Heidelberg Materials Ag

Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the Heidelberg Materials Health Year Financial Report 2023. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question and answer session. If you would like to ask a question, please make sure to dial in to the conference call via telephone. and press the star followed by one on your telephone keypad. Press the star key followed by zero for operator assistance. I would now like to turn the conference over to Mr. Christoph Boijenberg. Please go ahead, sir.

Thank you, operator, and welcome to our first half-year results call. Great that you're all here. It's been a busy day for all of us, also for you, with a lot of companies reporting, so We make it brief. Without further ado, I hand over to Dominic and René, who are in the room here. Over to you, Dominic.

Chris, thanks a lot. Hello, everybody on the call. Thanks for joining. I would suggest we go fairly quickly through the slides. You have seen the slides, and then we'll get to your questions, if you don't mind. So overall, for us, a strong operational performance in Q2 and also H1 of this 2023. Revenues up 5%, RCO up 18% like for like in Q2. Price over cost was positive. Despite significant volume pressure, we were able to increase the margins, so in that respect, all regions are well on their way. We have initiated the third tranche of our share buyback announced back in 2021. We always promised we're going to go for one billion in three tranches, and here we go. We stick to our promise and start the last tranche of the share buyback program in these days, and we will conclude it at the latest by end of this year. On the sustainability side, we make very good progress, 2.4% further reduction on CO2 emission. And I'll come to some more details in a minute. And then last but not least, drawing a line under all of this, we are very confident for the second half of the year. And that's why we significantly upgraded our outlook to 2.7 to 2.9 billion euros RCO. for the full year of 2023. If you then go to page four of our presentation, you see the operational performance. And I think it's fair to say it's a record Q2 quarter for us in EBITDA and EBIT performance. So beyond 1.2 billion EBITDA and almost 1 billion EBIT for the second quarter. Also, like-for-like revenues were up 5%. On page 5, if you see the full year, even better, operating EBITDA hits almost 1.8 billion and operating EBIT almost 1.2 billion, 38% up like-for-like to prior year. And you see also the comparison to 2021, which is a very strong comparison base. I think it shows you a little bit to put these numbers into perspective that I think it's fair to say this was not a bad start into 2023. Q2 operation performance on page six, you see also a driver for this. Clearly, there is a volume decrease, especially in those markets that are heavily exposed to residential, mainly the mature or developed markets. But we stay very focused on managing both our arrival costs and our fixed costs, and obviously also getting the right value for our products. So the price over cost bar remains very positive. That then leads to that significant increase of 18% like for like in the result, and it's pretty much stage one. If we then go to page 8 into the regions, you see the details for North America. Also North America is up in RCO versus prior year and also slightly above a good 2021. So we are also in North America well on our way. I would say there is still some upside from our perspective for the second half. You know that we are ramping up our new plant in Mitchell, which we have switched over during Q2. And I would say, again, this plant is running well, and we are very confident that it will be fully on steam in the second half for this year. Western Southern Europe performance, Nicely 214 in 21 RCO, then almost 250 and now almost 320. So I think we are moving in the right direction in WSE. Also notably the strong margin developments, significant step up in an RCO margin on the back of a good compensation of residential decline, but good infrastructure work, good industrial work. And again, all countries, and that's important for us, contribute to this good results development. If you then go to NECA, NECA is stabilizing on a very high level, around the 200 million mark for RTO. Margin, again, above 20%. And that, I would say, not easy. Market development volumes are coming down in some markets. We have... balanced very well, the price cost and volume balance in all of the markets in NECA. So we are very confident that also for the next half year, NECA will perform on a high level. APEC, you know that APEC has been a little bit of disappointment for the last couple of years because the emerging markets did not really get going. Also, our Australian performance level was not exactly where we wanted it to be. I think we've really worked with the local teams on improvements, and you see here also the turnaround versus prior year, so significant RCO improvement versus last year, almost getting close to the level of 2021. Also, margin is recovering on the back of a stronger performance, especially in Indonesia, which is a very important market for us, you know. and also on a better performance in Australia, despite the fact that the housing market in Australia is pretty much underwater. A lot of construction housing companies also going belly up. So I think in that respect, Australia is performing on a very good level, despite difficult market situations. Other parts of Asia also stabilizing. India coming back from lower levels. China remains difficult. But the other markets, Thailand, Malaysia, Bangladesh, are moving in the right direction. High hopes for APEC for the second half. I think the trend should be our friend in APEC. Africa coming down a little bit on RCO in Euro level. from past performances, but I think it's fair to say that there is a significant currency impact in there. Some of the, especially sub-Saharan currencies and the Egyptian pound, they are under devaluation pressure. I think things are stabilizing now in Q2. Q1 was very bad in that respect, but now we have a little bit of stabilization. So in that respect, in local currency, the picture doesn't look as bad. There is volume pressure in some markets. But overall, I think the management team in IEM is doing a very good job and stabilizing the margin around the 20% mark. And the RCO should also improve in the second half because we're going against a fairly weak comparison base in last year's second half.

With that, I would say, René, you take the financial side. Thanks, Dominik. Hello, everyone, as well from my side. So let's go to... The financial slides, revenue RCEO Dominic has already discussed. Clean earnings per share go up 16% to 3.64. This is excluding the additional ordinary results. I guess that's a good performance as well. We have, as you know, the share by back contributes a lower number of shares, so that has an effect as well. Net debt reduction, very solid free cash flow. We come to this in a second. We reduced net debt by 100 million. versus last year, June, and then share the return is around 700 million, which is dividend to the mother company, dividend to minorities, plus the shareback. Let's go to the next slide. That's the full P&L. Let's quickly go through. Below RCO, you have the additional ordinary result with a delta of 103 million versus prior year. That's de facto two main topics. Last year, as it is written on the slide, we have impaired the Part of our assets in Russia was 90 million, and this year we had some book gains from financial asset sales. As you know, we have sold our joint venture part in Georgia. So we have a positive effect of 40 million last year, minus 63, so that explains the plus 100. Financial results you see last year, minus 20. This year, minus 100. You know, minus 20 after six months for the company is the extraordinary low here. And here we had a big one-off. As you know, the interest rates went up steeply last year, and discounting of provisions then gives you a positive effect of nearly €50 million last year, which we didn't have this year, obviously. And then, as you know, the interest rate environment has a little bit worsened, so our debt gets a little bit more expensive. And as you know, we've issued a bond in January, where we had incurred a little bit higher interest. But still, the number of minus 100, I guess, is very healthy for the size of the company. Then you go to income taxes, minus 66. You see above nearly 300 million increase of RCO. If you apply out the tax rate between 20% and 25%, that explains relatively easily the data. And then discontinued operation. Last year, we had one off of 21 million due to discounting of provisions again. And this year, we put a provision for... potential liability in the old legacy Hansen business of 30 million, which expands that data. So the earnings per share then adjusted without AR moves from 350 to 364. Let's go to the next slide, please. So our cash flow, you see there improved. That's the green line, the 150 million roughly versus prior year. Now we have a positive effect from working capital of 140. And this, to be honest, should continue the next six months. We should improve that here materially versus prior. Net interest, I explained already. Taxes paid with a few one-offs in both years. But the 314, as we explained, it's exactly what we were expecting. So that's not a surprise. And then we'll come to the CAPEX, where we are very disciplined, nearly net on last year's level. So our cash flow is minus 384 versus minus 3531. And what you see for me, interesting, you know, important, the cash conversion rate last year was 21%. Now we are up to 37 last 12 months. And we are confident to reach our announced targets by the end of the year. because we expect a very solid cash flow in H2. If we then go to, okay, this we can do very quickly. That's just a summary of the first tranches of the share-by-deck. And as Dominic said, we will start tomorrow with the third tranche, around 300 million. And I guess then we have kept our promise and we'll finalize that program in Q4. Next slide, that's a net debt reconciliation put like this. You see the $100 million reduction, free cash flow reduction of $1.5 billion, then $500 million acquisitions, $330 disposals, and then the $700 million shareholder return. That is the three columns. And then $514 million currency accounting leasing. That's obviously an X impact on our cash and our debt. and leasing additions. That explains a little bit the whole net debt. And I think now we're in the leverage of 1.67, which is a very healthy level already in June. Dominic, I hand over to you for the sustainability part.

Thanks a lot, René. Let me take over. There's a couple of slides on sustainability. You know that it's equally important to perform very well on our sustainability agenda, and I'm happy to say that the performance is clearly on track. Specific CO2 emissions are down by another 2.4% to just under 540 kilograms, so we are well on track for our target of 400 kilograms, I think the most ambitious one in the industry. And again, we are well on track to get there. The same is true for alternative fuels. You see on the right side, almost 30%. Target of 45 is clearly in reach for 2030. And the same is true for Klinker Incorporation Factor, where we are now below 71%. Very good improvement of one percentage point. And again, the 68% from our perspective should be easily reached. Sustainable revenues, we've started to report on those. I think we need to take a step back here because you can say, what does this really mean? This means that 40% of our total cement sales are below 550 kilograms per ton, so 30% below the normal SEM1 reference point. So we are trying to be very rigid on what we are doing. I know there is a lot of branding going left and right and here and everywhere. Very intransparent from my perspective. We have decided that we're going to introduce a very rigid framework, a very steep hurdle rate. Just to be clear, our North American Portland limestone cement don't even hit this hurdle. Everybody is celebrating Portland limestone cement, which is a key improvement in the U.S. over the past. But it is not included in this 37.8%. So this shows you a little bit that You know, 40% of our portfolio, 40% of our cement portfolio is already below that threshold. So we are very focused to push the portfolio into that very sustainable area. And that's not only true for cement. We'll do the same on aggregates and also on ready mix as we also continue to push our circular approach, especially in concrete and aggregates. Last but not least, I think important progress for us in Germany on our decarbonization agenda. We are based in Germany. It was very clear for us that we want to be also the first one to fully decarbonize a cement plant in Germany. And that's what we will do in Geseke, in the middle of the country, with full support of the local administration, the national administration, and then also the EU now. The funding will be confirmed by year end. We are targeting to reduce to capture the full CO2 emission on scope 1 of 700,000 tons of CO2. And we should be in operation by 2029. Important flagship project in our home country. And more to come. Stay tuned on these things. Okay. That's it from our side. Chris, I hand back to you. And then we are looking forward to your questions.

Thanks, Dominik. Thanks, Vinny. We are now opening the line for questions. Operator, please start the process.

Thank you. We will now begin the question and answer session. If anyone wishes to ask a question, please press the star followed by one on your touch-tone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. If you are using a speaker equipment today, please lift the handset before making your selection. Anyone who has a question may press star followed by one at this time. Please hold. Our first question comes from Elodie Rao, JP Morgan.

Hey, Elodie. Hi. Hello. Hi, everyone. Thanks for taking my questions. I will have just a few. So first, very quickly on price cost, you delivered $520 million in H1. Can you tell us what you expect for H2? Second, on the U.S. and the performance there, I was wondering if you could give us a bit more color. I mean, you mentioned in residential activity, but the volume decline there, I think, looks a bit worse than Pearson. Maybe you can give us the actual volume decline. So, if there's something about your regional exposure that means performance was maybe impacted and more one-off. And then lastly, if I can just ask about, you know, 25 target, your 2025 target of 2022 margin. Is this still your target given the higher inflation, the higher pricing than at a time of the CMD when you issued that target? Or would you think things have changed for that target for 2025? Thanks. Thanks.

Thanks, Elodie. Okay, let me quickly go through those and then maybe René, you can chip in on price over cost if you want. But from my seat, Elodie, price over cost, we are very confident that this will stay absolutely positive for the second half. That's clearly what we are targeting. So no change in that respect. Nam, yes, from my perspective, I think there is a little bit of a one-off in two dimensions. You know that we have a little bit northern twisted footprint, and all of you have seen the flooding in New York and some of the weather events. I think that's one contributing factor, and the other one is the startup of our Mitchell plant in the Midwest. You know, the startup of these massive plants are never an easy exercise. I think the team has done and is doing an excellent job. We are well on track, but it's fair to say that we also had a couple of weeks delay as always in these big animals. So, I would see for the second half, a clear upside potential in that part around the new plant in Michel and that then also should close maybe the volume gap that you have indicated. So, from my perspective, well-spotted LOD, I think you know the business very well. So, in that respect, I think that's answered. And, Pierre, yes, to your third question, absolutely, the target sticks, 22% margin by 2025. that remains the target. Do you have anything to add on price over cost?

Dominik said price over cost should be healthy as well for the next six months. Obviously, the price data to prior year reduces a little bit because we've increased the pricing last year already, let's say, big time in the second half. But then on the contrary, you have the energy cost relief, which in Q3 was skyrocketing. So I guess the trend should continue.

Okay. Thanks, Elodie. We have a lot of people on the line asking questions, so please restrict your questions to two at a time. Next question comes from Paul.

Yeah. Hi, team. Hope you're well. Thanks for taking the questions. Yes. Okay. I'll keep it to two then. The first one's on capital allocation. Clearly, the balance sheet's healthy. Cash generation's healthy. Doesn't look like you've got any obvious demands on your capital in terms of big M&A or anything. So I guess the question is of, well, should we expect more buybacks once the third tranche is completed? And then secondly, on Indonesia, a market we used to talk about a lot, maybe a bit less so these days, it does sound like profitability is turning the corner. So my question really is how significant you think the recovery potential could be? I think if I'm right, it generates about 550 million, maybe in 2012 or something like that. Could it ever go back to that, for instance?

okay uh thanks uh paul for your questions let me um maybe answer and then uh first first round and then uh renee can also answer uh maybe uh from his perspective because he's also um he he's also part of the investment uh board so i think uh let me on the capital allocation i understand you're impatient uh we're all impatient But let's do one step after the other. I mean, first, you know, I go a couple of years back and everybody said, you never do a share budget. Then the next argument was, ah, you will never do all the three tranches because, you know, you're going to stop halfway and find a good argument, blah, blah, blah. So I think, Paul, for us, you know, we want to deliver on what we promised. We promised the $1 billion. And here we are, we are going to do the third tranche and then let's see how it goes. When it comes to capital allocation overall, I think it's clear that we have done a lot of organic stuff. Michel is one example. Erwode in France is the other one that are under construction. But we always said that M&A is going to continue to be on our radar scheme, small, mid, bigger size. No multi-billion, 20-country exercise that we always excluded and that stays that way. but it's clear that M&A remains a possibility for us also going forward. On Indonesia, you're right, Indonesia went through a couple of years of not so easy days, but we are very confident that Indonesia will bounce back. The country is in a healthy position. Our management team is very strong. We continue to work on our footprint. We have a couple of good ideas also on Indonesia in the pipeline. So it's our clear target to continue that stronghold. And the market is very consolidated. As you know, we have been operating in that market for more than 20 years now. So in that respect, we know very well how to manage it. And to answer your question, we believe there is a significant upside in Indonesia down the road. But maybe you want to add something?

Nothing to be added, Dominik, in its cement market. You know, does it really go back to the 400, whatever they did in 2012? I can't tell you. But what I can tell you is we have a very good management team. They have a superb market position, to be honest. And we see in the first six months it's recovering. So I guess it's on the right track.

That's great. Thank you very much. Yeah, have a good summer, guys.

Thank you. Thank you all. You too. Next one comes from Gregor Kuglic from UBS.

Hey, Gregor. Hi, hi, how are you? A couple of questions, please. So maybe a sort of two-part question. So the first one is, can you just actually tell us what your energy cost did in the first half? And today, from today's perspective, what you think you'll do in the second half, sort of, I guess, on a year-over-year basis? And then similarly on price, and I know that you sort of don't report volumes anymore, but what was actually your realized price, I guess, maybe cement aggregates or something like that for the half? And I guess... Similarly, assuming kind of your whole pricing, what do you think the half two year over year is? So we can get a bit of a sense on price cost. So I'm going to sneak a sort of two and a half on it. And then the working capital, did you say you expect an inflow or less of an outflow compared to last year? Just so we understand what you're saying on working capital. Thank you.

Thanks for your question. Maybe let me start. So we give René the chance to get to your 2.9 questions. So maybe I'll start with the energy cost and René should then give you the details because he's obviously also sitting over the energy buying department. From my perspective, and it's, I think, important for everybody to understand, and that's also something we keep telling our customers, Everybody thinks that the energy prices are back to the old days in terms of pre-crisis level. That is not the case, guys. On the price basis, price only, take volume off, but price base only, we had half year over half year an increase in pricing. So I think 3% or 4% or even 6% increased in pricing on energy. And so I think in that respect, you know, it's not like, you know, we're back to old days and also the forwards for the next two quarters of Q4 and Q1 next year are still on electricity. Just to give you one example, in Europe, in Germany, they are still in the 130, 140, 150 euro per megawatt hour. So it's not like the energy prices are collapsing. Really, we'll give you a little bit of the split how it works between H1 and H2. On the realized pricing, I ask for your understanding, Gregor, this is competitive sensitive information, so I can't go into any details around pricing. It is clear that the pricing is compensating fully the cost inflation on the variable and fixed cost side. That for us is the core point. And that is also clear that then the pricing needs to be in a very significant way up. Otherwise, you won't get to that performance. And there are markets where pricing is really significantly up in very healthy double-digit ways. And we continue to stay very focused on getting the right value of our products. There is no, as you all know, there is no global pricing, but market by market, we continue to develop value for our products and that needs to turn into both good margins and then obviously also good revenues.

Let's talk about energy for the first six months, as Dominik said, cost inflation. Now we're talking cost inflation is up 6.5%. And obviously then we have a positive volume effect because we are selling less and we have less cost clearly and then the currency as well. So reported energy is down, cost inflation is up six and a half. For the full year, obviously we have upgraded our guidance as you have seen. We have good results. The energy costs are, let's say, not as volatile as they've been last year, so we are expecting Water price is obviously lower than last year, but that has lower volumes, that has currency impact. But elsewhere, from a cost inflation perspective, we see this maybe flat versus last year, maybe a little bit better. So let's see how that goes. I guess that answers that question. And then working capital, yes, Gregor, my clear target is no cash outflow from working capital. That is clearly the target for every country we have in the group. If we have now a few hundred million inflow, let's wait and see. Yeah, surely we will not have the inflow like we had the outflow last year, 800 million. That will not happen because the cost base is still high. So we try to target here neutral or a little bit cash inflow, and that would be, I think, a very good improvement.

Thank you.

Next question comes from Yacine Toury from Onfield.

Yes, good afternoon. Just a couple of questions. First, on the U.S. margin, which were, I think, a little bit disappointing compared to the big increase experienced by your peers, I understand that it's the Mitchell ramp-up that had a bit of an impact. Is it something which is a one-off? And if you have one-off costs, is it something that you could quantify? And also, would you expect the situation to resolve in H2 or in 2024? That's my first question. And then my second question is just a clarification on your comment about cost inflation. So you suggested that cost inflation is up 6.5% in H1. and that the full year, it could be stable or a little bit lower. Does it mean that you're expecting cost deflation in H2?

Let me take the first question, then René will take the second one. Answer to your question, yes. Clearly, Michelin is a one-off. It's ramping up. It's already performing in the month of July on a much higher and more stable basis. So I think clearly we expect a significant improvement H2 over H1 from Mitchell. So that's also why we are very positive on our NUM performance for the second half.

Sorry, on this, I think in the past you quantified the cost saving that you could generate with your Mitchell plant. Is it something that you could remind us?

No. No, it's, you know, everything. I think there is an, as I said with the question to Elodie, you know, there is a volume impact because we didn't get to the production performance that we wanted to in all days. Again, it's more a question of being stable in these new plants. And again, there's nothing that wakes me up at night because it's clear that this would happen and it's completely normal and to be just very clear. Even with this performance, much better than an average ramp up of a plant of that magnitude. You know, we've done a couple of these projects over the years. So I'm not losing any sleep over that. But the good news is it's better in H2 than it is H1. So the effect basically comes from more volume output. And you know that for us, that is local volume in the US that always comes with higher margins because the more you go then out to the East Coast, we need to compensate that with imports and that in the end will then help our local performance and also our local margins. But we won't put a specific number to that.

I have in mind that the new plant could have a cost efficiency is going to be more efficient than the previous operation. So I have in mind that it's maybe like 20, the cost might be like 20, 30% lower.

that you could get savings once the plan is fully operational or something like 20 30 million is it something that is still very sick this is uh guys i have to ask you this is competitive sensitive situation this is a competitive market in the us and we cannot comment on our cost position out of a single plant i ask for your understanding we we make the clear uh statement in our beyond 2020 strategy that on average in the group we wanted to improve by 300 basis points and in North America we wanted to improve by 500 basis points and we also said that one of the main contributors to that is the Mitchell plant and now you need to triangulate and try to do your work on that one but from my perspective Mitchell is going to be one significant contribution to that margin step up. Thank you so much.

I was talking about 6.5% cost inflation on only energy in the first six months, not on our total cost base, obviously. And you are right. I'm expecting a cost inflation decrease or deflation for the second half of the year regarding energy. Okay.

and with a relatively stable energy bill in the full year. So it suggests like some high single-digit energy deflation in the second part of the year. Is that correct? Thank you very much. Very helpful. You're welcome, Yacine.

Thanks, Yacine. Next is Tobias Werner from .

Hey, Tobias. Yeah, hi. Good afternoon, gentlemen and Katrina. Just a question on CCUS or CCS. I mean, last year in the Capital Markets Day, you talked about seven projects costing you CapEx-wise or implying CapEx-wise about $1.5 billion by 2030. My last count of CCUS projects was 12, but correct me if I'm wrong. What does that mean for CapEx on that basis going forward? And also, what does it mean with regard to your target of 10 million tons of CO2 capture by 2030? Thank you.

Tobias, let me make a first comment, then maybe René answers. You know, there seems to be a little bit of a competition in the industry who has the most projects. We are not part of that competition.

Maybe, Tobias, go on mute, please, for whoever is not on mute.

Thank you. That's much better. So there seems to be a little bit of a competition with the most projects in the industry. We're not competing in that competition. We are very focused on getting things done next year in Breivik. It's the first one online. We stick to exactly what we have set, 1.5 billion for the six projects that we have announced until 2030. Let's deliver on this. You know, for us, it's all about delivery and, you know, quick implementation, large-scale implementation. And that's what our focus is for us. The number of projects is irrelevant. So we have made these very specific. Will there be movement within these projects? Yes, absolutely. That's why we have a couple more than, you know, also the starting line, because we want to make sure that we deliver our targets. But for us, as I said, the number of projects is irrelevant. The key is what we bring to how many of these projects do we make happen in order to contribute to the 10 million ton emission reduction cumulative by 2030. And for the time being, we speak exactly with this target.

If I may, when you look at your bridge on the RCO side, The volume impact seems to get or has gotten worse. Do you think that should be stabilizing into the second half? Thank you.

I think, Tobias, there is no global answer on this because this is a market-by-market situation. This is a market-by-market view. I think there are quite a few markets where there is volume decline, especially in residential. That's what we expect, mainly the mature markets. And we do see in some markets stabilization on these volume declines. Again, then it's a year-over-year compensation, so you also go against the lower base over time. But there are markets also where there is additional decline, I think, It's clear that in residential, in the mature markets, there is a significant reduction. And I would foresee, from our perspective at least, a stabilization at a point when the interest rate hikes are coming to an end. You see a little bit the US, the Fed latest increase, they indicated that they are coming towards a peak in terms of rate hikes. In the EU, I think there is still a way to go, but as soon as we get to that peak point, then I think the confidence will come back also in the financing side and the consumer side and also to also drive up residential. You see the first indication here and there in the US already in some markets. So from my perspective, is the worst behind us? Difficult to say, but I would say we are closer to the tipping point than we were maybe last year at this time. So that's where I would see light at the end of the tunnel on residential. Thank you. Thank you.

This one is from Brijesh here from HSBC.

Hi, Brijesh. Hey, Brijesh.

Hi. Hi. I have two as well. So starting with if you can just give the effects impact which you are assuming in your 2.7 to 2.9 of recurring operating income. Then the second question is more about the growth prospects with how things are going with the cement market and you are not providing volume. Clearly you are going for value. So how should we look in the medium term when you look at Heidelberg, the top-line growth? What should we focus on? Are you kind of committed to a low single, mid-single-digit, like-for-like growth? That's what you would like to do, either itself, rather pricing more and differentiating product?

Thanks a lot. Maybe leave the first one. You want to do the first one on FX?

In the guidance, we have an FX number included versus last year, roughly 100 million negative impact of FX is included in that number already.

Okay. And then on the second one, I think on the growth prospects. You know, what's interesting for me to understand is that the cement lovers are coming back. You know, I think the cement seems to become an interesting business again. And that is actually spot on with our strategy because even when nobody loved it two years ago, we said, hey guys, we're going to hold the line and and want to stay in this business big time and really focus on making the decarbonization happen. And that for us is also the growth prospect because that will drive value. That's also why we always said volume is for us irrelevant. For us, the value in the end that we drive for our customers is key. And we are more confident than ever that we will be able to do this organically. to drive value as we decarbonize our products. This will drive additional value for our customers in cement, in aggregates, in concrete, and it's recycling. So I think in that respect, we will turn the product in the cycle And with that, we see very fundamental organic growth options going forward. And then we'll top that up with acquisitions. As I said earlier, we will continue to do both on acquisitions, small, medium, large. In that respect, we'll improve our market positions in the core markets that we are operating in. We will stay very disciplined around that, but that's clearly the target. And that is a fantastic growth driver for us going forward. We feel very comfortable with that sweet spot.

Okay. Sorry. Dominic, if I understood correctly, it's more of a market share gain, and you're kind of projecting that the smaller with weaker investments will kind of eventually go out of the market.

Not so much about market share. You know, this is again volume market share. For us, you know, we want to convince the customers in each market that we have the best decarbonized products on the heavy side of things. And I'm absolutely sure that with that we drive value and additional opportunities with new customers, new products for existing customers. That's where the value sits. I'm not so hung up about market share up and down 1 or 2%. For me, again, share of wallet each customer and new customer basis on these new products, new decarbonized products, that is for us the sweet spot. And there we feel very comfortable and we see some nice traction and we'll continue to build on that. Thank you very much. Thank you.

Next question is from David O'Brien from GoodBuddy.

Hey, David. Good afternoon. Thanks for taking my questions, guys. Firstly, on Europe, I wonder, could you quantify your volume performance across the two European divisions and against that weaker volume backdrop, maybe give us some color on how pricing has evolved or any competitive pressures as they've arisen through the period? And final kind of add-on to that, I guess more generally across your global operations as the volume backdrop has been a little more challenging as your customers get impacted by costs across the board. Have you seen any meaningful shift in the appetite for products with enhanced sustainability versus the more traditional products within your portfolio? Thank you.

Okay, let me start with the volumes in Europe. We said that overall the volumes are down, high single digits, very low double digits. That's a little bit the picture in total Europe, and that's very much driven, very different segment by segment, very much driven by residential, that in some markets is even down 20% as a market, not necessarily for us, but In residential, you see the times in some European markets in that magnitude, and that's clearly impacting the volume side of things in our strong markets in Europe. But on the flip side, I think we've been able to convince customers that, again, this is not a volume game, but this is a value game. And that obviously is contributing or driven also by our increased product offering on partially decarbonized products. You saw the discussions around 3D printing. All of these value-enhancing applications do find more and more demand. And I think in some markets it's even the case of the demand outstrips supply. And that obviously then also helps to convince customers to dedicate the right value to these products. So also in Europe, I think there is an interesting dynamic And obviously, everybody knows the CO2 certificate issue is out there. We are long in CO2 certificates, but we always said very transparently, we're not going to subsidize the market by giving away free allowances. We want to do the investments going forward. we will decarbonize our products and then make this a competitive advantage for hydrogen materials down the road in Europe, and I think that's for us the focus.

Thank you. Thanks a lot. Next question comes from Yves Promhead from Sofgen.

Hi, good afternoon, everyone. Just, sorry, a quick one, circling back to everything you've been saying. Thank you. correct me if I'm wrong, but you expect your energy costs to be down in H2. Your pricing is still quite strong and we've seen some further price hike in the US. You've got an easier base in the volume side. So putting it all together, it's quite easy to get above your guidance. And I think, you know, consensus is already there anyway. So just wanted to understand what has made you not go above sort of the 2.9 towards the three up. Is there anything holding you back at the moment that you want confirmation of in the third and fourth quarter?

You know, Yves, we are I'm at least long enough in the industry, so is René also within the company. We know I've been running marathons and you need to get to the finish line, whether it's a half marathon or whether it's a marathon. And that's exactly how we see it. The year has, at least in our calendar, 12 months, 365 days. We are halfway down the road. We feel very, very comfortable with the guidance we have put out. You have made the triangulation between the different drivers of that guidance. But the year is long, so bear with us. But we are very confident on being able to deliver on that guidance. And I think you see a very confident management team in order to get well to the finish line in 2023.

Thank you.

You have another one?

Yes, please. Just on Europe, just wanted to have your view. I mean, you're essentially saying like most of your competitors that prices are not coming down and you're not seeing any signs. However, may I just push you on this and just ask, are your clients with the volume decline that you're seeing being more strict about sort of the prices they're prepared to pay and are they sort of more trying to get discounts and rebates by ordering certain volumes that are larger than what you've seen? Or is there any sort of sense whereby, you know, there is some discounts that are appearing, even though it's not meaningful?

From our perspective, again, it's a sensitive topic. That's why I'm just giving you a broad answer. But from our perspective, You know, there is a different cost base than pre-crisis level. I gave you all the input factors of energy, higher fixed cost, CO2 certificate cost, where we feel that we target to continue to drive value for our customers, but then also ask for that value. We do not see in a broad range declines or rebates. You can ask yourself, but from my perspective, Yves, if there is no single house to be built out there, even if you lower the price by 20%, if nobody wants to build a house, then whether you ask 100 or 120 for it won't make a difference. If there is no demand, why should I lower my price? That's the way I think about it. But I can't comment for the competition how they want to do this and how they are doing this. That's not transparent for us. It's also not what we can manage and what we want to manage. We sweep in front of our own house and we continue to drive value for our customers and ask them also to be rewarded for that.

Thank you, Yves. Thank you. Thank you. Getting to the finish line, three more questions on the line. The next one comes from Ravi from CityPool.

Thanks. Thanks. Most questions have been answered. Just one remaining. Given the very strong macro environment in the U.S. for the next three to four years, are you thinking about importing more cement into the U.S. from your underutilized operations in Africa and the Middle East? If that's the case, Are you also inclined to increase your terminal capacities, and is there any capex that's been allocated to that?

You know that we are a net importer and have been a net importer for many years. That's been a strength of Heidelberg Materials over the years because it's easier for us to breathe in up and down cycles. But it's also clear, and that was one of the reasons to do the Mitchell investment, that it is the most profitable strategy for us to have as much local production as even possible. So for us, you know, it's key that we continue to push our local capacity. Now, careful, you know, we are called materials. We are not called Heidelberg cement anymore. That's why, yes, the Mitchell is a traditional cement land. But I've been telling you in the calls before, we made this acquisition for SIFA. We've done a significant investment for a slag business in Florida. So, you know, we are focused on cementitious materials and not on cement and clinker only. And I think it's important for you to understand that for us, that's the total cake. And with the investment into SIFA, with the investment into the Slack terminal, I think there we also increase our capacity versus the past, which helps significantly our CO2 footprint, which reduces our import needs into the US, which improves our margin. And that's why we get the target of 400 to 500 basis points improvement by 2025, and we are well on track to get there.

Thank you. Thank you. Next question from Jean-Christophe Lefebvre-Moulin from CIC.

Hey, Jean-Christophe.

Hi, just a question on pricing. Could you, as you quantified the volume effect in Europe, maybe could you give Earth an order of magnitude of the pricing effect in the heavy building materials, first. Secondly, the good pricing in 2023 is mainly... the price rollover effect of the hikes implemented in November, roughly 30 euros in Germany, 20 euros in France. Can this rollover effect last over the second half? You mentioned no rebate, no decline. Can you confirm once again as some rumors are spreading in Europe

of some press confessions many thanks vielen dank from our perspective uh you know uh as with every um action uh it lasts not forever but from our perspective uh the pricing uh is is uh we are confident that we will Also in the second half, continue to enjoy a good price over cost situation. And again, for competitive reasons, I ask for your understanding that I cannot comment on any pricing strategies. Again, they are different market by market, customer by customer, and product by product. So you continue. I think it's also important for you guys to understand. You're going to continue to see a much larger variety of products, also of pricing strategies. patterns from our perspective. You know, this flat-out pricing for one commodity product, from my perspective, I've said that before, will come to an end. And so our company is already done. So we very much focus on specific customer applications, specific geography, specific opportunities to create a differentiating product base. And that's why there is not one flat-out pricing answer. And again, for competitive reasons, I can't give you any specific percentages for specific markets. Thanks. Okay. Thanks. Thank you.

And the last question, one or two questions, come from Arnaud Lehmann from Bank of America.

Hello. Hello. Hello. Thank you for taking my questions. I have two, if I may. Hopefully, they'll be quick. Talking about capacity in Europe, have you seen any capacity closure? Are you considering some capacity closure, I guess, as a way to improve utilization rates, pricing power, and maybe reduce CO2 emissions if you shut down the least efficient plant? That's my first question. And my second question is on Breivik, the carbon capture. Do you have an updated plan? forecast for the opening? Is it more like Q1 24 or Q4 24? And would you mind sharing with us, you know, the successes and challenges? Is everything on track? Have you had difficulties, technical difficulties to get things going or everything is like you want it to be? Thank you.

Thanks. Happy to answer your two questions on the capacity closures in Europe. I cannot tell you what the industry is doing. I don't have the transparency on that. For us, I think it's a constant task to manage our fixed cost base, and that is also true for every asset we run, be it in cement, in clinker, in aggregates, or in readiness. And as the volumes decline in some markets, obviously, we need to review and constantly do so, review our asset base, whether we determine permanently or just at interim, a ready mix plant, an aggregate plant, part of a cement plant or a full cement plant, that exercise is ongoing. It is not a widespread effect of that, but are we taking out capacity here or there where possible on parts of plants? Absolutely, because that's for us a very proven management cycle to do this as volumes come down to be very prudent on our fixed cost and variable cost management. And that obviously has to do also with the uptime of the assets. When it comes to Breivik, the ramp-up of Breivik will be more towards the end of 2024. That was also always the target. We said second half of 2024. It is a mega project. That's clear. You know that mega projects have their chances and challenges. I think we don't forget, you know, this has always been effective. Nobody talks about this, you know. Everybody thinks this is You know, this runs through COVID and everything, so I think we're not short of challenges in that respect, but that's what we are paid for. We try to mitigate the challenges in this super complex project as good as we can. Is there unplanned things happening? Absolutely. Like in every project, are there things going better? Yes, absolutely. So bear with us. We still have now more than a year to go. It's a little bit early days. We are very diligent on doing our very best to get to the 2024 line. And for now, that's the target. Let's wait and see. But we are very confident that we will deliver a mind-boggling project for the industry because, again, this is the one and only global project of that scale. And that, I think, for me also, I know, I think, to be very open, whether this comes three days earlier or three days afterwards, this is not the topic, but it's not like there is a three-year delay on this project, just to be very clear.

Thank you so much. Thank you, Arno.

Okay, I think that concludes our call. Just a reminder that we will be on the road in September, also attending some conferences, and we have moved our Q3 release date one day forward, so we are now releasing our numbers on November 2nd instead of November 3rd, in case you haven't noticed. With that, thanks for dialing in. Goodbye.

Thanks, guys. Thank you, everyone.

The conference is now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.