Earnings Call: Q2 2020

Jul 27, 2020

Good morning, and welcome to the CEMEX Second Quarter twenty twenty Conference Call and Webcast. My name is Chuck, and I'll 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. Our hosts for today's call are Fernando Gonzalez, Chief Executive Officer and Maher Al Afar, Chief Financial Officer. And now I would like to turn the conference over to your host, Fernando Gonzalez. Please proceed. Good morning. I hope this call finds you and your family in good health. Thanks for joining us to our second quarter twenty twenty conference call and webcast. I'm joined by Maher Al Jafar, our newly appointed CFO. As usual, we will be happy to take your questions after our initial remarks. Let me just remind you that beginning this quarter, Europe, Middle East, Asia and Africa regions have been consolidated into one region. We are very pleased with our performance in second quarter and the extraordinarily challenging conditions. Our safety protocols kept employees safe and our businesses operating. Our geographic diversification was a clear advantage as government restrictions on our businesses but either significantly from market to market. Our bagged cement product was resilient across our emerging market portfolio. Our infrastructure exposure and developed market footprint provided a stable base of existing medium term business to execute. Our existing digital platforms allow our customers and us to work seamlessly on in a low touch environment while our distribution network enabled us to meet surprisingly strong back cement demand in remote markets. Pricing was resilient with a difficult demand environment in many markets, while energy provided a nice cost tailwind. We took important steps to boost liquidity and derisk our financial profile. I'm especially grateful to our employees who rose to the COVID-nineteen challenge and made the necessary adjustments to keep our colleagues and customers safe and our facilities operating. Despite our safety efforts, there has been cases of COVID-nineteen among our employees, customers and suppliers. I would like to extend my sympathy and hopes for a full recovery with each and every one of you. Our three priorities rollout in February, which we have now named Operation Resilience guided us in the quarter. Our top priority was to protect our employees, suppliers and customers thereby ensuring business continuity. We introduced new operating protocols which included social distancing, minimal staffing, virtual work, daily temperature checks, testing of employees and timely case management, track and trace capabilities to minimize virus spread, outreach to employee families to reinforce health and safety measures in the home environment. As a result, I'm pleased to say that outcomes among all employees are significantly better than national statistics. In a world of social distancing, we employ a strategy of human touch at a distance And we saw 13% increase in number of visits to our CEMEX Go platform versus pre COVID-nineteen levels, while visits to our CONSURAMA website for Mexican retail customers increased 19 in second quarter twenty twenty. Our global sales force seamlessly transitioned from customer visits to virtual meetings hosting thousands of video conferences. Our supply chain and distribution network allow us to satisfy strong back cement demand without interruption. And we shared best COVID-nineteen construction practices with our customers and suppliers. It was just not enough to keep our facilities running. We needed to share best practices with customers and suppliers to keep them running. These efforts were recognized by our customers. We obtained the highest global Net Promoter Score ever in second quarter twenty twenty. We took steps in a highly uncertain time to minimize financial risk. We conserve cash and nail down all available funding sources. We renegotiated our leverage covenants with our bank group. And COVID-nineteen challenges to our business are not over and these priorities will continue to guide us going forward. Part of protecting the future of CEMEX in a world of high COVID uncertainty where we might face disruption to the capital markets is reducing financial risk wherever possible and ensuring that we have sufficient liquidity for whatever lies ahead. We initiated this process of building our liquidity position in February with the decision to retain proceeds $500,000,000 from the sale of our Kentucky assets. Additionally, we drew down on the majority about $1,000,000,000 of our bank revolver facility. We continue to build the cash position in second quarter by drawing down on the remaining revolver as well as additional short term credit lines for about $446,000,000 We took advantage of the first market window available to us post COVID-nineteen to access the capital markets with that €1,700,000,000 note. And finally, with the help of our COVID-nineteen cost savings program and better than expected volumes, we generated $90,000,000 of free cash flow in the quarter. We ended the quarter with the highest cash balance ever. We expect that our cash position will be further strengthened in the second half of the year by the closure of our two previously announced divestments of $400,000,000 As visibility in our markets improves, we do expect to deploy part of our cash position to pay down debt. Coronavirus challenge in second quarter was really about government mandated lockdowns and industry closures in our markets. This is the first time we have ever experienced national shutdowns of our industry. Strength of sales correlated strongly with level of restrictions. In second quarter, we faced complete industry shutdowns in markets representing 12% of consolidated EBITDA. Colombia, Panama, The Philippines, Trinidad volumes in these markets declined between 3090% in the quarter year over year. In our other markets, lockdowns had varying impact on demand for our products. For example, in our footprint in The U. S, government restrictions had little impact on demand in the quarter, while lockdown restrictions in The U. And France led to demand declines of approximately 35%. In all cases, demand pick up rapidly as restrictions eased almost as fast as they fell. Consolidated volumes fell 24% year over year in April and month to date July volumes have recovered to be up 4% year over year. We expect that the challenges of the next stage of the pandemic will be different. Governments may impose new restrictions to cope with virus flare ups, but expect that to be moderate in tone and will not occur simultaneously. Future quarters for our business will be more about the impact of economic slowdown in markets, fiscal programs and pace of recovery. During second quarter, sales fell 10% like to like drop is attributable to Mexico, EMEA and SCAK, the regions that experienced the most stringent lockdowns in the quarter. Year over year decline in sales was a function of a double digit drop in consolidated volumes, while local currency prices for our three core products increased between 14%. Like to like EBITDA declined 6% year over year. The U. S. Was the only region with a year over year increase in EBITDA. Our cost containment programs and the decline in energy costs were impactful in the quarter shown by the 70 basis points improvement in margins year over year. By the large decline in volumes, we still were able to generate free cash flow after maintenance CapEx of $140,000,000 70 7 million dollars less than prior year, which is equivalent to the decline in year over year EBITDA. Finally, COVID-nineteen did not deter us from making progress on our ESG goals, had the highest alternative fuel substitution in Europe on a trailing twelve month basis. 100% of our electricity in Poland is now renewable and clinker factory in Egypt was our lowest ever. Our cost savings under operations resilience were visible in the quarter. These savings include $150,000,000 from our prior A Stronger CEMEX program plus $80,000,000 COVID-nineteen related cost containment initiatives for full year 2020. Savings year to date have improved our EBITDA margin in first half by 2.4 percentage points. Include savings from SG and A like fees, selling, marketing, distribution, travel expenses and headcount optimization. Operations in cement plant operational efficiency, low cost supplier initiative, energy, alternative fuels and additional switches to pet coke and includes $25,000,000 from maintenance deferrals, will be largely executed in the second half. And now moving on to the regions, The U. S. Continued to enjoy strong momentum in second quarter driven by infrastructure and residential. Did not experience much disruption from government lockdowns in our markets. We achieved the highest EBITDA in the quarter in the last decade adjusting for asset sales. Infrastructure around 50% of the month saw a pickup in quarter as departments of transportation took advantage of empty roads to accelerate growth projects. The residential sector about 30% of the month has performed better than expected. Low interest rates, low new home inventory levels and shift in buyer preferences towards suburbs and single family housing. Stable sequential pricing in our three core products as COVID-nineteen delay implementation of April price increases in several markets. Year over year EBITDA margin expansion due to higher ready mix prices, lower fuel costs and cost efficiencies in general. The second half of this year outlook July month to date cement volumes are growing 7% and the three month ready mix backlog are promising. Do not have much visibility beyond September though. Expect our states to have fairly stable transportation spending. We expect fiscal stimulus in the form of incremental transportation spending at the federal level. Low interest rates, low new home inventories and progressive recovery of employment should be supportive of the residential sector. In Mexico, the drop in sales in second quarter is a function of the decline in volumes. Cement minus 7% year over year and ready mix minus 44%. So a diverging volume performance between ready mix and cement, which reflected COVID-nineteen lockdown measures. Industry was only allowed to provide cement to essential infrastructure projects and to retail for much of quarter. Formal construction projects of private sector were suspended until June 1. So an acceleration in execution of key infrastructure projects like the new airport and Dos Boca. We developed an innovative solution to meet the urgent need for hospital beds to deal with COVID-nineteen patients in Mexico with the construction of modular mobile hospital units. We constructed nine units during the second quarter in a record two to three week period each. Tax demand about 65% demand in Mexico shows significant growth 10% in the second quarter year over year, mainly due to government investment in schools housing programs and rural roads also increasing home improvement projects as consumers spend more time at home. And historically in uncertain economic times informal sector has shown more resiliency. Despite the second year of industry volume declines, prices have been resilient. Logistics and distribution network allow us to meet surge in bag demand on a timely basis. Decline in EBITDA margin was mitigated by product mix, our cost savings program and lower fuel prices. And with regard to the second half outlook, we have limited visibility. Since June 1, we have seen recovery in both cement and ready mix demand. Ready mix volumes have recovered from minus 44% year over year in second quarter to minus 19 July month to date. While cement volumes have recovered from minus 7% year over year second quarter to plus 11% July month to date. Bagged cement has been extremely resilient. At some point, expect bagged cement to recalibrate the economic environment. Formal housing and industrial and commercial recovering at a slow pace. We expect continued expansion of infrastructure spending, billion of stimulus to increase spending on social and infrastructure projects. On Mexico City economic reactivation program of US3.4 billion dollars focused on construction. In EMEA, First Quarter in which we consolidate our Europe region with the Middle East, Africa and Asia in the quarter report, we do give more details on subregion performance. In Europe, we experienced the same divergent behavior between Western Central Europe that we saw in the first quarter. Central Europe with strong year over year cement volumes in Germany, Poland and The Czech Republic driven by infrastructure and less restrictive lockdown measures. While Western Europe with lower cement volumes in The UK, Spain and ready mix volumes in France due to strict lockdown measures. As lockdown measures eased in each country, volumes recovered. Good pricing momentum in cement and aggregates on sequential basis in Europe. The Philippines was the first country in our portfolio to experience lockdown and one of the most impacted in quarter. Peak lockdown measures with solid plant in Luzon province closed from March 16 to May 20. Cement volumes were down 31% in quarter, but volumes turned positive year over year in June with solid reopening. For more information please see our CHP quarterly earnings which will be available this evening. In Middle East and Africa, we experienced fairly low impact from COVID-nineteen in quarter. Israel had a record EBITDA and volume performance. Egypt's decline in cement volumes minus 13% due primarily to government suspension of private residential construction permits. CAC was the region most impacted by COVID-nineteen restrictions. Cement volumes declined 29% in second quarter of this year year over year. Favorable cement pricing dynamics in the region despite lower volumes, cement was 3% quarter on quarter with increases in practically all countries. Even with the large drop in volumes, EBITDA margin increased year over year 1.7 percentage points, mainly due to lower fixed cost and SG and A 5.2 percentage point margin benefit and pricing efforts 4.1 percentage points benefit and both offset by volume decline. In the region most impacted by government mandated industry shutdowns, we saw a sharp decline in cement volumes in April of 60% year over year followed by a rapid recovery over the following three months. June cement volumes for the region were up 3% year over year. In Colombia, picked up in the back half of the quarter driven by four gs projects on the self construction sector. In The Dominican Republic, we saw increased activity after restrictions were lifted. However, some tourism projects are being postponed. In Panama with most restrictions currently only serving selected infrastructures, projects and retail. For additional details on this region, I invite you to review CLH's quarterly results, which were also published today. Now, I will pass the call to Maher to review our financial performance. Maher? Thank you, Fernando and good day to everyone. Our operating EBITDA declined 6% on a like to like basis this quarter. As we can see here, higher prices combined with a significant reduction in our fixed cost due to operation resilience more than offset the impact of lower volumes. All of our regions as well as central units contributed to these savings. Variable costs increased primarily due to higher raw material costs in our ready mix business in several of our business units. This is due to higher prices of cement and aggregates as well as the impact from purchased cement in some of our sold out markets. Reported EBITDA reflects the unfavorable effect from our currency fluctuation of $32,000,000 This is mainly due to the depreciation of the Mexican peso, but most currencies also contributed. Most importantly, as a consequence of the hard stop on expenses that Fernando discussed earlier, EBITDA margin increased by 0.7 percentage points on a year over year basis. Despite double digit drop in our EBITDA, we generated positive free cash flow during the quarter as we managed to reduce and or postpone our capital expenditures during the quarter. We aggressively managed receivables collections and aligned inventory levels to current demand. As a consequence, average working capital days in second quarter this year improved to a minus eleven days. This compares very favorably to a minus six days in our second quarter of last year. We also had lower taxes year over year. This is primarily due to the drop in earnings in several of our operations. I would like to remind you that free cash flow is highly seasonal. We typically, as you know, we have larger working capital investments in the first half of the year that significantly reverses in the back half. Similarly, we expect partial working capital reversals this year as well. In addition, we expect to execute much of the deferred maintenance CapEx in the second half of the year. It's important to highlight that in the last twenty years, we at CEMEX have consistently generated positive free cash flow after maintenance CapEx every year, except for one year and that was back in 2013 where we had a negative $90,000,000 of free cash flow. As Fernando mentioned during 2Q, we continued to execute on operation resilience by accessing the capital markets. We were the first emerging market high yield issuer since COVID-nineteen. We took the opportunity of issuing $1,000,000,000 in seven year notes as Fernando mentioned earlier. We anticipate a slight increase in full year financial expenses due to this change. During the quarter, net debt which is adjusted for the effect of higher cash balances was marginally increased by $51,000,000 reflecting an unfavorable FX effect of 55,000,000 Proceeds from our newly issued $1,000,000,000 bond and the drawdown of the remainder of our revolving credit facility as well as other credit lines will be retained in our cash balance for the time being. As visibility in our markets improve during the year, we do expect to deploy most of our cash position to reduce debt. As you can see from this slide, we ended the quarter with a strong liquidity position and a manageable debt maturity profile. The majority of 2020 debt is short term debt that we have withdrawn in the last few months to strengthen our liquidity. Next material maturity is not until 2021, which is essentially the $571,000,000 due under our facility agreement debt, which is due July 21. All maturities through 2023 are bank maturities. We have no maturities in the capital markets until 2024. Our leverage ratio as defined by our facilities agreement marginally increased on a sequential basis to 4.57 times at the end of the quarter. This is well below the recently amended covenant level of 6.75 times. You should expect us to continue with our strategy of maintaining a twelve to twenty four months runway without any significant maturities. As part of our strategy to respond to the coronavirus pandemic, we initiated a consent request to amend our financial covenants and other items in our facilities agreement. We are pleased to report that we received 100% of the support of our banks on this by late May. And for that we thank them. Under the terms of the amendment, we modified the leverage and coverage covenants to the level that you see in the graph. The leverage covenant increases to 6.75 times for June 2020 and then it goes up to seven times from September 2020 through March of twenty twenty one and it decreases after that. Also we agreed to temporary limit capital expenditures, acquisitions and share buybacks among other things. CapEx limit goes from $1,200,000,000 to $1,500,000,000 per year when the leverage ratio is less than 5.25 times for two consecutive quarters. And we have a $500,000,000 basket for repurchases which can be used when our leverage ratio falls below 4.5 times. These limits are in line with our previously announced measures to contain the impact of COVID-nineteen. Our interest rate margin has been adjusted to accommodate the new higher leverage ranges to the consolidated leverage covenant as shown in the table. It's very important to highlight that the margin grid remains unchanged from our prior agreement for leverage levels below five times and simply adds pricing for leverage above five times. And now I would like to turn the call over to Fernando. Back to you Fernando. Thanks, Maher. Given the continued uncertainty from COVID-nineteen, it is very difficult to provide EBITDA and volume guidance at this time. But we can comment on all the variables. Cost of energy per ton of cement produced, we estimated at minus 7% to minus five Previously it was minus 6% to minus four percent. Adjustment in forecast mainly due to lower fuel of our costs. Also CapEx unchanged versus previous guidance. No change of guidance for cash taxes and cost of debt. Working capital will be higher than the $100,000,000 guidance provided in fourth quarter twenty nineteen. But again due to continued lack of visibility on our top line growth, we still cannot provide a specific amount. So in summary, we saw local restrictions on our business in second quarter that we have never experienced before. It was all occurring at a time of tremendous uncertainty, but our management team reacted quickly and took immediate steps to protect employees and customers as well as stabilize their business for whatever conditions might develop. June volumes for our three core products show sequential model improvement in all regions, while July month to date consolidated cement volumes are up 4% year over year. Key events will be the status of expiring stimulus efforts in many countries, additional lockdowns, announcement and execution of infrastructure stimulus packages as well as the base of economic recovery. You should expect that we will continue to focus on health and safety of our stakeholders that we will continue with our COVID-nineteen cost initiatives and be vigilant to changes in market demand. We will make the most of our competitive advantages like our digital platforms, our well developed distribution arms and diversified product and market segment offerings to stabilize demand. And finally, as visibility improves, we will redeploy our historic level of cash to pay down debt. Thank you for your attention and I would like to take this opportunity to wish everybody good health and to please keep safe. 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 of the markets in which we operate and could change in the future due to a variety of factors beyond our control. In addition, unless the context indicates otherwise, all references to pricing initiatives, price increases or decreases refer to prices for our products. And now we will be happy to take your questions. Operator? Thank you. And our first question will come from Adrian Swerta with JPMorgan. Thank you. Hi Fernando and Marjor. Hope you're doing well and congrats on the results despite the environment. Thank you. Marcelo and Fernando, what was the experience navigating through the second quarter on top of what we saw in the results and the measures that we're taking? And on top of what you have already mentioned on the outlook, what else can you share based on this experience on what could be the outlook for the rest of the year? Sure, Adrian. Thanks for your question. I think we all have gone through a phenomenon exogenous one causing lots of uncertainty. So if we position ourselves, let's say, in early last March, we already then understood that the virus was going to be impacting in an important manner. But we were we spent some time trying to answer three questions. The first one is how deep the damage was going to be? How long was it going to last? And if there were going to be repetitions or not? After a few days, we realized that we could spend time getting we were getting lower. So we decided to just to act and make what we call a hard stop, meaning we don't know. But given that we don't know, let's stop whatever we think is not essential for the next three months. And that's what we did. And that's why we managed to offset somehow the very negative impact of different markets locking down. Three main priorities, health of our employees, customers and suppliers as a precondition of business continuity. Second, assuring that we could serve our customers, meaning taking care of all our supply chain and allowing and promoting our platform, our CEMEX Go and costurama.com virtual platforms for our customers to be able to interact with us without, let's say, with a physical distance and the third was liquidity. So the thinking process was as simple as that. Just decided. Three months have already passed. I think we are in a very good position to continue this journey. I think what we will be facing and that we are not providing outlook or guidance, what we will be facing in the months to come is a situation in which we are going to be doing business, coexisting with the virus. Until there is a vaccine or a treatment or an immunity. But we have to consider that almost everywhere, we will continue operating under these circumstances. So because of that and still lots of uncertainty, we decided to extend the same measures that we took for the first ninety days. We already extend them as of December 31 with a few exceptions. The decision in March was too tough thinking that some plants were going to shut down. It is not the case. So we need to engage in additional maintenance when compared to the decisions we took them. But in general, the decision has been extended. We are going to be facing this way to coexist with the virus with more or less the same priorities. So that was our thinking process, Adrian. Nobody knows what's going to happen, we can think on second or third wave. The ones we have seen seems like they do not have an economic impact as strong as the original one, but all of that is to be seen. We are prepared to continue acting cautiously on this environment. Thank you, Fernando. If I may add, I think the companies with strong operations shine during difficult times and you guys did, so congrats on that. And if I might just do a follow-up, you think given the numbers that you mentioned on CEMEX Go, the good increase that you saw on your platform, etcetera, do you think that you gained market share during the quarter in some of your key markets? We're not completely sure. We need to wait until public info is available. But what I can tell you, Adrian, is that we do believe given that other companies do not have still a platform end to end on the commercial relation, meaning from very early stages of the commercial process, All over the transactions in our requesting, buying, asking a programming, delivering, paying everything. Some customers might have preferred that type of services during this period of time. Again, we don't have hard data to say that, but we believe it is helping. Understood. Thank you, Fernando, again. Thanks, Adrian. And the next question will come from Gordon Lee with BTG. Please go ahead. Hi, good morning. Thank you very much for the call. I hope everyone and their families are doing well. Two quick questions. First, on the cost reductions on the savings. I was wondering first if you could give us a sense of how much you think of the savings that have been achieved year to date or that you're expecting for the year as a whole. How much of that do you think is permanent? And how much of that is sensitive to volume growth? In other words, if we do see a recovery continuing this year and into next, how much of those savings will actually remain in place? And on the savings front, I was also hoping maybe you could provide a little bit of color on The U. S. Where the margin expansion was impressive. And so I don't know whether the cost savings were particularly concentrated there. And then just the second question, if you could remind us what the total proceeds of pending asset sales is and when we would expect sales to hit the balance sheet? Thank you. Thanks, Gordon. Let me take the first question regarding savings. In total, we were we did activate certain optimizations and savings through stronger CEMEX. And then in March, we took additional decisions because of COVID-nineteen. So we ended up adding everything and calling it operations in CEMEX. All in all, we are expecting to save around $230,000,000 of which around 140,000,000 were saved in the first half. The remaining we can expect the remaining in the second half. But the it's very challenging to answer how much of that is permanent because we still don't have a clear scenario that we can define and compare with. I think scenarios are still wide open because of uncertainty. But what I can tell you now is that I think I already mentioned because of the decision we took last month was a strong one. Now given that we have a more positive scenario than the one we thought then, now we need to engage in certain expenses and CapEx to keep some plants running. And those expenses that were saved in the first half will be spent in the second half. And those are mainly maintenance and are between 20,000,000 and $25,000,000 The rest, unless something really changes very fast, either positive or negative, but we continue the rest of the year more or less in the same, let's say, scenario in the same context, all those savings can be kept during the year. And regarding The U. S, in The U. S, our savings in The U. S, as you know, there were some changes in our management team, the Head of the U. S. A few months ago. And through stronger CEMEX and with direct contributions from the team, we have managed to define savings for about not necessarily all of them this year, but most probably that will be the case from between 100,000,000 to $120,000,000 And those savings are coming in different from different concepts. One very relevant is related to primary fuels that we are switching a number of plants that we used to run with coal. And it happens that because of the dynamics, now it is much better to run-in coal and that will allow us to save some money. There are additional market measures. We are getting into new segments in different states. So that is helping somehow our margins in The U. S. Think you also have a question regarding assets. There is very little we can say right now, as you can imagine, because of COVID-nineteen, things have of come down on the plans on divesting assets, but we have not changed our mind. So we will continue that effort moving forward. Thank you. The question on the asset sales was actually of those that have already been closed, so effectively of the ones that you announced prior to the COVID outbreak, how one in The UK is to be closed this month. We don't have any info proposed to the closing we have for that assets. The other one will come afterwards. It is not a short term plan. My comment was reflecting all the potential asset sales. And maybe Fernando, if I can add the we're expecting on The UK transaction about it's going to be around $230,000,000 And the balance is for the white cement and the total is about $400,000,000 that we're expecting sometime this year. Perfect. Thank you very much. Thanks a lot, Gordon. Thank you, Ronald. Operator? Our next question will come from Ben Sewer with Barclays. Please go ahead. Yes. Good morning, Fernando, Maher. Thank you very much for taking And congratulations on the results, clearly impressive. I wanted to dig a little bit into The U. S. And some of the commentary you made during the quarter and then obviously the situation as it evolves right now with searching cases and states you're heavily exposed Texas, Florida, California. So could you run us through a little bit how you've been seeing activity over the last couple of weeks and what you expect on the different markets? Just to understand a little bit how much maybe of an impact is yet to be seen in The U. S? That will be my first question. And I have a quick one on pricing Let me take that one then. Again, referring to, let's say, the process that we follow, we thought that The U. S. As well as other countries were going to have material lockdowns or shutdowns in our industry. And as you know, it didn't happen with the exception of two or three weeks in the Bay Area. As far as I remember, The U. S. Didn't have any material lockdown. I think what we have learned from, let's say, our early thoughts is that the impact of COVID directly into the market, let's say, construction activity volumes was not as immediate as we thought originally. We have stimulus programs, fiscal programs, food loss, so and the economy open. I mean, course, it's set for restaurants, theaters, but nothing that impact directly our activity. So I think the economic impact that was softened because all of these supporting problems. And then there were, in some cases, there were some reactions that initially we were not expecting. For instance, we thought that certain construction sites were going to be delaying their project. In some cases, it happened the opposite. Some construction companies did advance the process for them to finish their projects. So again, the immediate impact was not as tough as what we thought. We do have order books for, let's say, the next three months, and they seem to be solid. Our concern, let's put it that way, is that perhaps volumes in the fourth quarter that still must go back on the fourth quarter and moving forward might be softened because of these programs terminated. But again, still very uncertain to confirm something like that. So we will continue with our programs, pressures, cost reductions and the sea health growth. Okay, perfect. Thank you very much, Fernando. And then on Mexico, was wondering if you could elaborate a little bit. I mean, clearly, we've seen the discrepancy between back in bulk and you've elaborated on the different demand scenarios. And clearly, I mean, within what is ready mix and aggregates, which is the more formal piece heavily impacted. So what's your strategy when it comes to pricing? I mean, all know that the Mexican peso has depreciated stabilized now against the U. S. Dollar. But in order to recover some of that input cost pressure, which is just dollarized input cost, what's your pricing strategy going forward in Mexico on the different segments within cement bulk versus back and then also on ready mix and aggregates? Okay. Let start by I mean, I think it is more or less obvious on the dynamics that happened in Mexico during the pandemic, partly because of the characteristics of the market and partly because of decisions made on partial lockdown in the industry. In Mexico, in average, 65% of cement is sold in bags. And if you remember, the lockdown permitted sales of back cement in retail stores. That was not canceled. And at the same time, the large works of the new airport, both Boca and the Mayan train also would not shut down. So what you saw in the last few months is that the infrastructure and formal activity did decline materially. But bank cement, because of not being locked down and because of some government investments in social programs related to the consumption of the flat cement did offset in an important matter the decline of the former part, which is bulk cement and ready mix and to some extent aggregate. Now Mexico is the industry is open, meaning there is no lockdown. The volumes of packed cement continue increasing. Just to give you a couple of numbers, in April, April, May, the worst month in Mexico, the decrease of volumes in both was slightly more than 40%, while back cement increased 5%. Now what we have seen since then is that back cement continues growing in a material manner. This month, not today, I think as of July 21, something like that. Bagged cement is growing 28%. And bulk cement is still decreasing, but in a much lower manner, minus 14% instead of minus 30 Now that those have been the dynamics. And as said from the very formal part, both revenue, the rest of the market, which is the bulk of the market has not been impacted so far. And your pricing strategy is going to try to recover basically on pricing what you lose in dollar terms, correct? Regarding pricing, we always in our strategies, we always try to gain back input cost inflation. What you mentioned, it is true that peso has depreciated and there is a loss of prices in lot of terms. At the same time, inflation has not been increasing materially. So we do have a cost inflation to need to cover with price increases. That's why we try price increase in tax net that is this year. Now the market is very challenging nowadays. So it is very soon to really understand the possibility of this price increase to 6%, but that's what we did early this month. Okay. Thank you very much and congrats again. Thanks a lot, Ben. Thank you, Ben. Our next question will come from Carlos Carvalhoen with Bank of America. Please go ahead. Thank you. Thank you, Fernando and Maher for the call. And let me echo what others have said regarding the results despite the very challenging situation. Your margins were much better than expected. So my question is related to margins. Can you you comment a little bit already, but if barring any major disruption going forward, should we expect margins flat versus last year? Is that something that you think is achievable considering the $230,000,000 in savings that you're expecting for the year? Clearly, The U. S. Margins were much better than expected, but this was seen mostly in your major markets. So if you could comment a little bit further on margins would be appreciated. Sure, Carlos. I will take a stab at it and then if Fernando wants to add. I mean, think as Fernando said earlier, we think that most of the cost cutting efforts that we conducted in the first half of the year should remain. And in fact, some of the expenses that we incurred in dealing with the COVID-nineteen crisis, which we had some that were in the other income and expenses line are also likely to occur at a lesser pace. So everything else being equal, I mean, we expect to kind of retain the margin levels that we have. There's a possibility that things could be better. But as you heard, I mean, of a $230,000,000 cost cutting efforts under operation resilience, we're expecting 140,000,000 happened in the first half and we're expecting the balance to happen in the second half of the year. Now as far as the different margins like in The U. S. For instance, I mean there as you know and as Fernando mentioned, I mean we had a program that started an efficiency program that started in the third quarter of last year. And that program has been going on and it's paid off quite nicely. And operating expenses in The U. S. Were dropped significantly. I mean, we had almost a drop of 10% in operating expenses there. Everything from SG and A, travel, you name it, plus reductions in fixed costs also were achieved improvements in profitability in the ready mix business for instance was achieved. Energy was a very important source. So all of these things are expected frankly to continue in the case of The U. S. Business. Understood. Thank you. Huth, you can comment on pricing on The U. S. Has there been any announcement of increases in prices that we should expect in during the summer? Or have you already implemented those in the second quarter? Can you comment a little bit on U. S. Pricing? Yes. I would say that pricing was fairly stable on a sequential basis. I mean, we had flat pricing for our three products on a quarter on quarter basis. As you know, the biggest pricing increase was expected to take effect in April. Unfortunately, because of the COVID-nineteen ourselves and most other players decided to push it to July. And we're I guess in some cases with some clients, the pricing increases did go through in April, but mostly it's being staggered into what was staggered into kind of June and July. We did move ahead with Texas pricing increases, with Arizona. In Colorado as well, we had pricing increases, but it's being staggered by geography. And we are fairly constructive about the ability to improve our pricing in the second half of the year. Okay, understood. And lastly, is there anything you could comment regarding the possibility, support from the U. S. Congress, any initiatives worth highlighting for potential support to the states that has been talked about anything that you can comment or infrastructure packages worth highlighting any initiatives in the Congress? Yes, Carlos. I mean, there's a number of things that we are benefiting from in The U. S. I mean, you have a lot of the packages that were put into place that impact employment and all of that and that has been very favorable. What's really important is that we when we take a look at the either the Republicans or the Democrats both have fairly aggressive proposals for infrastructure in general and for streets and highways in particular. So we are we don't expect I mean it could happen, who knows, but we're certainly not expecting anything this year. But certainly into 2021 and 2022, we do expect something to happen in support of the streets and highway program. And the based on the programs that are being mentioned, I mean the latest announcement for instance from Democrats, the components that they are talking about for streets and highways, if enacted could represent a very material increase over the life of the program. And the interesting thing is that the democratic proposal is very front loaded in expenditures. So it starts impacting as you know, the fiscal budget at the federal level are September to September, at the state level are July to July. So it could literally start impacting materially the fourth quarter of twenty twenty one if we have something enacted after the elections at the beginning of the year. So we're quite hopeful. We think that if there's been any time of star alignment for something like this, it would be now. Now the other thing that is also very important is that, it is highly expected that under all of the stabilization programs and fiscal stimulus programs that are being put out that a big chunk of that money is going to be transferred to states to bridge some of the budget deficits that some of the states are incurring at this point in time because of COVID-nineteen. And while we think that's going to be a little bit of a little bit like sausage making, it's not going to be pretty while it's happening, but we do think at the end of the day something will happen and that should also be very supportive of the states that we operate in. Now having said that, Carlos, it's very important to note that our states, our three most important states, California, Texas and Florida came into this with very healthy rainy day funds as of for state general spending. And all three states are very highly rated. I mean, is BB minus, Texas and Florida is AAA. And so we think that our states are very high quality credit and should be more than able to, I guess, recover or to sustain the situation that we're experiencing right now very easily. Very, very clear. Just a follow-up on this, Maher. I understand that for the roads and highways, a five year deal is very likely to be addressed in more detail next year. But for support for the states, is that something that you think the U. S. Congress could enact in the next two, three months? Or would you say that's also something for that we should expect for after the election? Carlos, it's very difficult to tell. I obviously, there's a lot of negotiation. I think that there is a possibility that we could get something in support of the states certainly sooner than getting a kind of final bill for that would impact the streets and highways at the federal level. So that's entirely possible that could happen. Okay, great. Thank you so much, Mark. Thank you very much, Carlos. Operator? And our next question will come from Nikola Lipman with Morgan Stanley. Please go ahead. Hi Fernando and Macha. Hi, everyone. Just three quick questions here. And also, sorry, congrats on the phenomenal numbers there. First, on The U. S, if you much like you did in Mexico, can provide a little bit of color on where the demand came from, infrastructure versus residential, etcetera? Two, on CEMEX Go, the 19% growth you saw there, can you talk a little bit about what markets saw that growth and your experience in terms of migrating to that model? And then finally, Maher, congratulations on your new role. As kind of a personal question, let's see if you take the bait, but you've been with CEMEX for more than twenty years. If you can share with us sort of any ideas or changes that you can envision going forward in your new role? Thank you very much. Thanks, Nick. Don't know, I don't if you want to. Let me take the one regarding CEMEX Go, Nick. I'm going to try to summarize a a little bit. You know, it was like three years ago, we we got engaged into initiative of building the platform, our commercial platform to allow our customers to do better business for them and better business for us. Having a in general terms a superior customer experience enables that technology. We ended up developing a platform that covers the whole spectrum of the commercial relations from data of our products, registering customers, orders, payments, everything is covered in the platform. Now before COVID, we are very fortunate. We it happens that the platform started being highly accepted by customers in general because the platform is available all over the world, in all our businesses. Acceptance and adoption from our customers increased very fast. But the same way that happened in other digital services, And during this past few months, we saw an increase of, I think, between 19%, twenty % depending on the platform. We mainly have Zenixco and Construrama.com as the main platforms. So we have seen that customers increase the usage of the platform. What I cannot assure is that it might be the same customers using adopting the platform in a much more decisive way or that phenomenon plus additional customers willing to do business in this way. That, at this point in time, I don't know. But what is true, what I can say is that our adoption continues growing after a year or year and a half of making this platform available. What can I say, it works? Customers are happy with it. Filter factor and that way and because of the pandemic, we've been able to offer, we call it a service at a distance, but we didn't touch. I mean, it's everything is as a the only point the only touch point with customers is when they receive the product or when they pick up the product from our brands. The rest is done virtually. That's Is that something is this are you seeing what markets are in what markets are you seeing particularly high growth from this platform, if you don't mind me asking? Well, more than specific markets, what we see is demand seems like customers in demand, either bulk or bulk, adoption is much higher than for instance, than ready mix. But I don't have any specific info to share on, let's say, geographically, which part which geography or which part of the market is going more than the models to this way to transact. Interesting. And Nick, maybe I could respond to your question on The U. S. As you saw, I mean, had fairly strong cement volumes in the second quarter year over year with about 6% growth in volumes. And clearly, we started the year with very good momentum. And as Fernando said, The U. S. Almost continued, I don't want to say business as usual, but almost business as usual in the construction sector. And the level of, let's say, safety that was practiced through the different protocols by ourselves and by most of our S. Meant that there were not really any hotspots that were experienced in the construction area. So it allowed us the continuity factor and that's what contributed very favorably to our business. Now the biggest contributor in terms of sectors is infrastructure and residential. Those are the two biggest markets. Those account for 80% of our volumes in The U. S. In the case of in geographically, I mean Texas and Arizona for instance had double digit growth, which is amazing in this kind of an environment. Florida had mid single digit growth. California, we experienced a bit of a decline in volumes primarily because higher precipitation. And also believe it or not because of some of the coronavirus restrictions, we did have issues in bringing in cement into different parts of California because we were sold out. And there were some restrictions in the Bay Area, which have been lifted off. Now looking forward, I mean looking at what was happening in infrastructure for instance, I mean the DOTs, it definitely took advantage of less traffic to accelerate construction. We have seen also very good demand still in terms of a lot of growth in projects are going to be lasting for two to four years in forward. In May, we saw spending growing by 1%. As you know, we don't have data newer than that. But we're quite it was quite a pleasant surprise. The other thing is we started Jaime started focusing a lot on the direct bid business, which is very conducive to infrastructure projects as well as large residential and we have been successful in gaining our position in that segment. On the residential side, the business has been has continued to really boom. Unfortunately, the residential market did a little bit like we did. They went through their own hard stop. And so as a consequence of that, there has been a fairly constrained inventory in new home sales. And now that things are opening up again, it's starting to reactivate and now that interest rates are continuing to drop, we saw long term mortgage rates break below 3%. Demand for housing continues to be quite strong and we frankly expect it to continue. Housing permits rebounded very strongly in May and June. And mortgage applications, although we need to be very careful about that number, also have done extremely well. The area that we think intuitively likely to be negatively impacted from all of this is the industrial and commercial. I mean that's something that we need. I mean that suffered certainly during the first half of the year and the jury is still out on where that happens. But fortunately, the other segments are offsetting and giving us good outlook. And as Fernando said, we're cautious. I mean, we think forward looking order book is good into the third quarter. We're being cautious probably is what may happen in the fourth quarter, but we'll have to wait and see. I mean, is not as good as we'd like it to be. And certainly that's attributable mostly to the COVID-nineteen situation. I don't know if that answers your question on The U. S. Very clearly, Maher. Thank you. And could I get you to take the bait on some of your visions for your new role? Not really sure. I will have to do it would be difficult to do it in front of my honestly call of my boss. So what I will all I can say, I mean in seriousness, all I can say is that, I mean, we have a strategy that has been in place for a while that has been sanctioned by the Board and Fernando. We don't see any changes. I mean, are going to continue to make sure our coming investment grade continues to be our North Star. We will continue to manage our liability situation in order to ensure that we have minimum twelve to twenty four months of runway in terms of maturities. We're obviously continuously focused on trying to bring down our cost of funding as much as possible and trying to maintain as much flexibility for us to conduct our business in this kind of an environment. But I don't see any really any changes. I mean, it's a strategy that is being implemented and I'm very fortunate to have been asked to be in this position to be part of the execution of that strategy. Got it. Thank you. Thank you very much, Nick. And our next question will come from Vanessa Quiroga with Credit Suisse. Please go ahead. Hi, Fernando, Masser. Thanks for the call and taking my question. Congrats on the results. My question is regarding cement in Mexico. So just to understand correctly, if you say that bag cement is going up in July to date by 28% year over year, but you also said that you expect back cement performance to normalize and basically converge to the economic trends in Mexico. So can I understand can you give some more details on your views for Baqsimon in Mexico? And also on the same market, I understand that you implemented price increases for Baqsiment in the July and at least one or two other competitors also did. So what has been the response so far in terms of pricing during the month? Thank you. Fernando, would you like to Yes, please. Yes. Vanessa, on the bag cement, the bag cement demand has been really driven a lot by well, I mean, there were kind of two phases. In the first phase, that was distribution was never especially through our ConsoRama's was not impacted. And so a lot of the demand that would have gone that would have come through bulk came through Constru Rama in bag format. I mean in reality, we think that there were some medium sized and smaller contractors that were buying bags to actually batch concrete at site. Now in the second quarter, the situation took a slightly different evolution and that is that there are three things that started moving bag cement demand much more so than bulk. And that is government supported program. The government as you know has been encouraging self construction and do it yourself improvements, home improvements. And so the government has announced a school improvement program that is close to about $05,000,000,000 about $440,000,000 There's also a home improvement program, Mihora Vite, which is another $225,000,000 close to it million dollars. And then there is also a rural roads program for $120,000,000 Now all of those programs are designed to be kind of to promote grassroot employment in the country on a very broad base. And so as a consequence of that, that money is going through the bag cement market. And that's why we have seen the extensive growth. And yes, Fernando did say and correctly of course is that the July month to date bag growth and I forget exactly as of when it's like the twenty fourth or twenty third, it was up 28% year over year. And that's now we do expect it to normalize. That's just kind of an expectation. But the other thing that is also happening Vanessa that is very important is that remittances are up year to date by 25%. In dollar terms, they're up 10%. And as Fernando said, the from a peso perspective, we have not seen at the consumer level the flow through of inflation. So in reality, the weaker peso has translated to higher disposable income in local currency terms. And of course, that is also driving some of the investment in home improvements and home construction and reconstruction in some cases. And that's been kind of the strength. Now having said that, in the last two months, we have seen an improvement in demand in bulk, meaning in April, we saw bulk down 40%. In July month to date similar to the number that we talked about in bags, we saw the drop minus 14%. So it's dropping still, but by much less and that is because of the activation of some of the infrastructure programs in Mexico. I don't know if that addresses the question. If you have any further follow ons, I'll be more than happy to address them. Thank you very much, Maher. Just on pricing, what has been the response in July? It's a bit early to comment on that. So I would rather I mean, Fernando, I don't know if you want to comment on that, but it's really too early to comment on that at this point in time. I agree with you, Maher. We need to wait a little bit see the dynamics and see how it Of course, did try to increase prices thinking that we on the one hand, we have seen our prices of cement in real terms slightly impacted and we have not been able to gain cost inflation completely since I think it's mid-nineteen or so. So that's what we are trying. And even that the performance of the market in the last few months, particularly the back cement market is that we decided to do. So let's see in a few weeks, we will know. Okay. That's great. If I may, I would like to also ask about working capital. So we saw an improvement in average days of the cycle. Do you expect to be able to keep that improvement so that as sales normalize, we could see a positive result on the working capital investment line? Well, I think we will be able to keep it. Vanessa, now it's again, to make a hard statement on the number, in this case of working capital with such an uncertain landscape, it's very risky. But I think or what I think what I saw as an important point for the performance of working capital, knew we know we have at least that's our opinion, we have an efficient scheme for working capital having negative base in a sustained manner. And after the challenges of COVID in the second quarter, now we know that on top of being efficient, it is also resilient because it was not deteriorated. It did improve by four days. Are we going to keep those four days? I really don't know. Again, quite certain, we will see, but very happy with the performance of efficiency and resiliency of our working capital. Thank you very much, Fernando and Meker. You very much, Fernando. And we have time for one last question from Ann Milne with Bank of America. Please go ahead. Good morning, Fernando. Good morning, Maher. I'm sure that you're happy that this quarter is over and that it came out as well as it did, all circumstances considered. You guys have covered a lot of territory already in terms of the questions. I do want to ask one more question on CEMEX Go and then a question on liquidity. But on CEMEX Go, think the reason and I know there have been several questions and you've provided some answers, so many questions is because under this new lockdown environment so many more transactions are going the way of virtual. Do you have like a percentage of the number of transactions even if it's just for cement which you indicated Fernando is the strongest segment of that go through CEMEX Go or the volume? It would just sort of be curious to how much the cement industry is going this direction right now or at least your clients. Okay, sure. Thanks for your question and you're right. We are glad this quarter already finished and expecting for what's coming. But how to say it, I think we started developing this platform because of, you you can see it in almost all business sectors. In our case, we are in the context of digital platforms that is gone for Surama.com both. Those platforms are in the positive context of business to business and those are the platforms that are not necessarily the ones highly developed or the ones that have been developed in the last twenty years. It is more the business to consumers. So we engaged in a process around three years ago. I think we managed to put in place what we originally called our minimum viable product and all the story on digitization of companies. We decided to focus our effort in customers And that might be a difference when compared to other companies in the sector. In our case, it's about customers. It's about developing a superior customer experience. Now to go directly to your question, what we saw in a few months, let's say, eighteen months or so, is that our customers our recurring customers were engaged and started adopting the platform very fast. So right now, our adoption rate is between 6065%, which for a platform of this kind sounds and after, let's say, eighteen to twenty four months of operation sounds to me, sounds great, meaning it has lots of acceptance. Of course, there were some changes within the last three months, more different to other digital platforms also related to consumption to end customers. So we increased up to 19% the use of these platforms that for sure will be reflected in higher adoption rates. Now we do believe that one of the reasons why we don't have even much higher adoption rates is because in some cases, we still don't develop certain segments or sectors of our products. For instance, the customers in aggregate picking up the product in our queries. That's an investment that we are doing this year. And whenever we, let's say, develop the platform either further, right now, we are having the fourth or the fifth version, I don't remember exactly. What you can expect is for that rate to continue increasing. The feedback from our customers is very positive. And what can I tell you in the case of the use of the platform in COVID, With the exception, I think we already mentioned it, with the sanction of delivering the products or our customers seeking the map from our facilities, the rest can be done visually? And I'm not saying only from the office of our customers to our office. You can use this platform in your mobile, in your iPad, in your PC. So the employees of our customers at home can perform the whole relation or the whole transaction with our employees, which are also at home. So it's been, as you can imagine, very helpful during this last few months. We are really happy that we decided to invest in digitizing our commercial relations about three years ago. And as you know, these processes are never ending type of processes. We are very happy with what we have achieved, but we are still insisting on innovating and trying to find additional ways to serve the market. Okay, great. Thanks. Yes, I'm sure that this helped when the customers did have cement purchases, they could look at your platform and know they could access it. So on a separate question maybe for Maher, I think one of the strengths of CEMEX going into this quarter was the strong liquidity, which you increased through your drawdown of your credit facilities and your bond issuance. So now you have a really strong liquidity. I know you mentioned that depending on how the outlook looks going forward, you might repay some of those facilities. How are you looking at that particularly, let's say, in some markets if we go into a W, let's say, shaped economic recovery or an additional close downs as they're talking about in The U. S. At the moment? Do you have a certain minimum amount you want to have? Will you keep like a credit facility open with the banks and then pay that down and have it available in case you need it down the road? How are you thinking about that? And I think from a liquidity perspective as you saw, we started the year with a very sizable liquidity position. As you know, we did a bond last year in November to get liquidity to use to pay down the convertible bond. And we did that we started the year with about $800,000,000 worth of cash, which is probably kind of double what we would what we've had over the last couple of years on a quarterly basis. And we ended last quarter as a consequence of a number of things that we've done. We've retained cash from used proceeds from the sale of The U. S. We've raised some liquidity through short term debt. So we started the year with about $1,400,000,000 We were very happy that we got our amendment because we wanted to make sure to take advantage of any kind of narrow market windows and we did. And we issued the $1,000,000,000 notes that you saw, which have since traded very nicely. I think that we paid probably a little bit more at the time, but that was at the time actually the new issue concession was the tightest and we were the first company from emerging market to be coming and doing that. We're expecting an additional $400,000,000 of from our asset sales settlements. So that would be on top of the $2,800,000,000 of cash that we have on the balance sheet as of the end of the quarter. Now going again, it depends how things develop. I mean, this is a very it's a high class problem to have. It's nice to have all this liquidity, but at the same time, it costs money. I mean, so we need to kind of we're looking at the different markets. We're looking at a comfort level that would lead us utilize some of this liquidity to reduce debt. As you know, we do have a revolving credit facility for a little bit over $1,100,000,000 So we do have that flexibility for us as well. And so we haven't made a final decision how much of that liquidity will be deployed to reduce debt throughout the year. But as I said, I mean, we will continue to focus on making sure that we have a twelve to twenty four months runway of maturities going into the future. Now, as we get into next year first quarter, we get into the seasonality of free cash flow and working capital needs. And so we to make sure that we have a sufficient level, not too different probably from what we had starting this year in terms of cash flow in terms of cash on the balance sheet getting into 2021. Now again, I'd like to make a caveat here is that what we did was in anticipation of things to be kind of a little different than how they turned out, meaning things have turned out a little bit better and we've seen almost a V shaped recovery in most of our markets. So if we get comfortable with that, we're likely to be then deploying more of our free cash. If we're seeing a Ws or triple Ws as sometimes Fernando tells me, worldwide web kind of volatility, then obviously we will be more defensive in our cash position, right? I mean the last thing we want to be is have a situation precipitate because we did not anticipate liquidity needs. So we're very vigilant. We're watching the markets very closely on a daily basis. And as we make those decisions, you'll see us execute in the market. Okay. Thanks very much, Maher. Thank you very much, Ann. I would now like to turn the conference over to Fernando Gonzalez for any closing remarks. Please go ahead, sir. Thanks, operator. Well, thank you all. Thanks for your time and for your attention. And as you know, if you need any additional info or want to make additional questions, please call us and of course we will be available for you. Thank you very much and stay safe. Bye now. Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect