CEMEX - Earnings Call - Q2 2025

Transcript

Operator (participant)

Good morning. Welcome to the CEMEX Second Quarter 2025 Conference Call and Webcast. My name is Becky, and I will be your operator today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. If at any time you require operator assistance, please press star followed by zero, and we'll be happy to assist you. I will turn the conference over to Lucy Rodriguez, Chief Communications Officer. Please proceed.

Lucy Rodriguez (Chief Communications Officer)

Good morning, and thank you for joining us for our Second Quarter 2025 Conference Call and Webcast. We hope this call finds you well. I'm joined today by Jaime Muguiro, our CEO, and by Maher Al-Haffar, our CFO. We will start our call with an update on the progress made so far on our strategic priorities, followed by a review of our business and outlook for the 2nd half of the year, and then we will be happy to take your questions. I will now hand the call over to Jaime.

Jaime Muguiro (CEO)

Thanks, Lucy, and good day to everyone. In our last earnings call in April, I presented a forward-looking vision for CEMEX, focusing on two primary objectives: attaining best-in-class operational excellence and delivering industry-leading shareholder returns. Since then, we have developed a comprehensive roadmap to achieve these goals and embarked on the 1st phase of implementation. Our 1st actions were focused on transforming our corporate structure by streamlining overhead, fostering agility, and empowering our regional teams to drive results. This process has involved difficult decisions that are necessary to support the company's long-term growth and competitiveness. Today, I'd like to provide more detail regarding our strategic plan, highlight the actions we have taken thus far, and outline what you can expect from us in the future. I will, of course, then review our 2nd quarter performance, which once again exceeded internal expectations. Our strategic framework is based on six guiding principles.

Effectively transforming our organization to achieve operational excellence and sustainable best-in-class shareholder return. These principles aim to improve profitability, increase our free cash flow conversion rate, boost asset efficiency, and deliver compelling returns over cost of capital. In the quarter, we moved quickly on the first lever, simplifying our operating model and empowering our regional operations to make more agile decisions. These actions are intended to promote an ownership mindset with a culture of increased accountability, responsibility, and collaboration. At the core of this transformation is the reorganization of corporate areas to support operational excellence in our business units. We also carried out the initial performance reviews of our regional businesses. I was joined by several members of my team, conducting a thorough review of key performance indicators at the individual facility level in each of our regions.

Based on these reviews, areas for potential improvement have been identified, and detailed action plans have been developed so that underperforming assets meet predetermined return benchmarks. These action plans will support further strategic decisions regarding our footprint evolution at a local level, with the goal of increasing profitability and free cash flow. We have also examined in detail our ongoing growth CapEx pipeline to validate that every investment is on track to generate an appropriate and timely return. Execution of ongoing profitable projects will continue, but we intend to make a strategic shift towards prioritizing small to mid-size M&A transactions in the U.S., aiming for immediate positive impact on earnings. Finally, we have also introduced a new, more structured and balanced capital allocation model to guide future capital deployment decisions. We are committed to progressively grow our shareholder return program.

This effort should accelerate as profitability and free cash flow generation are boosted by our actions to date. Since its introduction in February, we have further expanded our project cutting-edge program. A foundational element of our organization's transformation. In our efforts to develop a leaner operating model and empower our regions, we have merged several centralized functions into our operations, while some corporate initiatives have been eliminated altogether or reorganized to better support the business. As a result of the expansion of project cutting-edge and the steps we took in the 2nd quarter, we now expect EBITDA savings for this year to reach $200 million, up from our initial expectation of $150 million. We anticipate a run rate of EBITDA savings of about $400 million by 2027. Included in these estimates are approximately $200 million of corporate headcount reduction on an annualized basis.

While this effort is largely behind us, there are still some additional actions expected in the 2nd half. I am confident that this transformation will help us advance towards our goals, further strengthening CEMEX's position as an industry leader. Allow me to review our 2nd quarter performance. Our 2nd quarter results are aligned to our February guidance, which assumed a challenging 1st half driven by difficult prior-year comparison in Mexico. We expected and continue to believe that the back half of the year would bring year-over-year growth as we lapped prior-year pre-electoral spending in Mexico with an improvement in peso FX rate. As in the 1st quarter, consolidated EBITDA once again outperformed our internal expectations. The EMEA region delivered impressive results driven by volume recovery and operating leverage, extending its four consecutive quarters of earnings recovery.

Consolidated EBITDA margin, even with volume decline, remained relatively resilient, with a stable to improved performance in three of our regions. Variation of consolidated margin is largely driven by the effect of geographic mix. Net income in the quarter increased by 38% on the back of strong FX rates as well as lower interest expense. The variation in free cash flow from operations is explained by EBITDA, working capital, and severance payments, as well as the one-off contribution from discontinued operations in the prior year. Importantly, adjusting for severance and discontinued operations, free cash flow in the quarter would, in fact, be growing on a year-over-year basis. I expect free cash flow generation to improve in the 2nd half, with higher profitability and the typical seasonal reversal of working capital investment.

Consolidated prices are stable to positive on a sequential basis, with ready-mix and aggregate prices up 1% and 2% respectively. In cement, consolidated prices were relatively flat on a year-over-year basis, largely explained by geographic mix as volumes declined in Mexico and grew in EMEA. Pricing in Mexico has been particularly resilient despite softer volumes. Since the beginning of the year, cement, ready-mix, and aggregate prices have increased by 5%, 6%, and 8% respectively. In the U.S., aggregate prices adjusting for product mix increased by 5% in the 1st half compared to the 4th quarter of 2024. In EMEA, the Middle East and Africa region, along with several markets in Europe, experienced sequential pricing gains. Our pricing strategy continues to achieve its goal of at least recovering cost inflation in our markets.

Consolidated volume performance is largely explained by weaker volumes in Mexico and the U.S., partially offset by continued recovery in EMEA. We expect volumes in Mexico to improve in the second half as we lapped difficult prior-year comparison base, and the new government accelerates its infrastructure and social housing plans. In the U.S., volumes in the quarter reflect a soft trend in residential activity, along with increased precipitation in most of our markets. We are encouraged by the positive trend in Europe, as this is the 4th consecutive quarter with cement volume growth on a year-over-year basis. The Middle East and Africa region is also showing robust volume growth. Consolidated EBITDA performance is largely explained by volumes, partially offset by cost improvements, as well as a tough comparison base with a record-high second quarter EBITDA in the prior year. Volume decline in Mexico and the U.S.

was partially offset by growth in the EMEA region. Cost contributed positively, largely due to energy and distribution. Energy costs on a per ton of cement basis declined 14%. The Mexican peso remained a relevant headwind, which was partially offset by the appreciation of other currencies in our portfolio. Importantly, even with a significant volume decline and lower operating leverage, our EBITDA margin remained resilient at a level slightly above the historical 10-year second quarter average. Now, back to you, Lucy.

Lucy Rodriguez (Chief Communications Officer)

Thank you, Jaime. As expected, 2nd quarter results in Mexico continued to be challenged by the difficult prior-year comparison driven by pre-election social and infrastructure spending and the FX level, as well as the first year of a new administration. Volumes were further hampered by record national precipitation levels in June, which primarily impacted the central region. Significantly, we saw average daily cement sales in the quarter stabilize with low single-digit sequential growth. Demand in the Northeast region continues to outperform the rest of the country, both in terms of cement and ready-mix. This dynamic has been supported by ongoing industrial projects as well as state-driven infrastructure works. We continue to see positive pricing performance for our products, rising by a low single-digit rate sequentially.

Since the beginning of the year, cement, ready-mix, and aggregate prices are up 5%, 6%, and 8% respectively as we work to offset prior year's input cost inflation. Additionally, we recently announced a high single-digit price increase for cement effective July. Despite the volume headwind and resulting loss of operating leverage, margins were remarkably resilient, roughly flat to the prior year. This performance was driven by a combination of higher prices, favorable energy, and project cutting-edge efforts. While FX impact moderated in the 2nd quarter, it still accounted for about 40% of the variation in EBITDA. Going into the 2nd half of the year, we are optimistic as we lapped the difficult comparison base in volumes and peso FX rate. In fact, assuming for the back half the same level of average daily cement sales as 2nd quarter, it would imply a 4% year-over-year decline in the 2nd half.

Additionally, we do expect a pickup in construction activity driven by the start of some railroad works as well as projects under the social housing program. Our ready-mix backlog is improving, mainly in the central region, with relevant industrial projects expected to begin in the following months. Distribution centers and logistics developments are gaining momentum. In the U.S., EBITDA declined by a mid-single-digit rate due primarily to lower volumes, given high levels of precipitation in many of our markets and continued weakness in the residential sector. Ready-mix volume, adjusted for asset divestitures, declined by a mid-single-digit rate, in line with cement and aggregate performance. Sequential pricing was stable in cement and ready-mix, with aggregates increasing by 1%, adjusting for product mix. Since the beginning of the year, aggregate prices adjusted for product mix are up 5%. EBITDA margin remained relatively stable, just shy of last year's record high.

This performance is explained by higher prices and lower costs due to continued gains in operational efficiency, with increased domestic production replacing imports. Margin continues to improve in our two main products, cement and aggregate, which account for about 80% of our EBITDA. As part of our transformation effort, we recently restructured our operations in the U.S., transitioning from a regionally based model to one organized by product line. We believe this change will encourage best practice sharing across regions, increase transparency in our business, and provide a more comprehensive view of our asset footprint. We are investing in our aggregates business and are already seeing the benefits of completed projects such as the Balcones Quarry upgrade in Texas. Balcones is one of the largest quarries in the U.S., and the project is contributing to increased margins.

We are also expecting completion by year-end of another ongoing aggregates project, Four Corners, a sand mine in Orlando, Florida. For 2025, we expect demand to be driven by infrastructure as IIJA transportation projects continue to roll out. Close to 50% of funds under IIJA have been spent, and we expect to reach peak spending in 2026. We remain optimistic about the outlook for the industrial and commercial sector, which is gaining momentum, with data centers and chip manufacturing projects being planned in our markets, as well as relevant works in Cape Canaveral. In addition, the recently approved U.S. budget bill includes some relevant provisions that are expected to bring forward investment in manufacturing facilities. While there is continued pressure on the single-family home segment, with slightly better performance in multifamily, we see strong potential in residential over the medium term once mortgage rates and market sentiment improve.

The EMEA region continued to deliver strong performance, leading to the highest 1st half EBITDA in recent history, with a solid margin expansion of almost 3 percentage points. In Europe, strong volume growth in the quarter was driven by improved conditions in most markets, with the exception of France, where we continue to see a soft macro backdrop, and Poland, with weather and delays in infrastructure works impacting volumes. Infrastructure activity, supported by EU funding, increased, along with a modest improvement in the residential sector in most markets. Demand conditions in the Middle East and Africa remain strong, expanding by double-digit rates. Construction activity in these markets is recovering, fueled by housing and non-residential projects, and in the case of Egypt, also by large infrastructure. Sequential cement and ready-mix prices in EMEA increased 4% and 1% respectively, while aggregates prices declined by 1%.

On a cumulative basis, cement and ready-mix prices increased by 4%, while aggregates prices are up 3% compared to the 4th quarter of 2024. Higher volumes and prices, coupled with lower costs, primarily in power, led to a significant margin expansion. Our operations in Europe continue progressing on decarbonization, with net CO2 emissions in the quarter reaching a new record low of 418 kg per ton of cement equivalent. This is an important milestone as CEMEX Europe has now surpassed our consolidated target for 2030, further enforcing our position as an industry leader. We believe that the implementation of the carbon border adjustment mechanism, along with the gradual phase-out of free EU ETS allowances, should be supportive of cement prices in 2026 and beyond. We remain optimistic on the outlook for the region, with a continued positive trend in infrastructure and further recovery in residential.

In our South Central America and the Caribbean region, adjusting for business days in the quarter, cement volumes actually increased by 1%. Demand in Colombia is being driven by the informal sector, with a rebound in bagged cement volumes and the Metro project in Bogotá. In Jamaica, tourism-related developments, along with improved bagged cement sales, are driving activity. Sequential prices in cement and ready-mix in the region were relatively stable after the mid-single-digit increase achieved in the 1st quarter. In Jamaica, we recently concluded a significant debottlenecking project. The increased capacity will allow us to address market demand without relying on lower margin imports. As we worked to complete the expansion project in the quarter, we increased import volumes to meet market demand. These imports temporarily impacted margin in the quarter. We expect a recovery in the second half driven by higher profitability as we ramp up the incremental capacity.

On the operations front, higher kiln efficiency, along with lower clinker factor, continue to improve across the region. I will pass the call to Maher to review our financial developments.

Maher Al-Haffar (CFO)

Thank you, Lucy, and good day to everyone. Free cash flow from operations for the quarter was slightly over $200 million. The variation versus last year is driven mainly by a combination of severance payments related to project Cutting Edge, lower EBITDA, higher investment in working capital, and last year's benefit from discontinued operations. This was partially offset by lower taxes and interest expense. Adjusting for severance payments and discontinued operations, free cash flow in the quarter increased by 3% despite EBITDA performance. Our tax payments are significantly lower due to the payment of the Spanish tax fine in 2024, plus other effects. While investment in working capital during the 1st half was higher than last year, the average working capital days declined by four days, driven by continued improvement efforts. In line with our normal seasonality, we expect working capital to reverse throughout the rest of the year.

On the cost side, energy costs on a per ton of cement basis declined by 15% in the first half, driven by lower power and fuel prices and a continued improvement in clinker factor and thermal efficiency. Record debt income of $1.05 billion for the first six months of the year was driven primarily by the sale of our operations in the Dominican Republic and a favorable FX effect. Given the volatility in the Mexican peso, I would like to remind you of our ongoing Mexican peso hedging strategy, fully covering our operating cash flow from Mexico. This program effectively lowers the volatility of the exchange rate at which we convert pesos into dollars for tenors of up to two years.

During the quarter, we replaced the 9 and 1/8% $1 billion subordinated perpetual notes with new 7.2% $1 billion subordinated perpetual notes, issued at a tighter spread than our last two perpetual notes. This transaction is not only enhancing our free cash flow by reducing the coupon, but it also marked a successful return to the international capital markets since regaining our investment grade. Our leverage ratio stood at 2.05 times in June, a quarter return higher compared to December. We expect the leverage ratio to decrease during the 2nd half as we improve EBITDA and generate more free cash flow from operations. We have a comfortable debt maturity schedule with no need to access the capital markets, and we remain committed to further strengthening our capital structure, as Jaime mentioned in his remarks.

Considering the financial initiatives carried out in the 1st half, along with current market conditions, we now expect net interest paid, including coupons on subordinated perpetual notes, to decline by $125 million in 2025. Now, back to you, Jaime.

Jaime Muguiro (CEO)

Thank you, Maher. Considering our year-to-date results, as well as progress made under project Cutting Edge, we expect consolidated EBITDA to be flat versus 2024, with potential upside, subject to evolution of macroeconomic conditions in our key markets. While we are confident in our self-help measures taken to date, we must recognize the volatility and lack of visibility in our main markets. As we go into the back half of the year, if FX rates in our portfolio remain stable at their end-of-June level, we would see a tailwind of about $60 million in consolidated EBITDA compared to the 2nd half in 2024. We remain focused on the implementation of our strategic plan, delivering EBITDA savings under project Cutting Edge, higher free cash flow conversion rate, and returns above cost of capital. We will keep you updated as we continue making progress towards these objectives. Now, back to you, Lucy.

Lucy Rodriguez (Chief Communications Officer)

Thank you, Jaime. Before we go into our Q&A session, I would like to remind you that any forward-looking statements we make today are based on our current knowledge of the markets in which we operate and could change in the future due to a variety of factors. In addition, unless the context indicates otherwise, all references to pricing initiatives, price increases, or decreases refer to our prices for our products. We will be happy to take your questions. In the interest of time and to give other people an opportunity to participate, we kindly ask that you limit yourself to only one question. If you wish to ask a question, please press star followed by one on your touchstone telephone. If your question has already been answered or you wish to withdraw your question, press star followed by two. Press star one to begin.

The 1st question comes from Ben Theurer from Barclays. Ben.

Ben Theurer (Managing Director)

Hey, good morning. Thanks for taking my question, Jaime. Congrats on the results, Lucy, Maher, good morning. Just a quick one as for project Cutting Edge. You clearly upped already the target for this year by $50 million as well as for 2027. The question really is, in what area have you identified those additional savings? As you look to 2027, if you would have to give a guess on how conservative or not the target of $400 million is, how confident are you with that, or do you think there's risk to the upside here as well?

Jaime Muguiro (CEO)

Thanks for the question. The additional $50 million mainly comes from our transformation of our organization, and particularly the efforts around overhead, headcount reductions. I feel very comfortable that we will deliver the $200 million of headcount overhead reduction between this year and next year. This year is going to be around $85 million. Next year is going to be around $111-$115 million for a total of $200 million. To make sure that I was not aggressive with our target of $400 million rate savings for 2027, what I have done is that I have reviewed all our initiatives, and I am only counting on what is truly recurrent. Out of our $400 million savings, please note that $200 million relates to overhead personnel, direct overhead personnel. On top of that, you need to add the indirect and overhead non-personnel savings.

We have operative savings of around $150 million, and spending smarter, which is the effort that we are doing around procurement, third-party addressable spend. There is nothing in the $400 million that is speculative, that depends on year-on-year negotiations.

Ben Theurer (Managing Director)

Okay. Very clear. Thanks very much, Jaime. Congrats again.

Jaime Muguiro (CEO)

Thanks, Ben.

Lucy Rodriguez (Chief Communications Officer)

Thanks, Ben. The next question comes from Gordon Lee from BTG Pactual. Gordon.

Gordon Lee (Analyst)

Thanks, Lucy. Good morning, everybody. Just quickly on strategy, and it's a two-part single question, which is, I was wondering kind of if you could elaborate a little or provide a little bit more color on what you mean by building a shareholder return platform. The 2nd question, is it still safe for us to assume that you see the U.S., Mexico, and Europe as core and SCAC as core-ish, but something that you would consider divesting if the opportunity presented itself? Thank you.

Jaime Muguiro (CEO)

Gordon, thanks for the question. The meaning of building a shareholder return platform is simple. It is around our capital allocation efforts. We are subjecting any capital allocation positions to shareholder returns. We will not proceed with a CapEx or M&A that does not deliver a return above our thresholds for shareholder returns. In addition, we are planning to progressively increase dividends, and we will also consider, as early as potentially next year, opportunistic share buybacks. That is what it basically means. Regarding your 2nd part of the question, the answer is yes. That is what we are doing. We will concentrate in the U.S., Mexico, and Europe, and there will be additional divestitures in our SCAC portfolio between the end of this year and next year. And yes, you said it, core-ish, and that is how we see SCAC.

Gordon Lee (Analyst)

Just so very clear. Thank you very much.

Lucy Rodriguez (Chief Communications Officer)

The next question comes from Alejandra Obregón from Morgan Stanley. Ali.

Alejandra Obregón (VP of Equity Research)

Hi, good morning, CEMEX team. Thank you for taking my question. I have one on free cash flow generation and the leverage for free cash flow generation. Specifically, I would perhaps want to know, and perhaps what should we be watching in terms of the milestones here? I mean, whether it's profitability, is it working capital improvements, is it CapEx discipline, asset sales, or even debt management, if I can throw it in? I mean, just trying to get a sense of how the cadence plays out. What's likely to come 1st? What might take longer, perhaps, to materialize if we think of free cash flow from a structural perspective, and where are the biggest unlocks that we could see here? Thank you.

Jaime Muguiro (CEO)

Alejandra, thanks for the question. We're working on all fronts in parallel, and I will elaborate in a 2nd. The one that will take us a little bit longer is portfolio rebalancing beyond developed and emerging, and that relates to underperforming assets in our portfolio at a micro-market level that might not be delivering our new targeted free cash flow conversion for every asset. That will take a little bit longer. I've already completed with my team full review of our portfolio at a micro level. It means cement plant, ready-mix plant, quarry, so on and so forth. We've identified opportunities to boost free cash flow conversion that will require turnaround, or it will require divesting and exiting. That will inform how we shape our portfolio going forward. Beyond that, we're acting simultaneously on all fronts. Number one, do expect a reduction in CapEx.

We will start to normalize platform CapEx while materially reducing strategic CapEx. That's one. The 2nd one is going to be the incremental cutting-edge savings because those go straight not only to EBITDA but also to free cash flow. Remember, that's $400 million that's going to stay by 2027. The other aspect is the incremental EBITDA and free cash flow that you should expect from our strategic CapEx approved and that we're executing from our strategic CapEx pipeline. I'm expecting an incremental $300 million of EBITDA between now and up to 2029, 2030 on a steady-state basis. That should also boost free cash flow. On working capital, that won't be the lever to maximize free cash flow because we are already performing at very good levels. Please also note that we're significantly reducing interest expenses. Maher already alluded to it, $125 million of savings this year.

Part of our capital allocation strategy will continue around reducing the principal of our debt. I'm not in a hurry to do that, but we will continue. That should continue to reduce interest expenses. Finally, operational excellence. We're going to be working very hard on expanding margins, looking at every line of our cost as we're doing right now, and that's the reason why cutting edge is delivering what we were expecting. I hope that I have answered the question, Alejandra.

Anne Jean Milne (Analyst)

You did. Thank you very much.

Lucy Rodriguez (Chief Communications Officer)

Thanks, Ali. The next question comes from Yassine Touahri from On Field. Yassine?

Yassine Touahri (Co-founder and Managing Partner)

Yes, sir. Good morning. Just one question on the new corporate structure and new operating model that you're announcing today. Could you explain a little bit what it is and how it could support an improved free cash flow conversion? Another question that I think I already asked is that Holcim, Ambuja, Heidelberg Materials, they're targeting an EBITDA to free cash flow conversion rate of close to 50%. Is it something that you believe CEMEX can achieve as well? If so, what would be the timeframe and the level that you would be working on?

Jaime Muguiro (CEO)

Yaseen, thank you for your question. Let me start with the back of your question. I see no reason why we shouldn't achieve a similar free cash flow conversion rate from operations than the ones that Holcim, Amrise, and Heidelberg are providing. I think that next year, we're going to be getting closer to that target. For sure, I see that happening in 2027 because between now and then, I'm pretty sure that we're going to be letting go of some assets that at a micro level do not generate enough free cash flow conversion. Because we have introduced EBIT, Earliq Above What, and free cash flow conversion from operations as part of our management KPIs and our compensation scheme, which we're reviewing for management, will be aligned to those metrics, I'm pretty sure that we're going to be relentlessly working on improving free cash flow conversion rates.

I see really no reason. Again, I don't want to be redundant, but a lot of the cutting-edge savings would go directly to free cash flow. Headcount reduction is a good example, the $200 million annualized savings. That connects very nice with the 1st part of your question, right, about the transformation of corporate structure and the operating model. Basically, what we're doing is discontinuing central-led initiatives that were very successful in the past and that do not require further mobilization and management from the center. In addition, we are decentralizing operational excellence initiatives to the line around commercial supply chain and customer centricity. The line is responsible for that. We are decentralizing, and then we are boosting collaboration by concentrating on innovation efforts and venture efforts on very impactful but few things, and then we are copy-pasting across regions faster and better.

That is helping us and will help us to optimize resources, optimize headcount, reduce cost while having an impactful effect on operational excellence and therefore margins. I want my teams and all our employees to have an owner mindset, and that's what we are heading towards: agility, less bureaucracy, and speed of execution. I hope that what I'm saying, Yassine, makes sense.

Yassine Touahri (Co-founder and Managing Partner)

Makes a lot of sense. Thank you so much for answering my question.

Lucy Rodriguez (Chief Communications Officer)

The next question comes from Adam Thalhimer from Thomson Davis. I'm going to read it. It's a bit repetitive of what Yassine just asked, Jaime, so maybe you want to talk a little bit of some of the organizational changes in the US as well. The question is, can you please discuss some of the structural changes you are making at CEMEX? I am particularly interested in the relationship between corporate and regional managers. Is it fair to say that regional managers are being given more autonomy?

Jaime Muguiro (CEO)

Thanks, Adam, for your question. I will complement what I just said before with the following. The center is here to serve the line, and the center comes with me to conduct thorough regional business performance reviews to boost operational excellence. That is a key aspect. We have done already three, one more to come. I will be doing two per year, and there is where we looked at all aspects of our business, and there is where we identified best practices. We deploy in a coordinated way, an efficient way, new technology. We innovate together, and we relentlessly look at cost optimization. The other aspect, and it is a good suggestion, Lucy, is our new organization in the U.S., where we are pivoting towards operational excellence and growth. In the case of operational excellence, sorry, we have appointed three full P&L owners: cement, ready-mix, and aggregates.

With that, we are expediting best practice sharing, driving margin improvements across every line of business and across geographies. That is going to be very, very powerful. By having those three P&L owners, we are freeing up the time—sorry about that—the time of Jesús González, our CEMEX U.S. President, to spend high-quality time on growth in the U.S.. Because, as you know, we are materially reducing strategic CapEx, and we are favoring part of our capital allocation to very responsible M&A in the U.S. around aggregates and some organization solutions businesses in the U.S. mainly. Lucy, I hope that I have answered the question for Adam, complementing what I said before.

Lucy Rodriguez (Chief Communications Officer)

Great. Thank you, Jaime. The next question comes from Jorel Guilloty from Goldman Sachs. Joel?

Jorel Guilloty (VP and Senior Analyst of LatAm Real Estate Equity Research)

Thanks, Lucy. Good morning, everyone. I want to shift gears a bit and wanted to ask on pricing trends. Specifically, if I recall correctly, at the beginning of the year, there was an expectation for Mexico pricing to maybe go into the teens for both cement and aggregates. Year to date, you're at about 5% hikes. You did mention that you did pursue an increase now in July. I just want to understand, where do you stand on the outlook for hikes in pricing through year-end for Mexico and the U.S.? Specifically, I want to know about cement, but if you can provide some color for ready-mix and aggregates, that would be great. Thank you.

Jaime Muguiro (CEO)

Thanks, Joel, for the question. Regarding Mexico. Yes, we put up price increase effective July 1st. That in dollar terms was around 15. We do expect to get—hopefully, it's a little bit too early to say it—but we do expect to get between $8-$10 per ton. That should continue to improve sequentially our cement price increase in Mexico. We did that for both bags and bulk. Regarding ready-mix, we continue by micro market to find opportunities to increase our prices. Please note that year-on-year, our ready-mix prices are up 7%. Sequentially, 2nd quarter 2025 average to 4th quarter 2024 average, our ready-mix price is up 6%. In aggregates, it is year-on-year 8% and 8% sequentially average 2nd quarter 2025 to 4th quarter 2024. Regarding the U.S., I'm not expecting any price increase in cement between now and year-end.

I do expect ready-mix to be flat, while aggregates will stay around that 5%-6% sequentially from average 2Q25 to 4Q24. As we think about 2026, I do expect that we will continue with our pricing strategy to at least offset input cost inflation. A final thought. If we assume the 2Q25 prices for the rest of the year, that will lead to a price tailwind in U.S. dollars of around 4% in cement, 6% in ready-mix, and 7% in aggregates. I hope I've answered the question. Back to you, Lucy.

Ben Theurer (Managing Director)

Wonderful. Thank you.

Lucy Rodriguez (Chief Communications Officer)

Thank you, Joel. The next question comes from Adrian Huerta from J.P. Morgan. Adrian?

Adrian Huerta (Executive Director)

Thank you, Lucy. Good morning, everyone. I don't know if my question is related to EMEA. We have seen a tremendous performance year to date, 82%. Almost $350 million in the 1st half. How do you see this region in the medium term, let's say, over the next 18 months? What is, let's say, on volumes and also on margins? What could we expect out of this region in two to three years?

Jaime Muguiro (CEO)

Thanks, Adrian. I'm very excited about our operations in EMEA, including Europe. Let me start 1st outside of Europe. We do see significant potential for free cash flow and EBITDA growth in Israel. The fundamentals continue to be very solid: population growth, highly intensive concrete-driven construction systems, and a lot of liquidity. There is pent-up demand for housing and infrastructure. We're very well positioned, and therefore, I'm very excited about our operations in that part of the world. Although Egypt will continue with volatility, we are enjoying, for the very short term, strong volumes and strong pricing. If I go to Europe, I'm bullish about Europe. We will continue to see volume increase in markets such as Spain, Germany, and you know why: the change in fiscal policy, the commitment in infrastructure investments, and in the defense segment as well, some of which will relate to infrastructure.

We also see solid Eastern Europe, and it's exciting because the opportunities are material. Think about a reconstruction of Ukraine if it happens in the midterm. That won't happen next year, but as soon as there is peace between Ukraine and Russia, the reconstruction is going to draw significant volumes, and that's going to reduce imports from Ukraine into Poland. That's going to improve dynamics in the east of our portfolio in Europe. We're going to see significant product that today is exported from Turkey, some of which goes to Europe, going back to Ukraine. Another reconstruction effort such as potentially in the midterm, the Middle East, so that's going to be a key lever. Thinking about the midterm also, we will see Poland expediting infrastructure using European Union funds. There is a delay there, but I do think that that's going to happen next year. The U.K.

should continue investing in infrastructure, and potentially we'll see a bit of recovery in housing in the midterm. What excites me also is our CO2 decarbonization. We are leading the pack. Our CO2 performance is going very well, and there in 2026 and 2027, we're going to see two things, Adrian. First, the CBAM, and number two, the withdrawal of three CO2 allowances, which will materialize starting in 2027. We have significant CO2 credit surpluses, but that's not the case for the industry. As soon as next year, when we look also at the CO2 footprint of imports from exporting countries such as Turkey, Algeria, Saudi Arabia, and others, they'll have to—they will face a CBAM that would give us a cost advantage that will materialize, hopefully, in our pricing strategy.

I do expect cement capacity closures, including our footprint, and we're analyzing that as we continue lowering our clinker factor and doing more milling and less clinker. That also would lead to less excess capacity because some of it won't be needed to get CO2 free allowances. All of those dynamics, better volumes, and rationalization in the industry should lead to. Our pricing strategy is going to be to leverage that momentum. Trying to close the gap on pricing that we see between, for example, European markets and the U.S.. I hope that I've answered my question, Adrian.

Adrian Huerta (Executive Director)

You did. Thank you so much.

Lucy Rodriguez (Chief Communications Officer)

Adrian, I would also just add that we've already seen some momentum in Europe in terms of pricing. If you exclude Germany, pricing for our three core products is already up 2-3% versus 4th quarter this year. I think that that's important to note. Anyway. The next question comes from Paul Roger from BNP. I'm going to read it via the webcast. Guidance mentions potential upside. Where could this come from?

Jaime Muguiro (CEO)

Thanks, Paul, for the question. Let me elaborate a little bit about it. First, as part of our cutting-edge effort. We count on around $23-$25 million that I have not yet even included in our estimates. That works as a cushion, but there is some upside as we continue executing those savings. Also, think about it this way. In the 1st semester, we did $1.424 billion. If we were to do the same thing, meaning 2nd semester $1.4 billion, that would be a flat 2nd semester growth. That will lead to $2.850 billion. You need to add tailwinds on FX. If the FX stays around 18.75 pesos to the dollar, that is going to add at least $40 million in the 2nd semester.

We have our budget cutting-edge savings, and we are counting on the $85 million of headcount overhead reduction savings that I will be firming up in future calls as we complete the labor consultation process in Europe. Beyond $85 million of headcount savings, we have not yet even considered the indirect savings from eliminating those positions. That could be between 3%-6% more savings on those related to licenses, traveling expenses, so on and so forth. We count on around $100 million of the rest of cutting-edge because it is fully loaded in the second semester. I think that is where the potential upside comes from, really.

Lucy Rodriguez (Chief Communications Officer)

Thank you, Adrian.

Jaime Muguiro (CEO)

Thank you, Lucy.

Lucy Rodriguez (Chief Communications Officer)

Thanks. The next question comes from Paco Suarez from Scotiabank. Paco?

Paco Suarez (Director of Global Research LatAm Equities)

Congrats for this wonderful transformation of changes at CEMEX and for the execution so far. My question relates with the overall conditions in the United States. If you see prices of aggregates in general in the United States are doing far better than those in cement, do you think that such overperformance on prices in aggregates, combined with many players interested in acquiring these types of assets, may undermine your plans to acquire operations at accretive values? Perhaps you can link the answer to precisely what you have said about how this new model on capital allocation works.

Jaime Muguiro (CEO)

Yeah, please, Scott. Thank you very much for the question. You have a good point. That many companies are interested in investing in the aggregate space in the U.S.. The 1st thing I want to tell you is that we have a great aggregate team in the U.S., and they know our business very well. The 2nd thing is that because we purchase aggregates in some markets in our ready-mix operations, when we do not consume our own, we do have an extensive network of family-owned aggregate players with whom we have had years and years of relationships, and we're nurturing them. Those should potentially, if we do the right things, give us at least a bit of an advantage in certain markets. You're right, the competition is going to be tough.

What I can commit to, and that is the new company's commitment on capital allocation, is that we will not do any acquisition that does not deliver on the targeted metrics. This means, obviously, NPV must be above zero. We want free cash flow per share to be accretive in year one. We want ROIC above WACC plus 100 basis points. We will do only acquisitions with synergies of around 3% of sales. We want to do acquisitions where those synergies will reduce multiples to high single digits. As you can imagine, Francisco, we are anchoring to preserve our investment credit rating status. Definitely, if looking at shareholder returns, the ROIC from these investments are worse than otherwise paying down principal of the debt or returning cash to shareholders, we will do the latter. It is going to be competitive. We're ready, but we're also going to be very responsible.

This will be small to medium-sized acquisitions. A final thought, the reason also why we're looking at mortgers, stockers, renters is because we see great synergies with what we do today, and we will a little bit the breadth of accretive investment opportunities in the U.S. on a space that we know pretty well and where we are well positioned to take advantage of a fragmented industry. I hope that I have answered your question, Francisco.

Paco Suarez (Director of Global Research LatAm Equities)

Today was fantastic. Thank you so much.

Lucy Rodriguez (Chief Communications Officer)

Thank you, Paco. The next question comes from José Escrivá from BBVA. José?

José Escrivá (Chief Economist and Director of the Research Department)

Good morning, everyone. Can you hear me?

Lucy Rodriguez (Chief Communications Officer)

Yes.

Jaime Muguiro (CEO)

Yes, José, I can hear you.

José Escrivá (Chief Economist and Director of the Research Department)

Thank you. Thank you, Paco. My question is, considering the updating volume expectations, if you can elaborate on the demand outlook in Mexico and the U.S. for the second half of the year, given the uncertainty scenario and challenging economic context.

Jaime Muguiro (CEO)

Yes, José. Regarding Mexico. What I'm counting on is a small sequential volume improvement from the 1st half of this year into the 2nd half of around 2%. How we see the market is that in the 2nd half of 2025, it implies a -2% in cement. Okay? And please remember that last year, in the 2nd semester of 2024, I believe that the demand already dropped by 7%. Right? So the baseline from which we start last year was much worse than the 1st semester of 2024, where there was a significant growth. Also, if I think about average daily sales, I'm only expecting a very minor increase quarter-over-quarter. I feel pretty confident on this implied sequential growth for Mexico. We're talking to customers. They're telling us that they do see the government moving ahead with their social housing program.

We do expect to see some of these projects breaking ground in the last part of this 2nd half of the year on some infrastructure spending on railroads. That's how we see it. Nevertheless, if we assume no sequential average daily sales improvement, meaning flat to 2nd quarter 2025 for the 2nd semester, that will lead to a 4% year-on-year decline in the 2nd half and a full year decline of 9%. Regarding the U.S., look, this first semester has been very rainy. Now we're entering into the hurricane season. Last year, hurricane season was very difficult. At least in July, we haven't had the hurricanes that we had last year. One month behind us, and that's helping indeed our volumes. Depending on weather, so it's an externality, and I'm sorry about that, but we have in the 2nd semester an implied +1% in cement.

That is because we continue to see infrastructure unfolding and data centers. We're going to be more busy in Arizona doing some semiconductor, 2nd phase semiconductor facility. We're busy in Cape Canaveral. We see more data center projects unfolding. It's going to be very much dependent on weather. I'm sorry about that. That's what we have right now. That's our expectation. Finally, again, if we assume the same average daily sales as in the 2nd quarter 2025 for the 2nd semester, that leads to a 1% year-on-year increase in the second half and a full year decline of 2%. I hope that my answer has been helpful, José.

José Escrivá (Chief Economist and Director of the Research Department)

Yeah, thank you so much.

Lucy Rodriguez (Chief Communications Officer)

José, if I could just complement with one additional point, and that is that in the case of Mexico, there are also five more working days in the 2nd half than the 1st half, apart from the average daily sales analysis that we just gave you. I think that that also was.

Jaime Muguiro (CEO)

You're right, Lucy. It is five days, I think.

Lucy Rodriguez (Chief Communications Officer)

Oh, yes. Yes. The next question comes from Danielle Safon from Itaú. Danielle, have we lost him?

Hi, guys. Can you hear me?

Okay. I'm going to move on. Oh, yes. Yes. Hi, Danielle. Okay.

Hey. Can you hear me right?

Yes.

Jaime Muguiro (CEO)

I can hear you now, Danielle.

Okay. Thanks. Yeah. Thank you. Thank you, guys. My question is just a follow-up question of the previous ones made. I just would like to understand, 1st, regarding the share buyback program, you mentioned that this could be an opportunity for 2026. I would like to understand by how much you guys are thinking, of how much you guys have as a base case. My 2nd follow-up is regarding the investments in on-call regions like SCAC that you mentioned before. If you could provide a little bit more color in terms of what countries or what regions specifically in SCAC you guys believe could be under review. These are my two follow-up questions. Thank you, guys.

Regarding your 1st question, Danielle, I'm not ready yet to tell you exactly what we're thinking in terms of amount. I just want to remind you that the general shareholders agreed and approved up to a $500 million share buyback program. I'm not thinking about that amount for next year, but we will begin together with the dividend program. I think it is a bit too early to share that with you. Maybe that's something that I'll be ready to do early next year in the fourth quarter call. Do expect progressive both dividends and share buybacks as we rebalance our capital allocation to look more of. Much less will go to debt principal repayment, but we will continue with some, and then much less strategic CapEx, more accretive when it comes. Available M&A in the space highlighted in the U.S. mainly, and the rest is dividends and share buybacks.

That's our plan. Regarding your 2nd question, could you—oh, yes, it's about divestments in SCAC. Look, I feel more comfortable not providing you with the specifics because of obvious reasons. Do expect that my expectation is that we will be executing further divestments between October of this year and late next year. We will retain some operations that do present significant free cash flow conversion levels for the time being. I will elaborate more about that as we progress on current negotiations. I hope you understand, but I cannot provide you with the specific names right now. Back to you, Lucy.

All right. Thank you so much, guys, for the—

Lucy Rodriguez (Chief Communications Officer)

Okay. We have time for one last question, and it is coming from Anne Milne from Bank of America. Anne?

Anne Milne (Managing Director of Emerging Markets Corporate Research)

Yes. Good morning, or actually good afternoon. Jaime, Maher, Lucy. I think this question maybe is for Maher. I just wanted to ask you about your current thinking about the path to reach your previously stated goal of 1.5 times net leverage. In the past, it seemed like it would or could be through primarily increases in EBITDA, not necessarily reductions in debt. Could you please give us an update on what you're thinking about timing of this, what additional levers you might use if necessary to reach this target? We know you have the maturity, or I should say the call date on one of your perps next year. That could help on that. Any other thoughts would be much appreciated.

Maher Al-Haffar (CFO)

Sure. Yeah. I mean, I would like just to reiterate that EBITDA growth is probably the most important leverage that we have, especially after all of the comments that Jaime made. I mean, between operational excellence to Project Cutting Edge, which you've heard, we've upped the number to $400 million incremental EBITDA from some of our growth investments, definitely will be contributing materially to EBITDA in the next 12- 24 months. The hyper-focus on free cash flow conversion and then being able to potentially allocate that based on the criteria that Jaime outlined. I think, and this is excluding any potential improvement from organic growth, just from the natural dynamics of the portfolio. I think that EBITDA and free cash flow are the two very important levers to continue to deliver deleveraging in the form of lower leverage ratio.

I do expect that we should get that half a turn somewhere in the next 12-24 months. I mean, between a combination of reducing the stock of debt and very important improvement in EBITDA that is under our control, that is not dependent on market-driven levers, I think gives me the comfort that we should be able to achieve that target within the next 12-24 months.

Anne Milne (Managing Director of Emerging Markets Corporate Research)

Thank you.

Lucy Rodriguez (Chief Communications Officer)

Thanks, Anne.

Maher Al-Haffar (CFO)

Thank you, Anne.

Lucy Rodriguez (Chief Communications Officer)

I think that's a wrap. We appreciate you joining us today for our second quarter results, and we hope that you will come back again for our third quarter 2025 webcast on October 28. If you do have any additional questions, please feel free to reach out to the investor relations team. Many thanks.

Operator (participant)

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