Cementir Holding NV

MIL:CEM

Earnings Call Transcript 2021-Q1

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Cementir Holding 2021 First Quarter Results Conference Call. [Operator Instructions]

At this time, I would like to turn the conference over to Mr. Marco Maria Bianconi, Head of M&A and Investor Relations. Please go ahead, sir.

[Marco Bianconi, executive]

Thank you. Good afternoon, and good morning to everybody. Welcome to Cementir Holding 2020 First Quarter Results Presentation Conference Call. You should have received a presentation material. So I'll go through the document. I'm here with Mr. Caltagirone, who is happy to take your question at the end.

So the highlights, taking page -- starting with Page 2. Q1 results were very good. Revenues reached over EUR 300 million, up 12.6%, with volumes up over 17.5%, mainly driven by good performance in Turkey, Belgium and Denmark. EBITDA for the group was up almost 50% to EUR 48.1 million. There was a higher contribution from Belgium, Turkey, Denmark and to a lesser extent from Asia Pacific and Egypt regions. EBITDA margin was up almost 400 basis points. And we have to see that the 2020 figures were impacted by COVID-19 figures in March, and there was also a EUR 2.5 million one-off on the comparable figures.

EBIT was also very strong at EUR 21 million, up over 300% from EUR 5.1 million in Q1 of 2020. PBT reached EUR 15.6 million from a loss of EUR 5 million of last year after EUR 5.4 million of financial charges. Net financial positions reached EUR 167.8 million, a reduction of EUR 154.5 million year-on-year, including over EUR 11 million of share buyback. These results represent a record -- historical record for the group for the first quarter.

Going quickly through the different geographies, starting with Nordic and Baltic on Page 3. Denmark reported good results with both gray and white cement volumes up due to increased market activity. White cement export was slightly down. Overall, RMC volumes were up 11%, with prices modestly up. EBITDA was up 8%, driven mainly by the ready-mix business.

In Norway, on the contrary, ready-mix sales volumes fell by around 3% due to generally lower construction activity and the postponement of some infrastructure projects. In March, there was a significant recovery. We have also to highlight that Norwegian krone appreciated by around 2% versus the euro.

In Sweden, there was a favorable weather and robust construction market underpinning of sales volumes up more than 20%, in ready-mix an 8% in aggregates with higher prices on average. The Swedish krone appreciated by 5% versus the euro.

Page 4, Belgium and France accounting for around 20% of group EBITDA in the quarter. Here, cement and clinker volumes were up 8%, with prices up year-on-year. Ready-mix, we had 20% volume growth. Thanks to some important projects getting underway. Also, aggregate business was relatively strong with volumes up 4.5% and stronger export to France. EBITDA in the period was up over 89% to EUR 9.8 million, and this is also due to weak March comparable figures due to the COVID-19 impact.

North America, Page 5. United States posted a sustained volume growth, especially in regions like Florida and York. And there was also a favorable base effect despite hurricanes and bad weather. There was overall a 4.2% decline in revenue, mainly due to currency translation and some soft pricing. There was a 9% devaluation of the U.S. dollar versus the euro in the period and a somewhat higher distribution and energy cost. Therefore, the EBITDA declined by 14.9% in the period.

Moving to Page 6. Asia Pacific accounted for 8% of group EBITDA. China posted very strong demand with white cement and clinker sales volumes up 60%, despite the rainy start of the year. EBITDA was up over 44%. And the Chinese renminbi in the period devalued by around 1.5% versus the euro.

In Malaysia, similar story with cement sales up by 40%, mainly driven by exports. Export volume, in fact, increased in a number of countries, Australia, Vietnam, Philippines and other Southeastern Asian countries. EBITDA was up 50%.

Turkey, on Page 7. Here, gray cement volumes increased by around 30% with domestic sales up 38%, driven mainly by strong demand in the Marmara, Anatolia and Aegean regions. Exports were up 8% with a more favorable sales mix. Average cement prices in local currency were up with different trends. Ready-mix volumes were sharply up by over 65% with prices up. There was a 32% Turkish lira devaluation versus the euro in the period. So overall, there was a strong improvement in the EBITDA, which turned a profit from last year.

Moving to Page 8. Egypt accounting for around 6% of group EBITDA. Here, white cement domestic volumes were up by 35%. EBITDA was up more than 48%, thanks to higher volumes and prices and lower fuel purchasing cost. Overall, in the period, the Egyptian pound devalued by around 9% versus the euro.

On Page 9, you see the rate ratio of the full year guidance, which is unchanged. We expect to reach revenues of around EUR 1.3 billion, EBITDA in the range between EUR 285 million and EUR 295 million, net debt of around EUR 30 million and CapEx of around EUR 95 million. This clearly excludes any unforeseen events.

This ends my short presentation. I leave the floor to our Chief Executive and Chairman, Francesco Caltagirone, for many questions you may have. Thank you.

[Operator]

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

[Matteo Bonizzoni, analyst]

Yes. I have just one question actually. My question is what is refraining you from the potential upgrade of the full year guidance, given that you have already gained around EUR 50 million of EBITDA in Q1, which is a small quarter. So I want -- I'm just curious to know what is your reasoning about the possibility to reach the -- maybe the high part of the guidance or also to exceed it?

[Francesco Caltagirone, executive]

Let's say that, I mean, the last year, the full COVID impact for us finished in the second quarter. So our present stance says that we want to see the full 12 months of recovery from COVID that will end in June. And for sure, the first quarter has been quite strong even above our forecast. All the markets are supported by good demand.

Going forward in the second part of the year, we might see as we are starting to see some increase in input cost and also the freight rate. So just to give you some figures, we have this year in 2021, an increase -- an average increase of energy, both petcoke and electricity that compared to last year is around 20%, 25%. Most of this is already included in our budget figures, but some of them no.

So today, let's say that we see a EUR 10 million increase in cost, that is not included in our, let me say, budget. But we also see that this strong demand that is supporting our figures can outbalance this increase. So I believe that if at the end of the second quarter, we continue to see this kind of growth, probably we might update. But now, let's say that you are aware that there is also the outbreak of a different COVID variant in India. We don't know what will happen, let me say. So I prefer to keep this, let me say, prudent stance.

[Operator]

The next question is from Tobias Woerner with Stifel Group.

[Tobias Woerner, analyst]

Gentlemen, can you hear me?

[Francesco Caltagirone, executive]

Yes.

[Tobias Woerner, analyst]

I mean I'm just looking at China, obviously, one of the benefits here or the upside is that the comps last year were very weak, but you also seem to have jumped above quite nicely above the 2019 first quarter results in China. Maybe give us a little bit more sense what you think is the normalized profitability in this market now as opposed to sort of normalization effects?

The second question is around the maintenance benefit you're seeing in France-Belgium, Belgium-France. Can you just give us an idea of how much that adds up to? And when are you going to catch up with that maintenance delay?

And then just the last question because pricing is quite important given what you said earlier around energy costs. What sort of trends do you see in your markets with regard to price increase?

[Francesco Caltagirone, executive]

Let's start from, let me say, a picture of the price situation. As you know, we are mainly in a niche product that is white cement and especially in Asia that where we produce only white cement, both in China and Malaysia. So what we see is that, as you can imagine, our pricing power is more efficient done probably most of the gray competitors because of this niche product.

So across all the geographies, what we are seeing is that being a high-value product and also a niche product and also another important thing is that most of our competitor compete in our market by importing from far away. And with a sharp increase in the freight rate, it's, for sure, more costly for most of them to reach our market. We see that we might, let me say, transfer easily, especially in white cement, the increase on price, especially coming from energy.

So I believe that in China, the situation is that we have, as you say, the even better figures compared to 2019. And let's say, last year, the plant was stopped for 5 weeks from February to March. So for sure, now there is a sort of recovery of the market. But we think that part of it can be sustainable even because for environmental issue, mostly everywhere and especially in China, the government is acting against the worst producers. And in China, we have a lot of small plants, especially in white cement. So we see that this constraint in supply might continue. And also, this give us the possibility also to pass a further increase of price.

In Malaysia, the situation is a bit different because today, let me say, we serve mostly Australia, and we are facing some difficulty in finding the freight because China is holding all, let me say, the containers. So also for this reason, in some markets, we are cautious about, let me say, because we are able to supply, we have already, let me say, the cost structure that is, let me say, in place. But we don't know at 100% if we can supply all the demand of the cement because there might be some disruption in some markets, especially due to the freight rate.

In Belgium, France, I mean, that the total delay of -- it's just, let me say, 2 or 3 quarters. So it's not as much as we say there also in the previous quarter release or full year release figure leads, we believe that we are, let me say, just 6 or 9 months behind our schedule. So this will mean that we will probably have this is just 1 -- 2 quarters of delay from the upgrade.

But looking at the full picture, if it's clear that especially in Europe, where, let me say, for both white and gray, in the last decade, most of the group has, let me say, restructured the business due to the lower demand. Today, we have a strong demand in front of us. The CO2 price is around EUR 50. Doesn't -- don't push -- doesn't push, I mean, any producer to increase capacity, because as you know, now we are in the third ETS scheme and every year for the next 3 years, we will be -- we will have a cut of 3%.

So nobody is willing to increase capacity or even to revamp kiln or also to switch on [ Montvale ] kiln. So what I see and I expect is that, especially going forward in this decade after, let me say, 2 or 3 years where we will have heavy producer account that, that will be more than 10%, there might be a significant constraint in terms of supply of cement.

If we cover this also with the border tax that is going to be approved in the next couple of years, this might, let me say, produce -- from my point of view, this is our scenario, one of our scenario, a supporting market for quantity and price, I mean, for the medium, long term, what we see.

And also if we consider another thing, for example, last week, it has been approved after 20 years in France a new channel that will, let me say, link the North Sea and the channel -- the system of channel around Belgium and Netherlands. So this channel will cost EUR 5 billion and will take 12 years. So it's a long, but this just to cut 0.5 billion of trucks from the road to lower the emission.

So this means that the need of cement, I believe, will be much higher to complete all this, let me say, transition. So even if most of the players will see price -- cost pressure from the CO2, I believe also that if the market will be closed from import and nobody is willing to increase capacity because to increase capacity, you need to have EUR 50 of margin just to cover the CO2 and even higher if the CO2 will continue. I think that we might see, let's say, a good time ahead of us.

[Tobias Woerner, analyst]

That sounds very good. Much appreciated. Let's hope it is as good as it could be given 10 years of difficulty in the post global financial crisis.

[Operator]

The next question is from Emanuele Gallazzi with Equita.

[Emanuele Gallazzi, analyst]

The first one is on the Turkish market. I was wondering if you can give us an update on the trends you saw in April? And what do you expect on the evolution of the domestic demand in the export in the coming quarters? The second one is on the U.S. market. You mentioned some price pressure in the first quarter due to competition. Can you just elaborate on it and on your expectation for the 2021 in terms of price evolution in the U.S.?

[Francesco Caltagirone, executive]

In Turkey, besides, I mean, the strong devaluation that, as you know, is mainly for internal factor, the appointment of the third central bank government in 2 years. So -- but the trend seem to continue even in April. And as I also said in the previous call, when you have this kind of the inflation patterns, the real estate is something that usually the -- is appealing just to protect your investment and the value of your investment.

So we continue to see a good pickup in demand. And also, we continue to see a strong demand for export due to this constraint, as I said, in -- that we have in whole Europe because of, let me say, in the last decade, most every player just, let me say, shut down or closed plan, and we'll continue to do that due to the environmental issue.

So besides, I don't know, something that is not foreseeable from internal politics point of view, we see and we expect that Turkey should continue. This is -- unfortunately, might be balanced by the devaluation of the local currency, and this might be, let me say, partly affect, let me say, the good numbers coming to Turkey because when we translate to euro, unfortunately, this is what happens.

In the U.S.A., let's say, that the situation is a bit different. It's improving. As you know, in the first quarter, especially in Texas, we have a, sort of, let me say, hurricane. And so the weather has been quite bad. But also, as you know, there has been the election and so what we are seeing now is that due to the freight issue and the cost picking up and we are active only with white cement, the picture is brightening in terms of, let me say, economic numbers.

You know that the economy is picking up due to the COVID release. And also the arrival of cement coming from other players is limited due to the, let me say, very high freight rate. So we are quite positive is just for internal market in dollars. Then even here, as it happened compared to last year, if the dollar continues to devaluate even if this might affect the balance sheet in euro.

[Operator]

Your next question is from Bruno Permutti with Intesa Sanpaolo.

[Bruno Permutti, analyst]

I have a few questions. The first one regards the growth of the first quarter. If you have a measure of what could have been and if there has been a restocking process in the first quarter? So what is the normal speed of the market and what is the eventual effect of restocking process?

The second one concern the capacity utilization in Turkey. I would like to understand how much you can expand your volume production in Turkey should the market will continue to require volumes? And a third one, if I may, concerns the skill to right price. If I have well understood your idea is that the environment, the economic environment, the constraints and the border tax and so on should allow to pass to customers than to increase and actual increase in CO2 rise? So I would like to understand if you have an idea of what could be the sensitivity of your guidance to the CO2 price rise. So if there is a risk that you see in the short term in 2021 on this? And if this is part of your cautious attitude on the 2021 guidance considering a good result in the first quarter?

[Francesco Caltagirone, executive]

First question about restocking, I mean, usually in the first quarter, most of the plants go under maintenance. And anyway, the stock, the stock in our market is not longer than 30 days. But let's say that from the moment that in our perimeter, we started to see normalizing the demand starting from last July. I think that, I mean, in this quarter, we are not seeing a restocking issue. So this is, let me say, genuine market that is coming from, let me say, household real estate infrastructure, not so much because they are still in the process to be financed.

But as you know, the money flowed from the Central Bank and also the saving rate of most of the household in Europe and especially in the U.S.A. is now be -- start to be released, but it's trillions and billions and millions. So what we see is something that, let's say, in some market, there might be the issue to find cement, let's say, not only where we are, but for sure, there are the issue, but the issue are also on steel in most of -- as you know, also in copper.

So there is in ship, but there is now, let me say, demand that is peaking up in a way that probably most of the producer was not, let me say, expecting, especially for the first quarter. So first quarter is, let me say, a small quarter. But anyway, in some areas, quite significantly. So even in April, we are continuing to see this. As I said before, also, we are starting also to fill some, let me say, pressure in terms of input cost.

But let's say that we are quite confident that especially for this year because there are no alternatives, especially in the various geographies to find cement from other counterparts. So this is quite clear. Even because, for example, from Turkey, now I'm not talking about ourselves, but most of the exporter are sold out to the end of the year -- of this year. So this means that all the quantity are already booked from Turkey for export. And compared to last year, we also have a very strong internal market. So there is also the question mark that if you have a good domestic market where you don't have to face freight rate, then you divert your quantity for the internal market.

So going to your second question. So our capacity in Turkey, let's say, we are spread more or less at the 4 corners of Turkey. So the part that is, let me say, affected by the export is mainly the Aegean one, the 2 plants, the one is in Izmir and in the other one that is close to Istanbul. So we have, in these 2 plants, a spare capacity that today is dedicated to export that is around 800,000 tonnes. So this capacity, if, let me say, the internal market price -- I mean, price in euro, not in Turkish lira, it's more convenient then we will divert this 800,000 on a 4.5 million that is the overall capacity that we have in the 4 plants. So this is, let's say, is the buffer that today we have.

On the CO2 price, I believe that for us, till 2023, we have, let me say, enough free allocation, also the ability to import from ourselves from Turkey. We already started to serve the Belgium and the Danish market and to support the quantity. So for this extra quantity, we are not, let me say, impacted by the CO2 because the cement is arriving from countries that are not under the ETS scheme.

So what I can say is that on a sensitivity analysis, we are short around, I mean, 600,000 bags for 2023. So not for 2021 and 2022. So let's say that then there might be convenience that is different that if the CO2 goes at EUR 30 and I have a margin of EUR 30, I can decide, but the same will happen to the other producers to say, "Oh, I will sell the CO2 rights. So I will sell 1 tonne less in the market because I have EUR 80 of CO2 that I can, let me say, bank in the market." Also this, I think it's something that might affect the market.

So if the price as it happening now is the CO2 price is increasing too fast, there might be this, let me say, double option, let me say, for the producer, especially where you are not affected by the import. So you might decide that at a certain level, it is better to sell -- or to keep the CO2 for the future and not to serve the market. Because this is, let me say, it's a completely new scenario, I think compared to the other, let me say, cyclical crises that hit the cement every 5 to 7 years is the up and down of the market.

This time, we have, let me say, a big constraint in, let me say, supply. That is the ETS system. So nobody will increase capacity. And so I mean, if you have that -- the demand, I don't know, is uncertain. And we -- and the pickup in demand, I don't know at what level will stop. But for sure, the supply is limited. It's just mathematics. Then, let's say, I don't want to, let me say, depict the scenario now because it's too early. But for sure, let me say, we have a strong headwind about the CO2 price.

On the other side, we have a strong tailwind about, let me say, the constraint in the market and the fact that the demand, especially because probably you are aware, the average of the ETS for 2021, 2025 is on the average of the years that goes from '16 to '18. That hasn't been the best year for sure. So the allowance that everybody we receive each market might be different. Italy will be different from Germany, the Scandinavian from Spain.

But what we might receive, but we don't have received yet from the European community because the final draft has not been approved, might, let me say, be even -- let me say, it a little bit less than what, let me say, the market is expecting. And for this reason, I think that the CO2 price is increasing because most of, let me say, the segment of the market, even steel, even electric power, it is measured on 3 years. That is not the last 3 years, but it's the 3 years, I mean, of 2 or 3 years ago. And this might distort the market for sure.

So I don't want to say that the scenario is, let me say, for sure, 100% bright, but I'm aware that in cement, we don't have a substitute. And as you probably have already seen in the U.S. market for lumber, where the price increased 400% in 6 months. Or for copper, where the price increased 2 times in 12 months. If we consider that cement so far just increased compared to last year, less than 10%. I think there is -- even steel is increased, I don't know, 30%, 40%, 50%. So I think that cement is far away to close the price gap that we are seeing in other, let me say, building raw materials. This is just a scenario, I'd say. But like we have to consider this for everybody, not just for us.

[Bruno Permutti, analyst]

Okay. And if I may, a last question on M&A. So I would like to understand if in this market, there could be some opportunities for M&A, even considering that this scenario seems to be more normalized and have much more positive than a few months ago, so if you have some -- what is your ideas in this asset?

[Francesco Caltagirone, executive]

Our balance sheet, as you know, we will have a net financial position at the end of the year that will be close to 0, let's say. So we have enough space even for, let me say, bold M&A. But today, frankly speaking, with the ETS schemes that is not fully approved. So we don't know, especially in Europe, what will be the allowance plant-by-plant.

Then we don't know even what will be the scenario of carbon capture and sequestration, especially from 2025 to 2030 because we are aware -- you are aware, there are a lot of pilots even ours, we are developing 2 pilots. But before 3, 4 years, we are not aware of the results of this pilot. So I am, let me say, fully aware that for the next 5 years till 2025, the CO2 market, I mean, in terms of capacity, to curb emission will not be far away from what we have today.

So the carbon emission will be just linked to the curb in production. So this is the only way to curb emission. And for this reason, it's very difficult to give a value for the medium, long term, any kind of assets, I mean, and what I already said is that we are not ready to see and to invest in this kind of market because it's very uncertain, the profitability and even the technology because this is capital intensive. And when you buy a plant, you buy a plant for the next 30, 40 years. We are aware that we have from 2020 -- from now to 2030, a certain scenario, then that will change from 2030 to 2050. But we might have, as all everybody hope and expect, a shift in technology that might help us, let me say, to curb and to capture the CO2 and also the hydrogen way, the synthetic methane.

There are a lot of things, but today, there are all pilot projects. So I'm not willing and not interested to invest in this scenario. And also, let's consider today, it's quite impossible to do any kind of physical due diligence because of the COVID limitation. So you cannot buy an asset if you cannot go in the plant to see. So we are aware that there are some, let me say, plants for sale in Spain, in U.S.A., but I don't know how this process will end up because for everybody, it's impossible. Probably in the next month, there will be -- let me say, it will be more feasible due to the physical due diligence. But for now, it's impossible.

But anyway, I don't see and I repeat that for us, for 2021 and 2022, any major, let me say, acquisition. This doesn't mean that we might buy small aggregates as more ready-mix somewhere, but, let me say, just to complete our lay out. But as you know, ready-mix and aggregates are not directly hit by the CO2. So this is easier, let me say, to forecast, let me say, the profitability.

[Operator]

The next question is from Alessandro Tortora with Mediobanca.

[Alessandro Tortora, analyst]

I have 2 questions, if I may. The first one is a follow-up on what you mentioned before on the shortage of allowances, okay, around 700,000 tonnes that you mentioned. Can you tell us how are you going to manage, okay, the shortage? If you are fully confident, okay, to pass through this shortage of allowances or, I don't know, you have any measure in order to reduce, okay, this deficit on allowances considering that 2023 is not far and probably this shortage, okay, could even be higher considering the incoming ETS revision? So this is the first question.

The second question is on -- you mentioned also before carbon border tax. Can you remind me what's your view on, let's say, the impact on Turkey when, and I don't know what will be the structure, but when the carbon border mechanism will be set up for you? So what is your scenario on that?

[Francesco Caltagirone, executive]

About, let me say, today, as we already -- when we released our industrial plan, this, let me say, shortage of 600,000 tonnes is already included in the balance in our budget industrial plan upset euro. So it's eventually the best. So we have, let's say, to finance the delta from Turkey to the price that we -- at which we will buy, let's say, CO2 rights, if, let's say, we keep this kind, let me say, of, let me say, bush on markets, you know that we are, let me say, implementing future chamber and also importing cement from abroad, starting from Turkey.

So we feel that, let's say, we can cope even at EUR 50 because what we see, as I said before, that the market is short in capacity and also short in willingness to increase or to revamp to restart the kiln. Most of the player starting, for example, from Italy, where we are -- we left, let me say, 2 years ago, we are aware that the local producer, especially the big one are going to close some of the plants because today, let me say, is not, let's say, affordable to revamp with the CO2 at EUR 50.

So this is what will -- what -- the meaning of this is that the capacity in Italy, like in a lot of other European country, will decrease gradually in the next few years. And this means that if you cannot import or the freight rates are high and so the drive and/or if you have a border tax, I think that it's like the value-added tax. Is the value-added tax increase? Then the final trust to the customer will increase, for sure, for some, let me say, goods in the market that are sensitive to the price increase. You might have a decrease in demand, but you are aware that cement is quite, let me say, stiff reached in terms of demand. So we don't think that a EUR 10 increase will, let me say, lower or EUR 20 increase, I mean, in the next few years will, let me say, lower the demand of the cement of the ready-mix.

About the implementation of the border tax for Turkey, it is clear that all Turkey in the next 2 or 3 years will converge to the same, let me say, emission scheme that we have in Europe, but this is for everybody, even for Morocco, Tunisia or Egypt. They will be charged for a price that will be more or less the price of the CO2. And this for sure will -- if they don't converge, they will not be allowed to -- or they can export to certain markets, but they will charge this EUR 50. So we have 2 scenarios. Part of this country, I believe that not will everybody -- every country will align in the Mediterranean. So order price will increase as much as to cover the full price of the CO2. So let's say, a huge increase in the price of cement.

And so this can allow to import, let me say, cement. Otherwise, you are not allowed to import in Europe from this country or is not convenient. So from the moment with EUR 50 today, let me say, before, let me say, let's say, till 2019, if you were willing to export to Turkey to Europe, including the 2019 freight rate, you can still have a margin of EUR 10, EUR 12. Today, the freight either up EUR 8. You have just EUR 4 left and you might have to cover EUR 50. I think that there is no shot. So all the price will be EUR 45 higher, in Europe. Otherwise, from Turkey, Tunisia will be quite difficult, let me say, or you converge to this, let me say, system, but at that time, then you will not be allowed to produce extra quantity because you don't have the free allowance.

So let's say that it's a difficult scenario. But anyway, what happened in the 1930 in the U.S.A. with the provision is about alcohol, that the price of alcohol soared a lot because the people will continue to demand alcohol. So -- and then we know what happened and what will -- what have been the end of this provision is.

So now we are entering in a sort of environmental provisioning. But on the other hand, I feel and I believe that we will need the cement to change our economy to go to a greener economy. So I believe that the important thing for a producer is that you are from an environmental point of view, competitive with your neighbor player because otherwise, they might eat up your market. If they are -- if they have EUR 10 less in terms of CO2 cost in the products, they might be tempted, let me say, to lower a bit the price and to eat up the market.

But from the moment that we have today in the ETS system only 2 plants that are the Danish and the Belgian one. And I think that compared to our neighbors, we are quite competitive, not the best, but for sure, there are, let me say, more than 50% of the capacity that is weaker than us. I believe that if the price in the CO2 will soar and will distort the market, this might, let me say, hit the 50%, let me say, of capacity of the other before eating us.

[Alessandro Tortora, analyst]

Okay. Okay. I know that situation clearly is not, let's say, in allocation for. But just to have your idea, okay, because for sure carbon boarder, okay, could change a bit also the, let's say, internal outlook, okay, for Turkey considering that export to, let's say, towards ETS countries will be most problematic, okay. So that's probably the...

[Francesco Caltagirone, executive]

Yes. This might be for -- I mean, so that plant that can export by sea because then the remaining part of Turkey will not be affected because even today, they cannot export.

[Alessandro Tortora, analyst]

Okay. And the last point was on your original target to reduce emission by 30% compared to the baseline. Considering now that we are basically reading every day that these targets from European Commissioner, let's say, set -- now commissioner raised the bar on this side. What's your take on that? Do you plan, let's say, to, at a certain point, announce an additional set of measure in order to step up this, let's say, green target also for cement?

[Francesco Caltagirone, executive]

But let's say, as I said before, today, I mean, in the world, there are no technical solution to carbon capture. We have a lot of pilot projects for small quantities. And so from the moment that nobody is not like the vaccine where you have a patent and you sell and can allow the other to produce your vaccine everywhere in the world. So it's just then just cash flow that will arrive because you give the baton to the other.

We are going to find a solution and then we might see an upgrade of 200, 300 plants around the world, if we include Europe, U.S.A., Australia and even this will be a slow process. So I don't think that today, nobody, nobody, I mean, I'm sure as the solution and if -- because -- but when you -- even today, Germany say that they want to increase, let me say, by 2030, I think, the 65%. But they say net zero. That means that they are already considering that in some sector, you cannot go, let me say, below a certain threshold. And in some sectors, you can go to negative, probably emission because, let me say, you just not reduce any more, let me say, electricity. But let's say, if you want today to go probably to a certain level, you must consider nuclear atomic power generation because for sure, from the CO2 point of view, it's free of emission. Then we have other issue. But one thing is that we want to set the target.

The other is that it is feasible to arrive. I believe that to change our economy everywhere, you need a lot of cement just to revamp 100 of, let me say, building history in every country. So just to revamp, let me say, whatever we have in our city today, not the new building, what we have today, you need a huge amount of cement, a huge amount of steel. I don't think that today, we have anything that can cope. We might have carbon capture that will arrive at, let me say, a certain level of cost sustainability. And so we can get rid of this issue by capturing not just, let me say, just deeply in exhausted oil well, but also reusing with hydrogen or not. So I think that technology will have to provide the world with the solution.

Today, I don't think that we have the solution. So what I see is that if we have an increase in the CO2 price, every producer will transfer this increasing price to the, let me say, end customer. I don't know, if you know other players that have a solution. So we can continue, let me say, to work on, let me say, the short-term target that is about the cement receipt. You can work and we are -- with future share, we have started for like everybody. But then at a certain point, you cannot substitute 100% linker with other, let me say, by-products. And I mean, this is the same.

So I believe today that it's like, let me say, value-added tax. If you want to increase value-added tax to finance, let me say, the new infrastructure 30%, everything will cost 30% more. Then probably the economy will be hit. But for sure, if the other, let me say, secular effect that we might see is the increase in fee in inflation, it's not just the demand that might be lower because the increase of the raw material price. It is just what we see. If everything, and you are aware that mostly everything is starting to increase, then the issue probably is inflation is the race is not the CO2 emission. I think that the economy will be carved by a wave of inflation because nobody is considering that if the CO2 will reach EUR 100, not in 10 years, but in 2 years, you will have an increase in the building products of about from 30% to 50% everywhere, for everybody. So -- and this will be transferred in the economy and will, let me say, produce inflation.

So I think that from the moment that the ETS system is an artificial system, just to push and to curb the emission, if at a certain level, we are at a certain level of price that is not sustainable by the customer or by the economy, as you know, they can say that we want -- we will release 10% more of free allowance, not today, they won't tell today. But in 2024, if we are in a market that, let me say, start, let me say, to bite the economy, we might see that because this is artificial, let's say, it's an artificial scheme. So if they want to give an allowance 10%, 5%, whatever they think, it is just to cut the price, not to go to 0 because anyway, they want to continue to support the CO2, let me say, emission curb. But what I see is that we might see that the CO2 can be like the interest rate, can be artificially pushed down. Also the CO2 cost can be artificially pushed down by the local administration, I think, and especially from the euro.

[Operator]

[Operator Instructions] Gentlemen, there are no more questions registered at this time.

[Marco Bianconi, executive]

Okay. Thank you very much for your interest in Cementir Holding and have a great rest of the evening of the day. Thank you.

[Francesco Caltagirone, executive]

Thank you.

[Operator]

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