Cemex Sab De Ord

Good morning. Welcome to the CIMEX second quarter 2026 conference call and webcast. My name is Jeanne 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 call over to Lucy Rodriguez, Chief Communications Officer. Please proceed.

Good morning, and thank you for joining us for our second quarter 2026 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 by reviewing our second quarter results. Followed by our expectations for the full year and updated guidance. And then we will be happy to take your questions. As a reminder, we expect to close the announced sale of some of our operating assets in Columbia by the end of the year. Until such time, for accounting purposes, the transaction will be treated as a partial sale of an operation, and we will continue to fully consolidate these operations in our P&L. In addition, following our acquisition of Omega earlier in the year, we began consolidating the business as of April 1st. And now I will hand the call over to Jaime.

Thank you, Lucy, and good day to everyone. I am pleased to be here today to present strong second quarter results, reflecting significant progress in our ongoing transformation, as well as organic growth. In most markets. What stands out most is the clear evidence of that progress in our results with meaningful gains against our new KPIs and at a pace that is running ahead of our own expectations. I would like to recognize my colleagues who have embraced this transformation and remain open to the profound cultural change Our transformation is well underway and is already delivering on our goal of a structurally higher earnings quality as reflected in margins and free cash flow. We still have much work to do and continue to uncover new opportunities under Project Cutting Edge, which I will elaborate shortly. Consolidated EBITDA in the quarter exceeded $1 billion and included a favorable one-off settlement of an outstanding claim in Europe of $42 million. As our efficiencies compound, the benefits become increasingly evident across the P&L and cash flow, pointing to a significant improvement in our earnings quality. Adjusting for the one-off, sales grew 11%, while EBITDA expanded 19%, almost twice as fast. And EBIT, a key metric of our transformation, grew 29%, almost three times the pace of sales growth. Again, adjusting for the one-off, consolidated EBITDA margin expanded 1.4 percentage points. to 21.4%, while EBIT margin rose almost two percentage points. Free cash flow is also benefiting from these higher quality earnings stream. Our free cash flow from operations reached a second quarter record of $651 million, up more than $400 million year on year after adjusting for severance and discontinued operations. This lifted our trailing 12-month free cash flow from operations conversion rate to 60%, also on an adjusted basis. Turning to our decarbonization pathway, we continue to advance, profitably reducing growth CO2 emissions by 1% year to date, supported by a lower clinker factor. And with that, let me discuss our results in more detail. EBITDA grew 18% on a like-to-like basis, driven by project cutting-edge efficiencies during the quarter of $60 million in organic growth in most regions. Performance was broad-based, with three of our four regions contributing double-digit EBITDA and EBIT growth and boasting Margin expansion in excess of two and three percentage points respectively. For the second quarter in a row, Mexico led regional results with continued volume recovery, efficiency gains, and an easy prior year comparison. In the U.S., disruptions in our operations related to bad weather in Texas, together with rising materials and freight costs, In the end, despite softer demand in Europe, the region continued to benefit from pricing and project cutting edge savings. South, Central America, and the Caribbean rounded out the picture with significant margin related to cost efficiencies. As a result of project cutting edge, Free cash flow from operations tripled year over year, lifting our toiling 12-month conversion rate to 60% on an adjusted basis. At the consolidated level, volumes were broadly stable, with performance in Mexico largely offsetting lower volumes in EMEA. In Mexico, the recovery continued to build. Posting the second consecutive quarter of year-on-year cement volume growth. In the U.S., despite unseasonable weather in some key markets that brought operational disruptions, volumes remained resilient across all products. In Europe, country volume performance was mixed, calling into question the recovery we were expecting in certain markets. Volumes were further impacted by the severe heat wave through much of Europe, which resulted in restrictions on work at construction sites in many markets. Within South Central America and the Caribbean, both Colombia and Jamaica saw higher cement volumes, which offset performance in other markets. Building on the low to meet single-digit sequential price increases secured in first quarter, consolidated prices for our three core products advanced an additional 1% in second quarter. In both EMEA and Mexico, year-to-date pricing gains continue to offset increasing inflationary costs, and in the case of Europe, rising carbon costs for the industry. In the U.S., our cement prices rose sequentially, led by increases in the Mid-South, while ready-mix prices climbed 2%, reflecting fuel surcharges. With limited visibility of a clear end to the Iran war, we remain vigilant on closely monitoring and offsetting, over time, any persistent input cost inflation through our pricing strategy. For the second consecutive quarter, EBITDA growth was supported by positive contributions across all levers. Incremental savings under project cutting edge accounted for approximately 40% of our like-to-like EBITDA growth. These self-help measures, factors that are under our control, are serving as an important cushion against microeconomic volatility and delayed cyclical recovery in several of our markets. Pricing was another important contributor, while organic growth in our core products as well as our urbanization solutions portfolio also supported EBITDA. Finally, we continued to benefit from a more favorable FX environment, which resulted in a $50 million tailwind in the quarter. Prior year FX comparables will become more challenging as we move into the second half. EBITDA margin expanded by 2.1 percentage points, reflecting structural efficiencies, rising discipline, and benefit from operating leverage as volumes recover in Mexico. I am pleased with the progress we have achieved on our $400 million cost savings program with 80% of the initial target already achieved. In the first half, cost savings under the program have supported a 1.6 percentage points improvement in our consolidated operating expenses as a percentage of sales with all regions contributing. Cost of sales as a percentage of sales also declined approximately 1.4 percentage points. Following up on the commitment I made in our last earnings call, we are confident today in raising our overall savings target under project cutting edge from $400 million to $475 million. We expect most of the new savings to be realized in 2027. In terms of composition, a small portion relates to further overhead optimization. while the majority comes from procurement as we fundamentally transform how we approach third-party spend across our business. Subject to potential slippage resulting from possible cost headwinds from the Iran war that may impact some previously identified savings, I strongly believe that we will continue to find new savings initiatives going forward. It has been one year since I laid out our transformation plan, and I would like to give you an update on where we stand. Project Cutting Edge is a multi-year transformation effort designed to reduce overhead, achieve operational excellence, improve earnings quality, and enhance asset efficiency in line with best-in-class performance in our industry. In the first year, we moved quickly to eliminate overhead and improve operational efficiency through our cost savings program. These efforts helped jumpstart our results while we laid the groundwork for more time consuming transformation initiatives. We also introduced a new capital allocation framework designed to keep shareholders at the center of our decision making while revamping our growth strategy. As we move into 2027, other initiatives under Project Cutting Edge should support progress towards our transformation goals. Our asset pruning exercise designed to improve the quality of our earnings should begin to pay off in material ways. Additionally, some of our recent bolt-on acquisitions should also support this goal. In the quarter, We continue to move forward on our asset pruning exercise by disposing of an additional 12 facilities. Efforts to reduce certain elements of our free cash flow spend should also take hold as we move to lower growth capex and intangible investments while aligning our maintenance spending to best-in-class performance. We estimate a potential opportunity space of $300 million in free cash flow. We also are actively pursuing additional savings afforded by the introduction of AI into our operations. And we believe these efforts will be an important lever for growth in 2028 and beyond. We see particular benefits in plant management, energy efficiency, and the way we work. Our Balcones plant in Texas has been the pilot for the use of AI in our operations. and we're making important advances. Our success there will then be scaled globally. Since we launched Project Cutting Edge last year, I have been impressed by the engagement and creativity our teams continue to demonstrate in identifying new opportunities to improve efficiency and performance. And with that, back to you, Lucy.

Thank you, Jaime. Mexico continued to build on recent momentum, delivering solid results on the back of cost efficiencies, improving demand, operating leverage, and a pricing strategy designed to offset cost inflation. For a second consecutive quarter, cement volumes posted year-over-year growth. Self-construction and government-backed social programs, such as rural roads and housing, continued to underpin bagged cement demand. with bulk cement volumes largely driven by residential. During the quarter, our cement volumes continued to benefit temporarily from competitor outages in the central part of the country. This situation is expected to normalize in the second half. Prices on a sequential basis increased by a low single digit for our three core products, reflecting our strategy to recover input cost inflation. Over the past year, our team in Mexico has worked relentlessly to identify efficiencies and rethink our business model to achieve best-in-class operations. They have consolidated our operations and overhead while implementing important changes in logistics, freight, and energy strategy. These structural improvements are a large contributor to the EBITDA growth and margin expansion we are experiencing. Our results also benefited from more transitory factors, including lower than expected energy costs and FX tailed during the quarter. The social housing program continues to scale and is a meaningful lever of growth in our business. With a target of 1.8 million units through 2030, our participation keeps expanding. To date, we have been awarded approximately 135,000 units, up 12% from the prior quarter, and we are in active negotiations for an additional 145,000 units. Infrastructure is becoming an encouraging part of the story for 2027. We have seen a significant increase in contracted volumes in our Ready Mix order book, tied to large-scale projects such as railroads Echavez, and Dan. But project execution has been slow today. We are already participating in some of these projects, such as Presa El Nubio in La Paz, the Elevated Viaduct in Tijuana, and the Saltillo Nuevo Laredo Railroad. Given their scale and complexity, however, they will take time to translate into meaningful and we therefore expect infrastructure to become a more relevant driver next year. With regard to our decarbonization efforts, we achieved another clinker factor record in Mexico of 62.6% in the quarter, underscoring our ongoing commitment to profitably reduce CO2 emissions. As we move into the second half of the year, we do expect some normalization in growth rates. As prior year comparisons become more demanding, temporary market share gains due to competitor outages reverse, and growth relies increasingly on formal construction, which is inherently more difficult to time. In our U.S. operations, demand remained resilient, despite unusually wet conditions in Texas and parts of the Mid-South. Adjusting for weather-related disruption, we estimate that cement and ready mix volumes would have both grown 1%, while aggregates would have expanded 7%. Cement volumes were supported by the integration of our new mortars business, Omega, for two months in the quarter. Cement prices improved 1% sequentially, reflecting successful price increases across micro markets and geographic mix. In ReadyMix, prices increased 2%, reflecting effective implementation of fuel surcharges. In aggregates adjusted for mix, prices have increased at a mid-single-digit rate compared to year-end 2025. Disruptions in our operations related to bad weather in Texas, together with rising materials and freight costs, weighed on EBITDA and margin in the quarter. Demand continues to be led mainly by infrastructure supported by the ongoing rollout of IIJA projects with about 50% of allocated funds already spent. Activity levels remain healthy and we continue to see a solid pipeline of infrastructure opportunities across our footprint. We are encouraged by the proposed Build America 250 Act which contemplates funding levels for streets and highways slightly up compared with the current program while increasing investment in cement intensive areas such as bridges more significantly. We expect IIJA funds as well as rising state highway funding in our key states to continue to support demand in the foreseeable future as we await passage and implementation of new transportation bills. Industrial demand, particularly that related to large data centers, semiconductor chip facilities, and manufacturing, continues to grow. We estimate that about 35% of mega data center projects, which are investments exceeding $500 million, currently planned or under construction, are located within our footprint. Rising investment in the power sector to meet growing AI electricity needs should also support demand. Residential construction remains challenged by affordability constraints and elevated housing inventories in certain markets. However, pent-up demand, a chronic housing deficit, and favorable demographic trends should be supportive of residential recovery over the medium term. Against this backdrop, we remain focused on the factors we can control. Operational excellence, higher kiln productivity, and asset efficiency. Positioning the business to benefit from operating leverage when volume recovery accelerates. Our operations in EMEA delivered positive results driven by cost efficiencies and pricing. As Jaime mentioned, we had a positive one-off in the quarter of $42 million related to the favorable resolution of an outstanding commercial claim in Europe. Adjusting for the one-off benefit, EMEA EBITDA expanded 9% with margins flat year-over-year as lower volumes weighed on results. In Europe, country volume performance reflected meaningful divergence with recent heat waves Thank you for joining us. where housing remains a source of strength. Infrastructure has been resilient, albeit with delays in some markets, but the medium-term potential is clear, with Poland expected to benefit from EU funds and Germany from its infrastructure stimulus. Turning to prices, while sequential variation across our three core products shows a muted performance This is largely explained by a geographic mix effect, as most of our markets fell stable to higher prices. On a cumulative basis, compared to fourth quarter 2025, cement and ready mix prices are up 3% and aggregate prices are up 7%. The implementation of fuel surcharges or price increases on the majority of already mixed volumes in Europe is further helping to offset energy cost inflation. We remain optimistic on pricing in continental Europe. The introduction of the carbon border adjustment mechanism together with the gradual reduction of free CO2 allowances under the EU ETS has been and should continue to be supportive of higher prices going forward. We believe the recently announced proposed modifications to the EU ETF continue to provide a favorable framework for our decarbonization pathway in Europe. The Middle East and Africa region continue delivering strong results, with EBITDA growing 34%, driven by project cutting edge and improved pricing. Encouragingly, our operations in Israel and the UAE remain resilient amid regional tension. with ready mix and aggregate volumes up 14 and 5% respectively. In Egypt, while cement volumes were pressured in the quarter, you're beginning to see signs of stabilization and remain optimistic on market dynamics into the second half of the year. In South Central America and the Caribbean, we posted another strong quarter with EBITDA growing double digits, driven largely by disciplined cost management These efforts translated into a robust margin expansion of more than four percentage points. Cement demand in the region was led by the informal sector, with Jamaica also benefiting from a pickup in reconstruction efforts related to last year's Hurricane Melissa, as well as from tourism-related projects. Higher cement volumes in Colombia and Jamaica are offsetting softer performance in other markets. Looking ahead, we remain optimistic on the fundamentals of the region supported by resilient, informal construction. And with that, I will now turn the call over to Maher to review our financial development.

Thank you, Lucy, and good day to everyone. As Jaime noted, our self-help measures continue to deliver record results with quarterly EBITDA exceeding $1 billion. EBITDA margin improving by 2.1 percentage points to its highest level since 2008 and free cash flow generation accelerating at a significant pace. Free cash flow from operations for the first half increased by more than $730 million to $666 million as we continue to make our operations and administrative functions more efficient. Excluding severance payments and discontinued operations, our free cash flow from operations Conversion rate for the trailing 12 months reached 60% compared to 33% for the same period a year ago. This growth is explained by exceptional EBITDA growth along with important reductions in working capital, capex, net interest expense paid, and other cash expenditures. Year-to-date investment in working capital was $175 million, lower than last year, driven by improvements in Mexico and the U.S. Working capital days for the first half stood at negative nine days, one additional day versus the first half of 2025. Project Cutting Edge continued delivering tangible results in our cost structure. Cost of sales and operating expenses as a percentage of sales during the quarter were down 106 basis points and 167 basis points year over year, respectively. Energy cost per ton of cement produced declined 6% in the quarter compared to last year, driven by a double digit reduction in fuel costs, partially offset by slightly higher electricity costs. Our diesel hedging program helped offset $32 million of diesel costs year to date, underscoring the value of our risk management strategy in a volatile market environment. As of today, About 80% of our 2027 diesel consumption is hedged. Taking into account the more favorable energy cost trend year to date and expectations for the second half, we are improving our full year outlook and now expect energy costs in cement to increase by only a low single digit percentage versus last year. Controlling the income for the quarter was 9% higher. The year-to-date decline in net income is due to the gain on the sale of our Dominican Republic operations during the first quarter of 2025. Excluding this effect last year, first half net income would have been more than 40% higher year-over-year. During the quarter, we executed several transactions aimed at reducing our interest expense and lengthening our average life of debt. We repaid approximately $1.5 billion of bank term loans denominated in dollars and euros, and we redeemed our $1.5 billion subordinated notes. We funded these repayments with cash on hand and a $1.5 billion 10-year senior note carrying a 5.75% coupon, our first SEC-registered notes offering, priced at the tightest spread to U.S. Treasuries in our history. $500 million of these new notes were swapped to euros to better align our debt currency mix with our cash generation profile. In addition, to improve our liquidity, we replaced two revolving credit facilities denominated in dollars and euros totaling $2.3 billion with a new $3 billion revolving credit facility with a five-year bullet maturity featuring pricing linked to our credit rating and tied to CO2 reduction targets. Despite strong free cash flow generation in the first half of the year, net debt plus subordinated notes increased approximately $270 million since December due to the Omega acquisition, share buybacks, and dividends. Importantly, these capital allocation decisions reflect our commitment to disciplined and progressive shareholder returns and value-creating acquisitions, underscoring our confidence in the sustainability of our improved cash generation. As we generate incremental free cash flow in the second half of the year, benefiting from the expected reversal of most of our year-to-date working capital investments and other factors, we expect to end the year with a lower level of net debt plus subordinated notes than at the year-end 2025. Our net financial leverage, including the subordinated perpetual notes, stood at 2.08 times, a decrease of 0.22 times relative to first quarter. Our goal is to further improve our capital structure to reach a solid BBB rating, continue improving our free cash flow and free cash flow conversion, and maximize value for our shareholders. Due to stronger free cash flow generation and our continued liability management, we now expect to pay lower interest this year than we had guided before. We expect interest paid plus coupons on our subordinated notes to decline by about $40 million versus last year. for a total of about $455 million this year. We are a structurally stronger and more and we are confident there is more to come. And now back to you, Jaime.

Thank you, Maher. I am proud of the results and achievements in the quarter. Incremental evidence of the power of our transformation efforts. Based on first half performance, our expectations for the remainder of the year and the continued contribution from Project Cutting Edge, I am confident in raising our full year EBITDA guidance to a range of 16 to 17% year over year growth. Importantly, our guidance is based on a peso FX rate of 1825 to 1850 for the second half of the year. Our updated EBITDA guidance Together with the expectation for lower interest expense should support higher free cash flow generation for the year. Looking ahead, we remain committed to advancing our transformation, capturing the recently announced savings under Project Cutting Edge and identifying new opportunities. We will also continue to execute on the action plans arising from our asset reviews and free cash flow initiatives. with a focus on improving earnings quality, asset efficiency, and cash generation. While microeconomic volatility is likely to persist, the progress we've made to date coupled with a critical role self-help measures play in our strategic plan reinforces my confidence in our strategy and our ability to reach our transformation KPIs. Our transformation is still ongoing. and I remain excited about the opportunities ahead. And now back to you, Lucy.

Before we go into our Q&A session, I would like to remind you that any forward-looking statements we will 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. And now 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 touchtone 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 first question comes from Adrian Huerta from JP Morgan. Adrian?

Thank you, Lucy. Hi, Jaime. My question has to do with the Project Coding Edge program where you announced this additional $75 million. In savings, which is a positive surprise. And in addition to that, you also announced an opportunity for additional savings at the free cash flow level of 300 million plus other initiatives, asset reviews, AI benefits, etc. You mentioned a couple of things on this, but can you elaborate a bit further on these efforts and what is next on the project cutting edge?

Adrián, good morning. Thank you for your question. Well, first, cutting-edge is a holistic, full transformation that is driven by a few pillars. Operational excellence, changing culture, relentless focus on the levers that we control, no distraction to the line, empowerment, accountability, and relentless pursuit of improvement on earnings quality expressed in terms of free cash flow conversion and free cash flow margin to sales. Regarding the savings side of our transformation, I was pleased to see that our innovation and our relentless focus on operational excellence is driving incremental savings. The $475 million by 2027 are split into two significant chapters. Number one is overhead, headcount reduction. This is only overhead, including corporates everywhere in central and overheads in the regions. That will be around $230 million by end of the program. and then the rest is 245 million dollars which is operating efficiencies. For 2026 the total number is 185 million. Let me remind you that last year we captured 200 million and then for the full year 27 we're expecting around 90 million dollars. What are we doing there? Where the incremental savings are coming from is our transformation and how we address third-party addressable spend. And that is under the procurement leadership, but also outside. We're upskilling, strengthening the team, using more AI technology, so on and so forth. So that's an exciting aspect of it. And the other aspect is on operating strength, on operational excellence, things such as energy management, logistics, supply chain, cement operations efficiencies in the U.S., so on and so forth. So that's one element of it. The other very relevant aspect of our transformation is our asset pruning. This means not only asset pruning. One is asset pruning. The other one is managing assets. So here, Adrienne, We're looking at all lines of the business, not just EBITDA, but also EBIT, ROEG, and free cash flow. So going back to EBIT, now our teams are accountable for their asset base. They are properly incentivized through proper compensation incentives to get rid of idle assets. In addition, we are doing our pruning, which will contribute Thank you very much. Thank you. Different ways of disposing of unprofitable, underperforming businesses, particularly a few ready mix operations in the U.S., a few quarries and the bulk is in Europe in ready mix. And we're doing it without putting at risk our vertical integration strategy. As we do asset pruning, this means that we have lower asset base of businesses that were consuming capex and burning cash. So that will lead to optimization of CapEx and an increase in free cash flow conversion. That's how relevant that is. Now, when you think about the rest of free cash flow, what we're doing right now is appointing a leader at the EXCO level reporting to me accountable for every line of free cash flow. I think I said in a previous call that eventually we will move to a new free cash flow metric of total free cash flow. I just need to decide with the team when to do that. But what we're aiming is at getting to the benchmarks of the best in class peers in our industry on total free cash flow conversion and total free cash flow margin to sales. And elements of it is optimization of a platform capex right and it is significantly less strategic topics as we pivot our growth strategy to bolt on M&A um now on AI we are just beginning to tap that opportunity all of our overhead savings are unrelated to AI but we do see opportunities on further transformation It takes time because we need to focus on whole domains, but we already know where we're going to start. And then we have the AI, particularly in cement operations, starting in the US because we have a significant upside to continue improving operational efficiencies in that business. that can contribute materially to future incremental EBITDA starting in 28 and beyond. So it's a comprehensive plan. Adriana is a full transformation that encompasses as well cultural transformation, having the right conversations, candid discussions, relentless focus on operational excellence, automatic operating metrics, business performance reviews, accountability, so on and so forth. So I hope that I answered your question, Adrián.

We did, Jaime. And I was glad to see margins potentially for this year reaching above 20%. And hopefully with this additional initiative by 2028, we can be talking about mid-20s. Thank you, Jaime.

That's the goal.

Thanks, Adrián.

Thank you. Thank you.

And the next question comes from Gordon Lee from BTG Pac-12. Gordon?

Hi, good morning. Thank you very much for the call. A quick question on Mexico, Jaime. The performance has been impressive year-to-date, and I think particularly because it's been bucking what seems like overall macro weakness. So I was wondering if you could give us a sense, looking at your backlog, how confident you are that both the volume trend and the expansion in margins in Mexico is sustainable as we go into the second half and into 2027. Thank you.

Thank you, Gordon. Our expectation is that our operations in Mexico in the second half of the year will not operate at that margin level. We see a small drop. However, it will continue to be very solid. The reason for that is because, as we highlighted before, we did benefit from a temporary market share gain due to operating disruptions by a few competitors. I don't expect to keep that. The other thing, Gordon, is that we have a very favorable back to bulk mix in the first semester. And as the formal sector in infrastructure begins to pick up, which is the segment that has been I'll say disappointing because of delays in breaking grounds on infrastructure jobs. We shall see an increase in the bulk volume. Therefore, the mix will be less favorable. And we also have to complete a few more annual maintenance outages. in the second semester. So those things will soften a bit the margins. And finally, I think that we're going to have a less strong energy tailwind on fuel costs, which in the first half was very, very impressive. So I hope that I answered your question.

Yes, perfectly. Thank you very much.

Thanks, Gordon. The next question comes from Ben Thur from Barclays. Ben?

Yeah, good morning, Lucy, and thanks for taking my question. Jaime and Maher, good morning. Just a quick one on EMEA and in very particular Europe here. So clearly you had that one-time benefit on margins, those give or take 42 million. Adjusting for that, margins would actually have been a little bit softer, somewhat like slattish. So maybe help us understand and explain a little bit more the drivers of that and how much maybe of some headwinds were more of a short-term nature of thinking of energy, heat waves, you've mentioned it, versus what were on the other side, the benefits from project cutting edge that were supposed to start to come in more meaningful, particularly in Europe in 2026. Thank you.

Ben, thanks for... Sorry. Thanks for your question. Looking in the first semester we were unable to fully realize the benefit from operating leverage because in the first quarter we had a very difficult winter and then right in the second quarter on one hand we saw some of our markets softening and on the other hand we had this dramatic heat wave that Thank you very much. There is a little bit of lack of visibility on where the demand is heading due to the geopolitical situation. I'm not concerned about our project cutting-edge savings in EMEA. They are happening, and they're happening quite materially. I also must share with you that in the second quarter, we did have a negative one-off of $6 million of our write-off of engineering projects. of CapEx Investments that we decided to cancel because they do not meet our new financial thresholds. That is a temporary effect on profitability. So overall, if weather normalizes, we should see a bit more of operating leverage out there The next question comes from Alejandra Obregon from Morgan Stanley.

Hi, good morning. Jaime, Maher, Lucy, thank you for taking my question. It actually relates to the key upside and downside risks to your outlook, especially in Europe and Mexico. And to be more specific, in Europe, I was hoping if you could share your latest thoughts on the ETS review proposal announced last week. And in Mexico, if you can talk a little bit about the current competitive dynamics and your outlook for due capacity coming back online here. Thank you.

Alejandra, thank you for your question. I'm going to start with the latter part of your question, which relates to a new capacity in Mexico. We're closely monitoring that potential increase in capacity. This is a plan that was shut down years ago, and there is public information that the plan might come back in the last quarter of of this year. How I see it is this. On one hand, we do expect volumes to continue growing as infrastructure begins to gain traction in Mexico while the informal and formal sector stays resilient. And that should help absorb partially that new capacity. And the other aspect is that we're monitoring is that When that plan was shut down a few years ago, we didn't see, in our case, nor with public data on others, significant changes internally calculated with public data or market shares. And that is because the one who lost that plan You know, reshuffled their operations to continue supplying the market. So, you know, I do expect some responsible recommissioning of that capacity going forward. The second part of your question is EuroBTS and I'm pleased with the European Union proposal. There are a few things that could be improved and we will be working on it on advocacy, but overall it's very supportive of a value creation in Europe, particularly for the leaders who have done the job and continue seriously to profitably decarbonize. And we are one of them. In fact, right as of last year, we have the lowest CO2 kilos per ton of cement in Europe. And I say this because of the following. On one hand, The new system widens the gap in the CO2 cost curve between the leaders and the laggards, including local producers in Europe and importers. The new system incentivizes the leaders to raise even at higher speed with much more financing granting type of support. and that should continue to widen the differences in the CO2 cost curves, which means that we will have a lower CO2 cost relative to competitors. The other thing is that I think that the system is supportive of mid single digit compound The other aspect is that although there could be a one-year delay due to the very small reduction percentage wines of The point is that by 2029 or at the latest 2030, there will be no reason to keep some capacity running trading for the halt to get free allowances because the fixed cost relative to that equation will not justify that That strategy, unlike in the past. So that's also very positive. So overall, I think that we're just gaining four years for hard-to-abate industries to decarbonize. The European Union continues to commit to net zero by 2050. And I was positively surprised by the post-reform. I hope that I answered the question, Alejandro.

It does. Thank you very much. That was very clear.

Thanks, Ali. The next question comes from Paul Roger from BMP Paribas, and this is via the webcast, so I will read it. What underpins confidence that energy costs will now only be up low single digit in 2026? despite geopolitical uncertainties and rising oil prices.

Paul, thank you for your question. The reason is this. It's really based on the very good performance on fuel costs in the first semester of the year, and particularly in the second quarter. So fuels in the second quarter were down 12%. For the first half of the year, fuel is down on a cost per ton basis by 10%. So we do have a strong carry forward. that led us to update in such a way the guidance. But we're not excluding, and we know that, that in the second semester, we will face a much less favorable fuel cost. But overall, when you do the math, we feel comfortable with our guidance. There is also something else, which is that we can ramp up alternative fuels as a hedge to increases in primary fuels. And particularly, we can do that right in Mexico. So the low single digit increase guidance implies a 4% growth in the second semester with a negative impact of around $20 million. But the math is the math, and we're happy with what we delivered in the first semester of the year.

Whoops, sorry. The next, yes, thank you very much Jaime. The next question comes from Daniel Rojas from Bank of America. Daniel?

Buenos dias, good morning. Hi, my name is Maher Lucy. I have a bit of a follow-up on Gordon's and Alice's question on Mexico. Looking at the second half of the year, I was curious what to expect on the industrial and commercial side and informal residential. This is especially in a context where we're seeing Mexican corporates report a picture of weak consumer growth and I'm interested in seeing what the outlook is for the second half. Thank you.

Daniel, thank you for your question. Well, that's an interesting point when you talked about weaker Mexican corporate reports. When you think about Plan Mexico and you think about what happened last year, last year, our industry construction and heavy building materials suffered very materially. And so, While the rest of the economy could be struggling, the construction is recovering from a very low base. Unlike other industries last year on value chains, which were not as disrupted. So we're benefiting from that. The other aspect is that Plan Mexico uses Thank you very much. Thank you very much. Thank you very much. We continue to improve and increase our backlog around social housing. Very disappointing the speed at which we see the deployment on infrastructure, particularly rail projects. But we have a leading indicator, which is the backlog in concrete that is improving. And when you look at our ready mix volumes, they've been disappointing, driven by that lack of infrastructure. and also because we've done some asset pruning also in Mexico but we're expecting a better outlook in the second semester as we see I think at the very end of the year finally some of those infrastructure projects happening and I think that that's the one that is going to be more resilient next year as you know those job sites start breaking ground and for the time being I'm also positive about the informal sector You know, salaries, wages are increasing, and that's also helping. And remittances, although they've been softer, they continue to be at very good levels. And the Mexican economy continues to export very materially to the U.S. So, you know, I feel confident that there is good momentum right now in construction.

Thanks, Daniel.

Thank you, Daniel.

The next question comes from Francisco Suarez from Scotiabank.

Hey, good morning. Congrats on the results for the call. I think that thinking ahead on this remarkable transformation at Cemex, how do you think that investors should reach your free cash flow conversion ratio achieved at 60% excluding severance payments? In other words, Can you elaborate a little bit more on what to expect? Thank you.

Francisco, thanks for your question. One way we are pursuing operational excellence is by looking at best in class operators. and some outside the industry. And for sure, you know, the likes of Heidelberg, Holcim, CRH and others with much stronger levels of free cash flow conversion. The whole transformation, Francisco, aims at improving earnings quality, and that must happen by measuring less cyclicality of our portfolio, but also much stronger free cash flow conversion. and in our transformation we introduced two key metrics which is total free cash flow that is free cash flow before we pay debt we return cash to shareholders or we do M&A and that's the one that really matters to me and that's the one that has a great potential to improve and the other metric is free cash flow to sales and when I look at our and I do an average, they deliver consistently around between 36 to 40% of total free cash flow conversion. And their margin, if I do the average as well, is around 8%. I don't think we should do any worse than that. And that's the goal of the transformation. It will take time, Francisco. But that's where we're heading. And, you know, we are demonstrating that we're making progress, not only on free cash flow conversion to operations as reported right now, but also on total free cash flow and free cash flow margin. And one very important aspect of that is going to be, of course, margin expansion at the EBITDA level as we do our asset pruning. And we use botons. to reshape our portfolio only doing Bolton's M&A and M&A when we improve earnings quality, not growth and growing revenue for the sake of, but rather margin expansion. And the other aspect is that, again, we had too many underperforming businesses for too long using CapEx and burning cash. And that's not happening anymore. But that takes time. So all these combined, you know, makes us feel very excited that we should pursue and we should deliver the best-in-class metrics. And that's what we're working for. But be patient. It will take a little bit of time.

Fantastic. Thank you.

Congrats again.

Thanks, Paco. The next question comes from Arnaud Pinatel from On Field, and I'm going to read it from the webcast. Outlook in H2 for the US. Do you see an improvement in better performance than in H1? Have your price increases announced in July been executed with success? Do you have any news on tariffs or potential new tariffs on imports from Vietnam, Turkey, following the 301 investigation.

Arnaud, thank you very much for your questions. I'm going to start with the latter part of it about the 301. I don't have any news on that effort. We continue to see that process unfolding nicely because we have provided feedback through the American Cement Association and we're also engaging on anti-dumping processes against some of the sources from countries that you've mentioned. But no news for the time being. The other thing about prices, we did increase prices in the Mid-South in the second quarter. We'll benefit from And that includes Gulf Coast, Tennessee, and the Carolinas. And we benefit from a bit of carry forward there. And we did announce a meal signal digit price increase in Southern California and Arizona July onwards. It remains to be seen how much traction we get there. But I think that the most important part, thinking about outlook for H2 in the USA, is on cost. And if you think about our second quarter performance, right, the volumes, despite weather, were pretty resilient. And prices even improved sequentially. And that is because of our fuel surcharges doing the job in cement ready mix and aggregates. But the issue basically were on viable costs. And that was because of a few things. Number one, for very good reasons in Arizona, where we gained a significant job on a semiconductor project, we had to temporarily purchase aggregates to support selling to retail and increase our inventories to be ready to supply larger volumes of ready-mix concrete and with our own aggregates to that semiconductor project. So that did affect margins in aggregates. The other thing was a timing of cement import consumptions, which in the second quarter increased by 7%. I don't expect that to happen for the rest of the year in that manner. and definitely the weather. So Arnold, excluding any negative impact from the hurricane season, We did have a major disruption in weather in Texas in our quarry in Balcones, which also disrupted our operations in aggregates and obviously volume. So had not that happened, our aggregate volumes would have grown by around 7%, and that would have made a big difference. And what happened was that we were not selling, Because of our backlog, we agreed and we decided to move rock to yards to be ready to supply as the weather improved. So that also had an impact on freight, which we will recover. So I am expecting a better margin in our performance in the second half, provided that we don't have any dramatic impact in the hurricane season. Thanks for the question, Arnold.

Thanks, Jaime. The next question comes from Jorel Guillote from Goldman Sachs. Jorel, are you with us?

Yes. Hello, everyone. Thank you for taking my question. So I wanted to ask about the AI infrastructure opportunity. So you highlighted data centers, chip plans, rising power sector investments. You noted that there was 35% of planned megaprojects sitting in your footprint. What I wanted to understand though is how do you actually stand to benefit here? Are there any rough rules of thumb for how much cement or aggregates these projects consume? And also practically speaking, when do you expect them to start moving the needle for you and in which specific markets are they mostly landing in? Thank you.

Gerald, thank you for your question. Yes, we have estimated, internal estimates though, that in the data centers, U.S. data centers, it could lead to an increase of around 2% of annual national cement consumption between 2026 and 2030. Now, when you think about where it's happening, it all began in Virginia, but then the projects are extending elsewhere. And we see an annualized construction is spent, if it continues, of around 50 billion. And we see a significant size of projects in Texas, California, Arizona. We also see some in Washington up north where we don't participate in Georgia also in the mid south where we do participate. and up north in Ohio and so on and so forth. So how we benefit obviously is by that figure that I gave you, which again is internal estimates of 2% for national demand growth. But the way we benefit is through our ready mix concrete value propositions. And we began supplying very little in 2024. In 2025, that volume grew by 185%, but it's still not material. And so far this year, we've doubled the volume, and the trend looks positive. And so far, the team is achieving a 60% project win rate on every bid. So how it works is that we gain ready mix volume and we gain the upstream throughput of cement aggregates and admixtures. So I hope that I answered your question.

No, that was great. Thank you very much.

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

Thank you. Good morning. Well, I guess it's afternoon now. So thanks very much for the call and for the great results. It was very impressive. I sort of checked my old models and I hadn't seen an LTM EBITDA number like you reported this quarter except for before the global financial crisis, which I can barely recall at this point in time. It was so long ago. But anyway, my question is probably for Maher. I'm looking at your debt profile, which continues to evolve. I see that as of the second quarter, you mostly have outstanding now leases and fixed income, which I assume is the bond market. So it looks like only 10% of your total is now with your bank agreements. I was just wondering if you could talk about if this is a... Well, first of all, I'm very happy to see you're extending out your debt profile because I think that was always something that... I won't call it a weakness, but I think having a longer profile is definitely healthier for a company the size of Cemex. So that's positive. Is this a strategy going forward? Does it depend on cost? Were your banks upset because you didn't have as much outstanding for them? Is it a smaller facility now? And then just if you I know you mentioned during the call that it's linked to your pricing is linked to some sustainability indicators. Could you provide any indication on what that sort of

Thank you, Anne, for the question. And yes, I mean, we have a very concerted strategy that is targeting at increasing our average life from the current level of close to six years to probably out as long as we can take it. I mean, and I would say in the near term, next 12 to 24 months, we should expand that probably by a A year to two years hitting around the eight-year mark. Of course, we're always conscious of pricing, but clearly improving tenor and pushing out and terming out our maturities is a goal. I would definitely look to see more bond market participation. We have some potential liability management coming up next year in our 5.45% As you know, they become callable at par next year. The following year, we have another note that becomes due at par, the 5.2%. And we're also looking at reducing interest expense as a percentage of EBITDA. So clearly, the type of instruments, the type of market, the currency mix that we're looking at will also drive our strategy. So it's a dual-pronged strategy, extending tenors, Thank you for joining us today. Interest rates, especially looking at them today, are not helping on the fixed rate side. But remember also, we are roughly 85% fixed, 15% floating. So as the interest rate cycle evolves, there may be possibilities to start maybe switching a little bit away from being so overweight and fixed to floating, and that should also Thank you very much. So materially to them, of course, as you know, we swapped our, you know, revolving credit facility from a shorter, from a smaller revolving credit facility to a $3 billion revolving credit facility, you know, with a grid pricing. And it has a sustainability linkage. It's a plus five basis points, minus five basis points, depending on the targets. Targets are CO2 emissions, essentially. So it's not very, It's not very aggressive, but we do also look forward to meeting those targets, so we don't expect that to hit us in any negative way. And under that facility, any drawdowns, you know, all the way down to the maturity of the facility can become five-year bullet maturities at the pricing of the facility, which is so for current ratings, so for plus 100s. It could get better if we go to triple B. Of course, it also could get worse if our rating gets downrated from the triple B minus. So I hope I answered that question, Anne.

Yeah, I think you answered pretty much all the components. Thank you very much, Maher.

Thank you very much, Anne.

Thank you for joining us today for our second quarter results. We hope that you will come back for the third quarter 2026 earnings call that's scheduled for October 26. If you have any additional questions, please feel free to reach out to the investor relations team. Many thanks. Bye-bye.

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