Amrize Ltd Ordinary Shares

Ladies and gentlemen, welcome to the Holcim Q1 2023 trading update investor and analyst conference call. I am Sandra, the chorus call operator. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Benedict Meyer, investor relations. Please go ahead, madam.

Thank you, Sandra, and good morning, everyone. A warm welcome to Holcim First Quarter Trading Update. I'm joined today by Jan Janisch, our CEO, and I'm also delighted to introduce you to our new CFO, Stefan Kindler, who has just joined the group this month. As always, we will spend a few minutes reviewing the business, and then we will be happy to take your questions. I will now hand it over to you, Jan.

Yeah, Benedic, thank you. Good morning to everyone. Thank you for joining our call. I'm very happy to share our strong start to the year with you. We go a bit, you have received the presentation, which is, I think, representing the story very well. Let me just go quickly over some of the slides, and then Stefan will go more details on sales EBIT, but also especially on the regional results before we come to the outlook for the year. So first of all, I'm happy we have started the year really well. We have organic growth sales of plus 8% and then overproportional on the EBIT side, plus 12%. Very happy everything plays out, how we master this superinflation with cost mitigation, but also with selling higher value products and also with significant price increases in the markets. Here I'm extremely happy that we do this in a very timely manner. We are in that inflationary environment already for almost two years now, and I think at Holcim we have done the pricing in a very proactive way so that our results are not suffering. On the contrary, they are improving the margins. I'm very happy that our growth strategy also from the M&A side was very active in Q1. We closed 12 acquisitions already in three months' time. Could add another five acquisitions in the buildup of our fourth business segment solutions and products. had a record fast closing of Duralust, fantastic acquisition, fully completing our technologies we need in the roofing market and we closed already that acquisition at the end of March and that's already fully now with Holcim. From April onwards, we bought another roofing company, Flachdach Technology in Germany and also in Argentina and Mexico, we could add here roofing companies here for a global rollout so very happy how this is happening and you can expect more from us here also for 2023 we have on the climate side i think we make excellent progress on decarbonization we just launched our climate report end of march which will be subject to voting by the shareholders in or 12 days time in our General Assembly. Excellent report. Shows how fast we are progressing now to decarbonize Holcim, but even more to decarbonize the way we are building, which is also very appreciated by our customers. And we've moved here very fast. Altogether, Q1 was, I would say, within our expectations. gave us the confidence to upgrade the guidance for 2023 further, and we have upgraded the organic sales growth guidance to above 6%, and then corresponding over-proportional increase in EBIT with a growth of above 10%. I think with this overview and the highlights, I'm very happy to hand over to Stefan, and he will run us through sales EBIT and the regions.

Good morning everybody. I'm excited to join Holcim and to join this call. I look forward to being part of this company and the very exciting journey that we're on. I'm equally happy to speak to you today and I look forward to working with you in the next few days, weeks, months, years and to share with you how Holcim develops financially and strategically. Now let me walk you through a few slides on the current trading, building on what Jan has already presented. Net sales stood at 5.7 billion Swiss francs in the first quarter of 2023, an organic sales growth of 8% compared to the same period of last year. In absolute terms, Q1 net sales decreased by 11.1%. This is mainly due to the divestment of India, which is partially offset by our acquisitions in solutions and products. The currency impact was negative 306 million Swiss francs or minus 4.8%. And this is primarily stemmed from the Argentinian peso, the Egyptian pound, Euro and British pound. Moving to the EBIT, we delivered over-proportional organic EBIT growth of 12%, recurring EBIT growth to be precise, reflecting our strong portfolio. Again, in Q1, we demonstrated our ability to organically expand our margins. Recurring EBIT in absolute Swiss francs declined by 19.7%, again impacted by the divestment of India and the negative currency effects. When we look at the regional performance, you can see on this slide that we have a broad-based profitable growth, which demonstrates the strength of our portfolio and our regional spread. Latin America, Europe, Asia, Middle East, Africa recorded strong organic growth in net sales and EBIT. On the next slides, I will walk you through the regions in a bit more detail, starting with North America. Market demand remains strong in cement, aggregates, and ready mix in the USA and Canada. We're benefiting from our unique cement footprint, improved manufacturing performance, and excellent pricing across all markets, which resulted in the record first quarter for these businesses. A bit in the quarter was impacted by the temporary destocking effect in our roofing business, which also compares to a high baseline in the first quarter of last year. We successfully closed the Duralast acquisition and two Boldons in Acricus to put the region on the right trajectory for future growth, and we see strong order books and strong underlying demand in all business segments. Moving to Latin America, the region delivered another quarter of profitable organic growth. It's the 11th in a row. The good performance in this quarter is driven by Mexico, Colombia and Argentina. We expanded the solutions and product business, notably with acquisitions in Mexico and Argentina, plus organic expansions, that means capex, in Costa Rica and Colombia. Looking ahead, we see this very good trend to continue, also because of the excellent pipeline in infrastructure projects in that region. Moving to Europe, we see strong results across Europe based on excellent pricing and margin management. I'm happy to report the strong M&A momentum in Europe with record seven transactions closed in the first quarter, ranging from construction demolition materials to thermoplastic roofs. Looking forward, we expect the strong result to continue for the remainder of the year. And last but definitely not least, Asia, Middle East and Africa, our newly combined region. Following the divestment of India, this region is reported as one. Over-proportional organic EBIT growth of the region is driven by excellent performance in Australia and good results in major countries of the Middle East and Africa. The recovery in China is progressing and we expect to see more of that in the second half of 2023. I would say that was it for me for now for the regions and I would like to hand back to Jan.

Thank you, Stefan. We come to the outlook. As I mentioned before, we are Confident for the year, we believe we have positioned Holcim in the right spot. We're going to be 40% of our group sales in North America this year. With overproportional EBIT of over 40% for the group, we continued with the acquisition for solutions and products on track to achieve 30% of sales in this segment by 2025. And I think most importantly for this year, we have the margin. at the right spot. So we have a margin expansion this year, and that's why we are confident to also guide this for the full year, that we will have an over-proportional growth in EBIT for the full year. And very happy to, of course, confirm our free cash flow targets of around $3 billion and the further reduction of CO2 for the company. I think with this, I'm very excited Happy to hand over back to you for your questions and comments.

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

Good morning, team. Congratulations on the results. So I'll have two questions, but maybe before I start, can I just welcome Stefan to his first analyst call? I'd obviously wish him good luck for his career at Holcim. My first question then would be for you, Jan, and it's on U.S. roofing. You've obviously had some destocking in Q1, but you have previously said you expect EBIT to be up for the full year. Just wondering, is that still your expectation? And then, Stefan, maybe if you could just talk us through briefly how you've approached the start of the new job and maybe your initial observations and if there's anything you think you'd like to change.

Hey, Paul, good morning and thank you. Look on the US roofing, we are not concerned. We have to Understand that the last two years we had a disruption in roofing supply, not only for membranes, even insulation board. There was a shortage on plasticizer you need. Then there was a shortage even on fixation material. And this all led to an overstocking. And not so much at the distributor, it happened at the contractor. So roofing companies basically were having bigger stocks to compensate potential disruptions and being able to deliver the jobs they promised the customer. And now we have a normalization of these inventory levels. And you can see that also at other companies in roofing, which have commented on this. And as we are in the lowest seasonality at the moment, it's a bit hurtful in percentage, but it doesn't make me nervous for the full year because the order books in roofing systems in the U.S., are very good and we expect to have a very successful year in roofing. We believe that the stocking effect has already eased in March. We expect this to further ease in April and then when the season fully starts in May, we believe we are on track for a very successful year.

And I will take the second question. Thanks, Paul, for the warm welcome. I certainly feel privileged to be here with you guys in this group. What I've seen so far in those three weeks, I've already met many colleagues across the organization. I find a highly motivated, passionate group of people for what we're doing here. It's a mature and professional organization with exceptional results and a proven track record. Everybody's behind this growth strategy where we evolve the company and its portfolio also towards more sustainability. And while this evolution is taking place, everybody is dedicated to deliver results. I think this is an environment I've also known from my past role and where I hope I can contribute with my experience. And of course, everything I've seen in the account so far looks good.

That's reassuring. Thank you.

The next question comes from Cedric Blom from Morgan Stanley. Please go ahead.

Thanks very much. Hi, everyone. I've got two follow-up questions on the roofing business, please. Could you give us a little bit of color in terms of your channels in that business? How much of it is a project-based business versus more of a distribution channel? just in terms of trying to understand how much visibility you actually have when you talk about strong order books going forward. And then the second question on U.S. roofing, you're a relatively new entrant into that market, albeit buying established businesses. And Jan, we know that your agenda in U.S. roofing is to grow the businesses that you acquire in a very strong way. Is that influencing your sort of commercial approach in that market? And here I'm wondering, How aggressive are you being in terms of trying to take share and wondering if that also has some implications to the competitive landscape for that business going forward? Thank you.

Good morning. No, thank you. Just to start with your second question, I think our entrance into the roofing systems is very positive and it's a consolidation of the industry because if you see in the last two and a half years, we acquired from Firestone to Malarkey, now to Duro, last three iconic companies in the U.S. And then we complemented this with a few smaller companies. So actually, we are a driver of the consolidation in this very attractive market. So overall, this is, I think, super positive and super exciting and exciting. I shared for the full year results, we shared the success of roofing where we already achieved a 19% EBIT margin last year, which is not so bad. And this is not the end of the game. We have just started, so you can expect even bigger performance from us. We have in the first quarter alone, we made four more acquisitions in roofing. We have just started and I'm very excited here to continue. And I think we are also a very positive contributor to the roofing market. When you look overall, we are in the US market in flat commercial roofing. We are already the second number two player in the market. And for overall roofing in this $40 billion market, we are already number three. So I'm very happy how... The position we established, now we have a full range of technologies. We basically own all the membrane technologies from PVC to EPDM to TPO, have a bit of bituminous, have a bit of metal. So I think we've done this really well, and I'm not concerned at all. On the contrary, we've just started in roofing systems, and I'm super, super upbeat about it. On the visibility, we have very good visibility. As in roofing systems, we work very close with the contractor. We have from sort of contractor clubs to project specification we do together to the training. Not to forget, we are selling 80% of our roofing sales is system selling. So 80% of all the roofing we are doing is a specified roofing. build-up roofing systems, membrane insulation, the whole installation kit, and with all the calculations on wind load and other aspects. So we are very, very close in this market to the end market. This is also why I can report today we have good order books. We have a good market situation for roofing in the U.S. And last but not least is we do more than 70% of re-roofing in the U.S., which is a bespoke solutions. And then for reroofing, we are even closer with the customer because reroofing, you need a bespoke solution for the existing building and the existing situation on the roof compared to a new build where you basically have more like a general specification where more than one company can apply for the business.

see that answer your question it does it does thanks for that color very helpful the next question comes from is brown head from society general please go ahead good morning um thank you for taking my question um i'll have to if i may just want to follow up again on the roofing maybe the first part of the question is when you're referring to order book are you referring to value or volume terms um and also wanted to sort of go into maybe the the details of the type of customers that you serve. Are they typically large customers or small customers? And have you already seen any impact of sort of tightening financing standards in the US? And second, a very quick question on the buyback. Could you maybe give some color as to whether or not we should expect any additional trench beyond May for the rest of 2023 to be announced? Thank you very much.

Okay, yeah, great. Let me just quickly, on the share buyback, we're very happy. We announced, as you know, with the Q3 results that we're going to do a share buyback for up to $2 billion. We have not provided an update now, but I'm expecting that we're going to use $2 billion up to the General Assembly in 10 days' time, and that we're going to buy back something around 6% of the outstanding shares and then we have the proposal at the General Assembly to destroy the shares and reduce our share count by 6%. This is, at the moment, my expectation. So all running according to plan and will be, I think, an excellent increase of earnings per share, of course, as we then have a reduction of 6% of the outstanding shares. So I think this was very well planned and very well executed. final details you will receive in, I think, in 12 days' time when we have the general assembly. When we look at the roofing market in the U.S., and you were asking a little bit on the outlook, I think, volumes and customers and so on, and I would not be, we're very confident on the outlook, and you have to see that, you know, in the last years, we were very busy to build logistics centers for Amazon and others, Now we are very busy to build data centers, also very much linked to all the digitalization of the economy and the consumer. And now we have this big anti-inflation act coming in where we have all this onshoring. So we see this already that we have a lot of industrial buildings, factory extensions and so on. They're very positive about the outlook in roofing for the U.S. and for North America. Plenty of projects will come. We are in a good situation now, and all the big bills, Anti-Inflation Act, the on-shoring, and also the infrastructure and Build Back Better plans, they will just come into our order books. And they will only come towards the end of this year, but then this will be a runway for the next 8 to 10 years. So for the US, I think I'm very bullish for Holcim and I'm very happy that we have positioned Holcim here so strongly to benefit from these positive market trends.

Thank you, Jan. But just to be clear, are you more exposed to the smaller nature of the projects or larger significance size type of projects in re-roofing especially?

Yeah, we do now all of the above. So we have basically the Firestone, our first acquisition a little bit more than two years ago, was very focused a bit on larger projects. That's a bit their core competency. Now with Duralust, that's more focused on smaller projects. They are extremely strong for smaller roofing. They are focused very much on re-roofing. While we do 70% re-roofing overall, Duralust is more in the 90% range, and they sell direct. They don't sell through distribution, so they have their own contractor club which they serve and which has a very, very resilient demand structure. So we have all of the above, and as we now have built up a $4 billion roofing business, you can imagine we have a very good footprint across all different types and sizes of projects.

Thank you very much, very helpful.

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

Hi, good morning, everyone, and welcome, Stephane, indeed. So moving away from maybe US for a second, and I know you don't disclose the split between price and volume and everything anymore, but could you give us some color on the volume development by region? And if there was any surprise, that is your expectation. And whether the upgrade to guidance was driven by better pricing and cost or by volume. And if I can push it on the 50 million organic growth that you reported, you could give us some color between the split in price and volume and whether you're expecting cost inflation to ease in H2. So that should mean price costs accelerating in terms of positive spread. Thank you.

Good morning, Elodie, and I'm very happy you asked the question because it's important to me that you all understand that we will report with full transparency, especially going forward. Please, we have the smallest quarter of the year, the Q1, where we already supply you with the margins and everything, and for us it was important to show you we are in good shape from growth and good shape in the margins. And we will, in the half-year report, give you a lot more color. You will get the details on the four business segments and all of that. So be assured that we are not here cutting out information from you. It's Q1. It's a small quarter. And from the next quarter onwards, you will get the full information like you received also last year in quarter three, especially, and also for the full year results. Having said that, I give you a bit more color, Elodie. So our guidance is actually based on confidence across many KPIs. So you mentioned volume versus price, and very important. And first of all, I can share with you that we are positive price over cost basically across all segments, across all key markets. And that made us so confident to say that's looking very good. At the same time, we have an easing of the cost at the moment, or not at the moment, it started in November. We peaked in the cost, in the third-party cost, in Q3 last year, then eased in quarter four, and further eased in Q1 this year. Nevertheless, consider that we had still a lower comparison base compared to last year, so the energy costs have eased a lot compared to q3 but also q4 but was around 20 percent higher than q1 last year and the other costs there may be 10 12 percent ahead of q1 but obviously we were able to overcompensate with the pricing and that is very key and i'm very proud that our people in the markets were able to uh responsibly but dynamically improve the pricing that brings us in this comfortable situation where price over cost is positive in all key markets for us. The second part of the confidence are the volumes or the demands in the market. And I give you a bit of color here, LOD. Again, it's Q1, but nevertheless. So we have very good demand in the Americas. So we have, especially in the traditional segments, cement aggregates ready mix. We have a volume growth between 3% to 7% in North America, and in Latin America, a growth between 1% and 8% on the volumes only. And that makes us, of course, very confident. We then also have very good order books, both in the US, in Canada, but also in Latin America, where we have several big contracts for large infrastructure projects. So all good. We have in Europe a bit of a different situation. Europe has a big burden from the Ukraine war specifically, where you have huge cost inflation on energy and others. And we have this big burden of the European Green Deal, which puts especially export companies into difficult situations. We handle this very well. My estimate for the first quarter, but also for last year, that maybe building materials as a whole has softer volumes of 5%, 6%, or 7%. We manage this very well. You have seen the numbers. We are up 8% in sales in Europe and the margin has increased very substantially against last year because we were able to have very significant price increases, but also remember that we are at the forefront to introduce all these sustainable products for the customer, most notably our Sika Pact, our new global brand for low-carbon concrete solutions, our Sika Holcim Eco Planet, our more than 30% reduced CO2 on the cement, And this year, we launched at the Bau in Munich, we launched the EcoCycle, which will be our fundamental brand logo for making circular construction a reality in all metropolitan areas. And all those three brands and the products behind enable us to improve margins significantly. Is that a good answer, Elodie?

It's very good indeed. Thank you.

The next question comes from Martin Hüttler from ZKB. Please go ahead.

Yes, good morning. Thank you for my questions. And first of all, congratulations to this really excellent start to the year. I have a question on your plans for the CCUS projects, capex of roughly 2 billion until the end of, I think, this decade. What does this mean for your overall capex or your annual capex, should we expect this to increase? This is the first question.

Martin, excellent. Thank you. We're very happy that we have a very substantial investment plan. You remember we have started to report the green capex, which last year out of 1.4 billion capex has already been more than 400 million Swiss francs. And we believe that the $2 billion we now plan for the carbon capture is within those $1.4 billion. And you remember we have started to set this $1.4 billion CAPEX guidance. We established that around, I think, four years ago. And we have substantially lowered the unit costs for CAPEX at Holcim. We had the big potential back then to lower systemize the capex use more standardized solution and we could decrease the capex significantly and the 1.4 billion they come in I think now in a good level for the first time last year we were below five percent of capex in relation to net sales I'm very proud of that and it will stay in that range so don't expect us now to start with CapEx which goes beyond. I think the company will be is positioned now to decarbonize within this 1.4 billion envelope and also consider that our portfolio focus on North America and solutions and products is also connected with less capital intensive businesses like the roofing systems and that all helps us to stay within the 1.4 billion. So very happy and And lastly, also consider that the investments in sustainability have super high returns and you can already get a taste from the margin increase in Europe. And we talked about this, I think, a few weeks ago, that this decarbonization in Europe has a huge incentive system with the carbon credits and costs for around 100 euros per CO2 ton. This helps Holcim here to benefit as we decarbonize the fastest and are able to then generate here significant margin increase.

Thank you. That's super helpful. I have a second question. You elaborated on the roofing market in the US more on the commercial side. What about malarkey? What's the development in more residential where I think the numbers don't look that good, the macro? Outlook, what's your view here?

Oh, good. Yeah, we are very happy with Malarkey. Look, we bought a fantastic company. They do 90% re-roofing. So because they have an advanced shingle system, which is polymer modified, so it's much more lasting and has a much more higher weather resistance. So very happy with the company. We have huge potential. You have to imagine that... The Malaki company currently is only participating in 40% of the markets in the U.S. It's a bit focused on the west side from manufacturing Portland, Oklahoma City, up to L.A. So very good markets, but huge potential for Malaki, very focused on re-roofing. And a comment maybe on residential. You know, we had a lot of views on with the interest rate hikes that this will... put the residential market in the U.S. in a crisis, but I have seen now that people anticipate here a much better market situation for this year and the coming years. There's huge housing needs, and we expect this not to be a crisis scenario for Holcim. Okay, thanks a lot.

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

Thank you. Just a couple of follow-ups. When you're talking about the high-value solutions in Europe as being a meaningful part of the margin progression, can you provide a bit more color and what that really refers to? I mean, you mentioned Ecoplanet, Sustaino, I suppose, and the new recycling products. But how much of that is now your revenue base and how we should see that progressing going forward? And also, I mean, in the past, you've commented on very strong growth in India, which you, of course, are no longer active in. But how is this sort of package of high-value solutions developing in other geographies outside Europe? And does it come on the same premiums there? And I guess the other question I just had is, how should we think about incremental revenues from your 12 acquisitions that you've done during the first quarter for the balance of the year? Thank you. All right, yeah.

Hey Lars, good morning and thank you. I'm super excited about our sustainable solutions. We have one slide in the presentation, I think it's slide five, where we talk about accelerating the climate action and you see on the right side my personal favorite, the branding. So we just launched EcoCycle at the big construction fair in Munich this week. This is going to be a super big part of our future. We're going to be We are already the biggest recycler of construction and demolition materials. Last year, we recycled 6.8 million tons, which is more than 1,000 full truckloads every single day brought to our recycling centers, being recycled, upcycled, and reused as raw materials for cement, reused as a mineral for cement, and, of course, reused as an aggregate for road construction and also into concrete. This is super exciting. It's super high value, and this will be a big part of Holcim's future to make this happen. You see that the two brands, we gave a bit of a taste. EcoPact is already 16% of our entire ready-mix concrete sales in the first quarter of 2023. And you can estimate that this has even a bigger part in Europe, right, because Europe was The core was the developer of EcoPact, and here we have significant, significant blockbuster sales here with EcoPact, and we are sold out. We are doing everything to further scale up here our supply chain here to make EcoPact available for every customer, and that's super successful. We have EcoPlanet for cement, which has started about a year later, but it's also very promising. We don't have a number here, but this is also already around 10% of cement sales, so very successful. And here most exciting is that we have launched this first cement sustainer in Switzerland, which already contains 20% construction demolition materials. And this will be rolled out now in Europe. The European Union gives us the approval here to change the building codes this year, and then this will be rolled out in France, in Germany, in Austria, in Italy, in the UK, in all our key markets, and will be, again, a big part of our future. You saw the side comment. We have the first, I think we are the first company who has now two lines of Kelsa and clay production, one in France, one in Mexico. This addressing a little bit your second question, how does this work for other regions? I very much like that the European Union has the most developed incentive scheme for decarbonization, pushing us here to accelerate. But we can take that technology to the other markets. Latin America, the EcoPact and the EcoPlanet brand is very, very strong. And also in the US, we introduced that. go through our annual report. There are a couple of customer reports from Amazon and other companies, and they all go for EcoPact and EcoPlan for their building needs. So very exciting, Lars, and this is going to be a huge part here for Holcim, and I'm really happy we launched also this branding at the right time, about three years ago, to make this our roadmap and to take the customer here on this journey of decarbonization.

And just a quick follow-up on that. Do you come on the same premiums in the other markets outside Europe where there's less focus on otherwise on carbon reduction?

I know, of course, Lars. You know, I like to make money and we make sure that those premium products and premium solutions, they have a new dimension for the customer. So we are now able to make sustainability a new customer dimension, a new unit selling proposition. And of course, there's a premium in price. Now, we do this, I think, very responsibly and smart. We don't have a premium of 100% or something, because if you do that, you will stay in the niche for those products. We have a responsible smaller margin gain to make sure that these products become our blockbuster volume products, and that is our goal, that our whole range will be eco-planet, eco-packed, and will be based on eco-cycle technologies.

And a point of incremental revenue from M&A, if you can comment, that would be helpful.

Okay. So, first of all, Lars, I'm very happy that we were able to close 12 deals in the first quarter. We have not provided the information. We know that the Duralast business is a $600 million business and we have now still nine months of sales and we have the high season sales. So, You can estimate that Duroluster alone will contribute close to half a billion dollars in revenue for us. And then the other acquisitions, I don't have the right number, but we're going to see a couple hundred million, I think, from those acquisitions over the next nine months for this year.

Thank you very much.

The next question comes from Yasin Touhari from On-Field Investment Research. Please go ahead.

Yes, good morning. So a couple of questions. First, on your carbon, on your 2 billion investment in mature technologies, I understand that when you're reducing carbon in Europe, you will make a savings because of the high cost of the carbon allowance. I understand that in the US, there is also a tax credit. But the question is, how do you assess the return on those 2 billion investments? And do you think you can achieve like the 10% return on invested capital on this 2 billion investment in carbon capture? That would be my first question. And then the second question is again on US roofing. When you look at the second part of the year or June or H2, after the destocking is finished, do you expect volume to be up in the second part of the year? And also, how confident are you in your ability to improve the material margin? Because I understand that the chemical costs are declining. How confident are you in your ability to keep this raw material deflation in roofing in the US?

Thank you. I start with your last question, and we are confident. We have also a positive price over cost in roofing systems for the first quarter. And usually when the cost input declines, we are able to have less pressure on our own sales prices. So normally we have a margin expansion in times where the input costs go lower. The last two years we made the opposite happen with this hyperinflation. Nevertheless, we had the margin expansion. So we're very confident that we're going to have a good situation for Holcim overall, but even for each of our four business segments, you will see a margin expansion for 2023. On the volume side, I commented on the roofing before. We have good order books. After the stock rebalance will be done, we expect good markets, and let's see how the second half goes, but Obviously, with another four roofing acquisitions in Q1 this year, we are very excited to bring this all here at work or to work. On the CAPEX, you know, I was never more positive on green CAPEX than today because we see that all the investments we have done to make circular construction a reality, so all the recycling centers, we put in place to take back construction demolition materials and to recycle it. That's all highly profitable and highly growth products and solutions. So with very short payback terms. And this is all positive. You asked specifically the carbon capture projects will be high return for us. You have seen we even receive very high subsidies. The European Union Innovation Fund will give us more than 300 million euros to finance the projects in Poland and the project in Germany. And even besides the subsidy, the projects will be very profitable because we are saving a lot of CO2-related costs. And at the same time, we will be able to sell the product at a premium because it will be decarbonized building materials product. So we're extremely positive. We're catching up. We have also very concrete projects in US and Canada. And we will also get big support from the governments there in terms of tax credits, but basically subsidies, but also in terms of making the carbon capture utilization or storage work to help us with building pipelines to storage facilities or helping us to build up utilization centers. So very optimistic, and we will give you more data and information as we move on with the projects, but I'm extremely positive that these projects will be high-return projects for Holcim. Thank you very much.

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

Thank you very much, Eloia and Stefan and Benedict. My first question is on Asia, Middle East and Africa. There is an improvement there and I think it's welcome after a slightly more challenging 2022 in Asia. However, the China contribution is still down in the first quarter. uh relative to last year could you give us a little bit of of color on on china is there any impact of the reopening there expected for the coming quarters uh and my second question is on the ceo transition process uh could you give us a an update i think there was some comments this morning from the journalist presentation if you don't mind reiterating them here

Yes, good morning, Arno. And no, we are all on track. Look, I'm very happy. We have a great leadership team at AllSim. You met everyone. You know, we have super P&L leaders. We have five strong P&L leaders. We have now Stefan joining us. He is the new CFO. So we have a very good leadership team. You see the speed of execution we are having with 12 transactions in just three months and with the very positive results. profitable growth we achieved. So very happy with the team. I'm also very happy that the board has the courage to decide that the team continue for another year plus or so. And we will, I think, find the succession of the CEO position will come from within Holcim. And we will announce that, let's say, as we said, within the next 12 months or maybe beginning of next year. And this will be, I think, a very positive continuation of the executive team here at Holcim. On your question of Asia, Middle East, Africa and China, thank you for your comment. We are quite happy that also here we have a positive price over cost. We have a good organic development of the business. We have in China, to give you a bit more information, I think we wrote something like recovery in China is progressing. And China was still heavily disrupted last year with all different lockdowns from the pandemic. My personal estimation is that maybe building materials or construction market was down 5 to 10 percent in 2022. And this year we expect a recovery. Recovery will not be super strong. So they have reopened the country. I think in the first quarter we are around the level of last year, first quarter. And now I expect for the next nine months to have a you know, a positive development in construction, maybe four or five percent in volume, something like that.

Thank you very much.

The next question comes from Gregor Kuglic from UBS. Please go ahead.

Hi, good morning. Thank you for taking my questions. Can I go back maybe a couple of questions on the sort of cost and so on? So firstly, can you tell us what you now think energy costs will do after the sort of 20% of the first quarter? Could you help us break down also in the first quarter the volume price of the organic growth, right? Which I think was 8% sort of the headline level. And then similarly, within your plus six, that you're over plus six, I think that you're now guiding, what are you thinking on pricing and volumes within that? Obviously, it's changed around, there was a range. So that would be sort of maybe, I don't know, it's a two-part question, I guess. And then secondly, a more strategic one, is there anything you can tell us what you'd like to do on divestment, obviously you've done India last year, that's now some time ago. Should we be thinking about anything coming up on the sort of perhaps more substantial divestment side? Thank you.

Good. Hey Gregor, good morning. Look, maybe on the divestment side, I think we have done, I would say on the geographic profile of the company, We are 80% done. We have repositioned Holcim now strongly into North America. It will be this year 40% of group sales in North America, above 40% of EBIT in North America, plus we have our very strong Latin America business, 10% of group sales this year, but EBIT may be rather closer to 20% of group EBIT. So we're going to have a very strong and developing America's business. And then the other leg of us is, of course, our European business business. Then we are 80% done. We are very happy with these three strong pillars. We have very attractive markets also in Asia, Middle East and Africa, a very successful business in Australia. I would say a very smart, attractive participation in China and then we have very good other selected markets. You can expect from us there will be the one or other market where maybe we have owners which are better to run those markets. So you can expect a few divestments from us going here also into the future, but nothing to announce at this point in time. A bit more background. So volumes, pricing, cost, that's a great question, Gregor. I would like to leave it in Q1 with some more general statements because the development is quite diverse. So we have, I shared already, LOD had a a bit of a question in that direction that we have very good demand in the Americas, not only good pricing, we also have volume growth in the Americas. And I shared that with you earlier that in North America in Q1, volumes are up somehow between 3% to 7% based on the different business segments and then plus the pricing there. bringing us to a very, very good situation outlook for the year. Same situation in Latin America. And then in Europe, we have a different picture because the markets in Europe have been softer since May last year. And we have super prepared for the situation with this super increase in margins. So for now, I would not like to go any more details with this. Let's discuss in the half-year reporting. We will give you a lot more data on this one. But for now, just we are very happy how volumes pricing are developing. I'm similar positive on the cost side. Q1 was still for us a tough comparison base. I shared before that the energy cost was still up 20% in Q1, because in Q1 last year, we still had comparably a much lower base before we totally peaked in the quarter three. My expectation is that the energy costs, especially in comparison to last year, will further ease and we're going to have a very good situation the second half of the year. But don't forget, we're also going to have a strong second quarter this year because we have done our homework on the pricing side and I have little worries about the cost inflation for this year.

Okay.

Do you think energy costs could be down this year or too early to call? No, they came significantly down. I mean, starting in November, they came significantly down. And if this continues, we're going to have much lower energy costs for the remaining months of 2023. Thank you.

The next question is from Luis Prieto from Kepler Chevrolet. Please go ahead.

Good morning, everyone. Thanks a million for answering my questions. I have two. The first one is, despite the upgraded operating earnings guidance that you have provided, you have not changed the wording of your free cash flow target. Does this mean that cash conversion could be lower than you initially expected a few months back? And the second question is following up on the pipeline of acquisitions and solutions and products. If my calculations are correct, you would have spent in excess of 7 billion Swiss francs and you seem to be well on track to your 25 targets. So can we now talk about a more stable or normalized annual light side acquisition spend versus the significant spend previously? Thank you.

Wow. Okay. Look, to the last question first, I mean, we have just started to last three years to make M&A a big part of our growth strategy at Holcim and It's a twofold strategy. One is expansion and development of solutions and products. We had another five acquisitions in the first quarter. And then also the very high synergistic and high value acquisitions, the bold on ones where we buy traditional family businesses in local metropolitan areas to strengthen the aggregates and the ready mix concrete business where we also made seven transactions in the first quarter. My personal estimate is that we're going to see more than 30 transactions in M&A at Holcim for the full year. So this will remain a big part of the Holcim strategy. Now, I cannot give you exact numbers now how much capital we will spend on that. This depends largely on the opportunities, the valuations. I think we have proven in the last three years that we do M&A. very well, very valuation-driven, that we are able to execute the synergies very fast. We gave some examples at the full year results, how fast we improved profitability in solutions and products, and particularly in roofing systems. And you can expect all of that, that we keep fully disciplined on the valuation M&A. I cannot give you at this point in time a more exact capital allocation split And we can talk about this maybe later this year. On the free cash flow, that's a good point. I'm looking at Stefan, and I passed this message over to Stefan that he should make more than $3 billion in free cash flow. I hope you see that we wanted to give the free cash flow guidance. We just want to give comfort to everyone that the $3 billion free cash flow is the new run rate at Holcim U. Remember times in the past where we were not able to achieve sufficient free cash flows, and now for the fourth year we have shown this sustainable free cash flow. So this is just an indication that the free cash flow will be not only a top KPI at Holcim, but we will deliver $3 billion. And I give this over now to Stefan to... to achieve more than $3 billion.

Thanks, Jan. Yep, exactly. The guidance is also around $3 billion. It's a good catch. Of course, that free cash flow is... is the variable for the conversion rate. So the guidance is around 3 billion. We didn't up the guidance at this point in order also to keep some flexibilities here for the business and to keep some firepower. But we are currently optimistic to make this number, I would say.

Super clear. Thanks again.

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

Yes. Hi. Good morning. My first question is, can I talk to you about CO2 permits, please? We haven't spoken about them for a while. Can you just remind us how much you still have left until what time can you continue using what you have from the bank? Maybe you can give us the year when they're going to run out. Previously, we were talking 20, 24, 25, I don't know what it is now. And obviously CIVAM will change that, but I'm just talking about the current regime. And the other thing is, what are you doing with them now? Are you using the permits entirely or do you still buy additional permits? Thanks.

Great question. And look, we have some permits in the bank, but we are short on CO2 certificates. And in fact, the whole market is short. And this is why the CO2 certificate price is up to 100 euros per ton, because everyone is short, everyone needs to buy. And even if you have some in the bank, it's an asset. You cannot just waste it basically free of charge. And this is one big driver. And we talked about this at the full year results. We had a good discussion on how the CO2 incentive system in Europe is now reshaping the building materials industry by making decarbonization the number one priority. And my target is to be faster in decarbonization than others, to be needing less CO2 certificates and benefiting from the very significant price increase for building material products and solutions because of this increase in CO2 costs. And everyone is short. You see this a lot of especially smaller companies. They sometimes seem to have less ability to decarbonize and they are very much hit by the CO2 costs. And Holcim, we have done not only the homework, we have accelerated costs. decarbonization you can see that the big part of our margin expansion in europe is actually driven by co2 by this new co2 framework okay but can i just clarify you say that you have some permits in the bank but on the other hand you're short i just cannot connect those two statements what does that mean you know because some people argue that if i have some co2 certificates in my balance sheet or something, they believe that's a free CO2 certificate. But it's not. It's valued. It's an asset, right? So basically, important is, how is your run rate for the certificates? And everyone is short on certificates. This is why this incentive scheme is now working so extremely well. And that's why, you know, certificates five years ago were at seven euros per ton. And they went up, what, three, three and a half years ago, they went up to 20 euros. And 20 euros was a trigger point for us where acceleration in decarbonization became high return. And we started a lot of investment projects in Europe. to decarbonize faster, and then it went up to 100 euros in all the projects. We kicked off with a return of 20 euros. Suddenly, the return became two, three times higher and faster. And this is a bit the mechanics which I'm a big supporter because it's a market-driven incentive system, and it rewards the company decarbonizing the fastest.

Okay. So what I'm hearing from you is that you do have some permits in the bank, but you're still buying them in the market, right?

Yes, absolutely.

Okay, thanks. And another question, which is obviously related, is about pricing, yeah? I mean, prices have been strong in Europe. Volumes are down, prices up, which is a very unusual situation. CO2 is a factor. What's the outlook? I mean, we hear about price falls in other building materials industries. Steel is down significantly. has been going up but still down year on year. So for how much longer can the strength in cement prices last?

Now look at Holcim, we have just increased the cement price if you want to know specifically cement price, we have increased the cement price significantly in all key markets. So from European markets to US to Latin America and they are all holding based on the principle that in Europe it's now a decarbonization game. decarbonization not only imposes extra CO2 costs for a lot of players, as everyone is short, at the same time it's limiting the volumes of the production factories because usually you get the maximum of certificates at around 80% of capacity utilization, which means no one wants to produce more than 80%. of the capacity, which is another driver of the pricing in the market. So it's all good. I can just tell you from the whole SIM side, we have this very good margin situation already in Q1, and we expect this to be rather more expanding throughout the year as the cost will further ease. My pricing will fully stick for the year.

Okay, thank you.

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

Yes, thanks for taking my question. One left actually on the M&A, on boosting M&A. Now, I accept the strategy in roofing, expanding that further, but in the rest of the business, also a very sizable number of deals. Are they getting quite diverse? I read about metal distribution being attached to your distribution network. How do you actually manage the speed and high number of deals? Is there a lot of time to do the diligence and is there a risk to get too scattered or too diverse in terms of M&A selection? Thanks.

Oh, great question. Look, if you want to do an M&A part of your strategy like we have it now in my share that I expect maybe a bit more than 30 transactions this year, you have to have the proper process systems and tools in place which we have. So we have a very strict valuation modeling, how we evaluate the businesses based on discounted cash flow. We do this, one version is a standalone version, the second one is an integrated version with the synergies, and the model is the same for every single project. And then we are very good to includes the countries, especially in the bulldog acquisitions, and they have learned now over the last three, four years how to handle M&A, and the tools are in place, and this is what enables us here to make such a large number of transactions. If you recall, when we started, M&A is part of the strategy, I think in 2018, the first year, we had four bulldog acquisitions, four, and then the following year was maybe eight or something, so was a big learning across Holcim and all based by a strict process driven and tool driven system based on discount cash flow valuation and obviously we do this very well and to complete the picture, the integrated version of the discount cash flow is the business plan for the acquisition. So the people who are responsible to run the acquisition have a very challenging business plan and And then, of course, we review the progress and the performance also here very intensely. And I'm very happy we have this. And that's why this will be now a very value-contributing part of our strategy going forward. Okay, thanks.

The last question for today's call comes from Tobias Werner from Stiefel. Please go ahead.

Yes, good morning, Jan, Stefan, Svetlana and team. Thanks for taking my questions, really just follow-up questions here from Stiefel. From my side, when you look at the M&A, you've obviously done huge strides in the US or North America. Your pipeline looks good, it seems to me. But Europe, in terms of solutions and product development, is still not as progressed as North America to an extent. What do you see the picture to be there? Do you feel that there will be more opportunities coming up? Hi, Tobias.

Hi, Tobias. Yeah, no, great question. And yes, now look, first of all, I'm very happy that we could make this inroad in the US, which is the single most attractive market for whole cement. And we did two things at the same time. We made this fast inroad in the roofing systems. And at the same time, we made this big shift in geographic focus on North America. So I think this was really very well done. And now you are mentioning we have also potentially in Europe and potentially in Latin America. And you see that a bit from the transactions we did in the first quarter that we actually bought here the first significant roofing company in Germany, the Flachdach Technology Group, a very good company which will be a new growth platform for us in Europe. And also we bought two roofing businesses here in Latin America, in Mexico, and Argentina to also further roll out our roofing systems in these very attractive markets.

Okay. And then if I may follow up on the divestment side of the equation, you mentioned earlier scenarios. How should we see it in terms of timing? Obviously, M&A, you can't time perfectly, but for you, is this a nearer term or is it a midterm situation, i.e. is it six to 12 months or 12 to... 24 months, what you're looking at in terms of finalizing your rounding out of the portfolio?

I think, Tobias, the time pressure on divestment is not there for us. I mean, we made such value accretive divestments with India and Brazil before with Indonesia and Malaysia where we are selling or divesting very low return companies at super high multiples and uh as you know that brought us to the ever strongest balance sheet if even a debt leverage belong one time you know with uh we had a cash of uh around 10 billion swiss francs at the end of the year um in in in the bank so so i think we have done this so well and gives us now all the freedom for capital allocation gives us the money to invest into the decarbonization, gives us the money to make further M&A transactions. Then on the sideline, we can make a very attractive share buyback. So we have done, I think on the investment side, we have done the value accretive part, which we wanted to do. And now we have no time pressure and we can carefully evaluate what some of the emerging markets maybe are better off with a different owner.

Okay, understood. And just one last confirmation, if I may. I was really pleased to hear that you're going to give us more information in the half year again. And I think you alluded to the fact that it will be in line with previous year's disclosures, i.e. price, cost, volumes. As noted in the full year report, there was also no mention of capacities and so on and so forth. Is that what we should expect or what should we expect?

No, look, Tobias, I think we always are very transparent. Also focused, we have a lot of additional reporting on the roofing systems, what type of characteristics we look for. We give you a lot of information on roofing, what is re-roofing, what is system setting, all of that. So you can expect a lot more. And I just wanted to, it was important for me to share that with you today, that with Q1, it makes no sense to go too much in the details because of the seasonality. But for the half-year report, please expect all informations you need to develop a proper opinion on the future of Holcim.

Thank you very much. Much appreciated.

Thank you so much. I'm very excited to have all your interest today. I wish you good writing in your reports and very much appreciate also all your attendance at our analyst dinner in London and I hope we can repeat this very soon. It was a great day we spent together and I hope we can reconnect in person very soon and discuss all these exciting opportunities Holcim has in the building materials world and how we expand and how we decarbonize and look very much forward to meet you all in person very soon. Thank you very much. Have a good Friday.

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