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 S.p.A First Half 2023 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Pietro Buzzi, Chief Executive Officer of Buzzi SpA. Mr. Buzzi, you have the floor, sir.

Yes. Thank you, and good afternoon to everyone, and welcome to our semiannual conference call. Yes. I assume that you are -- if not in your end, it's in front of you, the presentation that we just published on our website, and I will try to follow that as quickly as possible, not necessarily all the pages, but try to do it maybe in a summarized way, and then give some space for the question that you may have. If you look at the first half 2023, in terms of market trends, we have experienced, generally speaking, some slowdown. More in some areas, less in others. But overall, the decline or the slowdown in cement volume was around 8% across the scope of consolidation. On the other hand, looking at the first line, so the turnover, the other major variable was the selling prices as usual, which have strengthened quite a bit also not everywhere again, but in some areas, also during Q2. So with different degree of intensity. But overall, quite a good, let's say, trend for selling prices in the first half. This mix, let's say, this scenario backdrop brought the turnover up quite significantly. So we went about 14%. We've been about [ 40 ]% better to 23% versus 2022, driven, as we said, mainly by the positive price effect. We didn't almost have -- or atleast not any significant foreign exchange fluctuation. So a small contribution of EUR 8 million to favorable in this case to the overall turnover. When we look at the first level, let's say, operating results, the performance was even better because in the meantime, we experienced in the meantime during the first 6 months, we also experienced some kind of a tailwind or a positive price cost spread. Costs behaved in a way that was still, let's say, inflationary but definitely less than what are planning at the beginning of the year or at the time of the budget approval last year. And this was reflected into a very strong performance. So growth in EBITDA of more than 55% and particularly also very strong recovery in margins about 700 basis points. So really an excellent performance and definitely above our internal expectations. Net cash position also increased by about EUR 124 million compared to the end of 2022 and is ending at EUR 412 million by June 30. Following this set of very good result, looking somewhat down the road for to the next, let's say, 6 months, we think that our, let's say, full year performance will definitely exceed -- will exceed that significantly the 2022 performance and we expect recurring EBITDA to be now in the range of EUR 1.1, EUR 1.2 billion consolidated for the full year. If you look at the main highlights, as we already mentioned, we have an improvement in net sales in EBITDA, in margins. Last year, first half was probably one of the weakest, let's say, in the last period, not, let's say, looking backwards too many years, let's say, but post pandemic and post Russian-Ukraine conflict. Certainly the comparison base for first half of 2022 was not a particularly good one. But still, we can see that the performance really exhibit our expectations. And free cash flow improved also quite nicely. Last year, we had some issues or not issues, but let's say, impacts associated with the working capital. The fact that, let's say, the growth in sales revenue translated also quite significantly into the higher receivables, higher stocks and inventory valuation, which was somehow also the case during this year, but much less. In addition to that, last year, we have been purchasing in advance some CO2 rights, which we did not this year also because the lower, let's say, trend of volumes and production, it's not a good news overall. But in terms of CO2 rights, it's an advantage because you need to buy less or the potential deficit for the full year is going to be not as big as in 2022. Looking by region, let's say. We noticed that Italy was one of the best performers in terms of volumes. We remain basically flat versus last year after a stronger Q2. Then you have a minor difference in Eastern Europe, but this is quite differentiated among the countries, within the Eastern European division. So definitely slower performance in Europe, meaning Czech Republic and Poland and better performance in Ukraine and Russia. And Ukraine, you also may -- you certainly recall that last year, the first half was a particularly week 1 or anyway, a very specific situation associated with the opening of the conflict and the fact that for 2, 3 months, almost the production was stopped and also the deliveries were basically idle. I mean, very, very, weak market. In U.S., the performance was okay. Overall, we are down about 4%. But it was somehow impacted also by rain, several days of rain, particularly in Texas during the first half of the year. And in general, also with an economy or any way with the residential construction, let's say, a trend that is flattening due to the changes in the cost and in the interest rates. So we can consider also, let's say, the U.S. trend quite good in the current macroeconomic situation or scenario. The worst performance in terms of volumes came from the so-called Central European division, where both Germany and also the Netherlands and Luxembourg suffer from a weaker economic environment or -- and in general, from a much weaker construction trend versus the first half of 2022. On the following page, Page 4, you have a -- you gave an analysis. Again, the turnover variance split by region and also by volume and pricing. And you see that everywhere, basically, the price effect without performing the negative impact is more than offsetting the negative impact coming from the volume decline. This is true for any region we are operating. Looking instead at the EBITDA, let's say, bridge. So the entire scope of consolidation, we noticed that price effect is worth about EUR 430 million versus a volume and a favorable variance of about EUR 157 million. Variable cost went up, as I was saying at the beginning. Also in a situation where production was lower, let's say, was declining. So normally, you should expect variable cost to be either flat or declining too. And instead, we did have an additional burden. But there are several areas, several countries, where actually the, let's say, unit cost of fuel and power either remain at the same level of the previous year or actually decline. And this clearly represented an advantage in terms of rebound and recovery of the margins and of the profitability. Fixed cost also increasing, but pretty much, let's say, under control, considering that the first half usually is burdened by more maintenance downtime typically at the beginning of the year. Other changes are not very significant. Also the impact of the CO2 cost, which usually comes in the second part of the year was very limited. And it may continue like this also in the second half if the production level remains somehow subdued or below the -- or at the level of the free allowances granted by the European Union. If we look at the trend of energy cost, again, to give you an idea, this is quite interesting on Page 6. You can see that for the cement industry -- cement sector, let's say, business as a whole, our -- let's call it, energy bill is going up. If you compare first half of 2023, EUR 280 million versus a total of 2022 of EUR 529 million and you multiply it to approximately by 2, you see that there is unfavorable areas and also versus last year when the first half was EUR 234 million. But on the other hand, if you compare on the -- if you make the calculation of the ratio between energy cost and revenue thanks to the strong price improvement, our weight or the weight of energy cost over revenues was actually somewhat lower. And also the other graph is giving you a similar picture. In this case, we are talking about unit power cost or unit fuel cost. Again, inflation is there. So our, let's say, specific cost for energy has been going up both versus H1 last year, but also a full year. But in terms of their importance, their weight on the revenues, there's actually a small decline, small advantages or kind of opening up again of the differential between price and cost. Now if you want to look a little more into the details of the different regions, starting from U.S., which are clearly the most important, as you know, for our group, the most important geographic area, [ Byer we ] can recap briefly by saying that the revenues went up by approximately 16% -- 15%, 16%. EBITDA moved up very nicely from EUR 181 million last year for 6 months to EUR 257 million. And EBITDA margin went back to the level of the first half 2021. So it's, again, a very good performance. I mentioned already that somehow the volumes were penalized by unfavorable weather in some areas. And we can see that as well as in other regions, the pricing momentum allow somehow the margins to recover versus the 2021 level. The FX impact has been small, it's been small, not so significant. It may actually turn the other way around going forward if the dollar remains at [indiscernible] like it is today. Because, as you know, last year, the strength of the dollar was actually showing or really came visible during the second half of the year. Italy, very good performance numbers that we were not used to or we have not been used to for many, many years. We recover in sales revenue, even if actually the price effect was not -- well, it was important but not driven by additional price increases because we kept basically the level of the exit price 2022. And this was enough to really modify the profitability structure in a very significant way due to the fact that, again, our budget was targeting, was assuming certain costs for fuels. And also power that actually materialized and it was good in a sense not to be locked in, in terms of pricing. And the market decline of the energy cost, we were able to enjoy it in -- enjoy it fully. it means that the EBITDA includes anyway, EUR 12 million of subsidies that go tax credit on energy cost, which is expiring basically now at the end of June, has been expired. So we won't have the same kind of benefit in the second half of the year. But yes, we should continue to have a positive price spread result going forward, assuming that the energy cost will stay at the current level. The Central European market, more troubled in a sense of volume as we said already. The demand is somewhat weakening. But there were sequentially, price increases at the beginning of the year which made, let's say, the issue of weaker volume, less evident. So the EBITDA actually, in a percentage -- in a relative way was very strong, achieved the performance of plus 57%, which is basically on average versus the overall scope of consolidation. And the very solid, pricing cost dynamic brought the margins back to around 20%, which for this area is quite a good level, too. So again, some worries also looking forward in the sense of how much the demand will decline, will continue to decline. But for the moment, this is not being reflected in our results. Eastern Europe mix. So Czech and Poland [ under ] contraction, not as much as Germany and Luxembourg, but similar, let's say, between 14% and 20% -- 15%, 20% slowdown in residential and higher interest rates in those countries even more than in the Eurozone, clearly, or the euro currency. And overall, anyway, price cost dynamics also here able to offset the negative volumes. Ukraine, strong rebound. If you look at the volumes because of the comparison base, like I was mentioning at the beginning. So it's a challenging environment continues to be a challenging environment in the second half. So we expect things to be somehow similar to previous year. So no special recovery. But considering the first half was not really consistent. We should end up somewhat better in Ukraine, to even though the numbers are small and not really impacting in a significant way the overall result. Russia performance was okay, since the slightly better in terms of volume, somewhat better pricing and also an improvement in results not so evident in other areas. But I would say a steady and consistent performance so far from the Russian investment. Taking a look at the countries that are not consolidated, but anyway, they're bringing -- or can bring usually significant contribution to our overall result. Mexico, for sure, has been one of the -- if not the top -- one of the top or the top performer during this first 6 months, very strong volume trend pricing. So in this case, a double impact, positive double impact volume and prices, leading to an advance of EBITDA of about 50%. It will be more than 50%. In addition to that, the peso was particularly strong during the first 6 months. So we gain another 11% or 12%, if I recall correctly, thanks to the strength of the local currency. So in terms of profitability, very high, but also not too far from levels where -- that we have been somehow used to. So a confirmation of the level that we had before, let's say, the pandemic and also the inflation or the, let's say -- yes, the cost inflation crisis, which, by the way, in Mexico, has never been so significant as in Europe or in the United States. The effect of stable, let's say, power cost helped a lot our local associates to maintain very good margin across the last 2 years, as you can see. So positive variance at very high levels. And in Brazil, so and so, performance a bit disappointing, probably the only country where we can say that are a bit disappointed in general. The economy is held back, like we mentioned here by very high interest cost and higher indebtedness. So not particularly strong in the construction industry. And the volumes of cement has been stable to slightly negative. Particularly in the Southeast, where most of our presence is. So Northeast area performed better, but the Southeast has suffered from this economic environment and also from some weather issues like severe rain during the first 3 to 4 months. Selling prices moving up also in Brazil, but by full extent. So not as much as we have seen in the other countries. Costs are -- continue to be very competitive, very low, so very stable. If you look at the trend of energy cost. But as opposed to other country here, it was not possible to improve the margins. Actually, the margin contracted quite a bit due to also concentration of, let's say, fixed cost during the first half maintenance shutdown period, et cetera. So we are looking to, let's say, do better in the second half in the sense of, at least we hope rebalance the result in a way that they should turn out to be no lower than the [ one's ] of the previous year. So mentioning the outlook coming out from the first 6 months is interesting in a sense that we are heading towards year that even if surrounded by, as we know, I mean, a lot of uncertainties and potential volatility, is looking very strong and should reach a level which is probably a record for the company in the last 20-plus years. We had some very positive years before the financial crisis. I recall, let's say, 1 year with above EUR 1 billion EBITDA level. But the scope was a little different. We also had -- we used to consolidate the Mexican joint venture in a proportional way. And so I think that if we are able to match, let's say, the guidance, '23 should definitely be a record year for the company or the highest level ever reached. So no big news or no big good news on the volumes expected. So still some concerns about financing, interest rates, potential recession have weighing on the construction industry and make us think that difficult to imagine a positive variance for the volumes, particularly in some of the countries where they are. They have been so quite weak in the first half. So this continues to be our base case scenario for the volume. We see again, in the second half of 2023, some support to the volumes in Italy, where we expect to be basically stable versus last year. We should have more support from infrastructure coming, let's say, to the point of actual cement and concrete delivery. So in theory many, many projects in the pipeline. Maybe only a few of them or some of them will come to the real construction phase. But there are good chances that this will keep the overall, let's say, demand in similar to the 2022 levels. In U.S. probably slightly worse, but we are talking about negative changes that should stay within minus 2, minus 3, not much more. In the most recent PCA forecast is assuming for the country as a whole, minus 3.5, 3.4 in our regions. And also looking at what happened last year of some kind of difficulties we had on some of our -- on one -- particularly one of our production plants in August last year, made us suffer more, let's say, than the market. So if we can keep a steady production level this year, we could also do best than the market as a whole. Infrastructure projects in U.S. are eventually starting. So there are 2 main let's call it, driver. One is the build better America. The other is the inflation reduction act. Build better America was approved already in 2021. And so we are starting to see some of the project forecasted or listed within this bill to come really to the execution phase. So if this happens, like -- it looks like, we should be able maintain stability or, let's say, a less or a smaller decline in the demand at the residential portion is a bit slowing down. In Central -- in Eastern Europe, we don't think that we would be able to recover the negative variance that we experienced in the first half. But we hope that it will gradually, let's say, diminish or reduce the gap versus last year, assuming also maybe a slight recovery in the Eurozone economy. This is a base case scenario, which does not consider a potential or a significant recession in Europe. Now on the price side, of course, a lot has been done so far. If there is a -- there will be a possibility to improve prices again in some of the areas, we will try to do it. But the key will be, obviously, to maintain what we have already achieved so far. And assuming, again, that the cost or the cost inflation is milder or limited, we can maintain also a similar spread or profitability. Overall, following this assumption, we think that the EBITDA that the group can reach by year-end can fall within an interval EUR 1.1 or EUR 1.2 billion, as I was saying at the beginning which is a very, very satisfactory level. Now I think -- yes, I think we can move to the Q&A session, sorry. I would suggest also based on the experience that we had in previous conference call that each one of you possibly limit itself to 1 or maximum 2 questions just to make sure that everyone that everyone is [indiscernible] question will have the time to and also, say, with the idea of closing the conference call as quickly as possible. So thanks for your listening, and I would ask, please, the operator, to open the Q&A questions.

Thank you. This is the Chorus Call conference operator. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Yves Bromehead of Societe Generale.

I'll stick to one just for the matter of time. maybe my first one on pricing, looking at your appendix on Slide 18 there seems to be some price sequential drop and erosion, especially in Italy and in Eastern Europe, sorry. Could you maybe comment on this? And -- how should we think about the second half of the year? Will this trend continue? Or is this just a temporary slowdown.

Yes. Well, clearly, when you do not increase prices in a way or another, they will tend to decline. So Italy is a case where we've been increasing prices several times during 2022. We thought that it was not, let's say, the right marketing strategy to increase further in 2023. And so we are keeping basically the level of the exit price, but a small, let's say, erosion can occur, which is what is happening. Are we going to make another price announcement of price change in the second half? We will see. I mean it depends. It depends on the cost. It depends on the overall market. How strong are the demand, what was the -- what the competitors will be doing. But to answer your question, yes. Italy is an example, but also other area where the prices have stabilized at a certain level. Normally, if you don't go for a further price increase, which is not typically necessary because it may not be justified. Some erosion will inevitably occur. The important thing is to have a limited change. So as long as we are talking about losing EUR 1, $1, or EUR 2 or $2, okay. It's not great, but it's something that you can then recover, go back to the same level or a higher level at the next round. So not too much to worry about, in my opinion.

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

Just a question, looking at next year and at the medium term in terms of your pricing strategy. especially in Europe. I understand that like the clinker volume are today quite low compared to the historical activity level of like 2014, 2019. And I think that's in several of your plants in Germany and Italy, you're probably below 15%, the historical activity level. So what will be your commercial strategy? Do you -- will you accept to lose some CO2 allowance with the European -- given the European adjustment mechanism? Or is there anything that you can do to avoid losing the CO2 [indiscernible] exporting or some kind of commercial strategy. I think the key question I have is that will you be able to increase prices again or at least maintain prices in 2024 in a [indiscernible] where the volumes are quite low.

I mean the minus EUR 15 million is an important threshold for sure, but this is across 2 years. So we have look, let's say, it's moving, let's say, average across 3 years. So we have certainly to keep it in mind because it's worth significant money. So the fact of being granted certain volume of CO2. So this is certainly one from a marketing standpoint, like you're saying, it's certainly one of the variables we have to watch. So unless we think that this level of market will -- is too high or will continue to decline. And then you could also accept by the way, of going below the original allocation level. Yes, we are working or we have to have a target to stay within this level. Will this translate into a different price strategy? It may or it may not. In principle, I would say that we should try continue not to lose. So the improvements may not be strictly necessary. It depends on the cost trend. So if we are able stabilize the cost at least for some time. I don't see really to push further on the prices. On a longer-term horizon, there is always, let's say, the issue of the full cost of CO2. So what is today, basically a noncash or a vehicle cost will soon become a cash cost with the introduction of the carbon border adjustment mechanism and the partial, or the gradual, let's say, cancellation of the allowances. So this is something that soon or sooner rather than later, we likely -- so especially in Europe, that we're talking Europe and the ETS scheme in other countries can be totally different. Because this variable that does not exist. But in the European countries under the ETS scheme, this is something that will probably require prices to move up again when it will become more clear or will become evident that CO2 is not only [ mutual ] costs but also cash cost. In the meantime, I think, again, we will follow very closely the market trends. I don't think -- no, you were mentioning a support in -- difficult to -- it is difficult to justify. Even though, for example, this year, we did export from Italy to our own U.S. market, some volumes more than 100,000 tons. Because in this case, the market price in the U.S. is very high. It's one of the highest -- is the highest in our group of companies. So at such a price you can justify also some export with the goal, as I was saying in the beginning, to keep the activity level within the bracket.

Maybe a second question. Your guidance says that you're going to generate a lot of cash, probably like EUR 0.5 billion, and you don't have any debt -- what are you thinking to do with this very strong cash position?

We need to put it at use in the best way possible, which is possible if there are some industrial opportunities would be, we think, preferable overall we can anticipate or advance some of the maybe CapEx projects that are associated with the road map. This is more technological issue than, again, the financial or willingness. So it's more actually to have a clear ideas and clear understanding of for example, kind of [indiscernible] capture or similar project where and how they could be introduced or starting to be introduced. We have also, for example, in the U.S., which has been, of course, a strong performance, a strong cash generator, a list of projects that are not really maintenance. In a sense again, what we call internally additions somehow required if you want to maintain our industrial footprint in an efficient way. So this is also an area -- some of the plans are older or they have some critical parts, critical, let's say, cost center to be addressed. And also always in the U.S., if we want to, again, in the light of the decarbonization and the lower clinker content. There are some situations where, as you know, we are becoming a bit tight on the Finnish mill. So yes, you use less clinker, but you need more additional or different raw materials and you need more finished grinding capacity to replace or to improve the finish grinding in some of the U.S. plants is probably going to be a requirement in the next few years and can be very expensive because in a way, when you look at the cost of the replacing or renovating, for example, [ Finnish Mill ] department, particularly in the U.S. in a big plant, it can easily cost you, I don't know, EUR 80 million, maybe EUR 90 million, very significant amounts. And yes, for the rest, we will also continue, I think, try to continue to have somehow a kind of shareholder-friendly policy, which can be dividends can also be more likely in dividends, can also be share buybacks. So it's good to have the flexibility really to take the best way possible. Another thing that is worth mentioning is that as opposed to, 2 years ago, today, the liquidity is not burden anymore. So if you manage it correctly, you can anyway, get not a great return, but some, let's say, 4%, 5% is something that you can achieve. So even if you keep it idle for some time, at least is giving you something and not 0 or negative like 2 years ago.

The next question is from Yuri Serov of Redburn.

I don't want this to sound like a trick question, but it's a serious question, and that I want to have, Yes. So look, we are going through a massive downturn, volumes down 20% in some markets, but the companies are achieving peak profitability, not only peak margins, but be profits, including Buzzi -- and Buzzi is probably ahead of everyone. Is there a risk that regulators will become interested in what's going on. We already hear politicians are talking about companies, greedy companies pushing prices too high and fueling inflation and ripping off and getting big profits. And I'm not sure. I just don't know what your view is on this and whether there is any risk on that.

I don't know either. I hope not. I think we are behaving as usual in the right way. I mean, we're not doing anything wrong. So I do not have an answer. I don't see a big risk. Probably well, maybe yes, in the U.S. or more in the U.S. than in other countries, is not -- again, our best case is, not our hope, and we don't think it's likely to occur. But it is true that sometimes things can turn around rather quickly. So -- but this would require some significant macroeconomic changes. So when everything was going -- you remember, I mean, that well back in 2007, 2008, there was an abrupt change this is something that theoretically can always happen. But again, it is not what we are experiencing right now and what we see for the next, let's say, 6 months, 12 months. But something unexpected always can happen. The other point that you are making, I don't think so. Again, the impact on our production cost is coming from energy inflation, cost inflation, generally speaking. And also hidden inflation or foreseeable costs, particularly in Europe associated with the CO2 rights in our opinion, justified, let's say, completely the price trend that we have seen so far.

Well, I understand costs are going up, but your prices are going up more and the profits are increasing in the environment of falling volumes. I mean that's pretty unprecedented. But I hear what you're saying. On the similar -- the same topic about prices, what about your customers? So far, they have just been accepting the price rises [ quietly ] -- but will they start pushing back?

Well, this is -- yes, this is a good sign. So it means that they can themselves, because I mean 60%, 70% but for example, our customers is a ready mix of 50% is ready if let's say, in the rest something different. But both categories, let's say, they were able -- we assume that they were ready, while we see also on the market because where we have a presence [indiscernible] we are competing with them. They were able to transfer it because actually, I mean, there is more need for cement or the ability anyway to somehow make cement more expensive without impacting too much on a certain project. And this is related to the fact that, again, things that you all know the weight of the cement or the right mix in a certain project in an overall construction product continues to be quite low. I mean we are talking about something that in a project can represent 8%, maybe 10% sometimes. It is a big infrastructure project, but not much more. And all other also competing or potential alternative construction materials went up in a similar way even more. So relatively speaking, cement has remained competitive.

The next question is from Alessandrp Tortora of Mediobanca.

Say, 2 questions. Okay, if I may, maybe the one very quick. The first one is on Brazil, you commented you say before that the performance is not, let's say, fantastic also on profitability side. First of all, the question is if you see some synergies or cost optimization rates can do? And then considering the performance of the Brazil, do you believe that this maybe can increase the ability next year you are, let's say, past never -- local partner side finally to sell 50% stake? That's the first question.

Yes. The second point is certainly right in a sense that they think the decision not to exercise the option this year was based on -- clearly on financial reasoning. And the idea that the additional performance in the replacing '23 with 3 years before, would have been favorable -- favorable for them, which could still be. I mean we will see by year-end but may not be. But anyway, it's more they're thinking than ours. But clearly, if we are -- if you're looking to 2023, which more likely than not will be stable or not so improving. This is increasing, yes, the likelihood that the option will be exercised in first half of 2024. In terms of you were asking -- you were asking that...

Ok. Yes. I was asking also Mr. Pietro, the second question was that you mentioned that maybe you can use also your net cash maybe anticipating some CapEx that to -- this year to road map. Do you believe that at a certain point, the company will be able very selectively to maybe announce some semicommercial carbon capture project, maybe also exploiting some [indiscernible] Granted, I remember [ Corporacion ] Germany on the contract for difference. So just to understand, considering also the other compared to us announcing the solo project pipeline on CO2 capture if at a certain point also they should announced some projects?

There are no new, I mean there are a lot of studies undergoing, but from a practical standpoint, today, we don't have any new announcement to be made in a sense that the projects we are working on are the actually is are the Dona the oxy-fuel, these are the main ones. Oxy-fuel is progressing is actually on the -- more than the ground break phase, and it will take, I think, probably 2 years to see the plants up and running. In Dona, we are also progressing in Dona maybe we will be able to announce something related to fencing or, let's call it, grants. We are working on that. It's not let's say, for us, I mean, we will do it anyway. It's not that we have to wait for a specific health or for a specific grant contribution to move on. But of course, also, like you were mentioning from an image standpoint, the fact of being able to enter into some kind of, let's say, public funding would make a lot of sense. So we are actively seeking that.

And then last very quick question is on, let's say, the usage of your liquidity that you mentioned before. Considering that the first half, you got also positive net financial charges -- is it something that we can reasonably also projecting in the second part of the -- as of the company that Italy not pay, let say, basically a positive sign on that line?

I didn't get better. Did you get the question?

You are asking about our interest rate -- sorry, interest cost.

Your interest rate, considering also the income.

Well, if you look at net interest expense purely, let's say, without any kind of nonmonetary, let's say, items like, I don't know, ForEx unrealized exchange losses, we are already positive in the first 6 months.

Yes, the question was if there is any specific reason why we shouldn't see a continuation of this trend okay?

Well, there should -- I think there should be a continuation also because we don't have many repayments coming due in the second half. It's just EUR 100 million, but this will be repaid in October, and we do not expect to refinance currently. So yes, it should continue to improve the differential.

The next question is from Gregory Kulich of UBS.

I want to ask the first one is on energy costs. So you gave the chart in your in your booklet. My question is, what do you think at this stage is a realistic expectation for half 2, I guess, compared to the last year or half 1, whichever way you want to talk about it. And I guess sort of related, and I think it was touched on earlier was the sort of ETS question from Yassine, I think. I guess my bigger picture question is sort of this year you're going to put in, I don't know, EUR 1.1 billion, EUR 1.2 billion, let's say, -- do you think you can hold that level? Is there any reason at this stage, I appreciate there could be all sorts of things happening to the macro, but any reason why you think that would normalize down, I guess, from that high level in the next, I don't know, 24 months?

We are clearly depending a lot on the U.S. market. I think in Europe, assuming that the prices will not decline or from now on, reflect also potential against CO2 cost, like I was mentioning, the European component, I see it rather stable going forward. The U.S. component can be different because -- but it will depend really a lot on my opinion on the volumes, I mean, on the demand. So if we see a significant drop in demand in U.S. I think also the profitability will suffer in a way or another. Also without maybe necessarily price decline just because your, let's call it, operating level goes down. Today, it's basically optimized running let's say, if not full capacity, 95%. And so when you start to suffer from lower volumes, even if the prices stay your operating leverage was the opposite way. So I think the key question in my opinion, is really which I do not have the answer. Well, I may have the answer for the next 6 months. I do not expect anything happening like this in the next 6 months going forward, more difficult, but the key question is the resilience or the stability of the U.S. market, which apparently should be supported, particularly by infrastructure, but you never know.

And regarding energy costs for the second half, I don't know you did...

Yes, they look quite stable where we have seen -- and also we have been able to hedge at a certain level, not fully. We have still some open, let's say, position if you look at the last, 3, 4 months, we have seen quite a good degree of of stability overall. And taking a look at our forecast, which is clearly better than budget, as I was mentioning, compared to H1, '23. We are stable in Italy, stable in the Energy. I'm talking about specifically energy only. Increasing some in Germany, but this is a slightly different situation where we were last year particularly in a favorable position due to hedging date back several months before the cost inflation or the energy crisis started. And yes, except for the Central European market, where the energy costs are still forecasted as at a higher level versus the first half. The rest is pretty stable.

These are all half-on-half, not compared to prior year.

Second -- I mean, entire 2023 versus first half. So we had, for example, EUR 20 energy cost per gigacal in the first half, we expect EUR 20 for the full year.

The next question is from Lukha Aggarwal of Bank of America.

Just 2 quick questions from my part. So I was just wondering on how kind of sustainable you think these margin increases can be in your markets, in particular, Italy. I mean I can see that ex accounted for tax credit, our margin in H1 has increased to 20% kind of more than double its ever been, right? So kind of how sustainable do you think that will be going forward? And secondly is, do you -- with the energy costs kind of stabilizing, do you have a figure on how much you've kind of hedged for this going forward?

Yes. We have -- well, for this year, we are about 60 -- if you look at the group as a whole, 60% to 70% already hedged. And the comment I was making before about the expectation in the forecast, of course, includes consider, let's say, that. But also looking at the spot market prices, we haven't seen any significant volatility recently. So -- and on the sustainability of the margins, it's hard to tell. I mean, Italy, the picture of Italy, yes, has changed completely, but it's also really not comparable with 3, 4 years ago, where we had -- we were EBITDA, EBITDA 0 or EBITDA negative. So we have gone through a number of years starting from 2010 until 2020, but even later with, basically 0 margin or absolutely nonexisting. And so again, percentage change, also the absolute monthly percentage change in particularly is very significant, but not so meaningful because of the low -- very low starting point. So we are in Italy, I would say, back to a number, which is today, if we look at the first half '23, it's not a bad number, but it's a number that in the cement industry is not so unusual. I mean it is a number that you should have it, particularly if you want to continue investing and follow even more now with the road map projects that will be executed and required to meet the targets. And I think that our competitors are in the same situation. They have a similar, let's call it, pressure on the EUR 4 million on complying may make sure that the, let's call it, the road map to decarbonization has been accomplished, has been realized. The structure of the Italian market has changed quite significantly for sure. And if we compare it versus 10 years ago, a lot of consolidation in the market curve. So I -- again, we are not as opposed to the U.S., where we depend more in general, profitability depends more on the demand level today in Italy we are still well below, let's say, high capacity utilization level. So I think I think it can make sense to consider this kind of number or maybe somewhat less, but let's say, something between 25 profitability sustainable in the longer run.

Sorry, did you -- yes, did you say you're at high capacity utilization in Italy?

We are bit relatively low. It depends upon the plans -- but clearly, if you look at -- some of our plants are still running at 50% no more. On average, we are probably something like 65%. So in Italy right now. And sorry?

Yes. So with -- if you're at 60% utilization then surely, if demand does increase, then there won't be a super high margin impact because you can just increase the amount you're producing at the plant. But actually the margin impact won't be super high. So the upside from here is, I'd say is limited now? Or you're guiding -- you're saying you could reach to 25%?

No, I'm saying that for the Italian market after, let's say, 10 years, so of basically negative or very, very small margins in a new environment like today with, again, potential significant requirements of capital spending going forward, many projects related to decarbonization cost -- general cost inflation which has been significant. And in some items, let's say, still is or can return this kind of margin, again, I would say, between 2022, '25, or '23 should not be something that we cannot maintain or we cannot consider, let's say, sustainable. Then clearly what's changed, I think the most versus the year post the financial crisis is that today, there are very, very few or maybe none of the competitors are really watching their market share as they used to. So they are really focused on trying to be able generate enough cash with the target and with the goal of being able to stay in business going forward in a general environment, which will require -- probably require significant CapEx projects associated with the decarbonization road map. So again, the structure of the market has changed the very, very few smaller player today in Italy than again, 5, 6 or 7 years ago. And I think the behavior has become much more rational.

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

Yes. I just had one question left. -- and it refers to the waterfall slide for EBITDA, Slide 5. When I compare it with what other companies have reported, your results are much better generally. And it's all on the cost side. Your costs really didn't go up by very much in the first half, like EUR 75 million. And we've gone through energy, so I don't think there's much need to go through that again. But I'm trying to understand why your costs went up a lot less than other companies. I mean was there a significantly less maintenance costs in the first half or -- was it that you actually had a lot less hedging at the start of the year on the energy and maybe now you've got up to 60% or 70%, but you got the benefit earlier on? Or was the movements on inventory? I mean I'm just trying to understand why your cost increases was only like 75% in total or in mid-70s. And do you expect that to be similar in the second half a similar sort of amount of cost increase? Is that what's in your guidance?

Yes, yes. On why we are better, difficult to tell. Really, you should go inside the numbers very deeply and understand where are the major differences. Some of the justification that you have made are possible. For sure, in general, probably we have more open and more -- yes, on the open market on the spot market from -- for energy than other companies. We are not very happy with the cost trend, and we're very happy with the results, no problem. I mean, the price cost differential has been has been extraordinary. But when you look -- when you go into the details and you look at the cost trend, we are not too happy in a sense that we have to -- pull the the price is okay, but we had to face, to reflect it into the price some significant improvements. I think probably the exposure to Italy, where the energy prices have been so crazy during 2022. So relatively speaking, versus companies that do not have any exposure or limited exposure to Italy, which for us is steady, it's is greater, could also be one of the reasons. Because clearly, the -- we had a peak in the power cost in Italy some months without hedging last year with EUR 300 or more than EUR 300 per kilowatt. So fortunately, it did not last too much, but we did suffer from a crazy, let's say, power cost environment. And this could also be 1 of the reason. Inventory, not too much. I don't think so. So maintenance costs, we are not too happy. I'm not too happy with. It's been one of the -- for example, in the U.S., this first month, first half we had really significant outages planned -- I mean, plan, they were planned. But for example, we had an outage in Festus, more than one month long a lot of changes and improvements associated with the raw mill. Very, very expensive outage. So no, on maintenance, we are not particularly happy. But maybe the competitors did any way worse than us. Maybe we are just a better company, I don't know.

The next question is from Brijesh Siya of HSBC.

I have one question on the [indiscernible] return. So I mean in the last 5 years, obviously, all the cement companies suffered because of the pricing dynamics and the improvement. Obviously, now we are seeing a scenario where the costs are kind of under control and pricing is really strong. Now, with the EUR 1 billion of EBITDA and what you have in the net cash in your books right now? And what -- I mean, possibly another EUR 200 million you'll be adding or more than that in second half as well. So it'll be having a much stronger cash position going into 2024. My question is really what -- as a shareholder, what should expect from Buzzi, is there a kind of buyback or a higher dividend? Or you are going to push that money into much more decarbonation, possibly you advance your targets you have made initially putting more money into the plants to make it much more carbon efficient. Because yes, the focus obviously on you in compared with the bigger competitors and with a bigger balance sheet so on. So just really want to see how you think this cash is going to be utilized in the coming years.

As I said before, it's a good situation to be in the sense that Kiln has a full range of options. And the ones that you mentioned and are certainly available certainly -- actually with the. In principle, yes, we would prefer to continue to be very keen and very focused on our industrial projects. So unfortunately, from the decision-making to the actual realization, implementation of the industrial projects, particularly the ones that require study, engineering, et cetera, the time lag it can be pretty long. So you can take today a decision maybe to, again, as I was saying, for example, to replace the Finnish mill. But then the spending, we look for maybe 1.5 years from now and so there's a time lag. But I think, yes, the priority will continue to be that one. If we can advance something for the decarbonization, we can do it. Of course, it has to make sense. It has to be, again, somehow an existing project, in a sense that engineer's design, availability of the machinery and equipment, et cetera. But we can do it. And for the right thing I look -- if you look around for potential, M&A activity, even if this is kind of I would say, residual proposition, but we'll not rule it out completely. So if there is a good chance, if there is a good target bolt-on buyout of minorities. All this has been followed very closely. And if it comes, it could also be quite significant.

And can I ask another one on the decarbonization. So far many companies are kind of now reporting numbers. They have a CO2 bag cement, which are possibly around into the early 20s or around 30s. So do you have anything to say because how you are kind of doing with the low-carbon cement sales? And what proportion of your total sales now comes from this low carbon cement anything? And what's your targets going forward?

It depends if you look at what is corbon enriched and what is low carbon because the carbon base often from a company standpoint is an internal, let's call it judgment and internal metric that can be different from one company to another. So we do have also definition in line, green cement, et cetera. which, in principle, should represent, if I recall correctly, in the road map, 40%, about 40% -- 40% to 50% of our sales in 2030. But for example, when you compare with the taxonomy, European taxonomy metric, this is totally different because the European economy metric is very, very challenging and extremely difficult to achieve. So to give you an idea, the companies that disclose their taxonomy compliance, let's say, revenues last year were in the range of 4%, 5% and either similar to us or even lower, if I recall correctly. So this is something that again, it's certainly a direction. It's certainly something that we have to continue to work on if you want to achieve the road map goal. But it's more, let me say, very often, it's more a communication issue than a practical one. I think the fact that we are maybe today not as good as someone else is related to our -- to the weight of the U.S. market where traditionally and this is changing starting to changing, and it will change even more going forward, but traditional the clinker content has been very, very high. So it's starting to change now.

And just on the 40% to 55%, you said by 2030, what that number would be now?

Sorry, say that again?

You said in your road map, you kind of -- in sales green cement being around 40% to 50% of our total portfolio in 2030. What is that number currently...

If we look at our metrics, we are probably -- it depends on the country. It depends on the capability. But let's say at the group level today, we are probably between 10 and 20 or more in -- but there is also time needed to -- for example, to get the official, let's call it approval, let's say, of this new cement. Some of them fall within the norms. Some do not or maybe they are not yet accepted by the public sector for structure projects. And so there's also time that is somehow related not only to the market that has set us but to the official acceptance by the administration by the authorities.

And when you say this 10% to 20%, I mean, how do you kind of define a green cement? Is it 20% lower versus the benchmark? Or how do you define a green cement?

No, we can't define it. I can send you the detail, we can see the detail later. There are different, let's say, way of looking at it, but it's mainly at the end is mainly the clinker content. So if you go below a certain clinker content internally, at least we define it as a green.

[Operator Instructions] So we see there are no questions registered at this time, sir.

Okay. Very good. Thanks to everyone. Enjoy your summer time, and we stay in touch as usual through our investor-[ related ] team and see you maybe around in some of the future conference or any other potential occasion, we will remain available. Thank you for listening, and bye-bye.

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