Q2 2023 Cemex SAB De CV Earnings Call

Operator: Operator 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 0.0 and we will be happy to assist you. Now I will turn the conference over to Lucy Rodriguez, Chief Communications Officer. Please proceed.

All participants are in a listen only mode.

Later, we will conduct a question and answer session.

Any time you require operator assistance. Please press star zero, and we will be happy to assist you.

And now I will turn the conference over to Lisa <unk> Chief Communications Officer. Please proceed.

Good morning, Thank you for joining us today for our second quarter 2023 conference call and webcast. We hope this call finds you in good health and I'm joined today by Fernando Gonzalez, our CEO and Mark <unk>, our CFO as always we will spend a few minutes reviewing the business.

Lucy Rodriguez: Good morning. Thank you for joining us today for our Q2 2023 conference call and webcast. We hope this call finds you in good health. I am joined today by Fernando González, our CEO, and Maher Al-Haffar, our CFO. As always, we will spend a few minutes reviewing the business, and then we will be happy to take your questions. Now I will hand it over to Fernando. Fernando?

And then we will be happy to take your questions and now I will hand, it over to Fernando Fernandez.

Thank you Lucy and good day to everyone.

Fernando González: Thanks, Lucy. Good day to everyone. I'm beyond pleased with our Q2 results, but before we drill down, I must congratulate our employees around the world who have been instrumental in our mission to recover profitability in the face of 2 years of extraordinary input cost inflation. It is your efforts and dedication that has led to this moment, and I am confident there is more to come. While sales grew 10%, EBITDA rose almost 30% as a result of our pricing strategy, growth investment contribution, and decelerating input cost inflation. Indeed, we have seen total cost as percent of sales declining for 3 consecutive quarters on a sequential basis, and for the first time on a year-over-year basis. This, coupled with pricing, has led to an expansion in our EBITDA margin in the quarter that is approaching our goal of recovering our 2021 margin.

I'm pleased with our second quarter results, but before we drill down I must congratulate our employees around the world who have been instrumental in our mission to recover profitability in the face of two years of extraordinary input cost inflation.

It is your efforts and dedication that has led to this moment and I am confident there is more to come.

While sales grew 10% EBITDA rose almost 30% as a result of our pricing strategy growth investment contribution and decelerating input cost inflation.

Indeed, we have seen total cost us percent of sales declining for three consecutive quarters on a sequential basis and for the first time on a year over year basis.

This.

Coupled with pricing has led to an expansion in our EBITDA margin in the quarter that is approaching our goal of recovering our 2021 margin.

Our growth strategy of bolt on margin enhancement investments, which we adopted in 2020 is paying off on continues to ramp up as projects are completed.

Fernando González: Our growth strategy of bolt-on margin enhancement investments, which we adopted in 2020, is paying off and continues to ramp up as projects are completed. Our Urbanization Solutions business, one of the beneficiaries of this strategy, continues to expand rapidly. In climate action, we continue to execute on our Future in Action roadmap, posting significant quarterly CO2 reductions since 2020. Free cash flow after maintenance CapEx is growing both sequentially and year over year. Importantly, the strong earnings growth is accelerating our deleveraging trajectory, with the leverage ratio now under 2.5 times. Our return on capital in the double-digit area continues to improve, expanding the margin to our cost of capital. Net sales rose double digit with contributions from all regions.

Our <unk> solutions business one of the beneficiaries of this strategy continues to expand rapidly.

And climate action, we continue to execute on our future inaction roadmap posting significant quarterly zero two reductions since 2020.

Free cash flow after maintenance Capex is growing both sequentially and year over year.

Importantly, the strong earnings growth is accelerating our deleveraging trajectory with the level of operation now under two five times.

And our return on capital in the double digit area continues to improve expanding the margin to our cost of capital.

Net sales rose double digit with contributions from all regions.

<unk> grew by 29%, reflecting not only the success of our pricing strategy and decelerating cost inflation, but also the incremental contribution of approximately $50 million from our growth investment portfolio.

Fernando González: EBITDA grew by 29%, reflecting not only the success of our pricing strategy and decelerating cost inflation, but also the incremental contribution of approximately MXN 50 million from our growth investment portfolio and expanding Urbanization Solutions business. EBITDA margin expanded significantly, almost reaching Q2 2021 levels. Free cash flow after maintenance CapEx rose as a result of higher EBITDA, coupled with lower working capital needs. While consolidated cement volumes were negative, the magnitude of the decline relative to Q1 shows improvement, driven largely by Mexico, SCAC, and the US. In Mexico, in particular, cement volumes turned positive for the first time in 2 years, while US volumes rebounded some from the weather issues of Q1. Aggregates volume increased, reflecting growing infrastructure demand in Mexico, SCAC, and the US.

Expanding organization solutions business.

EBITDA margin expanded significantly almost reaching second quarter 2021 levels.

Free cash flow after maintenance Capex rose as a result of higher EBITDA copel with lower working capital needs.

While consolidated cement volumes were negative the magnitude of the decline relative to first quarter shows improvement driven largely by Mexico Sky in the United States.

In Mexico in particular cement volumes turned positive for the first time in two years, while U S volumes rebounded from the weather issues of first quarter.

Aggregates volume increase reflecting growing infrastructure demand in Mexico, Scott on the U S.

Despite a soft volume backdrop prices in all regions continue to catch up to the cumulative cost inflation of recent years.

Fernando González: Despite a soft volume backdrop, prices in all regions continued to catch up to the cumulative cost inflation of recent years. Consolidated prices across our products rose between 11% and 18%. Importantly, cement and ready-mix prices increased sequentially with all regions showing growth. EBITDA growth is largely explained by the contribution of pricing over incremental cost, our growth investments, and growing Urbanization Solutions business. The contribution of pricing relative to cost continues to grow, allowing us to increasingly cover the cost inflation of the last few years and expand our margins to levels close to our 2021 margin goal. Importantly, while still elevated, input cost inflation is easing after two extraordinary years of increases. Margin performance over the last three quarters has confirmed that we are well on our way to recover 2021 margins. Q2 margin expanded by approximately three percentage points year over year and sequentially, reaching 21.1%.

Consolidated prices across our products rose between 11% and 18%.

Importantly, cement and ready mix prices increased sequentially with all regions showing growth.

EBITDA growth is largely explained by the contribution of pricing over incremental cost our growth investments on growing organization solutions business.

The contribution of pricing relative to cost continues to grow.

Allowing us to increasingly cover the cost inflation of the last few years and expand our margins to levels close to our 2021 margin goal.

Importantly, while still elevated input cost inflation is easing after two extraordinary years of increases.

Margin performance over the last three quarters has confirmed that we are well on our way to recover 2021 margins.

Second quarter margin expanded by approximately three percentage points of year over year and sequentially.

Reaching 21, 1%.

This is happening despite the margin headwind of product mix and lower volumes.

Fernando González: This is happening despite the margin headwinds of product mix and lower volumes. The improvement is driven not only by pricing, but also by easing cost inflation and operational efficiencies, as shown in the sequential decreases in COGS as percentage of sales over the last quarters. We continue making significant inroads in our decarbonization efforts, executing against our plant-by-plant 2030 roadmap. CO2 per ton decreased by 4.4% in H1 2023, with record levels for our two main decarbonization levers, alternative fuels and clinker factor. Since the launch of our Future in Action program in 2020, we have reduced CO2 by 11% in two and a half years, a reduction that previously would have taken us 14 years to achieve. Importantly, our path to reach our 2030 decarbonization goal is profitable, as the levers we use either substitute for more expensive raw materials or fossil fuels.

The improvement is driven not only by pricing, but also by eastern cost inflation and operational efficiencies.

As shown in the sequential decreases in Cogs as a percentage of sales over the last quarters.

We continue making significant inroads in our de carbonization efforts executing against our plan by plan 2030 roadmap.

SER two per ton decreased by four 4% in the first half of 2023.

With record levels for our two main the carbonization levers Altair.

Alternative fuels and clinker factor.

Since the launch of our future and action program in 2020, we have reduced <unk> by 11% in two and a half years.

A reduction that previously would have taken us 14 years to achieve.

Importantly, our path to reach our 2030, the carbonization goal is profitable as the levers we use either substitute for a more expensive raw materials or fossil fuels.

Indeed, the investments we make to deliver on our 2030 goals must meet the same return criteria as all growth projects.

Fernando González: Indeed, the investments we make to deliver on our 2030 goals must meet the same return criteria as all growth projects. Future in Action, however, is not limited simply to our production process, but rather to decarbonizing the entire life cycle of our products and industry value chain. As such, we continue to develop our waste management solution business, Regenera. We achieved some important milestones in the quarter to position this business for growth. First, we successfully opened a new state-of-the-art construction, demolition, and excavation waste recycling center in Israel. This facility will be able to transform up to 600,000 tons of construction and demolition waste into recycled raw materials that can then be reintegrated into the construction value chain, conserving virgin raw materials. Additionally, in May, we established a partnership with PASA, a leading waste collection company, to operate a new facility in Puebla, Mexico's fourth largest city.

Tissue inaction, however is not limited simply to our production process, but rather to the carbonite <unk> the entire lifecycle of our products and industry value chain.

As such we continue to develop our waste management solution business regenerate.

We achieved some important milestones in the quarter to position this business for growth.

First with.

We successfully opened a new state of the air construction demolition escalation waste recycling center in Israel.

This facility will be able to transform up to 600000 tons of construction and demolition waste into recycled raw materials that can then be reintegrated into the construction value chain conserving Virgin drove materials.

Additionally.

In May we established a partnership with Plaza, a leading waste collection company to operate a new facility in Puebla, Mexico's fourth largest city.

We expect debenture will manage over 50% of the city's municipal and industrial waste by late 2025.

Fernando González: We expect the venture will manage over 50% of the city's municipal and industrial waste by late 2025 and be an important source of alternative fuels for our operations. This partnership has a direct impact on reducing waste sent to landfill and ensuring that non-recyclable waste is processed in an environmentally friendly manner while avoiding methane emissions. Now back to you, Lucy.

We are an important source of alternative fuels for our operations.

This partnership has a direct impact on reducing waste sent to landfill and ensuring that non recyclable waste is processed in an environmentally friendly manner.

While avoiding methane emissions.

And now back to <unk>.

Thank you Fernando our Mexican operations delivered strong results with a double digit increase in sales and high single digit growth in EBITDA.

Lucy Rodriguez: Thank you, Fernando. Our Mexican operations delivered strong results, with a double-digit increase in sales and high single-digit growth in EBITDA. Our pricing strategy continued to make inroads in offsetting the inflation of the last two years, EBITDA grew for the third consecutive quarter. EBITDA margin decreased primarily due to an unfavorable product mix as ready-mix, bulk cement, and Urbanization Solutions grew faster than higher-margin bagged product, and higher distribution, electricity, and labor costs. The alternative fuels substitution rate reached a record of approximately 44%, with four plants operating at levels above 50%. Our ability to source alternative fuels will be enhanced by the recent acquisition of the waste management business in Puebla. Cement volumes rose 1%, the first sign of demand recovery in two years, and grew 12% sequentially.

As our pricing strategy continued to make inroads in offsetting the inflation in the last two years EBITDA grew for the third consecutive quarter.

EBITDA margin decreased primarily due to an unfavorable product mix as ready mix augment and urbanization solutions grew faster and higher margin products and higher distribution electricity and labor cost.

The alternative fuel substitution rate reached a record of approximately 44% with four plants operating at levels.

8%.

Our ability to source alternative fuels will be enhanced by the recent acquisition of the waste management business and Puebla.

Cement volumes rose, 1%, the first signs of demand recovery in two years and grew 12% sequentially.

Demand was driven not only by continued strong bulk cement performance linked to formal construction, but also from market share recovery in AG products.

Lucy Rodriguez: Demand was driven not only by continued strong bulk cement performance linked to formal construction, but also from market share recovery in bagged product. Ready-mix and aggregates volumes also benefited from strength in formal construction, with growth of mid-single digit and double digit, respectively. Volumes remain supported by nearshoring investments in border states and the Bajío region, as well as tourism construction and an accelerated execution of infrastructure projects ahead of national elections. Next month, our 1.5 million ton capacity expansion in Tepeaca will be fully operational, allowing us to serve the expected medium-term needs of the country. Demand is picking up in Mexico and capacity utilization remains high, especially in the north and southeast regions. While we believe this new capacity fills an important demand need and will not be disruptive, as always, we have the ability to adjust overall production.

Ready mix and aggregates volumes also benefited from strength in formal construction with mid single digit and double digit respectively.

Volumes remain supported by near shoring investment in border States and the Bahia region as well as tourism construction and an accelerated execution of infrastructure projects ahead of national elections.

Next month, our $1 5 million ton capacity expansion in <unk> will be fully operational, allowing us to serve the expected medium term need country.

<unk> is picking up in Mexico, and capacity utilization remains high, especially in the north and southeast region.

While we believe this new capacity sales an important demand meet and will not be disrupted as always we have the ability to adjust overall production.

With the aims continue recovering margins, we have announced additional price increases for cement and ready mix in July.

Lucy Rodriguez: With the aim to continue recovering margins, we have announced additional price increases for cement and ready-mix in July. For 2023, we now expect low single-digit growth for cement volumes and high single-digit growth for ready-mix and aggregates. The US had a record quarter, benefiting from our pricing strategy, recent growth investments, and decelerating costs. The 87% growth in EBITDA and margin expansion reflects these trends, as well as a prior year's comparative base that was significantly impacted by heavy maintenance costs and supply chain disruptions. Cement and ready-mix pricing rose 15% and 21% respectively, and increased low single digits sequentially. Price increases announced for Q3 cover approximately 90% of our cement volumes.

For 2023, we now expect low single digit growth for Smiths volume and high single digit growth for ready mix and aggregates.

The U S had a record quarter benefiting from our pricing strategy recent growth investments and decelerating cost 87% growth in EBITDA and margin expansion reflects these trends as well as the prior years comparative base. It was significantly impacted by heavy maintenance.

<unk> cost and supply chain disruptions.

Cement and ready mix pricing rose, 15%, and 21%, respectively and increased low single digits sequentially.

Rice increases announced with third quarter cover approximately 90% of our cement volumes.

Aggregates pricing rose, 11%, but declined 6% sequentially due to product mix.

Lucy Rodriguez: Aggregates pricing rose 11%, but declined 6% sequentially due to product mix. While cement and ready-mix volumes rebounded from the significant Q1 weather disruptions, volumes continued to be impacted by weather as well as a lower level of construction activity, declining by 8% and 10% respectively. Cement volumes were also negatively impacted by the sale of a terminal and closure of some minor operations in 2022, as well as the conclusion of a major construction project. We estimate the impact of this, along with weather, represents around 70% of the volume decline. Aggregates volumes increased by 5%, benefiting from the opening of a new sand mine in Florida, as well as the acquisition of the Atlantic Minerals Quarry in Canada, which closed in April. Excluding the impact of these events, aggregate volumes would've been up 1%.

Health net and ready mix volumes rebounded from the significant first quarter weather disruptions volumes continued to be impacted by weather as well as the lower level of construction activity declining by eight and 10% respectively.

Yeah.

Cement volumes were also negatively impacted by the sale of the terminal enclosure minor operation in 2022 as well as the conclusion of a major construction project.

We estimate the impact of this along with weather represents around 70%.

<unk> decline.

Aggregates volumes increased by 5% benefiting from the opening the new sand mined, Florida as well as the acquisition of the Atlantic minerals, Corey in Canada, which closed in April.

Excluding the impact of these events aggregate volumes would have been up 1%.

During the quarter the housing market continued to stabilize as tight inventory in the existing home market supports demand for new home construction.

Lucy Rodriguez: During the quarter, the housing market continued to stabilize as tight inventory in the existing home market supports demands for new home construction. Single-family housing starts increased 11.4% in Q2 versus Q1, with permits increasing by 12.9%. We continue to see increased manufacturing and infrastructure construction in our markets, supported by the Bipartisan Infrastructure Bill, the Inflation Reduction Act, and the CHIPS Act. Trailing 12-month infrastructure and industrial and commercial contract awards in our key states were up 26% and 4% respectively through June. Once again, our EMEA region delivered solid results despite a challenging demand environment. This quarter marks the seventh consecutive quarter with year-over-year growth in EBITDA. Top line and EBITDA growth were mainly driven by our disciplined pricing and carbon strategy, as well as important contributions from growth investments.

Single family housing starts increased 11, 4% in second quarter versus first quarter with permits increasing by 12, 9%.

We continue to see increased manufacturing in infrastructure construction in our markets supported by the bipartisan infrastructure Bill inflation reduction here and the chips Act trailing 12 months infrastructure and industrial and commercial contract awards in our key states were up 26%.

And 4% respectively through June.

Once again, our EMEA region delivered solid results. Despite a challenging demand environment. This quarter marks the seventh consecutive quarter with year over year growth in EBITDA.

Topline and EBITDA growth were mainly driven by our disciplined pricing in carbon strategy as well as important contributions from growth investments.

Our growth investments are yielding results with expected incremental EBITDA contribution of more than $40 million in 2023 for the region.

Lucy Rodriguez: Our growth investments are yielding results with expected incremental EBITDA contribution of more than $40 million in 2023 for the region. Some examples of these projects include the alternative fuel facility in our Rugby plant in the UK, the acquisition of a majority stake of ProStein company in Germany, which doubled our aggregates reserves in the country, the installation of state-of-the-art cement mill separators in Croatia that will allow for lower clinker factor and power consumption, and the new concrete paving product machine in Israel, among others. EBITDA margin in EMEA expanded by almost 1 percentage point to the highest level in seven quarters. Europe continues showing strong cement pricing momentum, with 28% growth year-over-year. Sequential cement prices rose 3% on the back of April increases in Germany and the UK. EBITDA in Europe rose 32%, while margins increased by 3.2 percentage points.

Some examples of these projects include the alternative fuels facility and our <unk> plant in the U K the acquisition of the majority stake of protein company in Germany, which doubled our aggregate reserves in the country.

The installation of state of the art cement mill separators in Croatia that will allow us to lower clinker factor and power consumption.

And the new concrete tailings product machine in Israel among others.

EBITDA margin in EMEA and expanded by almost one percentage points to the highest level in seven quarters.

Europe continues showing strong cement pricing momentum with 28% growth year over year.

Sequential cement prices rose, 3% on the back of April increases in Germany and UK.

EBITDA in Europe rose, 32%, while margins increased by three two percentage points.

Europe continues to post new records in climate action and the region is well on its way to match the Eu's, 55% 2030 carbon emissions reduction target.

Lucy Rodriguez: Europe continues to post new records in climate action, and the region is well on its way to match the EU's 55% 2030 carbon emissions reduction target. While volumes are currently depressed, we remain optimistic over Europe's prospects for the near future as the region pivots decisively towards a more circular economy and construction is supported by multi-billion euro projects related to green renovation, transportation, climate adaptation, energy reconfiguration, and onshoring investment opportunities. In the Philippines, cement volumes declined as a result of continued weakness in construction activity, driven by high inflation and interest rates, lower infrastructure spending, and a tough comparative base. EBITDA margin continued to be impacted by lower volumes and inflationary pressures, particularly energy. We believe Q2 marks an inflection point in energy cost as we adjust our fuel sourcing to a more efficient energy mix.

While volumes are currently depressed we remain optimistic over Europe prospects for the near future as the region pivot decisively towards a more circular economy and construction is supported by multibillion euro projects related to green renovation transportation.

Simon adaptation energy reconfiguration, and onshoring investment opportunities.

In the Philippines cement volumes declined as a result of continued weakness in construction activity driven by high inflation and interest rates lower infrastructure spending and a tough comparative base.

EBITDA margin continued to be impacted by lower volume and inflationary pressures, particularly energy.

We believe second quarter marks an inflection point in energy cost as we adjust our fuel sourcing to a more efficient energy mix.

For more information please see our CHP quarterly earnings which will be available this evening.

Lucy Rodriguez: For more information, please see our CHP quarterly earnings, which will be available this evening. Net sales and EBITDA in the South, Central America and the Caribbean region grew double-digit, driven by strong pricing contribution and decelerating energy costs. Cement volumes continued to be pressured by weak bagged cement demand, although bulk cement, ready mix, and aggregates showed positive performance, supported mainly by the infrastructure sector. After five consecutive quarters of EBITDA margin contraction, Q2 marks an inflection point with an expansion of 1.4 percentage points as a result of our pricing strategy and decelerating input cost inflation. In Colombia, cement volumes declined low single-digit, driven by weak residential sector, which was partially offset by strong infrastructure-related activity.

Net sales and EBITDA in the South Central America, and Caribbean region grew double digits, driven by strong pricing contribution in decelerating energy costs.

Cement volumes continued to be pressured by weak bagged cement demand, although oxymel ready mix and aggregates showed positive performance supported mainly by the infrastructure sector.

After five consecutive quarters of EBITDA margin contraction second quarter marks an inflection point with an expansion of one four percentage points.

As a result of our pricing strategy and decelerating input cost inflation.

In Colombia cement volumes declined low single digits, driven by weak residential sector, which was partially offset by strong infrastructure related activity.

We are optimistic on the medium term outlook in Colombia with ongoing work on the <unk> projects and the rollout of additional infrastructure investments such as the <unk> projects and the Bogota Metro.

Lucy Rodriguez: We are optimistic on the medium-term outlook in Colombia with ongoing work on the 4G projects and the rollout of additional infrastructure investments such as the 5G projects and the Bogota Metro. In the Dominican Republic, while weak informal cement demand weighs on bagged cement volumes, we continue to see robust activity in formal construction, primarily in tourism and infrastructure-related projects. In Panama, cement and ready-mix volumes increased, mainly driven by infrastructure projects related to the metro, the fourth bridge over the canal, and highway expansions. Our operation in Panama remains an important export hub for sold-out markets in SCAC. Now I will pass the call to Maher to review our financial developments.

In the Dominican Republic, while weak informal cement demand weighs on bagged cement volumes, we continue to see robust activity in formal construction, primarily in tourism and infrastructure related projects.

In Panama cement and ready mix volumes increased mainly driven by infrastructure projects related to the metro the fourth bridge over the canal and highway expansions.

Our operation in Panama remains an important export hub for sold out markets in stack.

And now I will pass the call to Mark Harris to review our financial developments.

Thank you Lucy and good day to everyone.

Maher Al-Haffar: Thank you, Lucy. Good day to everyone. We are very pleased with our Q2 results, with strong growth in sales, EBITDA margin, and free cash flow generation. These results speak to the success of our pricing strategy and increased operating efficiency, coupled with decelerating cost inflation and contributions from our growth strategy and Urbanization Solutions. As Fernando noted, we are achieving record levels of alternative fuels utilization and clinker factor. We also continue to increase our sales of blended cement among other operating efficiencies, which not only get us closer to our decarbonization goals, but also reduce our costs and improve our margins. We have seen a significant improvement in our EBITDA margin year-over-year as cost inflation eases. This is particularly true in energy, with market prices for our main fuels trending down in the quarter.

We are very pleased with our second quarter results with strong growth in sales EBITDA EBITDA margin and free cash flow generation.

These results speak to the success of our pricing strategy and increased operating efficiency, coupled with decelerating cost inflation and contributions from our growth strategy and organization solutions.

As Fernando noted, we are achieving record levels of alternative fuels utilization in clinker factor.

We also continued to increase our sales of blended cement among other operating efficiencies, which not only get us closer to our de carbonization goals, but also reduce our costs and improve our margins.

We have seen a significant improvement.

In our EBITDA margin year over year as cost inflation eases.

This is particularly true in energy with market prices for our main fuels trending down in the quarter.

While fuel cost on a per ton of cement basis increased 10, 7% year over year.

Maher Al-Haffar: While fuel costs on a per ton of cement basis increased 10.7% year-over-year, it declined 7.7% sequentially. We expect to see this improving trend in fuel costs to continue into the H2 of the year. Higher EBITDA, coupled with a lower investment in working capital, partially offset by higher taxes, delivered incremental free cash flow of $243 million in the H1 of the year versus last year. Working capital investment this year is lower than last year by $114 million. We expect to end the year with an investment of less than half of what it is today. Working capital days for the quarter stood at roughly zero, up six days from Q2 last year. This increase is due primarily to the inflationary impact in inventories, as well as higher fuel stocks that should be consumed as the year progresses.

It declined seven 7% sequentially.

We expect to see this improving trend in fuel costs to continue into the second half of the year.

Higher EBITDA, coupled with a lower investment in working capital, partially offset by higher taxes.

Delivered incremental free cash flow of $243 million in the first half of the year versus last year.

Working capital investment this year is lower than last year by $114 million and we expect to end the year with an investment of less than half of what it is today.

Working capital days for the quarter stood at roughly zero up six days from <unk> last year. This increase is due primarily to the inflationary impact in inventories as well as higher fuel stocks that should be consumed as the year progresses.

The increase in cash taxes as a consequence of stronger results as well as the tax effects of foreign exchange on our U S dollar denominated debt.

Maher Al-Haffar: The increase in cash taxes is a consequence of stronger results, as well as the tax effect of foreign exchange on our USD-denominated debt. Net income was slightly higher than the prior year. The increase was driven primarily by better operational results and a positive foreign exchange effect, partially offset by higher taxes and the premium paid for calling our seven and three-eighths bonds earlier this year. We are happy with our accelerating glide path towards an investment grade rating. As you know, this has been a strategic priority for us as we believe it holds enormous value creation for our shareholders. We have focused on delivering on results and reducing debt, translating into a reduction of leverage of approximately 1.7x over the past two and a half years.

Net income was slightly higher than the prior year. The increase was driven primarily by better operational results and a positive foreign exchange effect, partially offset by higher taxes and the premium paid for calling our 730 eights bonds earlier this year.

We are happy with our accelerating glide path towards an investment grade rating.

As you know this has been a strategic priority for us as we believe it holds enormous value creation for our shareholders.

We have focused on delivering on results and reducing debt translating into a reduction of leverage of approximately one seven times over the past two and a half years.

This year alone our leverage ratio has declined.

Maher Al-Haffar: This year alone, our leverage ratio has declined 0.39 times, ending the quarter at 2.45, reaching the lowest leverage level since we started measuring this metric in 2009 in connection with our syndicated bank facility. As we get into the H2 of the year, when our working capital cycle turns positive for us, we expect to further reduce leverage as EBITDA continues to grow and debt continues to trend lower. And now back to you, Fernando.

Three nine times ending the quarter at 245.

Reaching the lowest leverage level since we started measuring this metric in 2009 in connection with our syndicated bank facility.

As we get into the second half of the year when our working capital cycle turns positive for US we expect to further reduce leverage as EBITDA continues to grow and that continues to trend lower.

And now back to you Fernando.

Based on first half results.

Fernando González: Based on H1 results, I'm quite optimistic for the rest of the year. We have additional pricing increases scheduled in to roll out in several markets during Q3. We expect to see continued deceleration in key input costs, while the benefit from our growth investment portfolio should continue to scale. As a result, we are upgrading our EBITDA guidance to be in the $3.25 billion area, an approximate 21% increase year-over-year. For cash taxes, we now expect $400 million, driven largely by Mexico. The expected increase reflects stronger results as well as the tax effect of foreign exchange on debt. We have made some minor adjustments in regional volume guidance, which you can find detailed in the appendix. Now back to you, Lucy.

I am quite optimistic for the rest of the year.

We have additional pricing increases scale into rollout in several markets during the third quarter.

We expect to see continued deceleration in key input costs, while the benefit from our growth investment portfolio should continue to scale.

As a result, we are upgrading our EBITDA guidance to be in the $3 billion to $5 billion area.

An approximate 21% increase year over year.

For cash taxes, we now expect $400 million driven largely by Mexico.

The expected increase reflects stronger results as well as the tax effect of foreign exchange on depth.

We have made some minor adjustments in regional volume guidance, which you can find detailed in the appendix on.

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.

Lucy Rodriguez: 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. 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 that you limit yourself to only one question. If you wish to ask a question, please press star followed by one on your touch-tone telephone. If your question has been answered or you wish to withdraw your question, press star followed by two. Press star one to begin.

In addition, unless the context indicate otherwise all references to pricing initiatives price increases or decreases refer to prices for our products.

And now we will be happy to take your questions in the interest of time and to give other people an opportunity to participate we kindly ask that you limit yourself to only one question.

If you wish to ask a question. Please press star followed by one on your Touchtone telephone.

If your question has been answered or you wished withdraw your question Press Star followed by two.

Press Star one to begin.

And the first question comes from Ben Theurer from Barclays.

Lucy Rodriguez: The first question comes from Benjamin Theurer from Barclays. Ben?

Yeah. Good morning, Fernando Lucy Moher, Congrats on the very strong results first of all on it.

Benjamin Theurer: Yeah. Good morning Fernando, Lucy, Maher. Congrats on this very strong results, first of all.

And then my one question is really around.

Fernando González: Morning.

Benjamin Theurer: My one question is really around the announcement you've just made and said that you continue to increase prices and targeting, I think, 90% of the volume in the US, you said, with another price increase. Clearly, we have seen in some regions maybe a little bit of an impact on volume. My question really is, how should we think about your willingness to continue to boost pricing, even in light of maybe some of an impact on volume and maybe some market share losses? Would you consider at some point also being maybe a little less aggressive on pricing as cost pressure comes down to ultimately gain back some of the volume, which then should, in turn, also be somewhat margin accretive? Just the balance between pricing versus a little of volume loss, how you think about this.

The the announcements you've just made on set that you continue to increase prices and targeting like 90% of the volume in the U S. You said with another price increase.

Clearly we have seen in some regions, maybe a little bit on the impact on volume. So my question really is how should we think about your willingness to.

To continue to boost pricing.

Even in light of maybe some of an impact on volume and maybe some market share losses or would you consider at some point also being maybe a little less aggressive on pricing is cost pressure comes down to ultimately gain back some of the volume, which didnt ship.

In turn also be somewhat margin accretive, but just the balance between pricing versus of a little bit of volume loss. How you think about this.

Okay.

Hum.

Thanks, Brent as you mentioned we have two.

Fernando González: Thanks, Ben. As you mentioned, we have to carefully balance the equation. Let me start by saying that our pricing strategy during 2022 and H1 and the months to come, is really adjusted because of the very high level of our inflation, I mean, our cost and expense inflation. It's really the level of inflation that is guiding the level of pricing. As we have mentioned, inflation is moderating, but it's still double digits, meaning it's not disappearing at all. We need to continue monitoring the impact of this inflation. As an example, inflation of the cost per ton in US dollars at a consolidated level in Q2 was 13%. We cannot, let's say, stop considering these levels of inflation and considering them in our future pricing strategies.

Carefully balance.

The equation.

Let me, let me start by saying the.

Our pricing strategy.

In the loss.

During during 'twenty two on the first half of the year.

On the months to come is really adjusted because of the very high level of our inflation on our cost and expense inflation. So it's really the level of inflation.

That is guiding the level of pricing.

As we have mentioning inflation is moderating, but still double digits, meaning is not disappearing nuttall.

So we need to continue monitoring the impact of this inflation.

As an example.

Inflation.

The cost per tonne.

In U S dollars at a consolidated level was in the second quarter was 13%.

So we cannot we cannot.

<unk>.

Let's say stop considering these levels of inflation and considering them in our future pricing strategies.

Now regarding the balance or.

Fernando González: Now, regarding the balance or the potential impact of this pricing or price strategies regarding our market position or participation. In every market might be different because of different reasons, but we are always evaluating the contribution of pricing and also evaluating our position in the market. What we see is a process that takes months, takes quarters, particularly when you are the one leading the price increase, which in some markets that is the case. In other markets, that is not the case. We don't lead, sometimes we follow. We have to evaluate the consequences in our market position, and then taking the time to, if a market position was impacted, then taking the time for us to recover that market share.

Or the potential impact of this pricing or price try.

Tried to use.

And regarding our market position or participation.

In every market might be might be different because of different reasons, but we are always evaluating the contribution of pricing.

So evaluating our position in the market.

What what we see.

It's a process that takes months takes quarters.

Particularly when you are the one leading the price increase which in some markets that is the case in other markets that is not the case we.

We don't lead we sometimes we follow.

But we have to evaluate the consequences in our market position and then they taken the time to <unk>.

Our market position with <unk>.

Impacted then taking the time for us to recover that market share.

I would experience it might take.

Fernando González: In our experience, it might take periods of 6 to 9 months for the full process to go through, meaning increasing prices, evaluating the impacts, rethinking on what is it that needs to be done, et cetera. Now, there is a saying, to me, it's kind of simple, "Market share lost to pricing, you can gain it back through pricing." So far, I don't or we don't observe a particular deterioration in market shares because our pricing strategies. What you can expect is that as long as inflation continue at these high levels, we should continue similar pricing strategies.

The period of six to nine months.

For the full process to go through meaning increasing prices evaluated named bugs.

Thinking on what is it that needs to be done et cetera.

Now there is.

Hum.

That is to say a misguided simple market share loss to pricing you can gain it back through pricing.

But so far.

I don't we don't observe.

A particular deterioration in market shares because our pricing strategies.

So what you can expect is that as long as inflation continue at these high levels.

We should continue.

Yes.

Similar pricing strategies.

Okay perfect. Thank you very much Fernando congrats again.

Benjamin Theurer: Okay, perfect. Thank you very much, Fernando, and congrats again.

Okay.

Thanks, Dan Thank you Ann.

Maher Al-Haffar: Thanks, Ben.

Fernando González: Thank you, Ben.

The next question comes from Anna <unk> from Bank of America and please go ahead.

Lucy Rodriguez: The next question comes from Anne Milne from Bank of America. Anne, please go ahead.

Good morning, Fernando Maher Lucy.

Anne Milne: Good morning, Fernando, Maher, Lucy. Congratulations on the great quarter. It must feel very good to have such good numbers. First of all, I just want to congratulate you.

Congratulations on a great quarter, it must feel very good to have such good numbers.

So first of all I just wanted to congratulate thank you as well.

Sure.

Fernando González: Thank you.

Anne Milne: as well. Sure. On the change in the outlook from Fitch last night on your BB plus rating to positive outlook. That just leaves a hair now before you get one investment grade rating. I was just wondering, did they provide a timeframe for the upgrade? Does this upgrade change anything on pricing on your financial instruments, which would probably be loans in this particular case?

The change in the outlook from Fitch last night on your double B plus rating to positive.

Positive outlook, so that just leaves a hair now before you get one investment grade rating.

I was just wondering.

Did they provide a time frame for the upgrade and does this upgrade.

Change anything on pricing on your financial instruments, which would probably be loans.

This particular case.

Yes, Thanks Ann for the question and yes, we are quite quite happy with the.

Maher Al-Haffar: Yeah, thanks, Anne, for the question. Yeah, we're quite happy with the Fitch action. Just for those who may not have seen it, we've got a positive outlook on the external debt, and we also had an upgrade in our long-term debt in Mexico from AA- to AA with a positive outlook as well. Pretty much on all categories, as you said, we're a hair away from the next potential upgrade.

Fitch action and just for those who have not may not have seen it we've got a.

A positive outlook on the external debt and we also had an upgrade in our long term debt in Mexico from double a minus to double a with a positive outlook as well so pretty much on all categories. As you said, we are a hair away from.

The next potential upgrades now typically when Fitch and I.

Maher Al-Haffar: Now, typically when Fitch, and this is my perception, is that typically when they do get to a positive outlook, they have an internal, I don't know if it's a requirement or a tendency to review the rating within six to 12 months. They've kind of indicated that from reading between the lines and talking to them, that we're probably within close to half a turn based on the way that we measure our leverage from their investment grade kind of parameters. Now, whether they will take us there this year, early next year, that's up to them. Of course, we have to wait and see how things evolve. I think they're constantly in touch with us and we're updating on our results, and we're quite excited by the action that they have taken on a day like today. It was great. Now, in terms of refinancing, yes.

This is my perception is that typically when they do get to a positive outlook. They have an internal I don't know if it's a requirement or a tendency to review.

The rating within six months to 12 months.

And.

They've kind of indicated that if from reading between the lines and talking to them.

That debt.

We're probably within.

Close to half a turn based on the way that we measure.

Our our leverage from their investment grade kind of parameters.

Now whether they will.

Take us there. This year early next year, that's up to them of course, we have to wait.

And see how things evolve but.

I think.

They were they are constantly in touch with us and we're updating on our results and we're quite excited by the action that they have taken.

On a day like today I mean, it was it was great now in terms of refinancing.

Yes, I mean.

Although we are quite comfortable with our maturity.

Maher Al-Haffar: Although we're quite comfortable with our maturity profile for our liabilities, as you've seen from the presentation that was distributed this morning. Clearly, this upgrade and the feedback we're getting from the capital markets should give us the opportunity before the end of the year to do some liability management that should improve the debt stack going forward. I can't say exactly what that will be. Now, in terms of improving our cost of borrowing, the answer is yes. I can't speculate on that impact at this point in time. It depends when we will do it. It depends on what the capital markets conditions are. If I were to take a look at where our bonds are trading, and I think you know better than I do on a daily basis when our bonds are trading.

Profile for our liabilities as you've seen from the presentation that was distributed this morning.

Clearly.

This upgrade and and the feedback we're getting from the capital markets.

Should give us the opportunity before the end of the year.

To do some liability management that should improve.

The debt stack going forward, so, but I can't say exactly.

But that will be now in terms of.

In terms of.

Improving our cost of borrowing I mean, the answer is yes.

I can't speculate on.

That impact at this point in time I mean, it depends when we will do it depends on what the capital markets conditions are but if I were to take a look at our.

Our bonds are trading and I think you know better than I do on a daily basis. When those bonds are bonds are trading, but the longer bonds are trading a Z spreads that are close to around $52 45.

Maher Al-Haffar: The longer bonds are trading at Z-spreads that are close to around 250, 245. If I compare those bonds to some of our peers, the peers, albeit have higher ratings, are materially tighter than that. I don't want to speculate on when we, and if we, go about any refinancings, what the pricing impact is likely to be. We see this as a journey. Obviously, as you could imagine, we see this as a journey, and as we continue to improve our credit ratings, we do expect to reduce our cost of financing and increasing free cash flow. I don't know if that answers the question. If there's any follow-ups, I'll be more than happy to address.

If I compare those bonds to some of our peers.

The peers, albeit have higher ratings are materially tighter than that but I don't want to recommend I don't want to speculate on when we and if we go about any refinancings.

What the pricing impact is likely to be and.

And we see this as a journey and I mean, obviously as you can imagine.

We see this as a journey and as we continue to improve our credit ratings, we do expect to reduce our cost of financing and increasing free cash flow.

You know if that answers the question if theres any follow ups I'll be more than happy to Joe.

To address okay, yes, just the only follow up would be how are the conversations with S&P going that would be the second one that you are concerned that that also has a double b plus.

Anne Milne: Okay. Yeah, just the only follow-up would be, how are the conversations with S&P going? That would be the second one that you're concerned, that also has a BB+.

Yeah.

Hi.

I really can't comment, but I think I think today.

Maher Al-Haffar: I really can't comment, but I think today, with the results that we've seen today and with the track record and the acceleration on pricing, and the expansion of price compared to cost on a consolidated basis, should be good news for both of our rating agencies. I can't comment on any ongoing conversations with them.

With the results that we've seen today and with the.

The track record and the acceleration on pricing.

And the recovery and the expansion of price compared to cost on a consolidated basis should be good news for for both of our rating agencies.

But I can't comment on any ongoing conversations with them.

Okay, well, thank you very much congratulations on.

Anne Milne: Okay. Well, thank you very much. Congratulations.

The positive outlook upgrade and <unk>.

Lucy Rodriguez: Brian

Anne Milne: for the positive outlook and the upgrade and the great quarter.

And the great Kartik.

Thank you very much and thanks. Thank you.

Maher Al-Haffar: Thank you very much, Anne.

Lucy Rodriguez: Thank you.

Anne Milne: Thank you.

The next question comes from the webcast from Paul Roger from Exane BNP Paribas.

Lucy Rodriguez: The next question comes from the webcast from Paul Roger from Exane BNP Paribas. It looks like your CO2 per ton of cement fell 4.4%, and clinker factor fell 1.1 percentage points in the H1. This is a bigger decline than peers. What's driving this outperformance? Is it catch-up or something specific in your decarbonization strategy?

It looks like your Seo to per ton of men fell four 4% and clinker factor fell one one percentage points in the first half. This is a bigger decline than peers. What's driving this outperformance is it catch up or something specific in guaranteed carbonization strategy.

Okay well thanks, Thanks for the question Paul.

Fernando González: Okay. Well, thanks for the question, Paul. Let me start by saying that for a fraction percent of this quarter is pretty well aligned to what has happened in the last maybe 10 quarters. In 2021, 2022, we started making reductions of this size when we put in place our Future in Action strategy and started speeding up, complementing, and properly executing that strategy. If you remember, we've been reporting that in 2021 and 2022, we have reduced CO2 per ton of cement by around 9.5%, which is, in two years, is a reductions that used to take us a decade. What I'm saying is that late 2020, we put in place a strategy, started executing in 2021, and it's paying off. It's paying off not only this quarter, but for the last 10 quarters.

Let me, let me start by saying that the Fortinet fraction.

Percent.

Of this quarter is pretty well aligned to what has happened in the loss.

Maybe 10 quarters.

In 'twenty, one 'twenty, two we started making reductions of this size.

When we put in place our Fisher in action strategy and started.

Speeding up complementing an appropriately executing.

And that strategy.

So if you remember we've been reporting that in 'twenty, one 'twenty two we have reduced.

Two per tonne of cement by around nine 5%.

Which is in two years.

Ah reductions that used to take us a decade.

So.

What I'm, saying is that.

Late 'twenty, we put in place a strategy started executing in 'twenty, one and it's paying off and it's paying off not only this quarter, but for the last for the last 10 quarters.

Now is this is this.

Fernando González: Is this a catch-up because we have realized that the reduction that we have systematically doing in the last 2 years and a half is higher than the one from our competitors? Maybe in very early stages that was the case, but by the end of last year, using the CO2 per ton of cement as a proxy, our numbers were either equal or better when compared to other peers. Particularly referring to this quarter or to last quarter, even though we cannot call it a catch-up.

Because we have realized that the reduction that we have systematically doing in the last two years and the half is higher than the one from our competitors.

And maybe in very early stages that was the case, but by the end of last year.

Using the <unk> two per tonne of cement.

As a proxy our numbers were either equal or better.

Compared to other.

Pearce.

So.

Particularly referring to this quarter or two last quarter.

We cannot call it a catch up.

Now what is it that we're doing well.

Fernando González: What is it that we are doing? Well, what we've been commenting, which is using as much as possible the, let me call them the traditional levers to reduce CO2 in production of cement. Which is offering lower carbon products in the market through our Vertua family of products. Reducing the clinker factor, offering more composite cements in different markets. Increasing the level of alternative fuels, particularly the ones with high contents of biomass. In Q2 of this year, the use of alternative fuels was 36.5%, which is the highest in the industry, at least when compared to companies that make public reporting on this data. A couple of notes on this regard. In Europe in particular, 70% of our fuels are alternative fuels, is the highest figure in Europe.

We being commenting which is.

Using as much as possible the let me call them the traditional levers to reduce your two in production.

Which is offering.

Offering lower carbon products in the market through our <unk>.

Lee of products.

Reducing the.

Clinker factor offering more composite cement in different markets.

Increasing the level of alternative fuels.

Particularly the ones with high content of biomass in.

In the second quarter of this year.

The use of alternative fuels was 36, 5%, which is the highest in the industry at least when compared to companies that make public reporting on this.

Is that the.

A couple of notes on this regard in Europe in particular, 70% of our fuels. Our alternative fuels is the highest figure in Europe and Mexico.

Our largest plant the guys more than 60% of alternative fuels in Mexico as a whole is around 40% of the fuels. So we've been making lots of progress through some investments on increasing and improving.

Fernando González: In Mexico, our largest plant, Tepeaca, is more than 60% in alternative fuels, and Mexico as a whole is around 40% in alternative fuels. We've been making lots of progress through some investments and increasing and improving all these levers. By the way, I have to always remind everybody that these are very profitable investments. The last couple of investments we did in Europe, in Rugby and in Rüdersdorf, is to increase the use of alternative fuels up to 90%. Alternative fuels where we are paid to use them. It's very accretive investments in these terms. At the same time, we're increasing the use of renewable electricity, green electricity, and just to mention a few examples in scope one in cement.

All of these levers which by the way.

I have to always to remind everybody that these arent.

Very profitable investments.

Last couple of investments, we did in Europe in drug be on <unk>.

Is to increase the use of alternative fuels up to 90%.

Fair enough the feel of that.

We have to pay to use them.

So it's a very accretive investments in these terms.

At the same time, we're increasing the use of <unk>.

I'll repeat them. Thank you all of you all know no increase in the use of renewable electricity into the trees at the and just to mention a few examples in scope one in.

In cement, but I think the important buddies.

Fernando González: I think the important part is by now, after introducing our strategy, Future in Action, two years and a half ago, what we're doing is showing, is demonstrating, that we are also delivering. We are proving action, not just promises. At the same time, we are very pleased because economically, it's been an attractive transition so far. What is it that you can expect? More of the same, plus the five projects we are developing in carbon capture. That's not for the next quarter or the next couple of quarters. It will take a little bit longer. The process continues and hopefully as successful as it has been in the last two years and a half.

By now after introducing.

Our strategy in action to use on a half ago.

We are doing is showing is demonstrating that we are also delivery we are proving action.

<unk> promises.

At the same time.

We are very pleased because economically it's been unattractive transitions.

Transition so far.

What is it that you can expect more of the same plus the five projects we are developing in carbon capture.

That's not for the next quarter or the next couple of quarters, then I would think we will take a little bit longer.

But the process continues and hopefully as successful as it has been in the last two years in half.

Thank you Fernando.

And the next question comes from Vanessa Quiroga from Credit Suisse Vanessa.

Lucy Rodriguez: Thank you, Fernando. The next question comes from Vanessa Quiroga, from Credit Suisse. Vanessa?

Yes, hi, Thank you and congrats on the results.

Vanessa Quiroga: Yes. Hi, thank you. Also congrats on the results. I want to go back to the topic of US pricing because, you already reached the 2021 margins, but you are indicating that you still need price increases to catch up with cost inflation. How can we understand your target in this case? Should we expect maybe a slowdown in margin recovery in H2? How can we understand this current strategy on prices with margins at these levels already? Thank you.

I want to go back to that topic of U S pricing because.

Do you already reached our 2021 my game and but you are indicating that.

You still need price increases to catch up with cost inflation. So how can we understand that your target in this case.

Should we expect maybe a slowdown in market recovery in the second half or how can we understand this.

Darren strategy on prices with margins at these levels are ready. Thank you.

Okay.

Thank you Vanessa Okay should.

Maher Al-Haffar: Thank you, Vanessa.

Ananda we're not hearing you say.

Lucy Rodriguez: Okay.

Or do you want to.

Maher Al-Haffar: Fernando, do you want me to take it?

Sure.

Lucy Rodriguez: Maher, do you want to go first or-?

Vanessa I think that.

Maher Al-Haffar: Yeah, sure. Vanessa, I think that first obviously the comp in the Q2, as Lucy mentioned in the remarks, it's a tough comp and because of weather, because of heavy maintenance costs, supply chain disruptions, all the comments that Lucy made. I think that one quarter doesn't complete a pricing strategy, right? I think we're looking long-term, and we certainly continue to see, as Fernando said, we continue to see input cost inflation, although it's decelerating. Demand is quite tight. I think that our pricing strategy continues to be in place and we have some announcements that have been made for July and August in several of our markets. Lucy, I don't know if you want to comment on that, and we're reasonably confident that we should get an important part of that.

First obviously the comp.

In the second quarter as Lucy mentioned in the remarks, right I mean, it's a tough it's a tough comp in <unk>.

Yeah.

Because of weather because of heavy maintenance costs supply chain disruptions all the comments that <unk> made.

And I think that.

One quarter doesn't.

It doesn't make.

It doesn't complete our pricing strategy right I mean, I think we're looking long term and we certainly continue to see.

Fernando said, we continue to see input cost inflation, although it is decelerating.

And.

Demand is quite tight so I think that our pricing strategy continues to be in place and we have some announcements that have been made for July and August in several of our markets. Lucy I don't know if you want to comment on that but and we are.

We're reasonably confident that we should get an important part of that but leaving that aside even if we were just to take a look at.

Maher Al-Haffar: Leaving that aside, even if we were just to take a look at prices as they are, if they don't change throughout the year, throughout the rest of the year, we're looking at probably another 13% of pricing increase effect in the H2 of the year. This is something that we have to continue modulating, frankly, and we have to continue monitoring the inflation in our business in the US. Certainly, things are slowing down, but there's still inflation, and we need to make sure that we continue to recover that, frankly. Lucy, I don't know if you want to add to that.

Prices as they are if they don't change throughout the year throughout the rest of the year, we're looking at probably another 13.

Percent of pricing increase effect in the second half of the year.

This is something that we have to continue modulating.

Frankly, and we have to continue monitoring the inflation in our <unk>.

Business in the U S and certainly things are slowing down, but there's still inflation and we need to make sure that we continue to recover that frankly.

Luciano if you want to add to that.

Sure I mean, maybe just a couple of things we did announce a second round of pricing increases in all markets in the U S, except for Northern California, which was hit by very very bad weather as you know in first quarter.

Lucy Rodriguez: Sure. Maybe just a couple things. We did announce a second round of pricing increases in all markets in the US except for Northern California, which was hit by very, very bad weather, as you know, in Q1. Obviously, we're in the process of rolling those out, so we'll have to wait and see how it goes. We are very hopeful. I think on the cost side too, it's important to remember that as we've seen volumes come down in the United States, it's allowed us to moderate imports, which were obviously lower margins, and we've been able to slow those down, which has been helpful.

And obviously, we are in the process of rolling those out we'll have to wait and see how it goes but we are we are very helpful.

I think on the cost side too it's important to remember that as we've seen volumes come down in the United States. It's allowed us to moderate imports, which were obviously or <unk>.

Lower margins and.

And we've been able to slow those down which has been helpful. And then finally on the cost side. We also in the case of fuel United States is more heavily dependent on fossil fuels as we ramp up our alternative fuel strategy in the U S and our much of our fossil fuels that we are using this year are actually locked.

Lucy Rodriguez: Finally, on the cost side, we also, in the case of fuel, the United States is more heavily dependent on fossil fuels as we ramp up our alternative fuel strategy in the US, and much of our fossil fuels that we're using this year are actually locked in at higher prices than what you're seeing in the market. I think as we go forward, we should see some relief as those contracts start to reprice. I think that's it. Thank you very much.

And at higher prices than what Youre seeing in the market. So I think as we go forward, we should see some relief as those contracts start to reprice.

So I think that's it thank you very much.

Thank you. Thank you.

Vanessa Quiroga: Thank you.

Hopefully, yes, great. Okay and the next question comes from Nik Lippmann from Morgan Stanley Nick.

Lucy Rodriguez: Vanessa. Hopefully Yep. Great. Okay. The next question comes from Nick Lippmann from Morgan Stanley. Nick?

Hi, Thanks for taking my question.

Nick Lippmann: Hi. Thanks for taking my question, and of course, congratulations on the very strong numbers. I was wondering if you can just comment on the importance of US imports in the quarter. I think it was about a third a year ago, just to have a comparison there. If you don't mind, we've noticed an increased debate around a cost plus escalator in the pricing system, the cement pricing in the US. Is that something you're looking at? How would you feel about it? Something you think could be attractive or not attractive, sustainable across the cycle? What are your thoughts on that idea? Thanks.

Of course, congratulations on the very strong numbers I was wondering if you can just comment on the importance of U S imports in the quarter I think it was about a third a year ago just to have a comparison and then if you don't mind.

We've noticed an increase debate around sort of a cost plus escalator and the pricing system to cement pricing in the U S is that something youre looking at how would you feel about it.

Something you think could be attractive or not attractive sustainable across the cycle. What are your thoughts on that idea.

Sorry, Nick before we go forward could you repeat the escalator.

Lucy Rodriguez: Sorry, Nick, before we go forward, could you repeat the escalator question again?

Question again, because I'm not sure that.

That I think I think some of your peers.

Nick Lippmann: Yeah.

Lucy Rodriguez: I'm not sure that we understood that.

Nick Lippmann: Yeah. I think some of your peers, and certainly some of your clients on the ready-mix side, are trying to push for a cost-plus pricing structure in parts of the US market. It's been mentioned by, I think, Martin and a couple of other of your peers, and we hear it a lot with some of the ready-mix guys. Is that something that you have looked at all? If not, it's a very quick answer that you haven't looked at it.

Certainly some of your clients on the ready mix side.

Trying to push for kind of a cost plus pricing structure in parts of the U S market.

Been mentioned by I think Martin a couple of other.

Of your peers, and then and we hear it a lot quicker with some of the ready mix guys is that something that you've looked at it all and if not then it's over.

Craig answered that you havent looked at it.

Maybe I will start out on the imports just quickly.

Lucy Rodriguez: Maybe I will start out on the imports, just quickly. The imports on a year-over-year basis were slightly higher than last year, and I think this really reflects that in Q1 of this year, we reduced imports significantly. We've begun to see those come into play. Maybe with regard to the second question, we do have escalators in place in our contracts, so I think I don't have the exact specifics, Nick. It's primarily in ready-mix, and we can get back to you with further information on that. We do have escalators in place, and they are working very well.

The imports on a year over year basis.

Were slightly higher than last year and I think this really reflects that in first quarter of this year.

We reduced import significantly so we've begun to see those come in come into play and.

Maybe with regard to the second question, we do have escalators in place in our contracts. So.

I don't have the exact specific Nick.

It's primarily in ready mix and we can get back to you with further information on that but we do have escalators in place.

And Neil is working very well.

Is that something that affects a material percentage of your cement volumes in the U S say about a third.

Nick Lippmann: Is that something that affects a material percentage of your cement volumes in the US, say about a third?

I mean, it's primarily in ready mix, rather than cement and cement typically has less contract to begin with.

Lucy Rodriguez: It's primarily in ready-mix rather than cement, and cement typically has less contracts to begin with. I think that it's primarily on the ready-mix side more than the cement side.

I think that it's primarily on the ready mix side more than the cement side.

Got it thank you.

Nick Lippmann: Got it. Thank you.

Yeah.

Yes.

Thank you Nick.

Lucy Rodriguez: Thank you, Nick. The next question comes from the webcast from Francisco Chavez from BBVA. My question is on your guidance for cash taxes. Can you give us more color on the material increase in cash taxes and in your effective tax rate? Is this a one-off? Maher?

And the next question comes from the webcast from Francisco Chavez from BBVA.

My question is on your guidance for cash taxes can you give us more color on the material increase in cash taxes and in your effective tax rate is this a one off.

Okay.

Yes, yes.

Yes, Thank you Paolo.

Maher Al-Haffar: Yes. Thank you, Paco. Let me start by saying that we have a unique situation because most of our debt is denominated in dollars, but that's not the issue. The fact that it's in Mexico is the issue. Because of that, any effects appreciation, and as you have seen, the peso has appreciated almost 14% this year. That creates a taxable income for Mexican purposes. Now, that is a one-time event to the extent that we don't continue to see an appreciation of the peso, because the comparison is always to the prior period. I can't tell you, I can't speculate what the peso is likely to do, but so far it has appreciated and we have to pay on a monthly basis the estimated cash taxes. That's a conversation that we have with the Mexican authorities, and we're doing that.

Let me start by saying that we are we have kind of a unique situation because.

Most of our debt is.

Is denominated in dollars, but thats not the issue the fact that it's in Mexico.

Is the issue and because of that.

Annie <unk>.

FX appreciation and as you have seen the peso has appreciated almost 14%.

This year.

That creates a taxable income for Mexican purposes.

Now that is a one time event to the extent that we don't continue to see an appreciation of the vessel because the comparison is always to the prior prior period.

So.

I can't tell you I can't speculate what the peso is likely to do but so far it has appreciated and.

We have to pay on a monthly basis, the estimated cash taxes. So.

That's a conversation that we have with with the Mexican authorities and we are doing that but that because of that appreciation and because of the outlook for the rest of the year. We felt that it's important to change the guidance in terms of the cash taxes now the other element that impacts taxes is the fact that our results are much better.

Maher Al-Haffar: Because of that appreciation and because of the outlook for the rest of the year, we felt that it's important to change the guidance in terms of the cash taxes. Now, the other element that impacts taxes, is the fact that our results are much better. Clearly we have to pay more taxes as a consequence of that. Now, compared to last year, the reason that we have a bit of an uptick is because last year we had accumulated NOLs that were substantially consumed last year. Again, because of a similar effect. We had the appreciation, we had high inflation. Both of those two items contribute to increasing our taxable income for the Mexican authorities. Now this year, the inflation is likely to be less. That's an end of year kind of event.

And so clearly we have to pay more taxes as a consequence of that now compared to last year.

The reason that we have.

A bit of an uptick is because last year we had.

Accumulated Nols that were substantially consumed last year again because of the similar effect. We had the appreciation we had high inflation both of those two items contribute to kind of increasing our taxable income.

For the Mexican authorities.

Now this year the inflation is likely to be less.

And that's an end of year kind of event.

Now in terms of effective tax rate I think it's very important that when you take a look at effective tax rate.

Maher Al-Haffar: In terms of effective tax rate, I think it's very important that when you take a look at effective tax rate, the appreciation that is caused by the effects does not show up in our revenues. If you're looking at taxes on the basis of net income or revenues, either of the two, you're going to see an inflated tax rate. You really need to adjust for that effect. If you do, we think that our tax rate is pretty much in the middle of the pack of the industry. It's not extraordinarily high. We do believe unless you have further appreciation of the peso, which would have positive impact on our business, the effect should be one-off. I hope that answered your question.

The appreciation that is caused by the FX is not is not does not show up in our revenues. So if youre looking at taxes on the basis of.

Net income or revenues.

Either of the two youre going to see an inflated tax rate.

You really need to kind of need to adjust.

For that effect and if you do we think that our tax rate is pretty much in the middle of the pack.

The industry, it's not extraordinarily high but but we do believe unless you have further appreciation of the peso, which would have positive impact on our business. The the effect should be one off.

I hope that answered your question.

Great. Thank you and the next question comes from Bruno Amorim from Goldman Sachs Buena.

Lucy Rodriguez: Great. Thank you, Maher. The next question comes from Bruno Amorim from Goldman Sachs. Bruno?

Yes, Thank you Lucy.

Two questions. One is the is a follow up on a prior question on where we are in terms of the margin recovery process.

Bruno Amorim: Yes. Thank you, Lucy. I have two questions. One is a follow-up on a prior question on where we are in terms of the margin recovery process. I do get your point that it takes time to offset higher costs, but as a matter of fact, if you deliver on your EBITDA guidance, this is going to be the highest level in several years, right? It seems that the job to recover high input cost has already been done. What's next for the company? Should we expect higher volumes at maybe constant margins at the currently good levels in the next few years, or are you still going to push for higher margins in the next few years? That's the first question. The second question is on the guidance.

I I do get your point that you know it takes time to offset higher costs, but as a matter of fact.

I'm sorry, if you deliver on your EBITDA guidance is going to be the highest level in several years right. So it seems that the.

The job to recover higher input costs has already been done.

So what's next for the company should we expect higher volumes that may be constant margins that are currently good levels. In the next few years or are you still going to push for higher margins in the next few years. That's the first question and then the second question is on the guidance. If we apply the typical seasonality between the second quarter.

Bruno Amorim: If we apply the typical seasonality between the Q2 and the H2 of the year, this implies on an EBITDA closer to MXN 3.5 billion for the full year, which is 8% above your guidance. Any reason to believe seasonality would play out differently this year, or is there any degree of conservativeness in your guidance? Thank you so much.

During the second half of the year. This implies on an EBITDA closer to $3 5 billion for the full year, which is 8% above your guidance. So any reason to believe she's analogy would.

Would play out differently this year or is there any degree of conservatism in your guidance. Thank you so much.

Thanks, Thanks for the question Bruno let me.

Lucy Rodriguez: Bruno.

Fernando González: Thanks for the question, Bruno. Let me start by commenting. The process that we have gone through, the way basic and relevant variables have been evolving, and our reaction. We saw high inflation hitting everybody, hitting our cost structure and expenses in late 2021. Since then, what we’ve been doing is putting in place a pricing strategy. The original idea was for a pricing strategy allowing us not to lose margins, but it didn’t happen that way. We lost margins in 2022, but we continue with the idea of recovering margins of 2021, and that has been the north in this pricing strategy. As we commented in a previous question, we are almost there. We have almost recovered 2021 margins. Remember, it’s been a quarter, and we need to recover it all year long.

Bye bye commenting.

The process that we have gone through.

The way.

Basic and <unk> have been evolving our reaction.

We saw we saw high inflation, hitting everybody hitting our cost structure and expenses.

In late 'twenty one.

And since then what we've been doing is putting in place a pricing strategy.

That allow us.

The original idea was.

For the pricing strategy.

<unk> does not to loose margins, but you didn't happen that way. So we lost margins in 2022, but we continue with the idea of recovered in margins of 21 and that has been the north in this pricing strategy.

As we commented in the previous.

The question, we are almost there we have almost recover.

2021 margins.

But remember it's been a quieter we need to recover it all year long.

Also.

Fernando González: I also commented that even though this year we are having the benefit of a pricing strategy plus a moderation in inflation, making the contribution in EBITDA larger than last year, we still have double-digit inflation. As you can imagine, the margin can deteriorate. We do have a double-digit inflation. The precise number I mentioned was 13%. You better continue monitoring and do whatever it takes not to deteriorate the level of margins that we finally achieve in Q2. We want to continue our strategies, assuring that we will fully recover the margin that we used to have in 2021. Regarding the other comment or question you made on estimates on our guidance.

I also commented that even though.

This year, we are having the benefit of.

Of our pricing strategy plus.

A moderation in inflation, making the contribution in EBITDA larger, but last year, we still have double digit deflation.

And as you can imagine the margin can deteriorate, we do have a double digit inflation.

The precise number I mentioned was 13%.

You better continue monitoring.

And do whatever it takes not to deteriorate the level of.

Margins that we finally achieved in the second in the second quarter.

So we want to continue our strategies assuring that we will.

Fully recover.

The margin that we used to have in 2021.

One.

Now regarding regarding the.

The other comment or question you made on.

On estimates in our guidance.

If you remember we gave our guidance.

Fernando González: If you remember, we gave a guidance early during the year for the whole year, and then after Q1, we decided not to comment on guidance because there were some positive signs, but they were not conclusive. We preferred to wait until today. Now we are guiding to the 3.5. You know what? There might be, who knows, there might be some upside risk, as you have suggested, because of the basic ratio of the proportion of H1 compared to H2. That might be the case, but for the time being, we feel more comfortable with the current figure. The fact that we've been able to almost recover margins is not a guarantee of the success we will have in pricing strategies in the next 6 to 12 months. We want to be prudent, and let's see how it goes.

Early during the year for the whole year and then after the first quarter.

We decided not to comment on guidance because it was so there were there were some positive.

Signs.

But they were not conclusive so we'd prefer to wait until today. So now we are guiding.

Two the three to five.

And you know what.

There might be who knows there might be some upside risk.

Have suggest that because of the basic ratio of.

Of the proportion of the first half compared to the second one.

That might be the case, but for the time for the time being we feel more comfortable with the.

With the current figure.

The fact that we've been able to almost recover margins is not a guarantee of the success. We will have a pricing strategy using the next six to 12 months.

We want to be prudent.

Yeah.

And let's see how it goes but I think.

Finger observation is.

Fernando González: I think your observation is valid.

Alright.

Thank you so much very clear and congratulations on the results.

Bruno Amorim: Thank you so much. Very clear, and congratulations.

Thank you Peter.

Lucy Rodriguez: Thank you, Bruno.

Bruno Amorim: on the results.

Okay.

Fernando González: Thank you, Bruno. Thank you.

Yes.

And the next question comes from Adrian Huerta from Jpmorgan.

Lucy Rodriguez: Thank you. Okay. The next question comes from Adrian Huerta from JP Morgan.

Thank you Lucy how everyone.

Adrian Huerta: Thank you, Lucy. Hi, everyone. My question is a bit also related to the previous one, but in a different way. What did you imply in terms of margins for H2, for the new guidance that you have?

Question is also related to the previous one.

But in a different way.

What did you imply in terms of margins for the second half.

For the guidance for the new guidance that you have.

Yeah.

I mean.

Maybe I'll start yes.

Maher Al-Haffar: I mean-

Lucy Rodriguez: Maybe I'll start.

Yes.

Hey, Andrea as you know, we don't typically guide to margin so I think that.

Maher Al-Haffar: Yeah. Go ahead.

Lucy Rodriguez: Just by saying, Adrian, as you know, we don't typically guide to margin. I think that's probably the best answer any of us can give you right now. I don't know, if you have a different question, we're happy to take it, but as you know, we do not normally guide to margin.

It's probably the best answer any of US can give you right now.

But I don't know if you have a different question, we're happy to take it but as you know we do not normally go into March.

Okay.

Hey.

Adrian Huerta: Okay, fine. Fine, Lucy. I'll take another question then.

So I'll take another question then.

Right.

<unk>.

Lucy Rodriguez: Good try, Adrian.

[laughter] why why the increase in net debt in the quarter when you had positive cash flow.

Adrian Huerta: Why the increase in net debt in the quarter when you had a positive free cash flow?

Well I mean.

Why the increase in net debt I mean, we do have.

Maher Al-Haffar: Well, why the increase in net debt? We do have a number of investments that we are making that are below the line sometimes, like the acquisitions of Atlantic Minerals. We bought some additional land and reserves in the US. In addition to that, we made a small acquisition in Israel. There's a negative impact because of derivatives. There's the coupons on the perpetuals, for instance. All of that adds up, and that's what gave us a little bit of an increase in net debt. It's a minor increase. It's nothing to write home about, Adrian.

A number of investments.

But we are making that.

Below the line sometimes.

Like the acquisitions of Atlantic minerals, we bought some additional land and reserves.

In the U S. In addition to that we made a small acquisition in Israel.

There is a negative impact because of.

Derivatives.

There is the.

Coupons on the Perpetuals for instance.

So all of that adds up and Thats kind of what gave us a little bit of an increase in our net debt, but it is a minor.

<unk> increased I mean, it's nothing to write home about it again.

Okay.

Thank you, Mike and maybe just to turn to just add on that.

Adrian Huerta: Okay. Thank you, Maher.

Lucy Rodriguez: Maybe just to add on, Adrian, the acquisitions that Maher suggested, Atlantic Minerals, Israel, for example, it amounts to about $100 million in total, which I think would explain that difference that you're talking about.

The acquisitions that <unk> suggested the Atlantic mineral Israel for example, it amounts to about $100 million.

Total, which I think would explain that difference that you're talking about.

Okay.

Thanks.

Adrian Huerta: Okay. Good. Thanks.

Okay. Thanks, a lot. Thank you Adrian.

Lucy Rodriguez: Okay.

Maher Al-Haffar: Thanks a lot.

And we have time for one more question, we're trying to be cognizant as analysts to have a lot of earnings calls today and the last question comes from Gordon Lee from BTG Pactual.

Lucy Rodriguez: Thank you, Adrian. We have time for one more question. We're trying to be cognizant of those analysts who have a lot of earnings calls today. The last question comes from Gordon Lee from BTG Pactual.

Hi, everybody. Thank you very much for the call and I'd like to add my congratulations.

Gordon Lee: Hi, everybody. Thank you very much for the call. I'd like to add my congratulations. I have a question that's similar to Anne's, but from the equity perspective, Fernando, which is, given the obviously very robust operating outlook, the fact that on your guidance, you would be close to 2.2x leverage at the end of the year, assuming flat net debt. I was wondering what your latest thinking was in terms of the potential timing and the form as well of cash returns to shareholders. I don't know whether you have any sort of updated views on that now that we're past the H1. Thank you.

I have a question that's similar to and from the equity perspective, a phone number which is given the obviously the very robust operating outlook.

Fact that on your guidance it would be close to two two times leverage at the end of the year, assuming flat net debt.

I was wondering what your latest thinking was in terms of the potential timing.

And may and the forum as well of returns to cash returns to shareholders.

I don't know whether you have any sort of updated views on that now that we're past the first half. Thank you.

Okay.

Thanks for the question Gordon I think.

Fernando González: Thanks for the question, Gordon. I think what we've been commenting is that we would like to systematically start paying dividends, and continue having the option of share buybacks once we achieve investment grade. Now the question is, when is it that we're going to be achieving investment grade? Seems like we are closer to that option. I think by early next year, we will know what the situation will be, and we might, let's see how it goes. At this point in time, we don't know, but we might start paying dividends and/or buying back shares. We cannot disclose the specific way we might be doing it, but we will communicate that timely. Again, depending on us achieving investment grade, or at least to be so close to it. We might start paying dividends next year.

What we do.

Being commencing is that we would like to systematically started paying dividends on.

And having them continue having the option of insured buybacks once we achieve investment grade.

Now the question is when is it that we're going to be achieving investment grade.

Hum.

It seems like we are closer to the to that.

Option.

So I think.

By early next year, we will know what the situation will be.

And we might let's see how it goes at this point in time, we don't know, but we might start.

Hum.

Paying it.

Dividends aren't or buying.

Buying back.

We cannot disclose the specific way, we might be doing it but we will communicate that timely again.

Depending on on on us achieving.

Achieving investment grade or at least to be.

No.

So close to it.

So we might start paying dividends next year.

It's not a it's not a commitment is not a statement and just comment too.

Fernando González: It's not a commitment, it's not a statement, it's just a comment to sort of answer your question in terms of when and how. Whenever we start, we want to start with, as you can imagine, if we are at a leverage ratio of 2x, and we have already some commitments with investments in growth and others, we are going to start with not a small, but a moderate type of dividend to be increased through time. That's what I can comment, Gordon.

Sort of.

Answering your question in terms of when.

And how on whenever we start we want to start with.

As you can imagine.

We are at the leverage ratio of two times and we have already some commitments with investments in growth and others, we are going to start with.

Modest mall, but the but a moderate.

Type of of dividend to be increased.

That's what I can comment on them.

Perfect. Thank you very much that's very clear thank you.

Gordon Lee: Perfect. Thank you very much. That's very clear. Thank you.

Thank you.

Adam.

[Company Representative] (CEMEX): Thank you.

We appreciate you joining us today for our second quarter webcast and conference call. If you have any additional questions. Please feel free to contact Investor Relations and we look forward to seeing you again on our third quarter webcast that will take place on October 26, many thanks.

Lucy Rodriguez: Thanks, Gordon. We appreciate you joining us today for our Q2 webcast and conference call. If you have any additional questions, please feel free to contact investor relations, and we look forward to seeing you again on our Q3 webcast that will take place on 26 October. Many thanks.

Okay.

Thank you for your participation in today's conference. This concludes the presentation you may now disconnect Nicole.

Operator: Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect from the call.

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