Vicat S.A. (VCT) Earnings Call Transcript

Hello, and welcome to the Vicat Q3 Sales 2023 Conference Call. My name is Jess, and I'll be your coordinator for today's event. Please note, this call is being recorded. [Operator Instructions] I will now hand over to your host, Hugues Chomel, Deputy CEO and CFO of Vicat Group to begin today's call. Thank you.

Good afternoon, ladies and gentlemen. I am Hugues Chomel, Deputy CEO and Chief Financial Officer of Vicat Group. With me today is Pierre Pedrosa, our new Director of Financial Communication and Investor Relations. I will now be presenting to you our 2023, 9 months sales figures. Before starting the presentation, please have a look at Slide 2, where you can read our disclaimer regarding the forward-looking statements that this presentation may contain. On Slide 3, our presentation will be divided into the following 5 topics. So let's begin with our highlights on Slide 4. The first key point is the strong year-to-date sales growth recorded by Vicat over the first 9 months of 2023, almost plus 10%. The progression was driven by increases in pricing throughout all markets and especially solid revenue growth in emerging markets. Another main highlight was the success of the ongoing ramp-up of our Ragland plant in Alabama that generated strong volume and revenue growth in the U.S. During the last quarter, we also achieved a refinancing that increased the group debt, liquidity and maturity. It's the Group first sustainability linked loan related to the Group 2030 decarbonation targets. And most importantly, thanks to this strong Q3 performance, we've updated our guidance with expectation for 2023 EBITDA now set to at least EUR 700 million. Moving to Slide 5. You have the isolated Q3 numbers that show 11.2% sales growth on a reported basis. Over the quarter, all regions posted sales growth, both in reported and like-for-like basis. 18% of Group sales are now generated in the U.S., a number we expect to see arise further in line with the ramp-up in Ragland plant. Moving to Slide 6. You have the regional breakdown of our 9 months sales figures. To note, the remarkable 20% like-for-like growth year-to-date across all regions. Let's now turn to Slide 7, where you have the revenue bridge for the first 9 months of the year. The volume effect is contributing positively at EUR 80 million to this evolution, that's 3% of year-to-date Group sales. You can clearly see the strong impact of pricing increases that totaled EUR 462 million across the various markets. These evolutions enabled the group to almost offset the cumulative cost inflation over the past 2 years. Lastly, the Group was hit by an unfavorable currency effect of minus EUR 278 million, chiefly arising from the depreciation in the Turkish Lira and Egyptian Pound against the Euro. Starting on Slide 8. We present our performance by region, beginning with France. Here, revenue is EUR 930 million for the first 9-month period, and sales grew 6% on a like-for-like basis in Q3. Pricing has been strong throughout the year and has partly offset the cumulative impact of cost inflation. Cement volume showed resilience even as Q3 saw a deterioration. Decline in Concrete & Aggregates is essentially due to the slowdown in residential and road construction. However, contract wins in railway infrastructures will be supporting both the Cement and Concrete & Aggregate business going forward. On Slide 9, you have the focus on Europe. In Switzerland, too, strong pricing throughout the year helped offset the cumulative impact of cost inflation. Slight decline in Cement volume was due to the slowdown in residential and public works, while the decline in Concrete & Aggregates volumes was offset by price hikes. On Slide 10, you have here pictures that illustrate 2 milestone infrastructure contract wins we recorded this quarter in France with the TELT and in Switzerland with the CFF, the national railway operator. Going forward, both will contribute to offsetting the slowdown in residential activity we are seeing in these markets. Moving to Slide 11 with our performance in the Americas. I'll begin with the U.S. which represents almost 1/5 of our consolidated Group sales this quarter. In this country, growth was close to 20% on a like-for-like basis in Q3 as the Ragland ramp-up accelerated. Despite volume weakness in California, new price hikes were introduced in both regions over the quarter. In Brazil, year-on-year Cement revenues was lower in Q3, even if the business improved when compared with the first 6 months of the year. Price also held up well. On Slide 12, we've laid out the evolution in sales of our Ragland plant, closed with a gradual ramp-up in Ragland's utilization rate. Year-to-date volume growth stands at plus 75%, and we expect nominal capacity to be reached by year-end. 2024 should be our first full year of production at nominal capacity, generating further top line growth. In addition, it will be coupled to an improvement in our cost base that will positively impact our bottom line performance. On Slide 13, you have our performance in Asia. Beginning with India, where the market remained dynamic on the back of continued infrastructure support from the government and pre-election spending. The Group also recorded strong Cement volume growth in Q3, as we leveraged a decrease in cash costs. In Kazakhstan, revenue recovered in Q3 after H1 activity was hampered by logistical issues. Prices were stable in Q3. On Slide 14, you have our performance in the Mediterranean. In Turkey, we have an environment remains marked by hyperinflation and strong depreciation of the Turkish Lira over the period. Cement growth was strong in Q3 with earthquake incremental demand and pre-election spending, fueling the construction sector. Price grew strongly, offsetting cost inflation. In Egypt, in the context of lower volumes, prices recorded sharp increase over Q3, activity was supported during the quarter by clinker export opportunity. Turning to Slide 15 regarding Africa. In Senegal, production is expected to remain constrained in Cement until the new startups in 2024. Prices rose in the third quarter owing to the September '22 rise in regulated prices. In Aggregates volume continued to be driven by public work projects in a positive pricing environment. In Mali, recovery was strong, benefiting from a better macroeconomic environment. On Slide 16, a word on our recent refinancing. Vicat has successfully refinanced EUR 880 million in lending facilities, increasing its liquidity and extending the maturity of its debt. Thanks to this refinancing, the Group has improved its liquidity by EUR 90 million and extended the average maturity of its debt by 1 year. These new lines in sustainability-linked loan format are aligned with Vicat Group 2030 decarbonation objectives. Following this refinancing, almost 1/3 of the Group's gross debt now qualify as Green Finance via SLLs or green loans. Finally, on Slide 17. You have updated guidance for 2023. The Group expects to record significant sales growth and now expect its EBITDA to amount to at least EUR 700 million. We will continue to ensure discipline in our capital allocation as we commit to no further strategic growth CapEx projects until our leverage ratio is below 2. Strong increase in profitability, the strict control of working capital requirement and reduction in capital expenditures will pave the way for a decrease in Group net debt from this year onwards. Thank you for your attention. We may now move to questions. So Jess?

[Operator Instructions] The first question comes from the line of Ebrahim Homani from CIC.

I have 3 questions, if I may. The first one is about the cash flow generation and how it benefited from a lower working capital. Is it the same in the Q3? I know that you don't disclose the numbers, but maybe to have a flavor. My second question is about the volume contribution of Ragland in the Q3. And then my last question is about your leverage. Could we expect leverage pillars and 2x in 2023 regarding EBITDA guidance? And what about the cost of your new refinancing.

Thank you for your questions, although the line was not very clear. Well, as expected, we do see some working capital reduction coming with orientation of energy inflation. Nevertheless, as you have seen, we are having a strong top line progression, but comes with its working capital requirement as well. But we do expect to see some improvement in working capital this year. On the volume contribution of Ragland, you have surely noted, that we have specified the year-to-date contribution has been plus 75% in revenues. Large part of it is -- most part of it is volume. And you surely noted, we have provided a graph presenting the ramp-up of Ragland. Regarding the leverage ratio, or short-term -- or first -- previous indication was we don't want to commit to new strategic growth CapEx until it's below 2. I mean it is possible we reach to -- at the end. It is not guaranteed with the current guidance, but will mostly depend on the December activity, which is mostly depending of weather in the Northern Hemisphere. So difficult to tell.

And the last question about the cost of your refinancing?

Okay. These lines are liquidity line. So it's -- plus the margin. And it is very slightly more expensive than the previous one at the level we just has been competitive.

The next question that comes from the line of Yves Bromehead from Societe Generale.

My first one is I just wanted to circle back to France. You flagged in Q3 that you're now seeing Cement volumes declining, I think, in H1, it's still relatively resilient. And I think you mentioned in the presentation that you see a slowdown in road construction impact in Concrete & Aggregates. So I just wanted to understand, first, what is the main driver of the sequential decline here in Q3? And what's the outlook for road construction in France? And my second question is on Africa. Can you give us maybe a timing of the ramp-up of the plant in Senegal?

Thanks for your questions. Yes, in France, we have indeed had quite resilient Cement volumes early into the summer, we see some decline now since it is mostly a timing difference with what we have witnessed for Concrete. It is mostly a difference of exposure to the different segments. As you know, ready-mix Concrete is more directly exposed to building construction where there is always a significant part of Cement that goes into infra which has been more resilient and on top of that, that is very much regionally driven. So in our view, there's nothing very different between the 2 segments, but timing and region-wise. And while the slowdown in residential is a very documented and well-known trend that we have all observed for quite some time now. Regarding Senegal, we do expect working to start up in the second half of the year. We do not expect to have any significant contribution next year. We see this project as being a growth driver of profitability for '25 and '26.

Sorry, the slowdown, I was referring to the road slowdown that you put in...