Q3 2022 Cemex SAB de CV Earnings Call
<unk> operation for Us and weather contributed significantly to the regional growth.
Consolidated prices continued to accelerate in third quarter with cement prices rising between 15% to 30% across all regions.
Europe is the standout with price increases that have been able to offset much of the margin pressure.
The 3% sequential growth in consolidated cement prices attests to the strength of our summer price increases.
We are in the process of announcing January increases.
That will reflect the significant input cost inflation, we are experiencing across our portfolio.
Pricing, however is not the only lever and.
And we remain focused on managing costs with our energy diversification supply chain on climate action strategies.
The decline in EBITDA is largely explained by a lower margin related to persistent input cost inflation.
The drop in volumes also contributed to the EBITDA drop.
Pricing was the strongest level of growth and was again able to more than offset total cost increases.
While margins declined the net contribution of price over cost has grown since the second quarter.
Suggesting some progress and beginning to recover margins.
We experienced a $30 million FX headwind largely due to the depreciation of European currencies.
The FX movement with our euro debt exposure of acting as a financial hedge did allow us to reduce debt by $46 million.
Across all three businesses, we have recovered inflation in dollar terms year to date.
But recovered in 2021 margins remains our primary goal on cement remains the largest pain points in that effort given its energy intensity.
Since last year, it's been our primary focus in our efforts to recover margins.
It is encouraging to note in the quarter that in two of our four regions will not only compensated for inflation in cement on a unitary dollar basis that actually began to recover the EBITDA margins.
We still have work to do and of course, we don't expect linear progress.
Volatility in the energy market will likely continue but we remain committed to recovering input cost inflation in our business.
Im pleased to announce that in early October we submitted for validation our 2015 net zero roadmap and revised 2030, the carbonization goals to LPTA. The new roadmap is aligned to the SVP ice recently issued one five degree scenario for our sector and include scope three emissions targets.
<unk> was a member of the expert advisory group that the work with <unk> to develop a decent scenario.
Our success in reducing carbon emissions since we introduced our efficient and action program at.
A decline of more than 8% since December 2020.
This has the confidence to commit to a more accelerated 2030 pathway.
With receipt of validation Pemex will continue to have the most ambitious the carbonization pathway in the cement concrete sector.
Our circle emissions have declined more than 4% year to date on progress is in line with our 2021 record production.
We will provide a more detailed discussion during our semi day event.
We have continued to execute on our operational resilience goal of rebalancing the portfolio towards developed markets.
Year to date, we have done close to $600 million in asset sales.
Proceeds will be used primarily to fund our bolt on investment strategy along with debt reduction.
And now back to unity.
Thank you Fernando despite.
Despite the decline in cement volumes net sales in Mexico grew 9% on the back of our pricing strategy and a pickup in informal sector demand.
While year over year comps became easier in the third quarter, we continued to experience volume declines in that product.
We attribute this movement and the normalization of bagged cement demand from the pandemic peak inflationary pressures impacting retail consumption as well as temporary market share loss related to our pricing strategy.
Bulk cement and ready mix continued to grow supported by the industrial and commercial sector and infrastructure.
Near shoring activity in the border states, the construction distribution and logistics networks as well as tourism are driving volumes in the formal sector with year to date project announcements more than $12 billion in private investments for industrial and logistics space.
EBITDA and EBITDA margin declined due to higher fuels maintenance distribution raw materials as well as product mix.
Maintenance outages, coupled with flooding and supply chain issues disruptive logistics in the northern part of the country, where supply demand dynamics are the tightest.
This led to a significant increase in distribution cost in the quarter as we sent product longer distances and had to rely on more expensive spot freight to meet customer demands.
We estimate that these issues, which we believe are temporary.
Counted for a headwind in year over year margins of approximately two two percentage points.
Our objective of recovering margins in mind, we announced a seven 5% increase in bag cement prices effective October 10th.
Additionally, we continue making strong inroads in our alternative fuel strategy.
Alternative fuel usage reached 38% in Mexico, almost 14 percentage points higher than in the prior year.
The move to alternatives not only benefit society, but is also an important lever in combating energy inflation finally, the high level of integration of our business with our sold out U S operations remains a unique competitive advantage, allowing us to meet the needs of the U S and cost effectively.
China, while also supporting capacity utilization domestically.
In the U S sales and EBITDA grew by double digits supported by growth in all products cement and aggregate volumes rose low single digits, while ready mix was flat.
Volumes were impacted by the arrival of Hurricane and the category four hurricane that hit Florida, one of our largest states in late September we estimate that the storm had an EBITDA impact of approximately $11 million in the quarter or close to one percentage point in margin.
Demand was largely driven by the industrial and commercial sector, which we expect to remain an important source of future growth.
Trailing 12 month contract awards in our four key states are up 31%.
Residential demand continues to grow in the quarter, albeit at a slower pace.
We have seen the first signs of weakness in the residential sector materialized in our business in northern California.
Infrastructure contributed to volume in the quarter and we are seeing encouraging signs for the rollout at the infrastructure Bill as trailing 12 months Highway and Street contract Awards was 14% for our four key states.
Supply demand dynamics remain quite tight in our markets with many of our customers on allocation.
Shell with strong demand, we are increasingly relying on imports from our Mexican operations as we continue to strategically leverage our unique distribution model.
Third quarter pricing announcements in states that represent 80% of our volumes saw strong traction we.
We have already announced additional pricing increases for the remainder of the year in January .
Despite the impact from the Hurricane we secured a two four percentage point sequential improvement in EBITDA margin, reflecting recovery fuel supply chain disruptions and maintenance cost of the second quarter.
On the cost side energy remains an important headwind.
While important cost square lease we are seeing signs of cost stabilization as shipping rate decline.
We expect the residential sector and to become a headwind to growth starting next year, but we believe near shoring. The recently passed inflation reduction act and the infrastructure investment and job that will act as a catalyst for future demand.
We are seeing positive signs from the jobs back that money is being deployed.
We are in the preliminary stages of this investment cycle and we're excited by the multi year impact on our business.
Despite the macro challenges EMEA continued to show remarkable resiliency with sales growing double digits, while EBITDA rose high single digits.
<unk> growth was driven by double digit price increases across all products.
Cement volumes declined 3%, reflecting a drop in utility and some weakness in private sector demand in Europe , which we would attribute to the economic slowdown.
We now expect 2022 volumes across our products in Europe to show a flat to low single digit decline.
We experienced sequential price growth in the region, reflecting the successful implementation of summary increases.
Europe in particular showed strong cement price traction with a 5% sequential increase and growing 30% year after year.
Despite the pricing efforts, however, cost, particularly fuels and electricity continued to escalate as evidenced by the decline in EBITDA margin.
We are in the process of executing additional pricing increases, which will rollout over the next three months.
In the face of significant energy volatility our European business continues to exhibit strength do with consolidated vertical footprint diversified businesses and leadership in key targeted innovation.
Year to date EBITDA has grown 7% in Europe .
In the quarter, our European operation continued to lead the way in carbon action achieving for the first time in more than 40% reduction in carbon emissions.
Region is well on its way to complying with the EU emissions reduction target.
At 55% reduction by 2030.
In the Philippines cement volumes declined double digits as the country transitions to a new government and macro challenges impact demand.
<unk> prices increased 4% the sixth consecutive quarter of improvement.
More information please see our CHP quarterly earnings which will be available this evening.
Our operations in Egypt, and Israel continued to show strong topline and EBITDA growth.
Net sales in our south Central American and the Caribbean region grew 2% driven by a strong cement price contribution.
Cement volumes declined 12%, while ready mix volumes grew 8%.
The cement volume decline reflects <unk> rebalancing as well as operational and weather issues in the Dominican Republic now our largest market in the region.
The strength in ready mix volumes is evidence of the recovery and foremost demand.
<unk> revert to pre pandemic participation levels.
The decline in EBITDA in EBIT down margin largely resulted from higher energy costs, lower cement volume as well as geographic and product mix.
In Colombia, while our pricing strategy has led to a 12% growth in local currency prices. It has come at the cost of market share with volumes declining 5% in a market showing mid single digit volume growth.
Construction activity in Colombia is largely supported by the rollout of infrastructure projects in formal housing in the Dominican Republic with our production largely sold out and very low inventory level cement volumes declined double digit.
Due to the stoppage of the cement kilns in the quarter as well as the impact of Hurricane Fiona.
We estimate industry cement volumes remained flat during the quarter supported by tourism formal housing near shoring activity and large in construction projects.
With high shipping costs and are largely sold out region, our logistics network leveraging our operations in Panama, coupled with our cement capacity addition should be an important competitive advantage.
Invite you to review <unk> quarterly results, which were also published today and now I will pass the call to Mark to review our financial calendar.
Martha.
Thank you Lucy and good day to everyone.
As Fernando mentioned, we are pleased with our strong pricing traction in all of our core businesses throughout the year.
We continue to manage our pricing strategy to recover the margin loss to input cost inflation.
We had a positive free cash flow after maintenance capex in the third quarter, but lower than last year due to higher investment in working capital and maintenance Capex the higher investment in working capital year to date is primarily driven by healthy top line growth as well as the inflation effect in our inventories in addition to the inventory.
And buildup necessary to address continued supply chain tightness.
We expect to partially reverse the investment in working capital during the remainder of the year.
The increase in maintenance Capex relates primarily to the delayed delivery of mobile equipment and spare parts last year, which pushed our maintenance calendar into this year.
During the quarter, we generated net income of $494 million versus a loss of $376 million in last year's third quarter.
This increase was driven primarily by asset impairments in the prior year lower financial expense again from liability management activities and the sale of Costa Rica and El Salvador.
Return on capital employed for the last 12 months stood at 12, 7%, excluding goodwill well above our cost of capital.
As regards to our balance sheet, we're pleased with the evolution of our debt with a reduction during the quarter of our total debt of $540 million and consolidated net debt of $454 million.
As we did earlier in the year during the quarter, we repurchased $654 million of our bonds at very attractive discounts contributing to a reduction in debt of $91 million.
Year to date, we have purchased $1 2 billion of our bonds.
We partially funded these bond purchases through the closing of a 500 million euros sustainability linked loan with similar terms and conditions and our current bank credit agreement.
Even after the liability management exercise, we remain with limited exposure to rising interest rates with approximately 74% of our debt at fixed rates.
Our floating rate debt is mainly exposed to euro rates, which as you know are substantially lower than U S dollar rates.
Our risk management strategy focuses on mitigating FX risks associated with our operations in non us dollar currencies as well as fluctuations in interest rates and energy commodities.
Given the depreciation in many of the currencies in which we operate and the sharp rise in interest rates and energy. During this year. These strategies have had a positive offsetting effect of approximately $360 million.
This includes gains in our FX interest rates and energy hedging strategies as well as debt reduction from FX translation effects from our non U S dollar debt.
These gains have had a positive effect in leverage and partially in EBITDA.
Net net as a consequence of all of the above our leverage ratio stood at two eight times down from the prior quarter.
We expect our leverage ratio to decline in the fourth quarter as we generate free cash flow and pay down more debt.
We will continue with our strategy that bolster our capital structure and remain focused on achieving investment grade in the short term.
As we have said in prior calls we have a bias towards debt reduction and further strengthening of our balance sheet, particularly during these volatile and uncertain times and now back to you for them.
Our progress in regaining margins has been delayed due to persistent inflationary headwinds.
Therefore, we are adjusting our EBITDA guidance to better reflect the current reality as well as FX volatility.
We now expect 2022 EBITDA to be around $2 $7 billion.
As always our guidance is based in like to like assets as well as the floating exchange of the time of guidance.
With higher than expected fuel and electricity costs, we expect energy cost per ton of cement produced to increase around 40%.
Investment in working capital is expected to be around $250 million 50.
<unk> 50 million more Sean our previous guidance.
We now expect maintenance capex to increase by $50 million to $850 million.
With anticipated <unk> capex of $1 $35 billion.
And now back to you Lucy.
Before we go into our Q&A session I would like to remind you that any forward looking statements. We make today are based on our current knowledge of the markets in which we operate and could change in the future due to a variety of factors beyond our control.
In addition, unless the context indicates otherwise all references to pricing initiatives price increases or decreases refer to prices for our products.
And now we will be happy to take your questions in the interest of time and to get other people an opportunity to participate we kindly ask that you limit yourself to 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 two.
Press Star one again.
And the first question comes from Carlos <unk> from Bank of America Carlos.
Thank you Fernando.
For the call.
My question is related to the U S. Can you provide some color for next year regarding <unk>.
Volumes of the BCA, you're seeing housing volumes declining double digits next year.
But as you mentioned infrastructure spending is helping to compensate if you could provide some color as to be expectation of both of these.
Forces.
You think infrastructure can compensate.
Expect a drop or at least partially compensate the expected drop in closing thank you.
Fernando.
The fact that please.
Yeah go ahead go ahead Michael.
Yes, Hi, Hi, Carlos how are you doing.
The.
As.
Alright is there somebody on the call or somebody else here.
Yes.
Yes, very quickly Carlos.
The market that we have seen softening in the U S.
Is residential and really we've only seen that softening in some of our markets.
One of the areas for instance.
Selectively has been the.
Bay area in San Francisco.
We do obviously I mean first I would like to say that for us demand for the housing market is probably around 30% to 35% that's the expectation.
And in terms of in terms of the volume and and of course, we do expect.
Some downturn mild downturn, they're tightening credit lending.
Lending conditions.
I'd like to say that households are.
Longer jobs are better there are low inventories for instance.
The true that mortgage rates have gone up, but theyre likely to normalize rent.
Rents are also going up quite rapidly, which at some point in time will translate again into increased demand. So so on the housing side, we're seeing a little bit of a slowdown, but then offsetting that which is about two thirds of our business.
Is infrastructure, which is about 50% and then you have industrial and commercial which is somewhere between 15% to 20% and in infrastructure.
We see actually quite a bit of a backlog right now I mean, if you take a look at contract awards in our key states. They are up 11% on a trailing 12 months basis, and thats very healthy and <unk>.
Frankly with elections coming up and with elections coming up in 'twenty for the pressure on the government is going to be very high to continue to disperse there are other fiscal stimulus programs that are there. There is the inflation reduction Act theres. The chip back there is a number of <unk>.
Ending programs that are likely to translate into an acceleration in infrastructure going into 'twenty three now industrial and commercial is another area that we're beginning to see a very important uptick not only in the U S. But also an impact of that is happening in Mexico as well.
And that is a function frankly from a lot of the near shoring or French shoring lets say that is taking place.
You've heard of the recently chips Act, that's a 53 billion.
Dollar.
Funding program that is translating to a build out of chip manufacturing infrastructure in the U S.
You have the inflation reduction act, which we mentioned that $370 billion.
And the reason I'm throwing a lot of these numbers that you is that yes, we do expect housing to to moderate.
But moderating under very healthy conditions totally unlike the last time that we have seen a situation like this but then on the other hand, we think that there are some counter cyclical measures that are likely to kick in.
Which are infrastructure industrial commercial now it's a bit too late and we're just in the budgeting process. So I can't give you kind of where we have in terms of guidance in terms of mix.
But sure but on balance we're expecting the situation to be.
Probably neutral to modestly weaker going into next year.
Perfect. Thank you I appreciate it.
Maybe I could just add I think.
I think the real question and this is an issue of timing and that is so far we really havent seen the impact of residential anywhere except in northern California, but we are of course expecting it to weekend, it's difficult to project, how fast that happens and at the same time, it's very difficult to project how quickly the con.
Track Awards numbers, which are extremely healthy for our four key states not only for infrastructure, but also for industrial and commercial.
Has that ramped up.
It anyway.
Sure.
Yes.
Alright, Carlos one thing I wanted to mention also that is very important is that as you probably know a big percentage of our sales in the U S right now our imports.
And so to the extent, we see in those imports are coming in a bit.
Transportation costs are coming in at a very low margin at the margin.
And so we think the.
If we've seen if we see a moderation coming into 'twenty three the big relief valve is going to be some reduction in imports, which are not big contributors to EBITDA at the end of the day, our EBITDA margin. So that's another I would say risk mitigated to the <unk>.
Possible.
Slight turndown in the U S demand.
Understood. Thank you. Thank you both.
Great and the next question comes from Vanessa Quiroga from Credit Suisse Vanessa.
Okay. Thanks, Thiago Fernando can you clarify on what led to the above average investment inventory quarter. Andy This is coming from a specific region or country.
Sorry.
And maybe if it's possible to quantify the impact on Mexico My views from weather detailed pricing is another in the <unk>.
Okay.
Fernanda Julien.
Alright, let me.
Go ahead with <unk> was bigger than the other.
One.
Yeah, Vanessa if I could go very quickly and I think it is.
Important to kind of review the whole working capital thing not just the inventory.
As you know the working capital investment increased by around 431.
So far and very important to stress that close to 285 of that $285 million of that is due to clients.
And the reason for that is very simple because of higher sales.
However, I would like to stress that if we take a look at days receivables.
In our business those have been flat so really the increase that we're seeing the biggest chunk of increase in working capital is coming from clients and it's it's totally as a reflection of higher sales. There are no deterioration in credit terms for our portfolio.
There are no changes in suppliers the big issue as you highlighted is in inventories and the increase in inventories is about $170 million or six days of inventory.
Now three days of the six are essentially.
A build out of <unk>.
Product inventory so you have.
Finished goods you have goods and progress you have goods in transit that's about $70 million out of the 170.
Then the next piece that is very important which is which is accounting for the other half is essentially.
Two days that are for materials and spare parts.
And one day is for pet Coke.
And most of the pet Coke increase is due to an increase in price.
40% is because we've actually increased inventories of pet Coke as time pass by.
And so that's and then there's some other items that are close to $78 million that are essentially because of special items that occurred last year that did not occur this year, but on the inventories part and frankly this is happening throughout our portfolio I would say.
I wanted to highlight one particular country in terms of pet Coke would be Mexico, and Thats, because Mexico has the highest exposure to pet coke in the bill.
Out the highest inventory.
So that's in summary, whats happening to working capital inventories in particular.
Okay.
In the market.
Thank you if I can take the second.
Second question Vanessa regarding.
Margin deterioration, particularly in Mexico.
Let me start by saying that on the on the six four percentage points decline.
About 47% of that decline is explained either by timing on maintenance many different timing.
Of maintenance.
Same quarter last year compared to this quarter.
Some one offs.
Product mix.
For instance, so as you saw our volumes in Mexico in cement.
Dropping while our ready mix volume so it increasingly so that combination is changes.
The mix of products with different margins and that is impacting about <unk> eight percentage points just does this mix.
Okay.
On higher maintenance, which is which is among the.
Highest expense about <unk> during the quarter.
That is impacting about one 5%.
During the quarter.
And then there were a few.
Land disruptions because of flops.
Legs impacting also foreseeable <unk> seven percentage points.
And when these disruptions happen that are some additional logistics expenses to support the markets from.
From other plants.
And the rest the other 53% is basically what we've been commenting is fuels.
Raw materials in cement.
Under the mix.
So the pricing contribution of $10 eight was not enough as we commented to gain back margins.
So we have already.
Recover input cost inflation, but recovered in margins is still work in progress.
Okay.
Uh huh.
That's powerful.
And anything related to issues on the railways and having to use ground transportation for.
Our volumes.
Yes.
Transported via rail.
Both side of the type of disruption I used. The example of floods, but there were a couple of pieces with greater growth running so Nora and the expert from component.
To the U S and the other one that is more than <unk>.
Those were temporary both are solved so but.
Yes.
Impact together with the floods and other type of disruptions.
Thank you Vanessa.
Yes.
Instead of one.
Okay. Thanks.
Im sorry.
Thanks Shane.
And the next question comes from the webcast from Francisco Chavez from BBVA.
How sustainable is your pricing strategy with increasing signs of weakness in cement volumes, particularly in Mexico back in Europe .
Thank you.
<unk>.
Well, what can I say, we've been since early this year, we've been saying.
We have a target being a pricing strategy in order to recover our 2021 margins.
What we've been doing.
That's what we continue doing given the.
To achieve that target.
It is it is.
It is challenging.
To continue executing this strategy a strategy, but I do believe is doable.
I think pressures.
All over.
The industry.
And although although we don't have a certain outcome. We do believe that is doable and look at the example of Mexico. This year look at volumes look at market shares look at pricing.
So we will continue we will continue with this strategy.
By the way.
The strategy in 2022 has not finished.
More than 40% of our volumes.
Where.
We did increase prices for more than 40% of our volumes in October .
Depending in each market and conditions.
But we are moving from from in some cases from a low single digit due to a high single digit in October to October two to continue executing this strategy of recovering margins, so challenging but doable.
Okay. Thank you.
The next question comes from Gordon Lee from BTG Pactual Gordon.
Yes, hi, good morning, Thanks, very much for the call.
A very quick question on Europe , thinking a little bit about the.
The program's amounts both by Germany, and the UK to soften the impact of rising energy prices in the winter I was wondering whether you have either qualitative or quantitative comment on why you think that might help.
Costs in.
Overall demand maybe as well.
As we move into the winter and into early next year. Thank you.
Hi, Gordon.
Trying to take a stab at that and answering your question I mean number one.
Very important that.
In Europe on.
Youre, specifically talking about electricity or youre talking about fuels as well just electricity.
Electricity.
Yeah, So I mean, just to put into perspective to everybody.
Europe , the European business accounts for roughly 15% of our consolidated EBITDA.
And very importantly.
Close to 70% of electricity.
<unk> are actually fixed for this year.
And close to 30% of that is fixed for next year and these contracts range between one to one and a half years on average.
Now.
In the case of Europe in terms of cement.
The electricity represents about close to 20% of total costs.
And within our footprint, it's very important in the area that is probably most exposed to what's happening in Europe in terms of Russian gas and the impact on the cost of electricity is.
Is Germany.
And in the case of in the case of Germany actually we we don't use at gas as fuel and most of our electricity.
Prices are fixed close to 90% of our electricity prices are actually fixed and they come from.
Waste to electricity system that is owned by a third party that is fed with Rds.
And that contract is going to be renewed for another 15 years and we should not have any problems in terms of the escalation in the price of electricity.
And in Germany.
Spain is probably the most floating rate exposure that we have.
And there.
The capping of the Nat gas that started in June and it doesn't expire until the middle of next year essentially.
In the U K.
I think we will be favorably impacted frankly by what's happening there. So bottom line at the end of the day. Despite of wheat in spite of the volatility that has been taking place in the spot market.
Number one we do think that the market will settle down to something more stable as a consequence of these dampening programs that are being put into place, but our exposure to electricity.
Is not as material as some of the other industrial players.
That may be out there and particularly like I said in Germany, It's really de Minimis from our perspective.
Perfect that battery how is that accurate.
It does thank you very much.
Great. Thank you very much Gordon.
Yeah.
Great and the next question comes from Anna <unk> from Bank of America.
Good morning, Lucie Mulhouse Fernando.
Thanks, very much from our Investor day.
I have a question.
Or questions related to the debt structure.
I like that you guys have been reducing debt I think thats great. I heard you said that there would be likely further reduction maybe in the fourth quarter, obviously going forward.
And so I just have a.
Couple of questions that is all related to that they'll get upset with me.
It's likely take the form of buybacks at a discount to some of the many of your bonds are trading at discounts right. Now also I see that you shifted a little bit.
Our fixed to floating rate in the quarter I think you mentioned that that floating rate has linked to the euro so would that offset any higher interest rates you might have.
Most of that and then just how much of the perpetual listen your debt total debt is at $500 1 billion you have outstanding.
Just a little bit of information on that thank you.
Yeah, so well. Thank you very much for the question I mean, obviously as you know we've been very very active in this whole year right. I mean, we bought close to $1 $2 billion and we generated about $160 million.
On a net present value for our shareholders.
Whether we will continue or not I mean, I have to say I mean, the prices out there are very attractive. Unfortunately, our bonds are not very liquid.
And the last tender offer that we did which I was expecting to get a big Oversubscription. We barely just got underlying fee amount, so which meant that we price it properly and theres not a loose bonds out there now of course, we're always on the lookout right and we do we do have.
A.
A fairly sizable.
Committed revolving credit facility that is attractively priced that we can from time to time take advantage.
The.
Market discounts and for the time being I think we're kind of lying low because we're also.
Not interested in shortening duration that much and clustering a lot of the maturities kind of in the middle of our debt stack, but we're always on the look out now in terms of fixed versus floating.
As you know when rates were very low we went into kind of overweight fixed and as rates started rising.
We started switching slowly from <unk>.
Fixed to floating we think our natural kind of mix of somewhere between 70, 30 70 525.
We're awfully close to that and we'll be there by the end of the year now.
Most important is the point that you mentioned is that the.
The portion that is floating is currently 56% up.
Based on Euribor.
And <unk> is about 300 basis points lower than dollar LIBOR and we expect that differential maybe not to stay 100%, where it is but we certainly expect to have a healthy.
Differential.
Between.
That and in dollars. So so we feel reasonably comfortable.
With that and of course.
To the extent that the euro start appreciating we will trim back some of our some of our cross currency swap position that we have on the books to.
To reduce that.
Terms of the FERC, that's trading at a very interesting and very attractive rate and and so we will continue to look at that.
Oh, Okay, great. Thank you.
Thank you very much.
Great and the next question comes from the webcast from you have seemed to Arie from Unfilled research.
Would you expect some fuel deflation in 2023, given the recent decline in pet Coke and coal prices.
Let me dig that one well.
We've seen.
A positive trend.
Already in production of certain type both from.
Of use.
Now.
Going deeper into the reasons, we do believe that this trend might continue.
But still.
In a very volatile.
Monarch.
Particularly when the fed into pet Coke.
There are some dynamics that can kind of change.
Pricing trends, but in general terms, we've seen.
Positive adjustments in the peak.
After the war.
And to some extent, we should continue seeing those trends.
Now, let me make one clarification.
Okay.
When when when you think in the impact in our production costs.
We cannot directly relate the reduction of this type of fuels.
Two our input cost inflation, there is an inventory effect.
Our fuel mix has been changing you'll know that we are increasing materially.
Our alternative fuels and reducing.
While the primary fuels.
Coke.
Primarily.
So there could be a delay in different regions that could be delayed.
On prices or the impact in our costs affordable.
Four to five months.
So when taking that into consideration.
Don't forget that there is a sort of a delayed because of inventories.
Thank you Fernando.
And the next question comes from Alberto Valerio from UBS.
Tom.
Thanks Lucy.
Alright.
Looking forward for next quarter.
Hello can you guys hear me.
Hello.
Yes, Yes, Alberto you were a little weak.
Okay.
I'd like to speak a little bit louder.
Thanks for taking my question. My question is about next quarter.
The result that we need to.
Our.
Next quarter the guidance, so if you take quarter over quarter.
Our adjusted by seasonality the fourth quarter's market a stronger one.
Our addressable why do we have Peru and Uruguay.
What are you seeing is improving.
<unk> for the quarter, we mentioned the Zurich and the impact of $11 million booked for next quarter, we need a little bit more for improved guidance, though if you could provide any color what are you guys.
That's better than the fourth quarter, the third quarter to meet the guidance. Thank you.
Yeah.
Yes.
Just a second do you want me to start off.
No no I got it.
Alright.
I was just trying to recall.
So I'd better first I think.
Order to answer your question I think it's important to kind of.
Talk where we're starting from in terms of guidance right I mean, we had a.
Our guidance that was around $2 nine.
And there are some adjustments that needed to take place to take us to kind of where we're we're thinking right now right.
As you know we divested our interest from.
Our digital accelerator in the Rs.
That accounted for about $26 million of EBITDA. So you need to adjust kind of the guidance to that and then typically as you know when we give guidance, we give guidance with FX as of the time that we do it. So if you take if you give effect to the change in FX from the last time, we gave guidance until now Bottomline you start with a basis of guidance.
Of around 28 40, okay.
And then we changed.
Guidance on energy, we've talked about hurricane Ian.
We've talked about the impact of Hurricane Fiona Ian had an impact of about $20 million worth of EBITDA.
The energy guidance would have about a <unk> 60 for the full year <unk> had a few million dollars and then there is a couple of other things that would adjust so we ended up with $2 7 billion.
For the year now.
<unk>.
This is not this is not a guidance youre doing the numbers, but to reach the full year guidance that would imply an EBITDA for the fourth quarter of about 650, which is around 1% higher year over year basis last year's fourth quarter was 644 now.
Depending on what happens, we'll see but essentially.
We do.
Think that pricing is going to continue to do fairly well.
We do.
Ink that.
Demand is likely to be also doing fairly well.
And.
So you guys. I mean, you can do kind of your own sensitivity in terms of in terms of what's what's likely to need it to get that but we think it's pretty reasonable assumption to get to that fourth quarter to get us to the full year.
And maybe if I could add this maintenance period.
Okay.
I would just add that maintenance outages also we're expecting them to be fairly stable on a year over year basis and down on a sequential basis.
Okay.
The next question comes.
The next question comes from Ben Theurer from Barclays.
And.
Yes.
We might have lost him.
And are you there.
Okay. I think this will ease the last question, but.
I'm <unk> from Goldman Sachs Bruno Keith go ahead.
Yes. Good morning. Thank you for taking my question is it possible to share with us the <unk>.
Percentage of your total cost that comes from.
Transportation contracts with third parties I'm, just trying to understand to what extent you are indirectly exposed to energy costs.
Your service provider, they probably adjust price prices according to variations in diesel and bunker prices and so on so anything you can share in that sense would be helpful. Also if you could comment on how often they adjust.
Is that a charge from you is it monthly.
Annual or whatever the period 30, other cities and second.
You could make a quick comment on how effective this price increase announced on October 10th in Mexico has been so far thank you so much.
Fernando do you want to comment on the pricing.
And then I'll deal with that.
Okay.
What I can comment.
Again, I'd commented that slightly more than 40% of our.
Cement volumes.
We are in.
Executing on additional price increase in October .
Okay.
Early to say the dynamics are.
We are going through the dynamics already.
About three weeks.
And given that the increases have been.
A wide range from low single digit to high.
We're positive on the trend but.
Early to say.
How much we're going to realize from this effort.
Okay and.
And if I can if I can address the.
The the distribution question on diesel distribution.
<unk> in our ready mix business is about 121%.
<unk>.
Cogs and SG&A.
And.
And it's roughly that diesel component.
<unk> represents about 3% so thats about for the full year, it's about $250 million and Thats for direct diesel.
We guesstimate that the amount of diesel or transportation that is done by third parties is about the same amount now.
Now we fairly actively hedge.
Hedge our diesel exposure of this year, we had close to 75% or so of the of the position hedged.
Going looking into next year, we're already close to around 75% as well.
Now we are also looking at.
Actively or more actively hedging third party exposure as well.
And there is definitely a correlation in terms of transportation cost by third parties to us.
And.
Diesel diesel expensive diesel cost in the market.
So I don't know if that answers you.
Your question.
Yes. Thank you so much very helpful just to clarify.
This exposure to diesel through third parties or is it included in that breakdown of energy cost are you usually provide should bear market for enough.
No it's not I mean, that's.
The guidance that we gave is on the directly managed item that that portion would come through the transportation cost element and I'd like to say.
The.
The hedging strategy this year has been.
Successful and contributed importantly to the bottom line because that that hedge goes through the EBITDA essentially and distributed to the businesses.
Thank you very much.
And maybe if I could just add what we guide to is the energy for the production of cement, which includes fuel and electricity for cement only and transportation is separate.
Okay.
Clear thing we appreciate you joining us okay. Thank you. We appreciate you joining us today for our third quarter webcast and conference call. If you have any additional questions. Please feel free to contact Investor Relations and we look forward to seeing you again at our some extent webcast on November 16th.
Many thanks.
Thank you for your participation in today's conference. This concludes the presentation you may now disconnect good day.
[music].
Okay.