Cementir Holding NV

MIL:CEM

Earnings Call Transcript 2024-Q1

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Cementir Holding's First Quarter 2024 Results Conference Call. [Operator Instructions]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.

[Marco Bianconi, executive]

Thank you. Good afternoon, everybody. This is Marco Bianconi speaking. I'm here with our Chairman and Chief Executive, Francesco Caltagirone...

[Francesco Caltagirone, executive]

Good afternoon.

[Marco Bianconi, executive]

...who is here to take your question at the end of my short presentation.If you turn the presentation deck to Page 2, 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 & Baltic and Belgium performance was impacted by fewer working days, severe weather conditions and still weak residential markets. The strong results in Turkiye 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 3, in terms of first quarter results highlights, revenues reached EUR 368 million, minus 11.2% year-over-year. Non-GAAP revenues were EUR 367.1 million minus 11.3%. As mentioned before, cement volumes were up 2.3% due to the increase recorded in Turkiye, which offset the reduction in volumes in other regions. Ready-mix volumes were up 3.7% and aggregate volumes were up 8.9%. Unfavorable weather conditions, fewer working days due to Easter holidays and the negative exchange rate effect reduced revenues by around EUR 50 million.EBITDA reached EUR 66.5 million, minus 18% year-over-year. Non-GAAP EBITDA was EUR 69.3 million, minus 19% year-over-year. The lower EBITDA was recorded in Denmark and Norway and to a lesser extent in the U.S. and Asia Pacific, with a negative ForEx impact of EUR 9.7 million. 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 Turkiye.EBIT reached EUR 34.2 million, minus 30% year-over-year. Non-GAAP EBIT was EUR 39.6 million, minus 29.6% year-over-year. Pretax was down 8.2%. Non-GAAP pretax was down 6.2% to EUR 64.1 million.Net cash position reached EUR 76.6 million, an improvement of EUR 108.7 million year-on-year, including a dividend distribution of EUR 34.2 million and including the IFRS 16 impact of EUR 83.4 million.Turning the page to the largest region Nordic & Baltic, accounting for around 39% of Group EBITDA in Q1. In Denmark, domestic cement declined due to harsh weather conditions and fewer working days due Easter falling in Q1 and a residential market that is still not recovering. Ready-mix volumes were down 4%, while aggregate volumes increased slightly. EBITDA contracted due to lower volumes despite savings on main input costs.In Norway, ready-mix sales volumes 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 krone 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 5, Belgium and France. Here, domestic cement volumes declined by around 3% with exports to France and the Netherlands down double-digit due to adverse weather and a general market weakness. Ready-mix 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 cost and selling price management.Moving the page to #6, Turkiye. Here, you know that from April 2022, Turkiye is considered hyperinflationary and, therefore, reported figures are non-GAAP and therefore exclude the application of IAS 29 and the revaluation 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 EUR 9.2 million, driven by higher sales volumes and average cement prices despite a 65.8% Turkish lira devaluation versus the euro.Moving to Page 7, North America. Here, in the United States, white cement volumes declined by around 4% as deliveries to Texas and New York -- and 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% U.S. dollar devaluation versus the euro average.Moving to the next business unit, Egypt, on Page 8, 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 offset by higher sales prices.Moving to the last business unit, Asia Pacific, Page 9. In China, revenues declined by around 17%, with volumes down by around 10%, modest price reduction and 6% renminbi 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 9% due to very strong comparable figures in the previous year. Exports were up, driven by higher shipment 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 #10, the last one, where we confirm our 2024 guidance of revenues around EUR 1.8 billion, an EBITDA around EUR 385 million, net cash position of EUR 300 million, and a CapEx of around EUR 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.

[Operator]

[Operator Instructions] The first question comes from Matteo Bonizzoni of Kepler Cheuvreux.

[Matteo Bonizzoni, analyst]

I have some questions. The first one relates 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 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 condition in Turkey, which have remained strong in the first quarter. Now that you are in May -- we are in May, do you have more better visibility on the evolution of the market for the remaining part of the year or maybe for the next few months?Third and last question. As regards your Asian operation, so 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 remaining part of the year?

[Francesco Caltagirone, executive]

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 EUR 1 million 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, I mean, among the various region. Just, I think, at 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 EBITDA compared to last year, the quantities for cement, ready-mix, and aggregates are positive. So it seems that the market, as we said also before, start to bottoming. And also Sweden among the -- that was probably the most complicated, let me say, market condition seems to stabilize. Then in January, we had in Denmark, in Scandinavia generally temperature around minus 30 and so 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, the Turkey continue 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 small slowdown in Turkey in the second half. So, they might compensate each other.Regarding China, yes, it's not linked to the weather, but 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.

[Operator]

The next question is from Emanuele Gallazzi of Equita.

[Emanuele Gallazzi, analyst]

I have 2 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 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, say, technical question. Is the lower price of CO2 also impacting your topline with lower prices, it is included, or it should be included in your pricing strategy?

[Francesco Caltagirone, executive]

Regarding, I mean, 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 1/3 or less than 1/3 of our sales. So, we have to import. And so, we are exposed also to the, let me say, general environment, especially the shipment cost and the other. So, this might affect a bit the profitability, plus [indiscernible].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 hedged before and the price increase, like is what is happening. In fact, you have seen also a very good result in the financial items, that is nearly the double of last year, partly the exchange rate, let me say, [indiscernible], but partly is hedged. And I'm -- 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 hedged till 2026 and partly for 2027. And we, let me say, hedged in the first quarter of this year, I think, at, let me say, 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 hedging 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 hedged around 55%, 58% and today is at 70%.

[Operator]

[Operator Instructions] The next question comes from Tobias Woerner of Stifel.

[Tobias Woerner, analyst]

You mentioned pricing pressure in the U.S. Can you just remind us of the dynamics of the import trade into the U.S., and the seaborne 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 EBITDA in line with that and where that took you for the full year, probably somewhere, anywhere between EUR 150 million and EUR 180 million. Is that how we should be thinking about this?

[Francesco Caltagirone, executive]

Okay. Regarding the import into the USA, for sure. I mean, the import activity affects especially the Florida and Texas markets. As you can see in Page 7 of our slide, we have a very, let me say, wide network of terminals. And so, let's say, we suffer the imports of other players in especially those 2 states. But in the remaining part, it's 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 to add -- 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 1 million -- from 500,000 tons to 1 million tons of availability capacity. And also we think that by the last quarter, we should start to ship 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 costs that we -- today we have, as you can imagine, in Denmark, are higher than the costs that we have in Egypt. But I think this year will be [ more or less ] impacted by this, but it's an opportunity for the next, let me say -- 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, that even if it seems that the start is quite slow. The Fehmarn project that -- the huge tunnel project of EUR 8 billion value has started. 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 recover compared to the first quarter result, especially in Denmark.

[Tobias Woerner, analyst]

Okay. 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 2 Turkish subsidiaries, I mean, Cimentas Izmir, Cimento Fabrikasi, is valued at EUR 1.3 billion or almost, which, if you take your capacity there, would make it quite nicely valued in that context. How do you think about this? Is there anything -- is this just an oddity of limited free float or -- because a lot of Turkish cement companies have seen significant share price performance recently?

[Francesco Caltagirone, executive]

I think that -- I mean, we have seen in the last 3 years a good recovery, a 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 ETS system after 2026 because of the border tax adjustment, I think that the issue that affected the 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 [ 5 ] years, should stop the increase of capacity. So we have a very good positioning, because we are at the -- more or less at the 4 corner of Turkey. And let's say, for sure, we have a limited flow. But also, I think, besides the macroeconomics, because today, Turkey will still see inflation around 60%, the rates 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 1.5 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 -- we start the reconstruction in Ukraine, Syria, then also we have all the, I mean [indiscernible] the Gaza issue that can be supplied mostly by Turkey or by Egypt. So I think that the opportunity that -- the Turkish market and also our 2 main plants -- 3 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, so the market, I think is priced more or less, let's say, today, just our Turkish assets are the value of the 80% or 90% of the value of the whole Cementir. If we deduct the cash that we have, is exactly the value of the remaining part of the asset is zero if we just carve out Turkey.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 we said -- or as I said in the past is that 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 investments in the country. And so, diluting means absorbing other small players. So this, for sure, it's an opportunity. And also, we are looking at some opportunities with local, let me say, players. And also, 90% of the Turkish market is in the hands of domestic players. So it's a market that has to be consolidated, for sure.So, we see that the implementation of the ETS system, especially starting from 2026. The earthquake, that is still, let me say, absorbing and will absorb for the next 5 years. And the war 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 of every emerging markets. I hope that [Technical Difficulty] to your question.

[Tobias Woerner, analyst]

Yes. No, very interesting. I mean, if you spun that thought a little bit further, I mean, 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?

[Francesco Caltagirone, executive]

Let's say, I cannot add more. Let's say that it's a way that we see. And as you can imagine, today for a local player to finance in Turkey at 50%, 60% rate, it's nearly impossible. And so, most of the imports, especially 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 this is -- so if others are, let's say, interested, today it's premature to say, but we are, let me say, keen to consider this opportunity.

[Operator]

The next question comes from Bruno Permutti of Intesa Sanpaolo.

[Bruno Permutti, analyst]

Yes, sorry, I had a problem with the microphone. A question related to the pricing in Turkey. It seems from the results of the first quarter, probably you 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 on the -- 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 these?And lastly, on the recovery you are starting to see in the month of April, which are the areas in you -- in which you experimented the -- their bounds? So, where do you see the first signs of rebound compared to the weak first quarter?

[Francesco Caltagirone, executive]

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 than the economic environment. In Denmark, we might see the pickup in our delivery because of this big project.Regarding the Turkish pricing, I can say that in the -- 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, let's say, a very deep attention because of the very high inflationary environment of the government regarding all the raw materials, from cement to aluminum, iron, also steel. So I don't think that it will be easier as has been last year.So, 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 seem to stabilize. So let's say that I see the price that are more linked to the exchange rate than to the internal inflation. I don't know if there is other...

[Bruno Permutti, analyst]

Yes. The last one was, yes, the projects...

[Francesco Caltagirone, executive]

Regarding the other project, 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 half. But we are continuing actively to, let me say, follow these opportunities.Let's say that one thing is -- are the economics behind a project or an opportunity. The other thing is, 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 3, 4 years of permitting process. And so, that might delay. So I want to have a certain time. And so, for this reason, I want to take 1 or 2 quarters more just to give, let me say, more visibility, because we, let me say, focus -- are focusing on a couple of project, but we have no idea of the permitting process in detail.So, broadly, yes, but I don't. So if it's something that can be realized in 1 or 2 years, is something, let me say that we would like to announce. If we see that the process is complicated and will take 5 years, okay, yes, I can say that I don't want to give, say, like, let me say, other players did in the past, like a greenwashing or other things. So I don't want to declare something that then the feasibility is 10% or 20% likely. So, for this reason, we want to be prudent, because especially in this environmental project, the permitting and also the technology availability is not immediate.

[Operator]

[Operator Instructions] Gentlemen, at this time, there are no questions registered.

[Marco Bianconi, executive]

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

[Francesco Caltagirone, executive]

Thank you.

[Operator]

Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.