Cementir Holding N.V. (CEM) Earnings Call Transcript
July 27, 2023
Earnings Call Speaker Segments
Good afternoon. This is the [indiscernible] call conference operator. Welcome, and thank you for joining the Cementir Holding First Half 2023 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Marco Maria Bianconi, Head of M&A and Investor Relations; and Mr. Francesco Caltagirone, Chairman and CEO. Please, go ahead.
Thank you, and welcome, everybody, to Cementir Holding 2023 First Half Results Conference Call. My name is Marco Bianconi. I'm here with the Chairman and Chief Executive, Francesco Caltagirone. Good afternoon. I'm going to go through 9 slides presentation deck that you should have received, and we leave the room for questions. So starting with the presentation on Page 2, with the financial highlights for the first half year. Revenues reached EUR 84.7 million, up 1.1% year-over-year. Non-GAAP revenues were EUR 868.2 million, up 5% year-over-year. Cement volumes were down by around 5.5%, mainly due to Denmark, Belgium, the U.S. and Malaysia, partially offset by growth in China, Egypt and Turkey. Ready-mix volumes were also down by 11.3% with the exception of Turkey, where volumes were up. Aggregate volumes were down by 15.3%. EBITDA for the half year reached EUR 200.5 million, up 39.5% year-on-year. Non-GAAP EBITDA was EUR 202.4 million, up 40.9%. It was a higher EBITDA in all regions with the exception of the United States. EBITDA includes nonrecurring income of EUR 7.5 million relating to capital gains on asset sales. Non-GAAP EBITDA, excluding nonrecurring items, is EUR 194.8 million, up 35.7% from the same period of last year. EBIT was also up significantly, 68.4% to EUR 138.5 million. Non-GAAP EBIT was EUR 143.6 million, up 65.4%. Group net profit reached EUR 90.3 million, up 35.6%, whereas non-GAAP net profit was EUR 109.8 million, up 78.9%. Net cash generation was strong. We reached a net cash position of EUR 11 million, an improvement of EUR 90.5 million year-on-year, including $3.2 million of dividend distribution. Moving to the next slide, the #3, with the most important region that Nordic and Bostik accounting for 40% of group EBITDA. You can see that cement volumes declined as domestic demand was affected by unfavorable weather and slowing demand due to higher interest rates, partially compensated by cement supply to some infrastructure projects like [ Fehmarn ]. Lower exports also were due to declines in some markets. Ready-mix aggregates-- and ready mix and aggregate volumes were also down 19% and 27%, respectively. Despite that, the EBITDA increased, thanks to a careful management of energy and distribution costs. Therefore, we return to a pre-COVID profitability level in Denmark. In Norway, ready-mix sales volumes declined by 23%, similarly due to a slowdown of residential and commercial demand. The EBITDA contraction also was due to lower volumes and higher operating costs and also the Norwegian krona depreciated by over 13% versus the euro in the period. In Sweden, ready-mix and aggregate sales volumes were sharply down as a result of residential sector demand slump. EBITDA also was down due to lower volumes and higher operating costs. And on top, Swedish krona depreciated by over 8% versus the euro. Flipping the page to Page #4, Belgium and France, that's the second biggest region accounting for around 20% and of group EBITDA in the period. Here, again, cement volumes declined by 10% due to a generalized demand slowdown and a favorable weather. Ready-mix volumes also were down around 7%, and aggregate volumes were down 14%. EBITDA increased, thanks to tight operating cost control and increasing selling prices. Next page, #5, North America, accounting for 6% of group EBITDA. Here, white cement volumes declined by around 15%, in line with the decline in the residential market, in particular, deliveries to Texas and Florida suffered from a stronger contraction due to competitive pressures from imports and lower demand. EBITDA was down due to lower cement volumes and higher variable cost despite a higher contribution from our concrete product subsidiary. There was also a 1.1% U.S. dollar revaluation versus Europe in the first half. Moving to Asia Pacific, accounting for 6% of EBITDA. Here, you can see that in China, revenue was up 1.5%, with volumes growing 16% and a lower average selling prices. Sales were negatively affected by lockdowns and the Chinese New Year. But in Q2, volumes recovered and were significantly up like-for-like. EBITDA includes EUR 2.5 million of capital gains from asset disposals. Excluding nonrecurring items, EBITDA would have been down 18% year-over-year. We also highlight that the Chinese [indiscernible] depreciated by 5.7% versus the euro in the first half. In Malaysia, the revenue was broadly stable with decreasing volumes, while cement exports were down 12%, driven by a drop in clinker export and a different calendar for shipments. Domestic volumes increased as a result of good recovery in the construction market. EBITDA grew as a result of higher prices and reduced freight costs. The Malaysian [indiscernible] depreciated by around 3.2% versus the euro. Then with Turkey, which accounted for 23% of group half year EBITDA. Here, the revenue increased by 38% with domestic cement volumes up 16%, thanks to significantly higher sales in both Marmara and Eastern Anatolia. Many new projects were started in Istanbul, driven [indiscernible] investments. Cement exports were down 50% because of a higher focus on the more profitable domestic markets. Our ready-mix volumes increased by 2%, whereas aggregates were down 14% due to temporary operational issues. EBITDA reached EUR 34 million, driven by cement prices, more than offsetting production cost increase and currency devaluation. EBITDA includes EUR 5.1 million of capital gains on asset sales, this is a nonrecurring income, excluding which EBITDA would have reached EUR 29 million, up 137.9%. We also highlight that the Turkish lira devaluated by 32.7% versus the euro. The last region Egypt, accounting for 3% of group EBITDA. Here, revenue declined by 5% because of the strong devaluation of the Egyptian pound versus the euro, EPA to 74%. While cement volumes increased by 8% with domestic deliveries being stable and higher exports, particularly to the U.S. EBITDA was higher, thanks to pipe production cost and higher selling prices despite negative effect of the EGP devaluation. The last slide regarding the guidance. As you can see, the guidance is to reach EUR 1.8 billion in 2023 revenues. The EBITDA guidance is being raised from a range of EUR 335 million to EUR 345 million to EUR 365 million that is up over 7% from previous guidance. The net cash position should exceed EUR 200 million, and the CapEx should remain unchanged at around EUR 113 million. With this, I end my short presentation, and I leave the floor to Mr. Caltagirone to answer to your question.
[Operator Instructions] Our first question comes from Gallazzi, Emanuele from Equita.
I have one question about your new guidance. After the very-- let's say, strong [indiscernible] EBITDA, if I look at your guidance for the full year, the implied second half EBITDA is down roughly double digit, 10% to 15%. Can you comment on this and on your assumption for the second half? Is it related to the, let's say, cautious approach to Turkey?
Yes, of course, as you know, with-- 29, you have to take the exchange rate of the last day of the period and apply to the old period. So it is difficult to forecast, let's say, which exchange rates, we will have the 31st of December. And so it is a bit cautious for sure. I think that most of the competitors released good figures like us. But I think that if you see at our revenues, we have increased only 1% that is very due to the very strong headwind about the evaluation of [indiscernible] and the downturn of the Scandinavian market. But if you look at the increase of EBITDA margin and profitability, I think that we are among the best. So the [indiscernible] of our market and our portfolio and also the hedging strategy, and I also want to remember to some of you that in the bad times, somebody asked, why don't you sell Turkey and buy assets in other places. Now Turkey is kicking in with very good results, exactly when Scandinavian market are in the downturn. So from my point of view, from what the results say. I think that we have a well-balanced portfolio. And let's say that if we just -- but this is just a simulation to a sort of rolling 12 months EBITDA the last 6 months of last year and the first 6 months of this year, you arrive above EUR 390 million. This is pure math. And so we want to be cautious because look what happened at just after the election in Turkey in 1 month, the devaluation has been nearly 40%. So we have a war, and we have an inflation and devaluation in Turkey. Besides this, we are very well hedged in the energy price. We are seeing -- we think that we know especially because of the knowledge that we gained in the last 30 years, distributing white cement that the distribution is the-- cost of distribution is something that can hit your balance sheet. And you know that white cement is more complex to distribute the gray cement. And I think that, as I said other times, that this is becoming, especially in Europe, a regulated market where you have your products of mission. So you have your [indiscernible] production. And nobody want to swap a cost of CO2 for, let me say, a margin that usually is 1/3 or 1/4 of the cost of the CO2. So for this reason, you see that any way across all Europe, the price are quite resilient. And I think because of, let's say, a line up of this emission rights that will be received in the next 10 years, year-by-year, the market-- the possibility to produce cement with shrink. And then with [indiscernible], I mean, the border tax adjustment that will come early in '26 in 2 years, this will also limit the import of cement. So what I want to stress is that in the past 2 downturn that we saw after [indiscernible] and then around 2011, '12, where the company went back around EUR 100 million of EBITDA. Now if you see in the last 3 years, our quality are slightly, let me say, diminishing as a total, but the EBITDA compared to 2019 with the same perimeter is nearly the double.
Our next question comes from Bonizzoni, Matteo with Kepler.
I had basically the same question on the [indiscernible]. I would rephrase so you have done EUR 200 million in the first half -- it's not due to volumes. Is that due to -- so this growth is due to the spread between pricing and cost. And what we are just saying now goes in the direction to think that in the second half, pricing could be not so much at risk, but I mean can you elaborate on this point. But if it is the case, why the health should do in the second half below EBITDA compared to the first half million when by seasonality, you typically do 40% of less EBITDA in the first half and 50% or even more in the second half for the simple reason that Q1 is a very small quarter compared to the other. So again, I would say that your new guidance is definitely on the cautious side. But can you little bit elaborate at maybe at least on pricing conditions for the second half and what you are seeing maybe in July have to have 1 more month of labor.
We are seeing that, let's say, what we have seen in the first half is continue. So weakness and the stability in the market in the Scandinavian region is stabilizing in terms of decrease. So it's not accelerating the decrease you can see also on the figure quarter-by-quarter, that is almost the same in the first quarter and the second quarter slides are around about the same. The answer is the same. I mean if the Turkish lira that, as you know, we are forced to, let me say, report in year 29. But normally, as we do every day, we don't keep Lira till the 31st of December and change the last day. So every day we buy and sell raw material results and other things, and we exchange in half currency. So the real EBITDA, I think, is the non-GAAP but this is, I mean, what the international standard says. But if you look at the non-GAAP number that we released is about [indiscernible]? But our non-GAAP net profit, for example, is EUR 20 million above for the first half, the other net profit the year 2019. So let's say that if we continue with this situation [Audio Gap] I'm not so sure that I have a crystal ball to forecast the Turkish lira value in 5 months because let's say, it's difficult. So this is the closure not because we see the market, I think, as I said, and probably you already heard from the other players are stable in terms of price. The Belgium, France region, for sure, is still, let me say supported by the Olympic gains that they will have next year. We -- in Denmark, we are starting to see, let's say, a satiation ability of the market and also some of the big projects that were announced are started to kick in. The worst market is Sweden, where we have, let me say, small part of our revenues. But anyway, as you say, usually, the second half is, let's say, at good as the first one. But we have to be cautious. So you know us from a long time, so I want that is next quarter, we have done another, let me say, miles that we can -- because otherwise, if we reach what you say that this is just the half of the result that we have reached. We already reached the target of 20%, 25% in 1 year. So I was very happy. It's a challenge, but let's say, the possibility today. But I have to give you the flavor that we have and this is the average scenario, not the best and not the worst. I hope that you all understand so that there is, let me say good shot that this number can be better. But today, we already raised 7% that among the peers are one of the highest [indiscernible] increase, considering that most of the other players increase the revenue between 12%, 10% and 30%, and we are more or less flat. Imagine if we go back to, let me say, the increase of the normal market because we share some of the market with the other players where the company can align. No, this year, but let's say, also this is a target. So if this year, we will lower perform, there should be also space with the same perimeter if the quality recovered. But you can do enough. I don't want to, let me say, do, let me say, where the forecast. I'm happy to see that the company is very resilient, which were is too strong, let me say headwinds, and I think that we are well prepared to go through the second half.
Our next question comes from Woerner, Tobias from Stifel Europe.
Just to clarify, the GBP 5.1 million nonrecurring item within the EBITDA, i.e., the EUR 35 million. So if you adjust that would be your purely operating uplift from Turkey. Is that correct?
This is not a revaluation. This is just we sold some assets in China and in Turkey and the sum of both is 7.5%. So part is EUR 5 million. But it's a real sale with real money that we received. And this is within the EUR 35 million of EBITDA of EUR 30.
And just to get a sense of the cash cost in Turkey, should we assume that -- I mean, you're talking about here, cement exports were down 50%, which is a lot. What sort of volume should we assume in tonnage for the overall business on the back of that? You mean the domestic in Turkey yes, the domestic plus exports.
We think that we should have both, I mean, domestic and export that should be above 4 million tonnes.
For the year.
Yes, for the year.
And for the half year, where were we there?
Where at... More or less the half, I mean, because in Turkey, there is not a strong seasonality, but let's say that more or less we are. Yes.
So it sounds like your cash cost is around EUR 65 per tonne, which sounds high for Turkey, I would have assumed it to be lower. Is this really the devaluation and local inflation kicking into the cost base? I mean, I would have assumed Turkey has a cash cost of, let's say, at the higher end, maybe 50 or so maybe I'm not up-to-date.
But there is a lag, especially for electricity. So now today, you are aware that in Europe, the electricity came back to around 120, 150, right? In Turkey, they are around 250. So there are 6 months or less because as it's a different country. So we started -- last year, we were when the market was getting about EUR 300. In Turkey, we were buying electricity at EUR 100. And now, let's say, there is a delay. But at the end, let's say, it's also important that depends also on the stock, which is the cost of the stock that we have, and it's not the actual production, but let's say, it's a good price, let me say, you are produced. And if, let's say, now, for example, the average inflation this year for the first 6 months has been 20% last year, 40%. The government thinks that they can end up at up 35%, we don't believe that they will end up around that number, but above. But anyway, let's say, when you have this kind of inflation, there is a space not every week, but once or twice a month to, let's say, increase the price. And so if you just make, let me say, the calculation at a certain point, it seems that the cost of cement is high, but it depends -- that cement that I produced today, at which price I will sell in a few weeks. And if the inflation is above the devaluation, we've increased the return in euro. I know it sounds worse than difficult. But I mean, at the end, in euro, if you look at Turkey, 2 or 3 years ago, where it was below EUR 10 million and with inflation single-digit, and devaluation not so high. Now it seems that the higher the inflation and the higher is the valuation the best is for the market. But these are -- I already told this last time that even in 2001 to 2004 when we were for 3 years in year 29 for the same reason, we, let me say, recorded a very good results. So I don't think it's the right way to just make at a certain point, the gassier because, let's say, the profitability that today in Turkey is around 20%, that is our, let me say, driver. And last year was probably 10% at the half.
You talked about electricity and with solar energy becoming so competitive, I'd like to get an understanding what the main industry would gain by investing in more remove energy or solar energy here. In other words, when you look at your costs today on an annualized basis, just remind ourselves how much is your electricity cost? And how much could you reduce that by investing in solar across the board?
For sure, from the moment that we are piling up cash, and we don't have, let me say, target as an M&A as I said a few times, our main, let me say, target to invest the money is to lower the cost of energy, the intensity of energy that we use all around our perimeter. If we consider that in 2019, the cost of energy were around EUR 190 million. And this year is around EUR 400 million. You can imagine that, let's say, and the perimeter is the same and the quantity that are more or less the same that I have space and possibility, and there are a return today if you invest in wind and solar power, especially in the Nordics for the wind and solar in the French Belgian region and also in Turkey. We are looking at several projects. Some projects are also co-financed by some states, the country and funds. And also, there are a lot of activity in some, let me say, energy player to share this kind of project because we are a big energy consumer. And so they want, let me say, they can and say, if we build a solar park for you, and you are assured me that you buy for the next 10 to 15 years, the electricity at this fixed price, we will take charge of the investment. So this is -- let me say, we are investigating, which is best from the man that we have cash that if we want to invest any way directly or if you want to go through this kind of, let me say, proposals that are arising every week because, let's say, today, even in Denmark, it seems that to produce energy with solar panel is, let me say, lower in terms of cost than buying from the grid directly. Then there is the issue of the internal intense of both of them. And so you need to balance this any -- I mean, the maximum that you can -- that we think we can use from these renewable energy are around 50% to 60%. 40% still the technology won't give us a battery that can last, let me say, 12 hours during night or during bad weather. Let me say, but 40%, let me say, we still have to, let me say, take from the normal rhythm of marker production. But let's say, our target and in our industrial plan, the team is lower by investing in energy. So to enlarge the platform of every plant where today, which produce and distribute building materials. We can also, as we already proved since, [indiscernible] the last 30 years in Alborg where we sell district heating to near 60% of the population, nearly 100,000 family. So there is the possibility to sell -- to use the energy or to sell the energy through the surroundings. And with this price, I mean, with price above EUR 100 projects that probably 3, 4 years ago with the electricity that you know were flat around EUR 40 per megawatt now are becoming, let me say, profitable or very profitable. So what you say is right. And I think that I am more keen to invest in the next 2 or 3 years in this kind of project, including also carbon capture and [indiscernible] that is, let me say, the mantra of our, let me say, sector, we have to solve this program in the next 10 years. But this is the way we see we can invest the money and to have a good profitability and not to buy, let me say, other heavy asset in cement because ready-mix and aggregates, let me say, are, let me say, lower in terms of Scope 1 emission. And so you can -- let me say, we can continue to invest in both of the [indiscernible], let's say, there are 3 sectors that are, let me say, close to the cement production. But for sure, now we are aiming to lower the cost of the energy for the long-term period.
You pointed to sort of diversification into lower carbon materials. Is that going to feature more strongly going forward as well?
Sorry, can you rephrase the question? What is the...
So the question is Mr. Caltagirone, refers to lower carbon materials with Scope 3, 2 exposure to clinker and others. In other words, are you on top of improving your carbon footprint via investments in tenors also considering investing into other product areas, close product areas or more investing more in these areas.
But one [indiscernible] can cost hundreds of million euro really mix of aggregates are in the range of EUR 10 million, EUR 12 million. So we are investing around our derivative that is already in 18 different countries, also in the distribution because I think that, let's say, until 5 years ago, let's say, if you were able to produce cement that more or less are the same between among the various producers especially the cement. With EUR 1, you have EUR 1 more of profitability. Probably some player understood in the last 2 years that if you are not good at hedging energy, if you are not going to distribute cement, then you can have even EUR 3 lower when you produce, but then if you pay retrace EUR 10 or EUR 100 more and then the direct cost that we have on cement is EUR 550 this edit your balance sheet. And this is the way that we started 3 years ago or 4 years ago to see this, let's say, energy transition. So we need not just because it's good for the environment, but just because it's a list of money, frankly speaking. So this today, there is the possibility to help the environment and to lower the cost and to increase also the quality of cementing in that direction. This is our, let me say, path. And in these casters, there are also investing in ready-mix aggregates and probably some, say, core elements. We don't think to make, let me say, the big job like other players in a very insulation or completely different, let me say, type of material. We don't think -- we think that in the next 5 years, there will be a huge need of cement to change the quality of our life in the city and to lower the emission that every set produced. And so I think that, let's say, important is to produce the cement when the technology will be available with the lower CO2 footprint but when the technology will be available. Now we are just, let me say, trying to work on lowering the direct cost of energy.
[Operator Instructions] Our next question comes from Bruno Permutti with Intesa Sanpaolo.
I saw a question related to China, I was striving in a rebound of the volumes here. So I'd like to understand this, it is something occasional or if it is a trend that could continue in the remaining part of the year. So how do you see the situation? And second question is related to price it -- and it is partly connected with your cautiousness on the guidance in the second half 2023. I was wondering if you see some doing for a price decrease if the volumes will continue to go down in the second half of the year. So if you believe that the current margin level and at the current cost level, the industry could be forced to reduce a little bit the huge price increases that we saw in the last year. And the last question was related to the Turkish lira, if you have the data of the exchange rate that we use in the first half results.
So starting from China, say, I remember that we produce white cement and white cement of our quality. We are the only producer. And so let's say, when we have like a luxury groups when, let's say, the market also downturn luxury continue to overperform. So we have, let me say, we continue to have good numbers in China even if the market, I know for the gray is weak, but we sell a different product. For the exchange rate in cat, you are forced to use not the average of the period, but we have 29 for you to use the exchange rate of the last day of the period. That is probably the 30th of 2020, but I remember should be around 30 compared to '17, '18 Turkish lira of the same period of last year, so nearly 70%, 80% of the valuation. Then sorry, there would [indiscernible]. So about the resilience of the price, let's say, if you see that it's already happening, for example, in Scandinavia, I repeat, we are in a regulated market. So today, if you don't sell, you save the CO2, right? And if the margin that you have is, as I say, the EUR 20, EUR 25, and the Q2 are EUR 90, you are not pushed to say, okay, now I'm going out, I will sell 10% more of cement because I have capacity that the market is going down, it's better to save the CO2, especially because with this, let's say, linear cut of 3% for 10 years, that will begin at a certain point and most of the players are short like as of Q2. And so if I sell in Europe now for the pending less cement, high sales CO2 rights. So for this reason, I think that I cannot put my hands on the fire for, let me say, all the players, but I think that most of the players won't push to lower the price because, let's say, they can save the CO2 that have the profitability that is 3 or 4x higher than the profitability of cement in every single country. This is the same for probably still suffer more import, but aluminum glass, they are more or less -- we are more or lining the same game.
Our next question comes from Grimaldi, Giuseppe with BNP Paribas.
The first one relates to volume development. What is basically your view for the remaining part of the year? Is this start to, let's say, to assume still single-digit to a double-digit decline? Or it's something that should improve quarter-on-quarter, especially if we consider that in the second part of last year, volume was still weak. The second question is on 2022 figures. If I got it correctly, you restated revenues for last -- for H2, H1 2022 last year. If you can give some color on why numbers are different. And the last point is on the M&A, considering you plan to generate still a lot of cash. You have definitely a healthy balance sheet if there is something that is moving on, on the M&A side?
From the restatement, the statement is just because the auditors asked to put the net, let me say, sale of CO2 because we buy CO2 and we sell the CO2 to the customer, let's say, to put on the revenue. We -- in the last year, we didn't do that because we thought that we-- wasn't, let me say, our normal business. So at the end of the year, they ask us-- to everybody, not just for us to put revenues coming from CO2 in the revenue. And so for this reason, we realigned the first half of last year of nearly EUR 20 million. That is just the CO2. So this is just a technical reason because the last period, let me say, let's last year, yes, was the first year when we -- everybody started to adopt the CO2 costs in the invoice. So this is the -- one of the questions. The other was -- we continue to see, as I said, the market weakens, but weakness that is stabilizing in the Nordics. And in most of the other perimeter, let's say, we see the market that should continue with the same pace. So as you see that we are around minus 5% with cement and with the ready mix and aggregates around 10%, 11%. We think that we should continue -- we should end that with this kind, let me say, all level by the end of the year. M&A, as we probably say to the previous question today, we don't want to buy, let me say, big asset because we are not aware of the profitability that you can have in the medium and long term because we are not aware of the technology that we will use to abate the CO2. And so for the time being, we are investing -- or we will invest our cash to lower, but investing in producing energy that we use directly with renewables, both solar energy and wind energy, probably in the next year, industrial plan, you will have some visibility of some projects that are, let me say, not huge, but quite big, quite, let me say, cash absorbing. But on the other hand, the return is that, let me say, we will have the energy at a fixed price that is much lower than the price that we have today. This is the way that we think we are going to invest in the next. Then some small, let me say, opportunistic asset buying, but let me say, in ready mix or in aggregates or in concrete elements because they are less, let me say CO2 exposed.
[Operator Instructions] Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephone. Thank you.
Thank you. Bye, everybody. Bye-bye.
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