Cemetir Holding

Good afternoon. This is the Coruscall conference operator. Welcome and thank you for joining the Cementir Holding first half 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 of Cementir. Please go ahead, sir.

Thank you and welcome everybody to the Cementir Holding 2022 first half results highlights. I will refer to the presentation deck that's been distributed on page two we would like to highlight that revenues, yes, I'm sorry, I'm here with Mr. Francesco Caltagirone, our chairman and chief executive. Good afternoon. And he's happy to take your question at the end of this short presentation that we'll go through right now. So on page two, starting with this highlights on the results, You can see that revenues for the group reached 811 million euros, up 22%. Excluding IAS 29, revenues were 805 million, up 21%. Cement volumes were up by 0.8%, like for like, with negative trends in Turkey, China and Denmark. Alarmic volumes were down 5.1% due to a slowdown in Turkey and Denmark and Sweden. aggregates were down around 0.6%. EBITDA progression was very good, up 7.7% to 143.8 million euro year-on-year. Excluding the impact of YAS 29, EBITDA reached 154.7 million euro, up 16% year-on-year. Positive results from Belgium, Turkey, and U.S. Negative results from Nordic and Baltic and Asia-Pacific. This figure includes €11.1 million of Turkish non-industrial property land revaluation. EBIT was up 4.1%, excluding IAS 29 impact, was up 23.9% to €98 million. Net profit reached €66.6 million, up 39% year-on-year. Net financial debt was around 79.5 million euro, a reduction of 58.1 million euro year on year, including IFRS 16 impact, including 6.3 million euro share buyback, and 28 million euro of dividend distribution. To note that the free cash flow generation was strong at 92.4 million euro in the last 12 months. Let me give you just a few highlights on page 3 regarding the hyperinflation IAS 29 application. We have for the first time after many years reintroduced the hyperinflation accounting for Turkey from June 2022. It is important to underline that this is only referred to Turkey, which accounts for a relatively small portion of our portfolio. It also is just an accounting revaluation, so in order to provide like-for-like figures, we will comment the figures excluding IAS 29 to make comparables easier. Just as a highlight, it is important that due to these IAS 29 accounting rules, the translation of the Turkish lira exchange rate to euro is taken at the end of the period rather than at the average exchange rates. But we can go on the details later on. Let me dive into the results starting from page 4 with the Nordic and Baltic that is our most important division accounting for 41% of Group EBITDA. If you see here on page 4 In Denmark, domestic cement volumes were up 14% due to increased market activity, favorable weather, and new infrastructure projects, whereas exports were down 26% due to the redistribution of sales in the U.S. to other group companies. Ready Mix volumes were down 8% and aggregates were down 16% due to difficult comparable figures. EBITDA overall was down 6.1%, driven mainly by the cement business, impacted by high raw material, energy, and logistics costs, only partially upset by better operating leverage and price increases. Norway results were quite strong, with volumes up 7%, driven by new infrastructure projects. and a higher EBITDA due to higher volumes prices despite cost inflation. There was also a slight appreciation of Norwegian Krona versus the Euro in the period. Sweden, on the contrary, sales volumes in RMC were down 19% and aggregate volumes were down 35%, mainly due to the completion of major infrastructure projects and a slowdown in the residential and infrastructure sector. So as a consequence, there was a somewhat lower EBITDA, and it was compounded by a slight devaluation of the Swedish krona versus the euro. Flipping to page five, Belgium and France, our second largest division, accounting for about a quarter of our EBITDA. Here, cement volumes increased by around 3%, with good performance, especially in Belgium, the Netherlands, and France, and negative performance in Germany. Average price is up. Ready Mix volumes were flat in each one, with a 6% reduction in Belgium and 16% growth in France. Overall, prices were up in both countries. Aggregate volumes as well were up 7%, driven by stronger demand for infrastructure. Overall, EBITDA increased by 27%, thanks to higher volumes and higher prices, despite increasing raw material costs, fuel and electricity costs as well. Moving to North America, 9% of Group EBITDA here. Volumes were up modestly, just 1.5%, mainly driven by Texas and California, whereas in the York region there was bad weather in Q1 that impacted activities. Average prices were up. The net effect was an EBITDA up 31% thanks to better volumes. Better prices and good cost control. There was also an impact of a 10% U.S. dollar revaluation versus the euro. Moving on to Asia Pacific of Pitch 7, accounting for around 7% of Group EBITDA. Here you have two countries. One is China, the other one is Malaysia. In China, revenue was up 11% driven by mainly prices because volumes in the domestic market were down around 10.5%. due to lockdowns, some logistics issues, and weather conditions. Overall, thanks to good cost control, EBITDA was down only 4% due to variable cost increase and lower volumes. There was also a 9% revaluation versus the Euro. In Malaysia, here, revenues were up 31%, driven by good pricing, which compensated higher freight and fuel costs. Volumes were up 5.5%. and export by 8%. Overall, the EBITDA declined by 6% as a result of higher fuel and distribution costs. There was also a 5.5% revaluation versus the euro of the Malaysian ringgit. Moving on to the last two countries, we have on page 8, Tarki, accounting for 15% of Group EBITDA. I remind you that those figures exclude the EF29 impact Here, cement sales significantly increased in local currency, driven by price increases. Domestic cement volumes were down 14%, exports up 30%, but prices were up significantly. Domestic volumes were mainly impacted by bad weather, in Q1 especially, and a sharp contraction in Eastern Anatolia due to the phase-out of some infrastructure projects. Ready Mix volumes were down 8%. The newly acquired aggregate business was up significantly, but that was due to a perimeter change, as the business has been acquired in Q4 of 2021. There was a 71% Turkish Lira devaluation versus the Euro. To note that this figure includes also 11 million Euro of non-industrial property land revaluation. Moving on to page nine on Egypt, the last geography here. You can see it's a small country for us, only 3% of our profits. Here, cement volumes declined by around 2%, with domestic sales down 8%, mainly due to inventory build-up by Egyptian customers during the month of December. Export up by 2%, thanks to higher deliveries to the U.S. and Central Europe. Overall EBITDA was down slightly due to lower volumes and higher fuel cost. The Egyptian pound was stable versus the Euro. The last slide of my presentation is slide number 10 regarding the full year guidance which is confirmed at revenues over 1.5 billion Euro and EBITDA range between 305 and 315 million Euro and net cash position of 60 million Euro. after a capex of around 95 million euros. Clearly, this guidance refers to like-for-like ongoing operations and does not take into account any intensification of the current Ukraine crisis nor any resurgence of the COVID-19 pandemic. With this, I end my presentation and I hand over to Mr. Francesco Castagirone to answer any questions you may have. Thank you.

This is the Coruscant Conference Operator. We will begin the question and answer session. Anyone who wishes to ask a question may press star and one other 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 Matteo Bonizzoni of Kepler. Please go ahead.

Thank you. Good evening. I have three questions. The first one is regarding the guidance for the full year. So we see that in the first half your EBDA was up 10 million euro year on year. So basically the guidance for the full year more or less implies that the second half should be around flat compared to the second half of the last year. Can you maybe provide a little bit more call on the evolution on a year-on-year basis for different geographies? The second question is as regards this margin erosion in Scandinavia, which is continuing to be in place also in the first half of 2022. Can you a little bit elaborate on the price versus cost balance? And the last question is more maybe technically, if you want, looking at the P&L. We see that despite the fact that you are not investing more than depreciation, you have not invested more than depreciation over the last year, we have seen quite a significant increase of the depreciation in your P&L. So just to know if there is some, what is basically the reason for that? Thanks.

Okay. Thank you for the question. I start from the last one. In the IAS 29, besides, I mean, some line by line readjustment in the income statement that at the end more or less leave the same result. In the balance sheet, we have a revaluation as you can see in the slide number three that the total shareholder equity due to the IASC-29 increased a bit less than 200 million. So the reason of this increase in amortization and depreciation is just because in Turkey the asset base has been revaluated nearly 500%. This is what happened since 2005, the last date when the IAS 29 was applied 20 years ago. And then it is netted by the exchange rate that we have now. we have 180 million more of total shareholder equity, and this is the reason why the depreciation increase. The second, the first question about Turkey, oh, sorry, my apologies.

Guidance.

Ah, the guidance, let's say that, frankly speaking, we were ready to upgrade the guidance until, let's say, 10 days ago, when the auditors asked to start to use the IAS 29, because you have to, let me say, use the IAS 29 when the compound inflation of the last three years exceeds 100%. From the moment that with the IAS 29 you have to use the final exchange rate of the period and not the average, it is difficult for us to understand which will be the final exchange rate in Turkey because when you have an average, more or less, you have a sort of visibility. If in December suddenly the Turkish Lira devaluates another 15%, then we have to apply that exchange rate for the whole year. Even if in our normal business, as we do every day, we don't keep Turkish Lira in our hands and we exchange every day, every week, as we exchange the Turkish dollars, the euro every day. But as a prudent approach from a moment that today we don't know if the Turkish exchange rate at the final of the period can curb a bit the result in Turkey, we kept the guidance unchanged. Even beside the EBITDA, it is crystal clear that even the revenues that today is already at more than 800 million probably we will exceed 1.7 billion at the end of the year but let's say there are some headwinds so we want to be cautious and the other important thing is that the number that we have to approve officially is with the US 29, even if the free cash flow, the investment and everything is linked to the business on a daily basis. And so I want, and we decided to keep the guidance as it is, even if in some areas we're still seeing a strong performance. And going to the second question about Scandinavia, is the same, let's say, game of last year. We can upgrade the price list once a year. We did it in October, November last year with a certain view on energy prices. As you know, the energy prices continue to increase and so we will adjust the price next time probably in three, four months, probably October, November, but they will start from the 1st of January, so we are chasing the cost, let's say. But the important thing is that, as you see, as you saw, is that with more or less the same volume for cement and resin mix and aggregates, we realized an increase of 22%. including a strong devaluation in the Turkish Lira, because with the cost of Turkish Lira, otherwise the increase would have been more than 30% in revenues and probably another 10 million more in terms of EBITDA.

Okay, thank you.

The next question is from Tobias Werner of Stifel. Please go ahead.

Yes, good afternoon, gentlemen. Thanks for taking my questions. Three, if I may. Starting with the overall average price increase at the top line, maybe you can give us a sense here. The implied number, given your volume, seems extremely high. Number two, in the U.S., you seem to have achieved an implied price increase which is significantly higher than gray cement. i.e. for your white cement business over there. Is that correct? And then just lastly, number three, I'm a bit surprised that your export volumes out of Denmark are down so much, given that the euro is so weak.

Why is that, if I may ask? Thank you, Tobias. I will start even now from the last question. I mean, it's a poor tactical reason to shift the quantity from Denmark to partly Egypt and partly with our trading companies because we, as you can imagine, can save the CO2 price. So we supply mainly the U.S. and you can see and say that the U.S. numbers are quite strong so in terms of overall volumes I think we didn't decrease we just shifted the origin of the product and this is because it's more convenient now it's not just the exchange rate but the CO2 is impacting more than the exchange rate Then in the USA, as you say, the market is strong, the pricing power is strong because we are the only producer and it's also one of the reasons of this good result. The first question... The average price increase. The average price increase, as I said, and I also remember that I told... to you. I mean that was around 12%, even 15%. Then you have to consider, as we said, that today with more or less flat quantity, it seems that the increase is above 20%. And this is due because we have some variable part. As we said last time, that CO2 it is charged at the average price each month and so this is charged so this increases the revenue if the more the price of the CO2 the higher the revenues we have and we also shifted with some contracts especially in Belgium for the electricity with the same mechanism so we gave to the customer a price with a certain cost of megawatt and then we said if the price of megawatt is higher than this then you have to pay the difference and this is the other reason why for example Belgium, France performed so well and also because at the end the price increase seems higher. So this is, I mean, our fixed part of the increase is between 12-15%. The other is variable, so it depends, even in the next six months, on the CO2 price, and especially in Belgium, France, in the cost of megawatt, because, let's say, for us, or for the customer, it's a sort of variable cost and even so it can continue with this track if with this pace if the energy and the CO2 will continue to be around this price thank you very much that's extremely helpful you're welcome 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 of Intesa San Paolo. Please go ahead.

Good evening, everyone.

I have a few questions. The first one concerns the CO2 price level. So if you can remember us, the what is the price of CO2 implied in your guidance and so I understood that eventually increases are partly sterilized by price increases but I wanted to understand what could be the level you are considering as a cost for the group. The second point concerns the volumes. So I would like to have your feeling if possible about the volumes you expect in the second half of the year and so are you experiencing some impact, I mean, of the price increases in a more cautious demand or you're not seeing this? So this is on volumes. The third one is a detail on your guidance for the EBITDA if it includes the assets revaluation in Turkey or if it is recurring guidance, EBITDA guidance. And the last one, I excuse, but I'm not so familiar with YAS 29. I was wondering what is the reason why you have a negative impact on the, you have a positive impact on the revenue. So while I can understand the negative impact on the EBITDA, I would like to understand the technicality of the positive impact on the revenue.

Starting from the last one, sorry, I started from technical things. I mean, the revenue, as you can see at page three, are almost more or less in line, just a little bit increase, because this is, I mean, the YAS 29 function in this way. Every month, you have to apply the CPI officially and then at the end of the period you don't apply the exchange rate at the end of each month but just at the end of the period. So you accumulate for six months the inflation that for example has been 42% and then you deduct the devaluation of the Turkish Lira. For example, if you have page 3 in front of you, you can see that, for example, the EBITDA is carved by the devaluation of the spare parts in Turkish Lira, but you recover in the net financial income more or less the same amount. In fact, the profit before tax, you can see in page 3, are exactly the same with the IAS 29 and without the IAS 29. The guidance by the end of the year is the industrial guidance and is not including the evaluation of the land. And the volumes, let's say that as you can imagine, we are seeing in the second half some softness in some areas. But also we think, as it happened in the first half where you saw more or less we sold the same quantity, that the price increase is so strong that even if we might see a 1%, 2%, 3% decrease in volume, this will not or won't affect significantly the numbers. then I cannot forecast if, let me say, there will be a completely shutdown of the gas in October and the economy will derail. This is a macro issue. It's not just a cement or cementy holding issue. But with the number that we are seeing from mainly all the regions where we are active are some positive, some a little bit, let me say, negative but so far as I said we continue to see a strong trend volume price because also the price is significant taking account that there is another let me say trick that if you sell less you use less CO2 and you keep the CO2 in your hand so at the end let's say we are surfing sometimes in some markets understanding if it is better to push volume or to keep just the price and to save the CO2 we are talking about plus minus 2% not just plus minus 10% in volume because otherwise we might affect the the we might affect the market share but so far let's say that we see a constant level if the economic environment will remain the same I don't know Marco if there were other questions Did I miss? The CO2 price level is 80 euro but let's say above 80 euro it is charged to the customer it's not a cost for us this has to be clear because this is the mechanism when we say that it's variable we use 80 euro for the industrial plant as a reference number then around, if it goes up, let me say, it will be charged to the client. If it is lower, it will be deducted from the invoice. So this is how it works. So it's like a VAT, let's say, that you add a certain number that is not affecting, it's just affecting the revenues, but it's not affecting EBITDA, cost, or any other else. It's just a number that we charge and then we turn... to, let me say, to the authority as a tax.

Okay, so the guidance is not sensitive at this point to the price, the CO2 price. Okay, thank you.

For any further questions, please press star and 1 on your telephone. The next question is from Roland Kernan of Value Holdings. Please go ahead.

Yes, thanks a lot for taking my question. There's only one left. It's on the gas issue or energy issue. Could you remind me, please, on your dependency of the gas flows from Russia or eastern regions? Thanks a lot.

Today, we only use natural gas in the United States. We are planning to use, as you know, but we have to be connected to the network in Denmark at the end of this year and in Belgium during 2024. So I think that this year and next year, because if the energy, the gas price will continue to be at this level, it's not convenient. to use gas compared to alternative fuel or petcoke. And so the answer is that we are not, let me say, sensible to any price increase in the gas in Europe.

Perfect. Many thanks.

Once again, if you wish to ask a question, please press star and 1 on your telephone. Gentlemen, there are no more questions registered at this time.

Thank you very much for your interest in Chairman Tirolding and we wish you a pleasant rest of your afternoon and day. Thank you very much. Thank you. Have a pleasant summer.