Golden Cariboo Resources Ltd.

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

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

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

Thank you, Mike.

Turning to slide 21, I would like to now take this opportunity to discuss the underlying demand environment and our construction-related outlook for the year ahead. We see both challenges and opportunities related to the changing dynamics as I have described. GCC has anticipated this with our demonstrated ability to respond and adapt. Single-family new residential home building numbers have declined. And while companies continue to build on their backlog, new starts are down year on year. Remits have plunged as high borrowing costs paired with widespread inflation eroded housing affordability and demand. Single-family home construction permits fell more than 7% to the weakest pace since 2020. However, multifamily apartment and housing demand and private and non-residential starts are rising, driven by immigration and continued population shifts, which we expect to partially mitigate this decline. 2023 U.S. projects of note include continued construction work on our runway in the Denver International Airport. For 2023, we see considerable demand in South Dakota with an Air Force base, a large daily farm project, two significant paving projects, and a significant uptick that we're seeing in wind farm projects driving the readiness demand. We believe Wind farm related demand will also continue to escalate in 2023 and 2024. Projects are shifting from California to South Dakota, driven by regulatory costs and an increasing global focus on renewable energy. Today's increased renewable energy focus is also propelled by the Inflation Reduction Act provisions and incentives. IRA incentives reduce renewable energy costs for organizations like green power partners, businesses, nonprofits, educational institutions, and state, local, and tribal organizations that are taking advantage of IRA incentives, such as tax credits. These are key to lowering greenhouse gas emissions and accelerating the clean energy transition, from which GCC will experience meaningful benefits in the future ahead. Today's scenario is one with more funding available than projects under construction today. Construction projects that remain dormant during the pandemic are also returning in 2023. GCC has already booked two wind farm projects in South Dakota with expected completion in the second half of 2023. Along these lines, solar farm interest is also ramping up, and we've had frequent related conversations with potential clients, which is yet another clear sign of the uptick we are seeing in renewables. On the public side, leading indicators for highways and other infrastructure show strong signs for 2023. There have been no recent relevant updates related to the infrastructure investment and job site. And while states and DOTs are preparing for funding and putting on hold any projects potentially eligible for the bill, plenty of projects remain. GCD has again demonstrated our strength in reading the market climate. when we anticipated a potential slowdown in other market segments and deepened our focus on infrastructure projects bidding in 2022. We continue seeing a strong market and stay cautiously optimistic that this trend will remain during the year. As I mentioned, 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 GDC cement and concrete sales volumes to increase low single-digit year-over-year in the U.S. and low to mid-single-digit in Mexico. In terms of prices, a $12 per short-term price increase took effect on January 1st for both construction and oil well cement in the US, with no significant pushback from customers. We are advising customers of a possible second price increase and remain vigilant of market and economy dynamics. Concerning this announcement, coupled with tight supply and demand dynamics, We anticipate another year of price increases in the mid- to high single-digit range for cement and concrete in both countries. Regarding profitability, we expect 2023 EBITDA to increase high single- to low double-digit against 2022 levels, driven by the top-line price increases and a more stable energy cost. we expect to recover the margin loss in 2022 during the year. We approximate our capital expenditures at $290 million, including $220 million allocated to the relevant strategic and growth projects, $70 million related to maintenance expenses, and as a result, the free cash flow conversion rate Before strategic and growth capex, it's expected to reach more than 60% with the net debt to EBITDA ratio, which would remain negative. With that, this concludes our prepared remarks. Let's now turn to your questions. Operator, please go ahead.

Thank you. At this time, we'll be conducting a question and answer session. If you'd 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'd 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. In the interest of time, we ask that you each keep to one question and one follow-up. Thank you. Our first question comes from the line of Adrian Huerta with JP Morgan. Please proceed with your question.

Hi, thank you. Good morning, everyone. My question has to do with prices and decay. You mentioned that you expect the prices to increase mid to high single digits. Is this increase what you're expecting to apply during the year, so basically that increase versus December, or this is the increase of average prices for this year versus average prices of last year?

Adriano, good morning.

Thank you for your question. We normally measure that on average year-on-year.

But given the sharp increase that we saw in the last three quarters of last year, even if you don't have price increases and prices remain at the same level of 4Q, it seems like average prices will already be in the U.S. up amidst single digits this year.

That's why I'm asking how you compare this.

I think that, I mean, if I'm really understanding your question correct, if we implement the full 12 dollars now, as we have been doing and we expect that to continue, I think we will be very close to what you're saying.

Okay, perfect. Thank you. And my follow-up question. Nice to do with buybacks. I'm glad to see that you guys were quite active last year. The stock has recovered quite a bit. You guys plan to be this to be something that you guys will be doing every year?

Yes, Adrian.

We're planning to continue more or less at the same level of what we've been doing last year. Of course, we will go to our shareholders meeting in April to make sure that we get the proper authorization for that.

Great. Perfect. Thank you, Enrique. I appreciate it.

Thank you. Our next question comes from the line of Nikolai Lipman with Morgan Stanley. Please proceed with your question.

Thank you very much and congratulations on the results. Both the call and the guidance are very clear here. But in terms of the cash cost, can you just give us a little bit of detail in terms of how, you know, when you're looking at a lot of moving parts, declining gas prices, the coal mine is back, in particular for the U.S., what are you thinking on a ton of cement soil basis? Can you give a percentage or maybe a number in terms of the potential reduction that you have baked into the guidance? And sorry if I was a little bit slow there with Adrian's question, but are you planning to cancel the shares that you have brought back? Thank you very much, guys. And again, congrats on the numbers.

Well, we don't.

We don't have a specific number per ton reduction here to disclose, but what I can tell you is that we're very confident that with a combination of pricing and fuel mix reduction, we will easily achieve recovering the 1.5 percentage point that we lost, and I'm confident that we can go above that. So it will be, at least in my opinion, returning to the 2022 levels of profitability and most likely increasing it a little bit. In terms of the share purchase, no, we don't plan to cancel the shares.

I mean, we don't have any intention of doing that at the moment. Got it. Thank you very much.

Thank you. Our next question comes from the line of Pablo Recalde with Santander. Please proceed with your question.

Hello, everybody. I have a question on dividends. You are getting net positive cash for your end.

So how are you seeing dividends for the year? So, Pablo, good morning. Thank you for the question.

continue running the same course in terms of data in San Pablo. We're going to obviously increase the dividend distribution for the year, obviously above inflation, but nothing out of the ordinary of what we've been doing in the last years.

Okay.

Thank you. Our next question comes from the line of Alejandro Azar with GBM. Please proceed with your question.

Good morning, guys.

Enrique, Mike, Saori. Two quick ones. The first one is if you could tell us the impact, the monetary impact on the problems that you have in the coal mine in 2022, if you could share that figure with us. And Enrique, would you mind sharing with us your thoughts on capital allocation, apart from dividends and buybacks, on the M&A front? What has been the reason of not closing a transaction in the past three years? Is it valuation or do you see less willingness across the industry to divest assets? Thank you.

Alejandro, good morning.

I mean, can you repeat your first question? Did you say on pricing of the coal mine?

yeah yeah they if you could show the monetary impact from from the troubles that you have in the coal mine during the full 2022 um no i will have to come back to you with that specific number uh alejandro sorry well i mean i've been in contact with you too i mean elaborating that specific impact

On the second question on capital allocation, well, I mean, we continue basically with our same strategy. As you know, I already mentioned, I mean, what we will do on the dividend side. And, you know, also the capital projects that we're investing on this year. But, yeah, I just mentioned in my remarks. On top of that, of course, we will, I mean, strongly continue with our effort on the M&A side and continue to look for targets that we can, that we could, I mean, incorporate into our business model. We plan to, I mean, obviously if needed, I mean, go out to, I mean, get financing for that, but with the cash that we have and the financing that we can get, staying below three times leverage, I think that we're prepared for a meaningful growth on the M&A side if we can find a reasonably well-priced asset or assets. So it's widely known that our model in the same region where we are has some limited potential, but again, that's our first priority. But we are discussing strategies to now open up our growth strategy to other regions in the U.S. too. So stay tuned and we'll continue updating you on that as the year goes on.

Excellent. Great caller.

Thank you. Our next question comes from Lucia Gomez with Compass Group. Please proceed with your question.

Hi, good morning. Thank you for taking my question. It's more of a follow-on on what you've mentioned of M&A capital allocation. I know that you've mentioned that you will continue to look for possible M&As, but have you not found any interesting opportunity? Is it because, as Alejandro mentioned, because of valuation or because you're not finding any good players in the market right now?

Good morning.

I will turn this call to Mike. He's obviously been very active on the MSI 14 to elaborate on your question. Yes, good morning, Lucila. Thank you for the question. We have been really focused on finding the opportunity that connects to our existing network from a cement perspective. And as you can imagine, as the U.S. has been very strong, companies are not as easy to sell as it's in a slower market. So we continue that work. We believe there will be some opportunities in the near future, and we want to be ready and take advantage of that. And like Enrique said, we're also discussing how do we strengthen potentially our aggregates business within the footprint. We see some opportunities there. As you know, we have an aggregates business We have some experience there, so we're trying to leverage that and see that as a next level of growth. And we're, again, scanning the U.S. market and probably also look at a little bit further out of our network within the United States. So that's our really defined M&A strategy.

Perfect. Thank you.

Thank you. Ladies and gentlemen, as a reminder, if you'd like to join the question queue, please press star 1 on your telephone keypad. Our next question comes from the line of Leysha Zak with GBM. Please proceed with your question.

Hi, good morning. Thanks for taking my question. I have two, actually, and the first one would be if you could give us some color on why your maintenance capex for 2022 stands at around $30 million and not at its usual levels of $60 million a year. What is the reasoning behind the underinvestment in maintenance in 2022?

Aisha, thanks again for your question.

I'll let Mike give you the details of what we have in the CAPEX budget. So yeah, Aisha, thank you for the question. We maintain our overall maintenance CAPEX around $70 million a year. I think in last year we saw a bit of timing aspect to that. That's why you only, you know, was recorded to 35. But, you know, we're not taking any step back investing in the assets. On the contrary, we're very diligent to put the money back into the business to be able to, you know, produce at full capacity. So I think what you saw there is just a little bit of timing. and we continue our reinvestment path for the assets.

Okay, perfect. And my second question would be if the outlook for CapEx that you shared is the target that you're aiming to reach and if that could change depending on how the situation evolves as it did last year. As you mentioned regarding timing and how you're seeing the environment as a whole.

So again, regarding the CAPEX, you know, I already elaborated on the maintenance side. On our growth and strategic CAPEX, again, that's the execution of our two announced upgrades, like Samalayuka, which is on track and we're finalizing that upgrade. So that's part of that growth and strategic CAPEX. And then, of course, Odessa. You know, our investment in Odessa, which... is on track and we're working through that detail, but that's pretty much representing our strategic and growth CapEx, those two projects. And then in addition, I would also mention some additional CapEx in our logistics network in the terminals to enhance our capabilities to really supply the product in this very tight market.

Okay, thank you very much.

Thank you. Our next question comes from Francisco Suarez with Scotiabank. Please proceed with your question.

Good morning. Thanks for the call. Congrats on the results, gents. The two questions that I have, first of all, on your statements related with this idea of Tijeras actually helping to address demand in all wells in New Mexico. Just remind me, does the plan have two lines? In other words, a line can be dedicated to only all-well cement and the other to normal Portland cement? And secondly, the other question that I have is on your overall guidance for 2023. Can you help me to understand that? How much is the overall percentage of our exposure on residential that is clearly declining, generally speaking, on this year? And how much is the overall exposure that you may have to non-residential real estate and to infrastructure that seems to be enough to have this positive outlook on volumes in the United States? Thank you.

Good morning. Thank you. Thank you for the questions. I will, I mean, answer your first question on the premium and then I'll allow Mike to elaborate on the guidance of residential exposure for DC. So, yes, I mean, the plant that we have has two lines, two cement kilns that are basically identical. And you can easily change production in one or two of the kilns. from construction cement to oil well cement. And you can do that, I mean, for a period of time or more extended period of time depending on marketing. So it's very flexible. And this is, again, one of the, I would say, escape valves that we have in our toolkit precisely if we see a residential impact, I mean, deeper than what we're expecting today, we can switch one or two kilns even to oil well cement, it should more well to the permanent basin. So we have the tools, and now, obviously, I'll let Mike complement. I mean, if that risk materializes, I mean, where is where we are in DCC? Yeah. Francisco, thank you for the question. Regarding the guidance and specifically the U.S., you know, we were anticipating or we are anticipating that the residential side of the business will slow down. The PCA forecast across the U.S., about 12.6% slowdown. We believe in our footprint, it might be a little bit less than that, but close to a high single-digit number where we see the slowdown. However, we believe we can compensate strongly in our oil and gas business. That is forecasted in the segment to increase by 30%, so a nice growth. And we have very strong order books, so we believe we can compensate that. And that's the reason what Enrique explained with the flexibility of the hairs and the network. And then also, as Enrique said earlier, we see some very nice growth in the industrial commercial segments. There are very good order books there. So we foresee that we can offset any slowdown in that residential segment with those other segments. Thank you. With what we see today, I mean, shifting from one segment to another, I mean, one product to another, we still see today, I mean, a full year for DTCs plants running at capacity during the year. Gotcha.

Thank you so much. Congrats again.

Thank you. Our next question comes from the line of Frederico Galassi with TRG Management. Please proceed with your question.

Hi, guys. Thank you for the call, and congrats for the results. Two questions, if I may. The first one is, when you talk, in particular in the U.S., I'm thinking in the infrastructure plan at the end of this year, next year, when you talk with your clients, distributors, etc., etc., they are more worried for the availability of cement or pricing?

This is the first question. Francisco, Federico, how are you?

I mean, good to see you. I want to hear from you again. I mean, we just met a few weeks ago. Yeah. I think that our customer, information that we have, I mean, today from our customers is that they continue to be very aware that they need cement for the year and that they have a lot of projects in their books too. So what they have been transmitting to us is that they are concerned that we don't need them without the right quantities of cement for their order book. So I will say, in my opinion, they are more concerned with the availability today than with pricing. I think that's one of the reasons why the general pricing quiz went in so well with no major pushback?

Okay, great. And the second question, and in your guidance, you're talking about the EBITDA ground source high-level digits, low-level digits. But last year, you don't have all the availability of your own call. This year, you will have... we can see that some increase in margins, a bit of margin for this year.

Yeah, Federico, thanks for the question.

Yeah, our goal is to regain some of the margins that we lost last year for the reasons we explained with specifically the fuel mix.

So that readjustment of the few mix and getting to our normal setup with our own coal will help us, number one, to regain some of those lost margins. And then the goal is really to work on improving those margins, the pricing strategy, the other cost work, cost savings, running the plants efficient, that all will contribute that we believe we can improve the margins in 2023.

Okay, thank you for your answers.

Thank you. Our next question comes from the line of Rafael Simonetti, private investor. Please proceed with your question.

Hello, everyone. Thanks for taking my question, and congratulations on the result. My question is about energy costs. Could you give any color about its impact on the fourth quarter and what do you expect for 2023? Also, if you could talk about any energy hedges you may have.

Thank you. Good morning. I mean, we have some figures here that we can share with you. Let us just, I mean, look specifically for them for the fourth quarter.

I mean, the year-on-year increases, but I'm still looking for the quarterly increases. Year-on-year, 21 to 22, just for you to understand better, I mean, why we had such a high impact on our margin last year. Diesel fuel increased 14% for us. Natural gas, 147%. Coal, 36%. and other fuels, 11%. So that was a huge increase in 2022 that, of course, eroded the margin at close to 1.5 percentage points. And this is what Mike was referring to in terms of going back to a normal fuel mix. That's where there's so much potential to improve the margin. Of course, combined with the price increase, that will all flow kind of the perfect, I mean, alignment all the way to the bottom line. Did you find something on the water?

Give me just a second.

In terms of our gas, I mean, a price for this year, I mean, we have a hedge basically the whole year for our, that's a plant, but it's the only plant that runs So, if we go back as we plan to call in all the rest of our plants, I think that we have a very stable fuel mix for the total year 2023.

We can provide you some more specific, I mean, quarterly increases. I mean, at a later point, if possible, we do provide.

Thank you. Our next question comes from the line of Laisha Zak with GBM. Please proceed with your question.

Hi, again. Just a quick question. Can you repeat what was the forecast that you expect for the oil and gas business? I think you mentioned, I don't know, it's 30% or 13%. Would you repeat that, please?

Yeah, Laisha, the PCA forecast for that segment, 30%. And, you know, we expect specifically in the Permian Basin a very active year, right? We have strong order books. It's one of the lowest cost production fields in the continental United States. So we expect very strong demand. And that's why we're prepared, you know, with Odessa, and supporting it from our Chihuahua plant here in Mexico to really take advantage of that and supply those customers.

Okay, thank you very much. Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mizoguchi for any final comments.

Thank you, everyone.

We appreciate everyone taking the time today to join us and for your interest in GCC. 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.