Cemetir Holding

Good afternoon. This is the Cold School Conference Operator. Welcome and thank you for joining the Cementier Holding First Quarter 2022 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 welcome to Charmantir Holding 2022 first quarter results. And I'm here with Mr. Francesco Caltagirone, our chairman and chief executive.

Good afternoon.

Who's happy to take your question at the end of a short presentation. On the presentation deck, you should have received via email and as posted on our website. Starting with page number two of the presentation deck, results were very good. Revenues reached 362.3 million euro, up 20.6%, driven mainly by price increases and a low single-digit volume growth, around 1.8% of cement volumes growth, especially with positive trend in Belgium, Denmark, and the U.S. 5.4% volume growth in aggregates and RMC volumes roughly stable. EBITDA was up 26.2% to 60.7 million euro and the positive contribution was from all regions despite higher energy, electricity, raw material cost and freight. EBITDA margin was up as well from 16% of Q1 2021 to 16.7%. EBIT was up 56.5% to 32.9 million euro from 21 million euro of the corresponding period of last year. Profit before tax reached 42.4 million euro and it is after 9.5 million euro of financial income versus 5.4 million of financial charge during Q1 of 2021. Net financial debt reached €88.6 million, down by €79.2 million on a year-on-year basis, including IFRS 16 impact, including €13.4 million share buyback, and €21.9 million of dividend distribution. Moving to a quick run down of the different regions, starting with the most important, Nordic and Baltic, In Denmark, domestic cement volumes were up 20% due to increased market activity and new infrastructure projects, with average prices up. White cement exports were down 19% due to a reorganization in the distribution network on the supply to the US. Ready Mix volumes were down 3% due to temporary shutdowns, and EBITDA was up by 4.8%, mainly driven by the cement business, with better volumes and prices. In Norway, RMC volumes were up 14% driven by new infrastructure projects with prices up. Higher EBITDA also thanks to a slight revaluation of the Norwegian Krone versus the Euro of around 3.3%. Sweden, here RMC volumes were down 20% and aggregate volumes were down 28% due to the completion of major infrastructure projects and a slowdown in the residential sector. Swedish krona revalued by around 4.2% versus the euro. On page four, Belgium and France, that's the second largest division, accounting for around 26% of our EBITDA. Here in Belgium, cement volumes increased by around 5% with positive performance in Belgium and the Netherlands, stable in France and negative in Germany. Average prices were up. RMC volumes were up by around 18% thanks to major projects startup. Aggregate volumes were up 16% driven by stronger demand for infrastructure and road construction. EBITDA was up 63% thanks to operating leverage, better pricing, despite some inflationary pressures. Moving to page five, North America. Here, there was a modest volume growth of around 3.5%, driven mainly by Texas and California, while the York region and Florida were impacted by bad weather. Average prices were up. EBITDA was up significantly, around 69%, thanks to higher sales volumes and prices, and partially offset by higher fuel and raw materials costs. There was also a 7% U.S. dollar revaluation versus the EUR. Moving to page six, Asia Pacific. Here, China, in China revenue was up 23% driven by cement prices and volumes were down marginally by around 3%. EBITDA was strong, up 17% thanks to a combination of higher prices, exchange rate impact, and higher government grants for innovation and employment support. There was also a revaluation of the renminbi versus the Euro of around 9% in the period. In Malaysia, revenues were up 18% driven by good pricing. Overall volumes increased by 2% and export by 7%. EBITDA grew by 13% as a result of higher prices despite fuel and transportation cost increase. Turkey, which accounts for around 3% of our group EBITDA, reported cement sales increase of 108% in local currency, driven mainly by price increases, with domestic cement volumes down around 9%, while export volumes up by 4%. Volumes were impacted by mainly bad weather and a sharp contraction in Eastern Alatoria infrastructure project post the earthquake. Ready Mix volumes were down by around 10%, again due to bad weather, and the new aggregate business acquired in Q4 2021 was fully operative. The Turkish lira devalued by around 76% versus the euro. Despite this, EBITDA was up 55.3% versus last year. Moving to the last geographic region, Egypt, on page 8. Here, domestic and export volume declined due to inventory buildup by Egyptian customers. Prices were up. and therefore we have a revenue increase around 11%, EBITDA down by 70% due to an increase in fuel costs. Overall, there was a revaluation of the Egyptian pound by 4.7% versus the Euro. The last slide on my side. Full year guidance is unchanged. We expect revenues to exceed 1.5 billion Euros for the year. EBITDA fall in the range between 305 and 315 million euro to reach a net cash position of 60 million euro by the end of the year after after a capex of around 95 million euros these expectations clearly do not take into account an intensification of the ukraine crisis or a resurgence of the copy 19 pandemic this ends my short presentation i leave the floor for any questions you may have to our Chairman and Chief Executive. Thank you.

Excuse me, this is the COSCO Conference Operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touch-tone telephone. To remove yourself from the question queue, please press star and 2. Please pick up the receiver when asking questions. Anyone who has a question may press star and 1 at this time. The first question is from Matteo Bonizzoni with Kepler. Please go ahead.

Thank you. I have two questions. The first one is in regards to the volume trend which we see in the first quarter. So the volume went up very strongly despite strong price increases. So the question is what is your reading about this performance? Do you think it's sustainable? And there were also weather effects which can explain this trend. This is the first question. The second question is as regards the coverage on your energy costs. So can you remind us what is your coverage for this year for electricity and fuel and also maybe for kind of fuel? And you certainly assume that the coverage for the first quarter was still very strong compared to the average of the year and this percentage of coverage should decrease in the next quarter because I mentioned Belgium, for example. In Belgium, we see that the revenues increased 13 million euros year on year, and the ABDA was up 6 million euros. So there was close to a 50% fall through, which gives the impression that despite cost inflation. So basically, the impression is that the price increases that you implemented in Belgium were for now in excess of what is needed to keep the margin, and maybe in the next quarter is the coverage will decrease, we could see different profitability evolution, so just to understand next quarter on this front. Thanks.

Yes, we see the demand, the supply-demand framework is still supportive, mostly everywhere, for sure. We have strong headwinds coming from the situation in Ukraine, affecting especially the European market, and also some pressure because of the increase of the rates that is starting in some regions. But as I said various times in the past, the supply-demand framework... it is let me say changed in the last few years due to the CO2 taxation and also I can see and this is also partly linked to your second question about Belgium that the hedging strategy of most of the other competitors is not aligned with our hedging strategy. So the reason why, for example, in Belgium we are, let me say, ahead in terms of profitability compared to the increase of the market revenues is because we are in a country where we are three players and let's say that I think we are edged better than the others. And so we can defend our margin in a different way. We are edged more or less at 75% both in electricity and in petcoke for this year. And we think that... viewing at this kind of number, especially also on the revenue side, where we see a full 20% increase, and that all areas, including Turkey, are improving, let's say, if we don't see a sort of aftermath scenario because of the Ukrainian crisis or... strong comeback of the COVID, especially in the last quarter, that even if the situation is shaky, we can, let me say, go through this situation keeping this kind of margin. And also in April, it seems that the situation in terms of profitability and cost margin scenario keep going in the right direction. So mainly, I think because also this is what we shared with the main utilities, especially in Europe and Asia, that some players edged much lower or nearly zero, especially in the electricity, We are at 75%. So the situation is if some player, you know, especially in Spain, decided to close or shut down some plant because of the higher energy cost cannot compete with the actual price in the market. So the costs are higher than the actual revenue. So it depends. Now it is mainly... The situation is driven by the cost side. And as I said, even if the market might shrink a little bit because of the postponement of some infrastructure project or because if we sum up the cost of cement, the cost of copper, the cost of everything that is affecting the building material sector, at the end the final consumer might have a huge increase in price. But anyway, there is still a scarcity of some of raw material and in some area, even now, there's a scarcity of cement because nobody has already told that there is the incentive to produce more because of the CO2. Today the CO2 is around the 90 euro and everyone is capped or everyone especially because of the cost side probably decided to produce less than what they forecast. So even if the cake is a little bit smaller the profitability might increase and we are realizing this and this is mainly in every region there are no regions that let me say are we see even in Turkey where the internal market is a bit lazy, but the export is very strong. So at the end, the export can outbalance the weak internal market. And in fact, you can see that even in Euro, we increased revenues and EBITDA.

Okay, thank you.

As a reminder, if you wish to register for a question, please press star and one on your telephone. The next question is from Bruno Permutti with Intesa San Paolo. Please go ahead.

Good evening, everyone. I have some questions related to the price scenario. So if I'm not wrong, looking at your presentation, you had a negative FX impact overall and modestly positive volume impact. And so I believe that you had probably an important price impact on your top line. I would like to have some some details if possible on what you experienced in terms of pricing among countries in the first quarter and above all what is the scenario you see for the remaining part of the year. And a second question concerns the guidance. It seems considering the hedging on your energy and power costs that you keep a very conservative attitude for the full 2022. I was wondering what are your major worries for the remaining part of 2022? which seems to be in some way a factor in your guidance. And the last one was more specific about Denmark. If I'm not wrong, you had probably some certain weakness in the country. I would like to understand if it is something structural related to the kind of project or if it is something that is... restricted to the first quarter of the year.

Starting from your last question, I mean, Denmark, it is mainly affected, no, there is not a demand issue or pricing issue. The reason is that we are moving part of the export that we we did in the past mainly to the USA from Denmark to Egypt or through our let me say trading company because as you can imagine if I have to serve a market that is not Europe I don't have the cost of the CO2 in Egypt or I can find in the market white cement at different prices. So I can even save some CO2 credits just, let me say, moving part of our export from Denmark of white cement to other sources, mainly internal sources, but also with the trading company we find other, let me say, quantities. So the EBITDA of Denmark is partly hit by this but then in the other part mainly in the trading company you can see the margin that let me say the higher so it's nothing related to the market it's just a tactical move because the higher the CO2 moves the better we need we have let me say to keep a good margin to switch to other, let me say, sources. So from the moment that in Egypt we have still 500,000 tons of spare capacity in white cement, we can, let me say, do this. About the guidance, as you know, first quarter, most for everybody in this sector is a small quarter so even if the numbers are very strong and our aging policy is quite solid you remember in 2020 when we saw the outbreak of COVID we need a few months or a couple of quarters just to assess the full impact so today our main worries is a shock in the demand caused by the outcome or the enlargement of the war. We are not worried mainly or that we can see for any reason a skyrocketing price of some energy that even if we are edged nicely But if something happening in the magnitude of what we saw last year, that energy from 40 euro per megawatt went up to 150 or nearly four times, if now for any reason, even if we are more or less at that price, the energy cost will go to 500 euro, even if we have 25% that is not edged, This might, let me say, hit the balance sheet. This will hit the balance sheet of all the industry, also of the other industry. So our main worries are, let me say, a sort of black swan scenario that I cannot today, that we are just at the beginning of May, cannot, let me say... Eliminate so if we continue to see this kind of strength even in the second quarter then we might let me say think about the Review this View by the end of the year, but now I think it's premature because every day, you know, you see that the Ukrainian war is bring us some big or small shock let's say that mostly we are following the market so the only country but we are scrutinized by the antitrust is let me say Denmark where we are the only let me say the sole player then we continue to see a positive environment because, let's say, the market needs cement and also the final user is willing, let me say, to pay a price to complete the infrastructure or real estate project. This might affect, for sure, if you continue to see this increase. I cannot see that every year we can increase 20%. But if we look at Turkey, where the price in local currency increased nearly three times, and the market continues to perform well, let's say, Turkey for sure. Yeah, yeah. But in Europe, let's say, As I said various times, the cost of building material in a construction project, except for big infrastructure projects, real estate, is 3%, 4%, 5%. So even if you increase 50%, the cost of cement is not affecting the cost or the profitability of the old project. Other situations might affect the profitability. So this is our view for now.

If I may follow up on this, in the last presentation, if I remember well, you were a little bit worried about the possible impact of the infrastructure works to be stopped by the increasing costs. in the last few weeks or months we have seen something here in Italy some legislation addressing this item and I would like to understand what was your view and the countries in which you operate you see a a more optimistic view on this point or if the situation has improved for this issue in the last few weeks?

When you have a big infrastructure project that lasts five years, a few weeks of delay is even, let me say, something that happens in a natural way. Now, as you see, as you're saying that in Italy, we are amending a law because there is a big increase in the price. And so the PNRR is want, let me say, to recognize this increase of price because otherwise the infrastructure project cannot, let me say, start or continue. The same is affecting the other markets, mainly France, Belgium or Scandinavia. where we operate so the market is aware that there is a wide range of price increase in raw materials so if they want to finish an infrastructure and you cannot leave a bridge be built in the middle or a house everybody needs to finish I think the project so for this reason our outlook Our view by the end of the year, so the other seven months, it's, let me say, quite positive because we don't see a sudden stop. We might see a sudden stop of infrastructure projects due to other reasons like the Ukrainian war, but not... And then the postponement of a few weeks... in an environment where also sometimes there is the issue of logistics that still persists, so sometimes it's difficult to receive spare parts or to receive some of the raw material that we use in, let me say, in our receipt. Like in the other sector, we are in some market, let me say, short in terms of let me say capacity to supply the market because the demand is bigger even because as I said some competitors are not supplying the market as they were expected because they are loss making in some markets and so for this reason even if the overall market probably is shrinking a little bit but at the end let me say, if some competitor let me say, is not serving or decreased or decided to to the major force as it happened we or the other player cannot supply the needs of the market. So even if it is strange in this situation, but let's say, as I said, every year we have to cut the production of 3%. And I think that now somebody is even cutting more than 3% because with the electricity hedged in the wrong way, probably they don't want to, let me say, lose money. And considering also that the CO2 at 90 euros if you are not, let me say, also hedged or well-balanced in that, let me say, regarding that issue, it might also be difficult to you, for everybody, to serve the market if you don't have enough CO2 quotas. Because, as you know, the margin is from 10 to 20, 25 euros, but not to cover 90 euros of the CO2 so if you don't have the quotas if you are short of quotas because let's say somebody sold a lot of quotas in the past year for balance sheet reason but now every year let me say we have this challenge and so for this reason I am even if we are with a big crisis of The next question is from Emanuele Gallazzi with Equita. Please go ahead.

Yes, good evening everybody. Two questions from my side. The first one is a follow-up on the trend of April. You mentioned good performance across countries. Can you just better elaborate on it? And the second one is a quick one about the Chinese market. Can you just update us on the current situation there? Thank you.

April, let me say... in line with our expectations and budget. In April, let me say, we had Eastern holiday and now we have also Bayram in Muslim country. So we don't have, let me say, the full 21-22 working days. But let's say that we can see that the trend is continuing mostly everywhere. Even in China, where we see some, let me say, partial lockdown, but mainly in the big cities. So we in China, as you know, produce just white cement that is not, let me say, perfectly related, correlated with... great cement market environment but for the time being we continue even in April to see what we have seen in the first quarter.

Okay, thank you very much.

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

Yes, good afternoon, gentlemen. Thanks for taking my questions. Let me, number one, play a little bit of devil's advocate for a second. When you look at your Q1 EBITDA versus full EBITDA over the last few years, it ranges anywhere between 10% and 15%, or let's say 16%. And actually, last year was a very strong year, and you're beating a very strong year in an environment where energy costs are very high. Don't you feel reassured by the start of the year in that context? That's my first question, if I may. Hello?

Yes, yes, no. We were just sharing. As I said... Part of, big chunk of these results is, let me say, related to our edging policy that we also started two years ago, not last year, in the last six months. So for sure, in some markets, we have a very reasonable price of electricity compared to the actual scenario. And also, in Petco, where the contract is not lasting more than 12 months, I think that we had last year at the right time. As I said, if we continue with this trend and with this profitability and we don't have any other headwinds, it is mathematics that we should do better, even much better. But the situation in front of us from COVID to Ukraine, outcomes and also the energy, the embargo on oil and other things, let's say, I want to be prudent for the time being. As I said, with the first tough result, if you continue to see this solid trend and the situation in Ukraine start to, let me say, smooth a little bit, we might be, let me say, more, let me say, bold in terms of our forecast. But now, let's say, it's even unuseful because, as you know, the broad market in terms of stock market today is not listening to good news. and just listening to bad news so to give another good news at this moment I think doesn't let me say make sense so we want to take another couple of months to let me say consider better the numbers and even going forward to see if there is any shock from the demand side due to is the external factor.

Okay, understood. Thank you. I mean, if I may ask the question slightly differently, I think at the full year results, you mentioned that you need 12% price increases for the full year to cover your higher energy costs, unless I'm mistaken, and correct me if I am, please. Now, you seem to be running at least on the mass I look here at the presentation, we seem to be running at price increases probably nicely about 15% when you look at cement volumes 1.8 and C volumes, agate volumes up 5.4, so more than 15%. And you're probably going to see further price increases in this quarter in some of the markets, maybe not necessarily initiated by you, but by the industry. is that a wrong way of looking at it?

It might be as I said we are let me say taking the price that the market gives us in the various markets and we are working let me say hardly on the cost side so this is what we are doing so if As I said, the price environment continues to be like this, and in some markets, I'm aware, for example, in Italy, where we are not active, but I'm aware that probably in the second half there should be another price increase, because the industry needs this price increase. But if you are well-hedged, most of this price increase might be full, let me say, full profit. It's not just to cover your cost. depending the attitude of the single let me say player and how it is hedged so I cannot forecast let me say further price increase for example in Denmark where we are the only player and I can say that we have let me say to show reasonably to the antitrust, why we increase the price, how we increase the price, because we have the only players, but in France, Belgium, France, especially in the white market, where it's a very small market, we might continue to see an increase in the price environment. So this is, let me say, a likely scenario.

Okay, thank you. So you just Finally, if I may, you alluded to the price situation in Q2 and onwards already, and that's much appreciated. I've just come from another call where I heard that in France there will be a €10 price increase per tonne in Q2, and in the US a $10 price increase from July 1st. Now, that is grey cement, not white cement. Again, you alluded to the fact that the white cement market is a different market. Maybe you can give us a sense of any price increases so far announced in important market of yours. That would be appreciated. Thank you.

As I said, we are the only market where we are active in Europe, besides Denmark, Scandinavia, France, Belgium. So today we don't see further price increases. But as you can see with this number and with this already in place price increase the number are quite let me say strong so I don't know I don't let me say exclude that there might be in the second half some let me say small but for the time being let's say in some market the price also increased increased promptly and also you have to imagine one thing that if you show to your customer that let me say you are even increasing your profitability increasing the price then the second round to say okay i want to increase again the price it is more difficult to let me say can be challenged even if you know that in cement it's let me say it's a regional market and so if you are let me say alone you can let me say even increase the price alone but let's say we are satisfied let's say with the price that we see today and we don't broadly expect any price increase except for Turkey where we have a very high inflation and so this is linked to other situation but let's say that we can increase in wide cement the price just on every contract or every supply that we made by ship is not related to an infrastructure project. It depends also on the price of the freight rates that might affect the final price in a positive or negative way.

I understand. I appreciate your answers. Thank you very much. You're welcome.

Once again, if you wish to ask a question, please press star and one on your telephone. For any further questions, you may press star and one now. The next question is from Giuseppe Grimaldi with BNP Paribas Xan. Please go ahead.

Good afternoon and I have two quick questions. The first one is on future SEM. if you can give us an update on the penetration of this solution and if you can give also an update on the kind of speed of the penetration of FutureSAM in this scenario of higher pricing. Should we expect, let's say, a positive tailwind from better pricing in this scenario? in this situation. And the second one is on your cost. If you can't quantify the cost that you expect from energy from this year, at least what you have implicit in the guidance.

Regarding future SEM is going as Forecat, we are planning to sell nearly 300,000 tons this year. And as I said, The cost of future shem is higher than the normal cement, but if you consider the CO2 that in our budget is considered at 60 euro, and now it is 90 euro, it's not a matter of selling the cement at a better price, but... the cost structure is better because it has a lower CO2 intensity than normal cement. So the higher the CO2 growth, the better the cost of the future shem is because we don't, let me say, take the full charge of CO2 because we have, let me say, 30% less than normal cement. So this is the advantage. We are selling at the same price, but the cost, especially when the CO2 goes up and diverges in an important way from 60 euro, this is also one of the reasons of our extra profitability in some markets. And about the cost of the energy for this year, Marco, please, can you give some more details?

Yes, what I can tell you is that, broadly speaking, I mean, energy costs last year accounted for something like 22% of our cash costs, so excluding DNA. So that's more or less even split between electricity and fuel, fuel being just slightly bigger than electricity. And this number is significantly higher than the previous year or the year before. So in our forecast, we already had flagged that in our plan, we were forecasting a double-digit increase of this number for 2022, and therefore that we were going to try to offset this increase through price increases as we have done. So this is what's built into our numbers as far as industrial plan. So we're already forecasting and expecting a significant increase of energy cost versus the year before and significantly ahead of inflation. Of course, the dynamics of these costs are very difficult to forecast, but that's what we've put into the numbers.

Thanks for the clarification.

Sure.

Thank you.

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