Q4 2023 Cemex SAB De CV Earnings Call
<unk> for today.
At this time all participants are in a listen only mode.
Later, we will conduct a question and answer session.
If at any time you require operator assistance. Please press star followed by zero and we will be happy to assist you.
Now I will turn the conference over to Lucy Rodriquez, Chief Communications Officer. Please proceed.
Good morning, Thank you for joining us today for our fourth quarter 2023 conference call and webcast. We hope this call finds you in good health and even though it's already February let us take this opportunity to give you our best wishes for 2024, while we're here to talk about.
2023, we hit the ground running in January and are optimistic about the opportunity that 2024 present.
I'm joined today by Fernando <unk>, our CEO and Mark <unk> 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.
Thank you for joining our call today, and I would like to extend my best wishes for a healthy and successful 2024.
I am pleased to present to you today the results of what was an exceptional year, where we delivered not only record result, but achieve our goal of recovering from the extraordinary inflationary pressures of the last few years.
This performance is a testament to the focus and commitment of our employees around the world.
2023 results were achieved despite the challenging demand backdrop in most markets.
Full year, EBITDA grew 20%, reaching a record $3 $35 billion.
Growth investments contributed to 13% of incremental EBITDA.
While organization solutions grew on the double digit area.
With margin expansion of two percentage points.
Driven by strong pricing and decelerating cost installation will reach our goal of recover in 2021 margins.
Free cash flow after maintenance Capex of $1 $2 billion was a highlight.
Growing $655 million.
On the back of higher EBITDA on a turnaround in working capital investment.
Our leverage ratio declined by 0.8 times of a turn to two point over six times.
Already with an investment grade credit parameters.
And finally, our return on capital for the full year expanded by a one five percentage points to close to 14% excluding goodwill.
Importantly, our 2023 results after several years of resiliency in EBITDA leverage on strength in free cash flow generation.
This new foundation will allow us more flexibility going forward for deleveraging accelerating our existing bolt on growth strategy as well as allowing us to propose the initiation of a sustainable shareholder return program.
On the customer Centricity front, we closed the year with an important improvement in our already high net promoter score.
A new record and a benchmark for the industry.
And climate action 2023 represents another year of important progress against our the carbonization roadmap with the achievement of another 4% reduction in <unk> emissions.
Finally, <unk> was once again recognized by CDP on its prestigious a list for transparency on climate change disclosure.
Full year net sales increased 8%, while EBITDA grew 20%.
Reflecting not only the strong pricing momentum forward products on decelerating input cost inflation, but also the success of our growth investment strategy.
EBITDA margin expanded by two percentage points, driven by the U S and Europe.
Free cash flow after maintenance Capex increased $655 million.
Reflecting EBITDA growth and a strong working capital turnaround.
The working capital improvement resulted from a management initiative launched in second quarter 2023 to realign our inventories and accounts payable to pre pandemic levels as inflation and supply chains normalize.
This initiative pay off in the second half and we expect additional reductions in 2024.
Volumes were lower in a number of our markets in 2023.
Despite this capacity utilization in our key markets remains high.
Mexico reported positive volumes with strong formal sector demand related to infrastructure and onshoring activity.
Volume decline in the U S largely reflects by the weather lower residential and commercial demand.
<unk> of some large industrial projects as well as some market share loss due to our pricing strategy.
The decline in the EMEA volumes largely results from a slowdown in economic activity in Europe, lucid will speak in more detail on regional dynamics.
Despite the backdrop of lower volumes in several regions.
Our pricing maintain strong momentum across our footprint.
Consolidated prices across all products rose between 11 and 16% in 2023.
And were stable sequentially.
The pricing achievements of the last three years result from the extraordinary cost inflation, our industry has faced and management's focus on reflecting this inflation in pricing.
2023, EBITDA growth was driven by the contribution of pricing over costs.
Growth investments as well as our rapidly expanding organization solutions business.
As our growth strategy continues to scale growth investments now account for 10% of total EBITDA on 13% of incremental EBITDA.
The margin recovery over the last year. It reflects the success of our pricing strategy as.
As well as easing cost inflation on operational efficiencies.
We saw a significant deceleration in cost in 2023.
With Cogs as a percent of sales dropping to 7% largely due to energy.
After adjusting for volume and product mix effect. The result in 2023 margin achieve our goal of recovering 2021 levels.
Importantly, our pricing strategy has always been based on cost inflation for the business.
With the recent caused deceleration you should expect that our commercial strategy will incorporate this new level of inflation with a goal of gradually improving margin.
2023 was another year of remarkable progress in the carbonization with a 4% decline in scope one emissions.
Driven by another record low clinker factor and alternative fuel usage.
Since the launch of artificial in action program in 2020, we have accelerated the pace of our de carbonization.
Reducing scope, one and two carbon emissions by 13% and 10% respectively.
Ah pays that previously would have taken us 15 years to achieve.
However, when we lowered our carbon footprint in our processes, we remain focused on creating demand for sustainable products and solutions.
Another pillar of Fisher inaction.
In September we.
We became the first company in the industry to provide third party validated environmental impact information globally.
This transparency is an essential step in working alongside our clients as a sustainable construction partner to the Carbonize the built environment.
And these efforts are paying off.
We have already achieved two years ahead of time, our 'twenty to 'twenty five goal of 50% of our cement sales being better to our products.
Finally, I am very pleased that <unk> was once again recognized by CDP a list for climate change disclosure.
This a rating represents an elite group of less than 350 companies recognized in 2023.
Our <unk> solutions business has grown at a rapid pace since 2019.
Growing at a CAGR of 24%.
The business now represents 9% of consolidated EBITDA.
In 2023 contributed to 7% of incremental EBITDA.
EBITDA margin has also been expanding growing more than three percentage points since 2019.
A key driver of growth is a singularity vertical housing our regenerative business focus on the repurposing of waste.
Organization solutions is closely aligned to the Megatrends rolling out in the global construction industry.
The carbonization resiliency security and Europeanization.
And it is an essential lever in our efforts to work with our clients in lowering the carbon footprint of the construction sector. We.
We are excited about the growth prospects that Albany session solutions offers.
In 2020, we introduced our growth strategy focused on small bolt on margin enhancement investments across our four core businesses.
In markets in which we operate largely developed markets.
While small and generally less risky investments. These projects are extremely profitable with IRR greater than 25%.
We've been scaling this strategy and today, we have a total approved project pipeline of $2 9 billion. The first investments from this strategy have been coming online and associated EBITDA contribution is accelerating.
295 completed projects, representing an investment of $1 $3 billion.
Generated $325 million of EBITDA on $86 million of incremental EBITDA in 2023.
We continue to identify attractive investments in this space.
Despite the significant macro challenges of the last four years, we have proven not only the resiliency of our business model, but also our ability to fiber than adjust rapidly to changing global conditions.
Our efforts in performance, culminating in a strong 2023 results allow us to contemplate a new steady state level of profitability and free cash flow generation.
This foundation should give us additional flexibility in capital allocation, whether we continue to focus on deleveraging.
Investment in our bolt on growth strategy, while allowing us to include a sustainable return to shareholders.
Our proxy for our annual shareholders meeting in March.
The board intends to propose the initiation of a sustainable dividend program while.
Continuing our existing share buyback program.
The proposal will provide for our 'twenty to 'twenty four dividend of $120 million.
Payable quarterly commencing in second quarter.
The proposal to initiate the progressive dividend program demonstrates the board's confidence in the company's operating performance free.
Free cash flow generation and balance sheet strength as well as underscores its commitment to create value for shareholders.
The full agenda for our annual shareholders meeting will be published tomorrow.
We look forward to a more robust discussion around capital allocation and shareholder return our simex day on March 20th.
And now back to you to see.
Thank you Fernando.
Our Mexican operations delivered strong results during 2023 with both sales and EBITDA growing in the mid teen percentage area supported by strong volume and price increases.
The recovery in cement volume is driven by the formal sector with bulk cement more than offsetting the decline in bank, while ready mix and aggregate volumes grew high single digits.
Importantly, we have seen a pickup in bag cement demand in the back half of the year, which we believe bodes well for 2024.
Normal demand supported by infrastructure and near shoring with particular strength in the north and South East.
Power prices rose double digit tight supply demand conditions in the northeast that put pressure on our supply chain.
As a result, EBITDA margin decreased slightly mainly impacted by an unfavorable product mix and higher transportation cost.
For 2024, we expect the strong momentum in formal demand to continue while informal demand recovers gradually.
Courted by decelerating inflation lower interest rates and government social programs ahead of the election.
We are guiding to low single digit volume increases across all products.
We implemented price increases during January that reflect the ongoing input cost inflation, particularly in labor transportation and electricity.
The U S posted record full year EBITDA of over $1 billion in 2023.
Milestones for the business.
Despite lower volume.
Mixed EBITA grew 37% as a result of our pricing strategy gross investment and decelerate in costs.
The material margin recovery of four four percentage points reflect our success in recovering multiyear cost inflation with pricing.
Cement ready mix and aggregate pricing was 14%.
19% and 12% respectively.
The volume decline in cement and ready mix relates to weather.
Winding down a few large industrial projects.
Commercial construction activity as well as some loss of market share, resulting from our pricing strategy.
We expect to gradually recover this volume of lost market share over time.
Aggregate volumes grew 1% benefiting from our recent acquisitions in Florida in Canada.
In response to the slowdown in demand we were once again able to reduce lower margin cement imports to support profitability.
Strong EBITDA margin growth continued in the fourth quarter of two eight percentage point increase margin growth has slowed some in the first three quarters of the year as the prior year comps beginning to reflect the margin recovery that began in late 2022.
Last year, we announced price increases implemented during the first four months. This year for 2024, we expect low single digit increases in volume across all products we have.
We remain optimistic on growth in the industrial and infrastructure sectors underpinned by near shoring trend along with funding available under the chips at the inflation reduction yeah and the.
Infrastructure.
John.
With declining interest rates and low housing inventory. We also expect improved performance in the residential.
In EMEA, the EBITDA growth and margin expansion, we experienced in the first nine months of year was interrupted in the fourth quarter with the slowdown in construction activity in the region as well as major maintenance in the Philippines.
Despite the slowdown full year EBITA rose, 7%, while EBITDA margin expanded by three percentage points.
Despite a challenging demand backdrop europes performance in 2023 was impressive.
<unk> posted record EBITDA growing more than 20% as well as EBITDA margin expansion of two percentage points.
These achievements are attributable to the success of our one year strategy implemented in 2019, which consolidated and integrated our footprint in the region accelerated our climate action efforts, while rationalizing costs and pursuing bolt on growth investments in integrated urban micro markets.
Europe continued to post new record in climate action, reducing <unk> emissions by 16% in 2020 and is well on its way to match is 55% 2030 carbon emissions reduction targets.
With unprecedented levels of input cost inflation over the last few years and then prices in Europe rose significantly during the year and were stable sequentially in the fourth quarter.
While we remain optimistic over Europe medium term prospects and the region pivot decisively towards a more circular economy.
Ignite that construction in certain countries in the region are facing challenges in 2024.
There are many and slowed significantly in the past year, while construction in Paris will be posted in advance on the Olympics we.
That demand in these markets to pick up as we enter 2025.
For Europe in 2024, we expect flat to low single digit decline in volumes, reflecting a slight recovery in construction activity, albeit at a slow pace.
Our EMEA region was negatively impacted throughout the year by adverse competitive dynamics and utility as well as an overall slowdown of construction activity.
For 2024 in EMEA, we expect flat to low single digit increase in net volume and mid single digit decline for ready mix and aggregates.
In South Central America, and the Caribbean after a challenging 2020 to where our pricing is struggling to keep up with cost inflation sales and EBITDA rebounded in 2023.
Pricing drove topline growth with our cement prices increased 9%, but still not sufficient to fully cover input cost inflation.
In fourth quarter, net sales and EBITDA grew high single and double digits respectively.
Banks meant demand remains under pressure bulk volume continued to grow supported by infrastructure projects, such as Bogota Metro the fourth bridge over the canal in Panama and <unk>.
Tourism related projects in the Dominican Republic.
Quarterly margin improve.
Percentage point year over year with a slight decrease in sequential margin largely explained by lower volumes, partially offset by lower energy and maintenance cost.
For 2024, we expect flat volumes across all products as formal construction continues to scale on the backend infrastructure projects and offset continued pressure on bagged cement volumes.
Now I will pass the call to not here to review our financial development.
Thank you Lucy and good day to everyone.
2023 was an outstanding year, reaching a record EBITDA and achieving margins substantially in line with 2021.
EBITDA for the year grew 25% on a reported basis two times the rate of growth in sales.
This performance was achieved through the successful execution of our robust pricing strategy across our businesses and markets. In addition, we had a very healthy contribution from our growth investment strategy and organization solutions, which in total now represent close to 20% of our annual EBITDA with the latter growing almost 30 <unk>.
<unk> in 2023.
Our results also benefited from a deceleration of input cost inflation, coupled with cost efficiency measures across our businesses such as our working smarter initiatives and our climate action roadmap among others.
These efforts more than compensated for volume headwinds in some markets.
<unk> cost per ton of cement grew 9% in 2023 slightly below our guidance and at a significantly slower pace than the prior year.
The containment of energy cost was due to a combination of deceleration in market prices as well as proactive efforts to align our portfolio towards lower cost alternative fuels.
In 2023, we continued to increase alternative fuel usage.
Growing almost two percentage points and reaching 37% of total fuels.
As we mentioned before alternative fuels are significantly less expensive than non renewables have different supply demand dynamics and are critical in our de carbonization roadmap.
We are particularly focused on alternative fuels with biomass, which currently account for approximately one third of our alternative fuel mix.
In 2023, we more than doubled our free cash flow after maintenance capex to $1 2 billion.
The increase in free cash flow was driven primarily by significantly better operating performance, including working capital management, which more than offset higher taxes.
The increase in cash taxes as a consequence of stronger results as well as the tax effect of foreign exchange on our U S dollar denominated debt.
This year, we had no incremental investment in working capital despite higher sales and continued inflationary and supply chain pressures.
As Fernando mentioned this is a consequence of targeted management actions to optimize working capital, which we will further deploy in 2024 seeking to maximize free cash flow generation.
Despite significantly better operating performance net income for the year was lower due to an extraordinary gain in the prior year of $234 million as well as a tax provision in 2023 for a fine related to our case in Spain dating to 2006, we currently expect.
The majority of the tax provision to be paid in 2024.
We ended the year with a stronger financial position, reflecting greater liquidity and average life of debt of close to five years, a flatter debt maturity profile with no outsized maturities in any year.
We believe our expected free cash flow generation alone should be sufficient to meet our maturities in any given year.
Our leverage ratio stood at 2.06 times down three quarter return from last year's level, driven by strong operating performance, including working capital management and a reduction of over $700 million in our consolidated net debt.
All of these accomplishments were driven by a series of transactions executed throughout the year.
These include the issuance of $1 billion of Green subordinated notes with an after tax cost comparable to our senior debt.
The refinancing of our bank credit agreement well ahead of schedule.
The tapping of the Mexican debt capital markets for the first time in over 15 years and the redemption of our seven and three eights notes.
In addition, we achieved our goal of 50% of our debt stack being linked to sustainability Kpis two years ahead of plan.
We will continue to undertake strategies that bolster our capital structure and remain focused on attaining an investment grade rating in the short term.
As a consequence of our strong performance, we reached a return on capital employed of 13, 7%, one five percentage points higher than last year.
Bottom line. This was a terrific year and now back to you Fernando.
I'm optimistic for 2024.
Especially regarding our main markets of Mexico, and the U S.
For 'twenty 'twenty four based on December 31, the fixed rates on operations.
EBITDA to grow between low to mid single digits.
We expect cost inflation to continue to decelerate and our commercial strategy to continue to focus on recouping inflation in the business and we will recalibrate to reflect current lower inflation.
The ultimate goal is to maintain and increase margins.
Also continue expecting important incremental contributions from our growth investments.
Energy cost per ton is expected to decline mid single digits, primarily driven by lower fuel costs for capex.
We expect a total of $1 6 billion with $1 billion for maintenance and $600 million towards strategic for.
For working capital, we expect a reduction of $300 million as we continue to execute on our working capital initiative.
Taxes are expected to be approximately $1 billion, which includes the tax finding Spain. The FX effect on our U S dollar denominated debt.
An improved profitability in our main markets.
Our cost of debt is expected to remain flat at $694 million.
Including the coupons from our subordinated perpetual notes.
And now back to you to see.
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 get other people an opportunity to participate we kindly 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 wished withdraw your question Press star followed by two.
Press Star one to begin.
Yeah.
And our first question comes from Ben Theurer from Barclays and.
Please go ahead.
Brooks on the exceptional 2023.
I wanted to pick up on.
On the final comments in the outlook.
Particularly fernando's comments around the strengths.
The outlook for Mexico, and the U S with two key markets.
Would it be possible to share with us where you see maybe upside risks to your current volume expectations, but also the downside was so just about the puts and takes in those two regions as it relates to volume. Thank you.
Hi, Ben well that.
That could be the case.
But.
We are taking.
<unk> our base case scenario remember in both countries. The year is an election year earlier in Mexico than in the U S, but anyhow.
In both cases, the debt will be this.
Election process.
We will continue observing the dynamics.
That are positives for instance in the case of Mexico.
The demand coming from the.
Strong activity because of near shoring and particularly in the north over the country.
And then Ed.
In the south southeast.
They are not finished yet meaning there is activity going on for the rest of the year.
So again it's.
There are reasons to believe.
Volumes are going to Bob who's going to be positive.
We would like to take this stance, which we believe is reasonable we will monitor and we will continue.
According to <unk>.
The way, we see <unk>.
Okay.
And if I could if I can add Ben also.
In the case of Mexico, I mean, we as you saw I mean volumes were actually accelerating in the second half of the year.
And we expect that to continue particularly with the large projects in the southern part of the country and the demand for our industrial in the northern part of the country also bagged cement.
I will turn positive in the second half of the year last year.
In the third quarter and continue to to proceed and you know with.
With a deceleration in inflation and an expectation of interest rate cuts, we do expect.
Some improvement in housing going into into the year, So and again I mean, you also have to take a look at historically the dynamics around elections also translate to positive kind of dynamics for our business.
Well.
So the outlook for Mexico in terms of volumes should be fairly healthy.
The market is pretty sold out.
So there should be also very interesting supply demand dynamics as well in supporting.
Supporting recovery of inflation.
Our business in Mexico.
Now as far as up as far as the U S is concerned.
We were quite optimistic.
<unk> about the U S. Obviously, we're coming from a very challenging year from a volume perspective in the U S. <unk>.
Volumes declined.
Around 13%.
A good portion of that a third of that was due to weather last year that we were not able to recover during the course of the year.
Another piece of that is really slowdown in demand and completion of some projects that we have in our portfolio and a third of that.
<unk> was due to competitive dynamics because of pricing and as Lucy mentioned in her remarks.
Loss of market share that we expect to responsibly.
Recover.
In the short term now we are guiding towards low single digit increases in cement.
Cement and we're pretty constructive about that we think that we have been one of the biggest laggards in our business in the U S. As the residential sector and that is beginning to show.
Some very strong signs of stabilization.
With some consecutive quarterly improvements, particularly.
In single family residential starts and permits and as.
Inflation again at <unk>.
<unk> to decelerate and the outlook for interest rates improves we think there's an enormous amount of pent up demand in residential so that should help a lot infrastructure continues to be half of our business and again as mentioned in the remarks, there is a lot of physical.
Projects.
Supporting that and that are accelerating.
Particularly in an election period as well and if you take a look at construction put into place and infrastructure has been quite quite positive.
The area that there are headwinds I would say is on the commercial side.
We're seeing it pretty much everywhere.
But it's somewhat being offset by what's happening on industrial and Thats.
Most of industrial projects are being driven by supply chain being.
Reconfigured and redefined energy issues clean tech initiatives.
We are expecting after a.
Important headwinds in volumes last year to be doing much much better in terms of volumes coming into 'twenty four I don't.
So if that answers your question Ben.
It does vary completed thanks, Fernando Thanks Maher.
Thank you.
Okay.
And I think I would just add to what Mark has said that we are seeing U S. Construction spending growing at the highest rate in decades double digit level and that is very much supported by rollout infrastructure streets and highways and we're also seeing very good turnaround in <unk>.
Residential sector when you look at single family in particular.
Give me a little more backup market comment.
Moving onto the next question it comes from Carlos <unk> from Bank of America Carloads.
Thank you Lucy Thanks for taking my question.
My question is related to your pricing strategy.
Two years.
Lamented and increasing prices.
And two two times during the year beginning of the year and then in the summer.
Should we expect something similar or will you would be going back to increasing basis once a year and that's primarily for Mexico and the U S. The question. Thank you.
Yeah.
Thank you Carlos.
Yes go ahead.
Yeah.
I think.
The pricing strategy that we are going to be displaying the here in essence is the one that we define in late 'twenty one.
Early 'twenty two when we saw inflation going to much higher levels than.
Whatever number of years before meaning our pricing strategy should be the sign that it is a science.
Two.
To recover input cost inflation, meaning protecting our margins.
So what is it that.
You can expect in 2020 for the same principle.
Now 'twenty, two and 'twenty three were.
Very different.
24 is going to have even more of a different meaning in 'twenty two.
Inflation started going up at a higher rates than what we thought.
And our prices didn't manage to recoup.
That inflation the opposite happened in 2023, when our pricing strategy had already a tailwind and we continue.
With the idea of recovering input cost inflation thinking that inflation.
Was not going to drop as fast as it did meaning a very material drop of inflation in the second quarter of last year.
So starting 2024 hour pricing strategy is designed to recover to the levels of inflation that we are estimating.
To have during the year.
Things might change scenarios might change and we are prepared to make.
A number of additional <unk>.
Increases if that's what it takes for us to cope with inflation. So the strategy is not the finding.
How many price increases we are going to having a year, but how are we doing.
With the objective of recovering input cost inflation.
We are guiding for.
Our cost, particularly energy to decrease by mid single digit. So you can do kind of expect a much lower inflation in our input costs.
The structure and because of that they lower.
The level of price increases and again if needed.
We will do a number of <unk>.
Increases in different markets to assure that we at least maintain the margins we already recovered during 2023.
Okay very clear thank you Fernando.
Thank you Carlos Thank you Carlos.
Yeah.
The next question comes from the webcast from Paul Roger from Exane BNP Paribas.
What drove the sequential price increase in EMEA and could this become a trend including in Europe, where <unk> costs are down quite materially.
Fernando if you want me to.
Okay.
We did have a slight decline sequentially in our Europe Middle East and Africa prices.
What's important to remember here is that the bulk of EBITDA. The weight of Europe is very very high it's about 65, 70% of the more.
And what we saw happening.
A decline in prices due to geographic mix, specifically, Europe, which has the highest prices.
At a much larger decline in volume than EMEA Asia, Asia, Middle East and Africa experienced in cement.
So this is a geographic mix issue. If you look at the disclosure European prices were fairly stable from moving from third to fourth quarter. So we do not believe that Sidoti prices and the decline in prices that we've seen with tier two markets are contributing to any type.
The price deterioration, because we arent experiencing it in Europe okay.
Yeah.
Thank you very much and the next question comes from Alejandro <unk> from Morgan Stanley.
Ali Please go ahead.
Hi, good morning, and congratulations on the record numbers I have a question on your strategic Capex, it's going up a little bit in your guidance. So if you could perhaps elaborate a little bit on whether this capex is already earmarked, meaning if you have already identified the projects in which you will invest in if you could elaborate a little bit.
On what spaces will be more interesting for you during the year and what timing should we think of for these capex outflows for the year that was very helpful. Thank you.
Yeah.
Yes, hi.
Alejandro Thank you very much for your question.
The the process up.
Our growth investments as you know has been it's like up.
Fine tuned machine that has been kind of started for now the last two or three years. So the the <unk>.
Stream of projects that have been identified and earmarked are quite.
Quite developed all of these projects are quite clearly defined and we feel very comfortable that the timing should be fairly even throughout the year.
And however, I mean I have to tell you that in some of the instances.
We do have.
Timing very specific tactical execution.
Timing for some of these projects being made but we feel very very reasonable.
That we would be able to execute on the guidance that we're giving the strategic capex of $600 million.
<unk>, which is a big increase compared to last year.
Last year, we wanted to do a little bit more we underperformed our guidance and we wanted to do a little bit more primarily because of some delays that took place because of supply chain because of negotiations.
Whatever so we do feel fairly strong that we should be able to execute that amount and.
The additional contribution from our growth portfolio.
Should be quite healthy.
Expecting a similar contribution to this year. This year the growth portfolio was close to about 80 $684 million, we're expecting a similar amount.
And we did say that the total contribution of our growth portfolio to EBITDA last year, and 23 was around $325 million. So if you add the incremental amount youre talking about close to $400 million of contribution going into this year, which is which is a big <unk>.
<unk> now of our total consolidated EBITDA.
Now.
The investments are split into a number types of activities climate action.
Cement expansion.
And software and so on so it's very well balanced and it addresses key opportunities in our markets aggregates replenishment is another area that we're very focused on.
Well.
Don't know if that answers all of your.
Question.
Yeah, Yeah that that sounds very clear thank you very much.
Thank you.
And your next question comes from Francisco Suarez from Scotiabank.
Cool.
Hey, good morning, Thanks for the call.
Actually a follow up question on <unk>.
Next question.
The question I had on the on your strategic Capex.
That you have fleets size in which you are flexible enough to provide more strategic capex return.
Bonnie to investors, which is great.
But can you walk us a little bit more on the rationale or how your dividend policy will evolve further.
And how what to expect on that.
Much more on the dividend policy as such and also if you can.
A little bit more on the strategic capex on how to allocate across.
Urban solutions or if it's much more focused towards aggregates.
If you can give us a little bit of granularity.
And what to expect across regions and the rationale behind it that could be very helpful. Thank you for that.
Yeah.
So.
Maybe I'll take that Fernando the question.
And.
Marco Thank you very much for the question.
In terms of maybe I'll start in terms of geographic locate allocation right.
Number one this is in terms of the investments.
We are we have been very consistent for the last three years, saying that we're very biased in our investments towards the U S.
Europe developed Europe, and Mexico, and I think that.
As we see Mexico, increasing stability, increasing integration into the U S market.
We are evaluating the bias between U S and Mexico, but clearly our focus is additional investment in <unk> in the U S. Because the outlook on a risk adjusted basis as the most attractive in all of our portfolio and the growth prospects in the U S is probably one of the best in our portfolio I mean, we are seeing aggregate.
Aggregate demand very positive we're seeing GDP growing inflation is much more under control than other places. So so in terms of in terms of.
Geographic allocation.
It's the U S Northern Europe, Mexico, and Mexico is kind of rising and its importance in terms of allocating investments there as there is further integration in terms of the areas that we're investing in I mean, clearly there are some.
Completion of investments in cement.
And many of the right markets that are that are sold out that that were being capacity.
<unk>.
And the other is as I mentioned is aggregate replenishment, particularly in the U S and Europe.
In the U S. We have made.
Several investments and that's an area that is very attractive and that is going to continue to be an area of interest to us and then.
Investments that we believe are extremely important that have double materiality in our future and action.
Area in cloud and climate agenda area.
A lot of the the use of alternative fuels green.
Green types.
Types of products, whether it's cement or ready mix a lot of these investments are going into those areas those are highly accretive.
Investments at the end of the day and have payback periods that are.
On average four to five years six years.
And so that's kind of the the areas that we're looking to allocate into in terms of investment now as far as the dividend concerned and the allocation.
Our cash flow to dividends.
We.
We would not have announced the dividend payment unless we really were very confident that that sometimes this year, we would get our investment grade.
Rating, but also it's a very important sign of our confidence of the outlook that we have in terms of the business free cash flow generation and having sufficient operating free cash flow to continuously systematically.
Provide the dividend payments that we have now we are starting.
Compared to compared to our peers, we're starting early and we looked at about 10% of our operating free cash flow and that's where we're starting and of course, we're we're hoping that as our business grows that or our dividend.
On average will grow.
Throughout time.
So that's kind of the logic behind it and.
And we're very comfortable with it I don't know if there was another part of the question that I because you had several several parts of the question I forgot I don't know if ive missed not answering one of them, but not.
No no my head that is better.
Perfect and wonderful the retro announced total that we thank you for that.
Thank you.
The next question comes from Adam Thalheimer from Thompson Davis.
Hey, good morning, guys and congrats on the great year.
Yeah. Good morning, guys. Congrats on the good year.
Yes.
I want to ask you about the.
I wanted to ask quickly about the EBITDA guidance for 2024.
I'm wondering if a low to mid single digit growth as a touch conservative if we've got flat volumes, but pricing up margins up some.
I'm, just curious if theres, a little bit of upside to that in your view.
Adam I mean look where we.
We're we're taking.
I want to thank cautious, but but.
The world is volatile.
And.
We I don't want to say that we're taking the same approach that we did in last year, where we were we gave one guidance that turned out to be super.
Exceed it, but we're definitely being being cautious.
As Fernando mentioned.
The dynamics in both on pricing and on volumes or are quite different from where they were last year and so navigating into a dynamic is quite different requires prudence and caution on our part.
I mean.
There is.
Frankly, I mean, we're very optimistic about what's happening in Mexico, we're very optimistic about what's happening in the U S. We're cautious obviously on on EMEA and Europe and.
We're expecting stability there, we're cautious on South Central America Caribbean.
There are potentially upsides and energy I mean, I know for instance in the case of Mexico.
We have been taking advantage of the drop in the price of natural gas for instance, Mexico typically we've been using.
Big dose of alternatives and a big dose of Petco.
And of course natural gas has dropped quite materially.
And in Mexico, the variant the differential between Nat gas and pet Coke is almost a third.
And many of our plants in Mexico are located near and are able to use Nat gas. So so there are potential.
Input cost element that may contribute to better performance than we had expected.
We are locking in some of the lower cost of energy that we're doing we're hedging.
Some of our pet Coke.
Users as well.
We've already locked in a lot of the diesel cost.
Some some.
<unk> to that as well. So there are a number of things that they are on the cost side that may have some some upside, but we need to be cautious I mean honestly, we need to be cautious and that's where we.
That's where we are on our guidance.
Okay.
Okay perfect. Thanks Margaret.
Thank you.
No.
And the next question comes from Anna <unk> from Bank of America.
Good morning, Thank you and congratulations it's very nice to see that EBITDA number for 2023.
My question has to do with what the rating agencies still might be looking at for an <unk> rating and I'm just thinking of other companies that I've seen that have been in positions, where they were looking at upgrades and there are two things that I see that when I look at your balance sheet.
That occurred to me I just wanted to get your comments on that one.
<unk>.
Large cash balances you have a healthy cash balance, but some of these people have much larger I think you have committed credit facilities. So I was just wondering if you could comment on that and the second one is a long runway in debt maturities and you do have a relatively short debt maturity profile over the next few years.
Thought about extending that thank you.
Yes, thanks, Thanks Ann.
I mean look the.
We are we are probably right.
In the.
At the chip edge of being at IAG metrics from a leverage perspective of course be the rating agencies don't just look at that they look at liquidity. They look at stability of earnings they look at the cycle. They look at management's behavior.
And so forth and so on it.
Think that we're looking at that matrix as well and we're making sure that we're taking every one of those and I believe we picked every one of them.
Now specifically regarding cash balances I mean.
We typically have $5 million to $600 million of cash balances on an ongoing basis that number gets a little bit lower gets a little bit higher depending on when we are seasonally.
In the year.
But because of that and because of the we want to make sure that we we don't have anything that keeps us awake overnight in terms of liquidity.
As you know last year, when we refinanced our term loan.
Our bank facility.
We increased our revolving credit facility by a quarter of a $1 billion.
And.
And there are opportunities to further increase our liquidity on the euro side, which which we are pursuing as well.
So I think at the end of the day and last year on average we had.
Between cash on hand, and availability under the revolver, probably an average of about 181 $9 billion of available committed liquidity on hand.
With the additional.
With the additional with the increase in the revolver and even potential expected increase we are going to probably be increasing our revolving facility a little bit more we're going to have more than sufficient liquidity for us to go through any really.
Cyclical or seasonal change to take place. So so I'm not I'm really not worried about that and I think that.
That should not be an issue now in terms of the maturity schedule I mean.
I think we're ending the year with a maturity schedule, which is very comfortable and well within our free cash flow from operations generation that we have today now having said that.
We're not.
We're never we're never done in terms of liability management and we are looking at.
<unk> transactions some of them are already in the market as you know we are in the market with the with the reopening of the <unk>, which should help us.
Push funding out.
We are in the bank market on the Euro transaction, which would should help us push maturities out.
Think after everything is said and done.
We should be looking definitely at a much more smoothed out our maturity schedule, which is well within.
What the what the rating agencies are expecting now of course as rates drop.
We're looking at potentially issuance is very long dated that would materially change the average life of our portfolio, but given that given the fact that we're seeing we're expecting rates to drop in the back half of the year, given our improvement in credit worthiness and given the law.
Equity in the market both in the bank market and in the bond market frankly, having an average life of five years doesn't really concern me with the very long.
Runway to any material maturities.
We're very comfortable with that.
Okay. Thank you and could you just tell me what is the current amount of your the total amount of share revolving credit facility.
It's $2 billion committed revolver.
Okay. Thanks, Jeff No I would agree that your numbers are most definitely comfortable I'm just thinking sometimes the rating agencies don't like things successes.
Wanted to get an update and that was a very good one thank you.
Yeah. Thank you very much.
We have time for one last question and the last question comes from Gordon Lee from BTG Pactual Gordon.
Hi, Good morning, Thank you very much for the call and congratulations on the numbers.
I just have a question sort of on the urbanization solutions business I was wondering if you could just give us general color on maybe the geographic breakdown of where that EBITDA is coming from it and whether you expect to provide more disclosure on that unit given how large it is now and I'm going to this is a clarification question. So we'll see he doesn't get upset but just wanted to just.
To confirm that in your $1 billion.
Cash tax guidance, you are including the full amount of the sort of one off payment that you expected to make in Spain. Thank you.
Yeah.
Yeah, maybe I'll take the first the second part of your second question first our Gordon because that's very important I mean, we've never had.
A cash payment of $1 billion for taxes.
I dunno ever that I that I remember so the answer to that is definitively yes, we are.
We're expecting that to happen now having said that.
It may be it may be tranched out for longer period of time so.
So so it may be not as bad in terms of free cash flow draw this year, but yes. It is included.
And I think it's very important however to take a look at if we adjust.
The cash taxes for the payment assuming that we pay 100% of that this year.
And you and you compare.
The cash taxes that we paid last year versus what is implied in our guidance I think you would see that we're actually expecting cash taxes from operations. Excluding this one off to actually be declining.
For for 2024 now.
As you as you know the cash taxes from 'twenty to 'twenty three stepped up the biggest two drivers of cash taxes stepping up between 22 to 23 or two things maybe three things number one is that the Mexican business had a spectacular year had a record year in terms of earnings.
Second thing is that we've consumed all of our or most of our Nols in 'twenty two and so we did not have the benefit of that and third we have this incredible situation, where the peso appreciated dramatically inflation did not go down and so we had we had this kind of extraordinary income that is taxable.
<unk> that.
With which was probably the biggest contributor to our increase in cash taxes.
That dynamic is not likely to to happen in $2004 25, and if it did.
The positive impact of that meaning meaning if we have another 15% appreciation of the Mexican peso.
Yes that might might imply a little bit more cash taxes, but guess what that is probably going to be phenomenally positive to our EBITDA in terms of cash flow generation.
In Mexico.
And when you when you take out the impact of the FX and the.
And the inflation in Mexico, and adjust our tax rate the tax rate is actually going down.
From from 22 to 23 and the expectations. The implication of our guidance is that it will it will go down as well in 'twenty four.
So I don't know if that answers the the tax question.
Perfect and there was a clarification.
And what we've seen that met him yet, but yeah. Thank you yeah.
A second question urbanization solutions Gordon.
We're very excited about that business. Okay. I mean that business is growing high double digits as you saw.
This year EBITDA grew 30, 23, EBITDA grew 30% almost twice as much as sales very high operating leverage.
This business has become definitely without any doubt a core business. It complements all of the value offerings and solutions that we have in cement ready mix and aggregates highly integrated into those businesses.
The areas. The reagents that are that are contributing the most and where our investments are the most are really Mexico and the U S and the areas that we're focusing on.
In the case of Mexico for instance, as add mixtures, we're certainly focusing on circularity, you know that we purchased.
We invested into that area.
The multi products area is also another very important area of expanding and then the U S. The U S is also almost contributing a third of the overall EBITDA now in 'twenty three the contribution of our organization solutions as is almost $300 million.
And with a double digit EBITDA margin.
And so we're very excited about that and we're likely part of our investment strategy definitely is going to continue supporting this area. It's very broadly diversified its relatively low risk that some of the investments are counter cyclical to our the rest of our business and very importantly at com.
<unk>, our future and action in our climate action strategy as well because it enables us to accelerate.
The strategy in our product strategy, and Bert and the virtual family of products, whether in cement ready mix as you have seen I mean, we've exceeded our targets in cement, where we're about to get to our target in ready mix.
And so it's very complementary and it's a very important part of our strategy.
And presumably also presumably a very ROIC accretive business as well right to your overall mix.
Absolutely I mean.
A lot of the I would say the return on capital employed in this business.
It's very much in line with our growth.
Investment parameters, I mean, which are very accretive.
We're talking 25% plus.
Irr's and we're talking about and particularly in the case of the add mixtures relatively speaking shorter.
Payback periods.
Perfect. That's super helpful. Thank you very much.
Thank you thanks Gordon.
Okay.
We appreciate you joining us today for our fourth quarter results. We hope you will join US again for some extent taking place on March 20th and then again for our first quarter 2024 webcast on April 25th.
You have any additional questions. Please feel free to contact Investor relations.
Many thanks for your time today.
Thank you for your participation in today's conference. This concludes the presentation you may now disconnect good day.
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