Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Buzzi Unicem first half 2018 results conference call. As a reminder, all participants are in listen only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Pietro Buzzi, Managing Director. Mr. Buzzi, you have the floor.
Yes. Thank you. Welcome, everyone, to our conference. I'm here together with Agostino Pieressa, our investor relator, and Patrick Klein, Treasurer. Ready to possibly answer all your question after the first part of the presentation. Again, thanks for joining. We just approved today our FY results. As you know, FY trends are usually a pretty good indication for the full year. After, particularly this year, first quarter, which was quite significantly affected by either less working days and also weather issue in many of our countries. How we ended up, let's say the first half. In terms of volume, I think a good recovery in Q2. Cement was overall up almost 8% in Q2. This recovery was generally evident, let's say, in most of our country. Positive, the U.S., Czech Republic, Poland.
Volumes were up in Italy too, even though this was helped to a significant extent by the change in scope. Also Germany has been recovering. This brought, let's say, the trend for the first six months to a level which is slightly up as we mentioned in the presentation. Actually, if we consider the let's say, changes in scope that occurred mainly in Italy, but also to some extent in Germany, we are -1.5% versus last year in terms of cement sales. A level very close to the previous year. Again, looking at the trend by countries, we can point out, let's say, we should point out the good performance of Italy. Even though the market is still, let's say, in a stagnant situation. The performance was strongly helped by the change in scope for the first six months.
You remember that Cementir deal started to be consolidated beginning of July last year. The overall market is probably down around 4%, which is also our figure like for like. In the U.S. the performance is exactly the same as last year in terms of sales, same levels, with let's say, quite significant difference in geographies, among the states where we operate. We had a strong level, strong or let's say, definitely better than last year level in the Southeast states and also in the Southwest, including the Texas area. More or less flat, the typical let's say, Midwest states, the central part, the core part of our so-called river region. A decline in the Northeast, which has been the area mostly suffering this year or mostly down this year for us. The German market is in line so far versus last year.
There was an improvement in the second part, let's say, of the semester, not really enough to completely offset the very negative February and March, affected, let's say, mainly by the bad weather. In the Eastern part of Europe, Eastern Europe, let's say, the two countries belonging to the European Union, Czech Republic and Poland, the performance in terms of sales was solid in both countries, particularly the Czech Republic, and also the Polish performance was fine, let's say, in line with our expectation. Bad news instead are coming worse than what we expected from Ukraine, where we suffer from, yes, both a difficult market and also specific situation associated with our, let's say, plans with our business. The fact that, let's say, we try to implement price increases due to the high cost inflation in the country.
These price increases were successful, at the same time made us, let's say, suffer on the volume side. The overall market or some of the competitors have been more aggressive on the price side than us. This has been, let's say, somewhat affecting our market share, which is something that we will try to take care of in the next part of the year. In the meantime, let's say, during the first half, our performance was, let's say, below expectation in terms of volume and also in terms of results at the end. The Russian market, is stable to slightly growing. Again, no real different news here from what we were budgeting. Okay, let's say negative impact from the foreign exchange on the results.
On the pure, let's say, underlying business, volumes, let's say, as expected on a gradual, let's say, even those low growth pattern. Mexico is not consolidated, of course is a significant part of our results. Mexico was declining some during the first half of the year, in a market that was kind of waiting, let's say, the general elections. The political environment was not, let's say, helping in a sense of decision making before the political election on some of the, maybe, important projects. Now the presidential election are over. You know the result. It would take some time until the end of the year before the new president actually becomes in charge.
If you look at the pure, let's call it impact, on construction and in direction of cement operation, we remain, let's say, cautiously optimistic about the future, even after the change in the, let's call it, political direction, which occurred with the candidate that was eventually elected. Going ahead to the second part of the, let's call it, top line. The prices. Price trend, was, as we mentioned in the press release, generally favorable. There was actually no country really that had a negative variance or unfavorable variance on the price side. Small exception about Czech Republic, which remained stable versus last year. Anywhere else, we were able to move the prices up. In some cases, also in a relatively significant way.
The Ukraine price improvement was double-digit, on the other hand, this was also the country mostly affected by the cost inflation. It was a price improvement, not enough to offset, let's say, the trend in the cost. This price improvement, which we were able to achieve, as we said, quite broadly, in some cases, translated into better results. In some others, did not, because, as you know, already starting from mid-2016, the inflationary environment for the industry has changed quite significantly. Also lately, first half 2017, there were additional cost increases, not everywhere, but in most of our countries, yes. This concern, mainly, let's say the fuel cost. Also, some other, let's say, cost factors like, for example, staff cost, labor, services, transportation costs, so associated with the logistics. This was particularly true, if you wish, in the U.S.
This, I think, was the area where the cost increases were more clearly evident. Also due to a winter season, which was somehow, particularly harsh in terms of weather with freezing. This had an impact on the, let's say, production rate of the plant and on the maintenance cost. It was good, let's say, and it's a good sign also for the next month to have achieved a certain price improvement. Not everywhere this was enough to keep or let's say, get better margins at the operating level. The other very important variable which affects the top line and also the margin is the exchange rate trend. This was again, mostly unfavorable. Particularly, in two countries where our operations are quite meaningful. U.S., of course, is very meaningful, and we compare first half average rate this year of 121 versus 108 last year.
About 12% impacted due to exchange rate. Almost 15% devaluation in Russia due to the, again, weaker ruble. Ukraine, again, around 12% loss of value, let's say, of the local currency, and stable to slightly better foreign exchange in Czechia and Poland. Also in Mexico, negative impact of about 10%, not as much as the dollar, let's say similar to the trend of the dollar. When we move to the turnover, which is mainly volume prices and Forex. We see that the overall net sales ended up at a level which is very close to last year. The reported figures are about 1% below, the like-for-like figures also after, let's say, eliminating the scope effect, is about 1% up.
We are very close to last year level with foreign exchange impact of about negative EUR 72 million, the scope impact of about positive EUR 41 million. Most of the scope impact, we already mentioned, is in Italy. U.S. in dollars, like for like in dollars are flat with last year, +0.7, let's say, +1, almost -10 in EUR after translation. Germany, very close to last year. Better, let's say, trends definitely in Central and Eastern European area. Improvements in Luxembourg, Netherlands, Czech Republic, and Poland. Significant decline, at least if you look at the percentage variance in Ukraine, almost -17%. This would have been a decline also in local currency due to the, let's say, sluggish trends in sales. Russia quite penalized by the foreign exchange rate.
What is an almost 7% improvement in local currency goes down to a minus 5 in EUR after translation. If you look at the EBITDA, there are number of, let's say, non-recurring items which are impacting the first half figures because the reported numbers are EUR 227 total versus EUR 241 last year. About 5% decline, which decline is mainly, again, coming from the trend in the U.S. Most of the impact of the negative income is coming from the U.S. The recurring figures are actually somewhat lower because the total non-recurring profit this year is about EUR 11 million. Last year, instead, we had a EUR 4.5 non-recurring expenses. These item are of different nature. Most of them, I think the biggest amount, the one that is most worth mentioning, comes again from the U.S. market.
It's a gain on a sale of a business that we accomplished at the beginning of 2018. We used to have a plant in San Antonio, Texas, producing under license certain concrete package product, which was sold to the owner of the license at the beginning of 2018, and this translated into a gain of approximately EUR 17 million. Then we have some other instead, let's say, non-recurring cost or revenue of less important individually. Some are related to contingency or indemnification on the positive side. Some other are related to the restructuring or rationalization of the business, which are in the process or that are forecasted for the near future. Again, for example, the Italian market, eventually, it is showing some improvement. If you look at the pure recurring figures, for example, we compare minus EUR 11 last year with minus EUR 3 this year.
Minus EUR 3, by the way, is also influenced by some, I would say, unexpected or particularly heavy bad debt receivable, which we had to accrue during the month. These are considered business, but they were definitely unexpected, but they should not repeat itself in the second half. These figures, due to bad debt receivable account for about EUR 2.6 million. Without the EUR 2.6 million, let's say, cost or this particular cost, we would have been already not far from a zero EBITDA level already in the first half 2018, recurring at least. U.S., let's say, maybe for some of you, of all of you, somewhat disappointing, not really totally unexpected what happened in the U.S. during the first half in terms of margins and operating cash flow. Actually, we are pretty close to what was the original budget, at least in $.
Of course, the exchange rate is not under our control. If we look at the decline that we suffer in $ is about 13% less with the situation of condition, let's say trading condition of basically flat volumes and cost, let's say production, but not only production cost going up definitely more than what we were able to achieve on the price side. In part, as we mentioned before, there was a concentration of this cost in the first half. We do not expect to have the same cost level in the following part of the year. As we mentioned in the press release, we don't think we will be able to fully recover, let's say, the gap, which is visible, let's say, in the first half. Germany, cleaning up the, let's say, non-recurring items, we are doing already somewhat better than last year.
This should continue in the second half. Good performance in Benelux, so Luxembourg and Netherlands too, better than last year. Same thing for Czechia and Poland. Ukraine, not a huge impact due to the size of the business, but definitely impacting in a favorable way on our results. About EUR 7 million less to almost zero EBITDA, and, we commented already, some recovery is expected in the second half, but again, it's a market where we don't think we can perform at the level of last year. Russia suffering mainly from the foreign exchange rate. Stable EBITDA in RUB. Hopefully, some chances, let's say, to do better next year, next semester, sorry. Mexico. Price improvements coupled with, let's say, as we said, lower shipments, rising costs also in Mexico in a quite significant way.
Performance, let's say, in local currency, still very good, let's say very favorable, close to last year, minus 3% worse after the translation into EUR, where due to the lost value that we mentioned before, actually, the decline in the reported figures, reported EBITDA is minus 11%. If you look at the so-called EBITDA bridge on the reported figures, we have volume favorable about EUR 21 million. Price is favorable about EUR 44 million. Variable cost already absorbing almost entirely the favorable price effect, because at basically the same level of production and sales, we have a negative variance of EUR 41 million on variable cost. They include raw material, fuel, power, and transportation. Among these, fuel and, let's say, transportation or logistic costs were the most important in terms of negative variance, less than power. Fixed cost also up by approximately EUR 27 million total.
Some of the increases are coming from the changes in scope, but a significant part of it is also the additional maintenance cost that particularly we suffer in the U.S. during the first semester. For the rest, the other changes are less important. On the other revenues and cost, we had an advantage of about EUR 8 million, which is algebraic, let's say sum between the gain on disposal that I mentioned before, and other either operating or non-recurring costs, like the bad debt provision, the other provision for risk, non-recurring. Eventually, the foreign exchange impact of about EUR 19 million. Again, the bridge takes you from the EUR 241 to the EUR 227 that we mentioned previously.
If you look at the bridge in a slightly different way, so by region, and we do it on a reported basis, we notice that there was an improvement in Italy, of about EUR 4 million. U.S., minus $18. Central Europe, very close to last year, but anyway minus EUR 3 on a reported basis, and then plus EUR 3 in Eastern Europe. Cleaning up everything, so both non-recurring items and also scope impact, and also foreign exchange, Italy continues to be slightly positive. U.S. a bit more negative, $22 million less. Central Europe, instead, is going up, is improving by EUR 8 million, and Eastern Europe is flat versus last year. Well, in the lower part of the income statement, I think we did okay. No major items or lines to point out. Depreciation and amortization is in line with last year.
Actually, the operating profit, we lost about 200 points of EBITDA margin on a recurring basis. At the operating profit level, we are at 9.2 versus 9.8 last year, so pretty close, let's say, to the previous year. Equity earnings are somewhat lower due to the somewhat worse performance in Mexico, which is the main contributor for equity earnings. Net finance costs are clearly lower than last year. This is due not so much to the real, let's say, interest expense minus interest income differential. Yes, we did improve there about EUR 1 million, but was not so significant. There were other items like the non-monetary items like the foreign exchange, unrealized or devaluation of derivatives, which helped us in reducing, let's say, the total net interest expense for the year.
Our cost of gross debt remained close to what it was last year, around between 2.6%, 2.7% weighted average, let's say, interest rate. There is the most significant benefit at the income tax expense level. In this case, what comes particularly helpful is the reduction in the tax rate that became effective in U.S. We are benefiting from a lower tax rate in the U.S., which anyway continues to remain the main contributor to our taxable, let's say, results. Thanks to the lower income taxes, the net profit is slightly better than last year. It's not lower than last year. The net profit, let's say, attributable to the owners of the company. Minorities are very minimal, particularly after having completed the squeeze out in Russia.
We now have what was part of the CapEx for the semester, the completion of the squeeze out procedure in Russia, and we have now very limited minorities, let's say, companies with minority shareholders within the group. Taking a look at the cash flow statement. We had a decline in cash generated from operation, which was a quite significant if you compare versus last year. This occurred mainly for, let's say, working capital absorption. There was also one technical reason, the fact that the 30th of June was a Saturday, if I recall correctly. Anyway, let's say, cash inflows related to our sales, to our invoices that mature at the end of the month, were postponed due to the non-working day. I mean, the month ending with a non-working day. This can be worth easily maybe between EUR 20 and EUR 30 million.
We unfortunately continued to pay at a rate of approximately 2 million per month, the antitrust fine issued, as you know, more or less last year at the same time. We have a delayed payment underway, but in any way, waging basically 2 million every month on our cash flows. Capital expenditure was somewhat above last year. Last year in the first half, EUR 90 million. This year, EUR 110 million, of which around EUR 19 related to, let's call it expansion or a major project. This refers to the U.S., in particular to the so-called Midlothian second phase and another important renovation project, which was carried out in the Cape Girardeau, Missouri plant. We had a cash out for equity investments of about EUR 54 million. These are mainly two items. One is the Seibel & Söhne acquisition in Germany.
As I said before, the completion of the squeeze out in Russia. The squeeze out of the minority in Russia. Dividend payment occurred last May for EUR 28 million. We received a dividend from associates of about EUR 52 million. Disposal of fixed asset and investments were EUR 26 million in the semester. The main part is what I mentioned before, the business of packaged concrete in the U.S. We had positive translation differences and derivatives for EUR 28 million. Other minor, let's say, or smaller changes, leading to a change in net debt of EUR 32 million, let's say, higher in that semester. Starting from total EUR 862 at the end of 2017, the net financial indebtedness at the end of June is EUR 894. The split of the net financial position between, let's say, short term and long term is still quite favorable, very comfortable.
We have a net short term cash of EUR 340 million. It was about EUR 400 million at the end of last year, already including under short term debt. After deduction of EUR 430 million of short term debt, let's say, the most important upcoming maturity is the Eurobond of EUR 350 million at the end of September, which we are already prepared to repay with the existing liquidity. Just another brief recap on the outlook for the full year. As usual, we ran, let's say, internally, forecasts based on the core sectoral results so far and expected for the next month. As we mentioned in the press release, we think that some of the negative trends which were affecting the first half, should turn into positive, or more positive, or more favorable in the second half.
We expect, generally speaking, a second half that can give us trading conditions that can give us the possibility to recover, or most of it recover, what we lost in the first half in terms of recurring EBITDA. The final phrase that we use is, we can call it a bit of a downgrade versus what we expected initially, versus what was mentioned, say, in March. We are not convinced anymore, or we believe that even with the most favorable trend occurring in the second half, the possibility to beat, let's say, last year results at the recurring operating cash flow level are less than what we initially thought, or what we initially planned and disclosed to the market.
The figures that we are looking at now in our forecast, after what happened in the first half, show that our results are likely to be very much in line with the previous year. This is our current expectation, and in our opinion, the most likely outcome for the full year. In line, what does it mean? It can be a bit lower, a bit better. It's difficult now to give you exactly where we will be finishing at. The idea is that, the most likely result for the full year is something very close to what we had last year, at least at the consolidated level. The improvements will come from Italy, will continue to come from Italy, where we expect to do better in the second half than in the first.
We will continue to remain below last year in U.S., also like for like, in a sense of, let's say, cleaning up the exchange rate effect, which is assumed to be not as bad as in the first half. We will be improving in the other countries, Germany, Benelux, Czech Republic, and Poland. Ukraine will remain quite below last year. Russia, very close to last year, let's say. Very close to last year level. Overall, of course, it will depend on the magnitude of the decline in the U.S., on the U.S. dollar exchange rate. Overall, this is giving a quite clear indication that our performance is going to be very similar to the one of the previous year. That's it. Basically, I think most of the comments that I wanted to make are now done.
We are pleased to answer your question and to possibly solve your doubts, if there are any.
Excuse me. This is the Chorus Call Conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receipt when asking questions. Anyone who has a question may press star and one at this time. The first question comes from Mike Betts with DBA. Please go ahead.
Thank you very much. Can I first ask a bit more detail on the U.S., please, and particularly to try to understand these cost increases? Firstly, were there any kind of maintenance or any one-off issues in the first half? Secondly, you said that you would expect less pressure in the second half. Is that just because of a base effect, or if you change fuel source or anything like that? Also, while we're on the U.S., could you talk maybe a little bit more about pricing? Because that seems slightly better than I expected. You talked about, I think, several percentage points increase in price. Could you talk about the regional situation there, the river, the Northeast, and Texas, in terms of where you got that price increase? Thank you.
Yes. I think particularly on the U.S., most of the impact was coming from, I would say, all the negative variance versus the budget was coming from maintenance, for sure. In part, beyond, let's say, the budget level. One or two specific plants that suffer from, I don't know whether to call it worn out or specific reason. The winter, as I mentioned before, was not helping in some of the northern plants in particular. Not talking about Texas, but even Maryneal, in some time during February, temperature went very much down. With freezing, we had a plant, for example, the Greencastle plant, which is not exactly a wet technology, but yes, it is using water, let's say, in the raw material.
This is typically something that when the temperature becomes extremely low, it can cause you a lot of problems and delays, also in starting up the production. This is something that affected the first half, again, more than what we originally budgeted, and we think we can recover to some extent in the second half. We should be able to do better in the second half, but maintenance cost after the first half this year will remain, anyway, higher than budget and definitely higher than last year. Other increases we have typically in the, I would say, in transportation, generally speaking, which relates both to raw materials and, let's say, logistics on the distribution side. Not only because also, for example, the fare for rail wagons or also budgets are increasing.
I don't know if this is what you were willing to hear, but this is what I can, let's say, describe in a nutshell. For the prices, the range of the price increases on average were not very significant. If you look at the overall average for the U.S., we are between 3%-4% price increase, which is, of course, obviously, welcome but not particularly high. Yes, there are regional differences. Even if the volumes are going better, we're still struggling in some areas of Texas to bring the prices up. For sure, in terms of pricing, the most affected, it was the Northeast due to weak performance, the trend of Pennsylvania, New York. Also, if you look at the PCA statistics, the trend of, let's say, Pennsylvania, New Jersey, New York is quite negative in terms of cement consumption.
There is a high level of capacity available. There is new capacity, not only the famous, let's say, Canadian McInnis plant, but also, for example, the LafargeHolcim Ravena plant expansion, which was completed lately. It's a situation where you have a lot of capacity available, low demand, and consequently, let's say, very aggressive pricing behavior between the competitors.
Okay. Thank you for that. Just one follow-up on pricing. Are you attempting any second price increases this year in the U.S.? Just one final question on, I guess it's Mexico, but the cash flow showed EUR 20 million more receipts from associates for dividends in H1, despite lower profitability. Has there been a change in distribution policy from the associates, or is there something else going on there?
There was no real, let's say, dividend policy change. I think there must be some time difference. Patrick, do you want to add something? I think it was just a timing difference.
A timing difference, yes.
Just a timing difference on the, mainly on the Mexican dividend. The amount which was distributed to the shareholder is the same as last year. At least if you look at, let's say, seven or eight months instead of just six, but no real change. Now your third question was about, sorry.
Price increases in the U.S.
Yeah. Well, we don't think officially, let's say, no official announcement of specific price increases. Yes, some, how do you call it, let's say, sequential price increases that will occur. We think we can keep a similar improvement for the full year, because last year, anyway, prices went up also during the second half gradually, and we expect the same for this year. To be able to close with, again, confirm, let's say, the 3%-4% price increase is what we expect right now.
Perfect. Thank you very much.
You're welcome.
The next question comes from Rajesh Patki with JPMorgan. Please go ahead.
Yes. Good afternoon.
Good afternoon.
Two questions for me, please. Again, on price increases, one of your peers mentioned a second price increase in the Italian market as well. Are you looking to push another price increase in this market? The second question is, if your balance sheet is in a relatively strong position and given the recent share price performance, are you contemplating on any buybacks at the moment? Thanks.
I would say similar to U.S. Let's say, official or, how to say, no widespread increase in Italy forecasted for the next few months. We do have in our budget some further improvement coming, again, from agreement that we reached with the customer already, let's say, the beginning of the year, already when the original price increase was implemented. It's a very, let's say, specific situation customer by customer. Yes, the trend should be positive. We should continue to show an improvement also in the coming months. In Italy, it's a bit more of what it is in U.S. also because we are obviously starting from a much lower level. The buyback is something that, yes, is under scrutiny, let's say, under review.
It is something that was not discussed today in the board of directors, could be, let's say, a topic for a future meeting. It could make sense in the current situation. We have sufficient liquidity, like you're saying, to do it. The share was not performing particularly well in the last month. Also, we have to start, let's say, thinking about the, let's say, upcoming maturity of the convertible bond, which could be settled, if not in full, maybe partly, in cash. Let's say that we are close to a likely positive decision on this subject.
Thank you. Just one follow-up on the U.S. additional maintenance cost issue. Can you just quantify how much was the additional cost there?
If we look at the first half, was probably in dollars, $6 million, $7 million. Just for maintenance, I mean.
Great. Thank you.
Yeah.
The next question comes from Miguel Borrega with UBS. Please go ahead.
Hi, good afternoon, everyone. I've got two questions, please. The first one is on the U.S. You are guiding for negative EBITDA like for like. Since that you've been investing quite a lot over recent years and after the costs this year, can you give us your view if this is still a market where you still see, or do you still expect EBITDA growth over the coming years, post 2018? Or do you think we're kind of reaching a peak on the U.S. market? The second question is on Italy.
Yes.
Your EBITDA, if we exclude the contribution from the Zillo, is still quite negative. Can you maybe give us your expectations for the second half, if there's a one-off, maybe a sale of CO2, for example, that you expect to come through in the second half to end up with a positive EBITDA?
No, there is no real one-off. It is true that if you exclude the scope impact, the results are not particularly exciting. We had, as I mentioned before, a one-off of about almost EUR 3 million for the debt expense that we do not expect to accrue further or any more in the second half. In the second half also, it should go to more to regime or normal, or to normal the organization, the restructuring that we have made recently in the ready-mix branch and ready-mix division of the business, which was partly accomplished during the first half, but not completely. We are gradually giving in a way, in a sense of not managing any more directly the ready-mix operation in certain area, in certain regions.
This is, in second half of the year, what we wanted to do, we were able to do it in the first half, but not in one step. It was done in several steps. Now the second half is clean. Somewhat Better price improvement. Not a big help from the demand. This is true. Fortunately, in Italy, as opposed to most of the other countries, the overall cost this year are not showing significant inflation. We do have definitely higher fuel costs, but on the other hand, much lower energy electrical power cost. The so-called benefit for energy intensive industry has now been included fully in the law, in the invoice that we receive for power cost, and this should keep our production cost pretty stable for the full year.
Some sequential price increase, as I said, better performance in ready-mix, even though ready-mix in itself continues to be negative. Zillo contribution, less important in the second half because there will be no change in scope in the second half. Overall, it continues to be definitely a depressed market, with extremely low level of capacity utilization. At least we should be able to achieve a certain equilibrium at the operating cash flow level. Growth in the U.S. Growth in the U.S.? Full year. For a full year? No. Going forward. If you look at the story, our margins last year were at quite a record level, 33%-34% EBITDA margin. It's something that, I think, stands out also when you compare with the competitors, and in general, it's quite a high level. We see the economy a bit overheated, with rising costs, as we said before.
The market is okay. The volumes are there. We do have a view that is positive on our sales. On the margins, I think that to do better than what we did last year, even in more stable cost situation or better cost management, it would be difficult. I think also when you go back to the previous record, the previous consumption peak, 2005 or 2006, we did not really go beyond the 33%-34% EBITDA margin level. Seems to be quite a ceiling for our business there. Thank you.
The next question comes from Giuseppe Mapelli with Equita. Please go ahead.
Yes. Good afternoon, everybody. I have some questions. The first one is on prices on Italy. Let's say, in the past, your competitors have been more aggressive in stating what would have been the performances in prices in Italy. You are dealing with EUR 2-EUR 3 per ton increase. I would like to understand if there is a regional effect, or it's something that should come in the future, or let's say, the concentration is not enough to sustain a more significant increase in prices that are still close to EUR 60 per ton. My second question is on your convertible bond. The expiry, as you stated, is approaching. I would like to understand if you made up your mind about what you want to do with this convertible in terms of the possibility to use the cash settlement. Let's say I have two other questions on figures.
Can you repeat, please, the volumes and price effect on EBITDA? My last point, a guidance on the tax rate, considering all the moving parts for the full years. Thank you.
Yes. Well, firstly, Italy, how could I say? I don't think we can be much different from the rest of the market. It's true that I've been reading, let's say, statements about the market that have been great. We do, I think, what we can, what is compatible with our goal of course, not losing customers. Again, I think that some of the statements are probably, like you're saying, related to regional situation where the starting point was, on average, let's say, lower than what we have in our system. I think to believe that the improvement that we have been able to make, and maybe the sequential improvement that will follow, will remain below the figures that sometimes you read or you hear. I do not dare to say that they are not true.
If you look at our, let's say, internal figures and real possibility to do something, they don't seem to be true. They might be true if you're willing to lose maybe a significant volume, significant market share, which we cannot afford also because we are maybe versus other competitors already running at a lower capacity utilization level. For us, volumes maybe are more important than in other cases. On the convertible, I think we will keep the option open until the end. There is no good reason, in our opinion, to decide exactly today what to do. We do have the option of settling the amount in cash.
As I mentioned before, in the meantime, we can anyway consider maybe to start to open the share buyback process, which, as I mentioned before, still has to go through one step, let's say, final board approval, but is already in place. It's already the approval of the shareholders. This can be somehow also related to the upcoming maturity in a sense that once you have the shares in your portfolio, in treasury, let's say, you may also decide to use them in part or in full for the bond repayment. On the EBITDA bridge, the volume and price effect. The volume was EUR 21 million, and the prices was EUR 44 million. Tax rate. Well, we base our, let's say, six months figures on the budget tax rate, because we do not recalculate every six months the full, let's say, taxable income and non-taxable items or whatever.
It is currently, quite at a low level. I would assume something that is somewhat higher, let's say, in the final calculation or the full year calculation. For example, 25% could make sense. Now, I think we are at 21% currently in the six-month report. I would be a little more conservative and assume at 25%.
Thank you.
The next question comes from Alessandro Tortora with Mediobanca. Please go ahead.
Yes, thanks. Good afternoon, everybody. I have, let's say, three questions. Sorry. The first one is just a clarification. You said a 25% tax rate for this year. Is it right?
25. Yes.
Okay.
Okay. Okay. Yes. That's a good one. Yes.
Let's say 25. Around 25. Okay, the first question is on, if you can just, let's clarify the assumption on the main currency you have. U.S. dollar, euro exchange rate, okay, with the new guidance. The second question is on Germany. What I would like to understand is, let's say, your view on recurring EBITDA for this year, given that you had now a lot of also one-off here, and the view that you have in terms of cost savings coming from the acquisition, okay? Synergies for next year are coming from the recent acquisition. The last, I don't know if you give an idea or an indication for the recurring EBITDA on Italy, if you still expect, let's say, something close to breakeven or a bit better of the breakeven level for the full year, clearly recurring EBITDA for Italy.
Yes.
I would say that's it.
The guidance or the forecast is calculated according to the following exchange rates. For the U.S. dollar is 119 average for the full year.
While the others are less important, let's say RUB 72.
Okay.
These are the two main ones, the ones that can also make real difference. The rest should be more stable. For Germany, yes, if we look at this year, we clearly have more cost than benefit from Seibel acquisition. We are also preparing, as was already officially disclosed, for the shutdown of the plant. There will be some, let's call it, one-off cost associated with that.
Got you.
Nevertheless, thanks to, again, better trading condition and less one-off expenses.
In the second half, we see, let's say, not a big one, but yes, an improvement for this year recurring EBITDA. Yeah. Well, I know I prefer not to give a precise figure, but let's say we're talking some EUR million better.
Okay. The cost synergies from Italy next year.
We've come clearly starting from next year, in particular when the Erwitte plant will be closed, which we don't know exactly when, but let's say during the first half, maybe April, May, I don't know. We will see. Moving production and sales to the other plants, this will be the key turning point. We are already gaining some, let's say, revenue synergies, for example, on sales or bags in particular. We had some price improvement there versus what used to be the price level of Sacci. I think it's going well, and I think we can confirm that this can give us some EUR 7 million-EUR 8 million EBITDA advantage, starting from next year, though.
Okay.
Not this year yet. I think we are on track for this kind of, let's say, cash flow improvement.
In Italy, yes, we believe that we will be positive. By how much? We are not talking about big amounts.
Yes, we think that we can revert the trend of the first half and become positive. Let's say EUR 5 million positive, for example, something similar.
Okay. Just if I may, the last question is on, let's say, the refinancing of the bond that now is going to expire in September. Do you have any, let's say, idea when the company is going to refinance a similar amount? If you are waiting, let's say, any positive news from rating agencies, or you are going out to the market for the new bond?
Patrick.
Yeah. I'm answering this, Patrick. Danny speaking. As Pietro already mentioned before, we have basically already available the funds internally for the repayment of the bond. We have not done specific refinancing. The only thing we have done recently, you may have read in the newspapers that we have issued a new short-term transaction in dollar, $135 million, which was basically done now end of July. Issued end of July, and this is also partly then for the refinancing of this bond. Again, we have sufficient liquidity to pay back the bondholders, and so we can say that this transaction is already refinanced, and the rating discussion does not really impact this launch repayment.
Okay, got you.
The next question comes from Brijesh Sia with HSBC. Please go ahead.
Thank you. I have three questions, if I may.
Yes.
The first one is on ready-mix situation in Houston area. I think earlier in the year, you had some issues with the pricing scenario there. Given that the volumes have improved in Q2 from a negative to a kind of ending the first half, a flattish type. What kind of pricing scenario you can foresee in second half? Is the competition still in the market, or you are kind of given the demand is picking up, you are able to push some price there. Into the energy cost inflation, can you give us any number in terms of percentage, how much it was in half one, and what's your expectation for full year? Probably a third one, is in Ukraine, given the situation is not getting better, and one of your competitors thinking of exiting, do you have any such thoughts in your mind there?
Thank you.
Well, Houston, it did improve, if you look at the volumes, not greatly, but let's say, generally speaking, the central and also north part of Texas, Dallas, Houston, and San Antonio are doing better. Houston is also improving versus last year. If you look at the volumes, it still remains a market where the imports are not so much in terms of volume, but in terms of prices, they do have a role. There are new importers. It's a situation where also due to the fragmentation of the ready-mix market on the, let's say, the user of cement, to move the prices up is quite difficult. Actually, if you look at our ready-mix operations in Houston, prices have worsened versus last year. Not in cement yet, let's say, but in ready-mix, we do have a lower price level versus last year.
It's one of the region, together with the Northeast, where we see definitely more difficulties. Not so much in terms of volume, as I said, but in terms of prices to be able to achieve an improvement. On the cost, your question about cost inflation did refer to the U.S. or in general?
In general, at group level, what was your energy cost inflation in H1, and what's your expectation for full year?
There are a number of differences, let's say, between one country to another. As I mentioned before, we are, for example, in Italy, fortunately, right now, currently, production costs that are at the level of last year because energy went down. It's almost the only case. I think that clearly the fuel is up everywhere and in a significant way, which means in some cases more than 20% versus last year, in some cases, maybe between 15% and 20%. Energy prices, let's say, not as much. Yes, I would say on average, probably 7%, 8% up. The rest is a bit more related to the inflation rate of the country. The diesel goes together with the fuel, even though for the fuel, we mean mainly the petcoke as fossil fuel for us.
Meanwhile, the diesel is something that we purchase directly, mainly in the U.S. for either, let's say, rail transportation, bus transportation, and ready-mix transportation on our ready-mix trucks. I think, again, it should be analyzed case by case, market by market. I think that you can assume on most of the market, something that is not far from 8% to 10% cost increase, at least at the production cost level.
Okay. Just staying back on energy. In the U.S., a few of the other players have moved into the gas, given that that hasn't moved up much, or rather it's down on a spot basis versus average of last year. Have you kind of considered that option in the U.S.?
Switching to gas. Gas, we are using where we can, because it's a matter of availability and also having the pipeline, let's say, already in place. For example, the Maryneal plant in Texas is using mainly gas. The other plant that could use it, but it does not currently, is the San Antonio. They do have the pipeline, but it is not competitive currently versus the petcoke. It's a higher cost versus the North Texas region. Yes, it is something that we regularly, let's say, analyze and compare with the other potential fuels. The drive in the U.S., for example, recently, but also in Europe, has been more towards, let's say, alternative fuel, meaning waste-derived fuel. Our effort to mitigate, let's say, the inflation of fossil fuel, and also in the light of the, let's call it, sustainability.
Our effort goes more into the direction of the waste-derived fuel. Ukraine. It's something that doesn't seem to be such an interesting place. It had some good years in the past, but yes, it's always somewhat struggling for one reason or another. No, we never really analyzed or envisaged the possibility to exit the market. It's not something that has been considered so far, but we cannot rule it out completely. The problem is that if everyone wants to exit, it will be difficult to find a potential buyer. Anyway, we are not married, let's say, for life with Ukraine, necessarily.
Thank you.
The next question comes from Xavier Marchand with Deutsche Bank. Please go ahead.
Good afternoon. I have two questions.
Okay.
The first one is on the guidance.
Yes.
You have changed your outlook versus the one you did after Q1 results, which were early May.
Yes.
I was wondering what may change your mind, especially with the positive evolution of the euro-dollar exchange rate and rather good volume trends in Q2. That's my first question.
Yes.
Second one is on Germany. Recurring EBITDA in H1 2018 is almost stable versus last year.
Yes.
You precise also in the presentation that net of non-recurring items and changes in scope, EBITDA showed a positive change of EUR 6 million.
Yes.
Does that mean that the EBITDA from your newly acquired plant in Germany is minus EUR 6 million, or this is some kind of a one-off or restructuring cost?
No, I don't understand the minus 6.
Well, you have a stable recurring EBITDA in Germany, and you say in the presentation that net of non-recurring items and changes in scope, EBITDA showed a positive change of EUR 6 million.
Does that mean that the EBITDA from the new plant is minus EUR 6 million?
Well, in a sense, yes, but it's not the plant. It's the cost associated with the, let's call it, rationalization and future expenses associated with the closure of the plant. Yes.
That's a one-off, which should not repeat in H2.
Exactly.
Okay.
That's correct.
Okay.
Going back to the guidance. Well, the reason for the guidance, I think I tried to explain it before, it is coming from a job that we do regularly. Let's say, usually three times a year, which is what any company does. I mean, to update the budget, and in this case, it is a forecast, after five or six months of actual results. Yes, we think that we can recover partly what we lost in terms of recurring EBITDA in the first half, but not fully. At the end, we will remain even after potential benefit, like you mentioned, from a higher dollar, hopefully. The worsening of the profitability in the U.S., which is the most important in our group, will not be offset or completely offset by the improvement that we are forecasting in other markets.
There is also worsening of the profitability in Ukraine, not too small, because we are talking about potentially something like, minus EUR 10 million versus last year. It is not such a small, let's say, figures. The two together are the negative part. The rest is positive, but not enough to offset. That is why we think we will end up at a level which is very close to last year. Can be a bit better, can be a bit lower, but let's say not meaningfully different from last year.
Okay. Thank you.
Yeah.
The next question is a follow-up from Alessandro Tortora of Mediobanca. Please go ahead.
Yes, thanks again. Good afternoon again. If you can give us and share with us an idea or an indication, given the trend we saw in the working capital in the first half, an indication of a net debt level, just a range, okay, for the full year. Thanks.
Well, yes. We do have it. After, of course, this was already paid in the first half. Let me check very quickly. Should be something like EUR 750.
Around EUR 750.
Okay. Thanks. Yeah.
The next question comes from Vladislav Stanev with BNP Paribas. Please go ahead.
Hello. I just have one question on the debt. Is there a particular level of debt that you're targeting, or are you comfortable with the current level, and are you possibly looking towards an investment grade rating upgrade? Also a second question, in terms of your financing, you said you have a lot of liquidity, but do you see yourself tapping the capital markets anytime soon, maybe refinance the convertible? Thank you.
I did not get completely the first question.
Sorry. Yes, the first question was clear about the debt level. The very last part was hard to understand. Could you repeat the last part of the question?
Yeah. Sure. Are you looking at tapping the capital markets anytime soon, maybe to refinance the convertible? Was that it?
Okay. Regarding the debt level, we do not have a precise target on gross debt, what we would like to have clearly. Also, gross debt can be an aberration sometimes. It's not strictly linked with, probably not the key issue also for the rating discussion, because typically, the rating agencies will also look at gross debt, but rather also at, in the end, net debt and some key ratios depending on the respective agency. Standard & Poor's is looking very much on FFO to debt and, net debt to EBITDA. On the other side, we think that we have quite significant liquidity at present, and potentially even more with a positive cash flow in respective areas. This was also in the past justified by some private placements that we had in the U.S. with some potential triggers that presented a risk.
We do not have these structures anymore, which means that we have probably there the possibility to change a little bit our approach about the necessary liquidity
For, let's say, operations, but also for strategic liquidity. Clearly, there is negative carry on the liquidity today, especially in EUR. This is something that needs to be considered, too. It basically also leads to a conclusion that what is basically now will be seen, no refinancing of the bond by a capital market transaction in September. Notwithstanding, of course, the DCM, fixed income markets remain interesting also in the future for us. There are some, as you said, there is a convertible bond that depends, of course, very much on how we will treat the convertible bond. Will it be converted or will it be repaid in cash? Of course, this will completely change the necessities for refinancing. This needs to be seen, but clearly, again, fixed income market for us is always a quite interesting source, especially with quite positive metrics overall.
Having already tapped these markets various times. Yes, we think that this is also an option for the future.
Mm-hmm. Okay. Thank you.
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Okay. Thanks everyone for listening. I hope the conference was giving you enough information, let's say satisfactory information. As usual, let's say we will remain available. I don't know when Agostino is going on holidays. I don't know.
I will be.
Yeah, he will be available. He will remain available for some days at least. For those of you that have not been on holidays yet, we wish you the best of all, and for the rest been in holidays already to continue to work awfully in a climate that is not too hot and too humid. Okay. Thanks again, and goodbye.
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