Cemetir Holding

Good afternoon, this is the Coruscall Conference Operator. Welcome and thank you for joining the Cementir Holding Third Quarter 2023 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, and welcome everybody to Chairman Tiroldi's first nine-month results highlights. I'm here with Mr. Francesco Caltagirone, our Chairman and Chief Executive. Good afternoon. Who is ready to take your questions at the end? I have a few pages deck that has been distributed. So I will immediately comment on page two with the results highlights. The group reported 1.295 billion euro of revenues on a gap basis and on a non-gap basis revenue reached 1.288 billion euros up 0.8% year over year. Cement volumes were down by around 3.1%, mainly due to Denmark, Belgium, US, Malaysia and Egypt partially upset by growth in Turkey and China. Both ready mix and aggregate volumes were down in the period by 10% and 11% respectively. EBITDA reached 326.2 million euro up 36.9% year over year and non-GAAP EBITDA was 321.1 million euro up 32.6%. It was the higher EBITDA in all regions except for the US. EBITDA includes the no recurring income of 13.5 million euro mainly related to gains on asset sale. Excluding those no recurring items, non-GAAP EBITDA reached 307.6 million euro up 27% on a life-for-life basis. Non-GAAP EBITDA margin grew from 18.9% to 24.9%. Non-GAAP EBIT reached 234 million euro, up 49.5% year over year. GAAP EBIT was up 59.7% to 231.7 million euro. Pre-tax was 241.3 million euro, up 50% year over year. Non-GAAP pre-tax was up 60%. to 246.4 million. The net cash position at the end of the period was 45.5 million euro, an improvement of 75.4 million euro year on year, including 34.2 million euro dividend distribution, and an impact IFR 16 of 84.2 million euro versus 66 of the last year. To turn the page to the most important subsidiary, that's Nordic and Baltic, accounting for 44% of Group EBITDA in the period. Here you can see that Denmark, cement volumes in Denmark declined because of low demand in mainly the residential markets, partially compensated by the infrastructure segments. Both ready mix and aggregate volumes were down by 20 and 8% respectively. EBITDA, though, increased thanks to careful management of energy and distribution costs, and we returned to pre-COVID profitability levels. EBITDA includes also a non-recurring 6.8 million gain from asset sales. In Norway, academic sales volumes were down by 24%, mainly due to residential and commercial slowdown, higher competition, and some delays in new infrastructure projects. there was an EBITDA contraction due to lower volumes and higher operating costs. On top, the Norwegian krona depreciated by around 13.4% versus the euro. In Sweden, ready mix and aggregate sales volumes were sharply down around 46 and 15% respectively as a result of a residential demand plan. EBITDA contraction was due to lower volumes and higher operating costs. On top, the Swedish krona depreciated by around 9% versus the Euro. If you turn to page four, Belgium and France accounting for around 22% of Group EBITDA, demand volumes declined by 8%, mostly due to a generalized demand slowdown, and also ready mix volumes were down by around 8%, both in Belgium and in France. Aggregate volumes were down 13%, both on the domestic and on the export market. also due to particularly good performance in the previous period. EBITDA increased thanks to tight operating cost control and increasing selling prices. Turning to page five, Turkey accounting for around 18% of Group EBITDA. Here, we have to remind you that from April 22, Turkey is considered hyperinflationary and the result results are prepared according to IAS 29 accounting principles. Those figures are non-GAAP to make them comparable with the operating performance of last year. In Turkey, revenue increased by 31.5% with domestic cement volumes up 19%, thanks to significantly higher sales in Marmara and eastern Anatolia. Part of this demand is due to many projects driven by anti-seismic investments. Cement exports were down by 34% as sales were redirected on the more profitable domestic markets. Redemix volumes were up 8% and aggregate volumes were stable due to temporary operational issues. EBITDA reached €58 million, driven by cement prices, more than upsetting production cost increase and currency devaluation. This figure includes a non-recurring €4.5 million of gain on asset sales. and excluding such non-recurring items, EBITDA would have reached 53.5 million euro, up 163% on a line for light pieces. We have to remind you that there was a devaluation of the Turkish lira of 43.1% versus the euro average exchange rate in the period. Turning to page number six, United States. White cement volumes in the USA declined by 16% in line with the residential markets, especially deliveries to Texas and Florida suffered from stronger contraction due to competitive pressures from imports and lower demand. More modern decline was visible in New York and in California. EBITDA was down due to lower cement volumes and higher variable costs, only partially offset by higher average prices. There was also a higher contribution from our subsidiary, Dianini Pipe, operating in the concrete products business. Also here, there was a 1.8% U.S. dollar devaluation versus the U.S. average exchange rate. Moving to Asia Pacific on page seven, here you can see that China, in China revenue was broadly flat due to 15% volume growth, offset by lower cement prices. In Q1 of this year, cement sales were negatively affected by lockdowns. In Q2 and Q3, volumes were up, but competition put pressure on pricing. EBITDA includes a non-recurring €2.1 million gain from asset disposals. Excluding such non-recurring items, EBITDA would have been down by around 6% year-over-year, as higher volumes could not offset declining prices. was also an 8.6% remaining depreciation versus the average. In Malaysia, on the other hand, revenue declined by 7.9% with a 16% volume growth. White cement exports were down 19%, driven by a decline in clinker exports, a different calendar for shipments, and lower deliveries to some countries. Domestic volumes increased by 22% as a result of good recovery in the construction market. As a result of higher prices and careful management of free cost and variable cost, EBITDA increased in Malaysia. But there was also a 6% Malaysian Ringgit devaluation versus the Euro average exchange rates. On page eight, the last business unit, Egypt, here revenue declined by 14.2% because of the strong devaluation of the Egyptian pound versus the Euro. In local currency, revenue were up by 49.6%, while cement volumes were stable both on the domestic deliveries and exports. EBITDA was up thanks to tight production cost control and higher selling prices, despite the negative effect of a 74% EGP devaluation versus ZILO average. The last slide of this presentation is the full year guidance. We are further upgrading our EBITDA expectations. The revenue forecast for the year is unchanged at around €1.8 billion. The EBITDA is up by around 4% from the previous guidance of €365 million. We now expect to reach around €380 million for the year. It is unchanged, the target of reaching over €200 million of net cash and a capex of around €113 million. This guidance refers to like-for-like ongoing operations, non-GAAP, and excluding any extraordinary items. With this, my presentation ends, and I leave the floor to our Chairman and Chief Executive for any questions you may have.

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 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 Emanuele Gallazzi with Equita. Please go ahead.

Yes, good afternoon everybody. I have two questions. The first one is on the guidance, which seems again too cautious, as it implies a four-quarter EBITDA down more than 20% year-on-year with margins materially down, despite the strong performance in the first nine months. Can you just elaborate more on the assumption behind the new guidance to understand if this, let's say, cautious approach is driven by volumes or or cost assumptions. And my second question is about pricing heading to 2024. You are starting the discussion with your clients in the Nordics region. Can you give us a sense of your expectation for prices in 2024? Thank you.

Yes, about the guidance, we increased a little bit and not further more just because you know in the previous quarter we were let me say facing one war and now we are facing two war and as you know we have one plant that is in Egypt that is closed let me say in the Sinai region so we don't know it's just a cautious approach because frankly speaking, as you said, if you just extrapolate a linear, let me say, development of the EBITDA we have done so far, or the rolling 12 months of our EBITDA, you reach a number that is above 400 million. But as we say that we don't want to be too pushy because if something goes wrong, then we don't want, let me say, to overestimate, let me say, our capability to overcome. So the market, I think that the key message in these numbers is that the very strong resilience of the group almost everywhere because if we look at the decline of the market in terms of volume that is roughly around the 20% in the Nordics and around 10% in Belgium, France, the two key areas for us, then you see that we increase our EBITDA on non-GAAP basis around 30%. So in the past with this kind of downturn, we should have, let me say, lost nearly 20% or 30% of EBITDA, while this time we increased because of the positioning, because of the wide cement, because of the cost structure, and because also the edging that we did on the energy. And about pricing for the next year, it seems that... there isn't, let me say, any key issue related to the price or pressure to the price. I don't think really because also this year we are seeing a declining in raw material and energy that there is space for further increase. Also CO2 You have seen that especially in the last two or three weeks, it is, let me say, below 80. But let's say that keeping this kind of price and if, let's say, we are just starting to see somewhere a bottoming in terms of the downturn, so on the third quarter, especially if we look at the quantities. For example, on the old group, we have a positive, let me say, quarter-on-quarter increase compared to an overall decrease of nearly 7%. And also the decrease in rating mix and aggregates is slowing down. So this doesn't matter that we are out or that the downturn in the economy is at the end, but we are seeing a sign of stabilization. This, let's say, doesn't consider any weird outcome from this Middle East spot and Ukraine and Russia, let me say, war. but I repeat, I think that the company, I'm very happy how the company went through this sort of mini recession because in the last two quarter we saw a quite sharp downturn, especially in the quantity Nordics and in Belgium, France, but the number and the way we manage the company, the digitalization and everything that is, let me say, behind the management of the company compared to the last downturn that was around 13, 14, 2013, 2014, the company is responding in a completely different way. We have also to consider that these numbers If, let's say, we are at six weeks, even five weeks away from the end of the year, because then, let me say, after the half of December, let me say, the market, let me say, will close in terms of consumption. So October went in line with the number that we are giving you. And so we are already in the first week of November. So I don't know if, let me say, something very, let me say, ugly should happen. But anyway, we are projected on the number that we expected for the 2025. On terms of... The revenues and also the net financial position, the revenues probably will be a bit lower than 1.8 because we have to consider two things. One is the softness of the market in the Nordics and in Northern Europe. On the other side, that even if Turkey is producing a very good result in Europe, but the devaluation of the Turkish lira, let's say, hit a bit, let me say, the revenue. But you have seen that we have increased nearly six or seven points of the profitability. So this is, I think, is the key message. So we don't see any sharp, any, let's say, substantial, decrease in the price in Europe. The only country that, let's say, might, I mean, looking at 2024, might, let's say, suffer a bit might be Turkey because they are changing, let me say, the monetary policy. They are tightening and they are increasing the rates. but the market especially for the recent earthquake seems well supported in terms of consumption. And also in the C-BAM won't be in place in 2026. So for another couple of years, the export market is quite strong. So I don't know which will be the inflation or the terminal exchange rate for this year or next year. but let's say the difficult part to forecast for us, let's say it's mainly Turkey. Okay, thank you very much.

The next question is from Emanuele Negri with Mediobanca. Please go ahead.

Yes, good afternoon. Thanks for taking my question. I have actually just one follow-up from the answer before.

It's again on Turkey you were talking about before. So can you explain a bit better what do you expect in terms of volumes for the year ahead in Turkey, given the geopolitical situation and the earthquake and all the other things you mentioned before?

Thank you.

The volumes this year are up nearly... The rolling 12 months are up a little bit below 10% in terms of volume. This is for Turkey. Looking forward, let's say, as I said, the export market should not change because let's say we continue to have the opportunity to export to Europe and the other country without, let me say, the CO2 for another couple of years. The internal market that is mainly, I mean, some part, let me say, that is a portion that is, let me say, the earthquake hit nearly 12 million of people. So Turkey is three times Italy in terms of so we don't know if the increase in the rates might let me say decrease the demand but also what we expect is just that in the North Europe and in the Nordics the market should normalize so what we might, let me say, loss on Turkey should be recovered on Europe.

So if you start assuming that you are trying to consolidate the EDA for the next year, let's say excluding the impact on Turkey, so in all the other regions,

Sorry, could you rephrase the question? Do you mind? We couldn't hear you well. Sorry, can you hear me now?

Yes, that's better. Thank you.

Okay, so the target for 2024, is it fair to assume that you are trying to consolidate the ABTA level you had this year for the next year, excluding the impact from Turkey, which is kind of a mess?

Turkey is performing well and has a very strong demography and let's say that we will let me say as you know during end of January early February we'll give the update on the industrial plan we are let me say closing at the end of November our let me say in Forecast for the next year. So at this point, I think that, let's say, a company that in one year reached the three-year target, let's say, we need to understand where we can go. Because if you consider that just the volume in Nordics and North Europe should recover in two or three years, not in one year, let me say, not tomorrow, and we maintain this kind of profitability, let's try to imagine where the company can arrive. So this is the important thing from our point of view. So if Turkey then will produce 5 million less or 5 million more of EBITDA, let me say, considering that around now 400 million of EBITDA 5 million is 1%. So the sensitivity at this moment is not, let me say, we cannot have this kind of sensitivity now. When we close the year and in January, February, when we have, let me say, all the numbers, the exchange, the final exchange rate and everything in place, probably we will have a better view.

If I may interject to what the chairman has just said, I mean, you're right in saying that, you know, we are looking to consolidate the results next year, and that's correct. I think the elephant in the room in that case is probably the difficulty to forecast exchange rates. But looking at the business in isolation, there are two data points that I think are worth noticing. One is that with the perimeter we have today, we're approaching a record – profitability in Turkish lira terms if looking back the history of the company. So I think we are very happy and I think it's performing extremely well. Clearly going into next year we'll have difficult comps because this year there was a sharp recovery and so clearly there is just a law of comparable numbers that would make the difference a bit less pronounced as it was this year. But again, we're confident that the business can still do well with a bit of pinch of salt because in emerging markets, it's always difficult to forecast accurately what's going to happen. But that's what we feel today about TARGET.

And anyway, if you look at page five of the presentation, you can see that on the non-GAAP, Turkey is nearly three times the EBITDA of last year. I think that the issue of your company is that probably having a net financial position that will be for sure above 200 million because we have higher EBITDA. And an EBITDA, let's say between 380 and 400, the company value You can do the math. The issue, I think, is not Turkey or is not doing 10 or 20 million more or less. I think that the company is discounting, let me say, a lot of value, I don't know why, compared to the other peers, even if we have a premium product, we are well, let me say, balanced in terms of geographical portfolio. because sometimes also in the past few years, I heard some of you saying, why don't you exit Turkey? The reason why I didn't exit Turkey is this, as you can see now. And so it's important that we are balanced. When Turkey goes down, the Nordics goes up. When Turkey goes up, the Nordics goes down. So we are balanced and we are, let me say, continue to improve our results, even in a difficult market situation. let's say this is my personal thought but also on the energy and the other raw material I think that the company is well hedged for the next two or three years and also today we have the gas situation and the electricity situation that is completely different than last year so it seems that besides the price that the situation is more stable.

Okay, thanks.

The next question is from Bruno Permutti with Intesa San Paolo. Please go ahead.

Good afternoon, everyone. I have some questions on the cost side. What are you seeing? Because pricing you said for 2024, you do not see increases in Europe, but if I have well understood, you do not see decreases. So what could go wrong next year, I was wondering. Is there something on the cost side that could hamper the group's profitability or not. I mean, the personnel cost or how much are you hedged on the energy cost and at which price. So these are, I believe, the... the assets and above all the volume trend. So how do you see volumes to evolve next year? And so is this something that could be a worry for the absorption of structure costs, of fixed costs? or not. I'd like to have some comments on this aspect because I believe that probably the fear of the market on the industry is related above all on the ability to react to possibly lower volumes next year. And if I may, a second question concerns the M&A if nothing changed compared to the last call or if you see something different in your scenario for M&A. for M&A for 2024.

Regarding the cost structure, if you see the last four years, even if we, I think that when you buy, let's say, a share of a company, you buy the product, but also you buy the management, right? So, look at the last four years of the company with the COVID, with the energy spike, with the war in Ukraine, I think that you should see that we were able to manage a very different and weird situation, I think in a brilliant way, because every year we made a record with the same perimeter. I don't know if next year we will have a third war or something, but without, let me say, external factor, I don't see major threats in the cost side because most of our cost is energy, electricity, gas, or coal, and let's say that we are airs and also CO2. that as I already say, then you are aware most of the player pass directly to the final customer. So it's just, let's say, a tax, it's not a cost. So this is my very, let me say, brief answer. On M&A, we are still at the same point. So we, we need to understand better and let's say that in the last 12-18 months we have a better visibility for sure on the technology that might be let me say used for carbon capture and the other issue is the sequestration because there are plants where sequestration is easy with other plants where sequestration, let's say you need to put on a truck and then transport to another place and might cost further. But the level of solution and also the number of solutions that we are seeing in the last six months seems that, let's say, in six, 12 months, we should reach, from our point of view, a good idea of what might be, let me say, the cost, the OPEX, the CAPEX and the OPEX of carbon capture and sequestration. So, so far, let's say, we are still waiting just to understand better but for sure there are from our point of view we are let me say happy to have only two plants in Europe so we need to upgrade the retrofit or whatever it will be the technology just to plants our others have a lot of plants I think that we will have three different kind of let me say of player those players who can let me say use this technology that probably are two or three technology that will have the cost and they have the money to that then there are players who can use this technology but they are very far away from where they can, let me say, do the sequestration, and this will increase in, I mean, I say from 50 to 100 euro only for sequestration, not to capture, and this might change or affect the cost, and so for us, this kind of plant is out of, let me say, sight, and then there are other plants who is where it is not convenient because they are too little or too old to let me say do any kind of upgrade so we are clustering let's say in Europe which kind of plant from our point of view if the solution a b or c will be let me say used and then when we have the numbers and the development of this number we can let me say have an idea where we would like to invest this is one thing the other thing is that if there is somebody that would like to divest those assets but for sure from our point of view there are a substantial number of plants where you cannot, let me say, upgrade or retrofit, or they are too far from, let's say, the sequestration site. There are geological maps around, and some players are aware. I don't know if you are aware, but there are some parts of Europe where it's impossible to sequestrate, and those plants, from my point of view, will not survive. but I will tell you now where are the geographical part of it, but there are two geographical cluster where you cannot make any kind of sequestration. Capture, yes, but sequestration, no. So this is the only solution, but I think that we are nearly five years behind carbon capture is to combine CO2 with hydrogen. So what will happen from the moment that next year will be six year to 2030 for those plant is the cost of synthetic hydrogen will not grow significantly from eight euro per ton to two euro per ton. I think it is difficult to combine and to have a byproduct that you can sell in the market. and then that can abate the total cost of the full cost of your cement. So I hope that you have a clear picture of what is, let me say, the game. The game is not the M&A. The game is that where and how much you have to invest and if you have to close down a plant or if you can survive. Or if you just, let me say, need to wait because the plant close to you will close and you can take the market without any kind of investment.

Thank you.

Very interesting.

Okay. If I may, it's not related to this issue, but I was wondering as you have the activity, the assets in Egypt. Did you see a change in the rebound of the internal markets following the beginning of the war in Israel or for now no impact at all?

For the time being, the situation has improved because usually we are in the middle of the desert with, let me say, a level of security that is, let's say, medium. Now, with the development of this situation, there is much more, let me say, presence of military. The port of El Arish is used for, let me say, humanitarian, let me say, aid. And so the situation for the time being is better than one month ago. I mean, from our point of view. So I don't know, but I don't think that Egypt is ready to open the gate and like Turkey did with Syria and to receive one million or half million of refugees, even because you have to consider that you have the desert on the other side. So the refugees that might arrive in Egypt find, let me say, just sand, no water, no infrastructure. So it's different than the border between Syria and Turkey, where you have water, where, let me say, the land is normal. So I really don't think that we might see a big flow of refugees that will arrive from Palestine to Egypt also from this, let me say, logistic issue.

Okay, thank you.

Mr. Bianconi, gentlemen, there are no more questions registered at this time.

Okay, so thank you very much for your interest in Charity Holding and I wish you a pleasant rest of your day. Thank you.

Thank you. Have a nice evening. Bye.

Bye bye.