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 2024 Preliminary Results and 2025 to 2027 Industrial Plan Update 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 evening, everybody, and welcome to Cementir Holding Preliminary Results for the Year 2024 and Industrial Plan Update. I'm here with our Chairman and Chief Executive, Francesco Caltagirone.

Good afternoon.

Who is here to take your questions at the end. I will go through a presentation deck that's been distributed, and I will start immediately with Page 4, where you have the preliminary results highlights, which shows that the group during 2024 has reached a revenue of EUR 1.68 billion, 0.4% year-on-year. Non-GAAP revenues were just minus 2.7% from last year. Important to note that all volumes increased in absolute terms from last year. Cement was up 0.5%. Ready-mix was up 7%, mainly driven by Turkiye, Denmark and Sweden. Aggregates were up 7.1%. Revenues were lower, mainly due to strong foreign currency headwinds, especially in Turkiye and Egypt. EBITDA reached EUR 407.3 million, 0.9% down year-on-year. Non-GAAP EBITDA was EUR 399.3 million, minus 5.4%. The lower EBITDA was recorded in all regions with the exception of Turkiye, Egypt and Sweden. It's worth mentioning that 2024 EBITDA included non-recurring expenses of EUR 4.4 million, whereas the comparable figure of 2023 included net non-recurring income of EUR 11.6 million. If we adjust for the non-recurring items, EBITDA non-GAAP was EUR 403.6 million, down 1.6% with an EBITDA margin of 24.5%. EBIT reached EUR 262 million, down 5.9% year-on-year. Non-GAAP EBIT was EUR 266.7 million, down 10.9%. Profit before taxes was EUR 284.9 million, minus 2%. Non-GAAP pretax was EUR 295.3 million, minus 6.5%. Net cash reached EUR 290.4 million at year-end, an improvement of EUR 72.8 million year-on-year, including EUR 43.5 million of dividends by the parent company, plus EUR 14 million of extraordinary dividends to subsidiaries -- by subsidiaries to third parties as well as extraordinary investments for EUR 48 million. If we turn to Page 5. As usual, at this time in the year, we provide some guidance with regards to 2025 results. We expect to reach a revenue in 2025 of EUR 1.75 billion, which is up around 6% from 2024 and EBITDA of EUR 415 million, which is up 3% year-on-year and a net cash position of around EUR 410 million, which is an increase of EUR 120 million from 2024. The CapEx, we target this around EUR 98 million. Clearly, this guidance refers to like-for-like ongoing operations, non-GAAP and excluding any extraordinary items. We now turn to Page 7. We have a few slides about the Industrial Plan. I will quickly go through Page 7, where our strategy, which is unchanged, is aimed at creating long-term value for all stakeholders. As you can see in this slide, we have 5 key pillars. One is sustainability, where we have more aggressively reduced our CO2 reduction target to 2030, as you will see shortly. I remind you that our net zero emissions are aligned to the 1.5 Celsius scenario by SBTi. We also achieved an A rating for climate change by CDP. We also announced recently one of the largest onshore CCS projects in Europe, which will be executed in Denmark by 2030. I also remind you about FUTURECEM and D-Carb, our wide array of low-carbon products. As far as the other areas, I mean, clearly, we continue to seek continuous operating efficiencies and digitize our processes, from lean manufacturing to e-procurement to smart maintenance, et cetera. We also strive to continue to innovate, focusing on low-carbon cement. And also, as mentioned before, we've started a CCS project in Denmark. With regards to growth and positioning, we want to reinforce our vertical integration model in the Nordics, Belgium and Turkiye, and we want to keep our global white cement leadership. And at the same time, given our strength of balance sheet, we want to seize any M&A opportunity, which may arise in our core businesses. With regards to people, we pursue a Zero Accident program. We are developing our human capital, and we very much nurture talent and a succession plan in the company. If you turn to Page 8, I was mentioning before the aggressive CO2 reduction target, which you can see on this slide, are both below the taxonomy CO2 levels. So, we are targeting Scope 1 emissions of 417 kilograms of CO2 per cement equivalent from 718 of the baseline. This is a reduction of 42%. And with white cement, we are targeting 653 kilogram of CO2 per ton of cement equivalent, which is 29% down from the 915 of 2020 baseline. We can also see the clinker ratio reduction, which is one of the levers we are using to achieve our targets. If you turn to Page 9, just a few words about our CCS project. We have recently announced ACCSION, which stands for Aalborg CCS using Infrastructure Onshore in North Jutland. It is a consortium with Air Liquide. It is a project that will allow us to avoid 1.5 million tons of CO2 per year. This project has been selected to receive EUR 220 million from the European Innovation Fund. The technology is cryogenic technology, Cryocap, which is an Air Liquide technology, which enables high-purity CO2 capture from cement and gray and white cement emissions. Just to mention that this project will allow the capture of CO2 and the transportation through a newly built pipeline, which will permanently store the gas in onshore storage facilities. The project should be operational from the beginning of 2030. On Page 10, some of the Industrial Plan targets. You can see here that from the actual EUR 1.65 billion, we expect to achieve by 2027 a revenue of around EUR 2 billion, which is between 6% and 7% compounded growth rate in top line. As far as EBITDA recurring from the EUR 404 million recurring EBITDA, we aim at achieving EUR 465 million, which is a compounded growth of around 5%. As far as net cash, from the EUR 290 million of cash at the end of 2024, we expect to achieve around EUR 700 million of net cash by 2027, which is an increase of EUR 410 million over the period. As you can see from Page 11, some of the main points. 6% to 7% revenue compounded growth rate driven by increased capacity in Egypt, a recovery in Denmark and Asia Pacific, slightly offset by a moderate decline in Turkiye. We expect the volumes of cement to grow around 5% compounded, RMC by 1% and 2% for aggregates. Prices should be generally stable or grow in line with inflation on average and include the Danish CO2 emission tax. EBITDA growth should be across the board, also driven by output increase and optimization in Egypt with a second line and in Belgium. We expect an increase in electricity and fuel costs, and we should be on average short of around 200,000 tons of CO2 in the 3 years of the plan. As far as EBITDA margin, you can see that we expect a mean reversion of the margin to a more sustainable 23.3%. As far as yearly CapEx, including sustainability CapEx, there's around EUR 104 million, which corresponds to a CapEx to sales ratio of between 4% and 5%. The cumulative sustainability CapEx is around EUR 53 million. You can see that on the net cash, the cumulative EUR 400 million of cash flow generation. We also expect to remunerate our shareholders with a progressive dividend payout in the 20% to 25% range. On Page 12, just a quick comparison between the old and the new plan. You can see that there is an acceleration in the expected revenue growth as well as EBITDA recurring growth. We continue to generate a significant amount of cash and we expect to continue a dependable growth trajectory. The last slide from my end, on Page 13, just a breakdown of the CapEx by year. You can see on the graph to the right of the slide that is broken down between maintenance and sustainability CapEx for each year of the Industrial Plan. Of this EUR 53 million that we expect, the main CapEx initiatives are: some facility upgrades for FUTURECEM production, switch to natural gas in Aalborg and Gaurain, CCS in Denmark, some water recycling, de-dust improvement and digitalization of main projects. This ends my short presentation. I will then leave the floor to Mr. Francesco Caltagirone to take any questions you may have. Thank you.

[Operator Instructions] First question is from Matteo Bonizzoni, Kepler Cheuvreux.

I have 2 questions basically. The first one is related to the phasing of your EBITDA growth across the 3 years. Basically, you're guiding EUR 465 million for 2027 and EUR 415 million next year. So next year, you expect EUR 10 million more EBITDA, EUR 11 million more EBITDA, but there is a significant acceleration for the '26 and '27 EUR 25 million per year. So I was willing to know the reason for this also in relation to the utilization of the additional capacity for white cement in Egypt. That's the first question.

Regarding next year compared to 2027, I mean, next year -- this year, 2025, let's say that our forecast is affected by our view in the foreign exchange, especially for Turkiye and Egypt that together account for nearly EUR 0.5 billion of revenues. We and our industrial partner, we take just the forward at the end of every exchange rate. As it happen and also last year where the Turkish lira, for example, compared to 45% of inflation, the lira devaluated only 22%, 23%. Even in fact in the last quarter of last year, we had a significant upgrade in our results. So, we have cautiously put a linear, let me say, devaluation. But if Turkiye that is starting, let me say, to converge to a more, let me say, suitable monetary policy, it might happen that the lira devaluate less than what we forecast. And even in Egypt, we have or we saw the same problem. So, let's say that if we have a devaluation of the lira that is close to what we have, let me say, that what we saw last year, we might have just a matter of recalculation of the EBITDA also for Turkiye and Egypt that is around EUR 10 million [ more ]. So this is just -- then also, we have also to consider that if Turkiye continue in its trajectory in terms of slowing down the inflation, they should be out of the IAS 29 in 2027. This means also that in our forecast, we don't have, let me say, to apply IAS 29 that anyway, as you know, it's -- let me say, usually lower the EBITDA and the profitability. So for this reason, you see a bigger gap compared, let me say, to the first year to the last year of our industrial plan because also we are considering that Turkiye should exit at the end of 2026 the IAS 29. Regarding Egypt, the new line had nearly EUR 0.5 million of capacity. And this year, we think that we are going to use nearly 50%, 60% of this. And in the next 2 or 3 years, we should go at full capacity.

Okay. Second last question is, compared to the previous plan, there is an improvement on the market assumption. So let's say that you were expecting 21.3% margin in '26 in the old plan, and now it's 23.3% in '27. So same revenues, but EUR 40 million more EBITDA compared to the previous plan 1 year after clearly. That's comes from what -- a different assumption on pricing, on cost? I don't think it's much volumes, maybe more pricing assumption or something else.

I think that even last year, if you take, let me say, our industrial plan so that we end up in 2023 with nearly 24% of profitability and we forecast to lower around 200 basis points. I mean this 200 basis points, as I say, they are mainly the conversion of the exchange rate. Here, we are just reconsidering Turkiye now, because it's 1 year more, should be just 2 years away from the exit from IAS 29 and this, let me say, bring us a better profitability. But the real profitability of the company doesn't change. It's just a matter of how it is, let me say vary, because the free cash flow of the company and that's the free cash flow before dividend, that is around EUR 200 million is the same with or without the IAS 29. So here, it's just a matter of what we expect as exchange rate for the final year. Then, more or less, let's say that we think that the mild recovery that started to materialize in the last quarter of last year should continue. The rates from the Central Bank are going, let me say, south. So we expect that some recovery to begin, especially in the Nordics. Where we still see some, let me say, weakness is still in China. That is the only country that in the 3 years industrial plan is more or less flat. All the other, let me say, country in our perimeter are, let me say, we will see some growth, especially in gray cement linked to infrastructure, and a milder, let me say, growth for white cement.

Next question is from Emanuele Gallazzi, Equita.

I have a couple of questions. The first one is on the Turkish market. If you can just provide a little bit more details about your expectation for 2025 for the Turkish market and more, let's say, for the medium term, considering the implementation of the Carbon Border Adjustment Mechanism from 2026, can you just discuss a little bit more on your view on the Turkish market evolution in the coming years? The second one is on the capital allocation. You ended 2024 with about EUR 300 million net cash. And you are expecting to end 2027 with, give or take, EUR 700 million of net cash. And you basically reiterated to be ready for potential M&A opportunities. So, just a clarification about your strategy on M&A and your view on this topic.

So, in Turkey, I mean, this year, we see a slight downturn in terms of revenues and EBITDA. But as I said, it is affected also by the exchange rate. On the other hand, you have to consider that what is happening in Syria and what might happen also in Ukraine can be very bullish for the Turkish cement environment, because you have a very -- and also in Gaza Strip. So, you have 2 huge countries, Syria and Ukraine that the cement can only arrive from Turkiye for the reconstruction and also the Gaza Strip can arrive from Turkiye. So, if this materialize or started to materialize because Syrian market starting to open again for import from Turkiye after a very long time, this can cause, let's say, a shortage of cement inside Turkiye that should more than compensate the enablement of the border tax adjustment. So, today, it's quite early to, let me say, forecast any outcome. But we think -- I mean, what we see -- what we learned from the Turkish Cement Association is that just the construction in Turkiye, in Syria, sorry, can absorb from 8 million to 10 million of cement per year for 10 years. So a huge quantity that, let me say, should affect the internal market. And this -- it's a very, let me say, bullish, let me say, scenario. But let's say it's one of the scenario. But for next year, we are cautious. And then, I mean for the '26 and '27, we see a mild, also, recovery for Turkey, not including at all any kind of reconstruction for Syria and for Ukraine and for Gaza. Regarding the cash piling, as I said, next year with the border tax adjustment and also with another cut in the free allowance, probably you have already seen that this year that the price of the CO2 went from nearly EUR 62, EUR 63 to more than EUR 80. This is because, as already said, year after year, 3% per year, the linear cut of every allowance sum up, and then we will start [ even in ] this year, let's say, that the price also might reach close to EUR 100, we think at the end of the year because we have less CO2 around. So for this reason, as I said, some of the plant that today producing cement around Europe will start, let me say, to feel the pain of the price because all you, let me say, have the possibility to capture the CO2 with the CCR project, but you will need from 3 to 5 years or you need to buy CO2 products. And this, as you can imagine, will affect the balance sheet. So, we don't want to buy any assets now because we think that, as I already said that in 2 or 3 years, some of, let me say, the plant in Europe will have a completely different, let me say, price. This doesn't mean that we want to buy and then upgrade the plant for free. But if somebody wants to sell or to close and sell the market, have to consider that you need a certain cost that you are aware of because our project in Aalborg for 1.5 million of capture will cost more than EUR 0.5 billion. And so this has to be deducted from the future price of an asset. So, for this reason, we will continue to pile up cash waiting for, let me say, better market condition to expand the company.

Next question is from Alessandro Tortora, Mediobanca.

I have 2 questions, okay, if I may. The first one is on the ACCSION project. Can you tell us basically which are the next steps to reach the final investment decision? And also in terms of funding, can you remind us your share of the total investment? I read, for instance, the possibility to apply for some carbon capture storage fund in Denmark. So just to understand, let's say, additional details on this project. This is the first question.

On ACCSION project, we think that we should end all the bureaucracy around, let me say, the first half of this year. Then we should start the implementation for -- I mean, design and engineering and order and should start, let me say, to build, to revamp, let me say, the plant starting at the end of 2027, and then we will take from -- around 30 months to build all the facility. The total cost before the grant is around EUR 550 million. The grant is EUR 220 million. Of the remaining EUR 330 million, we are going to, let me say, finance directly nearly EUR 90 million that, let me say, should, let me say, fall from 2027 to 2029. And the remaining part will be, let me say, provided by our industrial partner that is Air Liquide that will recover the cost on, let me say, on a fee per ton captured. This is simply the scheme of the project.

This investment, maybe you can provide, let's say, some update on the overall economics because I guess there is also CapEx, let's say, as you mentioned before, but also some items on the P&L side that we need probably to care about, right?

For sure. I mean this is just the CapEx, then you have the OpEx that is linked to the energy consumption. I mean 80% is energy consumption. And consider that, let's say, that today, if you need 1, let me say, unit of electric energy to produce cement, then you will need 2 more units of energy to capture and store the CO2. So this is, at the end, let me say in terms of energy consumption, will be 1 plus 2, I mean, 3 will be the cost of electricity that is the main, let me say, cost, because the other is 10% is maintenance and then other 5% are minor, let me say, things. But most of the running cost will be linked to the energy cost.

Okay. Then the second question is on the Danish CO2 emission tax. Can you comment also a little bit on this because now this is starting from, let's say, January this year. So, which kind basically your price increase, I guess, you already announced in order to cover this extra cost, but also are you confident that you're able to basically cover this price increase, this extra cost?

The price that we have estimated on our, let me say, sales -- in domestic sales in Denmark is around EUR 30 million that will be a transparent mechanism like VAT. So I think that we recover in full. The market is aware since the last 2 or 3 years that this tax will arrive. And this also is used by, let me say, the Danish government to finance the project because, I mean, besides the facility in our plant, you need the pipeline, the storage and all the other things that should be -- you know also that the -- Denmark will be the first country that from this year will tax every cow EUR 100 for the emission. So they want to be always ahead of the curve, but we are in this kind of country that, let me say, we have the opportunity. And -- but on this tax, let's say, that is affecting mainly cement and building materials, we will have this EUR 30 million that, let me say, we will fully recover because it's a tax that will apply in the invoice.

Next question is from Tobias Woerner, Stifel Europe.

A couple of questions from my side. Number one, when I look at your Turkish business, you have capacity of 5.4 million in terms of gray cement. In my model, I don't have full capacity utilization. So, in that context, you'd be able to export. But maybe give us a little bit of color which plants you can actually export from. I've got the map in front of me. I see the Adana plant and the Izmir plant. It looks like the Elazig plant might be a bit more difficult or the Kars plant. But just give us a sense of where you could actually ramp up your capacity utilization if Syria was rebuilding. And on that front, Syria rebuilding, you mentioned an annual tonnage of 8 million to 10 million tons needed to rebuild the country and that would be loadable, obviously. But at the same time, do you have an understanding of where the funding could potentially come from for that effort? And equally, around Turkiye, a more short-term trading-related question number 3. Pricing seems to have gone up in terms of what I can see from the data I follow by EUR 6 a ton in the last quarter. Is that something you've observed in your businesses as well? Or is this on the national level or maybe just a statistical mistake?

Regarding the opportunity to export from Turkiye, we mainly -- we have, let me say, a little bit more than 5 million tons of capacity, and we can export up to 1 million tons, mainly is 700,000 tons from Izmir. And then we have 150,000 tons from our plant that is the border with Bulgaria and Greece and another 150,000 tons mainly from Elazig because let me say it's 200 kilometers from the border with Syria that you have to consider that there are only a few plants on the border that can, let me say, supply cement. And today, in Syria, everything is totally destroyed. So for the first 2 or 3 years, for sure, the cement should arrive from land border partly, I think, a very small quantity by sea, but mainly from Turkiye because then Egypt doesn't have a lot of, let me say, spare capacity on the sea to export gray cement. And the other countries, Libya, Algeria are limited. So, mainly in Syria, you can arrive from Turkiye, especially from the inland border. Then the other...

The funding of that rebuilding program in Syria, whether you have any sort of indications, where that could be coming from?

I mean that some for sure today and also, I mean, behind the last, let me say, political and also military moves are for sure Turkiye behind this and Turkiye is, let me say, very [ incentivated ] to invest and to rebuild Turkiye, especially the part that the Kurdish, let me say, population is split between Iraq, Turkiye and Syria. So they want, let me say, to stabilize that part. And then, I think also it will arrive from mainly the -- mainly from Emirates, states from the other Arab countries. And so we think that -- but in the first stage, you have to rebuild mainly the roads, the deposits. And then today, it's even difficult to -- after 10 kilometers that you enter from Syria from Turkiye, you have mine -- very difficult. So it will be slow in the beginning, but then, let's say, this is what we heard in the Turkish Cement Association. And then yes, in Turkiye, let me say, the price are mainly increasing because they are following the inflation. So, with last year, 44%, that is nearly 4% per month, every couple of weeks, you have to update the list price. And sometimes, I mean, because, as I said, that you have more inflation and less devaluation in euro terms, you have an increase. So, this is a real increase, trust me. But this doesn't, let me say, it might materialize even this year or not. We don't know because if there is a decoupling another time between inflation and devaluation, we might see, let me say that in euro terms, the price will grow, let me say, in a faster pace compared to the European countries, for example.

Next question is from Bruno Permutti, Intesa Sanpaolo.

I have a few questions. The first one concern the cash you have. You were very clear in telling us that it's not the right moment to invest perhaps. But what is the long-term strategy? So, do you believe that there will come a moment in which it will be possible to invest this in the business? Or I mean, is there -- the idea could be to pursue better capital allocation perhaps by distributing the cash or, I don't know, waiting for some new investment opportunities to come? Or you believe that it's safer to buy the cash for the long term. And a second question concerns the environmental theme. We are assisting to perhaps some weakening of the, I would say, of all the green themes. Is this something that could affect the cement industry in your view? Or you believe that there will not be diminishing attention to decarbonization by 2030. I understood that you are very focused on that in your long-term -- in your 2030 strategy, but I would like to have a comment on -- from you from -- not for your position exactly, but for the position of the industry. And a last question concern Egypt. Are you seeing the depreciation -- the sudden depreciation of the pound as a one-off? Or you believe that -- so you believe that now there could be a stabilization period or you expect further the depreciation there?

Regarding I mean, what we can do with the cash, as I said, our strategy is to continue to grow in this market. Today, the reality is that if you want to buy assets, there are assets available, especially in Europe. As I said, the issue is that the price that the seller expect is not fully incorporate the cost of revamping or renovating the plant for the, let me say, future environmental limits. So, today, there is still a gap. But as I said, I think that in 24 months or round about this, we might see that some portfolio, especially in the big companies starting from, let's say, I think Holcim that, as you know, is splitting in 2 business, USA and the Rest of the World. Then we have other players they don't have -- we are aware that in some, let me say, situation, they close the plant because they don't want to sell to a third party and want to keep the market. But there are other places where, let me say, probably they are going to sell because they cannot keep the market if they close. And so here, it's a matter of when we think we will meet, let me say, our valuation with their valuation. And then we have the single-owned family plant that is a matter of cost. The more the CO2 increase, the lower the profitability they will have because the free allowance will finish. And also as you probably saw in our balance sheet, we are, let me say, short of an average of 200,000 tons for the next 3 years, but in our balance sheet, 200,000 tons in terms of cement are, let me say, fully fundable -- in other balance sheet, if you continue and then by 2030, when you will have, let me say, another 50% cap, let me say, for the next decade, then it becomes nearly impossible to survive or you think that the price will go around EUR 300 and so you can continue to keep buying CO2 between EUR 100 and EUR 150 or you have to sell, let me say, or close down. So this is -- I don't think that today in our strategy is to return to, let me say, shareholders some of the cash, but never say never. And we have today, say for the foreseeable future, we think that especially from our view in Europe and not in other parts of the world because we have this regulation that is being, let me say, enforced. And we think, going to the other questions, that Europe will continue, especially for the big industry, the cement, steel, aluminum and glass and electricity will continue in its path, consider also that even the Trump administration in less than 4 years will end up and they don't have the possibility to be reelected. And when you make this kind of investment, usually you need a path of 10 to up to 20 years. So every 4 years, 2 years, depending on which is, let me say, the wing that govern every state, you cannot, let me say, change the policy. So I think that even probably you have seen in the car industries, they might mild increase some, let me say, in terms of [ date ], but I don't think that softening of the scenario. And probably the sharp increase that we have seen in the CO2 price in the last couple of months goes in that direction because everybody expected that probably this legislation should have been sweetened, but it doesn't. It seems -- and also for the border tax adjustment, it seems that probably they will carve out the small industry, but they account just for the 5% of the emission just because it will be very difficult to track every goods that will arrive in the port or in the railway terminal would be very complicated. But for the, let me say, big industries, as they just said a few days ago, they will continue with the scheme because this will affect the 95% of the emission on that.

[ In Egypt ].

Sorry, in Egypt, I mean regarding the devaluation, it's not a matter of when -- if, but it's a matter of when. When you have inflation that is a few times every year, usually, this country try to resist, but then you see a strong devaluation of nearly 20%, 30%, even 50%. So here, it depends if we will see, in the next, let me say, months or a couple of years that the inflation will come down sharply, probably we will have a mild devaluation. Otherwise, if you have, like last year in Egypt was the inflation probably 80%, 85%, you can, let me say, keep the exchange rate at this rate probably for 1 year, yes. But then you might expect to have the impact. For us that we export nearly 80% of our -- what we produce, especially now that we have restarted the second line. And in Egypt, we have, let me say, hard currency reserve, the devaluation is, let me say, it cost -- cut our cost and increase our profitability. So, it's not negative, let me say that from time to time, the Egyptian pound will devaluate because for us -- but it's only for us because we are the very few that export from Egypt.

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

Okay. 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 nice evening. Bye.

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