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 2021 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.

Okay. Thank you. Welcome. Good afternoon to everyone. We would like to follow, let's say, the presentation that was made available to you on the website and go over the 2021 results that were just released earlier this afternoon and then follow up, of course, with the Q&A session. So what are the highlights for 2021, I would say, overall, quite a good year with growing, let's say, indicators both for sales, profitability and proposition with some, let's say, unfavorable variance but limited. We did have to face the EBITDA margin in a sense that the pressure that we had to face, let's say, during the second half of the year due to the very, very steep rise of cost in general and energy cost in particular, brought, let's say, the EBITDA margin somewhat lower less versus 2020. And the same happened to the return on capital employed. We lost 130 basis points in one case, 50 basis points on the other. But still, let's say, the absolute level remain quite satisfactory. And in the case of the ROCE above our weighted average cost of capital. So EPS, on the other hand, was growing also to the lower number of outstanding shares following the savings share conversion of last year. If we look at the net sales variance analysis, we noticed that the increase was driven both by volumes. Several countries actually, most of the countries where we operate, where, I would say, successful in achieving, let's say, higher cement volumes during the year and also by pricing. So the two key components were overall favorable with some differences region by region. The only region that showed a negative variance in volumes was the so-called Central European regions, the one that includes Germany, Luxembourg, with a limited decline, but also a positive price effect almost offsetting entirely the favorable variance for volumes. In Eastern Europe, which includes both Poland and Czech and Russia and Ukraine, the volume variance was quite significant, quite favorable and mitigated to some extent by negative foreign exchange effect, which was mainly driven by the ruble. And the same thing in U.S., volumes are growing a little less compared to other areas, pricing quite firm during the year. And unfortunately, some ForEx effect that somehow worsen the overall, let's say, results in terms of revenue. But as I said, we enjoyed during the year, basically all our region, good performance, both for volume and pricing. In terms of EBITDA contribution, which is following page from the different countries, there is clearly a strong U.S. performance also relatively speaking. So the overall contribution to total EBITDA, total consolidated EBITDA is above 55%. In the case of 2021, close of actually to 60% or 58% with, let's say, specific profitability above average in the range of 32%, 33% versus our 23% average. Italy performed better, let's say, compared to last year, but suffering particularly in the second half to -- from a higher, let's say, cost inflation versus other regions. So it's, let's say, contribution remained overall subdued versus the capacity and versus the sales volumes. Central Europe, slightly down, as we mentioned, due mainly to weaker volumes. And Eastern Europe performing well, remaining basically at the same contribution as last year, but with some impacts and favorable impacts from ForEx exchange. On the EBITDA bridge, you notice that, again, the, let's say, improvement in results is coming mainly from volumes overall. Price effect was favorable last year and adding, let's say, some additional contribution to the results. And the following, let's say, items are clearly showing the kind of let's say, rising costs that we have been facing during the year. And clearly, the key components, variable cost is really quite increasing, quite putting a lot of pressure, let's say, on the production cost, raw materials, fuel, power, quite widespread trend with again some regional differences in some countries. The pressure was much greater than others. But this was, I would say, a general trend that affected our operations particularly in the second half. Fixed cost, yes, some negative variance, but much more, let's say, under control, I would say, with normal, let's say, inflation trend. Other items, flat. Additional CO2 cost, yes, due to the rising cost of CO2 during the year, and the need to cover, let's say, shortage, which is now, let's say, structural for this country with open market purchases. And actually, this CO2 cost do not represent good impact because as you know, I think we still have some, let's say, available rights from the previous period that pertain basically to Italy, which we did not sell, and we kept, let's say, as a way to offset the Italian shortage. And since these rise have been allocated for free, you don't see the cost, let's say, you don't see the cost going through the income statement. It's just the virtual or an opportunity cost. The FX effect was also negative at the EBITDA level, clearly, and the impact amounted to EUR 19 million. So we move from EUR 780 million as reported, which was EUR 785 million recurring last year to EUR 795 million, again reported which is now EUR 796 million recurring due to minor, let's say, minor nonrecurring cost charge to the income statement during the year. In terms of, let's say, going -- let's say, a little more -- a little closer to the regional performance, starting from Page 9, you see for each, let's say, country or major region, the key figures that we're commenting before, so the breakdown by major country and region and again, the respective EBITDA margin achieved during the year. We can say that the demand in Italy also following, let's say, the lockdown period, the overcome of the -- okay, more significantly, these difficulties associated with the COVID remained quite strong during the entire year, driven by residential renovation and also some public works. So the performance was, as I said, somewhat improving. It could have improved much more. I mean if you look back at the first half results, basically, they were at the same level or similar level to the 12-month results because in the second half, we started to feel a lot of pressure on the production cost when the energy and the fuel started to rise very, very significantly and it was not possible to recover, at least on the price side, this kind of pressure. Of course, in part, the advance is related to a comparison, which was relatively easy, so in 2020 with some months of idle production. But still, I would say, an overall performance, which was with the exception of the cost pressure in general on the market side, let's say, better than what we expected at the beginning of the year. In the United States, this continued to perform very strongly. The residential sector is the one where most of the demand was coming from. We are operating also at, generally speaking, at the high capacity utilization level. So with the theory than in practice, maybe not necessarily, but in theory, the best possible, let's say, operating leverage, and this translates, of course, into higher margin also due to the fact that anyway, in absolute terms, the U.S. pricing today is the highest in our group. So we do have maybe countries which -- with the lower production cost but the mix, let's say, between against sales prices and production costs even when production costs are higher, like in the U.S. still is giving the higher level of profitability right now. And the fact, of course, running high capacity utilization level is helping because we have achieved more or less the maximum amount of the fixed cost. Also in the U.S., the profitability went slightly down in terms of EBITDA margin. Same reason, let's say, basically difficulty -- some difficulties to fully offset higher energy costs, which in the case of the U.S. has been mainly fuels. Meanwhile in Europe, we are -- we have been and we are still experiencing more issues and more, let's say, pressure from the electrical power. The negative impact from FX was also driving somewhat down the EBITDA, which could have been better in a like-for-like situation in terms of ForEx. Central Europe, again, a little weaker. But overall, as opposed to maybe some years ago, the effect of the industry inflation was helping and made it possible, let's say, to improve prices better also slightly better than what we expected at the beginning of the year. So there was also, as opposed to Germany, for example, in Luxembourg, which is, okay, a small part of the region anyway, some recovery in volumes. And the favorable trend in selling prices made it possible to basically match the EBITDA of last year. So we came out very, very closely, both in terms of absolute values and also margins, so EBITDA margin. Clearly, Central Europe as well as Eastern Europe, at least the European countries under this region did have to face some additional pressure on the CO2 cost, what I mentioned before, the shortage and the fact that CO2 was really skyrocketing, let's say, during 2021. we still were able to somehow purchase at a relatively interesting level compared to the market during the year. But it is clear that this kind of pressure is one of the reasons for the difficulties, let's say, in achieving a better margin. In Eastern Europe, of the entire area, let's say, will show a nice improvement in volumes, particularly Czech Republic, Russia and also Ukraine. In Russia, oil price was -- the demand for oil-well cement. And we saw also here, in general, a nice growth of average selling prices, maybe with the exception of Ukraine because in the first part of the year, prices were able yet to recover. In the second half, we were able to go up instead. And CO2 cost, in this case, are affecting the results of Czech and Poland, but they are less important or they do not exist basically in Ukraine and Russia that are not part of the ETS scheme. And in, let's say, euro terms, we came out at a level of profitability, which is very, very similar to last year, some decline in EBITDA margin, but still at an absolute level, which is above, let's say, the group average. And particularly Russia was affected by unfavorable foreign exchange effect with a result that in the same, let's say, rate of last year could have been or would have been, let's say, much better. But I would say that also for Eastern Europe, we cannot really complain about the results for 2021. We should mention also or give a little bit of attention to our important, let's say, joint ventures in North America and South America because, by the way, both countries, both companies, markets had a very solid, let's say, 2021. Mexico, particularly strong in residential and public works during the year with volumes increasing quite significantly versus last year. Also in this case, Moctezuma, let's say, working close to full capacity. And a nice, let's say, favorable variance for selling prices, although, let's say, needed to offset the fuel cost that's, in this case, our fossil fuel only purchase in dollars. So Moctezuma uses 95% petcoke from, let's say, U.S. origin, which was rising significantly during the year. And this is the reason why, again, the performance was not -- in terms of EBITDA margin was not as good as last year. So always excellent, better than last year in Europe terms, with some help from the ForEx in this case and slightly lower in terms of margin, but again very satisfactory. Brazil, a little different situation because we had, of course, during the year a very significant growth which was, in a way, partly driven by the change in scope. We don't see, let's say, in our consolidated figures because Brazil is accounted for under the equity method, so not line by line. But anyway, the construction industry had a good development, let's say, in 2021, cement volumes, again, helped by the change in scope growth -- grew significantly and prices follow. Let's say, they were starting from a very low level, really. So it was, in a sense, easier to recover, let's say, some euro or dollar or reais, let's say, to bring them to a higher level. But still, we enjoyed, let's say, a strong performance there. Energy cost pressure also in Brazil, and total profitability, again, not fully comparable, but clearly better than last year. EBITDA margin, not at the same, but this is mainly due for -- from, let's say, the contribution of the new plants, which were added to the, let's call it, overall joint venture. The new plants coming from the acquisition of the CRH assets are somewhat older than the previous, let's say, Cimento Nacional only, and that's why their performance in terms of cost is not as good. But still, we are closing the year with a clear improvement. And also here, I would say, to a satisfactory result. Then we have some pages which are looking at recent, let's say, initiatives or, let's say, projects that are also important. Clearly, more for 2022 and going forward, in 2021, we mentioned here on Page 13, some announcement, the announcement related to an industrial partnership with Italgas, which will test the possible usage of a carbon capture system, which we are working on. It's clearly at the current stage, more research and development project and then a real, let's say, industrial effort, but it is something that is going to start and is going to be tested sooner. And also, the second bullet point, this is part of our road map towards 2030 and 2050. We've been launching recently in a more official way, let's say, our program to reduce, let's say, clinker in cement, which means basically to supply the market, to supply the customer with a different mix, with the mix of product that is, we call it, let's say, CGreen and -- which it follows the idea and the principle to have cement, again, with lower CO2, lower clinker content, but giving the same performance, the same reliability and the same quality that the customers are looking for. And this type of transition is occurring not only in Europe, but with the, let's say, CGreen, let's say, line of product, but also in the U.S., and this is coming actually probably earlier and faster than what we originally planned, which is also a good thing because we just announced that by the end of 2022, we will be able to implementing full the conversion from the traditional type 1, let's say, portland cement to so-called [indiscernible] cement, which means a reduction of emission between 10% and 15%. It depends from plant to plant, from the plant mix versus the traditional cement. And this is really quite a milestone for the U.S. cement industry, if you wish, because it has been strictly focused and strictly attached to the typical portland cement for many, many years, and it will be interesting. We are confident that this will be successful. Also for the customer, and the customer will accept it, will like it. And of course, most of the peers are following the same pattern, the same idea. And again, a big change for the U.S. industry in this respect. We are, let's say, we've been assessing lately what could be the performance in 2022, following the first 2 months -- the first 3 months basically almost. And unfortunately, we are facing some challenges, some changes that we did not include originally in the budget. Our initial budget was relatively, let's say, optimistic. We were looking for stable or slightly, let's say, improving results with not a big contribution from additional volumes, stronger pricing overall, particularly in some countries, the one more affected by cost inflation. So in a rising cost environment, we were quite confident, let's say, back in October and November to be able to offset with the price variance. Now what happened particularly in Europe, U.S. is a bit a country in itself with different dynamics, different trends. But particularly in Europe, the geopolitical tension, let's say, the conflict between Russia has [indiscernible] through a lot of risk, a lot of uncertainties, additional uncertainties to the macroeconomic scenario and is making any meaningful, let's say, forecast much more difficult to calculate and to assess. What we are seeing for sure is a trend in raw materials, shortage or prices and particularly, I would say, electrical power prices that is going to the roof, basically almost totally out of control. And again, this is really making any kind of assessment and forecast much more difficult. It is clear that this kind of trend, particularly markets requires in a way or another additional and also significant, let's say, price increases if we want to be able to somehow offset it. We don't know what could happen in a sense that, first of all, we don't know if the market will accept it. And second, we don't know whether this will translate into some kind of slowdown of, let's say, building activity, which is likely in our opinion. Also because not only cement is going up, I mean, it's a number of raw materials of building materials, so everything together, everything at a very, let's say, a steep rate. So we think that there is a risk of really projects or customers deciding to put on hold certain construction activities. So one side, we need to raise the prices, on the other, we don't know exactly what the impact is going to be on the demand, and we expect it to be unfavorable to some extent, at least. And these 4, the countries that are, let's say, in a normal situation, well, not normal for the cost, but let's say, normal at least from a political standpoint. In addition to that, we have, of course, the issue of Ukraine and Russia. Clearly more in Ukraine, we're starting from the end of February, basically, we have not been able to continue our business activities. So the production and sales are basically on hold, until when, let's say, we don't know when there will be more the possibility actually to move around the country, the people with the right degree of safety, which is today, let's say, the priority for us. And I think it's unlikely to imagine a solution in the very short term. So we mentioned here the risk or the high probability that this will translate into, let's say, negative operating results for 2022. At the same time, Russia is not in the same situation as Ukraine because Russia plants are open, let's say, production is running in a normal way. We were able, fortunately, let's say, to complete also the winter maintenance schedule before the outbreak of the conflict. But also Russia presents a significant risk. First of all, due to the sanction, we expect the main macroeconomic indicators to really go down very steeply and also quickly. And this would -- is likely to translate again into some significant declines in cement demand, which will mean, of course, lower profitability. At the same time, there is already quite significant change in the ruble value. So this is a situation more an accounting impact than, let's say, real operating impact. But still, when you prepare your books and you translate the Russian results into Europe, the devaluation is very, very significant. So we made an assessment and more or less that considering both the likely downturn in the economy and the likely value of the ruble, the Russian result could be half of what they have been in 2021. So under this expectation or overall expectation and the risk that we are running in Europe for the cost pressure, the related pressure on margins and the likely or potential, let's say, impact on volumes, we assess that more or less the overall impact for the group as a whole, could be in the range of 10% for the recurring EBITDA 2022, which is significant. But on the other hand, not too much, considering the situation and considering also that the results of 2021 where, I think, the highest in the last 10 years. So we are any way comparing to a level which was particularly good, particularly high. In general anyway, this is a preliminary assessment. We cannot -- of course, it is the best that we can express right now, and we hope that this will maybe not as much and ready to modify our view, our vision as soon as we have more visibility in the coming months. So let's -- yes, we have, again, some more information, detailed information about volume, income statement, I don't know, maybe -- what time is it? Yes, I think we could move directly to the Q&A session. So this would probably help in focusing on what your more interested in. And again, you can always call our investor relator team or ask more questions during the Q&A, specific about the financial statements and anything else you may be interested. So yes, please open the Q&A session.

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

So my first question is on the guidance and specifically, the impact that you expect in terms of decline from Russia and Ukraine alone. I mean exposure to Russia, Ukraine, I think, is in the magnitude of 10% and your guidance is for 10% [ cut ] in EBITDA. So if you could actually remind us what the exposure is, Ukraine and Russia. What is the expected decline to come from that region? And what is left basically in the 10% decline guidance, like in terms of cost inflation and overall volume for the group? My second question is on the U.S. You mentioned specifically that demand is expected to remain lively to support prices. What is driving this demand in your view in 2022? Are you not worried about a potential slowdown? And my last question would just be on your expectation for CO2 costs in '22.

Yes, sure. Well, the 10%, this is basically the maximum, let's call it, the [ broader ] maximum risk that we are running, if you look at the balance sheet. So more -- if you take the value of the net assets in Ukraine and Russia, and you assume that they will go down to 0, for any reason, I don't know, damage or nationalization, whatever, which is clearly is something that we consider unlikely, but still, the maximum risk will be about 10% of our net equity. So about EUR 400-and-some million versus an equity of [ more than EUR 1 billion and some ]. In terms of income statement, it's not -- well, it's also as much if you go down to 0 in full. But again, this is something that we consider some more than likely. We think that is likely, as I mentioned before, to see Ukraine going into a negative EBITDA or negative operating results. Russia should not be the case. But clearly, both volume prices, et cetera, trend, more volume, likely negative volume trend and ForEx negative impact could decrease quite significantly the Russian performance. You have a number for 2021 and so again, from probably 60 -- around 60 to something around is quite likely. In addition to that, again, it's an estimate is what we are trying to assess at best now, but the visibility is low and it's difficult to make forecasts that are about the value. But we see definitely risk in some of the European country. For sure, Italy, as mentioned in our income statement -- in our press release, is the one that is suffering the most from the recent situation. We are currently facing some spot prices for electrical power, in particular, that are totally crazy. So unless, as I said before, we will be able to somehow reflect these prices into the sales price, we will be down. There's no doubt that we are going to lose in terms of profitability versus last year. So combined, let's say, impact of Ukraine and Russia and Italian situation is what is giving us this kind of view, which again, is reasonable in our opinion, not certain. But if the energy prices, electrical power prices, in particular, continue at this level, it becomes -- this kind of outcome, in our opinion, becomes likely. In the U.S., the situation is totally different because the inflation is more, if you wish, demand-driven rather than offer-driven. So in Europe or in countries like Italy, we have an inflation that is clearly on the offer side than the production side. The demand, okay, has been okay in 2021, but it's more likely to go down in 2022. So we have again, prices rising and probably lower demand. In the U.S., it's slightly different, it's quite different because the demand, at least so far, has been good. It's been strong. They are far, let's say, geographic also economically from the European situation. They are basically not in the need, that it's self-sufficient in terms of energy, energy sources. Yes, fuel is going up. Power is going up, but nothing similar in terms of momentum or increase or absolute level versus what's happening, what has happened and what's happening in Europe. So it's something that we can manage in an easier way. And also the kind of price improvements that are needed to offset such situation are much less significant. And they occur in a moment, where the industry is running, if not at full capacity, very close to full capacity. So also where the -- with the pricing power of the producer is definitely greater than in other regions. Potential slowdown, we don't know, less likely in our opinion, unless really, well, the peace made a scenario, one scenario of the extreme, how do they call it, the war, let's say, or in case of, let's say, war that would extend to also Europe or other regions. In such case that they are expecting some kind of, let's say, in our term, but the basic scenario is for, again, moderate growth of volume in 2022 for the country. CO2 costs. We have in the budget around EUR 50 million, I think, in total versus EUR 41 million this year. Fortunately, we have been able to secure not being full, but almost in full the volumes, the shortage, let's say, for the full year than it was in mid-March, more or less, when the prices -- they had -- there was 1 day or 2 or 3 days when the price went down 90% to 58% -- 57%, 58%. And during these days, we were able to almost cover, let's say, the entire shortage for the year 2022. So in this respect, we are -- it's one of the few cost items where we are better off than the budget, not 2021 necessarily. But yes, slightly better than the budget. But we do expect, let's say, of around, let's say, EUR 48 million, EUR 49 million in 2022.

The next question is from Yuri Serov of Redburn.

I have a number of questions. So listen, first of all, energy costs. If I look at your presentation and I play with your numbers, I can see that energy per unit per ton in 2021 went up by about 23%. What are you -- in your forecast, what are you expecting for '22?

It depends if we consider the current level something that is going to stay or not. But the 2021 is biased by stable, let's say, 6 months or 6, 7 months of stability and in the second half when things started to worsen very significantly. So I mean and the megawatt -- as of today, if you buy spot, okay, it depends on day from another, but can be, I don't know, EUR 400, EUR 500. And 2 years ago, it was EUR 40. So we have been budgeting on the basis of the, let's say, cost end of 2021, expected, let's say, for 2021, which is well below the current levels. Are these levels going to stay or not going to stay? Will we be able to -- if they're going to stay for some time, I think they will, we will be able to increase prices more without affecting the demand. So these are the question mark today. But clearly, you have -- if you look at electrical power in Europe, you have a price that is 7x, 8x what it used to be, let's say, 1 year ago.

Okay, so -- but basically, what I'm hearing from you is you created the budget where you assume the cost from the end of 2021. And for now, given the crazy moves, you're not really calculating a new margin?

No. No, I mean in the figure that I mentioned before, so the fact that Italy could be, for example, weaker in terms of profitability versus last year. We do include a more pressure than because the original budget for Italy was positive last year. I mean we were expecting a positive variance in terms of profitability. And now we are expecting a negative one.

So the average effect was scheduled in the budget. And the original budget was meant that we had already a double-digit increase in energy costs already in the budget. Now going from there to the forecast, we have additional cost, of course, but that was expected very much by country because sometimes we are hedged, sometimes we have some already some fixed costs. So it's not something that we can answer for the whole group as rather country-by-country analysis. But overall, of course, there was an additional negative, quite significant additional effects on the group level regarding the recent weeks.

Okay. I understand. Speaking about Italy, and tell me whether this is anywhere close to the reality. So PPI indices that are reported across Europe show that cement prices in Italy in January were 28% higher than a year ago, which looks pretty crazy. Is that true? But how much did the prices increase early this year?

It's true. It's basically true. It's basically true, but it's not enough. I mean if we -- as I said, we want to -- even if you want to stay at last year level, they are not enough. I mean we are far again from the budget, which we, by the way, was based on this kind of increase and nothing more.

Yes. But look, this is cement, right, this is not computer chips. I mean price is going up by 28% is not something that is easier to preserve in this industry. Is this sustainable?

Well, I mean, at the very end, it's a huge increase, but in my opinion, it was just cement, probably not enough to stop or really to -- of course, also the building contractors, et cetera, they need to adjust. And there are some maybe bids that are on hold for this reason, and they will not maybe move forward unless they are able to introduce some kind of escalator let's say, inside the contract. But the cement in itself, yes, of course, it's much more expensive as it used to be, but still, I don't think is the main reason to stop or to put on hold a certain project. But coupled with the remaining, let's say, cost, which are also -- I mean, for anyone because what we are facing is what anyone is facing. So...

No, I understand. My question is, do you expect the price to be at this level at the end of 2022? Or do you think it will be lower or maybe higher?

No, they need to be higher. Not everywhere, but if you're asking about Italy, they need to be higher. In other countries, I think also higher, but to a lesser extent and the only way to remain more or less in the black.

Okay. Understood. Can I just ask about Russia? So obviously, we see companies announcing pretty much daily their decision to leave the country. I presume that you're not contemplating that?

No. In a sense that we think that is not -- will not be any way a timely decision. So we need to focus right now on the -- I think on the safety of the asset, of course, the integrity of the asset which is currently not at risk in Russia. It's more lately at risk in Ukraine. And we need to -- not to destroy -- do not make any sense in our opinion to destroy or [ understaff ]. So either something that has been an important part of the group until now, where we have a customer relationship, we have even more important, let's say, staff relationships. So these are people -- we have a large number of people, 1,400 approximately that have been loyal, let's say, to the company for many, many years. So why should we, let's say -- and I don't know what do they think about -- it doesn't really matter. I mean what do they think about the current decision by Russia. Why we should put them, let's say, travel or on the road without their salary, it's just because of this reason, in our opinion, will not make any sense. Clearly, we may have some -- of course, some economic impact, as I mentioned before. So -- and the decision about, let's say, future plans are under, let's say, much more focus maybe than in the past. So CapEx program will clearly, I think, show some kind of slowdown and also, I would say yes.

But you're talking about the CapEx program? Are you still planning to build a new kiln in Russia?

We never really went for a goal -- a green light to that. What we approved in the last budget was the so-called engineering part of it and this is underway. And I think it will be completed, let's say, the engineering portion of it will be completed also to a better idea of the budget. What is giving us more difficult is also in the light of future CapEx is the fact that, as you know, let's say, many parts, many components are coming also from the Western world, in terms of supply, in terms of, let's say, technical assistance, et cetera. So if you are not allowed anymore to have some help, let's say, the Western world is an additional reason why to, let's say, at least look very carefully at approach, but more carefully at the project.

Yes. But since you're doing engineering, surely, you don't want to do engineering and then drop the project. I mean if it's ongoing then...

No. No, it could well be because the project -- also, the profitability of the project was actually more associated with the potential increase in demand rather than lowering the cost because, yes, there is an advantage in lowering the cost when you switch from, let's say, wet to dry technology, clearly, but was not enough, let's say, to justify the project. So the project was justified particularly under the assumption that we could move from a certain level of sales to another one, maybe 20%, 25% up. And this is much less likely or maybe less likely in the short term. If you ask me, I don't know, 3, 4 years down the road, possibly yes. But I believe there will be a time to reflect, I mean, not to move quickly into this direction like we expected before.

Okay. I understand. And then since we're talking about CapEx, can you just give us some sense as to how much you're planning to spend in total for the group in 2022? Consensus right now is showing about EUR 314 million for CapEx for you for the whole year. Is that about right?

Yes. There is -- there are some countries like Italy, again, and the forecast is always under scrutiny where, for example, following this kind of very steep cost increases that we've been facing, a number of projects that have been put on hold lately. We kept alive only the one, let's say, associated with the CO2 reduction and the so-called, let's say, road map for the 2030 to 2050. And in other countries, okay, maybe with the exception again of Russia and Ukraine, clearly, we don't see really a reason to slow down. So the expectations are for something that, I think, will be still somewhat higher than in 2021 because there is a number of project with a carryforward, which we were unable to complete in 2021. So let's say EUR 280 million, EUR 290 million, this could be probably the likely capital spending for the full year.

Okay. And just one last quick question. So your limestone cement in the U.S., can you tell us what the prices are for that kind of cement and whether the profitability is any different?

We're absolutely selling at the same price. No changes because the product is presented, and it's also the way it is to the customer as a complete substitute, let's say, of the portland type 1 cement, so absolutely no changes.

But the profit is higher because it's easier to produce it and cheaper to produce it.

Sorry?

Does that mean that the profit is higher?

No. No, not much because anyway, sometimes, for example, when you replace with slag, which is also not only with limestone and partly replaced with slag not necessarily you spend less than clinker. And also you have to grind it somewhat finer to achieve, let's say, the same performance, so no. The main advantage is the possibility to have more grinding capacity at the end. So to use -- by using less clinker, even if you find somewhat finer, so some more hours, say, you still -- this is still a way to somehow free up some capacity, which is needed because if the market keeps going, let's say, strong with the pure portland cement type 1, we would be, let's say, in some plants, at least, are not able to produce more instead by switching to type 1.

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

I would have a couple of questions. Have you announced a sudden price increase in Italy? Have you sent any letter to your clients? And similarly, in the U.S., because of the -- or anywhere else in the world, have you sent letter to your clients about a sudden price increase so that you can offset the dramatic increase in larger price and if you have sent -- yes?

No, sorry, I was going to answer that. Can you please go on.

And if you have sent a letter, it would be great if you could quantify the amount in [indiscernible]

Okay. Second price increase in Italy, as I said, we are in the middle of it. So yes, we are preparing and yes, we need to move forward. So we will try. U.S., not really because U.S. was -- in some region, let's say, with the exception of Texas, prices went up already at the beginning of January, beginning of the year. For Texas, it's going to be basically now, let's say, beginning of April. But Texas enjoyed was the only reason that enjoyed, let's say, to price improvement last year. So this was also related to the last year development. So the magnitude, as I said before, we need not so much in the U.S. I mean they are greater than usual, but not so crazy. In a country like Italy, yes, we need to do much more.

And then second question, do you import cement in the U.S.? And if so, could you quantify the order of magnitude, a couple of hundred thousand tons, 0.5 million tons.

Yes, we've been importing some years already. We have this, let's say, joint ownership of the terminal in Houston. So we supply, for example, our -- used in ready-mix plants with imported cement. Yes, the volume is more or less the one that you mentioned, between 500,000, 600,000, yes.

And we've seen shipping rate being -- shipping rates have more than doubled since last year and the costs as well of imported cement from anywhere in the world from Turkey or from the [indiscernible] region increasing quite a lot with -- after the war in Ukraine. Do you believe that there could be that you could lose a lot of margin on those imports?

Slightly, but this is also helpful, of course, for the domestic price in U.S. So in a way, it will force also the independent importers, let's say, to sell cement at a greater price I think there will also be some -- there are already some problems in finding it because, for example, as you know, I mean, the Ukrainian situation is affecting Turkey quite significantly due to their supply or lack of supply of fuel of coal from the Black Sea to their plants. So they are short -- some of them are running the risk of being short of fuel, which means clearly not able to -- not being able to produce. So both at the source, both because of the, let's say, ocean freight. There's clearly on the cost of the import and so also on the prices at the final customer in the U.S., strong pressure and a strong reason to move up, which is, of course, helpful for the cement producer. It is adding, if you wish, pricing power to the domestic producer in those regions where the imports are more significant.

But for the time being, you don't see any certain price increase in the U.S.?

Second, no, we are not forecasting a second one at the moment. Again, with the exception of Texas, we had a second price increase for the year, but it's following a price increase, which was made last year in the second half. So in a sense, it's closer than usual.

Maybe a last question, in Mexico. Some of the largest company in Mexico suggested that the volumes were a little bit difficult at the beginning of the year. Are you seeing any decline in volume. And I think in your outlook, you're also suggesting that you might not be able to pass on cost inflation? If you could just give us a little bit of color of what's happening and why Mexico is a bit more difficult in 2022 than it was in the present?

Yes, we are experiencing the same kind of trend, a slightly weaker market versus last year in the first, let's say, 2, 3 months. We believe, I think, the main reasons are associated with -- the main reason is the trend of the public works because some of the bigger, let's say, projects launched by the administration like the new or second airport of Mexico City has been -- has come to almost a conclusion in terms of concrete, let's say, usage. Same thing, but this is more maybe specific to our company for the so-called [indiscernible] refinery, which is well underway, and we were supplying and then we decided to back off because of pricing, basically profitability of the project. And on the cost pressure, it is mainly related to fuel right now. So you know that the energy market, the power -- electrical power market in Mexico has been going under first changes. So initially some kind of liberalization then with the new president, again, becoming more public with less, let's say, permits given to foreign players or anyway, private players to produce and sell electrical power themselves. And is currently under some kind of, let's say, social regime. We have seen -- we've seen power prices not moving basically, which is -- if you compare it to, again, what's happening in Europe is totally different. I don't know how much this is sustainable for the country, for the, let's say, monopolistic energy producer. But so far, at least, we have seen energy prices really steady, let's say, instead again, fuel prices going up according to international, let's say, trends or international indexes like the pace for petcoke. So that's why we are, let's say, a little skeptical about being able to keep the profitability at the same level. We see some difficulties on the volume side and significant pressure on fuel cost. But overall, I mean, again, compared to some other countries, it's a favorable situation.

Because we hear that prices were up by more than 15% at the beginning of the year. Is it what you're seeing? And is it not enough to pass on the cost inflation in Mexico?

The price increase was significant. Not -- okay, I think we will need to wait for another at least one more month to understand whether it will stick completely or not. So there may be some adjustment coming forward. Well, the fuel has changed dramatically and we don't have any kind of basically ways to derive fuel or calorific substitution in Mexico. So we are using 95%, 96% petcoke with the pace index that has gone from, I think, 60 average last year to some 100 -- I don't know what is now, 180 or so.

I think it's even 200 or like that.

Like that one and so definitely much, much higher.

But the price increase is closer to 10% at the beginning of the year than 15%, is that correct? But it might go to 15% in the next month [indiscernible]

Let's see. It will depend on the market, I think, on the demand. Also, last year, some of the competitors, particularly one competitor was not -- was losing, let's say, some market share due to internal reason, let's say, not to, I think, lack of, let's say, management like directions, and this could change during the year. And if they want to recover like I think they want to cover some of the lost market share, it could be more aggressive on pricing. So yes, I mean, the improvement is there, again, is needed. But it's more or less in line with our budget of being able, let's say, to offset the cost and remain at a similar level of EBITDA margin, at least in absolute terms, maybe somewhat less in percentage of our revenues, but similar to last year in absolute value.

The next question is from Alessandro Tortora of Mediobanca.

I have 3 questions, if I may. The first one is related to, let's say, the U.S. Can you give us, if I understood, what the assumption behind, let's say, the initial indication of the full year EBITDA? Can you give us an idea of a constant currency if you believe it is reasonable to assume the results of the U.S., overall stable? This is the first question. Also because I didn't, let's say, I didn't know what is the assumption on, let's say, the U.S. dollar, euro exchange rate, okay, you made on your budget, is the first question.

On the budget, we were conservative on the -- or at least this was the usual, let's say, Bloomberg reference that we are using just because you can -- on the exchange rate, it's difficult to make an internal assumption. I think the original was 1 22 or so, the original budget figure. And now in the latest, let's say, forecast or the number, we moved it down to 1 12, 1 25. So for -- it is the current assumption. And so we should have a positive, let's say, FX variance versus last year. And we are losing some profitability on the ready mix. This is clear versus last year. This was expected also because since the plants are running basically full capacity and we have a lack of drivers, we have a problem, let's say, with our, let's call it, because capacity in ready mix is driven more by the availability of trucks rather than the plant itself. So -- and if you have the truck, but you don't have the driver, actually, you're losing capacity. And this is what's happening, particularly in Texas around the San Antonio, Austin area. So we are a little bit under pressure on the revenue profitability, which is something that we can accept, let's say, in a situation where we are already at full capacity for our cement sales. So we could, in theory, sell more concrete, but to sell more concrete and buy in cement from someone else, but don't seem to be the right tactics at the moment. And for the rest, okay, depending on the kind of price improvement that we will be able to eventually accomplish. We should expect something not too different, let's say, versus last year in dollar. We are basically targeting a similar level with some reduction again from ready mix, which could be something like, I don't know, between $5 million and $10 million less.

Okay. Okay. So let's say, all in all, overall stable, let's say, local currency plus the benefit from, let's say, the stronger U.S. dollar. Then, plus or minus something, but this is, okay, also your assumption. Okay. Then the second question is, again, in the U.S., considering that you are running at full capacity that the CapEx in Russia is, let's say, standby for, let's say, the reason we know. Is there any -- if I remember well, there is an expansion plan you were thinking about or at least, let's say, network or every network to be no link to the plant. Are you making any reasoning in order to have capacity in the U.S.?

Yes, in a sense that it's always the first topic in any kind of, let's say, management meeting locally, but we have not come yet, let's say, to the decision in the sense that we are moving forward with some improvements in San Antonio that are formally related to the capacity expansion permit. But they are not, let's say, adding capacity yet. So for example, the construction of the new clinker storage is related to the project, but -- okay it's helping, of course, in managing the client as it is but it's not adding capacity yet. So on the rail rate connection, again, in San Antonio, no decision yet. We think -- we would like to see the impact of the switch to Type IL, how much is giving us and the market what is actually going. Because if we can't get another, let's say, 10%, for example and by switching to IL, I think it would make sense to still wait, understand really whether there is a structural change in the demand or after so many years of positive trends, something changes because you never know.

Okay. Okay. Very clear on this point. Then the third question is, let's say, on Italy. So if I understood well, let's assume you are not able to make the second price increase, as of today, let's say, the indication you have is for an EBITDA lower in Italy? And just to understand better, let's assume again that you are going to make this second price increase, Italy should be, I don't know, stable or higher? Just to understand the extent and the impact of the potential second price increase.

Yes, we are -- okay. I don't know if we are successful. If we are fully successful, I think the best case will be to remain stable. If we are not fully successful, we will be lower.

Okay. Okay. Okay. And the last question is [indiscernible] on, let's say, on the accounting side on the tax rate. So tax rate was pretty low. I understood that there are some, let's say, no recurring effect on this. Considering the geographical mix, considering that Italy probably will have a lower profitability, do I need to expect, let's say, higher tax rate this year, also considering deferred taxes and so on?

Yes, slightly because last year, the impact is coming this year. I mean 2021 is coming mainly from previous periods, which means basically last year, it -- well, maybe it's worth spending short time on this. It's coming mainly from the U.S. Last year, we did not consider because we were at 100% certain. And you know that the tax return is always filed, let's say, many months after the closing. We were not considering an advantage related to accelerated depreciation. This was one of the changes introduced also by Trump like together with the lower tax rate. There were some benefits that you can take by, let's say, deducting your investment 100% in 1 year. And we were not fully certain, let's say, about this possibility last year. This year, when we filed, let's say, the return, we decided that there was -- it was good, if it was available to us. And so we -- in a sense, we took this year an advantage that should have been booked already last year. And then that -- so it goes into the line, let's say, of the previous year, taxes with a positive sign. And as such, let's say, it's reducing the overall tax rate. But if you clear, let's say, everything from this nonrecurring or special effects, you go back to tax rate, which is in the range of 2021. So very, very similar to the average of the previous years.

The next question is from Gregor Kuglitsch of UBS.

So I wanted to sort of go back a little bit, if you could give us some detail on the energy bill. There was a slide, I think that's just demand, but I guess it doesn't really matter. So roughly EUR 390 million, I think last year, you had in terms of fuel and electricity. So I guess I wanted to get two questions. One is, roughly, if you kind of calculate it all, how much of tax could do you think is sort of hedged, so you've already agreed with the price? And then secondly -- and I guess you called out Italy specifically as a major issue, but maybe let's talk about European electricity because that is probably your biggest problem if you summarize it. How much of this is European electricity? And kind of give us some sense how we can best calculate the risk sort of you mentioned some numbers, right, what happens if [indiscernible]? What happens if it's back to normal? Just so if you could kind of help us out what the risk is here on your...

Yes, yes, yes. I would say that in general, the hedging gain on electricity is about -- it's pretty good. If you wish more, we would be much worse off without any -- about, I mean, if you look at year-end and for 2022, we can consider 30% to 40%, maybe Europe, but I'm talking about Europe, so which is fine and again even some more confidence for at least this year. And then when you look at 2023, it's very minor, it's some -- probably as of today, maybe 10%, but no more. And in terms of total -- out of the EUR 387 million, okay, power is EUR 220 million. And if we look at the -- just make shortly some. So if you can see the, let's say, Italy plus Germany, Luxembourg, plus Poland, Czech Republic, yes, no more. So it's EUR 140 million out of 2020. So it's about much more than [indiscernible]. 50% of that is related to markets where, yes, we do have most of the pressure because actually Ukraine has always said, high energy cost. Russia relatively low. U.S. relatively low, let's say, compared to the European levels.

Okay. So okay, that makes sense. Then the second question is in terms of, I guess, the Ukraine and to an extent, Russia, I guess I want to understand your cost flexibility. So you kind of announced, say, in Ukraine, what's your kind of maximum loss, I guess, right, if the plants remain shut and -- especially in Russia is similar, right? I mean what sort of your fixed cost that you can't really pick out?

Well, Ukraine, it really depends on what we want to do or what we will decide to do on the staff cost because until now, and I think at least for one more month and then probably we will have to -- we may take a different decision. We have been paying full price. So no reduction at all. And from then on if the plant continues to be high -- though, actually, we do have a little of activity in the sense that the people that -- at least the people that are not -- they not leave the country or did not move far from the plant, apart from the leave or did not join the army, are able to go to the plant. They're not fully -- and then they do something like, I don't know, minor maintenance and make sure that, again, there is some security around the plant. The plant manager is checking, let's say, periodically, what's going on. So I expect we may -- again, we may continue like so. We have also some liquidity in the country to be able to continue this way for some by reducing also maybe to some extent the salary to a certain portion instead of 100%, could be somewhat less than that. And then -- from then on, clearly, without revenues or very, very small revenues, I would say no more than 8, 9 months, something like so.

I don't know if I told you the EUR 20 million loss, if that's something possible? Or that's going to happen?

Maybe too much. Yes and maybe 10% is more likely.

Okay. So then -- you can because then obviously, if we sort of tally it together, right, we look at Russia having, I think, you said U.S. flat organically, Ukraine at EUR 10 million loss, I guess the rest implies. And the rest is essentially Italy plus Central Europe, which would imply like a 20% drop on that, I guess, it's EUR 60 million, EUR 70 million. So I want to understand whether you sort of rounded down when you guided, and I appreciate there's so many uncertainties, but it didn't sound like equity is about to go into a loss. We haven't spent a great deal of time on Germany and Luxembourg and Czech Republic, but it sounds more stable in terms of your guidance correctly.

Mine -- if there is a decline versus last year should not be too significant. So we're talking about, I don't know, 3, 4, 5, but yes, no, the risk, the big risk, of course, in Ukraine, in Russia and in Italy with big uncertainties about the price level and the impact of a steeper price increase on demand.

Okay. That's helpful. And then maybe the final question. I think you're almost done with your buyback, I think, the 110 maybe I calculate you've done out of 150. And it looks like from the release, you're now going for a larger approval than last year. Is that correct in terms of the authorization?

Yes, we will propose to the AGM, 12 million instead of 7 million. Yes, we need the approval of the AGM. We assume that the AGM will give approval. And from then on, I mean, we don't have necessarily to, let's say, execute it because it's -- this will require an additional, let's say, resolution by the Board. So it's -- let's say, the AGM approval is the first step necessary. And then there is a second step by the Board. So the decision must be taken by the Board in the following meeting. I mean, we thought it would be good, let's say, to have the flexibility to have the possibility, at least to decide upon it. I don't know what is the likelihood right now to really move quickly into this direction. Clearly, if the price continues to be quite depressed, and we see also maybe, let's say, the overall situation turning somewhat better. I think we are maybe more likely to start again, let's say, the buyback if -- which is, of course, price, overall, the share price goes back to, I would say, I don't know which is the right level, really, but let's say, better levels versus today. So there's no real need for, let's say, some kind of support, then we will keep it as something, let's say, potential but not actual.

The next question is from Harry Goad of Berenberg.

Two for me, please, on, I guess, more about sort of current trading activity first in Europe. We've obviously talked a lot about the impact of cost inflation, but have you seen any indication of that, whether it's the cost inflation or geopolitical issues impacting on actual demand for products, I guess, through March? And then if we think about the U.S., where I think you're sort of talking broadly flattish volumes, maybe a little bit of growth, can you give a little bit more granularity how that breaks down between, I guess, residential or nonresidential and infrastructure? And I guess there's a supplementary to that is at what point do you think we begin to see from new infrastructure program actually hitting the ground?

Yes. We have seen some slowdown recently in March. Okay. It was a little strange, let's say, the first quarter because we've been coming from, let's say, a very strong last quarter. And with countries, Italy and also Germany, somehow increasing -- or customer increasing their stock in light of upcoming, let's say, price improvement. So very strong in December, if you wish, a much weaker January. So the two things they balanced out a bit, but February was normal. I would say, on budget as expected, a good performance in the U.S. And March, yes, we start to see some slowdown in growth in Italy, Germany. So a little less than that in Poland and Czech Republic. Eastern Europe, at least until, let's say, end of February, good performance in terms of sales, both in Russia and Ukraine. In the U.S., lately, okay, February, the comparison base was a little -- was easier because you may remember the freeze that was affecting particularly the southern state last year, so we were kind of idle for 2 weeks or so. So again, comparison is not really fully consistent in 3 months to short period to really give a judgment. But the impression is that overall, we see very strong demand in U.S., no impact so far from the cost inflation and also, let's say, the weather. And instead, yes, demand is trending somewhat lower, let's say, in Europe, 4%, 5% less than what we expected. And your second question was about -- please repeat.

To just give you a little bit more detail on the demand pattern in the U.S.?

Okay. Yes. There was a recent update by the PCA, which basically confirms the trend that was already in our planning. So they see -- they forecast cement consumption up by 1.2%, approximately with interest -- rising interest rates starting to affect some the residential market, which has been the main driver in the last 2 years or 1.5 years. And so on the residential, they consider the possibility of a slowdown because also home prices are going up very quickly. There is a lot of also financial interest on selling and buying homes possibly that they have in a very short time frame. And so a little bit of speculation or financial, as I said, interest on the residential market. So they consider the residential market probably coming to a peak in 2022 and is starting to decline in 2023. But yes, there should be the support from the infrastructure plan with not much visible yet in 2022, and more evident from 2023 to 2026. This is the general view. And again, overall cement market -- probably the demand would be even higher in the underlying demand. But there are constraints, as I said before, for example, on the ready mix for the driver. So you can -- this is an issue we have, but everybody has basically. So if you are not able to have enough driver to force -- to work concrete on the job site, you inevitably reduce your production activity. So it's very tight, actually, both the capacity at the plant and the capacity at the ready mix in the sense of, let's say, drivers.

The next question is from Pierre Rousseau of Barclays.

First question would be on the oil-well cement market specifically. Could you help us a little bit understand your exposure and also in terms of current trends, if you see some pickup already or if it's too early. The second question would be on -- I'm trying -- you gave lots of detail about price cost in Italy. Could you give the same for Germany and Eastern Europe, where presumably areas of some cost inflation as well. So what was the first round of price increases and will we need a second round? And the last question would be on carbon specifically. We've heard from some players, probably in France, that they were coming to the market with a carbon-negative cement or cement [indiscernible] equivalent. So would you have any view on how this is done? And if it is something that could be replicated on your end?

Yes. We can start from the last point. Yes, I mean this is technically feasible. It's not something impossible and it can be replicated. But the issue is the availability of the materials or the substitute of the raw material that you need to achieve this kind of -- so I think that if you consider the volumes that -- of this kind of cement that has been produced or sold, you come to a level which is absolutely minimal. I mean it's not really something that could flood the market or becoming something mainstream. So there is no real magic, in our opinion. So if you're strictly focused on this product and you're covering, let's say, a niche and you're able to receive enough raw material for your production that is not limestone, which -- because at the end, the big part of the CO2 is coming from the chemical reaction of the limestone, you can produce 0 carbon or negative, but let's say, 0-carbon cement. It cannot be considered something that will actually taking in place, let's say, the existing ordinary or portland or whatever limestone cement market. On the oil well, yes, in U.S., it's clearly has been performing, let's say, well last year. This year, again, it should because we, in general, let's say, rising oil prices, oil and gas, we do have a positive impact on our oil finance sales, still represents, let's say, a relatively minor part of our sales in U.S. is about 5%. I think the highest year we achieved maybe 6% of our sales. And we cannot really produce much more because actually, it would mean to, let's say, put a ceiling to our semi-gray cement customers, which are, in general, also less volatile. So if you decide not to supply or to reduce supply to traditional, let's say, gray cement customer and give a preference or priority to oil-well cement sales, it could be good for your profitability in 1 year. So in the year because in general, oil-well cement has a higher margin versus ordinary, let's say, gray cement. But you may break, let's say, certain customer relationship, which then could be difficult to adjust or to reestablish later on. So there is any way a certain limit, certain ceilings we prefer to set for order cement sales.

Perfect. And the last question was about pricing in Germany and Central Europe. I mean how much was the first round? And do you need another one in the light of current application?

We may not to, let's say, the extent of the price that we need in Italy for two reasons. And Italy is the country where we are most exposed to spot prices for energy. Meanwhile, I think I mentioned before that Germany and Poland and Czech are greater hedging, more months, let's say, of stable or more stable, let's say, pricing going forward. And also because Germany, Poland and Czech and Luxembourg, they all have the advantage of a very high with fuel substitution. So they are, yes, suffering from the energy cost for the portion, let's say, that it's not hedged, but they're much less suffering the increase of fuel cost because they burn up to 80 -- 75%, 80% of waste-derived fuel, where basically the price did not change or in some cases instead of a cost, its revenue because you are, let's say, realizing a kind of service on waste -- industrial fuel. So currently, we see the need for a second price increase in Italy, as I mentioned before, but not necessarily for the other European countries or maybe to a much lesser extent.

Mr. Buzzi, there are no more questions registered at this time.

Okay. So maybe some of you already left. I hope that was -- gave you, I mean, the required information, the necessary information. As I said previously, we remain available for more detailed questions with our investor relation team. And thanks again for listening, and we hope to see you in person soon. Thanks. Goodbye.

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