CEMEX, S.A.B. de C.V. (CX) Q1 2021 Earnings Report, Transcript and Summary

Good morning, and welcome to the CEMEX First Quarter 2021 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] And now I will turn the call over to Ms. Lucy Rodriguez, Executive Vice President of Investor Relations, Corporate Communications and Public Affairs. Please go ahead.

Good morning. Thank you for joining us today on our first quarter 2021 conference call and webcast. I hope this call finds you and your families in good health. I'm joined today by Fernando González, our CEO; and Maher Al-Haffar, our CFO. As always, we will spend a few minutes reviewing the business, and then we will be happy to take your questions. I will hand it over to Fernando now. Fernando González: Thanks, Lucy, and good morning to everyone. We are quite pleased with our first quarter results where we achieved some important milestones and advanced significantly on our Operation Resilience goal. On a consolidated basis, sales increased 9%, driven by the highest first quarter cement volumes since 2008 on pricing. We posted $684 million in EBITDA, the highest reported first quarter EBITDA since 2008 with all regions contributing to growth. Margin increased 2.8 percentage points to 20.1%, in line with our Operation Resilience goal. High capacity utilization coupled with cost savings and product mix produced significant operational leverage of 45% in the quarter. Free cash flow after maintenance CapEx was the highest in the first quarter since 2016. And perhaps most importantly, the deleveraging ending the quarter with leverage ratio of 3.61x brings into focus a clear path to our Operation Resilience goal of an investment-grade capital structure. We must not forget, however, that our business continues to be challenged by COVID. For the safety of our employees, we must remain vigilant and adhere to COVID-safety protocols in all our operations. Sadly, we have lost valued colleagues to the virus over the last year. These individuals are part of the CEMEX community, and we mourn their loss alongside their family and friends. Finally, I would like to recognize the contribution of all our employees move throughout the crisis after the behavior to protect colleagues and customers and ensure the continuous operation of our facilities. Thank you for your effort and dedication. In the last two quarters of 2020, we witnessed the resilient volume recovery from the second quarter COVID lockdowns. But as you can see from this slide, what we are experiencing in the first quarter goes well beyond recovery. In fact, we're seeing strong volume growth even over first quarter 2019 well before the pandemic. This is true in all regions, except for Europe, due to seasonality, first quarter benchmarking is difficult. Indeed, in the case of Mexico, when 2019 volumes might be an easy comp due to the government transition, we're running at similar average daily sales as first quarter 2018. While we see ways of rising COVID infection rates challenging some markets, government response has been less disruptive to our industry than in 2020. In developed markets, growth is being fueled by an unprecedented level of monetary and fiscal stimulus, coupled with the rollout of vaccination programs, which hold out the promise of a full economic reopening. Our emerging market portfolio has generally not had the benefit of significant stimulus but to a varying degree, it has enjoyed an important spillover effect from U.S. and European stimulus in the form of trade interest rates and remittances. Mexican demand has been further supported by government social programs that promote the construction. Of course, the pandemic has boosted demand for our products in all markets as people in quarantine look to improve their homes or change up their housing situation in search of more space. And so far, this behavior is not slowing even one year into the pandemic. And with economic reopening, we expect to [Technical Difficulty] of long-delayed projects in tourism and services that cater to a population wary of lockdown and actions to travel and go to restaurants once again. And of course, with the Green Bill in Europe and the proposed America just planned in the U.S. and is the other driver of infrastructure spending over the medium term. Supply/demand conditions for demand are extremely tight throughout the Americas. It is a test like this that our unique supply chain capabilities in the region. In the U.S., a market that is chronically short cement production in early cycle level, we have best-in-class supply chain capabilities which includes input capacity via water terminals for 8.7 million tonnes of cement or approximately 75% of our active U.S. production capacity. In addition, we have an extensive network of long terminals and exceptional railway connectivity that has allowed us to force additional inputs over the land from our operations in Mexico. In this regard, during second quarter, we will be recommissioning 1 million tonnes from our CPN cement plant in Northern Mexico to meet rising U.S. demand. In Mexico, to meet incremental demand, we expect to commission our 1.5 million tonnes expansion in Tepeaca by the first quarter of 2022. In SCAC, we have been leveraging our supply chain capabilities by flexing our production to serve markets that are currently under tight supply conditions. In the Dominican Republic, we expect to recognition a product line in fourth quarter that will bring an additional 500,000 metric tons or approximately 33% of current plant capacity. This increase will strengthen our ability to meet domestic demand and supply other Caribbean markets. Finally, in Colombia, We expect to commission our 1.3 million tonne plan by the fourth quarter of 2022. Our 28% EBITDA growth was driven by higher volumes and pricing, cost savings in OpEx and logistics as well as a higher contribution from our growth investments and urbanization solutions business. And the region contributed to EBITDA growth. Our G&A as a percentage of sales was slightly below 8%, 1.7 percentage points lower than first-quarter 2020. Our OpEx in the quarter benefited from the Operation Resilience cost savings program we implemented last year. Variable costs were impacted by higher cement imports into the U.S. and Europe as well as higher maintenance costs. Fuel costs were also a headwind. We benefited from a small FX saving in the quarter. The benefit came primarily from the appreciation of the British pound and euro. I am pleased with the progress we have made in less than nine months on our Operation Resilience targets. While we have been helped by market conditions in our key regions, the cost savings program and our financial planning have also contributed materially. For 2021, we have now identified $50 million in incremental savings, mainly in areas such as OpEx and operational efficiencies. Our first-quarter 2021 EBITDA margin stands at above 20%. Due to the seasonality of our business, first quarter typically has the lowest margin in the year. Over the last three years, we have initiated bolt-on investments and efficiency projects of approximately $600 million, covering our four product lines, demand, ready-mix, aggregates, and urbanization solutions. These investments typically have very short payback period from one to four years, and we are already seeing incremental EBITDA from these investments. For the full year, we expect these investments to contribute approximately $100 million of incremental EBITDA. Our leverage ratio stands at 3.61 times at the end of first quarter, a quarter in which due to working capital needs, leverage increases. With regard to our fourth goal of Operation Resilience, we have overcome some of the 2020 COVID supply challenges surrounding alternative fuels, and in the first quarter, we reduced net sales admissions by 3% year over year. This implies a reduction in emissions of approximately 24% versus the 1990 baseline. Let me expand on our sustainability initiatives. Our fifth integrated report was recently published and is available in our website, which details the progress we are making in our 2030 sustainability goals. As of 2020, we had a 22.6% reduction in net CO2 emissions driven by a reduction in our clinker factor of one percentage point, the largest drop in five years due to increased sales of low clinker or blended cement. As of first quarter, 57% of our total cement sold was blended cement. In first-quarter 2021, we reduced CO2 emissions by 3% on a year-over-year basis. Due to disruptions in alternative fuel supply caused by COVID, our alternative usage declined in 2020. However, in first quarter, we have solved these issues and our attractive new usage has almost returned to 2019 levels. Before we cover our alternative fuel usage, in 2020, we successfully piloted hydrogen injection in our plants in Europe, and we are now replicating that success globally. This technology allows us to operate our plants at even higher alternative fuel distribution level as well as significantly improve the thermal efficiency of our plants. Our alternative fuel substitution rate is one of the highest in the industry, particularly in biomass substitution. While there are no specific [Technical Difficulty] on alternative fuel usage in Europe, we consumed 60%, while the industry average is 40%. And this is important not only to CEMEX but to society. Alternative fuels allow us to recycle waste from other industries that is important to communities and use it as energy in our teams. In fact, in 2020, CEMEX consumed industrial waste in volumes close to 50 times more than the non-recoverable waste we generate, a prime example of our contribution to the economy. Our first-quarter weight consumption had some seasonality, and we expect consumption to increase in the rest of the year. We expect that the progress made in clinker factor reduction, combined with our resumption of our pre-COVID alternative fuel usage should lead to a material improvement in emissions this year. After rolling out concrete products globally in 2020, we are now introducing best class-cement and aggregates products. Customer reactions to these products have been very positive and our low CO2 concrete is already being used in iconic infrastructure projects in our main markets. We are working hard to educate our customer base on the benefits of this value-added product. We also are investing to reach our 2030 goal as well as net-zero CO2 complete globally by 2050. In order to accelerate our progress toward our 2030 goals, we are updating the necessary investment to $350 million. The growth story for our business in the U.S. gained steam in the quarter. We achieved the highest first-quarter reported EBITDA and EBITDA margin since 2006 and 2007, respectively. EBITDA grew 21%, with our EBITDA margin expanding by 2.5 percentage points. The margin improvement was driven by higher volumes, lower freight and SG&A, and a growing contribution from our expanding urbanization solutions business. With the section of Texas, which was impacted by the February freeze, all of our key markets contributed double-digit volume growth. Residential remains the largest driver [Technical Difficulty] with residential construction spending up 22% as of February. Forward-looking indicators are strong with the single-family permits of 26% in first quarter with new home inventories at low levels. The infrastructure sector was also broadly supported. March trailing 12 months contract awards for highways and speed rose 15% for our 4Q states versus 3% at the national level. The industrial and commercial sector remains weak with the exception of cement-intensive warehousing and distribution for e-commerce. However, with a strong pace of vaccinations in the U.S. and the prospect of eventual economic reopening, we are encouraged by the possible resumption of commercial projects in our major metro markets such as Orlando and Las Vegas. After more than a year of lockdown and the generous case of stimulus payouts, consumer sentiment has recovered. This March, the data sales posted the second-highest growth rate since the pent-up sales began. We expect a surge in pent-up consumer demand that will eventually translate to the tourism and commercial segments. All of our major markets are tight with regard to cement supply, and demand is being met with pricing inputs. With our strong logistics network in the U.S. coupled with our unique geographic footprint in the Americas, we are particularly well-positioned to meet incremental demand. Given supply/demand dynamics as well as the pricing disruption last year due to COVID, we are optimistic regarding April's pricing increases, which covers states that represent 80% of our revolver. With greater visibility, we now expect cement volumes to grow between 3% and 5% in 2021, while ready-mix and aggregate volumes grew low single digits. In the medium term, we are optimistic regarding President Biden's $2.3 trillion American jobs plan. His proposal includes $625 billion for transportation infrastructure with $115 billion of incremental spending for high welfare. The plan also includes other elements that we would expect to have cement content. We start this year, we would expect incremental cement demand to materialize toward the end of 2022 at the earliest. In Mexico, we continue to see strong growth in demand, which has brought industry quarterly volumes back to 2018 pre-election levels. You considered exported volumes, we estimate that utilization in the country is quite high, reaching levels growth to 9%. Our 13% year-over-year cement volume growth was driven by the formal sector with bagged cement increasing in double digits. Bagged cement growth is supported by remittances, home improvement social government programs and pre-electoral spending. Ready-mix and aggregates volumes declined 12% and 3%, respectively, reflecting the slow recovery of formal spectrum demand from the pandemic. The decline is mainly due to a difficult base effect, and the impact of the pandemic began in early April 2020. We continue to see improving indicators in the residential sector, while government flagship infrastructure projects accelerate. Activity formal housing continues recovering, supported by lower levels of inventories and attractive mortgage rates. Housing permits are accelerating, growing at 27% year-over-year in the quarter. While the commercial sector remains subdued due to the pandemic, we are seeing increases in air travel and consumer confidence, which could imply an eventual restart to previously delayered tourism and commercial projects. We have seen some activity in the industrial segment with the construction of warehouses along the border as well as distribution facilities designed to meet the growing needs of e-commerce. We expect that economic reopenings in the U.S. and the U.S. and CA trade agreement will continue to provide tailwinds for industrial work. Our national footprint, strong distribution network, digital platforms and safety protocols have been important competitive advantage, allowing us to consistently deliver cement and capture growth. During the quarter, sequential cement and ready-mix prices grew 5% and 1%, respectively. The sequential increase in cement prices reflects the traction of the January price increases as well as tight supply demand conditions. In early March, we announced a second price increase in bagged cement of approximately 4% with the objective to continue recovering input cost inflation. EBITDA during the quarter increased 28% and margin increased 2.4 percentage points, mainly due to higher volumes and prices as well as our cost reduction initiatives. This improvement is occurring even with higher maintenance during the quarter. Capacity utilization is running high in Mexico, especially when you consider our exports to the U.S. We expect the start of our new line in the first quarter of 2022. The additional 1.5 million metric tons will allow us to better serve the growing central and southern regions while providing higher efficiency rates and improved logistics. For 2021, we are increasing our volume guidance for Mexico to better reflect current demand conditions. We now expect domestic grade cement volumes to grow between 7% and 9%, while ready-mix and aggregates increase between 8% and 12%. We anticipate that the bagged cement growth rate will slow in the second half of the year after elections and the comparison basis becomes more challenging. Bulk cement, ready-mix, and aggregates demand, however, should continue improving supported by the gradual recovery of the formal sector, coupled with a favorable base effect arising from the second quarter 2020 lockdown. In our EMEA region, EBITDA grew 9%, driven by cost – larger contribution from the urbanization solutions business and ready-mix and aggregate growth. On a like-for-like basis, adjusting for FX, EBITDA improved 3%. EBITDA was flat due to higher prices in Europe and lower SG&A and distribution expenses, which was offset by higher demand inputs. European cement volumes declined 9% due to unfavorable weather conditions. The region also faced the imposition of new COVID lockdown measures during the quarter. We expect cement volumes to rebound in subsequent quarters with better weather. In fact, we have seen an important recovery in March, and growth has continued month to date in April. In the quarter, we saw volume improvement in the UK, France, and Spain. We believe this growth rate represented volumes beyond simply the base effect from COVID lockdowns occurring in March 2020. The UK experienced its first year-over-year volume growth for all core products in first quarter of 2019 as housing and infrastructure activity picked up. Prices in Europe were up between 4% and 8% sequentially in local currency terms for our three core products. We attribute this to tight supply demand conditions and driving energy and carbon costs for the industries. Phase 4 of the European Union's emission trading system commenced on January 1. After the sale of carbon credits in the quarter, we remain well-positioned and expect to have sufficient carbon allowances to cover our operations until the end under 2025 under the current regulation framework. We will use this advantage to technology and research and development in the transition to our 2030 and 2050 carbon goal. And now moving to Israel. With the highest vaccination rate in the world, ready-mix volumes rose 4%, driven by construction related to transportation as the government moves to execute long-term infrastructure plan. We expect the commercial sector to gradually pick up as the economy reopens. In the Philippines, economic activity remains subdued and the recent surge in COVID cases have been met with new government lockdown measures. While the cement industry remains open, volumes have been impacted. And despite the pressure of the cement industry that began in mid-March 2020, volumes declined year-over-year. We do expect an easier comp in second quarter when the industry was closed for approximately 45 days in 2020. For more information, please see our CHP quarterly earnings, which will be available this evening. For 2021 in Europe, we expect stable cement volumes and anticipate 1% to 3% growth in our ready-mix and aggregates volumes. Infrastructure and residential sector will continue to drive demand. In the [Technical Difficulty] we expect cement volumes to grow between 5% and 7%, a slight improvement versus our prior guidance, supported by a pickup in economic activity and the 2020 days effect. In Israel, We expect ready-mix and aggregates volumes to decline between 2% and 4%. The guidance reflects the fact that the business operated at a record pace in 2020 as well as the completion of several launch projects. Our operations in the South, Central America, and the Caribbean enjoyed the best quarterly performance since 2017. Beginning on cement volumes, increased 16%, reaching the highest levels in second-quarter 2018. All countries, except for Panama, showed cement volume growth. Regional cement prices rose 5% in local currency terms, mainly due to increases in the Dominican Republic. EBITDA increased 36% with higher contributions from TCL, Dominican Republic, and Colombia. EBITDA margin rose 4.8 percentage points due to volume and price performance, coupled with our cost reduction initiatives. In Colombia, despite the closure of the industry for two weeks in March last year, our cement volumes only grew 4% in the quarter, a consequence of our pricing strategy and competitive dynamics. The industry is enjoying robust growth with the housing sector being the biggest driver of demand with record home sales translating into higher levels of housing starts. Despite the imposition of new lockdown measures in – the outlook remains favorable, supported by fiscal stimulus including investments in social housing, execution of the existing 4G highway projects as well as the rollout of the new 5G infrastructure program. For the year, we are upgrading our expectations for cement volumes in Colombia to an increase of 10% to 20%. In the Dominican Republic and TCL, cement volumes grew 29% on the back of dynamics at construction sectors. Volume growth in TCL was largely due to activity in Jamaica and Trinidad. We are increasing our guidance for 2021 cement volumes in the Dominican Republic to 14% to 16%. In the region, cement utilization are at extremely high levels. We are taking advantage of our strong regional logistics network to meet local demand while we are moving forward to address supply constraints with capacity additions in the Dominican Republic and Colombia. I invite you to read CLH's quarterly results, which were also published today. Given the reduced size of the publicly traded shares, CLH decided to no longer be hosting a separate conference call. And now I will pass the call to Maher to review our financial performance. Maher?

Thank you, Fernando, and good day to everyone. I would like to reiterate what Fernando highlighted earlier in his remarks. Our performance went beyond recovery from the pandemic effects, with a solid top-line growth of 9% and more than three times that in our EBITDA growth, demonstrating the important operating leverage of the business. This is our third consecutive quarter of accelerating EBITDA growth. Free cash flow after total CapEx was 81% better than last year despite the usual unfavorable working capital seasonality of our business. This was driven primarily by the strong EBITDA performance and by the lowest investment in working capital in a first quarter since 2016. Continuously improving our working capital management, in particular attention to credit quality and receivables collection, translated into a record of a negative 17 days in average working capital. On the other hand, net income was the highest in a quarter since 2007, driven by the sale of carbon credits and higher operating earnings. As regards to our debt maturity profile, we were very active during the quarter in terms of liability management. During the quarter and up to April 20, we undertook $2.1 billion of highly accretive transactions that resulted in the further improvement in our maturity profile. As we see here, we have no material maturities until July 2023. These liability management exercises, along with the tail effect from 4Q last year as well as the reduction in our debt levels locked in slightly more than $100 million of savings in interest expense for the year. Going forward, we will continue to take advantage of [Technical Difficulty] in the debt markets to maintain a runway of about 24 to 36 months ahead of significant maturities. As Fernando mentioned earlier, we significantly reduced our leverage ratio during the quarter from increased EBITDA and the proceeds from the sale of carbon credits. As we can see on this slide, we reduced our net debt plus perpetuals by $545 million, which translated into a leverage ratio of 3.61 times, almost half a turn reduction compared to December 31 of last year. With our new EBITDA guidance that Fernando will present next, coupled with the expected 2021 free cash flow and proceeds from outstanding asset sales being dedicated to debt paydown, this would suggest further improvement in our leverage during the year and could put us two years ahead of our plan of reaching investment-grade capital structure by the end of 2023. And now back to you, Fernando. Fernando González: Thank you, Maher. Given the strong momentum in our business in first quarter and with greater visibility on demand, we now expect 2021 EBITDA to be in excess of $2.9 billion. EBITDA should be supported by consolidated volume growth in the range of 3% to 5% for cement; 2% to 4% cement – for ready-mix; and 1% to 3% for aggregate. Please note that our regional volume guidance is included in the appendix. Regarding pricing, we believe supply demand dynamics are supportive of pricing increases. For cost of energy, we maintain our previous guidance of a 10% increase with both fuels and electricity costs rising. Based on our prior year consumption, a 10% increase in energy costs will represent an approximate $100 million headwind. As discussed earlier, we now expect $50 million in incremental cost savings this year relative to 2020. Given the success of our bolt-on growth initiatives, we intend to increase CapEx spending to $1.3 billion with $800 million of maintenance and $500 million in contingencies. The incremental CapEx will be used toward bolt-on investments, sustainability, and the completion of the Marcell plant in Colombia. We will continue to be disciplined in capital allocation remain on bolt-on investments that meet high IRRs and short table criteria. We expect an investment in working capital of between $100 million and $150 million. Cash taxes are estimated to be about $250 million. We estimate our financial expense, including interest on our perpetual notes to be approximately $120 million less than last year. Last quarter performance convinces me that we should be entering a period of sustainable growth for our major markets. Supply/demand conditions are a bit type which should support pricing and enhances the contribution of our unique supply chain capabilities. Over the medium-term, we anticipate the economic reopening should lead to incremental growth driven by the resumption of postponed formal construction projects. And in addition, we see demand upside from infrastructure fiscal stimulus in the form of green crop and the American jobs plan. Our bolt-on strategy should continue to contribute meaningfully and we ramp up our investments. All of this places us on an accelerated path to achieve our investment-grade capital structure and our 20% EBITDA margin well ahead of 2023 operation time line. And finally, we are committed to our carbon reduction goals, and this will be reflected in our operating model and investment priorities. And now back to you, Lucy.

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 instructions] Our first question comes from the webcast from Paul Roger from Exane BNP Paribas. How could the new green agenda in the U.S. impact CEMEX? Is it a risk or an opportunity? Fernando González: Thanks for that question. This is Fernando González. The direct answer is that we do believe it is a positive position – this new position from President Biden. CEMEX, as many other global companies, do not have a position on a per-country basis. We have a global philosophy, and we run with the idea of Carbon Neutrality World. And that's why we have expressed and we have adjusted our targets for 2030 and for 2050, and we have introduced our – in our product portfolio CO2 reduced or even CO2-neutral products. So in the case of the U.S., given that this is a very recent statement, a reduction of 50% by 2030. We are reviewing our current plans, and we will adjust accordingly. I believe that in the U.S., several of the schemes or variables for the cement industry to reduce its CO2 emissions are there – are already given. But for sure, there will be additional adjustment changes to be done so we can move forward effectively and faster than our recruitment plans. A couple of examples is the U.S. has the highest or one of the high factors because of the way things are measured. Another example is that there might be material opportunities in the U.S. or adjustments toward let's say, a green and circular economy. And I'm referring particularly on how the cement industry is a very material contributor when in a circular economy, we can absorb 50 times residues from other industries or even households when compared to the residues we do generate. So we believe this is an opportunity to adjust and to decide for bolder decisions and faster decisions in the U.S. Another way to put it is we are going to do something very similar to what we have already stated for Europe, a reduction of 55% for 2030. It is doable. We know how to do it. We don't depend on known technologies. What we have to do to reduce this 50% is related to clinker factor, to blended cements, to efficiencies in processes and production processes in a larger proportion of alternative fuels in additional raw materials. So things that we know that we will adjust in our road map for 2030 year.

Fernando, can I – Lucy, maybe I can just add one thing to what Fernando said, which is very important as far as the green agenda in the U.S. Although it's still at an early stage, I mean, there is definitely the possibility of better access to capital and funding and in some instances, from the government, that will support a rich R&D development environment that will lower the potential cost of emerging technologies for decarbonization. So it's legitimizing and really taking it to kind of a countrywide level. And we think that's, at the end of the day, it's going to translate to a lot of alternatives that Fernando was outlining that would lead to lower cost for us at the end of the day.

Thank you, Maher. Our next question comes from Carlos Peyrelongue from Bank of America.

Thank you, Lucy. Congratulations on the very strong results. My question is related to other income that you reported it accounts for about 60% of operating income. If you could provide some more color on that would be very helpful. And also, if you could provide some color on U.S. pricing. You mentioned an increase. If you could comment on what is so far, the acceptance of that. That would be useful.

Fernando, do you want me to take the first part of the question? Fernando González: Well, let me start by – Maher, you can complement. I forget.

Go ahead. Fernando González: I think that the most relevant impact is the sale of CO2 credits in Europe for the amount of around 600 million. That's basically [Technical Difficulty] more of the chunk of the variation.

Great. And in terms of U.S. pricing, I mean, it's quite surprising that with such a tight supply demand, but we haven't seen higher increases in prices. So if you could comment on the increases you've already announced, but also more on the medium-term, what do you think is needed to show higher prices that would be more according to the very tight supply demand equation in the U.S. Thank you. Fernando González: Well, on pricing, what we saw in the first quarter is price increases in Florida only. So we were announcing for price increases starting in April. And so the impact of Florida, which is a fit or a quarter of total volumes, is not that visible. I don't know if you want to add something to pricing, Maher.

Yes. I think a couple of things, Carlos. I mean, number one, as Fernando said, the pricing increase was in Florida. We got traction there, it was a low single-digit traction. Florida represents about 20%, 23% of volumes. The biggest base of pricing increases will take – has taken place as of April 1. Now it's very important to note that all of these pricing increases were made in October of last year prior to the surge in demand that we have seen. So based on the tight supply demand conditions, we are expecting and we are getting good traction on the April pricing increases. And in fact, there has been some selective announcements. And the pricing increases in April are high single-digit percentage of prevailing prices in the relevant markets. And that represents the majority. I mean 8% of our business. Based on the dynamics that are emerging, especially driven by the housing market, we have announced selectively additional pricing increases that would go in the early part of the summer. So pricing dynamics clearly are, in our view, are positive. Many of our markets are on allocation and sold out. And that is true throughout the whole market, not just because of us. I mean, we happen to – we also have a very robust supply chain, as Fernando highlighted in the early part of his remarks to benefit from that. I don't know if that addresses your question if you have any follow-up.

Can I add just one point, Carlos? In first quarter, as Fernando mentioned, we did get traction on the Florida price increase. The other issue, however, that's played out is that we had several markets that have some of the highest cement prices that have lower volumes because of bad weather places such as Colorado, the mid-south for example. So there's a geographic mix issue as well in the sequential pricing performance.

Okay. And as a follow-up, the increases –

Carlos, one question.

No. It's the same one on pricing. Just California and Texas, I was wondering if the price increase in these two markets was in April just as to –

Yes. That's correct.

Okay, Great. Okay, thank you.

Okay. Great. And the next question comes from Nik Lippmann from Morgan Stanley.

Hi. Thank you, Lucy. Hi, everyone. Congratulations on the superb numbers. Thanks for taking my question. Just one question on M&A, if you don't mind, potential opportunities in Brazil, South America. I was wondering if you can say anything about that. Again, congratulations, and thanks. Fernando González: Thank you, Nik. Meaning our potential participation on those, I assume that is the question.

Yes. How are you looking at Epicel, the Lafarge announcement? And if you – I know you, in the past, have talked about maybe reducing this Latin American exposure. But it's obviously a big announcement at asset. So I was wondering if you could just comment on that. Fernando González: Well, we continue with the strategy that we have been outlining already for more than a year. Our strategy on portfolio is directing our investments more into the U.S. and Europe rather than emerging markets and in particular, Latin America. And just to clarify, with the idea of a midterm capital allocation exercise or portfolio management and exercise. Because as you see, our leverage ratio is declining with the new guidance, we can make in numbers. And it seems like we are not any more in a position to prepare to improve our balance sheet. So it's just portfolio management. Are we willing to invest in large acquisitions? No. We are not. We have outlined our strategy of making bolt-on acquisitions, small acquisitions, like the ones we did in – ready-mix in San Antonio recently and investments in businesses that we know that are related and we can easily execute all the investments, small investments. We are doing in organization solutions, the group of businesses related into Urbanization Solutions as well as cement, ready-mix, and aggregates. These are investments with a very attractive returns and very short paybacks, like the expansion of our terminal in Dallas. We are doubling the size of 1 million tonnes. We will have a terminal with 1 million tonnes of cement we will be able to sell in the Dallas market with a very small investment. So we continue on that track. And we have 100s of those bolt-on investments, and that's our current process, Nik.

Crystal clear. Thank you. Fernando González: Thanks.

And the next question comes from Vanessa Quiroga from Credit Suisse.

Hi. Thank you. So the one question that I chose to make is regarding your increased guidance for CapEx. So you mentioned that it's going to be focused on more bolt-on acquisitions. So can you clarify exactly the amount that you plan to be repaid to bolt-on acquisitions in 2021? And if they refer to acquisition of third-party assets? Or when you say bolt-on investments, do you also refer to internally stored projects for margin enhancement? Fernando González: What is included, Vanessa, are really small acquisitions. For instance, I can mention a few as examples. The acquisition we did of the ready-mix assets in – not a material amount. The investment needed to – for us to reactivate 1 million tonnes of capacity in one of our kits in CPM, which is not material level. And those are investments that will pay back – one of them immediately. The other one it would take like a few months for us to be able to serve the California market with that investment. We have another small investment. When I say small, it's even less than $10 million, to activate our kiln in Dominican Republic. So we can produce more than 500 million – 500,000 tonnes of clinker. We have several investments in aggregates. Not on replenishment of aggregates, which is something that we systematically do. But additional businesses, small businesses in aggregates. So well to give you an idea, out of the total CapEx that we are expecting to invest this year, it's more than 200 projects. So they are really small in nature. We've been preparing, we've been building this growth portfolio with the investments of this profile since certainly last year. So now we do see the potential of a large number of very small projects with high returns and short payback that we are already executing. That's why we are saying we think we can add $100 million to our EBITDA because of these projects that we started executing last year. In solutions is ready-mix and aggregates, they are really bolt-on. We've not seen any large we have not committed any large project. And what we see is that we still have a potential to continue growing this portfolio of this type of project.

Thank you very much for that color, Fernando. Fernando González: Thank you, Vanessa.

Thank you, Vanessa.

Thank you, Vanessa.

And our next question comes from Alberto Valerio from UBS.

Thank you very much, Lucy. Congrats also for the results. Thank you, Fernando and Maher for the opportunity to make this question. I choose the question about the carbon price in Europe. How recurring it would be in the future? Should we expect for the following quarters to also have some revenues from carbon credit sales? And is it a contract of a year if you – we could see this in the next year, 2022, for instance. Thank you very much, and congrats again. Fernando González: Thank you. I think on our – let me try to briefly describe our CO2 trade position in Europe. With informations we have available. I wondered if we have everything, but with the information that we access, we believe we used to have the largest CO2 print position in our industry in Europe. There are other companies with large positions. And we thought that when you consider the reduction part of CO2 we have in Europe and the type of investment we need to do, and considering that other players are already buying CO2 credits or they will be buying very soon, we thought on monetizing a portion of the CO2 portfolio. So the same we did is not selling more bank on the full portfolio in CO2 credit. We are keeping – according to our own estimates, we are keeping CO2 credits needed until December 2025, which is still a longer period of time when compared to other sizable players in Europe. So we still consider that we are properly covered on that side. We are pleased because we managed to monetize the position at reasonable or attractive prices. We will use part of those investments to finance what we have to do in CO2 in Europe and in other countries. And at this point in time, I don't foresee any additional sale of CO2 credits. I think we are just starting Phase 4. There are new conversations about the possibilities of the CO2 market in Europe in the future. So we will continue monitoring and participating and making decisions accordingly. But right now, I don't see any additional reason to divest another portion of that portfolio.

Perfect. Very clear. Thank you.

If I could just add one point on that. Unlike maybe other members of the industry, we have not sold any carbon credits in Europe since 2012, so this was unusual. And our next question comes from Francisco Chavez from BBVA.

Hi. Thanks for the call, and also congratulations on the strong results. My question is regarding Mexico. What are your assumptions behind the improved guidance for cement volumes. And specifically, what are you assuming for the sales construction and the formal segment? Thank you. Fernando González: Well, Francisco, as you know, the cement market in Mexico has been surprising to the upside. We do see a strong performance in housing, both informal and in formal even in industrial and construction to some extent. I think there are many variables at play in Mexico, making it very challenging to – on the one hand, to understand on the other hand to understand the potential scenarios for the rest of the year. But we see it very – in a very positive one. As you know, bagged cement has been the segment that is growing the most. I think – though we don't speak that much about it. But the first year of the current government, as it happens most of the time with the first year of any set of government coming from a different political party, was a very challenging year. So what we see in part is a recovery of that transitional year of the government. Then we got COVID and that did complicate things a little bit. As you know, in Mexico, there was a partial lockdown in our industry, partial in terms of not allowing traction to do business, but did allowing bagged cement distribution to continue. So comparisons are very challenging. What is it that we see this year, we continue seeing bagged cement growing materially. This year, we might have – it is always a very subjective appreciation, but we might have an impact because of elections and if that is the case, that will temporary impact. But even if that is a temporary impact, what we have seen already in the first quarter and for sure April is confirming the trend is that the formal part of construction in Mexico is growing. So as measured or measure as a proxy with our order book in ready-mix and aggregates, which, in the case of April, on top of the base effect that we have compared – when comparing second quarter last year to this second quarter. But it seems like there is a material recovery in the formal sector. So all in all, that's why we believe that the forecast for volumes in Mexico are including. And of course, we have the first quarter behind us with a good performance. So that is basically the explanation, Francisco. Still gray areas, but very positive.

Thanks so much, Fernando.

And our next question comes from Adrian Huerta from J.P. Morgan.

Thank you, Lucy. Hi, Fernando and Maher, congrats on the results. On the bolt-on investments, this $100 million of incremental EBITDA on the $600 million investment, I guess given the payback time that you said of one to four years, the recurring level of stabilized EBITDA of this investment should be greater than that. That will be my first question on the bolt-on investments. And the second one is given the – on expansion CapEx to $500 million, is this the kind of a recurrent on expansion that we could expect for the next couple of years and somewhat related to the size of these projects that you have been working on already for a couple of years that you have identified. Fernando González: Well, I think on expansion or – CapEx taking your second question first, Adrian. I think that can derive either as an amount or what's included in those $500 million because, as you might remember, next year, we're going to be finishing building cement capacity expansion for 4.3 million tonnes of cement, that will happen during the next year. And of course, all the CapEx related to those projects are going to be done. What we are expecting, again, because we've been having this exercise of building a bolt-on portfolio of acquisitions and investments, is that we have detected and we continue detecting very sizable opportunities with the same profile, meaning most probably for the rest of the year, I wonder is for next year, we will continue adding this type of demand readiness and aggregates and organization solutions opportunities to our bolt-on strategy. Now what else might can in the future, well, that's to be seen. What is our balance sheet goes to our objective of less than three times sooner than what we expected, and we believe that is what is going to be happening. OK. So we will review our portfolio – our growth portfolio bolt-on investments and acquisitions, and we will decide. I remember a time ago, we did review and we did communicate adjustments to our criteria for growth for M&A. Given that we are not expecting, let's say, nothing in particular, meaning no large acquisitions in the short, but in the midterm, we have not brought that to the table. That might be a conversation for a CEMEX Day one of these days. But again, I don't see any material changes on what we have announced and we are executing. It's enlarging our growth portfolio of bolt-on projects.

We think that was quite important as given the improved leverage that you have and likely to be around three times or even below that by the end of the year, many people are starting to ask if a larger acquisition were to happen at some point, but that was very clear. Fernando González: I'm receiving that type of concern. We're still at [Technical Difficulty] Hopefully, very soon, we'll be below three. But maybe in the next CEMEX Day or in the next call, we should review all the criteria that we did publish that it was on time it was 2016, I don't remember. Our plans, of course, we want to grow, and we are doing it. And our plan is to get investment grade and to keep it. And we have some flexibility now and we are doing profitable short paid tax low-risk type of hundreds of investments. That's what we are doing, and they are paying off, and we will continue with those.

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

Okay. And our next question comes from Gordon Lee from BTG Pactual.

Hi, everyone. Thanks very much for the call, and congratulations on the results. I have a follow-up, I think, on Vanessa's bolt-on investments question, but it's just – I guess, just to clarify, numerically two points. First, if you could – of the $500 million in strategic CapEx for this year, how much of the $600 million in your bolt-on pipeline is included there? And then the second question is whether the $100 million – or let me put it differently, how much of the $100 million in incremental EBITDA is in your $2.9 billion guidance for this year already? Thank you. Fernando González: The incremental EBITDA were included for – including for 2021 is around $100 million. And that EBITDA is coming from bolt-on investments and acquisitions we started doing early last year. So they are already, let's say, producing around 100. Now we are not disclosing any additional info, but if these investments were done in recent months, what you can expect is that the steady-state EBITDA is much higher than 100. So that should be coming in higher amounts starting next year. The type of bolt-on investments we are doing, I have mentioned a few examples because again, we have more than 200 projects. But we are expanding the capacity of our cement terminal in Dallas. Dallas is a good market, a market that is growing. We do have a position, and we just realized that we can grow that position to 1 million tonnes. We used to have a terminal with a capacity of half a million. So again, those are the type of projects we are focusing in because every next year, that terminal will be ready, and we will be able to sell that man in the market. The ready-mix business we acquired in San Antonio is another example of a bolt-on acquisition. The starting up a million tonne kiln in Cantana to exports in order to serve our markets in California. And then we have still a number of projects related to alternative fuels. We are making an investment in crop B because broadly has been in average around 60% substitution of alternative fuels, and we believe we can take it to 90%. And it's a very attractive the project on top of the environmental and CO2 benefits. The UK nowadays is the country – between UK and Europe, it's the country with the highest PPC for the use of household waste as fuel. So it's also very attractive – economically attractive proposition. And we are investing in new concrete block plants in the U.S. in Florida. We are investing in new mortar plants in several countries. We continue increasing our construction administer materials, the latest investment bond in the U.S. So again, we have – I cannot mention $200 million, but that explains more or less the nature of the type of projects we are doing. Related to our current business activity related to the markets we are in with, let's say, a low risk and for our management team to be able to develop those. So we are very pleased with how this EBITDA growth strategy is working with this type and this profile of projects.

Perfect. That's great color. Thanks very much. Fernando González: By the way, I think it is the first time that we, let's say, we are strengthening the muscle of bolt-on acquisitions because it's not the same thing to buy a large thing that evaluating the testing and deciding on hundreds and hundreds of small projects. But it is moving nicely.

Perfect. Thank you.

Thanks, Gordon. And our next question comes from Anne Milne from Bank of America.

Good morning. Congratulations, like everyone else, on an amazing quarter. My question is on the debt side. Do you have any more liability management exercises planned for 2021 as you were extremely active last year and in the first quarter? And in fact, if you have a lot of free cash flow and then we'll be reducing debt. I guess, one question is, where will you focus on debt reduction. And on the same lines within the capital structure and your goal of reaching IG metrics, I noticed that your – both of the credit rating agencies that rate CEMEX's debt have you on negative outlook. What's wrong there? When are they going to start looking at upgrading you now that you've had – that you get a positive outlook there for the quarter. Thank you. Fernando González: Let me take the second one, and I will ask Maher to answer the first. I think what the reaction of the rating agencies might not be that different to reaction from other institutions, meaning a year ago, we were expecting at least I thought I was expecting a higher kind of a disaster. Inventory increases prices translated into an economic prices. It did happen. It is still happening, but not for all sectors. The economy is talking about the K-shaped recovery. Fortunately, construction and materials are one of the industries that was impacted in early stages of the pandemic, but it had a V-shaped recovery. And after – the V-shape recovery is growing. So what I do believe what is happening is that we all have been in a kind of a conservative way adjusting all our views, outlooks, estimates, because it was not the base case a few months ago. What we see today, the first-quarter report, and the outlook we have for the rest of the year was not in our scenarios a few months ago. So most probably, they were not also part of the scenarios of the rating agencies or even yours or whoever's. So what I think is that we are coming from a very low expectation to a very high one. And people, they're kind of taking their time to adjust. That's what I think is going on. So that might change in the future as long as we continue delivering and as long as the outlook, which is not only our industry, but the outlook of the main markets we participate is positive. Look at the growth in the U.S., their recovery is six-point and a fraction, I don't remember, three or four, whatever it is, next is expecting 5% growth during the year because of the base effect, but Europe same. So it – the outlook is positive. We were not expecting this or not at this level, but it's happening. So I think little by little, we ask internally, and everybody rating agencies will adjust with some more additional evidence.

Okay.

And, Anne, if I could add regarding the liability management, We do have a couple of things that we're looking at, obviously, whether we do them this year or not remains to see – it remains to be seen in terms of capital markets responsiveness. I mean, the markets have been fairly good, I would say. There's the perpetuals. We have about 400 – a little bit over $450 million of perpetuals. And the cost there is higher certainly where we would like it to be. And so that's one opportunity potentially. And then, of course, we also have the euro-denominated note, the €650 million that is due in 2024. There's a slight premium to call it this year, call this a 100 spot 688. You probably know that better than I do. And then, of course, it goes to par next year. And there are potential other opportunities that we're looking at. But, I mean, I think that we continue to be vigilant, and we continue to take a look at the markets. And as I said, I mean, we will continue to take advantage of the capital markets to make sure that our runway is 24 to 36 months out or better. And so I hope that answers…

Yes. It does. I know that you have the euro that's callable. It is a very low-coupon bond. So I think that's another consideration. Thank you very much. Appreciate the answers.

Thank you very much, Anne.

And we have time for one more question. And last but not least, the last question comes from Ben Theurer from Barclays.

Thank you very much, Lucy, for closing it out. I want to ask something which is actually related to your ESG agenda. So we all know over the last couple of years, you had a very preferential deal with PEMEX on pet coke supply. I think this is going to come to an end somehow in 2022 now with what's left over. So in light of your agenda to become a more carbon-conscious, switch toward alternative fuel. How should we think of a 2022 onwards impact from not having that supportive price environment for pet coke and how you're going to offset that all the measures you've been doing on the international scale from an alternative fuel perspective already taking that then into Mexico? Fernando González: Thank you, Ben. I think as you can imagine, our strategy is to continue moving toward a lower CO2 type of fuel when compared to pet coke or coal or this natural gas. And Mexico will not be an exception. And you are right, some contracts will be due next year and 2023. And what we have been doing is working and for us to – or for the economy in Mexico to consider some of the basic aspects of a circular economy in the same way I mentioned for the case of the U.S., there is a new – there are good news in new laws and regulations related to waste directives that through time will be conducive to a much more, let's say, a better way for all waste to be better dealt with. As you know, a ton of waste that is landfill generates about 20 tons of methane So that's our move. That's our strategy increasing alternative fuels. It is in our budgets for sure reduction for 2030, and that's what we will do. In Mexico, we have managed to do as much as 27%, I think. It has to go much higher. And definitely, what you had mentioned, will be an incentive for us to move in that direction.

Perfect. Well, thank you very much. And then with that, let me close it and as well, say, congratulations on the very strong results. Fernando González: Thank you, Ben.

Thanks, Ben.

Thank you for joining us today for our first-quarter webcast and conference call. If you have any additional questions, please feel free to contact Investor Relations. And we look forward to seeing you again on our next quarter results webcast. Many thanks.

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