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's First Half 2020 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. Please go ahead, sir.

Okay. Thank you. Thank you so much. Welcome to everyone. Glad you're able to join us in this conference call. With me is Patrick Klein, our group Treasurer; and also Lorenzo Coaloa, Investor Relations. So we are here to try to outline, say as quickly as possible our first half results and then as was already announced, leave you the floor for the questions that you may want to ask. I think that generally speaking, we had a good first half. For sure, better than what we have originally expected or what we expected, at least, at the beginning of the pandemic, where things started to look much more complicated. And this was due to situation, which was favorable even inside the pandemic for different reasons. Main reason was, I would say, the relatively strong trend in volumes. So volumes that in many areas, in many markets, were not strongly affected. Well, yes, affected, but not strongly affected by this pandemic. I'm speaking about the U.S. primarily, because this is an area where actually the opposite occurred. So we had actually an improvement in our sales volumes. And also the Central European market, particularly Germany, where the impact of the pandemic was very limited and volumes [ stayed ] basically at the level of last year. In terms of volume, we suffer instead in other markets, but less important in a sense. So Italy, for sure, was the market most affected due to the more stringent, let's say, lockdown measure during March and April. Meanwhile, other markets -- in all other markets, construction activity or anyway the manufacturing of cement was -- continue to be considered essential and not required to come to a stop. And also [ in Italy ] relatively weaker with the exception of Czech Republic that was actually, again, stayed similar to Germany. And this was the first, let's say, the first favorable, let's call it, contribution to the overall result. The other favorable contribution was the trend in prices. So prices overall was mainly due to the very strong start to the year, so a very strong first quarter. We had an opportunity to go up with the prices. In Europe, this was driven to a large extent also by the trend in the Co2 cost, which were rising or expected anyway to rise and this can change later on with the [indiscernible] of the general, let's say, market level during -- but initially, this was not the case. And so, generally speaking, the price trend in local currency, in euro has been favorable and also did not turn, let's say, unfavorable after the pandemic basically when the market started to reopen in May and June. Also thanks to a relatively quick recovery in some of -- most of the market, I would say, price level remain where it was before the lockdown or the restriction. One exception in the United States, where prices were, yes, in a sense, originally expected to increase in the beginning of March, beginning of April. And this did not happen because we were, again, in the middle of the crisis or the unemployment of the [indiscernible] of the GDP. So a lot of uncertainty ahead of us. And it was -- we consider, let's say, wiser not to move the price. But in that case, in the case of the United States, as I said before, stable pricing but a favorable variance in volumes. And this was again the second main point. The third point, which has been helping significantly the results is the trend in cost. I'm speaking about mainly, let's say, variable cost, some of the fixed cost also went down, but not so significantly. But yes, variable cost, in particular, fuel, and also electrical power, but I would say fuel across [ all markets ]. Electrical power [ and ] CO2 rise versus budget were significantly better. And so the combination of the 3 factors, the 3 elements that I just discussed, trending volumes, the trend in prices and trending in main energy cost, it was -- is what allowed us to achieve these results that are somehow, let's say, unexpected or I would say by far better than what we have been reasoning about at the opening of the pandemic. So net sales eventually are in line with last year. We have a very similar top line results, actually slightly less if you consider the changes, but not so significant, but some change this quarter [ when we started the consolidation ], which occur last year, let's say, beginning of July particularly in Italy. EBITDA, better, with a very good result, let's say, plus 8.3% like-for-like and also the EBITDA margin are up more than -- almost 200 points. Net debt lower than September 2019 due to the strong performance, strong operating performance, but also to some other extraordinary inflows that I will comment upon later that you may recall already because they were disclosed at the preliminary -- at the trading update by the end of March. So moving to the, let's call it, breakdown of cement volumes by country. We have negative signs in Italy, minus 12%, it would be minus 15% like-for-like without the changes in scope of consolidation. This is significant, of course, but again, not as bad maybe as one could have imagined at the beginning of the lockdown period. Because overall, we had a -- not exactly a V-shaped recovery. It was a little more, let's say, U-style. But already in May, we noticed that the market was picking up again. And June was better versus June last year. So this is, I would say, a good sign also for the coming months that the market is not below the underlying market, let's say, not below the level of 2019, except for the lost days due to the closure of the plant. Strong performance in U.S. overall, considering that we lost also significantly in the oil category, which is not very significant in -- within the U.S. but still represents in a normal year about 5% of our sales. And also we lost quite a bit during March and April, volumes, sales activity in the north -- in what we call our Northeastern region. So the Pennsylvania plant, which is the closest to New York. So Pennsylvania state, one of the most affected by the pandemic. This is the plant -- the volume delivered from this plant were down significantly in March and April. But fortunately, this area is not so important for us. And the rest of the market areas were strong enough to offset -- more than offset that completely this kind of impact. Germany, stable, very similar. Luxembourg, yes, after -- significantly during March, because Luxembourg is also quite exposed to the French market. So French clients there is one area where the construction activity was very restricted, let's say, during the second quarter. But also Luxembourg showed good resiliency, let's say, following the reopening and we are only 4% below last year and potentially that they -- with the possibility to recover what was lost in the coming months. Czech Republic, unaffected. Poland, yes, down almost 10%. Poland had one of the strongest performance in prices, and this could also be one of the reason why we're not so well positioned in terms of volumes. So there was also probably a marketing decision to be, let's say, very firm on the [indiscernible]. So this might be adjusted later on during the year if they get between, let's say, our performance in the market [ becomes ] too wide. Ukraine, suffering, but not only for the COVID, minus 11% -- minus 12% in volumes. Also because of newly import -- significant import activity coming [indiscernible] from Turkey and affecting 1 -- particularly 1 of our plants, the south end plant. And this had an impact both on prices, which basically did not move up and on volume. So again, more reason that justify this kind of performance. Russia, quite affected by the COVID and by the oil price. So oil prices significantly declining as opposed to the U.S. Russia, for us, the share of oil well cement in Russia is much more [ better ]. It's about 20% of our sales. And this category, let's say, all the products declined very significantly. The gray cement was not too bad overall, considering, again, the weight of the overall cement sales in this country. And we lost about 7% overall, including oil well cement of our sales. The main associates, Mexico and Brazil, performed fairly well. Mexico remains stable in terms of cement volumes versus last year even though there was a moment where it seemed that we will be forced to shut down and close the plant, there was a public announcement by CEMEX that was, let's say, stating that plants were going to shut down temporarily for the, let's say, COVID measure. Fortunately, a few days later, the government stated in reverse that some of the main infrastructural jobs should continue. So there was a need for cement for building materials, and together with the [indiscernible] structural job at the end with the plants open, a lot of construction activity remain active, particularly in the cement category. So we did not lose volumes. In Brazil too, even if the pandemic it's quite aggressive, the number of infection is quite high, the impact on construction activity has been quite limited, quite weak. And we were able to move up with the volumes almost 8% in the first 6 months. And so quite a good performance there. Pricing, as I said before, in Europe, there was mostly area an increase at the beginning of the year. With -- we then, let's say, stability moving forward after the reopening. So during May and June. Also Russia had some price increases in the integrated cement category, not in the oil well, where the -- of course, the decline in the demand is asking for a price reduction, which we need to somehow take care of if we want to keep our market share. Stable pricing in Ukraine in local currency, increase in Poland, increase in Czech Republic, stable in the U.S. with maybe a possibility to improve from June on, and slightly declining in Mexico, but we've been coming from a, let's say, not a significant, but yes, an [ unfavorable ] trend in prices already since last year. They are now, let's say, stabilizing at 4% or 5% below what used to be the previous peak. In terms of FX changes, which is also an important variable when you translate, let's say, when you look at the final euro figures. We still had a favorable impact until June, at least from the dollar, which is [ by far ] the most important currency for our group. So we are comparing first half 2020 with 110 -- [ 1.10 ] average versus [ 1.13 ] last year. So this had a favorable impact, both on net sales and EBITDA. More worries for the ruble, which is strongly related, as you know, to the oil [ prices ]. In the first half, the decline is not so significant, only 4% negative variance. But if we look at the current level of the tax rate, this would have some -- make us worry, let's say, about the upcoming months because it's currently much weaker than the average of the first half. Ukrainian currency, still improving, let's say, if you compare first half versus first half. If you look at the current exchange [indiscernible] affected by year-end, some weakening, but so far, at least not so significant. Czech and Poland, small decline, but these are anyway within the European system so currencies that are moving much less. Mexican peso, definitely weaker, minus 10%. And Brazilian real very much, much weaker, strong devaluation there, which is, of course, impacting our results in Europe because in local currency the company performed pretty well. But in euro, we did not enjoy the same kind of performance due to the extremely steep and, let's say, quick devaluation of the Brazilian real. Looking at the sales revenue, again, by country. Volume prices, we commented upon volume prices and FX. Most of the countries are showing a very similar results versus the first half of last year. I'm talking about -- well, Germany is actually 5% up, but if you consider Central Europe, so including the Luxembourg, the Netherlands, et cetera, we get closer to what it was last year in this market area. Same reasoning, let's say, for -- sorry, the Europe as a whole, where you have some improvement in -- well, actually, stable revenues in Czech Republic and some declines in the other regions. The strongest is actually coming from Russia, but also because of the trend and it seems very good that I was mentioning before. And then we do have an improvement of about 30 -- I mean, [ EUR 1 ] coming from the U.S. This is where, clearly, the benefit -- the most important entity is coming from. It's offsetting completely the decline we have in Italy of about EUR 33 million. The ForEx impact from the dollar, the positive ForEx impact from the dollar is about EUR 15 million. And overall, it's EUR 11 million because of the devaluation, let's say, the worsening of the exchange rate in the market that I mentioned before, particularly in Russia. So again, stable net sales in the first half and a small decline like-for-like due to some changes in scope in Italy and in Germany. Going to the operating results, cash -- operating cash flow. EBITDA, again, by country. Clearly, there is a significant decline in Italy, which is even more evident because of the different policy, the different attitude that we took this year versus last year. I mean the fact that until last year, we have been selling CO2 rights -- extra CO2 rights [ of surfaces to right ] it from Italy to other countries within the ETS. So let's say, a wash, if you look at the consolidated results, but instead a positive for Italy. This was not realized, was not put in place this year. So there is a difference of about EUR 15 million versus the -- we were missing, let's say, EUR 15 million in [ cash ] operating income versus last year. So anyway, the decline was [ 20 ] in total. So clearly, the lost days during the restrictive activity period, had a significant impact on our results. Maybe, again, not as much as we originally expected or we could have planned, thanks to the trend in prices, which was favorable, thanks to the trend in cost, which was also quite favorable. U.S., strong performance. We improved approximately EUR 37 million. Two things to mention or 3. Also U.S. enjoyed, particularly for fuel, favorable -- quite significant favorable variance. Then due to the complication, let's say, coming from the pandemic, we were forced and we decided to postpone some of the major maintenance, let's say, programs that were scheduled for the first half mainly because when you do this kind of, let's say, your -- you, let's say, bring your plant a significant number of people. So meanwhile, during the ordinary production day -- daily production, the number of people actually working in the plant is very limited or very far away from one another. When there is a significant maintenance project to be carried out, they require maybe a team of 50, 60 or sometimes more people that are working very close to one another. And this was going against, let's say, the safety policies introduced after the outbreak of the pandemic. So some here we will have to do in a way or another or later on during the year. But in the meantime, it's been postponed. And also versus last year, we had a quite significant, approximately $26 million increase in our inventory. So there was an inventory change of -- favorable inventory change versus last year of $26 million. You'll probably recall that last year, during May and June, we were unable to ship on the river, on the Mississippi River, either by barge or by rail from the most important plant that is the largest plant due to the high water level. So we had, at the same time of the year in 2019, basically all our terminal network almost empty, let's say, with no availability of product. During the first half of 2020, fortunately, the water level remain normal. We were able to navigate, to transport, to move cement, let's say, across the country. And we built up, again, let's say, the inventory that is necessary to operate and to be able to ship it to serve our customer during the summer season. And this was quite a significant change, which is actually, again, improving the operating EBITDA, but will be, to a good extent, let's say, reversed during the second half. Germany, strong performance too, 23% up, almost EUR 10 million up. Good pricing level and lower cost too, similar to what we've been seeing -- similar to what we have been enjoying almost everywhere. Czechia, again, strong pricing, stable volumes, lower cost, also lower CO2 costs within the ETS. In Poland, mostly price effect because volume effect was negative, but also a favorable variance for production -- for production cost. Even in Ukraine, we had a favorable variance for fuel, which was kind of unusual where recently, we have also been running our plants using gas again. [ Gas has been ], during this period, cheaper than coal or coke, which is something that we did not enjoy since -- I think the last time we've been using gas was probably 10 years ago or so. So quite a strange situation, but again, favorable for the production cost. And in Russia, the performance was pretty stable in term of the results. Russia did not have the same -- or a less important, let's say, cost benefit versus other country. But volume did not decline [ in Russia ] and pricing was showing some kind of favorable durable variance. Going down to the -- going to the EBITDA bridge, EBITDA variance analysis. We move from [ EUR 298 million ] to EUR 314 million through this kind of -- this major, let's say, item or these major changes. Volume negative, as we mentioned already, by approximately EUR 48 million. Pricing is 33, let's say, favorable. And then a large benefit that's coming from variable costs, in part, of course, related to the lower production there. Also, to a large extent, from lower cost, input cost. Raw material, for example, we spent EUR 5 million less, but this is mainly related to the production level -- to the production activity, let's say. Fuel instead, we [indiscernible] more than EUR 33 million. So a very significant amount. Power also EUR 9 million. Transportation, which is also fuel-related, another [indiscernible] an advantage. Fixed costs, fairly stable. Labor, negative variance. So EUR 2 million maintenance for the group as a whole, not for the U.S. in itself, as we discussed before, but let's say, a negative balance of EUR 2 million. And then other revenues and costs, again, very similar to last year level out of, let's say, general and factory overhead. And negative variance coming from the CO2 due to the fact that last year, CO2 was, again, was mentioned before. So there was no CO2 cost within the group and also party, let's say, 2 parties instead this year, we have [ EUR 12 million ] coming, let's say, to be recognized as CO2 accrual, let's say, cost for the cement. And this is leading us to the [ 314 ] that I just mentioned before. And part of the income statement, so below, let's say, the EBITDA, showing profitability and also the [indiscernible] level because all depreciation and [indiscernible] ordinary. We did not have to account for any impairment or write-down of assets. So as a percentage of sale, EBITDA is [ 12.2 ] this year versus [ 10.9 ], let's say, [ 11 ] last year. So it's [ 1.2 percentages point ] up. And then there is a stronger improvement at the equity earnings row. I think from the, let's say, extraordinary results of our associates or previous associates, the Kosmos Cement Company in U.S. You know that Kosmos sold all of its assets to legal materials. The transaction closed -- the closing of the transaction was at the beginning of March, if I recall correctly. And of course, there was a significant gain on this disposal, which translated again for us into the earnings that are much higher versus last year. We had EUR 149 million versus EUR 34 million last year, ordinary conditions. So this is, of course, extraordinary income. Finance costs are higher than last year, greater than last year by EUR 26 million, but these are driven mainly by non-cash item because if we look at the actual, let's say, net interest expense, meaning interest expense minus interest income, we have EUR 8 million for the period versus EUR 12.6 million, let's say, EUR 13 million last year. So there's a decline caused by a small reduction in our cost of gross debt and, of course, an improvement in the net financial position. So both things are, let's say, giving us an advantage in terms of net interest expense. Then there are other items, noncash, as I said before, that are worsening, let's say, the net interest expense, as a whole, including noncash items. In particular, there is an adjustment it would be making of about EUR 50 million, more than EUR 50 million for derivatives valuation. This refers to the putting call option on the shares of the Brazilian, let's say, joint venture. We have an agreement there to -- either by ourselves or being, let's say, to buy the remaining 50% under the devaluation of these derivative contracts, was paid a significant role, negative, let's say, role was, as we mentioned before, the value of the Brazilian real. So the currency devaluation was reflected to the deferred value of the option and the impact quite significant about, as we said, EUR 50 million. The prospects and the ForEx has been -- and the sales of the company are not worse than what we imagine, let's say, previously. But of course, the functional currency is the real. And when you translate it into euro, with the kind of devaluation that occurred during this period, the impact can be quite significant, and it was indeed. Then we have profit [ before ] tax, of course, much better than last year for the extraordinary results that I mentioned before, even if net finance costs are greater. Income tax expense is rising, clearly because of the -- particularly the taxable profit on the sale of the Kosmos asset. And eventually, net profit is anyway EUR 82 million greater than the previous period 2019. In terms of cash flow statement and the trend in the net financial position, cash generated from operation was quite good. We are [ 2,056 ] in after working capital with adjustments versus 195 last year, which means less 17% on revenues versus 13% of last year. Interest paid is similar. Income tax paid have been -- they did benefit from some postponement, some delay, introduced by the different governments or jurisdiction associated with the COVID pandemic impact in the U.S. We've been able to postpone, and they were actually paid right after the cut off, let's say, the closing of the June 30, some of the quarterly tax payments. So this will, of course, will be reversed starting from July. But in the meantime, we enjoy, let's say, less tax paid due to the delay, decided again by the different governments. Capital spend is there too, they are [ lower ] than last year because we have EUR 108 million cash out versus EUR 126 million. Clearly, in the beginning of the pandemic, the direction given by the management also to the various markets and subsidiary was to be extremely prudent and careful about capital spending and to, let's say, postpone as much as possible. The fact that we have no really visibility and no idea of what could happen to, again, volumes, prices and also cost. So in the meantime, I mean, also after this result, the [ second ] results, we are not taking any more such an aggressive [ testing ]. I mean we are, of course, trying to invest in the projects that have greater priority or returns. But we don't think [ anything ] should need such a strong restriction [indiscernible] back in March. But anyway, the postponement of some project -- when you start postponing, it's inevitable that you'll be able to accomplish this number and amount of project within the year. So we can expect anyway, a reduction in capital expenditure for the full year. We had purchase of treasury share of EUR 7 million, dividend payments of EUR 32 million. We did receive dividends from associates. This has been the main, let's call it, inflow or the most significant inflow driving the additional improvement to the net financial position, dividend from [ assorted ] EUR 170 million, of which EUR 145 million or so from Kosmos. Again, some disposal of fixed asset investment in [indiscernible], let's say, instrumental or not minor in Poland. But anyway, EUR 10 million inflow. negative impacts from the translation differences and derivatives valuation of EUR 71 million. Other minor, let's say, changes, either positive or negative, leading to a change in net debt reduction in net debt of EUR 183 million, which is very positive, let's say, very significant. We are now closing at end-of-period with EUR 385 million net debt figure versus EUR 819 million at the end of last year. Okay. I think I've gone through most of the items. I hope that this has been helpful to you. And I would like now to give back the, let's say, the microphone to the operator and so that we may start the Q&A session.

[Operator Instructions] The first question comes from Paul Roger of Exane.

Congratulations on the results. I hope everyone is well.

Yes, yes. Well, not really everyone in the company, because like any company, I think we did have some cases. But fortunately, none of them required to be hospitalized or turn into more -- something more serious. So I would say, in this respect, we've been lucky or anyway, we managed well.

That's good news. I'll just kick off with 2 questions then. The first one, the obvious one, I guess, is on the guidance. You've clearly mentioned a few things that reversed in the second half like the U.S. maintenance and U.S. inventory from last year. But you're still implying, if I'm doing the math right, at the mid-range, you're still implying EBITDA will fall by about 15%.

Yes.

And really just trying to understand what assumptions you are making in that. If you're making, for example, any assumption by the second wave and how conservative it might be? And indeed, if there isn't a second wave, what might actually be deliverable this year?

Well, we are, I would say, for the Italian market, as you can read from our comment, we are not so negative, let's say. We think that overall, the performance of June when going forward could be, let's say, repeated. And even though, let's say, at the end we will close with a lower number, not so bad, let's say, considering the situation and the fact that there will be no -- for example, no more, let's say, CO2 sales from, again, from Italy to other markets. In the U.S., yes, we are very, very cautious and a bit concerned. We prefer to be very prudent about the next 6 months for 2 or 3 reasons. One is that the, let's say, the volumes expected and here, we are, of course, relying on our managers, on our sales force, but also considering what the PCA is [ saying ], PCA is guiding for, let's say, some minus 4% for the full year. So this would, let's say, reverse, let's say, completely the trend of the first half. And [ it's not impossible ]. And we are taking basically this approach or relying -- on one side, we are listening to what our customers are saying, of course, how our sales are going. But on the other also, we cannot ignore, let's say, what PCA is saying and the reasoning behind it is mostly related to the GDP decline and the unemployment, et cetera. And also in U.S., we don't see -- we see difficult, let's say, not too easy to the price improvement across the next 6 months. So in addition to that, I mentioned 2 or 3 items that are not too small because, again, maintenance and store changes will be partially reversed, but for some significant amounts. In Central Europe, we see the possibility to basically, let's say, repeat last year results, to go very close at the end. In Eastern Europe, again, we are definitely more concerned. Not so much maybe about Czech Republic and Poland. But yes, let's say, Ukraine and Russia, we don't see really a way to be able to match last year or last year results. So we see markets somewhat under pressure. And difficulties, let's say, to maintain the same trend of the first half. In addition to that, we have made some assumption, but this may turn also along -- or maybe bias in a too favorable way, on the exchange rate because, again, exchange rates have been favorable overall in the first half. We don't know exactly what, of course, what is going to happen in the next 6 months. But if we look at the last 2 months, July and also beginning of August, the dollar, for example, which is very important for us and for the overall result in Europe, is now weakening. So I don't know, Patrick, if you want to add something, but this is the reasoning behind our forecast.

Well, it's mainly at the U.S., Ukraine and Russia by the sound of it. So in the U.S., just on the pricing comment, clearly, those price increases were delayed to June. Do you have a sense -- well, first of all, did you introduce things in June as well? And do you have a sense of what type of price increases has been able to stick by region?

We are trying. We have been trying to do something. We don't have, as usual, I mean when you need -- okay, 1 month has passed, but it's not enough, in our opinion, to understand whether the price increase, which is not significant. But let's say, to dollars will stick or not. Lately, we have seen some price activity, a negative one, because we have been, let's say, asked by our customer to match some other, let's call it competitors in terms of pricing. So it's still a bit early to understand whether we will be -- enjoy really a favorable price variance in the U.S. It's not impossible. If the market is -- continues to perform, I think it will be possible. In this case, of course, the projections, the forecast may be too pessimistic. Again, I think it was correct on our side to try to give a guidance. The interval is large because, I mean, between 5 and 10 can -- the difference can be many, many millions. Where we will end up, I don't know. Clearly, the U.S. will be the main driver as it has been during the first half in terms of potential benefit or, let's say, worsening. and the only thing I can say is that next time we expand, we meet for the trading update. If -- yes, if things are going better, we will notify, we will inform the market. But right now, I think we have made quite an effort to understand where we could possibly end up. And the outcome, which is what was declared, seems very reasonable to us.

Yes. That's great. So just one final question for me. I know Mexico obviously isn't consolidating your EBITDA, but it is an important market for you. We heard from some of us in the industry that there's another price rise going soon roundabout now, and it's about 4%. Are you also putting the price rise through in Mexico? And do you think it could stick there?

Not yet, really. Latest news, I think we discussed it a week ago or we're still, let's say, trying to -- not to lower prices. So to stay where we are, which is basically what happened in the first half, and it was limited decline, but in part was due also to mix. So in general, we had price stability in the first half because anyway, again, a good achievement considering that also in Mexico, the energy factors gave us some benefits. [ The results ] considering the situation are still very good in term of operating profitability, for sure. Okay. We know that our Mexican associate [indiscernible] cost efficient. So can, let's say, weather very well also some, let's call it, lower prices or slight decline. But in this case, I would say that, also in Mexico, we beat it, let's say, our internal expectation in the first half.

The next question is from Brijesh Siya of HSBC.

I have 3, possibly. So the first one is on -- if you could quantify what was your maintenance cost on differentials? So probably the absence of it boosted the EBITDA in H1 2020. So if you could give that number. And can I confirm the -- your inventory benefit was $26 million at the [indiscernible]...

In U.S. Yes.

Yes. And second one is on...

$26 million, right. Anyway. Okay. Yes.

Yes. And the second was in fuel and electricity prices. If you could tell us what could be the kind of magnitude of benefit you would expect for the full year 2020? And thirdly, if you could give us a little more flavor about how July trend is setting up, especially in the U.S. and in Central Europe?

I didn't get the last question, sorry.

July volume and price per [indiscernible] market.

Sorry. Yes, yes. Okay. Okay. Yes, yes. Well, maintenance, the 2 countries where we have some -- because overall, as I mentioned before, if you look at total maintenance costs, they're not lower than last year in the first half. But also because, I mean, now that the maintenance program occur for all plants the same time every year. So they are typical than -- the significant maintenance cycle is more than 1 year. And so you have a -- okay. That said, Italy and U.S., I would say that approximately, we've been postponing some maybe [ EUR 8 million ], maybe [ EUR 9 million ]. I think something like so, which we should -- yes, we're planning, let's say, due to -- if the safety condition allow it to do it later. I mean within year-end anyway. The second question was about?

Electricity cost.

Electricity cost, I don't know, do we have [ a sale in a ] year? We do expect electricity to stay more or less at the level of the first half. So to keep, let's say, the same advantage -- to gain a similar advantage also in the second half. I don't have here the split between [indiscernible].

[indiscernible].

[indiscernible]. Yes. Sorry, just a second. So yes.

This one?

Okay. Yes. Total energy cost for first half 2020 was [ EUR 133 million ]. This refers to this cement operation. And last year, I don't know.

[ EUR 172 million ].

[ EUR 172 million ] last year. So this was the differential. Now we can check closer, [ check the range still ] for the full year. But I think a similar objection should follow because at the moment, we have also been able to somehow secure a little bit more than what -- due to the low level, we decided to hedge a little longer than what we're used to. So at least for this, for the base cost of energy. Then the [ transportation ] or the -- let's call it -- if there is a significant pickup, a quick pickup in the oil price or also the CO2 price, which is actually increasing, we may not -- we may see, let's say, a higher cost quicker than what we are planning, let's say, in the forecast. July and August, overall -- well, August, it just started. So there's no really very feedback. July overall has been a month, let's say, in line with June, which means that, yes, in some markets, we did better than [ last year ] and some other -- the ones that are showing, let's say, more resiliency, that are stronger. Also Italy did better than last year in July and some others are weaker where we see, as I said before, more risk, basically the Eastern European markets, yes.

The next question is from Elodie Rall of JPMorgan.

Can I just follow-up on the U.S., your more cautious view there at the moment. If you could give us a little bit of more granularity about your expectations for the different subsectors, residential, nonresidential, infrastructure, what -- how do you see those evolving here? That would be my first question. My second question would be on CapEx and net debt. I was wondering if you could give us some color about the level of CapEx you're planning for this year and where do you think you'll end up with net debt. Could you actually underpin a net cash position? And lastly, given leverage is definitely improving this year, what do you intend to do with regard to capital allocation going forward? Buybacks? Extension? What's your priority there?

Yes. The first question was...

On the different subsectors in the U.S. Can you -- where are you most cautious? More positive? What are you seeing...

Yes. Yes. I would say that we're seeing fairly stable to increasing trend in the residential that overall is showing, let's say, good stability. The nonresidential is the -- probably the weakest, not so much we -- where [indiscernible] or deposits, [ Amazon that they staff ] for, I don't know, better center. This kind of stuff is growing. But more of the office buildings, hotels, et cetera, this portion of the demand. And no, residential demand is clearly affected. And on the public construction, yes, we are starting to see some positive signs. Some larger projects that are coming to the execution phase. And this is also the portion of all the demand that should probably become more important going forward. But also with the residential, still a [ good ] issue. I don't know. Again, if you look at the EBITDA projection in 2021, they are positive on residential, slightly negative on nonresidential and slightly positive, let's say, on the public works. The CapEx spending for the full year, according to our last, let's say, projection and considering what I said before, some of the postponement that we will not recover, they were decided we would not recover by the year-end, still should derive around EUR 270 million. Last year, we had EUR 340 million. And the net financial position, considering what we have just said, let's say, operating cash, CapEx, et cetera, should close -- it's something that is EUR 250 million, more or less EUR 250 million, which is what we are assuming right now. For how -- what to do with the capital allocation. I don't know. This is quite probably an entire conference. I don't know if we want to spend -- no, it's important, of course, but I don't know. This is not so much the occasion. I think we have some good ideas, some plans that are viable and interesting for all the shareholders. And it's a nice, let's say, problem to have. I think we can show that, let's say, fairly well. But again, this should require, I mean, in my opinion, a separate presentation where we have much, much more time to be discussed.

The next question is from Alessandro Tortora from Mediobanca.

I have 3 questions, if I may. The first one is on -- and so if you can come back, as a clarification, you mentioned before, the CapEx expected for the year is EUR 270 million, so 270, [ low middle ]?

Yes. EUR 270 million, EUR 275 million.

Okay. Okay. And your idea is considering the plus and minus that you mentioned before on the cash flow side to, let's say, be in the region of EUR 250 million by year-end, correct?

Correct.

Okay. Okay. The second question is on -- if you can come back to the July trend and all in the U.S. because clearly, unfortunately, we saw, let's say, some increasing cases from COVID-19 in the U.S., mostly in Texas. So I would like to understand what is, let's say, the underlying trend in the U.S. in July, just to have an idea of how is going the situation for you. And the third question is on Italy. I remember that in the past you mentioned the idea to basically deploy and use the inventories and [indiscernible] where you start the production of your plant in Italy. Can you give us also an update on this side, for instance, if you still have some plants, I guess, in the south of Italy basically still stopped and just using, let's say, their inventories?

I did not fully understand the last question.

Okay. I'll try again, Mr. Pietro. It was related to the situation in Italy. So basically all your plants have restarted the production, okay, after the pandemic after the lockdown.

Yes. With one exception, [indiscernible]. The exception is the Testi plant, which is the one that was acquired last year from -- like at this time, let's say, of the year. Well, beginning of July. And yes, we are gradually using their clinker inventory to grind cement. But this is part of the overall, let's call it, restructuring in Italy, which will involve, let's say, some further action to rationalize the production footprint. So we continue to have, I mean this is clear, some excess capacity and we need to address it. Not too easy at this time because we know that we all would -- also be -- how do you call it, social benefit from this [indiscernible].

Lay off schemes.

Lay off schemes during this period. So we are not allowed really to act very, very quickly when we've been using some kind of unemployment support. You cannot right away enter into a negotiation for potential or future, let's say, offloading of the plant. In terms of the coronavirus cases, in general, in the last, let's say, 2 weeks, we have been better also within the company. Because, yes, there was a moment when -- for example, I was looking -- yes, back in the beginning of July, particularly in Texas and particularly in the ready-mix operation, where you have more people, let's say, going around because we didn't plan, as I said earlier, we don't have really to -- I mean social distancing is quite easy. It's quite normal. We did have ready-mix drivers, et cetera. To note, there was one case per day. Fortunately, again, nothing really serious for the first infected. From an organizational standpoint, some difficulties due to the policy and the fact that you needed them to insulate also their colleagues, the colleagues that have been closer or in contact with them. In the last 2 weeks, basically, nothing anymore. So we do not have any new infection within the group. But it's worth mentioning that some states like Texas, Louisiana, Georgia, Tennessee and Mississippi that are very important for us, we are preparing plans for second phase of lockdown. They are not -- they were caught by, let's call it, surprise in a sense because initially, the pandemic was really strongly located in the north. And they were caught by surprise when it started to become serious. Also again, Florida -- we are not in Florida, but anyway in the Southeast and Southwest region. And they are monitoring the said states are monitoring the number of infection typically cases for 100,000 Americans. And if this figure, which I don't know exactly what it is, but let's say, it goes beyond a certain level, they are ready to introduce a so-called lockdown second phase. Hopefully, this will not occur. If we look at our own, let's say, company, things are much less critical, let's say, than 2 weeks ago. But nobody knows, of course.

Okay. Okay. And sorry, the last question was on the assumption you made on the U.S. dollar, let's say, on your full year guidance. Your dollar-euro exchange rate.

Yes.

The forecast we used [ 112 ]. But of course, it's now in the last -- during the last weeks, the dollar has weakened quite significantly. So this may change now in the next forecast. So for the last forecast that we used, also for the outlook, we used [ 112 ].

The next question is from Gregor Kuglitsch of UBS.

A couple of follow-ups, actually. Can I just come back to 2 points, the maintenance in the U.S., I didn't hear the number. If you could just repeat the benefit, that would be helpful. The second one is really on Brazil and the derivative situation. If you could just maybe summarize for us the position. I know right now, it's a put in call in the Brazilian JV. What the cash out would be? What you've already put into your net debt? Because, obviously, I think your book derivative valuation into your net debt [ that we see ]. But just give us a kind of overview of that. And then did I hear correctly there, did you say it's a 15 or 50 impact on net financial expense? Just maybe...

No. 50.

50. Okay. So if you could just summarize the base to the future cash -- maybe let's leave it there, and then I'll have a couple of other questions, but otherwise I'll...

In the U.S. only, like the postponement of maintenance, it's about EUR 5 million. If you consider U.S. and Italy, you'll go to, what I said before, EUR 8 million to EUR 9 million possibly. So what we could we could have, in addition to the -- or let's say, as a negative variance in the second half of the [indiscernible].

Sorry, you broke up. You mentioned it when you said the number. Can you say it again, the one for the U.S.?

EUR 5 million in the U.S. And considering also Italy, we go to EUR 8 million, possibly EUR 9 million, let's say. Total for the group.

Okay. Excellent. And on Brazil?

Yes.

Brazil was on the [indiscernible].

[indiscernible].

Yes. So the -- basically, it's -- the main trigger here is the floor that is basically the valuation in the equity value of the company, which is a total $500 million and the half of it because that was already acquired at $250 million, which is basically the floor for the calculation. And mainly due to the fact that the U.S. dollar compared to the reals have significantly changed the ratio, therefore, the derivative has changed since the beginning of the year. And the impact is roughly EUR 50 million. So to answer your question regarding the cash out, in a scenario from 2022 onwards, where basically then the acquirer may desire to be paid out, then the minimum value would be the $250 million. If the 3-year average of the EBITDA with a certain -- multiplied with a certain factor is then higher than the $250 million, then we will pay the higher amount, but the minimum is $250 million.

And then -- that's helpful. Can you just -- then going back to trend in July. Are you seeing volumes actually down in the U.S.? Or are they still growing? I believe you had a very strong end to the second quarter. I just want to understand your caution on the second half, whether it's more about the future or if it's something you're already seeing right now. And then the fourth question, which I think because it is probably a capital allocation question before you have a whole presentation on it. But can you just give us a sense in your ambitions as regards to carbon reduction and development of lower carbon-intensive products, please? I mean, obviously, that's a very topical situation for the whole industry. I think there was a presentation the company held some weeks ago, which is published on the website, I believe. But if you could just maybe give us sort of your take on, I don't know, the 10-year targets maybe on the sort of pure CO2 reductions. And then maybe if you're doing anything as regards to kind of then broadening the product portfolio, I don't know, low carbon concrete, whatever else you may -- whatever else you've got in your planning phase.

July, in general, is supporting, let's say, I would say, the upper end of the range, let's say, in a sense that in July -- I mean talking about the final guidance. If we look at July only, overall, it was a positive market, let's say. So it's supporting more, let's say, the minus 5 than the minus 10. On the -- yes, I didn't mention it before, but of course, in the next few years, capital allocation or capital devoted to, let's call it, sustainability issues, in general, will become definitely much more significant. Maybe not so quickly. Because the main, let's call it, need of capital is associated with the, let's call it, the capture and -- or carbon capture and storage project that will come sooner or later. It's a matter of identifying and then testing the technologies. And of course, also knowing where to store. You can capture. But okay, in principle, this is something that will affect, in particularly or initially, the European market, the European clients under the ETS scheme. And yes, we will, for sure, require a significant amount of money. So to be today in a very solid, let's say, financial position in the light of what is coming for, let's say, CO2 reduction and CO2 capture is a good -- it's very reassuring, let's say. It's something that give us, let's say, a good feeling about the possibility to do something without leveraging too much the company. And yes, for sure, it will come. We are working on some -- we have already issued some targets. We are working on some new ones, which I think come out with the next sustainability report, more likely than not. And yes, they will require -- they will definitely require significant capital, maybe not tomorrow, but yes, the day after tomorrow.

In the presentation -- maybe just to add, in the presentation you may have seen on this matter, we have published the number of EUR 420 million for the target of 2022, which is also already realized. So they are not just new CapEx, of course. So this is [indiscernible] is the, let's say, the communication to the market what we are doing now and have already done partly and what is the target until 2022.

Can I have a follow-up? Are you doing this -- I think that include Maryneal [indiscernible] -- yes.

Maryneal is included and it's the largest. Yes. It's the largest project for -- until now.

And are you doing the next investment in Maryneal? I think that was the discussion last time you had this call. I think it was going to be a new line, correct me if I'm wrong.

No. Not in Maryneal. Maryneal is being -- is completed in condition. No, there is initial project in San Antonio. Yes. We already got a -- we have a permit, and we are keeping the permit alive, but no decision yet has been made. No final decision on actually building the entire new line. But we -- yes, we could do it, let's say. It is, again, potentially a significant project and significant capital allocation if we go ahead. But no decision has been made yet. No final decision.

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

Yes. Could you just please reconcile the positive impact of the inventory benefit that you had on EBITDA in the U.S. in H1. Was it $26 million on EBITDA? Or was it on sales? That would be my -- on EBITDA, it was $26 million?

Yes.

And we could have a negative impact of $26 million in the second half of the year in the U.S.?

No, no, no. Could be, let's say, that we have been -- this year, we needed to, as I said before, to reveal the inventory. And by year-end, since we will -- the minimum inventory level last year was more or less at the end of June and then went up during the second half. So by the end of the year, it could be, I don't know, 10, maybe. So much less, it should be much, much less, but not totally reversed. The idea is to keep, let's say, the correct inventory level to be able to operate the [ terminal ], in particular during the summer season.

So there could be a [ EUR 15 million ] negative impact on EBITDA in the second part of the year?

Exactly, yes. Yes.

And then the second question is that could you quantify -- you were mentioning that the month of July was good. Were the volume up in ready-mix concrete and cement in the U.S.? And could you kind of give us some specific number if you have some order of magnitude in the U.S.?

I would prefer not to because we usually do not disclose in such detail the volume trend, yes.

But was it up or down or stable?

Where?

In the U.S.?

U.S. was slightly up, yes, versus last year.

And then the last question would be, again, on capital allocation. Is it fair to assume that before committing large CapEx in, let's say, in Europe, you are waiting for a [ purer ] regulatory environment in Europe and potentially a carbon tax on imports? And that after that, we could see bigger CapEx that could be profitable? Is it fair to say that you're waiting? And if, let's say, the regulatory environment is not conducive to do large CapEx, could you consider buyback or are you looking at acquisitions?

Well, more than the regulatory it's really the testing and the choice of the technology, which will require some time. Again, because the largest or the newest -- the largest projects besides what would come from the, let's say, ordinary maintenance and replacement project is associated with the carbon capture. And we are involved in some testing. We have 2 or 3 lines of testing in that through -- some are already at the, let's call it, operating stage. Some other have been identified in terms of technology, but need to be built still under the -- so there is an engineering project, but there is no equipment installed yet. And so this is more than, I would say, more than regulatory is really to understand better what is the right way to go, which could also be different from one plant to another. And then, of course, once you capture the CO2, where to take it, where to store it is another issue. This is more a country or European issue because it's not -- you can -- yes, you can maybe partially solve it by yourself, but not much when you involve the entire industry, and not only the cement industry because carbon capture could be -- or yes, it is also other industry. I think heavy industries are considering to reduce their CO2 footprint from the rest, yes, on the rest. And on the buyback and on the dividend, I think, yes, we will continue to look carefully at our figure, our results. They allow probably some more generosity on the dividend I think could be expected by not -- if there's not, again, significant, let's say, need for other reason. It would make sense. We have always been quite conservative. We could increase the payout, the possibility. M&A is more difficult, not impossible, but more difficult. I don't think we would be inclined to really, unless a strategic or let's say highly financially sound to open a totally new market or geographic region. There are many things that you can do [indiscernible], typically bolt-on in the regions where we are ready. So this is something we are always looking at very carefully. Something has been maturing. Already last year, the acquisition for Italcementi is an example. The ready-mix acquisition we made in Germany is another example. These kind of projects are, I will not say, on the table every day, but they are coming up and they we will be followed very closely to strengthen as much as possible our, let's say, position and performance in the market where we are already.

And maybe just to come back on carbon capture. Isn't it fair to assume that in order for the investment on carbon capture to be profitable, you would need to increase cement prices quite substantially? And that it is difficult to do that without a carbon tax on imports, so that to a certain extent, the carbon capture investment depend on the carbon tax on import?

No. I did not -- when you were talking about regulatory, let's say, environment, I was not thinking about the border tax adjustment or whatever. Yes, of course. This can be an important variable, important factor in taking the decision. So in this respect, you're right. But I think what will be driving more the profitability or the return of the carbon capture project is actually the CO2 cost, more than that. So with the CO2 cost rising above a certain level and due to the fact that CO2 rights are becoming or will become more and more short due to the mechanism, this will be the main trigger.

The next question is from Cedar Ekblom of Morgan Stanley.

I've got 2 questions. Firstly, on the buyback. In the first half, you've repurchased about EUR 7 million of treasury shares. How do we take that in the context of the 7 million shares that you're looking to buy back over the next 18 months? It seems like that's quite a small number. So should we assume that, that 7 million number for total treasury share repurchases is more aspirational? Or is there a potential that you actually ramp up your buyback program from here?

Well, at the moment, yes. It's a little more that's quite aspirational because this was decided as [indiscernible] when we approved the financial statements. So at the moment when things were looking overall for the GDP, for the industry and also for the company, very, very -- how could I say, not very negative, but let's say an outlook which we forecasted much weaker than what we have experiencing -- been experiencing now in the first 6 months. And our position there, also the explanation to the Board, which was a little bit reluctant to, let's say, approve a buyback in such a moment because clearly, the direction was to preserve, let's say, cash as much as possible. The decision taken by the Board was to impose [indiscernible]. It's okay, we can do it. We have a strong financial position. We can do it, but we set some price limits, maximum price limits that unfortunately, lately, we have been -- unfortunately -- no not unfortunately. [indiscernible], maybe. But unfortunately, for the buyback, we've been reaching. So we are beyond, let's say, the price [ that was set ] by the Board at that time. And so I mean we are open, let's say, to continue, but it will depend on the market trends.

Okay. I'm interested you say that because, in all honesty, your EBITDA performance in the first half was actually very strong and rose year-on-year. So I'm surprised that you're not pursuing the buyback as much as you'd expect as you would, considering that actually cash flow generation was very, very strong. But anyway, I was...

It was -- when it was decided again, maybe it was not presented in the right way. But no, I think it was. Again, I mean, it was easy to convince everyone that this was the right thing to do. It was considered a little more, if you wish, opportunistic than really something that we wanted to commit at all cost or at any cost.

Okay. And then I just got a question on the decision to stop selling the CO2 rights from Italy to other parts of the business, which are short credit. Can we assume that the decision to do that was simply because we had a correction in CO2 prices in the first half in the market and so there was an opportunistic chance to pick up credits at a lower price? Should we assume that -- okay, so basically, the question is, going forward, if you had a rally in CO2 pricing, you would be willing to reinstate the selling of credits from Italy to other parts of the group even if it's net neutral at a group level?

Well, we could do it. As you were mentioning, we -- again, in an opportunistic, let's call it, a, we decided to invest quite significantly at the beginning of the year when the price was around [ 15, 20 ], I don't recall exactly. It was -- we've got also some at the lower level.

15 [indiscernible].

Yes. But some of them were some right about at the lower level. And we secured, let's say, a certain amount of rights at a good price, let's say, which was more or less corresponding -- actually, it's a little bit more due to the [ need ] of the group for this year. So we are keeping, let's say, the surplus, the Italian surplus for Italy itself. Then, of course, starting from next year, everything is going to change. So everyone will be short. Every market will be short, actually, including Italy. So at this point, I believe that each market will take care of itself. This is the idea. I mean -- and Italy will start to, let's say, deplete it's CO2 inventory going forward. I don't know Patrick if you want to add...

What was that -- what was the cost for CO2 in the first half? And which division was it recorded in?

The cost was basically EUR 20 per ton of CO2.

Average.

Average, yes. And...

And that's in euro amount? So was it EUR 10 million? Or was it...

No, it was EUR 12.5 million, EUR 12.5 million approximately.

No, no.

More? No, but this is the entire purchase. You're asking the approval, let's say, you're asking the -- not what we paid to purchase this year to rights?

No. What did you pay to purchase the CO2 rights in [indiscernible]? And was that a cost?

Yes. But no, it was not a direct cost because in part, we still have in our stock, let's say, in our inventory CO2 rights. What we paid for to buy was EUR 28 million, correct?

Yes.

EUR 28.3 million for 1.475 -- almost 1.5 million tons of CO2.

And that was realized as an operating cost in which the [indiscernible]?

No, no, no. In part -- okay, it's going completely to the inventory, and then we accrue what is the estimate for the full year. And the estimate -- sorry, not for estimate for the full year. The estimate for the first 6 months. And the accrual is about EUR 13 million, more or less.

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

Okay. Thank you all for listening, the ones that have been able to remain at this time of the afternoon. Enjoy your summer vacation. I hope you stay safe as much as possible. And of course, we will remain in touch with our Investor Relations team for any other needs you may have. Thank you so much, and bye-bye.

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