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 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. Mr. Buzzi, you have the floor.

Thank you. Thank you, and good afternoon to everyone. I'm here together with Patrick Klein, group Treasurer; and also Lorenzo Coaloa, Investor relator, that will be part of the conference together with me, in any way, available to help me for any kind of questions that you may raise. So we published 2 hours ago or 1 hour ago, the press release on our approval of the full year financial statements, full results for 2020. Some of this we disclosed previously at the beginning of February, and particularly net sales and net debt and volume and price trends. So in general, the underlying operating assumption. Then, we already envisaged, let's say, when we gave guidance for the full-year result, at least the operating cash flow level, which eventually was respected -- I mean, was achieved. We closed actually with slightly better in terms of recurring EBITDA, but the reported EBITDA is on track versus what we mentioned already in February, which is the EUR 780 million, a very good figure. A figure that we -- absolutely, we did not expect, at least, not last year at the same time, when there was a lot of uncertainty, risks coming up. So we cannot be, I think, more satisfied than that in terms of the full outcome for the -- of the outlook for the full year. Clearly, this is also the strong result operating and also the net income offsetting quite a high bar, quite a threshold for the current, let's say, 2021. And even if it may sound somehow disappointing, the message that we gave in the outlook, it should also be seen in our opinion to be considered with the exceptionally good results that we achieved in 2020 that are really, really difficult, let's say, to overcome. Nothing is impossible, but very difficult to do better in an environment that is anyway doing some quite significant rebound in industry -- in inflation. So I want to guide you through as quickly as possible to the results, and then turn back to you the floor for the Q&A session. The results were driven not so much by volumes, because if you look at the volumes, the trend, we are basically flat at the group level versus last year, with the majority of the country that are showing a slightly negative sign. The only positive sign or the only favorable variances that we had, most significant one was in the U.S., where the market performed really very well, also in the last quarter, so with a 5% improvement versus last year. Germany quite stable. Actually, the domestic market was up versus last year. That will suffer from lower oil and cement shipments going abroad -- export sale that offset, let's say, partially the good performance of the domestic market. Overall, anyway, we closed with no less than last year in terms of volume. Other markets, likely all of them, this is slightly negative, minus 3, minus 4. Positive sign instead -- positive variance in Russia. A strong recovery, let's say, in the second half of the year, driven by, I would say, a good performance in terms of market share from our companies and also stronger, let's say, demand coming from public works. Also, in Russia, we suffered from lower oil and cement shipments that they do represent in Russia, a significant portion of our sales. But nevertheless, the total cement sales of gray and oil well closed the year above 2019, slightly up, 2% up. 2 countries with strong interest, Mexico and Brazil. We are going the opposite way. So they were the only -- not the only, but the 2 countries were, instead, the flow -- the shipment trend was very strong. Mexico performed 12% after versus last year in terms of cement sales, and Brazil, 9 plus, let's say, percent up. But these figures are reflected only in the equity earnings, let's say, line of the income statement. So not a big help coming from volumes. More help, let's say, more contribution coming from the positive trend, which was positive, let's say, favorable across basically the entire scope of consolidation with -- at least, in local currency, we had prices improving basically everywhere, with the only exception of Ukraine, where the local currency pricing was flat or slightly negative versus last year due to some pressure -- some, say, volume pressure due to imports coming into the country from -- basically from the Black Sea. Also, when looking at the joint ventures, Mexico was basically flat in pricing. U.S. was basically flat or slightly, slightly better, but not much. So in the case of U.S., yes, they've been the major driver. And for the rest, as I said, nice, let's say, price improvements in Italy and Germany. Also, Poland had a significant price improvement versus last year, and Czech Republic, too, improving. On the, let's say, results and revenues, quite significant impact was -- can be referred to the trend of the ForEx. In particular, countries that, for us, are quite -- they do represent, let's say, a significant portion of our business, like the U.S. and Russia, they both showed a negative variance of exchange rates, not so much in the U.S. because, on average, we have a minus 2% for the full year, much more significant in Russia, the ruble lost about 40% during 2020. Other major, let's say, devaluation of currencies against the euro currencies that have an impact on our books. I'll continue to refer to Mexico, with a similar devaluation as Russia, at about 14%. And a major one, unfortunately, in Brazil, minus 34%, so a big loss for the Brazilian real during 2020. Net sales that were already discussed in February, they are flat versus last year. Like-for-like, plus -- almost plus 2%. ForEx impact minus EUR 28 million in Russia, minus EUR 26 million in the United States. Overall, EUR 70 million -- almost EUR 70 million -- EUR 69 million ForEx negative impact on sales for the full year. And this brings to the flat -- basically the flat total turnover. You have countries that in Europe are showing a limited improvement. Again, I'm talking specifically the U.S. and Germany. Anywhere else, either you have the decline or flat -- almost flat to, let's say, level versus 2019. The 2 joint ventures performed very well in local currency. So you have a plus 10% turnover in Mexico, almost 40% up currency turnover for Brazil, which was coming from a very low level, clearly in the previous year. But unfortunately, Brazil is almost flat after translation of their financial statement versus last year. Meanwhile, Mexico is, anyway, let's say, well, it's not improving, but it's getting very close to the same level as last year in euro-denominated values, let's say. Moving to the operating cash flow by country. Here, the picture is quite different, and can be explained basically by the trend, by the favorable, let's say, tailwind that we experienced during the year on the cost, which, in part, was external -- let's say, mainly external, particularly, the decline in the cost of energy inputs. And in part was obviously also coming from, let's say, close on -- cost management during the year, particularly when realized at the beginning of the second quarter that things may get worse. And we had a number, let's say, of projects -- of, let's say, focus, particularly on some of the fixed costs like maintenance, and decided where and when to maybe align this project and adjust this project to the new scenario and the new environment. So overall, there are very few that have performed in terms of operating cash flow worse than last year. And if they do, like, for example, in Russia, it's more a matter of foreign exchange, than underlying, let's say, local currency trend. We do have a decline in Italy, which is quite significant, if you wish, but this is driven by 2 regions. One, that Italy was the only country unable to work and to produce and sell during the months of April and basically, yes -- between March and April and started back into operation -- went back into operation at the beginning of May, but, of course, slowly coming up after the lockdown. And second, because Italy last year had, within its figures and intercompany sales of CO2 rights, which did not occur this year. So actually, if you clean the data, it is -- I mean, you adjust it for the missing, let's say, CO2 sales, our EBITDA is actually better than last year because the recovery during the second half was quite good and volumes lost were partly recovered. Prices did well, and also the cost like in the other countries were more favorable than last year. A strong result, let's say, in the U.S.. But clearly, partly affected by the exchange rates. But like-for-like, we have a 12% improvement in EBITDA in the U.S. versus last year. Even stronger in percentage, let's say, proportion the performance of Germany, plus EUR 21 million, which means 20% up versus last year. Stable or slightly negative, let's say, the Benelux, Luxembourg and The Netherlands, with minus 4. And for the rest, again, countries that did not perform particularly well in terms of volumes like Czech Republic, Poland, Ukraine, anyway able to improve some of the results versus last year. Russia, good performance in local currency. As I said, fortunately, translating into somewhat lower EBITDA after the -- considering also the ruble devaluation. The joint ventures, in terms of operating cash flow, in this case, we had, in Mexico, an improvement. Also in euro. So this is quite a significant achievement. And same thing in terms -- for Brazil, which is showing a stronger, let's say, operating cash flow in Europe. And also, again, after such a significant devaluation, as we mentioned before. There are some nonrecurring items in the EUR 381 million figure. They refer to Italy for about EUR 3.6 million. So let's say, the recurring EBITDA of Italy is actually EUR 3.6 million higher -- greater. Small one in Germany, 0.4%. And I -- no, sorry. Sorry, the Italian value is EUR 1.6 million negative, it's not EUR 3.6 million. And Germany is 0 this year. And instead, we have a negative in Russia due to a legal dispute that is still open, but was, anyway, accounted for as a negative result for EUR 2.6 million. So Russia is actually affected EUR 6 million in its EBITDA and slightly better in the recurring figures. Looking at the EBITDA bridge. Just to summarize what I mentioned so far, let's say, the volume impact -- the negative volume impact is about EUR 9 million. Price effect instead is EUR 52 million. We had a EUR 45 million improvement coming from the variable cost. So the so-called -- mainly the energy input and mainly fuel, actually. Power was also favorable. Logistic transportation was also favorable, but the main advantage came from the fuel cost last year. Fixed cost stable versus last year, basically. It's mainly due to the -- what I mentioned before, in terms of maintenance programs, which were somewhat delayed or any way kept under strict, let's say, control. And negative variance of about EUR 30 million on other items that include in particularly the inventory changes. So the fact that, anyway, also due to the strong shipping season in the last quarter, inventory declined towards the end of the year versus the level of year-end, let's say, 2019. And this affected again EBITDA by approximately EUR 30 million. CO2 costs that we did not have basically last year, much less in proportion due to the fact that instead of, again, using, let's say, the intercompany reserves. We prefer to get to purchase outside the country that we are in the need or to -- in a short position, let's say, for CO2 purchase their rights outside. And the additional cost charge, let's say, to the 2020 income statement versus last year is about EUR 18 million. And then the negative impact is coming from ForEx, which is overall on the EBITDA 21 -- almost EUR 21 million. This should lead you to the EUR 781 million versus the EUR 728 million achieved in 2019. Moving to the -- just to give you an idea, looking at the cement business, the energy cost impacted the advantage that we enjoyed this year, and that unfortunately is already moving, let's say, in a different way in 2021 it's quite major, it's quite significant because the total energy bill, so fuel and power for last year was EUR 25 million, representing approximately 14% of our revenues. The previous year, we had EUR 357 million, representing almost 17% of revenues. This is partly due to the -- clearly, the volume and price trend, but mainly to the lower input costs. Our -- between the 2, as I mentioned before, the advantage is mostly coming from the trend of power cost, strongly declining. And energy cost also declining, not as much. Going to the lower part of the income statement. This was also quite significant advantage versus last year because after a slightly lower, let's say, depreciation and amortization, we had an improvement in operating profit in EBIT that is -- that amounts to EUR 56 million versus an improvement of EUR 53 million, so EUR 3 million more, let's say, at the EBITDA level. The profitability -- so the return -- let's say, on return on sales, it is -- has achieved 16.3% versus 14.5% last year. Strong also contribution in the income statement versus last year in the equity earnings from associates. This is related to the good performance -- very good performance, as I mentioned before, of Mexico, Brazil and also other countries that we are not consolidating, let's say, line by line, less important, but still, particularly, this is due to the big, let's say, disposal -- gain on disposal realized by our associates customers cement. This was already included in the semi-annual, let's say, results because the closing of the transaction occurs in March. And we had a significant gain clearly into this line, which totals, just to give you the figure, EUR 105 million, yes. Because, of course, yes -- well, yes, before tax because it's a partnership. So anyway, a big portion of the $176 million total is associated with the, let's call it, extraordinary disposal of our associates Kosmos Cement. We were also able to somehow bring down almost the net finance cost. Clearly, within this site, you have both cash, let's call it, expenses, interest expense or interest income and other items that are not represent either a cash outflow or inflow like ForEx gains or losses, derivative valuation, et cetera. So we were favorable, let's say, mainly by the trend in this specific items that are not -- did not translate into an actual cash inflow or outflow, in particularly the ForEx gain. But anyway, at the end -- we end -- we have a benefit in the income statement, and we achieved almost 0, let's say, net finance cost for the full year. Profit before tax, around EUR 700 million. Income tax expense, the tax rate is very similar to the one of the previous year, around 20%. And net profit, clearly very high, EUR 560 million, to a good extent, coming from an extraordinary, let's call it, gains, but also to -- also a consequence or an outcome of strong operating performance that we commented upon just recently. A few focus -- I mean, yes, very focused on the cash flow statement. The cash generated from operations is EUR 744 million versus EUR 690 million last year, so almost 2% up in terms of percentage of sales, let's say, then we have higher income tax paid, also due to the higher results. But in part, this is also coming from potentially, not necessarily matching, let's say, the accrual -- the accrued tax expense for the full year. And interest paid, similar to last year, only EUR 2 million less. So in terms of net cash generated from operating activities, we go down -- I mean, reduced the amount to EUR 589 million versus EUR 575 million last year. Then the impact of the full consolidated cash flow statement on the net financial position is getting very close to last year. Last year, we improved the net financial position by EUR 322 million. And this year, we improved by EUR 326 million. But clearly, within the outflow of this year, 2020, we have so much higher dividend payments, EUR 32 million, the ordinary dividend last year, but also the EUR 144 million included in the net financial position and paid shortly after the end of 2020. We have also much higher dividend received. So coming a large extent from the -- again, from the Kosmos gain on disposal. We have a little less capital expenditure. Capital expenditure we also reviewed very promptly at the beginning of the pandemic. So we started to, let's say, slowdown and possibly postpone some of the CapEx projects because we didn't know exactly what was going to happen. And this translated into some delay. And at the end of the year, a decline in total capital expenditure for -- they represent EUR 228 million outflow this year versus EUR 257 million last year. And other major items are not really worth mentioning. Yes, and as I said, the improvement after an overall dividend payment of 100 -- almost EUR 80 million, the net improvement -- the improvement in the net financial position is still EUR 326 million, so very good, I mean, the -- for sure, very good performance. What else? I think we covered most significant item and we can -- yes, I think we can move to the Q&A question session, so we can devote more time to that and focus maybe on the subjects that are more of interest to you.

[Operator Instructions] The first question is from Paul Roger of Exane BNP Paribas.

Yes. I've got 2 questions to start with. The first one is on your U.S. guidance. Clearly, a lot of other people have given an outlook, and most of them are actually really quite bullish, particularly with regard to prices. And when we look at the commentary, that applies to a lot of your regions, Mississippi, Northeast, Texas?

Yes.

And I guess the question is, given that read across I'd expect you to be a bit more upbeat? So is there something company specific we need to be aware of? Or are you seeing a less positive pricing outlook? Or is it really just a case of you being conservative early in the year? So that's the first question. And the second question is on CO2. You mentioned sustainability CapEx. How much is that likely to be? And are you going to update your CO2 targets beyond 2022 soon?

Yes, sure. Well, I think that there are probably in the U.S., potentially more opportunities maybe than risks, you're right. But these opportunities, at least this is our belief, and it's partly, yes, company-related, like you mentioned, they're coming on -- more on the volume side than on the price side. Or if you want to put it differently, they will also translate into higher prices. Anyway, we will need them, let's say, in a sense, to offset the cost so in our budget, we could be somewhat conservative on the volumes. But I think we are quite realistic on the relationship between prices and costs. And yes, you're right. We have some regions that are more complicated maybe than others. The Northeast is one, the Houston market is another one. And other, yes, company maybe company-specific that I -- and I think it's the case to go into the detail right now. But related to some -- yes, let's call it customer relationship that are helping us on this side, on the volume side but may necessarily on the plus side. So I would say, this is our view right now. I think the first there can give direction, but not necessarily as usual good one for the full year. So I think we could maybe reassess somewhat our view by the end of the semester. We do -- maybe -- also, this is important to mention, maybe the -- some of the competitors are always talking about, let's say, like-for-like improvement. Meanwhile, we are, let's say, assessing a likely outcome for the U.S. business already translated into Europe, and there is probably, at least this is what our budget is there's probably going to be some -- for a negative unfavorable, let's say, currency impact. So these 3, let's call it or 4, volume, pricing, cost, and negative -- slightly negative ForEx impact are, let's say, summarized to something that we believe is not going to be, unfortunately, as good as 2020. On the second point, no, I mean, this is what was -- just a way to recall that, like any other companies, we are involved in a process that is very important. It will be long-lasting. Because it's not something that you can solve very quickly, let's say, in this process to achieve, let's call it, the same as carbon neutrality by 2050. And again, we are following this process. I think, in the right way, in close contact, in close cooperation with the major, let's say, industry association. This industry association, okay, in the state of -- CEMBUREAU already come up with some road map, the GCCA, the Global Cement and Concrete Association, let's say association is working on it. Again, we are very much involved into that directly with our people, also with our opinion because it's not necessarily the same opinion of the other competitors. And this -- in terms of CapEx does not -- I mean, the message that we wanted to give in this phase that we are involved and we are doing something, and we will do something more, let's say, going forward. It's not really changing the overall, let's say, CapEx level for this year, which is going to be greater than last year, but not necessarily because of this reason. I mean, it's a part. But it's not, let's say, the main reason why CapEx are going up, perhaps are going up somewhat because last year we postponed some of the projects and because we have some, let's call it, special projects targeting to yes, efficiency, which also means it's CO2 reduction and limited -- to a limited extent, also to, let's say, capacity improvement. And within that, we will clearly set focus and evaluate, let's say, the CapEx spending more and more in the light of the, let's call it, CO2 neutrality that we are targeting in the long run.

And sorry, just a follow-up on the specific targets for CO2 intensity. I believe you're still targeting 2022, all the other peers have targets for 2030. Will that be something you're looking to revise sometime soon?

Yes, yes. We are not in Russia. The GCCA road map is being discussed recently, still not fully -- not fully agreed upon by the associates, let's say, by the members. Yes. The answer is yes. We will. It's one of our, let's say, if you wish, goals for this year to come up with something that is possible. Okay. And that it will extend our view, our objectives in the longer run. And again, it's not something that, any way, you solve. I mean, you can make the announcement, but this is not -- in our opinion, it's not really the point. The point is the work in the direction to work in the way that we are used to. So making, let's say, the right testing, the right direction. Maybe, okay, I don't know how much really, but maybe some of the investors prefer communication versus actual results or how could I say, we tend to believe that, that is more important, be ready to focus on what we can do and what we can achieve, and then communicate rather than communicate first and then may not achieving. But anyway, don't be afraid. We will come up. Not tomorrow, but yes, in less than 1 years' time.

The next question is from Brijesh Siya of HSBC.

Thank you. So I have 2 as well. So the first one is on cement pricing. Could you please talk about the markets where you have kind of put in price rises beginning of January or you're planning from 1st of April? And the second one is on the balance sheet position. Now you have a strong cash close to 2020. I agree that you have paid EUR 144 million of dividend after that. But still, you have a lot firepower left in it. Do you sense that -- or are you kind of looking to Brazil as one area where you can probably potentially enhance your position sooner than your road map suggest of kind of '25, '26. So anything you're planning to raise that stake there?

Okay. Well, on cement pricing, well, in general, again, this year, the outlook is more positive than negative. This is also partly -- obviously, profit driven from the cost inflation. The CO2 prices are going up very steeply. I mean, we started the year, I think, at [indiscernible] or even less, and we are now at EUR 40 per ton. So this is also driving, on one side, cement prices on the other power prices. And the demand is not really exciting, but is either stable or maybe slightly better than last year, in general. So this should allow a favorable price variance quite widespread with maybe a few exceptions in the market that are faster or where you have -- or you may have more import pressure, but just say that we are not, let's say, pessimistic on the price trend for the full year, the trend is much and versus the cost inflation that is showing -- starting to show some clear, let's say, direction already in the last few months of 2020. On Brazil, well, we have one commitment that is coming up soon. We are in the process of receiving, let's say, the green light from the antitrust authority on the CRH assets acquisition, which will be done by our associates. But actually, and as directly from the mother company, so this will be clearly a use of cash, obviously not in the range we will see, in the range of EUR 200 million anyway to complete that acquisition that should come, I think, if not by the end of April, maybe the beginning of May, but not later. We -- by the way, we received basically antitrust approval, but there is 30 days period of public, let's call it, comments that can be made. So in principle, the antitrust has nothing against it, so for the public comments period to expire. Obviously, in Brazil, the other, let's say, commitment that we have refers to the existing 50%, so to the remaining 50% of the existing associates before the acquisition of the CRH assets. And there, I don't think there will be an accelerate, probably not very likely. So the put in coal option scheme, I think the first period when the seller can exercise their -- its put option will be in 2025. And I don't see it very likely to happen -- this to happen earlier. It may, in fact -- particularly if the performance of the business is doing well -- is doing better. Since also the price of the option is linked to the performance of the business, in a perspective, let's say, of improvement, I do not expect, let's say, the -- our partner to reverse the option earlier.

The next question is from Zaim Beekawa of JPMorgan.

Just a couple on my side. Given the strong balance sheet, with the impressive reduction this year in net debt, can you sort of tell us what are the plans for that? Whether you would consider sort of any further buybacks? And secondly, back on the topic of carbon, if perhaps I could just ask 2 questions here, which is one, related to Europe? And how you see the carbon border adjustment mechanism coming in place? And what you anticipate that would do to sort of the free allocations of credit? And then secondly, moving to the U.S., what are your views on sort of the potential carbon tax there?

Okay. So the first one is the buyback. Well, we are submitting, let's say, to the AGM, a confirmation, let's say, a renewal of the buyback by the same ability, by the same quantity. Let's say quantity doesn't mean a sale that we will actually execute that, but it's a flexibility that we do have, let's say, in our power. So this could be open, to be exercised by the Board. In theory as slow as possible to the approval by the -- anyway, if you look at the trend of the share decide what it is, the absolute value, let's say, which can be, of course, anyone can have a different opinion on that. Fortunately, the performance of the share has been quite favorable. So I don't think the investors should be disappointed about that -- to be better clearly, but we are, right now, I think, back again to what was or has been almost the maximum value averaged by the shares in the past. In terms of lower indebtedness, this is good problem to have in a sense because we need to have in mind going a little back to what was mentioned before on CapEx for CO2 reduction or improvement, let's say, in terms of road map towards carbon neutrality. It is true that this is not coming, let's say, soon, it's not coming in 2, 3 years, but it is clear that any road map for the industry that wants to really achieve carbon-neutrality requires some kind of carbon capture. And carbon capture means -- okay, it depends on the technology. It depends on what is going to be available maybe in 4 or 5 years from now. But it's something that can be very expensive, almost like -- almost -- not exactly, but almost like adding a new plant to your existing one to be able to capture, and especially somehow transport also this year too, because it is true that we are not directly involved in the CO2 quotation, but we don't know how the difference also currently fixed, we'll deal with that. How much of this due to that you produced, you would also have to -- will you also have to bear the cost of transport and storage, to what extent, et cetera. So to have some kind of, let's say, provision or reserve of funds available for this upcoming, let's say, necessity requirement is not a bad thing. On the carbon border adjustment mechanism, well, we will see how it's going to shape out. We -- there are -- there was some disclosure or, let's say, press releases by the European Union. Apparently, yes, this is something that will come, exactly how and when, it's not clear. It could be coupled with the elimination of the fee allocation, which again is not necessarily better than -- will not be necessarily better off versus today. There is really no real allocation anymore. So the fact is that in some that are more, let's say, protected by, particularly in Central Europe or where you are far from the shore, from the import terminals, the carbon border adjustment mechanism is not so necessary -- will not be so necessary, where it's more necessary to couple that with the elimination of free allowances, could be, again, worse than the medicine, but we will see. On the U.S. at the moment -- no, I mean in the market and in the states where we operate, there is no open discussion on a carbon tax. At the federal level, I didn't -- I did not hear about it yet, at least. But it's true that this administration will address this subject in a more, let's say, active way or in a direction -- a different direction versus the previous administration, so we may expect some change. Actually, in the U.S., the main change is something that could already, I do not say, solve the problem, but improved quite a bit the carbon intensity is the introduction, let's say, in the norm or the some kind of possibilities, again, set by the norm to use lower clinker cement versus what we are using today. So if the U.S. would accept, let's say, by norm, in all kinds of projects and construction sites, including, let's say, infrastructure, et cetera. Cement, which is, for example, 80% clinker versus 90% today, this would be -- would represent already a big step before the current one, anywhere else in the world, cement producers are already doing.

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

So a couple of questions. I think you give a precise guidance about your CapEx envelope for 2021. I think you just said that it could be above 2020. Do you have an order of magnitude? Then second question, on your CapEx?

You mean total CapEx spending?

Total CapEx spending for 2021?

Yes, yes. Okay.

And then the second question is that you mentioned that in some markets you might have some pricing pressure because of import. But we have seen that the freight rates actually have increased quite dramatically over the past couple of months. Do you think that it could be -- it could mean that your guidance on pricing is conservative, price rates, if the freight rates remain higher? And then another question, just on the magnitude of the price increase. I understand that in the U.S., most of your competitors have announced price increase between $5 and $8 per ton. I'm expecting that the model, half of it will fit. Is it the case for you as well? Or have you announced different price increases?

The announcement by market, let's say, because they are, generally speaking, regional announcement, usually, they are similar. They tend to be similar. Then the actual realization on the actual improvement in prices, very often is not at the same level as the announcement. So -- I mean again, I think the -- if the demand stays, let's say, at a good level, like it was, for example, in 2020 or somewhat better, there is a possibility to move the prices up, maybe not by EUR 5, but $5. So -- but let's say, 2%, 3% improvement is available. The problem is more on the cost side, as I was mentioning before. So is this going to be enough to offset the cost pressure or not. And then -- well, I already mentioned it. Answering the first question, there might be -- there are some specific situations, some maybe big customers or new customers, et cetera, specific areas where not only we will not be able to move up prices. But instead we have to -- if we want to keep them away, we have to give them quite a significant discount. So again, in line with what I was mentioning before. Higher freight rates, yes, of course, they can have an impact on the imports. They will make them less competitive. But imports coming from -- or export, let's say, coming from countries like Turkey, like Egypt, et cetera, they are still very much based on a marginal cost, let's say, approach. So if you're reasoning on the marginal cost approach, you can absorb. If you want to do it, you can absorb, let's say, a higher freight rate can still remain, let's say, below -- maybe below let's say, remain very competitive versus the local prices. So right or not these kind of imports are behind -- the reasoning behind it is really on a marginal cost basis. On the CapEx spending...

The guidance is above EUR 300 million.

Total versus what we mentioned just Q1, then EUR 230 million this year, around EUR 230 million this year.

How much?

EUR 305 million, EUR 306 million versus EUR 230 million.

The next question is from Yuri Serov of Redburn.

One question is actually just to follow up on CapEx. I couldn't quite hear the number that you just said. Did you say that it was going to be more than EUR 300 million this year?

Yes. Yes. Correct. EUR 305 million, I think we have in the budget versus EUR 230 million this year. And primarily it's been coming from, let's say, carryforward. To a large extent, it is coming from carryforward not really new project approval rather carryforward from the previous year, which were postponed at the beginning of the pandemic.

Okay. So -- but you are mentioning in your press release new projects that you're planning to realize in order to improve the efficiency of the -- so can you give us a little bit more detail as to what those projects are? And how much improvements you're expecting?

No, we have some -- okay, we have one project that is underway, which is the, let's say, not really in a capacity expansion, but it is associated with the capacity expansion project in San Antonio, Texas in the plant of San Antonio, which will -- this is more environmental, if you reach at least at the beginning than efficiency because it's a new clinker storage. We are still not during the full year, during the 12 months, but in some -- some times of the year, some months, we are forced to store clinker, let's say, outside to keep the trade inventory level that we need. And with this new storage, we will be able to accommodate, let's say, all the clinker inside. The other is there is more -- it's both capacity, let's say, the efficiency important one. It's the undergoing construction of the new finish mill, let's say, cement mill department in Russia, in Korkino. This is probably the most important we have currently underway. This is also -- this also has an impact on CO2 because as the new technology, which we will apply and particularly the so-called separator will allow to use -- to produce more than use, but to produce and sell more blended cement. So blended with either slag or limestone and lower the clinker content in Korkino. Then we have some projects that are savings CO2 indirectly, for example, of -- in San Antonio. This is EUR 14 million, EUR 15 million project for the erection of new solar farm, let's say, which will be connected, let's say, directly to the plant and will probably represent some 10%, 15% probably of the total energy consumption for the plant.

So that's also in San Antonio?

Yes. This is some increment on together with the clinker storage, so we will also -- we are currently actually underway right now. We had already. Small portion of the expense charge to be 2020.

Okay. And look, I mean, obviously, the years beyond the current year are not a focus right now. But just to get a sense, so you have quite a substantial increase in CapEx and some of that is carryover from last year.

Yes.

Is this a base? Are these projects going to carry on? Are you planning to spend a similar amount in '22? I mean, I know that you don't have a budget, but what's your sense or maybe higher amount?

No, no. I think that the -- let's call it, the maintenance level is likely to stay in the range of more similar with respect to 2019 than 2020. So it can be between EUR 260 million EUR 280 million, including everything, let's say. But including also environmental emissions and some projects targeted with it specifically CO2, but not new technology or carbon capture or nothing -- nothing similar, including [indiscernible] being CO2, the, let's say, ventures or the carbon project that we are carrying out in Germany, in Italy for testing, let's say, carbon capture. So this is -- and on top, there will be something usual. There is -- and I think that will continue to be some less growth expansion. Within expansion, I also include maybe the replacement of certain equipment, certain production lines. For example, in the case of Korkino, the finish mill department is not really an expansion, but it falls within the, let's say, special project category because it's like building, let's say, a new department. Of course, you build a new department and then you shut down the old one. So you usually have also some improvement in capacity but -- okay, just to give you an idea. This kind of project, I think we will have some. They are not officially, let's say, approved yet, but we will have some, particularly in Korkino, we have the full line already available on the ground, and this could easily translate into a full upgrade of the plant going forward. We will make a lot of sense both on the -- we think, financial side and also the, let's call it, environmental benefits that are associated with it.

Okay. Good. And the second question is completely different. So you had a contracting result in Brazil, EUR 48 million EBITDA last year.

Yes.

You have -- you're almost doubling your capacity. So what do you expect you can get in that venture going forward? I mean, maybe not this year, but the year after. Can it double? Can it get to EUR 80 million? Or can it get to EUR 100 million EBITDA at some point?

Well, the addition is interesting from the point of view of, let's say, strategic we think also financial because, let's say, initially at least, it's more strategic in a sense that we will consolidate quite significantly our position in the southeast of the country. And it will be -- let's say, there are interesting synergies that are coming up from this division, both on the -- we think, on the price side but significantly on the cost side. And particularly logistic, transportation, should -- we should have [indiscernible] better prices due to the stronger presence, stronger market share and improvement on the logistics. In the production cost, the acquired entities are not as efficient as the existing ones. So if you do the reasoning that by doubling the capacity, you also doubled the EBITDA, and fortunately, this is not to base because these plants are not at the same level in terms of -- they have a good market position, but not similarly in terms of, let's say, cost -- production cost, et cetera. So I think -- but I think that if you ask me 5 years from now, I would say that, yes, we have to target something that is double, let's say, the amount of this year. That makes a lot of sense. How this can be achieved, we will see. I mean, in part, we know we will understand better when we will be able to manage the company. But yes, it can be a meaningful and also reasonable targets, of course, with the help of the local market, so if the local market performs. If it doesn't, no. But if it does, yes.

Yes. But pricing is moving quite well in Brazil. So if you have more help from prices...

And you started from a very low level anyway. So there is some room for price improvement for sure.

The next question is from Alessandro Tortora of Mediobanca.

Let's say, for question, okay, if I may. The first one is related to the outlook, but focusing on Italy because I see that in the press release it was not mentioned, let's say, the expectation on the operating result, if you will, let's say, give us that? So this is the first question.

Yes. Well, Italy is one of the -- or if you can this is where we should do better than last year in a sense that -- because we have 2 months, 2 additional months, almost of production, let's say, production and sales. So the market should be -- should finish, let's say, above last year by, I don't know. We will see, maybe 4%, 5%. Pricing is okay. It should be okay, also because, again, there is some pressure on the cost side. But besides that, we have, for sure, a stronger, let's say, market position than we used to have. And the possibility, let's say, to influence the price level better than 2, 3 years ago. So this is -- is there. We are still in the process of, let's say, optimizing the industrial, let's say, footprint. We announced officially, if I recall correctly, when was it, [indiscernible], I think, anyway that we will shut down both Arquata and Testi. This is something that, of course, is painful for such a size of it, and we are working on making this, let's say, as easy as possible for the employee involved. But on the other hand, should goes into, let's say, the target, which is always the most important one to improve capacity utilization level in the other remaining plants -- in the plants that we will continue to operate. So cost inflation is pretty high in Italy. The last -- also versus the budget, we are, today, were soft than what we imagine, let's say, back in October and November. But anyway, we see an improvement there.

Okay. Okay. Okay. The second question is on -- you mentioned before that, let's say, cost basically accounted for a positive of EUR 45 million, if I remember the bridge, okay, you mentioned during your presentation of the results, including basically energy, fuel and some other cost, right? Is it fair to assume that basically you are telling us that the expectation this year is to have instead of this plus EUR 45 million, let's say, putting minus ahead of this number, and then trying to recover as the market allows with price increase, let's say, the most or, let's say, part of this cost inflation, is basically what [indiscernible]?

Yes. I think we are very likely to revert, let's say, to what -- maybe not exactly in the different [ 3 to 4 ] that you are favorable with this year, let's say, 2020 versus 2019. But overall, if you look at the input, I think we are likely to reach the 2019 level. So what we gained this year, I mean, this year 2020 is likely to revert in 2021. So yes, I think -- and what's going to happen on the price side, this is going to be favorable or favorable enough to offset that. We will see. In addition to that, we have also higher cost for CO2. Almost certainly, we will have to bear higher CO2 cost because the fine is looking quite unfavorable.

Okay. Okay. And on this point, basically, you confirmed to us that countries like Germany, but also, say, the Europe countries are still present in the outside [indiscernible] and Italy will keep its, let's say, surplus?

[ It is already ]. Yes.

Okay. Okay. The second -- sorry, the third question is on can you guys hazard to give the guidance on financial charges? Because clearly this year, the, let's say, consolidated number was helped by, let's say, some nonrecurring. But also on tax rate because 20% tax rate for, let's say, 2 years in a row, it's a good result. So maybe if you can give us any update going forward?

On financial charges, right now, we have a budget of around EUR 29 million budgeted. So this is usually -- yes, it does include some potential, let's say, noncash items, but that's we would anticipate. So it's more, let's say, a reflection of the actual, let's say, cash and, let's say, cash -- cash net interest expense. And on the tax rate, I think we are probably similar because -- just a second.

And you don't have Kosmos.

And at Kosmos, of course, yes. Normally in you were asking about the rate, the...

Yes, it's normal, let's say, tax rate, considering, let's say, sustainable level, okay, for the year.

Yes. We -- the budget is between 2021. So no, no yes, no difference. Unless if Biden decides to raise the tax rate in U.S., we should be similar.

But if -- let's say, the administration, it has raised taxes, at least you should get [indiscernible]. So it wouldn't be a sales negative.

Yes.

And the last question, yes, please. And the last question is a topic on, let's say, medium term in the sense that as you mentioned before, clearly, significant CapEx related to, let's say, reorg CapEx to capture still, let's say, not there because technology not commercial and [indiscernible]. The question is the company is already starting to set. So when the company started to map all the production plants in order to access where it is economically feasible, okay, to put in place a CO2 plant because we have some companies already focusing on, let's say, big plants, certifying this investment.

Yes and no. In a sense, this is one is very difficult. I mean the very important, but also the, I would say, difficult exercise that requires a lot of investigation. And I think the process will be more, let's say, first step to understand, like you were mentioning, which technology is the most -- or which one or maybe 2, 3 technologies are the most interesting to be introduced. And then, of course, depending on the technology, maybe a plant would be more suitable for certain technology, and this is the exercise we have to make. I think, yes, it's not that we are not involved in this reasoning. But for the moment, it's very -- I think it's very preliminary because it also come to the conclusion, tomorrow, I don't know. But to give an example, that you need to get closer to the existing or to what is planned to be an existing storage. So in this case, in this case, not only are in the need of, let's say, adding, let's say, capture technology to an existing plant, but you will have to build an entire new plant just to get closer because it could be from a financial, economical, let's say, outcome better than introducing carbon capture technology at night and then transporting maybe 200, 300 kilometers for the storage. So what is likely to happen, in my opinion, is that in general, you will have less or less plant active. You will focus clearly on a few plants, except, of course, higher logistic cost, higher transportation cost for distribution of cement. And yes, introduce the capture technology in a limited number of plants that are the most -- the one that -- for position, I don't know, raw materials, whatever, they are ones that are more likely to be, let's say -- it was a long life also beyond its quality, the 2030, 2050, et cetera. But you should not rule out maybe the possibility to -- because in some older plants, you may also have some difficulties in introducing this kind of technology. So you may be in the need to build, again, a completely new one. And I think tomorrow -- today, the closeness to the Roman materials is 1 of the main requirements when you build the plant or when you are using a plant or the life of your quarry, et cetera, is one of the many requirements. Maybe this will not be the many requirement, maybe tomorrow, it will be more important how far you are from a carbon storage or carbon usage plant.

No, okay, okay. It was a question. But I know that basically, the right answer now is, I don't know. But thanks for, let's say, using some details, okay, on that.

Okay.

The next question is from Cedar Ekblom of Morgan Stanley.

I have 3 questions. Firstly, can you tell us what your utilization rate is in the U.S. at the moment? Secondly, can you tell us what you have budgeted for CO2 costs in 2021? And if there's a specific price that you are linking your budget to? And then thirdly, on decarbonization, I don't want to talk about carbon capture storage because I agree with you that there's a lot of unknowns on the topic and the economics currently don't make sense. However, there are a lot of things that your competitors are doing related to fuel mix, energy efficiency and the introduction of lower carbon products, utilizing recycling as an idea. Can you talk about what you're doing on those other initiatives, so not carbon capture storage or use? Where -- what is your strategy on the low-hanging fruit on this topic? And where are you in the decarbonization strategy? Because ultimately, this is a massive issue for the industry, and it would be great to get some granularity on where your strategy is on those other topics.

Okay. Sure. Well, in the U.S., it's slightly different from region to region. But let's say that overall, we are currently at 92%, 93%, say, above 90%. Of course, to achieve 100% is a nominal capacity but sometimes difficult to achieve because, of course, you need some weeks to the year for the maintenance program. And so when you're running, let's say, 96%, 97% versus the nominal on 365 days, let's say, usually is what we consider an extremely good performance. So we have some room. If we move -- this is part of your last question, like we will towards maybe lower clinker cement content, lower clinker cement ratio in the U.S., which is clearly one of the main directions. This should help, in the sense, of having more capacity. Because then, in this case, the bottleneck or the constraint is going into the grinding, into the finish grinding, not so much in the kiln. Okay. So on the CO2 cost, I think we have EUR 30 -- EUR 30, EUR 31, right?

[indiscernible]. EUR 30.5.

EUR 30.5 for the budget. And this is an average for the full year. So we will see. It could be more. It could be one of the potential negatives, let's say, or risks, let's say, for the budget. And this is also why we tend to be a little cautious on the full year outcome. On decarbonization, I will suggest 2 things. I mean, okay, Patrick, if you want to add something, of course, you can. But I don't think this is the occasion to enter into some -- or very the detailed, let's say, project. We are no different from what the other companies are doing, actually. Because it is clear that if you want to achieve a certain result, the step actions that can be taken are the same for the entire industry. So I think we are, in general, maybe ahead versus some others in some of the actions typically, for example, the usage of alternative fuel. We -- on average, in our group, we have a better level -- a higher level versus most, if not, all the other groups. Maybe we are not as good in blended cement, like you're saying, but this is mainly associated with ours in the U.S. and the fact that the U.S. that represents, let's say, in terms of results, production, not exactly, but let's say, 50% of our business, they are still subject to some certain market rules that require very high clinker to cement ratio. And what we -- I would suggest, again, maybe go through our sustainability report which will be available, let's say, soon before the AGM. This is very -- I think the detail is the most valuable and most comprehensive the information that you can find on this press release from our company. And then I think we will -- we have a plan anyway on to be here likely.

April 27, there will a conference on projects [indiscernible]. So if you can maybe then join the conference.

And in this case, we will prepare -- I mean a specific presentation on this subject. So I think this will be a better opportunity to discuss.

Can I just follow-up one question on the budgeting for CO2? How many contracts are you planning on purchasing this year? Or do you think that you have enough inventory considering you did purchase quite a lot last year? So when we're just thinking about that EUR 30.5 per ton, what is the sort of volume reference that we should be thinking about? Have you got a sort of range of contracts that you may think of purchasing in the market?

I think this depends very much on the -- of course, on the CO2 price. Necessary it's -- basically, if we wish to not to transfer between 2 companies and still have 1 million tons of CO2 that would be requested by some of the countries.

Okay. So that's the purchasing that you did last year largely covers you this year is the message?

Yes. Yes, there's a big part cover. Yes.

Yes, we covered this almost 1.5.

The next question is from Mike Betts of Data Based Analysis.

I have 2 questions, if I could, please. First one, you referred to delay of some maintenance CapEx from '20 into '21 CapEx element of that. Presumably, when you know we do maintenance CapEx is in OpEx element as well. So presumably, the profits in '20 benefited from some of that maintenance not occurring. Are you able to quantify roughly what that benefit was? And is it particularly large in any of your countries in relation to their size? So that's my first question, please. My second question is just on oil well cement. I think there was quite a significant reduction in demand in 2020. Are you able to quantify how much that might have hit profits? And probably more importantly, could you just talk about with the higher oil price now, are you starting to see that demand return?

Okay. Well, yes, on the -- you're right in a sense that very often this major, let's say, at least maintenance projects, they include both some items that are being capitalized and some others that are operating expenses. So I think that the 2 countries where we had delays or postponement, the most important one was the U.S. and this was strictly related to it, because we were unable to, let's say, bring the people in the plant or the number of people required to work in certain projects in the plant. So this was not. And the amount, I think in the U.S. you can like EUR 85 million rule of thumb. I mean -- and also, in Italy, we had some postponements. There were some projects that we were planning, for example, during the period of the lock down that we could not really carry out because the activity was shutdown. And in Italy, it's a little less, could be half of that, let's say, between EUR 2 million and EUR 3 million. On the oil well cement, I don't -- on the real profitability decline, we don't have a really clear answer.

[indiscernible]

No. And yes, it is true that the oil well cement is priced higher, but it's also much more expensive to produce. And to have greater, let's say, logistic cost because you moved it, particularly in Russia in very longer distances. If we look at the -- let me check most recent data, there is not really yet a recovery visible at least. The 2 countries that are more, let's say -- or 3 countries that are -- where we have significant volumes of CO2 are -- not U.S., sorry, are Germany, Russia and the U.S. In Germany, we are behind for the moment. In Russia, we are better. Russia has somehow improved. But Russia is going a little bit its way. They tend to produce more -- yes. Not necessarily linked to the price level to the price -- to the oil price. So this is improving. And in the U.S., in the U.S., we are down versus last year. So the 2 countries that are really more market driven are still below last year level in an evident way. Russia is doing better. I don't know if this answers your question.

The next question is a follow-up from Paul Roger of Exane BNP Paribas.

Yes. Sorry, gents. Just very quickly, did I hear you correctly, and you said you would have a CO2 Investor Day on the 27th of April? That's my only question.

The topic will be projects, initiatives of Buzzi Unicem regarding climate change activities.

The next question is from Gregor Kuglitsch of UBS.

Sorry. One is a follow-up question. I didn't quite catch the total energy bill that you incurred last year. And I think you were saying you expect it to increase, give or take, by the EUR 40 million to EUR 50 million that you gained last year, if I understood correctly. Can you just repeat what the actual bill was? And what the assumption in the budget is, please?

Yes. Yes. This year, 2020 -- last year 2020 total was EUR 295 million. 2019 was EUR 357 million. This is fuel and power purchase, let's say, directly for the cement business. So it does not include, for example, the diesel that you purchased for the energy infrastructure anyway. And so yes. And the advantage that you had this year, overall input cost, so not only fuel and power was approximately EUR 45 million. So not too different, let's say, clearly, if fuel and power went down more, other input costs, like raw materials did not went down, did not go down. And so that's why you have smaller, let's say, improved EBITDA level. So yes, I think the offsetting of the reversal could be more or less of this range, not very different.

Okay. That's helpful. The other question is if you could share any color -- I mean, it's almost -- first quarter is almost done, the 25th of March. How things have gone so far in the year, in the new year? I know that there's obviously some weather issues in Texas. But overall, are you tracking in line with your guidance? Are you being down? Or is it more forward looking? And I appreciate Q1 is a bit small, but still.

Okay. If we look at the end of February, we are -- we would be -- I would say, we are down. But the reason [indiscernible] as you mentioned. So also in Europe, quite cold weather difficulties -- very cold weather in the U.S. stopping, let's say, almost not the entire nation, but large part of the nation for more than a week. And so March, so far, we will see -- by year-end, we also do not have, let's say, the only week in March this year. So it's advantageous. We have, I think, 1 more working day. Generally speaking, March, the business is going normal, let's say, is picking up, is I think is basically recovering what we lost in February. The first quarter is always quite volatile anyway. So -- but no reason to, I would say, to think that we are -- that we are more negative than what we mentioned in the outlook, which is driven, again, mostly by cost -- by negative ForEx and this kind of factors.

Okay. And then the third question is maybe more strategic, and it's on capital allocation and the balance sheet structure. So your company has been generating sort of before dividends and investments into acquisitions, some were, I don't know, EUR 300 million, EUR 400 million of annual cash, right? That's at least the last few years. So -- and your leverage is virtually 0, like less than 0.5 of a turn.

Yes.

So what do you think is appropriate for the company? And at what point do you kind of need to do something about it? I mean, either invest it or return it to shareholders.

We have to do both. Probably return to shareholders can improve and I think, again, more in the form of dividend than buyback because it's somehow easier and also more flexible, if you wish. And investments, we have some commitments, let's say, at a certain that will -- basically the ones that are public are Brazilian, let's say, vision and also the Brazilian, let's say, change in the ownership coming a few years' time from 50% to 100%. And for the rest, I think that, anyway, besides what is the requirements for the, let's call it, carbon neutral. But the 2 things actually are going, to some extent -- to a large extent, together, we need to continue to focus on the existing to make it possibly better. It is clear that in this time, since, let's say, the adoption of new technologies for carbon capture or the potential, let's say, other changes that will show up in the future or the need to adapt your investor structure, I mean, we know that that it's coming, but we don't know exactly how and when. So I think there will be some years that where besides, again, the requirement, efficiency improvement, et cetera. We may remain in a position where we will prefer, let's say, to keep some money, some reserve in the company to be able to face any kind of let's say, challenges associated with the let's call it carbon neutrality. And instead, maybe, like you say, return too much capital to the shareholders because otherwise, we may be then later in a position where -- I don't want to say that we need to ask money to the shareholders. But let's say, to find the right balance between should be a decent normal return and at the same time, preserve the capital in the company for the uncertainties and the challenges that are coming up are not clear exactly right now. Maybe we need 4, 5 years' time to understand exactly what we need to do, where we need to do it, how much is going to be -- how much is going to cost, et cetera. So this is the way we are, let's say, thinking about it at least at these times.

Okay. And in addition to that, and I appreciate -- so basically, what you're telling us you're going to be running very low gearing until you have more visibility on what carbon capture, et cetera, may cost you?

Yes, I think it would make a lot of sense, yes. Yes.

Okay. And then in terms of additional acquisitions, obviously, Brazil is now becoming sizable. I mean, maybe that's kind of done. What about other expansions or really on your agenda of [indiscernible]?

Again, I was more opportunistic. It's maybe less in the agenda than it was in the past sometimes, a bit in our mind because then I need to have some targeting or a clear strategic idea in your mind and not necessarily the components are really coming together. But anyway, a little interest in this case, we more focused of to the, let's call it, minorities. So okay, [indiscernible] that will actually come to a conclusion. We have other position that are also important in a minority -- the minority stake companies that are very good form that would make, let's say, a lot of sense within our group. So if there is a possibility there to gain majority, I think this is something that we will get very closely.

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

Okay. Thanks, everyone, for listening. We already mentioned this next appointment that we are organizing for 1 month, let's say, from now. And I don't know when, but we hope to see you in face, let's say, in personal meeting sometime soon, at least sometimes in 2021, again, and good evening.

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