Q1 2021 Cemex SAB de CV Earnings Call
Good morning, and welcome to the <unk> 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. If at any time you require operator assistance. Please.
Press Star followed by zero, and we will be happy to assist you and now I'll 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 are in good health and I'm joined today by Fernando Gonzalez, our CEO and Montreal.
Our 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.
Thanks, Lucy and good morning to everyone.
We are quite pleased with average first quarter with pulse what have we achieved some important milestones on our back significantly on our operation for Sealy in school.
On a consolidated basis.
Sales increased 9% driven by the highest first quarter cement volume since 2000 on late I'm sorry.
I see.
We posted $684 million in EBITDA, the highest reported first quarter two thoughts on that.
With all regions contributing to growth.
Margin increased two eight percentage points to 21 in line with our operational resilience cool.
I kept basket utilization, coupled with cost savings on 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 debt deleveraging and into water and EBITDA ratio of 361 times brings into focus.
Through our operational resilience go off on investment grade capital structure.
We must not forget however, but our business continues to be challenged by COVID-19.
On the safety of our East we must remain vigilant on.
Public safety protocols in all our operations.
Luckily we have lost volume colleagues to the vital for over the last year.
These individuals are part of the seventh community and we mourn the loss alongside their families on France.
Finally, I would like to recognize the contribution of all our employees throughout the crisis have adopted the behavior to protect compete for customers uninsured the continuous operation of our facilities.
Thank you for your efforts and dedication.
In the last day water source plenty plenty, we witness day resilient volume quality from the second quarter COVID-19 Lockdowns.
But as you can see from this slide what we are experiencing ethers quarter goes well beyond recovery.
That we are seeing strong volume growth, even though for the first quarter 2019, well before the pandemic.
This is true in all regions, except for Europe, where he can see seasonality first quarter benchmarking in vehicle.
Indeed in the case on the Mexico on Board basically 19 volume might be on easy comps due to the bornemann transition you got on running a similar average daily sales as the first quarter 2000 on 18.
While we see wages are rising quality infection Grace challenging Sun markets. Goldman is sponsored has been less disruptive for our industry.
Good day.
In developed markets growth.
Growth is being fueled by an unprecedented monetary and fiscal stimulus.
With the rollout of vaccination programs for which hold out the promise of a full economic reopening.
Our emerging market portfolio again have not had the benefit from significant stimulus, but for Brian degree.
Enjoy on important spillover effect from U S. Non European stimulus in the form of interest rates and for me.
Mexican demand has been for supported by government social programs.
Construction.
Sure.
The pandemic has boosted demand for other products in all markets people in quarantine looking prove their goals for James Chapter housing situation in search of more space.
So far this behavior is not slowing even one year on lending.
On with economic reopening, we expect to see the ramp up of long delayed projects in tourism on services that gathered for population, where we have locked down on actions to travel on both restaurants once again.
And of course with the Green deal in Europe on the proposed America just line in the U S.
It is the other driver on infrastructure spending over the medium term.
Supply demand conditions for the man on extremely tight for a while the Americas.
It is for times like these that our unique supply chain capabilities, we can really shine.
The U S. A market that east chronically short cement production not on recycled metal we have best in class supply chain capabilities, which include east booked bucket to be on water, Germany and also for $8 7 million tons of cement for approximately 75% of our active U S production capacity.
Hey.
In addition, we have on the extensive network of lung terminals on exceptional rate week on activities allow us to force additional imports oberland from.
Our operations in Mexico.
In this regard during second quarter, we we'd be recognition and 1 million pumps from our CPM cement block knock on Mexico to meet rising U S demand.
In Mexico to meet incremental demand.
We expect the commission I would want on a half million pumps expansion into Africa.
The first quarter 'twenty 'twenty two.
And Scott, we have been leveraging our supply chain capabilities by flexing our production for certain markets that are currently on the price.
Supply conditions.
Yeah.
The Dominican Republic, we expect the recognition our product line and for water, but we bring on additional 500000 metric tons or approximately 33% of plant capacity.
This increase will strengthen our ability to meet domestic demand and supply other kid EBIT markets.
Finally in Colombia.
Expect to commission that were one 3 million from planned by the fourth quarter of 'twenty.
Our 28% maybe that growth was driven by higher volume on pricing.
Savings in Opex on logistics as well as a higher contribution from our growth investments.
But on the station solution business.
I think we can contribute to play with that growth.
Our SG&A as a percentage of sales losses.
You know 8%.
One seven percentage points lower than first quarter 'twenty 'twenty.
Our opex in the quarter benefited from the operation resilience cost savings program, we implemented last year.
Well I'd have on costs were impacted by higher cement imports into the U S on Europe on the wireless higher maintenance costs.
Total costs were also a headwind.
We benefited from a small FX tailwind in the quarter.
The benefits 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.
Cost savings program on our financial planning.
Contributed materially.
For 2021 we have now you densify 50 million borrowers and incremental cost savings mainly in areas such as opex on operational efficiencies.
Our first quarter adjusted EBITDA margin on a Boe.
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Total the seasonality of our business.
First quarter typically has the lowest margin in the year.
Although the last few years.
We have initiated bolt on investments on efficiency projects of approximately $600 million.
Operating hours for product line cement ready mix aggregates on.
On the patient solutions.
These investments typically have very short payback do you move from one to four years on 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 361 times at the end of first quarter.
And which do for working capital needs.
Whether that's normally increases.
With regard for our fourth goal of operational resilience, we have overcome some of the 'twenty 'twenty COVID-19 supply challenges surrounding alternative fuels on them.
The first quarter would you boost net sales clinicians by 3% year over year.
This implies a reduction in the emissions of approximately 34% basically the 1990 basically.
Let me expand on our sustainability initiatives.
Our integrated reported recently published on this available in our website, which details the progress we're making in our 2030.
People.
Awesome plenty plenty, we have attracted two 6% reduction in net <unk> emissions driven.
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 summit.
So first quarter 67 per cent of our total cement sold was blended per minute.
In the first quarter 2021 will reduce C O two emissions by 3% on a year over year basis.
Total disruptions transitional supply caused by COVID-19 our cash.
For your usage decline in 'twenty 'twenty.
However, in first quarter, we have been able to resolve these issues on our alternative fuel usage.
Ultimately return to 2019 levels.
Before I thought what other youth usage in 'twenty 'twenty, we successfully probably looked at either joint injections and other pumps in Europe, Although we havent now replicating that success globally.
This technology allows us to operate our plants at even the high net.
Leather.
Well have significantly improved the thermal efficiency of our plants.
What attracted you to push on grade is one of the highest in the industry, particularly in biomarker substitution.
While there are no specific disclosure on alternative fuel usage in Europe, we consume 60%, while the industry average east 40%.
And this is important not only for summit.
Society.
Adjusted fields allow us to recycle waste from all the interest that is the boardman to communities and use it as energy network.
In fact in 'twenty 'twenty cemex consumed industrial waste important close to 50 times more than the non recoverable waste we generate.
Prime example of our contribution to the seat politico on them.
Our first quarter waste consumption has some seasonality it needs and we expect consumption increase in the rest of the year.
We expect that the progress made on clinker factor production combined with other assumption no profit recovered from turnkey.
Should lead to a material improvement in emissions per year.
On the rolling out best for a complete program globally interest at 'twenty.
While introducing best for cement and aggregates products.
Customer reactions to these products has been very positive on our low sales to concrete is already being used in iconic infrastructure projects in our main market.
I'm working hard to educate our customer base on the benefits of this value added products.
We also are investing for which our 2030 goal as well as net sales year to compete globally by 2050.
Model to accelerate our progress towards our 2030 growth.
We are updating the necessary investment to 300.
On the minions.
The growth story for our business from the U S gained steam in the quarter.
We achieved the highest first quarter reported EBITDA and EBITDA margin since 2006 on 2017, respectively.
EBITDA grew 21% with our EBITDA margin expanding by two five percentage points.
The margin improvement was driven by higher volume lower freight and SG&A on a growing contribution from our expanding on monetization solution business.
With the selection of Texas, which was impacted by the February we.
All of our key markets contributed double digit volume growth.
Residential remains the largest driver of the month with residential construction spending up 22% from February.
Or what look at indicators are strong with the single family permits up 26% in first quarter with new home inventories.
Hello Nicholas.
The infrastructure sector was also broadly supportive.
March trailing 12 month contract I've watched fortified with on streets growth, 15% for our four key states, they're supposed to 3% at the national level.
The industrial on commercial sector remains weak.
Section of cement intensive warehousing and distribution for ecommerce.
However.
With a strong base of vaccination in the U S on the.
Prospect of eventful economic reopening.
We are encouraged by the possible resumption of commercial projects in our major metro markets, such as Orlando on Las Vegas.
Yeah.
For more than a year of lockdown on with Genesis fiscal stimulus payouts consumer sentiment task of COVID-19.
March retail sales posted the second highest growth rate since the debt.
It seems to be gone.
We expect for searching pent up consumer demand that will eventually translate to the gruesome on commercial segments.
All of our major markets on site with regard to cement supply on.
On demand is being met with rising 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.
Even supply demand dynamics as well as the pricing disruption due to COVID-19.
Our optimistic regarding April price increases, which covers states that represent 80% of volume.
With greater visibility, we now expect cement volumes to grow between three and five percentage points. It could be one while ready mix and aggregates volume to grow low single digits.
In the medium term, we're optimistic regarding precedent by items two three trillion dollars American just flow.
Yeah.
This proposal includes $625 billion for transportation infrastructure with 115 billion barrels from incremental spending for highway from St.
The plan also includes other elements that we wouldn't expect to have some net content.
As part of this year.
Would expect Incrementals cement demand to materialize towards the end of 2022 at the earliest.
In Mexico, we continue to see strong growth in demand, which has blocked the industry quarterly volumes back to 2019 pre election levels.
You can see that exported volumes, we estimate that utilization in the country is quite high.
Reaching levels close to 90%.
Our 13% year over year cement volume growth was driven by the formal sector with back cement increasing double digits.
Black cement growth as reported by Mr.
Home improvement social government programs on pre electoral spending.
Well it makes it on aggregates volumes declined 12, 3%, respectively, reflecting this low recovery of formal sector demand from the pandemic.
The decline is mainly due to a difficult base effect of the impact from them.
It began in early April 2020.
We continue to see improving indicators, the residential sector, where the government flagship infrastructure project accelerate.
EBIT in formal housing continuously covering.
Ported by low levels of inventories on attractive mortgage rates.
Housing permits are accelerating growing 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 on an eventful day started previously delayed tourism on commercial projects.
We have seen some activity in the industrial segment ended the construction on the warehouses, along the border as well as distribution facilities and the team here.
Thanks to meet the growing needs of e-commerce.
Expect that economic reopening in the U S and debt.
And see a great agreement will continue to provide tailwind supporting industrial work.
Our national footprint strong distribution network digital platforms on safety protocols have been important competitive advantages, allowing us to consistently deliver cement and capture growth.
During the quarter.
Asia cement and ready mix prices grew five 1% respectively.
The sequential increase in cement prices reflects the traction of the January price increases as well thanks for price demand conditions.
You got on the March we announced a second price increase in bag cement of approximately 4%.
With the objective to continually Albany input cost inflation.
EBITDA during the quarter increased 28% on margin increased two four percentage points, mainly due to higher volumes on prices as well as our cost reduction initiatives.
This improvement is even with higher maintenance during the quarter.
Capacity utilization is running high in Mexico, especially when you can see that our exports for the U S.
We expect this part of our new line at the <unk> in the first quarter 'twenty 'twenty two.
The additional one on a half million metric tons will allow us to better serve the growing central and south Arne brings while providing savings from higher efficiency rates and improve logistics.
For 2051, we're increasing our volume guidance for Mexico to better reflect current demand conditions.
We now expect domestic gray cement volumes to grow between seven and 9%, while ready mix and aggregates increased between eight and 12 per cent.
We anticipate that the maximum growth rate would slow in the second half of the year as COVID-19 began elections on.
Price and basis becomes more challenging.
Well cement ready mix aggregates for the month, however, should continue improving supported by the gradual recovery of the formal sector, coupled with a favorable based on rising from the second quarter does it go.
For the love them.
In our EMEA region, EBITDA grew 9% driven by cost savings larger contribution from the other beneficial solution business.
On where the mix on aggregate growth.
On a like for like basis, adjusting for FX EBITDA improved 3%.
EBITDA margin was flat due to higher prices in Europe on lower SG&A and distribution expenses, which was offset by higher Smith inputs.
European cement volumes declined 9% due to unfavorable weather conditions.
We can also face the imposition of new COVID-19 lockdown measures during the quarter.
We expect cement volumes to rebound in subsequent quarters with better weather.
Hi.
We have seen an important recovery in March on growth has continued month to date in April.
In the quarter.
We saw volume improvement in the U K one on Spain.
We believe this growth rate represented volumes beyond simply the base effect from COVID-19 Lockdown support any March 30 per se.
The UK experienced its first year over year volume growth for all per product in first quarter of 19.
Housing on infrastructure activity pick up.
Prices in Europe were up between four on 8% sequentially in local currency terms for our three core products.
We attribute this to day supply demand conditions on pricing energy on carnival cost for the industry.
Based on part of the European Union emission trading system commenced on January the first.
After the sale of carbon credits in the quarter, we remain well positioned on this base to have sufficient allowances to cover our operations on.
For the end of 'twenty five under the current recommendation framework.
We will use this advantage to invest in technology and research on the denim and the transition to our plus the 30 on the part of them go.
Now moving to Israel.
With the highest vaccination great in the world ready mix volumes rose 4%.
Even by construction activity related to transportation.
Going on but most to execute its ambition long term interest for supply.
We expect the commercial sector to gradually pick up.
Economy reopens.
The Philippines economic activity remains would do on a recent surge in COVID-19 cases have been met with new government Lockdown measures.
While the cement industry remains open.
Volumes have been impacted.
And despite the crushers of the cement industry that began in mid March 'twenty volumes declined year over year.
We do expect an easier comp in second quarter was the industry was closed for approximately 45 day 2030.
For more information please see our CHP quarterly earnings which will be available this evening.
For fiscal 'twenty, one in Europe, we expect stable cement volumes on anticipate 1% to 3% growth in our ready mix and aggregates volume.
Infrastructure and residential sector will continue to price per month.
In the Philippines, we expect cement volumes to grow between 5% on 7%.
A slight improvement versus our prior guidance supported by a pickup in economic activity on the plenty plenty base effect.
In Israel.
Ready mix and aggregates volumes to decline between two and 4%.
The guidance reflects the fact that the business operated on a record pace in 2020 as well on the completion of several large projects.
Our operations in the South Central America, the Caribbean enjoyed the best quarterly performance since 2017.
Are you getting on cement volumes increased 16%, reaching the highest level since second quarter 2000 on 18.
All countries.
For Panama show 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 D C S Dominican Republic Bancolombia.
EBITDA margin Joseph for eight percentage points, the volume on price performance, coupled with our cost reduction initiatives.
In Colombia.
Despite the clause for the industry for two weeks in March last year, our cement volumes only grew 4% at the border.
A consequence of our pricing strategy on competitive dynamics.
The industry is enjoying robust growth with the housing sector being the biggest driver of demand with great from home sales fascinating into higher levels of thousands of parts.
Despite the imposition of new Lockdown measures in April.
The outlook remains favorable supported by fiscal stimulus, including investments in social housing execution of the existing for highway projects.
The rollout of the new pipe heat infrastructure program.
For the year.
I'm raising our expectations for cement volumes in Colombia on increased 10 two points per cent.
The Dominican Republic on Tcl cement volume grew 29% on the back on dynamics, that's construction sectors.
Volume growth from TCA was largely due to activity in Jamaica and Trinidad.
We are increasing our guidance for adjusted once a month volumes in the Dominican Republic to 14% to 16%.
The region drinker on cement utilization are at extremely high levels.
We're taking advantage of our songs, we get on our logistics network to meet local demand, but we are moving for work to address supply constraints with capacity additions in the Dominican Republic on Colombia.
And you can backfill for the beauty our latest quarterly results, which were also published today.
Even the reduced size of the publicly traded shares.
Yeah on H decided to no longer be hosting assay for a conference call.
And now I will pass the call to Mark to review our financial performance.
Got it.
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 debt in our EBITDA growth demonstrating.
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.
Yes.
Continuously improving our working capital management in particular attention to credit quality and receivables collection translated into a record of a negative 17 days on 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 our debt maturity profile, we were very active during the quarter in terms of liability management.
During the quarter and up to April 20th we undertook $2 $1 billion of highly accretive transactions that resulted in a further improvement in our maturity profile as.
As we see here, we have no material maturities until July 2023.
These liability management exercises along with the tail effect from for Q last year as well as the reduction in our debt levels lot.
Locked in slightly more than $100 million of savings in interest expense for the year.
Going forward, we will continue to take advantage of opportunities in the debt markets to maintain our 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 361 times almost half a turn reduction compared to December 31 of last year.
With our new EBITDA guidance. It Fernando will present next coupled with the expected 2021 free cash flow and proceeds from outstanding asset sales being dedicated to debt pay down. 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 'twenty 'twenty three.
And now back to you Fernando.
Okay.
Given the strong momentum in our business in first quarter on 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 ranks of three to five per cent for cement.
For cement for ready mixed on one to three per cent for aggregates.
Please note that our original volume guidance is included in the appendix.
Regarding pricing.
We believe supply demand dynamics are supportive of pricing increases.
For cost of synergy, we maintain our previous guidance of a 10% increase.
With both fields on electricity cost rising.
Based on our prior year consumption on 10% increase in energy cost would represent an approximate $100 million headwind.
As discussed earlier, we now expect $50 million and incremental cost savings this year relative to 'twenty.
Given the success of our bolt on growth initiatives, we intend to increase Capex spending for one 3 billion with 800 million butter sales from maintenance on $500 million and strategic.
The incremental capex will be used towards bolt on investments sustainability on the completion of the myself plant in Colombia.
We will continue to be disciplined in capital allocation nine.
Nine on bolt on investments that meet high IRR on short payback criteria.
We expect on investment in working capital of between 101 hundred $50 million.
Cash taxes are estimated to be about $260 million.
We estimate our financial expense, including interest on our perpetual notes.
Approximately 120 million balance less than last year.
First quarter performance convinces me that we should be entering a period for sustainable growth for our major markets.
Supply demand conditions had assembly type, which should support pricing and enhances the contribution of other unique supply chain capabilities.
Over the medium term, we anticipate economic reopening should lead to incremental growth driven by the resumption of postponed former construction projects.
On innovation.
We see demand upside from infrastructure fiscal stimulus in the form of Green Europe on beer.
American jobs for them.
Our bolt on strategy should continue to contribute meaningfully as we ramp up our investments.
All of these licensed us on an accelerated path for cheap or investment grade capital structure.
20% EBITDA margin.
Head of plenty plenty P operations resilience timeline.
And finally, we are committed to our carbon reduction goals on this.
This will be reflected in our operating model on investment priorities.
And now back to University.
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 cash.
If you wish to ask a question. Please press star followed by one on your Touchtone telephone. If your question has been answered or you wish to withdraw your question. Please press star followed by two.
In the interest of time and to get others, an opportunity to participate we kindly ask that you limit yourself to only one question.
Our first question comes from the webcast from Paul Roger from Exane BNP Paribas.
How could the new how could the new green agenda in the U S impacts phenix is it a risk for an opportunity.
Thanks. Thanks for the question is is this a second ago on Saturday.
And.
The direct answer is that we do believe it is a positive.
Position this new position from.
Precedent bite.
That makes us more.
Many other global companies do do not have a position on the big country basis, we have a global philosophy, and we run with the idea of a pattern from world.
And that's why we have express and we have adjusted our bad debt footprint 30 on for 50 50 on we have introduced a hour in our product portfolio.
To reduce or even for you to neutral.
Products.
So in the case.
Of the U S. Given that this is a very recent that statement a reduction of 50% by 'twenty three.
We are reviewing our current plans on we will adjust accordingly.
I believe that in the U S.
Several of the.
[noise] schemes or ore body apples for the cement industry to reduce.
It's your clinicians are out of there I have already given but for sure there will be a.
Additional adjustments changes to be done.
So we can move forward decisively on for.
Third on our reported plus a couple of examples.
Is the U S has the highest per one of the highest clinker factors because of the way things are measured.
Another example is that.
Debt.
B.
Material opportunity you see in the U S for.
For for adjustments towards.
Let's say Greenland simple that economy on.
I'm, referring particularly.
On how the cement industry east.
A very material contributor.
When in a circular economy, we cannot for 50 times the rest of them from other industries, but even households, when compared to the rest of it is we do generate.
So.
We believe this is an opportunity to adjust.
Just on to undo.
The site for bolder decisions on faster decisions in the U S.
In other ways to put on this we're going to we're going to do something very similar to what we have already stated for Europe on reduction of 55 per cent for thing for study.
It is doable.
And we know how to do it.
We don't depend on unknown technologies.
What we have to do to reduce this 50% is related to clinker factor to blended some math to it.
<unk> sees in the processes and production processes.
In a in a larger proportion of alternative fuels.
In addition on raw materials for things that.
But we know that we will adjust in our it roadmap for 2030 day U S.
Fernando can I go on.
Let's see Matt 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. A although it's still at an early stage I mean, there is there is definitely the possibility of better access to capital and funding and in some instances from the government.
That will support.
Rich R&D.
Development environment that would lower the potential cost of emerging technologies for de carbonization, So its legitimizing and and really are taking.
Taking it to kind of up a country wide level and we think that's at the end of the day is 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 Matt.
Our next question comes from Carlos probably long from Bank of America.
Thank you Lucy.
Thank you Lucy.
Congratulations on the very strong results on.
My question is related to.
Two other income that you reported it accounts for about 60 per cent of operating income if you could provide for more color on that would be very helpful. And also if you could Brian from a color on U S pricing you mentioned.
If you could comment on what is so far are the acceptance of that increase that would be useful. Thank you.
But on the do you want me to take the first step on a question.
And well, let me start by Andrew.
Andrew My compliment for.
Glenn I think that you know the most relevant impact is the sale of a tier two credit in Europe for the amount of for wrong 600 million debt.
Basically it sounds for it yeah.
Got you.
But most of the chunk of the variation.
Great and.
And in terms of U S pricing I mean, it's it's a quite a surprising that with such a tight supply demand, but we haven't seen higher increases in prices. So if you could comment on on on the increases you've already announced but also more on on the medium term.
What do you think is needed to show you know higher prices than it would be more according to the very tight supply demand equation in the U S. Thank you.
Well.
On on pricing.
What we saw in the first quarter is.
Price increases in Florida.
Florida only so we are we're announcing for price increases starting in April.
So the impact of Florida, which is.
Our fees for water pumping.
Total volume.
You know it is not is not that visible.
I don't know you want to add other folks into pricing matter.
Yeah, 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 2023 per cent of our volumes are the biggest.
Phase of pricing increases will take.
Has taken place as of April 1st 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.
Debt, we have seen so based.
Based on the tight supply demand conditions.
We are expecting and we are getting good traction on the on the April pricing.
Increases and in fact, there has been some selective announcements and the pricing increases in April our high single digit percentage.
Prevailing prices in the relevant markets.
And.
And that represents the majority I mean, 8% of our 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.
And in our view on positive many of our markets are on allocation and sold out and that is that is true throughout the whole market not just because of us I mean, we happen to them.
We happen to also have a very robust supply.
Supply chain as Fernando highlighted and 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 can I add just one point Carlos on in first quarter.
Yes.
Fernando mentioned, we did get traction on the Florida price increase.
The other issue however, and that played out is that we had several markets that have some of the highest for men prices that had lower volume 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.
A follow up the income.
So just trying on this one question not only for.
It's the same on on price.
Just California, and Texas I wondering if if the price increase in these two markets was in April.
That's correct, okay, great. Okay. Thank you.
Great.
And.
The next question comes from Nik Lippmann from Morgan Stanley.
Hi, Thanks, Thanks, Lucy Hi, Hi, everyone. Congratulations on the superb on this thanks for taking my questions. Just just one question on M&A, if you don't mind.
Potential opportunities in Brazil, South America I was wondering if you if you can say anything about that again congratulations on thanks.
Thank you Nick.
Meaning our our potential participation on on.
I assume that is the question yeah. How are you looking at episodes the lavage mountain spend and if you you know if you. If you I know you in the past I've talked about about maybe reducing.
This is Latin American every day.
Moshe.
But you know, it's obviously a big announcement, it's a big asset. So I was wondering if you could just comment on that.
Well you know we continue with the strategy that we have been outlining already for.
More than a year.
Our strategy on portfolio.
She is directing our investments more into the U S and Europe.
Other than emerging markets and in particular Latin America.
We on just to clarify with the idea of a midterm.
Capital allocation exercise on our portfolio management exercise because as you see our leverage ratio is declining and with the new guidance you can make your numbers in them.
It seems like we are not any more than a confusion for the best tool to improve our balance sheet. So its just portfolio management, how do we willing to invest in.
In in lunch acquisitions.
And no we have not we have outlined our strategy of making bolt on acquisitions small acquisitions like the ones, we didn't ready mix in San Antonio recently on investments in businesses that we know that are related and weekend easily.
Execute all the.
Investments small investments we are doing in an organization solutions for the group of business related to COVID-19.
On inflation solutions as well as cement ready mix on aggregates.
These are investments with a very attractive.
If it turns on very short paybacks for like the expansion of our terminal in Dallas, we're doubling the size of 1 million tons.
We will have a terminal with 1 million tons of cement, we would be able to sell into Dallas.
It market with a very small.
Investment so we will continue on that time on.
We have hundreds of dollars both on investments and debt.
Our current focus for me.
Crystal clear thank you.
Thanks.
And our next question comes from Vanessa Quiroga from Credit Suisse.
Hi, Thank you. So one question that I chose to make east regarding your increase in guidance and then for Capex. So you mentioned that he cannot be focused on more a bolt on acquisition. So I am.
Can you clarify exactly the amount that you plan to and to dedicate two bolt on acquisitions in 2021, and and east exactly they refer it to our acquisition of third party assets or or when you say long term investments are you also referred to.
Entering now are internally sourced on projects for margin enhancement.
What is what is included and Vanessa on.
Really small acquisitions for instance.
I can mention a few examples.
Precision with east of the ready mix assets from partners.
No not on material amount the investment needed to.
And for us to reactivate a 1 million tons of capacity in one of our teaching C. P M, which is not a material level.
On and those are investments that will pay back you know one of them immediately the other one day.
Things like a few months to for us to be able to serve the California market.
The investment we've got one other small investment went on face policies in less than $10 million to activate them with opinions Dominican Republic. So we can produce more than 500 million.
500000 tons of of.
Clinker, we have several investments in in aggregates.
Not not.
Not on replenishment of aggregates.
Which is something that we'd normally systematically do but additional businesses small businesses in.
In aggregate so.
Well to give you an idea you know out of the total capex that we understand the need to invest this year.
Other than 200 price.
So they are really small in nature.
In nature, we've been preparing we've been building this.
The gross portfolio.
With our investments.
This profile considerably last year. So now now we do see the potential of a large number of very small projects with hybrid turns on and short paybacks.
Really executing.
While we are saying, we think we can add 100 million Talbot EBITDA because of this project that we started executing goes here.
So okay very good explanation for the Lucius is cement ready mix and aggregates. They are really bolt on we've not seen any launch.
We have not committed to any large.
It project.
And what we see is that we still have a potential.
To continue growing this.
Portfolio of these type of projects.
Yeah.
Thank you very much for that call on Fernando.
Thank you Vanessa Thank you Vanessa Thank you Pat.
And our next question comes from Alberto Valerio from UBS.
Thank you very much loosey congrats for the results results. Thank you cannot do and buy for their percentage of discretion.
The question about the carbon credit in Europe, how recurring it.
Would it be in the future should we expect for the full water shouldn't you also had some revenue from a carbon credit sales.
And if this is a contract after a year if.
If you we could see this in.
The next year.
Joining training true for instance, thank you very much and congrats again.
Yeah.
Thank you I think I think.
On our let me try to briefly describe our tier two.
Great position in Europe.
With the information we have available.
I Wonder if we have everything but with the information that we access.
We believe we used to have the largest share to credit position in our industry.
Our debt on oil companies with large positions.
And with for.
That when due course either.
The debt reduction target of tier two we have in Europe.
And the type of investments you need to do on.
And considering that other players.
I've already bombings, you took credit for it will be behind very soon.
We saw on monetizing a portion.
Of the C O two.
Portfolio.
So.
The the family deep.
Is not selling everything on.
On the full portfolio from Stuart.
Credit we are keeping on.
According to our on estimates we are keeping C O two credit need it on.
In December 2025.
She's still a longer period of time when compared to other science herbal players in Europe.
So we feel.
On student debt properly cover on that side.
We are pleased because we managed to monetize our position.
Recent nimble or attractive.
Prices.
We'll use part of those investments to find out what we have to do in Q2.
In Europe on on in other countries on.
On at this point in time.
I don't foresee any additional.
Sales of C O two credits.
I think.
We are just starting phase for.
There are new conversations about possibilities of.
On the steel market in Europe in the future. So we will continue monitoring them participating on.
On making decisions accordingly, but right.
Right now I don't I don't see any additional increase in two day based on other portion of that portfolio.
Perfect very clear thank you if I could.
Just add one point on that on you know unlike maybe other members in 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 B B T H.
Hi, Thanks for the call.
Call and also congratulations on the strong results My question is.
Regarding Mexico.
What are your from science behind them.
Improved guidance for cement volumes in the states.
Quickly what are you assuming for or the sales construction on before them all segments. Thank you.
Well and for Cisco.
No.
Cement market in Mexico is being asked for pricing to the upside.
We do see a.
Strong.
Formants.
Housing informal.
On formal.
On even in industrial and construction to some extent.
I think there are many bad apples.
Play in Mexico, making very challenging to do.
On the one hand to understand on the other fine too.
On the debt.
Potential scenarios for the rest of the year, but we see very in a very positive manner.
No back cement has been the.
The segment is growing the most.
I think although we don't speak that much about it but you know.
On the first year of the Peruvian government.
As it happens most of the times with the first year of any day.
For the government coming from a different political party.
It's a very challenging year, so what what we see in part as a good quality of debt transitional year on the government debt, we've got the cob it on on that.
Complicate things.
So a little bit as you know in Mexico than it was a partial lockdown in our industry Marshall in terms of.
Yeah.
Allowing construction to.
Do business, but deep, allowing it back cement distribution to continue so comparisons are.
It's very challenging.
What is it that we see this year, we continue seeing back cement growing materially.
This year, we might have it.
As always our base.
Subjective appreciation, but we might have an impact because of elections on the that is the case that will be a temporary impact.
But even if that is a temporary in fact, what we have seen already for the first quarter on.
And for sure you know April is confirming the trend is that the formal part of construction in Mexico is east is growing.
So the.
As a measure or automation for as a proxy with our order book in credit mix on.
Aggregates.
Which in the case of April on top of the base effect that we have on compared when comparing second quarter for us.
Our second quarter.
But it seems like there is a it is.
On material recovery in the in the form of sector. So all in all that's why we believe the forecast for volumes in Mexico are improving on of course, we have for first quarter behind us.
Good performance, so but that is basically the explanation for Cisco.
Steel grey area, but very positive.
Thanks, so much from them.
And our next question comes from Adrien Wester from J P. Morgan.
Thank you Lucy a hyphen other might have congrats on the results I don't know on.
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 on one to four years the recurring level of.
Stable likes every day of this investment should be greater than that and that'll be my first question on the bolt on investments in the second one is given the increase on the on expansion Capex for $500 million is that 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 that debt you have been working on already for a couple of years that you have you identified.
Well I think on on expansion or strategic Capex day, taking your second question first the other.
On a I think that can be right.
Either as an amount or whats included in those 500 million.
Because.
As you might remember.
Next year.
We're gonna be finishing building cement.
Capacity expansion for four 3 million tons of cement that will happen during the next year on Av.
Of course, all the capex related to those projects that are going to be done.
What what what we are expecting.
Because we've been.
We didn't have in this exercise on building a bolt on portfolio growth.
Acquisitions and investments.
Is dead.
We had affected them, we continued that they think very sizable opportunities.
With the same profile, meaning.
Most probably for the rest of the year is one that is for next year.
We will continue adding these type of demand whether it makes sense aggregates on with monetization solution for opportunities to our bolt on.
Yeah.
No.
No.
What else might come in the future that we see you know.
What if I were you know balance sheet.
It goes to you know our objective of lives on three times sooner than what we expected and we believe that is what is going to be happening.
So we will we will review our portfolio.
Growth portfolio, a bolt on investments.
On acquisitions on.
And we will decide on.
I remember time, a goal we deeply bu.
And we did communicate adjustments to our criteria for growth for for MMA.
Given that we are not expecting let's say nothing.
In particular, meaning no launch acquisitions in the short term in the midterm, we have not broken debt to the table that might be a compensation for that.
There are some ex they went on one of these days, but but again I don't see any any material changes on.
On what we have announced I think we are executing is enlarging our.
Growth portfolio or bolt on projects.
Thank you Fernando for making that for your team that was quite important to us given given the improved leverage that you have and are likely to be at around three times or even below that day by the end of the year. Many people are starting to ask about 85 for larger.
It could happen at some point on but that was very clear I'm on.
And anticipating that type of.
Concern.
No.
We're still at three six.
Hopefully very soon we will be low cheap.
But.
You know maybe he is the next day on the next call. We should review all the criteria that we we did publish but at Westwood.
2016, I don't remember it.
Our plants.
Of course, we want to growth and we are doing it on our blog.
<unk>.
East to.
To get investment grade and to keep it.
And we have some legacy ability now and we are doing profitable short term paybacks low risk type of hundreds of investments that's what we're doing and on and they have been paying off on.
And we will continue with us.
Understood. Thank you Fernando.
Thank you your other yeah.
Okay and our next question comes from Gordon Lee from BTG Pactual.
Everybody, thanks, very much for the call and congratulations on the results.
A third follow up I think on Vanessa bolt on investments question, but its just I guess just to clarify numerically two points for.
If you have the $500 million on strategic Capex for this year, how much of the 600 million and 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.
The incremental EBITDA were included for including for 2021 is around $100 million.
Hum on.
That EBITDA is coming from bolt on investments on acquisitions, we started doing in Italy early last year.
So they are already let's say producing around 100.
Now we are not disclosing any additional info, but east if these investments.
We're done you know.
Is it months.
This bank is the steady state EBITDA is much higher than 100.
So that that should be coming.
Meaning in higher amongst that being.
Yeah.
Next year.
The day.
The debt type of bolt on investments we are doing.
I've mentioned a few examples because again, we have more than 200 projects, but.
And we are expanding the capacity of our cement terminal in Dallas Dallas is a good market a market that is growing and we do have a position and we just realized that week on growth that position us for 1 million tons, we used to have.
Asset deals half of millions so on that again those are the type of projects. We are focusing ink because you know every next years, but that would be now.
We'll be ready and we will be able to so that's meant in the market debt ready mixed business, we acquired things on Anthony's. Another example of a bolt on acquisition.
That did not our 1 million on killing the companions to exports not concern for other markets in California, and then we have a number of the projects.
Projects related to alternative fuels.
Making on investment in rugby because you know rugby has been in other to around 60% substitution of alternative fuels.
I believe we can take it to 90 per cent and it's a very attractive.
The project.
On top of the environmental unsealed to.
Benefits.
The UK nowadays is the country.
Between the UK and Europe as the country with the highest tipping fee for the use of household waste.
Fuels so it's on.
Also very attractive economically attractive.
Reputation.
We are investing in new.
Concrete block on the U S in Florida, and we are investing in new more for plants in several countries, we continue increasing our.
Construction admixture.
My T V F.
The latest investments born in the U S. So again, we have.
I cannot mention 200, but that explains more or less the nature of the type of projects, we're doing related to our current business activity related to the markets. We are in.
With.
Our low risk on on for our management team to be able to develop a dose.
So we are very pleased with with.
How are these EBITDA growth throughout the east.
He is working with this type and this profile of projects.
Perfect that's great color, thanks very much.
By the way I think this is the first time. It is the first time that we did.
Let's say, we are strengthening the muscle of bolt on acquisitions.
Because it's not the same thing for Boeing and lunch thing debt.
You know evaluating detecting and deciding on hundreds and hundreds of <unk>.
Small projects, but it is.
It is the building nicely.
Perfect. Thank you and.
Thanks, Gordon and our next question comes from Anne Mehlman from Bank of America.
Good morning, congratulations like everyone else on an amazing quarter and 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, a lot of free.
Cash balance will be reducing debt I guess, one question is where will you focus on debt reduction and on the same lines within them.
Capital structure, Nikola for reaching I G. Metrix I noticed that both of the credit rating agencies that rate from excellence I can't help you on like a better outlook on what's wrong down when are they going to start looking at upgrading and now that you've had on at least getting a positive.
Third quarter. Thank you.
Yeah, Let me take the second one on they will ask the message to the once a day.
And I think what you know that the reaction of the rating agencies might my might not be that different.
Ooh Ooh reaction from other institutions.
Yeah.
Meaning.
You know a year ago, we were expecting.
At least I thought.
It wasn't expecting.
I have a kind of a disaster.
Humanitarian increases in prices.
Translated into an economic price.
Mrs.
It did happen it is still happening, but not for all sectors.
Economists are talking about debt.
Okay shape.
Recovery Fortunately construction on materials.
One of the industries.
No.
What's impacted in early stages of the pandemic, but he had a b shaped recovery after.
The V shaped recovery is it is growing so what I do believe is what is happening is that we all have been.
And that kind of a conservative way adjusting.
All other word.
Views outlooks estimates.
Because you know.
It was not the base case scenario.
Few months ago.
We see today, the first quarter report.
On the outlook, we have for the rest of the year.
What's not in our scenarios a few months ago. So most probably they would not also partner with other scenarios of the rate the net.
Agencies or even your sort of waivers so what what what I think is we are coming from a very low expectation to a very high one on on people. This kind of taking their time to adjust that that's what I think is going on.
So that might change in the future.
As long as we continue to delivering on.
On as long as the outlook, which is not only on with industry, but the outlook of the main markets we participate in.
It's positive look at the growth from the U S debt recovery six points on a fraction I don't even remember three or for whatever the de Mexico expecting 5% growth.
The EBITDA because of the base effect, but you know Europe St. So E.
Outlook is positive we were not expecting this or not at this level, but it's happening.
I think little by little we will we often definitely getting everybody rating agencies.
We'll adjust.
With some more additional evidence.
Okay.
And on and 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 seen it remains to be seen in terms of the capital market's responsiveness I mean, the markets have been fairly good I would say, there's the perpetuals, we have about 400 little bit over $450 million of perpetuals.
The cost there is 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 debt is due in 2024.
You know theres, a theres a slight premium to.
Call. It this year the call. This is 100 spot 688, you'd probably know that better than I do and then of course it goes to par next year.
And there there are potential other opportunities that we're looking at but I mean, I think that we continue to be.
Vigilant.
We continue to take a look at the at the markets and and as I said I mean, we will continue to take advantage of the capital markets to make sure at that hour.
One way is 'twenty for debt.
36 months out on or better.
And you know so.
I don't know if that answers.
Yes. It does I know that you have they are that's callable. It has a very low low coupon bonds South I think that's another consideration. Thank you very much on Christmas day on pumps.
Thank you very much on.
And we have time for one more question.
And last but not least the last question comes from Ben Theurer from Barclays.
Oh, Thank you very much Sophie for 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 here at a very preferential deal with Pemex on on pet Coke supply.
Think this is going to come to an end somehow in 2022 now with what's leftover so in light of your agenda to become a more.
Carbon conscious.
Switch towards alternative fuel how should we think of for 2022 onwards impact from not having that supportive price environment for pet Coke and how you can offset that through all of the measures you've been telling me in on the international scale from our alternative fuel perspective already taken debt down into Mexico. Thank you.
Thank you Ben.
I think as you can imagine our.
Stressed the east to continue moving towards.
A lower C O two.
It's time for fuel when compared to the pit Coca Cola body's natural gas.
On Mexico would not be an assertion and Uruguay are some contracts we'd be.
Do it next year on 2023 on.
On you know what we have been doing is working on on.
For for that.
As to or from the economy in Mexico to consider so.
Some of the basic aspects of our circular economy. The same way I mentioned for the case of the for the U S.
On the there is a new debt.
There are good news in new laws and regulations related to waste directives that through time, we'd be a conclusive too.
To a much more.
Let's say.
Yeah.
A better way for all waste to be.
Better they're with.
As you know a ton of waste that east.
Landfill generates about 20 tons so for the St.
So that's how we're moving that's our strategy increasing increasing alternative fuels citizen hour.
And our target for total reduction for 2030, and that's what we would do it in Mexico. We have managed to do as much just for the 7% I think.
On the festival much higher and definitely.
What you didn't mention it would be an incentive for us to move in.
In that direction.
Okay perfect. Thank you very much in line with that let me close with and as well say congratulations on those very strong results.
Thank you well 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 on today's conference. This concludes the presentation you may now disconnect good day.
Yeah.
Yeah.
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