Francisco Suarez

Francisco Suarez from Scotiabank asked for clarification on CEMEX's guidance for an increase in energy cost per ton this year, specifically whether it's driven by electricity costs despite a favorable outlook for oil and petcoke, and the geographical distribution of these cost pressures.

Answer

CEO Jaime Muguiro confirmed that the expected increase in energy cost per ton is indeed due to higher electricity costs, while fuel costs (oil and petcoke) are expected to decrease. He specified that approximately 65% of this electricity cost increase is in Mexico, due to the absence of a one-off incentive to migrate to the wholesale market in 2025. The remaining increase is in the U.S., where some utility companies are announcing cost increases based on their fuel costs and generation mix.

Francisco Suarez questioned CEMEX's guidance for an increase in energy cost per ton in 2026, despite a favorable outlook for oil and petcoke, asking if it was primarily due to electricity costs and how these pressures are geographically distributed.

Answer

CEO Jaime Muguiro confirmed that the expected increase in energy cost per ton is due to electricity costs, not fuel costs (which are expected to decrease). He specified that approximately 65% of this increase is in Mexico (due to a one-off incentive in 2025 not recurring in 2026), with the remainder in the U.S. (due to utility company cost increases).

Francisco Suarez asked for a detailed breakdown of the 500 basis points EBITDA margin expansion in Mexico during the quarter, seeking insights into the contributions from Project Cutting Edge, lower petcoke prices, thermal substitution, and pricing strategies.

Answer

CEO Jaime Muguiro explained that the 5 percentage points margin expansion in Mexico was primarily driven by prices (nearly 4 percentage points), SG&A and corporate reductions (0.8 percentage points), variable cost improvements (0.9 percentage points, including energy tailwinds and fuel contribution), and fixed cost reductions (0.3 percentage points). He noted a minus 18% increase in unitary fuel cost.

Francisco Suarez asked for a detailed breakdown of the 500 basis points EBITDA margin expansion in Mexico during the quarter, specifically attributing contributions from Project Cutting Edge, petcoke prices, thermal substitution, and pricing.

Answer

CEO Jaime Muguiro explained that prices contributed close to 4 percentage points to the margin expansion. SG&A and corporate reductions added 0.8 percentage points, variable costs (including energy tailwinds and a 1.1 percentage point contribution from fuels due to an 18% decrease in unitary fuel cost) contributed 0.9 percentage points, and fixed costs accounted for 0.3 percentage points. He reiterated Cemex's goal to be the most efficient operator in Mexico.

Francisco Suarez from Scotiabank asked if strong pricing and high interest from many players in the U.S. aggregates market could undermine CEMEX's plans to acquire assets at accretive values, and how this risk ties into the new capital allocation model.

Answer

CEO Jaime Muguiro acknowledged the competitive M&A environment but expressed confidence in CEMEX's team and network of family-owned players. He emphasized a strict commitment to the new capital allocation discipline, stating that any acquisition must be accretive to FCF per share in year one, have a ROIC above WACC + 100bps, and will not be pursued if returning cash to shareholders offers a better return.

Francisco Suarez from Scotiabank inquired if 'Project Cutting Edge' is a broader strategic realignment and asked about specific organizational changes and KPIs to align with investor interests.

Answer

CEO Jaime Dominguez confirmed the program's broad scope. He announced the introduction of new key performance indicators (KPIs) including EBITA, free cash flow conversion, and ROCE over WACC, which will be applied to all P&L owners. He also noted that executive compensation will be reviewed in the second half of the year to align with these new metrics.

Francisco Suarez asked why the La Villa project in Mexico City has taken longer to lease up compared to Punta Norte. He also inquired about any changes in concessions (e.g., free months of rent, step-up considerations, CapEx) when renewing or offering new leases to clients.

Answer

CEO Lorenzo Dominique Berho explained that La Villa is a smaller, last-mile project, distinct from Punta Norte's unique large e-commerce fulfillment center. He noted the delay in La Villa was due to waiting for the right tenant, expecting to capitalize on growing rents. He stated that concessions vary by market and tenant, with Vesta prioritizing long-term leases with high-grade companies and total asset return, even if it means a longer vacancy.

Francisco Suarez asked why the La Villa project in Mexico City has taken longer to lease up compared to Punta Norte, and if there have been any changes in market concessions (e.g., rent-free periods, CapEx) for new or renewed leases.

Answer

CEO Lorenzo Dominique Berho explained that La Villa is a smaller, last-mile project compared to Punta Norte, which was a unique, large fulfillment center for a major e-commerce player. While La Villa's lease-up has taken longer, Vesta is waiting for the right tenant to capitalize on growing rents in the region, expecting it to be fully leased next year. He noted that concessions vary by market and tenant, with Vesta prioritizing long-term leases with investment-grade companies and focusing on total asset return rather than immediate income, maintaining discipline to avoid 'lousy clients' even if it means longer vacancy.

Francisco Suarez of Scotiabank asked if the recent land purchases are 'shovel-ready' and questioned the reason for the sequential and year-over-year decline in energy-related revenues.

Answer

CEO Lorenzo Dominique Berho Carranza explained that energy revenue is a pass-through mechanism tied to tenant usage, so fluctuations do not materially impact profitability as they are offset by costs. Regarding the land acquisitions, he confirmed they are in highly desirable locations and ready to be developed soon, though they will still go through Vesta's standard entitlement and permitting process before construction begins.

Francisco Suarez of Scotiabank followed up on Vesta's land bank, asking if recent purchases are 'shovel-ready' and questioning the reason for the sequential and year-on-year decline in energy-related revenues.

Answer

CEO Lorenzo Dominique Berho Carranza clarified that while newly acquired land has the proper zoning, the entitlement and infrastructure process is still required before construction. For energy revenues, he explained it is a pass-through mechanism tied to tenant consumption, meaning fluctuations in revenue are offset by corresponding costs and do not materially affect profitability.

Francisco Suarez asked if Vesta's development pipeline would shift more towards build-to-suit projects and inquired about the electronics ecosystem in Guadalajara, specifically around Foxconn.

Answer

CEO Lorenzo Dominique Berho Carranza confirmed the electronics sector is a key area of interest but could not comment on specific client plans. He stated that Vesta will continue to evaluate both build-to-suit and speculative projects, noting that spec buildings in high-demand markets like Mexico City remain a viable and successful strategy.

Francisco Suarez from Scotiabank questioned if Vesta's development strategy will pivot more towards build-to-suit projects and requested an update on the electronics ecosystem in Guadalajara, particularly regarding major tenants.

Answer

CEO Lorenzo Dominique Berho Carranza stated that while he cannot comment on specific client plans, the electronics sector is growing, and Vesta is positioned to capture this demand. He affirmed that Vesta will continue to analyze both build-to-suit and speculative development opportunities, noting that spec buildings are key to their strategy in tight markets.