Buzzi S.p.A.

Good afternoon, this is the Coruscall conference operator. Welcome and thank you for joining the BOOTSI SPA full year 2025 results conference call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Pietro Buzzi, CEO of Buzzi SBA. Mr. Buzzi, you have the floor.

Thank you, and good afternoon, everyone. Welcome to our conference call, and again, thanks for participating. We do publish a presentation, which I will follow, at least in part, if not in full, that is available on our website, so I will mainly refer to the ZEPT and to the PACE. So starting from the first page, we have a brief summary of what has been the 125 for Buzzi overall a good year, although not as good as the two last ones, so with some decline in profitability, but still showing, let's say, very strong results in that. and very significant cash flow generation. So as you can see from here, we had a slight improvement in our revenues, in our net sales. This was already disclosed at the beginning of February with an impact, positive favorable impact coming from the changes in scope. MBDA is falling somewhat short of last year, minus 3% approximately, which would be actually minus 6 like for like. So the overall impact, again, of the Forex and the scope changes was favorable. The BDA margin, we are losing some profitability, which is mainly due to the fact that the additions, let's say, to the perimeter, to the scope, at least initially for the first year, they are coming in with an average profitability which is below the one of the, let's call it, traditional scope perimeter, and to the fact that or the strongest country for us, U.S. decline somewhat. CapEx are, let's say, similar to last year in terms of industrial CapEx, a little bit lower than last year, considering also the equity investment, and we can, let's say, enter into that later in the presentation. My financial position also with the help of some lower CapEx improved significantly and cash flow generation was very close to last year regardless of the slight decline in profitability. We have, we propose to the next AGM to keep the dividend unchanged versus last year. But, and we will comment later, the show this remuneration in 2026 is anyway going up significantly thanks to the buyback program which is underway. As you can see on the following page, let's say page two, one of the key feature, let's say, of 2025, was the scope in this, which included an asset swap, if you wish, which occurred in Italy, and it's a bordering country, in particular Austria, where we sold, let's say, the Fanna plant in the northwest part is in the province for those that are a little more acquainted with the Italian geography. And AlphaChem is the owner. It's part of the group. This group which acquired the is composed basically of three parts. One and a half, let's say, plant in Austria, which is quite strong, let's say, locally. The Slovenian plant where we used to have already a presence since some years, which is a very strong plant just on the other side of the Italian border. And some Italian assets that now includes also So quite a strong and integrated group in the northeast of Italy. And then we expanded our presence internationally between starting from March, April until December. It's an ongoing process. If you wish, by acquiring initially over, let's say, 30% stake in a listed company, in the Emirates named Gulf Cement Company, which is a single plant, let's say, entity, but with a quite significant capacity, very powerful in terms of machinery, let's say, and equipment. Then through the OPA, the ownership was increased, and later on, December and also Something more will follow during this year. We achieve a gradual improvement in our ownership, which at the end of the year is around 66%. Indirectly, it's a little less because we participate to this investment together with a partner in a specific entity called PC Mina. All this, we see as 90% and the partner as 10%. economic ownership is a little less than the 66% at the year end. On the following page, you'll see the bridge, let's call it, of the turnover, 2025 turnover by regions, so by main regions where we operate. And Italy had a fairly clear, I would say, if we do not consider excluding the scope impact, actually, our volume and pricing, volume remained basically the same, prices slightly better, so this was quite a strong support in Italy coming from the infrastructure project of the so-called resilience plan of the European funds allocated to Italy. Central Europe was kind of mixed, so there was a recovering volume, but prices suffered mainly in Germany, and this translated into, let's say, an offset of the progress that we achieved in the volume in our cement state shipments. Eastern Europe, I would say good results overall. There was a negative impact coming from the consolidation, from the sale of the Ukrainian assets. So this was the first year without Ukraine included in the scope of consolidation. But the remaining countries... overall performed well in particularly Poland and Czech Republic, and we did have also some benefits from the strengthening of the local currencies, both Zloty, Czech krona, and also the ruble in Russia. U.S. was, in a sense, the worst performer also due to the size. So every time that something, let's say, negative happens to U.S. in our case, the impact on our figures, on our numbers is inevitably more significant. What happened in U.S., we had a minor, let's say, decline in volumes. more in red mix actually than in cement. Pricing fairly stable, but no improvement. If we look at the average, there were some improvements in specific geographic areas, but some declines in other red mix prices were a bit under pressure, particularly in Texas, and the overall result was a little negative. And the dollar lost some of its value, affecting the translation. So 70 million negative on our net sales figure. Brazil is coming in for the full year for the first time. So the comparison... The first two bars refers to the last quarter of 2024. But the impact is, I would say, overall positive, with the exception of some unfavorable variances coming from the forex. And it's bringing in additionally, let's say, 2,065 million of turnover. Same reasoning, more or less, for the UAE, which is smaller in terms of turnover and is also including – it's been included starting from May, so about six, seven months. And this brings us to the 4.5 approximately level up to – 4.3 billion of last year that you see in the bar at the right side of the slide. And then if we move to the main, let's call it operating figure for the result, which is the which is the BDA. What you can see from here is, again, fairly simple, if you wish. So volumes, good trend, favorable variance of about 44 million, but a number of let's call it negative items or unfavorable items associated, first of all, with the price environment, which was overall slightly negative besides what happened in the U.S., particularly, I would say, in Germany. So Germany and U.S. were the two countries where we suffer, actually Germany more than U.S., we suffer the most in terms of pricing trend. Variable cost, not so much coming from energy, some fuel or electrical power. It was more related to raw material and other variable cost, for example, logistic ones. And fixed cost, typically labor, maintenance costs. were also going up, difficult to fully, let's say, control versus the volume and price trend. Other mixed costs also showing an unfavorable figure. CO2 basically not an issue last year because we still, This refers, of course, to the countries under the ETS scheme. And in those countries, we basically remain in line with the free allowances received with a few exceptions. And a minor, let's call it, negative variance versus the previous year affects overall negative, mainly in the U.S., And then scope changes that refer to, okay, on the positive side, Brazil and Emirates on the negative to Ukraine, rebalancing somehow the negative impact that you see on the center of the slide by 61 million. So overall, the decline is what we mentioned at the beginning. and this is the in brief, let's say, the explanation. Then more explanation can be given, of course, country by country or region by region where things did not behave, let's say, or happen in any consistent way. We had, of course, some regions more affected by cost, some regions more affected by prices, et cetera. In the following page is the cash generation and capital allocation. You see that the cash flow, as I was mentioning at the beginning, remained very, very close to last year besides the EBITDA decline. slightly lower than last year. Not really because of our decision to decrease them. It was actually somehow related to the execution phase, which on more complex projects usually takes more than you might budget or on your afternoon, say, translating the design in the engineering phase into implementation and execution usually takes longer. And remuneration of the shareholder was quite good, I would say. You can see the split between, let's say, dividend and buyback. We have an ongoing... program which started at the end of February which has been more or less so far 50% completed and we should get to the end we will see of course it depends on the liquidity of the shares on the daily trading but normally with this kind of trend we should be able to complete it by the end of May or maybe even earlier. We will see. It's well advanced and likely to be completed in maybe two more months. There is also a proposal, proposed resolution taken today by the board directors to cancel the shares that will be in portfolio, let's say in treasury at the time of the AGM. So we don't know exactly the number, but anyway, both the share that were already in treasury at year end and the ones that are being bought currently will be canceled, which is also, I think, overall a positive news for the shareholders. Just to give a little more colors on the different geographic areas, we move to page seven. always a very strong contributor to our results. But last year, they were not able to keep up with the same level of profitability that we enjoyed in 2024. Basically, in terms of ABDA margin, as you can see, we went back to the level of 2023, which is anyway, very good one, both in absolute terms and also in relative terms when you compare to other peers operating in the U.S. But the trend was slightly negative. We faced difficult volume part of the year. Then in the second part, there was a, sorry, but not full, so we were unable, let's say, to close with a favorable volume trend, minus 2.2, I think, very similar to the overall market trend. And ready-mix volumes suffer a little bit more in terms of shipment deliveries and also pricing. Ready-mix, as you know, as you recall, in our case, they're mainly in the Texas area, which was one of the I would say more difficult in terms of market environment also due to the presence of, the significant presence of both incumbent and new importers into the, along the coast from Houston to Corpus Christi, etc. We have a structure in the U.S., a cost structure, which is compared to our countries, skewed in a sense of more significant weight of the fixed cost. So when you lose also slightly volumes, this has an immediate impact on our profitability, which was the main case. Cost not really going down, volumes going down a bit, pricing not moving, or more, let's say, moving unfavorable than the opposite, and this was the result. On top, we had the negative foreign exchange impact. following the devaluation of the dollar, which on the EBITDA means around 26 million, not a small amount. Moving to Italy, which is the following page, more favorable situation. Support, as I was mentioning before, mainly from the PNRR programs. to public building infrastructure project which also are typically enjoying a greater cement intensity versus either residential or residential renovation. So there is a decline in cement volume, but this is a direct consequence of the scope changes that we were commenting at the beginning. Meanwhile, for example, Our randomness concrete subsidiary has been able to increase volume by around 6%. Pricing performance was okay. Some improvements. And our cost, both fuel and power, were definitely under control. So we did not suffer any significant, let's call it, energy inflation during 2025. The changes in scope on DBDA means 13.14, let's say about 14 million of the impact. which is not very different from what you see in the BDA variance. Actually, we are showing a plus 3.5% like for life, so it was fully offset by the good trend or the stable trend. In Central Europe, which means for us basically mostly Germany plus Luxembourg and ready mix operation in the Netherlands. Quite a different trend if we look at Germany versus Benelux. Unfortunately, Germany has a much greater weight on the area because the performance of Luxembourg and the Netherlands was growing, was okay, was improving. Meanwhile, Germany did improve some. So there was a rebound in the volumes, but there was no rebound. Actually, there was a decline in prices, which started already on the previous year. Actually, we entered 2025 approximately. The exit price, let's say, of 2024 was already lower, and we were unable to recover or to change it significantly or just slightly to 2025. And this was the major impact on the – I mean, the major reason for the EBITDA decline together with – a cost situation, a cost environment, which was not favorable or quite different from what we experienced in Italy. We suffer mainly on the energy cost, on the power cost, not so much on the fuel, but yes, on power. This is also somehow related to an edging which was made in advance, so to cover the purchase for 2025, which at the end was not, if you wish, successful in the sense that maybe it was bad timing, but of course, I mean, the reason behind edging is not to pick the right timing. Just in this year, I mean, in 2026, we will see a totally different trend because the market condition has changed in the meantime. So the change, the favorable change in Benelux was able to help somehow the region, but Germany clearly is waging waiting significantly on this specific portion of the business. And the performance in terms of the BDA certainly was poor overall. I mean, there are reasons behind it, which explains it, but it was overall quite poor. In Eastern Europe, on the following page, we are, I think, continue to be on a steady, let's say, profitability outcome. Of course, these businesses are not as big and as significant, so their contribution, let's say, to the overall profitability of the company is not as significant as Germany or US but the good news is that there is a positive momentum both in Poland and in Czech Republic which should also continue in the coming year so strong cement volume dynamics in Poland was clearly I mean, it was quite meaningful. Czechia is smaller but also stable. Our already mixed business in Czechia performed very well. We lost some of the volumes in Russia. That's the only area where I think also after some years of war, let's say, the impression is that the economy is starting to feel more, let's say, than in the previous year, and also probably in Russia the prospects for the next year are also quite difficult or more difficult than in other Eastern European countries. Ukraine is not part of the region anymore, but its contribution was not very significant anyway. So if we exclude Russia, there is a margin expansion and driven by higher production and also, in this case, lower energy cost, which did not, as opposed to Germany, that we commented before. Exchange rates also favorable. If you wish, not minor, let's say, contribution, but anyway, a favorable contribution. and the impact of the consolidation of Ukraine was, I would say, totally absorbed, and also the negative contribution from Russia was totally absorbed by the strong performance of Poland and the Czech Republic. Brazil, which is a newcomer, let's say, first year, in the group, so let's say that we perform a comparison here because last year actually only the last quarter was included in our figures. We had a volume trend which was favorable. to 3% up again compared to the full year 2024. Price trend in local currency also favorable. This translated into, I would say, significant margin expansion. Our costs also were particularly energy costs are lower than the previous year. So as a first, let's say, year of full operation in the group, I think we can be fairly happy with the overall performance. There is room to do better in the coming year if the external condition and also the industry trend will go in a certain direction, which is possible. And the only negative factor, the only negative is the change rate, the trend, but not so impactful, I mean, not so dramatic on the overall figure. minus 5 on net sales and minus 1.5 million on the BDA. And currently, actually, if we look at the, of course, it's not necessarily a trend that will continue for the entire year 2026, but what we're seeing lately is actually a more stable real versus the euro trend. since the beginning of 2026. So if the local currency, if the Chinese local currency will perform better, which is what we expect, also in Europe we should have, we should have, it should be reflected, I mean, also in Europe terms in likely absence of negative effects impact in the coming, in the current year. Mexico is not part, as you know, of the group. It's not line by line consolidated, but it remains a very important part in terms of, let's call it, also management involvement, but in particular in terms of net result contributed to the other company. The Mexican performance was mixed, but overall still very good. We suffer a bit on the turnover on the BDA in Europe terms, but when we clean up, let's say, from the from the foreign exchange impact, actually both figures were better than last year. And this is one of the few countries together with the European country, Poland and Czechia, that was able to achieve an improvement in the BDA margin, which is already very, very high, as you can see. I would say that we cannot complain about the maximum performance. The only complaint is that it cannot be included in the line-by-line consolidation, but for the rest, very strong performance coming from this country. Some comments on how we see 2020, also in the light of what has happened so far and and also recent change in the macroeconomic environment. I mean, we are, or we were, let's say, but we still are pretty confident that we can continue to perform fairly well during the year. There are uncertainties. There are certainly geopolitical tension. potential inflation pressure for how long this difficult situation in the Middle East will last and will affect particularly the energy cost but not only because there are anyway also impacts on the demand in part directly like in the Emirates or indirectly like in Europe or probably less in the U.S. and Brazil. But anyway, so by major, let's say, regions like we showed before, U.S., the expectation are for the association is, let's say, forecasting some additional decline in demand, probably in the range of 2%, 3% or something similar to what happened in the previous year, but of course, if this happens, it would be already the three, four, five, six, four, at least fourth year in a row of decline versus the previous peak, which was not historical peak, but anyway, the previous peak of the cycle in 2022. And this is something that clearly is not, let's say, helping the overall price environment because there's, in most of the regions of the state, some capacity available. And, as I said before, due to our cost structure, to lose some volumes – almost immediately translates into a margin construction because the fixed costs are quite high in the area. On the other hand, we have seen also the beginning of the year, particularly during the month of February, demand quite resilient. so it's true that on one side you have residential weakening but there are definitely in the non-residential portion of the demand or yes some kind of projects that are going well that require cement and concrete typically just to mention one which is of course very much on the on the fashionable data centers construction, but this is actually happening. It's happening and it's relatively intense in terms of cement consumption. So again, a mixed environment with the non-residential segment and also the infrastructure probably supported. and maybe even better than what the association has been forecasting for the full year. So we will see. There are, of course, other factors to be considered in the U.S., which we mentioned in the comments of the press release that are a bit disturbing or potentially disturbing let's say the price environment, but okay, a situation or a scenario which is, I would say, moderately optimistic about the outcome for the U.S. in the coming, in the current year. Italy should be a year very similar to the previous one as long as we continue to have demand coming from the infrastructure plan let's say or the European funds there are good chances that we can more or less repeat last year results and also Italy is more likely probably than the U.S. to be able to improve somewhat the prices. There are underlying reasons related to the introduction of the CBAMA, the scarcity or the lesser availability of CO2 allowances, which also translate into a higher cost. So there's probably more room than in the U.S. on the pricing side to be a favorable variance. Central Europe, we should see some rebound. We are forecasting some rebound in Germany. The federal infrastructure plan should start to have some impact also on cement demand. We are coming from a year where the The prices, as we were commenting before, remain fairly weak, so there is – there should be a possibility also couple being within, let's say, the ETS system, similarly to the – to Italy, there should be a possibility to recover something on the pricing side. This means also additional cost for CO2, but more chances, let's say, to gain something on the price level. Eastern Europe, with the exception of Russia, which is probably entering a much more difficult phase than what we faced in the last two, three years, We don't see a reason why Poland and Czechia should be worse than the previous year. These are also countries where, as opposed to Germany and Italy, we are operating at a very high capacity utilization level, and so we are definitely optimizing, I would say, our profitability thanks to their capacity utilization, which is, we think, there to stay. In Brazil, we mentioned it already, we see a positive trend overall, particularly in the Northeast, which has been growing in terms of volume and prices more than the Southeast. But if there is an easing of the monetary policy, which today represents significant constraints for the construction investment with interest rates at 15 or 16%. The number of projects that have been on hold so far should start and clearly this has even more impact in the Southeast where most of the consumption and population actually are because because this is where the bulk of the cement consumption of the country is located. In the Emirates, we will certainly suffer from lower cement consumption until at least, well, we will see until something different happens, but that's the country with more direct impact coming from the from the local, let's say, turmoil or conflicts going on. But on the other hand, we have a number of initiative of projects that have been put in place last year and will continue this year to improve the profitability. So even with the lower cement volume, we may be able to do something better in terms of the BDA. Basically, okay, it's not affecting directly our numbers, but we're seeing, we were, let's say, more positive versus last year in terms of volume trend, and profitability should remain at a very, very high level. This for the, let's say, the top line and the volume prices scenario. The risk or the, let's call it, the uncertainties are definitely more related to the cost side, where it is true that many components or many items have been contracted for a certain number of months. We have certainly some stability for a good part of the year, but it is clear that on the energy cost in particular, the current situation is creating an environment of rising cost. driven by renew inflation like we mentioned here. So there is volatility, but volatility mainly on the high side in the sense of more expensive side. This is difficult to let's say assess completely right now. We ran some number. taking, of course, a kind of sensitivity analysis. And there is certainly an impact that we don't know if we will be able to offset with a price improvement or not. It will mainly depend on the specific situation and demand, let's say, a competitive environment, what is the attitude of the competitors, et cetera. The idea is, of course, to try our best to preserve the margins, but how much we will be able to do that and how much actually the cost environment will be unfavorable is difficult to assess. In general, we do see a significant risk of rising cost, in particular the energy component, in the coming months. The effects for an exchange is same, very difficult to somehow forecast. Initially in our budget, we introduced an exchange rate for the dollar, which was definitely weaker than than the 2025 average. Is this going to be true? Is that going to be true? We don't know. So far, again, not as much as we forecasted, but this could change in the coming months and can certainly move, let's say, the variance from positive to negative if the dollar will weaken more than what we expected or more than what is showing up to now. So overall, again, reviewing our numbers, doing our budget in a quick way, we think that it will be quite difficult or actually as of now impossible to achieve an EBTA greater than in 2025. So our view right now is to as we wrote, let's say, marginally declined by how much is difficult to tell right now. But I think the message which is important to give today is that looking at all the variables, looking at all the available information as of now, this is the best let's say, forecast that we can make, and we think that is a correct one, which means that, okay, our stability will not improve in 2025, but if it is a marginal decline like we expect, it will remain anyway at a very good level. And we would be happy, of course, to... to change this view as soon as possible. But this, realistically speaking, will likely to occur if it does occur only after more months of actual results available. So with, say, one quarter or maybe let's call it six months behind us, we will have definitely a clearer view on the full outlook. But I think it's important to give this message today, which has been, I mean, analyzed in a very deep and serious way with, again, running several sensitivity analyses that are giving us this kind of outcome, at least at the current stage. So I think I spoke for almost one hour, so probably in order not to be tedious and to make the conference a little more interactive, I would let you read the following pages by yourself. and open now, let's say, the Q&A session. Thank you for listening.

Thank you. This is the Chorus Call Conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star N1 at this time. First question is from Ben Radamartin, Goldman Sachs.