Grupo Cementos De Chihuah

Good morning and welcome to GCC's second quarter 2026 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 Sahory Ogushi, Head of Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining. With me today are Enrique Escalante, our Chief Executive Officer, and Maik Strecker, 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. 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 this forward-looking statement. 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 obligations to update these statements as a result of new information or future events. With that, let me now turn the call over to Enrique.

Thank you, Sahory, and good morning, everyone. In the second quarter built on the program we saw earlier in the year, we delivered strong top and bottom line growth. We reposition volumes toward the strongest areas of demand while continuing to serve customers reliably. That ability depends on the capabilities and experience of our teams Which brings me to our people's strategy. Starting off the kiln at Odessa was the clearest example this quarter of what our teams can deliver. Commissioning a project of this scale requires deep technical preparation and close coordination across plants. The training and cross-plant work have enabled the team to reach this milestone successfully. Building those capabilities is a continuous effort. Year to date, we have delivered more than 8,400 hours of training across the network, focused on the technical skills that support safe and consistent operations. In parallel, we have run the XGCC program to which former employees returned to work alongside current teams and transferred decades of operational knowledge, deepening expertise across the company and preserving institutional knowledge as we grow. Under our planned strategy, we continue to prioritize initiatives that improve both environmental performance and operating economics. During the first half, Blended Cements accounted for 79% of total production, while natural gas and alternative fuels continue to gain share in our energy mix. Our flexible fuel strategy gives our plants the ability to shift between fuels as relative economics change. During the quarter, this helps keep fuel costs within our expectations despite market volatility. We also continued investing in natural gas pipeline infrastructure, broadening across to lower-cost fuel, strengthening supply reliability, and improving our long-term cost position. Together, these initiatives demonstrate how sustainability and economics can advance in the same direction as GCC. Turning now to our growth strategy. In the United States, the trends we discussed earlier in the year continued into the second quarter, with strong volume growth across both cement and concrete. Cement volumes increased 10.8%, supported by broad project activity and by the contribution from our terminals in Texas and Arizona. which were not present in the prior year period. Concrete volumes increased nearly 29%, reflecting the performance of our existing operations and the contribution from the ready mix business acquired in the first quarter. Excluding those acquired operations, concrete volumes still grew 15% during the quarter. More broadly, Customers continue to report healthy backlogs across the U.S. and market, supporting our outlook for the remainder of the construction season. Against that backdrop, let me review the main demand drivers, starting with infrastructure. Infrastructure remains one of the main sources of demand. We are actively participating in paving work across our footprint and in interstate highway projects in Texas, sustaining solid demand for both cement and concrete. Looking beyond the current construction system, the policy environment also remains constructive. Discussions around the next U.S. surface transportation authorization continue to emphasize core transportation priorities, including roads and bridges. Compared with the broader scope of the Infrastructure Investment and Jobs Act, this direction is more closely aligned with the type of project that drives cement consumption. Several states in our footprint have historically favored concrete paving and this creates a positive setup for GCT. The bill includes proposed reforms to simplify and accelerate the programming process for infrastructure projects. Based on normal program timing, we would expect any related volume benefits to begin emerging around mid-2027. Renewable energy also remains an important contributor. We completed a wind farm project during the quarter, and expect to begin three additional projects in Texas and North Dakota in the third quarter. We should continue supporting activity across the network. Data center related activity is also becoming more tangible. Projects that have been on hold during permitting are moving again, and we are actively supplying work while bidding additional opportunities. A good example is the Meta Data Center in El Paso, which Meta now describes as an investment of more than $10 billion. Projects of this scale can generate significant demand for competent demand throughout their construction cycle. In parallel, we are involved in power generation work linked to data center development, broadening the opportunity set across our footprint. In oil and gas, activity improved in mid-May and June. Customers' confidence improved as oil prices moved into more constructive range, and oil wells cement became an additional source of support for our U.S. volumes. At current levels, we are able to sell everything we can produce in oil wells cement. The timing of the Odessa Grand Pub is well aligned with this shift. and Shipments from the New Line will expand our ability to serve the segment. This is a constructive development and we are positioned to participate as the activity continues to develop. Residential activity continues to be constrained by persistently high mortgage rates. With affordability still under pressure, we do not expect to see a meaningful change in this segment during the remainder of 2026. From a commercial standpoint, U.S. pricing remains challenging. Average cement prices were down in the quarter a year today, reflecting the product, project, and geographic mix we have discussed since the beginning of the year. The competitive environment has also broadened as imported cement begins reaching inland markets that historically have been less exposed. However, our geographic position away from the coastal areas continues to give us a structural advantage relative to markets with heavier import penetration. We are engaging through industry channels to support fair and rational market conditions, and we remain disciplined in our commercial approach, prioritizing service, reliability, and long-term customer relationships. Overall, the U.S. quarter reflects strong volume performance across several end markets, healthy customer by-laws, and a supportive setup for the third quarter construction season. Turning to Mexico, the second quarter provided further evidence of recovery. Demand volumes grew 6.2%, led by self-construction, residential demand, and infrastructure activity. Concrete volumes were essentially flat, with a slight decline reflecting the completion of certain residential and industrial projects that have supported the prior year comparisons. Housing remains a constructive part of the market. Private activity stayed healthy while the federal housing initiative continued to move to its planning phase. Over time, the program has the potential to materially expand housing activity in the state, including the possibility of doubling the number of homes built annually. And we are positioning the network to support that goal. Infrastructure also continues to provide important momentum. We are participating in the highest level of activity we have seen in the last decade, and additional projects are expected to materialize through the second half of the year. In the industrial segment, activity remains cautious and broadly consistent with 2025, as customers continue to take a measured approach to investment decisions. Although confidence has not yet returned many police, our long-term view of the region remains intact. GCT has operated successfully through multiple cycles of trade and policy uncertainty, and we are prepared to respond as conditions improve. From a pricing standpoint, Mexico remains broadly stable. The men's and concrete prices were essentially flat, reflecting a higher share of infrastructure work in the mix, and timing effects in price implementation. The underlying pricing environment remains sound. Overall, the quarter provides tangible evidence of Mexico's recovery, with housing and infrastructure supporting a constructive setup for the second half of the year. Turning now to capital allocation, the second quarter also advanced investment in our network. Oleta remains the most important operational milestone of the year. We successfully started up the new kiln in June, moving the production line into ramp up. The final scope of the project is also stronger than originally announced. During construction, we obtained an expansion of the plant's permitted capacity and secured a kiln with 17% higher capacity. The project will add 1.1 million metric tons of incremental capacity, bringing total plant capacity to 1.6 million metric tons. Total investment is now expected to $700 million. Equivalent to $636 per metric ton of incremental capacity and approximately $50 million below the original budget. This result reflects continued work throughout the project to improve engineering, procurement, and project execution, allowing us to increase capacity while lowering total requirements of capital to 700 million. Our focus now is on stabilizing equipment and production, integrating the new capacity into the network in a controlled manner. In parallel, we're advancing the approval process with State Department of Transportation for our cement mix design. Based on current progress, We expect to begin shipping cement from the new production line slowly and consistently in the latter part of the third quarter. Building the network around Odessa is the natural next step, and the second quarter brought clear progress on that front. We completed a new cement terminal in Abilene, Texas, extending our logistics bridge across West Texas. The terminal complements the AgriExploracore we began scaling more deliberately with the acquisitions announced in early 2025 and improves our position in a market becoming increasingly relevant for data center development and the infrastructure that supports it. The second quarter also marked another step in building our AgriExploracore. Following the expansion of our position in El Paso region in the first quarter, we added aggregate and concrete operations in Amarillo and the Midland Odessa region. These transactions broaden our presence in attractive markets, deepen our aggregate position, and help maximize the value of the Odessa expansion. Year to date, we have invested approximately $91 million in acquisitions, adding approximately $11 million in EBITDA contributions. Including the transactions completed since 2024, our cumulative investment in this segment totals approximately $225 million, representing about $25 million of additional EBITDA. These acquisitions build a scale in aggregate and reinforce our ability to serve customers across this market with construction material solutions. In summary, the quarter advanced each of the priorities we set at the start of the year. Stronger market activity, the controlled ramp up of Odessa, and expansion of our aggregate platform in the region. We remain focused on our customer service, stabilizing the new line, and building the network for future growth. With that, let me turn the call over to Mike for a review of our financial results.

Thank you, Enrique, and good morning to everyone. Starting with consolidated performance, second quarter sales totaled $418.4 million. An increase of 15% compared with the same period last year. Growth reflected higher volumes and stronger conference pricing in both countries. And the appreciation of the Mexican vessel against the U.S. dollar. In the United States, revenues increased 14.1%. Cement volumes increased 10.8%, while concrete volumes were up 28.7%, reflecting the performance of our ReadyMix operations and the contributions from the acquired business in El Paso, Texas. Concrete pricing increased 5.7%, while cement pricing declined 3.2%. Consistent with the product, projects, and geographic mix dynamics discussed earlier. Overall, the portal reflects strong activity, the contribution from our new terminals, and continued execution across multiple end-use segments. In Mexico, revenues increased 17.7%, Supported by volume growth in cement and higher pricing in concrete. Results reflect the improving activity across the self-construction, housing, and infrastructure segments that Enrique described. From a cost perspective, cost of sales as a percentage of sales increased by 50 basis points, reflecting higher production costs, The inclusion of the operations acquired in the first quarter and higher transfer freight. The freight increase reflects additional cement shipments from our plants in both the United States and Mexico to support demand in the Odessa market during the ramp-up, as well as shipments serving our newer terminals. These logistics costs We expect this effect to ease as Odessa production stabilizes and distribution flows are optimized. SC&A expenses increased to $34.5 million, driven primarily by the appreciation of the Mexican petrol, and by expenses related to the acquired operations as well as the annual salary adjustment across the business. As a result, EBITDA for the quarter totaled $132.9 million, an increase of 12.3% compared to the prior year period, with an EBITDA margin of 31.8%. As anticipated, margins reflect the temporary logistics and mixed effects discussed earlier. We expect these effects to ease as the Odessa ramp-up and the network moves toward a more efficient operating configuration. Free cash flow for the quarter totals $56.9 million, a 17% increase. Higher EBITDA generation, lower cash taxes, and lower working capital requirements drove the improvement. In terms of capital allocation, capital expenditures totaled $34.5 million during the quarter, related mainly to the ODESA expansion. We also returned $43.1 million to shareholders through dividends and Share Buybacks. We ended the quarter with cash and equivalents of $812.5 million and a net debt to EBITDA of negative 0.37 times. This balance sheet position preserves our ability to fund growth investments while maintaining flexibility. In summary, the financial results So that volume growth and the acquired businesses are expanding the earnings base. While the temporary cost of the Odessa ramp-up remains contained within our original plans. With that, I will turn the call back to Enrique.

Thank you, Mike. Before we open the call to questions, Let me update how we are thinking about the balance of the year. First half performance provides greater visibility into how 2026 is developing and the future has strengthened since January. As a result, we are updating selected elements of our full year outlook as follows. In Mexico, First half cement volumes came in ahead of our initial plan, and we are now expecting full-year volumes to grow at a mid-single-digit rate, up from the low single-digit increase we guided through in January. In the United States, including the newly acquired operations, We now expect full-year concrete volumes to increase at a low single-digit rate for the full year, a meaningful improvement from the high single-digit decline we had originally planned for. In USMN, pricing continues to reflect the mixed dynamics we have discussed throughout the year. alongside a broader competitive environment across parts of our footprint. For the full year, we now expect U.S. cement pricing to decrease low single digits. Every other assumption we share in January across both countries remains in place. While several of these elements have improved, We are maintaining our full-year EBITDA guidance amid single-digit growth, as the transitional costs associated with the Odessa ramp-up will be more concentrated in the third quarter. Our priorities for the second half are clear. Ramp-up Odessa and Beijing customer shipments. Maintain service through the network transition. and integrate the acquisitions completed during the first half. The setup of the following years continues to build and we remain confident in the strategy and direction of the building. With that, we will open the call for questions. Operator, please proceed.

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 keys. One moment, please while we poll for questions. The first question is from Alexania Obregon from Morgan Stanley Investment Management. Please go ahead.

Hi, good morning, GDC team. Thank you for taking my question and congratulations on the Odessa milestone. And actually, my question is on the volumes in the U.S. and your guidance there. I was hoping to... To better understand how much of your expected volume growth in the U.S. is attributable to volumes from Odessa, and where do you expect that to land in terms of utilization by year-end? So if you can also elaborate on how construction cement volumes are performing across the rest of your footprint and whether Odessa today is replacing some of those volumes. Thank you.

Good morning, Alejandra. This is Enrique.

We don't know necessarily disclose exactly, I mean, how much of the shipments are going to be coming from each plant, but we've been saying that this is an optimization effort, and so we're shifting the network and, broadly speaking, bringing cement from San Mara Yucca back to the plant and starting up the kiln, as we said. We have also discussed that we're going to do a slow and consistent ramp up of the plant throughout the third quarter and fourth quarter. We don't expect to be in full utilization of the plant on an annualized basis until next year, 2027.

Again, in the context of Odessa, as we've seen some positive momentum on the oil segment, again, the startup of Odessa comes at the right moment, so we can take advantage of that. So that's another positive for Odessa specifically. And then you asked about the kind of the construction cement. Here again, you know, we announced we have a small terminal now in Abilene that connects well with the aggregates platform that we have. We didn't have that, you know, in previous years. And here that part is very much driven by data centers and all the infrastructure around it. So it comes at a good time to support the Odessa ramp up. So we're actually very positive what we're seeing in that, you know, West Texas market at this moment in time.

Excellent. And if I may follow up, just to better understand, is your guidance changing your expectations for oil well cement, or not yet?

Not yet. Not yet. That's why we left the cement guidance pretty much the same. And again, we had a slower start, so we compensated a little bit as we were working through the year, but no change on the guidance there.

Excellent. Thank you very much, Enrique and Maik.

Thank you.

The next question is from Adrian Huerta from JP Morgan. Please go ahead.

Hi, Enrique and Maik. My question has to do with the aggregate strategy, good acquisitions in Texas. What else can we expect over the next 12, 18 months? Which other markets would you like to have operations? And you can also elaborate a bit on the ready mix one as well. You added some new operations, and is this a plan also to continue growing the ready mix footprint?

Good morning, Adrián. Thank you for the questions.

Yeah, on aggregates, I mean, first, Adrian, yes, we definitely have planted, continue consistently, I mean, making acquisitions in aggregates. We're still pretty much, I mean, focused on what we said before, to do it in our region, trying to connect with the network as much as we can. So, in concrete, we're going to continue looking for opportunities in Texas, New Mexico, Colorado, and that's what we are most inclined of, but we're not limited to those markets only. And we are also thinking that as we continue, we're going to probably try to increase the size of acquisitions that we've been making in the area side. So that's a consistent strategy, and we said we'll start working, and then we job, and then we'll run. So that direction will follow. In red mix, yes, we have said in the past that we will invest in red mix only if it's an integrated play, either with this aggregate or with our cement plant. But we're definitely open to continue and we have been doing it so far under those considerations.

Excellent, thank you.

The next question is from Pablo Ricalde from Itao. Please go ahead.

Hi, thanks for taking my question. This is a follow-up to Alejandra's questions on the Odessa milestone. I don't know if

if there are some like pre-operating expenses registered on the second quarter this year or do you expect and do you expect something to register on on the third quarter or nothing additional should be registered on the integration of Olesya?

Thanks for the question. I will take the first part here and talk about the ramp up and the operating expenses The main focus there for us is around logistics. To bring this up and integrate the new volume into the network. The network that we have built over the last year, year and a half, we have supported that with Cement Ottawa's other plans. So as that ramp up happens, that logistics cost still kind of remains specifically in this current order. That's probably one of the key kind of Operating Expenses or Introduction Expenses that we're very carefully watching. And as we said in our remarks, we should see that normalized as we go towards the end of the year and then into 2027.

The next question is from Daniel Rojas from Bank of America. Please go ahead.

Thank you. Thank you for taking my call. I was interested in understanding more on your input cost and what you're seeing into the second half. What are the areas of opportunity in terms of natural gas and other input costs that you might be seeing increasing due to the pressure we're seeing in overall energy prices? Thank you.

Yeah. This is Mike again. Thanks for the question. Overall, input costs specifically around fuel, we actually see Thank you very much. Still taking advantage of alternative fuels, where A makes good economical sense and gives us benefit from a cost perspective. And of course, part of our midterm sustainability roadmap. So from that aspect, fuel is very stable. Very similar on the power side, at least in the Mexico situation, Mexico plant. In the U.S. plans, we see in some areas a little bit of power increases. Some of that is driven by all the power needs with data centers, and we all hear it in the news. So we see a little bit of power pressure from a cost perspective, but kind of overall in the context of how we run the business, we still see that manageable throughout the year.

Thank you, Mike, and I have a follow-up. Regarding your M&A strategy and acquisitions you've been doing in the aggregate and rhythmic space, you've already said that it has to be complementary to your network, but looking at the map, it has been concentrated in Midland, West Texas, all the way to El Paso. My question is, have the opportunities being paid out in the region and that may force you to look into other parts of the U.S. or are we seeing valuations in that particular region going up to a point that it's not as interesting for you? I just wanted a little bit of more color on what you already expanded on.

Daniel, this is Enrique. Just expanding on elaborating on the answer I gave before. We're not constrained only to Texas for the growth of aggregate and ready mix. We had a deliberate focus there because of Q3 in Odessa, and we wanted to make sure that we acquire some assets in aggregate and ready mix that would strengthen our position there, and so we already did that. And with that, I can tell you that we are looking more broadly to different states where we have operations to continue with this growth. And as I said, probably in higher amounts of investment.

Thank you. As a reminder, to ask a question, please press star 1. The next question is from Emilio Fuentes from GBM. Please go ahead.

Hi, thank you for taking my question. I have two questions. The first one is regarding any expectations on weather conditions during the second half of the year, especially regarding the expected impacts on El Nino that you have seen or you expect. And the second one is regarding the 11 million contributions we shared from the acquisitions from 2026 and 25 million to 2024. But this already includes synergies and it's not how big can these contributions take. Thank you.

Good morning, Emilio. This is Mike. We had a little difficulty hearing your first question. I will answer the second one, and then, you know, if you don't mind, maybe repeat the first one. The second one, I understood that you were asking about the aggregate acquisition and the acquired EBITDA, you know, year-to-date and over the last, you know, All in two years. That acquired Evita is before Synergies, so that's kind of how we acquired those businesses. We, of course, now working on detailed plans to lift Synergies for these businesses. And again, connecting it back to what Enrique said, these businesses are located in the markets where we have already assets, either cement assets or other active assets or already assets. So there will be a good level of synergies that we're planning to lift, starting with operational synergies that we think we can deploy. Keep in mind these are smaller businesses, so best practice sharing, utilizing certain equipment across the network will help us. And then, of course, the commercial opportunities. Also, I've mentioned Cesar Conde Aguirre Thank you. Yes, the first question was regarding

Any potential weather impacts on the second half of the year that you have studied, especially regarding the El Nino effect and how it could affect volumes in the regions? Emilio, this is Enrique.

We're not concerned with that, that we're not factoring the typical weather patterns in the different markets where we are in our guidance. Obviously, if there's anything extreme, I mean unforeseen, of course it will have an effect. But otherwise, Well, I mean, continue with that guidance including those, I mean, normal weather patterns.

Thank you very much.

Odeza, and where do you expect that to land in terms of utilization by year end? So if you can also elaborate on how construction cement volumes are performing across the rest of your footprint and whether Odeza today is replacing some of those volumes. Thank you.

Good morning Alejandra, this is Enrique.