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 am Galie, 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 2023 results. Please note, this call and presentation is intended for analysts and investors only. [Operator Instructions] And the conference is being recorded. [Operator Instructions]At this time, I would like to turn the conference over to Mr. Marcel Cobuz, Chairman of the Group Executive Committee; and Mr. Michael Colakides, Group CFO. Mr. Cobuz, you may now proceed.
Thank you. Hello, everyone. Hope you are all doing well. I'm sitting here with Michael, our Group CFO, and very happy to share with you a very strong beginning of the year with very strong sales in Q1, with strong activity and pricing mainly in U.S. and Greece, an over-proportional EBITDA, which is signaling a solid margin recovery in Q1. As for the outlook, as we will go more into details. We remain positive on all our main markets. We see improved margin in cash and we will continue with our growth investments.I'll hand this now to Michael and will come back with more highlights, and probably we will discuss also a little bit on commercial, innovation, decarbonization and digitalization, which are our key drivers for transformation of the company. Please, Michael.
Good morning, and good afternoon, to all, and thank you for joining us. This morning, we had our shareholder general meeting here in Nicosia in Cyprus. And now we are very happy to present you with our first quarter results. As Marcel just mentioned, we are very happy to share that we are kicking off 2023 with positive momentum. We started the year very strong with sales of EUR 588 million, 29% up in euro terms compared to 2022 in a quarter that is usually low. Sales were driven by increased demand in key markets, thanks to mild weather conditions and good pricing performance. All regions recorded sales growth in excess of 20% with the exception of East Med, where the devaluation of local currencies eroded the sales growth in euro terms.EBITDA was up by EUR 207 million, more than double compared to the lower level of first quarter of 2022. Our margins showed further progress getting close to pre-COVID levels as we're achieving margin expansion on the back of sales growth, core performance reflecting benefits from investment projects, improved energy mix with higher alternative fuels and softer energy prices.Net profit after taxes and minorities reached EUR 44.3 million compared to just EUR 1.3 million in the first quarter of last year, thanks to the robust EBITDA performance. After EUR 50 million of CapEx, our net debt reached EUR 838 million, while a higher profitability pushed our leverage down to 2.1x EBITDA.We had a further decrease of our net specific CO2 emissions, a year-on-year decline of 6.8% to below 600 kilos per tonne cementitious material. We are also continuing our digitalization projects in manufacturing and supply chain and we already enjoy the resulting financial benefits.Our outlook remains positive with returns to resilient markets in America and Europe and further pricing conditions. But we will give you more of that as we get close to the end of the presentation.Now turning to the next slide, is just a very short slide giving the illustration of the first quarter results, the graph of sales and profitability growth of the group.Moving to the next slide, which we felt very interesting and challenging to, is a [ 12 ] rolling financial highlight performance growth. We want to highlight the continuous growth trend of our business. We closed in fact, the fourth consecutive quarter of second profitability growth with 12 months rolling from April '22 until March 23, sales of EUR 2.4 billion, a 34% growth compared to the previous year period and EBITDA exceeding EUR 390 million, which is a 47.6% growth over the previous 12 months.Our EBITDA margin over the period shows significant improvement, now being close to pre-pandemic levels, reaching a level of close to 15%.Our P&L. A number of factors contributed to a below normal first quarter performance last year. And look at our P&L in the first quarter of 2023, illustrates a persistent high cost base. Cost elements do remain very high. However, with increased demand across our products, good customer service and good pricing performance, we managed to improve profitability and further move towards the restoration of margins.As already mentioned, clear focused management and mild weather also contributed to the good results. I would also like to point out that we have net profit after tax at EUR 44 million, resulting earnings per share at EUR 0.63, reflects one of our best quarterly results.On the bottom side, modern trends were positive across all main products with cement volumes increasing by 5% in our domestic markets, reflecting solid markets in the U.S. and Europe, supported by a strong footprint positions and mild weather.Given the higher regional demand, cement exports were diverted, all of them to our own terminals and practically there were no shipments to third-parties. Other key product sales also recorded good volume growth. Sales volumes in aggregates increased by 8%, while those of ready-mix had gone up by 7%.Now moving to the cash flow. Operating free cash flow recorded a seasonal quarterly outflow of EUR 20 million due to the EUR 50 million spent on CapEx projects, mainly focusing on the growth potential of the U.S. and Greece and the EUR 82 million higher working capital needs as we continued to grow significantly our sales.Our CapEx program yields both financial and environmental benefits, focusing on further improvement of the energy mix and increase in alternative fuel usage and higher use of sanitation materials, reducing the [ Greek ] to cement pressure.Looking at our debt picture. In Q1, the group's debt -- net debt increased by EUR 40 million compared to year-end, reaching EUR 838 million. However, our leverage ratio dropped further to 2.1x EBITDA, thanks to the increased profitability.It is well repeated that the group has low exposure to interest rate risk as more than 80% of the debt is either in fixed rates or covered by lot of the interest rate hedges. Also, a reminder that there are no material debt maturities until November of 2024.And with that, let's now turn to coverage of our regional performance. We have seen year-on-year significant improvement in all regions where we operate, apart from the East Med. The U.S. and Europe are still the markets where we serve the majority of our customers and now have more than 90% of our sales and EBITDA.The U.S. economy continued to exhibit strength at the beginning of the year. Titan America attained higher levels of sales and profitability following the trend observed also in the past 2 quarters. Sales reached EUR 363 million equivalent, up by 37% in euro terms or 31% in dollar terms, while EBITDA more than tripled, reaching EUR 66 million, however, compared to a well below normal first quarter of last year.Strong pricing performance contributed to this result as well as tailwinds to the mild weather conditions in our local markets. Both markets of the Southeast and the mid-Atlantic continued growing ahead of the national average. We explored a project and to become in [ 25 million ] relative [ state ] at the $1.5 trillion economy by 2030.Therefore resilient economic conditions on the ground, investment confidence coupled with favorable weather conditions in the first quarter supported growth. Underlying demand is channeled to the multifamily residential, which is recording growth, mitigating the impact of a relative slowdown in single-family residential in some cases.Growth is also observed in commercial and other nonresidential construction. Healthy State finances an the U.S. landmark infrastructure push translated into steadily increasing infrastructure demand for cement, which is set to grow even faster as we move deeper in the year.Profitability has also continued its growth trend as implemented price increases are contributing to the restoration of margins, responding to persistent cost challenges across all cost inputs. The Titan America's investments in digital transformation and productivity improvement leads to top class plant performance and enhanced profitability.Moving on to Greece. Greece recorded a very strong first quarter with considerably higher sales and profitability across all products, capitalizing on a vertical integration position in the country. This performance was also attributed to implemented price increases to counterbalance inflated input costs and also to mild weather conditions.Sales reached EUR 94 million, up by 30%, while EBITDA grew to EUR 17.5 million, thanks to sales growth, average mix cost savings with higher use of alternative fuels and improved margins on exports. To be noted that the comparison is versus a well below normal of Q1 of 2022. Numerous public works across the mainland and investments in the strong tourist related sector ahead of the tourist visa, supported the demand that increased by more than 20%.The residential and innovation markets remained steady. New products were introduced in cement, ready-mix and mortars, offering improved customer solutions, higher quality while satisfying strict international standards.Moreover, the landmark calciner investment in the Athens Kamari plant is now complete and increased alternative fuel and alternative raw material utilization is expected within the next few weeks.Turning to Southeast Europe. Sales reached EUR 84 million, up by 32%. Thanks to volume growth, higher price levels supported also in this region by mild weather, while EBITDA grew to EUR 18 million, benefiting from cost efficiency actions and some improvement in the cost of electricity.Our plants continued to perform at higher reliability levels, while investments enabled us to increase the use of alternative fuels, thereby improving energy mix and reducing costs. Further improvement in the energy mix is underway with Bulgaria, Albania and Kosovo being at the forefront.The solar energy plant is now operational in North Macedonia, while the construction of the similar one in Bulgaria is about to commence. In East Med, performance held up as it entered the year despite a prevalent volatile environment. Sales in the first quarter dropped by 11% in euro terms and they reached EUR 48 million, significantly influenced by the devaluation of both local currencies.In local currencies, sales were up by 48%. The region continued from a weaker performance in Egypt and improved results in Turkey with the results being overall a flat EBITDA year-on-year.In Egypt, where the market remuneration imposed by the government continues, private consumption has been depressed due to the country's macroeconomic uncertainties, coupled with interest rate and currency challenges, shortages of foreign currency and significant cash to government capital spending p went ] negatively on investment sentiment.In Turkey, the financial performance has improved as a result of increased consumption, thanks to favorable weather conditions, the continuation of private works and improved pricing that absorbed the hyperinflationary conditions of the country.And last couple of words for our joint venture in Brazil, where cement consumption declined by 1.2% in the first quarter due to the prolonged period of heavy rains and the persistence of high interest rates and inflation. However, pricing during that time has increased by 29% and Apodi joint venture sales in the first quarter reached EUR 29.5 million compared to EUR 22.5 million last year. While EBITDA increased to EUR 3.5 million compared to EUR 2.7 million in the first quarter of 2022 as price increases offset rising input costs.And with that, let me pass over the microphone back to Marcel for an update on our decarbonization, digitalization efforts as well as some words on the outlook. Marcel, please.
Thank you, Michael. So let me share a couple of highlights of what is behind this very good financial performance. Of course, we -- on the commercial, innovation side of the decarbonization on the digital, all hands on deck. So we are happy with the pricing performance that our sales and marketing teams are affecting in the market. But we are also happy and I would like to share with you of some recent contract awards like the Metro Line 4 here in Athens one of the largest infrastructure projects in this part of Europe, or the Northern Carolina highway where we are increasingly placing a network of fixed and mobile ready-mix plant.On the decarbonization, Michael already mentioned that with the results of the last quarter, we are close to 7% reduction versus previous quarter. And we are now commissioning one of our largest investments to date in our plant near Athens, which will boost the alternative fuels on levels above 70% and reduce significantly the cost base as well as the CO2 footprint.We are also increasing the use of cementitious. And you may remember at the last call, we have shared with you one of the first acquisitions this year, a participation in a joint venture, pozzolan operations. And I'm very happy to report that we are dispatching and using increased volumes of cementitious on that front.And finally, on digitalization, I think we have shared a lot with you in the past on our end-to-end manufacturing, real-time optimizer, the artificial intelligence optimizers and debottlenecking our kiln and mills as well as predictive maintenance.We are making good strides on the quality prediction there and reducing consumption both technical -- thermal and electricity. And we are just starting the final phase on digital optimization of dispatching. So good performance and good highlights on this front, which signals the transformation -- the commercial and technology transformation the company is going through.A few words on the outlook. You heard me at the beginning, we remain positive, both on the activity as well as our pricing and cost performance in our main markets. We see improved margins going forward, continuing. We see cash generation continuing at a good pace. And therefore, we will continue our growth investments, both in the logistics and decarbonization on both sides of the Atlantic.The trends we have seen in 2022 continued, therefore, in Q1 2023. We have a positive outlook for the year given supporting demand levels, firm pricing conditions in our key markets and further performance improvements. U.S. economy, more specifically, in the markets we are, remains strong. Low housing inventories and demand for multifamily housing covers the decline in single-family residential.We also expect the nonresidential construction to rise, especially as infrastructure spending is growing with benefits from the various federal programs becoming more visible in the second half of 2023.Greece continues its growth trend of the last year with multiple projects boosted by the robustness of its tourist industry, but also the accelerated absorption of EU funding and the rising volumes from generally major infrastructure projects like the ones I just mentioned that we have been awarded.The region of Southeastern Europe, Michael already mentioned, is on a stable outlook and we will continue serving our clients through our unique extensive regional network.In Turkey, we see increased volumes following the needs from the dramatic effects of the earthquake. In Egypt, we expect cement consumption to soften in the near term. However, the underlying fundamentals of the 2 countries remain positive on the long run. So we remain positive on the outlook for the year.With this, we open for Q&A. Thank you all of you who are attending today's conference call.
[Operator Instructions] The first question is from the line of [indiscernible] with On Field Investment Research.
Yes, maybe a question to Mr. Cobuz. It's been nearly 1 year that you have been Chief Executive Officer of Titan Cement. What were the most rewarding projects you could work on? And also maybe what do you see as the main challenges for the group? And then, second question, again, with respect to the strategy, what are the key strategic priorities that Mr. [indiscernible] [ Spyros ] on the Board have asked you to focus on?
It's only a couple of months, and I'm happy with the momentum we are building. I'm happy with the results we have delivered for the quarter 4 and now with quarter 1. Quarter 1 is historically a low quarter. However, I already see the signs of a good mobilization for achieving results not only, I would say, on the core business, but extending to our ready-mix, aggregates and also on the block, which is particularly in U.S.More specifically, the most rewarding moments I had was to see the engagement of the team. And I think [indiscernible] this Titan is having entrepreneurs at all levels with a high degree of empowerment at the market level, of course, with the right accountability with a very lean corporate, which is supporting projects, particularly on decarbonization and digitalization.So that's a business model which is both resilient but which can be turned very, very easily to a growth pattern.Now, opportunities going forward, of course, they are on the multiple fronts. I think for us, we will double down on the use of alternative fuels. I'm very happy with the record results of the group in the first quarter with more than 20% substitution rate.There is a way to go. We have plants now which are operating at 50%. And I just gave you the example of the planting [ others ] at 70%. So it's my objective with the leadership team to accelerate this cost driver and CO2 driver at the same time.And of course, is in getting to the market in the low carbon product. We have been one of the first companies to -- in --businesses in the U.S. to roll out the low-carbon limestone Portland Cement. And we have -- we are reaching now close to 20% of our cement sales in low-carbon products.The other one will be to accelerate building positions in the few markets where we have very strong brand equity and further invest in aggregates, ready-mix, but also looking at opportunities on the light side.But this would not be possible without strong capabilities building. So at all stages, we turn to our teams. We develop our teams. We keep adding capabilities, which will make us fit for a green future.
Maybe just very interesting about -- I'm intrigued by your comments on the light side. What kind of product you'd be looking at on the light side? Is it the kind of products like cementitious material would you be considering to move to something a little bit different?
We are already on materials with lower carbon intensity. We have operations in U.S., in the block business -- concrete block business and light [indiscernible] -- We have operations here in Greece on the mortars. And we will continue to look opportunistically at developing but more at a vertical integration strategy.
Maybe last question, which is much more short term. Have you announced the second price increase in the United States or elsewhere, in Europe, in Greece or in America?
You could see from the numbers we published that in both markets, U.S. and Greece, we have an active pricing in the first quarter, and we continue improving our pricing performance.
The question is because I think one of your competitors, CEMEX suggested that they've announced the second price increase in July in Florida. Have you also announced a second price increase?
We are monitoring all opportunities on the market. And as we are developing our portfolio of products, [ Yasin ], we are also optimizing our pricing performance. But we see good pricing conditions in U.S. this month.
The next question is from the line of Athanasoulias Nikos with Eurobank Equities.
Congratulations on the amazing set of results. I have 2 questions, if I may. The first one relates to the EBITDA margins. The Greek EBITDA margin is impressive. And I know that -- I guess that this will retreat following the next PPA that you will sign. What was about the U.S. EBITDA margin? Should we consider the 18% or are they above 15% a new normal? This is the first question. The second question has to do with the working capital. I understand that trade receivables are increased because of the improvement and increase in revenue. But what about trade payables? There has been a sharp decrease in this as well. Can you comment on this?
So I'll take the first one on the margin improvement and maybe Michael, you look at the working capital. So we see improved margins recovering to the pre-COVID levels in the 2 geographies you mentioned. As a historical data points, we were operating in both markets at higher margin levels. So I'm happy with the pricing performance and overall the sales growth. We are working hard on the cost and we have hinted out at 2 initiatives.One is the substitution of the -- with the alternative fuels and the use of cementitious, which provides a good cost performance base. And we will continue with our growth investments in order to reduce the distribution cost and the logistic costs, particularly in the U.S., where the distances over which we are delivering our product are low.So I expect that these margins will continue improving on both markets.
Just to add to that, obviously, higher volumes have result to the improvement in the overall margin, with incremental volumes on the margin, the higher return. Also something which we also mentioned in the annual results, and I think it isn't yet the, let's say, deserved notice, is the financial benefit we get from the digital investments, especially in the U.S. We quoted a number of about EUR 15 million for the annual of last year. And that is an increasing number. The earnings performance through cost savings, increased throughput, lower electricity and fuel consumption, that is a result of the digital applications in manufacturing, are a contribution to the margin, which is not going to reverse. It is not subject to seasonality.Now turning to the second question on working capital. It has been a rather sharp increase in the quarter. The volumes were -- to some extent came as a surprise, the extent of the volumes. On the payable side, part of it was some delayed payments from December, sort of ended up being paid in January. Also a result of some payment difficulties, I should say, out of Egypt in foreign currency, where payments were delayed due to external factors. But that resulted in higher payables back in December, which have by now been paid by the parent, we should say.So it's a situation which we expect that in June, we will have a better working capital performance rather than what you saw in Q1.
The next question is from the line of Woerner Tobias with Stifel, Europe.
2 questions, if I may. Number one, can you just remind me or us of your fly ash capability generally, whether it's purely bought in or whether you actually have any production capability and where you want to take that? And secondly, on a similar note, your slag cement -- or whether slag cement will be part -- or GGBS will be part of your decarbonization strategy in the future?
As previously mentioned, cementitious and accelerating the use of cementitious is part of our focus going forward. We have just mentioned that we have secured sources of pozzolan which is a wonderful cementitious material that we are already using in Greece and Southeastern Europe and we plan to have products in U.S. using pozzolan. So that's our -- and of course, we are an active trading partner in fly ash and slag. And with the investments we are doing in dorms and additional silos in North Fork and Tampa in U.S., we will increase our opportunity to use additional volumes of flyers, therefore, bringing to the market low-carbon cement, blended cement, benefiting not only on the CO2 footprint but also on the margins.
And maybe one follow-up question, also along the lines of strategic decision-making. I said earlier, you've been here for a few -- almost a year or by the number of months now with your feet under the table, some of your assets could probably be better used by other owners or maybe jointed with other owners, such as for example, Turkey or Egypt. What are your thoughts on those sort of opportunities?
Tobias, I think we've discussed this in the past. We're always open to [indiscernible] definitely. We keep reviewing our portfolio -- our asset portfolio over time. And we do -- you will hear more about that on our Investor Day. We do not have some specific plans as we speak. Obviously, other performing plants compared to the rest of the group are a cause for, let's say, increased attention. But we do not have some specific action plans right now for those assets.
I think we are happy with the recent performance on price over cost in both markets despite of high inflation and high devaluation of the local currency. We continue at a measured pace the investments -- the industrial investments we are making. Particularly in Turkey, we have just commissioned an alternative fuels, platform processing unit, which is boosting our alternative fuels and at the same time, reducing…
As last year -- or last year, we did the export terminal and now Turkey is exporting quite different commodities to the U.S.
And we have made investment in the terminal. We have licensed low alkali products out of Turkey, which supply our units in U.S. at a competitive price. We have -- we are also diversifying our revenue stream in Egypt. We have started also exporting clinker out of Egypt. So as you can see, Tobias, we are on all fronts to improve performance and profitability, while managing the short-term headwinds on the market side.
[Operator Instructions] There are no further audio questions right now. We will move onto our webcast participant questions. First question is from the line of [indiscernible] with [indiscernible] Securities. And I quote, thinking into account the CapEx spending during first quarter '23 period, should we expect total CapEx for the full year period to reach last year's levels at EUR 230 million? Apart from the North Carolina highway, have you signed any additional contracts for projects in the context of the new infrastructure bill in the U.S. that you'll be willing to share with us?Could you shed some light on the pricing initiatives taken in the U.S. and Greece in 2023?
So I think on pricing, we have already answered that we had price increases at the beginning of the year. And we are taking all opportunities project by project and zip code by zip code to further improve our pricing. And this comes also as a result of the improved mix management by offering products -- high-value products on all our markets. I think on the project in U.S., I have shared this one, we do have other projects, particularly in Florida market.This one is North Carolina. And we do have a couple of them in Virginia. We expect a higher impact of the Inflation Reduction Act and the jobs act and investments act, on infrastructure and on renewable investments as of second half of 2023. And I think at the time of the Investor Day in September, we can detail that a little bit more.On the CapEx, we are encouraged by the results of the quarter 1. So we will continue the growth investments, both in U.S., Greece and Southeastern Europe. As Michael mentioned, these are investments on the supply chain optimization as well as on the increased use of cementitious and alternative fuels. And we are also investing in our captive renewables farms.On the figures you mentioned, this is similar to the last year. I think we will be able to reconfirm it midyear.
Yes, the CapEx, more and more opportunities are coming up. So given the very encouraging results, we do not intend to defer or slow down. The outlook we have for the key markets is positive. And all investments, which come in with good payback prospects, we are happy with our leverage ratio. So we will not defer. You should expect a CapEx bill around the EUR 200 million mark.
Another webcast question from Auguste Deryckx. Congratulations on this remarkable publication. First point, I need some clarification. Based on the elements of Slide 6, the majority of the increase in turnover is linked to the price environment as volumes are up to 6%-8% versus 29% for the top line.Second point, have you quantified the contribution of the digitization to margin improvement? As you can guess, I'm looking to figure out what are the positives from Q1 that would still have a persistent effect on the rest of the year.
The answer to, Auguste, is that, you missed one of the points that we mentioned, which is the reduction of the cost base for a couple of reasons. The obvious one is the softer electricity cost prices. The one which is a result of our own actions is the reduction in costs, which comes either out of the incremental use of alternative fuels which doesn't come with automatic switch. It requires investments in the storage and the sourcing, in the feeding of the production lines as well as reduction and improvement -- gradual improvement in the cost for the logistics, especially in the U.S. So while the volume increases have been in the, let's say, 5% to 6% level in the domestic markets, the rest of the margin increase doesn't -- can exclusively pricing in a way.Now, in digital, we gave a number of about 15% for last year. In the semiannual results in July, we will give a bit more detail on that number.
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.
Well, I would like to -- Marcel and I would like to thank everyone for joining us today. We are happy that we shared some good results with you, which give us confidence for the continuation of the year. And we invite you to join us on July 27, when we will be putting or publishing our semiannual results for the year. And you will be hearing more about the Investment Day, which we intend to hold in the last 10 days of September. Exact dates will be communicated to you well on time. Thank you very much.
Thank you.
Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a good afternoon.