Good morning, and welcome to the CEMEX Fourth Quarter 2020 Conference Call and Webcast. My name is Chuck, and I’ll be your operator for today. [Operator instructions] Our host for today’s call are Fernando Gonzalez, Chief Executive Officer; and Maher Al-Haffar, Chief Financial Officer. And now I’ll turn the conference over to your host, Fernando Gonzalez. Please proceed.

Good morning, and thank you for joining us today on our fourth 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. Before we start, I would like to take a moment to express my gratitude to our employees who have risen to the challenge of COVID and adjusted their work habits to act safely and effectively and to still deliver results. However, despite our best efforts to keep employees safe, we have lost treasured colleagues during this pandemic. I would like to recognize these individuals and their important contribution to the company and to extend my sympathies once again to their families and friends. And now we will spend a few minutes reviewing the business, and then we will be happy to take your questions. 2020 was one of the most challenging years we have faced, but it also was a remarkable year that tested the strength of CEMEX and several of our recent strategic initiatives. I’m proud of our performance, the organization and how we responded to the sudden arrival of coronavirus in our footprint. We reacted quickly and forcefully to a highly uncertain situation. We prioritized the safety of our employees and customers, while ensuring business continuity, financial flexibility and protecting the future of CEMEX. The investments that we have made in distribution and digital platforms paid off in the pandemic, while our emerging market footprint shown true as competitive advantage. And as visibility improved, we were agile and adjusted quickly to take advantage of developing opportunities in our markets. Our customers rewarded our safety, reliability and consistency efforts with the highest net promoter score in our history. Importantly, our score is now in line with the NPS of some of…

Thank you, Fernando, and good day to everyone. As Fernando has mentioned, after a volatile first half, strong operating results in the back half of the year have allowed us to further strengthen our financial profile. And now let’s move to the next slide. Despite some of our dire second quarter scenario planning, our full year free cash flow after strategic CapEx actually improved by about 60% in 2020. This was primarily driven by operational performance, lower maintenance and investment in working capital. Operation Resilience cost containment measures, including working capital, paid off and we achieved the highest free cash flow after maintenance CapEx since 2017. The working capital gains are largely a result of timely management through the crisis. For the full year, we achieved a record average working capital days of minus 14 days versus a minus nine in 2019. Our lower expenditure on maintenance CapEx largely reflects the hard stop in nonessential CapEx established in late March as a response to COVID. During the second half, we resumed more normalized levels of maintenance, albeit at a slower pace than the second half of 2019. The increase in other cash items is explained by severance payments, COVID-related expenses and lower fixed asset sales. Our improved net income for the quarter reflects better operational results as well as some one-off expenses in fourth quarter of 2019. Our full-year net loss is attributable to the noncash impairment of approximately $1.5 billion that was disclosed in our third quarter results. 2020 was a volatile year from a financial management perspective and was a test of our ability to be agile and adjust quickly to rapidly changing conditions. We came into the year with expectations of moderate operational growth and plans to advance on some of our medium-term strategic initiatives. In the…

Given the strong momentum in our business in fourth quarter, we expect 2021 EBITDA to reach around $2.7 billion on a like-to-like basis. This guidance assumes FX rates as of December 31, 2020. EBITDA growth should be supported by consolidated volume growth in the range of 1% to 3% for our three core products. Regions such as Mexico, SAC, Western Europe and the Philippines should show stronger growth due to the more stringent second quarter 2020 lockdowns. The U.S., which exhibited strong growth last year despite COVID-19, should continue to grow but at a slower pace than 2020. We estimate the impact of the second quarter 2020 volume loss to be $160 million, which will be an important tailwind this year. We also expect that formal sector demand in Mexico and SAC will continue its recovery as GDP growth returns. Regarding pricing, we will continue to aim to recover input cost inflation in our products. For cost of energy per ton of cement produced, we forecast an increase of around 10% with both fuels and electricity costs rising. To give you a sense of the impact of energy in our business, in 2020, our total energy bill represented more than 8% of our total cost of goods sold plus operating expenses or approximately $1 billion. With a global pandemic raging, market visibility, while improved, is not perfect. As a result, with the exception of CapEx, we will maintain the prior-year’s austerity program. We will offset the impact of 2020 nonrecurring cost savings with additional savings from actions already taken in the prior year. Given last year’s performance, I’m not willing to delay further our plans for medium-term growth. Therefore, we will spend once again on growth CapEx and sustainability in 2021. Guidance for total CapEx is around $1.1 billion, a…

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 the first question will come from Ben Theurer with Barclays. Please go ahead.

Good morning. Fernando, Maher, first of all, congrats on the results that was clearly an impressive finish and a very positive outlook for 2021. So that’s actually bringing me to my question. So Fernando, what is next? I mean if we do a simple math, you were at roughly 4 times leverage now Just assuming your EBITDA guidance, other cash flow items, leverage is likely to go down to roughly 3.5 with that EBITDA number. One more year and then we’re down at 3, which is essentially the target you’ve been looking for, for a few years now, and you’ve definitely done good steps ahead. So, on the acquisitions you’ve talked about, the strategic piece, could you elaborate a little more into what geographies you’re thinking into what potentially could be on the plate? And also, how much of a benefit you had over the last couple of quarters having done so much on the digital platform, CEMEX Go and basically being able to serve customers despite adverse environments and operating environments? Thank you.

Yes. Thanks, Benjamin. Let me start with the first question in terms of what’s next. Well, you know what, on the one hand, we are very pleased because of a – in a very challenging year, it happens that we – the markets and our actions resulted in pretty well results, which is a robust base for our expectations in 2021. Strategically, what we have been commenting lately, a couple of years, let’s say, is that we have made some adjustments to our strategy. And I will try to summarize those because it might, can be able to very lengthy conversation. But basically, what is it that we have adjusted? First, we want to evolve our core portfolio with investments, mainly the U.S. and Europe. Second, we will be making selected divestments, mainly or particularly in emerging markets. Third, we are concentrating or focusing in high-growth metropolises, particularly in U.S., Europe, also Mexico, to some extent, South America. It’s mainly U.S. and Europe and another relevant adjustment is that we are considering – we have already almost two years considering exploring bolt-on investments as well as acquisitions, again, mainly in the U.S. and Europe. So we can invest and we can grow our EBITDA in those markets. With that combination, what is it that you can expect, Ben? Well, you can expect EBITDA growth, mainly in developed markets, like the ones I have already mentioned. Of course, last year, COVID was – we needed to put attention to the type of decisions we took, described by Maher and myself. So it would not – there was some delay in the process on investing – on making these bolt-on investments and acquisitions. But we have already, again, speeded up the process. We are meeting every other week in each region with…

That was a very complete answer, Fernando. Thank you very much and I’ll leave it here and congratulations again.

Thanks, again.

Your next question will come from Francisco Suarez with Scotiabank. Please go ahead. Pardon me, it seems that Francisco has left the question queue. Our next question will come from Carlos Peyrelongue with Bank of America. Please go ahead.

Thank you, Fernando, Maher, congrats on the impressive results. Two questions, if I may. First one is related to energy prices. You mentioned that for this year, you’re expecting EBITDA to grow about 10% and energy cost also to grow about 10% without the non-sustainable cost-cutting initiatives that were implemented last year. So does this mean that the prices are going to be able to more than compensate increases in energy costs? Could you walk us through a little bit as to how you achieve that 10% EBITDA growth? That would be the first one. And the second one would be related to the U.S. market. If you could provide some color as to your expectations on potential new infrastructure packages out of the U.S., and particularly the FAST. Is there any chance of a proposal? The Democrats were very aggressive last years in the proposal with a major increase on a per-year basis. If you could also comment on that, it would be helpful. Thank you.

Yes. Thank you, Carlos. You know what? The communication, the sound was not that clear to me. So what I understood in your first question is on our outlook of our guidance of an EBITDA growth of around 10% for this year. Did I get the question correctly?

Yes, that’s it. Also, to tie that up with the increase in energy costs, and again, not having extraordinary cuts on cost as you had that last year that are not sustainable for this year.

Yes. So let me then start by saying, Carlos that we struggled to decide on providing or not providing guidance. We ended up deciding doing it because we – even though there are risks still because of 2021 being COVID year number two, that’s the way we are defining it, I think there is – that there are many positive reasons that make us believe that this will be a better year. One thing that we should clarify, I mean, we have been commenting that, but it’s don’t forget that 2021 has a tailwind of the base effect, meaning we lost cement, ready mix and aggregate volumes in a very material manner in the second quarter of last year. And as we mentioned, because of what society has learned, what we have learned, what governments have learned, we are not expecting massive lockdowns during this year. We might be right, we might be wrong, that’s what we believe. So there will be a base effect. We think we lost about $160 million of EBITDA last year to the impact of COVID in our volumes. So that’s one sizable tailwind. And as you saw, it’s different per country or per region. The U.S. was not impacted. Mexico is a very special case because we were impacted in the formal construction, meaning mainly our ready mix and aggregate businesses, and we were impacted in cement, bulk cement. Remember that the lockdown in Mexico was only for formal construction, but the lockdown didn’t apply to retail or bagged cement, which is 65% of total volumes of cement. So on the one hand, there is a sizable impact. Then we do see still a tailwind in the recovery of volumes. So again, let’s use the example of ready mix and aggregates in Mexico. The…

Yes. The second one was related to your expectations of getting a new FAST, new highways and bridges five-year plan with an increase versus the previous one. The Democrats have been proposing a major increase in that regards. Is there any color that you could provide? How you see that evolving throughout this year?

Carlos, unfortunately, I continue having a problem with the sound.

Can you hear me better there?

Yes.

Sorry. So the question is related to the possibility of a new five-year highway and bridges plan in the U.S. So the FAST Democrats proposed last year, a major increase in investments on a per-year basis, about 50%. If you could provide some color as to the expectation of an approval and a potential increase in that particular program.

Do you want to take that one, Maher?

Sure, Fernando. Yes, absolutely. Yes, Carlos, the – we’re quite optimistic about the Biden administration’s proposals. As you know, there are two proposals out there, one that was passed by the House last year, and that was for about $1.5 trillion. And then Biden came in with a slightly less detailed plan of about $2 trillion. I think the most important thing is to focus really on the cement-intensive component, which accounts about a third to maybe a little bit less of both of the proposals that I just mentioned just a second ago. And we’re – we think there’s perfect alignment. We do believe that the increase could be somewhere between 30% to 40% funding certainly in 2022. We don’t think the impact will hit in any material way in 2021. We think that spending is going to be flattish to slightly up in 2021, but the big impact, probably 30% to 40% in the area of $60-plus billion of expenditures, will come in, in 2022. So we’re quite optimistic about it. And this will dovetail very nicely with the current FAST Act, which is going to be coming up for renewal in September of the end of this year.

Great. Thank you, Maher and Fernando and congratulations.

Thank you very much, Carlos.

And now we will have a question from the webcast.

So Fernando, the question that we have from the webcast is from Anne Milne from Bank of America on the fixed income side. The question is congratulations on excellent results and big progress on the debt side during 2020. Given CEMEX’ outlook outlined for 2021, do you think CEMEX’ debt levels can drop below 10 billion by the end of the year, and after all your recent activity on the debt front, what should we expect in 2021, more liability management? Fernando, would you like me to take that question?

Yes, please go ahead.

Yes. So based on the guidance that we’ve given for our full-year EBITDA, we – and all of the elements that we’ve guided to at the free cash flow level, we feel it’s not unreasonable to assume that we would be on a net total debt plus perpetuals, net total debt plus perpetuals. It is not inconceivable that we would be below the $10-billion mark for the end of the year. It could be more depending on the performance. Now as far as what could we do more, I mean, the reality is that there’s a lot of opportunities for additional liability management for the year. We have – we haven’t called all of the notes that are due in 2025. We still have about $300 million of those. We also have some very expensive perpetuals. I mean those are probably the most expensive on our capital structure. There are also additional callable bonds or the euro-denominated bonds that come due in 2024. So there’s a lot of opportunities, frankly, that we can still do things during the rest of the year that should continue to improve our cost of debt and improve the maturity structure of our debt that is coming up here. I hope that answered the question. Operator?

Your next question will come from Francisco Suarez with Scotiabank. Please go ahead.

Thank you. Good morning. Congrats on the strong beat, particularly on the superb execution that you, Maher and Fernando, on the things that you can control. That’s impressive. And also, congrats on the new milestone of allowing your kilns in Europe to be fed by hydrogen. Two questions. On hydrogen injection, what could we expect on the share of hydrogen in the mix on your European operations? And if that might or not affect your margins, other things constant. The second question that I have is on the great guide on Mexico, where we see the volume on cement compared to what ready-mix volumes are. It seems to me that Mexico doesn’t seem to be an economy that can grow alone on self-construction. Your volumes in ready mix already declined by 14% in 2019 and in 2020, they declined by another 16%. So the question is, how sustainable the recovery in Mexico might be without the support of the formal construction sector?

Yes. Thank you, Francisco. Let me start with the second question. I think our guidance for ready mix and aggregate volumes in Mexico for 2021 are highly impacted by the base effect, meaning, I think we mentioned during the presentation, our volumes in Mexico were impacted very materially because of the lockdown during the second quarter last year. But as you know or as you might remember, the lockdown was a lockdown for formal activity with the exception of the large further out projects. But there was no lockdown for retail sales, meaning for bagged cement. So our cement volumes dropped, but our ready mix and aggregates, they did drop like five or six times more. Also, once the lockdown was finished, cement recovered much faster than ready mix and than aggregates. Most of the recovery we saw last year in ready mix and aggregate, happened during the third quarter, to some extent, also a little bit in the fourth quarter. So what we can expect is still a tailwind on formal construction, increasing volumes, but we will see mainly the base effect. As I mentioned during our assumptions for this COVID year two, is that we will not see massive lockdowns like the ones that we saw last year. So meaning, if we lost like 40% of ready mix and aggregate volumes for the quarter that will be translated into growth this year, so that’s on our expectations on ready mix and aggregate growth in Mexico for the year. On hydrogen, we are very pleased with the results that we are getting from hydrogen. Nowadays, we have all our cement plants in Europe with the use of hydrogen, and we are moving for a global implementation of that technology. I don’t have any specific number related to hydrogen because…

Thank you. Your next question will come from Yassine Touahri with On Field Research. Please go ahead.

Yes, good morning. So I would have a couple of questions. I think my first question would be on the Biden agenda on climate change. It includes the enforcement of a mechanism based on the principle that industries emitting CO2 must bear the full cost of the carbon they are emitting. However, it doesn’t look like the Democrats have large enough majority in the Senate to implement every item of Biden’s program. So my question is, do you have any update on the discussion between the U.S. Cement Association and the new administration regarding a potential carbon tax on your U.S. CO2 emission or on a potential increase in U.S. corporate tax rates? That would be my first question. And then I will have a second question. Could you quantify the tailwind you got from lower DSL and logistics costs in 2020? And what kind of inflation do you expect for 2021?

Okay. Let me take the first one, Maher, and you can take the second one. If I understood correctly – and I continue having problems with the quality of the line, but if I understood correctly, it is about the orientation of the new government in the U.S. in regards to a green economy. I think what we have seen…

And then could we have a carbon tax?

Sorry? Sorry?

Yes. My question is, could we see a carbon tax on the U.S. CO2 emission? Or could we see a potential increase in corporate tax rates in the U.S.?

I was going to say that, to me, at least, it’s very early to say if that is going to happen or not. But if it happens, I won’t be surprised. I think – look at California, look at the trials we started in Mexico on CO2 taxes. In three years, CEMEX will have 60% of its cement capacity production regulated on CO2. That is the future, and we need to be prepared to that future. Now let me – allow me to make a simple comment. We’ve been focused on climate change and also sustainability for decades. To some extent, we have been observing and being active in the process. What we saw last year, it was – let’s say, it was very interesting because it was a year in which society was clearer on their demands on moving the economy to a green economy. And regulators do pay attention to society. The case of Europe to me is very clear. There is now a Green Deal that is much more stringent in its targets of CO2 reduction, and they have put in place a program to remodel 35 million buildings in Europe to reduce their CO2 emissions. So I think that the only thing that we can expect or I can expect on that regard is that there will be more and more. I’m not sure if this is the time for the U.S. with this government for that to happen, but it will come, it will come. On the other hand, I think, we shouldn’t make a negative interpretation of this trend on a green economy. And a green and circular economy is the only economy in which our highest production cost, which is fuels, can be an income. So I think we have to approach the green and circular economic in an open and optimistic way. Could you take the second one, Maher?

Yes. Yassine, if I understood you correctly, the question is about distribution cost. Could you – is it about the trend of distribution costs? Or what were you – what was the question?

Second question. No, no. The question was, could you quantify the tailwind, the gain that you got from lower diesel costs and lower logistics costs in 2020? And then what kind of inflation you expect in 2021?

Did you say SG&A was the first one?

No, logistics and diesel costs.

Logistics and diesel cost?

Yes, in 2020 versus 2021.

So – yes. So energy, in general, as we said, was 10% tailwind for the year. And so that’s – I mean, the total energy bill is roughly – that’s around $100 million essentially, I mean, the savings, right? And in terms of going forward – I mean, in terms of going forward, diesel is about 2% of the total bill, and that’s about – the total expense is about $250 million. And we have about half of the amount that we would need for this year already hedged. Now the hedging is probably going to be translating to a little bit of a headwind going into 2020 – into this year. So – but beyond that, I mean, I cannot give you an actual percentage of what we’re expecting on the diesel component.

Thank you very much.

Thank you.

And now we’ll have a question from the webcast.

The next question from the webcast is Francisco Chávez from BBVA. And Paco has two questions, both are on the U.S. The first question is, what was behind the weak performance in pricing in 4Q? And the second question is, can you provide a breakdown on volume growth on your four key markets? Fernando, would you like me to address that? Or would you like to do that?

Yes. Please go ahead, Maher.

Yes. Paco, the – we had a little bit of a sequential drop in cement prices, about 1% sequentially, fourth over third. The primary driver – there are – three kind of things were moving in the fourth quarter that contributed to that. One is geographic mix. We had, as Fernando mentioned earlier in the call, very, very healthy growth in California, like quite a bit more, almost double the rest of our markets in terms of the percentage growth. And that part of the region has lower pricing than the national average. So that’s one contributor. The other contributor was an internal change in how we treat industry imports, which are lower-priced. We’re including them now in our pricing. So that also tends to – that contributed to the sequential drop in pricing. And the third item, we had an important project, an infrastructure project in our Texas business that had attractive pricing and terminated. And so those are the three things that contributed to the sequential pricing, having said that, we – if you adjust for these different three dynamics, prices were actually positive in our markets. I hope that answers the question, Paco. Operator?

Yes. And we have time for one last question, and that will come from Adrian Huerta –

Sorry, operator, I think there was another piece of the question that I did not address, which is growth in our markets in the U.S. Just in response to that, I would like to say that, as you saw, volumes were up in the mid-teens for the whole business. And on average, I mean, our volumes were up double digits in all markets except Texas, which was in the – slightly lower than that. Sorry about that, operator. Next, please?

No problem at all. Our last question will come from Adrian Huerta with JPMorgan. Please go ahead.

Thank you. Hi, Fernando and Maher, congrats on the results. Quick question just on the CPN plant, if you can just give us more details on the difference on production cost for this plan versus what you have in the U.S. And if the plan is to – at least, initially, is to reduce imports that you currently do into the U.S. from other parts of the world or is to potentially gain market share given some plant closures that we have seen in California, etc.

Well, thanks for the question, Adrian. What I can tell you is that with a marginal investment, we will be prepared to take advantage of the current situation in the market in Arizona and California because of plants that have been shut down, because of increasing shipping costs for imports. So I think what we are going to be doing is taking acquisitions with this additional cement. Of course, it has to be done in total combination with our U.S. business, meaning it is an option for them, of the U.S. on how to manage this cement that will be available from CPN.

Thank you, Fernando.

Thank you, Adrian.

This concludes our question-and-answer session. I would now like to turn the call over to Fernando Gonzalez for closing remarks. Please go ahead, sir.

Well, yes, thanks to all for your participation and your interest in CEMEX. And of course, any time, feel free to call us or the IR team to continue this dialogue. Thank you and stay safe.

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