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 2022 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Pietro Buzzi, Managing Director of Buzzi Unicem. Please go ahead, sir.

Thank you. Welcome, everyone, to this annual conference that we usually carry out after the approval of the full year results. We did provide and made available presentation, which I think you should be able to find in our website in the presentation section. And the idea is to follow more or less the presentation and then open the Q&A session. So coming to that, well 2022 as a financial year was, again, I would say, a positive one with a strong growth in our turnover, which closed that basically EUR 4 billion, meaning almost 10% up on a like-for-like basis. So even higher with the help of the currency exchanges and particularly the dollar, which represents for us a strong component because of the size of the U.S. business. There was also a significant improvement in the recurring EBITDA, which came out at EUR 892 million, 3% like-for-like bigger in nominal terms. This was due to greater contribution in absolute terms, mainly from Italy and U.S., which was able to offset some weaker results in Central Europe and Eastern Europe. The profitability is below 2021 but if you look at the development during the year, we were able to recover some in the second half due also to the, let's say, many areas, price increases not only at the beginning of the year, but also later on. And so together with some softening in energy prices in the last part of the year, again, the full year profitability came out [ a bit ] lower, but not as low as we maybe expected or as we showed at the end of the first 6 months. As opposed to turnover and the operating results, we have cash generated from operation lower than last year, mainly due to working capital absorption and also higher CapEx. And nevertheless, we closed the year with a return on capital employed, which is still positive over the weighted average cost of capital, particularly significant in our opinion because the weighted average cost of capital increased quite a bit due to rising interest rates and also rising risk in some of the countries where we operate. There is a proposal to increase the dividend by 12.5% at EUR 0.45 per share, which means also a payout ratio is approaching, let's say, the 20% of the EPS. We also achieved some interesting, let's say, favorable results in the so-called sustainability domain, which means lower CO2 emission. The decrease year-over-year was 3.6% in the specific ratio so-called kilograms per tonne of cementitious product and we also achieved the full results, which we have been setting some years ago. So minus 5% versus 2017. This program, I mean, the road map, which was disclosed last year, May, if I recall correctly. Yes, was also right after, let's say, the full publication submitted to the judgment of the EBITDA, which is the most profitable organization in this environment, in this subject and was declared aligned to the well below 2-degree scenario, which is also something we can be proud of. I mean, it represents a further recognition of our commitment and our, let's say, well sought program to achieve certain targets by [ 2030 ] and later on 2050. Okay. Again, on Page 2, you have a summary of the key figures, net sales improvement, EBITDA improvement, EBITDA margins suffering some. This is almost mathematical when you have such a significant increase in the turnover. But again, I think the degree was -- yes, level achieved was eventually not as bad as maybe the first half was indicating. So good performance, particularly in the second half. And return on capital employed remains around -- well, better than the 2020 and 2021, around 10% and dividend per share moving up by [ 12.5% ]. The cement volumes trend was not helping us. I mean we are -- we achieved this favorable result in a situation where the volumes have been rather declining than increasing. This was clear already after the first 6 months, but it became even more visible in the second half because certainly, some of the countries, which are for at very significant likely less in the last part of the year suffer from a clear slowdown in the shipments in the U.S., particularly related to the residential sector, but also other countries in Europe showed a fairly positive first 6 months and then enter into a weaker demand scenario. So you can see here that only Central Europe, which means for us, Germany, Luxembourg and the Netherlands, we're able to close the year with the positive areas. All other geographies went down. Eastern Europe, of course, is strongly affected by the Ukrainian situation, where the market declined very significantly, and our production suffered from the conflict and the worst situation was very difficult to define, let's say, demand and also to produce similar trend also in the ready-mix concrete volumes. Only positive variance favorable variance in the Central European market and anywhere else decline in shipments. Then if you look at Page 4. Again, we noticed that our increased turnover is coming mainly from the price effect, the limited volume favorable impact, as I just mentioned. In addition to that, the foreign currency impact was also quite favorable, mainly in the U.S. due to the size of the business and also due to the size of the dollar revaluation, dollar strengthening during the year. Those other currencies like the ruble and the Czech krona showed some trying to test against the Euro and [indiscernible] some positive impact in Eastern Europe. Moving to the Page 6, the EBITDA Bridge from 1 year to another. Here, you have, yes, I mean, good signal in a sense. The good signals are that the price effect was able to offset the negative volumes and the negative variable cost. Almost fully also the full cost, let's say on favorable variance was fully offset by the price improvements overall in the scope of consolidation. But then our benefit or our gain over the previous year, came mostly from other items. For sure, we have to outline a strong health from the inventory changes, which are within the column, let's say, other revenues and cost. And in this column, they represent variance -- total variance of [ EUR 85 million ]. And we have other items that are negative, let's say, within this column, but the main contribution is really coming from the inventory changes, which is related not to, let's say, the quantities, the quantities that we have by year-end in our to a little extent, let's say, due to the quantities of clinker or cement remaining in inventory by year-end. So it's driven really mainly by the value -- by the unit value of this product or semi-finished goods inventory, which went up due to the cost -- due to the cost in the same cost inflation that you see here in variable, mostly variable and also fixed was according to the accounting rules applied to the unit value of our inventories. And this was really a complete change happen also for prices change versus what we were used to inventory valuation in the past years. ForEx also was giving us quite a significant help with EUR 72 million. The currency that gain against the Euro are the same one that I mentioned before, for us, mainly the dollar, Czech krona and the ruble. When we go to Page 7, you have an idea of what I was mentioning about the rising cost applying also to our inventory value. Here we focus on the energy and the energy related to the cement business which means electricity, power, [ utility ] power and fuel. So we have more than double cost of more than double versus 2020 and the average used to be more, let's say, historically 16% of our revenues now become more than 20% and on the right bar graph, you'll notice that the main million came from electricity overall, but also fuel been showing quite a significant rebound. In some markets, we clearly suffer more from the fuel trend, for example, in the U.S. in some other like Italy, we suffer more from the electrical power. So it depends on each country and their actual, let's call it, importance. So also the fuel substitution rate anywhere where the fuel substitution rate is higher, the trend of the fossil fuel is affecting less and also depends on the market structure for electrical power. But it's clear that this has been in the last 2 years, and particularly in 2022, a big change to our cost structure. And the main reason for the prices to they need to go up to offset such a significant cost increase. When we move to the trends by major market areas. First of all, the U.S., you see U.S. [indiscernible] good performance of the U.S. in euro, certainly very favorable. Like almost everywhere, lower margins due to again rising costs and also rising turnover, so difficult to continue to keep the same profitability with the pricing strongly increasing. And we mentioned already the fact that cement demand has been slowing down in the second part of the year. We also had to face some internal, let's say, hurdle or difficulties and particularly from a logistics standpoint due to low water level in the Mississippi River in the -- during the third mainly during the third quarter. And yes, some further price increases in the last part of the year, we were able to rebalance, let's say, profitability versus the first half in a positive way for us. Margins, as we mentioned, have been more under pressure than in the previous year because some of the cost and say, inflated -- the industry inflation was more evident clearly this year than in the past. I refer in particular to services in general maintenance services. We had a very, very significant cost increase in our maintenance programs in part due to the inflation in part also due to some unexpected shutdown and technical issues, which we had to face during the summer, and this translated into definitely not only higher, let's say, variable cost like fuel and power, but also greater fixed cost mainly for maintenance. In Italy, the results are much better than last year. This is coming from 2 -- 3 main reasons. One, not the volumes clearly because the volumes have been declining more than in other countries has been the -- well, with the exception of Ukraine, but let's say, it's been one of the weakest countries in terms of volume. So the price effect on the other hand, was probably the strongest across the scope of consolidation following the continuous rise of particularly electrical power during the year-end and they need to adjust several times during 2022, our pricing level. So in a market where domestic consumption has been going down. We are doing better because of the sequential price increases, which allow us to compensate the inflation. And -- and also, we have -- we must remember, let's say, the significant advantage of benefit coming from the energies, electrical power subsidies granted by the government in the form of the tax credit, which we can use to offset basically any kind of tax payment. So this specific benefit amounted in 2022 to EUR 38 million approximately. So in a total EBITDA, EBITDA of EUR 91 million versus EUR 41 million last year. You have to consider that EUR 38 million is coming from these subsidies. So also looking forward, let's say, for the, let's say, the outlook of Italy, if and then how we will be able to continue to see this kind of subsidies and to each extent, it's a clearly a very significant variable in terms of the potential outcome potential results. Anyway for 2022 it was there. We also performed better in our [ experience ]. So in general, we are, for sure, a good management of the situation and some external help. And altogether, the change in the result been very, very positive. In Central Europe, yes. Favorable -- slightly favorable volumes, even though the trend has been better again in the first half than in the second one. In part, this was also due to colder winter. Beginning of the winter in Q4, so less favorable weather situation. In the development of selling prices was also nice, let's say, in 2022. But the fact that the cost pressure was not as much as we faced in other countries the need, let's say, increased prices was less evident. So we had a stable, let's say, profitability in Germany, very close to last year and instead some decline in Benelux again, mainly due to fixed cost maintenance and the operating performance of the Luxembourg plant, which was by year-end, somewhat below expectation. So you see the decline, slight decline, let's say, EBITDA driven mainly by many Lux countries, not so much from Germany and some reduction in profitability, which we mentioned already and it is a bit greater than the other regions, but still due to the same reasons. In Eastern Europe, clearly, there's been a big difference among countries. If we focus first on the European Union countries, meaning Czech Republic and Poland, the performance has been overall, let's say, favorable. In Czech, we were able to improve our results versus last year. in Poland, no. But let's say that there was a similar -- if you take the 2 countries together, you get the result, which is very close to the previous years. Instead, clearly, Ukraine suffering from difficult operating environment with one plant basically remaining [indiscernible] staff. Fortunately, we did not suffer any damage at our production facility, but we have a hard time clearly getting also the electrical power supply and being able to operate in a regular way finding customers, particularly in the south. So the Northern plant can run normally, I would say, but is lacking demand and the southern plant opens and sales only when there is a need, when there is actually some demand for cement in the region, which is not very high due to the fact that the plant is close to the conflict line. And clearly, in Ukraine, high inflation due to the difficult economic situation, typical of war period and rising cost, also prices, I mean, favorable development but at the end, sales volume, not enough -- not sufficient to achieve a breakeven point. So we are having lost about 60% of our sales, our capacity utilization is too low to be able to achieve a breakeven point. So we have to continue to stay there to hold on to minimize losses, which we have, I think, done fairly well, but difficult to imagine turn around until the situation stabilize. In Russia, instead, the results have been favorable, not so much in terms of volumes decline in volumes, but limited one, at least so far, good development in prices and costs that are more under control than in other regions because they are less -- they've been less impacted by the, let's call it, the international geopolitical crisis or gas cost and indirectly power costs, et cetera. So the Russian profitability remained pretty high. In addition to that, the translation effect was favorable. The ruble has been gaining about 15% of its value, average 22% versus FY '21. So let's say, an accounting benefit coming from the from FX changes. I think it's important to take a look also at our joint venture because they represent even if they don't -- are not consolidated in line by line, they do represent a very major part of our business. And fortunately, there are also strong companies and with a nice operation and good profitability overall. As you can see, Mexico was not better than last year in terms of volume, but the decline in our sales to, let's say, was limited to minus 4%, minus 5%. And we did have in Mexico also the inflation rate much greater than usual. On the other hand, energy cost, for example, meaning electrical power remain stable because of a political decision, local political decision to keep it fully under control. Fuel instead went up quite a bit because we buy also Pet coke, mainly Pet coke for Mexico in the international market and also in dollar and we pay in dollars. And pricing fairly strong, thanks to the quite resilient, let's say, demand trend. And so we kept a good momentum for price improvements also in the second half. And overall, as you can see, in euro terms, we had a better EBITDA outcome for -- which is sorry, 8.2% in euro and minus 3%, so very close to last year in local currency. The Mexican peso also is one of the currency that performed better during the year versus the euro. And so we do have also some accounting advantage accounting favorable change coming from the FX. EBITDA margin remains very high. Unfortunately, there have been dropping. Again, this is a general trend, I think, for us and for the industry due to the situation of these last 2 years. But the Mexican business, let's say, continue to perform in a very satisfactory way. And moving to Brazil. Also getting more and more important for us due to the size of the business, which has been increasing in 2021 after the acquisition of the CRH assets and the fact that Brazil is gradually recovering gradually coming after or out of the, let's say, not particularly favorable economic period. And then we -- one of the advantages of the Brazilian situation is that energy cost coming mostly from renewable sources and or much lower than what we are used to today in Europe. Fuel is different because even though they have a relatively high fuel substitution rate, which is helping the weighted average cost for this supply. They also depend on Pet coke like, for example, Mexico to a large extent. So they are subject to the Pet coke international market in dollar. So we did have, yes, in Brazil, similarly, I would say, to Mexico a decline in our EBITDA margin. But the pricing effect was particularly favorable, starting also from -- in absolute term from a much lower level. And you see the EBITDA was also without foreign exchange impact, much better than last year and around 30% in terms of margin. For the current year or the year that began 3 months ago, we are showing, let's say, or communicating an outlook, which is a bit mixed in a sense that we have some concern, I think, like everyone, and we believe that generally speaking, construction investments and cement consumption. So cement sales will tend to be lower in 2023 versus 2022, both in the U.S. and in Europe, keeping a part the Ukraine, Russia and also Mexico and Brazil. So our, let's say, core markets are likely to see a decline in cement demand. How big it's a little difficult to really give a clear indication, probably single digit, probably not double digit, but let's say, to be seen. Energy prices are stabilizing. We have seen also some decline versus the peak of let's say, the fourth quarter -- third, fourth quarter of 2022. So we are able as well today, in many countries, to buy, let's say, electrical power at a level which is below that the one of the end of 2022. So this is giving clearly some relief after many months of continuous need and worries about how to cope with the volatility of energy price. So this is definitely a good news. And hopefully, I mean, we don't know, but hopefully, will stay also for the coming months. We have budgeted anyway an upward trend in selling prices, which is coming to a large extent from a carryover effect because most of the countries where we operate had more than one price increase during the year. So we are entering 2023 with a level that is much better than the one of the beginning of the last year. And we are also applying some additional price improvement, not everywhere. But in countries where the cost structure has changed significantly also year-over-year. We think that this is necessary, and we're trying to do that to be able to maintain, let's say, the same margins, at least in absolute terms also in 2023. A little more detail about the country, U.S. [ residential ]spending construction expected to decline likely thanks to the fact that anyway, we will remain close to full capacity utilization, pricing power should be there to be able to offset the increase in cost, which we are still seeing to a large extent, in many cost items. And hopefully, the infrastructure spending will somehow offset the decline in residential. This infrastructure spending is not entering the market very clearly yet. But it should moving on in the next few months. This is the basic scenario, which does not discount or does not consider a clear recession or some other stronger economic difficulties, again, which may also occur, but I'm not the base scenario. Italy also, we see the market trending slightly down again. Residential sector affected less also subsidies to renovation available to the private individuals and slow implementation of the probably in [ English ], I don't remember, next-generation EU plan, which is written in the newspaper every day, not too easy to implement and open the job site related to this money, which is theoretical available but not easy to be able to spend it in a short time or a quick way like someone would we expect or would have thought initially. In Central Europe, including Poland and Czech, so the European countries, similar outlook for the volumes, some public support to infrastructure and residential innovation should be able to offset what is a likely slowdown in construction investment. And here, for example, in Germany, we must focus on the prices because our cost structure has dramatically changed due to the fact that last year, energy was hedged at very low level, let's say, compared to the market and the hedges have come to an end. They have expired. So we are -- yes, we know already what is going to be the price. So we have new hedges for [ 2023 ] prices, but they are at a totally different level versus 2022. Joint ventures, more favorable situation. We see Mexico to remain robust in terms of demand. There is a lot of activity related to the so-called near shoring, more stable energy prices also there. So the outlook is not -- right now, we see results in our outlook, we see results improving there. Thanks to, again, stronger demand, better prices and more cost stability. Brazil and probably not necessarily positive sign or a favorable sign in demand. But yes not even negative or if negative, slightly negative. Price improvements are expected also there. And the performance should be -- should close with the plus sign versus last year there to. We don't make any assumption about Russia, which has been actually a strong contributor to the 2022 results because we don't have enough information on with the current government structure, we have to wait for actual results. We actually do not have an outlook for the full year. And so implicitly, let's say, in an implicit way, we assume that at least in ruble terms the result could be the same as last year, but we don't know. So when we say that we expect our group or consolidated results to remain stable versus 2022. We have, okay, an implicit assumption about Russia, but actually, we don't have a precise outlook on that market. And we think that, again, beside that market or assuming that market to remain stable, also the rest with some differences somewhere better, somewhere, let's say, less not as good as 2022 should perform in a very similar way. The main concern, if you wish, is the trend of volumes, which we do assume negative. But if it turns out to be more negative than expected we may suffer more in the operating results. So this is a bit of a question mark and it will become more clear, let's say, going forward and after the first quarter, actually, I think by midyear, we will have a better, better visibility on the volumes for the full year. We had a section then relative to profitability, which was already mentioned before. So basically, we confirm on Page 18 that our target -- internal target has been achieved, was definitely a significant reduction of clinker factor during the year. So our changes in product mix applied by every country are going well. There is a strong commitment by every division to really make the best out of the road map and according to plans. We are moving forward also with increasing the alternative fuel rate. There will be another step in 2023, where we are confident that this is going to become, also in countries like Italy, where traditionally, we have and we continue to face some difficulties. There are good news in the sense that we were able to overcome some obstacles. We have a new plant, which is starting to burn alternative fuel, adding up to the existing ones. So we are, let's say, fairly optimistic on our target for next year. And the validation by [indiscernible] is also a very important step. I think, again, it's something that shows that our plan is serious. It reflects the so-called, let's say, scientific I could say, I mean, what typically is supposed to be done for an industry like ours from a technical standpoint, to be able to stay within certain targets, which is what you all know as we described in our road map publication. And yes, it is in line not only with the best industry standards but also with what the external, let's say, market or the external assessment on looking at for a company like ours, which is clearly into the category of the hard-to-abate industries. We have more information in the appendix to more detailed information, but maybe we shouldn't move, yes, it's already 45 minutes from the beginning. So maybe I suggest that we move to the Q&A session, and we can use some of these pages if necessary to answer your specific question on any kind of question you might be interested in. So let's open, please the Q&A session. Thank you.

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

I'll start with a general question on pricing power for the cement industry in Europe given the unprecedented price increases that we've seen in last year, would you say that there has been a structural shift versus history and if yes, what would explain that? Would it be increased consolidation or carbon costs being pushed to customers or do you think it's mostly the huge increase in energy costs that we've seen last year, in which case, how should we think about pricing going forward? And so decrease in energy cost environment? That is my first question.

No. For sure, there is a hidden cost today, which is the CO2 cost that you mentioned partly hidden because, in some cases, it depends on the market on the different situation, free allocation versus natural consumption. Anyway, it's a cost that is still not so visible. So this is somehow -- it's an argument. It's a topic that we are using clearly, when we are discussing also with our customer price increase to explain that it's not only the inflation, which has been the main reason for sure, but also the inflation in the CO2 rights, which are every year, let's say, somehow affecting you more and more because the availability of rights is decreasing every year soon will be phased out. So I think it's important for as a message, let's say, for our customer to know that, yes, this cost increase is the -- is price increases, they represent, they are necessary because there was dramatic cost increase very visible, everyone knows, let's say. But there is another one, which is more hidden but also soon becoming more and more important. So unfortunately, I would say, and this is true mainly for Europe, clearly, I'm talking mainly for Europe because so far, the rest of the markets where we operate did not have -- yes, they did have inflation, but they do not have the limits or the cost of CO2. And so again, this is something that we can clearly demonstrate and somehow is increasing the pricing power in the U.S. countries. With the energy cost, talking about fuel power declining or stabilizing more than declining because anyway, we are I think we will remain at a level which is totally different from 2020 or even '21. But anyway, let's say, not rising anymore. I think, again, in the ETS country, we still have an issue with the -- we will continue to have an issue with the CO2. In other countries, it depends, I think, very much on the demand. The pricing power will be dictated mostly by better demand, countries where the demand will continue to absorb high volumes, let's say, high capacity will take us to -- or the industry to high capacity utilization. I think that we don't see a reason why the prices should decline or really change. Maybe they will not increase dollar. This is possible. But in countries where the capacity utilization is lower or there is potential pressure from the imports, which is more typical, for example, Italy. There, we need to find a good balance because we can afford, let's say, losing some volume, particularly if it's not taking us to a level where we are losing free allowances. But if we go below let's say, the free allowances threshold or lower limit, then it could make sense to somehow react or not losing further volume. So there is an issue. But let's say that it is a good issue because anyway, if the costs are going down beside the CO2, which we need to take into account. In principle, there is no very good reason to keep the prices. I mean, the problem is not to enter into some kind of, let's call it, a vertical or a big decline. But as long as you are somehow reflecting in your prices, lower energy cost, I don't see they are a big problem, Patrick.

Maybe one additional element I wanted to add is what you can see in our numbers, and I'm sure you will see it in other numbers as well, is the fact that you can see the CapEx is increasing and not necessarily all the CapEx are short term, let's say, with a short-term perspective, which means that maybe potentially some of the paybacks may be slightly longer. So which means that you will need additional margins to basically offset this effect as well. And if this is somewhat perceived by the whole industry, then this will have an additional pressure to increase your prices, and this may be another element that you have already seen and may further see down the road when the whole transition investment will come to play.

Okay. I'm sure there will be follow-up questions on pricing. Can I just ask one more question on your cost assumption. Given that you still think it's going to be up year-on-year. So if you could give us a bit of color about what would drive that. I mean, we are seeing energy costs being down year-to-date. And if you could give us an update on your hedging policy.

You're right. I think the -- this is again somehow related to most if you wish to the hedging policy because -- this has been an advantage in general in 2022, by the countries that where strongly, let's say, hedged particularly in the electrical power enjoy the -- or much lower cost and particularly in no volatility, which was one of the critical subject in other countries where you're facing in some moment in some months spikes in the electricity cost and it was very difficult to understand whether this should translate into higher pricing right away when -- but on the other hand, once the old hedges are over, and you move to either fix or not fixing a new price, but assuming that you're fixing which we did in several markets again, there is a step. So from 100, for example, you move to 200. So this is our assumption. And I think that in general, let's assume that we have, I don't know, 50%, 60% of our electricity cost hedged for the group as a whole. I mean, looking at the group as a whole, yes. Of course, some countries are much higher, some countries are much lower. But let's say, for the group as a whole, we are 50%, 60% of our [ electricity ] cost hedge for the next year. And again, the price which is totally different from 2022. So that's why we believe that without adjusting the prices, there is no way to keep the margins in other situations, there are other situations where we are more exposed to the spot market, we're actually expecting what you are seeing. So we are seeing lower energy cost, lower than last year or, let's say, the spike of last year so far. And less pressure definitely to move the prices up. So I think, again, it will be a balance where you are hedged. You're basically also trying to achieve and maintain a certain price where you're not -- no one is really not ourselves, not our company is willing to reduce pricing but this happens in the market because the cost structure is changing from every player, you can afford it and without losing profitability.

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

Yes, maybe a question on your capacity utilization rate. Are you sold out in the U.S. Do you keep importing -- and do you see the margin improvement on your import at the time when freight rates are coming off?

Still, yes, we are not really sold out as last year so far at least, but we need to or we would like to somehow also recover inventory. We have been in some plants, really flat running, let's say, completely full steam. And so without the [indiscernible] inventory. So yes, the idea, we do have a plan to continue to import. And then the total imported volume might be less than the previous year by year-end. But for the moment, yes. And well, yes, there is a benefit in the logistics, but the FOB, let's say, price is not lower than last year. So I would not speak about a clear improvement in profitability on imported volumes. Some -- yes, a slight benefit coming from the logistics, yes, but also countries that are exporting have been increasing prices because they see the possibility, and they also have the cost structure more going up. I mean the industry inflation is true also for Turkey for Egypt for Greece, et cetera.

And then the second question on Italy, you had a EUR 38 million credit on energy. Should we consider the credit was a one-off and that it will not happen again in 2023?

It is a one-off. I think the size, the magnitude will not be the same. It was recent it was today on the newspaper, the seat they will extend it to within the same percentage until June -- at least until June 30. So the credit will remain in place, but the way to -- the calculation is on your cost differential on your [ average ] cost differential. So this cost differential, fortunately, I mean, likely enough, will go down or may even be negative in some months. While this is more likely to happen in the second half than in the first half because still, we are above the price of the beginning of 2022. But if you ask me a guess, so how much it could be, I don't know. I think, less the amount. First of all, we need to understand whether it will be available for the full year. For the moment, it's just [ for 6 ] months. And second, the cost differential for electrical power is going down or maybe moving on even becoming zero.

Then a question on Russia. So you're generating nearly EUR 100 million of EBITDA in Russia. It was a very good year. What happens with the cash that is generated in Russia, does it stay in Russia? It means that you cannot access it unless you sell the asset or unless the war ends. How does it work? Can you pay a dividend? Or can you -- do you have to -- do you need some kind of authorization to, not to breach sanction?

No, it's a problem. It's 1 of the problems associated with the Russian investment today. In theory, we can declare a dividend. I mean we are allowed to declare a dividend. But then the transfer, the extra transfer of cash would have to be authorized by the, let's call it, Central Bank or anyway, the political -- there's a political decision on that. So it's something that we need to understand. In principle, I would say that it's not available. We may be able to receive a waiver. It's something that we need to go through. It's a process we need to go through and try to understand whether there would be a green light or a red light.

And if I understand the outlook for Russia, your strategic option will be either you keep the assets, not managing it until the end of the war, or you decide to sell the assets, but you would need the authorization of Russia, of the Russian government. Or the third option would be to shut down the operation. It would be very useful to understand. I understand it's like too early to try to communicate, but would be under -- it would be good to understand what options do you have for those assets.

We are -- the options are, I think the 1 -- the 2 -- the first 2 that you mentioned will not make sense, in our opinion, to shut down and close the operation for many reasons. In particularly as we told you, the fact that we have anyway a large number of employees there, which are bit always, let's say, loyal to the company, and we don't think that we should blame them or give them, let's call it, a significant problem, losing their job because of someone that is leading the country that is taking a [ creating ] decision. Because Russia, I mean, Putin is 1 thing, but -- and probably there is a good portion of the country which is approving his decision, but it's not the whole country. So in our view, we have always been very, very close to -- as much as possible, let's say -- to our employees and the idea of shutting down and leaving the country is not feasible in our opinion, for, let's call it, social reasons. The other 2 are both open in a sense that we continue to stay in -- that's working in a standby with the limited access to cash. This is true, or no access to cash is a possibility, and other strategic options like exiting the country are also a possibility. It's not something that we rule out completely. The main issue is really being able to do it because there are very, very strong limitations, similar to the dividend concept. There are, for sure, potential buyers, but these buyers -- the selling, the theoretical selling process should go through, again, an authorization approval, like you mentioned. There are -- maybe buyers that are more likely to be approved are not the ones that we would prefer. We think that also in terms of let's call it, ethical behavior it's probably better for this company to be in the hand of a Western shareholder than going into the hands of Russian oligarch. So we don't have -- we don't -- there's no easy solution. I mean we -- we don't, we are not reluctant in principle to consider a sale. But there is anyway, a potential problem with the buyer and with the process, a very major 1 to overcome.

And the last question. When you look at the beginning of the year, like January, February and maybe the beginning of March, what kind of volume trend do you see? Is it consistent with your outlook, relatively stable trends in the U.S. on a decline of, let's say, 5% to 10% in Europe?

This, in general, yes, more -- we don't have positive signs for the moment. I would say that we're all, maybe with the exception of Mexico and Brazil, but very few positive sign in the first 2, 3 months. In the U.S., yes, U.S. is also negative, but not as much as, let's say, in Europe. So yes, I would say pretty much in line with what we just mentioned in our outlook.

The next question is from Yuri Serov from Redburn.

I want to go back to prices. [ It was ] surprising me. And just to probe a bit more on that. One thing that I'm finding surprising is current lack of competition. And you mentioned possible pressure from imports. And I mean if I look at the numbers for Italy, last year, imports to Italy went up by 33%, while exports fell by 17%, which means that import/export by itself to and out of industry production. So it means [ this wise you ] pricing itself out of the business. And some of the companies probably have long CO2 permit positions. Why are they not undercutting the prices? I mean it's very surprising that nobody is actually trying to compete.

I think in Italy, there are very few -- well, a long -- okay, long in a sense -- no, we do have, for example, as you all know, some let's say reserve of CO2 and the rest of the competitors, we don't know exactly. We're not sure. Probably there is a mix of someone has to buy everything because they were in the need to sell before and some others may have a similar situation. I think everyone is looking at the so-called internal versus the -- what do you call, the average activity level of the previous 2 years. So everyone is trying -- this is the way we are approaching, let's say, the commercial strategy, not to go below the minus 15, let's say, of the previous 2 years. And so ...

Can you clarify that? What does that mean, minus 15 what?

No, there is an interval in your activity level, which is the one if you stay within this interval, this range, which is minus 15 plus 15 of your production of the previous 2 years, you receive the same allowances. So let's say that, in theory, if you are -- the ideal situation would be -- in terms of CO2 allowance without considering other factors, but let's say, would be to run at minus 14, because you receive 100 more than, in theory, more than what you need. And I think this is the behavior of most of the competition. So if you can afford to stay within this range, which does not reduce your free allowances volume, then to Russia and to try to gain market share by cutting the prices, in our opinion, is not a good idea. If instead you're running the risk of going below that, so losing, let's say, the free allowances, then it's probably worth doing something. But again some imports, I think we would -- at the moment, we would always be the losers. I mean there are countries that anyway without the CO2 cost or also the lower energy cost may be greater usage of alternative fuel, which is not allowed or not easy to achieve in Italy. Some of the competition in the Mediterranean, if they want to really sell, they can anyway be more cost-effective and more competitive. So I do not say that it is a lost war or battle, but it's probably better, again, up to a certain extent to avoid entering into a vertical negative spiral of prices instead of really competing very strongly. So this at least has been last year, and I think it will be also this year our approach.

That's your approach. I mean there are private players who have through the history been quite competitive, both in Italy and in Germany and in some other places. And they don't seem to be willing to compete right now at all. And I'm talking about domestic competition, not necessarily -- I mean, imports are obviously a big factor, but even domestically, there doesn't seem to be any competition happening in the industry.

Everyone is very concerned about the CO2 cost, about the fact that -- it is true that cement prices went up significantly, but there will be another step to cover CO2 when this -- when anyway, we will deal with the next phaseout of the CO2 allowances. So if you start declining prices, you get more and more far away from that target. And I think everyone is concerned about that. If you don't have any CO2 limitation, then it's different. I mean if you're reasoning on a pure marginal cost basis leaving from Turkey, you cannot beat their price. Fortunately, there is a physical limit to the imports. I mean, beyond a certain level, they are unlikely to be able to go. But yes, it's one of the main reasons why we lost volumes last year, for sure.

Okay. But in this climate, how is the ready-mix industry doing? I mean do you make a profit in your ready-mix operations [ based ] in the U.S. and Germany?

Yes, we are okay. I mean we have been going through some improvements also related to our mix. They are -- there are always margins clearly lower than the ones of cement. And there is always a matter of intercompany, let's say, transfer price, decide exactly what should be the right price to be charged to your own ready-mix. So this affecting, of course, the -- on one side, it can improve the ready-mix profitability but lower or -- and worsen the cement profitability on the other hand. But let's say, assuming that you're giving -- you're using the right transfer price, we can say that the ready-mix profitability, this year in particular, has been better than expectation.

And what about your ready-mix customers? Because some indices that I have seen, cement prices went up quite significantly, but ready-mix prices haven't really kept up. I can imagine that [ those ] of your customers are finding it difficult.

We are selling -- we are targeting probably a certain customer mix which is a little different, in the sense that -- if you look at our ready-mix volumes last year in Italy, for example, they went down basically with the market. So we kept our market share and we are targeting either projects or a customer that are requiring a certain -- in ready-mix, you can differentiate yourself more than in cement at the end, because it's more a service rather than a product. So if you provide solution, if you provide services, you can charge a little bit more. And this is what's happening, in the U.S. we went down in volumes, but there it was more the lack of drivers. Continue to be really a challenge to have the drivers in the Antonio, Austin, let's say, Houston area, very, very difficult. And since we had anyway full capacity utilization in cement, it did not make sense in our opinion to push the ready-mix too much without the ability to supply our own cement. So instead now yes.

But my question was about your customers, ready-mix customers, independent companies who buy from you, given that the prices for ready-mix haven't really kept up with prices for cement, how are they doing? Are they suffering?

Probably they didn't -- no, they did actually. Yes. No, they did catch up in Italy for sure. In the U.S., a little less. This is true. So if we look at the U.S. profitability of our ready-mix, it's lower than last year. And Italy is better and Germany is basically even. So I would say that anyway, the price improvement was also in the ready-mix. Generally speaking, was definitely accepted by the market, by the customer, like you're seeing also in ready-mix, with, again, a target that we follow, devoted more to quality service, special projects where you need a supplier that is reliable and that can solve your problems.

The next question is from [ Corrado Battista ], a private investor.

My question is quite simple. First of all, congratulations for the fantastic results, especially considering how the investment community was considering how 2022 [ finishing ]. Now the company has been doing very well over the last few -- been doing well since ever. But clearly, there is a clear step change in terms of EBITDA revenue growth; quite interestingly, since COVID times, I guess. Even the net financial position swung over the last 10 years from not very big but clearly a negative, to a positive. And yet the dividend yield is a little bit too low, in my honest opinion. And the buyback is there, yes, but it's not a strong commitment on canceling shares. And it's, frankly, probably a little bit too shy in terms of how much the company can do. Dr. Buzzi, what is your view in terms of how the future -- I mean, considering that the company is doing phenomenally well. And I understand that the CO2 thing needs to be taken into consideration. There are investments to be done. But the company clearly can reward their shareholders in a more generous way. Do you agree with this? Do you have a plan to increase dividend yield or buybacks, things like that? Because I'm afraid -- it is a little -- I mean, company can definitely do much better in terms of total return.

Well, Again, thank you for your view, which is maybe not very -- I would say, I'm not saying optimistic, but let's say, it's very positive. And I -- we mostly share in a sense that we are happy with the results, and we can be -- yes, I think very grateful to our people, our management and also the overall situation, which allowed that to happen. Can we do even better, in particular in terms of, let's say, return to shareholders? I know we can always do a -- there are, yes, ways to improve also that specific, let's call it, item or specific which of some of the investors. We are trying to follow a path which is -- which we consider sustainable. So the idea is yes, to increase, to do better, but gradually with the pace that would allow us not to -- 1 year from now, 2 years from now, let's say, go back or give some negative news of a lower, let's call it, return. So I think that this has always been our idea, and we will continue to follow the same pattern. Both in terms of dividends, buyback is an option for sure. It is a possibility. This year well, yes, we did it in March last year. So far, we did not start a program again. I think the main reason was really related to the cash flow operation, which, as we mentioned, within a set of results which is overall very favorable, is one of the receiving, let's say, items if you wish. There are reasons to that. I mean, it's something that we can explain the numbers I explained -- but versus the previous year -- previous 2 years, our -- let's call it, variance or improvement in the net financial position has been quite limited. So this is the main reason why we think that the timing for a potential new buyback was not the right 1, at least so far. This is also something that should stabilize, particularly if the prices will -- and the cost will not change too much, because we have seen that this is due to cost but also to pricing. So you have both accounts receivable and inventory playing a role in this, let's call it, change or impact. And yes, we can follow gradually our improved to -- improve gradually and maybe do something call extraordinary or bigger in the year.

So no commitment. If I may follow up just a little bit more trying to push a little bit more, at least to commit, [ let's ] of course, not in this moment, just to look at how 2023 develops and at least make a commitment on some sort of dividend payout ratio because 40% times the number of shares, if I'm not mistaken, please correct me if I'm wrong, less than EUR 100 million of total dividend.

It's around EUR 90 million now, I think should be around [ 100 ].

Okay. So yes, 80 million and change. A company that makes, okay, I understand the cash from operation is not exactly always necessarily equal to the net earnings after tax.

Exactly.

But the company clearly is producing cash from a negative net financial position to a positive net financial position. I understand you want to be conservative because over the last [ 2 ] years, we had to deal with some uncertainties, but it seems to me that those certainties are actually making things better. Presently, this is how I see it, considering that finally, a bit of inflation is pushing not only the cost income -- the cost of producing cement, but actually even the price of selling cement, considering that the prices, especially in Europe and Italy, for instance, hasn't moved for the last 40 years, frankly. So I mean the company is really in a very, very solid position. At least a commitment over the next 6 months to a dividend payout ratio because clearly, the dividend can easily be doubled from here.

I mean, a formal commitment, we never really engage into that. And so I will not do it right now. I agree with you that in general, the payout cannot improve. So if it's going to be tomorrow, again, it's around 20%, tomorrow can be 22%, 23%, 25%. I think there are ways to improve it. But if you ask me, are we going to pay 50% of our net earnings, I don't think so unless really we come to a point where we don't see any, absolutely no better use of this cash. So in ordinary world and with the plans that we have and with the outlook that continues to be somehow -- yes, not too easy. I mean we have overcome, yes, difficult situation in '21, '22. '23 we are confident that we can do -- we can perform in a similar way, but still open, I mean, of course. So yes, I think we can -- in our view, we definitely see the possibility, and we have in mind to improve the payout ratio in a, I would say, gradual way. And if there is really a moment where we have no better, no better absolutely -- yes, no better use of cash available looking at the most [ creative investment plans ]. There are also expansion plan that can be internal growth, external growth, et cetera. We are not, certainly not against doing something different or something additional. I mean, the story of the last few years is showing that at the end, if you look at the last few years, beside the normal dividend payout, there were -- there have been different extraordinary payments returned to shareholders, which made our overall, let's say, cash return not so small. Actually, I consider quite meaningful.

The next question is from Emanuele Negri from Mediobanca.

I have 2 questions, if I may. The first 1 is on the profitability trend you see in Brazil for the year ahead, also considering CRH integration? And the second 1 is on the assumption you have in your mind related to CapEx and tax rate for 2023?

On profitability, means EBITDA margins that we are looking at.

Yes.

Well, the idea is to stabilize, as I said. I think we think it won't be too easy to improve some, to really get back to, let's say, the level of 2 years ago. But the goal is to stabilize it around the level of this year. So instead of going down as we experienced, let's say, in the last 2 years, to remain at least where we are. CapEx plan in total, I think yes. Well, go ahead, Patrick.

Yes. So CapEx plan is supposed to be a little higher, mainly due to the main projects that are coming out of the road map. So there, we expect something above 2022 numbers, above EUR 300 million. And yes, I think regarding tax was the other question. Tax ratio. So this is a little bit more tricky due to the contribution and the various impacts that may be there, especially now with the news in the U.S. where you may have additional tax impact that have an impact -- a direct impact already on the current results, and not only on CapEx but also long term results. So this, of course, has not been included in our budget yet. So therefore, it's a little bit tricky. I would say, the best guess today is to have a similar effective tax rate as last year, potentially...

Last year was affected by some deductible costs like the impairment loss, et cetera. So it could be a bit less -- we've always been in the range of 17, 18, 20. If you want to be a bit conservative, I would assume 20 could make sense as a consolidated tax rate.

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

Okay. Thanks, everyone, the ones that are still listening, for having the patience to follow the entire conversation. And I hope this has been somehow -- well, I think informative yes, also useful to you. And we continue to be available through our investor relator teams for follow-up questions or any kind of, let's say, greater investigation you may need. And again, thanks for listening, and goodbye.

Ladies and gentlemen, thank you for joining the conference. It's now over. You may disconnect your telephones.