Grupo Cementos De Chihuah

Good morning and welcome to GCC's third quarter 2024 earnings results conference call. Before we begin, I would like to remind you that this call is being recorded and that all participants will be in listen-only mode. Please also note that a slide presentation accompanies today's webcast. The link is available on the company's IR website at gcc.com. I would now like to turn the call over to Sohori Oguchi, Head of Investor Relations.

Please go ahead.

With me today are Mr. Enrique Escalante, our Chief Executive Officer, and Mike Strucker, Chief Financial Officer. The earnings release detailing this quarter's results was released yesterday after market close and is available on GCC's IR website. This conference call is also being broadcast live within the Investors section at gcc.com, and both the webcast replay of the call and transcript will be available on the same site approximately one hour after the end of today's call. Before we begin, I would like to remind you that our remarks today will include forward-looking statements. Actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are set forth in yesterday's press release and in our quarterly report filed with the Mexican Stock Exchange. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update this statement as a result of new information or future events. With that, let me now turn the call over to Enrique.

Thank you, Saori.

Good morning, and thank you for joining today's call. This quarter, we continue to navigate a dynamic and complex demand environment. Despite this challenging backdrop, we delivered a 2.3% increase in EBITDA, resulting in record margin of 40.7%, a 2.6 percentage points improvement compared to last year. The margin expansion highlights the success of our proactive cost and expense management during the quarter, which has bolstered our profitability. As we reflect on GCC's 83rd anniversary this quarter, our commitment to our long-term vision remains as strong as ever. guided by our three core pillars, people, profit, and planet. We continue to drive sustainable growth while honoring the legacy that has brought us this far. Today, I will provide updates on how our actions during the quarter align with this strategy. Starting with our people, the first phase of GCC Safety Strategy Plan is already delivering significant results with positive trends emerging. By the end of September, we achieved a 25% reduction in recordable injuries over the last 12 months compared to 2023. In the third quarter, we further advanced our safety leadership training program and launched a company-wide communication campaign to ensure a unified understanding of our safety strategy. This includes our vision to become a world-class safety company, as well as a deeper focus on our serious injury and fatality prevention system and safety norms for all leaders. These efforts will continue throughout the remaining of the year. During Q3, we continue to leverage our GCC cement training institute to strengthen our team's technical capabilities. Year to date, We have dedicated over 9,000 hours of training to 36 courses, including 17 different subjects led by five former GCC experts. As part of our ongoing commitment to employee development, we are currently assessing training needs across all plans and preparing customized plans for next year. In addition to the GCC Foundation, We have been engaging our employees, their families, and local residents in initiatives to improve local schools, support a children's home, and revitalize parks. These efforts reinforce our commitment to giving back and fostering community engagement. Turning to our profit pillar, we remain focused on maintaining rigorous cost control throughout the organization. During the quarter, we implemented a proactive measure to manage and reduce expenses, ensuring we could respond swiftly to the evolving market dynamics. Enhancing profitability is our priority, and to that end, we have introduced several key initiatives aimed at optimizing our cost structure. First, we have been actively identifying efficiencies in our variable cost. with an effort to streamline processes across our operations. By stabilizing these processes, we aim to reduce fuel and energy consumption, which in turn lowers overall production costs. Our flexible fuel strategy continues to be a valuable asset, allowing us to switch fuels across our network based on economic opportunities. In our Mexico operations, we've benefited from natural gas prices being 24% lower year-to-date compared to last year. This adaptability helps us optimize energy usage while managing price volatility. Second, we have intensified our focus on preventive maintenance to reduce the likelihood of more costly corrective actions. This proactive approach not only helps us control costs, but also enhances long-term operational stability. Third, we have implemented strong cost controls in managing labor, overtime, consultants, and other administrative expenses. We optimized our variable maintenance and overhead expenses and combined with the exchange rate effect achieved savings of nearly $2 million. Additionally, we benefited from favorable production costs, including fuel, power, and raw materials, which contributed close to $4 million in savings. Regarding GCC's planet pillar, we continue to make significant progress in advancing our sustainability initiatives. A key area of focus is blended cement production and commercialization. where our technical teams are actively developing more sustainable products and processes. This includes exploring innovative materials like natural pozzolans and implementing the necessary infrastructure changes to ensure performance and durability. As a result, blended cements represented 73% of our total cement sales as of September. In parallel, we are working to reduce our carbon footprint by producing reliable low-carbon and cost-efficient energy alternatives in our operations. Our alternative fuel strategy is progressing well, as we explore diverse fuel sources and make targeted investments to increase our fuel substitution rate. At our largest three plants, we've implemented systems to process and utilize new streams of alternative materials, tailoring our approach to sourcing and processing based on the available materials in the region. Thanks to these initiatives, we are on track with our CO2 reduction goal, achieving a 2.5% year-to-date decrease in CO2 gross intensity per ton of cementitious materials compared to 2023. For more detailed insights into our sustainability strategy and initiatives, we encourage you to read our integrated report available on our website.

Turning now to an update on our markets.

In terms of our third quarter results, USMN volumes decreased by 4.6% and concrete volumes by 9%, primarily due to the impact of high interest rates during the quarter. which continue to affect demand for residential and commercial projects across the industry. Additionally, adverse weather, including flooding in our northern region, led to above average precipitation, creating a low start to the quarter and affecting sales. Based on our third quarter performance and year-to-date results, we now expect concrete volumes to come in below our guidance for the year. as a full volume recovery during the fourth quarter is unlikely. While we continue to face challenges from high interest rates this quarter, demand started to show signs of stabilization and improvement in September. We expect this trend to persist through the rest of the year and into next year as interest rates momentum shifts. Looking at broader market conditions, According to the U.S. Census Bureau, building stocks for residential projects in September were down 1% compared to the same period last year. The U.S. housing market remains under-built, and we anticipate an uptick in activity once mortgage rates continue to fall, which will translate into growth in commercial projects. Although there is approximately a six-month lag after rate cuts before confidence returns, as I mentioned, We are cautiously optimistic that the recovery is beginning to take shape and will continue to gain momentum as the rate environment gradually becomes more favorable. The oil and gas sector continues to be a strong performer for us in the Permian Basin, where cement demand remains very robust. We implemented a $15 per ton price increase for our oil wealth clients on July 1st, which has supported our results. Oil wealth demand is expected to remain strong for the rest of the year, providing a reliable offset to some of the softness in other segments. On the infrastructure side, we advanced several key projects, including the I-90 and Highway 18 in South Dakota, the I-35 in Minnesota, the Missouri River Bridge, and Ellsworth Air Force Base in South Dakota. In El Paso, our work on the I-10 project will continue into next year. Additionally, strong demand from agriculture and renewable energy sectors has contributed positively to our performance. A key highlight this quarter was the restart of the Sunsea Wind and Transmission Project, the largest clean energy infrastructure project in U.S. history, which had been delayed for two months. This project is expected to drive buildings through the end of the year and into 2025. Additionally, during the quarter, We began work on a wind farm in West Texas with the same customer. Lastly, in regards to the Infrastructure Investment and Jobs Act, infrastructure demand has remained consistent with normal levels this quarter. Although we have not yet seen the significant demand increase that was initially expected, we anticipate some of federal fundings will come at a time that aligns well with the expanded capacity at our Odessa plant, which is set to come online in 2026. In summary, we believe demand in our U.S. market hit its lowest point in the third quarter. However, daily shipments in October have improved by 5% compared to September. As we move into the fourth quarter, our sales will depend on when winter weather sets in and slows construction activity in the regions we serve. Turning to Mexico, the money in the industrial segment continued to be affected by the lack of electric infrastructure inquiries during the third quarter, compounded by uncertainty from the election cycle in both Mexico and the US. While 2023 was an extraordinary year for the industrial segment, This year, we are working on half as many projects, reflecting a slower pace. On other positive notes, the construction of the Terra Nova substation in Ciudad Juarez that was completed during the third quarter, and we will begin operations in the coming months, reducing uncertainty in electricity supply and triggering the restart of several projects that were halted last year. Despite these challenges, We signed two new projects set to begin in the fourth quarter. On a bright note, demand in the housing segment remains strong in Chihuahua and Juarez, with levels 18% higher than in 2023. This segment helped offset the softness in other areas and contributed to a 5.2% increase in concrete block sales. As we highlighted in previous quarters, the contraction in Mexico's mining segment that began in 2022 has continued. In Agos, one of our mining clients depleted its reserves and closed operations. This contributed to an 8.9% decline in cement volumes and a 15.2% drop in concrete volumes during the quarter. Given the continued contraction in the mining segment, and the new sharing dynamics in Mexico, we do not foresee a significant change in volumes for the remainder of the year. As a result, we do not expect to meet full-year volume guidance. To conclude, while we continue to navigate some challenges, we're encouraged by the signs of stabilization and recovery across our U.S. markets. Looking forward, The recent decision by the federal reserve to begin cutting rates makes a pivotal momentum. We expect this to continue driving demand recovery in the coming months, creating a more favorable environment for growth in our coal market. With that, let me now turn the call to Mike for his financial review.

Thank you, Enrique, and good morning to everyone. starting with our financial results on slide 17. Consolidated sales for the third quarter decreased 4.3% year over year, reflecting decreased volumes. Revenue from our U.S. operations remained essentially flat, despite cement and concrete volumes decreasing by 4.6% and 9% year over year, respectively. Further, this volume decrease was partially offset by our commercial excellence work and by the oil and gas segment, which remains robust during the quarter. Mexico sales decreased by 17.2% year on year. Volumes of cement and concrete sold decreased by 8.9% and 15.2% respectively. due to continued power supply constraints and the continued slowdown in our mining segment, as we had lacked in our prior quarter's remarks. In addition, the depreciation of the Mexican peso against the US dollar reduced our Mexico sales by $9.8 million during the quarter. Without considering the exchange rate effect, Mexico sales would have decreased only 8.8%. Cost of sales as a percentage of sales decreased 1.6 percentage points in the third quarter to 58.4%, the lowest level in over 20 years, reflecting the success of our commercial excellence work and effective cost management in areas such as fuel, production, and freight. These were partially offset by unfavorable operating leverage. SG&A as a percentage of sales for the third quarter 2024 reached 7.1%, a 40 basis point year-over-year decrease, driven primarily by the depreciation of the Mexican peso against the U.S. dollar. As a result, EBITDA margin for the quarter increased 2.6 percentage points compared to the prior year's quarter to 47% representing a new record in our margin performance. Third quarter EBITDA increased 2.3% year over year to $162.1 million U.S. dollars. Net financial income was $11.2 million compared to $9.6 million reported during the third quarter 2023. Consolidated net income for the quarter was $107 million, a 1.5% increase compared to the third quarter of 2023. Free cash flow for the quarter was $121.5 million, a reflection of increased maintenance capex and higher cash taxes. This result was partially offset by decreased working capital needs during the quarter and increased EBITDA generation, as I had noted previously. We ended the third quarter of 2024 with $897 million of cash and cash equivalents with a net debt to EBITDA ratio of negative 0.81 times. To conclude, I would like to provide a brief update on our M&A strategy. During the third quarter, we continued to actively pursue value-creating M&A opportunities. Engaging in discussions with potential targets in both the cement and the aggregate sectors. We refined our criteria for acquisitions specifically in the aggregate space and identified several promising targets that align with our strategic goals. We remain fully engaged in these discussions and are optimistic about the opportunities ahead.

With that, I will return the call to Enrique. Thank you, Mike.

In closing, I want to express my gratitude for the hard work and dedication of our teams as we navigate the challenges and opportunities in our industry. Despite the fluctuations in demand, we have made significant strides in our sustainability initiatives and maintain a strong focus on employee safety and development while we continue to increase our margins to record levels. Looking ahead, we are optimistic about our ability to adapt and thrive, ensuring a resilient future for our company and the communities we serve. With that, I will now turn the call over to for your questions. Operator, please begin with the first question.

Thank you. We will now 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 star key. One moment, please, as we pull for questions. And our first question comes from the line of Alejandra Obregon with Morgan Stanley Investment Management. Please proceed with your question.

Hi. Good morning, everyone. Thank you for taking my call.

And congratulations on the numbers. I guess I have two questions here. The first one is on profitability in the U.S. If you can help us understand the drivers behind the impressive numbers in the quarter. I mean, what is structural? What is variable? Anything that can help us understand how much of that trajectory is perhaps sustainable towards 2025? So that's the first question. And then the second one is related to perhaps cash distributions, right? So free cash flow is up 52%. You have $900 million in cash. So just wondering how this could perhaps shape the way you think of cash distributions for 2025.

Thank you.

Good morning. Hi, Alejandra. Good morning. This is Enrique.

I'll address your first question and then pass on to Mike on the second one. Yeah, profitability, U.S. drivers. Obviously, I mean, price increases and maintaining the price level has been one of the best drivers in our profitability in the year. Even though demand has, as I mentioned, coming down and volumes have decreased, We have been, I mean, very effective in maintaining the price target that we had and introducing the price increases that we announced. Just with very few exceptions, with, I mean, an adjustment here or there with the customer here or there, I mean, the price is very stable and has been maintained very well by our sales folks. In addition to that, of course, on the cost side, Gas prices have, I mean, definitely helped us there. We have been taking advantage of that gas price, not only on the Odessa plant that runs 100% from gas, but in other plants that have the ability to switch, I mean, from coal to gas. This is the case of Tijeras, Pueblo, Trident, and, of course, Rapid T. So in every plant, we have optimized and pushed, I mean, gas usage to the maximum of the plant capabilities. Power rates have been stable, and again, there we are taking advantage of those long-term contracts on sustainable renewable energy that we've invested in Rapid City. And also, the introduction of putting online the small solar project in Trident, the first phase, but it's fully operational. That's helping us also there. And we're about to finish the second phase before the winter this year. Very good pricing and very good cost control, especially on the fuel and energy. There have been some efforts, of course, in the fixed cost. We still have some opportunities there to continue going deeper in some areas. And that takes me to your second part of the question for 2025. We definitely think the margins are, I mean, expected to stay there or even improve with the price increases of 2025 and the rest of the cost improvement initiatives that we have in place. With that, I will switch it to Mike.

Good morning, Alcantara, and thanks for the question. Maybe one additional point to Enrique that's important. I think our logistic optimization, the fact that we're really looking for the lowest cost distribution lanes has helped us in the US, the full utilization of the terminal network. So that's another important element why you see the margins coming in strong. And we're planning to further utilize that going into next year. On the cash distribution side, as we have stated before, we plan to use a good level of cash for the growth that we have in the pipeline. The organic growth, of course, with Odessa, which we're financing through our cash generation. Some of the smaller projects around energy efficiency, alternative fuels, as Enrique mentioned. All those have some cash requirements and We're in a strong position to facilitate that. And then, of course, M&A. As I noted, we're working on a handful of opportunities in both sectors, aggregates and cement. And for those specifically on the aggregate side, we're planning to utilize some of the cash positions since those are smaller, mid-sized acquisition opportunities. And that's where we see the utilization of the cash. So in general, that's the focus. As you all know, we have a small buyback program that we're utilizing, very targeted. There's a little bit of that, you know, cash utilization there as well. And I guess the last point, you know, our relatively consistent dividend policy that we've talked about also over a couple years. So that's a little bit in summary where we see the cash utilization going forward.

Thank you very much, Enrique and Mike. This was very helpful, and congratulations again.

Thank you. Our next question comes from the line of Carlos Peridongo with Bank of America.

Please proceed with your question.

Thank you for the call, Enrique and Mike. The question is related to M&As. You answered part of it, but just wanted to get a rough idea. of the size of the M&A transactions that you're looking at? Is this something that there's several small to mid-sized, but that can add up to a billion or more? Or just to get a rough idea of what is the size of transactions that you're contemplating? Thank you.

Thank you for the question, Carlos. Well, as you all know, I mean, we have a very strong balance sheet and negative net leverage, as Mike indicated. So we have, and besides the cash that was mentioned, we have a very good, I mean, capacity to grow without putting, I mean, the company in any stress financially. So definitely a $1 billion M&A is not out of the question. That's very doable. Still maintaining, I mean, very good leverage ratios. Besides that, I'd like to make emphasis on what Mike mentioned on the aggregate side. On that space, we're looking at a series of smaller projects in the pipeline that could materialize in the future. Those are smaller, but as we continue to grow in that segment, those will start adding up. But we're not targeting at this moment that size of investment like we could do in cement.

Understood. Thank you. Thank you. Our next question comes from the line of Andre Reyes with MFS.

Please proceed with your question.

Hi, guys, you are trading at four and a half times EBITDA this year. The last cement transaction we saw in the US came in at least at 10 times. Agri transactions came in much higher. So how come is there anything more creative than just buying your own shares? If you want to do M&A, then why don't you list your shares in the US first? You know that you have over 70% of revenues coming in from the US. You could do that easily.

Good morning, Andre. Thanks for the question, Mike. Yes, the valuation currently is challenging and disappointing. Many of you know we get a little bit of the impact there of some of the political dynamics, election years, kind of the zip code Mexico. So all of that, of course, plays into this. And yes, the question about should we consider the US and listing in the US that has been discussed and is part of our long-term strategic thinking and discussion. So there is some work that's been done. And regarding the question of a creative M&A, we have been dealing with this dynamic and dilemma for many, many years. And we're looking at this as long-term value creation And, you know, evaluations are a reflection of the moment in time. We think with the right targets, with the right long-term strategy, acquiring these companies, integrating them, lifting synergies as we have shown, you know, kind of over the last couple of years, that's where we create that long-term value. And that should also then help us to lift the evaluation. And as I mentioned earlier, you know, strategically, where should we lift the long-term value? That's been part of the discussion as well.

Thank you.

Our next question comes from the line of Alejandro Azar with GBM. Please proceed with your question. Hi, Mike, Enrique.

Good morning, and thank you for taking my question. Two quick ones. The first one is on CAPEX. I don't know if you already mentioned this. I'm sorry if you did. If you can comment on the pace that you are spending the money lower than the $470 million guidance, if something is changing on that side, if we are expecting, if you are expecting a lower expenditure, a lower capex from the Odessa project going forward, or if this is just not paying it this year and paying it in the next two years, that would be my first one. And the second one is related to M&A. It seems that if you can comment on what is your view on the fundamentals of the aggregate business, because just looking From a quick look, it seems that today the aggregates are having or are enjoying peak profitability levels, also attractive valuations. So you would be entering a sector which is, I don't know if the word is pretty hot. So what are your views on the fundamentals of that business going forward? Thank you. Thank you very much.

Good morning, Alejandro. This is Enrique, and I will address your first question on M&A first, and then Mike will explain you the cash flow questions. You precisely, I mean, mentioned that aggregates is a very profitable business. Obviously, that's one very important key driver in our strategy to get into that space with more intensity. Yes, valuations are high, but there are plenty of of opportunities in that segment compared to cement, and that's one. And within that 20 number, I mean, there are a lot of different sizes of opportunities in that space. We're not, as I mentioned when I answered the question before in terms of the size of the investment, we're not thinking today of a billion dollar investment, but more a collection of smaller, more mid-markets and rural markets operations that make sense and can integrate well into our network of cement plants and distribution. So that's the other fundamental. I mean, there is, I mean, many, I mean, family-driven, I mean, businesses that could be very good targets for the strategy that we are implementing here. And, of course, in this business, obviously, different than the cement, obviously, I mean, when you have construction cycles of higher demand and supply, it's much more easy to drive, I mean, profitability in this business that doesn't have necessarily the huge fixed cost and huge maintenance capex that we have on the cement side. So I think it's going to be a good combination for us, including more aggregates in our portfolio.

Enrique, one quick one on that front. Let's say if you acquire three smaller assets on aggregates, acquiring the first one, would that immediately benefit Let's say your distribution network or you would be able to synergize one plant or one addition of a mine of aggregate. So you would need to a bigger scale in order to improve the figures of each one.

Every business that we are analyzing and targeting, it has a good profitability on its own, Alejandro. But obviously, I mean, we're looking for connectivity on a sequence of acquisition that can be connected and create synergies among them. So it's a double effect, but we will not invest in any business that doesn't have, I mean, a good return by itself. Again, we're trying to do this, as we have explained before, within our footprint, and that's how we want to start increasing our participation in business precisely to take advantage of all those potential synergies both with integration into concrete or cement with the same customers in the regions we are. And of course, I mean, creating synergies between the different acquisitions that we are planning to link together.

Okay.

Thank you.

Okay. Hi, Alejandro. Regarding the CAPEX for this year, So our maintenance CapEx, we have guided 70 million for the full year. We are on track to deploy that CapEx. You know, we, in the third quarter alone, we increased compared to last year's third quarter by almost 30% the CapEx deployment. So we're very, you know, focused on that to get that done. Regarding the growth CapEx, the guided 400 million, Here, also, we are on target. You know, the combination of that growth topics might shift when we settle the year. You know, we had planned certain investments in additional kind of renewable and energy and sustainability related projects. There is a slight, you know, delay, and some of that will happen in 2025. On the other hand, we have done some better work on the distribution front, logistics side. So that will kind of rebalance. And then as you mentioned, of course, ODESA is our key growth cap expense there. And there might be in that last quarter a little bit of timing, mainly driven by some of the payment schedules that we were able to negotiate so that we're not front-loading all that growth capex. There's a little bit of an impact on how we distribute some of the tax-related topics there. And then last but not least, again, as we're chasing some of the the smaller mid-sized M&A opportunities, you know, again, that's part of our growth topics focus as well. So overall, we're still, you know, targeting getting as close to that 400 million by the end of the year for growth with slightly a bit of timing on Odessa that might go into 2025. Okay. Thank you. Thank you, Mike.

Thank you. Our next question comes from the line of Marcelo Ferlin with HLBBA.

Please proceed with your question.

Yes. Hi, Hiki. Hi, Mike. Hi, everyone. Thanks for taking my question. I have two questions here. The first is related to the guidance for 2024, as you guys mentioned. the cement volumes in the U.S., sorry, the concrete volumes in the U.S. could be below expectations and also we could expect lower than anticipated volumes in Mexico as well. So I'd like to understand, how is the company seeing the EBITDA growth guidance for this year? Could we still expect the meat single dish increase in your basis, or do you guys have a different view here? So this is my first question. And the second question, it's related to the oil and gas demand. So you guys provided some details on that, but I would like to understand how are the order books, what have been driving the oil and gas demand in the U.S.? This could be helpful as well.

So that's it. Thank you, guys. Thanks for your questions.

I was having a little bit of trouble to understand your question, but I think that you're talking about guidance of concrete sales both in Mexico and the U.S. And what Wes said in that regard is that volume-wise, we're not going to achieve guidance in either of the two markets. In the U.S., the main reasons have been, we mentioned, I mean, weather in the quarter. definitely in the northern region that have been delayed. I mean, projects and effects also on the agricultural side of those projects. That has been one factor. The other factor were obviously, I mean, also some wind farm projects that did not take place this year as we expected in those markets. Some of them, because of permitting issues, delays in permitting and projects being subject to public comment and community involvement and things like that, I think I hear the majority of those have been already addressed and now are going to move forward, but that has resulted in delayed volumes to those projects. And the perfect example is the Sancia project that I just mentioned. So that's basically, I mean, why we're not reaching volumes in the concrete side in the U.S., mostly related to weather and renewable energy projects. I mean, El Paso has been very, very good with the ITEM project. I mean, it's having a good year. And overall, I mean, the results for us internally for the for the concrete business units and material units in the U.S. are having a very good result when you combine everything that we mentioned about pricing and cost controls. But definitely volume-wise, not getting to the guidance. In Mexico, the same story. I mean, I am basically driven by the nearshoring effect, the slowdown on the nearshoring project, mostly in the border in Juarez for us. And as we mentioned, it's completely related to the volatility and political expectations about elections both in Mexico and the U.S. We're very close to elections in the U.S. now, and obviously, I mean, I expect that during the fourth quarter, I mean, we're going to know more of the new president policies in that regard, and that should give us more clarity

and hopefully and potentially a much better business with the continuation of nearshoring marcello regarding the second question oil and gas uh you know we are seeing continuous good good demand uh again especially in west texas right in the permian you know we've mentioned that many times before it's the lowest cost-producing, you know, oil fields, good activity, oil prices in the kind of global context have been stable. I mean, we all see a little bit the tension across the globe and the importance to be, you know, energy independent in U.S. So that's really driving that segment. You know, we're foreseeing that dynamic to continue into 2025. Actually, when you read the TCA latest forecast, they even forecast a little bit more dynamics in that segment. So it's a good stabilizing segment for us, you know, actually it's a growth segment for us. So that's why we're very optimistic we can maintain the productivity there. And important for us also when you look long-term with Odessa coming online not too far from now, that's clearly an important element of our growth case. So very, very attractive segment, very stable, good growth prospects.

Okay. I appreciate the answers here, guys. Thank you. Thank you. Our next question comes from the line of This is Vera with Goldman Sachs.

Please proceed with your question.

Hi, guys. Kong, that's on the results. Just wanted to maybe ask one more question on M&A. What is the management's view on peak leverage and through the cycle leverage that you guys will be comfortable with? And secondly, on M&A, is there...

any particular regions that you are looking at which look more interesting um yeah that that will be helpful thank you thank you really um again uh as we've been mentioning i mean we we will continue to be on a conservative company in terms of our balance sheet and our leverage ratio i mean uh we're very comfortable with a 2.5 times net i mean in any in any uh investment. Of course, I mean, we have a very good, significant and project that it's kind of, I mean, in our core region or that creates, I mean, large seniors with our current network. Of course, we will be willing to go all the way up to three. I mean, our subject, I mean, obviously, always to have the conversation with the board. But we think that they will feel comfortable in this range depending on the project. In terms of the regions, Australia has always been to try to continue growing in our current network, but as we have said in the past, given the lack of enough opportunities or evaluations that are too high, multiple, we have a already open up, I mean, our study to grow in the U.S. in other regions. And we've already tried that. We've been in discussions this year with another company in a different region. And so we are completely, I mean, open to look for opportunities anywhere in the U.S., hopefully less inclined to the coast and the sea water import markets. But But including, I mean, that effect, as long as we can create a long-term system, I mean, we're open to look at it. That's on the cement side. On the aggregates, we're definitely, I mean, starting, I mean, putting more emphasis on starting within the region where we participate today. Again, as I mentioned before, to make sure that we can create synergies that other, I mean, prospective buyers could not have, I mean, compared to us.

Thank you. Congrats again. Thank you. Thank you. Ladies and gentlemen, that concludes our question and answer session.

I'll turn the floor back to Ms. Okushi.

Thank you, everyone. We appreciate everyone taking the time today to join us and for your interest in this. We look forward to speaking with all of you soon.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.