Good morning, and welcome to the CEMEX Fourth Quarter 2021 Conference Call and Webcast. My name is Chuck, and I'll be your operator for today. [Operator Instructions]. And now I would like to turn the conference over to Ms. Lucy Rodriguez, Chief Communications Officer. Please proceed.

Good morning. Thank you for joining us today on our Fourth Quarter 2021 Conference Call and Webcast. I hope this call finds you and your families in good health. I'm joined today by Fernando Gonzalez, 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 now hand it over to Fernando. Fernando?

Thanks, Lucy, and good day to everyone. I'm quite proud of 2021 results, and I want to offer my congratulations and thanks to the men and women at CEMEX who make this happen any day. First and most importantly, it's another year of COVID. We were able to keep our employees safe on our operations margin. This, in and on itself, is a huge success. As we also achieved an exceptional financial and strategic performance, during the year, we delivered 18% growth in EBITDA, the highest in a decade. Inflation, of course, [indiscernible] we probably had in June. We responded quickly within the constraints of the industry pricing paradigm to pass-through cost inflation in our business. While we achieved admirable cement pricing results with the best annual growth since 2015, it still was not sufficient to compensate for rising energy and transportation costs. Traditionally, the most significant price action in our industry takes place in January and April in most markets around the world. While we expect that this year's annual increases will be important in our goal to recover margins, we will continue throughout the year to adjust our pricing strategy to reflect cost pressure. Adjusting for asset sales, we reached an 8% return of capital for the year, the highest level since 2007. Adjusting for goodwill the return on capital would exceed 40%. Full year EBITDA margins improved 0.8 percentage points. This achievement comes despite inflation and margin headwinds from product mix as well as rightly inputs. Full year margins were just shy of our operation resilience goal of 20%. In terms of free cash flow, we generated more than $1.1 billion, a 15% increase from 2020, money that we used to deliver as well as fund our growth strategy. The 11% increase in sales was driven by…

Thank you, Fernando. Our U.S. operations experienced strong demand dynamics throughout the year across all products with most of our markets sold out. Sales grew 9%, driven by volumes and pricing. Cement, ready-mix and aggregate volumes were up 6%, 8% and 1%, respectively, with the residential sector as the main engine of growth. Despite difficult prior year comps, cement volumes in the fourth quarter were flat with double-digit growth in Florida and Arizona, offset by winter weather in California. With the rapid rise in input costs in May, we moved aggressively to address cost pressures. For the first time in 15 years, we introduced a successful second national pricing increase. As a result, fourth quarter sequential cement prices rose 1%, while year-over-year prices increased 6%. Our efforts to align price with cost inflation continue in 2022 with double-digit cement pricing announcements scheduled for the first half. January price increases took effect in Florida, Southern California and Colorado, regions which represent approximately 40% of our cement volumes. Given the continued cost pressure, we have advised customers that they should expect a second pricing increase in the year. Energy cost, primarily fuels, rose more than 20% in the second half, while imports increased almost 30% year-over-year. As a result, EBITDA margin declined 1.2 percentage points in 2021. To offset some of the rising import costs pressure in 2022, we will take full advantage of imports from our Mexican operations, a key competitive strength. As we look forward, we remain optimistic. We expect a low single-digit growth in volumes for cement, ready-mix and aggregate, driven by the residential sector and the recovery in industrial and commercial. Despite rising interest rates, we are confident we will continue to see residential growth driven by backlog in housing demand. Finally, for infrastructure, we expect the new…

Thank you, Lucy, and good day, everyone. As you heard from Fernando, our 2021 results were quite strong with sales and EBITDA growing the most in a decade and generating around $1 billion in free cash flow for the second year in a row. On the debt management and capital structure side, our results last year were also quite strong and transformational for us, a year of many records and first. We issued the lowest cost U.S. dollar bond in our history. We refinanced our syndicated bank facility at a cost never achieved before, slightly above 1%, and with investment-grade style structure. The first in over a decade. We also introduced a sustainability-linked financing framework, which is unrivaled in our industry and includes 3 key performance indicators and a second-party opinion from the leading provider. We paid or refinanced over $7.5 billion in debt and applied free cash flow and asset sales proceeds to reduce debt. During the year, our consolidated net debt as measured under our credit agreement declined by $2.3 billion, and we reduced interest expense by $141 million, representing savings of 20% versus the prior year. We also reduced our leverage ratio by the most ever, reaching 2.73x, a reduction of 1.4x and significantly lengthened our average life of debt to 6.2 years, the highest in more than a decade. All these achievements were noted by our rating agencies. During the year, Fitch upgraded our credit rating by 1 notch to BB, and both Fitch and S&P raised their outlook to positive. In December, we became a founding member of the recently created United Nations Global Compact CFO Taskforce for the sustainable development goals, which aims, among other things, to attract more capital towards sustainable development. In line with the task force's goal, we aim to have…

In 2022, we expect EBITDA growth of mid-single digits. This growth will be driven primarily by pricing with flat to low single-digit volume increases. Cost headwinds will continue to be with us in the first half of the year due to more difficult comps as we only began to experience inflationary pressures in the third quarter of 2021, but we expect these pressures to ease on a year-over-year basis in the back half. We expect energy to remain the largest cost headwind, and we estimate that energy for the production of cement will increase by 19% on a per ton of cement [indiscernible] basis. We expect CapEx of $1.3 billion with $600 million growing to strategic [indiscernible] With rising sales, we anticipate an investment in working capital of $150 million. Cash taxes are expected to be $250 million. Based on our current debt portfolio, we expect cost of debt to decline by $10 million. Always, we will continue to look for market windows for financing opportunities. Overall, in 2022, we anticipate a favorable environment with more moderate volume growth in most markets and strong pricing dynamics that reflect high capacity utilization and input cost iteration. Finally, we aim to recover margins in line with our operational resilience goal with our pricing strategy. Back to you, Lucy.

Before we go into our Q&A session, I would like to remind you that any forward-looking statements we made 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 refers to prices for all products. And now we will be happy to take your questions. In the interest of time and to give other people an opportunity to participate, we kindly ask that you limit yourself to one question. [Operator Instructions]. And the first question comes from Vanessa Quiroga from Credit Suisse.

My question is the following. So considering your indications of double-digit pricing growth in key markets and the investments contributing to $100 million EBITDA, really the guidance of mid-single digit EBITDA growth is low in my view, even against the energy cost increase that you are indicating of 19%. So I'm wondering if there's some other factor affecting margins? I mean, is something happening with the PEMEX cycle volumes or are you expecting to having to import clinker at much higher cost because, yes, the EBITDA guidance is low given the present indication. .

Fernando, would you like me to take a stab at that?

Please go ahead.

Okay. Vanessa, I think that you put your finger on the pulse there, I think that certainly, we're coming into 2022 assuming and expecting a lot of volatility, particularly on the cost side. And of course, we are planning for the inflation that we've seen to be fairly structural for the foreseeable future. And I'm sure you saw the CPI numbers this morning that really threw a curveball to the market. So we are being cautious. I mean we are expecting things to be volatile. It's just a reminder for everybody. If we take the energy price increases that we saw in the fourth quarter and hold them flat to the whole year, that would give us about a 15% increase. So we're guiding 19%. We could be -- I don't know, who knows, we could be better, we could be worse. Of course, we're accelerating our efforts to switch to alternative fuels and lesser costly and more effective fuels. And so that's one big challenge. You mentioned the possibility of more important cement clinker. And the answer is yes. I mean, we are expecting growth in some markets that are sold out, and we do expect some growth in that. And of course, the costs are higher because of transportation and so forth and so on. Now it's very important that going into this year, we're expecting a bigger percentage of the amount of cement that we trade to be coming out of our own facilities, in particular, in Mexico, which on a consolidated basis should be more beneficial, right? So I think that bottom line on the -- you heard our guidance on the volume side, we're expecting flattish volumes in cement, low single digits in aggregate, and low to mid-single digits in -- sorry, low to mid-single…

No, I think it is a very complete explanation, Maher.

I might just add 1 point, and Vanessa, I think that you're well aware of this, but we saw inflation in the spike in June. So what that means is that in the first half, we're going to -- because we had very low cost inflation in the first half of last year, the first half will be a very difficult comp and then things should normalize towards the back of the year. And the next question calls from -- comes from the web, and it's Paul Roger from Exane BNP. "On the 4% reduction on CO2 on a per ton of cement produced basis, at this rate, given what you accomplished in 2021, you would easily achieve the 2030 target. How conservative is the 475-kilo goal? And could you consider revising it?"

Okay. Well, let me -- let me start by saying that last year was for kind of a special year regarding our transition towards a low carbon economy. So one that is this 4.4 percentage points as reduction will be [indiscernible] every year. But anyhow, I think what we are showing with last year's results and then I will briefly explain what is that happened last year. I think we are showing that our industry is capable of its transition, effective and fast transition towards a low carbon economy while increasing profitability of the industry. . Now what happened last year, as you know, we started adjusting our ambition of aligned to the most accepted scenarios, and we adjusted our objective, we broke our 2030 objectives to 2025, and we include new ones. But what we did at the same time, starting in 2020, developed a very comprehensive road map, a CO2 reduction road map per cement plant. And for the first time, it was executed last year all over the 12 months. So that tool or that process did allow us to assure that the intent, the ambition, it could be executed in an almost in an impeccable manner. So we continue the same idea, meaning of the execution on this reduction. We are very positive, but we will continue making the reductions needed to compose our objective. And any, it's still not too close, but yes, it seems like we might be able to achieve those targets before that day. Now we continue monitoring and observing how this movement or process towards a low carbon economy evolves. My expectations is that through [indiscernible] it will be more stringent demands from society from different stakeholders, investors, customers, employees, everybody. And we will continue adjusting our target. So [indiscernible] for the 2021 results, very positive that we will continue with reductions. Again, I cannot promise 1.4 every year, but we now think we have really -- whatever we say is under control is under control to assure that our objectives, we've been met. And again, it's just a simple clarification because so many negative interpretations regarding our industry can be our possibility of capability of transition to a low-carbon economy. And you know that the potential reduction in margins, the potential increases of CapEx with our returns, I think that for time, we will be the most that's the old wisdom and that is the new wisdom, which calls for a cement industry, in a circular and green economy, serving better society and being as profitable or even more profitable than it has been.

Thank you, Fernando. And the next question comes from Carlos Peyrelongue from Bank of America.

My question is -- my question is related to pricing. If you could comment a little bit on the traction you've gotten so far. You've announced important price increases in most of your geographies. So it would be interesting to see what type of traction you're getting. I understand, at least in Mexico, the traction is very solid. So it would be great to hear your comments on this issue of traction.

Let me make a general comment, and then I will let Maher and Lucy to complement on some more specific data. I think it is clear that what happened last year is that we started with a fine and started and executed our pricing strategy considering a much lower inflation, meaning normally in the last quarter of the year, we plan for our strategy for the first 4 months of the next year, and that's what we did. Inflation started really going up materially in June, July more or less. So most of our pricing strategy it was already executed. So what we did [indiscernible] checking, monitoring, realizing and reacting with additional price increases in the second half when possible. And we have commented -- in the case of ready-mix and aggregates, we managed to maintain margins in the case of cement. But it was not the case. The problem that has been most affected. But when we saw that happening on top of trying to increase [indiscernible] for the second time during the year. [indiscernible] our price strategy for 2022, considering [indiscernible] high levels of inflation. We had clarification that I think Lucy already made. We didn't buy or we didn't need -- take the idea of inflation in lower at some point in time of the year. We thought that it was not convenient based for our pricing strategy. So we start executing our pricing -- our 2022 pricing strategy already with the idea of recovering margins lost, not to lose more margins during 2022, and to achieve our operational resilience margin of 20%. Now what is it that we've seen lately, and I would like for either Maher or Lucy to comment, but we are very, very pleased and positive on what we have seen in January. It's just a month, but again, what we see is very positive. So if Lucy or Maher want to complement.

Yes. Thank you, Fernando. I'll jump in. I mean, Carlos, first, I mean, as Fernando said, I mean the -- we see some very good response for the January pricing increases. I mean they're going well. I think you saw in Mexico, in particular, I think yesterday, [indiscernible] came out announcing prices sequentially going up by a little bit over 8%. This is from December. And we're obviously an important part of the market. So without kind of saying what we did, I think you can pretty much extrapolate from that. In the case of U.S. and Europe, which are more seasonally -- pricing increases are more seasonally affected, for those markets where we announced pricing increases for January. And for those customers, the prices sequentially were up in the mid-single digit to low double-digit area. So we've gotten some very good traction in those markets that -- and to those customers that have been affected. Now obviously, as you know, the U.S., because of seasonality, pricing -- most of the pricing happens in the spring in April. And so that is going to be impacting the biggest part of the -- of our sales there. In the U.S., the January pricing increase is affecting about 40% of our sales versus -- the April 1 will be more 60%. Europe is along the same line. And in the SCAC region, we also got some very good traction versus the fourth quarter. We got around a mid-single digit increase. Now to summarize, I mean we're going into January with somewhere between 50% to 60% of our markets with pricing increases starting as of January. And we're expecting the balance to come in, in April in the spring. Now something very important that we need to mention here is that we have communicated with our customers in many of our markets, particularly markets that are sold out, that they should expect a second round of pricing increases in the summer and fall. And this is based on our expectations of the structural nature of inflation, which we expect to continue. Now at the same time, as I said earlier, I mean, on the cost side, we're not sitting on our hands. We're taking actions to make sure that we're disciplined on the cost side. We're making sure that we're investing more and executing more to switch to alternative fuels, which are 60% less expensive on a giga calorie per ton basis than fossil fuels. So I think that we're pushing on all fronts, frankly, on the pricing side and on the cost side. And on the pricing side, it's looking good. So Lucy, I don't know if you want to add anything to that?

No, I think you did a great job covering that. That's it for me. Let's move on to the next question, Ben Theurer from Barclays.

Perfect. So to understand a little bit the dynamic in Mexico, what happened in the quarter. I suspect the margin under 30% is not precisely what you're looking for. Was it maybe shift driven, lower cement, more aggregates and ready-mix? And how do you think about the level of profitability looking into 2022 also given the guidance for likely declining cement volumes but growing ready-mix and aggregates. That would be my question.

Well, if I may comment, then I think there is -- as you are suggesting, there is a mix effect in our ready-mix volumes and aggregate volumes are stable or growing when compared to cement that the declines of it is, to some extent, a mix effect. On margins, I think in Mexico, we have highest impact of energy costs when compared to other geographies. And for 2022, in Mexico or our team in Mexico is following exactly the same criteria that we define company. We [indiscernible] and to announce and to execute price increases at the level of what we are estimating as the most probable inflation inflation for the year. And that will be all. They already started executing and as Maher mentioned, and using the data from [indiscernible] in the , sequential increase of cement prices in Mexico is 8%. And that is not [indiscernible] of our cost result. I think it will improve. I think Maher mentioned also our aim with our pricing strategy this year is to recover margin, achieve over 20% margin [indiscernible] we're close to it [indiscernible] margin established in our operational procedures [indiscernible] plan or initiative. On top of what we have already executed -- executing, we will continue monitoring how inflation develops, and we will be increasing prices again from [indiscernible] basis to comply with this objective.

Fernando, can I maybe also add to Ben, just a couple of things. I mean, this is -- I mean, this is just to complement what Fernando was saying. I mean, I think it's very important also to take a look at the comparison, right? I mean the fourth quarter of 2020, cement volumes grew by like 17%. And within that, bagged cement grew like almost 22%. So -- and we had like the highest, I think, amount of growth since 2014, probably. And so the comparison is very tough. And you had really kind of in the quarter coming into people probably becoming more back to normalized life and focusing less on renovation and all of that, that kind of accelerated quite a bit. So that's what was kind of driving the specific quarter, I would say, more than anything else.

And the next question comes from Gordon Lee from BTG Pactual.

Just a quick question. At some point last year and admittedly, this was before the inflation spike. But at some point last year, you were contemplating the possibility of maybe introducing a dividend in 2022, which you decided not to do. So I was wondering what the thinking was behind that and what you would need to see to either implement an ordinary dividend policy or a more systematic share buyback given where the stock price is trading, given how much your balance sheet has improved and how, even in the face of the cost inflation, you're still generating significant amounts of -- what time can we -- when could we expect something more, let's say, a more sort of forceful decision on starting to return capital to shareholders?

Yes. Well, what I can say is that perhaps more than when [indiscernible] under which conditions we are willing to proceed with a systematic dividend. We want to do that. I think it's the right thing to do. We were planning for that. But when we saw the way things started moving in the second half of last year, we decided to postpone that possibility. We want to be sure that we consolidate our current positive balance sheet structure because we don't want to go back to giving out dividend 1 year and then suspending again. So you can expect that in the future -- in the future, but again, pending more on conditions rather than timing, that is going to be happening.

Thank you, Fernando. The next question comes from Anne Milne from Bank of America.

The question is on your refinancing. Maher, I think you said you have a target of 50% under your -- I guess, your green targets by 2025. Is that correct?

Yes, Anne. Yes, exactly. I mean we -- by 2025, yes.

Okay. And just because you don't have a lot of bonds that have calls in the short term, I think one in euros and maybe one in dollars next year. Is there any other plan on the liability management side right now. I assume it will be the same targets you'll put in your bonds as you have in your financial agreement?

That is correct, yes. I mean we're -- obviously, there are -- I mean there's the 7 and 3/8, that something could happen in '23. They're, I believe, in '24, there's another bond that is callable. There is the EUR 400 million bond that is callable already. So I think there's sufficient refinancing opportunities plus, as we deleverage, I mean, what's going to happen is that the amount that will be refi-ed, that will be sustainability linked, will become more important as a percentage of the total debt stack. But we're seeing a lot of demand, frankly, for sustainability-linked bonds. And as you know, our debt is -- the bank debt is all sustainability-linked, including recently, we secured a peso-denominated loan that is close to about $250 million. That is in addition to the bank facility, the credit agreement that we have. That's also sustainability-linked. So I think we're slowly putting in slices that are like -- that we feel reasonably comfortable that by 2025, should get us to a level of 50% or more.

Okay. And you think -- well, I guess you don't know yet if the penalties or premiums would be similar.

I mean for SLBs, we're going to be using the sustainability-link framework. But of course, the greeniums as they call them, are subject of negotiation at the time that we structure a bond, as you know, and we will make sure that we are very market-driven and making sure that the greeniums are meaningful to the market, that they're not just -- unlike some of the -- some other issuers that have come to the market that have been criticized, frankly. I mean we're very convinced with that and we want to make sure whatever we do is viewed favorably by the market that is looking at that type of financing.

Okay. And the next question comes from Paco Suarez from Scotiabank.

Thank you for the last comments. I can't agree more with that. The question that I have is precisely on your overall targets for this year and EBITDA projections or guidance related with -- on the cost side. Basically, what are you assuming on fuel substitution rates this year? And can we see actually an offset risk on the cost side from the initiatives of rolling out your capabilities to inject hydrogen and the lag to your cement plants across all regions?

I'm not sure we are sharing that info -- that specific info. But let me start by commenting that we continue our strategy on increasing the use of alternative fuels with high contents of biomass. That's our specific preference and objective. And as an example of what can happen in here, the -- there are 2 projects that will increase even more, even further, the use of alternative fuels of 2 of our largest plants in Europe that's Rugby and [indiscernible]. We are finishing as we speak this month or last month, and one of the plants and in March the other one. So starting in April, May, we will increase the use of alternative fuels in these 2 plants to 90% plus. And we continue developing these alternative fuels projects everywhere. So what you can expect is that we win from 29%, now we will continue increasing that proportion. A while ago, I made a comment about how profitable it would be to transition towards low-carbon economy. I think this element specifically on alternative fuels is proof that our investments in order to reduce CO2 are profitable. Very profitable in the case of Europe in particular. So this is what you can expect. I'm not sure we are disclosing more specific info on our proportion. Lucy and Maher, have you got that info?

No, I think you're correct. At the moment, we aren't disclosing year-by-year targets. Thank you, Paco. And I think we have time for 2 more questions. The next question comes from Adrian West. from JPMorgan. I think I will move to the last question then. Please let me know if you are available. The next question comes from Yassine Touahri from On Field Research.

So I would have just 1 question. Could you tell us how much of your fuel bill and electricity bill for 2022 is hedged and how much is not hedged?

I mean on the electricity? I mean, I don't think -- we don't -- we have some fixing on the electricity side. I'm trying to see here what's the percentage. What I can tell you is that in terms of the transportation bill, for instance, diesel, a big chunk of our diesel is hedged for 22%, 75% -- close to 75%. And in terms of the fossil fuels, I mean -- I don't want to call them hedges, but I would say that probably more than half of our fuels are fixed cost-based fuel, whether they're fossil fuels or alternative fuels. And then -- on the power side, Lucy, can you help me out on the power side?

Yes, I can help you out here. I think roughly about 60% of power is under some type of fixed contract. Now of course, some of these are regulated. There can be provisions that are under extraordinary situation. They can petition for a hike, but roughly 60% was under contract, I believe, for this year. Well, I think that kind of wrapped it up. We appreciate you joining us today for our fourth quarter webcast and conference call. If you do have any additional questions, please feel free to contact Investor Relations, and we look forward to seeing you next quarter. Thank you very much.

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