Star and zeroq on your telephone. At this time, I would like to turn the conference over to Mr. Pietro Buzzi, Chief Executive Officer of Buzzi SpA. Mr. Buzzi, you have the floor, sir.
Yes, good afternoon to everyone, and welcome to our semi-annual conference call . Yes, I assume that you, you are having, if not in your hand, but in front of you, the presentation that, that we just published on our website. I will try to follow that as quickly as possible, not necessarily all the pages, but try to do it maybe in a summarized way, and then leave some space for the questions that you may, that you may have. If you look at the first half, 2023, in terms of market trends, we have experienced, generally speaking, some slowdown, more in some areas, less in other.
Overall, the decline or the slowdown in cement volume was around 8% across the scope of consolidation. On the other hand, looking at the first line, so the turnover, the other major variable was the selling prices, as usual, which have strengthened quite a bit, also not everywhere, again, but in some areas also during Q2. With different degree of intensity, but overall, quite a good, let's say, trend for selling prices in the first in the first half. This makes certainly this scenario that brought the turnover up quite significantly.
We went about 13% within about 13% better to 2023 versus 2022, driven as, as we, as we said, mainly by the positive price effect. We didn't almost have any, or at least not any significant, foreign exchange fluctuation, so small contribution of EUR 8 million to favorable i n this case, to the overall turnover. When we look at, at the first level, let's say, operating results, the performance was even better, because in the meantime, we experienced in the meantime and during, during the first six months, we also experienced some kind of tailwind or positive price cost spread.
Cost behaved in a way that was still, let's say, inflationary, but definitely less than what we were planning at the beginning of the year or at the time of the budget approval last, last year. This was reflected into a very strong performance, growth in the EBITDA of more than 55%. Particularly also very strong recovery margins, about 700 basis points. Really excellent performance and definitely above our internal expectations. Net cash position also increased by about EUR 124 million compared to the end of 2022, and is ending at EUR 412 million by June 30.
[audio distortion] A nd looking somewhat down the road for the next, let's say, six months, we think that our full year performance will definitely exceed, will exceed significantly, the 2022 performance. We expect recurring EBITDA to be now in the range of EUR 1.1 billion-EUR 1.2 billion consolidated for the full year. If you look at the main highlights, as we already mentioned, we have an improvement in net sales, in EBITDA, in margins. Last year, first half was probably one of the weakest, let's say, in the last period.
Not l et's say, looking backwards to many years, let's say, post pandemic and post Russian-Ukraine conflict. Certainly, the comparison base for first half of 2022 was not a particularly good one, still, we can see that the performance really exceeded our expectations. Free cash flow improved, also quite nicely.
Last year, we had some issues, or not issues, but let's say, impacts, associated with the working capital, with the fact that, let's say the growth in sales revenue translated also quite significantly into higher receivables, higher stocks and inventory valuation, which was somehow also the case during this year, but much less. In addition to that, last year, we have been purchasing in advance some CO2 rights, which we did not this year, also because the lower, let's say, trend of volumes and production is not, it's not a good news overall, but in terms of CO2 rights, it's an advantage because you need to buy less or the potential deficit for the full year is going to be not as big as in 2022. Looking by, by region, let's say, we noticed that Italy was one of the best perform in terms of volumes. We remained basically flat versus last year after a stronger Q2. Then you had a minor difference in, in Europe, but this is quite differentiated among the countries, let's say, within the European division.
Definitely slower performance in Europe, meaning Czech Republic and Poland, and better performance in Ukraine and Russia. Ukraine also made, you certainly recall that last year, the first half was a particularly weak one, or anyway, let's say a very specific situation associated with the, with the, with the opening of the conflict and the fact that for two, three months almost, the production was stopped, and also, and also the, the deliveries were, were basically, either, I mean, very, very with market. In U.S., the performance was okay.
Overall, we have locked down about 4%, but towards somehow impacted also by rain, several days of rain, particularly in Texas during the first half of the year. In general, also, with an economy or anyway, with a residential construction, let's say, trend that is flattening due to the changes in the cost and in the interest rate. We can consider also the, let's say, the U.S. trend quite quite quite good in the current macroeconomic situation or scenario.
The worst performance in terms of volumes came from the so-called Central European division, where both Germany and also the Netherlands and Luxembourg suffer from a weaker economic environment and in general, from a much weaker construction trend versus the first half of 2022. On the following page, on page four, you have an analysis of, again, the turnover variance split by region and also by volume and pricing. We see that everywhere, basically, the price effect without performing the negative impact, is more than offsetting the negative impact coming from the volume decline. This is true for any region we are operating.
The EBITDA bridge, the entire scope of consolidation, we notice that again, price effect is worth about EUR 430 million versus a volume unfavorable variance of about EUR 157 million. Variable cost went up, as I was saying at the beginning, also in a situation where the production was lower, was declining. Normally, you should expect variable cost to be either flat or declining too. Instead, we did have an additional burden. But there are several area or several countries where actually the unit cost of fuel and power either remain at the same level of the previous year or actually decline
This clearly represented an advantage in terms of rebound and recovery of the margins and of the profitability. Fixed cost also increasing, but pretty much, let's say, under control, considering that the first half usually is burdened by more maintenance downtime, typically the beginning, the beginning of the year. Other changes are not very significant. Also the impact of the CO2 cost, which usually comes in the second part of the year, was very, was very limited, and it may continue like this also in the second half, if the production level remains somehow subdued or below the, let's call it, or at the level of the free allowances granted by the European Union.
If you look at the trend of energy costs, again, to give you an idea, it's quite interesting on page 6. You can see that for the cement industry, the cement sector, let's say, business as a whole, our, let's call it, energy bill is it is going up. If you compare first half of 2023 EUR 280 million versus total 2022 of EUR 529 million, and you multiply approximately by two, you see that there is a unfavorable, let's say, variance. Also versus last year, when the first half was EUR 234 million.
On the other hand, if you compare on the, or if you make the calculation, the ratio between energy costs and revenue, thanks to the stronger price improvement, our, our weight or the weight of energy cost over revenues was actually somewhat lower. Also the other graph is giving you a similar, a similar picture. In this case, we are talking about unit power cost or unit fuel cost. Again, inflation is there, so our, our, let's say, specific specific cost for, for energy has been, has been going up, both versus H1 last year, but also full year.
In terms of their, let's say, importance or their weight on the revenues, there is actually a small, small decline, a small advantage, so kind of opening up again, the differential between price and cost. If you want to look a little more into the details of the different, the different regions, starting from U.S., which are clearly the most important, as you know, for our group, the most important geographic area. We can recap briefly by saying that the revenues went up by approximately 15%-16%. EBITDA moved up very nicely from EUR 181 million last year for six months to EUR 257 million.
The EBITDA margin went back to the level of the H1 2021. It's again a very good performance. I mentioned already that somehow the volumes were penalized by unfavorable weather in some areas. You can see that as well as in other regions, the pricing momentum allow somehow the margins to recover versus the 2021 level. The FX impact has been small, not so significant.
It may actually turn the other way around going forward if the dollar remains at around 10, like it is today, because, you know, last year, the strength of the dollar was actually showing or really came, came, came visible during the second half of the year. Italy, very good performances, numbers that we were not used to or we have not been used to for many, for many, many years. We recover in sales revenue, even if actually the price effect was not... Well, it was important, but not driven by additional price increases because we kept basically the level of the average price 2022.
This was, was enough to, to, to really modify the, the, the, let's say, the profitability structure in a, in a very, in a very significant way, due to the fact that, again, our budget was targeting and was assuming, certain costs for fuels, and also power that actually materialized, and it was good in a sense not to be locked in, in terms of pricing. The market decline of the energy cost, we were able to enjoy it fully.
Keeping that, the EBITDA includes anyway EUR 12 million of subsidy, that's full tax credit on energy cost, which which is expiring basically now, at the end of June, it will expire, so we won't have the same kind of benefit in the second half of the year. Yes- we should continue to have a positive, let's say, price spread result, moving forward, assuming that the energy cost will stay at the current level. The Central European market, more troubled in sense of, in terms of volume as as we said already.
The demand is somewhat weakening, but there were sequentially, say, price increases at the beginning of the year, which made, let's say, the issue of weaker volume less evident. The EBITDA actually, in percentage, in a relative way, was very strong, ach- achieved the performance of +57%, which is basically on average versus the overall, overall scope of consolidation. The very, the very solid, let's say, passing cost dynamic brought the margins back to around 20%, which for this area is quite a good level, too.
Again, some worries also looking forward in the sense of how much the demand will decline, will continue to decline, but for the moment, this is not being reflected in our, in our results. Eastern Europe mix, second Poland contraction, not as much as Germany and Luxembourg, but similar, let's say, between 14 and 20%, 15%-20%. Slow down in residential and higher interest rates in those countries, even more than, than in the Eurozone clearly, or the Euro currency. Overall, anyway, price cost dynamics also here able, able to offset the negative volumes. Ukraine, strongly bound, if you look at the volumes, because of the comparison base, like I was mentioning at the beginning.
It's a challenging environment, it continues to be a challenging environment. In the second half, we expect things to be somehow similar to the previous year, so no special recovery. Considering that the first half was not really consistent, we should end up somewhat better in Ukraine, too, even though the numbers are low and not really impacting in a significant way, the overall result. Russia performance was okay. In sense, it's slightly better in terms of volume, somewhat better pricing, and also improvement in results, not so evident as in other areas, but I would say a steady and consistent performance so far from the Russian investment.
Taking a look at the countries that are not consolidated, but anyway, they're bringing, can bring or usually bring a significant contribution to our overall result. Mexico, for sure, has been one of the, if not the top, one of the top, or the top performer, during this first six months. Very strong volume trend. Pricing, so in this case, double impact, positive double impact, volume and prices, leading to an advance in EBITDA of about 50%, a little bit more than 50%. In addition to that, the peso was particularly strong during the first six months. We gain another 11% or 10%, if I recall correctly, thanks to the strength of the local currency.
In terms of profitability, very, very high, but also not too far from levels where that we've been somehow used to. Confirmation of the level that we had before, let's say, the pandemic, and also the inflation or, or the cost inflation crisis, which, by the way, in Mexico, has never been so significant as in Europe or in the United States. The effect of stable, let's say, power cost, helped us a lot our local associate to maintaining a very good margin across the last two years, as you can see. Positive variance at very high levels. In Brazil, so-so performance, a bit disappointed.
Probably the only country where we, we can say that are a bit disappointed, disappointed. In general, the economy is held back, like we mentioned here, by very high interest cost and high indebtedness. Not particularly strong construction industry. The volumes of cement have been stable to slightly negative, particularly in the Southeast, where most of our presence is. Northeast area performed better, but the Southeast suffer from this economic environment and also from some weather issues, like severe rain, during the first, three to four months. Selling prices moving up, also in Brazil, but by full extent, so not as much as we have seen in other countries.
Costs are continue to be very, very competitive, very low, so very stable if you look at the, the trend of energy cost. As opposed to other countries, here, it was not possible to improve, to improve the margins. Actually, the margin contracted quite a bit due to also concentration of, let's say, fixed costs during the first half, maintenance shutdown period, et cetera. We are looking to, let's say, do better in, in the second half, in the sense of at least, we hope, rebalance the result in a way that that they should turn out to be no lower than the ones of t he previous year.
Mentioning the outlook coming out from the first six months, it's interesting in a sense that we are heading towards a year that even it's surrounded by, you know, I mean, a lot of uncertainties and potential volatility, is looking very strong there, and should reach a level which is probably a record for the company in the last 20 plus years. We had some very positive years before the financial crisis. I recall, let's say, EUR 1 billion EBITDA level, but the scope was a little different. We also had, we used to consolidate the Mexican joint venture in a proportional way.
I think that if we, if we are able to match, let's say, the guidance, 2023 should definitely be a record year for the company or the highest level ever, ever reached. No big news or no, not big good news on the volumes expected, so still some concerns about financing, interest rates, potential recession weighing on the construction industry, and make us think difficult to imagine a positive variance for the volumes, particularly in some of the countries where they have been so, like, quite weak in the first, in the first half. This, this continues to be our base case scenario for the volume.
We see, again, in the, in the second half of 2023, some support to the volumes in Italy, where we expect to be, to be basically stable versus last year. We should have more support from infrastructure coming, coming, let's say, to the point of actual cement and then concrete delivery. In theory, many, many projects in the pipeline. Maybe only a few of them or some of them will, will come to the, to the real, let's say, construction phase. There are good chances that this will keep the overall, let's say, demand i n a, keeps similar to the, to the 2022 levels.
In U.S., probably slightly worse, but we're talking about negative changes that should stay within - 2, - 3, not much more. The in the most recent PCA forecast is assuming for the country as a whole, - 3.5, 3.4 in our regions, and let's say, also looking at what happened last year, over some kind of difficulties we had on one, particularly one of our production plants in August last year, made us suffer more, let's say, than the market. If we can keep a steady production level this year, we could also do better than the market as a whole.
Infrastructure projects in the U.S. are eventually starting, so there are two main, let's call it, driver. One is the Build a Better America, the other is the Inflation Reduction Act. Build a Better America was approved already in 2021, and so we, we are starting to see some of the, of, of the project forecasted or listed within this year to come really to the execution, to the execution phase. If this happens, like, looks like we should be able to maintain stability, or let's say, less, less or smaller decline in the demand, considering that the residential portion is a bit slowing down.
In Central and Eastern Europe, we don't think that we would be able to recover the negative variance that we experienced in the first half. We hope that it will gradually, let's say, diminish or reduce the gap versus last year, assuming also maybe light recovery in the Eurozone economy is the base case scenario, which does not consider potential or significant recession in Europe. Now, on the price side, of course, a lot has been done so far. If there will be a possibility to improve prices again in some of the areas, we will try to do it.
The key will be, obviously, to maintain what we have already achieved so far, and assuming again that the cost or the cost inflation is milder or limited, we can maintain also similar spread or profitability. Overall, following this assumption, we think that the EBITDA that the group can reach by year-end, can fall within an interval of EUR 1.1 billion or EUR 1.2 billion, as I was saying at the beginning, which is a very, very satisfactory level. Now, I think, yeah, I think we can move to the Q&A session. Sorry.
I would suggest also based on the experience that we had in previous previous conference call, that each one of you possibly limit itself to one or maximum two questions, just to make sure that everyone that is really interested question will have the time to, and also say with the idea of closing the conference call as quickly as possible. Thanks for your, for your listening, and I would ask please the operator to open the Q&A question. Thank you.
Excuse me, this is the conference call operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. The first question comes from Yves Roudaut of Société Générale.
Good afternoon, everyone. Thank you for taking my question. I'll stick to one just for the amount of time. Maybe my first one on pricing. Looking at your appendix on slide 18, there seems to be some price sequential drop and erosion, especially in Italy and in, and in Eastern Europe, sorry. Could you maybe comment on this? How should we think about the second half of the year? Will this trend continue, or is this just a temporary slowdown? Thank you.
Yeah, well, clearly, when you do not increase prices in a way or another, they would tend to decline. Italy is a case where we, we, we increasing prices several times in 2022. We thought that it was not, not, let's say, the right marketing strategy to increase further in 2023. We are keeping basically the level of the level of electric price, but the small, say, erosion can occur, which is what, which is what, which is happening. Are we going to make another price announce or price change in the second half, we will see. I mean, i t depends.
It depends on the, on the cost, it depends on the overall market, how strong the demand, what, what the, what the competitors will be doing. To answer your question, yes, Italy is one example, but also other area where, where the prices have, they stabilized at a certain level. Normally, if you don't go for a further price increase, which is not particularly necessary because, because it may not be justified, some erosion will, will inevitably occur. The important thing is to have a, let's say, a limited, a limited change.
As long as we are talking about losing EUR 1, $1, or EUR 2 or $2, okay, it's not great, but it's something that you can, you can then recover or go back to the same level or a higher level at, at the next round. Not, not too much to worry about, in my opinion.
Perfect. Thank you very much. I'll go back to the question queue.
The next question sir, is from Yassine Touahri , On Field Investment Research.
Yes, good afternoon. Just a question, looking at, at next year on, at the medium term in, in terms of, your, your pricing strategy, especially in Europe. I, I understand that, like, the clinker volume are, today quite low compared to the historical activity level of like, 2014, 2018, I think that in several of your plants in Germany and Italy, you're probably below 15% the historical activity level. What will be your commercial strategy?
Do you, do you accept to lose some CO2 allowance with the European, with the European, given the European adjustment mechanism? Is there anything that you can do to avoid losing the CO2 allowance, like exporting or or some kind of commercial strategy? I think the, the, the, the key question I have is that will you be able to increase prices again, or at least maintain pricing in 2024 in an environment where the volume are, are quite low?
I mean, being the -15 is an important threshold for sure, but this is across two years, so we have to look, let's say, it's a moving, moving, let's say, average across two years. We have certainly to keep it in mind because it's worth significant significant money. The fact of being granted certain volume of CO2. It's certainly one from a marketing standpoint, but like you're saying, it's certainly one of the variable we have to watch.
Unless, unless you think that, that this level of, of market is, is too high or will continue to decline, you could also, you could also, affect, by the way, of going below, the original, allocation level. We are working or we are targeted to stay within, within, within, this level. Will this translate into a different price, strategy? It may or it, it may not. In principle, I would say that we should try to continue not to lose. Further improvements may not be strictly necessary, it depends on the cost trend.
If we are able to stabilize the cost, at least for some time, I don't see really to push further on the prices. On a longer term horizon, there is always the issue of the full cost of CO2. What is today basically a non-cash or a vehicle cost will soon become a cash cost with the introduction of the carbon border adjustment mechanism and the partial or the gradual cancellation of the allowances. This is something that soon or sooner rather than later likely, especially in Europe, now we're talking Europe and the ETS scheme.
In other countries can be, can be totally different because this variable does not exist. In the, in the European countries, under the ETS scheme, this is something that will probably require prices to move up again, when it will become more clear or it will become evident that CO2 is not only different cost, but also, but also a cash cost. In the meantime, I think, again, we will, we will follow very closely the, the market trends. I don't think, no, you were mentioning exporting, difficult to, it is difficult to justify, even though, for example, this year, we did export from Italy to our own U.S. market, some volumes more than 100,000 tons.
Because, because in this case, the market price in U.S. is very, very high. It is one of the highest, it's the highest in, in our, in our, group of companies. At such a price, you can justify also some export with the goal, as I was saying in the beginning, to keep the, keep the level within the bracket.
I guess second question, you, your guidance suggests that you're going to generate a lot of cash, probably like EUR 500 million, within that index. What are you thinking to do with this very strong cash position?
We need to put it at use in the best way possible, which is possible if there are some investment opportunities, would be, we think preferable. Overall, we can anticipate or advance, some of the maybe, CapEx projects that are associated with the roadmap. Because more, technological issue than again, a financial or, or willingness. It's more actually to have, clear ideas and clear understanding of, for example, carbon, carbon capture or similar project, where and, and, and, and how they could be, they could be introduced or starting to be introduced.
We have also, for example, in, in the U.S., which has been, of course, a strong performer, strong cash generator, a list of projects that are not really maintenance in the sense that they are, what we call internally, additions. Somehow required if you want to, if you want to maintain our, our industrial footprint in an efficient way. This is also near some of the plants are older, or they have some critical let's say, cost center to be addressed. Also, always in the U.S., if you want to, again, in the light of the decarbonization and the lower clinker content, there are some situations where, as you know, we are becoming a bit tight on the, on the finished mill.
Y es, you use less clinker, but you need more additional or different raw materials, and you need more finished grinding capacity to replace or to improve the finished grinding in some of the U.S. plants. It's probably going to be a requirement in the next few years, and can be very expensive. Anyway, when you, when you, when you look at the cost of replacing or renovating, for example, finish mill department, particularly in U.S., in a big plant, it can easily cost you, I don't know, EUR 80 million, maybe EUR 90 million, very, very significant amounts.
Yeah, for the rest, we will also continue, I think, try to continue to have somehow a kind of shareholders friendly policy, which can be dividends, can also be more likely, I think, dividends, can also be share buybacks. It's good to have flexibility really to pick the best way possible. Another thing that is worth mentioning is that, as opposed to, let's say, two years ago, today, the liquidity is not a burden anymore. If you manage it correctly, you can anyway get not a great return, but some, let's say 4%, maybe 5%, something that you can achieve.
Even if you keep it idle for some time, at least it's giving you something and not zero negative, like, two years ago.
Thank you, so much for those, Pietro.
You're welcome.
The next question is from Yuri Serov of Redburn.
Hi, good afternoon.
Hello.
Hi. I don't want this to sound like a trick question, but it's a serious question, a serious question that I have. Yeah. Look, we are going through a massive downturn, volumes down 20% in some markets, but the companies are achieving key profitability, not only key margins, but key profits, including this, and this is probably ahead of everyone. Is there a risk that regulators will become interested in what's going on? We already hear politicians are talking about companies, greedy companies, pushing prices too high and fueling inflation and ripping off, and getting big profits. I'm not sure. I just don't know what your view is on this, and whether there is any risk in that.
I don't know. I don't know either. I hope not. I think we are, we are behaving, as usual, I mean, in, in the right way. I mean, we are not doing anything, anything wrong. I do not have an answer. I don't see a big, a big risk. Probably, well, maybe, yeah, in the U.S. or more in the U.S. than, than, in, in other countries. It's not, again, our base case, it's not our, our hope, and, and we don't think it's likely to occur. But it is true that, sometimes, things, can, can turn around, rather quickly. But this would, would require some significant macroeconomic changes.
When, when, when everything was going, you remember, I mean, that well, back in, in 2007, 2008, there was abrupt change. This is something that theoretically can always, can always happen. Again, it is not what we are, we are experiencing right now, what we see for the next, for the next, let's say, six months, 1 2 months. Something unexpected always can, can happen. The other point that you are making, I don't think so.
Again, the impact on our production costs are coming from energy inflation, cost inflation, generally speaking, and also hidden inflation or hidden costs or foreseeable costs, particularly in Europe, associated with the CO2 rights, in our opinion, justifies, let's say, completely the price trend that we have seen so far.
Well, I understand the costs are going up, but, you know, your prices are going up more, and the profits are increasing in the environment of falling volumes. I mean, that's pretty unprecedented. I hear what you're saying.
On the same topic about prices, what about your customers? So far, they have just been accepting the price rises quitel y. Then will they start pushing back?
Well, yeah, this is a good sign. It means that they came in themselves, because, you know, I mean, 60%-70% about, for example, of our customers is ready, mix of 50% is ready, let's say, and the rest is something different. Both categories, let's say, they were able. We assume that they were able, what we see both on the market, because we are a presence in remix, we are competing with them. They were able to transfer it, because, actually, I mean, there is more need for cement or the ability anyway, to somehow make cement more expensive without impacting too much on a certain project.
This is, this is related to, to the fact that, again, I think that you, you all know, the weight of the cement or the regulation in a certain project, in an overall construction project, continues to be quite low. I mean, we're talking about something that in a project can represent 8%, maybe 10%, sometimes it will be infrastructure project, but not, not much more. All other also, let's say, competing or, or potential alternative construction materials went up in a similar way or even more. Relatively speaking, cement remain competitive.
Okay. That's all. Thank you so much.
Thank you. Thank you.
The next question is from Alessandro Tortora at Mediobanca.
Yes, hi. Two question. Okay, for me, maybe quickly. Okay, first one. In Brazil, you comment before, because the performance is not actually fantastic on 2025. First of all, the question is, if you see some synergies or cost optimization Brazil can do? Then, considering the performance in Brazil, do you believe that this year we can increase the ability of Sierra, your, let's say, partner, local partner, inside the final to, let's say, to sell 50% stake? The first question. Thanks.
Yeah, the second point is certainly, certainly right, in a sense that, they... I think, the decision not to exercise the option this year was, was based on a, clearly on a financial, let's say, reasoning, and, and the idea that, that, the additional, I mean, the replacing 23 with, three years before, would, would have been a favorable, favorable, favorable for, for, for them, which could... It could still be. I mean, we will see by year-end, but, but may not be. Anyway, this is, this is more their thinking than ours.
Clearly, if you are looking to 2023, which more likely than not will be, will be stable or not, or not so, so improving, this is increasing, yeah, the likelihood that the option will be exercised in H1 2024. Currently, you were asking? I mean, you were asking.
Yeah, yeah, yeah. I was asking, also in the paper, the, the, the second question was, you know, it's also way that maybe you can use also your net cash, maybe anticipating some CapEx related to CO2, to the CO2 roadmap. Do you believe that at a certain point, the company will be able then relatively to announce some semi commercial carbon capture project? Will be also exploring some incentive, granted, I remember, obviously in Germany, now, the contract for difference. Just understanding or considering also the other competitors announcing the sort of project pipeline on CO2 capture, if at a certain point, also will soon announce some projects. Thanks.
Yeah. There are no, no new, let's say, I mean, there, there are a lot of studies undergoing, but, but from a, from a practical standpoint, today, we don't have any, any new announcement to be made. In the sense that the projects we are, we are working on are the Hercules, are the Doina, are the oxyfuel. These are the main ones. Oxyfuel is progressing, which is, is actually, on the, on the, more than the groundbreaking phase, and it will take, I think, probably two years to see, to see the plant, up, up, and running. In Doina, we are also progressing. In Doina, maybe we will be able to announce something related to, I think, or, let's call it, grants. We are working on that.
It's not, it's not, it doesn't, let's say, to us, we will do it anyway. Not, not that we, we, we have to wait for, for a specific help or for a specific, grant or contribution to move on. Of course, also, like you were mentioning, from an image standpoint, the fact of being able to enter into some kind of, let's say, public funding, would make a lot of sense. We are actively, actively seeking that.
Okay, okay. The last very quick question is on, let's say, the use of your liquidity, liquidity, as you mentioned before. Considering that the first half, you got also a positive net financial charges, is it something that you can maybe also projecting the second half of the year for the company, that we can not say, let's say, there is any positive sign on that line? Thanks.
I didn't get that. Did you get the question?
Yeah, it related to the...
You can ask.
Sorry, no, you are asking about interest rate, sorry, interest cost? Yeah, net interest rates. Yes, considering also the income. Thanks.
Net, if you look at net interest expense purely, let's say, without any kind of non-monetary, non-monetary, let's say, items like, I don't know, forex, unrealized exchange losses, we are already positive in the first six months.
Yeah, yeah. Yeah, the question was if there is any specific reason why we shouldn't see it, a continuation of this trend. Okay.
Well, there should, yeah, I think there should be continuation also because we don't have many, we don't have many repayments coming due in the second half. It's just EUR 100 million, but this will be repaid in October. We do not expect to refinance currently. Yes, it should, it should continue to improve the differential.
Okay, okay. Thanks a lot.
Okay. Thanks.
The next question is from Gregory Kuglitsch of UBS.
Hi. Good afternoon.
Hello.
Thanks, thanks for taking my questions. I want to ask, the first one is on energy costs. You gave the chart in your, in your booklet. My question is: What do you think at this stage is a realistic expectation for, for half two, I guess, at a compared to the last year or half one, whichever way you want to talk about it? I guess sort of, related, and I think it was touched on earlier, was the sort of, ETS question from Yasin, I think.
Yes.
I guess my bigger picture question is sort of, you know, this year going to put in, I don't know, EUR 1.1 billion-EUR 1.2 billion, let's say. Do you think, do you think you can hold that level? Is there any reason at this stage, I appreciate there could be all sorts of things happening to the macro, but any reason why you think that would normalize down, I guess, from that high level in the next, I don't know, 24 months?
We are clearly depending a lot, a lot on the U.S. market. I think, in, in, in Europe, assuming, assuming that the prices will not decline or from now on, let's say, reflect also potential the CO2 cost, like I was mentioning, and the, the, the, the European component, I, I see it rather, rather stable, say, going, going forward. The U.S. component can be, can be different because... It will depend really a lot on, my opinion on the, on the volumes, I mean on the demand. If we see a significant drop in the demand, in, in U.S., I think also the profitability will suffer in a way or another.
Also without maybe necessarily price decline, just because your, your, let's call it, operating level goes down. Today, it's basically optimized running, let's say, it's not full capacity, 95%. When you start to suffer from lower volumes, even if the prices stay, your operating leverage goes the opposite way. I think the key question, in my opinion, is really, which I do not have the answer. Well, I may have the answer for the next six months. I do not expect anything happening like this in the next six months going forward, more difficult.
The key question is the resilience or the stability of the U.S. market, which apparently should be supported, particularly by infrastructure, but you never know.
Okay. Regarding energy costs for the second half?
They look, they look quite stable. Yeah, they look quite stable. Where we have seen. Also we have been, we've been able to, to hedge, at, at a certain leve not fully. We have still some open, let's say, position. If we think in the last, let's say, 3, 4 months, we have seen quite a, quite a good degree of stability overall. Yeah, taking a look at our forecast, which is clearly, clearly better than budget, as I, as I would mention, compared to, compared to H1 2023. Yeah, stable in Italy, stable in, as, energy. I'm talking about specifically energy only, yeah?
Increasing some in Germany, but this is a slightly different situation where we, where we were, where last year, particularly in a particularly favorable position due to hedging data back several months before, let's say, the cost inflation of the energy charges started. Yeah, except for the Central European markets, where the, you know, the costs are still forecasted as at at a higher level versus the first half. The rest is pretty, pretty stable.
These are all half on half, not compared to prior year?
No, second , I mean, entire 2023 versus first half.
Okay.
If we had, for example, EUR 20 energy cost, per, per gigacal in the first half, we expect EUR 20 for the full year.
Okay, understood. Thank you.
The next question is from [audio distortion] of Bank of America.
Hello.
Hello. Hello. Just two quick questions from my part. I was just wondering on how kind of sustainable you think these margin increases can be in your markets, in particular Italy? I mean, I can see that, you know, accounting for the tax credit, margin in H1 has increased to 20%.
Yes.
Kind of more than double.
Yes
has ever been. Right. Kind of how, how sustainable do you think that will be going forward? Secondly is, do you, you know, with the energy costs kind of stabilizing, do you have a figure on how much you've kind of hedged for this going forward?
Yeah.
Thanks.
Well, for this year, we are about 60%. If you look at the group as a whole, 60%-70% already hedged. The comment I was making before about the expectation in the forecast, of course, includes, consider that. Also looking at the spot market prices, we haven't seen any significant volatility recently. On the sustainability of the margins, it's hard to tell. I mean, Italy, the picture of Italy, yes, it changed completely, but it's also really not comparable with three, four years ago, where we were EBITDA zero or EBITDA negative.
We've gone through a number of years, starting from 2010 until 2020, but even later with basically zero margin or even absolutely non-existent. Again, the percentage change, or also the absolute, but the percentage change in particular is very significant, but not so meaningful because of the low, very low starting point. We are in Italy, I would say back to a number, which is today, if you look at the H1 2023, it's not a bad number. But it's a number that in the cement industry is not so unusual.
I mean, it's, it's a number that you should have, particularly if you want to continue investing and follow even more now with the, with the, with the, let's say, roadmap projects that will be, that will be executed and, and, and required to, to, to meet, to meet, to meet the targets. I think that our competitors are in the same situation. They have a similar, similar, let's call it, pressure on, on, on, on performing and on, on complying, make sure that the, let's call it, roadmap to decarbonization is being, is being accomplished, it's being, being realized. The structure of the Italian market has changed quite significantly, for sure. I mean, if you compare it versus 10 years ago, a lot of consolidation in the market occurred.
I, again, we are not, as opposed to, to the U.S., we are, we are, we depend more in general, profitability depends more on the demand level. Today, in Italy, we are still well below, let's say, a high capacity utilization level. I think, I think it can make sense to consider, to consider this kind of number or maybe somewhat less, but let's say something between 20-25% profitability sustainable i n the, in the longer run.
Yeah, did you say you're at high capacity utilization in Italy?
Yeah, we are very, relatively low. It depends on the plants.
Yeah.
Clearly, if you look at some of our plants are still running at 60%, no more. On average, we are probably 65%, something like so in Italy right now.
Yeah.
Sorry.
Yeah, what if you have a 60% utilization, then surely, you know, if, if demand does increase, then there won't be a super high margin impact, because you can just, you know increase the amount you are producing at the plant.
Yeah.
Actually, the margin impact won't be super high. The upside from here is, I'd say, is limited now, or that you're guiding, you're saying you can reach 20%-25%?
No, I'm saying that, that for, for the Italian market, after, let's say, 10 years of, basically, negative or, or very, very small margins, in a new environment like today, with, again, potential, significant requirements, of capital spending, going forward, many, many projects, related to decarbonization, cost - general cost inflation, which is, which has been significant, and in some, in some item, let's say, relieve or, or can, can, can, can return. This kind of margin, again, I would say between 20, 22, 25, or 23, should not, should not be something, that we cannot, that we cannot maintain, or we cannot consider, let's say, sustainable. Then, clearly, it is.
What would change, I think, the most versus the year of the financial crisis is that today there are very, very few or maybe none of the competitors are really watching their market share as they used to. They are really focused on trying to being able to generate enough cash with the target and with the goal of being able to take, to stay in business going forward in a general environment, which is, will require, probably require significant CapEx projects associated with the decarbonization roadmap. Again, the structure of the market has changed.
There are very, very few, smaller players today in Italy than, again, five, six or seven years ago. I think the behavior has become much more, much more rational.
Yeah. Okay, great. Thank you very much.
Yeah.
The next question is from [audio distortion] .
Yes, good afternoon. Hi. I just had one question left, and it refers to the waterfall slide where you did slide five. When I compare it with what other companies have reported, you know, your results are much better generally, and it's all on the cost side. Your costs really didn't go up by very much in the first half, like EUR 75 million. You've gone through energy, so I don't think there's much need to go through that again. You know, I'm trying to understand why your costs went up a lot less than other companies. I mean, were there significantly less maintenance costs in the first half, or, you know, was it that you actually had a lot less hedging at the start of the year on the energy?
Maybe now you've got up to 6% or 70%, but you got the benefit earlier on, or was the movements on inventory? I mean, I'm just trying to understand why your cost increases was only, like, 75 in total or in mid-70s. Do you expect that to be similar in the second half, a similar sort of amount of cost increase? Is that what's in your guidance?
Yes, yes. On, on why we are better, difficult to tell. You really should go inside the numbers very deeply and understand where are, where are the major differences. Some of the justification that you have made are possible. For sure, we in generally, we are more open and more, yeah, in the open market, on the spot market from, for energy than other, than other companies. We are not, we're not very happy with the cost trend, and we're very happy with the results, no problem. I mean, the, the price cost has been, has been extraordinary. When you look, when you go into the details and you look at the clear trend, we are not too happy in a sense that we have to pull the prices, okay?
We have to face, we to, reflect it within to the prices some, some, some significant improvements. I think probably the exposure to Italy, where, where the energy prices have been so crazy during 2022. So relatively speaking, versus, versus companies that do not have any, any exposure or limited exposure to Italy, which for us is greater, could also be one of the reason, because clearly the... We had a peak in the power cost in Italy some months without hedging last year, with EUR 300 or more than 300 EUR per kilowatt. So fortunately, it did not last too much, but we did suffer from a, from a crazy, let's say, power cost environment, and this could also be one of the reason.
Inventory, not too much. I don't think so. maintenance-
Maintenance costs?
Maintenance, maintenance, we are not, we are not too happy. We are not too happy with it. It's been one of the, of the. For example, in the U.S., this, this first month, first half, we had really significant outages, planned. I mean, planned, they, they were planned, but, for example, we had an outage in Festus, more than 1 month long, with a, with a lot of, lot of, let's say, changes and improvements associated with the raw meal. Very, very expensive outage. No, on main, maintenance, we are not particularly happy, but maybe, maybe the competitor did anyway worse than us. Maybe we are just a better company, I don't know.
Okay, thank you very much.
Yeah.
The next question is from Vijay Singh of HSBC.
Hi, good afternoon. I have one question on the set of the return. I mean, in the last five years, obviously all the cement companies suffered because of the pricing dynamics and t he improvement. Obviously, now we are seeing a scenario where the costs are kind of under control, and pricing is really strong. With the EUR 1 billion of, you know, EBITDA and what you have in the net cash in the books right now, and what you possibly another EUR 200 million, you'll be adding or more than that in second half as well. You're having a much stronger cash position going into 2024. My, my question is really, what's, what's as a shareholder, what, what should they expect from Buzzi?
Is, is there a kind of buyback or higher dividend, or you are going to push that money into much more decarbonization, so possibly you advance your, your targets you have made initially, putting more money into the plants to make it, much more carbon efficient? Because, yeah, the focus obviously on you being compared with the bigger competitors and then, the bigger balance sheet. Just really want to see how you think this cash is going to be utilized in the coming years.
Well, I said before, it's a good situation to be in, in the sense that we have a full range of options, and the ones that you mentioned are certainly available, certainly a possibility. In principle, yes, we would prefer to continue to be very keen and very focused on our industrial projects. Unfortunately, from the decision making to the actual, let's call it, realization, implementation of industrial project, particularly the ones that require study, engineering, et cetera, the time lag can be, can be pretty long, so you can take today a decision, maybe to, again, what I was saying, for example, to replace the finish mill , but then the spending will occur maybe one year and a half from now.
So, there is, there's a time lag. I think, yes, the priority will continue to be that one, if we can advance something for the, let's call it, roadmap decarbonization, we can do it. Of course, it has to make sense. It has to be again, somehow an existing project in a sense, that engineers, design, availability of the machinery and equipment, et cetera. We can do it. That's not the right way I look. We also, if you look around for potential, let's call it, M&A activity, even if this is kind of, I would say, a residual proposition, we not rule it out completely.
So it's, it's a good chance. It's a good target. Both on buy out of minorities, all, this, it's been, it's been followed very, very closely. If it comes, could also be quite, quite significant.
Can I ask another one on the decarbonization? So far, many companies are kind of now reporting on this, as well. They have a lower, lower CO2-based cement, which are possibly in the early twenties or thirties. Do you have anything to say because how, how you are kind of doing the low carbon cement sales, and what, what proportion of your total sales now comes from this low carbon cement, anything, and what's your targets going forward?
Well, it depends. If you look, what is low carbon, very, what is low carbon? Because low carbon very often, from, from, from the, from a company standpoint, is an internal, let's call it, judgment and internal metric that can be different from one company to another. We do have also definition in line, green cement, et cetera, which in principle should be present, if I recall correctly, in the roadmap, 40%, about 40%, 40%-50% of our sales in 2030. For example, when you compare with the, with the taxonomy, European taxonomy, metric, this is totally, totally different. Because the European taxonomy metric is very, very challenging, and, and it's extremely difficult to achieve.
To give you an idea, the companies that disclose their taxonomy compliance, let's say, revenues last year were in the range of 4% or 5%, and I did not see that once or even, even lower, if I recall correctly. This is something that again, it's certainly a direction. It's certainly something that we have to continue to work on, if you want to achieve the roadmap goal. But it's more, let me say, very often it's more a communication issue than a practical one. I think the fact that we are maybe today, not as good as someone else, is related to our, to the weight of the U.S. market, where traditionally...
Maybe this is changing, starting to changing, and it will change even more going forward. Traditionally, the clinker content has been, very, very high. It's starting to change now.
Understood. Just on the 40%-55% by 2030, what that number would be now?
Sorry, say it again.
You said in your roadmap, you kind of said green cement being around 40%-50% of the total portfolio.
Yeah.
-by 2030. What, what, what is that number currently?
No, today, if you look at our metrics, we are probably, eh?
Depends on the country.
It depends on the country. Depends on, on the country. Let's say, at the group level, today, we are probably between 10 and 20, no more, in... It's, there's also time needed to, for example, to, to get the official, let's call it, approval, let's say, of this new instrument. Some of them fall within the norms, and some do not, and maybe they are not yet accepted by the public sector for the structural projects. There's also time that is somehow related, not only to the market that accepts us, but to the official accepted by the administration, by the authorities.
When you say this, 10%-20%, I mean, how do you, kind of define a green cement? If it's, 20% lower versus the benchmark, or how do you define a green cement?
No, we define it. I can send, I can send you the, the, the detail. We can send the detail later. There are, there are different, different, let's say, way of looking at it, but it's mainly, at the end, it's mainly the clinker content. So if you go below a certain clinker content, we internally, at least, we define it as a, as a green.
Understood. Thank you.
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