GCC SAB de CV

BMV:GCC

Earnings Call Transcript 2023-Q2

[Operator]

Good morning, and welcome to the GCC Second Quarter 2023 Earnings Results Conference Call. Before we begin, I would like to remind you that this call is being recorded. [Operator Instructions] Please also note that a slide presentation accompanies today's webcast. The link is available on the company IR website at gcc.com.

At this time, I would like to turn the call over to Sahory Ogushi, Head of Investor Relations. Please go ahead.

[Sahory Ogushi, executive]

Good morning, everyone, and thank you for joining. With me today are Mr. Enrique Escalante, our Chief Executive Officer; and Maik Strecker, Chief Financial Officer. The earnings release detailing our 2023 second quarter results were released yesterday afternoon and is available on the company's website. This conference call is also being brought cast live within the Investors section of the company's website at gcc.com. And both the webcast replay of the call and transcript will be available on the same time approximately 1 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 BMV. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events.

With that, let me now turn the call over to Enrique.

[Hector Enrique Escalante Ochoa, executive]

Thank you, Sahory, and good morning, everyone. I'd like to begin today's call by noting that this is GCC's ninth consecutive quarter, delivering year-on-year double-digit top line growth. I'd like to thank our team for their hard work and relentless focus on operational excellence, while we further optimize GCC's operation and leverage close relationship with clients and partners alike, also enabling us to capture exciting opportunities from the favorable momentum we are seeing in Mexico.

During the second quarter, we continue to feel the adverse effect of the weather-related headwinds challenging our industry and a prolong-wet spring within many of our key markets. As one example, June 2023 was Colorado's wettest month in recorded history of more than 150 years ago, 150 years, also exceeding Colorado's annual rainfall for the entire year. This impacted projects and slow down shipments within certain regions in which we operate. Our U.S. operations, while we believe the pandemic and post-pandemic uncharacteristically heightened mindful construction materials will be forced to moderate, weighted by decreased spending on residential projects.

GCC has demonstrated ability to quickly 5 our business to ensure we are positioned to capture opportunities, ensuring year-on-year improvements to our bottom line. Our decision to be with [indiscernible] [ this wins ] away from residential construction continues to prove insightful in light of recently released construction spending data. Rising interest rates are slow in residential construction. However, non-residential construction spend remains strong. Within the [ Feral ] reserve economic data for May, private non-residential spending increased 21% and private manufacturing construction by 73% compared to May 2022. GCC remains well positioned to capture related demand.

During the quarter, we also further strengthen how we manage variable costs across GCC's plants. We took additional steps forward in the quarter to better serve our customers and deliver for stakeholders by leveraging enhanced cost controls and optimizing our supply chains while continuing to increase our investments in innovation, our people and end user activation. I'm encouraged by our progress thus far, and I'm confident that by using the current transition period to focus on our strategy, we are positioning the company for strong long-term growth, cash flow generation, profitability and shareholder return. This continuous improvement mindset and related optimization will make a sustainable difference as activity levels begin to accelerate with the infrastructure build, funding allocation we expect next year and related bidding in the quarter -- in the fourth quarter of this year.

Let me share some highlights related to the 3 pillars aligned with our vision and goals through 2025. Starting with people. Even though across all sectors, labor continues to be a concern in the U.S., I'm pleased to note that in the second quarter of 2023, GCC achieved the fewest open positions within the last 5 years. This level of retention is a result of prioritizing and investing in our team's well-being, skill building and training. We're also ensuring our team's safety through 2 important strategies. During the first half of the year, GCC began the implementation phase of our safety strategy plan that will enable us to become a world-class safety company through proactive identification and control of exposure to hazards. We have been implementing safety governance practices to strengthen our communication, resource allocation and empower our employees. In addition, we are putting in place a serious injury and fatality prevention system, which involves all leaders across the organization.

I'm pleased to report on GCC's ongoing commitment to fostering a skilled workforce and maintaining our competitive advantage by investing in training and education initiatives to build technical capacity, increase professional knowledge and accelerate careers, motivating and supporting individuals to adopt a strategic approach that positively affects our business performance and profit.

The GCC cement training institute has enabled us to identify gaps within our operations. As a result, during the second quarter, we rolled out further GCC training programs tailored to our respective plants needs and areas of improvement, including job-specific training programs based on a learner center experience. This has been fully deployed by the end of the second quarter with the appropriate work plans in place and employee training at all GCC plans. This results in the quantifiable benefits of strengthened organization stability while mitigating turnover, also enhance efficiency with cost savings. [ Attractive, attracting ] and training the industry's best talent is a critical part of our operational excellence goals.

Turning to our profit pillar. We have seen some positive developments in the U.S. volume in recent weeks and remain committed to pushing for maximized production and delivery efficiency in the coming months. Due to a slower first half of the year, we find ourselves with a robust inventory at our plants and terminals and we are well positioned to service our project pipeline in the second half of the year. However, catching up entirely to the volume loss in the first half of the year will be a challenge given the ongoing labor constraints in the construction industry chain and other market dynamics.

While second quarter volumes for our U.S. business decreased year-on-year, these were offset by continued price trend and by running our operations as stable and efficiently as possible. The use of rail transport has strengthened our margins on a per ton basis compared to the trucks we were forced to use last year. In addition, thanks to our flexible fuel strategy, most of the plants can burn natural gas, coal and alternative fuels, matching between fuels when we identify a cost benefit.

During the quarter, we converted the plant in Mexico to get the maximum benefit from favorable natural gas prices. During this period, we are capitalizing on the opportunity to take advantage of current market dynamics by accelerating coal sales to third parties. It's important to note that GCC scope is high efficiency and low sulfur ideal for this specific industrial process. Our third-party customers are therefore burning our coal instead of sulfur heavy coke. This leads into our planet pillar.

This week, we will release our 2022 sustainability report, which provides detailed update on our commitment to our people, the planet and best practice corporate governance. To highlight a few of these important milestones we achieved, let me say. Number one, 50% of total power consumed in 2022 was derived from renewable sources. As a reminder, we have renewable energy agreements for our Rapid City, Montana and Odessa plant, which substitute 50%, 75% and 100% of their hydrocarbon generated electricity with renewable sources, respectively.

Number 2, Alternative fuels, including biogenic fuels are key to reducing emissions from our production process. In 2022, we achieved a 7.7% substitution rate, and we remain on track to reach 25% of our fuel consumption by 2030. Number 3, we achieved strong fuel substitution rate of roughly 40% at our Juarez plant, 18% at our Samalayuca and Pueblo plant and 6% at our Chihuahua plant in 2022. Number 4, we decreased our clinical ratio to 86% in 2022 from 87% in 2021, also on track to achieve our target of 80% by 2030.

Regarding CO2 emissions, number one, during 2022, our Scope 1 CO2 emissions decreased 1.7% year-on-year and by 3.4% compared to our 2015 baseline year. And number 2, during the same period, our Scope 2 CO2 emissions decreased by 26% compared to 2015. As another related comment, we installed a pilot solar plant at our Samalayuca plant in 2022, and we are continuing today with similar projects at other Mexico facilities. This strategic initiative enables us to gain valuable insight into the technology and its practical implementation. By actively engaging with solar energy at this stage, we are building the corporate knowledge and expertise to effectively incorporate this within our larger scale operations in the future.

During the quarter, GCC saw continued investment in solar projects in Montana. These are progressing nicely and are projected to provide 11% of the plant electricity needs, representing a significant step towards our goal of transitioning to renewable energies. Solar plant construction began during the second quarter with full installation and commissioning set to be completed in early 2024. GCC has secured the newest and most cognate equipment available in the market, all sourced locally within the United States. Further, this dollar projects aligned with the U.S. federal grants through the solar investment tax credit tax rate deductible. While we have a late the second phase for this solar plan, we will continue to source the remaining electricity from regional suppliers on their long-term contracts, prioritizing economic efficiency and sustainable practices in line with our company's objectives.

Let me now review our markets. The weather-related disruptions in the U.S. I described led to an 11% year-on-year decrease in cement volumes for the quarter in such markets. In contrast, concrete volumes grew 4% in the period, driving or driven by strong wind farm projected related demand in South Dakota and a multilink widening project on [indiscernible] at El Paso, Texas. We are working at full capacity while we benefit from close relationships with our clients to assess their needs for the quarters ahead and until the end of the year. Demand from the GCC infrastructure and oil and gas clients remain strong as these industries continue to see favorable momentum.

Revenues from GCC's U.S. operations increased by 6.6% as compared to the same quarter in 2022, benefiting from sequential price action over the past year. GCC selectively implemented the year's second price increase of $7 for construction cement and $15 for all in well cement, which took effect on July 1. It is important to note that we did not anticipate a second price increase at the beginning of 2023, which will have a favorable impact on margins. As I noted, we continue strengthening margins by reducing our variable costs with not only high standards at our South Dakota and Pueblo facility. Our Queretaro facility has maintained flat cost year-on-year despite inflation. We achieved this by running the plant more efficiently, resulting in decreased power prices.

Our [ rapid digit plant ] has also benefited from streamline operations and from our renewable energy commitment that supports our energy costs. To update you on the Odessa plant expansion, we signed the equipment purchase agreement during the second quarter and expect to sign the construction agreement during the third quarter. In part to the contracts, we continue to advance in regards to the site and utility preparation as well as foundation construction according to our plan. We have worked hard to reduce the original investment communicated in August 2022 and expect to inform the final cost per ton to build the new line during the third quarter upon finalizing the construction agreements, aiming to start production by the end of 2025. And as noted, oil and gas activity in the Permian Basin remains strong. GCC successfully sold every ton of oil well cement we produced during the second quarter and expanded our shipping schedule to include Sundays to address high demand.

Regarding GCC's Mexico operations, we continue to benefit from today's positive near-shoring trend with 15 manufacturing projects currently underway in Queretaro and 7 in Chihuahua, with clients such as Foxconn, Wistron, Pegatron and [ Inventec ] as well as housing demand to support the flow of labor and employees in the area. To illustrate this point, GCC received 44 new ready-mix truck during the last 18 months. And during the quarter, we purchased 4 additional new ready-mix trucks, a new concrete pump and one more ready-mix plan. All this, in addition to the recent investments into mobile crushers for our aggregate operations in quarries. These additional investment commitments are focused in maintaining a high service level to all our customers today.

In conclusion, during the quarter, GCC continued to make meaningful progress on our strategic pillars. Our people, profit and planet priorities for 2023 remain unchanged as essential part of our strategy. With all elements in place, we are well positioned to capitalize on the positive U.S. construction outlook, supported by the infrastructure investments at jobs and the inflation Reduction Act, while taking advantage of the impressive momentum we are seeing in the Mexican market. Our team is activated against our strategy, and I'd like to extend my sincere thanks to our operations to all our operations associated throughout all the markets where we participate.

Let me now turn the call over to Maik for some further financial highlights of the quarter and our latest outlook.

[Maik Strecker, executive]

Thank you, Enrique, and good morning to everyone. Starting with our financial results on Slide 22. Consolidated net sales for the second quarter increased by 14%. This was mainly driven by increases in concrete volumes in Mexico and the U.S., higher cement volumes in Mexico, coupled with strengthened prices in both markets. This was partially offset by lower cement volumes in the U.S. due to the adverse weather conditions during the quarter.

Please turn to Slide 23. Cost of sales as a percentage of revenues decreased 7 percentage points in the second quarter to 62% and mainly reflecting favorable cement prices in both divisions, higher fixed cost dilution and lower fuel prices. These were partially offset by higher production costs and expenses. It is important to highlight that last year, we experienced some logistical headwinds associated with the rail network, which led us to use more and reliable on trucks and to deliver the products to our customers on time. However, I am pleased to inform you that the situation has now returned to normal, allowing GCC to return to a more cost-efficient rail freight.

In addition, as you may recall, we concluded the Samalayuca debottlenecking project in the second half of April, which came at $0.5 million onetime impact on our U.S. freight costs for the quarter and a total of $3.5 million onetime impact year-to-date. These incremental costs were required to support our southern network through shipments from our Tijeras and Pueblo facilities.

Please turn to Slide 24. SG&A expenses as a percentage of sales increased 70 basis points in the quarter to 8%, mainly due to the depreciation of the Mexican peso. As a result, second quarter EBITDA increased by 33% to $133 million, and the EBITDA margin expanded 540 basis points to 36.4%. As we mentioned at the beginning of the year, we remain committed to improving our EBITDA margins by leveraging our own logistics network, operational excellence, normalized energy cost and the pricing strategy that enables us to offset the impact of inflation on our cost structure.

Moving down the P&L on Slide 25. Net financial income totaled $5 million in the second quarter of 2023 compared to net financial expenses of $4 million in the prior year quarter. This was mainly due to higher cash balance and increased U.S. and Mexican interest rates on our treasury investments. In turn, consolidated net income increased by USD 29 million in the second quarter to USD 82 million and earnings per share increased 56% year-on-year.

Moving to our cash generation on Slide 26. The Free cash flow decreased 62% to $21 million in the second quarter of 2023. This was mainly driven by higher working capital requirements, cash taxes and maintenance CapEx, partially offset by increased EBITDA generation.

Turning to our balance sheet. We ended the quarter with $770 million in cash and equivalents and $500 million in total debt. Our net debt-to-EBITDA ratio stood at minus 0.69x, which is well below the industry's average. As we announced during our first quarter earnings call, GCC's General Shareholder Meeting held in April declared an annual dividend of 1.3364 Mexican pesos, which was paid on May 24. Please note that during the quarter, we repurchased a net amount of 900,000 shares, equivalent to $8 million under our current share buyback program.

In terms of capital allocation and inorganic growth, we are optimistic with the opportunities ahead, and we continue to actively pursue value-creating initiatives through acquisitions of cement assets in the U.S. that could be plugged into our network and are aligned with our long-term strategic vision.

Finally, turning to Slide 29. I would like to discuss GCC's updated guidance for 2023. Starting in the U.S. As a result of the adverse weather conditions, we experienced in the first half of the year, we now expect GCC's cement volume to decrease mid-single digits year-over-year. In the ready-mix business in the U.S., we had a strong first half of the year. Those we expect volumes to increase mid-single digits. In terms of prices, in light of the announcements we have already made, we now expect price increases in the double digits range for cement and high single digits range for concrete. In Mexico, we continue to see a strong market with robust demand and positive pricing environment. Therefore, we now expect concrete volumes to increase high single digits and prices for both products to increase low double digits year-over-year. The outlook for Mexico cement volumes remains unchanged.

Regarding profitability, thanks to the operational efficiencies and cost strategies, Enrique mentioned, we now expect 2023 EBITDA to increase double digits against 2022 levels. We expect to recover the margins lost in 2022 during this year.

With that, I will now turn the call over to your questions. Operator, please begin with the first question.

[Operator]

[Operator Instructions] Our first question comes from Nikolaj Lippmann with Morgan Stanley.

[Nikolaj Lippmann, analyst]

Congrats on the fantastic results here. I have 2 very simple questions. Can you first talk a little bit about how we should think about U.S. pricing for the second half? It looks like you sold out in time, which is the highest-priced product. You're going to be growing in the mountains as far as I can see as the weather improves, which is kind of the second-best option. Does that mean that net-net, we're going to have -- how should we handicap or how should we think about U.S. pricing? Would it be going down a little bit on a sequential basis? Or can it continue to grow in your view? So that's question number one.

Question number 2, can you talk a bit about the strategic reasoning for your aggressive push into ready-mix concrete? And again, congrats on the numbers.

[Hector Enrique Escalante Ochoa, executive]

This is Enrique. On pricing, if I understood correctly your question, it's I mean about the effect of our recent price increase. So we expect it to mean hold in several of the markets that we are doing business on. In some of the markets, it's not going to take -- I mean, we discuss specific situations for several markets within our customers. But overall, we expect it to improve our total price on a sequential basis. The second question was, I mean, related to ready-mix, but I missed a little bit what you said. Can you repeat that, please?

[Nikolaj Lippmann, analyst]

Yes. If you can talk a bit about -- so you've historically had a relatively -- compared to the cement of many of your peers, you've had less of an emphasis on ready-mix. And it looks like you're trying to increase your ready-mix exposure. Can you talk about some of the strategic reasoning behind that?

[Hector Enrique Escalante Ochoa, executive]

Well, yes, as we have mentioned in our strategy, I mean, ready-mix, we only look at ready-mix favorably in the market for Web to have a totally integrated business. So in light of that, we're always open and attempted to see if there's an opportunity to increase that business, but it will have to fit within that criteria. In respective of I mean, a project -- strategic project on a new business in ready-mix, we always also continue to see organic growth and look for opportunities within the regions where we are today. So name it, El Paso, Southern New Mexico and Iowa, Minnesota and South Dakota. We're attempting all opportunities there. But if it's -- if you're talking about an acquisition, it will have to be totally, I mean, on an integrated market for us.

[Operator]

Our next question comes from the line of Carlos Peyrelongue with Bank of America.

[Carlos Peyrelongue, analyst]

Congrats on the results. Just a quick follow-up on Nik's question on Nikolajs' question. In terms of the price increase you announced in the U.S., can you give us an idea on what type of traction you're getting. It looks from your new guidance that the traction seems to be going quite well, but I would just like to hear if you have a little bit more color on that? And the second, in terms of acquisitions is -- you talked about trying to find assets that would fit into your existing system in the U.S. Can you provide any color as to whether that's something that you are getting closer to finding a potential target? Or is that still something that you're looking for? And should -- it's still not something that could occur in the next 12 months or so?

[Hector Enrique Escalante Ochoa, executive]

Carlos. Again, this is Enrique. Let me address first the pricing question. So of course, we announced a $7 price increase in construction cement and 15 in an oil well cement. So as I mentioned, on construction cement, tea markets are definitely going up with a full $7 price increase. In other markets, I mean, there is no price increase. And in other markets, I mean, there is [indiscernible] a partial pricing result. Overall, I will say that at least 50% of our markets at least are going to, I mean, take the price increase. On oil well cement, of course, we expect 100% penetration with the new $15 price increase. So we're looking, I mean, very optimistically at the performance of prices for the rest of the year as we reported.

In terms of M&A, yes, as we have said, our priority is to find opportunities within our network and -- but we're not limited anymore, I mean, to just that. We are looking at the whole United States as a big opportunity to continue increasing the presence of GCG. Of course, with priority, as I said before, on the current network. We are always very active in data, Carlos. So we don't have anything specific to report on at this moment. But I can tell you that supported by the planning team here with Maik and his staff and our U.S. folks. I mean, we're searching very actively for every opportunity. And we think that there will be, I mean, more opportunities going forward, of course, than in the last 3 years.

[Carlos Peyrelongue, analyst]

Perfect. Enrique. If I may add one more related to pricing in Mexico. Volumes have been quite strong, as you mentioned, nearshoring is really taking off and that's resulting in additional cement demand. Is there room in the second half to move prices higher in Mexico?

[Hector Enrique Escalante Ochoa, executive]

Can you repeat the last part, Carlos, [ I didn’t hear it ]. In Mexico the…

[Carlos Peyrelongue, analyst]

Sure. So in Mexico, it's related about cement prices. Volumes have been quite strong as a result of the new sharing-related cement demand. Is there room to increase prices in Mexico in the second half?

[Hector Enrique Escalante Ochoa, executive]

Yes. Okay. Thanks for the question, again. Definitely, there is room. We are actively determined at this moment. I mean, how much we can increase to recover. Obviously, I mean, the inflation we've been subject to. And shortly, we will be announcing, I mean, price increase for the second half of the year in Mexico.

[Operator]

Our next question comes from the line of Vanessa Quiroga with Credit Suisse.

[Vanessa Quiroga, analyst]

Congrats on the results. The first one, I want to focus a little bit on Mexico in a segment that is not being talked about that much recently, which is self-construction. Remittances in peso terms are down year-over-year. And I was wondering if you are seeing that impacting negatively on the self-construction segment, which I assume is still quite relevant for your operations in Mexico. That's the first one. And the second one is about your fuel strategy currently, if you can provide your exposure to coal into natural gas currently? And how you are using coal given your existing mine that you own and your use of the coal.

[Hector Enrique Escalante Ochoa, executive]

Vanessa. Yes, let me address first, I mean, the question on the sub-construction market in Mexico and our back cement and then I'll turn it to Maik for the analysis and feel them in that strategy. We see basically a very stable market in terms of bags and self-construction where we are. We have been, I mean, shipping about 24%, 25% of our total shipments in Mexico in bags, which is basically the normal level for our market at a little bit of a decrease from the almost 8% during the pandemic. And we're stable there. We don't see, I mean, any big growth more than thing, we will expect it to continue a little bit flat for the rest of the year. But we feel, I mean, that's the normal level that we always enjoy.

So with that, I will turn it to Maik for the second question.

[Maik Strecker, executive]

Yes. Vanessa, so regarding the fuel strategy. So over the last few years, we really built out a more flexible fuel strategy across the plants, across the network. A very good example would be Samalayuca. As part of the expansion there, we invested so we can now burn up to 60% of alternative fuels. And that's really in the context. We want to take advantage of economic opportunities like we've done this quarter on gas in Mexico specific, but also taking advantage of the alternative fuels market that we're seeing evolving. And that's really across the network. Regarding the coal, again, we're in full operation, the new reserve of the coal mines since the beginning of the year. The coal is our natural hedge. And as Enrique said, it's a very high efficient call, a fuel that really brings a lot of advantages. And we're going to use that according to our strategic plan across the network, but also, again, having the flexibility of taking advantage of other fuels. And then as we mentioned, the coal also is an opportunity in the context of sales and growing the business. So overall, that's a little bit of context around the fuel strategy.

[Hector Enrique Escalante Ochoa, executive]

I think to -- Complement what Mike said, Vanessa. We don't have any problem to hedge, use a lower-cost fuel and then on top of that, sell the excess coal that we produce.

[Vanessa Quiroga, analyst]

No, that's great. What's your clean exposure to each of the fields, if you don't mind?

[Hector Enrique Escalante Ochoa, executive]

Today, our Mexican plants are running gas on the U.S. plants, Pueblo [indiscernible] and South Dakota are running with coal. Odessa runs on gas and Montana runs on both the combination of both fields.

[Operator]

Our next question comes from the line of Alberto Valerio with UBS.

[Alberto Valerio, analyst]

Enrique and Maik. I have on my side. The first one about the first half of the year, if there is anything that was a tailwind for you guys because usually, we have a seasonality against in the first half, but in favor for the second one. Just to have an idea how much you can get on EBITDA levels. It is 20% above last year, 30% and both being high the guidance, double-digit growth, but it's a huge difference.

The second one is about competition. We see this level of price; I would expect some new projects or some players come through to the market if you have heard any additional [indiscernible]. Maybe the current players debottlenecking or increasing capacity giving Samalayuca all new players come to Mexico and U.S. in our region.

[Hector Enrique Escalante Ochoa, executive]

Alberto, thanks for the question. I think I understood, I mean, on our EBITDA, how is it going to continue growing in the second part of the year. And of course, because of the seasonality, that's where we are pushing now I mean, harder in terms of shipments during the summer and fall in the U.S. operation. So that obviously would, I mean, have a good effect on EBITDA margins. They are going to continue growing in that part of the year because of better cost fixed absorption to the increased sales. So that's why, I mean, based on where we are and what we expect the rest of the year, we increased our outlook for EBITDA as we mentioned in the report. So we're looking at it very favorable.

In terms of competition from Mexico, I mean, we don't see any additional competition coming from Mexico, I think that we saw that effect. I mean, at the beginning of the year, the last year, and I think that basically, today, we're very stable, and we don't expect any incremental competition.

In the U.S. market, of course, we are, I mean, as I said, I mean, practically sold out, but we have, I mean inventories as well as the majority of the industry because of where we compete because of the weather. And so we all have a little bit of extra volumes available, I mean, for the rest of the year. So it will depend a lot on what type of fall or early winter we have or not that we would be in a position to ship out those inventories. But more, in my opinion, of weather-related than competition.

[Maik Strecker, executive]

And maybe, Alberto, if I can add. In Mexico, the timing of our Samalayuca expansion was very nice. We have that additional capacity really to facilitate the growth for that near-shoring aspect. And as Enrique said, we're investing quite heavily in equipment and the ready-mix and aggregates business really to stay very close to the customers and support them in their projects and their growth ambitions. So I think there's a good balance right now that we can provide good quality, good products and service.

[Alberto Valerio, analyst]

If I may, just a follow-up. The growth guidance on CapEx of $220 million -- is any on or this including there? Or this just should start in 2024?

[Maik Strecker, executive]

Yes. The guidance on the 220 million includes Odesa, -- there is a good portion of Odesa spend in that number this year. As Enrique said, we're progressing nicely around the utility work, around some of the foundation work. So it's an important portion of that growth CapEx as well as in the first quarter, the completion of Samalayuca. That was an important element of that growth CapEx. And then the last important or third element in growth CapEx is really enhancing the distribution network in the U.S., putting some CapEx money in the terminal network and rail capabilities.

[Hector Enrique Escalante Ochoa, executive]

Part of the budget.

[Maik Strecker, executive]

And that's all part of the budget, yes.

[Operator]

Our next question comes from the line of Francisco Suarez with Scotiabank.

[Francisco Suarez, analyst]

Congrats on the wonderful execution that you have given to us. The question that I have is -- well, the teamsters just got a deal with UPS. It seems that they were going to see a little bit more pain on truck-related transportation. And you are clearly ahead of the curve right, but what you are doing on relying more on rail freight. But the question is, if you see any sort of risk to higher cost in overall transportation.

[Hector Enrique Escalante Ochoa, executive]

I'll turn this call question to Maik now.

[Maik Strecker, executive]

Yes. So we don't see any additional pressure on the distribution cost. As we explained in the earlier part of the call, we saw that last year, and we had to rely more on trucking last year than this year. But no, we see some good service levels from the rail. We're going back to all our natural routes, again, heavily on rail, which is very cost efficient for us. So in general, we feel pretty comfortable what's happening there, and we don't see any major pressures there.

[Francisco Suarez, analyst]

Got you. And if I may, just a follow-up on this. Any more investments in ground terminals or perhaps making some of your ground terminals, multi-model terminals?

[Maik Strecker, executive]

So we're completing and are fully operational now in Minneapolis. That has been a terminal that we have been expanding, working on, and that's now fully operational. In addition, for this year, there's no additional terminal, but we're working on ideas and things that will enhance us, but more looking in '24, '25. And typically, our terminals supported by rail. Again, most of our plants have good rail capabilities and then of course, the transloading and trucking to the final customers. So that's our typical setup and it has proven pretty efficient.

[Operator]

Our next question comes from the line of Alejandro Azar with GBM.

[Alejandro Azar Wabi, analyst]

Enrique, Maik. Just a quick one, Enrique, on your first remarks you mentioned the sign and the construction start of the Odessa project, is there any changes on the amount of the CapEx that you announced back 12, 18 months ago, I don't know if I recall correctly, $775 million. Has that changed from as of today?

[Hector Enrique Escalante Ochoa, executive]

Yes, Alex, what we announced last year was $750 million there's going to be a different total investment that is going to be lower. I cannot disclose it at this moment as we are actively negotiating them in the construction agreement, which is obviously a big concept in all that investment. But I expect, I mean, a better cost per ton of what we initially disclosed and we'll be prepared to disclose that in the third quarter call.

[Operator]

Our next question comes from the line of Lucila Gomez with Compass Group.

[Lucila Gomez, analyst]

And my question is just quite quick. I want to -- I have a little bit more color in the U.S. volume side assuming of the decrease year-over-year? And what has changed this quarter versus the first quarter? Or was it more of the same dynamics?

[Hector Enrique Escalante Ochoa, executive]

Lucila, thanks for the question. As we said, I mean, our volumes have decreased about 11%. I mean, compared to the second quarter of last year. And as I explained, I mean, there has been a very unusual harsh and weather and extended, I mean what system. So it was difficult to really, I mean, a visibility to see, I mean, how much was weather related of this decrease and how much would be some soft pockets, especially on the residential side. Now that we have more visibility, we think that we're going to be able to recover part of that lost volume in the second part of the year. And probably, I mean, end up the year around what we said mid-single digits, I mean, decrease compared to last year in comparison to the, I mean, 11% that we have today.

[Operator]

Thank you. We have reached the end of the question-and-answer session. I'll now turn the call back over to Sahory Ogushi for closing remarks.

[Sahory Ogushi, executive]

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.

[Operator]

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