GCC SAB de CV

BMV:GCC

Earnings Call Transcript 2020-Q3

[Operator]

Good morning and welcome to GCC's 2020 Third Quarter 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 note that a slide deck will accompany GCC's earnings results webcast. The link is available on the company's website at gcc.com within the Investor Relations section. [Operator Instructions]

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

[Ricardo Martínez, executive]

Thank you, operator. Good morning, everyone, and thank you for joining GCC's earnings call. With me today are Enrique Escalante, our Chief Executive Officer; and Luis Carlos Arias, our Chief Financial Officer.

As a reminder, before we begin, today's discussion contains forward-looking statements about the company's future business and financial performance. These are based on management's current expectations and are subject to risks and uncertainties. You can find more information about risks, uncertainties and other factors that could affect our operating results in our most recent filings with the Mexican Stock Exchange.

As seen on Slide 2, our forward-looking statements provide information on these factors, including the effects related to COVID-19 that could affect our financial results. If there is significant uncertainty about the duration and anticipated effects of the pandemic, GCC's outlook could change. The effects on the company's business and its results are a best estimate based on the information available today.

Before we begin, please note that in the interest of safety each of us is working remotely. We would ask you to please bear that in mind in case of any technical difficulties which may occur.

Let me now turn the call over to Enrique.

[Hector Enrique Escalante Ochoa, executive]

Thank you, Ricardo, and good morning, everyone. I would like to take this opportunity to say that none of our stunning results would be possible without the enthusiasm and dedication that every employee puts in daily. Everyone at GCC is working under tremendous pressure with fewer resources, rigorous safety protocols and are still finding new ways to deliver results. On behalf of GCC, thank you very much. Your efforts have not gone unnoticed.

I'm proud to be part of this amazing organization and how we are evolving in this world. My team and I and the Board fully recognize this achievement belong entirely to our employees, no matter if you're working from home or continuing to work each day on the frontlines.

On today's call, I will discuss GCC's Q3 results and the drivers of our performance this past quarter. Luis Carlos, our CFO, will review GCC's financial results and will then turn the call back to me for closing remarks. After that, we will take your questions.

Turning to Slide 3, please. We delivered strong operational results for the third quarter of 2020. GCC had a steady bottom line growth, showing once again the continued and successful execution of our cost and expense reduction plan throughout GCC. Even though our sales decreased by 7% in the quarter and were basically unchanged year-to-date, EBITDA and margins had a solid increase despite the unknown economic challenges.

All across our markets, we experienced mixed demand of our products, with segments doing better and others not so much. As we reported in our quarterly results yesterday, our Q3 2020 results in the U.S. were mainly impacted by a tough comparison against an all-time high third quarter of last year, of course, and a global drop in oil well cement volumes.

As a reminder, the construction industry and our business were severely hit with snow and floodings during the first half of 2019, but in second half we recovered with strong volumes in most of our U.S. markets. Consequently, we are having challenges in comparables with the second half of 2020 following easier comparables from the first half of the year.

In Mexico, the third quarter results showed a V-shaped recovery from the negative impact of the national lockdown as most of our customers remained closed.

Let me now provide a more detailed review of our business' main drivers starting with the U.S. I will then review GGC's Mexico operations. Please turn to Slide 4. Cement volumes declined 14% and ready-mix volumes were unchanged year-on-year, while prices increased 2.7% and 3.6% respectively. In El Paso, Texas, along with Las Cruces, New Mexico, infrastructure and paving projects continued to grow. There was robust backlog in this area primarily coming from the restart of the big Air Force Base project as well as soil stabilization projects and logistic warehouses like the construction of a new Amazon distribution center.

Regarding the Permian Basin market in West Texas, oil well cement volumes have declined around 40% year-to-date. On the positive side, as of October 1, we eliminated a temporary price reduction given in Q2 and 3. Some large customers have come in. Basically, the market has bottomed out, but the recovery will be very slow. Therefore, in the short term, we do not expect to fully recover the 9% of GCC's total cement volume that oil well cement accounted for last year. This market will definitely diminish in relevance this year.

In response to the market decline, one of 2 [ kilns ] in our Odessa, Texas cement plant remains idle and we've stopped sending supplementary shipments of oil well cement from the plant in Chihuahua, Mexico and Tijeras, New Mexico. Fortunately, some additional commercial projects in the Albuquerque area will keep our [indiscernible] at Tijeras running through for the rest of the year.

On Slide 5. In Colorado, we continued to see a robust performance with good levels of activity from public infrastructure projects. Additionally, we are enthusiastic about the residential segment. The last quarter's information shows that housing permits have increased 8% year-to-date in Colorado.

Turning to our Midwest operations. The wind farm construction sector was again a strong driver for demand this quarter. We are confident this segment will gain more relevant for the foreseeable future well into 2021, boosted by an increase in demand for renewable energy and produce the tax incentives.

We have many ongoing projects in most of our main markets. The infrastructure segment, which represents around 50% for our U.S. cement volumes, remains strong. In Q2, projects accelerated as lockdown significantly reduced traffic. In Q3, projects began at a normal pace backed by [ DOT ] funding through the end of the year.

In this regard, we welcome the fact that the Democrats and the Whitehouse agree on a bill they are continuing the solutions to keep track [indiscernible] surface transportation into 2021, not letting it expire. We remain cautiously optimistic on [indiscernible] from the government, including a sizable infrastructure bill that will compensate for the state budget's projected shortfall.

In the residential segment, low interest rates and a healthy supply and demand dynamics, along with high inventory levels have supported the housing market. The single-family segment has been supported by families looking for more space and moving out of the cities and the suburbans. And in many cases, second homes have been [ replaced ] in the Colorado mountains. Furthermore, [indiscernible] mortgage rates millennials are becoming first-time home buyers.

As expected, nonresidential and agricultural segments have been under pressure due to the severe impact of COVID-19 in travel, hospitality and food processing industries. So for this year, we have not seen any relevant award cancelations, but certainly slower than [indiscernible] in the agricultural products area we serve.

In terms of pricing for 2021, we have announced an additional USD 8 price increase per shortfall in construction cement and a 5% to 7% increase in oil well cement, both increases going to effect on January 1. Looking ahead, given the tight supply and demand dynamics, the high utilization level in the cement industry and the neutral infrastructure in the U.S., we see a price environment that continues to strengthen.

To sum things up, our U.S. business results with the exception of the oil and gas field market are exceeding the expectations we had at the beginning of the COVID-19 pandemic. Excluding the shortfall sale from oil well market, as of September in the U.S., our construction cement volumes are up 4% against last year's levels.

A distinctive feature of our U.S. market is that we get neither the big highs nor the big lows. Thus, our backlog is strong with several projects in the pipeline. We expect this robust performance to continue in the fourth quarter as long as the way it holds and we will not have any unexpected lockdown given the pandemic [indiscernible] to increase.

On another positive note, I want to inform you of our strategic realignment for the U.S. ready-mix business. We have reached an agreement with [indiscernible] Corporation on a transaction and plan to close in the coming weeks. GGC will acquire 5 ready-mix plants in the upper Midwest, which will be integrated into our cement supply from our newly expanded Rapid City cement plant. [indiscernible] Corporation will acquire our last 4 remaining nonintegrated ready-mix plants in the Fort Smith, Arkansas area. Both transactions are completely aligned into our growth strategy and accretive to GCC. Once the deal closes, it will create additional synergies given that all of our ready-mix assets will be integrated into our own cement distribution network.

Turning to our Mexico operations on Slide 7. During the course of June, our primary customers like the mining industry, industrial warehouse construction and housing will start the operations after more than 2 months of the national lockdown. Needless to say, we are pleased with the V-shaped recovery seen during this quarter in Mexico because of a strong and stable [indiscernible] volumes across our markets.

Even in Q3 with considerable uncertainty related to the COVID-19 there was an increasingly competitive industrial -- industry environment. Cement rose 8%, while ready-mix volumes declined by 4%. At the same time, the depreciation of the Mexican peso against the U.S. dollar reduced Mexico sales by around USD 8 million. That led to a 3% decrease in cost in Mexico in the third quarter.

Without considering the FX effect, Mexico sales mix have increased 9%. The self-construction segment continued to be very resilient. Ongoing quarantine and the work from home, bigger construction projects, which improved the results of bag cement. We were able to capture this pent-up demand, leveraging our more than 60 [indiscernible] retail stores network statistically located all across the states.

We're encouraged by the unexpected positive effect in our Mexico operations with the conclusion of the USMCA negotiations. The state of Chihuahua, our South Mexican market, is one of the privileged geographies that is likely to benefit from both the U.S.-China trade and trade wars, as well as the reshoring of manufacturing processes from Asia. GCC is an excellent position to take advantage of the upcoming growth in demand that these situations might generate in the midterm.

We have recently seen an increasing demand from industrial warehouse construction. Several sizable projects are being built or have already been announced.

Regarding GCC's commitment to our sustainability strategy on Slide 9, in September of this year, the Portland Cement Association recognized GCC's Odessa plant for outstanding and environmental efforts that go above and beyond what is required. We completed the installation of a system for NOx emission reduction and developed a unique programming approach, resulting in a more stable emissions control.

Finally, as an active member of the Global Cement and Concrete Association, GCCA, and as part of our commitment to drive down our CO2 footprint, we have come together with the global industry to stage a collective ambition for a carbon-neutral concrete by 2050 in order to meet the global climate challenge. You can watch the GCCA climate ambition statement by federal CEOs in YouTube, including myself.

[indiscernible] members are working in partnership with a bunch of stakeholders such as policymakers, governments, investors, researchers and end users in setting a suitable road map that meets global expectations and drive the appropriate response in taking climate action. This 2050 roadmap which will be published with a detailed implementation plan by the end of 2021 will set a long-term vision for the industry and our value chain partners.

The latter is a clear engagement on our foremost commitment of implementing global best practices related to sustainability throughout the organization, while further strengthening the company's long-term profitability and totally aligned with our new GCC 2025 vision, which will be released in the coming months.

Thank you for your attention. I will now turn the call over to Luis Carlos, who will review the quarter's financial results.

[Luis Carlos Arias Laso, executive]

Thank you, Enrique, and good morning, everyone. Turning to Slide 11. Economic cycles and market conditions are unpredictable variables, which are out of our control. But what we can control and most importantly we are accountable for are the decisions we make in order to keep creating value for all of our stakeholders. We cannot deny that some of the decisions taken during these uncertain times have been challenging, but they have strengthened GCC even more.

GCC continues to be financially strong thanks to the decisive efforts of all of our teammates. Whether working from home or on the front lines, they remain focused on our basic core activities, selling, producing, distributing and collecting payment for our products and innovative solutions.

Our unquestionable success in the execution of our plan to reduce costs and expenses shows our adaptability and what GCC can do. From a $20 million in annual savings announced in April, we have already achieved around $19 million. We are confident we will reach our savings target and might even exceed it. We expect to permanently maintain 50% of this year's savings, having found a sweet spot between short and long-term profitability without compromising any of our operations, employee safety or taking unnecessary risks.

Without the extraordinary efforts made by the frontline, GCC will not be able to generate these positive financial results. We honor our frontline's hard work during these last months. That is why we compensated them with a onetime recognition bonus.

Please turn to Slide 12. For the third quarter, consolidated net sales decreased by 7%. We saw an increase in cement volumes in Mexico, which were somewhat offset by U.S. cement and Mexico's ready-mix volumes. Additionally, the Mexican peso depreciated against the U.S. dollar, reducing Mexico sales by around $8 million. Excluding the FX effect, consolidated net sales would have decreased by only 4%.

On Slide 13. Cost of sales as a percentage of revenues decreased 3 percentage points to 66%, mainly reflecting favorable variable cost and production expenses, better cement and ready-mix prices in both countries, lower freight costs due to lower cement shipments to the Permian region as well as the absence of 2019 onetime expenses associated with increased cement freight due to weather challenges and purchased cement and coal.

Selling, general and administrative expenses as a percentage of sales decreased 0.5 percentage points to 7% in the quarter, mainly due to the execution of the cost and expense reduction initiative and the depreciation of the Mexican peso relative to the U.S. dollar. As a result, as illustrated on Slide 14, EBITDA increased 4% in the quarter with a 360 basis point margin expansion, climbing to 35.5% at the end of the quarter and 42.2% EBITDA margin for the 9 months of the year, while EBITDA rose 10% for the same period.

Our EBITDA margin multi-annual objective remains in place to recover the 44% generated prior to the financial crisis. GCC's results show that we are on the right path. The EBITDA margin has increased 14 percentage points in the last 6 years, having one of the highest margins in the industry.

Turning to Slide 15. Net financial expenses fell 9% in the quarter due to a decrease in financial expenses resulting from lower interest rates on the variable portion of GGC's debt, which were partially offset by a higher debt balance resulting from drawing on one of our revolving credit lines.

Income tax decreased $3 million year-on-year. As a result of these factors and the benefit of strong operating and financial results, earnings per share -- unconsolidated net income increased 8% to $53 million in this quarter and 31% to $102 million year-to-date.

Moving to our cash generation on Slide 16. Free cash flow was $104 million in the third quarter 2020 compared to $91 million in 2019. This was mainly driven by increased EBITDA generation after operating leases, lower interest expenses and cash taxes, decreased maintenance CapEx and a much lower increase in working capital.

In light of this, I would like to point out the improvement made in controlling payables, receivables and inventories. Based on the last 12 months of sales, we reduced days in net working capital from 75 to 62, a total reduction of 13 days.

Turning to our balance sheet. We ended the third quarter of 2020 with $511 million in cash and equivalents, including $50 million withdrawn from our revolving credit lines in April. Please note that as of September 2020, our net debt-to-EBITDA ratio dropped to 0.6x, supporting our balance sheet as one of the strongest and healthiest in our industry. Thus, we are facing these challenging times in a very solid financial position.

During our Annual General Shareholders meeting in April, an annual dividend payment of MXN 0.94 per share was declared, which we distributed in 2 equal payments. The first payment was made on August 7. Yesterday -- the Board of Directors are paying the remainder on January 11, 2021.

For the second year in a row, the dividend payment increased by 15% and we expect to continue increasing annual dividend payments at a historical rate depending on the annual cash flow evolution.

I'm happy to share with you one positive outcome of several initiatives to make GCC's stock more attractive for investors and to increase its liquidity. GCC stock has been included in the S&P Bolsa IPC Index, which covers the Mexican equities market and [indiscernible] to measure the performance of the largest and most liquid stocks on the Mexican stock exchange.

Finally, the coronavirus crisis will end eventually. In the interim, we will continue keeping liquidity as one of our top priorities. Our first concern is to build a strong and resilient organization in order to be prepared for any upcoming recovery. Whether if it develops as a U or W shaped, we're thinking positively an early development of a medical breakthrough to combat the virus.

With that, I will now give the call back to Enrique for his closing remarks.

[Hector Enrique Escalante Ochoa, executive]

Thank you, Luis Carlos. In March, our personal lives and businesses have changed in ways no one could have imagined back in January. Not even the most accurate budget could have forecasted this change. We have done everything to deliver positive results and continue building investors' confidence by meeting our commitments.

We quickly adapted our operations and processes to this new reality. Our goal is to maintain our financial strength, keep people safe and employed and to continue to serve GCC's lifeline, our invaluable customers.

And we're headed in the last quarter of this year and the beginning of winter, we face 2 main uncertainties. First, how the coronavirus will adapt with more people forced to stay indoors coupled with the start of the flu season. Second, we will have an extended or short construction season. These 2 questions could change our expected results either positively or negative and our full year results range is even wider than usual. With only 1 quarter ahead and short-term visibility and uncertainty prevailing, future guidance remains suspended.

Economic data shows mixed signs. And while we're significantly behind pre-pandemic levels in most of the leading indicators, the upside always seems to take care of itself. Neither of us are medical experts nor do we have a unique economic or weather forecasting abilities. With that being said, we speak with many informed people, pay attention to all of the relevant information and are constantly forming and reforming our own estimate based on the available data and our own common sense and experience.

In many of the Portland Cement Association forecast scenarios, either the V, the W or the vaccine scenario, PCA expects a decline in cement consumption for 2020 in the range of minus 1.3% and 1.8%. Our backlog remains encouraging and GCC performed quite well year-to-date, generating a sharp EBITDA increase, along with significant free cash flow generation.

With our focus always on long-term value creation, we will continue operating in the short term with the same rigorous approach applied during the pandemic in order to continue delivering strong results. We delivered better than expected results, but we're not completely satisfied yet. We will continue looking intensively at efficiencies, costs and expenses, always focusing on liquidity, but first and foremost on our people's health as a top priority.

For our investors, we encourage you to take market volatility and uncertainty with confidence in GCC, maintaining and sharing our long-term perspective with us.

Now before opening the call for questions, I would like to briefly comment about the resolution recently issued by the U.S. Court of Appeals for the sales ticket in Colorado regarding the damages that are related to our past investment in Bolivia. We were bound by a confidentiality duty. We cannot comment further at this time. However, despite some confusion and our data, news that circulated in the press recently, we inform you that we continue to contest that resolution as the resolution does not recognize the previous determination of the Bolivian courts that considered the liability award [indiscernible] and in favor of GCC. Furthermore, because it overlooks the fact that their ongoing damage was a normal proceeding in Bolivia.

We are preparing a petition for [indiscernible] or a petition for review to the U.S. Court of Appeals resolution in the Supreme Court of the United States and we will be sure to provide relevant updates as soon as they are available.

Finally, once again, I would like to express my most sincere appreciation and respect to our teammates. Thank you all for adapting to this unprecedented times, finding new ways to work steadily and collaboratively. I would also like to thank our Board and shareholders for their trust and investment they place in us.

With that, our prepared remarks are concluded. Let me now turn to your questions. Operator, please go ahead.

[Operator]

[Operator Instructions] We'll take the first question today from Alejandra Obregon with Morgan Stanley.

[Alejandra Obregon, analyst]

Congratulations on the results. My first question is on the transaction that you announced. If you could provide some color on whether this is just an asset swap or we could expect any cash to be deployed? Or any -- I mean, any color on the size and timing of the transaction? That would be very helpful.

And then on your inventories, I noticed that they are down and probably at the lowest levels in the last year. So just curious if this is associated to the strong demand or if there is any other thing that we might be missing here?

[Hector Enrique Escalante Ochoa, executive]

I'm sorry. And Alejandra, thank you for your question. I couldn't hear well the first question. I don't know if you heard it well, Luis Carlos?

[Luis Carlos Arias Laso, executive]

Can you repeat the question, Alejandra?

[Alejandra Obregon, analyst]

Yes, I can repeat it. It's on the transaction that you announced, just whether -- to understand if this is an asset swap or there is any cash expected to be deployed? And any color on the size and timing? That would be very helpful.

[Hector Enrique Escalante Ochoa, executive]

Okay. It's a purchase agreement, but it's basically a swap deal. There's very little cash contracted in the operation.

[Luis Carlos Arias Laso, executive]

On your second question, yes, I will cover that, Enrique. I will cover that -- I will cover -- I can cover the second question. It was in regards to inventory. I have slide here on this side. Yes, Alejandra, as we have mentioned in previous conference calls, we are very focused on using working capital and one of the items that we've been focusing on is inventory. So it's just we're managing better the inventories across the company. And inventories at the end, it's a balance between having, of course, the product available for our customers and mixing that with the annual structure of the plants for needed maintenance.

So what I can tell you is that we've been optimizing inventories across the cement system and we will continue to be focusing on that for the coming months because we still think there are some opportunities.

[Alejandra Obregon, analyst]

Understood. Very clear. Just a follow-up on the first question. Can you share some color on timing and size of the transaction? Hello?

[Luis Carlos Arias Laso, executive]

Hello? Enrique?

[Hector Enrique Escalante Ochoa, executive]

I'm sorry. I was on mute. My apologies. Alejandra, yes, the closing is scheduled for November and we'll not comment on price. It's a small, I mean, transaction. More anything else, we are aligning a strategic -- we're aligning that we'll create synergies because of the integration of this plant into our cement network. And on the base -- we leave completely behind the Arkansas asset that we have there before.

[Operator]

We'll take the next question from Froylan Mendez JPMorgan.

[Fernando Froylan Mendez Solther, analyst]

Hello? Enrique, can you hear me?

[Hector Enrique Escalante Ochoa, executive]

Yes, I hear you.

[Fernando Froylan Mendez Solther, analyst]

Perfect. Just following up on the asset swap, what does this transaction mean for incremental volumes either for cement or ready-mix, but -- or maybe, call it, incremental revenue for that portion of your business, especially since it's very near the Rapid City expansion? And secondly, I want to understand the fact of not giving guidance, reinstating guidance. I know a lot depends on how much work you're able to perform in the last quarter, and that is related to weather. But if weather was to be, let's say, flat or with no significant disruption versus last year and if you look at your backlog levels or the activity that you're seeing on the ground, how confident are you in the fourth quarter prospects?

[Hector Enrique Escalante Ochoa, executive]

Okay. I'll just -- the second question first. Very confident. If we didn't have this contingencies of -- the 2 main contingencies, obviously weather and also this new coronavirus phase that we honestly don't know what to expect yet with possible, I mean, delays or cancellations. So these are 2 contingencies. And absence of those, I will tell you that I feel very confident that we have a strong growth for the year.

So about the backlog as what we are saying, and -- and even we had it like last year and what we did other -- we see that we could perform pretty well almost till the end of the year. So a great company. And that's why we say that there was a big range of operation [indiscernible] because of the 2 contingencies.

In respect to your first question, again, we're still on the [indiscernible]. We're not disclosing at this moment because of the transaction plan. But definitely -- but definitely it's a good integration to our new expanded Rapid City plant.

[Fernando Froylan Mendez Solther, analyst]

Congrats on the very strong results.

[Operator]

Our next question will come from Carlos Peyrelongue with Bank of America.

[Carlos Peyrelongue, analyst]

Could you provide a little bit more color as to your expectations for infrastructure construction in the U.S. for next year? Some states obviously have seen fiscal revenues dropping, so there could be a shortfall there. There's a potential for Congress to act and provide some support. But if you could provide some color on that would be great.

And the second is related to prices as well. If you could also give us an idea of pricing for next year in terms of where is your utilization rate and the demand and expectations for pricing for next year would be helpful.

[Hector Enrique Escalante Ochoa, executive]

Thank you, Carlos. I'll make sure I'm unmute. So again, we're basically following a [indiscernible] forecast. And of course, we put those forecasts with specific conditions in our own market. But as you know, there is some -- still a projection that in the U-shaped scenario volumes could decrease 1/2 a point in the U.S. and in the W-shaped scenario it could decrease 3.4%. So there's still a lot of variation and definitely a trend going down.

However, given that we have already absorbed the majority of the deficit that we had in the oil wells fields, we feel confident that GCC and -- our volumes could be growing a little bit interim and decreasing for next year. Obviously -- I mean, the dynamics on infrastructure are very strong with -- when we saw the pandemic coming in, we were more aggressive out bidding for infrastructure work, which we got. There were some good projects in the pipeline, I mean, to get us -- I mean, to start next year, which we were not counting on, I mean, a few months ago.

I already mentioned, we're also bidding in several wind field farms that are a continuation of the synergy packages for those investments.

Utilization, you see it -- I mean, strong underway. And so we're confident that in GCC -- I mean, we're going to look up in some positive volumes for next year, except, of course, any significant increase in oil well fields. As I said, we're compensating that with infrastructure projects.

In terms of Congress, of course, that's the cherry on the icing, right? We believe that it -- any other thing on -- new administration is going to, I mean, work hard on an infrastructure bill. We don't -- we are cautiously optimistic, as we mentioned. We not expect it to be, I mean, the first thing, but it's going to be a great [indiscernible] if it's going to be addressed.

Now if there's a Democratic administration, we think that's going to be stronger and more robust infrastructure program, definitely. And so that will be on top of that we have in our own projections and scenarios. So that's -- but that's going to be very positive. Again, we've seen this or heard about this for many years and we're cautiously optimistic, but this could, I mean, take the industry into a different level in the coming years.

And that's what -- it's also in our opinion in supporting the price increase. As I mentioned, we announced [indiscernible]. It is different than last year, but we also mainly announced in April. So we're getting a little bit more aggressive and the market seems so far to be, I mean, ready. And we don't expect really to have a pushback from our customers. So far we have not heard, I mean, openly big concerns.

So our capacity continues to -- I mean, if the market continues next year a little bit low, but then rebounding after the pandemic, we believe, I mean, the medium term is supported for continuation of price increases. Have not I answered your question, Carlos?

[Carlos Peyrelongue, analyst]

Yes. Yes, you have.

[Operator]

The next question will come from Francisco Suarez with Scotiabank.

[Francisco Suarez, analyst]

Apologies if you already walked for the -- in your interim remarks for these questions that I have. It relates with that superb execution on cost and everything we saw in this quarter. I think that -- correct me if I'm wrong, but putting aside the obvious savings from shipping cement from Chihuahua to the Texas region, can you walk us a little bit about the overall logistical futures that you may have in the Dakotas now that you have your operation in Rapid City up and going? And more than that, are those savings actually structural in nature, it is something that which can actually rely on, on future quarters? Congrats for the quarter.

[Hector Enrique Escalante Ochoa, executive]

Can you just repeat the last part of your question?

[Francisco Suarez, analyst]

Yes. I would like to understand if the -- if those efficiencies that you reached in this quarter are structural or if there is any cyclical or nonrecurring component of those efficiencies that you reached this quarter, particularly in -- if those savings are connected by the Rapid City expansion and how you have added more assets to -- on ready-mix as well linked to that facility?

[Hector Enrique Escalante Ochoa, executive]

Okay. Well, I'll leave the detail of the savings for Luis Carlos if he wants to comment at the end. But let me tell you in terms of the movement that we've been doing, I mean, to improve volumes for the Rapid City plant. We are basically aligned of walking through the strategy that we have presented, I mean, all the time for that plant, which is that, that plant expansion should be reaching further into Minnesota area, South Dakota and those states to the east on the plan. And in that way, we're starting to ship back cement [indiscernible] we're sending to those regions to locations in the Colorado, Utah market.

As part of this plan, it's precisely that swap of volume strength to increase an additional volume of cement out of shipments from the Rapid City plant. Also, we are in the process of building a second terminal in the territory north of the city to serve better the customers in that market, which also will give us a larger market share in that market, providing for expansion of the joint capacity of Rapid City.

In the time that we do that, we also been more permanent and with higher volumes in the [indiscernible] market that we have been developing in the last years. So it completely aligns with what we saw.

Those cost savings are structural savings because it's freight, basically. So it's -- but it's part of the margin improvement that we should get, the 34% that we've been talking about for years, which is a [indiscernible] -- of long freights from Portland all the way to those Midwest market. Yes, Carlos? Anything to add, Carlos?

[Luis Carlos Arias Laso, executive]

Paco, it's -- if your question is asked -- all it has -- I mean, additional doubts?

[Francisco Suarez, analyst]

No, no, it's perfect. Congrats again.

[Operator]

[Operator Instructions] And we will now go to Pablo Ricalde with PAAMCO.

[Pablo Ricalde;PAAMCO;Analyst, analyst]

I don't know if you can hear me well.

[Luis Carlos Arias Laso, executive]

Yes, we can hear you.

[Pablo Ricalde;PAAMCO;Analyst, analyst]

Well, I have 2 questions on the balance sheet. The first one is regarding your debt. I don't know if you can provide us some color if you are thinking of making a liability management exercise soon. I'm thinking on -- if you are thinking of calling the 2024 bonds in the near term? That's my first question. And my second question is regarding the SOBOCE operation. I don't know if you're thinking of maybe provisioning with something now or you're thinking you have kind of -- you're going to win that case?

[Luis Carlos Arias Laso, executive]

Can you repeat the second question please, Pablo?

[Pablo Ricalde;PAAMCO;Analyst, analyst]

It's regarding SOBOCE. We have read recently a lot of news regarding that you lost that case. You mentioned on your annual remarks that you're still working with the Colorado court. But I don't know if you're already provisioning with something on that case or you haven't provisioned anything. And so what's it?

[Hector Enrique Escalante Ochoa, executive]

The second question, I just could hear about the [indiscernible], but I cannot get the detail. Can you repeat that for me again, Luis Carlos?

[Pablo Ricalde;PAAMCO;Analyst, analyst]

Yes. It's on the SOBOCE, on the Bolivian operations. Recently, we have read news that you lost the appeal and that you have to pay around $40 million. I think that's not completely true, but I just want to understand if you're provisioning with something on your balance sheet -- on your P&L, sorry, in case you lose the appeal on the SOBOCE? That's the second question.

[Hector Enrique Escalante Ochoa, executive]

Well, no. And again, I wonder -- [indiscernible] we have disclosed in the past that we don't have anything on the balance sheet because we're protected by an arbitration agreement that we have with the buyer of our stock in SOBOCE. In future if there's any liability issued against us, they are responsible for it.

[Luis Carlos Arias Laso, executive]

On your first question in terms of -- in respect of the liability management. The 2024 bond is callable until June next year. So at that time, we'll be thinking of -- or analyzing of doing something. Right now, it's just not economically advantageous for us to call it. And even though we will have a lower rate coupon revision in a new bond, but the -- so we'll have to wait till June, I think.

[Operator]

And we'll take a question from Eric Neguelouart with Bank of America.

[Eric Neguelouart, analyst]

So breaking down the volume drop for this quarter was mainly because of a very high comparable base and then you also had lower volumes from oil well cement, right? In October, we've seen some early weather events in the central U.S. states. I would like to know if this would be an added pressure for 4Q volumes or if it's maybe just too soon to draw conclusions?

[Hector Enrique Escalante Ochoa, executive]

October was doing very well in terms of shipments up north in the U.S. [indiscernible] significant [indiscernible] in the system. We were running actually, I mean, above plan and now we're a little bit below. So it's pretty normal patterns in the snowstorms.

On the other hand, I told you that limited in Colorado because [indiscernible] fire and [indiscernible] and this is obviously going to help contain all those forest fires. But I think that [indiscernible] what you heard in November and December.

[Operator]

And there are no other questions. So at this time, I'd like to turn it back to Ricardo for any additional or closing remarks.

[Ricardo Martínez, executive]

Thank you for your interest in GCC and for joining us today. We appreciate your questions this morning and look forward to talking with you again in the months ahead. This concludes our conference call, but our team is, of course, available for any follow-up questions you may have. Goodbye, and stay safe.

[Operator]

Thank you very much. That does conclude our conference for today. I'd like to thank everyone for your participation. And you may now disconnect.