Holcim AG (HOLN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Holcim Q1 2023 Trading Update Investor and Analyst Conference Call. I am Sandra, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, it's my pleasure to hand over to Bénédicte Mayer, Investor Relations. Please go ahead, madam.

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

Yes. Bénédicte, thank you. And good morning to everyone. Thank you for joining our call. I'm very happy to share our strong start of the year with you. We go a bit -- you have received the presentation, which has, I think, represented the story very well. Let me just go quickly over some of the slides, and then Steffen will go in more details on sales, EBIT, but also especially on the regional results, before we come to the outlook for the year. So first of all, I'm happy we have started the year really well. We have organic growth sales of plus 8%, and then over-proportional on the EBIT side plus 12%. Very happy everything plays out, how we master this super-inflation with cost mitigation, but also with selling higher value products and also with significant price increases in the markets. Here, I'm extremely happy that we do this in a very timely manner. We are in that inflationary environment already for almost 2 years now. And I think at Holcim, we have done the pricing in a very proactive way, so that our results are not suffering. On the contrary, they are improving the margins. I'm very happy that our growth strategy also from the M&A side was very active in Q1. We closed 12 acquisitions already in 3 months' time. Could add another 5 acquisitions in the buildup of our fourth business segment, Solutions & Products. Had a record fast closing of Duro-Last, fantastic acquisition, fully completing our technologies we need in the roofing market, and we closed already that acquisition at the end of March, and that's already fully now with Holcim from April onwards. We bought another roofing company, Flachdach Technologie, in Germany, and also in Argentina and Mexico, we could add here roofing companies here for the global rollout. So very happy how this is happening. And you can expect more from us here also for 2023. We have -- on the climate side, I think we made excellent progress on decarbonization. We just launched our climate report end of March, which will be subject to voting by the shareholders in 12 days’ time in our general assembly. Excellent report, shows how fast we are progressing now to decarbonize Holcim, but even more to decarbonize the way we are building, which is also very appreciated by our customers, and we've moved here very fast. Altogether, Q1 was -- I would say, we have seen our expectations and gave us the confidence to upgrade the guidance for 2023 further, and we have upgraded the organic sales growth guidance to above 6% and then corresponding over-proportional increase in EBIT with a growth of above 10%. I think with this overview and the highlights, I'm very happy to hand over to Steffen, and he will run us through sales, EBIT, and the regions.

Yes. Good morning, everybody. I'm excited to join Holcim and to join this call. I look forward to being part of this company and the very exciting journey that we're on. I'm equally happy to speak to you today and I look forward to working with you in the next few days, weeks, months, years, and to share with you how Holcim develops financially and strategically. Now let me walk you through a few slides on the current trading, building on what Jan has already presented. Net sales stood at CHF 5.7 billion in the first quarter of 2023, an organic sales growth of 8% compared to the same period of last year. In absolute terms, Q1 net sales decreased by 11.1%. This is mainly due to the divestment of India, which is partially offset by our acquisitions in Solutions & Products. The currency impact was negative CHF 306 million or minus 4.8%, and this has primarily stemmed from the Argentinian peso, the Egyptian pound, the euro and the British pound. Moving to the EBIT, we delivered over-proportional organic EBIT growth of 12%, recurring EBIT growth to be precise, reflecting our strong portfolio. Again, in Q1, we demonstrated our ability to organically expand our margins. Recurring EBIT in absolute Swiss francs declined by 19.7%, again, impacted by the divestment of India and the negative currency effects. When we look at the regional performance, you can see on this slide that we have a broad-based profitable growth, which demonstrates the strength of our portfolio and our regional spread. Latin America, Europe, Asia, Middle East, Africa recorded strong organic growth in net sales and EBIT. On the next slides, I will walk you through the regions in a bit more detail. Starting with North America. Market demand remains strong in cement, aggregates and ready-mix in the U.S.A. and Canada. We're benefiting from our unique cement footprint, improved manufacturing performance and excellent pricing across all markets, which resulted in the record first quarter for these businesses. EBIT in the quarter was impacted by the temporary destocking effect in our roofing business, which also compares to a high baseline in the first quarter of last year. We successfully closed the Duro-Last acquisition and 2 bolt-ons in aggregates to put the region on the right trajectory for future growth, and we see strong order books and strong underlying demand in all business segments. Moving to Latin America. The region delivered another quarter of profitable organic growth. It's the 11th in a row. The good performance in this quarter is driven by Mexico, Colombia and Argentina. We expanded the Solutions & Products business notably with acquisitions in Mexico and Argentina plus organic expansions, that means CapEx in Costa Rica and Colombia. Looking ahead, we see this very good trend to continue also because of the excellent pipeline in infrastructure projects in that region. Moving to Europe. We see strong results across Europe based on excellent pricing and margin management. I'm happy to report the strong M&A momentum in Europe with a record 7 transactions closed in the first quarter ranging from construction demolition materials to thermoplastic roofs. Looking forward, we expect the strong results to continue for the remainder of the year. And last but definitely not least, Asia, Middle East and Africa, our newly combined region. Following the divestment of India, this region is reported as one. Over-proportional organic EBIT growth of the region is driven by excellent performance in Australia and good results in major countries of the Middle East and Africa. The recovery in China is progressing, and we expect to see more of that in the second half of 2020. I would say that was it from me for now for the regions, and I would like to hand back to Jan.

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

[Operator Instructions] The first question comes from Paul Roger from BNP Paribas.

Congratulations on the results. So I'll have 2 questions. But maybe before I start, could I just welcome Steffen to his first analyst call, and obviously wish him good luck for his career at Holcim. My first question then would be for you, Jan. And it's on U.S. roofing. You've obviously had some destocking in Q1, but you have previously said you expect EBIT to be up for the full year. Just wondering, is that still your expectation? And then Steffen, maybe if you can just talk us through briefly how you've approached for the start of the new job, and maybe your initial observations and if there's anything you think you'd like to change.

Look, on the U.S. roofing, we are not concerned. We have to understand that the last 2 years we had a disruption in roofing supply not only for membranes, even insulation board. There was a shortage of plasticizer you need. Then there was a shortage even on fixation material. And this all led to an overstocking, and not so much at the distributor, it happened at the contractor. So roofing companies basically were having bigger stocks to compensate potential disruptions and being able to deliver the jobs they promised the customer. And now we have a normalization of these inventory levels. And you can see that also at other companies in roofing, which have commented on this. And as we are in the lowest seasonality at the moment, it's a bit hurtful in percentage, but it doesn't make me nervous for the full year because the order books in roofing systems in the U.S. are very good, and we expect to have a very successful year in roofing. We believe that destocking effect has already eased in March. We expect this to further ease in April. And then when the season fully starts in May, we believe we are on track for a very successful year.

Then I will take the second question. Thanks, Paul, for the warm welcome. I certainly feel privileged to be here with you guys in this group. What I've seen so far in those 3 weeks? Well, look, I've already met many colleagues across the organization. I find a highly motivated, passionate group of people for what we're doing here. It's a mature and professional organization with exceptional results and a proven track record. Everybody is behind this growth strategy where we evolve the company and its portfolio also towards more sustainability. And while this evolution is taking place, everybody is dedicated to deliver results. I think this is an environment I've also known from my past role and where I hope I can contribute with my experience. And of course, everything I've seen in the accounts so far looks good.

The next question comes from Cedar Ekblom from Morgan Stanley.

I've got 2 follow-up questions on the roofing business, please. Could you give us a little bit of color in terms of your channels in that business? How much of it is a project-based business versus more of a distribution channel? Just in terms of trying to understand how much visibility you actually have when you talk about strong order book going forward? And then the second question on U.S. roofing. You're a relatively new entrant into that market, albeit buying established businesses. And Jan, we know that your agenda in U.S. roofing is to grow the businesses that you acquire in a very strong way. Is that influencing your sort of commercial approach in that market? And here, I'm wondering how aggressive are you being in terms of trying to take share? I'm wondering if that also has some implications to the competitive landscape for that business going forward?

Yes, no, thank you. Just to start with your second question. I think our entrance into the roofing systems is very positive, and it's a consolidation of the industry because if you see in the last 2.5 years, we acquired from Firestone to Malarkey now to Duro-Last, 3 iconic companies in the U.S., and then we complemented this with a few smaller companies. So actually, we are a driver of the consolidation in this very attractive market. So overall, this is, I think, super positive and super exciting. And I shared for the full year results, we shared the success of roofing, where we already achieved a 19% EBIT margin last year, which is not so bad. And this is not the end of the game. We have just started, so you can expect even bigger performance from us. We have -- in the first quarter alone, we made 4 more acquisitions in roofing. So we have just started and very excited here to continue. And I think we are also very positive contributor to the roofing market. When you look overall, we are -- in the U.S. market, in flat commercial roofing, we are already the #2 player in the market. And for overall roofing, in this $40 billion market, we are already #3. So I'm very happy how the position we established. Now we have a full range of technologies. Basically, we own all the membrane technologies from PVC to EPDM to TPO, have a bit of bitumens, have a bit of metal. So I think we've done this really well, and I'm not concerned at all. On the contrary, we've just started in roofing systems and I'm super upbeat about it. On the visibility, we have very good visibility as in roofing systems, we work very close with the contractor. We have formed sort of contractor clubs, to project specification we do together, to the training; not to forget, we are selling -- 80% of our roofing sales is system selling. So 80% of all the roofing we are doing is a specified built-up roofing systems, membrane, insulation, the whole installation kit, and with all the calculations on wind load and other aspects. So we are very, very close in this market to the end market. This is also why I can report today, we have good order books. We have a good market situation for roofing in the U.S. And last but not least is we do more than 70% of reroofing in the U.S., which is bespoke solutions. And then for reroofing, we are even closer with the customer because reroofing you need a bespoke solution for the existing building and the existing situation on the roof compared to a new build, where you basically have more like a general specification where more than one company can apply for the business. Cedar, does that answer your question?

It does. It does. Thanks for that color. Very helpful.

The next question comes from Yves Bromehead from Societe Generale.

I'll have 2, if I may. Just wanted to follow up again on the roofing. Maybe the first part of the question is, when you're referring to order book, are you referring to value or volume terms? And also I wanted to sort of go into maybe the details of the type of customers that you serve. Are they typically large customers or small customers? And have you already seen any impact of sort of tightening financing standards in the U.S.? And second, a very quick question on the buyback. Could you maybe give some color as to whether or not we should expect any additional trench beyond May for the rest of 2023 to be announced?

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

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

Yves, we do now all of the above. So we have -- basically, the Firestone, our first acquisition a little bit more than 2 years ago was very focused a bit on larger projects. That's a bit their core competency. Now with Duro-Last, that's more focused on smaller projects. They are extremely strong for smaller roofing. They are focused very much on reroofing. While we do 70% reroofing overall, Duro-Last is more in the 90% range. And they sell direct. They don't sell through distribution, so they have their own contractor club, which they serve and which has a very, very resilient demand structure. So we have all of the above, and as we now have built up a $4 billion roofing business, you can imagine, we have a very good footprint across all different types and sizes of projects.

The next question comes from Elodie Rall from JPMorgan.

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

I'm very happy you asked the question because it's important to me that you all understand that we will report the full transparency, especially going forward. Please, we have the smallest quarter of the year, the Q1, where we already supplied you with the margins and everything. And for us, it was important to show you we are in good shape from growth and good shape in the margins. And we will, in the half year report, give you a lot more color. You will get the details on the 4 business segments and all of that. So be assured that we are not here cutting out information from you. It's Q1. It's a small quarter. And from the next quarter onwards, you will get the full information like you received also last year in quarter 3, especially, and also for the full year results. So having said that, I'll give you a bit more color, Elodie. So our guidance is actually based on confidence across many KPIs. So you mentioned volume versus price, and very important. And first of all, I can share with you that we are positive price over cost basically across all segments, across all key markets. And that made us so confident to say that's looking very good. At the same time, we have an easing of the cost at the moment -- or not at the moment, it started in November. We peaked in the cost -- in the third-party cost in Q3 last year, then eased in quarter 4, and further eased in Q1 this year. Nevertheless, consider that we had still a lower comparison base compared to last year. So the energy costs have eased a lot compared to Q3, but also Q4, but was around 20% higher than Q1 last year. And the other costs, they are maybe 10%, 12% ahead of Q1. But obviously, we were able to overcompensate with the pricing. And that is very key. And I'm very proud that our people in the markets were able to responsibly, but dynamically improve the pricing that brings us in this comfortable situation where price over cost is positive in all key markets for us. The second part of the confidence are the volumes or the demands in the market, and I'd give you a bit of color here, Elodie. Again, it's Q1, but nevertheless. So we have very good demand in the Americas. So we have, especially in the traditional segments, cement, aggregates, ready-mix, we have a volume growth between 3% to 7% in North America, and in Latin America, a growth between 1% and 8% on the volumes only, and that makes us, of course, very confident. We then also have very good order books, both in the U.S., in Canada, but also in Latin America, where we have several big contracts for large infrastructure projects. So all good. We have in Europe a bit a different situation. Europe has a big burden from the Ukraine war specifically, where we have a huge cost inflation on energy and others. And we have this big burden of the European Green deal, which puts especially export companies into difficult situations. We handled this very well. My estimate for the first quarter, but also for last year that maybe building materials as a whole has softer volumes of 5%, 6% or 7%. We managed this very well. You have seen the numbers, we are up 8% in sales in Europe, and the margin has increased very substantially against last year because we were able to have very significant price increases. But also remember that we are at the forefront to introduce all these sustainable products for the customer. Most notably, our Sika pack, our new global brand for low-carbon concrete solutions. Our Sika Holcim ECOPlanet more than 30% reduced CO2 on the cement. And this year, at the BAU in Munich, we launched the ECOCycle, which will be our fundamental brand logo for making circular construction a reality in all metropolitan areas. And all those three brands and the products behind enable us to improve margins significantly. Is that a good answer, Elodie?

It's very good, indeed.

The next question comes from Martin Huesler from ZKB.

And first of all, congratulations to this really excellent start to the year. I have a question on your plans for the CC U.S. projects, CapEx of roughly CHF 2 billion until the end of, I think, this decade. What does this mean for your overall CapEx or your annual CapEx? Should we expect this to increase? This is the first question.

Martin, excellent. Thank you. We're very happy that we have a very substantial investment plan. You remember we have started to report the Green CAPEX, which last year out of CHF 1.4 billion CapEx has already been more than CHF 400 million. And we believe that the CHF 2 billion we now plan for the carbon capture is within those CHF 1.4 billion. And you remember, we have started to set this CHF 1.4 billion CapEx guidance. We established that around, I think, 4 years ago. And we have substantially lowered the unit cost for CapEx at Holcim. We had a big potential back then to lower and systemize the CapEx, use more standardized solutions and we could decrease the CapEx significantly. And the CHF 1.4 billion, they come in, I think, now at a good level. For the first time last year, we were below 5% of CapEx in relation to net sales. I'm very proud of that. And it will stay in that range. So don't expect us now to start with CapEx which goes beyond. I think the company is positioned now to decarbonize within this CHF 1.4 billion envelope and also consider that our portfolio focus on North America and Solutions & Products is also connected with less capital-intensive businesses, like the roofing systems, and that all helps us to stay within the CHF 1.4 billion. I'm very happy. And lastly, also consider that the investments in sustainability have super-high returns and you can already get a taste from the margin increase in Europe. And we talked about this, I think, a few weeks ago that this decarbonization in Europe has a huge incentive system with the carbon credits and costs for around EUR 100 per CO2 tonne. This helps Holcim here to benefit as we decarbonize the fastest and are able to then generate here a significant margin increase.

That's super helpful. I have a second question on -- you elaborated on the roofing market in the U.S., more on the commercial side. What about Malarkey. What's the development in more residential where I think the numbers don't look that good, the macro outlook. What's your view here?

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

The next question comes from Lars Kjellberg from Credit Suisse.

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

Hi, Lars. Good morning and thank you. And yes, I'm super excited about our sustainable solutions. We have one slide in the presentation, I think it's Slide 5, where we talk about accelerating the climate action. And you see on the right side, my personal favorite is the branding. So we just launched ECOCycle at the big construction fair in Munich this week. This is going to be a super big part of our future. We're going to be -- we are already the biggest recycler of construction and demolition materials. Last year, we recycled 6.8 million tonnes, which is more than 1,000 full truckloads every single day brought to our recycling centers, being recycled, upcycled and reused as raw materials for cement, reused as a mineral for cement and of course, reused as an aggregate for road construction and also into concrete. This is super exciting. It's super high value, and this will be a big part of Holcim's future to make this happen. You see then the two brands, we gave a bit of a taste. ECOPact is already 16% of our entire ready-mix concrete sales in the first quarter of 2023. And you can estimate that this has even a bigger part in Europe, right, because Europe was the core -- was the developer of ECOPact and here we have significant blockbuster sales here of ECOPact, and we are sold out. We are doing everything to further scale up our supply chain here to make ECOPact available for every customer, and that's super successful. We have ECOPlanet for cement, which has started about a year later, but it's also very promising. We don't have a number here, but this is also already around 10% of cement sales. So very successful. And here, most exciting is that we have launched this first cement sustainer in Switzerland, which already contains 20% construction demolition materials, and this will be rolled out now in Europe. European Union gives us the approval here to change the building codes this year, and then this will be rolled out in France, in Germany, in Austria and Italy, in the U.K. in all our key markets and will be, again, a big part of our future. If you saw the side comment, we have the first -- I think we are the first company who has now two lines of calcined clay production, one in France, one in Mexico. This is addressing a little bit your second question, how does this work for other regions? I very much like that the European Union has the most developed incentive scheme for decarbonization, pushing us here to accelerate, but we can take that technology to the other markets. Latin America, the ECOPact and the ECOPlanet brand is very, very strong. And also in the U.S., we introduced that. If you go through our annual report, there are a couple of customer reports from Amazon and other companies, and they all go for ECOPact and ECOPlanet for their building needs. So very exciting, Lars, and this is going to be a huge part here for Holcim, and I'm really happy we launched also this branding at the right time about 3 years ago to make this our road map and to take the customer here on this journey of decarbonization.

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

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

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

Okay. So first of all, Lars, I'm very happy that we were able to close 12 deals in the first quarter. We have not provided the information. We know that Duro-Last business is a $600 million business and we have now still 9 months of sales and we have the high season sales. So you can estimate that Duro-Last alone will contribute close to $0.5 billion in revenue for us. And then the other acquisitions, I don't have the right number, but we're going to see a couple of hundred million, I think, from those acquisitions over the next 9 months for this year.

The next question comes from Yassine Touahri from On Field Investment Research.

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

Thank you. Thank you. I'll start with your last question, and we are confident, we have also a positive price over cost in roofing systems for the first quarter. And usually, when the cost input declines, we are able to have less pressure on our own sales prices. So normally, we have a margin expansion in times where the input costs go lower. The past 2 years, we made the opposite happen with this hyperinflation. Nevertheless, we had the margin expansion. So we're very confident that we're going to have a good situation for Holcim overall, but even for each of our 4 business segments, you will see a margin expansion for 2023. On the volume side, I commented on the roofing before. We have good order books. After the soccer, rebalance will be done. We expect good markets and let's see how the second half goes. But obviously, we have another 4 roofing acquisitions in Q1 this year. We are very excited to bring this all here to work. On the CapEx, I was never more positive on Green CAPEX than today because we see that all the investments we have done to make circular construction a reality, so all the recycling centers we put in place to take back construction demolition materials and to recycle it, that's all highly profitable, and highly growth products and solutions. So with very short payback terms. And this is all positive. You asked specifically, the carbon capture projects will be high return for us. You have seen we even received very high subsidies. The European Union Innovation Fund will give us more than EUR 300 million to finance the projects in Poland and the project in Germany. And even besides the subsidy, the products will be very profitable because we are saving a lot of CO2-related costs. And at the same time, we will be able to sell the product at a premium because it will be decarbonized building materials products. So extremely positive. We're catching up. We have also very concrete projects in U.S. and Canada, and we will also get big support from the governments there in terms of tax credits, but basically subsidies, but also in terms of making the carbon capture utilization or storage work, to help us with building pipelines to storage facilities, or helping us to build up utilization centers. So very optimistic and we will give you more data and information as we move on with the projects, but I'm extremely positive that these projects will be high-return projects for Holcim.

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

My first question is on Asia, Middle East and Africa. There is an improvement there. And I think it's welcome after a slightly more challenging 2022 in Asia. However, China contribution is still down in the first quarter relative to last year. Could you give us a little bit of color on China? Is there any impact of the reopening there expected for the coming quarters? And my second question is on the CEO transition process. Could you give us an update? I think there was some comments this morning from the [indiscernible] presentation, if you don't mind reiterating them here.

Yes, Arnaud. And no, we are all on track. Look, I'm very happy. We have a great leadership team at Holcim. You met everyone. We have super P&L leaders. We have 5 strong P&L leaders. We have now Steffen joining us as the new CFO. So we have a very good leadership team. You see the speed of execution we are having, we had 12 transactions in just 3 months and with a very positive profitable growth we achieved. So very happy with the team. I'm also very happy that the Board has the courage to decide that the team continue for another year plus or so. And we will, I think, find -- the succession of the CEO position will come from within Holcim, and we will announce that, let's say, as we said, within the next 12 months, so maybe beginning of next year, and this will be, I think, a very positive continuation of the executive team here at Holcim. On your question of Asia, Middle East, Africa and China, thank you for your comment. We are quite happy that also here, we have a positive price over cost. We have a good organic development of the business. We have in China -- to give you a bit more information, I think we wrote, something like a recovery in China is progressing. And China was still heavily disrupted last year with all different lockdowns from the pandemic. And my personal estimation is that maybe building materials or construction market was down 5% to 10% in 2022. This year, we expect the recovery. Recovery will not be super strong. So they have reopened the country. I think in the first quarter, we are around the level of last year first quarter. And now I expect for the next 9 months to have a positive development in construction, maybe 4%, 5% in volume, something like that.

The next question comes from Gregor Kuglitsch from UBS.

Can I go back maybe a couple of questions on the sort of cost and so on. So firstly, can you tell us what you now think energy costs will do after the sort of 20% of the first quarter. Could you help us break down also in the first quarter the volume price of the organic growth, right, which I think was 8% sort of at a headline level. And then similarly, within your plus 6 that you're -- over plus 6 I think that you're now guiding, what are you thinking on pricing and volumes within that? Obviously, it's changed around. There was a range. Now it's -- so that would be sort of maybe, I don't know, it's a 2-part question, I guess. And then secondly, a more strategic one. Is there anything you can tell us what you'd like to do on divestments. Obviously, you've done India last year that's now some time ago. Should we be thinking about anything coming up on the sort of perhaps more substantial divestment side?

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

Okay. Do you think the energy cost could be down this year, or too early to call?

No, they came significantly down. I mean starting in November, they came significantly down. And if this continues, we're going to have much lower energy costs for the remaining months of 2023.

The next question is from Luis Prieto from Kepler Cheuvreux.

I have 2. the first one is, despite the upgraded operating earnings guidance that you have provided, you have not changed the wording of your free cash flow target. Does this mean that cash conversion could be lower than you initially expected a few months back? And the second question is following up on the pipeline of acquisitions in Solutions & Products. If my calculations are correct, you would have spent in excess of CHF 7 billion, and you seem to be well on track to your '25 target. So can we now talk about a more stable or normalized annual light side acquisition spend versus a significant spend previously?

Wow. Okay. Look, to the last question first, I mean, we have just started through the last 3 years to make M&A a big part of our growth strategy at Holcim. And it's a twofold strategy. One is expansion and development of Solutions & Products. We had another 5 acquisitions in the first quarter. And then also the very high synergistic and high-value acquisitions, the bolt-on ones where we buy traditional family businesses in local metropolitan areas to strengthen the aggregates and the ready-mix concrete business, where we also made 7 transactions in the first quarter. So my personal estimate is that we're going to see more than 30 transactions in M&A at Holcim for the full year. So this will remain a big part of the Holcim strategy. Now I cannot give you exact numbers now how much capital we will spend on that. This depends largely on the opportunities, the valuations. I think we have proven in the last 3 years that we do M&A very well, very valuation-driven, that we are able to execute the synergies very fast. We gave some examples at the full year results, how fast we improved profitability in Solutions & Products and particularly in roofing systems. And you can expect all of that, that we keep fully disciplined on the valuation M&A. I cannot give you at this point in time a more exact capital allocation split. We can talk about this maybe later this year. On the free cash flow, that's a good point. I'm looking at Steffen, and I pass this message over to Steffen that we should make more than CHF 3 billion in free cash flow. I hope you see that we wanted to give the free cash flow guidance. We just want to give comfort to everyone that the CHF 3 billion free cash flow is the new run rate at Holcim. You remember the times in the past where we were not able to achieve sufficient free cash flows. And now for the fourth year, we have shown this sustainable free cash flow. So this is just an indication that the free cash flow will be not only a top KPI at Holcim, but we will deliver CHF 3 billion. And I give this over now to Steffen to achieve more than CHF 3 billion.

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

Super clear.

The next question comes from Yuri Serov from Redburn.

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

Great question. And look, we have some permits in the bank, but we are short on CO2 certificates. And in fact, the whole market is short, and this is why the CO2 certificate price is up to EUR 100 per tonne, because everyone is short, everyone needs to buy. And even you have some in the bank, it's an asset. You cannot just waste it basically free of charge. And this is one big driver, and we talked about this at the full year results. We had a good discussion on how the CO2 incentive system in Europe is now reshaping the building materials industry by making decarbonization the #1 priority. And my target is to be fast in decarbonization than others, to be needing less CO2 certificates, and benefiting from the very significant price increase for building material products and solutions because of this increase in CO2 costs. And everyone is short. You see there's a lot of especially smaller companies. They sometimes seem to have less ability to decarbonize and they are very much hit by these CO2 costs. And Holcim, we have done not only the homework, we have accelerated the decarbonization. You can see that a big part of our margin expansion in Europe is actually driven by this new CO2 framework.

Okay. But can I just clarify? You say that you have some permits in the bank, but on the other hand, you're short. I just cannot connect those two statements. What does that mean?

Because some people argue that if I have some CO2 certificates in my balance sheet or something, they believe that's a free CO2 certificate, but it's not, it's valued. It's an asset, right? So basically important is, how is your run rate for the certificates, and everyone is short on certificates. This is why this incentive scheme is now working so extremely well. And that's why certificates 5 years ago were at EUR 7 per tonne, and they went up, what 3.5 years ago, they went up to EUR 20. And EUR 20 was a trigger point for us where acceleration in decarbonization became high return. And we started a lot of investment projects in Europe to decarbonize faster, and then it went up to EUR 100 in all the projects. We kicked off with a return of EUR 20. Suddenly, the return became 2x, 3x higher since last time. And this is a bit the mechanics which I'm a big supporter, because it's a market-driven incentive system and it rewards the company decarbonizing the fastest.

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

Yes, absolutely.

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

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

The next question comes from Matthias Pfeifenberger from Deutsche Bank.

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

Great question. Look, if you want to do an M&A, part of your strategy, like we have it now, and I shared that I expect maybe a bit more than 30 transactions this year, you have to have the proper process systems and tools in place, which we have. So we have a very strict valuation modeling, how we evaluate the businesses based on discounted cash flow. We do this -- one version is a stand-alone version. The second one is integrated version with the synergies, and the model is the same for every single project. And then we are very good to include the countries, especially in the bolt-on acquisitions, and they have learned now over the last 3, 4 years how to handle M&A. And the tools are in place and this is what enables us here to make such a large number of transactions. If you recall, when we started the M&A as part of the strategy, I think in 2018, the first year, we had 4 bolt-on acquisitions, 4, and then the following year was maybe 8 or something. So it was a big learning across Holcim and all based by a strict process-driven and tool-driven system based on discounted cash flow valuation and obviously, we do this very well. And to complete the picture, the integrated version of the discounted cash flow is the business plan for the acquisition. So the people who are responsible to run the acquisition have a very challenging business plan. And then of course, we review the progress and the performance also here very intensely, and I'm very happy we have this and that's why this will be now a very value contributing part of our strategy going forward.

The last question for today's call comes from Tobias Woerner from Stifel.

Really just follow-up questions here from my side. When you look at the M&A, you've obviously run huge strides in the U.S. or North America. Your pipeline looks good, it seems to me. But in Europe, in terms of Solutions & Products, development is still not as progressed as North America to an extent. What do you see the picture to be there? Do you feel that there will be more opportunities coming up?

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

Okay. And then if I may follow up on the divestment side of the equation, you mentioned earlier scenarios. How should we see it in terms of timing? Obviously, M&A, you can't time perfectly. But for you, is this a nearer term, or is it a midterm situation, i.e., is it 6 to 12 months or 12 to 24 months, what you're looking at in terms of finalizing your rounding out of the portfolio?

I think, Tobias, the time pressure on divestment is not there for us. I mean we made such value-accretive divestments of India and Brazil, before with Indonesia and Malaysia, where we are selling or divesting very low return companies at super high multiples, and as you know, we've brought us to the ever strongest balance sheet of even a debt leverage below 1x. We had a cash of around CHF 10 billion at the end of the year in the bank. So I think we have done this so well and gives us now all the freedom for capital allocation, gives us the money to invest into the decarbonization, gives us the money to make further M&A transactions. Then on the sideline, we can make a very attractive share buyback. So we have done -- I think on the investment side, we have done the value-accretive part, which we wanted to do. And now we have no time pressure, and we can carefully evaluate what of some of the emerging markets maybe are better off with a different owner.

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

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

Thank you very much. Much appreciated.

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

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