Q3 2021 Cemex SAB de CV Earnings Call
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[laughter].
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Good morning, and come to the Capex there.
The conference call.
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All right.
Yes.
You bet.
We will conduct a question.
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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 will turn the conference over to Lucy Rodriguez Executive Vice President of Investor Relations Corporate Communications and public Affairs. Please proceed.
Good morning, Thank you for joining us today on our third quarter 2021 conference call and webcast.
I Hope this call finds you and your families good health.
Joining today by Fernando <unk>, our CEO and Montreal Jafar our CFO.
And you are aware, we hosted the second part of our annual Analyst day, three weeks ago and as a result, today's commentary will be more abbreviated and focused on the quarter.
Encourage you to access the full recording and slides of our analyst day some stock.
As always we will spend a few minutes reviewing the business and then we'd be happy to take your questions I will now hand, it over to Fernando.
Thanks, we will see and thanks to everyone.
The first quarter, we had strong top line growth of 8% on a like for like basis.
And continued demand for our products as well as the acceleration of our pricing efforts to compensate for input cost inflation.
Pricing was the most important leveraging performance with all regions contributing to growth.
Yeah.
Cement prices rose, 6% year over year.
Year over year pricing percentage gain since fourth quarter 2016.
However.
This achievement was not sufficient to protect us against supply chain issues as well as solid and dry fuels electricity and transportation.
As a result consolidated EBITDA margin dropped one six percentage points.
Our solid waste, we moved decisively to address cost headwinds through pricing actions and you should expect that we will continue to do so in the future.
Meanwhile, our cost discipline continues to pay off as we maintained record low levels of Opex as a percentage.
Free cash flow after maintenance Capex was approximately $370 million.
Decreasing versus last year due to higher maintenance on the working capital investment.
But importantly, you.
Year to date free cash flow after maintenance capex level versus the prior year.
We continue to make progress on deleveraging with our leverage ratio now at 274 times.
A reduction of Cedar 0.11 times on a sequential basis.
Finally, I am pleased to announce that in the next days, we will be refinancing $3 billion to $5 billion of bank debt.
With an improvement in terms and conditions more reflective of an investment grade credit.
The security undermined the bank loans as well as the rest of our senior debt has fallen away.
And importantly, the bank debt under the new agreement will be aligned with our recently announced the sustainability linked financing framework.
Mark will elaborate on this during his remarks.
Okay.
Despite the weather impacts in several major markets.
Volumes were an important driver to sales with growth in all regions.
Total domestic cement, which includes cement <unk> and Patriot as well as aggregate grew 2%.
On an average daily sales basis.
With formal construction recovering in emerging markets ready mixed volumes were up 5%.
While sales of our new business line of organization solutions continues to expand with growth of 16%.
Pricing. However was the most important driver of sales with all regions and products contributing to growth.
Year to date cement pricing.
<unk> was complemented in third quarter by a second round of pricing increases in Mexico, United States and Europe.
In the case of the United States and Europe. This was the first time in almost 15 years that we have introduced a second round of national cement price increases in the same year.
Okay.
These announcements were successful as evidenced by sequential pricing gains in all three regions.
And third quarter.
EBITDA declined 1% like to like.
Volume contribution at the EBITDA level largely reflects product mix in acquired we're ready mix volumes on organization solutions space grew more advanced cement.
Pricing was the largest contributor to EBITDA.
While pricing was sufficient to cover the screened invite it will cost and freight.
Largely energy related it was not enough to compensate for the rising cost of inputs.
Imports primarily in the U S.
Responsible for one eight percentage points headwind in margin.
While we do believe some of these cost headwinds such as shipping and food shortages are transitory in nature.
We are moving quickly to adjust pricing.
With tight supply demand dynamics in most markets.
Expect such actions to be successful.
In our back to main markets you should expect continued rapid adjustment to recover input cost inflation.
While in our developed market portfolio, we are seeking to increase the frequency of pricing increases to better reflect cost headwinds.
And for all markets. We are currently preparing.
2022 pricing announcements.
Which for many developed markets may include two pricing increases in the year.
Opex as a percent of sales was flat sequentially at seven 4%.
Equal to second quarter, 2021, a record low and one four percentage points lower than the prior year.
With new initiatives, such as our working smarter program.
Our global initiative, the science to utilize digital platforms and automation technologies.
<unk> on our centralized business processes.
You should expect continued savings on this front in 2022.
Finally, we benefited from an important FX tailwind in the quarter was $21 million.
The gains came primarily from the appreciation of the Mexican peso and British pound.
Okay.
In the quarter with.
We continue to advance on our operational resilience targets.
Despite the rising the extraordinary causal we experienced in the third quarter.
We are still within the range of our EBITDA margin goal of 20%.
Yeah.
We continue to make sequential progress in deleveraging with a decline of one one of a third and leverage.
We increased our bolt on margin enhancement portfolio of approved projects by $90 million to $800 million.
And finally with regard to our sustainability agenda, it was a big quarter.
I'll stand generally we reduced carbon emissions by 1% sequentially.
We received validation of our 2030 scope, one and two targets from SBC.
Under the well below two degrees scenario.
Currently the most ambitious pathway available for our industry.
And we signed the business ambition for one five degree commitment.
Mining <unk> mix with the goal of the Paris climate agreement to keep global temperature rise to one five degrees Celsius are both great industrial levels.
With this agreement.
<unk> also joined the rest of the CRE initiative.
A global effort.
The United Nations by which governments and private sector accounts together to create a carbon neutral economy by 2050.
Finally.
We are proud that the global cement and concrete association of which we are a founding member has launched an industry roadmaps to reach net zero incomplete by 2050.
That roadmap includes an ambitious 2030 target for the industry to eliminate 5 billion tons of tier two by 2030.
Yeah.
Importantly, the roadmap marks the biggest global commitment by an industry net zero to date with major cement and concrete producers responsible for 80% of total production outside China signing on.
And now back to Yossi.
Thank you Fernando.
Despite heavy rains and hurricanes in the quarter. The U S continued to enjoy strong demand across all products most of our markets full now.
Cement volumes grew double digit in three of our four key states. The outlier was once again, Texas, which experienced significant weather issues in the quarter.
Demand continues to be driven primarily by the residential sector.
In response to severe input cost inflation related to imports and energy, we announced a second round of pricing increases for the third quarter. The first time in 15 years, we have introduced a second round of pricing throughout our U S footprint.
The pricing announcement, which covered our cement and ready mix businesses resulted in pricing prices, increasing 2% sequentially.
And while we are pleased by the new cadence of pricing increases it is still not enough to compensate for today's rising cost in energy imports.
We'll continue to consider these costs in our 2022 pricing increases.
We have already announced price increases for January for Florida, and Southern California area, which represents approximately 35% of our cement volumes.
We will soon be announcing pricing increases for April for the remainder of our markets and we intend to announce subsequent pricing increase for the summer early fall.
During the quarter, we experienced inflationary headwinds driven by a 34% increase in the year over year cost of imports and a 19% rise in energy cost.
As a result, our EBITDA margin declined by three six percentage points.
As we look forward, we remain optimistic on the outlook for volumes in the U S.
We believe that while residential growth is slowing from the strong pace of the last 12 months.
We'll continue to add incremental volumes over the medium term.
We also expect industrial and commercial demand to rebound in 2022.
Finally for infrastructure, we remain optimistic regarding the passage of the infrastructure plan, which we would expect to yield incremental demand for our products towards the end of 2022.
In Mexico, net sales increased 10% driven by strong pricing and volumes with continued recovery in the formal sector ready mix and aggregates showed strong growth.
Aggregates have now joined bagged and bulk cement as products that have surpassed pre pandemic levels, while ready mix continues to recover.
Cement volumes declined 3% in the quarter due to adverse weather and more difficult year over year comps to.
The decline also reflects a slowdown in bagged product after five quarters double digit price to.
A moderation was due to more difficult year over year comparisons as well as front ended government social programs spending in an election year.
With the acceleration in formal sector activity bulk cement volumes grew partially offsetting the decline in bank product.
While EBITDA rose, 7% in the quarter EBITDA margins compressed eight percentage points, mainly due to higher fuel and freight cost and product mix.
Despite good traction in our pricing actions year to date pricing gains have not been sufficient to compensate for input cost inflation, particularly fuels to this effect, we announced a price increase of mid single digits.
Bagged cement effective end of October.
You should expect that our pricing strategy will continue to reflect input cost inflation.
Demand fundamentals in Mexico remains strong with a high level of capacity utilization for the industry.
Formal housing continues to gain momentum and drive formal sector demand <unk>.
Housing starts and permits increased more than 60% year to date September.
Going forward low levels of inventory attractive mortgage rates and availability as well as job creation should support volumes.
As mentioned at our next day the industrial segment is also picking up momentum.
We continue to see development warehouses and manufacturing facilities in border States.
And the build out of distribution centers and logistic comps throughout the country.
As travel restrictions ease the tourism sector is growing once again and previously installed tourism projects are resuming.
We remain optimistic regarding the prospects of the Mexican market, we expect cement demand to continue to grow over the medium term, but at more moderated levels.
<unk> growth rates will be supported by strong remittances job creation consumer spending and the government prioritization of social programs that use bank Smith.
Meanwhile, bulk cement ready mix and aggregates should continue improving on the back of the GDP growth and the acceleration of formal construction.
Formal residential demand, coupled with industrial activity and flagship infrastructure projects should drive volumes going forward.
In EMEA topline growth in Europe, driven by strong volumes and pricing more than offset a slight decline in sales in Asia Middle East and Africa.
European cement volumes were up 4% led by double digit growth in the U K and Poland. As these markets continue to benefit from important infrastructure and residential projects.
Given the tight capacity utilization in Europe, and the southern run up in input cost inflation.
We implemented a successful second price increase in several European markets.
As a result, Europeans cement prices are up 2% sequentially.
Price achievements to date however.
Still not sufficient to offset the cost inflation, we are experiencing in most European markets.
This inflationary cost story played out throughout the entire EMEA region in the form of higher energy distribution, an important cost with consequences for EBITDA and margins.
EBITDA for the region declined 9% year over year.
In Israel after adjusting for holidays in the quarter average daily sales volume showed significant momentum with ready mix up 10% in aggregate.
3%.
In the Philippines cement volumes were stable year over year impacted by the rainy season, and a difficult prior year comparison base.
Operational cost in the Philippines also rose due to the higher cost of imports.
For more information please see our CHP quarterly earnings which will be available this evening.
Finally in Egypt, we are seeing improved supply demand dynamics after government decree to rationalize cement production.
Our South Central America, and Caribbean operations continue showing strong growth dynamics with net sales up 10% year over year.
Despite a lockdown in Jamaica in the quarter regional cement volumes increased 5% driven by double digit growth in the Dominican Republic in Central America.
With successful pricing actions year to date in most markets.
Prices in the quarter, however declined sequentially largely due to product and geographic mix.
While EBITDA increased 3% EBITDA margins from the region declined as a result of higher fuel imports and maintenance.
In Colombia cement growth was supported by housing self construction and infrastructure.
The outlook for cement volumes in Colombia remains favorable supported by a healthy self construction sector <unk> highway projects as well as the rollout of new infrastructure programs.
In the Dominican Republic cement volumes grew 11% on the back of the dynamic self construction sector and the reactivation of delayed tourism projects.
Going forward, we expect the self construction sector to continue to benefit from a high level of <unk>, while the formal sector maintains its recovery trajectory.
We expect that our strong logistics network, coupled with the introduction of our planned net capacity additions into a largely sold out region will continue to be an important competitive advantage I invite you to review <unk> quarterly results, which were also published today and now I will pass the call.
<unk> to <unk> to review, our financial performance and energy cost structure.
Thank you Lucy and good day to everyone as Fernando mentioned at the beginning of the call. Our results year to date have been quite strong with free cash flow more than doubling.
From last year.
This growth in free cash flow is driven mainly by strong operational results and lower financial expenses, partially offset by higher capex and investment in working capital.
We refinanced approximately 50% of our debt stack. This year at a lower cost that has translated into a reduction of 60 basis points and our cost of debt.
This figure includes the refinancing of our bank facility in the next few days as Fernando mentioned.
This in conjunction with debt reduction has translated into interest expense savings of $92 million year to date.
We expect to reach savings of $120 million for the year.
Investment in working capital is higher than last year, driven primarily by inventory buildup and related inflation among other effects.
In terms of days. However, we are seeing a reduction of two days working capital.
Two minus 14 days year to date, driven primarily by better collections efficiency.
Net income for the quarter is $1 $2 billion higher than last year, driven by better operating performance and lower financial expense. However for the quarter and resulted in a loss of $376 million driven primarily by a close to $500 million non.
Noncash impairment, mostly related to goodwill in our operations in Spain, and the United Arab Emirates.
Year to date net income is up $2 $1 billion year over year, reflecting better operational results sale of <unk> credits as well as lower impairment charges this year versus last.
As Fernando said, we are pleased to announce that we have syndicated a new bank facility for $3 billion to $5 billion.
Which is replacing our previous $3 $1 billion facility. This is of course subject to final documentation and customary closing conditions.
The new facility represents a major milestone in our path to investment grade.
It's single currency.
With a term loan of $1 $5 billion with final maturity in 2026, and with a larger committed revolving credit facility of $1 75 billion.
A little more than $600 million higher than our previous committed revolving credit line.
This larger committed facility will further strengthen our liquidity position, which is very favorable from a company risk and credit rating perspective.
The interest rate is based on our leverage ratio and is about 25 basis points lower on average than what we currently have.
It is unsecured with a simpler guarantor structure.
Earlier this month, we announced that the security underlying all our senior debt, including our senior secured bonds had fallen away after reaching certain leverage milestones.
Our new financial covenants are consistent with an investment grade capital structure with a maximum leverage ratio of 375 times throughout the life of the loan and a minimum interest coverage ratio of 275 times.
And finally this facility represents the first indebtedness under our recently published sustainability linked financing framework.
Which we intend to replicate across our debts back overtime.
As a result of the refinancing activities, we've executed during the year and pro forma the new bank credit facility, we have the best runway and our maturity schedule and more than a decade with a record high average life of debt of six four years and with the lowest cost of debt in recent times.
Our improved financial profile and better operational results led S&P to recently improve our credit outlook from negative to positive with a strong liquidity assessment.
As you can see on the chart for the next four years, our maturities are less than $1 billion, each year, which should be more than covered by our expected free cash flow generation.
We will continue lowering our cost of funding, while maintaining a prudent maturity profile.
Given the recent spike in energy markets I would like to spend a few minutes to address this topic in our most energy intensive part of our business, which is cement.
In 2020 energy in the production of cement was approximately $930 million.
With regards to kiln fuel alternative fuels are almost 30% of our fuel mix in growing and almost half of that is with biomass content.
This is important not only because they have lower <unk> footprint, but also on a per calorie basis may represent a fraction of what fossil fuels costs. In addition, they have different price drivers in fossil fuels.
And in some geographies alternative fuels are no longer cost, but have been converted into a revenue stream. For example in Europe three of our major markets have negative cost of alternative fuels. An excellent example of how the cement industry can contribute to a circular economy with the right public policy incentives.
Our <unk> roadmap has a target of 50% of alternative fuels usage by 2030.
And progress on this goal should help us further reduce our carbon footprint and fuel costs as well as dampening price volatility.
Now moving to electricity approximately 30% of our needs are sourced from clean power, which is less volatile than electricity generated from fossil fuels.
In total for 2021 in terms of price exposure approximately half of our energy consumption has been fixed for periods ranging from six months to 20 years.
As you can see in the line graph, despite sharp volatility in primary and fuels our energy cost per ton of cement produced has remained fairly stable growing 12% year to date.
We are expecting 14% for the full year.
Finally.
We also have exposure to energy outside of cement production, specifically diesel which is used in our transportation activities.
Diesel accounts for approximately 2% of total Cogs, plus opex or $230 million, we typically hedge at least 50% of our total annual diesel needs and that strategy has certainly paid off in this year and now back to you Fernando.
Thank you Margaret.
I'm not aware of Cemex day, we gave a preliminary estimate of a cost headwind of approximately $100 million due to supply chain transportation and inflationary pressures.
After close in third quarter, and considering recent volatility and supply chain disruptions. We believe there could be downside risks to our initial estimate.
As a result, we are.
Our lowering our 2021 EBITDA guidance to a range of $2 $95 billion to $3 billion.
This range considers a marginally higher adjustment from what was discussed at some legacy.
We expect that pricing increases going forward will offset the input cost inflation, but it will occur with a lag.
Given the high capacity utilization in most of our markets. We are confident that we'll be able to price through this call with time.
And we think this is already happening.
Since in third quarter, we saw the best percentage price growth in cement.
2016.
Importantly, we are not making changes to our expectations of sales growth.
Our regional volume guidance, which is available in depending of the presentation remains unchanged.
We have adjusted our work our guidance for energy cost in the production of cement to 14% growth.
<unk>, our prior 12% estimate.
Due largely to supply chain disruptions, we are lowering our total capex guidance by $100 million.
Finally for.
For the working capital we are expecting an investment of approximately $200 million.
For the year.
The economic outlook for our footprint is favorable.
And what is a cyclical business most of our markets are operating at sustainable mid cycle levels, while others are entering an up cycle after years of decline.
While we expect volume growth will be more muted.
Difficult prior year comps.
We continue to expect growth driven by pandemic reopening and fiscal and monetary stimulus.
Supply demand dynamics across the portfolio are tight and should be supportive of price.
With our production and logistics network, we are uniquely positioned to deliver on this growth opportunity.
Entity will remain a headwind for the foreseeable future.
But we believe our energy diversification strategy on pricing will provide counterbalance.
Okay.
We will remain vigilant on cost and there is more visibility on supply chain resolution.
Our investment focus remains on our bolt on investment portfolio.
We believe that our ample opportunities for us over the next two to three years.
The return on these investments should continue to support EBITDA growth in 2022 and beyond.
And finally, we will continue to advance on our climate action goals.
Not only because it creates value for stakeholders.
Because it is the right thing to do for our future generations.
And now back to you Lucy.
Before we go into our Q&A session I would like to remind you that any forward looking statements. We make today are based on our current knowledge of the markets in which we operate and could change in the future due to a variety of factors beyond our control.
In addition, unless the context indicate otherwise all references to pricing initiatives price increases or decreases refer to prices for our products.
And now we will be happy to take your questions in the interest of time to give other people an opportunity to participate.
Kindly ask that you limit yourself to only one question.
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 Press Star followed by chip.
Press Star one to begin.
And the first question comes from Adrien Wester from Jpmorgan. Please go ahead.
Thank you Lucy Hi, Fernando market.
I want to talk about the hi, I wanted to talk about this year's guidance and next year's expectations. So number one.
Based on the new EBITDA guidance that you provided the implied <unk> two.
B with a growth of around 10% to 18% year on year, which is much better than <unk> growth of plus 2% what will be different in the fourth quarter versus the third quarter and what gives you confidence on this implied EBITDA for <unk> energy cost and imports will likely not changed much versus versus <unk>. That's number one and then number.
Two is.
There's very good momentum on prices.
And so far cement prices up 4% in local currency year over year in the first nine months stronger in the <unk>.
In the last quarter aggregates and ready mix, one 2% should we expect a stronger pricing next year given the comment that you have mentioned should we expect a couple of percentage points more and if that will be more than enough to offset the higher energy cost pressure that we'll see next year.
Thanks, Javier let me start with the first question about the fourth quarter EBITDA growth.
I would like to refer mainly to <unk>.
One is the.
In Asia our.
Jeff at pricing strategy.
And the second one.
<unk>.
Lower level.
Maintenance, we're going to be having during the fourth quarter.
Thanks, Brett.
Our originated by the pandemic, our maintenance are being changing timing because initially.
Slowing down or even shifting dollars now.
So it was running at full capacity so we have some.
Adjustments in maintenance, but we do expect a little bit of maintenance during the.
During the last.
Now, let me refer to the Internet.
Jeff.
Because it is impacting already winning even more because the fourth quarter.
<unk>.
If we set expectations on pricing for next year.
Okay basically described.
Got it.
We all know what happened.
That was solid signs of inflation in the year, but nothing nothing skier.
As we know nowadays.
We started feeling the impact.
Of the input cost inflation in Spanish.
And during the second quarter.
No.
Pardon me.
React immediately to the spend number that we have seen it in the past.
It takes some time.
Okay.
Two two.
Chad.
Sure.
The whole market to move forward with a different pricing.
So okay.
When <unk> is approved.
But it is growing is growing and it's going very well and that will be some revision of the national for the full quarter.
Great.
So the fact that our prices.
We made sure to them.
Embedding a separate 250 September 'twenty one.
Prices have increased 15% in EMEA.
9%, Mexico at 7%.
So that will continue happening.
In the fourth quarter.
We do believe.
Okay.
And that sure.
<unk> pricing strategy year 'twenty two.
Allow us to minimize the impact of inflation.
And next year.
Why am I talking about Jeff.
Okay perfect.
And we have managed to increase depending on the market.
<unk>.
The UCITS in the market and increased prices.
During the year.
This new law.
Levels of <unk>.
Okay. So.
So I think we.
With a better prepared in network pricing strategy for next year.
We can.
We can say that with fed reacting in the second quarter.
Effectively.
By the summer of next year.
In January the first solid.
So the APAC segment.
It will be much larger than what it was.
Sure.
These here.
Alright.
Yes, I think I think that's included and.
While I was going to say just to follow up on when you set up on the maintenance the lower level of maintenance can you can you quantify that a little bit on the on what it would be <unk> versus what we saw in <unk>.
I don't have that in for Andy I don't know if market yes.
Yes, Fernando I can I can I cannot comment on that.
One thing I wanted to add too which is on the maintenance topic is that remember that third quarter last year, we were in kind of virtual lockdown.
And maintenance.
It was relatively.
Low compared to third quarter of this year.
So I think that when you are looking at the sequential third quarter to fourth quarter, you have to consider that I mean.
We have an increased scope of maintenance quite significantly in the in the third quarter and going into the fourth quarter.
I mean, we have an estimate.
Mid teens to low 20 difference between third quarter and fourth quarter in terms of in terms of maintenance.
Perennial.
So that that in itself is up as a big item. The other thing I wanted to mentioned also at the and complementing what Fernando said.
On the supply chain side again, we need to take a look at what happened in the third quarter, we had a particular spike in imports and purchases.
One of our biggest markets, which is the U S.
And we think that will be managed.
More better I would say or let's say without the surprise that we had in the in the second quarter you have the ramp up of <unk> and other imports coming from from Mexico, which should also help in that so so so you have the pricing of the cost. The fact, you have the supply chain effect and then the maintenance effect.
That's what gives us the comfort that we should have the sufficient sequential growth to get us to the full year range that Fernand.
Fernando guided too.
Thank you Fernando.
Thanks.
Thank you and the next question comes from Francisco Chavez from BBVA.
Please go ahead.
Hi.
<unk> protocol.
No.
We'll see.
My question is regarding the <unk>.
Drop.
In EBITDA margins besides the increase in cement.
Do you have.
Yeah.
And the specific strategy to offset these margin erosion.
Specifically cost savings plan.
Or maybe can we expect the bolt on investments.
To offset.
This margin erosion. Thank you.
Sure let me let.
Let me start with a few comments.
Perhaps half towards either Marc Hedrick, Lucy can complement.
I think that that is not a single bullet to deal with the levels of inflation, we have seen in the last few months.
I would like to refer to trade issues.
The most relevant one is our pricing strategy.
That of course is the.
The bad points.
Higher levels of inflation.
As I commented in the previous question.
We have already adjusted.
Since we started early meeting during the second quarter.
Adjusting our prices according to our inflation expectations for the.
The rest the year.
You said we have already.
Managed to increase 2% to four times.
Price depending on.
And market conditions and practices.
And I think as of September one.
Our price increases have shown extraordinary compared to previous.
Years and.
Although we do believe they will continue to be extraordinary in terms of higher increases to cope with higher.
Inflation.
The first column.
Then there are other issues related cost reductions.
I'm not going to make.
<unk>.
This can pressure on issues, but limited.
Okay.
With <unk>, but higher impact positive impact in next year.
The increase in the use of alternative fuels.
Our new know authentic fuels in our case.
You're seeing basically RSV F <unk>.
With a few.
Is it coming from wafer with high confidence of BIOLASE.
<unk> did not relate to the price of oil coal pet coke or any other so when we see these high prices in pet Coke and others alternative fuels tend to be much more attractive.
We continue to increase and deliver the alternative fuels. We are just finishing the investments in our plant in the UK. So you can expect some savings in Patrick Murphy had already mentioned in.
In the case of <unk> in some countries all of them.
That trend move forward.
When when achieving.
So for about 90% with this hotel to fields, our higher our highest production cost fuel <unk>.
Income stream.
Got it.
David will have some positive impact because of this.
Issues. Another one is the progress we are doing in eyewear.
Digitization.
P.
This case.
Comparing to seven months ago, we choose forward, our digital strategy towards customers and preparing for what we call <unk>.
Moderate which is no different.
Digitizing, all internal processes administrative processes that but.
But we started.
<unk> initiated this year and we start having impact.
Next.
Next year.
No.
The other thing that I would like to comment on.
What I can see that the most important variable which is.
Adjusted pricing throughout the year.
The comments I made on the cost part.
Also like to call the attention to that.
The fact that our random.
Reductions in margins.
It caused by mix effects are not in the consolidated because of inflation.
No in the case of our.
Our cement plants are sold out.
Any additional.
Volume.
That we need.
In order to serve the market.
Market that is growing its coming from inputs.
Cement imports do have a much lower margin.
We take gains on sale.
Okay.
We had increased volumes in the U S.
Increasing our important.
Let's say in lodging our important input business.
Great.
Having.
Around three percentage points of impacting margin, that's got nothing to do with vacations, It's Jeff.
As of April we lowered margin increasing much more than the production that we have of the U S.
On a similar story, meaning accumulating 30 of them.
Margin impact what singularity.
Singularity.
Okay.
What is causing it is in Mexico.
As we have been describing during the year.
The first segment indication, Mexico and other countries in the emerging countries. The first segment reacting after we walked it down somewhat.
The impact of the <unk> equivalent of items in the second quarter of last year, whereas the bank cement.
Yes.
Segment.
What we have seen already after the V shaped recovery that we saw in the second quarter last year.
Is that back cement increased federal rapidly.
While the segments related to the photo on the economy in Mexico.
More of it right.
Recovery, but that.
Has continued.
Nowadays in Mexico, we have a modest proportion of the segments related to the formal economy name.
Ready mix bulk cement and aggregates.
This increase in this.
In this segment have impacted our bought against by about one five percentage points again because of mix not be colossal.
Sure.
So.
Again, most importantly, part on adjusted pricing strategy, continuing efforts to reduce cost and expenses and this clarification on.
<unk>.
Markets because of the different segments of our business accommodating to the way that the.
And nobody really quality has been happening.
In.
And different markets, while final comment is correct.
The impact in our growth strategy the impact of that supply chain constraints is having.
Definitely our projects.
Most of our growth.
Projects out of bolt on investments, meaning they are greenfield brownfield type of investments and we have seen a delay in those investments.
Yes.
We have not had time to lead.
Yeah.
The permits everything has been sort of slow down because of.
These supply chain constraints.
We have adjusted our expectations also because of the way.
Not what is it that we are doing in that regard.
We are we are.
Pension and what we are trying.
To position.
Hard purchase orders to gain.
Loss to perform all of those projects as fast as possible.
What I can comment and your question.
Thanks, so much.
Thank you.
And the next question comes from Nik Lippmann from Morgan Stanley. Please go ahead.
Thank you very much thanks for the call and protecting my question.
I was wondering just changing a little bit to South America and ask perhaps a similar question you had very positive language with regards to pricing.
The Caribbean Colombian.
Margaret.
Can you give us some color on when you think that that we'll see that materialize, we will see.
Rising into 2022.
South of the dynamics that youre seeing in those.
Particular markets. Thanks, a lot.
Well.
Thanks.
I think the process itself on the strategy itself is very similar to the ones that I have described.
But.
Each each country in each market is different.
On.
What we have seen clearly is.
These adjusted pricing strategy has been.
Taken by the market.
In the case of the U S and Mexico.
In the case of some.
Some countries.
And because of basically you know that.
Because of basically being sold out.
These pricing strategies.
The bulbs, but in nicely and the guy in the case of South America, there might be some some markets and countries.
Our capacity is not fully utilized.
Strategies will strengthen.
<unk>.
The input cost inflation of about that is effective.
Okay.
So in the case of South America that might be.
A couple of markets.
One example is Panama.
In.
In our excess capital will not excess capacity capacity is not fully utilized so we might have some some.
So you should see that type of market.
In South America.
And maybe if I could just add one point that I think is important to just highlight for the quarter. In fact, a very important market is Jamaica, particularly in the Caribbean and Jamaica was under a very strict lockdown because of the emergence of Covid again in third quarter.
Affected volumes tremendously as well as we had significant maintenance there so should.
Jamaica is one of the higher priced markets. So I think when you look at pricing performance of stack for the for the quarter. It is impacted by that from again from a mix effect.
So just to keep that in mind.
Got it thanks a lot.
Thanks, Greg Thank you Ian.
And the next question comes from Carlos <unk> from Bank of America Carla.
Thank you Lucy Thanks for taking my question a.
Question is also related to pricing you mentioned that the new strategy will be to increase pricing at least twice a year and I wanted to ask if this applies also to Scott anemia, if theyre going to also be.
Following this the strategy of at least two increases a year and besides the increases you mentioned in Florida, California, and Mexico have you announced any other price increase for next year or for the remainder of the year and the other regions.
Let me start with the first question and I will pass the other one to market on.
<unk>.
Yes, Jeff just to clarify.
Our list.
Okay.
We do know.
Have a genital.
New strategy on pricing.
It's really not new.
The basis of the.
Strategy, we always have which is at least recovering input cost inflation. The thing is that exploration has increased dramatically. So.
The adjustment is how to cope with this level of inflation that's possible but.
We are not.
We do not have a global type of pricing strategy.
It is a global intent.
But the specific pricing strategy has to be a combo data to make a great market and the conditions in the market.
Just to clarify that I did mention that this year, we have been increasing in certain markets.
Increasing price twice a year.
Some other markets, we have increased four times already so.
But ahead of that.
The pricing strategy of two and perhaps three times a year is more related to developed markets like Europe and the U S.
At three four times per.
Per year is more related to bank cement in the mix.
That's because of the characteristics of.
Each market business.
I think regardless of the number of tanks, we adjust.
I remember with very high inflation.
A long time.
Monthly price increases on a weekly price increases, but I think what we what should be cleared but what we are doing is to at least.
Input cost inflation and next year, we will try to incorporate whatever inflation happens incentive on whatever we have lost in 2021.
The other consideration, but I think <unk>.
It is relevant.
Again remember that our action to a much higher installation in our pricing strategy didn't start in January this year, we started second quarter at the end of the second quarter, let's say during the summer and.
Next year it has already started.
<unk>.
With that we have announced already considering much higher levels of inflation.
The frequency of those increments will be also different.
During next year.
So that's what I have to say I don't know Martin can you comment on the second part please.
Yes, Carlos could you repeat the second piece on me because I feel it Fernando maybe covered it what was the second.
A part of your question.
The second part of my her was whether they have already announced price increases in.
Other regions apart from Mexico, California, and Florida that Fernando mentioned.
Yes, yes of course, I mean, we.
We.
Again, Europe is difficult to talk about but in Europe, we've had announcements in July and there are announcements for.
Later this year in Spain.
You had obviously the beginning of the year and then you had in October and also some pricing increases in Poland. You had announcing increases both in April and Spain in September.
In Colombia, you had two.
Two pricing increases in January and then in May during the year in the.
Philippines.
Although the market there is a little bit difficult to you know there was an announcement in August. So so it is really throughout our portfolio that there has been.
Multiple pricing increases and as Fernando said, I mean going into 'twenty two.
There's probably likely to be more timely.
<unk> increases proactively then probably this year.
And and we book and we believe the traction I mean, and I would like to come back to a point that Fernando mentioned early on in his Q&A and that is the acceleration of pricing on a sequential basis. The point to point pricing in our markets is really really critical Carlos I mean, having.
A 15% pricing increase in EMEA.
Primarily as a consequence of the pricing actions in Europe.
Point to point December to September very important Mexico, 9% point to point U S. 7% and these are happening roughly from middle of the year into the third quarter. So we're likely to see better pricing acceleration into the fourth quarter and certainly into into next year and.
And as Fernando said with several of the markets, we're operating in being sold out.
The dynamics for traction should be.
More favorable.
Understood. Thank you.
Thank you very much Carlos thanks.
And the next question comes from Barbara Halberstadt from J P Morgan and fixed income.
My question is on the cost increases seen particularly in the U S and Europe.
Persistence do you think these pressures are also how do you see these inflationary pressures in Mexico in fact, which seems to have been more contained this quarter I think we've talked a little bit about the last point that maybe how persistent do you think these pressures are in the U S and Europe.
Well I think I think what we.
What we can comment is that we are considering as.
Our <unk>.
Base case scenario that inflation will continue.
The shipping cost.
To be declining or not into British short term.
The the.
The international rig losses in oil and natural gas coal pet Coke.
We will be maintained.
Great.
Even going a little bit further.
Bottler.
But all in all as being.
<unk> we are assuming.
Yes.
Inflation will be sustained.
And that's the base case, we added can see bidding again for our adjusted pricing strategy.
So that is basically what.
What we see on volume.
How persistent this inflation will be.
We are preparing but this inflation is caused because of demand.
Well, that's a supply chalk maybe think variety and most probably that will be the case, but we are this is our base case scenario and inflation for the rest of <unk>.
The rest of the year of 2022.
And if I can add Fernando.
Hi, Barbara and the other component here is.
A good portion as you can see as.
As you saw in the presentation once be purchased the purchase of cement and clinker or the importance of cement and clinker primarily in the U S and to a lesser extent in the UK, because because we shut down a plant there.
And in the U S.
There was there was a spike in need for product because we're sold out in the market grew at.
Apparently high rate.
Now as you know we are ramping up production in.
A couple of our plants in Mexico for exports into the U S.
That is likely to help going into next year.
And and also managing better the transportation contracting transportation I mean, as Fernando said, we don't expect transportation to go down, but but if youre if youre if youre contracting transportation.
And on a very short term basis, it's likely to be higher than if you were managing it on a longer term basis. So so we do expect inflation to be persistent but we also expect.
Managing the cost going into 'twenty two.
In the U S and.
All of our markets, but in particularly in the U S where we are.
The source of input costs, there because the business was doing very well I mean, not because of bad reasons, it's because of good reasons that thats happened frankly.
I think we can go to the next question yes, okay.
Alright, I seem to be having one of those virtual hazards from working from home with the lung through here.
Sure.
The next question comes from Vanessa Quiroga from Credit Suisse, and I will go on mute.
Thank you guys handle methane Lucy and Mike.
Is regarding <unk>.
<unk> 2000, <unk> guidance that you have provided.
10% growth in EBITDA.
How comfortable do you feel right now would be a potential growth.
And maybe just quickly if you could breakdown.
<unk> in Nigeria, and maybe that might do for Mexico home lines, what it did to newspaper of a week from much higher energy prices and how much much higher maintenance that would be extremely helpful. Thanks.
I will take the first part that I would like to ask market to take the.
Second one.
So that's why we are we have as you know we have reduced our guidance for this year.
<unk> 952 billion, so thats already.
Lower base, when we gave the guidance of 10%.
Two.
10% growth of the 2021 base.
So we feel.
Steve Let me tell you the positives.
Concerns we have on that guidance. So we feel positive in terms of our market volumes continue evolving in a very positive manner.
Using that as an example, the U S.
Mexico.
Although we've seen adjustments to a lower numbers in GDP growth and general terms. So thats a multiple of one percentage point here and there we have not seen that translated into a lower.
Or.
A direct impact in our in our.
Activity in our sector in construction.
So you know the story very well in the case of the U S. We do see housing.
Very positive multistate looming.
A couple of pieces of info.
Inventory levels are getting into.
Level, two or three months.
Already I consider that that's already at some sort of scarcity.
It is too low at the same time that are very positive.
Epitopes.
<unk>.
Mortgage mortgages employment.
We believe that the housing in the U S will continue being very positive.
Infrastructure, even even without the new infrastructure buildup of course, we do expect.
Got it.
During the fourth quarter, but but even without that.
FX is structuring has been a contributor in kinder moderate manav budget's been contributing and in the case of industrial and commercial.
<unk> Neal, but coming back that's the part of the economy that is coming back.
After the heavy impact of COVID-19 in the economy.
Same thing for Mexico, Mexico housing permit 60% growth.
Mortgage mortgages all the.
The public works already.
Hi, Pete Opex.
Execution of the training.
Projecting.
Perfect is small so we feel that top of the line volumes are doing okay.
Have not changed our view in that regard.
And when commencing on the other product that language our prices I think I covered already described.
We have adjusted our pricing strategies.
But you can expect is for us trying to cope at least to cope with inflation that we didn't manage to recover in 2021 plus inflation. We are expecting in 2022, I already said that our base case scenario, but we believe that this inflation inflation will be sustained during next year.
So I think that is very positive I already mentioned a few positive.
The issues on cost.
At auctions.
I was going to feel as being one one of my others describe one specific example, we're going to be finishing next month in the U K.
Moving to power all we've gone from about 60% of <unk> percent or even more.
So those are the.
The positives.
The <unk> debt.
Dave debate lots of attention is the balance between between.
Patients on our pricing strategy.
Why is it that we are positive on the process because we have seen already.
We have committed volumes.
Claims.
Our pricing strategy when looking at it from December to September.
It has been effective.
Not effective enough to cope with inflation again instead of January at the FERC.
But it's been effective so we are we are very.
Difficult.
In multiple solid markets are sold out.
That is that it's a condition needed.
Effective passing inflation.
It to global markets.
Yes.
The market now.
The thing.
Thinking of next year.
We need to be.
800, and we credit by that.
Much more once we have the best of the year.
We reported this quarter.
How is it that the.
We've been evolving.
Yes.
<unk> second quarter last year, a lot of data coming out.
Okay.
Also mix not because of some modest inflation.
But all in all.
We do.
But next year, then it would be.
Growth.
Not sure on the percentage, we need to have value.
Due to valuation.
New spectrum.
293 billion.
Is that percentage thats, what makes it so that our four critical.
And.
And Vanessa on the margin.
I mean, a couple of things were happening in Mexico, I mean of course.
It did drop by 80 basis points the product mix. Once once was about one five percentage points of that and that was primarily due to if you take a look at particularly in the quarter cement volumes moderated.
This is very healthy growth in it.
Ready mix volumes and in aggregates volumes and so there is a little bit of that's.
Thats the product mix effect that is taking place.
On a full year basis or on a year to date basis cement volumes continues to outstrip.
The growth that we're seeing in ready mix and to a lesser extent in the case of aggregates.
We also had higher wages and salaries.
In the quarter, and Thats, primarily because of maintenance cost and inflation as well.
In terms of salaries in energy was of course, a very important.
Contributor that was that had a negative impact of almost three percentage points because of the real important spike in pet coke prices almost 150% on a year over year basis now of course.
All of that is being offset by very good pricing.
<unk>, which was almost 4545 percentage points offsetting some of these drops so and then the other component also that that was growing tremendously as organization solutions and urbanization solutions.
Also.
Lower margins good return on capital, but lower margins and that contributes a little bit to the product mix as well.
So I hope that covers the question.
And that's something that you had on that.
I can just add one point on the on the higher and the higher wages Vanessa a lot of that is related to the outsourcing law in Mexico that took.
Took place.
To be clear.
Thank you very much thanks.
Thanks Vanessa.
Next question I think we can answer fairly quickly because we've done part of it already but it is from Francisco Suarez from Scotiabank.
How far Fernando can you go to increase your fossil fuel substitution rate in the short term to mitigate the rise in energy cost and in which region. It is my understanding that at very high rates of capacity utilization you can't add more alternative fuel unless you add hydrogen.
Sure.
Sure.
Part of the question.
This call.
And you May know, our our assisted solution of primary fields.
With alternative fuels.
And let's turn to fuels, mainly RDF, meaning the field coming from household and industrial waste.
<unk> has been evolving Showtime.
Yeah.
With like 15 years ago, when we started the site to lead to move forward with this type of yields.
And we have managed to get to almost 30% substitution.
And you know, we have a target, but almost doubling that amount by 30.
So.
We continue the process I have already mentioned.
You mentioned a couple of things.
The specific project that is going to be finished by next month.
And it will contribute to the increasing certainty tools.
Okay.
Sure.
Paul.
We continue with this investment.
Everywhere.
There are material differences on the solutions for this type of alternative fuels in different countries basically.
Belo emerging but that our solution.
In Mexico, we are using about 25%.
Of our fuels.
So I'll turn it to choose the U S.
About 20 or slightly more percent.
So what you can expect that is that we will continue.
These these efforts no observations you are making on.
The high capacity.
<unk> Hello.
Two fields worldwide.
That is the case and that is why we have.
<unk> already incorporated hydrogen equipment in all our cement plants in Europe.
It's done.
The recent dean.
We do not want to slow down our <unk>.
<unk> strategy to the lack of capacity. So we are using hydrogen injection also.
<unk> seen oxygen.
An injection.
Being able to cope.
With both our strategy and organic two films, which has an impact.
In our climate action plan expired.
To reduce.
More than 40% of Q2.
By 2030.
<unk>.
Also to ensure that we can cope with the market now with all solutions put in place if needed.
We can all with that term.
Imports to call with our market position, but so far we.
We have not need to do that we have managed to keep the capacity in our plants with distinct solutions Youre mentioning India.
Great. Thank you very much and unfortunately, we only have time for one more question.
No need from Bank of America income. Please go ahead.
Thank you good morning, Fernando Maher Lindsay.
Thank you for taking the call as well.
Interesting and challenging times.
Wanted to ask I guess would be the best one to answer this question about the.
Some of the news on the debt front that you have so you released the collateral that was backing the financing agreements and for those of US who followed you for a while that's been in place for a long time.
So thats a big deal I think you mentioned that you simplified the guarantees. So I was wondering if you could tell us what the simplified guarantees would be and just to confirm is it still the same that when you reach investment grade those guarantees might fall away as well and then I just want to see.
What on this new financing that you are negotiating with.
With your new margins in lithium sustainability framework.
How much do you think will be initially outstanding because I believe the current amount under your.
Facilities is less than the $3 two 5 billion, which is what you are agreeing to right now. So if you have any information on that that would be helpful. Thank you very much.
Sure and thank you for your question I mean, just for everybody.
Under the previous.
The current facilities agreement, we have about nine nine guarantors and we're simplifying too for guarantors.
Two of the two of the guarantors are new.
That makes no financing on as the medical and <unk> innovation Holdings and.
For those of you who are interested in this in the details of the of the corporate structure you can get that on our investment on our Investor Relations.
Website, there is a very thorough our chart that shows all of the guarantors.
And and we're simplifying it we're taking essentially.
That makes a spine you and all of that chain that was involved with some expanding there just because of the comprehensive the cumbersome this of dealing with any amendments and all of that it's very costly to administer.
So that's the simplification, we're going from 9% to four and we're offering to new guarantors that are higher level. Essentially then then <unk> is finding out essentially and in terms of the pricing as.
As we said, it's going to be about a quarter of a percentage point.
On average.
Later than the current facility with the added benefit also and is that the facility is going to be instead of being multi currency. It is going to be in 100% in dollars.
And then we're going to swap half of the dollar amounts into into euros and the reason, we're doing that because that gives us the ability to benefit from the negative euro LIBOR that exists today as you know euribor is negative by somewhere around 50 657 basis points. So that effectively brings the overall weighted average.
Even more.
And then that because of that ability to do to do which we did not have under the under the previous.
<unk>.
In terms of in terms of the.
In terms of the sustainability piece.
This is the first time that that we do have financing under our sustainability framework as you know the framework has three key elements to it.
On <unk> emissions clean power.
Our cement operations in alternative fuels and theirs.
Two basis points up or down.
<unk> on the first metric and then Theres, one five basis points each on the other two metric again up and down and those metrics are very consistent with other.
Hi, non investment grade or low investment grade issuers that have come to the market recently I mean, we're right there within.
That that level and and I forget is there anything that I did not cover into the.
In your question.
The amount that you will initially have a filing under the new facility that column.
Yes of course, so the old facility was three one and we had.
<unk> 2 billion and right literally in the last month or so we we did a small prepayments on that so so the so out of the box next week when we close the transaction, we will have outstandings under the facility $1 5 billion under the term loan and we will have the full availability, we will not have any utilization under.
The committed revolving credit facility, which will be for $175 billion. So it'll be $1 5 billion outstanding under the term loan and Thats. It.
Okay, great. Thank you very much good luck with that and congratulations. Thank you. Thank you very much and for your questions.
We appreciate you joining us today for our third quarter webcast and conference call. If you have any additional questions. Please feel free to reach out to Investor Relations and we look forward to seeing you again on our fourth quarter results. Many Yang.
Thank you for your participation in today's conference. This concludes the presentation you may now disconnect good day.