Latin Finance - July/August 2010 - 31

cemex cfo interview

Operating Leverage Advantage
by James Crombie emex came very close to ruin when capital markets slammed shut after Lehman went bust. But the Mexicobased global cement producer is showing clear signs of improvement and veteran CFO Rodrigo Treviño is relaxed and jovial when discussing the future. “For the last 90 days, year-over-year, we have seen growth [in the US], so it seems as though we are at that inflection point,” says Treviño in an exclusive interview in early June. “If it continues, that is what the equity investors bought – a recovery in volume in the US,” he adds. Cemex is performing much better than previous quarters. “There’s a lot of reasons to be optimistic about the next 12 months,” says Treviño, who breaks into hearty laughter throughout a meeting deep inside the New York Stock Exchange building on Wall Street, despite an earlier cut in 2010 Ebitda guidance to approximately $2.75 billion from $2.90 billion. Cemex was at slightly more than 7.0x total debt to Ebitda in early June and is contractually obliged to get down to 3.5x by December 2013. Treviño expects a move below 6.75x by the end of 2010, boosted by Ebitda recovery and debt reduction using free cashflow. The company has earmarked around $450 million cashflow for that purpose. Cemex is pitching itself to investors as a company with high operating leverage exposed to an upswing in cement sales volume. Volume in the US is “unsustainably low” says Treviño. He adds that selling Australia assets and placing equity have cut refinancing risk and given investors upside with a 1-3 year timeframe. “It was not a difficult story to tell to the new shareholders, or to the old shareholders who were not participating,” says Treviño. “It made sense for everybody, just good common sense . . .

After surviving one of the roughest patches in its 104-year history, Cemex sees potential for significant recovery. The sole fear of its longstanding CFO is losing market access.
2013 with free cash and cash on hand, that gives us a 2-1/2 to three-year runway for the recovery to be fully underway in the US,” says Treviño. Cemex has already amended last year’s $15 billion restructuring twice to help better manage liquidity and refinancing risk, and it is likely to do so again to reduce the spread on 2013 and 2014 maturities. “We need to renegotiate terms that are better for the company, and likely we will be doing that,” says Treviño. He adds that there will also probably be some early debt payments. “Because we expect to continue to generate free cash from now until then, we’re likely going to be prepaying that, in the course of this year and next,” says the CFO. Cemex has no bonds maturing in international capital markets in the short term, and says certificados bursatiles due in November 2010, March 2011 and November 2011 are all covered with cash on hand. “We have a year-and-a-half of free cash that we will generate to meet that,” says Treviño. The next maturity with international banks is June 2012.

Cemex at an inflection point, says Treviño When volumes come back, Ebitda will grow faster, that’s what operating leverage is all about,” he adds. Treviño says strong performers in the Cemex global portfolio like Egypt, Bangladesh, CentAm, Colombia more than offset weak areas like Spain. The US is easily the biggest component of growth.

Recovery Runway

Rebuilding Market Trust

Since March, Cemex has reduced debt by $1 billion through its perpetual bond exchange, which Treviño says results in a net present value gain of $437 million. Since both the euro and Mexican peso weakened, the dollar debt fell by $550 million. Cemex debt is $3.7 billion lower than it was in the second quarter of 2009. “We’ve taken care of maturities before

Cemex repurchased 2.64 billion pesos in local bonds, just over 43% of the 6.11 billion pesos in four series of its outstanding 2010 and 2011 targeted in a tender offer. The bonds were bought back at close to par, versus trading levels around 98 cents. “If you pay a premium, you’re better off keeping the cash in the bank, or using it to prepay the refinanced debt,” says

July/August 2010

LatinFinance 31

Latin Finance - July/August 2010

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