Q2 2021 Cemex SAB de CV Earnings Call
And.
And then.
Net income.
And I think.
Great.
[music].
Good morning, and welcome to the <unk> second quarter 2021 conference call and webcast. My name is Chuck and I'll be your operator.
Operator for today.
At this time all participants are in a listen only mode. Later, we will conduct a question and answer session.
Any time you require operator assistance. Please press star followed by zero and we will we will be happy to assist you.
And now I will turn the conference over to MS. Lucy Rodriguez Chief Communications Officer. Please go ahead.
Good morning, Thank you for joining us today on our second quarter 2021 conference call and webcast I Hope. This call finds you and your families and good health I'm joined today by Fernando Gonzales, our CEO and Mark <unk>, our CFO as the.
Always and 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.
And with me and good morning to every day.
From trucking to report another strong consistent performance.
Second quarter results are another important milestone and other gross profit.
What are the.
And finally improve the achievement of our long term deliver this growth.
Third in line and certain increase in quarterly EBITDA.
And now with the announcement of industry, leading joined the <unk> from <unk>.
<unk>.
And so the daily sales.
The third 1.
EBITDA growth 31 from <unk>.
I think the deepen value together offset in part 2000 net.
Moving on.
The year over year basis.
Sales increased by 25% with all regions growth double digit.
EBITDA for the quarter was $818 million.
Again with all regions.
Sales revenue.
Margins improved by 2.1 percentage points to 21, 2%.
Well above our operations exceeded slightly.
The improvement was largely due to volume and cost savings initiatives.
We continued to make important price and cost.
Operating expenses as the percentage of sales of 7.4% and <unk>.
Company Baker.
We did see and escalation and valuable clauses in the quarter.
Due to the grid and marginally by the input and maintenance embracing energy growth.
The strong demand.
<unk> momentum and we expect pricing in the near term to adjust accordingly.
The cash flow after maintenance capex of $401 million.
Significantly outpaced the prior year and the was the highest for the second quarter 2015.
In line with what.
We indicated that from the Big June we ended the quarter with.
A 5 time net recognition.
Achieving our September 2013 operations with standard of living and pre fund the <unk>.
Frequently update of Citi.
Importantly, we are using this during.
Most of the robust operational growth would be.
Therefore, the what lies ahead.
And even more rapidly and our report.
The purpose the deal.
The future.
We are accelerating our investment in the business and the positioning and the Bronx, and a low carbon and growth as well as moving quickly to the kind of the mic.
In the C.
Despite the favorable operating results the APA.
Operations continue to be challenged bank right and cover the infection rate and the country.
From the safety of our employees and will not remain vigilant on the other years.
The public safety protocols.
And we have not been on phosphate the value.
So from the quarter and.
And frankly.
And.
Is the individuals and part of our connected and suddenly and weak signals.
The genome.
Our operations with feed and strategy is predicated on the belief that the developed markets and Mexico when the Levered.
And the best growth opportunity till the day mid 2 years due to the unprecedented monetary and fiscal stimulus and Detroit.
This quarter, certainly concerned the view and cement volumes in the U S Mexico book.
Growing double digits Harrison Street endemic commodity.
Underlying demand trends and tax.
<unk> continues to show momentum, but the quality and cement volumes were disrupted by the exogenous events.
The first in Colombia, and the Lockdown of the summit in the seat and to me that the data with the rising per week infection rate.
With the New Africa, and Asia volumes are slightly down.
Versus the 19, there from them at the levels into the quarterly from settlements of Egypt.
With the recent development and launch of the cement capacity utilization program.
Improved performance going forward.
While we did benefit from adjusted prior year comparison in the quarter.
We believe the underlying the growth momentum is significant and sustainable and most market, albeit at a moderated the pace more.
And based on pricing moving forward.
As you know supply demand dynamics, and north to south of the market satisfaction and the time.
And the system.
And the Americas from Audi in particular with most countries operating at high capacity to the patient.
Within the quarter the industry saw a sharp increase and shipments offsetting continued the region.
The net debt at the shipping contract expired and the non countries the growth prices and the need to be.
And <unk>.
<unk> costs.
This environment.
Well, the benefit and supply chain as well as the introduction of new cement capacity in the America will.
And important competitive advantage.
Our capital allocation strategy and dedicated through organic growth and capacity.
The information from our existing markets as well as both growth and margin enhancement project.
The legacy projects as well as the bottleneck of blank on the opening of gross line.
And we'll be introducing 10 million metric tons of additional <unk> and capacity over the next 2 and half years.
Passenger incremental investment to bring on the capacity is very competitive with an average remaining spend of $42 upfront and it's highly accretive.
And importantly, the timing is why the with the majority of the contract.
Coming from sold out market.
The America constituting the client incentives.
And then with the book.
With regard to our bolt on margin and investment portfolio.
This quarter and we have a pipeline of growth.
The study is expected to deliver $270 million, the EBITDA and <unk>.
This project.
And we are relatively low risk.
Profile and they are happening in the market rebound and.
Products related to other the fourth quarter and businesses.
And important focus over the past the formula of the ramp up in the fourth product line and limitation solutions.
Limitation solutions on construction and material products locally aligned to cement and concrete.
In aggregate.
The essential needs of CV of the future and our sustainable deviation.
The products promote circular economy moves of lower prepays cement and complete as well as a leaner more efficient construction practices.
As the business line the main session.
Solutions is growing rapidly.
Year to day EBITDA is still in the 7% of stockpile and has grown 50% year over year.
<unk> has about 80% of the EBITDA coming from authentication solutions the year, we have a sustainable value proposition.
Our.
The 39% EBITDA growth.
Driven by higher volumes and prices are the <unk>.
And all up and improved contribution from our growth investments portfolio.
While all the agents were responsible for the EBITDA growth.
Mexico, and math and Scott has the largest contributions.
Patient experience and creating better the covering the acquired while the.
Timing of maintenance and contributed this increase was largely due to write and shipping cost associated with the monthly.
The us as well as the cost per synergy, which grew 16% year over year.
Importantly.
And fleet in the first half of the year pricing has significantly outpaced the variable cost inflation.
And moving quickly to adjust prices to reflect this new cost headwinds.
Price supply demand dynamics in that market.
We have already announced and <unk>.
And with prices increases in the U S.
And <unk>.
We continue to make progress on rationalizing the trades and the expenses.
And what should we do to the cost savings program for the last year and the our operations and C category.
Opex as a percentage of sales was 7 full percentage from the quarter marketing and a record load and.
The 2.6 percentage points lower and the prior year.
The new initiatives such as the working smarter program, our global initiatives and trying to utilize digital platform and our automation technology and standardized and centralized business processes. You should expect continued savings on the strong.
<unk> and 'twenty, Thank you too bye.
And finally, we benefited from an important FX day with the quarter of $47 million.
The gain came from mainly from the appreciation of the Mexican peso Euro and British pound.
The favorable market backdrop and the decisive.
The management actions that we have taken and commit to earlier shipment of some of other beginning operations and fee income.
And so on.
Our centers day, a few weeks ago and.
The events of 2015 to update the targets and in each of other deals the.
And the most significant change from the world.
The leverage target when we committed to achieve and assessment rate cases.
And the climate action target and we now have an industry, leading product and production also from facility as well as the book forward, our biggest strength liquidity value to 30.55 net.
And while providing transparency and the short term.
Yeah.
We are pleased with the rapid achievement and the operations with cadence to date and the impact to continue making strides in the following points.
With the rollout of operations and fee income September 2020.
And the climate action and gender was escalated to our top priority.
For the <unk>, because we are committed to the unique building a better share should imply a green and sustainable growth.
We will continue to lead the industry and our efforts through the Carbonite and the fifth third establishing industry, leading product and production growth on.
And of course, both are multi month.
And we need to be at 6 plants and other progress as we entered the critical decade.
Therefore, similar to our other key target.
And to provide quarterly updates from the recliner action letters.
Even in the same visibility as all other key financial metrics.
I.
I want to take this opportunity to update you on our digital initiatives.
We are leveraging digital innovation and everything that we book.
And third the curve and the industry to rollout a global digital commercial platform and its growth.
Employee and perpetual that the approach that regularly update the <unk>.
Okay.
Cost of the feedback loop.
We see the innovation include the 100% paperless experience and the Brookfield and configure pvt.
And select customers.
And our operations, we apply application intelligence and data analytics and predictive maintenance.
The optimization of energy consumption and the reduction of carbon emission.
We're using virtual reality and other executive training purposes, and zone, so inventory and medicine.
The latest innovation is other working smarter global initiative, which will take at.
Operating the front of the new business environment.
The primary goal is to negative technology and promote the work environments to drive efficiencies and the implementation way of building the level of national scale.
The Nx and enable the digital platforms announced the nation technologies to orchestrate and centralized.
Gross and fee why is the the team.
And now I will pass it on to Lucy So she can cloud the regional performance.
<unk>.
Thank you Fernando.
The U S continued to enjoy strong demand in second quarter with most of our markets sold out.
Sales increased.
The 14%, while EBITDA rose, 7% on the back of strong volume and price.
Despite heavy rains in Texas during the quarter cement volumes grew high single digits.
And those were again driven by solid residential demand residential construction spending grew 30%.
<unk> net.
Forward looking indicators remain strong with single family comments up 46% year over year in the second quarter and low housing inventory levels.
The infrastructure sector was supported and the outlook remains favorable with May trailing 12 month contract awards.
We're highlighting street light and 2% per our 4 key states versus flat at the national level.
The industrial and commercial sector remains weak, but activity is accelerating as cement intensive distribution facilities for E Commerce continued to growth.
Our cement prices rose.
And 3% sequentially, reflecting traction of our April pricing increase which was implemented in all markets, except Florida.
To meet higher than expected demand, we significantly increased imports and the quarter beyond the level locked in for the full year.
With industry spots.
Shipping rates up more than 100% first and last year. These imports carry the steep cost and 1 that is not yet reflected in our pricing.
This led to a 1 percentage point decline and EBITDA margins.
We expect this headwind to continue and we are working hard to ensure that our price.
And its policy adequately reflects the true cost and parts.
And the first step we have announced a second round of price increases from July and August in most markets.
In the case of imports, we believe we have superior supply chain capabilities and close to 9 million metric tons.
<unk> of maritime import cement capacity rail capability as well as the strong production footprint in the Americas.
We estimate 2021 cement and ready mix volume and growth of between 4% to 6% with aggregate growth of low single digit.
For the <unk>.
Icing firm, we remain optimistic regarding approval late this year of and infrastructure plan, which we would expect to yield incremental demand for our products towards the end of 2022.
In Mexico, our operations are experiencing exceptional supply demand conditions with.
<unk> currently at historical peak production level.
EBITDA increased almost 6%, 8% due to higher volumes and pricing as well as our cost reduction initiatives.
<unk> maintained its growth trajectory with volumes, increasing 18% and continued to be supported.
With the and by a high level of remittances home improvements government social programs and pre electoral spending.
The 28% increase and cement volumes, however was driven by and almost 60% growth in bulk cement.
Reflecting the second quarter 2020 industry.
The street, Lockdown measures, which restricted the delivery of cement and ready mix.
Importantly, we have seen significant recovery and formal sector demand over the last few quarters and bulk cement volumes are slightly above second quarter 2019, pre pandemic levels on a daily sales basis.
And while ready mix volumes are up 56% and show important sequential growth <unk>.
The lagged pre pandemic levels.
We expect by the next to continue to recover as formal sector demand and reactivate.
Activity and in the formal residential sector and gaining momentum as the <unk>.
Evidenced by the growth and housing starts and permits are up 40% year to date.
Going forward low level of inventory and attractive mortgage rates should support volumes.
We are also seeing activity and the industrial segment with the construction and warehouses along the border states related to near shoring.
<unk> opportunities with the U S.
While the commercial sector remains subdued increasing tourism and consumer confidence should imply a restart to previously delayed projects.
Sequential prices increased 2% per cement, reflecting our march price increase of 4%.
Percentage as well as tightened supply demand dynamics.
While margins improved 3.2 percentage points sequential margin declined mainly due to higher maintenance and fuel.
In order to recover increasing input cost inflation, we announced the price increase of mid single digits.
For bagged and bulk cement effective July 1.
Given the favorable dynamics, we are increasing cement volume guidance from Mexico to now growth between 10 and 12%.
We expect the bagged cement growth rate will slow and the second half as the comparison base becomes more challenging.
While the bulk cement ready mix and aggregates growth continues to improve supported by the housing sector and a favorable base.
In our EMEA region, EBITDA grew 25% driven by a strong performance in Europe and in the Philippines EBIT.
EBITDA margin improvement is due to large.
Largely to the Philippines EBITDA margin in Europe was flat impacted by rising energy raw materials and logistic costs, despite better volume and prices.
European volumes for our 3 core products were up between 14, and 23%, reflecting and easy comparable.
<unk> and Western European operations last year due to the impact from Covid.
And and acceleration and residential and infrastructure activity.
We implemented cement price increases in Germany, Poland, Czech Republic and Croatia.
The sequential decline in price.
Asia and Europe results from geographic mix with the U K the country with the highest net price in the region growing and sequential volume at a slower pace and the rest of the countries.
We are raising our 2021 volume guidance from Europe for cement, we now anticipate 2% to 4% growth.
The 3% to 5% per ready mix and 6% to 8% for aggregates.
In the Philippines cement volumes grew by 45%, reflecting not only the low comparison base, resulting from strict government locked down last year, but also increasing construction activity.
Our average daily sales volume have now recovered to levels higher and second quarter 2019.
And the Philippines, we are increasing our cement volume guidance to 12% to 14% supported by strong public construction.
For more information, please see our CHP quarterly earnings which.
We will be available this evening.
In Israel, we continue to see strong demand dynamics, particularly from transportation as the government needs to execute its ambitious long term infrastructure plan.
Ready mix volumes were up high single digits on and average daily sales basis, while aggregates.
We're down mid single digits.
In Israel, we expect ready mix and the aggregate volumes to decline between 3% to 5% for the year the.
The guidance reflects the record pace and business in 2020 as well as the completion of several large projects.
Finally and <unk>.
We are encouraged by the recent decree from the government to rationalize cement production capacity for all players.
We are pleased with the performance and our fact operations the region that experienced the most severe government lockdown measures and the second quarter of 2020.
Regional cement volumes rose.
<unk>, 3% with all countries reporting growth.
Regional cement prices rose, 2% sequentially Q2 successful price increases and Jamaica, Costa Rica and Nicaragua.
Favorable volume and price performance drove a 50% increase and net sales.
<unk> 40, close to 80% increase in EBITDA reflected higher contributions from the Dominican Republic, Panama and Colombia.
EBITDA margin rose 4.5 percentage points due to volume and pricing coupled with our cost reduction initiatives.
In Colombia cement growth momentum.
And driven by housing and infrastructure and interrupted by the social protest in may which restricted the ability of the industry to deliver product the.
And the protests were largely resolved by early June and industry activity return to first quarter levels.
We believe the outlook for cement volumes remained.
Purple supported by the self construction sector record home sales existing <unk> highway projects as well as the rollout of new infrastructure programs for the full year, we expect cement volumes in Colombia to increase between 9% to 11%.
For Trinidad cement limited.
And the favorable listed subsidiary and the Caribbean, Despite the industry Lockdown and Trinidad and Tobago in the quarter cement volumes grew by 28%, mainly due to Jamaica and a favorable base effect.
In the Dominican Republic cement volumes grew 72% on the back of the dynamic.
Self construction sector.
Favorable fundamentals, including a slight pickup and tourism support our increase and cement volume guidance of 19% to 21% growth.
We continue to take advantage of our strong regional logistics network to meet local demand, while we introduced cement capacity.
And the additions to the region.
And I invite you to review the <unk> quarterly results, which were also published today.
And now I will pass the call the Myer to review our financial performance.
Thank you Lucy and good day to everyone.
Fernando and Bruce had mentioned earlier.
And our remarks. This was another very strong quarter with significant improvements and most of our financial metrics.
Our business continued to show important operating leverage the topline growing 25% and EBITDA expanding 39% on a like the like basis.
Free cash flow for the quarter.
<unk> and it was up 187% when compared to <unk> 2020.
And 85% better than <unk> 2019 pre pandemic.
This was driven primarily by strong EBITDA performance helped by savings from our operations resilience program.
Lower.
<unk> financial expenses, and lower investment and working capital.
Continuously improving our working capital management, and particular attention to credit quality and receivables collection translated into a record for second quarter of negative 13 days in average working capital.
Net income increased.
<unk> $314 million year over year, driven mainly by better operating earnings and lower financial expenses.
All of this culminated in the doubling of our return on capital employed to 10, 2% when compared to last year.
With regards to our debt maturity profile.
<unk>, we have the best runway at the next maturities and a decade.
We achieved the debt profile with very manageable maturities for the foreseeable future and still with ample potential for improvement and our debt stack.
We have an average life of debt of slightly more than 6 years and our expected.
While the flow generation alone would be sufficient to meet our maturities and the near term.
We were active during the quarter in terms of liability management and the enhancement of our capital structure.
In addition to lengthening our maturity profile, our liability management efforts this year translated into about 50 basis points.
Free cash reduction in our average cost of debt.
Which today is around 4.6%.
During the quarter, we repaid around $370 million of bank debt under the facilities agreement 3.
$320 million of the 5.7% notes due in 2025.
And $450 million of the perpetual instruments.
Additionally in June we issued $1 billion of subordinated notes, which are deeply subordinated and without a fixed maturity.
Under IRS. These notes are treated as equity and are.
<unk> considered for the calculation of our leverage ratio as per the facilities agreement.
In addition rating agencies give us 50% equity credit for these notes.
This transaction propels us forward and our path towards investment grade rating.
Optimizing our capital structure and accelerate.
Celebrating our deleveraging path.
Finally, after the closing of the second quarter, we paid down 450 million euros of the 275% notes due in 2024.
During the quarter, we accelerated our path to investment grade ratings.
And as Fernando mentioned.
Our non earlier, we significantly reduced our leverage ratio and Q2 due to increased EBITDA strong free cash flow generation and the issuance of the new subordinated notes.
As we can see on this slide during the quarter, we reduced net debt by $743 million.
Which resulted in.
<unk> and <unk> ratio of 285 times, a 3 quarter of return reduction compared to end of Q1, and 1.7 times reduction.
Versus second quarter 2020.
Our current $3.1 billion EBITDA guidance for 2021, coupled with the expected.
The free cash flow during the second half of the year, which suggests further improvements and our leverage ratio for the rest of the year.
And now back to you and Fernando.
Thank you Mohan.
During our Cemex day, 2 weeks ago.
We expect EBITDA.
From Q1 Big volume.
Elaborated the actually gets reported back consolidated volume and growth in the range of 5 and 7% net.
The 5 per cent for ready mix.
And we'll support the central the aggregate.
And no debt.
From a volume guidance and continue in the.
The addendum.
Regarding pricing, we relate to supply the <unk>.
Amit price support people.
And Thats why.
I mentioned before with GAAP.
Additional price and payments.
And Mexico.
Across the 2018, we now expect plus the <unk>.
With both teams.
If the cost right.
And coal.
And by getting some savings from our working smarter the initiative we know the.
The million dollars and annual cost savings this year.
And thank you David.
And the total Capex working capital cash taxes, and instead of fixing and change.
As we move beyond.
Hopefully you're able to hold year over year comp.
While the download growth and more strategic.
And we'll begin.
Isolated cases of Covid and the oil market.
Total net profit learning house and water leak.
From the pandemic.
The disruption to the industry.
So the answer.
And the amount of WMC and the loss fix on the balance sheets of households, and should be deployed and plug in.
Growth will be driven by consumer spending and investment and supply chain and <unk>.
<unk>.
Although within the assumption.
The formal construction projects.
Although the medium term the day.
The market should benefit from additional simulation and the form of infrastructure and tight supply the Monday.
The market embracing energy on the protocol.
Pricing for the sake inflationary pressures.
While we will not give guidance yet ahead.
These give us confidence in the deal.
And we expressed at some of the day in June that EBITDA should grow double digits and 2022.
We will take advantage of the market environment and processes from our bolt on the investment strategy the.
Leveraging and investing to reach our revenue per annum.
And the actual profit.
Now and Thats the agency.
Before we go into our Q&A session I would like to remind you and any forward looking statements. We make today are based on our current knowledge of the markets and which we operate and could change and 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 and decreases referred and prices for our products.
And now we will be happy to take your questions and the interest of time and to give other people and opportunity to participate we kindly.
And we ask that you limit yourself to only 1 question. If you wish to ask the question. Please press star followed by 1 on your Touchtone telephone. If your question has been answered or you wish to withdraw your question Press Star followed by 2.
Press Star 1 to begin.
And the first question comes from Gordon Lee from BTG Pactual.
Hi, everybody and thank you very much for the call.
A quick question on U S cement imports I was wondering if you could give us.
Sense of how much of that is being sourced by other <unk> operations and how much of that is being sourced.
Sourced through third parties.
And if you could give us a sense of where in the semi from network. This has happened and just to get a sense of whether.
And what the other regions are that might be benefiting on the other side of the higher import costs into the U S. Thanks very much.
Okay.
I'll take that 1.
Sure Yes.
Thank you Fernando Hi, Gordon how are you doing.
A significant portion and Gordon of our imports now.
The U S are coming from from Mexico.
We also have some coming from Europe and Asia.
As Youre aware we started.
And the CPM plant.
Which which has not only very positive logistics.
And vis vis the U S market, but also.
US producing and the marginal cost of starting up that that capacity is.
And it's fairly marginal so it's primarily Mexico some from.
Europe, some from Asia and this has.
Translated into a change over the last couple of years I mean, so we because of the ability to ship from from Mexico. Now of course, we will continue to look for the most competitive pricing and quality and and and.
As Lucy mentioned earlier and.
Fernando mentioned earlier, we have.
The natural competitive advantages in terms of trading and in terms of importing into the U S market.
I don't know if that answers your question Gordon.
Yes, that's very clear thanks very much.
Great. Thank you Gordon.
And the second question comes from.
And I think Peter Olga <unk> from credit Suisse, and nothing he can give us the 1 question that would be great.
Okay. Thank you Hello, everyone and congrats from the results and my question and once it took us from Europe and.
And obviously that comprised from base and it reflects dip and mimic versus.
And 2020, so I'm wondering if you can give any color versus 2019, how the volume of each of the main European markets and it is performing Corey. Thank you.
Okay and just thinking.
Sure.
And.
Yeah Vanessa.
Europe.
All 3 products are.
Our up between 2014% to 23%, obviously and it reflected and easy.
Comp.
Because of.
From from last year.
The biggest contributors Vanessa to the to the business has been residential and.
And infrastructure throughout the throughout the region.
And that's why we raised the the volume guidance.
For the year as.
As Lucy mentioned.
From 2% to 4% growth and cement.
From 3 to 5 and ready mix.
And also.
As the consequence of the most of these markets are fairly sold out.
And so as a consequence, we did implement pricing increases.
In Germany, Poland, Czech Republic, Croatia, and we've gotten very good.
And so as.
To that at all in terms of in terms of volume increases I mean, it's a little bit.
To compare the <unk>.
<unk>, it's kind of tough because.
And the individual countries because of the varying lockdowns and the easy comps. So it doesn't it doesn't really make sense I think.
Responding to take a look at what's happening in the first half of the year, but the major drivers.
Our residential and and infrastructure.
Moderator, if I think just right and wrong, yes, if I could just add on there the net number.
Remember the last year in second quarter, our western European operations.
We're significantly by Lockdowns, while our central European.
Markets were not so youre seeing that come through in the results, but having said that his mother was saying we are seeing the strong growth in residential and infrastructure across the portfolio.
UK stands out in particular, where we have seen very strong residential demand as well as several large infrastructure projects going out. So things are I think when you look at residential permits and things there the operating it and decade long decade high levels.
Operator.
And I guess the next question comes from Carlos parallel.
Thank you Lucy Hello, everyone.
The results.
Yes. My question is related to U S pricing I mean, there's obviously several factors that are supporting.
And how much higher prices, whether its shipping as you mentioned and the call increasing order and a 100% of the cross sold up markets and the potential reported and infrastructure package. So my question is do you think that the probability of moving to now adjusting prices at least 2 times a year or more.
Is increasing materially do you think that's something that we're entering the new phase.
Having the price increases once a year.
Not just to share, but going forward, we might you might have to adjust prices more than the once a year.
And thanks for your.
The question.
I think the.
The dynamics.
The art is.
Kind of.
It's the 1 that we've been doing.
Describing.
For some time now.
The.
The market the requiring a higher amounts of imported cement.
The mass capacity is fully utilized almost every work for sure and ourself that's the case.
<unk>.
And the.
So what we what we see is.
Imports.
Serving additional needs from our customers and.
No.
Imports the nowadays hover and additional component on inflation, which is.
The high inflation and shipping costs.
So now we have additional portions of imported cement and a higher cost and what what I say is from the dynamics.
Mix to continue both the.
Meaning.
We cannot offset the inflation immediately not the shipping costs, increasing a 100%.
Or or even increasing because of appeals.
What the weekend the spec is for price increases either once or twice a year.
Hi, Duffy.
And to the new.
Alright.
Structure of the market.
So yes the time.
And describing once we get to.
The the station.
The dynamics and the pricing side should improve materially.
Is it going to happen with increases the once or twice a year.
Net.
Difficult to say this time we were.
We thought it was the right thing to do that's why we announced price increases.
The 4 July.
And.
And almost.
And.
And we continue trying to offset inflation either either.
Mainly sheep and inflation the other type of indication for pricing.
Right Larry.
Thanks very much.
Thank you thank you Carlos.
And the next question comes from Francisco Suarez from.
And the Scotiabank.
Thanks, So much good morning, congrats and superb results and thank you for the greatest concern and the promise of carbon intensity. That's fantastic. My question is from pet Coke prices, Yes, youre, primarily fuels and the U S and Mexico, and just tell us a little bit about what you are doing and the U S and Mexico to cope with the huge increases.
Pet Coke.
Including the use of alternative fuels and if that has anything to do with the major cutting carbon intensity that we saw in the on the first half. Thank you.
Can you repeat the last part of the question Oh.
Oh, yes.
I just wanted to know that E E.
Among just trying to do to deal with it the increases and pet Coke.
And if that includes the.
A higher use of alternative fuels and if that explains that the major got and carbon intensity that you are reporting and this half of the.
The year.
I see okay. Thank you for clarifying.
The first part.
We're always monitoring the availability quality and cost of our fuel mix.
And now we see it.
Sizable increases in the price of physical.
So of course, and what we tried to do is to find the cheap the.
On the 1 time, but on the other is to reduce coke and our fuel mix.
So in the case of this second quarter.
And we managed to increase the use of the fuels.
And I think we were at the highest level ever.
<unk> was 30%.
And we will continue.
We are.
And we do continue with our strategy is 1 of the net.
Elements in our climate action strategy.
We'll continue increasing the use of alternative fuels.
With.
And it's with the preference for alternative fuels and with very high content of volume, which is what we've been doing already for several years.
We are developing new.
Projects of alternative fuels for our business and the U S.
On the.
As you know we are.
Clothes and finished 2 very sizable alternative fuels projects in Europe.
In the U K.
The loss included in Germany.
So it yet.
The instrument and alternative fuels and the cyclical part.
And do play a role in the in the call.
The young.
So whole fields.
And that's it so much congrats again.
Thank you.
Thank you very much from and the nurse.
And the next question comes from the webcast from Paul Rogers, continuing on the climate action.
Congratulations on the new C O 2 target.
Targets, what has changed and give me confidence can go further and faster by 2000 and <unk> has the Greek validated the new carbon reduction targets with independent third parties like Spi and aligned management incentives with the new targets.
Cause I think thanks for the question, let me start with the second part we are in the process of validating the targets SVP and so we will very soon.
Have those targets.
And the data.
Now the.
Yes.
And the reason why we adjusted.
Our.
We bring forward the brook forward.
PV stunted by the.
2025, and established a new.
And.
The target the source cement as awareness for the ready mixed by placing the study.
Is because.
And.
In the process on how high the molding and climate change and how we.
How much we have learned and how.
And how much on how fast with the we can do.
No we feel very close to the the.
The.
We can.
Online and that's.
What we do.
I did align our climate action strategy and.
It gets to the well below.
To the degree scenario.
Which is nowadays the.
The 1 the.
You can at the edge tool with very specific.
And.
The risks.
And the reason why we established these new pockets of growth.
75 C. Okay.
<unk> per ton of cement and 165 per cubic meter.
Because we we know.
And we're confident that the weekend and achieve those.
And number and you know and without counting.
Any of the technologies.
Knowledge is needed.
And to capture and use here too.
Technologies that we are proactively investing in.
But.
The we already have.
The needed roadmaps to get the both objectives.
No.
And the support of these new technologies, and so I'm referring to.
Additional clinker factor reduction additional I, just mentioned and because of the previous question additional.
<unk> filled with high confidence of biomass.
Yes.
The additional failures like calcite claim for blended the <unk> on top of book the ones. We currently use.
Things like alternate raw materials for cement production.
And a number of other and <unk>.
And we have managed net reduction.
Again, we feel very confident.
It's doable.
So to some extent we have already done it.
In the case of Europe with the reduction of 35% when when we use figures based and 19.
Nike and in this case now it's the reduction against.
Again, baked and 1990 of about our growth to 40%.
So it.
It is.
And if the lots of challenges whilst the.
Work.
So the book towards 2 nicolette economy and different markets we participate.
But again it is doable.
And we feel confident we will manage to achieve those targets.
The numbers it was 1 month part and Paul Rogers' question, and maybe you'd like to address and that is our management incentives are aligned with the new targets.
Okay, Yes.
Fully.
Julie.
We are starting this year.
We include in our compensation.
Compensation system.
The the targets of SER 2 reduction.
For for our personnel, particularly the 1 directly.
And the related.
And the different levers of <unk> reduction.
So that started.
This year.
And the last.
Month for the Salt.
Included in other elements in variable compensation.
We decided to try or the second half of the year.
And you see you know how it works so we can put in place.
Part of the next year.
Got it.
Accordingly the.
<unk> <unk>, meaning.
The <unk> compensation modifying.
And our EBITDA with the cost of the.
The C O 2.
And.
And and presenting or or or.
Trying to look at the impact of us achieving our targets and the economic impact of the both achieved in the.
<unk> on the achieving them.
And by type of compensation.
And in all of our executives.
Again, we started early.
For the year.
Performance of price us, including.
<unk>.
Yeah.
The portion of the valuation.
On the <unk> on achieving the C O 2 reduction plan and now we are thinking these ETF concepts.
The modifying our EBITDA.
Yeah.
We're currently trying you're seeing.
And the European EPS for our business in Europe.
And we are using currently.
California E T is price from the rest of the businesses.
Again this is the second portion.
The bulk of compensation is if the trial and we will fine tune and of course, we will communicate the 30 next year.
Thank you Fernando.
And the next question comes from Nick <unk> from Morgan Stanley Nick.
Thank you very much thanks for taking my question and I'm going to try to cheat channel, but I wanted to ask 2 questions. So I'm just going to put them into 1 and.
The book to 2 pricing.
So the microeconomics.
And on 1 youre doing a negative supply shock into Latin America.
Exporting more to the U S.
It is 1 of them.
The reflection on pricing locally and in Latin America, and similarly in Europe, where the marginal cost of production seems to be going.
And in line with the higher cost of top of the emissions, what's the inflection there on on.
On cement pricing and in Europe, Thanks, a lot and congrats on the numbers.
Yes.
Thanks, and then just take that 1.
Yeah.
Hi, Nick.
I mean I think that.
Going on.
And you hit on a very good point neck and.
And the reality is that our markets and supply demand dynamics are tight virtually everywhere I mean and.
And of course.
Good.
And the case of Mexico, and I'll start with Mexico, and the case of Mexico, and especially in the central and.
Southern and central regions of Mexico, I mean, we and I believe most of our competitors are pretty much and some of our positions and expanding capacity.
And as much as possible.
And so clearly bringing.
And on the CPE and plan to address the U S market I mean, it does have.
And some impact in Mexico, but not that much of an impact.
But clearly there are tight supply demand conditions that are leading to positive pricing dynamics in the case of indicators and Mexico and that is.
As expected to continue I mean, we believe that the demand and the residential market and infrastructure.
Both.
And since 2 core businesses have a lot of legs.
Continued to contribute to the demand we're seeing also.
A lot more ensuring from China to Mexico, and some industrial and.
The industrial and manufacturing is also beginning to growth. So so I would say.
Currently.
Both of them, we are benefiting from those dynamics in Mexico, and the case of the U S.
Absolutely right I mean, we're sold out there are some markets on allocation as we discussed and we bring in.
We've increased our imports into the U S.
Quite materially.
And there you do have pressures of transportation as Fernando.
<unk> mentioned, which are escalating quite a bit and.
Pricing has got to react to it.
And it is reacting to it and as you know we've increased prices and.
For the second half of the year and we should be getting those pricing increases and Europe you have a similar situation you have a tight supply demand.
And conditions and even even in some markets in ready mix.
And we're able to start to Cherry pick.
And our most profitable projects because we're reaching.
Capacity and capacity utilization, even and ready mix and some of the markets, So and thats whats leading to good.
And environment and <unk>.
Implemented pricing increases I would say and most of our European markets and were getting some very good traction.
On that pricing.
I don't know if Nick that covers your if I Miss anything please remind me again.
And it clearly covers it.
Sure.
And I'm sort of looking at is to what degree I understand you're making money on the imports into the U S right.
And Thats the profitable freight my question is really to what degree are you.
Sorry, and that Youre, selling 2 million tonnes, the 3 million tons to the U S, which is wonderful but are your repricing say 20 million tons of cement sales.
<unk> in Latin America, because all of a sudden.
All of that excess is growing up north.
And <unk>.
What day.
The only thing that will really prohibit you from from from taking.
Taking that U S pricing power and use it.
Things get tight across the region.
Well I mean markets.
The Nic markets are fairly I mean, obviously, a fairly fragmented when it comes to to cement, the and especially when the cement needs to go overland.
So I think if youre, saying that just because we are exporting out of Mexico into the U S is that necessarily pulling up prices throughout Latin America, I think the situation a little more complex and that.
I think you need to get more granular on the local market by local market and Thats why I and my comments I separated kind of the northern part of Mexico, and the central and southern part of Mexico, where where they are less impacted by the exports to the U S and much more impacted by local supply and demand conditions and we are we are increasing capacity.
Pasadena.
And doing debottlenecking in the central and southern regions in Mexico as well.
We are we are.
<unk> kept the ACA is coming on stream and and that should be supporting but but.
To talk about pulling up prices because of exports out of Mexico and.
The U S.
In Mexico and in Latin America, I think it's a little more complicated than that.
If I if I add the web from US have said I think and perhaps this is not the moment to do it but.
Microsoft has already mentioned.
The legislation is very tight all other the Americas.
It.
It's tied in several markets not only in the America, mainly and Deborah.
Erica.
So exporting to the U S.
And.
It might help but that is not the crucial is not is not the reason look at capacity utilization and the Dominican Republic, we already announced starting up of Nokia and that we do.
Pages.
And because of capacity is fully utilized and we're proceeding with the bottlenecking.
Uh huh.
The capacity projects and Jamaica.
And we are doing the same everywhere in the case of Mexico, and the bottlenecking with chop on the increase in capacity and the aircraft and start did not become panel that's 4.
Exports, so all over the place.
I think the summary to me is the <unk>.
And then make heated badly in the Latin America last year.
The mainly because of the informal economy. It came back very soon and it continues coming back and growing.
And the speed at which doesn't cover the cost cuts and customer price most of the industry, everybody strength and using almost half a percent of capacity utilization and I'm trying to the bottleneck on the expand capacity from the market. So the I think that's the part that we should go deeper and better understand the pricing dynamics currently.
Makes sense, thanks, a lot.
Thanks, Nick.
And the next question comes from Adrien Wester from J P. Morgan.
Alright, Thank you Lucy.
Quick question and just to clarify the did you say that the the impact from the the increase.
And the inputs and the U S.
The 1 percentage point just to clarify that the first and then Mexico looks and what sorts of other specific.
You mean in terms of in terms of the margin you mean.
Yeah, the margin impact from the increased cement.
What's 1 percentage point and margins.
That's at the consolidated level would you be on it was higher than that on the.
The U S level.
And accounted for almost a 3% headwind and margins.
Okay perfect and.
And then just to clarify so.
Okay and my question is.
[laughter].
And regions the.
Increased imports were without California, Texas.
And me.
And we don't break out where and the imports are coming into.
Importantly, the market.
Have been importing and Q have been Texas, California, as well as Florida.
And I can tell you that in the quarter due to bad weather in Texas.
We did have a problem actually kicking kicking the kicking the shipments into the ports because of bad weather. So.
I hope that gives you some some insights and the import activity.
Good enough. Thank you Lucy.
Thanks and again.
And I'm sorry.
And then the.
The next question comes from the webcast from Allen our needs from some from Dan.
What is the outlook for imports.
And to the U S and is this a risk or an opportunity the stomach.
Yeah.
Well I think the outlook for imports is.
Directly related to the <unk> of volumes.
So the market.
And again once we have all of our local capacity utilized.
The.
And we need to come from from imports. So we kind of expect 14 force them to continue.
The increasing.
And then if I can add also Fernando.
I hope I'm, not and dropping Fernando may I add.
Go ahead.
Yes, I think.
So Alan.
I think we need to also take into consideration here over the medium term meet meeting meeting into 'twenty, 2 and 23, what's happening.
On the infrastructure side I mean, as you probably been following in the U S.
We are coming awfully close now.
<unk> and agreement on and infrastructure Bill and also a and approval of the existing fast Act I mean, if you take a look at what happened mutually.
And the last 48 hours.
We had.
Confluence of agreement between Republicans and Democrats, you have EBIT, though last night there was the procedural vote. It was a very important.
The important milestone you had 17 Republicans, including Mcdonnell.
<unk>.
Voting too.
To take the bill forward within the Senate and Thats going to be a 550 billion dollar Bill now a lot of people may say that that bill is the smaller number than what the Democrats wanted to do but in reality it is.
Pretty much the same amount of what we considered to be cement.
And <unk>.
Projects and.
And and.
No matter, how you skin this cat I mean.
$550 billion on top of the current fast act, which is probably going to be extended by by 5 years and that's what's being proposed by the binding proposal and the bill that is being put.
Forward is going to translate somewhere between 20% to 30% higher demand demand for cement and the U S and we all know that there are some very important.
<unk>.
Environmental.
I don't want to call it prohibition, but certainly environmental.
And let's say.
And that the pressures and headwinds and adding new capacity. So so imports are going to play are going to continue to play an important role.
But.
Fernando said I think because of what's happening on logistics.
And reality that pricing is going to have to go up to to increase too.
To make those imports.
B at par with the domestically produced product in terms of price. So I hope that answers the question.
Thank you and the next touching and comes from and the needs from from Bank of America.
Hi, Thank you good morning Fernando.
And as I say it took me a long time to go through all the quarters to see the last time, you had EBITDA of over $800 million not just even in the second quarter. So congratulations.
And trying to take the.
And the last question a little bit further the whole question of capacity and utilization.
Clearly you guys.
And are going are.
Bringing ultra.
<unk> back online and looking to expand capacity and the number of markets.
I've heard from other players and in the U S and the other regions that they're looking to do the same.
And maybe you could just tell us and.
Some of your to the market how much.
Additional capacity do.
The market could be brought online and the next 24 months.
And obviously to build and new plant would take much longer and given the environmental issues that might take.
And the longer than it used to and then maybe you could just comment and that whole context on Egypt, and what the government is going to do and how long you think that might take.
And you have a positive impact on cash.
Let's say reduced supply and the market and the check.
Thank you.
Okay.
Thanks, Thanks, a lot and I think on the bottlenecking bucket and the.
The U S.
We are already developing a few.
Projects and a phone.
And some plant.
And.
We still don't have a final number.
We are right now.
And making engineering or some of the the bottlenecking.
And.
But the kind.
Let's say for the time, bringing and Jeff to give you an order of magnitude the Vietnam 3000 pumps against the fees related to the bottlenecking.
At the same time and you can imagine.
And looking for opportunities.
Expanding capacity and not just the book.
And the execution.
Right now we didn't have.
Our concrete in full.
And that we can share we might be able to deal with us in the in the.
And the near future.
And regarding regarding Egypt, well.
The euro.
No. The the news what the government is doing is what.
We.
We have been.
And Ah.
We've been supporting the idea that we have been supporting which is.
Finding a way for the for.
And for the industry to have.
Alright.
And let's say a reasonable conflicts.
And after.
The launch some of the plan was the owned by the Oregon.
So.
What is going on now is the rationalizing the on a temporary basis.
And year.
<unk> rationalized the capacity so saw the.
And the basic economics of the industry and be recent level or investors.
And we do we do expect.
And during this year.
And.
The.
And should.
It should be.
Trudi.
And not only because of that but also because we do expect the market to recover.
And with the growth so.
To pay the reasons why we should expect better pricing in Egypt, and the next few months.
And on the day now how much they're going to reduce the capacity by 2 help alcohol and overall market.
And I'd say that that large platform.
I do.
Don't have the number with me.
And what I know is.
As the cycle deduction.
It might be slight.
The data from other players basis.
But I don't have the numbers with me to share it with.
The.
Okay. Thanks.
And just as you went from the other outside the semi and the other.
From the plants that are being commissioned at the moment.
And in Egypt, and the U S.
No.
And that your footprint globally.
Uh huh.
Well the wear.
From grinding mill.
The submitted.
Brian the Miss in Japan, and Mexico.
I'm trying to remember the there is any other income.
And if you remember revenue capacity.
And not in Latin America.
No items.
I don't recall and the specific.
Expansion project.
Okay. Thank you Brian.
And the imagine.
The concept, which I've described before everybody is thinking on.
And the capacity.
Yes, Im sure Theyre thinking about it with trepidation do we could do it or not.
Thank you.
Thanks, and thank you very much and congratulations again.
Thanks Joanne.
And Sam we have time for 1 last question and Theurer from Barclays I think youre on deck.
Thank you very much looses Fernando monarch Congress from the results we want.
To close my questions were 1 of 1 of your favorite topics from the past Fernando.
A little bit about the digital.
Innovation and and what you've been doing over the last couple of years.
Be it on the commercial strategy with Cemex go and now Youre laying out a couple of other things around business services manufacturing. So the question really is within your global footprint.
Would you say is the is it reasonable.
Digital where you can get and actually maximize and optimize your operations ultimately driving margin expansion through all the digital and innovation you've been put in place where you stand today and how far do you still have to go to reach the target.
Yes.
So the answer.
The risks and topic.
Got it.
Let me.
Let me first describe what what.
Hours per.
The <unk> status.
Our digital strategy and then I will go through what the he said that we can expect moving forward.
The <unk> the first 1 is.
Is the.
The.
The digitizing and.
And the developing a superior customer experience.
With the adult where the digital platform.
And Thats, what we basically coal tonnage growth.
And as you'll know some Mexico allows our customers and other sales.
To have a seamless process too.
Related to transact them to receive and to pay into the.
And the whole spectrum of the commercial relation.
And by now and with.
1 the perception this platform is.
Available globally for all our customers.
We are very pleased with the acceptance of the platform.
And about 90% of recurrent customers use it as the wait for them to get information to get the quotations provide.
The pay to receive food and everything.
So we are very pleased with that.
The platform.
The.
And what's next for the platform.
I think on the the <unk>.
Not from us.
Minimum viable product.
And the platform Nowadays is different from what it was 2 years ago and 2 years from now is going to the different from what it is today.
We are.
With that functionality and the last 1 and 1 of the less functionality is.
The confirmation in revenue, meaning now our customers can and get it from some of the skull and a big the slot at the which they want the product they would CUSIP and master.
The transaction is done without any.
And the intervention, but our customers we understand that's very valuable functionality.
That having.
And globally.
And Barry.
Very soon.
The other feature.
Features or the other ideas we have with this platform is.
The true.
The platform, but adding other pieces, we want to participate in the <unk>.
Logos the.
Nowadays being the bandwidth and the construction of space because of the hit both technologies being applied to them.
So we have decent and ways to relate to the platform.
And through API API, we have the venlo.
The same mix development center.
To facilitate the customers to connect with us through APR is among the 70 to the platform itself and.
Make the relax much simpler.
And then youll see their own systems.
Price mainly to the segment operating launch.
The customers.
So we want to expand the the.
The scope of our platform into the construction space and that's what we have been doing.
And lately the.
The other domain.
And how to apply the technologies accompanied with further.
And with practices in the way we manage the company.
And you might remember that some time ago with the bedroom what.
And we call them the.
The global service.
The.
Center.
For the summer.
Outsourcing most of our back office activities and the ones that we kept internally.
And frankly constant trade.
<unk>.
To meet the as much as possible.
And now we are taking that concept.
Is to the let's say the 4 zero and the type of idea.
And we're in the process of deploying.
The forward the concept with what we're calling now worked and smarter, which is part of the initiatives of operational resilience and.
So the concept we are going to go deeper into.
And to outsourcing, we're going to go deeper into global and I think our coffee solutions.
And pricing.
And true true all those efforts.
Covering all the back office and some portions of the settlement deliver the model, we do expect to be even more efficient.
<unk> with customers and more efficient with our resources and saving about $100 million, but the next year.
But that said the main on how we manage the the company.
When measuring.
US opex per sales last quarter, we just got 7 points.
Per se, which is our lower.
Figure EBIT.
We do continue finding ways to reduce the investment we do while managing the company and <unk>.
And these operations are production and on that.
And that we got to we have been applying some.
And they get the.
Sections.
The safe energy in the case of cement and others in the case of aggregates to automate and facilitate the work at <unk>.
Works and how our customers other set of too.
Whereas now.
But the we can expect for the Fisher is the.
These technologies will continue.
And Beijing, let's put it that way the way we work the way we serve the way we manage the way we operate and that should be translated into the efficiencies and should be translated in the case of our customers.
The into a superior customer experience I think the best.
So the impact that we have received from customers is the again about 90% of recurring customers.
Are using the admin it doesn't and wait for them to relate from stomach.
Okay.
Perfect Fernando Thank you very much the cleanup and right on time and the lovely revenue.
The risks.
And thank you very much thank you.
Well, we appreciate you joining us today for our second quarter webcast and conference call.
You have any additional questions as always please feel free to reach out to the Investor Relations team and we look forward and seeing you again on.
The third quarter results webcast and many thanks.
Thank you for participating in today's conference. This concludes the presentation and you may now disconnect and have a great day.