CEMEX, S.A.B. de C.V.
Q3 2013 Earnings Call Transcript

Published: 24 Oct 2013

[Operator:]

Good morning. Welcome to the CEMEX Third Quarter 2013 Conference Call and Video Webcast. My name is Vanessa, and I will be your operator for today. [Operator Instructions] Our hosts for today are Fernando González, Executive Vice President of Finance and Administration; and Maher Al-Haffar, Vice President of Corporate Communications, Public Affairs and Investor Relations. And I will now turn the conference over to your host, Fernando González. Please proceed.

[Fernando A. González:]

Thank you, Vanessa. Good day to everyone and thank you for joining us for our third quarter 2013 conference call and video webcast. After Maher and I discuss the results of the quarter, we will be happy to take your questions. During the third quarter, our operating EBITDA increased by 3% on a like-to-like basis compared to the same period last year. We are pleased with our continued year-over-year growth in operating EBITDA. Consolidated volumes for ready-mix increased by 1% during the quarter, while cement and aggregate volumes remained flat on a year-over-year basis. Lower cement and ready-mix volumes from our Mexican operations were offset by improvements in the rest of our regions. Our consolidated prices in local currency terms for cement, ready-mix and aggregates increased by 1%, 5% and 5% respectively during the quarter compared with the same period last year. On a year-to-date basis, from December 2012 to September 2013, cement prices are higher in most of our major countries. We continue with implementation of our value before volume strategy in all of our regions, focusing our efforts on achieving sustainable margins and returns in all of our business lines. In cement, we have implemented the gross minus logic price roadmaps and other pricing elements in countries that represent more than 80% of our volumes. In ready-mix, we have launched initiatives company-wide to promote the bundling of ready-mix prices into their different value elements. As part of these initiatives, our first and most important objective in the short to medium term is to recover full freight cost in all of our markets. In cement, ready-mix and aggregates, we will continue to improve the transparency on the value we provide to our customers through our products and services by revisiting our suit charges and service fees in each market. We are focusing on value-added products and services, maintaining our cost discipline and outsourcing support activities. On the cost side, we are on track to achieve the targeted $100 million in savings in Mexico and Northern Europe for the second half of this year. Alternative fuel substitution initiatives remain a very high priority. On a consolidated basis, alternative fuel utilization increased to 28% year-to-date as of September, from 26% in the same period last year. Geographic mix had an important role in dampening this increase at some European countries, with higher substitution rates, have grown less than our consolidated portfolio. However, year-over-year substitution rates in most countries in our portfolio continue to increase. In another effort to optimize our return on capital, we announced 3 transactions, which will strengthen our strategic footprint in Europe and then hasten return on capital over time. This transactions, include, first, CEMEX acquisition of Holcim's operations in the Czech Republic; second, CEMEX divestiture of its assets in the Western part of Germany to Holcim; and third, the combination of the operations of CEMEX and Holcim in Spain. With these transactions, we will optimize our network of assets, increase our productivity and extract synergies that will result in a recurring improvement in our operating EBITDA of about $20 million to $30 million per year. In addition, in connection with these transactions, CEMEX will receive a cash payment of approximately EUR 70 million. Needless to say, these transactions are still subject to the fulfillment of various conditions, such as confirmatory due diligence and all the approvals from competition authorities. Now I would like to discuss the most important development in our markets. In Mexico, our volumes during the quarter continued to reflect the slower than expected levels of investment in infrastructure and housing. This has been further exacerbated by adverse weather conditions in most regions in the country, which accounted for 2 percentage points of the decline in our cement volumes on a year-over-year basis. However, we are encouraged with the outlook for the country going forward, given all the recently announced economic stimulus initiatives and investment plans, including

[Maher Al-Haffar:]

Thank you, Fernando. Hello, everyone. Our operating EBITDA increased by 3% during the quarter on a like-to-like basis. Year-to-date, operating EBITDA also increased by 3% on a year-over-year basis, adjusting for the effect of the change in a pension plan in the Northern Europe region during the first quarter of 2012. Operating EBITDA margin, also on a comparable basis, increased by 0.4 percentage points. This margin expansion was driven by higher prices in most of our regions, as already discussed by Fernando. Our continued cost reduction efforts, as well as the continued favorable operating leverage in the United States. Cost of sales plus operating expenses, as a percentage of net sales, decreased by 1.1 percentage points during the quarter. The decline includes a reduction in workforce and other reduction -- cost reduction initiatives. Our kiln fuel, and electricity bill, on a per tonne of cement produced basis, increased by 2% during the third quarter, and by 1% for the first 9 months of the year, versus the comparable period in 2012. The savings achieved from using alternative fuels during the first 9 months of the year reached about $92 million, or about 21% of the total cement fuel bill in the same period. During the quarter, our free cash flow after maintenance CapEx reached $245 million or 20% higher than last year's level. The year-over-year variation in free cash flow is due mainly to higher EBITDA generation and a partial recovery of the year-to-date investment in working capital, which more than offset the higher other cash items. During the third quarter, we saw a partial reversal of the working capital invested during the first half of the year. Year-to-date, working capital days declined to 29 from 30 days during the same period in 2012. This is representing a reduction in working capital investment of close to $40 million. As in prior years, we expect to recover most of the year-to-date investment in working capital during the second half of the year. We already recovered part of this investment during the third quarter and we feel comfortable in achieving our full year guidance. Our cash tax payment during the third quarter was $35 million, much lower than that in the first 2 quarters. Our final tax bill for this year will depend on the outcome of pending legal proceedings. In the third quarter income statement, other expenses net of $107 million include mainly impairment of fixed assets, severance payments and a loss from the sale of fixed assets. During the quarter, we recognized a noncash foreign exchange gain of $21 million due primarily to the fluctuation of the Mexican peso versus the U.S. dollar. We also recognized a gain on financial instruments of $42 million related mainly to CEMEX shares. We had a controlling net loss of $155 million during the quarter, versus a loss of $203 million last year. The lower loss reflects higher operating earnings before other expenses, and FX gain and higher gains on financial instruments, which more than offset the higher financial expenses, other expenses and income tax. On the debt side, total debt plus perpetual securities increased by $182 million during the quarter. This increase in debt reflects a negative conversion effect of $82 million, the premium paid for the 2016 notes as part of the August tender offer, as well as the noncash increase in the debt portion of our convertible securities. Free cash flow generated during the quarter was used mainly for cash replenishment and other corporate purposes. We continue with our liability management initiatives to lower our interest expense, lengthen the average life of our debt and reduce refinancing risk. During August and October, we issued $2.5 billion in 3 different transactions. In August, we issued $1 billion in senior secured notes with a yield of 6.5% and maturing in 2019. With the proceeds, we paid $925 million of our 2016 senior secured notes, with a coupon 300 basis points higher. We are also including, in this quarter's presentation, a pro forma maturity profile, with the 2 notes issued after the quarter ended, as well as the intended use of proceeds. These transactions are the issuance of $1 billion in senior secured notes during -- due in 2021, and a $500 million note in floating rate senior secured note maturing in 2018. These 2 transactions have an average yield of 6.5%. The intended use of proceeds is to pay the remaining $825 million of our 2016 notes, as well as EUR 220 million of our 2017 senior secured notes. These 2 notes have significantly higher coupons at 9.5% and 9 5/8% respectively. We will pay a portion of these amounts as part of the tender offers we launched earlier this month and which closed yesterday. We intend to pay the rest in December when these notes become callable. In addition, we anticipate using the proceeds to pay our outstanding 2004 notes when they become due in March next year. After these transactions take place, average life of debt increases by almost 1/3 of a year. In addition, assuming our 2015 convertibles convert, CEMEX will not have any significant maturity until September of 2015. By the end of 2013, liability management exercises done during the year are expected to represent an annual cash interest savings of approximately $55 million. We continue to be comfortable with our liquidity position, with cash and cash equivalents reaching $895 million as of the end of the quarter. Furthermore, we maintain over $2 billion of working capital and receivables financing facilities, which further bolster our liquidity position. Now, Fernando will discuss our outlook for this year.

[Fernando A. González:]

Thank you, Maher. For 2013, we now expect our consolidated cement and ready-mix volumes to decline by 1%, mainly due to the year-to-date performance of Mexico. In the case of aggregates, we anticipate our consolidated volumes for the year to increase by 1%. We expect the improvement in volumes from our operations in the U.S., the South Central America and the Caribbean region and Asia will mitigate, to a great extent, the expected [indiscernible] Mexico, Northern Europe and Mediterranean regions. Our cost of energy on our per ton of cement produced basis is expected to be relatively flat from last year's levels. Guidance for total CapEx for 2013 is now expected to be about $620 million. This includes $490 million in maintenance CapEx and $130 million in strategic CapEx. We anticipate cash taxes for 2013 to be slightly higher compared to last year. This guidance depends on the outcome of pending legal proceedings. Regarding working capital, we expect the working capital investment during this year to be similar to last year's. We also anticipate no major change in this year's cost of debt, including our perpetual and convertible securities from 2012 levels. In closing, I want to emphasize 3 points. First, pricing trends continue to be favorable with year-to-date prices higher in most countries in our portfolio. As I mentioned earlier, in the call, during the quarter, we saw an increase in our consolidated prices in local currency terms for our 3 main products on a year-over-year basis. Second, we have seen 9 consecutive quarters of operating EBITDA growth. The year-to-date EBITDA growth and EBITDA margin expansion on a comparable basis reflect an improvement in pricing and the success of our continued cost initiatives, which have more than offset the decline in volumes. And third, we remain vigilant about our cost base. We continue to be focused on our company-wide efforts to improve our operating efficiencies and the value we generate from our asset base, while delivering better value to our customers. Thank you for your attention.

[Maher Al-Haffar:]

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:]

[Operator Instructions] And we have our first question from Benjamin Theurer of Barclays.

[Benjamin M. Theurer:]

I have, actually, one question, on the U.S. market and your pricing initiatives. So we've seen this quarter-over-quarter sequential decline in pricing. Could you elaborate a little bit more how shift in regions impacted, actually, the prices in the third quarter were slightly lower than during the second quarter. And secondly, on your initiative, you're looking in to 2014, if you could give a little bit of more guidance where you want to -- at basically try to increase prices and what that would be and in absolute terms on a per ton basis?

[Fernando A. González:]

I will take the first one, Maher. On the first question about sequentially, my explanation is geographic mix because California and Georgia volumes grew much more than the rest of the regions. And these states have lower prices than the average, so that's one. And you want to take the other one?

[Maher Al-Haffar:]

Yes, maybe you could -- I guess, one of the things that we should stress is that this whole pricing approach is a process, right, it's not something that takes place over night. And this year, the approach was to try to put into place 2 pricing increases during the course of the year and unfortunately, the second round of price increases were not as successful as we'd like them to be. And frankly, we were -- we are kind of surprised and I would say befuddled, as to why they did not happen. Having said that, we're quite optimistic about the 2014 pricing increases that we have announced. We've announced the pricing increases for January, April of next year in the range of slightly below $9 per metric ton, to as high as around $16.5 per metric ton, based on the supply demand dynamics of markets. And then we are announcing -- we announced another pricing increase in -- for the middle of the year in the fall, slightly lower than that. And we're very optimistic frankly, about the early pricing increase. We've seen positive support in the eastern part of the country. And we see many of our competitors out there with similar increases. I don't know if that answers your question, Ben.

[Operator:]

And our next question comes from Nikolaj Lippmann with Morgan Stanley.

[Nikolaj Lippmann:]

A question really on metric. Can you help us -- just take us through what happened in Mexico. You started out into increasing prices, then now they end up coming down on a sequential basis. Do you think that you lost market share? You mentioned that your margin has been going forward, what do you base that on? Are you starting to see orders? How are you sort of seeing the month of October so far? That was my first question.

[Maher Al-Haffar:]

Yes, Nick, we've -- as you've seen, I mean our prices have dropped a little bit in certainly the first 3 quarters of the year. Current prices are down about 2% in local currency. Third quarter versus second quarter, so sequentially due to weak demand. I mean, I think it's very important to put into perspective the demand dynamics of the market. I mean we've seen the cumulative drop in volumes has been quite material, double digits. And in that situation, and of course, for the quarter as you saw, we were down 13%. So we're not happy with the reaction, obviously, at all. But having said that, I think as Fernando said during the call, a combination of using our customer loyalty programs -- or emphasizing customer loyalty programs and emphasizing value additive products, and really working with our retail distribution network, I think we've been able to do better than we would've expected, frankly. So -- and we continue to be vigilant, as Fernando said, in looking at prices as the economy recover and demand recovers. But it's been challenging, I mean -- it's definitely been challenging.

[Nikolaj Lippmann:]

A follow-up question, if I may. Can you give us a sense of the volume during this quarter between back and bulk, and how much is infrastructure, how much is retail?

[Maher Al-Haffar:]

Yes, we are -- let me just check. We are roughly running around 2/3, 1/3 back versus bulk.

[Nikolaj Lippmann:]

So it has not changed, during the year, about the same proportion?

[Maher Al-Haffar:]

It hasn't changed, yes. It hasn't changed. Yes.

[Nikolaj Lippmann:]

And my second question is, I don't know if you can give -- there's a lot of sort of potential fiscal changes in Mexico. I don't know if you can give any sense of what the impact could be for CEMEX, for the coming years and what effects you think could be the most important of the many different things that are being discussed at the moment?

[Fernando A. González:]

Well as you know, we still don't have a new order tax reform already approved. So what we know now might be changing in the Senate. But with current information, for instance, you have heard about the cargo tax, and the elimination of the [indiscernible] and both, I think, it will have an impact, but it won't be that material for us. Now again, we need to wait until the -- not only until the tax reform is approved, but until all the rules around the tax reform are defined to really completely understand the makeup, a sort of a disclosure to statement on the final impacts. I'm afraid we will need to wait until the Senate approves the reform or make any additional changes.

[Nikolaj Lippmann:]

When you look at your capital structure, you are, of course, have a lot of debt. If you are not able to do -- to use the tax shields generated from that debt, would that potentially cause you to reconsider your capital structure? In other words, could this impact your thinking around a next issue?

[Fernando A. González:]

Impact on what?

[Nikolaj Lippmann:]

A next issue, if you're not able to use -- you have all your other tax loss carry forwards, you have a lot of debt, you keep generating tax shields, is this, at all, something that you look at in terms of making capital structure decisions?

[Fernando A. González:]

No, I think it's too early to...

[Maher Al-Haffar:]

I think on the NOLs, Nick, clearly going forward, I think we're a bit -- we're optimistic, frankly, because as you can see, I mean the upside in our portfolio, between the U.S. growing at quite a nice rate, possibly the Northern European region also growing at a nice rate going in to the future, that is. Those are the 2 areas where we actually have the NOL. Now there are limitations in certain parts of Europe on how much of those NOLs we can use, but certainly the U.S. it's a little freer. So everything else being equal, because as Fernando said, it's very difficult to comment right now with the complete speculation on how the new tax law would affect us. But clearly, just ceteris paribus. Going forward, as you see healthier growth out of the developed part of our portfolio, it should actually translate, if we don't do anything, it should translate to an improvement in our cash tax rate because of the NOLs that we have in those markets. But that has nothing to do with the current tax proposal that is being looked at in Mexico.

[Operator:]

And our next question comes from Gordon Lee with BTG.

[Gordon Lee:]

A couple of quick questions. First, on Mexico, just coming back to the pricing issue. Obviously, this year, there was a new entrant into the market and so I'm wondering whether you feel that, that has somehow destabilized or changed the dynamics through price increases occur? And if you think what's happening now is cyclical or structural in terms of being able to push through those price increases. And in the U.S., I suppose from your tone -- you've thrown in the towel, the price increases in the second half, or might some of those come through still in the fourth quarter?

[Fernando A. González:]

On the first one, your question on the impact of the new player, as you saw the prices have been adjusted for about 2% in local currency, but that's countrywide. So it is the general dynamics in the country because volumes are lower, as we have commented. But we cannot say that there is a significant impact or variation because of a new player in the market is -- with demand, in general terms, all over the country.

[Maher Al-Haffar:]

And Gordon, as far as the U.S. is concerned, I mean I would not say that we have thrown the towel by any stretch of the imagination. I mean -- and we are constantly vigilant and trying. And we, frankly, don't react unless we receive multiple confirmations that our efforts are not working in a particular micro market or even in a -- with a particular relationship. So I think we're just updating the market, and we're being upfront and frankly, as I said, we are quite puzzled, frankly, and especially in markets like Texas for instance, where the pricing approach has not been met with more success. But we're definitely not throwing in the towel. We're constantly trying. And as I said, I'd like to reiterate again, things have definitely improved during the course of the year and we're very optimistic about the early 2014 pricing announcements.

[Gordon Lee:]

That's great. And if I could just have one quick follow-up on Colombia. There's an article on the local press saying that you had basically decided to go ahead with the construction of the new facility in 2014, which I know is something that you've been debating internally, is that right? Have you decided to go ahead, not with the grinder, which is already operational, but with a new integrated plant in Colombia, next year?

[Maher Al-Haffar:]

Honestly, I haven't -- Gordon, I've -- we've been focusing so much overnight on our results. I haven't had a chance to see the Colombian press. All I can tell you is that there has been a lot of discussion about that and certainly, when CLH did come to the market for it's equity transaction, there was a contemplation at some point in time something like that to happen. So I don't want to comment about the press article because I haven't actually seen it, maybe we could get back to you on that.

[Operator:]

And now we will have a question from the webcast.

[Maher Al-Haffar:]

The question from the webcast is from Mark Madura [ph], from Hartford Investment Management. And the question is, "Can you please comment on your level of confidence that Mexico infrastructure will accelerate in the first half of 2014."

[Fernando A. González:]

Okay, I think we have commented that after a few months of soft performance in Mexico, we are encouraged by the signs, the announcements and the reality that we have seen in the last few weeks or months. So for instance, on government spending, I think we mentioned a 20% increase in budget execution of transportation, and communications and waterworks. That happened between June and August, so that's recent news. On the program, on the government's program to accelerate growth, $2.1 billion stimulus for colony housing, pavement and other type of works, so that's also happening. Pending projects, there are 9 projects starting between September or started between September and October, that compares to 2 projects in the whole first half of '13. And then increasing in the federal budget during -- this is to come in 2014 on infrastructure. 9% up in real terms compared to 2013 budget. And as I think, we have also mentioned that the national infrastructure plan, the whole -- the plan for the whole period 2013 and -- to '18 is close to 50% higher than the spending we saw under Calderón's terms. So these are some of the reasons why after the performance we have seen in Mexico during the year, will be changing or has started already changing, and it will improve, or it has already started improving and will continue improving. We expect that we'll continue improving during 2014.

[Maher Al-Haffar:]

I hope that answered the question. I know this is a -- from the web, so we can't respond. But in any case, operator, can we go for the next question please?

[Operator:]

Our next phone question comes from Santiago Teuffer with Credit Suisse.

[Santiago Perez Teuffer:]

I wanted to ask a couple of questions, one in Mexico and one on the U.S. The first one related to Mexico, is in your short-term view of the infrastructure spending. What effect are you expecting from the $2.1 billion investment program mentioned in your presentation? And yes, when are you expecting these to be deployed?

[Fernando A. González:]

I don't think we have that information handy. The break up of the $2.1 billion, let's say, on the timing. But the announcement was that it was going to be spent during 2013, but at this point in time, I don't have additional information to share.

[Santiago Perez Teuffer:]

Okay. And is this related to the weather effects that we saw the disruptions and then a recovery program? Or is it separate from that?

[Fernando A. González:]

Well, the disruption because of the 2 simultaneous hurricanes, it's quite real. And as you may know, we are expecting the government to calculate the damage and to put in place a very concrete program to support rebuilding the infrastructure that was seriously damaged. So I think that by the end of this month, we will -- we'll learn from the government again what is specifically that is going to be done and because of the nature of this damages, and as you know, this has to happen almost immediately, at least part of it has to happen immediately. So we will see the benefits of those works very soon.

[Santiago Perez Teuffer:]

And the second one is related to the U.S. How linked do you think projected U.S. pricing in the first half of the year, was to housing? And do you expect pricing for your products to regain momentum even if housing remains soft? Or how should we see that?

[Maher Al-Haffar:]

Just to make sure that I understood you clearly, you're asking how much of our pricing was related to housing performance?

[Santiago Perez Teuffer:]

Yes, exactly, from the first half rate.

[Maher Al-Haffar:]

Right. I mean clearly, housing in the U.S. has been the driving force behind demand. And as we said in the call, despite the recent slowing down in that market, we can talk about that in a second. We think that market continues to be intact. Affordability, although maybe has deteriorated a little a bit, but in relative terms, it continues to be at the highest levels we've seen in recent times. And I -- our view on the housing market is that the recent delay that we have seen is more due to volatility and lack of clarity. Clearly, the government shutdown has not helped in getting people to take on their acquisition decisions. It's been very difficult to get credit approvals in that period. But when you take a look at virtually all of the metrics of affordability, the housing market and the underpinnings of that continues to be completely intact, and we see that continuing into 2014. So yes, I mean clearly, that's been a big driver. We'll continue to be the big driver. Now being able to divide how much of that is coming from industrial and commercial or infrastructure, it's very difficult. Industrial and commercial also continues to be healthy, and so that's a driver. And going into next year, we're cautiously optimistic about infrastructure. And because of all of that frankly, we're quite -- we have a high conviction, I guess, is a good way of saying it about the pricing increases in the early part of the year.

[Operator:]

Our next question comes from Marimar Torreblanca with UBS.

[Marimar Torreblanca:]

My question is on the U.S., assuming sequential EBITDA margin decreases due to the mix you mentioned before, and given the volume trends that you're expecting for the rest of the year and for next year, can you tell us if we should expect some margin expansion in the next 2 quarters? Or how do you see margin stabilizing going forward?

[Fernando A. González:]

Definitely, we should see margin improvements, as I think Maher commented. We've seen -- we have seen the impact of our operational leverage in the country. Remember that it was not that long ago that even our ready-mix business was in great numbers, it has already turned to black. So margins had improving -- and improving, much faster than our volumes and sales precisely because of our operational leverage. So definitely, we should see an improvement in margins in the U.S. for the rest of the year and for next year. I don't know if -- I don't remember exactly the number, but the operating leverage for the quarter was more than 70%?

[Maher Al-Haffar:]

Yes, about 78%, yes.

[Fernando A. González:]

So that's -- we shared that piece of information just to show how the operational leverage is going to be benefiting margins in the U.S.

[Operator:]

Our next question comes from Yassine Touahri with Exane.

[Yassine Touahri:]

A couple of questions. First on Mexico, informal housing was slightly up in H1 and I understand that it is now slightly down. Could you give us a bit more color about what has changed? And I understand also that there is a new tax proposal on housing transaction. Is that confirmed going forward, for this informal residential construction in Mexico, that will be my first question.

[Fernando A. González:]

On the tax concern on housing, as you know, the regional reform or the original proposal included VAT for housing, buying houses, renting houses, but that was eliminated in the House of Representatives. But again, as we commented on a previous question about taxes, we -- the tax reform is still in progress. Right now is in the Senate. And I think we will have the rest of the month that we would know, end of the month what the decision or the recommendation of the Senate will be. But this particular issue on VAT on rent or buying houses, as far as I understand is not included any more as a proposal in the reform.

[Yassine Touahri:]

And is there a reason why informal residential is a bit weaker today?

[Maher Al-Haffar:]

Yes, Yassine, the -- a couple of things. Number one, part of the informal housing is related to social housing programs that the government undertakes from time to time, and really on an annual basis. And an important part of the contributor to the slowdown there has been the slower contribution in the third quarter compared to last year. The other thing, frankly, I mean the slowdown in economic activity while salaries or wages, and employment continued to be positive has flattened out a little bit. As Fernando mentioned in the call, so that probably had translated to a bit of reluctance on demand. But that's really it. I mean we are -- we're quite pleased with the initial trend that we're seeing from remittances, although one month doesn't make a trend. But we're positively inclined about that. And also, Yassine, one thing that is very important to mention is the lending activity in the economy. I mean we're quite pleased by the positive growth numbers we're seeing from private sector lending, both consumer, mortgages and industrial and commercial. I mean those 3 components, which Fernando talked about in high single-digit or low double-digit growth numbers, are, frankly, are quite a positive testament about how the financial institutions feel about the health of the economy on a fundamental basis, not taking into consideration the temporary transition period that we've been going through.

[Yassine Touahri:]

And on the U.S., you mentioned that the government shutdown might have a bitter impact on housing. Do you think the government shutdown could have an impact, at some point, perhaps next year, or in the next couple of quarters, on infrastructure projects?

[Maher Al-Haffar:]

I mean on the housing side, again, to put it into perspective, okay, I mean 30-year treasuries are up 100 basis points from the first time that Mr. Bernanke talked, and if you take a look at mortgage activity, it hasn't really -- I mean it dipped a little bit, but then we're back to kind of almost pre-May levels. In terms of infrastructure, clearly, anything having to do with spending these days is a subject of a lot of acrimony, as you have seen recently. But having said that, we do think that TIFIA, we're definitely seeing some more project activity being approved under TIFIA. So that's a big upside, frankly. If you take a look at what's happening to public construction spending, August was the fifth month of seasonally, annually adjusted rate basis increases from the prior months. So that's very positive. And this is despite almost a 70% drop in the -- our stimulus funds from last year. And then the other thing to consider, of course, is that states are going from kind of weak fiscal position to positive fiscal position. Clearly, there's going to be some issues with the federal highway program, but we think, by and large, we should -- we're cautiously optimistic, let's say, and -- about infrastructure turning around. And also, streets and highways, you have 8% growth in contracts, as Fernando mentioned. So...

[Yassine Touahri:]

Okay. And I have a last question on your -- on the cost of your debt. Could the recent transaction have an impact on your cost of debt next year and would you expect a decline in your -- a slight decline in your cost of debt in 2014?

[Fernando A. González:]

I'm not sure I understood the question. You are referring to cost of debt because of the most recent transactions?

[Yassine Touahri:]

Yes, could it decline a little bit in 2014?

[Fernando A. González:]

As you know, it's part of our financial strategy and this is what we have been doing. And this year, I think we were able to buy all the notes that we issued during the year to reduce interest expenses starting, let's say, from the -- starting from today or let's say, we will -- it will be reflected during 2014, about $55 million of a reduction in interest rates because of the differential in coupons. So for a new debt, previous -- compared to the former one. So that's our expectation. And, as you know, we have been commenting our financial strategy. I think this year, we did advance a lot on it. And as Maher mentioned, assuming that our convertibles in March 15 are converted, the only debt that is due in the very short-term is the floating rate note in September of 2015. So that's what we can expect for next year, a reduction of $55 million in interest expenses.

[Operator:]

And now we will have another question from the webcast.

[Maher Al-Haffar:]

Okay, the question from the webcast is -- and I hope I pronounced your name properly, here, it's Barnes Halpfuer [ph], from Chapter 4 Investments [ph]. The question is, "In the U.S., what percent of your aggregates infrastructure work is funded by federal dollars, versus state and local dollars?" And can I take a stab at that?

[Fernando A. González:]

Yes, please.

[Maher Al-Haffar:]

It's roughly half-and-half. I mean to keep it simple. Operator?

[Operator:]

Our next question comes from Jose Vernal [ph] with CDCA [ph].

[Unknown Analyst:]

First question is related to the Colombian market. Just, can you please give us a little bit color about the cement construction mix by sector?

[Fernando A. González:]

In the case of Colombia, we have, if I understood the question correctly, currently, the largest sector is the informal residential sector, followed with about 40% of the market, followed by public or infrastructure or public spend sector, which accounts for about 35%. And then the formal residential and industrial and commercial, making for the rest with about 15% and 9%. That's about how the market -- how the sectors contribute to demand.

[Unknown Analyst:]

Okay, and I have another question, if I may. It's a question related to the new facility agreement. I know that you don't have any mandatory amortization before 2017. However, can you please remind us if there are any milestone that the company would like to meet?

[Fernando A. González:]

As you mentioned, that is due in '17. Milestones as such, we don't have. What we don't have is a commitment on a -- let's say, on an additional coupon to be paid depending on the value of the share. If the share goes up to a certain value, there is some additional payments to be done in the facility. But besides that, there are no other milestones or commitments on additional payments or either anticipations or additional cost to us. That's the only part.

[Operator:]

We have time for one last question, and it will come from Jacob Steinfeld of JPMorgan.

[Jacob A. Steinfeld:]

I have just a couple of questions. My first one was related to the change in the CapEx guidance. I was wondering if you could provide some color on why you lowered it and if you're likely to increase, I guess, whatever you now see guidance for next year?

[Maher Al-Haffar:]

Yes, Jacob, I would say, mainly the change is a trimming back of some of our strategic or platform investments that until next year, that's about it. And given -- as far as maintenance CapEx, I mean we adjusted it just slightly, frankly, and it is totally within -- we're not scrimping on maintenance CapEx, so we don't see any kind of negative impact, or cumulative impact on the state of our plant equipment. And unless capacity utilization changes, the amount of maintenance CapEx that we're seeing is very much sustainable.

[Jacob A. Steinfeld:]

And then my next question was on -- I noticed you took some impairment charges during the quarter. And I just wanted to understand what those were related to. And then also related to that, I guess, when you expect to close the transaction with Holcim and receive cash?

[Fernando A. González:]

On the transaction with Holcim, as you know, is subject to several issues. But, let's say on closing, the issue that impacts the most is the legal process or the EU process they are following in order to authorize the different transactions. And things like authorities have gone to a type of a second phase in which they will be requesting information, so they can evaluate the transaction. So we do believe then the transaction might happen in the first half of next year. These processes and the timing on these processes might not be that exact, so through time, we will continue informing on the timing and the outcome of the EU authorities process.

[Jacob A. Steinfeld:]

Okay, and then on the impairment charge?

[Maher Al-Haffar:]

Yes, on the impairment charge, it's a little bit slightly under $40 million. And it's mostly on the sale of fixed assets, and it's mainly in Spain. And it has to do with some sales of plant and equipment there.

[Jacob A. Steinfeld:]

Okay. And then, I know there's been a little -- some discussion on the government shutdown in the U.S., but have you guys quantified what the impact may be on the fourth quarter results?

[Maher Al-Haffar:]

Not -- not really, Jacob. I mean it's a -- that's kind of tough to do. I'm sure our on-the-ground guys see it very, very clearly. But we haven't yet. I mean I don't want to give you a speculative number.

[Operator:]

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

[Fernando A. González:]

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

[Operator:]

And thank you for your participation in today's conference. This concludes the presentation. You may now disconnect, and good day.