Cementir Holding N.V. (NL0013995087.SG) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Cementir 2025 First Half Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Marco Maria Bianconi, Head of M&A and Investor Relations. Please go ahead.

Thank you. Welcome, everybody to Cementir Holding first half 2025 results. I'm here with Francesco Caltagirone, our Chairman and Chief Executive.

Good afternoon.

Who will be happy to take your questions at the end of my short presentation deck, which has been distributed. So I will immediately go to Page #2 of the presentation, key takeaways. On the first half '25 results, the first point is that they are in line with management expectations with overall cement sales volumes stable, albeit accelerating in Q2 as far as cement and aggregates are concerned, slightly higher revenues and lower EBITDA compared to the first half of last year, mainly due to negative currency impact and nonrecurring charges. EBITDA improvement in the Nordic and Baltic region was offset by a reduction in all other regions and a EUR 7 million negative exchange rate effect. Two nonrecurring events affected healthier operating performance. The first was a fire in the alternative fuels feeding system at the Gaurain plant in Belgium. The second one, some technical issues during the restart of the second production line in Egypt and the postponement of some cement shipments. As far as the 2025 guidance, all targets are confirmed, excluding nonrecurring charges and despite a very uncertain commercial and geopolitical backdrop. Moving to Page 3 with the main first half results highlights. Revenue reached EUR 796.7 million, minus 1.9% year-over-year. Non-GAAP revenues were up 0.5% year-on-year to EUR 807.1 million. There was a higher revenue in Nordic and Baltic, in Türkiye and Malaysia with some FX headwinds in both Turkey and Egypt and lower revenue in all the other regions. Cement volumes were broadly stable, thanks to growth in Türkiye, Nordic and Baltic and Malaysia and the general decline in the other regions. RMC volumes were up 1.5% driven by the positive performance of Türkiye and Norway and Belgium, while declined in Denmark and Sweden, whereas aggregate volumes were up by 4.8%. The EBITDA reached EUR 173.5 million, down 9.9% year-over-year. Non-GAAP EBITDA was EUR 171.5 million, down 5.7%. Lower EBITDA was due mainly to negative exchange rate of EUR 7 million and nonrecurring charges. Non-GAAP EBITDA margin reached 21.2% from 22.6% in the first half of 2024. EBIT was down 18.5% to EUR 102 million. Non-GAAP EBIT was down 12.5% to EUR 105 million. Financial result was EUR 2.7 million, down from the EUR 22.1 million recorded in the first half of last year, which was due to a one-off lower net FX income. Group net profit was down 24.2% to EUR 73.5 million, non-GAAP group net profit was down 20.4% to EUR 81.4 million. Net cash reached EUR 144 million, an improvement of EUR 88.6 million year-on-year, including EUR 43.5 million of dividends by the parent company, EUR 6 million dividends to minorities and equity investments in Egypt of EUR 30 million. Turning the page to #5, Nordic and Baltic accounting for roughly 50% of our group business. Here, Denmark, is the most important country. Grey domestic cement volumes were slightly down versus the first half of last year with a more marked decline for white domestic cement with a still weak residential sector. Exports were up 7%, mainly to -- due to higher deliveries in Norway and Iceland. Ready-mix volumes were down 4%, whereas aggregate volumes were up 16% with demand remaining strong. EBITDA was up 5.2% year-over-year, mainly due to the positive contribution of cement, some savings in purchasing costs, fuel and electricity consumption. Norway, ready-mix sales volumes were up 10% due to favorable weather conditions and the startup of some major projects. There were signs of a slight market recovery, although, overcapacity and price competition impacted the results. EBITDA improved, thanks to higher volumes and the Norwegian krone in the period depreciated by 1.5% versus euro. In Sweden, ready-mix sales volumes were down moderately, while aggregate volumes were down around 4% due to the lack of new infrastructure projects and some excess production capacity. EBITDA was up from last year and the Swedish krone revaluated by 3% versus the euro average. Turning page to #5, Belgium and France, accounting for some 27% of group -- share of group EBITDA. Domestic cement volumes in this region declined by around 8% in the first half due to persistently weak demand. Exports also fell by around 7%, even though they showed an improvement over Q1 '25 due to the slowdown in construction activity, mainly in Northern France and a temporary closure of a railway line. Ready-mix volumes were up 2%, driven by the continuation of major projects and despite harsh weather conditions in January. Aggregate volumes were broadly flat from last year. EBITDA was down mainly due to the cement segment penalized by lower cement sales volumes, higher electricity costs and nonrecurring charges due to the fire in the alternative fuels feeding system at the Gaurain plant. Turning page to #6. Türkiye, accounting for 12% of our group EBITDA. From April 2022, you know that Türkiye is considered hyperinflationary. So we're just looking at the non-GAAP figures. Domestic cement volumes were up by 5%, with a strong rebound in Q2 despite ongoing macroeconomic challenges. Cement and clinker exports were up 2% despite the export ban to Israel, which is effective since the second quarter of last year. Ready-mix volumes were up 2%, supported by 2 new plants and aggregate volumes were up by 19%. Revenue was up 5%, thanks to higher volumes and prices across all segments despite the Turkish lira devaluation. EBITDA was down 25% due to rising costs, particularly personnel expenses, mainly driven by seasonal inflation-related wage dynamics, which led to a retroactive salary adjustment from the beginning of the year. Kars plant sale is in progress with closing expected by year-end. There was in the period at around 20% Turkish lira devaluation versus the euro average. Turning to Page 7, North America, accounting for around 7% of group EBITDA. Volume -- white cement volume were down around 3% with some improvement in the second quarter. The residential market remains under pressure due to high mortgage rates amid persistent inflation. Texas saw the sharpest decline impacted by adverse weather and supply disruptions. The York region experienced a milder decline mainly due to colder than average winter temperatures, while California and Florida posted moderate sales growth. EBITDA was down only slightly, thanks to good cost control. In the period, the U.S. dollar devaluated by an average of 1% versus the Europe. Turning to Page 8. Asia Pacific accounted for 4% of group EBITDA Revenue in China was down by 11.5% due to lower selling prices in a context of segment demand and delayed effects from government stimulus measures. EBITDA was down 31.9% affected by weaker pricing despite only a slight decrease in volumes. The renminbi are revalued by 1.6% versus the euro average. In Malaysia, on the contrary, revenue increased by 1.1%, driven by higher sales volumes, mainly exports. Total volumes were up 10%, mainly due to large clinker shipments to Australia. Domestic volume, on the contrary, though marginal in volume declined by 10%, also due to orders brought forward to December '24 and some delays in major projects. The EBITDA declined by 18.1% due to lower export prices, reflecting a different product and destination mix, despite some cost savings and higher volumes. In the period, the Malaysia ringgit revalued by 6.5% versus the euro average. The last region on Page 9, Egypt, accounting for 3% of group EBITDA. Revenue declined by 11%, mainly due to the 23% depreciation of the Egyptian pound despite a 9% increase in local currency revenue. While cement volumes declined by around 2%, impacted by weak second quarter, mainly due to lower export linked to the postponement of shipments for technical reasons. Domestic market was soft in early '25 but showed signs of recovery in June with still high inflation, currency devaluation, rising energy costs and some pressure on manufacturing. EBITDA was down mainly due to higher operating costs, only partially offset by a more favorable product mix and higher selling prices. Nonrecurring costs related to the reactivation of a second production line idle for 9 years caused production disruption at the El Arish plant. In the period, the Egyptian pound devalued by around 23% versus the euro average. Just a few highlights about the nonfinancial aspects. Our decarbonization commitment continues. CO2 emissions per ton of grey cement were down 3% to 616 kilograms. CO2 emission per ton of white cement were slightly higher to 862 kilograms. We were recognized by Sustainalytics as an ESG Industry Top-Rated company for the second consecutive year. We achieved an A score in climate change by CDP, an A- score in CDP Water for the third consecutive year. In March '25, Cementir and Air Liquide officially signed a $220 million grant agreement with the European Innovation Fund for the ACCSION carbon capture and storage project in Denmark. The project will enable the avoidance of 1.5 million tons of CO2 emissions per year once fully operational. We were included also in the Europe's Climate Leaders 2025 ranking by the Financial Times and Statista. D-Carb, the first low-carbon white cement brand was launched in Malaysia with a 12% lower CO2 emissions versus Aalborg white cement. We were also included in the World's Most Sustainable Company 2025 ranking compiled by TIME and Statista and we were recognized for the second time as a supplier engagement leader by CDP. That leads me to the last slide, #11 regarding our guidance for 2025, which is confirmed with a revenue of EUR 175 billion for the year and EBITDA of around EUR 415 million, a net cash position of around EUR 410 million and a CapEx of EUR 98 million. This guidance refers to like-for-like ongoing operations, non-GAAP and excluding any nonrecurring items. With this, I end my presentation, and I hand over to Mr. Caltagirone, who is happy to take your questions. Thank you very much.

[Operator Instructions] The first question is from Matteo Bonizzoni of Kepler Cheuvreux.

I have 2 questions. The first one is on the guidance confirmation. You said that it excludes extraordinary items. I believe, but I want maybe a confirmation that the 2, let's say, one-off events, which penalized the first half, which were the fire in Belgium and the technical issues for the second line in Egypt. In the first half, they were not excluded from the EBITDA. So they were not quantified also. I wonder, are they considered exceptional items or not? And then in relation to this question, can you maybe broadly quantify the impact of these 2 one-off events to your H1 results? And what is your confidence to basically to fix both of them in the second half? Last question is on the squeeze of margins which we have had in Turkey. You explained clearly that it is due to a sharp labor cost increase, which was not yet, let's say, or not fully offset in terms of pricing -- cement pricing, output pricing. So in this case, what is your view on potential ability to recover this margin squeeze in the second half of the year?

Thank you for the question. Let's say, just commenting on the results of the first half, we believe that they appear worse than they really are for several reasons that I will explain also to answer your questions. I mean, I'm referring to the non-GAAP results where, let's say, compared to last year, we are, let's say, nearly EUR 10 million in delay with revenues that are slightly up and quantities that are slightly better. Regarding the inconveniences that we faced in the first half in the 2 plants in Belgium and in Egypt. Let's say that the magnitude of these 2 incumbents in the first half is around EUR 6 million. And then there is also just to give full view. This increase -- sharp increase in the labor cost in Turkey that happened at the end of March with retroactivity from the 1st of January. So let's say that in this year, the magnitude is around EUR 4 million. So these 3 -- combinations, we think that are transitory in nature, and we hope to reduce the ground lost during the second half of the year. And for us, let's say, besides, I mean, the incremental cost of the labor cost. The other 2 are, let me say, considered one-off. But I must say that even including this one-off in the first half in our budget, I am aware that you don't know the budget divided quarter-by-quarter, we are slightly ahead of the budget and not below. So this means that so far, let's say, we think that there are also slightly a possibility even to have a better result at the end of the year because we think that, especially in Egypt where due to -- as it normal happen, when you start align after it's a long period. There have been some quality issue that froced us to postpone some supply and shipment. But we think that what we have, let me say, lost in the first 2 quarters can be recovered in the second half. And we already started so that the problem has been solved. And so for this reason, we think that we can recover the gap here that is around EUR 5 million. In Belgium, the issue on the feeding of the alternative fuels that, let me say, to fire. We think that the issue, I mean, is, let me say, being solved. We experienced the higher cost beside I mean the cost of the damage because we forced to switch from alternative fuel to coal and also to CO2 because coal produces higher CO2 and so we were forced to buy some CO2. And this problem will be solved probably during the month of August. So I think that we are, let me say, even because of the figures in terms of revenues, in terms of quantity, we are, let me say, address to, let me say, to fulfill the guidance in -- on EBITDA and also on the cash flow.

The next question is from Emanuele Gallazzi from Equita.

2 questions from my side. The first one is a clarification on the one-off. Do you expect almost 0 one-off from Belgium and Egypt in the second half, right? And the second one is, besides the, let's say, the one-off event in France, some of your competitors are flagging an overall weak market driven by weak residential and also lower infrastructure spending. Can you just discuss about your view on the Belgium and France market? And what do you expect in the coming quarters?

Yes, starting from your last question. So in our perimeter, we still see some soft spot for 2 different reasons: one, in China, where we are, let me say, below our budget because of price environment and not quantity. And in Belgium, France, especially the Paris area, is, let me say, minus 20% in terms of quantity, but the price are, let me say, stable. This is mainly because, let's say, the end of the Olympics, and some hangover in terms of, let me say, activity. Yes. Your first question was, let me say, no, we don't expect major -- we don't expect in the second half to have major probably EUR 1 million, but let's say this is something that we are going to fix and we are, let me say, probably starting from next month to switch back to alternative fuels from coal.

The next question is from Alessandro Tortora of Mediobanca.

Yes, I have 2 questions, okay. The first one relates to the Turkish market. You basically communicated the disposal of the Kars plant. So can you, let's say, elaborate a little bit more on the strategy around Turkey for you in the medium term, if we can assume that probably there are, let's say, some, how can I say, strategic plans from you and maybe you can assess also the disposal of some other plants in your Turkish portfolio. So this is the first question.

Yes. About Turkey, I mean, starting also from the cost slide, we are -- we were aware that there should have, let me say, been an increase in the salary cost and alignment. But usually, it is smoother. And this year, we have, let me say, in the first half, the inflation that pace that been twice the devaluation. So in euro terms, we suffered a sharp increase at the end of March. But I can say that, as you can imagine, you cannot adjust the day after. We are, let me say, in the past of recovering with the price increase that is regarding Turkey to recover this extra cost. So what we should see in the second half is that this recovery -- in terms of profitability should kick in and already started to kick in. Regarding our strategy, I can say that cash planning plan is one of the smallest in all of our perimeter quite old. And you have also to consider that, I don't know if you are aware, but the 2nd of July this year, this month, the Turkish government approved the ETS scheme. ETS scheme is more or less the same that we have in Europe. There will be 2 years of testing phase '26 and '27, and then they will start in 2028. This is just to say because this is also following the same strategy that we have in Italy. So Kars is, also that is from late '70s. It has nearly 50 years, and it is around 400,000 tons of clinker capacity. To upgrade that plant will cost a meaningful amount of money in a part of Turkey where we see limited development in the market. So we found a local competitor that has already a plant close to our plant in [Kars facility]. For sure, it can build synergies and it also offer the price that terms of multiple on EBITDA that I see, I think it's quite interesting. So we are just waiting the clearance from the antitrust that should arrive by September. This means that, let's say, for sure in Turkey, the most interesting part that is the Western part. So Izmir and [Trakya] plant. [Elazig] plants is interesting mainly because now it's starting the rebuilding of Syria and might be interested for the next few years by, let me say, increase in consumption. But let's say, Kars sales is just an opportunistic and solid, let me say, step because somebody came to us and say that if we were, let me say, interested in selling the asset. And I believe that the value that we might extract with the sales is higher than the value more than the value -- the free cash flow that we can extract from the sales is higher than the free cash flow projected 10, 15 years ahead, if, let me say, also we consider the upgrade that the plant need, especially if the ETS system start will allow and will ask you to all the producers to decline the emission for the next 2 decades for sure.

Okay. Okay. And then sorry, the second question is just a clarification on the guidance. So basically -- if we look back at the first half results, you had the headwind from the FX quantified in around EUR 7 million EBITDA. So the question is considering the second half and probably we will have this persistent headwind also considering the [non-U.S dollar], but also looking at Turkish lira. Compared, let's say, to your initial guidance. Does this mean that you have a kind of a change or basically you're confident that, let's say, the operating results are able to more than offset this FX headwind. So just to understand how it works for you this negative contribution from FX.

Let's say that in Turkey for Turkey, we expect this year to have a better result compared than last year in euro terms. So now this is just a mismatch of cost that happened with retroactive that is not so common from the 1st, let me say, of January, and this happened in full in the second quarter. But we expect, let's say, that if the situation continues as it is today with no major threat from the economical or political side that we should in Turkey have a better result than last year.

The next question is from Bruno Permutti from Intesa Sanpaolo.

Yes. I was wondering about the volumes in the second quarter and in the rest of the year. So we saw an increase probably in volumes in the second quarter, which was, frankly, quite surprising from my point of view. And I was wondering if it is the something that is mainly related to the phasing of the deliveries? Or if you are seeing at the group level, an improvement of the volume situation looking into the second half? The second question relates to Denmark. We didn't see in the first half an improvement in the volumes, if I have well understood. So I know that there is an important infrastructure project there. If you can update us on that and on the ramp-up of the project. And if I may, 2 other questions, one, related to possible insurance restore. So are you insured in Belgium? And do you expect to have the insurance restore? And in case when? And the last question, you mentioned the reconstruction of Syria, I was wondering if it is still hope or if you are seeing something going on more materially?

Regarding the volumes, let's say, we expect in the second half to have, let me say, a sort of continuation of this increase in the volume. We have a lack of volumes -- some volumes, especially in Denmark, as you are asking because of this project because it's a slowing getting pace and also the volumes of the first half are impacted negatively for, let me say, the Egyptian situation. But now I think it's for this reason, I believe that in the second half, we should continue at this pace, let me say, to recover compared to last year in terms of volume. The only issue of volume is just the Paris area because all the other places, including China, because in China, as I said the issue is the price, but a slight decline in the price, not a huge decline in the price. So we expect also because its nearly 2.5 years that the volumes are declining in that area that sooner or later we should start to see some pick up going in North and France [venture]. I think that about [Fehmarn] I also -- I already answered. Then there's a third...

And was the insurance, the possible insurance restore and then on Syria?

I think we are insured on damages and business continuity. We expect to have some restoration during this year. Let's say that we expect because also there are other, let me say, improvements that happened even in 2023 minor, improve in 2023 and 2024. But let's say that we might expect to have restoration of around EUR 20 million. That this if it happened might arrive directly in the EBITDA. And we don't think that they are one-off figures just -- they just cover cost sustained or extra, let me say cost, largely what is happening now in Belgium for various reasons or business continuity like it happened in Egypt. So with the insurance, sometimes the things takes longer. But let me say, we are actively talking with the counterparts. And let's say, I expect, let me say, by, let me say, in the second half, to have, let me say, the settlement of this. And Syria, let's say, it's picking up, let's say, it's not anymore in black list. And let's say, it depends. The starting will be very slow because everything is destroyed 1 kilometers after the border of Turkey. So they have to start to rebuild and also to clean from mines, let me say because there are, let me say, thousands of mines on the road. And so we don't know exactly, but we are aware, especially from the Turkish Association that, as I say the, it will last years, and it will be millions tons of supply of cement that can arrive only from Turkey because part or most of the industrial production in Syria has been, let me say, destroyed in the war of the last 20 years. So for the very -- I think, I believe, we believe that for the first 3 to 5 years, most of the cement that we -- that Syria will need will arrive from Turkey.

The next question is from Pierre-Yves Gauthier from AlphaValue.

Can you walk us through the ForEx impact? It's quite intriguing that at a revenue level, they seem to be pretty limited with the dollar, which has been down 10% at the beginning of this year. And it implies that you have a very strong pricing capability. This would be my inference. But clearly, probably much more complex than that. So could you be maybe helpful and try to explain us what has happened from a ForEx standpoint at the revenue level? You expressed the cost at an EBITDA level, but I was just wondering whether we could get some degree of granularity on this dollar impact or non-impact potentially over the first half?