Q1 2024 Cemex SAB De CV Earnings Call
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And now I will turn the conference over to Alicia Rodriguez Chief Communications Officer. Please proceed.
Good morning, Thank you for joining us today for our first quarter 2024 conference call and webcast. We hope this call finds you are in good health.
Joined today by Fernando Gonzalez, our CEO and Margaret I'll have our CFO as always we will spend a few minutes reviewing the business and then we will be happy to take your questions.
And now I will hand, it over to Fernando.
Thank you Lucy and good day to everyone.
I am pleased with our first quarter results, which outperformed our expectations underlying our 2020 guidance in <unk>.
Fact, maybe.
<unk> represents a first quarter record for the company.
Despite the fewer working days and difficult weather conditions in many markets EBITDA grew 5%.
Three of our four regions markets accounting for 90% of consolidated EBITDA.
Periods of combined growth rate of 15%.
Mexico, The Serbs special mentioned setting a record in terms of quarterly EBITDA generation.
EBITDA margin expanded year over year and sequentially driven by a favorable price cost dynamic.
Our prices rose mid single digits, while input cost inflation slowed.
Growth investments and organization solutions continue to materially support EBITDA growth.
Net income grew 13%.
Our return on capital plus 4%.
Slightly higher relative to the same period last year, despite the impact of the Spanish tax fine that we recognized in fourth quarter 2023.
In other highlights last month, we achieved an important milestone with the receipt of an investment grade rating of Triple B minus from standard <unk> Poor's.
This rating action was its recognition of our medium term financial strategy as well as consistent financial performance.
In late March we hosted our 2020 <unk> today, presenting additional insights into our regions there.
Carbonization progress and goals capital allocation strategy.
I would encourage you to access the replay on our website.
This month.
We refinanced our Euro bank facility.
Further improving our maturity schedule and liquidity position.
In March we.
Publish our eighth integrated report.
As we continue to set the pace for our industry towards a profitable climate action transition.
As part of our portfolio rebalancing efforts.
We have announced an agreement to divest our interest assets and operations in the Philippines for a total enterprise value of $800 million.
We currently expect to finalize this transaction before the end of year.
Aligned to our strategy. The majority of divestment proceeds would be repurposed to fund our growth strategy in the U S market.
Net sales rose, 3% with increases in Mexico, and <unk>, partially offset by volume declines in the U S and EMEA.
EBITDA rose mid single digits, reflecting growth in Mexico, and the U S.
We estimate that the impact of fewer working days in the quarter amounted to an additional $20 million in EBITDA or 3% in year over year growth.
EBITDA margin increased half a percentage point.
Our pricing strategy effectively outpaced input cost inflation.
Free cash flow after maintenance Capex was negatively impacted by higher taxes maintenance as well as lower fixed asset sales.
The decline in consolidated volumes results from difficult weather conditions in the U S and Europe.
Fewer working days on slowing economic growth in several countries.
In the case of the U S. We have seen volumes improve with better weather conditions in March and year to date April.
In Europe, we also have seen volumes pick up over the last six weeks.
We expect volumes to continue to improve over the next few quarters.
With better economic conditions, the possibility of interest rate cuts and easier year over year comparisons met.
Mexico stood out in the quarter with strong volume performance driven by improved back cement activity and continued strength in the infrastructure and industrial segments.
Despite the challenging volume backdrop, our consolidated prices were up year over year and sequentially.
Sequential pricing was up in all markets and for all products is set for cement in the U S.
In the U S on a like to like basis, excluding a yearend adjustment cement prices rose 1% sequentially.
The sequential pricing achievement results from successful execution of first quarter pricing increases.
Selecting the ongoing but decelerating input cost inflation.
We continued to execute on our commercial strategy designed to reflect the input cost inflation in our prices.
Calibrating always to current inflation levels with the goal of maintaining or improving margins.
Our commercial strategy, along with our growth investments and organization solutions were instrumental in driving EBITDA growth in the quarter.
The effectiveness of our pricing strategy is visible in the favorable price cost dynamics in the quarter, where.
The ratio of our pricing contribution to cost increased to two times about three times higher than in 2023.
Decelerating cost that also supported with cost of goods sold as a percentage of sales declining one six percentage points.
Margin increase on a year over year on sequential basis in a quarter, where the trends behavior. It is for a decline in margins from fourth to first quarter.
Our bolt on investments continue to be an important component of growth.
Accounting for 10% of total EBITDA and 26% of incremental.
EBITDA was impacted by lower volumes as a result of bad weather.
We're working days and difficult demand conditions in EMEA.
We expect better overall volume performance in the following quarters.
In March we published our eighth annual integrated report covering 2023, which details how our strategy governance and sustainability and financial performance intersect to create value for our stakeholders.
Some of our main accomplishments presented in this report related to climate action are.
Since the creation of our future and action program in 2020, we have reduced scope, one and two C O two emissions by 13% and 12% respectively.
Pace that previously would have taken 15 years to accomplish.
We report post close to 28 million tons of waste and byproducts through the regenerative business line.
We increase alternative fuel substitution rate to 37%.
And reduce clinker factor to 72%.
Both at record levels and contributing to the profitability of our business.
In 2023, we increase the adoption of our low carbon bed to our brand.
<unk>, a more than $7 billion brand to 56% for cement and 48% for concrete.
I encourage you to access our integrated report on our website.
Organization solutions, our fastest growing business continue its double digit EBITDA growth rate with.
We had important margin expansion in the quarter.
Now accounting for 12% of consolidated EBITDA. This business is now reaching scale as a core segment for the company.
Material contributor to growth.
Mexico with its dominant regenerative waste management business is currently the largest regional contributor.
Main drivers of growth in the quarter were payment services and admissions related to the high level of former construction activity in Mexico.
Additionally, EMEA is leading the development of our construction demolition and excavation materials vertical.
Now back to <unk>.
Thank you Fernando our Mexican operations once again delivered strong results with EBITDA growing tobacco levels supported by higher prices for our products strong volumes and decelerating input cost inflation. Despite.
Despite two fewer working days volume performance was strong.
Oximetry aggregate volumes grew double digit average daily sales basis, while ready mix volumes spreads mid single digits, reflecting the dynamism of formal construction in the country.
Infrastructure and near shoring with particular strength in the north and South East remain the principle growth drivers.
We continue to see improvement in bag cement volumes with mid single digit growth, resulting from increased social spending lower inflation and a favorable comparison base.
Based on our first quarter performance, we are raising our cement and ready mix volume guidance from low single digits to low to mid single digit growth for the full year.
Sequential prices for cement ready mix and aggregates rose low single digits, reflecting the traction of our January price increases implemented to offset the ongoing cost inflation at the business.
On a year over year basis, or double check ready mix and aggregate price increases in the mid single digit net increase as well as decelerating energy costs led to an expansion in EBITDA margin as a.
Percentage of course.
In the U S quarterly performance was significantly affected by bad weather in much of our portfolio.
Despite these weather challenges EBITDA rose, 3%, while EBIT margins expanded almost one percentage point.
Margin growth was driven by higher pricing and lower cost inflation largely in the form of fuel freight and imports.
In aggregates, where volumes are less impacted by weather conditions volumes grew 9% on the back of increased based material sales for infrastructure work.
I think next volumes declined high single digit and mid teen percentage, respectively. Due to heavy precipitation deep cleans conditions in much of our portfolio.
Estimate the impact of weather conditions on cement volumes explain approximately half of the volume decline.
Over the last two months with better weather, we have seen cement and ready mix volumes recover sequentially.
The difficult weather conditions, however, delayed.
The next pricing increases in several of our markets to April.
We implemented pricing increases in Florida in the first quarter and cement pricing and the state is up 2% sequentially, excluding freight to customers.
In aggregate sequential prices increased 6% on the back of price actions in Florida, Texas, and California, as well as favorable geographic mix.
We expect to implement our pricing strategy and the rest of our aggregate markets over the next few months.
Going forward, we remain optimistic on the underlying demand for our products supported by strong contract awards for highways streets.
<unk> industrial projects related to onshoring in clean energy and residential market recovery.
In EMEA EBITA declined 41% driven by a challenging demand backdrop in Europe, and geopolitical events in Asia Middle East and Africa.
EBITDA in Europe experienced the largest decline 44% due to a significant drop in volumes, while our prices for cement ready mix and aggregates led is low to mid single digits sequentially.
Volumes were down between high single and double digit for cement ready mix and aggregates due to fewer working days bad weather and a strong prior year comparison base.
Demand conditions were very much a mixed bag with volume declines in the UK, Germany, and France, while the rest of our European portfolio showed a positive volume performance.
We recognize that first quarter in Europe, typically represents approximately 12% of full year European EBITDA and can be significantly disrupted by weather it should not be seen as an indicator of full year performance.
In fact, our European results actually outperformed our expectations this quarter.
As a result, given the easier comp base going forward as well as an expected improvement in demand outlook, driven by lower inflation and prospects for a more benign interest rate environment.
We are upgrading our cement volume guidance slightly to a flat to low single digit increase.
On climate action, we continue our reduced or capture CRT strategy in Europe with sales of our lower carbon virtual cement products, increasing by one percentage point, reaching 93% of sales in first quarter.
Finally, EMEA also experienced a large decline in EBITDA of 35% due to ongoing tensions from the conflict in the middle East.
Our stack operations once again delivered solid results with its fourth consecutive year over year growth in EBITDA led by strong pricing performance and decelerating input cost inflation.
Pricing in that topline growth with our cement prices, increasing mid single digits more than compensating for input cost inflation.
Regional cement volumes were pressured by two fewer working days in the quarter as well as continued weak bagged cement demand.
EBITDA margin increased three eight percentage points largely explained by the strong pricing contribution lower energy and raw material cost as well as the timing of kiln maintenance.
In the Dominican Republic, while weak demand in the informal segment continues to weigh on demand formal construction remains robust fueled by projects in the tourism infrastructure sectors.
In Jamaica volumes were supported by strong growth in the tourism sector.
And in Panama cement volumes increased high single digits, mainly driven by infrastructure projects such as the Metro the fourth bridge after the canal and highway expansion.
And now I'll pass the call to review our financial development.
Thank you Lucy and good day to everyone.
As Fernando mentioned, we are pleased with our first quarter performance with growth in sales EBITDA and EBITDA margin.
This was a record first quarter for <unk> and a record for our operations in Mexico.
As we noted earlier this quarter had fewer working days than last year.
Adjusting for this difference our EBITDA would be higher by approximately $20 million or an additional three percentage points on both a reported and like for like basis.
The half a percentage point increase in EBITDA margin was driven primarily by pricing easing inflation and disciplined cost management.
Our improved performance speaks to the success of our pricing strategy cost containment efforts and the result of our growth investment in urbanization solutions business.
On the cost side, we saw a 20% decline in fuel cost per ton of cement driven by a decline in the market price of fuels as well as our efforts to increase the proportion of lower cost and lower carbon fuels.
On a sequential basis consolidated fuel cost per ton declined 11%.
Free cash flow after maintenance Capex was about $160 million lower than prior year. This was due primarily to higher taxes paid in Mexico and currency tax gains from a strong Mexican peso due to the seasonality of our working capital cycle first quarter free cash flow is typically negative in turns.
Around in subsequent quarters.
Last year, we started implementing targeted actions to improve working capital optimize our inventories in terms of trade throughout the company.
While first quarter working capital investment was substantially similar to the prior year, we expect to see a positive trend throughout the remainder of the year and remain on track to achieve our previously stated guidance of reducing more than $300 million in.
In working capital this year.
Net income increased 13% due primarily to better operational results and lower taxes.
We are quite pleased with achieving our investment grade rating from S&P.
This should translate into significant value for all of our stakeholders and is a testament to the success of our financial strategy.
As we have said before we intend not only to reach investment grade, but to maintain investment grade ratings through our business cycle.
During the quarter, we executed a series of transactions that further strengthened our financial position.
First we reopened our sustainability linked long term notes in Mexico, and Mexican peso for an equivalent amount of approximately $320 million and swap them into U S dollars.
We started tapping the source of funds last year for the first time in over 15 years at an attractive cost compared to our U S dollar curves.
And second we Upsized and extended the maturity of our 500 million euros sustainability linked loan facility.
The new facility consists of a 450 million euro term loan maturing in 2029, and a new $300 million euro committed revolving credit facility.
This brings our total committed revolving facilities to slightly over $2 3 billion, which puts us in the best liquidity position we've had in recent years.
Our leverage ratio stood at two eight times up 0.12 times versus December.
Typically we see a sequential increase in leverage in the first quarter due to the seasonally negative free cash flow that reverses as we go through the year.
As mentioned in our recent <unk> next day, we're committed to reducing our leverage ratio by half a turn in the next 24 months to 36 months and now back to you Fernando.
I am happy with our performance in first quarter and believe it sets us up well for the rest of the year.
Our full year guidance has always assume more EBITDA growth in the second half of the year.
And as I said previously first quarter outperformed our expectations in.
In Europe.
The biggest headwind in the quarter, we do expect better performance going forward.
We continue to expect favorable price cost dynamics for the rest of the year.
We also are expecting and already seeing volumes recovering in the U S with better weather.
In addition.
We expect more pricing traction from second quarter pricing increases.
Despite better performance to date.
This is only the first quarter.
We are maintaining our full year guidance for EBITDA of a low to mid single digit increase.
As well as maintaining guidance for all free cash flow items.
This assumes FX rates.
31 levels for the remaining of the year.
And now back to <unk>.
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 will further prices for our products.
And now we will be happy to take your questions in the interest of time and to give other people an opportunity to participate we kindly ask the England get 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 already been answered or you wish to withdraw your question Press Star followed by two.
Press Star one to begin.
And our first question comes from Alejandro <unk> from Morgan Stanley.
Hi, Good morning. So next time, thank you for taking my question and congratulations on the record quarter.
I guess my question is on the Philippines asset sale.
A very positive for your free cash flow.
So I was just wondering if you can help us understand with this transaction of course, if approved means for you in terms of cash inflows.
How much of your debt and your balance sheet from these from these operation today and maybe there's some details with regards to what it means for working capital and Capex I mean anything that can help us assess the positives.
<unk> for free cash flow here and anything on the timing you mentioned year end, but I mean would it be fair to assume fourth quarter or is that something potentially before that anything any color here would be very helpful. Thank you.
Yeah.
Thank you Alejandro.
Would you like me to take.
I'll take a stab at that.
Thank you yeah, we're very pleased with announcing the transaction.
<unk> closing by the end of the year.
The impact I mean of course, you saw in the press release that we issued the implied enterprise value is about $800 million and.
If we take a look at based on last year's VAT.
<unk>, we're talking about a little bit over in terms of multiples a little bit over 20 times 21 22 times.
And in terms of impact.
On us I mean, we have.
That that will be assumed.
Round 345 $350 million.
And and then cash of about 360 $365 million.
And so you are talking about the total amount of about 708.
Again, we don't know what the impact on leverage is going to be by the end of the year, but <unk> kind of conditions by the end of the year. This should have about <unk> of a turn positive impact assuming everything is impacting leverage of course without taking into consideration what use of proceeds would be in all of that.
In terms of working capital from a trading perspective, it should be fairly fairly limited because of the relatively low.
Operational level that the business has at this point and of course closing is subject to customary.
Inventory approvals by the end of the year.
Perfect My head just to make sure I got it right what was the impact of potential impact on leverage you mentioned point to turns out how much of that I'm sorry.
Yes, again cetera experiments conditions, meaning everything is being applied to either cash or reduction in debt.
The impact on leverage would be around <unk> two of a turn.
Got it perfect. That's very clear thank you very much and congratulations again.
Thank you all have a great to hear from you.
Okay.
Okay.
And the next question comes from Pablo recall day from Santander Pablo.
Hello, Lucie Fernando Maher. Thanks for taking my question I don't know if you can provide more color on the U S volume for four months was on the quarter.
You explained there were like less working days in the quarter, but maybe talking a little bit about market share or our regional performance that would be super useful.
Thanks, Pablo yes.
We did have a reduction in the decline in volumes in both cement and ready mix, while we had an increase in volumes in aggregates.
Weakness in cement and ready mix is wider.
Why the difference in product, it's primarily because first of all footprint.
The footprint that we have been ready mix was heavier hit five precipitation in those markets.
And the same in cement it really reflects our footprint.
Aggregate. The reason why we're seeing growth there is because first of all it's less vulnerable to weather because of course, you can inventory aggregates. You can also even lay them without much impact if the training.
And also in terms of the actual geography growth in AG that were seeing came from infrastructure, particularly it's primarily based on material.
Now in terms of whats responsible for the volume decline, it's not an exact science, but we do believe that about 50% of the decline relates to weather.
States that represented 75% of our cement volumes, we saw on average 35% increase in precipitation in the quarter.
I'm going to highlight Texas in particular, where we're exposed in the south in the Houston area in Texas that was a 45% increase in precipitation year over year and if you look at your January in the Houston market for ready mix. There were only eight days and that entire months werent affected by weather.
And then to your point, we did see probably about 30% of the volume decline came from the market softening primarily in commercial and residential.
In places like San Francisco and in Arizona, We have seen some softening in terms of market demand.
And of course, we also did have market share loss that we highlighted last year that has pretty much stabilized, but we're still seeing the year over year impact and of course, we have said that we will we are aiming to responsibly recover that marketshare.
And finally, we also had some projects that were ending for about 20% of the volume decline, Arizona in particular, if there were two chip manufacturing semiconductor chip manufacturing facility projects that have pause there.
As Mark mentioned our mill.
I guess, that's Fernando mentioned in the call since February we have seen an improvement volumes had been recovering both on a sequential and a year over year basis and in fact March was actually positive year over year. So we are optimistic going forward in terms of demand.
Hopefully hopefully that covers it for you.
Perfect. Thanks.
Okay great.
And the next question then comes from the web.
It's from Paul Roger from Exane.
<unk> has previously said carbon capture is a 2030 story is that still the view despite some big peers now, suggesting it will come earlier this decade.
Well.
Paul Thanks for your question.
Let me, let me clarify our.
A decision on carbon capture.
Maybe the reason why.
You are saying is has been to 30 stories because the way we have defined.
Our roadmap two two net zero.
And the emphasis that we are making in different steps in the process.
We've been since we started our.
Newer strategy future inaction strategy launched in 2020.
We've been focused on reducing.
Our carbon emissions.
Cogs.
At <unk>.
Much faster speed than we used to do it.
Before.
The reduction that we.
We have.
Don.
Is about.
13%.
And.
And every year, it continues reducing or with introducing like tree on the fraction close to four.
Percentage points.
We are highly focused on traditional levers.
To comply with our 2030 commitment.
Commitment that is aligned with the scenario of the one five degree.
Already certified by <unk>, meaning our target by 2030.
For the time being is not assuming a contribution.
From carbon capture.
Now at the same time.
With the developing carbon capture.
Yeah.
On startups or reuse projects.
Projects.
We have.
Publicly announcing we have already announced six projects forward in Europe and two in the U S.
Or an industrial level.
With proven technologies.
And with the already on and most of the cases already with the consumptions needed to capture.
Two.
Transport and to start.
Or use.
Yeah.
If we can do or develop or put in place. These projects before 2030 on we are trying to do that it would be much better.
But again regarding our commitments.
So right now.
We don't we are not including these carbon capture contribution.
Yeah.
And now the.
At least the way we see it.
All over the world.
The traditional levers can be applied.
In the cement industry.
There might be some rules and regulations to be improve.
And global South.
But it can be done.
But what we see.
And in your question, you're referring to big peers.
Suggesting that is coming earlier and it's coming earlier.
But it seems like.
That is coming in Europe, and the U S.
And that's about 10%.
Of our total.
Cement capacity all over the world.
So we are all.
Interested.
In reducing carbon capture.
Producing even more.
And reducing it faster.
But we are ready.
Pleased with the strategy of reducing.
<unk> almost 50%.
Using 1990 base by 2030.
Without those contributions so reduction these are extremely.
Importantly, you can imagine if you reduce up up to 50%.
The projects needed to capture the risks.
Should be.
Smaller.
And the more.
Convenience.
So we are one of the ones that are developing these type of project SaaS fastest possible and again, but this is a European.
On U S proposition for the time being.
Canada, maybe three or four countries.
But we need to find a solution for.
For our company in order geographies afforded our industry.
The yogurt fees.
So that's what I can comment on.
On your question.
Thank you Fernando.
The next question comes from Adrian Huerta from Jpmorgan again.
Dan.
Alright, Thank you Latanya and hi, everyone.
My question has to do with Mexico, both on volumes and on prices.
In the case of in the case of prices.
Tried to increase prices in January in Mexico, but it seems that prices were flat sequentially in local currency.
But the peers actually didn't cut up 4% increase in the world and of course, you can make any comments on that and if we should expect given that you did not have a price increase in the first quarter.
But I expect one in the coming quarters and regarding volumes.
How how March was in the first two months of the year started to be strong.
Don't have data yet for four months volumes.
And in the new guidance that you have what type of deceleration are you.
Are you assuming for the second half of the year on especially from infrastructure.
Would you like me to.
Yeah.
Thanks and have a better.
Yes go ahead, yes, I guess.
Yeah go ahead yeah.
Yeah again.
I think if we would take a look at sequential pricing in local currency terms.
For Mexico, it's actually like up 3%.
So we did we did put a announced in January a national pricing increase for bags, 12% for bulk 15% and it was.
No.
We believe quite successful.
Given the demand dynamics that we've had as you saw volumes in the first quarter for cement were up 7% and that's before you start adjusting for the two less working days.
We take a look at average daily sales volumes and the demands are up.
10%.
And this one is of course what.
Tweak that and decelerating inflation is what drove the record performance and definitely volumes did get better towards margin and we think so.
Certainly the first part of April continued to be doing quite well as well.
So we're happy we're happy about that and so we we believe that the success of our pricing strategy in Mexico should should continue.
And then if we take a look at.
Margins as you saw we had a very positive expansion in margins because of the pricing and because of the.
Cost of deceleration.
<unk> cement grew by 5% on an average daily sales basis on.
On backup lower inflation easier comp.
More remittances.
The formal sector was really was what was really driving growth enormously I mean, we saw the hormone segment bump.
Bulk cement demand up 16%.
And then if we take a look at ready mixed in <unk>, we were up 5% and it's.
Almost more than double that on an average daily sales.
Basis so.
I think the demand dynamics are very positive the cost dynamics are quite positive.
And we're expecting and frankly to continue to do that and as we see.
Some conclude potential conclusion of some of the large infrastructure projects by the middle of the year. We continued to see other projects that are actually.
Starting and should continue to give us very good momentum into the back half of the year. So right now we're not looking at any major deceleration during the rest of the the rest of the year and bagged cement should continue to.
With.
And the rest of the year, we're expecting it to be actually a little bit better of course coming coming from a much higher level because of because of the disproportionate growth in infrastructure and industrial and commercial that's the other segment that also continues to do extremely well because of the onshoring.
Our near shoring I mean, if we take a look at.
Industrial it's roughly 60% of our demand infrastructure I didn't mention but it's about 15% of our of our demand and those two businesses continued to do extremely extremely well and that's why we.
And if you take a look at our implied volumes for the rest of the year, it's significantly higher than what we saw what the the total.
Total guidance is.
Having significantly I mean, our implied guidance for the rest of the year is $1 four per song right versus the 7% just to be clear.
Okay.
And does that I don't know.
Your question is yes.
Yeah, that's fine thank you.
Thanks, a lot okay.
And the next question comes from Alberto Valerio from UBS Alberto.
Okay. Thank you Lucy and Simex team.
My question is about.
Best meant.
I would like some at least you have.
You mentioned that.
Leverage the pump, but did you have other options for the use of proceeds of this transaction and you can see the similar movements or the Columbia assets, where you made all peripheral.
Sure.
We made the best following big strikers that you mentioned.
Your 2021 come up on stage when you say that one of the more focus on developing world in emerging markets.
I'm not sure I.
Listen to the whole question, but let me.
Let me try and literally I think.
As Jim mentioned in our mix.
<unk> recently, we.
Reaffirm our strategy a strategy that we started.
Developing in 2020, we have been communicating meaning with the idea of it.
Making.
Let's see.
<unk>.
Adjustments or changes to our portfolio.
Willing to.
The growth.
Mainly or the first priority in the U S. We also mentioned Europe and to some extent in Mexico.
And that's what.
We've been doing.
So these this.
Divestment in the Philippines, we see it.
Your line.
Our strategy the same way.
Yeah.
When we did order.
Divestments from 2002.
2000 and country.
And and all the or most of the proceeds of those divestments have being used.
In our bolt on growth.
Our strategy.
Little by little but this.
Three years, and a half, let's say or.
Two years in the corner.
We have divested already about $2 5 billion.
And all of it or most of it have been repurposed.
Two <unk>.
Investments.
Again.
U S first priority and also part of it too.
To reduce our leverage ratio.
So again this divestment.
<unk> is aligned with that.
Strategy.
This is the last piece that we used to have in southeast Asia.
So our Asian Asian Chapter has been.
Uh huh.
It also is going to be.
Close once we.
Okay.
Perfect or execute the transaction by year end.
Again, maybe there is another part of the question that I didn't get I don't know if market or Lucy.
Have a comment on it.
Yes.
It does.
No no I would just say that the other part of the question was about the Columbus that we see the same way that we.
Seafood agreements.
I. Thank you Fernando.
Hi.
Go ahead Scott.
Thinking about Colombia, it's about Colombia and big.
We've got delisted the company there and was wondering if that.
Something the same Philippines would occur am I correct.
That was your question.
Exactly that Myers, Thank you very much.
Okay, sorry, I didn't understood well.
We again as I said, we have a clear strategy properly communicated and we are executing.
Do not comment on potential future.
Either acquisitions or divestments.
But what you can expect interfere should is that we will continue.
With the same node.
Even in our <unk>.
We sure a new piece of even for let's say on our strategy with the target of the U S too.
To be up to 40% of some export portfolio.
Currently being around.
30%.
So again as you can see all pieces are moving forward according to that.
So that idea and what you can expect in the future is that we will continue with the same process.
Fernanda fantastic and that makes sense.
Okay. Thank you Paul.
Thank you Ghansham.
The next question comes from the Athene Tilbury from on field Research Justine.
Yeah.
Just a question on the on your volume outlook for Europe do increase the literal mutual volume forecasts.
The cement demand was quite weak in Q1 can you comment a little bit about the trends in March and maybe at the beginning of a prisoner you'll start to see a recovery in volume in Europe.
And then maybe some push out on the on the 90% of the volume growth that should reverse in aggregates in the U S. It's exceptional compared to what the money was all companies have reported.
Something which is specific to some exits are your is it some specific infrastructure project.
Is it something which is a one off or do you see as you saw the strong growth continuing for the rest of the year.
Yeah.
Sure I would say.
The second one.
I'll take the second one just seeing the specifically the case of the <unk>.
Volume growth in the can.
Aggregates in the U S is.
It is specific to <unk>.
While it might there might be a similar effect in other places, but in our case is.
Product mix effect.
We are selling more base material.
That means infrastructure is.
They are playing a role in that volume.
It is not referred to all volumes I mean to all products about very specific on based materials, which we interpret as good news because it call sort of suggest.
And activity in infrastructure already.
Yes.
In development, but it's.
It's product specific.
Great and maybe just on Europe, Yes, guessing Europe, obviously, there was a drop in EBITDA year over year in first quarter I think it's important just to remind everyone. What I know you know that first quarter typically is the most seasonally impacted quarter.
And Europe is the region, where we see that most typically first quarter is about 11% to 12% of full year EBITDA for Europe.
So we shouldn't read a lot into what we saw the first quarter was impacted by two fewer working days in Europe.
Explains about 10% of the EBITDA drop.
We had bad weather in a number of geographies, particularly the UK, which is our largest market in Europe, where we saw.
Quite a bit of precipitation.
Germany also was impacted primarily from the economic slowdown, but on the other hand, we saw great growth in places like Poland, where we're seeing increased confidence coming out of the elections.
And the expectation of EU funding going forward.
France also has been an important source of the decline.
As you know, we're only ready mix in France.
But of course because of the Olympics theres been a ban on large project that's going to go through kind of early summer early mid summer.
But we are expecting that that will get better as of course construction opens up again.
Olympics.
In the quarter I think it's important to note that even with the decline in volumes that we saw which was anywhere between 8% to 15% on our products.
Actually saw very resilient pricing sequentially. So local currency prices were up between one 5% depending on the product.
Another headwind that we had in the quarter was obviously with volumes down we had higher fixed cost as well, we expect that will turn around as we go through the year.
We have seen a seasonal pick up in terms of volumes.
In the case of Europe and April has been looking quite good as well as we saw sequentially. The normal seasonal pickup that occurs so I think that where as we look at Europe going forward, we have better comps as we moved into the back three quarters of the year because of the declines we.
<unk> in Europe really started in second quarter, we believe we will have improving fixed cost dynamics.
The Olympics will be that will be behind us and we will have a more supportive economic environment as well as going forward. We believe in the promise and infrastructure is picking up in Poland. So that is.
That is kind of it in terms of Europe, hopefully that answered your question.
It does thank you so much.
Okay. Thank you Justin.
And the next question comes from Ann Millner from Bank of America.
Ann.
Yes, good morning, Fernando and Maher Lucy Thank you for the call.
Note that we've talked about this and its good morning in previous calls by the next quarterly conference call.
Nicole will have had presidential elections, and you all know who the net new precedent is even though the pulse do give us some suggestions I know we've talked about the impact on business and volumes in Mexico that maybe 12 tend to decline.
But given some of the dynamics that are going on right now both the near shoring and right now an increase in bag cement could.
Could you just give us an idea of some of your thoughts if anything if nothing more on how this time might be different than what you might expect post elections in the second half of 'twenty four.
Yes, well, let me, let me start and then market Olusegun complement that I think I think you know this year is an election year.
Hmm.
What we see is.
Let's say a good performance in different sectors.
Sure.
Sure.
Uh huh.
The industry.
Hum.
Perhaps the one.
The impact that these affordable housing because of high interest rates.
Although.
At least in the case of Mexico. It seems like the first adjustment was made let's see let's see how would that.
Continues moving forward.
But I think.
The informal economy is doing well Mexico is growing.
So on that side.
Growth in the in the market could be.
It will be some level of stable for the rest of the year.
On the other hand.
Industrial and commercial.
Impacted.
By the near shoring the effect is also evolving.
In an attractive manner, particularly in the north of the.
Of the country.
And.
The other piece.
The.
He is going on that is positive which is infrastructure.
In in public works, meaning public infrastructure everything that is going on in the central part of the country and the South East Dominion.
The trains that rural roads airports.
Most of the.
Got it.
With some exceptions like the airport in Mexico City.
The the projects are not finished yet and they're not going to finish.
In election time, so they are going to continue being develop for the rest of the year and who knows maybe you know.
Also early next year, so that that shouldn't be a.
Let's see.
The real factor.
Or.
Yeah.
The reason why the month sulfur materially.
So.
We see stable.
Volumes for Mexico during the whole year.
Despite the election in midyear.
Yeah.
And if I can if I can add.
Maybe just some more granular color and I'm sure you know.
If you visited Monterey, our Mexico recently, you would see a lot of these projects that are just beginning.
We think theres a very strong.
<unk> pipeline for the second half of the year that is likely to kind of substitute or let's say.
He's the demand situation in the second half of the year. You know you have the cross border terminal Andy why don't you have.
There is a very extensive metro expansion in Monterey I mean on the way to the from the airport. You can you can see enormous amount of concrete being poured and expect it to continue to be important for quite a bit of.
The year major highway construction and when a plateau and there are many many others right and then and then on the housing side I mean, we do expect as Fernando said, you know as that as rates get a little bit better.
<unk> gets to be easing in the second half of the year, we do expect some improvement in demand there.
<unk> continues to be.
Very positive and impact that in Mexico, as a whole frankly continue to benefit from the fiscal stimulus from the U S through.
Through the remittances into others and of course, the near shoring process also continues to happen, especially in the northern part of the country and it's starting to make its way further south and.
So supply demand dynamics continue to be fairly favorable so second half of the year is looking reasonably good I would say.
Okay. That's very good color. Thank you very much.
Thank you thank you Ann.
Yeah.
And then next question comes from Gordon Lee from BTG.
Hi, good morning, Thanks, very much for the call.
Yes, Hi can you hear me.
Yes, yes, Gordon how are you doing well.
Hey, how are you Hey, this is a question I guess really for you, but just.
Sort of thinking about.
Capital allocation in the context of your.
Continuous enhancement and financial flexibility I mean, I know, obviously priority number one you stated is to reduce the leverage ratio by half a turn of EBITDA, but I wonder how you feel about the subordinated perpetual notes whether you because if you look at the coupon that sort of almost not quite a cost of equity type of coupon, but not far from it and particularly considering that you are now.
We're an investment grade company and I know that.
Those don't impact the leverage ratio.
But how do you see them as a permanent feature of your capital structure, and how would that stack up let's say versus buying back shares or increasing the dividend going forward.
Yeah no. Thank you very much Gordon on that question I mean first.
In addition to be the way that those two instruments are being we've got $2 billion just for the listeners.
Subordinated notes one is on the high side of coupon one is on a lower side of coupon. The one that was issued earlier.
On the lower side as rates spiked when we issued the second one very importantly, Gordon on both of those instruments when we issued them.
We were internally comparing them on a on a cash cost basis after tax and <unk>.
We believe that the after tax cost of those instruments is actually very comparable to our senior debt so from a cost perspective.
I don't see them.
I don't see them costing us more they just happened to also have the additional attribute of.
The accounting for equity both on a total consolidated basis for <unk> from leverage ratio calculation, but also half of those are considered as equity by the rating agencies for for five years.
Now.
The next call I, Shouldnt say call dates, but reset dates are in 26 and 28.
And the rates will go up materially so we need to kind of think about what we would do with them for 26 or 28, not anytime sooner than that I don't see us doing anything sooner than that do I see them as you know as.
As part of our permanent capital structure I I don't think so I mean, I think as our EBITDA grows and our stock of debt.
It goes down leverage gifts.
More and more comfortable.
Entirely possible that to the extent that we don't need those that we would slowly blend them into our senior debt stack.
Of course, you know it.
If we need to reissue them or whatever at that time, we would do that because our bond re issuance they would receive again the equity treatment.
On both the rating agencies and from the leverage ratio. So so that's how that's how I think that's how we think about them I mean, frankly in terms of capital allocation.
Perfect. Thank you very much.
Thank you very much Gordon okay. Thanks Gordon.
And the last question comes from Danielle <unk> from Bank of America Danielle.
Hi, Lucy Fernando and Maher, Thanks for taking my call.
Sure.
I wanted to jump back to the U S and maybe discuss pricing I understand them back in January you were able to reprice around 20% of the market with the 80% remaining sometime in April.
Could you give us some feedback on how you see pricing evolving into April and May and Dave given price volumes going down in the first quarter our.
Our second potential increase is still in the table.
Sure.
How do you want to handle that and do you want do you want to look at or ahead of it.
Okay. Okay.
Yes, well first of all we did increase prices in Florida in January and we saw good traction in terms of pricing on that increase.
We do have for April.
But kind of another I think 70% of our portfolio more or less.
In terms of pricing and the pricing outlook.
And what what are our achievements at them I don't know.
Sure if you want to add anything to that.
No Thats fine Lucy Thank you.
Alright, okay.
Thank you very much Danielle.
Okay.
So that's it and we appreciate you joining us today for our first quarter results and we hope you will be back with US again for second quarter results.
On July 20 <unk>.
Many thanks.
And have a good go to end of week.
Yes.
Thank you for your participation on today's conference call. This concludes the presentation you may now disconnect good day.