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

Good day, and welcome to the Vicat Q1 Sales 2023 Conference Call. Today's call is being recorded. At this time, I would like to hand the call over to Hugues Chomel, Deputy CEO and CFO of Vicat Group. Please go ahead.

Good afternoon, ladies and gentlemen. I am Hugues Chomel, Deputy CEO and Chief Financial Officer of the Vicat Group. With me is Stéphane Bisseuil, our Investor Relations Director. I will be presenting to you on Q1 2023 sales figures. Before starting the presentation, please have a look at Slide 2 where you can read our disclaimer regarding the forward-looking statements that this presentation may contain. Let us begin with highlights of the period on Slide 3. Vicat's first quarter sales of close to EUR 900 million demonstrates the resilience of demand. The increase in consolidated sales was almost 20%, even when compared to a very good first quarter 2022 figures. This marked progression was driven by significant increases in selling prices. Amid viable weather conditions, especially in California and Turkey, the group has pushed ahead with the ramp-up of its new installation in Alabama and accelerated its strategy of improving its manufacturing performance and shifting away from fossil fuels to achieve its operational and environmental objectives. Let's move to France on Slide 4. In the first quarter of 2023, supported by a strong increase in sales prices, group sales in France increased despite an unfavorable base effect. The Cement business operating sales were up 21%, taking into account an unfavorable basis of comparison linked to the dynamism of French market over the same period of last year. This performance reflects a slight contraction in demand, which was largely offset by strong increase in sales prices to compensate for the sharp rise in cost over the last 18 months. Concrete & Aggregates operating sales were up 2%. This evolution resulted from a decline in volumes, offset by a significant improvement in sales prices over the quarter. Other Products & Services operating sales increased by 4.5%, particularly in transport and building chemicals. Please turn to Slide 5. Business in Europe, excluding France, was down in the first quarter of 2023 in a mix environment. In Switzerland, consolidated sales were down 8.6% at constant scope and exchange rates. The Cement business, operating sales increased slightly by 2%. This performance is the result of a decline in demand during the quarter, offset by a significant increase in prices. In the Concrete & Aggregates business, operating sales decreased by 14% as price increases in both Concrete & Aggregates could not compensate for lower volumes. Other Products & Services operating revenues was down 12% compared to the first quarter of 2022, which was a high basis for comparison. In Italy, consolidated sales rose by 27%, due in particular to a significant increase in average sales prices. Moving now to the Americas on Slide 6. In both the U.S. and Brazil, the construction sector remained resilient in an environment marked by a decline in volumes, offset by a solid increase in sales prices. In United States, the macroeconomic and sector environment remained generally favorable despite a particularly unfavorable basis of comparison in California, given the high level of demand recorded in the first quarter of 2022 and the exceptionally adverse weather conditions at the beginning of this year. In the Cement business, operating sales increased by 4.5% at constant scope and exchange rates over the period, resulting from the significant price increase that offsets the decline in volumes in California due to very poor weather conditions in the first 3 months of the year. The ramp-up of a new Ragland kiln resulted in a significant increase in volumes over the period in this region. In the Concrete business, operating sales decreased by 5% as higher prices and increased volume in the Southeast did not offset the impact of poor weather conditions on volumes in California. In Brazil, consolidated sales amounted to EUR 62 million, up 14%. In the context marked by high inflation and a rapid rise in interest rates, demand was down in the group market in a price environment that remained favorable. In the Cement business, operating revenues amounted to EUR 48 million, up 12%, supported by a strong price increase compared to the same period of 2022. In the Concrete & Aggregates business, in line with the trends observed in the Cement business, operating sales amounted to EUR 22 million, up 21%. On Slide 7, we can examine performance in Asia. Sales in India increased over the period as a whole in the context of high inflation. Prices are on the rise, but remained very volatile, particularly at the end of the quarter. Consolidated sales were EUR 101 million at the end of March 2023, up 7%. In Kazakhstan, the group recorded consolidated sales of EUR 10 million, down 21% on a like-for-like basis. This performance is the result of a significant drop in volumes, taking into account a logistical disruption experienced by the Kazakh railway operator. The situation is gradually returning to normal. Sales prices remain well oriented. On Slide 8, you have our performance in the Mediterranean region. In this region, sales increased strongly in both countries. In Turkey, the macroeconomic and sector environment remained dominated by high inflation and winter conditions were significantly more favorable than in 2022. As a result, consolidated sales amounted to EUR 65 million compared to EUR 27 million in the first quarter of 2022. In the Cement business, activity was marked by a very strong improvement in sales volumes, supported by weather conditions that were much more favorable than in the first quarter of 2022. At the same time, and in a context still marked by very high inflation, price increases are particularly strong. On this basis, operating sales in this activity increased by 259% on a like-for-like basis. Operating sales in the Concrete & Aggregates business were up 166%. As in Cement business, favorable weather conditions at the beginning of the year and significant increases in sales prices supported the business performance in the first quarter of 2023. In Egypt, consolidated sales amounted to EUR 39 million, up 161% at constant scope and exchange rates. The market regulation agreement that has remained enforced since July 2021 between the Egyptian government and all producers helped the continued improvement in domestic sales prices during the first quarter, supported by an increase in demand. Finally, on Slide 9, we have the numbers for Africa. In Africa, the group continues to benefit from favorable sector demand. In the Cement business, operating sales increased by 16% at constant scope and exchange rates, benefiting from the recovery of the Malian market and the dynamism of the Mauritanian market, which offset the decline in deliveries to Senegal. Sales prices are up in each country. In Senegal, the Aggregates business is driven by the gradual recovery of major governmental project, posted operating sales of EUR 12 million, up 41%. On Slide 10, I'll turn to the changes in the group's financial position at the end of March 2023. At the end of March 2023, the group's shareholder equity was EUR 2.8 billion, up from EUR 2.7 billion at the end of March 2022. Group net debt was EUR 1.7 billion versus EUR 1.5 billion at the end of March 2022, given the significant increase in the working capital requirement with the growth in sales and the impact of inflation on inventories. Finally, on Slide 11, you have our outlook for 2023, but is unchanged. In 2023, the group is targeting further significant sales growth with its market overall expected to display resilience and reflect the full benefit of the price hike in selling prices implemented in 2022 and the fresh increases introduced in 2023. In addition, performance in 2023 will reap the benefit -- the full benefit of the new Ragland kiln, elimination of nonrecurring costs incurred in 2022 and the stabilization in energy costs, with the increase in these now reflected by higher selling prices. Taking these factors into account, the Group's 2023 EBITDA is expected to rise towards a level at least equivalent to that recorded in 2021. This concludes our presentation. Kevin, can we move to questions, please?

[Operator Instructions] Our first question today comes from Ebrahim Homani of CIC.

I have 3 questions, if I may. The first one is about the strong performance in France. Could you confirm that cement volumes in France were positive in the Q1? My second question is about the U.S. volume. Could you please give the Ragland contribution of the increase in volume in the U.S.? And my third question is about the decrease in volumes of ready-mix. Is it due to a higher exposure to the residential market?

As you noticed, we are not disclosing volumes by market. Nevertheless, we have witnessed resilient volumes in France in cement. As far as Ragland is concerned, we have witnessed significant progression of volumes in line with our expectations. And as you probably noticed, that has partially offset the significant downturn of volumes in California due to the weather condition. As far as ready-mix is concerned, of course, I mean, globally, ready-mix are exposed to residential market. You have, as well, to keep in mind that we do not operate ready-mix concrete in all territories. Therefore, the difference in volume performance is as well the result of geographical mix.

Our next question comes from Yves Bromehead of Societe Generale.

First, I'd like to start by thanking Stéphane for all those good years, and I wish him all the best in his future career. So thanks, Stéphane. Moving on maybe to my question. Just on California, sorry, you flagged that the office space industry is starting to show some pressure. I was just wondering if you could elaborate on that. And if you would expect California to contribute positively in terms of volumes for the full year or if maybe you expect the pressures there to increase over the course of the year given the regional bank crisis. So that's question number one. And just question number two, just to try and clarify with the start of the year, just the direction of travel compared to what you've mentioned earlier this year for the outlook. Are you more confident? Or are you potentially seeing some weakening spots? I think you flagged Switzerland and a few other geographies. So I just wanted to get a bit of clarity on the outlook here.

Yves, Stéphane Bisseuil speaking. Thank you for your words, highly appreciated. And that's it. Hugues?

Yes, for California, the full year expectations, you have to keep in mind 2 or 3 factors. So first of all, 2022 was a very high basis of comparison. It was the historical record volumes that we recorded in California. So it's a tough base of comparison. Second thing is, as we flagged, we had a real difficult weather with constant rain, even snow in March in Los Angeles, which is rather unusual. So this will be difficult to compensate on a full year basis. Beyond that, we see, as mentioned, a slowdown in commercial offices. But at the same time, there is a significant activity going on, on logistical platforms, large, what they call big box links to the e-commerce, but drive rather strong volumes. And as well in California, some significant realization linked to infrastructure. So all in all, the demand trend passed. Those weather incidents is not so bad. It's a little early to tell whether we will have some impact of the bank crisis on the sector. And your second question regarding the evolution of guidance. As you have seen, we have maintained our guidance globally unchanged. So we are not having a different overall view on the expectation for the full year. We adjusted marginally certain countries up or down depending on the start of the year. But overall, no modification in our full year expectation.

[Operator Instructions] The next question today comes from Arnaud Pinatel of On Field Investment Research.