Cemetir Holding

Good afternoon. This is the Chorus Call Conference Operator. Welcome and thank you for joining the Chimentir Holdings First Quarter 2024 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, everybody. This is Marco Bianconi speaking. I'm here with our chairman and chief executive, Francesco Caltagirone. Good afternoon. We're here to take your question at the end of my short presentation. If you turn the presentation deck to page two, the key takeaways for this Q1 results are that results are in line with management expectations. Volumes of cement, ready mix, and aggregates are in positive territory year on year. Some important infrastructure projects have been delayed and are expected to kick in later in the year. Nordic and Baltic and Belgium performance was impacted by fewer working days, severe weather conditions, and still weak residential markets. The strong results in Turkey are impacted by currency devaluation, and the same for the Egyptian results, where the Egyptian pound devalued by over 53% in March 2024. Turning the page to page three, In terms of first quarter results highlights, revenues reached €368 million minus 11.2% year over year. Non-GAAP revenues were €367.1 million minus 11.3%. As mentioned before, cement volumes were up 2.3% due to the increase recorded in Turkey, which upset the reduction in volumes in other regions. ReadyMix volumes were up 3.7% and aggregate volumes were up 8.9%. And for unfavorable weather conditions, fewer working days due to Easter holidays and the negative exchange rate effect reduced revenues by around €50 million. EBITDA reached €66.5 million, minus 18% year-over-year. Non-GAAP EBITDA was 69.3 million euro minus 19% year over year. The lower EBITDA was recorded in Denmark and Norway and to a lesser extent in the US and Asia Pacific with a negative Forex impact of 9.7 million euro. Non-GAAP EBITDA margin decreased from 20.7 to 18.9% due to adverse geographical mix, meaning lower volumes in Europe only partially offset by higher sales in Turkey. EBIT reached €34.2 million, minus 30% year-over-year. Non-GAAP EBIT was €39.6 million, minus 29.6% year-over-year. Pre-tax was down 8.2%. Non-GAAP pre-tax was down 6.2%, to €64.1 million. net cash position reached €76.6 million, an improvement of €108.7 million year-on-year, including a dividend distribution of €34.2 million and including the IFRS 16 impact of €83.4 million. Turning the page to the largest region, Nordic and Baltic, accounting for around 39% of RUB EBITDA in Q1, In Denmark, domestic cement declined due to harsh weather conditions and fewer working days due to easter falling in Q1, and a residential market that is still not recovering. ReadyMix volumes were down 4%, while aggregate volumes increased slightly. EBITDA contracted due to lower volumes despite savings on main input costs. In Norway, ReadyMix Sales volume declined by 29% due to demand slowdown and adverse weather conditions and delays in some infrastructure projects. EBITDA contracted due to lower volumes, and the Norwegian krona depreciated by around 4% versus the Euro. In Sweden, ready-mix sales volumes increased by 13%, whereas aggregate volumes were down around 12%. but EBITDA improved versus last year. The Swedish krona was broadly in line with the Euro average. Moving to page five, Belgium and France. Here, domestic cement volumes declined by around 3% with exports to France and the Netherlands down double digits due to adverse weather and the general market weakness. Redemix volumes were down 20%, with a more significant drop in France, while aggregate volumes were broadly flat, versus Q1 of last year. EBITDA increased thanks to careful energy costs and selling price management. Moving the page to number six, Turkey, here, you know that from April 2022, Turkey is considered hyperinflationary, and therefore reported figures are non-GAAP and therefore exclude the application of YAS 29 and the evaluation of non-industrial property. In the country, domestic cement volumes increased by 22% thanks to significantly higher sales in Eastern Anatolia and in the Aegean region supported by post-earthquake reconstruction. Cement exports were up by 8% with ready mix volumes up by 31% and aggregate volumes strongly up due to the opening of a new quarry in Eastern Anatolia. Despite this very strong volume growth, revenue declined by around 2.6% because of the Turkish Lira devaluation. EBITDA reached 9.2 million euro driven by higher sales volumes and average cement prices despite a 65.8% Turkish Lira devaluation versus the Euro. Moving to page seven, North America. Here, in the United States, white cement volumes declined by around 4% as deliveries to Texas and New York were impacted by both harsh weather conditions and fewer working days with the backdrop of a residential market still suffering from high interest rates. In California, deliveries grew in all market segments. EBITDA was down due to lower cement volumes and selling prices due to strong competition and higher cement purchasing cost. There was also a minor 1.2% US dollar devaluation versus the Euro average. Moving to the next business unit, Egypt, on page eight. accounting for 5% of our EBITDA here, the domestic white cement volumes decreased by around 16% due to weak construction market and fewer working days, whereas export volumes increased. Revenue in local currency was up 17.4%, but revenue in euro declined by 1.7% because of a 53% devaluation of the Egyptian pound only in the month of March. EBITDA was down due to lower sales volumes, higher operating costs, and the EGP devaluation not upset by higher sales prices. Moving to the last business unit, Asia Pacific, page 9. In China, revenues declined around 17% with volumes down by around 10%, modest price reduction, and 6% revenue devaluation. volumes were affected by low temperature, early closure for Chinese New Year and a weak real estate demand. EBITDA was down due to lower sales volumes and prices. We recorded also a 6.3% currency devaluation versus the Euro. In Malaysia, on the other hand, cement volumes increased by 6% with domestic volumes down by nine due to very strong comparable figures than the previous year. exports were up, driven by higher shipments to the Philippines and Vietnam. Revenue and EBITDA were down due to a less favorable sales mix and Malaysian Ringgit devaluation. Also in Malaysia, there was a devaluation versus the Euro of around 8.9%. This brings me to slide number 10, the last one, where we confirm our 2024 guidance of revenues around €1.8 billion, and EBITDA around €385 million, net cash position of €300 million, and a CAPEX of around €135 million. This guidance refers to like-for-like ongoing operations, non-GAAP, and excluding any extraordinary items. With this, I would like to hand over the floor to Francesco, who is happy to take your questions.

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 touchstone telephone. To remove yourself from the question queue, please press star and 2. Please pick up the receiver when asking questions. The first question comes from Matteo Bonazzoni of Kepler Chevro.

Thank you. Good afternoon. I have some questions. The first one relates to The trading condition which we are observing after the end of the quarter, so after the Easter period and maybe now that the adverse weather situation is exhausted, did you see a sort of pent-up demand or in any case some recovery in April, beginning of May, particularly I would say in Denmark, in Northern Europe or maybe in Belgium? That's the first question. The second question relates to the trading conditions in Turkey, which have remained strong in the first quarter. Now that we are in May, do you have better visibility on the evolution of the market for the remaining part of the year or maybe for the next few months? The third and last question is regarding your Asian operations. China and Malaysia, there was a drop. It's not a big area for you, but I mean, just to understand, I don't think it's related to weather in this case. Should we expect the continuation of a weak trend, particularly in China, also for the remaining part of the year? Thanks.

Good afternoon. Yes, regarding your first question, I mean, what we are seeing in April and the first week of May, I can say that in the first quarter, we were more or less in line a little bit behind less than one million euro in our budget. I can say that in April, we are a little bit ahead, so we are seeing a pickup of the condition spread among the various regions. It's just, I think, the beginning. We were already forecasting for, let me say, the first half, a slow start. We have, so far, the delay in the big infrastructure project in Denmark. I hope that in the second half of the year this will kick in and pick up the consumption of cement, especially in Denmark. But let's say, as you have seen, besides the decline in ADDA compared to last year, the quantities for cement ready mix and aggregates are positive. It seems that the market, as we said also, before it starts to bottom, and also Sweden among the data posts, probably the most complicated, let me say, market condition, it seems to stabilize. Then in January, we had in Denmark, in Scandinavia, generally temperature around minus 30 degrees, and so it was exceptional cold. So let's say, it seems that we are normalizing and also for this reason we are confirming the view and the guidance for the year. In Turkey, Turkey continues to outperform despite the huge inflation. and also the election. We think that we might see a pickup, I mean, as I said, in Europe in the second half, and a slowdown, a slowdown in Turkey in the second half. So they might compensate each other. Regarding China, yes, it's not linked to the weather, you know first quarter is small and volatile so even the quantity can affect positively or negatively the balance sheet so I think that is a temporary let me say issue and we expect that also for the Far East region the things should normalize or start to normalize

Thank you.

The next question is from Emanuele Galazzi of Equita.

Yes, good afternoon, everybody. Thank you for taking my questions. I have two questions. The first one is more on pricing. I just would like to understand what you are experiencing now in terms of pricing. If you see some price pressure in some of your regions, just say an overview of of the pricing dynamics. And maybe a second one on the CO2 right. We have seen some volatility on the price of the CO2 right. Can you update us on your strategy for 2024? And just a technical question, is the lower price of CO2 also impacting your top line? with lower prices, it is included or it should be included in your pricing strategy. Thank you.

Regarding the price, I think that they are more or less in line with our expectation. We don't see so far any specific pressure in any market. The only slight pressure that we see is in the United States, but also take, let me say, in consideration that we have a production in the United States that covers probably near one-third or less than one-third of our sales. So we have to import, and so we are exposed also to the, let me say, general environment, especially in the shipment cost and the other. So this might affect a bit the profitability, plus Regarding the CO2 strategy, as we already said a few times, we are transparent in terms of CO2, in terms that we charge in the invoice the price at the average price of the month, so it's added, and so If the price is high or low, I mean, it's not affecting the profitability. What might affect is that if we have edged before and the price increases, like is what is happening. In fact, you are seeing also a very good result in the financial items that is nearly the double of last year. Partly the exchange rate, let me say this, but partly is edged. I can say that part of the, I mean, few millions of what we don't see in the EBITDA is because we hedged and we see in the financial items instead of the EBITDA. So if we wouldn't have hedged, we would have, let me say, seen a higher EBITDA. In terms of strategy, we are, let me say, more or less fully edged to 2026 and partly for 2027. And we, let me say, edged in the first quarter of this year, I think, at 2027. has a good price compared to now. So just to summarize, we are not exposed to the daily fluctuation of CO2 in terms of profitability because we invoice separately. In terms of edging of how, let me say, we charge, let me say, our internal portfolio of CO2, and how we use the CO2 might affect, and now it's positively affecting the balance sheet, especially in the financial items, because we have around 55, 58, and today it's at 70.

Thank you very much.

As a reminder, if you wish to register for a question, please press star and 1 on your touchtone telephone. Once again, for any questions, please press star and 1 on your telephone. The next question comes from Tobias Warner of Stifel.

Yes, good afternoon, gentlemen. Thanks for taking my question. You mentioned pricing pressure in the U.S. Can you just remind us of the dynamics of the import trade into the U.S.? the Seabourn white cement market at the moment, how that works in terms of attracting more imports into the larger markets. That would be my first question. And then when I look at the Nordics, how should we think about the Nordics on the back of this first quarter? I mean, you can sort of look at history. when you delivered Q1 EBITDAs in line with that and where that took you for the full year, probably somewhere anywhere between 150 and 180. Is that how we should be thinking about this?

Thank you very much. Thank you for the questions. Regarding the import into the USA, for sure, I mean, the The import activity affects especially the Florida and Texas markets. As you can see in page seven of our slide, we have a very, let me say, wide network of terminals. And so, we suffer the imports of other places, especially those two states, but in the remaining part, quite stable, and we are in most of, let me say, other parts of the United States, the only player for white cement. We have also, I want to add also another thing that in Egypt, in the second half of the year, is planned the restart of the second line, so we will go from 500,000 tons to 1 million tons of availability capacity and also we think that by the last quarter we should start to shift cement from Egypt to the United States and this also should let me say increase a little bit the profitability because let's say the cost that today we have as you can imagine in Denmark are higher than the cost that we have in Egypt. But I think this year will be more impacted by this, but it's an opportunity for the next few years. Regarding the Nordics, let's say, we expect a result that is a bit, let me say, lower compared to last year, but not so much, let's say. Even if it seems that the start is quite slow. Let's say that the Ferman project, that is a huge project of 8 billion euro value, it's but let's say that in the first quarter the consumption is nearly 75% lower than what we estimated due to a slow start, as it happens especially in the difficult projects. So if this will normalize and pick up, especially in the second part of the year, I think that we should see a nice recovery compared to the first quarter results, especially in Denmark.

Okay, thank you. As I have the microphone, so to speak, could I ask one sort of question which is sort of intriguing me? When I look at your two Turkish subsidiaries, I mean, Cementas is Cemento Fabricari and is valued at 1.3 billion euros almost, which if you take your capacity there would make it quite nicely valued in that context. How do you think about this? Is this just an oddity of the limited free float? Because a lot of Turkish cement companies have seen significant share price performance recently.

I think that we have seen in the last three years a good recovery, good market condition, but also the recovery of the profitability has been, let me say, higher than the competitor. Turkey, let's say, if Turkey will converge to the APS system after 2026 because of the border tax adjustment, I think that The issue that affected Turkey, like most of the emerging markets, that is the increase of capacity, the contingencies of capacity, like what we are seeing in Europe, especially in the last 30 years, should stop the increase of capacity. So we have a very good positioning because we are more or less at the four corners of Turkey. And let's say for sure we have a limited flow But also, I think besides the macro of economics, because today we still see inflation around 60%, the rate that went from 15% to more than 50%, and this should, let me say, carve, let me say, the demand. But let's say demography is 2% positive. That means one and a half million people each year. And we have at the border of Turkey, I mean, Ukraine can be reached only by the Black Sea. So when, no, we start the reconstruction in Ukraine, Syria, then also we have all of the, I mean, the Gaza issue that can be supplied mostly by Turkey or by Asia. So I think that the opportunity that has the Turkish market and also our two main plants, three main plants, because we have one at the border with Armenia, one at the border on the Black Sea with Europe, and the other on the sea in Izmir with a capacity that is around 5 million tons. might give, let me say, the market, I think, is pricey. More or less, let's say today, just our Turkish assets are the value of the 80 or 90% of the value of the old challenge here. If we deduct the cash that we have, exactly the value of the remaining part of the asset is zero. If you just carve out the I don't know what to say, but let's say that this is our view on Turkey, and probably the market is pricing that we might have more opportunity than other players to expand the footprint, because also, as I said in the past, I don't want, because anyway, Turkey is a risky country. But having the 97%, we can dilute without, let me say, increasing the net investment in the country. And so diluting means absorbing other small players. So for this, for sure, it's an opportunity. And also we are looking at some opportunity with local, let me say, players. and also 90% of the Turkish market is in the hand of domestic players. So it's a market that has to be consolidated for sure. So we see that the implementation of the ADA system especially starting from 2026. The earthquake that is still, let me say, absorbing and will absorb for the next five years. And the world situation all around Turkey gives the opportunity, let me say, to expand the activity and also the revenue in that country. It's a possibility and probability. So, Turkey anyway has the question mark for every emerging market.

Very interesting. If you spend that thought a little bit further, there are probably family businesses with cement plants which fit with your business. You have an expensive currency which you could share with these buyers. Would you say that some parties could be interested in that, i.e. exchanging their assets for this currency?

I cannot add more. Let's say that it's a way that we see and as you can imagine today or a local player to finance in Turkey at 50%, 60% rate, it's nearly impossible. And so most of the import, especially the energy are in Euro and Dollars. So there are some players that might face a liquidity shrink. So I think that, let's say we are ready to consider option that, let's say, on paper-based value, we can, let me say, increase or absorb other, let me say, entities in our perimeter. So if others are, let's say, interested, today's premature to say, but we are, let me say, keen to consider this opportunity.

Great. Thank you very much.

The next question comes from Bruno Permuti of Intesa San Paolo. Mr. Permuti, your line is open, sir.

Yes, sorry. I had a problem with the microphone. So thanks for taking my question and good afternoon, everyone. A question related to the pricing in Turkey. It seems from the results of the first quarter, probably weren't able to increase prices in relation to the Turkish lira depreciation. I would like to understand if there would be an opportunity probably to push up prices in Turkey in the remaining part of the year. How do you see this possibility? And then if you could give us an update in the past few months, you talk about possible investments in subsidized... energy projects so for solar or for wind projects I wanted to ask if there is any update you can give us on this And lastly, on the recovery you are starting to see in the month of April, which are the areas in which you experimented the rebounds? So where do you see the first signs of rebound compared to the... in the week before the first quarter.

Okay, starting from the last question, as I said, we're starting to see in Scandinavia, I mean in Sweden, and also we think that the first quarter in Norway has been affected mainly by the weather and the economic environment. In Denmark, we might see the pick-up rate in our delivery because of this big project. Regarding the Turkish pricing, I can say that we are not expecting to have an increase of the price that has been, let me say, what we have seen last year, mainly because the price, especially in Europe, increased a lot in the last couple of years, and there is a very deep attention because of the very high inflationary environment of the government regarding all the raw materials from cement to aluminum, iron, and also steel. I don't think that it will be as easy as it has been last year. I cannot give forecast if we will recover in full or in part the devaluation of the Turkish lira. Also, the Turkish lira, despite, let me say, the inflation in the first quarter, the devaluation, probably due to the very high rates, the Turkish lira seems to stabilize. So, let's say that I see the prices that are more linked to the exchange rate than to the internal inflation. I don't know if there is other... Yes. Yes. The last one was the projects. Regarding the other projects, let's say, I say that we might invest and we are, let me say, analyzing a few projects to combine or to add to our decarbonizing strategy. I think that probably we might give a more, let me say, deep update when we will approve the first staff, but we are continuing actively to, let me say, follow these opportunities. Let's say that one thing that the economics behind a project or an opportunity The other thing, as you know, that is more or less spread all over Europe, this issue is about the permitting. So I don't want just to sell to the market an opportunity and then we have to face three, four years of permitting process. And so that might delay. So I want to have... certain time and so for this reason I want to take one or two quarter more just to give let me say more visibility because we let me say are focusing on a couple of projects, but we have no idea of the permitting process in detail. So, broadly, yes, but I don't know. So, if it's something that can materialize in one or two years, it's something, let me say, that we would like to announce. If we see that the process is complicated and will take five years, okay, yes, I can say, but I don't want to give to say, like, let me say, other players did in the past, like greenwashing or other things. So I don't want to declare something that then the feasibility is 10 or 20% likely. For this reason, we want to be prudent because, especially in this environmental project, the permitting and also the technology availability is not immediate.

Thank you.

Gentlemen, at this time, there are no questions registered.

Okay, so thank you very much for your interest in Charity Holding, and we wish you a good rest of your day and afternoon. Thank you. Bye-bye. Thank you.