Earnings Call: H1 2021

Aug 3, 2021

Afternoon, this is the Chorus Call conference operator. Welcome and thank you for joining the BTSI Honey Chem First Half twenty twenty one Results Conference Call. As a reminder, all participants are in a listen only mode. After the presentation, there will be an opportunity to ask questions. 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 We do have also a presentation already published. It should be available on On the website, on our, let's say, investors and then presentation, let's say, link or page. So I will try to follow it at least for the first part, not necessarily the appendix. So if anyone of you would like to basically follow together, There is a possibility to do that. So 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 and 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, which was been showing a minor decline, we had a positive favorable price variance Again, everywhere. As in the negative side that we had to face Yes, unfavorable, let's say, impact that we have been facing is related to the foreign exchange trends, the exchange differences. The impact was €81,000,000 basically on turnover And EUR 22,000,000 on EBITDA, operating cash flow. This is coming from the dollar And the ruble and to some extent also to the ryvnia, the Ukrainian ryvnia. These are the most Important, let's say, exchange differences affecting the consolidated figures. So net sales at the end came in at 1,000,000,000.61,000,000 versus 1,520,000,000 in 20 21st 6 months, this means almost 6% up Or 11% up like for like, so net of changes in scope, which are not there actually And ForEx. EBITDA is closing also nicely up, let's say, at plus 12 Same, €352,000,000 It would have been 19% up like for like Net of exchange differences. The net cash from operating activity, so this is related to the, let's say, cash flow Statement. So after interest payments and after tax payments, this EUR 219,000,000 versus EUR200 and And we are going to give some more flavor and detail, let's say, later. Net financial position is And then that is going, let's say, down from EUR242,000,000 the beginning of the year To EUR 110,000,000 €109,000,000 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. And we expect the recurring EBITDA to come in to arrive at a very satisfactory level. But on the other hand, we don't think that we will be able to See, let's say, the 2020 level. And of course, we will give you also on this subject a little more detail. Well, Page 2 is more a summary of what I just mentioned, comparison Between the 2 in the period, also the EBITDA margin is improving versus last year. So the profitability level, the first level Operating profitability from more than one point actually from 20.7 to 20 almost 22. This is a very It's a very high, generally speaking, also when you compare with the peers, assuming that you can compare because, of course, And nothing is fully comparable. And it does not include, of course, the results from the 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 two reasons, okay? There is an underlying market, which is showing a stronger demand For sure, because we are up also versus clearly also versus 2019. But at the same time, we are still I mean, the 1st 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 month of April May. So good, It's a good progress, a progress that we do expect to continue in the second half, but not at the same pace Call. For this reason, Eastern Europe, the progress is coming mainly from Ukraine and Russia, the volumes. We had some negative variance in Poland, minor one and positive Small change in Czech Republic. U. S. Also performing overall, I would say, very well, in particularly because The so called pandemic month or the month of the restrictions In U. S, did not have same as you recall, did not have the same for example, in Italy or France Max and Berg, 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 comparison days. But overall, fortunately, the U. S. Last year did not have the same kind of, Let's say, impact from the construction activity, but that's not for the same impact as we had in Europe, Italy, Again, Francois of Benelux. So it's mostly a stronger, let's say, pickup of the market, which was partly Expected, partly not. And in this case, for example, we do not believe that The final outcome for the full year will be the same. So it will be, yes, a positive sign, but not, let's say, almost 7% up. We have Or about 3%, 4% up, if everything, let's say, goes right. And Central Europe includes Germany and And Luxembourg, indeed. Germany is a little weaker. There was for sure some impact From, let's say, difficult weather, the difficult weather situation at the beginning of the year, but also So later on, in the same the last few months, May June, Rain and Rainy weather was somehow impacting the Construction activity. And 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 of 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 versus last year. Central Europe suffering. Here, the major portion, let's say, of the Readymx output It's in Germany. And in U. S, slightly down. This is the Southwest Texas market, which has been strong, generally speaking, in terms of cement shipments. But we did have some last year, this was already budgeted, let's say some Declining in our ready mix production in Texas. We did that last year. Some projects That we knew were coming to an end and we did not expect that they we did not have the possibility To replace them with the same with similar project of a similar size. Now following the with the presentation, we moved to Economics, let's say, economics by regions on 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 €9,000,000 last year to almost €33,000,000 This year, there is a positive volume and price effect that is offsetting also the cost increases. And in addition to that, Italy is not accruing so far as not being far and will not do That until it's necessary, the shortage in That is beginning that is there, let's say, beginning from 2021. So We do have the benefit of the previous periods. So we are we will be using we will be Gradually, let's say, depleting the occasion That we received until 2020 beyond, let's say, the actual need of to write. And this is clearly a good advantage to have, particularly In a time, in a year where the CO2 price became I mean, has been showing A very significant increase. So again, good volume, good prices, Variable cost, let's say variable cost like energy, electrical power, fuel, Etcetera are, yes, sharply increasing, but the full, let's say, impact of that increase is not yet visible. And It can become more evident in the second half, and this is something that is true also not only in Italy. I mean, This is something that will occur also in other countries. But as opposed to other countries, We have been able to eventually improve, let's say, significantly our operating leverage, so our capacity Utilization level. And this is something that for the fixed cost, for example, when we look at the Fixed cost per unit of production, they are actually declining some due to the Larger or greater volume produced. So this justifies and explains, let's The higher margin than the better margins that we have been able to achieve. Very good performance for the overalls in the U. S. As we said, demand has been strong, driven by the mainly by the residential The sector of 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 June, but nevertheless, when the weather It's been nice, sorry, in the weeks where the weather has been nice, we've been able to overcome, let's say, to exceed The production output of last year and pricing Developing, let's say, nicely. As I said before last year, as you may recall, we were not able to Increased prices during this period in this respect, the comparison is somewhat easier. But The fact that demand has been so, let's say, 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 anything else, But it's quite meaningful because out of the Exchange differences, so foreign exchange impact that I mentioned before, clearly, The dollar or the U. S. Business is the one most affected. So €56,000,000 approximately on turnover And €17,000,000,000 on EBITDA. But our margins are still, Let's say, a bit still somewhat growing versus last year. So we moved from 29% from getting back to 30% About 1% up again in comparison with the first half twenty twenty. In the case of the U. S, there is no impact yet, at least, on CO2 cost. So there is no No approval, but also again, no approval for the second half Due to the different, let's say, legal environment. In Central Europe, Demand has been a little softer. Yes, we have declining volumes both in cement and ready mix. Luxembourg performance was positive following also the full, let's say, 6 months Of operation versus almost 2 months of last year. Price performance, price increases That's 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 The alternative fuel power cost instead has been going up. No CO2 accrual so far because we are Still enjoying, say, for the location until maybe, I don't know, September, October. It depends on the production rate. Last year, of course, not fully consistent because last year, general change that we made in our way Accounting for CO2, right? We will, let's say, post Either, let's say, a liability or an allowance only When we are entering the so called deficit period, that period anyway, it was almost €9,000,000 At prices of CO2, which were much lower than the prices of this year clearly. In Europe, Solid demand with the exception of Poland, which was weaker In the 1st 2, 3 months, in Poland, there was also a significant effort to improve prices during the beginning of the year. And this was probably one of the reasons for our Not for performance, not to the level, let's say, of expectation. This was slightly our pricing policy was slightly revised in the following months. And from then on, We had a much better performance even though we were not able to fully close the gap in the 1st 6 months. Weather also did have some impact in Poland, Czechia, etcetera. So overall, anyway, Our sales have been quite positive. Average selling prices, Again, showing a positive variance on the exception in Ukraine, which has been Fighting, I think, starting from the second half of the last year mostly with some imports, also trying To compete at best and not to lose, let's say, volumes. Before us, it's also been quite a factor, particularly when you're talking about the business, Business, which is more important, let's say, clearly than the Ukrainian business. So the impact on net sales about the €24,000,000 to €25,000,000 on, let's say, Eastern Europe overall on the 4 countries All together and about €5,000,000 plus on EBITDA, Mostly, let's say, related to Russia and the ruble. But our margins have been similarly to other region, up about 1% And total EBITDA, let's say, like for like, It's 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 corruption, 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. So Very strong volume, favorable variance for selling prices, not very significant really, but particularly volume effect, which has been very And through that, EBITDA grew very strongly About yes, almost 20% up. Despite higher energy costs and higher particularly higher fuel costs, you know that we Our main fuel in almost only fuel in Mexico is petcock. Petcock, When we buy petcock, petcock is also dollar denominated. And so you do have 2 impacts, 1, the price in dollar and second, The foreign exchange impact. So definitely variable cost going up, but very, 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 anyway some good, let's say, 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 It's a portion of the business rather than the cement. So the mix of the business has, of course, the cement has It's somewhat suffering, particularly in terms of profitability, not so much in terms of volume. But in general, let's say, really very positive performance for the 1st 6 months. And 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. So there is a portion of our sales Our quality is sales performance that is coming from the scope. In total, let's say, if you look at the ESS performance without just a second, without the Changing scope. I'm not sure if I have it in front of me, but anyway. Yes. So we had Like for like, some inventories went up by approximately percent And the total delta was 45%. So the difference is coming from the change in scope. But 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. So again, Maybe somewhat easy comparison base, but our sales revenue, As you can see, it's been improving from €61,000,000 to €6,000,000 after an FX impact negative FX impact, Quite significant because we lost the real Lost about 20% in the period. So it's very good that through the, Let's say, 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 that they Okay, mainly in the second half. And this year, we continue on the same trend with a favorable price effect And also of Sculptor. So as you can see, obviously, on this page, ForEx impact on net sales was about €21,000,000 €7,000,000 on EBITDA. And excluding FX and scope, EBITDA anyway more than double with improved operating margins Moving from 27% to 34%, almost 35%. So again, we can be very, Very happy about the performance of our joint venture there. Moving to the Page 7, we're And the EBITDA bridge. Okay. You can see that the other improvement in the 1st 6 months It's driven by 3, okay, main factors, Main items, volumes, volumes has been the main driver for sure With €119,000,000 contribution to the EBITDA, let's say, increase. Prices, also good. Good, but let's say, And less and much less than the volume impact coming in at, let's say, EUR 46,000,000 contribution. And then you see the variable cost affecting or impacting About €110,000,000 So this is coming from raw material, fuel, Electrical power, logistics, transportation in general. So Quite 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 a significant changes or at least much less than the variable cost, also easier in a To keep them under control, the revenues and costs are offsetting each other and coming to Basically, no, let's say, variance versus last year. And then the Tier 2 that we accrued last year For the 1st 6 months, we have not been accruing in the 1st 6 months of 2021. Clearly, the EUR 13,200,000 of last year is reflecting prices at the level of last year. So anyway, as I was explaining before, we will accrue and for Starting from the moment where we are actually, let's say, in a shortness situation, And obviously, this will be done at the prices at the current prices of Q2 that are more in the range of, Let's say, €50 plus €54, €55,000,000 rather than the €20 per ton of last year. FX, we commented already EUR 22,000,000 negative. On the following page, you have an idea of the energy Cost impact related to the cement business. So here, we are talking only about the cement business and purely About fuel, electrical power, because it's not It's not been included here, but it could be included in the future as a reference. There's a rebound clearly From last year, last year, we touched the minimum there was a minimum level Across a number of years, as you can see, not yet at the level of the first half in twenty nineteen, 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%, etcetera. This is quite, again, quite an achievement, I believe. The financial position trending, let's say, nicely, I would say, and nothing really unusual versus what We were planning, so we have a short term Cash position, which is slightly below the level of the $7.20 but still very good. Okay. Among the long term financial assets, it's important to mention that we are including An amount of €204,000,000 if I recall correctly, €304,000,000 This $4,000,000 are the it represents, let's say, the loan or the financing that we have been that we made again back in April through our joint venture, Brazilian joint venture. When they continue, when they executed the acquisition of the CRH asset, so this acquisition was financed through Intercompany loan from the NADA to the Brazil, let's say, operating company. And again, this Into the proposal 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 They sound very reassuring in our opinion. So we will continue to have likely a negative impact from FX And this eventually okay, the size, of course, the magnitude, we don't know. We made some assumption in our forecast, As we can know, but it is something that unfortunately will somehow had an impact on our figure. And the higher energy and CO2 costs, 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 is, at least in Europe, is following very closely This Q2 trend, in general, the impact of the inflation will be more evident in the second half versus the first half. Then you have, okay, some detailed, let's say, comments and Let's see. Yes. Not really good analysis, but yes, there's Some more interesting or, let's say, Exclamation or comment about the different countries, about the different region, I mean, I would not go through this In full because it may not be of such of interest to you, but so I would expect maybe on this specific country Or specific trend that I mentioned here, question on your side, if there are any. And again, available to explain why we think that Overall, for the full year, 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 effect. So including the credit or exchange impact in such outlook or guidance. On the appendix, we have different information. Maybe we can even have to go through. No, maybe an indication. Okay, yes, an indication on Page 17, the full income statement for the staff It's quite interesting in a sense that we're able to Following, as I said, below the EBITDA line to Thanks to the 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. And last year, you do recall that the equity earnings, let's say, item was benefiting from a very significant profit. So the gain of the sale of our investment in Kosmos in the U. S, so this is quite, Again, in my opinion, quite an achievement. And it's coming from the improvement of our joint venture. So the equity earnings So going up except, let's say, the extraordinary gain. Net finance costs also going down. So the combination, let's say, of the better performance from equity joint venture, Let's say equity earnings and the lower finance cost is putting us in a position at the level of the profit before tax, Which is relatively similar to the last year. Then A little less income tax expense last year, of course. The gain was also taxable, so we had a higher tax charge On this specific item, and you see the net profit Closing at a level which is very similar to last year. And again, I think this has to be considered overall In the assessment of the first half results and also Going forward of the full year results, the actual statement, you can see that we had In the first section, net 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. And so we had, let's say, this postponement coming to an end at the beginning of this year. So there was A number of tax payments in different countries that fell, let's say, 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 a little bit behind the last year. In our full forecast, we do expect them to exceed last Yes, not quite significantly actually. Probably our latest forecast indicates The CapEx about €320,000,000 So we need to we need I mean, we are in the process I was catching up some of the projects last year. You may remember where we were postponed At the time of the pandemic crisis and when you postpone a project And you go back to it and you decided to go back to it, it is what usually there this is causing some delay Normally, because these are sometimes our complex projects or engineering projects that if you follow, let's Say day by day and you bring, let's say, forward day by day, you can do it maybe in a normal time if you start, let's postponing or if you stop them and you go back to it, 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 over last year, so the actual payment occurred in the first half. But at the end of 2020, it was already considered as a liability. We received less dividend from associates because, again, a large portion of last year dividend was associated with a gain on the sale of our Kosmos Investments. We had some more disposal from fixed assets And that's it, basically, other minor items. Anyway, the change in net debt, as we mentioned before, It's EUR 133,000,000 a little less than last year. It's still a very strong, let's say, Cash conversion, I would say, and the net financial position that is trending. So, I would say, 0 by the end of the year, yes. Okay. Again, I will turn back The lead to the operator because we can start, I think, from now on the Q and A session. Thank you. Excuse me, this is the Chorus Call conference operator. We will now begin the question and answer session. Anyone who wish Please pick up the receiver and asking questions. The first question is from Paul Roger with Exane BNP Paribas. Please go ahead. Yes. Good afternoon, Mr. Boulas. Hi, Patrick as well. Hope you're well. Yes, thanks. So just maybe two questions to kick off and both of them focused on guidance. So the first one is really about CO2. So just to clarify, your guidance does assume purchases in H2. So Maybe you could help us by quantifying what's assumed in guidance and also really talk about the strategy Of buying CO2, when I think you're long about 9,000,000 tonnes at the group level. And then the second 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. And that seems to be quite a bit more bearish than some of your peers. So really just to understand whether you are being very conservative or is there something specific we should be aware of? Well, let's start with 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 mean, I did not follow other conference calls, but I read some of So the comments that were issued by analysts or etcetera. So We do see that there is a possibility to have some price improvements, some 5, let's say, price improvements in the second half versus last year, but not That's limited to some of the regions. So 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 meaningful Not in a meaningful way. This could be one of the difference for the rest. And again, I think we have the impact of the cost inflation, We are assessing again that could be maybe too pessimistic, but it's definitely more significant in the second half. In the first half, our overall cost went up maybe Between $1 $2 and we expect in the Synchronoss to go up another $2 So higher maintenance costs, yes, it's coming also From the fact that we are like, yes, probably of other competitors, but anyway running at a very It's a very high page, so I'm a little under stress. So we need to plan for some 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 the normal what should be the normal maintenance period. So we We've been postponing some of the maintenance projects, and we are coming up before year end. We are purchasing some cement, again, mostly in Texas for our Ready mixed operation in Houston. As you know, I mean, Ocean's freight rates are really Escalating significantly. So what we say, These are the figures that we ran. Okay. In addition to that, of course, we are using in our forecast 1.21 as exchange rate for the full year. Okay. This could be, of course, different. If it is 1.19, for example, or 1.18, I don't know. We will definitely improve in a sense that but in general, Our forecast in the U. S. Is pointing to results that in dollars of the 4th, at the same rate are very similar to last year, which was anyway high record. So at the end, And this is true also in other countries. But when you are running 100 meters in 9 second point 'eighteen, you cannot improve too much. So it's a little difficult anyway to improve too much. And 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 to go to Bermuda, but probably we're at least seeing Bermuda. So, okay, I'll let Patrick comment a little bit on the CO2. Okay. So regarding the situation of Tier 2 rights within the group, talking about EPS, there's also a Tier 2 effect in non EPS country due to Some taxes, but this is minor. But regarding the ETS countries, we are in 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. So therefore, we will not be obliged to accrue for the shortage in Italy. All Tortoise is more than 1,000,000 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, all The new trade period has given to some countries some also significant due to the new historic level of Tier 2 allocation due to higher production and basically the comparison. Overall, we are planning to Spend around €34,000,000 in 2021 for Tier 2 rights. So standing in this case means we are talking about roughly 600,000 tonnes net That will need to be either bought from the market or will be need to be transferred Internally, but for now in our forecasting, we foresee acquisitions associated from the markets. And this with the actual And some additional effects, give us then the €34,000,000 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 it 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 So 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 that a case of just savings for a rainy day in case the price goes up more? What's the thinking? I mean, typically, this is not just true for CO2, right? It's true for all costs. There is no necessarily every plant and every country is responsible for the performance. So having said that, for CO2 price, if our country is short of CO2, then first of all, we will look to the market and What is the best way to basically then purchase in the term. Again, then if we, from a strategic Good perspective. Seems that there is volatility that does not necessarily need to In our favor, then it could also be possible to basically postpone purchases to a later point in time. But this is rather a point of decision. So it's not an overall strategy that we are pushing it To the latest moment, it's rather that we are referring to the market when it seems to be At this moment, let's say, relatively good moment. Inevor and other, I think you will have at the end, I mean, across If you look forward in the next 4 or 5 years, the same expense is 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, etcetera, makes sense to treat 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. Clearly, As Patrick said, it's not that we are not acting as a group. It's just something that, in our opinion, Is there a way also to make, let's say, the individual client and individual country more and more responsible, anyway, of The requirement and of their goals because this is, of course, coupled with some Q2 reduction. So it seems to make sense. It's not written The stones is not bad. It can be changed. That seems like 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 Duardi from On Field Investment Research. Please go ahead. Yes, sir. Good afternoon, gentlemen. I have two questions. First, could you tell us, if it's possible, what level of energy cost inflation, EBITDA of Cement You experienced in the first half of twenty twenty one. And based on the current energy cost, What kind of inflation performance would you expect in H2? So that would be my first question. And then my second question would be, what is your first take on the Fit for 55 program disclosed by Europe? And by the and what is your first take on the bi partisan infrastructure proposal in the U. S? Understood. The divestiture proposal is correct. Your first take, what would be what is your first view 1 of those 2 programs? Yes, yes, yes. Okay. So if we look at the first half, The group, of course, group is okay to give you an idea, but there are Very significant differences from one country to another. We had 23% up, correct? 23%. And this includes fuel and power? Okay. And building food volume? Include volumes, yes, of course. And how much was the volume? 11%, 10%, 10%, 11% up in cement approximately. So that would be 10% that would be 10% inflation and 10% volume? Yes, approximately. Yes, okay. In general, we did not have any major changes in the operating efficiency. Yes. But of course, there are due to differences from one country to another. We have to be aware of, for example, I don't know, Ukraine had Some declining fuel costs. Czech Republic had some declining fuel costs. So And some other words, I said, Italy was highly penalized, for example, By both fuel and power cost. And that's for the 2nd part of the year? Yes. 2nd part of the year, probably something similar. Yes, something similar to end up with something Not very different, at least in our projections. And that would mean 22% up? Sorry? So that would mean 20% up? Yes, between 20%, 25%, yes. Again with some But lower with a lower volume because the base effect is going to be Exactly, lower volume with total volume This full year, let me check it very quickly. So, Cement again, Probably 4%, 5% up, yes, versus 10% in the first half, yes. So this would suggest, let's say, some pure cost energy cost inflation of, let's say, 10%, 11% in H1 and then maybe some Double digit customer some 20 percent customer vision energy customer vision excluding volume in H2. Yes, correct. Correct, yes. Okay. That's very clear. Okay. And for the second part, well, The seat was 45, what can we say? The most worrying, I think, is Thank you so much. The well, the carbon border adjustment, if you will Come through gradually, I don't see any major problem. Even though, of course, the Location will go away. And so I think the ramping up of cement prices in a way or another We'll have to be much steeper, let's say, than what we planned 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. But okay, this is fine. I think it's even more worrying in the sense that the What has been mentioned and reported, the fact that there will be no more benefit or help for Energy intensive interest in the 3 in the tower costs. So today, we're still benefiting on our tower costs from a significant help. And this can be worth, I don't know, Probably €50,000,000 per year, if you take all the, let's say, the European countries, Italy, Germany, etcetera. Yes. Maybe if I may add here, and in addition to that, if you think about the objectives, There will be much more power needed actually in cement sector compared to now if we are converting the technologies. And thinking about new technologies, you will need much more electrical power. So this is an additional issue that will need to be looked after in the And without, let's say, benefit for energy intensity, this is, of course, at a much higher cost. So this is something that is, I think, More worrying than the, let's say, trended towards no more relocation. This week, because of course, it's still I mean, this 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. The your second point was on the U. S. Infrastructure. Well, okay. There was also not long ago, the DCA came out with some Some comments on the potential, let's say, infrastructure deal. And Okay. In general, for cement demand in U. S. Looks good. The 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, right now 3.1. And then moving to 2022, 2023, also, let's say, better volumes. According again always to PPA, we are not yet the country will not be yet reaching the level, The record metal of 2,006, 2005 of 122,000,000 tons, But I'm now assuming 115,000,000 tons for that 20 versus 11 for this year, which is expected at 105, so an additional, let's say, 10,000,000 tons From 'twenty two until 'twenty five. So and this includes, I think, the impact that they are considering It's EUR 600,000,000,000 EUR 600,000,000,000 Or let's say, approve infrastructure plan approved and becoming, let's say, Lower effective in the next few weeks. So very positive in there. Thank you very much. Okay. The next question is from Brijesh Siya with HSBC. Please go ahead. Thank you. Good afternoon. I have two questions as well. So The first one is on the plant maintenance. If you recollect at the end of last year conference call in March, you were talking about around does that mean the 7,500,000 Does that mean the $7,500,000 additional maintenance cost is going to come in second half? Or So as part of it being already expensed in H1 as well? No, it was already in H1. It was already in H1. But As I said before, we have been again postponing one particular maintenance project we could not postpone it anymore and it was carried out in H1 Because we were already 1 year late. But in some other plants, this was specific to one of the plants. It's another plant we've been postponing because we needed to keep running. Okay. And do you have a kind of quantification of how much that would be in second half? Yes, it is less. It is less than last year. It could be 3,000,000, 4,000,000. Okay. Understood. Yes. And the second question is on the pricing part. So there's quite a nice pickup in the first half. And considering that in Europe, you're kind of going to buy CO2 certificates towards end of this year, is there any plan of kind of having Well, everywhere where We believe this is possible and likely, let's say, accepted by the market. Yes, of course, we will try. I think probably this is something that we will change going forward, but the market has been used To basically one price increase per year, but we are expecting this year to I mean, going up so quickly. So 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. So 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 €2,000,000 or €3,000,000 That should be much more significant, but effective, let's say, 2022. Okay. Got you. Thank you very much. The next question is from Yuri Sarov with Redburn. Please go ahead. Good afternoon, gentlemen. Hi. Hi. Can I actually ask a few questions, but I think they should be fairly short? One is on Itney. Yes. I mean, you had a fantastic result in the first half. When I look at the numbers, I cannot see how you can make Less than €75,000,000 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, it's the only country where we have been revising in the forecast Any other country either was on same as budget or It's better than budget for sure. U. S. Much better than budget. And Italy is the only one where the And I don't think we are so long. I don't think so. We were around 70 in And we now think it will be that will be maybe 65. Okay, clear. And is your ready mix profitable finally, isn't it? Sorry? Ready mix business, is it profitable? Let's say, well, maybe 0 EBITDA. Okay. I understand. Your CapEx in the first half was only EUR 102,000,000 Euros, which is a lower number than 2020. And 2020 was a very low year. So what's happening? What should we expect in the second here? Why are you cutting your CapEx? I'm not cutting. As I said before, there was The delay caused by the pandemic. In a sense, it wasn't, to the extent, Decision, let's say, decision because it was an emergency decision to keep on hold and stop, let's say, The number of projects in less low priority. And as I said before, when you even though the decision to go back and to restart, The normal CapEx development was taken already last year because fortunately, I mean, 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. Yes. Okay. So what should we expect for the second half then, 100,000,000? Yes. We are yes, we said as we mentioned before, we are now budgeting $320,000,000 total. I don't know if it's too on the issues because sometimes in CapEx, yes, You are as opposed to maybe the economic trends that we are sometimes too ambitious. Yes, the number is 320. 320. Okay, fine. Mexico, your press release It 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 go We should get we should reach 14%, 15% up. Sorry, what is it? 15%, let's say. 15, 15. Yes. In any way, I mean, very sound, no doubt. No, 15 is sound enough. Yes. Okay. 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 mean, I understand that the CRA business was only present for 2.5 months out of 6. 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, that was very much smaller if you look at the volume, That was also very much smaller issue with the profitability, unfortunately. In the past, the CRH asset became profitable for them. The first year was 2021 actually where they went back into a positive, let's say, positive results. So I think we mentioned it already. I don't know if it was the case with you directly In another conference call, it's clear that our average profitability is worsening with Yes. But if I divide one number by the other In the scope effect, it's not particularly bad. I mean, it's much lower than yours, but I thought that it was going to be much worse than that. But I guess the whole total The amount of, say, revenue is smaller than what I expected. I mean, is their utilization so much lower than yours? No. Yes. I mean, I don't think this is the It's really mainly the age of the assets and the quality. Now for the full year So is the real capacity less than 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 CRHS between the clinker capacity and the cement capacity because particularly in one of the plants, they are using A lot of slags, so they have a low, let's say, clinker content, which is, in a sense, is a good thing now today, actually. But of course, they buy Swaggy. And one of the reasons why the profitability is somewhat Somewhat lower. So, no, I think we try, of course, to extract all the potential And I think the move, again, was not a bad one overall in terms of timing, in terms of Amount, paid, etcetera. So I think we did write now, Of course, we need the country on one side, the country to perform, which is, yes, more or less happening. And on the other, also a lot of unfavorable debt Came from the ForEx. I'm sure. Yes. Okay. That's fine. All right. Thanks a lot. You're welcome. The next question is from Alessandro Tortora with Mediobanca. Please go ahead. Yes. Thanks, Mr. Pedro. Perry, two quick questions, okay, from my side. First one is, You mentioned before maintenance, let's say, operation you're going to do. Can you, let's say, give us any update on any final Segment you take or you may take on adding capacity, probably now U. S. Was an area where you were thinking about Hardeen production capacity. The second question is on if you can come back to the point on I did report the fit for 55, okay, you mentioned before. Can you exactly Pelaza, where what do you see this impact? It was if I remember, where should be incentive related to Energy Intensive Businesses. Just to understand better, well, let's say, you see this risk of this additional cost, So EUR 50,000,000, so remember what you mentioned before? Yes, the risk is a new problem. Is that what you mean? I mean, The risk is to lose what today, I think it's mentioned So in our I was looking back in our annual report because it's a Kind of not exactly that, but it's almost considered the public state incentive. So you should go just a second. There's a specific section in our And the report, which refers to Italy, but it's true. I mean, the same, this is actually a European Yes. It's under 052 So Mr. Peter, no problem. In case, okay? I may be able to answer. 52 of the annual report. Unfortunately, I opened the Italian version, but I broke it. Okay. That's currency requirements. And you see there that we are mentioning the Provision, a decree, which follows actually an EU legislation Concerning the provision reduction of tariffs to cover the general system charges for energy intensive companies. This is what, let's say, the Sigfox is potentially addressing and is what, in our opinion, is worrying us, let's say, the most. Okay. Because this, in theory, will be like, I don't know, a cut day 1 independently from It's a different from due to allowances, having a lot of results. That's a change a drastic change in energy in power cost From one day to another, if it happens. Yes. Okay. Okay. And on the first point? First point, what is there? Hi, Dika Pasi. Okay. No, no final decision. There are 2 potential products on the table, let's say. I think one is more likely than the other in a sense that It is the so called the replacement and also together with the replacement some In Russia, this is where we have already the machinery, let's say, on the ground, Machine repurchased 3 years ago, if I recall correctly, from the biscuit team plant. In Siberia, I think this will receive a green light. We don't have a final budget yet, but it's Approximately, it should be below that €800,000,000 We'll see, but anyway. And the San Antonio plant, the idea Really building, let's say, new capacity, I think it's likely to be postponed 1 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, anyway useful to the plant, even if there would not be any You can pass the addition later. Okay. Okay. So let's say, if we look at next year, let's say, CapEx level, I understood it's not yet in the budget, but Also because if we approve the Cortina project, there will be engineering, there will be, Let's say some maybe preliminary work, but the process in Russia is very long To move on with the local approvals, I mean, I hear the approval, but the bureaucracy It's a long time. So anyway. Okay. Yes, yes. I was just, let's say, I'm wondering which level of CapEx, okay, we should have in our mind for next year, okay? I would not see anything too different because this year, I mean, in terms of, let's say, expansion, probably we have maybe €20,000,000 but no more. So I think the 300 or more or less should be something that you can use also for 2022. Okay. Thanks. The next question is from Ed Blomcida from Morgan Stanley. Please go ahead. Thanks very much. Hi, gentlemen. It's actually from Exelon. Hello. Hello. I've got 2 questions on the portfolio actually. You flagged a very strong performance in your Mexico business in the first half. That business remains an equity accounted asset. I know you've been asked in the past, but Do you have any increasing intention to consolidate that asset further considering How well the operating environment is in Mexico? And what would you need to see in order to want to increase your stake there? And then 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. Counts for more than 50% of your EBITDA. Would you have any intention in unbundling your business to crystallize that value? And if not, why not? Thank you. I think the 2nd answer, yes, the second question is easy to answer. Now 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. And the effect of having 100 percent of the U. S. Besides the greater simplification, so it's making Clearly, everything much easier versus owning maybe 60%, I don't know, or 55% In the entity, it gave us a lot of and it's still giving me a lot of Power, the financial power means the effect of Not diluting or not, let's say, having to Sir, let's say, as a shareholders in terms of dividend, in our opinion, in my opinion, is It's a great advantage. I mean, a really great advantage. I don't think it would be ready to lose that. So I don't know if you see something that you may like it or not, but for sure it's a clear direction and Same thing we did with Bikroft in the gradual process of the listing, and it turned out to be a very Very good move really for the group. And this goes, say, somehow also related to your first question, Well, unfortunately, this does not depend on us. I mean, we can be 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. So if there is a change of control at the Ultilever Molinsa would be able to buy, same thing if there would be It was a change of control, Molins. And so for the rest, those partners, as Again, I imagine are very happy about this investment, so they're not likely to give it up. Thanks very much. Yes. The next question is from Harry Good with Berenberg. Please go ahead. Yes. Thank you. Good evening and thanks for taking my question. I guess it's just really an extension The prior question, to an extent, when I look at the balance sheet with the net debt position even lower in the first half, I guess we're getting pretty close to 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, I mean, you have been 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 this sense. Of course, maybe not this is not Being efficient in 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, The right level, The right level, let's say, of the indebtedness is having the message also Let's say, our goal, our aim is something that we discussed also with the rating agency, It's 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 plus maybe Even better, I don't know if we will get there or we will not get there. I don't know. But anyway, so it is clear that our goal It's to stay within this range. There are some indexes, Some ratios that usually identify this kind of rating. And yes, Clearly, we want to stay within this frame, I mean, this judgment. Again, going forward, I think Not immediately, but in some years, not too far from now, The effect of being, let's say, having a strong balance sheet Will be significant, let's say, Significant competitive advantage in the sense of moving quickly and maybe In a faster way, we process other competitors into the adoption of technology, into the overall energy The transition is we don't know. Of course, today, it's difficult to say when Exactly. It is going to begin and to translate into significant CapEx spend, That's sooner or later or sooner rather than later, I think it will come. Okay. Thank you very much. Yes. The next question is from Mike 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? My Main question relates around Slide 7 and it's this price increase of 46.4 versus cost increases of Around about EUR120,000,000 So you recouped essentially only about half of the cost increase. And what I'm trying to understand is Putting it under dramatically, where was the problem? I mean, was it difficult to recover the cost increases in the U. S? I mean, could you give me some idea of how much of the $46,400,000 was in the U. S? And 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 'twenty because you got a price increase in July of 2020 And another one in April of 2021. Where am I looking at that wrongly? And Also, I think you mentioned only one country where the prices were actually down, which I think was Ukraine. Am I right on that? That is correct, yes. Yes. So were there a lot of countries where really there was no price increase? No. No. But Yes. I think I mentioned it briefly at the beginning. The most significant price increases we achieved, the pay in percentage, Which is anyway an indicator. We're actually, yes, in the U. S. And in Germany. For the rest, we are the range and this means, let's say, some Approximately, yes, U. S. Is actually the highest in the first half at least With about 5% price improvement, not everywhere. This refers to cement, purely. So, okay, ready mix is not so important. To some extent, it can affect the overall, let's say, it does affect the overall turnover. Okay. In instance, about 5% in the U. S, a little less than 4% in Germany. And the rest of the countries between, let's say, okay, beside the negative variance in Ukraine, We have, for example, 1% in Russia, 1 almost 1.7% in Czech Republic. We do better in Poland, But the volumes were somewhat weaker, almost 4% in Poland. In Italy, it was 2.5%. So this 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. So you have to compare it with the volume effect plus the price effect, not just the price effect. I think that's one of the things that I'm Okay. Okay. And just as a follow-up to that. So which countries was the major difference between Prices and costs. So I guess what I'm asking you, if you give me the price increases, where was the particularly substantial increases in costs? Which countries So most of that 110 variable cost increase. Yes. For sure, if we look at the let's say again, Energy in Italy was pro wars. Let me check again. Yeah. Just a second. Yep. Yes. Italy, yes, well, well performance in terms of energy cost, the differences, let's say, change So variance versus last year and then U. S, Germany too, Because power cost went up. No, not so much, let's say, if you will, but power, yes. Yes, Italy, Germany and U. S. Basically. And just a final question Still on the same topic. Earlier on the call, you talked about price increases and you seem to say you were mainly going In January or beginning of 2022, the larger increases to reflect, for example, the larger carbon prices. Does that or higher carbon prices? Does that mean that you actually don't have many price increases out for the second half of twenty twenty one? In our forecast, we are only assuming something in the U. S. But again, regional More regional than across, let's say, all the states or The entire distribution. So yes, basically, it's actual. Yes. So regional, it's just Texas is where you're looking for the product? Maybe Texas, yes. Perfect. Thank you very much. Appreciate it. Thank you. The next question is from Gregor Kuglitsch with UBS. Please go ahead. Hi, thank you. Sorry to come back to this. So you've obviously drawn our attention now to this Note 52. So are you saying that is it the €68,000,000 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? Yes, yes, yes. Are you losing? Okay. And when would that be if No, but no, In a sense that there is something that is that was included in the 5th for 45 package, let's call it. So they are mentioning canceling, let's say, discount for the We call it state aid. Yes. So that's a big thing that is a state aid. If it will be changed, it will I think there will be quite a reaction, but it doesn't mean The parliament will not approve it because If an industry or some industries are considered With a high impact on Tier 2, they might then it's possible that they will be Spanish, let's say, in a sense, more than other industries. How this will really if this will really have an impact on future reduction, I doubt it in any sense that the process probably go on anyway. It's more likely Translating to or us into higher costs and in one another into higher prices. But anyway, apparently, this is the direction that European Parliament would like to take. Okay. And that's just to be clear, this only exists in Italy For you? No, no, no. All across Europe. Okay. So the €68,000,000 is only referring to Italy because it Talks about ENR. Yes. 68, I think I mentioned, I don't have it. We can follow-up maybe on this because I don't have a clear, let's say, calculation or precise calculation on that. I assume According to what was the benefit in Italy before not before, before it was because before we used to have on one side, we were paying energy We were receiving, let's say, the aid separately. So there was and then starting from 2 years ago, if I recall correctly, it was included directly into the price of energy. So I remember, let's say, the magnitude We've got the benefit clearly for Liza 2, 3 years ago. So I would expect it for entire Europe to be in the range, I'd say, of EUR 50,000,000. It's well possible. In my opinion, it's well possible. Okay. Okay. Fine. Thank you. The second question is on the U. S. And capacity And then I guess specifically around changes to perhaps the clinker ratio. So I understand if Part of your thinking of not, for instance, pulling the trigger on San Antonio would be that perhaps So over time, the income ratio does finally come down in the U. S. And that frees up capacity and we don't need it. But there's another reason because it's looking like you're pretty sold out. It's a good point. It is one of the reasons because Brexit incubation to come down. We want it to come down. We need it to And the industry, ourselves, everyone is working in that direction. You're right. We could by reducing, for example, 10% or 15% Our Tinta ratio, which is 3 year ago, we can have more capacity, No doubt. So before really committing to a large, Let's say, the budget addition, we are considering we are definitely considering also that. It's a good point, yes. Okay. And would you have to invest? Not much. I don't know, grinding, but I mean, no, not much in general. Okay, if you're really going Something like we have maybe in Europe 50%, 60% clinker ratio, a little bit lag and maybe sometimes The mills that you're using for cement are not suitable, let's say, for slag. So this could be some, let's Final grinding or let's say, leg grinding requirement is possible. But if you go down like 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, is just that the market is not ready yet to accept something different Because the product is good. It's not an issue of strength or durability over time, But it's a different product. It is like selling electric car versus fuel engine So you need to be to get used to it. Yes. Okay. I get it. Okay. And then on Brazil, so 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 mean, I guess, there's obviously CRH Coming in as a large business, maybe that takes it down a little bit. But Italy was already in for a quarter, so or nearly a quarter. So Yes. Is that kind of what you're looking at? I think it would be a very good level. I mean, if We can maintain it between $1,000,000 and $35,000,000 yes, it's something that, of course, we are shooting for It would be nice. Okay. And then look, okay. Yes, I agree. That would be a great outcome. And then a final question is, and I've asked this before and I know perhaps I know the answer. But obviously, while sitting here looking at your stock, I don't know, it's 4x or 5x EBITDA or something like that. Are you not at all tempted to buy back some shares? I You want to keep a strong balance sheet, but you're also tracking off quite a lot of cash flow. So is there a temptation to maybe Do this or is it just off to say that? Then Peter mentioned maybe it's not the right word, but I can say that this is One of the possible, let's say, capital allocation, but the direction, this is true. I think we have to At least to think about it, it's not something that we should just say, No, not at all. No. We are not very tempting. I was thinking because it's something that in a way or another It may appear like you don't have any there's nothing better 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 that could have good financial strength. Okay. All right. Excellent. Thank you. Have a good evening. You're welcome. Bye bye. Mr. Busse, there are no more questions registered at this time. Okay. I think it was a good conference, a lot of questions. So I'm happy to we've been able hopefully to answer In a satisfactory way, all your doubts or let's say question mark. And Okay. We're staying fast. As usual, wish you very happy holidays for those people that still have