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Edited Transcript of BZU.MI earnings conference call or presentation 2-Aug-19 2:30pm GMT

Half Year 2019 Buzzi Unicem SpA Earnings Call

Alessandria Aug 27, 2019 (Thomson StreetEvents) -- Edited Transcript of Buzzi Unicem SpA earnings conference call or presentation Friday, August 2, 2019 at 2:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Patrick Klein

Buzzi Unicem S.p.A. - Group Treasurer & Financial Controller

* Pietro Buzzi

Buzzi Unicem S.p.A. - Chief Executive of Finance & Executive Director

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Conference Call Participants

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* Alessandro Tortora

Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst

* Gregor Kuglitsch

UBS Investment Bank, Research Division - Executive Director, Head of European Building & Construction Research and Equity Research Analyst

* Michael Frederick Betts

Data Based Analysis Limited - Director

* Paul Barry Roger

Exane BNP Paribas, Research Division - Sector Head of the Building Materials Team & Analyst of Building Materials

* Rajesh Patki

JP Morgan Chase & Co, Research Division - Analyst

* Tobias Weimann

Morgan Stanley, Research Division - Equity Analyst

* Yassine Touahri

On Field Investment Research LLP - Founding Partner

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Presentation

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Operator [1]

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Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Buzzi Unicem First Half 2019 Results Conference Call. (Operator Instructions) At this time, I would like to turn the conference over to Mr. Pietro Buzzi, Managing Director. Mr. Buzzi, you have the floor.

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Pietro Buzzi, Buzzi Unicem S.p.A. - Chief Executive of Finance & Executive Director [2]

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Yes. Thank you. Welcome to everyone. It's nice to meet you by phone and to welcome you at this conference. We just closed and released the official, let's say, half yearly financial statements. And I assume that all of you or most of you at least were able to go through the press release and take a look at the financial figures.

I think that in a nutshell, we consider ourselves, I should say, very happy about the outcome of the first half. And we were expecting overall a strong first half, particularly after the first quarter which was particularly favorable. And we were able to confirm it also after a second quarter which was somewhat more difficult but fortunately not so difficult to offset the good trend that we enjoyed in the first half.

If we look at the volumes, which is the first driver of revenues and eventually also of result, cement is up approximately 7%. Most of -- the large part, let's say, of the improvement came actually from the first quarter. In Q2, cement sales were basically stable, a little less than 1% up. And we had also some country with volume reduction in Q2 like Poland, Luxembourg, Czechia. Also Italy was slightly worse in Q2 -- slightly negative Q2 versus Q2. And U.S., also slightly negative. We continue to enjoy positive trend instead in Q2 in Ukraine, more than 20% up; Russia, over 10%; and also Germany, about 2%.

If we look at the overall result of the 6 months, cement volume is basically up everywhere, about 4% in Italy with slightly negative ready-mix sales.

About 3.4%, 3.5% in U.S. despite really significant problems associated with the flooding of the Mississippi River and the logistics issue related to that very difficult situation. In U.S. instead, we had a stronger trend for ready-mix concrete, which is based in -- mostly in Texas, a region where we are not really affected by the flooding and had enjoyed some pent-up demand, which was turning from a difficult, let's say, September, October last year. So there was a -- after a difficult, let's say, final part of 2018, the demand started very well at the beginning of the year and continue like so also in the second quarter.

Central Europe. Overall, strong Germany with some help from the scope changes, a little decline in Luxembourg but not really meaningful because of, let's say -- let's call it logistic management between Germany and Luxembourg. So in part, the volume decline in Luxembourg has actually -- translated actually into improvement in Germany and stable ready-mix sales in Germany. We're slightly up in the Benelux, almost 3%.

Eastern Europe. Overall, quite strong. It's well ahead of 2018, almost 13% up. Strongest country was Ukraine, rebounding from a weak 2018; but also Russia, 15% up; Poland, despite the negative second quarter, remained pretty strong overall in the 6 months; and Czechia had the same level as the previous year. The ready-mix business was weaker in Eastern Europe but not so meaningful in terms of percentage changes due to the relatively low volumes, particularly in Ukraine, where we had a negative but offset, as I said, by the very strong cement sales.

In, let's say, pricing trend, which is the second, let's say, driver of revenue, net sales, good volume -- good level, let's say, good improvement basically everywhere. We enjoy a price hike in Italy, which was quite, quite significant. And also in Germany, prices went up less than expected. Not particularly meaningful, let's say, the price improvement in Germany. But anyway, we were able to achieve a favorable variance. Other countries like Russia and Ukraine also enjoyed in local currency a nice price improvement. Ukraine, as opposed to what has been happening for many, many years, posted also a favorable exchange rate variance. So in addition to the local currency improvement, we also had a positive exchange rate effect. This was not the case for Russia, where the exchange rate remained slightly weaker than the previous year.

Poland and Czechia are 2 countries that, as you know, are running close to full capacity. So the focus was, of course, to try to sell the capacity as much as possible but also to, let's say, try to pass price improvements. In Poland and Czechia, by the way, not only in Eastern Europe, Ukraine and Russia has a similar trend, but in Poland and Czechia in particular considering the European Union, the cost of electric power went up quite significantly. And these 2 countries are also purchasing CO2 rights. It was -- they are already short of CO2 rights. So the cost increase is coming from the purchase of CO2 rights, and cost increase is mainly associated with -- we're looking at the production costs that are mainly associated with the electrical power after some years of very favorable and softer, let's say, increases.

In U.S., the price improvement was not very meaningful. On a short-term basis, we are talking something less than $2 so far. The reason is, I think mainly the weight leverage of our sales, so the fact that, anyway, we have some relatively important volume scenario where the price improvements are difficult to achieve this year due to stronger, fiercer, let's say, competition, the imports. And we also have the feeling that somehow in many areas, the price have hit some kind of impropriety, where, let's say, an effort, let's say, or an attempt to increase prices would translate into a greater, let's say, deeper volumes into the market. So eventually, not necessarily good for the business.

We did not speak yet about Mexico because again it's not consolidated, but it's an important part of the business anyway considering in particular the contribution the equity earnings lever. Mexico is the only country within our system, let's say, where things are -- have gone not bad because the company continues to be quite profitable and the margins are, by far, let's say, better than average. But the trend already started from the second half of last year. It has been unfavorable in terms of volumes and lately also somehow in terms of pricing. So nothing to be too worried about it. But yes, the trend there has turned somehow negative or more negative this year. Mexico, fortunately, had also some stronger, let's say, exchange rate. The pesos has been following more or less the trend of the dollar. So actually, in euro result, we suffered a little less. In pesos, we are suffering more.

One of the driver of our growth in the first half after volume pricing -- after volume and pricing was also the ForEx, let's say, effect which has turned, let's say, positive after last year, where the dollar was weakening. This year, the dollar, which is the most important currency for our group, has been a bit stronger and strengthening, let's say, in the first 6 months. We moved from an average of $1.21 last year to an average of $1.13 this year. So almost 7% up.

As I said, the other important currency is the ruble, still somewhat weaker in the first half at minus 2.5% but improving lately. Maybe that for the full year, we will be able to reach more or less a ForEx neutral, let's say, if the ruble continues like -- again, like it is now, let's say, at the recent -- at the more recent level. Surprisingly stronger, let's say, Ukrainian hryvnia at plus 6%. No big changes in Czechia and Poland, minor devaluation of the 2 currency. And as I said, the stronger peso is more or less at the level of the dollar, more than 6% up.

So overall, volume, pricing and ForEx took us to a level of net sales of EUR 1.518 billion for the first 6 half -- 6 months, sorry, which is 13.6% better than the previous year. We have several country, most of them actually, showing a double-digit increase; in some cases, very, very high like again Ukraine, not particularly significant in absolute value but relatively speaking, very strong; Russia, more than 20% up. And few countries where the sales revenue is either flat or marginally down. I'm talking about the so-called Luxembourg, Netherlands group, which is flat; and the Czech Republic, Slovakia group of companies, which is minus 1% approximately.

On the like-for-like basis. So let's say cleaning up from the ForEx impact and the scope -- particularly, the ForEx impact has been quite significant, almost EUR 38 million positive, and the scope impact has been EUR 7 million positive. So we move now to plus 10%, let's say, like-for-like improvement for the 6 months, which is anyway a pretty good figure.

The EBITDA is, let's say, very favorable. The outcome of the first 6 months again above -- for sure, above our expectation, probably also the analyst expectation. This is driven in part by, okay, some items that are typically nonrecurring. In particular, this year, we have the adoption of -- first-time adoption of the IFRS 16 leasing, which is counting for approximately EUR 12 million. So this is -- should be cleaned up to come to the, let's call it, more meaningful figure.

But also cleaning up the nonrecurring items and in particular some nonrecurring profit that we had also in the previous year, at the end, the improvement remains quite large because we have on a reported basis EUR 61 million improvement; and on a recurring basis, EUR 60 million. So it's very, very similar actually. Because last year, some of you may remember that the main, let's say, nonrecurring profit was associated with the disposal of a business in the U.S. -- the packaged concrete business in the U.S., being approximately EUR 16 million, EUR 17 million of gain -- nonrecurring gain in the first half of 2018. To this level -- let's say, to this achievement, all the countries have been contributing quite well. The main improvement comes in absolute terms and also relatively speaking from the Italian market.

Now again, there is something to be mentioned here because we are showing an EBITDA of EUR 32 million, of which, though, EUR 15 million is coming from CO2 rights sales within the group. So the same EUR 15 million that are, let's say, part of the Italian EBITDA had been charged in different proportion. Let's say, in the half yearly report, you will find the detail country-by-country. But have been charge has been invoiced, let's say, to Germany, Luxembourg, Czech and then Poland, so the other European Union country. So let's say, the real underlying improvement coming from volume, prices and also cost management is about EUR 32 million minus EUR 15 million.

So what happened in Italy? I think we had, in terms of volume, again, a relatively good first half. We did not expect really the country to recover, and instead, we were able to achieve some improvement in volumes.

Pricing, I mentioned it, quite strong, stabilizing at a, let's say, normal level, I would say, for a European country with costs that are similar to the ones of Germany, France or Spain and a better -- much better outcome of the ready-mix business, which is now approaching, let's say, the slightly positive EBITDA level, which we did not have for many years in the recent past.

So another item which was affecting more, let's say, the year as a whole, the 2018 as a whole, but still had an influence last year in the first half, which we do not have now or we have to a much lower extent is the debt losses that we suffer. So this was a positive variance in this respect, much less the debt losses. So clearly, I mean it's not that the cost did not move up, because we did have anyway some cost increases, electrical power typically, fuel to some extent. But this is -- it is an evidence of the advantage of the so-called, let's say, operating leverage. So it's enough for the volumes to go up some 4% or 5%, like we had in some of the plants overall in Italy in the first half, to offset or to reduce the unit cost -- unit production cost because fixed costs per cement produced were actually down -- were basically stable in absolute terms but down thanks to the higher production level.

So I mean this shows once more how important is it for us going to be -- to be able to improve the capacity utilization of our plant. Something that we are still working on it because we don't think that the current improvement in the market is going to last much. And if it does, there are some plants that are still running a number of days which is too little compared to the potential ones or to the available ones.

In U.S., we closed with a figure which is, in euro, exactly, let's say, the same as last year. It is slightly better, the recurring ones because of the gain that I mentioned before in the first half of 2018. This, I think, is a fairly satisfactory performance, considering, again the trouble that we suffer in -- particularly during the month of June and the additional cost that we have to bear to be able to continue, let's say, shifting and somehow perform to get to the desire of the customers. So what -- U.S., together with Czechia, is the only country where the EBITDA margin is going somewhat down. So the profitability, let's say, is not as good as last year.

What happened beside additional logistic costs that we had for, again, managing the flood situation is a significant decrease in our stock. We were actually somehow, if you wish, let's say, overstocked at the end of last year. Last year, the final quarter was not very strong. And in anticipation of a stronger demand in the first quarter, which actually occurred, we prepare ourselves with, let's say, a higher-than-usual level of, let's say, clinker and cement inventory. Now this, overall, was a good idea because we were able to, let's say, cope with the stronger pent-up demand of the first quarter and climate -- the mild weather, et cetera.

That of course, translated this year into a significant destocking. And when you destock, when you decrease your inventory, clearly, your fixed costs are counted, let's say, twice. So this is the reason why stock -- an inventory decline of about 20 -- it's more than $20 million -- between $20 million and $25 million is affecting our margins, is affecting our profitability.

And to, let's say, move already forward-looking, in the second half, we are -- we think that it would be very unlikely to recover, let's say, the same stock level, inventory level, that we had at the end of 2018 because, fortunately, the demand is relatively stronger. So we need to produce, and we are fortunately selling what we are producing. But to be able to come back to that level of stock will be, in our opinion, very, very challenging, also quite impossible and may not -- maybe not even desirable. So this kind of, let's say, additional cost that we are having in the first half is likely to stay also in the second half.

In the other countries, nothing really major, I would say, to mention thanks to the good trend in volumes and prices. Overall, the profitability is increasing. The margins are somehow going up. It's not that the inflation has been particularly low or subdued. In some countries, I mentioned before, we did have significant cost increases in -- particularly in power less fuel. But the volume and the prices and the capacity utilization levels, again, the unit production cost going down. All this factored together, we're able to offset the inflation and naturally giving us a better margin.

Other significant, let's say, improvement in absolute terms are coming from Germany, which is EUR 17 million up in -- on a reported basis. It's also EUR 10 million up on a recurring basis, which is the most meaningful, let's say, the most significant.

Poland appears to be down versus last year on a reported basis, but we did have last year one nonrecurring item -- profit, let's say, one nonrecurring benefit. So again, on a recurring basis, it's actually up by about EUR 2.5 million.

Strong performance in Ukraine, even though not so important or not so material for the group as a whole in absolute terms. And strong performance in Russia, too.

If we look at the split of our contribution according to the 4, let's say, area, the 4 regions where we operate, 2018 versus the 2019, we have Italy that is now representing about 11% of recurring EBITDA contribution. Quite a significant decline in U.S. because the rest was going better. I mean we already said that we moved from 60% contribution to less than 50%, 49%. Central Europe is basically flat, and Eastern Europe is slightly declining. It used to be 24% of the total. It's now 22%, not because the performance was negative, but because there were other countries, in particular Italy, gaining some ground.

If we look at the EBITDA, let's say, range on a reported basis, we have -- the positive effects are coming from volume, about EUR 62 million; price is about EUR 57 million; IFRS 16 is EUR 12 million; and ForEx, EUR 9 million. The negatives are mainly related to variable cost and/or, let's say, inventory changes, as I said before, where the logistic has become definitely more costly. Transportation in general, we had EUR 26 million higher greater cost versus last year. Power, as I said, about EUR 12 million additional cost. Fuel is EUR 6 million, which is in line more or less with the, let's say, additional production -- I mean greater production level. So not really a sign of strong inflation in this respect.

Fixed costs, driven mainly by exchange rate, let's say, and exchange rate and scope are moving slightly. We have EUR 4 million negative variance. And then we are missing some benefits again, nonrecurring on the so-called other revenues and costs, particularly we have lower gains on disposal of property, plant and equipment. So EUR 20 million less overall, partly offset by lower cost within the so-called general and administrative function. So other revenues -- costs are, let's say, worsening versus last year of about EUR 6.5 million. But the recurring or operating portion of it is actually favorable. And this take us from the 2,027 to the 2,008 -- what is it? 2,088 exactly, almost 2,089 for the first half 2019.

Moving down to the lower part of the income statement. Depreciation and amortization is obviously affected by IFRS 16 adoption. The amount is very similar to the EBITDA impact, a little less. So the EUR 12.3 million. We had EBITDA level is EUR 11.6 million additional depreciation for IFRS 16. So we are quite close. And so this takes the operating profit to EUR 165 million versus EUR 123 million last year, EUR 42 million additional in absolute terms, plus 34%, so quite strong. In terms of margins, we are at almost 11% versus 9.2% last year. So again, almost 200 points improvement, 200 basis point improvement, which is quite satisfactory.

Equity earnings are declining some. This is mainly associated with the Mexican performance, as I mentioned before. By far, the biggest contributor in the equity earnings, let's say, line item, let's say, is the Mexican subsidiary -- the Mexican joint venture, sorry. And we have also some, let's say, worsening or some -- yes, worsening in the net finance costs, which last year from an accounting -- pure accounting standpoint, we had net interest costs of EUR 4.4 million. This year, it's EUR 29 million. Again, this requires some comments because the fewer net interest expense has been actually showing a favorable variance of about EUR 8.2 million because the net -- the interest expense minus interest income was EUR 12.5 million this year versus EUR 20.7 million last year.

So you probably remember that we had anyway some overlap in last year between refinancing and repayment bonds or some kind of negative carry. And at the end of September, we'll be repaying the bond, which was relatively costly at 6.25%, if I recall correctly, interest rate.

As opposed to the pure net interest expense, we have some negatives in the items that are more volatile or not necessarily. Most of them are not really financially cash item like the ForEx gains and losses last year. We had ForEx gains of EUR 3.7 million. This year, it's ForEx losses of EUR 5.6 million. And the derivative valuation so far, we are still affected, I think, for the last time. Because by year-end, everything will be repaid or anyway will go away. We're still affected by the fair value changes of the convertible bond cash settlement option, which is playing negatively this year for -- the amount is EUR 3.4 million last year. Instead when the share price was declining, we had a benefit of EUR 17.6 million. And so very -- quite a large difference between these 2 items if you look at the [yearly] price. So overall, that's why the net finance costs are worsening, are looking worse. But in reality, they're not really worsening or we're not concerned because what we can manage, what we can monitor is actually the net interest expense, and this has been improving.

Let me briefly turn over to Patrick, which I did not greet before, I didn't say but you know already. But together with me, is Patrick Klein and Agostino Pieressa. So you can give us some comment on the cash flow statement. Please, Patrick. Go ahead.

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Patrick Klein, Buzzi Unicem S.p.A. - Group Treasurer & Financial Controller [3]

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Yes. Hello from my side as well, everyone.

So turning to the consolidated cash flow statement Buzzi Unicem with the overall state, if we look at the development, so basically of the net financial position compared to last year, we can also see overall that we have a change in net debt of -- positively of EUR 71.5 million in the first half year of 2019 and compared to a negative impact in the first half of 2018 of EUR 31.6 million. So basically, where does this positive impact come from? Clearly, we do have a better cash generated from operations here. We have just been talking about EBITDA. So this is clearly also reflected in the cash generated. We have also a stable income tax on the other side. And the interest paid is -- while there are some -- we have just talked about the interest situation, so Pietro has mentioned that we are actually better in here in the consolidated cash flow. There are also some -- let's say, if we compare first half year 2018 to first half year 2019, there are some effects that are kind of delayed because we had a new financing in 2018 in the second half, which is now, I would say, is being paid. So this is basically -- was used to also refund some activities. So the -- and then there are other effects that are not purely financial debt in the interest payment. So overall, our interest payment is actually decreasing, although it is not clearly shown now here in the statement itself. So it does not have a significant effect, impact on the full year net debt.

The capital expenditures are -- have increased in the -- compared to first half year 2018 as well as the equity -- we have equity investments. That have been -- in 2018 have been higher compared to 2019. So overall, if you look at both positions together, we are actually slightly lower than 2018. And then we have -- main contribution is clearly the repayment of the convertible bond, which is basically reducing our debt because of the conversion. And then on the other side, we have an offset -- partly offset by the IFRS 16 financial liability that have an impact of EUR 93.7 million.

So these are the main impact. And then of course, we have some dividends, but these are relatively stable, and another smaller impact that do not really impact heavily the financial position. And so overall, the net financial position is -- has a significant improvement here, although we have also some significant spendings, and this has also been reflected in the net financial position that we can see here. And this is supposed to continue due to the interest impact and some other impacts that we see also in the month of July.

The net debt is -- the composition of the net debt has not changed very much, but there is clearly some new dollar financing. So we have 18% of dollar and 82% of euro debt present in the gross debt write-down and 72% long- and 28% short-term debt. And the fixed portion is 88% and floating 12%. So overall, the gross debt is still relatively stable after the big reduction that we had at the end of 2018, when we reimbursed the bond of EUR 350 million.

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Pietro Buzzi, Buzzi Unicem S.p.A. - Chief Executive of Finance & Executive Director [4]

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Yes. So the ratio are also improving. And so overall -- the leverage is still improving, which is good that will allow us a little more, of course, flexibility if necessary.

We -- one day after, let's say, the end of the semester, we executed -- let's say, we closed the deal to purchase, let's say, the Italcementi assets and then the 2 grinding center and the plant in -- the full cycle plant in Tuscany. And so more or less, starting from -- that you were mentioning, beginning of July. Of course, this has been approximately an EUR 80 million, let's say, cash outlay. So we are -- we've been using, let's say, right away, in a sense, the improvement that we were able to achieve in the first half. But of course, this is money invested that we think not immediately. I mean over time, it will take some time. And it will come back into, let's say, better performance of the Italian operation, more stability in the volume and in the prices and also clearly through the synergies that we can make between the new entities and the existing one, higher capacity utilization level, which as mentioned before, is really what counts the most for the financial performance eventually of the country or the business -- of our business unit in general.

So I think we can turn over the line to the operator and get ready to listen to your question. Thank you. Thank you for listening so far.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from Paul Roger from Exane BNP Paribas.

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Paul Barry Roger, Exane BNP Paribas, Research Division - Sector Head of the Building Materials Team & Analyst of Building Materials [2]

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It's actually Paul Roger from Exane BNP. So I've got 3 questions actually, if I may. If we can start off with just talking a bit about the guidance. I mean obviously, you're increasing it, you're now expecting 10% recurring EBITDA growth. On my maths, I think that sort of implies a flat second half organically. And I guess the question -- I mean it just looks super conservative. Obviously, you've got an easy base in Q3. I guess the price cost dynamic is getting better as well. So what I'm just trying to understand is, are you really thinking you'd do a lot better than that and you're just holding back? Or is there something more specific that maybe we should be aware of? That's the first question.

The second question is on Italian pricing. So do you want me to ask all 3 or wait?

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Pietro Buzzi, Buzzi Unicem S.p.A. - Chief Executive of Finance & Executive Director [3]

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Well, we can start on the first one. Well, of course, what we do usually like any company is to rerun the numbers, look at the -- what we have achieved and update the forecast for the second part of the year.

You're basically right in the sense that if we make the 10% -- we wrote 10%, it can be -- I hope it can be 11% but could be also 9%. I don't know but let's say around 10%, this will translate into very, very small improvement in the second half versus this.

Where do we see -- there are no really trouble ahead. But for example, in Italy, the price effect will not improve in the second half, the price variance, which is 1 point. And then we are a little concerned about the volume. We are not -- we don't think we'll be able to keep the same, let's call it, positive differential in the second half.

In the U.S., I mentioned already before, we think that the price momentum is not too good. I mean it's good but not too good at least to where we are. We did have already in the books some additional cost related with the flooding and particularly the inventory decline, which as I said, is going to stay. We don't see really any significant advantage on the variable cost. I read several comments at the Analyst Day that we live in a different world. I don't know. We don't see really, let's say, tailwind coming from the fuel and power costs. As I said before, we're basically even with last year, but no real tailwind.

And in the other countries, including also let's say, Germany, it would be difficult in our opinion to get further benefits, let's say, going farther. And for example, for example, Poland and Czechia are already running at full capacity, I mean what we have done in the first quarter was particularly strong, particularly high, but we cannot continue the same pace for the full year. So if we continue the same pace for the full year, we would be well above, let's say, the capacity available. So we can focus maybe a little bit more on pricing, of course. So this can help. But these are 2 countries also where the energy cost inflation, particularly the power, is pretty high and it's due to rise somehow, let's say, also waging on cost. So the gradual effect is also -- but yes, I mean yes, during the second half, this gradual effect will be diluted significantly, of course, versus the first half where we had only 2 months.

So I don't know. Again, this is what our, let's call it, forecast is telling us. Could be too conservative. I hope so. I think that we are pretty likely to achieve what we have said, let's say, the 10%. If everything goes right, we may be more -- the performance could be better. I anyway, I would, let's say, rule out completely the same kind of performance for the second half that we had in the first one. So it's not that we are -- we will finish the year with 20-plus percent. Yes, this is -- we think it's -- we're thinking possible overall.

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Paul Barry Roger, Exane BNP Paribas, Research Division - Sector Head of the Building Materials Team & Analyst of Building Materials [4]

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Okay. Well, maybe my second question actually I'll just follow up on a few of the specifics that you mentioned. So maybe if we talk about Italian cement pricing first. Are you basically saying that we are now at the right level, and therefore, you probably shouldn't expect any more increases in second half or indeed into 2020? Because my understanding was actually the cost base, the cash cost base, in Italy was actually still relatively high compared some other countries.

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Pietro Buzzi, Buzzi Unicem S.p.A. - Chief Executive of Finance & Executive Director [5]

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If you talk about fuel and power, you're probably right. We tend to be somehow, let's say, at a higher level mainly because we are not able to use as much dirty fuel as other countries, let's say, are doing, again, not for technical reason, for any particular reason, permit reason. But let's say, this is one of the issue.

In power, power lately, we have some benefits last year, in particular with the introduction of the new norm for energy-intensive industry. We had a quite significant reduction. Then with CO2 going up, it changed but not as much. So I mean in power today, we are not so bad compared to other countries.

In terms of fuel pricing, I think that if you look at the fuel domestic price, I think we have achieved a pretty good level right now. And yes, short term, we don't see any possibility to get better. Longer term, we will see. Of course it will depend, to some extent -- large extent from the cost. But in our mix, of course, there is also clinker sales and export sales that are somehow driving down, let's say, the average price. So if you look at the fuel average price maybe, you could say, feel not satisfactory. But the domestic price right now, I think, can be considered fairly good price. Clearly, if you compare with the prices of the U.S., you're missing maybe 30%. But the U.S. have also other cost, a lot of logistic, a lot of transportation and margins are at the kind of -- at the peak. But comparing with more similar countries like Germany, Spain, France, is a little different. But we -- I could say that the domestic price level today in Italy is not below -- is not at the level that can be considered unsatisfactory. I don't consider unsatisfactory.

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Paul Barry Roger, Exane BNP Paribas, Research Division - Sector Head of the Building Materials Team & Analyst of Building Materials [6]

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Okay. And my third and final question will actually be on the U.S. cement pricing. You're talking about sort of 2% this year. You've mentioned import parity as well. Are we really just talking about pressure in the Northeast and obviously McInnis is now quite well-known. Or are there other areas on the water that import is a problem as well? And so what price momentum actually in spending are you seeing on the Mississippi and in Texas, presuming that's a bit better than that 2%?

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Pietro Buzzi, Buzzi Unicem S.p.A. - Chief Executive of Finance & Executive Director [7]

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In Texas, we did not have any -- but again, it could be more specific maybe to our business. You know that there have been recently some changes, some also exchanges of assets in the ready-mix. We lost some of our ready-mix customer due to, let's say, the changing of ownership. So the fact that what used to be an independent or partially independent customer is now part of a cement group, so we have also to recover somehow our volumes looking for other sources of business. And this translated into the price strength, which was not really so much -- so good in terms of improvement.

And in the Houston market, which is also important for us, the number of initiatives related to cement imports are obviously increasing. And they're not so meaningful in terms of volumes. They're not really affecting so much our volumes. But in terms of pricing, yes. Locally, they can have an impact.

In the river region, yes, I mean we are in a market that is not particularly strong in terms of volumes. So by far, the 2 best performer, at least for us, are the Southwest and the Southeast. So Texas and the Atlanta, Tennessee, Chattanooga region. The river region along the Mississippi River, markets are performing fine but only slightly up. And this again makes it difficult for the prices to really show a significant improvement. And you do have some big U.S., let's say, current operator, which are obviously, I mean from the standpoint looking for -- always looking for better deals. You have the ready mix operator in Chicago is that the speed import is cement unloading, and you're always unloading out all the way to Chicago. So you have this kind of situation that makes it somehow difficult in the Midwest to really achieve a stronger improvement. So okay in Texas; okay in the Southeast; Houston, kind of difficult; and yes, the Northeast, kind of difficult.

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Operator [8]

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The next question is from Tobias Weimann with Morgan Stanley.

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Tobias Weimann, Morgan Stanley, Research Division - Equity Analyst [9]

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I have 3 as well. Maybe we can go through them one by one. The first one, again, following up on the raw materials impact for the second half, you talked about this earlier. But could you give us a little bit more detail because, clearly, if we look at the prices for coal and pet-coke, those are down quite significantly, I think 20%, 30% versus 2018. So what are we missing there? Why are you not seeing any deflation in raw materials? That's my first question.

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Pietro Buzzi, Buzzi Unicem S.p.A. - Chief Executive of Finance & Executive Director [10]

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Again, I don't know. I can tell you what is in our figures. And just a second, I will open again -- we have -- okay. General -- I mean each country would require a specific comment because it's very difficult really to generalize. But if we want to make a longer story short, I would say that looking at fuels in general, we had a fairly flat, fairly flat if you look at the euro, let's say, euro ton or euro gigacal of consumption. First half 2019 versus first half 2018 in general, we have a fairly flat in price trend, with the exception, because I think it's worth mentioning, of countries like Ukraine and Russia, for example, where instead prices went up, fuel prices went up quite significantly.

For the second half, actually, again, looking at our figures, we'd see full year efforts, I mean full year -- sorry, including the second half and taking into consideration also what happened in the first half. Some minor decline is possible, it's possible in some of the countries. So again, we generalize it, it's a little difficult, but it's true that the trend will be -- it should be slightly better, again, with the exception of Russia and Ukraine. But we are talking about very little, let's say, settable variances, nothing really meaningful.

On power, a general comment is more difficult to make, as I said before, because you have countries where power cost went up quite significantly and countries where it tends to be flat. The countries where power costs were going -- were trending, let's say, higher are mainly the ones in European Union. So this is more related with the trend of this year to rise, which started to become very steep in terms of increase last year in September, October. And currently, not with the same momentum, but it's still going up.

So again, we don't see a great benefit, no strong inflation. And fortunately, as I said before, in the countries where these kind of costs were rising more significantly, also prices went up in a nice way. But to see really a clear benefit coming from these 2 items. In our case, I would not consider it. I do not consider that as a clear benefit going forward.

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Tobias Weimann, Morgan Stanley, Research Division - Equity Analyst [11]

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Okay. And the second question, you talked earlier about the impact from destocking in the U.S. during H2. Can you explain why we have this effect because I would assume that production should be going on normally in the second half and I guess, in fact, it would probably catch up to volume, which you have lost in the first -- the second quarter due to the Mississippi flood.

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Pietro Buzzi, Buzzi Unicem S.p.A. - Chief Executive of Finance & Executive Director [12]

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No. As I said before, we were too high, the level was too high. I mean it was very high at the end of 2018. We started to use the clinker, mainly the clinker because this is something in cement you cannot really do many days in your inventory, but the clinker inventory, yes, we had really -- we decided to keep production going last year also during, let's say, the weaker market to prepare for the first quarter. And from then on, we were actually using them and it stopped during the winter maintenance due to the winter outages. And from then on, we are basically producing what we can sell. So we do not expect really to be able to rebuild such a stock. And as I said before, maybe this is not also -- will not also be so preferable or the right thing to do. As long as we can keep this level of stock even if it's a little stacked right now in some of the plants from a working capital standpoint is anyway better. So assuming that the demand remains quite robust, we don't think we will be able to replenish, let's say, our inventory, only if the volumes are going down like in the last 4 months of last year.

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Tobias Weimann, Morgan Stanley, Research Division - Equity Analyst [13]

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Okay. And then the last question I had, and I think you talked about this on the call last quarter. The convertible is now out of the way. Can you give us any news, whether you still consider to simplify the share structure? And maybe you could also explain, if you would do this, how the mechanics would work? So how would you ensure that the family would still remain in control?

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Pietro Buzzi, Buzzi Unicem S.p.A. - Chief Executive of Finance & Executive Director [14]

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There is nothing really going on in this respect. Yes. I mean what is going on is the repayment of the bond, partly with treasury shares and partly with the cash alternative amount. But for the rest, no, we have no plan to change the capital structure.

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Operator [15]

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The next question is from Rajesh Patki with JPMorgan.

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Rajesh Patki, JP Morgan Chase & Co, Research Division - Analyst [16]

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I had 2 questions as well. I mean for the second half of the year, you said your guidance is based on conservative assumptions, and you mentioned some of the concerns in response to one of the earlier questions. My question is do you expect the results in any of your markets to decline in the second half year-on-year? And second question is if you can provide an update on the expectations for CapEx and where you expect the net debt to end up at the year-end?

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Pietro Buzzi, Buzzi Unicem S.p.A. - Chief Executive of Finance & Executive Director [17]

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Yes. Were markets really to decline, let me see, the second half is usually -- I mean most of the market is usually stronger than the first one. So I don't have here in front of me really all the figures. But yes, if you wish it, as I mentioned before, the Italian performance is not expected at the same level of the first half. The United States, quite similar versus, let's say, last year as I said. So you end up with something that is very, very close.

Germany, yes, it will be somehow declining, but this is a more scope change effect. Let's say that, yes, Poland and Czechia, we mentioned it also in the press release, will close with a slight increase, which is, in the case of Czechia, actually better than what we did in the first half.

Ukraine, also the performance in Ukraine should be, in a sense, they're not as good as in the first half, but with closing the year, we'll see the improvement. Yes. I mean I think maybe the 2 countries where we are a little more careful are also due to the strong performance of the first half, Italy and Germany. So these are the 2 that are more likely probably to show a slower pace. Yes. Sorry. Patrick, you said that you want to say something, Patrick?

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Patrick Klein, Buzzi Unicem S.p.A. - Group Treasurer & Financial Controller [18]

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Yes. I think we can confirm that, typically, what you can see, especially when you're going through some spending such as Pietro mentioned before that we have the EUR 80 million for the 3 plants in Italy this year, and then of course, we actually have some other spending, so then we have also the alternative cash amount spending, also the repayment, and we have a significant CapEx program. So overall, what we can see is almost in line with what we also expected in a relatively, I would say, normalized situation where we have more than EUR 100 million kind of change in net debt in a year. This is something we would expect is also the case for 2019. So this reflects already the mentioned effect basically and CapEx program that is probably, including equity investment, is similar to last year's level. And then of course, results-wise, the indications that Pietro made before are already included in this forecast. So basically a reduction that is slightly above EUR 100 million of net debt in 2019.

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Operator [19]

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The next question is from Mike Betts with Data Based Analysis.

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Michael Frederick Betts, Data Based Analysis Limited - Director [20]

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I had 3 questions if I could. First one on Germany. The performance was extremely strong. And I'd just like a bit more of an explanation if you could. I mean EBITDA recurring was up like EUR 10 million. It had an additional EUR 8 million of carbon charges. I know the acquisition contributed an additional 4 months?

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Pietro Buzzi, Buzzi Unicem S.p.A. - Chief Executive of Finance & Executive Director [21]

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Yes.

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Michael Frederick Betts, Data Based Analysis Limited - Director [22]

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What I'm trying to understand is was the improvement driven in Germany by the acquisition? By the additional volumes? Because it didn't seem to be much on pricing. Or was the cost down significantly? Maybe just a bit more explanation for that. And also why you expect to see less in the second half. Is it -- that just the acquisition effect? That's my first question.

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Pietro Buzzi, Buzzi Unicem S.p.A. - Chief Executive of Finance & Executive Director [23]

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No. I mean yes, yes, and no. Yes, we started to move some of the production and sales from, let's say, even if the Seibel plant is still running, it will still be running until the end of September, more or less. The contribution coming from this specific, let's say, scope change was not so significant. So I think -- again, I think there was quite good cost control. Let me check briefly. Some significant, let's say, savings coming. Yes, the performance was coming basically from the cement division, a little bit also from the concrete division, but let's say, adjusted figures, yes, around EUR 10 million coming from cement division.

And let's see, the volume, let's say, sales volume impact was around EUR 6 million positive in Germany. The pricing was about EUR 16 million positive. And in terms of cost, we had almost -- well, the positive in this case, yes, the positive variance for fuel, about EUR 4 million flat power cost and -- so the inventory changes not much going on there. Personnel, slightly negative, but nothing really significant. So on the repair and maintenance, flat versus last year. So I think, overall, a good performance in terms of plant operation and also managing the fixed cost. I don't know if I'm missing something. I hope not. But I think...

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Patrick Klein, Buzzi Unicem S.p.A. - Group Treasurer & Financial Controller [24]

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The volumes.

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Pietro Buzzi, Buzzi Unicem S.p.A. - Chief Executive of Finance & Executive Director [25]

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Yes, the volumes, yes, I mean we mentioned it, the price-volume mix, let's say, is about -- not prices, sorry, the sales and volume mix is about 6 positive, and the price is about 15 positive. 15 positive. But yes, this on a cost situation, which has been either favorable or just slightly negative.

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Michael Frederick Betts, Data Based Analysis Limited - Director [26]

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Understood. That's great. My second question is on the acquisition in Italy. Could you tell us firstly, how much capacity in million tons a year you've acquired? Do you intend to retain all of that? Or is the plan to close some of it down and to rationalize your production? And have you quantified anywhere or given out the synergies that you're expecting?

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Pietro Buzzi, Buzzi Unicem S.p.A. - Chief Executive of Finance & Executive Director [27]

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Yes. Yes, we did. Well, capacity is not really so meaningful because, I mean the 2 grinding centers, potentially, they might have, one plus the other, maybe 400,000 tons of capacity, and another 500,000, 600,000 could come from the full cycle, let's say, plant in Tuscany. But I think we have to look mainly at what these 3 entities, let's say, facilities were selling, which is in the range of 400,000 tons more or less per year. And which -- we will try -- the idea is absolutely to as soon as possible, and there are some constraints in part also related to the EPS this year to allow us to set up, particularly for the full cycle plant, which does not suggest to just close the plants either way. But in perspective, the idea is to be able to reach or to achieve the same volume, the same customer, to reach the same customer from the existing -- our existing location.

So one of them is called Borgo San Dalmazzo is really across the street from the Robilante plant. So this is already in the process of being shut down this training center.

The other one in Arquata, there are some reasons associated with the product mix, which force us in a sense to maintain the life for some time, maybe 1 year, maybe 18 months. And on the full cycle plant, to move it as quickly as possible to the grinding center is our idea and to supply, let's say, clinker in this case, specifically from Guidonia, which is the Rome plant that has plenty of capacity, let's say, available.

Synergy, we think that on a yearly basis, once we are, let's say, fully restructured, so using entirely our capacity and better in reducing the number of open facilities, so reducing also the fixed cost could be EUR 11 million, EUR 12 million, maybe best case, EUR 13 million per year, which is the idea.

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Michael Frederick Betts, Data Based Analysis Limited - Director [28]

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Okay. And my final question was just returning to the U.S. and the -- where the difficulties and logistical differences and difficulties in the first half. Were you able to quantify what the additional cost might have been with all of that stuff?

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Pietro Buzzi, Buzzi Unicem S.p.A. - Chief Executive of Finance & Executive Director [29]

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Yes. We did. They're still somehow, let's say, not fully done because once the river was reopened, actually, the pipeline of loader, let's say, train and bodies to be loaded is quite long. And it will take at least 1 month to come back to a normal situation. So we think that we lost approximately more than 100,000 tons of sales and additional logistic cost between $5 million and $7 million in this case, okay?

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Michael Frederick Betts, Data Based Analysis Limited - Director [30]

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And that will continue a bit in the third quarter by the sound of it?

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Pietro Buzzi, Buzzi Unicem S.p.A. - Chief Executive of Finance & Executive Director [31]

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Say it again.

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Michael Frederick Betts, Data Based Analysis Limited - Director [32]

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That will continue a little bit in the third quarter.

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Pietro Buzzi, Buzzi Unicem S.p.A. - Chief Executive of Finance & Executive Director [33]

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Yes, because we are not over. We need to -- if the season goes well like we hope, July was a good month, let's say, more or less the level of last year to be able to really rebuild the so-called peripheral inventory. So what we have in the 34 cement terminals are connected to the river system or the rail system. It will take at least 1 more month with, yes, additional cost and maybe in some cases, use of trucks instead of lower-cost transportation means.

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Operator [34]

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The next question is from Yassine Touahri with On Field Investment Research.

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Yassine Touahri, On Field Investment Research LLP - Founding Partner [35]

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A few questions for me. And my first question would be on the U.S. and in energy. Could you tell us how much of your fuel comes from pet-coke in the U.S.?

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Pietro Buzzi, Buzzi Unicem S.p.A. - Chief Executive of Finance & Executive Director [36]

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Comes from pet-coke?

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Yassine Touahri, On Field Investment Research LLP - Founding Partner [37]

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Pet-coke.

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Pietro Buzzi, Buzzi Unicem S.p.A. - Chief Executive of Finance & Executive Director [38]

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Just a second. We will check it. I can tell you that it cannot be -- with about 25%, 26% of Western-derived fuels, it cannot be more than 75%, but, let's say, (inaudible) because we have some gas and we have some coal also in the U.S. So if we take together, pet-coke is about 50%, but there is also another, how much is that, 19% -- another 20% of coal and -- which can be somehow considered at the same -- similar in terms of trends and cost.

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Yassine Touahri, On Field Investment Research LLP - Founding Partner [39]

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So if we look at pet-coke pricing, the pet-coke pricing, they declined a level which was close to $100 last summer to a level which is closer to $60 today, so like a $40 decline. Have you seen already part of the decline in your costs?

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Pietro Buzzi, Buzzi Unicem S.p.A. - Chief Executive of Finance & Executive Director [40]

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No. I mentioned this before. We had -- if you could say euro, let's say, gigacal trend in dollars in the first half, let me check it again just to make sure. U.S., yes, we are very, very, very similar level versus last year. No, we haven't seen -- this includes all the fuels, of course. I mean the mix is a mix of the entire fuels, which is not only pet-coke. Actually, the one thing that is worth mentioning about the U.S., pet-coke in particular, is that as opposed to Italy or Mexico, they typically refer to the so-called Pace index. So all our pet-coke purchases are referred to that index, which is probably the one you had in mind.

In U.S., we buy directly from the refineries. So from the closest refinery, we have direct contact. So there's no impact on -- from the, let's say, freight costs or shipping costs, which I mean ocean freight. And then the pet-coke is moved either by rail or by truck to the plant directly from the refinery. So it also depends very much on what that specific refinery is doing, is producing. If it is not producing, it is willing to, let's say, get rid of more, or has the necessity to get rid of more pet-coke than usual. So it's not so much linked to the international price, not necessarily.

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Yassine Touahri, On Field Investment Research LLP - Founding Partner [41]

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Okay. And maybe another question on the Eastern Europe. (inaudible) that your plants are sold out or close to being sold out in Poland and Czechia. What will be your -- if you look at the medium-term, what will be your strategy for the volume continue to increase a little bit in the next 3, 4 years? Will you consider importing in this country? Will you consider some developer on the team for an investment? How do you see the medium-term in those countries, (inaudible) please?

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Pietro Buzzi, Buzzi Unicem S.p.A. - Chief Executive of Finance & Executive Director [42]

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I mean what has been really booming and increased significantly and is also by far bigger in terms of total market is Poland because you are comparing a country that has, I don't know if this year could be 17 million, 18 million tons of cement consumption versus a country like Czechia that has 4 million or 5 million.

So in Poland, actually, no, we do not -- the idea of increasing -- I mean we can optimize, but we don't think it would make sense to increase capacity. We're probably at a point where the country could turn more negative, hopefully not too much, but let's say kind of a peak situation we try to manage at best in part with the prices, in part with as much effectiveness in production as we can.

Importing, in theory, if really the country would stabilize at the level which absorbs totally our capacity, maybe something from Germany could be transferred, but I don't think it'll be so cost-effective. So it could be -- we could think about it maybe by train, but probably not so cost-effective.

Same thing in Czech Republic. So we're -- Czech Republic is being partly also supplying Poland in the northern -- with some ready-mix plants in the northern part of Poland, which have been supplied by Czechia. In Czechia, in theory, one thing that could be imagined or envisaged, we have a very large vertical integration as opposed to Poland where the vertical integration are relatively small. You could also in a sense, purchase cement from competitors for your ready-mix and, in this case, have more cement available for the third-party market. But usually, we don't like to do that because our cement are of quality in procedure. We are not -- we do not really like it but could be an idea.

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Yassine Touahri, On Field Investment Research LLP - Founding Partner [43]

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And my last question would be on Italy. In the first -- at the beginning of the year, you suggested that imports from Algeria or maybe Turkey could cap pricing. For the time being, we've seen pricing moving in the right direction. Could you give us an update on this? Do you still see this as a threat on the Italian market?

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Pietro Buzzi, Buzzi Unicem S.p.A. - Chief Executive of Finance & Executive Director [44]

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You mean more exports from these countries?

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Yassine Touahri, On Field Investment Research LLP - Founding Partner [45]

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No. You mentioned earlier in the year that you could see imports in Italy from Algeria and Turkey, so yes, will you see more exports from these into Italy?

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Pietro Buzzi, Buzzi Unicem S.p.A. - Chief Executive of Finance & Executive Director [46]

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Algeria, of course, in perspective, due to the additional capacity that's been put in place and more is coming, could be a threat. They are not really very well organized today. I mean they are lacking really a lot of infrastructure. What they have been doing is really limited compared to the potential. So they need to go through a step of, let's say, putting together the necessary infrastructure, which I think it will take quite a long time, maybe Egypt more aggressive. The bigger threat is coming, for sure, from Turkey, where the infrastructure is there. The capability, let's say, or the producing of the country to sell cement is really strong. And that's it. We have been seeing some in Sicily, some in Southern Italy. There are already some terminals, let's say, operating and importing either clinker or cement. So it's nothing really new.

The major or the potential bigger threat will come, I think, with the next phase of the emission trading schemes. So the cost of CO2 will probably be greater. We will not have the same old rule of the 50%. So this will make some of our sales, let's say, to the export market or to the domestic market at a relatively low price much less interesting. And if you have to buy to produce, probably, you are not so competitive versus Turkish producer that has not cost to [sell to right].

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Yassine Touahri, On Field Investment Research LLP - Founding Partner [47]

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And what would be your strategy in this scenario?

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Pietro Buzzi, Buzzi Unicem S.p.A. - Chief Executive of Finance & Executive Director [48]

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Probably to produce and sell. Okay, let's say, to produce first what we can do with the future CO2 free allowances. So what corresponds to the level of CO2 free allowances should also be produced. From then on, try to increase prices if possible. So pay for the CO2 cost through additional prices. And if not possible because the imports are, let's say, more competitive and it will jump on this, let's say, higher price level, maybe like you were saying before, import ourselves. So instead of, let's say, facing direct competition, trying to, let's say, offset it through an import terminal or an importing facility, this could be an idea.

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Operator [49]

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The next question is from Alessandro Tortora with Mediobanca.

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Alessandro Tortora, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst [50]

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I have 4 fast questions, if I may. The first one is on the U.S., if you can also share with us the trend in July, volume on, let's say, trend in July, after as you mentioned before, on Mississippi in June? Then the second question is on Italy. I don't understand what's your assumption of ready-mix business now if you are targeting breakeven this year in the ready-mix? The second question -- sorry, the third question is on the tax side. I saw some -- it's a good number on the tax rate. Are you, for instance, maybe exploiting some tax losses maybe you have in Italy, given that, now, Italy now is printing good numbers? And the last question is on the guidance. Can you also give us your assumption on the FX, let's say, U.S. dollar, for instance, the main one on the FX for this guidance that you provide?

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Pietro Buzzi, Buzzi Unicem S.p.A. - Chief Executive of Finance & Executive Director [51]

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Sure. July volumes, I mentioned it before, we are at the level of last year, so very similar, has been -- actually slightly better. So July has been slightly better than July 2018 in U.S. as a whole, with again some regional differences, clear regional differences. But overall, we're slightly better.

EBITDA RMC, well, this is the first step. We would like -- coming from, let's say, a period of heavy EBITDA losses in RMC, yes, the first step for this year would be to achieve, let's say, the 0 level. From then on, we try to do better, of course. But let's say, the initial step would be this one. I don't know if we would be able to achieve it really. Maybe yes, maybe not. But if we don't, we should be very close to it, let's say.

The third -- yes, the deferred taxes. There is some impact coming, yes, from the calculation because we have compared what we have in the balance sheet, actually, the amount of potential carryforward, extra carryforward is much bigger because it's been gradually impaired, let's say. Based on -- maybe this year, we will change some, but let's say based on the following 5-year plan, which until now or until, let's say, 2 years ago, was not so optimistic. We did not recognize the part of the deferred tax asset on tax loss carryforward. So there is some of these. And the -- and also the -- okay, the -- but this was already last year. Actually, the lower tax rate in the U.S. is coming up. And we have also a better mix stability from Ukraine and Russia, where the tax rate is lower. They are bringing some additional, how do you call it, the tax income versus, for example, Poland and Czechia, where the tax income has been fairly stable this year so far at least, and also probably for the full year. As tax, Patrick, do you have anything in your point of view...

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Patrick Klein, Buzzi Unicem S.p.A. - Group Treasurer & Financial Controller [52]

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First half 2019 we use -- now we use $1.14, and we use, for the ruble, we use RUB 75 per euro and UAH 32 per euro in the Ukraine. So these are the main currencies here.

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Alessandro Tortora, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst [53]

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Sorry. I didn't catch. On the U.S. dollar for the full year, which level you're assuming for U.S. dollar-euro?

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Patrick Klein, Buzzi Unicem S.p.A. - Group Treasurer & Financial Controller [54]

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Average $1.14.

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Alessandro Tortora, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst [55]

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Okay $1.14. And sorry, Mr. Pietro, I didn't catch. Okay, understood, for the tax rates for the first half, we should, let's say, quite good. Can you help us, let's say, to put a number for the full year around an indication for tax rate?

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Pietro Buzzi, Buzzi Unicem S.p.A. - Chief Executive of Finance & Executive Director [56]

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How much do we have for the first half, we have what? 30%? Less? I don't remember.

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Patrick Klein, Buzzi Unicem S.p.A. - Group Treasurer & Financial Controller [57]

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Less.

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Alessandro Tortora, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst [58]

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It's 21.

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Pietro Buzzi, Buzzi Unicem S.p.A. - Chief Executive of Finance & Executive Director [59]

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21.

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Patrick Klein, Buzzi Unicem S.p.A. - Group Treasurer & Financial Controller [60]

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21.

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Pietro Buzzi, Buzzi Unicem S.p.A. - Chief Executive of Finance & Executive Director [61]

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No, it's much less. We don't really -- I mean yes, we have a budget, but to us, really, for the tax rate, I don't know. I mean until profit before tax, I think we can make a good assumption, a good guess -- I don't know.

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Patrick Klein, Buzzi Unicem S.p.A. - Group Treasurer & Financial Controller [62]

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It depends on the price we have coming...

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Pietro Buzzi, Buzzi Unicem S.p.A. - Chief Executive of Finance & Executive Director [63]

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Yes, and some debt, really. Because you actually can change -- or you can have more deferred -- more positive deferred taxes by year-end according to the calculation. I mean if you want to be on the safe side, use 25. Otherwise, keep it as it is, keep it at 20. But I don't, how do you say, I don't take any responsibility.

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Alessandro Tortora, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst [64]

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No, no problem. Just only because we had, let's say, these good results, okay, on the fiscal side in FY. I don't know if there are something, let's say, specific or one-off. Or for instance, as you said before, it's a matter of mix, okay, helping you, okay, to keep these tax rates so low. Okay?

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Pietro Buzzi, Buzzi Unicem S.p.A. - Chief Executive of Finance & Executive Director [65]

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Yes.

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Operator [66]

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Next question is from Gregor Kuglitsch with UBS.

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Gregor Kuglitsch, UBS Investment Bank, Research Division - Executive Director, Head of European Building & Construction Research and Equity Research Analyst [67]

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A few questions. Sorry, it's getting late. So just briefly on acquisitions. So you've just done EUR 80 million deal in Italy, I guess, to sort out the market. I think you gave us an EBITDA, which at run rate, implies kind of 6, 7x.

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Pietro Buzzi, Buzzi Unicem S.p.A. - Chief Executive of Finance & Executive Director [68]

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Yes.

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Gregor Kuglitsch, UBS Investment Bank, Research Division - Executive Director, Head of European Building & Construction Research and Equity Research Analyst [69]

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I guess the question I've got is your own stock trades on 5.5, 6, something like that in terms of EBITDA multiple. So how do you kind of justify acquisitions that are much higher than that multiple? I understand, in Italy, there's a network effect and you're fixing the market. But more philosophically, how does that kind of work for you internally? Or you don't really consider your own stock in that context?

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Pietro Buzzi, Buzzi Unicem S.p.A. - Chief Executive of Finance & Executive Director [70]

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I mean yes, financially speaking, you're probably right, difficult to find or there's no clear evidence of this justification. Again, in this specific case of Italy, we felt that we have the impression that -- more than an impression, I mean we know that the current -- if you want to stay in this country, and I think we want to stay for several reasons and sometimes go beyond also the pure business reason, we cannot just stay like this forever. We need to do something. We need to bring the country operation to a level that is profitable, of course, and also sustainable, more than what we have been able to do until now. So we realize that with the existing assets, we could not achieve that sustainable and profitable level in the long run.

So again, I was somehow we met all the -- do we want to achieve this level which way we can do it, we can achieve it or not? And the answer was yes. Probably could have we spent less than what we have spent? Difficult to tell because like in any transaction, of course, you try to deal it back to deal with your counterpart. I think we did okay. And at the end, really, I think what's -- the price was important. It's not that we did not discuss it and we try to lower it as much as possible. But the philosophy, if you wish, behind it was really what do we want to do with the Italian business? Do we want to leave it as it is and continue in a satisfactory way? Or try to fix it at the lowest possible cost? By the way, maybe not necessarily this -- I hope this would not imply further capital, let's say, outlay. But even with this acquisition, we cannot consider our Italian operation fully sustainable in the long run. I mean there's still something to be done. But probably, it will be more internal, let's say, than external. So we have still to do something. So this is the main justification, which I don't if you...

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Gregor Kuglitsch, UBS Investment Bank, Research Division - Executive Director, Head of European Building & Construction Research and Equity Research Analyst [71]

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That makes sense. Then maybe coming back to CO2. So I think, in the first half, you kind of sold, I think, if I recall it correctly, 15 million of certificates internally.

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Pietro Buzzi, Buzzi Unicem S.p.A. - Chief Executive of Finance & Executive Director [72]

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Yes.

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Gregor Kuglitsch, UBS Investment Bank, Research Division - Executive Director, Head of European Building & Construction Research and Equity Research Analyst [73]

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And I guess if we could extrapolate that for the year, maybe it's going to be 30 million or something like that.

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Pietro Buzzi, Buzzi Unicem S.p.A. - Chief Executive of Finance & Executive Director [74]

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Exactly.

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Gregor Kuglitsch, UBS Investment Bank, Research Division - Executive Director, Head of European Building & Construction Research and Equity Research Analyst [75]

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And then obviously, next year, maybe still the same. But -- so what happens in '21? Does it basically become an instance where the cost in Germany is not going to disappear? It's still going to be there? In Italy, the income disappears because you don't have the excess, then you'll have a EUR 30 million drop in profit basically, unless you're able to recover it on price or...

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Pietro Buzzi, Buzzi Unicem S.p.A. - Chief Executive of Finance & Executive Director [76]

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Our inventory still allow us to carry on for maybe 2 years. We'll see, 2.5 years after 2021. We will see.

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Gregor Kuglitsch, UBS Investment Bank, Research Division - Executive Director, Head of European Building & Construction Research and Equity Research Analyst [77]

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Okay. 2021, you're covered.

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Pietro Buzzi, Buzzi Unicem S.p.A. - Chief Executive of Finance & Executive Director [78]

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Yes.

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Patrick Klein, Buzzi Unicem S.p.A. - Group Treasurer & Financial Controller [79]

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5 million tons...

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Pietro Buzzi, Buzzi Unicem S.p.A. - Chief Executive of Finance & Executive Director [80]

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5 million tons approximately...

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Patrick Klein, Buzzi Unicem S.p.A. - Group Treasurer & Financial Controller [81]

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Something like maybe every year a little more. So more than 1 million tons now, so maybe less than 5 years, let's say. Yes.

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Pietro Buzzi, Buzzi Unicem S.p.A. - Chief Executive of Finance & Executive Director [82]

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Yes. So okay, it's not immediate. But of course, it will change because the free allowances will be adjusted to the most recent average production. This is particularly negative for Italy, not so much for the other countries where we are running at high capacity utilization level. So maybe we were speaking about bottom in Czechia before, they will enjoy an amount or quantity, let's say, of free allowances, which will be very close to the full capacity utilization.

So yes, the trouble -- issues is mainly Italian, where we are, yes, trying, this is one of the effort also related with the recent acquisition to improve the capacity of utilization, but we will for sure receive lower free allowance.

And then from then on, as I mentioned before, this is a situation which affect the entire industry. So it's an issue not only for ourselves but for the entire industry. I think 2 direction. One, to lower your CO2 footprint as much as possible, but this is quite difficult in our industry. So maybe you can improve with a plan. I mean 5% best case, I don't know. If you asked us, maybe we can lower 10%, but more is going to be very, very difficult unless you really change completely your production process. So you introduce some kind of carbon capture, let's say, equipment. So these is on one side.

On the other, probably transfer part of the additional cost to the customers, if possible. This will make the Italian market too attractive for the importers or for the exporters. Then I mentioned before, you will probably have to somehow either lower your production level, possibly keep your sales level, maybe become partly an importer, maybe -- I mean these are something that we have to start working on it and understand what could be best. But yes, it's a new one, the 2021 date, or new -- it's really a new year for -- and it will also trigger some capacity closure, which has not happened so far because of the famous 50% rule, which in a sense is positive because there's been recently too much, let's call it, sales driven just by the various CO2 allowances goal. So -- the goal to achieve the full allowances. So I think it will be beneficial overall for the industry in the sense of restructuring the capacity more costly for the customer, I think this is inevitable.

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Gregor Kuglitsch, UBS Investment Bank, Research Division - Executive Director, Head of European Building & Construction Research and Equity Research Analyst [83]

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Okay. And then final question, just to come back on the debt. So I see like in the last few years, generally in the second half, you generate something like EUR 200 million of free cash flow. And then obviously, you're spending EUR 80 million on the plant. So I was thinking, your comment earlier, I think it was from Patrick, suggesting the whole year will have EUR 100 million debt reduction. But you already had nearly EUR 100 million in the first half. Obviously, though, I understand there were some other moving parts, but starting from the first half, so the EUR 100 million is year-over-year? Or is it from the first half? Because it just sounds low because you basically already delivered that in the first half. So...

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Patrick Klein, Buzzi Unicem S.p.A. - Group Treasurer & Financial Controller [84]

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Yes. EUR 100 million or more than EUR 100 million, but not much more than EUR 100 million if we compare the net financial position as of 1st of January 2019 and the 31st December 2019, that's what I'm talking about, so basically a total year reduction in net debt, considering all the FX -- full year FX that we can forecast.

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Operator [85]

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There are no more questions registered at this time.

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Pietro Buzzi, Buzzi Unicem S.p.A. - Chief Executive of Finance & Executive Director [86]

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Okay. Good. Good. I mean good in a sense that I think everybody will be a little tired of listening. Okay. Thank you for those and thank you for your patience. I hope you did get enough information we remain available. I don't know if Agostino is leaving right away for vacation. But anyway now, we remain available. Please touch base with our Investor Relations if you need anything else. Thanks again, and goodbye.

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Operator [87]

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