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

Ladies and gentlemen, welcome to the Heidelberg Materials Third Quarter 2025 Trading Update Conference Call. I'm Lorenzo, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Christoph Beumelburg. Please go ahead.

Thank you, operator. Good morning, good afternoon, everyone, listening into our Q3 earnings call. Pleased to report the numbers that we published this morning. As always, we have in the room, Dominik, our CEO; Rene, our CFO; and from the IR team, Robert and Ozan and myself. So happy to receive your questions after the prepared remarks. And for those, I hand over to Dominik.

Yes, Chris, thanks a lot. Welcome, everybody. From our side, great to hear you and have you on the call. Let me just go through the presentation quickly, and then we get to your numbers. Good quarter for us. I think revenue up 1%, RCO up 5% after currency impact even 7%. So I think that's good, also operating EBITDA margin up by 65 basis points. I think that's a good quarter, driven also by the transformation accelerator, savings around EUR 250 million. So we are basically halfway to where we need to go and want to go, although we've still got 15 months to go. So I think that's well on track from our perspective, if not even better. The share buyback is on track to be finished by December at the latest. So I think that should be good. The second tranche, obviously, of the EUR 1.2 billion, so fully on track to what we have communicated. Good news on the decarbonization side, we expand our leadership in that respect. I'm sure we get into your questions on this one. But we took the FID, final investment decision for Padeswood CCS project. Construction will start this year. So that's good news. And on the back of that and on the back of Brevik performing well in terms of carbon -- capturing the carbon and also putting it under the Norwegian Sea, we are able now to sell the first evoZero products to the market, and we have already the first projects that are up for delivery. So in that respect, things are moving well. And on the back of all of that, we are confident to give you a positive outlook for the remainder of the year to end up at a narrowed range for the outcome of the RCO this year, which will now be 3.3% to 3.5% instead of 3.25% to 3.55%. So I think that's also good news. ROIC will be around 10% and the CO2 emission will come slightly down. So overall, I think fully on track. If you go to the Page 3, you see again the numbers. I think that's all going in the right direction. Revenues up, EBITDA up, EBITDA margin up and EBIT up. I think that's in difficult market environments, I think a very convincing performance. That same is true for the full year, everything green in terms of revenue, EBITDA margin and EBIT. So I think we don't need to go through the details. You can read them yourself. If you go to the Q3 bridge, Page 5, EUR 55 million -- almost EUR 55 million up, 5% on RCO. And you see, yes, there is still volume decline. So the net volume figure is still down. But the good news is price over cost is positive, and that's a very important measure for us. We told you all along that our clear target is to keep price over cost well in the positives throughout the year. And this is what we again delivered in Q3. And you see also on the left side, currency impact, there is a significant currency impact to my earlier remark, also in the quarter, almost EUR 30 million. And on the flip side, there is positive scope effect where the acquisitions start contributing. So in this case, EUR 30 million up. If you look at the same picture on the 9 months figures, Page 6, you see that the net volume is minus EUR 91 million and the price over cost is EUR 202 million. If you want to read something positive into this, you see that the volume decline is slowing down because it's a big quarter, minus EUR 24 million on the volume side compared to 9 months, EUR 91 million, you can do the math yourself. I think there is a little bit of a stabilization effect on the volume side coming. And then also if you go to the scope effect -- let's start with currency. If you see the currency, I think the currency impact is significant. So you see for the full EUR 29 million, while for the quarter alone, EUR 28 million. So you see the currency impact is significant. So it's the scope effect. Again, EUR 29 million for the full quarter, but EUR 48 million for the first 9 months, do the math. So I think it's moving in the right direction also on getting the effects from the acquisitions. If you turn to the transformation accelerator on Page 7, we are absolutely confident that we will hit EUR 500 million, if not more, on the transformation accelerator. We have EUR 250 million in the books on the 3 pillars that we are chasing. And it's really showing now also in terms of how we execute this internally, the advantage we have globally and to really push the global advantage of being very focused, a pure play in our industry to really drive efficiencies along the platforms that we have described, decarbonization, digitalization, but also technical excellence and the transformation accelerator is a fantastic tool to show also the contribution of that. Now when we get to Europe, from our perspective, not a great quarter in Europe. We say that very clearly. There were a couple of one-offs in there. Rene will maybe go through the details in a minute. But I think okay on a fairly high level, but we are an ambitious team. And I would say, as good as Q2 was in Europe, I think Q3 was also driven by those one-offs, not a fantastic exercise. But I think everything that we can see and what we can manage internally, both in terms of pricing, but also in terms of costs, I think that goes in the right direction. The market is the market to some extent. And obviously, we have -- we are heavy weighted to some markets that are still under pressure, which is great news because if we do our homework right, then the upside potential out of this is substantial, if not substantially better than with any comparison. So in that respect, it moves in the right direction in general, but Q3 is nothing to over celebrate on Europe. We are very honest about this. But for me, the more important message here is this is a quarterly impact. We do not see a change in any positive trend from the bottom-up in Europe, and we are doing consistently our homework. So I'm very confident that Europe will show its strength down the road. Then we go to the page, we move to North America. Other than Europe, I think strong quarter from North America. Also the comps we can see. I think overall, I think there was a good development in North America. Overall, I would say, revenues up, EBITDA up, RCO up like-for-like in the higher single-digit numbers. I think that is good. And also margins up, especially in aggregates, good performance also in cement, stable on a good level. So overall, I think a good quarter from North America. Asia-Pacific, I think, splits into a couple of different messages. I think Asia, to be honest, is still in difficult territories. I think the hopes were higher. I'm being very honest with you on the Asian performance. I think we are doing good homework again. I think there are markets and countries that are really performing above our expectations, but there are clearly also countries like China, Hong Kong, to some extent, also Indonesia that are clearly under our expectation. Again, upside for the time to come, but I think that's not where we wanted it to be. Maybe on Australia, Rene, you want to comment?

Australia is a very strong quarter for us. August, September was very good also October was very good. So Australia is slightly coming back, which is very good cost base. Now the volumes come, we deliver good margins. So Australia is in very good shape, was very good shape in Q3.

Yes. okay. And then I think in a global portfolio, you have always movements, but I think the good news is that AMWA is continuing to clogging along on a very high level, I would say. So revenues up 6% like-for-like reported even 13% because of the Asment acquisition. Then we have the EBITDA up 23% reported, I would say that's a very strong growth, unparalleled and then like-for-like even up 15%. So underlying performance and acquisition works very well in Africa. And the same is true on RCO. Look at the EBITDA margin development, 250 basis points up, guys in cement. I have to say kudos to our team in AMWA that is really doing a fantastic job in difficult circumstances. I think let's not assume that this is all easy, but it's our duty as a global company to manage the volatilities. And I think the African team is doing a fantastic job. Good news also on sustainability, a lot of good news, I would say. First of all, evoZero is now finally hitting the market. We've started the first projects with the underground station in Oslo, for example, and also a 3D printed house here in the vicinity of our headquarter here in Heidelberg. I've been on the site myself. That's quite energizing to see how you combine a 3D printing technology with near zero carbon products. I think that really moves in the right direction. It shows how applicable this product is and how much value we can drive for the end customer with this product. So I have high hopes that this is really our future, and this works well. Final investment decision in Padeswood, I think why do we make a significant fuss about this? Because the final investment decision, guys, is an important milestone. And I think the market is underestimating this milestone. I have to tell you, there are project portfolios all over the place, by the way, also in Continental Europe, but there is -- in Continental Europe, guys, not one project, not one project that has even taken a final investment decision. And just to be very clear, a, the hurdle to take a final investment decision from a project stage is massive. And secondly, to then deliver the project that carbon capture...

[Operator Instructions] Hold the line as it has been lost and the conference will continue shortly. Please hold the line.

Sorry, guys. Somehow the line broke down. So let's go back to the sustainability side of things. In the end, I think good news is that evoZero now finally hits the market, and we have a couple of exciting projects. I think you still captured that. What is important is the FID, so the financial -- the final investment decision that we took now on Padeswood is, I think, vastly underestimated by the market. A final investment decision is a very important milestone and a difficult milestone to hit even if you have a lot of projects that you are chasing to get to a final investment decision is a major hurdle and I think should not be underestimated. And then once you've made the final investment decision, you still have to execute the project. You have to capture the carbon, you have to store the carbon. And again, this takes 3 to 5 years before you get there. So I am convinced we have as Heidelberg Materials here, a huge competitive edge, and we will -- rest assured, we will build on this. If there are questions later on, I'm happy to make that point. But I think let's just be clear that this is a significant edge that we do have in that respect. And again, we are clearly going to build on it. Talking about building on it, I think it's clear that the latest news from this week about the EU Innovation Fund decisions is just another proof point that we are on the right track and also the EU government has understood that there are companies that are delivering on what they are promising. So in that respect, I think we have -- all 4 of our applied projects basically got reunited. The one in Belgium, ANTHEMIS, the one in Airvault in France, the one in Italy in Rezzato and then the pilot project in Goradze in Poland next to the ones we already had, GeZero and ANRAV. For the 4 this week, we alone got EUR 520 million of carbon contracts for difference or in this case, EU Innovation Fund money. And we need to complement and want to complement this now with local support, and let's wait and see how we get there and when we get there. But overall, this was very encouraging news and a clear sign that the EU has understood who is leading the game here. In that respect, I would move over to the financials, Rene, and do you want to take over?

Thanks, Dominik. Hello, everyone, as well from my side. So what you see here on one page is a rough overview about our key financial metrics. Adjusted earnings per share, 4% up. And even if you would take the reported earnings per share is even 11% up. So if we take the AOR out, it's only 4% because last year, we had the impairments of European master plan part of it in our numbers. So last 12 months, free cash flow is at EUR 2.3 billion, now that's EUR 150 million higher than the last 12 months December '24. I think that's a pretty good result. And the final outcome will depend on working capital in an outflow at year-end. So let's say, we have inflow, but let's see how much. But the clear target is to be on EUR 2.2 billion to EUR 2.3 billion. So that should flow in. And then leverage, that's seasonal 1.5x right now, which will go down by year-end, we'll probably between 1.2x and 1.3x depending on, as I said, working capital. But I guess that as well showing the healthiness of our balance sheet. And then regarding M&A, Dominik alluded to it, we have closed Asment de Temara, Morocco, a very good acquisition for us. And then also in Australia, the Buckeridge Group of companies is closed and already in October, it will be in our numbers. So that is still a very, very good acquisition. And then the second tranche of the share buyback, as Dominik said, we will finalize by mid-December latest. Dominik, I hand over to you for the outlook.

Okay. Then we have just the outlook. I think I mentioned that already. We have specified the outlook and narrowed the range to EUR 3.3 billion to EUR 3.5 billion on the RCO. ROIC will be above 10%, that's the clear target. We have slight reductions on CO2 emissions. CapEx will stay at the promised level around EUR 1.2 billion. And then the leverage will be around 1.5x. We are quite confident that it will come in even below that. So I think -- or better than that. So that also indicates that there is a clear opportunity to continue our growth on the organic side, but also on the acquisition side. So in that respect, all lines on green. Thanks a lot. And with that, I would say let's turn to your questions.

Operator, do you want to start the Q&A process, please?

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

I had a couple of them, hopefully, very quick. The first one is, if you could please provide us with some sense of what the percentage level of subsidy obtained from the EU Innovation Fund for the plants in France, Italy and Belgium. You mentioned EUR 520 million for the award, but I'm not sure what the total CapEx for the 3 plants was. So that would be useful. And if you have any updated timing for the projects? And then the second question, this might be a bit difficult, but a close peer of yours has stated that they see U.S. residential subdued next year in -- I assume in the U.S. Do you have any commentary on what you're seeing for next year in this particular part of the market?

Luis, thanks a lot. Look, on the subsidies, there is no number we can disclose at this point because, a, the investment levels is still obviously under scrutiny. Yes, there is and in that you put into the application process, but this is a moving target. So it's far too early to make a final conclusion because we -- keep in mind, we continue to learn from Brevik. We continue to learn from Padeswood, and that obviously goes into the budget. So we're not going to throw out any inflated number. We do our homework. Secondly, I don't think that the EU Innovation Fund is the end of the subsidy game. There is carbon contracts for difference that are, for example, available in Germany and the process is still ongoing. So I don't want to jump to any early conclusions on this. So I ask for your understanding that rest assured, we will only greenlight carbon capture project if we have a very convincing business case. As we always said, Brevik and Padeswood are performing above the average return on invested capital compared to the total group, and that will stay the goalpost for any additional investments we do into carbon capture and storage. On the U.S. residential side, it's very hard to read 2026 is still a couple of months to go. The situation in the U.S. on the interest rate side is volatile. There is discussions going on. The good news is that the turning point seems to be reached. So the interest rates are coming down. But remember, there is an interest rate and there is a mortgage rate, and there are historical hurdle rates where the mortgage rates need to sit at certain levels when you then see things coming back. Pent-up demand is absolutely there. But I think the -- some additional movement down on the mortgage rate side would still help. I'm quite confident. Do we see this in January 1? I don't think so. But throughout 2026, would we see some upside potential on the residential side from today's viewpoint? Absolutely.

The next question comes from Goldman Sachs, Ben Rada Martin.

I just had 2, please, and both were on the European cement business. I guess, firstly, Dominik, you mentioned some one-offs within the quarter. I was wondering, could you quantify some of those? And I guess, the expectations that they won't be recurring going forward? And then second, on the European cement business on pricing in 2026. We've got some pretty significant regulatory changes when we look at the ETS benchmark, the phaseout of allowances, CBAM. I'd be interested what kind of pricing do you expect on European cement in 2026? Is it right to think that the contribution will likely be larger than what we've seen in 2025?

Yes. Thanks, Ben. Let's let Rene take the first one, and then I'll do the second one.

So Ben, regarding the one-offs in the quarter, we had some, let's say, major inventory impacts, roughly EUR 10 million to EUR 15 million due to, let's say, phasing of production in some big European plants. And then we had some -- as well our other operating income was probably EUR 10 million to EUR 15 million lower than it was last quarter due to timing of some -- it's small asset sales here and there. It's small -- really small stuff. But if you had 10x EUR 1 million or something, that is up that what we had last year. So the inventory that should come back. And then the timing of the asset sales or other operating income as well as some other incomes there that should come back.

Okay. And then on the European question around CBAM, EU ETS, I think it's true that in the last couple of weeks, there was a little bit of noise about what's going on there. You saw probably that yesterday, the EU has been agreed now on a framework how to adjust some of the climate targets. From all what we see, no significant change to what is relevant for us. I think CBAM is there to stay. EU ETS is one is there to stay. Is there a discussion around what happens in 2034 and 2039? Maybe, but that's way out, guys. For us, it's clear that you look at the carbon price right now, it's EUR 82 or whatever it is. So the significant price move further up. Our strategy does not change. We are fastly -- on a fast pace, decarbonizing our assets in Europe and become not only the cost leader, but also we are clearly from our side, pushing value over volume, and that strategy absolutely not changed. And to your specific question, Ben, do we expect for our company a better pricing performance in Europe in '26 than in '25? Yes.

The next one comes from Elodie Rall from JPMorgan.

Just first, it's not really a question since it's a follow-up from the previous question. Did you say that the one-offs were EUR 25 million, more or less in Europe? If you can just confirm that? And then second, on North America, margins in cement also went down, I think 113 bps in Q3. Revenues was up 2.5% on a like-for-like basis. So can you give us a bit of color as well of what's going on there from a margin perspective? And what kind of pricing environment are you seeing and expecting going forward as well in the U.S.?

Elodie, EUR 20 million to EUR 25 million is the number for your question number one.

Okay. And then on the -- Elodie, on the second question on the U.S. cement margins, the picture is quite different in different markets of the U.S. And personally, Elodie, I think there is also some tariff impact left or right, not on our side, but when it comes to the competitive situation in some of the different markets in the U.S. I think overall, the performance in North America in Q3 was good. That's true for the volume side. Would we have hoped for even better pricing dynamics in the U.S. on cement? Yes. I'm with you. But a similar answer, maybe not with the same amount because historically, the performance on cement pricing was even better in the U.S. than it was in Europe. I think there is upside potential to the cement price development going into 2026 compared to 2025.

Next one is Tom Zhang from Barclays.

First one, so you mentioned in the remarks, you're over-indexed to some of the more, I guess, sluggish or weaker markets in Europe. Could you maybe expand on that a little bit more? Maybe you're sort of talking about Central Europe, Germany and in particular, if you're seeing any changes in the competitive dynamic there as we go into 2026? And then the second question, just around capital allocation. So you mentioned the second tranche of the buyback. We're close to finishing, but I see you haven't bought back really any shares for the last month. So if the balance sheet is looking at 1.2x to 1.3x leverage, maybe a bit of a slowdown in M&A in this quarter, at least, what are the hurdles to just starting tranche 3 early and maybe committing more capital to buybacks?

Thanks, Tom. Let me start the first one and then René takes the second one on share buyback. Now in Europe, I think Europe has a large footprint. And the question is, are all markets performing on the same level? The answer is clearly no. And I think it's no secret that Eastern Europe is, in general, performing well. And if you look to our exposure in Eastern Europe compared to others and our exposure in Northern Europe and in Western Europe, I think you will see some difference. And my comment was going towards the point that our markets -- stronghold markets, they are very much next to Eastern Europe. They are very much also tweaked to Northern and Western Europe. So for us, obviously, markets like Norway, especially Sweden, the U.K., Benelux, France, Germany, they are a significant stronghold for us. And guess what, those markets are volume-wise have clearly underperformed in the last 2 or 3 years compared to the -- and you are now on levels far from the peak going back to the 50s of the last century. So the upside potential in those markets is fundamental to say the least. And that's why I think we are doing our homework, trimming the asset base, trimming the cost base and with that should have a significant upside potential as those markets come back up. That was the reason of my comment.

So Tom, regarding capital allocation, regarding the share buyback, that's correct. The last 2, 3 weeks, we did not buy a lot of shares, but that's in -- the process is in the hand of the banks and they steer, let's say, the purchase, and that's what I can tell you. And as well, I can tell you that we want to -- the deadline is mid of December that we want to finish this. So that's all on track. And then regarding the third and last tranche of the second program for next year, we want to keep the same rhythm as we had it. And rest assured, we stick to what we have said. We will finish the share buyback in next year, and that's it. And then we see when we have announced it or when it's finalized, we see what else we do, that depends as well on M&A opportunities or whatever and how our cash flow goes. So we keep you informed when the time is ready for this.

Next one comes from Pujarini Ghosh from Bernstein.

So if we look at EMEA and APAC, we're seeing a significant margin expansion. So could you talk a little bit about what's driving that? Is it pricing, maybe volume growth leading to operating leverage or cost efficiencies? And my second question is on Germany. So we know that volumes haven't materialized as maybe we were hoping for at the start of the year. But on the pricing side, what are you seeing? And have you started talking to your customers about pricing for the next year? And what should we expect on German pricing in 2026?

Yes. Okay. Let me comment on your 2 questions. First of all, I think if you look at APAC, I think it's clear that Rene was making the point that Australia, I think, is moving in the right direction, and that is very much driven also by cost management -- disciplined cost management and also stable pricing and good pricing, I think, overall in Australia. But then clearly, I think the team in Asia is doing their homework. So we are massively looking at our costs. So the majority -- I'm looking a bit to Rene, but the majority of the improvement on the margin side does not come from the pricing. It comes clearly from our cost management. And that's the name of the game right now in Asia, which I think is also the right thing to do. On Germany, please allow that I'm not commenting on pricing for competitive reasons on certain markets. We've never done this and cannot do it for legal restrictions. Overall, I think I go back to my earlier comment, I'm absolutely -- for us, it's a clear focus to -- focus on value over volume and see a significantly better pricing performance for our operations in '26 in Europe than in '25, and that obviously also includes Germany.

Next question comes from Julian Radlinger from UBS.