Cementir Holding N.V. (CEM) Earnings Call Transcript

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Cementir Holdings Half Year 2020 Financial Results Conference Call. [Operator Instructions] At this time I would like to turn the conference over to Mr. Marco Bianconi, Head of M&A and Investor Relations. Please go ahead, sir.

Thank you. Good afternoon, and good morning, everybody. Welcome to Cementir Holding 2020 First Half Results presentation. Apologies from our Chairman and Chief Executive, Francesco Caltagirone, who cannot attend this presentation for personal impairments. So he sent his apologies and I'm afraid you have to bear with me for the next half hour. I hope to be able to answer all your questions at the end of this presentation. You should have received a presentation deck, which I will then go through quickly and leave the floor to any questions you may have at the end. So starting with Page #2 of the presentation material. You can find the highlights for the half year results. Revenues for the 6 months reached EUR 570.4 million, down 3.6%, mainly due to the COVID-19 impact, mainly in Belgium, France, Malaysia and Norway. Actually, cement volumes for the period were up 6.3%, thanks to a 40% increase in Turkey. Our EBITDA was down 11.2% to EUR 97.8 million, despite a EUR 5.6 million one-off impact from settlements of previous transactions and some equipment disposals. Overall, we recorded a higher EBITDA in the Nordic and Baltic, China and Egypt areas and lower EBITDA in Belgium, U.S.A. and Malaysia. Net financial position reached EUR 280.6 million, up EUR 41 million from the end of last year due to business seasonality. As compared to last 12 months, net financial position declined by EUR 118.5 million. A couple of pages on how we dealt with the COVID-19 pandemic. Following the outbreak, we assigned priority to help and safety of our people and employees on social distancing turnover and smart working as an example, we focused on cash preservation with a particular emphasis on inventory trade receivable cash collection and customer orders. And we took extraordinary measures of cost containment, and we deferred some CapEx as announced during Q1 results, around EUR 20 million, EUR 20.4 million to be precise was the deferred CapEx year-to-date. We utilized some local social contribution and tax deferral schemes to the extent of around EUR 12.8 million, which are clearly a one-off impact, which will be reversed in the coming months. To prevent any liquidity shortage, we drew available existing facilities as this cash was not utilized, we have reimbursed them in the month of July. Page 4, the main impact of COVID-19 on our business. We had 2 plant closures, one in China. From January 24 to February 21 and Malaysia from March 18 to April 17. Other plants in our group have witnessed temporary activities slow down. By region very quickly because we will have details later on. Nordic and Baltic activity levels remain broadly in line with previous year, Belgium and France, we did experience a negative impact from locked down mainly in the month of March and April, with a recovery in the following weeks. In Turkey, we experienced a sharp slowdown during the crisis, followed by a sharp volume rebound afterwards. In the United States, there was a slowdown during the lockdown and the recovery, but a big patch depending on each state. In China, there was a month of lockdown, which caused the severe drop in activity but was followed by rapid recovery. In Malaysia, following a month of lockdown, volumes continue to remain subdued in the domestic market in some of the export markets in Southeast Asia. In Egypt, general volume slow down, but then a strong rebound same as in Turkey. Going quickly through each of our regions. From Page 5, Nordic and Baltic, which as you can see, accounts for around 69% of our EBITDA in the half year. Actually, domestic cement volumes in Denmark were up by 8% due to increased market activity overall and favorable weather conditions. Exports, both white and gray were down, mainly due either to U.S. shipments in whites and COVID-19 impact in gray. RMC volumes increased in line with domestic cement with prices moderately up. EBITDA overall was up 26% in the period, mainly driven by the cement business. Norway was the country that within the Nordics experienced the sharpest decline with RMC volumes down by 15%, mainly due to lower construction activity, oil price trends and COVID-19 effect. The volume contraction was mainly over the quarter April to June. Higher prices, thanks to better product mix. We have also to note a depreciation of the Norwegian krone versus the euro average 6-month rate of about 10%. In Sweden, there was a favorable weather and robust construction market with RMC sales volumes up 5% and prices slightly down due to sales mix. Aggregate volumes were up and prices slightly down. Moving to the -- on Page 6, Belgium and France, which accounts for about 1/4 of our EBITDA in the period. You can see the great cement and clinker volumes were down by about 10%, with a drop of 30% between March and May due to COVID-19. June volumes rebounded by about 7%, with prices up in lower inflation. Also RMC volumes were down about 20%, mainly due to Belgium and France lockdown measures, with June volumes up 9%. Prices were in line with inflation and slightly up in France. Aggregate volumes are down 14%, mainly in France, with prices outpacing inflation, thanks to better products and customer mix. EBITDA overall was down 25.1% to around EUR 23 million. Moving to Page 7. North America. Here, we did experience a drop in white cement sales volume by about 4.7%, mainly due to COVID-19 lockdown measures in April and May. We experienced lower sales in Florida and some delays in relevant projects. Prices were moderately up. EBITDA was down 8.3% to EUR 10.1 million. Moving to Asia Pacific, which in the period accounted for around 8% of our EBITDA. China, we did experience a decline in volume of white cement due to the planned shutdown between January 24 and February 21. Sales presence in local currency rose due to favorable mix, and EBITDA was up 11%, thanks to higher sales prices and lower fuel and electricity costs. In Malaysia, on the other end, white cement domestic sales declined by 40% due to activity restrictions from March 18 to April 17. Average prices in local currency increased, thanks to better customer and product mix. Although export volumes declined by around 20% to delayed clinker shipments to Australia. Overall, EBITDA in Malaysia declined by around 49.6% due to lower volumes and higher fixed costs. Moving on to Page 9. Turkey, here, gray cement volumes increased by around 40%, with domestic sales volumes up 25%, driven by infrastructure projects, near Elazig and new projects in Trakya and Kars. Also exports nearly doubled, thanks to new market opportunities. Downward price pressure, though, was very severe due to price competition. RMC volumes increased by about 11%, with local currency prices slightly down. We have to notice also a 12% devaluation of the Turkish lira versus the average euro exchange rate over the last 6 months. So price tension and higher input costs determined a minus EUR 8.8 million of EBITDA in Turkey, which includes a EUR 3.1 million one-off cost for some waste equipment to keep in disposal. In Egypt, turning to Page 10, which accounted for around 4% of group EBITDA in the first half year. Domestic cement volumes declined by around 10% due to government curfew. There was a significant recovery afterwards with domestic presence in line with inflation. While export volumes increased by around 13%, and EBITDA increased by around 17% due to higher volumes and lower fuel costs. Despite increased maintenance costs and also thanks to an 11% devaluation of the Egyptian pound versus the euro. Moving on to Italy. This is a residual part of our business. Clearly, we have a revenue increase, thanks to higher trading volumes at Spartan Hive, our trading company, which recorded a revenue increase of around 75%. But EBITDA dropped to minus EUR 5.9 million due to both EUR 2.5 million one-off settlement of previous transaction and some intragroup reorganization costs. On Page 12, you have the consolidated income statement, which you have received also on the press release. And on Page 13, you have the full year guidance. We promised to release some further details about our outlook. We expect full year revenues of around EUR 1.2 billion, an EBITDA between EUR 230 million, EUR 240 million, net financial position around EUR 180 million and a CapEx of around EUR 60 million. Clearly, these numbers -- this forward-looking indication does not include any new outbreak of COVID-19 pandemic in the coming months, and this clearly reflects the point of view of the company management and does not represent any guarantee or anything else. So this is basically the presentation, and then I will turn over to any questions you may have.

[Operator Instructions] The first question is from Emanuele Gallazzi with Equita.

I have a couple of questions. The first one is on the outlook. I was wondering if you could share with us your assumption or view on the trends in your main markets, so Nordic, Belgium and United States. And the second one is on Turkey. Can you give us some color about the current situation in the market and on your expectation for the second part of the year?

Thank you, Emmanuel. Yes, sure. The first question on the outlook. So going in the pecking order. We think that our exposure to the Nordic and Baltic region is clearly -- has brought a set of benefits. We see good trading overall in the region. And as you can see from the half year results. So we think that with the exception of Norway, where clearly, there has been an impact due to the oil price trends, we expect a second half of the year which is pretty much in line with the previous year. We don't expect a significant growth because the second half of last year was already a good half year. But we don't expect any meaningful changes in the trends that we've experienced during the first half. So I would say a decent outlook for the region. We expect, therefore, a continued good trading in the area. With some differences between Denmark, Norway and Sweden, but pretty much along the lines of the first half. Moving to Belgium, and France, clearly, this region has suffered more during the first half for the reasons you know very well. But also, we have to say that since the operations resumed, it was a good recovery. So we expect this region to continue to do well in the coming months. Clearly, the lost ground in the first half will be difficult to recover completely. But we think that things seem to be looking up in this area in terms of trading. North America, it's a bit of a different TAF because clearly, the country is still not completely out of the woods in terms of different states. We have witnessed some weak pockets, especially in states like Florida and in states in the southern belt, where we are clearly exposed, and we have some operations. So I mean, overall, we expect the U.S. clearly to recover and improve the results, but there will be in the second half, somewhat weaker for the whole year compared to last year. So there will be a recovery. We expect the recovery to occur, but still a bit touchy depending on each state. Then moving on the other regions. We see the -- actually China, the first one, which entered into trouble for the reasons we know very well, but it's also been the first to exit. So we think that there -- actually, the second half looks pretty well underpinned. Malaysia is still a bit more behind because it has a portion where it exports to the domestic market that is slightly recovering. And also it exports a big portion of its production into Australia and Southeast Asia. And here, the outlook is a bit less sanguine. And I would say that Malaysia is a bit behind China in terms of recovery. So there, we expect a bit of weaker rebound, but still an improvement in the second half of the year. As far as Turkey, clearly, this is a bit of a wildcard of late for a number of reasons. I mean, clearly, competition, as we mentioned, still is fierce, is very strong. But I have to say that we have witnessed a pretty strong activity and rebound in trading. In some area, we even have shortage of products. So I think volume-wise, we do expect that the loss, which, excluding the nonrecurring items, was recorded in the first half to be partially recovered in the second half so still, we're not expecting a profit and EBITDA in the black for the year, but we expect this negative EBITDA for the half year to be somewhat reduced due to better trading in the second half of the year. So clearly, this is a bit subject to what will happen in the market, but we see signals of strong recovery across the country. The problem with Turkey sometimes is a bit the pricing, which tends to be quite different across the markets. In terms of completing this round up on the different regions. Egypt is well on track to recover. And we expect, therefore, a good second half. So it should be trading quite well because most of its products are exported and the domestic market is doing relatively well. This is pretty much the major areas.

The next question is from Bruno Permutti with Banca IMI.

I have 2 questions. The first one concerns the guidance for the EBITDA. I've seen that you had more or less EUR 5.5 million, EUR 5.6 million of nonrecurring costs in the first half of the year. So I want to understand if the guidance is for recurring EBITDA or stated or reported EBITDA? And what is the -- if you already had or if you see that other nonrecurring costs are possible in the second half of the year. And always on the EBITDA, I was looking at the outlook for the second half of the year, it seems to be a little bit lower than in the second half of 2019, so I -- yes, I was wondering if this is mainly attributable to U.S., Malaysia and Turkey. So if you see lower results from these countries and a substantial stability or improvement in the other geographical areas. So I wanted to understand -- because if I look at the first half results are quite strong compared to the first half of 2019, considering the exceptional impact of competition. So I would like to understand if you see an additional impact of COVID-19, so a gradual improvement? Or if you see that some countries are structurally giving a lower-than-expected profitability. Sorry, for this, it was a little bit long. But the last question was related to the CapEx. So I would like to understand if the original CapEx plan will be -- so I mean the green CapEx plan will be delayed. And if you can give us time horizon for these investments to take place, considering the reduction for 2020.

Thank you, Bruno, for your questions. So try to answer them in order. So the first one is that the guidance is provided on a full EBITDA basis. So taking into account the charges that -- the EUR 5.6 million charges that we've highlighted as a one-off. So it's not on a nonrecurring basis. It's fully be down. And in terms of the outlook for second half and the expectations. I mean, I think what we said, and you can see on Page 13 of our presentation deck we are giving this EUR 230 million, EUR 240 million, so a range because we need to leave a bit of a buffer to be able to provide a credible range it clearly does not take into account a second leg, let's call it, of COVID-19 related crisis. So as you can see from the disclosure, underneath the slide. We -- this expectation, this guidance does not include new outbreaks. So clearly, if there is going to be a further closure a further lockdown, obviously, this is not included in our figures. I mean, I think there are a couple of wildcards in your forecast here that are the performance of Turkey, that clearly is -- I mean, a bit more difficult to predict, although all signals from the market, at least as of today, point to the direction of quite a strong trading regime. We have to see how much we can then translate into profits, but it seems a strong market activity at the moment. And we do not include, therefore, in this, say, EBITDA guidance range, any particular further one-off nonrecurring cost, bearing in mind that clearly, there are a number of question marks in the portfolio that is difficult to predict at this difficult juncture. So we have withdrawn the guidance last quarter. We feel more comfortable to provide you with some elements today, but I'm sure you understand that those of caution is also necessary at this current juncture for a number of reasons. So we think this range is achievable. And in the end, the biggest profit contributor for us that accounts for over 60% of EBITDA, which is the Nordic region should post results that are pretty much in line with -- expected to be not significantly different from last year. So this was the second question. As far as CapEx, this is a good question. I mean, clearly, the CapEx of EUR 60 million, we clearly said that within the measures of cost and cash containment, we are clearly committed to postpone and defer some investments, as you may understand. But having said that, we are not backing out of the commitment of reaching what we've said that we would commit to invest the EUR 100 million in green CapEx and all our commitments vis-à-vis investments in new technologies and in environmental are still -- everything is in place. What can happen is that this special juncture would determine just a slight delay of the -- of some projects, which may go slightly beyond the 2 year, 2.5-year time frame we set ourselves as a target. But absolutely, all objectives of the EUR 100 million CapEx, et cetera, are in place. This year, also to preserve a certain trajectory in terms of cash flow generation, debt reduction and all the likes, we have implemented a number of CapEx restrictions, which would determine a reduction in the expected CapEx, which as you may recall from previous presentation, we were expecting to spend around EUR 86 million for the year. So clearly, we are reducing this amount to around EUR 60 million. But again, this is just due to, I would say, a certain degree of caution in spending our cash flow, but does not mean that we will back out from the commitments we have made as far as green CapEx and new investments and our industrial plan.

The next question is from Tobias Woerner with MainFirst.

Marco, 2 or 3 questions, if I may. Number one, just remind us of your total energy bill for 2019 and how you see that developing for 2020? Secondly, your average price development in the first half and maybe you have that handy and could provide that for us. And then just lastly, with regard to some of the P&L items, the financial charges, whether you could give us some guidance there on the back of what we've seen in the first half. And also the tax rate, please.

Yes. Thank you for the question. I would like to answer them in order. Actually, I will start with the last, and then will you remind me of the others, if I forget? Okay. In terms of tax rate, we said that for the year, the like working assumption is around 25%. We did record a slightly higher tax rate in the first half of the year. And this was due to some exceptional nontax deductible figures. So I think this is a sort of a one-off, but we still stick to the 25% tax rates as a working assumption. So this is the tax rate. Then -- sorry, the other thing, can you remind me the other questions?