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 2024 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 S.p.A. Mr. Buzzi, you have the floor, sir.

Thank you. Thank you so much. Good afternoon to everyone, and welcome to this conference call, which we are holding usually at the beginning of August to illustrate the results for the first 6 months, which have been published earlier today. So I assume that you have available the presentation, which was also published on our website, and I will try to follow as much as possible, go through it and give some additional colors, and eventually lead to the floor for the Q&A session. So if we look at the first half of 2024, we are, I would say, pretty much in line with our expectations, which were not very favorable in terms of cement demand across our geographies. And indeed, as you can see, we have been declining some. As usual, there are differences among countries. The weak demand was particularly evident in Central European market, but also in markets that perform better like U.S. and Italy. Actually, the Q2 -- or the first 6 months remain negative. And in this case, there was also some negative impact -- or unfavorable impact from definitely stronger rainfall or difficult weather versus the previous year. This was also true for the ready-mix volume. We are, 3 year in a row, in a declining phase, again, unfortunately. When we look at the net sales there are other factors, of course, that plays. And our result is not as unfavorable. It's actually fairly close to last year, which was very, very good, very, very high. And we are around minus 3% like-for-like, including some negative or unfavorable Fx variance of about EUR 27 million on the net sales. And again, going down through the results section of the income statement. I think we can be very reactive, I mean, very satisfied about the EBITDA and, in particular, the EBITDA margin, which remain very close to last year level, and particularly the margins. And the absolute level is absolutely excellent in our opinion, in my opinion. So this was driven by some positive price variance overall. Again, in some markets, stronger price impact in some other, not as much. But also, by some, let's call it, tailwind on the main variable cost. So if we look at some key cost drivers for us and, typically, the energy factors, fuel and electrical power, generally speaking, again, with some exceptions. But generally speaking, we had lower cost than last year, not only due to the fact that production went down, but also in terms of unit cost of the gigacal or the kilowatt hour. We also were able to show to achieve a nice improvement in the net cash position. So we have EUR 100 million improvement, and we will comment later some details about it. Because it's EUR 100 million improvement, but after a number of cash outlays, that have been more significant than last year. And following this result, we think that our initial guidance, which was -- which we thought could be or could have been very challenging, can be now confirmed. And we believe that there are high probabilities, good chances to achieve, overall, for the full financial year, recurring EBITDA level, which is very close to last year. And last year, as you all know, very record level. So when we move to the net sales variance by region, yes, it's quite different from what we have been used to see or to experience last year. So we have -- we do have, generally speaking, a favorable price variance but not enough, as it was last year, to completely offset or more than offset the volume, the unfavorable volume variance, which is particularly true in Central Europe, as you can see. And in Eastern Europe, instead, it's more the ForEx that is affecting the final results because the price variance is greater than the unfavorable volume variance. We are more or less even in Italy, slightly down, slightly unfavorable. And in the United States, similar to Italy, the volume variance is greater than the price variance. And the ForEx did not have a significant impact. Generally, exchange rate of the dollar was very similar first half '24 versus first half 2023. EBITDA variance, following page. As you can see, volumes are waging pretty much on our first half results. But the offset is coming partly from the prices, and even more so from the variable cost. Again, variable cost driven by lower production, but, to a large extent, also by actual decline or not the -- the opposite of inflation, disinflation in some of the main items, specifically electrical power and fuel. Fixed cost, good management in general of maintenance. So we have been effective in the maintenance program, which typically carried out in the first part of the year, the so-called winter shutdown. And we have -- and we do have instead a higher cost when we look at the staff and the labor. And these are the 2 main items included in this specific variance, which is overall somewhat unfavorable. Then we have some other unfavorable items coming, for example, from the changes in inventory. And CO2 is not an issue at the moment with this kind of production level. We are basically in line. So allocations are -- fee allowances are enough to cover our actual CO2 emissions, and we are not in the need to purchase CO2 at this production level. We have been purchasing some, but just as a way to build up a certain inventory for future years, at prices that we consider favorable, particularly at the beginning of this year. ForEx, on average, have been unfavorable in EBITDA by EUR 8 million. And as you can see, we moved from EUR 575 million figure over last year to EUR 553 million. Following -- on the following page, we give you a flash on the cash generation and also, let's say, capital allocation. Cash generated from operations was better, let's say, than last year. And this was due to, mainly, a little less, a little lower inventory -- sorry, working capital absorption, also including some greater inventory buildup due to rights purchases. So this was, I think, again, a strong sign of our operational performance. And CapEx are going up with this was expected. Clearly, we are still a bit delayed, in a sense. We would like to have been able to accomplish some of our projects, let's say, quicker and faster. But it's not always easy. It's [ not ] something that we are improving, I think, on this track. But anyway, it is clear that the CapEx trend is greater than last year. And a good portion of this is devoted to, let's call it, either major projects or projects that are somehow included in the decarbonization road map. And in terms of cash return to the shareholders, we are less than the first half of 2022. But you probably recall that, in this case, there was a treasury share purchase, which went on very quickly, I would say. It was a phase at the start, let's say, the opening of the Russia-Ukraine conflict when the liquidity on the market was very high, and also, in general, prices -- share prices, that tend to collapse. Meanwhile, if we compare with -- versus the first half of 2023, we are much higher because the dividend has increased quite significantly. And the buyback that started actually close to the end of the first half has been underway since then. And for example, if we would look at this same item as of today, I think we are already at EUR 80-something million versus the EUR 52.5 million. Okay. If we take a look at the performance by geographical areas, first one, in all respect, is the U.S. Clearly, the performance of the U.S. in this first semester and likely also looking at the full year is the one that has been kind of a game changer from us because we did expect a good performance. But we are definitely much better off versus budget and, again, a very strong level, not only in absolute terms. So absolute EBITDA, as you can see, is improving by 9%. But also in terms of margins, we are showing a 320 basis point increase on a margin, which was already high, so in general, is very strong -- a very strong performance. What we can say is that, as you all know, I mean, the activity -- construction activity still some -- the residential portion, in particular, is still impacted by the higher rates and some uncertainties on the trend of the, let's call it, easing by the Fed. So still, somehow, in stand by. There is support coming from the public works or infrastructure, in general. But there's definitely a potential for the demand to strengthen if there will be more, let's say, accommodating monetary policy going forward. In addition to that, we mentioned at the beginning, we also had some excess rain versus last year, particularly in the [ river ] region, which, for us, is a Q1. So we had, again, not great volumes, but stable production costs. And whereby, let's say, the lower energy expenses that I was mentioning before, particularly in the U.S., were almost fully offset by the fixed cost trend with labor service, et cetera, which was great. On the other hand, price trend was stronger than anywhere else. And that's why, eventually, the margins improved. Another good performance came from the Italian market, similar, in a sense. So volume is not particularly strong. Yes, affected by bad weather, and EBITDA improving about 9%. And margins also, again, not as much better as in the U.S., but still a very, very good trend, almost 300 points to a level of 26.1%, which is something that we haven't seen in Italy for many, many years. So by the way, the comparison in EBITDA is not fully consistent because, last year, we still enjoyed some EUR 12 million from the so-called energy-intensive bonus or energy cost reduction, which, instead, this year, was 0. So the EUR 108 million this year is fully operating. The other one is also operating, but it does include an energy bond of, let's say, EUR 12 million. So again, even better. Pricing has been, overall, solid also in Italy. And our production cost, in particularly key elements like energy and fuel, went down. So the price over cost trend started to widen. And that's why we are -- I mean we've been so successful in the first 6 months. In Central Europe, this is where we are suffering clearly the most. Construction activity is still kind of sluggish and industrial activity as well. As you know, this is mainly coming from the German market, but also Luxembourg, which is operating in terms of markets, to a large extent, also in France, did not show any significant rebound. So our volumes went down quite significantly, approximately 16%, both in cement and ready-mix. And we did have some energy savings also in that area. But unfortunately, when the production output is so reduced versus last year, the fixed cost in terms of the unit divided by the volumes are impacting in a much more significant way. So overall, our margins went down quite significantly. So this situation, we think, is particularly negative in the first half because, last year, the first half was still relatively good. So what we should see in the second half is some kind of -- not, let's say, this negative impact should not be widening, but rather closing, not because we assume that there will be a clear rebound in volumes, but the comparison days should become easier in the following months. Eastern Europe, kind of a mix. We do have some country or -- well, yes, some countries that have performed better. But for example, in Russia, the FX impact was quite significant. So in terms of local currency, Russia improved, but did not really improve in terms of euro. Ukraine performed better in terms of volume. We are -- we think that we still had some advantage coming from the comparison base, which is starting to vanish, in a sense, that we think that we are approaching production and sales level, which will remain similar, let's say, after the significant decline of the months that follow the opening of the conflict. In Poland, performance was not satisfactory, in general. We have been quite, I would say, we made a strong effort on the pricing side, and this has been reflected negatively on the volumes more than what we expected. So there, on one side, we see a more positive development on all the volumes in the second half, and we may need to adjust somewhat the prices to take benefit of that. Czech, instead, is pretty stable, generally speaking. So even in a price environment, which was favorable, it's also a smaller market. But however, volumes that remain quite close to the previous year and profitability as well. All Eastern Europe, in any way, suffer. So it is showing a negative variance in terms of in terms of EBITDA, absolute value and also margin, which is mainly driven by the Polish performance. And again, we are a little more optimistic on the second half of the year and the possibility to recover it, probably not in full, but certainly, partially, our historical trend or historical profitability in these 2 countries, in particularly Czech and Poland, that are any way looking, we would say, stronger than the Central European, Germany, Luxembourg, in the coming months. Moving to the joint ventures, which are, anyway, a significant portion of our business. So certainly, they do have a major contribution to our results and net results, even if they're not consolidated. We see a strong performance of Mexico. I would say, everything has been moving the same -- in the right direction in Mexico. Volumes, not particularly strong, but very close to last year level in cement, actually, quite better than last year in ready-mix. Ready-mix has been also recovering profitability versus the previous 2 years. It's not the driver, let's say, of the local profitability, but sort of has been showing an improvement, significant improvement there versus the comparison base. And price effect was positive. And we also have some advantage, some favorable variance in the energy cost due to the decline of particularly all the pet coke, which is the main fuel for Mexico, and some additional benefit coming from -- not the large portion, but beginning in the use of alternative fuels. And so this translated into an improvement in the margins versus a level which is already, as you know, very high. I mean clearly extremely profitable and very, I would say, very successful semester, which is -- that we should be able to replicate or to keep a similar level or very close level also in the second half, next 6 months. Brazil, we are in -- as you know, in the process of closing the purchase of the remaining 50%. Actually, Brazil will be consolidated during 2024. We don't know exactly for how many months. Tentatively speaking, it should be probably the last 3 months, but we will see if we were able -- we will be able to get there. And Brazil -- Brazilian performance is a bit subdued, particularly in terms of prices. I mean, the -- let's say, the section is coming from the -- mainly from the price level, this stronger competitive environment that we are facing currently, particularly in the Southeast. And so we regained some ground on the volumes, and we are basically at the level of last year. But we did not -- we were not able to improve prices. Fortunately, as we mentioned also in other cases, in other geographies, the recovery in the margin, which is not bad because we are moving up from 20% to almost 24%, came from improving cost and, particularly, the variable component. The FX impact has not been very significant in the first 6 months. It is a little more concerning, let's say, lately because there's been a lot of volatility and, generally speaking, devaluation on the real lately due to some political uncertainty, and also a decision that the country will take or will not take about interest rates level. But in general, I would say, a pretty solid performance also for the Brazilian assets, which will be soon included in our line-by-line results. Considering the outlook, I was already commenting on what we can expect for the second half. There should be, in most of the region, some -- if not improvement, let's say, not worsening of the situation that we have experienced. So that we have been managing in the first half. Central Europe is a bit of a question mark. But we also believe that, just looking at the comparison base and the fact that the second half of 2023 was already quite weak, we should perform better there. The risk, if you wish, is a little bit more on the pricing due to the fact that the volumes -- the weak volumes are anyway pushing in a certain direction. So in the direction of trying to somehow not lose market share, so some price concession, again, both in Germany and in Poland, I think, are likely. But on the other hand, we should be, as I said, better off with the volumes. Civil works, both in Italy and the United States, are the demand component that should be the one giving more stronger, let's say, volumes in the next 6 months. The U.S. Our latest news on the U.S., on the economy, are maybe not as positive as we expected at the time of the forecast issuance or calculation or recalculation of our budget. And however, we believe that our figures or the figures that we achieved in the first half are sustainable. And we continue to see the U.S. as a strong contributor for the full year in our books, in our -- to our books and to our results. Also, energy costs are expected to stabilize, but we should remain in the full year, generally speaking, below last year. And of course, we are focusing on very much on the -- what should be our goal. So margins and -- on one side, without losing market share or losing volumes, which is easy to say and maybe not easy to accomplish, but it's, of course, our duty. And overall, we believe that our recurring EBITDA should be very close to the 2023 level. We are confident that this can be achieved. And we will, of course, monitor in the next 3 months and also at the time of the press release for the third quarter, our, let's say, degree of achievement. But we remain confident that this can be the case. Last note here on the Brazilian acquisition, which I was mentioning already before. So yes, we've officially already received the approval by the antitrust authority, which was kind of formality since we don't have any operations in Brazil. So we are a new player. And that's why we are working in the time line that envisages the closing of the transaction in October 2024, as I wsa mentioning previously. So we have, okay, more material in the presentation, but it can be used for you as a reference, or we may use it if you need it in the Q&A session. So I think it will be, perhaps, level for me to stop here and wait for your questions. So thank you for listening. And please, operator, open the Q&A session.

[Operator Instructions] The first question comes from Ephrem Ravi of Citi Group.

Two questions. So firstly, the sale of the assets to Ukraine -- so in Ukraine to CRH was announced over a year ago, and that's not been closed. Can you talk through what the regulatory issues are holding up the transaction? And if that transaction is not approved, would you still look to sell it to some other buyer? Or would you be happy to run the assets yourself?

You're right. I mean, it's taking a very long time, which was also kind of expected because, anyway, in our agreement with CRH, we had a very long closing date that extended until the end of this year. So it's something that was foreseen. We are in the so-called second stage of the investigation. We still think that, more likely than not, we will be able to -- we and CRH will be able to close the deal. And best case would be -- not maybe the closing, but to have some positive news on this matter, let's say, by the end of September. And we remain confident that this will be -- believe that the deal will be closed.

And the second question, I mean, obviously, the balance sheet would still be over EUR 1 billion net cash post the deal for Cimento Nacional on our estimates. I appreciate there is a buyback going on, but it's still relatively small in terms of EUR 200 million. Are you planning to kind of run with a significant net cash on the balance sheet? Or are there further big buybacks or big acquisitions on the table?

No. Actually, if you consider the Cimento Nacional acquisition, there are some items which we have, today, in the net financial position, that will, let's say, disappear because of the accounting, let's say, technicality. In particular, we do have a EUR 230 million, if I recall correctly, loan towards Cimento Nacional that will be -- which, today, is included in the net financial position as a long-term asset, which will disappear. So actually, the impact will be EUR 300 million plus EUR 200 million, let's say, more or less, so around EUR 500 million. So certainly versus -- we expect that, including CapEx, which are anyway running at pretty high level, including buyback, that will continue. We think that, by year-end, we will decrease by EUR 140 million, EUR 150 million, maybe, versus the net position of December '23. So it doesn't mean that it -- that we are -- I mean, it is still a strong net cash position. I mean we -- we have to, as usual, to focus on what are the priorities. The priorities remain, in general, any kind of potential development, which we consider, strategically and financially speaking, interesting for the company, I mean for the industrial level of the company, bolt-on acquisition, more of integration. And we do have, anyway, a CapEx, which is quite significant, as I was mentioning before. And we do have some, let's call it, industrial facility that require some -- will require some significant effort to be either modernized without entering today, or at least, not so quickly, into all the -- met all the CO2 capture, which, of course, can be a very significant cash outlay in the coming future, which, for the moment, is somehow sleeping. But it may soon become something much more significant.

The next question is from Elodie Rall of JPMorgan.

I have questions on the U.S. First of all, you seemed a little bit surprised about the profitability that was delivered in H1 with strong EBITDA margin improvement. So I was wondering if you think this is more because of pricing or because of cost or both? And if you think this is sustainable? Then on U.S. pricing, you had mentioned earlier in the year that you were a bit concerned about the potential impact from imports in Texas, in particular. So I was wondering if you have an update there. What has happened so far on that front? And maybe, lastly, if I can squeeze a last one. On CO2, just wondering what your view is on CCUS, if there is any update. You have some peers that are ramping up there. So if you think that you'll have a full-scale CCUS plant, when?

Okay. Yes, I'm not surprised the -- yes, surprised, in a sense, that was not forecasted at this level. I would say, yes, we were, at the beginning of the year, definitely more pessimistic about the possibility of improving the margin to that extent. However, yes, it's like you're saying, I mean, we had advantages. We had favorable variances on the price side and also not unfavorable, let's say, variances on the cost side, and that's why it did happen. Again, it was probably, I don't know, maybe our mistake or our wrong assumption to imagine that it would have been more difficult. It's been due to a sum of reasons, a little easier than expected. It doesn't mean that it will always be like so. I think, in general, we have always mentioned -- we've always been mentioning kind of, let's say, 30% level in the U.S. as a sustainable margin going forward. Now it's greater, okay, good. Maybe it can stay like so for some time, maybe not. So the idea is, yes, it's to make it possible in a sense that we work in the direction that will allow the 30% also, in the long run, as an average, the profitability rate. On the pricing, I made also a comment already. Certainly, there are regional differences, certainly. If you look at the official, I don't know, Texas tax report, which is cement tax report, you can see, I mean, it's very evident the market shares that the imports have been taking. And this has come, somehow, mainly through price cut. And so up to a certain extent, of course, we can maybe accept and avoid this [indiscernible], avoid kind of a price war or significant price decline. For the moment, we remain somehow balanced. I mean we did not lose too much market share. And our prices in the Houston market, yes, okay, they did not improve, but they did not go down. And this, I think, will be also the key for the coming months because it's unlikely for the moment to see a declining trend in the imports. So again, on the overall U.S. business, as you can see, the impact was not so significant. In -- locally speaking, it was anyway hard to manage, let's say, in the right way. On the CO2, I mean, it is clearly a trend or decision or some kind of, I would say, there are certainly -- there will be a very significant regional differences in the way the industry -- or in the timing also, the industry will carbonize in the -- and they will apply, let's say, CO2 capture. It is clear that if the European green deal or whatever, industrial green deal will remain the way it is, we will be forced to do something, let's say, fairly significant in a relatively short time. But on the other hand, I don't think that even if the law today says something, if the outside conditions are not there, I think the industry will have a strong argument, a strong, let's say, reason not to complete the full decarbonization. Meaning that if storage is not allowed, if the pipelines are not there, it's not a clear usage for the CO2 that is being captured. I don't think even the green deal or whatever can force you to cut the CO2. Also because you would capture CO2, which, for the -- without the permanent storage for the, let's call it, recognition, it would count 0. So it will be simply an exercise at the plant without the possibility to consider it an actual decrease of your CO2 emissions. And so we are, in Europe, 2, 3 projects that are fairly significant, one that's not been approved by us, I mean, yet. Where we are in the process, it's likely to be approved with the next CapEx budget. We are involved into the CI4C joint venture of the oxyfuel, which is progressing, let's say, well. We'd soon be entering into operation of the plant next year. And we will see what is -- but again, it's an exercise because this year, too, will be captured, but then just to make sure -- just to understand whether the technology is working. But anyway, it's a step -- it's an important step because it could then be applied somewhere else. In other countries, unless there is a clear, let's say, financial, let's call it, reason or a clear financial justification. Today, it does not really make too much sense to envisage at least a significant CO2 capture project. But in the U.S., for example, due to the potential benefits and subsidies that could come from the Inflation Reduction Act, we are, anyway, working on some ideas. So there, the driver will not be the -- let's call it, the legal environment or the administrative environment, but rather the potential financial viability, which is -- which could exist. I mean, at the end, it's easier to find storage in the U.S. under an existing plant than in Italy or in Germany, certainly.

The next question is from Brijesh Siya of HSBC.

I have a couple as well. So firstly, on your comment about U.S. long-term margin, you see a 30%. Can I challenge you with that? With underlying demand trend, what you had talked about, about public demand being strong, the pricing remains pretty healthy, and you have yourself have raised prices during the beginning of the year. So what factors could influence that margin to go down to 30%, at least, in the medium term? Or you think that, that will stay at a high level, at least, for a couple of years until the strong growth momentum continues, then probably moderate?

I mean if the long-term projection for the demand are being met, I agree with you that it should not be a big reason to expect a decline in margins because this would translate probably still, and if not necessarily improving or slightly improving, should not translate into a negative price variance, which, at the end, is the key for the margins. I mean because -- of course, the costs are important, but the price level is even more important. What could jeopardize, yes, is maybe lower-than-expected demand, some wrong assumption on the, I don't know, volumes coming from the infrastructure, et cetera. And maybe, again, like it happened maybe 2 years ago, a significant inflation, some shock on the raw materials, on the commodities, something like this, that usually takes time, and it's not something that you can offset immediately. So there's not a reason to be, let's say, pessimistic. I don't think so.

Fair enough. And the second question is, again, in the U.S., a couple of players who are kind of trying to have bolt-on acquisitions to kind of make a fulsome offering to the customers. I know you are strong in the cement, but on ready-mix, you are only strong around Texas, Houston area. So -- is there a plan, going forward, with the balance sheet you have to expand the U.S. business more into the ancillary part rather than the cement plant?

Yes, it could make sense. So we don't see -- we still -- would still not be, we think, fond of diversification in the light building materials. Let's say, this would be the case for us due to our, let's say, mainly the fact that we like to do what we know and what we think we can do. We think we can perform, let's say, better and achieve better returns on what we know. In addition to that, anyway, the U.S. are, today, very, very costly in any kind of, let's say, M&A activity. So I think it's more likely a trend, particularly in some regions towards greater vertical integrations. And maybe also not big -- not, let's say, larger acquisition. But yes, the possibility maybe to integrate also in aggregate can make sense, coupled with the existing ready-mix operation, which is something that we also did somehow on a small scale recently. So the fact of being, on one side, for cement, vertically integrated with your main customer, and for ready-mix, where you're -- where you have purchased, let's say, aggregates, the possibility not necessarily to be bound or to be somewhat squeezed by aggregates producer, so the possibility to make yourself independent in the aggregates for your ready-mix operation can make sense. Rather than going begging to just aggregate from themselves, which would also be certainly very costly today. So yes, and if opportunities are arising in cement at reasonable prices, this could also make sense in the U.S. And certainly for us, it would be much easier to decide than going into some African countries.

Got you. Fair enough. And last one is on your guidance. The statement talks about a recovery in the U.S. I assume that's a growth on a Y-o-Y basis in the second half, getting back some of those weather loss. Then Italy stabilization and declining in Central Europe, but improving versus first half. So overall, it looks like you will have some volume growth coming in second half. And the pricing staying where it is, except Poland, and, to an extent, Germany, you flagged, it's not negative. And I do see the charts where it's saying already negative in Q2. So I'm not sure whether you are forecasting another decline coming in second half. But irrespective of that, would you say that the EBITDA number in second half certainly looks at a well place given your unleverage -- operating leverage is going to play there. And price costs, even though a small positive, would still be -- you'd be sitting probably -- have a good chance to have an EBITDA, which is probably better than last year on a full year basis?

We change as a no, maybe a 50% chance -- which is a good chance, of course, maybe yet. By the way, in our reasoning also, we tend to -- it's not that it is not included, but we don't have, for example, full visibility on the Russian business, which is, anyway, bringing some -- I mean it's EUR 200 million EBITDA. So also there, when it comes to the finalizing, let's say, the financial statements, we may see some surprises on one side or another, which, currently, we cannot follow this during the year, basically. So again, I think we are there. And if it's better or somewhat less difficult to tell today, but my opinion, good reason to believe that we are basically there.

The next question is from Yassine Touahri of On Field.

Yes, just a follow-up question on the pricing in the U.S. So what you're suggesting that you were able to increase prices sequentially at the beginning of the year. I think some of the players in Texas are announcing a second price increase. Do you see any second price increase as well? And we'll see also like the aggregate supplier announcing a second aggregate price increase. Is it something that could impact your revenue and profitability? Do you think that the second price increase in aggregate will be successful this summer? And then..

Yassine, yes. I'm sorry, please continue.

No, no. I might have another question, but I can -- you can maybe like -- we can maybe take them one by one.

Okay. The aggregates market is certainly more consolidated than the ready-mix, obviously, and also the cement market. So there may be an attempt by the producer to move up with the prices, can be more successful than generally speaking. And yes, it can have an impact on the, obviously, on the underwriting extent why I was also saying at the beginning, previously, more and more, we try to make ourselves independent as much as possible on the aggregate supply, particularly in Texas, regions like Austin, San Antonio, et cetera, they do have their own annual supply. So we can -- to a large extent, we can manage it. In terms of cement prices, Texas is a large market. Clearly, there's a big difference between in land, let's say, regions like Dallas and San Antonio still, let's say, to some extent and regions that are on the coast or close to the coast of any way. Terminals located on the coast can reach in an easier way, so maybe [ their activity ] to be successful in Dallas, but probably not in Houston.

And then another question on your cash position. So even if your cash relation is reduced by EUR 140 million, you will still have more than EUR 0.5 billion of cash in the bank. How do you think about the best use of this cash? Is it fair to understand that you will be watching the development of the decarbonated cement in Europe? And that if you feel that can invest it with a good return, you will go ahead. And that's you're saying a little bit on the sideline, but if you feel that there is a good investment opportunity, you will go, otherwise invest there as well.

No, I we think -- as I said before, we have to continue to focus on our industrial footprint. -- which means both, let's say, internal projects that are kind of required, not only for decarbonization, which is, one, certainly one, meaning in a large sense -- not necessarily carbon capture, I mean, meaning lowering the CO2 footprint. So going to into all the so-called lowering proof, which are, anyway requiring money to be collected. And second, also, age because anyway, we have some clients, particularly, I would say, in the U.S. today because they are the ones that have been working at a greater capacity utilization level that cannot last in the next 20 years, the way they are now. So they require, certainly, some significant projects or modernization. And together with the modernization will come also the lower CO2 footprint. I mean, it is a mix of the two things. And when you touch today something in the U.S., when you're talking about modernizing a plant, department or a kiln or a mill, the amounts involved are certainly very, very high. So on one side, it's a great place to be, great profitability, absolute, relative, et cetera. On the other, when it comes to, again, putting your -- or yes, making your facility or bringing your facility to a more modern and more efficient level than they are today, it will be very costly, but necessary if you want to stay.

Is there a return that you're trying to -- that you're looking at when you're investing in CapEx and revenue acquisition? And I think my question is, when I look at your operating cash flow, it's like probably more than EUR 800 million. So it looks like it's enough every year to finance a lot more CapEx than what you're doing today. And you got a lot of cash in your balance sheet. And the question is like, could you -- at what point do you decide, okay, I'll go for a big investment because I can get a good return? Or you decide to give the cash back to shareholders or to distribute to the family and the minority shareholder? And the question is like, is there a kind of a return threshold that you're looking at when you're investing into, let's say, new plants in the U.S. or carbon capture? Are you looking at -- how do you think about it? Do you think in terms of return on capital employed, the value of the business long term? Because I can imagine that if it's not profitable, it's probably better to put the cash as well.

There are some decisions that somehow are more related to your industrial footprint, in a sense, and the willingness to maintain, let's say, certain market share or certain position in a certain geography, which, of course, they should, and they will, and we think translate into some financial return, but maybe not quickly. So if you have a plant in the U.S., like we do have, in some cases, which is not -- do not last, let's say, for the next 20 years, the decision is, okay, we shut it down away, and we leave this geography. Or we serve this geography from another region through rail or through bodies or whatever. Or we build a new one. But even if you don't build a new one, probably you have to somehow increase capacity somewhere else if you want to be able to [indiscernible] for the [indiscernible].

The next question is from Alessandro Tortora of Mediobanca.

Yes. I'm [indiscernible], let's say [indiscernible] questions. Okay. The first one is on Italy. Clearly, the performance, the profitability of the Italian market was very high in this first half. Can you start to understand what's going on, in the sense? Can Italy really sustain this level of profitability? Considering also that the demand coming from infrastructure projects are still there, okay, considering BP and [ Nevada ] program, okay, we are developing in Italy. So just to understand in Italy, what's your view? Because again, we have this 26% EBITDA margin in the first half, I guess, probably could be a bit lower by year-end, but Italy is performing pretty well. That's the first question.

[Operator Instructions] Mr. Buzzi, [Foreign Language]

Sorry for that, but I don't know what -- I mean, I didn't do anything. It just went down. Mr. Tortora would you ask your question again, please, sir?

Yes. Yes, absolutely. So the question was on the profitability, okay, of the Italian market, which was pretty high in the first half, like the 26% EBITDA margin. So the question is, how should we think about in the coming, even for the year-end, which kind, let's say, profitability you see in Italy, but also in the medium term, how should we see this, let's say, EBITDA margin going forward? That's the first question.

In the medium term, if we're saying, let's say, 2 to 3 years, as long as has to buy, let's say, to rights, and as long as we would still receive it for free, probably, assuming, again, a decent level of demand, which should be there, we should be okay. I mean if it's not 26%, can be '25% or maybe 24%, but we should be okay. The big question mark, not only in Italy also in Europe, generally speaking, is the impact of the introduction of CBAM, how exactly it will work, if it would be successful, not successful. We will be able to challenge imports that are anyway growing because they have been growing quite significantly in the first half. And we will be able to, let's say, make it -- translate or transfer to the customer the additional CO2 costs, which, today, are not visible in a sense that they are not really a cash outlay. So I think this is something that 3, 4 years down the road, we will understand much better. In the current environment, we have, again, pretty stable demand, costs that are under control and no CO2 cash outlay, I think we can be fine.

Okay. Okay. And then the second question is on Brazil. Clearly, you're going to consolidate the assets, let's say, by year-end. Can you elaborate a little bit on the medium term, let's say, plan for this country? Also, in this case, do you see, maybe in the medium term, the possibility to add some production capacity? Maybe some, let's say, brownfield project? And also, in terms of profitability, this was a country very volatile. How Buzzi can improve it?

No, we have to go. We have done it already, but we will even more with the, let's say, 100% ownership go through some kind of solid strategic plan, particularly related to the -- to what we can influence the most, which is, like you're saying, the industrial footprint. Because it's a bit, I would say, skewed to the -- too much to the Southeast. So ideally, ideally if we would be able to extend our presence, so diversify our presence also in other areas of the country, this would certainly be something to pursue, let's say, to take care of. And we cannot rule it out completely because there has been several changes, let's say, in the industry structure lately. And some more to come due to various situations that are maturing. And so yes, there is a chance probably to do something there. And if not, within our existing network, we will probably have to somehow consolidate, in a sense, or may possibly be reducing the number of production facility, but without losing capacity. So like you're saying, maybe expanding brownfield in some of the existing with more efficiency and more and more capacity.

Okay. Okay. Then the third question, okay, you mentioned also in the presentation that June was not, let's say, fantastic year here in terms of weather. Looking at, let's say, July, do you already, let's say, did you already serve the, let's say, an improvement of performance, let's say, have you started resume of shipments in July, considerably, let's say, the favorable or good weather?

In Italy, the performance is better, let's say, slightly better. In the U.S., actually, not so much. So far, we haven't seen such the recovery that we expected. July was not a good month in the U.S. So yes, again, mixed.

Okay. Okay. And then the last question is just a clarification. When you mentioned that probably [indiscernible] including the cash out for, let's say, the Brazilian asset. You will have a reduction of EUR 145 million net debt versus a [indiscernible] -- this was already including also the full usage of the buyback?

Yes, not the full. Not the full around -- I think we estimate EUR 175 million, if I recall correctly, out of the EUR 200 million.

Okay. So let's say, largely?

Largely, yes.

The next question is from Gregor Kuglitsch of UBS.

Look, I know there's been a lot of questions. Can I just maybe kind of get a few summary answers. So firstly, on CapEx. So you're sort of signaling there's going to be all sorts of demand, decarbonization, modernization. Can you just give us a sense where you think CapEx goes? Like are we talking EUR 400 million? Do you think it's more -- what do you think is sort of a sustainable run rate now, considering everything that you sort of said?

In the next few years, particularly in the...

Yes, yes. In the next few years, yes.

If we start with the CO2 capture projects, which we are working on in terms of approval, let's say, certainly, the EUR 500 million is more a number than the EUR 400 million.

Okay. And you said -- you mentioned [indiscernible] CCUS, one of which is [indiscernible] JV, which is already underway, right?

Right, right, yes.

The other one is one in Germany, I think, I saw.

Yes, exactly. Yes, yes.

And the third one?

No, the third one is not, let's say -- but it could be in the U.S., let's say. It could be in the U.S. But it's still more in a preliminary stage.

And are you expecting to receive subsidies from the EU, just like the [indiscernible]?

Well, we try. I don't know if it will successful, but we have to try.

Okay. And then in terms of the pricing. So it sounded -- correct me if I'm wrong, you think there's going to be a little bit of pressure in Germany. We think we already saw that in Q2. Do you think that gets worse? Was that correct?

Yes. Well, not worse. It is true that if you look at the last 3 months, also, in Poland, we had to somehow adjust, let's say, adjust a bit. Yes.

Okay. And then you said some parts of the U.S. increases, Texas ex Houston, was that correct? I think that's what I hear from your peers?

That's a Correct. Correct.

And the rest of the U.S., you're saying...

Well, probably really second major or significant second round of price increases, we believe that today it's unlikely.

Okay. And then in Europe, are you outside of Poland and Germany, you're trying to hold or raise? Or [indiscernible]

Yes, hold. Yes, hold. Yes, yes. Maybe see work on the -- some area, for example, in Italy, maybe worked relatively more than the ready-mix. But yes, in general, yes.

Okay. Okay. And then in terms of -- just to come back to the volume point, are you -- you were down 8%, I think, for cement, for example, in the first half.

Correct, yes.

I mean, I didn't quite understand that you're sort of suggesting you think you can be flattish? I mean, I don't know if there's a comparison basis for the rest of the year or not sure yet?

By year-end, if we look at the, let's say, how much would it be over the late forecast, we could be minus -- yes, minus 2%, more or less.

For the full year after being down 8%? So it means up.

Exactly. But I think that -- well, we will see. Unfortunately, I was mentioning before, July for the U.S. was below expectations. So maybe -- and this was not, of course, included in the fourth.

Okay. And then sorry, maybe I missed that. So I think I sort of asked before. Once you bake in Brazil and the buyback and everything else, what do you think your net cash ends this year? Did you say, roughly, what do you think? ?

Minus -- last year was EUR 768 million, right, including Russia. And we expect to go down more or less by EUR 140 million, EUR 150 million.

Sequentially?

Yes.

Or year-over-year?

Full year, yes. Full year.

Compared to December 31, 2022?

Exactly, yes.

The next question is from Tobias Woerner of Stifel.

I'm conscious that it's been a long call, so far, so let me try and keep it as short as possible. Number one, we haven't spoken about Algeria. Can you just give us a flavor of the market there, if that information is available to you? And also, give us a sense of what your sort of strategic thinking is about the country and the assets. Secondly, I need to update myself. So apologies if that is well understood. Montezuma still is running close to capacity. What are the capacity developments there and plans for the future?

You mean [indiscernible] in Algeria?

No, no, in Mexico.

Sorry, Mexico. No, well, in Algeria, our performance is not very different from last year. The strategy, it is clear that -- I mean, our efforts that we have made in the past, and it's already some years from the beginning, to somehow gain more influence, they are not very successful or they are unsuccessful. So yes, it's becoming a location which potentially could be of interest in the long run. But only if we had the possibility to gain a little more influence, which is certainly difficult. So on the other hand, also exit is not easy because it's difficult to find a real, I can say, person or individual or entity that can take any kind of decision, or not any kind of -- this kind of decision. So being, as you know, I mean, the majority shareholder and public state person are changing or the person that are supposed to be in charge, actually, again, when they should take a decision, they don't. So it's not every situation. I mean, we are not losing money. We receive regularly some dividend flow every year. So there's nothing to be concerned about. But certainly, let's say, the strategy that was behind at the beginning was not -- we were not able to achieve it so far to make it work as we were thinking. In Mexico, we are running at full capacity, and most of the country is running close to the full capacity. Maybe CEMEX is not probably there, generally speaking, more capacity available. There have been some not really changes, but yes, forced changes due to the turmoil within Cruz Azul, which is, anyway, #2, basically, in the market that forced this company to -- they were not willing to, but due to, again, the litigation and the contrast between the shareholder, the ownership, to close 1 plant. This was advantageous, of course, for the rest of the competition, including us. There could be a possibility in the future to move on with additional capacity expansion. It's certainly something that we continue to look at because it could make sense, particularly in the Northwest region, which is, today, probably one where we are lacking more capacity. So yes, it's something that we continue to monitor and could make sense.

Just quickly on -- following up on July. You mentioned U.S. and Italy. You didn't mention the rest of Europe, Germany and Eastern Europe. Could you give us a sense for that as well, how that has started in July?

The differential of -- in volumes, and it is -- what I was mentioning before, we are less negative [indiscernible] less negative versus the year, mainly due to the easier, let's say, comparison base.

The next question comes from Mike Betts from DBA.

Yes. It's a very brief question, if I may. I'm looking at Slide 17, the price index side. And my question is on Mexico. The price there seems to decline at the end. Is that exchange rate [indiscernible]? Or...

No, no. This is due to the -- because these are all translated into euros, so no. So there is also -- no, actually, no, no, sorry, sorry. Now the price index is in local currency. So yes, you're right. There's been a movement, which is quite typical in Mexico, as you can see. I mean, if you look at 2022, it was not very different. 2023 was not very different. Kind of go up and not to go down and then, readjust, but the underlying trend has been, in any way, favorable.

Okay. And Mexico is consistently the lowest line. Does that mean it's lowest cement price in the group?

No, no, no. Again, this is the index, but it is the one that -- versus the starting point, has been growing the least. But no, no, the price in Mexico is actually pretty good right now. It's above EUR 100 if you translate it into Euro. So it's a good price.

[Operator Instructions] Mr. Buzzi, there are no more questions registered at this time, sir. Actually, excuse me, we have a follow-up from Yassine Touahri of On Field.

Now you spoke on the volume outlook. So you said that you could go to minus 2% for the full year, but the U.S. was a little bit disappointing in July. You know what's happening in July in the U.S.? Is it -- are volumes still down by 4%, 5%, like what you've seen in H1? Or -- is there any color that you could give us on what happened in July? Is it Texas? Is it the Midwest? It would be great to get a sense of what's happening.

Quite widespread, I mean there was no region actually performing better than last year in July. So yes, we didn't change as opposed to what we were initially forecasting. So we'll see. Let's look.

It was a mid-single-digit decline in volume in July again.

Sorry?

It was a decline of 4%, 5% in volume again in July?

Exactly. Correct. Yes.

And it was -- and was it weather or it was not? It was just the market ,which was a little bit weakening.

No, I don't think we can blame the weather too much. No, I don't think so. In this case, more underlying demand.

Mr. Buzzi, we have no more questions at this time, sir.

Okay. Thank you so much to everyone for listening. Happy holidays, if you haven't done it yet. And we stay in touch, as usual. Thank you.

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