Titan S.A. (TITC) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I am Maria, your Chorus Call operator. Welcome, and thank you for joining the Titan Cement Group conference call and live webcast to present and discuss the 6 months 2021 results. Please note this call and presentation is intended for analysts and investors only. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Michael Colakides, Group CFO; and Mr. Dimitri Papalexopoulos, Chairman of the Group Executive Committee. Mr. Colakides, you may now proceed.

Good afternoon, ladies and gentlemen, and welcome to our first half 2021 conference call results for investment analysts. I would like to start with highlights of the first half. At the first half of this year, the group maintained the growth momentum observed since 2020. Higher revenue generation, coupled with increased EBITDA were recorded despite COVID and the weaker U.S. dollar and dollar-linked currencies. Against emerging cost headwinds, margin profitability was maintained, and there was strong growth in net profit, which more than doubled compared to the previous year. Group consolidated revenue reached EUR 821 million, up 4.4% compared to last year, reflecting higher demand in most markets and a supportive pricing environment. Top line growth was held back by the weaker dollar. Sales volumes were higher across all products, and in local currencies, revenue was up by 11.7%. In 2020, EBITDA growth came primarily as a result of cost cutting and significantly lower energy costs compared to 2019. Against rising energy and shipping freight costs, the margin was sustained this year due to volume growth and price increases. EBITDA reached EUR 143 million and was up 4.2% compared to last year and 10.3% in local currencies. Net profit more than doubled, reaching EUR 58 million compared to EUR 22 million last year due to lower finance costs, FX gains and lower effective tax. On June 30, net debt was EUR 691 million, just EUR 7 million higher compared to the end of last year despite the prepayment of the last installment to the IFC of EUR 40 million and the seasonal working capital needs. Finally, as previously communicated, the cancelation of 5% of own shares was concluded at the end of June. Turning to the next slide. At group level, the growth recorded -- reported growth in volumes and price gains, but did not translate to equivalent profitability growth due to a spike in freight rates and energy costs. By region, the dynamic momentum continues in the U.S., expressed in a particularly strong housing market. We witnessed growth across all products. Revenue grew to EUR 479 million, which is almost stable in euro terms but up 10.3% in dollar terms, while EBITDA reached EUR 81 million after a negative EUR 8 million FX hit. In dollar terms, EBITDA increased by 1.9%. Revenue in Greece and Western Europe was up by 17.4%, reaching EUR 134 million, thanks to the increased domestic demand as well as in response to the upsurge in global demand across markets served by our exports network. EBITDA doubled to EUR 17 million due to a favorable sales mix, but at the same time, there was an elevation in the energy cost base and a spike in shipping freight costs. In Southern Europe, improved sales volumes resulted in revenue increasing by 14.1% to EUR 132 million. EBITDA grew by 7.5% as rising energy costs were not fully matched by price increases and held back growth in profitability. Local currency weakness was reflected in our Eastern Med results, where while revenue was up by 8.6% in local currencies, in euro terms, it decreased by 6.4%, reaching EUR 76 million for the period. In Egypt, introduction of a production quarter effective this month should help rationalize the market. Pricing has been rising and continuously improving in both countries going into the second half of the year, and EBITDA remained stable at EUR 2.4 million. Another notable point is the continued growth in Brazil, where revenues of our joint venture Apodi grew by 23% and profitability markedly improved. We have a slide where we show the spike in several critical cost factors. Speaking about headwinds in the several critical cost factors, the graphs on Slide 4 show the spike in energy and freight costs, which in part are a reflection of the standard buoyancy of activity. Top left, we show the spike of freight prices, which impact the profitability of cement exports but also the cost of reported solid fuels and raw materials. By looking into freight future contracts, the light blue line, we observed that the market expects the spike to phase out progressively. Cost of solid fuels have also spiked recently with a PACE index for pet coke increasing sharply and coal prices returning to 2019 levels. Finally, as you all know, CO2 prices on the top right chart, have reached recently all-time highs. Titan has built up significant inventory of fuel price from the previous ETS space and has adjusted its plants -- European plants' production levels so that in parallel to our CO2 reduction initiatives that we no need to purchase additional allowances from the market in the foreseeable future for the next 4, 5 years perhaps. Turning to our sales volume. In the first half, there was strong market demand across all products and across most group geographies. Q2, though not representative due to COVID in the second quarter of 2020, recorded particularly strong growth rates. Group cement and clinker sales, including exports, increased by 11%, supported by higher demand across our largest markets with many countries recording double-digit growth. Aggregates and ready-mix sales volume increased by 4% and 5%, respectively. Trading in the second quarter confirmed that markets are resurging as a result not only of pent-up demand but also as proof of confidence to solid market fundamentals. In the second quarter, group cement and clinker sales were up 19%, with aggregates and ready-mix similarly up by 5% and 8%, respectively. Turning to cash flow. Operating free cash flow in the first half of the year reached EUR 60 million compared to EUR 69 million last year. Cash flow generation benefited from higher EBITDA levels, but capital expenditure was EUR 54.3 million, an increase of EUR 14 million compared to the restrained CapEx in 2020. Despite the payment of the last EUR 40 million installment to the IFC for the acquisition of its minorities in Southeast Europe and Egypt, net debt increased by just EUR 7 million, thanks to lower interest and financing costs as well as lower tax payments. As you can see in the next slide, group net debt at the end of the first half was EUR 691 million, higher by EUR 7 million from the year-end of 2020 but EUR 117 million higher -- sorry, lower compared to June 2020. At 30th of June 2021, the group leverage ratio stood at 2.31, a level last reached 5 years ago. The -- looking at our debt, liquidity and profile. Following the repayment of the remaining EUR 160 million of bonds matured last month, our next significant maturities are the EUR 350 million bond issue that matures in November 2024 and the EUR 250 million issue maturing in July 2027. Now let's take a look at our regional performance, starting with Titan America. The first half of 2021 continued to reflect the positive momentum in U.S. fundamentals. Earlier this week, the PCA, the Portland Cement Association, revised upwards its forecast for cement consumption for the year, forecasting growth at 3.1% compared to the April forecast for the year at 2.2%. Revenue in the U.S. recorded a 10.3% increase in U.S. dollar terms in the first half but was almost flat in euro terms at EUR 479 million due to the weaker U.S. dollar. EBITDA reached EUR 81 million, slightly up in U.S. dollars at $98 million, but in euro terms was 6.8% lower than last year. The constraints on EBITDA, on EBITDA growth were high maintenance costs in the first half. That should note that some second half works were brought forward as well as increased logistics and labor costs. The Mid-Atlantic region continued developing strongly and demand continued also to grow strong in Florida with different trajectories along geographies. Overall, cement sales growth exceeded 10%. Cement consumption is driven by the residential sector, supported by growth in single-family starts. The share of new homes sold while under construction reached levels last seen in 1999 more than 20 years ago. At the same time, there is a growing number of infrastructure projects and the buildup of positive expectations following the announcement of infrastructure build and stimulus packages. Against this market background, a round of price increases has been announced for the second half of the year in Florida, the Mid-Atlantic and New York Metro area. Turning to Greece. The first half of 2021 continue -- sorry. The current demand trends recorded in 2020 continued in the first half of 2021, supporting the perception that the sector is entering a growth cycle. Total revenue in Greece and Western Europe grew by 17.4% to EUR 134 million, driven by the domestic demand as well as group exports which also increased during the period in response to the upsurge in global demand across markets served by our exports network. In Greece, residential development has picked up in the main urban centers, while many peripheral construction projects and private investments are continuing across the country. This growth is more than compensating for a small decline in tour-related construction. It is notable that the Greek market pickup has so far taken place without any volumes being absorbed by major infrastructure projects which have started absorbing aggregates volumes and are expected to start consuming cement towards the end of the year and into 2022 and further beyond. Export sales profitability was penalized by the weaker dollar and suffered from the absorption of higher freight costs. Overall, EBITDA came in at EUR 17 million compared to EUR 8 million last year due to the higher sales volumes as well as an improved sales mix. If higher energy and freight costs persist in the second half, profitability margins will be dropping. Performance in Southeastern Europe continued being strong across markets with robust volume development and higher levels of utilization of our cement plants. Revenue for the region as a whole increased by 14.1% to EUR 132 million, while EBITDA increased by 7.5% to EUR 42 million in the first half of the year. Key demand drivers in the region are residential and commercial construction, which remains strong in the broader region where the group operates. Prices have been rising albeit at a slower pace compared to rapidly rising energy prices, electricity in particular, with somewhat softer profitability margins. Now turning to East Med. In Egypt, demand started exhibiting signs of recovery in late Q1, while in Turkey, domestic volumes grew in double digits. Total revenue in the East Mediterranean reached EUR 76 million, a decline of 6.4% year-on-year, though there was an 8.6% growth in local currencies. EBITDA reached EUR 2.4 million, posting a small increase compared to 2020. In Egypt, cement consumption was flat in the first half of the year. The trend, however, in March and April, leading up to the start of the Ramadan was indicative of a timid uptick of market demand. The drive from private residential construction and the development of the new cities continued. Cement prices have recorded significant increases over the past few months, and the whole market is moving in this direction. Recently, as of the 1st of July, imposed production quarters by the authorities should provide further support for an improvement in prices. Egypt, in the first half of 2021, turned a small positive EBITDA. Turkey is the market operating at very high capacity levels due to rising domestic consumption and strong export volumes. Our own domestic sales volume serves year-on-year, along with prices, reflecting the tight supply of the market. Investment into new residential construction continues to provide a safe haven for savings while a market of small-scale manufacturing and industrial private investment projects enhanced demand. The weakening of the local currency as well as exposure to foreign-currency-denominated input costs limited Turkish profitability to a lower contribution but a positive EBITDA. Finally, turning to Brazil. The market in the Northeast of Brazil has continued to grow, posting a 15% increase compared to the last half -- first half of 2020, an uptick recorded for the last 4 quarters. Market volume has exceeded the 65 million tonnes mark. The increase in residential property sales sustains the performance of the cement sector. Consumer confidence, however, is also evident in the construction investments undertaken by the commercial sector, further underpinning demand. Our joint venture revenues were up 22% compared to the first half of 2020. Higher prices also supported profitability, with EBITDA reaching EUR 8.8 million compared to EUR 3.5 million last year, enhancing the contribution of the joint venture to the group's net results below the EBITDA line since it is consolidated with the equity method. As in other markets, however, rising energy costs are a headwind to the [ regional team ] managed by the local management moving forward. Now a comment on our goal -- on our progress against the ESG targets. Titan has made a good start towards its new environmental, social and governance targets for 2025 and beyond, which were released earlier in the year and focused on 4 pillars: decarbonization and digitalization, growth-enabling work environment, positive local impact and responsible sourcing, all underpinned by good governance, transparency and business ethics. We are accelerating our climate change mitigation efforts. We have our Scope 1 and Scope 2 CO2 emissions reduction targets validated by the SBTi, as consistent with levels required to keep global warming well below 2 degrees Celsius. SBTi is a partnership between CDP, the Carbon Disclosure Project, the United Nations Global Compact, the World Resources Institute and the Worldwide Fund for Nature. We had our Scope 3 CO2 emissions generated from transportation and distribution of cement externally verified. Also, we are now monitoring Scope 3 CO2 emissions from the supply chain across all cement operations. In the focus area of responsible sourcing, we managed to have 82% of our production covered by ISO 50001 energy management system or energy audits following the certification of our 2 plants in Egypt. Also, with the recent award of the highest platinum rating zero waste for Titan Cement plant in Greece, we have now managed to have more than half of our production certified for zero waste to landfill. Last, we continue building our positive local contribution in each country where we operate. For example, in Greece, we have planted 2 million trees already since 1971. Our efforts in biodiversity and preservation of natural resources have been recognized with an award for the first Phenological Garden in Greece, which is established in partnership with the Aristotle University of Thessaloniki. On a plot provided by a Titan plant in [ Elefsina ], different species of trees and shrubs were planted. For a period of at least 30 years, biological data from the garden will be systematically collected and recorded, building knowledge of climate change, its impact and how to stop it. Our efforts in corporate governance and our overall strong ESG performance were recognized by MSCI, the industry-leading ESG rating agency, which upgraded our ESG rating to AA. I will now turn the floor to Dimitri Papalexopoulos to comment on our outlook for the rest of the year. Dimitri?

Thank you, Michael, and good morning and good afternoon to everyone. Although we are clearly not out of the woods yet as far as the pandemic is concerned and COVID's twists and turns still have the capacity to be unpredictable, the positive outlook for the economy in general and for our sector in particular is increasingly becoming more visible. Housing and infrastructure construction are driving the cycle of growth in demand for our products. Years of underinvestment in both housing and infrastructure have set the stage. Plentiful and cheap financing is providing the fuel. And the pandemic and climate change discussions, each on its own ways, are further accelerating those trends. So without going into all the local leading indicators in detail, we remain optimistic in the short- and the medium-term outlook for our products in almost all of our markets. In the U.S., our backlogs are strong and growing, driven by housing and infrastructure at the state and local level. The prospect of the long muted federal infrastructure bill now seems closer than ever. If it comes through, it could provide several tens of millions of additional cement aggregate and concrete demand over the next 5 years plus. In Greece, the first disbursement of the European Union recovery funds is actually happening this month. Housing permits are growing. Infrastructure works are accelerating maybe a little slower than hoped with a potential impact there from the spike in cost of other materials but holding very good promise for the next several years. Demand in Egypt is heading up, supported by the best macro backdrop in almost a decade. Southeastern European countries are also seeing growing construction demand. Turkey and Brazil, despite somewhat more precarious macro pictures, are also seeing growth in demand, driven by supportive government policies, as Michael pointed out. And by the way, just to put things in context because the comparatives in this first half of 2021 compared to last year differ a lot by -- depending on the impact of the first phase of pandemic last year and the changes in currencies. But I think I would hold on to the following thought that as Michael pointed out, our volume growth in cement, for example, was 12% for the first half of the year as a group. And that should be put in context by comparing with the only 2% reduction in 2020 versus 2019. So we're actually well ahead of 2019 already from where we are today and with runway to grow further. The news is less good, of course, on cost front, where the input costs and maritime freight and energy in particular have continued to escalate in recent months. We expect that they will increasingly filter through to our results for the balance of the year as we don't have, in many cases, longer-term cover. Now the spike in input cost is, of course -- the duration of them is difficult to predict. But it has been counted -- the rising input cost has been counted at a significant extent by our ability in our markets to push through price increases to compensate for them. So in summary, we see continuing top line growth for the balance of the year well beyond with gains in both volumes and prices. However, the spike in input costs will most likely not allow us to enjoy this year at least the full impact on margins which help the top line growth would usually imply. At the same time, as we are gearing up to capture the growth opportunities, we're continuing to invest in digitalization and decarbonization with tangible, real, positive results. Our experience and expectation is that at least for the next few years, progress is not so much about big increases in CapEx spending as it is about people, skills, agility and the capacity to innovate. These are challenges which our industry in general and Titan Cement in particular have not been very well aligned with traditionally. But if I look at the strides we have made in recent years, I'm quite encouraged we are seeing real progress. Let me, perhaps before opening it up for Q&A, say a few words about the recently announced Fit for 55 package, which was announced by the European Union, I believe, on July 14 because we've had a lot of questions around it. This is a broad legislative package to align EU policy with the new 55% emissions reductions goal for 2030. It consists of 12 legislative proposals and thousands of pages. And I'm assuming not all of us have read every page yet. It is also at this high point a proposal by the European Commission, not a law. And it's really the starting gun for a debate that would probably last a year or possibly more. It directly impacts our operations in Greece and Bulgaria, which are our European Union production sites. Now let me perhaps state upfront and very clear that we are supportive -- clearly supportive of the commission's ambition to move in this direction, and we are determined to play our part. We aspire to carbon material concrete by 2050. And we have set ambitious targets, as previously communicated by 2030 -- for 2030, which, as Michael just pointed out a few minutes ago, were recently validated by the science-based targets initiative. Now given that the European Union is moving much faster than most of the rest of the world, we believe that as the ETS, the emissions trading system evolves, an effective carbon border adjustment mechanism will be necessary in order to prevent carbon leakage and maintain a reasonably level playing field that will allow us to invest in the innovation and the industrial transformation that will be required. The devil, of course, is in the details and the specifics are very complicated. We have engaged, and we'll continue to engage constructively with the European Union and local national authorities how to best move ahead. So we will probably be talking about this for the -- in the months and years ahead. I would suggest, however, that the most important implication of the announced package to hold on to at this time is that the -- is that all the substantive proposed changes for us come as of January 2026 and beyond. So we do not see a significant impact from Fit to 55 on our operations and our ability to produce, compete and export through the end of 2025. The challenge, of course, is to use this time to effectively advance our decarbonization efforts using the funding opportunities that will be provided for that as well. So with that, let me stop here and open the floor for questions.

[Operator Instructions] The first question comes from the line of Woerner, Tobias with Stifel.

With regard to Egypt, the latest agreement there in terms of limiting capacity seems to be quite positive for the industry. What do you think that will do to profitability having -- not having been there for a number of years now? That's my first question. And secondly, with regard to the U.S., it seems to be a situation where the industry is now capped in terms of utilization and imports coming in, reducing the overall margins of the business. On one hand, that's a negative. But on the other hand, one could see prices going up even further from here in such an environment. How do you see that playing out?

Let me take the question on Egypt. In anticipation of the implementation of these measures, we witnessed quite a strong price growth, unprecedented for Egypt, since last February, March. We -- and that growth trend continues into July. At such levels -- and I've already observed that some of our competitors have also commented on it -- on results -- on comments today. At such levels, the profitability in Egypt will be significantly better. We had managed a positive EBITDA still this year after a negative last quarter of 2020. We have to see where it stabilizes. And prices are currently over the EUR 35 mark, which is not bad for Egypt. Still, of course, in order to have this on return of capital, a further improvement is needed. But that -- it's a really positive development that we have this new regulation, which seems to impose some discipline in the market and also to be supporting the price increases.

Perhaps I would add just one word that it's a 1-year proposal by the government, and we have to see what happens afterwards.

Yes. Correct.

On the U.S., you're, of course, right that the local capacities in most areas of the country are reaching full capacity utilization. And most of the additional tonnage in the next few years will have to come from imports -- to be supplemented by imports. I believe we stated a few months ago, 2 or 3 months ago in the last call that our -- for example, we, as a company, our import terminals with some debottlenecking currently underway can do an additional 2.5 million tonnes, if necessary, to support local production. So the setup we have in the States with local production supplemented by imports gives us, in some ways, the best of all worlds because we can balance depending on developments in cost, in freight rates and everything. But we certainly have the capacity to import a lot more volumes if necessary. It's anybody's guess at this point in time how long the very high freight rates will last. The forward curves given by financial -- by the Baltic Exchange suggests that we will relatively soon be back to more manageable numbers, but that remains to be seen. But we are confident of our ability to continue to supply much higher volumes in the U.S. as necessary. And either -- our domestic production will have much, much better margins or the inputs will have very good margins. So either way, we feel we are in a good position in a way to adapt to all eventualities. I don't know if that is a -- covers your question.

I mean, very interesting to hear the significant capacity you have. One more question, if I may. You mentioned the EU next generation recovery funds being released in Greece. Just remind us maybe very quickly how much the total is relative to GDP located.

Let me give you a couple of numbers. The RRF per se for Greece is about EUR 31 billion over the next 4 or 5 years. But what you should keep in mind that there is also various other cohesion funds available to Greece from either past or new programs so that the total available to spend in Greece is of the order of magnitude of EUR 70 billion over the next 5 years or so. These are rough numbers. Please don't quote them directly before checking, but they're roughly correct. And that is before adding to that the part of local government money added to projects on the back of those projects. So the big -- and this is versus a GDP, Michael, of about EUR 170 billion, EUR 180 billion, something like that?

EUR 180 billion plus.

So it is a significant amount of money. The difficulty, I think, we will have is in effectively absorbing all that money in the amount of time available.

[Operator Instructions] The next question comes from the line of Boulougouris, Alexandros with Wood & Co.

Just a quick question regarding the domestic market. I mean could you give us a color approximately how volume growth increase in the first half compared to last year and maybe a bit the expectations for this and next year as the numbers, as you saw in sales, include the exports. And a bit -- second question, maybe a bit of comment on the input cost, on the increases we've seen lately in freight rates and other input costs. Broadly how it is affecting margin? And what is -- what do you expect for the full year in terms of margin environment?

Let me take the first question and then give the second to Michael. In terms of market growth in Greece, we were at about 10% growth in 2020, which I think is -- should be kept in mind. And we're still growing at a similar rate, the first half of this year. Having said that, this is all, as previously discussed, from a fairly low base. The -- so there is definitely upside potential from where we are. The timing, we have been consistently very bad at predicting. And so the projects are there. When exactly they start depends on so many factors and it's very difficult to pin down. The latest we have heard -- just to give you an example -- and I'm not sure how to quantify this, is that several smaller or even larger projects are stuck right now because the huge increase in steel costs leads to a need to renegotiate some parts of contracts, and that has led to some delays here or there. So how do you -- how exactly do you quantify that effect? So the direction of travel is clear. The numbers are significant and should -- can be into double digits for a while, but the timing is very hard to pin down.

Okay.

Turning to costs. Let's talk about energy first. Last year, we had mentioned that we had significant savings in energy costs both from thermal energy as well as electricity. And we take a look at the chart we have on Slide 4. You can see both pet coke index as well as coal were significantly low cost levels. The overall cost saving we had last year was something to the tune of EUR 25 million, order of magnitude. Practically, this year, we will see that saving being reversed. So we are back to 2019 levels on thermal energy as well as for electricity. Now how fast these pet coke prices, in particular, will revert to lower levels, it's hard to predict. COVID had an impact on a number of dimensions not previously, let's say, considered. A number of refineries have changed their operations as a result of COVID, reduced demand and pet coke is a byproduct, so ended up with a lower supply and less refineries providing it. As we get back to normal, we expect these prices to come back to lower levels. So we expect that by the end of the year, we will be back to lower levels for pet coke. The most shocking increase has been in shipping freight, which, again, if you look at the slide on Page 4, you will see that within less -- or more than a year, shipping freights doubled, and that has to do with supply and demand as well. But the market or the financial markets forecast a decline by the end of the year to something more normal, which is still higher than we were experiencing. So we treat that very much the shipping as the spot prices. We do some hedging in the financial markets in order to, let's say, average out more reasonable costs. And again, looking at the chart of freight, we have been doing hedges at lower than current spot levels. It's early to tell what will happen next year. For the rest of this year, we do not expect to have EBIT which will dampen the profitability below last year's levels. But there is a level of uncertainty both for petrol as well as for the shipping costs.

The next question comes from the line of Kourtesis, Iakovos with Piraeus Securities.

I would like to ask about -- you mentioned some price increases in the U.S. towards the second half of the year, if you can provide us with a magnitude of what range would be the price increases there for both Florida and Mid-Atlantic region. And second has to do -- you referred in the past about increased CapEx for 2021 -- 2022, sorry. Do you have any specific number which we should use in our models?

Price increases this year, we had January in Florida and Mid-Atlantic in April. It's -- they were partially successful because growth is not universal across the states and the regions. In the regions where there has been growth, it was -- price increases were successful, and we have -- just wanted to know so far, for Mid-Atlantic is early since it was applied in April. And the expectation is that overall for the year, including the second round of price increases, that may have a $3 to $4 increase. There have been areas where there is weakness in demand and it's not -- it hasn't been growth everywhere in every single spot. But mainly Southeast Florida, where we have seen aggressive competitive activity that limits pricing potential, and we wouldn't sacrifice the market for price increases. So there haven't been price increases. Europe has also been inching up on pricing, and we may see some improvement there as well. So we are optimistic that for the rest of the year, we are going to see the pricing environment improving. Now in terms of CapEx, again, rule of thumb, it's nothing on paper yet, but an increase of EUR 20 million to EUR 30 million is quite possible if the positive expectations for growth continue. And we expect that in the U.S., we'll now have the infrastructure bill at the very last -- towards the end of the legislative process for approval. So if we continue to feel confident for the growth to come in the U.S., then we would be spending something like order of magnitude [ 34 million ] up to the -- maybe up to EUR 150 million in CapEx.

We have a question from one of our webcast participants, Mr. Gobbato, Marco with Intesa Sanpaolo and he writes, could you please briefly elaborate on any growth aspirations or CapEx programs for the existing cement capacity in the U.S. market?

I think we have already commented in some ways on that. We are spending some money to make sure -- but it's not big, very big numbers, to make sure that our import capacity can deal with bigger numbers -- significantly bigger numbers in the years ahead, as mentioned earlier. And interestingly enough, we find that applying digital technologies to our existing operations in the U.S., especially artificial intelligence operating systems, leads to an increase in capacity, which can add a couple of hundred thousand dollars -- sorry, tons of production, which is certainly not negligible. So we are working on debottlenecking the U.S. local production as well without needing to spend much capital.

And most of the incremental spending I referred to, as I said, it's the U.S., it has to deal with our logistics, our warehousing as well as distribution needs, freights and so...

Thank you very much. [Operator Instructions] Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Colakides for any closing comments. Thank you.

Well, we will see. Thank you all for participating, and I guess many of you are ready to rush out to the beach in this hot weather in Athens. We will be again with you for the third quarter results in early November. And in the meantime, we hope that the cost will go down again, and we are optimistic for a good improvement in profitability for the rest of the year. So thank you and...

Stay safe.

Stay safe. And enjoy your vacations.

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a good afternoon.