Earnings Call: H1 2021

Aug 3, 2021

Afternoon. Welcome, and thank you for joining the Buzzi Unicem First Half 2021 Results Conference Call. At this time, I would like to turn the conference over to Mr. Pietro Buzzi, Managing Director. Mr. Buzzi, you have the floor. Hello. Good afternoon to everyone. I'm here together with Patrick Klein, our group treasurer, and investor relator. We do have also a presentation already published that should be available on the website on our, let's say, investors and then presentation, let's say link or page. I will try to follow it at least for the first part, and not necessarily the appendix. If any one of you would like to basically follow together, there is a possibility to do that. We approved the interim report this morning. As a summary of what is included in the figures and in the press release, we can say that volume and prices developed quite well during the first half. We had, overall, let's say good demand for cement in our countries, almost 11% up. Also a recovery in our ready-mix output or shipments, 7%. Also prices, they moved up, basically across all the regions where we operate. The increase was more evident, more clear, let's say in U.S. and Germany, but with the exception of Ukraine, and which has been showing a minor decline, we had a positive favorable price variance again, everywhere. As in the negative side, that we had to face unfavorable, let's say, impact that we've been facing is related to the foreign exchange trends, the exchange differences. The impact was EUR 81 million, basically on turnover and EUR 22 million on the EBITDA operating cash flow. This is coming from the dollar and the ruble, and to some extent also to the Ukrainian hryvnia. These are the most important let's say, exchange differences affecting the consolidated figures. Net sales at the end came in at EUR 1.61 billion, versus EUR 1.52 billion in 2020 first six months. This means almost 6% up, or 11% up like for like, net of changes in scope, which are not there actually, and Forex. The EBITDA is closing also nicely up, let's say at plus 12%, EUR 352 million. It would have been 19% up like for like, net of exchange differences. The net cash from operating activity, this is related to the, let's say, cash flow statement. After interest payments and after tax payments, is EUR 219 million versus EUR 214 million, and we are going to give some more flavor and detail, let's say later. The net debt is going, let's say down from EUR 242 million the beginning of the year, to EUR 110 million, EUR 109 million at the end of June. We are also upgrading somehow our guidance for the full year. The good development of the first half is giving us, let's say more confidence on the full year outlook. We expect the recurring EBITDA to arrive at a very satisfactory level. On the other hand, we don't think that we will be able to exceed, let's say the 2020 level. Of course, we will give you also on this subject a little more detail. Page 2 is more a summary of what I just mentioned, a comparison between the two interim periods. The EBITDA margin is improving, versus last year. The profitability level, the first level operating profitability from more than 1 point, actually from 20.7 to almost 22. This is very high, generally speaking, also when you compare with the peers, assuming that you can compare because of course, nothing is fully comparable. It does not include, of course, the results from our joint venture in Mexico and Brazil that are reaching and are achieving, let's say, a higher level in their books. Where is the volume variance coming from? You see that in the following page. If you look at the cement business or the cement sector, we had a strong, let's say, recovery, rebound in Italy. This is 2 reason, okay? There is an underlying market which is showing a stronger demand, for sure, because we are up also versus clearly also versus 2019. At the same time, the first 6 months are still significantly, let's say, affected by the comparison versus 2020, where the lockdown restriction has been very severe, particularly during the months of April and May. Let's say, good progress. A progress that we do expect to continue in the second half, not at the same pace for this reason. Eastern Europe, the progress is coming mainly from Ukraine and Russia, the volumes. We have some negative variance in Poland, a minor one, and a positive small change in Czech Republic. U.S. also performing overall, very well, in particularly because, the so-called, pandemic month or the month of the restrictions, in U.S. did not have the same, as you recall, did not have the same, for example, in Italy or France or Luxembourg. We did have some significant sales decline in our northwest region, which is performing the opposite way, I mean, this year, also because of the easy digital comparison base. Overall, fortunately, U.S. last year did not have the same kind of, let's say, impact from the construction activity, did not suffer the same impact as we had in Europe, Italy again, France or Benelux. It's mostly a stronger, let's say, pick up of the market, which was partly expected, partly not. In this case, for example, we do not believe that the final outcome for the full year will be the same. It will be, yes, a positive sign, but not, let's say, almost 7% up. We are about 3%-4% up, if everything, let's say, goes right. Central Europe includes Germany and Luxembourg, indeed. Germany is a little weaker there. There was for sure some impact from, let's say, difficult weather situation at the beginning of the year, but also later on, let's say, in the last 2 months, May and June. Rain and rainy weather was somehow impacting the construction activity. Also for last year, the comparison base was relatively consistent in a sense that the construction activity remained quite active also during March, April, and May. If we look instead at the ready-mix concrete, not big differences, let's say, in a sense that our, let's say, performance versus last year is coming from the Italian market. Eastern Europe, similarly, let's say, to cement, improving nicely, let's say, versus last year. Central Europe suffering. Here, the major portion, let's say, of the ready-mix output is in Germany. In U.S., slightly down. This is the Southwest Texas market, which has been strong, generally speaking, in terms of cement shipments. We did have some Last year, this was already budgeted, let's say, some decline in our ready-mix production in Texas. We did have last year, some projects that we knew were coming to an end, and we did not expect, let's say, we've not had the possibility to replace them with similar project of a similar size. Following with the presentation, we move to, let's say, economics by region. Net sales, EBITDA margin. You see Italy, nicely, let's say, recovering also in terms of, let's say, profitability or operating cash flow. We are moving from some EUR 9 million last year to almost EUR 33 million this year. There is a positive volume and price effect that is offsetting also the cost increases. In addition to that, Italy is not accruing so far, not theFar and will not do that until it's necessary. The shortage in that is there, let's say, beginning from 2021. We do have the benefit of the previous periods. We will be gradually, let's say, depleting the allocation that we receive until 2020, beyond, let's say, the actual need of CO2 rights. This is clearly a good advantage to have, particularly in a time, in a year where the CO2 rights price has been showing a very significant increase. Again, good volume, good prices. Variable cost, let's say, variable cost like energy, electrical power, fuel, et cetera, are, yes, sharply increasing, but the full, let's say, impact of that increase is not yet visible. Let's say, it will become more evident in the second half. This is something that is true also, not only in Italy, this is something that will occur also in other countries. As opposed to other countries, we have been able to eventually improve, let's say, significantly, our operating leverage, so our capacity utilization level. This is something that for the fixed cost, for example, when we look at fixed cost per unit of production, they are actually declining some due to the larger or greater volume produced. This justifies, and explains the higher margin, the better margins that we've been able to achieve. Very good performance overall also in the U.S. As we said, demand has been strong, driven mainly by the residential sector, the residential segment of the demand. We did not have particularly favorable weather condition if you look back in February and also in some area, May and June. Nevertheless, when the weather has been nice, or in the weeks where the weather has been nice, we have been able to overcome, let's say, to exceed the production output of last year. Pricing is developing, let's say, nicely. As I said before, last year, as you may recall, we were not able to increase prices during this period. In this respect, the comparison is somewhat easier. The fact that demand has been so good, I would say, in this first half, this has made, let's say, price increases overall easier and achievable. The negative side, again, is more accounting than real, but is quite meaningful, because out of the exchange differences or foreign exchange impact that I mentioned before, clearly, the dollar or the U.S. business has been the one most affected. $56 million approximately on turnover, and EUR 17 million on EBITDA. Our margins are still somewhat growing versus last year. We moved from 29 back to 30, about 1% up, again, in comparison with the first half 2020. In the case of the U.S., there is no impact yet, at least on CO2 cost. There's no clue, but also, again, no clue of foreseen for the second half due to the different, let's say, legal environment. In Central Europe, demand has been a little softer. Yes. We had declining volumes, both in cement, in ready-mix. Luxembourg performance was positive, following also the full, let's say, six months of operation versus almost two months of last year. Price performance, price increases have been okay, let's say, particularly in Germany. We've been able to improve our price level, probably a little bit more of the industry, let's say, inflation. We do have a more stable fuel cost in Germany because of our high intensity of alternative fuel. Power cost, instead, has been going up. No CO2 accrual so far, because we are still enjoying fuel location until maybe, September, October. It depends on the production rate. Last year, of course, not fully consistent because last year, the general change that we made in our way of accounting for CO2 rights. We will, let's say, post either, let's say, a liability or an allowance only when we are entering in the so-called deficit period. Last year, anyway, it was at almost EUR 9 million at prices of CO2, which were much lower than the prices of this year, clearly. Eastern Europe, solid demand with the exception of Poland, which was weaker in the first 2, 3 months. In Poland, there was also a significant effort to improve prices at the beginning of the year. This was probably 1 of the reason for our performance not to the level, let's say, of expectation. Our pricing policy was slightly revised in the following months, from then on, we had a much better performance, even though we were not able to fully close the gap in the first six months. Weather also did have some impact in Poland, Czechia, et cetera. Overall anyway, our sales have been quite positive. Average selling prices, again, showing a positive variance. Only exception in Ukraine, which has been fighting, I think, starting from the second half of last year, mostly with some imports, so trying to compete at best and not to lose, let's say, volumes. ForEx has also been quite a factor, particularly when we are talking about the Russian business, which is more important, let's say, clearly than the Ukrainian business. The impact on net sales, about EUR 25 million, on, let's say, Eastern Europe overall, on the four countries altogether. About EUR 5 million plus on EBITDA, mostly, let's say, related to Russia and the ruble. Our margins have been similarly to other region, up about 1%, and total EBITDA, let's say like for like, has been increasing by almost 14%. It's important to go over and to present briefly the performance of our 2 joint venture in Mexico and Brazil, because they have been both quite remarkable, I would say, in the first half. Mexico had a really super, let's say, performance with strong demand, driven, we think, by residential or so-called self-traction, let's say, works, and also some public works that have been supported and, let's say, financed by the government. Also, as a way to somehow, let's say, offset the economic decline associated with the pandemic. Very strong volume, favorable variance of selling prices, not very significant, really, but particularly volume effect, which has been very positive. Through that, the EBITDA grew very strongly, about almost 20% up, despite higher energy costs and particularly higher fuel costs. You know that our main fuel, almost only fuel in Mexico is petcoke. Petcoke, when we buy petcoke, is also USD-denominated, you do have 2 impacts. 1, the price in USD, and 2, the foreign exchange impact. Definitely, variable cost going up, but very high capacity utilization level, let's say, reliability of the plant doing very well. The ability to follow the demand increase, with the good reliability of the plant, translated into some good, considering the overall situation, good production cost. Margins are somewhat down, a little bit down compared to last year. This is mainly related to the ready-mix portion of the business rather than the cement. The mix portion business has, of course, the cement has been somewhat suffering, particularly in terms of profitability, not so much in terms of volume. In general, let's say, a really very positive performance for the first 6 months. Almost the same we can say about Brazil, where, in this case, yes, there was a change in scope because the so-called CRH assets being consolidated starting from mid-April, approximately. There is a portion of our sales, of our quality sales performance that is coming from the scope. In total, let's say, if you look at the sales performance, just a second, without the change in scope. Which I'm not sure if I have it in front of me, but anyway. Yes. We had like for like cement volumes went up by approximately percent, and the total delta was 45%. The difference is coming from the change in scope. The price increase was very significant in the country versus last year. Last year, you may recall that the price trend has been mostly flat in the first half, and then it's been increasing later. Again, maybe a somewhat easy comparison base. Our sales revenue, as you can see, has been improving from EUR 61 million to EUR 6 million after an FX impact. Negative FX impact, quite significant because the real lost about 20% in the period. It's very good that through the underlying volume trend and price trend, the company was able to much more than offset, let's say, the negative ForEx impact. EBITDA also, good performance. Again, last year, the good part came mainly in the second half. This year we continue on the same trend with a favorable price effect and also scope. As you can see, obviously, on this page, ForEx impact on net sales was about EUR 21 million and EUR 7 million on EBITDA. Excluding FX and scope, EBITDA, anyway, more than double with improved operating margins, moving from 27% to 34%, almost 35%. Again, we can be very happy about the performance of our joint venture there. Moving to page 7, we're on the EBITDA bridge. Okay. You can see that our improvement in the first 6 months is driven by 3 main factors, main items. Volumes. Volumes has been the main driver for sure, with EUR 119 million contribution to the EBITDA increase. Prices, also good. Let's say, much less than the volume impact, coming in at EUR 46 million contribution. You see the variable cost affecting or impacting about EUR 110 million. This is coming from raw material, fuel, electrical power, logistics, transportation in general. Something that was somehow expected, but that became clearly even more evident or more aggressive in the actual figures than what we initially forecasted. On the fixed cost side, we are not significant changes, or at least much less than the variable cost. Also easier, in a sense, to keep them under control. The revenue and cost are offsetting each other and coming to basically null, let's say, variance versus last year. The CO2 that we accrued last year for the first 6 months, we have not been accruing in the first 6 months of 2021. Clearly, the EUR 13.2 million of last year is reflecting prices at the level of last year. Anyway, as I was explaining before, we will accrue and for the shorter CO2, starting from the moment where we are actually in a shortness situation, then obviously this will be done at the current prices of CO2, that are more in the range of, let's say, EUR 50+, EUR 54, EUR 55, rather than the EUR 20 per ton of last year. FX, we commented already EUR 22 million negative. On the following page, we have an idea of the energy cost impact related to the cement business. Here we are talking only about the cement business and purely about fuel, electrical power. Nuclear is not included here, but could be included in the future as a reference. There's a rebound, clearly, from last year. Last year, we touched a minimum. There was a minimum level across a number of years, as you can see. Not yet at the level of the first half of 2019, but probably when we will produce and see a similar graph or the same graph for the full year 2021, we do expect to be at least back to the level of 2019 as a total expense. The good news, if you wish, is that in thanks to also our, let's say, significant effort into CapEx and into the introduction of alternative fuels. Even, let's say, with the actual, let's call it trend of inflation in the energy cost, we remain below the levels of, let's say, 11, 12, 13, et cetera. This is, again, quite an achievement, I believe. The financial position trending, let's say, nicely, I would say. Nothing really unusual versus what we were planning. We have a short-term cash position, which is slightly below the level of December 2020, but still very good. Among the long-term financial assets, it's important to mention that we are including an amount of EUR 204 million, if I recall correctly, EUR 203 million, EUR 204 million. The EUR 204 million, it represents the loan or the financing that we made, again, back in April through our Brazilian joint venture, when they completed, when they executed the acquisition of the CRH asset. This acquisition was financed through intercompany loan from the mother to the Brazil operating company. Again, this into the so-called long-term financial assets line that you see here. For the rest, nothing really new or to mention, but we are, of course, for any question, we will be available. Taking a look at the guidance for the full year, we decided, again, that it was worth, let's say, to fine tune somewhat our expectation and your expectation, following H1 results that are very sound, let's say, very reassuring in our opinion. We will continue to have likely a negative impact from FX, and eventually Okay, the size, of course, the magnitude, we don't know. We made some assumption in our forecast, but we don't know. This is something that, unfortunately, will somehow have an impact on our figure. The higher energy and CO2 cost, the energy inflation, and the CO2 cost accruals coming up in the second half are going to be significant, because we don't know where the CO2 will go. Energy, at least in Europe, is following very closely the CO2 trend. In general, the impact of the inflation will be more evident in the second half versus the first half. You have some detail, let's say comments and not really full analysis, but some more interesting, or let's say, explanation or comments about the different countries, about the different region. I would not go through this in full because it may not be of such an interest to you, but I would expect maybe on this specific country or specific trend that I mentioned here, question on your side, if there are any. Again, available to explain why we think that overall, for the full financial year, the results will be, again, like we mentioned in the first release, very good, very satisfactory, but unlikely to be able to achieve the same level that we achieved in the previous year, at least, again during the foreign exchange impact. Including the foreign exchange impact in such outlook or guidance. On the appendix, we have different information. Maybe we don't have to go through. No, maybe an indication. Okay. Yeah. An indication on page 17, the full income statement for the staff, which is quite interesting in a sense that we are able to follow, let's say, below the EBITDA line. Thanks to the, let's say, greater EBITDA and what happened, let's say below the EBITDA line, we were able to almost achieve the same consolidated net profit of last year. Last year, you do recall that the equity earnings, let's say, item was benefiting from a very significant profit. The gain of the sale of our investment in Kosmos in the U.S. This is, again, in my opinion, quite an achievement, and it's coming from the improvement of our joint ventures. The equity earnings going up, except, let's say, the extraordinary gain. Net finance cost also going down. The combination of the better performance from equity joint ventures, let's say equity earnings. The lower finance cost is putting us in a position at the level of the profit before tax, which is relatively similar to last year. A little less income tax spent last year. Of course, the gain was also taxable, so we had a higher tax charge on this specific item. You see the net profit closing at a level which is very similar to last year. Again, I think this has to be considered overall in the assessment of the first half results and also clearly going forward of the full-year results. The actual statement, you can see that in the first section, cash from operating activities, we did pay significantly more in terms of income taxes. This is related to some delays or let's say, here in some of the countries where we operate, due to the pandemic, some income tax payments were postponed. We had, let's say, this postponement coming to an end at the beginning of this year. There was a number of tax payments in different countries that the maturity fell exactly in the first half. That's why mainly you see such an increase in income tax paid. Capital expenditures are lagging, let's say, a little bit behind last year. In our full forecast, we do expect them to exceed last year quite significantly actually. Probably, our latest forecast indicates a CapEx of about EUR 320 million. We are in the process of catching up some of the projects last year. You may remember were postponed at the time of the pandemic crisis. When you postpone projects, and you decide to go back to it, usually this is causing some delay, normally. These are sometimes are complex projects or engineering projects that if you follow day by day, and you bring forward day by day, you can do it maybe in a normal time. If you start, let's say, postponing, or if you stop them, when you go back to it will take some more time to, let's say, execute them and bring them to the final stage. For the rest, we do have, okay, the dividend payments, the double dividend payments, so the extraordinary and ordinary. You see the extraordinary dividend as a positive because it was included already in the net financial position of last year, so the actual payment occurred in the first half. At the end of 2020, it was already considered as a final liability. We received less dividend from associates because, again, large portion of last year's dividend was associated with a gain on the sale of our Kosmos investment. We had some more disposal of fixed assets, and that's it, basically. Other minor items. The change in net debt, as we mentioned before, is EUR 133 million, a little less than last year, but still a very strong, let's say, cash conversion, I would say. The net financial position, that is trending toward, let's say, zero by the end of the year, I guess. Okay. I would turn back the lead to the operator, because we can start, I think, from now on the Q&A session. Thank you. Excuse me, this is the conference call conference operator. We'll now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Paul Roger with Exane BNP Paribas. Please go ahead. Good afternoon, Mr. Buzzi. Hi, Patrick, as well. Hope you're well. Yeah, thanks. Just maybe two questions to kick off, and both of them focused on guidance. The first one is really about CO2. Just to clarify. Yeah Your guidance does assume purchases in H2, so maybe you could help us by quantifying what's assumed in guidance, and also really talking about the strategy of buying CO2, when I think you're long about 9 million tons at the group level. The second question is focusing a bit on the U.S. If I'm doing my math right, it looks like you're implying quite a big like-for-like decline in EBITDA during the second half. That seems to be, honestly, quite a bit more bearish than some of your peers. Really just to understand whether you are being very conservative, or is there something specific we should be aware of? Well, we'll start, yes, from the second one. I don't know if we are over conservative. Maybe we are in the price trend, we are maybe a little more conservative. I did not follow other conference call, but I read some of the comments that were issued by analysts or et cetera. We do see the possibility to have some price improvements, some further, let's say, price improvements, in the second half versus last year, but let's say limited to some of the regions. We see clearly the possibility to have a price improvement in Texas, but not, let's say, all across the regions where we operate, or at least not in a meaningful way. This could be one of the differences. For the rest, again, I think we have the impact of the cost inflation we are assessing. I could be maybe too pessimistic, it's definitely more significant in the second half. In the first half, our overall cost went up maybe between $1 and $2, we expect in the second half to go up another $2 overall. Higher maintenance cost, yes. It's coming also from the fact that we are, like probably all other competitors, anyway, running at a very high pace, under a little stress. We are planning actually for some, let's say, maintenance rounds, which were postponed at the beginning of the year because of the possibility, really, to stop. Demand has been very high during what should be the normal maintenance period, we've been postponing some of the maintenance projects, they are coming up before year end. We are purchasing some cement, again, mostly in Texas, for our ready-mix operation in Houston. As you know, ocean freight rates are really escalating significantly. What can I say? These are the figures that we ran. In addition to that, of course, we are using in our forecast 1.21 as exchange rate for the full year. This could be, of course, different if it is 1.19, for example, or 1.18, I don't know. In general, our forecast in the U.S. is pointing to results that in dollars, so before, because the exchange rates are very similar to last year, which was anyway, high record. At the end this is true also in other countries, but when you are running 100 meters in 9.80 seconds, you cannot improve too much. It's a little difficult anyway to improve too much. I think, frankly speaking, that if you look at our performance in the U.S. and you compare it with the competitors, I don't know if we have the gold medal, but probably we are at least silver medal. Okay. Let Patrick comment a little bit on the CO2. Okay. Regarding the preparation of CO2 rise within the group, talking about ETS, there's also a CO2 effect in non-ETS countries due to some taxes, but it is minor. Regarding the ETS countries, most of the countries we are short now, all of the countries basically, but we still have in Italy, as Pietro mentioned before, a reserve that is quite significant. Therefore, we will not be obliged to accrue for the shortage in Italy. Our shortage is more than 1 million tons per year now from this year onwards, in Italy, I mean. Regarding the other countries, we have been short already before, so Germany, Poland, and Czech Republic, Luxembourg, and this is continuing. Although the rescheduling, let's say, or the new trade period has given to some countries some also benefits due to the new historic level of CO2 allocation, due to higher production and basically the comparison. Overall, we are planning to spend around EUR 34 million in 2021 for CO2 rights. Spending in this case means we are talking about roughly 600,000 tons net that will need to be either bought from the market or will need to be transferred internally. For now, in our forecasting, we foresee acquisitions associated from the market. This with the actual CO2 and some additional effects give us then the EUR 34 million that I mentioned. This is the situation as of now. For now, we have acquired only very small volumes, also due to some volatility in the pricing and also due to the fact that we are not in a rush because we have reserves in Italy that can be potentially used also if the price is not really favorable. This is the situation as of now. I guess I'm just trying to understand the strategy of buying at all, because there are not that many producers that are long CO2. Is it tempting to just transfer from Italy and then take the extra margin in those other countries rather than ask them to buy CO2? Is it a case of just saving for a rainy day in case the price goes up more or what's the thinking? Typically, this is not just true for CO2, right? It is true for all costs. There is no necessarily every plant and every country is responsible for the performance. Having said that, for CO2 price, if a country is short of CO2, then first of all, we will look to the market and see what is the best way to basically then purchase in term. Again, if we, from a strategic group perspective, think that there is a volatility that does not necessarily need to be in our favor, then it could also be possible to basically postpone purchases to a later point in time. This is rather a functional decision, so it is not an overall strategy that we are pushing it to the latest moment. It's rather that we are preferring to enter the market when it seems to be a good moment, let's say, a relatively good moment. In a way or another, I think you will have at the end. If you look forward in the next four or five years, the same expense. It's not probably difficult to imagine something totally different and makes sense, in our opinion. Starting from this new period, new, let's say, way of allocation, new reduction factor, et cetera, makes sense to treat each country, each plant at the end individually as if they were, let's say, in the need to take care of their needs in a separate way. As Patrick said, it's not that we are not acting as a group. It's just something that, in our opinion, is a way also to make, let's say, the individual plant and individual country more and more responsible anyway of their requirement and of their goals. This is, of course, coupled with some goals in CO2 reduction, so seems to make sense. It's not written in stone. It can be changed. It seems a way to go forward, which makes sense. Okay, that's great. Thank you very much. You're welcome. The next question is from Yassine Touahri from On Field Investment Research. Please go ahead. Yes, sir. Good afternoon, gentlemen. Hello. I have two questions. First, could you tell us, if it's possible, what level of energy cost inflation per ton of cement you experienced in the first half of 2021? Based on the current energy cost, what kind of inflation per ton of cement would you expect in H2? That would be my first question. Yeah. My second question would be, what is your first take on the Fit for 55 program disclosed by Europe, and what is your first take on the Bipartisan Infrastructure Law in the U.S.? What's the infrastructure? The Bipartisan Infrastructure Law in the U.S. You mean just first reaction? Your first take. What is your first view on those two programs? Yeah. Okay. If we look at the first half, the group, of course, give you an idea, there are very significant differences from one country to another. We had 23% up, correct? 23. This includes fuel and power. Okay. This includes volume? Includes volumes. Yes, of course. How much was the volume in 20%? 11, 10%, 10, 11% up in cement, approximately. That would be 10 elements inflation and 10% volume. Yeah, approximately. Yeah. Okay. In general, we did not have any major changes in the operating efficiency. Of course, there are huge differences from one country to another. Okay. For example, I don't know, Ukraine had some decline in fuel costs. Czech Republic had some decline in fuel costs. Some other were instead I don't know, Italy was highly penalized, for example, by both fuel and power costs. For the second part of the year? Yeah. Second part of the year, probably something similar. Yeah. Something similar to end up with something not very different, at least in our projections. That would mean 23% up? Sorry? That would mean 20% up? Yeah, between 20, 25%, yes. With a lower volume because the base effect is going to be Exactly. Lower volume. With total volume for this full year, let me check it very quickly. Cement, again probably 4 or 5% up. Yes. So this could- Versus 10, 11 of the first half. Yes. This would suggest some pure energy cost inflation of 10%-11% in H1, then maybe some double digit, some 20% energy cost inflation excluding volume in H2. Is that correct? Correct. Yes. Yeah. Okay. That's very clear. For the second point. The Fit for 55, what can we say? The most worrying, I think, thing is not so much the Carbon Border Adjustment Mechanism, if it will come through gradually, I don't see any major problem. Even though, of course, the free allocation will go away, I think the ramping up of cement prices in a way or another will have to be much steeper, let's say, than what we plan, if we want to be able to somehow keep the profitability at a certain, and be able to invest also in our, let's say, CO2 reduction projects. This is fine. I think it's even more worrying in the sense that what has been mentioned and reported, the fact that there will be no more benefit or help for energy-intensive industry in the power cost. Today, we're still benefiting on our power cost from significant help. This can be worth, I don't know, probably EUR 60 million per year. If you take all the, let's say, the European countries, Italy, Germany, et cetera. And- Yeah. Maybe if I may add here, in addition to that, if you think about the objectives, there will be much more power needed, actually. Yes in cement sector compared to now. If we are converting the technologies and thinking about new technologies, we will need much more electrical power. This is an additional issue that will need to be looked after in the future. Without, let's say, benefit for energy-intensive industry, of course, at a much higher cost. This is something that is, I think, more worrying than the, let's say, trend towards no more free allocation. Indeed, because, of course, it's still a proposal. There will be, for sure, some adjustments, some discussion going forward, some changes. I think the industry, but not only the cement industry, will put a lot of pressure on this specific Not so much on the Carbon Border Adjustment Mechanism, but specifically on the cost of power for energy-intensive industry. Your second point was on the U.S., U.S. infrastructure. Well, okay. There was also not long ago now, the BCA came out with some comments on the potential, let's say, infrastructure deal. Okay, in general, for cement demand in U.S. looks good. They adjusted cement consumption, let's say, forecast some going forward in 2020. Well, also in 2021, the forecast was improved some. The previous issue was mentioning 2.2, better is now 3.1. Then moving to 2022, 2023, also let's say, better volumes. According, again, always to BCA, the country will not be yet reaching the record level of 2006, 2005, of 122 million tons. They're now assuming 115 million tons for the 20 versus 11 for this year, which is expected at 1095. An additional, let's say, 10 million tons from 2022 until 2025. This includes, I think, the impact that they are considering is EUR 600 billion. On, let's say, infrastructure plan approved and becoming, let's say, law effective in the next few weeks. Very positive in general. Thank you very much. Okay. The next question is from Brijesh Siya with HSBC. Please go ahead. Thank you. Good afternoon, gents. I have two question as well. The first one is on plant maintenance. If we recollect, at the end of last year, our conference call in March, you were talking about around EUR seven and a half million of deferred maintenance, which is going to fall in this year. With your comment now saying that U.S. also, you have deferred, does that mean the EUR seven and a half million additional maintenance cost is going to come in second half, or it's part of it being already expensed in H1 as well? It was already in H1. As I said before, we have been, again, postponing. 1 particular maintenance project, we could not postpone it anymore, and it was carried out in H1, because we were already 1 year late. In some other plants, this was specific to 1 of the plants. In some other plants, we've been postponing because we needed to run, to keep running. Okay. Do you have a kind of quantification of how much that would be in second half? Yeah, it is less than last year. Could be EUR 3 million-EUR 4 million. Okay. Understood. Yeah. The second question is on the pricing part. There's quite a nice pickup in H1, and considering that in Europe, you're going to buy CO2 certificates towards end of this year, is there any plan of having a further price increase towards late half of this year, anytime in Q3? Well, everywhere where we will believe it is possible and likely, let's say, accepted by the market, yeah, of course, we will try. I think, probably this is something that will change going forward, but the market has been used to basically one price increase per year. Nobody really expected the CO2 going up so quickly. The effort now is rather on starting to talk and to discuss with the customer, a more significant price increase at the beginning of next year. The idea is now to present the case and start, let's say, spreading a message that with this kind of CO2 cost, the next price increase will not be the usual, maybe €2 or €3, but should be much more significant, but effective, let's say, 2022. Okay, got you. Thank you very much. The next question is from Yuri Serov with Redburn. Please go ahead. Good afternoon, gentlemen. Hi. Hi. Can I actually ask a few questions. I think they should be fairly short. One is on Italy. Yeah. You had a fantastic result in the first half. When I look at the numbers, I cannot see how you can make less than EUR 75 million of EBITDA for the full year. What do you reckon, is that reasonable? I hope you're right, but it doesn't seem so. Actually, Italy is the only country, I think, is the only country where we've been revising in the forecast below any other country, either was on same as budget or, let's say, better than budget. For sure, U.S. much better than budget. Italy is the only one where the. I don't think we are so wrong. I don't think so. We were around 70 in budget, and we now think it will be rather maybe 65. Okay, clear. Is your ready-mix profitable finally in Italy? Sorry? Ready-mix business, is it profitable? Let's say, well, maybe zero EBITDA. Okay, I understand. Your CapEx in the first half was only EUR 102 million, which is a lower number than 2020, and 2020 was a very low year. What's happening? What should we expect in the second half? Why are you cutting your CapEx? I'm not cutting it. As I said before, there was a delay caused by the pandemic. In a sense, it was to an extent, a decision. Let's say decision because it was an emergency decision to keep on hold and stop, let's say, a number of projects, less low quality. As I said before, even though the decision to go back and to restart, let's say, the normal CapEx development was taken already last year, because fortunately, the business continued to perform well. When we realized that things were going okay, we decided to go back to a normal, let's say, CapEx development. It took some time. Yeah. Okay. What should we expect for the second half then? EUR 100? As we mentioned before, we are now budgeting EUR 320 total. I don't know if it's too ambitious, because sometimes in CapEx, yes, you are as opposed to maybe economic trends, we are sometimes too ambitious. The number is EUR 320. Okay, fine. Mexico, your press release says that in the second half, you expect an equally sound development. What does that mean? Your volume was up by 24%. Do you expect the same thing in the second half? Not exactly. Let me check. No, not exactly. We should reach a 14%, 15% up. Sorry, what is it? 15%, let's say. 15? One, five. 1, 5. Yes. Anyway, very sound, no doubt. No, 15 is sound enough. Yeah. Can I ask you, in Brazil, I'm looking at the scope effect that you're showing, and I'm actually quite surprised how small it is. I understand that the CRH business was only present for two and a half months out of six, but still, you bought the amount of capacity, which is not very much smaller than what you had in the business before, and the increase is very tiny. Yes. Well, it was very much smaller if you look at the volume, but was also very much smaller if you look at the profitability, unfortunately. In a sense that CRH just became profitable for them. The first year was 2021, actually, where they went back into a positive result. I think we mentioned it already. I don't know if it was the case with you directly or in another conference call. It's clear that our average profitability is worsening with the asset. Yes. If I divide one number by the other in the scope effect, it is not particularly bad. It is lower than yours, but I thought that it was going to be much worse than that. The whole total amount of, say, revenue is smaller than what I expected. Is their utilization so much lower than yours? No. I don't think this is the reason. It's really mainly the age of the assets and the quality. Is the real capacity less than, whatever it was, 3.4, 3.6? It is a real capacity, but it's a capacity that is built. There is quite a significant difference in the case of the CRH asset between the clinker capacity and the cement capacity, because particularly in one of the plants, they are using a lot of SLAG. They have a low, let's say, clinker content, which in a sense is a good thing now, today actually. Of course, they buy SLAG. Yeah. It's one of the reason why the profitability is somewhat lower. I think we try, of course, to extract all the potential synergy. I think the move, again, was not a bad one overall in terms of timing, in terms of amount paid, et cetera. I think we did right. Now, of course, we need the country on one side, the country to perform, which is more or less happening. On the other, also, a lot of unfavorable effect came from the ForEx, I'm sure. Yeah. Okay. That's fine. All right. Thanks a lot. You're welcome. Ciao. The next question is from Alessandro Tortora with Mediobanca. Please go ahead. Yes, thanks, Mr. Pietro. Two quick question, okay, from my side. First one is, you mentioned before maintenance, let's say, operation you are going to do. Can you, let's say, give us any update on any final decision you take or you may take on adding capacity? Probably not U.S. was an area where you were thinking about adding production capacity. The second question is on, if you can come back to the point on the proposal, the Fit for 55, okay, you mentioned before. Yes. Can you exactly tell us what did you see this impact? If I remember, where should be incentive related to energy intensive businesses? Just to understand better where, let's say, you see this risk of now this additional cost, EUR 50 million, if I remember where you mentioned before? Yeah, the risk is a new problem. Is that what you mean? The risk is to lose what today, I think, is mentioned also in our I was looking back in our annual report because it's the kind of, not exactly that, but it's almost considered a public state incentive. If you go, just a second. There's a specific section in our annual report. Which refers to Italy, but it is true, having the same, this is actually a European-wide incentive. Yes. It is under number 52. So Mr. Pietro, no problem in case. Okay. Okay. Page 52 of the annual report. Unfortunately, I opened the Italian version, but I think it's okay. 52. Transparency requirements. You see there that we are mentioning the provision, a decree which follows actually an EU, let's say, legislation concerning, let's say, provision regarding reduction of tariffs to cover the general system charges for energy intensive companies. This is what, let's say, the Fit for 55 is potentially addressing, and is what is worrying us, let's say, the most. Okay. Because this, in theory, will be like, I don't know, a cut day one, differently from virtual allowances, having a gradual phase out. That's a drastic change in energy, in power cost from one day to another, if it happens. Yeah. Mm-hmm. Okay. On the first point? First point was? On capacity. ID capacity. Okay. No final decision. There are two potential projects on the table, let's say. I think one is more likely than the other in the sense that, it could be so-called the replacement, and also together with the replacement, some capacity addition in Korkino, in Russia. This is where we have already the machinery, let's say, on the ground. Machinery purchased three years ago, if I recall correctly, from the Timisoara plant. In Siberia, I think this will receive a green light. We don't have a final budget yet, but it approximately should be below, let's say, EUR 200 million. We'll see. Anyway. The San Antonio plant, the idea of really building, let's say, new capacity, I think it's likely to be postponed one more year, and we will continue to possibly keep the permit alive by doing something that is, as we are doing now, let's say, any way useful to the plant, even if there would not be any capacity addition later. Okay. Let's say if we look at next year, let's say CapEx level, I understood it's not yet in the budget. No. Also, because if we approve the Korkino project, there will be engineering, there will be some maybe preliminary work, but the process in Russia is very long. to move on with the local approvals. I mean, we have the approval, but the bureaucracy takes a long time. Okay. I was just, let's say, wondering which level of CapEx, okay, we should have in our mind for next year, okay? I would not say anything too different, because this year, in terms of, let's say, expansion, probably we have maybe EUR 20 million, but no more. I think maybe EUR 300, more or less, should be something that you can use also for 2022. Mm-hmm. Okay. Thanks. Yeah. The next question is from Cedar Ekblom from Morgan Stanley. Please go ahead. Thanks very much. Hi, gentlemen. You're welcome. Cedar Ekblom. Hello. Hello. I've got two questions on the portfolio, actually. You flagged a very strong performance in your Mexico business in the first half, and that business remains an equity accounted asset. Yes. I know you've been asked in the past, do you have any increasing intention to consolidate that asset further, considering how well the operating environment is in Mexico? What would you need to see in order to want to increase your stake there? Similarly, on the portfolio, if we look at the U.S., I'm sure you've heard many times that U.S. assets trade at big premiums. The U.S. accounts for more than 50% of your EBITDA. Would you have any intention in unbundling your business to crystallize that value? If not, why not? Thank you. I think the second question is easy to answer. No, I would say no. Why? Because I think one of the key, really point of excellence of our group and one of the key strategies that we, I think correctly, tried to follow in the last few years has been really to reduce as much as possible the minorities. The fact of having 100% of the U.S. besides the great simplification, so is making clearly everything much easier versus owning maybe 60, I don't know, or 55% in this entity, gave us, and it's still giving, a lot of financial power. I mean, the fact of not diluting or not, let's say, having to serve, let's say, other shareholders in terms of dividend, in my opinion, is a great advantage. I mean, a really great advantage. I don't think we would be ready to lose that. I don't know. If you see something you may like it or not, but for sure, it's a clear direction and same thing we did with Beecroft in the gradual process of the listing, and it turned out to be a very good move, really, for the group. This goes, somehow, also related to your first question, where unfortunately, this does not depend on us. We can have the best intention to become a majority or able to consolidate the Mexican joint venture, but there's nothing, let's say, in the shareholders agreement which allows us or the partner to change the situation. I think the only trigger could be potentially, let's say, a change of control. If there is a change of control at the Buzzi level, Molins would be able to buy. Same thing if there was a change of control at Molins. For the rest, both partners, as you can imagine, are very happy about this investment. They're not likely to give it up. Thanks very much. Yeah. The next question is from Harry Goad, with Berenberg. Please go ahead. Yeah, thank you. Good evening, and thank you for taking my question. I guess it's just really an extension of the prior question to an extent. If I look at the balance sheet with the net debt position, even lower at the first half, I guess we're getting pretty close to a net cash position at the end of this year or so in 2022. Can you just talk a little bit about what you feel the right level of leverage for this business is? You're happy running a net cash position on a long-term basis, and how does that feed into thoughts around both growth generally or growth investment, and also the dividend policy? Thank you. It's a good problem to have, in a sense. Of course, maybe IB is not extremely efficient in the terms of cash management. It will require maybe for some time to manage our liquidity a little differently from what we were used to, but always, of course, in a way to preserve it. The right level of indebtedness, the message also with our goal, our aim, and it is something that we discuss also with the rating agency, et cetera, is clearly to stay well within the so-called investment grade rating. Very, very sound. Now we've been upgraded to BBB. If it was, let's say, BBB+, maybe even better. I don't know if we will get there or will not get there, I don't know. It is clear that our goal is to stay within this range. There are some indexes, there's some ratios that usually identify this kind of rating. Clearly, we want to stay within this frame, this judgment. Again, going forward, I think not immediately, but in some years, not too far from now, the effect of having a strong balance sheet will be a significant competitive advantage in the sense of moving quickly and maybe in a faster way versus other competitors into the adoption of the technology into the overall energy transition. We don't know, of course. Today, it's difficult to say when exactly this is going to begin and to translate into significant CapEx. Sooner rather than later, I think it will come. Okay. Thank you very much. Yeah. The next question is from Michael Lewis-Beck with Database Analysis. Please go ahead. Thank you very much. Hi. Firstly, can I just thank you for the slides, which I thought were very useful, and I appreciated that. Well, we need to thank our investor relations. My main question relates around slide 7. It's this price increase of 46.4% versus cost increases of around about 120%. You recouped essentially only about half of the cost increase. What I'm trying to understand is, putting it undiplomatically, where was the problem? Was it difficult to recover the cost increases in the U.S.? Could you give me some idea of how much of the 46.4% was in the U.S.? The reason I say that was, my impression in the U.S. was I thought you had the benefit of two price increases, in H1 versus H1 2020, because you got a price increase in July of 2020 and another one in April of 2021. Where am I looking at that wrongly? Also, I think you mentioned only one country, where the prices were actually down, which I think was Ukraine. Yes. Am I right on that? That is correct. Yes. Were there a lot of countries where really there was no price increase? I think I mentioned it briefly at the beginning. The most significant price increases we achieved, let's say, in percentage, which is anyway an indicator, were actually, yes, in the U.S., and in Germany. For the rest, we are the range, this means, let's say approximately, the U.S. is actually the highest in the first half, at least, with about 5% price improvement. Not everywhere. This refers to cement purely. It's okay. Ready-mix is not so important. To some extent, it can affect the overall. It does affect the overall turnover. In cement, about 5% in the U.S., a little less than 4% in Germany. The rest of the countries between, let's say. Beside the negative variance in Ukraine, we have, for example, 1% in Russia, almost 1.7% in Czech Republic. A little better in Poland, but the volumes were somewhat weaker, almost 4% in Poland. In Italy, it was 2.5%. This is about the range. Maybe one additional comment here. If you look at the EBITDA variance, you of course, have to consider that this is the variable cost. You have to compare it with the volume effect plus the price effect, not just the price effect. I think that's relevant and very true. Okay. Just as a follow-up to that, which countries was the major difference between prices and costs? I guess what I am asking is, you give me the price increases. Where were the particularly substantial increases in costs? Which countries saw most of that 110 variable cost increase? Yeah. For sure, if we look at the, let's say, again, energy, Italy was probably the worst. Let me check again. Just a second. Yes. Italy, worst performance in terms of energy cost, the differences, let's say, change or variance versus last year. U.S., Germany too, because power cost went up. No, not so much, let's say, fuel, power, yes. Italy, Germany, and U.S., basically. Just a final question from me, still on the same topic. Earlier on the call, you talked about price increases, and you seemed to say you were mainly going in January or beginning of 2022 for larger increases to reflect, for example, the larger carbon prices. Does that or high carbon prices, does that mean that you actually don't have many price increases out for the second half of 2021? In our forecast, we are only assuming something in the U.S., but again, more regional than across, let's say, all the states or the entire distribution. Basically, it's like so. Regionally, it's just Texas is where you're looking for the price increase. Mainly Texas, yes. Perfect. Thank you very much. Appreciate it. Thank you. The next question is from Gregor Kubik with UBS. Please go ahead. Hi. Thank you. Sorry to come back to this. You've obviously drawn our attention now to this note 52. Are you saying that Is it the EUR 68 million here that we see in that table on the bottom of that note, that may obviously sort of a excess duty relief that you get? Is that what you're talking about? Yeah. potentially losing? Okay. Yes. When would that be? No, but no. In a sense, there is something that was included in the Fit for 55 package, let's call it. They are mentioning canceling, let's say, this kind of, how do you call it? State aid. Yeah. Something that's similar to a state aid. If it will be changed, I think there will be quite a reaction, but it doesn't mean that the Parliament will not approve it because If an industry or some industries are considered with a high impact on CO2, bear in mind, then it's possible that they will be punished, let's say, in a sense, more than other industries. If this will really have an impact on CO2 reduction, I doubt it, in a sense that the process would probably go on anyway. It's more likely to translate for us into higher costs, and in a way or another, into higher prices. Anyway, apparently, this is the direction that the European Parliament would like to take. Okay. Just to be clear, this only exists in Italy for you? No. All across Europe. Okay. The EUR 68 million is only referring to Italy because it talks about ENR. 68, I think I mentioned I do not have it. We can follow up maybe on this, because I do not have a clear, let's say, calculation or precise calculation of that. I assume that according to what was the benefit in Italy before. No, not before. Before, we used to have, on one side, we were paying energy full cost, and we were receiving, let's say, the aid separately. Starting from 2 years ago, if I recall correctly, this was included directly into the price of energy. I remember, let's say, the magnitude of the benefit clearly for Italy 2, 3 years ago. I would expect this for entire Europe to be in the range, I say, of EUR 50 million. Okay. In my opinion, it's well possible. Okay. Fine. Thank you. Yeah. The second question is on the U.S. and capacity, and then I guess specifically around changes to perhaps the clinker ratio. I don't understand if part of your thinking of not, for instance, pulling the trigger on San Antonio, would be that perhaps over time, the clinker ratio does finally come down in the U.S. and that frees up capacity, and you don't need it. Is there another reason? It's looking like you're pretty sold out, basically. It's a good point. It is one of the reasons, because that's the clinker ratio to come down. We want it to come down. We need it to come down, the industry, ourselves, everyone is working in that direction. You're right, we could, by reducing, for example, 10% or 15% our clinker ratio, which is clearly a goal, we can have more capacity. No doubt. Before really committing to a large, let's say, capacity addition, we are definitely considering also that. It's a good point. Yeah. Okay. Would you have to invest? Not much. I don't know, grinding money. No. Not much. In general, okay, if you're really going to something like we have maybe in Europe, 50, 60% clinker ratio, we read that SLAG, and maybe sometimes the mills that you're using for cement are not suitable, let's say, for SLAG. This could be some, let's say, final grinding, or let's say SLAG grinding requirement is possible. If you go down, I think in the next few. You move from 90 today to 80, maybe. In this case, we can do it with existing mills. You need to grind a little finer, but it's not such a huge change. The issue really is only the way the market is used. The problem, if you wish, it's just that the market is not ready yet to accept something different. The product is good. It's not an issue of strength or durability over time. It's a different product, and it's like selling electric car versus fuel engine car. You need to get used to it. Yeah. Okay. I get it. Okay. On Brazil, you've now had two halves of printing north of, let's call it 35% EBITDA margins, which is actually excellent. Is that sort of what you think you can do? I guess there's obviously CRH coming in as a large business. Maybe that takes it down a little bit. Equally, it was already in for a quarter or giving a quarter. Yeah. Is that kind of what you're looking at? I think it would be a very good level. If we can maintain it, let's say between 30 and 35, yes, it is something that, of course, we are shooting for, and it would be very Okay. Yeah. I agree. That would be a great outcome. The final question is, I've asked this before, perhaps I know the answer, obviously, we're all sitting here looking at your stock. I don't know, it's 4 or 5 times EBITDA, something like that. Are you not at all tempted to buy back some shares? I appreciate you want to keep a strong balance sheet, you're also chucking off quite a lot of cash flow. Is there a temptation to maybe do this, or is it just off the table? Temptation maybe is not the right word, but I can say that this is one of the possible, let's say, capital allocation direction. This is true. I think we have to at least think about it. It's not something that we should just say, "Not at all." No. We are not very tempted in general speaking, because it's something that in a way or another may appear like there's nothing better to do, which is according to our, let's call it industrial or entrepreneurial, let's say drive. Not the way we are used to, or we like to, let's say invest the money, but it could have a good financial sense. Okay. All right. Excellent. Thank you. Have a good evening. You're welcome. Bye bye. As a reminder, if you wish to register for a question, please press star and one on your telephone. Mr. Buzzi, there are no more questions registered at this time. I think it was a good conference, a lot of questions. I'm happy to have been able, hopefully, to answer in a satisfactory way all your doubts or let's say question marks. Okay, we stay in touch as usual. Wish you very happy holidays for those people that still have to take their vacation period, and see you soon. Bye-bye. Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.