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

Ladies and gentlemen, thank you for standing by. I am Galey, your Chorus Call operator. Welcome, and thank you for joining the Titan Group conference call and live webcast to present and discuss the first quarter 2025 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. Marcel Cobuz, Chairman of the Group Executive Committee; and Mr. Michael Colakides, Group CFO. Mr. Cobuz, you may now proceed.

Thank you. Good afternoon, everyone, and welcome. Very excited to share together with Michael, a good and confident start of the year 2025. We are reporting numbers for a solid quarter, which is building a nice momentum into the year, which is marked by sales growth, but also over proportional growth, nearing almost 12%. And that's thanks to strong performance in U.S., where we have high profitability, in Greece, but also in Egypt, where we have a remarkable turnaround. Michael will go more into details on our pricing resilience, but also cost performance, thanks to logistics, alternative fuels and other maintenance-related investments for the past year, which partly offset the adverse weather impact in our end markets in U.S. and Southeastern Europe. A few other highlights to share on the status of the business and our strategy execution. So as you know, we have completed well our IPO of Titan America on New York Stock Exchange. That obviously is impacting positively our debt leverage, which is reaching a record low multiple to EBITDA, 0.5x, and is giving us flexibility in capital allocation decisions going forward. We have continued our bolt-ons, and we have announced recently another aggregates business in Greece, adding significant reserves to an important segment in this part of the world. And similarly, we have announced a new joint venture and a partnership in alternative cementitious, a joint venture in India for sourcing and trading fly ash, as well as a partnership on pozzolanic ACT technology with Ecocem. Digital investments, our investments in alternative marks again a sustained effort in terms of digitalizing our operations, and therefore, improving the efficiency gains. And finally, we are -- we have announced this week as well that we are refreshing our corporate identity. After the purpose, the refresh values, we have also proceeded with the change in name and the visual identity of the group. Towards the end of this intervention, we will also provide a couple of thoughts on the outlook of the year. I pass the floor to Michael to walk us through more financial details.

Thank you, Marcel. Good afternoon and good morning from me as well, and welcome to the Q1 results presentation. Earlier this morning, we had our Annual General Meeting in Nicosia in Cyprus, and I'm very happy that we are kicking off another year with a positive momentum with growth in sales, with sales reaching EUR 638 million, up 2.4% compared to a very strong Q1 last year. Of course, Q1 is always a year -- a quarter with lower seasonal activity compared to the rest of the year. Increased sales were a result of firm pricing, sustained volumes in cement and growth in volumes in other core products despite the adverse weather conditions impacting the U.S. and the Southeast European markets. EBITDA grew strongly and reached EUR 122.6 million, up by 11.7%, compared to Q1 of last year, thanks to sustained performance in the U.S., Greece and the Egyptian markets, and very much as a result of investments delivering operational efficiencies as well. Pretax profits grew by 2.9% or EUR 1.9 million despite higher depreciation expenses and hyperinflation costs from Turkey, while net profit after taxes and minorities reached EUR 43.7 million, down by EUR 8.7 million as a result of EUR 4.2 million increased minority income in Titan America, which now goes to minority interests, and EUR 7 million of higher taxes, part of which also attributed to hyperinflation. On net debt, our net debt declined by EUR 280 million, thanks to the funds raised from the IPO of Titan America, and the leverage dropped, 2.5x EBITDA. CapEx was flat year-on-year at EUR 53 million. Now amid the heightened global macroeconomic uncertainty, we retain our overall cautiously optimistic outlook, thanks to our presence in high-growth markets that support sales growth and our EBITDA margin expansion. On the next page, we show how our 12-month rolling sales, EBITDA and net profit continue to grow. As you can see, the growth trend is extended and points towards an improved performance for the group in 2025. Moving now to the volume slide. Demand for the group's downstream products continued to show strong dynamics, with aggregates growing by 18% and ready-mix by 6%, while cement sales were quite resilient and remained just slightly below last year, a drop of 2%. The impact of severe weather conditions in both the U.S. and Southeast Europe for most of the quarter did weigh on cement sales volumes in these regions. However, the strong performance in Greece as well as a significant rise in cement exports from Egypt mitigated those effects at the group level. Now moving to the cash flow. On the left-hand side of this slide, you can see that operating free cash flow recorded positive inflows of EUR 10 million in the first quarter. CapEx remained at last year's level at EUR 52.5 million, as given the global environment of volatility and uncertainties, some project launch has been deferred by a few months. Capital expenditures continue to focus on the increasing use of renewable energy sources across our regions, the integration of cementitious and alternative materials into our supply chain and optimization of our logistics networks. Thanks to the funds raised by the IPO of Titan America in February, this year, the net Q1 liquidity impact was EUR 342 million positive, which resulted to the equivalent drop in net debt. On the right-hand side of this slide, you can see the evolution of the group's net debt, which stands now at EUR 280 million. The leverage ratio is a low 0.5x EBITDA. Now taking into account today's General Assembly approved payout of the EUR 3 per share in July, we expect the group's net debt to remain low and below the EUR 500 million mark and the leverage ratio to remain well below a multiple of 1, allowing ample firepower to fund growth opportunities. Now let me take a look at the regional performance, starting with the U.S. Against the backdrop of uncertainty in the U.S. economy, the group's results in the region during the first quarter remained solid and witnessed varying dynamics across market segments. Sales reached $393 million, down by 1.9% in euro terms or EUR 372 million, up by 0.5% in euro terms, thanks to the firm pricing in cement and aggregates and increased pricing in ready-mix. Volumes in cement and ready-mix continued to be affected by unfavorable weather conditions, coupled with softer conditions in the residential construction sector. However, volumes of aggregates increased in this quarter, supported by investments in added capacity in Florida. Our performance was supported by sustained activity in public infrastructure projects and commercial construction activity, benefiting from solid fundamentals in industrial center, energy assets and other projects. EBITDA improved by $10 million and reached $77 million, thanks to resilient pricing, growth in aggregates, the timing of the seasonal maintenance outage of the plant in Florida as well as implementation of targeted efficiency initiatives despite the seasonal weather-related headwinds. Now turning to Greece, which started another year strongly, with volume recording growth in double digits across all the main products. Price increases were successfully implemented in cement in January to offset the higher production and the electricity cost environment over the last couple of years. All construction sectors performed strongly, supporting demand. Activity in the residential segment continued unabated, as did investments in the hospitality sector and in energy. Infrastructure remains a major driver of demand, underpinning growth in both aggregates and ready-mix sales. Sales in the first quarter grew by 15.9% and the EBITDA reached EUR 19.4 million compared to EUR 12.7 million last year, reflecting the top line growth and the cost-saving actions in the forms of higher alternative fuel utilization rates and lower clinker to cement ratio, mitigating the higher electricity costs. Moving now to Southeastern Europe, where the beginning of this year was also characterized by adverse weather across the countries of the region. Compared to a record high first quarter of 2024 with the region having benefited from mild winter, the activity this year reverted to more normalized seasonal levels regarding lower volumes, yet in most cases, still above those of 2023. We have been able to sustain overall pricing at 2024 levels. Sales reached EUR 82.6 million, down by 15% (sic) [ 9% ]. A spike in electricity costs in the first 2 months reduced profitability margins, and therefore, EBITDA for the quarter reached EUR 21.6 million, down by EUR 10 million compared to last year. The overall dynamics of the markets remain broadly unchanged despite the temporary conditions at the beginning of the year. Both infrastructure and residential development underpinned demand as well as the buildup of cross-regional transportation networks. Our investments continued to bear fruit, with alternative fuel utilization rates increasing further in Bulgaria and North Macedonia and new investments in Kosovo and Serbia underway, translating into operating efficiencies. In the Eastern Mediterranean region, the first quarter's performance reversed the previous year's trajectory. In Egypt, a subdued market environment in the first quarter of last year. Domestic demand -- after a subdued environment in Q1 of 2024, domestic demand increased this year, mainly thanks to private projects, while domestic prices both in local and in euro reported terms increased. Export activity grew significantly, with pricing also being very favorable. As a result of these developments, profitability in Egypt showed a significant improvement in the turnaround. In Turkey, following a strong increase in volumes due to unusually mild weather last year, this year saw -- first quarter saw cement demand decline as weather patterns returned to more typical conditions for the period. Consequently, cement consumption volumes decreased in both the Marmara and Tokat markets, while exports were also reduced. Similarly to Egypt, pricing in Turkey continued to follow inflation and grew both in local and euro reported terms. At this point, let me remind you that in February, the group announced the divestment of the -- our cement assets located in the Tokat market. This transaction is expected to be finalized in the summer of this year. In closing the regional performance, let me briefly comment on Brazil that we consolidate only on an equity method. As a result of growth in demand and in pricing, our joint venture experienced a 7% sales growth in local currency, while in euros, sales reached EUR 28 million, while EBITDA surged by 42% to EUR 6 million. And with this, I complete the review of the regions and the key financials, and I turn you back to Marcel.

Thank you. Thank you, Michael. You had seen our press release and in our analyst presentation, we reiterate what we said a couple of weeks ago when we published the full year results with a rather optimistic outlook, reconfirming the sales growth and EBITDA margin expansion for the remainder of the year. In the U.S., we see the underlying strength in our markets despite volatility. We see accelerated investments in infrastructure projects, growth in data centers, which continue. Commercial and industrial demand remained strong as well as pricing showing resilience. Of course, the macroeconomic uncertainty and impact on business and consumer sentiment, and we witnessed continued soft demand in residential, driven by higher for longer interest rate and housing affordability concerns. In Greece, construction sector is set for further growth. Of course, we already highlighted to you the significant investments on the ongoing rollout of EU funds absorption. So we expect again sales and profitability as infrastructure initiatives along the large projects like Ellinikon and other -- increased demand projects for both housing will continue to drive higher the demand. As Michael mentioned, the construction sector in Southeast Europe is set to benefit from continued infrastructure projects, again, energy initiatives, but also the early EU integration efforts. There may be political uncertainties and global economic conditions may cause risk to sustained growth. However, for the remaining of the year, we expect sustained performance. Egypt, thanks to the turnaround of the operations, the reorientation to a good part of our production towards exports, in addition to the public-private partnerships and increasing foreign direct investments, we see those as key contributors to growth. So we expect again improved performance backed also by the growth of our exports. In Turkey, where we have proceeded with the divestment of our eastern activities, we maintain our presence in the western part, and we witnessed a construction sector which is rather resilient. Again, ongoing economic challenges, but the demand is -- it is sustained by the construction needs, particularly in the Istanbul area. So with this, we open for questions. Operator, please moderate.

[Operator Instructions] The first question is from the line of Ravi Ephrem with Citi.

So 2 quick questions. Firstly, can you talk through the rationale for the sale of the Eastern Turkish plant? And could you give us a sense of the annualized impact on revenue and profitability from a scope perspective from that sale? And secondly, is this kind of the -- or what we are seeing in Q1, the kind of year-on-year drop we should expect for the rest of the year in Southeast Europe? I appreciate it was a mild winter last year, and hence, the base was high, but how was the rest of the seasonality for 2024 as a base to kind of work from for 2025?

I will start with the rationale of the divestment and then a bit of Southeastern Europe, if you can comment on the scope impact. So we are present for more than a decade in Eastern Turkey. We have improved the operations there. We have built export capacities, which are serving -- were serving the group. At the same time, this was always a position at the periphery of our traditional markets. We believe that our position in Western Turkey is there to stay and it's much more complementary to our other positions in Southeastern Europe as well as for export needs. So we are staying in Turkey and we are actively contributing to the development of the country as well as making sure that we perform a good operation there. Southeastern Europe, as you mentioned, much better winter last year, so we are comparing to a much better quarter. Quite some large precipitations and snow, much longer in the year. However, we see all the good ingredients for the demand drivers to renew as of April and the first days of May. Again, there are infrastructure projects, that we are positioning ourselves in all the large projects, just to mention the railway projects, Belgrade-Budapest in Serbia, the Expo 2027 in Serbia, which is a highly cement-intensive project, but also energy initiatives in North Macedonia as well as residential development and high rise in Albania. All these countries are also in different stages of accession to European Union. So there, again, the fundamentals pushing the direction of a good demand. So we continue our investments to maintain cost leadership, but also our capacity logistically to serve the needs in the market. So we remain positive on the sustained growth in this market. Michael, do you want to comment?

Just to add some data that you asked. The sale of Turkey, very, very roughly, in terms of sales, it will reduce annual sales by about EUR 80 million. Total sales in Turkey are EUR 100 million and 80% is Eastern Turkey, a very rough breakdown. And in terms of EBITDA, that is a significant decline. That is about EUR 15 billion to EUR 20 million, depending on the timing as to when it will happen.

And please get in contact with our Investor Relations, Spyros, and Spyros will have all the exact details on this.

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

I have 3 questions on my end, if I may. The first one is, given the financial strength and the firepower that you have gained from the business IPO in the U.S. and the upcoming divestment in Turkey, are you considering any major acquisitions? And if so, in which regions would that be? My second question is regarding the U.S. and the foreseen moderate performance of the residential sector. Do you expect infrastructure spending and commercial to offset this weakness even in an extreme scenario? And the third one is regarding the increased finance costs and income tax, effective tax rate. Are this due to the IPO in the U.S.?

So yes, our cash position, leverage and firepower is increasing. We are displaying a very healthy balance sheet for both organic and inorganic investments. We -- as announced in 2023, when we launched our Strategy of Growth 2026, we announced the criteria, financial discipline which will guide us in any M&A. We constantly look in the market for opportunities. We have been successfully completing a number of -- fourth -- 4 bolt-ons, particularly in aggregates, but also in alternative cementitious, one in U.S., if you remember, [ BM Commerce ], the other 3 in Greece, in different parts of Greece, the last one in Italia region, and which are adding overall more than 160 million tonnes of aggregates with an accretive positive impact. I think as part of our strategy when it comes to developments, back in 2023, we announced that our primary focus is in developing capacities both in U.S. and Europe. Of course, these capacities, they could be supplied from the domestic market as well as from markets in proximity. More to say when these transactions will happen. Regarding the -- your second question on U.S. Look, we have published the results of Titan America 2 days ago, and we reaffirmed again the full year 2025 outlook despite the macro uncertainty. So we reconfirmed the mid-single-digit revenue growth, the modest improvement in EBITDA margin, and we also guided that 2025 results will be expected to be weighted towards the second half of the year. And as you are rightly pointing out, this is on the back of infrastructure and commercial projects. Just as a point of reference, in Mid-Atlantic, where we are well positioned, close to 70% of our sales go into infrastructure. And Virginia is the capital of data centers. And we are supplying with rather sophisticated solutions already data centers of Amazon. Not later than a couple of weeks ago, we have also signed an agreement to supply our product in a FedEx project in the Eastern U.S.

On the increased finance costs, those -- actually, all the increase attributed to hyperinflation charge. Now if there is one positive thing that may come out of the disposal of the East Turkey assets is that we will get rid of the hyperinflation impact on our financials. So it will streamline things out. Finance costs are expected to decline further. As our leverage has declined, we have less interest expense and we also have some interest income. And taxes, about half of the increase was attributed to increased profitability in Greece as well as in the U.S. And then there were a couple of hits in Eastern Europe, part of it having to do with having hyperinflation as well. And the improved performance in Egypt also attracted more taxes.

The next question is from the line of Kollias Vasilis with Pantelakis Securities.

I have 3 questions from my side. The first question is regarding the margin expansion at the group level. I would like to clarify how much comes from operational efficiencies and how much stems from resilient pricing across the regions. My second question is about the Southwestern Europe, and I would like to add more color about the competition, the heightened competition mentioned in the press release, which remained subdued the previous years. And my third question is about the East Med region regarding the Egyptian -- the exports from Egypt and from the cluster as well. In which countries the exports from the East Med were channeled?

I will start from the last one regarding the Egyptian exports, which is indeed a significant development. We have been also investing in expanding the export capacity of the Alexandria plant. And the bulk of exports is now done from Alexandria. Egypt -- sorry, Israel is a main client. As you may be aware, Turkey has forbidden its -- the Turkish companies from exporting to Israel. So Israel has turned to other suppliers, including Egypt and Greece. We are exporting from Egypt to Israel. Libya is also a destination which absorbs cement produced in Egypt. And of course, we do a very scrutinized sanction test, but -- there is potential for further exports out of Egypt. We are growing the capacity and also we see [Technical Difficulty].

I think on the question on margin expansion, Michael, it's a combination of, of course, mix of markets. We have markets like U.S. where we have margin expansion -- in aggregate. We have markets like Greece, where both [Technical Difficulty] but also cost efficiencies have contributed to the margin. And here, just to give an example, our previous investments in alternative fuels platform, the Calciner of Kamari are bringing the plants today close to 80% utilization of alternative fuels, which are cheaper in average cost [indiscernible] versus traditional, traditional...

There is also a change of mix of products. They are -- I mean, the margin on aggregates is much higher than the margin on ready-mix and the growth in volumes is not in parallel. Even within cement, products with higher -- with lower clinker content and higher alternative fuels content also have higher margins. It's very difficult to analyze, breakdown specifically with decimals the margin expansion where it comes from.

Yes. And on Southeastern Europe and the Balkans, overall Western Balkans, I think, again, this is a small quarter impacted by adverse weather effects. So we don't see any major imbalances in the competition dynamics. And our teams are working hard, both on the cost front by improving, as I mentioned, the alternative fuels, the digitalization-driven efficiencies, but also in bringing new products, bringing cementitious or blended cement to the market, which overall produce higher margins. So nothing to report on that front, again, on a very low quarter.

The only point to mention about competition is that, in Albania, for a series of quarters, we had higher sales because our main local producer competitor had operational problems and had less production. And of course, when the operations now are fully back recovered, they are gaining back their market share.

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

My first question has to do with the U.S. and the impose of tariffs by the new administration. Do you see any negative impact in your exports there? Or do you feel that the impose of tariffs taking into account that there is deficit in cement in the U.S. further help your pricing, thus leading to higher levels? Second question has to do with your CapEx. As far as I remember, you mentioned that for full year 2025, your CapEx estimate is for EUR 300 million. If you remain on this figure?

So no impact visible from the announced possible changes on the tariff policies in U.S. or even the shipments -- shipping rules. We will continue to watch out. But again, no immediate impact on the market. At the same time, as published both by Titan America S.A., and also by the holding company, we witnessed resilient pricing in the market, and we do have also pricing increases scheduled for the next quarters.

And on CapEx, the plan is still for over EUR 250 million. Of course, if some projects are shifted by a few months, that may reduce the cost for the year. And this has already happened in Q1 by something of the order of -- let's say, EUR 20 billion to EUR 25 billion of projects did not start at the time that they were intended. But the annual target remains in excess of EUR 250 million. And as uncertainty sort of eases a bit and, of course, if interest rates continue to decline, that will trigger an acceleration of CapEx as well.

Ladies and gentlemen, there are no further audio questions at this time. We will now move on to our webcast written questions. And the first question is from Dmitry Vlasov with Wood & Co. What are the key pricing and volume trends are you seeing in April and May? I am particularly interested in the U.S. and Balkans. Do you still expect circa EUR 300 million CapEx this year?

I think we already answered on the pricing. So if maybe you want to comment on...

And the same on the CapEx. I just mentioned that it will be over EUR 250 million, maybe go up to EUR 300 million.

And then the next question is from Ethan Cunningham with On Field Investment Research. Have you announced a price increase in Florida? What is the impact of the tariffs on the profitability, in particular in the Southeast Coastal U.S. region?

I think we already answered on both, particularly to the resilient pricing and the coming quarter's pricing schedule, as well as the impact of tariff, which is not currently visible.

And one last question from Mr. Cunningham. Could you provide some color on recent volumes in April in the U.S.? Is it fair to assume that it's getting a bit worse than in Q1 given the uncertainty on tariffs? Could you see an uptick on cement pricing in the U.S. in the coming quarters as you implement price increase in April?

We are not commenting on the quarter 2. What I would suggest is that the gentleman is getting closer to Spyros Kamizoulis. And of course, we will provide much more color at the publication of the results of Q2.

And also, if they wish, they may also contact Titan America. They have their own IR team and IR response. So if they wish to contact Titan America, Spyros will be glad to give you contacts.

Ladies and gentlemen -- hold on one second, please. Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Cobuz for any closing comments. Thank you.

Thank you. Thank you, everyone, and thank you for the very good questions. So again, we reported solid results, a good start in the year with confidence, operational resilience. We are well positioned across all key end markets. And despite the macroeconomic announcements and volatility, we look confidently in the underlying growth prospects. So with our Strategy 2026, Titan today is stronger and faster and, of course, well positioned for value creation in 2025 and beyond. We'll see you, we'll hear you all again at the end of July 2025. I think we have on 31st of July when we will report the performance of quarter 2. Thank you.

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.