Cemex Sab De Ord

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. And now, I will turn the conference over to Lucy Rodriguez, Chief Communications Officer. Please proceed.

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 Muguero, our CEO, and by Mario Alcazar, 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 second half of the year, and then we will be happy to take your questions. I will now hand the call over to Jaime.

Thanks, Lucy, and good day to everyone. In our last earnings call in April, I presented a forward-looking vision for FEMEX, 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 first phase of implementation. Our first 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 second 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 graphic spotlight 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 midsize 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 linear 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 second quarter, we now expect EBITDA savings for this year to reach $200 million, up from our initial expectation of $150 million. And 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 analyzed basis. While this effort is largely behind us, there are still some additional actions suspected in the second half. I am confident that this transformation will help us advance towards our goals, further strengthening TEMEX's position as an industry leader. And now, allow me to review our second quarter performance. Our second quarter results are aligned to our February guidance, which assumed a challenging first 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 lap prior year pre-electoral spending in Mexico with an improvement in PASO FX rate. As in the first 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 second 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 aggregates 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 aggregates prices have increased by 5, 6, and 8% respectively. In the U.S., aggregate prices adjusting for product mix increased by 5% in the first half compared to fourth 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 US, partially offset by continued recovery in EMEA. We expect volumes in Mexico to improve in the second half as we lap 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 the shock 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 fourth 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 entire year. Volume decline in Mexico and the U.S. was partially offset by growth in the Maya region. Costs 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. And now, back to you, Lucy.