Fernando Gonzalez - Chief Executive Officer Maher Al-Haffar - EVP, IR, Communications and Public Affairs.

Gordon Lee - BTG Vanessa Quiroga - Credit Suisse Yassine Touahri - Exane BNP Paribas Froilan Mendez - J.P. Morgan Mike Betts - Jefferies Jon Brandt - HSBC Lillian Starke - Morgan Stanley Daniel Sasson - Itau BBA Dan McGoey - Citigroup Benjamin Theurer - Barclays.

Good morning. Welcome to the CEMEX Third Quarter 2015 Conference Call and Webcast. My name is Sylvia and I will 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.

[Operator Instructions] Our hosts for today are Fernando Gonzalez, Chief Executive Officer; and Maher Al-Haffar, Executive Vice President of Investor Relations, Communications and Public Affairs. And now, I will turn the call over to your host, Fernando Gonzalez. Please proceed..

Thank you. Good day to everyone and thank you for joining us for our third quarter 2015 conference call and webcast. We will be happy to take your questions after our initial remarks. Our reported results reflect the unprecedented strength of the U.S. dollar versus most of the currencies in our markets, which intensified during the quarter.

Despite this, we had favorable operating results. Our quarterly sales and operating EBITDA increased by 5% on a like-to-like basis. While EBITDA margin was relatively flat during the quarter, year-to-date, EBITDA margin was the highest since 2009.

Now, regarding FX, some components of our business strategy have allowed us to mitigate the currency fluctuations in our different businesses. First, our cost structure, in many of the countries, we have operations, including Mexico and Colombia, have a very important local currency component.

Second, we continue to focus on extracting operating efficiencies from our businesses, including our cost reduction efforts and free cash flow initiatives. And third, favorable supply demand dynamics were supportive of higher prices for our three core products in most of our markets.

In fact, if you take into consideration the increase in prices on a consolidated basis in our portfolio, and adjust them for valuable costs and increase in freight rates on a year-to-date basis, we have recovered slightly more than half of the FX headwinds that we have experienced.

Now, assuming we are able to maintain our pricing traction for the remainder of the year, and currencies stabilize at current levels, we expect this recovery of the FX headwinds to increase to more than 60% for the full-year.

Additionally, we expect the same favorable supply demands dynamics we have seen in three of our most important markets Mexico, the U.S. and Colombia to continue during 2016.

Now, due to the success of our value before volume strategy in some of our markets, we have had to give up some highly price-sensitive volumes, which we expect we will be able to recover in due course through better product and service solutions, as well as our customers’ centricity initiatives.

We are encouraged by the achievements during the first nine months of this year. Consolidated domestic gray cement volumes are the highest in seven years. We are on track to meet our $150 million in cost and expense reductions for 2015, with 75% having been realized year-to-date.

We also had the highest free cash flow levels since 2009, reflecting our initiatives to reduce financial expenses and improve working capital, translating into a record low of low 22 working capital days.

During the quarter, we also announced we have signed agreements to sell in separate transactions our operations in Croatia as well as our operations in Austria and Hungary. In addition, we also announce an agreement to sell our gypsum wallboard business in the United States.

Our total year-to-date asset sales, including these transactions, amount to approximately $620 million. On the financing side, we fully repaid the $1.94 billion outstanding under our facilities agreement, maturing in February 2017.

We have now consolidated our syndicated bank debt in a single agreement under improved conditions, including a lower interest rate, which better reflect our financial metrics. Consolidated ReadyMix volumes grew during the quarter while cement and aggregates volumes remained flat.

Year-to-date consolidated cement volumes, however, were the highest in seven years. We achieved record cement volumes in the Philippines and Nicaragua, and record ReadyMix volumes in Israel, the Dominican Republic, Guatemala and Egypt. Consolidated prices for our three core products are higher in local currency terms on a year-over-year basis.

Sequentially, cement and ReadyMix prices remain stable. And now I would like to discuss the most important developments in our markets. In Mexico, cement industry volumes are estimated to have grown in the high single digits year-to-date. Our volumes have been impacted by our focus on our value for volume strategy and on profitability.

EBITDA margin increased by 2.3 percentage points, both during the quarter and year-to-date on a year-over-year basis. Cement prices as of the third quarter are 7% higher sequentially, and year-to-date, prices as of September are 8% higher than in the same period last year.

Cement demand to the industrial and commercial sector improved during the quarter. Commercial activity continued to be supported by strong drivers, including retail sales. On the industrial side, however, the pickup in manufacturing activity has been slower than expected but still expected to improve in line with the U.S. manufacturing sector.

In the formal residential sector, activity during the quarter moderated from very strong performance seen during the first half of the year. In addition, second-half 2014 comparables for subsidies and housing credits are more difficult, as cement consumption from the sector was back ended last year.

While housing credits granted by public entities declined during July and August, credits granted by the banking sector, which represents about 45% of total housing investment, are still up in the double digits. Recent favorable housing starts and registries should support this sector in the upcoming months.

In the infrastructure sector, there was a slowdown in investment during the quarter. In the Ministry of Communications and Transportation, which is the most cement-intensive, there have been some delays in projects.

While investment in this Ministry is up 3% year-to-date August, this percentage is lower than the 16% increase budgeted for the full-year 2015. Regarding the expense budget for 2016, the Mexican government has presented a proposal, which is currently under provision for expected approval next month.

This budget proposal reflects a reduction in expenses of 0.5 percentage points of GDP or close to $6 billion. However, different cement-intensive budget items under the Ministry of Communications and Transportation show increased spending for next year.

Proposed investment for highways and railroads are 2% and 19% higher, respectively, from this year’s level. For the self-construction sector, prospects remain favorable, given continued improvement in indicators, including job creation, real wages, and remittances.

After the positive year-to-date performance, we expect our cement volumes to grow in the mid-single digits during 2015. Despite the slowdown in the energy sector and poor weather in the first half, the U.S. business continues its steady recovery. Industry cement volumes for the U.S. are up 4% year-to-date August.

Our quarterly cement volumes performed in line with the industry, with an increase of 4% on a year-over-year basis. Excluding oil well cement, cement volumes grew 8%. ReadyMix volumes on a pro forma basis, adjusting for an acquisition in California in the first quarter, rose 12%, while aggregates volumes increased 11%.

The growth differential between cement and ReadyMix reflects the exposure of our cement business to the oil industry, as well as differences in geographical footprint and market segment mix between the two products. The U.S. business continued to recover its profitability during the quarter.

EBITDA margins expanded 2.3 percentage points year-over-year and represented the highest margins of the region since second quarter 2008. All three demand sectors contributed to volume growth in the quarter, with the residential sector outperforming the infrastructure and industrial and commercial sectors.

Propelled by low inventories, job creation and household formation; housing starts are up 12% year-to-date September. Importantly, single-family construction, after marginal growth last year, has picked up momentum in 2015 with 11% growth year-to-date September.

Housing permits in our four key states, Texas, Florida, California, and Arizona grew 12% year-to-date August, consistent with growth at the national level. California and Florida are outperforming the national average with a growth in excess of 17% year-over-year.

We continue to be encouraged by the acceleration in housing permits, suggesting dynamic growth in housing starts over the next few quarters. The industrial and commercial sector has experienced a headwind from the sharp decline in energy investment investments year-to-date.

Partially offsetting the decline in energy investments, construction spending for cement-intensive industrial and commercial segments is up 20% year-to-date August, reflecting solid growth in the lodging and office space markets.

National contract awards, which are based on the commencements of a construction project, dropped 11% in the same period, largely as a consequence of bad weather in the first half of the year and reduced energy investments. Florida continues performing at above trend levels with strong double-digit growth.

Public sector activity picked up during the quarter, driven by state spending, while total public infrastructure spending is flat year-to-date August. Highway and bridge investments, the most cement-intensive sector of infrastructure spending, registered an increase of 6% versus the same period last year.

In addition, contract awards for highway and bridges are up 20% year-to-date August, due largely to the approval of over $17 billion in TIFIA projects over the last year. Lack of visibility continues to constrain federal highway spending with the Federal Highway Program set to expire at the end of this month.

Regarding the Federal Highway Program, Congress continues to try to build on the momentum created by the Senate’s passage of a six-year bill in July. The first time the Senate has pushed through a transportation bill of this tenure since the passage of a six-year program in 2005.

With the rapidly approaching October 29 deadline, however, we believe the most likely scenario is another short-term extension of the existing program to allow more time for Congress to negotiate a multiyear deal. Cement prices were flat sequentially, while ReadyMix prices rose 2% in the quarter. Aggregates prices are down 1% due to product mix.

We have announced robust pricing increases for January and April 2016, and we are optimistic that they will gain traction. Incremental margins continue to reflect significant cost containment as well as operating leverage in the U.S. business.

EBITDA margin year-to-date as of September was 13.2%, 2.9 percentage points higher than in the same period last year. In our northern Europe region, like-to-like cement and ReadyMix volumes increased by 1% and 3%, respectively, during the quarter. Quarterly EBITDA on a like-to-like basis also grew 5% with a margin improvement of 1 percentage point.

Regional like-to-like cement and ReadyMix prices in local currency terms are up 2% and down 2%, respectively, on a year-over-year basis. In Germany, pro forma cement volumes during the quarter declined by 1%. Cement prices, also on a pro forma basis, remained stable sequentially in local currency terms.

In the residential sector, the fast-growing immigration -- expected to reach about 1.5 million people this year -- is creating additional demand.

This, together with continued low mortgage interest rates, low unemployment, and rising purchasing power, should continue driving this sector and more than offset restrictions, such as land availability and regulatory caps on rental increases. Regarding Infrastructure, there have been some delays in the granting of projects.

However, this sector should benefit from higher tax revenues going forward. In Poland, the slight decline in volumes during the quarter reflects a moderation in activity as well as the effect of market dynamics. Our volumes benefited from increased activity in the residential sector, driven by favorable housing starts and permits.

In infrastructure, despite delays, a number of projects have started recently. We expect residential and infrastructure activity to continue to drive demand for our products. In France our ReadyMix and aggregate volumes were affected by the continuing macroeconomic weakness.

Housing sales have improved as a result of the government’s initiatives, which include a Buy to Let program and a stimulus package. As some inventories decrease, this should have a positive effect on new housing starts. In infrastructure, the government recently announced high-speed rail line projects for a total of €8.3 billion.

In addition, some major French projects, amounting to €1.8 billion, have been selected to benefit from European Union subsidies. In the United Kingdom, our cement and aggregate volumes grew by 3% and 5%, respectively, during the quarter. The decline in ReadyMix volumes reflects our focus on profitability.

The residential sector should continue to contribute to demand growth driven by economic expansion, pricing, consumer confidence, increasing employment, and real income. Also, the infrastructure sector should continue to grow in coming months, supported by a healthy pipeline of projects.

Higher activity in the industrial and commercial sector should come from office buildings, warehouses, and factories. In the Mediterranean region, like-to-like domestic cement and aggregate volumes declined by 5% during the quarter.

Regional ReadyMix volumes increased by 1% in the same period, driven by improved performance in Egypt and the United Emirates. Regional prices for ReadyMix and aggregates are up 2% and 5%, respectively, while like-to-like cement prices declined by 7% in local currency and on a year-over-year basis, reflecting lower prices in Egypt.

In this country, the slight decline in our cement volumes during the quarter reflects the high volume base last year when we dispatched additional volumes in light of the then-prevalent energy shortage environment. Cement demand in the country has grown in the low single digits year-to-date.

Sequential cement prices in local currency terms were 7% lower during the quarter, reflecting additional volume coming on stream. Regarding energy, we expect to start switching our kiln fuel from mazot to pet coke by the end of this year. We are currently in the process of installing a pet coke grinding mill for this purpose.

Utilization of this fuel should translate into reduced production costs. During the rest of the year, the formal residential and infrastructure sectors should show increased activity. In Israel, our ReadyMix volumes declined by 2% during the third quarter, affected by religious holidays in September.

In Spain, pro forma domestic cement volumes declined by 13%, mainly due to our focus on more profitable volumes. Total cement volumes, including clinker and export cement, however, increased by 8% during the quarter on a like-to-like basis.

Sequential cement prices declined by 2% in local currency terms, mainly resulting from lower pricing in the central region. Pro forma gray cement prices in local currency terms increased by 11% on a year-over-year basis.

Operating EBITDA in Spain has been improving as a result of higher total volumes and prices, a favorable operating leverage effect, and our focus on profitability. The residential sector is benefiting from improved credit conditions, employment, and consumer confidence.

Increased credits for home purchases and housing permits, as well as an upturn in home prices, should continue to have a positive effect on this sector for the remainder of the year. National cement consumption is expected to grow in the mid-single digits for this year.

Going forward, we expect to continue to see a favorable operating leverage effect in our markets in Spain as our volumes continue to improve, and as we realize the expected synergies from the integration of the acquired cement assets.

In our South, Central America, and the Caribbean region, quarterly cement, ReadyMix and aggregate volumes declined by 2%, 6% and 3%, respectively. We are pleased with our cement volume growth in the Dominican Republic, Costa Rica, Nicaragua, and Guatemala during the quarter.

In the case of Colombia, cement demand dynamics continued to be favorable with a mid single-digit growth in the industry volumes year-to-date. I will give a general overview of the region. For additional information, you can also see CLH quarterly results, which were also reported today.

The regional decline in margins reflect a country mix effect with lower contribution from Colombia and Panama, as well as maintenance mainly in Costa Rica.

In Colombia, our cement volumes declined by 6% year-over-year, reflecting the very high base of comparison, as the third quarter 2014 holds the all-time quarterly volume record, as well as our efforts to continue looking for windows of opportunity to apply our pricing strategies.

Cement prices in local currency terms increased by 7% sequentially and by 12% year-over-year. As of September, cement prices were 14% higher from December levels. The residential sector continues to be the main driver of economic growth. Demand from this sector should continue to be bolstered by the various government housing initiatives.

The infrastructure sector should continue to be an important contributor to growth of the country. The government approved $1.6 billion to finance infrastructure under the recently announced stimulus plan. In addition, projects under the 4G infrastructure program will support this sector in the midterm.

19 projects, for a total of about $8.5 billion, have been awarded in the first two waves of this program. Six first-wave projects have already obtained financing. The government expects financial closing for the remaining four first-wave projects by February next year, and for the nine second-wave projects by second-half of next year.

In Panama, our cement volumes declined by 23% during the quarter, reflecting an 84% decline in volumes sold to the Canal expansion project, as well as the end of some infrastructure projects, such as the Corredor Norte.

And adjusting for the Canal project, our cement volumes declined by 9% during the quarter and increased 3% year-to-date, compared with the same period last year. The year-over-year increase in cement prices mainly reflects a mix effect from lower volumes to the Canal project.

The government has announced a five-year $11 billion public investment plan, which includes important projects such as the Metro system expansion, interstate highways, water management, among others. These projects should continue supporting infrastructure investment in the country over the medium-term.

In Asia, cement volumes increased in the double digits during the quarter. Regional cement prices in local currency terms improved by 2% sequentially and by 4% on a year-over-year basis, resulting in an EBITDA margin expansion of 2.7 percentage points.

In the Philippines, we also saw double-digit growth in cement volumes, driven by improvements in all sectors, good weather conditions, and a better ability to serve our markets through the introduction of the new cement grinding mill late last year.

For the remainder of the year, the residential sector should continue to be supported by stable inflation, low mortgage rates, and higher housing demand from Filipinos overseas. Increasing demand for low-cost homes and high-end rentals are driving growth in the sector.

Regarding infrastructure, despite some delays in implementation of projects, the sector is expected to show strong growth for the full-year. In the industrial and commercial sector, continued growth should come from expansions in different industries, including business process outsourcing services.

In summary, we are pleased with the growth in local currency prices in most of our regions, reflecting the continued positive outcome of our value before volume strategy. And now I would like to turn the call over to Maher to discuss our financials.

Maher?.

Thank you, Fernando. Hello, everyone. It is important to note that in our third quarter report, the results of our Austria, Hungarian, and Croatian operations for 2014 and 2015 have been reclassified as per IFRS accounting standards, and are now reflected in a discontinued operations line item in our financial statements.

Our net sales and operating EBITDA, both on a like-to-like basis, increased by 5% during the quarter. There was higher like-to-like EBITDA contribution from Mexico, the U.S., and the Northern European and Asian regions. Our operating EBITDA margin during the quarter remained relatively flat on a year-over-year basis.

Year-to-date margin, however, remains the highest in six years. This margin expansion reflects better prices in volumes as well as operating efficiencies. On a year-over-year basis, we continue to see the effect of the appreciation of the U.S. dollar versus some currencies in our markets.

The year-to-date effects impact on our EBITDA was about $241 million. Of this amount, slightly above 40% was related to the Mexican peso; 30% to the Colombian peso; and 20% to the euro and euro-like currencies.

As Fernando mentioned earlier, our increase in consolidated prices year-to-date, adjusted for the effect of variable costs and freight rate increases, has offset slightly above half of the adverse effects impact year-to-date. Cost of sales plus operating expenses as a percentage of net sales remained flat during the quarter.

Year-to-date cost of sales are 1.5 percentage points lower. Our kiln fuel and electricity bill on a per ton of cement produced basis declined by 10% during the third quarter and by 5% to date -- year-to-date. During the quarter, our free cash flow after maintenance CapEx was $436 million.

That is an increase of 25% compared with the $349 million in the same period in 2014. This is mainly explained by lower financial expenses and a higher reversal in working capital investment. Working capital days for the nine months of the year reached 22, a new year-to-date record compared with 28 days in the same period in 2014.

As in prior years, we expect to recover most of our investment in working capital during the fourth quarter. Other expenses net during the quarter for $88 million were mainly due to impairment of fixed assets and severance payments. We had a loss on financial instruments of $82 million related mainly to CEMEX shares.

We also recognized a foreign exchange gain of $15 million, resulting primarily from the fluctuation of the Mexican peso versus the U.S. dollar, partially offset by the fluctuation of the euro versus the U.S. dollar.

During the quarter, we had a controlling interest net loss of $44 million compared with a loss of $106 million in the same quarter of 2014. This is primarily due to lower financial expenses and income taxes, mitigated by lower operating earnings, a loss in financial instruments, and a lower foreign exchange gain.

We continue with our initiatives to improve our debt maturity profile and strengthen our capital structure. During the quarter, we fully repaid the approximately $1.94 billion outstanding under our facilities agreement with a new -- with new funds from 17 financial institutions.

These lenders joined the syndicated loan facility we issued last year under new tranches. The applicable spread over LIBOR of this facility ranges from 250 to 400 basis points, depending on our debt leverage. The current spread is 350 basis points. That is 100 basis points lower than that of the facilities agreement.

Free cash flow during the quarter was mainly used to reduce debt. Total debt plus perpetual securities decreased by $353 million during the quarter. Year-to-date, total debt plus perpetual has been reduced by $710 million.

Regarding leverage, the negative year-to-date impact that FX fluctuations have had on our leverage ratio have been offset in great part by our value before volume strategy, as well as the positive effect of our euro-denominated debt.

Our maturity profile is very manageable, with $350 million of convertible notes maturing in March of 2016, and $373 million corresponding to the first amortization under the syndicated loan facility in September 2017. And now, Fernando will discuss our outlook for the year.

Fernando?.

For 2015, we now expect consolidated cement volumes to grow in the low single digits; ReadyMix volumes to grow in the low to mid single digits; and aggregate volumes to remain flat from last year’s level. Our guidance for CapEx and working capital remains unchanged.

Regarding our cost of energy on a per ton of cement produced basis, we now expect a mid single digit decline for the full year from last year’s levels. We now expect cash taxes to reach about $500 million. As a result of our liability management initiatives, we now anticipate the reduction in financial expenses for this year of about $150 million.

In closing, I want to emphasize that we continue to see profitable demand growth throughout our portfolio. We have delivered strong year-to-date results despite headwinds caused by currency fluctuations and volatility in the financial markets. Our year-to-date EBITDA margin was the highest since 2009.

And we also continue to improve our working capital, reaching a record low of 22 days. We also had the highest year-to-date free cash flow level since 2009, reflecting our initiatives to reduce financial expenses and improve working capital translating into a record low 22 working capital days.

I would like to reiterate the messages and targets we have provided since the beginning of the year related to how we are responding to this volatile environment and are further bolstering our road to investment grade. First, we are well on track to reach our cost and expense reductions target of $150 million.

Second, we now expect free cash flow initiatives of $250 million, about $100 million from working capital investment and the rest in financial expenses. Year-to-date, variation in working capital is $239 million lower and net financial expenses are $142 million lower than last year’s.

Third, we are on target to reduce between $500 million and $1 billion of debt this year. And fourth, we are well advanced in meeting our $1 billion to $1.5 billion target in asset sales. Year-to-date asset sales amount to about $620 million and there is more to come. Thank you for your attention..

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 beyond our control.

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.

Operator?.

[Operator Instructions] Your first question comes from Gordon Lee from BTG..

Just a quick question -- well, two quick questions, really, on Mexico and on the U.S. On Mexico, it’s clear obviously that the decline in volumes was attributable to the policy on pricing.

But I was wondering whether your competitors have followed suit with the price increases so far, or since the end of the quarter? Just to get a sense of whether you are seeing any resistance to the price increases, and whether we might see sort of market shares normalize again? And then the second question, on the U.S., there was no sequential price increases.

What are the -- what are you -- what are the price increases that are still pending implementation later this year? And what are your expectations for increases next year?.

Thanks, Gordon. Regarding Mexico, the impact in volumes -- we would need some additional time to better understand. Because remember, there is always a kind of an effect after elections. So, we are not completely sure on how much the impact in volume is due to our pricing strategy. But anyhow, it regarding other competitors, I just cannot comment.

I think you have to refer to other sources. And regarding the U.S., if I understood your question correctly, we don’t have any other pending price increases in the U.S. for the rest of the year. And we have already announced increases for early next year..

More or less at what range? Have you disclosed that yet or no?.

Pardon?.

Have you disclosed what range of increases and whether it’s across all regions?.

Yes, Gordon, it’s Maher. Yes, we I mean, we haven’t given the specific number but it’s in the mid-teens. And it pretty much mirrors what we did for last year, both in terms of regions and in terms of sequencing..

And I’d like to just have one final follow-up, just on Mexico. In the release, you mentioned that you saw the Mexican market continuing to grow in the third quarter in spite of your volume drop.

Would you give us an estimate of what you think the market grew in the third quarter?.

I don’t have a specific figure for the market for the quarter yet. But it should have been around, let’s say, 5%. But again, I don’t have a figure I can assure you that that is the growth..

Perfect. Thank you very much..

Thanks, Gordon..

Our next question comes from Carlos Peyrelongue from Bank of America Merrill Lynch..

Carlos? Operator, maybe we can move to the next question?.

Our next question comes from Vanessa Quiroga from Credit Suisse..

Thank you. Good morning, Fernando and Maher. My question is regarding the value before volume strategy, a couple of questions there.

The first one is, how do you measure how do you want to measure that success of the strategy in a specific regarding a time period where you want to reach X absolute amount of EBITDA? Or should we just understanding that that’s an ongoing situation an ongoing strategy, sorry? That would be the first question.

And the second one is, if we should understand the declines that we saw in ReadyMix and aggregates in Mexico as a reflection of this same strategy moving more towards cement? Or is it a reflection of what’s happening in the industry? Thanks..

Well, let me start with the first one, Vanessa. The strategy in Mexico I think what we see in the market in Mexico in our days is a different dynamics in the market.

Let me go back a little bit and remind a little bit of what happened in the second half of 2012, the whole 2013, and perhaps a quarter or the first half of 2014, with volumes at an industry level in Mexico cement volumes I’m referring to decreased because of the all the things that happened then. And the volumes decrease and prices decrease also.

Now, I think it is kind of natural that when volumes are growing, prices should grow and take advantage of the dynamics and grow accordingly. In our case, that’s our strategy. It is not a strategy it is defined through time.

I mean, it’s not something that we can do forever, regardless of the implications or consequences, but I think we think it is the right thing to do. The market is growing. We understand capacity utilization is also growing. And that is supportive of higher prices in Mexico.

We cannot say that even after increasing prices as of September, we are in the high range of prices in Mexico. That is not the case. So there is still room to go. It will take some time. And again, we are vigilant of the implications of our value before volume strategy in Mexico.

And if needed, we will adjust it whenever we think that that is the way to go. But so far, I think this is the right thing to do. Now, regarding your second part, the second question regarding ReadyMix and aggregates, it is related to cement strategy, particularly the one in ReadyMix. It goes -- practically goes hand-to-hand..

Thank you.

Fernando, just picking up what you just said regarding that there is more room to go in price increases in Mexico, by how much could prices still go up? I mean, what’s this peak that you are referring to?.

You are asking a very difficult question, Vanessa. No, I don’t think I can comment on an expectation of prices, because you know, as I mentioned, we are vigilant on the implications of our value before volume strategy, and if needed, and when needed, we will be adjusting it. So, it is very hard to define or to comment on a specific level of increase.

What I can tell you is that, so far -- and again, not considering any major adjustments to the strategy, but I think it will take us the rest of the year and 2016 to complete our value before volume strategy in Mexico..

That’s excellent. Thanks, Fernando..

More than welcome. Thank you, Vanessa..

Your next question comes from Yassine Touahri from Exane BNP Paribas..

Just a couple of questions on Mexico and Colombia. I understand the prices increased sequentially in both countries. But what -- when I look at the margin, I can see that the margin have not increased sequentially. Margin actually in the third quarter in Mexico a little bit below the margin in the second quarter.

And in Colombia, the margin were approximately the same in the same quarter.

I’d like to better understand what is the dynamic? Is it an increase in costs related to the weakness of the local currency that is explaining this? Or are there any other explanations?.

In the case -- Yassine, this is Maher -- I mean, in the case of Mexico, it probably has to do with the -- I mean there may have been some higher variable costs that is involved and transportation costs that may be also translating to the sequential changes in margin.

And in the case of Colombia, you have raw materials from cement was impacting the margins..

And could you remind us how much of your cost is dollar-denominated in Colombia and in Mexico?.

Yes, both markets -- I mean, as we said, on a consolidated basis, we are probably around just a little bit over the 70% level. In the case of Mexico, we are around 80%; and in the case of Colombia, we’re roughly around the same level. 80% is local currency component..

Local currency component.

And have you announced any price increases for next year in those two countries like you did in the U.S.? Or is it a little bit too early?.

No, it’s -- the pricing dynamics in both Mexico and Colombia are different from the U.S. In the U.S., we tend to make -- notify our customers ahead of time just because of long-term obligations. In the case of Mexico and Colombia, it tends to be much shorter-term. And the answer is that we have not made any such announcements..

And last question on Colombia.

Is your pricing versus your value versus volume strategy the same as in Mexico? Is it something that should continue in 2016? Or is it too early to say?.

No, I think that in the case of Colombia, the strategy will take perhaps the first quarter of next year. But it’s our expectations is that by then, it will be fully implemented, compared to Mexico, in which I mentioned the whole 2016..

Okay, thank you very much..

Thank you..

Thank you, Yassine.

Operator?.

Your next question comes from Froilan Mendez from J.P. Morgan..

Thank you very much for the question.

Regarding the comments you made, Maher, on the declining in energy costs, can you go over again how our energy cost is offsetting FX headwinds, and if this effect is in the overall regions or any specific region having this impact a little bit more highlighted?.

I mean, we had a decline in energy costs, but I don’t know if you could connect the energy costs to necessarily FX headwinds, I mean, other than you’re reducing your costs, which is one of the three prongs of our strategy to address the strength of the dollar.

And, in most of our markets, I would say certainly in Latin America, the cost of energy is dollarized to a large extent. So that’s the component of the -- of our cost inputs that is really not in local currency. And unfortunately, transportation costs in most of our Latin American countries also tend to be rising.

But on a consolidated basis, I mean places like the U.S. and Europe, for instance, we have seen significant drops in the cost of fuels. We have seen significant drops in the cost of electricity. And so, overall, as we said, by the end of the year, we do expect our energy costs to be contributing to savings..

Your next question comes from Mike Betts from Jefferies..

My two questions. The first one is a fairly general question. Your COGS as a percentage of sales were tracking down very nicely in the first two quarters, and they’ve gone up slightly in Q3. I wonder if you could kind of summarize. You talked about a few of the factors in various geographies.

But in a summary view, could you explain what drove those costs -- well, not higher, but stopped them falling in Q3? And how you see the outlook for Q4? And then my second question is on the U.S. I’m looking in front of me at the Investor Day slide for the U.S.

and I think there were three price increases that were due in midyear -- July in Florida, October in Texas, and October in California.

Now, obviously, they are not going through, but maybe you could explain why you think they’ve not been successful?.

Well, if I take the second question, it’s -- they didn’t -- went through because of market dynamics, basically. Competitors didn’t follow, and we decided not to continue forwards. So that’s -- I don’t have any additional explanation to that one. And --.

Let me raise -- put the question slightly differently.

Why the assumption or the hope that they will be more successful in January or the spring of next year if they don’t go through midyear?.

Yes, I think, Mike, there’s been very, very specific and localized -- I guess we are not at liberty to kind of go into that level of detail, but there’s very specific and localized market dynamics in Florida, in Texas. I mean I think the Texas pricing increase was probably much more expected not to happen than the other two.

And in the case of Florida, I think there was a very localized dynamics. In the case of California, which has been the -- it’s been our strongest growing market, frankly, there is also very -- I would say technically -- we believe technically-driven reason. And there’s been some M&A activity.

And in the interim process, it was difficult to affect the pricing increase there.

But, we -- but the outlook, I mean, if you take a look at all of the three states, California is expected to continue to grow at a very robust level; Florida is expected to continue at a very robust level; and Texas is sold out, and is -- excluding the dynamics and the oil well cement business -- continues to have low single digit growth.

And so, we are quite optimistic, frankly, for the price increases that have been announced for January and April of next year. Now, as you recall, last year, pricing increases were slotted for kind of mid-region and Florida for the January timing slot. And then for California and Texas, were more in the April time slot.

So we do believe that -- and we’ve seen a -- others kind of makes similar announcements and that makes us feel comfortable about it. Now the -- your question about COGS, Mike, is probably driven by two factors. Number one is -- the biggest driver probably is the higher cement prices that are going into the ReadyMix business.

And you know we do have an important amount of integration into that. So that’s number one. And the other two is some maintenance costs that took place. That’s the reason behind it..

And would you expect a similar trend in Q4? Or would you expect -- obviously, the maintenance costs, I presume not.

But the high cement pricing to ReadyMix, presumably that continues into Q4?.

Yes, to the extent -- I mean, our assumption -- and frankly, we are seeing continued digestion, if I can use that term, of our pricing increases in all of our regions. So, yes, some of that input cost inflation pull-through will continue, definitely..

That’s great. Thank you very much and thanks for the detail..

Thank you very much, Mike..

Our next question comes from Jon Brandt from HSBC..

Thanks for taking my question. Just I guess I wanted to ask about again the value before volume strategy. You had mentioned earlier that you lost some price-sensitive customers.

I’m wondering why they would come back? Is it sort of your overall service levels or do you need competitors to match some of the price increases? You seem to have lost a lot of market share in Mexico this quarter and I’m wondering, given that you expect to continue the value before volume strategy through 2016, if market share no longer matters to you and that’s just a function of the volumes that you sell? And then, secondly, I’m hoping you can quantify a little bit what sort of impacts on margins or EBITDA that the value before volume strategy had during the quarter? You mentioned it for FX.

I think the number was $241 million. And granted, this is a bit more difficult, I’m sure, to quantify. But if you could try to quantify how much of an impact on EBITDA or EBITDA margins the value before volume strategy had..

Let me take the first one. And let me start by saying that we do care a lot about our customers and our market share in Mexico. And hopefully, our strategy is not misunderstood, but I think there are different steps on the execution of the strategy. It is the nature of the business.

To increase prices, and if the industry doesn’t follow, you lose market share to some extent. And afterwards you evaluate if the strategy makes sense or you make some adjustments in the strategy. So far, we are pleased with the results.

We think we are as I mentioned, given that the pricing strategy for Mexico would last for the remaining of the year and next year, we are pleased so far with what we see.

But I already mentioned that we have to be vigilant on all the implications, and preferring particularly to market share, and see if there is any need of making adjustments to the strategy. But so far, I don’t think on adjustments because the results now.

Now the third quarter, we still don’t have a complete information on the market itself for the quarter. And I also mentioned that our pricing strategy might not be the only cost of volume productions for Mexico in the quarter. Remember this was a quarter after elections, which always have some effect.

Again, right now we cannot evaluate that effect, but it’s something that we’ll be in a position to be doing in the next few months. But again, summarizing, we do care a lot of our market share, our customers. And but we think that this is the right moment for us to recover prices lost I already mentioned mainly in 2013.

The dynamics are supportive, meaning the market is growing. And what else can I tell you? We will continue being vigilant on the strategy..

And if I can add, Fernando, just to kind of talk about the why we think it’s the right thing to do, when we take a look at the specifically, as you asked in terms of EBITDA margin impact due to pricing versus volume, the EBITDA margin improvement due to pricing is frankly a multiple of the EBITDA margin loss due to the volume dynamics.

I think what you are seeing in Mexico is the biggest mover on the negative side if I can call it negative side is variable costs going up. And so, clearly that’s one of the reasons why prices need to also be going up, is because of the input costs or variable cost moving up, and particularly in the ReadyMix business..

Okay, thank you..

More than welcome..

Our next question comes from Lillian Starke from Morgan Stanley..

Hi. Good morning and thank you for taking my question. I have three questions. The first one is in terms of margins in the U.S. we would’ve expected some improvement, at least sequentially, given that you had a better mix in terms of cement versus ReadyMix.

So if you could share some color on what are sort of the margins that you have for ReadyMix, and why there was sort of a flat margin in the US? The second question is, in terms of Mexico, where did you see the largest demand weakness? Or where did on a regional basis, where did volumes show up the most on cement? And then my third question is regarding your energy costs.

How much of it is it hedged or in long-term contracts, and therefore you might see a large improvement in your energy costs, given the nature of this time lag on the contract?.

Maybe I’ll take the volume dynamics in the U.S. We our biggest, our fastest growing market continues to be California, and I would say probably followed by of size, Florida, although we are quite pleased by the dynamics that we are seeing in places like Georgia and Alabama.

Texas, of course, you have to kind of sensitize the market to the impact of oil well cement. If we take oil well cement out of the equation, we are seeing slight growth. So there is definitely a little bit of a slowdown in Texas.

So, of the big markets, I would say Texas is the one that has kind of eased up a little bit, but we continue to see positive growth and the state continues to be sold out. So, in terms of the announced pricing increases for next year, that should be pretty favorable..

And just -- the question was on Mexico, on a regional basis, how do you see -- the question was more on Mexico. Sorry..

I thought you said the U.S..

No, the thing is -- the first question is on the margin I mean lack of margin improvement quarter-on-quarter in the U.S. despite the fact that you had stronger cement volumes this quarter versus second quarter.

And then the other one was on Mexico on I mean that 4% drop in volume, whether you saw it more acute in any of the regions or states specifically?.

Well, I mean, in Mexico, probably the -- I mean, the most robust region where we think the markets are supply/demand dynamics are most favorable is the central and southern part of the country. And I say where we believe that capacity utilization is the highest in the country today..

Okay, perfect..

Our next question comes from Daniel Sasson from Itau BBA..

Thanks for the questions. My first question is actually I’d like to better understand the CEMEX priority in terms of improving labor ratios.

I mean I know you’ve been doing a fantastic job in terms of your liability managements and you’ve been able to reduce your financial expenses, but going a bit deeper into your asset divestiture plans, I’d like to know in your preferences, how does, for instance, an IPO of a smaller unit, for instance in Asia, rank vis-à-vis the sale of non-core assets for instance in the U.S., your concrete blocks business or your pipes business in the U.S.? Would you rather sell 100% of a noncore asset such as this one I mentioned? Or would you consider to IPO one of your other units as you did with CEMEX LatAm? And my second question, if you will, I’d like to understand your views for the U.S.

The U.S. in terms of volumes has been going or has been showing an important development or demand has actually been doing pretty great there.

And actually for 2016, some consultancy companies are already forecasting demand to surpass 100 million tons in capacity or in volume sorry, which is pretty much the production capacity in the country, do you think that getting closer to this 100 million tons is actually something that could provide local producers with pricing power, so we could see this good trend or yes, this positive trend for pricing in the U.S.

remain in place in 2016? That would be it for me. Thank you..

Okay, let me take your first question regarding assets. I think we have mentioned, and it’s still the case, that we are open to the divestment of assets and also open to IPOs of different businesses.

Our main preference is to divest nonproductive assets and noncore assets, but that would not make the total of our $1 billion to $1.5 billion divestment program. But again, all the options are open. And depending on how different geographies evolve, then we might tackle different options accordingly.

As I mentioned, so far, we have already divested a little bit more than $600 million, so we are, let’s say, 60% of the $1 billion of the minimum range we commented. So, I think and as you remember, these divestments, the $1 billion to $1.5 billion, we commented that we were going to take up to 18 months since we announced it early last February.

So I think we are well on track to divest something between $1 billion and $1.5 billion. Again, considering all type of options. For instance, we already sold the gypsum business in the U.S. which is a noncore business, but we also sold Croatia, which is a cement -- mainly cement business. In the past, we did CLH.

So we don’t have any -- we are open to whatever the options we are permanently evaluating them and making decisions accordingly..

And Daniel, if I can address your question about the U.S., we are pretty much on track, I think, for the country to be around 92 million, 93 million tons of consumption for the year. That is roughly around 85%, maybe a little bit over 85% capacity utilization.

I can’t -- we can’t speak about our competitors, but we are in the 80’s to mid-80 capacity utilization in, for good or for bad, in markets like Texas, for instance. I mean, imports have increased to address some of the higher demand in tight market conditions there. We certainly don’t expect any new capacity to come on-stream anytime soon.

And so -- and the growth dynamics, especially I would say on the housing and industrial and commercial, notwithstanding the statistics that we’ve seen recently, which are very weather-driven, we think that the fundamental underlying demand for our products is -- continues to be very solid.

Especially in the three markets -- the three biggest markets that we are in, and certainly in the markets that are just north of Florida. So, I think you can extrapolate potentially from that that pricing dynamics potentially should continue to be better.

And that’s what gives us the conviction that our January, April pricing increases should be reasonably well-absorbed as they come into force and to effect.

I don’t know if that answers your question or if you have any follow-up on that?.

And your next question comes from Dan McGoey from Citigroup..

Two questions. First, on the Mediterranean, your price is down about 8% year-on-year. I’m wondering if you could talk a little bit about the price weakness in that market. And then second question is also on the debt side on the covenants, the recent finance agreement covers covenant levels at six times the first quarter of next year.

Could you give us the kind of grade of the step-down in covenants post 1Q 2016?.

Okay, starting with the prices in the Mediterranean, I think it is mainly because of Egypt. Prices went down 7% in local currency terms. And it is because of the dynamics in the country, as we have commented before. A few months ago or a year ago, there was an issue with availability of energy, which is not the case anymore.

So, it happens that all the installed capacity in the country is in better shape to be used, and that that is a dynamic that is affecting. And, in our case, we are picking and selecting our customers to be sure that we’ll lose -- we don’t lose as much as others in this -- during this dynamics.

I do expect that even though our prices have been impacted, starting January, some point in time in December and in January, and because of us switching from mazot to pet coke, as we mentioned, our profitability and margins in the country will improve compared to this year..

And also if I can add, Fernando, Dan, Spain was also a part -- I mean, Egypt was the biggest -- was a very important part, but also Spain as we integrate the markets that we acquired in -- from Holcim, those markets tended to be at different pricing levels.

And as we homogenize those markets to our levels, that also created a -- that was one of the reasons why the weighted average pricing in Spain also was a little bit on the weak side..

I see you cited -- basically mentioned pro forma prices were up 11%, but presumably the 8% decline includes a much either lower consolidated Spain price performance, if that’s what you’re referring to, Maher?.

Yes. Yes. Now on the covenants, the covenant is 6 through this year; continues to be 6 through the first quarter of next year. And then it tightens down by a quarter of a turn to 5.75 next year..

5.75 by end of next year?.

No, no, by June. And then it stays flat into September, and then it tightens another quarter, return to 5.5 by December. So, from end-of-year this year, 6 it goes down to 5.5 by the end of next year..

Okay, great. Thank you..

Thanks..

Okay. Thank you, Dan..

We have time for one more question, and that question comes from Benjamin Theurer from Barclays..

Good morning, everybody. So, obviously a tough quarter with FX headwinds throughout the different regions. Just a quick follow-up on your well, we’ve discussed a lot already, volume before pricing and obviously the impact on some of the regions on volumes, etcetera.

But just to better understand the dynamics of what we’ve seen in the different regions, so clearly, in Mexico, you had a very strong increase in local currency prices, which, to some extent, affected your volumes.

But to also understand in other markets, like, for example, in South Central America, so volumes were still down on a year-over-year basis despite fairly low price increases in local currency terms.

Was it because it was difficult to raise prices because of competition in South Central America? Or was it more because you had already difficulties at the beginning of the year with the price increases you tried to implement in the first quarter? So, if you could explain a little bit on that. And then I have a follow-up on that one..

Ben, hi. This is Maher. First, in the case of, just to go through the whole region, okay, in the case of Colombia, as we said in our remarks, last year third quarter was I want to say it’s one of the highest, if not the highest, quarter that we’ve had in terms of volumes.

And as you saw, sequentially pricing in Colombia was actually behaving quite well. And so I would say it’s mostly in the case of Colombia, the volume dynamics are mostly a base effect. And volumes in Colombia sequentially were up. So I would say there, it’s there’s there are no issues.

I think one of the areas that are distorting a little bit the results is, frankly, is Panama, where you have a big drop in volumes. And mostly most of that drop is because of the completion of our supply to the Canal contract and also the completion of the Corredor Norte project completion as well.

Without the Canal, the decline would have been low single digits, frankly, on a year-over-year basis. So, that’s I would say that’s where the distortion is.

But we believe that our value before volume strategy in the most the largest market in Colombia is actually going I don’t want to say as expected, because we certainly would like to be less affected on the volume side, but it’s certainly going generally in the right direction, as far as we are concerned..

Okay, perfect. And then just following up, so obviously, we’ve discussed that there’s still some price increases pending.

But on the different dynamics, so also, taking into consideration that obviously FX remains quite of an issue, how much is your sense you still have to raise prices in local currency terms to somehow get back of what you’re losing through the depreciation? So how much are you into it? And in other regions like, for example, the Mediterranean with the Egyptian pound and the euro, but also in South Central America.

Mexico was discussed, so just the other regions, if you could clarify on that. .

Well, I think it’s quite difficult to say because it is different market for market, and in some countries like Mexico, it might be or the U.S., it might be different region-by-region inside of the country.

But for instance, I just commented on the dynamics going on in Egypt, and that’s a very challenging dynamic for us to think on increasing prices in local terms in a material way.

But we have already commented the case in, for instance, in either Mexico or Colombia, the dynamics are much more favorable for us to try a strategy like the one we are following. How much is very difficult to say, because this is something we are trying and it’s gradual. It is not something that you do in one shot.

And we have to be very vigilant on the implications I’m referring particularly to market share and act accordingly. So right now, and particularly in Mexico in which we are in the middle of the strategy, it’s very difficult to guess on the end, or the of the strategy.

I think we will be disclosing how successful we have we are on executing this strategy every quarter, depending on again on the valuation we are permanently doing on how successful it is what we have already done, the part that we have already done..

Okay. Perfect..

And if I can stress Ben, I think I would like to stress just one point that Fernando mentioned. I think the issue here is not the FX. I think the issue is that, I mean, there are no FX issues in the U.S., for instance. I mean and we are proceeding with our value for volume there and it has been quite successful.

I think as far as the FX is concerned, I mean, we have many more tools than that. I mean, we do look at we’ve talked about the local cost component. We did talk about our cost-cutting and operating efficiencies that we are getting. And, of course, pricing is just a component.

But pricing is mostly a reflection of supply/demand conditions, frankly, in markets. And that’s why it differs from market to market..

Okay. Perfect. Thanks, Maher. Thanks, Fernando..

Thanks..

I would now like to turn the call over to Fernando Gonzalez for closing remarks..

Well, thank you very much. And in closing, I would like to thank you all for your time and attention. We look forward to your continued participation in CEMEX. Please feel free to contact us directly or visit our website at any time. Thank you and have a good day..

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