Earnings Call Transcript
CEMEX SAB DE CV (CX)
Earnings Call Transcript - CX Q3 2021
Operator, Operator
Good morning and welcome to the CEMEX Third Quarter 2021 Conference Call and Webcast. My name is Dan and I'll be your operator for today. And now I will turn the conference over to Lucy Rodriguez, Executive Vice President of Investor Relations, Corporate Communications and Public Affairs. Please proceed.
Lucy Rodriguez, Executive Vice President of Investor Relations
Good morning. Thank you for joining us today on our third 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 you are aware, we hosted the second part of our Annual Analyst Day three weeks ago. As a result, today's commentary will be more abbreviated and focused on the quarter. We encourage you to access the full recording and slides of our Analyst Day on cemex.com. 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 Gonzalez, CEO
Thanks, Lucy, and good thanks to everyone. In the third quarter, we had strong topline growth of 8% on a like-for-like basis, reflecting continued demand for our products as well as the acceleration of our pricing efforts to compensate for input cost inflation. Pricing was the most important level in performance with all regions contributing to growth. Indeed, cement prices rose 6% year-over-year, the biggest year-over-year pricing percentage gain since the fourth quarter of 2016. However, this achievement was not sufficient to protect us against supply chain issues, as well as sudden spikes in fuels, electricity, and transportation costs. As a result, consolidated EBITDA margin dropped 1.6 percentage points. As always, we moved decisively to address cost headwinds through pricing actions, and you should expect that we will continue to do so in the future. Meanwhile, our cost discipline continued to pay off as we maintained record-low levels of OpEx as a percentage of sales. Free cash flow after maintenance CapEx was approximately $370 million, decreasing versus last year due to higher maintenance and working capital investments. But importantly, year-to-date free cash flow after maintenance CapEx followed the prior year. We continue to make progress on deleveraging with our leverage ratio now at 2.74x, a reduction of 0.11x on a sequential basis. Finally, I'm pleased to announce that in the next few days, we will be refinancing $3.25 billion of bank debt with improved terms and conditions more reflective of an investment-grade credit. The security underlying the bank loans, as well as the breadth of our senior debt, has fallen away. And importantly, the bank debt under the new agreement will be aligned with our recently announced sustainability-linked financing framework. Haffar will elaborate on this during his remarks. Despite the weather impact in several major markets, volumes were an important driver of sales with growth in all regions. Total domestic cement, which includes cement, mortars, and clinkers as well as aggregates grew 2% on an average daily sales basis. With formal construction recovering in emerging markets, ready-mix volumes were up 5%, while sales of our new business line of urbanization solutions continued to expand with growth of 16%. Pricing, however, was the most important driver of sales, with all regions and products contributing to growth. Year-to-date cement pricing gain was complemented in the third quarter by a second round of pricing increases in Mexico, the United States, and Europe. In the case of the United States and Europe, this was the first time in almost 15 years that we have introduced a second round of national cement price increases in the same year. These announcements were successful, as evidenced by sequential pricing gains in all three regions. In the third quarter, EBITDA declined 1% like-to-like. Volume contribution at the EBITDA level largely reflects product mix in acquired where ready-mix volumes and urbanization solutions sales grew more than cement. Pricing was the largest contributor to EBITDA. While pricing was sufficient to cover the increase in variable cost and freight, largely energy-related, it was not enough to compensate for the rising cost of imports. Imports, primarily in the U.S., were responsible for a 1.8 percentage point headwind in margin. While we do believe some of these cost headwinds, such as shipping and fuel shortages are transitory in nature, we are moving quickly to adjust pricing. With tight supply-demand dynamics in most markets, we expect such actions to be successful. In our bagged cement market, you should expect continued rapid adjustment to recover input cost inflation. While in our developed-market portfolio, we are seeking to increase the frequency of pricing increases to better reflect cost headwinds. And for all markets, we are currently preparing 2022 pricing announcements, which for many developed markets may include two pricing increases in the year. OpEx as a percentage of sales was flat sequentially at 7.4%, equal to second quarter 2021, a record low and 1.4 percentage points lower than the prior year. With new initiatives such as our 'working smarter' program, a global initiative designed to utilize digital platforms and automation technologies to standardize and centralize business processes, we should expect continued savings on this front in 2022. Finally, we benefited from an important FX tailwind in the quarter of $21 million. The gain came primarily from the appreciation of the Mexican peso and British pound. In the quarter, we continued to advance on our operational resilience funded. Despite the rising inflationary costs experienced in the third quarter, we are still within the range of our EBITDA margin goal of 20%. We continue to make sequential progress in deleveraging, with a decline of 0.11 of a turn in leverage. We increased our bolt-on and margin enhancement portfolio of approved projects by $90 million to $800 million. And finally, with regards to our sustainability agenda, it was a significant quarter. Outstandingly, we reduced carbon emissions by 1% sequentially. We received validation of our 20 study Scope 1 and 2 targets from LBTI, under the well-below-two-degrees scenario, currently the most ambitious pathway available for our industry. And we signed the business ambition for 1.5-degree commitment, aligning CEMEX with the goal of the Paris Climate Agreement to keep global temperature rise within 1.5 degrees Celsius above industrial levels. With this agreement, CEMEX also joined the Race to Zero initiative, a global effort backed by the United Nations, by which governments and the private sector come together to create a carbon-neutral economy by 2050. Finally, we are proud that the Global Cement and Concrete Association, of which we are a founding member, has launched an industry roadmap to reach net-zero in concrete by 2050. The roadmap includes an ambitious 2030 target for the industry to eliminate five million tons of CO2 by 2030. Importantly, the roadmap marks the biggest global commitment by an industry to net-zero to date, with major cement and concrete producers responsible for 80% of total production outside China signing on. And now, back to you, Lucy.
Lucy Rodriguez, Executive Vice President of Investor Relations
Thank you, Fernando. Despite heavy rains and hurricanes in the quarter, the US continued to enjoy strong demand across all products, with most of our markets sold out. Cement volumes grew double-digit in three of our four key states. The outlier was once again Texas, which experienced significant weather issues in the quarter. Demand continues to be driven primarily by the residential sector. In response to severe input cost inflation related to imports and energy, we announced a second round of pricing increases for the third quarter. This is the first time in 15 years that we have introduced a second round of pricing throughout our US footprint. The pricing announcement, which covered our cement and ready-mix businesses, resulted in prices increasing 2% sequentially. And while we are pleased by the new cadence of pricing increases, it is still not enough to compensate for today's rising costs in energy and imports. We will continue to consider these costs in our 2022 pricing increases. We have already announced price increases for January, for Florida and Southern California, an area which represents approximately 35% of our cement volumes. We will soon be announcing pricing increases for April for the remainder of our markets and we intend to announce a subsequent pricing increase for the summer or early fall. During the quarter, we experienced inflationary headwinds, driven by a 34% increase in the year-over-year cost of imports and a 19% rise in energy costs. As a result, our EBITDA margin declined by 3.6 percentage points. As we look forward, we remain optimistic on the outlook for volumes in the US. We believe that while residential growth is slowing from the strong pace of the last 12 months, it will continue to add incremental volumes over the medium term. We also expect industrial and commercial demand to rebound in 2022. Finally, for infrastructure, we remain optimistic regarding the passage of the infrastructure plan, which we would expect to yield incremental demand for our products towards the end of 2022. In Mexico, net sales increased 10%, driven by strong pricing and volumes. With continued recovery in the formal sector, ready-mix and aggregates showed strong growth. Aggregates have now joined bag and bulk cement as products that have surpassed pre-pandemic levels, while ready-mix continues to recover. Cement volumes declined 3% in the quarter, due to adverse weather and more difficult year-over-year comps. The decline also reflects a slowdown in bagged products after five quarters of double-digit growth. The moderation was due to more difficult year-over-year comparisons, as well as front-ended government social program spending in an election year. With the acceleration in formal sector activity, bulk cement volumes grew, partially offsetting the decline in bagged product. While EBITDA rose 7% in the quarter, EBITDA margins compressed 0.8 percentage points, mainly due to higher fuel and freight costs and product mix. Despite good traction in our pricing actions year-to-date, pricing gains have not been sufficient to compensate for input cost inflation, particularly fuels. To this effect, we announced a price increase of mid-single digits for bagged cement effective end of October. You should expect that our pricing strategy will continue to reflect input cost inflation. Demand fundamentals in Mexico remain strong with a high level of capacity utilization for the industry. Formal housing continues to gain momentum and drive formal sector demand. Housing steps and permits increased more than 60% year-to-date September. Going forward, low levels of inventories, attractive mortgage rates, availability, and job creation should support volumes. As mentioned at our CEMEX Day, the industrial segment is also picking up momentum. We continue to see development of warehouses and manufacturing facilities in border states and the build-out of distribution centers and logistics hubs throughout the country. As travel restrictions ease, the tourism sector is growing once again and previously stalled tourism projects are resuming. We remain optimistic regarding the prospects of the Mexican market. We expect cement demand to continue to grow over the medium term, but at more moderated levels. Bank cement growth rates will be supported by strong remittances, job creation, consumer spending, and the government's prioritization of social programs that use bagged cement. Meanwhile, bulk cement, ready-mix, and aggregates should continue improving on the back of GDP growth and the acceleration of formal construction. Formal residential demand, coupled with industrial activity and flagship infrastructure projects should drive volumes going forward. In EMEA, top line growth in Europe driven by strong volumes and pricing more than offset a slight decline in sales in Asia, Middle East, and Africa. European cement volumes were up 4%, led by double-digit growth in the UK and Poland, as these markets continue to benefit from important infrastructure and residential projects. Given the take-capacity utilization in Europe and the sudden run-up in input cost inflation, we implemented a successful second price increase in several European markets. As a result, European cement prices are up 2% sequentially. Price achievements to date, however, are still not sufficient to offset the cost of inflation we are experiencing in most European markets. This inflationary cost story played out throughout the entire EMEA region in the form of higher energy distribution and import costs, with consequences for EBITDA and margins. EBITDA for the region declined 9% year-over-year. In Israel, after adjusting for holidays in the quarter, average daily sales volume showed significant momentum, with ready-mix up 10% and aggregate up 3%. In the Philippines, cement volumes were stable year-over-year, impacted by the rainy season and a difficult prior year comparison base. Operational costs in the Philippines also rose due to the higher cost of imports. For more information, please see our CHP quarterly earnings, which will be available this evening. Finally, in Egypt, we are seeing improved supply-demand dynamics after the government decreed to rationalize cement production. Our South Central America and Caribbean operations continue showing strong growth dynamics, with net sales up 10% year-over-year. Despite a lockdown in Jamaica in the quarter, regional cement volumes increased 5% driven by double-digit growth in the Dominican Republic and Central America. With successful pricing actions year-to-date in most markets, prices in the quarter, however, declined sequentially largely due to product and geographic mix. While EBITDA increased 3%, EBITDA margins for the region declined as a result of higher fuels, imports, and maintenance. In Colombia, cement growth was supported by housing, self-construction, and infrastructure. The outlook for cement volumes in Colombia remains favorable, supported by a healthy self-construction sector, 4G highway projects, as well as the rollout of new infrastructure programs. In the Dominican Republic, cement volumes grew 11% on the back of the dynamic self-construction sector and the reactivation of delayed tourism projects. Going forward, we expect the self-construction sector to continue to benefit from a high level of remittances, while the formal sector maintains its recovery trajectory. We expect that our strong logistics network, coupled with the introduction of our planned cement capacity additions in a largely sold-out region, will continue to be an important competitive advantage. I invite you to review CLH's quarterly results, which were also published today. And now, I will pass the call to Haffar to review our financial performance and energy cost structure.
Maher Al-Haffar, CFO
Thank you, Lucy, and good day to everyone. As Fernando mentioned at the beginning of the call, our results year-to-date have been quite strong, with free cash flow more than doubling from last year. This growth in free cash flow is driven mainly by strong operational results and lower financial expenses, partially offset by higher CapEx and investment in working capital. We've refinanced approximately 50% of our debt stack this year at a lower cost. That has translated into a reduction of 60 basis points in our cost of debt. This figure includes the refinancing of our bank facility in the next few days, as Fernando mentioned. This, in conjunction with debt reduction, has translated into interest expense savings of $92 million year-to-date. We expect to reach savings of $120 million for the year. Investment in working capital is higher than last year, driven primarily by inventory buildup and related inflation, among other effects. In terms of days, however, we are seeing a reduction of two days working capital to minus 14 days year-to-date, driven primarily by improved collections efficiency. Net income for the quarter is $1.2 billion, higher than last year, driven by better operating performance and lower financial expense. However, for the quarter, it resulted in a loss of $376 million driven primarily by a close to $500 million non-cash impairment, mostly related to goodwill in our operations in Spain and the United Arab Emirates. Year-to-date net income is up $2.1 billion year-over-year, reflecting better operational results, sale of CO2 credits, as well as lower impairment charges this year versus last. As Fernando said, we are pleased to announce that we have syndicated a new bank facility for $3.25 billion, which is replacing our previous $3.1 billion facility. This is of course subject to final documentation and customary closing conditions. The new facility represents a major milestone in our path to investment grade. It's single currency with a term loan of $1.5 billion with final maturity in 2026, and with a larger committed revolving credit facility of $1.75 billion, a little more than $600 million higher than our previous committed revolving credit line. This larger committed facility will further strengthen our liquidity position, which is very favorable from a company risk and credit rating perspective. The interest rate is based on our leverage ratio, and is about 25 basis points lower on average than what we currently have. It is unsecured with a simpler guarantor structure. Earlier this month, we announced that the security underlying all our senior debt, including our senior secured bonds had fallen away after reaching certain leverage milestones. Our new financial covenants are consistent with an investment-grade capital structure with a maximum leverage ratio of 3.75 times throughout the life of the loan and a minimum interest coverage ratio of 2.75 times. And finally, this facility represents the first indebtedness under our recently published sustainability-linked financing framework, which we intend to replicate across our debt stack over time. As a result of the refinancing activities we've executed during the year and pro forma the new bank credit facility, we have the best runway in our maturity schedule in more than a decade, with a record high average life of debt of 6.4 years, and with the lowest cost of debt in recent times. Our improved financial profile and better operational results led S&P to recently improve our credit outlook from negative to positive with a strong liquidity assessment. As you can see on the chart, for the next four years, our maturities are less than a billion dollars each year, which should be more than covered by our expected free cash flow generation. We will continue lowering our cost of funding, while maintaining a prudent maturity profile. Given the recent spike in energy markets, I would like to spend a few minutes to address this topic in our most energy-intensive part of our business, which is cement. In 2020, energy and the production of cement was approximately $930 million. With regards to kiln fuel, alternative fuels are almost 30% of our fuel mix and growing, and almost half of that is with biomass content. This is important not only because they have a lower CO2 footprint, but also on a per-calorie basis they represent a fraction of what fossil fuels cost. In addition, they have different price drivers than fossil fuels. And in some geographies, alternative fuels are no longer a cost but have been converted into a revenue stream. For example, in Europe, three of our major markets have negative cost of alternative fuels, an excellent example of how the cement industry can contribute to a circular economy with the right public policy incentives. Our CO2 roadmap has a target of 50% of alternative fuels usage by 2030 and progress on this goal should help us further reduce our carbon footprint and fuel cost as well as dampening price volatility. Now moving to electricity. Approximately 30% of our needs are sourced from clean power, which is less volatile than electricity generated from fossil fuels. In total for 2021, in terms of price exposure, approximately half of our energy consumption has been fixed for periods ranging from six months to 20 years. As you can see in the line graph, despite sharp volatility in primary fuels, our energy cost per ton of cement produced has remained fairly stable, growing 12% year-to-date, and we are expecting 14% for the full year. Finally, we also have exposure to energy outside of cement production, specifically diesel, which is used in our transportation activities. Diesel accounts for approximately 2% of total COGS plus OpEx, or $230 million. We typically hedge at least 50% of our total annual diesel needs and that strategy has certainly paid off this year. And now back to you, Fernando.
Fernando Gonzalez, CEO
Thank you, Maher. As you are aware at CEMEX Day, we gave a preliminary estimate of a cost headwind of approximately $100 million due to supply chain, transportation, and inflationary pressures. After closing the third quarter and considering the recent volatility and supply chain disruptions, we believe there could be downside risk to our initial estimates. As a result, we are lowering our 2021 EBITDA guidance to a range of $2.95 billion to $3 billion. This range considers a marginally higher adjustment from what was discussed at CEMEX Day. We expect that pricing increases going forward will offset this input cost inflation, but it will occur with a delay. Given the high capacity utilization in most of our markets, we are confident that we will be able to price through this cost decline. We think this is already happening since in the third quarter, we saw the best percentage price growth in cement since 2016. Importantly, we are not making changes to our expectations of sales growth. Our regional volume guidance, which is available in the appendix of the presentation, remains unchanged. We have adjusted our guidance for energy costs in the production of cement to 14% growth versus our prior 12% estimate. Due largely to supply chain disruptions, we are lowering our total CapEx guidance by $100 million. Finally, for working capital, we are expecting an investment of approximately $200 million for the year. The economic outlook for our footprint is favorable. In ready-mix and clinker business, most of our markets are operating at sustainable mid-cycle levels, while others are entering an upcycle after years of decline. While we expect volume growth will be more muted due to more difficult prior year comps, we continue to expect growth driven by pandemic reopening and fiscal and monetary stimulus. Supply-demand dynamics across the portfolio are tight and should be supportive of prices. With our production and logistics network, we are uniquely positioned to deliver on these growth opportunities. Energy will remain a headwind for the foreseeable future, but we believe our energy diversification strategy and pricing will provide a counterbalance. We will remain vigilant on costs and there is more visibility on supply chain resolution. Our investment focus remains on our bolt-on investment portfolio, and we believe there are ample opportunities for us over the next two to three years to support EBITDA growth in 2022 and beyond. And finally, we will continue to advance on our climate action goals, not only because it creates value for stakeholders, but because it is the right thing to do for future generations. And now back to you, Lucy.
Lucy Rodriguez, Executive Vice President of Investor Relations
Before we go into our Q&A session, I would like to remind you that any forward-looking statements we make today are based on our current knowledge of the markets in which we operate and could change in the future due to a variety of factors beyond our control. In addition, unless the context indicates otherwise, all references to pricing initiatives, price increases or decreases refer to prices for our products. And now, we will be happy to take your questions.
Operator, Operator
In the interest of time and to give others a chance to participate, we kindly request that you limit yourself to one question. The first question comes from Adrian Huerta from JP Morgan. Adrian, please go ahead.
Adrian Huerta, Analyst
Thank you, Lucy. Hi, Fernando and Maher. I want to talk about this year's guidance and next year's expectations. So number one, based on the new EBITDA guidance that you provided, the implied fourth quarter EBITDA seems to be with a growth of around 10% to 18% year-on-year, which is much better than third quarter's growth of plus 2%. What will be different in the fourth quarter versus the third quarter? And what gives you confidence on this implied EBITDA for the fourth quarter with energy costs and imports likely not changing much versus the third quarter? That's number one. And then, number two is, there is very good momentum on prices. And so far cement prices are up 4% in local currency year-over-year in the first nine months, stronger in the last quarter, aggregates and ready-mix 1% and 2%. Should we expect stronger pricing next year, given the comments that you have mentioned? Should we expect a couple of percentage points more? And if that will be more than enough to offset the higher energy cost pressure that we will see next year?
Fernando Gonzalez, CEO
Thanks, Adrian. Let me start with the first question about the fourth quarter EBITDA growth. I would like to refer mainly to two variables. The first one is the inertia of our adjusted pricing strategy, and the second one is the low level of maintenance we are going to be having during the fourth quarter. Since last year, and originated by the pandemic, our maintenance has been changing its timing because of initially some plants slowing down or even shutting down and now the plants are almost running at full capacity. So we have some adjustments in maintenance, but we do expect lower maintenance during the last quarter. Now, let me refer to the inertia of our adjusted pricing strategy, because it is impacting already, and it will impact even more during the fourth quarter. And it will set expectations on pricing for next year. So I tried to briefly describe the process. We all know what happened. There were some signs of inflation during the year, but nothing as clear and as high as we know nowadays. We started feeling the impact of the input cost inflation and started reacting during the second quarter. Now, you can hardly react immediately to this phenomenon. We have seen it in the past, and it takes some time for us to react, to announce, to adjust, and for customers to assess and for the whole market to move forward with a different pricing strategy. So when I say this is a process that is moving, it is indeed progressing well, and there will be some additional inertia for the fourth quarter. Let me refer to the fact that our prices, if we measure them comparing December 2020 to September 2021, have increased 15% in EMEA, 9% in Mexico, and 7% in the US. So that will continue happening in the fourth quarter, and we do believe we will be well-prepared with our pricing strategy for next year. We can say that this year we were acting in the second quarter and effectively already by the summer. But next year it will start from January 1. So the impact of our pricing strategy will be much larger than what it was this year.
Adrian Huerta, Analyst
Yes, I think that's included. I wanted to follow up on your mention of lower levels of maintenance. Could you provide some specifics on how that will compare between the fourth quarter and what we observed in the third quarter?
Maher Al-Haffar, CFO
Yes, yes, Fernando, I cannot comment on that. Adrian, one thing I wanted to add which is on the maintenance topic is that, remember that third quarter last year we were in kind of a virtual lockdown. I mean, maintenance was relatively low compared to third quarter of this year. So I think that when you're looking at the sequential third quarter to fourth quarter, you have to consider that we increased scope of maintenance quite significantly in the third quarter. And going into the fourth quarter, I mean, we have an estimate mid-teens to low 20 difference between the third quarter and fourth quarter in terms of maintenance differential. So that in itself is a big item. The other thing I wanted to mention also complementing what Fernando said on the supply chain side, again we need to take a look at what happened in the third quarter. We had a particular spike in imports and purchases in one of our biggest markets, which is the US, and we think that will be managed better, I would say, without the surprise that we had in the second quarter. You have the ramp-up of CPN and other imports coming from Mexico, which should also help. So you have the pricing, you have the cost effect, you have the supply chain effects, and then the maintenance effect. That's what gives us the comfort that we should have sufficient sequential growth to get us to the full-year range that Fernando guided to.
Adrian Huerta, Analyst
Thank you, Fernando and Maher.
Lucy Rodriguez, Executive Vice President of Investor Relations
Thank you. And the next question comes from Francisco Chavez from BBVA. Chavez, please go ahead.
Francisco Chávez, Analyst
Hi, thanks for the call, Fernando, Maher, and Lucy. My question is regarding the drop in EBITDA margins. Besides the increase in cement prices, do you have any specific strategy to offset this margin erosion, specifically cost savings plans, or maybe can we expect bolt-on investments to offset this margin erosion? Thank you.
Fernando Gonzalez, CEO
Sure. Let me start with a few comments and perhaps either Maher or Lucy can complement. I think there is not a simple solution to deal with the levels of inflation we've seen in the last few months. But I would like to refer to three issues. The most relevant one is our pricing strategy. That, of course, is the best response for higher levels of inflation. As I commented in the previous question to Adrian, we have already adjusted since we started every meeting during the second quarter to adjust our prices according to our inflation expectations for the rest of the year. And as I said, we have managed to increase two to four times prices depending on market conditions and practices. I think as of September, when comparing point to point, our price increases have shown extraordinary growth compared to previous years. And we do believe they will continue to be extraordinary in terms of higher increases to cope with higher inflation. That's the first comment. Then there are other issues related to cost reductions. I'm not going to make full disclosure on this, but let me refer to two of them. The first one is an increase in the use of alternative fuels; you know alternative fuels, in our case, using basically RDF, is a fuel coming from waste with high content of biomass. Those fuels do not correlate to the price of oil, coal, or petcoke. So, when we see these high prices in petcoke and others, alternative fuels tend to be much more attractive. We continue increasing the level of alternative fuels. We are just finishing the last investment in our Rugby plant in the UK. So, you can expect some savings in Africa. Maher already mentioned that in the case of Europe, in some countries, not all of them, but this is a trend moving forward. When achieving levels of about 9% alternative fuels, our highest production cost fuel turns into the income statement. So, next year we will have some positive impact because of these issues. Another one is the progress we are making in our digitization strategy, and in this case, I'm not referring to the customer-facing digital strategy, I am referring to what we call 'Working Smarter', which is about digitizing all internal, administrative processes that we initiated this year and we will start having full impact next year. The other thing that I would like to comment on, which is the most important variable, is the adjusted pricing strategy, and the comments I made on the cost part. I would also like to call attention to the fact that there are relevant reductions in margins that are caused by mix effects, and not necessarily because of inflation. In the case of our cement plants, they are sold out, and any additional volume that we need in order to serve the market, a market that is growing, is coming from imports. And cement imports do have a much lower margin than cement we produce and sell in the US. So, we have materially increased volumes in the US by increasing our import business, which is having around three percentage points of impact on margin, and that has nothing to do with inflation. This is just this business of imports with lower margins increasing much more than the production we have in the US. A similar story in Mexico. As we have been describing during the year, the first segment in the case of Mexico and other countries in emerging markets to act after lockdowns was the bagged cement segment. What we've seen already after the big shape recovery we saw in the second quarter last year is that bagged cement increased very rapidly, while segments related to the formal economy in Mexico saw moderate recovery, which has continued. Nowadays in Mexico, we have a much larger proportion of the segments related to the formal economy, namely ready-mix, bulk cement, and aggregates. This increase in these segments has impacted our margins by about 1.5 percentage points again because of mix, not because of inflation. So, the most important part is an adjusted pricing strategy, continuing efforts to reduce costs and expenses, as well as clarifying on margins because of the different segments of our business accommodating to the way that the coronavirus recovery has been happening in different markets. A final comment is the impact on our growth strategy that supply chain constraints have. Definitely, our projects, which are mostly bolt-on investments, meaning they are greenfield or brownfield type of investments, have seen delays due to not receiving timely equipment, permits, and all things that have been slowed down because of these supply chain constraints. We have adjusted our expectations because of that. So, we are paying more attention and trying to position and acquire purchase orders to gain some losses and to perform on those projects as far as possible. That's what I can comment on your question.
Francisco Chávez, Analyst
Thanks so much.
Lucy Rodriguez, Executive Vice President of Investor Relations
And the next question comes from Nik Lippmann from Morgan Stanley. Nik, please go ahead.
Nik Lippmann, Analyst
Thank you very much. Thanks for the call and for taking my question. I was wondering, just changing a little bit to South America and asking perhaps a similar question. You had very positive language regarding pricing in the Caribbean-Colombian market. When can you provide some color on when you think that we will see that materialize? Will we see pricing into 2022, based on the dynamics you're seeing in those particular markets? Thanks a lot.
Fernando Gonzalez, CEO
Well, thanks, Nik. I think the process and the strategy itself is very similar to the one that I have described. Each country and each market is different. What we have seen clearly is that this adjusted pricing strategy has been taken by the market, for instance, in the case of the US and Mexico. In the case of certain countries, because of capacity not being fully utilized, the strategies to cope with input cost inflation are not as effective as others. Therefore, in South America, there might be a couple of markets. One example is Panama. There is still capacity not fully utilized. So, we might have some issues in that type of market in South America.
Lucy Rodriguez, Executive Vice President of Investor Relations
And maybe if I could just add one point that I think is important to just highlight for the quarter. In SCAC, a very important market is Jamaica, particularly in the Caribbean. Jamaica was under a very strict lockdown because of the emergence of COVID again in the third quarter, which affected volumes tremendously, as well as we had significant maintenance there. So, I think when you look at pricing performance of SCAC for the quarter, it is impacted by that from a mix effect. Just to keep that in mind.
Nik Lippmann, Analyst
Got it. Thanks a lot.
Lucy Rodriguez, Executive Vice President of Investor Relations
And the next question comes from Carlos Peyrelongue from Bank of America. Carlos?
Carlos Peyrelongue, Analyst
Thank you, Lucy. Thanks for taking my question. The question is also related to pricing. You mentioned that the new strategy will be to increase pricing at least twice a year. I wanted to ask if this applies also to SCAC and EMEA, if they are going to also be following this strategy of at least two increases a year. And besides the increases you mentioned in Florida, California, and Mexico, have you announced any other price increases for next year or for the remainder of the year in the other regions?
Fernando Gonzalez, CEO
Let me start with the first question, and I’ll pass the other one to Maher and to Lucy, just to clarify, Carlos. We do know we have a general new strategy on pricing. Well, it's really not new. The basis of the strategy we always have, which is at least recovering input cost inflation. The thing is that inflation has increased dramatically. So the adjustment is how to cope with these levels of inflation as fast as possible. But we do not have a global type of pricing strategy. It is a global intent, but the specific pricing strategy has to be accommodated in each and every market and the conditions in the market. So just to clarify that, I did mention that this year we have been increasing in some markets; we have been increasing price twice a year, while in some other markets, we have increased sometimes already. The pricing strategy of two times and perhaps three times a year is more related to developed markets like Europe and the US, while the three times, four times per year is more related to bag cement in emerging markets. This is because of the characteristics of each market and business. Regardless of the number of times we adjust, I remember with very high inflation long time ago, there were monthly price increases or weekly price increases. What we are doing is to at least recover input cost inflation. Next year we will try to recover whatever inflation happens in 2022 and whatever we have lost in 2021. We started second quarter of this year but next year it will start from January 1. The prices that we have announced are already considering much higher levels of inflation, and the frequency of those increments will also be different during next year. So that's what I have to say. I don't know, Maher, can you comment on the second part?
Maher Al-Haffar, CFO
Yes. And Carlos, could you repeat the second piece? I mean, because I feel that Fernando maybe covered it. What was the second part of your question?
Carlos Peyrelongue, Analyst
The second part, Maher, was whether they have already announced price increases in other regions apart from Mexico, California, and Florida that Fernando mentioned.
Maher Al-Haffar, CFO
Yes, of course. It's challenging to discuss Europe, but we had announcements in July and additional announcements planned for later this year in Spain. At the start of the year and in October, there were also price increases in Poland, with further announcements in April and September. In Colombia, we had two price increases, one in January and another in May. In the Philippines, despite a tough market, there was an announcement in August. Overall, we have seen multiple price increases across our portfolio. As Fernando mentioned earlier in his Q&A, we anticipate more timely pricing increases moving into 2022 compared to this year. The acceleration of pricing on a sequential basis is very significant. The year-over-year pricing in our market is crucial; we had a 15% increase in EMEA largely due to pricing actions in Europe from December to September, while Mexico saw a 9% increase and the US a 7% increase. These changes occurred primarily from mid-year into the third quarter. We expect better pricing acceleration in the fourth quarter and into next year. With several markets sold out, the conditions for traction should improve.
Carlos Peyrelongue, Analyst
Understood. Thank you.
Fernando Gonzalez, CEO
Thank you very much, Carlos.
Lucy Rodriguez, Executive Vice President of Investor Relations
And the next question comes from Barbara Halberstadt from JPMorgan Fixed Income.
Barbara Halberstadt, Analyst
My question is on the cost increases being particularly in the US and Europe. How persistent do you think these pressures are? Also, how do you see these inflationary pressures in Mexico and SCAC, which seem to have been more contained this quarter? I think we've talked a little bit about the last point, but maybe how persistent do you think these pressures are in the US and Europe?
Fernando Gonzalez, CEO
Well, I think what we can comment is that we are considering as our base case scenario that inflation will continue, that shipping costs are not going to be declining, or not in the very short term. The inflationary causes in oil, natural gas, coal, and petcoke will be maintained, perhaps even going a little bit higher. All in all, I think in our base case scenario, we are assuming that this inflation will be sustained. We all have heard that this inflation is caused because of demand and a supply shock, and it is temporary. Most probably that would be the case. But we are – this is our base case scenario for inflation for the rest of the year and for 2022.
Maher Al-Haffar, CFO
And if I can add Fernando, I think Barbara, the other component here is a good portion, as you saw in the presentation, was the purchase of cement and clinker or the imports of cement and clinker, primarily in the US and to a lesser extent in the UK because we shutdown a plant there. In the US, there was a spike in need for product because we were sold out and the market grew at a fairly high rate. Now, as you know, we are ramping up production in a couple of our plants in Mexico for exports into the US. That is likely to help going into next year. Also, managing better the transportation, contracting transportation, I mean, as Fernando said, we don't expect transportation to go down. But if you're contracting transportation on a very short-term basis, it's likely to be higher than if you were managing it on a longer-term basis. We do expect inflation to be persistent, but we also expect managing the cost going into 2022 in the US and in all of our markets, but particularly in the US where the source of input cost there, because the business is doing very well. I mean, not because of bad reasons.
Lucy Rodriguez, Executive Vice President of Investor Relations
Yes. Okay. Sorry, I seem to be having one of the virtual hazards from working from home. The next question comes from Vanessa Quiroga from Credit Suisse. And I’ll go on mute.
Vanessa Quiroga, Analyst
Thank you. Hi, Fernando, Haffar, and Lucy. My question is regarding the early 2022 guidance that you provided of 10% growth in EBITDA. How comfortable do you see right now with this potential growth? And maybe just quickly, if you could break down the reduction in margin in EBITDA margin for Mexico, how much was it due to less favorable mix, how much higher energy costs, and how much was higher maintenance that would be expected? Thanks.
Fernando Gonzalez, CEO
I will take the first part, and I would like Maher to take the second one. So, Vanessa, we have, as you know, reduced our guidance for this year to $2.50 billion to $2 billion. So that's already a lower base when we gave the guidance of 2022 for 10% growth over the 2021 base. We still feel positive in terms of our markets and volumes continue evolving positively. Using as an example the US and Mexico, although we've seen adjustments to lower GDP growth in general, one percentage point here and there. We have not seen that translated into a lower impact on our activity in our sector in construction. So you know the story very well. In the case of the US, we do see housing still very positive, multi-family booming. A couple of pieces of info, I mean, inventory levels are getting low, which I consider already a condition of scarcity. It is too low. At the same time, they are very positive with low mortgage rates. Therefore, we believe that the housing in the US will continue being very positive. Infrastructure, even without the new infrastructure buildup, of course, is contributing in a moderate manner. In the case of industrial and commercial, it is little by little impacting. That's the part of the economy that is coming back after the heavy impact of COVID-19 on the economy. Same thing for Mexico. In Mexico, housing permits have increased by more than 60%, and public works are currently executed at a high speed. Therefore, we feel that top-of-the-line volumes are doing okay. We have not changed our view in that regard. When commenting on the top of the line, which are prices, I think I have already described that we have adjusted our pricing strategy significantly to cope with inflation; but we didn't manage to recover fully in 2021 plus inflation we are expecting in 2022. I already said that our base case scenario is that we believe inflation will be sustained in the coming year. I already mentioned a few positive issues on cost reductions as part of our strategy.
Maher Al-Haffar, CFO
And Vanessa, on the margin, a couple of things were happening in Mexico. Of course, it did drop by 80 basis points. The product mix was about 1.5 percentage points of that, primarily due to moderation in cement volumes versus very healthy growth in ready-mix volumes and in aggregates volumes. That's the product mix effect taking place, while on a full-year basis, cement volumes continue to outstrip the growth that we're seeing in ready-mix and to a lesser extent in the case of aggregates. We also had higher wages and salaries in the quarter. That's primarily because of maintenance costs and inflation as well in terms of salaries, and energy was of course a significant contributor. This had a negative impact of almost three percentage points due to a substantial spike in petcoke prices, almost 150% on a year-over-year basis. Now, of course, all of that is being offset by very good pricing actions, which led to almost 4.5 percentage points offsetting some of these drops. And another component also that was growing tremendously is urbanization solutions, which also have lower margins but good return on capital. That contributes a little bit to the product mix as well. I hope that covers the question you had on that.
Lucy Rodriguez, Executive Vice President of Investor Relations
If I could just add one point on that. On the higher wages, Vanessa, a lot of that is related to the outsourcing law in Mexico that took place. So just to be clear, okay?
Vanessa Quiroga, Analyst
That's it. Thank you very much.
Lucy Rodriguez, Executive Vice President of Investor Relations
Thank you, Vanessa. The next question comes from Francisco Suarez from Scotiabank.
Francisco Suarez, Analyst
How far, Fernando, can you go to increase your fossil fuel substitution rate in the short-term to mitigate the rise in energy cost, and in which region? It is my understanding that at very high rates of capacity utilization, you can't add more alternative fuels unless you add hydrogen.
Fernando Gonzalez, CEO
Sure. Thanks for that question, Francisco. You may know our substitution of primary fuels with alternative fuels, primarily using RDF, has been evolving over time. We started decisively to move forward with these types of fuels over 15 years ago, and we have managed to get to almost 30% substitution. We have a target of almost doubling that amount by 2030. We continue this process. I have already mentioned a couple of times this specific project that we are completing next month, which will contribute to an increase in alternative fuels. We also continue this investment everywhere. There are material differences in alternative fuel solutions in different countries, especially in emerging markets, but there are solutions. In Mexico, we are using about 25% of our fuels as alternative fuels. The US uses about 20% or slightly more. What you can expect is that we will continue these efforts. Now, the observation you are making about higher capacity utilization affecting alternative fuels is accurate, and we have proactively incorporated hydrogen equipment in all our cement plants in Europe. We do not want to slow down our alternative fuel strategy due to a lack of capacity. Therefore, we are using hydrogen injection and oxygen injection to ensure that we can continue with our alternative fuel strategy while also meeting market demands. So far, we have not needed to adjust for any additional inputs but have effectively managed to keep our capacities in other plants with these two solutions.
Lucy Rodriguez, Executive Vice President of Investor Relations
Great. Thank you very much, and unfortunately, we only have time for one more question. Anne Milne from Bank of America Fixed Income. Please go ahead.
Anne Milne, Analyst
Thank you. Good morning, Fernando, Maher, Lucy. Thank you for the call as well.
Maher Al-Haffar, CFO
Good morning.
Anne Milne, Analyst
Interesting and challenging time. I want to ask, I guess Maher would be the best one to answer this question about the some of the news on the debt front that you have. So you've released the collateral that was backing the financing agreements. For those of us who've followed you for a while, that's been in place for a long time. So that's a big deal. I think you mentioned, Maher, that you've simplified the guarantees. So I was wondering if you could tell us what the simplified guarantees would be? And just to confirm, is it still the same that when you reach investment grade those guarantees might fall away as well? I just want to see what on this new financing that you're negotiating regarding your new margins and your sustainability framework. How much do you think will be outstanding initially because I believe the current amount under your bank facilities is less than the $3.25 billion, which you are agreeing to right now? So if you have any information on that, that would be helpful. Thank you very much.
Maher Al-Haffar, CFO
Sure, Anne. Thank you for your question. Just for everybody to know, under the previous facilities agreement we have about nine guarantors and we're simplifying it to four guarantors. Two of the new guarantors are CEMEX operations in Mexico and CEMEX Innovation Holdings. For those of you who are interested in the details of the corporate structure, you can get that on our Investor Relations website. There's a very thorough org chart that shows all of the guarantors there. We are simplifying it; we're moving from nine to four and we're offering two new guarantors that are higher levels than CEMEX Spain. In terms of pricing, as we said, it's going to be about a quarter percentage point tighter on average than the current facility. With the added benefit also, we anticipate that the facility will be 100% in dollars. We will swap half of the dollar amounts into euros to take advantage of the negative LIBOR, which currently exists at around negative 56 to 57 basis points. This effectively brings the overall weighted average cost even lower due to this ability, which we did not have under the previous agreement. In terms of the sustainability piece, this facility will represent the first time we do financing under our sustainability framework. As you know, the framework has three elements: CO2 emissions, clean power, and alternative fuels in our cement operations. There's a two basis points up or down spread on the first metric and then there's 1.5 basis points each on the other two metrics, again up or down. These metrics are very consistent with other high non-investment-grade companies that have come to the market recently. I mean, we're right within that level. And I forget, is there anything that I did not cover in your question?
Anne Milne, Analyst
Just the amount that you will initially have outstanding under the new facility, that's all?
Maher Al-Haffar, CFO
Yes, of course. So the old facility was $3.1 billion and we had $2 billion, and right literally in the last month or so, we did a small prepayment on that. So out of the box, next week when we close the transaction, we will have outstanding under the facility $1.5 billion under the term loan, and we will have the full availability without any utilization under the committed revolving credit facility, which will be for $1.75 billion. So it will be $1.5 billion outstanding under the term loan, and that's it.
Anne Milne, Analyst
Okay, great. Thank you very much. Good luck with that and congratulations.
Maher Al-Haffar, CFO
Thank you very much, Anne, for your questions.
Lucy Rodriguez, Executive Vice President of Investor Relations
We appreciate you joining us today for our third quarter webcast and conference call. If you have any additional questions, please feel free to reach out to Investor Relations, and we look forward to seeing you again on our fourth quarter results. Many thanks.
Operator, Operator
Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.