Holcim AG (HOLN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Holcim Half Year 2021 Results Conference Call. I am Sandra, the Chorus Call operator. [Operator Instructions] And 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 Swetlana Schoordijk, Head of Investor Relations. Please go ahead, Madam.

Good morning, ladies and gentlemen. On behalf of Holcim, a very warm welcome to our first half year results earnings call. With me in the room are Jan Jenisch, the CEO of our company; and Geraldine Picaud, the CFO of our company. As usual, we will start with the presentation of our results by our CEO and go into more financial aspects by our CFO afterwards. And then we will take some time for your questions afterwards. Now it's my pleasure to hand over to Mr. Jan Jenisch, the CEO of our company. Jan, go ahead.

Yes. Good morning, everyone, and thank you very much for joining our call about the half year results 2021. You can see I'm very excited to share, I think, the record results and also share some more insights with you on our progress regarding our strategy 2022. So I will start and give you some of the highlights and then Geraldine will go through the details of the regions and the business segments and then we are closing with our guidance and outlook before we have our Q&A session. So again, we had a record first quarter of the year. Now we topped that with another record quarter in the second quarter. So I'm extremely pleased that we have such a strong first half of 2021. Also considering that we have the record results last year, especially when it came to free cash flow, I'm very happy to see that we continue here and can even improve this financial performance. I think you look at the results, we did our homework. You remember last year, we have launched our HEALTH, COST & CASH action plan in the pandemic as early as in March 2020. And our aim back then was, of course, to safeguard the business through the crisis, which means safety first for our people, our customers, our communities, but then also safety first for our business in focusing on the cash flow. And the second target of the program was really to become stronger and become the most competitive Holcim here out of this pandemic. And we have achieved it as the numbers are proving. We have record margins. So we did a great job on the cost side to really make sure we are as efficient as we can be. And our people also did a great job on the pricing side to make sure we get paid as good as possible. And on top of that, we had many also exciting product introduction, especially the new ECOPact green range of concrete and now the new ECOPlanet green range of cement. So very pleasing results. I'm even more excited about the progress we make regarding our strategy. You have seen there was a very active first half of the year when it comes to M&A. We had a record number of 7 bolt-on acquisition, especially to strengthen our aggregates and concrete business that was I think very pleasing. We really found 7 good local companies and could welcome them to the Holcim family. Then, of course, on top of everything, we made this transformational acquisition of Firestone Building Products. And we had a call at the beginning of the year where we shared the great fit we have for that business and our ambition to become the global leader in flat roofing systems. Now we just closed the business end of March, and we had now 1 full quarter with Firestone and there has been really overwhelming results. We have, I think, 1 chart in the presentation. The volumes grew 21% in Q2. So you can imagine how happy we are that we not only had a seamingless start of the business with no disruption and we already are full in growth [ gear ]. We have great demand from the customer side. And on the other hand, we've already started the expansion into Latin America with the liquid-applied waterproofing product range, which is now present in our Disensa retail outlets. Also exciting with Firestone, I always shared with you what a great innovator that is for flat roofing systems, bringing all these functional roofing systems for being insulated, being green, being solar and here, we push now very hard to make our membranes self-adhering, so to make work on the roof faster, safer, but also of higher quality. We apply adhesive already in the factory and you can easily bond the membrane on top of the roof. So very exciting new products here going forward. I think also when you look at divestments, we made some steps here. We have signed the divestment agreements for Zambia, for Malawi and for the Indian Ocean, which is the island group of Madagascar, Mauritius and La Réunion. So very happy here. We found good owners, and we also found a very value-accretive divestment values for those businesses. So I'm also happy that our portfolio development goes forward here also in this direction. I think when it comes on sustainability, that's very key for us, we also made good progress. You see -- I'm sure you're following our ESG rating, which keep improving. I think more than ESG, I'm excited about this green product initiative we started 12 months ago with ECOPact, now available globally in 24 markets. Now we just launched ECOPlanet, also a range of cement with at least 30% lower carbon footprint. And we have huge demand for those products, this is going to be a big part of our future, and we do everything here to introduce these products and also make sure that the supply chain will be scaled up so that we can use as much recycling material as possible that we can play a big part in using construction waste, demolition waste into our new products. On the technology side, we made a big progress on 3D printing. I think that's going to be a big part in construction in the future. You have might seen some of our projects. We just had the most stunning 3D printed bridge, which we exhibit in Venice at the architectural exhibition. We have other projects, we are printing schools in Malawi, together with an exciting innovation partner. And one of the most exciting projects is to print windmill towers together with General Electric. So we will see this more and more and 3D printed products which can have a material saving of up to 80% will be a big part of the future of modern and sustainable construction. Good. I think this is a bit of highlights I want to share with you and to start our discussions and now I'm happy to hand over to Geraldine, who gives us more insights into the results and performance.

Thank you, Jan. Good morning, ladies and gentlemen. So after an excellent Q1, Q2 financial metrics, you can see on Slide 10, have been very strong again with high double-digit organic growth in both net sales and recurring EBIT. H1 sales have grown by 17% like-for-like versus the prior year and by 5% like-for-like compared to H1 2019 before the crisis. This reflects the recovery in activity as well as strong momentum in pricing. EBIT recorded a huge and overproportional growth at 72% like-for-like when compared to H1 2020. If we compare to H1 2019 before the pandemic struck, like-for-like EBIT growth reached 35%, demonstrating our ability to implement operational efficiencies and to mitigate the increases in energy prices, which have been witnessed this year. So EPS before impairment and divestment, as you can see, amounted to CHF 1.43 per share for the 6 months, increasing by 78% in total, even faster than the EBIT. Finally, we have also managed to beat last year's strong free cash flow by 9% as we will review in detail during this presentation. So now let's start with the volumes. In cement, we recorded 13% like-for-like growth versus H1 2020, and all regions have contributed to the strong result. Emerging markets have recorded an outstanding growth, while mature regions have recorded good progress. North America cement volumes increased by 2% on average. These results primarily come from an excellent trend in Canada, which recorded a double-digit growth overall. The U.S., which had been severely impacted by the bad weather in Q1 was back to growth in Q2. Similarly to previous periods, LATAM recorded an outstanding performance, achieving a growth of 28% in H1. All countries have contributed to growth with the 4 major markets, Mexico, Brazil, Ecuador and Argentina, recording high results. APAC achieved a huge growth of 28% in cement. Despite the restrictions due to the recent coronavirus wave in the country, India recorded a high growth benefiting from the stimulus programs in rural and urban residential construction. The Philippines also achieved a strong catch-up in the second quarter. Europe increased by 6% on average, some Western European countries such as France, U.K., Spain and Italy achieved a high growth back to full activity. Germany, Russia and Poland recorded lower results, although they were back to growth in Q2 after soft market conditions in Q1. Middle East, Africa growth of 12% results from strong growth in Algeria, Iraq and Kenya, while Nigeria and Egypt recorded a single-digit growth. Our aggregate volumes grew by 6% like-for-like, driven by good market trends in France, U.K., Canada and China, and ready-mix volumes increased by 14%, boosted by a good rebound in France. If we now look at our net sales, they stood at CHF 12,556 million, up 17.4% compared to H1 2020. The positive scope effect, you can see, amounted to CHF 561 million, and this is mainly attributable to the consolidation of Firestone Building products from the beginning of the second quarter. It also includes the effect of bolt-ons acquired during the last 12 months. The like-for-like growth brought an additional CHF 1,770 million in net sales, an increase of plus 16.6% on 2020. And this strong number results primarily from the volume recovery for 11.7% as well as from our focus on pricing, which has contributed to growth for 4.3% on average. So for the first half of the year, currency translation had a negative impact, albeit at a lesser rate than we saw last year. The impact you can see here is minus 4.4% or CHF 468 million, stemming mainly from the Argentinian peso, the Nigerian naira, the U.S. dollar and the Indian rupee. If we now move on to our recurring EBIT. It has increased by 66% in total, mainly reflecting the like-for-like growth of 72% or CHF 862 million. This record growth combines a significant volume effect of CHF 586 million and solid pricing, such solid pricing has exceeded operating costs by CHF 255 million despite energy inflation. This also reflects the continuous monitoring of our production costs, our drive for operational efficiencies. The contribution of our JVs increased by CHF 24 million. This is mainly due to good progress in Morocco. The currency translation that you can see here represents minus 11%, that's globally attributable to the same currencies I mentioned on the net sales slide. The effect on EBIT is mechanically larger than on sales. This is due to the countries impacted, which have a higher margin than the group's average. Finally, the scope effect has brought CHF 61 million of additional EBIT. Let's now look at the results of each business line. And you can see that they all recorded organic growth in sales that is overproportionate with the profitability growth. The cement sales grew by 20% like-for-like, mainly driven by a volume increase of 13.2% and an average price impact of plus 5.5%. This positive pricing, combined with the operational efficiencies, allowed the EBIT margin to progress by close to 5 percentage points. Aggregates recorded 6% volume growth like-for-like and an average pricing impact of 1.2%. Ready-mix volume grew by 14% like-for-like, and the price impact was 2.5%. The profitability of both business lines improved significantly. Our Solutions & Products segment recorded a huge total growth of 74% in net sales, mainly due to the acquisition of Firestone. But the existing business also recorded a strong like-for-like growth in net sales of 9% with margin improvement, driven primarily by the rebound of activity in the U.K. So if we go to slide -- the next slide there, after the acquisition of Firestone, we felt it was useful to share more on our fourth pillar, the Solutions & Products business unit. In Q2, it recorded more than CHF 1 billion in sales for the Q2, which is about 15% of the group's total sales. In terms of activity, roofing systems represent close to half of the business unit sales. The rest of the existing business consists of concrete products, asphalt and services that we provide across the countries. This business unit largely operates in mature markets, with Europe and North America representing 91% of the sales of the BU. We see it as a solid and sustainable growth engine for the group. As you can see from the Q2 numbers indicated on this slide, the market trends are very good, around 20% growth in volumes, especially for the roofing systems business. This is also a green business, offering sustainable products and solutions. We are very proud to be at the stage where we have built a strong platform for this fourth pillar. Additionally, the group has also a strong balance sheet, which means everything is in place to fuel this business line with both organic growth and acquisitions. Let's move on to the Slide 16, and it gives an overview of the results by region that I will now comment into more detail. The good momentum continued there. And the region delivered a solid set of results in Q2. Net sales up 6.6% like-for-like, recurring EBIT increased by 18.3% like-for-like, over-proportionally to net sales. The region recorded volumes growth across all business segments in the quarter, driven by strong demand in the U.S., Canada East and the good recovery in Canada West. Positive pricing, rigorous cost control have allowed us to achieve strong operating leverage. Latin America recorded another quarter of exceptional performance with net sales up 72.5% like-for-like and recurring EBIT increased by 92% like-for-like. Volumes were up by twin double digit across all business segments in the quarter, boosted by demand from housing and iconic infrastructure projects in Mexico. The start of the new grinding station in Mexico will enable us to capture strong market growth. Excellent price traction and strong operational performance allowed the region to deliver very good recurring EBIT margin improvement. Additionally, we started the global extension of our roofing systems platform in Latin America. We successfully launched our range of liquid-applied membrane products, GacoFlex, TechoProtec in Mexico. Further expansion into Colombia, Ecuador and Argentina is planned for the second half of the year. If we now move to Europe. The region delivered a good progress in the quarter with net sales up 24% like-for-like and the recurring EBIT increased by 53.9% like-for-like. We benefited from solid market demand in France and continuous growth in Eastern European countries. The U.K. market also experienced a strong recovery. Our volumes were substantially up across all business segments despite some unfavorable weather impact in the quarter. So the region recorded a significant over-proportional recurring EBIT growth, thanks to excellent pricing and our continuing focus on cost. Middle East Africa now. The region achieved another quarter of strong profitability. The recurring EBIT increased by 110.2% like-for-like over-proportionally to the net sales growth of 27% like-for-like. Cement volumes were strong in the quarter, driven by positive demand in Nigeria and Iraq, while infrastructure projects gained traction in Kenya. Successful turnaround initiatives and positive pricing contributed to a record recurring EBIT margin expansion of 5.6 percentage points in the quarter. Let's now move to Asia Pacific and other region with very solid performance in the quarter. Net sales grew by 36.8% like-for-like and recurring EBIT recorded growth of 53% like-for-like. Strong double-digit volume growth across all business segments was the key driver for the top line improvement, good performance in Australia, where we started to benefit from government stimulus programs. India delivered an outstanding recurring EBIT margin improvement of more than 4 percentage points in the quarter. This despite the impact of the second COVID-19 wave and some inflationary pressure. Further, the start of our Marwar Mundwa new cement capacity will allow us to participate in the market growth. As a result, the region recorded a strong margin improvement in the quarter. Asia Pacific was also the region with the highest margin expansion in H1. We'll now look at the P&L, excluding both impairment and the capital gains or losses on the divestments. The increase of the recurring EBIT has amounted to CHF 789 million or 66% as presented before, mainly coming from the excellent like-for-like growth of 72%. Restructuring, litigation and other nonrecurring costs have increased by CHF 137 million due to the cost relating to the Firestone acquisition and one-off litigation costs. Despite the cash spent for acquisitions, our financial expenses have continued to reduce, thanks to financing and refinancing transactions. Our effective tax rate has remained unchanged at 26%. Finally, the good performance of our subsidiaries with minority shareholders, especially in India, has generated an increase of the net income attributable to noncontrolling interest. As a result, the earnings per share, which amounts to CHF 1.43 has increased over-proportionally by 78%. Let's now look at cash generation. This half year, yet again, we are pleased to report that the group's free cash flow has increased. This is primarily due to the recovery in business activity, which generated more EBITDA, which is mechanically partly offset by more working capital. Nonetheless, the numbers of days of working capital has improved compared to June 2020. We have incurred some nonrecurring costs, as I mentioned before, and of course, paid more tax due to there being higher taxable profits. This has been partially mitigated by reduced financing costs and some favorable timing on dividends received from our JV. On CapEx, you may remember that we had drastically reduced our spending last year in order to preserve cash during the crisis. We are now investing in a disciplined manner in line with the need to fuel growth. In total, the group generated CHF 840 million of free cash flow in H1, 9% above last year. At the end of H1 2021, net debt amounted to CHF 12.4 billion. Over the 12 months, we have generated free cash flow for CHF 3.3 billion. We have spent CHF 3.4 billion to acquire Firestone and bolt-ons and have paid CHF 1.5 billion of dividends in total. Out of this amount, CHF 1.2 billion went to our shareholders and CHF 0.3 billion to the minority shareholders of our controlled subsidiaries. As of June 30, we reached a leverage of 1.8x based on the last 12 months, which remains well below 2x. This has been achieved despite the timing of the Firestone acquisition, which fully impacted the debt, while we only have 1/4 of results. Now I hand back to Jan for the outlook.

Thank you, Geraldine. And yes, I think, excellent numbers and very broad-based from all regions, all business segments here, we generate this convincing set of results. So we are very confident now to upgrade our guidance for the full year. We see that the markets will continue to grow. Our momentum will continue in all regions than we expect in the second half of the year, that all these various stimulus programs, which have been announced in basically all our key markets will come to life, and we will start to have additional demand from those stimulus programs. We talked about Firestone already. We're going to see here a great future. This business flat roofing systems will already be well above $2 billion of sales in the first 12 months of ownership. So this is a, I think, very satisfying trend. And then we will -- all this together, we see an EBIT for the full year of at least 18%. And of course, our other guidance of CapEx less than CHF 1.4 billion and return on invested capital of above 8% is confirmed with this momentum we have at the moment. Overall, it's exciting to see that our strategy targets for 2022, we will already achieve all of them 1 year in advance, and then we can start to develop new and more challenging targets for the years to come. I think with this, I would like to turn over to you, and I'm happy to open the question-and-answer session.

[Operator Instructions] The first question comes from Elodie Rall from JPMorgan.

The first one will be obviously on the price/cost as we're seeing for the sector in general, people are worried about cost inflation into H2. You've had a positive spread in H1. Actually, could you split that between Q1 and Q2, potentially, that would be helpful and give us your views on H2? And the second question is more midterm on your ambition for the building and solutions division in terms of percentage of revenue and EBIT in 5 years' time and then in 10 years' time, how much do you want this division to contribute? Maybe give us a bit of flavor on where you are in term of the acquisition pipeline in there?

Yes, thank you for the questions. Price over cost, we were also positive in quarter 2, so not only in quarter 1. We have certain areas we see cost inflation, most prominently in energy. But we are able to offset those cost inflation by efficiency gains we have achieved through our health program; HEALTH, COST & CASH. And we also see that for the second half of the year. All this comes with very good pricing. We are able in all key markets to get very solid pricing. And so overall, we can confirm there is cost inflation, but we are offsetting the inflation and we also expect our record margins to continue in the second half of the year. Regarding the fourth segment, Solutions & Products. Well, that's very exciting. We could kick start that segment with the Firestone acquisition. You saw the numbers just for Q2. We already have CHF 0.5 billion of sales with roofing systems. And again, with high-growth numbers, 21% in volumes, it's even higher in Swiss franc or U.S. dollars. So very promising. And in Q2, this segment solutions and products is already 15% of our sales. And that's just the start. As we announced earlier this year, the roofing systems, we want to double as soon as possible. We said at least within the next 5 years. Half of this growth comes organically and the other half through other acquisitions. So we are very excited to really make this a new column for the company, a new base and looks now very good.

The next question comes from Robert Gardiner from Davy.

I got 2 as well. So, one, I was wondering, could you give us an update or some sense of exit rates in the business in Q2 and into July? Just wondering in terms of, obviously, Q2 is very, very strong. Has that continued? Or do you expect it to continue? And then secondly, just wondering in terms of some of the markets where you still have a lingering kind of COVID impact and give us some sense of what's going on in those markets, thinking in particular of India, but also recent lockdowns in Australia, how impactful are they? And how that has also been affected?

Robert, I'll start with the second question, and I think Geraldine takes the first one. So yes, it has been an amazing time with the corona pandemic and what we are now 50 months into that. And we had our disruption in -- if you recall, in April, May, when also construction sites have been closed in many of our key markets. Since June last year, construction is running. It's really considered, I think, from all governments, in all economies as essential business. Fortunately, it's a locally supplied business like with our products. So it's open, it's running. We have -- all our key markets are running at -- well, obviously at good levels. We still have big lockdowns in the Philippines, in other parts of the world. Nevertheless, even there now construction fully came back. And we have -- also, in our business, I can proudly say that we always put the safety first, and our people have fantastically learned how to live with this new environment, keep everyone safe, put the -- all these hygiene rules in place and be able to, at the end of the day, to support our customers in making great new buildings and infrastructure projects. So the pandemic, as I see it now, will not have a negative effect on our volumes or on our demands. Also going forward, we see now there certain waves are coming still, there's no free travel. But construction is local and wholesale is local. So we are in a good situation here when it comes to keep going with our business.

Yes. And your first question was about the integration of Firestone in this quarter, right?

No. No, just wondering about exit rates in the business at the end of Q2 and into July and the momentum you're kind of seeing today and in your order book.

Okay. No, it's -- Robert, it's very strong. We have really -- the demand or the results you see now in the first 2 quarters has been very continuous ongoing. We had a very strong June. And we see -- we are going very strong in the second half of the year, good order book, good activity level. All our operations are running. So we are in good shape.

Next question comes from Lars Kjellberg from Crédit Suisse.

The Firestone question, I'm coming with that on how integration is going. And of course, you recorded very strong growth in that business. Can you share any color also on the profitability of that business? And if that's also a good operating leverage for that business. Stimulus, let's say, topic, of course, that we all think a bit about, and you kind of somewhat embed that into your guidance. What are you actually seeing now? You can mention, of course, India, Mexico, are you seeing any live projects today and have reason for this ability would you -- how we should think about stimulus as a base to your business in the balance of the year and heading into '22?

Yes. Lars, I mean, obviously, we have a super volume trend in our roofing system, 21% volume. The sales are even up much larger than that. We have very good margins in the business as well. Also some challenges with cost inflation, but we have excellent pricing in place and also now all the new products we are launching, like self-adhering membranes, they are fantastic and we're going to have a very good return on this new business we were able to acquire. On the stimulus, the way I see it, we have never seen before a number of stimulus programs and also amounts of stimulus programs. So obviously, we like it very much. I think it's also fully aligned with the [ earth's ] needs to build better, but also needs to build more. We have huge demands for better living conditions, for better sanitary conditions for a large proportion of the population together with population growth and urbanization, there's a huge demand for building and infrastructure going forward. So I think the stimulus programs, they totally go into that direction. Many of them very smartly now combined that stimulus with sustainability, which is super for us because with our new products, that's exactly our home turf. And with the stimulus, you always have to wait until it really becomes effective. Like in the U.S., I think they just passed the parliament now and once it hits the market, that takes a bit of time. So we said earlier this year, we're going to see some effect starting second half of the year. And what is more important, the stimulus program, they're going to carry out for the next 3 to 5 years because that's not short-term projects, what -- the new president in the U.S. has announced these are multiyear programs. And again, all in our home turf to make better insulated housing, to modernize the infrastructure and all that. So we're very excited, especially as we go into the second half with full order books and then with the stimulus, we'll start to begin in the second half and will basically fully come in the next 3 to 5 years.

Just 1 quick question. You upgraded your guidance, of course, from more than 10% to at least 18%. What has changed and why 18% as opposed to 20% or 25%?

I have the same question to Geraldine, but no, look, we are trying to be conservative and you see our guidance, we always meet. So that's why we said we are now confident it's going to be 18% or bigger, and then we can have a discussion what you say, is it going to be 20% or is it going to be higher? So that's -- so obviously, we want to outperform 18% operating profit growth. And nevertheless, we are still in the pandemic. We still have certain uncertainties. So it's -- we didn't feel like making 2 positive announcements at the moment.

The next question comes from Paul Roger from Exane BNP Paribas.

Congratulations on the results. So 2 questions there, both on strategy. On the M&A side, clearly, Firestone is going well. Balance sheet is good as well. Would you consider another transformational deal in the near term potentially in something new like specialty chemicals? And on the flip side, on disposals, obviously, you've made no secret that you want to divest or you could divest some more assets in EM cement. And I thought it was very interesting. I think you're selling Malawi and Zambia, to your own Chinese associate Huaxin. Could that be a solution for some larger acquisitions in Africa? And are you still considering divestments more broadly?

And yes, thank you for your questions. Well, we are happy we could make the big deal with Firestone earlier this year. And as you said, we have a balance sheet that we can do another Firestone when it comes, right? We are working on several projects. We have a big target list. However, availability is 1 constraint and the other 1 is our financial discipline that we don't do deals for any price. So -- and that we have to consider. But we would love to make another Firestone deal, of course, for the fourth segment, that will be great. But again, we have to get the right target and for the right valuation. For the disposals, yes, I'm happy we have started, we were a little bit constrained, I would say, with corona last year. So I'm happy now that we could sign the divestment of Indian Ocean of Malawi and of Zambia. I think that's good. We've got quite good values for the business, and we will -- we have a small list of, I think, countries we would also, we actively look for a better owner. So we do that. Then yes, we are lucky that we are a major shareholder in the fifth largest Chinese cement maker, Huaxin. So I think and they want to actively go into very emerging markets like in Africa, they're already in other very emerging markets like Cambodia. And I think that was a very sweet deal for both sides. And you're pointing is that a model to be used, let's see, let's see. Obviously, it's a model which has worked now very well for Zambia and Malawi, and we are open to discuss with them other opportunities.

Next question comes from Cedar Ekblom from Morgan Stanley.

Two questions from me. Can you give us a little bit of color in terms of how you're seeing volume growth in your ECOPact product? I appreciate that it's off a low base, but it would be quite helpful to understand how the reception of those products in the market is going. And then I see in the press that Holcim is being named as a potential acquirer of Boral's fly ash business in the U.S. I wouldn't expect you to make any comments on that asset specifically. But I'm asking more as it relates to your broader M&A strategy. Can you give us a little bit of understanding in terms of how you think about which types of assets you may be willing to acquire because it's a bit confusing to see Firestone Building Products and then in the same breath, see a fly ash business as potentially something you would look at? How do we get comfort around the ability to realize synergies and create value when it seems that there is a lot of different assets that you would potentially look at? And I'm not so sure what the strategic fit is between all of these.

Yes, thanks for the question, and I'm happy to clarify a little bit our strategy going forward. First of all, with ECOPact, we just had a 1-year anniversary of this new product line. It's running. It's really a best -- becoming a best seller. We will give more numbers later this year. Maybe just for now, if I can share 1 success story we have in Switzerland, we have launched the first recycling cement products, we call it Susteno. It contains already 20% demolition waste, which we recycle and put instead of virgin cement inside the product. This is I think the most amazing cement we can have today. And that product is going to be a main product in the Swiss market. So we launched it 1.5 years ago. And within 3 years' time, that's going to be around 1/3 of our entire cement sales to Swiss customers. So it's a great product, has the performance and at the same time, our customers are moving to those sustainable products very fast. And that's very exciting. And apologies, I don't have numbers for you today for ECOPact, but very happy to share that with you. I think, when we have the Capital Market Day in November, we are very excited to give more insights how the scale-up of those products is going. On the M&A strategy, just I think we have maybe -- it's quite simple at the moment. I mean you are heading to Boral, and I know there is some medium coverage on all sorts of interested parties and all sorts of high acquisition price. I have read that I think Bloomberg or Reuters or something, but that's -- there's no substance behind that. It's just maybe the selling bank got a bit excited to share their dreams with the world. But Cedar, if you look what we have done now in the last 3 years, so we have done a couple of divestments, which are all emerging market cement from Southeast Asia now to parts of Africa, and that's our clear divestment avenue. And on the acquisition side, we do 2 things. First, we have the disruption, our fourth segment Solutions & Products, where we bought Firestone and where we also will look for other roofing businesses to add to that or other applications which can be exciting for us and for the customer to build up the fourth segment for us. And then thirdly, we have our bolt-on acquisition strategy, which is focusing on aggregates and the concrete. And you have seen we did 7 deals first half of the year with very nice local companies, which are beautiful fit to our business. So that's a bit the strategy. And I totally understand that you would be -- you are critical about fly ash and other things, but that has not been part of the strategy in the past 3 years.

The next question comes from Yuri Serov from Redburn.

I actually have just 1 question, but it may end up being a fairly large discussion. I want to talk to you about your ECOPlanet cement, if that's okay. I know that you will give us more details in the Capital Markets Day, but you made an announcement. So I just want to explore that. So in the announcement, you say that it has a 30% lower carbon footprint. But then the footnote there says as compared to ordinary portal cement, which has a 95% of clinker, your clinker ratio across the company is already 71%. So I wonder whether this 30% lower carbon footprint compared to OPC is actually a big improvement.

I think great question. And you know -- and the truth is somewhere in the middle. I think for us it's now very important to focus, launch and educate the customer about the most sustainable cement types, right? And you're totally right, you can buy a cement with high clinker factor today and with lower clinker factor. And we make big progress to even lower the clinker factor and use more minerals. And it was just sharing before our sustainer where we even have 20% of recycling materials straightforward inside the new product. So very exciting, and it's important for us now really to launch this globally and make sure the customer is choosing already the next level of sustainable products in the market. Because at the moment, the market is not that educated and cement is cement sometimes. So for us, it's now very important to give it a name, and our name is ECOPlanet, and then we go with this and the customer suddenly realizes, "Hey, okay, I can take a much more sustainable product." So it's not any greenwashing [indiscernible] it's really important for us to educate the market and focus on the most sustainable products. And then they develop further. We're going to go big time in circular economy, into recycling, and that's going to be our future.

Yes. And just further, so the announcement talks about multiple technologies, which include calcined clay, recycled waste, alternative fuels. So when you sell ECOPlanet, does every sell include all of them? Or is it -- or do you have a selection of ECOPlanet cement?

No, absolutely. And Yuri, it's so different from market to market. We have certain markets, for example, one of the cement types I love the most has, of course, the recycling inside, and we're now trying to work in the European Union to get that product also approved in other markets than Switzerland, because building norms need to be adjusted accordingly. So very exciting and also exciting to push much more for limestone cement, which is using just limestone up to 50% in the cement product. And it varies a bit from market to market. Other markets, you have a big availability of slack or fly ash where, of course, you want to use that kind of waste product. So our ECOPlanet is a big range and is customized for each of the local markets to make sure we are pushing the most sustainable solution to the customer. And then top of that, what you said, we want to also go into calcined clay wherever it's suitable to go on the next level of sustainability.

Okay. So sounds like your ECOPlanet cement range also includes more traditional clinker substitutes like fly ash and slack as well, right?

Yes, you have -- no, you have to because you really -- you want to reduce the CO2 footprint. And as long as these materials, I know not everyone loves them, but it's a waste product. So if we are not using it, it's going to be on some depot and ruining the environment. So that's just -- and that maybe an intermediate step. If you look long term, out in 10 years' time, maybe we are not using that mineral anymore. But for the moment now, I think it's very smart to use when it's available. But of course, we have to work on other solutions, demolition waste recycling, limestone, calcined clay, the full range of opportunities.

Okay. So can I ask just more specifically about calcined clay, please? [indiscernible] recently announced the first in Europe industrial trial of calcined clay at 1 plant, and that will start production in 2.5 years from today at the end of 2023. You are talking about selling calcined clay cement in several countries already. Have we missed your industrial testing of this product?

I think we didn't make a big announcement, but calcined clay is a normal material. And I know a couple of markets where we're using it already as a mineral to use less clinker and use more sustainable minerals, yes, that's absolutely true.

The next question comes from Arnaud Lehmann from Bank of America.

Two questions on my side. Firstly, you've already reached your 2022 strategy targets in 2021, what you would expect to reach this year? Does that impact what you're going to speak about in November at your Capital Markets Day? Should we expect a medium -- a new medium-term target for the group? Are you going to wait for 2022? That's my first question. And my second question is on the recent announcement by the EU, the Fit for 55 regulation, the Carbon Border Adjustment Mechanism, the reduction in free CO2 allowance, how does -- I know there's going to be still some negotiation going forward on this, but the initial announcement or does it fit with your current efforts in Europe in terms of reduction in Q2 and pricing?

Arnaud, and yes, I think these announcements are very encouraging and supportive for us. We always explain that we need developing of the building norms to make more recycling material possible in our products. We also know that if we have more incentive to save CO2, that's a huge incentive for us to accelerate the investment. So if the CO2 price is higher or more restricted, that's a good thing for us. And we believe we run in front of the crowd with our improvements. So we will benefit a lot from those incentives and eventually from higher pricing for those type of sustainable products. With the targets, obviously, we are very excited. I'm super excited that we have a ROIC of above 8% now in 2021. So I'm very excited now to define here with the team what is the new set of targets and we basically come back to our set of KPIs. We want to see from growth to operating profit to cash flow to return on invested capital. And we're going to come up with new targets for you. You propose to do it at the Capital Market Day in November. That's -- if we are ready, we would be happy to do that. Otherwise, I think we will latest do it beginning of the new year.

The next question comes from Sven Edelfelt from Oddo.

So my question relates to Firestone I would be interested to have more flavor on your business plan there. How much CapEx would you be spending in the coming year to boost capacity? Given it's a low capital-intensive business, doubling the size with growth CapEx would be more accretive for the [ ROIC ] and acquisition. So why going through acquisition? And if my calculation is correct, going more into growth CapEX will imply the ROIC of between 15% to 20% for Firestone. Is it the kind of target you're contemplating?

All right. Great. Sven, great question. Thank you. Well, I'm a little bit overwhelmed almost by the start of Firestone. We knew it was -- it's a great business. As you say, it's a low capital intense. It's in a growing market segment. Now we are growing more than 20% from the start. So that's very encouraging. I would say the following. First of all, you are totally right that it's also very attractive to invest in further plans. So at the moment, we operate, I think, 14 production sites with Firestone. We have defined like a run rate, why don't we do 1 new factory a year and doing that, that will bring our depreciation up from at the moment below 2% to maybe 3.5% doing that. So that's certainly something, as you say, this is very attractive, and that's also our #1 focus here to -- I was just sitting with the Firestone people 2 days ago. They have already the first plant proposal, which is very exciting for 1 geography we currently don't cover. So we're going to do that. However, the roofing market is still a fragmented market. So there are opportunities to have nice additions for Firestone. So that's what -- that we will also consider that and actively look if we can strengthen and accelerate our growth further through acquisitions.

The next question comes from Gregor Kuglitsch from UBS.

I'm going to ask 1 that I think you kind of answered, but going to ask it anyway. Can you hear me?

Yes, we hear you, Gregor.

Yes, you can hear me. Okay. Excellent. Sorry about that. So the question is on margins. So I think in one of your responses, you said you thought you could hold margins in the second half. Did I understand that correctly? Or was it -- is it not that precise? Obviously, there's cost/price spread, et cetera, which is the challenge to see if you can hold that. So that's kind of question one. And the second question is maybe going back to the sustainability product. Can you just give us -- and I appreciate it's still perhaps not scale numbers. But in terms of the margins and the profitability of, say, sustain, which you're now seeing is 1/3 of your business in Switzerland or ECOPact, are these higher margins or equal margins, lower margins, just to give us an idea whether this is sort of profit accretive or not?

Yes, Gregor. Thank you. So the margins for the sustainability products or what we are launching, they are above average, so which I think should be the case if you come with a new product, new range, you better have a good margin. And this is what we have. We even -- when we scale up the recycling properly, you have to imagine that the recycling is actually products. We even have a positive contribution than just the cost. So very exciting. And so our effort is now to properly scale up our ability to take in waste material, to recycle it and then put it back in our products. And to be precise on your question, ECOPlanet and ECOPact products have above-average margins. And to your first question, I'm very optimistic for the second half of the year. We have proven also in the quarter 2 where we had significant energy cost inflation. We have proven that we can offset such a steep inflation in energy. And again, we did a lot to become fitter and we still have a lot to do. So we are optimistic that we can hold these record high margins also second half of the year.

The next question comes from [indiscernible].

Hello, can you hear me?

Yes, we hear you.

Great results. I just have 2 questions. The first 1 would be how much energy cost inflation per tonne of cement have you experienced in H1? And how much do you expect for H2 based on the current energy prices? And my second question would be, do you expect a negative price cost dynamic in H2?

All right. [indiscernible], thank you so much for the question. And Geraldine will just update us a bit more precisely on energy. And as I just commented before, we are optimistic that we continue with the margins, and we stay positive on price over cost also second half of the year.

Yes, [indiscernible], on the energy inflation impact, we have been impacted by CHF 143 million on H1. And we see another CHF 200 million for H2. So that would mean CHF 340 million, CHF 350 million of pure energy inflation impact. And as Jan said, we're fully confident to have a price over cost that will remain positive in H2.

The next question comes from [ Sandra Augustine ] from Stifel.

Yes, it's actually Tobias Woerner here. I think that's the wrong number. Three questions, if I may. Number one, you've seen a good improvement in your margins in the aggregates and RMC side also against 2019. Absolute margins, however, still lower compared to its peers. Could you give us a sense where you're going with that? And the same applies to India. You've had some good improvements there, but you're still lagging the likes of Shree and Ultratech. So a sense there would be great. Number two, maybe 1 for Geraldine, very quickly. The scope impact in sales and the recurring EBIT line. Can you strip out Firestone Building Products there, please, versus the others? And then just lastly, Africa, Middle East surprised on the upside, at least me. What are we seeing there? Is sort of the oil price impact driving demand in these economies? I think Algeria is still difficult, but a bit of a sense there, whether we should see a sustained recovery in Africa, Middle East.

Yes. Tobias and I take the last question and then Geraldine will inform us in more detail on the first 2 questions. Yes, Middle East Africa is -- I think we shared with you, we made quite a bit of restructuring and turnaround, making the plants more efficient. And the demand is quite -- is there. Everyone was worried that the pandemic is hitting Middle East Africa stronger than other regions. And this is not the case. So we have construction activity on very good levels in our key markets. And also this -- we see that going forward. There's obviously a big demand on infrastructure and housing in those markets. And our order book is quite well booked in those markets, and I'm -- I'm happy that our regional management and our teams in the countries are able to transfer that also in healthy margins and very good improvements.

Yes. Tobias, you asked about the scope composition. I think I've said in the comments that mostly most of it is coming from Firestone. So I think if you take these numbers, you get the Firestone portion. Furthermore, on the sales, you have a detail, you see it's CHF 500 million that relates to Firestone for the quarter and the EBIT portion you have it also on the scope, you can imagine it's Firestone for the very big part of it, right? On -- and as Jan said, very good margins, and we're very pleased on the start of Firestone for Q2. I think on aggregate, well, let's start first with India. You mentioned India. India is catching up, showing an impressive margin. We have reached Ultratech profitable level when we look at Ambuja and ACC is also progressing and going in the right direction. So if you look at both -- at both press release, Ambuja and Ultratech, you'll find that we have fully catch up Ultratech level. And we're very proud about it. Then we continue improving on aggregate margins. And that is shown on this slide. Also for ready mix, we've done a strong improvement. So yes, we continue and we see the trend continuing in terms of margin and EBIT margin progression for H2 for aggregate and our ready-mix business. We had a very strong rebound in France. We see that continuing for ready-mix, that's boosting the margin in terms of mix. In aggregates also, we see a favorable trend as far as our margins are concerned for H2.

But to press you a little bit further, when you look the best in class in the U.S., is that something you'd aim for in terms of targets on the ag side?

Yes, absolutely, Tobias, I mean, we shared with you when we launched our Strategy 2022 that we have a nice catch-up potential when you look at these 2, obviously, very well-performing businesses in the U.S. you referred to, and that gives us some interesting targets. And I'm glad now this year that we make progress again towards those benchmarks.

Next question comes from Harry Goad from Berenberg.

I've got 2, please. Firstly, on pricing, which has obviously been very robust this year, I guess one of the benefits of that has been we've been in the market where demand for the product has been very high. In some areas, there has been product shortages. So when you think about pricing power for the product over the medium term, what gives you the confidence that you can maintain the sort of pricing resilience you're seeing now into periods where maybe the demand profile is not quite so strong? The second question would be coming back to the points on your new range of products, whether it's ECOPlanet, ECOPact, Susteno, et cetera. What does this all mean for carbon capture when we think about the sort of the decade ahead? I mean is there a possibility that the sort of chemical and technological developments that are undergoing now will mean that carbon capture isn't needed? Or would you think carbon capture is definitely needed in addition to whatever is happening at the moment?

Well, again, we have good confidence on the pricing. We have -- I joined the company 4 years ago. I think we have since then emphasized the pricing very much, and we have received, I think, good results in our key markets and now even on a better level maybe than before last year and this year. Also here, our target is that with our range of more sustainable solutions that will also help our pricing tremendously. You all have to remember that products like cement or concrete or aggregates, they are very inexpensive building materials, and there's a very high flexibility for higher prices without harming the volumes. So that's what we aim for. The ultimate step then, if you go for net zero ambition is the carbon capture, as you mentioned. We have 5 exciting projects with very strong partners in Europe and in North America to pilot this technology and then eventually to scale it up and use it in our plants. And to be fair, that needs a proper innovation, execution, but it also needs more support from governments to make the right regulatory framework to incentivize for this final step. So we're very excited also to go this direction. We have 5 projects. I think we mentioned them somewhere also in the presentation, and we are very exciting to go forward with carbon capture.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Jan Jenisch for any closing remarks.

No. Thank you very much. I think it was exciting to share more insights with you and also appreciate always the good discussions we are having. I'm -- I hope very much we can see each other in person again to discuss a bit more in detail. We have planned an exciting Capital Markets Day in November, where we want to show you more insights, especially in ECOPlanet and ECOPact, going to plan to make the Capital Market Day in Switzerland and it will be, of course, exciting if you can all come and experience the new building material solutions firsthand. So let's hope, let's cross fingers that this is possible in November. We plan for it accordingly. And for the time being, I wish you all a safe and healthy second half of the year and look forward to our next discussion on a very strong third quarter. Thank you very much, and please have a good Friday.

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