Vicat S.A. (VCT) Earnings Call Transcript & Summary

My name is Natalie, and I'll be your coordinator for today's conference call. Please note that this call is being recorded. [Operator Instructions] I will now hand over the call to Hugues Chomel, Deputy CEO and CFO, to begin today's conference call. Thank you.

Thank you, Natalie. Good morning, ladies and gentlemen. I am Hugues Chomel, Deputy CEO and Group CFO of Vicat Group. With me is Stéphane Bisseuil, Investors Relations Director. Thank you for attending this Q&A session that follows last night update of the Vicat Group 2022 outlook. Before moving to questions, I would like to summarize a few elements. Two main factors have emerged in the recent weeks to support the review of our outlook for the full year of 2022. Brutal and there is significant increase in electricity prices in France and Switzerland at out based already strong selling prices increases. We've announced additional and very significant price increases in France and Switzerland to compensate the effect of this acceleration in inflation. The ramp-up of the Ragland plant has been more gradual than expected due to necessary technical adjustment. Situation at Ragland has improved, and the group should progressively benefit from the full capacity to respond to dynamism of the market and from the energy efficiency of this new facility. Even if the updated expected level of EBITDA is lower than the initial expectation, it is still expected to be strong and above the 2020 level. In this environment, the group is taking the necessary measures to adapt. In mature economies, energy inflation has prompted a radical change from the traditional pattern of annual price increases in favor of a more dynamic sequence of adaptation to rises in energy costs with hikes introduced every time it is required. The second point is an enhanced focus on debt reduction with significant decrease in CapEx plan through 2023 and 2024. In the meantime, the group is seeing tangible results in the acceleration of its ecological transition with a faster ramp-up of the use of secondary fuels, a decrease in the clinker rate. And it maintains its objective of reducing cost per tonne of cement produced, thereby improving overall climate performance. After this brief comments, I would like to move on to questions. Natalie, you can open for questions.

[Operator Instructions] Your first question comes from the line of Yassine Touahri from On Field Investment.

So a couple of questions. First, could you quantify the negative impact of the Ragland ramp-up? I think you quantified a number of EUR 25 million in the first half would be very helpful if you can give us an order of magnitude for the impact in the second half. And then a second question on this energy, on the electricity bill in Europe. I thought that you had long-term contracts in France. So I'd like to -- could you explain a little bit how the purchasing of electricity works for you in France and Switzerland and how much was effectively hedged for the second part of 2022? Is it like, maybe like 30% or half of your electricity bill was not hedged and you're paying the spot price, any information that you can give us on your exposure to spot electricity prices in Europe would be very helpful.

Okay. Thank you for your question, Yassine. In terms of quantification, I mean, you have seen the revision of our outlook between growth and above 2020. So that gives you a magnitude of global impact. I would say more than half of this negative variance comes from electricity and most of the part is coming from U.S. So that would be, I'm sorry, but its as precise as I can get at this point. On energy mechanism. As you know, the situation is quite different in France and Switzerland. In Switzerland, we have no, I would say, regulated prices. So we start with theoretically only market prices, and we build hedges over time, so on a rolling price basis. So doing so, we were still exposed to about probably less than 1/3 to spot in the second half, but seeing the impact of [brutal] increase, it has skyrocketed. In France, as you know, energy-intensive electricity do benefit from the [indiscernible] part. So it is roughly 2/3, 1/3. So we have 1/3 which is theoretically open to market and on which we either by spot or by follow on depending on the situation.

And when you look at your energy, your electricity bill for 2023, have you started to hedge? Are you going to pay the spot price in Switzerland and France?

So as you noted, we have not yet disclosed elements on '23 to the market. We will be able to do that later on. As a general comment, we have not changed hedging policies, and we will -- so we -- and we will communicate later on, on these trends.

Maybe a last question. When I look at those price increase of more than EUR 20 in France, and CHF 33 in Switzerland, do they fully reflect the latest spot price for electricity? So does it mean that once they're implemented you will be able to fully cover cost inflation? And then the other question is like, is it -- are those price increase described to your client as electricity surcharge? So does it mean that if in 2023, electricity prices come back down, will you have to cut back those prices?

So we -- this price hikes scores are meant to cover our expected electricity prices for the end of the year. So as a spot basis, on the end of the year, they would cover the additional costs. So far, they came with a delay. So that's why we see an impact on our EBITDA this year. They are presented as general price increases. But of course, at some point, if energy was to decrease substantially, I would believe that market price will adjust with time as they did on the way up.

We'll now take our next question from Michael [indiscernible].

Can you hear me?

Yes, very well.

I'm sorry, I got disconnected on the previous question, so I'm going to ask it again. Well, the 2 price increases that you've implemented, will they offset the energy cost inflation at the current spot prices in Switzerland and France? I'm sorry, I understand it was after the question where I got disconnected when you were giving the answer. And my second question is on the maintenance CapEx. You have communicated that you will focus on deleveraging starting next year and take the CapEx down to basically maintenance CapEx. What kind of -- if you could quantify that a bit in 2020 and 2019, I mean, these were just under EUR 200 million, does it mean that CapEx will go back down to EUR 200 million starting year?

Yes, thank you for your questions. Just to reiterate my previous comment on prices. Those increases are meant to compensate the acceleration in inflation. So on a spot basis, by the end of the year, they would match or expected cost increase. But as they come with a delay, they will still leave an impact on EBITDA this year. So with no further increase of cost, we would offset them by the end of the year.

But on the full rate basis -- on a full run-rate basis in 2023, does that mean that they will go...

Compensate the cost increase.

Okay. And have they been accepted by your clients? Have they...

As you have noticed, those are announced for future dates so they are being announced and discussed. But so far, we see a good understanding from the market. So on CapEx, I would like to clarify a little bit the statement we made last night. We will focus on maintenance CapEx. Maintenance CapEx are usually between EUR 120 million and EUR 140 million per year. Then we will maintain -- or we will continue permitted projects. And as you know, we have quite a substantial portfolio of committed projects. For example, we are building a new kiln line in Senegal that will continue through 2023. So it will be magnitude of EUR 100 million next year. And then we will continue our carbon reduction projects. We're prioritizing the ones with the best return on investment. So the decrease will be only gradual in '23, given that, I would say, backlog of committed projects, and the decrease will be more substantial in '24.