Buzzi S.p.A. (BZU) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Buzzi Unicem Full Year 2019 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Pietro Buzzi, Managing Director of Buzzi Unicem. Mr. Buzzi, you have the floor.

Hello. Good afternoon to everyone, and welcome to our conference call. I will try to give you the full year results, especially some figures and some details that have not been disclosed previously and then later on, leave the floor open to you for all your questions, both on the full year results and maybe even more interestingly, on the current trading conditions. So if we look at the year 2019, I think we can be quite happy with the outcome. Difficult to compare maybe with years like before the demand prices or the scope and the accounting principle was a little different, including the scope of consolidation of Mexico, but for sure, we have achieved results that are among the best, let's say, ever achieved by the company. And this was the combination, as we tried to explain in the press, of a very good trading condition everywhere, meaning volume increasing, firm pricing, sometimes also increasing pricing level and a favorable foreign exchange rate. Cost inflation, not particularly mild, but anyway, somehow fully offset by the volume and price trend. So the volume trend was already disclosed at the beginning of February. We had a positive 4% in terms of cement sales in terms with, let's say, favorable variance almost everywhere, except for some minor declines in countries that are already working at full capacity like Czech and Poland and a flatter trend in Luxembourg. Everywhere else, the volumes trended upward, particularly well in U.S., a very strong second semester. Good trend in Italy and Germany partly helped, let's say, by the changes of consolidation. And besides, let's say, Czech and Poland, as I said, flat, but it's less stronger down in Ukraine, and also, good performance in Russia. If you look outside the scope of consolidation, so the joint ventures, let's say, the important one in Mexico was actually the -- probably the only one country showing some, let's call it, weak trading condition, with a decline in volume of about 7%. Brazil, in terms of volume, performed better, was also an easy comparison base. Due to the factors in 2018, 1 month of shipment was practically unavailable due to transportation strikes. If you look at the ready-mix volumes, a similar trend, even though it's always more difficult or let's say, more volatile with the trend of ready-mix because it can refer like it did to some major jobs that have been -- we've been supplying or maybe trying to help, they were not immediately replaced by another job of the same size. So we have a very strong performance in the U.S. This is a focus coming mainly from the Texas, let's say, area, where most of our ready-mix is, so our credit in ready-mix in the U.S. is basically in Texas, so more than 16% up. And the rest, flat or slightly negative, again, in Czech Republic and in the Netherlands, where we had big job sites coming to an end or closer to completion. The -- yes, just in terms of volume trend. In terms of product development, again, all countries performed with a positive sign. Talking in local currency, we had a very significant improvement in Poland, again, approaching full capacity, also good track development in Czechia, good capacity basically, and also, in Ukraine, but this is, of course, in local currency, was somehow influenced by the local inflation rate which is still fairly high. Russia, also price development, about 4%, 5% up. Firm pricing in the U.S., no major changes there in terms of net debt plan, let's say, less than 1% up, with again some differences among the regional areas. So we have regions in the U.S. were, actually, they're really unavailable or there was no possibility to include them. And other, like Texas, for example, particularly, some areas, Central Texas, where the price has trended up. And again, this was quite widespread across our scope of consolidation, following also some cost increases that we had to face in an area like the U.S., mainly labor and services, which is very tight, let's say, associated with a strong GDP performance and full employment. And meanwhile, in Europe, particularly the ETS, let's say, country has to bear additional costs related to CO2 rights, and this was mostly true for public for Germany. And any country that's had more foundries, like Ukraine and Russia, strong increases in the fuel and then in power costs. In general, if you look at the energy cost, sugar, as a whole, like if you look within the group, it was not higher. The amount spent for fuel cost was not greater than last year, instead, it was greater for electrical power. But when we compare that -- the weight of the energy deal on our revenues, it did not really change or was trending somewhat lower due to the stronger, let's say, turnover. In FX changes, as I said at the beginning, also favorable basically everywhere. The dollar, 5% up. The ruble, 2%. The Ukrainian currency, also almost 10% stronger this year on average. Flat development for the exchange rate in Czech and Poland, no big changes there. And a stronger also Mexican peso, which was helping somehow the translation of the results which were unfortunately declining and instead, a loss of 2.5% for the Brazilian real. The turnover, net sales figure was disclosed already at the beginning of February, so no changes there. We are up about 12% in the reported sales figures, with the ForEx favorable change of EUR 81 million and also favorable scope change of EUR 20 million. This comes from the Italian business and the German business. The Italian business -- the scope in the Italian business came from the acquisition, let's say, effective July, of the 3 plants, let's say, 1 full cycle, 2 running plants from HeidelbergCement in Central and Northwestern Italy. And we have also another EUR 10 million scope change in Germany from the previous year because the Seibel & Söhne acquisition was consolidated effective May 1, 2018. The Mexican turnover declined by about 5% in euro, but it was actually almost a 10% decline in local currency. The Brazilian turnover improved 1 -- basically 1%, flat in euro and instead was 4% up in local currency. But again, these figures were already available. Going to the operating cash flow and EBITDA by country. This was disclosed yesterday. We noticed also in this figure, a favorable change in any country where we operate, with only the exception, one exception of Luxembourg and the Netherlands, which were flat against last year. In absolute terms, the main improvements are coming, first of all, from the U.S., a very strong, let's say, performance there, with about EUR 60 million up in the reported figures. Of course, here, the reported figures for 2019 include the impact of IFRS 16 leading, which is favorable, let's say, in any country, so the difference is a little biased, let's say, upwards. But anyway, in the U.S., performance was very strong. In absolute terms, also Italy performed very well because we moved from basically flat or minus EUR 2 million EBITDA in 2018, EUR 43 million positive in 2019. The EUR 43 million positive of Italy is worth to mention. To recall, that includes some CO2 rights sales, intercompany. So out of this EUR 43 million, almost EUR 24 million are coming from CO2 intercompany sales to Germany, Luxembourg, the Netherlands, Czechia, Poland, et cetera. But anyway, it's evidence, let's say, a better environment for the Italian business. Also, it just performed pretty well, almost EUR 20 million up in absolute terms. And we had a strong rebound in Ukraine. You remember that 2018 was perhaps -- been particularly weak and a little bit on there, with EUR 14 million improvement, also with the help of a stronger currency as we said before. Russia performing well too, with EUR 7 million up from EUR 50 million, to EUR 57 million. In total, we are EUR 728 million. Again, the reported figure is EUR 704 million, the recurring, and the main, let's say, nonrecurring item is the adoption of IFRS 16 for 20 -- approximately EUR 28 million. And then we have some other minor items, restructuring cost negative of EUR 4 million in 2019 in Italy mainly and in part, in Germany, EUR 3.6 million in Italy and EUR 0.4 million in Germany. Looking at the joint ventures. Mexico was down about EUR 36 million, EUR 37 million. But unfortunately, more in local currency due to the stronger peso as we mentioned before. Brazil is -- had a negative variance in the reported figure of about EUR 8 million, but last year, this was a positive nonrecurring item of EUR 11 million. So actually, the reported figure, even if it's not, let's say, up to now, particularly being still in a difficult market environment, the recurring figure is better than the previous year. In terms of contribution to our, let's say, overall consolidated figures, you see that the weight of the U.S. will continue to be very significant, around 56% -- 55% to 56%. Last year, it was slightly greater, also because, in the meantime, we had Italy fortunately moving from a negative to a positive contribution to the overall operating cash flow. Eastern Europe also improved -- will remain basically a 22% contribution, and Germany and Central Europe, let's say, slightly down. They represent, this year, 17% of the EBITDA versus 19% in 2018. The bridge of the EBITDA from reported figures, again from, in fact, EUR 577 million to EUR 728 million, tell us that the volume and then price impact was about 200 -- of the EUR 230 million positive of which, volume is EUR 102 million, EUR 103 million. And then variable cost fairly okay, considering the stronger level of activity because of EUR 110 million variance, with significant increases in raw material and logistic transportation, but moderating increases, for example, in the case of fuel, as I mentioned before, no increases. So for sure, moderate increase for power. Fixed cost, considering also the, let's say, overall, a greater level of activity, I think, pretty much under control. No big changes in maintenance. Some changes in staff, labor costs, as I mentioned before, 3.4% increase in labor cost in most of the countries, in most of the markets, which means about EUR 32 million variance for fixed cost. And -- sorry, and the rest, no other major changes. The effects -- positive effects on EBITDA amounts to EUR 24 million, and again, only EUR 28 million impact from IFRS 16 adoption. If we look at the, let's say, lower portion of the income statement, well, the operating profit is not really affected by IFRS 16. The adoption is almost neutral at the operating profit level. So we have improvement there of EUR 116 million, from EUR 352 million to EUR 468 million. And also, as let's say, operating profitability on sales, we are moving up more than 200 basis points, from 12.2% to 14.5%. The lower part of the income statement is a little weaker versus last year because we had less contribution from earnings, I think, the earnings of the associates, and particularly, as I said, the Mexican joint venture, which had been not as strong as usual, even though its results continued to be very positive, let's say, and we have higher finance -- net finance cost of EUR 58 million. Last year, it was at EUR 24 million, almost EUR 25 million positive. This is due to the so-called noncash -- nonmonetary items that fall within this category of cost, particularly unrealized, let's say, foreign -- ForEx gains or losses. Derivative valuation still has an increase and decrease in the year related to the equity, let's say, convertible cash -- sorry, cash settlement option associated with the convertible bond, which had a certain value at the beginning of the year. And then it was exercised during the year, and so this is also being a negative. If you look actually at the pure net interest expense on interest-bearing loans, we had an improvement of about EUR 18 million, including also the interest income. So the difference between interest expense and interest income in '19 was lower than 2018 by EUR 16 million approximately. Our cost of gross debt, let's say, year-end, so the outstanding debt -- financial indebtedness is less than 2% currently, it was slightly greater than 2% at the end of 2019. Looking at the cash flow statement on the consolidated cash flow statement, we had a very strong, let's say, cash generated from operation versus last year due to also certain control and improvement in working capital. So we moved from EUR 450 million to EUR 691 million. And also, after, let's say, the following intermediate results, the net cash from operating activities improved significantly following a lower interest payment. As I mentioned before, that this is cash before it was accrued interest payment, but also the cash, let's say, outflow before the interest went down from EUR 45 million last year to EUR 32 million in 2019. Income tax payments were slightly higher due to the greater flexible income coming mainly from the U.S., Italy and Germany, countries where also the average tax rate is greater than, for example, Eastern Europe. And so our net cash operating activities were represented in 2019, about 18% of sales versus less than 12% in the previous year. Also, there, you see the very strong, let's say, cash generation. Capital expenditure, somewhat lower than last year, including also equity or strategic investments, or let's say, expansion investment last year, recall that we had the outflow associated with the Brazil equity investment, the entrance in the Brazilian market. This year, we did have some special projects, but not as important. So we include here EUR 82 million equity investment associated with the purchase of the cement plant in Italy, which I mentioned before. Then there's a step-up in the net financial position at the beginning of the year with the IFRS 16 adoption. It's about EUR 94 million. Then the repayment of the convertible bond, since we have been purchasing shares already in 2018, was represented actually at partial, from an accounting standpoint, improvement of the net financial position. Dividends paid were very similar to the previous year. We received similar also in -- cash in from associates in terms of dividend. There was less disposal of fixed asset investment, with EUR 45 million in 2019, EUR 12 million received. And interest received was very similar. So at the end, the change in net debt, including the step-up coming from the IFRS 16 adoption was a favorable EUR 323 million, which is a very significant amount for 1 year of [indiscernible] net debt, came down from EUR 890 million to EUR 568 million, let's say, after EUR 94 million additional, which was not included at the beginning of the year. Another important point, particularly today, and in the coming, let's say, month, is the debt maturity profile, which is showing, let's say, a -- I would call it, a favorable -- it's giving us some even greater confidence on the soundness of our financial position because we -- in 2020, we have principal repayments of EUR 26 million, let's say, only. There is no principal repayment during 2021, and there will be EUR 150 million of principal repayment in 2022. Then the bigger -- or the biggest chunk of our, let's say, debt maturities will be coming due in 2023 maturity of the outstanding eurobond of EUR 500 million. But we do have 3 years of very low or reduced, let's say, principal repayments. I think we can move to your Q&A session. I hope not to have missed or left behind anything significant. But again, you can address your question both on the, let's say, last year results and the current trading. So I would kindly ask the operator to open the Q&A questions?

[Operator Instructions] The first question is from Elodie Rall with JPMorgan.

So I'll start on cash, if I may, and your capital allocation thinking for this year. As on the one hand, you have low amount of debt. That's very clear. And you have gone and confirmed the 2019 dividend. So how comfortable are you on this one and 2020 as well? And on the other hand, what we've seen, that you have renewed your buyback program, you might actually start that as soon as now. So does it mean you're contemplating, more seriously, buybacks now given the lower share price? Or how do you think about that? Don't you think that at this point of time, it would be maybe safer to protect the balance sheet and the cash? And so that's my first question. And on the second question, if you could talk a bit more about the volume declines that we've seen currently over the last 2 weeks and how this has progressed, which -- what is the percentage of the decline, maybe per region, if you have a little bit of color there, if you could give us a little bit of more color on what you see. I'm not sure the differences between Western Europe, Eastern Europe, the U.S., if you have a bit more data.

Yes. Sure. Well, yes, of course, the preservation of cash is -- even if our position is strong, is the main goal. So we have to make sure that, of course, we can face any kind of potential, let's say, disruption without incurring -- getting into any trouble. On the other hand, it's true that today, I think both if you look at the results of 2019 and also even in a very difficult situation, which I think we would face with everything in 2020, we think that, overall, what has been decided by the Board today, both in terms of dividend and opening of the already approved, let's say, share buyback program, it's not this kind of statement and would allow us to go, we think, prices in a safer way. In terms of the buyback program, we don't have to rush. In a sense, the idea is to somehow give a sign, I think, to the market that, let's say, the company again is comfortable about its financial position and see the possibility to invest some money in itself for future uses because at the end, if you have some of your shares in the portfolio, this can be very useful to model for other reasons, other strategic reasons. I did not mention it before, but I think everybody or most of you are aware, that, that also we could be, I mean, winning directly, but the so-called Kosmos disposal, Kosmos Cement disposal, was completed, executed at the close after year-end and particularly, at the beginning of March this year. As we showed in press, you can read about it. And there was already a significant distribution of cash additional to what we had at the end of last year. It's about [ maybe less ] again before the end of March. And this is available. Ramp up can be considered available for, let's say, the buyback program. We would focus again strongly this year on the -- on how the situation develops because it is really changing -- and I will give you some color, changing quickly, and to the worst, it's not changing to the better. So this is clear. But there are still some significant, let's say, regional differences that we don't know. It's really difficult to tell. Nobody knows whether countries like the U.S. will come to a complete production stop like we have right now in Italy or not and for how long also the Italian production stop is going to last. So in terms of, again, volume declines, it depends very much from region market to market. After the last governmental decision in Italy, we are not allowed to produce anymore. For the moment, the deadline is set at April 3 for potential reopening, but I don't know really. It may last longer or it may finish by April 3. So when you are -- we are not allowed to produce and not even allowed to sell. So our plants are currently closed, with one exception, which is the plant in the northwest of Italy because this plant is somehow linked to the so-called supply and production chain of the waste as the right fuel, and particularly, this plant is burning its fuel from household waste, so it would create a problem for the, let's say, waste treatment not to be able to dispose of that through the, let's say, the cement plant. And so it's open. But -- it's open, but at the same time, the market does not exist, used until the inventory will be full. But at a certain point, if there's no reopening, let's say, of the economy, these plants will have to shut down. So the situation is, by far, the worst. I think we will see this -- not, so basically, I don't know. Again, it depends on how long it's going to last. But in the meantime, from when we stopped until the reopening, basically, we could say I don't know, 10% or 20% maximum of what used to be the normal shipment, probably even less. We have not seen, let's say, yet again anything similar in the other countries. The -- well, not exactly. The only one in a similar situation, which is basically in the phase of shutting down, it is in Luxembourg. The Luxembourg plant is also shipping today's product in total, let's say, France and the other Benelux country. So that's the one where the lockdown is stricter. In Germany, Eastern Europe, for the moment, there is no similar, again, situation, but clearly, the effect in any way, this is somehow, let's call it, strained or a lot of restriction to people movement, goods movement. This will inevitably translate into a lower demand, again, by how much, very, very difficult to estimate. U.S., again significant regional differences, kind of a similar lockdown, but not again for production activities like cement in Pennsylvania. The Texas market, which is important for us, not really yet affected by any kind of significant, let's say, allocation besides the recommendation to the people to follow, let's say, to take certain precautions there. So I don't think we will see, by the end of March, any significant worsening for countries that are -- other than Italy. In the coming months, it really depends on the virus spreading how much -- in many sections and the reaction of the different governments, which I believe, but this is my opinion, it's not likely to be so extreme like it has been, it is right now in Italy, but I might be wrong.

The next question is from Robert Gardiner with Davy.

So yes, thanks for the detail you just gave in terms of volumes by market. So we've heard a report in the last 2 weeks that very strong volumes in places like Germany, Central and Eastern Europe. So I don't know if you could just add any color there in terms of how those markets have traded. And likewise, if you could give us an indication maybe in terms of Mexico, Brazil and your small business in Algeria, just to extent in which pricing has been impacted, if at all, at this point? And so in terms of the U.S., I know you mentioned there that you're operational, but are you able to ship? Can you move product around? Are you restricted anyway in that regard?

No, in the U.S., for the moment, we can ship. We have more problems in the, let's call it, main office, which is located in Pennsylvania, where people again are using its -- there is strong recommendation to work from home, which is not impossible, to some extent at least, and not to move around, rather than on the production and shipping. Now for example, the Pennsylvania plant is unable to receive certain raw materials, which we purchase outside, this is also one of the critical points -- could be one of the critical points from the U.S. So the, let's call it, remotely they are not coming in a long quarry. And so you need to purchase outside using a certain kind of logistic. This could translate into some kind of issues, again either a much higher cost or maybe an availability of the same raw material because the plant has been -- or the producing plant has been shut down. The trend for the first 2 months has been good. It has been actually better than last year because weather was almost everywhere in Europe, but also in the U.S., let's say, relatively mild. So we had a -- I would say nothing really showing -- no critical signs of, let's say, recession coming soon. But unfortunately, this sector [indiscernible] from one day to another, so I think it will be inevitable to see a significant decline in demand. I mean it will be more evident from the first month, let's say, in Italy, and then we will see gradually, I hope not a similar trend, but for sure, a significant drop in Central Europe going forward. The U.S. is a little more of a question mark also because it's bigger, regions that are not so -- with such a high infection rate, and a region like Texas may continue to, let's say, do business as usual or almost as usual. So I don't know. This is what I keep saying right now.

And sorry, just Mexico, Brazil and...

I'm sorry. Mexico is entering into a phase where there is some COVID, let's say, 19 cases. There is also there some strong, again, recommendation for the moment to stay at home, social distancing, let's say, events that have been canceled, et cetera. We don't have an impact on the plan for right now. The shipments are not particularly strong, but it is coming from, let's say, the current, let's say, condition of the economy, which was already similar last year. So next year, we did not see any uptick in our shipments. We are basically flat versus last year, but this is what we actually expected already. We did not see a potential for the, let's say, economy to rebound very quickly. So in Mexico, we have -- and it is true also for countries like Brazil and Russia. Okay, Russia is more important than Brazil. And if this is consolidated, we had a significant worsening of the currency. So any translation impact coming from Mexico, Russia and Brazil is likely to be negative, or quite negative. It depends if this is changing through the year. But in Russia from one day to another, you know the period that the ruble went from RUB 70 to RUB 80 to RUB 83. And of course, this is very impacting, let's say, on our businesses. The Algeria situation is again nothing new. We really have nothing so much related to the infection due to the virus. Algeria is suffering from difficult political situation. The presidential election went on. There is a new president, but still probably not fully empowering in a sense that the power remain where it used to be and a strong impact, negative impact coming from the oil price because clearly, with a such a low level in oil price that it is going to affect the country quite significantly. So we don't see there -- but we did not forecast even a better year for Algeria already.

Okay. And I hope conditions are improving in your countries.

It's a question or a statement?

No. I'm just saying that I hope that you'll...

No -- yes, thank you, but for everybody also. And I think they will because the restrictions are so significant that they will obtain some kind of success. But again, the problem is a little bit the chunk of states that it is that worse or better than the -- how do you call it that the -- then I will leave exactly so. This is -- have to be a question mark.

The next question is from Yassine Touahri with On Field Investment Research.

A couple of questions for me. So you were kind enough to give us some color on what has been happening in the past few weeks. Do you think you could give us some order of magnitude of the decline that you have seen? I think that, for example, a high reduction, you were mentioning a decline of 50% in the north of Italy. Could you just help us to go by region? Is it a similar kind of decline that you've seen in Italy, in Pennsylvania, Germany, Russia? It could be very useful to just get a sense of what is the extent of the decline.

I think it's too early. Well, for Italy, not so much. I think the statement that was made before the actual closing down, before the -- because we are forced to shut down -- we've been forced to shut only 2 days ago. Basically, so I don't remember exactly when they came out, but I think it was earlier, when we were still anyway selling some. So yes, I think it was 50% less. But currently, basically, it is here because it's not -- we could not sell. I mean the gates are closed. There could be maybe some small demand, but there's a possibility to service. So again, I think we will have 15 days basically at 0. Later on, we will see. If you look at the group as a whole, I mean, any -- I do not say that any guess is valid because I think there is a range, I think, is very wide. So I would prefer not to give a number today because it's very wide. I think we will see a very significant decline in the profitability this year. I'm completely good with this. How much is very significant? You can judge maybe -- in 2, 3 months' time, I think we can have a better idea. You can have a better idea. We'll see better the impact in the U.S., which for us is very, very significant. But every original, let's say, guidance or original forecast has to be, in my opinion, discounted significantly.

And if you look at for the past few weeks, what have you seen in Pennsylvania, Germany and Russia?

We did not see yet any significant reduction in volume. I think March for these countries, then, with the exception of Central Europe, Luxembourg, France, et cetera. Poland and Czechia, fairly okay. Russia, that is now after -- they are more conservative coming up after their recent, let's say, message to engage to the nation. They are talking about introducing significant restriction to the economic activity there. Hopefully, cement will stay out, but we're not sure. So...

I mean if you look at Germany, which is a country which is not as impacted as Italy, which part of the construction activity is still going on? Is it still the infrastructure activity? Is it residential? Nonresidential? Is everything still working, but at a slower pace? Obviously...

I think that any kind of job will gradually reduce the pace. There's no -- I don't think at the moment, there's no -- I cannot tell infrastructure is going down and potentially is keeping the same pace. I think what we will see, similar to what happened in Italy, is a gradual reduction in the pace of activity.

And the last question. If the situation remains difficult and if it leads to, let's say, a recession in the second part of the year in 2021, what are your options to reduce cost? And what can you do as well? What is the minimum level of CapEx that you need to invest in...

Yes. Yes, sure. Now this is important. Well, we will -- the idea is to consider, at least for the moment, and I think for the next 6 months at least, this kind of situation is something that will not last forever. And so there are some countries like maybe entering into -- where we may anticipate, we may advance to some decision to close capacity that, but we are already, let's say, optimizing for the production facility that we have already in mind before. So this could be a reason to advance this kind of decision. In other countries, where also the capacity utilization has been fairly good, fairly high, we don't see a reason to restructure in a sense of, let's say, pleasing that capacity. What we can do is to, let's call, use as much as possible, at least in those country that have this kind of instruments, the social, let's call it, support for work that are staying at home. I think that most of the European countries at least are somehow introducing these kind of programs, and this should reduce, let's say, the direct labor cost in a significant way temporarily, at least on the fixed cost side, labor cost, labor industry cost side. The other cost, we will, of course, reduce all the expenses at the level that is, let's say, supposed paying business level, both maintenance programs. CapEx, yes, we do have like some flexibility. Our CapEx program has always been quite generous lately because we thought it was a good idea to introduce some improvement and let's say, efficiency, et cetera, and having the good cash flow generation. But when the cash flow generation starts to trend down, like it's doing now, I think we have a good flexibility on the CapEx program. I think we can easily reduce by, I don't know, from minimum EUR 50 million, maximum EUR 100 million versus last year with about EUR 250 million.

Maximum would be -- Okay. And then you could be able to go back to the level of 2011 when it was EUR 150 million CapEx...

Yes. This could be -- then, of course, there are some projects that have their commitments and purchase orders that have been issued. So you cannot do it, let's say, just like this. Over time, or the trending level, that could become EUR 100 million less, yes.

When we think about the EBITDA, when you're losing, let's say, EUR 100 million of sales, is it fair to assume that because of your viable infrastructure, you would lose something like 50% of that in your EBITDA, and then you can reduce a little bit cost? I think earlier, you have suggested that the throughput could be between 20% and 50%. Would it be closer to 50% for you, if you don't need to -- if you cannot cut cost outside of Italy? Or just you realize that officially -- what I'm trying to get is officially EUR 100 million of sales, what could be the impact on EBITDA, is it EUR 50 million? Or is it closer to 2013?

It also depends on your, let's say, level of activity because the main, let's say, beyond a certain level of activity, which means typically, I don't know, 55%, 70%, you still enjoy usually a good, let's call it, price in denominator for your fixed cost. If you go below, like it's happening or what's already happening in Italy, it will be worse. So I think, again, yes, the other big assumption is something -- to be fair, I mean, it's something that, yes, it has -- it does compare to the structure of our business, of our costs.

So it would be fair to assume a level of, let's say, 50% of your revenue, would be the count of EBITDA? This is the cost in this department.

On average, yes, it would. Yes.

But it might be lower in ready-mix business, for example, in Texas?

Yes, okay. I mean as well, our ready-mix is the variable cost component, of course, it's greater, but the margins are also usually smaller. So it's very easy in ready-mix when you do not produce or your production goes down quickly. It depends -- okay, it depends also on the price layer, if you can keep up, let's say, with the price level. But in absolute term, you're earnings [ mark ] usually in a downturn, unless the dividend or less a little bit down to 0, too little in a quicker way normally.

And maybe a very last question, which is on the pricing. Have you seen any impact on this disruption on pricing? Is it more difficult to push price increase? Or have you seen some of the price increase that we are touching being pushed back right now? Or is it too early to say?

Not yet. Of course, the main question mark there is also -- is always -- is again, let's say, on the U.S. market where price increases were mostly scheduled for, let's say, beginning of April. So we can -- I think if the market continues to work, let's say, regularly or maybe not so differently from what has been so far, price increase could be introduced. If not, I think it will actually finalize it.

The next question is from Andrew Belton with CreditSights Ltd.

Just a quick question. I just wanted to confirm that the EUR 300 million credit facility was undrawn as at the end of the year and is over EUR 22 million predicted. I think it's just a confirmation. I recognized that you have a large influx from the cohorts there, but this is to confirm that you had the variability of these facilities and that you are currently undrawn.

I did not get the question? Patrick, did you get it?

Hello. This is Patrick speaking. No, I couldn't get the question either. I understood credit facility but not much more than that.

Can you repeat it?

Look, apart from -- yes. The significance if your EUR 300 million credit facility was currently undrawn as at the end of the year?

Okay. Now the credit facility has been prolonged already in 2019 for another 5 years. This is true for EUR 200 million, that have been -- that are now due in 2023. The backup facility as well the revolving credit facility and there is another credit facility that is due this year that we have already initiated to prolong, but it's not yet due. So this will be seen now in the next couple of months. But again, the EUR 200 million has been already prolonged.

The next question is from Alessandro Tortora with Mediobanca.

I have, let's say, 3 maybe small question, okay? So one, if you can elaborate on, let's say, before on the cost side. First of all, it's understood that you are going to apply and use the temporary layoff scheme in Italy, so just to have the confirmation that we're allowed. And in case, do you have a similar deal in places in the U.S. because I know that some states also grant some semester to the company or through the U.S. This is the first question.

Well, we are allowed to use the, let's call, special scheme introduced by the recent, let's say, permanent decision. In principal, we will try to absorb, let's say, first the existing, let's say, vacation days and -- for many days to find a balance also to avoid, let's say, too negative impact on the workers, but yes, we are allowed to use. In the U.S., I think, as a rule, there is nothing very similar. There might be some states or some recent decision that will, let's call it, introduce some kind of social support. So it's necessary because we will know. If we look at today's world, I don't think it should be necessary. If it's necessary, it would be our decision, the company decision, again, based on the, let's call it, length of the trial, length of potential shutdown of it. A company decision to, let's say, [indiscernible] or any way do the work. I think we will need them back. Also, I mean, it should be like so if we have a 1-month shutdown, but later on, it will not be a good idea to lay them off.

Okay. Okay. The second question, again, on the cost side. You mentioned in the press release, and also before, that fuel cost, clearly considering the collapse in the oil price to date, hopefully, on the cost side. Let's assuming, let's say, the current level, but even, let's say, its higher than the current one, which softer benefited, you believe, on average, the company can get on from the fuel cost side?

If it will not reduce, we don't get any negotiations. But if I have to go back to production, I think the -- no, I mean, we have seen that oil, also the CO2 prices are increasing significantly, the power cost has been decrease significantly. I mean, the decline is between 25%, 30%, so it's quite significant. But we need to produce to be able to somehow take advantage of it, yes.

Okay. Okay. And you mentioned the question 2. Clearly, now we are fully, let's say, focused on the current situation. But next year, now we should see the transition to the EPS Phase 4. But if you focus our discussion on Italian, let's say, you will turn from a surplus to a deficit in terms of allowances. How the company is preparing in this scenario? What you have in Asia in which you are putting in place in order to after this to be used in the exposure to the increase in cost?

Yes, we have 2 good direction in place. One is to -- even though this new environment is somehow affecting -- and I would add something later. But -- so one guideline was to somehow balance production between plants in order to reach the best, let's say, level of CO2 allowances, considering the new way of calculation, so the so-called [ stage ]. So in a normal, let's say, market environment, we wouldn't balance production this year in a way to get the maximum, let's say, volume of the allowances. At that, the target is really to work as much as possible on the CO2 reduction per unit of cement producer, which is a long process. It's not something that is, again, changing so quickly. Could also be an idea to -- I think we mentioned it in the past to gimmick somehow some kind of sales, which are, today, or used to be, let's say, profitable because of the different way of assigning all the future location that will not be possible anymore. Starting 2021, typically, export sales or to reduce somehow the level of activity, which is anyway costing you less than sales that are not profitable anymore if you have to go buy CO2. And again, the big gain will be -- there are 2 main ways besides the so-called carbon capture to improve our CO2 footprint. One is the introduction or increased usage of alternative fuels. This is true to mostly in Italy, where we are lacking, let's say, or we are below average or below where we think we would like to be, but there are a lot of regulation and permits and let's call it, in between before getting to the possible, let's call it, target. And the other is to continuously work on the printer faster. So reduce the printer content in cement possibly using alternative raw materials, which are not so readily available, but anyway -- but that's some ideas, qualities, [ most like ] a share maybe some projects about the usage of stone, glass, cement, clay and a strategy for clinker. I mean these are the 2 main ways. There is a discussion going on currently in December to maybe not include the months we will be successful or not but not include 2019 in the calculation because everybody expects 2019 to be very weak. So for the so-called 3-year average, which was originally, let's say, scheduled in the new EPS scheme, where 2019 would have been already included. There is now a proposal by [indiscernible] to exclude 2019 due to very low volume expectation across Europe.

Sure. Okay. Okay. And just to understand, you -- considering the definition -- let's say, definition before valuation possibility maybe to -- maybe anticipate the closure of some capacity, which level of, let's say, the digit intensity do you consider may reverse you going forward maybe in 2023, 2022 according to what you mentioned before?

It depends on the CO2 prices, where will they go. If they go back to -- can be 5 or 30, where they try to get. I think if we run with digits between 10% and 15% of our -- of the total requirement. And also, there is -- Europe, again, maybe today, they are focused on another priority. But not long ago, the so-called carbon border tax, whatever, was confirmed in the so-called new level or whatever, the European asset towards, let's call it, the neutral -- carbon-neutral costs. And so this also should not put at least too much pressure on the prices. So the prices can stay with rising intensity expense deficit of CO2 allowances, maybe it's a profitability will not be great, but sector will be sufficient.

Okay. Okay. Good answer. The last question, just to follow, is on Mexico and Brazil. Clearly, these are the countries that we don't see your number. But strategically speaking, there -- presently, there is also a situation now in Mexico that is much, much less than compared to 3, 2 years ago when the company was at a peak. What is the company -- what is the view of this in 1 to 2 years time in that, let's say, Americas, let's call it hub.

We will remain very confident about the Mexican, let's call it, market. It's an economy that any way can be considered modern. Of course, they continue to have very strong links with the U.S. So they are very important in the automotive industry. So today, of course, they're going to go through some pain, I don't think huge ones. The cement market and also the typical reaction to this kind of, let's call it, flat or a mildly driven GDP by any kind of account also this one is in a way to somehow push for new public projects, which Mexico needs anyway. We have now, after 2 years of decline, a good level of, let's say, good margins for increasing volumes because today, we are running the 80 -- a little more than 80% capacity utilization. So there's no real need -- even in case of a significant rebound, there's no need to add additional capacity. Margins are still causing such situations favorable still, let's say, by far, the highest of the group. The return on capital investment in Mexico is by far the best we had in the entire group. So we continue to be positive about the country. We knew that this year was not going to be great like last year. Now if there is a disruption, additional disruption coming from the virus, maybe we need to revise also such in a negative sense. But in the longer run, I think we remain confident.

The next question is from Gregor Kuglitsch with UBS.

Can you hear me well?

Yes.

Great. I've got a few questions. Can I ask one about kind of cash costs. Perhaps the best way to ask it is perhaps I think like naturally if you're running -- I think you were kind of implying you're basically down 80%, 90%, how much cash do you burn for instance in this release? And if you do, perhaps you've got scenarios as we saw, if you kind of assume at the group level, kind of discuss the pandemic kind of spread, you have a situation where you know your revenues were down very substantially for a few months, how much cash do you simply burn? I don't know if you've done the scenario analysis, but it would be interesting.

Let's be clear with that, please.

Yes. So no, I mean, maybe -- I mean, it's not an easy question to answer, but if I may ask.

Depends a lot on the level of activity. As I said, I think in a worst case scenario, but looking at the entire group, worst case -- I don't think it's worst case. A very negative scenario could be not to be able to produce any cash basically, so stay to at a 0 level from now to end of the year. So basically -- of course, this -- for this to happen, we will need to see some market in the space let's say what I was trying to talk about going down beside the Italian situation, which is currently -- and we can go back to Italy, which is currently shut down to see other countries still working some 40% less than what we were able to achieve last year. So if you go down 30% to 40% versus, let's say, the previous year, probably you'll run into a situation where your cash flow is almost 0. I mean, you basically come out on a cash breakeven level. I think this is...

Not just with from the avoidance of CapEx after CapEx. Or it's more?

No, with some CapEx. We are still keeping some counter, not considering CapEx of the year, let's say, as I said, after reducing CapEx, of course, significantly, but still, we're not really a 0-0 level.

Okay. And if you look right now and then if it goes on for a few months, how much do you lose a month? EUR 10 million, EUR 20 million, EUR 30 million I don't know?

Let me see. I mean -- let me see.

Just negative EBITDA per month, to have a feel, right?

Yes. Fixed cost, approximately -- I think you can run negative, maybe something between -- I mean this is really 0 production level, 0 sales, between 6, 7, maybe 18 per month, something like so. But it's basically 0 with the sales.

No. No. It's just such confidence that we have with you. And then kind of back to the carbon situation. carbon situation. I guess, 2 questions. When do you think you actually get cold? What the allowances are for 2021? So when do you have certainty what the numbers are? That's question one. And question 2 is, are you doing any kind of CapEx or has that been kind of put on hold and maybe you never had a plan to reduce carbon intensity, I guess, mainly in Europe, but also globally? And are you doing anything in that regard? And if so, how much is it?

Well, the actual allowances, we're still making some of the, let's say, items needed for calculation. One is, as I mentioned before, the transaction of 2019, assuming that this will be considered, and also the so-called benchmark, which is not officially -- something officially disclosed yet. I mean, we have an idea, but a part of it is previously disclosed. So I think we will know more by the second half of the year, for sure. And then to include 2019 for the 3-year revaluation. CapEx, let's say, specifics on R&D, let's call it, on -- devoted to this year to so the reduction are mainly, let's say, focused on carbon capture. And we have 2 main ones that are also some kind of, let's call it, joint research project together with either, let's call it, research centers or our industry players. One is in Italy and one is in Germany. It's -- Italian one is called clean clinker, clinker but clean clinker. It's a carbon-capture project on an investment scale. And the same thing will be done in Germany, which is Heidelberg, Dycker and Cementir in a plant to test this so-called oxyfuel process. On the right, I think, in our, let's call it, CapEx plan, there are a number of things that has some impact on the CO2, not specific. That is -- they're not approved or introduced just for the reason to reduce CO2. But yes, we look at the decision also on the return of a certain investment. We will want to consider and we want to stress, let's say, the CO2 contribution -- or the reduction in CO2 contribution. But this is what will exceed until now. Let's call it the astute level of our CapEx spending. So it's within what we have usually at, let's call it, gross amount of CapEx for 1 year. But yet the focus, of course, it is -- there are many positives. Maybe in the past, we did not receive enough -- receive enough majority or were not approved. That are now being approved because they do have a significant CO2 impact.

The next question is coming from Tobias Woerner with MainFirst.

I have 2 questions, if I may. Number one, if I may just press you again on the energy side and apologies, I came a bit late to the call. What exactly is your energy bill as of 2019? How much of it is hedged for forward vote in the context? And just remind us roughly the history of pet-coke to help. That's the first question. And then the second question, you've closed in the Kosmos transaction, has the cash already been distributed to the partners? And in the tax still what is your scheduled gross amount?

No, it's a gross amount. We want it to be a little bigger the transaction closed at the beginning of March, 6 or 7 months, if I recall correctly. So yes, it was. It's a gross amount for the moment because tax are being -- partnership taxation will be paid, let's say, directly by the 2 partners. And on the hedging for fuel and energy, in general, we tend to be very cautious. The principle is to, okay, if we see, let's say, some very, very interesting prices on energy and fuel, we could anticipate some, let's say, purchasing, refer to the following year, but not -- usually no more than, let's say, 30%, 25% of the following year. Otherwise, pet-coke typically has a delay of 3, 6 months. And so we are pretty much on the spot market. We are mainly on the spot market. So if the market trend remain one direction in 3, 4 months' time, usually, we should be able to achieve this kind of level of the new cost.

And if I may just ask what the total energy bill is for you, the cost last year and the split between pet-coke and coal?

I don't have that split, and I think we never really give it. No, I mean, I have a percentage in a sense that if you look at the, let's call it, different fuel mix, last year, for example, for the group as a whole, pet-coke was 37% and coal was 21%. Then you had natural gas, 17%; alternative fuel always a high fuel, 24%; and minor, other like oil and gas that are or little bit crude oil only for -- firing the key on basically and that's it, 1%. And your other question was?

Total energy bill.

Total energy bill is -- okay. What I can tell you quickly is the -- if you look at the cement business, so not ready-mix, only cement, fuel and power, we spent last year EUR 357 million total.

Next question is from [indiscernible]with [indiscernible].

I have 4 questions, if possible. First question is when and to what extent do you expect a positive impact on cement demand due to increased public investment in infrastructure, particularly in the U.S.? Second question is, what is your exposure to the oil sector in terms of fuel volumes, particularly in U.S. and Russia? Third question is, if -- do you expect some write-down on receivables, particularly on customer in those sectors? And last question is, if -- are you also planning to buy series shares or only your ordinary shares for the buyback?

I hope to recall all of them. Firstly one was public intervention, well, according -- already before, let's say, this crisis, according to the PCA, maybe they will revise the figure. But public spending was already considered one of the most important in the sense of consumption differential as helping, let's say, consumption to move forward in the overall U.S. market. It is true -- and it is true everywhere, let's say, not only in the U.S., but from the decision-making to the actual opening of the job site on the foreign currencies, et cetera, the process is always fairly long. So once something has been decided and approved and financed to be -- maybe faster in the U.S. than it is in Italy, but I think you require from minimum 1 year, maybe 2 years. So there is a recovery coming from public spending. I think it will take some time. But we don't see there an immediate, let's say, impact on the figure. The second one, I think, was about oil well cement. That oil well cement, for us, is significant in Russia, for sure, and this can be a little bit of a concern for what's going on, even though Russia may continue to produce. The concern is more on the oil price and the impact on the currency. What we have seen after the, let's say, discussion between Arabia and Russia and no agreement, et cetera. So it's immediate. So Russia may continue to produce, but if the oil price is low, first of all, the economy, to some extent, will suffer, and second, we will suffer even if we sell maybe sufficient volumes or good volumes of oil well cement when we translate our figures from the ruble into euro. This is something that I was already mentioning at the beginning as one of the major impact this year, together with the expected decline, let's say, in demand due to coronavirus. In the U.S., it is a little different because our, let's say, presence, our sales are important, but not very important than they are, let's say, in Russia. And we may see a decline there. I mean we are already seeing a decline in oil extraction activity, which will definitely affect our oil well cement sales. But this should not be an issue or not as important in terms of currency translation. The question was -- or just that one. No, did you get 4 or 3.

If you expect some write-down of receivables there is the offset...

Ah, yes. So this is a big risk. I think, particularly in Italy, we will be facing a very difficult times for the -- for our, let's say, credit. So the risk of increasing bad debt expense, I think, is very high, particularly in Italy because it is typically the country where our payment terms are particularly long. And we may -- yes, we may face some significant difficulties there. Going forward, I mean, let's see when the market reopens. But the liquidity, let's say, of the customer, yes, is a big concern. A little less elsewhere because, typically, again, the payment terms are not as long. And as it is, so far, we are not seeing similar, let's say, lockdown situations. So more or less, there is some activity going on, Yes, okay, gradually at a lower pace, but the market is still active. On the buyback, I think we are open to both category. I think it would make sense to move forward with both regular share. Clearly, the ordinary share gives you much greater liquidity. So that will be, I think, much easier to invest significantly, let's say, in the ordinary share due to the liquidity, but we'd not rule out, let's say, the idea of buying some series shares if they're available.

[Operator Instructions] Mr. Buzzi, there are no more questions registered at this time.

Okay, very good. Thanks, everyone. We remain, let's say, available. Our offices are still open. Italy has most of the offices around Italy. The density, let's say, the population has been very much decreasing, but we remain available from remote on telephone or any kind of means. So again, thank you for listening, and so long.

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.