Cementir Holding N.V. (CEM) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Cementir Holding Third Quarter 2023 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Marco Maria Bianconi, Head of M&A and Investor Relations. Please go ahead, sir.

Thank you, and welcome, everybody, to Cementir Holding the first 9 months results highlights. I'm here with Mr. Francesco Caltagirone, our Chairman and Chief Executive. this afternoon, who is ready to take your questions at the end. I have 2 pages deck that is being distributed. So I will immediately comment on Page 2 with the results highlights. The group reported EUR 1.295 billion of revenues on a GAAP basis and on a non-GAAP basis revenue reached EUR 1.288 billion, up 0.8% year-over-year. Cement volumes were down by around 3.1%, mainly due to Denmark, Belgium West, Malaysia and Egypt partial offset by growth in Trakya and China. Both, ratings and aggregate volumes were down in the period by 10% and 11%, respectively. EBITDA reached EUR 326.2 million, up 36.9% year-over-year and non-GAAP EBITDA was EUR 341.1 million, up 32.6% was higher EBITDA in all regions, except for the U.S. EBITDA includes a nonrecurring income of EUR 13.5 million, mainly related to gains on asset sales including those nonrecurring items, non-GAAP EBITDA reached EUR 307.6 million, up 27% on a like-for-like basis. Non-GAAP EBITDA margin grew from 18.9% to 24.9%. Non-GAAP EBIT reached EUR 234 million, up 49.5% year-over-year. GAAP EBIT was up 59.7% to EUR 231.7 million. Pretax was EUR 241.3 million, up 50% year-over-year. Non-GAAP pretax was up 60% to $246.4 million. The net cash position at the end of the period was EUR 45.5 million, an improvement of EUR 75.4 million year-on-year, including EUR 34.2 million of dividend distribution and impact IFRS 16 of EUR 84.2 million versus EUR 66 million of the last year. If you turn the page to the most important subsidiary that Nordic & Baltic, accounting for 44% of group EBITDA in the period. Here, you can see that Denmark cement volumes in Denmark declined because of low demand in the residential market, partially compensated by the Infrastructure segment. Both revenues and aggregate volumes were down by 20% and 8%, respectively. EBITDA, though increased, thanks to careful management of energy and distribution costs and will return to a pre-COVID profitability levels. EBITDA includes also a nonrecurring EUR 6.8 million gain from asset sales. In Norway, [indiscernible] sales volumes were down by 34%, mainly due to residential and commercial slowdown, higher competition and some delays in new infrastructure programs. There was an EBITDA contraction due to lower volumes and higher operating costs. On top, the Norwegian kroner depreciated by around 13.4% versus the euro. In Sweden, RMC and aggregates sales volumes were sharply down around 46% and 15%, respectively, as a result of the residential demand slow. EBITDA contraction was due to lower volumes and higher operating costs. On top, the Swedish kroner depreciated by around 9% versus the euro. If you turn to Page 4 Belgium and France, accounting for around 22% of group EBITDA. Cement volumes declined by 8%, mostly due to a generalized demand slowdown and also revenue volumes were down by around 8%, both in Belgium and in France. Aggregate volumes were down 13%, both on the domestic and on the export markets, also due to particularly good performance in the previous period. EBITDA, though increased, thanks to time operating cost control and increasing selling price. Turning to Page 5, Turkiye accounts for around 18% of good EBITDA. Here, we have to remind you that from April 2022 Turkiye is considered hyperinflationary and as a result investor prepared according to 129 accounting principles. Those figures are non-GAAP to make them comfortable with the operating performance of last year. In historic revenue increased by 31.5% with domestic cement volumes up 19%, thanks to significantly higher sales in Marmara and Eastern Mediterranean. Part of this demand is due to many projects driven by [indiscernible]. And export were down by 34% as sales were redirected on the more profitable domestic markets. RMC volumes were up 8% and aggregate volumes were stable due to temporary operation issues. EBITDA reached $58 million, driven by cement prices more than offsetting production cost increase and currency devaluation. This figure includes non-recurring EUR 4.5 million of gains on asset sales and excluding sectional recurring items, EBITDA would have reached EUR 53.5 million, up 163% on a like-for-like basis. We have to remind you that there was a devaluation of the Turkish lira of 43.1% versus the euro average exchange rate in the period. Then to page #6, the United States, white cement volumes in the U.S.A. declined by 16%, in line with the residential markets, especially deliveries to Texas and Florida suffered from a stronger contraction due to competitive pressure from imports and lower demand. More moderate decline was visible in New York and in California. EBITDA was down due to lower cement volumes and higher variable costs, only partially offset by higher average prices. There was also a higher contribution from our subsidiaries and by operating in the concrete products business. Also, here there was a 1.8% USD devaluation versus the Euro average exchange rates. Moving to Asia Pacific on Page 7. Here, you can see that China -- in China, revenue were broadly -- was broadly flat due to 15% volume growth, offset by lower cement prices. In Q1 of this year, cement sales were negatively affected by lockdowns. In Q2 and Q3, volumes were up by competition with pressure on pricing. EBITDA includes a nonrecurring EUR 2.1 million gain from asset disposals, excluding such nonrecurring items. EBITDA would have been down by around 6% year-over-year as higher volumes would not offset declining price, was also an 8.6% CNY depreciation versus Euro average. In Malaysia, on the other hand, revenue declined by 7.9% with a 16% volume growth. While cement exports were down 19%, driven by a decline in clinker exports, a different calendar for shipments and lower deliveries to some countries. Domestic volumes increased by 23% as a result of good recovery in the construction markets. As a result of higher prices and capital management of free cost and variable cost, EBITDA increased in Malaysia. There was also 6% MYR Malaysia bring devaluation versus the Euro average same rates. On page 8 to the last, [indiscernible] Egypt, here, revenue declined by 14.2% because of the strong devaluation of the Egyptian pound versus the euro. In local currency, revenue were up by 49.6%. While cement volumes were stable, both on the domestic deliveries and exports. The EBITDA up, thanks to tight production cost control and higher selling prices despite the negative effect over 74% Egyptian pound devaluation versus the Euro average. The last slide of this presentation is the full year guidance. we are further upgrading our EBITDA expectations. The revenue forecast for the year is unchanged at around EUR 1.8 billion. The EBITDA is up by around 4% from the previous guidance of EUR 365 million. We now expect to reach around EUR 380 million for the year. It is unchanged, the target of reaching over EUR 200 million of net cash and a CapEx of around EUR 113 million. This guidance refers to like-for-like ongoing operations, non-GAAP excluding any extraordinary items. With this, my presentation ends, and I leave the floor to our Chairman and Chief Executive, for any questions you may have.

[Operator Instructions] The first question is from Emanuele Gallazzi with Equita.

I have 2 questions. The first one is on the guidance, which seems again too cautious as it implies a fourth quarter EBITDA down more than 20% year-on-year with margins materially down despite a strong performance in the first 9 months. Can you just elaborate more on the assumptions behind the new guidance to understand if this, let's say, cautious approach is driven by volumes or cost assumptions? And my second question is about pricing hiding 2024. You are starting the discussion with your clients in the Nordics region. Can you give us a sense of your expectation for prices in 2024?

Yes. About the guidance, we increased a little bit and not further more just because the previous quarter, we were, let me say, facing one more, and now we are facing to water. And as you know, we have one plant that is in Egypt that is close, let me say, in the Sinai region. So we don't know. It's just a cautious approach because, frankly, leasing, as you say, if you just probably a linear and a development of the EBITDA we have done so far or the rolling 12 months of our EBITDA, you reach a number that is above EUR 400 million. But as we said, we don't want to be supported because it is something going wrong, then we don't want, let me say, to overestimate, let me say, our capabilities to overcome. So the market, I think that the key research method in these numbers is that the very strong resilience of the group, almost everywhere because if we look at the decline of the market in terms of volume that is roughly around 20% in the Nordics and around 10% in the region of France up areas for us, then you see that we increased our EBITDA on a non-GAAP basis around 30%. So in the past, this kind of downturn, we should have, let me say, lost nearly 20% to 30% of the EBITDA. While this time, we increased because of the positioning because of the white cement, because of the cost structure and because also the hedging that we did on the energy. And about pricing for the next year, it seems that there is rental and say any energy issue related to the price -- pressure to the price. I don't think really because also this year, we are seeing a decline in raw material and energy that there is space for a further increase. Also, CO2, you have seen that especially in the last 2 or 3 weeks, it is, let me say, below 80. But let's say that keeping this kind of price and if, let's say, we are just starting to see somewhere bottoming in terms of the downturn. So on the third quarter, especially, we look at the quantities, for example, on the old group, we have a positive and you say, quarter-on-quarter increase compared to an overall decrease of nearly 7%. And also the decrease on ready mix and aggregate is going down. So these [indiscernible] matters that we are out or that the downturn in the economy is at the end, but we are seeing a sign of a stability ratio. This, let's say, doesn't consider anywhere outcome from this Middle East start and Ukraine and Russia, let me say, Rome. But I think that the company, I'm very happy how the company went through this sort of recession because in the last 2 quarters, we saw a quite sharp in turn, especially in the quant Nordics and in France, but the numbers and the way we manage the compatibilization and everything that is to say behind the management of the company compared to the last downturn that it was around 2013, 2014, and 2015, the company is responding in a completely different way. We have also to consider that these numbers are, let's say, we are at 6 weeks, even 5 weeks away from the end of the year because, let me say, after the half of December, let me say the market, let me say close, in terms of consumption. So, October went in line with the numbers that we are giving you. And so we are already in the first week of November, let me say something there, let me say other should happen. But anyway, we are projected on the number that we expected for the 2025 in terms of the EBITDA. The revenues and also the net financial profits and the revenues probably will be at least lower than 1.8% because we have to consider one, is the softness of the market in the Nordics and in Northern Europe. On the other side that even if the Turkey is producing a very good result in euro, but the devaluation of the Turkish lira, let's say, hit a bit let me say [indiscernible]. You have seen that we have increased nearly 6 or 7 points of the profitability. So this is I think is the key message. So we don't see any short any, let's say, some function increase in the price in Europe. The only country that, let's say, might -- I mean, looking at 2024, might, let's say, suffered might be Turkey because they are changing the let say, the monetary policy that are tightening and they are increasing the rates. But the market, especially for the recent take seems well supportive in terms of consumption and also indeed won't be placed in 2026 or so for another cover year the export market is quite strong. So I don't know which will be the inflation of the terminal exchange rate for this year or next year, but let's say, the difficult part to forecast for us, let's say, it's mainly tech.

The next question is from Emanuele Negri with Mediobanca.

I have actually just one follow-up on the answer before. I kind of on Turkey, you were talking about before. So can you explain a bit better what do you expect in terms of volumes for the ready in Turkey, given the Japan situation and the earthquake and all the other things you mentioned before.

The volumes this year are after lease -- over the rolling 12 months are a little bit below 10% in terms of volume. This is for Turkey. Looking forward, let's say, as I said, the export markets should not change because, let's say, we continue to have the opportunity to export the Europe and the other country without let say, the CO2 for another car. The total market that is mainly in some parts and we say that it's a portion that is can you say, we have ways to hit nearly 12 million of people. So Turkey is 3x income in terms of size. So, we don't know if the increase in the rates might let me say decrease over month, but also what we expect is just that in the Northern Europe and in the Northeast, the market should normalize. So what we might, let me say loss on in Turkey should be recovered on Europe.

So if you start assuming that you are trying to consolidate the EBITDA for the next year, let's say, excluding the impact from Turkey and all the other regions?

Repeat the questions, we couldn't hear you well.

Sorry, can you hear me now?

Yes, that's better. Thank you.

Okay. So the target for 2024, is it fair to assume that you are trying to consolidate the EBITDA very early this year for the next year, excluding the impact from Turkey, which is kind of a mess.

These is performing well and has a very strong demography and let's say that we will, let me say, as you know, during end of January, early February, we give year-to-date on the industrial plan. We are a closing at the end of November, our, let me say, 4 accounts for the next year. So at this point, I think that, let's say, a company that in 1 year, reached the 3-year target, let me say, we need to understand where we can go because if you will see then that just the volume in Nordic and or Europe should recover in 2 or 3 years, not in 1 year and say not tomorrow, and we maintain this kind of profitability drive the margin where the company can arrive. So this is, I mean, the important thing from our point of view. So East Turkey then will produce EUR 5 million or EUR 5 million more of EBITDA. And you say, considering that around now EUR 400 million of EBITDA, EUR 5 million, 1%. So the sensitivity at this moment is not, let me say we can't have this type of sensitivity now, when we close the year and in January, February, when we have the numbers exchange the final exchange rate and everything in place, probably we will have a better view.

If I may interject what the Chairman has just said, I mean you're right in seeing that we are looking to consolidate the results next year, and that's correct. I think the elephant in the room is that is probably the difficulty to forecast exchange rates. So looking at the business in isolation, there are 2 data points that I think are worth noticing. One is that with the perimeter we have today, we're approaching a record profitability in tailed terms looking back the history of the company. So I think we are very happy and I think it's performing extremely well. Clearly, going into next year, we'll have difficult comps because this year, there was a strong recovery. And so clearly, that is just a law of comparable numbers that would make the difference a bit less pronounced as it was this year. But again, we're confident the business can still do well with a bit of each of sort in emerging markets, it's always difficult to forecast accurately what's going to happen. And that's what we retreated today about time.

And we, if you look at Page 5 of the presentation, you can see that on the non-GAAP, Turkey is nearly 3x the EBITDA of last year. I think that the issue of our company is that probably having net financial position that will be for sure about EUR 200 million because we have higher EBITDA and EBITDA, let's say, between EUR 380 million and EUR 400 million. The company value, you can do them up. The issue, I think, is not Turkey is not doing EUR 10 million or EUR 20 million more or less. I insist that the company is discounting a lot of value. I don't know why compared to the other deals, even if we have a premium product, we are well, let me say, balanced in terms of geographical portfolio. We go some time also in the past few years, I heard that some of you saying why do we exit Turkey. The reason why I didn't exit Turkey this as you can see now. And so, it seems like we are bound. When Turkey goes down, more tested sales figures are not done. So we are balanced, and we are going continue to improve our results even in a difficult market situation. So let's say, this is my personal thought. But also on the energy and the other raw material, I think that the company is well hedged for the next 2 or 3 years. And also today, we have the gas situation and the electricity situation that is completely different than last year. So it seems besides the price, but the situation is more stable.

The next question is from Bruno Permutti with Intesa Sanpaolo.

I have some questions on the cost side. So what are you seeing because of pricing, you said for 2024, we do not see increases in Europe. But if I have understood, you do not see decreases. So what could go wrong next year, I was wondering if there's something on the cost side that could hamper the group's profitability or not, I mean, the personnel cost or how much are you hedged on the energy costs and at which price. So these are, I believe the asset and above all the volume trend. So if you -- how do you see volumes to board next year? And so, is this something that could be awarded for the absorption of structural cost or fixed costs or not? I would like to add some comments on this asset because I believe that probably the care of the market on the industry is related above all on the ability to react to possibly lower volumes next year. And if I may, a second question concerns the M&A, if nothing changed compared to in the last call. or if you see something different in your scenario for M&A for 2024.

Regarding the cost structure, if you see in the last 4 years, earnings -- so I think that when you buy, let's say, a share of the company you buy the product, but also to buy the management right. So look at the last 4 years of the company with the bite energy side with the war Ukraine, I think that you should see that we were able to manage very different and where situation, I think, in a brilliant way because every year, we made a record with the same payment. So I don't know if next year, we will have a third war or something. But without, let me say, external factor, I don't see major tract in the cost side because most of our cost is energy, electricity, gas or coal. And let's say that we are ahead then and also [indiscernible] as I already said, and you are aware that most of the play pass directly to the final customer. So it's just, let's say a tax, it's not the cost. So this is my very, let me say, brief answer. On M&A, we are still at the same point. So we need that understand best server. And we see that in the last 12, 18 months, we have a better visibility for sure on the technology that might be, let me say, used for carbon capture. And the other issue is the registration because there are plans towards registration you as other plans with the registration, let's say, you need to put on a truck and then transport to another place and might postpone but, the level of solution and also the number of solutions that we are seeing in the last 6 months seems that, let's say, in 6, 12 months, we should reach from our point of view, a good idea of what might be, let me say, the cost of the CapEx and the OpEx of Carbon Capture and [indiscernible]. So far, let's say, we are still waiting just to understand better. But for sure, there are, from our point of view, we are, let me say, healthy to have only 2 plants in Europe. So we need to upgrade the retrofit whatever it will be the technology just to plant a lot of plants. I think that we will have 3 different kind of, let say, of player. Those players who can, let me say, use technology that probably are 2 or 3 technology that will have a cost, and they have the money to that. Then there are players who can use this technology, but they are very far away from where they can, let me say, do the [indiscernible], and this will increase in -- I mean I say from EUR 50 to EUR 100 only for [indiscernible] not to cancel, and this might change or affect the cost. And so for us, this kind of plant is out of, let me say, site. And then there are other plants who is where it is not convenient because they are too little or too old to, let me say, do any kind of update. So we are flustering, let's say, Europe, which kind of plant from our point of view, if the solution a DOC will be, let me say, used. And then when we have the numbers and the development of this number, we can, let me say, have an idea where we would like to invest. This is one thing. The other thing is that if there is somebody that would like to buy those assets. But for sure, from I point of view, there are a substantial number of plant revenue cannot upgrade the refit or they are too far from, let's say, the [indiscernible] side. They are logical mark around and player are aware. I don't know if you are aware. But there are some parts of Europe where it's impossible to [indiscernible]. And those plans for my point of view will not survive. But you now, where are the geographical part of year, but there are 2 geographical clusters where we cannot make any end of [indiscernible], captures. So it's the only solution, but I think that we are nearly 5 years behind Carbon capture is to combine CO2 with hydrogen. So what last time from the moment that next year will be year to 2030. So those plants is the cost of synthetic hydrogen will not grow significantly from EUR 8 per ton to EUR 2 per think it is difficult to combine and to have a byproduct that you can sell in the market and then they can update the total cost of the food cost of those cements. I hope that you have a clear picture of what is, let me say, the game is not the M&A. The game is that where and how much you have to invest and if you ask the plant or if you can survive or if you just, let me say, need to wait because the plant close to you will close, and you can take the market without any kind of investment.

It is very interesting. And okay. If I may, it's not related to this issue. But I was wondering as you have the activity the assets in Egypt. Did you see a change in the rebound of the internal market following the beginning of the war in Israel for now, no impact at all?

For the time being, the situation has improved because usually, we are in the middle of the desert with, let me say, a level of securities that is, let's say, EUR 1 million. Now with the development and this situation there is much more, let me say, presence of military. The 4 [Coverance] used for, let me say, humanitarian let me say Egypt, and so the situation for the time being is better than 1 month ago, I mean, from our point of view. So I don't know, but I don't think that Egypt is ready to open the gate and like Turkey with Syria and to receive 1 million or 0.5 million of refugees, even because you have don't see the that you have the desert on the other side. So the refugees that might arrive in Egypt find, let me say, just to send no water and infrastructure. So it's different than the border between Syria and Turkey, where you have water where, let me say, the land is normal. So I really don't think that we might see a big flow of refugees that will arise from Palestine to Egypt also from this, let me say, logistic issue.

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

Thank you very much for your interest in Cementir Holding, and I wish you a pleasant rest of your day. Thank you.

Thank you. Have a nice evening. Bye.

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