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

Hello, and welcome to the Vicat First Quarter 2025 Trading Update. My name is Laura, and I will be a coordinator for today's event. Please note, this call is being recorded. [Operator Instructions] I will now hand you over to your host, Hugues Chomel, Deputy CEO and Group CFO, to begin today's conference. Thank you.

Thank you, Laura. Good afternoon, ladies and gentlemen. I am Hugues Chomel, Deputy CEO and Chief Financial Officer of Vicat Group. With me today is Pierre Pedrosa, who Head of Investor Relations. I will now be presenting to you our Q1, 2025 trading update. 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. So let's begin with our highlights on Slide 3. The first key point is the stable like-for-like revenue we recorded this 3 first months. This was a sound performance achieved despite market slowdowns this quarter in India and Africa. Another main highlight of Q1 was the resilient performance in Western Europe with stable revenues in France and over 6% organic growth in Switzerland and Italy. The first takeaway is the confirmation of our 2025 guidance that includes like-for-like sales growth and low single-digit EBITDA growth. Finally, we moved ahead this quarter on a key initiative in our climate action plan with the Via project whose public consultation has been launched. I will return to this. Moving to Slide 4. You have the regional performance this quarter. I remind you that due to the strong seasonality in our business, Q1 is our lowest quarter of activity and not always representative of full year trends. Q1 public revenues was down 2.7% on a reported basis, impacted by negative exchange rate trends of minus EUR 30 million or minus 3.3%, chiefly owing to the depreciation in the Turkish lira, Egyptian pound and Brazilian real against the euro. The main outlier in this first part of the year were the lower activity volumes in India and Africa. Let's now turn to Slide 5, where you have the revenue bridge for the quarter. You can see that the effect of lower volume was offset by price hikes this quarter, with the difference coming from the negative currency effect we just mentioned. But integration of Cermix has contributed to the review with positive net scope effect of plus EUR 7 million this quarter. On Slide 6, we present our performance by region, beginning with France. The cement business in France was still impacted by the weakness of the residential market, but the decline slowed sequentially over the quarter. Cement prices remained stable. Over the first 3 months of 2025, the infrastructure project for Lyon-Turin rail link, TELT, contributed in a limited fashion, only partially offsetting the downturn in residential volumes. Trends in concrete were encouraging with aggregate volumes rising slightly, supported by TELT projects. Other products and services rose with the integration of construction chemical activities related to the VPI/Ceramix deal. On Slide 7, I would like to give you more color on the VAIA project. This is a decarbonization project that aims to capture nearly 100% of the ultimate emissions from the Montalieu plant. It includes several dimensions. The use of activated clay via an innovative process to avoid 200,000 tonnes of CO2 per year and the CCS facility with a capture capacity of 1.2 million tonnes of CO2 per year. It is a complex value chain involving several partners and comprising the capture at our Montalieu plant using cryogenic technology, including supply of low-carbon electricity. The CO2 will then be transported via an existing pipeline operated by SPSE to Fos-sur-Mer. In force, the CO2 will then be liquefied by LNG or transport by sea. There are still a few storage sites, and they are currently being studied with the closest one located in Adriatic Sea. The investment for Vicat be EUR 700 million as an initial estimate and is mainly related to the CO2 capture system. The cost of transportation and storage will be an operating cost. We are currently in discussion with French and European authorities to obtain subsidies, particularly under the innovation fund and the call for tender [ Grand Pro ] Industrial, the decarbonate. This project is well underway. We have very recently launched a public consultation phase with local stakeholders, which should be completed by June 2025. Pre-feasibility studies have also been launched. On Slide 8, you have the focus on Europe. Let's begin with Switzerland. Cement activity rose in the first quarter. This is the second consecutive quarter of growth. Introduction of new low-carbon cement supported the growth. Going forward, major infrastructure projects should support activity in 2025. In Italy, sales rose against the backdrop of the volume rebound and stable prices. Moving to Slide 9 with our performance in Americas. I'll begin with the United States, where the cement business experienced mixed trends by region. Residential volumes in California continued to decline, a trend partially offset by growth in the Southeast, driven by the ramp-up in rail terminals. The pricing environment remained resilient during the quarter. In Brazil, cement business reaped the benefit of progression in volumes, while prices remained stable over the period. On Slide 10, we thought it's useful to remind you of the local-for-local business model of Vicat as illustrated here in the United States. As many of you know, Vicat is present in California and in the Southeast under the National Cement brand. In both cases, we developed our local-for-local business model. Vicat is a local producer using local resources and selling to local markets. This means no import and no exports of cement or clinker, which provides us with a competitive asset in today's economic environment. On Slide 11, you have our activity in Asia. Beginning with India, where cement volumes were down significantly, owing to the increasingly fierce competition environment in the Southern states, where prices remained under pressure and where the base of comparison was unfavorable. The encouraging volume growth in Maharashtra with the increase in rail capacity in late-2024 to serve Mumbai only partially offset the volume downturn in the South. In Kazakhstan, prices continue to move higher to pass the increased costs. Volume also rose slightly in the quarter. On Slide 12 to the Mediterranean region. Amid a persistent hyperinflationary environment, the cement business in Turkey was impacted by volume decline caused by unfavorable weather conditions in February and the political situation. Selling prices were hiked again to offset the effect of inflation on production costs. The cement business in Egypt was boosted by further dynamic trends in the export market with a strong rise in volumes and higher prices. Prices in the domestic market also moved positively over the period. Turning to Slide 13 regarding Africa. Cement business in Senegal was impacted by a downturn in domestic price as a new competitor entered the market. Aggregate operational sales in Senegal moved lower as a result of a sharp slowdown in volumes, given the continuing delays to public sector infrastructure projects. Cement operational sales in Mali and Mauritania decreased as volume and price moved lower. Slide 14 compiles the benefits of the new investment in Senegal that will substantially decrease our production cost in this region. We are on track for commissioning of Kiln 6, which is set for this quarter with a contribution to EBITDA expected in the second half of 2025. Finally, on Slide 15, we confirm the outlook for 2025. I will remind you the underlying factors that lead to this, an acceleration in performance in the second half of the year with the contribution of Kiln 6 in Senegal, stabilizing energy costs, net capital expenditures of around EUR 280 million and tight control of working capital. Of course, it's important to note that this guidance does not factor the macro impact of a prolonged traffic trade conflict. I will conclude on Slide 16 that sums up the 3 priorities of the Vicat Group for the coming months and years. The first is maintaining our EBITDA margin level to at least 20% over the 2025, 2027 period. The second is to continue deleveraging to reach a leverage ratio of below 1 at the end of 2027. And finally, accelerating our climate road map and promoting our low-carbon offering. Going forward, we are confident these levers are core to creating value for all our shareholders, and we remain fully focused on delivering on these objectives. Laura, we can move to questions, please.

[Operator Instructions] We will now take our first question from Auguste Deryckx of Kepler Cheuvreux.

I have 2 questions. The first one is about Senegal. In the press release, you said that there is an increased competition. And I would like to know, if the lower cost of production, thanks to the new kiln will allow you to regain market shares? And the second question is about carbon capture projects. Can you give us an update on the total CapEx for the current project because there is another one on top of Montalieu. And also how much has been spent to date? And maybe if you have an indication on the OpEx per tonne of CO2 capture. That could be wonderful.

Thank you, Auguste, for this great questions. On Senegal, we mentioned an increased competition with a newcomer with the arrival of [ Ciments ], Moroccan player that started late last year. Actually, I want to remind you that Senegal is a long-term growing market that grows mid- to high single digit year after year for decades. And we have always seen this similar trends of temporary tensions on prices with a newcomer and the capacity of newcomer of capacity expansion being quite quickly swallowed by the growth of the market. So in this specific case, we have seen limited erosion of selling prices and no erosion overall market share. So it is a temporary event, and we are not overly concerned. As a reminder, our new project is about to start. And the key rationale of this project is to reduce production costs by eliminating imported clinker and substituting the production of the 2 oldest kiln by the latest technology with Kiln 6 and maximizing the use of alternative fuels to fossil fuels. So we are confident that this will allow us to have a competitive industrial base. On the VAIA project, let me come back quickly. So this is a project that we have spoken about before. We just wanted to update the market about what it is. It is a project that is meant to capture all emission of the Montalieu plant. It is in terms of timing, we are now entering the consultation and study phase. We expect to be in a position to make a final investment decision late-2027 to target commissioning probably around 2031, depending on the amount of subsidies obtained from both EU and the French authorities. In terms of economics, as you know, carbon capture is today a new technology that is quite expensive. What we expect from it is savings on the carbons that we will not need to surrender anymore. We do believe that the market will accept premium on selling prices. And both CapEx and OpEx will need to be partially offset by some subsidies, as we mentioned. In terms of OpEx cost, it's probably a little bit early for me to share numbers, but we can share a few comments. First of all, the carbon capture project is an energy-intensive installation. So it very much depends on the cost of electricity. It also depends on the distance to storage sites. So depending on where the project is located towards the storage site, whether it's onshore or offshore, the cost of transportation and storage is more or less important. And we have 2 projects in the group, as you know, LNZ project in California, which is aiming on onshore storage side and Montalieu, which as explained during the presentation, is aiming offshore storage sites. And again, as the technology will progress with the years, we expect the cost of those technologies to come down as well. That's probably what I can share with you at this stage.

We will now move on to our next question from Ebrahim Kani of CIC.

I have 2, if I may. The first one is about France and the organic growth, it was stable in Q1. Did you announce any price hikes in April? And the organic growth will be positive starting from the Q2 given the organic growth in the Q1? And my second question is about Switzerland. You did it well, a huge organic growth, but which level of margin is the margin level in Switzerland higher than the consolidated level?

Ebrahim, thank you for your question. Yes, we did place price hikes in most of our markets this year and including France and Switzerland with low single-digit numbers. So we do expect those price hikes to pass on as we go along. As mentioned, the volume are still decreasing sequentially in France. The decrease is slowing down, but it is still decreasing as expected in our annual guidance. Again, both for France and Switzerland, you have to keep in mind that Q1 is a winter period that can be impacted by weather positively or negatively and cannot be extrapolated easily. So -- and we don't comment margin by country at this stage of the year, of course.

And we will now take our next question from Yassine Touahri of -- on Investment Research.

A couple of questions. Firstly, [indiscernible] regarding your guidance that you kept unchanged. I'm a little bit surprised because we are seeing like a quite a big decline in India, almost 20% down organically with pricing pressure and some pricing pressure as well in Senegal or in Africa. Do you feel that you -- in those 2 regions, Africa and India, your effort on cost would be enough to prevent a drop in EBITDA in those 2 regions? And if there is a drop in EBITDA in those 2 regions, how confident are you to be able to achieve your guidance of growth? Are you very confident on growth in EBITDA growth in France, Switzerland, the U.S. or would like to understand a little bit why you kept your guidance despite the difficult trends in India and Senegal. That would be the key question. I would have a few follow-ups as well.

Thank you for your question. Well, of course, we are confident our guidance. Otherwise, we would not have maintained it. And as you surely have in mind, guidance are and we have been commenting quarterly trends. So we have positives and negatives movement in the various regions as every year. Again, as you can remind, we had quite strong H1 last year. That is probably a more challenging base for comparison in Q1. This is true in Turkey. This is true in India, for example. And we are quite clear that we will be able to achieve our guidance. On top of that, specifically in India, you know that the end of financial year for Indian players is 31st of March. As such, the pressure is always a little bit stiff in March. And we have seen quite noticeable price recovery in April already.

And when we look at the pricing development in Senegal, so you have a 10% decline like-for-like in Africa. Is it fair to assume that it's half price pressure, half volume decline? Or am I wrong with this assumption?

Yes, it's a global decline for the region. And a large part of this decline is linked to the aggregate business, where there is a temporary but strong slowdown of infrastructure project as the new administration is conducting audits of public infrastructure project and therefore, slowing down a lot the implementation. But this will resume at some point. And there is no substantial volume decline in cement.

So the price pressure in cement would be moderate. It's more in the low single-digit rather than in the mid-single-digit range. Is it fair to assume that based on your comment?

Yes. We don't give a precise data per country and quarter, but it is a decent assumption.

And another one on your project in France. So there is a EUR 700 million investment. I understand that you will make a final decision in late 2027. How do you think about this decision? Are you targeting a specific return on the investment that you will have to make? Will you have to -- do you want to be confident on your ability to at least cover your cost of capital? Or would you be considering a return below your cost of capital really helps decarbonize? It would be great to understand the parameter that you will be taking into account before making a final decision on what kind of return you expect for the money that you will be putting in the plant?

As you know, this is a fairly a complex project on very quite a few dimensions technologically, regulatory and commercially, since all these aspects are new. And therefore, we will monitor how all these aspects are evolving. We will clearly need to have public support to make this project possible. We could probably temporary for a first CCS project look at somewhat lower return. But clearly, that will depend on the environment and our understanding, especially of the market trends. The key element will be as well to see an appetite of the market for decarbonized cement.

And do you feel that the French government could be ready to buy decarbonated cement at a premium, when building bridges, roads or highways? Or do you feel it's too early to say?

The projects that are coming on stream today have been specified a few days back. So it's not yet in the market, but I'm sure that the authorities will lead the way to decarbonize that.

And the last question on the U.S. I've seen that's a lot of price increase were postponed from January to April. Have you as well put your price increase in the U.S. in April? And if so, do you see traction on cement?

We have not implemented the price increase yet in the U.S. We had resilient pricing. We do expect to see price increases in July rather than April. But we think there is good room for it and more specifically in California.

Okay. And that reflects the market. It's not -- it's not from EBITDA.

[Operator Instructions] We will take our next question from Zhuoying Yu of Citi.

So I have 3. The first one is on India. Can you give us some expectation when you will be able to see some improvement, say, maybe as fast as Q2? And then can you also give us some color in terms of the volume, group volume, excluding India. So maybe, say, like flattish or low single digit down for the Q1? And then the second one is on the construction chemical JV. So I think there will be some margin dilution from that. And when do you expect to see the synergy coming in? And would the synergy be sufficient to offset the margin dilution impact? And then the third one is on Senegal. So do you expect to see some commissioning cost, start-up costs like the one in the Ragland plant?

Thank you for your questions. Regarding the Indian market, you know that this is a rather volatile environment that has still a strong market demand growth. What we have been facing is a fierce price competition in the South and where we have conducted a price over volume strategy, so declining to sell, when it's below certain levels. We have seen prices recovering already in April, which allows both to have better prices and to participate again in the growth of the market. But again, and this is in the south end market. In Maharashtra, we see a good demand drive, and we have an efficient logistic asset to serve the Maharashtra market. So I mean, we do expect some recovery, but still it is a volatile environment. Regarding Cermix, indeed, the average margin in this business is lower than the average group margin. So you can expect some dilution. But at the same time, we do expect some synergies from Cermix -- from the combination of Cermix and VPI. We would more see these synergies unfolding late this year and in '26 rather than earlier. So we -- but it is a rather limited figure compared to the global group sales. Lastly, on Senegal, we are -- I mean, there is always commissioning cost in all start-ups, but we are in a very different situation than Ragland in 2022. Ragland, we had only one kiln, and we had to discontinue production of the old kiln to prepare the tie-in of the new installation. Whereas here, we can continue to operate the existing lines until the new one is ready to operate. So that makes the things very different. And we are not expecting specific difficulties. Again, commissioning a cement clinker line is a complex installation. So there's always an unknown part to it, but we are preparing as much as we can to make it successful.

That was our last question. I will now hand it back to Hugues for closing remarks. Thank you.

Thank you, Laura. So this concludes our call on Vicat Q1 2025 for today, a sound quarter that saw us move ahead to confirm our 2025 guidance of like-for-like sales growth, low single-digit growth in EBITDA, net CapEx of around EUR 280 million and deleveraging that should reach 1.3 at the end of 2025. With that, I would like to thank you for your interest in Vicat. Our half year results will be published on July '28.

. Thank you. This concludes today's call. Thank you for your participation. You may now disconnect.