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 Bobbie, 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 half 2022 results. [Operator Instructions] The conference is being recorded. [Operator Instructions]
At this time, I would like to turn the conference over to Mr. Michael Colakides, Group CFO; Mr. Dimitrios Papalexopoulos, Chairman of the Group Executive; and Mr. Yanni Paniaras, Group Executive Director, Europe and Sustainability; Mr. Bill Zarkalis, President and CEO, Titan America, Group COO; and Mr. Marcel Cobuz, Member of the Executive Committee, Titan Cement Group.
Mr. Papalexopoulos, you may now proceed.
Thank you, and good morning and good afternoon to everyone, and welcome to our conference call for the second quarter and first half results. As the operator just indicated, we have a full house here today. Other than your usual hosts, Michael Colakides, our CFO, and myself, we also have Bill Zarkalis, who heads both our U.S. operations and our group digital initiatives; and Yanni Paniaras, who heads the Europe and our group decarbonization initiatives.
And we also welcome for the first time Marcel Cobuz, who as previously announced, joined the Titan family on July 1 this year and will, after a transition period, take over as -- from myself as Chairman of the Group Executive Committee in October as I eventually transition to the Chairman role taking over from Takis Arapoglou.
Marcel brings more than 20 years of experience in the building and infrastructure materials industry, and has served in various leadership innovation and transformation roles during his career. He retains this ability to both deeply understand the industry and look at it from the outside in a forward-looking manner, which is very necessary in these times of rapid transformation.
Hopefully, this strengthened team together, all of us can provide that necessary mix of continuity and renewal that is required by those rapidly transforming times. So you will have more opportunities to listen -- to hear more from Marcel and Bill and Yanni later. Maybe I'll -- before handing the floor to Michael for the half year results, I'll ask Marcel to say a few very short words. This is probably the last time he doesn't get grilled in any serious way. So this is an opportunity to have a painless introduction. Marcel?
Thank you. Thank you, Dimitri. Good morning. Good afternoon, everyone. Glad to be here and very excited about joining Titan and working with Dimitri and the top team on the next chapter of the company. The past few weeks I've been in the markets with Bill and Yanni in our U.S. market as well as in Greece. I have met with our management teams, our leadership teams as well from South Eastern Europe. I'm impressed.
I came impressed with the quality of our people and their focus on the short-term issues, particularly price over costs, but also their forward-looking approach to the execution of critical CapEx to prepare the medium-term as well as the network optimization, and therefore we're looking when it comes to decarbonization and digital initiatives. So today, I will be listening in and as of 9 months results will be very happy to host you together with my team and share the great stories about Titan. Thank you.
Thank you, Marcel. And with that, Michael, the floor is yours on the more practical subjects of the first half results.
Thank you. Thank you, Dimitri, and good morning and good afternoon to everybody from me as well. So we'll cover the first half results. We are glad that the second quarter of the year was a strong quarter with higher revenue growth, 29%, over the second quarter of last year, and recovery of profitability with Q2 EBITDA and net profit after tax both closing above 2021 levels. Growth in group revenue strengthened in the first half, increasing by 26% and reaching just over EUR 1 billion. This largely reflected the series of successful price actions across geographies that were instigated since late 2021 and throughout the first semester of this year.
The stronger U.S. dollar also added to the growth momentum. The effect of the successful implemented price increases caught up with cumulative cost increases and is restoring profitability as is most evident in Q2. In the second quarter, group EBITDA was up 7.1%, reaching EUR 92.7 million compared to EUR 86.5 million last year. While the first half of the year EBITDA at EUR 139 million was 2.5% lower than the first half of last year, and that's a reflection of the weaker Q1 results.
Similarly, second quarter NPAT was higher compared to last year at EUR 43.9 million compared to EUR 42.7 million last year, whereas the first half NPAT settled at EUR 45.2 million, quite lower than last year's first half NPAT, but that's primarily because of the lower results at the first quarter of this year.
Net debt increased to EUR 795 million as of June 30 due to the higher CapEx and inflated working capital needs, which were further intensified by the period's seasonality.
Now due to the macroeconomic situation in Turkey, with inflation exceeding 70%, the application of IFRS 29 for hyperinflation accounting had to be introduced. This resulted in a EUR 3.4 million of incremental depreciation and tax charges to the P&L, but also a EUR 14.6 million profit in the P&L, out of which a big part was a goodwill increase and management decided to recognize that a reversal of this goodwill increase by taking an equivalent impairment charge.
A new buyback program of EUR 10 million was decided by the Board of Directors yesterday. The new program will begin following the end of the current running program and will be again for EUR 10 million in a duration of up to 6 months.
Finally, I should highlight that the group's decarbonization and digital initiatives continue at full steam. CO2 emissions in the period were down by 5.6% year-on-year, 38 kilos per tonne of cementitious material reduction, while digital end-to-end real-time optimizers are now up and running at both of the group's plants in America.
Turning to the next slide where we see at the bottom half chart with the improved revenue and profitability performance in Q2, a trend we hope to see continuing in the second half of the year as well.
The next slide is our P&L where we see that cost increases persisted throughout the first half of 2022. But on the other hand, the revenue grows by 29%, helped to achieve an improvement in EBITDA by 7%. Part of the inflation in revenue and cost is attributable to the strengthening of the U.S. dollar.
Now to the next slide where we see that the rise in our primary input costs has been relentless, especially in the areas of thermal and electrical energy as well as transportation. However, looking at the future markets, we draw some elements of optimism as -- and we may say that the worst at least as regards to solid fuels, oil and freight just might be behind us. Electricity costs, on the other hand, highly correlated with natural gas, they remain a wildcard looking ahead and therefore, unpredictability and volatility characterize any outlook statement.
In terms of our balance sheet, we see an inflation of our total assets resulting from the strengthening of the U.S. dollar by some 8% in the first semester of the year, and also the impact from the application of IAS 29 for hyperinflation accounting in Turkey, which added some EUR 90 million of additional assets to be books through the indexation exercise.
We now turn to volumes. The evolution of cement volumes largely reflects higher domestic cement volumes in all markets except Turkey and Brazil where volumes declined. Our export volumes were also lower as our available product supply was relatively limited due to CO2 optimization consideration. The decline recorded in aggregate is mostly attributable to extended maintenance work in the U.S. as well as the higher production of Type 1L cement, which requires more aggregates to be used for our own production needs. Growth has also been observed on the ready-mix side with significant increase in volumes coming from the Greek domestic market.
A look at our cash flow, operating free cash flow for the 6 months recorded a net outflow of EUR 49 million compared to a net inflow of EUR 62 million in the first half of last year. Cash flow generation has been affected by the extensive CapEx program in progress with EUR 96 million spent in the first half of this year compared with EUR 54 million in the same period last year, most of the incremental CapEx going in the U.S.
Higher working capital needs were caused by fuel inventories purchased at much higher prices than last year and by higher trade receivables as a result of higher revenue levels. The group's net finance costs in the first half were reduced to EUR 14.6 million, while the group net debt at the end of the first 6 months was EUR 795 million, higher by EUR 81 million from the end of 2021.
Taking a look at our debt picture. As we said, the debt has crept up to EUR 795 million. The group remains comfortably funded with EUR 300 million of unutilized bank credit facilities, the majority of which are on a committed basis. Some EUR 100 million of debt is in the form of short-term renewable facilities, while maturities are spread out in the future with the next significant one coming 2 years from now in June 2024.
Now comments on the performance by region, starting with our largest market, the United States. Titan operations in the U.S. recorded a solid performance, supporting the view that market fundamentals are well in place, underpinning demand in a strong economy. Successful price increases mitigated margin erosion and managed to gradually restore profitability. Revenue increased by 23.5% in euro terms or 11.7% in dollar terms to EUR 595 million on the back of price increases, which were rolled out throughout the semester across all regions and all products. Further price increases are expected in order to fully cover the increased costs.
EBITDA for the first half of the year declined by 19.9% to EUR 67 million, largely reflecting the delayed effect of implemented price increases compared to the earlier sharper and persistent pressure of high input costs such as energy, logistics, labor and raw materials. As the second quarter progressed, however, profitability recovered reaching close to previous year's levels as price increases succeeded in substantially restoring profit margins and revenue growth is moving ahead of the cost curve. Residential buildup and continued strong infrastructure activity supported demand in both regions.
Florida's economy is pulling ahead at full steam as the state grows into significant center of corporate activity with several corporations and consequently their staff announcing relocation to Florida. To meet this market still growing needs, the group has an extensive CapEx plan underway to improve efficiencies, to capture upside and grow profitability in the years ahead. Penetration and mass adoption of Type 1L cement and generally lower clinker content products continued, aiming to represent almost 100% in most of our markets by year-end, improving financial and environmental performance.
Turning to Greece and Western Europe where our revenue growth was recorded in the period reflecting solid domestic demand in Greece as well as healthy export market trends. Sustained revenue growth in Q2 resulted in a revenue increase of 21.3% for the first half, reaching EUR 158 million. The large urban clusters of Athens and Thessaloniki as well as those of Crete in the periphery account for the lion's share of activity with major project starts also pulling in volumes. There was also a marked increase in ready-mix concrete sales volumes, which further testifies to the market's dynamics since ready-mix sales inherently relate more to new construction rather than repairs and renovations.
On the export front, volumes declined owing to scheduled reduced export due to CO2 limitations. The healthy market evolution was reflected in positive pricing trends, which incorporated price increases now covering the severe cost increases recording across most production inputs. Similar on the export front, price increases successfully were implemented across all export destinations in order to cover the high production as well as freight costs.
Furthermore, export profitability was further aided by a stronger U.S. dollar. On the back of this performance, with increased volumes and prices, EBITDA increased by EUR 1.3 million to EUR 16 point million. As major infrastructure projects to which the group caters are picking up, new ready-mix units are set up to serve those needs, which are expected to further enhance domestic sales.
Turning to Southeast Europe, which delivered another solid performance with revenue growth in the first half of the year through with grow with variations across different markets. As a result, revenue in the region was up 27.5%, reaching EUR 169 million in the first half of the year. Real estate activity in the region continues as housing demand remains strong with houses serving as a safe haven for individual investors in the current volatile cost environment.
Infrastructure projects continue to contribute a significant part of cement consumption in most countries in the region. On the back of a strong performance in the second quarter, EBITDA increased by 4.2% to EUR 44 million. The very significant production input cost increases, especially in thermal energy and electricity, serve as a backdrop for price increases in all markets and have helped maintain profitability close to the previous year.
The price of electricity in the region has increased more than in any other region, but still remains even more vulnerable to the overall energy supply situation in Europe. In order to improve its efficiency and manage its cost base, the group is investing further in alternative fuel utilization, debottlenecking and alternative energy sources as well as in digitalizing further its operations.
Now in East Med, Egypt recorded significant progress in its performance while Turkey maintained its financial delivery. On the back from an increase in prices in both countries, revenue in the region grew by 56% in the second quarter compared to the same quarter of last year, resulting in total revenue for the first half of EUR 113 million, up by 49%. EBITDA increased significantly, reaching EUR 9.6 million (sic) [ EUR 12.4 million ] versus just EUR 2.4 million in the first half of 2021.
In Egypt, construction activity remains oriented to public housing development and infrastructure projects which account for the bulk of cement demand. The pricing environment has significantly improved, retaining the momentum achieved as a result of the rationalization of the country's domestic supply situation. As such, price increases successfully covered rising fuel costs and the local currencies devaluation effect, leading the sector out of a protracted period of consecutive loss-making years.
In Turkey, the economic environment has deteriorated with the country reaching hyperinflation levels in excess of 70%, not seen in the past 20 years. On the other hand, the current macroeconomic turmoil has elevated real estate into the most preferred investment, sparing a search in new real estate developments to accommodate needs for relative stability.
Nevertheless, the overall demand for cement declined. Prices have increased to cover inflation as producers moved swiftly to mitigate their risks. The application of IAS 29 for hyperinflation was applied, resulting in the disclosed restatements and adjustments I mentioned earlier to be made in the group's balance sheet and income statement.
Now coming to Brazil where high interest rates, high inflation and the compression of private disposable income affected cement consumption, which declined by 2.7% in the first half of the year. On the other hand, there is a drive, especially ahead of this year's general elections in October in public housing and infrastructure investments as well as government efforts to address affordability concerns.
As in other markets, input costs increased across the board in terms of energy, raw materials and transport. And while prices increased, it was not sufficient to fully offset the increase in costs. In the first half of the year, revenue in local currency increased by 16.8%, but EBITDA declined by some EUR 5 million.
Now we turn on an update on our climate change initiatives and Yanni Paniaras will cover the next slide. Thank you, Yanni.
Thank you, Michael. Hello from my side as well. Very happy to be reporting on our commitment towards developing products and solutions for a climate-friendly world and our commitments to being carbon-neutral at the concrete level by 2050, including reaching a target by 2030 of being below 500 kilos per tonne of cementitious in our products. The main news is that we are progressing very well towards these targets. The 5% that Michael mentioned already is just an indication of 6 months over a much longer period, but it does show an accelerating trend in this reduction.
The reduction is primarily due to the penetration in the market of lower clinker cement, primarily in the U.S., in Greece and in Egypt, but also to the introduction of new lower clinker cement in Albania and in Serbia. We are also very happy to have received the certification and launched our first product according to the new European standard 197-5. This means in practical terms, cements that can have clinker content of 50% or less. So it's a very big boost in reducing our clinker-to-cement ratio and we are moving on this track further.
Alternative fuels, we are actually expecting to have a step change next year when the big investment that we have with EUR 25 million investment that we have in Kamari for a calciner is going to be completed. And at the same time, we're going to have major CapEx completed in our plant in Bulgaria, in Zlatna and in some other locations. So we expect the alternative fuel increase to be substantial next year, having a benefit not only on CO2, but also in terms of energy costs, which is very important in today's environment.
Looking further and looking at innovation, we are exploring several carbon capture and storage and carbon capture and use projects, particularly in Europe where the regulatory environment is becoming more supportive. And we have installed a pilot plant to capture CO2 and create value-added chemicals in our plant in Kamari.
Also, and on a very early stage innovation, we have a small participation in Rondo Energy, a startup which is also supported by breakthrough energy ventures. This -- the interesting innovation is its ability to convert the renewable energy, storing it into high-temperature thermal energy, which can be used in industrial applications. And we are very excited to be collaborating technically to use this application in the cement world.
Before I close, just to mention that beyond the carbonization, we are progressing very well on all our ESG targets for 2025, including targets for our people, our society, the environment and good governance, and we will be reporting more on that at the year-end.
Thank you, Michael.
Okay. Thank you, Yanni. Let me just cover the -- our digital initiatives where we have a very committed and very dynamic team supporting these efforts, and we are very proud for the achievements. In the first half of the year, we saw our second cement plant in the U.S. going live with end-to-end real-time optimizers, meaning that now the cement manufacturing at both plants in America are using -- is using a unique mix of proprietary licensed software, have digital applications that enhance the plants' output to reduce the energy consumption and provide alerts for operational or process anomalies, and closely monitor the quality of the end product.
As a result, the group realizes an increase in product output and cost savings owing both to process optimization and breakdown avoidance. Moreover, the real-time optimizers helped the group to achieve lower levels of energy consumption, the higher environmental performance and increase our products' quality. RTOs are now live in 5 group plants and will be eventually rolled out across the group's asset base by the end of 2023.
The group is now also moving with another pioneering step. Titan has acquired from its technology partner, Precognize, the global rights of the machine learning failure detection solution for the cement industry sector. Titan has set up CemAI, an affiliated company that will serve the global building materials sector with this unique artificial intelligence predictive maintenance solution on a remote service center concept.
And by this, I close my part and I will turn to Dimitri for a statement on the outlook for the rest of the year.
Thank you, Michael. So let's talk about the outlook. It's hardly original to talk about the current macro uncertainty and volatility, whether Europe or the U.S. will suffer a recession, how interest rates will evolve, how quickly inflation will be tamed, when will supply chains be restored, how the situation in Ukraine will evolve, what happens to -- with energy availability and costs, and let's not forget COVID as well. These are all heated debates. However, I would suggest that our business is far less exposed structurally to the major disruptions and strategic upheavals than many other industries at this juncture.
Demand benefits from some longer term tailwinds, a big step-up in infrastructure spending of various kinds, more or less across the board in all geographies is necessary. It's being planned and it's being implemented and mostly is already well-funded. Housing needs are real and growing. And the supply in many locations is clearly inadequate. On the more operating front, supply chains in our industry and in our company are mostly short and local, and are holding up well, with energy of course being a major exception to that generalization. The secular trends towards decarbonization and digitization, which come with some risks but also plenty of opportunity, continue unabated and are not sidetracked by the short-term volatility.
So overall, if we look at our business, operations are doing well. We continue to invest to capture future growth in our existing footprint while at the same time working systematically to reduce costs, decarbonize, digitize and tap new sources of growth, like the ones just described by Michael.
Now within that broader context, let me turn to the short-term outlook. The big picture is that we have a solid positive momentum going into Q3, supported by strong pricing more or less across the board, growing demand in key markets, in particular, the U.S. and Greece. Areas to watch out for our volumes, of course, and especially in some emerging markets, and energy costs. Just today, I think, in [indiscernible] determines electricity prices for much of Europe has reached almost unprecedented heights once again.
Now more specifically, looking at each region separately. In the important U.S. market, the solid fundamentals continued to drive demand growth, especially in the geographies the group is present in or has significant presence in. Places like Florida and North Carolina exhibit a dynamic both in terms of economy and demographic trends and building activity that are well above overall national averages. The indicators we see on the ground are still pointing in a positive direction at this time. Residential activity is robust despite interest rate and affordability headlines.
State budgets are at historic highs, supporting infrastructure spending even before federal plans. Cement supply is tight. As previously discussed, we are investing to capture the coming growth and to better serve our customers in the years ahead. Following successful price increases in June, exit velocity for prices at the end of Q2 will help profitability in Q3 and beyond. Further price increases have been announced for the fall. So with all the disclaimers that saying anything about the future has to bring with them, the outlook -- short-term outlook for the U.S. still looks strong from where we're sitting today.
In Greece, the activity going forward -- demand going forward should continue growing, augmented by the large investment projects, both public and private, which have now largely started and which offers supply horizon for several years ahead. Moreover, with the conclusion of a very strong tourism season, related investments should also support demand. In Southeastern Europe, the Balkan countries, demand and the outlook is more likely to be affected by the extreme volatility of energy costs and the war in the Ukraine. Our current best assessment is that the current levels of activity will be maintained with differences between countries.
On a positive note, the improving prospects at the Western Balkans will be offered a path towards Europe, even in the long term are a big boost to the longer term outlook in those countries. In Egypt, the demand growth momentum will likely be blunted by the macro challenges, but the performance recovery should continue on the back of government in post quarters. In Turkey, demand is set to continue to decline as long as the economy does not stabilize. And finally, in Brazil, in a transitional election year, both demand and pricing are relatively soft.
So in summary, despite uncertainties, we see good momentum in Q3, driven by the U.S., to some extent Greece, and pricing more or less everywhere. We have a business that exhibits good defensive characteristics in the current uncertain environment and a clear strategic direction being implemented systematically to move ahead. And with that, let me open it up for questions.
[Operator Instructions] The first question comes from the line of Woerner, Tobias with Stifel. Mr. Tobias, can you hear us?
Yes. Tobias Woerner here from Stifel Europe. Firstly, Dimitri, congratulations to your new role and your new team. 2 questions from my side, if I may, which relates to the stimulus package we're seeing across the U.S. and also in Greece. It seems that the industry is already or the equity markets have already forgotten about stimulus and it hasn't even started. The question really is, are you starting to see in your markets the projects at least being put forward? And what do you expect the timeline to be for the execution of those products from now on, both in the U.S., but also Greece, i.e., the EU next-generation recovery plan.
The second question is just a more general one. I suspect [ heavy side ] business is mostly exposed to infrastructure, but just remind us how you feel across the group you're exposed to infra, non-res and residential, I suspect the residential piece is mainly through the RMC side.
Let me ask Bill and Yanni to address both questions, I think, because even your second question does not, Tobias, have a general answer. It has a very local answer. So Bill, would you want to start with the U.S.?
Of course. Tobias, thanks for your question. In relation to the first part -- in relation to the stimulus package, keep in mind that there are 2 parts of the stimulus package. One is the old part, which was $650 billion over a period of 10 years, but essentially, it's going to be spent over a period of 5 years, which is the FAST Act, which has been an ongoing program. This part of the program we've seen being implemented as we speak. And we have many projects in the areas where we operate that take advantage of that. For example, in Virginia, with tunnels, bridges and also interstate highways, but also in Florida and New York. That's the existing program that continues.
There is another part, which is Infrastructure Investment and Jobs Act, which relates to $550 billion, which is a new part. In relation to that, we see some early projects that may start being designed at the end of this year, but mainly we expect implementation to hit really the market and the market to benefit from that towards the end of 2023. And then onwards it's going to continue in earnest. And as I'm sure you know, the industry has assessed the impact in relation to consumption is going to be about 50 million tons of cement over a period of the next 5 to 8 years, starting, as I said, in earnest towards the end of '23.
So that's in relation to the first part of the question. Before Yanni tackled that one from the European point of view, let me also say in relation to our position in infrastructure. Overall, Titan America being a leading player in the areas where we operate, I have to say that more or less, we emulate the market composition in terms of infrastructure, residential investment and consumption and, of course, commercial. But I have to say that overall, we have a bias towards infrastructure, so slightly higher participation in infrastructure in our mix versus the market.
Now overall, infrastructure in most of the states in America is about between 45%, 50% and 55% with the exception of -- when we look at the areas where we operate, Florida is slightly traditionally, historically, is slightly weaker in the participation of infrastructure in the overall consumption of cement with residential being above 50%. But recently, we see a boom in infrastructure investment in Florida, especially with this year's budget where Governor DeSantis have signed in law a record high budget and he allocates $10 billion per year in the Department of Transportation.
So we start to see that infrastructure starts to play an increasing role even in Florida where traditionally residential, whether it was single-family or multifamily high-rise construction, residential was playing a bigger role, but we see that even in Florida now infrastructure starts to take a higher percentage. Yanni?
Thank you, Bill. On the -- when we say Europe, primarily Greece and also Bulgaria, the RRF fund that you mentioned, Tobias, is definitely driving growth in these countries as well. Its main target is really green and digital. So it has, I would say, more of a secondary factor than an immediate effect on infrastructure. For example, a very big part of the funds in Greece have now been disbursed in energy-saving measures for buildings, just to give you an indication. Having said that, the combination of the RRF together with other European funding is pushing infrastructure, especially in Greece.
We see a lot of projects that are very mature to be implemented, 2 airports, several motorways, a large project for storing hydropower, just to mention a few. So in the medium term, these are -- this will be a very positive momentum for the construction industry as well. As Bill said, given our leadership position also in Greece, we do match the market as far as the split between infrastructure and the other sectors, the other segments. Just to add here that tourism is an important sector in Greece. Tourism has been having a very good year this year, and we expect to see this driving growth as well in the coming year.
I mean historically, Greece used to be more housing buyers. Now, obviously housing has collapsed. Has the mix changed in context of the end demand by sector?
Yes. Not substantially. You're right. Greece used to be driven maybe to have an over proportional exposure to residential. But over the last at least 5 years, it has been driven by infrastructure, and I would say this remains still one of the key factors driving our growth as well.
One thing you should keep in mind, Tobias, is that we're still in Greece at very low levels of housing activity compared to historical periods, let alone the peak of 2005, 2008 with -- so in -- by most standards, not just by the recent peak, housing activity is still at low levels.
It hasn't reawakened but the volumes are still low.
Correct.
[Operator Instructions] The next question comes from the line of Edelfelt, Sven with ODDO BHF.
Yes. 2 -- 3 very quick questions for me. First one, correct me if I'm wrong, but it seems you are a bit more cautious for the prospect for the outlook for 2022. You mentioned good momentum for Q3, but does this apply as well for Q4? That's the first question.
Second one, do you believe production cap in Egypt will be extended? We were supposed to have news about this in July, if I'm not mistaken. On the third one, how much CapEx do you need to set up your real-time asset optimization on a single cement plant?
Let me take the first couple of questions, if I may, and pass the third one to Bill. So yes, I mentioned Q3 to give a sense of momentum and to put less emphasis on what, to show how volatile the situation is, I was not implying anything bad for Q4. I was just putting more emphasis on the immediate. So yes, we are, I would say, cautiously optimistic for the balance of the year. In terms of the production cap in Egypt, we do not yet have a formal notification of any kind but it seems that it's very close, and our people in Egypt are convinced that they -- it will be renewed. How exactly and in what form it will be renewed, as I understand, still under discussion. Bill?
The last question is, Sven, it was in relation to asset optimization. I presume you mean asset maintenance. And this is a very…
CemAI.
At the RTOs.
The CemAI, the RTOs or…
Do you -- maybe [ RTOs ] and CemAI?
The RTOs, it's relatively very low capital intensity. We're utilizing proprietary technology. And essentially, it's intelligence and the capital of our people. I mean it's the development of the algorithm and elements like this. So the -- we have highly sensorized assets across the group. So as far as the internal projects are concerned, it's very low in capital intensity. It's more of the innovation, the creativity and the ability for us to develop the right algorithms and machine learning. And this has been an exhilarating type of a process for us, but capital is minimal.
And I think that's the beauty of the Industrial Revolution 4.0 is accessible to creative minds to a determination of a company to change its culture and pursues the artificial intelligence and the digitalization vision, but it doesn't take a lot of capital to pursue it and to implement it. Now in relation to CemAI, this is our foray essentially to enterprise intelligence services and our digitalized -- and then we try to productize our experience that we have developed over the last 4, 5 years where we execute our digitalization vision within the company.
And we really realized that there is a lot of value because we not only implement it internally, but we have already customers outside and so that the best way forward for the company is to create this arm-length entity that will offer the digital services, but also the support of our engineers and remote centers in order to bring operational excellence in the industry. And this is specifically targeted at the cement industry. But other than resources and utilizing our intellectual assets, it doesn't have any capital intent.
Did that address your question, Sven?
Yes.
[Operator Instructions] The next question comes from the line of Boulougouris, Alexandros with Wood & Company.
Yes. A quick question on your CapEx. You had about EUR 100 million CapEx in the first half. Should we input about a similar level of CapEx in the second half of the year, so around EUR 200 million for the year is a reasonable assumption? That's my first question.
And the second question is regarding the volumes and the reduction in cement export volume due to the CO2 optimization, as you mentioned. So is this something that we should also consider it will continue going forward on 2023 [ and they ] will be very direct on the high growth in domestic demand basically means a reduction in cement exports, a reasonable assumption.
Alex, let me answer both the questions. The CapEx is usually heavier in the first half, which is combined with planned stoppages in the winter and [ summer ]. So in the second half, you should be expecting less than the first half. And there is always a question mark whether a specific plant will close in December or January where you may see the expense falling over to the next year. But as a general guidance, I would say that CapEx should be expected to be over EUR 160 million, but not close to EUR 100 million and below EUR 180 million, closer probably to the EUR 160 million. And we had said it at the beginning of the year that 2022, especially would be a high spending year, next year in terms of CapEx will be -- also be high but not as much.
Now turning to the volumes, I'm glad you made the question because we have to make a clarification. The way the CO2 system works, the allocations are based on a 2-year rolling average. And obviously, we cannot keep production flat from 1 year to the other over the 10 years from 2020 to 2030. So one higher production year has to be followed by a lower production year and the following year will be higher and so on. So last year was a relatively higher production year and in order to meet the optimum for the allocations, this year had to be lower. The decline in exports you saw this year will be reversed next year with higher volumes.
I have to clarify that the -- that has to do -- the reduction is from third-party exports. It's not for the internal -- the internal customers, Titan America and Europe have maintained and even grown their volumes. But an additional dimension is that we are no longer just an exporter. We are also traders of cement and part of our overall needs are purchased in the market. So in years where we may need more cement, we will purchase more and the reverse. And there are many opportunities in the market for sourcing cement. And also for us, we are also contemplating other -- some of our other plants to be used for exports.
Ladies and gentlemen, there are no further audio questions at this time. We will now proceed with the written webcast questions. The first question is from [indiscernible] from La Financiere de l'Echiquier and I quote, "How should we assess [ WUC ] and net debt development over the coming quarters? Do you need to build even more stocks of raw materials?"
Okay. The answer is no. Q2 is a seasonal high in terms of inventories, usually coming out with full stocks in Q1 and as sales pick up, it takes time to reduce. So there should be no further increase from the level where we have already grown. And in fact, by the end of the year, we may see a decline on the inventory side. So in terms of net debt, with the expectation of an improved EBITDA in the second half, we expect net debt by the end of the year to show a decline.
[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.
Okay. Well, thank you all for attending. As Dimitri mentioned, the next quarterly results announcement, which will be on November 10, will be -- we will be having Marcel leading that presentation as the new Chairman of the Executive Committee at the time. And we hope to welcome you with even better results. 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.