GCC SAB de CV

BMV:GCC

Earnings Call Transcript 2022-Q4

[Operator]

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 [Operator Instructions]. 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 Sahory Ogushi, Head of Investor Relations.

[Sahory Ogushi, executive]

Good morning, everyone, and thank you for joining our call. With me today are Mr. Enrique Galante, our Chief Executive Officer; and Maik 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 Investors section of the company's website at gcc.com and the webcast replay of the call will be available at the same site 1 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, demand and market as well as strength and maintenance.

Management uses these measures to establish operational goals and review operational performance based on 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 differ materially. 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.

[Hector Enrique Escalante Ochoa, executive]

Thank you, Salarie and good morning, everyone. The challenge facing 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 reengage and revise GGC's safety strategy with related goals.

We have begun a comprehensive diagnostic conducted by an independent consultant to ensure the health and well-being for all GCC employees and will 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 fourth quarter. GCC delivered $91 million in EBITDA for the fourth quarter 2022 a 13% increase despite continued volatility in the energy market and enduring inflation, which moderated by mid-quarter, with easing supply side constraints and a more hottish monetary policy.

The decisive actions we have taken have enabled us to minimize the impact of the quarter's top operating environment and extraordinary inflation. Our third price increase in the U.S. of $6 per short ton for construction cement across markets and clients took effect on October 1st, and we achieved pricing growth across product lines to deliver solid fourth quarter results relative to a difficult year-on-year comparison. While we saw a strong quarter start for our U.S. operations, when GDP was initially shipping at a rate ahead of budget, this was adversely affected by the mid-December call front throughout the region in which we are present. Notably, this was after 4 years of unseasonably warm weather that had enabled shipments straight through the winter season.

Permian basin original cement demand strengthened during the quarter with solid drilling activity despite oil price volatility in Q4 as producers raise production and capital budget in 2022 due to a stellar well performance. GCC's Odessa, Texas Cement plant is running at full capacity, supplemented with cement from the Chigoo plant. We expect demand to remain robust in the year ahead, also with strong cement pricing. The current market also represents an opportunity for our clients and companies will continue to invest in the Permian Basin.

One of the largest international energy and petrochemicals company 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 and are on track on our announced capacity expansion. It's important to note that GGC is also able to allocate our Trident plant production to [indiscernible] cement to supplement Odessa's production should the need arise. We are pleased to share that U.S. logistics headwind eased during the fourth quarter, earlier than initially expectations, enabling it to revert to a more cost-effective raised freight and reducing our reliance and trusts.

Turning to GCC's Mexico business on Slide 6, we significantly benefit from the explosive nearshoring trends impact on neutral real estate construction demand. The Northern Mexico wireless market and the Paso area are increasingly popular destinations for manufacturing factories in Mexico, building for non-Mexican companies which are relocating to North America from Asia and elsewhere. [indiscernible] a steady stream of projects entering our pipeline, a trend we're confident will continue for the foreseeable future. First quarter covers between the U.S. and Mexico totaled $656 billion in the first 10 months of 2022, according to the latest U.S. MSU urea figures.

Further, as the wires market near saturation, infrastructure is migrating south to Chihuahua in search for new warehouse properties. GCC's increasing capacity in all of our product lines in wires, expanding as quickly as possible to protect and increase our share in this market. Our San Mareluca expansion project is advancing well. We purchased an additional crusher during the fourth quarter for our aggregates business and are leveraging our subcontractors relationships to enable immediate access to equipment and ready-mix trucks, ensuring seamless customer supply.

In contrast, while bag cement has reached prepandemic levels, fourth quarter and full year demand reflects year-on-year shipment decline relative to 2021 prepandemic algorithm. Site, which is grow retail customers on do-it-yourself projects. So what we have seen in 2022 decrease purchasing as inflation forced customers to allocate budgets to orders, expenditures, we do expect a normalization of demand for this segment going forward. [indiscernible] Mexico mining sector activity remained weak, consistent with the variability of cement demand required for mine stabilization and tailings plans as it 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 activities took place, GCC has maintained the same number of mining clients without any customer attrition. Turning to the continued progress GCC is making towards our sustainability goals on Slide 8, we have shared some updates on our work-related blended cement to reduce our opening care factor and to expand our product range. During the fourth quarter, we accelerated our 3 towards blended cement, enabling us to reduce our clinker content from its current 86%. GCC is on track to ship to 100% Portland lines cement by 2024 when our Tijeras, New Mexico plant concludes a modification to increase pozzolans and limestone additions.

I'm proud to share that our pozzolan plant was fully converted in the fourth quarter 2022. Today, GCG has 3 cement plants fully converted to POC. Trident, which was fully converted in the first half of 2022, and [indiscernible] were converted in the second half. Our Samalayuca plant produces an export [indiscernible] linemen 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, or CDP, is a global environmental nonprofit that runs the disclosure system for investors and companies to manage their environmental impacts and provide a snapshot of a company disclosure and environmental performance.

GCC awarded GTC a big rate in December 2022, which is the highest rating in GCC's history and also an important reflection that GCC has addressed the environmental impact of our business to ensure good environmental management by creating strategies to take actual and 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 cementitious materials by 2030 compared to a 2015 base year. GCC further commits to reduce absolute Scope 3 GHG emissions from use of salt products by 37.5% within the same time frame. This is a reflection of the company's commitment to keep global temporary increase well below 2 degrees Celsius. Additionally, this validation reduction target is also the sustainability performance target or S50, of our $500 million sustainability in 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 Quadro and Rapid City cement plants earned the EPA's 2022 Energy Star certification for another consecutive year, raising internal awareness about energy efficiency opportunities and responsibility that drive our emissions reduction. On another note, we are investing in our business through our employees with education programs at our newly unveiled GCC technical training institute in partnership with the Cement Institute in New York to ensure that our employees develop technical competitive, anticipating a new competitive landscape and strengthening GCC training structure.

The GCC technical training institute consists of an assessment for employees in all operational position 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 ultimate plants. Our goal is to ensure GCC remains the best cement company and prepared for potential future challenges. We are 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, Maik Strecker. Maik joined GCC 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 company, 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. Maik.

[Maik Strecker, executive]

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 both markets. This was partially offset by lower cement and concrete volumes in the U.S. due to adverse weather conditions and lower cement volumes in Mexico, reflecting reduced demand of our bag 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 oil well 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 core 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 call to cover their full needs. SG&A expenses as a percentage of sales decreased 8 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-saving 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 on to 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%. Consolidated net income increased 70% in the fourth quarter and 23% for the full year 2022. Earnings per share increased 72% for the fourth quarter and 24% 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 reduced days in net working capital to 28% from 39% and an 11-day total decrease. Moreover, DCC'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-to-EBITDA ratio dropped to minus 0.95x. 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, Fitch ratings affirmed GCC's credit rating at BBB minus while revising the outlook to positive from stable. Looking ahead, our capital allocation strategy remains unchanged.

We are committed to delivering strong state order value while investing in the future growth of our business. In terms of organic growth, during 2022, we announced the expansion of our Odessa plant, 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 U.S. 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 when to share his closing remarks.

[Hector Enrique Escalante Ochoa, executive]

Thank you, Maik. 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 funding the new residential homebuilding numbers have declined. And while companies continue to build on their backlog, new stores are down year-on-year.

Permits have plunged as high borrowing cost per 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 housing demand and private and nonresidential stats are rising, driven by immigration and continued population ships, 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, 2 significant paving projects and a significant uptick that we are seeing in wind farm projects driving ready-mix 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 provisions and incentives. Higher rate incentives reduced 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 renals 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 2 wind farm projects in South Dakota with expected completion in the second half of 2023. Along these lines, dollar far interest is also ramping up, and we've had frequent-releconversations with potential clients, which is yet another persign of the uptick we are seeing in renewables.

On the public side, leading indicators for high waste and other infrastructure shows 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. GCC has again demonstrated our strength in reading the market climate. When we anticipated the potential slowdown in other market segments and deepen 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 GCC cement and concrete sales volumes to increase low single digit year-over-year in the U.S. and low to mid-single digits in Mexico. In terms of prices, a $12 per short ton price increase took effect on January 1st for both construction and oil well cement in the U.S. with no significant pushback from customers. We are advising customers of a possible second price increase and remain vigilant of market and economic dynamics.

Considering 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 2022 EBITDA to increase high single to low double digit against 2022 levels driven by the top line price increases and a more stable energy costs. 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 is expected to reach more than 60% with a 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.

[Operator]

At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Adrian Huerta with JPMorgan.

[Adrian Huerta, analyst]

My question has to do with prices in the game. You mentioned that you expect the prices to increase mid- to high single digits. Is this increase were you 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.

[Hector Enrique Escalante Ochoa, executive]

We normally measure that on average year-on-year.

[Adrian Huerta, analyst]

But given the sharp increase that we saw in the last 3 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 mid-single digits this year, that's why I'm asking if how you compare this.

[Hector Enrique Escalante Ochoa, executive]

Adrian I think that, I mean, if I'm reading your if I'm to understand your question correct, if we implement the full clubs 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.

[Adrian Huerta, analyst]

Okay. Perfect. And my follow-up question has 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 this to be something that you guys will be doing every year.

[Hector Enrique Escalante Ochoa, executive]

Yes, Adrian and we're, I mean, planning to continue more or less at the same level of what we have been doing. I mean, last year of course, I mean, we will go to our shareholders meeting in April and to make sure that we get the appropriate authorization for that.

[Operator]

Our next question comes from the line of Nikolaj Lippmann with Morgan Stanley.

[Nikolaj Lippmann, analyst]

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 -- when you're looking at a lot of moving parts, declining gas prices, the gold mine is back. In particular for the U.S., what are you thinking on a per ton of cement sold basis? Can you give a percentage to 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 bought back.

[Hector Enrique Escalante Ochoa, executive]

Well, we don't have a specific number per ton reduction I mean, to disclose. But what I can tell you is that we're very confident that with the combination of our pricing and the fuel mix reduction, we will easily achieve, I mean, a recovery in 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 back purchase, no, we don't plan to cancel the shares. I mean, we are -- we don't have any intention to do in that at the moment.

[Operator]

Our next question comes from the line of Pablo Ricalde with Santander.

[Pablo Ricalde, analyst]

I have a question on dividends. You are guiding net positive cash for year-end. So how are you seeing dividends for the year?

[Hector Enrique Escalante Ochoa, executive]

And thank you for the question. We'll probably continue running the same course in terms of dividends at Pablo. We're going to obviously increase. I mean, the dividend distribution for the year, obviously above inflation, but nothing -- I mean out of the ordinary of what we have been doing in the last years.

[Operator]

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

[Alejandro Azar Wabi, analyst]

Two quick ones. The first one is, if you could the impact monetary impact on the problems that you have in the coal mine 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 3 years? Is it valuation? Or do you see less willingness across the industry to divest assets.

[Hector Enrique Escalante Ochoa, executive]

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

[Alejandro Azar Wabi, analyst]

Yes. If you could share the monetary impact from the troubles that you have in the coal mine during the 2022.

[Hector Enrique Escalante Ochoa, executive]

No, I will have to come back to you with the specific number Alejandro so we will was an being in contact with you to elaborate on that specific impact. On the second question on capital allocation, well, I mean, we continue basically with our same strategy. As you know, we are mentioned, I mean, what we will do on the dividend side. And you know also the capital projects that we're investing in this year that 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 we continue to look for targets that we can that we could, I mean, incorporate into the business model.

We plan to I mean, obviously, if needed, and they go out to I mean to get financing for that, but with the cash that we have and the financing that we can get stand below 3x leverage, I think that we're prepared for a meaningful growth on the M&A side, if we can find a reasonably world price asset or assets. So it's widely known that I mean our model in the same region where we are, it has some limited potential, but again, that's our first priority. But we are discussing the 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 we -- as the year goes on.

[Alejandro Azar Wabi, analyst]

Excellent.

[Operator]

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

[Lucila Gomez, analyst]

It's more of a follow-on on what you've mentioned of M&A capital allocation. I know that you mentioned that you will continue to look for possible M&As. But just 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.

[Hector Enrique Escalante Ochoa, executive]

Good morning. I will turn this call to Maikas he obviously been very active on the M&A effort in to elaborate on your question.

[Maik Strecker, executive]

Yes, 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, SUS has been very strong, companies are not as easy to sell assets 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 it 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.

[Operator]

[Operator Instructions] Our next question comes from the line of Lisa Zack with GBM.

[Unknown Analyst]

I have two actually and red 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?

[Hector Enrique Escalante Ochoa, executive]

Lisa thanks again for your question. I'll let Maik give you the details of what we is the CapEx budget.

[Maik Strecker, executive]

So yes, we -- thank you for the question. We maintain our overall maintenance CapEx around EUR 70 million. I think in last year, we saw a bit of a timing aspect to that. That's why we only was recorded to 35%. But 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 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.

[Unknown Analyst]

Okay. Perfect. And my second question would be 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 we did last year. As you mentioned regarding timing and how you're seeing the environment as a whole.

[Maik Strecker, executive]

So again, regarding the CapEx, I already elaborated on the maintenance side. On our growth and strategic CapEx. Again, that's the execution of our 2 announced upgrades, like Samalayuca, 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. 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 2 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.

[Operator]

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

[Francisco Suarez, analyst]

Congrats on the results, gents. The 2 questions that I have. First of all, on your statements relate with this idea of Tijeras actually helping to address demand in all wells in New Mexico. Just remind me, does the plan has 2 lines in other words, 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 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 nonresidential real estate and to infrastructure that seems to be enough to have this positive outlook on volumes in the United States.

[Hector Enrique Escalante Ochoa, executive]

Thanks for the questions. I will answer your first question on the Permian and then allow Maik to elaborate on the guidance in residential exposure to GCC. So yes, I mean, the plant Tijera has 2 lines, 2 cement kilns that are basically identical and you can easily change production in 1 or 2 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 but that we have in our toolkit precise see residential impact, I mean, deeper than what we're expecting today, we can switch 1 or 2 kilns, even tool cement more well to the permanent basin. So we have the tools, and now obviously, I'll let Maik complement, I mean, that risk, I mean, materializes where we are in DCC.

[Maik Strecker, executive]

Yes. Francisco, thank you for the question. Regarding the guidance and specifically the U.S., 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 a very strong order book.

So we believe we can compensate that. And that's the reason why Enrique explained with the flexibility of the fairs and the network. And then also, as Enrique said earlier, we see some very nice growth in the industrial commercial segments. We have very good order books there. So we foresee that we can offset any slowdown in the residential segment with those other segments.

[Hector Enrique Escalante Ochoa, executive]

With what we see today, I mean, shifting from 170 to another, I mean, one product to another, we still see today, I mean, a full year for DCC's plants run at capacity during the year.

[Operator]

Our next question comes from the line of Federico Galassi with TRG Management.

[Federico Galassi, analyst]

Congrats for the results. Two questions, if I may. The first one is, when you talk in particular in U.S., I'm thinking in the residents plan at the end of this year, next year. When you talk with your clients, distributors, et cetera, et cetera, they are more worried for the availability of cement or pricing. This is the first question.

[Hector Enrique Escalante Ochoa, executive]

Francisco, Enrique how are you. I mean good to hear from you again. I mean, we did met a few weeks ago.

[Federico Galassi, analyst]

Yes.

[Hector Enrique Escalante Ochoa, executive]

I think that our customer formation that we have, I mean, today from our customers is that they continue to be very aware that they need a 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 give them without the right I mean, quantities of cement for the book for their order book. So I will say, in my opinion, they are more concerned with availability today than with pricing. I think that's one of the reasons why the general price increase went in so well with no major pushback.

[Federico Galassi, analyst]

Okay. Great. And the second question and in your guidance, you're talking about the EBITDA growth of high single digit, low double digit. 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 margin EBITDA margin for this year.

[Maik Strecker, executive]

Yes, Federico, thanks for the question. Yes, 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 fuel mix and getting to our normal setup with our own call 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 costs were cost savings, running the plant sufficient, that all will contribute that we believe we can improve the margins in 2023.

[Operator]

Our next question comes from the line of Rafael Samanati, Private Investor.

[Unknown Attendee]

Congratulations on the result. My question is about energy cost. 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.

[Hector Enrique Escalante Ochoa, executive]

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. Sure. 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. Fuel diesel fuel increased 14% for natural gas, 147% coal by 6% and other fuels 11%. So that was a huge increase in 2022 that, of course, eroded our EBITDA margin close to 1.5 percentage points.

And this is what Maik was referring to in terms of going back to a normal fuel mix, that's where we have so much potential to improve the margin. And of course, combined with the price increase that will all flow kind of the perfect aligned all the way to the bottom line. Would you find something on the quarter? Maybe just a second.

In terms of our gas, I mean, price for this year, I mean, we have a hedge basically the whole year for our Odessa plant. That is the only plant that runs fully on gas. So if we go back, as we plan to hold in all the rest of our plan, I think that we have a very stable fuel mix for the total year 2023. And we can provide you some more specific, I mean, quarterly increases I mean a later point if possible, you could go ahead.

[Operator]

Our next question comes from the line of Lisa Zack with GBM.

[Unknown Analyst]

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

[Maik Strecker, executive]

Yes, Lisa. The PCA forecast for that segment 30% and 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 with Odessa, with Tijera and supporting it from our Chihuahua plant here in Mexico to really take advantage of that and supply those customers.

[Operator]

Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Ms. Ogushi for any final comments.

[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]

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