Cementir Holding NV

MIL:CEM

Earnings Call Transcript 2018-Q1

[Operator]

Good afternoon, this is the Chorus Call conference operator. Welcome, and thank you for joining the Cementir Holding's 2018 First Quarter Result and Business Plan 2018 to 2020 Conference Call. [Operator Instructions] The conference will be held by Mr. Massimo Sala, CFO; and Mr. Francesco Caltagirone, Chairman and CEO. [Operator Instructions]

At this time, I would like to turn and the conference over to Mr. Francesco Caltagirone, Chairman and Chief Executive Officer of Cementir Holding. Please go ahead, sir.

[Massimo Sala, executive]

Afternoon. Good afternoon to you all. And I'm Massimo Sala, nice to talk to you. And I'm going to introduce you to our first quarter consolidated result.

The first quarter -- we would like to remind you all, that the result of the Italian industrial business were no longer consolidated in our perimeter, and the recently acquired business from -- in the United States, Lehigh White Cement Company, that has been acquired, the additional stake of 38.75%, that will be consolidated line-by-line only from the second quarter of 2018.

So in the first quarter, our revenues were the region of EUR 242 million, decreasing from the EUR 280 million of the first quarter published the previous year. Our EBITDA is compared to the first quarter 2017, that was including, okay, the Italian operation. The first quarter, our EBITDA was up in the region of 4.7%, it was up to EUR 24 million. And our EBIT reached at EUR 6.3 million. We would like to remind you that last year, the first quarter was presenting a negative EBIT of EUR 1 million.

Net financial income, they were actually positive because many of the positive development of some hedging instrument and derivatives. And we achieved a net financial, let's say, income of around EUR 0.5 million. But previous -- the quarter, the first quarter of the previous year was with a negative financial expense of minus EUR 5 million. So the profit before taxes from the continuing operations was around EUR 7 million. And in the first quarter of last year, we had a negative profit before taxes of around EUR 6 million.

The net financial debt was -- we had at the end of 2017, a net financial position of EUR 537 million. On January the 2, we divested from the Italian industrial operations, so we collected, we cashed it in, EUR 315 million. And then we would like to remind you that on March 29, we acquired this additional stake of Lehigh White Cement Company for around EUR 87 million. So with these 2 main cash in and cash out for these 2 extraordinary deals, our net financial position at the end of March was around EUR 387 million.

These are the main element of the first quarter result, and I would like to give the floor to Mr. Francesco Caltagirone.

[Francesco Caltagirone, executive]

For some -- let me say, first, some details about the first quarter, terms of market situation. We experienced in the northern part of Europe a quite harsh winter, that has, let me say, especially in the Norway and in Denmark, lowered, a bit, the result. But in terms of the profitability, it has been quite resilient.

We have experienced also a security problem in Egypt for the [ curfew ] that have been imposed from the second half of February and go around to 25th of April so as you probably saw in our numbers, we weren't able to sell our product in Egypt from the half of February till nearly the late of April.

Turkey has over-performed in terms of quantity and price. And the result are, in terms of EBITDA, are near 10x what was last year. In terms of revenues, nearly 30% more.

The remaining part of the perimeter, especially Asia, has been, let me say, have performed quite in line.

So what we think is that, especially Turkey, that also suffered the devaluation of 10% in the first quarter, have been quite resilient. And even if we are starting to see some price inflation, let's say, in the electricity price that they had from the 1st of April. But the underlying situation of the market is very solid.

You are aware that Erdogan called for a snap election the 24th of June. So we believe that, for sure, the first half should, let me say, continue at this pace in terms of market, revenues and also price. But then it depends on the outcome of the election, how the market and the Turkish lira will behave.

For Egypt, we think that we are starting to see, after the 25 of April, where the military operation in the Sinai ended, has now return to normality. And we think, especially in the second half of this year, we can, let me say, recover the normal profitability. But anyway, for the first 4 months, the profitability, let me say, is lost and difficult to recovery.

For Asia, I think that the performance should continue this way.

For Belgium, the Belgium is performing quite well, even compared to our budget and even compared to, let me say, a quite difficult winter situation. So we believe that today, even if we are starting to see some, let me say, price inflation in the price of some energy product, that, so far, has been, let me say, outbalanced by the devaluation of the dollar. The situation now seems that can be manageable.

Going to, let me say, business plan review, business plan from 2018 to 2020. We have decided to review the business plan, mostly because we have changed our perimeter. As you know, in the last 1.5 years, we bought 3 companies, 1 in Italy, Sacci; and then we sold, together with Cementir Italia, then bought CCB in Belgium. And we just bought the 38% of Lehigh White a few weeks ago.

So the perimeter has changed quite a lot. Today, we produce 100% of our industrial revenues outside Italy. And also, we have -- I think that we have balanced our portfolio in terms of risk. Because with USA, that on a pro forma basis, will count around the 10% of our revenues. And Turkey and the Egypt, that will be around 10%, 11% for the Turkey and 3%, 4% for Egypt. We have lowered the volatility, let me say, of our revenue stream.

We also, let me say, consolidated our wide -- position worldwide. And now with the acquisition, we can consolidate the business and have, especially, the direct management of the business in the USA, of the only 2 plants that are present in the United States for white cement.

With this acquisition, we are by far, let me say, the global leader in every, let me say, continent, covering the 5 continents with a market share of 15%, 1-5. And considering just the trading, the export of white cement, we let me say, control nearly 1/3 of the quantities of white cement that travels around the world.

In terms of number, you have received, probably in the presentation and in the press release that our target compared to what we are going to do this year is to reach EUR 1.35 billion of revenues in 2020 and EBITDA of EUR 2,070 million (sic) [ EUR 270 billion ] and also an EBIT of EUR 194 million.

If you have also, let me say, seen the number of the first quarter, probably you have already realized that with the, let me say, disposal of the Italian entities, that we have lowered quite a lot, our, let me say, [ expenditure ] for amortization and depreciation.

And now for the first quarter, will be on a yearly basis, around the EUR 72 million. If we include also the United States, will be of around EUR 75 million to EUR 76 million. So this we'll announce the profitability because if you deduct these to the EBITDA, target EBITDA, then you will reach this EUR 194 million.

You have also to consider that our target of net financial debt is around EUR 50 million. This is considering also the distribution of the actual dividend of nearly EUR 15 million per year. So if we just deduct the EUR 15 million per year for the next 3 years, we reach this 0 in net industrial position -- net financial position that is our original target.

So this net financial position included the distribution of the actual dividend that might change in the future if the profitability increased. But as you are aware, it's the general assembly that decide on, let me say, the size of the dividend. And so it's something that we estimate today.

But also just to help you in your, let me say, calculation. If you consider that at the end of this year, we should reach the EUR 260 million of net debt in euro. And we are going towards 0 in the next 2.5 years. The costs of -- let me say, the financial cost of the debt, let me say, also should be, let me say, announced from the previous forecast.

So today, as you know, it is usual that we don't go -- we don't give the profit before tax, but let's say that you have your -- all the elements to calculate this, from this year to, let me say, 2020.

So I think that, let me say, just with more space and time to the Q&A. Let's say, to have summarize mainly, the -- I mean, the main, let me say, think about our industrial plan and the review of the plan due to the change-ment of our premier.

So I want to leave the floor to the Q&A to you. Thank you.

[Operator]

[Operator Instructions] The first question is from Mr. Matteo Bonizzoni of Kepler.

[Matteo Bonizzoni, analyst]

On this plan, let's say, can you, a little bit, elaborate more on the integration between Lehigh white cement and the rest of the white cement operation that you have, in particular, the export from Egypt? And how are you going to develop the local market in the U.S.? Provide a little bit of more color on what you are going to do with this company now that you have the control of it? Second question, I have seen that your business plan, in an inflationary environment, that we are observing points to have an expansion of the EBITDA margin from 18.8% in 2018, the current fiscal year, to more than 20%, 20.3% in 2020. So let's say, 1.5 percentage point increase of the margin. Can you, a little bit, elaborate on volume/price/cost balance that you see?

[Francesco Caltagirone, executive]

Okay. Thank you. Starting from the last question, I mean, the main increase from this nearly 2 points in profitability is expected by, let me say, 3 things. First, let's say the integration of Lehigh White. And also this year will be, let me say, the contribution we said, let me say, roughly of around EUR 10 million. Probably, it will be a little more. But we think that in 2 or 3 years, managing the company directly should, let me say, bring the company to produce, let me say, close to $30 million EBITDA. This -- then if we apply the exchange rate that, today is 1.20, it will bring, let me say, the company of around EUR 24 million, EUR 25 million, let me say. And this is part of the increase. Then you know that -- you probably know that, in Denmark next year, we'll start the construction of the tunnel of the cost -- of a cost of EUR 8 billion that will connect Germany and Denmark. We are the only supplier of cement that has been, let me say, selected. And this will bring, let me say, for the next, starting from 2020, meaning for a period of 4 to 5 year, of around EUR 6 million to EUR 8 million of extra EBITDA just because, let me say, we will supply this, let me say, special project. Then, also some, let me say, efficiency will come from, let me say, the cost efficiency. We sold the Italy, so now we are, let me say, acting on, let me say, the headquarter here in Italy and the headquarters that we have, mainly in Denmark and in Turkey, because we don't need the any, let me say, overlap. Then also, we have developed, from last year, our trading company. And also now, we can, let me say, buy special coal, of spare parts. And potentially this -- and also on detail of clean current cement and in a more efficient way. So all this, let me say, 3 things, let me say, can bring this 1.8% to 2%. Then also, we have to consider that this is just an opportunity, it's not, let me say, considered in this business plan is that Turkey, that last year and even this year in our, let me say, budget is around EUR 25 million, EUR 27 million of EBITDA in 2014, produced nearly EUR 70 million. So we also think that we might recall the EBIT, not I mean, the 50%, but from EUR 5 million to EUR 10 million of average profitability, add it up [ in English ]. Already now in Turkey. So if we add, let me say, stratify all these, I think you will reach the number of this, let me say, north of [ 2,080 ]. Then also, we consider that broadly around the world, we have, let me say, a recovery. So we don't see -- besides, let me say, any major threat that could arise. But we are not here to forecast this. So in a normal environment we think that we can recover this 2 points of profitability. About Egypt, let's say, we are, let me say, in a difficult area. If, let me say, the Army say that, let me say, there is a curfew, and so it's not possible to exit. We can produce, we can do everything inside the plant, the problem is the outflow/inflow of the goods in the plant. So it's difficult, especially the export. Today, we have already started nearly -- I mean, at the end of April, to sell our product in the internal market. And the things are, let me say, going in a normal way. Export, let me say, is still difficult because you have to forecast and to transport and to tell also the ship the exact day of the arrival in the harbor. And if the Army continue today, there is not anymore the curfew 24 hours a day, but Egypt limited of 8 hours during the night, but let's say we still have some difficulties. But anyway, we think that in a normal situation, Egypt can produce EUR 15 million of EBITDA. Is logical, if we just add to what we have today in our perimeter, the possible, let me say, profitability that, that can make in Turkey and also normal like situation in Egypt, we can even reach a better result. But let me say, we prefer to be more, let me say, prudent, even because we are aware, especially in Turkey and Egypt, that in the past, the devaluation or as not devaluation, that we are exposed can any way limit the profitability. So I hope that I answer your question, Mr. Bonizzoni.

[Operator]

The next question comes from Giuseppe Mapelli of Equita.

[Giuseppe Mapelli, analyst]

I have some questions, the first one is on Belgium. Can you update us on the market scenario in terms of prices, volumes? And what's going also in terms of competition? And regarding -- or as to Belgium, I would like to understand what is the integration process. Should we consider that it's ended, and so the company is up and running completely in your perimeter? My second question is on Turkey. Let's say -- let's assume that the first quarter trend, that would be [ continuable, saying ] the remainder of the year. Can you give us an idea on your budget in terms of export -- percentage of cement exported from Turkey? And what could be a reasonable utilization rate that we should assume for Turkey for 2018? And then my last question is on your M&A approach. We know that you have been quite active recently, what's your view going on? And let's say just some color on your, let's say, point of view of where it's better to grow, both in terms of geographical footprint and also in terms of white, gray cement differences.

[Francesco Caltagirone, executive]

Okay. Starting from CCB, I think that the integration processes is close to an end. From the 1st of April, we have our SAP functioning. We are, let me say, leaving more -- most of the [ TSA ]. So we think that by the end of first half, I mean, the integration is completed. With both these assets, with profitability of EUR 40 million, and this year, the target is to reach EUR 50 million. So part of this [ rate ] has been made by, let me say, announcing the constructure, the positioning of the -- on the market, especially on the aggregates, and also the penetration of the product in France, where we sell nearly 1/3 of our 2 million tons. And then for another part, that after Macron election, let me say, there has been a pick up in the economic [ situation ] of that area. And so we are benefiting about this. So we think that we see that there is still possible and continued -- a positive price environment with, let me say, a mild upgrade in terms of consumption, both for cement and aggregates and partly for ready-mix. Going to Turkey. Today, we are, let me say, in -- most of our plants are closer to full capacity because the market, let me say, performing, I think, much better than what everybody forecasted. And it is usual before the election. So we think, as I said, that till the first half, we should continue this, let me say, market environment. Then depends on the outcome of the election that, today, think that Erdogan and his party should be reelected and gain again the majority. But who knows? That's what happened at for Brexit and even for the election in Italy. So we cannot, let me say, forecast that the -- let's say that the market will not react to any, let me say, negative news. And even the currency. In terms of export, today, we just export our gray cement from Izmir. And it is below 500,000 tons on a production of nearly 5 million tons. So it's around 10%. On M&A, let's say that we have, let me say, completed our, let me say, program. And today and in the medium term -- in the short term we are, let me say, close to net position -- net financial position to 0. So we have, let me say, all the possibility to do other M&A as usual, let me say, as we did in the last -- in the past, let me say, 15 years. We look at a lot of opportunities, but then they have to fit, let me say, in terms of the profitability and also on manager-ability to our, let me say, standards. Today, as I already said, in white cement, there are still some small plants in the end of the big player that probably, they will, let me say, sell. That is just 2 or 3 assets of a minor dimension. And the possibility is just to develop greenfield, mainly in Southeast Asia. Even because, let me say, there is a difficulty find the raw material suitable for this production in the other part of the world. Let's say that I would like not to add the volatility in my portfolio, so I am more keen to evaluate the business and business enhancement in the major market, both in gray and white and in aggregates, then, let me say, expanding in other exotic area. Today, we are already spread in 18 countries. But let's say -- as you are aware in cement, that is a small, let me say, niche product compared to other, let me say, industrial product around the world. Usually, it's a, let me say, a buyer or a seller market in a sense that when somebody decide to sell, there are people that -- or a company that materialize their will-ness to buy them. Today, we are aware, probably also you, that Holcim Lafarge should, let me say, adjust the perimeter. Might be CEMEX. But let me say, we are still waiting. Today, for sure, we are -- we have no, let me say, other opened dossier on our, let me say, table.

[Operator]

[Operator Instructions] Gentlemen, Mr. Caltagirone, there are no questions registered, sir, at this time.

[Francesco Caltagirone, executive]

So if there any -- no any other question, thanks you, every all of you, from myself. Thank you to you all. And we will have the next result that will be communicated at the end of July, the first half. And that's all. Thank you. Bye.

[Massimo Sala, executive]

Thank you, have a nice evening. Bye-bye.

[Operator]

Ladies and gentlemen, thank you for joining. The conference is now over and you may now disconnect your telephones.