Amrize Ltd Ordinary Shares

Good morning, everybody, and very warm welcome on behalf of Lafarge-Holcim to our analyst call following our Q1 trading update announcement today. With me in the room are Mr. Jan Jenic, the CEO of Lafarge-Holcim, and Geraldine Picot, the CFO of Lafarge-Holcim. It's my pleasure to hand over right away to Mr. Jan Jenic. Go ahead, Jan.

Yes, good morning, everyone. Thank you for joining for our Q1 performance update. I'm very excited to share some more background and information with you in the next one hour or so. I will start with a few comments highlighting what happened, and then Geraldine will give us more details on regions and on development, and I will come back for the outlook. So, very exciting. You see the momentum, which... came back to us in the second half of last year has further accelerated sales are up more than seven percent and then especially our bottom line our margins have increased very over proportionally and the ebit is more than 130 plus for q1 i'm very happy to see that we have um worked I would say very hard last year to make this exceptional record margins a reality. You remember we launched our action plan health cost and cash already in March last year with the goal to come out of the crisis more competitive. And this is something we achieved. You see the excellent run rates that we have in Q4. then continued into Q1, and we expect this to continue also for the full year. Very exciting to see that all five regions have contributed to these exceptional results. I would say the number one region was Latin America, where cement volumes were up 17%, and EBIT margins were far over-proportional. Same for Asia, with the dominant country being India, also with volumes up by 20% in Q1, and also over-proportional profit margin improvement. Not to forget Middle East Africa, we continued the improvements. Cement volumes also here in these emerging markets up 3%, and then also a big improvement in margins. In the mature markets, Europe and North America, the weather pulled us back a bit on the volume side, something I think we will catch up now in Q2, but also here, big margin improvements. So overall, I would say quite, satisfied to see that all the measures we took last year are paying off and we come with a very good growth momentum and an exceptional margin development into 2021. Same is true for our progress in sustainability. We have really accelerated, as you know, and here we just have received Number one rating for our sector from VGO, they gave us the highest sustainability ranking, A1+, which puts us not only on top of our sector, but also this is a ranking only achieved by 2% of all companies worldwide. For me as a sales guy, even more exciting is the fast rollout of our EcoPact, our green concrete, which is already now introduced in all five regions. And here we make big progress to be successful with this very, very important green concrete for the future. From my side, this is a bit the highlights. I think we really made the super progress not only in all KPIs, also in sustainability. And now Gerardine gives us a bit more details and background on the regions and on the financial numbers.

Thank you, Jan. Let's go into slide 10 and start with the volumes. So this chart reflects the healthy recovery of the business in the quarter. In cement, as you can see, we recorded 6% like-for-like growth versus 2020. The strong volume performance has been achieved, mainly thanks to the emerging markets, while mature regions have been slower to recover. North America shows a decrease of 5% in cement volumes due to bad weather in the U.S., partly mitigated by the excellent trend of Canada East. LATAM recorded an outstanding performance again this quarter, achieving cement volume growth of plus 17%. All countries have contributed to growth with double-digit performance in major markets such as Mexico, Brazil, and Argentina. IPEC achieved a growth of 20% in cement volumes. In particular, India recorded double-digit growth benefiting from the stimulus programs in rural and urban residential construction. Cement volumes in Europe decreased by 2% on average, Some Western European countries, such as France, Spain, and Italy, recorded a double-digit growth. In contrast, Germany, Russia, and Poland experienced softer markets. Middle East-Africa average growth of 3% in cement volumes also reflects contrasting situation with strong growth in Iraq, stable activity in Nigeria and Egypt, while Algeria incurred a slight decline. Aggregate volumes declined by 4% light for light, mainly due to the slow market in the US. Ready Mix volume increased by 2%, boosted by a good rebound in France. If we now look at our net sales, you can see that our Q1 2021 net sales stood at 5,362 million Swiss francs, up 1.3% compared to Q1 2020. we achieved an excellent like-for-like growth of plus 7.4%. Overall, this growth reflects mainly a volume increase by 4.3% and an average price increase of plus 3.5%. If we compare with Q1 2019, which was not affected by the COVID crisis, we also recorded a strong like-for-like growth of plus 4.4%, almost entirely attributable to pricing. The Q1 2021 like-for-like growth in themselves was partially offset by currency translation, which had an impact of minus 6.5%. This stems from several currencies which have depreciated compared to the Swiss francs, but primarily the Indian rupee, the Argentinian peso, and the Nigerian nera. Let's now move on to the recurring EBIT. which I'm very pleased to say has more than doubled in total from 262 million Swiss francs in Q1 2020 to reach 528 million Swiss francs this quarter. The absolute growth of 266 million Swiss francs mainly includes an outstanding like-for-like growth of 342 million Swiss francs, partly offset by the currency translation effect of minus 79 million Swiss francs due to the currencies I just indicated. Focusing on the drivers of the organic growth, the volume effect explains an increase of 48% or 125 million Swiss francs, mainly attributable to the recovery in the cement volumes. The strong positive price of a cost of 220 million Swiss francs reflects several favorable actions Firstly, the increase in our average selling price by 3.5%, and secondly, the continued cost monitoring, which has allowed a reduction of 54 million Swiss francs in the operating cost. The contribution of our JVs increased by 10 million Swiss francs, mainly thanks to Washington, which was strongly impacted by COVID-19 lockdown at the beginning of last year in China. If we now move to the slide 13 here, you can see that we have, as a group, as Jan mentioned, a recurring EBIT margin in Q1 that has risen by 4.9 percentage points. And the slide provides an overview of the results by region. I will comment on each one in detail shortly. But at this stage, you will notice that all the regions have increased their EBIT margins and that their like-for-like EBIT growth is significantly over-proportionate to their sales growth. So let's start with North America. As usual, Q1 is a seasonally low quarter. Net sales decreased by 6.5% like-for-like. The bad weather in January and February impacted negatively the aggregates and cement business in the U.S. These volumes were partly mitigated by a positive pricing impact of plus 2.2% like-for-like. Recurring EBIT increased by 27.7% like-for-like, over-proportionately to sales, mainly thanks to efficiencies in both variable and fixed costs. Latin America delivered another quarter of outstanding performance, with net sales up 31.4% like-for-like and recurring EBIT up 68.9% like-for-like. Double digit volume growth versus last year across all business segments strongly contributed to the top line increase. Cement volumes exceeded the 2019 level by plus 10%. This exceptional growth was driven by strong cement demand from residential housing in the region and also from our continued participation in large iconic infrastructure projects in Mexico. The region delivered a record recurring EBIT margin expansion of plus 8.1 percentage points, the highest in the group, further driven by improved pricing and a strong operational performance. If we now turn to Europe, performance has been solid in Q1, with net sales up 3.5% like for like and recurring EBIT up 102% like for like. Well, still slightly behind last year, the volumes in all business segments have seen strong trends in March across the majority of our markets in Europe. In particular, France saw strong volume performance versus 2020 from the lockdowns of last year. The region recorded an increase in its recurring EBIT margin by 1.7 percentage points, supported by strong pricing trends and the successful execution of of our health cost and cash action plan. You can see as well a strong improvement in profitability in Middle East Africa, where recurring EBIT increased by 48.1% like for like, over proportionally to the net sales growth of 5.1% like for like. Cement volumes grew in the quarter, driven by good trends observed in Iraq, Kenya, Nigeria, Additionally, we benefited from sales of our branded products as well as export activities. Again, a continuous turnaround contributed to a strong improvement in the recurring EBIT margin of the region by 3.8 percentage points. Let's now move to APAC, another region with a very strong performance for the quarter, with net sales up 17% like for like. and a recurring EBIT which recorded a growth of 86% like for like. Double-digit volume growth of cement and aggregates versus last year were the key driver of the top-line expansion. Further, and similar to Latin America, cement volumes even surpassed the level of 2019 on a like for like basis. India delivered a very solid performance in the quarter, expanding its recurring EBIT margin by more than 6 percentage points. This strong performance was mainly driven by double-digit volume growth coming from the stimulus programs in rural and urban areas, effective price management, and strong operational efficiency in the country. We also have seen improving activities in Australia and stronger contributions from our Chinese operations. As a result, the region delivered a record recurring EBIT margin improvement of 7.3 percentage points. With this, I hand over to you, Jan.

Thank you, Geraldine. The outlook. So, we will remain a bit conservative in the outlook. However, I think We expect the momentum in our market to continue for 2021. We also expect that our excellent margins will also continue for the rest of the year. This is why we have upgraded our guidance for an overproportional EBIT growth of at least 10%. or let's say we want to clearly achieve a double digit growth in operating profit. Consequently, our targets, which we set with for strategy 2022, will be already achieved this year. So one year in advance, and especially on the return on investment capital, we will achieve more than 8%. So overall, very happy to see the momentum we have, also the resilient and increasing demand we see, and together with the improved competitiveness we have achieved through our action plan, health costs and cash, we are confident that we will see a very strong performance in the business year 2021. I think with this, I'm very happy to hand over to all of you and have your comments and questions.

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

Hi. Good morning, Yann and Geraldine. Thanks for these good results. So my two questions will be first on volumes and second on pricing. Volumes, I see that you are expecting an acceleration in H2 in terms of demand. So can you help us understand what that means? Because in Q1, you've already delivered 7% like for like. Okay, admittedly on easy comp. So I guess we should compare it to 2019 where volumes are flat year on year overall for the group, if I understand correctly. So does it mean we should see an acceleration in H2 versus H2 2019? And by how much is it the way to think about it? And second, on price, you delivered, I think, more than 3% price increase. Your price increase versus cost inflation is definitely positive for the quarter. But how should we think about it as we go through the year with cost inflation maybe picking up less hedging into H2? Do you expect that spread to remain positive in H2 as well? Thanks.

Good morning, Elodie, and thank you for the two questions. I think on the volumes, it's not easy to make a forecast. We still have the pandemic ongoing. At the moment, it doesn't affect our business really anymore as construction sites are operating, are open. All our key markets have declared construction as an essential business activity. So that looks positive for now. But we have to remain to be a bit cautious with the market. So again, at the moment, we see we have very good order books at the moment. So we see a strong demand in all key markets. We have seen especially the emerging markets are really back. This is, I would say, development. Most people have not expected to happen so far. So this looks good. Now for the second half of the year, we see the stimulus programs start to kick in. We have provided you an overview of the most important government announcements end of February with our results presentation. And we see this as very realistic. I think most prominent, we have the announcements of the new US administration, which I think will be very exciting for us, for infrastructure, so for basically upgrading all the roads, tunnels, bridges, but also then to make buildings more sustainable and have better energy efficient buildings, meaning to include insulation, like we now have with our Firestone, business. So this looks all, I would say, very positive. Now, Elodie, on exactly the timing, this is a bit difficult to say. Obviously, we have a very good first quarter achieved, and I think we will continue in this manner. If in the second half, the stimulus will be on top of that, or if it will be just a safeguarding the strong demand, I would wait for this conclusion until we get there. On the margins, you have correctly, I would say, observed that we had a very good strong pricing in basically all our key markets. And this was important to us throughout the crisis that we don't drop the ball on prices because what you see don't get right on the pricing, you have a hard time to catch up. And we have achieved this in last year, as you could see from our margins in the second half of the year. And also this year has started positive, and I expect this to continue. On the cost side, we made very big improvements on our competitiveness last year, and we are not done yet. So while we have to expect, of course, a certain energy inflation in cost, which will happen this year, I'm confident that we will offset this with the still to come cost saving on all the other cost categories. So I'm confident that we will see a continuation of a very good price over cost development in 2021.

Okay, thanks very much.

The next question comes from Matthias Zeisenberger from Deutsche Bank. Please go ahead.

Yeah, good morning, Caroline, Svetlana, and Jan. Thanks for taking my question. Congrats to outstanding results. I'll leave it to two. So firstly, I saw you commented on one of the news wires this morning, and Bloomberg took it up that maybe later in the year you could think about updating us on medium-term targets, maybe newer or more ambitious ones even. Do you want to comment at all? And then secondly, earlier than the Q1 results you commented in an article that actually the infrastructure demand is so big that it would be crucial to kind of distinguish on sustainability criteria. So can you actually handpick some of these projects based on the sustainability angles and is that also reflected in higher pricing?

Thank you, Matthias, for the questions. It's obvious that you will ask the question if we say we early achieved the strategy targets this year and then, of course, you can expect that as soon as we have achieved it, we will upgrade our targets and make them obviously more ambitious. I look very much forward to this. However, before we do that, we have to achieve it. So let's see the next two quarters if we can deliver as we promised. And then I think it's a good time to talk about what is the next ambition for us. On the infrastructure demand, I am I always share with you, I'm very positive for Lafarge Holcim. We are positioned to benefit from all the megatrends in construction and in building, starting with the increasing world population and even more so with the urbanization. So all the growth of the population is happening in the big cities, making them more bigger, and then needing all the infrastructure from tunnels, roads, bridges, to all the water treatment plans and everything you need. And this is a huge demand for us going forward. At the same time, people want to live in better conditions, right? They want to have better living conditions, something which also became apparent, I think, through the pandemic that a lot of people discover that they need home office space or maybe more comfort at home. And at the same time, we have to build more, but at the same time, we have to build with less. So that sustainability aspect of all this increasing demand is, for me, very exciting for us, which we are targeting with our new products like EcoPact and new eco lines of cement, which we will also launch in the months to come. So all this is very positive. For the infrastructure, I wouldn't go so far to say we can handpick the project. But let's say I think we have very good long-term trends playing for us, and we are obviously very happy to become more sustainable, but also, of course, to become more profitable.

Okay, thank you.

The next question comes from Yacine Touari from One Fuel Investment. Please go ahead.

Yes, good morning, Yann and Geraldine. So two questions. First on pricing, is it fair to believe that prices will increase sequentially in the second quarter as demand is still solid, supply is tight, and inventories are low? And then my second question is, could you comment on the performance of Firestone building product in the first quarter? Is it similar to what we've seen with Carlisle construction material? I think they posted 6% top line growth and 13% EBIT growth.

Yeah, Yacine, thank you very much. I think on pricing, you mentioned it, it looks very solid. We have done our usual price increases starting of the year, depending on the different customs in our key market that looks, again, looks very solid. And this we will continue as the first priority. You mentioned already inventory levels and now this increased demand momentum. This will be positive. Also, the sustainability has a very positive pricing impact. We see this in Europe now with CO2 certificates prices rising. This is good for us. We are in a good position to offset these increases and especially through pricing. So again, it looks very good. And as you were already mentioning in your question, On Firestone, we have a bit of an update in the presentation. We are very pleased. I think the business is a perfect match for us to really kickstart now our fourth segment of solutions and products. And I think, as you mentioned, we also were able to acquire it at a very good timing. So Firestone has also done a above expectations. We mentioned earlier already that the business year 2020, they achieved higher sales than forecasted and also a better operating profit margin. And this has continued in Q1. So very healthy situation. And now we are excited, of course, to have the business in our accounts for now from April onwards this month. And our forecast is that Firestone will contribute to not only to our results, but also to the improvements in results, both sales and operating profit.

Thank you very much.

The next question comes from Martin Hüttler from Zürcher Kantonalbank. Please go ahead.

Yes, good morning to everyone. My two questions. First, maybe the obvious one, or maybe you can help me on the math here. So in the first quarter, you achieved 130% increase in recurring EBIT. If you wouldn't grow EBIT for the rest of the year, only this jump you did in the first quarter would lead roughly to an EBIT increase for the full year in the range of more than 15%. This is why I'm wondering a bit why you didn't increase, let's say, the ambition a bit higher to, let's say, achieve more than 15% like-for-like growth. If I listen to what you say, keep up the momentum, price versus cost, it all looks quite positive and obviously the second quarter will be another very strong quarter due to the low base. So why this cautiousness? The first question.

Martin, good morning. You know, we have a concern, not the conservative outlook, but we, we need to keep what we promised. So, so we are happy to upgrade the outlook already two months after the last presentation. So both to, reach the strategy targets early, but also to achieve an EBIT now with a plus double digit. So we said this is the minimum double digit. So, you know, I think you make your own math. For us, we have to remain conservative. We are still in the pandemic, not to forget. We still have big lockdowns in various key markets, and hopefully, with the vaccination, everything, we will get more stable or we go back to normal with our lives, but also with the way business is done. So I think in this pandemic times, I think we took already quite a step to upgrade the guidance because we have to stay, I think, cautious in this situation.

Okay, well understood. The second question is turning to India and maybe here on the COVID situation. So we read like terrible news, very strong increase in events there. What's the current status or the latest one? Does this impact your sites? Does this impact your distribution network? What measures can you undertake actually for your employees to be kind of safe-ish through this pandemic phase?

Yes, Martin. We just had two calls with India this week and unfortunately they are in a strong wave at the moment. We have always taken super care of our people like everywhere in our markets, in our Let's say our active COVID cases are well below the average numbers in all countries. So I'm very proud that we take all this caution and we have always made this clear. Same situation true. Now, India is business-wise in a very strong situation. So you see the Q1 numbers for Asia Pacific, it's more than 20% cement volume growth and The biggest part here is India. We also at the moment still have very strong demand in India. Construction sites remain open. And we have this balance in India. So I expect that some construction sites in the big cities might close down or might slow down. But at the same time, then when the workers go back, there's an increased demand in our cement bags or in our retail channels. So for India, again, and this is one reason why we need to stay on alert and need to stay cautious, the order book is good. We have to see now how the health situation develops.

Okay. Thanks a lot.

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

Good morning, all. I hope all well. I'm doing the results Two quick ones for me. So one, obviously speculation recently around disposals. I don't expect you'll comment on the one from the media, but you might give us a sense of, or even remind us of the criteria for disposal, what kind of things you think about there. And then two, I just wonder maybe in North America, volumes obviously struggle in Q1, weather was well flagged, but I just wonder would you give us a sense of what March, April looked like? You talk about strong demand there, but has that market kind of, come back sharply in most recent months. Thank you.

Yes, Robert, thank you. So on divestments, we always stated that we will continuously work on our portfolio. So while we acquire, both on acquisitions for concrete aggregates, while we are excited to do acquisitions like the Firestone, At the same time, we also look in the portfolio and it might divest the market where we believe someone else is a better owner and where we can also get a value for the business or an enterprise value, which is well above our internal discounted cash flow value. So we constantly look at that. I know there was the Bloomberg article on Brazil lately. I don't know where the information over what the source was from, but At the moment, I have nothing to comment on Brazil. On North America, we had the big hiccup with the very cold weather and especially this quite big disruption in Texas you all know about. So this is why our volumes didn't follow the order book in Q1. But the order book is strong, and you can imagine that I expect a strong catch-up for now in the second quarter.

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

Thank you very much. Good morning, Jan, Geraldine, and Svetlana. I guess both of my questions are on your bolt-on acquisitions. So firstly, the ones that are more about vertical integration, so in France, Switzerland, Italy, not necessarily the most kind of high-gross acquisitions, So I guess this is more about improving your local network. So could you expand a little bit on that? And secondly, I guess separately, you made an investment in X3E, which is about 3D printing. Could you maybe explain to us how this business can add to your existing operations in France or across the world? What sort of value add the business can bring to Lafarge Lucie? Thank you.

Yes, good morning and thank you for the questions. Yes, I think the strategy for the Bulldogs is to do that in local markets where we are already present. So to get a maximum of synergies from the footprint, so from sharing the quarry footprint, from optimizing the logistics, but also from optimizing how to service the customer. This is what we want to achieve for the bull dons. So usually we have synergy levels of 50 to up to 100% for those bull dons. At the same time, we buy them for reasonable multiples as the buyer universe is rather limited because it's a local business only. So we did now four bull dons already this year. I'm very happy to see that number now increasing from last year. We were slowed down from COVID-19 because it's not possible to do a proper diligence if you cannot visit the site, but also to take over the business, you need to be able to meet the people and to welcome them and all that. So I'm very happy this is back with the, acquisitions and they are very highly synergistic because they are all in local markets where we already have a footprint and now we can run through all this optimization exercise and have significant synergies. The investment in 3D printing is very exciting. This is not the only project or corporation we are having. I think 3D printing or in a wider context, modular building elements is a big part of the future. We will see more and more parts being produced in factories or even with a 3D printer on site. And we want to be part of this development. And we are not only investing in these corporations to benefit from their technology, we also are developing our cementitious material to make it most suitable to operate the most efficient 3D printing processes. So very exciting. And as it is with these kind of startups, you need to have more than one egg in the basket. So this is what we are doing. So we have a handful of those corporations already started, and this is the newest one.

Very interesting. Thank you very much.

Next question comes from Gregor Kuglisch from UBS. Please go ahead.

Hi, good morning. Thanks for the presentation and questions and answers so far. So I've got two questions. One is a bit technical and one is more strategic. So the technical one, could you help us out with, obviously you guys for like-for-like EBIT growth, but this year will be a meaningful year where non-like-for-like moves will be important. So The question is, can you give us some idea or guidance on what you think a realistic Forex effect is on EBIT and also the contribution on M&A? I was thinking 150, for example, for basically Firestone and the three Voltons. So if you could just help us out there. And then the second question is on your sort of strategy and particularly on the product and solution expansion. Obviously, you've done Firestone now, which seems to be going well. Can you give us an idea if you have larger platforms in mind, perhaps this year, whenever you think is realistic to expand into other product categories to sort of expand that, or whether it's too early to think about that? Thank you.

Good. Thank you, Gregor. Geraldine, do you want to take the first question?

Sure. So obviously, Grégoire, you know that we don't guide on currencies and on forex. So obviously, as well, we know that all currencies have depreciated quite a lot and significantly the last year and last month. So we do expect this to stabilize effectively, and we expect a much favorable trend. Forex impact that we have experimented and experienced these last these last weeks, obviously So that's the first point obviously On on on Firestone Yes, it will contribute for nine months and I think you can take the numbers that Firestone that we indicated for 2020 for Firestone and plug that in that That would be a good I think, a good start.

Okay. Thank you. Well, good.

And I think I'm very happy to notice that even in Swiss franc, our EBIT has doubled in the first quarter. So I think you're going to see also here very healthy Swiss franc numbers for the full year. On your question for the fourth segment, yes, I'm really thrilled. that we could start this fourth segment with such a significant exposition Firestone that enabled us now to also start this fourth segment solutions and products as a global business unit. So they will be fully accountable for profit and loss. And we have Jamie Gentoso, we have an excellent leader for this new global business unit. And she is also a member of the global executive committee so you can already see our commitment we have here to build up the segment now flat roofing systems is very exciting and with the full range of firestone solutions i think we we have a lot a lot space here to cover and we said we want to double the firestone business already in the next five years half organically half by acquisitions at the same time you mentioned there are other technologies which complement the flat roofing systems or which maybe go beyond flat roofing systems and we are very open to explore opportunities here as as they come up thank you very much the next question comes from tobias werner from stiefel europe please go ahead

Yes, good morning, everyone. Thanks for letting me ask my questions. Number one, you mentioned the impact of the pandemic a little bit. Maybe you could give us a flavor of what April across the group was and in particular in India compared to maybe either February or 2019. And then secondly, with regards to your divestment, and sorry to come back to Brazil, but maybe just taking this as an example. In my mind, this is a reasonable set of assets in a market which has been hearted by the commodity downturn. As an example, why would you sell reasonable emerging market assets now and not later when commodity prices and the cycle is more progressed? Thank you.

Hey Tobias, thank you. To start with your last question, of course we have a good situation in the emerging markets. You mentioned correctly, you can see in our Q1 performance that they are driven by the emerging markets. So we are very, very happy. And also in Brazil, we have a very good upswing now in the last nine months on volumes and pricing. You absolutely agree with you. We have a good situation. I think nevertheless, divestment decisions are driven by long-term outlook, but also driven by valuation. So this is a bit, as I mentioned earlier, we have a certain enterprise value based on our long-term cash flow for these markets. And then if there is a better owner, the better owner should... should pay a significant premium on your internal value. And then this is something I think our shareholders are interested to realize. So that's a bit the background there. Impact of COVID-19. Well, we had our big impact in the last year, right? In April and May, when really we had big disruptions. And you remember in April, our business was volume wise was down 40%. I think this is, thankfully, fortunately, is over for us. And we are now in a very, I think, especially in construction, people learned how to live and how to take all the cautions and construction sites are open. We have some disruptions. We talked about India before, where some cities are a bit disrupted. But however, we learned how to live with it, and I think our people are doing an extremely good job. Now, to give you a number, how much we are still impacted, I could not do this. Because at the same time, we have some very good developments on the cost side, on the pricing side, but also, for example, on selling bagged branded cement products. So I would say looking at our Q1 results, We are on a very good trajectory and no need now to calculate a possible COVID-19 impact for our company.

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

Yeah, good morning, Jan. Morning, Geraldine. Congratulations on the results. So two questions from me, then. The first one is on your CO2 targets. I mean, obviously, the 475, it was the most ambitious when you announced it. But since then, quite a few companies have gone further. And it was interesting in particular to see ACC, your subsidiary, I think they're targeting 400 companies. So I guess the question is, how conservative is your target? Could you go further and faster? And then the second question is on carbon capture. You're obviously involved in over, I believe, 20 projects worldwide. Are you seeing any change in the capex unit cost for this technology? And also, could you update us on what you're doing on carbon usage? Thank you.

Hey, Paul. Good morning. Yeah, thanks for the question. I think the CO2 is... I'm glad we have the project in place. We have the target set. You mentioned we are usually the first one or the biggest reducer in the target. So I think this is all good. What we need for the target is we need higher CO2 prices. We need more... improvements on the building norms and so on. So for example, when you look at Europe, which still till today has the biggest CO2 regulation with the CO2 certificates, and you can imagine now with the CO2 price at what, around 40 euros, this is already very beneficial for us to make the necessary investments to reduce CO2 further. compared to a CO2 price of 20 euros. Me personally, I would prefer the CO2 prices goes up further because this will enable us to accelerate our investment projects. What people sometimes don't maybe look at is that investment projects to lower CO2, they have a payback, of course, and usually the payback will be in higher cement prices. And here we should also not forget that the demand for cement is quite inelastic based on the performance of the product and the relatively low cost impact it has on construction projects. So here I'm very confident. I'm happy to see, of course, in India, they have a bit more minerals available to achieve lower clinker factors. So this is what we see now with the new targets. And I would say, Paul, we will revise the targets anytime to be more ambitious, but we also need high CO2 prices and support from regulation and also support from changing building norms. If you look in Europe, we have the most advanced green products we have in Switzerland due to the fact that the Swiss building norms already allow us to use a large recycling content. So we have a cement product, Susteno, which already has 20% demolition waste inside. This is For me, the most exciting cement product globally where we have 20% basically demolition waste, so old concrete, old bricks, and so on, and they are used as a new product. Very exciting. Until today, Switzerland is the only market where the building norms allow this cement to be used, and we are working in the other markets to also make it happen. The same on the concrete side. Also here in Switzerland, we can already use up to one third of the concrete is recycled material. Fantastic. This is not possible in other markets in the European Union. It's about half of that recycling content. So very exciting. And we go ahead on the carbon capture also. I think you... You touched the right button here, of course. We will see more innovation to come. We are happy to have quite a number of projects here for carbon capture. But I think the scale up now on how to especially translate the carbon into a new product, into fuel, and so on, I would say needs a couple more innovation to make it then more scalable and more inexpensive.

That's great. Thank you.

Next question comes from Jean-Christophe Favreau-Moulin from CIC. Please go ahead.

Good morning. Good morning. I have two questions if you agree. The first one, can we go to the slide 17, Middle East, Africa? We have 5% like-for-like growth. Do we have a positive price component and for which amount first? And secondly, CO2 issue in some European countries, not only in France, in the price hikes, We have a CO2 surcharge component. Is this surcharge well accepted by the final clients? I heard that in some European countries, of which Germany, the acceptance by clients was a bit of a tough issue. Can you elaborate on this? Many thanks.

Thanks for the question. Let me start with the second one, and then I think Geraldine will give us more background on slide 17. As you mentioned, I think the CO2 certificates of the price increase, this is the main reason for the very good pricing environment in Europe. I think last year the cement prices in Germany actually increased by 4%. in France increased by 3%. So despite this crisis and the disruptions and lower energy costs, we had a, I would say, unique situation that cement prices increased. And this is based on higher CO2 costs. I think that Fascia Ultima is in a good situation. We are having quite a better balance in certificates and usage maybe compared to other companies in the sector, and they are actually driving price increases because they simply need it to offset the CO2 costs. However you argue it with the customer, if you make it an additional CO2 element of the pricing, but for me that doesn't matter so much because at the end of the day, we have companies in the industry needing a price increase and that's why it will happen. And I think we also see it this year. So my expectation is that in the European Union, we have another round of price increases driven by CO2 costs.

Okay. Many thanks.

Yes, and for your point, Jean-Christophe, about Middle East Africa, we had a very strong pricing for Q1, a price effect of plus 6.2% for the Q1.

Meaning that the volumes are slightly negative?

No, they were as well positive. It depends on the mix. The cement were positive. The rest was negative.

Ah, okay. Many thanks. Merci, Geraldine.

You're welcome. The next question comes from Harry Good from Berenberg. Please go ahead.

Yeah, good morning. Thanks very much for taking my questions. I've got sort of two unrelated questions. Just firstly on sort of pricing and margin, I take the point you made earlier about your confidence in protecting margin progression through the year with pricing and cost savings. But can you just remind us about the inflection point through the year in terms of underlying cost inflation and the protection you currently have? from any hedging against that and effectively when that rolls off. And then the second unlated question, just coming back to Emanate in the solutions area. And you've obviously talked about the desire to do further acquisitions in the roofing area. Would you consider a larger acquisition into a totally new product area or can we expect further Emanate to sort of be an ancillary businesses around that roofing entry now? Thanks.

Yes, good morning and thank you for the question. Let me start with the second question and then I think Cheryl will talk a little bit about pricing and cost inflation for the year. So on the commission side, I think again we are excited to have officially started the fourth segment as a global business unit and with such an iconic company like Firestone joining us. So now we are excited to go through the target list and here both for flat roofing systems but also for other segments which are possible for other technologies this can be technologies very strongly the Firestone or with very strong synergies with Lafarge Holcim and we are looking into all these opportunities As you know, the trick here, of course, is to also get the opportunity to acquire a company and then also to acquire it for a reasonable valuation to have most of the value landing at our shareholders. So you can expect some action from us in the coming years here on both angles, but depending on the opportunities

which we can realize okay thanks yeah and some your point on inflation of course we have some uh we see some potential inflation on our energy and and potentially in raw material but i think the more important most important for us is to keep our good pricing momentum and i think we've been able to demonstrate our ability to continue the cost discipline, the cost reduction, and that means that we will be able to mitigate any potential inflation. Also on energy, you've seen our ability to do some efficiencies with alternative fuel, for instance. So we're very confident.

Okay, thanks.

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

Yes, good morning and congratulations for the good numbers for the qualers. So my two questions. First one, I know you don't report cash flows on a quarterly basis, but I was wondering if you could comment qualitatively on cash generation in Q1. I guess what I'm trying to know is that at this point, if you're seeing the usual seasonal working capital buildup, or should we expect a particular unwinding this semester as your volume recovered from depressed level last year? The second question was on acquisition. There seems to be a few U.S. cement assets for sale. this be of interest for Lafarge-Holcim, or cement, even in coal-mature countries, is simply not something the group would look at. Thank you.

Hey, Nabil. Good morning. Thank you. Okay, as you mentioned, on the free cash flow, we don't give that information in Q1, and even so, if Gerardine doesn't like it, I can confirm the following. We have made clear that cash flow is important our top priority. And when we started strategy 2022 in March 2018, we made this clear that we want to achieve free cash flow. And then in 2019, we almost doubled the free cash flow to above 3 billion Swiss francs. And I would say last year, we strongly confirmed this by another record free cash flow of 3.2 billion. Now for 2021, we have our guidance out that we are confident to achieve a cash conversion of more than 40%. And this is a bit of similar discussion with the EBIT. These are the targets we are very confident with, but it's a minimum target. It's a floor. And I would say it looks quite good this year. And it would be not our target to achieve high profits and then don't translate them into free cash flow. So we have a top priority also to make everyone happy with the free cash flow. This year, this is about as much as I can say without getting in trouble with Geraldine. On the acquisition on U.S. cement, also here, I don't want to comment. I also have heard there are a few companies looking for divestments or something. We, of course, it's part of our portfolio management to look at all opportunities. But as you always know, we are financially super disciplined. So we only make acquisitions if it provides opportunities. high value for the shareholders.

That's right. Thank you.

The last question for today's call comes from Cheda Ekblom from Morgan Stanley. Please go ahead.

Thanks very much. Hi, Jan, Geraldine. Just a question on any view that you may have on a carbon border adjustment. I know that this is something that's being discussed talked about now at the European Commission level with potentially some announcements in June. Can you maybe give us some color on what you're hearing and what type of a mechanism you would like to see? And then also just some thoughts on what could happen to your free EU ETS allocations, because our understanding at the moment is that the carbon border is would potentially come with lower free allocations in the future. So just some color on your thoughts around that issue would be useful. Thank you.

Yes, good morning, and thank you. That's a very interesting topic you're mentioning. So I think it's fair to say that I'm not really concerned with carbon border adjustment tax, yes or no. The reason is that at the moment it's not an issue. So even the CO2 certificate price is at an all-time high. We are not seeing many imports into the European Union. And so actually at the moment, it's not an issue. So now some people are concerned if the CO2 further increases, what's going to happen. I think for me, it's clear there will be a solution. I mean, it cannot be the target of the European Union. to make smart regulations and make significant carbon reductions in the European Union and then have imported cement, which is produced with a 10 to 20 to 30% higher CO2 footprint plus all the transportation into the European Union. So this is why I don't think we will have a situation in the future where, let's say, we have significant imports of cement with high CO2 footprint, but no, let's say, CO2 cost or target or tax adjustments. So discussion is ongoing. It's just important to notice at the moment it's not an issue because we have no significant imports. Your second question is also very, very important on the free allocation. So we still obviously have a quite significant amount of CO2 certificates, which we receive to operate. Now, this is a bit like with the comments I made on the CO2 pricing. I think if the CO2 prices are higher, or let's say the CO2 certificates for free are being reduced, this will actually help us to accelerate the green product, accelerate the reduction of CO2, and we will see the return we need, we will see in higher cement prices. So I think this will be for us a good development if the CO2 costs are getting higher, we are in a good position here to make an acceleration and benefit overall from the situation.

This was the last question for today's call.

Thank you. If no one has a question, I'd like to thank you for your attendance. I hope we will see each other Very soon in person, it's a bit tiring to just have the calls. Nevertheless, I think both sides are handling this very well, and I really hope and look forward to see you in person. I would say the latest date I wish we can see each other is in November. We are planning our Capital Market Day. It will be super exciting. We want to invite you to Switzerland to one of our operation sites. and to give you a first-hand view and touch on all the green products. And then also we will give you much more data on how fast we are rolling out the green products and what a big part it plays already now and what a bigger part it will play in the future. So until then, I wish you the best. Please stay healthy, stay strong, and hope to see you soon.