Earnings Call Transcript - CX Q2 2020

Operator, Operator

Good morning and welcome to the CEMEX Second Quarter 2020 Conference Call and Webcast. My name is Chuck, and I’ll be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Our hosts for today’s call are Fernando Gonzalez, Chief Executive Officer; and Maher Al-Haffar, Chief Financial Officer. And now I would like to turn the conference over to your host, Fernando Gonzalez. Please proceed.

Fernando Gonzalez, CEO

Good morning. I hope this call finds you and your families in good health. Thanks for joining us for our second quarter 2020 conference call and webcast. I’m joined by Maher Al-Haffar, our newly appointed CFO. As usual, we will be happy to take your questions after our initial remarks. Let me just remind you that beginning this quarter, Europe, Middle East, Asia, and Africa regions have been consolidated into one region. We are very pleased with our performance in the second quarter under extraordinarily challenging conditions. Our safety protocols kept employees safe, and our business is operating. Our geographic diversification was a clear advantage as government restrictions on our businesses varied significantly from market to market. Our bagged cement product was resilient across our emerging market portfolio, while our infrastructure, bolstered by our developed market footprint, provided a stable base of medium-term business to execute. Our existing digital platforms allow our customers and us to work seamlessly in a low-touch environment, while our distribution network enabled us to meet surprisingly strong bagged cement demand in remote markets. Pricing was resilient despite a difficult demand environment in many markets, while energy provided nice cost savings. We took important steps to boost liquidity and de-risk our financial profile. I’m especially grateful to our employees who rose to the COVID-19 challenge and made the necessary adjustments to keep our colleagues and customers safe and our facilities operating. Despite our safety efforts, there have been cases of COVID-19 among our employees, customers, and suppliers. I would like to extend my sympathy and hopes for a full recovery to each and every one of you. Our three product priorities rollout in February, which we have now named Operation Resilience, guided us in the quarter. Our top priority was to protect our employees, suppliers, and customers, thereby ensuring business continuity. We introduced new operating protocols, which included social distancing, minimal staffing at work, daily temperature checks, testing of employees, timely case management, and track and trace capabilities to minimize virus spread. Additionally, we conducted outreach to employee families to reinforce health and safety measures in the home environment. As a result, I’m pleased to say that the outcomes among all employees are significantly better than national statistics. In a world of social distancing, we employed a strategy of human touch at a distance, and we saw a 13% increase in the number of visits to our CEMEX Go platform versus pre-COVID-19 levels, while visits to our Construrama website for Mexican retail customers increased 19% in the second quarter of 2020. Our global sales force seamlessly transitioned from customer visits to virtual meetings, hosting thousands of video conferences. Our supply chain and distribution network allowed us to satisfy strong bagged cement demand without interruption, and we shared best COVID-19 construction practices with our customers and suppliers. However, that’s not enough to keep our facilities running; we needed to share best practices with customers and suppliers to keep them operational. These efforts were recognized by our customers, as we obtained the highest global Net Promoter Score ever in the second quarter of 2020. We took steps in these highly uncertain times to minimize financial risk. We conserved cash and secured all available funding sources. We renegotiated our leverage covenants with our banking group, and the COVID-19 challenges to our business are not over; these priorities will continue to guide us moving forward. As part of protecting the future of CEMEX in a world of high COVID uncertainty, where we might face disruptions to capital markets, we focused on reducing financial risk wherever possible and ensuring that we have sufficient liquidity for whatever lies ahead. We initiated this process of building our liquidity position back in February, with a decision to retain proceeds of $500 million from the sale of our Kentucky assets. Additionally, we drew down the majority of about $1 billion from our bank revolving facility. Furthermore, we continued to build the cash position in the second quarter by drawing down on the remaining revolver, as well as additional short-term credit lines totaling about $446 million. We took advantage of the first market window available to us post-COVID-19 to access the capital markets with $1 billion of seven-year notes. Finally, with the help of our COVID-19 cost savings program and better-than-expected volumes, we generated $90 million of free cash flow in the quarter, ending the quarter with the highest cash balance ever. We expect our cash position to be further strengthened in the second half of the year by the closure of our two previously announced divestments totaling $400 million. Our visibility regarding our market improved with respect to the broad part of our cash position being used to pay down debt. The coronavirus challenges in the second quarter were primarily due to government-mandated lockdowns and industry closures affecting our markets. This was the first time we experienced national shutdowns in our industry, with the strength of sales closely related to the level of restrictions imposed. In the second quarter, we faced complete industry shutdowns in markets representing 12% of consolidated EBITDA. In particular, Colombia, Panama, the Philippines, and Trinidad saw volumes in these markets decline between 30% and 90% year-over-year. In our other markets, lockdowns had a similar impact on demand for our products. For example, in the U.S., government restrictions had little impact on demand in the quarter, while lockdown restrictions in the UK and France resulted in a demand decline of approximately 35%. In all cases, demand picked up rapidly as restrictions were lifted equally quickly. Consolidated volumes fell 24% year-over-year in April, and month-to-date July volumes have recovered to be up 4% year-over-year. We expect that the challenges of the next stage of the pandemic will be different; governments may impose new restrictions to cope with virus flare-ups, expected to be moderate in tone and not occurring simultaneously. For our business, the issue will be more about the impact of the economic slowdown in the market along with fiscal programs and the pace of recovery. During the second quarter, we saw sales fall by 10% on a like-to-like basis, and this drop was primarily attributable to Mexico, EMEAA, and SCAC—regions that experienced the most stringent lockdowns during the quarter. The year-over-year decline in sales stemmed from a double-digit drop in consolidated volumes while local currency prices for our three core products increased between 1% and 4%. Our like-for-like EBITDA declined by 6% year-over-year. The U.S. was the only region with a year-over-year increase in EBITDA. Our cost containment programs and a decline in energy costs contributed to this, demonstrated by a 70-basis-point improvement in margins year-over-year. Even with the large decline in volumes, we were able to generate free cash flow of $140 million after maintenance CapEx, $77 million less than the previous year, which corresponds to the decline in year-over-year EBITDA. Ultimately, COVID-19 did not prevent us from progressing on our ESG goals. In Europe, we achieved the highest alternative standard during the trailing 12-month period, with 100% of our electricity in Poland now being renewable. Our clinker factory in Egypt achieved its lowest ever emissions. Our cost savings under Operation Resilience were marked in the quarter. These savings included $150 million from our standard CEMEX program and an additional $80 million from COVID-19 related cost containment initiatives for the full year 2020. Year-to-date savings have improved our EBITDA margin in the first half by 2.4 percentage points. These include savings from SG&A, such as fees for selling, marketing and distribution expenses, travel expenses, and headcount optimization. We also saw improvements in operational efficiency at our cement plants, with cost-saving initiatives driven by lower cost suppliers, energy, alternative fuels, and additional switches to pet coke. This also included $25 million for maintenance deferrals largely expected to be executed in the second half of the year. Now let me move to the regions. The U.S. continued to see strong momentum in the second quarter, driven by infrastructure and residential sectors. The U.S. did not experience significant disruption from government lockdowns in our markets. We achieved the highest EBITDA in a quarter in the last decade, adjusted for asset sales. Infrastructure, accounting for about 50% of activity, saw a pickup as Departments of Transportation took advantage of empty roads to accelerate construction projects. The residential sector, representing about 30% of the business, performed better than expected. Low interest rates, low new home inventory levels, and shifting buyer preferences toward suburbs and single-family houses supported growth. We maintained stable sequential pricing across our three core products, despite COVID-19 delaying the implementation of planned price increases in several markets. The year-over-year EBITDA margin expanded due to higher ready-mix prices, lower fuel costs, and overall cost efficiencies. Looking ahead to the second half of the year, in July, month-to-date, cement volumes have grown 7%, and our three-month ready-mix backlog appears promising. We have stable visibility beyond September results. Fortunately, our states have maintained fairly stable transportation spending. We expect fiscal stimulus in the form of incremental transportation spending at the federal level, and we believe low interest rates, low new home inventories, and a progressive recovery in employment will continue to support the residential sector. In Mexico, sales dropped in the second quarter primarily due to declining volumes—cement down 7% year-over-year and ready-mix down 44%. We have observed a divergent volume performance between ready-mix and cement, as COVID-19 lockdown measures affected operations. The industry was primarily allowed to provide cement to essential infrastructure projects and retail for much of the quarter, leading to delays in non-essential construction projects until June 1st. However, we saw an acceleration in the execution of key infrastructure projects, such as the new airport and Dos Bocas refinery. Additionally, we developed an innovative solution to meet the urgent need for hospital beds for COVID-19 patients in Mexico, constructing nine modular mobile hospital units during the second quarter within record periods of two to three weeks each. Despite industry volume declines, bagged cement demand increased significantly by 10% year-over-year in the second quarter, mainly due to government investments in schools, housing programs, and rural roads, as well as increased home improvement projects as consumers spend more time at home. Historically, during uncertain economic times, the informal sector has proven to be more resilient. While EBITDA margin declines were mitigated by product mix, our cost-saving program and lower fuel prices helped to ease pressures. For the second half outlook, we have witnessed recovery in both cement and ready-mix volumes. Ready-mix volumes have recovered from a 44% decrease year-over-year in the second quarter to a 19% decline in July month-to-date, while cement volumes improved from a 7% decline to 11% growth in July month-to-date. Bagged cement has remained particularly resilient. The formal housing sector, along with industrial and commercial construction, continues to recover at a slower pace, despite ongoing expansions in infrastructure spending, which is supported by an additional $26 billion stimulus package aimed at increasing spending on social and infrastructure projects. In Mexico City, a focused plan involves a $3.4 billion construction reactivation program. In EMEAA, this quarter marks the first in which we consolidated our European region with the Middle East, Africa, and Asia. In this quarter’s report, we will provide further details on sub-region performance. In Europe, we experienced a similar divergent pattern between Western and Central Europe as observed in the first quarter. Central Europe exhibited strong year-over-year cement volumes in Germany, Poland, and the Czech Republic, driven by infrastructure and fewer lockdown measures. Conversely, Western Europe faced declines in cement volumes in the UK and Spain and ready-mix volumes in France due to stringent lockdown measures. Lockdown measures in each country impacted volumes but recovery trends were observed, with pricing momentum in cement and aggregates improving on a sequential basis in Europe. The Philippines was the first country in our portfolio to experience lockdown and one of the most affected in this quarter. Significant measures were implemented, with many provinces closing from March 16th to May 20. Cement volumes decreased by 31% during the quarter, but improved significantly in June with the reopening. For more information, please see our CHP quarterly earnings report, which will be available this evening. In the Middle East and Africa, we experienced relatively low impacts from COVID-19 this quarter. Israel achieved record EBITDA and volume performance, while Egypt saw a decline in cement volumes of 13% due to government suspension of private residential construction permits. The region was notably impacted by COVID-19 restrictions; cement volumes declined 29% year-over-year in the second quarter. Favorable cement pricing dynamics have persisted despite volume declines, with quarterly pricing increasing by 3% across nearly all countries. Even with substantial drops in volume, the EBITDA margin improved year-over-year by 1.7 percentage points, primarily due to lower fixed costs and SG&A, with a further 5.2 percentage-point margin benefit attributed to positive pricing efforts. In regions severely impacted by mandated industry shutdowns, volumetric cement declines reached 60% year-over-year in April, followed by a swift recovery over the subsequent three months. By June, cement volumes were up 3% year-over-year in the affected regions. In Colombia, activity picked up in the latter half of the quarter, driven by 4G infrastructure projects and the self-construction sector. The Dominican Republic showed increased activity after lifting restrictions. However, tourism projects in Panama continue to face limitations, with most restrictions currently focused on selected infrastructure projects and retail operations. For additional details on this region, 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 performance. Maher?

Maher Al-Haffar, CFO

Thank you, Fernando, and good day to everyone. Our operating EBITDA declined 6% on a like-to-like basis this quarter. Higher prices combined with a significant reduction in our fixed costs due to Operation Resilience more than offset the impact of lower volumes. All of our regions, as well as Central Europe, contributed to these savings. Variable costs increased primarily due to higher raw material costs in our ready-mix business across several business units. This was driven by the increased prices of cement and aggregates, as well as the impact of purchased cement in some of our sold-out markets. Reported EBITDA reflects the unfavorable effect from currency fluctuation of $32 million, largely a consequence of the depreciation of the Mexican peso, although most currencies also contributed. Most importantly, due to the hard stop on expenses that Fernando discussed earlier, EBITDA margin increased by 0.7 percentage points on a year-over-year basis. Despite the double-digit drop in our EBITDA, we generated positive free cash flow during the quarter as we effectively managed to reduce and/or postpone our capital expenditures. We rigorously managed receivables collections and aligned inventory levels to meet current demand, resulting in average working capital days improving to minus 11 days in the second quarter this year. This compares very favorably to minus 6 days in the second quarter of last year. We also experienced lower taxes year-over-year, primarily due to a drop in earnings across several of our operations. I’d like to remind you that free cash flow is highly seasonal; typically, we have larger working capital investments in the first half of the year that significantly reverses in the back half. Similarly, we expect partial working capital reversals this year as well. In addition, we anticipate executing much of the deferred maintenance CapEx in the second half. It’s important to highlight that over the last 20 years, CEMEX has consistently generated positive free cash flow after maintenance CapEx every year except for one year in 2013, where we recorded a negative $90 million of free cash flow. As Fernando mentioned during the second quarter, we continued to execute on Operation Resilience by accessing the capital markets. We were the first emerging market high-yield issuer since COVID-19, seizing the opportunity to issue $1 billion in seven-year notes, as mentioned previously. We anticipate a slight increase in full-year financial expenses due to this development. During the quarter, net debt, adjusted for the higher cash balances, increased marginally by $51 million, reflecting an unfavorable FX effect of $55 million. Proceeds from the newly issued $1 billion bond and the drawdown of the remaining balance of our revolving credit facility, along with other credit lines, will be retained in our cash balance for the time being. As market visibility improves throughout the year, we expect to deploy most of our cash position to reduce debt. As shown in this slide, we concluded the quarter with a strong liquidity position and a manageable debt maturity profile. The majority of 2020 debt represents short-term debt drawn within recent months to bolster our liquidity. The next material maturity is not until 2021, specifically the $571 million due under our facility agreement, which is due in July 2021. All maturities through 2023 are bank maturities, with no maturities in the capital markets until 2024. Our leverage ratio, as defined by our facilities agreement, marginally increased sequentially to 4.57 times at the end of the quarter, remaining well below the recently amended covenant level of 6.75 times. Expect us to continue with our strategy of maintaining a healthy 12 to 24 months runway without significant maturities. In response to the Coronavirus pandemic, we initiated a consent request to amend our financial covenants and other terms of our facilities agreement. We’re pleased to report that we received 100% support from our banks on this by late May, and we thank them for that. Under the terms of the amendment, we modified the leverage and coverage covenants to the levels shown in the graph. The leverage covenant increases to 6.75 times for June 2020, then rises to 7 times from September 2020 through March 2021, decreasing thereafter. We also agreed to temporarily limit capital expenditures, acquisitions, and share buybacks, among other items. CapEx limits range from $1.2 billion to $1.5 billion per year when the leverage ratio is under 5.25 times for two consecutive quarters. Additionally, we have a $500 million basket for repurchases which can be utilized when our leverage ratio falls below 4.5 times. These limits align with our previously announced measures to mitigate the impact of COVID-19. Our interest rate margin has been adjusted to accommodate the new higher leverage ranges defined for the consolidated leverage covenant, as shown in the table. It is critical to highlight that the margin grid remained unchanged from our prior agreement for leverage levels below 5 times, simply adding pricing for leverage above those levels. I’d now like to turn the call over to Fernando. Back to you, Fernando.

Fernando Gonzalez, CEO

Thanks, Maher. Given the continued uncertainty surrounding COVID-19, it is difficult to provide EBITDA volume guidance at this time. However, we can comment on the order of variables cost-effective response; we estimate a decrease from minus 7% to minus 5%. Previously, the range was minus 6% to minus 4%. This adjustment reflects mainly lower fuel costs. We remain unchanged on CapEx compared to previous guidance. There is no change in expectations for cash taxes and the cost of debt; working capital will be higher than the $100 million guidance provided in Q4 2019, primarily due to persistent uncertainty about our top-line growth. Therefore, we are unable to provide a specific amount. In summary, we encountered local restrictions on our business in the second quarter that we have never experienced before. These milestones occurred during a time of tremendous uncertainty, to which our management team reacted quickly, taking immediate steps to protect employees, customers, and stabilize our business against potential future conditions. June volumes demonstrate sequential improvements across all regions, while July month-to-date consolidated cement volumes are up 4% year-over-year. Key upcoming events will include the status of similar efforts in various countries, additional lockdown announcements, or infrastructure stimulus package executions, along with developments concerning the pace of economic recovery. You should expect us to continue prioritizing the health and safety of our stakeholders. We will remain vigilant to changes in market demand and will continue to implement our COVID-19 cost initiatives. We aim to make the most of our competitive advantages, including our digital platforms, robust distribution capabilities, and diverse product offerings to stabilize demand. Lastly, as visibility improves, we will redeploy our historically high levels of cash to pay down debt. Thank you for your attention, and I would like to take this opportunity to wish everyone good health and to please remain safe.

Maher Al-Haffar, CFO

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. Now, we will be happy to take your questions.

Operator, Operator

Thank you. [Operator Instructions] And our first question will come from Adrian Huerta with JP Morgan.

Adrian Huerta, Analyst

Thank you. Hi, Fernando and Maher. How are you doing? Well, congrats on the results despite the environment.

Fernando Gonzalez, CEO

Thanks, Adrian.

Maher Al-Haffar, CFO

Thank you very much, Adrian.

Adrian Huerta, Analyst

Thank you. Mark it on to number one. What was the experience of navigating to the second quarter on top of what we saw on the results and the measures that we’re taking and on top of what you have already mentioned on the outlook? What else can you share based on this experience on what could be the outlook for the rest of the year?

Fernando Gonzalez, CEO

Sure, Adrian. Thanks for your question. I think, you know, we all have gone through an exogenous phenomenon that has caused a lot of uncertainty. We positioned ourselves in early March, understanding that the virus was going to impact us significantly. We spent time trying to answer three questions: the depth of the damage, the duration of the impact, and the possibility of recurrence. After a few days, we realized that the situation was worsening, so we decided to act and made a hard stop, deciding to pause everything non-essential for the next three months. That’s why we managed to offset the significant negative impacts of lockdowns in different markets. Our three main priorities were: first, protecting our employees, customers, and suppliers to ensure business continuity; second, assuring that we could serve our customers by maintaining our supply chain and promoting our digital platforms like CEMEX Go and construrama.com for customer interaction; and third, liquidity. Given that 90 days had already passed, we believe we are in a very good position to continue this journey. What we are thinking about—while we won’t provide specific guidance—is that we will continue operating under the constraints imposed by the virus until there is a vaccine or treatment. Therefore, we have extended the measures we took initially as of December 31, with key exceptions. Thus far, we have navigated conditions without shutting down plants, but we need to engage in maintenance compared to our previous debt reduction plans. Overall, we will continue to coexist with the virus while remaining cautious in our approach.

Adrian Huerta, Analyst

Thank you, Fernando. For me, I think the companies with strong operations shine during difficult times, and you guys did, so congrats on that. If I might just do a follow-up, do you think, given the numbers that you mentioned on CEMEX Go, the good increase that you saw on your platform, do you think that you gained market share during the quarter in some of your key markets?

Fernando Gonzalez, CEO

Yeah, I’m not completely sure. We need to wait until public information is available. What I can tell you, Adrian, is that we believe, given that other companies do not have a fully integrated end-to-end platform for commercial relations—covering the commercial process from initial stages to complete transactions—some customers may have preferred our services during this period. Again, while I don’t definitively know, we believe our platform is helping.

Adrian Huerta, Analyst

Understood. Thank you, Fernando, again. Thanks, Adrian.

Operator, Operator

And the next question will come from Gordon Lee with BTG. Please go ahead.

Gordon Lee, Analyst

Hi, good morning. Thank you very much for the call. I hope everyone and their families are doing well. Two quick questions. First, on the cost reductions and savings. I was wondering if you could give us a sense of how much of the savings have been achieved year-to-date, or how much you think you’re expecting for the whole year? How much of that do you think is permanent? And how much of that is sensitive to volume growth? In other words, if you do see a recovery continuing this year and into next, how much of those savings will actually remain in place? And on the savings front, I was also hoping maybe you could provide a little bit of color on the U.S., where the margin expansion was impressive. I’m curious whether the cost savings were particularly concentrated there. My second question is if you could remind us of the total proceeds from pending asset sales and when we would expect those to hit the balance sheet? Thank you.

Fernando Gonzalez, CEO

Thanks, Gordon. To answer your first question about savings, we activated certain optimizations and savings initiatives at CEMEX recently and in March, we took additional measures due to COVID-19, culminating in what we now refer to as Operation Resilience. Overall, we expect to save around $230 million, with approximately $140 million saved in the first half of the year. The remaining amount will be more clearly defined in the second half, but it is challenging to determine how much of that will be permanent, as we still don’t have a conclusive comparison scenario due to uncertainty. However, regarding the U.S., we managed to define savings of about $100 million to $120 million. These savings have come from various contexts, notably in switching fuels at several of our plants from coal to pet coke which generates notable savings. Other market efficiency measures have also contributed.

Gordon Lee, Analyst

Thank you. The question on the asset sales was actually about those which have already been closed, effectively those you announced prior to the COVID outbreak. How much?

Fernando Gonzalez, CEO

I see, we don’t get to collect. The one in the UK is set to close this month. We would expect that the closing will occur soon. The other ones are not expected until later. My comment was to reflect all potential asset sales.

Maher Al-Haffar, CFO

Yeah, and maybe, Fernando, if I can add, we expect about $230 million from the UK transaction, while the balance is related to the white cement and total is around $400 million which we are expecting sometime this year.

Gordon Lee, Analyst

Perfect. Thank you very much.

Maher Al-Haffar, CFO

Thanks a lot, Gordon.

Fernando Gonzalez, CEO

Thank you, Gordon.

Operator, Operator

Our next question will come from Ben Theurer with Barclays. Please go ahead.

Ben Theurer, Analyst

Yeah. Good morning, Fernando and Maher. Thank you very much for taking my question, and congratulations on the results, clearly impressive. I wanted to dig a little bit into the U.S. and some of the commentary you made during the quarter, and then obviously the situation as it evolves right now with surging cases and states where you’re heavily exposed, notably Texas, Florida, and California. Could you run us through a little bit how you’ve been seeing activity over the last couple of weeks and what you expect on the different markets? Just to understand a little bit how much of an impact is yet to be seen in the U.S.?

Fernando Gonzalez, CEO

Okay, let me take that one, Ben. Again referring to the process we followed, we initially thought that the U.S. would experience material lockdowns and shutdowns in the industry—however, this did not happen. With the exception of two or three weeks in the Bay Area, the U.S. didn’t enforce any material lockdown. Interestingly, the immediate impact of COVID on construction activity was less severe than we expected originally. Stimulus programs and fiscal measures enabled the economy to reopen without significantly impacting construction activities. In some cases, rather than delaying construction projects, some construction firms began to expedite project completions. While our order books appear stable for the next three months, we expect fourth-quarter volumes might soften as these stimulus programs come to an end, although we remain cautious and will see how it unfolds.

Ben Theurer, Analyst

Perfect. Thank you very much, Fernando. On Mexico, I was wondering if you could elaborate a little bit. I mean, clearly, we’ve seen the discrepancy between bagged and bulk cement. You’ve explained the different demand scenarios, and clearly the volume within ready-mix and aggregates, which constitutes the more formal piece, was heavily impacted. What’s your strategy regarding pricing? I mean, we all know that the Mexican peso has depreciated but has stabilized now against the U.S. dollar. To recoup some of that input cost pressure, which is faced in dollar terms, what’s your pricing strategy going forward in Mexico for the different segments within cement, bulk versus bagged, along with ready-mix and aggregates?

Fernando Gonzalez, CEO

Regarding pricing strategy, it’s crucial to note the dynamics in Mexico during the pandemic. Historically, about 65% of cement is sold in bagged format. The lockdown meant immediate retail sales of bagged cement remained strong throughout, and government investments in social programs related to bagged cement further supported demand. What we have seen is definable: bagged cement volumes increased significantly, while bulk cement saw a decline. In the worst months of April and May, bagged cement volumes increased by 5%, while bulk cement saw a decrease of over 40%. In July, bagged cement continues to grow significantly, showing a 28% increase, while bulk cement is declining at a much lower pace year-over-year. Pricing becomes critical. We have attempted to align prices with input cost inflation, which is embedded in our pricing strategies. However, the current market is particularly challenging. Early this month, we implemented price increases for bulk cement, so we will assess the effectiveness of these moves shortly.

Maher Al-Haffar, CFO

Thanks, Ben.

Operator, Operator

Our next question will come from Carlos Peyrelongue with Bank of America. Please go ahead.

Carlos Peyrelongue, Analyst

Thank you. Thank you for the call, and let me echo what others have said regarding the results. Despite the very challenging situation, your margins were much better than expected. So my question relates to margins. Can you comment a little bit more on this? You previously touched upon it but could you elaborate? If there were any major disruptions going forward, should we expect margins to remain flat versus last year? Is that something you think is achievable, considering the $230 million in expected savings for the year? Clearly, the U.S. margins performed much better than expected, but this wasn’t the case in your primary markets. Any further insights into margins would be appreciated.

Maher Al-Haffar, CFO

Sure, Carlos. I’d like to take a stab at that and then pass it on to Fernando if needed. Overall, we believe that most of the cost-cutting measures we implemented in the first half of the year will persist, along with some expenses incurred during COVID-19. Everything else being equal, we expect to retain our margin levels. There is a possibility that it could even improve; under Operation Resilience, we anticipate $140 million of savings realized in the first half, with the remaining amount expected in the second half. Regarding the U.S., we had significant margin improvements due to several factors, including a decrease in both operating and selling expenses. Along with efficiency improvements, we observed drops in expenses related to marketing, travel, and general administration, which have positively impacted profitability.

Carlos Peyrelongue, Analyst

Understood, thank you. And could you comment on pricing in the U.S.? Have there been any announcements of increases in prices that we should expect during the summer? Or have those already been implemented in the second quarter? Can you comment a little bit on U.S. pricing?

Maher Al-Haffar, CFO

Yes, I’d say that pricing was relatively stable on a sequential basis. We observed flat pricing across our three products quarter-on-quarter. The most substantial price increases had been anticipated for April but were pushed back through July due to COVID-19 developments across the landscape. In the interim, we executed pricing adjustments in certain geographic areas, particularly in Texas, Arizona, and Colorado. Pricing increases have been staggered and are expected to stabilize in the second half of the year.

Carlos Peyrelongue, Analyst

Okay, understood. Lastly, is there anything you could share regarding potential support from Congress or any initiatives promoting infrastructure funding? Are there discussions for upcoming fiscal support measures slated for implementation?

Maher Al-Haffar, CFO

There are multiple things from which we benefit in the U.S. Negotiations are ongoing regarding potential support measures, and both parties are putting forward various proposals for infrastructure investments. While we do not expect any changes this year, we anticipate significant programs could emerge in 2021 and 2022 to support infrastructure initiatives. The programs proposed recently by the Democrats contain substantial investment provisions for highways and streets, which could lead to material increases in funding during the program’s lifespan. Additionally, timely infrastructure initiatives could commence as early as Q4 of 2021. The groundwork for these initiatives appears promising, particularly given the healthy reserve funds maintained by key states including California, Texas, and Florida.

Carlos Peyrelongue, Analyst

Great, thank you so much, Maher.

Maher Al-Haffar, CFO

Thank you very much, Carlos.

Operator, Operator

And our next question will come from Nikolaj Lippmann with Morgan Stanley. Please go ahead.

Nikolaj Lippmann, Analyst

Hi, Fernando and Maher. Hi, everyone, and just three quick questions here, and also sorry, congrats on the phenomenal numbers. First on the U.S., if you watch like you did in Mexico, could you provide some additional context on where demand came from—specifically breaking down infrastructure versus residential, et cetera. Two on CEMEX Go, the 19% growth you saw there, can you discuss what markets achieved this growth and your experience with transitioning to that model? Lastly, Maher, congratulations on your new role and if you see any visions or changes you envision for the future?

Maher Al-Haffar, CFO

Thanks, Nik. I don’t—I don’t know if Fernando wants to add—

Fernando Gonzalez, CEO

Let me take the question regarding CEMEX Go. To summarize, around three years ago, we began building this commercial platform to empower our customers and improve their experience. Prior to COVID-19, our platform began to gain traction among customers, providing a complete suite of capabilities, including product data, order management, and payments. Recently, we saw customer usage of the platform grow significantly during the pandemic, evidencing a 19% surge in engagement across different platforms, primarily CEMEX Go and construrama.com. The platform is used broadly across operations in numerous markets, although I cannot provide specific regional growth metrics. The acceleration in remote transactions propelled usage rates upward, reflecting the benefits we realized from investing in digital services. Customer feedback has been overwhelmingly positive, with several remarking on the ease of using these products.

Maher Al-Haffar, CFO

As for the U.S., we experienced roughly 6% growth in volumes during the second quarter. We began the year with great momentum, and the construction sector remained resilient through efficient safety protocols, allowing us to maintain activity levels. Infrastructure and residential sectors combined account for around 80% of our market volume. Specifically, both Texas and Arizona experienced robust double-digit growth during this period, while Florida saw mid-single-digit growth. California registered a small decline primarily due to excess precipitation and import limitations tied to the COVID-19 restrictions. Nevertheless, infrastructure development thrived, as Department of Transportation systems took advantage of reduced traffic patterns to accelerate projects. I hope this addresses your inquiries.

Nikolaj Lippmann, Analyst

Interesting. And Maher, thank you for your response regarding future ideas and any insights you can share.

Maher Al-Haffar, CFO

Of course. While it would be challenging to elaborate on my vision in front of my boss, I can confirm we will continue executing the strategy approved and shared by our Board without any major changes.

Nikolaj Lippmann, Analyst

Thank you.

Maher Al-Haffar, CFO

Thank you very much, Nik.

Operator, Operator

And we have time for one last question from Anne Milne with Bank of America. Please go ahead.

Anne Milne, Analyst

Good morning, Fernando, good morning, Maher. I’m sure that you’re happy that this quarter is over and that it came out as well as it did, all circumstances considered. You guys have covered a lot of territory already in terms of the questions. I do want to ask one more on CEMEX Go. And then a question on liquidity, but regarding CEMEX Go, I know multiple questions have been asked already but we’d be interested in knowing if you have quantifiable transactional metrics—specifically, what percentage of cement sales transactions utilize CEMEX Go, or at least approximate volume. I’m curious how this trend is evolving given the heavier reliance on virtual transactions.

Fernando Gonzalez, CEO

Absolutely, and thanks for the question. We are indeed pleased with the quarter and our future outlook. For the last three years, we have worked diligently to establish digital commercial platforms that enhance customer experience across CEMEX Go and construrama.com, enabling seamless engagement. Our adoption rates have achieved around 60% to 65% currently, which remains promising compared to industry standards. The recent pandemic exposed the necessity of these platforms, leading to a notable increase in operations—usage across our system realized about a 19% growth throughout last year. Though I do not have specific growth by geography breakdowns, customer interactions suggest higher engagement levels within segments previously reliant on direct interaction.

Maher Al-Haffar, CFO

I believe your earlier mention of liquidity warrants consideration. We initiated this year with sizeable liquidity reserves, aided by credit line access and prudent cash management, which remains a strength moving forward.

Anne Milne, Analyst

Great, thank you very much, and good luck moving forward.

Maher Al-Haffar, CFO

Thank you very much, Anne.

Fernando Gonzalez, CEO

Thanks again to everyone for your time and participation in today’s conference. If you have further inquiries or require additional information, please do not hesitate to reach out. Thank you, and stay safe.

Operator, Operator

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