Cemex SAB de CV

NYSE:CX

Earnings Call Transcript 2020-Q1

[Operator]

Good morning. Welcome to CEMEX First Quarter 2020 Conference Call and Webcast. My name is Kate, and I'll be your operator today. [Operator Instructions]

Our host today are Fernando González, Chief Executive Officer; and Maher Al-Haffar, Executive Vice President of Investor Relations, Communications and Public Affairs. And now I will turn the conference over to your host, Fernando González. Please proceed.

[Fernando Olivieri, executive]

Thank you. Good day to everyone. I hope you and your families are in good health. Thank you for joining us for our first quarter 2020 conference call and webcast. We will be happy to take your questions after our initial remarks.

Before I start, I would like to thank the whole CEMEX family, especially our frontline employees who have kept us running during this crisis. The world is going through an unprecedented time due to the COVID-19 pandemic. Construction activity across most of our markets is being impacted to different degrees. However, it is important to highlight that construction, together with our industry, have been considered essential in many countries around the world because of 2 characteristics.

First, construction can be performed with a high degree of safety and low risk of transmission. Construction work sites as well as our production sites, are tightly controlled and not open to the general public. Most work is done in the outdoors with low personnel density and under the strictest health and safety standards to prioritize the safety of workers.

And second, construction activity contributes significantly to economies and society. The construction industry provides essential infrastructure requirements to support the vital needs of the markets in which we operate. It is a critical component of local and national economies and represents an important percentage of their GDP. It is also a fundamental engine for reactivating economies and generating employment.

Going forward, as fiscal and monetary measures take hold and economic activity starts to normalize, policymakers will need to move swiftly to boost demand. We believe needed infrastructure spending will represent a very effective way to reactivate the economy in a targeted manner.

Now regarding our operations, governments have adopted different measures throughout the past 2 months designed to contain the spread of COVID-19. The construction industry and/or the cement industry have been considered essential activities in most of our operations. Under current restrictions, we are able to supply our products to about 90% of our customers worldwide. However, other COVID-19 measures like physical distancing, stay-at-home orders and limitation on nonessential activities have significantly impacted demand.

In these challenging times, we have responded in an agile manner, and we are focusing on 3 main priorities. First, health and safety, our #1 priority for many years. We have complemented our existing standards by developing and implementing more than 50 new hygiene and safety protocols, designed to protect our employees, customers, suppliers and communities from the risk of COVID-19. As part of these measures, we have applied 6 hygiene protocols in all our operations and modified processes to implement physical distancing. We have made arrangements so that employees can work remotely where possible, restricted travel, and enhanced our internal information campaigns and recommended practices for health, hygiene and social interactions.

Our efforts are not limited to our operations. We are also taking actions to protect our communities. We are using our ready-mix trucks to carry a soap and water solution to clean and sanitize open areas like hospital entrances, health care facilities, urban places and others. Some of our admixture plants are producing hand disinfectant according to World Health Organization specifications to cover the needs of employees and neighboring local communities. We are delivering food, water, medical supplies and other essentials to vulnerable groups. Also, we are donating personal protective equipment to local authorities and communities.

Second, to support our customers as much as possible in a responsive way, we have enabled our service centers with remote work tools and capabilities. We are also sharing best practices with our clients. With our CEMEX Go platform, we are uniquely positioned to protect not only our workers, but also our customers. CEMEX Go facilitates physical distancing by allowing us to continue our sales, our payments and our customer service operations in a digital and safe manner that eliminates any risk of virus transmission. The only essential part of the customer's journey where there is a physical touch point is at the pickup or delivery of our products. For those processes, we have established special health and safety protocols, which includes sanitary filters at pickup points in our facilities and limited interactions at pickup or deliveries.

And third, to protect the future of our company, we are taking steps to preserve and build our cash position. CEMEX's Board, executive committee and senior leadership members have agreed to voluntarily waive a percentage of their salaries and fees during the next 3 months. Other salary employees have voluntarily deferred a percentage of their monthly salaries within the same period. I would like to take this opportunity to thank my colleagues for their support in this challenging time.

In addition, on the operating side, we are reducing total capital expenditures by $400 million from our February guidance. This represents a 60% reduction in non-committed CapEx for the rest of the year.

Regarding operating expenses, the savings of $200 million identified under our strong incentive plan for this year were based on our initial estimates. While we now expect lower activity, which results in headwinds to achieve these savings, we are taking additional measures to respond to the crisis.

We also continue to monitor demand conditions and market positions in our different operations to be able to respond and adapt rapidly to any change in these variables.

On the financial side, we implemented measures to strengthen our cash position. During March and April, we drew down about $1.45 billion under our committed revolving credit facility and other credit lines. We also suspended our share repurchase program and will not pay dividends this year.

Additionally, in order to increase the margin for compliance under our financial covenants, we have officially initiated a request for the amendment of our leverage and coverage ratio under our Facilities Agreement. The response from the banks to this request is expected by May 26. We will update you on this process as soon as possible.

As a result of the above as well as the receipt of $500 million in proceeds from asset divestments, pro forma cash as of the end of the quarter reached about $1.7 billion. This represents about 5x our average cash on hand during the last 2 years. In addition, we have pending proceeds from divestments for about $400 million, which are expected to close during the second half of this year.

Regarding our financial results, we came into 2020 with favorable demand momentum, which began to be impacted in March as COVID-19 spread. Timing and magnitude of this impact spread throughout our portfolio. Each market has experienced a unique trajectory of virus transmission as well as the government responses to mitigate the spread of the virus.

During the first quarter, our consolidated cement volumes increased by 1%, while prices improved in the 1% to 4% range for our three core products, leading to a 2% like-for-like increase in sales, and EBITDA also improved by 1%, while margin declined by 0.3 percentage points.

During the quarter, we had a free cash flow after maintenance CapEx deficit of $215 million compared to a deficit of $337 million in the same quarter last year, mainly due to a lower investment in working capital as a result of timely management of receivables and inventories as the crisis unfolded.

As regard our Stronger CEMEX plan, we have substantially met most of our desired targets, except for the debt reduction goal. Given the challenging conditions, we do not expect to reduce our debt by the end of the year as originally planned. Reaching an investment-grade capital structure continues to be a top priority, but clearly it will take us more time. Regarding our cost reduction initiatives, as I mentioned earlier, we are continuously evaluating our markets, and we will react as needed.

Now I would like to discuss the most important developments in our market. In Mexico, our cement volumes grew 2% during the quarter, driven by higher consumption of bagged cement. Demand during March continued to be strong. Cement prices grew by 3% sequentially, reflecting the price increase implemented at the beginning of the year. Despite this, current cement prices are still lagging our input cost inflation since the beginning of 2018. The decline in EBITDA margin reflects a favorable contribution from volumes and fuels, offset mainly by higher raw material cost in ready-mix and higher freight costs.

While cement continues to be considered essential, the construction industry is experiencing restrictions with only the following sectors being allowed to operate: First, on several projects, including the Mexico City Airport, the Dos Bocas refinery, the Mayan Train and projects related to hospitals, clinics, rural roads and other projects considered essential. Construction activity varies widely from state to state.

And second, retail sales. Such, we continue supplying back cement to most of our distributors. We believe bagged cement activity may experience some headwinds in the following months, affected by an expected increase in unemployment, decline in remittances and current uncertainty. The continuation of government programs, including rural growth might mitigate this decline.

In addition, the recently announced credit programs for self-construction should also support the formal demand. Regarding former construction, we should see suspended projects start to reactivate once the declared health emergency ends. Infrastructure activity could be bolstered by the government as a countercyclical measure, resuming current projects and continue to establish the conditions for the private investment needed under the infrastructure agreement. Suspended industrial and commercial projects should gradually restart as restrictions are lifted.

New projects will continue to depend on the presence of the right conditions for investment. It is too early to assess the speed of recovery of the construction industry and cement demand for the rest of the year. However, we expect construction to be one of the first sectors to start recovering.

In addition, we are coming from very low levels of infrastructure and housing activity last year. The government recently announced a $26 billion stimulus program, which will be used to increase spending on social programs and infrastructure projects to help mitigate the impact of COVID-19. This and any additional stimulus put in place to reactivate construction should reflect positively on cement demand.

The United States, the strong results of our operations during the quarter reflect the continuation of the demand momentum we experienced in the fourth quarter, coupled with better weather conditions, improved logistics management and lower energy costs. The strong demand picture at the start of the year moderated in the second half of March as COVID-19 restrictions in certain California markets impacted volumes.

Cement and aggregates volumes increased 10% on a like-for-like basis, while ready-mix volumes rose 9%. The drivers of demand in the quarter were the residential and infrastructure sectors. Texas, California and Florida contributed to volume growth. Pricing for cement, ready-mix and aggregates in the quarter was stable sequentially.

EBITDA margin for the region drove 2.6 percentage points due primarily to improved volumes and pricing. Visibility for 2020 has been substantially reduced due to the health crisis. As of today, construction in all our markets continues to be considered essential, and all our facilities can operate. And additionally, our diversified U.S. footprint implies that the trajectory of virus contagion, regulatory response and recovery will affect each individual market on its own time line.

While business month-to-date April has been resilient, we anticipate that our volumes are likely to be impacted over the year. April price increases in several markets were postponed until summer. The infrastructure accounting for over half of cement demand, its recent strength and countercyclical measure should provide some cushion for our volumes. Additionally, we are increasingly hopeful that we will see an economic stimulus package that includes significant federal infrastructure spending as the government acts to get the economy moving again.

We do, however, expect weakness in the residential and industrial and commercial sectors. While the continuation of projects in progress will provide support to our volumes for the next few months, initiation of new projects may be delayed until there is greater economic visibility.

The majority of our U.S. operations are in markets that are slowed down and delay on input cement demand. These inputs serve as an important buffer and allow us to continue operating our cement plants at high capacity levels while responding to a potential decline in activity. We are analyzing several recently announced government programs, both to assist our employees and to facilitate our U.S. operations.

In our Europe region, quarterly domestic gray cement volumes were up 1% year-over-year, with solid growth in our Central European markets, driven primarily by continued work from the infrastructure sector, partially offset by declines in the U.K. and Spain due to COVID-19 measures during March.

The declines in regional ready-mix and aggregates volumes also reflect the impact of restrictive measures in France and Spain, which offset the growth in our Central European markets. Domestic gray cement prices were up in all our markets, both sequentially and on a year-over-year basis. During the quarter, we implemented successful price increases in the United Kingdom and Spain. In April, we also implemented price increases in Germany, Poland, Czech Republic and Croatia.

Regional ready-mix and aggregate prices were also higher. Although, each government in the region has imposed different degrees of lockdown measures to mitigate the crisis, the construction sector has been deemed an essential activity in all our geographies. In Spain, construction stopped for 2 weeks due to heightened restrictions at the end of March. Activity restarted on April 13.

In France, Spain and the U.K., we observed a significant deceleration in construction activity as a result of the implementation of stringent COVID-19 measures during March. In Poland, Germany and the Czech Republic, authorities have imposed fewer restrictions and the impact has been much less disruptive to the industry.

While we expect many of the restrictions in our footprint to be gradually lifted over the next few weeks, the economic toll of the pandemic should continue to challenge the industry for months. While European governments have been some of the most active in announcing monetary and fiscal measures to mitigate the economic impact of COVID-19, private sector projects should continue to face uncertainty. Infrastructure stimulus spending is expected. However, it may take time and may not fully compensate for the sector decline in private consumption. It is very hard at this point in time to quantify the regional impact that COVID-19 and potential mitigation actions from governments will have on demand for the full year.

In the South, Central America and the Caribbean region, we continue to experience favorable pricing dynamics during the quarter, despite a significant decline in demand due in part to government's measures to contain the spread of COVID-19. The drop in regional sales and EBITDA was mainly driven by declines in Colombia and Panama. For additional details on this region, I invite you to review CLH's quarterly results, which were also published today.

Activity in Colombia was strong before the implementation of COVID-19 restrictions. Industry volumes improved by around 7% year-to-date February, with an estimated 30% decline during March. Our quarterly domestic gray cement volumes declined by 16%, while our prices improved by 9% year-over-year and 2% sequentially.

In the Dominican Republic, cement volumes declined by 7% during the quarter. Government restrictions implemented since mid-March slowed down the demand for our products. Cement prices continued their positive trend, increasing in the double digits during the quarter. Our operations in Panama continued to suffer from delays in infrastructure projects, high inventories in apartments and offices as well as by the deceleration of the economy. The COVID-19 crisis intensified and already weakened demand environment.

In our Asia, Middle East and Africa region, we experienced favorable volume dynamics in the quarter. In contrast, regional cement prices declined due to competitive dynamics in the Philippines and Egypt. EBITDA margin from the region increased 1.5 percentage points, mainly due to energy tailwinds, lower raw material cost in cement and higher volumes.

In the Philippines, domestic gray cement volumes declined by 4% during the quarter, while cement prices declined 6% due to increased competitive dynamics. For the first two months of the year, our cement volumes increased by 8%. However, the persistent transmission of COVID-19 prompted the government to put the region of Luzon into a strict lockdown, which began on March 16. Our Solid cement plant with a capacity of roughly 2 million metric tons and two marine terminals located in the Luzon region are currently closed. Our operations in the Visayas and Mindanao region are functioning at a low utilization level. Activity for the remainder of the year will be subject to the reopening of the economy, but we expect a gradual return to operations and to normalize around the third and fourth quarter of the year. For additional information on our Philippines operations, please see CHP's quarterly results, which will be available on Sunday, May 3 in the evening, Monday morning in Asia.

In Egypt, cement volumes increased by 11% during the quarter supported mainly by the informal sector, while our prices remained relatively stable sequentially. The Egyptian government has been taking very decisive actions to limit the spread of the virus, whilst avoiding a complete shutdown of the economy. Curfews have been imposed, however, our industry has been deemed essential.

In Israel, ready-mix and aggregate volumes increased by 11% and 8%, respectively, during the quarter. The infrastructure sector was the main driver for growth, closely followed by housing and commercial activities. Prices also improved during the quarter. Although, we saw a slight decline in activity during the month of March, we have not seen a significant impact from the COVID-19 pandemic. Construction has been considered an essential activity. In addition, strong economic fundamentals, higher activity in office buildings in Tel Aviv and clients bringing consumption forward in anticipation of potential closures, has helped maintain demand for our products in the country.

And now I will turn the call over to Maher to discuss our financials.

[Maher Al-Haffar, executive]

Thank you, Fernando. Hello, everyone. During the first quarter of 2020, operating EBITDA increased by 1% on a like-for-like basis with a reduction in margin of 0.3 percentage points. The favorable impact of consolidated prices and fuels during the quarter was offset by increased freight and transportation costs, high raw materials in ready-mix as well as increased purchased cement.

Reported EBITDA also reflects an unfavorable effect from currency fluctuations of $16 million. We continue to see tailwinds from lower energy costs during the quarter. Our unitary energy cost of producing cement, including kiln fuel and electricity, was 12% lower during the quarter. This includes a 21% reduction in fuels and a 2% decline in electricity.

Our quarterly free cash flow after maintenance CapEx was negative $215 million compared with negative $337 million in the same period last year. This is mainly explained by a lower investment in working capital due to aggressive receivables and inventory management as a result of the health crisis. We expect a portion of this working capital investment to reverse during the second half of the year.

As Fernando mentioned earlier, we took important measures to improve our overall cash position in anticipation of potential disruptions in the capital markets. These measures help us improve our cash level as of the end of the quarter, but also increased overall debt. As a result of expected higher total debt for the year on average, we now anticipate a slight increase in our full year financial expense.

Net debt plus perpetual securities, which adjusts for the effect of the higher cash balance, was reduced by $112 million. During the quarter, total debt reflects a favorable translation effect of $100 million. We ended the quarter with a strong liquidity position and a manageable debt maturity profile with no significant debt maturities through July 2021. Our leverage ratio ended at 4.4x at the end of the quarter.

Before I turn the call back to Fernando, I would like to mention that starting next quarter, the Europe and the Asia, Middle East and Africa regions will be consolidated into one, reflecting the recently announced changes in senior management.

Now I will turn the call to Fernando. Fernando?

[Fernando Olivieri, executive]

Thank you, Maher. Given the continued uncertainty because of COVID-19, it is difficult to presume EBITDA and volume guidance at this point. However, we are providing estimates for energy and some of the items we can't control below the EBITDA line. Regarding cost of energy per tonne of cement produced, we now forecast a decrease of 4% to 6%. We now expect CapEx investment to be around $700 million for this year. A reduction of 60% in our noncommitted CapEx for the rest of the year. During the next 3 months, we will be reducing these expenditures to a minimum.

On financial expense, we now expect an increase of $25 million to $50 million as a result of higher average debt for the year to improve our cash position as well as higher rates. We expect no significant change in cash taxes, we should reach about $200 million for the year.

Due to lack of visibility on our top line growth, we believe that working capital investment will be higher than the one provided at the beginning of the year. However, we are not in a position to provide a new estimate at this point in time.

Given the challenging and uncertain times caused by this pandemic, we will continue to monitor the development of COVID-19 and act decisively to ensure the health and safety of our employees, customers, suppliers and communities, serve and support our customers in these difficult times and protect the future of our company.

We are encouraged by the historical scope of the fiscal and monetary measures that are being implemented by governments in a significant portion of our portfolio. We expect additional measures to address badly needed infrastructure and support housing activity in most of our markets.

Thank you for your attention. I would like take this opportunity to wish everybody good health and to please keep safe.

[Maher Al-Haffar, executive]

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 prices for our products.

And now we will be happy to take your questions. Operator?

[Operator]

[Operator Instructions] Our first question is from Carlos Peyrelongue from Bank of America.

[Carlos Peyrelongue, analyst]

Can you comment on any initiative, either in the U.S. or Europe, to approve new infrastructure packages? And so far, has there been any package being approved in either the U.S. or Europe?

[Maher Al-Haffar, executive]

Carlos, thank you. There hasn't been specific packages yet. But there is definitely conversations in the U.S., certainly, bipartisan conversations, there are definitely conversations in Europe as well about very major potential infrastructure -- additional infrastructure packages to be developed. Having said that -- and we are encouraged. I mean this is probably of all things, I mean, we think this is something that is definitely needed as soon as the markets normalize.

Now it is important, however, to mention that as governments try to normalize this process, they have committed an historic, as Fernando said in the remarks, an historic amount of stimulus, close to $8 trillion of stimulus has been announced and is currently being implemented on an accelerated manner. This is -- on top of that, we have major additional monetary policies through central banks.

The markets in which we operate have announced probably over $5 trillion to date of fiscal stimulus, including things like individual subsidies, payroll support, deferred taxes. And some markets have improved, like the U.S., committed close to $3 billion so far. And of course, Mexico has also announced a few days back, a $26 billion program in loans to small and medium-sized businesses and individuals and social programs. So we're encouraged. We think the next stage for governments in [ local markets ] would be to start looking at infrastructure-related project, which we believe, is very likely to happen. I don't know if that answers your question, Carlos.

[Carlos Peyrelongue, analyst]

Sure. Sure it does. Thank you.

[Maher Al-Haffar, executive]

Thank you very much, Carlos. Operator?

[Operator]

Our next question is from Nikolaj Lippmann from Morgan Stanley.

[Nikolaj Lippmann, analyst]

[ We were ] trying to handicap your future performance in the key markets such as the U.S. I was just looking -- I view a strong performance, I looked at the data from Texas that kind of showed, at least with regards to your numbers, that January, February were very strong, and then March sort of rolled over, it was a homogeneous performance for everyone. But is that something you can say, did we see in the last month of this quarter, a general slowdown in the United States? Or is there anything you can say about how this quarter kind of played out in the U.S. specifically?

[Fernando Olivieri, executive]

Yes. Nikolaj, I think with news like the recent one in the Bay Area in California on reactivating the construction activity, there might be those type of positive news. But now, in general terms, what we've seen in the very short term is that the construction companies, they have been kind of speeding up their job sites, their works. So there are positive reasons why we think volumes can be resilient. But as you know, the U.S. is still in its way to get to the peak and additional measures of easing the lockdown might take another 2, 3 weeks. Very challenging to give you a guidance on volumes, but they could be stable and perhaps for a time after the execution of some projects that might be a slight decline.

[Nikolaj Lippmann, analyst]

Okay. And can you give us a sense of how much you think the first quarter reflects an attempt by construction companies to perhaps finish some initial work, and therefore, they sort of bought more cement or pushed forward with activity in the quarter?

[Fernando Olivieri, executive]

Yes, but it's very challenging to give you some additional guidance on the second quarter. April, up to about mid-April, volumes have been stable. But again, it's still very early to give you a guidance on the second quarter. What I can comment perhaps is that a few weeks ago, we were expecting in the U.S. for an impact in the second quarter. So now because of this reason, that I'm commenting, I think if there is a reduction in volumes, that is not necessarily happening, it's going to be happening in the second quarter. So -- or it might be divided between the second quarter and the third quarter.

[Maher Al-Haffar, executive]

And if I can...

[Nikolaj Lippmann, analyst]

And in the first quarter?

[Maher Al-Haffar, executive]

Yes. Nik, maybe if I can just complement what Fernando was saying is also -- I mean, especially in infrastructure, what we're finding is that DOT's pretty much all over our markets now. Of course, as you can imagine, I mean, we have -- our footprint is quite big and the actions or the limitations, let's say, on mobility or construction activity has been very -- most of our markets have been opened. The exception, as Fernando said, is the Bay Area. But the interesting part is that on the infrastructure side, it seems like DOTs are taking advantage of lighter traffic to actually accelerate most projects. And that's probably true for other construction projects as well. I mean, certainly in residential, industrial and commercial, I mean, we're seeing, generally speaking, builders and contractors trying to accelerate as quickly as possible, not knowing what lies ahead.

[Operator]

And now we will have a question from the webcast. Our host will read it.

[Maher Al-Haffar, executive]

Okay. The first question from the webcast is going to be from Mike Betts from Data Based Analysis. And the question is, have you adjusted your payment terms for COVID-19 in order to reduce risk of bad debt?

[Fernando Olivieri, executive]

Okay. I can take that one, Maher. I think the answer to that question, Mike, is that we are in constant touch with our customers. We have not necessarily taken an across-the-board decision on payment terms, but we've been making decisions individually and depending on market conditions in different -- different markets do still have very different conditions. And we have been in touch and agreeing with them the best way to go, particularly through the first couple or 3 months of the impact of the coronavirus. So far, so good. We still don't see any major impact in this regard.

[Operator]

Our next question is from Adrian Huerta from JPMorgan.

[Adrian Huerta, analyst]

One, if you can just comment a little bit more on the margins in Mexico. I was quite surprised on the sequential improvement on margins. And also in the U.S., where the margin was well above what we have seen in the last 4 years in the first quarter. What else on top of volumes and prices impacted positively margins on these 2 markets?

[Maher Al-Haffar, executive]

Adrian, if I can just -- in the case of Mexico, while we had fuel tailwinds, which were significant, close to more -- by far, more than half than the total decline in margin. And the reason for that is because of pet coke. Pet coke prices dropped importantly, almost 50%. The cement volumes also did well, as you can imagine. Prices were kind of flattish. I mean, they -- there's a little bit of deterioration there. And that's primarily because of a mix effect. We had a higher proportion of exports, and exports happen at a slightly lower price, so that it's more of a mix effect than anything else. And then we had some items like freight, for instance, transport in the case of ready-mix, some negative impact in electricity and some costs in some of the materials that we use in maintenance like refractory bricks.

So those are kind of the reasons where we've had a benefit on the energy side and volumes in cement and to some extent, prices, but were offset by these other items. I don't know if that's sufficient breakdown on Mexico.

[Adrian Huerta, analyst]

Yes, Maher.

[Maher Al-Haffar, executive]

Yes. In terms of the U.S., I mean, we had a terrific quarter. That's all I can say. And obviously, we had close to a 3 percentage point expansion in margin. A big chunk of that is because of volumes. I mean we had cement and aggs were up 10%. Ready-mix was close second, plus 9%. We had good pricing performance, plus 3% year-over-year. And then also very importantly, the organization was -- the U.S. organization was very good at making sure that our Stronger CEMEX initiatives are coming through. And so we had -- so that's also an important driver of the improvement there.

Lower energy cost for the production of cement offset that a little bit, but we continue to switch more to pet coke. Now we did have some purchased cement and imports because several of our markets were sold out, so we had to do that.

And also another contributor that was offsetting the positives was the increase in raw materials in ready-mix. I mean, when you have aggregates and cement prices as strong as that, that impacts, obviously, the raw material input.

And then transportation, I mean, freight cost has been also fairly strong. And so the combination of all of this translated to an improvement of close to 3 percentage points in our EBITDA margin in the U.S. business.

[Adrian Huerta, analyst]

Yes. So the higher frequency that you had in the past, it was still this quarter, Maher?

[Maher Al-Haffar, executive]

Yes. I mean, we have 2 terminals in California and Texas that were not operating last year. And so clearly -- and there's more travel distances in our Florida market as well.

[Operator]

Our next question is from Yassine Touahri from On Field Investment Research.

[Yassine Touahri, analyst]

A couple of questions. First, could you quantify the volume development that you've seen in the first two weeks of April, maybe in the U.S., in Mexico, in Colombia. And if you could also give us some color on what happened in France, the U.K. and Philippines, that would be very, very helpful.

And then my second question would be on your covenants. If the lockdown were lasting a little bit longer, are you already discussing with your banks about potentially updating your covenants? And if you update your covenants, what could be the cost for you?

[Fernando Olivieri, executive]

The -- let me take the first question, Yassine. As you saw in the presentation, there is a chart showing the curve in which we believe each country, each market is evolving through the pandemic. And I think the first volumes during the first couple of weeks of April and most probably for April as a month, we see volumes behaving according to that curve. So for instance, in the case of Mexico, as you know, the construction activity was not fully -- was not considered fully essential, meaning there were on the one hand, some infrastructure type of projects that continue its operations, and on the other hand, the retail stores of bagged cement were considered essential.

So what we have seen is precisely because that definition is that in the last few days, we have seen a decline in bulk cement, which is mainly used for large works, particularly infrastructure work. And we have seen bagged cement growing. Again that, I think, will kind of be reflected all over the month of April.

But all in all, volumes in Mexico in the last few days have shown a decline. As you may know, the lockdown -- the social lockdown in Mexico was extended until May 30, but some decisions might be made in mid-May. Some decisions, meaning depending on the evolution or the impact of the pandemic, authorities might start a progressive type of the economy or different activities coming back. That's to be seen.

In the case of the U.S., the first couple of weeks, volumes are still stable, from stable to slight growth. Again, this is the first couple of weeks. So let's see how it goes in the next weeks. As I mentioned, there are some positives like construction in the Bay Area opening like of market sales on infrastructure. What I also mentioned in -- regarding some construction companies willing to speed up their construction projects. Well, let's see how it goes moving forward. Overall, that book is still stable. We wonder if some early indicators, like permits and others will allow us to better understand the behavior of demand in the next three to six months.

In Europe, I think what we see, seems like that will continue being the behavior of the impact of COVID-19. In fact, there are 2 Europes. Central and East Europe has not been materially impacted. And even in April, countries like Germany or Poland are still with a positive behavior, positive growth. But clearly, the U.K. -- west Europe, the U.K., in our case, the relevant markets in West Europe, U.K., France and Spain, are declining in the first couple of weeks of April in different degrees. But most probably, that will be the case for all April. Hopefully, if we refer to the chart that we showed before, hopefully, if the trend continues being the same, we will see West Europe exiting or leaving a period after the peak, which is conducive to belief that activities will start easing the lockdown in those countries.

I think the most stringent measures in the lockdown, at least to our industry, have been taken in emerging markets. For most of South America and the Caribbean region, we have, for instance, Colombia, Dominican Republic, which have a complete restriction on construction.

Unfortunately, these 2 countries that I mentioned, are also exiting, let's say, after the peak and hopefully, and again, if trends continue, they will be able to open. Colombia has announced already a process to start opening the construction industry and the Dominican Republic as well. The Philippines, as you know, the part of the Luzon island is restricted -- is fully restricted. As you may know, the Luzon, the island in the north where Manila is located, is around -- in general terms, it's around 70% of the economy in the Philippines. Again, it has run already that way for about a month. So still April still -- it is still at a very low level because of that. And again, if trends continue, if things improve, we will see an opening of that market at least. We know, before COVID-19, it was growing at an attractive pace.

So that's more or less the comments I can make on April. And we will be updating as much as possible how we see this. Again, this is the kind of variables that we are observing currently, meaning, as we have commented in mid-March -- about mid-March, we decided -- after looking at the impact of COVID-19, we decided to make -- the way I call it is a hard stop, which is [ now ] stopping everything but it's a hard stop on business-as-usual type of mentality, concentrate and define what is it that is essential or what was essential for the next 90 days. And we thought that whatever was not essential for the company and for the future of the company in 90 days, we just stop it. That's how we managed to reduce CapEx by 60%. 60%, meaning CapEx that were not spent from January to March or committed from January to March.

And right now we are still observing different scenarios because there are decisions -- still additional decisions to be made, depending on the scenario that unfolds in each and every market. So as you can imagine, we are monitoring, we are looking, we are trying to find early indicators so we can act and react timely to those conditions. If a country, after the COVID impact, gets into a V-shaped recovery, we want to be prepared, we want to have the assets, we want to have the people. That might be the case in some markets, that might not be the case in other markets, but we will see.

[Maher Al-Haffar, executive]

And Yassine, regarding your question...

[Yassine Touahri, analyst]

Just on Mexico?

[Maher Al-Haffar, executive]

Yes. Go ahead.

[Fernando Olivieri, executive]

Say that again?

[Yassine Touahri, analyst]

Just on -- in Europe, when we look at the volume in the U.K., in France and in Spain, we understand that the volume decline in April has been close to 50%, sometimes even higher. Is this the kind of volume decline that you see in Mexico? Or is it lower?

[Fernando Olivieri, executive]

No, in Mexico, during the first few days in April, and we can perhaps extend that comment to all the month of April. The declines are not at that level, are much lower. As I mentioned, the clients in bulk cement are sizable. But there is sizable growth in bag cement. Again, because the retail stores -- you know that in Mexico, 2/3 of cement volumes are sold in bags. That's 2/3. And those are sold to retail stores, Construramas and other stores. And that business activity was considered essential. So that continues operating, and that's been helping our volumes not to drop as significantly as the ones in Europe.

So we are not expecting a large drop in Mexico, at least for the month of April. Again, as I mentioned, the lockdown was extended to May 30, but there were signals from authorities in the sense of reviewing the business lockdown, a different type of business activity in around mid-May.

[Maher Al-Haffar, executive]

And Yassine, very quickly to address your other question regarding covenants. I mean as we mentioned on the call earlier, we have formally approached the banks for an amendment of our current covenants. We expect a response from the banks by the 26th of May. As you know, there are 20-or-so banks in the syndicate. And we expect to get continuous support from our syndicate. We have a very good track record with conversations with them and in securing amendments from the syndicates in the past. So we will update the market as soon as we have more news. Thank you very much.

[Operator]

And now we will have a question from the webcast. Our host will read it.

[Maher Al-Haffar, executive]

Okay. Our next question is from Paul Roger from BNP Exane Paribas. And the question is how radical could you be when considering divestments? That's the first question, Fernando.

The next question is, is everything outside of Mexico and U.S. on the table? And what does the crisis mean for sustainability efforts? There were a few other questions asked here.

[Fernando Olivieri, executive]

Regarding the comment, the comment is very simple. The market conditions have changed. And we will keep the focus and the strategy and kind of policy that we have been using on asset divestment. As you know, we have never done a kind of a fire sale divestment. And even though the COVID-19 is imposing a particular need in liquidity in the very short term, we have sold it. Meaning we don't need divestments as a source -- as a financing source at all. We have mentioned the amount of cash we have or we had when closing March.

And I also mentioned that at least in our opinion, when you have this type of unknowns, this lack of visibility and this uncertainty, I think you have to concentrate on measures that can be helpful for whatever the scenario that ends up unfolding. So in this hard stop that we made during March, we made decisions in order to bring cash or to preserve cash additional to, let's say, business as usual and additional to what we were thinking, for almost $3 billion. Most of it has been already accumulated as we speak, and the rest will come. For instance, the reduction of $400 million in CapEx will be gradual from now to December.

So we might continue [ accessing ] some divestments, but again, I mean, it doesn't seem like these are the best market conditions.

[Maher Al-Haffar, executive]

And then the other question, Fernando, was on sustainability. Are you still investing in sustainability improvements? Or have you decided to cut environmental CapEx?

[Fernando Olivieri, executive]

Well, again, I have to refer to -- and perhaps we didn't elaborate that much on the thinking process that we are going through. We do consider COVID-19 as a phenomena coming from -- we're not specialists in the matter, but coming from almost nowhere, an unknown virus. Same virus for everybody, but different implications because of, you name it, because of public policies or because of culture, demographics, weather, whatever. And we -- the decision we made was, it's really the privilege of our cash position and the rest was, let's say, at least in our minds, it was postponed. For how long? When we made those decisions in March, it was 90 days.

So are we changing our strategy? Are we thinking that sustainability in this example is less relevant now than what it was? Of course, not. But we can afford waiting 90 days or even longer for some investments. So for instance, let me put to you just one simple example. If we were investing in our cement plant in order to use biofuel -- biomass as fuel, which is part of our program in order to improve our sustainability position. But you know what, that plant is not going to be needed for 90 days because of high inventories or because the activity is restricted, then it doesn't make that much sense to continue that project. Now are we going to abandon it? Of course, not. We will continue the plan, it is just giving us a time, a three to six months' time to be focused only in the issue that we consider essential for business, then after we know better the process, until we know better the performance of different markets, then we will -- can think on going back to business as usual. But nothing relevant has changed.

[Operator]

Our next question is from Ben Theurer from Barclays.

[Benjamin Theurer, analyst]

Fernando and Maher, hope you're both safe and sound. Just wanted to dig a little bit into your medium-term strategy. I mean, it's going to be obvious that some of the volume losses that you're going to see within the second quarter might not be immediately recovered. But to another degree, we're seeing, particularly in emerging markets, significant FX headwinds already impacting your pricing in U.S. dollar terms at an initial stage for the first quarter and obviously, a lot of that has accelerated now into April. So if you think through some of the key currencies, the Mexican peso, Colombian peso, even the British pound where you have a certain exposure when translating that into U.S. dollars. So how do you think about your pricing strategy in order to recover that in the light of what is likely going to be a lower demand environment in coming quarters?

[Fernando Olivieri, executive]

Well, thanks for the question. As you know, these are tough times. And in the case of emerging markets, you mentioned Mexico and Colombia, those are currencies that impact us the most. We are going through this level of depreciation. Now in the case of the Mexican peso, well, let's see how it goes. You know that we are covered. Maher might make some comments regarding the hedge that we have in peso terms.

But I think that what I can comment on pricing is that performance of FX is not necessarily or not the only variable to consider in market dynamics. You have seen in the past how, almost regardless of FX, depending on market dynamics, we apply our policy of recovery into cost inflation. So now in Mexico, Colombia and other markets, we need to evaluate. Once the activity resumes to regular conditions, we need to evaluate market conditions and see how we are doing with the idea or the strategy of recovering the cost inflation, and we will act accordingly.

I think we have mentioned that, particularly in the case of Mexico, we have not recovered fully the cost -- our input cost inflation since early '18. On the other hand, I already commented because our previous question is that currently, this month or the first couple of weeks of this month, we have seen bulk cement declining materially. We have seen bagged cement growing also materially. So we have to consider those dynamics and act accordingly. Hopefully, we will manage to continue our strategy of keeping prices at a reasonable level.

[Benjamin Theurer, analyst]

Okay. Maher, anything you wanted to add on the hedging and how it impacts or...

[Fernando Olivieri, executive]

Maher? Well, I don't know if we have a technical problem here, but what I can comment on [ other actions ] that I think we started a couple of years ago also on hedging our peso income in Mexico for an amount equivalent to expected cash flows. So that's what we have. I do remember -- I may not remember exactly the amount, but it's around MXN 20 per dollar or about that, more or less that level. We will be, let's say, our risk currently in peso terms is up to 2044. On top of that, we are covered. I don't know if Maher wants to add any additional commentary.

Are you there, Maher? Or are we having a technical issue? We cannot hear you. Give us a second, let's see if we can solve this issue.

[Technical Difficulty]

[Operator]

Did you want to take the next question? Or you want to wait for Maher to reconnect?

[Fernando Olivieri, executive]

I don't know what the technical problem is. If it can be solved in 30 seconds, let's wait. If it cannot be solved, we will continue.

[Technical Difficulty]

[Operator]

He is back. Our next question is from Anne Milne from Bank of America.

[Anne Milne, analyst]

Thank you for outlining all of the measures that you are implementing. I have a few questions that all relate to your liquidity over the course of the year. So I'll just go through them. They're all -- none of them are very long.

You've drawn down your credit lines for about $1.4 billion, which I think is very good. What are the terms or the -- at least the maturities of these credit line extensions?

And then the second question is you do have $397 million in your debt profile, which matures this year, it says other bank debt. Is this something that can be rolled over? I know you also have some pending asset sales awaiting for collection. And my question would be, is there anything that could reverse those sales or cancel them or leave so that you wouldn't get that money?

And then as part of your negotiations with creditors, which you mentioned, that will be related to covenants and we'll find out details next month, would part of that be an extension of the facility as well?

So those would be my main questions right now. I guess one other one you could add to that is working capital. I know you said it will be higher this year. How do you manage it when you really don't know what your demand is going to be from one month to the next?

[Fernando Olivieri, executive]

Thank you, Anne. Let me start with the credit lines and combining it with the second question. The most relevant credit we took is the revolver facility, which is part of the financial agreement with banks. That's 1.1 out of the 1.4. So that's most of it. Credit terms are similar to or the same than the rest of the FA. And this revolver is due in July '22. So that's the most important part. The other lines are short-term lines, which is most probably the ones that you see that they should be lower during this year, and we will continue doing that. And we will continue exploring different sources of increasing our cash buffer.

Regarding negotiations, we are completely focused on covenants right now. We are not -- right now we are not trying to negotiate the sale or the extension of the FA. It's just about a different set of covenants in the very short term, meaning perhaps two, three quarters. And that's the focus afterwards. Afterwards, meaning midyear, we will see it and revisit again the agreement.

Regarding working capital, we believe it's going to increase because that's the, let's say, directionally, that's what has to happen. But we know exactly what is it that is going to be happening. The answer is no. But we know what to expect, and we are working on that regard. So that's one simple example. If our sales drop, our securitization program will be smaller. So that type of issue we know already.

And perhaps the most important part, Anne, is that, as I mentioned, it's like trying to manage or trying to drive something that we cannot -- we can almost not see anything. What we are sure is that the impact in -- of COVID-19 in different markets goes from a mild negative impact to a sizable short-term impact. That's why we took this attitude of a hard stop and then, if you like, stop first and act afterwards. And working capital is one of the variables that we are including in our business scenarios. We need more time to be more confident on which scenario is going to be unfolding in each and every market so we can act accordingly.

But as of today, we don't have any additional color to what they might do. It's like the example I mentioned on our cement plant. A cement plant, there is a restriction that is supposed to last 30 days. Do we act as if that plant is going to be shut down forever? No. What are the measures -- the proper measures to be taken when a plant is shut down 30 days? Those are the ones that we are taking and continue evaluating the impact of COVID in that plant.

So I'm afraid what I'm saying is we are on top of it, but we need more time to evaluate what the specific scenario to be unfolded in each and every market.

And I think those were the questions. Did I miss any?

[Anne Milne, analyst]

The pending asset sale proceeds coming in, is there any risk of those not coming in?

[Fernando Olivieri, executive]

The asset sales proceeds. We are considering them, I think, in the second half of the year. We don't have any indication of not, let's say, of the threat of not receiving them. But anyhow, we are considering all possibilities when making decisions in order to build this cash buffer, but we have to make some contingencies like those.

[Maher Al-Haffar, executive]

Thanks, Anne. Thank you very much.

[Fernando Olivieri, executive]

You too. Are you back, Maher?

[Maher Al-Haffar, executive]

Yes, I am. Yes.

[Operator]

I would like to turn the conference over to Fernando González for closing remarks.

[Fernando Olivieri, executive]

Okay. So you were back timely, Maher.

[Maher Al-Haffar, executive]

Yes, Fernando. Thank you.

[Fernando Olivieri, executive]

Okay. I would like to thank you all for your time and attention. We look forward to your continued participation in CEMEX. As usual, please feel free to contact us directly or visit our website at any time. Thank you. Good day, and stay safe.

[Operator]

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