Cemex Sab De Ord

Good morning, welcome everyone to the CEMEX third quarter 2025 conference call and webcast. My name is Becky 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. If at any time you require operator assistance, please press star followed by zero and we will 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 third quarter 2025 conference call and webcast. We hope this call finds you well. I'm joined today by Jaime Muguero, 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 plan, followed by a review of our business and outlook for the remainder of the year. And then we will be happy to take your questions. Please note that although the sale of our business in Panama was successfully completed on October 6, these operations were reclassified as discontinued as of the end of the third quarter and have been excluded from our results for both 2025 and 2024. As communicated previously, we retained our admixtures business in Panama, which we will continue to operate. In the case of couch aggregates, after increasing our holdings to a majority stake, we are fully consolidating these assets and their results in our U.S. business effective September 1st. And now, I will hand the call over to Jaime.

Thanks, Lucy, and good day to everyone. Six months ago, I outlined our vision for Themix with two core objectives, attaining best-in-class operational excellence and delivering industry-leading shareholder returns. I also presented our strategic framework and the guiding principles to drive our company's transformation. These levers aim to enhance profitability, increase free cash flow conversion, improve asset efficiency, and generate returns that comfortably exceed our cost of capital. Since then, we have worked relentlessly bringing together and aligning our entire organization with these principles. This has required sustained commitment and a willingness to embrace change at all levels. By engaging our teams and fostering a shared vision, we are ensuring that everyone at FEMEX is dedicated and empowered to deliver on our strategic plan. Today, I am pleased to share with you that while we still have much work to do, we are making important progress on our key priorities. As anticipated in our full-year guidance, which assumed a significant year-over-year recovery in the second half, we're now seeing an improved performance in the third quarter. Consolidated EBITDA rose sharply, increasing at a double-digit rate with solid growth across our portfolio. Substantive margin gains in every region were largely driven by cost savings under project cutting edge and higher prices. In the quarter, we made significant headway in the implementation of project cutting edge with a realization of approximately $90 million in EBITDA savings. This keeps us on track to reach our 2025 full-year goal of $200 million in savings. We continued executing on our portfolio rebalancing and growth strategy by divesting our operations in Panama while investing in targeted businesses in the US with a consolidation of Couch aggregates, strengthening our position in the Southeast. Our operations in Europe remain at the forefront of our decarbonization agenda and point to our climate leadership with net CO2 emissions on a per ton of cement equivalent basis ahead of the European Cement Association's 2030 target. All of these achievements serve as important stepping stones, strengthening our resolve to continue working towards our long-term goals. Third quarter results surpassed our recovery expectations for the back half of the year. Consolidated net sales are growing for the first time since the first quarter 2024, on the back of a stable volume backdrop and higher prices. Demand conditions in Mexico, while still soft, are showing signs of improvement, and Europe continues with its volume growth trend. The increase in consolidated EBITDA was supported by all regions, with EMEA, Mexico, and South Central America and the Caribbean region recording double-digit growth. EBITDA margin expanded by 2.5 percentage points, reaching its highest level for a third quarter since 2020. The U.S. and Europe reached record third-quarter margins. while Mexico and our South Central America and the Caribbean region posted multi-year margin highs. Net income performance in the quarter was largely explained by the prior year one-off gain from asset divestments. Adjusting for discontinued operations, net income is growing by 8% in the quarter and by 3% year-to-date. Free cash flow from operations benefited from higher EBITDA, lower interest costs, and cash taxes. Importantly, the free cash flow from operations conversion rate, a key operating metric for a strategic plan, reached 41% on a trailing 12-month basis despite severance payments of $135 million. I expect free cash flow generation and the conversion rate to continue improving as we make additional progress on our strategic priorities. Consolidated volumes in the quarter were stable, with growth in EMEA compensating for dynamics in other markets. While demand conditions are still soft in Mexico, we saw the first signs of improvement in the quarter. While year-over-year volume performance improved versus the first half of the year, we attribute this change primarily to an easier prior year comparison base. We are pleased with a positive trend in our operations in Europe. Cement volume growth was driven by higher activity throughout Eastern Europe and Spain, with relatively stable performance in Germany and the UK. While we have faced challenging volume conditions in two key markets this year, we remain optimistic on fundamentals going forward. With our renewed focus on operational efficiency, we're well positioned to capitalize on the strong operating leverage in our business once volumes improve. Consolidated prices were stable on a sequential basis, reflecting the customary annual first half price increases that generally prevail in our industry. On a year-over-year basis, consolidated prices are up low single digits, in line with our pricing strategy for at least covering input cost inflation. In Mexico, despite the volume backdrop, prices remain resilient, with cement, ready mix, and aggregates prices increasing by a mid-single-digit rate since December. In the US, adjusting for product mix Aggregate prices are up 5% since the beginning of the year. In EMEA, rising cement prices in the Middle East and Africa more than offset performance in Europe. EBITDA growth was largely driven by our self-help measures and higher prices. Costs across the various categories declined by close to 80 million, accounting for approximately two-thirds of the like-to-like increase in EBITDA. Consolidated margin expanded by 2.5 percentage points with all of our regions, as well as our three core products, recording relevant margin gains. After a year of FX headwinds, we're benefiting this quarter from stronger currencies versus the dollar. In our urbanization solutions portfolio, better results in admixtures are partially compensating for still challenging conditions in other businesses. Going forward, our urbanization solutions business will primarily focus on admixtures, mortars, and concrete products, which we believe offer strong synergies with our traditional core business as well as high margins. Under Project Cutting Edge, we have committed to an annualized recurring EBITDA savings of $400 million by 2027, with half related to overhead reduction. Importantly, With most of the actions required to achieve the overhead savings already done, we anticipate this effort to deliver about $75 million in the second half of 2025 and $125 million in 2026. We achieved about 40% of the 2025 overhead savings in the third quarter. We're also making progress on the implementation of the operating initiatives, including killing efficiency, optimization of fuel mix, improvements in logistics and supply chain, among others. As a result of these efforts, both costs of goods sold and operating expenses as a percentage of sales are declining throughout all regions, leading to an expansion in EBITDA margin. With total EBITDA savings captured in third quarter of $90 million, we remain on track to reach our full year 2025 target of $200 million. As we go into 2026, we expect additional progress on project cutting edge to further support margins. Complementing project cutting edge, our ongoing business performance reviews should provide more visible improvements in EBITDA, profitability, and free cash flow during 2026 and beyond. I am confident that by working with a clear focus on our key priorities of operational excellence, free cash flow conversion, and return on capital, we will continue to identify opportunities to further optimize our operations. We're also advancing on our portfolio rebalancing efforts, creating shareholder value through disciplined capital allocation. As our growth strategy shifts towards prioritizing small to midsize acquisitions, we will reallocate capital to opportunities that are immediately accretive. We will continue seeking potential divestments in non-core markets to strengthen our position in the U.S. with a clear focus on aggregates and building solutions such as admixtures and mortars, which strongly complement our cement and ready mix businesses. Allow me to emphasize that we will be disciplined when evaluating potential growth opportunities. following our return criteria and protecting our investment-grade capital structure. A clear example of this value creation approach is the recently announced transactions in Panama and couch aggregates in the U.S. We completed the divestment of our operations in Panama at an attractive multiple of about 12 times. At the same time, we allocated part of the proceeds to acquire a majority stake in couch aggregates, a leading player in the aggregates materials industry across the southeastern U.S., with an implied valuation of a high single-digit multiple after synergies. We expect that in the short term, this investment will offset the loss of EBITDA from the sale of our operations in Panama. This transaction is strengthening our aggregates footprint in the U.S., providing significant synergies and allowing us to better serve customers with a more complete offering. I am highly encouraged by our achievements in the quarter, which confirm that we're moving in the right direction, setting a strong foundation to position Femex as a more focused, agile, and high-performing company. And now, back to you, Lucy.