Vicat S.A. (VCTP.XC) Earnings Call Transcript & Summary

Welcome to the Vicat Q3 2025 Trading Update Conference Call. [Operator Instructions] Now I will hand the conference over to Hugues Chomel, Deputy CEO and Group CFO; and Pierre Pedrosa, Head of Investor Relations. Please go ahead.

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, Head of Investor Relations. I will now be presenting to you third quarter 2025 sales figures. Please have a look at Slide 2, where you can read our disclaimer regarding the forward-looking statements that this presentation may contain. Let's begin with the key takeaway of the third quarter of 2025 on Slide 3. First, organic sales growth reached plus 4.9%, reflecting solid momentum across most of our regions, particularly in Europe, where recovery continues in Switzerland and in the Mediterranean driven by Egypt and Turkey. This performance brings the 9-month organic sales growth to plus 1.8% despite the slowdown in the U.S.A., India and Africa. Based on this performance, we are confirming our full year 2025 guidance an organic growth in sales and EBITDA growth of plus 2% to 5% like-for-like. We also adjusted our 2025 leverage objective to above 1.3x versus the previous 1.3x, reflecting a stronger-than-expected FX impact and certain one-off items in the second half. This does not change our 2027 leverage objective of below 1x. Finally, our VAIA CCS project has been selected by the European Innovation Fund. This decision is an important first step in the financing of this major decarbonization project for our Montalieu plant in France. Overall, the group continues to deliver solid organic growth, confirms its profitability outlook and maintains strict discipline despite a less favorable currency environment. Turning now to a geographical breakdown for the third quarter on Slide 4. Group sales reached EUR 992 million, up 4.9% organic, confirming an acceleration versus the first half. France, which accounts for 29% of group sales, is showing clear signs of volume stabilization. Cement volumes have leveled off at a low point, which is in line with our early year expectations. In Europe, growth accelerated to 7.9% like-for-like driven by Switzerland, where the market is clearly recovering. Demand for more low-carbon Progresso range remains strong with notable project wins in the industrial space. Infrastructure is also supporting demand. In the Americas, activity was softer, particularly in the United States, where both the residential and nonresidential markets remain affected by high mortgage rates and limited visibility. Having said that, there are some reasons to be optimistic for the next year. As the U.S. economy remains robust, the lower interest rate environment could trigger a residential recovery and the base effect will be positive in California. Brazil delivers -- delivered solid growth in both prices and volumes, supported by the integration of Realmix, which strengthened our vertical integration model. In Asia, the trend turned positive with India posting plus 6.5% organic growth, thanks to improving volumes in Maharashtra, where our expanded capacity -- rail capacity to Mumbai is fully operational. Volumes remain subdued in the Southern states. The GST cut in September is expected to support demand going forward by reducing prices. In the Mediterranean region, once again stood out. It now represents 16% of group sales in the third quarter, an increase of 3 points year-on-year. Organic growth reached 43%, driven by a strong recovery in Turkey, where the government is pushing public works and reconstruction following the 2023 earthquake. Export momentum continues in Egypt, now coupled with a rebound in domestic demand. It should be a very strong year for our Egyptian operations. Finally, in Africa, the new Kiln 6 in Senegal is ramping up as planned, already generating its first cost efficiencies. Aggregate activity has also accelerated sharply with the restart of major public works. Overall, this quarter once again confirms the strength of our balanced geographical model. Robust growth in Europe and or emerging markets more than offset the temporary softness in the U.S. This enables Vicat to sustain positive momentum despite a challenging foreign exchange environment. If we look at the 9-month bridge on Slide 5, year-to-date organic growth stands at plus 1.8%, confirming the positive price momentum across all main markets. Price contributed plus EUR 80 million with resilient prices in developed markets and firm pricing in emerging ones, notably in Egypt, U.K. and Brazil. The volume effect at minus EUR 28 million mainly reflect a softer start of the year in France and India, both of which have now stabilized or recovered. The volume effect was positive in Q3 at plus EUR 13 million. Foreign exchange impact was again the main drag at minus EUR 147 million, driven by the depreciation of several emerging market currencies, particularly Egyptian pound and the Indian rupee against the euro, and since Q3, the weakness of the U.S. dollar against euro. Scope effect at plus EUR 57 million reflects the integration of Cermix since the beginning of the year and to a lower extent, Realmix in Brazil that has been consolidated as of September 1. Overall, 9-month sales came in at EUR 2.88 billion, slightly down on a reported basis, but showing clear underlying business resilience and continued pricing discipline across the group. Let's now deep dive into our foreign exchange exposure on Slide 6. The currency exposure of the group is well diversified. But as you can see, around 70% of our EBITDA and close to 70% of our revenues are generated in hard currencies, mainly euro, dollar and Swiss francs. However, a large part comes from the market where currencies have experienced higher volatility, particularly the Turkish lira with a country in hyperinflation and the Egyptian pound. Since Q3, the U.S. dollar also weakened significantly against the euro. It is important to note that our operations are conducted locally. We produce and sell in the same currency. So our main exposure is not transactional, but rather linked to the conversion effect when consolidating results. Only monetary flows, both operational and financial, are hedged, and these are primarily related to fuel purchases that are made in U.S. dollars. While our hedging strategy helps move short-term volatility, it does not eliminate currency exposure entirely as we remain exposed to conversion risk. On pricing, our approach remain consistent. We aim to pass through inflation, including imported inflation in all of our markets. This disciplined strategy allows us to preserve margin and maintain [ weakness ] even in the context of significant FX headwinds. Let's now turn to France on Slide 7, where we are seeing clear signs of stabilization. As expected, cement volumes in France reached their low point in Q3 after continued deceleration in the rate of volume decrease over the last 7 quarters. Looking ahead, we expect a slight sequential recovery in cement volumes throughout '26, supported by lower interest rate environment and underlying residential needs in France. The TELT Lyon-Turin will be with the first boring machine now operational and the growing demand for low-carbon cement solutions should also support the volume recovery next year. Overall, France is gradually bottoming out, setting the stage for a more positive trend from 2026 onwards. On Slide 8, on the energy front, we've also taken an important step forward. Vicat has signed a long-term low-carbon electricity supply contract with EDF, known as the Nuclear Production Allocation Contract, CAPN, which will replace the ARENH framework in 2026. This 15 years agreement provide us with enhanced price visibility with around 70% of our projected electricity consumption already secured under this new mechanism. The resulting cost increase will be reflected in our price hikes. There will be an upfront down payment in the second half of 2025 and in 2026, which will temporarily weigh on free cash flow, but it will secure our energy costs and contribute to carbon reduction objective in the long term. Turning now to Slide 9 to Senegal, where we started our new plant early June. Since then, I'm pleased to report that the industrial ramp-up is progressing as planned. As shown at the bottom of the slide, the output is progressing and the kiln is expected to reach nominal capacity in the coming months. Kiln 6 is replacing both clinker imports, which previously averaged 300,000 to 400,000 tonnes per year and production from the older Kiln 3 and 4, which have now been shut down. This modernization allows us to significantly improve our cost base with targeted savings of around EUR 20 per tonne in the medium term. New production line is already EBITDA accretive. In short, it is a major step forward for Vicat Senegal and a clear example of how our investments are driving both performance and sustainability. Let me now move to our balance sheet and leverage trajectory on Slide 10. As you can see, deleveraging remains a core priority for the group. Over the past 3 years, we have reduced our leverage ratio significantly from 2.75x in 2022 to 1.58x at the year-end '24, thanks to strong cash generation and disciplined capital allocation. For '25, with a controlled working capital requirement and CapEx spending in line with our targets, we are now expecting our leverage ratio to end the year above 1.3x compared to our previous target of 1.3x. This adjustment reflects the impact of adverse currency movements on both EBITDA and free cash flow as well as a few nonrecurring items in the second half of the year. It is important to note that these effects remain limited and do not alter our long-term trajectory. Our commitment towards a leverage of below 1x by 2027 is fully maintained. To conclude on Slide 11, let me summarize our guidance for 2025. Our full year P&L objective remain unchanged. We continue to expect like-for-like sales growth. For EBITDA, we confirm our target of plus 2% to 5% growth at constant scope and exchange rates. Net capital expenditure should remain at around EUR 280 million, consistent with our investment plan and our selective approach to growth projects. In short, the fundamentals of our outlooks are intact, continued profitable growth, strict capital discipline and a clear deleveraging trajectory. Here on Slide 12, we've highlighted the 3 strategic priorities that are guiding Vicat's actions over the next few years. First, we are committed to maintaining EBITDA margin of at least 20% over the '25, '27 period. Second, we are focused on continuing our deleveraging trajectory. This will provide us with greater flexibility to navigate economic cycles and pursue opportunities. Third, we are accelerating our climate road map, investing in decarbonization, developing low-carbon products and embedding sustainability across all geographies and business lines. These 3 pillars, profitability, financial discipline and sustainability define our road map for profitable and responsible growth. Concluding on Slide 13, catalyst of the coming years will be supporting Vicat's growth with existing industrial assets. First, in Senegal, the new Kiln 6 is a major cost efficiency driver as it replaces clinker imports and allows us to retire older higher cost capacity. Its contribution has started in 2025 and will ramp up in '26 and '27. Second, in France and the United States, we anticipate a recovery in residential construction volumes starting from historically low levels. Third, the TELT is Europe's largest civil engineering project. It is a multiyear driver for cement and aggregate businesses with volume visibility extending well beyond 2030. It should represent between 5% to 10% of Vicat cement volumes in France over the coming years. Finally, the Mediterranean region, particularly Egypt and Turkey, continues to offer medium-term compelling opportunities. Together, these catalysts position Vicat for resilient and balanced growth aligned with long-term industrial and environmental strategy. This concludes my presentation. Maria, can we move to question, please?

[Operator Instructions] The next question comes from Ebrahim Homani from CIC.

I have 3, if I may. First is on your [ leverage ] guidance. It has been modified. In my understanding, it is more an EBITDA effect than a net debt effect. So my question is on net debt. Do you expect a decrease in the net debt in 2025 compared to 2024? My second question is on the French market. Could you give us please more details on price and volume effects and which level of price hike do you expect in 2026? And my last question is on Europe and Switzerland specifically. In Q4 2024, sales were stabilizing. Should we consider a slowdown in organic growth in Q4 compared to Q3, which is very dynamic?

Yes. On the -- we have adjusted our guidance on deleveraging. So far, our debt reduction trajectory has been continued to September '25. We are maintaining a controlled working capital requirement. CapEx are in line. So nevertheless, as you mentioned, the FX fluctuation is negatively impacting EBITDA and cash flow generation and therefore, the denominator. So that's the sense of this revision. On pricing and volumes for '26, obviously, it's still early to give precise guidance. As mentioned, on some of our markets, namely France and U.S., we are starting from low level of the residential market. So we do believe that at some point, it will recover probably very gradually. For France, we -- as we mentioned, the cost environment includes 2 specific elements, which is the implementation of CBAM and the end of the ARENH mechanism, both of them will imply cost increase and therefore, will push us to push price hikes to the market. It is too early to quantify them. And on emerging markets, again, those markets are well oriented. Each of the countries is a different dynamic. It is usually inflationary, except a temporary period.

Okay. So on Switzerland, please?

Well, we -- I usually don't comment by market, by quarter, Ebrahim. So of course, the higher the base, the more difficult the hill to climb.

Now move on to the written question. So first question from Auguste Deryckx from Kepler Cheuvreux. Cement volume are virtually stable in France, but turnover is down by nearly 5% in organic terms. Is it entirely due to the performance of Concrete & Aggregates business? Can you recall the difference -- the difference typical end market for cement, Concrete & Aggregates?

Yes. As we mentioned, we have reached limited level of decrease of cement volumes in the last quarter in cement. Nevertheless, as mentioned in the press release, Ready-Mixed Concrete & Aggregates did -- nevertheless continue to decrease. And so as you mentioned, the global sales evolution reflects the mix of all the activity. On your background question on the end markets, as you well know, cement volume typically in a developed market go roughly 50% in residential market, 25% in nonresidential and 25% in infrastructure. At the moment in France, obviously, we are facing a very low residential market and a somewhat more resilient infrastructure market, which may be changing slightly this performance. Typically, aggregates has a larger part on infrastructure since it has as well road application. And typically, Ready-Mixed is more serving the residential market and more rarely the infrastructure market. So I hope this helps.

Next question is coming from Isaac Ocio from On Field Investment Research. First, in the U.S., do you expect tariff and consolidation of Ready-Mixed Concrete market in California to better support price in 2026? Second question, what is the outlook for prices in Egypt given the government effort to redirect export to serve the domestic market? And last question, what level of cost benefit do you expect from the Kiln 6 in Senegal in 2026 and 2027?

Yes. As you may have observed, the prices have been holding up fairly well in California. So I believe this already reflects some of the movements that you have mentioned. California is exposed to cement imports that are themselves exposed to tariffs. We have not yet seen price increases from importers. I think the margin hit is nevertheless significant for them, and that should be a positive element for pricing. Prices in Egypt, there has been the movement that we have been witnessing historically was a low noneconomical price in the market that has gradually recovered as capacities were able to serve more profitable export market. Since then, in the last 12 to 18 months, we have seen the domestic market coming to next [ ForEx ] price comparable to the export prices, which is just an economic movement. There has been some temporary spikes, especially at the end of H1. Ever since indeed, the authorities have expressed their willingness to see the price increase come down. There has been discussions on trying to bring back capacity, but we are not aware of restrictions. And plus, I think that not all regions will probably be in the same situation. So we do expect now prices to be reflective of cost inflation mostly. Kiln 6, we have, of course, expressed our medium-term cost reduction target. Next year, we will have a full year effect of the run rate of the kiln, but probably not yet the full ramp-up of fuel substitution. So I would typically expect a very gradual unfold of the cost reduction. Sorry, not to be more precise than that.

Next question from the audience. So on the VAIA CCS project, you obtained the subsidies from the EU Innovation Fund for the VAIA CCS project of Montalieu in France. Can you give more color on this subsidy? What is the level obtained? And is it in line with your expectation?