Vicat SA

PAR:VCT

Earnings Call Transcript

[Operator]

Hello, and welcome to the Vicat Q3 Sales 2021 Conference Call. [Operator Instructions]I would now like to hand over to our host, Hugues Chomel, Chief Financial Officer, to begin the call. Thank you.

[Hugues Chomel, Chief Financial Officer]

Good afternoon. My name is Hugues Chomel. I'm Deputy CEO and CFO of the Vicat Group. With me today is Stéphane Bisseuil, Investment Relations Director of the group. Together, we will be presenting to you with Vicat figures for the 9 months of 2021.Before starting the presentation, please have a look at Slide 2 where you can read our disclaimer regarding the forward-looking statements that this presentation may contain.On Slide 3, we'll begin with the key points of the first 9 months of 2021. Consolidated sales to September 30 were slightly over EUR 2.35 billion, up 20% at constant scope and exchange rates. This also represents a 15% growth on the figure of 2019 at reported rates. This growth was supported by solid business progression in all regions. In the third quarter, sales rose 8.5% at constant scope and exchange rates on the back of rising selling prices and despite an unfavorable basis of comparison in France.On Slide 4, you have the breakdown in sales by region over the first 9 months. This period was marked by an organic growth of 19.7%, a negative currency effect of minus 5% and a small negative scope effect resulting from the sale of Créabéton Matériaux in Switzerland. Over the first 9 months of the year, the hike in selling prices fully offset the impact of higher energy costs.In the third quarter of 2021, sales came to around EUR 800 million, plus -- up by 8.5% at constant scope and exchange rates, confirming the strength of the group's business trends in the quarter when the basis of comparison was highly unfavorable in France and, to a lesser extent, in Americas and India. Against this backdrop, selling prices continued to move significantly higher, offsetting, to a large extent, higher energy costs during the period.We'll begin on Slide 5 with the group performance in France over the first 9 months of the year, which improved substantially, boosted by significant growth in demand compared not only with 2020 but also with 2019. Although the pandemic effects, again, dragged down performance, the favorable basis of comparisons for sales in the first 6 months of the year, the government measures and the steps taken by the group enabled it to seize growth opportunities and to report a strong performance across all its business areas in the first 9 months of the year. In the third quarter, sales declined 3% at constant scope after a strong rebound of Q3 2020. They were up 5% compared to Q3 2019.Let us move now to Europe on Slide 6. The Swiss market, which was barely affected by the pandemic in 2020, recorded growth at the start of the year. Italy benefited from a highly favorable basis of comparison, given the very challenging pandemic and macroeconomic situation in 2020. It delivered solid growth throughout the period, thanks to a strong demand. In the third quarter, business trends in Europe remained firm both in Switzerland and Italy, with consolidated sales up 3.2% at constant scope and exchange rates. Reported sales reflected the impact of Créabéton deconsolidation as of June 30.On Slide 7 for our performance in Americas. In the United States, trends in the second and third quarter were affected by an unfavorable basis of comparison in California and poor weather conditions in the Southeast region. Nonetheless, consolidated sales recorded an increase at constant scope and exchange rate of plus 8% year-to-date and plus 3% in the quarter on the basis of positive pricing trends in both regions.The construction of a new kiln line at the Ragland plant in Alabama made swift progress during the year and is scheduled to enter in service in the first quarter of 2022. The new installation will help meet the strong market demand by increasing the plant's capacity, sharply reducing production costs and lowering the group's CO2 emissions.In Brazil, consolidated sales reached EUR 136 million, up 35% at constant scope and exchange rates. In the third quarter, sales rose 10% despite the unfavorable basis of comparison arising from the dynamic sales performance of 2020.In the Cement business, operational sales were up 33%, reflecting the dynamic market condition and positive pricing trends. In the third quarter, operational sales rose supported by increase in selling prices.In Concrete & Aggregates business, operational sales increased 44%, mirroring the trends in the Cement business. The improvement in market conditions was coupled to rise in prices, both in concrete and in aggregates.Please turn to Slide 8 for our performance in Asia. Business in India grew sharply throughout the period, supported by strong demand and the effect of increases in government contracts. As a result of these conditions, prices held up well during the period, and consolidated sales settled at EUR 268 million in the first 9 months of 2021, up 46% at constant scope and exchange rates. In the third quarter, sales rose 22%.Consolidated sales in Kazakhstan were up 13% at constant scope and exchange rates. Given the dynamic trends in the Kazakh market, prices recorded a significant increase. In the third quarter, sales rose 13%.On Slide 9 now, in Turkey, while the macroeconomic and sector environment remains uncertain, the recovery in the construction market remains on track. Consolidated sales in the first 9 months of 2021 totaled EUR 113 million, up 63% at constant scope and exchange rates, powered by rises in both prices and volumes. In the third quarter, the environment continued to improve, with consolidated sales rising by 51%.In Egypt, consolidated sales totaled EUR 53 million, up 67% at constant scope and exchange rates. The market regulation agreement between the Egyptian government and all producers entered into force in July 2021. It paved the way for an improvement in selling prices in the domestic market. In the third quarter, sales increased by 57%, with selling prices well above levels recorded in the third quarter of 2020.On Slide 10, we move to Africa, where the group continues to benefit from favorable sector demand, backed by the ramp-up of the grinding station in Mali. Sales moved up 29% at constant scope and exchange rates in the third quarter.In the Cement business, operational sales in the Africa region grew 23%, with a boost provided by the dynamic trends in the West African market, especially in Senegal. Selling prices in Senegal were consistently lower than in the year earlier period given the introduction of a new tax on cement in May 2020. Pricing conditions in Mali and Mauritania are positive. In the third quarter, operational sales moved up 31%.The Aggregates business in Senegal recorded consolidated sales of EUR 21 million, up 18% over the period as a result of a gradual resumption of major government projects. In the third quarter, sales rose 21%.On Slide 11, you have our outlook for the full year 2021. The group anticipates an increase in its full year EBITDA, dynamic market conditions with a significant rise in sales volume, positive trends in average selling prices. This factor will help to offset unfavorable currency effects and an increase in energy costs of around 14% over the year.During 2021, the group is keeping up its investment drive with the swift construction of the new kiln at Ragland plant in the United States; a drive to incrementally boost capacity at selected production facilities; and ramp up in project to meet the carbon footprint reduction targets. Accordingly, Vicat's industrial CapEx is now expected to be around EUR 410 million, as the group continues to adapt its industrial investment to its cash flow generation.This concludes our presentation for today. Kevin, we can move on to questions, please.

[Operator]

[Operator Instructions] Our first question today comes from the line of George Speak from Exane BNP Paribas.

[George Speak, Research Analyst]

So 2, if I may, actually. So firstly, if you look at sort of H2 consensus, it's implying about 130 bps of EBITDA margin squeeze in the second half. So I mean, you've given a bit of color on sort of the energy cost pressure, and pricing seems to be holding up well. But I just wanted to sort of get your sense of whether there's going to be any margin squeeze in Q3 and the second half of the year, and if there's a sort of downside risk there at all. And then do you want to take that one, and then I'll ask my second question?

[Stéphane Bisseuil]

[ Continue ], please.

[George Speak, Research Analyst]

Say that again. Sorry, I didn't catch it.

[Stéphane Bisseuil]

Yes. Can you go ahead with the second question, please?

[George Speak, Research Analyst]

Sure, sure. So the second one was just around CO2 permits. So you've commented that you're long until the late 2020s, whereas quite a few peers are short. So I just wondered if in France, there's any sort of extra margin benefits or if you're going to try and keep pricing a bit lower to win market share going forward. That's it.

[Hugues Chomel, Chief Financial Officer]

Okay. Regarding H2 margin performance, if you recall, things are coming up quite similarly to what we have announced previously. First of all, the H2 basis of comparison was significantly higher considering the strong rebound we did last year in Q3 and Q4, specifically in France but to effects then in India and U.S. -- and Americas, sorry.However, what we have witnessed this year is a strong market trends but have been still dynamics throughout Q3. We have witnessed as well a stronger inflation costs that as well has increased volume that did consume our hedges somewhat quicker than expected. And the strong level of activity did allow us to exercise our pricing power and to push strong price increases but did largely offset the energy cost.

[George Speak, Research Analyst]

Okay. And just on the CO2 question then.

[Stéphane Bisseuil]

The other question was? Sorry.

[George Speak, Research Analyst]

Sorry, it's just on -- so you're currently long on permits, whether you sort of see that enabling you to take a bit of extra margin or if you're going to keep price lower going forward until the 2020s, given that quite a few of your peers are short.

[Hugues Chomel, Chief Financial Officer]

We certainly are aiming to increase prices where the market allows to offset rising energy costs and where applicable CO2 cost as well. So we will continue with the current drag.

[Operator]

[Operator Instructions] Our next question comes from the line of Homani, Ebrahim from CIC.

[Ebrahim Homani, Research Analyst]

Two questions, if I may. The first one, do you expect that the inflation of raw materials, especially pet coke, will last after the first half 2022? How are you hedged against the raw materials price variation?And the second one, can you give us an update on the sanitary situation in India?

[Hugues Chomel, Chief Financial Officer]

Okay. Thank you for your questions. Well, the first question is an extensive one. And actually, I don't have a view on what will happen on pet coke prices after H1 2022. We certainly keep on buying energy forward and plenishing our inventories. Nevertheless, we expect a strong energy cost increase going into next year.Regarding your question on the Indian market, with the prices have been holding well and are having to increase currently, as all producers are facing a strong increase in energy prices. So at the moment, it is well oriented.

[Operator]

We now have a question from the line of Pierre Rousseau from Barclays.

[Pierre Sylvain Gilbert Rousseau, Research Analyst]

Yes. The first one, so sorry, is a follow-up on the price cost perhaps more into next year. Usually, you lock in the cost fairly early on. So do you have any view on the kind of inflation you would probably face for 2022?The second question would be about Egypt specifically. We hear you and a few competitors mentioning that pricing is gradually improving. So what would be the extent of the price increases currently? And what would be the extent of increases that would be required to reach breakeven at the EBITDA level, please?

[Hugues Chomel, Chief Financial Officer]

Regarding inflation, obviously, we will face strong inflation on energy cost globally into next year stronger than what we are seeing today. Obviously, it is -- we will continue to do our best to pass on this inflation to the market. And that, in most cases, so far, has been able to accept it. It is nevertheless a little early to tell what will be the net impact into next year.Regarding Egypt, the price increase is clearly quite significant.

[Stéphane Bisseuil]

Is it -- sorry, Pierre. Is it a question on prices on Egypt particularly? Or...

[Pierre Sylvain Gilbert Rousseau, Research Analyst]

Yes, Egypt specifically.

[Hugues Chomel, Chief Financial Officer]

Yes. So it is clearly a quite marked price increase, and we are back to well above a year ago. In the recent months, we are close to breakeven at EBITDA level. The question is will the system be able to manage as well the consequences of energy cost increase. So, so far, the system is working well and is adapting, but it is the early month for this implementation. It's probably a little early to tell.

[Operator]

[Operator Instructions] Our next question comes from the line of Jean-Christophe Lefèvre-Moulenq from CIC.

[Jean-Christophe Lefèvre-Moulenq]

We have 2 questions from me. First, price hikes over the second half in some European countries, there were some announcements notably in France for a spike, what is quite exceptional maybe also in Switzerland. Do you confirm this? And what is the order of magnitude?And secondly, where do we stand with the Italian pricing? First half was more and less plus 10% versus half 2020. Do we have a further price hike in your market?

[Hugues Chomel, Chief Financial Officer]

Thank you for your questions, Jean-Christophe. Regarding the French situation, as you know, this is the time where we are enhancing price hike to our customers. It's clearly our objective to pass on the energy cost increase as well to establish the climate transition contribution for our customers. Indeed, the combination of these hikes is substantial, but it's still under discussion. So it's too high -- too early to give an indication on the net magnitude globally.In Italy, as you know, we are a small player there, and we are not fully integrated as we have terminals and a grinding station. So we clearly aim to pass the cost onto the market. It has been indeed progressing well through the year, and we will continue to aim to match our cost increases.

[Jean-Christophe Lefèvre-Moulenq]

Coming back to France, my question was regarding the second half of 2021, not 2022. I think that from different feedback, cement players implemented a price hike in July or end of August. Do we confirm this? And can we have the order of magnitude? Or is that only a rumor?

[Hugues Chomel, Chief Financial Officer]

There were -- I can speak only for Vicat, of course. There was an implementation of climate contribution -- a climate transition contribution that has been implemented but comes in front as well of other cost increase.

[Operator]

We now have a question from the line of Arnaud Pinatel from On Field Investment Research.

[Arnaud Jacques Michel Pinatel, Founding Partner]

A very simple question on pricing for 2022 again. We are hearing from some of your competitors that they are willing to change the frequency of number of price increase they will implement going forward in the different markets where they are operating, so starting obviously in 2022. I just wanted to understand if at Vicat, this is something you are considering, too.And my second question is still related on price. Could you please help us to understand and could you quantify in percentage terms what would be the impact in the full year 2022 of the price increase you have already executed in the second part of 2021? Which means everything else being equal, without any new price increase in 2022, what can we expect at the group level as a price variation coming from what has been implemented in H2 2021?

[Stéphane Bisseuil]

Arnaud, Stéphane speaking. So just to answer your first question. As always, it depends on geographies. Vicat will be extremely pleased to pass further price increases within the year in some countries where the ability is more to have one, like Switzerland or France. As mentioned in the previous question, there could be some exception as it happened in France this year. Same for the U.S., if you remember, historically, we were passing 2 price increases till 2014, then it was only one. Now we have the ability to pass another price increases last year in H2 in California and this year in Alabama. So everything is possible.Regarding emerging countries, as you know, price increases are within the year and on a regulator basis...

[Operator]

Apologies for any interruption. Please go ahead with the presentation.

[Stéphane Bisseuil]

Yes. Sorry, Arnaud. So I was saying in emerging countries, we have the ability to pass through price increases within the year on a regular basis depending on the situation and the competitive situation more specifically. So if we look to India, Turkey, Brazil, we have many -- or for the last few months or few semester, we had the ability to pass a significant number of price increases. So we'll continue on this.Regarding France and Switzerland, it's always more difficult. For sure, if the competition and if we see the market opportunities to pass a second price increase or a third price increase, we'd be happy to do it. It would really depend on the competitive situation market by market.Regarding the price increases that have been implemented so far in H1, it's in the pocket, so it's always good. It's way too early to tell you exactly what will be the impact over 2022 as the year is not over. And once again, depending on countries, there is still currently price increases that we are passing to customers. So we will make a specific point on this subject probably at the time of the full year presentation here early February.

[Arnaud Jacques Michel Pinatel, Founding Partner]

Perhaps the last question on pricing. Hearing you, we have seen across Africa or in India government trying to contain the cement pricing inflation through different intervention measures. Do you see we could see that again in 2022? Is it a risk for your scenario to push prices next year?

[Hugues Chomel, Chief Financial Officer]

Yes, Arnaud. Hugues Chomel speaking. As you know, in emerging countries, cement is a very visible daily commodity even from people in the street. So everybody knows the price of cement. Therefore, it is indeed true, but governments are quite often tempted to control the cement prices.The -- in India, I mean, there is, from time to time, noises in the press from contractors or politicians regarding prices. But at the end of the day, the market is deciding. And from -- depending on the, I would say, the supply situation, prices go through on us. So I think we are -- typically in India, we are in a context where the mechanism of market are playing properly. We have recently witnessed the same situation in Turkey, where there was, I mean, some political noise, but at the end of the day, the prices are going in the right direction.Obviously, Egypt is a very specific context, where the government have slipped in to try to put the market back into an economical mechanism. Where your remarks has -- is probably -- its most effect is in Senegal currently, where the government authorities have been holding on prices. At the same time, I think they understand the pressure, but inflation, of course, is putting on the sector. And we are hopeful that they will led the marketplace. Or...

[Operator]

Thank you very much for your questions, everybody. All questions have now been answered, so I'd like to hand back to our host, Hugues Chomel, for any final remarks.

[Hugues Chomel, Chief Financial Officer]

Yes. Thank you all for your questions. Before we end the call, I'd like to remind you that we are holding a Climate Strategy Day on Tuesday, November 16. A document with recordings of the various presentation will be made available on our website at 10:30 a.m. Central European Time.And with that, that's it for today. Thank you in your interest in Vicat, and [Foreign Language].

[Operator]

Thank you very much, everybody, for joining today's call with Vicat. You may now disconnect your lines.