Cementir Holding NV

MIL:CEM

Earnings Call Transcript 2022-Q1

[Operator]

Good afternoon. This is the Chorus Call Conference operator. Welcome, and thank you for joining the Cementir Holding First Quarter 2022 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 welcome to Cementir Holding's 2022 First Quarter Results. And I'm here with Mr. Francesco Caltagirone, our Chairman and Chief Executive.

[Francesco Caltagirone, executive]

Good afternoon.

[Marco Bianconi, executive]

Who is happy to take your question at the end of the short presentation on the presentation that you should have received by e-mail and that's posted on our website. Starting with Page #2 of the presentation deck, results were very good. Revenues reached EUR 362.3 million, up 20.6%, driven mainly by price increases and low single-digit volume growth, around 1.8% of cement volumes growth, especially with positive trend in Belgium, Denmark and the U.S., 5.4% volume growth in aggregates and RMC volumes roughly stable.

EBITDA was up 26.2% to EUR 60.7 million. And the positive contribution was from all regions despite higher energy electricity raw material costs and freight. EBITDA margin was up as well from 16% of Q1 2021 to 16.7%. EBIT was up 56.5% to EUR 32.9 million from EUR 21 million of the corresponding period of last year.

Profit before tax reached EUR 42.4 million. And it is after EUR 9.5 million of financial income versus EUR 5.4 million of financial charge during Q1 of 2021. Net financial debt reached EUR 88.6 million, down by EUR 79.2 million on a year-on-year basis, including IFRS 16 impact, including EUR 13.4 million of share buyback and EUR 21.9 million of dividend distribution.

Moving to a quick run down of the different regions, starting with the most important Nordic and Baltic. In Denmark, domestic cement volumes were up 20% due to increased market activity and new infrastructural projects with average prices up.

White cement exports were down 19% due to a reorganization in the distribution network on the supply to the U.S. Ready-mix volumes were down 3% due to temporary shutdowns, and EBITDA was up by 4.8%, mainly driven by the Cement business with better volumes and prices.

In Norway, our RMC volumes were up 14%, driven by new infrastructural projects with prices up. Higher EBITDA, also thanks to a revaluation of the Norwegian Krone versus the Euro of around 3.3%.

Sweden. Here, RMC volumes were down 20% and aggregate volumes were down 28% due to the completion of major infrastructure projects and a slowdown of the residential sector. Swedish krona devalued by around 4.2% versus the euro.

On Page 4, Belgium and France, that's the second largest division, accounting for around 26% of our EBITDA. Here, in Belgium, cement volumes increased by around 5% with positive performance in Belgium and the Netherlands, stable in France and negative in Germany. Average prices were up. RMC volumes were up by around 18%, thanks to major projects start-up.

Aggregates volumes were up 16%, driven by stronger demand for infrastructure and road construction. EBITDA was up 63%, thanks to operating leverage, better pricing despite some inflationary pressures.

Moving to Page 5, North America. Here, there was a modest volume growth of around 3.5%, driven mainly by Texas and California, while the York region and Florida were impacted by bad weather. Average prices were up. EBITDA was up significantly around 69%, thanks to higher sales volumes and prices and partially offset by higher fuel and raw material costs. There was also a 7% US dollar revaluation versus the euro.

Moving to Page 6, Asia Pacific. Here, China -- in China, revenue was up 23%, driven by cement prices and volumes were down marginally by around 3%. EBITDA was strong, up 17%, thanks to a combination of higher prices, exchange rate

Impact and higher government grants for innovation and employment support. There was also a revaluation of the renminbi versus the euro of around 9% in the period.

In Malaysia, revenue grew up 18%, driven by good pricing. Overall volumes increased by 2% and exports by 7%. EBITDA grew by 13% as a result of higher prices despite fuel and transportation cost increase.

Turkey, which accounts for around 3% of our group EBITDA, reported cement sales increase of 108% in local currency, driven mainly by price increases with domestic cement volumes down around 9%, while export volumes up by 4%. Volumes were impacted by mainly bad weather and a sharp contraction in Eastern Anatolia infrastructure project post the earthquake.

Ready-mix volumes were down by around 10%, again due to bad weather. And the new aggregate business acquired in Q4 2021 was fully operative. The Turkish lira devalued by around 76% versus the euro. Despite this, EBITDA was up 55.3% versus last year.

Moving to the last Geographic region, Egypt, on Page 8. Here, domestic and export volumes declined due to inventory buildup by Egyptian customers. Prices were up. And therefore, we had a revenue increase of around 11%, EBITDA down by 17% due to an increase in fuel costs. Overall, there was a revaluation of the Egyptian pound by 4.7% versus the euro.

The last slide on my side. Full year guidance is unchanged. We expect revenues to exceed EUR 1.5 billion for the year, EBITDA to fall in the range between EUR 305 million and EUR 315 million, to reach a net cash position of EUR 60 million by the end of the year after a CapEx of around EUR 95 million.

These expectation clearly we now take into account and intensification of the Ukraine crisis or the resurgence of the COVID-19 pandemic. This ends my short presentation. I leave the floor for any questions you may have to our Chairman and Chief Executive. Thank you.

[Operator]

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

[Matteo Bonizzoni, analyst]

I have 2 questions. The first one is regard to the volume trend, as you see in the first quarter. So the volumes were up very strongly despite strong price increases. So the question is what is your reading about this performance? Do you think it's sustainable? And there were also weather effects which can explain this trend. This is the first question.

The second question is with regards to coverage on your energy cost. So can you remind us what is your coverage for this year for electricity and fuels and also making for kind of fuel? And we expect to assume that the coverage for the first quarter was still very strong compared to the average of the year, and this percentage of coverage should decrease in the next quarter because I mentioned Belgium, for example, in Belgium, we see that the revenues increased EUR [indiscernible] million year-on-year and the EBITDA was up EUR]indiscernible] million. So there was close to a 50% fall-through, which gives the impression that the site cost inflation.

So basically, the impression is that the price increases that you implementing in Belgium, where for now in excess of what is needed to keep the margin and maybe in the next quarter if the coverage will decrease, we can see different profitability evolution. So just to understand next quarter on this front.

[Francesco Caltagirone, executive]

Yes, we see the demand, the supply-demand framework is still supportive, mostly everywhere, for sure. We have strong headwinds coming from the situation in Ukraine and affecting especially the European market and also some pressure because of the increase of the rates that is starting in some regions.

But as I said various times in the past, the supply/demand framework is, let me say, changed in the last few years due to taxation. And also I can see, and this is also partly linked to your second question about Belgium, that the hedging strategy of most of the other competitor is not aligned with our hedging strategy.

So the reason why, for example, in Belgium, we are, let me say, ahead in terms of profitability compared to the increase of the market revenues is because we are in a country where we are [ 3 ] players, let's say that I think we are hedged better than the others.

And so we can defend our margin in a different way. We are at more or less at 75%, both in electricity and in pet coke for this year. And we think that viewing at this kind of number, especially also on the revenue side where we see a full 20% increase and that all areas, including Turkey are improving, let's say, if we don't see a sort of aftermath scenario because of the Ukrainian crisis or a strong comeback of the COVID especially in the last quarter, that even if the situation is shaky, we can, let me say, go through this situation keeping this kind of margin.

And those [indiscernible] it seems that the situation in terms of profitability and cost margin scenario keep going in the right direction. So mainly, I think because also this is what we shared with the main utilities especially in Europe and Asia that some players hedged much lower or nearly 0, especially in the electricity. We are hedged at 75%.

So the situation is -- if some player, especially in Spain, decided to close or shut down some plants because of the higher energy costs cannot compete with the actual price in the market. So the costs are higher than the actual revenue. So it depends. Now it is mainly the situation is driven by the cost side.

And as I said, even if the market might shrink a little bit because of the postponement of some infrastructure projects because if we sum up the cost of cement and the cost of copper, the cost of everything that's affecting the building material sector, at the end, the final consumer might have a huge increase in price.

But anyway, there is still scarcity of some of raw material and in some areas, even now there is a scarcity of cement because nobody [indiscernible] to produce more because of the CO2. Today, the CO2 is around EUR 90. And everyone is capped. For everyone, especially because of the cost side probably decided to produce less than what they forecast.

So even if the case is a little bit smaller the profitability might be the reason we are realizing this. This is -- and this is mainly in every region, there are no region but, let me say, Ireland even in Turkey, where the internal market is a bit lazy, but the export is very strong. So at the end, the exports can outbalance the weak internal market. And in fact, you can see that even in Europe, we increased revenues and EBITDA.

[Operator]

[Operator Instructions] The next question is from Bruno Permutti with Intesa Sanpaolo.

[Bruno Permutti, analyst]

I have some questions related to the price scenario. So if I'm not wrong, looking at your presentation, you've had a negative FX impact overall and modestly positive volume impact. And so I believe that you have probably an important price impact on your top line. I would like to have some debate if possible on what you experienced in terms of pricing among countries in the first quarter?

And overall, what is the scenario you see for the remaining part of the year? And second question concerns the guidance, it seems considering the hedging on your energy and power cost that you keep a very conservative attitude for 2022. I was wondering if what are your major worries on -- for the remaining part of 2022, which seems to be, in some way, factored in your guidance?

And the last 1 was more specific about Denmark. If I'm not wrong, you have probably some certain business in the [indiscernible] of the country. I would like to understand basically the company's structure related to the kind of projects? Or if this something that is related to the first quarter of the year?

[Francesco Caltagirone, executive]

So starting from your last question. I mean Denmark, is it mainly affected? No, there is not a demand issue or pricing issue. The reason that we are moving part of the export that we did in the past mainly to the U.S.A. from Denmark to Egypt or through our, let me say, trading company because as you can imagine, if I have to serve a market that is not the Europe, I don't have the source of the CO2 in Egypt or I can find in the market white cement to different prices.

So I can even save some CO2 credit just, let me say, moving part of our export from Denmark of white cement to other sources, mainly -- not sources, but also with trading company, we find other, let me say, quantities. So the EBITDA of Denmark is partly keep by this. But then in the other part, I mean in the trading company, you can see the margin that let me say is higher.

So something related to the market is just a tactical move because the higher the CO2 moves, the better we need -- we have, let me say, to keep good margin to switch to other, let me say, source. So from the moment that in Egypt, we have still 500,000 tonnes of square capacity in white cement we can, let me say, do this.

About the guidance as you know, first quarter, most hopefully for everybody in this sector is a small quarter. So even if the numbers are very strong and our hedging policy is quite solid, you remember in 2020, when we saw the outbreak of COVID, we needed a few months or a couple of quarters just to assess the full impact.

So today, my -- our main worries is soaking the demand caused by the outcome or the enlargement of the war. We are not worried mainly or that we can see for any reason a skyrocketing price of some energy that even if we are hedged nicely. But if something is happening in the magnitude of what we saw last year that energy from EUR 40 per megawatt went up to EUR [ 150 ] or nearly 4x is now ready or even if we are more or less that price, the energy cost will go to EUR 500, even if we have 25% that is not hedged this might, let me say, hit the balance sheet.

But this will hit the balance sheet of all the industry, all the -- also of the other industry. So our main worries are, let me say, a sort of black swan scenario that I cannot today that we are just the beginning of May, cannot let me say, reminisce so if we continue to see this kind of trend even in the second quarter, then we might, let me say, think about the review by the end of the year.

But now I think it's premature because every day, you see that the Ukrainian war bring us some --gives us more shock [indiscernible] let's say that mostly we are following the market. So the only country, but we are scrutinized by the anti-trust is, let me say, Denmark where we are the only, let me say, the sole player, then we continue to see a positive environment because, let me say, the market needs cement and also the final user is willing, let me say, to pay a price to complete the infrastructure or real estate project.

This might affect, for sure, if you continue to see this increase, I cannot say that every year we can increase 20%. But if we look at Turkey, where the price in local currency increased nearly 3x and the market continue to perform well, let me say, Turkey for sure in that scenario, but in Europe, let's say, as I say, in various times, the cost of building material in a construction project except for big infrastructure project, real estate is 3%, 4%, 5%.

So even if you increase 50% the cost of cement is not affecting the cost of the profitability of the old project. Other situation might affect the profitability. So this is our view for now.

[Bruno Permutti, analyst]

Yes. okay. If I may, a follow-up on this? In the last presentation, if I remember where you were a little bit worried about the possible impact of the infrastructure works has to be stopped by the increase in cost. In the last few weeks or months, we have some -- we've seen something here in Italy, some legislation addressing this items.

And I would like to understand if -- what is your view and the countries in issue in which you operate? You see a more -- you have a more optimistic view on this point or the execution has improved in post COVID for this issue in the last few weeks?

[Francesco Caltagirone, executive]

When you have big infrastructural projects the last 5 years, a few weeks of the delay is even, let me say, something that happened in a natural ways. Now as you see, as you seeing in Italy, we are amending [indiscernible] because there is a big increase in the price. And so the [indiscernible] let me say, to recognize the increase on price because otherwise, the infrastructure projects cannot, let me say, start or continue affecting the margin, the other markets, mainly France, Belgium or Scandinavia where we operate.

So the market is aware that there is a wide range of price increase in raw materials. So if they want to finish an infrastructure and you cannot leave a bridge in the middle or half, so everybody needs to finish, I think, the project. So for this reason, our outlook or our view by the end of the year, so the another 7 months, let me say, quite positive because we don't see a sudden stop.

We might see a sudden stop of infrastructure project due to other reasons or crisis like the Ukrainian war, but not -- and then the postponement of a few weeks in an environment where also sometimes there is the issue of logistics that still persists. So sometimes it's difficult to receive a spare parts or to receive some of the raw materials that we use in, let me say, in our receipt, like in the other sector, we are in some market, let me say, short in terms of, let me say, capacity to supply the market because the demand is bigger even bigger, as I say, that some competitors are not supplying the market as they were expected because they are not making in some markets.

And so for this reason, even if the overall market probably is shrinking a little bit. But at the end, let me say, if some competitor or, let me say, is not serving or decrease of the size [indiscernible] major force as it happened, we -- or the other players cannot supply the needs of the market.

So even if it is strange in this situation, but let's say, as I say every year, we have to cut the production of 3%. And I think that now somebody is even cutting more than 3% because with the electricity hedged in the wrong way, probably, they don't want to, let me say, lose money.

And considering also that the CO2 at EUR 90 if you are not, let me say, also hedged or well-balanced in that, let me say, with regarding that issue, it might also be difficult to you -- for everybody to serve the market if you don't have enough CO2 products because as you know the margin is from EUR 10 to EUR 20, EUR 25, but not to go over EUR 90 of the CO2.

So if you don't have the order, if you are sort of orders because, let me say, if somebody sold a lot of order in the past year for balance sheet reason, but now every year, let me say, we have this challenge. And so for this reason, I am -- even if we are with a big crisis of [indiscernible] I'm still mildly positive. This doesn't mean that -- and the number is supporting us, then, let me say, I don't have a crystal ball, I don't know what will happen, let me say, even tomorrow.

[Operator]

The next question is from Emanuele Gallazzi with Equita.

[Emanuele Gallazzi, analyst]

Two questions from my side. The first one is a follow-up on the trend of April as you mentioned good performance across countries. Can you just better elaborate on it? And the second one is a quick one about the Chinese market. Can you just update us on the current situation there?

[Francesco Caltagirone, executive]

April, let me say, in line with our expectation and budget in April, let me say, we have Easter holiday and now we have also Bayram in Moslem country. So we don't have, let me say, the full 21, 22 working days. But let me say that we can see that the trend is continuing mostly everywhere, even in China, where we see some, let me say, partial lockdown, but mainly in the big cities.

So we, in China, as you know, produce just white cement that it is not, let me say, such factory-related, correlated with this gray cement market environment and -- but for the time being, we continue even in April to see what we have seen in the first quarter.

[Operator]

The next question is from Tobias Woerner with Stifel Europe.

[Tobias Woerner, analyst]

Let me play a little bit devil's advocate for a second. When you look at your Q1 EBITDA versus full year EBITDA over the last few years, it ranges anywhere between 10% and 15% and let's say 16% and actually, last year was a very strong year [indiscernible] in a very strong year in an environment where energy costs are very high. Don't you feel reassured by the start of the year in that context? That's my first question, if I may. .

[Francesco Caltagirone, executive]

We were just sharing -- as I say, part of big chunk of this regard is, let me say, related to our hedging policy that we also started 2 years ago, not the last year, in the last 6 months. So for sure, in some markets, we have a very reasonable price of electricity compared to the actual scenario and also pet coke where the contract is not lasting more than 12 months, we -- I think that we had last year at the right time, let's say.

As I said, if we continue with this trend and with this the profitability and we don't have any other headwinds, it is a mathematics that we should do better, even much better. But the situation from us from COVID to Ukraine outcomes and also the energy [indiscernible] on oil and other things, let's say, I want to be prudent for the time being.

As I said, with the first half results, if we continue to see this solid trend and the situation in Ukraine start to, let me say, move a little bit, we might be, let me say, more, let me say, bold in terms of our forecast. But now, let's say, it's even unuseful because, as you know, the growth market in terms of stock market today is not listening to good news and just listening to bad news, so to give another good news at this moment, I think let me say, makes sense.

So we want to take another couple of months to, let me say, consider better the numbers and even going forward to see if there is any shock from the demand side due to these, let me say, external factor.

[Tobias Woerner, analyst]

Okay. Understood. And if I may ask the question slightly differently? I think at the full year results, you mentioned that [indiscernible] 12% price increases for the previous recovery or higher energy costs unless I'm mistaken and correct me if I am.

Now you seem to be running at least on the maths [indiscernible] in the presentation, you seem to be running a cost increases probably nicely above 15% when you look at cement volumes [indiscernible] more than 15%. So -- and you're probably going to see further price increases in this quarter in some of the markets, maybe not necessarily initiated by you, but by the industry. So is that a wrong way of looking at it?

[Francesco Caltagirone, executive]

It might be. As I say, we are, let me say, taking the price that the market we have is in the various markets. And we are working, let me say, early on the cost side. So this is what we are doing. So if -- as I said, the price environment continue to be like this then in some markets, well, for example, in Italy, where we are not active that I'm aware that probably [indiscernible] there should be another price increase because the industry needs this price increase.

But if you are well hedge, then most of this price increase might be equal, let me say, full profit not just to cover your cost. So it's depending the attitude of the single, let me say, player and how it is hedged. So I cannot forecast, let me say, further price increase, for example, in Denmark, where we are the only player and as [indiscernible] we have, let me say, to show reasonably to the antitrust why we increase the price, how we increase the price because we are the only player now in Belgium, France especially in the white market where, let me say, it's a very small market. We might continue to see an increase in the price environment. So this is, let me say, a likely scenario.

[Tobias Woerner, analyst]

Okay. Just, if I may, you alluded to the price situation in Q2 on that already, and that's much appreciated. I just come from another call that I heard that in France, there will be a EUR 10 price increase, but some in Q2 and in the U.S. with some dollar price increase on July 1st, now that is gray cement not white cement again, you alluded to the fact that white cement market is a different market.

Maybe you can give a sense of any price increases so far announced in both marketed years that we do appreciate it?

[Francesco Caltagirone, executive]

As I said, we are the only market where we are active in Europe, beside Denmark and Scandinavia and France and Belgium. So today, we don't see further price increase, as you can see, with these number and with these already in place price increase, the number are quite, let me say, strong. So I don't know.

I don't -- let me say that there might be in the second half some, let me say, small [indiscernible], but for the time being, let's say, some market the price also increase [indiscernible] and also, you have to imagine one thing that if you show to your customer that, let me say, you are even increasing your profitability, increasing the price then the second round is to say, okay, I want to increase again the price it is more difficult to let me say can be challenged even if you know that in cement let me say, it's a regional market, and so if you are, let me say, alone, you can even increase the price.

But let's say, we are satisfied, let's say, with the price that we see today. And we don't broadly expect any price increase expect or just where we have a very high inflation. And so this is linked to other situation, but, let's say, that we can increase white cement the price just on every contract, every supply that we mean by shipping not related like finance infrastructure projects. So I depend also on the price of freight rates that might affect the final price in a positive or negative way.

[Operator]

[Operator Instructions] The next question is from [indiscernible].

[Unknown Analyst]

I have 2 quick questions. The first one is on FutureCEM. If you can give us an update on the penetration of the solution? And if you can give us an update on the kind of speed of the penetration of cement or FutureCEM in this scenario of higher pricing? Should we expect, let's say, a positive tailwind from better pricing in this situation?

And the second one is on your costs. If you can quantify the cost range that you expect from energy from this year and you need to what you have implicit in the guidance?

[Francesco Caltagirone, executive]

Regarding FutureCEM is going [indiscernible]. We are planning to sell nearly 300,000 tonnes this year. And as I said, the cost of FutureCEM is higher than the normal cement. But if you consider the CO2 that in our budget it is considered that it's new and now EUR 90 is not a threat that -- not a matter of selling the cement at a better price, but the cost structure is better because it has a lower CO2 intensity than normal cement.

So the higher the CO2 goes, the better the cost of the FutureCEM is in terms because we don't, let me say, take the full charge of CO2 because we have let me say, 30% less than normal cement. So this is the advantage and not -- we are selling at the same price, but the cost, especially when the CO2 goes up and the diverse in [indiscernible] from EUR 60, this is also one of the reason of our extra profitability in some market.

And about the cost of the energy, yes, Marco, please, can you give some more details.

[Marco Bianconi, executive]

Yes, we've -- what I can tell you is that, broadly speaking, the energy cost last year accounted for something like 22% of our cash cost, so excluding D&A. So that's more or less even split between electricity and fuel being just slightly bigger than electricity. And this number is significantly higher than the previous year or the year before. So in our forecast, we already have flagged that in our plan, we were forecasting a double-digit increase of this number.

And therefore, that we were going to try to assess this increase through private business as we have done. So this is what builds into our numbers as far as industrial plan. So we're ready forecast and expecting a significant increase of energy cost versus a year before and significantly ahead of inflation. Of course, the dynamic of these costs are very difficult to forecast, but that's what we've put into the numbers.

[Operator]

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

[Marco Bianconi, executive]

Thank you. So then, thanks very much for your interest in Cementir Holding, and we wish you a pleasant rest of your day. Thank you, and bye-bye.

[Operator]

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