Vicat Sa Unsp/Adr

Welcome to the WECA 2024 Full Year Results Conference Call. My name is Alan and I will be your coordinator for today's event. Please note this call is being recorded and for the duration, your lines will be on listen only. However, you will have the opportunity to ask questions at the end. This can be done by pressing star 1 on your telephone keypad. If you require assistance at any time, please press star 0 and you will be connected to an operator. I'll now hand you over to your host, Guy Sidos, Chairman and CEO, to begin today's conference. Thank you.

Thanks, Alan. Good morning, ladies and gentlemen. Welcome to the VICA Group's 2024 Annual Results Presentation Meeting. I'm Guy Sidos, Chairman and CEO of VICA. Joining me are Hugues Chommel, Deputy Managing Director and the Group's Chief Financial Officer, and Pierre Pedrosa, Director of Financial Communications and Investor Relations. Slide two contains a preliminary disclaimer. It aims to draw your attention to the fact that the elements presented here for fiscal 2025 have assessments of expected trends in the groups, various markets, and should, under no circumstances, be considered as forecasts.

On slide three now.

Our presentation today will be divided into five points. I'll start by reviewing the highlights of 2024, the group's fundamentals, and then focus on a number of key points in our business. I will then hand over to Hugues Chaumelle for an analysis of financial performance and the main balance sheet and cash flow items. I'll then come back to our climate action plan before completing with a look at expected trends for the current year and our priorities for the future. On slide four, let's start with the highlights of the year. Switch to slide five. The year 2024, through its success and the prospects it opens, confirms the relevance of VCAT's development model. In a historically depressed environment in Europe, The group posted organic growth of plus 2.3% and EBITDA of 783 million euros. This is the group's best ever performance. It is a result of commercial and industrial efficiency of all our teams in the various markets, and I would like to congratulate them once again for their commitment and their contribution to this fine performance. Congress in the US, which now generates 190 million euros in EBDA, resilience in Europe, and progress in the Mediterranean zone have all contributed to the EBDA margin returning to above 20%. More on this later. At the same time, The group generated a sharp rise in free cash flow to 373 million euros and continued to reduce its debt. Financial leverage was 1.58 times at the end of 24. Finally, the group is continuing to implement its decarbonization roadmap with a further reduction in emissions intensity in 24. On slide six, A quick overview for long-term performance. Consolidated sales reached 3.88 billion euros, with average annual growth of 7.2% over the past five years. Roadshed rose to 8.1%. Finally, our leverage ratio continues to improve from 1.92 times in the 23 to 1.58 times in 24, reinforcing the group's financial strengths. These results demonstrate VCAT's ability to combine operational performance and financial discipline in a demanding environment. On slide 7 now, VCAT's fundamentals are based on four pillars, family roots and a long-term vision based on our heritage, and it enables us to pursue a coherent long-term initial strategy. Modern high-performance production facilities to optimize our costs and reduce our environmental footprint. Third pillar is a strong capacity for innovation, which positions us as a key player in the low-carbon transition. And fourth pillar is a balanced geographic diversification between developed and emerging markets. This enables us to navigate changing environments with agility and efficiency. On slide eight, you have before you an analysis of our investment cycle over the past 10 years. The first phase between 2014 and 2018 is that of stable investments and substantial cash generation. Then, from 2019 onwards, we chose to accelerate our investments at a time when financing conditions were very advantageous. We acquired CIPLAN in Brazil and began investments in Raglan and Senegal. Today, as the cost of financing has risen, We are focusing on reducing our debt by moderating our investments. This phase has enabled us to significantly improve our cash generation. Go to slide 9, and let's now turn our attention to our worldwide activities. On slide 10, let's start with an update on the French residential market, which is going through a period of a period of historic slowdown, but which also offers significant prospects of recovery. As you can see from the graph to the right, the French residential market is currently at its lowest level for 25 years. However, this situation creates the potential for recovery. We know that residential needs in France remain high and that latent demand is strong. Several product factors, structural factors, underpin this demand. Population growth, which continues to rise, particularly in certain urban and suburban areas. Societal trends, such as the rise in the number of single-parent families. Reindustrialization, and then the impact on the climate, because the new homes comply better with environmental standards and are more energy efficient. Vicar, with its regional presence, and available production capacity is perfectly positioned to benefit from this upturn when it arrives, and in cement, of course, in concrete, in aggregate materials, as well as in high-value added construction chemicals. Let's focus on slide 11 on what we call the TELT, which is the Lyon-Turin Tunnel. This project This project is the largest civil engineering project in Europe. A 57.5-kilometer tunnel in two tubes, a colossal project mobilizing a large volume of materials. It will generate a significant contribution to VCAT's businesses over more than seven years. Around 1.3 million tons of cement will be supplied with a gradual ramp-up to a peak expected between 2027 and 2028. or SATM subsidiary, will produce the concrete and use almost 4 million tons of aggregates for the various phases of the project. And 24 million tons of material will be excavated from the tunnel, a major challenge for the management and recovery of the extracted materials, which was the subject of a contract won by the consortium led by Vinci and Wicca. is a large-scale project that will support our activity for years to come. Another focus on site 12 that shows our activities in the U.S., where we produce cement and reanimated concrete locally in the southeast and in California. The U.S., is now our second largest market. We generated EBITDA of €190 million in 24, up 26% year-on-year, representing a quarter of the group's operating profitability. The Lebesgue site in California has a capacity of 1.3 million tons and covers the Los Angeles region from Merced to the Orange County, where we also produce decarbonized ready-mixed concrete. Our ground plant in Alabama serves the southern United States, in particular the area of Atlanta and Nashville, thanks to a network of efficient freight terminals. These are dynamic states that benefit from considerable public and private investments that we are in a position to serve. Now the LNZ project, the Lebec Net Zero project, is the first carbon capture and storage CCS project in California. It is based on the capacity to capture 950,000 tons of CO2 per year to completely decarbonize cement produced on the site. The deployment will take place in four phases. with commissioning scheduled for after 2030, subject to a final investment decision in 2027. The first phase has been validated by the Department of Energy, DOE, while subsequent phases may evolve at our initiative in line with regulatory and technological adjustments. The project benefits from several levels. Regulation. Discussions are underway with the state of California to secure a favorable framework, including the carbon border adjustment mechanism and CO2 transport logistics. Second level is financing. We have a commitment of up to $500 million in DOE support, as well as eligibility for IRA 45Q, with a tax credit of $85 per ton of carbon sequestered over 12 years. Technology is the last lever. We work with proven technologies and partnerships with local engineering specialists. Lebec Net Zero Marks is a major step forward for VICA in the U.S., in line with our roadmap. On slide 14, we focus on Indiana. India is a buoyant market, underpinned by a solid economy, dynamic demographics, and growing urbanization, generating significant infrastructure needs. In 2024, the group has adapted to a complex market while securing its margins and growth prospects. In a fiercely competitive environment in the South, sales reached €273 million in 2024, down in 2023, Faced with this pressure, FITCA has adopted a differentiated strategy. In the south, we focused on pricing over volume, and our logistic capacity to Mumbai was considerably strengthened to supply this growing market, which is the south of Maharashtra. At the same time, We are starting from a competitive cost base and have been working on strict cost control, which has enabled us to improve EBITDA to €75 million, up 5.6% on 23. Of course, lower energy costs contributed directly to this performance, and improving industrial and logistic efficiencies, and competitiveness. On slide 15, we focus on Egypt. Egypt also deserves a slide. It has been a spectacular recovery, driven by strong export momentum and improved market conditions. In two years, EBITDA rose from negative to 34.1 million euros in 24, with a sharp increase in margin 27.7%. This performance is explained by an acceleration in export volumes with an order book secured for 2025 and a gradual convergence of domestic prices towards export prices in the second half of the year, improving profitability on the local market. After a difficult period, the opportunity for growth in the region has been seized and backed up by our quality assets in the Sina region, and we are very confident in the effort. Another focus on slide 16, where we outline our investment in Senegal. The group has launched this €260 million investment plan to build a new 2 million tonne thin line. Commissioning is scheduled for the second quarter, with contribution expected in the second half of 2025. We have a roadshed target of 18% on this project, which is mainly linked to an improvement in production costs. I now hand over to Hugues Chaumelle for a more in-depth analysis for financial performance. Hugues, the floor is yours.

Thank you, Mr. Chairman and CEO. Let me start with the key figures in our income statements. As presented by Mr. Sidos, the group achieved organic sales growth of 2% in 2024. Organic growth in EBITDA exceeded 10% and was driven by growth in ragland in U.S., development in Egypt thanks to exports, a favorable price-cost spread in almost all of the markets where we operate, and improvement in the group industrial performance overall. The BDA margin in 2024 was 20.2 percent, up 140 basis points year-on-year, meeting the group target of a return to the margin level that preceded the inflationary crisis of 22-23. In the context where almost 40% of the group markets in Europe are at historic lows, this performance demonstrates the solidity of the VICA model. Net income group share rose to 273 million euros, almost 12% up on a lack for lack basis. On slide 19, This slide shows sales trends by geographic area. Most regions reported organic growth in 2024, with the exception of France, marked by the historic slowdown in residential sales, and Asia, due to India, where the group continued to focus on price over volume strategy. Africa is essentially stable. the growing contribution of the United States to group sales, up to over 19% in 2024, and the very strong performance of the Mediterranean region, powered by the recovery in Egypt. Let's move to slide 20, which shows the EBITDA bridge between 2023 and 2024. The main variations is due to price dynamics, which remain solid in most of the group regions. It should be noted, however, that more than half of this favorable price contribution was due to the hyperinflationary environment in Turkey. Coupled with the improvement in the group industrial performance, this growth has enabled us to more than offset lower level the lower volume effects and the cost inflation. On slide 21 shows the improvement in the free cash flow generation. In 2024, industrial investments came in as forecasted at 320 million euros. In this envelope, Strategic investments accounted for 188 million euros, most of which are related to the new kiln project in Senegal. The group remains committed to its climate investment target of 800 million euros between 2021 and 2030. Free cash flow grew by 26% to 373 million euros, a strong showing for a second year running. The effective transformation into free cash flow resulted from a growth in EBITDA, a significant reduction in working capital requirement over the period, and tight control over capital expenditures. The free cash flow conversion rate reached 48% this year, up eight percentage points on 2023. On this basis, The group generated free cash flow yield of almost 20%, thus maintaining significant value creation for its shareholders. The next slide, slide 23, shows our debt situation at the end of 2024. Group net debt stands at 1.2 billion euros with cash reserve of 536 million euros. Our debt has a well-balanced maturity profile with an average maturity of over five years. The average interest rate is 4.74% for all currencies together before hedging. We can have, at the end of 2024, we can have strong liquidity with around 850 million euros in available annual credit lines. Let's move to slide 24. Next slide gives an overview of our debt reduction trajectory. Our management strategy of EBITDA growth, tight control of working capital requirements, and disciplined capital expenditures has enabled us to further reduce the group net debt. The leverage ratio stood at 1.58 times at the end of 2024. And the group has set itself the target of reducing the leverage ratio further to 1.3 by the end of 2025, and below 1 by 2027. With that, I'll hand back the mic to Mr. Silos.

Thank you, Hugues. So let's switch to slide 26, where we start with an update on our progress in the climate plan. The group's climate performance continued to improve in 24 on all indicators in all the group's geographic zones, with a notable improvement in India, which increased its use of Atalanta fuels by 13 points to 27%, with the commissioning of two new facilities in Kalburg and Bharati. This performance contributed to a four-point improvement In the group-wide substitution rate, this rate now stands at 36%, well on the way to a target of 50% by 2030. In France, the start-up of the Argilor project at Auxerre using activated clay as a sustainable substitute for clay care is... Let's switch to

Slide 26 now. Slide 27.

This slide gives a quick overview of Vicat's low-carbon solution in France. Vicat markets a complete range of low-carbon products and services called Deca, including Cara Cement, our ultra-low-carbon product. Today, this product accounts for 16% of our cement sales volume in France, double that of 23%. The driving force behind this growth is twofold. The French regulatory framework sets emission settings for construction, measured in CO2 equivalent per square meter. And the other driver is the commitment of our customers. They made commitments as part of their scope three for 2030, and their scope three is the sum of our scope one, scope two, and scope three. to understand that WCAG's low-carbon solutions will play a decisive role in reducing their indirect emissions, those that are not directly controlled by the company but are linked to its activities. Overall, these objectives illustrate a clear trend. Major players in the construction industry are aggressively moving towards a more sustainable practice, with WCAG playing a central role in facilitating this transition. I will conclude with our outlook for the current year and beyond. And on slide 29 now, in 2025, the group has the following objectives, like-for-like sales growth, low single-digit EBITDA growth, net capital expenditure of around 280 million euros, and continued debt reduction, with the aim of reducing our financial leverage to 1.3 times by the end of 2025 and below 1 by 2027. These objectives take into account an acceleration in performance in the second half of the year, thanks in particular to the contribution of Clean Six in Senegal, and stabilization of energy costs. On slide 30. Now to the dividend. On the basis of the 24 full-year results and confidence in the group's ability to continue its profitable development, the Board of Directors has decided to propose to shareholders the distribution of a dividend of 2 euros per share equivalent to a yield of around 5%. On slide 31. VICA is pursuing a controlled growth trajectory with three strategic priorities for the coming years. Firstly, to maintain EBITDA margin of at least 20% over the 2025-2027 period by optimizing industrial and commercial performance. Secondly, to continue to reduce debt, as you have already mentioned. Finally, accelerate the climate roadmap with a strong ambition of on reducing CO2 emissions and promoting low-carbon footprint products. This repellent structure V-CAT strategy to ensure profitable and sustainable growth. Ladies and gentlemen, thank you for your attention. Mr. Chaumelle and I will be happy to answer any questions you may have. Alain, up to you.

Thank you. If you'd like to ask a question or make a contribution, For today's call, please press star 1 on your telephone keypad. To withdraw your question, please press star 2. You'll be advised when to ask your question.

We will take our first question from Tom Zhang, Barclays. Your line is open. Please go ahead.

Afternoon. Thanks for taking our questions. I've got two, please. The first one, just around your 2025 to 2027 guidance on keeping EBITDA margins at least equal to 20%, I guess. We've seen a pretty impressive kind of margin improvement over the last two years, but now the guidance sounds maybe a little bit more conservative. Are you expecting less in terms of price cost benefits going forward than you have in the last couple of years in terms of what you're able to hold on to? Are you assuming any kind of volume recovery within that guidance? It just sounds like that the kind of margin progression story is plateauing a little bit.

Just curious any thoughts there.

But your focus on this, Guido, Speaking, yes, we focus on EBITDA margin of over 20% over the next two years thanks to a mix of volume in certain markets and of price solidity and cost being lower thanks to modern equipment. To give you an example, we commissioned our new kiln in Ragland a couple of years ago, and the cash costs are in the range of 30% lower than what they were. So new equipment, they bring efficiency. Because we have less energy consumption, we have higher volume which reduce the share of fixed costs on every ton, and at the end of the day, we lower our cost. In a good market where prices stay good, even if they don't increase, we increase our profitability this way.

Okay, so all of that makes sense. I guess my question is, why is the guidance not higher, I guess, as a result? Because you have this organic growth coming from your rail distribution network around Raglan. You have obviously New Kiln and Senegal. Yeah, I'm just wondering if the guidance maybe is a bit conservative or if there's any other factors that you're thinking of that might be a bit of a headwind in the next two or three years.

Yeah, we are in February 2025. So we know what can happen. So we have already a good objective. We adjust it with facts, but we live in a very complicated world. But even in this complicated world, we forecast the results, the objective. we set up. We are only, keep in mind, you know that, but we are only in February 2025, and we are talking about the objective in 27. So sorry for that.

No, fair enough. And then the second question was just around the US. I was wondering if you are seeing any indications of kind of growing import pressure. I guess from some of the data we've seen at the end of last year, we saw a pretty sizable uptick in import volumes and quite a decline in import prices. prices per ton as well. So I'm wondering, one, yeah, if you're seeing any import pressure, and two, just any thoughts around your U.S., your approach to pricing in the U.S. in trying to place the additional material coming out of Raglan into the distribution network. Thank you.

So globally in the U.S., we know that import, U.S. is on imports from Canada and Mexico. to adjust the need to the capacity. Right now, Zika is on one side in California, close to the sea, and we face some imports, especially from Asia. By the way, yesterday the PCA complaining about dumping of Vietnamese cement in California. So we expect fast answer from the administration about that. Our second location is focused on the Atlanta market and the Nashville market, far from the coast. much less exposed to imports wherever they come from. So these markets are very dynamic, and we were able to increase our footprint thanks to good products, good production facilities, and also a good network of rail terminals. And we started new terminals last year, especially in the south of Nashville one more in the vicinity southeast of Atlanta, and he brings service. And we sell on availability of cement, of course. We sell on quality on cement, and we totally switched to type 1L, and we had, to my knowledge, there was only one in the U.S. to do that, and this is low-carbon cement in the U.S., And we also focus on quality of service. And it helps us to capture the dynamism of the metropolis we are in. So I feel very comfortable.

Okay, that's clear. Thank you. I'll turn it back.

Thanks. We will take our next question from Lefray Moulin. Independent analyst, your line is open. Please go ahead.

Bonjour. Good afternoon, everyone. I have two questions. The first one is a fundamental question. Where do we stand with CBAM implementation? There are rumors of delay. Can you give some color on this difficult subject? And secondly, the French market. I would like to focus on some number of French markets. If I am not wrong, the margin of France slightly declined in 2024 over 2023. Is that due to the ready-mix concrete operations? As you know, ready-mix concrete operations for each region cement layer in France, wireless making in 2023. That is the case in 2024. Can we also have an order of magnitude of the VOREP and FOS sur mer capacities? And last question, outlook for 2025, both in volumes. I think that your competitors have forecasted a slight decline by minus 4, minus 5% in 2025, and where we stand with import and export situation globally. I think the official export numbers of the syndicats français are underestimated. Many thanks.

Thanks, Jean-Christophe, for your question. I will answer to the first one, CBAM, and Hugues will talk about the French market and answer your question. The CBAM regulation, we face two kinds of CBAM. One in Europe, of course, and we started to declare what is related to CBAM, and next year, first... First, taxes, I would say, will be implemented, taxed schemes, and we don't know exactly how it will be done and what it will mean for importers. Of course, things are sometimes somewhat still fuzzy on the exact We have enough tools to deal with these intermediate periods. At first, we have enough free allowance of quotas we own. In France, more than 4.5 million tons of CO2 quotas, so it will help us to face unfair competition as far as CBAM is not totally implemented. are in France in a very integrated market, which is not that easy to penetrate deeply. So we believe that CBAM, which we support, will go ahead. Of course, we don't know exactly the agenda of the European Commission about that. But I believe it's coming. We have another expectation of CBAM in California. I talked about it. It's still under progress, but it's a necessity for us once we have additional costs linked with carbon capture and storage. And then over to Hugues Chommel about your question about the details on the French market.

Good afternoon, Jean-Christophe. On the French ABDA during the year, you have to keep in mind that 2024 was a pretty brutal year on the French market with volume decreasing double digits. load double-digit by double-digit in cement. And as you know, all cement operations have a high operation level. Therefore, the impact of volume is very significant. So I can tell you, I believe our teams in France did a great job in compensating to a large extent the impact of the volume decrease. Going forward. On the outlook, the trend of decrease is still there today. We do not expect the market to rebound this year. So we see still negative trend of volume in the market, as highlighted by the presentation of Mr. Siddos. We will see the beginning of the ramp-up of the TED projects that will make up some of the market volume decrease, but we don't expect an overall rebound. So we do expect one, but not this year. Okay. And on the capacity of the two grinders? Well, we don't disclose capacity by equipment. Good try. Okay.

You're welcome.

Once again, if you'd like to ask a question, please press star 1 on your telephone keypad. We'll take our next question from Apram Ravi, Citigroup. Your line is open. Please go ahead.

Hi. In terms of the LEBEC CCS project, can you give us an update in terms of what you're looking for from the government in terms of more clarity on the regulation? And also in terms of funding, will that funding kind of be available? What is the timeframe before which that funding has to be taken or can it be extended beyond a certain timeframe? Thank you.

Yes, about this Lebec Net Zero project. Deployment will take place in four phases with the commissioning scheduled for after 2030 and the final investment decision will be taken in 27 and that's in our end. The first phase is has been validated by the Department of Energy. And as I said, while the subsequent phases may evolve, our initiative is in line with what can change with that. So we started the first phase. We sent our first bill to the DOE. and we are waiting for the payment right now. One-fifth of a month, actually. We'll soon have money from the DOE about the first phase of our LNZ project. Basically, the first phase is mostly about detailed surveys And then we'll implement two major parts of the project, which are aimed to reduce, before capturing carbon, to reduce the carbon footprint per ton of cement. I mean, we will de-fossilize totally the process with sub-fuels and I was last week in Switzerland, in Zurich, and there is a special laboratory about cement there, and they were talking about the pistachio cement of Quebec, because we burn pistachio shells instead of petroleum coke. And we also have a sound lever we will implement before carbon capture. This is linked with... what we call LC3. It means calcium clay that can substitute some percentage of clean care. So it lowers the carbon footprint per ton of cement. And then the remaining carbon, we cannot fight, reduce, has to be captured and stored. So you see these three phases will follow, each phase will follow the other, and the capture will come not before the investment decision will be taken in 2017. and it will take three years to build it.

Thank you. You're welcome.

That is all the time we have for question and answer session for today. So I will now hand you back to your host for closing remarks.

Thanks, Alain. This concludes our call for today. I'd like to thank you for your interest in VICA. Our next call is set for the 29th of April with the Q1 25th publication. Of course, it will follow our General Assembly April 11. Until then, à bientôt.

Thank you for joining today's call. You may now disconnect.