Earnings Call Transcript - CX Q4 2024

Operator, Operator

Good morning. Welcome to the CEMEX Fourth Quarter 2024 Conference Call and Webcast. My name is Charlie and I will be your operator today. At this time, all participants are in a listen-only mode. We will have a question-and-answer session later. Now I will turn the conference over to Lucy Rodriguez, Chief Communications Officer. Please proceed.

Lucy Rodriguez, Chief Communications Officer

Good morning. Thank you for joining us today for our fourth quarter 2024 conference call and webcast. We hope this call finds you well. I am joined today by Fernando Gonzalez, our CEO; and Maher Al-Haffar, our CFO. As always, we will spend a few minutes reviewing the business and outlook for 2025, and then we will be happy to take your questions. As you know, in connection with the announced asset sales in 2024, we closed the sale of our Guatemala and Philippines operations as well as the remaining minority stake in New York. Our Dominican Republic operations remained accounted for as discontinued operations as of the end of 2024. This divestment was closed last week on January 30. Our reported results assume the sale of these operations for the full year and year-over-year like-to-like variations are for the current footprint. And now I will hand it over to Fernando.

Fernando Gonzalez, CEO

Thanks, Lucy, and good day to everyone. I'm very pleased with our achievements in 2024, which represents a significant year in the corporate transformation we envisioned in 2020. Setting the backdrop early in the year, we achieved our long-running goal of recovering our investment-grade rating. While we remain committed to additional credit improvements in the near term, this achievement provides a runway to more aggressively pursue our growth strategy and lay the foundation for a sustainable shareholder return program. Our leverage ratio stood at 1.8 times, its lowest level since the outbreak of the global financial crisis. With the restoration of our financial health and several years of progress on our growth strategy, we took the first step on a shareholder return policy with the announcement of a progressive dividend program in March 2024. We expect to expand this in the future years with opportunistic use of our $500 million share buyback program. Through the execution of $2.2 billion in announced divestitures in 2024, we significantly rebalanced our portfolio towards developed markets with more consistent and attractive growth potential. Approximately 90% of our EBITDA is now generated in the U.S., Europe, and Mexico. Divestment proceeds will free up additional resources for future organic growth opportunities and small- to medium-sized acquisitions focused primarily on the U.S. in urbanization solutions and aggregates. As we move towards introducing inorganic growth to the portfolio, we expect to gradually reduce our strategic CapEx spending. Net income for the year reached $939 million, a record level in recent history. On CO2 reduction, we continue making progress on profitable decarbonization, reducing our Scope 1 and Scope 2 CO2 emissions by 15% and by about 17%, respectively, compared to 2020. In addition, as we look towards developing the new technology necessary to decarbonize beyond 2030, CEMEX-led consumption was selected to receive EUR157 million of EU innovation funding for carbon capture at Rudersdorf, which is expected to become CEMEX's first net zero plant. We are optimistic about the future. In the last three years, we have undergone a cyclical downturn in demand in several of our key markets, most notably in the U.S. and Europe. While we have been able to more than offset this decline with pricing, cost efficiencies, and growth investments, this is an opportunity for the future as demand returns to these markets. We expect volumes to begin recovering in the U.S. and Europe this year, with sustained demand growth over the medium term. While we are confident on the medium-term fundamentals in Mexico, we have limited visibility on 2025 outlook with a difficult comparable base, FX headwinds, and new administration setting into office in Mexico and the United States. In this environment, we are focusing on the variables we can control. While we have achieved a significant improvement in our consolidated profitability metrics, reaching higher operating efficiency levels, EBITDA margins, and free cash flow generation, there is more to be done. We are launching our project cutting edge, which encompasses a three-year $350 million cost program anticipated to deliver EBITDA savings of $150 million in 2025. Maher will elaborate on this initiative. After an exceptional year in 2023, we delivered strong results in 2024. In fact, last year, we posted the second strongest sales and EBITDA. We also achieved the highest free cash flow after maintenance CapEx since 2017. Adjusting for the extraordinary payment of the Spanish tax line, as you know, the guidance we provided at the beginning of each year is based on prevailing FX rates. Adjusting for significant FX volatility experienced during the year, we achieved our initial guidance of low to mid-single-digit EBITDA growth for 2024. In a muted volume environment, we focused our attention on costs as well as optimizing production with increases in operating efficiency in key markets. As a result of these efforts, consolidated EBITDA was relatively stable in 2024 and grew by 3% in the fourth quarter. EBITDA margin was also resilient and grew in the fourth quarter, driven by positive price/cost dynamics across all regions. Free cash flow benefited from an impressive turnaround in working capital. Maher will provide additional details on our working capital efforts. Consolidated prices increased by 3% in cement and ready-mix and by 2% in aggregate during 2024, reflecting higher price levels in most markets. While pricing gains have moderated compared to recent years, they more than offset cost inflation despite an adverse demand environment. Inflation in our products decelerated in 2024 to a low single-digit percentage. Going forward, our pricing strategy remains unchanged, aiming to more than recover cost inflation in our markets. In 2024, volumes were stable to lower in all regions. Importantly, volume decline has moderated sequentially in the fourth quarter in literally all regions. EMEA continued its second half recovery trend with high single-digit growth in cement and aggregates in Europe, while the Middle East and Africa reported double-digit growth in ready-mix and aggregates in the fourth quarter. In the U.S., weather continued to impact volumes in the fourth quarter, largely due to the devastation caused by Hurricane Milton in October in Florida. In 2024, Mexico posted relatively stable volumes as pre-election demand dynamics were offset by slower construction activity in the second half. During the year, we saw strong price-cost dynamics, with pricing contribution to EBITDA more than compensating for decelerating input cost inflation. This positive effect was offset by lower volumes and adverse FX dynamics, resulting in a flat performance and stable margin. Importantly, in the fourth quarter, volume impact to consolidated EBITDA moderated as volumes stabilized. Growth investments continued to support EBITDA performance. On the cost side, we benefited from a 13% decline in energy costs, mainly driven by lower fuel prices. During the quarter, this favorable energy environment continued driving higher EBITDA and margins. We expect both pricing dynamics and energy costs to remain a tailwind into 2025. However, we expect FX rates to be a headwind, mainly in our operations in Mexico and to a lesser extent, in Europe, particularly in the first half of the year. Importantly, our FX hedging strategy mitigates the impact of a strong dollar and protects our leverage ratio. EBITDA in our urbanization solutions increased 4% in 2024 with margin expanding by 1.1 percentage points. Positive performance is mainly driven by growth in higher-margin businesses, such as construction and demolition waste recycling, motors, and admixtures. Since 2019, EBITDA in these three segments has grown at double-digit rates. Our urbanization solutions portfolio addresses the changing landscape of the construction industry, focusing on sustainability and climate resiliency solutions. On fusing action, our successful decarbonization efforts in 2024 continue to rely on existing profitable technology as we look to abate before relying on carbon capture technology. We have reduced our Scope 1 and Scope 2 CO2 emissions by 15% and by about 17%, respectively, compared to 2020, a reduction that historically would have taken us 16 years to achieve. Based on our progress, we are well on our way to reach our 2025 and 2030 SBTI verified CO2 emission targets. In this decade to deliver, we continue innovating around carbon capture and other technologies to drive decarbonization beyond 2030. As mentioned earlier, a CEMEX-led consortium was selected to receive EU innovation funding for carbon capture, which is expected to become our first net zero plant. More recently, our Knoxville cement plant was awarded funding from the U.S. Department of Energy to develop a pioneering carbon capture removal and conversion test center. These awards are a recognition of our commitment to advancing decarbonization solutions in our industry. Finally, we are very pleased with the adoption of our lower-carbon family of products, Vertua. In 2024, we increased the adoption rate by 7 percentage points of Vertua cement and ready-mix. We have already surpassed our 2025 adoption target of 50%, with more than 63% of cement volumes and 55% of ready-mix volumes having Vertua attributes. Over the last four years, consolidated EBITDA has shown solid growth with a 9% annual growth rate driven not only by our organic performance but also by our growth strategy. Close to 50% of our $3.1 billion growth investment pipeline has come online, contributing $344 million in EBITDA in 2024. These projects are delivering average internal rates of return of 35% or an EBITDA multiple of about 4 times. These projects offered important synergies with our existing portfolio and customers in our key markets. We expect this pipeline to contribute approximately $700 million in EBITDA by 2028, with close to 50% coming from investments in the U.S. As we continue developing the strategy and relying more on small- to medium-sized acquisitions, we expect overall return metrics to be somewhat tighter. And now back to you, Lucy.

Lucy Rodriguez, Chief Communications Officer

Thank you, Fernando. In our operations in Mexico, despite a challenging volume backdrop in the second half, EBITDA for the full year increased by 3%, with margin improvement of almost 1 percentage point. EBITDA declined in the fourth quarter due to a tough prior year comparison base where we posted the highest fourth quarter EBITDA on record. Mexican demand had two speeds in 2024, with cement volumes growing 6% in the first half and declining 7% in the second half post-election. In the fourth quarter, we continued to see volume deceleration aligned to third quarter behavior in cement and continued outperformance in ready-mix. Ready-mix volumes remain supported by the formal sector in the Northeast and Central regions. Depreciation of the Mexican peso resulted in an EBITDA effect of $48 million in the quarter and $52 million in full year results. As Fernando explained, our dynamic FX hedging strategy is paying off, mitigating impact on our leverage ratio. In January, we announced price increases of approximately 15% in cement and 12% in ready-mix to offset rising input cost inflation. While we are optimistic on medium-term growth prospects, we expect in 2025 to see the typical decline in public construction spending of the first year of a new government. The infrastructure sector continues to face a difficult year-over-year comparison due to unusually high project execution pre-election. While the 2025 federal budget contemplates new projects such as rail and port renovations, highway and rural road construction, it will take time to ramp up the spending. We continue to see ongoing projects at the state level, however, such as the San Miguel de Allende – Dolores Highway, the Metro, and Monterrey in Los Mochis Airport, to name a few. While the industrial sector demand continued to grow in the fourth quarter, our ready-mix order book did experience some disruption late last year. We believe this sector will resume its growth once there is more clarity around U.S.-Mexico trade policy. After many years of a subdued formal housing sector, we expect growth driven by the recently announced national housing program, where the government is targeting 125,000 homes to be built in 2025. This will, of course, take time, but we are encouraged by the fact that some potential projects are already under discussion. The combination of high remittances, high employment levels, increased wages, and lower inflation should support the self-construction sector going forward. Similar to 2024, we expect this year will be a story of two distinct halves. The year-over-year volume comparison and FX rate differential create headwinds in the first half, with more favorable performance expected in the back half. In 2024, our operations in the U.S. were affected by extreme weather events, with four major hurricanes and a deep freeze in Texas. We estimate these events were responsible for an EBITDA impact of approximately $38 million. Adjusting for these weather events, EBITDA would have increased 3% for the whole year. The most significant event occurred in October with Hurricane Milton in Florida, our largest market with an estimated impact of $17 million in the fourth quarter. Largely due to the hurricane, cement and ready-mix volumes declined 3% in the fourth quarter, while aggregates declined 7%. On a sequential basis, while cement and ready-mix prices remained stable in the fourth quarter, aggregate prices increased by 2%. Importantly, even with lower volumes, full year EBITDA was stable, while margins expanded due to cost optimization efforts, lower fuel prices, and imports. Investment in maintenance over the last few years is paying off with higher operational efficiency, allowing us to substitute more profitable domestic production or imports. For 2025, we expect demand to be driven by infrastructure as transportation projects under the Infrastructure Investment and Jobs Act continue to roll out. Peak spending years for IIJA are expected to be 2025 and 2026. Indeed, the new high reached in December construction start data backs up this projection. While mortgage rates have remained at high levels, we believe that the more cement-intensive single-family housing starts bottomed out in the third quarter of 2024. While there is substantial upside in housing over the medium term, we expect residential to stabilize at current levels in 2025. The industrial sector should continue to benefit from large investments in our states as manufacturing projects roll out. Additionally, we expect significant demand from the construction of AI and powered data centers in our key states, which have been the primary recipient of such investment to date. We see further upside going forward from Microsoft's $40 billion spending program in the U.S. in 2025, as well as the $500 billion Stargate program recently announced by the Trump administration. In 2025, we expect volumes, pricing, and continued optimization efforts to drive results. Over the medium term, we continue to believe the U.S. offers the best risk-weighted returns. Our investment focus remains on the U.S., where we intend to expand our aggregates business, which already accounts for 35% of U.S. EBITDA and further develop our urbanization solutions portfolio. We are pleased with our results in EMEA, where we are seeing continued improvement in our European operations. In the fourth quarter, EBITDA grew by an impressive 43%, while margin expanded by 3.6 percentage points. EBITDA growth and margin improvement were driven by volumes, operational leverage as well as a one-off adjustment in our UK operation. Europe's EBITDA increased by 30%, marking the second consecutive quarter of growth, with all countries in Europe showing year-over-year cement volume growth. We continue to see Eastern Europe benefiting from EU-funded infrastructure spending, while Western Europe shows signs of recovery against an easier comparison base. Prices for our three core products for the full year more than offset decelerating cost inflation, particularly in energy. On climate action, with a 5% reduction in CO2 emissions in 2024, CEMEX Europe continues delivering record levels of decarbonization. Our region is very close to reaching both the European Cement Association and CEMEX's consolidated 2030 CO2 emissions targets. Finally, in the Middle East and Africa, EBITDA improved due to better pricing dynamics in Egypt and increased construction activity in Israel. For 2025, we expect continued EMEA volume recovery driven by Europe's improved construction activity with a low single-digit increase for cement and ready mix and stable volumes in aggregates. Our operations in South Central America and the Caribbean once again delivered positive results in 2024 amidst a challenging demand backdrop, with growth in EBITDA led by positive pricing dynamics. Cement and ready-mix prices grew 4% and 11%, respectively, offsetting cost pressures and leading to a stable EBITDA margin. The formal sector continues driving demand in the region with large infrastructure projects, such as the Bogota Metro, in which CEMEX has been awarded more than 80% of total volumes and the fourth bridge over the canal in Panama. Our urbanization solutions business is expanding rapidly, posting record EBITDA growth of 36% in 2024 with a margin expansion of 5.3 percentage points. For 2025, we expect a mid-single-digit and low double-digit increase in cement and ready-mix volumes, respectively, as formal construction continues to grow on the back of infrastructure projects. And now I will pass the call to Maher to review our financial developments.

Maher Al-Haffar, CFO

Thank you, Lucy, and good day to everyone. As Fernando mentioned earlier, we are very pleased with delivering strong results on the back of a phenomenal 2023, regaining investment-grade rating and advancing our decarbonization agenda in line with our 2030 goals. Despite volume headwinds, our full year 2024 EBITDA margin showed remarkable resilience and was flat to last year at 19%. This performance was supported by our pricing strategy, which outpaced inflation in our business as well as cost containment and business optimization efforts. 2024 free cash flow after maintenance CapEx adjusted for the payment of the Spanish tax line was slightly higher than the prior year, driven by a $215 million divestment in working capital. This improvement is the result of targeted management actions to increase the efficiency of our assets across the organization. On the cost side, fuel costs on a per ton of cement basis have declined by 23% and were driven by lower fuel prices, the increased use of lower-cost and lower-carbon fuels, and our continued reduction in clinker factor. For 2025, we have closed hedges for almost 70% of our annual spend related to electricity, diesel, freight, pet coke, and natural gas. Net income for 2024 was $939 million, driven primarily by a lower effective tax rate and the gain from the sale of operations in Guatemala and our minority stake in the ores. Given the volatility in the Mexican peso, I would like to highlight our ongoing Mexican peso hedging strategy, fully covering our operating cash flow from our operations. That effectively lowers the volatility of the exchange rate at which we convert pesos into dollars for tenors of up to two years. The benefit of this strategy in our consolidated net debt reached $215 million in 2024, including conversion gains on vessel-denominated debt. Our leverage ratio stood at 1.81 times in December 2024 due primarily to divestments, FX hedging strategies, and free cash flow. We are pleased to announce the launch of our project cutting edge, a project to capture recurring savings by changing the way we execute key business processes and accelerating efficiencies in our operations. After several years of post-pandemic business normalization and portfolio rebalancing, this project was developed during last year and responds to recent years of high inflation, supply chain disruptions, evolving market dynamics and greater availability and scalability of emerging technologies. As Fernando mentioned, we expect this program to provide recurrent yearly EBITDA savings of $350 million by 2027. In 2025, we expect EBITDA savings of approximately $150 million, with some additional benefits in working capital. Project cutting edge targets several key elements of how we do business, including supply chain, logistics, procurement, operations, and others. We are redesigning, simplifying, and automating many of our current processes and workflows, leveraging artificial intelligence and data analytics. Our supply chain management will be enhanced end-to-end, leading to an improved client and supplier interface and experience. In operations, we will accelerate our progress in optimizing cement and ready-mix networks, enhance skill mix, and continue improving cement efficiency in the U.S., along with other SG&A initiatives. Additionally, project cutting edge contemplates important savings at the free cash flow level for 2025 and onwards. We will update you on the program's progress as we move along in its implementation. And now back to you, Fernando.

Fernando Gonzalez, CEO

We are optimistic about growth in the U.S., EMEA, and South Central America and the Caribbean in 2025. As I explained earlier, visibility for Mexico is currently low, but we believe we face a challenging landscape, both in terms of demand in the first year of a new administration and peso FX rates, particularly in the first half of 2025. After a very volatile year for the peso, assuming December 2024 FX rates, this will imply a depreciation of close to 20% in the first half of 2025. After incorporating $150 million in EBITDA savings from Project Cutting Edge, as well as the peso headwind, we are guiding to flat EBITDA performance for 2025. It is important to note that our guidance assumes a low single-digit EBITDA growth excluding FX impact. We anticipate volume growth in all regions aside from Mexico. Full volume guidance can be found in the appendix. We expect that pricing will continue to more than compensate for decelerating input cost inflation, particularly in energy. On a consolidated basis, we expect continued tailwinds with total energy cost per ton of cement produced declining by a high single-digit rate in 2025. With regards to free cash flow items, Project Cutting Edge incorporates certain efficiencies, which we are reflecting in our 2025 guidance, as well as additional free cash flow savings for future years. For 2025, we are guiding to a reduction in maintenance CapEx, taxes, as well as cash interest expense versus last year. In total, we expect approximately $500 million in savings in free cash flow after maintenance CapEx, representing about a 65% growth versus 2024. I am even more pleased to tell you that now that we have regained our financial footing, we have more opportunities in future years to build on this success. With more cash from operations available as well as proceeds from $2.2 billion in divestments, we have resources to pursue our capital allocation priorities more aggressively. First, on growth. We still have $1.6 billion of accretive projects in the execution stage in our growth pipeline. 2025 is a year where we expect to have the largest spend and we are guiding to $600 million in strategic CapEx this year. You should expect, however, that over the next few years, spending on growth CapEx will cycle down while our small to midsized acquisition strategy ramps up. Asset sale proceeds are intended to be recycled for acquisitions, focusing primarily on the U.S. market. This will take time to identify, win, and execute transactions under our disciplined M&A framework. In the interim, this cash will be used to reduce debt. Additionally, we intend to direct a portion of our operational free cash flow to reduce debt and lower our financial burden to better reflect our improved credit standing. We remain committed to reach our leverage target of 1.5 times in the near term. Finally, cash from operations allows us to increase shareholder return both in terms of delivering on our progressive dividend commitment as well as eventually taking opportunistic use of our share buyback program. And now back to you, Lucy.

Lucy Rodriguez, Chief Communications Officer

Before we start 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 where we operate, and they may change in the future due to various factors beyond our control. Also, unless stated otherwise, all mentions of pricing initiatives, price increases, or decreases refer to our product prices. Now we will be happy to take your questions. To allow others the chance to participate, we kindly ask that you limit yourself to just one question. The first question comes from Ben Theurer from Barclays.

Ben Theurer, Analyst

Good morning, Fernando, Lucy, Maher. First of all, congrats on the strong finish still. So the question I wanted to ask really comes back to what Fernando started to elaborate on as it relates to capital allocation? And maybe help us a little bit in terms of prioritization. Clearly, you have the layout of the $600 million on the strategic CapEx, but there's obviously a lot left over that could go either into what you said the dividends or the potential share buybacks, but also M&A at some point. So as we think about the onset and the opportunities in 2025, where do you think the largest opportunities lie within your capital allocation framework that you've just introduced? And how should we think about the dividend itself from a what does progressive growth mean? So that would be the key question I have. And then if you could give me just a one-time answer on what the one-off was in your UK operations. Thank you.

Maher Al-Haffar, CFO

Thank you for your comments, Ben. I'll start addressing your question, and Fernando can jump in if I overlook anything. The key focus for our future capital allocation is on increasing free cash flow generation. Fernando mentioned our expectation to enhance free cash flow by nearly $500 million this year, which is significant and indicates a major improvement in the conversion of EBITDA to free cash flow. This will be factored into our capital allocation strategy. While I won’t provide guidance beyond 2025, this sets the strategic direction. Additionally, this year is likely to mark our peak for strategic capital expenditures, and moving forward, we will lean more towards smaller and medium-sized M&A activities. These investments should be as beneficial as our previous ones and have an immediate positive impact on our earnings. Currently, we believe that investing in growth is the best way to utilize our cash, with most investments yielding over 30% internal rates of return and payback periods of three to four years. Recently, we've invested nearly $1.5 billion, which is expected to contribute around $350 million to EBITDA this year. This investment has been made at an attractive effective multiple of about 4 times, which is favorable compared to our current market valuation. Our pipeline of investments is substantial, and we anticipate executing a similar amount by 2028, aiming for a total contribution of about $700 million by that time. Our strategy clearly prioritizes growth and M&A investments due to these returns. However, we also see potential for improvement in our interest expenses and leverage, especially when compared to our peers. Our interest expense as a percentage of EBITDA is nearly double that of global competitors, and we aim to reduce it. We will also look to decrease leverage compared to global peers. As we achieve these goals, we will certainly evaluate returning capital to shareholders, whether through dividends or share buybacks. Fernando, would you like to add anything?

Fernando Gonzalez, CEO

Thank you, Ben, for your comments. I want to highlight that over the past few years, we've been refining our strategies and capital allocation. In 2020, we began using a portion of our free cash flow for growth investments in bolt-on businesses that align with our portfolio and offer high synergies and quick paybacks. Although we couldn't pursue all our plans in the first year, we started laying the groundwork. Today, we have an appealing pipeline of such investment opportunities. Additionally, we are enhancing our balance sheet. During our CEMEX Day last year, we indicated a shift toward a more balanced strategy that involves continuing to reduce debt while also initiating a progressive dividend and pursuing these investments. As Maher mentioned, we will maintain our growth capital expenditures and introduce some small to medium-sized acquisitions. Our growth strategy will evolve to include more mergers and acquisitions, with a decrease in the investment level we have focused on in recent years. That’s my clarification.

Lucy Rodriguez, Chief Communications Officer

And Ben, maybe I can take your question on EMEA. We had great results in EMEA in the fourth quarter. We're seeing that European recovery that we were expecting both EMEA EBITDA and European EBITDA was up in the 30% area. Now a portion of that, we did mention was because of a one-off legal case that was resolved during the quarter, a commercial case that contributed about $10 million of the $50 million incremental EBITDA we saw both at the European and EMEA levels, just to give you some sense of magnitude of that. So hopefully, we've answered your questions.

Ben Theurer, Analyst

Very clear. Thank you very much.

Carlos Peyrelongue, Analyst

Thank you, Lucy. Thank you for the call. My question is with respect to pricing. You mentioned some remarks in the call. Just wanted to see if you could provide some more color on your pricing strategy including the U.S. and Europe. In the case of Mexico, you mentioned an increase in the double digits. I don't know if you could comment on how the traction is doing in Mexico would be great as well. Thank you.

Maher Al-Haffar, CFO

Yeah. Carlos, thank you very much for your question. I mean I think our pricing strategy going forward has not changed really from what we have followed in the last three years, frankly. Our pricing strategy has always been to be calibrated to what's happening on our input cost inflation, which is very important. And of course, when input cost inflation was at hyper levels as we saw, and you saw that over the last three years, our cumulative inflation total cost was close to 40%. On the other hand, we were able to implement a very successful pricing strategy in virtually all of our markets exceeding that performance. In the last few months, we have definitely seen a slowdown in our input cost inflation in all of our core businesses. Accordingly, I think the whole market has calibrated pricing increases accordingly. We do anticipate to continue our pricing strategy, comparing price increases to cost increases, to maintain a positive gap between price and cost. We believe that the announcements that have been made in both the U.S. and Mexico are targeted towards that. We are optimistic that we will get those positive increases. I don't know if you're aware, but we've made pricing increases at a national level, both in Mexico and in the U.S. In the U.S., it's a mid-single-digit increase. In Mexico, it's a double-digit increase across all sectors, both in bulk and bags. We're cautiously optimistic about those pricing increases because I don't think anyone in any of our businesses has a sustainable lower cost curve that could behave differently than we are.

Fernando Gonzalez, CEO

Yeah. I want to complement Maher in terms of clarifying what has been the dynamics or the trend in prices and inflation in the last three years I'm intentionally using '22, '23, and '24. Because if you remember, we started seeing very high levels of inflation in '22, at least in our cost inflation, at levels of between 20% and 22%. In '22, we started moving our pricing strategies on a very simple basis. Our pricing should at least assure that we can maintain margins. Prices of each and every product should be able to achieve that. In 2022, we didn't do it because inflation came very fast, and you cannot change prices just in a jiffy — it takes time. In '22, our pricing strategy didn't recover inflation. In 2023, the opposite happened, our pricing strategy, thanks to the tailwind and all the efforts that we put in '22, was between 6 and 8 percentage points higher than inflation. What happened in 2024 is that the gap between inflation and prices disappeared, but it was good enough to continue maintaining and slightly increasing our margins. While price increases are now much lower than the 20-something we did in '22, the basis of the strategy remains the same: we need to assure that we maintain or increase, if market dynamics allow, our margin. You can imagine the detailed information provided for our sales force and managers to assure that whenever we think about a pricing strategy, this idea of maintaining or increasing margins is secure.

Carlos Peyrelongue, Analyst

Thank you, Fernando. Thank you, Maher.

Lucy Rodriguez, Chief Communications Officer

Sorry. The next question comes from Alejandra Obregon from Morgan Stanley. Ali?

Alejandra Martinez, Analyst

Hi, good morning. Thank you for taking my questions. I have a follow-up regarding capital allocation. I want to confirm my understanding that this $600 million of strategic CapEx could lead to around $100 million to $150 million of additional EBITDA if we consider a multiple of 3 to 4 times. Is this additional EBITDA included in your current guidance? Could you also elaborate on where we should anticipate these incremental EBITDA to originate? Additionally, regarding the comments about buybacks and dividends, can you clarify if these will occur this year? How are you planning for dividends and buybacks in 2025? Thank you.

Maher Al-Haffar, CFO

Thank you, Alejandra. Yeah, I mean, look, the guidance that we've given essentially considers all of the capital allocation decisions that we have discussed. There are no additional things to add to that. But in terms of the additional amount going to, I mean, obviously, we are increasing strategic CapEx from last year by a bit. Last year, we think we underperformed our guidance. This year, we're definitely looking at a slight increase. As you remember, last year was close to about $500 million. This year, we're guiding $600 million. The investments are really targeted into three areas: in that order of importance — one is expanding cement capacity and bolt-ons, and then climate investments, which we think are doing two things: number one is making sure that we execute on our decarbonization road maps as well as improving margins in some of those businesses. The third bucket is aggregates replenishment. In terms of geographic focus, I mean, we're going to continue to be biased towards the U.S. market, followed by Mexico. There is no additional contribution that has not been included in the guidance we've given so far in the comments we made before starting the Q&A. Now concerning dividends and buybacks, I mean, all I can tell you is to repeat what Fernando said — we aspire to have a progressive dividend. Of course, dividends will have to be proposed and approved at our AGM, which is going to happen next month. I can't comment on that. Regarding share buybacks, definitely, that is an area that we're always looking at. It’s not something that we take off or put on the table from a strategic basis because of the valuation that we have for the company today. We have the ability to do up to $500 million, and we're always calibrating. To the extent that it makes sense, we will do it. 2025 is no different from prior years.

Lucy Rodriguez, Chief Communications Officer

Maher, maybe if I could just add a little bit on the cadence of the contribution of our growth investments, because I think that was part of Ali's question. Right now, our growth portfolio contributed about $350 million so far. We expect that by 2028, that number will be $700 million. So it will literally double by that point. Included in our guidance is an $80 million incremental EBITDA we expect from our growth investments. The growth investment pipeline is about $3.1 billion, $3.2 billion in total, and half of that has already been completed. Hopefully, that helps.

Alejandra Martinez, Analyst

That was very clear. Thank you, Maher and Lucy.

Lucy Rodriguez, Chief Communications Officer

The next question comes from Gordon Lee from BTG Pactual.

Gordon Lee, Analyst

Hi, good morning. Thank you very much for the call. It's a bit of a housekeeping question, but linked to free cash flow, and it has to do with the Spanish tax penalty or fine. It seems to me, and I just want to confirm that it wasn't fully paid in 2024; that it would take a little bit of that will slip over to 2025. So I just wanted to confirm that, and so that that's in your cash taxes guidance for 2025. I guess the second related question is sort of 15 months later, do you still think that that extra $100 million that you provisioned on the income statement in the fourth quarter of last year, is that something you may reverse? Or is that something that you're thinking of leaving there for the moment? Thank you.

Maher Al-Haffar, CFO

Yeah. Thanks a lot, Gordon. Nice to hear from you. For clarity for all the listeners, I mean, cash taxes for the year last year was $870 million. That included about $370 million plus related to the Spanish tax assessments for a number of tax returns over the years. As you heard from Fernando, the expectation for cash taxes is $450 million. Last year, we did reverse $387 million of the tax provision that we took on three different tax matters. The biggest one, of course, is the tax returns from 2006 to 2009. We also reached an agreement with the tax authorities there, and we reversed some of that provision. The total reversal was about $300 million, a little bit over $380 million. We have $200 million remaining covering the additional $200 million of the larger tax penalty from '06 to '09, which we expect to occur over the next four years. We will reverse the provisions in our income statement as we pay those tax fines. I hope that answers the question.

Gordon Lee, Analyst

Yeah, just to be clear, the $450 million guidance for this year includes whatever portion of that penalty you would expect to pay, right? That's included there, you're not going something store.

Maher Al-Haffar, CFO

Yeah, it does. Yes, it does. Exactly, yes.

Lucy Rodriguez, Chief Communications Officer

Okay, and the next question comes from Adrian Huerta from JPMorgan. Adrian?

Adrian Huerta, Analyst

Thank you, Lucy. Fernando and Maher, congrats on the results. My questions are regarding the U.S. first on pricing. If you can give us a little bit more details on what happened during the year regarding pricing across your different markets within the U.S., I mean the overall price increase that you had was less than what peers have reported for the full year. So I wonder if you were not able to push price increases in coastal markets, et cetera. So if you can just provide more details on that. And the second one is, if you can just explain the — why the expectation on lower aggregate volumes for this year in the U.S.?

Lucy Rodriguez, Chief Communications Officer

Great, thanks, Adrian. Maybe first on pricing. We've reported low single-digit pricing increases for 2024. We were successful with mid-single-digit increases in most of our portfolio. Pricing is very local in the United States, so in about 75% to 80% of our volumes, we were able to get mid-single-digit pricing increases. Where we had a very difficult time was specifically in Texas, and of course, in Texas in the first six months of the year, when pricing normally takes place. There was quite a bit of dislocation with volumes down in Texas; Houston, in particular, is a large import market. We had many imports stuck on ships at sea, needing to be sent where they required to go quickly. This delayed pricing increases in the U.S. We have seen a recovery in volumes in Texas very importantly in the back half of the year. Pricing increases in the U.S. and in Texas, specifically, are looking optimistic for this year. In the case of aggregates, the decline that we're guiding to largely reflects the closing of some quarries that are at end of life effectively. We have a couple of those. These are fairly low contributions in terms of profitability relative to other quarries and they are approaching end of life. We are looking to invest more to substitute these but we haven't found appropriate substitutes yet.

Adrian Huerta, Analyst

Yeah, thanks, Lucy.

Lucy Rodriguez, Chief Communications Officer

Okay, thanks, Adrian. The next question comes from the webcast from Anne Milne from Bank of America. Question on tariffs. Could you please give us an update on the exports you currently have from Mexico to the U.S. and how this could shift if tariffs were to be imposed by Trump on all Mexican imports? If you were to redirect this production, would it be resolved within Mexico or to other destinations? First, covering it from the Mexico point of view, Mexico last year exported about 5% of their volumes to the U.S. Imports and where we import from change all the time based on the economics and where we can find the right quality and price for imports into specific markets. Our plan for this year, even before there was any hint of potential tariffs on Mexico, Canada, and China was to reduce imports from Mexico because of profitability. Thus, our intention was to cut that to about half of Mexican volume, so 2.5% of total Mexican volumes more or less. Looking at it from the U.S. perspective, again, imports have continued to decline for us. Currently, in 2024, we're about 17% of total volumes. Imports coming from Mexico have been declining as well quite significantly and we plan this year to continue that trend. If tariffs are imposed within a local market on all players, we think that would be positive, it would increase import parity, positively affecting pricing. If you see a more limited tariff action in a specific market where it only applies to one or two origins of imports, we think it would be fairly neutral in terms of pricing. So I hope that covers it.

Jorel Guilloty, Analyst

Thank you for taking my questions. I wanted to get a better sense of how you view the rebuilding effort for the L.A. area following the unfortunate wildfires that occurred earlier this year. Do you have any estimates on how much CapEx could take place over the next few years? And how much of it could be related to building materials? A quick follow-up on Adrian's question; can you explain what drove the expectation for lower aggregate demand, as aggregates are forecast to go down in 2025 in the U.S.?

Lucy Rodriguez, Chief Communications Officer

Sure. Going back to the aggregates question, we have a couple of quarries that are approaching end-of-life, which is very normal in an aggregate cycle. What you would like to do is have new quarries come online to replace those; however, sometimes, you can't do that in a timely manner. Currently, our expectation is that we have a couple of quarries that are closing since they are at end of life. We will not have that production in the early part of next year. Again, reminding everyone that our strategy in the U.S. is to continue to boost our aggregates resources and we are looking at opportunities to replace aggregates that are depleting. Regarding the rebuilding efforts in L.A., our focus is on the immediate crisis and ensuring our employees are safe and have housing. We are assisting our community. There have been a lot of disruptions, with 12,000 homes destroyed, just to give you a sense. In California, 50,000 homes are typically built each year, which will be impactful going forward. However, we will look into sustainable construction when the government and our customers are ready to have that discussion.

Yassine Touahri, Analyst

Yeah, congratulations on the very resilient results. I would just have a question about I remember in your CEMEX Day, you were mentioning about the summer of the part CEMEX and the big mismatch between the valuation of peers and your valuation. When I look at the past 5-10 years, you've done a fantastic job at deleveraging the business becoming investment grade and finding a trajectory for growth. What do you think the market is missing when you look at your share price today? And is there anything that you can do to convince investors of the equity story of CEMEX?

Maher Al-Haffar, CFO

Yeah, Yassine, thank you very much for your question. Look, we're obviously very disappointed at the current valuation of our share clearly and have been for a while. We think that probably the biggest contributor to that, especially since the first quarter of 2024, has been kind of the expectations of what’s likely to happen in Mexico, more than anything else. In a transition year, you have demand issues, currency volatility issues, which we have suffered from especially in the last couple of quarters. I think the market is probably going to wait to see how that normalizes over time. We're optimistic about that. Clearly, deleveraging is going to continue to probably take place. When I look at our investment-grade ratings versus our peers and the leverage levels, we have potential upside in continuing to deleverage. I don't know if you looked at the numbers, but when I consider our interest expense including the coupons paid on our subordinated notes, is probably close to 20% of our EBITDA, and that's more than double our peers, which is huge capital of free cash that can be invested in growth or returned to shareholders. I think that’s one area the market is either not yet valuing or is not discounting. There is a discount on valuations for markets like Mexico compared to the U.S. On a risk-adjusted basis, that’s something that will take time. The Mexican business has demonstrated phenomenal resilience, and as we continue delivering as a company and as the macro economy improves, we believe the value of the earnings from our Mexican business will increase. What we can do in the interim is simple: continue to focus on doing great things and taking a further look at upsides, such as our cost containment program. We're not expecting the market to pay us for it immediately; however, we believe we will start seeing our value reflected.

Lucy Rodriguez, Chief Communications Officer

Thank you for joining us today for our fourth quarter results. We hope you'll come back again for the first quarter 2025 webcast on April 28. If you have any additional questions, please feel free to reach out to the IR team. Many thanks.

Operator, Operator

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