CEMEX, S.A.B. de C.V. (CX) Q3 2020 Earnings Report, Transcript and Summary

Good morning, and welcome to the CEMEX Third Quarter 2020 Conference Call and Webcast. My name is Chuck, 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, Chief Financial Officer. And now, I would like to turn the conference over to your host, Fernando González. Please proceed, sir. Fernando González: Good morning, and thank you for joining us today on our third quarter 2020 conference call and webcast. I hope this call finds you and your families in good health. I'm joined today by Maher Al-Haffar, our CFO. We will spend a few minutes reviewing the business, and then we will be happy to take your questions. We are quite pleased with our performance in third quarter and the recovery we have experienced since the disruptions caused by COVID-19 lockdown in second quarter. In this, in the third quarter, we are moving beyond EBITDA recovery from second quarter, but rather to growth in EBITDA on a year-over-year basis at a double-digit rate. In fact, EBITDA, EBITDA margin and free cash flow in the quarter were the highest since 2016. With the lifting of lockdown measures, bulk cement has rebounded sequentially in Mexico and South, Central America and the Caribbean regions and just bagged cement has also continued to grow. Importantly, Mexico growth in the quarter is not simply recovering from second quarter COVID-19 restrictions, but also about a rebound from a difficult 2019 in the form of double-digit EBITDA growth as the current government settles into its second year. This is the second consecutive quarter of significant margin improvement, resulting from higher prices, energy tailwinds and cost efficiencies under operational resilience. Despite the volatile COVID-19 demand conditions this year, pricing is up year-over-year for all three products. We continue to derisk the capital structure in the quarter with the extension of near-term backed maturities under our facilities agreement, the bond liability management as well as an improvement in our leverage ratio. Our safety protocols, distribution capabilities and digital platforms are winning customer loyalty as evidenced by the second consecutive quarter of record Net Promoter Scores. Finally, visibility for our business continues to improve, and we believe that while the future may be bumpy, we are experiencing sustainable demand trends in many markets. I would be remiss, if I did not recognize that the third quarter achievements are a result of the extraordinary efforts on the part of our employees during these challenging times, and their appearance to the safety protocols we have put in place, which ensure the continuity of our business. Before we review the quarter, I would like to really recap some of the takeaways from our Analyst Day in September. We rolled out our medium-term strategy operation resilience, which will guide us to 2023. This plan is recognition that COVID-19 has changed the landscape of our industry and that our strategy must adjust to this new reality. Many of the goals of operational resilience are familiar at the route to how we get there is different. It is about enhancing margins through operational performance and cost containment and committing to a sustainable 20% EBITDA margin by 2023. It is about optimizing our portfolio for growth through strategic asset divestments and bolt-on investments. To this sense, we have been augmenting our resources and focus to enhance the bolt-on growth strategy. We are focusing on identifying and selecting investment projects that will either improve our profitability or capture additional value in our four core businesses, both of which will result in increased EBITDA. We have been progressing on this strategy for the last couple of years. Our current bolt-on investment pipeline includes over 40 projects representing investments in excess of $250 million that should contribute around $50 million in EBITDA in 2021. It is about achieving an investment-grade capital structure and decreasing our business to lay the foundation for the future growth. And finally, it is about considering sustainability as competitive advantage and further integrated is into all our operations and decision-making. Now let me move to the quarter. Volumes have not only rephrased the steep decline of second quarter, but they are showing year-over-year growth in all markets, except Middle East, Asia and Africa. We believe this growth is not simply a result of pent-up demand during the lockdown period, as we are now several months beyond restrictions in most markets. Mexico stands out with double-digit volume growth in the quarter, reflecting recovery from last year's government transition. The trends we are seeing give us confidence that these volumes are sustainable in the near-term in most markets. We know that COVID-19 will continue to challenge our operations, but we believe that the learning curve of governments have improved significantly and that government reactions to future outbreaks will be more targeted and less disruptive to our business. Importantly, prices for our pre products grow between 1% and 3% year-to-date September. The high-capacity utilization that exists today in our major markets, combined with a more stable demand environment, will lead to opportunities to compensate for lost input cost inflation. One of the most encouraging trends we have experienced this year has been the performance of bagged cement in our emerging market footprint. While bagged cement has always been resilient in downturns, the performance this year has been, one, not just of stability but growth. Similar to consumer trends globally, bagged cement demand has been supported by a search in home improvement as families quarantine and use their disposable income to enhance their homes. Additionally, bag consumption is highly correlated to remittances and remittance levels have remained strong to date in the crisis. Finally, government programs designed to promote self cost structure are also supportive of consumption. This has been an important factor in the growth of bagged cement in Mexico this year. During the third quarter, consolidated sales grew 3%, reflecting strong growth in cement volumes that was partially offset by a decline in revenues. While all regions contributed to the growth in sales on a like-to-like basis, Mexico was the largest contributor with a 14% increase. Local currency pricing for our three products increased between 1% and 2%, driven by our cost containment effort, consolidated EBITDA rose 15% on a like-for-like basis to $728 million, with all regions showing growth. The 180 basis points increase in EBITDA margin reflects higher prices, lower energy costs, savings in SG&A, improved logistics and mix FX. Finally, quarterly free cash flow after maintenance CapEx grew more than 50% year-over-year, reflecting increased earnings and lower maintenance and working capital needs. The last time we achieved 21% margins, partly EBITDA and free cash flow of this magnitude was in 2016. And now to drill down a bit on the 15% increase in EBITDA. While all business levels contributed to the performance, pricing provided the biggest boost. Our cost savings initiative lower fuel and distribution costs were also important factors. Reported EBITDA reflects the unfavorable effect from currency fluctuation of $22 million, due primarily to the depreciation of the Mexican peso. Operation resilience cost savings were an important contributor to margin improvement. We achieved almost one-third of our 2020 cost savings goal in the quarter. Savings here to date are equivalent to 240 basis points in margin. The biggest contributors have been SG&A with reduction in fees, sales and marketing expenses, distribution, travel headcount. And operational savings related to increased cement efficiency in Mexico and a ready-mix plants rightsizing, among others. During this year, we have new ways to operate, and we believe many of these savings are sustainable in the future. During the last few months, our digital platforms under the CEMEX Go umbrella have been in porting tools to serve our customers and a significant differentiating factor. Of course, we did not foresee a pandemic when we went live with CEMEX Go three years ago, as our investments have certainly being unlisted. In only two years, approximately 90% of recurring customers use CEMEX Go. And today, under the CEMEX Go umbrella, we have rolled out digital applications to meet specific customer segments. For example, construrama.com is a digital platform available for retail customers in our emerging market portfolio. Another example would be the development of CEMEX Go release, a digital application to improve efficiency and promote low-touch delivery of our products, all commercial aggregate customers. We believe our digital capabilities are an important factor in our record Net Promoter Scores of the last two quarters. In our operational receiving strategy, sustainability assumes a leading growth. We recognize the current challenges our industry faces, and we believe that climate action will be an important competitive advantage. We have aggressive goals to meet these challenges. 2030 goal 35% reduction in CO2 emissions. On a 2050 ambition of net CO2 concrete globally. Importantly, the path to achieve our 2020 goal is clear and based on existing prove technologies. And as of 2019, we have already achieved a 22% reduction in CO2 emissions. Take us the rest of the way, we have developed a detailed plant by planned road map. In third quarter, this road map and 2030 targets were validated by Carbon Trust, a recognized independent organization that provides certification of carbon reduction plans. We began this important challenge from a place of strength. We already have one of the highest alternative fuel usages in the industry, and this expertise will be an important tool to move forward. Additionally, we will relay on the experience we have gained in our European region, which leads our way on CO2 reduction initiatives. Europe will reach the 35% reduction in CO2 goal by the end of this year, 10 years ahead of our consolidated targets. And by 2030, we expect Europe will reduce you to by 55%. Aligned to our 2050 plan, we are already offering a net CO2 concrete, concrete that meets our 2050 ambition. It has been introduced in several countries in Europe and will be rolled out shortly in other major markets around the world. In fact, it's been used in the largest infrastructure project in Europe, the high-speed two rate projects in the U.K. To deliver fully on our 2050 ambition, the industry will need to find new technologies that can be scaled easily. We are working within our industry with governments and multilateral organizations and our own to develop these solutions. We are uniquely positioned in this work by our ability to quickly roll out innovations through our global networks. Our new business of organization solutions as well as CEMEX Ventures will play a critical role in this challenge. During this quarter alone, we announced two joint ventures: one with a Swiss company, San Helion to eliminate the carbon footprint of cement using solar power; and the other with carbon clean to develop low-cost carbon capture. And now let's move to the regions. Our operations in the U.S. continued to enjoy strong momentum in third quarter, driven primarily by a pickup in residential activity as well as strong growth in the infrastructure sector. Volumes in the quarter were somewhat affected by weather by California, coupled with higher precipitation in the Southeast. The residential sector continues to benefit from low interest rates and record low inventory, strong household formation and changes in buyer preferences to favorite server and single-family homes. The latest data shows that single-family starts and new home sales are at the highest level since the great recession. Permits for new single-family homes were up 20% year-on-year in third quarter, suggesting that this housing strength should continue into next year. The infrastructure sector has also shown growth. Highways and street spending quarter today, August was up 3% year-over-year. While trailing 12-month contract awards for our four key states as of September are up 9%. We are encouraged by the one-year extension to the FAST Act that was recently passed. We believe that with more visibility of federal funding, states will feel more comfortable disbursing their old transportation funds. In addition, the extension will give the new administration trying to undertake a more meaningful federal transportation program. Prices remained stable sequentially for our pre-products. We introduced a pricing increase for cement in California in September, and we are optimistic about its structure. As we think about next year, we look to recover much of the cost increases that we were not able to pass-through this year due to COVD-19 disruptions. EBITDA margin expanded by one percentage point, reflecting improved logistics, lower fuel costs and savings from operational resilience. In Mexico, the double-digit growth in cement volumes is a sign of recovery from a difficult 2019 as government programs take hold and spending accelerates in the second year of the administration. This growth is supported by strong self-construction, infrastructure, and in formal housing and industrial construction. Government social programs, coupled with a surge in home improvements and strong remittances have supported bagged cement volumes. These social programs for school improvements, rural roads and housing are significant. We estimate they are responsible for approximately a third of the increase in bagged cement volumes this year. Based on the preliminary budget for 2021, the existing social programs are expected to be maintained; while several new programs such as [Indiscernible] aimed at developing 13,000 new homes for social housing will be introduced. The 2021 budget for these social programs is expected to increase our double-digit rate versus prior year budget. In infrastructure, execution of federal flagship projects has weakened, while state and local governments have initiated improvements in urban infrastructure and transportation. We welcome the announcement by the Mexican government of the $14 billion private public infrastructure plans. The plan is evidence of the intent of the public and private sector to work together to reignite economy via infrastructure. During the quarter, despite a successful price increase for bagged cement, our prices were flat on a sequential basis. This is explained by product mix as bulk cement grew 54% sequentially, while bagged cement volumes were up 5%. As you know, we are committed to recovering our input cost inflation in terms of pricing of our products. Since January 2019, cement prices have declined in real terms. To that end, we have announced a 3% nation-wide price increase on bagged cement beginning early October. The EBITDA margin during the quarter increased 0.6 percentage points, mainly due to volume and prices, a favorable product mix effect, cost reduction initiatives, and feel tailwinds. Profit utilization is strong in the country, and we believe our tax expansion is coming online at the right time in the first half of 2021. Finally, next year's 2021 midterm election will be the most comprehensive election in Mexico's history with a full chamber of duties and 15 state governors up for elections as well as numerous local positions in all 32 states. The electoral spending is typically another catalyst for the consumption for bagged cements. In our EMEA region, EBITDA grew 8% year-on-year, driven by Europe, Israel, and the Philippines. The EBITDA margin increased 90 basis points due to pricing and cost containment initiatives. Philippines was an important contributor. In Europe, we saw an important rebound in our Western European markets from the lockdowns in second quarter. Our Central European countries continue to grow. We saw strong volume performance in the quarter from Germany, Poland, and the Czech Republic. While the U.K. markets pick up as lockdowns were lifted in July, we continue to see year-over-year weakness in construction activity. As we enter 2021, we remain well-positioned for Phase 4 of the European Union's emission trading systems. We have sufficient carbon allowances to cover our operations through 2030. This position will smooth the way in our transition to reach our 2030 climate goals. In the Philippines, we experienced a sharp recovery of volumes in the quarter as the lockdown measures were lifted in late May. For more information, please see our CHP quarterly earnings, which will be available this evening. Israel continued with its robust performance, again, beating its record EBITDA, which was just said in second quarter. In response to rising infection rates recently within EMEA, we have seen new targeted restrictions imposed by the U.K., France, Spain, Israel, and the Philippines, among others to combat the virus. The construction sector continues to operate without restrictions. Construction activity in our South, Central, and Caribbean region during the quarter showed encouraging trends. Regional cement volumes have recovered to almost 2019 levels. Pricing dynamics remain favorable in the region, with markets representing approximately 80% of our regional volumes, experiencing sequential increases in local currency terms. The reported decline results from a geographic mix effect. EBITDA for the region increased 31% year-over-year. This was the first increase in EBITDA since fourth quarter 2019. EBITDA margin increased 630 basis points on the back of our cost reduction initiatives, higher prices and the positive contribution of lower fuel prices. In Colombia, activities improved during the quarter driven by the self-construction sector and execution of 4G-highway projects. The midterm outlook in Colombia is favorable, supported by fiscal stimulus measures, including investments in social housing as well as the new 5G infrastructure program. Execution of the existing 4G-highway projects will continue to support volumes. Demand volumes in the Dominican Republic grew 5% on a year-over-year basis on the back of increased activity in the self-construction sector as a result of strong remittances. For additional detail on this region, I invited to review CLH's quarterly results, which were also published today. And now, I will pass the call to Maher to review our financial performance.

Thank you, Fernando, and good day to everyone. As Fernando said, it was indeed a good quarter with record performance since 2016, reflecting better than expected trading environment as well as the successful implementation of operation resilience. Now let's move to the next slide. Here, I would like to highlight the more than doubling of our free cash flow after total CapEx for the quarter. This was the result of improved operational performance as well as lower CapEx and investment in working capital. The gains in working capital are largely a result of a rigorous management of our receivables and inventory levels. Average working capital days, on a year-over-year basis, have improved from minus six days in the third quarter of 2019 to minus 12 days in the third quarter of this year. Our lower expenditure and maintenance CapEx year-to-date largely reflects the hotspot in non-essential CapEx enacted in April as a response to COVID-19. We have resumed our normal maintenance in the third quarter and expect to execute much of the deferred CapEx in fourth quarter, or during 2021. Higher other cash items are explained by higher severance payments and lower fixed asset sales versus last year. As we disclosed some days ago, we are recognizing a non-cash impairment of approximately $1.5 billion during the quarter. Most of the write-down relates to goodwill in our U.S. business and an impairment of idle assets in the U.S., Europe, Middle East, Africa and Asia region as well as our South Central America Caribbean region. As a result, our net income, assets and equity in the quarter were negatively impacted. We do not foresee any favorable cash tax impact as a consequence of this action. Third quarter was a busy quarter in terms of liability management. We came into the quarter with an unusually high cash position. The result of the proactive liquidity measures we took in the first half to confront the uncertainties of COVID-19. During the quarter, our cash position was further strengthened by our free cash flow of $427 million, the proceeds from the closing of the sale of some ready-mix and aggregate assets in the U.K. for $200 million and the issuance of a $1 billion bond. We issued a U.S. dollar-denominated bond in mid-September with a yield to maturity of 5.2%. This is the lowest yield that we have achieved for that tenor ever. And more than 200 basis points tighter than the seven-year bond we issued in June. With greater visibility of the business in the quarter, we felt comfortable redeploying cash. We paid down $700 million of the revolving credit facility, which will continue to be fully available to us through 2023. Additionally, the $306 million of net other uses of cash in the quarter includes the payment of approximately $300 million in short-term working capital loans and approximately $50 million of term loans under the facilities agreement. Subsequent to the quarter end, we redeemed approximately $1.9 billion of outstanding bonds with maturities in 2024 and 2025. We also paid down approximately $530 million of term loans as part of the process to amend the facilities agreement. During October, we successfully completed the refinancing of our facilities agreement, extending out the majority of our maturity. I'm pleased to report that currently, 93% of our lenders have approved the expansion. Close to $2.2 billion or 62% of our facilities agreement debt was pushed out between one and three years. As a result, we have no material debt maturities through July 2023. Now to better align the currency of our debt with our EBITDA, we have redenominated $313 million of previous U.S. dollar exposure under the term loans to Mexican pesos, as well as $82 million to Europe. This new Mexican peso tranche will have a lower interest rate margin grid of between 25 to 50 basis points relative to the other tranches. Pricing of all other tranches remains unchanged. Additionally, I'm proud to report in alignment with our climate action strategy and ultimate vision of a carbon neutral economy, the facilities agreement has now become one of the largest sustainability-linked loans in the world. The interest rate now incorporates five sustainability-linked metrics, which include: reduction of net CO2 emissions per cementitious product, power consumption from green energy in cement, quarry rehabilitation, water management, and clinker factor. I would like to recognize and thank all the participating banks for their continued support. The maturity profile shown in this slide is pro forma after giving effect to the refinancing of the facilities agreement, the prepayment of approximately $530 million of term loans under the facilities agreement and the redemption of approximately $1.9 billion notes that matured in 2024 and 2025 that I discussed earlier. As you can see, we now have a very comfortable maturity profile with no material debt maturity until July 2023. We also have extended the average life of our debt while maintaining the cost of our funding. Going forward, we will continue with our efforts to have a runway without significant maturity of about 24 to 36 months. Despite an unfavorable FX effect of $154 million, our net debt decreased by more than $500 million sequentially as we generated substantial free cash flow during the quarter and received the proceeds from the U.K. investment. Our leverage ratio was reduced by 0.3 times due to a decrease in net debt and an improvement in the trailing 12 months EBITDA, moving us to a lower interest rate level within the margin grid for our facilities agreement debt. Back to you, Fernando. Fernando González: Thanks, Maher. Given the results in the third quarter and improved visibility, we are upgrading our EBITDA guidance to approximately $2.4 billion from the $2.35 billion we gave in our open dialogue event in early September. This would mean that our full year 2020 guidance on a like-to-like basis, adjusting for FX, would be approximately 6% higher than the prior year. We now estimate that the cost of energy per ton of cement produced for this year will be at minus 7% to minus 9% versus the previous guidance of minus 5% to minus 7%. We are adjusting awards our total CapEx to a range of 750 to 780 versus previous guidance of 700. For working capital, we are expecting an investment of approximately $150 million for the year. Finally, regarding our cost of debt, we are now expecting a lower interest expense versus our prior guidance due to our liability management efforts and lower interest in the fourth quarter under the bank agreement, streaming from our leverage ratio improvement. We now expect an increase of between $15 million to $20 million relative to last year, thanks to the prior guidance of $25 million to $50 million. Visibility is improving in most markets in second quarter. As we look to 2021, we expect positive year-on-year GDP growth in all markets for 2021, which should translate into higher consumption of our products. We expect that COVID-19 will create bonds in the road, but we believe that disruption in our markets will not be as challenging as in second quarter of this year. We expect the U.S. and Europe will deploy significant fiscal stimulus, including for infrastructure purposes. In Mexico, the ramp-up in government spending and 2021 elections will be supportive of bagged cement. With high capacity utilization in most markets, we expect past due of input cost inflation going forward. Supply demand dynamics in Europe will continue to be favorable as a result of the new carbon regime. Additionally, we will continue to take action on all elements of operational resilience, including our bolt-on investment strategy. We will, of course, continue to prioritize the health and safety of our employees, customers and suppliers. And now back to you, Maher.

Thank you, Fernando. 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, of course, 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] Your first question will come from Vanessa Quiroga with Credit Suisse. Please go ahead.

Hi. Thank you for taking my question. It is regarding Mexico volumes. Do you think -- I mean, they are obviously very strong and continue to be in September after the charge that you shared with us in the presentation. Would you expect that the new INFONAVIT programs and the government projects could lead the Mexican cement volumes to reach a new peak? Thank you. Fernando González: Hello, Vanessa, thank you for your question. The answer is, we think, is very supportive of additional volumes, not only this year but next year. But let me refer you a little bit to the general context of what we see happening in Mexico. And I think we all need to remind that last year, 2019 was the first year of this new several government, and it was a transition year. We commented for over times that, but we have forgotten to revisit and reduce that phenomena. So last year, there was no social housing program and other programs in German is supported by the government. But we see this year, it's precisely how different type of problems are supporting the consumption of cement. And we have several types of problems that we believe are going to continue for 2021, and they will even grow in 2021. I'm referring on the one hand to the large projects like that we all know, the airport, the broadcast, the train. And on top of that, little by little, we have seen how other supported programs have been effectively executed and referring to, schools with import to housing. And on top of that, there is this new $40 billion projects -- additional infrastructure projects recently agreed between the public administration and private investors. So what I think that what we have seen is a market that has been reacted -- has been reacting to all those issues with some, let's say, special characteristics impressed by COVID. And we know the story in Mexico, March, April, May, the construction more related to the consumption of both cement lockdown, while the consumption of bags was not respected. So what we have seen on top of that on top recommend on these new projects, what we have seen is the most cement increasing materially to new levels after the initial lockdowns during COVID. So a very long answer, but the answer is, we are quite happy with the performance of the market in Mexico and understand that can be extended an additional potential positive factor next year is midterm election, which sometimes is conducive to reinforcement of the strong momentum.

Thank you very much, Fernando. And I guess to continue with Mexico and just to drill down on the pricing dynamics. It seems like prices were flat sequentially in local currency. So can you tell us what happened with the price increase that you propose to customers in the bagged cement segment? Did they not pass-through? Or were they offset by the other involved cement? Fernando González: Well, we are still in the middle of that process. Vanessa, hopefully, it will probably stick. But we are, as you know, very big one on the objective we have on updating on increasing prices to recover into cost inflation. We have had that policy already for some time. Unfortunately, we have already about 1.5 years or so in which our prices in real peso terms have declined slightly and we have not managed to update or to pass-through our cost inflation. We will continue having that as an objective as the most, and we will try to -- and bring back prices in real terms at the levels we went through. Of course, there is a dynamic going on in the market. We are subject to that dynamic. And as you know, if the market continues growing as it has happened in the last few months, but we'll be very careful to achieve our target of gaining back [Indiscernible]. On the other hand, there is another consideration, which is because of bagged cement volumes being robust already for the few months and box cement coming back recently had some affect on pricing because of the mix of -- but it's just a mix effect, nothing to do with the particularly result in [Indiscernible].

Excellent. Thank you very much. Fernando González: Thank you, Vanessa.

Our next question will come from Gordon Lee with BTG Pactual. Please go ahead.

Hi. Thank you very much for the call. Two quick questions. The first, I was wondering if you could explain to us the sort of very different performance in cement volume growth and ready mix growth. I think it's really interesting that if you look at your cable with your cement volume growth by region, which is very positive, ready-mix is almost a mirror image of that, even in developed markets, where I suppose the bad drivers are a lot less powerful. So I was wondering if you could maybe explain why that is? Is it a mere coincidence? Is it something that worries you in any way going forward as far as the ready-mix performance relative to cement? And then the second question was just a very specific one. Looking at your results from the Middle East, it would appear that pricing, cement pricing in Egypt dropped very quickly in the third quarter relative to the second quarter. And I was wondering if you could maybe comment why that happened? Thank you. Fernando González: Well, regarding Middle East, as you know, the situation is very complex with very high capacity when compared to the market. We do believe that the market little by little will tend to recover, but the capacity utilization in the country is really too low and we will continue as being low for the near future. That's very challenging to, let's say, to guess or to project how Egypt will evolve. Market conditions continue being very similar to what they have been in the last few months last year. So I don't misstate that maybe changes as set for sort of an exception in the industries because things are not -- there are several companies decent money. So there might be reactions on that company. But on the dynamics, I don't see any major change. Your other question, I think a few comments. I think that the pattern in emerging markets is that bagged cement is the one that has been resilient and growing after the negative impact of lockdowns in the second quarter of this year. And that's the part of the volume that has been more resilient. As I commented, for instance, in the case of Mexico, the lockdown was a partial type of lockdown, impacting former construction, both cement and because of that revenue. In general terms, ready-mix, we have seen in our market, in our emerging markets ready-mix coming after the rebound in bagged cement. On the other hand, even in developed markets, ready-mix is more related to industrial and commercial sectors or segments. And that is the part that is in the case of the U.S., that is the part that is being more impacted negatively. Housing and infrastructure is okay in the U.S., but industrial and commercial have not above in apportionate manner. So historically, ready -mix tends to recover slower than cement, we don't have a negative impact of whatever result. So we have seen ready-mix recovering little by little. But again, the main reasons being its relation with industrial and commercial segments in bigger in the place of the U.S. and some lockdowns like example I had mentioned in the case of Mexico.

Fernando, maybe I can add. Hi, Gordon. Maybe I could just say that bolstering what Fernando said. If you take a look at sequential volumes of cement, ready-mix and aggregates for the quarter, they're growing pretty much in tandem. I mean you see the recovery and in cement for instance sequentially is up 16%, ready-mix is up 17%, and aggregates are up sequentially 16%. So the point that Fernando made is precisely right. And as you had lockdowns and you had the impact of industrial and commercial, as we started coming out of lockdowns, you started seeing a fairly rapid pickup on a sequential basis of ready-mix and aggregates, in line with what's happening to cement.

That’s very clear, guys. Thank you very much.

Thank you very much, Gordon.

And now we will have a question from the webcast.

Okay. The first question from the webcast is from Paul Roger. And the question is about carbon position in Europe and in our strategy. And the question is, are we focusing on market share or pricing? I mean, especially in light of what we said in terms of coming into this cycle from a position of strength. Fernando, would you like to take that? Fernando González: Yes, Maher. If I understood correctly, I think the first thing to note is that we are been pleased that we have CO2 credits enough to go through the rest of the full phase until 2030. So that is giving us lots of flexibility. And particularly because we understand that most of players in Europe are -- when compared to that position, let's say, they are short or they will be needing to buy CO2 credits and some starting in 2022 as fast as I assume 2022 or 2023 and 2024. We believe that, that will have an impact in the market, different types of impact. And I think that will give us a strong position in Europe, the market was completely based in Europe. And I think it will be more related to pricing rather than market share. Let's say, but they might be then maybe a combination who knows. Let's see how different companies in Europe deal will be situation in the next two, three years, and we will have a better understanding and say on how this positive position will translate into additional benefits. Operator? Operator: Yes. Our next question will come from Yassine Touahri with On Field. Please go ahead.

Yes. Good morning, gentlemen. Just a couple of questions. And have you seen any significant change versus what you presented in the first few weeks of October. We're seeing the number of cases increasing quite substantially in Europe and in the U.S. Do you see any cancelation in order books? And also in Europe or in the U.S and also regarding infrastructure, I think what we understand is that the -- what we understand is that the stimulus is likely to be implemented after the election. Do you see any slowdown in infrastructure while the department of transportation are waiting for the money from Washington? Fernando González : Well, that's a very interesting question. I think since we started having the impact of COVID early March this year, we have been -- as you can imagine, trying to observe as much possible, what are the scenarios that this pandemic is causing in different markets, on health, on the economy, on our own activity. So we can respond, we can react at a very fast pace to whatever this phenomena brings. I think the way we see it now is that we are at least in the western world. We are all facing -- we are all going to a phase of existing with these virus personally, business-wise, socially. And unless infections, hospitalizations and totality go to extreme, we believe that because of the experience and knowledge of regulators of society, of doctors and hospitals, we believe that several quarantine measures will be restricted on mobility and in certain sectors of course, impacting economic activity in the terms, but not necessarily disrupting the activity of the construction industry. I think that so far, the industry has shown to be a low risk type of activity, of course, when compared to others. And in our case, we are very pleased because with several actions, like, for instance, the health protocols that we define and put in place, and we are promoting not only for our colleagues but also available for our customers, suppliers and whoever is related to our business activities have been very effective. So far, we have not been in minute of shutting down any facility because of facility been an infection center type of phenomena. So I think we have managed to assure business continuity and taking care of health of again, our own employees and stakeholders and individual. Our infection rates when we compare those with relevant societies, meaning our infection in Mexico compared with statistics in Mexico, U.S. and the like, is about half of the general population and highly relevant compared to society -- relevant daily society region is less than a third of what it is been in total. So I think we have managed to protect health, we have managed to assure business continuity and I say that will continue to be the case again, less and less really something in completely different you know company. So far, I think we can manage -- we've been able to manage well. Now the markets -- the markets are changing and adjusting also to this phenomena. For sure, activities, we're not going to, let's say, Mexico, the parts of Mexico related to tourism or other markets, we needed to tourism or to activities that have been deeply impacted by COVID. But on the other hand, we have seen how in emerging markets in formal construction, bagged cement is growing much more about the ever -- is expected. On the other hand, I think there are several examples on how still these programs are going to be impacting or already impacting positively in the consumption of our material. And referring to estimating the U.K., the other parts of the continent, the U.S. and different countries. So that factor should be a positive point also in the performance of initiated lot of our integral demand for the rest of the year.

And maybe just another very quick follow-up question. Could you give us the percentage of how much pet coke represent as a percentage of your total cost? Fernando González: Say that again.

What would be the percentage of what would be? What would pet coke represent as a percentage of your total cost? Is it a figure that you could disclose? Fernando González: The cost of…

How much pet coke represents as a percentage of your energy cost or total cost? Fernando González: It's pet coke only or fuels?

No, no, pet coke only because we've seen an increase in pet coke prices since the beginning of the year. Fernando González: I don't -- if you're referring to pet coke only in our cement cost structure, no I don't have that info handy with me, but I will get back to you and provide that info.

All right. Thank you very much. Fernando González: Maher, do you have any info related particularly to pet coke?

Yes. I'm trying to just look at the breakdown. Yes, we'll get back to you on that point.

All right. Thank you very much. Fernando González: Thank you.

Thank you.

And our next question will come from the webcast.

Okay. Our next question is from Alejandro Azar with GBM. The question is, what are your thoughts regarding cement prices in Mexico, in the U.S. and Europe, as we approach 2021? Fernando González: Well, we are not providing 2021 guidance. But I suppose it's impossible not to refer to something like that. As you have seen, even in the worst part of the COVID crisis, prices have been receiving on cement are growing. So there will be lot of minuses for 2021. On the one hand, for instance, in some markets, the pricing dynamic was interrupted because of COVID. That is certainly the case in several regions in the U.S. and to some extent, in Mexico. So there is a sort of a higher pass-through needed to go to pricing gap, because of inflation that we have not managed to properly reflect, in France. Given that we expect our reasonable performance, again, we are not providing guidance yet, but the reasonable performance that volumes make here. I think in general sense, we will be able or we will be in a better position to we offset inflation through price increases, but again, given specific guidance on that part, very challenging now.

Thank you, Operator?

Yes sir. Our next question will come from Ben Theurer with Barclays. Please go ahead.

Hey, good morning. Fernando and Maher. First of all, thanks for taking questions and congrats on the results. I wanted to follow-up a little bit on your operational resilience and in combination with CEMEX Go. So clearly, you're showing on the slides that, basically one out of two sales transactions are basically now done for CEMEX Go. And you also show that there's a very nice savings that you've been able on the SG&A side. So I wanted to understand a little bit the evolution of CEMEX Go over the last couple of years. How that has gone up from non-existent three, four years ago to now basically more than 50% of sales being processed through the platform? And how much that has actually been helping to drive some of your efficiencies, by just reducing SG&A? And where do you think this is going to be, for your 2023 target? Fernando González: Sure. Thanks for your question. Let me try to summarize, a process that we have been going to, let's say, in the last three years. We thought that, it was a good idea for us to being able to offer our customers, a superior proximal experience. So the whole idea of the philosophy behind CEMEX Go is the media of being able to offer our customers a superior customer experience, enabled by the technologies. That's where we stand. And in this type of processes, as you know, I think it -- there are some specificity, because this has been the development of a digital platform of a B2B type of business. But besides that, the process we have been following is multi-fit the process that other digital companies have gone through. It's been a journey. And we started with -- with first MVP, Minimum Viable Product. We started using agile metropolis to enrich and to evolve our proposition. So as you can imagine our first version of [Indiscernible] on the one hand it's about three years ago. It was a basic type of version that has been reached now. And it will continue be reach in different manners. And it has allowed us, and we've been able to offer this platform all over of the markets as set for setting region, particularly this year. But the rest platform is available. That's why adoption is massive already. And we are very pleased with it. It is massive. It covers all of our products, cement, ready-mix, and within different segments, large customers, small customers, picking up products, delivering products. So it's a very flexible platform that accountants can use in their laptops, in their mobiles, in their iPads and they can do in a much simpler, faster and cheaper way all the commercial relations with -- from getting info, to getting quotations, registering, ordering, modifying orders, canceling orders, making additional orders, repeating similar orders. So you know how the story goes, because that part is not that different to other companies that have gone through that journey. The benefits we are getting, I think, the benefit of offering a superior customer experience that’s obtained previously to our customers and because of the feedback we are getting from them, are very pleased with the solution, because that solution also allows them to make a better business. I mean, for them, it is cheaper to have a commercial relation with us on this platform, rather than the previous one. So they are very pleased. And I think one of the relevant reasons why in the last couple of quarters that has been the most challenging quarters commercially, let's put it that way. We have got the highest rates in our Net Promoter Score up to 68 points. So we are very pleased with the fact that we've been able to offer this platform feedback from customers’ adoption, NPS is great. We will continue evolving the platform, adding new functionalities, new technologies, simplifying, automating. So it is better than the -- if you compare to other experiences, and most of them are in the B2C world, rather than the B2B, that's not common, the B2C. But because it’s a -- the process is the same, the [Indiscernible] was brought to the market in 2007 didn't have the [Indiscernible] take function. That part came afterwards. So that is the type of a giant process that allows -- that is going to allow us to continue reaching the environment -- our customer experience. On savings, it took some time because we didn't have a high adoption. There is no way to have sizable savings. But we are getting to that point. And we are adding and we are perfecting the platform. Now currently, most of our invoices are digital invoices and they are paperless invoices. And because of that, we have simplified and reduced the number of invoices we need to redo to pass there, on that we need to have. We make -- I can continue speaking about this for an hour. But what I'm saying is, very pleased, because we have managed to bring a superior customer experience, enabled by these technologies. Our acquisition is pretty good. When we see what's happening in our industry, we feel very pleased, because it's something we have already done massively. And at the same time, we have learned, and we will continue evolving our platform and converting it into a competitive advantage.

So, going forward, you expect this to further penetrate and to be even more relevant and, obviously, then drive for savings to your margin target in 2023, correct? Fernando González: Yes. And I think this has been a learning process for us and even a learning process for our customers also. The construction industry is not an industry that have been adopting digital technologies, let's say the long adopt -- there are some examples on the industry and others, but let's say, on material, this is kind of a new or a change in the way customers do business. So we are very pleased with. We will continue investing. We will continue making progress and improving our customer experience through this platform.

Okay. Perfect. Fernando, very clear. Thank you very much and congrats again. Fernando González: Thank you.

Operator?

Yes. Our next question will come from Adrian Huerta with JP Morgan. Please go ahead.

Thank you. Hi, Fernando, Maher. Nice taking to you. Thank you for taking my question. My question has to do with CapEx. You're targeting $750 million to $800 million for this year. How can we look into CapEx for over the next two to three years, especially given potential investments that might be required to reach your climate change targets? Fernando González: Yes. Again, a few comments on CapEx. Let me start by explaining our CapEx performance during 2020, and then we will move to what might happen in 2021 and onwards. If you remember, last March, we decided and commented on a more action of both programs, we started calling it sort of a hard stop. Remember three questions, how did the damage is going to be, how long seen to lab and is it going to be [Indiscernible] and not having clear answers to those questions, we decided to be hard stop. And that included suspending all nonessential or short-term CapEx. We took that action for 90 days, after 90 days we view it. We have some additional CapEx because the scenarios that we started observing were more benign than the ones we thought during March. So we create -- we adjusted and we've increased some CapEx at that time. But we continue in this kind of alert stands, and we extended the concept of the hard stop an event up to December 31 this year. So what the process was a hard stop, then adding some because of a more positive scenario evolving. And now for next year, what we see, what we will be doing something very similar with understanding the scenarios that are unfolded, we will act accordingly. Now in particular, the CapEx related, if I understood correctly, that's part of your question, CapEx related to sustainability or drive my change, I think there will be some. For the first time, we are having a very specific road map to our 2025 and 2030 targets, and we will be spending a number of CapEx. I don't have any specific amount or not to disclose. But what I can tell you is that, the CapEx that we are -- that we will be doing midyear and longer, not all of them are, let's say, CapEx to adapt and not being able to get returns from those CapEx. I think a good example particularly in the case of Europe is CapEx related to [Indiscernible]. As you know, because of the new waste directives and that is aligned to the area of particular economy, waste part of our industry, waste can be obtaining, RBS in particular in massive quantities with high contents of biomass as high as 50%. Because of the dynamics of that sector, energy and fuel in several countries in Europe now are converted into [Indiscernible]. So it's our highest cost compared to that is the case already in our health plans in Poland as well as in Germany and getting close to that for instance [Indiscernible]. And those in order to use 100% -- 90%, 100% of fuel, there will be additional CapEx, but both CapEx will be returned with 5%. There will be other CapEx down to adapt plans and other aspects that might not have returned, but I'm not expecting [Indiscernible] that type of CapEx. Hopefully, next year, we'll be able to be more specific on our 2030 road map plant by plant, market by market, including benefits, investments and particularly the -- some of the investments we are making on the technologies that are -- very few technologies that are currently unknown and that should be part of our solution for [Indiscernible]. We are making some investments with partners, with technology companies and trying different options for us to be able to either avoid the CO2 or to capturing it and [Indiscernible].

Clear. Thank you, Fernando. Fernando González: Thank you, Adrian.

We have time for one last question, and that will come from Anne Milne with Bank of America. Please go ahead.

Thank you, very much. Very great quarter, so good information. I have a few questions, but to make it not too long. I'll just focus on those that really have to do with the debt side of the business. You were very active, as you mentioned, in liability management during the quarter. So the first question is you still have a few bonds that have call options that are in the money. And just for 2021, is this something that you will consider going forward if it's interesting from a cost perspective for CEMEX? And the second, I found very interesting was the introduction of sustainability targets in your loan documentation. So, just a few questions. What was the catalyst behind this? Was this CEMEX or was it the lenders? Where did you come up with the indicators? Is this like an industry sort of level? And then, I noticed that the pricing differential is not huge right now, just five basis points. Is this something that you think might change in the future? Thank you very much.

Fernando, would you like me to address those two questions? Fernando González: Yes, go ahead.

Yes. Anne, we're definitely -- I mean, as you've noted, I mean, we do have several potential bonds that calls that are due. And we're monitoring the market. I mean, to the extent that rates continue to be attractive, I think there maybe opportunities for us to do something. Of course, the markets are very volatile. But, we're always looking at the possibility of doing liability management. So yes, we're looking at it. I mean, obviously, I can't say specific -- I can't refer to specific bonds, but you can imagine when you're looking at our maturity schedule, we're going to focus on the things that are closer rather than the things that are further away. We just -- I mean, as you know, we issued seven-year notes in June, and then we issued 10-year notes in September. So we're clearly looking at a gap, and we do have a year there that is with no maturity. So we would be looking at kind of smoothing out things or pushing them out and definitely taking advantage of rates. And we're looking at, obviously, all currencies. I mean -- so to the extent that we have a window, we're definitely going to exercise that. Now as far as the sustainability-linked loan structure, it was really a combination idea from our banks and from ourselves, I mean, we have been thinking about this for a while. And as you know, there are two types -- two ways that you can kind of have a sustainability-linked structure: One is restriction on the use of proceeds; and the other is having certain KPIs that you would be measured or benchmarked against. The KPIs that we chose, the five that I mentioned in the messages, in the comments, are really very much part of our climate change and CO2 emission reduction over the next 10 years. So, it is totally in line with what we are trying to execute internally. The penalties, to the extent that you don't meet the benchmark is, one basis point per metric, we have five metrics. So, the worst case scenario would be five basis points up. To the extent that we beat the benchmarks, it would be a potential maximum saving of five basis points. And the structure is attractive to many banks, because they do have now special baskets within their asset allocation for green structures. So this actually translated into a good idea also from our bank's position to be able to possibly book, either some or all of the loans that are outstanding under the facility, under the green bucket, which is -- which probably, is less invasive from a capital requirement perspective. So, it's a very attractive structure. It's a win-win. I mean, it's good for them. It's good for us. It also sends a very strong message on our part how committed and how climate -- reacting to climate change and sustainability is hardwired in our -- in the way that we run the business, both operationally and on the finance side. I hope that addresses the comment.

Sure, very interesting. Just a follow-up question on that. Will you, at some point, be publishing what those targets are and what your performance is measured against that? Or that will just be for the bank group?

No. I'm sure that we would make those public. I mean, there's no -- frankly, I don't see any reason why they should be. And we just haven't -- we haven't gone through the cycle of disclosure yet where we -- because as you know, we've just closed a couple of weeks ago and we have a final participant that would be coming in, in about a week or 1.5 weeks, which we finalized the whole process. So as soon as that happens, I'm sure this will be part of our disclosure, and we'll make it available to the market.

Okay, great. Thank you very much, and congrats on the good quarter.

Great. Thank you very much, Anne.

I would now like to turn the call over to Fernando González for any closing remarks. Please go ahead, sir. Fernando González: All right. Thank you for joining us on our third quarter conference call. And if you have any additional questions, please feel free to reach to us, and please stay safe. Bye now.

Thank you for participating in today's conference. This concludes the presentation. You may now disconnect, and have a great day.