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Edited Transcript of CLH.BG earnings conference call or presentation 25-Jul-19 3:30pm GMT

Q2 2019 CEMEX Latam Holdings SA Earnings Call

Madrid Jul 30, 2019 (Thomson StreetEvents) -- Edited Transcript of Cemex Latam Holdings SA earnings conference call or presentation Thursday, July 25, 2019 at 3:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jaime Muguiro Domínguez

CEMEX Latam Holdings, S.A. - CEO, MD & Executive Director

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Conference Call Participants

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* Carlos Enrique Rodríguez

Ultraserfinco S.A. Comisionista de Bolsa, Research Division - Director of Equity Research

* Juliana Aguilar Vargas

Bancolombia S.A., Research Division - Cement and Infrastructure Analyst

* Roberto Carlos Paniagua Cardona

Corporacion Financiera Colombiana S.A., Research Division - Variable Income Analyst

* Rodrigo Sanchez;Davivienda Corredores

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the 2Q 2019 CEMEX Latam Holdings Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to introduce your host for today's conference, Jaime Muguiro, Chief Executive Officer of CEMEX Latam Holdings. You may begin.

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Jaime Muguiro Domínguez, CEMEX Latam Holdings, S.A. - CEO, MD & Executive Director [2]

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Thank you, operator. Good morning, everyone. Thank you for your continued support of CLH and for joining us for our second quarter 2019 call and webcast.

As usual, our initial discussion of the results will be in English. These remarks as well as the results presentation are being transmitted live in our webcast at www.cemexlatam.com. Afterwards, I will be more than happy to take your questions. For the benefit of the person asking, I will answer the question in the language in which it is asked, either English or Spanish. And now let me discuss our results.

Before we start, let me remind you that our 2019 financial information as well as the comparable 2018 figures now reflects introduction of IFRS 16, under which there is a single accounting treatment for all leases. As we commented in our last conference call, we are operating under challenging market conditions particularly in Central America that are putting pressure on our EBITDA. In Colombia, the positive volume and price trend continued during the quarter. We're very pleased with the 7% sales growth achieved during this period in local currency terms. However, increased energy and logistics cost as well as a negative foreign exchange effect prevented us from improving our EBITDA in the country. Additionally, challenging market conditions continued in Panama, Costa Rica, Nicaragua, while in Guatemala, our results were affected by increased purchase clinker costs.

During the quarter, the U.S. dollar appreciated versus the currencies of Colombia, Costa Rica, Nicaragua and Guatemala by 14%, 4%, 5% and 3%, respectively, on a year-over-year basis. In this context, our consolidated net sales during the quarter declined by 11% in U.S. dollar terms or by 4% in local currency. Increased sales in Colombia and El Salvador were more than offset by lower sales in the other countries in local currency terms. Our EBITDA during the quarter in U.S. dollar and local currency terms declined by 28% and 23%, respectively.

Our consolidated EBITDA margin during the second quarter declined by 4.3 percentage points on a year-over-year basis to 18.3%. This margin decline was mainly due to lower prices, which accounted for 6 percentage points, partially offset by the SG&A savings related to our Stronger CEMEX plan, which improved our margin by 1.2 percentage points.

During the quarter, our consolidated gray cement volumes increased by 1%, while our ready-mix and aggregates volumes declined by 5% and 6%, respectively on a year-over-year basis. We saw an improvement in gray cement volumes in Colombia and in El Salvador. Consolidated prices for both cement and ready-mix declined by 1% during the quarter, while aggregate prices increased by 2% in local currency terms on a year-over-year basis. In our cement business, improved prices in local currency terms in Colombia and the Rest of CLH were more than offset by lower prices in Panama and Costa Rica on a year-over-year basis.

Our EBITDA, during the first 6 months of the year declined by $31 million, mainly due to increased variable costs, lower volumes and the appreciation of the U.S. dollar, partially offset by lower SG&A from our stronger CEMEX initiatives and by higher prices.

Regarding the increase in variable cost. The main impacts were seen in Colombia, where we faced increased energy and distribution costs. And in Guatemala, where we had higher imported clinker cost. The impacts on EBITDA of lower volumes in Costa Rica, Panama and Nicaragua were $13 million, $6 million and $5 million, respectively, and were partially offset by a $13 million improvement in Colombia. Most of the negative foreign exchange effect was due to the 12% appreciation of the U.S. dollar versus the Colombian peso during the first half of the year on a year-over-year basis.

In this very challenging environment, we're working relentlessly in the following initiatives to manage our cost base as efficiently as possible. First, under our Stronger CEMEX plan, we identified $11 million in recurring savings for 2019, out of which, we already realized $6.5 million during the first half of the year. These savings relate mainly to SG&A reductions and the low-cost sourcing initiative. Second, we expect to reduce our energy cost through alternative fuel projects, while we also capture opportunities in the primary fuel and electricity markets. In Panama, we recently switched from coal to petcoke, taking advantage of lower international prices. Also, we're working on a project to increase our alternative fuel substitution to more than 20% by processing, in our kiln, waste oil from ships. Additionally, we recently signed a new electric power contract that should save us $2 million per year in our electricity bill from January 2020 onwards.

In Costa Rica, we're working on a project to increase alternative fuel substitution to more than 35% by processing used tires in our kiln. This project provides adequate disposal of these wastes while it also should reduce our costs.

Third, we're working to reduce our clinker factor and CO2 footprint. One of the main initiatives is to produce calcined clay industrially in our Cúcuta cement plant in Colombia. We have ample experience using calcined clay in our Santa Rosa Cement Mill in Bogotá, which has one of the industry's lowest clinker factor at around 61%.

Fourth, we're optimizing our ready-mix business across all our countries, reducing costs and focusing on locations with growth potential. For example, in Panama, we renovated more than half of our ready-mix trucks and closed plants to concentrate our footprint around the metro area. During the first 6 months of the year, the EBITDA of the ready-mix business improved by $3 million compared to that of 2018.

Fifth, in Guatemala, we're working on reducing purchase clinker cost by sourcing it locally. Also, we're analyzing, investing in an additional cement mill that should allow us to reduce cost by substituting our current cement imports from Mexico with locally-sourced clinker. Additionally, this project should allow us to increase sales in Guatemala and supply cement to our operations in El Salvador, replacing imported cement from third parties.

Regarding our efforts to provide a superior customer experience, we have been working on different initiatives, including CEMEX Go. Currently, 75% of our cement orders and more than 55% of our total orders are placed digitally. Other services like digital invoice administration and electronic proof of delivery, or ePOD, reached adoption levels of 77% and 53%, respectively. CEMEX Go is improving our customer service, while allowing our sales force to focus on consulting and prospecting new business.

Our mixer value proposition is another example of our efforts to provide our customers with solutions. In Colombia, this initiative is enhancing our market position among Construction & Industrial customers. We help them optimize their concrete mixes with our cement additives and aggregates, reducing their cost and producing high-performance concretes. Also, our digital technology is enhancing initiatives like (inaudible), under which we can match construction projects with our distribution customers based on geographical location and supply capabilities of our customers.

Now I will discuss the main operating and financial results in our markets. We are encouraged by the positive cement demand trend in Colombia, driven by the infrastructure and the informal residential sectors. We estimate that industry cement demand increased by 2% during the quarter and by 3% year-to-date. Additionally, we're very pleased with our cement volume and price performance during the quarter. Our cement volumes increased by 12% during this period, while our prices in local currency increased by 2% sequentially and 3% year-over-year. Furthermore, our cement prices from December 2018 to June increased by 6% in local currency terms. Additionally, last week, we implemented a 3.5% price increase in box cement in locations with positive market dynamics.

Our estimated market position during the quarter remained relatively stable compared to that of the previous quarter and the fourth quarter of 2018, after a decline in our market position last year because of our pricing leadership, where we gained our position during the fourth quarter of 2018. This recovery was driven by our commercial strategies like mixer, (inaudible) and Construrama.

Regarding our financial results in Colombia, net sales during the quarter increased by 7% in local currency terms due to higher volumes as well as higher cement and aggregates prices. In U.S. dollar terms, net sales declined by 6%. Our EBITDA during the quarter declined in U.S. dollar and local currency terms by 25% and 14%, respectively. EBITDA margin declined by 3.1 percentage points to 14.1% during the quarter.

Regarding the margin variation, higher sales and lower SG&A accounted for an improvement of 2.1 and 1.1 percentage points, respectively. These gains were more than offset by increased freight and variable costs, which accounted for 2 and 4.5 percentage points, respectively. During the quarter, we performed major maintenance to our Ibagué kiln #2, with a similar cost impact to the works performed in kiln #1 during the same period of last year.

Regarding the unfavorable impact in freight cost, landslides in the Bogotá Villavicencio highway and in Antioquia impacted our cement logistics and disrupted the aggregate supply of our ready-mix business. Now out of the 4.5 percentage points impact in variable costs, increased coal and electricity cost accounted for 2.2 percentage points. This effect should ease during the second half of the year as coal and electricity headwinds subside. An additional 2.3 percentage points of the margin decline is due to the consumption of imported clinker in our cement mill in Clemencia. We commissioned earlier this year this plan, again, to support higher dispatches in a year in which we are shutting down for maintenance works our 3 kilns, unlike in 2018 when we only shut down 1 kiln for this purpose.

Regarding the residential sector, we estimate that industry cement dispatches remain relatively stable during the quarter on a year-over-year basis. Improved demand to the informal residential segment was offset by lower volumes to the formal mid- to high-income segment. Improved volumes to informal residential segment during the quarter were driven by the economic recovery, increased remittances and potentially by the effect of immigration from Venezuela to the country. We are a bit more optimistic on social housing going forward due to the low levels of inventory and the recently announced government measures to support subsidy programs. Among the most relevant are the guarantee of funds for the Mi casa ya subsidiary program until 2024, and the increase in the maximum home price allowed to receive a subsidy from around $35,000 to close to $40,000. The mid- to high-income housing segment continue to adjust during the quarter. Housing starts and permits in this segment declined by 33% and 2%, respectively, year-to-date, May. However, housing sales increased by 1% during this period. If the positive trend in sales continues, the relatively high inventory in this segment of about 14 months might begin to be absorbed.

For the full year 2019, we expect industry cement volumes to the residential sector to increase in the low single digits, supported by the self-construction and social housing segments.

The infrastructure sector continued its positive performance during the quarter. We estimate that industry volumes to this sector increased by high single digits during this period. Our volumes to this sector were supported by 4G projects as well as projects in Bogotá, such as the Salitre water treatment plant at CETIC Hospital and new community centers. Additionally, we supplied our products to the school construction programs sponsored by the government. The hospital Clinica Valle De Lili in Cali as well as other projects across the country.

Regarding 4G projects. We estimate that total ready-mix volumes for these projects will reach around 610,000 cubic meters in 2019, and we expect to supply around 40% of that amount. Among other projects, we're currently supplying to Autopista Mar 1, Neiva-Girardot and Pasto-Rumichaca, which last week announced its financial closure. We expect that industry ready-mix volumes under this program will peak in 2021 to around 900,000 cubic meters.

Regarding the project pipeline in Bogotá, relevant projects like the Salitre water treatment plant and the CETIC Hospital are in final construction stages, and there are no substitute projects of similar size in sight for the second half of the year. Some relevant projects like the Carrera Séptima BRT was recently put on hold, and other relevant projects are now expected to start during the first quarter of 2020.

With respect to the Bogotá Metro, the award of this project before the municipal elections in October is very relevant to avoid postponements in its construction. If awarded in September, as per their current plan, construction might start sometime next year.

During 2019, we expect industry cement volumes to the infrastructure sector to increase in the mid- to high single digits. We believe activity in this sector should be reinforced by a higher transportation investment budget and by an increase in government royalties from extraction activities, which is used in part for transportation projects.

In the industrial and commercial sector, construction permits declined by 10% year-to-date, May, and we estimate that industry cement volumes to this sector declined by double digits during the quarter. Going forward, we expect better dynamics in this sector, supported by lower corporate taxes, oil sector investments and improved business confidence. Because of all of this, we believe that industry cement demand in 2019 might increase up to 3% in Colombia considering our volume performance during the first 6 months of the year, we now estimate our full year 2019 cement volumes in Colombia to increase from 4% to 6%.

In Panama, we estimate that industry cement demand during the quarter improved by 2% or by 5% adjusting for 2 fewer business days. However, volumes remain very weak, considering that during the same quarter of last year, the industry suffered a construction workers strike, which paralyzed the formal construction activity for 30 days. Cement demand continued to be affected by high levels of inventory in apartments and offices as well as by project delays in the infrastructure sector. However, we're optimistic on the infrastructure sector going forward as relevant projects are expected to ramp up volumes in coming months.

Cement imports reached an estimated 6% participation during the quarter compared to 2% during the second quarter of 2018 and 9% during the first quarter of this year. Our cement volumes during the quarter declined by 6% or by 3% adjusting for 2 fewer working days compared to those of the same period of 2018. Our cement prices declined by 2% sequentially, due to difficult competitive dynamics in a weak demand environment.

Our sales and EBITDA during the quarter declined by 5% and 29%, respectively. During the quarter, our EBITDA margin declined by 7.4 percentage points. Major maintenance works worth $4.1 million performed to our kiln #2 during the quarter and not done during the same period of last year accounted for 6.6 percentage points of the margin decline, while lower sales resulted in a 6.2 percentage point drop. On the other hand, the optimization of our ready-mix business improved margin by 3.2 percentage points, while the reduction of SG&A expenses impacted favorably by 2.2 percentage points.

For the rest of 2019, we expect the infrastructure sector to be the main driver of demand. The Corredor de las Playas highway and the fourth bridge over the canal recently started construction and should ramp up volume soon. Additionally, the second phase of the urban renovation of Colón City as well as the connection of the Metro second line to the airport should start construction during the second semester. Next year, additional projects worth $4 billion should start. Among the most relevant are the $2.6 billion third line of the metro, the $500 million water discharge structure for the canal, a $300 million transmission line and a $150 million wind farm.

For the full year 2019, we expect industry cement demand to bottom out and decline in the mid-single digits. In light of all of these as well as our performance, during the first half of the year, we now expect our full-year cement volumes in Panama to decline from 6% to 8%.

In Costa Rica, industry cement demand was very weak during the quarter. We estimate that it declined by 18% or by 15% on a daily sales basis. Uncertainty related to the implementation of the fiscal reform affected consumer and business confidence. Additionally, we observed some delays in infrastructure projects. Our quarterly cement volume performance reflects a high base of comparison in the same period of last year as the new competitor commissioned its cement grinding mill in July of 2018. Additionally, please note that relevant projects ramped up volumes during the first half of last year.

During the quarter, our volumes were supported by infrastructure projects like Circunvalación Norte, Ruta 32, Río Frío- Limón and the (inaudible) bridge. Ongoing projects like the parliament building, a Coca-Cola plant and the central bank building reached their final construction stages during the quarter.

Regarding cement pricing, our quarterly prices in local currency terms declined by 2%, both on a year-over-year and on a sequential basis, reflecting weak demand and difficult competitive dynamics. Our net sales during the quarter declined by 37% and 34% in U.S. dollar and local currency terms, respectively, mainly due to lower volumes and cement prices.

Our EBITDA during the quarter declined by 44% and 42% in U.S. dollar and local currency terms, respectively. The EBITDA margin during the quarter declined by 4.2 percentage points mainly due to lower volumes. For the full year 2019, we now estimate that industry cement demand will decline in the mid-teens during 2019 mainly due to larger-than-expected impact related to the fiscal reform and to some extent, infrastructure project delays. Considering lower industry cement demand as well as the presence of a new competitor, for the full year, we now expect our volumes to decline from 19% to 25% during 2019. We expect industry cement volumes to bottom out during 2019. Next year, domestic demand should hopefully grow, driven by the infrastructure project pipeline, which execution has been delayed this year.

In the Rest of CLH, our cement volumes declined by 2% during the quarter. Increased cement volumes in El Salvador were more than offset by lower volumes in Nicaragua and Guatemala. Quarterly cement prices, in local currency terms, increased by 1% on a year-over-year basis and remained flat sequentially. Cement prices in U.S. dollar terms declined by 2% on a year-over-year basis. Net sales during the second quarter in U.S. dollar and local currency terms declined by 17% and 14%, respectively. EBITDA during the quarter in U.S. dollar and local currency terms declined by 23% and 20%, respectively mainly due to lower volumes in Nicaragua as well as to increase purchase clinker costs in Guatemala.

During the quarter, our EBITDA margin declined by 5.4 percentage points, mainly due to higher purchase clinker costs in Guatemala. In Nicaragua, the margin remained relatively stable as the unfavorable volume impact was mostly offset by lower operating costs. In Nicaragua, the sociopolitical crisis remains unresolved and continues to take a toll in economic activity, including cement demand. Our cement volumes during the quarter declined by 6% year-over-year and by 5% sequentially. Also, the highway projects sponsored by the government are in light construction stages and are not being replaced by new projects. Going forward, the self-construction sector should continue supporting cement consumption in the country.

For 2019, we expect industry cement demand to decline by around 20%. We expect our volumes in Nicaragua to decline in line with the industry. Our EBITDA should reach around $23 million this year compared to an IFRS 16 pro forma figure of $31 million in 2018.

In Guatemala, the first round of presidential elections was in mid-June, and the second round will take place on August 11. We don't expect the results of the elections to have a material impact in cement demand because of the relatively low participation of public investment in the construction industry. Our quarterly cement volumes in the country declined by 2% or increased by 1% on a daily sales basis. The decline in ready-mix volumes was due to unusual heavy rains as well as a high base of comparison in the same period of last year when some relevant projects were under construction. We expect our full-year cement volumes in Guatemala to increase in the low single digits during 2019, relatively in line with the growth of the industry.

Now I would like to discuss our free cash flow generation. We are pleased with our free cash flow generation during the first 6 months of the year. Our free cash flow improved from $16 million in the first half of 2018 to $40 million. This improvement was mainly due to a positive effect in working capital, the impact of the $25 million fine paid in Colombia during 2018 and lower financial expenses. Additionally, our free cash flow improved as a result of the proceeds from idle land sales in Colombia. All of the above more than offset the EBITDA decline during the first half of the year.

Financial expenses during the second quarter reached $13 million, $1.7 million lower than those of the same period of last year. We are pleased with our working capital management. Our average working capital days during the quarter were reduced to negative 17% from negative 14% during the same period of last year. Taxes paid during the quarter were $10 million compared with $13 million during the same period of 2018. During the quarter, we received $5.5 million in proceeds from sales of idle lands in Colombia booked in the other cash items net line of the free cash flow.

Our controlling interest net income was negative $4 million during the quarter compared to positive $4 million during the same period of 2018. The net income reduction was due to lower operating earnings before other expenses and higher other expenses, partially offset by lower financial expenses and income taxes as well as a positive effect in the other income and expenses line. The other expenses net line during the quarter includes a $5 million provision related to the potential impact from the early termination of an aggregate supply contract in Panama. The other income and expenses net line was negative $9 million during the quarter compared to negative $14 million during the same period of last year. In both cases, the negative effect was due to a foreign exchange effect on the debt balance, mainly from the U.S. dollar appreciation versus the Colombian peso from March to June in both periods.

During the quarter, our free cash flow was mainly used to pay debt. Our total debt was reduced by $24 million during this period from $835 million as of March to $811 million as of June. The net debt-to-EBITDA ratio increased during the quarter to 3.6x, mainly due to lower EBITDA.

Now I'd like to discuss our guidance. We expect our consolidated cement volumes to be from flat to declining 3% during 2019. We estimate to pay $60 million in cash taxes for the full year. Our total capital expenditures are expected to reach $50 million, $42 million in maintenance and $8 million in strategic. These figures now include an additional $8 million noncash effect related to IFRS 16.

Regarding working capital. We don't expect to have any significant variation in working capital investment during 2019. We anticipate receiving proceeds of around $3.5 million during the second half of this year from sales of idle lands in Colombia. We already received $6.5 million during the first 6 months of the year, booked in the other cash items net line of the free cash flow.

With respect to our cement operations, during the quarter, we executed maintenance-related operational expenses for $7.8 million, $4.1 million in Panama, $2.6 million in Colombia and $1.2 million in Nicaragua. During the third quarter, we budgeted $8 million, $5.2 million in Colombia and $2.8 million in Costa Rica. In total this year, we will spend around $15.8 million, $5.8 million more than that of 2018. As I mentioned at the beginning of my remarks, we will continue to focus on the variables we control under this challenging environment.

Now I'd like to remind you that any forward-looking statements we make today are based on our current knowledge of the market in which we operate and could change in the future due to a variety of factors beyond our control. Unless the context otherwise requires it, all references to prices means our prices for our products.

And now I will be happy to take your questions. As I mentioned earlier, for the benefit of the person making a question, I will be answering in the language asked, either English or Spanish

(foreign language)

Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from Juliana Aguilar from Bancolombia.

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Juliana Aguilar Vargas, Bancolombia S.A., Research Division - Cement and Infrastructure Analyst [2]

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I have 2 questions. My first one is regarding Colombia. Given the improved volumes guidance, are you planning to continue using Clemencia beyond September? And my second question is regarding Panama, how do you see the import dynamics going forward? You mentioned import market share decreased from 9% in first quarter to 6% in second quarter. Do you expect imports to stabilizing current levels? Or could it further decrease in the next quarters?

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Jaime Muguiro Domínguez, CEMEX Latam Holdings, S.A. - CEO, MD & Executive Director [3]

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Juliana, thank you very much for your 2 questions. With regards to Clemencia, we will continue operating Clemencia, and we do expect to bring one more vessel for clinker. The reason for that is because we foresee stronger volume and there is something that I must comment, which is that according to our information, it seems that Corona Molins' new cement works is delaying its commissioning, and I was expecting that to happen much earlier this year. As a result, I do see better volumes beyond what I expected when I foresaw this year, and that's why we need to continue using Clemencia. But the other reason is because, as you saw in my remarks, unlike last year, where when we only shut down for maintenance works one line in Ibagué cement plant, this year, we're shutting down the 3 lines: Cúcuta and the 2 lines in Ibagué. And so we need to build up stocks in order to continue dispatching the market. So that's my answer to your first question. And obviously, that incremental volume that we supply from Clemencia is done at a lower margin because of the much higher cost of imported clinker relative to what the cost of producing it locally. That's why had -- we had Maceo. So most probably, we would have to lower our costs by around $5 million only in this quarter.

With regards to Panama and regarding imports, I think that it's very difficult to answer the question, right? Because it's not based on facts. But I think that you should expect a range between 6% to 9%, 6% to 10%, depending on how importers bring their vessels. They begin penetrating the market, and depending also how effective are our commercial strategies to also keep our market positions. Please also note that the industry has been working very hard in Panama to guarantee the quality, the proper use of quality building materials, including cement. And just yesterday, the new Minister of Industry signed a new cement specifications regulation that should be public in the gazette rather soon. That is much more demanding when it comes to making sure that the proper -- imported cement does fulfill the specifications. And more so in Panama because of the alkali reaction of the soil of Panama, and that's very dangerous if imported cements continue to come with high alkali content. And so that, I think, has been corrected in the new specifications. And if that's finally published in the gazette, it should also make the imports much more demanding. So Juliana, I hope that I have answered your 2 questions.

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Juliana Aguilar Vargas, Bancolombia S.A., Research Division - Cement and Infrastructure Analyst [4]

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Yes, that's great.

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Jaime Muguiro Domínguez, CEMEX Latam Holdings, S.A. - CEO, MD & Executive Director [5]

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Thank you, Juliana. Back to you, operator.

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Operator [6]

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Our next question is from Rodrigo Sanchez from Davivienda Corredores.

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Rodrigo Sanchez;Davivienda Corredores, [7]

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First one is I would like to get an update on Maceo. I would like to know if you're still positive to see some advances regarding the licenses and the process that you're going through with Corantioquia. And also I would like to know that -- if you could maybe give us a few more details about your -- the cement mill that you're considering to build in Nicaragua and maybe the timing that you will be willing to do it and maybe if you could mention how much would you be willing to invest to build the new mill.

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Jaime Muguiro Domínguez, CEMEX Latam Holdings, S.A. - CEO, MD & Executive Director [8]

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Okay, Rodrigo. Thank you for your 2 questions. With regards to Maceo, I was expecting that the voting of our petition to subtract the Maceo project from the environmental-restricted area would have taken place already. In fact, according to our knowledge, it's been in the agenda for the last 3 months of the Board of Corantioquia. We do not have the details, though, but it seems that there is a need for a further clarifications on a few topics. It's also in the agenda in July. The Corantioquia Board of Directors get together end of every month, and we're just waiting for the Board to vote. And well, I'm hopefully, because we did a great job contributing and answering all technical aspects. Hopefully, it will go -- it will be positive. We will see what happens. And so what I can't tell you, probably exactly is by when should they be voting, but I hope that sooner rather than later. But I've been saying that in the last 2, 3 months and it has not happened. Obviously, it's not in my control.

With regards to the cement mill, I did mentioned what are the -- that this is one of the leverage we have to improve the results. Please note that it's not in Nicaragua. It's a project that we're looking in Guatemala to increase our milling capacity. The reason for that is because we are importing cement from CEMEX, Mexico, and it's not as profitable as if we would increase milling capacity and import or buy locally imported clinker. That is a project that we can do with very little CapEx, around $12 million, and the payback is very, very good. 2 years, I would say. The reason for that is because we will be substituting cement import from Mexico. And also, we will be capable of supplying 100% of what we dispatched in El Salvador from that facility and from Nicaragua without the need to buy from third-party at a much higher cost. So that's -- when would that happen? If we finally -- if the Board and the -- approved the CapEx once we do the engineering and everything, it will take next year to execute. So we won't see that incremental EBITDA until, I guess, 2021. I hope I have answered your 2 questions, Rodrigo.

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Rodrigo Sanchez;Davivienda Corredores, [9]

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Yes, Jaime.

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Jaime Muguiro Domínguez, CEMEX Latam Holdings, S.A. - CEO, MD & Executive Director [10]

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Thank you for your question. Back to you, operator.

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Operator [11]

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Our next question is from Carlos Rodríguez from Ultraserfinco.

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Carlos Enrique Rodríguez, Ultraserfinco S.A. Comisionista de Bolsa, Research Division - Director of Equity Research [12]

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I want to know when do you think the pricing dynamics in Colombia and also the increase in cement consumption will outweigh the negative impacts from the energy and distribution costs in terms of margins? And if there is, the price increase in coal and electricity in the second half should be enough to reach margins in Colombia of around, let's say, 20%.

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Jaime Muguiro Domínguez, CEMEX Latam Holdings, S.A. - CEO, MD & Executive Director [13]

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Carlos, thank you very much for your questions. Let me give you some information with regards to the fuel cost because that's -- that has been really our headache. This is what has happened. This is what has happened. In the first semester, export of coal and high-quality coal was very strong. Second, there was less rain, more so in the first quarter. And what happened was that a lot more of the electricity generation came from thermal plants, which demanded a lot of coal. As a result, the coal industry dramatically increased prices. In fact, our coal prices skyrocketed per ton above 35%, 32%, 33% and that was in local currency terms, in terms of the increase we faced in coal. And what's worse, what happened was that the quality of the coal we were given was much low -- much, much worse, which prevented us from increasing the usage of alternative fuels.

So regarding Colombia and with regards to energy, in the first semester, our total energy in dollars per ton went up by 9.5% and had an impact of $2.3 million. Nevertheless, in the second quarter, it was 1.2%. And what we see now is a reduction. We see a reduction in coal prices, and we see a reduction in electricity.

With regards to electricity, in the year-to-date, we had a reduction. In the second quarter, we had an increase that affected our EBITDA by $300,000. So it's all about coal. And the good news is that we are beginning to purchase coal at a much lower cost. And we don't foresee increases in electricity because the hydro have begun to produce electricity. So that's with regards to energy. So we should see a better second half of the year in that regard.

The other thing is freight. And freight is a concern, and you know what has happened. Sliding on many important highways and that is affecting. So we're traveling larger distances to supply to the same customers, and that's impacting us. And to complete my answer to you, Juan Carlos, the -- if that demand momentum continues, first, we -- in my remarks, I said that we announced a price increase of 3.5% for bulk, and I do not disregard that I might find further opportunities during the year to try to continue to try to offset more of the dramatic inflation we have had in energy through price increases. So short answer is, you should see better -- lower costs in energy going forward. Please note, on the contrary, that we still have to do 2 annual kiln shutdowns, the Cúcuta and kiln #1 in Ibagué. That will be done in the third quarter. And in the fourth quarter, there will be no -- not only for Colombia, but for the whole CLH, there will be no maintenance works, whatsoever. I hope I have answered your question, Juan Carlos.

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Carlos Enrique Rodríguez, Ultraserfinco S.A. Comisionista de Bolsa, Research Division - Director of Equity Research [14]

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Yes, Jaime.

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Jaime Muguiro Domínguez, CEMEX Latam Holdings, S.A. - CEO, MD & Executive Director [15]

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Thank you very much. Back to you, operator.

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Operator [16]

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Our next question is from Roberto Paniagua from Corficolombiana.

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Roberto Carlos Paniagua Cardona, Corporacion Financiera Colombiana S.A., Research Division - Variable Income Analyst [17]

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I have 2 questions. The first one is about Maceo plant in Colombia. I want to know in the [pathetic] case of an expropriation of the plant by the Special Asset society, is there any accounting change in the fixed assets? And my second question is about the expectative of cement prices in Panama, Costa Rica by the end of the year.

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Jaime Muguiro Domínguez, CEMEX Latam Holdings, S.A. - CEO, MD & Executive Director [18]

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Okay, Roberto, so your first question is, whether there could be an expropriation of the Maceo plant and whether the state would have to compensate us? Well, I see -- my straight answer is I see very extremely, extremely unlikely that, that expropriation would happen. So do not expect that. If, by any chance, it happens, and according to our legal assessment of all of these issue, we do -- we would have expected that the state would have to compensate us for our investment. That's my answer.

With regards to prices in Panama and Costa Rica, I cannot tell you because that's where we're looking a statement, guiding you on prices. And that's something I cannot do, Roberto. But what I can tell you is that, sequentially, in Costa Rica, I do not expect a further deterioration unless unilaterally, I decide to increase volumes recovering some market share against Fortaleza grinding mill. But I wouldn't do it in a way that it would destroy prices materially. So with regards to Costa Rica, not that much concern. And with regards to Panama, which is the big drop in -- really in CLH, around $12 per ton was because we had to provide -- so we provided some rebates to some large customers as a result of the penetration of Ultracem from Colombia in Panama. So that would be the way I would answer. I, hopefully, do not expect to drop prices further in Panama for the rest of the year. Thank you for your question, Roberto. Back to you, operator.

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Operator [19]

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Sir, at this time, I am showing no further questions in the queue. I would like to turn the call back over to you for any final remarks.

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Jaime Muguiro Domínguez, CEMEX Latam Holdings, S.A. - CEO, MD & Executive Director [20]

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Thank you very much then. In closing, I'd like to thank you all for your time and attention. We look forward to your continued participation in CEMEX Latam Holdings. Please feel free to contact us directly or visit our website, www.cemexlatam.com at any time.

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Operator [21]

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Ladies and gentlemen, thank you for your participating in today's conference. This concludes the program. You may now all disconnect. Have a wonderful day.