Titan Cement International SA
XBRU:TITC
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Titan Cement International SA
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Ladies and gentlemen, thank you for standing by. I'm Constantino, your Chorus Call operator. Welcome, and thank you for joining the Titan Cement Group conference call and live webcast to present and discuss the first quarter 2022 results. [Operator Instructions]
At this time, I would like to turn the conference over to Mr. Michael Colakides, Group CFO; and Mr. Dimitri Papalexopoulos, Chairman of the Group Executive. Mr. Colakides, you may now proceed.
Good afternoon, everybody, and welcome to the conference call for our Q1 results. On Monday, we held our extraordinary shareholders meeting. And earlier this morning, we had the Annual General Meeting for our shareholders, and we are happy to report that all matters were approved. So we may now proceed with the presentation of the results.
The first quarter of this year marked a positive start to the year, characterized by resilient demand in all regions the group operates in.
Group consolidated revenue reached EUR 455 million, up 23% versus the first quarter of last year, thanks to significant price increases across products and countries, implemented or already laid in 2021 and again, early at the start of this year. At the same time, EBITDA decreased by EUR 10 million to EUR 46 million as the phasing in of higher prices only gradually absorbed the increase in energy and input costs. It should be noted that the price effect of [ chem ] fuel and electricity costs in the quarter was a very significant amount. Aiming to address global cost headwinds, further price increases have already been announced in most markets and will be effective within the second quarter of 2022.
The first quarter net profit after taxes and minority interest dropped to EUR 1.3 million compared to EUR 15 million last year due to the low EBITDA as well as negative FX variances, mainly due to the devaluation of Egyptian pound. Group net debt at the end of March closed at EUR 757 million, the same level as in March last year.
Now turning to the first quarter regional highlights. Revenue in the U.S. reached EUR 268 million, up 17.8% and 9.6% in dollar terms, while EBITDA retracted EUR 24 million with significant price increases across our products introduced gradually, but only partly covering the spike in the cost of imported cement and high production costs. Revenue in Greece and Western Europe grew by 23% to EUR 70 million, thanks to higher prices and higher domestic volumes. EBITDA remained stable at EUR 6 million, suppressed by rising fuel and electricity costs. Similarly, Southeastern Europe also recorded top line growth with revenues up 30% to EUR 64 million. Prices matched rising costs and EBITDA declined only marginally by EUR 600,000 to EUR 11 million due to the spike in energy and electricity costs. Revenue in the East Med grew significantly as well by 41.9% to EUR 53 million, mostly thanks to the performance of Egypt. Price increases managed to offset the elevated energy costs, inflationary pressures and local currency devaluations. EBITDA in East Med rose to EUR 5 million compared to EUR 0.2 million last year.
Looking at the P&L. As we said, group revenue growth was 22.6%, reaching EUR 455 million. And the EBITDA declined by EUR 9.7 million compared to last year, mainly reflects the increased energy, electricity and distribution costs. As a reminder, this cost started increasing during the third quarter of last year. Hence, the comparison year-over-year is unfavorable on the cost side as such costs were much lower at the beginning of last year. In the first quarter of 2022, thanks to the successful refinancing of debt, we have less financing costs, but due to lower EBITDA levels and negative FX variances, mainly due to the devaluation of the Egyptian pound, net profit dropped to EUR 1.3 million.
Our balance sheet has not materially changed in any way compared to December. So there are no further comments to be made on that. And now turning to our volumes. The evolution of Greek volumes in the quarter largely reflected higher domestic cement volumes in all markets, except Turkey, and there was a small decline in exports, thus the total volume of cement sold was around 1,000 tons less. The slight decline in aggregates is attributable to extended maintenance work in the U.S.
Looking at our cash flow. Our operating cash flow showed a seasonal quarterly outlook of EUR 35 million, which was due to lower EBITDA levels, higher CapEx of EUR 39 million and increased working capital needs of EUR 51 million, which is not surprising, given the rising turnover. The higher CapEx levels relates to announced investments, mostly in Greece and the U.S., targeting to improve both our sustainability footprint as well as our operational efficiencies for the anticipated demand growth. Net debt, as mentioned, closed at the same levels as last year -- as March last year.
As you can see on the next slide of the evolution of the debt in the group, the seasonal increase similar to last year brought net debt to the same levels, the EUR 757 million as last year. And we should remind that the next important maturities are significantly spread out in the future, next coming up is as far as 2024. So we do not have any significant obligations regarding our net repayments and debt repayments moving forward.
Now turning to our regional performance and starting with the U.S. In the U.S., solid top line growth was driven by improved prices, coupled with higher volumes. Revenue was up 17% (sic) [ 17.8% ] in euro terms or 9.6% in dollar terms, reaching EUR 268 million. Cement volumes were up with the impact of price increases implemented in January across all regions and products drove the revenue growth. And anticipate ahead of the cost growth, a second round of price increases is due to take place in June. EBITDA in the quarter was down 37.6% to EUR 24 million with a high cost of imported cement, which spiked in Q4 of last year compressing profitability margin. At the same time, there was an increase across the category items, all category items in cost of goods sold in addition to imported cement, such as logistics, energy and raw materials.
As regards the state of the market, demand for residential construction, both single and multifamily remains solid against persisting low inventory levels. Commercial projects are enjoying surges, while healthy Department of Transportation budgets are reflected in robust road infrastructure work activity across states and the strong project backlog. It is worth noting that amidst this heightened activity, the U.S. construction industry remains strained in terms of labor shortages, [indiscernible] logistics as well as supply of raw materials where the [indiscernible] can have on the evolution of project work. Most importantly, Titan America continue to expand its sales of its lower carbon Type 1L cement, which is now also available in New Jersey and the New York metropolitan area.
Activity in the Greek market continued robustly with domestic demand growing and cost increases being absorbed by the market, which resulted in stable EBITDA levels against an increase in revenue to EUR 70 million, which was up a 30% growth. The higher domestic cement sales volumes partly offset the drop in exports, but the U.S. remains Greece's biggest export destination with stable volumes. EBITDA managed to remain stable at EUR 6.3 million, a significant domestic and export price increases covered the rising costs. In response, the group has already implemented further price increases, which came into effect at the end of the first quarter.
Addressing both cost management and environmental performance, the new calciner at the cement plant is on schedule for completion early next year, while new silos are under construction from [ Komotini ] for increased volumes of lower carbon cement. Projects are also underway to increase alternative fuel usage in Thessaloniki. It is also worth mentioning that further operational efficiencies are also being achieved as a result of ongoing digitalization projects across our manufacturing process at the plants.
Coming to Southeast Europe. Growth in the region continued with healthy construction activity levels supporting both volume and price growth. Like in most markets, energy and electricity costs constitute headwinds in the region, suppressing profitability margins. Revenue in the region grew by 30% to EUR 64 million, aided by solid price increases in all countries and strong volume growth in most of them. The region being heavily dependent on imported energy still had its impact on EBITDA, which was only marginally down by EUR 0.6 million, thanks to the successfully implemented price increases across the markets, which covered most of the cost increases. Further price increases were already introduced at the beginning of the quarter, aiming to recover profitability margins within Q2. The group is efficiently managing these challenges, targeting continuous operational improvements with increased use of alternative fuels, investments in solar projects and other initiatives.
Now regarding the Eastern Mediterranean, where the group recorded growth in revenue, EBITDA margins, primarily thanks to Egypt's recovery and stronger performance against softer volumes in Turkey. The region recorded a revenue growth of 42% to EUR 53 million, supported by improved pricing. Volumes were stable in Egypt, while sales in Turkey were affected by a very harsh winter earlier in the first quarter. EBITDA reached EUR 5.4 million, up from just EUR 0.2 million last year, mostly attributable to the performance in Egypt. Cement prices increased in both countries in order to cover the rising energy costs, inflationary pressures and the weaker local currencies. The market in Egypt was resilient, aided, to a large extent, by the rationalization of production implemented by the government last summer, which is now expected to be good beyond June this year. In Turkey, macroeconomic challenges translated into reduced public spending and adverse weather conditions, coupled to that a market demand, which contracted in the quarter.
Last, turning to Brazil, where we have a joint venture. Cement demand in the country declined by 2.4% in the quarter, reaching just under 15 million tons, partly the result of concerns of mounting inflationary pressures and rising interest rates. On the other hand, there is a drive, especially ahead of this year's general elections which will take place in October, for public housing and infrastructure investments. Prices posted a significant increase of 11%, covering most but not all of the impact of cost inflation. Revenue in local currency was up by 9%, while EBITDA declined by 49% by EUR 2 million.
Now turning to the ESG performance of the group. The group accelerated its carbon footprint reduction efforts. And in the first quarter of the year, net specific CO2 emissions were 6.6% lower than in the same period of last year. As mentioned before, the investment in Kamari is already running and will be completed early next year. And in addition, Titan America continues to expand sales of its lower carbon Type 1L cement, which is now available on all the East Coast where we operate. But also low carbon cement products sales growing in Greece, Egypt and North Macedonia services a growing effort. In Greece, Titan launched ENVIRA, an innovative ready-mix concrete that reduces the possibility of flooding phenomena, conserves valuable water resources and controls the increase in the average temperature in urban building environments. Meanwhile, the pilot carbon capture unit was installed at the Kamari plant near Athens, in the context of the EU-funded Carbon Capture and Utilization project RECODE. The project involves the production of value-added chemicals and materials by utilizing CO2 captured from the plant.
Now I will turn you to Dimitri Papalexopoulos, who will give you our outlook for the year.
Thank you, Michael, and good morning and good afternoon to everyone. Let me set out how we are thinking about the outlook in the current context. I will say a few things about demand, then cost prices and margins and finally, about the longer-term direction.
So starting with demand. The fundamentals in most of our key markets remain strong for this year and for the next few years as we have been arguing for a while. In particular, in the important U.S. and Greece markets, well-funded infrastructure projects are ramping up. There's a big wall of money out there. Investment in energy-related projects is also set to accelerate, housing demand and housing -- housing inventories are at historically low levels and housing demand is trending upwards. A lot of commercial projects of different kinds in different areas are being developed. The momentum is clearly there.
What, of course, seems to be pulling in the opposite direction is the broader context. There are obviously risks associated with rising interest rates, for example, with respect to single-family housing demand in the U.S. There are risks associated with soaring input costs, delaying projects or rendering some of them unviable, although we haven't seen much of this so far. There are risks associated with logistics and labor availability constraining implementation speed. And there's small examples of that, but nothing massive. And finally, and perhaps most importantly, there are risks associated with the hit to confidence levels as the risk of economic slowdown increases. We will have to wait and see how those competing supporting factors and headwinds balance out. At this point, we still like what we see on the ground, and we also believe in the medium-term outlook and momentum.
Let us now talk a little bit about costs and prices. And I would start by arguing that it would not be wise to try and read too much on -- or base your model on sort of the last couple of quarters, Q4, Q1. Other than being as usual, a weather-dependent maintenance-heavy period, this time, there is also a lot of noise and volatility in the numbers, which relates to the timing of price increases, which are different in each country, the timing and extent of hedges or inventory of input materials, the gyrations of energy costs and shipping costs.
So rather than going into detail, let me try and lay out some more general observations on the situation today in the hope that they will provide some color. One observation is that price increases in cement and aggregates, the basic materials, have either covered or seem well on their way to covering energy cost increases. In the downstream concrete products, including the important U.S. ready-mix market, progress has not yet been as healthy. This is at least partly a reflection of the way the market operates as, for example, some major secured projects enjoy protection from price increases.
Another observation, of course, is that it's unclear when and where energy prices will settle. There seems to be broad agreement that they will not return to previous lows, but also that some of the risks and [ fuel ] premium in today's prices will be reduced going forward. Also, based on the cycles of the shipping markets that we have seen many times in the past, we fully expect that maritime freight rates will return to normal levels at some point, not too far. This will be a benefit to our more asset-light transportation-intensive business model, which is suffering from the higher transportation costs at this time.
So in the context of all this current volatility, the longer-term direction of travel remains absolutely clear on the levers we can control. We are pushing ahead with alternative fuels and all kinds of energy substitution and energy efficiency projects. Many of those projects now seem even more attractive or more attractive than they were in the past. They can, at the same time, reduce our carbon footprint and diminish our dependence on expensive energy inputs.
We are also extracting or are moving to extract more production out of existing facilities through a combination of applying some digital magic and reducing clinker content in cement. Finally, we are also investing to improve our logistics and service capabilities, allowing us to provide more product to more customers with better service and lower costs. And lastly, we continue to push through price increases as the market allows. As Michael pointed out, Greece and some of the Balkan countries implemented further price increases at the end of March -- last March last month, which will take effect in Q2. And in the U.S., new price increases across the board have been announced effective June 1st.
So all in all, from where we stand today, we are coping well with the current volatility, while continuing on a long-term trajectory to grow, improve efficiencies and transform the business.
So let me stop there and open it up for questions. Thank you.
[Operator Instructions] The first question is from the line of Edelfelt, Sven with ODDO BHF.
I would have 3, if it's possible. The first one, what is the cement price increase you had in Q1 and what is it for March so that we can draw the line and have a better idea of where you're going? That would be the first question. Second one, in terms of energy bill, some of your competitors are pointing to an increase of 50% to 60% increase. What would be your best guess for Titan for this year? And also, what is your hedging? And that would be the third one. What is your hedging for H2, at least for the part of the combustible that can be hedged?
Okay. Let's start with the price increases. Price increases, one should be aware that takes time to materialize. It's large customers who would accept them in certain ways. Let's say, if you do $10, they say, okay, $20 a month in order to gradually be phased in. There are also projects where there are already committed contracts for the supply on previous prices. So what is announced is not immediately effective. If we start with Greece, order of magnitude, 10% was introduced in Q4 last year and another 10% at the end of Q1 of this year.
Taking the U.S. on the -- just sticking to the cement side, the announced price increases were $12 in both Florida and Mid-Atlantic, announced January 1st, gradually phasing in, even more slowly taking place on the ready-mix side, where there are much more contracts outstanding. And the new price increases for June are again -- the order of magnitude around $12. The peak is $15 in New York, New Jersey and, if I call it, $10 in Florida. But order of magnitude, again, another equivalent price increase. And I think what we should be aware is that it's not just us announcing price increases, but our competitors have also announced price increases as well.
Southeast Europe, again, order of magnitude of 10% to 15% price increases gradually produced last year, but again, this year in most of the markets. So what you have seen so far is still short of what one should expect going forward with full effect to take place in Q3, but also very much of the effect to be noted on the Q2 results.
Now the energy bill, it's very tricky to talk about annual rate of increase because 2021 was a year where energy costs were pretty low in the first quarter. So what we have now compared to Q1 of last year, we are talking about an increase of maybe [ 70% ] Q1 to Q1. But if we look at Q1 of this year compared to Q4 of last year, we are practically flat. So if one assumes there will be no further increases during this year, then there will be no increase Q4 on Q4. The elevation of the cost of energy was much more acute in Q4 last year. Then we show a decline, if you look, whether it's coal or pet coke, after the spike in October-November, there was quite a decline in December-January and everything shot up after February 21st after Putin's [indiscernible] invasion in Ukraine. Our guess for the annual increase in energy cost would be much lower than the 50% that you mentioned.
Now on the hedging side, we have 50% of the European energy -- sorry, electricity cost, practically hedged. On the solid fuels, we do not have a hedge. We are mostly looking at physical hedging by storing more if we feel that the prices are going to grow further. The futures markets indicate at least the coal futures markets that we should be expecting a decline from current levels going forward. Similarly on the shipping freight, which is also a significant cost for us, where we have something like 70% -- 70%-plus of our exports to U.S. hedged. The remaining, which is towards the end of the year, is where we expect the market to decline.
The next question is from the line of Woerner, Tobias with Stifel Europe.
I came a bit late on to the call and apologies in advance if it's announced already. In terms of your ongoing current business, obviously, interest rates have gone up in the U.S. and also across Europe. Are you starting to see this in your business already in April and early May? That's question number one. Number 2, Greece obviously has had a very challenging period through or post the GFC. How do you feel about this market now and in context of the stimulus, which is flowing into the market?
What was the question of Greece? Can you please repeat?
Yes. Greece, obviously, in terms of capacity utilization is one of the lowest we've seen in the world for a long time, post the GFC and the euro crisis. The question was whether you're starting to see a sustained recovery around housing and also the benefits of the stimulus coming into the country.
Let me take those questions, Michael. On interest rates, we have yet to see any impact on what we see. And we said earlier, we haven't seen any impact on the ground yet. It remains to be seen whether there will be impact, but we haven't seen anything yet. On Greece, let me take a broader look, given the -- your question. Greece's peak to trough from 2010 was down over 80% and remained at very low levels for a very long period of time, very -- at minus 80%, 75% to 80% for almost 10 years. It has been edging upwards at the rate of 10% per annum for the last 2 or 3 years, but that still leaves it more than 70% down versus the peaks and a very high percentage down versus what you would call any kind of mid-cycle level.
The per capita consumption in Greece remains very low. We have seen demand prospects improving over time. There is a wall of money that's going -- that's hitting Greece now with about EUR 70 billion worth of European Union funds that will be made available over the next 5 to 6 to 7 years to the extent that they can be well absorbed, which is a challenge. These will give a big impetus. There's a lot of work happening on various infrastructure projects and other energy-related projects and what have you.
There's also a lot of developments going on, the major Elliniko project, a couple of airports, some tourism-related work is also increasing. Tourism is anticipated to have a record year this year. And finally, if you come to housing, there have been virtually no houses built in Greece with a slight -- only a slight exaggeration for the last 10 years. The inventory of housing has been absorbed, the housing stock has become older. And we have seen a significant uptick in new permits in the last couple of years. Now how much all of that will be impacted by the war remains and the concomitant crisis remains to be seen. The latest estimates -- we were expecting very high growth in Greece this year of about 6% of the economy and very high growth also for the next couple of years. The current estimates have trimmed that down to 3% to 4%. But generally speaking, I think it's fair to say that the outlook for Greece still seems positive with all the question marks one points against any kind of forward-looking statement at this time. Is that helpful, Tobias?
It is, indeed. I mean, just remind me, I can check with my own numbers, what do you think cement consumption per capita is at the moment?
The general number, Greece is anywhere between 3 million and 3.5 million, the [ expectation ].
The Greece demand was around 2.5 million tons plus or minus, for almost 10 years, which is 250 per capita or less than 250 per capita. Now it's over 3 million tons, so 3 million to 3.5 million from memory. So it's maybe...
If you think of the 50-year period from the 1960, '70s up to 2010, the consumption was around the 5 million mark. So that's more than normal to consider for the country.
The next question is from the line of Betts, Mike with Data Based Analysis.
I had 3 questions, please, if I could. First one was on the ready-mix sales where you said it's been more difficult to get price increases through or it's taking longer. Could you remind me or maybe for the first time, how much your ready-mix sales are in euros a year? When I look in the accounts, I get a number of 700, but I think that also includes aggregates and concrete blocks. So how big is the ready-mix sales and are they almost all in the U.S? It's the first question.
The second question is imports to the U.S., which, I guess, is where you're being hit with the higher freight rates, namely. How many tons, can you remind me, you're currently importing into the U.S. or would you expect to import into the U.S. this year?
And my third and final question. We've had a lot of these calls where people are trying, for obvious reasons, to increase their usage of alternative fuels. Can you remind me in terms of how the cost of alternative fuels works? I mean, presumably, if it's existing supply, the cost is fixed for many years. If it's a new supply, it's renegotiated. I mean I guess where I'm getting at is the higher increase in energy costs that we're seeing in coal and pet coke, is there any risk of that following through into alternative fuels as people try to target that more as an alternative source of energy?
Thank you, Mike. Starting with RMC. We don't break out RMC in our accounts. You are right, we bundle it with aggregates and other concrete products -- block and other products. But the bulk of what you see in that category is ready-mix concrete. Indeed, it's a product with a lot of turnover and less -- and a much lower EBITDA margin. And you're right also that a big part of that is in the U.S., but a big significant part is also in Greece and Bulgaria, so in sort of the EU countries. Very little ready-mix in other parts, there's some in Turkey, there's some in Egypt, there's some in the Balkan countries. But the bulk is the U.S. and Greece.
Imports into the U.S., again, I apologize we do not provide that number. We have said in the past that -- and it's true that we are building up our capacity to significantly increase that number going forward by investing in terminals -- in upgrading our terminals in Tampa and Norfolk, which -- so our 3 main terminals in the U.S. could easily do 3 million tons in terms of capacity in the future, should that become necessary.
Finally, on alternative fuels, you're right to ask the question, and I don't have a very precise answer. The answer I have is, A, every country is different, every situation is different, and it's a very constantly moving mix. There is no such thing as saying I have a long-term contract in alternative fuels and that's that and I can relax and enjoy the benefits. It's a constantly moving thing. So the supply-demand balance changes all the time. You may have noticed that we have decided -- in some areas, we have announced, for example, in Greece, that we're becoming actively involved in the waste market ourselves in order to be able to have an impact and influence how much of that flow comes to us. But broadly speaking, in most countries we're in, the alternative fuels provided a competitive advantage cost-wise versus conventional fuels even before the current increase in energy prices and even before accounting for carbon emissions. So they have a long way to go before becoming unattractive if that's the implication of what you're saying.
It was more of a -- I wasn't going to say they were going to become unattractive because they obviously have a carbon benefit as well. It was more whether you've seen the benefit of no price increase there, but all of a sudden, we might see some significant leap up in the cost of alternative fuels. But can I just follow through on that carbon and the link there. I think it was 6-point-something percentage reduction in carbon emissions per ton of cement, which is clearly extremely good. Was that driven by more of [indiscernible] fuels? Or was that driven by a lower clinker factor with more limestone or a bit of everything?
All of the above. This is -- there will be some volatility in quarter-by-quarter. But the direction of travel is very clear. We have committed to a 30% reduction by 2030. And what happens in 2050 will depend on technologies that are still being debated and developed. But what we can do, 2030 is mostly based on what you would call traditional levers like the ones you mentioned alternative fuels, different kinds of cement, lower clinker content, more cementitious materials and some innovation as well. And those, we are on track quarter-by -- sort of annually at that pace to achieve that target.
Now of course, it will probably not be linear going from here to there. It's -- if I may draw an analogy, Europe had a very clear energy decarbonization plan using natural gas as a bridge baseload for electricity production during the transition to sort of wind and solar and what have you. And that has now been thrown in disarray and parts of Europe are going back to using more coal and lignite for the next year or 2 or 3 to ensure availability -- energy supply. Similarly, we have built a lot of options into our supply system. And for example -- and I think we've mentioned this in the previous call, we have full interoperability in, say, U.S. and Egypt in all of our plants between natural gas and solid fuels. So when one offers a much better cost advantage than the other at some point in time, how do you balance that with your progress vis-a-vis carbon emissions? That is -- that will be an ongoing discussion in management meetings. But generally speaking, we are comfortable with our pace of progress against our committed goals for carbon emissions while retaining competitiveness.
[Operator Instructions] Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Colakides for any closing comments.
Thank you. Thank you all for attending. And our next conference call will be for the second quarter half yearly results at the end of July. So I hope to see you then. Thank you. Bye.
Thank you.
Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for calling and have a good afternoon.