Holcim AG (HOLN) Earnings Call Transcript & Summary

Good morning, and welcome to the analyst and investor conference call for Holcim's First Half 2026 Results. My name is Bernd Pomrehn, and I'm pleased to be joined by Miljan Gutovic, our CEO and our CFO, Steffen Kindler. After their presentation of our results, you will have the opportunity to ask your questions. Sandra, may I ask you to share the technical details with us. Thank you..

[Operator Instructions] The conference must not be recorded for publication or broadcast.

Thank you so much, Sara. And with this, I directly hand it over to Miljan. Miljan, please? .

Thank you, Bernd. Good morning to you all, and welcome to Holcim's 2026 half year results and Analyst and Investors Conference. Stephan and I are pleased to be presenting our numbers to you today. And of course, we look forward to taking your questions afterwards. As you have seen, after a very strong start to the year, our momentum even accelerated in Q2. In net sales, our organic growth was 5.2% for H1 and 6.4% in Q2. There was an even stronger momentum in recurring EBIT which grew 11.5% in H1 and by 13.1% in Q2. The drivers included increased customer demand for our sustainable offering, our strict cost discipline and of course, our operational excellence. In the first 6 months, we closed the 2 value-accretive strategic acquisitions of Xella and Pacasmayo. This, we will discuss later on. And building on our strong first half performance, we are upgrading our 2026 full year guidance. Turning to the regional highlights now. In Europe, there were strong net sales accelerating in Q2, driven by Germany, Switzerland, Spain, Greece and East Europe. Price over cost was positive, and our use of alternative fuels in the region went up again over 70% in future-proofing Holcim in from energy price exposure and market volatility. We completed the Milestone acquisition of Xella on June 19 and with this building solutions now already at 50% of net sales in the region. For the outlook, we expect the strong activity in infrastructure to continue and this includes from roads, tunnels to the airports. Several projects have started such a crossing river in London, the Accent Strata tunnel in Switzerland. And we are seeing major investments in railway, in Eastern Europe, especially in Bulgaria. In residential, the recent increase in building permits is continuing with recent notable growth in France, Germany and also in Poland. In LatAm, we delivered 6.2% organic growth in net sales in H1. This was driven by Mexico, Ecuador and Central America. We our recurring EBIT margin consistently above 30%. The strong performance of Pacasmayo, the acquisition of which we completed in March, contributed to both net sales and also recurring EBIT. For the outlook, we expect government support for new homes and also infrastructure projects to accelerate growth in Mexico, in Peru and also across the whole Central America. One large project that I would like to highlight, which I recently visited was the region's biggest social housing project in Ecuador. This is a perfect example where customer demand for sustainable products is evident outside, even in the emerging markets. They are building homes for 35 -- they're building 35,000 homes for more than 150,000 people. Our outstanding performance in Asia, Middle East and Africa continued with net sales up 8.5% and also overproportional increase in EBIT nearly 24%. The margin rose 80 basis points from a year ago to nearly 26%. The drivers in this case were continued favorable demand trends in North Africa and Australia, and we expect this to continue for the full year. One of the infrastructure projects in Australia is Western Parkland City, the Western Sydney International Airport. During my recent visit to Australia, I was quite impressed the amount of infrastructure projects we have happening. And we are investing heavily, we are commissioning the new high-capacity concrete batching plant at Battery Creek that will be producing from September. Another example is the upcoming Olympic games in Brisbane, where we are seeing a lot of construction activity already starting or in the tender stage. With that, I would like to hand it over to Steffen to talk through the financials in more detail. Steffen?

Thank you, Milan. And a warm welcome to all of you also from my side. It's always a pleasure to be here with you today. Turning first to the net sales bridge. You can see that we had a strong organic growth of 5.2%, representing almost CHF 390 million. Total sales are also up as the strong OG offsets impacts from net M&A here, mainly the divestment of Nigeria and foreign exchange translation effects. The foreign exchange translation effect of 3.4% year-to-date is a mixture of mature and emerging markets currency devaluation versus the Swiss Franc. It's notable that this softened in the second quarter to 1.5%, while it was still at 5.5% in Q1. For recurring EBIT, we delivered double-digit organic growth of 11.5%. There were foreign exchange translation effects of CHF 40 million or 2.8% and CHF 112 million impact from divestments, as mentioned already in the sales chart. Here as well, net M&A is mainly driven by Nigeria and other divestments, partially offset by Pacasmayo. Also here, the foreign exchange translation effect softened to 1.4% in the second quarter. EBIT growth was driven by strong commercial execution, operational excellence and disciplined cost management in the countries and at corporate level. And I want to underline that once again, we delivered positive price over cost in all our regions. This is now the 17th consecutive quarter with positive price over cost for Holcim. Next, let's look at the progression of our recurring EBIT and recurring EBIT margin on a rolling 12-month basis. This graph shows our continuing margin expansion again, driven by our strong commercial execution, operational excellence and disciplined cost management, also underlined with our AI initiatives. The group margin for the second quarter was flat compared to the same period a year ago, mainly due to divestments. We are committed to further margin expansion for the full year 2026 and expect to be broadly flat for the first 9 months before seeing expansion for the full year. Next, let's look at the regional performance. Organic growth in net sales was strong in each of LatAm and EMEA. And in Europe, there was a significant acceleration in the second quarter. In Asia, Middle East and Africa, there was excellent organic growth in recurring EBIT in H1 at almost 24% with an 80 basis points increase in margin, while we keep achieving a recurring EBIT margin of above 30% in Latin America. Europe saw good margin development and as mentioned before, good cost development on the corporate level continued. Our performance culture and disciplined financial management ultimately drives the growth of our earnings per share, EPS, which is up 7.4% in Swiss francs from a year ago. This shows that we pay equal attention to operational performance and financial discipline in the lines below recurring EBIT and that we are producing superior profitable growth. Next, you can see the development of our free cash flow in the first half of the year. The headline number incorporates some CapEx phasing, a seasonally strong June that impacted H1 working capital and the large divestment of Nigeria in the second half of 2025. Taking these things to an account, we are fully on track to meet our full year guidance of around CHF 2 billion. Looking now at our strong investment-grade balance sheet as well as accounting for dividend payments or M&A, principally the acquisition of Cementos Pacasmayo, Xella has increased our financial debt. Given the seasonality of our cash flow, we expect our leverage ratio to be back to around 1.6x by year-end, so close to a 1.5x target level even after closing our announced acquisition and expansion in Colombia and our usual run rate of around CHF 0.5 billion on bolt-on acquisitions. And with that, I'm pleased to hand you back over, Milan.

Thank you, Steffen. For Nexco 2030, we are delivering superior performance and margin expansion focused on the 5 key drivers. Firstly, we are scaling up our sustainable offering, powered by our premium brands. We are accelerating initiatives for decarbonization and circular construction driving profitable growth. A key part of next-gen growth is expanding high-value building solution and with our impeccable track record of value-accretive M&A we are focusing on the most attractive markets and the most attractive businesses. And all of this is driven by our deeply embedded performance culture. Now let's look more closely at some of these drivers. Our sustainable offering, driven by our premium brands, ECOPact, ECOPlanet and ECOCycle continues to be in demand. These premium brands are being used at scale in large-scale projects. One example here, which you can see on the slide is the library in Australia, which is built with ECOPact and GeoStone, our modern decorative concrete inside. The libraries in Geelong and in Melbourne is a landmark and community hub that reflects a original heritage, and it was also awarded a 5-star Green Star rating from the Green Building Council of Australia. During the first half, we increased the volume of recycled construction and demolition materials by 36%. Accelerating also our circular construction technology ECOCycle. Circular construction more broadly continues to be a driver of profitable growth. And as you can see on this slide, the contribution from our acquisition of Xella, for example, with its additional 22 circular construction hubs we are now close to 150 in total. We also closed 7 value-accretive transactions in the first half of the year. of which 6 were acquisition and 1 was divestment. To reinforce building materials, Holcim made acquisition in Romania as well as Pacasmayo in Peru. Building Solutions expanded with 4 strategic acquisitions in Belgium, Germany and New Zealand as well as the acquisition of Xella. We also made 1 divestment. The 2 strategic acquisitions we closed in H1 will definitely help us accelerate our next-gen growth 2030 strategy. Xella, which is a leader in the attractive EUR 12 billion plus walling market brings around CHF 900 million in projected 2026 sales as well as more than 50 production facilities. At the same time, Pacasmayo, a leading player in Peru of building materials and also building solution brings additional CHF 500 million of projected 2026 net sales as well as 3 integrated cement plants and 28 ready-mix and precast plans. On the next slide, you can see how addition of premium Xella brands enhances our integrated end-to-end building solutions, offering our customers from foundation and flooring to walling and roofing. For walling, our customer offering now includes Ytong as well as Silka and Multipor mineral insulation. For roofing, we now offer a large-format Harbir panels. To conclude this section on Xella, I wanted to emphasize how delighted I am to welcome Xella's 4,000 employees to Holcim family. Last quarter, we explained to you how AI is unlocking incremental value and growth for Holcim, improving performance and also driving customer-centric services. And to reinforce, we expect benefits from AI of around CHF 200 million by 2028 reflecting both cost savings and also cost avoidance. We think this will entail growth investments of around CHF 20 million. And we have around 40 initiatives across these 4 areas of production, logistics, commercial and administration. Let's look next at some of the initiatives we are scaling up. So on this side, we have initiatives related to production. We have AI-powered Holcim predict family of initiatives. And Predict is for maintenance where we are using AI models correlating smart sensors to predict maintenance of critical machines. The other one is Q Predict, which is for quality using models, it allows us to optimize cement formulations while reducing clinker factor and so far, we have tested more than 7,000 different cement formulations since its launch. For M and Q Predict, we have made excellent progress, the next big initiative is P Predict, which uses AI for real-time kiln process control, allowing us to optimize our energy mix and this will include increased usage of alternative fuels. Now turning to the rest of the year, we are upgrading our 2026 full year guidance after this very strong first half. Net sales and recurring EBIT growth at high end of our next-gen growth 2030 targets, 5% organic net sales growth and 10% organic recurring EBIT growth. Further increase in our recurring EBIT margin free cash flow around CHF 2 billion, and we want to continue to overproportionally grow in recycled construction and demolition materials. Bernd, you can now open it for questions.

Thank you, Milan. Thank you, Steffen. With this, we open the line for questions. The first question came in from Benjamin Rada Martin from Goldman Sachs.

Excellent. My first question was on, I guess, the ETS changes we've seen in the last few weeks. I'd be interested and how that affects your European decarbonization strategy at all? Are there any business cases that you think are stronger under the proposed changes or any that you might look to revisit and then the second question is around Europe cement pricing. I wonder if you could provide an update on your ambitions as we get into the second half of this year? And as we think about 2027 with the backdrop of more energy inflation, is it right to think that the contribution for pricing into next year could be a similar magnitude or even larger than what we saw in 2026.

Ben, thank you for your question. I'll start with TTS. So it's been almost 2 weeks since we saw the EU ETS proposal for reforms. First reaction from my side was this actually once again confirms that ETS will remain the key pillar of European climate and industrial policy. After analyzing it, we found that it is positive for Holcim, and it will open additional opportunity for us. Starting with this industrial decarbonization bank, CHF 100 billion of investments. We've definitely want to participate in this free allowances phasing out. I see this as a positive sign because it will give us additional time, maybe a year or 2 to optimize our value chain. . I think I said this many times before, when it comes to carbon capture project, I strongly believe that we need to find onshore storage possibilities to make this project even more financially attractive. So moving from offshore to onshore, this can help us to delay this project by a year -- then we talk about market carbon market. This is also something very interesting, where we can participate -- then we talk about carbon capture utilization, which is something very interesting because they have changed accounting from the capture to the usage. And this year can open the possibilities for CO2 to become SAFED stock. And we do have some of the projects, including the 1 in France, where we were working with our partners. Of course, we want to use the captured CO2 to be -- to sell it, to be used to produce sustainable aviation fuel. So in my view, very positive and for Holcim being the leader in decarbonization, this will definitely open the new opportunities. Now on the pricing, very happy so far. At the beginning of the year, we did aim for mid-single digits. This is where we are. There were some very pleasant upside, for instance, Mexico. So for the second half of the year, I do believe there are pockets of opportunities, but nothing on this level. Steffen said it, 17 quarters of positive price over cost. So next time when we talk, Ben, I will report another 18th quarter of positive price over cost. So that's the goal for the rest of the year.

Excellent. And I guess, just to come back on pricing, conscious they're a little bit early 2027 but given the energy inflation backdrop in Europe, do you expect pricing to be a bigger contributor next year than what we've seen this year or similar magnitude? Or is it too early to say? .

I would not like to comment on this at this stage. It's too early. Probably we should talk more about this in Q3 or towards the end of the year.

The next one on the line is Julian Radlinger from UBS. Julian.

So a couple of questions. The first can we dig a little bit deeper into Europe? So you finally turned the corner there on volumes. And of course, you're not the only company, construction companies to have done so. But so could you paint us a bit of a picture of which countries are growing, which ones aren't yet and I'm also really curious about is this more infrastructure driven? Or is residential coming back in a clear way somewhere? And by that, I mean not just permits that you're seeing, but actual activity. .

Thank you for the question. On Europe, very pleased with the momentum in H1, especially acceleration in Q2 you have seen, we did very well in Europe. So all in all, infrastructure backlog is extremely healthy across the whole Europe. On the residential sector, I would like to say that Eastern Europe is doing well, but we are seeing soft recovery in Germany and also in France. At the same time, Spain and Greece are doing really, really well. So the only soft market in H1 was U.K. And we expect that these big projects such as River Crossing in London, Sizewell C, a few others where we are participating tendering, this will create a much better momentum in H2. But unlike Germany and France residential in U.K. is still soft.

Okay. Great. And then sort of the same question for Latin America. So here, your volumes were slightly negative, I think, in Q2. They looked a little bit better in the prior quarter. And if I look at all sorts of construction data and what some of your peers reported for Mexico, et cetera. I would have actually expected a bit of volume growth in Latin America. Can you help us understand what drove that sort of volume setback in Q2? And will that change in the second half of the quarter -- of the year? .

On LatAm, Julian, it was a country mix, but countries that were we are seeing a strong performance, Mexico, Ecuador, the whole Central America and especially Peru, you saw what Pacasmayo reported for Q2 net sales up more than 15% and EBITDA up 30-plus percent. So Argentina is softer than we expected and in Colombia, we had the election, so that probably had an impact on the whole volumes. Regarding Mexico, we are pleased with the performance, we are still talking about even higher EBITDA margin than 45%. We maintained our market share. I know there was a shift in the volumes in Central region of the Mexico, but this was nothing to do with the Holcim. So for the H2, I believe that we will see a significantly better momentum we did spend money on the integration of these companies. We invested heavily in the sensor. So all of this is already paying off. And maybe the highlight on the pricing, I would like to say for me at least was indeed Mexico.

Thank you, Julian. Then we take 3 questions from Paul Roger from BNP Paribas. He sent us the questions by e-mail. First question from Paul, are the margins in LatAm likely to be relatively stable sequentially around 30% in the future, which would actually imply a big expansion year-over-year in the third quarter.

I would hand it over to Steffen.

Yes, Paul, good question. Look, I would say what we've been saying all along that LatAm -- for us, we manage this like a portfolio. And LATAM has always been above 30%. We have some countries every year that are a bit stronger, that are going through other periods. So we manage this as a portfolio, and we always say between 30% and 35%, this margin will swing year-by-year, which is great for us because the region is growing in sales. And so the mix into our overall portfolio and into our results is positive from this high margin growth. So every year, we expect this to be above 30% with some wiggle room depending on the country mix and the specific projects that we're doing. So yes, we confirm that it's above 30%.

Perfect. The second question from Paul is on our corporate costs. He is writing. Is there upside risk to your previous targets for reducing central costs, given the good performance in the second quarter.

Yes. Look, very good question. So please be mindful that at the half year, the corporate costs we show you cannot simply multiply that by 2 to get to the full year number because we have some backloaded impacts, like, for example, insurance payments, clearing out the insurance from our internal captive. So these are things that hit in the fourth quarter. This is why you cannot put a straight line from half year to date to full year. But we're fully on track, fully on track with the target that we set. We said that after the spin, we had corporate cost of a bit more than 3% of sales, and our trajectory is to come down to 2% by the end of this year, at least to be in a structure that allows for 2% as of 2027. And we're fully in line with that trajectory. We will see then in the full year how we manage the late sequencing of those costs. But so far, there's certainly no risk that it could be worse.

And the third question from Paul, he's asking, are there any green shoots in the U.K. Any positive signs, first, leading indicators? Any...

Look, I did mention this previously that in H1, U.K. has been relatively soft. We are seeing that all these big infra major infrastructure projects have started. We are supplying river crossing in London, I mentioned Sizewell C. I mentioned. What's equally important that we are tendering for a lot of big infrastructure projects. So government is committed to next year to spend more than CHF 700 billion. So it is moving. Probably the delay in H1 was due to the political uncertainty. I would expect that a much better strong momentum later in Q3 and hopefully, the residential will start coming back through some government incentives.

Thank you, Milan. The next 1 on the line is Elodie Rall from JPMorgan.

I have 3, if I may. First of all, on your guidance, I think it implies in H2, some deceleration, right, in H2 EBIT like-for-like given you delivered 11.5% in H1 and U.K., it's around 10% for the year. Why is that? We see some easy comps, I think, in Q4 from corporate cost? What's keeping you for being a bit more optimistic there? . Second, in terms of price cost, quite sorry to come back on that. But can you confirm that it was positive in Q2 and give us some color by region? I think you mentioned 17 quarters of positive price cost be, but was it just for Europe? I didn't quite catch that. And lastly, just maybe a bit out of the box question, but you're selling your emerging market exposure, you just sold Nigeria, but you sold that to 18 and you have a 41% stake as part your JV and Holcim. So just trying to understand what the long-term rationale is here with regard to your strategy and your JV .

Thank you for your question. On the guidance, we decided to go to the upper end because it was it's H1. We usually visit guidance in Q3, but we were feeling comfortable with the performance in H1. So we decided to go up to the upper level. It doesn't mean anything for H2 that there will be a slowdown. I can tell you that July is looking good, equally good as June across all our markets. Some markets are even better in July than in June. And then Q4, it will be better in December. But I would not expect any slowdown or deacceleration in H2. So whether we can revisit our guidance again at the end of Q3. Regarding the washing, yes, we did divest Nigeria because we believe that the washing we believe that Washington is a better owner of this business. We did even before some other positions. With us, we like our participation in washing. It's a healthy, very healthy relationship and it does not contract with our strategy in the long term. On the price over cost, I would like to hand it over to Steffen.

Good morning from my side as well. Correct, 17th quarter of positive price over cost in all regions. So to make you -- give you a bit more insight to that you can do your math, positive price over cost was through the tune of, let's say, CHF 90 million. And you can probably parcel this in equal 1/3 to the 3 regions with Europe in the sequence Europe, EMEA, Lat Am, that gives you a good indication, but roughly 1/3 all of those. .

Emerging market strategy, she asked?

Emerging market strategy. So, so far, Europe represents around 55% of our total net sales. and the rest is LatAm North Africa and other positions we are. I believe this is a good mix. There could be some additional potential divestments just on the smaller scale. And we are constantly reassessing our position, and we will continue to invest in the most attractive markets and most attractive businesses. For instance, LATAM is considered as a developing market. This is a market where we have the highest margins. This is a market where we have made some significant investments. I mentioned Pacasmayo, the other, we signed the acquisition in Colombia. We expect this to close in the next few months. So emerging market or developing market will continue selective ones will continue to be the key focus for us in the years to come. .

The next call is from Pujarini from Bernstein.