Amrize Ltd Ordinary Shares

Good morning, ladies and gentlemen. We're welcome on behalf of Lafarge Holcim to our first half results, analysts and investors call. With me in the room are Mr. Jan Jenisch, the CEO of Lafarge Holcim, and Mrs. Geraldine Picot, the CFO of Lafarge Holcim. Now, it's my pleasure to hand over to you, Jan.

Yes, good morning, everyone, and special welcome from my side. I Maybe more than usual, appreciate the opportunity to talk with you today in these very extraordinary times of COVID-19 pandemic, which can impact your business on different ways. And sectors are influenced differently from impact size, from timing. And I think it's a great time to talk. And I will give you a bit of an intro presentation. how the COVID-19 has impacted the business. And then I will hand over to Geraldine for more details on the performance before we go to the outlook and to the Q&A. When you look at our monthly sales volumes, which we provided to you to explain a bit what has happened, you see that we had an excellent start to the year. with ahead of last year in sales volume, both in January and February. And this was despite the fact that we already had COVID-19 disruptions in China, which we could not only counterbalance, but also China gave us a good early start into the crisis management globally. We were already then at the beginning of January going into global health crisis measurement and crisis management. And we also started to develop our crisis action plan health cost and cash, which is showing now very strong results in Q2 already. And you can expect here much more from us. So you see our sector, the most heavily hit in April with a sales decline of 37%. I think this has never happened before in such a in a single month. I think the very positive news is here that how the crisis has curved. You see in June, we even were 5% ahead of previous year. And this not only in a few of our markets, but we basically had all regions above last year. Only Asia Pacific was slightly below last year. So this is very good news. We saw that curve already in China. We are already in April. We were reaching last year volumes. So we had kind of an opinion that how fast the rebound can be here in our industry. Now, I think we handled this as rapid and as good as we could. We have our action plan in place. You see the results, not so much in Q2. You will see it much stronger in the months to come. We had already in May and June a cost development underproportional to sales. So that is very excellent and both on fixed and on variable costs. So very happy to see that. And also at the same time, we really focus on the cash. And you see the result, we almost tripled the cash flow in the first half of the year. And you can expect from us that we will continue here with this very strong cash focus, which is key in the crisis. But even so, in a crisis with such a fast and early peak, it's important to focus on cash and keep your resources intact for a faster rebound in the recovery phase. I think you see from the slides also here, we go forward very strongly. I'm very happy we have the company well under control from a health side. We started in January. There was a big learning, I think, in the entire construction industry to make the construction sites safe or let's say to adapt to COVID-19. And I think that was well done. This also makes us confident for the upcoming months that I think while we will see maybe waves or hot spots coming up, I think our customers in Lafarge Holcim is now well prepared with all the precautions and the measures that we will not run into major lockdowns or major disruptions. Okay, I think with this I'm happy to turn over to or hand over to Geraldine and she will give us a bit more insight in the financials of the second half of 2020.

Thank you, Jan. Good morning, ladies and gentlemen. I'm happy to take you through our H1 results in more detail. We are proud of the figures you can see here on slide 9. Of course, lockdowns at construction sites in some of our larger countries impacted our sales and profits, but we finally report a sales decline of only 10.8% like for like. This translates into a decline of 12.8% like for like of the recurring EBITDA after leases. We will dig into this later, but this reflects that we have been able to reduce our operating costs by 10.8% fully in line with the decline in sales. Recurring EBIT was mechanically more impacted due to the depreciation and amortization on which there is no immediate flexibility. We have continued to reduce our tax and financial expenses and as a result, the earning per share reached 80 cents. On top of the strong cost savings achievement, we have also been very successful in implementing the cash protection measures, the third element of our health, cost, and cash program. In the context of the crisis, and despite a negative currency translation effect on our business, on which I will comment later, the free cash flow reached 749 million Swiss francs, which is almost three times as much as we achieved in H1 2019. This comes mainly from intense focus on our working capital and close management of our capex. Let's now move on and look at the chart slide 10. This chart shows how all regions have been affected by the lockdowns which were implemented by governments in response to the pandemic. You can clearly see that the maximum impacts were felt by our business in April for all of our regions. In total, our sales in April decreased organically by 37%, with cement volumes down by 44%. North America has been less impacted, while Asia-Pac sales were down by 62% in April as a result of very strict and sudden lockdowns in India and in the Philippines. In June, almost all regions have recorded positive net sales growth like-for-like compared to June last year, and our business fully recovered its normal level of activity. Group sales growth in June is close to 5% like-for-like, with underlying growth of cement volumes above 2%. We will now look at the volume trends by region. Cement volumes declined by 13%, like for like on average at the group level over the half year. Europe recorded minus 7%. This reflects highly contrasting situations between the countries. In France, the UK, Spain and Italy, the lockdowns have been severe. On the contrary, Germany, Romania, Russia, which has maintained construction activities, showed positive growth. In North America, cement volumes fell slightly by 1%. U.S. activities were only very lightly impacted by COVID-19. Canada faced local lockdowns and an unfavorable market in the West. In Asia, packed cement volumes declined by 21% due to the heavy and sustained lockdowns in India and in the Philippines. Latin America's cement volumes were globally down by 14%. Lockdowns heavily impacted some key markets, including Brazil, Ecuador, and Argentina. But at the same time, Mexico, Costa Rica, and Nicaragua recorded growth. In Middle East Africa, cement volumes declined by 12%, impacted in all markets except Nigeria. Globally, aggregates volume declined by 6%, mainly attributable to the UK and France. Ready Mix volumes declined by 16% like for like, mainly due to the lockdowns in India and in Europe, and more specifically in the UK and in France. We now move on to our sales waterfall. Our H1 2020 net sales stood at 10.7 billion Swiss francs, down 18.1% compared to H1 2019. On a like for like basis, Sales reduced by 10.8%, driven by the volume decline on which I just commented, and that was partly offset by the price increases. The negative scope effect derives from the divestment of Indonesia and Malaysia, which closed in H1 2019. The forex has a negative impact of 6.2%, and this stems from all currencies, which have depreciated compared to the Swiss francs. primarily the Indian rupee, the euro, Mexican peso, and the US dollar. If we now go to our recurring EBIT waterfall, we see here that our recurring EBIT has declined by 28% in total, of which the like-for-like decline is 22%. The currency translation effect of minus 6% is consistent with the impact on the net sales, and as you can see, the scope effect is negligible. The volume effect is calculated based on the margin on variable cost achieved in 2019. It explains the decline of 41% of the EBIT. However, our health cost and cash program has led to strong fixed cost savings of 275 million Swiss francs, with reduction mainly in maintenance, third-party services, and SG&A. We have also benefited from a favorable market price for energy and have increased our average selling price by 1.3%. All these actions have allowed us to significantly mitigate the impact of the volume loss. In total over H1, operating cost declined by 10.8% like for like, exactly the same proportion as the decline in net sales. The contribution of our JVs declined by 82 million Swiss francs, mainly due to washing, impacted by the COVID-19 lockdowns that we've seen in China. Let's now turn to the results by segment. For all three main segments, sales have declined less than volumes, benefiting from an average price increases of 1.3% in cement, 1.2% in ready mix and aggregates. Thanks to the cost savings mentioned earlier, the decline in recurring EBITDA in cement has been lower than the decrease in sales. Aggregates and ready mix margin have not yet fully benefited from the reduction of the operating costs. For ready mix, the lockdowns have been more severe in the big cities and in the countries where the margin are higher, which impacted the profitability of this segment. Our solutions and products Business line decline, mainly due to precast paving and asphalt business in the UK. After the segments, the slide 15 provides an overview of the results by region, on which I will now comment in detail. So let's start with North America. Operations delivered strong performance in the quarter. North America showed the most resilience of all regions. despite the prevalence of COVID-19 cases and restrictions in some U.S. states and Canadian provinces. Construction has been deemed as essential in the large majority of our markets. Our customer order backlog remains strong without cancellation of major projects. Volumes impacted by COVID-19 were slightly negative in the quarter. Nevertheless, thanks to effective price and cost management, the region managed to deliver an over-proportional growth of recurring EBIT and recurring EBITDA over net sales. The Latin America region showed a mixed performance in Q2 with severe COVID-19 lockdowns in some markets. You can see our net sales are down 23% like for like in Q2 and our recurring EBIT down 21% like for like in Q2. On one hand, Mexico delivered particularly strong results. Our participation in key infrastructure projects helped to partially compensate the negative impact on demand at urban job sites in the country. On the other hand, strict government lockdown measures imposed in Ecuador, Argentina, Colombia, and El Salvador affected our business. Excellent execution, however, of our health cost and cash action plan allowed us to expand the recurring EBIT margin in the region from 26% in Q2 last year to 28% in Q2 2020. Let's now move to Europe. The second quarter in Europe has seen abrupt impact from COVID-19 lockdown, in particular in Western Europe. Net sales down 14% like-for-like in Q2, a recurring EBIT down 28% in Q2. Some major markets, such as France, the UK, Spain, and Italy, were heavily impacted by strict lockdowns. The markets in Central Europe, such as Germany, Switzerland, and Austria, proved resilient as construction activities continued during the crisis. In Eastern European countries, demand remained solid and contributed positively to the quarter. After a sharp drop of volumes in April, healthy signs of recovery in demand have been visible in May and June. In the majority of all markets in Europe, we are very pleased to report that we have been able to exit Q2 with volumes above the level of last year. Let's now look at Middle East Africa. COVID-19 lockdowns also took their toll. on the Middle East Africa region with a steep volume drop in April. As a result, net sales were down 22% like for like in Q2 and the recurring EBIT down 46% like for like in Q2. Salmon volumes declined by 18% in the quarter compared to last year. The decline has been mainly driven by heavy restriction placed on construction activities in certain markets such as Algeria, Egypt, Lebanon, South Africa, and Iraq. Nigeria, on the other hand, recorded resilient performance supported by cost-saving initiatives. And with Ramadan in May, the first signs of recovery in the region were witnessed mainly in June. The APAC region experienced the most adverse impact from COVID-19 in the group, with net sales down 26% like-for-like in Q2, and recurring EBIT down 34%, like for like in Q2. The volume dropped drastically in India due to a heavy and sudden lockdown from late March, which was more than offset by effective price management, agile execution of cost-saving action plan, and lower input cost. The swift response allowed the recurring EBIT margin to expand in the country. China recovered from its lockdown and experienced a rebound with monthly sales volumes exceeding the prior year's reference in the second quarter. Australia suffered relatively minor impact from COVID-19 as construction sites remained open. However, the overall economy remained slow. After a sharp volume decline in April in the region with net sales down by more than 60%, We have seen an encouraging recovery in May and June, with volumes nearly back at last year's level. Let's now move on to our P&L, slide 21. As usual, we present here the P&L excluding impairment and excluding the capital gain realized on the divestments. The reconciliation table with reported numbers is available in the press release and the half-year report. The net income before impairment and divestment has decreased by 268 million Swiss francs. The decline of the recurring EBIT has amounted to 473 million Swiss francs, as presented to you in slide 13. Below this line, there has been an improvement in all major categories of expenses. We have further reduced the restructuring expenses. In H1 2019, this line was slightly impacted by our 400 million cost saving plan. Then we have managed to reduce our financial expenses by 51 million Swiss francs, thanks to deleveraging and refinancing. Finally, our effective tax rate has further reduced to 26%. These savings have partly mitigated the impact of the crisis on the earning per share, which amounts to 80 cents. Let's go to free cash flow. The free cash flow has almost tripled compared to H1 2019 and increased by 498 million Swiss francs despite the decline in the recurring EBITDA after leases by 522 million Swiss francs. This record performance has been primarily achieved thanks to the strong improvement in our management of inventories which was already reflected in our December 2019 free cash flow. Compared to June 2019, inventories have reduced by seven days of sales to reach 35 days, one day below December 2019. Compared to June 2019, we also reduced our receivables in terms of days of sales by eight days. This reflects the strong focus we have on cash collection at this time of crisis and as part of our health cost in cash action plan. In total, the net change in working capital improved by 653 million Swiss francs versus the half year 2019. Income tax paid reduced in value by 91 million Swiss francs, almost proportional to the net profit before tax decline, although A part of the cash out is related to the results of last year. Finally, in line with our health cost and cash program, our capex reduced by close to 200 million Swiss francs. That leads me to the net financial debt you can see on slide 23. This chart shows that our net debt has reduced by 2 billion Swiss francs over the last 12 months. The free cash flow generated over the last 12 months amounted to 3.5 billion Swiss francs, 57% of which has been used to deliverage, which has been a priority in the current context. Consequently, despite the crisis and the seasonality in our business, we ended the half year with a leverage below 1.8 times. And before handing back to Jan for the outlook, let me give you a few words on the liquidity and balance sheet strengths, as this is obviously key in the current environment. We have around 8 billion of Swiss francs of liquidity, which results from cash and deposits on the one side and on the other from secured committed facilities. These committed lines are currently undrown and have no restrictions attached to them. Thanks to the level of financial strength that we have reached since 2019, or two rating agencies have confirmed our strong investment grade rating at BBBA2 with stable outlook despite the crisis. The attractiveness of our debt has allowed us to successfully continue our refinancing transactions with the issuance of two bonds amounting to more than 750 million Swiss francs at attractive interest rates and maturities. Ladies and gentlemen, I now pass you back to Jan. Thank you.

Thank you, Geraldine. So we come to the outlook, and I think you understand that compared to usual, we will not be able to give you a precise percentage figure on the volumes or on the sales for the second half of the year. We don't know what volatility might be down the road. But I can give you some... some guidelines how we see the second half of the year working for us and to start with I think we expect a solid demand for our products globally in the second half of the year after the recovery we saw already in June we expect that we have solid demand our order books are good and also we are now very much focusing on all these infrastructure programs which have been initiated in Europe, in the UK, in the US, in China, in India, and we are very keen here to be in the front row of benefiting from those infrastructure programs. I told you we are in full operation, with very few exceptions, our cement plants, Our ready mix operations, our quarries are all in operations. So are the construction sites of our customers. So for the moment, this looks solid and quite encouraging for the second half of the year. We talked about our crisis management, our action plan, health, cost and cash has just started to make impact. We expect this to continue further. into the second half of the year, safeguarding strong earnings and a strong cash flow also for the second half of the year. Regarding the balance sheet, we are very happy that we could strengthen it so significantly over the last two years. And we will also end this year on a strong balance sheet. We will be above $2 billion in free cash flow and In the debt leverage, we will be below two times. So we will continue here to have maybe one of the best balance sheets in our industry. We will also, this crisis, we will use it to accelerate some important strategies of the group. One is digital. So the crisis here has helped us to convince more and more customers to go digital with us. which is very good in COVID-19 times, but of course also very good to increase our efficiencies and a significant part of our cost improvements are coming actually from our new digital tools, which we are rolling out. The most important area I see for us is sustainability. I think we are taking here the leadership role. We had number one place in ESG ratings from Sustainalytics. And also more importantly, we continue now to roll out our new green cement and concrete products. We are the biggest user of recycling material worldwide. And with this new eco-packed concrete range, we are rolling out globally We will here be in a strong leadership position, and this is one of our main focus points here into the future to be sustainable and be part of a more sustainable and greener building environment in the future. I think with this, I would say, a bit confident and positive outlook, I'm happy to start the Q&A session.

The first question comes from Elodie Rall from JP Morgan. Please go ahead.

Oh, hi. Good morning. Thanks, Jan and Geraldine, for this, and thanks for taking my question. So I'll limit them to two. First of all, you've indicated sales were up 5% in June. Could you speak about the recent trends in July? Did this recovery, did it continue? And if it did, how much of that do you think is attributable to the pent-up demand due to the lockdown in April, May, and how much would be underlying growth that you think is sustainable going forward? And my second question, please, on free cash flow, the bottom end of your guidance suggests 2 billion. You've delivered 3 billion last year. You've delivered a very strong performance in H1, almost tripled the performance from H1 last year. So that would imply basically a lower, a weaker performance in H2. So, why is that? Is this coming from a potential reversal in working capital trends after the strict control in H1, or is there something else that we need to think about? Thank you.

Good morning, Elodie, and thank you for starting with such tough questions. You were asking the questions we tried not to answer in the outlook, so let me try to answer them. So I start with the cash flow. Of course, you made the right observation. We were above $3 billion in 2019 of cash flow. If you take the last 12 months, we were above $3.5 billion cash flow. And now you're suggesting that the cash flow might be weaker for the second half. Well, I don't like weaker performance. So let's see. We just gave a bottom guidance for now. because we just want to be a bit professional about this COVID-19 pandemic, which is in no one's control, and we don't want to give too much precise guidance at this point, just out of a professional view. But your observation is totally correct, and also the ambition I think you ask us to follow is well understood on the cash flow. Good. That was a good answer. And then regarding July, I don't think we published the July results yet. But let's say, you know, the outlook I have given indicates that we don't see really now a weak demand in July, to say maybe something about it. So we see this recovery trend. And you were asking if this is kind of a how to say, a backup or maybe some storage purchases or something. You could think so, but if you look at the demand curve coming out of April, you see already this catch-up in May, where basically the negative trend was already broken, and then you see the positive tune. So this is a development over the last two or three months where we are we are rather confident about the second half year supply. I give you maybe another indication. I think that China, China was two to three months early into COVID-19 crisis. That gave us, actually that helped us a lot to prepare for the other markets. And in China, you know, when the crisis was very new, you remember that all started in January and we had the biggest The biggest impact in China was in February. Yeah, so about two months, two and a half months before the rest of the world. And then we saw the same recovery in China we see now in the rest of the world. So already in April, we were back on last year's level in China. And this trend was confirmed in May and in June. And our Chinese team believes, you know what, the second half of the year is going to be – anywhere last year level or plus. So we have a bit of a, you know, even this crisis is unique to all of us. We have quite some learning from all the curves. And the last comment is Geraldine was talking about the different curves in our five regions. And you will realize that the curve itself has the same shape, the same timing for all five regions, only the impact size is different. So we had huge impact in India or Philippines where we had almost a total lockdown. However, the recovery was almost as fast as in the other markets who didn't have such a big impact. We saw the same in Europe happening, big, largely impacted in Spain and France and the UK compared to Germany or Switzerland or Austria. However, the recovery path from the timing was exactly the same, and so that makes us a bit confident, plus then the visibility on the activity in the sector out with the customers. That makes us as confident as we can be at this point in time.

Okay, very clear. Thanks very much.

The next question comes from Sedar Ekblom from Morgan Stanley. Please go ahead.

Thanks very much. Hi, I've got one question on M&A. Can you give us a little bit of color on where you stand with your bolt-on acquisition strategy, how many deals you've done this year, and how you see the landscape for M&A developing in the second half? And then secondly on M&A, obviously the second part of that strategy is more transformational deals. Can you give us a little bit of an update on that? In terms of where you see targets, do you think that the crisis has made it more difficult or easier to potentially roll out your M&A strategy? Thank you.

Yeah, good morning, and thank you for the question. I think, in principle, we are in a good position to do M&A right now. We conserved all the liquidity, the balance sheet strength, so I think we are in a good position to continue with the bolt-ons and continue to... to look for a more transformational, maybe one for the fourth segment. However, we have at the moment a time where it's very difficult to make deals because you cannot make site visits, you cannot physically meet. So we were for the last four and a half months, we were kind of sidetracked. We have a full pipeline of targets we like to talk to, but it was simply not possible to talk. to visit or to do due diligence. So we are a bit sidetracked, and I expect this now to pick up, let's say, maybe from September on. We made a plan that we need to accelerate this back, but I think it's not possible to start before September, before we can really actually meet the people and also do due diligence. Right. Cheryl, did you want to add the number of deals you've done in the beginning of the year before COVID came?

Yeah, we've done three bolt-ons. And, yeah, we expect to double, let's say, to be around six for this year. But let's see, as Jan said, how practical it is to do the due diligence.

Great. Thank you.

The next question comes from Roger Paul from Exxon BNP Paribas. Please go ahead.

Good morning Jan, good morning Geraldine. Sorry, it's Paul Roger actually from Exxon. Congratulations on the Q2. Just a couple of questions then. Some of your competitors have expressed some concerns about the outlook for US volumes in the second half if we don't get any fiscal stimulus. Talking in particular about the impact that state budgets could have on demand. Is that a concern that you might share? And then secondly, you've obviously done a great job in cost cutting in H1. You've done $275 of the $300 million already. So I guess the obvious question is, could there be a lot more to go, and how much upside might there be to that initial target?

Good morning, Paul, and thank you for the questions. Maybe to start with the last one, so on the cost side, I think we have just started. So we had rolled out this action plan, how to really lower now the logistic costs, the logistic rates, how to handle third parties, how to introduce the digital tools to get the cost saving out. And I was personally surprised that we already had such a reaction in May, but this program rather steered to show maybe a bigger impact in the second half of the year. So quite confident how it has started, and you can expect a bit more to come in the second half of the year. Then maybe related to this, because a question will come on the energy side, we had a bit of tailwind in H1, helping us with the cost, of course. We believe there's a small tailwind still to come in the second half of the year. Regarding the business in the U.S., and that's an interesting question. So we have at this point in time, we have a good order book for this month and the month to come. So we don't see now any disruption. I know there was maybe a negative comment from, I think, the U.S. Bank or something tonight, but But we don't see that hasn't hit our market in the US. So our people, we just had a video with them a couple of days ago. They are quite confident going forward with our footprint, with where our customers are at. And again, this is just our view. I don't want to talk too much about possible economic scenarios in the US. But again, I think construction will be rather resilient We have our sites are full in operations in the U.S. at this point in time. So also here we don't see any downturn at the moment. And then, as you say, the infrastructure will hopefully come then for 2021. And this is, of course, very rewarding for us as infrastructure needs a lot of cement, concrete and aggregates. But let's see that. But I'm less, I'm not pessimistic for the U.S., Then for Canada, which is a big part of our North American business, I think here we even have a bit of a catch up because Canada was going in much more lockdown. So while we had and you can see from the numbers, I think while in the first half of the year, you know, we had we were on last year's volumes in the US. So Canada was a bit impacted from certain disruptions or lockdowns. So here, even in Canada, I expect a little bit of catch-up in the second half of the year.

That's great. Thank you.

The next question comes from Lars Kjellberg from Credit Suisse. Please go ahead.

Thank you for taking my questions. Just to come back to the outlook a bit, you, of course, have seen a recovery in June, which seems to continue in July. But again, a bit of catch up, I would assume, is in there. But can you give any comments about sort of new orders, bidding pipeline and new projects, any color you can give on that to see the sustainability beyond the next couple of months? And also, if you can comment, Geraldine, a bit on the operating leverage that you saw to your earnings on that 5% revenue growth, big resumption, of course, from the negative 37 in April. if you can give us any sense of the operating leverage you now have, given the cost takeout, et cetera, into a possible recovery in H2?

All right, yeah. I think, you know, I think on the markets, if you look at it, how I look at the construction markets is classical. We have three segments. We have infrastructure, we have commercial, and we have residential. And I think... When I look at our main markets, no projects have been canceled. Some are maybe delayed or something. So basically, we enter now this recovery phase with quite a good order book because the projects running now, they are not being canceled in general. So we have that good. And then I think for next year, and today is too early for me to really give you a precise outlook. I would be happy to do that later. maybe in our Q3 call. But just as you asked the question, I think that for 2021, the question will be, we have some delay in new projects in commercial and residential in the mature markets. So just by maybe not being able to release the permit or maybe by postponing the start of a project. So I think there will be an effect. At the same time, we have infrastructure kicking in. So If you see the list of announcements of the countries, this is going to be very significant. And so for 2021, for me, it's a bit of a timing question. When do we feel a slowdown or a slowdown in new projects for residential and commercial? And when is infrastructure kicking in? And I cannot answer that question at the moment. I think we are prepared for all cases. You know, if we have, especially now with this new pandemic, action plan we will have a significant lower cost structure going into 2021 so i'm actually not so worried with volumes in 2021 i think we do now everything to make this company more efficient to also be able to handle uh maybe certain certain delays in new project for 2021. Geraldine, you want to talk about the leverage going forward?

Yes. Just your question was about the operating leverage and the ability to continue to improve our margins, right?

Correct. I mean, you obviously had detrimental margins around 25% in Q2. Should we expect a sort of, say, incremental as you start to get revenue growth coming forward?

Yeah, absolutely. That's a constant focus, and that's the second element of our health costs in cash. So yes, I confirm.

Maybe if I can add to this, you know, when you saw when we made this 400 million cost saving on SG&A, you remember we did this, you know, with no inflation, so really hitting the bottom line. This is what we did. We are still on the same level as of today. And we do exactly what you are asking, that we make our programs sustainable. So we are not making any shortcuts. And let's say we don't do a maintenance now and report it as a cost saving. We do really structural things, better rates with the suppliers, better logistics, better digital tools. So I really expect that this new efficiency base we achieve throughout the crisis we will also have for next year.

Thank you. The next question comes from Martin Hösler from ZKB. Please go ahead.

Yes, good morning and thank you for taking my two questions. First of all, a top-level question. I'm interested about your view on transatlantic exports, bearing in mind that in some countries' export markets we have low utilizations. Do you see any import risks to countries such as France or the US, and what's your expectation for the second half? That's the first question. And the second question is about two important markets in Europe, France and UK. I was wondering whether you can give us some more detail about their trends, monthly and the coming out of crisis. How do you see France and UK at this level and what do you expect for second half?

Good morning, Martin, and thank you for your questions. I think on this import-export question you have, as you know, cement doesn't travel well, and the crisis doesn't change much here because the cost is not only the shipping rates, which might be lower now, but this whole cost of loading and unloading the ship is just usually only very special cases. This is a profitable business. If you have efficient cement plants in a country that's the most efficient way to supply the market. This is the reason why there's actually not a significant trading volume in cement, and I don't expect this to be there in the future. Then to your question specifically on France and the UK, these markets in Europe, it's fair to say, have been probably with the biggest impact in april so as you can if you follow up with all the lockdowns and so on we have france and uk are the biggest impact now the positive thing is that in all our key markets there was the recovery in june we only had a handful of markets where the recovery was was let's say five percent below last year or something so we really were on last year level or above last year in all key markets this is also true for france the uk is delayed and i think you are all very affiliated with london and the uk so you can see that the uk seems to be coming out of the crisis a little bit delayed so what we see from the construction side the delay is maybe a six weeks or something like that compared to france or So we expect now the recovery to be there July, August, so a little bit later than the other markets. But the curve is everywhere the same, Martin. This is amazing. So the curve we learned from China first. We see in every market this three-month impact zone and then the recovery.

Okay, thank you.

The next question comes from from CIC. Please go ahead.

Hello? Do you hear me? Hello?

Yes, yes, yes. Yes, go ahead.

Good morning, Geraldine. Good morning, Jan. Good morning. I have two questions, if you don't mind. Can we assume the same tax rate of 26% for this year, all this year? Secondly, could we get more flavor on the market outlook in the difficult area of Middle East Africa, and in particular in Iraq, in Egypt, and in the Algeria? Many thanks. Thank you.

All right. Hey, thank you for your questions. I start with the second one, and then Geraldine excites us with the tax rate, which is improving as we planned, as we announced. So overall, I'm quite confident, but Geraldine gives us the details. If you look into Middle East Africa, and again, you know, this was, I think it's probably the region, I think we are above expectations in all five regions, but maybe Middle East Africa It's a single region. We have a positive surprise. As you know, we started to go back on track with that region with management changes two years ago, and we see now the fruits of the changes, and we handle the region much, much better than in the past. You see from the curve, Geraldine has provided on slide number 10, You see that Middle East, Africa had kind of the biggest plus in June, the biggest recovery. And we see that ongoing. You mentioned Iraq. Iraq is hard hit, however we are operating. So you see in those markets it's a bit unclear what will happen. But in principle, the governments and the construction industry Our company had a very fast learning on how to adapt our business to COVID-19 to make sure we are safe and we take all the precautions. This is why I don't expect the major longer lockdowns in our markets, but expect that we can keep operating. So for Middle East Africa, I included my positive outlook for the second half of the year.

Thank you. Jean-Christophe, on the effective tax rate, yes, I confirm that we can maintain 26% for the full year. And as you have noted, now also the cash tax paid is also at the same rate, which is also very good news in terms of free cash flow.

Many thanks. Merci beaucoup.

The next question comes from Robert Gardiner from Davie. Please go ahead.

Good morning. Two for me as well. I'd like to go back on M&A and capital allocation. I'm just wondering, Jan, does the pandemic change how you think about the portfolio, not just in terms of acquisitions, but also disposals, I don't know, between maybe emerging, developed? And is the appetite still the same to do something pretty material in products and solutions? And then on trading, just wondering how much of the 5% increase in sales in June, how much of that is price? And likewise surprised then in Latin America by the plus 4%. Is that all price? Because I presume that's got to be a tough place to be at the moment.

Thanks. Yes. Yes. Thank you. I think on capital allocation, we are thinking we did a good job in the last two years. First of all, with the debt reduction and then with the significant increase of cash flow. So I really look forward for the next key decision. You mentioned on M&A, we are happy to do something, but you have to get the right opportunity. We will keep a full discipline on the financial side. So we will not buy something if the numbers don't make sense. And we have done this also in recent years. So I hope we can present something to you. But in the near future, but we don't know. We need the opportunity. Even so, we want to maintain this financial strength. So even we do deals, I think it's our long-term commitment to stay below two times net debt to EBITDA. So don't expect us to go back to any higher number just because to make something happen. We will make sure that we... generate enough cash to finance also our expansion here. On the pricing, Geraldine, do you want to comment on our positive price effect for the first half?

Yes, I did. I think your question was more on the month of June, and you're right. We have sales increase of 5% for volume globally, increase of 2%, so you have effectively the benefit of price increases. We were slightly above 2% in the in North America and also globally positive in all the rest of the region. So a very positive trend seen in June.

Okay, great. Thank you.

The next question comes from Ahmed Nabil from Barclays. Please go ahead.

Yes, good morning. Thanks for taking my questions. And again, congratulations for the good numbers considering the circumstances. The first question I had was on pricing. What are the cement markets where you have ongoing or planned price increase in the second half? Maybe specifically some competitors mentioned price increase being delayed in some u.s states so could you please comment on that also in mexico you have increased a plan in price increase and finally you can provide an idea on india as well and my second question was on capex i was wondering how long you think you could sustain this capex level um Is this the absolute minimum of pure maintenance or do you think this is a level that the company could potentially sustain over the coming years?

Right.

So on the price increases, we're quite happy and we have put all our price increases in place. You mentioned the US. Yes, there was a a little bit of delay, but most price increases were effective June 1st. This is why I mentioned the sales growth being above the volume growth for June. And you're right, traditionally it's April 1st, but everything has been effective June 1st. For LATAM, you're right as well. We increased the prices in almost all markets. and especially where you have some inflation. So Brazil, we were above 5% price increases. Mexico, a little increase. So all over the place, we're taking care of price increases. Colombia as well, so across the Latin America region. So that will have positive effects for H2.

I think on the CAPEX side, we are not taking any shortcuts here. We have in general, and we talked about this in previous calls, that we are significantly lowering the CAPEX per unit. So we have with all this new equipment or the new equipment suppliers coming up, we have some big opportunity to significantly lower our CAPEX and our maintenance costs, plus all the digital tools we put in place. So we have a very... positive outlook on the capex. We had the question in the past, you know, 1.4 billion capex, is that too little? That's absolutely not little. I think that's even too high as a general level. So now what happened, of course, now in the crisis, we put a very strict review in place to check simply some of the capex simply cannot be done at the moment it's a bit like the m a project because you cannot meet the people or maybe the equipment company is not fully operational you cannot install on the ground because of covet 9 19 precautions measurements so so we have a bit of delay in capex and we make sure that we do this in a smart way that also we renegotiate or we we right size some of the investments so uh So, of course, you cannot take the Q2 capex as the new normal for our company. That's clear. But you can expect from us that we will have lower capex levels also into the future.

Okay. Maybe as a follow-up, any view on pricing in India for the second part of the year?

Yes, it's positive, positive as well. In Q2, we increase our prices. by low single digit, and we expect to continue with this price increase effort in H2.

That's great.

Thank you. The next question comes from Yassine Touari from On-Field Investments Research. Please go ahead.

Yes, good morning. So two questions. My first question would be on green concrete. Could you give a little bit more color on your green concrete initiative? How much does it represent as percentage of concrete sales today? Do you have any medium-term target? And is there any difference in terms of margin versus your legacy concrete business that you could quantify? And then my second question would be on the month of July. I think you were kind enough to give a bit of color on July in the US. Could you give us a bit of color on the other region, especially in Asia and Latin America, where June was a little bit slower than elsewhere? Have you seen any improvement in July?

Yes. Thank you for the question, and especially for regarding our green concrete initiative. That's excellent new products we have developed. In principle, you will find that this concrete is using a CO2-reduced cement to start with, and then about 30% of the product is recycled material. So these are, at the moment, our Champion League products, so very exciting. And depending on the local regulations, we try to introduce that in all markets. That product is not only more sustainable and has a significantly reduced co2 footprint at the same time they're very price competitive because we have a very good operations to to recycle old aggregates old concrete and so on so we are very competitive on the recycling part that's why this will not be a niche product this will be major products for us and i cannot give you the exact split but we can do that in one of the future sessions you You will be surprised on what double-digit percentage this can be a part of our overall product range. On the regional outlook, I would not like to give you a split at the moment, how is the US compared to Latin America. I can just reconfirm to you that basically all our key markets came back in June and have a a solid outlook for July. This includes the US, this includes Latin America, this includes Europe, so at the moment we are in a good situation.

Thank you very much. The next question comes from Tobias Werner from Main First. Please go ahead.

Yes, good morning. Thanks for taking the question. Two questions if I may. Number one, do you have an idea how much benefit you saw from furloughing schemes around the world on your results in Q2? That's the first question. The second question is when you look at implied pricing by segment or division, it seems that aggregate has been quite a bit weaker than one would have assumed. Why is that? follow data in the UK, which seems to show some really strong aberrations. Is there anything going on there?

Any thanks.

So, hi. Good morning, Tobias.

So, on the first question, what are the schemes we've benefited from, it mainly deals with France and the UK. It's quite not material to answer your question. So, we are far below 30 million Swiss francs equivalent. The second question about the aggregates and the aggregates development. So first, aggregates have been able to do price increases for the first six months, which is a good thing. Now the impact on the margin that you can see on the slide of 14, also come from the fact that you had some level of inventories prior to the crisis, which mechanically delayed the recognitions of the savings. I hope I'm clear.

It seems I'm not totally clear. I mean, it seems to me that the pricing impact in aggregates is significantly less and that it's still to follow. Is that the way to see it?

No, it's not true. The aggregate pricing is fairly in line with what we've seen globally in cement and red mix. So we are at 1.2% compared to 1.3% in cement. So it's fairly in line.

Okay. Thank you very much.

You're welcome.

The next is a question from Gregor Kuglic from UBS. Please go ahead.

Hi, good morning. Thanks for taking my questions. Can I kind of push on two points, please? So firstly, on guidance for the second half, obviously, you're kind of saying you're optimistic, but obviously don't want to quantify. But in a scenario where, I don't know, sales are down a little bit, do you think you can hold profit once you think about cost savings and all the initiatives that you're taking. I'm obviously not asking you to make a top line forecast, but I want to understand if say, I don't know, sales are down five, could you hold profit? And then secondly on, um, cash.

So obviously you flagged as a three and a half billion trading 12 months cash and you're guiding us for two. So obviously by definition, I think it was an earlier question. You're, you're, you're kind of unwinding some of the benefits perhaps in working capital. in H2. Is there anything else that we need to think about? I don't know. Did you have things like temporary tax deferrals, VAT? I mean, there's all sorts of things I think one could have done to save cash up in the short term. So just so we know if we have to actually explicitly think about anything other than perhaps capital when we do our own forecast for free cash.

Thanks. Good morning, Gregor. So on your first question, Obviously, if we've put in place an action plan such as health cost in cash, it's to strengthen our ability to reduce further or fix costs in case, you know, sales would decline further. So we are prepared. Your second question about the cash, I think we've been clear this is a floor. We are guiding on our free cash flow to be above 2 billion Swiss francs. So that means we'll be above 2 billion Swiss francs. It is also important to note that there's no tricks, no tax, no VAT, no whatever. This is based on the health cost and cash action plan.

Thank you very much.

You're welcome.

The next question comes from Arnaud Lehmann from Bank of America. Please go ahead.

Thank you very much. Good morning, Ian. Good morning, Geraldine. My first question is regarding potential for restructuring initiatives going forward. I mean, some markets, I guess, are still going to be at lower levels with probably a bit of an impaired outlook even for the medium term. Should we start to anticipate some restructuring charges into H2 or next year? That's my first question. My second question is around goodwill. We saw one of your last competitors announcing a fairly large goodwill impairment. I believe you still have about 12 or 13 billion Swiss francs of goodwill. would you expect a similar move as your competitor? Thank you.

Good morning, Arnold. Yes, I think Geraldine will take the second question.

Yes, so on the goodwill, you're right. We've seen some peers having quite an important impairment. You probably recall that we have done one, actually, and I confirm that we have no problem, so there is no such need in our case to do such massive impairments.

Yes, and Arnold, on your first question regarding the restructuring, you saw we had a relatively small restructuring amount in the first half of the year. And we don't expect this to see a bigger number for the second half of the year. I think when we set up our first cost saving, our new strategy, we made it clear that it's about cash flow and we don't want to have significant restructuring charges. So we will also keep it in this crisis. So what we foresee at the moment is A bit as you suggested, we take it on a country-by-country approach, so for sure we have certain markets where the resources are maybe not in line with the demand, but this is not a general issue. So we will not make a general restructuring. We will make it only focused on certain markets. And you can expect from us that we keep the discipline here in restructuring charges hitting our P&L.

Thank you very much.

The next is a follow-up question from Seder Ekblom from Morgan Stanley. Please go ahead.

Thanks very much. Just one follow-up question on the cost savings. So you said that there were about 30 million Swiss francs of savings related to temporary salary subsidies. In your release, you also alluded to some other benefits related to COVID-19 like tax deductions, rental reductions, et cetera. Can you please give us the total number that you saw in the first half related to those support schemes for COVID-19? And then, can we assume that that is in addition to the $300 million savings that you're targeting for the full year? Because it's not really something that you are doing. It's rather just temporary benefits that governments have provided. Thank you.

Absolutely, Seda. We would not factor that as cost savings. You're totally right, it's temporary. And all in all, if you take the tax deferment, all the measures that... We have benefited from a cash delay or effectively the temporary unemployment. All in all, it's below $70 million, around that number. But again, as far as the EBIT or EBITDA is concerned, we're talking about $30 million, a bit less.

Perfect. Thank you. Thank you.

The last question comes from Remo Rosenau from Helvetica Bank. Please go ahead.

Yes, thank you. I would like to ask Geraldine about the very impressive improvement on the net working capital side, which was the main contributor to the strong free cash flow in the first half, with 653 million positive change in the net working capital in the first half, which usually sees you know, increasing levels here. Now you reduced days sales outstanding and days inventory outstanding quite significantly. I mean, is that it now? Or do you see further improvement potential? And if so, what would be the target there in days outstanding? And the second question would be, could you remind us, Ready, average cost of debt is at the moment, and where would you expect this number to be more or less in, let's say, two years' time, assuming that you would have the same refinancing conditions as now? Thank you.

Yeah. Good morning. So as I said when I explained the working cap, the net working cap improvement that we've seen for the first half, We are actually much better in terms of days of sales, as you've noted, for inventory and receivable compared to June 2019. We're slightly better or aligned with what we achieved in December. So when you were asking in December, in February, when we were presenting the December performance, is that sustainable? You see it. It is fully sustainable. We are at the same level. or even better. So you can expect that to continue for end of December 2020. On the average cost of debt, I'm proud to report that we are now below 3%. We are, on average, at 2.8%. And yeah, we should continue the trend. But I would not guide precisely. But now that's the new norm. Below 3%, and we are at 2.8 for 2020, okay?

But it's fair to assume that this number is, you know, most likely going to decrease further in the next few years, right?

We'll do everything we can to make it happen.

Great, thanks.

Ladies and gentlemen, this was the last question. I would now like to turn the conference back over to Lafarge Olsim.

Yes, I would like to thank you all again for participating. It has been a pleasure to discuss in these extraordinary times. And I look forward to catch up with you later after Q3 and hopefully soon in person again. Thank you very much for joining and I wish you a good Thursday. Bye-bye.