Executives: Fernando González - CEO Maher Al-Haffar - EVP, IR, Corporate Communications & Public

Affairs
Analysts: Cecilia Jimenez - Santander Investment Securities Vanessa Quiroga - Crédit Suisse Gordon Lee - Banco BTG Pactual S.A. Daniel Sasson - Itaú Corretora de Valores Eric Neguelouart - Bank of America Merrill Lynch Daniel McGoey - Citigroup Adrian Huerta - JPMorgan Chase & Co.

Operator: Good morning. Welcome to the CEMEX Third Quarter 2018 Conference Call and Webcast. My name is Richard, and I will be your operator for today.

[Operator Instructions]. Our first for the today are Fernando González, Chief Executive Officer; and Maher Al-Haffar, Executive Vice President of Investor Relations, Communications and public affairs. And now, I'll now turn the conference over to your host, Fernando González. Please proceed.

Fernando González: Thank you.

Good day to everyone, and thank you for joining us for our third quarter 2018 conference call and webcast. We will be happy to take your questions after our initial remarks. We are encouraged by our favorable results during the quarter with top line growth of 8% on a like-to-like basis, the highest year-over-year increase since the first quarter of 2014 and operating EBITDA rising by 2%. EBITDA margin declined by 1.1 percentage points, mainly due to higher-than-expected energy and transportation cost, which I will address shortly. These results were underpinned by a healthy quarterly and year-to-date volume and pricing dynamics in our 3 core products in most of our portfolio.

During the third quarter, our operations in our 2 main markets, which represent about 2/3 of our EBITDA generation, Mexico and the U.S., displayed a strong growth year-over-year volumes for our 3 core products with improved pricing dynamics. In Europe, prices continue to improve with growth in ready-mix and aggregate volumes. In addition, in our EMEA region, we saw our volumes and prices in the Philippines growing in the mid-single digits as well as a double-digit increase in cement prices in Egypt. On a consolidated basis, cement ready-mix and aggregate volumes increased by 4%, 5% and 5% respectively, during the quarter and by 3% 4% and 2% during the first 9 months of the year. Our consolidated prices in local currency terms for both ready-mix and aggregate increased by 4%, while prices for cement increased by 3% during the quarter.

We believe that our prices should perform better in the future and should fully reflect the higher-than-expected rise in energy including fuel, electricity and transportation. We are pleased with the recovery in our free cash flow conversion rate, we reached 55% during the quarter. Our free cash flow after maintenance CapEx during the quarter was $390 million, a 10% reduction from the same quarter last year, mainly due to an investment in working capital this quarter versus a reversal last year, partially mitigated by lower financial expenses. We expect the year-to-date investment in working capital to be substantially reversed during the rest of the year. Working capital days reached negative 10 days during the both the quarter and the first 9 months of the year.

Both were record levels for CEMEX in these periods. Now on our digital transformation and digital commerce efforts, we are pleased to report that currently close to 20,000 customers in 18 countries are transacting with us on our end-to-end digital commerce platform, CEMEX Go. These customers represent about 60% of our total reurring customers worldwide. Currently, they are placing more than 30% of their orders or about 19% of our global sales through this platform. This not only enablings us to serve our customers much better, but it translates into important efficiencies in the way we go to market.

We anticipate rolling out CEMEX Go in most of our markets by February 2019. In addition, we expect CEMEX Go to generate data rich analytics to better anticipate our customers' needs and focus on the most valuable solutions to them. This together with our close to 40 teams ensure that we continue to develop our digital capabilities and focus on evolving our platform. We are also very pleased with the positive reaction to CEMEX Go from many industry players in several of our markets. As such, we are making our digital commerce platform separately available to other participants in our industry.

Now I would like to discuss the most important developments in our markets. We are happy with the solid performance of our operations in Mexico, with quarterly volumes for domestic gray cement ready-mix and aggregates increasing by 9%, 14% and 13%, respectively, on a year-over-year basis. Volume growth benefit -- benefited by favorable industrial and commercial and formal housing activity as well as a low base of comparison versus the same period last year. During the quarter, our ready-mix and aggregate prices increased by 7% and 10%, respectively, reflecting increases in transportation cost, while cement prices remain stable on a year-over-year basis. Sequentially, prices for ready-mix increased by 1% with prices for both cement and aggregates dropping 1%.

In the case of cement, the decline is due to a product mix effect. Our operating EBITDA increased by 5% during the quarter on a like-to-like basis. EBITDA margin declined by 3.2 percentage points, mainly due to higher fuel and transportation costs, increased cost in raw materials in our cement and ready-mix business as well as our product mix effect. Regarding energy, we continue with our efforts to increase alternative fuel utilization, which in our Mexican operations went from 18% as of the first quarter of 2017 to 26% in this quarter. As part of this initiative, we are increasing our processing and feeding capacity to use right fuel or RTF and securing additional supply of this fuel in several plants in the country.

In addition, after an increase of more than 30% in the last 12 months, international pet coke prices have been moderating, and we expect them to continue to do so. On transportation fuels, diesel was up 18% during the quarter and 12% year-to-date on top of the 18% increase observed in 2017. The industrial-and-commercial sector was the main driver of cement consumption during the quarter, supported by favorable activity in the manufacturing and hospitality and tourism segments. With the uncertainty of the negotiating the renegotiation of the U.S. Mexico Canada behind us, this sector should continue to have a solid performance in line with the U.S.

manufacturing activity. The formal residential sector remained a strong driver for cement demand in the quarter. Housing starts increased by 6%, while housing permits increased by 9% year-to-date September. In addition, total investment in mortgages has grown in the same period with the increased contribution from both commercial banks and INFONAVIT. Regarding construction, economic indicators correlated with this the sector, including point in levels continues to be positive.

Infrastructure spending showed modest activity, reflecting low budgetary spending from the Ministry of Communications and Transportation. The approval of the 2019 budget in December this year might provide more visibility on infrastructure investment going forward. We anticipate our cement volumes in Mexico to increase between 1% and 2%, while we expect our ready-mix volumes to grow by 9% for the full year. We are optimistic about cement demand in Mexico going forward. To this end, we remain focused on the commissioning of our capacity expansions in the central part of the country.

In the United States, the strong demand conditions during the first half of the year continue in the third quarter, despite poor weather in Texas and the mid-south. The residential and infrastructure sectors were the primary drivers of growth. Cement, aggregates and ready-mix volumes increased by 7%, 8% and 10%, respectively, on a year-over-year basis. On a like-to-like basis, prices for cement, aggregates and ready-mix rose by 3% year-over-year. Our quarterly EBITDA margin increased by 0.4 percentage points due to robust volumes, pricing and some inventory change.

We did experience a significant headwind in the form of energy, labor and distribution cost in the quarter. This was further impacted by more maintenance during the quarter due to timing. Despite its strong growth in our portfolio this year, our year-to-date EBITDA margin is slightly down, reflecting the fact that our 2018 annual price increases implemented in January and April, were not sufficient to cover the rising input cost inflation we are experiencing. As we plan for 2019, we will look to recover this higher-than-expected cost escalation and ensure a reasonable return of capital. The residential sector remain the key driver of volume performance in the quarter.

Housing starts year-to-date September are growing at 6% compared with a 3% growth for the same period in 2017. More importantly, our 6 key states are expanding at a rate significantly in excess of the country as a whole. The outlook remains promising with permits for our 6 key states up 12% year-to-date August versus the national average of 4%. In the industrial-and-commercial sector, construction spending is up 4% year-to-date August with strength in offices, lodging and commercial activity. In infrastructure, this year, we have seen the second largest increase in the street and highway spending since 2007, up 6% year-to-date August, on the back of new state highway funding initiatives.

Several of our key states have led the effort to tap new revenue sources for Highway spending and it is evident in the results. While national contract awards are up 5% year-to-date August, awards in our key states are growing the double-digit area. After years of infrastructure volumes, we are particularly encouraged by the momentum this is bringing to our sector, which represents over half of U.S. cement consumption. Year-to-date, cement volumes in our U.S.

operations are growing at 7%, while ready-mix volumes are up 9%. Over the next few quarters, we expect both the infrastructure and residential sectors in our particularly dynamic footprint to drive our business in the U.S. In our South, Central America and the Caribbean region, our quarterly consolidated volumes for cement, ready-mix and aggregates declined by 3%, 10% and 11%, respectively. Cement volumes increased in the Salvador, Guatemala, IT Puerto Rico and the Bahamas, while ready-mix volumes improved in the Guatemala. During the first 9 months of the year, consolidated cement, ready-mix and aggregates volumes on a like-to-like basis, including TCL, declined by 4%, 12% and 10%, respectively.

Quarterly operating EBITDA for the region decreased by 14% on a like-to-like basis substantially because of lower contribution from Panama, TCL and Nicaragua with a margin decline of 2.7 percentage points. The decline in margin reflects lower regional volumes, higher fuel and transportation costs, higher purchase cement in our TCL operations and higher cost of raw materials in our ready-mix business. I will give a general overview of the region and for additional information, I invite you to review CLH's quarterly results, which were also reported today. In Columbia, now that the uncertainty of elections is behind us and activity begins to improve, we expect the economic growth to resume across the different cement demand sectors. We're encouraged by the stabilization of national cement demand during the quarter.

Quarterly cement and ready-mix volumes declined by 8% and 11%, respectively, on a year-over-year basis, but grew 7% and 4%, respectively, on a sequential basis, reflecting increased activity after the elections. We estimate our market position also had a slight sequential improvement. Our cement prices increased by 6% on a year-over-year basis and declined by 1% sequentially, mainly due to our commercial strategy. The infrastructure sector continue in positive performance during the third quarter, supported by 4G and other projects. During 2019, activity in this sector should be reinforced by increase of 62% in the transportation investment budget approved last week, regional and local elections to be held in October as well as an increase in the budget of royalties from extraction activities, which is used in part for transportation projects.

The residential sectors saw decline in volumes during the first 9 months of the year. However, this sector should stabilize during the fourth quarter, supported by low interest rates as well as improvements in consumer confidence and the intention to buy a home indicator. Additionally, the new government recently announced the pillars of their housing strategy the next 4 years with an expected construction of 1 million homes in this period or about 250,000 per year, representing about a 20% growth from current levels. In Panama, cement and ready-mix volumes declined by 16% and 9%, respectively, during the quarter. Weakness in the residential sector was partially offset by an improvement in infrastructure activity.

Going forward, ongoing infrastructure projects should provide demand support. The government recently awarded 2 very

relevant projects: the corridor with an investment of $540 million expected to start in the first quarter of 2019 and the fourth bridge over the canal of $1.4 billion project, which would begin construction in fourth quarter next year. In our TCL operations, domestic gray cement volumes declined by 4% in the third quarter. Favorable volumes dynamics continued in Jamaica, driven by infrastructure and commercial activity in the tourism sector. In our Europe region, we had strong growth in our Continental Europe operations, which were unfortunately overshadowed by weakness in our U.K.

market. Quarterly regional volumes for ready-mix and aggregates increased by 2% and 3%, respectively, while domestic gray cement volumes remained stable. For the first 9 months of 2018, domestic gray cement volumes increased by 1% versus the comparable period of 2017, supported by favorable volumes in all countries, except the U.K. and Croatia. EBITDA increased by 6% during the quarter on a like-to-like basis, while EBITDA margins remain flat.

As part of a stronger CEMEX, we are transforming our organization in Europe, going from a country base to a functional product focused organization across the whole region. These changes are expected to result in higher efficiencies and foster implementation of actions to serve our customers better and increase our profitability. In the United Kingdom, aggregate volumes remained flat, while domestic gray cement and ready-mix volumes decreased by 5% and 3%, respectively, during the quarter. On a like-to-like basis, our cement prices remain stable sequentially. For the remainder of the year, we expect cement consumption to be driven by the infrastructure sector.

Considering our year-to-date performance and the continued uncertainty around Brexit, we now expect our cement volumes for 2018 to decline between 3% and 4%. In Spain, domestic gray cement volumes remain stable during the quarter and grew 4% during the first 9 months of the year. Quarterly, cement prices increased by 2% sequentially and by 7% on a year-over-year basis. The double-digit increases in ready-mix and aggregate volumes reflects in of revenue of 11 new ready-mix plants and three new aggregate quarries. For the rest of this year, the residential should be sustained by subsequent conditions, variable income perspectives, pent-up housing demand as well as the continued double-digit growth in housing permits.

The industrial-and-commercial sector should remain supported by favorable business condition and the double-digit growth in construction permits. The infrastructure sector should continue to benefit from an increased spending from 2018 budget. Earlier this month, we announced the closure of 2 of our cement plants in Spain. in the south of the country. This closures, which are part of a stronger CEMEX, are in response to the cement overcapacity in the market, high input cost inflation, especially in fuels and electricity and the next phase of CO2 emission allowance regulations.

In Germany, domestic gray cement volumes during the quarter remained flat with a 1% sequential increase in prices. During the first 9 months of the year, cement volumes increased 1%. The construction sector has started to moderate its growth to the continued supply constraints. In the residential sector, favorable credit conditions are expected to support growth despite increases in home and apartment prices in larger metropolitan areas. Infrastructure is a still top priority for the federal government and should continue to benefit from increased transfers to local government.

In Poland, quarterly volumes for domestic gray cement, ready-mix and aggregates increased by 7%, 18% and 14%, respectively, and during the first 9 months of the year, volumes for our 3 core products increased by 8%. Our quarterly cement prices increased by 7% on a year-over-year basis and by 1% sequentially. The infrastructure sector was the main driver of demand during the quarter and should continue to perform favorably during the rest of 2018, reflecting our participation in larger infrastructure projects, such as S17 Expressway. In addition, the residential sector should continue to be supported by lower interest rates as well as government-sponsored programs. In France, our ready-mix and aggregate volumes increased by 7% and 11%, respectively, during the third quarter.

Prices for ready-mix and aggregates grew by 1% and 2% sequentially during the quarter, an increase of 5% and 3% year-over-year. For the rest of 2018, we expect the industrial and commercial infrastructure sectors to be the main drivers of demand. The industrial-and-commercial sector should benefit from the economic recovery, higher employment levels and growing industrial activity. The infrastructure sector should continue to be supported by our participation in related to the Grand project among others. In our Asia, Middle East and Africa region, domestic gray cement volumes increased by 3% during the third quarter with improved volumes in the Philippines and original ready-mix volumes declined by 1% during the quarter with favorable contributions from the Emirates and Israel, offset by a decline in Egypt.

Operating EBITDA for the region declined by 11% on a like-to-like basis with a margin decline of 2.6 percentage points, reflecting higher energy and transportation costs, purchase cement on clinker and increased cost and raw materials in or our ready-mix business. In the Philippines, cement volumes increased by 5% during the quarter, supported by continued infrastructure activity and growth in the residential sector. For the first 9 months of 2018, domestic gray cement volumes increased 10% compared with the same period in 2017. For the rest of 2018, we expect continued favorable infrastructure activity because of incremental government spending and the continuation of large projects related to the program. Higher remittances and double-digit growth in mortgages should continue to support the residential sector.

For additional information on our Philippines operations, please see CHP's quarterly results, which will be available late tonight, Friday morning in Asia. In Egypt, our cement volumes remain stable during the third quarter, an increase by 11% during the first 9 months of 2018. We have higher dispatches to Lower Egypt in these periods. During the quarter, our prices for domestic gray cement increased by 3% sequentially and by 15% on a year-over-year basis, partially offsetting input cost inflation. We are encouraged by the recent capacity rationalization efforts in the cement industry and the higher focus on profitability.

In Israel, our ready-mix and aggregate volumes during the quarter increased by 2% and 5%, respectively. The infrastructure sector continues to be the main driver of demand growth for the year, supported by the nonresidential sector during the third quarter. In summary, we had a solid fundamentals in most of our operations, which translated into positive consolidated volume and pricing dynamics for our products. And now, I will turn the call over to Maher to discuss our financials
Maher Al-Haffar: Thank you, Fernando. Hello, everyone.

We had quarterly and year-to-date increases in our consolidated volumes and prices, both in local currency and U.S. dollar terms for our three products. On a like-to-like basis, our net sales increased by 8% during the quarter, while operating EBITDA increased by 2% despite energy headwinds during the quarter and an unfavorable foreign exchange impact of $15 million. This FX impact includes $4 million from dollarized costs -- sorry, excludes $4 million from dollarized costs in our operations. Our quarterly operating EBITDA margin declined by 1.1 percentage points.

The favorable impact of higher volumes and prices was more than offset by higher cost in energy, logistics and raw materials in our ready-mix operations. Cost of sales as a percentage of net sales increased by 0.9 percentage points during the third quarter, driven mainly by higher energy costs. Operating expenses also as a percentage of net sales remained flat during the quarter. However, operating expense, excluding distribution, depreciation and amortizations declined by 0.4 percentage points in the same period, reflecting our efforts to reduce the cost of managing our business. Energy headwinds continue.

During the third quarter International pet coke prices were up 32% year-over-year, while the ARI index for the coal increased by 14%. International pet coke prices have been moderating recently. Our kiln fuel and electricity bill on a per-ton-of-cement produced basis increased by 10% during the third quarter and by 9% in the first 9 months of the year. Our quarterly free cash flow after maintenance CapEx was $390 million compared with $435 million last year, mainly explained by an increase in working capital investments versus a reversal in investment in the third quarter of 2017, partially mitigated by lower financial expenses. During the first 9 months of the year, working capital days declined to negative 10 days, a new record from negative 2 days in the same period last year.

We expect to substantially reverse the $426 million year-to-date investment in working capital during the fourth quarter to reach our yearly guidance. Other expenses, net during the quarter were $48 million, which includes severance payments and others. Regarding our financial instruments on September 21, we unwound about 34% of our forward positions in GCC shares, corresponding to 10.6 million GCC shares. We received about $13 million in cash as a result of this transaction. Foreign exchange results for the quarter resulted in a loss of $21 million, mainly due to the fluctuation of the Mexican peso versus the U.S.

dollar. During the quarter, we had a controlling interest net income of $174 million, a 40% decline from the first quarter last year. This is primarily driven by a lower gain on financial instruments, a negative variation in FX fluctuations as well as higher income tax, partially offset by lower financial expenses. Our total debt plus perpetual securities declined by $254 million during the quarter and by $713 million year-to-date. Last July, we paid the $330 million of the floating rate notes originally due in October 2018, using proceeds from our revolving credit facility.

Our leverage ratio as of the end of September reached 3.89x lower from 3.96x as of June. We have no significant maturities through March 2020 when $520 million in convertible securities become due. Despite recent increases in base rates in the U.S., our interest expense is now expected to decline this year by $160 million from last year's level. This is a reduction of more than 50% from our peak interest rate level back in 2013. We are encouraged to see our credit profile improving and making steady progress towards our goal of reaching investment grade.

Now Fernando will discuss our outlook for this year. Fernando?

Fernando González: Our full year estimates for consolidated cement ready-mix and aggregate volumes remained the same as the ones we provided last July. We now expect our cost of energy on a per-ton-of-cement produced basis to increase by 8% to 9% during the year. Last quarter, we guided to $125 million decline in financial expenses. We now expect this reduction to reach $160 million from last year's levels.

Our current estimate for incremental working capital investment during the year is from 0 to $50 million. Regarding CapEx and cash taxes, our guidance remains unchanged from the one provided last quarter. And now, I would like to discuss the advances we have made in our stronger CEMEX plan, which will fortify our company's position as a leading global heavy building materials company and deliver increased shareholder value. Regarding divestments, during the quarter, we sold our operations in Brazil and other assets. Under this initiative, we have identified a list of assets that are not fundamental to our portfolio and are better position to grow with another owner.

We are currently undergoing several divestment processes, and we will update you as these divestments materialize. In our cost-reduction opportunities to further improve our profitability, obtain higher returns and deliver more value for our shareholders, we expect to implement all initiatives by the end of this, and so the full benefit of these actions is reflected in next year's EBITDA. This

initiatives include: first, a reduction in general and administrative expenses, particularly the organizational restructuring in Europe. This is expected to translate into about a third of our targeted savings. Second, our reduction in cost of equipment and surpassed by sourcing from low-cost suppliers with expected savings of $30 million to $40 million.

Third, CEMEX Go by 2019, we expect this initiative will translate into important savings in the cost to serve our customers at the CEMEX Go platform matures, we will be in a position to reap the benefits of increased operating efficiencies and top line growth as we focus on higher value-added solutions to our customers and markets. Fourth, improvement in energy efficiency by implementing several initiatives, including increasing alternative fuel utilization, electric power contract renegotiations and others. And fifth, supply chain optimization to mitigate increasing distribution costs. As I discussed last quarter, we expect to reach EBITDA margin levels of about 20% in the medium term. Regarding that, we reduced our total debt plus perpetuals by $254 million during the quarter.

As a divestments occur and our cost-reduction initiatives are implemented, we should be able to accelerate our deleveraging and by the end of 2020, we expect to be well within metrics consistent with an investment-grade rating. And lastly, on dividends, we intend to propose at our Annual Shareholders Meeting next year and cash dividend program for our shareholders starting in 2019 with an amount of $150 million. All these actions taken together will position CEMEX to be a stronger global leader and even more formidable competitor in the heavy building materials industry. We are committed to proactively managing the business to drive value for all stakeholders, and we remain confident in both our outlook and CEMEX ability to grow. Thank you for your attention.

Maher Al-Haffar: Before we go into our Q&A session, I would like to remind you that any forward-looking statements we make today are based on our current knowledge of the markets in which we operate and could change in the future due to a variety of factors beyond our control. In addition, unless the context indicates otherwise, all references to pricing initiatives, price increases or decreases refer to our prices for our products. And now we will be happy to take your questions. Operator?

Operator: [Operator Instructions]. Our first question on land comes from Vanessa Quiroga from Crédit Suisse.

Cecilia Jimenez: My first question is regarding Mexico and the reduction in margin, can you break down the reduction so much of that was related to fuel electricity for production and how much is related to distribution costs? That would be the first one. And the second one is regarding the U.S. Given that you expect a higher demand from public works, should we expect lower average prices going forward due to this changing mix? And how easy is it to pass through higher energy cost low clients?

Fernando González: Thank you, Vanessa. Let me take the one that in the U.S. regarding prices.

We have been commenting already for several quarters that what we can expect in the U.S. is a better context for higher prices in the sense of probably even this year for certain next year, capacity utilization will be already practically around 100%. That's why you see some inputs increasing in the country. So I do believe that the context for price increases to stick our chances are much better than they were in the past. So I don't see a reason why of prices in the U.S.

should -- even remain the same as exactly the other way around. And now, the capacity and passing inflation to the market, well, basically, as you saw this quarter, what we're saying is we're very pleased with the top-of-the-line growth, but we have this impact and it's mainly fuels because when you have a sort of starting high inflation in any of the cost structure, you can hardly pass it to the market in the quarter, meaning, it might take longer. And it's not different for instance to what happens in ready-mix. Ready-mix is receiving increases in cement prices and aggregate prices and mixtures in oil prices, and ready-mix cannot pass that information to the market in the quarter, perhaps not even into. So it takes some time, but it will happen.

I have no doubt. You heard us saying we do believe and according to the pricing pet coke index, that seems like it is declining, it's too early to say, but it might be according to current info, latest INFONAVIT, it might be 10% lower, next year, it will be 10% lower than it's being this year. So what we can expect this year is to see, again, price increasing, trying to cope with inflation and perhaps some easiness in our cost structure. So that's what I can comment on the U.S.

Vanessa Quiroga: Just a follow up there.

I guess, I was referring to the public works have a lower selling price than product that you sell to other sectors like housing or industrial and commercial?

Fernando González: No, no. I don't see a relevant difference. Remember during the case of U.S., most of the cement we sold in bulk. So we don't have a major reason of our pricing to be different by segment. Maher Al-Haffar: And also Vanessa if I can add, just go a few more points to what Fernando was saying, I mean, we also are seeing international maritime organization regulation that will kick in by the end of next year, beginning of the following year, to have a negative impact on shipping cost.

So we expect import parity prices into the U.S. to be getting higher. And then when you add some of the tariffs on some of those cement that is coming from Asia, and CO2, I mean, you have essentially confluence of events that are taking place that should very much in favor of better pricing dynamics. And especially now that we're expecting energy prices to now that we have a better visibility energy prices kind of progress focus on pricing and overcoming some of the input cost inflation that is taking place. Yes, the margin declines, just to remind everybody, we had a 3.2 percentage points decline during the quarter.

We had very good pricing gains, roughly 2 percentage points in the quarter, improvement because of pricing, primarily in ready-mix and aggregates, cement pricing was flat. And volumes, of course, we're quite positive. We had increase in cement 9%, ready-mix 14% and aggregates 13%. This was unfortunately offset by some of the points that Fernando made during his remarks, which is essentially fuel and transportation cost. I mean, that is really the primary factor, plus also the fact that we had a product mix.

I mean, now for several quarters, we've had ready-mix and aggregates growing in double digits. And even this quarter, with cement growing at 9%, it's being outpaced by what's happening in ready-mix and aggregate volumes. So I would say, plus, lastly, I mean, we've had some raw materials impact, essentially cement going into ready-mix that has not been reflected in the pricing of ready-mix. So those are kind of the dynamics on the margin of the. But having said that, despite all of that, as you saw, EBITDA for the country grew 5% for the quarter.

Vanessa Quiroga: Okay. And can you also comment on the outlook for the margins in Mexico? How do you expect all of these factors to move going forward?
Maher Al-Haffar: I mean, it's kind of difficult to address that, Vanessa, but I can tell you that again, same thing that was happening in the U.S. that Fernando talked about which was the lag in pricing because of the higher-than-expected growth in input cost inflation. I mean, that should work its way into the market sooner, right? And the other factor is that we continue to work on improving the use of alternative fuels in virtually all of our markets in Mexico, is not an exception, you heard how increased alternative fuels in the beginning of 2017 to the end of this quarter from 18% to 26%. So that should also dampened our input cost in terms of fuels.

Also, we expect less pet coke imports frankly, and we expect higher local sourcing of pet coke that should also improve our cost structure. So again, we don't give guidance, but you can kind of do the math and figured that it's likely to be getting better, not worse.

Operator: Our next question comes the line comes from Gordon Lee from Banco BTG Pactual.

Gordon Lee: A couple of questions. First, on Mexico, as you know there's been a lot of commentary and concern recently on the potential cancellation of the Mexico City import.

So I was wondering if you could tell us whether you do feel comfortable even a sort of magnitude of how relevant volumes either on the cement that's already to their project have been rates on a year-to-date basis is a share for Mexican production? And then the second question was just thinking of the stronger CEMEX strategy in the portion that has to do with return to dramatic turning to cash to shareholders I know that you've committed to paying $150 million dividends starting next year, but with the stock price will it is, and with the authorization you received to buy back shares early this year, is that something you're considering the buying back shares instead of paying of a dividend and doing in conjunction.?

Fernando González: Thanks, Gordon. Let me start with the -- let's say, the context of cement consumption in the new Mexico airport. I think that proper consumption of the airport is slightly about 1 million tons of cement and the time horizon of that consumption could be to in a fraction years. When you take that into account, I think you can get to a number of, let's say, an impact when compared with a total volume of the market of around 1% for the couple of years. That's the contest.

Meaning, a cancellation might not be helpful or positive for cement positive evolution in the country. But 1%, we don't consider 1% to be a sort of a critical volume for the market. Plus, As you know, there might be new projects that have not been considered as part of the previous administration, that might somehow compensate those volumes, perhaps not immediately, but again, we are talking on the horizon of couple of years. So we need to observe and see what when it happens. Regarding the $150 million, again, we saw the way this year is evolving, and as you know, what we did starting this year and we're planning to do it next year, is to keep all our options open.

So we will continue evaluating options and for sure, we will execute with the ones that we believe are the ones creating most of the value for our shareholders. But so far, we don't have any specific info to share regarding this issue. Maher Al-Haffar: And Gordon, just to add a maybe little bit because I think you said, is it possible to share buyback instead of the dividend, and I think what Fernando mentioned, just to be clear in his commentary is that certainly, we -- should everything goes according to plan, we will be recommending for the dividends at our annual shareholder meeting next year. So the likelihood of exchanging for a following a different strategy in terms of returning capital to shareholders, in that respect, it's not likely to change.

Operator: And now we have a question from the webcast.

Maher Al-Haffar: Okay. Thank you very much operator. The question is from Paul Rogers from Exane BNP Paribas and the first, I guess, Paul is asking three questions. So I'll read the first question and the first question is we understand the industry push for a price increase in Mexico in August and September. Who you didn't stick? Was there a change in the competitive landscape? So Roger, I will take you to one of these questions, and we think, first, the price increases were announced towards the end of the quarter.

And there is really no change in competitive dynamics. The prices were relatively static or flat, and we do expect the response to the pricing increases to be more positive as we go into the fourth quarter, especially if the demand dynamics continue to be similar to what we have seen in the third quarter. I don't know, if you want to add anything to that.

Fernando González: No. Maher Al-Haffar: And then the second question is that current spot rates and given hedging, what will be the increase in energy cost inflation next year? I mean, one thing, I would like to say is that, we don't guide at least not at this point in time, but clearly, as we mentioned earlier, we have seen pet coke, which is our one of our major fuel sources, prices moderating in the markets.

We have seen from our perspective, increasing alternative fuels going into next year, it could go from our perspective, especially in a place like Mexico, for instance high as 30% or maybe a little bit more. And that is happening -- that is an effort that we are trying to improve throughout our portfolio. And then, frankly, we are seeing because of some of the environmental regulation changes that are taking place around the world, where we are also seeing some lesser demand for some of the combustible fuels, particularly pet coke dropping frankly, over time, especially from Asia, Southeast Asia. So all of that would point to plus the hedging on the diesel side that thing should hopefully be better. I mean, the reality is that -- I think the whole market was surprised by the higher-than-expected increases in fuels, and particularly, transportation fuels, which again, as Fernando said, I mean, because of that surprise, we're likely to focus going forward on pricing to recover some of the lags that we've had.

Fernando González: And again, I think when you consider all the geopolitical uncertainties that can affect all the prices and other energy prices, it is still too soon to say the comment, I mean, earlier about a reduction in pet coke prices is that we currently have according an index a price index of coke, which is the index we follow our sales to make our own assumptions and everything. But again, I think, we have to wait till fourth quarter to be more educated guidance or comments regarding the potential inflation of energy next year. Maher Al-Haffar: And the last question, Paul on as far as the question, do you have any insights into U.S. pricing next year yet? Have you held discussions with customers already? I mean, all I can tell you is that we have had pricing increases notifications as customary in the year it happened in August, September of this year for next year. And we're talking about mid-teens and several of our markets.

And again, the pricing increases in California, Texas are likely to be in April. And the rest of the market, Colorado, Florida, South Atlantic and North Atlantic will be effective January. We -- I don't know about our the rest of the market, but certainly, we are looking at taking into account input cost inflation that we have seen next year. And I would like to stress the point on pricing in the U.S. there is a definitely a lag effect in virtually all of our projects as a consequence of the higher than expected.

I mean, we expect that transportation cost and fuel cost to go up, but the magnitude, especially of diesel costs in the U.S. was much higher than anybody expected. So we would assume that everybody being rational, that they would follow similar, I mean, they would take same actions in terms of the reflecting inflation. And operator, we would -- I think, we would go to the next question at this point.

Operator: Our next question comes from Daniel Sasson from Itaú Corretora de Valores.

Daniel Sasson: My first question is in regards to the U.S. You mentioned the fee and transportation cost and cost to the fact that aggregates and ready-mix have been off base in cement demand or cement volumes growth, which obviously margins. I was wondering if there are also a geographical an effect from a geographical mix standpoint that is maybe volumes growing more in California, where we have lower prices and negative impact your overall margins, if you could comment a bit on the different dynamics that you're seeing in your state, in the U.S. That would be my first question. And my second question is related to the efficiency program that you currently have in place.

You say, you want to reap up to $150 million in efficiency gains in 2019. I was wondering how that is evolving if you could or if you could expect something already in 2018 or not significant this year? Those are my two questions.

Fernando González: Thank you, Daniel. Let me take the second question on our efficiency or stronger CEMEX plan. This plan, it was announced a few months ago.

And some elements of the plan have already been executed, although we don't see the benefits this year or last quarter. For instance, we are in the middle of the process of changing our organization in Europe. And as you may know, in Europe, there are lengthy consultation processes in order to make this type of changes. And we believe that we would finish that process in Europe by the end of the year or at the latest, during January. Same thing for other initiatives like for instance, we mentioned, I mentioned briefly that we have initiative that is related to procurement in countries with lower cost than the procurement we have done historically.

Basically, buying goods, buying equipment from China and India and other low-cost countries in Asia, this is a very significant initiative that we started putting in place late last year. We started executing this year, and it's very promising. The full scope of this initiative is going to last 3 years, next year savings should reach should be around $30 million to $40 million and the total savings we are expecting from this full 3 years according to current parameters is around $160 million. Half of it impacting EBITDA and the rest impacting all the free cash flow because they're related to CapEx. So I have mentioned already a couple of initiatives accounting for $80 million to $100 million of savings, fully obtained next year, plus some other savings like for instance I think, Maher has been mentioning.

Whenever we see a material increases in fuel cost like the ones we have seen this year, there are a -- we've prepared already with a number of additional alternative fuel projects, but investments which returns at this current levels of prices of pet coke are very attractive. So, for instance, in the case of Mexico, Mexico is increasing the use of alternative fuels materially. And there's a an internal target, but Mexico is planning finished the year with a run rate of 30% in alternative fuels, which is materially higher than what they used to have during this year or even last year. So I do feel very confident that all the initiatives that we have defined developed, we have either already executed or we are going to be executed for now to December, will fully deliver our savings for next year. Maher Al-Haffar: And Daniel, if I can take your question on the U.S., I mean, there is probably some kind of geo mix effect we frankly, haven't calculated if it's plus or minus, but we had Georgia, Florida, Alabama was growing certainly much more than California.

And of course, you know about the Texas weather, where we had September, we had 18 rainy days out of 20 business days and the weather continues into the fourth quarter. So obviously, that has impacted and it's been worse than the hurricanes that we've had last year, plus you had Hurricane Florence as well in the Midsouth, which has impacted us much less than some of the other players. So there's definitely a geo mix, there's definitely a price mix I mean, reflecting the stronger growth in Florida, Georgia and Alabama prices a little higher there. So If you do -- differently there's a genomics for this taking place. I don't know if that answers your question.

Operator: Our next question the line comes from Eric Neguelouart from Bank of America Merrill Lynch.

Eric Neguelouart: I have a couple of questions for you. First, we have seen some of your competitors in the guidance of growth in the U.S. on the back of weather conditions, some of these competitors have similar geographic footprints to yours. On the other side, you are reaffirming 6% growth for the year.

Can you assume a market share gains?
Maher Al-Haffar: Could you -- I didn't -- we didn't quite hear you, did you say could you repeat the question that the second type, it wasn't very clear.

Eric Neguelouart: Yes, sure. We've seen some of your competitors, revised down their guidance for the year I think, in the U.S. mainly in the back of weather conditions and market conditions. We see your volume guidance for the year remain at 6%.

Can we assume a market share gain in the country?

Fernando González: Not necessarily, I think we have commented that our let's say, there are different factors that allow us to increase our top-of-the-line variables. One of it is definitely a low base last year because of weather conditions hurricanes that we had last year in Texas and I mean, in Florida. But on the other hand, I think, we should stress that the market is really growing in the sense of even though this year, we have not had the hurricanes as bad as last year. In the case of Texas, I think, it's about 18 hour of the 20 dispatch days. We had heavy rains.

So what I want to say is that, even though there are weather issues this year, particularly in Texas, the market is really growing. I think, we have also stressed that we see a difference, we see our volumes growing at a multiple of national averages. So, for instance, shipments in our 4 key states is twice the size of the average national level or housing permits in our 4 key states is almost a multiple of almost 4x higher than a national average, same or even more for streets and highways at a national level growing about 4 key states is more than 30%. So we do see a difference between the performance of market on a geographical basis. So we believe, our markets in the December last year than other markets in other parts of the states, it might be because of poor weather conditions and other market conditions our explaining, but I don't know we follow our high single-digit growth of our volumes.

Maher Al-Haffar: And also I'd like to add, I mean, why we don't give future guidance, I mean, we really feel that especially when you take a look at our 4 key markets, I mean, we're probably in the 4 most vibrant economies in the U.S. I mean, GDP growth is growing in our key states, almost a third, 50% higher than the national average. So it's not only important for the performance of this year, but we really believe, especially in the case of infrastructure, I mean, the contract awards numbers for infrastructure looking forward has increased as Fernando said, we didn't give the specific number, but it's more than 30% increase. So that should bode very well for growth going into 2019 we believe.

Eric Neguelouart: Okay.

Understood. And regarding your query in Philippines, have you been able to reopen it or is still.

Fernando González: Well, not yet, last Monday, we just received the final report from authorities, saying that the cost of the last slide is sort of a natural because of heavy rains and the conditions of the material. And we're working already with the local as well as the civil authorities to realize what are the conditions needed for our query resume operations. At the same trend, we'll be working with them to assure that the whole area, not only our Query, which when compared to the whole disasters is a small part of it, can be or can be managed in a way that will not impose any safety issues to additional issues to the community.

So we are currently working with them for the time being. We are working with Limestone that we buy from other local nearby sources as well as imported clinker. And we do expect for the Query to start-up operation, not 100% sure, but in the few days very soon. The plant itself is not production. We have been producing at regular capacity during these days.

Operator: Our next question comes from the line of Daniel McGoey from Citigroup.

Daniel McGoey: Fernando, you mentioned fuel costs per ton were up, I think, 10% year-on-year in the third quarter. Can you give away a bit of breakdown by region or mentioned where some of the increases were the highest? And on Mexico, specifically, on fuel cost, I'm wondering to what extent your cost this year may have been higher than the index you're tracking because of some of the supply issues are having to buy spot throughout the year? And then second question, I guess, on the U.S., just looking at the EBITDA margin quarter-on-quarter in quarter, which is about 150 bps what were the primary contributors to the quarter-on-quarter decline in the U.S. margins?
Maher Al-Haffar: Yes, so on the energy, I mean, just to -- we can talk about country-by-country offline, but I mean, generally speaking, probably in the quarter, the biggest contributors in terms of growth, where the U.S. and our AMEA regions and in the case of the U.S.

I mean, the big impact in terms of fuels, essentially we've had to switch to net gas in some of our plants because of some logistics issues and that's a more expensive than our usual fuels. And then there was a frankly, a regulatory rate increase in California for our Victor plant for electricity. So I think, that's another factor that was important in the U.S. and in AMEA, frankly, that's the biggest factor that was Egypt, removal of subsidies there that's important. I mean, we try to increase prices, and we have increased prices actually, importantly, but not sufficiently to offset that.

And then, I would say in order of magnitude, in terms of percentage growth is Mexico, and there, we had a higher proportion of imported pet coke, and of course, prices on the spot market did kind of peak and start to drop. And we have offset that by an important increase in way fuels and alternative fuels in Mexico. And then, that's for combustibles, okay. And other item that was really important, I would say pretty much across the portfolio is diesel. I mean, diesel, you can check it, I mean, diesel prices increased shy of 20%.

And so that was very important and in some markets like the U.S. for instance, logistics that in general was also an important factor. So I don't know if that gives you an idea of sufficient idea in terms of addressing your questions.

Daniel McGoey: It does, Maher. And just one question aside from what were the price goes next year, is the relevant portion that would say externally? Because of how having to pet coke or by short-term instead of longer term that we should consider nonrecurring for 2019?
Maher Al-Haffar: I mean, I would say, again, we don't know, but hopefully in Mexico, we should not have the recurring spot purchases that we -- to the extent that we have them this year.

And some of the switching in the U.S. to net gas also should probably not be recurring because those happen because of logistical issues and that gas and fortunately in the U.S. is a bit more expensive than some of the other fuels that we typically use. So those logistics logistical issues have been resolved and everything going forward they should not be recurring.

Operator: And our last question comes from Adrian Huerta from JPMorgan.

Adrian Huerta: My question is to do for U.S. volume if you can just share with us, which states do you saw the strongest growth and which are the ones lag in the quarter? And I just dynamics in we saw a turnaround in 80 about volumes the last quarter in the previous quarter we continue to see the pricing evolving positively this quarter?
Maher Al-Haffar: Thanks, Adrian. In the quarter, Florida was probably, and again, we're talking cement here as proxy for the rest of the business, but Florida was growing double digits, Georgia, Arizona, Alabama were all growing double-digit, in some cases, close to 20% during the quarter. California was a little bit less than that. Now year-to-date, I would say that California has in terms of size of elements, probably has been the fastest-growing market.

And probably followed by Florida and then Texas, unfortunately the year-to-date dynamics there has been impacted certainly in the quarter have been impacted by the weather., but we do expect the pricing dynamics to get better and the fundamentals in the Texas market have definitely gotten better. I hope that answers your question.

Adrian Huerta: In the Texas market, even given the weather issues, has increased considerably given the strong economic conditions so we could expect strong growth in the coming quarters if weather allows?
Maher Al-Haffar: I mean, I think, we definitely do, and we certainly have seen it in prior years. I mean, if you take a look at what happened last year, when we had Hurricane Irma and I forget the Harvey. We definitely did see a volume pickup after weather stability.

So we should expect something similar frankly, this year in the case of Texas. I mean, it's not like the weather happens and the demand goes away. It just creates a lag and pushes the demand going forward. And the important thing is to stress the fundamentals right, I'm the Texas economy continues to pick up the energy market continues to be very positive in the backlog for us in Texas is particularly good., and of course you're talking about Houston, which is our biggest market, right? So does that answer the question?

Operator: Thank you. There are no further questions at this time.

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

Fernando González: In closing, I would like to thank you all for your time and attention, and we look forward to your continued participation in CEMEX. Please feel free to contact us directly or visit our website at any time. Thank you, and good day.

Operator: Thank you for your participation in today's conference.

This concludes the presentation. You may now disconnect. Good day.