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 First Half 2021 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Pietro Buzzi, Managing Director. Mr. Buzzi, you have the floor.

Hello. Good afternoon to everyone. I'm here together with Patrick Klein, our Group Treasurer; and Pieressa, our Investor Relations. And we do have also a presentation already published. This should be available on the website, on our, let's say, Investors and then Presentation, let's say, link or page. So I will try to follow it at least for the first part, and not necessarily the appendix. So if anyone of you would like to basically follow together, there is a possibility to do that. So we approved the interim report this morning. As a summary of what is included in the figures and in the press release, we can say that volume and prices developed quite well during the first half. We had overall, let's say, a good demand for cement in our countries, almost 11% up, and also a recovery in our ready-mix output or shipments, 7%. Also prices, they moved up basically across all the regions where we operate. The increase was more evident, more clear, let's say, in U.S. and Germany, but with the exception of Ukraine, which has been showing a minor decline. We had a positive favorable price variance again everywhere. As in the negative side that we had to face unfavorable, let's say, impact that we have been facing is related to the foreign exchange trends, the exchange differences. The impact was EUR 81 million basically on turnover and EUR 22 million on EBITDA, operating cash flow. This is coming from the dollar and the ruble, and to some extent, also to the Ukrainian hryvnia. These are the most important, let's say, exchange differences affecting the consolidated figures. So net sales at the end came in at EUR 1.61 billion versus EUR 1.52 million in 2020, first 6 months. This means almost 6% up or 11% up like-for-like, so net of changes in scope, which are not there actually and ForEx. EBITDA is closing also nicely up, let's say, at plus 12%, EUR 352 million. It would have been 19% up like-for-like, net of exchange differences. The net cash from operating activities. So this is related to the, let's say, cash flow statement. So after interest payments and after tax payments, is EUR 219 million versus EUR 214 million, and we are going to give some more flavor in detail, let's say, later. Net financial position is -- the net debt is going, let's say, down from EUR 242 million at the beginning of the year to EUR 110 million -- EUR 109 million at the end of June. We are also upgrading somehow our guidance for the full year. The good developments of the first half is giving us, let's say, more confidence on the full year outlook. And we expect so the recurring EBITDA to come in -- to arrive at a very satisfactory level. But on the other hand, we don't think that we will be able to exceed, let's say, the 2020 level. And of course, we will give you also on this subject a little more detail. Well, Page 2 is more a summary of what I just mentioned and a comparison between the 2 interim period. Also the EBITDA margin is improving versus last year, so the profitability level, the first level of profitably -- operating profitability from -- more than 1 point actually from 20.7 to 20 -- almost 22. This is a very high generally speaking, also when you compare with the peers, assuming that you can compare because, of course, nothing is fully comparable. And it does not include, of course, the results from the -- our joint venture in Mexico and Brazil that are reaching and are achieving the higher level in their books. Where is the volume variance coming from? You see that in the following page. If you look at the cement business or the cement sector, we had a strong, let's say, recovery rebound in Italy. This is two reasons, okay? There is an underlying market, which is showing a stronger demand for sure because we are up also versus clearly also 2019. But at the same time, we are still -- I mean, during the first 6 months still significantly, let's say, affected by the comparison versus 2020 where the lockdown restriction has been very severe, particularly during the month of April and May. So good -- let's say, good progress and probably that we do expect to continue in the second half, but not at the same pace for this reason. Eastern Europe. The progress is coming mainly from Ukraine and Russia, the volumes. We had some negative barrier in Poland, minor one, and positive small change in Czech Republic. U.S. also performing overall, let's say, very well, particularly because the so-called, let's say, pandemic months or the month of the restrictions in the U.S. did not have same -- as you recall, did not have the same, for example, in Italy or France or Luxembourg. We did have some significant sales decline in our Northwest region, which is performing the opposite way, I mean, this year, also because of the comparison base. But overall, fortunately, the U.S. last year did not have the same kind of, let's say, impact from the construction activity, and did not suffer the same impact as we had in Europe, Italy, again, France or Benelux. So it's mostly a stronger -- strong, let's say, pickup of the market, which was partly expected, but not in the -- in this case, for example, we do not believe that the final outcome for the full year will be the same. So it will be, yes, a positive sign, but not, let's say, almost 7% up. We are more about 3%, 4% up if everything, let's say, goes right. And Central Europe includes Germany and Luxembourg, indeed Germany is a little weaker. There was for sure some impact there from, let's say, difficult weather -- the difficult weather situation at the beginning of the year, but also later on, say in the last few months, May and June, rain and rainy weather was somehow impacting the construction activity. And also for last year, the comparison base was relatively consistent in a sense that the construction activity remain quite active also during March, April and May. If we look instead at the ready-mix concrete, not big differences, let's say, in a sense that our, let's say, performance versus last year is coming from the Italian market. Eastern Europe, similarly, let's say, to cement improving nicely, let's say, versus last year. Central Europe suffering, here the major portion, let's say, of the ready-mix output is in Germany; and in U.S., slightly down. This is the Southwest Texas market, which has been strong, generally-speaking, in terms of cement shipments, but we did have some last year -- this was already budgeted, let's say, some decline in our ready-mix production in Texas. We did have last year some projects that we knew were coming to an end. And we do not expect -- let's say, we did not had the possibility to replace them with the same or similar -- project of a similar size. Now following the -- obviously, the presentation, we move to economic -- let's say, economics by regions or net sales. EBITDA, EBITDA margin, you see Italy nicely, let's say, recovering also in terms of profitability or operating cash flow. We are moving from some EUR 9 million last year to almost EUR 33 million this year. There is a positive volume and price effect that is offsetting also the cost increases. And in addition to that, Italy is not accruing so far. It's not the far and will not do that until it is necessary. The shortage in -- that is beginning -- that is there, let's say, beginning from 2021. So we do have the benefit of the previous period. So we are -- we will be using -- we will be gradually, let's say, depleting the location that we receive until 2020 beyond, let's say, the actual need also to rise. And this is clearly a good advantage to have, particularly in a time in a year where this year twice price became -- I mean, has been showing a very significant increase. So again, good volume, good prices. Variable cost, let's say, variable cost like energy, electrical power, fuel, et cetera, are yes, sharply increasing, but the full, let's say, impact of the increase is not yet visible. And let's say, it probably will become more evident in the second half. And this is something that is true also, not only in Italy, I mean, it's something that will occur also in other countries. But as opposed to other countries, we've been able to eventually improve, let's say, significantly our operating leverage, so our capacity utilization level. And this is something that for the fixed cost, for example, when we look at the fixed cost per unit of production, they are actually declining some due to the larger or greater volume produced. So this justifies and explains, let's say, the higher margin -- the better margins that we've been able to achieve. Very good performance overall also in the U.S. As we said, demand has been strong, driven by the -- mainly by the residential sector or the residential segment of the demand. We did not have a particularly favorable weather condition if you look back in February and also in some area, May and June. But nevertheless, when the weather has been nice -- sorry, in the weeks where the weather has been nice, we have been able to overcome, let's say, to exceed the production output of last year. And pricing developing, let's say, nicely. As I said before, last year, as you may recall, we were not able to increase prices during this period. In this respect, the comparison is somewhat easier. But the fact that demand has been so, lets say, so good, I would say, in this first half has made -- this has made, let's say, price increases overall easier and achievable. The negative side, again, it's more accounting than [indiscernible] but it quite meaningful because out of the exchange differences. So for an exchange rate impact that I mentioned before, clearly, the dollar or the U.S. business is the one most affected. So EUR 56 million approximately on turnover and EUR 17 million on EBITDA. But our margins are still -- have been still somewhat growing versus last year. So we moved from 29% to 30% about, 1% after, again in comparison with the first half of 2020. In the case of the U.S., there is no impact yet, at least on CO2 cost. So there is no accrual, but also, again, not -- foreseeing for the second half due to the different, let's say, legal environment. In Central Europe, demand has been little softer. Yes, we had declining volumes, both in cement and ready-mix. Luxembourg performance was positive, following also the full, let's say, 6 months of operation versus almost 2 months last year. Price performance. Price increases have been okay, let's say, particularly in Germany, we have been able to improve our price level, probably little bit more of the industry, let's say, inflation. We do have more stable fuel cost in Germany because of our high intensity of alternative fuel. Power costs instead have been going up. No CO2 accrual so far because we are still enjoying, let's say, fuel location until maybe the most, September, October. It depends on the production rate. Last year, of course, not fully consistent because last year, the general change that we made in our way of accounting for CO2 right, we will, let's say, post either, let's say, a liability or an allowance only when we are entering in the so-called deficit period. But here anyway, it was an almost EUR 9 million at prices of CO2, which were much lower than the prices of this year clearly. Eastern Europe, solid demand with the exception of Poland, which was weaker in the first 2, 3 months. In Poland, there was also a significant effort to improve prices during -- at the beginning of the year. This was probably one of the reasons for our not -- for performance not to the level, let's say, of expectation. This was likely -- our pricing policy was slightly revised in the following months. And from then on, we had a much better performance even though we were not able to fully close the gap in the first 6 months. Weather also did have some impact in Poland, Czech, et cetera. So overall, anyway, our sales have been quite positive. Average selling prices, again showing a positive variance on the exception in Ukraine, which has been fighting starting from the second half of last year, mostly with some imports for trying to compete at best and not to lose, let's say, volumes. The ForEx has also been quite a factor, particularly when you're talking about the business, which is more important, let's say, clearly, than the Ukrainian business. So the impact on net sales, about EUR 24 million -- EUR 25 million on, let's say, Eastern Europe overall on the 4 countries altogether and about EUR 5 million plus on EBITDA, mostly related to Russia and the ruble. But our margins have been similarly to other regions, up about 1% and total EBITDA, let's say, like-for-like has been increasing by almost 14%. It's important to go over and to present briefly the performance of our 2 joint venture in Mexico and Brazil because they have been both quite remarkable. I would say, in the first half, Mexico had a really super performance with strong demand driven, we think, by residential or so-called self-traction, let's say, works and also some public works that have been supported and, let's say, financed by the government also as a way to somehow, let's say, offset the economic decline associated with the pandemic. So very strong volume, favorable variance for selling prices, not very significant really, but particularly volume effect which has been very positive. And through that, EBITDA grew very, very strongly about -- yes, almost 20% up. Despite higher energy cost and higher -- particularly higher fuel costs, you know that we -- our main fuel in -- or almost only fuel in Mexico is petcoke. Petcoke, when we buy petcoke is also dollar-denominated. And so you do have 2 impacts: one, the price in dollar; and second, the foreign exchange impact. So definitely variable cost going after. But very, very high capacity utilization level, let's say, reliability of the plant doing very well, the ability to follow the demand increase with a good reliability of the plant translated into any way some good, considering the overall situation, good production cost. And margins are somewhat down, a little bit down compared to last year. This is mainly related to the ready-mix portion of the business rather than the cement. So the next [Technical Difficulty] businesses, of course, the cement has been somewhat suffering, particularly in terms of profitability, not so much in terms of volume. But in general, let's say, really very, very positive performance for the first 6 months. And almost the same we can say about Brazil where, in this case, yes, there was a change in scope because the so-called CRH assets had been consolidated starting from mid-April approximately. So there is a portion of our sales -- our quality sales performance that is coming from the scope. In total, let's say, if we look at the sales performance without -- just a second, without the change in scope, which I'm not sure if I have it in front of me, but anyway -- yes. So we had like-for-like cement volumes went up by approximately [Technical Difficulty] and the debt -- total debt was 45%. So the difference is coming from the change in scope. But the price increase was very significant in the country versus last year. Last year, you may recall that the price trend has been mostly flat in the first half, and then it's been increasing later. So again, maybe somewhat easy comparison base. But our sales revenue, as you can see, has been improving from EUR 61 million to EUR 6 million after NFX impact -- negative FX impact quite significant because we lost the -- the real lost about 20% in the period. So very good that through the underlying volume trend and price trend, the company was able to much more than offset the negative ForEx impact. EBITDA, also good performance. Again, last year, the good part came mainly in the second half. And this year, we will continue on the same trend with a favorable price effect and also scope. So as you can see, it's obvious on this page, ForEx impact on our net sales was about EUR 21 million and EUR 7 million on EBITDA. And excluding FX and scope, EBITDA anyway more than double with improved operating margins moving from 27% to 34%, almost 35%. So again, we can be very, very happy about the performance of our joint venture there. Moving to the Page 7, where we find the EBITDA bridge. Okay. You can see that the -- our improvement in the first 6 months is driven by 3, okay, main factors, main items. Volumes. Volumes has been the main driver for sure with EUR 119 million contribution to the EBITDA increase. Prices, also good, but -- and less -- much less than the volume impact at -- coming in at EUR 46 million contribution. And then you see the variable cost affecting or impacting about EUR 110 million. So this is coming from raw material, fuel, electrical power, logistics, transportation in general. So quite something that was somehow expected, but that became clearly even more evident or more aggressive in the actual figures than what we initially forecasted. On the fixed cost side, we are -- not a significant changes or at least much less than the variable cost, also easier in a sense to keep them under control. The revenues and costs are offsetting each other and coming to basically no variance versus last year. And then the CO2 that we accrued last year, for the first 6 months, we have not been accruing in the first 6 months of 2021. Clearly, the EUR 13.2 million of last year reflect -- is reflecting prices at the level of last year. So anyway, as I was explaining before, we will accrue for the shorter CO2 starting from the moment where we are actually assuring a short-term situation. And obviously, this will be done at the prices -- at the current prices. So CO2 that are more in the range of 50 plus, 54, 55 rather than the EUR 20 per ton of last year. FX, we commented already EUR 22 million negative. On the following page, you have an idea of the energy cost impact related to the cement business. So here we are talking about the cement business and purely about fuel electrical power, it's not been included here, but would be included in the future as a reference. There's a rebound clearly from last year. Last year, we touched a minimum -- there was a minimum level across a number of years, as you can see, not yet at the level of the first half of 2019, but probably when we will produce and see similar graph or the same graph for the full year 2021, we do expect to be at least back to the level of 2019 as a total expense. The good news, if you wish, is that in -- thanks to also our significant effort into CapEx and into the introduction of alternative fuels, even with the actual, let's call it, trend of inflation in the energy cost, we remain below the levels of 11, 12, 13, et cetera. And this is quite -- again, quite an achievement, I believe, there. The financial position trending nicely, I would say, and nothing really unusual versus what we were planning. So we have a short-term cash position, which is slightly below the level of the cement done in '20, but still very good. Okay, among the long-term financial assets, it's important to mention that we are including an amount of EUR 204 million, if I recall correctly, EUR 203 million, EUR 204 million. This EUR 204 million are the -- it represents the loan or the financing that we have -- that we made, again, back in April to our joint venture, Brazilian joint venture when they complete -- when they executed the acquisition of the CRH assets. So this was -- this acquisition was financed through intercompany loan from the -- to the Brazil operating company. And again, this into the so-called long-term financial assets line that you see here. For the rest, nothing really new or to mention. But we are, of course -- for any question, we'll be available. And taking a look at the guidance. For the full year, we decided, again, that it was worth to fine-tune somewhat our expectation and your expectation following H1 results that are very sound, very reassuring in our opinion. So we will continue to have likely a negative impact from FX, and this eventually, okay -- the size of core, the magnitude, we don't know, we made some assumptions in our forecast, but we don't know, but this is something that unfortunately will somehow have an impact on our figures. And the higher energy and CO2 costs -- the energy inflation and the CO2 cost accruals coming up in the second half are going to be significant because we don't know where CO2 will go. Energy, at least in Europe is following very closely this CO2 trend. And in general, the impact of the inflation will be more evident in the second half versus the first half. Then you have, okay, some detailed comments and -- yes, not really full analysis, but yes, some more interesting or explanation or comments about the different country, about the different region. And I would not go through this in full because it may not be of such an interest to you. But so I would expect maybe on this specific country or specific trend, as I mentioned here, question on your side, if there are any and again available to explain why we think that overall for the full year -- for the full financial year, the results will be -- again, like we mentioned in the press release, very good, very satisfactory, but unlikely to be able to achieve the same level that we achieved in the previous year, at least again, during the foreign exchange impact. So including the foreign exchange impact in such outlook or guidance. On the appendix, we have different information. Maybe we can -- we don't have to go through -- well, maybe indication. Okay, yes, indication on Page 17, the full income statement for the first half, this is quite interesting, in a sense that we are to -- following below the EBITDA line to -- thanks to the greater EBITDA and what happened below the EBITDA line, we were able to almost achieve the same consolidated net profit of last year. And last year, you do recall that the equity earnings item was benefiting from a very significant profit. So the gain of the sale of our investment in Cosmos in the U.S. So this is quite -- again, in my opinion, quite an achievement, and it's coming from the improvement of our joint venture. So the equity earnings going up, except the extraordinary gain. Net finance costs also going down. So the combination of the better performance from equity joint ventures, equity earnings and the lower finance cost is putting us in a position at the level of the profit before tax, which is relatively similar to last year, then a little less income tax expense last year. Of course, the gain was also taxable. So we had a higher tax charge on -- from this specific item. And you see the net profit closing at a level which is very similar to last year. And again, I think, this has to be considered overall in the assessment of the first half results and also, clearly going forward, of the full year results. The cash flow statement. You can see that we had at the -- in the first section, net cash from operating activities, we did pay significantly more in terms of income taxes. This is related to some delays here -- in some of the countries where we operate due to the pandemic, some income tax payments were postponed. And so we had this postponement coming to an end at the beginning of this year. So there was a number of tax payments in different countries that fell -- the maturity fell exactly in the first half. So that's why mainly you see such an increase in income tax paid. Capital expenditure are lagging a little bit behind the last year. In our full forecast, we do expect them to exceed last year quite significantly actually, probably our latest forecast indicates a CapEx of about EUR 320 million. So we need to -- we need -- I mean, we are in the process of catching up some of the projects last year. You may remember, we postponed the time of the crisis. And when you postpone projects and you go back to it and you decided to go back to it, this is what -- usually this is causing some delay normally because these are -- sometimes our complex projects or engineering projects that, if you follow day by day and you bring forward day by day, you can do it maybe in a normal time. If you start with postponing or if you stop them and you go back to it, it will take some more time to execute them and bring them to the final stage. For the rest, we do have, okay, the dividend payments, the double dividend payments, so the extraordinary and ordinary. You see the extraordinary dividend as a positive because it was included already in the net financial position of last year. So the actual payment occurred in the first half. But at the end of 2020, it was already considered as a final liability. We received less dividend from associates because, again, a large portion of last year's dividend was associated with a gain on the sale of our Cosmos investments. We had some more disposal from fixed assets, and that is basically other minor items. Anyway, the change in net debt, as we mentioned before, is EUR 133 million, a little less than last year, but still a very strong cash conversion, I would say. And the net financial position that is trending towards 0 by the end of the year, I guess. Okay. Again, I will turn back the lead to the operator because we can start, I think from now on the Q&A session. Thank you.

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

Hope you're well.

Yes, thanks.

So just maybe 2 questions to kick off, and both of them focused on guidance. So the first one is really about CO2. So just to clarify, your guidance does assume purchases in H2. So maybe you could help us by quantifying what's assumed in guidance and also really talk about the strategy of buying CO2, when I think you're long about 9 million tons at the group level? And then the second question is focusing a bit on the U.S. If I'm doing my math right, it looks like you're implying quite a big like-for-like decline in EBITDA during the second half. And that seems, to be honest, quite a bit more bearish than some of your peers. So really just to understand whether you are being very conservative? Or is there something specific we should be aware of?

Well, we'll start, yes, that's from the second one. I don't know if we are over conservative. Maybe we are in the price trend, we are maybe a little more conservative. I mean, I did not follow other conference call, but I read some of the comments that were issued by analysts or et cetera. So we do see the possibility to have some price improvements, some price-relative price improvements in the second half versus last year, but not -- limited to some of the regions. So we see clearly, the possibility to have a price improvement in Texas, but not, let's say, all across the regions where we operate or at least meaningful -- not in a meaningful way. This could be one of the difference. For the rest and again, I think we have a -- the impact of the cost inflation we are assessing, again, could be maybe too pessimistic, but it's definitely more significant in the second half. In the first half, our overall, cost went up maybe 1 -- between $1 and $2, and we expect in the second half to go up another $2 overall. So higher maintenance costs, yes, it's coming also from the fact that we are like -- probably have other competitors. But anyway, running at a very high pace and a little stress. So we need to plan for some -- we are planning actually for some maintenance rounds, which we have postponed at the beginning of the year because of the possibility really to stop. Demand has been very high during the normal -- what should be the normal maintenance period. So we are -- we've been postponing some of the maintenance projects, and they are coming up before year-end. We are purchasing some cement, again, mostly in Texas for our ready-mix operation in Houston. As you know, I mean, ocean price rate rates are really escalating significantly. So what we say, these are the figures that we ran. Okay. In addition to that, of course, we are using in our forecast 1.21 as exchange rate for the full year. But, okay, this could be, of course, different if it is 1.19, for example, or 1.18, I don't know. We will definitely improve in a sense that -- but in general, our forecast in the U.S. is pointing to results in dollars or before the exchange rate are very similar to last year, which was anyway high record. So at the end, this is true also in other countries. But when you are running 100 meters in 9.80 seconds, you cannot improve too much. So it's a little difficult anyway to improve too much. And I think, frankly speaking, that if you look at our performance in the U.S. and you compare it with the competitors, I don't know if we have the gold medal, but probably we'll at least receive a medal. So Okay. I'll let Patrick comment a little bit on the CO2.

Okay. So regarding the situation of CO2 rise within the group, talking about ETS, there's also a CO2 effect in non-ETS country due to some taxes, but it is -- it's minor. But regarding the ETS countries, we are -- in most of the countries, we are short now in all of the countries, basically, but we still have in Italy, as Pietro mentioned before, a reserve that is quite significant. So therefore, we will not be obliged to accrue for the shortage in Italy. Off shortage is more than 1 million tons per year now from this year onwards in Italy, I mean. Regarding the other countries, we have been thought already before, so Germany, Poland and Czech Republic, Luxembourg. And this is continuing, although the rescheduling, let's say, of the new trade period has given to some countries, some also -- difference due to the new historic level of Tier 2 allocation due to higher production and basically the comparison. Overall, we are planning to spend around EUR 34 million in 2021 for CO2. So spending in this case means we are talking about roughly 600,000 tons net that will need to be either bought from the market or will be -- need to be transferred internally. But for now in our forecasting, we foresee acquisitions purchases from the market. And this will the actual [indiscernible] and some additional effects give us then the EUR 34 million that I mentioned. This is the situation as of now. For now, we have acquired only very small volumes, also due to some volatility in the pricing and also due to the fact that we are not in a rush because we have reserves and these can be potentially used also if the price is not is really favorable. This is the situation as of now.

Yes. I guess, I'm just trying to understand the strategy of buying at all because there are not that many producers that are along CO2. So isn't it tempting to just transfer from Italy, and then take the extra margin in those other countries rather than ask them to buy CO2? Is that a case of just saving for a rainy day in case the price goes up more? Or what's the thinking?

I mean, typically, this is not just 2 poles here -- to right -- it's true for all costs, there is no necessarily every plant and every country is responsible for the performance. So having said that, for CO2 price, if a country is short of CO2, then, first of all, we will look to the market and see what is the best way to basically then purchase them. Again, then if we -- from a strategic group perspective, things that there is a volatility that does not necessarily need to be in our favor, then it could possible to basically postpone purchases to a later point in time, but this is rather a punctual decision. So it's not an overall strategy that we are pushing it to the latest moment. It's rather that we are preferring to -- for the market when it seems to be a good moment, let's say, relatively good moment.

And another, I think, you will have at the end, I mean, across the -- if you look forward in the next 4, 5 years, the same expense is not probably difficult to imagine something totally different and makes sense, in our opinion, starting from this new period, new way of allocation, new reduction factor, et cetera, makes sense to treat each country, each plant at the end individually as if they were in the need to take care of their needs in a separate way. Clearly, as Patrick said, it's not that we are not acting as a group. It's just something that, in our opinion, is a way also to make the individual plant and the individual plant becomes more and more responsible anyway of the requirements and of their goals because this is, of course, we are coupled with some goals in CO2 reduction. So seems to make sense. It's not written in the stone. It's not bad -- can be changed, but since like the waiting and have to go forward, which makes sense.

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

I would have 2 questions. First, could you tell us, if it's possible, what level of energy customization [indiscernible] you experienced in the first half of 2021? And based on the current energy cost, what kind of inflation [indiscernible] would you expect in H2? So that would be my first question. And then my second question would be, what is your first take on the Fit for 55 program disclosed by Europe? And by the -- and what is your first take on the bipartisan infrastructure proposal in the U.S., the bipartisan infrastructure proposal in the U.S.? The bipartisan infrastructure proposal -- your cost take what would be -- what is your first view on those 2 programs?

Yes, yes, yes. Okay. So if we look at the first half, the group -- of course, group is -- okay, to give you an idea that are very significant differences from one country to another. We had a 23% up, correct, 23. This includes fuel and power and okay...

And do they include good volume?

Include volumes, yes, of course.

And how much it was volume? Is it 25%?

Well, about 11 -- 10% -- 10%, 11% up in cement approximately.

So that would be 10% -- that would be 10%, 11% inflation and 10% volume?

Yes, approximately Yes, we can -- in general, we did not have any major changes in the operating efficiency, yes. But of course, there are huge differences from one country to another, we have to be aware of. For example, I don't know, Ukraine was -- had some decline in fuel costs. Czech Republic had some decline in fuel cost, so -- and some other where -- instead Italy was highly penalized for example, by both fuel and power costs.

And that was for the second part of the year?

Yes. Second part of the year, probably something similar. Yes, something similar to end up with something not very different, at least in our projections.

And that would mean 20% up?

Sorry.

So that would mean 20% up?

Yes, between 20%, 25%, yes. Again, with some...

But lower -- with a lower volume because the base effect is going to be...

Exactly, exactly lower volume. We -- total volume in the full year, let me check it very quickly. So Cement, again, probably 4%, 5% up, yes versus 10%, 11% at the first half, yes.

So this would suggest, let's say, some pure cost -- energy customization of, let's say, 10%, 11% in H1 and then maybe some double-digit cost -- some 20% cost inflation, energy customization, excluding volume in H2. Is that correct?

Correct. Yes. Yes.

Okay. That's very clear.

Okay. And for the second point, well, the Fit for 45, what can we say? The most worrying, I think, thing is not so much the -- well, the carbon border adjustment, if you will come through that gradually, I don't see any major problem, even though, of course, the clear location will go away. And so I think the ramping up of cement prices in a way and other will have to be much steeper than what we plan, if we want to be able to somehow keep the profitability at certain and be able to invest also in our CO2 reduction projects. But okay, this is fine. I think it's even more worrying in the sense that what has been mentioned and reported the fact that there will be no more benefit or help for energy industry in the power cost. So today, we're still benefiting on our power cost from a significant help. And this can be worth, I don't know, probably EUR 50 million per year if you take all the countries, Italy, Germany, et cetera. Yes.

And maybe if I may add here. And in addition to that, if you think about the objectives, there will be much more power needed actually in cement sector compared to now, if we are converting the technologies and thinking about new technologies, you will need much more electrical power. So this is an additional issue that will need to be looked after in the future.

And without benefit for energy-intensive industry, of course, at a much higher cost. So this is something that is, I think, more worrying than the trend towards no more free location. We'll see because, of course, still -- I mean, in this proposal there will be, for sure, some adjustments, some discussion going forward, some changes. I think the industry -- but not only the cement industry will put a lot of pressure on the specific -- not so much on the carbon border adjustment mechanism, but specifically on the cost of the power for energy-intensive industry. The -- your second point was on the U.S. infrastructure? Well, okay, there was also not long ago, now the BCA came out with some comments on the potential infrastructure for the year. And okay, in general, cement demand in U.S. looks good. The adjusted cement consumption forecast some going forward in -- also in 2021, forecast was improved some. The previous issue was mentioning 2.2 better. It's now 3.1. And then moving to 2022, 2023, also better volumes. Accordingly, again, always to PCA, we are not yet -- the country will not be yet reaching the level -- the record level of 2006, 2005 of 122 million tons. But they're now assuming 115 million tons for 2020 versus a level for this year, which is expected at 105 million tons, so an additional, let's say, 10 million tons from '22 until '25. So -- and this includes -- I think, the impact that they are considering is EUR 600 billion or approve -- infrastructure plan approved and becoming lower effective in the next Q3. So I mean very positive in general.

The next question is from Brijesh Siya with HSBC.

I have 2 questions as well. So the first one is on the plant maintenance. If you recollect at the end of last year conference call in March, you were talking about around close to EUR 7.5 million of deferred maintenance, which is going to fall in this year. And with your comment now saying that the U.S. also you have deferred, does that mean this EUR 7.5 million additional maintenance cost is going to come in second half? Or it's -- is part of it being already expensed in H1 as well?

No, it was already in H1. But as I said before, we have been again postponing -- one particular maintenance project we could not postpone it anymore, and it was carried out in H1 because we were already one year late. But in some other plants, this was specific to one of the plants. In some other plants, we've been postponing because we needed to run -- to keep running.

Okay. And do you have a kind of quantification of how much that would be in the second half?

Yes, it is less. It is less than last year. It could be EUR 3 million, EUR 4 million.

Okay. Understood. And the second question is on the pricing part. So there's quite a nice pickup in the first half. And considering that in Europe, you are kind of going to buy CO2 certificates towards end of this year, is there any plan of kind of having a further price increase towards latter half of this year any time in Q3?

Well, everywhere where we believe this is possible and likely accepted by the market, yes, of course, we will try. I think probably this is something that will change going forward. But the market has been used to basically one price increase per year, but we really expected the CO2, I mean, going up so quickly. So the effort now is rather on starting to talk and to discuss with the customer, a more significant price increase at the beginning of next year. So the idea is now to present the case and start spreading a message that with this kind of CO2 cost, the next price increase will not be the usual maybe EUR 2 or EUR 3 that should be much more significant, but effective in 2022.

The next question is from Yuri Serov with Redburn.

Can I actually ask a few questions, but I think they should be fairly short. One is on Italy. I mean, you had a fantastic result in the first half. When I look at the numbers, I cannot see how you can make less than EUR 75 million of EBITDA for the full year. What do you reckon? Is that reasonable?

I hope you're right, but it doesn't seem so. Actually, Italy is the only country -- I think, it's the only country where we are -- we've been revising in the forecast -- any other country either was on same as budget or it's a better than budget. For sure, U.S. much better than budget. And Italy is the only one where the -- and I don't think we are so wrong. I don't think so. Yes, we were around 70 in budget. And we now think it will be rather be maybe 65.

Okay. Clear. And is your ready-mix profitable finally?

Sorry?

Ready-mix business, is it profitable?

Let's say, well, maybe 0, maybe 0 EBITDA.

Okay. I understand. Your CapEx in the first half was only EUR 102 million, which is a lower number than 2020, and 2020 was a very low year. So what's happening? What should we expect in the second year? Why are you cutting your CapEx?

We're not cutting. As I said before, there was a delay caused by the pandemic. In a sense, that it was in a distant decision, a decision because it was in an emergency decision to keep on hold and stop a number of projects less. And as I said before, when you -- even though the decision to go back and to restart the normal CapEx development was taken already last year because fortunately, I mean, the business continued to perform well. When we realized that things were going okay, we decided to go back to a normal CapEx development. It took some time.

Yes. Okay. And so what should we expect for the second half then? One half...

We are -- yes, we said yes -- as I mentioned before, we are now budgeting $320 million total. I don't know if it's too ambitious because sometimes in CapEx, yes, you are as opposed to maybe economic trends that we are sometimes too ambitious. But yes, the number is $320 million.

$320 million. Okay fine. Mexico, your press release says that in the second half, you expect an equally sound development. What does that mean? Your volume was up by 24%. Do you expect the same thing in the second half?

Not exactly. Let me say, no, no, not exactly. We should go -- we should get -- we should reach at least 14%, 15% of volume.

Sorry, what is it?

15%, let's say.

15, 1-5?

Yes. If any way, I mean, very sound, no doubt.

No. 15, it sound enough.

Yes.

I can ask in Brazil, I'm looking at the scope effect that you showing. And I'm actually quite surprised how small it is. I mean, I understand that the CRA business was only present for 2.5 months out of 6. But you bought the amount of capacity, which is not very much smaller than what you had in the business before and the increase is very tiny?

Yes. Well, it's very much smaller if you look at the volume, but was also very much smaller if you look at the profitability, unfortunately. Now in a sense that the CRA just became profitable for them. The first year was 2021 actually, where they went back into a positive results. So I think we mentioned it already. I don't know if it was the case or we did directly or in another conference call, but it's clear that our average profitability is worsening with this asset, yes.

Yes. But if I divide one number by the other in the scope effect, it's not particularly bad. I mean, it's lower than yours, but I saw that it was going to be much worse than that. But in the whole total amount of, say, revenue is smaller than what I expected. I mean, is there utilization so much lower than yours?

No, yes -- I mean, I don't think this is the reason. It's really mainly the age of the assets and the quality. Now for the full year...

So is the real capacity less than whatever it was, 3.4, 3.6?

It is a real capacity, but it's a capacity that is built -- there is quite a significant difference in the case of CRH asset between the clinker capacity and the cement capacity because particularly in one of the plants that they are using a lot of slag, so they have a low clinker content, which is, in a sense, it's a good thing now today, particularly. But of course, they buy slag. And it was one of the reason why the profitability is somewhat lower. So no, I think we'll try, of course, to extract all the potential synergy. And I think the move, again, it was not a bad one overall in terms of timing, in terms of amount paid, et cetera. So I think we did right. Now, of course, we need, on one side, the country to perform, which is, yes, more or less, happening. And on the other, also, a lot of unfavorable debt came from the ForEx. I'm sure this is...

The next question is from Alessandro Tortora with Mediobanca.

Mr. Pietro, very 2 quick questions, okay, from my side. The first one is, you mentioned before maintenance, let's say, operation are going to do -- can you, let say, give us any update on any final decision you take or you may take on adding capacity, probably the U.S. was an area where you were thinking about adding production capacity? The second question is on -- if you can come back to the point on the proposal, the Fit for 55 you mentioned before. Can you exactly tell us where -- what do you see the impact it was? If I remember, what should be incentive related to energy-intensive businesses? Just to understand better where, let's say, you see this risk of this additional cost, EUR 50 million, if I remember what you mentioned before?

Well, there -- yes, the risk is the new problem. Is that a go what you mean? I mean, the risk is to lose what today -- I think it is mentioned also in our -- I was looking back in our annual report because it's a kind of -- not exactly that, but it's almost consider a public state incentives. So if you go -- just a second. We have a specific section in our annual report, it refers to Italy, but it's true, I mean, the same. This is actually a European-wide incentive. Just -- yes. It's under [Technical Difficulty] 52. So...

Mr. Pietro, no problem in case. Okay, I maybe...

Page 52 of the annual report. Unfortunately, I opened the Italian section, but I hope it's okay. Transparency requirements, and you see there that we are mentioning the provision, the decree, which follows actually an EU legislation concerning a provision reduction of tariffs to cover the general system charges for energy-intensive companies. This is what the Fit for 45 is potentially addressing and is what, in our -- is worrying us the most.

Okay. Because this, in theory, will be like, I don't know, a cut day 1 independently from -- due to allowances, I think get out of phase out.

That's a drastic change in energy -- in power cost from 1 day to another, if it happens, yes.

Okay. Okay. And on the first point?

First point, what was that?

Adding capacity.

Adding capacity? Okay. No, no final decision. There are 2 potential projects on the table. I think one is more likely than the other, in a sense, that if the so called the replacement tenants and also together with the replacement of some capacity addition in Korkino, in Russia, this is where we have already the machinery on the ground. Machinery purchase was 3 years ago, if I recall correctly, from the Iskitim plant in Siberia. I think this will receive a green light. We don't have a final budget yet, but it's approximately -- it should be below EUR 200 million. We'll see, but anyway. And the San Antonio plant, the idea of really building new capacity, I think it's likely to be postponed one more year, and we will continue to possibly keep the permit alive by doing something that is -- as we are doing now anyway useful to the plant, even if there would not be any capacity addition later.

Okay. Okay. So let's say, if we look at next year, let's say, CapEx level, I understood it's not yet in the budget, but considering...

No, no. Also because if we approve the Korkino project, there will be engineering, there will be some maybe preliminary work, but the process in Russia is very long to move on with the local approvals. I mean you get that rolled, but the bureaucracy takes a long time. So anyway.

Okay. Okay. No. It's yes, yes, it was just, let's say, wondering which level of CapEx, okay, we should have in our mind for next year, okay? That's...

I do not see anything too different because this year, I mean, in terms of expansion, probably we have maybe EUR 20 million, but no more. So I think we did EUR 300 million more or less should be something that you can use also for 2022.

The next question is from Ekblom, Cedar from Morgan Stanley.

I've got 2 questions on the portfolio, actually. You flagged a very strong performance in your Mexico business in the first half. That business remains an equity-accounted asset. I know you've been asked in the past, but do you have any increasing intention to consolidate that asset further, considering how well the operating environment is in Mexico? And what would you need to see in order to want to increase your stake there? And then similarly, on the portfolio, if we look at the U.S., I'm sure you've heard many a times that U.S. assets trade at big premiums. The U.S. accounts for more than 50% of your EBITDA. Would you have any intention in unbundling your business to crystallize that value? And if not, why not?

I think the second answer, yes -- the second question is easy to answer. I would say no. Why? Because I think one of the key really point of excellence of our group and one of the key strategies that we, I think, correctly tried to follow in the last few years has been really to reduce as much as possible the minorities and the effect of having 100% of the U.S. besides the great simplification. So it's making clearly everything much easier versus owning maybe 60%, I don't know, or 55% in a -- to the entity gave us a lot of -- and still giving, I mean, a lot of power -- the financial power. I mean, the fact of not diluting or not having to serve other shareholders in terms of dividend in our opinion -- in my opinion, is a great advantage. I mean a really, really great advantage, not -- I don't think we would be ready to lose that. So I don't know. It's something that you may like it or not, but for sure, it is a clear direction. And same thing we did with degrowth in the gradual process of the lifting, and it turned out to be a very good move really for the group. And this goes somehow also related to your first question with where, unfortunately, this does not depend on us. I mean we can be -- we're going to have the best intention to become a majority or able to consolidate the Mexican joint venture, but there's nothing in the shareholders agreement, which allows us or the partner to change the situation. I think the only trigger could be potentially a change of control. So if there is a change of control at the Buzzi level, [indiscernible] would be able to buy. Same thing, if there would be a -- if there was a change of control [indiscernible]. And so for the rest, both partners, as you can imagine, are very happy about this investment. So they are not likely to give it up.

The next question is from Harry Goad with Berenberg.

I guess it's just really an extension of the prior question, to the extent, if I look at the balance sheet with the net debt position even lower in the first half, I guess we're getting pretty close to a net cash position at the end of this year or so in 2022. Can you just talk a little bit about what you feel the right level of leverage for this business is? I mean you have been running a net cash position on a long-term basis. And how does that feed into thoughts around both growth generally or growth investment and also the dividend policy?

It's a good problem to have in a sense. Of course, maybe not ideally, not extremely efficient in terms of cash management. It will require maybe for some time to manage our liquidity a little differently from what we were used to, but always, of course, in a way to preserve it. The right level of indebtedness is -- I mean, the message also the -- our goal or our aim is something that we discuss also with the rating agency, et cetera, is clearly to stay well within the so-called investment-grade rating very, very sound. Now we have been upgraded to BBB. If it was a BBB+ or even better, I don't know if you will get there or we'll not, I don't know. But anyway, so it is clear that our goal is to stay within this range. There are some indexes. There are some ratios that usually identify this kind of rating. And yes, clearly, we want to stay within this frame. I mean this judgment. Again, going forward, I think not immediately, but in some years, not too far from now, the effect of being having a strong balance sheet will be a significant competitive advantage in the sense of moving quickly and maybe in a faster way versus other competitors into the adoption of technology into the overall energy transition, -- this we don't know. Of course, today, it's difficult to say when exactly this is going to begin and to translate into significant CapEx spending, but sooner or later -- sooner rather than later, I think it will come.

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

Firstly, can I just thank you for the slides, which I thought were very useful and that I appreciated that.

We need to thank our Investor Relations.

My main question relates around Slide 7. And it's this price increase of EUR 46.4 million versus cost increases of around about EUR 120 million. So you recouped essentially only about half of the cost increase. And what I'm trying to understand is, pretty undiplomatically, where was the problem? I mean was it difficult to recover the cost increases in the U.S.? I mean, could you give me some idea of how much of the EUR 46.4 million was in the U.S.? And the reason I say that was my impression in the U.S. was I thought you'd have the benefit of 2 price increases in H1 versus H1 '20 because you got a price increase in July of 2020 and another one in April of '21. Where am I looking at that wrongly? And also, I think you mentioned only one country where the prices were actually down, which I think was Ukraine. Am I right on that?

That is correct, yes. Yes.

So were there a lot of countries where really there was no price increase?

No. No. But I think I mentioned it briefly at the beginning that the most significant price increases we achieved, let's say, in percentage, which is anyway an indicator, were actually, yes, in the U.S. and in Germany. For the rest, we are the range, and this means some, approximately -- yes, U.S. is actually the highest in the first half at least with about a 5% price improvement, not everywhere. This refers to cement fuels, okay. Ready mix is not so important to speak. To some extent, it can affect the overall -- it does affect the overall turnover. But okay, in terms, about 5% in the U.S.; a little less than 4% in Germany; and the rest of the countries between -- okay, besides the negative variance in Ukraine, we have, for example, 1% in Russia; almost 1.7% in Czech Republic; a little better in Poland, but the volumes were somewhat weaker, almost 4% in Poland; in Italy, it was 2.5%. So this is about the range.

Maybe one additional comment here. If you look at the EBITDA variance, you, of course, have to consider that this is the variable cost. So you have to compare it with the volume effect plus the price effect, not just the price effect. I think that's what you have to look, for sure.

Okay. Okay. And just as a follow-up to that. So where -- which countries was the major difference between prices and costs? I guess what I'm asking is, you give me the price increases. Where was the particularly substantial increases in costs? Which countries saw most of that EUR 110 million variable cost increase?

Yes. For sure, if we look at the -- again, energy in Italy was proverse. Let me check again, but -- yes. That's the second, yes. Okay, yes. Italy. Italy, yes, was performance in terms of energy cost, the difference is a change of variance versus last year and then U.S.. Germany, too, because the power cost went up. No, not so much, if you will, but power, yes. Yes, Italy, Germany and U.S., basically.

And just a final question for me, still on the same topic. Earlier on the call, you talked about price increases. And you seem to say you were mainly going in January or beginning of 2022 for larger increases to reflect, for example, the larger carbon prices. Does that -- the high carbon prices -- does that mean that you actually don't have many price increases out for the second half of 2021?

In our forecast, we are only assuming something in the U.S. But again, regional -- more regional than across all the states or the entire distribution. So yes, basically, yes.

So regionally, it's just Texas is where you're looking for the product?

Mainly Texas, yes.

The next question is from Gregor Kuglitsch with UBS.

Sorry to come back to this. So you've obviously drawn our attention now to this Note 52. So are you saying that -- is it the EUR 68 million here that we see in the table on the bottom of that note that may obviously sort of a excess duty relief that you get? Is that what you're talking about is potentially losing?

Yes. Yes. Yes. Exactly. Exactly.

Okay. And when would that be if...

No, no. In a sense, there is something that is -- that was included in the [ FIT 445 ] package, let's call it. So they are mentioning canceling, it's kind of -- or what do you call it, state-aide and that will be seen as a state-aid. And if you will go -- if it will be changed, it will -- I think there will be quite a reaction, but that doesn't mean that the parliament will not approve it because if an industry or in some industries are considered with an impact on CO2, they might -- it's possible that they will be punished, in a sense, more than other industries. How this will really -- if this will really have an impact on CO2 reduction? I doubt it in main sense that the process probably go on any way. It's more likely to translate into -- for us into higher cost than anywhere or another entry to higher prices. But anyway, the -- partially, this is -- so this is the direction that the European Parliament would like to take.

Okay. And that's, just to be clear, this only exists in Italy for you?

No. No. No. All across Europe.

Okay. So the EUR 68 million is only referring to Italy because it talks about E&R...

The EUR 68 million, I think I mentioned -- I don't have -- we can follow up maybe on this because I don't have a clear calculation or precise calculation on that. I assume that according to what was the benefit in Italy before -- not before. Before, it was -- because before, we used to have, on one side, we were paying energy full cost and we were receiving the aid separately. So there was -- and then starting from 2 years ago, if I recall correctly, it was included directly into the price of energy. So I remember the magnitude of the benefit clearly for it 2, 3 years ago. So I would expect this for entire Europe to be in the range, I'd say, of EUR 50 million. It was -- in my opinion, it was possible.

Okay. Okay. Fine. The second question is on the U.S. and capacity. And then I guess, specifically, around changes to perhaps the clinker ratio. So I understand if part of your thinking of not, for instance, pulling the trigger on San Antonio would be that perhaps, over time, the clinker ratio does finally come down in the U.S., and that frees up capacity and you don't need it. Or is there another reason? Because it's looking like you're pretty sold out basically.

It's a good point. It's a good point. It is one of the reasons because that's the clinker ratio to come down. We want it to come down. We need it to come down. And the industry, ourselves, everyone is working in that direction. And you are right, we could -- by reducing, for example, 10% or 15% of our clinker ratio, which is clearly a goal, we can add more capacity, no doubt. So before really committing to a large capacity addition, we are considering -- we are definitely considering also that. It's a good point. Yes.

Okay. And would you have to invest?

Not much.

I don't know, grinding...

No, no, no, not much. In general -- okay, if you're really -- okay, if you're really going to something like we have maybe in Europe, 50%, 60% clinker ratio, we need this lagger. And maybe sometimes, the mills that you're using for cement are not suitable, let's say, for slag, so this could be some, okay, final grinding -- or slag grinding requirement is possible. But if you go down like, I think, in the next few -- you move from 90% today to 80% maybe, in this case, we can do it with exiting mills. You need to grind a little finer but it's not such a huge change. The issue really is only the way the market is used. The problem, if you wish, is just -- it's just that the market is not ready yet to accept something different because the product is good. It's not an issue of a strength or durability over time, but it's a different product. I mean it's like selling electric car versus fuel engine cars. So you need to be -- to get used to it.

Yes. Okay. I get it. Okay. And then on Brazil, so you've now had 2 halves of printing north of, let's call it, 35% EBITDA margins, which is actually excellent. Is that sort of what you think you can do? I mean, I guess there's obviously CRH coming in is a large business, maybe that takes it down a little bit. But equally, it was already in for a quarter, so just in a quarter.

Yes.

So is that kind of what you're looking at?

I think it would be a very good level. I mean if we can maintain it between 30% and 35%, yes, it's something that we -- of course, we are shooting for. It would be big.

Okay. And then look -- okay. Yes, I agree, that would be a great outcome. And then a final question, I've asked this before, and I know that perhaps I know the answer. But obviously, well, sitting here, looking at your stock, I don't know, it's 4 or 5x EBITDA or something like that, are you not at all tempted to buy back some shares? I appreciate you want to keep a strong balance sheet, but you're also chugging off quite a lot of cash flow. So is there a temptation to maybe do this? Or is it just offset?

Temptation, maybe, is not the right word. But I can say that it is one of the possible capital allocation direction. This is true. I think we have to at least think about it. It's not something that we should just say not at all, no. We are not very tempted, generally speaking, because it's something that in a way or another would -- may appear like you don't have any -- there's nothing better to do, which is according to our, let's call it, industrial or entrepreneurial drive, not the way we are used to or what we like to invest in the money that could have a good financial sense.

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

Okay. I think it was a good conference, a lot of questions. So I'm happy to -- that we have been able, hopefully, to answer in a satisfactory way all your doubts or question mark. And okay, we'll stay in touch, as usual. Wish you very happy holidays for those people that still have to take their vacation period and see you soon. Bye-bye.

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