Fernando Gonzalez: Hi Carlos. Let me comment on what you are asking. But let me clarify that we’re not necessarily giving guidance on 2024 volumes yet. We are in the middle of getting us much updated info as we can to have a better understanding and view and in the future, provide a better guidance on 2024 volumes. But despite that, I think there are trends that will continue current trends that we can see in that will continue evolving in 2024. So, specifically, in the case of volume, for instance, we’ve seen how different markets are performing differently, meaning not all markets are synchronized in volume trends. They are different. You saw the numbers in Mexico when compared to the numbers in Europe and so they are materially different.
Now, I think the trends or the reasons why make us believe that there might be positive changes in current trends in volumes is, for instance, in the case of the US and Europe is our exposure to relevant fiscal stimulus and public or private projects in the US and Europe. The type of initiatives related to infrastructure in the US, the $1.2 trillion infrastructure plan — the Inflation Reduction Act, the CHIPS Act. So, there are a number of positives or reasons to make us believe that trends in this case in the US might be better than the ones we’ve seen in 2023. The negative impact this year is because of, let’s say, commercial and housing. Again, this is not a guidance. We still need more updated info, but in the case of housing, you have the data, the level of inventories is at historical lows.
The level of unemployment is at record levels. Economy is still growing. The challenging part is the cost of mortgages. But at some point in time, housing should react just because of house formation, the regular one or the demographics in the US. Now in the case of Europe, again, it was heated, it’s hit this year in volumes. Many reasons to — for volumes to be impacted last year and this year. But at the same time, we still have the initiative of the renovation wave, which is around $700 billion the $1 billion in transport mean Energy and other incentives in manufacturing. So although we are not providing any specific guidance, we believe that in the case of the U.S. and Europe, those variables could be supportive of, let’s say, a flat volume for next year and perhaps even moderate growth on them.
To be confirmed, afterwards in our former guidance for 2024. Maybe I should
Carlos Peyrelongue: That’s very helpful.
Fernando Gonzalez: Let me add a – okay. Thank you.
Lucy Rodriguez: Okay. Fernando, did you want to add anything? It seems as though we might have cut you off.
Fernando Gonzalez: Well, I was going to say that the case of Mexico, which is a very relevant market for us, again, not a guidance, but the trends are positive. And next year is an election year, which tends to be also a positive context. And most probably, we will see next year an acceleration of the infrastructure — the large infrastructure projects, like, for instance, the mine train and smooth because it’s the last year of the current federal government. So Mexico might have also a positive trend in volumes next year. But again, clarifying, this is not necessarily a guidance. This is an indication. And afterwards, we will provide more detailed guidance.
Lucy Rodriguez: Okay. Thank you, Fernando. The next question comes from the webcast from Bruno Amorim from Goldman Sachs. And the question is what level of margins would trigger a halt in the sequential price increases you have been implementing
Fernando Gonzalez: Let me take this one, I don’t see the pricing strategy is necessarily defined by the levels of margin, at least not under conditions that have been prevailing in the last 2 years, let’s say. I think just to clarify, I think our pricing strategy has been for prices to cope with inflation, so we can protect our margins. It happens that after many years of very moderate inflation in our cost structures. In 2021, second, third quarter of 2021, high levels of inflation started showing up, and we reacted with the pricing strategies to cope with those new very high levels of inflation. To simplify the story, in 2022, inflation continued growing our own inflation, cost inflation, and it went up as much as 20%, 22% while prices started reacting at lower level of increases, and that’s why we lost margin in 2022.
Now the trends are changing. Our prices started being increased more and more. And in the first quarter of this year, for the first time since almost 2 years, then price increases were higher of the level of inflation, which in the first quarter of 23 started receiving — so what we see this year is — let’s say, is the second part of the pricing strategy, pricing strategies cannot be executed in a very short period of time. So what we see in 2023 is that on the one hand, prices are increasing at the levels of 18%, 20% and inflation, which is decelerating is decreasing from the levels of 18% to 10%, 11%. So I think the basis of our pricing strategy will continue being the idea of at least recovering input cost inflation. Now if inflation continues its trend and been lower and lower — of course, price increases will follow that inflationary trend.
That’s what you can expect that what defines or has been defining our pricing strategy in the last couple of years.
Lucy Rodriguez: Thank you, Fernando, very clear. The next question comes from Ben Theurer from Barclays. Ben?
Ben Theurer: Yes. Good morning. Congrats on the results Fernando, Maher and Lucy, well done, I would say. My question is also on the U.S. and volumes and kind of a little bit of a follow-up on Carlos’ question. So we’ve seen volumes year-to-date down by about 13% guidance as roughly a 12% decline. So same trends kind of guided for into the fourth quarter. But one thing you’ve highlighted was the decreased share of imports into the U.S. market. So if you could help us understand where do we stand right now as it relates to imports into the U.S. market? Is that decline that we saw year-to-date really all decline in imports, which has helped so much to drive the 500 basis points EBITDA margin expansion. How much more imports is left? And how do you think about that just in the general context of your margin potential in the U.S. if imports were to come down more as it relates to be even more profitable of what you’re selling produced in the U.S.
Fernando Gonzalez: Let me comment on general terms, and then I will pass the word to Mace and Lucy. But the general dynamic in the U.S. when combining our, let’s say, cement domestically produce and cement we input in order to sell. — imports are complementary to our core activity in cement, which is local production. We’ve been importing around maybe market or Lucy have the SAC proportion, but we’ve been importing around, let’s say, 30% of the cement we sell in the U.S. Now our capacity utilization, which is you know, very important in order to succeed in pricing strategies. Our capacity — cement capacity utilization in the U.S. is full, is 100%. And whenever there are either the clients like it is the case this year or growth in volumes, what we do is we do adjust imports, given that imports have lower margins than locally produced.
So that’s the dynamic in general terms. So we do not impact the local, let’s say, the local dynamics that we are trying to put in place in the market. I don’t know if you lose your market wants to complement
Maher Al-Haffar: Maybe I’d just add, I mean, obviously, even with that 13% decline in cement volumes, we had a great quarter in the U.S. with EBITDA rising 36% and part of that certainly was that reduction in imports as we calibrated that drop in cement volumes. So import volumes in the quarter dropped about 1/3 from where they had been to compensate for the decline in overall volumes we were seeing. And that was very supportive of margins. And there’s probably about a 300 basis point impact in terms of margin, so quite significant.
Ben Theurer: Perfect. That’s what I was hoping for.
Lucy Rodriguez: The next question comes from Anne Milne from Bank of America.
Anne Milne: Congratulations on another pretty spectacular quarter. I know that you were involved this quarter in a local peso issuance for the first time in a long time. So I guess the question is, will you continue to try to match your debt with the currencies and which you operate and what other currencies might there be? And again, on the debt side, your debt levels continue to decline pretty rapidly. You’re well below your — at least your previously stated goal of below debt-to-EBITDA. Will there be a point when you might actually look at sort of a an ideal debt level versus just a leverage level that if you are below that 3x you don’t need to go below a certain debt level. And if there’s anything else you could tell us on the loan agreement that you have — you said that you will be signing soon in terms of covenants or pricing Fernando, would you like me to take that?
