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

Hello, and welcome to the First Quarter 2024 Sales Call. My name is Caroline, and I will be your coordinator for today's event. Please note, this call is being recorded [Operator Instructions] I will now hand over the call to your host, Mr. Hugues Chomel, Deputy CEO and CFO of Vicat Group to begin today's conference. Thank you.

Good afternoon, ladies and gentlemen. I am Hugues Chomel, Deputy CEO and Chief Financial Officer of the Vicat Group. With me today is Pierre Pedrosa, our Head of Investor Relations. I will now be presenting to you our 2024 first quarter 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. On Slide 3, our presentation will be divided into the following 5 topics. So let's begin with our highlights on Slide 4. The first key point is the strong organic sales growth recorded by Vicat over the first 3 months of 2024 at almost plus 8%, the progression was the result of growth in all regions, except France and Africa. Another highlight was the strong performance of U.S., generating a 23% year-on-year increase in sales will grow in both areas. The strong performance in Q1 reinforces our confidence in achieving our full year 2024 guidance. Finally, the last key highlight of this quarter was the strong progress made on our 2 Carbon Capture Storage projects. We will return to this. Moving to Slide 5. You have the regional performances that contribute to the like-for-like plus 7.9% sales growth. As previously stated, the main outlier was the slowdown in France that stemmed from a weakening residential market. 18% of group sales are now generated in the U.S., it's a 3 percentage point increase on the same period of last year. Let's now turn to Slide 6, where you have the revenue bridge for the first quarter. The volume effect is contributing positively at EUR 10 million to growth. Pricing increases added another EUR 62 million, resulting from price hikes in developed markets and to take into account the impact of cost inflation in the Mediterranean region. Lastly, the group was hit by an unfavorable currency effect of minus EUR 60 million, mostly in the Mediterranean region. Starting on Slide 7, we present our performance by region, beginning with France. Here, revenue was again impacted by the weak volumes caused by the contraction in the residential market. Cement business was affected by a further volume decline due to the contraction in the residential market and fewer business days in March. The project to build Lyon-Turin rail link that began in late '23 is, however, expected to progressively curb the effects of the slowdown in 2024. Spikes in cement prices at the beginning of the year made a positive contribution over the period. On Slide 8, we've decided to shed light on our work for the upcoming events in Paris. For this project, Vicat has supplied 70,000 cubic meter of concrete over Athletes Village from its on-site dedicated batching plant. The use of DECA low carbon cement, including CEM IV pozzolanic cement from Créchy cement plant lowered the project emission by over 30% compared with traditional solutions. As a result of our project as a whole, almost 4,500 tonnes of CO2 equivalent were avoided. On Slide 9, you have the focus on Europe. It's beginning with Switzerland, where operational sales moved up 11%. The cement business was again impacted by the weakness of residential market with volumes declining. prices increased -- price increases introduced at the beginning of the year, contributed positively. Concrete and Aggregates operational sales grew well, thanks to a price hike and favorable base of comparison. This year, rail, of Vicat business posted a strong increase, thanks to an improvement in its product mix. In Italy, operational sales remained stable. Moving to Slide 10 with our performance in the Americas. I'll begin with the United States, where volumes grew in both California and the Southeast on the back of a favorable base of comparison effect in California and normalized volumes at the Ragland plant as production reached full capacity. The pricing environment remains favorable in both regions with the carryover effect of price increases introduced in 2024. Finally, concrete sales rose strongly as a result of dynamic market trends in California and a catch-up effect in the Southeast. In Brazil, business slowed down with volumes and prices falling in the first quarter. The decrease was due to a intensive competitive environment in the Midwest region where Ciplan operates. In Brazil, we expect the full year operational results to be close to those of 2023, benefiting for improvement in industrial performance and energy costs. On Slide 11, you have our performance in Asia. Beginning with India, where volumes were up sharply as a result of dynamic demand and a favorable base of comparison. The improvement in the price cost differential since the second half of 2023 has boosted competitiveness. In a competitive environment, selling prices moved slightly lower over the period. Sales in Kazakhstan rose in the first quarter in an expanding market. Volumes experienced strong growth on the back of a dynamic performance in the Almaty region and a favorable basis of comparison. Price fell back slightly amid fierce competition. On Slide 12, we have our performance in the Mediterranean. Despite a persistently hyperinflationary environment, the cement business in Turkey posted solid volume growth in the first quarter due to the support provided by the government to the construction sector and a favorable base of comparison. Selling prices have to make up for the effect of inflation on production costs. Cement business in Egypt experienced sluggish domestic market conditions with volume declining, especially linked to the Ramadan timing. These factors were offset partially by growth in volumes for export in the Mediterranean region and to Africa. Prices rose during the first quarter in a market still regulated by the authorities. Turning to Slide 13 regarding Africa. Even if production will remain constrained until commissioning of a new kiln at the end of 2024, Senegal showed resilience in the first quarter with volume declining slightly, chiefly as a result of Ramadan timing. In a political environment dominated by the presidential election, sales did not experience any major disruption. Conditions remain dynamic in the domestic market, which is supported by strong residential demand and infrastructure projects. Prices have been stable since the beginning of the year. Aggregate sales in Senegal posted growth of 4.7%, thanks to continuing boost from the major public projects. Cement sales in Mali were fiercely affected by power supply disruptions. As a result, operational sales fell 18.6%. Sales also rose in Mauritania as a result of a dynamic business trends. On Slide 14, we've outlined the details of our 2 CCS projects that are currently in development. The group has accelerated its decarbonization road map and its net zero carbon goal with the launch of Low Carbon to Zero Carbon initiative. This program involves 2 final decarbonization projects to capture carbon by storing it at its plant in Montalieu in France and Lebec in California. The VAIA project designed to capture an store 1.2 million tonnes of CO2 per year at Montalieu is advancing well. Processes are underway with the French authority and the European Union to secure subsidies. The partner ecosystem for the project is taking shape. In California, the Lebec Net Zero LNZ project designed to capture and store 0.9 million tonnes of CO2 per year has been selected by the U.S. Department of Energy to receive a grant for 50% of the investment up to EUR 500 million, covering in particular, an industrial scale Carbon Capture and Storage installation. In addition, the tax incentive of $85 per tonne sequestered will be available for a 12-year period. This announcements represent a major step forward, demonstrating the project's credibility. Stocks are set to continue with our project partners to lay down the implementation arrangements. We selected technologies for both projects capture of CO2 by amine and by cryogenic. Both will be compatible with the oxyfuel technology of second generation that we are developing with our partners in the cash flow Climate joint ventures. On Slide 15, you have our outlook for 2024. It is confidently reaffirmed on the back of a profitable growth generated this quarter. Slide 16 illustrates the 21% increase in our dividend, a milestone figure voted at the last shareholder meeting. It corresponds to a yield of 5.5% ahead of industry [indiscernible]. Finally, on Slide 17, Vicat joined in March the SBF 120 index of Paris and Euronext. This concludes my presentation for today. Caroline, can we move to questions, please?

[Operator Instructions] We will take the first question from Ai Lan from On Field Investment Research.

First question on the United States, where I think you're publishing organic growth of close to a bit above 20%. Could you give us a bit of a breakdown between the price component and the volume component? Is it fair to assume that prices are up double digit or is it mostly volume? That would be my first question.

We are indeed posting a strong progression in U.S. As a reminder, last year was a favorable basis of comparison with particularly Ash weather in California and with the ramp-up of the Raglan plant. So we have significant volume progression and single-digit price increase.

And on this price increase in the U.S., I think that is it price increase that we announced in January? Or do you have further to come in April?

As you well know, price increases in U.S. happen usually in April and September. So there was no fresh price increase in January. We had some in September, and we have announced a new one in California in April.

And in the Southeast, you have not announced any new price increase in April?

Not yet. So it will be probably in Q2.

And the outlook for pricing for those price increase in April or in Q2, do you feel confident that they will be successful?

Yes, we are.

And they are -- from what I understand, they are more in the range of $5 to $10, and they are not as big as what they were in 2023 or 2022. Is that correct?

Indeed.

And then a second question would be on the situation in Africa. I think the volume was a little bit weak because of the situation, the power shortage in Mali and the political situation in Senegal. Do you see the power shortage ending in the coming quarters or in the coming months? And if you could give us an update on the political situation in Senegal that would be on the potential disruption to your activity and your investment plans that would be very helpful.

So situations are quite different between Mali and Senegal. So in Mali, we had indeed a disruption in the public power supply. We -- but has eased somewhat since we are implementing group to generate electricity on our own to limit the effects on it as we don't have visibility on a structural improvement. As far as Senegal is concerned, as we have pointed out in the press release, we have not had significant disruption on the business linked to the ongoing political development. Things have been happening orderly and legal manner. So there is no reason to be worried about it. So we are implementing the project as we started and try to commission it as soon as possible, but it will be late this year.

And maybe when we look at Turkey as well, like you had a fantastic results at the beginning of the year. But could you expect the activity to come back down after the election? Or is it too early to say because it looks like the activity is very, very high in Turkey. And I wonder if it's something which is sustainable.

I believe that in Turkey, like in many countries throughout the world, there is always a positive boost before local elections. We do believe that we will have some slowdown at the same time, the global support to the construction activity from the government is still there. And the reconstruction effort after the last year's earthquake is still going on. So we -- you should see less strong demand but still in a positive territory.

And the last question on the results. It's like the -- you're confirming your guidance of an increase in EBITDA. But is it fair to assume that you would have a good margin expansion and a very strong increase in EBITDA in the first half of 2024, given the base effect, which is relatively easy.

Well, as you rightly pointed out, we do guide to a growth in EBITDA. We will have a positive base of -- a favorable base of comparison in H1, considering many factors, the ramp-up of Ragland, the weak H1 in California, still relatively high in energy prices. We will have a tougher base of comparison in H2 and it is certainly one of our priorities to restore pre-crisis margin levels and to try to progress in our margin rate.

That's very clear. And then maybe a last question, which is a bit more -- a bit less about the short term and more about more about the long term. You're presenting those 2 large projects on Carbon Capture. I guess it's a little bit early, but do you -- when you're looking at accelerating the investment and developing this project, do you have in mind a return on capital employed that you want to achieve on those investments? And is it something that you can -- is there some elements that you can control beyond the CO2 price beyond the grant. I'm just trying to understand if you're confident you can cover your cost of capital with Carbon Capture.

Well, first of all, you have certainly in mind that Carbon Capture is the last resource once we have implemented anything else we can implement to reduce our emission levels, so that's how we have built our carbon road maps. So we have a road map to 2030, aiming to bring down the carbon intensity below 497 kilo per CO2 per tonne. So we are implementing that. At the same time, we want to go further on the road to zero. On this road, Carbon Capture will be needed. There is a lot of factors that are still moving or not fully known, among which, of course, the cost of CO2 when there is one. The cost of those technologies that is probably changing rapidly as well as the implementation costs. So it is too early to give you a view on our expected return on capital, but we will certainly not consider the project, but do not generate a return a decent return on capital.

We will take the next question from Brijesh Siya from HSBC.

So the question is about Europe or specifically in France and Switzerland. And could you please tell us what kind of volume price increases you have done in first Q1, is it in the range of mid-single digit or low single digit?

Brijesh Yes, we -- as you remember, we had to face an exceptional inflationary environment in the last 2 years, that prompted exceptional price increases. Situation is now gradually normalizing both on the inflation of costs and now prices as well. So we are back to a low single-digit price increase.

Fair enough. Moving to the next 1 is about emerging market, especially in India. You talked about a slight price cut. I know it's kind of a market which is kind of right now grappling to a low-cost inflation in terms of your energy and all hence, you see those competition coming back. What's your near-term outlook with election going? Do you see the volume kind of it's intensifying in Q2 and Q2 and possibly then stabilizing somewhere in Q4. Any color on the near-term outlook would be great on pricing?

Well, you certainly know India as well as me, Brijesh. We have observed still a very dynamic market environment in Q1. Of course, the massive election process going on is slowing down business in Q2, especially in this half. We see March with all the large infrastructure project, more resilient. But we do expect to have indeed a slowdown of growth in Q2 and then a gradual normalization beyond that. On prices, yes, it is intensive competitive environment. So prices have been slightly coming down. There is time to time attempt for the industry to recover some price. So at some point, this will go through.

Understood. And just going back on the pricing comment in Europe. When you do these price increases, is it a plain vanilla one or you would generally go for the kind of low carbon cements and where you kind of command a little more premium, hence, you get those pricing gains. So I just wanted to understand how the dynamic is moving -- and the dynamics are moving in the market at this point in time, given you have the cost inflation, which are kind of gradually coming down quite a bit.

We are speaking here about a general price increase. We have as well surely a pricing strategy for different types of cement. But the pricing increase I mentioned was the, I would say, the overall price list increase.

And just one last one. I recollect Vicat presenting a couple of low carbon cement solutions 2 years back. Can you just give us an update where we are in that terms of kind of coming to the market, whether which stage we are and how far we are to commercialize those solutions.

Well, we have a range of various low-carbon cement called DECA in France that is commercialized for several years and is representing a few percent of our sales and volume. Some of them are, I would say, relatively classic slag cement or pozzolan cement and the one we have used for the Athletes Village. We are -- we have introduced on a limited number of sites [ car ] offering, which is not yet normalized, so cannot yet expand at a large scale. But we hope this will come at some point.

Understood. My question was more about the 2 solutions, which you kind of put a press release in January 2022. I was talking about the binder 0133H...

It has been, I would say, a rebranded CARAT, and it is not yet commercialized at full scale. We are using it in quite some site.

And what about 2402H?. That's the binder you talk about in the same press release with as with 32.5R cement and has a net CO2 [ sink of ] 310 kilogram negative?

I'm sorry, I'm not sure I get the reference, Brijesh. So I'll revert to you...

[Operator Instructions] We will take the next question from Ebrahim Homani from CIC.

I have a couple of questions. So the first one is about the price announcement you have for the coming ones, in the geography, you plan to maybe improve prices you have talked about the U.S., is it also the case in Europe and especially in France.

Good afternoon, Ebrahim. We -- as I mentioned before, I think we are coming back now to, I would say, gradually to normalized inflationary environment, so where we mostly tend to be in an annual price increase in the developed markets. So that took place in Europe at the beginning of the year. So we do not expect further price increase this year. In U.S., as I mentioned, we had not yet price increase this year and we are implementing 1 currently in California and probably another 1 coming at the end of H1 in the Southeast. In various emerging markets, it's very much market-driven, trying to adapt to the situation more rapidly.

Okay. Very clear. And in France, when will the Lyon-Turin railway contribute to the France volumes. Is it more on Q4 2024 or in Q1 2025?

So as you know, it is a very large scale, long-term project where we are supplying concrete and/or cement. And we are, I would say, following the progress of work. So it is gradually ramping up at the moment with relatively limited volume, although there is some and it will be a little bit more visible as we go forward quarter after quarter.

Okay. And maybe 2 questions on volumes on Egypt and globally, on Egypt, what is the part of volume, which is exported from Egypt? And the second question about Ragland, if we accept Ragland, do you still have a positive volume effect?

So on Egypt, I will remind you last year, I think we have exported about 600,000 tonnes during the year. I would expect this to continue to progress this year. On Ragland as we have ramped up throughout the year -- last year, and we reached normalized level by the end of the year. We will have clearly a 10% to 15% growth potential this year.

Okay. And maybe a last question on Carbon Capture. Could you please remind us the CapEx and OpEx per tonne of Carbon Capture, which is required for this kind of projects .

I don't think I will remind it to you because I never communicated -- sorry for that. It's a little early in the game.

Thank you. It appears no further question at this time. I'll hand it back over to your host for closing remarks.

This concludes our call for today. Thank you all very much for your interest in Vicat. Looking ahead, considering the profitable growth in Q1, we are confident in our ability to deliver our 2024 guidance and remain focused on our strategy aimed at deleveraging the group, restoring its precrisis margins and accelerating the decarbonization agenda. And we will talk to you again on the 25th of July. Have a great day.

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