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 First Half 2024 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. Good afternoon, and good morning to everybody. Welcome to Cementir Holding Half year 2024 results. I'm here with our Chairman and Chief Executive, Francesco Caltagirone. And I'm going to present very quickly go through the presentation deck that is being sent by e-mail and posted on our website. So going through the presentation deck on Page 2, the key takeaways for these results are that these results are in line with the management expectations with overall volumes up year-on-year, lower revenues and EBITDA and higher net profits. Cement, RMT and Aggregate volumes were in positive territory year-on-year. Both revenues and EBITDA were impacted by important infrastructure projects being delayed in Denmark and temporary ban on exports from Turkey to Israel. In the last 12 months, the cash flow was impacted by extraordinary investments of EUR 24 million, a higher dividend distribution, the purchase of EUR 12 million CO2 emission rates, higher CapEx, mainly linked to Belgium Kiln 4 upgrade in line with our industrial plan. Excluding one-off items, EBITDA for the first half of the year would have been higher than previous year. 2024 guidance on both EBITDA and net financial position at constant perimeter are confirmed, revenue guidance is revised downwards from around EUR 1.8 billion to EUR 1.7 billion, in line with last year. Going to Page 3, first half results highlights very quickly. Revenues reached EUR 811.8 million, down 3.4% year-on-year. Non-GAAP revenues were EUR 803.3 million, down 7.5% year-on-year. Cement volumes were probably flat, whereas RMC volumes were up 4% and Aggregates volumes were up 6%. Lower revenues were recorded in all regions with the exception of Turkey and Egypt, which recorded an increase in local currency. EBITDA for the period reached EUR 192.7 million, minus 3.9% year-on-year. Non-GAAP EBITDA was EUR 181.9 million, minus 10.1% year-on-year. The lower EBITDA was mainly in Nordic and Baltic and Asia Pacific, a better EBITDA was recorded in Belgium. A strong Forex headwind reduced EBITDA by almost EUR 20 million. Excluding nonrecurring charges and income, non-GAAP EBITDA was down 5.6% versus the first half of 2020. Non-GAAP EBITDA margin decreased from 23.3% to 22.6% due to adverse geographical mix. EBIT was down 9.7% year-on-year, non-GAAP EBIT was down 16%. Group net profit reached EUR 97 million, plus 7.4% year-on-year. Non-GAAP group net profit reached EUR 102.2 million, minus 6.9%. Net cash position reached EUR 55.4 million, an improvement of EUR 44.5 million year-on-year, including EUR 43.5 million of dividend distribution by the tariffs, an extraordinary EUR 14 million of dividend distributed by subsidiaries to third parties, some extraordinary investments of EUR 24 million, the purchase of CO2 emission rights for EUR 12 million and a higher CapEx, IFRS impact of EUR 82.1 million versus EUR 77 million last year. Going through the different regions, very quickly, Page 4 of the presentation, Nordic and Baltic accounting for around 43% of our EBITDA. In Denmark domestic cement declined due to harsh weather conditions in Q1 and a weak residential market. Fehmarn Belt, the large infrastructure project, which recently entered the operational fees that was behind schedule. Ready-mix volumes were up 2%, while aggregate volumes declined by 6%. EBITDA declined due to lower volumes and average prices despite savings on main inputs. Norway RMC sales declined by 23% due to demand slowdown and adverse weather conditions and delays on some infrastructure projects. EBITDA was down as well. The Norwegian Krona also depreciated by 1.5% versus the euro. In Sweden, ready-mix sales volumes increased by 25%, thanks to the contribution of the major projects, while aggregate volumes were down 12%. EBITDA was up year-on-year and the Swedish Krona was broadly in line with the euro average. Moving to next Page 5, Belgium and France accounting for 27% of group EBITDA. The domestic cement volumes were stable in the first half of the year with moderate growth in Q2. Exports to France and the Netherlands were down double digits, mainly due to adverse weather conditions and market weakness. Ready-mix volumes were down 15% with a more significant drop in France, while aggregate volumes were broadly flat in the first half of the year. EBITDA was up driven by lower production costs compared to H1 of 2023, which was penalized by higher extraordinary maintenance costs and the purchase of clinker from third parties due to temporary kiln shutdown. Moving to Page 6. Turkey accounting for 15% of group EBITDA. From April '22, Turkey is considered hyperinflationary. The reported figures are non-GAAP, therefore, exclude the application of IAS 29. Domestic cement volumes were up 10%, thanks to significantly higher sales in Eastern Anatolia as supported by post-earthquake reconstruction. Cement exports were up 10%, although penalized by the lack of exports to Israel as a result of the embargo. RMC volumes increased by 24% and aggregate volumes were strongly up due to the opening of a new quarry in Easter Anatolia. Revenues in euro decreased by 1.1% because of Turkish devaluation versus euro of around 58.7% versus euro average. If we exclude EUR 5 million of nonrecurring capital gain income in 2023, EBITDA declined by 7.7% year-on-year due to higher operating costs, negative effects, partially offset by higher volumes and prices. Moving to Page 7. North America accounting for 6% of our EBITDA. White cement volumes were slightly up in the period with deliveries to Texas impacted by harsh weather conditions and fewer working days with a backdrop of a residential market still suffering from higher interest rates. In Florida, deliveries were stable, while in California grew in all market segments. EBITDA was down 12% due to lower selling price due to strong competition and higher cement purchases and higher fixed costs. The U.S. was broadly in line with the euro average. Moving to Page 8. Egypt accounted for 4% of group EBITDA. In this geography, domestic white cement volumes declined by 12% due to a weak construction market and the postponement of major public projects. Export volumes were slightly down due to lower volume shipments to the U.S. because of a different timing of deliveries. Revenue in local currency was up 22.8% but in euro, they declined by 10.2% due to a 36.7% Egyptian pound devaluation versus the euro average. EBITDA increased due to higher fuel prices, partially offset by lower sales volumes and Egyptian pound devaluation. And lastly, on Page 9, Asia Pacific accounting for 5% of group EBITDA. In China, revenue decreased by 16% with volumes down by 11% and a modest client reduction, plus around 4.2% Renminbi devaluation versus the euro. Volumes were affected by the real estate prices of harsh weather and longer national holidays. EBITDA declined due to lower sales volumes and prices, higher transportation costs. If we exclude EUR 2.5 million of nonrecurring capital gains income in 2023, EBITDA decline was actually 11.9%. In Malaysia, domestic cement volumes were flat due to a weak residential sector and closures for religious holidays in April. Exports were modestly up, driven by higher shipments to the Philippines and Vietnam. EBITDA was stable to lower average prices offset by savings on variable cost, and there was also a 6% MYR devaluation versus euro average. The last couple of slides. Number 10, the guidance. As anticipated, there is only a partial revision to revenues from EUR 1.8 billion to EUR 1.7 billion, in line with the last year. EBITDA guidance of EUR 385 million is unchanged as the net cash position of around EUR 300 million at constant perimeter. CapEx also around EUR 135 million for the year is unchanged. This guidance refers to like-for-like our decarbonization commitments continues with EUR 24.7 million investment in sustainability in the period, mainly for Kiln 4 upgrade in Belgium, which will allow alternative fuel usage to increase to over 70%. Our objectives have been validated by Science Based Target Initiatives as well as our long-term climate targets in line with the 1.5°C scenario. SBTi has also approved our overall net-zero emissions target by 2050. We have been included also in the "European Climate Leaders 2024", ranking by the Financial Times and Statista. We have been confirmed as well as the leader in ESG Identity Corporate Index for the second year in a row. Lastly, we have introduced a line of white cement low-carbon brand called D-Carb launched in Europe with 15% lower CO2 initiates versus other White Portland Cement. And this ends my brief introduction, and I now leave the floor to Mr. Caltagirone to take your questions. Thank you.

Thank you. This is the Chorus Call conference operator. We will now begin the question-and-answer session. [Operator Instructions] The first question is from Matteo Bonizzoni of Kepler Cheuvreux.

I have one question. The question is the following one. We have seen different trends for the first quarter of the year on a year-on-year basis. First quarter EBITDA was down 19%. EBITDA non-GAAP adjusted was down 19% also due to weather. But in Q2, there was a positive result with EBITDA adjusted non-GAAP of around 5%. So, we are not in presence of a clear trend. But the question is, can you elaborate on the outlook for the second half, referring to your key geographies? So, the Denmark, Belgium and Turkey to assess for which reason the EBITDA in the first half could be in these geographies up or down, so providing some more color and sensitivities.

As we said that after a slow start, we expected towards the end of the first half, some rebound is something that likely in what you can see in the second quarter vis-a-vis the same quarter of last year. We have a rebound from revenues to EBITDA. So, we think that we are bottoming out in some regions. In other, we haven't seen this bounce so far, but we expect to consolidate the result towards the end of-- in the second half. As you know, the decline of the rates started with 9 months of delay. And so, we expect even with some delay that this should pick up by the end of the year. Take in account that our EBITDA has been impacted, as we say, from -- compared to last year from exceptional items that compared to last year was nearly EUR 10 million lower this year compared to last year and also from one of the factors is the Fehmarn delay and ban to Israel because it started to affecting us from April. And it is linked in the development of the situation in Gaza and Lebanon we don't know when we can restart. But for sure, both of this, we can say that the impact on a yearly basis can be more than EUR 10 million of EBITDA. So, we have the lack of nearly in the first half, EUR 5 million-EUR 6 million due to this, let's say, special cause. Regarding the geography, United States is performing quite well. I mean, in the second quarter, Asia Pacific is still down and Turkey is continuing to perform quite satisfactory. You also have to understand that Turkey inflation is [ sifting ] and also devaluation that in the first half have been mild, but the devaluation in the Egyptian pound has been quite strong, nearly 50%. And also, as we also said last time, the EBITDA is also impacted by the hedging that we bring forward in energy and CO2. This means that as you are seeing, we have a very strong result in the financial items. I mean part of this result is because we hedged the on energy and CO2. So, we see the extra profit in the financial items. But on the contrary, we see a lower EBITDA. So, we are going to normalize even the-- I can say that more or less the EBITDA is in line with last year. France is affected by the end of the infrastructure [indiscernible]. So, this is a one of the factor. And so, we don't think that is already budgeted in our, let me say, forecast. And so, we don't think that this kind of consumption can come back soon. But let's say, Belgium seems that is more resilient than what we expected. Also, my personal comment on the first half results is besides nearly 3.5% decrease in the revenues. We succeeded in-- and also if you consider the second half of the last year, the company seems to be quite resilient to the downward pressure in revenues and in quantity. Also, quantity, we have seen a rebound for stabilization. So, it seems that we should be bottoming out. And the question mark is, let me say, economic framework, the U.S. election and the war that are around us. But these are not predictable in full.

[Operator Instructions] The next question is from Alessandro Tortora of Mediobanca.

I have 2 questions. The first one is on the price trend by country. Can you comment a little bit about the sequential trend in your major countries? As you mentioned before, on the volume side, there are some countries that are bottoming out, some other still looking for the bottom. So, if you can also help us understand the trend on the price side, where maybe you still see some price increase or some, let's say, adjustment on the price listings? And on the other side, where you're observing, let's say, some more competitive environment on the price side, that's the first question. And then the second one is on, if you can also give us an any update on the planned initiative on the carbon capture side. I remember that in the last conference call, you mentioned, let's say, still assessment on the major technology you would use on the carbon capture side. But do you have in mind let's say a deadline, I don't know, 2025 in order to assess and then start any major project on the carbon capture side?

So regarding the price, we are seeing more or less, let say the prices are stable. We don't see besides some persistent pressure on the volume that the price are let say that we don't see any price pressure downwards. In a country like Turkey and Egypt for the inflation, need to be adjusted weekly. And so there is a [indiscernible] In Turkey and Egypt because of this very high inflation, the price are adjusted on a weekly basis. But at the end, the new returns are more or less stable. So, I don't see in the old perimeter any, let me say, particular pressure from the price and especially on the profitability that also you have seen, it's more or less stable. Regarding the investment on the CCS, we are, let me say, we applied for the innovation fund for the plant aboard. We wait for an official answer by November, which has technology free of carbon that is the technology -- it's a retrofit of the plant that capture the CO2 [ and the stock ] trying to freeze the smoke to minus 90 and above and where the CO2 becomes weak. This is just very simple. So, this is the technology that we have chosen but we need to understand if the project will be financed by the European community and by the government of Denmark and we will need another 2 or 3 months. So, at this moment, we just inclined and we wait for an answer like a lot of other projects in different sectors because the commission, as you can imagine with the election, are going to be let me say renewed during this month. And so, they will need, I think, 2 or 3 months or even 4 to check all the documents and also to ask questions about this approach.

And so just if I may a quick follow-up also on your, let's say, in your guidance on the sales side. So basically, considering the price assumption, but also the volume assumption you made. The guidance on the sales side was adjusted for FX and also for-- basically, what are the main factors? So just to understand the...

The 2 factors that brought the-- I mean, the revenue is down, as I said, there's a slow start of Fehmarn that should pick up later. And the ban of exports towards Israel because we export more than 200,000 tons. So it's about, let me say, a few times of [ U.S. ] But with these 2 things in place, I think that our guidance should have been, let me say, less at the same level. So, we have 2 special aspect that is sitting at this-- I mean, it's 80% of the gap on the revenues. The other 20% are minor adjustments in every single geography. So, the Forex because as you can imagine, selling in Egyptian pound and Turkish lira, when you translate in euro, let me say, you have a downward revision of the price.

The next question is from Tobias Woerner of Stifel.

In terms of your costs, can you sort of go through your various components, cost components, where you see either stable increasing or falling costs? I mean, gas is not important for you, but gas is an interesting example where the prices went up early summer but started to come down. So just to get a sense around your energy costs on the one hand, your wage bill? And any other sort of important costs you may want to highlight here.

The cost structure, let's say, for raw materials is, for sure, on downward. So, we are seeing better cost structure. In terms of personnel cost, it is more or less close to the inflation factor. So, it's up 3%. And also, I mean, dispatching cost by sea or by land are more or less stable. So, we continue to see some possibility to lower the cost for the energy and electricity, personnel and shipment cost are still more. But, let's say, the volatility that we saw in the last couple of years, it seems that it is behind us, and now it's just, let me say, small adjustment. And also, this is because we have most of our cost of electricity and coal. So it's beginning I mean, for sure for this year, but I think also for the next year, a more fixed price cost than a variable cost.

And when we look at Turkey, it seems to continue to defy gravity, I mean, how do you see the second half of the year in terms of volumes? Have we started to hit a peak where it should start to stabilize or roll over?

I mean, third year as you know is affected by the big earthquake and also by the bigger export flow that's still at the rate of 20 million- 25 million tons. So, this is affecting the domestic market for [indiscernible]. And for sure, when you have the rates that compared to 12 months ago, increased from 15% to 50%. The economy is hit. But for sure, with inflation of 70%, the real estate investment is something that preserve you from the decline of valuation. So, there are these 2 different sources, one headwind and one tailwind that we see balance, let's say, for this and next year. So, it's an economy where when you have 70% of inflation can adjust to a plus 5% or minus 5% in terms of consumption. But also, if we look at the GDP, that it seems to be around 4% or 5% since that. And also, you have to consider that the general environment of the energy cost, like Italy or like Spain and Germany, where these country use a lot of, let me say, imported energy with the downward pressure of the balance of payment has some relief. And also, we are also considering that Turkey in the first 6 months succeeding yield 12 billion of hard currency reserves. So, it seems that the things are starting to normalizing. We don't see a major factor of downward revision to consumption and price, but volatility is always behind the government.

And if I may ask, has the third quarter started well? Especially in those countries where weather was an issue such as North America?

I mean the third quarter, it seems that it's in line with what we have seen so far. So even slightly better, I can say in some areas. But I think that, let's say, today, we have our EBITDA that is nearly exactly the half of our guidance. And so, we expect and we hope that if the things continue and has been confirmed by September, let's say, I hope cross fingers that we might, let me say, revise the [ inferred ] but that is in October, November.

[Operator Instructions] There's a last question from Giuseppe Grimaldi of BNP Paribas.

Thanks for the presentation. I have just a very quick one on the CapEx. You have announced an investment in H1 in a concrete plan and the minority investment in Denmark. If you could add a bit more color on this capital allocation decision.

Yes, it's a small investment compared to our perimeter. It's a bit shy of EUR 20 million. It's a pre-ready mix plant and couple of aggregates pouring that complete our, let me say, perimeter and announce a bit of the profitability. As you know, we are the only player in the end market, also we need the profile and size at this. It's value accretive. It's not a defensive move, but it's a small investment. That's all.

Was it something that was already included in your guidance, if I understood correctly?

No. I mean all the extraordinary, I mean what we said about the CO2, I mean, right acquisition. The acquisition of these assets and also the enlargement of the quarry in Malaysia that is about EUR 6 million. So around about [indiscernible] its about 35%, including the CO2 EUR 35 million, EUR 36 million was not included in the guidance.

Gentlemen this was the last question. Back to you for any closing remarks you may have.

So thank you very much for your interest in Cementir, and we wish you a pleasant rest of your day and evening. Bye-bye. Thank you. Have a good evening. Bye.

Bye-bye.

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