Earnings Call Transcript - CX Q2 2023

Operator, Operator

Good morning. Welcome to the Cemex Second Quarter 2023 Conference Call and Webcast. My name is Lauren, and I'll be your operator for today. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. And now I will turn the conference over to Lucy Rodriguez, Chief Communications Officer. Please proceed.

Lucy Rodriguez, Chief Communications Officer

Good morning. Thank you for joining us today for our second quarter 2023 conference call and webcast. We hope this call finds you in good health. I'm joined today by Fernando Gonzalez, our CEO; and Maher Al-Haffar, our CFO. As always, we will spend a few minutes reviewing the business, and then we will be happy to take your questions. And now I will hand it over to Fernando.

Fernando Gonzalez, CEO

Thanks, Lucy, and good day to everyone. I'm beyond pleased with our second quarter results. But before we drill down, I must congratulate our employees around the world who have been instrumental in our mission to recover profitability in the face of two years of extraordinary input cost inflation. It is your efforts and dedication that have led to this moment, and I am confident there is more to come. While sales grew 10%, EBITDA rose almost 30% as a result of our pricing strategy, growth investment contribution, and decelerating input cost inflation. Indeed, we have seen total cost as a percent of sales declining for three consecutive quarters on a sequential basis and for the first time on a year-over-year basis. This, coupled with pricing, has led to an expansion in our EBITDA margin in the quarter that is approaching our goal of recovering our 2021 margin. Our growth strategy of bolt-on margin enhancement investments, which we adopted in 2020, is paying off and continues to ramp up as projects are completed. Our urbanization solutions business, one of the beneficiaries of this strategy, continues to expand rapidly. In climate action, we continue to execute on our future in action roadmap, posting significant quarterly CO2 reductions since 2020. Free cash flow after maintenance CapEx is growing both sequentially and year-over-year. Importantly, the strong earnings growth is accelerating our deleveraging trajectory, with the leverage ratio now under 2.5 times. And our return on capital in the double-digit area continues to improve, expanding the margin to our cost of capital. Net sales rose double digits with contributions from all regions. EBITDA grew by 29%, reflecting not only the success of our pricing strategy and decelerating cost inflation but also the incremental contribution of approximately $50 million from our growth investment portfolio and expanding urbanization solutions business. EBITDA margin expanded significantly, almost reaching second quarter 2021 levels. Free cash flow after maintenance CapEx rose as a result of higher EBITDA, coupled with lower working capital needs. While consolidated cement volumes were negative, the magnitude of the decline relative to the first quarter shows improvement, driven largely by Mexico, SCAC, and the United States. In Mexico, in particular, cement volumes turned positive for the first time in two years, while U.S. volumes rebounded somewhat from the weather issues of the first quarter. Aggregates volume increased, reflecting growing infrastructure demand in Mexico, SCAC, and the U.S. Despite a soft volume backdrop, prices in all regions continue to catch up to the cumulative cost inflation of recent years. Consolidated prices across our products rose between 11% and 18%. Importantly, cement and ready-mix prices increased sequentially, with all regions showing growth. EBITDA growth is largely explained by the contribution of pricing over incremental cost, our growth investments, and our growing urbanization solutions business. The contribution of pricing relative to cost continues to grow, allowing us to increasingly cover the cost inflation of the last few years and expand our margins to levels close to our 2021 margin goal. Importantly, while still elevated, input cost inflation is easing after two extraordinary years of increases. Margin performance over the last three quarters has confirmed that we are well on our way to recover 2021 margins. Second quarter margin expanded by approximately three percentage points year-over-year and sequentially, reaching 21.1%. This is happening despite the margin headwinds of product mix and lower volumes. The improvement is driven not only by pricing but also by recent cost inflation and operational efficiencies, as shown in the sequential decreases in COGS as a percentage of sales over the last quarters. We continue making significant inroads in our decarbonization efforts, executing against our plan-by-plan 2030 roadmap. CO2 per ton decreased by 4.4% in the first half of 2023, with record levels for our two main decarbonization levers, alternative fuels and clinker factor. Since the launch of our Future in Action program in 2020, we have reduced CO2 by 11% in 2.5 years, a reduction that previously would have taken us 14 years to achieve. Importantly, our path to reach our 2030 decarbonization goal is profitable, as the levers we use either substitute for more expensive raw materials or fossil fuels. Indeed, the investments we make to deliver on our 2030 goals must meet the same return criteria as all growth projects. Future in Action, however, is not limited simply to our production process but rather through the decarbonization of the entire life cycle of our products and industry value chain. As such, we continue to develop our waste management solutions business, Regenera. We achieved some important milestones in the quarter to position this business for growth. First, we successfully opened a new state-of-the-art construction, demolition, and excavation waste recycling center in Israel. This facility will be able to transform up to 600,000 tons of construction and demolition waste into recycled raw materials that can then be reintegrated into the construction value chain, conserving virgin raw materials. Additionally, in May, we established a partnership with PASA, a leading waste collection company, to operate a new facility in Puebla, Mexico's fourth-largest city. We expect the venture will manage over 50% of the city's municipal and industrial waste by late 2025 and be an important source of alternative fuels for our operations. This partnership has a direct impact on reducing waste sent to landfills and ensuring that non-recyclable waste is processed in an environmentally friendly manner while avoiding methane emissions.

Lucy Rodriguez, Chief Communications Officer

Thank you, Fernando. Our Mexican operations delivered strong results with a double-digit increase in sales and high single-digit growth in EBITDA, as our pricing strategy continued to make inroads in offsetting the inflation of the last two years. EBITDA grew for the third consecutive quarter. EBITDA margin decreased primarily due to an unfavorable product mix as ready-mix, bulk cement, and urbanization solutions grew faster than higher-margin bagged product and higher distribution, electricity, and labor costs. The alternative fuels substitution rate reached a record of approximately 44%, with four plants operating at levels above 50%. Our ability to source alternative fuels will be enhanced by the recent acquisition of the Waste Management business in Puebla. Cement volumes rose 1% as the first sign of demand recovery in two years and grew 12% sequentially. Demand was driven not only by continued strong bulk cement performance linked to formal construction but also from market share recovery in bagged products. Ready-mix and aggregates volumes also benefited from strength in formal construction, with growth of mid single-digits and double-digit, respectively. Volumes remain supported by near-shoring investments in border states and the Bajio region, as well as tourism construction and an accelerated execution of infrastructure projects ahead of the national election. Next month, our 1.5 million tonne capacity expansion in Tepeaca will be fully operational, allowing us to serve the expected medium-term needs of the country. Demand is picking up in Mexico and capacity utilization remains high, especially in the North and Southeast regions. While we believe this new capacity fills an important demand need and will not be disruptive. As always, we have the ability to adjust overall production. With the aim to continue recovering margins, we have announced additional price increases for cement and ready-mix in July. For 2023, we now expect low single-digit growth for cement volumes and high single-digit growth for ready-mix and aggregates. The U.S. had a record quarter, benefiting from our pricing strategy, recent growth investments, and decelerating costs. The 87% growth in EBITDA and margin expansion reflects these trends as well as the prior year's comparative base that was significantly impacted by heavy maintenance costs and supply chain disruptions. Cement and ready-mix pricing rose 15% and 21%, respectively, with an increased low single digits sequentially. Price increases announced for the third quarter cover approximately 90% of our cement volumes. Aggregates pricing rose 11% but declined 6% sequentially due to product mix. While cement and ready-mix volumes rebounded from the significant first-quarter weather disruption, volumes continue to be impacted by weather as well as the lower level of construction activity declining by 8% and 10%, respectively. Cement volumes were also negatively impacted by the sale of the terminal and closure of some minor operations in 2022, as well as the conclusion of a major construction project. We estimate the impact of this along with weather represents around 70% of the volume decline. Aggregate volumes increased by 5%, benefiting from the opening of the new sand mines in Florida as well as the acquisition of the Atlantic Minerals quarry in Canada, which closed in April. Excluding the impact of these events, aggregate volumes would have been up 1%. During the quarter, the housing market continued to stabilize as tight inventory in the existing home market supports demand for new home construction. Single-family housing starts increased 11.4% in the second quarter versus the first quarter, with permits increasing by 12.9%. We continue to see increased manufacturing infrastructure construction in our markets, supported by the bipartisan infrastructure bill, the inflation reduction act, and the chip act. Trailing 12-month infrastructure and industrial and commercial contract awards in our key states were up 26% and 4%, respectively, through June. Once again, our EMEA region delivered solid results despite a challenging demand environment. This quarter marks the seventh consecutive quarter with year-over-year growth in EBITDA. Top line and EBITDA growth were mainly driven by our disciplined pricing and carbon strategy as well as important contributions from growth investments. Our growth investments are yielding results with expected incremental EBITDA contribution of more than $40 million in 2023 for the region. Some examples of these projects include the alternative fuels facility in our Rugby plant in the UK, the acquisition of a majority stake in ProStein company in Germany, which doubled our aggregate reserves in the country, the installation of state-of-the-art cement mill separators in Croatia that will allow for lower clinker factor and power consumption, and the new concrete paving product machine in Israel, among others. EBITDA margin in EMEA expanded by almost 1 percentage point to the highest level in seven quarters. Europe continues showing strong cement pricing momentum with 28% growth year-over-year. Sequential cement prices rose 3% on the back of April increases in Germany and the UK. EBITDA in Europe rose 32%, while margins increased by 3.2 percentage points. Europe continues to post new records in climate action, and the region is well on its way to match the EU's 55% 2030 carbon emissions reduction target. In the Philippines, cement volumes declined as a result of continued weakness in construction activity, driven by high inflation and interest rates, lower infrastructure spending, and a tough comparative base. We believe the second quarter marks an inflection point in energy costs as we adjust our fuel sourcing to a more efficient energy mix. Net sales and EBITDA in the South Central American Caribbean region grew double-digit, driven by strong pricing contribution and decelerating energy costs. Cement volumes continued to be pressured by weak bag cement demand, although bulk cement, ready-mix, and aggregates showed positive performance supported mainly by the infrastructure sector. After five consecutive quarters of EBITDA margin contraction, the second quarter marks an inflection point with an expansion of 1.4 percentage points as a result of our pricing strategy and decelerating input cost inflation.

Maher Al-Haffar, CFO

Thank you, Lucy, and good day, everyone. We are very pleased with our second quarter results with strong growth in sales, EBITDA, EBITDA margin, and free cash flow generation. These results speak to the success of our pricing strategy and increased operating efficiency, coupled with decelerating cost inflation and contributions from our growth strategy and urbanization solutions. As Fernando noted, we are achieving record levels of alternative fuels utilization and clinker factor. We also continue to increase our sales of blended cement among other operating efficiencies, which not only bring us closer to our decarbonization goals but also reduce our costs and improve our margins. We have seen a significant improvement in our EBITDA margin year-over-year as cost inflation eased. This is particularly true in energy, with market prices for our main fuels trending down in the quarter. While fuel costs on a per ton of cement basis increased 10.7% year-over-year, it declined 7.7% sequentially. We expect to see this improving trend in fuel costs continue into the second half of the year. Higher EBITDA, coupled with a lower investment in working capital, partially offset by higher taxes, delivered incremental free cash flow of $243 million in the first half of the year versus last year. Working capital investment this year is lower than last year by $114 million, and we expect to end the year with an investment of less than half of what it is today. Working capital days for the quarter stood at roughly zero, up six days from Q2 last year. This increase is due primarily to the inflationary impact in inventories as well as higher fuel stocks that should be consumed as the year progresses. The increase in cash taxes is a consequence of stronger results as well as the tax effect of foreign exchange on our US dollar-denominated debt. Net income was slightly higher than the prior year. The increase was driven primarily by better operational results and a positive foreign exchange effect, partially offset by higher taxes and the premium paid for calling our 7 3/8 bonds earlier this year. We are happy with our accelerating glide path towards an investment-grade rating. As you know, this has been a strategic priority for us as we believe it holds enormous value creation for our shareholders. We have focused on delivering results and reducing debt, translating into a reduction of leverage of approximately 1.7x over the past 2.5 years. This year alone, our leverage ratio has declined 0.39x, ending the quarter at 2.45, reaching the lowest leverage level since we started measuring this metric in 2009 in connection with our syndicated bank facility. As we get into the second half of the year, when our working capital cycle turns positive for us, we expect to further reduce leverage as EBITDA continues to grow and debt continues to trend lower.

Fernando Gonzalez, CEO

Based on first half results, I'm quite optimistic for the rest of the year. We have additional pricing increases scheduled to roll out in several markets during the third quarter. We expect to see continued deceleration in key input costs, while the benefit from our growth investment portfolio should continue to scale. As a result, we are upgrading our EBITDA guidance to be in the $3.25 billion area, an approximate 21% increase year-over-year. For cash taxes, we now expect $400 million driven largely by Mexico. The expected increase reflects stronger results as well as the tax effect of foreign exchange on debt. We have made some minor adjustments in regional volume guidance which you can find details in the appendix.

Lucy Rodriguez, Chief Communications Officer

Before we go into our Q&A session, I would like to remind you that any forward-looking statements we make today are based on our current knowledge of the markets in which we operate and could change in the future due to a variety of factors beyond our control. In addition, unless the context indicates a law, all references to pricing initiatives, price increases or decreases refer to prices for our products. And now we will be happy to take your questions. In the interest of time and to give other people an opportunity to participate, we kindly ask that you limit yourself to only one question.

Ben Theurer, Analyst

Yeah. Good morning, Fernando, Lucy, Maher, congrats on the very strong results, first of all.

Maher Al-Haffar, CFO

Good morning.

Ben Theurer, Analyst

And then my one question is really around the announcement you've just made and said that you continue to increase prices and targeting like, I think, 90% of the volume in the US, you said was an upper price increase. Clearly, we have seen in some regions, maybe a little bit of an impact on volumes. My question really is how should we think about your willingness to continue to boost pricing even in light of maybe some of an impact on volume and maybe some market share losses? Or would you consider at some point also being maybe a little less aggressive on pricing as cost pressure comes down to ultimately gain back some of the volume, which then in turn also be somewhat margin accretive? So just the balance between pricing versus a little bit of volume loss, how you think about this?

Fernando Gonzalez, CEO

Thank you, Ben. As you pointed out, we need to carefully balance the equation. I want to emphasize that our pricing strategy over the past year and into the coming months has been influenced significantly by high inflation, particularly in our costs and expenses. The level of inflation is driving our pricing decisions. While we have noted that inflation is moderating, it remains in double digits, indicating that it is still a concern. We must keep monitoring its effects. For instance, in the second quarter, the cost inflation per ton in US dollars was 13%. Therefore, we cannot disregard these inflation levels when formulating our future pricing strategies. Regarding how pricing strategies might affect our market position, each market may react differently due to various factors. We are continuously assessing the role of pricing and our competitive stance in the market. This is a process that spans months and quarters, especially when we are the ones implementing price increases. In some markets, we lead with the price increases, while in others, we follow. We need to consider the implications for our market position and take time to regain any lost market share if it has been affected. Based on our experience, it could take six to nine months for the full impact of price adjustments to unfold, including evaluating the impacts and deciding next steps. There is a simple adage: losses in market share due to pricing can be regained through pricing. So far, we haven't noticed any significant losses in market share as a result of our pricing strategies. Therefore, as long as inflation remains high, we will likely maintain similar pricing strategies.

Ben Theurer, Analyst

Okay. Perfect. Thank you very much. Congrats again.

Fernando Gonzalez, CEO

Thanks.

Maher Al-Haffar, CFO

Thank you, Ben.

Anne Milne, Analyst

Good morning, Fernando, Maher, Lucy. Congratulations on the great quarter. It must feel very good to have such good numbers. So first of all, I just want to congratulate you as well.

Fernando Gonzalez, CEO

Thank you.

Anne Milne, Analyst

Sure. On the change in the outlook from Fitch last night on your BB+ rating to a positive outlook. So that just leaves a hair now before you get on investment-grade rating. So I was just wondering, did they provide a time frame for the upgrade? And does this upgrade change anything on pricing on your financial instruments, which would probably be loans in this particular case?

Fernando Gonzalez, CEO

Yes, thank you for the question. We're very pleased with Fitch's recent action. For those who may not be aware, we now have a positive outlook on our external debt, and we've received an upgrade in our long-term debt in Mexico from AA minus to AA, also with a positive outlook. As you mentioned, we are very close to the next potential upgrade. Typically, when Fitch has a positive outlook, they review the rating within 6 to 12 months. They've suggested that we are close to meeting their investment-grade criteria based on our leverage measurements. Whether we'll reach that this year or early next year is uncertain, but they are in ongoing communication with us, and we are excited about the recent actions. Regarding refinancing, we feel comfortable with our maturity profile, and as shown in the presentation, this upgrade and the feedback from capital markets should allow us to engage in some liability management before the year ends, although I can't provide specifics on what that will entail. As for improving our cost of borrowing, the answer is yes, but I can’t speculate on the impact right now as it depends on timing and market conditions. Looking at our bonds, their trading spread is around $250,000, which is wider compared to some of our higher-rated peers. However, I prefer not to speculate on potential refinancing outcomes or pricing impacts. This is a process we view as a journey.

Anne Milne, Analyst

Yes. I would like to follow up on how the conversations with S&P are progressing. This would be the second rating that you mentioned, which also has a BB+.

Fernando Gonzalez, CEO

I really can't comment, but I think today, with the results that we've seen today and with the track record and the acceleration on pricing, and the recovery and the expansion of price compared to cost on a consolidated basis should be good news for both of our rating agencies. But I can't comment on any ongoing conversations with them.

Anne Milne, Analyst

Okay. Well, thank you very much. Congratulations on the positive outlook upgrade, and it's a great quarter.

Fernando Gonzalez, CEO

Thank you very much.

Maher Al-Haffar, CFO

Thank you.

Paul Roger, Analyst

It looks like your CO2 per ton of cement fell 4.4%, and clinker factor fell 1.1 percentage points in the first half. This is a bigger decline than peers. What's driving this outperformance? Is it catch-up or something specific in your decarbonization strategy?

Fernando Gonzalez, CEO

Thanks for the question, Paul. I want to highlight that the foreign fraction for this quarter closely matches what we've seen over the past ten quarters. In 2021 and 2022, we began implementing significant reductions. With our future in action strategy in place, we accelerated our efforts and executed them effectively. As a reminder, in 2021 and 2022, we reduced CO2 emissions per tonne of cement by approximately 9.5%, a reduction that used to take us a decade. So, in late 2020, we initiated a strategy that started showing results in 2021, and these results have been consistent over the last ten quarters. While initially, it may have seemed like we were catching up, by the end of last year, our CO2 per tonne of cement numbers were comparable or superior to those of our peers. In terms of this quarter or the previous one, I wouldn't categorize it as a catch-up. What have we been doing? We've focused on using traditional methods to reduce CO2, including introducing low-carbon products through our Vertua product line, decreasing the clinker factor, offering more composite cements, and increasing the use of alternative fuels with high biomass content. In the second quarter of this year, alternative fuel usage reached 36.5%, the highest in the industry, at least among companies that publicly report this data. Specifically in Europe, 70% of our fuels are alternative, which is the highest figure there. In our largest plant in Mexico, Baka, over 60% of our fuels are alternative, while the country averages around 40%. We've made significant progress through investments to enhance these efforts, which are also very profitable. Recent investments in Europe increased alternative fuel usage to 90%, where we're compensated for using these fuels, making it a beneficial investment. Simultaneously, we're increasing our use of renewable electricity. The key takeaway is that since we introduced our future in action strategy two and a half years ago, we have effectively delivered on our commitments and demonstrated our progress. We are not just making promises; we are taking action, and financially, this transition has been appealing so far. You can expect more of the same moving forward, along with the five carbon capture projects we are working on, which will take a bit longer to materialize but are progressing well.

Lucy Rodriguez, Chief Communications Officer

Thank you, Fernando. And the next question comes from Vanessa Quiroga from Credit Suisse. Vanessa?

Vanessa Quiroga, Analyst

Yes hi. Thank you. Congrats on the results. I want to go back to the topic of US pricing because you already reached the 2021 margin but you are indicating that you still need price increases to catch up with cost inflation. So, how can we understand that your target in this case should we expect maybe a slowdown in margin recovery in the second half? Or how can we understand this term strategy on prices with margins at these levels already? Thank you.

Fernando Gonzalez, CEO

Thank you, Vanessa. Maher, do you want to-

Maher Al-Haffar, CFO

Sure, Vanessa. First of all, the comparison for the second quarter is quite challenging, as Lucy pointed out. Factors like weather conditions, significant maintenance expenses, and supply chain issues all contribute to this. One quarter alone doesn't determine our pricing strategy; we are focused on the long-term perspective. As Fernando mentioned, we are still experiencing input cost inflation, although it is slowing down, and demand remains strong. Our pricing strategy is ongoing, and we have already made some announcements for July and August in various markets. I believe we will capture a significant portion of that. Even if we maintain current prices for the rest of the year, we anticipate another 13% pricing increase impact during the second half. However, this is something we need to manage continuously, as we must keep an eye on inflation within our business in the US. While the pace is slowing, inflation is still present, and we have to ensure we recover from that. Lucy, would you like to add anything?

Lucy Rodriguez, Chief Communications Officer

Sure. I want to mention a couple of points. We announced a second round of price increases in all US markets except for Northern California, which experienced severe weather in the first quarter. We're currently in the process of implementing these increases, and we'll see how it unfolds. Additionally, it's important to note that as volumes in the United States have decreased, we've been able to reduce imports, which typically carry lower margins. This reduction has been beneficial. On the cost side, in terms of fuel, the US relies more heavily on fossil fuels as we advance our alternative fuels strategy, and much of the fossil fuels we're using this year are secured at higher prices compared to current market rates. As those contracts start to adjust, we anticipate some relief moving forward. That's all I have. Thank you.

Vanessa Quiroga, Analyst

Thank you.

Lucy Rodriguez, Chief Communications Officer

And the next question comes from Nik Lippmann from Morgan Stanley. Nik?

Nik Lippmann, Analyst

I think some of your peers and certain clients in the ready-mix sector are advocating for a cost-plus pricing model in certain parts of the US market. This has been mentioned by Martin and a few others in your field. We have also shared insights with several ready-mix companies. Is this something you have considered? If not, a quick answer indicating that would suffice.

Lucy Rodriguez, Chief Communications Officer

Maybe I will start out on the imports just quickly. The imports on a year-over-year basis were slightly higher than last year. And I think this really reflects that in the first quarter of this year, we've reduced imports significantly. So we've begun to see those come into play. And maybe with regard to the second question, we do have escalators in place in our contracts. So I think I don't have the exact specific mix; it's primarily in ready-mix, and we can get back to you with further information on that. But we do have escalators in place, and they are working very well.

Nik Lippmann, Analyst

Is it something that affects a material percentage of your cement volumes in the US, say, above one-third?

Lucy Rodriguez, Chief Communications Officer

I mean it's primarily in ready mix rather than cement and cement typically has less contracts to begin with. So I think that it's predominantly on the ready-mix side more than the cement side.

Adrian Rodriguez, Analyst

Thank you, Lucy. Hi everyone. My question is a bit also related to the previous one, but in a different way. What did you imply in terms of margins for the second half for the guidance for the new guidance that you have?

Maher Al-Haffar, CFO

I mean...

Lucy Rodriguez, Chief Communications Officer

Just, I think Adrian, as you know, we don't typically guide to margin. So I think that, that's probably the best answer any of us can give you right now. But I don't know if you have a different question, we're happy to take it. But as you know, we do not normally guide margin.

Adrian Rodriguez, Analyst

Okay. Fine. Fine. Let's see. So I'll take another question then. Yes. Thanks. Thanks. Why the increase in net debt in the quarter when you have positive free cash flow?

Maher Al-Haffar, CFO

Well, I mean, why the increase in net debt, I mean we do have a number of investments that we are making that are below the line sometimes like the acquisitions of Atlantic Minerals. We bought some additional land and reserves in the U.S. In addition to that, we made a small acquisition in Israel. There's a negative impact because of derivatives. There's the coupons on the perpetuals, for instance. So all of that adds up, and that's kind of what gave us a little bit of an increase in net debt. But it's a minor increase. I mean, it's nothing to write home about Adrian.

Adrian Rodriguez, Analyst

Okay. Thank you, Maher.

Lucy Rodriguez, Chief Communications Officer

And we have time for one more question. We're trying to be cognizant of those analysts who have a lot of earnings calls today. And the last question comes from Gordon Lee from BTG Pactual.

Gordon Lee, Analyst

Hi everybody. Thank you very much for the call. I want to extend my congratulations. I have a question similar to Anne's, but from the equity perspective, Fernando. Given the very positive operating outlook and your guidance indicating that you would be around 2.2 times leverage at the end of the year, assuming stable net debt, I was curious about your current thoughts on the timing and the form of returns to shareholders. Do you have any updated insights on that now that we have moved past the first half?

Fernando Gonzalez, CEO

Thanks for the question, Gordon. I think what we've been commenting is that we would like to systematically start paying dividends and – and continue having the option of share buybacks once we achieve investment grade. Now the question is when is it that we're going to be achieving investment grade. And it seems like we are closer to that option. So I think, by early next year, we will know what the situation will be. And we might — let's see how it goes. At this point in time, we don't know, but we might start paying dividends or buying back shares. We cannot disclose the specific way we might be doing it, but we will communicate that timely. Again, the depends on us achieving investment grade or at least to be so close to it. So we might start paying dividends next year. It's not a commitment, it's not a statement. It's just a comment to sort of answer your question in terms of when and how. And whenever we start, we want to start with — as you can imagine, if we are at a leverage ratio of two times, and we have already some commitments with investments in growth and others, we are going to start with not a small, but a moderate type of dividend to be increased to time. That's what I can comment on.

Gordon Lee, Analyst

Perfect. Thank you very much. That's very clear. Thank you.

Lucy Rodriguez, Chief Communications Officer

We appreciate you joining us today for our second quarter webcast and conference call. If you have any additional questions, please feel free to contact Investor Relations, and we look forward to seeing you again on our third-quarter webcast that will take place on October 26. Many thanks.

Operator, Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect the call.