Golden Cariboo Res Ltd

Good morning and welcome to GCC's fourth quarter 2022 earnings call. Before we begin, I would like to remind you that this call is being recorded and all participants will be in a listen-only mode. Please also note a slide presentation accompanies today's webcast. The link is available on the company's IR website at gcc.com. At this time, I'd like to turn the call over to Saori Oguchi, Head of Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining our call. With me today are Mr. Enrique Escalante, our Chief Executive Officer, and Mike Strecker, Chief Financial Officer. The earnings release detailing our 2022 fourth quarter results crossed the wire yesterday afternoon and is available on the company's website. This conference call is also being broadcast live within the investor section of the company's website at dpt.com, and the website's replay of the call will be available at the same site one hour after the end of today's call. Before we begin, I would like to caution listeners that during the course of this conference call, management will make projections or forward-looking statements regarding future events, including statements about our business, assets, strategies, demands, and markets, as well as trends that may continue. Management uses these measures to establish operational goals and review operational performance-based and current assumptions. and believes that these measures may assist investors in analyzing underlying trends in the company's business over time. These statements are subject to risks and uncertainties that could cause actual results to the firm of ERE. We undertake no obligation to update them as a result of new information or future events. With that, let me now turn the call over to Enrique.

Thank you, Saori, and good morning, everyone. The challenge facing investors GCC and our industry in 2022 was to ensure high-quality product availability for our customers in light of unprecedented demand dynamics and logistics obstacles. GCC's commitment to operational excellence enabled us to consistently deliver. Our teams exhibited outstanding performance to mitigate the effect of the challenging environment, taking advantage of pricing opportunities and swiftly adapting to offset cost pressures. I would like to again thank our employees for their focus and dedication, which made our success possible, also supporting our customers and communities. Our employees are our greatest resource. Therefore, in 2022, we initiated a company-wide effort to re-engage and revisit GDC's safety strategy with related goals. We've begun a comprehensive diagnostic conducted by an independent consultant to ensure the health and well-being for all GCC employees, and we'll keep you posted in the coming months. While today's discussion focuses on our full year results and 2023 outlook, I'd like to highlight a few notable takeaways from our four quarters. GCC delivered $91 million in EBITDA for the fourth quarter of 2022, a 13% increase, despite continued volatility in the energy market and enduring inflation, which moderated by mid-fourth quarter, with easing supply-side constraints and a more hawkish monetary policy. The decisive action we have taken have enabled us to minimize the impacts of the quarter's tough operating environment and extraordinary inflation. Our third price increase in the U.S. of $6 per short-term for construction cement across markets and clients took effect on October 1st, and we achieved pricing growth across product lines to deliver solid four-quarter results relative to a difficult year-on-year comparison. While we saw a strong quarter start for our U.S. operations, when GTC was initially shipping at a rate ahead of budget, this was adversely affected by the mid-December cold front throughout the region in which we are present. Notably, this was after four years of unseasonably warm weather that had enabled shipments straight through the winter season. Permian-based renewable cement demand strengthened during the quarter with solid drilling activity despite oil price volatility in Q4, as producers raised production and capital budgets in 2022 due to a stellar world performance. GCC's Odessa, Texas cement plant is running at full capacity, supplemented with cement from the Chihuahua plant. We expect demand to remain robust in the year ahead. also with strong cement pricing. The current market outlook represents an opportunity for our clients and companies will continue to invest in the Permian Basin. One of the largest international energy and petrochemicals companies recently announced that a significant portion of its 2023 budget will be allocated to Permian Basin oil field projects. We therefore remain focused on increased efficiency at our Odessa plant a narrow track on our announced capacity expansion. It's important to note that GTC is also able to allocate our Tijeras plant production to oil well cement to supplement Odessa's production should the need arise. We are pleased to share that U.S. logistics headwind is due in the fourth quarter, earlier than initially expectations, enabling GTC to revert to a more cost-effective rail freight and reducing our reliance on trucks. Turning to GCC's Mexico business on slide six, we significantly benefit from the explosive nearshoring trend impact on industrial real estate construction demand. The northern Mexico water market and the El Paso area are increasingly popular destinations for manufacturing maquila factories in Mexico, building for non-Mexican companies, which are relocating to North America from Asia and elsewhere. GDC has seen a steady stream of projects entering our pipeline, a trend where confidence will continue for the foreseeable future. Cross-border commerce between the U.S. and Mexico totaled $656 billion in the first 10 months of 2022. according to the latest U.S. Census Bureau figures. Further, as the Juarez market nears saturation, infrastructure is migrating south to Chihuahua in search for new warehouse properties. This is increasing capacity in all of our product lines in Juarez, expanding as quickly as possible to protect and increase our share in this market. Our Samarayuka expansion project is advancing well. We purchased an additional crusher during the fourth quarter for our aggregate business and are leveraging our subcontractors' relationships to enable immediate access to equipment and ready-mix trucks, ensuring seamless customer supply. In contrast, while vaccine rents have reached pre-pandemic levels, Fourth quarter and full year demand reflects year-on-year shipment decline relative to 2021 pre-pandemic algorithm. Five, which drove retail customers on do-it-yourself projects. So what we've seen in 2022 decrease purchasing activation forced customers to allocate budgets to others expenditures We do expect a normalization of demand for this segment going forward. Portwater Mexico mining sector activity remains weak, consistent with the variability of cement demand required for mine stabilization and tailings dams, as is expected in this industry. Cement demand varies with changes in mining processes. It also shifts based on underground versus above-ground mine cement and concrete intensity. This is a normal part of the production cycle and will continue to show variations in demand in the quarters ahead. But it's important to note that while mining and activity fluctuates, GCC has maintained the same number of mining clients without any customer attrition. Turning to the continued progress GD is making towards our sustainability goals, on slide 8, we have shared some updates on our work-related blended cement to reduce our clinker factor and to expand our product range. During the fourth quarter, we accelerated our push towards blended cement, enabling us to reduce our clinker content from its current 86%. GCC is on track to shift to 100% Portland limestone cement by 2024, when our Tijeras, New Mexico plan concludes a modification to increase porcelain and limestone additions. I'm proud to share that our Pueblo plan was fully converted in the fourth quarter of 2022. Today, GCC has three cement plans fully converted to PLC. Trident, which was fully converted in the first half of 2022, and Puebla and Rapa Tiri were converted in the second half. Our Samalayuka plant produces and exports Portland Langston cement to the U.S. 59% of GCC's 2022 cement production was blended cement, a significant increase from 30% in 2021. On another note, the carbon disclosure project For CDP, it's a global environmental nonprofit that runs the disclosure system for investors and companies to manage their environmental impact and provides a snapshot of a company's disclosure and environmental performance. CDP awarded GTC a big rate in December 2022, which is the highest rating in GTC's history and also an important reflection that DPP has addressed the environmental impact of our business to ensure good environmental management by creating strategies to take action on climate-related issues. It's important to note that this is a significant improvement from our 2020 score and an important indication of the progress we continue to make in driving our decarbonization agenda. I'm also pleased to share that the science-based target initiative validated GCC's greenhouse gas emissions reduction target. Our target aims to reduce scope 1 and 2 emissions by 30.7% and 57% per ton, respectively, of cementation materials by 2030, compared to a 2015 base year. GCP further commits to reduce absolute scope-free GHG emissions from use of salt or salt products by 37.5% within the same timeframe. This is a reflection of the company's commitment to keep global temperature increase well below 2 degrees Celsius. Additionally, this validation reduction target is also the Sustainability Performance Target, or SPT, of our $500 million sustainability link bond issued in January 2022 and will be verified annually by an independent reviewer with the annual performance that will be publicly available on GCC's website. Further, our Pueblo and Rapid City cement plants earned the EPA's 2022 Energy Start certification for another consecutive year, raising internal awareness about energy efficiency opportunities and responsibilities that drive our emissions reduction. On another note, we are investing in our business through our employees with education programs at our newly unveiled GCP Technical Training Institute in partnership with the CEMENT Institute in New York to ensure that our employees develop technical competencies, anticipating a new competitive landscape, and strengthening GCC's training structure. The GCC Technical Training Institute consists of an assessment for employees in all operational positions to identify training needs and certifications which are tailored to the operational requirements. With this, we seek to standardize the competencies and training process for all cement plants. Our goal is to ensure GCC remains the best cement company and prepare for potential future challenges. We're focused on ensuring our employees have the necessary skills to run any cement plant at GCC. With that, let me now introduce you to GCC's CFO, Mike Sprecher. Mike joined GTC in 2020 as Chief Planning Officer and was appointed Chief Financial and Planning Officer this past November. He has more than 20 years of industry experience at global companies, which ranges from mergers and acquisitions and business development to product line management and sales and marketing. I'm very pleased to have him join me today. Mike? Thank you, Enrique. and good morning to everyone. I am delighted to be here and have enjoyed the meetings I've already had with many of you over the recent months, and I'm looking forward to continuing the open dialogue with the investment community. Let's now move on to our financial results. Turning to slide 13. Consolidated net sales for the fourth quarter increased by 12%. This was mainly driven by increase in concrete volumes in Mexico, as well as strengthened prices in bulk markets. This was partially offset by lower cement and concrete volumes in the US due to adverse weather conditions and lower cement volumes in Mexico reflecting reduced demand of our back cement. For the full year 2022, Net sales increased 13%, driven by strong price growth in both countries and good volume growth in the U.S. for cement and concrete. I would like to confirm Enrique's comments regarding the strong performance we continue to see at our Orwell cement business, which was the major contributor to our cement volume growth in the U.S. throughout the year. Please turn to slide 14. Cost of sales as a percentage of revenues decreased 90 basis points in the fourth quarter and increased 60 basis points to 68.7% for the full year 2022. Our successful pricing strategy, which drove price increases in line or above our full year guidance across all our segments, coupled with higher fixed cost dilution, enabled us to nearly offset our cost increases in a highly inflationary and volatile environment. We made further progress switching to a new reserve at our coal mine during the fourth quarter. However, the delay we experienced throughout the year impacted GCC's coal production. For this reason, we had to purchase coal from third parties for our Mexico cement plants during 2022. In 2023, we expect that all our plants in Mexico will be supplied with GCC's coal to cover their full needs. S&G and A expenses as a percentage of sales decreased eight basis points in the quarter to 9.1%. and 50 basis points to 8.2% in the full year 2022. Please turn to slide 15. As a result, fourth quarter EBITDA increased by $91 million, with the EBITDA margin stood at 31.5%. For the full year 2022, EBITDA increased 7% year on year, and the EBITDA margin decreased 1.5 percentage points to 31%. Looking ahead to 2023, we remain committed to regaining and even increasing our EBITDA margins through our pricing strategy and our cost-setting initiatives. We are focused on improving our fuel mix, optimizing our distribution network to reduce freight costs, and maintaining a high plant utilization rate in what we expect to be continued challenging economic environment. Moving down the P&L onto slide 16. Net financial expenses totaled $100,000 in the fourth quarter of 2022, compared to $7 million in the prior year quarter due to higher financial income and the decrease in the effective interest rate. For the full year period, net financial expenses decreased 34 percent. Consolidated net income increased 70 percent in the fourth quarter and 23 percent for the full year 2022. Earnings per share increased 72 percent for the fourth quarter and 24 percent for the full year period. Please note that during the year, we repurchased more than 5 million shares, equivalent to $26 million under our current share buyback program. To further promote our stock's liquidity, in October, we signed a market maker agreement for a 12-month period. Turning to our cash generation on slide 18. Free cash flow was $115 million in the fourth quarter and $285 million for the full year. This translates into a free cash flow conversion rate of approximately 126% in the fourth quarter and 78% for the full year. Once again, I would like to call out GCC's improvements in controlling payables, receivables, and inventories. Based on the last 12 months of sales, we've reduced days in network and capital to 28 from 39 and an 11-day total decrease. Moreover, BCC's return on invested capital for the full year increased to 15.2% from 13.1% in 2021. well above our weighted average cost of capital and one of the highest in our industry. Turning to our balance sheet on slide 19, we ended the year with $832 million in cash and equivalents. At the end of December 2022, our net debt EBITDA ratio dropped to minus 0.95 times, our solid financial position combined with our strong operating track record and leadership position within our footprint was also recognized in our improved credit rating outlook. We were pleased that in December 2022, Twitch Ratings affirmed GCC's credit rating at triple D minus while revising the outlook to positive from Staples. Looking ahead, our capital allocation strategy remains unchanged. We are committed to delivering strong stakeholder value while investing in the future growth of our business. In terms of organic growth, during 2022, we announced the expansion of our IDESA plan, which will enable us to increase production by over 1 million metric tons while improving our logistics, and distribution network. Regarding inorganic growth, we continue to look for opportunities to acquire cement assets located in the US that could plug in our network and are aligned with our long-term strategic vision. With that, I will now return the call to Enrique to discuss the guidance for the year ahead and to share his closing remarks.