Cemex SAB de CV

NYSE:CX

Earnings Call Transcript 2024-Q1

[Operator]

Good morning. Welcome to the CEMEX First Quarter 2021 Conference Call and Webcast. My name is Elliot, and I'll be your operator for today. [Operator Instructions].

And now I will turn the conference over to Lucy Rodriguez, Chief Communications Officer. Please proceed.

[Lucy Rodriguez, executive]

Good morning. Thank you for joining us today for our first quarter 2024 conference call and webcast. We hope this call finds you in good health. I am joined today by Fernando Gonzalez, our CEO; and Maher Al-Haffar, our CFO. As always, we will spend a few minutes reviewing the business, and then we will be happy to take your questions. And now I will hand it over to Fernando.

[Fernando Olivieri, executive]

Thanks, Lucy, and good day to everyone. I am pleased with our first quarter results, which outperformed our expectations underlying our 2024 guidance. In fact, EBITDA represents a first quarter record for the company. Despite fewer working days and difficult weather conditions in many markets, EBITDA grew 5%.

Three of our 4 regions, markets accounting for 90% of consolidated EBITDA, experienced a combined growth rate of 15%. Mexico deserves special mention, setting a record in terms of quarterly EBITDA generation. EBITDA margin expanded year-over-year and sequentially, driven by a favorable price cost dynamic. Our prices rose mid-single digits, while input cost inflation slowed.

Growth investments and urbanization solutions continue to materially support EBITDA growth. Net income grew 13%. Our return on capital, 12.4%, was slightly higher relative to the same period last year despite the impact of the Spanish tax fine that we recognized in fourth quarter 2023. In other highlights. Last month, we achieved an important milestone with the receipt of an investment-grade rating of BBB- from Standard & Poor's.

This rating action was a recognition of our medium-term financial strategy as well as consistent financial performance. In late March, we hosted our 2024 CEMEX Day presenting additional insights into our regions, decarbonization progress and goals, capital allocation and strategy. I would encourage you to access the replay on our website. This month, we refinanced our Eurobank facility, further improving our maturity schedule and liquidity position. In March, we published our eighth Integrated Report as we continue to set the pace for our industry towards a profitable climate action transition.

As part of our portfolio rebalancing efforts, we have announced an agreement to divest our interest, assets and operations in the Philippines for a total enterprise value of $800 million. We currently expect to finalize this transaction before the end of year. Aligned to our strategy, the majority of divestment proceeds would be repurposed to fund our growth strategy in the U.S. market. Net sales rose 3% with increases in Mexico and SCAC, partially offset by volume declines in the U.S. and EMEA.

EBITDA rose mid-single digits, reflecting growth in Mexico, SCAC and the U.S. We estimate that the impact of fewer working days in the quarter amounted to an additional $20 million in EBITDA or 3% in year-over-year growth. EBITDA margin increased 0.5 percentage point as our pricing strategy effectively outpaced input cost inflation. Free cash flow after maintenance CapEx was negatively impacted by higher taxes, maintenance as well as lower fixed asset sales.

The decline in consolidated volumes results from difficult weather conditions in the U.S. and Europe, fewer working days and slowing economic growth in several EMEA countries. In the case of the U.S., we have seen volumes improve with better weather conditions in March and year-to-date, April. In Europe, we also have seen volumes pick up over the last 6 weeks, and we expect volumes to continue to improve over the next few quarters. With better economic conditions, the possibility of interest rate cuts and easier year-over-year comparisons.

Mexico stood out in the quarter with strong volume performance, driven by improved bagged cement activity and continued strength in the infrastructure and industrial segments. Despite the challenging volume backdrop, our consolidated prices were up year-over-year and sequentially. Sequential pricing was up in all markets and for all products as set for cement in the U.S. In the U.S., on a like-for-like basis, excluding a year-end adjustment, cement prices rose 1% sequentially. The sequential pricing achievement results from successful execution of first quarter pricing increases, reflecting the ongoing but decelerating input cost inflation.

We continue to execute on our commercial strategy designed to reflect input cost inflation in our prices, recalibrating always to current inflation levels with the goal of maintaining or improving margins. Our commercial strategy, along with our growth investments and organization solutions were instrumental in driving EBITDA growth in the quarter. The effectiveness of our pricing strategy is visible in the favorable price cost dynamics in the quarter, where the ratio of our pricing contribution to cost increased to 2x, about 0.3x higher than in 2023.

Decelerating costs are also supported with cost of goods sold as a percentage of sales declining 1.6 percentage points. Margin increased on a year-over-year and sequential basis in a quarter where the trend behavior is for a decline in margins from fourth to first quarter. Our bolt-on investments continue to be an important component of growth, accounting for 10% of total EBITDA and 26% of incremental. EBITDA was impacted by lower volumes as a result of bad weather, fewer working days and difficult demand conditions in EMEA.

We expect better overall volume performance in the following quarters. In March, we published our eighth annual Integrated Report covering 2023, which details how our strategy, governance, sustainability and financial performance intersect to create value for our stakeholders. Some of our main accomplishments presented in this report related to climate action are since the creation of our Future in Action program in 2020, we have reduced Scope 1 and 2 CO2 emissions by 13% and 12%, respectively, a pace that previously would have taken 15 years to accomplish.

We repurposed close to 28 million tons of waste and byproducts through the Regenera business line. We increased alternative substitution rate to 37% and reduced clinker factor to 72%, both at record levels and contributing to the profitability of our business. In 2023, we increased the adoption of our low-carbon [indiscernible] brand, currently a more than $7 billion brand to 56% for cement and 48% for concrete.

I encourage you to access our integrated report on our website. Organization Solutions, our fastest-growing business, continued its double-digit EBITDA growth rate with important margin expansion in the quarter. Now accounting for 12% of consolidated EBITDA, this business is now reaching scale as a core segment for the company and material contributor to growth.

Mexico, with its dominant Regenera waste management business is currently the largest regional contributor. Main drivers of growth in the quarter were payment services and [indiscernible] related to the high level of former construction activity in Mexico. Additionally, EMEA is leading the development of our construction, demolition and excavation materials vertical. And now back to you, Lucy.

[Lucy Rodriguez, executive]

Thank you, Fernando. Our Mexican operations once again delivered strong results with EBITDA growing to record levels, supported by higher prices for our products, strong volumes and decelerating input cost inflation. Despite 2 fewer working days, volume performance was strong. Bagged cement and aggregate volumes grew double digit on an average daily sales basis, while ready-mix volumes rose mid-single digits, reflecting the dynamism of formal construction in the country.

Infrastructure and nearshoring with particular strength in the North and Southeast remain the principal growth drivers. We continue to see improvement in bagged cement volumes with mid-single-digit growth resulting from increased social spending, lower inflation and a favorable comparison base. Based on our first quarter performance, we are raising our cement and ready-mix volume guidance from low single digits to low to mid-single-digit growth for the full year. Sequential prices for our cement, ready-mix and aggregates rose low single digits, reflecting on the traction of our January price increases implemented to offset the ongoing cost inflation of the business.

On a year-over-year basis, our double-digit ready-mix and aggregate price increases, and a mid-single-digit cement increase, as well as decelerating energy costs led to an expansion in EBITDA margin of 0.5 percentage point. In the U.S., quarterly performance was significantly affected by bad weather in much of our portfolio.

Despite these weather challenges, EBITDA rose 3%, while EBITDA margins expanded almost 1 percentage point. Margin growth was driven by higher prices and lower cost inflation, largely in the form of fuel, freight and imports. In aggregate, where volumes are less impacted by weather conditions. Volumes grew 9% on the back of increased base material sales for infrastructure work. Cement and ready-mix volumes declined high single digit and mid-teen percentage, respectively, due to heavy precipitation or deep free conditions in much of our portfolio. We estimate the impact of weather conditions on cement volumes explain approximately half of the volume decline.

Over the last 2 months, with better weather, we have seen cement and ready-mix volumes recover sequentially. The difficult weather conditions, however, delayed cement and ready-mix pricing increases in several of our markets to April. We implemented pricing increases in Florida in the first quarter and cement pricing in the state is up 2% sequentially, excluding freight to customers. In aggregate, sequential prices increased 6% on the back of price actions in Florida, Texas and California as well as favorable geographic volume mix.

We expect to implement our pricing strategy in the rest of our aggregate markets over the next few months. Going forward, we remain optimistic on the underlying demand for our products supported by strong contract awards for highways and streets, announced industrial projects related to onshore and clean energy and residential market recovery.

In EMEA, EBITDA declined 41%, driven by a challenging demand backdrop in Europe and geopolitical events in Asia, Middle East and Africa. EBITDA in Europe experienced the largest decline of 44% due to a significant drop in volumes, while our prices for cement, ready-mix and aggregates rose low to mid-single digits sequentially.

Volumes were down between high single and double digit for cement, ready-mix and aggregates due to fewer working days, bad weather and a strong prior year comparison base. Demand conditions were very much a mixed bag with volume declines in the U.K., Germany and France, while the rest of our European portfolio showed a positive volume performance. We recognized that first quarter in Europe typically represents approximately 12% of full year European EBITDA and can be significantly disrupted by weather.

It should not be seen as an indicator of full year performance. In fact, our European results actually outperformed our expectations for the quarter. As a result, given the easier comp base going forward as well as an expected improvement in demand outlook, driven by lower inflation and prospects for a more benign interest rate environment, we are upgrading our cement volume guidance slightly to a flat to low single-digit increase.

On climate action. We continue our reduced before capture CO2 strategy in Europe with sales of our lower carbon virtuous cement products increasing by 1 percentage point, reaching 93% of sales in the first quarter. Finally, EMEA also experienced a large decline in EBITDA of 35% due to ongoing tensions from the conflict in the Middle East.

Our SCAC operations once again delivered solid results with its fourth consecutive year-over-year growth in EBITDA, led by strong pricing performance and decelerating input cost inflation. Pricing led top line growth with our cement prices increasing mid-single digit, more than compensating for input cost inflation. Regional cement volumes were pressured by 2 fewer working days in the quarter as well as continued weak bagged cement demand. EBITDA margin increased 3.8 percentage points, largely explained by the strong pricing contribution, lower energy and raw material costs as well as the timing of kiln maintenance.

In the Dominican Republic, while weak demand in the informal segment continues to weigh on demand, formal construction remains robust, fueled by projects in the tourism and infrastructure sectors. In Jamaica, volumes were supported by strong growth in the tourism sector. And in Panama, cement volumes increased high single digits, mainly driven by infrastructure projects, such as the metro, the fourth bridge over the canal and highway expansions.

And now I will pass the call to Maher to review our financial development.

[Maher Al-Haffar, executive]

Thank you, Lucy, and good day to everyone. As Fernando mentioned, we are pleased with our first quarter performance with growth in sales, EBITDA and EBITDA margin. This was a record first quarter for CEMEX and a record for our operations in Mexico. As we noted earlier, this quarter had fewer working days than last year. Adjusting for this difference, our EBITDA would be higher by approximately $20 million or an additional 3 percentage points on both a reported and like-for-like basis.

The 0.5 percentage point increase in EBITDA margin was driven primarily by pricing, easing inflation and disciplined cost management. Our improved performance speaks to the success of our pricing strategy, cost containment efforts and the result of our growth investment and Urbanization Solutions business. On the cost side, we saw a 20% decline in fuel cost per ton of cement, driven by a decline in the market price of fuels as well as our efforts to increase the proportion of lower cost and lower carbon fuels. On a sequential basis, consolidated fuel cost per ton declined 11%.

Free cash flow after maintenance CapEx was about $160 million lower than prior year. This is due primarily to higher taxes paid in Mexico and currency tax gains from a strong Mexican peso. Due to the seasonality of our working capital cycle, first quarter free cash flow is typically negative and turns around in subsequent quarters. Last year, we started implementing targeted actions to improve working capital, optimize our inventories and turns of trade throughout the company. While first quarter working capital investment was substantially similar to the prior year, we expect to see a positive trend throughout the remainder of the year and remain on track to achieve our previously stated guidance of reducing more than $300 million in working capital this year.

Net income increased 13%, due primarily to better operational results and lower taxes. We are quite pleased with achieving our investment-grade rating from S&P. This should translate into significant value for all of our stakeholders and is a testament to the success of our financial strategy. As we have said before, we intend not only to reach investment grade but to maintain investment-grade rating through our business cycle. During the quarter, we executed a series of transactions that further strengthened our financial position. First, we reopened our sustainability-linked long-term notes in Mexico in Mexican pesos for an equivalent amount of approximately $320 million and swap them into U.S. dollars.

We started tapping the source of funds last year for the first time in over 15 years at an attractive cost compared to our U.S. dollar curve. And second, we upsized and extended the maturity of our EUR 500 million sustainability-linked loan facility. The new facility consists of a EUR 450 million term loan maturing in 2029. And a new EUR 300 million committed revolving credit facility. This brings our total committed revolving facilities to slightly over $2.3 billion, which puts us in the best liquidity position we've had in recent years. Our leverage ratio stood at 2.18x, up 0.12x versus December. Typically, we see a sequential increase in leverage in the first quarter due to the seasonally negative free cash flow that reverses as we go through the year. As mentioned in our recent CEMEX Day, we are committed to reducing our leverage ratio by 0.5 turn in the next 24 to 36 months.

And now back to you, Fernando.

[Fernando Olivieri, executive]

I'm happy with our performance in the first quarter and believe it sets us up well for the rest of the year. Our full year guidance has always assumed more EBITDA growth in the second half of the year. And as I said previously, first quarter outperformed our expectations. In Europe, the biggest headwind in the quarter, we do expect better performance going forward. .

We continue to expect favorable price to cost dynamics for the rest of the year. We also are expecting and already seeing volumes recovering in the U.S. with better weather. In addition, we expect more pricing traction from second quarter pricing increases. Despite better performance to date, as this is only the first quarter, we are maintaining our full year guidance for EBITDA of a low to mid-single-digit increase as well as maintaining guidance for all free cash flow items. This assumes as of March 31 levels for the remaining of the year.

And now back to you, Lucy.

[Lucy Rodriguez, 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 the prices for our products.

[Lucy Rodriguez, executive]

And now we will be happy to take your questions. [Operator Instructions] And the first question comes from Alejandra Obregon from Morgan Stanley.

[Alejandra Obregon, analyst]

Congratulations on the record quarter. I guess my question is on the Philippines asset sale. That's a very positive for your free cash flow. So I was just wondering if you can help us understand with this transaction. Of course, you've approved means for you in terms of cash inflows. How much of your debt is in your balance sheet from this operation today? And maybe there's some details with regards to what it means for working capital and CapEx. I mean anything that can help us assess the positive impact for free cash flow here? And anything on the timing you mentioned year-end, but would it be fair to assume fourth quarter? Or is that something potentially before that? Anything -- any color here would be very helpful.

[Maher Al-Haffar, executive]

Thank you, Alejandra. Fernando, would you like me to take a stab at that?

[Fernando Olivieri, executive]

Yes.

[Maher Al-Haffar, executive]

Yes, Alejandra, we're very pleased with announcing the transaction, and we're expecting closing by the end of the year. In terms of the impact, I mean, of course, you saw in the press release that we issued, the implied enterprise value is about $800 million. And if we take a look at based on last year's valuation. We're talking about a little bit over -- in terms of multiples, a little bit over 20x -- 21, 22x. And in terms of impact on us, I mean we have debt that will be assumed around $345 million, $350 million and then cash of about $360 million, $365 million. And so you're talking about the total amount, about $708 million. Again, we don't know what the impact on leverage is going to be by the end of the year. But ceteris paribus kind of conditions by the end of the year, this should have about [ 0.2 ] of a turn positive impact, assuming everything is impacting leverage, of course, without taking into consideration what the use of proceeds would be in all of that. In terms of working capital from a trading perspective, it should be fairly limited because of the relatively low operational level that the business has at this point. And of course, closing is subject to customary regulatory approvals by the end of the year.

[Alejandra Obregon, analyst]

Perfect. Maher, just to make sure I got it right. What was the impact on -- potential impact on leverage. You mentioned 0.2 turns. How much for that, I'm sorry?

[Maher Al-Haffar, executive]

Again, ceteris paribus conditions, meaning everything is being applied to either cash or reduction in debt, the impact on leverage would be around 0.2 of a turn.

[Alejandra Obregon, analyst]

Congratulations.

[Lucy Rodriguez, executive]

And the next question comes from Pablo Ricalde from Santander.

[Pablo Ricalde, analyst]

Lucy, Fernando, Marquez, I don't know if you can provide more color on the U.S. volume performance within the quarter. I know you explained there were like less working days in the quarter, but maybe talking a little bit about market share or regional performance, that would be super useful.

[Lucy Rodriguez, executive]

Thanks, Pablo. Yes, we did have a reduction in the decline in volumes in both cement and ready-mix, while we had increase in volumes in aggregates. The weakness in cement and ready-mix is why the difference in product. It's primarily because, first of all, footprint. The footprint that we have in ready-mix was heavier hit by precipitation in those markets, and the same in cement. It really reflects our footprint.

Aggregates, the reason why we're seeing growth there is because, first of all, it's less vulnerable to weather because, of course, you can inventory aggregates, you can also even lay them, without much impact if it's raining. And also in terms of the actual geography. The growth in ags that we're seeing came from infrastructure, particularly, it's primarily base material. Now in terms of what's responsible for the volume decline, it's not an exact science. But we do believe that about 50% of the decline relates to weather.

In states that represented 75% of our cement volumes, we saw an average 35% increase in precipitation in the quarter. I'm going to highlight Texas, in particular, where we're exposed in the South, in the Houston area. In Texas, it was a 45% increase in precipitation year-over-year. And if you look at just January in the Houston market for ready-mix, there were only 8 days in that entire month that weren't affected by weather.

And then to your point, we did see probably about 30% of the volume decline that came from a market softening, primarily in commercial and residential. In places like San Francisco and in Arizona, we have seen some softening in terms of market demand. And of course, we also did have market share loss that we highlighted last year. That is pretty much stabilized, but we're still seeing the year-over-year impact. And of course, we have said that we will -- we are aiming to responsibly recover that market share.

And finally, we also had some projects that were ending for about 20% of the volume decline. Arizona, in particular, there were 2 chip manufacturing, semiconductor chip manufacturing facility projects that have paused there. As Maher mentioned -- no, I guess, as Fernando mentioned in the call since February, we have seen an improvement. Volumes have been recovering both on a sequential and a year-over-year basis. And in fact, March was actually positive year-over-year. So we are optimistic going forward in terms of demand. But hopefully, that covers it for you, Pablo.

Okay. Great. And the next question then comes from the web. It's from Paul Roger from Exane. CEMEX has previously said carbon capture is a 2030 story. Is that still the view despite some big peers now suggesting it will come earlier this decade?

[Fernando Olivieri, executive]

Well, Paul, thanks for your question. Let me clarify our position on carbon capture. Maybe the reason why you're saying is a 2030 stories because the way we have defined our road map to net zero and the emphasis that we are making in different steps in the process. We've been since we started our a newer strategy, the Future in Action strategy launched in 2020. We've been focused on reducing our carbon emissions, [ 3 ] scopes at a much faster speed than we used to do it before. The reduction that we have done is about 13%. And every year, it continues reducing or we've been reducing like 3 on a fraction, close to 4 percentage points. We are highly focused on traditional levers to comply with our 2030 commitment.

Commitment that is aligned with the scenario of the 1.5 degrees already certified by SBTi, meaning our target by 2030 for the time being, is not assuming a contribution from carbon capture. Now at the same time, we've been developing carbon capture and storage or use projects. We have publicly announcing -- we have already announced 6 projects, 4 in Europe and 2 in the U.S., at an industrial level, with proven technologies and with already or in most of the cases already, with the consumptions needed to capture, to transport and to start or use. If we can do or develop or put in place these projects before 2030, and we are trying to do that, it will be much better. But again, regarding our commitments as of right now, we are not including this carbon capture contribution.

Now the -- at least, the way we see it all over the world, the traditional levers can be applied in the cement industry. There might be some rules and regulations to be improved in Global South, but it can be done. But what we see -- and in your question, you are referring to big peers suggesting that it's coming earlier and it's coming earlier. But it seems like that is coming in Europe and the U.S. And that's about 10% of total cement capacity over the world.

So we are all interested in reducing carbon capture, reducing even more and reducing it faster. But we are very pleased with the strategy of reducing almost 50% using 1990 base by 2030 without those contributions. So reduction is extremely important, as you can imagine. If you reduce up to 50%, the projects needed to capture the rest should be smaller and more convenient. And so -- we are one of the ones developing this type of projects as fast as possible. And again, but this is a European and U.S. proposition for the time being. Canada, maybe 3 or 4 countries. But we need to find a solution for our company in other geographies and for our industry in other geographies. So that's what I can comment on your question.

[Lucy Rodriguez, executive]

The next question comes from Adrian Huerta from JPMorgan.

[Adrian Huerta, analyst]

My question has to do with Mexico, both on volumes and on prices. In the case of prices, you tried to increase prices in January in Mexico, but it seems that prices were flat sequentially in local currency, but peers actually didn't have a 4% increase in the quarter. So if you can make any comments on that and if we should expect given that you did not have a price increase in the first quarter, expect one in the coming quarters? And regarding volumes. How March was? In the first 2 months of the year started to be strong. We don't have data yet for March volumes. And in the new guidance that you have, what type of deceleration are you assuming for the second half of the year on -- especially from infrastructure?

[Maher Al-Haffar, executive]

Would you like me to explain it that or...

[Fernando Olivieri, executive]

Go ahead.

[Maher Al-Haffar, executive]

Yes. Again, I think if we want to take a look at sequential pricing in local currency terms for Mexico, it's actually like up 3%. So we did put a -- announced in January a national pricing increase for bags, 12%; for bulk, 15%. And it was -- we believe, quite successful given the demand dynamics that we've had. As you saw volumes in the first quarter for cement were up 7%, and that's before you start adjusting for the 2 less working days. If we take a look at average daily sales, volumes in cement are up 10%. And this was, of course, what -- between that and decelerating inflation is what drove the record performance. And definitely, volumes did get better towards March. And we think certainly, the first part of April continued to be doing quite well as well.

So we're happy about that. And so we believe that the success of our pricing strategy in Mexico should continue. And then if we take a look at margins, as you saw, we had a very positive expansion in margins because of the pricing and because of the cost deceleration. Bagged cement grew by like 5% on an average daily sales basis on back of lower inflation, easier comps, more remittances. The formal sector was really was -- what was really driving growth enormously. I mean we saw the formal segment, bulk cement demand up 16%. And then if we take a look at ready-mix and ags, we were up 5% and it's almost more than double that on an average daily sales basis.

So I think the demand dynamics are very positive. The cost dynamics are quite positive. And we're expecting them, frankly, to continue to do that. And as we see, some conclude -- potential conclusion of some of the large infrastructure projects by the middle of the year, we continue to see other projects that are actually starting and should continue to give us very good momentum into the back half of the year. So right now, we're not looking at any major deceleration during the rest of the year. And bagged cement should continue to with -- in the rest of the year, we're expecting it to be actually a little bit better.

Of course, coming from a much higher level because of because of the disproportionate growth in infrastructure and industrial and commercial. That's the other segment that [indiscernible] continues to do extremely well because of the onshoring and nearshoring.

I mean if we take a look at industrial, it's roughly 60% of our demand, infrastructure, I didn't mention, but it's about 15% of our demand. And those 2 businesses continue to do extremely, extremely well. And that's why we -- if you take a look at our implied volumes for the rest of the year, it's significantly higher than what we saw -- what the total guidance is.

[Lucy Rodriguez, executive]

And significantly, I mean, our implied guidance for the rest of the year is 1% to 4%, right, versus the 7%, just to be clear. Okay. Adrian, does that answer your question?

[Adrian Huerta, analyst]

Yes, that's fine.

[Lucy Rodriguez, executive]

And the next question comes from Alberto Valerio from UBS. Alberto?

[Alberto Valerio, analyst]

Lucy and CEMEX team, question is about the Philippines divestment. I would like to know if you have -- you mentioned that you leverage the [ comp ] investments, you have any other options for the use of proceeds of this transaction? And if you can see the similar movements for the Colombia assets where you made our offer for the shares, and we may be best following the strategy that you mentioned in CEMEX Day of training one, you cannot mistake when you say that you want to be more focused on developing world and [ activity ] in emerging markets.

[Fernando Olivieri, executive]

I'm not sure I listened to the whole question, but let me try and let me know. I think as we mentioned in our CEMEX Day recently, we reaffirmed our strategy, a strategy that we started developing in 2020, and we have been communicating it, meaning with the idea of making up, let's say adjustments or changes to our portfolio. Willing to growth, mainly our first priority in the U.S., we also mentioned Europe and to some extent, Mexico. And that's what we've been doing.

So this divestment in the Philippines, we see it pretty aligned to that strategy in the same way when we did other divestments from 2000 to 2003. And all the -- or most of the proceeds of those divestments have been used in our bolt-on growth strategy. Little by little, but in this 3.5 years, let's say, or 2 years in the [indiscernible] we have divested already about $2.5 billion. and all of it or most of it have been repurposed to investments, again, U.S. sales priority and also part of it, to reduce our leverage ratio. So again, this divestment is aligned with that strategy. This is the last piece that we usually have in Southeast Asia. So our Asian chapter has been also, it's going to be closed once we perfect or execute the transaction by year-end. Again, maybe there is another part of the question that I didn't get. I don't know if Maher or Lucy have a comment on it.

[Alberto Valerio, analyst]

[indiscernible], I would just say that the other part of the question was about Colombia that we see the same way that we see Philippines.

[Maher Al-Haffar, executive]

I think Fernando [indiscernible] asking us about -- it's about Colombia and because we've delisted the company there and I was wondering if that something the same as Philippines would occur. Am I correct? Alberto, that was your question?

[Alberto Valerio, analyst]

Exactly that, Maher.

[Fernando Olivieri, executive]

Okay. Sorry, I didn't understood it. Well, we -- again, as I said, we have a clear strategy properly communicated and we are executing. We do not comment on potential future either acquisitions or divestments. But what you can expect in the future is that we will continue with the same note. Even in our CEMEX Day, we shared a new piece of info, let's say, on our strategy with the target of the U.S. to be up to 40% of CEMEX portfolio, [ or there ] being around 30%. And so again, as you can see, all pieces are moving forward according to that idea, what you can expect in the future is that we will continue with the same process.

[Lucy Rodriguez, executive]

And the next question comes from Yassine Touahri from On Field Research.

[Yassine Touahri, analyst]

Just a question on your volume outlook for Europe. You increased a little bit your volume forecast. But the cement demand was quite weak in Q1. Can you comment a little bit about the trends in March and maybe at the beginning of April? Do you start to see a recovery in volume in Europe? And then maybe a second question on the 9% volume growth that you delivered in aggregate in the U.S. It's like exceptional compared to what many other companies have reported. Is it something, which is specific to CEMEX? Is it some specific infrastructure project? Or is it something which is a one-off? Or do you see this strong growth continuing for the rest of the year?

[Fernando Olivieri, executive]

I will take the second one. Just saying specifically the case of the volume growth in aggregates in the U.S., it is specific to CEMEX. Well, that might be a similar effect in other players. But in our case, it's a product mix effect. We are selling more base materials. That means infrastructure is playing a role in that volume. It is not referred to all volumes, I mean, to all products, but very specific on base materials, which we interpret as good news because it could also suggest an activity in infrastructure already in development. But it's product-specific.

[Lucy Rodriguez, executive]

Great. And maybe just on Europe. Yes, Yassine, Europe, obviously, there was a drop in EBITDA year-over-year in first quarter. I think it's important just to remind everyone what I know you know that first quarter typically is the most seasonally impacted quarter, and Europe is the region where we see that most.

Typically, first quarter is about 11% to 12% of full year EBITDA for Europe. So we shouldn't read a lot in to what we saw. The first quarter was impacted by 2 fewer working days in Europe, which explains about 10% of the EBITDA drop. We had bad weather in a number of geographies particularly the U.K., which is our largest market in Europe and where we saw quite a bit of precipitation. Germany also was impacted, primarily from the economic slowdown. But on the other hand, we saw great growth in places like Poland, where we're seeing increased confidence coming out of the elections and the expectation of EU funding going forward. France also has been an important source of the decline.

As you know, we're only ready-mix in France. But of course, because of the Olympics, there has been a ban on large projects that's going to go through kind of early summer, early mid-summer. But we are expecting that, that will get better and, of course, construction opens up again post Olympics. In the quarter, I think it's important to note that even with the decline in volumes that we saw, which was anywhere between 8% to 15% on our products, we actually saw very resilient pricing sequentially. So local currency prices were up between 1% to 5%, depending on the product.

Another headwind that we had in the quarter was obviously, with volumes down, we had higher fixed costs as well. We expect that will turn around as we go through the year. We have seen a seasonal pickup in terms of volumes. In the case of Europe and April has been looking quite good as well as we saw sequentially the normal seasonal pickup that occurs. So I think that we're -- as we look at Europe going forward, we have better comps as we move into the last 3 quarters of the year because the declines we experienced in Europe really started in second quarter.

We believe we'll have improving fixed cost dynamics. The Olympics will be -- that will be behind us, and we'll have a more supportive economic environment as well going forward, we believe, and the promise of infrastructure is picking up in Poland. So that is kind of it in terms of Europe. Hopefully, that answers your question.

And the next question comes from Anne Milne from Bank of America.

[Anne Milne, analyst]

Fernando, Maher, Lucy, I know that we've talked about this in previous calls. By the next quarterly conference call, Mexico will look at presidential elections, and you will know who the new President is, even though the polls do give us some good suggestions. I know we've talked about the impact on business and volumes in Mexico that maybe will tend to decline.

But given some of the dynamics that are going on right now, both near-shoring and right now, an increase in bagged cement. Could you just give us an idea of some of your thoughts, if anything, if nothing more on how this one time might be different and what you might expect post elections in the second half of '24.

[Fernando Olivieri, executive]

Yes. Well, let me start and then Maher or Lucy can complement. I think this year is an election year. What we see is, let's say, a good performance in different sectors in our industry. Perhaps the one impacted this former housing because of high interest rates, although at least in the case of Mexico, seems like the first adjustment was made. Let's see how that continues moving forward. But I think the informal economy is doing well.

Mexico is growing. So on that side, growth in the market could be reasonable and stable for the rest of the year. On the other hand, industrial and commercial impacted by the nearshoring effect is also evolving in an attractive manner, particularly in the north of the country. And the other piece that is going on that is positive, which is infrastructure in public works, meaning public infrastructure. Everything that is going on in the central part of the country and in the Southeast, meaning the trains, the rural roads, the airports.

Most of the -- with some exceptions like the airport in Mexico City, the projects are not finished yet, and they're not going to finish in election time. So they are going to be -- continue being developed for the rest of the year and who knows maybe also early next year. So that shouldn't be a, let's say, a material factor or a reason why demand can suffer materially. So we see stable volumes for Mexico during the whole year despite the election in mid-year.

[Maher Al-Haffar, executive]

And if I can add maybe just some more granular color and I'm sure if you visited Monterrey or Mexico recently, you would see a lot of these projects that are just beginning. We think there's a very strong project pipeline for the second half of the year that is likely to kind of substitute or, let's say, ease the demand situation in the second half of the year.

You have the cross-border terminal in Tijuana. You have -- there's a very extensive metro expansion in Monterrey. I mean on the way to the -- from the airport, you can see enormous amount of concrete being poured and expected to continue to be poured for quite a bit of the year. Major highway construction in [indiscernible] and there are many, many others, right?

And then on the housing side, I mean we do expect, as Fernando said, as rates get a little bit better inflation gets to be easing in the second half of the year. We do expect some improvement in demand there. Remittances continue to be very positive and impacted. And Mexico as a whole, frankly, continue to benefit from the fiscal stimulus from the U.S. through the remittances and through others. And of course, the nearshoring process also continues to happen, especially in the northern part of the country, and it's starting to make its way further south. And so supply/dynamics continue to be fairly favorable. So second half of the year is looking reasonably good, I would say.

[Lucy Rodriguez, executive]

And then next question comes from Gordon Lee from BTG.

[Gordon Lee, analyst]

Maher, here is a question, I guess, really for you, but just sort of thinking about capital allocation in the context of your sort of continuous enhancement in financial flexibility. I mean, I know, obviously, priority number one, you stated to reduce the leverage ratio by 0.5 turn of EBITDA. But I wonder how you feel about the subordinated perpetual notes, whether -- because if you look at the coupon, that's sort of almost not quite a cost of equity type of coupon, but not far from it and particularly considering that you're now an investment-grade company.

And I know that those don't impact the leverage ratio. But how -- do you see them as a permanent feature of your capital structure? And how would that stack up, let's say, versus buying back shares or increasing the dividend going forward?

[Maher Al-Haffar, executive]

Yes. Thank you very much, Gordon, on that question. I mean, first, in addition to the way that those 2 instruments are being -- we've got $2 billion just for the listeners of subordinated notes. One is on the high side of coupon, one is on the lower side of coupon, the one that was issued earlier is on the lower side because rates spiked when we issued the second one. Very importantly, Gordon, on both of those instruments when we issued them, we were internally comparing them on a cash cost basis after tax. And we believe that the after-tax cost of those instruments is actually very comparable to our senior debt. So from a cost perspective, I don't see them costing us more.

They just happen to also have the additional attribute of accounting for equity both on a total consolidated basis for CEMEX from leverage ratio calculation, but also half of those are considered as equity by the rating agencies for 5 years. Now the next call -- I shouldn't say call dates, but reset dates are in '26 and '28 and the rates will go up materially. So we need to kind of think about what we would do with them for '26 or '28 not any time sooner than that. I don't see us doing anything sooner than that. Do I see them as part of our permanent capital structure? I don't think so.

I mean, I think as our EBITDA grows and our stock of debt goes down, leverage gets more and more comfortable it is entirely possible that, to the extent that we don't need those, that we would slowly blend them into our senior debt stack. Of course, if we need to reissue them whatever at that time, we would do that because upon reissuance, they would receive again, the equity treatment from both the rating agencies and from the leverage ratio. So that's how I think -- that's how we think about them, I mean, frankly, in terms of capital allocation.

[Lucy Rodriguez, executive]

And the last question comes from [ Daniel Roha ] from Bank of America.

[Unknown Analyst]

Lucy, Fernando, Maher, I wanted to jump back to the U.S. and maybe discuss pricing. I understand that back in January, you were able to reprice around 20% of the market with the 80% remaining sometime in April. Could you give us some feedback on how you're seeing pricing evolving into April and May? And the fact given price volumes going down in the first quarter, a second potential increase still in the table.

[Lucy Rodriguez, executive]

Sure. Fernando, have do you want to handle that? Do you want to take it or...

[Fernando Olivieri, executive]

Go ahead, Lucy. Go ahead.

[Lucy Rodriguez, executive]

Okay. Yes. Well, first of all, we did increase prices in Florida in January, and we saw a good traction in terms of pricing on that increase. We do have for April, the kind of another, I think, 70% of our portfolio more or less

[Audio Gap]

in terms of pricing and the kind of pricing outlook and what are our achievements have been. I don't know, Maher, if you want to add anything to that?

[Maher Al-Haffar, executive]

No, that's fine, Lucy.

[Lucy Rodriguez, executive]

Okay. Thank you very much, Daniel. Okay, so that's it then. We appreciate you joining us today for our first quarter results, and we hope you will be back with us again for second quarter results on July 25. Many thanks, and have a good end of week.

[Operator]

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