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

Ladies and gentlemen, thank you for standing by. I am Mina, your Chorus Call operator. Welcome, and thank you for joining the Titan Cement Group conference call and live webcast to present and discuss the full year 2022 results. Please note, this call and presentation is intended for analysts and investors only, and the conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Marcel Cobuz, Chairman of the group, Executive Committee; Mr. Michael Colakides, Group CFO; Mr. Leonidas Canellopoulos, Group Sustainability Officer. Mr. Cobuz, you may now proceed.

Hello, everyone, and thanks for joining us at this time of publishing quarter 4 results and full year 2022 results. We have already announced earlier this year, the preliminary results to a trading update. So we'll give today more details, more color and together with Michael Colakides, our Group CFO, Leonidas Canellopoulos, Chief Sustainability and Innovation Officer; and Spyros Kamizoulis, our Investor Relations' head. We will answer any questions you may have. We are publishing today good results, excellent performance, record sales and strong profitability growth for 2024 after a great quarter 4, which has seen our margins recovering in a swift mode, thanks to price over cost positive and offsetting sharp rise in energy and distribution costs. We are very pleased with the earnings per share increased by close to 25% and the active cash management, which allowed us to reduce the overall debt leverage at the end of the year. Moreover, Leonidas will disclose our results on annual specific CO2 emission reduction, 1 of the strongest reduction year as well as Michael will speak on the group digital transformation. So we are progressing with our commercial and technological transformation of the group. And we will share a couple of comments on the outlook as we overall remain positive given our exposure to resilient markets like U.S. and Europe, where we do 90% of our sales. So the floor is yours. Michael, please.

Thank you, Marcel, for the introduction. Good morning, good afternoon to everyone from me as well. I would like to start by saying that we are indeed proud that 2022 has been a year where Titan's performance recorded significant progress across all our objectives; financial results, decarbonization, digitalization, innovation. In fact, in terms of financial results and following the publication by our peers, it seems that we are very close to the top in terms of the growth achieved, both in sales and profitability and EBITDA. We are glad to share now these results with you. 2022 was the second consecutive year of record group sales at EUR 2.3 billion, up 33% year-over-year following the very strong Q4 of 2022. The regions of the U.S. and Greece remain our main markets and represent overall more than 70% of our sales. EBITDA was up by 20% to EUR 331 million, with all regions posting a double-digit profitability increase. Our margins were on a recovery trajectory with solid volumes, dynamic pricing, cost efficiency actions and favorable U.S. dollar offsetting the sharp rise in energy and distribution costs. Earnings per share increased by 24% year-on-year, while net profit after taxes reached EUR 110 million, 19% growth despite EUR 12 million FX losses in Egypt. Please note that during 2022, hyperinflation accounting was applied in Turkey with a practically neutral NPAT impact after net monetary gains were offset by taking EUR 22 million goodwill impairment charge. Net debt closed at EUR 797 million, following a record CapEx spending of EUR 242 million, demonstrating our confidence in the growth prospects of our key markets. We invest in our business to achieve growth, energy cost efficiencies, optimize logistics costs and expand capacities. Also, more working capital was needed to support sales growth. Our leverage ratio decreased to 2.4x EBITDA. With regards to our decarbonization commitment, we have achieved the highest annual CO2 emissions reduction, minus 5% recorded in the last decade with higher use of alternative fuels and lower clinker-to-cement ratio. Green product and solutions are approaching 20% of sales volumes. We have high ESG ratings and will continue to aim at high standards. Group digital transformation rolled out to more plants, already brings significant financial benefits as it brings production efficiencies in the form of increased output and energy cost savings as well as cost savings from early machine failure prediction detection. We keep a close focus on shareholder returns. In 2022, more than EUR 60 million was paid to shareholders as capital reduction distribution and for share buybacks. In 2023, following improved profitability levels, the Board proposes a dividend payment of $0.60 per share. Our outlook remains positive given our exposure to resilient markets in America and Europe, and within the year, we expect to finalize large growth and logistics investments. Now moving on to more detailed description of the performance. The strong Q4 of 2022 with a 37% growth in sales compared to 2021 helped us increase the full year sales by 33%, reaching to a second consecutive year of record group sales at EUR 2.28 billion. In Q4, EBITDA at EUR 96.7 million recorded a strong increase of 74% compared to the low Q4 of 2021. That was the third consecutive quarter with EBITDA growth with margins on an improving trajectory. Full year EBITDA reached EUR 331 million, an increase of 20% compared to last year, resulting in the best EBITDA levels for over a decade. The following slide highlights the sales and EBITDA quarterly evolution. Input and energy costs started increasing during the summer of 2021. And over the following 12 months, those costs intensified further, reaching at times historically high levels. During the course of this period, we increased our prices, targeting to offset the overall increases in costs and to restore our decline in margins. As one can see in this table, this improvement materialized gradually with steady improvements quarter after quarter. Our sales in the second half of 2022 increased by 40% over the same period of 2021, while EBITDA having reached EUR 97 million also supported by energy cost saving actions and improved market conditions. A closer look at our P&L helps illustrate the point of persisting high cost set against the successful evolution of pricing throughout the year. Cost elements remained very high during the year despite the improvement in our overall operational KPIs, such as energy consumption, usable alternative fuels and improved reliability. Energy costs increased by EUR 200 million or 72% from 2021 to 2022 and raw materials by a further EUR 150 million, a 33% growth, and this is just for production costs. However, thanks to robust sales, we managed to improve EBITDA by more than 20%, a best achieved since 2009. The application of IAS 29 for hyperinflation in Turkey reduced the EBITDA by EUR 3.4 million. However, there was no material net profit after tax impact after recording a gain on the net monetary position of EUR 26.3 million and taking a goodwill impairment of EUR 21.8 million. Net profit after taxes increased by 19% to EUR 110 million and earnings per share by 24% to EUR 1.53 per share. A couple more slides to illustrate the dramatic increase in energy costs. In the first table on the left, you can see that group energy costs in production, which more than doubled in 2022, up from EUR 204 million to EUR 480 million compared to 2020, close to EUR 300 million of an increase in energy costs just only in production. Similarly, one should bear in mind that transportation costs for end products for solid fuels, for materials, also suffered equivalent incremental charges. On the right-hand table, you can see the increases in electricity costs which increased sharply in almost all markets with most of them recording increases of more than 100% year-over-year and reaching historically high levels. Now moving to the next slide, there are some encouraging signs. The explosion in energy and transportation costs that we observed since the summer of 2021 seems to be currently on a declining path as in the fourth quarter of 2022, many energy costs started easing, and the financial future markets predict that further decline probably lies ahead. Nonetheless, while some improvement is forecasted, the financial future prices remain at levels quite higher than the average of those in 2021. Now moving to cash flow -- sorry. Now moving to our volumes. Domestic cement and ready-mix volumes increased in the last quarter of 2022, and overall for another consecutive year, where we have seen some slowdown in third-party cement exports due to CO2 emissions optimization as well as a reduction in the aggregate volume sales. Group domestic cement sales have increased by 2% in 2022 to 17.2 million tons, driven by higher volumes in the U.S., Greece and Southeast Europe. Volumes in ready-mix concrete also increased by 2%, reaching 5.6 million cubic meters, mostly thanks to the continued strength of the brick market. Now moving to the cash flow. Operating free cash flow has the obvious benefit of the improved EBITDA, EUR 56 million higher than the previous year. However, it also included significant outflow items. A CapEx program of EUR 242 million, which is a 15-year high, targeted to enhance our growth opportunities to reduce our energy costs by allowing higher use of lower-cost alternative fuels and improved cement production efficiencies through digital technology. optimization of our logistics costs and debottlenecking of capacity. Also, increased working capital needs by EUR 92 million, given the higher group sales and inflationary pressures on inventories as well as higher inventory levels addressing the supply chain disruptions. Giving some more information about our CapEx, you can see that the 2022 15-year record high CapEx was mainly directed to U.S. and Greece, as we remain confident about the growth prospects of our key markets, and we continue to execute our plans according to our original schedule. In the U.S., 2022 was the second year of a $300 million growth CapEx program, aiming to expand the effective cement supply capacity, reduced production costs, add more storage facilities and provide significant logistics cost improvements. The construction of the Tampa Dome in the import terminals of Tampa [indiscernible] proceeded as planned. We expect to see the financial benefits from most of those investments before the end of the running year. In Greece, our higher investments for 2022 included the construction of the precalciner in the plant next to Athens, which is expected to go operational in the first half of the current year and will help to further increase the usage of alternative fuels. Aside from U.S. and Greece, the group also is targeting increase of alternative fuel utilization via investments in both, Southeast Europe and the Middle East and the East Med. The construction of our export terminal assumption in Turkey was completed and started operations as of the end of the third quarter of last year. Our debt picture, year-end debt increased by EUR 84 million to EUR 797 million, while our leverage ratio dropped to 2.4x EBITDA, thanks to the increased EBITDA. It is worth repeating that the group has low exposure to interest rate risk as more than 80% of the debt is either in fixed rates or covered by long-term interest trade hedges. Also a reminder that there is no material with debt maturity until November of 2024. With regards to credit ratings, in December 22, started in [indiscernible], we affirmed its previous rating for Titan International at BB with a stable outlook. Having said that, we now turn the coverage of our regional performance. All the regions posted double-digit growth, both in sales and EBITDA. The U.S. and Europe are the markets where we sell the majority of our customers and have close to 90% of our sales and EBITDA. This performance along the different geographies highlights the group's ability to adapt to market conditions and to continue pursuing its growth strategy. Moving now to the regions and starting with the U.S., which is our largest market. Titan America delivered a year of robust growth in 2022 as well as in the last quarter, both in terms of sales and profitability. The latter underscoring the full effect of successful price increases implemented throughout the year across the regions and products with a full effect visible in the second half of 2022. Sales in the U.S. rose to EUR 1.3 billion, 34% growth in euro terms or 18% growth in dollar terms. While EBITDA reached EUR 188 million, 19% growth in Euro and 5% in dollar terms, benefiting from a strong performance in both, the third and fourth quarters. Our market again grew significantly above the U.S. average. In our markets, our customers show their activities expand and their backlogs increased. Our cement sales volume increased especially in Florida, where housing demand and related nonresidential and infrastructure construction spending continues to grow, supported by internal migration, both individual and corporate. The region of Mid-Atlantic benefits from multifamily residential construction, home improvements and commercial construction activity. Infrastructure activity grew in 2022 as we do expect, and we do expect further increase in the year -- this year and years to come. The group's operations in the U.S. showed an improvement in the fuel mix and the reduction in the clinker-to-cement ratio driven by the full conversion to lower carbon Type 1L cement, which brought environmental and financial benefits. The group also recorded efficiency gains from the installation of digital technology systems in both plants, cement integrated production lines and trend. Large investments were on course as part of the EUR 300 million CapEx program to expand our supply capacity, optimize logistics costs and improve competitiveness. Several projects should be completed with benefits start accruing in the second half of this year. Turning to Greece. We had higher sales of 22% were recorded, marking a year of solid domestic sales performance as the market increased close to 3.5 million tons. Export volumes to third parties were reduced for the year, accommodating our CO2 emissions optimization. The majority of cement exports were channel to Titan America and the group's own terminal network in Europe, also recording solid growth in terms of both, volumes and prices. EBITDA in Greece grew by 21% to EUR 28.5 million as price increases and cost-saving actions such as higher alternative fuel utilization and lower clinker-to-cement ratio covered cost increases mostly in the second half of 2022. Demand in the market continued to be fueled by the acceleration in residential construction, investments in tourists and public and municipal infrastructure projects. Large infrastructure project share increased as new projects are added to the ones under development. The group mitigates the impact of the increased cost of energy by focusing on decarbonization initiatives and targeted further increase in alternative fuel use, while the construction with precalciner Kamari plant coming into operation soon will rather the pure cost savings. In Southeast Europe, in a highly inflationary environment where the region as a whole has been hit by exceptionally harsh increases in electricity prices and overall input cost, sales rose by 33% to EUR 386 million. In the second half of the year, pricing and efficiency gains covered the accumulated negative impact of the cost increases, reversing the negative trend of the first half of 2022 and leading to an improved EBITDA with a strong Q4 profitability resulting to a full year EBITDA of EUR 95 million, an increase of 16%. In 2022, we recorded stable sales volumes despite a slowdown in some markets, where our plants performed at higher reliability levels and responded fast to cover market gaps benefiting from our extensive geographical market coverage. Residential investments supported demand, while the consumption for infrastructure work was roughly stable. We had significant improvement in alternative fuel utilization and the reduction in the clinker-to-cement ratio, while we are targeting more rollout for our plants digitalization. The performance in East Med improved despite the volatile environment. Sales for the region for 2022 grew by 48% to reach EUR 255 million, versus EUR 173 million in 2021. After high price increases in both, Egypt and Turkey, which was needed to counterbalance the inflation explosion and the continuous devaluation in both currencies. EBITDA grew by 66% to EUR 19.6 million compared to EUR 12 million a year before as market conditions remain balanced in Egypt, and export to the U.S. supported Turkish profitability. In Egypt, cement demand rose by 5%. The construction was concentrated around large residential and infrastructure projects, while the market regulation agreement put in place by the government in July of 2021 was extended and continue to balance supply and demand. Our performance improved with higher both, sales and EBITDA. The over 50% devaluation of the Egyptian pound led to rising inflation, foreign currency shortages and overall market uncertainties. In Turkey, the domestic demand dropped by 15% due to the decline in public works as a country is in a tight macroeconomic spot in [indiscernible] from currency crisis and hyperinflation. Significant price increases successfully offset production cost hikes and exports while the new export terminal in Samsun assisted Adocim to record sales and profitability growth. Investments in alternative fuels usage are underway in both countries and will result in higher solid fuel substitution, including the use of biomass. And last about Brazil, where after 3 consecutive years of growth, cement demand declined by 2.8%. The decline was attributed to lower economic growth and higher interest rates, which increased the cost of real estate financing, thereby negatively affecting housing starts. Cement consumption in the Northeast, Apodi's natural market declined by higher rates due to the above average weather during the year and lower disposable income levels prevalent in the region. Apodi managed to offset the lower sales volumes and the increasing input cost by focusing on product mix and pricing. Sales posted a significant increase to EUR 116 million compared to EUR 84 million the year before, while EBITDA is EUR 21.1 million compared to EUR 19.5 million the year before. Now let's move to digitalization and decarbonization updates. I will kick off with the digitalization part, and then I will pass it over to Leonidas Canellopoulos who will cover us with an update on decarbonization. Digitalization is a strategic objective and a great opportunity for Titan. In the course of 2022, the group continued with its strategy of rolling out a growth-oriented digitally empowered operating model for the group. The focus of activities, projects and ongoing investments cover all pillars of the group's operating architecture, namely: manufacturing, supply chain integration and customer experience. On the manufacturing side, the group is among the leaders in the industry. It continued the rollout of artificial intelligent based real-time optimizer solutions for its cement manufacturing lines and developed [ humans. ] As of the end of last year, the group has installed RTOs in 8 plants in the U.S., Greece, Southeast Europe and Brazil. Both Titan's plants in the U.S. are now live with end-to-end RTOs. With the use of RTOs, the group realizes an increase in the clinker and cement output or in both to process optimization and breakdown avoidance as well as significant savings in thermal energy and electricity consumption. In addition, Titan is rolling out a machine learning-based failure prediction system tailored to the operating environment of cement plants. This increases their reliability and reduces the cost of downtime and unplanned maintenance. As of 2022, this system has been installed in 6 plants in the U.S., Egypt and Southeast Europe. Our estimated annual financial benefit from the installed digital solutions in manufacturing is in the order of EUR 15 million. Titan has capitalized on its machine learning failure prediction solutions offering and has set up its first digital business, CemAI, which will make the digital service available to global external customers. The group has also launched quality prediction projects and new prototypes with a proof of concept completed in the U.S. for real-time cement quality prediction. Moving now to pilot phase. On the supply chain and customer experience side, focus was also placed on further developing the group's distribution network optimization, advanced analytics solution. Technology allows for spare parts inventory optimization rollout already completed in Titan America and management of such diverse sourcing and production inputs as next-generation demand forecasting and the factory lifetime focusing, enabling a more cost-efficient supply chain. At the same time, the group is working on digitalizing the way it interaction with customers to both, improve customer experience and create a more efficient commercial operating order. To that end, as of 2022, Titan has deployed digital customer application in business units in the U.S.A. and Europe. Now let me pass over to Leonidas Canellopoulos, our Chief Sustainability Officer, who will provide you with an update on decarbonization efforts.

Thank you, Michael. Good afternoon and good morning. In 2022, we accelerated our climate change mitigation efforts. We lowered our net CO2 emissions to 619 kilograms per ton of cementitious product, recording a 5% reduction compared to 2021 levels. This corresponds to a decrease of the carbon intensity of our revenue by more than 25% and marks the largest annual reduction rate achieved by the group in the last decade. The decline was driven by record high utilization of alternative fuels and a historically low clinker-to-cement ratio. We reduced the carbon footprint of our products by enhancing our offering of lower carbon cements. Green cement products now constitute almost 20% of our production volumes with this share projected to increase to over 60% by 2030. Titan America also became the first U.S.-based company to fully transition to the production of the lower carbon Portland Limestone cement Type 1L, contributing to the CO2 reduction. And the cement exports to the U.S.A. from Greece and Turkey have also shifted to this new product. We were 1 of 3 cement companies in the world to receive a top-A score this year on climate action from CDP for leadership and corporate transparency and performance in climate change. We were also among the first 3 companies in the sector to have our greenhouse gas emissions reduction targets approved by the SBPI as being aligned with limiting global warming to 1.5 degree Celsius. I would now like to share with you some of the key initiatives and partnerships that are shaping the future of the group and driving our sustainability efforts further. Firstly, we are actively working on technical studies and ecosystem development for a large-scale carbon capture and storage project in Greece. We applied for funding by the EU Innovation Fund last week. Similar projects are also under development for 2 cement plants in the U.S. And in line with our commitment to carbon capture, we have also installed a pilot unit in our flagship plant in Greece Kamari as part of the EU-funded project record. Such initiatives aim to advance development and implementation of CCS and CCU technologies across the group. I should also mention our investment in Rondo Energy, which is a promising startup with an innovative heat battery technology. This cutting-edge solution has the potential to decarbonize not only cement manufacturing, but also various other industries. Last but not least, we are experimenting with the use of hydrogen, both as a fuel enhancer, but also potentially as an alternative carbon-free energy source. Our hydrogen project, H2CEM, has been included in the important project of common European interest, Hy2Use. These initiatives and partnerships demonstrate our commitment to innovation and sustainability as we try to shape a greener, more resilient cement industry. And we look forward to updating you on our progress on these projects in our upcoming calls. If we move on to the next slide, you see just a more detailed picture of the evolution of our alternative fuel substitution rate and our clinker-to-cement ratio over the years. We are accelerating our progress in this respect. And of course, we are moving ahead with our green products, which are servicing key customers in all our geographies and iconic projects. And we are targeting, as I said, over 60% green products by 2030. Thank you very much. Back to Marcel for...

Thank you. Thank you, Leonidas, very exciting news. So the trends we have seen in Q4, they continue in Q1 2023. We -- in the same spirit, we aim at achieving sales growth as well as margin growth, thanks to price over cost -- positive price over cost and improvement in energy mix. We also aim this year at reducing further our net debt leverage while we commit to growth investments. The view on our markets remains largely positive given our brand equity and U.S. market positions, mainly on the East Coast, Mid-Atlantic and Florida given their economic and population growth and attractivity for business, we continue to invest, anticipating sales and profitability growth. Same in Greece, where we see at a slower pace, but we still see investments in infrastructure projects, real estate, tourist-related investments, where we will also benefit from higher export volumes. And we will take the benefit of energy efficiency projects, and we double down on alternative fuels. We also expect rather stable outlook in Southeastern Europe market, where, as you know, we have strong brand equity and strong positions. In Egypt and Turkey, we still expect volatility this year, both in terms of ForEx inflation and at the same time, elections in Turkey and also the outcome of the recent disaster -- earthquake disaster, which would probably result into the forms of housing. Overall pricing in most of our markets remains strong. We see a decline in energy cost, and we still see stable stimulus and infrastructure projects. These are favorable market conditions, and they will support improvement on EBITDA margins. Given all these news, we continue with our CapEx projects, particularly in U.S. and Greece, focused on growth, optimizing our supply chain and logistic cost competitiveness as well as digitalization and further emissions reduction. Very well, so we open it for Q&A.

[Operator Instructions] The first question is from the line of Edelfelt Sven with ODDO BHF.

Congratulations for your results. When looking at cost factor on Slide 7, it seems obvious that price surcharge is no longer needed. Some of our competitors already mentioned their intention to lower the selling price, to what extent you're planning to do the same and on which market? That would be the first question. Second question, at current spot price, what would be the energy cost envelope for 2023? And the third one, if I may. Can you give us an idea of your CapEx for 2023? I think they are still expected to be high before starting to decay in 2024. Is it the right way to look at it, and can you please quantify?

Thank you for your questions. Regarding pricing, indeed, we have prepared well, the entry into 2023 with pricing announcements made in Q4 and effective as of October, November, December and January. And we are seeing positive pricing over cost and improved margins in Q1. We are selectively applying price increases in several markets. And as from the presentation, you have seen that in most of our micro markets, we have a dynamic pricing based on very, very detailed segmentation of customers and differentiation between product lines, cement, ready-mix and aggregates. Selectively, we will also apply a reduction of prices depending on the competition intensity, the product mix as well as the cost of factors. On the question 3, before I pass to Michael, on the CapEx. So we continue the CapEx program announced last year and the year before, particularly in the U.S., finalizing our logistics improvement investments. So this year, we will be in the range of around EUR 150 million in CapEx with rather fast payback expected to kick in, in 2024. For the second question.

The second question, just to make sure we understand the question, is about the total energy cost?

Yes, absolutely.

Hard to predict. I should mention that we do not engage in any significant activity of hedging in the energy markets, other than buying some cargoes forward, and that's about the extent of the hedge activities. The -- for the future's market indicates that we should expect a decline going forward. We are still way above 2021 levels. So we are optimistic that we will see a reduction compared to last year, but that cannot be quantified yet.

The next question is from the line of [indiscernible] with On Field Investment Research.

A couple of questions. First, maybe on your sustainability target. So you got a clinker-to-cement ratio of something like 78% today. What kind of targets do you want, what kind of clinker-to-cement ratio do you want to achieve in 2030? And what do you think is possible to achieve long term? Then a second question on the price increase that you -- I think you suggested that you have -- you implemented some price increase at the beginning of the year in the U.S. and in Greece and in Southern Europe. Can you comment a little bit? Is the U.S. price increase successful in January, for example, in Florida, in Greece? Have you increased -- have you planned any additional increase in 2023? And what about South Eastern Europe? And then another question, which is on your margin. So margins were under pressure last year. But as you say, like we're on [indiscernible] where you are -- energy prices might come back off a little bit. And on your focus on pricing, do you think that you could recover some of the margin? And do you think we could go back to the margin that you had in 2020 at some point in the next couple of years, or is it too optimistic?

Thank you for your questions. So before I pass to Leonidas for the sustainability targets, just to mention that we make sure both, in the individual objectives of our executives as well as cascade it down at 4 levels, that sustainability objectives are translated into key performance indicators and at all levels. So we are serious about it, and we monitor it very strongly. In addition to product mix and investments in alternative fuels and renewables, which are going to produce quite an impact this year. We are working with our customers on novelty cements, whether it was the introduction. We were the first one to introduce fully, to roll out fully the limestone cement in U.S. or the introduction of fly-ash and slag-based cements at scale in Egypt. And we have launched more than 10 products last year in Southeastern Europe, and we have more in the pipeline for 2023. On the price increase, yes, they are holding. At the same time, we are getting new projects, both in ready-mix, in precast as well as in aggregate. So the price increases continue on a case-by-case basis. On the margins, yes, we aim at recovering the margins prior to 2020. And that will be a combination of energy mix and cost efficiency actions as mentioned before, optimizing the supply chain, given also our long supply chain of exports from Greece and Turkey and imports into U.S. and of course, the price and the product mix. But the answer is yes, we want to improve the margins to the previous levels, and we are quite confident that we will achieve that. Leonidas?

Yes, about the clinker to -- sorry? About the clinker-to-cement ratio. So for 2030, we are targeting to be below 70% for sure. Similarly, we are aiming to be over 40%, even 45% in alternative fuels. We believe those targets are very much achievable based on our road map, which includes very specific initiatives. Obviously, the journey doesn't end in 2030, we will keep on pushing further. This will require more innovation in our product mix, but it's part of what we are working on at the moment. Maybe a complement here because we didn't discuss during the presentation. We have recently entered into a joint venture. We have seen the press release in pozzolanic and cementitious products, a joint venture with a local partner here in Greece, with having access to substantial results, access to ports, logistics for both, domestic as well as overseas utilization. So working forward to improve cement-clinker ratios by using cementitious, more specifically pozzolanic.

Maybe just 2 follow-up questions. One very short term and 1 more long term. Could you -- like it's already like nearly 2 months [indiscernible] into 2023, can you comment about the trading condition? Is it the same as what we've seen in the fourth quarter, like mix volume, but a good pricing and margin development? And then the long-term question would be, when you think about the carbon capture, you're talking about this a pilot project, what do you need for this project to become attractive and profitable?

So we have seen on -- the starting of the year is strong, but it compares to a very low base of 2022, but we see margins in line with quarter 4, particularly now in our U.S. and European markets. On carbon capture and storage, maybe Leonidas, you went a little bit fast. But maybe you can elaborate a little bit that beyond the pilot, we have a large project that we are now progressing quite fast with early partnerships, but we have assessed technologies and business case as we have recently applied for innovation fund of Europe.

Yes, we have done a lot of work on developing the value chain with the partnerships, all the way from the capture of part to liquefaction, transportation and storage. We have evaluated various technologies for both pre-combustion and post-combustion options and have made a selection for now. There's a lot of work that still needs to be done. Funding subsidies are a key part of this to derisk the project. And obviously, some element of developments and regulation will be necessary. But we believe that we have a project that is quite advanced with a solid business case and are hopeful that we can push it forward in the upcoming months.

If I understand what you will need to make sure that it's really creating value, and it's profitable would be some spot from the European Union and the implementation of the carbon border adjustment mechanism. Is that correct?

That is correct.

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

You referred to the possibility for increased exports from Greece towards the U.S. in 2023. I was wondering if this has to do with the commencement of the infrastructure bill projects in the U.S. as from the second half of 2023, and if you could quantify for us what projects are you expecting in your areas in 2023.

Thank you for your question. So we are seeing an increased number of infrastructure projects and additional volumes, in particular in tunnels and roads and coastal protection, particularly in Florida markets. We are traditionally exporting significant volumes from Greece as of last year. Thanks to a terminal investment in Turkey, we are also exporting low-alkali cement to our U.S. operations. We have and we are investing heavily in U.S. in order to increase our agility in using different mixes of cements and. And we are building the domes with separate silos for fly ash, swag and other cementitious. So we believe we are ready to cope with the increased demand for rather well-specified mixes of cement in Florida and mid-Atlantic market. Overall, we have around 40% of our sales going into infrastructure, and we see for the next 6 to 18 months, we see robust volumes.

Yes, just to add to that, because we have discussed about in the past. You know that we want to be flexible in the U.S. regarding the material that we import, depending on our own supply conditions, we have purchased third-party cement in the past. We have used Turkey last year. In 2023, we will have an increased production out of Greece. So we feel quite confident that we can supply all the cement that the U.S. will need.

The next question is from the line of Athanasoulias Nikos with Eurobank Equities.

Congratulations on the great set of results. I have 1 question, rather large, if I may. If you could please specify on Page 8, the third party cement exports refer to exports from Greece to other companies in other countries? And I would like you to rate a little bit more on the shipping from Turkey and Greece to the U.S. Do you expect increased volumes from Turkey to the U.S. in the following years? And how will Greece and U.S. manage the increased volume demand at the same time given that Greece exports a huge amount of its production -- a large amount of its production to the U.S.?

As we have mentioned in the past, we optimized the production in Greece to match the CO2 rights allocation we get from EU, which translates in 1 year having a bit more cement and the next year having less, and that rotates from year to year. We produce in Greece, the maximum that we can under our CO2 rights allocation. So the lower production in 2022 has nothing to do with let's say, preferring Turkey or another supplier to Greece. It has to do with how many tons we could export out of Greece. And 2023, which is a high production year we will export more from Greece. Greece remains our most competitive producer for exports and will always have a preference.

So the 0.4 are the exports from Greece to the U.S.?

Export from Greece to third parties [indiscernible] on group, which we do less. And we did less last year, where we'll do more this year. We still have clients who are willing and eager to take more product from us as long as we have the CO2 rights to produce it.

Okay. Great. And I have another small question. You mentioned before, EUR 100 million in CapEx for 2023. This is only for the for the U.S. and Europe region, or is it on a group level of guidance?

At group level, it's going to be at least EUR 150 million, the way it looks. It also has to do with the pace of completion with exchange rates and so on. But 2023 is also going to be a high CapEx year, but probably not as high as 2022, but 2024 will probably be lower.

The next question is from the line of Woerner Tobias with Stifel Europe.

Three questions, if I may. Number one, when we look at your net debt EBITDA at 2.4x, this is not high on the one hand, but it's also not low. Could you give us a sense where you would feel comfortable? That's the first question. And secondly, you give us targets on the decarbonization side of the equation. And -- but at the same time, unlike many of your peers, you don't provide us sort of with annual guidance or longer-term targets with regard to financial such as net debt to EBITDA or free cash flow conversion or free cash flow or ROIC under a new sort of leadership, will that be something we can look forward to? And then just lastly, you talked about exports just now, exports within your network. Should that now -- should these now benefit from lower freight rates as long as you supply your own network at the other end?

Okay. Let me take the financial questions. Leverage at 2.4x is indeed an improvement, but still has room to improve. We will end towards the level of 2 for the end of this year, and that's, let's say, base case assumption for the year. In terms of the exports, yes, freight will benefit all our importing terminals. So it will benefit the U.S., and it will also benefit our European terminals, which have to pay for the transportation of the cargo.

Tobias, thank you for the question on decarbonization targets and the financial impact. We look forward to seeing you all during the Capital Markets Day later this year, probably the last week in -- last week of September, both in Athens and London. And we'll be happy to share more about our midterm financial trajectory, including the decarbonization targets. But this is a topic that like for any of the 90 decarbonization projects we have, we look at paybacks, we look into them with the right financial discipline [ heads. ]

And financial targets, will you in the future, put in place financial targets as well?

We will have midterm financial targets, which we will announce later this year.

[Operator Instructions] The next question is from the line of Kourtesis Iakovos with Piraeus Securities.

Sorry about that is just a follow-up. You've said you will organize the Capital Investor Day on the last week of September. Is this correct?

That's the intention, yes.

[Operator Instructions] Ladies and gentlemen, there are no further audio questions at this time. We will take any written questions from the webcast participants. The first question is from [indiscernible]. And I quote, "Do you expect lower electricity prices and energy prices in general to be beneficial for your full year 2023 e-margins?"

The improvement in electricity, I think it's still wishful thinking than reality. But of course, EBITDA does happen, it will benefit our margins. On the thermal energy part, we are more optimistic, not only because of the apparent decline in the prices, but also because as a result of our investments for energy cost savings. So that is an area where we expect to see an improvement for our margins.

The next question is from [indiscernible] with BNP Paribas and IGO. "Congratulations on the strong year-end 2022 results during a challenging year. Two questions. Can you elaborate more on the record high 2022 CapEx? How is it expected to affect margins and profitability in the coming years? What part of CapEx is discretionary and could be curbed in case of market slowdown? And the second question, can you share what was the 2022 average capacity utilization rate group-wide?"

Okay. [indiscernible] Two questions. On the CapEx. We have put up a slide with a breakdown of the EUR 242 million geographically as well as highlighted some of our key projects. We have mentioned in the past a $300 million plan for the U.S. for growth. We are quite optimistic. I don't want to use the word, bullish, for the U.S. market for '24 onwards. We had a good start to the year. There are, of course, question marks for the second half of this year. But nevertheless, when we talk about CapEx, it is primarily for longer term outlook for the business. It is not the next 1 year or 2 years. And the investments we are planning in the U.S. are indeed aimed to improve our competitiveness and our cost efficiencies as well as our throughput capacity. So we will continue with the plan in 2023. There has been an impact on the total cost coming from inflation. Inflation hasn't hit on the OpEx, it also has hit CapEx and from the higher value of the U.S. dollar compared to euros. But that is something that as we said in the presentation, we stick to the original plan, we believe in the prospects, and we will carry on. With regard the capacity utilization, thanks for the question. So we are running at a rather high capacity utilization, we have sold out in U.S. as we are a net importer. And [indiscernible] already explained on the way we debottleneck our operations using the digital tools. In Greece, we are running also at high capacity utilization, given also ETF rules as well as in Southeastern Europe, where we have high capacity utilization. I think the only market where we have to comply with the production sharing regulation is Egypt.

The next question is from Mike Betts with Data Based Analysis. And I quote, "Your COGS as a percentage of sales fell by more than 3 percentage points in Q4 on my calculations. What caused this? Were there any one-offs?"

That's a hard question to answer offhand, Mike. I think we should take it offline. There has been an improvement in -- on the energy front in Q4. So that at least part of the 3% decline has to do with a lower cost of energy, but I don't have any more details to give you.

Thank you. 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 wish to thank everyone for participating. It's a year where we feel pretty proud about the results since it seems that we are among the best in our sector. And we are very optimistic and ambitious to achieve as good results and better results in 2023. Just to remind you that we are having our general assembly on May 11. And at the same time, we will also announce our first quarter results. Thank you.

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