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Edited Transcript of CEM.MI earnings conference call or presentation 26-Jul-19 2:30pm GMT

Half Year 2019 Cementir Holding SpA Earnings Call

Rome Jul 31, 2019 (Thomson StreetEvents) -- Edited Transcript of Cementir Holding SpA earnings conference call or presentation Friday, July 26, 2019 at 2:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Francesco Caltagirone

Cementir Holding S.p.A. - Chairman & CEO

* Marco Maria Bianconi

Cementir Holding S.p.A. - Corporate Development, M&A and Business Integration 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

* Emanuele Gallazzi

Equita SIM S.p.A., Research Division - Research Analyst

* Matteo Bonizzoni

Kepler Cheuvreux, Research Division - Equity Research Analyst

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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 the Cementir Holding First Half 2019 Results Conference Call. (Operator Instructions) At this time, I would like to turn the conference over to Marco Bianconi, Head of M&A and Investor Relations of Cementir Holding. Please go ahead, sir.

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Marco Maria Bianconi, Cementir Holding S.p.A. - Corporate Development, M&A and Business Integration Director [2]

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Thank you. Welcome, everybody, and good afternoon. Welcome to Cementir Holding Group 2019 First Half Results Conference Call. I'm here with Francesco Caltagirone, Chief Executive and Chairman of the company.

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Francesco Caltagirone, Cementir Holding S.p.A. - Chairman & CEO [3]

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Good afternoon.

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Marco Maria Bianconi, Cementir Holding S.p.A. - Corporate Development, M&A and Business Integration Director [4]

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So if you take the presentation on Page 2, I'll glance through the documents very quickly. So the main highlights for the first half of the year has been the revenue, which rose by 0.6% to EUR 591.9 million, with a good performance across the group, including Nordic and Baltic, Belgium and Egypt, offset by Turkish lira devaluation and a difficult trading in Turkey. Like-for-like revenue declined by 5%. Now the constant exchange rate, revenue would've been up 2.3% from last year. EBITDA increased by 14.7% to over EUR 110 million, including EUR 12.3 million of IFRS 16 impact. There has been a higher contribution in the Nordic & Baltic, Belgium, Egypt, China and Malaysia and a lower contribution from Turkey. At constant exchange rate, the EBITDA would have reached EUR 108.7 million. Group net profit reached EUR 27.3 million, and it compares with EUR 77.6 million of last year, which included over EUR 40 million revaluation of Lehigh White Cement stake at over EUR 14 million of one-off hedging gains. Net financial position rose to around EUR 399 million due to EUR 80.8 million of IFRS 16 one-off impact and some working capital seasonality and over EUR 22 million of dividend distribution.

Turning over the page to Slide #3. The most important division, Nordic and Baltic, which accounts for over 50% of our group EBITDA, reported a good results, with revenue up 3.2% from last year, with domestic gray volume significantly up and export volume, flat. Ready-mix concrete volumes are down due to lower infrastructure projects, and EBITDA positively impacted by good cement performance. It was a EUR 4.6 million impact from IFRS 16 in the first half of this year. Norway, also volumes were up 3%, also thanks to milder weather. Prices were up, and EBITDA was also up, thanks to operational gearing. Sweden ready-mix volumes were down, but aggregates volumes increased, therefore, EBITDA was up from last year.

Moving on to the next slide, #4. Belgium and France, which accounts for around 28% of group EBITDA, volumes were up, thanks to mild weather and positive trend in Belgium, France and the Netherlands, with prices moderately up as well. Aggregate volumes were flat due to difficult comparisons, with higher prices in Belgium and flat in France. EBITDA was strongly up due to good performance of cement and aggregates. There was a EUR 2 million impact from IFRS 16 in the first half of this year.

Moving to Page #5. You have North America, which accounts for around 10% of group EBITDA, where white cement volumes reached around 323,000 tons, revenues of over EUR 70 million and EBITDA over EUR 12 million. Like-for-like comparisons are meaningless as Lehigh White Cement was first time consolidated in the second quarter of last year. This EUR 12 million of EBITDA includes EUR 2.2 million of IFRS 16 impact.

Turn over to Page 6 on -- we go to Turkey and Egypt, which accounted for minus 2% of group results. Cement volumes in Turkey were down over 40% due to domestic recession, and RMC revenue local currency also declined by 43%. Turkish lira devaluated by around 22% in the first half of this year compared to the same period of the year before. EBITDA declined to minus EUR 6 million due to lower volumes and higher fuel and energy costs. On the contrary, Egypt's revenue was up 53% as trading condition returned to normality. Domestic prices were up where -- while U.S. -- while export U.S. dollar prices remained flat. Also, the Egyptian pound revaluation impacted EBITDA positively.

Turning over to Page 7, Asia Pacific, which accounts for around 8% of our consolidated EBITDA. China continues to trade well with revenue up 15% with both domestic volumes and prices up, and EBITDA was up 7.5%. Malaysia, well, domestic white cement volumes and prices were up with better product mix. Whereas export volumes were relatively steady overall as the effect of lower sales in some markets were offset by higher sales of other markets like Philippines. EBITDA growth was recorded, thanks to higher volumes and prices despite increasing variable costs.

You have on Page 8 the consolidated income statement, which I'm not going to go through in detail. Leave the floor open to questions. And clearly, the point to notice here is on the financial income, the fact that we reported in the first of half of the year minus EUR 15.5 million cost. But last year, our result was clearly impacted by one-off in exceptionals. So on a like-for-like basis, the result is basically -- is slightly better than last year.

Moving on to the last slide, Page #9. We reiterate the guidance for the year with revenues to reach around EUR 1.25 billion and EBITDA in the range between EUR 250 million and EUR 260 million, including EUR 23 million of IFRS 16 impact. The net financial position is expected to reach around EUR 245 million, including EUR 80 million of IFRS 16. These numbers include a CapEx of EUR 70 million for the year. So overall, we expect the net financial position to EBITDA to be lower than 1 by the end of the year.

And this concludes my presentation, and I leave the floor to any questions you may have. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from Matteo Bonizzoni of Kepler.

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Matteo Bonizzoni, Kepler Cheuvreux, Research Division - Equity Research Analyst [2]

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I have some question on financial charges. I would like to know if you can decompose this EUR 15.5 million between the pure financial charges, so the cost of debt, and the derivatives, ForEx and so on. And what is an indication for the financial charges for the full year?

As regards to your operating performance, on Turkey, you posted a EUR 6 million EBITDA loss in the first half. You have -- since the last challenging comparison base in the second half, should we maybe expect for the full year EUR 10 million EBITDA loss? Or do you still target breakeven, sort of breakeven, in the second half?

And finally, I was not in Italy. What is remaining of your Italian operation that's posted a moderate EUR 3 million EBITDA for the first half? That is quite significantly up compared to last year. I just wanted to know where it comes from and what we should expect for the year.

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Francesco Caltagirone, Cementir Holding S.p.A. - Chairman & CEO [3]

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About the financial charge, I can say that half of this are loss on exchange rate. So this means that, that is a pure translation. It's not an effective cash out. And the other are the pure financial charge of EUR 7.5 million.

On the outlook on Turkey, we can say that -- I think -- it seems that the situation started, let me say, not to improve, but there is a bottom. If we consider that on our EUR 6 million negative EBITDA, we performed 5 -- minus EUR 5 million in the first quarter, minus EUR 1 million in the second. And I think that the third quarter should start to be slightly positive. I cannot also -- so by the end of the year, probably I expect that the result can be a bit better than what we have reported so far. But anyway, compared to last year, half -- on half, Turkey is performing EUR 16 million less compared, and it is nearly all outbalanced by the over-performance of the remaining part of the perimeter.

On Turkey, I also to say that 2 months ago, we have replaced the CEO. We have a new CEO coming from, let me say, cement industry in Turkey, and he's, let me say, bringing forward a program of -- called cost cutting of around EUR 10 million. So I think that the situation in Turkey should start to, let me say, be better in the last quarter. But for sure, with our cost cutting, I expect that next year should be better.

Also important that we are starting to see some bankruptcy and also some sales of assets of our competitor. This means that even if the quantity and the consumption outlook remain grim, the outlook for the price, for sure, I think that we shouldn't go farther below this level.

And...

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Marco Maria Bianconi, Cementir Holding S.p.A. - Corporate Development, M&A and Business Integration Director [4]

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Italia.

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Francesco Caltagirone, Cementir Holding S.p.A. - Chairman & CEO [5]

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Italy, I mean the positive number is by our trading company. We are, let me say, buying and selling mainly energy, coal, clinker and cement for ourselves and for third party. And the activity, let me say, is going quite well and I think also that, in the second half, should continue on this trajectory.

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Operator [6]

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The next question is from Emanuele Gallazzi of Equita.

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Emanuele Gallazzi, Equita SIM S.p.A., Research Division - Research Analyst [7]

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The first one is on Belgium and France. If you can give us a little bit more color on the improvement in [margin] in the second quarter. And generally speaking, for all the other markets, if you can give us an indication of the outlook going forward in the second part of the year.

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Francesco Caltagirone, Cementir Holding S.p.A. - Chairman & CEO [8]

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On I -- so first to the second question. So I don't -- we continue to see solid market in Belgium, France. In the Nordic & Baltic, we continue with, let me say, slightly, let me say, increase in price market stable. Egypt should continue also to perform better than last year, continuing in its trajectory. And also, Asia Pacific should continue. So we should have, let me say, the second half that -- including also a slightly improvement that we see in Turkey, that should be a little bit better.

The only headwinds that we are seeing now is the summer price activity, let me say, price collusion on the white cement in U.S.A. But let's say, it seems manageable and mainly linked to the seasonal effect also. As you can imagine, we bought last year this company. We are repositioning ourself in the market. So for sure, we have -- we need to reposition the company in some market, a push on the price.

On the quarter-by-quarter, I leave to Marco again.

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Marco Maria Bianconi, Cementir Holding S.p.A. - Corporate Development, M&A and Business Integration Director [9]

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Yes. If I understand well the question about Belgium in Q2, I think the -- well, the results in Q2 in Belgium was, I would say, an increase in absolute terms on a like-for-like basis from last year, I would say double digits in terms of EBITDA. And that was mainly driven by the aggregate business, but to some extent, also by the cement activity. So I would say that, overall, Belgium is performing quite well in terms of profit and sales. Sales were up mid-single-digit and profit up double-digit EBITDA. So as the Chairman said, we expect this trend to continue at maybe a set or moderate pace during the rest of the second half of the year. But we expect an absolute increase in the results.

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Operator [10]

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The next question is from Alessandro Tortora, Mediobanca.

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Alessandro Tortora, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst [11]

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Yes. I have, let's say, 2 questions, if I may. The first one is on Egypt. If, let's say, you can give us maybe an idea of what is the situation there, if the plant is running its teams, let's say, better compared to last year, therefore, let's say, an update also on your outlook on the Egypt. Okay, that's all for you.

The second question, sorry, if you can come back to the U.S. and also to this price repositioning you mentioned. If you can just, let's say, explain to us better how you're going to do these price repositioning and if, for instance, we can expect next year, let's say, some better penetration of the white cement maybe to the treatment of the partial -- to the treatment of, let's say, some margins.

And the last question is -- let's say it's not a question, but just to understand if you are planning this year also to give us and to release an update of your business plan.

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Francesco Caltagirone, Cementir Holding S.p.A. - Chairman & CEO [12]

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In Egypt, I mean the situation seems calm now. There is also the opportunity that last year, Heidelberg has sold its white plant to the other competitor. So 3 players, now we are 2 players, that we share the market. For sure, our activity except for, let me say, the local market is linked to the export. The export is linked also to the availability of the road and the harbor. So it depends on how, let me say, the situation from the terrorist point of view is. So far, it seem, for sure, better and brighter, but I cannot assure that in 3 months, nothing will happen. This also, let's say -- if these kind of things are, let's say, unforecastable and lately it is so difficult.

On the U.S.A. market, I was just saying that Lehigh White was managed by Heidelberg for 30 years. This is the first year. So we have, let me say, realized that in some markets in the last 10 years, they lost some, let's say, market share or probably we can have markets that are, let me say, more profitable than others, say -- let's say, always speaking inside the U.S.A. So when I say price repositioning is that we might, let me say, put some pressure in some market to gain the market share, to exit some other in another part. And let's say it's something that, as you can imagine, cannot happen in 1 or 2 months. It's a project of this year and next year. So sometimes you need to lower at least the prices, the consumption of solid. And let me say, even the forecast for the end of the year next year seems in line with our forecast.

We are just telling that while in the other part of the perimeter, for example, Belgium, France and other markets, we also see an increase or slight increase in price. I think that today our policy of repositioning doesn't, let's say, allow to, let me say, increase the prices. So I think that for this year and next year, our main target is to repositioning the company in the market instead of, let me say, to lower leveraging on the profitability.

And about the industrial plan, we should -- let me say, we haven't, let me say, released, so far, the plan. Because this year, as you can imagine, to forecast Turkey was quite difficult and ugly, first, for the political situation, then we had 2 rounds of elections in Istanbul. And now it seems that the situation start to normalize. And so I didn't want -- or we didn't want to give a number or forecast that -- in Turkey that, anyway. It's a part of our perimeter that in terms of revenues the last year was 15%. So I think that probably when we will have the next Board meeting, that will be before mid-November for the third quarter, probably, if we have, let me say, a solid view on Turkey, we will release. Because on the other part of the perimeter, more or less, we have, let me say, the idea quite clear. This is just because I don't want to give a number and then to retouch the number after 6 months. (inaudible) [at least] now it's stable, also a little bit improving. And also the political situation, it seems that we have, for the next election, another 4 years. So it will be easier to -- let me say, to forecast our results.

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Operator [13]

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Gentlemen, there are no more questions for this time. Would...

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Marco Maria Bianconi, Cementir Holding S.p.A. - Corporate Development, M&A and Business Integration Director [14]

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Okay. Thank you. Thank you very much for participating to the call. I look forward to talking to you in the next few weeks.

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Operator [15]

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Ladies and gentlemen, thank you for joining the call. It's now over. You may disconnect your telephones.