Earnings Call: Q2 2021

Jul 29, 2021

Good morning, and welcome to the Symex Second Quarter 2021 Conference Call and Webcast. My name is Chuck, and I will be your operator for today. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. And now I will turn the conference over to Ms. Lucy Rodriguez, Chief Communications Officer, please go ahead. Good morning. Thank you for joining us today on our Q2 2021 Conference Call and Webcast. I hope this call finds you and your families in good health. I'm joined today by Fernando Gonzalez, our CEO Maher Alsafar, our CFO. As always, we will spend a few minutes reviewing the business, and then we will be happy to take your I will now hand it over to Fernando. Thanks, Lucie, and good morning to everyone. I'm happy to report another strong 2nd quarter results are another important milestone in our growth space. Quarterly highlights include the achievement of our long term leverage growth, a 39% increase in quarterly EBITDA And our announcement of industry leading climate action target. Additionally, consolidated sales have increased 15%, while EBITDA rose 31% relative to PIP and benefit levels of 2nd quarter 2019. On a year over year basis, sales increased by 25% with all regions growing double digit. EBITDA for the quarter was $818,000,000 again with all digit contributing. Margins improved by 2.1 percentage points to 21.2%, well above our operations exceeding target. The improvement was largely due to volumes and cost savings initiatives. We continue to make important strides on Operating expenses as a percentage of sales of 7.4%, the company record. We did see an escalation in variable costs within the quarter. This was driven largely by input, maintenance And rising energy costs. With strong demand momentum, we expect pricing in the near term to adjust accordingly. Free cash flow after maintenance CapEx of $401,000,000 significantly outpaced the in line with what we indicated at 10th June, We ended the quarter with a 2.85x leverage ratio, achieving our September 2020 Importantly, We are using this period of robust operational growth to prepare for what lies ahead and advance even more rapidly on our corporate focus We are accelerating our investment in the business and repositioning our products for a low carbon growth As well as moving quickly to the Cardamomide agro industry. Despite the favorable operating results, The operations continue to be challenged by rising COVID infection rates in many countries. From the safety of our rental yield, We will not remain vigilant and adhere to public safety protocols. We have not been untouched by the virus during the quarter, Certainly, Sadloth Philippe. These individuals are part of our collective strength family, and we agree with the loss. As you know, our operations receiving strategy is predicated on the belief that developed markets in Mexico We'll deliver the best growth opportunities over the next few years due to the unprecedented monetary and fee subsidy being deployed. This quarter, we certainly confirm that view with cement volumes in the U. S.-Mexico Europe growing double digit versus pre pandemic weather. Underlying demand trends in CAS continued to show momentum, but quality cement volumes were disrupted by exogenous events Middle East, Africa and Asia volumes are slowing down versus 2019, the pandemic levels due to the quality performance of Egypt. With the recent development announcement of the cement capacity rotation program, we expect improved performance going forward. While we did benefit from a recent prior year comparison in the quarter, we believe that underlying growth momentum is significant As you know, supply demand dynamics in most of our markets are exceptionally tight. In our fiscal year, the Americas stands out in particular in most countries operating at high capacity utilization. In the quarter, the industry saw a sharp increase in shipping costs for infants in the region. We believe that as Shipping contracts expired on demand countries' growth, prices will need to be safe and increased costs. This environment Our well developed footprint and supply chain as well as the introduction of new cement capacity in the Americas As well as the volume making of plants and the opening of first line, we will be introducing 10,000,000 metric Funds of additional cement capacity over the next two and a half years. The incremental investment to link on with capacity is very compelling With an average remaining spend of $43 a ton, and it's highly accretive. And importantly, The timing is right with the majority of risk factors becoming on the sold out market and the Americas constituting sales of 5% of the total. With regard to our bolt on margin enhancement portfolio, we currently have a pipeline of support This project is expected to deliver $270,000,000 in EBITDA in 2023. These projects We are relatively below risk profiles, and they are happening in markets that we know and in products related to our 3rd quarter businesses. An important focus of the Perkoa Company is the ramp up in our 4th product line, Structuring material products largely aligned to cement, concrete and aggregate that meet the essential needs of Year to date, EBITDA is 37% of total and has grown 50% year over year. We expect that 80% of the EBITDA coming from Organization Solutions this year will have a sustainable value proposition. Our 39% EBITDA growth was driven by higher volumes and prices As well as an increased contribution from our growth investment portfolio. While all business were responsible for EBITDA growth, Mexico, EMEA and SCAC had the largest contributions. We experienced an increase in variable costs during the quarter, While the timing of maintenance contributed, this increase was largely due to rising shipping costs associated with the emerging investments in the U. S. As well as the cost of energy, which grew 16% year over year. Importantly, in the first half of the year, Pricing has significantly outpaced variable cost inflation. We are moving quickly to adjust prices to reflect this new cost structure. I'm surprised with non dynamics in those markets. We have already announced additional pricing increases in the U. S. And Mexico. We continue to make progress on rationalizing the trading expenses, partially due to the cost savings program introduced last year And our operations continue separately. Corporate as a percent of sales was 7.4% for the quarter, Marketing are record low and 2.6 percentage points lower than the prior year. The new initiatives such as our working smart program, Our global initiative designed to utilize digital platform and automation technology to standardize and centralize business processes, You should expect continued savings on this front in 2022. Finally, we benefited from an important FX savings in the quarter of $47,000,000 The gain came primarily from the appreciation of the Mexican peso euro The favorable market backdrop and the decisive management actions that we Thank you, and good afternoon, everyone. As a result of our service day a few weeks ago, We view the event as an opportunity to update the targets under each of our peers. The most significant changes were The Negros target where we committed to achieve an investment grade rating and the Climate Action target We now have industry leading carbon reduction goals of 2,030 as well as walk forward our previous 2030 target to 2025, FY for diving transparency on our short term project. We are pleased with the rapid achievements In September 2020, our climate action agenda was escalated to our top priority of the company. We did this because we are committed to the belief building a better future in bright, a green and sustainable world. We will continue to lead the industry in our efforts to decarbonize, and the first step is establishing industry leading carbon production growth. And of course, those are nothing more, and we need to be transparent on our progress as we enter this critical decade. Therefore, similar to our other key targets, we intend to provide quarterly updates on our client action letters, Given the same visibility as all other key financial metrics, I want to take this opportunity to update you on our digital initiatives. We are leveraging digital innovation in everything that we do. We were the 1st in the industry to roll out Global digital commercial platform, 10xposed. We employ a perpetual better approach that regularly Update the offering base on strong customer feedback loop. Recent innovations include 100% paperless And direct sales time connectivity between CEMEX and select customers. In our operation, We apply artificial intelligence and data analytics for predictive maintenance, optimization of energy consumption And the reduction of carbon emission. We are using digital reality in our effective training courses on drones for inventory management. The latest innovation is our working smarter growth initiative, which will play Fermak at the full Its primary goal is to leverage technology in remote work environments To drive efficiencies in the organization while building the overall operational scale. Telenex will enable individual platforms and now And now Thank you, Fernanda. The U. S. Continued to enjoy strong demand in the Q2 with most of our markets sold out. Sales increased 13%, while EBITDA rose 7% on the back of strong volumes and pricing. Despite heavy rains in Texas during the quarter, Submit volumes grew high single digit. Volumes were again driven by solid residential demand. Residential construction spending grew 30% quarter to date May. Forward looking indicators remain strong with single family permits up 46% year over year in the 2nd quarter and low housing inventory levels. The infrastructure sector was supported, And the outlook remains favorable with May trailing 12 month contract awards for highways and streets, rising 2% for our 4 key states Versus flat at the national level. The industrial and commercial sector remains weak, but activity is accelerating As cement intensive distribution facilities for e commerce continue to grow. Our cement prices rose 3% sequentially, Collecting traction of our April pricing increase, which was implemented in all markets except Florida. To meet higher than expected demand, we significantly increased imports in the quarter beyond the level locked in for the full year. With industry spot shipping rates up more than 100% versus last year, these imports carried a steep cost And one that is not yet reflected in our pricing. This led to a 1 percentage point decline in EBITDA margin. We expect this headwind to continue, and we are working hard to ensure that our pricing policy adequately reflects the true cost of imports. As a first step, we have announced a second round of price increases for July August in most markets. In the case of imports, we believe we have superior supply chain capabilities with close to 9,000,000 metric tons of maritime import Cement capacity, rail capabilities as well as a strong production footprint in the Americas. We estimate 2021 cement and ready mix volume growth of between 4% to 6% with aggregates growth of low single digit. For the medium term, we remain optimistic regarding approval late this year of an infrastructure plan, which we would expect to yield incremental demand for our products toward the end of 2022. In Mexico, our operations are experiencing exceptional supply demand conditions with the industry currently at historical peak production levels. EBITDA increased almost 60% due to higher volumes and prices as well as our cost reduction initiatives. Bags cement maintained its growth trajectory with bombings increasing 18% and continued to be supported by a high level of remittances, home improvements, government social programs and preelectable spending. The 28% increase in cement volumes, however, was driven by an almost 60% growth in bulk cement, reflecting the Q2 2020 industry lockdown measures, which restricted the delivery of cement and ready mix. Importantly, we have seen significant recovery of formal sector demand over the last few quarters, And bulk cement volumes are slightly above Q2 2019 pre pandemic levels on a daily sales basis. While ready mix volumes are up 56% and show important sequential growth, they still lag pre pandemic levels. We expect ready mix to continue to recover as formal sector demand reactivates. Activity in the formal residential Gaining momentum as evidenced by the growth in housing steps and permits of 40% year to date. Going forward, low level of inventories and attractive mortgage rates should support volumes. We are also seeing activity in the industrial While the commercial sector remains subdued, increasing tourism and consumer confidence should imply a restart to previously delayed projects. Sequential prices increased 2% for cement, reflecting our March price increase of 4% as well as tight supply demand dynamics. While margins improved 3.2 percentage points, Sequential margins declined mainly due to higher maintenance and fuel. In order to recover increasing input Cost inflation, we announced a price increase of mid single digits for bagged and bulk cement effective July 1. Given favorable dynamics, we are increasing cement volume guidance for Mexico to now grow between 10% 12%. We expect that bagged cement growth rate will slow in the second half as the comparison base becomes more challenging. While the bulk cement, ready mix and aggregates growth continues to improve supported by the housing sector and a favorable base. In our EMEA region, EBITDA grew 25%, driven by a strong performance in Europe and the Philippines. EBITDA margin improvement is due largely to the Philippines. EBITDA margin in Europe was flat, impacted by rising energy, raw materials and logistic costs despite better volumes and prices. European volumes for our 3 core products were up between 14% 23%, reflecting an EV comparable in Western European operations last year due to the impact from COVID and an acceleration in residential and infrastructure activity. We implemented cement price increases in Germany, Poland, Czech Republic and Croatia. The sequential decline in prices in Europe results from geographic mix, with the UK, the country with the highest We are raising our 2021 volume guidance for Europe. For cement, We now anticipate 2% to 4% growth, 3% to 5% for ready mix and 6% to 8% for aggregates. In the Philippines, cement volumes grew by 45%, reflecting not only the low comparison base resulting from strict Government lockdown last year, but also increasing construction activity. Our average daily sales volumes have now recovered to levels Higher than Q2 2019. In the Philippines, we are increasing our cement volume guidance to 12% to 14%, supported by strong public construction. For more information, please see our CHP quarterly earnings, which will be available this evening. In Israel, we continue to see strong demand dynamics, particularly from transportation as the government moves to execute Ready mixed volumes were up high single digit on an average Daily sales basis, while aggregates were down mid single digit. In Israel, we expect ready mix and aggregate volumes to decline between 3% to 5% for the year. The guidance reflects the record pace of business in 2020 As well as the completion of several large projects. Finally, in Egypt, we are encouraged by the recent decrease in the government to rationalize cement Production capacity for all players. We are pleased with the performance in our SAC operations, The region that experienced the most severe government lockdown measures in Q2 of 2020, regional cement volumes rose 40 3% with all countries reporting growth. Regional cement prices rose 2% sequentially Due to successful price increases in Jamaica, Costa Rica and Nicaragua, favorable volume and price performance drove a 50% increase in net sales. The close to 80% increase in EBITDA reflected Higher contributions from the Dominican Republic, Panama and Colombia. EBITDA margin rose 4 point Growth momentum driven by housing and infrastructure was interrupted by the social protest in May, which restricted the ability of the industry to deliver product. The protests were largely resolved by early June, and industry activity returned to 1st quarter levels. We believe the outlook for cement volumes remains favorable, supported by the self construction sector, record home sales, existing 4 gs highway projects as well as the rollout of new infrastructure programs. For the full year, we expect cement volumes in Colombia to increase between 9% to 11%. For Trinidad Cement Limited, our listed subsidiary in the Caribbean, despite an industry lockdown in Trinidad and Tobago in the quarter, Cement volumes grew by 28%, mainly due to Jamaica and a favorable base effect. In the Dominican Republic, cement volumes grew 72% on the back of a dynamic self construction sector. Favorable fundamentals, including a slight pickup in tourism, support our increase in cement volume guidance of 19% to 21% growth. We continue to take advantage of our strong regional logistics network to meet local demand, while we introduce cement capacity additions to the region. I invite you to review CLH's quarterly results, which were also published today. And now I will pass the call to Maher to review our financial performance. Thank you, Lucy, and good day to everyone. As Fernando and Lucy mentioned earlier in their remarks, this was another very strong quarter with significant improvements in most of our financial metrics. Our business continues to show important operating leverage with top line growing 25% and EBITDA expanding 39% on a like to like basis. Free cash flow for the quarter was up 187% when compared to 2Q 2020 and 85 Better than 2Q 2019 pre pandemic. This was driven primarily by strong EBITDA performance, Helped by savings from our operation resilience program, lower financial expenses and lower investment in working capital, Continuously improving our working capital management and particular attention to credit quality and receivables collection Translated into a record for Q2 of negative 13 days in average working capital. Net income increased $314,000,000 year over year, driven mainly by better operating earnings and lower financial expenses. All of this culminated in the doubling of our return on capital employed to 10.2% when compared to last year. With regards to our debt maturity profile, we have the best runway to next maturities in a decade. We achieved the debt profile with Very manageable maturities for the foreseeable future and still with ample potential for improvement in our debt stack. We have an average life of debt of slightly more than 6 years and our expected free cash flow generation alone Would be sufficient to meet our maturities in the near term. We were active during the quarter in terms of liability management and the enhancement of our capital structure. In addition to lengthening our maturity profile, our liability management efforts this year translated into about 50 basis points reduction In our average cost of debt, which today is around 4.6%. During the quarter, We repaid around $370,000,000 of bank debt under the facilities agreement, dollars 320,000,000 of the Additionally, in June, we issued $1,000,000,000 of subordinated notes which are deeply subordinated and without a Fixed maturity. Under IFRS, these notes are treated as equity and are not considered for the calculation of our leverage ratio as per the In addition, rating agencies give us 50% equity credit for these notes. This transaction propels us forward in our path towards investment grade rating, optimizing our capital structure and accelerating our deleveraging path. Finally, after the closing of the second quarter, we paid down €450,000,000 of the 2.75 percent notes Due in 2024. During the quarter, we accelerated our path to investment grade ratings. As Fernando mentioned earlier, we significantly reduced our leverage ratio in Q2 due to increased EBITDA, Strong free cash flow generation and the issuance of the new subordinated notes. As we can see on this slide, During the quarter, we reduced net debt by $743,000,000 which resulted in a leverage ratio of 2.85 times, A 3 quarter return reduction compared to end of Q1 and 1.7 times reduction Versus Q2 2020. Our current $3,100,000,000 EBITDA guidance for 2021, Coupled with the expected free cash flow during the second half of the year, which suggests further improvement in our leverage ratio for the rest of the year. And now back to you, Fernando. Thank you, Jorge. As we saw during our semi daily a few weeks ago, We expect EBITDA this year to be around $3,100,000,000 EBITDA should be supported by consolidated volume growth in the range of 5 7% for cement, 3% to 5% for ready mix and 2% to 4% for aggregates. Please note that our regional volume guidance is included in the appendix. Regarding pricing, we believe Supply demand dynamics by supportive of price increases. And as I mentioned before, we have announced additional price increases in the U. S. And Mexico. For cost of energy, we now expect a 12% increase with both fuels and electricity costs Right. Incorporating some savings from our working smarter initiatives, we now expect $60,000,000 Expect more downward growth in most regions. We believe we will see isolated flare ups of Our business has learned how to not effectively combat the pandemic with little disruption to the industry. A significant amount of procurement stimulus still fixed on the balance sheet of households and should be deployed as economies reopen. Roles will be driven by consumer spending and investment in supply chain and manufacturing, coupled with the resumption of So former construction projects. Over the medium term, developed markets should benefit from additional synergies in the On infrastructure, with tight supply demand dynamics in most markets and rising energy and import coal, We expect pricing to reflect inflationary pressures. While we do not give guidance a year ahead, All of this give us confidence in the view that we expressed at Sunday's Day in June that EBITDA We will take advantage of the market environment and focus on our bolt on investment Before we go into our Q and A session, I would like to remind you that any forward looking statements we make today are based on our current knowledge 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 to decreases Refer to prices for our products. And now we will be happy to take your questions. In the interest of And the first question comes from Gordon Lee from BTG Pactual. Hi, everybody. Thank you very much for the call. A quick question on U. S. Cement imports. I was wondering if you could give us a sense of how much of that is being sourced by other CEMEX Operations and how much of that is being sourced through 3rd parties? And if you could give us a sense of where in the CEMEX network this is happening, just to get a sense of whether What the other regions are that might be benefiting on the other side of the higher import costs into the U. S? Thanks very much. Can you just take that one, Marcel? Sure. Yes. Thank you, Fernando. Hi, Gordon. How are you doing? A significant portion, Gordon, of our imports now into the U. S. Are coming from Mexico. We also have some coming from Europe and Asia. As you're aware, we started the CPN plant, Which has not only very positive logistics visavis the U. S. Market, But also it's us producing and the marginal cost of starting up that capacity is fairly marginal. So it's primarily Mexico, some from Europe, some from Asia. And this has translated into a change Over the last couple of years, I mean, so we because of the ability to ship from Mexico. Now, course, we will continue to look to the most competitive pricing and quality. And as Lucy mentioned earlier and Fernando mentioned earlier, we have Natural competitive advantages in terms of trading and in terms of importing into the U. S. Market. I don't know if that answers your question, Gordon. And comes from Vanessa Quiroga from Credit Suisse. Vanessa, if you can give us one question, that would be great. Okay. Thank you. Hello, everyone. Congrats on the results. My question, I want to focus on Europe. Obviously, the comparison base It reflects the pandemic versus 2020. So I'm wondering if you can give any color versus 2019, Sure. Yes, Vanessa, Europe, all three products are up Between 14% to 23%. Obviously, it reflected an easy comp Because of from last year, the biggest contributors Vanessa to the business has been residential And infrastructure throughout the region. And that's why we raised the Volume guidance for the year, as Lucy mentioned, from 2% to 4% growth in cement, from 3% to 5% in ready mix. Also, as a consequence of the most of these markets are fairly sold out. And so as a consequence, we did implement pricing increases in Germany, Poland, Czech Republic, Croatia. And we've gotten very good responses to that. Now in terms of volume increases, I mean, it's a little bit To compare the quarters, it's kind of tough because in individual countries because of the varying Lockdowns and the easy comps, so it doesn't really make sense. I think it's better to take a look at what's happening In the first half of the year, but the major drivers are residential and infrastructure. Maher, if I could just add on there, Vanessa. Remember that last year in Q2, our Western operations were hit significantly by lockdowns, while our Central European markets were not. So you're seeing that come through in the results. But having said that, as Maher was saying, we are seeing strong growth in residential and infrastructure Across the portfolio, the U. K. Stands out in particular where we have seen very strong residential demand as well as Several large infrastructure projects going out. So things are I think when you look at residential permits and things there, they're And I guess The next question comes from Carlos Parulon. Thank you, Lucy. Hello, everyone. Hi Carlos. Congrats on the results. Hi. Yes, my question is related to U. S. Pricing. I mean, there's obviously several factors that are Much higher prices, whether it's shipping, as you mentioned in the call, increasing more than 100% the cost, sold out markets and the And the potential for an infrastructure package. So my question is, do you think that the probability of moving to now adjusting prices at least 2 times a year or more is increasing materially. You think that's something that we're entering a new phase Instead of having just price increases once a year, not just this year, but going forward, we might you might have to adjust prices more than once a year? Thanks for your question. I think that The dynamics, Carlos, are is kind of clear, and it's the one that we've been describing For some time now, the market is requiring higher amounts of imported cement capacity is Fully utilized almost everywhere for sure in our sales that's the case. And so what we see is It's imports serving additional needs from our customers. And as you know, imports Nowadays, we have an additional component on inflation, which is the high inflation in shipping costs. So now we have additional portions of imported cement at a higher cost and What I expect is for the dynamics to continue evolving, meaning we cannot offset inflation immediately, Not in shipping costs, increasing 100% or even increasing because of fuels. But what we can expect is for price increases either once or twice a year, but in price adapting The new supply structure of the market. So yes, the time we've been describing, once we get to Full utilization, the dynamics on the pricing side should improve materially. Now is it going to happen with increases once or twice a year? That's Difficult to say. This time, we were we thought it was the right thing to do. That's why we announced price increases for July and August and we will continue trying to offset Inflation, either it's mainly shipping inflation, but other type of inflation for pricing. Right. Very clear. Thanks, Fernando. Thank you. Thank you, Carlos. And the next question comes from Francisco Suarez from Scotiabank. Thanks so much. Good morning. Congrats on superb results, and thank you for the great disclosure and the progress on carbon intensity. That's fantastic. My question is on pet coke prices, your primary fuel in the U. S. And Mexico. Can you tell us a little bit about what you are doing in the U. S. And Mexico To cope with the huge increases in FedCo including the use of alternative fuels and if that has anything to do with the major cost in carbon intensity that we So on the first half. Thank you. Can you repeat the last part of the question, please? Yes. I just wanted to know that if you among your strategy to deal with the increases in pet coke, If that includes the higher use of alternative fuels and if that explains a bit the major cut in carbon intensity That you are reporting on this half of the year. I see. I see. Thank you for clarifying. Well, the first part, We are always monitoring the availability, quality and cost of our fuel mix. And now we see Sizable increases in the prices of The cheapest sources on the one hand, but on the other is to reduce coke in our fuel mix. So in the case of this Q2, we did manage to increase the use of alternative fuels. And I think we were at the highest level ever. It's close to 30%. And we will continue we are we do continue with our strategy. It's one of the elements In our climate action strategy, we will continue increasing the use of alternative fuels With the preference for alternative fuels with very high contents of biomass, which is what we've been doing already for several years. We are developing new projects of alternative fuels For our business in the U. S. And as you know, we are close to finish 2 very sizable alternative fuels projects in Europe, ROC B in the U. K. Alternative fuels projects in Europe probably in the U. K. As well as in the orders in Germany. So yes, the increment alternative fuels in the second quarter, they do play a role in the cost of the of the whole fuels. Thank you so much. Congrats again. Thank you. Thank you very much, And the next question comes from the webcast from Paul Rodgers continuing on the climate action theme. Congratulations on the new CO2 targets. What has changed to give you confidence the group can go further and faster by 2,030? Has the group validated the new carbon reduction targets with independent third parties like SPTI and aligned management incentives with the new targets. Thanks for the question. Let me start with the second part. We are in the process of validating the targets With LBT A, so we will very soon have those targets validated. Now the reason why we adjusted our we bring forward we brought forward Our previous 2030 target for 2025 and establish a new The target for cement as well as for ready mix by 2,030 is because In the process on how things are evolving in climate change and how we How much we have learned and how much and how fast we think we can do, now we feel very confident that We can align and that's what we did. We did align our climate action strategy And targets to the well below 2 degree scenario, which is nowadays The one that you can adhere to with very specific numbers. And the reason why we established these new targets of 475 C02 kilos per ton of cement and 165 per cubic meter is because we know and we are confident As we can achieve those without any without counting with any of the Technologies, new technologies needed to capture and use CO2, technologies that we are Proactively investing in, but we already have the needed roadmaps to get to those Objectives without the support of this new technology. So I'm referring to additional clinical factor reduction, I just mentioned because of the previous question, additional alternative fuels with high contents of biomass, Additional fillers like calcite claim for blended cement on top of the ones we currently We use things like alternative raw materials for cement production and a number Of other levers we have to manage that reduction. Again, we feel very confident that it's doable. To some extent, we have already done it in the case of Europe with a reduction of 35% when we used Figures based in 1990. And in this case now it's a reduction again based in 1990 off about or close to 40%. So it is lots of challenging, lots of work, lots of We'll see towards circular economy in different markets we participate. But again, It's doable, and we feel confident that we will manage to achieve those targets. Fernando, there was one last part of Paul Rogers' question that maybe you'd like to address, and that is, are management incentives aligned with the new targets? Okay. Yes. Fully, we Starting this year, we include in our variable compensation system The targets of CO2 reduction for our personnel, particularly the one Directly related to the different levers of CO2 reduction. So that started early this year. But listen, the last month or so, we included another element in variable compensation. We decided to try for the second half of the year to see how it works, so we can put Starting next year, we started we are calling it the CEMEX ETS, meaning A variable compensation modifying our EBITDA with the cost of CO2 And resenting or trying to look at the impact of us Achieving our targets and the economic impact of achieving them or underachieving them in variable compensation And all our executives. Again, we started early In the year, with performance of TriFalls, including a sizable proportion of the valuation on CO2 On achieving the CO2 reduction plan, and now we are adding this ETS concept in order to modify our EBITDA. We're currently trying using the European EPS for our business in Europe. We are using currently our California ETS price for the rest of the business. Again, this is This second portion of the variegle compensation is a trial and we will fine tune and of course we will communicate that very next year. Thank you, Fernando. And the next question comes from Nick Lipman from Morgan Stanley. Nick? Thank you very much. Thanks for the call and for taking my question. I'm going to try to cheat a little bit. I want to ask 2 questions. I'm I'm just going to put them into one. And they both lead to pricing, but sort of microeconomics 1 on 1, you're doing a negative supply shock into Latin America. You're exporting more up to the U. S. What is sort of The reflection on pricing locally in Latin America and similarly in Europe where the marginal cost Production seems to be going up in line with the higher cost of carbon emissions. What's the reflection there On cement pricing in Europe. Thanks a lot and congrats on the numbers. Thanks. I'll just take that one, Maheb? Yes. Hi, Nick. I mean, I think that you hit on a very good point, Nick. And the reality is that our markets supply demand dynamics are tight virtually everywhere. I mean, And of course, it in the case of Mexico, I mean, I'll start with Mexico. In the case of Mexico, especially in the central and Southern Central regions of Mexico, I mean, we and I believe most of our competitors are pretty much in sold out positions and we're Expanding capacity as much as possible. And so clearly bringing in on the CPN plant to address the U. S. Mark, I mean it does have some impact in Mexico, but not that much of an impact. But clearly there are tight supply demand conditions that are leading to Positive pricing dynamics in the case of Mexico and that is expected to continue. I mean, we believe that the Demand in the residential market and infrastructure, both of those two core businesses have a lot of legs. They will continue to contribute to demand. We're seeing also a lot more insuring from China to Mexico. And so industrial And industrial and manufacturing is also beginning to grow. So I would say definitely we are Benefiting from those dynamics in Mexico. In the case of the U. S, absolutely right. I mean, we're sold out. There are some markets on allocation. As we discussed, We're bringing in, we've increased our imports into the U. S. Quite materially. And there you do have pressures of transportation as Fernando mentioned, which are escalating quite a bit. And pricing has got to react to it. And it is reacting to it. And as you know, we've increased prices for the second half of the year, and we should be getting those pricing increases. In Europe, You have a similar situation. You have a tight supply demand conditions. I mean, even in some markets in ready mix, We're able to start to cherry pick our most profitable projects because we're reaching Capacity utilization, even in ready mix in some of the markets. So and that's what's leading to good Pricing environment and we've implemented pricing increases, I would say in most of our European markets and we're getting some very good traction On that pricing? I don't know if Nick that covers your if I missed anything, please remind me. Yes. No, look, I think it clearly covers it. What I'm sort of looking at is to what degree I understand you're making money on imports Into the U. S, right? And that's a profitable freight. My question is really to what degree are you say you're selling 2,000,000 tons or 3,000,000 tons to the U. S, Which is wonderful. But are you repricing, say, 20,000,000 tonnes of cement sales in Latin America because all of a sudden, All of that excess is going up north. Is there anything that will really prohibit you From taking that U. S. Pricing power and use it as things get tighter across the region? Well, I mean markets Nick, markets are I mean, obviously, are fairly fragmented when it comes to cement and especially when the cement needs to go overland. So I think if you're saying that just because we're exporting out of Mexico into the U. S, is that necessarily pulling up prices throughout Latin America? I think the situation is a little more complex than that. I think you need to get more granular on a local market by local market. And that's why I In my comments, I separated kind of the northern part of Mexico and the central and southern part of Mexico where They are less impacted by the exports to the U. S. And much more impacted by local supply demand conditions. And We are increasing capacity and doing debottlenecking in the central and southern regions in Mexico as well. We are Tepeyaca is coming on stream and that should be supporting. But I think to talk about Pulling up prices because of exports out of Mexico into the U. S, in Mexico and in Latin America, I think it's a little more complicated than that. If I add to what just Maher said, I think perhaps this is not the moment to do it, but Marco has already mentioned that capacity utilization is very tight all over the Americas. It's tied in several markets, not only in the Americas, but mainly in the Americas. So exporting to the U. S, It might help, but that is not crucial. It's not the reason. Look at capacity utilization in the Dominican We already announced starting up an oil kiln that we're not using since ages because of capacity full utility line. We are proceeding with the bottlenecking capacity projects in Jamaica. We are doing the same everywhere. In the case of Mexico, the bottleneck in Huichapa and increasing capacity in Tepeaca starting up Campana, that's for export. So it's all over the place. I think the summary to me is the pandemic heated Badly in Latin America last year, mainly because of the informal economy, It came back very soon and it continues coming back and growing. And the speed at which the recovery has happened has Most of the industry and everybody's strength is using almost 100% of capacity utilization and trying to de bottleneck and expand capacities all over the market. So I think that's the part that we should go deeper to better understand the pricing dynamics currently. Got it. Makes sense. Thanks a lot. Thanks, Nick. And the next question comes from Adrian Webster from JPMorgan. Thank you, Lucie. Quick question just to clarify. Did you say that the impact from the increased Cement imports in the U. S. Was 1 percentage point. Just to clarify that first and then my second question was also very specific. You mean in terms of the margin you mean? Yes. The margin impact from the increased cement input was 1 percentage point on margins? That's Allegated level, Adrian, it was higher than that on the U. S. Level, just it accounted for almost a 3% Headwind in margins. Okay, perfect. And just to clarify, so my question is In which regions the increased Imports, were to was that in California, Texas mainly? We don't break out where the imports are coming into, but the markets that we have been importing into have been Texas, California as well as Florida, I can tell you that in the quarter due to bad weather in Texas, we did have a problem Actually taking the shipments into the ports because of bad weather. So I hope that gives you Some insights into the import activities. Good enough. Thank you, Lucy. Thanks again. Sorry. And then the next question comes from the webcast from Alan Alaniz from Santander. What is the outlook for imports of cement to the U. S? And is this a risk or an opportunity for CEMEX? Well, I think the outlook for imports is directly related to The outlook of volumes in the market, again, once we have all of our local capacity utilized, The delta will need to come from imports, so we can expect for imports to continue Increasing. If I can add also, Fernando, I hope I'm not interrupting Fernando. May I add? No, Jorge, Jorge. Yes. I think also Alan, I think what we need to also take into consideration here over the medium term, meaning into 2022 and 2023, what's happening on the infrastructure side. I mean, as you probably have been following in the U. I mean, as you probably been following in the U. S, we are coming awfully close now to an agreement On an infrastructure bill and also an approval of the existing FAST Zach, I mean, if you take a look at what happened literally in the last 48 hours, we had a confluence of agreement between Republicans and Democrats, you have even though last night there was a procedural vote, it was a very important milestone. You have 17 Republicans including McConnell kind of voting to take the bill forward within the Senate and that's going to be $550,000,000,000 bill. Now a lot of people may say that that bill is a smaller number than what Democrats wanted to do. But in reality, It's pretty much the same amount of what we consider to be cement intensive projects. And no matter how you skin this cat, I mean, dollars 550,000,000,000 on top of the current FAST Act, Which is probably going to be extended by 5 years, that's what's being proposed by the Biden proposal and the bill that has been put forward, It's going to translate somewhere between 20% to 30% higher demand for cement in the U. S. And we all know that there are some very important Environmental, I don't want to call it prohibitions, but certainly environmental, Let's say, pressures and headwinds in adding new capacity. So imports are going to play are I continue to play an important role. But as Fernando said, I think because of what's happening on logistics, I think in reality that pricing is going to have to go up to increase to make those imports be at par with domestically produced product So I hope that answers the question, Alan. Thank you, Maher. And the next question comes from Ann Milne From Bank of America. Thank you. Good morning, Fernando, Maher, Lucy. It took me a long time to go through all the quarters to see the last time you had at a GA of over $800,000,000 not just even in the Q2. So congratulations. I'm going to take the last question a little bit further, the whole question of capacity utilization. Clearly, you guys are going are bringing older kilns back online and looking to expand capacity in a number of markets. I've heard from other players in the U. S. And other regions that they're looking to do the same. Maybe you could just tell us in some of your key markets, How much additional capacity do you think that could be brought online in the next, just say, 24 months? Obviously, to build a new plant would take much longer and given environmental issues that might take even longer than it used to. And then maybe you could just comment in that whole context on Egypt and what the government is going to do and how long you think that might take till you have a positive impact on Sort of, let's say, reduced supply in the market in Egypt. Thank you. Okay. Thanks. And I think on the bottlenecking capacity in the U. S, We are already developing a few projects in some plants. We still don't have, let's say, a final number. We are right now studying and making engineering for some And but you can expect let's say for the time being, just to give an order of magnitude, this could be Around 300,000 tons. Again, this is related to the bottlenecking. At the same time, as you can imagine, we are looking for Opportunities of expanding capacity, not just the bottlenecking. But right now, we don't have A concrete info that we can share with you, we might be able to do that in the near future. Regarding Egypt, well, you already know the news, what the government is Doing is what we've been supporting an idea that we've been Which is finding a way for the industry to have, Let's say, a reasonable context after a very large cement plant was built So what is going on now is rationalizing that on a temporary basis, it's One year. Rationalizing that capacity, so the basic economics of the industry can be reasonable For investors. So we do expect that during this year, Prices should be improving, Not only because of that, but also because we do expect the market to recover, to grow. So it's Two reasons why we should expect better pricing in Egypt in the next few months. Fernando, do you know how much they're going to reduce their capacity by to help out the whole overall market, let's say that large plant? I don't have the number with me. What I know is it's a sizable deduction. It might be slightly different on a per player basis, but I don't have the numbers with me to share it with you. Okay. Thanks. And just as are you aware of any other outside of the cement, any other new cement plants that are being commissioned at the moment? Where? In niches or in the U. S? No. Just in your footprint globally. Well, there were some grinding mill Cement grinding mills in Yucatan, Mexico. I'm trying to remember if there is any other I think, I believe, I don't remember any new capacity, not in Latin America. No, I don't recall any specific expansion project. Okay. Thank you very much. I can imagine that the customer concept we just described before, everybody is thinking on funding capacity. Yes, I'm sure they're thinking about it with trepidation. Do we do it or not? Thank you very much and congratulations again. Thank you, Ann. Thanks, Ann. We have time for one last question. Ben Thirud from Barclays, I think you're on deck. Yes. Thank you very much, Lucy. Fernando Maher, congrats on the results. I want to close my questions with one of your favorite topics from the past, Fernando. A little bit about The digital innovation and what you've been doing over the last couple of years, be it on the commercial strategy with CEMEX Go, now you're laying out A couple of other things around Business Services Manufacturing. So the question really is within your global footprint, What would you say is a reasonable target where you can get and actually maximize and optimize your operations, ultimately driving margin Spension through all the digital innovation you have been put in place, where you stand today and how far do you still have to go to reach that target? Yes. Yes, it's a very interesting topic. And Let me first describe what our current status in our digital strategy And then I will go through what is it that we can expect moving forward. 3 domains. The first one is digitizing and developing a superior customer experience With a digital platform and that's what we basically call CEMEXCO. And as you know, San Mexico allows our customers and ourselves to have a seamless process to relate and to And to receive and to pay and to hit the whole spectrum of the commercial relation. I'm buying now and with one exception, this platform is available globally for all our customers. We are very pleased with the acceptance of the platform. About 90% of our recurring customers Do use it as the way for them to get information, to get quotations, to buy, to pay, to receive, to get everything. So we are very pleased with that platform. What's next for that platform? Think on the platform as a minimum viable product. The Platform nowadays is different to what it was 2 years ago and 2 years from now is going to be different to what it is today. We are Adding functionalities, the last one one of the last functionalities is digital confirmation in Ready mix, meaning now our customers can get into CEMEXCO and pick the slot at which they want the product, they will receive an answer Voila, transaction is done without any additional intervention. For our customers, we understand that's a very valuable functionality Today, they will start having globally very, very, very soon. The other features or the other ideas we have with this platform is that Through that platform, but adding other pieces, we want to participate in the business models that Nowadays being developed in the construction space because of digital technologies being applied to them. So we have different ways to relate to other platforms through APIs. We have developed the CEMEX Development Senteb, I mean this is a way for us to facilitate customers to connect with us through API, not necessarily through the platform itself And make the slides much simpler by them using their own systems that applies mainly to the Segment of very large customers. So we want to extend The scope of our platform into the construction space and that's what we have been doing lately. The other domain is how to apply digital technologies, a company with other Type of practices in the way we manage the company. And you might remember that some time ago with the Vero, What we call the global service center for CEMEX, Outsourcing most of our back office activities and the ones that we kept internally, trying Concentrate to standardize and to automate as much as possible. Now we are taking that Concept into the, let's say, the 4.0 type of idea and we are in the process of deploying a Step forward the concept with what we are calling now working smarter, which is part of the initiatives of Operation Resilience. And through that concept, We are going to go deeper into outsourcing. We are going to go deeper into globalizing back office solutions, standardizing And through all those efforts, covering all the back office and some portions of the service delivery model, We do expect to be even more efficient with customers, more efficient with our resources and saving about $100,000,000 Starting next year. But that's a domain on how we manage the company. When measured as OpEx to sales, last quarter we just got 7.6%, which is our lower See you, Edward, meaning we do continue finding ways to reduce the investment we do while Managing the company. And the 3rd element is operations or production. And on that regard, we have been applying Some digital solutions in order to save energy in the case of cement and others in the case of aggregates to And to facilitate the work Aquarium works and how our customers are set up through queries. Now, What we can expect for the future is that these technologies will continue invading, let's put That way, the way we work, the way we serve, the way we manage, the way we operate and that should be translated Efficiencies and should be translated in the case of our customers into a superior customer experience. I think the best feedback we have And it doesn't wait for them to relate to CEMEX. Perfect. Fernando, thank you very much, Very clear and right on time. Have a lovely rest of the day. Thank you very much. Thank you very much. Thank you. Thanks, Ken. Well, we appreciate you joining us today for our Q2 webcast and conference call. If you have any additional questions, as always, Thank you for participating in today's conference. This concludes the presentation. You may now disconnect and have a great day.