Vicat Sa Unsp/Adr

Welcome to the VICAT Q3 2025 Trading Update Conference Call. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answers session, all the participants are able to ask questions. Now I will hand the conference over to Hugh Chomel, Deputy CEO and Group CFO, and Pierre Pedrosa, Head of Investor Relations. Please go ahead.

Good afternoon, ladies and gentlemen. I am Hugues Chomard, Deputy CEO and Chief Financial Officer of the Vika Group. With me today is Pierre Pedroza, Head of Investor Relations. I will now be presenting to you third quarter 2025 sales figures. Please have a look at slide two where you can read our disclaimer regarding the forward looking statements that this presentation may contain. Let's begin with the key takeaway of the third quarter of 2025 on slide 3. First, organic sales growth reached plus 4.9%, reflecting solid momentum across most of the regions, particularly in Europe, where recovery continues in Switzerland and in the Mediterranean, driven by Egypt and Turkey. This performance brings the 9-month organic sales growth to plus 1.8% despite the slowdown in the USA, India and Africa. Based on this performance, we are confirming our full year 2025 guidance on organic growth in sales and EBITDA growth of plus 2-5% like for like. We also adjusted our 2025 leverage objective to above 1.3 times versus the previous 1.3 times, reflecting the stronger than expected FX impact and certain one-off item in the second half. This does not change our 2027 leverage objective of below 1 time. Finally, or Viag CCS project has been selected by the European Innovation Fund. This decision is an important first step in the financing of this major decarbonization project for all Montaglio plants in France. Overall, the group continues to deliver solid organic growth, confirms its profitability outlook and maintains strict discipline despite a less favorable currency environment. Turning now to a geographical breakdown for the third quarter on slide 4. Group sales reached 992 million euros, up 4.9% organic, confirming an acceleration versus the first half. France, which accounts for 29% of group sales, is showing clear signs of volume stabilization. Cement volumes have leveled off at a low point, which is in line with our early year expectations. In Europe, growth accelerated to 7.9% like for life, driven by Switzerland, while the market is clearly recovering. Demand for low-carbon progressive range remains strong, with notable project wins in the industrial space. Infrastructure is also supporting demand. In the Americas, activity was softer, particularly in the United States, where both the residential and non-residential markets remain affected by high mortgage rates and limited visibility. Having said that, there are some reasons to be optimistic for the next year. As the US economy remains robust, the lower interest rate environment could trigger a residential recovery, and the Bayes effect will be positive in California. Brazil delivered solid growth in both prices and volumes, supported by the integration of real mix, which strengthen our vertical integration model. In Asia, the trend turned positive, with India posting plus 6.5% organic growth, thanks to improving volumes in Maharashtra, where our expanded rail capacity to Mumbai is fully operational. Volumes remain subdued in the southern states. The GST cut in September is expected to support demand going forward by reducing prices. In the Mediterranean region, once again stood out. It now represents 16% of group sales in the third quarter, an increase of 3 points year on year. Organic growth reached 43%, driven by a strong recovery in Turkey, where the government is pushing public works and reconstruction following the 2023 earthquake. Export momentum continues in Egypt, now coupled with a rebound in domestic demand. It should be a very strong year for Egyptian operations. Finally, in Africa, the Nucleon 6 in Senegal is ramping up as planned, already generating its first cost efficiencies. Aggregate activity has also accelerated sharply with the restart of major public works. Overall, this quarter once again confirms the strength of our balanced geographical model. Robust growth in Europe and our emerging markets more than offset the temporary softness in the US. This enables Wicca to sustain positive momentum despite a challenging foreign exchange environment. If we look at the nine-month Bridge on slide 5. Year-to-date organic growth stands at plus 1.8%, confirming the positive price momentum across all main markets. Price contributed plus 80 million euros with resilient prices in developed markets and firm pricing in emerging ones, notably in Egypt, Turkey and Brazil. The volume effect at minus 28 million euros mainly reflect a softer start of the year in France and India, both of which have now stabilized or recovered. The volume effect was positive in Q3 at plus 13 million euros. Foreign exchange impact was again the main drag at minus 147 million euros, driven by the depreciation of several emerging market currencies, particularly Egyptian pound and the Indian rupee against the euro, and, since Q3, the weakness of the US dollar against euro. Scope effect as plus 57 million euro reflect the integration of Cermix since the beginning of the year and to a lower extent RealMix in Brazil that has been consolidated as of September 1. Overall, 9-month sales came in at 2.88 billion, slightly down on a reported basis, but showing clear underlying business resilience and continued pricing discipline across the group. Let's now deep dive into our foreign exchange exposure on slide 6. The currency exposure of a group is well diversified, but as you can see, around 70% of our EBITDA and close to 70% of our revenues are generated in hard currencies. . However, a large part comes from the market where currencies have experienced higher volatility, particularly the Turkish lira with the country in hyperinflation and the Egyptian pound. Since Q3, the US dollar also weakened significantly against the euro. It is important to note that all operations are conducted locally, we produce and sell in the same currency so our main exposure is not transactional but rather linked to the conversion effect when consolidating resource only monetary flows both operational and financial are hedged and these are primarily related to fuel purchases that are made in us dollars while our hedging strategy helps move short-term volatility, it does not eliminate currency exposure entirely as we remain exposed to conversion risk. On pricing, our approach remains consistent. We aim to pass through inflation, including imported inflation, in all of our markets. This disciplined strategy allows us to preserve margin and maintain confidence even in the context of significant FX headwinds. Let's now turn to France on slide 7, where we are seeing clear signs of stabilization. As expected, cement volumes in France reach their low point in Q3, after continued deceleration in the rate of volume decrease over the last seven quarters. Looking ahead, we expect a slight sequential recovery in cement volumes throughout 26 supported by lower interest rates, environment and underlying residential needs in France. The TELT Lyon-Turin will be with the first boring machine now operational and the growing demand for low carbon cement solutions should also support the volume recovery next year. Overhaul France is gradually bottoming out, setting the stage for a more positive trend from 2026 onwards. On slide eight, on the energy front, we've also taken an important step forward. PICA has signed a long-term low carbon electricity supply contract with EDF, known as a Nuclear Production Allocation Contract, CAPM, which will replace the AREN framework in 2026. This 15 years agreement provide us with enhanced price visibility, with around 70% of our projected electricity consumption already secured under this new mechanism. The resulting cost increase will be reflected in our price hikes. There will be an upfront down payment in the second half of 2025 and in 2026, which will temporarily wait on free cash flow. that it will secure our energy costs and contribute to carbon reduction objectives in the long term. Turning now to slide 9, to Senegal, where we started our new plant early June. Since then, I am pleased to report that the industrial ramp-up is progressing as planned. As shown at the bottom of the slide, the output is progressing and the kiln is expected to reach nominal capacity in the coming month. Kiln 6 is replacing both clinker imports, which previously averaged 3 to 400,000 tons per year, and production from the older kilns 3 and 4, which have now been shut down. This modernization allows us to significantly improve our cost base with targeted savings of around €20 per tonne in the medium term. New production line is already a bit more attractive. In short, it is a major step forward for Vika Senegal and a clear example of how our investments are driving both performance and sustainability. Let me now move to our balance sheet and leverage trajectory on slide 10. As you can see, the leveraging remains a core priority for the group. Over the past three years, we have reduced our leverage ratio significantly from 2.75 times in 2022 to 1.58 times at the end of 2024, thanks to strong cash generation and disciplined capital allocation. For 2025, with the controlled working capital requirement and capex spending in line with our targets, we are now expecting our leverage ratio to end the year above 1.3 times compared to our previous target of 1.3. This adjustment reflects the impact of adverse currency movements on both EBITDA and free cash flow, as well as a few non-recurring items in the second half of the year. It is important to note that these effects remain limited and do not alter our long-term trajectory. Our commitment towards a leverage of below 1 by 2027 is fully maintained. To conclude on slide 11, let me summarize our guidance for 2025. Our full-year P&L objective remains unchanged. We continue to expect like-for-like sales growth. For EBITDA, we confirm our target of plus 2 to 5% growth at constant scope and exchange rates. Net capital expenditure should remain at around 280 million euros consistent with our investment plan and our selective approach to growth projects. In short, the fundamentals of our outlooks are intact, continued profitable growth, strict capital discipline, and a clear deleveraging trajectory. Here on slide 12, we've highlighted the three strategic priorities that are guiding VICA's actions over the next few years. First, we are committed to maintaining a BDR margin of at least 20% over the 2025-2027 period. Second, we are focused on continuing our deleveraging trajectory. This will provide us with greater flexibility to navigate economic cycles and pursue opportunities. Third, we are accelerating our climate roadmap, investing in decarbonization, developing low carbon products, and embedding sustainability across all geographies and business lines. These three pillars, profitability, financial discipline, and sustainability, define our roadmap for profitable and responsible growth. Concluding on slide 13, Catalysts of the coming years will be supporting VK's growth with existing industrial assets. First, in Senegal, the U-Kern 6 is a major cost efficiency driver as it replaces clinker imports and allows us to retire older higher cost capacity. Its contribution has started in 2025 and will ramp up in 26 and 27. Second, in France and the United States, we anticipate a recovery in residential construction volumes starting from historically low levels. Third, the TELT is Europe's largest civil engineering project. It is a multi-year driver for cement and aggregate businesses with volume visibility extending well beyond 2030. It should represent between 5 to 10% of VICA salmon volumes in France over the coming years. Finally, the Mediterranean region, particularly Egypt and Turkey, continues to offer medium-term compelling opportunities. Together, these catalysts position VICA for resilient and balanced growth, aligned with long-term industrial and environmental strategies. This concludes my presentation. Maria, can we move to questions, please?

Kindly note that we will take audio questions from analysts only. You can request to speak via the blue hand icon. Investors participants can submit questions via the chat box below the player. The next question comes from Ibrahim Homani from CIC. Please unmute your microphone.

Hello, thank you for taking my question. I have three if I may. This is on your liberal arts guidance. It has been modified. In my understanding, it is more an EBITDA effect than an ADEPT effect. So my question is on net debt. Do you expect a decrease in the net debt in 2025 compared to 2024? My second question is on the French market. Could you give us please more details on price and volume effects and which level of price hike do you expect in 2026? And my last question is on Europe, on Switzerland specifically. In Q4 2024, sales were stabilizing. Should we consider a slowdown in organic growth in Q4 compared to Q3, which is very dynamic?

Yes, we have adjusted our guidance on deleveraging. So far, our debt reduction trajectory has been continued to September 25. we are maintaining control working capital requirement capex are in line so nevertheless as you mentioned the ethics fluctuation is negatively impacting ebd and cash flow generation and therefore the denominator so so that's the that's the the sense of this revision On pricing and volumes for 26, obviously it's still early to give precise guidance. As mentioned on some of our markets, namely France and US, we are starting from low level of a residential market. So we do believe that at some point it will recover. probably very gradually. For France, as we mentioned, the cost environment includes two specific elements, which is the implementation of CBAM and the end of the AREN mechanism. Both of them will imply cost increase and therefore will push us to push price hikes to the market. It is too early to quantify them. And on emerging markets, again, those markets are well-oriented. Each of the countries is a different dynamic. It is usually inflationary, except temporary periods. Okay, so on Switzerland, please. Well, I usually don't comment by market, by quarter, Abraham. So, of course, the higher the base, the more difficult the hill to climb. Thank you very much.

Now, move on to the written question. So, first question from Auguste Derix from Kepler Chevreux. Semen volumes are virtually stable in France, but turnover is done by nearly 5% in organic terms. Is it entirely due to the performance of concrete and aggregate business? Can you recall the difference typical and market for cement, concrete and aggregates?

yeah as we mentioned we have reached a limited level of decrease of cement volume in the last quarter in cement nevertheless as mentioned in the press release ready mix concrete and aggregates did nevertheless continue to decrease and So as you mentioned, the global sales evolution reflects the mix of those activities. on your background question on the end markets as you as you well know uh cement volume typically in a developed market go roughly 50 percent in residential market 25 in non-residential and 25 in infrastructure. At the moment in France, obviously, we are facing a very low residential market and the somewhat more resilient infrastructure market which may be changing slightly this performance. Typically Aggregates has a larger part on infrastructure since it has as well road application and typically ReadyMix is more serving the residential market and more rarely the infrastructure market. So I hope this helps.

Next question is coming from Isaac Osio from Enfield Investment Research. First, in the US, do you expect tariff and consolidation of ready-mix concrete market in California to better support price in 2026? Second question, what is the outlook for prices in Egypt given the government effort to redirect export to serve the domestic markets? And last question, what level of cost benefit do you expect from the KIN 6 in Senegal in 2026 and 2027?

As you may have observed, the prices have been holding up fairly well in California. So I believe this already reflects some of the movements that you have mentioned. California is exposed to cement imports, but are themselves exposed to tariffs. We have not yet seen price increases from importers. I think the margin hit is nevertheless significant for them, and that should be a positive element for pricing. Prices in Egypt, there has been a movement that we have been witnessing historically was a low non-economical price in the market that has gradually recovered, has capacities were able to serve more profitable export markets. Since then, in the last 12 to 18 months, we have seen the domestic market coming to an X4X price comparable to the export prices, which is just an economic movement. There has been some temporary spikes, especially at the end of H1, ever since indeed the authorities have expressed their willingness to see the price increase come down. There has been discussions on trying to bring back capacities, but we are not aware of restrictions and plus I think that not all regions will probably be in the same situation. So we do expect now prices to be reflective of cost inflation. Kern 6, we have of course expressed our medium term cost reduction target. Next year, we will have a full year effect of the run rate of the kiln, but probably not yet the full ramp-up of fuel substitution. So I would typically expect a very gradual unfold of the cost reduction. Sorry not to be more precise than that.

Next question from the audience, so on the Viya CCS projects. You obtained the subsidies from the EUE Innovation Fund for the Viya CCS project of Montadieu in France. Can you give more color on this subsidy? What is the level obtained and is it in line with your expectation?

Thank you. Indeed, it has been announced yesterday morning. The VIA project has been selected, among others, by the Innovation Fund to sign an agreement at the end of March of next year, the grant agreement. So this is very good news. We have applied for a grant of 150 million, but the amount awarded to each project have not been publicly disclosed by the Innovation Fund, and we are not in a position to disclose them. we do consider this the investment fund award has a very important first step for the financing of our project and to complement it we are still expecting an answer of a grant from the french administration as part of the gpid framework that should come early 2026

Next question on Egypt. Could you give us an update on the buyout of the minorities of Sinai Cement?

So, as mentioned before, we have introduced an offer to buy the outstanding shares the floating shares of Sinai Cement in Egypt in July. We are expecting the approval of the local market authority since then. Once this decision is issued, there is a legal procedure that implies that the company ask a third party to issue a valuation. And once this is done, we will be in a position to appreciate our view going forward.

Next question on the US recovery. Can you elaborate on your optimism for the return of residential construction in the US? How much of your US business is exposed to residential versus non-resi?

Just as a reminder, 2025 compares with a very strong 2024 performance that was almost a record high. Our views are US economy remains very robust. the Fed rate decrease has begun and is expected to continue with still some question mark on the pace of reduction but once this reduction is well underway this will support residential demand I believe that the large part of 25 has been The visibility has been deteriorated by various moves of the administration in terms of fiscal and tariff policies. This is likely to settle down and clarify, and this will surely support the non-residential demand. So all that combined, we do believe the market will recover. I come back to my previous comment. We are usually in mid-cycle exposed to roughly 50% residential in developed markets, probably slightly less at the current part of the cycle where we have still a resilient infrastructure spending and somewhat more resilient non-residential than residential.

And last question on the dividend. Please give us some color on the possible dividend for 2025, the full year.

It's obviously in the hands of the shareholders rather than in my own hands. As a reminder, we increased the dividend in 2024 thanks to improved results last year. The current level is sustainable and is implying a quite reasonable payout, typically 45%. If I may look back, dividend never came down in the last two decades at least, through various economic cycles, so I do not expect it to come down again. I do believe that a further increase should be linked to a further progress of net results.

No more questions.

Thank you, Hugh and Pierre. There are no more questions at this time, so I hand the conference back to the speakers for the closing comments.

Thank you. This concludes our call for today. Thank you for your interest in Vika. Our 2025 results will be published on February 17 after market close. Until then, both Pierre and myself remain at your disposal.