Heidelberg Materials AG (HEI.F) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the Heidelberg Materials Half Year 2025 Results Conference Call. My name is Joseph, the Chorus Call operator. [Operator Instructions] And that this conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or for broadcast. At this time, it's my pleasure to hand over to Christoph Beumelburg. Please go ahead.

Thank you, operator. Good morning, good afternoon, good evening to everyone listening. We have our Q2 results call, and we prepared some remarks that you may have read already, Dominik and Rene will go through them real quick, and then we have ample time for Q&A. . So over to you, Dominik.

Thanks, Chris. Thanks, everybody, for joining. Welcome from our side to the Q2 2025 call. where we will present you the prepared remarks. I think overall, great quarter for us. We are satisfied with the delivery of what we have promised, strong revenue growth 3%, but especially RCO, up 8%, carried by disciplined pricing, by good cost management, not so much volume up, clearly upside down the road. We have executed the second tranche of the share buyback. As announced, still running and has been started during Q2 and magnitude up to EUR 450 million. We are continuing to be on the gas pedal when it comes to growth. We have closed the giant acquisition in the U.S. in April, and we've also successfully closed the transaction in Morocco end of Q2. So in that respect, things are moving in the right direction. That's also true for sustainability. Great progress here, minus 4% CO2 emissions year-over-year, I think that's good because we wanted to pick up speed a little bit towards the targets of 2030, and I think that moves in the right direction. And on the back of all of that, we are confident to confirm our outlook of -- for 2025, with an RCO band of EUR 3.25 billion to EUR 3.55 billion, a [indiscernible] of around 10% and a slight reduction on CO2 emissions. Okay. Then we go to Slide 4. When we come to the details of the results. You see revenues up 3%, EBITDA up 7% up 8% even, and the operating margin moved up 81 basis points to 24.2%. I think that is pretty much in line with what we have targeted. H1 is a little bit weaker. That also tells you that Q2 has the right trend. And you see on Page 5, the results for the first half, which is then 6% up in EBITDA and 7% up in RCO, margin up to 18.7%. What is important for us is on Page 6, you see that volumes are still coming down a little bit. So there was no help at all from the volume side, which leaves the upside on the road, but good management of price over cost with a clear positive EUR 99 million then leads to an operating EBIT of more than EUR 1 billion first time for us in the history of the company. H1 2025, then even with a more pronounced picture on the price over cost, you see also here the volume pressure for the first half, minus EUR 67 million was a little bit higher for the first half. That shows you that the volumes are ever so slightly leveling out and even coming back, which is good news, while the price over cost is even more pronounced in H2 than it is in -- in quarter 2 versus H1. So overall, also that trend goes in the right direction. It's carried not only but also by the transformation accelerator, we have said we target the EUR 500 million. We are absolutely fully on track to get there. I would be even hopeful that we may even overperform on that one. But for now the clock is ticking, and we have about EUR 140 million in the pocket, but the trajectory is going in the right direction. So overall, I'm very satisfied, and we are very satisfied with what we see here. Europe, on a high level on the revenue basically more or less flattish, slightly up, reported like-for-like flattish, EBITDA margin moving up in the right direction and also RCO on a high level, moving beyond the EUR 500 million. For the EBITDA margins you see in [indiscernible] up and also in aggregates up. So also there, the train moves in the right direction. North America with a little bit of headwind like-for-like revenue is down but reported 4% up because the growth is really moving in the right direction. I mentioned giant. EBITDA margin more or less flattish, RCO, more or less flattish. And therefore, the business lines, cement slightly up and aggregates quite significantly up in terms of margins. So I think the underlying structure is okay. We just obviously need the market to come back in North America, which we are hopeful that this will happen. Asia Pacific, still I think there is upside from our perspective. But turning the corner in the performance, you see that EBITDA margin goes up. You see that the RCO goes up. And you see also that margins both in cement and aggregates go up. So I think that indicates that Asia is finding some stable ground from where we then can further accelerate. And talking about acceleration, [indiscernible], Africa, Mediterranean, Western Asia is clearly performing on a very high level, 25% -- almost 25% revenue up. EBITDA margin significantly up to 25.8% and results almost 50% up with plus 44% up to EUR 144 million. EBITDA margin in cement, really good now at 27.8%. If you go to Page 13, you see that also good results on the financial side come with good results on the sustainability. Obviously, for us, key milestone in Q2 was the opening of [indiscernible], some of you were present there. This is the world's first carbon capture industrial scale plant in our industry. We are well on track also with acceptances and delivering the first -- storing the first CO2. So that looks really promising, and we are happy that on the back of that in H2, we will start with the sales of evoZero, which is a unique product globally, and we will clearly market that to some very exciting customers and projects. Circularity moves on with our development in Poland, both on recycled aggregates and also recarbonation. So the combination of EcoSem there and also our [indiscernible] cement plant are doing in the hyper-local vicinity around the plant, a very good job where we will now deliver the first concrete with 100% recycled aggregates. I think that's great news. So circularity is also being advanced quite substantially. And last but not least, especially also for our emerging markets, a very good news from Ghana, you heard us talk about the erection of the [indiscernible] clay plant. We are now in the market with the low carbon products there locally sourced and locally produced and locally sold, which for imports markets like Ghana is a very important advantage because you don't get stuck in ports with clinker imports, but rather produced locally, so 100% local content in that respect. That's great and the market is very well accepted -- the product is very well accepted in the market. If you go to the details of the sustainability performance for us, it's -- we continue to build our leadership in terms of clinker incorporation sector. Now down to 68.5%. That's very good indeed. We started back in 2020 at almost 75%. So significant progress there. But what is also very important to see is the acceleration of the alternative fuel rate. You see that we jumped up from 30.6% to 33.5%. So the above 50% target is clearly in reach. Big contribution from that end, and we are very confident that we will get to the above 50% by 2030. And on the back of that, obviously, the CO2 emissions came very close to 500 kilograms on a global scale in reach with a target for 2030 of below 400. With that, I would hand over to Rene and you go to the financials.

Thanks, Dominik. Hello, everyone, as well from my side. What you see here are the quick snapshot of our financials. You see the adjusted earnings per share as well nicely up that tells you that below RCO, everything is in shape. Also, our free cash flow generation in the last 12 months remains strong at around EUR 2.3 billion and very close to our 50% conversion target, which is good. Leverage is similar to last year at around 1.56x. And then as Dominik alluded to, our shareholder return is, let's say, progressing is the second tranche of the share buyback, which is ongoing, I think, overall, a very solid financials in terms of cash flow and below RCO. If we go to the details on Slide 16, the full P&L, you see our AOR additional ordinary result is EUR 108 million better than last year. Why? Because last year, we had the big impairment and restructuring costs for the plant closures in Europe in our numbers. So that offers steel has a little bit relief here. Financial results flat, which stays at a very, very low level for the size of the company. Income taxes is EUR 50 million up. And why is this because we had last year due to the impairments of the plants, which we closed. We had a positive DTA of around EUR 20 million this year, EUR 20 million negative. So that's EUR 40 million, let's say, accounting effects on taxes. The good thing is the current income taxes, which is a very determining a big factor for our ROIC stays flat year-over-year, which tells you that our effective tax rate here for context is improving. And then the rest, noncontrolling interest goes slightly up. Why because our Africa result is very strong. And here, for example, in Ghana, Tanzania, we have some minorities. Obviously, the result goes out. So in total, group share profit goes up roughly 20%, which is then translated into as well earnings per share. So I guess very, very solid financials below RCO also. Coming to the cash flow on Slide 17. Overall, the cash flow is roughly EUR 100 million up versus prior year and where does this come from, obviously, change in EBITDA up and then you see that. The cash outflow from working capital is EUR 120 million better than it was last year. That's what I said what we are targeting to improve our working capital, and this is what you see here. And this is a little bit compensated. You see noncash items in other we had to pay some cash out of provisions for the restructuring and you have seen the currencies moving, and we have some negative effect on our currencies. Now cash flow here in that number also. But overall, if you then look at CapEx, very disciplined [indiscernible] EUR 40 million below last year. I think that is everything what we promised here. Again, we deliver. If you go to the next slide, Slide 18, there's a net debt bridge. You see here our net debt per end of June stays at 7.2, which is a leverage of 1.56x. You see that in the last 12 months, our growth ambition here is clearly visible. We spent EUR 1.4 billion on M&A. And in -- for the shareholder returns, again, above EUR 1 billion. I guess it's confirming what we said. And in that EUR 7.2 billion, we closed [indiscernible] late June. So there's [indiscernible] number in there. So pro forma, the leverage would be lower if you include also the [indiscernible] result, which you obviously don't have any here. So in reality, the leverage will improve even like-for-like in the next few months. For the outlook to Dominik then I hand over to you back again.

Thanks, and I'll close with the final chart. On the back of all what you have heard, we have then confirmed our guidance or will confirm our guidance to come in, in an RCO between EUR 3.25 billion and EUR 3.55 billion. ROIC around 10%. CO2 emissions was a slight reduction. And then just as an indication, CapEx will stay around EUR 1.2 billion, and the leverage will stay around the midterm target of 1.5x. So that's it from our side. .

Thank you so much, Dominic and Rene. Operator, you want to start the Q&A session, please.

[Operator Instructions] The first question comes from Luis Prieto, Kepler Cheuvreux.

I have 2, if I may. The first 1 is if you would be able to break down the price over cost building block of your Q2 EBITDA bridge between price increases, cost inflation, cost efficiencies, transformational accelerator and sustainable products. And the second question regards -- is with regards to your awards of EU innovation from subsidies in 2 of your European plants. Should we assume that the remaining CCS projects will all be awarded EU subsidies and in what time frame? And if you could -- if I may squeeze in another one, if you can comment on what happens to the [ Mitchell ] decarbonization plans after the U.S. DOE subsidy cancellation?

Okay. Luis, it's Rene speaking. So I will take your first and Dominik will take the second. So price of our costs for Q2. The good thing is all regions price over cost for Q2 are positive. And best news is the highest number is in Europe. So that's, I think, very convincing. And the -- every -- the [indiscernible] sales price increase was obviously in [indiscernible]. We had fixed cost for all regions going into the right direction in Q2, we had in fixed cost below last year of EUR 36 million. And there, you see clearly our transformation accelerator effect. So overall, we are very happy that every region or price of a cost positive and sales price, again, also for all regions up versus prior year.

Okay, Luis. And then on the CCS projects couple of thoughts around that. First of all, EU funding is nice, but it's by far no guarantee that these projects will fly because in most cases, the EU funding is by far not sufficient to make the projects go. That's also why you see outside of [indiscernible], there is not even one FID decision taken in the industry. I wonder why because you need to complement these things with many, many, many other things before you can actually FID a project. So yes, everybody focus on AU funding, that's nice, but let's wait and see how these projects really come to the FID status. So for us that's 1, not unimportant decision point, by far, by far, not the most important one. Just to be very clear, just to set these a little right on that one. And yes, there is a new round of EU innovation fund awards coming. And obviously, we have applied with quite a few projects for that funding round. And we are confident that we will a positive decision on some of them. Let's wait and see how that goes. On the U.S., it's very similar to the behavior that we see that we read in the paper of the administration. Yes, they have canceled the formally not only our grant, but I think overall, something 3 point billion US dollar grants to, I think, a lot of projects. And we are now in negotiation with the administration, how we deal with that situation. We formally have appealed that decision, and we will now -- we have started to negotiate and see how that will play out. We have certainly not given up on the [indiscernible] project to send a very clear message. We are confident to somehow find a solution with the administration because I think they -- my understanding and our understanding is that they want investments happening in the U.S., and they want also jobs to be created, and both would be done through the [ Mitchell ] plant, and that's why let's wait and see how this plays out.

Next question comes from Elodie Rall from JPMorgan.

My first question is on volume, please. So still negative in H1. Would you expect that to turn positive in H2? Notably, could you give us a bit more color on what's going on in the U.S. if the exit rates are any better, if you think the outlook is going to improve. Europe, do we forecast a bit of positive volumes from here and sustainability maybe on the strong trends in Africa. And then I just have a like detailed -- a little bit of a housekeeping question, but it's this line in operating results in group services and other, which had a big swing of EUR 24 million in Q2. So I was wondering what drove the swing and if this should be there in H2?

Let me take the first one, and then I'll give the second one to Rene. I'm sure he's already looking forward to that one. So let me comment maybe on bring you some color on the volumes. I think, in general, broadly, we should have seen the worst on volume decline, but we can't give you a guarantee which quarter exactly the turning point has reached, whether it's happening, let's say, more towards the end of 2025 or more in 2026, hard to tell. That's also true for Europe. You know that the early indicators, if you look at permitting situation, everything that goes in the right direction, but it typically takes 6 to 12 months before it really kicks in volumes. So in that respect, whether it's the tail end of '25 or the beginning of '26, very hard to say that is probably true for both the markets that you described, Europe and the U.S. I think in the U.S., we have the special situation that the interest rates have not yet moved down, and that obviously doesn't help the rebound of the housing market. You know that's very interest rate sensitive. So that's the 1 point that I think we need to continue to watch in the U.S. And the second question for me is the mindset of the current administration whether they want to continue with the uncertainty that they create through the current discussions or whether they want to slow down in that respect and bring some certainty to the table down the road. Personally, if you ask me, I'm hopeful looking a little bit at the midterms in November '26, I internally said -- if it doesn't come down right fairly soon after labor day this year. In our industry at least you won't see a positive effect anymore before the midterm. So let's wait and see. I remain hopeful that the U.S. we'll see some rebound and then I can be the weather guy because you know that the weather was a little bit volatile in the U.S. to say the least. Let's wait and see. I don't -- that's something I can't manage or guarantee but it certainly was an unusual weather pattern in the U.S. that we've seen, and let's see how that plays out in H2, and that will then also give the full set answer to the volume. Africa, we continue to be very positive for the key markets for us look absolutely in the right direction. So there's no reason to believe that Africa can't continue to click along as they did. Rene?

So Elodie, the good thing is you are in detail in our numbers in reading what we published, that's good. Thanks. And you give me the hard time in questions. But okay. This is -- there's the EUR 24 million, let's say, data to prior year, but that is, let's say, accounting on group level provisions back and forth, in and out. So will this turn worse? I don't think so. Will we get something back? I would answer yes. So there's no structural issue there. It's just movement, timing, provisions and what have you on group level. .

Very clear, Rene. All good, Elodie?

Yes, yes.

Our next question comes from Tom Zhang from Barclays.

First one, just back on the U.S., please. So you mentioned positive pricing in all regions, but I guess slightly negative like-for-like still in Q2, so challenging volumes. Just wondering how you're thinking about price into the second half, is carryover pricing still going to be enough? Or do you think there's a bit of a risk around price cost in the U.S. in the second half? And maybe if you could split that cement versus aggregates as well because I guess the margin progression has slowed a little bit in cement. And then the second question, just on APAC. So it's a very healthy rebound [indiscernible] APAC RCO, maybe just a little bit more color generally on what's driving that recovery and how sustainable that is as well into the second half?

Tom. Thanks a lot. Maybe I'll take both of the questions and then Rene some additional comments, just jump in. On the U.S., I'm positive on pricing in the U.S. That's true for cement and aggregates. Maybe a little bit more positive for aggregates than for cement. But in general, the pricing momentum from our perspective is fine. And the clear answer to your price over cost question, absolutely, the clear target is to keep that well into the positive, and I have no indication that, that won't work. So in that respect, we are very confident that we can keep that positive. When it comes to APAC, APAC consists of 5, 6 different key markets. I think Indonesia, to be honest, volume is okay. But overall market development is fairly sluggish, not where we expect it to be. Obviously, that's the big upside. If that comes back, that would help us quite significantly. Good news is that India is clearly coming back after some difficult years for us in India, where the performance has really rebound. The same is true for Thailand. China is not super important for us, but remains very sluggish. From our perspective, and then Rene, you may want to comment on Australia. That's an important market for us.

So you have seen the weather events in Australia in the first 6 months, so that was obviously not so helpful. So from my perspective, Australia should even perform better -- much better in H2 than in H1. So that's probably what I have to say to Australia. And -- did you mention Thailand on [indiscernible]. Yes.

Next one comes from Ephrem Ravi from Citi. .

Two questions. Firstly, North America, trying to get a sense of the impact of the acquisition of Giant in your financials. I suppose most of the difference between headline and like-for-like growth is giant. So very rough math, looks like the EBIT margin is substantially lower or around half of the rest of your North America business. Is that correct? Or if that is the correct what would be the steps to kind of improve the margins there? And secondly, a little bit more strategic question. You had identified supplementary [indiscernible] materials as 1 of your key growth areas in North America in your Capital Markets Day and a natural fit given your low carbon cement offering in Europe, with CRH buying comaterials do you think you should be moving a bit more quicker in that area before the assets get taken?