Cemetir Holding

Good afternoon. This is the Coruscall Conference Operator. Welcome and thank you for joining the Cementer Holding 9 months 2021 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. Marco Maria Bianconi, Head of M&A and Investor Relations. Please go ahead, sir. Thank you.

Good afternoon and good morning and welcome to Chairmanty Holding 2021 nine-month results. My name is Marco Bianconi. I'm here with Francesco Caltagirone, our Chairman and Chief Executive, who's ready to take Any question you may have at the end of my short 15 minutes presentation. I'm here also with Elisa Pettinari of the investor relations team. We've distributed the press release and a presentation deck. So I'm going to go through the presentation now, starting with page two with the nine months results highlights. The group reported results in line with expectations with the revenues up 12.4% year on year with the cement volumes up by just over 8% driven by Turkey, Denmark and Belgium. Also aggregate volumes were strong up by almost 10% and ready mix volumes were up over 20% year on year. EBITDA reached 215 million Euro up almost 21% These results are due mainly to good performance in Turkey, Belgium, to a lesser extent in Asia Pacific and the US. EBITDA margin expanded to 21.3% from 19.9% in the first nine months of last year. We have to remind you that 2020 figures were impacted by 5.6 million one-offs. EBIT reached 133 million euro, up 36.5%. from the year before, profit before tax was up 49%, and net financial debt reached 100 million euro and was reduced by over 118 million euro year on year, including 28.8 million euro of share buyback and 22.3 million euro of dividend pay. Moving to page three on the main geographies, Nordic and Baltic, which accounts for just over 50% of our EBITDA here results was better in terms of sales and trading across all business lines with domestic cement volumes up seven percent due to increased market activity also white cement exports were up six percent and also ready mix and aggregate volumes were up strongly up eight and twenty seven percent respectively EBITDA in Denmark was down by 5.5% due to higher raw materials, fuel and electricity, and operating costs, mainly in the cement business. In Norway, ReadyMix sales volumes were up by around 6%, and there was, after a slow start since March, a significant recovery due to the start of some important projects. The Norwegian krona appreciated around 4.5% versus the euro. In Sweden, there was a favorable weather and robust construction activity, leading to sales volumes up in ready-mix and hybrids by 9% and 5%, respectively. The Swedish krona appreciated around 3.9% versus the Euro. On page 4, Belgium and France, which accounts for around 22% of Group EBITDA, Here, cement volumes in the period increased by around 3% thanks to favorable weather and market growth. Ready Mix volume growth was around 19% thanks to a kickoff of some major projects in the period. Aggregate volumes were up 10% with strong domestic and exports also to France. EBITDA in the period was up almost 16% to 47.9 million euro benefiting from operational leverage and better pricing. On page five, North America accounting for around 8% of group EBITDA. Here, wet cement volume growth was up 6%, mainly driven by Florida. And while New York, California, and Texas results were more or less in line with last year. Revenue was broadly unchanged, also due to a currency translation impact because of the 6.3% US dollar devaluation versus the Euro in the period, but EBITDA managed to go up by 9.5% thanks to good cost control and despite higher purchasing costs. Asia Pacific, which accounts for around 8% of group EBITDA here in China, reported the wet cement and clinker sales volumes of 8% with an EBITDA up by over 16% despite higher raw material and fuel costs. In Malaysia, white cement volumes were up by around 21%, driven by exports, where volumes grew by around 24%, mainly driven to better sales to Australia and the Philippines. Export pricing declined due to mixed effect and some FX impact as well. EBITDA overall increased by around 3.4% in the period In Turkey, here cement sales increased by over 63% in local currency with cement volumes up 8%, 17% in the domestic and minus 23% in export. Average cement prices were up in local currency and also ready mix volumes were up strongly by around 40%. We have to notice that in the period, the Turkish Lira devalued by around 28% versus the Euro. Despite that, the group reported strong EBITDA improvement year over year. And we have to remind you that 2020 EBITDA included 3.1 million Euro of one-off costs. The last business unit, Egypt here, accounting for only 3% of the group EBITDA, white cement volumes increased by 20%. and export volumes increased by 30% and overall EBITDA was up by 6.5%. This is despite a 5.5% evaluation of the Egyptian pound versus the Euro. Last slide here on the full year guidance, which is unchanged after an upward revision after the six months results. So we expect for the year revenues to reach around 1.35 billion Euro. and EBITDA range between 295 and 305 million euro, net debt of around 30 million and a capex on around 95 million euro. So this ends my presentation. Now Francesco Castalgerone is happy to take any question you may have. Thank you.

Excuse me, this is the Corusco 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 and one at this time. The first question is from Bruno Permutti with Intesa San Paolo. Please go ahead, sir.

Yes, good evening. Okay, good evening.

I have a few questions. The first one concerns the Baltic region. I would like to understand better. I saw that there was an improvement of the EBITDA margin in Norway and Sweden and a decline in Denmark due to the explanation you gave about it. the energy cost, the purchase cost. I'd like to understand the dynamic there. So what we have to expect in the coming quarters and the reasons for the difference between the three countries. And a second point concerns the Concert Turkey. If you can give us an idea of what is going on on the Turkish market. So what are your expectations in terms of volumes and prices for the whole year. And so it will be a compensation, a full compensation in terms of prices and of higher demand of the significant Turkish lira depreciation. And if I may, a third question more general on the CO2 rights. If you can, when you outline your 2023 outlook and financial targets, you assume a shortage of CO2 rights for, if I will remember, 600,000 tons per year. I would like to understand if this figure is still correct assumption and how you will manage, how you think you will manage the CO2 rise price increases if there is room in your view to transfer on prices the CO2 price increase we are seeing on the market. And in general, I would like to understand which is your view on the market as a whole, because it seems like there could be a significant demand in many countries for infrastructures. And at the same time, I would like to understand if you see room for a significant price increase in the next few years or so.

okay so starting from the first question about baltic region the reason why denmark it seems that underperformed the other scandinavian countries mainly because we produce cement only in denmark and we have ready mix in norway sweden and so most of the cost inflation hit the cement and then the second reason is because In Denmark, we sign mainly the 80-85% of the contract for the year during this season. So we have signed last year, 12 months ago, with a different cost basis and so we will see for sure an increase in the profitability next year because now we are signing the contract and we are, let me say, including the full amount of cost inflation from energy to electricity. The second question is about Turkey. Turkey is continuing to have a very healthy market, mainly boosted by tourism. The first one is internal, when you have very strong inflation, about 20%, the demand for Real estate is higher to defend the investment base, and so the household demand is strong. On the other hand, Turkey, being outside the ETS system, is not involved in terms of cost with the CO2. And so most of the European countries, especially in the Mediterranean, are sourcing cement from Turkey because even if the freight rates are quite high, with the CO2 at 60 euro, they buy cement from Turkey. And for this reason, the export from Turkey increased from an average of 10 million in the last 10 years to 30 million this year. and I think that this will remain for the next two or three years because there is with the CO2 if the CO2 increase some player especially the small one that they cannot edge with a source from other production internal to their perimeter they probably prefer to gain 60 euro of margin on CO2 and lost 20 euro margin on cement because this today is the reason why a lot of people, a lot of companies buying cement in Turkey. So we expect, even if we are still seeing a very strong demand inflation and devaluation of Turkey to have a good market. I think that the year is quite, let me say, and also going into 2022 and 2023 that it will be the year of election. The market should be supported both by internal and external demand. On the CO2 rights, it is right, it is true that in our, let me say, actual industrial plan. We are short of 600,000 tons of CO2. We are going to update our plan end of January, early in February. And we are today seeing that this shortage will be reduced from 600 to 400,000 tons. But on the other hand, the price in the former industrial plan was at 30 euros, so now it's at 60 euros. So at the end, if we just make the calculation, there is an increase of 4-5 million euros at a whole, and I think in our balance sheet it's something that is very manageable. Then also is the rollout of Fusarcham, that after a very slow start, now with the CO2 at 60 euro, the cement is becoming more competitive in terms of cost and also more environmental friendly. So we think that we should end this year with figures above 40,000 tons of future sands sold, and next year we should be around 250,000 tons of cement. In both, the usage of clinker in the future sands is lower, nearly 30%, compared to normal Portland cement, and this is the reason why we are lowering this, let me say, and also because we are changing some of the receipt of cement like most of the other players because we want to reduce the CO2, the carbon footprint. And I don't know, there is also the last question was about what are our view about the demand for cement. we continue to see some strong demand from household and this will be, let me say, joined by extra demand by the other, let me say, infrastructure plan in the various countries. So I expect that, like what I already told you, As you know, the ATS system asked more or less to reduce the CO2 3% each year for the next 10 years. So we see the market that should grow more or less everywhere. and the demand that in three years, the supply that in three years should be cut around 9% because of the CO2 allowance. So this creates a sort of a perfect mismatch to, let me say, probably what we are already seeing in most of the sector to ask for a price increase because when you have a bigger demand and lower availability and then also from 2025 we will have the border adjustment. So everything that is imported from outside that will be taxed with the price of the CO2 at that time. This is our base scenario that we continue for sure for the next three, four years to see a very, let me say, healthy demand. and also we should see beside the cost inflation, the price that will increase because in most of the European country, we see a mismatch between supply and demand.

Thank you. If I may, just to follow up on this last question. In your 2023 target, you already accounted for a price increase, an annual price increase on average?

Yes, I think that as you are seeing, I think that our company, even in the third quarter, that for most of our competitors has been quite complicated in terms of cost inflation, we have shown some resilience. For sure, the price increase is was lower, but also the cost base was lower. So in terms of profitability, we are completing now the process to update the industrial plan, but more or less, let's say, we maintain the view in terms of profitability that we gave at the beginning of the year, even for 2022 and 2023. Thank you.

The next question is from Federico Belluati with Kepler. Please go ahead, sir.

Good afternoon. Thank you for taking my question. The question is regarding the Turkish market. We have seen a solid performance, but I'm wondering what's your expectation regarding the movement of Turkish lira and the effects on the performance. Thank you.

As you can imagine, it is difficult to forecast the value of the Turkish Lira even in one month. So what we put in our base scenario is just to take the forward points that we have. So this is just the rates applied to the actual exchange rate and bring Bambroad forward. What also we see is that when you have this kind of inflation beside the devaluation, you update the price nearly every month, even weekly. And so compared, for example, with Denmark where we can fix the price every 12 months, here when you have this kind of inflation devaluation, the effect or the negative effect with a strong market should be limited to a few weeks or a month. So I cannot say which will be the rate in 12 months, but let's say that usually, and this is what happened also in the last 24 months, that even with a very huge inflation rate, and the valuation, you see that in Euro, the margins are, let me say, in a completely different mood compared to 12 months ago. Okay, thank you so much.

The next question is from Magnus Sederles with SEB. Please go ahead.

Thank you. Well, two questions. First, I wonder if you see a scope for market share gains in Sweden, given the problems with permissions for Heidelberg cement that are currently in place. And then I also wonder regarding Futurism, what is the production price of Futurism compared to conventional cement production? if you disregard the cost of CO2 emissions?

Starting from future SEM, the cost of future SEM, let me say, without CO2 is nearly 20% higher than Portland Cement. But then if you have CO2 and the clinker ratio, now with the CO2 of 60 euro is more convenient, let me say, to buy future SEM. and on the issue on the plant of Heidelberg, it seems to be a bigger issue. Then also I am aware of being in this sector for the last 25 years that everywhere around the world, they usually then probably six months by six months, they are going to renew, let me say this license. So for the time being, the situation I think from the moment that Heidelberg is a huge group is managed internally by Heidelberg sourcing from let me say the perimeter if for sure the plant to be let me say limited in production or let me say closed down the production for the quarry issue there might be an opportunity for us because we are just in front let me say of Sweden and actually we serve just the southern part of Sweden but we have been let me say contacted by some of let me say Swedish customer just asking if let me say we are ready to supply I say that today it is difficult to supply because as I say that the demand is quite strong and the allowance put a carb in production. Or the price of cement will increase the price of the CO2, otherwise no one is motivated or incentivated to produce even one ton more because it is taxed at 60 euro. So I don't know where the market will settle, speaking about the whole Europe, but I the issue about the supply in cement even in this case when you have let me say production problem is an issue and we have seen already in the electricity or even in the coal that the supply chain is tight let me say and this is my view so far so Heidelberger for sure it is capable to manage the situation so far I don't know what they will do. We are not fully aware of what will happen in the next 12 to 24 months for this plant in Sweden. Okay, thank you. You're welcome.

The next question is from Tobias Werner with Stiefel Europe. Please go ahead.

Yes, sir. Good afternoon. Thanks for taking my question. Two, if I may. Firstly, with regard to your balance sheet, which is still in outstanding shape, can you give us a sense of how you perceive the M&A pipeline at the moment for you and how it how you would describe it in which areas or geographies you would ideally like to consider and then secondly you've got your share buyback ongoing would you just update us where you are on that

Starting from the second question, the buyback is finished and we bought nearly 29 million of euros, that is close to 3.6 million of shares, that is 2.2%. And it ended early in October. The first question was, sorry, could you repeat the first question, please?

Yes, just your balance sheet is very strong. It's in great shape. M&A, yes.

I remember, sorry. And yes, we will be, let me say, in a net financial position that is close to neutral at the end of this year, and we produce close to 180 million of industrial free cash flow. So there are the possibility to... invest this money and the cash that we will produce in the next few years. The issue today is that the EPS system has been just drafted and has to be approved by the all 27 countries and probably it can be amended in various parts and also in the timing. So today, frankly speaking, it's difficult to understand, especially in Europe, the value or the prospective value of an asset because, let me say, it also involves the price of the CO2 that might be the double or the half, I don't know. The region where we would like to expand is mainly the measure market because also the border tax adjustment will hit, I think, the emerging market. And so we don't know. Turkey has announced that they will join the Paris Treaty but how and when also you have seen in the COP26 that China and even India are not let me say very clear in terms of when they will want to join and at which level so today is very difficult to to evaluate an asset. This doesn't mean that we don't, let me say, follow the market. We believe that especially the big players that are probably forced by activists in their, let me say, shareholder base, compared to us where we have nearly 70% of the company, they might be pushed to, let me say, reshuffle the portfolio or to move towards a different portfolio structure. So what we believe is that some of the assets, especially in Europe, might come to the market in the next couple of years. This means that if it is something that is close to where we already have the footprint so we can create synergy because the issue is still the allowance that you will have so let's say if I have the opportunity to buy a plant close to one of mine to close one of the two and then to upgrade the kiln and to take let me say the allowance and It is something that we can do, let me say, easily. To buy in a new region has the risk, let me say, I don't know which number I can put in my model. So I repeat that I believe that we need another 12 to 18 months to understand better where and when we can invest. until, let me say, the good opportunity arises, I think that we will stockpile the cash, even because even if it's a bigger, let me say, cash flow, you are aware that in this sector, then the acquisition, let me say, funds are, let me say, quite large when you want to buy an asset. And so even if we stockpile cash for two or three years I think it's something reasonable and even it's in our DNA because in the last 15 years we have shown that we have invested in some years and then not invested even for five, six years but I think I believe that we want to see that the risk are balanced with the opportunity to expand the company.

Thanks for that. I mean, you just reminded me looking at the net financial debt again and that's been obviously a great result in the first nine months. And if you generated a similar amount of cash as you did in the fourth quarter last year, which was quite significant, you'd easily beat your 30 million net debt target. Any sort of more color on the cash generation here?

But for sure, let me say, we will beat because our, let me say, target didn't include the buyback. So without the 29 million, we should be already now at zero, right, because we should end at 30 million. So I think that probably we should include the buyback better than this 30 million because that is let me say it's an over performance of what it is our let me say target but let's say I think that being at the half of November I think that we might let me say have a better number in terms of net financial position Then also you have to take into account that the exchange rate that has to be calculated at the end of the year, especially for Turkish lira and other emerging markets, can affect the net financial position. So if the Turkish lira devaluates another 10% in one month, I don't know. So if the thing remains stable, the number will be better for sure.

Thank you very much. Much appreciated.

gentlemen there are no more questions registered at this time okay so thank you very much for attending our presentation and we wish you a pleasant rest of the day thank you have a nice evening