Earnings Call Transcript - CX Q1 2022

Operator, Operator

Good morning. Welcome to the CEMEX First Quarter 2022 Conference Call and Webcast. My name is Hannah, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. And now I would 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 first quarter 2022 conference call and webcast. I hope this call finds you and your families in good health. I'm joined today by Fernando Gonzalez, our CEO; and Maher Al-Haffar, our CFO. As always, we will spend a few minutes reviewing the business, and then we will be happy to take your questions. I will now hand it over to Fernando. Fernando?

Fernando Gonzalez, CEO

Thanks, Lucy, and good day to everyone. Before we begin, I would like to convey that our thoughts are very much with the people affected by the war in Ukraine as we witness the humanitarian crisis unfolding there. Our corporate purpose is all about building a better future: homes, infrastructure, schools, hospitals. And we are saddened to see this destruction and the refugee crisis it has sparked. We are supporting the UN refugee program and coordinating with local authorities in the communities in which we operate across Europe. We will continue to look for additional opportunities to support the people most affected by this crisis. Now moving on to our key achievements, I am quite pleased with our first quarter results. We achieved double-digit growth in sales with all regions contributing. In a supply-constrained world, we have tried very hard to meet customer needs. Our EBITDA was higher than last year, led primarily by EMEA. These results were achieved despite a challenging macro environment to which our management team had to adjust in real time. Growth was driven primarily by pricing, with cement prices up double-digits. While significant, the pricing achievement was not sufficient to completely offset inflationary pressures, with margins down year-over-year. Volumes for our three core products increased, with the highest growth rates in Europe and the U.S. Our Urbanization Solutions business grew double digits. We continue to roll out our growth investments, and this quarter, we approved over $200 million of additional bolt-on margin enhancement projects. During the quarter, we bought back a total of 1.5% of CEMEX outstanding shares. Since the initiation of our share buyback program in 2018, we have repurchased more than 6% of the company's shares. We believe that these transactions have been accretive to our shareholders. We continue to post impressive numbers in our climate action efforts. We continue to make great strides in our decarbonization efforts. This quarter, we reduced our carbon emissions by 4%, in line with our reduction in 2021, our largest on record. This performance was a result of a decline in clinker factor as well as an increase in alternative fuels to a new high of 33.3%. Today, seven of our plants are operating below our 2030 CO2 target of 475 kilograms. Sales of our Vertua low-carbon cement and concrete are growing significantly since their introduction in 2020 and currently represent approximately one-third of our volumes. By 2025, we expect that Vertua cement and concrete will represent 50% of our volumes. With regard to innovation, we continue to make progress in the quarter. In an innovation born out of our internal open innovation platform, smart innovation, we successfully converted in a lab setting, 50% of the CO2 directly from the flue gases of our kilns into carbon nanomaterials, a material that is used by multiple industries. This is an example of how potentially bad carbon can be converted into good carbon and actually commercialized. We will now move forward on this concept in an industrial pilot. Additionally, we established a new consortium for the Rudersdorf Carbon Neutral Alliance in Germany, a project to transform our plan into the first-ever net CO2 cement plant by 2030. For more information, please see our website. Pricing was a primary driver in our 12% growth in sales with cement prices up double digits in three of our four regions. As you know, we adjusted our pricing strategy in second quarter 2021 to address the rising inflation clouds that we were seeing coming out of the pandemic lockdown. From the beginning, we viewed inflation as permanent rather than transitory. And this is serving us well with the additional challenges of the Ukraine war. And even with continuing cost pressures as well as a difficult prior year comparison, we delivered a 3% increase in EBITDA. Consolidated margin declined 1.7 percentage points, reflecting the cost as well as geographic and product mix. Free cash flow declined year-over-year due to higher CapEx spending and working capital. Our developed market portfolio continued to enjoy strong demand dynamics with cement and ready-mix volumes growing high single to double digits. Cement volumes in Mexico declined, reflecting the demand rebalancing that is occurring between the formal and informal construction markets as we move out from the pandemic as well as a difficult 2021 comparison base. Throughout the portfolio, we are seeing strong growth in ready-mix, reflecting formal sector demand, while aggregates volumes are increasing in all markets except for SCAC. We are quite pleased with the pricing performance. Against the backdrop of the worst inflation headwinds since the '80s, we realized a record sequential cement price growth for cement. Consolidated cement prices were up 12% year-over-year, while ready-mix and aggregates rose 8% and 7% respectively. Importantly, our January price increases saw important traction with sequential consolidated prices up between mid-single to high-single digits for all products. All regions contributed to pricing gains. Despite the January pricing achievement, we still have work to do to compensate for rising costs. We have implemented April pricing increases for those markets in the U.S. and Europe that did not have a January increase, and we expect similar results. Pricing, however, is not the only lever. We remain focused on costs. Our diversified energy, supply chain, and climate action strategies are paying off. EBITDA for the quarter increased 3%, driven primarily by prices and growth in our EMEA region. EBITDA from Urbanization Solutions grew double digits, and we expect this growth to continue in 2022 as our growth investment portfolio ramps up and more projects come online. The contribution of pricing to EBITDA fully offsets the increase in variable cost and imports. With rising volumes, however, it was not sufficient to maintain year-over-year margins. Consolidated margins declined 1.7 percentage points. In mid-2021, we began to see significant inflation in the business, stemming largely from rising energy and transportation costs. We updated our pricing strategy to take this into account and began to see the benefits of our efforts in the fourth quarter. While there is, of course, seasonality in our results, I am pleased that consolidated margins in the first quarter increased sequentially. We are cautious and we know of the inflation challenges ahead of us, but we are carefully managing costs and our pricing strategy has been recalibrated to reflect the new cost environment. Our goal is to recover margins in line with our operational resilience target of at least 20%. And now back to you, Lucy.

Lucy Rodriguez, Chief Communications Officer

Thank you, Fernando. In a largely sold-out domestic market, our U.S. operations experienced impressive growth across all products. Sales expanded 18% on the back of high single-digit volume growth for the three products. This growth reflects strong demand from the residential and industrial sectors as well as milder weather. Pricing gains contributed significantly to sales, with cement prices increasing 10%. Our January increases were highly successful. In markets which account for 40% of our U.S. cement volumes, cement prices rose between 8% and 10%. In April, our remaining markets received their first pricing increase for the year. We are optimistic that traction will be in line with January. We have already announced additional price increases for the summer in all markets and we have advised customers that further price increases may be necessary. On the cost side, imports, logistics, and energy continued to be the biggest headwinds to margins. With largely sold-out markets and rising shipping rates, increasing reliance on imports negatively impacts margins. While EBITDA margin declined year-over-year, sequential margins improved almost 1 percentage point. With today's challenging global shipping market, we will take full advantage of imports by rail and water from our Mexican operations in order to meet customer needs. We remain optimistic regarding the outlook for the U.S. Despite rising interest rates, we have not seen evidence of softening residential demand in our markets. The industrial and commercial sector shows important recovery due to onshoring and manufacturing activity and the resurgence of the oil industry. We expect these industrial trends to persist with additional supply chain pressures from the Ukraine war. Finally, for infrastructure, we expect the new Infrastructure Investment and Jobs Act to yield incremental demand for our products towards the end of 2022. In Mexico, net sales grew 5%, driven by a successful pricing strategy. In January, cement price announcements saw record traction with cement prices rising 9% sequentially. Volume dynamics continue to reflect the rebalancing of demand between the informal and formal construction sectors as we move out from pandemic resurgence. Cement volumes declined 8%, reflecting weaker demand in bagged cement while ready-mix volumes grew 9%. The decline in bagged cement volumes results from a difficult 2021 comparison base with a high level of pandemic home improvements and pre-electoral spending. Going forward, we expect bagged cement volumes to stabilize at a normalized market share. In the formal sector, activity is driven by the industrial and commercial sector and formal residential. We continue to see the build-out of manufacturing and warehousing facilities in Northern states, with companies taking advantage of nearshoring opportunities. Demand for industrial space is growing significantly, led by cities such as Tijuana and Monterrey. The commercial sector has been supported by hotel construction in tourism corridors as the industry responds to a post-pandemic influx of tourists. The strong pricing performance is still not sufficient to offset the significant inflation in our operations, driven largely by energy. Rising energy costs coupled with product mix, including a rapidly expanding Urbanization Solutions business were largely responsible for the decline in EBITDA margin. We expect our pricing strategy and cost containment initiatives to address the inflation challenges. We announced a second price increase of 11% in bagged cement effective April 1. To date, the increase is showing similar traction to our January price action. Our climate action roadmap is also helping us to respond to cost pressures. Alternative fuel usage with clear cost advantages over fossil fuels posted new record highs. Efforts to reduce clinker factor and improved thermal efficiency of our plants is also supported. While a sold-out U.S. market not only allows us to support the needs of our U.S. business in a cost-effective manner but also to maintain high-capacity utilization in Mexico. We will continue pushing for additional price increases as necessary to compensate for cost headwinds. EMEA posted excellent results, with sales and EBITDA rising double digits. Top-line growth was driven by double-digit growth in price and mid-single-digit growth in volume from cement. Europe is responsible for much of the improvement with cement volumes rising 16% led by infrastructure and residential activity as well as milder winter weather. Prices for our three core products increased between 9% and 13% sequentially, reflecting strong January price increases. In April, we implemented price increases in those markets, which represent about 40% of European cement volumes that did not have a January increase. We have already announced a second round of price increases to be implemented during the second quarter. We are fortunate that our business in Europe is relatively insulated from the Ukraine war, both in terms of footprint, supply chain, and cost pressures. As a result of our One Europe strategy implemented in 2019 and the consolidation of our cement footprint, our plant network today runs at high-capacity utilization. The business is well diversified with our less energy-intensive products other than cement contributing about 50% of regional EBITDA. Within our cement business, alternative fuels account for almost two-thirds of our total fuel mix, allowing us to minimize fossil fuel volatility. Recent modifications to our plants in the U.K., Germany, and the Czech Republic will allow us to boost alternative fuels even further up to 70% by mid-year. We have a surplus of CO2 allowances that we expect will last through 2025. And on the demand side, the renovation waves and other infrastructure programs totaling approximately EUR 1.4 trillion, coupled with expected new investments in energy independence should support values. Moving to the rest of the region. In the Philippines, cement volumes declined 6%, impacted by disruptions caused by Typhoon Odette in December and COVID lockdown measures. Cement prices improved 3% sequentially, marking four consecutive quarters of growth. In Israel, construction activity was strong with ready-mix and aggregate volumes growing while sequential pricing for our products rose between mid- to high-single digit. Finally, in Egypt, we continue to see strong EBITDA growth, driven by the industry rationalization plan announced by the government in midyear 2021. In our South, Central American, and Caribbean operations, net sales increased 9%. This strong top-line growth was driven by strong pricing with high-capacity utilization in most countries. Regional cement prices increased 9% year-over-year. Similar to Mexico, the formal sector continues recovering from the pandemic while bagged cement growth moderates. The decline in regional EBITDA and margins is mainly due to increases in energy costs. We announced a second round of price increases effective April 1, in markets that represent around 30% of cement volumes. We also are taking full advantage of the ability of our plants to switch between multiple tools as well as increasing alternative fuels in order to dampen the effect of rising energy prices. In Colombia, cement volumes increased 4%, supported by housing, self-construction, and infrastructure. The outlook in the country remains positive with the continued rollout of 4G highway projects and a healthy formal housing sector. In the Dominican Republic, cement volumes declined 4%, led by a reduction in bagged cement sales. We reopened a kiln in our plant, which will increase our production capacity by a third, underscoring our growth strategy and commitment to the development of the country. With higher global shipping costs in a largely sold-out region, we believe our strong logistics network, coupled with our cement capacity additions will 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 Maher to review our financial developments.

Maher Al-Haffar, CFO

Thank you, Lucy, and good day to everyone. As Fernando mentioned, we are very pleased with our first quarter performance. Despite higher EBITDA and lower financial expense, free cash flow after maintenance CapEx declined versus the prior year due to higher investments in working capital and maintenance CapEx. Investment in working capital increased due to higher sales, plus higher inventory to support customer demand as markets continue to face supply chain bottlenecks. We have been redesigning and introducing new technologies in our collections processes to make them more efficient. The credit quality and the turnover efficiency of our receivables are at record levels. This has led to a significant improvement in our receivables collection cycle. I would like to highlight that our working capital cycle is seasonal and investments in the first quarter typically turn around in the early part of the second half. The increase in maintenance CapEx relates primarily to the delayed delivery of mobile equipment originally slated for 2021. This is mostly due to supply chain disruptions. As a result of positive operating performance and lower financial expenses, net income for the quarter more than tripled when compared to that of last year, after adjusting for gains from the sale of assets. Return on capital employed for the last 12 months stood at 13.7%, excluding goodwill, well above our cost of capital. Inflation for us has been felt mostly in energy in the production of cement, which represents approximately 30% of our total cement production costs. During the quarter, it increased 37% year-over-year. Unitary fuel cost is up 53%, driven primarily by the increase in petcoke and coal and partially mitigated by an increase in alternative fuel usage. This quarter, the alternative fuel substitution rate was 33.3%, 7.3 percentage points higher than last year. We expect our substitution rate to further increase during the year. Unitary electricity cost is up 21%, driven principally by our operations in Europe. While we experienced an important increase in the cost of energy, it continued to have much lower volatility than our key energy indices. This is due to a combination of factors. First, a portion of our fuel and electricity contracts are negotiated on a fixed price basis. So there is some lag in the repricing of these contracts. And second, as mentioned before, about one-third of our fuels are alternative fuels, which have different price dynamics than fossil fuels. Apart from energy used in the production of cement, we're also exposed to energy in the form of transportation needs for all our products. We've had a diesel hedging program in place since 2016 in which we cover our direct diesel exposure for the next 12 to 24 months, depending on market conditions. Now, with respect to our capital structure and risk management, as I commented last quarter, we entered 2022 with a very strong financial position with no refinancing needs for the next 3 years, a strong liquidity position, and minimal exposure to interest rates as 90% of our debt is at fixed rates. We will continue to be prudent in our financial strategy, maintaining an adequate risk profile consistent with an investment-grade capital structure. During the quarter, we executed a series of transactions taking advantage of the current environment. First, with the rise in interest rates, we launched a tender offer to purchase up to $500 million of three of our bonds at very attractive prices. Through the tender process, which closed after the end of the quarter, we repurchased approximately $440 million of those at an attractive discount. This exercise will result in more than $11 million in annual interest expense savings and will be funded through our revolving credit facility at a much lower rate than the yield of the notes. We also activated our share buyback program in the quarter in which we repurchased $111 million of our stock. Since 2018, we have returned approximately $470 million to shareholders through a combination of share buybacks and cash dividends. As mentioned before, we do not have any refinancing needs this year. However, in anticipation of a rising interest rate environment, we executed $300 million in interest rate locks to partially mitigate interest rate risk in connection with potential liability management transactions in the future. These rate locks were executed when the 10-year treasury yield was approximately at 1.7%. So as of today, they have a positive mark-to-market. The result of this transaction will be amortized in financial expense over the life of a new potential bond when issued. We continue with our goal to align our capital structure to our sustainability targets. During this quarter, we introduced our sustainability framework into our accounts receivable securitization programs in the U.K. and France for approximately $215 million. And now back to you, Fernando.

Fernando Gonzalez, CEO

We are quite pleased with first quarter performance, which exceeded our expectations underlying our February guidance. Today, we are not seeing signs of slowdown in our operations, and pricing has accelerated significantly. We realize that first quarter is not always a good indicator of full-year performance in our industry. We are maintaining our EBITDA guidance of mid-single-digit growth, although given the current environment, there might be some downside risk. However, we are confident that we will grow year-over-year. Growth should be driven primarily by pricing, with flat to mid-single-digit consolidated volume increases. Given the successful price traction we have seen as well as additional pricing announcements, we believe that we can continue closing the gap between cost and prices. We are increasing our guidance for energy in the production of cement to 35% on a per ton of cement produced basis, assuming no further escalation in energy costs. We now expect CapEx of $1.2 billion, with $700 million going to maintenance and $500 million going to strategic. If global supply chain issues improve, we could accelerate this CapEx spending. Our strategic CapEx will be primarily directed towards bolt-on margin enhancement projects. We continue to expect $100 million of incremental EBITDA for this year from our growth investments, such as ready-mix block plants in Florida, alternative fuels upgrade at our Rugby plant in the U.K., sustainable waste management and mortar production in Mexico, among others. Cash taxes are now expected to be $200 million. We recognize that cost headwinds will be a challenge, but we anticipate a favorable environment with moderate volume growth and strong pricing dynamics supported by high-capacity utilization. While it may take longer than we initially expected, we aim to recover margins in line with our Operation Resilience goal. And now back to you, Lucy.

Lucy Rodriguez, Chief Communications Officer

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. In the interest of time and to give other people an opportunity to participate, we kindly ask that you limit yourself to only one question.

Francisco Suarez, Analyst

The sequential margin improvement this quarter was impressive, and I’d like to ask about the cost aspect regarding the strategies you are implementing. Do you see potential for upside risk in better fossil fuel substitution rates or clinker factors, particularly outside of Europe? This may also be related to your earlier comments about the incremental margin improvement investments that you have planned.

Fernando Gonzalez, CEO

Thank you, Francisco. I want to address the cost aspect, particularly regarding the increased use of alternative fuels and the reduced clinker factor. The answer is certainly yes, we have the capacity to improve in these areas, and we've been investing and preparing to make further advancements, which will both benefit us economically and help us reach our goals in transitioning to a lower carbon economy. We noted that the usage of alternative fuels increased by 7 percentage points on a consolidated basis, moving from about 27% in the first quarter last year to 33% this year. This growth will continue for several reasons. We have already installed equipment in all our European plants to inject hydrogen into the combustion of RDF, our primary alternative fuel. Additionally, a recent regulation in Spain, announced this week, is expected to promote the use of RDF in our cement plants there, where we currently have a low substitution rate. Furthermore, we have completed projects to enhance the use of alternative fuels at two of our largest plants in Europe: Rudersdorf in Germany and Rugby in the U.K. This allows us to achieve much higher substitution levels in those facilities, approaching 80% to 90%, similar to what we see in Poland. As you're aware, substitution rates of alternative fuels in Europe are the most economically beneficial. By the first quarter, our substitution was approximately 65%, which is at the high end of the industry standard in Europe. Due to the factors I mentioned, including the new regulations in Spain, the injection of hydrogen for improved combustion, and the recently completed projects, we aim to reach around or above 70% substitution in Europe. We lack information about other levels, but we understand the European average is approximately 50%. Thus, with our 70%, we could be leading in Europe regarding the substitution rate of alternative fuels. Conversely, we continue to lower our clinker factor. For example, we have been shifting from type 1 cement to limestone cement and other blended types in the U.S., which helps reduce the clinker factor using materials that are cheaper than clinker itself. This not only contributes to CO2 reduction but also enhances our competitiveness. We achieved the lowest clinker factor in the first quarter, and we expect to keep reducing it. As previously stated, our commitment to CO2 reduction drives these two main variables. Last year, we saw a reduction of over 4% in the first quarter, followed by another reduction of 4%. We have a detailed roadmap, and we are carrying out these projects. As evidenced by the information we are sharing, our efforts are effective and we are progressing.

Francisco Suarez, Analyst

Yes, that's helpful. Do you think that the market might be overlooking those potential advantages that you may have in Europe?

Fernando Gonzalez, CEO

Well, hard to know. What I've seen is that there was an expectation of Europe being impacted for good reasons, meaning for obvious reasons, the war, inflation in fossil fuels, inflation in electricity because of this reference of electricity prices being based in gas prices. But what I can comment in our case is, in the case of Europe, about 50% of our EBITDA comes from cement. The other 50% comes from ready-mix, aggregates, and Urbanization Solutions businesses that are less impacted by inflation in fuels. And this 50%, as I already mentioned, alternative fuels, which in the case of Europe, their cost is much lower than fossil fuels. And in most instances, alternative fuels are even an income stream. And the real impact of inflation in fossil fuels for us in Europe is on 35% of cement production or related to 35% of EBITDA. So the potential impact, at least as of the first quarter, it was because of the inflation in fossil fuels was 18% of our EBITDA in Europe. And what we can expect because of what I have just explained, I'm not going to repeat that. It's given that we are going to continue increasing the use of alternative fuels in Europe and in other regions, that exposure, that 80% will be lower. So it's hard to say if these facts have been overlooked, but this is what I can comment.

Lucy Rodriguez, Chief Communications Officer

Maybe I would just add to that because I think you asked a question about alternative fuel usage even outside of Europe. And while we saw a 12% increase, I think, year-over-year in alternative fuel usage in Europe, we shouldn't neglect Mexico, where we've had almost a 10% increase in alternative usage as well year-over-year. Just to keep that in mind.

Paul Roger, Analyst

What impact would a gas stoppage in Europe have on CEMEX, assuming it also pushes up power costs? What's the hedging position for European electricity? Has the group seen any project cancellation, and is there a risk of demand destruction due to higher prices?

Fernando Gonzalez, CEO

We don't use gas for cement production, so gas shortages should not directly affect our production processes or facilities. As mentioned, 65% of our fuels are primarily RDF, an alternative fuel, with the remainder being petcoke and coal. Gas is not part of our fuel mix in Europe. In terms of electricity, about 60% of our electricity is contracted for the year. In Spain, where we don't have such contracts, there was recent news of an agreement between Spain and Portugal with the European Union to fix electricity prices based on gas prices. This decision will have a significant impact on electricity prices in Spain. The extent of the impact remains to be seen. This summarizes our situation regarding fuel inflation coverage and our hedge in electricity.

Lucy Rodriguez, Chief Communications Officer

And there was a second part to the question on has the group seen any project cancellations?

Fernando Gonzalez, CEO

No, we have not seen any material cancellations. What we have observed over time, which may not be new, is that supply chain issues are causing delays in certain jobs within certain developments. Additionally, the recent conflict between Ukraine and Russia may contribute to these delays. So far, our order books remain strong and we do not see any significant deterioration. However, we will continue to monitor the situation.

Lucy Rodriguez, Chief Communications Officer

Okay. And the next question comes from Alejandro Azar from GBM.

Alejandro Azar, Analyst

Mine is on the pricing side, if you could remind us where have you made a second price increase in Mexico and SCAC and where did you already announce one? And if there is a possibility of a third price increase later in the year in some of your markets.

Fernando Gonzalez, CEO

Sure. Thanks for your question. I want to provide a clearer explanation of our pricing strategy given the high inflation this year, which some have identified as hyperinflation in our industry. Our pricing strategy is crucial. The 7% sequential increase from December to March affected only 60% of our consolidated cement volumes because of the timing of price increases across different markets. In the U.S., this impacted 20%-40% of our volumes, while in Europe, it was 60%. In April, part of our first-half pricing strategy, we are implementing another double-digit increase on 50% of our cement volumes. For the U.S. and Europe, these April increases are the first for certain regions, whereas in countries like Mexico, Germany, Poland, Croatia, Colombia, and others, it may be the second price increase, if not across all cement products, then in key segments. With the April increases and some additional adjustments in May and June, we will finalize the first phase of our 2022 pricing strategy. We expect to achieve double-digit price increases when comparing December to June, which will constitute half of our pricing strategy. We have already communicated price increases for the summer beyond June and July. In the U.S. and Europe, this will denote the second price increase, while in other markets, it might represent the third. This is why we feel confident in reaffirming our guidance of $3 billion EBITDA. Our pricing strategy aims to recover margins, specifically those from 2021, and it has been effectively implemented so far.

Lucy Rodriguez, Chief Communications Officer

Okay. And the next question comes from Ben Theurer at Barclays.

Benjamin Theurer, Analyst

Fernando, Maher, congrats on the results. I wanted to follow up on some of the comments you made during your prepared remarks on the import dynamics from Mexico into the United States and the advantages you have from a proximity point of view, disruption in logistics. If I remember right a year ago, you started to face some issues because you hadn't contract enough on the logistics side and hence the import margin came down. Can you share any comments on the dynamics here and where we stand on import margins now given that you knew about the need for logistics, so maybe you've been able to lock that in? And so any incremental color here, please?

Fernando Gonzalez, CEO

Let me make some general comments, and I will ask Maher to complement if necessary. As you can imagine, serving from Mexico, the needs of our customers in the south part of the U.S., it's much more convenient because this is a sort of a nearshore supply chain issue. That means response times are much shorter. They are much faster. Transportation is less exposed to nowadays high inflation levels. I'm referring particularly to maritime transportation, meaning instead of serving these volumes from Mexico, we bring it from Asian countries or from other Middle East or European countries, then the exposure to maritime cost is huge. So in that case, both Mexico and for the U.S., margins on these imports or exports are much more attractive than the ones that we do from third parties through maritime transportation. I don't know if you want to complement anything, Maher, on the cost or the margin specifically.

Maher Al-Haffar, CFO

I apologize for that. I'm not sure what went wrong. I must have accidentally pressed something on the phone. I apologize, Ben. We're expecting imports to increase this year, with last year's U.S. imports around 2.5 million tons and this year's projection close to 4 million tons. We've significantly increased our production for the export market from Mexico through our plants in CPN, Huichapan, Tamuin, and Torreon. These facilities are well-equipped for transportation and logistics to attractive U.S. markets that are experiencing notable growth and strong pricing dynamics. As a result, we're nearly doubling imports from Mexico to the U.S. and capturing a substantial portion of the profits related to third-party imports within our consolidated CEMEX earnings. While we do not disclose specific details regarding the margins between third-party imports and CEMEX imports, it is clear that imports are less profitable than domestically produced cement, yet they remain lucrative. It's crucial for us to satisfy customer demand, as this helps streamline our supply chain and ensures quality cement delivery. We've encountered instances where some traders have failed to meet their contracts for various reasons, which decreases the reliability of deliveries. So, we believe it's important to maintain our strategy. Additionally, Mexican imports are roughly 30% cheaper than third-party imports, highlighting the benefits of this transition as we see volume growth and a shift from third-party products to CEMEX products from Mexico. Lucy, is there anything else we should add regarding that question?

Lucy Rodriguez, Chief Communications Officer

I would just add maybe 1 or 2 comments. I mean, number one, what's very clear is that the issue in the United States right now is one of supply, and we are trying our hardest to meet customer demand. And this is a very important source for us of our ability to do that in a quicker reaction time. But that is the goal. I know we have some frustrating customers because of the shortages, but we are doing our best to ramp up imports as much as possible. Secondly, I think the other message that I would say here is that in the first quarter, specifically, last year in the first quarter, we weren't importing as much as we did this year in the first quarter. And the imports that we were bringing in last year, this was before we began to see the ramp-up in transportation and energy costs. So it was at a very low cost relative to we did contract, obviously, ahead of time for this year, as we always do. So we're seeing better transportation costs. But on a year-over-year basis, we have a hard comp versus first quarter. So just to keep that in mind, Ben. The next question comes from Adrian Huerta from JPMorgan.

Adrian Huerta, Analyst

My question is also with prices. When you gave guidance after 4Q results and you're reiterating the guidance now for EBITDA growth of mid-single digits. How much did your price assumption? I know you don't give guidance on pricing, but how much did the price increase assumption change from then up until now?

Fernando Gonzalez, CEO

Let me start with a few comments and then either Maher or Lucy may add to them. Adrian, we've all noticed how much has changed since early last year. We began last year with low inflation and a positive outlook. However, around mid-year, we reached a turning point where inflation began to rise, particularly in fuels and electricity, prompting us to lower our growth expectations. In response to this change, we adjusted our pricing strategy as much as possible in July or August, implementing price increases in July and September. We subsequently prepared our pricing strategy for this year and began executing it on January 1; the trends have remained fairly consistent since then. In February, we learned about the onset of a war, which brought humanitarian suffering and further accelerated inflation and GDP growth deterioration. Consequently, the prices we implemented in January did not reflect the full current inflation assumptions that are being discussed in this call. The remaining price increases in our strategy have now been adjusted based on the latest inflation estimates. As you may have seen, we are significantly raising our inflation assumptions for fuels. We have adapted our strategy with the understanding that high inflation levels will persist throughout the year. We are ready with our pricing strategy for the first half and for the second price increases planned for the second half. We will continue to monitor the situation and make necessary adjustments to our pricing strategy, with the goal of recovering margins. That is our objective, and we are focused on executing it. I hope that addresses your question.

Lucy Rodriguez, Chief Communications Officer

And the next question comes from Anne Milne from Bank of America.

Anne Milne, Analyst

I want to ask a question related to higher interest rates. I know that Fernando commented earlier that so far, you haven't seen or maybe will see an impact on the housing markets in the U.S. and maybe other markets. But I was wondering where do you see the impact of higher interest rates. Maher, I know you said that most of the debt is fixed rate. So until you have the opportunity to call these or on that small percentage that's floating, where do you see the impact of interest rates on the business? And maybe, Mark, could you give us a little bit more information on the interest rate lock that you discussed?

Maher Al-Haffar, CFO

Sure. Fernando, would you like me to speak about the impact of interest rates? Anne, I believe you're referring to how interest rates might disrupt demand and affect financing. The potential areas of impact are mainly in the U.S. residential market, but overall, affordability remains reasonable. While it's become less affordable due to rising prices and rents, the inventory of existing and new homes remains very tight. There has been a slowdown in refinancing, but housing demand is still strong, and our order book in the U.S. looks solid. However, a moderation in demand is anticipated. On the other hand, industrial and commercial sectors are performing well, especially when we look at the order book. Regarding infrastructure, we feel well-positioned, particularly in our four largest U.S. markets, where DOT budgets are stable or increasing. Therefore, for now, we do not see any significant demand disruptions arising from the interest rate environment in the U.S. In Mexico, the housing market remains relatively affordable from a financing perspective, and we continue to see high remittance trends that support the residential market, which is the most sensitive to interest rates. We're not observing significant impacts in Europe either. Overall, the areas that are sensitive to interest rates, particularly the residential market, are not showing negative effects from our viewpoint. Concerning our capital structure, depending on how you interpret the figures, about 86% to 90% of our debt is fixed-rate. I mention the range because of a recent tender offer funded through our revolving credit facility, which is variable. We anticipate paying off this floating amount within the year through asset sales or operating cash flow, so we see no urgent need to fix that part of our exposure. From a forward-looking stance, we currently have no financing requirements but believe there may be liability management opportunities ahead. That said, we proactively positioned ourselves, as we expect interest rates to rise next year. We took advantage of a favorable window to lock in forward rates for 10-year treasuries starting in June next year at a rate of 1.735, which was attractive given the recent low for treasuries. Currently, we've been hovering between 2.7% to 2.9%, with prospects for higher rates. The reason for this action is that starting next year, excluding some of our bonds that will be discounted due to market conditions, several bonds will become callable. We want to be prepared for effective liability management at a low cost. While we aimed to do more rate locks, securing 300 is better than nothing. I’m not indicating we will necessarily call any bonds soon, but we're noticing interesting pricing for our bonds in the market. They continue to trade at a discount, mainly due to rising rates rather than any issues with our creditworthiness. I hope that addresses your question. Lucy, we can't hear you.

Lucy Rodriguez, Chief Communications Officer

I'd like to add quickly on the U.S. side that volumes in the first quarter were up 9% year-over-year. And maybe people would think that, that somehow reflects an easy comp, but it doesn't. First quarter '21 volumes were also up 9%. We did have a weather impact in 2021 in Texas with the grade 3s. But interestingly enough, Texas out of our four key states had the lowest growth rate year-over-year. So there's more going on here. It's residential, like Maher said, it's industrial and commercial. We are seeing a lot of resourcing activity going on. We're seeing chip manufacturers in Arizona. There's been a real pickup on that industrial and commercial side, and residential continues to grow. A lot of this has given our footprint because so much of our footprint from migration, pandemic migrations have benefited. So just to keep that in mind, yes, of course, we're keeping our eyes out for weakness on the residential side in the U.S., but we certainly haven't seen it so far. And with that, the next question comes from Yassine Touahri from On Field.

Yassine Touahri, Analyst

Just one question for me. Have you seen any postponement or cancellation of construction works in Europe, in the U.S. or in Latin America because of increasing cost of building or because of building material shortages?

Fernando Gonzalez, CEO

Hi, Yassine, as we briefly commented before, no, we have not seen it. Our order books are strong. What we have seen, but it's not new, meaning it didn't start happening in the last couple of months, is that there are several issues; construction has been impacted by supply chain issues. So there are delays in certain jobs in certain developments, but not to the point of suspension. Now the context, particularly in the case of Europe because of the work. It is a concern. I mean, what's going to be happening and it will depend on the conflict, the duration so many things. But so far, we have not seen a deterioration on our suspension in those type of projects.

Lucy Rodriguez, Chief Communications Officer

Thanks, Yassine. I think we have time for one last question, and this comes from Vanessa Quiroga from Credit Suisse.

Vanessa Quiroga, Analyst

Congrats on the result. I guess I will ask you about the U.S. because the volume in the first quarter surprised on the upside and your guidance for the full year is more conservative than that. So what do you expect to happen during the rest of the year to get to the guidance? Or do you think there's upside to your current volume guidance?

Fernando Gonzalez, CEO

Lucy, I'm going to let you answer that one.

Lucy Rodriguez, Chief Communications Officer

I discussed the strength we're seeing in the U.S. demand. While our guidance reflects a cautious outlook, we haven't observed any weakening in demand yet. However, we recognize the possibility of a softening in the residential sector in the coming quarters. If that occurs, it won't be immediate, as we currently have a significant number of orders for residential, industrial, and commercial projects, which continue to grow. Given the current situation in Europe, supply chain challenges may escalate. Although we don't sell directly to the oil industry, there is noticeable activity in Western Texas, which positively affects our aggregates business, particularly in Houston where many oil-related companies are located. Texas has experienced slower growth compared to other states, especially Arizona, where two major chip manufacturing facilities are being developed, and we are involved with one or both of them. The strong demand driven by onshoring is evident in both the U.S. and Mexico. Furthermore, we believe that the developments in Europe will continue to strengthen this onshoring trend going forward. Well, we appreciate you joining us today for our first quarter webcast and conference call. If you have any additional questions, please feel free to contact Investor Relations, and we look forward to seeing you again on our second quarter results webcast. Many thanks.

Operator, Operator

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