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spk00: Good morning and welcome to the GCC fourth quarter and year-end 2021 earnings call. Before we begin, I would like to remind you that this call is being recorded and all participants will be in listen-only mode. Please also note a slide presentation will accompany GCC's earnings results webcast. The link is available on the company's IR website at gcc.com. At this time, I would like to turn the call over to Ricardo Martinez, Head of Investor Relations. Please go ahead.
spk06: Thank you, operator. Good morning, everyone, and thank you for joining our earnings call. We will begin today's discussion with remarks from Enrique Escalante, our chief executive officer, followed by financial highlights from the quarter by Luis Carlos Arias, chief financial officer. And we will then close with your questions. As you will note on slide two, Our call will include projections and other forward-looking statements, and it's important to note that actual results could differ materially from those projected. ECC undertakes no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or other factors. Investors are urged to carefully review various disclosures made by the company, including the risk on other information disclosed in the company's filing with the Mexican Stock Exchange. In particular, uncertainty remains about the duration and impact of the COVID-19 pandemic. This means all could change at any time due to the pandemic impact on the company's business results. Management's outlook is therefore a best estimate based on the information available as of today's date.
spk07: With that, let me now turn the call. Thank you, Ricardo, and good morning, everyone. Turning to slide three, please.
spk05: 2021 was another extraordinary year. GCC delivered strong results, particularly in the second half, for the first time surpassing an important milestone of $1 billion in sales and record-high EBITDA for the company, which enabled us to upwardly adjust full-year guidance despite continued supply chain, labor, and energy costs headwind. We saw robust customer demand in both Mexico and the US during the year, which continued in the fourth quarter, supported by a long construction season, and strong trends persisted in infrastructure, commercial, oil well drilling, and in global economic growth. Along these lines, we continue to prioritize meeting today's heightened customer demand while operating in an unusually complex labor and supply chain environment. I thank our 2,800 plus employees in Mexico and the U.S. for delivering record revenue and EBITDA under these circumstances. And in particular, I want to offer a special thanks to our employees at Clams, drivers and service people, as well as supervisors and managers and other staff that have to be in the field or travel to support our business for their incredible dedication, agility, and resilience to serve our customers during this particularly challenging year, as they always do. We have developed an array of growth drivers to position our business to capture this opportunity. We are continuing to invest in innovation, inventory, In our plants and logistics in particular, as well as in previously announced projects to improve operational efficiency and enhance GCC's social and environmental responsibility while we meet the strong demand in the near term and fuel sustainable growth over the medium and long term. Further, our operations teams remain focused on ensuring our plants are producing at a consistent level also to accommodate this year's extended construction and shipping season due to favorable weather for the third consecutive year, with strong backlog complicated by an ongoing labor shortage. The industry will therefore continue to be challenged by low inventories. As I mentioned last quarter, for the first time in 15 years, every GCC kiln continues producing clinker for both construction and oil well cement. Turning to pricing on slide five, as we noted in the third quarter, last spring we informed our customers of a second price increase of $6 per short ton, which took effect in August in most of our markets. It is also important to note that a second price increase is unusual for GCC and the industry. something we have not seen since the last demand peak, which enables us to capitalize on current opportunities while upsetting incremental costs. We remain optimistic about early signs that this trend could be permanent across the board to ensure we pass freight, diesel, and commodities increased pricing through to clients as quickly as possible. As we're focused on maintaining EBITDA margins, we are extremely vigilant and agile in identifying market opportunities to further increase prices, particularly with tight supply and demand dynamics. In light of the current operating environment, we announced an additional 6% to 8% price increase per short-term in construction cement, which came into effect earlier this month on January 1st. And for Oracle Cement, we announced a $15 per ton price increase effective April 1st, 2022. To date, these price increases have been well received by our customers. In the current environment, most of our customers are significantly more concerned about ensuring uninterrupted supply, and GCC has had an important competitive advantage when uniquely positioned to guarantee product availability. As Luis Carlos will review, despite planned strategic capex investments in 2021 directed towards incremental capacity, GCC ended the year with a balance sheet strength that ensures we are particularly well positioned to capture the right opportunities in today's unprecedented market conditions. Another important development during the year was that the U.S. House of Representatives finally passed the Bipartisan Infrastructure Investment and Jobs Act in November 2021. To reiterate, the Portland Cement Association estimates that $550 billion in new spending included with the Infrastructure Investment and Jobs Act should result in approximately 48 million metric tons of increased cement consumption over the life of the program. To provide context on the magnitude of this additional funding, should everything be consumed within the bill's five-year timeframe, cement consumption would increase by around 9% annually as compared to the 2020 levels, on top of the 2% to 3% normal organic growth. But it's also important to note that we will only expect to see initial related benefits beginning roughly a year from now and thereafter. Let me now share a more detailed review of our key business drivers during the fourth quarter. Luis Carlos will then provide color on our financial results, and he will then turn the call back to me regarding 2022 full-year guidance and closing remarks.
spk07: Turning to slide seven, please.
spk05: As I have commented, we are very pleased with the results we achieved during this year in both of our markets. We delivered another record high four-quarter in the US cement volumes, which rose 5% for the four-quarter with a 6% increase for the full year. As we were able to shift our considerable backlog, I will review some key performance drivers in the U.S. and then touch upon GCC's Mexico operations. The El Paso market remains strong during the fourth quarter of the year, and we don't expect this to change, with extraordinary nearshoring demand and warehousing projects driving tight supply and demand dynamics in every U.S. market. Turning to slide eight, in West Texas, Drilling continued to rebound during the fourth quarter with related demand for oil and well cement in the Permian Basin markets, which was higher than expected and challenging to fully supply. We expect to see continued strength in 2022, while the $15 per ton price increase has been fully accepted by our clients in this market. To reiterate, Both kilns at our Odessa cement plant are running at full capacity, with one kiln at the Chihuahua plant complementing our supply to produce this type of cement. Separately, while the Odessa plants run all their kilns, price increases have also enabled us to offset increased costs.
spk07: Turning to slide nine.
spk05: In Colorado, we maintain a strong performance in every market segment, particularly in residential and industrial warehousing, driven by today's elevated consumer demand environment and the e-commerce boom, as well as infrastructure projects. Salt Lake City, Utah, continues to surprise on the upside, with cement volumes reflecting a more than 50% year-on-year increase where I'm pleased to note that we've successfully built a solid customer base in one of, if not the hottest market in the US. Our customers are bullish about this market's prospects and remain focused on insured cement supply as their paramount concern. Turning to the Northern Midwest and Plain States, agriculture drivers are particularly strong within this region and represent a stable long-term source of business for GCC, as companies continue to move production and processing as close as possible to their end markets, and also a trend that is favorably impacting our northern markets. However, during the year, we noticed a decrease in cement volumes for wind farm projects that to date haven't materialized, with more funds than available projects. And while the Midwest and Penn states appear to be saturated and we don't see the trend reversing, we know that the industry has been migrating to other locations along the wind corridor. We therefore expect related demand will surface in other states where GCC has cement presence, including the Dakotas and Montana.
spk07: Turning to slide 10.
spk05: Montana is essentially sold out. We have begun introduction of Portland limestone cement in this market, which is one of the sustainable products of the future in the U.S. The Montana cement plant is now fully converted to produce only Portland limestone cement, or PLC, a high-quality cement that reduces our carbon footprint with a lower clean-care factor while still providing the strength, workability, and durability of regular Portland cement. This is an important milestone in our blended cements effort to reduce our clinker factor and expand the range of our products as part of GCC's sustainability toolkit. GCC has been actively working with mixes to address current fly ash scarcity and plan to expand PLC production to more of our US plants in the near future. Also, on the innovation front, GCC has been working with and will invest in carbon capture technology and have made important initial steps to date. We have developed internal targets to ensure we're close to technology developers, working with them to identify the right technology to fit each of our plans. These steps are part of our broad-based sustainability strategy and entails a long-term process. Briefly touching upon the Montana market on slide 12, it's important to note that we've emitted the volume shift to this market during 2021 as part of our overall strategy as a concerted decision not to shift volumes to this previously well-supplied area and to instead shift to higher margin regions within the U.S. We expect to increase our shipments to Minnesota in 2022 and have been pushing more product due to the supply issues we are now seeing. We are working to free up additional capacity in Rapid City where we do indeed have capacity. The team has therefore been focused on running the plant in the first quarter to unlock this additional capacity. Separately, work progressed during the year towards completing the new Albertville Cement Rail Terminal to solidify our important position in Minneapolis and Paul, and to expand and strengthen our distribution and storage capacity in this market overall, in line with our strategic plan. We expect this will continue to be a booming market in the years ahead.
spk07: Turning to slide 13.
spk05: Looking ahead, related to pricing, as I noted, the percentage and frequency of increases during 2021 are encouraging. This past summer, we successfully passed through a price increase as one of the few companies among our peers to announce a second price increase. We also expect cost increases will continue in the short term, including the increase increases in freight, diesel, and certain commodity prices we're already seeing. Our goal is then to calibrate our pricing to pass these cost increases as quickly as possible with an eye towards improved margins, also ensuring we remain agile in identifying important market opportunities, particularly in today's current environment. As I noted, Our strong performance in 2021 was due to GCC's unique ability to supply our clients when some of our competitors were unable to do so since they burned down production at the end of 2020. GCC instead made the decision to continue to run plants and build our inventories during the pandemic while tightly, tightly managing employees. Crucially, this enabled inventories during the first part of 2021 for which many of our clients appreciated our support and our ability to fulfill orders when many piers were unfortunately sold out. Turning to our Mexico operations on slide 14. We are very pleased with our fourth quarter results and for our overall full year performance in the Mexican market. Cement volumes grew 5% and concrete 14%, on a yearly basis, cement grew 7%, and concrete 9%. Mexico continued to surprise on the upside during the year and in the fourth quarter, with solid performance and a strong backlog in the Chihuahua region overall, and particularly the Juarez area, where demand remains strong with continued industrial warehouse construction and plant expansion as benefits of USMCA near-shoring and high operating levels in the mining sector. Importantly, GCC again successfully maintained market share on a customer-by-customer and project-by-project basis in the Chihuahua market. And while projects do continue to drive employment, we are seeing self-construction demand normalized to pre-2019 levels in this market. In closing, while 2021 was an outstanding year for our company, enabling us to achieve our updated guidance, we expect similar positive performance in the year ahead. Also, with the expectation that 2023 and 4 will be even better with benefit of the U.S. infrastructure bill. There are several positive secular demand trends that are benefiting our business. And we remain bullish on the residential and non-rest construction markets, as well as oil, oil and industrial recovery in Mexico and the U.S. As a company, we're laser focused on ensuring we're best positioned for the considerable market growth we're anticipating, supported by the overall resiliency of industry and of GCC. So, we will continue to see bottlenecks. particularly related to equipment lead times. We have already begun planning and are placing orders much earlier than normal to anticipate this challenge. Our close customer relationship also enables and ensures we maintain better visibility with tight control of orders and demand for our products. Further, we have important projects under development with one cement plant expansion at the bottlenecking project in San Malayuca, Mexico, two new terminals under construction in the U.S., several projects to improve operational efficiency and enhance our social and environmental responsibility. GCC has committed to invest roughly $500 million related to these projects over the next three years. With that, let me now turn the call over to Luis Carlos to review the requires financial results And I will return for some brief closing comments.
spk03: Thank you, Enrique, and good morning to everyone. Turning to slide 17. Consolidated net sales for the fourth quarter increased by 11%. This was mainly driven by the increase in ready mix volumes in Mexico and cement volumes in both countries, along with better prices in the U.S. It was partially offset by an 8% decline in ready mix volumes in the U.S., impacted by a difficult year-on-year comparison related to the wind farm projects that Enrique explained. For the full year 2021, net sales increased 11% as well. I would like to highlight the strong performance of our Mexican operations, where we closed the year exceeding our guidance in both cement and ready mix volumes. Please turn to slide 18. Cost of sales as a percentage of revenues remained relatively stable in the fourth quarter and decreased one percentage point to 68.1% in the full year 2021, mainly reflecting efficiencies derived from our vertical integration. Better selling prices in both countries and higher fixed cost dilution as well as a more significant share of higher margin cement sales compared to ready-made sales. ADN expenses as a percentage of sales increased 1.6 percentage points in the quarter to 9.9%, reflecting the non-permanent savings associated with expense reduction plan implemented in 2020. For the full year 2021, SG&E expenses remained relatively stable compared to the prior year period. Turning to slide 19, as a result, we closed the quarter with an EBITDA of $81 million, while the EBITDA margin was 31.5% compared to 35% in the fourth quarter of 2020. For the full year 2021, EBITDA increased 10% year-on-year, in line with our guidance, and the EBITDA margin decreased 0.4 percentage points to 32.5%. We are very pleased with the savings achieved as a result of the cost control initiatives implemented at the onset of the crisis, particularly during 2021, given the record high inflation we saw in Mexico and the U.S. Despite this challenging environment, we were able to maintain our margins. We continue working towards recovering our pre-financial crisis margins, focusing on controlling costs and expenses while we face an inflationary environment and higher energy costs. Along these lines, we are leveraging our coal mine in Colorado, which enables us to lower our energy costs while reducing exposure to gas and coke price hikes. During the year, we also signed a one-year contract to lock in the natural gas price for our Odessa cement plant. As a reminder, in 2021, we successfully offset $14 million in costs and expenses which were saved during 2020 in response to the pandemic. That number is the difference between 2020 total savings In 2021, permanent savings thanks to the financial lessons learned in the COVID-19 crisis. Turning to slide 20, net financial expenses totaled $7 million in the fourth quarter, 2021, due to a positive foreign exchange variation in GCC's cash position and a lower debt balance, partially offset by an increase in the effective interest rate. For the full year period, net financial expenses decreased 2%. Consolidated net income increased 2% in the fourth quarter of 2021 and 15% for the full year 2021. Earnings per share increased 2% in this quarter and 15% for the full year period. Moving to our cash generation on slide 21, free cash flow was $89 million in this quarter and $292 million for the full year. This translates into a free cash flow conversion rate of approximately 109% in the fourth quarter and 72% for the full year. I would like to point out GCC's improvement in controlling payables, receivables, and inventories. Based on the last 12 months of sales, we reduced days in net working capital from 47 to 39, an eight-day decrease in total. Turning to our balance sheet on slide 22, we ended the quarter with $683 million in cash and equivalents. At the end of December 2021, our net debt to EBITDA ratio dropped to minus 0.4, or equivalent to 143 million net cash, achieving our full-year guidance of reaching negative net leverage in the third quarter. In line with our strategy of further strengthening our balance sheet while supporting our ESG initiatives, We successfully completed the issuance of a 10-year $500 million sustainability link bond with an interest coupon of 3.6% and a maturity date of April 2032. Net proceeds from decisions were used to redeem the full amount of GCC 5.25% notes, which come due in 2024, and prepaid bank debt. This bond received investment grade ratings by both S&P and Fitch ratings and is aligned with the sustainability link bond principles and will enable us to ensure GCC sustained growth while reducing interest expenses and significantly improving our maturity profile. Notably, with the closing of this transaction, we became the first cement company in the Americas to issue an SLV bond. and it was the largest issuance ever completed by a cement company globally, positioning GCC at the forefront of the industry's decarbonization strategy. We expect the issuance of GCC's sustainability link bond will inspire other companies to follow the same path, truly committing to a low-carbon economy. As Enrique noted, we are entering 2022 with a very strong financial position, that provides us with the flexibility to capture future growth opportunities, and we will focus our efforts to ensure the company is prepared for a new phase of the industry cycle. In terms of organic growth, as we announced last quarter, we will expect to invest around $500 million over the next three years to increase GCC cement capacity and improve our logistics and distribution network. Regarding inorganic growth, we continue to look for opportunities to acquire cement assets that can be plugged into our connected system or eventually begin the construction of a new system in the US. We remain strongly committed to improving returns and delivering strong stakeholder value while investing in the future growth of our business. With that, I will now return the call over to Enrique to discuss the guidance for the year ahead and to share his closing remarks.
spk07: Thank you, Luis Carlos. Please turn to slide 25.
spk05: I would like to now take this opportunity to discuss our 2022 outlooks. We are expecting the current positive momentum to continue. as the underlying trends of GCC's business remain favorable. As I mentioned earlier, there are a number of positive trends benefiting our business, and we expect robust customer demand to continue in the year ahead, driving sales volume growth with a positive pricing environment in both divisions. Therefore, we expect GCC's cement and concrete sales volumes to increase low
spk07: to meet single digits year over year in both countries.
spk05: In terms of prices, considering the momentum and the announcements already done in the market, coupled with a tight supply and demand dynamics, we anticipate another year of price increases in the mid to high single digits range for cement and concrete
spk07: in Mexico and in the U.S.
spk05: Regarding profitability, we expect 2022 EBITDA to increase between high single digit to double digits against 2021 levels. We approximate our capital expenditures at $260 million. This includes $180 million allocated to the relevant strategic and growth projects already described, $65 million related to maintenance expenses, and $15 million of maintenance that carried over from last year to the current year, totaling $80 million for maintenance. As a result, the free cash flow conversion rate before strategic and growth cap is expected to reach more than 60% with a net debt to EBITDA ratio, which would remain negative.
spk07: With that, this concludes our prepared remarks. Let's now turn to your questions. Operator, please go ahead.
spk00: Thank you. And at this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start keys.
spk07: One moment, please, while we poll for questions.
spk00: And our first question comes from the line of Adrian Hereta with JP Morgan. Please proceed with your questions.
spk15: Thank you. Hi, Enrique, Luis Carlos, and Ricardo. Enrique, hi. Can you tell us if there are plans for new capacity, for new cement capacity in your territories in the U.S. from peers? And if none, which are the tightest markets at the moment, and how do you think that the Do we see this increased demand over the next two to three years and once we start seeing these regions operating at full capacity, how demand is going to be satisfied? Is that going to be just buying from other states or it will have to be actually imports from abroad and if that is the case, given the long distance that it will have to travel, Should we see a stronger price increases in the central region of the U.S. versus the coastal regions?
spk07: Good morning, Adrián, and thank you for your questions.
spk05: Let me try to address one by one. First, on new capacity increase plan within our region from any of the peers. We have not heard anything specific of capacity increases where we are, except for our own projects, of course. The only capacity increase that is coming online that we know of is in Alabama, and that doesn't touch our region or our system. So we feel, I mean, pretty positive that we can capitalize on the market growth with our capacity increase plan for the following years. The market, of course, it's going to continue to remain tight, more in some areas than another. I will suspect the whole Texas will still remain a tight market. Colorado, the same. Utah, obviously, I mean, I mentioned in the report, one of the hottest markets in the U.S. And in these regions, I mean, the customers are especially concerned, as I said, with availability more than anything else. So we do expect to continue to see market growth in the 2%, 3% range on organic growth. And of course, with the future benefits of the infrastructure build that I mentioned that should add around 9% per year on an annual basis. And that, of course, is national. We don't have, I mean, a lot of visibility yet in terms of how that national increase is going to be allocated to different markets where we participate. But we suspect that, I mean, it's going to be, I mean, very close to that 9% estimated by PCA. I'm pretty sure that given the market dynamics and the infrastructure bill, I mean, capacity is going to be strangled, I mean, in the U.S. at some point in time in the next few years. And that only means more imports from abroad. And traditionally, when this has happened, as we saw it, before the Great Recession, that happened too. And, of course, prices responded to that. And nowadays, with the cost inflation on freight, we expect this, I mean, to be, I mean, significant. So we're, I mean, we're very optimistic about the prospects of, I mean, price increases that we're going to be able to also reflect in our market region at the end. Of course, I will mention in our model, in our system, we are better protected than any other regions in the country from precisely the imported cement. But still, I mean, since it's going to be tight, we're going to be able to increase our prices accordingly to what's happening in the coastlines.
spk15: Excellent. Thank you. And if I may add just a follow-up question regarding this and something that you mentioned. I think in Montana, where you're now producing PLC cement, where do you see the clinker factor moving over the next couple of years? And in which places are you seeing already more willingness from the government, et cetera, et cetera, to allow for lower clinker factors?
spk05: Well, generally speaking, it's going to be across the board. I mean, of course, in some states, we're more progressive in allowing the usage of PLC cement before than others. But in the markets where we are, the challenge is not for us on the market side. The challenge is on the speed at which we can convert and make sure that we supply that cement to the customers. It's more an operations logistics issue. in terms of mix of products, I mean, silos and storage capacity. So we have a plan to move first, I mean, as I said, with Montana, and we're continuing, I mean, in Tijeras, we're continuing with the pozzolanic cement that we have been already producing, and we're targeting to ship around 80,000 tons of that pozzolanic cement this year from that plant. In Rapid City, after we, I mean, finalized with everything related to the project and expansion project in the last years in Rapid City, now we're targeting around 11% of production of PLC this year. In Pueblo, we're also moving with some, I mean, testing with customers in the market. And as soon as we finish retrofitting some logistical issues there in terms of silo capacity and things like that, The second part of the year, we're going to start with PLC. So again, I mean, we don't see a problem. I think the market is ready for it. Most of the peers are also announcing that they are moving into this sustainable, I mean, as a first step in lowering our clinical ratio. But we're going to continue not only with PLC, through the following years, but also with an increase of post-holandic cement, like the one that I was mentioning for the Harris plant.
spk15: But if you had to guess, Enrique, we should be seeing a reduction on the clinker factor in the U.S. on your operations. What, 1% per year, 2 percentage points a year for the next couple of years, just to get a rough sense of how this could be moving over the next couple of years.
spk05: In the sustainable link bond that we, I mean, just issued, obviously we committed to some, I mean, KPIs to get there. Part of that, of the way to get to those numbers that we committed to is by lowering the clinker factor. I believe that in that projection we have getting to about 85% clinker factor in our current U.S. plans.
spk07: Thank you, Enrique. I appreciate it. over several years, of course.
spk00: And our next question comes from the line of Nicolij Lipman with Morgan Stanley. Please proceed with your question.
spk11: Thank you very much. Sorry for that. Thanks, gentlemen. Congrats on your superb year, and thanks for taking my question. I have two questions. First, a follow-up on the comment, I think it was Carlos, about a new network. So it's also, I guess, a follow-up on Adrienne's question. Are you currently, do you have any ongoing permitting processes either in an existing state or in a new state? So that's question number one. And question number two, can you give us some color on what's your break-even pricing given the increase in energy cost? Your guidance suggests sort of mid-high single-digit. Your EBDA growth is almost similar, and you're almost sold out. How should we think about breakeven pricing in 2022 to just stand still on an EBDA per ton?
spk07: Thanks, guys. Nikolai, good morning. Thank you for your questions.
spk05: I'm going to answer, obviously, in the same order you asked, permitting. So, yes, we do have, I mean, permitting process in our regions. And I will reiterate again, we have a permit on hand to build more capacity in Texas. And as part of our environmental efforts, we're always maintaining those permits alive. And in this case, we're working on amending the permits to include, I mean, more equipment than what is actually currently permitted and more capacity than what is currently permitted. So everything is looking Very positive on that regard. Again, if we decide to build in that plant, which is an imminent decision, I mean, and as I have said in other calls, we have several sites in competition to see which one is going to be the site that we're going to expand. But in terms of permitting in the U.S., we're ready for that. We are not or we don't have at this moment any efforts of permitting outside of our network. In terms of breakeven pricing, if I understood your question correctly, I think that with what we have announced already, Nicolai, we are certain that we are not only maintain our market, our EBITDA margin, including, of course, what we have budgeted for energy cost increases. But we are in the position to, I mean, continue to improve, I mean, that EBITDA margin this year.
spk07: Got it. Thanks. Thank you, Nicolas.
spk00: And our next question comes from the line of Vanessa Groga with Credit Suisse. Please proceed with your question.
spk09: Hello, everybody. Good morning. My question is regarding your CAPEX guidance. So the increase in strategic CAPEX, does it reflect some progress already in the expansion plan? Or what explains the significant increase compared to the previous year in strategic CAPEX? And the other question that I have is regarding pricing in the U.S. Do you think there's upside in your pricing indication given, you know, how tight the market is and the potential increase in imports and everything you mentioned about the fundamentals. Thank you.
spk05: Thank you, Vanessa. I'll answer the second question and then I'll pass on, I mean, the question on the CAPEX guidance to Luis Carlos so he can give you more specific data there. Pricing in the U.S., yes, of course. I mean, the market, as we see specifically in some regions more than others, will continue to be very tight. So we have already communicated to our customer base that they need to be prepared perhaps for a second price increase during the year. We have not announced anything regarding that yet. But we have been having conversation with customers and trying to understand, I mean, on a one-to-one, on a one-to-one basis, their needs for the year and how tight we are. And so, of course, we are reiterating that they should be prepared for a second price increase. So I will pass it on now to Luis Carlos for your question on CapEx.
spk03: Thank you, Enrique. Yes, Vanessa, we've included in that figure that Enrique gave for the guidance, we have included expansion projects, both as we explain the double-necking of Samalayuca and the investment needed in the first year for the expansion of or the construction of a kiln in one of our cement plants. And that also includes as I said, $65 million of maintenance expenses, but also $15 million carried over from last year. If you see the numbers for last year, CAPEX was well below our guidance. So we are carrying over from 2021 those $15 million.
spk07: Okay, that's clear. Thank you very much, folks. Thank you, Vanessa.
spk00: Our next question comes from the line of Roberto Valerie with UBS. Please proceed with your question.
spk02: Hi, congrats for an excellent year in 2021. My question is a follow-up on Vanessa's question about the capex. If you could provide a little bit more details and how much would you expand some of the plant and for how much should be the total topics of this investment. We should do 2022 and 2023 or just 2022.
spk07: If you could provide more call on that, it would be perfect. Thank you. Thank you, Roberto.
spk05: I will pass it on again to the team to see if they have the breakdown that you're asking handy here.
spk03: Yes, Enrique. Hi, Roberto. Well, the majority of the expansion capex relates to the construction of a new kiln line. In terms of size, the Zamanuca project is much, much lower than the amount for a new kiln because it's just a deep bottlenecking that we're doing during the plant, so it's going to be below $40 million. So the majority of it is going to be, again, the construction of a new KIN line.
spk07: Okay, thank you very much.
spk03: We're also including, yeah, and we're also including in that number the investments in terms of logistics that we're going to do next year. in a couple of terminals. But the big chunk of that amount for expansion is the new KIN line.
spk07: Okay. Thank you very much.
spk00: Our next question comes from the line of Laisha Zak with GVM. Please proceed with your question.
spk01: Hi, Enrique. Hi, Luis. Hi, Ricardo. Congratulations and a good year. My question goes in line with the other expenses that were around $9 million. Could you give us more color on what are they about? Is it related to the consulting expenses that you mentioned?
spk07: I'll defer to...
spk05: Luis Carlos, on this, but the majority are what we call one-off expenses that are not going to be repetitive. Luis Carlos can give you a little bit more color on the breakdown of those numbers. Sure, Enrique.
spk03: Yes, as Enrique was explaining, it's one-offs. We normally accrued during the full year those type of expenses and sometimes we have some of the quarters that are hit the most in the year. But also that comes from the non-permanent savings that we have that we explained last year and this year. So part of it is those one-offs in terms of consulting expenses for operations. And the rest is the incorporation of the non-permanent savings of the plan that we did on 2021.
spk05: And you also have the revolver line in the studies.
spk03: Yes, that's right. So we, as you may recall, Liza, we... We agreed with a syndicate of banks of a new revolver line of credit for $240 million. And so the fees and expenses associated with that revolver, it also hit the, I think it was on the third quarter.
spk07: So that's part of the full year number that you see. Okay, thank you very much.
spk00: Our next question comes from the line of Colin Verman with Jefferies. Please proceed with your question.
spk10: Great. Thank you for taking my questions. I just wanted to follow up on the questions asked around U.S. cement pricing. Does your 2022 U.S. cement pricing guide for mid to high single-digit increases include a second price increase in 2022? And what is the 6% to 8% price increase for construction cement on a dollar-per-ton basis? Thank you.
spk07: Thank you for the question.
spk05: Yes, some clarification here. The announced increases for 2022 are effective January 1st in the case of construction cement and April 1st in the case of oil well cement. So those price increases do not include yet a second price increase. These are increases that are already taking place. In terms of the 6 to 8, I mean, Percent increase, depending on the market, I mean, where we are, should be, I mean, around $10 per ton.
spk10: Great. That's helpful. And then just in terms of import parity price in your markets, can you provide any colors to how you're thinking about that as we start to need more imports in the U.S.?
spk07: I'm sorry. Can you repeat the question? You break down a little bit here.
spk10: Sorry. Can you just comment on the cost of importing cement into the U.S. market and what you guys view as the import parity price in your U.S. markets?
spk05: I don't have numbers, specific numbers in front of me here since we don't import cement currently into the U.S. I just obviously heard the same thing that everybody in terms of the huge increase in freights last year, but I cannot give you a specific parity number compared to our cement FOB, our plants at this moment. Probably we can follow up on a separate call with more specifics of that if that's of interest to you.
spk10: Okay, thank you very much.
spk03: And maybe just to complement what Enrique is calling, of course, the further you are away from the costs, the lower the import parity pricing should be, right? Because we have to ask for the freight cost. Moving that cement from the terminals to the end market. So, as Enrique explained in his remarks, us being in the central part of the U.S., of course, we are further away from any import price.
spk07: Great. Thank you for the caller.
spk00: Our next question comes from the line of Daniel Rojas with Bank of America. Please proceed with your question.
spk04: Good morning, everyone. Thank you for taking my call. I'm curious about the demand for oil well cement. Are you, what specificity do you have in the next few months? Do you think you can see upside in that segment? Can you give us any color on that? And my second question is in the acquisition of cement from third parties. Is this something that's going to become recurring? Can you also give us some color on what happened there in the quarter? Thank you.
spk07: Daniel, thanks for the question.
spk05: Again, I'm having a little bit of trouble here, but I understood your question about the oil world demand in the Permian for the next month.
spk06: Yes.
spk05: Okay, so we're running at full capacity to supply that market, and with both kilns in Odessa running 100% plus one killing Chihuahua supplementing, I mean, shipments to that area. Apparently, there is only one other competitor in the area, I mean, supplying, I mean, consistently and significantly oil well cement, so the rest of the of the producers that traditionally ship some oil well cement to that region last year decided to allocate that cement to other markets in Texas away from that area. So this complicates things a little bit. As I said, it was a challenge last year to be able to supply, I mean, this market at 100%. So we're, I mean, increasing, I mean, production and supply this year with the three kilns that I described to you. I don't see any changes in the dynamic there. It's going to be tight the whole year, and we're doing our best to keep all our customers supplied as they need, but it's going to be tight. In terms of cement acquisition from third parties, this has been, I mean, the small volumes that we have had We elected to purchase in the previous years for specific projects in some locations where either we needed, I mean, a different type of cement or it was more better economically for us to buy part of that. So we had our own cement shipments at a higher margin to other customers. We don't foresee this to continue this year. This has been more on a project by project basis. But I know we don't have any specific needs to acquire any cement in our markets.
spk07: Okay. Thank you. Thank you, Daniel.
spk00: Our next question comes from the line of Frederico Galassi with L'Ohio. Please proceed with your question.
spk13: Hi. Thank you for the call, Frederico Galassi from . Just one question. the comfortable that you feel with the level of cash, the negative debt, et cetera, et cetera. What's your view for dividends for this year after 5% of conversion rate, what you're expecting for an EBITDA of $1 billion?
spk14: That's the question, thanks.
spk07: Federico, thank you for your question. I will pass it on to Luis Carlos.
spk03: Hi, Federico. Thanks for the question. We don't expect any major changes in terms of dividends for this year, I mean, for the proposal that will be made to the shareholders meeting, in the shareholders meeting. As you, well, as we said, we have important expansion projects coming on. And also, we are very committed and focused on executing on the growth strategy that Enrique has explained. But of course, on the other side, as we said, we are fully committed to giving the returns to the shareholder that you all expect. So again, we don't expect major changes in dividends. We have expansion plans to fund, and we continue looking for M&A opportunities, as we said, in the linking to our current footprint or beginning to think about a new system in the U.S.
spk14: Just another question, if I can, and thank you for your answer.
spk13: If you think in terms of your firepower with an EBITDA of $1 billion, what's your maximum target of what will you think in, again, firepower? If you think in three times the EBITDA we are talking about, $3 billion, that is a huge amount of money. What do you think that could be that firepower for inorganic growth? Thanks.
spk07: Nice.
spk05: I think that we can, I mean, spend in growth projects, let's say, around $1 billion without exceeding our leverage ratios that the board has been very specific about continuing with a conservative financial strategy. So I think that that range will be something that we can do comfortably with the obviously considering the EBITDA of the target plus our EBITDA growth.
spk07: Thank you so much and congrats again for yourself. Thank you.
spk00: Our next question comes from the line of Alan Miranda with Red Intelligence. Please proceed with your question.
spk12: Hi, good morning. I would like to ask about the statement that a trade group, an industry trade group made yesterday in Mexico. They said that with the electricity reform that is currently being discussed and that is expected to be approved later on in the year, CSE would be unable to offer additional demand for expansion or for new companies setting up plants in several states, but particularly in Chihuahua, Querétaro, and Baja California. So I wanted to ask GCC whether the reform actually poses any threat to, well, to the expansion of the plants in the state of Chihuahua, and also whether the fact that CFD is not guaranteeing that it will offer renewable energy, does that pose also any threat to your KPIs under the new sustainability bond that you issued?
spk07: Thank you for the question, Alec.
spk05: Well, it's a little bit of a speculation at the moment of obviously what's going to be, I mean, the end result of the energy reform. We're not too concerned at this moment with the capacity that we have and the electricity that we need, because we're not talking big expansions in this region at the moment. But on another hand, we are cautiously optimistic that perhaps the energy reform will allow some projects of what we call behind the meter, right? Abasto aislado in Spanish. And we have had projects developed in our plant in Mexico and completed all the permitting process, which is in front of the CRE. So depending on what happens with the reform, we may be benefiting from the abasto aislado part of the reform that we think has high probabilities of success. So that will, I mean, give us, I mean, long-term the comfort that we need both in terms of expansions and requirements of new power capacity in the future on one hand, and also our progress on the renewable energy plan consumption that we have according to the sustainability target that we have. In terms of the bond, the bond is today linked exclusively to basically what we call the scope one emissions, which are the direct emissions that we produce, I mean, in our cement process. And our plans, I mean, to decrease the CO2 intensity per ton of cementitious material doesn't consider the scope two emissions that come from power generation. So from the bond perspective, it's not a concern. Of course, I mean, we're looking at this more as an opportunity to enhance our carbon footprint in the future, but it's not a concern from the bond perspective.
spk07: Okay. Thank you.
spk00: And our next question comes from the line of Alejandro Idar with GBM. Please proceed with your question.
spk16: Hi. Good morning, guys. Enrique, Luis Carlos, and Ricardo. My question is on the comment on the press release about purchasing cement from third parties. How should we think about this when there is no additional volumes in the U.S.? Are you buying... clean care or cement from the coal producers that import. I just want to better understand the GCC operation. Thank you.
spk05: Alejandro, I think you're referring to our purchases of cement in the past years. Am I correct?
spk16: Yeah. In the fourth quarter, you mentioned that some of the higher cost of production came from purchasing cement and coal from third parties.
spk05: Yeah. Okay. No, that's what I thought I heard. I just wanted to clarify. No, I mean, we don't have any issues with purchasing cement going forward, as I explained. I mean, we're going to be running at full capacity. And in the past, we have only purchased small amounts of cement from third parties for specific project needs. For example, last year, what we purchased was type 3 cement which we could have produced. But since we're running at capacity, for us it was better to purchase that cement and free up grinding capacity for, I mean, type 2 or type 2.5 cement, which, of course, gives us a much larger volume compared to type 3. So it was just an optimization decision. But, of course, when you purchase cement, even though it makes sense marginally because we make a profit on it, Of course, the cost is very high compared to our production cost. So that, I mean, of course, affects the margin on a percentage basis. But that's, again, a one-time project, a specific project, and we're not planning to continue to do that going forward unless there's a specific situation where it, again, makes sense for us to try to acquire a small amount of cement. I don't know if I was clear.
spk16: Yeah, that's excellent, Enrique. Thank you. Thank you very much. So no material purchase of cement from third parties in the future?
spk07: Yes, sir. Thank you.
spk00: And we have reached the end of the question and answer session. I'll now turn the call back over to management for closed remarks.
spk06: Once again, thank you to everyone for your interest in GCC and for joining us today. As always, we appreciate the opportunity to discuss your questions and look forward to talking with you again in the months ahead, virtually or perhaps in person. This concludes our conference call, but our team and I are, of course, available for any follow-up questions. Goodbye for now.
spk00: And this concludes today's conference, and you may disconnect your line at this time. Thank you for your participation.
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