Hello, and welcome to the Vicat 2024 Half Year Results Conference Call. Please note, 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'll be connected to an operator. I will now hand you over to your host, Mr. Hugues Chomel, Deputy CEO and CFO of Vicat Group, and Pierre Pedrosa, Head of Investor Relations, 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, our Head of Investor Relations. I will now be presenting to you our 2024 first half year results. Before starting the presentation, please have a look at slide two, where you can read our disclaimer regarding forward-looking statements that this presentation may contain. On slide three, our presentation will be divided into the following five topics. So let's begin with our highlights on slide four . Powered by market dynamics in the United States and emerging markets, Vicat grew organically by 4.8% in the first half of 2024.
The group's EBITDA advanced twice as fast, + 12.3% in the first six months, leveraging strong performance in the United States, India, and Egypt, and an improved cost-price dynamics across almost all markets. The strong performance lead us to narrow the bracket of our 2024 guidance, with full-year EBITDA now expected to grow between 3% and 8% on the 2023 number. Finally, the first six months of 2024 saw us reduce our carbon intensity by 3% year-on-year, to 575 kg of CO2 net per ton of cement equivalent, on our way to objective of 497 kg per ton. On slide five, we've compiled the group growth rate of the past quarters, that illustrate Vicat's sustained superior performance when compared to its industry peers.
This advantage is the result of three key factors: a sustained growth investment strategy that led to the recent successes in U.S. and Brazil, our exposure to emerging market, and finally, our strong pricing discipline. Moving to slide six, you have the regional performances that contribute to the like-for-like 4.8% sales growth, thanks to robust growth in Americas, Asia, and Mediterranean region over the first half. As previously stated, the main outlier to our growth trajectory was the slowdown in France, that stemmed from a weakening residential market and a more adverse environment in Africa. 19% of group sales are now generated in the United States. It's a 3% point, sorry, increase when compared to June 2023. On slide seven, we've mapped out the evolution of our EBITDA margin over the past three years.
Despite the considerable progress recorded over the period, our EBITDA margin remains below that of 2021. Our objective is still to restore EBITDA margin to above the 2021 level. Let's move to slide eight, which shows the main drivers of EBITDA growth between H1 2023 and H1 2024. The main positive contribution to the like-for-like variation is the price component, that more than offset the impact of persistent increase in cost and lower volumes. Looking at cost on slide nine, we've laid out the evolution by semester of our main cost items over the last four years in relation to sales. This shows the considerable and persistent impact of inflation. On the left, you can see the downward trend in variable energy costs, which are nevertheless still well above pre-crisis levels.
On the right, you can see the evolution of fixed costs linked to personnel and maintenance, which have increased by EUR 90 million over the past three years on a half-year basis. On slide 10, we present our performance by region, beginning with France. In France, revenue was again impacted by the weak volumes caused by the contraction in the residential market. The project to build the Lyon-Turin rail link, that began in late 2023, is, however, expected to progressively curb the effect of the slowdown from now on. Hikes in cement prices at the beginning of the year made a positive contribution over the period. Despite those weak market conditions, the French business recorded resilient results.
On slide eleven, you have a snapshot of the residential market in France, where the housing starts and permits have been consistently decreasing since the recent return of inflation to reach historically low levels today. This evolution is in stark contrast with a tremendous level of French housing needs, estimated at around 500,000 units per year. Population growth, societal trends, re-industrialization, and climate rationales all contribute to make the case for a return to growth in this market. When these cycles begins, we will be ready to leverage our positioning in a dynamic territory with residential needs that are superior to the national average. On slide twelve, you have the focus on Europe. Switzerland was again impacted by the weakness of the residential market and by delays on major projects, especially in the public works sector, as volume declined in the first half.
Even so, two large infrastructure projects should support activity levels in the second half. EBITDA held up well, benefiting from positive contribution of our waste processing activity, as well as from price hikes introduced in the first quarter. Moving to slide 13 with our performance in the Americas. I'll begin with the United States that continued to perform well in the first half, while enjoying a favorable base of comparison and a positive pricing environment, especially in California. Volumes in the Southeast rose significantly, and cash cost improved at Ragland substantially, as fossil fuel price moved lower and usage of alternative fuels grew substantially. EBITDA reached EUR 80 million in the United States in H1, 2024. It's 24.42% more than last year. In Brazil, cement business volume declined, and prices moved slightly lower in the first half as a result of fiercer competition.
EBITDA decreased with lower energy cost and industrial performance, partially offsetting activity slowdown. Concrete and aggregate business showed resilience, with aggregates and concrete volume dropping slightly, but selling pricing moving higher. On slide 14, you have our performance in Asia. Beginning with India, as volume grew significantly despite the slowdown in construction activity in Q2 because of the general election campaign. The improvement in the price cost differential that began in the second half of 2023 has boosted competitiveness, while selling prices moved lower, especially in southern states. Sales in Kazakhstan expanded in the first half as a result of a favorable base of comparison and the group's exposure to dynamic catchment areas. Even so, price fell over the period amid fiercer competition and were coupled to higher logistics and energy costs. On slide 15, you have our performance in the Mediterranean.
After a dynamic first quarter performance, the cement business in Turkey was impacted by a volume contraction in the second quarter as a result of calendar effect and a slowdown in construction activity during the election period. Selling prices were raised significantly in the first half, even as the price hikes only partially offset the effects of inflation on production costs. The concrete and aggregate business expanded in the first half as a result of a strong growth in concrete volumes, especially in the first quarter, and higher selling prices that also partially offset the effect of cost inflation. Cement business in Egypt benefited from strong cement and clinker volumes for export to the Mediterranean and Africa regions. In the sluggish domestic market, prices rose during the first half, reflecting the impact of imported inflation in a market regulated by the authorities. Overall, EBITDA rose strongly.
Turning to slide 16, regarding Africa. Even if production will remain constrained until the commissioning of a new kiln, Senegal showed resilience, with volume and pricing falling only slightly in the first half. The government decision to scrap a levy on cement to increase household spending power from July 1st had a negative impact on the consumption during June. In this context, EBITDA grew well, benefiting from falling energy costs, the rise in alternative fuel utilization rate, and the improvement to improve industrial performance. In Mali, the power supply issues that seriously affected production in the first quarter have been resolved, while Mauritania's EBITDA grew 45% as a result of an improvement in input costs. On slide 17, we've outlined the cash generation trends. In H1 2024, our capital expenditures was EUR 186 million, compared with EUR 143 million in H1 2023.
The strong seasonality of outlay linked to the group's strategic investment, including the new kiln in Senegal, accounted for a significant portion of this. The group is reiterating its capital expenditure target of disbursing EUR 325 million in 2024. Free cash flow amounted to EUR -23 million in the semester, versus EUR 61 million in the first half of 2023. This deterioration in free cash flow derived from seasonal fluctuation in the working capital requirement and in capital expenditures. The change in the working capital requirement is expected to make a positive contribution in the second half. On slide 18, we've mapped out our deleveraging roadmap as we stay committed to reach our leverage target of 1.3 in 2025, with the introduction of a year-end target of below 1.7x by the end of 2024.
Once again, deleveraging is one of the top priorities of the group. Moving to slide 19, to the group climate performance in H1 2024, we showed progress across all the indicators and most of the group regions. In the United States, the switch to Type IL cement contributed to the improvement in the clinker factor. Alternative fuel rate improved in India and in the United States as a result of a Ragland plant ramp-up. On slide 20, we are presenting to you a recap focus on where we stand on Vicat Low Carbon Solutions. Today, Vicat offers a comprehensive range of low-carbon products. This includes DECA, Vicat branded line of low-carbon solutions, and Carat, a line specifically focused on ultra-low carbon products. This range underscores the Vicat commitment to providing environmentally friendly building materials that meet diverse construction needs, while significantly reducing the carbon footprint.
Today, these products correspond to about 14% of our cement sales in France. That's twice as much as last year. The driver of this growth is twofold. French regulatory framework, RE2020, sets clear emission caps for construction, measured in CO2 equivalent per square meter, pushing for sustainable development practices across the industry. The other driver is the commitment that all clients have made as part of their 2030 Scope 3 targets. Their Scope 3 correspond to all Scope 1 and 2. They understand that Vicat low-carbon solution will play a key role in reducing their indirect emission. Overall, these goals illustrate a clear trend. Major players in the construction industry are moving aggressively toward more sustainable practices, with Vicat playing a pivotal role in facilitating this transition. I'll conclude on slide 21 with the outlook for the current financial year.
In 2024, the group expects limited growth in its sales, supported by an increase in the United States and the resilience of emerging markets, even taking into account the residential sector weakness in Europe. The group has narrowed its full year EBITDA target based on performance in the first half of the year, and is now targeting an increase in 2024 EBITDA between 3% and 8% when compared to 2023 number of EUR 740 million. By 2024, the group capital expenditures should reach around EUR 325 million. Finally, as mentioned above, we will maintain our debt reduction path with the aim of reducing our leverage ratio to below 1.7 by year-end and confirm the below 1.3x leverage ratio target by the end of 2025. Benoit, we can now move to questions.
Thank you very much. Ladies and gentlemen, as a reminder, if you'd like to ask a question or make a contribution on today's call, please press star one now on your telephone keypad, and to withdraw your question, please press star two. Also, ensure that your line remains unmuted locally. You will be advised when to ask your question. The first line comes from the line of Yassine Touahri, calling from On Field Investment Research. Please, go ahead.
So yeah, a couple of questions. My first question would be on the free cash flow generation. So I understand that your net debt target this year would imply a net debt of about EUR 1.3 billion? So is it fair to assume that it implies a free cash flow of a couple of hundred million, and then a EUR 100 million dividend to reduce the debt by a EUR 100 million? And then when I look at your target for 2025, it looks like you would be aiming to reduce the debt by another EUR 200 million. So is it fair to assume that you believe that you could generate EUR 300 million of free cash flow in 2025?
Is it the right calculation? And if it is the right calculation, what is your assumption on France in this scenario, in a context where there is a little bit of a political uncertainty?
Good afternoon, Yassine, and thank you for your questions. As you know, as you know well, free cash flow generation in your industry is rather seasonal, with significantly stronger EBITDA in H2 compared to H1. Working capital requirements increasing in H1, in the northern hemisphere, and decreasing in H2. For us, we have very specific trend in CapEx spending in H1, considering the state of advancement of our CapEx program. And there we spent EUR 186 million in H1, out of EUR 325 million for the full year. And again, as you know, dividend was EUR 90 million, so and it was served in H1.
So indeed, we do target about EUR 100 million reduction in the net debt, and this is consistent with what we see in the H2 trends. Looking at 2025, as we have pointed out before, we expect the CapEx to come further down as we finish our strategic investment plans over the last years. And as such, with a resilient operational cash flow generation, we expect to be able to reach this target, and we are dedicated to it.
When you talk about the CapEx reduction, is it a CapEx reduction of something like EUR 250 million-EUR 260 million? Is it something that is achievable next year, or do you have a range in mind?
It is a reasonable order of magnitude.
And then on the situation, because I guess there is one element which is a little bit tricky, given the political situation in France, is to assess the cash generation. What kind of scenario do you have for France? Do you see a recovery, or do you believe it's in a situation where it might be more stable?
Well, as you know, situation is changing every day, and today is giving us new examples of unpredictability. As we pointed out, the residential downturn has been steep. And, as we go into H2, we probably have a more favorable base of comparison, but still, we are still in a decreasing phase. We are expecting that the market will recover sometime in 2025. Obviously, the way the political situation and its economic consequences will have an influence, but I do not have specific elements on that for now.
The last question would be on the United States. I think a lot of the companies in the U.S. have been impacted by the higher interest rates for longer. The housing starts were a little bit disappointing. The commercial construction is a bit slower than initially expected. I think you have not been really impacted so far because you've got your new plant in pipeline. But could you comment a little bit about the recent development in July, or what you've seen in the past few weeks? Do you see the same trend as in the first half? Do you see an activity being a bit slower? It would be great for you to give just a little bit of an outlook in terms of the U.S. trends, most recently.
No, as you know, the U.S. market is rather unbalanced with an insufficient domestic capacity to serve the market. So our expansion has to meet a demand that is there, but it is clearly not growing at a high pace, but is still relatively strong, especially in the Southeast. We have seen some softness in California in Q2, but it is not overly worrying at this stage.
Would you see the softness in California continuing in the second part of the year, or do you think it's just weather-related and temporary?
I have not a specific element on that, Yassine, sorry.
Oh, okay. Thank you so much.
You're welcome.
As a second reminder, if you'd like to ask a question, please press star one now. The next question comes from the line of Ephrem Ravi, calling from Citigroup. Please go ahead.
Thank you. Just a quick follow-up question on Ragland. A lot of your peers operating in Southern U.S. have reported sort of weather-related disruptions to demand in the second quarter. You seem not to have had that. Is that more a function of where your sales mix is, or is there something special that you have done to kind of mitigate the impact of that? And secondly, in terms of future growth after your net debt comes to about 1.3x EBITDA level, are you kind of looking to invest more in Africa as you have been in the last three or four years? Or is there other further regions where you're looking to grow? Thank you.
Good afternoon, Ravi, and thank you for your questions. Regarding Ragland, well, we have not a specific treatment in terms of weather. I guess we are getting the same as everyone. As mentioned before to the question of Yassine, we are ensuring the market needs in a context that local capacity was insufficient to face demand. And, as a reminder, together with the plant, we have set up new railway terminals to enlarge our catchment area. That help us to place our new capacity. So we have been facing the same elements as others. Regarding the post-2025 capital allocation, it's probably too early to be very specific on that.
We would like to reiterate that our priority is to deleverage, and we will stick to that. As you know, we are entering a phase where decarbonization will require some flexibility, so we are happy to enter this phase with a flexible balance sheet. Beyond that, of course, the group has a long-term strategy that associates acquisition and brownfield expansions. We will be, as usually, going at all pace, looking at accretive movements.
Thank you.
The next question comes from the line of Ebrahim Homani, calling from CIC. Please go ahead.
Hello, Hugues. Hello, Pierre. Thank you for taking my question. I have two, if I may. The first one is about your guidance. If we take the higher range of the guidance, does it imply an EBITDA margin, which will be higher than in 2021? That's my first question. And maybe my second question is on Ragland. What will be the organic growth ex Ragland in Americas, and what's the difference in margin between Ragland, which is using alternative fuels, and the Californian plant, please?
Yes, I mean, on the margin rate, I mean, I'm sure you are doing the math perfectly well. So, indeed, that would mean that we are reaching almost 2021 level by year-end. As mentioned, it is among our top priorities, and we are doing what we can to it, depending on the market environment we are facing. So, yes, we are trying to achieve it. We could be there by year-end, depending on how things unfold. Speaking about the, I mean, the respective margins in America, we, as you know, we don't disclose the regional margins.
What I can ensure you is that we are committed to use alternative fuels in California as well, and we are pushing the use of alternative fuels in both plants, as it is an important element on decarbonization roadmap.
Okay, thank you. So there is no big difference in margin between California and Ragland?
I did not answer to this question, Ebrahim.
Okay. Okay. Thank you. Thank you, Hugues. Thank you very much.
Ladies and gentlemen, as a final reminder, if you'd like to ask a question, please press star one. The next question comes from the line of Laurent Saglio, calling from Zadig. Please go ahead.
Yes, good afternoon. It's from Zadig Asset Management. I have two questions. The first one I understand, beyond 2025, when you mention EUR 250 million CapEx, you don't want to commit. But if I take the problem the other way around, to get to 230 target you have for CO2, between 2025 and 2030, best guess, you have to spend how much to get to your target CO2? That's my first question. All in, all in.
Good afternoon, Laurent. Happy to see, hear you. And if we look at the, you know, a few years back, we presented an investment roadmap corresponding to our climate roadmap, that was about EUR 800 million on ten years. So, it is not linear spread, but that gives an idea of an average amount. Typical maintenance CapEx is about EUR 130 million-EUR 150 million. And we always have a smaller discretionary or opportunistic projects that makes sense. In a normal environment, a baseline of 250 is not a ridiculous number.
Okay, thank you very much. Including CO2, as you mentioned before, 400.
And without CCS for project, of course. But that much or 2023 target.
Yeah, no, I get it, as it stands. My second question is more strategic. 20 years ago, 50% of your profit were in France. 10 years ago, 1/3. Now, if I understood your answer before, 25% of your profit. When I see Holcim, Titan, or the valuation of a U.S. company, or at least what they expect to get, or what they're getting in the U.S. market, which is bigger than France for you. You get everything else for free in your EUR 3 billion valuation, right? If I put 15x on your U.S. business, I get EUR 500 million for free. So as a family, why don't you get listed in the U.S. and stay, have a flat in Paris? I mean, who cares?
I mean, does it not trigger something in your head that I understand the Holcim way may not be clever for the shareholder long term. As a family, I will not spin off my business in the U.S., I would keep it. But on the other hand, if Europe doesn't like cement, maybe I should go and list in the U.S. Like Total, Total was talking about it, and as you know, they're a bit bigger and more controversial than you. You're a mid-cap company.
Yes, thank you for the comment, Laurent. You know, we have tried over the years to build up a balanced footprint between different regional markets. Each of them facing long-term cycles, and everybody is very happy about the current U.S. cycles as we are. Nevertheless, we don't forget that ten years ago it was more difficult, or 15 years ago. We try to capture this growth to be efficient in our markets, but still have a balanced footprint between different geographical zones.
No, no, I know this. This is. You did well. I just repeat, you had 50% of your profit in France, it's 25%. So, I mean, you could argue for hours about allocation of capital in emerging market, and the jury is still out, to see if you will make money in a meaningful way in India, Senegal, and so on and so forth. But it's not what I was asking. I was asking, the valuation of your stock is extremely low vis-a-vis what you can see in the U.S., or what the Swiss Company is trending on. What, that, what does it trigger to you fundamentally? I mean, just wait and see, because.
You know, we usually don't comment the stock price. Indeed, we share the opinion that the value is low. Now, the answer is probably more on your end than in mine. I mean, we believe that deleveraging the company and focusing on improving the return on capital will at the end catch the attention of the market.
Well, I hope you're right, and the answer is more in the end of the family, because they bought at EUR 86 Heidelberg. So hopefully, they may have a view which will be interesting. Thank you.
You're welcome, Laurent.
There are no further questions, so I will hand you back to your host to conclude today's conference. Thank you.
Thank you everyone for listening and being present today, and we'll see you in November for Q3 sales presentation. Have a good day.
Thank you for joining today's call. You may now disconnect.