Good afternoon. This is the conference operator. Welcome, and thank you for joining the Buzzi Unicem Full Year 2019 Results Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. If anyone needs assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I have a message from the conference server. This is Pietro Buzzi, managing director of Buzzi Unicem. Mr. Buzzi, you have the floor.
Hello, good afternoon to everyone, and welcome to our conference call. I will try to go through the full year results, especially some figures or some details that have not been disclosed previously. Later on, leave the floor open to you for the question, both on the full year results and maybe even more interesting on the current trading conditions. If you look at the year 2019, I think we can be quite happy with the outcome. If it were to compare maybe with years like- before the Lehman crisis, where the scope and the accounting principle was a little different, including the proportional consolidation of Mexico, for sure, we have achieved results that are among the best ever achieved by the company.
It was a combination, as we tried to explain in the press. Very good trading condition everywhere- meaning volume increasing, firm pricing, sometimes also increasing pricing level and favorable foreign exchange rate. Competition, not particularly mild, but anyway, somehow, fully offset by the volume and price trend. The trend was already disclosed at the beginning of February. We have a positive 4% in terms of cement sales in tons, with the favorable variance almost everywhere, except for some minor declines in countries that are already working at peak capacity, like Czech and Poland, and a flat trend in Luxembourg. Everywhere else, the volumes trended upward, particularly well in the U.S., very strong second semester.
Good trend in Italy and Germany, partly helped, let's say, by the change scope of consolidation. Besides, let's say, Czech and Poland, as I said, flat to slightly stronger bound in Ukraine and also good performance in Russia. Outside the scope of consolidation, so the joint ventures, let's say, the important one in Mexico, was actually the only country showing some- let's call it weak, trading condition with a declining volume of about 10%. Brazil, in terms of volume, performed better, was also an easy comparison base due to the fact that in 2018, one month of shipment was practically unavailable due to cost operation strikes.
The ready-mix volumes- a similar trend, even though it is always more difficult or more volatile, the trend of ready-mix, because it can refer to some major jobs that have been which is applying or maybe tend to halt or not immediately replaced by other job of the same size. With a good performance in the U.S., which is the focus emanating from the Texas, let's say, area, where most of our ready-mix is. Our ready-mix in U.S. is based in Texas, so more than 16% up. In the rest, flat or slightly negative trend is in Czech Republic and in the Netherlands, where we had big job sites coming to an end or closer to completion.
Yes. In terms of volume trend- i n terms of price development, again, all countries perform with a positive sign. Talking in local currency, we had little significant improvement in Poland, again, approaching full capacity. Also good price development in Czechia. Good prices in Italy, a lso in Ukraine, but it is, of course, in local currency, but somehow influenced by the local inflation rate, which is still fairly high. Russia also price development about 4% up. Firm pricing in the U.S., no major changes there in terms of net , net plans, let's say less than 1% up. With, again, some differences among the regional areas.
We have regions in U.S. where certain people were really unavailable, or there was no possibility to improve them. In other like Texas, for example, some area of central Texas where the price is trending up. Again, this was quite widespread across our scope of consolidation, following also some cost increases that we had to face, in areas like the U.S., mainly labor and services, which is very tightly associated with the strong consumer performance and full employment. Meanwhile, in Europe, particularly in ETS, the three countries had to bear additional costs related to CO2 rights. This was also true for Germany. Many countries had more favorable, like Ukraine and Russia, strong increases in the fuel and power cost.
In general, if you look at the energy cost, fuel as a whole within the group was not higher. The amount spent for fuel costs was greater than last year. Anyways, it was greater for electrical power. When we compare the weight of the energy bill on our revenues did not really change or was trending somewhat lower due to the stronger, let's say, turnover. Tax changes, as I said at the beginning, also favorable, basically everywhere- t he dollar 5% up, the ruble 2%, the Ukrainian currency also almost 3% stronger this year on average.
Flat development for the exchange rate in Czech and Poland. No big changes there. Stronger also Mexican peso, which was helping somehow the translation of their results, which were substantially declining. Instead, a loss of 2.5% for the Brazilian real. The turnover, the net sales figure, was disclosed already at the beginning of February, so no changes there. We are up about 4% in the reported figures, with a ForEx favorable change of EUR 81 million, and also favorable scope change of EUR 20 million, which comes from the Italian business and the German business.
The scope in the Italian business came from the acquisition, which was effective July of the three plants, let's say, infrastructure to run cement from HeidelbergCement in central and North of Italy. We have also another EUR 10 million scope change in Germany from the previous year because the Zillo Group acquisition was consolidated effective May 1st, 2018. The net sales turnover declined by about 5% in EUR, but it was actually almost a 10% decline in local currency. The Brazilian turnover improved 1.1%, flat in EUR, instead was 4% up in local currency. Again, these figures were already available.
Going to the operating cash flow, the EBITDA by country, this I will disclose yesterday. We notice also in this figure a favorable change in many countries with operating bonds, with the exception of Luxembourg and the Netherlands, which were flat against last year. In absolute terms, the main improvements are coming first of all from the U.S., very strong, let's say, performance there, with about $60 million up in the reported figures. Of course, here the reported figures of 2019 include the impact of IFRS 16 leasing, which is favorable, let's say, in many countries.
The difference is a little biased, let's say, upward, anyway, in the U.S., performance was very strong. In absolute terms, also Italy performed very well because we moved from flat to - EUR 2 million EBITDA in 2018, +EUR 43 in 2019. The +EUR 43, only that is worth to mention it, to recall, that includes some CO2 right sales in the company. Out of this EUR 43, almost EUR 24 are coming from CO2 company sales to Germany, Luxembourg, the Netherlands, Czechia, Poland, et cetera.
Anyway, let's say a better environment for the Italian business. Just performed everywhere, almost EUR 20 million in absolute terms. We had a strong rebound in Ukraine. You remember that 2018 was particularly weak, and there with EUR 14 million improvement, also with the help of a stronger currency, as we said before. Russia performing well too, with EUR 7 million up from EUR 50 to EUR 57. In total, we are at EUR 728. Again, reported figure is EUR 704, the recurring, the main non-recurring item is the adoption of IFRS 16 for approximately EUR 28 million.
We have some other minor items, [audio distortion] , - EUR 4 million in 2019, in Italy mainly, and in parts in Germany, EUR 16 in Italy and EUR 0.4 in Germany. Looking at the joint ventures, Mexico was down about EUR 36 million-EUR 37 million. Unfortunately, more in local currency due to the stronger peso as we mentioned before. Brazil, we had a negative variance in the reported figure of about EUR 8 million, last year, a positive non-recurring item of EUR 11. Actually, the reported figure, even if it is not up to now, particularly being still in a difficult market environment, the recurring figure is better than this year.
In terms of contribution to our, let's say, overall consolidated figures, you see that the weight of the U.S. will continue to be very significant, around 56%, 55%-56%. Last year was slightly greater, also because in the meantime, we had Italy fortunately moving from a negative to a positive contribution to the overall operating cash flow. Eastern Europe also improved. Remaining in this 2022 contribution, Germany and Central Europe, let's say, slightly down. They represent this year 30% of the EBITDA versus 19% in 2018. The bridge of the EBITDA from a reported figure, again, from EUR 576 to EUR 728, tell us that the volume and price impact was about almost EUR 150 million positive, of which volumes to EUR 102-EUR 103.
Variable cost, fairly okay, considering the stronger level of activity, which is EUR 110 million variance with significant increases in raw material and logistics transportation. Moderate increases or, for example, in the case of fuel, as I mentioned before, no increases. Fuel, a moderate increase for power. Fixed cost, considering also the, let's say, overall greater level of activity, I think pretty much under control. No big changes in maintenance. One change is that labor cost, as I mentioned before, we got 4% increases in labor cost in most of the countries, the market, which means about EUR 42 million variance for fixed cost.
Sorry, the rest, no other major changes. The effects on the EBITDA amount to EUR 24 million, and again, around EUR 28 million in IFRS 16 adoption. If we look at the lower portion of the income statement, the operating profit is not really affected by IFRS 15, the adoption is almost neutral at the operating profit level. We have improvement there of EUR 116 million from EUR 1,052 to EUR 1,068. Also as, let's say, operating profitability on sales, we are moving up more than 200 basis points from 12.2% to 14.5%.
The lower part of the income statement is a little weaker versus last year because we have less contribution from equity earnings of the associates, in particular, let's say, the Mexican joint venture, which has been not as strong as usual, even though its results continue to be very positive, let's say. We have higher net finance cost of EUR 58 million. Last year, it was around EUR 24-EUR 25 million positive. This is due to the so-called non-cash, non-monetary items that fall within this category of decree unrealized, let's say, foreign forex gains or losses. There is a revaluation.
We still have an increase and decrease in the year related to the equity, let's say, cash settlement options associated with the convertible bond, which had a certain value at the beginning of the year, and then it was exercised during the year. This also being negative. If you look actually at the pure net interest expense on interest-bearing loans, we had an improvement of about EUR 18 million, including also the interest income. The difference between net interest expense and interest income in the year was lower than 2018 by EUR 16 million, approximately.
Our cost of gross debt, let's say, year end, so on the outstanding debt, financial indebtedness is less than 2% currently. It was slightly greater than 2% at the end of 2019. Looking at the cash flow statement, the consolidated cash flow statement, we had a very strong operating cash flow from operation versus last year, due to also certain control and improvement in working capital. We moved from EUR 402 to EUR 691. Also, after, let's say, the following intermediate results, the net cash flow from operating activities improved significantly following a lower interest payment.
As I mentioned before, the biggest cash outflow was accrued interest payment, but also the cash, let's say, outflow related to interest went down from EUR 45 last year to EUR 32 in 2019. Income tax payments were actually higher due to the greater taxable income coming mainly from the U.S., Italy, and Germany, countries where also the average tax rate is greater than, for example, let's say, in Europe. Our net cash flow from operating activities represented in 2019 about 80% of sales versus less than 12% on the previous year. Also there, you see the very strong operating cash generation.
Capital expenditure- somewhat lower than last year, including also equity of competing investment. Expansion investment last year, because we had the outflow associated with the Brazil equity investment, the entry in the Brazilian market. This year, we did have some special projects, not as important. We include here EUR 82 million in investment associated with the purchase of the cement plant in Italy, which I mentioned before. There's a step-up in the net financial position at the beginning of the year with the IFRS 15 adoption. It's about EUR 94 million.
The repayment of the convertible bond, since we had been very scarce already in 2019, was represented actually a partial- from an accounting standpoint, improvement of net financial position. Dividend paid were very similar to the previous year. We received similar also in cash in from Sofric in terms of dividend. There was a net disposal of discontinued investments of EUR 45 million in 2019, EUR 12 million this year. Interest received was very similar. At the end, the change in net debt, including the step-up coming from IFRS 15 adoption, was a favorable EUR 323 million, which is a very significant amount for one year of net debt, c ame down from EUR 890 to EUR 568, let's say.
EUR 294 million additional, which was included at the beginning of the year. Another important point, particularly today and in the coming, let's say, months, is our debt maturity profile, which is showing, let's say, It's giving us some greater confidence on the soundness of our financial condition, because in 2020, we have principal repayment of EUR 26 million, let's say, only. There is no principal repayment due in 2021. There will be EUR 150 million of principal repayment in 2022.
The bigger chunk of our, let's say, debt maturities will be coming due in 2023, three maturity of the outstanding Eurobond of EUR 500 million. We do have three years of very low or reduced, let's say, fixed call repayments. I think we can move to your Q&A session. I hope not to have missed or left behind anything significant, again you can address your question both on the, let's say, last year results and the current trading. Can we ask the operator to open the Q&A question?
This is the teleconference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their phone 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 Elodie Rall with JPMorgan. Please go ahead.
Hi, good afternoon, and thanks for taking my question. I start on cash, if I may, and your capitalization thinking for this year. On the one hand, you have low amount of debt, that's very clear. You have gone and confirmed the 2019 dividend. How comfortable are you on this one and 2020 as well? On the other hand, we've also seen that you have renewed your buyback program, or might actually start that as soon as now. Does it mean you're contemplating more shares to buy back now, given the lower share price? How do you think at that point? Do you think at this point of time it would be maybe safer to protect the dividend and the cash? That's my first question.
On the second question, if you could talk a bit more about the revenue declines that we've seen currently over the last two weeks and how this has progressed. What is the percentage of the decline, maybe per region, if you have a little bit of color there? If you could give us a little bit of more color and if we see notable differences between Western Europe, Eastern Europe, the U.S., and if you have a little bit more detail. All right, thank you.
Sure. Well, yes, of course, the preservation of cash, even if our position is strong, is a main goal. We have to make sure that, of course, we can face any kind of potential disruption without going into any trouble. On the other hand, true that today, I think both if you look at the results of 2019 and also if even in a very difficult situation, which I think we will face very quickly in 2020, we think that overall what has been decided by the board today, both in terms of dividend and opening of the already approved share buyback program, is a good kind of statement. Will allow us to go, we think, private in a safe way.
In terms of buyback program, we don't have to rush. In a sense, the idea is to somehow give a sign, I think, to the market that, let's say, the company again feels comfortable about its financial position and see the possibility to invest some money in itself for future uses. Because at the end, if you have some of your shares in your portfolio, this can be very useful tomorrow for other reasons, for other strategic reasons. I did not mention it before, but I think everybody is almost really aware that also we indirectly, the so-called Kosmos disposal, the Kosmos Cement disposal was completed, executed, closed after year-end, in particularly at the beginning of March this year. I think we issued also press release about it.
There was already a significant distribution of cash additional to what we had at the end of last year. It's about + 3 , again, before the end of March. This is available and can be considered available for, let's say, the buyback program. We focus, again, strongly this year on how the situation develops, because it is really changing. I will give you some follow. It's changing quickly, and for the worse. It's not changing to be better. This is clear. There are still some significant regional differences, and we don't know. It's very difficult to tell.
Nobody knows whether countries like the U.S. will come to a complete production stop, like we have right now in Italy, or not, and for how long also the China production stop is going to last. In terms of, again, volume declines, it depends very much from region also to market. After the last governmental decision in Italy, we are not allowed to produce anymore for the moment. The deadline is set at the 3rd for potentially reopening. I don't know, really. It may last longer, or it may finish by April the 3rd. We are not allowed to produce and not even allowed to sell.
Our plants are currently closed, with one exception, which is the plant in the northwest of Italy, because this plant is somehow linked to the so-called supply and production chain of the waste-derived fuel. Particularly, this plant is burning waste fuel from household waste. It would create a problem for the waste treatment not to be able to dispose of waste through the cement plant. It's open, but at the same time, the market does not exist. Until the inventory will be full. At a certain point, if there's no reopening of the economy, this plant will have to shut down.
The situation is by far the worst. I think we will see it. Not exactly. I don't know. Again, it depends on how long it's going to last. In the meantime, from when we stop until the reopening, basically, we can sell, I don't know, 10% or 20% maximum of what used to be the normal shipment. Probably even less. We have not seen, let's say, yet, again, anything similar in the other countries. Not exactly. The only one in a similar situation, which is basically in the phase of shutting down, is in Luxembourg. The Luxembourg plant is also shipping freight product in towards, let's say, France and the other Benelux countries.
That's the one where the lockdown is stricter. In Germany and Eastern Europe, for the moment, there is no similar, again, situation. Clearly, the effect, anyway, is somehow, let's call it, restrained or with a lot of restriction to people movement, goods movement. This will inevitably translate into a lower demand. Again, by how much? Very difficult to estimate. U.S., again, significant regional differences. Kind of similar lockdown, but not, again, for production activities like cement in Pennsylvania.
The Texas market, which is important for us, not clearly yet affected by any kind of significant, let's say, restriction besides recommendation to the people to follow, let's say, extra precautions, et cetera. I don't think we will see, by the end of March, any significant worsening for countries that are other than Italy. In the coming months, it really depends on the virus spreading, how much, how many infections, and the reaction of the different governments, which I believe, but this is my opinion, is not likely to be so extreme like it has been, like it is right now in Italy. I might be wrong.
Okay. Thanks very much. That's very detailed. Thanks.
The next question is from [Robert Wagner] of [audio distortion]. Please go ahead.
Thank you so much for the call. Yeah, thanks for the detail you just gave in terms of volumes by market. We've heard reports in the last two weeks of very strong volumes in places like Germany and to Eastern Europe. I don't know if you could just add any color there in terms of how those markets have traded. A nd likewise, if you can give us an indication maybe in terms of Mexico, Brazil, and your small business in Algeria, to which both of them have been impacted at all at this point. In terms of the U.S., I know you mentioned there that you're operational. Are you able to ship new product around? Are you restricted anywhere in that regard? Thank you.
In the U.S., for the moment, we can ship. We have more problems in the, let's call it, main offices, which is located in Pennsylvania, where people again are using a strong recommendation to work from home, which is not impossible to some extent, at least, and not move around rather than on the production and the shipping. For example, the Pennsylvania plant is unable to receive certain raw materials, which we purchase outside. It is also one of the critical points. Could be one of the critical points from the U.S. the, let's call it, raw materials, they're not coming from your own quarry.
You need to purchase outside using a certain kind of logistics. This could translate into some kind of issues. Again, either much higher cost or maybe unavailability of the same raw material because the production plant has been shut down. The trend for the first two months has been good. It has been actually better than last year because weather was almost everywhere in Europe, but also in U.S., let's say, relatively mild. We have a little, I would say, nothing really no critical signs of, let's say, a recession coming soon.
Of course, it is impacting from one day to another. I think it will be inevitable to see a significant decline in demand. It will be more evident from the first months, let's say, in Italy, and we will see gradually, I hope, a similar trend. Not for sure, a significant drop in Central Europe going forward. The U.S. is a little more of a question mark, also because it's bigger regions that are not so-- With such a high infection rate, different region like Texas may continue to, let's say, business as usual or almost as usual. I don't know. This is what I can say right now.
Sorry, just Mexico as well...
Mexico is entering into a phase where we have some COVID-19 cases. There is also some strong, again, recommendation for the moment to stay at home, social distance. Let's say, events have been canceled, et cetera. We don't have an impact on the plants right now. The shipments are not particularly strong, but it is coming from, let's say, the current condition of the economy, which was already seen last year. Naturally, we did not see any uptick in our shipments.
We have basically flat versus last year, but it is what we actually expected already. We did not see the potential for the economy to rebound very quickly. In Mexico, and this is true also for countries like Brazil and Russia. Russia more important than Brazil. In Brazil consolidated, we had a significant worsening of the currency. Any translation impact coming from Mexico, Russia, and Brazil is likely to be negative or quite negative. It can change through the year. In Russia from one day to the next, you know the ruble went from 70 to 82, 83.
Of course, it is very testing, let's say, on our businesses. The Algerian situation is, again, nothing new really, and nothing so much related to the infection, to the virus. Algeria, it's suffering from a difficult political situation. President's election went on with a new president, but still probably not fully in power. I mean, the power remained where it used to be. A strong negative impact coming from the oil price. Clearly, with such a low level in oil price, this comes to affect the country quite significantly. We did not forecast even a better year for Algeria already.
Okay, thank you. All conditions are improving in your country?
You mean as a question or as a statement?
No, I'm just saying I hope they do.
No, yes, everybody I think they will. Because the potential are so significant that they will attain some kind of success. Again, the problem is a little bit the Trump statement. It is worse or better than the, how do you call it, than the business luck is for? This is a question mark. Next.
The next question is from Yassine Touahri with On Field Investment Research. Please go ahead.
Yes, good morning, everyone. Next question from me. You were kind enough to give us some color on what has been happening in the past few weeks. Do you think you could give us some order of magnitude of the decline that you have seen? I think that, for example, on HeidelbergCement, they were mentioning decline of 60% in western Italy. Could you just take us to go by region? Is it a similar kind that you've seen in Italy, in Pennsylvania, Germany, Russia? It would be useful to just get a sense of what is the extent of the decline.
I think it's too early. Well, for Italy, not so much. I think the statement by HeidelbergCement was made before the actual closing down. We are forced to shut down with the production only two days ago, basically. I don't remember exactly when they came out, but I think it was earlier when we were still anyway selling some. Yes, I think it was 50% less.
Currently, basically it's zero because it's not served. The gates are closed. There could be maybe some small demand, but nothing comes really to serve it. Again, I think we will have 15 days, basically it's zero. Later on, we will see. If you look at the group as a whole, I cannot say that any guess is valid, because I think there is a range. The range is very wide.
I would prefer not to give a number today, because it is very wide. I think we will see a very significant decline in the profitability this year. I am pretty convinced. How much is very significant, you can judge maybe- in two, three months' time, I think you can have a better idea. We will see better the impact in the U.S., which for us is fairly very significant. Every original, let's say, guidance or original forecast, has to be, in my opinion, discounted significantly.
If you look at the past few weeks, what have you seen in Pennsylvania, Germany, and Russia?
We did not see yet any significant reduction in volume. I think much for these countries- a gain, with the exception of Central Europe, actually North France, et cetera, volume actually has been fairly okay. Russia, there is now, after there are more concern coming up after the very recent, let's say, message that Putin gave to the nation. They are talking about introducing significant restrictions to the economic activity there. Hopefully, cement will stay out, but we are not sure.
If you look at Germany, which is a country which is not as impacted as Italy, which part of the construction activity is still going on? Is it still the infrastructure activity? Is it residential, non-residential? Is everything still working, but at a slower pace?
Any kind of job will gradually reduce the pace. I don't think at the moment I cannot tell infrastructure is going down, residentially is keeping at the same pace. I think what we will see after what happened in Italy, it will be a gradual reduction in the pace of activity.
The last question: If the situation remains difficult and if it leads to, let's say, a recession in the second part of the year in 2021, what are your options to reduce costs? What can you do as well? What is the minimum level of CapEx that you need to invest in the future?
Yeah, sure. This is important. The idea is to consider, at least for the moment, and I think for the next six months, at least, this kind of a situation as something that will last forever. There are some countries like maybe Italy and France, where we may anticipate, we may advance some decision to close capacity that we are already, let's say, or to optimize, let's say, part of the production facility that we had already in mind before. This could be a reason to advance this kind of decision.
In other countries, where also the capacity utilization has been fairly good, it's fairly high. We don't see a reason to restructure in a sense of, let's say, putting down capacity. What we can do is essentially to, let's say, use as much as possible, at least in those countries that have this kind of instruments, the social support for workers that are staying at home. I think that most of the European countries at least are somehow introducing these kinds of programs. This should reduce, let's say, the direct labor cost in a significant way temporarily, at least on the fixed cost side, labor cost, labor fixed cost side.
The other cost, we will of course, reduce all the expenses at a level that is, let's say, the so-called break-even level, both maintenance programs. CapEx, yes, we do have some flexibility. Our CapEx program has always been quite generous lately because we thought it was a good idea to introduce some improvement and efficiency, et cetera, and the business flow generation. When the cash flow generation start to trend down, like it's doing now, I think we have a good flexibility on the CapEx program. I think we can easily reduce by, I don't know, from minimum EUR 50 million, maximum EUR 100 million, versus last year was about EUR 250 million.
Maximum would be Okay. You could be able to go back to the level of 2011 when it was EUR 150 million CapEx?
Yeah.
Maximum level.
Of course, there are some projects that are commitments and purchase orders that have been issued. You cannot do it, let's say, just like this. Over time or the trending level, it could become EUR 100 million less, yes.
When you think about the EBITDA, when you’re losing, let’s say, EUR 100 million of sales, is it fair to assume that because of your variable cost structure, you would lose something like 50% of that in EBITDA? Then you can reduce a little bit cost. I think Heidelberg suggested that the flow-through could be between 20% and 50%, or would it be closer to 50% for you, if you cannot cut cost totally? Just the idea is that What I’m trying to get is that if you lose EUR 100 million of sales, what could be the impact on EBITDA? Is it 50% or is it closer to 20%, 30%?
It also depends on your level of activity, because it may, let's say, beyond a certain level of activity, which means typically, I don't know, 65%, 70%, you still enjoy usually good, let's call it, size of the denominator for your fixed cost. If you go below, like it's happening or was already happening in Italy, it will be worse. I think, again, you have to make assumption is something to be fair. Something that, yes, it has to be fair to the structure of our business, of our costs.
It would be fair to assume a level of, let's say, 50% of your...
On average.
...EBITDA. Maybe in Texas, pardon?
On average, yes.
It might be lower in ready-mix concrete, for example, in Texas.
Yes. Okay. Well, Ready Mix is the variable cost component, of course, is greater, but the margins are also usually smaller. It's very easy in Ready Mix when you do not produce or your production goes down. It depends. Okay. It depends on the price level. If you keep up, let’s say, with the price level. In absolute term, your earnings, usually in a downturn, are less resilient or They count to zero to improve in a quicker way, normally.
Maybe a very last question, which is on the pricing. Have you seen any impact on this disruption on pricing? Is it more difficult to push price increase, or have you seen some of the price increase that you have secured being pushed back right now, or is it too early to say?
Not yet. Of course, the main question mark there is also, it depends on the U.S. market where price increases were mostly scheduled for, let's say, beginning of April. It depends if the market continues to work regularly or maybe not so differently from what it's been so far. Price increase could be introduced. If not, I think it will be allowed.
Okay. Thank you very much.
Yeah.
Question is from Andrew Belton with CreditSights. Please go ahead.
Yes. Hi. Sorry. Just one question. I just wanted to confirm that the EUR 300 million credit facility was undrawn as at the end of the year, and also the EUR 22 million for [audio distortion ]. Just a confirmation. I recognize that you have allowed in terms of from the corporate side, but just concerned that you have the availability of the facilities and that you are currently undrawn. Thank you.
I did not get the question. Patrick, did you get it?
Hello, this is Patrick. I couldn't get the question either. I understood a credit facility, not much more than this.
Can you repeat?
Yes. I just wanted to confirm if your EUR 300 million credit facility was currently undrawn as at the end of the year.
Okay. Well, the credit facility has been prolonged already in 2019 for another five years. It is true for EUR 200 million that are now due in 2023 with the credit facility. There is another credit facility that is due this year, that we have already indicated to prolong, but it is not yet due. This will be due now, in the next couple of months. Again, the EUR 200 million has been already prolonged.
Thank you.
Next question is from Alessandro Tortora with Mediobanca. Please go ahead.
Yes, good afternoon, everybody. Good afternoon, Pietro.
Good afternoon.
I have three very short questions, okay? The first one is if you can reiterate, let's say, before on the cost side. First of all, if under FIS, you're going to apply and use the temporary layoff scheme in Italy. Just to have the confirmation that you are allowed. In case, do you have any similar scheme in place in the U.S.? Because I know that some states also grant some help to the company also in the U.S. This is the first question.
We are allowed to use the so-called special scheme introduced by the recent governmental decision. In principle, we will try to absorb first the existing vacation days and [audio distortion] , to find a balance also to avoid too negative impact on the workers. Yes, we are allowed to use. In the U.S., I think as a rule, there is nothing really similar. There might be some states or some recent decision that will introduce some kind of social support. If necessary, because we don't know. If we look at today's world, I don't think it should be necessary.
If necessary, it would be our decision because it is a decision, again, based on the, let's call it, the length of the crisis, length of potential, let's say, shutdown, or the company decision to, let's say, somehow support any way with the workers. I think we will need them back. Also, it should be like so. If we have a one-month shutdown, but later on, it would not be the right, good idea to lay them off.
Okay. The second question again, on the cost side, you mentioned the personnel leave, but also before that fuel cost, clearly, considering the collapse in the oil price could help on the cost side. Just assuming, let's say, the current level will even retire than the current one, which sort of benefit do you believe on average the company can get on the fuel cost side?
If you do not produce, you don't get anything.
Yeah.
If we start to go back to production, I think we have seen the price of oil also decrease. The CO2 prices have been decreased significantly. The power cost has been decreased significantly. The decline is between 25%-30%, so it's quite significant. We need to produce to be able to somehow take advantage of it.
Okay. You mentioned the CO2. Clearly, now we are fully focused on the current situation, next year now we should see the transition to the ETS Phase 4. If you focus our discussion on Italy now, you will turn from the surplus to a deficit in terms of allowances. How the company is preparing this scenario? What are the measures you are putting in place in order to absolutely reduce the exposure to this increasing cost? Thanks.
We have two directions. One is to, even though this new environment is somehow affecting, and I will add something later. One guideline was to somehow balance production between plants in order to reach the best level of CO2 allowances, considering the new way of calculation. It will be so-called HAL. In a normal, let's say, market environment, we would have balanced production this year in a way to get the maximum volume of free allowances. With that, the strategy is clearly clear to work as much as possible on the CO2 reduction per unit of cement produced, which is a long process.
It's not something that is, again, changing so quickly. Could also be an idea to, I think we mentioned it in the past, to de-mix somehow some kind of sales which are today or used to be, let's say, profitable because of the different way of assigning CO2 allocation that will not be profitable anymore, starting from 2021, typically export sales or clinker sales. To reduce somehow the level of activity, which is anyway costing you less than sales that are not profitable anymore if you have the high CO2. Maybe the game will be there are two main ways besides the so-called carbon capture to improve our CO2 footprint.
One is the introduction or increased usage of alternative fuel. This is through mostly in Italy where we are lacking, let's say, or maybe lower average or lower if we would like to be. There are a lot of regulation and permits, and let's call it - see in between before that to be possible to reach target. The other is to continue to work on the clinker aspect. Reduce the clinker content in cement, possibly using alternative raw materials, which are not so readily available. Anyway, there are some ideas, projects we use more slag, more shale, maybe some projects about the usage of so-called calcinated clay as a substitute of clinker.
These are the two main ways. There is a discussion going on currently at the Cembureau to maybe not include, don't know if it will be successful or not, but not include the 2019 in the calculation because everybody expects 2019 to be very weak. For the so-called three-year average, which was originally, let's say, scheduled in the new ETS schemes, where 2019 would have been already included. There is now a proposal by Cembureau to exclude 2019 due to the low volume expectation across Europe.
Okay. Just to understand, considering all the measure, the definition, let's say, before, but also the possibility to maybe anticipate the closure of some capacity, which level of, let's say, deficit in terms of CO2 do you consider manageable for you going forward, maybe in 2022, 2023, according to what you mentioned before?
It depends on the CO2 prices, where they go. If they go back to 25 or 30, or they try to get I think it will run with a deficit between 10% and 15% of the total requirement. Also, there is, well, again, recently we are focused on other priorities. Not long ago, the so-called Carbon Border Tax or whatever, was confirmed in the so-called European Green Deal or whatever, the European path towards, let's call it carbon neutral continent. This also should not put at least too much pressure on the prices. The prices can stay with, I think, a 10% deficit of CO2 allowances. Maybe the profitability will not be great, but acceptable, is sufficient.
Okay. Understood. The last question, just to follow, is on Mexico and Brazil. Clearly, these are two countries that we don't see your number, but strategically speaking, also the situation now in Mexico that is much less stable compared to two, three years ago. What is the view of this in one, two, three years' time in that, let's say, Americas, let's call it hub?
Yeah. We remain very confident about the Mexican, let's call it, market. It's an economy that, anyway, can be considered modern. Of course, they continue to have very strong links with the U.S. They are very important in the automotive industry. They, of course, are going to go through some pain. I don't think huge ones. The cement market, also the typical reaction to this kind of, let's call it, flat or even negative GDP, by any kind of term, also this one is anyway to somehow push for new public projects, which Mexico needs anyway. We have now, after two years of decline, a good level of, let's say, good margin for increasing volumes, because today we are running a little more than 80% capacity utilization.
There's no real need, even in case of a significant slowdown, there's no need to add additional capacity. Margins are still, also in such situations, favorable. Still, let's say, by far the highest of the group. The return on capital investment in Mexico is by far the best we have in the entire group. To be positive about the country, we knew that this year was not going to be great, like last year. Now it's a disruption coming from the virus. Maybe we need to revise also action in a negative sense. In the longer run, I think we remain confident.
No problem. Thanks. Yes.
Yeah.
Next question is from Gregor Kuglitsch with UBS. Please go ahead.
Hi. Can you hear me well?
Yes.
Great. I've got a few questions. Can I ask one about cash costs? Perhaps, I don't know the best way to ask it, but perhaps from, if I can take instance literally, if you're running, I think you were kind of implying you're down 80%, 90%, how much cash do you burn, for instance, in the group? Perhaps you've done scenarios as we saw, but if you kind of assume at the group level, perhaps the pandemic spread, and you have a situation where your revenues are down very substantially for a few months, how much cash do you think you burn? I don't know if you've done the scenario analysis, it would be interesting.
Yeah. Please, yeah.
Yeah. I mean, maybe it's not an easy question to answer, for me to ask.
Depends a lot on the level of activity. As I said, I think a worst case scenario, but looking at the entire group, worst case. I know it's worst case. A very negative scenario could be not to be able to produce any cash, maybe be sustained at a zero level from now to end of year. Basically, of course, for this to happen, we will need to see some market in the U.S., in the same way as China.
I'm talking about going down, beside the China situation, which is currently, and we will go back to it, which is currently shut down, to see other countries still working some 40% less than what we were able to achieve here. If you go down 50%-40% versus, let's say, the previous year, probably you run into a situation where your cash flow is almost zero. You basically turn out on a cash break-even level. I think this is difficult.
That's to be pretty abundant that that's happened or could happen?
No, with the CapEx, which are still keeping some cash burn, not considering CapEx zero, let's say. I said that after reducing CapEx, of course, significantly, but still they are not really zero level. Yeah.
Okay. In Italy right now, I mean, if we close down for two months, how much do you lose, like, a month? 10, EUR 20 million, EUR 20, EUR 30, I don't know.
Let me see. Let me see.
Just negative EBITDA, I guess, per month.
Yeah.
Just to have a feel, right?
It's cost approximately I think you can run negative. Maybe something If it is really zero production level, zero sales, between EUR 6 million, EUR 7 million, maybe EUR 8 million per month or something like so. It's basically zero sales.
No, it's just an example, so we have a feel. Then coming back to the sort of carbon situation, I have two questions. When do you think you'll actually get told what the allowances are for 2021? When do you have certainty what the numbers are? That's question one. Question two is, are you doing any kind of CapEx that have been kind of put on hold, or maybe you never had a plan to reduce carbon intensity, I guess mainly in Europe, but also globally. Are you doing anything in that regard? If so, how much is it?
Well, the actual allowances, we are still missing some of the, let's say, items needed for calculation. One is, as I mentioned before, the production of 2019, assuming that this will be considered. Also the so-called base right, which is not officially disclosed yet. I mean, we have an idea, but until it's not officially disclosed, I think we will know more by the second half of the year, for sure. Then we have to include 2019 for the three-year averaging. CapEx, let's say, specifically on R&D, let's call it, devoted to the CO2 reduction, are mainly focused on carbon capture.
We have two main ones, that are also some kind of joint research project together with either research centers or other industry players. One is in Italy, and one is in Germany. The Italy one is called CLEANKER. clinker plus CLEANKER. It's a carbon capture project on an industrial scale. The same thing will be done in Germany with HeidelbergCement and SCHWENK in a plant to test the so-called oxy-fuel process. For the rest, I think in our, let's call it, CapEx plan, there are a number of things that have some impact on the CO2.
Not specifically, they are not approved or introduced just for the reason to reduce CO2, yes, when it comes to take the decision also on the return of a certain investment, we will want to consider and we want to stress, let's say, the CO2 contribution or the reduction in CO2 contribution. Budgets have not really exceeded until now, let's call it, the absolute level of our CapEx spending. It's within what we have usually as a, let's call it, gross amount of CapEx for one year. I think the focus, of course, is there are many projects which in the past did not receive enough priority or were not approved, that are now being approved because they do have a significant CO2 impact.
Okay. Thank you very much. Appreciate it. Best of luck.
Thank you.
The next question is from Tobias Woerner with MainFirst. Please go ahead.
Yes. Good afternoon, everybody, and good afternoon, Pietro. Two questions, if I may. Number one, if I may just press you again on the energy side, and I apologize, I know I'm a bit late to the call. What exactly is your energy bill as of 2019? How much of it is hedged or forward bought in that context? Just remind us roughly the split of coal. That's the first question. The second question, you've closed the Kosmos transaction- has the cash already been distributed to the partners, and is it taxed, or will we just get the gross amount?
No, the gross amount. Yeah, it was distributed because the transaction closed at the beginning of March. It's six or seven months, if I recall correctly. Yeah, it's a gross amount at the moment because, let's say, the partnership exception will be paid, let's say, directly by the two partners. On the hedging for fuel and energy, in general, we tend to be very cautious. The principle is to - okay, if we see, let's say, some very interesting prices on energy and fuel, we could anticipate some, let's say, purchasing referred to the following year.
Usually no more than, let's say, 30%, 24% for the following year. Otherwise, that goes typically as a delay of six months. We are pretty much on the stock market. We are mainly in stock market, so if the market trends in one direction, in three, four months' time, usually, we should be able to proceed with kind of level all the new costs.
If I may just ask, what the total energy bill is for you of costs last year, and the specific impact of coal?
I don't have that split. I don't think we never really did it. No, I mean, I have the percentage in a sense that, if you look at the, let's call it, different fuel mix, last year, for example, for the group as a whole, that cost was 37%, and coal was 21%. You had natural gas, approximately 17%, alternative fuels or wood-derived fuel, 24%, and minor other, like oil or gas. Oil we use it really only for firing the kiln, the PC, and that's it, 10%. Your other question was?
Total energy bill...
Okay. What I can tell you quickly is, if you look at the cement business, so not ready-mix, only cement. Fuel and power, we spent last year EUR 357 million net total.
That's very helpful. Thank you very much.
You're welcome.
All the best.
Very Well. Thank you.
Bye.
Bye-bye. Thank you.
Next question is from [Marco Bipari] with [audio distortion]. Please go ahead.
Good afternoon, everybody. Thank you for answering my questions. I have four questions, if it is possible.
Yeah.
First question is, when and to what extent do you expect a positive impact on cement demand due to increased public investment in infrastructure, particularly in the U.S.? Second question is, what is your exposure to the oil sector in terms of cement volumes, particularly in U.S. and Russia? Third question is, do you expect some write-down on receivables, particularly on customers in those sectors? Last question is, are you also planning to buy savings shares or only ordinary shares for the buyback?
I hope to recall all of them. First one was public spending. Well, already before, let's say, this crisis, according to PCA, maybe they will revise the figures. Public spending was already considered one of the most important in the sense of consumption differential, helping the consumption to move forward in the overall U.S. market. It is true everywhere, let's say, not only in the U.S., that from the decision making to the actual opening of the job site or the pouring of concrete, et cetera, the process is always fairly long.
Once something has been decided, approved, financed to be maybe faster in the U.S. than it is in Italy, but I think you require from minimum one year, maybe two years. If there is a recovery in coming from understanding, I think it will take some time. We don't see any immediate impact on the figure. The second one, I think, was about oil-well cement. Oil cement, for us, is significant in Russia for sure. This can be a little bit of a concern for what's going on, even though Russia may continue to produce.
The concern is more on the oil price and the impact on the currency of what we have seen after the, let's say, discussion between Arabia and Russia. Russia may continue to produce, but the oil price is low. First of all, the economy to some extent will suffer, and second, we will suffer if we sell maybe sufficient volumes or good volumes of oil-well cement when we translate our figures from the ruble into euro.
This is something that I was already mentioning at the beginning as one of the major impacts this year, together with the expected decline, let's say, in demand due to coronavirus. In the U.S., it is a little different because our, let's say, trends or sales are important, but not as important as they are, let's say, in Russia. We may see a decline there. We were already seeing a decline in oil extraction activity, which will definitely affect our oil-well cement sales. This should not be an issue or not as important in terms of currency translation. The question was that the next one? There are more than four of them.
If you expect some write downs of receivables in the future.
Yes. Well, this is a big risk. I think, particularly in Italy, we will be facing a very difficult time for our, let's say, credit. The risk of increasing the debt expense, I think, is very high, particularly in Italy, because it is typically the country where our payment terms are particularly long, and we may face some significant difficulties there. Going forward, let's see when the market reopens. The liquidity, let's say, or the customer, yes, is a big concern.
A little less elsewhere, because typically, again, the payment terms are not as long, and at least so far, we are not seeing similar, let's say, lockdown situations. More or less, there is some activity going on. Less gradually at a lower pace, but the market is still active. On the buyback, I think we are open to both categories. I think it would make sense to move forward with both ordinary shares. Clearly, the ordinary shares gives you much greater liquidity. There will be, I think, much easier to get significant, let's say, in the shares due to the liquidity, but we not rule out, let's say, the idea of buying some shares if they are available.
Thank you very much.
Bye.
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