance on energy cost per ton. Based on what we have seen on pet coke and the classical pet coke and coke prices, it seems to be a little bit conservative. What are the chances of actually has seen much more decline than you are guiding? And on that note actually, if that actually makes the overall production cost of clinker and cement go lower, what are the chances of actually seeing more imports in certain cost of sales like those in the U.S., for instance? And lastly, if I may. What is your overall visibility for PEMEX to supply more cheaper pet coke for you this year, compared to last year? Thank you so much.

Yes. Paco, I mean, one, the -- yes, you're right. I mean, we are a bit cautious on the impact of the -- we'll have to wait and see. But we do expect to take as much benefit as possible from the drop in pet coke and prices and we're switching in a number of our plants from coal to pet coke. We do have, however, as I mentioned, headwinds because of electricity; in Europe, in Egypt and other places. So you need to kind of offset one against the other. There's also hedging in places sometimes, there's inventories sometimes that you need to take into consideration, but we'll have to wait. I mean, right now, we do expect a double-digit drop in savings in terms of our combustible fuels, but we do expect an increase, a single-digit increase in electricity, which kind of, at the end of the day, we're expecting to translate somewhere between minus 4 to minus 2 for the year. On the issue of the impact of the drop of pet coke prices and imports into coastal zones and, particularly, in the U.S. I mean, we don't see that frankly, if anything, I think that what we're seeing is actually an increase in regulation on the shipping industry that is causing and is likely to continue to put pressure on shipping costs going forward, because of retrofit for emissions and so forth and so on. So we don't see, really, any kind of particular driver towards higher imports that are outside of the ordinary course of what we have experienced so far in the U.S. I don't know if that answers your question.

Yes. Yes, it does. Thank you.

And ladies and gentlemen, we have time for one more question and that question will come from the web.

Okay. The question is from Paul Roger from Exane BNP Paribas.

And the question is, U.S. ready-mix prices increased by 5% last year. This was better than peers. Is it due to regional mix? And what is your outlook for ready-mix prices in your key states, like Florida, Texas and California in 2020?

So, Paul, yes, I mean, we did have very healthy growth in the fourth quarter and that is, I would say, primarily being driven by what we are seeing happening in Texas. Texas was a big contributor by far. And it's lagged the last few years. So we're seeing kind of a catch-up situation. While we're very happy with the pricing increase. I don't want to give you the false sense of comfort that this is what we're expecting to see going forward. We do expect to continue to see very good demand. We have very good backlog in ready-mix. And also, one of the other areas that we just started activating, which is the direct bid work that we have commenced, which is -- we have not been doing, frankly. This is the area where we actually provide batching plants to our clients, so that -- to our very large clients for very large projects like infrastructure or like very large commercial sites. And interestingly enough, I mean, our sales force in Florida, in Texas, to a large extent in some other markets, but those two markets recently have been able to secure some very large projects in those areas. And that, of course, is likely to contribute to strength in our ready-mix business. I hope that answers your question.

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

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