Earnings Call Transcript - CX Q4 2021

Operator, Operator

Good morning, and welcome to the CEMEX Fourth Quarter 2021 Conference Call and Webcast. My name is Chuck, and I'll be your operator for today. And now I would like to turn the conference over to Ms. Lucy Rodriguez, Chief Communications Officer. Please proceed.

Lucy Rodriguez, Chief Communications Officer

Good morning. Thank you for joining us today on our Fourth Quarter 2021 Conference Call and Webcast. I hope this call finds you and your families in good health. I'm joined today by Fernando Gonzalez, our CEO; and Maher Al-Haffar, our CFO. As always, we will spend a few minutes reviewing the business, and then we will be happy to take your questions. I will now hand it over to Fernando. Fernando?

Fernando Gonzalez, CEO

Thanks, Lucy, and good day to everyone. I'm quite proud of our 2021 results, and I want to offer my congratulations and thanks to the men and women at CEMEX who make this happen every day. First and most importantly, it's another year of COVID. We were able to keep our employees safe in our operations margin. This, in and of itself, is a huge success. As we also achieved exceptional financial and strategic performance, during the year, we delivered 18% growth in EBITDA, the highest in a decade. Inflation, of course, impacted us as we probably had in June. We responded quickly within the constraints of the industry pricing paradigm to pass-through cost inflation in our business. While we achieved admirable cement pricing results with the best annual growth since 2015, it was still not sufficient to compensate for rising energy and transportation costs. Traditionally, the most significant price action in our industry takes place in January and April in most markets around the world. While we expect that this year's annual increases will be important in our goal to recover margins, we will continue throughout the year to adjust our pricing strategy to reflect cost pressure. Adjusting for asset sales, we reached an 8% return on capital for the year, the highest level since 2007. Adjusting for goodwill, the return on capital would exceed 40%. Full year EBITDA margins improved 0.8 percentage points. This achievement comes despite inflation and margin headwinds from product mix as well as rising input costs. Full year margins were just shy of our operational resilience goal of 20%. In terms of free cash flow, we generated more than $1.1 billion, a 15% increase from 2020, money that we used to deliver as well as fund our growth strategy. The 11% increase in sales was driven by strong growth in volumes and prices. Consolidated volumes for cement, ready-mix, and aggregates grew mid-single digits with all regions contributing to growth. The 6% growth in cement volumes is the highest since 2016. The model increase was complemented by strong pricing with consolidated cement prices rising 5%, while point-to-point pricing from December to December rose 10%, which suggests a strong runway for pricing momentum in 2022. Importantly, all regions participated in the pricing gain. Full year EBITDA increased 18%, the largest increase in more than a decade driven by pricing or volume. Urbanization Solutions also contributed with EBITDA rising 22%. We expect this growth in Urbanization Solutions to continue in 2022 as our growth investment portfolio ramps up. While the contribution of pricing is quite significant in the full-year waterfall, it does not fully offset the rise in variable costs, largely in energy, freight, and inputs. And of course, the annual results will not show the rapid increase in costs we experienced in the second half. The cost pressures were primarily felt in our cement operations while ready-mix and aggregates margins were stable to improving. Our pricing strategy from 2021 got off to a strong start with our annual price increases in the first half calibrated to our expectations for input cost inflation for the year. Margins expanded 2.5 percentage points in the first half. In cement, the majority of pricing actions occurred in the period from January to April prior to the start of the construction season. Around midyear, we began to experience a significant runoff in costs, primarily energy and inputs that were not contemplated in our pricing strategy. While we moved quickly to adjust this year with additional pricing increases, it was not sufficient to manage the costs. Consolidated margins declined 0.8 percentage points in the second half. While ready-mix and aggregate margins held up well, cement margins were impacted. And while we were quite successful in the year with cement prices, it was not sufficient. As you can see on this slide, cement prices rose 5% in 2021, the best pricing we have seen since 2015. And prices are up 10% point-to-point from December to December. Today, we are very prepared to manage the inflationary change. We have reflected the cost pressures in our customary 2022 price announcements scheduled for January and April. We are also assuming that inflation is not transitory, and we are prepared to respond quickly to changes in the environment. Our goal, of course, is to recover margins in line with our operational resilience targets. 2021 was a year of great progress in our strategic priorities. And in 2021, we continued to strengthen our capital structure with perhaps the most visible metric being leverage dropping below 3x for the first time in years. You should expect that the leveraging will continue with the goal of an investment-grade rating in sight. We advanced materially in our operations resilience goal to optimize and rebalance our portfolio for growth. We invested heavily in our growth portfolio in 2021, spending $380 million, the most in the last decade, and continued to reposition our business towards developed markets. And this was in spite of supply chain issues that delayed many growth projects. For 2022, we plan to accelerate the pace with an expected $600 million investment in strategic assets. This includes execution on our pipeline of close to $900 million in approved bolt-on market enhancement projects, mainly in developed markets, as well as legacy cement capacity additions of 4.3 million metric tons. Importantly, our growth strategy is paying off, resulting in $100 million of incremental EBITDA in 2021 and an estimated $100 million for 2022. Our growth strategy also entails repositioning the existing portfolio towards developed markets. To that end, we announced in the fourth quarter the pending sale of our operations in Costa Rica and El Salvador for $375 million. We expect this transaction to close in the first half, and proceeds will support our growth investments in developed markets as well as deleveraging. We will continue exploring investment opportunities in our emerging market assets and remain committed to our goal of increasing the weight of developed markets within our portfolio. But 2021 achievements were not just financial. We accelerated our climate action ambition by committing to the most aggressive 2030 goals in our industry and developed a detailed plant by plant growth mark to get us there. These targets were validated by SBTi under the well-below 2-degree scenario, currently the most ambitious pathway for the industry. And we signed the Business Ambition for 1.5 commitment, stating that we will align our strategies once there is a pathway available for our industry. And most importantly, we made significant progress against our climate goals in the third year. Carbon emissions declined 4.4 percentage points, the largest annual decline we have achieved. The goal of our future action strategy is, of course, to provide green products and services for the customers so that the built world of the future is more sustainable. As of March 2021, we have successfully rolled out net-zero low-carbon concrete and low-carbon cement under the best drop label in our market. Our Vertua net-zero low-carbon concrete, the first in the industry, allows our clients to customize the carbon footprint to their particular need. These products complement our existing family of sustainable products and solutions, the time to meet the needs of a green and circular economy, reducing energy consumption, improving insulation, enhancing the capacity of structures to withstand climatory factors and, of course, reducing carbon emissions. We have seen very favorable customer activity related to those products, with Vertua cement volumes growing almost 50% since its launch in March. Finally, with Danish modular 3D printing company COBOD, we successfully launched D.fab, a ready-mix solution for 3D printing that costs 1/5 the cost of specialized motors traditionally used in 3D printing. This construction modality optimizing the use of concrete minimizes the transportation cost and weight and makes use of readily available local resources. This product has been successfully used in 2 residential projects, including the world's largest 3D printed building. With our enhanced decarbonization roadmap in place, we will reduce our current emissions by 4.4% to a historic low for CEMEX. Our clinker factor performance is attributable to the introduction of limestone cement and other cementitious materials into our processes. In the U.S., we have introduced limestone cement in 5 of our 8 plants and we are retrofitting our plants to support additional limestone cement utilization in the future. Our decarbonization experiences in 2021 supports our strong belief that climate action is a tremendous opportunity and that the cement industry can shine in a circular economy. As I have said before, we have the knowledge and tools in place today to achieve our 2030 goal. The technological challenge lies on the period beyond 2030 to reach net zero. There are many possible decarbonization options that are available. We view this decade as the period for scaling and developing technologies, partnered with world-class experts, to identify the most promising and put in place the infrastructure necessary for deployment. Carbon capture in many forms offers the most encouraging prospects to achieve net zero. I'm excited about what I see in terms of our innovation pipeline. We are engaged in 7 carbon capture industrial pilots, which set various methodologies. Three of the projects currently have co-financing in place from the EU and the U.S. Department of Energy. With our ongoing Synhelion partnership, we announced last week that we have produced clinker using solar energy for the first time. Historically, solar has not been able to reach a high enough temperature to substitute fossil fuels in production. We will continue to build this breakthrough at scale. For the first time ever, we are introducing electric vehicles into our ready-mix fleet in 3 countries. This work is closely aligned with our founding membership in the First Mover Coalition, where we have committed to support breakthrough technology in the development of electric heavy-duty trucks. As the largest ready-mix cement producer in the western world, our ability to transition our fleet to electric would be a significant milestone. We continue to lead the industry in hydrogen technology using hydrogen injection to augment alternative fuel usage in our operations. We are currently using hydrogen injection throughout Europe and are rolling it out globally. Our recently announced partnership with HiiROC on the new hydrogen injection technology will further accelerate this strategy, allowing us to increase hydrogen usage fivefold. We are also working with ACCIONA and Energas on the green hydrogen project in Majorca, Spain. We believe the experience and knowledge we gained in this project will be instrumental in eventually fueling a cement plant with hydrogen. These are just a few of the many technologies we are exploring to meet our net-zero goal. The world is rapidly outgrowing traditional energy sources, and the cement industry plays an important role in building a truly circular economy. Through our use of alternative fuels and raw materials, CEMEX absorbs 50 times the waste that we generate. The ability of cement plants to use community waste as alternative fuel reduces fossil fuel consumption as well as the amount of waste deposited in landfills, which produce methane, a greenhouse gas that is 80 times more harmful to the environment than CO2. In 2021, alternative fuels constituted 29% of our fuel mix, a record substitution rate. Europe, of course, leads the way with approximately 60% of our fuel mix being alternatives. Outside of Europe, we are moving quickly to boost usage. Our Mexican operation is still leading this effort with a 9% volume increase in alternative fuels in 2021. This trend is possible due to our growing sustainable waste management business in Mexico, ProAmbiente. During 2021, our Mexican operation consumed approximately 13% of the total waste generated in Mexico City. We continue to expand this business; in the fourth quarter, we announced the acquisition of a sustainable waste management facility in Querétaro. I would like to emphasize that our transition to a low-carbon economy is not only good for the world, but it's also profitable for CEMEX. While there are a number of leverage factors, I would like to focus on our alternative fuel strategy. In 2021, alternative fuels accounted for 29% of our fuel mix and produced savings of $200 million versus fossil fuel. This innovation is central to all that we do at CEMEX, including our commercial outreach, operations, and administrative management. On the commercial side, CEMEX Go is the first and only global digital platform in the industry that covers the full customer journey. 61% of our sales are now processed through CEMEX Go. We are continuously innovating with the version responding to customer feedback. And while it wasn't built for the pandemic, it has been an important competitive advantage for us over the last few years. We use advanced analytics to predict behavior and improve decision-making across our supply chain. CEMEX Go and service is the key factor in our security, achieving the highest cement promoter score ever for 2 consecutive years. On the operations side, machine learning is helping us optimize energy efficiency, fuel mix, carbon production, and scheduled maintenance across our cement plants. Our operational experience, coupled with our open innovation platform, allow us to address industry pain points. To deal with the complexities of our revenue business, we have developed a proprietary cloud-based ready-mix management system that is now being commercialized externally under the commercial name. This solution gives independent ready-mix producers the capacity to integrate end-to-end commercial and order fulfillment processes. In our administrative functions, we generate digital partnerships and expertise to optimize our processes. Through our open innovation platform, CEMEX Ventures, we are exploring disruptive digital technologies in the construction space. Today, CEMEX Ventures has invested in 16 start-ups, including a delivery service that provides last-minute, last-mile delivery of building materials and a voice-controlled site delivery coordination platform. And now back to you, Lucy.

Lucy Rodriguez, Chief Communications Officer

Thank you, Fernando. Our U.S. operations experienced strong demand dynamics throughout the year across all products with most of our markets sold out. Sales grew 9%, driven by volumes and pricing. Cement, ready-mix, and aggregate volumes were up 6%, 8%, and 1%, respectively, with the residential sector being the main engine of growth. Despite difficult year-over-year comparisons, cement volumes in the fourth quarter were flat with double-digit growth in Florida and Arizona, offset by winter weather in California. With the rapid rise in input costs in May, we moved aggressively to address cost pressures. For the first time in 15 years, we introduced a successful second national pricing increase. As a result, fourth quarter sequential cement prices rose 1%, while year-over-year prices increased 6%. Our efforts to align price with cost inflation continue in 2022, with double-digit cement pricing announcements scheduled for the first half. January price increases took effect in Florida, Southern California, and Colorado, regions which represent approximately 40% of our cement volumes. Given the continued cost pressure, we have advised customers that they should expect a second price increase in the year. Energy costs, primarily fuels, rose more than 20% in the second half, while imports increased almost 30% year-over-year. As a result, EBITDA margin declined 1.2 percentage points in 2021. To offset some of the rising import cost pressure in 2022, we will take full advantage of imports from our Mexican operations, a key competitive strength. As we look forward, we remain optimistic. We expect low single-digit growth in volumes for cement, ready-mix, and aggregate, driven by the residential sector and the recovery in industrial and commercial. Despite rising interest rates, we are confident we will continue to see residential growth driven by backlog in housing demand. Finally, for infrastructure, we expect the new Biden Infrastructure Build to yield incremental demand for our products towards the end of 2022. 2021 was a great year in Mexico with sales rising 17% to record annual sales in peso terms. The industry is operating at a high capacity utilization rate with no new capacity additions apart from our own. Top line growth was driven by high single-digit volume growth and mid-to-high pricing growth for all of our products. In 2021, we saw double-digit bag cement growth during the first half, supported by government social programs and record level remittances; however, growth slowed in the second half as the comparisons became more difficult and we moved past the midterm elections. As the formal economy picked up steam, bulk cement and ready-mix volumes benefited from higher formal housing and industrial activity. Industrial activity was supported by growth in manufacturing and warehouses, onshoring, as well as the build-out of logistics networks. In the fourth quarter, cement volumes declined largely due to a challenging comparison base with fourth quarter 2020 volumes, the highest since 2014, driven by pandemic housing improvements and government social programs. While plant prices grew 9% point-to-point in Mexico in 2021, this increase was not sufficient to compensate for rapidly escalating cost inflation in the second half, driven largely by energy. While full-year margins expanded 0.5 percentage points, we saw a deterioration in margins in the second half, with fourth quarter margin declining 3.2 percentage points. To compensate for input cost inflation, we announced mid-teen percentage price increases for our products effective January 1. In addition, our climate action strategy is also helping us respond to cost pressures in Mexico. In the fourth quarter of 2021, our alternative fuel consumption in Mexico reached 28%. Regarding 2022, we expect our cement volumes to be flat or decline low single digits, while ready-mix and aggregates increase between 2% and 5%. Our cement volume guidance is driven by a difficult comparison base in bagged cement in 2021 due to pre-electoral spending and stay-at-home renovations. We expect bagged cement growth in Mexico to adjust to a more normalized trend as formal sector demand accelerates. We will take advantage of expected lower cement volume growth to support the needs of our U.S. business. With high capacity utilization and the entire industry facing similar cost challenges, we are confident that we should be able to recover input cost inflation. In EMEA, top line annual growth of 6% was driven by higher prices and volumes in most markets. European volumes were up mid-single digits across our core products, led by increasing infrastructure and residential activities in the U.K., Poland, France, and Spain. We achieved record cement volumes in Europe, led by double-digit growth in the U.K. with most markets above pre-COVID levels. A second round of price increases was implemented in the second half of the year to respond to the sudden run-up in input cost inflation. As a result, our European cement prices in local currency terms rose 1% sequentially and were up 4% for the year. We've already announced price increases for January and April in Europe, which we expect will offset inflationary pressures from energy and raw materials. With our favorable carbon credit position, we have not been affected by the rapid run-up in carbon costs in 2021. Finally, in Europe, our urbanization solutions business was an important driver of EBITDA growth. EBITDA from the EMEA region rose 4% in 2021 with a slight decline in EBITDA margin. In the Philippines, cement volumes were up 7% with all sectors growing. Volumes were heavily impacted in the fourth quarter by tightening of debt, which caused significant disruptions in the central part of the country. However, we do expect the construction activity to begin in 2022. Pricing has been improving in the Philippines with 3 consecutive quarters of growth. For more information, please see our CHP quarterly earnings, which will be available this evening. In Israel, construction activity was strong in 2021, with average daily sales volumes for ready-mix growing double digits and with low single-digit growth for aggregates. Finally, in Egypt, since the government announced an industry rationalization plan, we have seen an important improvement in pricing. For 2022, we are expecting volume growth across our EMEA region, supported by fiscal stimulus and the renovation wave in Europe, as well as strong fundamentals in most markets.

Maher Al-Haffar, CFO

Thank you, Lucy, and good day, everyone. As you heard from Fernando, our 2021 results were quite strong with sales and EBITDA growing the most in a decade and generating around $1 billion in free cash flow for the second year in a row. On the debt management and capital structure side, our results last year were also quite strong and transformational for us, a year of many records and first. We issued the lowest cost U.S. dollar bond in our history. We refinanced our syndicated bank facility at a cost never achieved before, slightly above 1%, and with an investment-grade style structure, the first in over a decade. We also introduced a sustainability-linked financing framework, which is unrivaled in our industry and includes 3 key performance indicators and a second-party opinion from a leading provider. We paid or refinanced over $7.5 billion in debt and applied free cash flow and asset sales proceeds to reduce debt. During the year, our consolidated net debt as measured under our credit agreement declined by $2.3 billion, and we reduced interest expense by $141 million, representing savings of 20% versus the prior year. We also reduced our leverage ratio by the most ever, reaching 2.73x, a reduction of 1.4x and significantly lengthened our average life of debt to 6.2 years, the highest in more than a decade. All these achievements were noted by our rating agencies. During the year, Fitch upgraded our credit rating by 1 notch to BB, and both Fitch and S&P raised their outlook to positive. In December, we became a founding member of the recently created United Nations Global Compact CFO Taskforce for the sustainable development goals, which aims, among other things, to attract more capital towards sustainable development. In line with the task force's goal, we aim to have at least 50% of our debt stack sustainability-linked by 2025. We approached 2022 with a very strong financial position. We do not have any refinancing needs for the next 3 years. We have minimal exposure to interest rates, with 90% of our debt at a fixed rate, a very favorable position in an environment of rising rates. Our liquidity position today is stronger than ever. We have a strong cash position with a record of $1.75 billion committed revolving credit facility that allows us to comfortably navigate through our business cycle. On our risk management side, we are adequately positioned to mitigate risks associated with currency fluctuations in most of our non-U.S. dollar markets. We have debt in various currencies when pricing is attractive, such as the euro, Mexican peso, Philippine peso, and Colombian peso, among others, which translated into a positive $140 million translation effect on our debt this year. In addition, we have an ongoing Mexican peso hedging strategy that effectively lowered the volatility of the exchange rate at which we convert pesos to dollars for tenders of up to 18 months. This year, our operations generated $1.1 billion in free cash flow, an increase of $143 million versus the year before. This growth in free cash flow was driven primarily by higher EBITDA and savings on financial expenses. Investment in working capital was driven primarily by the 14% increase in sales this year. However, average working capital days reached minus 15 days, 1 day better than last year. We aim to continue improving our discipline in working capital management. For example, on the collections front, we are working on reducing the risk profile of our receivables by partnering with third parties that are using artificial intelligence and cognitive analytics to improve the sales-to-collection process. As a result, the credit quality and turnover efficiency of our receivables are at record levels. Finally, for strategic CapEx, we invested $380 million in highly accretive growth projects. We are currently undertaking the largest and most comprehensive adoption of digital technologies ever to transform the way business services are provided at CEMEX. We're calling it Working Smarter. Working Smarter will fundamentally change the current shared services model into a fully digital, virtual, and agile way of delivering business management services across our company and will create a unique competitive advantage. With advanced platforms, analytics, and automation services, we will deliver digital workplace solutions and collaboration frameworks to enhance the employee and workforce experience. Working Smarter will leverage remote work and virtual centers of excellence to allow business services to be provided seamlessly with the best talent anywhere in the world. To accelerate innovation, we have signed separate multiyear contracts totaling $500 million with 6 leading service providers in the fields of finance and accounting, information technology, and human resources, replacing current expenditures with new supplier services at an optimized cost, effectively continuing to reduce our operating expenses. In addition, having access to our partners' collective research and development capabilities ensures that Working Smarter will remain at the forefront of technology and innovation for years to come. Beyond all of these benefits I just discussed, we expect to capture accumulated savings of up to $100 million per year once Working Smarter is fully implemented and achieve a return on investment of about 4x with short payback periods. Of course, as we go through the implementation of these various initiatives, we will fine-tune the timing, scope, and magnitude of these savings. For more details about this initiative, I invite you to take a look at the press release we issued earlier this week. And now back to you, Fernando.

Fernando Gonzalez, CEO

In 2022, we expect EBITDA growth of mid-single digits. This growth will be driven primarily by pricing with flat to low single-digit volume increases. Cost headwinds will continue to be with us in the first half of the year due to more difficult comparisons, as we only began to experience inflationary pressures in the third quarter of 2021, but we expect these pressures to ease on a year-over-year basis in the back half. We expect energy to remain the largest cost headwind, and we estimate that energy for the production of cement will increase by 19% on a per ton basis. We expect CapEx of $1.3 billion, with $600 million growing to strategic projects. With rising sales, we anticipate an investment in working capital of $150 million. Cash taxes are expected to be $250 million. Based on our current debt portfolio, we expect a decline in the cost of debt by $10 million. Always, we will continue to look for market windows for financing opportunities. Overall, in 2022, we anticipate a favorable environment with more moderate volume growth in most markets and strong pricing dynamics that reflect high capacity utilization and input cost inflation. Finally, we aim to recover margins in line with our operational resilience goals through our pricing strategy. Back to you, Lucy.

Lucy Rodriguez, Chief Communications Officer

Before we begin our Q&A session, I want to remind you that any forward-looking statements we make today are based on our current understanding of the markets we operate in and may change in the future due to various factors outside our control. Additionally, unless stated otherwise, all mentions of pricing initiatives, as well as price increases or decreases, pertain to all products. We are now ready to take your questions. To allow everyone a chance to participate, we kindly ask that you limit yourself to one question. The first question comes from Vanessa Quiroga from Credit Suisse.

Vanessa Quiroga, Analyst

My question is the following. So considering your indications of double-digit pricing growth in key markets and the investments contributing to $100 million EBITDA, really the guidance of mid-single-digit EBITDA growth is low in my view, even against the energy cost increase that you are indicating of 19%. So I'm wondering if there's some other factor affecting margins? I mean, is something happening with the PEMEX cycle volumes or are you expecting to have to import clinker at much higher cost because, yes, the EBITDA guidance is low given the present indications.

Maher Al-Haffar, CFO

Fernando, would you like me to take that?

Fernando Gonzalez, CEO

Please go ahead.

Maher Al-Haffar, CFO

Vanessa, you highlighted an important point. We are entering 2022 with the expectation of significant volatility, especially regarding costs. We anticipate that the inflation we’ve experienced will remain a persistent factor for the foreseeable future. The recent CPI figures caught the market off guard, so we are proceeding with caution. We expect volatility to continue, and to illustrate, if we hold the energy price increases from the fourth quarter steady throughout the year, it would result in a 15% increase. We are guiding for a 19% increase, but outcomes could vary. We are intensifying our shift towards alternative fuels that are more cost-effective. There’s also the option of importing cement clinker, which we are considering due to anticipated growth in markets that are currently sold out. However, transportation costs add to our expenses. This year, we expect a greater portion of the cement we trade to come from our own facilities, particularly in Mexico, which should be advantageous. Overall, we expect cement volumes to remain flat, low single-digit growth in aggregates, and low single-digit growth in ready-mix. Pricing remains a critical focus this year as we aim for operational resilience margins of 20% and to close the cost gap from 2021. We have a positive outlook based on a 10% pricing increase from December to December compared to a 5% year-over-year increase, so we're entering the year with favorable conditions. We've announced double-digit pricing increases for most markets in January and April, and we are seeing positive results from those efforts. Additionally, we are optimistic about the growth portfolio, expecting around $100 million in contributions, and our Working Smarter initiative has begun to yield cost reductions that we expect to continue. In summary, we are cautious given the anticipated volatility and high inflation as we move into 2022.

Fernando Gonzalez, CEO

No, I think it is a very complete explanation, Maher.

Lucy Rodriguez, Chief Communications Officer

I just want to add one point, Vanessa. You probably already know this, but we noticed inflation increase in June. This indicates that in the first half of the year, we will face a tough comparison because we had very low cost inflation during the same period last year, and we expect things to stabilize towards the end of the year.

Paul Roger, Analyst

On the 4% reduction in CO2 on a per ton of cement produced basis, at this rate, given what you accomplished in 2021, you would easily achieve the 2030 target. How conservative is the 475-kilo goal? And could you consider revising it?

Fernando Gonzalez, CEO

Okay. Well, let me start by saying that last year was kind of a special year regarding our transition towards a low-carbon economy. So, this 4.4 percentage points reduction will be difficult to achieve every year. But anyhow, I think we are showing that our industry is capable of an effective and fast transition towards a low-carbon economy while increasing profitability. What happened last year, as you know, we started adjusting our ambition to align with the most accepted scenarios, and we adjusted our objective, breaking our 2030 objectives down to 2025 and including new ones. But what we did at the same time, starting in 2020, was develop a very comprehensive roadmap, a CO2 reduction roadmap for each cement plant. For the first time, it was executed last year over the full 12 months. That tool, or that process allowed us to assure that the intent and ambition could be executed almost impeccably. We continue with the same idea, meaning that the execution of this reduction. We are very positive, and we will continue making the reductions needed to meet our objectives. I won't promise that it will be 1.4% every year, but we now think that we have everything under control to accomplish our objectives. Again, it's just a simple clarification because of the many negative interpretations regarding our industry and our capability to transition to a low-carbon economy. You know that the potential reduction in margins, the potential increases of CapEx with our returns, I think that for now we will continue with the wisdom of the past, but also with the new wisdom, which calls for a cement industry in a circular and green economy, serving society better and being as profitable or even more profitable than we have been.

Lucy Rodriguez, Chief Communications Officer

Thank you, Fernando. The next question comes from Carlos Peyrelongue from Bank of America.

Carlos Peyrelongue, Analyst

My question is related to pricing. If you could comment a little bit on the traction you've gotten so far. You've announced important price increases in most of your geographies. It would be interesting to see what type of traction you're getting. I understand, at least in Mexico, the traction is very solid. So it would be great to hear your comments on this pricing issue.

Fernando Gonzalez, CEO

Let me share some general insights, and then Maher and Lucy will provide more specific information. It's evident that last year we began with a plan and implemented our pricing strategy based on lower inflation rates. Typically, in the last quarter of the year, we outline our strategy for the first four months of the following year, which is what we did. However, inflation began to rise significantly in June and July, after most of our pricing strategy had been put into place. Consequently, we monitored the situation and implemented additional price increases in the second half of the year when feasible. In the case of ready-mix and aggregates, we were able to maintain our margins, although cement was more affected. When we noticed this impact, we aimed to raise our prices for a second time during the year. Our pricing strategy for 2022 took high inflation levels into account. We informed our customers in several markets, especially those that were sold out, to expect another round of price increases in the summer and fall, anticipating that inflation would remain structural. The early signs so far are very encouraging as we begin January. Would Lucy or Maher like to add anything?

Maher Al-Haffar, CFO

Yes. Thank you, Fernando. I'll jump in. Carlos, first, I mean, as Fernando said, we see some very good responses to the January pricing increases. They're going well. I think you saw in Mexico, in particular, that there were announcements recently regarding prices sequentially going up by a little over 8%. This is from December. We are obviously an important part of the market, so without directly stating what we did, you can pretty much extrapolate from that. In the case of the U.S. and Europe, where pricing increases are more seasonally affected, for those markets, we announced pricing increases for January, and for those customers, the prices sequentially were up in the mid-single digits to low double-digit range. We've received very good traction in those markets for those customers. Obviously, as you know, the U.S. has seasonal characteristics, so most pricing happens in the spring, particularly in April. So that is going to impact a larger part of our sales there. The January pricing increase is affecting about 40% of our sales, while the April 1 increase will affect more like 60%. In the SCAC region, we are also seeing good traction versus the fourth quarter. We achieved around a mid-single-digit increase. To summarize, we are entering January with approximately 50% to 60% of our markets experiencing pricing increases starting as of January. We are expecting the rest to follow in April. It's important to note that we have communicated with our customers in many sold-out markets that they should expect further price increases in the summer and fall based on anticipated structural inflation, which we expect to continue. At the same time, as I said earlier, we are actively working on cost management. We are investing more and executing more to switch to alternative fuels, which are significantly less expensive than fossil fuels.

Lucy Rodriguez, Chief Communications Officer

No, I think you did a great job covering that. Let's move on to the next question, Ben Theurer from Barclays.

Benjamin Theurer, Analyst

Perfect. So to understand a little bit the dynamic in Mexico, what happened in the quarter. I suspect the margin under 30% is not precisely what you're looking for. Was it maybe a shift driven, lower cement, more aggregates and ready-mix? And how do you think about the level of profitability looking into 2022 also given the guidance for likely declining cement volumes but growing ready-mix and aggregates? That would be my question.

Fernando Gonzalez, CEO

Well, if I may comment, there is indeed, as you suggested, a mix effect, as ready-mix and aggregate volumes are stable or growing while cement volumes are declining to some extent due to this mix effect. Mexico is facing the highest impact from energy costs compared to other geographies. For 2022, our team in Mexico is following the same pricing criteria we define across the company. We have already started executing price increases at levels aligned with the most probable inflation for the year. They started executing these increases, and as Maher mentioned, the sequential increase in cement prices in Mexico is approximately 8%. We believe this will improve. Our aim with our pricing strategy this year is to recover margins and achieve over 20% margin in line with the operational procedures we established. We will continue monitoring how inflation develops and will increase prices again to comply with this objective.

Maher Al-Haffar, CFO

Fernando, may I also add to Ben? Just a couple of things to clarify. This is just to complement what Fernando was saying. It's very important also to consider the comparisons. In the fourth quarter of 2020, cement volumes grew by like 17%. Within that, bagged cement grew almost 22%. We had the highest amount of growth since 2014. The comparison is very tough now, as we are coming into a normalized state. The challenges in the quarter emphasized the adjustments in consumer behavior as people have shifted their focus away from renovations as the formal economy picked up steam. This is driving the specific quarter dynamics more than anything else.

Lucy Rodriguez, Chief Communications Officer

The next question comes from Gordon Lee from BTG Pactual.

Gordon Lee, Analyst

Just a quick question. At some point last year, and admittedly, this was before the inflation spike, but at some point last year, you were contemplating the possibility of maybe introducing a dividend in 2022, which you decided not to do. So I was wondering what the thinking was behind that and what you would need to see to either implement an ordinary dividend policy or a more systematic share buyback, given where the stock price is trading, how much your balance sheet has improved, and how, even in the face of cost inflation, you're still generating significant amounts of cash flow.

Fernando Gonzalez, CEO

Yes, I can say that while we want to implement a systematic dividend, we decided to postpone that possibility due to the way things changed in the second half of last year. It's important for us to maintain our positive balance sheet structure, and we want to avoid the scenario of issuing a dividend one year and then suspending it the next. You can expect a dividend in the future, but it will be more about the conditions we face rather than specific timing.

Lucy Rodriguez, Chief Communications Officer

Thank you, Fernando. The next question comes from Anne Milne from Bank of America.

Anne Milne, Analyst

The question is on your refinancing. Maher, I think you said you have a target of 50% under your green targets by 2025. Is that correct?

Maher Al-Haffar, CFO

Yes, Anne. Yes, exactly. By 2025, yes.

Anne Milne, Analyst

Okay. And just because you don't have a lot of bonds that have calls in the short term, I think one in euros and maybe one in dollars next year. Is there any other plan on the liability management side right now? I assume it will be the same targets you'll put in your bonds as you have in your financial agreement?

Maher Al-Haffar, CFO

That is correct, yes. I mean there are the 7 and 3/8s that could be refinanced in '23. There’s another bond callable in '24, plus a EUR 400 million bond that is callable already. There are sufficient refinancing opportunities. As we deleverage, the amount that will be refinanced with sustainability-linked debt will become more important as a percentage of the total debt stack. We are seeing a lot of demand for sustainability-linked bonds. And as you know, all our bank debt is sustainability-linked, including a recent peso-denominated loan for about $250 million in addition to the credit agreement we have. I believe we are slowly putting in motions that, reasonably speaking, should get us to a level of 50% or more by 2025.

Lucy Rodriguez, Chief Communications Officer

Okay. The next question comes from Paco Suarez from Scotiabank.

Francisco Suarez, Analyst

Thank you for the last comments. I can't agree more with that. The question I have is precisely on your overall targets for this year and EBITDA projections or guidance related to the cost side. What are you assuming on fuel substitution rates this year? Can we see an offset risk on the cost side from the initiatives of rolling out your capabilities to inject hydrogen into your cement plants across all regions?

Fernando Gonzalez, CEO

I'm not sure we are sharing that specific information, but let me start by commenting that we continue our strategy on increasing the use of alternative fuels with high biomass content. As an example, there are 2 projects that will increase the use of alternative fuels at 2 of our largest plants in Europe, Rugby and another one. We are finishing that process this month and next month. Starting in April, we will increase the use of alternative fuels in these 2 plants to 90% plus. We are continuing to develop alternative fuel projects everywhere. Therefore, you can expect that we transition from 29%, and we will continue increasing that proportion. A while ago, I commented on how profitable it would be to transition towards a low-carbon economy. I think this element, specifically alternative fuels, proves that our investments to reduce CO2 are profitable, particularly in the case of Europe.

Lucy Rodriguez, Chief Communications Officer

Yes, you are correct. At the moment, we aren't disclosing specific year-by-year targets. Thank you, Paco. I think we have time for 2 more questions. The next question comes from Adrian West from JPMorgan.

Adrian West, Analyst

I think I will move to the last question then. Please let me know if you are available. The next question comes from Yassine Touahri from On Field Research.

Yassine Touahri, Analyst

Could you tell us how much of your fuel bill and electricity bill for 2022 is hedged and how much is not hedged?

Maher Al-Haffar, CFO

I mean, on the electricity side, we have some fixed contracts. I'm trying to see the percentage. In terms of the transportation bills, for instance, diesel, about 75% of our diesel is hedged for 2022. Regarding fossil fuels, more than half of our fuel use is fixed cost-based materials, whether fossil or alternative fuels. As for the power side, Lucy, can you help out regarding that?

Lucy Rodriguez, Chief Communications Officer

Yes, I can help with that. I think roughly about 60% of power is under some type of fixed contract. Of course, some of these are regulated, and there can be provisions that under extraordinary situations they may petition for a price hike, but roughly 60% is under contract for this year. Well, I think that kind of wraps it up. We appreciate you joining us today for our fourth-quarter webcast and conference call. If you do have any additional questions, please feel free to contact Investor Relations, and we look forward to seeing you next quarter. Thank you very much.

Operator, Operator

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