Hello, welcome to the Vicat First Half Results 2023 Call. My name is Laura. I will be your coordinator for today's event. Please note that this call is being recorded, and for the duration of the call, your lines will be on listen-only . However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star one on your telephone keypad to register your question. If you require assistance at any point, please press star zero, and you will be connected to an operator. I will now hand you over to your host, Hugues Chomel, Deputy CEO and CFO of Vicat Group, to begin today's conference. Thank you.
Good afternoon, ladies and gentlemen. I am Hugues Chomel, Deputy CEO and Chief Financial Officer of the Vicat Group. With me today is Pierre Pedrosa, who has joined Vicat in June this year, as our new Director of Financial Communication and Investor Relations. We've been working closely together over the past few weeks. He will, of course, be reaching out to many of you over the coming months to introduce himself. I will now be presenting to you our 2023 first-half results. Before starting the presentation, please have a look at slide two, where you can read our disclaimer regarding the forward-looking statements that this presentation may contain. On slide three, our presentation will be divided into 6 topics. I will start by presenting the highlights of first half of 2023 and our results for the period.
I will analyze our performance by region and focus on the main balance sheet and cash flow items. I will then discuss our climate performance before concluding with our updated guidance for the end of the year. Let us now move to slide four with the key points at the end of June 2023. The Vicat Group recorded a solid set of results in H1 2023. Organic sales grew year-on-year by 16.5% to EUR 1.9 billion. Cement volumes were resilient in most of our regions. We implemented solid price increases in almost all markets, which contributed to offset the cumulative effect of cost inflation, especially higher energy prices. Profitability moved higher in line with our expectations on the back of the ramp-up of the Ragland new kiln in United States, which will continue during the second half.
An improving year-on-year price cost differential, and a 4.1 points increase in use of alternative fuel to 31.5%. However, the group has still not yet returned to its pre-crisis margin rates. As announced at our financial year 2022 results, we focus on debt reduction. Our leverage ratio was brought down to 2.6 x over the period. With the back of the H1 dynamics, full year 2023, EBITDA is now expected to rise toward a level appreciably above that recorded in 2021. Slide five shows the condensed income statement for the half-year . You can see the solid reported sales growth of 9% achieved this semester, despite an unfavorable currency effect of - 7.5%, representing negative impact of EUR 131 million over the period.
EBITDA settled at EUR 314 million, higher than the EUR 300 million recorded in the first semester of 2021, a year that had benefited from the post-pandemic catch-up. EBITDA margin came in at 16.4%, a 110 basis point improvement versus 2022. It's a level that is still lagging behind the 19.2% margin recorded in 2021. Consolidated net income reached EUR 109 million, up 24.5% at reported rates on the back of our improved operating performance. You have on Slide 6 now, the EBITDA bridge from 2022 to 2023, detailing the various factors at work in this variation. You can see the stable volume effect that shows the overall resilience in our markets.
You can also clearly see how the impact of the strong price increases that were passed in each of our markets, increase but have successfully offset the inflation in cost. On Slide 7, with our analysis by region, beginning with France. France was characterized by remarkable resilience in cement volumes, and lower concrete and aggregate volume as a result of slowdown in residential construction and roadwork sectors. In this context, the group raised its selling prices, offsetting the cumulative impact of higher production costs, especially those linked to energy price inflation, and EBITDA rose 32% in H1 2023. Moving to Europe on Slide 8. We're beginning by Switzerland, that recorded stable, like-for-like sales over the period. In this country, the cement business was marked by a contraction in demand, largely offset by a solid increase in selling prices.
In concrete and aggregates, the lower demand was coupled to higher prices. These were, however, unable to fully offset the inflationary pressure on cost. In Italy, consolidated sales rose 26% with higher volume and prices. Let's take a look now at the Americas on Slide 9. Beginning with the United States, where the industry environment remained broadly positive, even if performance varied between regional markets. California was affected by heavy rainfall, which had an impact on the construction market for most of the period. Conversely, the Southeast region achieved strong growth as the ramp-up in the Ragland new kiln enabled the group to capitalize on supportive market conditions. Price increases were in full effect in both markets and businesses to offset the effect of inflation. On this basis, EBITDA rose by 59%, like-for-like in the US.
In Brazil, sales were held back by the slowdown in the Brazilian economy, but the hike in prices and the improved industrial performance offset higher production costs and volume contraction. Concrete and aggregate sales were supported by higher selling prices. On Slide 10, you have our results in Asia. Beginning with India, where the group introduced price increases, but only partially offset the still high level of input costs in the first 6 months, especially energy costs. Volumes remained stable over the period. Kazakhstan's performance was marked by a contraction in volume toward the beginning of the year, given the logistic disruption to the Kazakh rail operator and lower selling prices. On Slide 11, moving to the Mediterranean region. A strong depreciation in the Turkish lira against the euro was among the main factors influencing the macroeconomic environment.
The Turkish market grew sharply during the first six months, thanks to an upbeat construction sector and milder winter condition at the beginning of the year. The group maintained its strategy of firm support for prices to offset the effect of inflation on production costs. EBITDA came in at EUR 17 million, despite a negative FX impact of EUR 11 million. In Egypt as well, the depreciation in the Egyptian pound against the euro had a negative impact. In a domestic market marked by sluggish conditions, business was, however, boosted by an opportunity to export clinker. In the domestic market, selling prices continued to improve, which almost completely offset the impact of higher input costs. As a result, EBITDA reached EUR 4 million, despite a negative currency impact of EUR 3 million.
The final region is Africa, on Slide 12, that saw positive sector demand trends, especially with the sharp recovery in the Malian market after the political crisis and the resumption of government projects in Senegal. In Senegal, prices rose with the increase in government cement price cap in September 2022. Aggregate sales were again supported by public work sector as major projects went ahead. In cement, the new kiln will enable in 2024 to both reduce production cost, reduce carbon footprint, and meet growing market demand. Moving now to our financial position on Slide 13, where you can see the lowering of the debt and the Leverage Ratio over the past 12 months to 2.6x, as we pursue our focus on debt reduction.
On Slide 14, you can see that our CapEx was EUR 144 million this semester, down from EUR 178 million in H1 2022. This includes amount linked to the group strategic investments, Ragland new kiln, and the new kiln line in Senegal. Free Cash Flow amounted to EUR 71 million, versus - EUR 203 millions in the first half of 2022. This improvement in Free Cash Flow derived from the increase in EBITDA during the first six months of 2023, and a normalization in the change in Working Capital requirements. Turning now to Slide 15, with our updated climate performance at midpoint of 2023. With 591 kilo net CO2 per ton of cement equivalent this semester, Vicat is in line with its 2030 target of 497 kilo.
This represents a year-on-year improvement of -3.6%. This performance was achieved through the implementation of the group climate roadmap. Notable achievements include the 4.1 point increase in the use of alternative fuels to 31.5%, and a 0.5 point reduction in the clinker rate to 77.4%. I will now conclude on Slide 16, with the update to our 2023 full year guidance. With the group now targeting significant sales growth and EBITDA that is expected to rise to a level appreciably above that recorded in 2021. Unchanged, however, is our commitment to deleveraging, as we don't plan to launch any further strategic growth CapEx project until the leverage ratio has been brought down below 2 x. A detailed outlook by country is available in the press release. This concludes my presentation for today.
Laura, can we move on to questions, please?
Sure. Thank you. Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star one on your telephone keypad. We'll take our first question from Yves Bromhead Société Générale . Your line is open, please go ahead.
Good afternoon, everyone. Just a quick question from me on the earnings bridge, the EBITDA bridge, sorry, in H1. You're showing a net pricing surprise, minus cost of EUR 61 million. I was trying to understand for the second half of the year, how we should think about this, given that, you know, cost base is likely to decline, I would imagine a faster rate than the base effect becomes more challenging for your prices. Is that the right way to think about it? Can you help us in quantifying how much we should have in mind? That's my first question. My second one, again, on the earnings bridge, you showed EUR 10 million positive contribution from various and non-recurring. Can you just elaborate on what that is?
My third question is on prices, generally speaking, especially in the European and, only in the European regions of France, Switzerland, and Italy. Are you seeing any signs of rebates or prices in absolute terms starting to come down versus maybe the levels that you've seen in January and February? Thank you very much. Hello?
Yeah, sorry for that. I was still on mute. Thank you for the question. On your first question regarding the bridge, we definitively as we mentioned, we have delivered a strong set of results in H1. We've indeed positive price cost differential that makes up for the accumulated inflation from previous years. We nevertheless are still below the levels of margin rates we realized before the crisis. We are medium-term committed to recover those margin rates, and as such, we will continue to implement a strict price discipline.
Regarding the trend in cost, I would like to stress that indeed, we did in contra still cost inflation of energy in H1. We do expect to see it to reverse in H2, as we now see the price going down. This will mostly materialize in emerging markets, as we do have a high level of substitution in developed countries. On your question on pricing, that is a related subject. We do not see a specific movement of pricing hedging down. I mean, there is as always a request from customers to have lower prices, but there is nothing specific in that period.
Regarding the question on the positive variance and non-recurring, it is mostly elements of industrial performance, and especially the impact of increase in substitute fuels.
Okay, that's very clear. Thank you very much.
You're welcome.
Thank you. We'll move on to our next question from Arnaud Palliez at CIC. Your line is open. Please go ahead.
Good morning, Hugues, and good morning, Pierre, and welcome to Pierre. We are looking all forward to interact with you. My first question is a follow-up on the one of Hugues. You just said the non-recurring impact is linked to the impact that the fuel substitute, so I guess the alternative fuel. Why should it be non-recurring?
I know, it this factor is called various and non-recurring. It is not all non-recurring. For sure, we do aim to continue to use alternative fuels and to continue to develop it as we did successfully with semester. We do not expect this element to be non-recurring.
Okay, that makes more sense for me. On the second question I will have is on the outlook for volume. We are going to enter in H2, is probably easier base of comparison versus last year. How do you look at your top line in H2 regarding volumes? Do you expect, you know, sequential deterioration, do you think the easier base of comparison will help you to keep the volume resilient in percentage terms?
As you have noticed, we, it is very much market driven, and we have shared market element, I mean, elements by market in our press release. A few comments on a global scale. We have already seen effects of a slowdown in residential market in H1. This is the case in Switzerland, this is the case in France, especially in ready-mix concrete and aggregates. This is to some extent, already the case in U.S. Those movements will continue. We don't foresee at this stage a substantial deterioration. On the other side, we, as you mentioned, we have an easier comparison base versus Q3 last year, where we were in the ramp-up period in Ragland, so we will have a substantial contribution of volume there.
We should not encounter the weather-related problems we had in California earlier this year. So I don't feel we should have a substantially different volume trend.
Reading between the lines, it means that you are probably more optimistic on the US side than the European side, which means the French side?
We see a rather strong demand trends in U.S. indeed. Probably stronger in the Southeast than in California, but it is still a relatively dynamic market.
Okay. Thank you. Continuing on the U.S., have you quantified, and do you share the impact of Ragland? What is, you know, the.
No, we, no, we did not quantify it, Arnaud.
Okay. I guess you will not?
Indeed.
That makes sense. I'll move to Switzerland now. I was looking at the trade association figures. In Q2, they were down 8%, I think, for volume for the Swiss market, for cement. You are mentioning that you had a small contraction in demand, it implies that you did better than the market. What is the reason behind that, if it's the right conclusion?
You know, it is, you know very well the cement markets, Arnaud. You know that it is very local, and it mostly depends on project in the trading zone of each actor. From, on a short-term time scale, it is really depends on project mix.
Okay. It means that you are, your, what you call a small contraction demand, is between 0% and - 5%?
I did not quantify it.
Okay. You will not. Well, I tried. Last question. You are mentioning no more strategic investments after Ragland and the Senegal plant. I was reading in the press, very interesting project in I was laughing because apparently the location is in Carbonne, near Toulouse, and it's a project of a new plant with Materrup to produce, if I understand well, decarbonated clay. I just wanted to understand what is the order of magnitude of the investment for such a plant.
Well, first of all, let me go back on the guidance we gave on strategic growth CapEx. We said that we will not launch new strategic growth CapEx before the leverage is brought below 2 x. We did not say we will never do it again.
It's our objective to continue to grow the company. I don't think it will take years before we are there. Regarding the Materrup partnership, it is as you have probably read, the partnership we have signed with Materrup to produce decarbonated cement, blending it with raw clay and some additives. This enabling it to us, to have a lower carbon footprint. It is not a very material investment. It is a matter of a few million EUR. It is not within the scope of what we call the strategic growth CapEx.
Okay, no, because I read a very prospective, very promising project.
Yeah, yeah, yeah. I'm sure it's Materrup is a very interesting proposition, so I'm sure it's going to be a success.
Okay, okay. Thank you very much for all your help.
Thank you. Once again, ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad. Thank you. We'll move on to our next question from Ebrahim Homayoun at CIC. Your line is open, please go ahead.
Hello, Hugues, hello, Pierre. I have two questions, if I may. The first one is about the, the Working Capital and the, and the cash flow generation. Could we have a view on Working Capital in H2, and the leverage we expect in 2023, as you have raised your EBITDA guidance? Which level of Working Capital and which level of net, net debt to EBITDA to expect in 2023? And the second question maybe is it's about the, the Egypt prices. Could we have maybe a flavor on the price increase in Egypt?
Thank you for your questions. Regarding working capital requirement, if we compare with last year, last year in H1, we did experience a huge increase in working capital together with inflation, both on receivables and inventories. Now, in H1 2023, we have seen a more normalized change in working capital requirement, with a limited seasonal growth of working capital. Traditionally, we see working capital decreasing in H2, this will be the case again. We do expect to see a favorable impact of reduction of energy costs on the value of inventory, we should have a reduction in the value and inventory. Together, we should see some reduction in working capital beyond the seasonal variation.
As you have noticed, we gave an updated guidance on EBITDA, that will continue to help improve the Leverage Ratio. We do see and expect reduction in the net debt of at least EUR 100 million, I would say, in H2. I will depending on your views of EBITDA, I will let you determine the appropriate one. Regarding Egypt, we had a quite high price increase again, this in local currency in H1. This allows us to more or less match the impact of inflation on input cost, which it is.
Yep, go ahead.
Last question. Maybe on, on volumes, you mentioned that the basis comparison, the comparison basis is easier in H2, but it's not the case maybe on aggregates. Is it correct? Maybe the volumes in aggregate segment will be more challenging.
Yes. Again, I mean, the decrease in ready-mix concrete and aggregates was more pronounced in H1. We do expect some large projects to help us limit that trend. Again, Yeah, but we don't expect trends that are materially different.
Okay, thank you.
Thank you. We'll take a follow-up question from Yves Bromhead at Société Générale . Your line is open, please go ahead.
Yes, hi again, and sorry, I forgot my politeness here, so welcome as well, Pierre. Nice reminder from Arnaud, all the best. I do have an actual follow-up question. Sorry, but just on the net debt, given what you've just said, you can play around with the math, you know, you could even be below 2x net debt to EBITDA at the end of the year, if the year turns out to be very strong indeed. If that was the case, I mean, you know, should we assume that already in 2024 you could be back into sort of announcing structural growth projects?
Should we read sort of the indication of top management to want to pause this for maybe a tiny bit longer than just hitting the 2x net to EBITDA, because ultimately the market is much stronger than you would've anticipated in your official guidance at the start of the year?
I think there is a strong commitment from the management to deleveraging, and I don't expect this to be a challenge for 2024 in any way. So we, we will land at the guidance that we have indicated for CapEx this year, about around EUR 350 million. We do expect CapEx to further go down next year, and therefore, to have deleveraging further going down next year. Beyond that, once we have reached 2 x the Leverage Ratio, well, there is, of course, always plenty of project. Decarbonization is surely a high priority for the group. This we will be looked at very carefully.
Returning money to the shareholder is a high priority as well. At some point it will surely be considered to raise dividend again. I think these are the top elements in the agenda for now. For now, in 2024, you should expect a strong deleveraging agenda.
Should we also expect some asset sales, by the way, in terms of some of your more downstream operation? You've done some in the last two years, so is there more to do here or not?
I do not expect business investment. As indicated during the full year call, we may be considering to dispose the non-operational assets, so this can contribute to any point, but those are relatively limited amounts.
Perfect. Thank you very much, again.
Thank you. As a final reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Thank you. We'll take our next question from Anne-Sophie d'Andlau from CI AM . Your line is open, please go ahead.
Hello. Thank you for this presentation. I just would like to jump back to the energy cost. Can you give us some more information about how much does it represent and how much do you forecast it to be by the end of the year? Another question about the CapEx. I understood that we can expect a slowdown in CapEx for this year or next one. Can you give us some more information about the CapEx, especially in the Senegal port? Thank you.
As you have surely read, we have quantified the increase in energy cost in our press release, so I would let you take the numbers from there. We have not quantified the full year energy bill. It is very dependent on the FX levels in emerging countries, and therefore quite fluctuating. We do expect indeed a slowdown in H2, and we do expect to continue to increase our alternative fuels that will help bring this total energy bill down. Regarding CapEx, we have not shared with the market any number regarding next year, this year we do expect around EUR 350 million.
We will make sure to stay around that number. For next year, we do expect a further substantial reduction. Regarding the current implementation of CapEx, the Senegal project is going ahead as per the plan. As a reminder, it is a EUR 260 million CapEx plan over a three-year period. It is meant to increase clinker capacity, to reduce substantially production cost, and give us a very low carbon footprint, as it will allow us to produce cement below the target of European tax, an army of 460 kilo gross. That is going on. It will be commissioned sometime next year in H2.
Again, as we indicated before, we do expect high ROCE of about 18% for this project, as we do expect for Ragland. Ragland is starting to deliver now, but, it's far from being at the full target on all elements.
Okay, thank you very much for the information.
You're welcome.
Thank you. There are no further questions in queue. I will now hand it back to Hugues for closing remarks.
Thank you, Laura. Thank you all for your being present today in the call. I just would like to wrap up a few important elements. We've delivered a solid set of results in H1. We do, based on this H1 dynamics, we do expect an EBITDA for the full year that would be appreciably again above the one of 2021. Based on that, we do believe we are able to lower the net financial debt of about EUR 100 million for the full year. Of course, we continue to implement our climate roadmap, and we'll continue to report those KPIs as we do with the financial one. Based on that, thank you for being with us this afternoon.
Hope you can all look forward for a restful summer, and I will myself be available for ad calls, if need be. Merci, au revoir.
Thank you so much. Ladies and gentlemen, this concludes today's call. Thank you for your participation. Continue to stay safe. You may now disconnect.