CEMEX, S.A.B. de C.V. (CEMEXCPO) Earnings Call Transcript & Summary

Good morning and welcome. My name is Lucy Rodríguez, and I'm the Head of Investor Relations for CEMEX. We are pleased to be with you today for a dialogue with our CEO, Fernando Gonzalez, in what is essentially a virtual slim-down version of our Annual CEMEX Day. We hope that in the not-too-distant future, we can all get together in one place for a full Analyst Day in which we do a deep dive into market performance and outlook with our regional presidents. So why are we here today? In a world that has been disrupted by COVID-19, we would like to share with you what we have been seeing in our markets and to introduce now with some increased visibility into the future, our new strategy, operation resilience, that incorporates the challenges of COVID-19 as well as a plan to achieve our medium-term objectives by 2023. We have with us today, of course, Fernando González, our CEO; as well as our CFO, Maher Al-Haffar; and our Executive Vice President of Strategic Planning and Corporate Development, José Antonio González. Fernando will begin with some brief comments on the challenges of recent months, an update on our markets and then an introduction to the goals and pillars of operational resilience. Our management team will then be available for your questions. You may submit a question using the Q&A option at the bottom of your screen. We ask that you identify yourself and your company along with your question. We also request that you limit yourself to 1 question. We will do our best to address as many submissions as possible within the constraints of the time available. I would like to remind you that any forward-looking statements we make today are based on our current knowledge of the markets in which we operate and could change in the future due to a variety of factors beyond our control. In addition, unless the context indicates otherwise, all references to pricing initiatives, price increases or decreases refer to prices for our products. Without further ado, I am pleased to introduce Fernando González, our CEO.

Thanks, Lucy. And as you mentioned, the reason we are here is to present our medium term strategy, which we are calling operational resilience. The term is very appropriate given the unprecedented industry challenges that we have faced in the last months. But more importantly, it will address the changes in our medium-term view due to the coronavirus pandemic and the decisive action plan that we have developed to meet these new circumstances. I will give a brief update on how things have evolved during these last 2 months and our outlook for the remainder of the year. But I will mostly focus on our strategy and targets from now until 2023. Let me start by explaining in general terms what is operational resilience, our strategy for the next 3 years, and then I will elaborate with more detail on each of these points in the next slides. It is about growing the profitability of our existing business through cost reduction measures and other commercial and operational initiatives. The U.S. business is a good example of this, and I will highlight this region later in the presentation. It is about optimizing our portfolio for EBITDA growth through strategic divestments that we plan to execute over the next 3 years. And simultaneous with these divestments, we will look to redeploy a portion of our asset sales proceeds towards bolt-on investments in our core businesses. It is about achieving an investment-grade capital structure to lay the foundation for future growth. As you know, this has been a top priority, and it will continue to be so. And finally, to pursue sustainability of our business, as we believe this will be a competitive advantage in our industry as well as the right thing to do. Now before I go into detail into our medium-term strategy, I would like to explain to you very briefly about how we responded to the immediate COVID-19 challenges and where we stand today. Back in mid-February, when the threat of COVID-19 was imminent on the global scale, we asked ourselves the following questions: how deep will the impact be? How long will it last? And if it will be recurring? With a high level of uncertainty, we'll roll out 3 priorities that we believe would be appropriate in all possible scenarios: one, to protect the health and safety of our employees, customers and suppliers; two, to improve customer experience; and three, to minimize financial risks. Execution on all 3 of these priorities will assure business continuity. I'm happy to report that we have executed on all three of this. We have experienced much lower levels of infection rates than the national averages of the countries in which we operate. Our existing digital platforms allow our customers and us to work seamlessly in a low-touch environment, while our distribution network enable us to meet surprisingly strong bag cement demand in remote markets. These efforts were recognized by our customers as we obtained the highest Net Promoter Score ever in second quarter 2020. And we nailed down available funding sources, initiated a hard stop on nonrecession expenditures, deferred CapEx and tightened working capital control, which resulted in $2.8 billion of liquidity at the end of second quarter. And finally, we renegotiated our leverage covenants under our main bank agreements to give us ample compliance room in the event of severe market disruptions. Now talking about where we stand today. As you can see, we have experienced a V-shape recovery in most of our markets. This is a result of a combination of market conditions, actions taken by governments as well as by CEMEX. We saw the most significant drop in volumes in April and May due to strong government responses to COVID-19, in particular, markets. As government actions eased, our volumes recovered. We have been surprised by the speed of volume recovery, the growth in pricing, the strength of bag cement in emerging markets as well as the momentum in the U.S. residential sector. Despite a double-digit drop year-over-year in consolidated volumes in second quarter, prices for our 3 products rose between 1% and 4% in the first half and increased sequentially from first to second quarter. This pricing performance was due to our successful commercial strategies as well as healthy supply-demand dynamics. We currently do not suspect a W-shape recovery, but we do expect volumes to go up along in connection with COVID-19 resurgence in certain markets. The experience curve of governments, companies and societies to deal with resurgence has improved significantly. So today, we do not expect the sharp declines in volumes that we experienced in second quarter to repeat. The impact should be more localized and should not be occurring at the same time in all our markets. Today, we are more comfortable with the visibility for the second half. July and August volumes were strong, as you saw in the previous slide, while pricing continues to grow. We have a healthy order book in most markets going out 90 to 120 days. In light of this, we believe that today, we can guide to third quarter and full-year performance. On a like-to-like basis, adjusting for FX, we expect third quarter '20 to be 12% higher than the prior year, while full year is expected to be up 4%. We can now unwind some of the precautionary actions we took to deal with COVID-19, specifically to release our excess cash position to pay down approximately $3 billion of debt in the second half. We are currently working with the banks to amend our 2017 $4 billion facilities agreement. We expect to reduce the committed amount by approximately $600 million. In addition, we will use some of our liquidity to pay down $1 billion of the revolving credit facility, which will continue to be available to us and $350 million of short-term working capital loans. Finally, this week, we call approximately $900 million of bonds maturing in 2024. As usual, given the seasonality of our working capital cycle, we do expect free cash flow generation as well as potential asset sales proceeds to replenish our cash position by year-end. We expect the banks to extend the maturity of $1.1 billion of term loans to 2025. In addition, the $1.1 billion revolver is expected to be extended to 2023. Terms will remain substantially the same. Importantly, sustainability metrics will be embedded in the facilities agreement. This will result in one of the largest ESG sustainability-linked loans in the world. In addition, we are redenominating $300 million of previous U.S. dollar exposure under the term loans to Mexican peso as well as $80 million to euros. This will better align the currency of our debt with our EBITDA. This should result in no significant debt maturities until mid-2023. The leverage covenant will decline from 7x to 6.25x for the next 3 quarters. Despite the unprecedented challenges of COVID-19 on our 2020 performance, we expect to end the year with a leverage ratio slightly higher than the ratio of 4.17x that we reported in fourth quarter of 2019. As we guided earlier, we expect fairly flat EBITDA year-on-year, while net reduction of debt should decline by 200 to 300 year-on-year. With increased visibility and higher EBITDA expectations, we also feel more comfortable in rolling out a medium-term strategy that takes into account this new COVID-19 landscape. Operational resilience is about repositioning our company for higher growth on a risk-adjusted basis. The 4 pillars or elements are about enhancing profitability and EBITDA growth rate of our business, constructing our portfolio around businesses that will grow and achieving an investment-grade capital structure while advancing on our sustainability agenda. Now let me go into detail on each of these. Regarding our actions to enhance our profitability, for 2020, we have identified $280 million of cost reductions and upgraded to our previously July $230 million program. We expect most of the cost savings to be recurring. The most significant sources of cost reductions are from SG&A and operations. We will continue to review our cost base over the next 3 years and identify further cost reduction initiatives. We are targeting an EBITDA margin of at least 20% on -- as each portfolio basis by 2023. I would like to highlight a region, the U.S., where the strategy to enhance profitability has already been put in place and is showing results, as evidenced by the increase of 23% in EBITDA and 240 basis points margin expansion in first half of '20. While some of these improvements are due to the healthy demand conditions that we have experienced and expected to continue, the residential market, in particular, has shown significant momentum while infrastructure has exhibited healthy growth, and pricing continues to remain attractive. But it also reflects the turnaround program in the U.S. that we introduced in 2019. Jaime Muguiro was appointed as Head of our U.S. business in third quarter '19 and has been instrumental in enhancing this program. Some of the things we have done are reinforcing our vertical integration, particularly in aggregates and admixtures within our strong footprint; expanding product offerings such as admixtures and direct work; investing in logistics and import facilities in sold out markets; switching to low-cost fuels; utilizing low-cost countries sourcing for spare parts; and increasing SG&A efficiency. Finally, we have been incrementally investing in CapEx in high-growth markets. We believe these initiatives will continue to pay off in the future. The next pillar has to do with fortifying our portfolio and optimizing it for higher growth and lower risk. As a consequence of COVID-19, we expect the best near-term growth in developed markets driven by the unprecedented fiscal and monetary stimulus from governments like the U.S. and Europe. We want to capitalize on this opportunity as much as possible. As I mentioned earlier, we will also be executing some strategic divestments over the next 3 years. Optimizing this time is not only about deleveraging, but also building a lower-risk and faster-growing business. We have a strong track record achieving our asset sales programs, and we believe there is a significant liquidity in the market today for the right assets. Simultaneous with these divestments, we will look to redeploy a portion of asset sale proceeds towards bolt-on investments in our core businesses. I do not anticipate that these investments will represent a material portion of our overall asset sales. We are looking for our portfolio to be more heavily weighted towards the U.S. and Europe. To be clear, I ambition a modest adjustment in our emerging market exposure. We will concentrate on vertically integrated positions near growing metropolises, as these metropolitan areas are expected to experience the fastest growth rates and will drive our growth strategy. In line with the metropolis strategy, we will focus on organization solutions, products and services that are all connected to ecosystems of cities, like admixtures, concrete products, waste management, prestressed concretes, logistics and transportation, among others. Organization solutions will now become our fourth core business. We are, in fact, already executing on this optimization strategy today. As you can see from this slide, the majority of our recent investments are occurring in developed markets and are focused on growing metropolises. These investments cover our 4 core products. They include sustainable solutions that increases green energy usage in our Poland and U.K. cement plants. In addition, we have been developing organization solutions such admixtures in the U.S., fully integrated prefabricated panels in Europe, a waste recycling facility in France and mobile modular hospitals in Mexico to meet COVID-19 needs. Currently, approximately 8% of total revenues are generated by urbanization solutions. We expect this business to continue to grow over the next decade. The next pillar is about derisking our capital structure, reducing our cost of funding and ultimately achieving investment-grade metrics. We are targeting to be at or below 3x net leverage by December of 2023. EBITDA growth, free cash flow and divestiture proceeds will be important competence towards achieving this goal. We will also continue to monitor the markets for liability management opportunities. We are pleased with the recent tightening of our yield curve since the last time we tapped the markets because of improved conditions in the capital markets and our own actions. As discussed earlier, we will continue to push out maturities and construct a more attractive debt profile while reducing our cost of funding. We will also look to raise funds in local currency to better align our EBITDA and debt. The redenomination of a portion of term loans in the facilities agreement to pesos and euros is an important step. Commitment to climate action is part of our DNA. We are a founding member of the cement sustainability initiative established in 1999 and became signatories to the United Nations Global Compact in 2004. We were recently recognized as an A-rated listed company by Carbon Disclosure Project, reflecting our disclosure and climate initiatives. Besides being the right thing to do, we believe that climate action will be an important differentiating factor in the future in our industry. Our efforts to date have had significant impact. We have achieved more than a 22% reduction in our CO2 emissions from the 1990 baseline, but we need to do more. That is why we defined more ambitious targets for 2030 and an aggressive ambition for 2050. To reach our 2030 target, we have a detailed CO2 road map on a plant-by-plant basis. On this slide, we have included some of the main levers to reach the goal. I would like to highlight, in particular, the increase in alternative fuels and reduction of clinker factor as key contributors. Achieving our 2030 goal depends on technologies that exist today and that we are in the process of deploying throughout our footprint. We have previously announced our 2050 ambition to deliver net-zero CO2 concrete. While we currently sell Vertua, a net-zero CO2 concrete product line sold in France and the U.K., our ambition is to extend it to all our concrete products and applications globally by 2050. This will require new products, technologies and global scaling. On the slide, we have listed some of the technologies to achieve this ambition. Some are still in the early stages of development, like carbon capture, storage and utilization. The success of these technologies will require the innovators to cooperate and share advancements. Operation on climate change has already begun. For instance, we are part of a pilot project, LEILAC, working with other industry players and technology providers to the better low-cost carbon capture technology for the cement and line industries in Europe. We are working with our industry, governments, multilateral agencies, among others, to develop the means to achieve the vision of net zero concrete. For example, we are founding member of Innovandi, our research network to accelerate collaboration and innovation on cement and concrete. While we are in a unique position of being fully funded in terms of carbon credits for the next decade, this provides us with a competitive advantage, which can fund our climate action agenda. To summarize, we are committed to targeting an EBITDA margin for an as-is business of at least 20% by 2023. We will optimize our portfolio for growth by executing strategic divestments while simultaneously redeploying a portion of asset sale proceeds to our bolt-on investments in our core businesses. And we will move forward on achieving our 2030 carbon emission goals. We are confident that operation resilience will lead us to an investment-grade capital structure by 2023 and a portfolio with higher growth and lower risks. To finalize, this is how we envision CEMEX by 2023 after we fully execute operational resilience. We will be a heavy building materials company, where U.S., Europe and Mexico will constitute a large part of our footprint. We will concentrate on vertically integrated positions near growing metropolises. We will focus on our 4 core businesses; cement, ready-mix, aggregates and urbanization solutions. Digital platforms and a more sustainable business will be important competitive advantages and will engage our clients and increase customer loyalty over the medium term. These initiatives will be complemented by a simplified investment-grade capital structure and a competitive cost of funding. All of this, of course, will create the most important outcome, value creation for shareholders. Thank you all. Now we are moving to our Q&A session. So back to you, Lucy.

Thank you, Fernando. Let me remind you that when you submit your question, please be sure to include your name and company name, along with your question. You can use the Q&A option that's available at the bottom of the screen. Fernando, since you made the decision to give me the mic today, I will take full advantage of that and kick start this process, if that's all right with you. My first question would be, could you talk about the sustainability of the cost reduction initiatives that you have laid out? Thank you.

Are we listening to Fernando?

On the savings, we communicated of $140 million for the first half and $280 million for the total year. There might be a one-off's equivalent to about 20% of the -- this is just an estimate. But at the same time, we have had some one-offs on the cost side. Obviously, still to see what will be the exact balance. But I do believe that it's going to be most of it. On the other hand, we will be through time communicating. But on the other hand, we continue looking for ways to reduce cost and expenses. So I believe there are additional actions to be taken from now to December that will positively impact our cost structure or our expenses, particularly our SG&A for next year. So once we have more detailed info, not only for the rest of the year, but for next year, we will be communicating that part. Because of the concepts we included in our $280 million, I think these savings are -- have already happened, and they are quite solid.

Thank you. An additional one is that you have laid out a very aggressive plan today. And if you could maybe explain to us how you would balance optimization for growth and achieving investment-grade metrics?

Sure. Well, maybe we should comment a little bit because you all know, you're familiar with the company, you knew our previous plans. So how can we connect one thing with the other? Perhaps the simplest way for me to put it is that we were on our way to obtain or to be back to investment-grade parameters and you know we used to use the December 20 this year as our date or the base for us for that to happen. It didn't happen. There might be a number of reasons, but for sure, COVID is the most important one. We are very pleased that even with COVID, our EBITDA this year is going to be very similar to last year, as you saw in the presentation, like-to-like even a little bit higher. But you know what, I do think that COVID took away $200 million to $300 million of EBITDA. And at the same time, as you can imagine, it has postponed most of our M&A activity, particularly divestments. So I think that from now on, even though we have not get the -- we are not in investment-grade parameters, I think our position is pretty good. And we will continue the process. So that will be kind of delayed because of COVID. It's been very hard to try to define a date or a period of time because we still -- we are still in very early stages of the COVID era or the post-COVID. We can hardly define this as a post-COVID phase, but we were about to get there. But that's the way I see it. Fortunately, we were not negatively impacted in terms of a negative comparison to last year. Now we know. But yes, we were impacted in our EBITDA growth. But I'm sure that will come. So I'm -- it continues being a priority, but it perhaps is not one of my main concerns because it was happening, it will happen. And on growth, I think on growth, what we are commenting is that is the part that has been missing for value creation in CEMEX for several years now. And that's what we want primarily to address. And I think we can do it. EBITDA growth through margin improvement, as we mentioned. We are not thinking on a target that came out of the blue. Within there, I think we can repeat that with our current portfolio. And on the other hand, it is time for us to take advantage of several business opportunities around our core businesses or the businesses around our position. I'm referring to additional positions in aggregates, for instance, a better integration, particularly in U.S. and Europe, which are the markets that are the most integrated between ready-mix, aggregates and cement, additional integration in some of those markets. And for sure, expanding our urban solution, fourth leg of businesses. I think we have lots of opportunities to explore in product services that we know, in markets that we are in. I'm referring to mortars, screeds, waste management, modular construction and it's an array of a variety of businesses that we can develop with marginal investments, marginal additional effort from management because they are in the same markets that we are already present. So that's what I -- can I comment on that.

Thank you, Fernando. One last question for me, and then we will go to our audience. But I know visibility is still not great as we move out to 2021 and beyond. But you do now have a medium-term plan. And I was wondering if you could comment more on what you expect CEMEX will look like in 2023?

Well, I think that by 2023, CEMEX will be heavy construction material's company, more oriented into the value of markets. I mean this is perhaps not new. We've been in developed markets already for ages, but more oriented to those types of markets, better profitability on a risk-adjusted basis. And on a portfolio with a much more powerful position in the U.S. and Europe by developing further integration in our businesses. An investment-grade company with the opportunity to continue growing and developing value for our shareholders. A company that is much more agile, that is managed with the lower investment by applying technology and schemes that we have been trying and from which we are learning. For instance, the recent scheme of managing Europe as a region instead of a group of different units, country per country. We have learned a lot from that experience. So I think to time, that's what we can expect.

Thank you. And now we will move to the audience. Our first question comes from Ben Theurer at Barclays. Could you elaborate on where demand is coming from that gives you such confidence in the short term? I am looking for countries contributing in segments; infrastructure, residential, industrial and commercial.

I'm going to comment a little bit. In the case of U.S. and Mexico as a measure, I mean the question is referring to relevant business units, and those 2 are the most relevant ones. So in the case of the U.S., as you have seen, the sector that is growing, maybe I should say booming, is the housing sector. Construction is still below the number of houses requested because of the demography issues. Rates are in the low side, and it seems that they will continue being in the low side. Inventories are between nonexistent to a low level. I learned last week. I didn't have that much info. But in the case of Arizona, inventories of houses is 1 month. So I find that already under the definition of scarcity, not just inventories. But on the other hand, industrial and commercial is impacted because of COVID, and infrastructure that has been growing is kind of stable nowadays. As you saw, we are not providing specific guidance for 2021. That has to wait. The same way we decided not to give guidance in the second quarter of this year because of the lack of visibility, same story for 2021. Of course, when we have more additional info, and in due time, perhaps, when we communicate the fourth quarter, we will be more specific on that part. But that's the U.S. And in the case of Mexico, we are very pleased with the way the month is working. It's evolving. The large projects from the federal government, I'm referring to the refinery, Dos Bocas, to the airport and to the mine train and some others. I mean I'm just mentioning the big one, but there are some other federal projects in execution. They are providing activity to the bulk and ready-mix part of the business. And we are participating in those projects in a significant manner, as we always do in the case of large infrastructure projects. On the other hand, if you remember, I think we reported in previous months or last year that different governmental programs were suspended as a natural process. Natural process, meaning, whenever there is a change in the federal government, there is an adjustment in the market because of different reasons, and then it comes back. And it seems like in this time it has not been the exception. So we have significant programs on rural roads being built, and we are participating in those. Self-construction programs, incentivized by SEDATU, we are participating in those, building or refurbishing or rebuilding schools, hospitals and other infrastructure elements. And that has been increasing the -- our volumes. Yes, there is a negative impact, same way than -- in the U.S., now that the economies this year are falling, you name it, from 4% to 10% during the year. Those are the -- that's the range of the estimates in the countries that we participate in. But in both countries, the U.S. and Mexico, our sector is healthy. And that's why we can -- we have been making the -- I think the emphasis on why is it that even in the COVID year we have managed to get good results, and we have mentioned these markets, meaning volumes in markets like Mexico and the U.S., being the 2 of the most important ones, is performing. Prices, solid prices, we are increasing 1% to 4%, depending on the product, EBITDA, the situation was not necessarily conducive to us being able to get resiliency from prices. And then I think our own reaction, what we started calling last March -- February, March, the hard stop. Again, if we position ourselves back to February or March, we didn't know exactly what was going to happen. We did know it was not going to be nice. But we didn't know -- remember the 3 questions; how deep, how long, and is it going to be recurring? So we took very tough decisions in March. Now we know that -- because of the way the markets have opened, everything, now we know that the result was perhaps we made a mistake, we exceeded certain decisions, but I think it was a right mistake to make, meaning now we are much better off. And the -- for instance, as you saw. And the excess cash -- now we believe is excess cash, in March we thought it was cash necessary to assure that we were not going to have an issue through time. Now we consider that excess cash, and we are using it, and we are reducing debt, as we already mentioned. So that's what I can comment, strong markets, even with the data in August in Mexico is the bag cement market is booming. Remittances from the U.S. are at regular levels. So all in all, we have a very positive view on these 2 markets. As you show in the volume chart, the markets that were most affected were our markets in Central, South America and the Caribbean. And then in EMEA, which we are combining Europe and other markets, Egypt, the Philippines, I think emerging markets like the Philippines were also affected. Now we -- in all markets, small, mid and large, markets are coming back, some faster than others, but I think this is the first time that I see a V-shape recovery. Measured in terms of -- from last February to August, which is an info that you saw. And it happened, and we are very pleased for it.

Thank you, Fernando. We have another question from Alejandro Azar from [indiscernible], and José Antonio, please feel free to jump in on this, but maybe Fernando wants to lead off. Would you give us more color on the sudden change in strategy with a bias towards the U.S. and Europe? Those regions are where most of your divestments came from in the past 5 years, while you mentioned before, a focus on profitable growth regions in emerging markets.

Sure. Happy to jump in. Fernando, do you want to make some comments? Okay. Well, look, first of all, there's a number of factors that is basically -- that calls for a continuation in our strategy, right? So I mean, we have been working towards a, let's say, repositioning our portfolio. And yes, it is true that over the last cycles where we have put forward asset sales programs, most of the asset sales have come from developed markets. That is true. And what we've always prioritized when we're thinking about asset sales is the opportunistic nature of the transactions, right? I mean, try to find situations where, number one, our asset is not necessarily at the core of our strategic footprint, for example. But most importantly also that there's potentially a buyer where the fit with regards to its footprint is better or there are synergies such that the value assigned to those assets by our counterparty is something that is attractive to us. And we think that to a certain extent, we have optimized the asset base, let's say, in developed markets such that what remains is something we would like to keep. There will be still some exceptions, fine-tuning, but in a very minor way. As we look forward, the other factor that we have taken into account is the outlook, right, because things are evolving. And of course, we have this big phenomenon or big event, COVID. And as we look forward, we also think that our presence in developed markets will benefit from increased stimulus, fiscal spending, infrastructure development, et cetera. And that, again, reinforces the notion that we are happy with the footprint that we have in developed markets. So as we think about CEMEX going into 2023, we were able to keep this balance, right? I mean we, as Fernando mentioned -- I mean, we imagine a company that, over time, has a higher weighting relative to today in developed markets and Mexico, which is our home market. And all of that suggests that this is the right way to see our strategy or our focus evolving, taking into account some recent changes, recent phenomenon. That's what I would say.

Thank you. We have a bit of a follow-up on this question. So Fernando, maybe this is for you or for José Antonio. Would you consider selling operations in Asia and Latin America? This is from Carlos Peyrelongue from Bank of America. Would you consider selling operations in Asia and LATAM? And if this is so, your focus on Europe and the U.S. would mean lower growth and more stable cash flows going forward.

Yes. Well, I don't think -- when I check and analyze growth of our businesses in different countries, in different emerging countries as well as different developed countries, I do not find pretty significant differences, meaning the level at which our products -- the consumption of our products growth in emerging and the other in the markets we are in is not necessarily a depreciator on the one hand. On the other hand, I would like to -- trying to repeat of what I already said, we have a portfolio, we have divested some businesses in developed markets like LATAM, like the U.S., like Europe, cement and businesses that were not necessarily our core businesses, but profitable businesses. So we got a larger position in our emerging markets. So we are trying to balance again that situation. Now are we open to divest businesses in either Latin America or in the Mediterranean or in Asia? Yes, we are. But remember, if we didn't get to our leverage ratio or if we are not going to get to our target of leverage ratio by December this year, at least the way I see it. The part that is missing is the $200 million, $300 million of EBITDA we lost to COVID that we believe we will recover. It will take time. I don't see 2021 already as the exit year for the negative COVID impact, but it will come. I mean if you make some basic numbers, $300 million of additional EBITDA plus $1 billion or $2 billion of divestments will take us to more or less investment-grade parameters. So are we going -- or planning to divest? Yes, we already mentioned it. And to be honest, we never stopped the effort. This is not something that you start and stop every quarter or every 6 months. But again, due to COVID, things are paused or delayed. And we need to adjust to that phenomena. We are not close to divesting the markets that were mentioned.

Great. Thank you very much. And I have said I was done with questions, but I think I'm going to interject one just to bring Maher into the discussion. Maher, could you perhaps just give us an update on where we stand in terms of discussions with the banks?

Yes. Thank you, Lucy. As Fernando mentioned in his remarks -- in his earlier remarks, we're quite pleased the process officially has kind of started. And we're very pleased that today, we have very strong indications for close to 90% participation. Virtually, everybody has given us an indication that they're likely to go ahead with the proposed financing. As you know, we're extending maturities for our revolving credit facility, which is $1.1 billion. We expect a substantial portion of that, as Fernando said, to be pushed out to '23 by 1 year. And then we're expecting close to $1.1 billion under the term loan tranche that is coming due to be extended in a bullet format to January and July of 2025. We're very pleased by the support that the banks have given us but also, we're quite pleased with some innovative components of the new facility. Number one, of course, as Fernando said, we're reducing the exposure, which is positive. But also, more importantly, I think having the sustainability of linkage is a very important feature. It's -- as we said, it's going to be one of the biggest loans of that nature in the market. The negative impact or the positive impact is not material. I think what's really important is ensuring that the company is hardwiring a level of discipline towards climate change and sustainability. So we've incorporated items such as reductions in net CO2 emissions. We've incorporated -- we're choosing essentially 5 KPIs, 1 on net CO2 reduction, power consumption from low carbon energy, quarry rehabilitation, water management and clinker factor. These are very critical components and drivers and enablers of becoming a greener company. And we think it's extremely important to be sending the message to the market in doing that. The impact in terms of pricing is not material, the issue was really to make the commitments and to keep having this dialogue with the market. The other component that is very important from our perspective, and we will continue to make, take steps towards is a better alignment between our funding sources, in terms of currencies and the denomination of our operating cash flows. And in this facility, we're taking advantage of -- in a positive sense, of course, some of our banks having greater comfort and willingness to provide us with funding in pesos, for instance, or in euros at attractive spreads compared to what we could get in dollar terms. So we are availing ourselves of a little bit of that. And so the percentage of dollar funding under the facilities agreement which is going to be around $3.5 billion after the reduction. About 10% is going to be shifted away from dollars into mostly Mexican pesos and euros. Of course, in the -- on a consolidated basis, we need to, of course, add some of the local currency funding that we have elsewhere, such as in the Philippines, for instance, where we have a big amount. And so we're very pleased by those 2 elements. The other, frankly, is that, yes, we have had to agree or are in the process of agreeing on a slightly tighter covenants for the next 3 quarters. But frankly, the level of covenants that we requested back in May were with a COVID state of mind, not that COVID has gone away. But as Fernando said, the greater visibility and the -- both in terms of the markets and in terms of our order book is giving us comfort to be comfortable with slightly tighter covenants. The covenants that we're agreeing with are pretty much beyond the 3 quarters, they're pretty much the same. I mean, we haven't changed anything. So we expect to be very comfortably within these covenants as the next 3 years unfold. So we're very happy with that. I hope that answers the question, Lucy.

Yes. Maybe just following up on that ESG theme, Fernando. We have a question from Francisco Chávez from BBVA. My question is regarding the aggressive goals for reduction in CO2 emissions. Will these goals imply higher CapEx and starting in what year?

Well, thanks for the question. Let me start by saying that the reason why we decided to speed up the reduction of our CO2 emissions is because, as we said, this is the right thing to do and societies demanding for that to happen. As fast as possible. I think I mentioned that the reduction of 35% of CO2 emissions by 2030, which is an improvement from the previous target of reducing 30%. That's a program that has been developed already in previous years. The program itself is not a new program. And every year, we make additional investments in order to increase, for instance, the use of alternative fuels with high contents of biomass or we update some equipment with better efficiencies or we invest in ways for us to use more fillers or more in order to lower our clinker factor, slack, liege, fuselage and others, introducing new products to the market. So that's an activity we have been doing, and we continue doing. We are just speeding up a little bit those projects. Investments in related -- on all our investments that we normally communicate. In average, I think we have investments for these purposes in the range of $50 million to $70 million. That can change from year-to-year, but that's the range of the idea that I can provide. Again, all projects we are developing for this purpose are on practices or technologies that do exist and that are proven, meaning there are no technological risks to these investments. For instance, we are doing 2 investments in increasing further the use of alternative fuels in 2 plants in Europe, in Rüdersdorf and in Rugby. In order to take that to the range of 60 to 70 to a range of 80 to 90. And another comment I can make is that we shouldn't think on all these investments as investments without return because that is not the case. One of the most profitable investments we make is precisely the type of investments I just described. The start in the case of Europe and because of the European waste directive, there is a whole sector related to recovering the energy that remains in waste, household and industrial waste. So in that case, we can use household or industrial waste at very low cost or even at an income in certain conditions. So that is more or less what we are doing. And then on our targets to 2050, there is a component of a technology that needs to be developed. The most important one is the technology for the cement industry to capture, to concentrate, to clean and to use CO2. That has to be developed. In our targets for the reduction of 35% to 2030, we are not including any reduction for let's say, a sizable use or a very material use of this type of technology because we are not sure they will be available and executed already in our plans. We are participating in a number of projects, as we speak, specific to our industry. And for sure, in the next few years, we will start seeing results from those.

Thank you, again, Fernando. José Antonio, I think I have 2 back-to-back questions for you. The first one, and Fernando, of course, will further tune in. The first one is from Mike Betts at Data Base Analysis. Please, could you give us further details on what you mean by urbanization solutions?

Look, I think traditionally, CEMEX has been a company with the main focus in cement, aggregates and ready mix. Over the last years, we have found -- we have observed a couple of things. One is our interest to focus on major urban areas, metropolis around the world in our footprint. And the opportunity to satisfy complementary needs in the markets where we can leverage our presence, our assets, of course, our talent, our resources and take advantage of opportunities that because of the nature of how they are complementary, they are attractive, right? I mean they are low risk because these are markets where we are already present. We already have a good handle on market practices, et cetera. We can lever our resources. And therefore, these are potential opportunities, which are not super large can -- but are many. They can yield interesting returns. What are they? I mean, you can think of things that are adjacent or related to our core businesses, you can think of materials, you can think of industrialized construction solutions or construction products. And you could also think of circular economy-related activities, I mean, some examples, for example, mortars, concrete products, waste management, landfilling, recycled aggregates, all kinds of investments to take advantage of, for example, alternative fuels, waste-to-energy, et cetera, and this is not new for us. If you look at our revenues, for example, I mean, we have -- we have over the last year, around 10% of our revenues is in these kinds of adjacent or related activities. And we intend to -- or we have, as Fernando mentioned, we have incorporated this as a fourth component of our strategy. I mean you might have recall, we spoke briefly about this in prior events over the last couple of years. And our intention is to have these opportunities, these projects, compete in our growth pipeline with -- hand in hand with other kinds of projects that we have in our, let's say, in our traditional businesses. So we -- the way we see it is we have cement aggregates, complemented when it makes sense, for vertical integration purposes with ready-mix. That's 3 core businesses and the fourth one is this umbrella that we are characterizing or naming urbanization solutions. I think you mentioned 2 back-to-back questions, Lucy. I think this was one, right?

That is the first one. And the second one comes from Adrian Huerta from JPMorgan. The question is, how do you see your revenue mix by product by 2023 versus where it is now, given the planned divestments and bolt-on acquisitions?

Yes, that's a good question. Where is it now? And you mentioned revenue and product mix. I think it's probably more illustrative if we focus on EBITDA. When you look at our EBITDA generation right now, around 70% is cement, a little bit under 20% is aggregates, a little bit under 10% is ready-mix and around 5% is urbanization solutions. All this fourth component. Where do we plan on taking this? I think you asked a good question, and I'm afraid I'm not going to be able to pinpoint a particular target when it comes to mix. Why? Because, of course, if we think, first, there's many variables here. One of the variables is growth. The growth at each one of these product segments will take between now and '23. The other variable has to do with investments. And I did mention right now. I mean, we see this as hand in hand, meaning we're going to be evaluating these opportunities hand in hand with aggregate cement and ready mix. And of course, we have a very thorough framework, but one of the elements in the framework has to do with potential IRR, payback periods, et cetera. So how much -- how many of these projects we find over time and which ones have the best metrics will also influence that kind of mix. And the last one, the last variable, which I think is another relevant one is divestments, right? I mean, depending on what kind of assets in our portfolio, we end up divesting between now and 2023 that can move the needle, right? Because we might divest a cement plant or we can divest an integrated business in concrete aggregates. Depending on the region, as you know very well, Adrian, I mean some regions are only cement, some regions are more integrated. So what ends up happening will also play a role in terms of -- but that's all -- in summary, I think all of these businesses, if we set aside -- I mean, all other things equal, right? We set aside the divestment variable. All of these businesses, our businesses we're interested, very interested in evaluating opportunities, compete against each other. And then on that basis, move forward.

Thank you, José Antonio. Maher, I think we also have 2 back-to-back questions for you. The first is from Vanessa Quiroga from Crédit Suisse. You seem to expect fourth quarter 2020 EBITDA to be flattish from your guidance. Even with the strong margin improvement seen in second quarter and third quarter. Is that explained by anything in particular?

First, I was getting worried that I wasn't getting any questions because I thought maybe everybody was like super comfortable with the finance side. So I'm very happy about that. But Vanessa, I'm very happy to -- no. We debated a lot frankly. I mean, we -- just remember where we're coming from. We're coming from a situation where COVID put us into kind of a -- we had -- went through kind of a shock-and-awe process. And we saw not only the market's expectations, but our own internal expectations for the outcome of this year drop materially and then correct materially. And as Fernando said, even, frankly, against our own expectations, I mean, we were quite surprised positively every month that results came, how those months were much better than we had expected, which was great. And that was not because of the trading dynamics in our markets, but also because of all of the things that the team put together, both on the cost-cutting side, pushing -- delaying expenses and also commercial strategies that have proved to be very successful at the end of the day. So we're very happy with that. And frankly, it took a lot of debate to go from that mindset to a mindset of giving guidance for the third quarter and for the whole year. The third quarter was easy because we pretty much know the first 2 months of the year, and we have an inclination of what average daily volumes in our products are beginning to kind of tick 2 in September. But we also wanted to maintain caution. I mean, the outlook is still -- although we have greater visibility, although we feel very good about order books going out 90 to 120 days in our major markets, we want to be cautious, frankly. So we'll have to wait and see. We do know that last year, fourth quarter was a weak quarter. So it is going to be an easy comp. So we'll have to wait and see. I mean, at the end of the day. But we don't believe that there's any kind of structural changes or trend changes that are taking place in the fourth quarter. I mean there's certain seasonality, but you know about that. I mean, I think that's nothing new. So it's really, I would say, just caution, and we'll just wait and see how that evolves. Because see I don't know -- I hope that addresses it. I don't know if you have any.

I think from my perspective, it does. I have another question for you. This comes from Jacob Steinfeld from Ashmore. After paying down $3 billion in debt in second half how much cash does the company expect to have as of year-end 2020?

Well, thank you very much, Jacob, for that question. As Fernando said in his remarks, we're looking at paying slightly more than $3 billion. Remember that we sold several assets, two of them have closed. One is spending to close towards the end of the year. We also made some small investments. So the net proceeds from investments and -- I'm sorry, divestments and investments is close to a little bit shy of $800 million. So that plus what we did in adding to our cash position, we're looking at mostly unwinding all of that. Now on average -- on average, the business requires around $300 million to $400 million of cash. This is treasury cash, which is probably about $150 million to $200 million, depending on the quarter, in end of year accounting cash. So when I talk about cash, we're talking about real treasury ready-to-spend money. We need about $300 million to $400 million, $350 million. And that has been the case for the last 2 to 2.5 years. So with the kind of target of unwinding most of the increase in debt and using most of the proceeds from asset sales and assuming that we closed the last transaction that is expected to happen by the end of the year. We should end the year, I don't know, probably 20%, 30% more than what we need. But it's important to note that we will do so with the majority of the revolving credit facility becoming or being available to us. So effectively, between the facility and the cash position, we should have, I don't know, somewhere close to about $1.5 billion of cash capacity, if you will, a little bit less, maybe a little bit more, but that's roughly the same. Now that is a little bit different than where we started this year. If you recall, we started the year with a balance sheet cash position of close to $800 million. And then we had the revolver, which was $1.1 billion, fully undrawn when we started the year, and that was on the back of having issued a big bond in November. Now the reason we have that level of excess cash, let's say, power was because we were expecting the -- not only the seasonality of the first quarter and first half of this year. But also, we were expecting to pay down the convertible 5 21. So I hope I didn't take too long of a kind of detail for the answer, but we do expect to continue to maintain above normal cash requirements. In addition, we expect to have pretty much the full amount of the revolver available, giving us a very good cushion for liquidity going into 2021. I hope that answers the question.

Thank you, Maher. And Fernando and José Antonio, I think this next one probably makes sense for the 2 of you. It comes from Anne Milne at Bank of America. Regarding the strategy to shift more towards developed markets, how do you reconcile this with the much higher margins in emerging markets such as Mexico and other countries?

Well, 2 comments from my side, maybe José Antonio can complement. First, it will take time for us to make a material change in the composition of developed and managing. So don't expect for that to happen in 6 months or a year. Second, I think we commented that we believe that on a risk-adjusted basis, our portfolio will be more resilient and prone to create value. That's what we believe. And that's what we will be reporting as long as we make progress in this process. Maher, do you want to comment anything?

No, I agree with you Fernando, of course.