Holcim AG (HOLN) Earnings Call Transcript

Good morning, and welcome to Holcim's 9 months 2026 Analyst and Investor Presentation. My name is Bernd Pomrehn, and I'm pleased to be joined by Miljan Gutovic, our CEO, and Steffen Kindler, our CFO. After their presentations, you will have the opportunity to ask your questions. Moriya, may I ask you to share the technical instructions with us? Okay. I would suggest we start with the presentation by Miljan, and Chorus Call will give us the technical instructions to ask your questions later. Miljan, please.

Thank you, Bernd. Good morning to you all, and a warm welcome to Holcim's 2026 Q3 Trading Update Analyst and Investors Conference. Steffen 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 first half, our momentum accelerated in Q3. Our organic growth for the first 9 months was 5.2% in net sales and overproportional 11.8% in recurring EBIT. Better still, in the third quarter, we entered a new phase of double-digit growth in Swiss francs for both net sales and recurring EBIT that we expect to persist into future quarters. In Q3, we grew net sales by 15.5% in Swiss francs and recurring EBIT almost 17%, thanks to a healthy balance between inorganic and organic growth. This positive momentum in Q3 helped drive a year-to-date expansion in our recurring EBIT margin. In August, we also entered into agreement to acquire Fermacell, an established European provider of walling and flooring solutions. We will discuss this later on. And building on our strong 9-month performance, we are upgrading our full-year recurring EBIT guidance for the second time after the increase at H1. We now expect 10% to 12% organic growth with further increase in our margin year-on-year. Turning to the regional highlights now. As you can see in Europe, there was a robust net sales development driven by Germany, Greece, Romania, Spain and also Switzerland. A 5.1% organic growth in recurring EBIT was driven by our strong execution on commercial excellence, cost discipline and, of course, impeccable execution of our strategy, NextGen Growth. In addition to our highlights, which I will say more shortly, we saw a good momentum in circular construction with more than 30% growth in the volume of recycled construction and demolition materials. The outlook is positive, thanks to our strong infrastructure pipeline from roads and tunnels to power generation. And our integration of Xella is now in full execution. Here, we confirm our expectation of achieving EUR 60 million in run rate synergies in year 3. In LatAm, we delivered 6.2% organic growth in net sales in the first 9 months, driven by Mexico and Central America. Driven by our operational excellence resulting in positive price over cost, our recurring EBIT margin was around 30%. We continue to invest by opening new branches of Disensa to expand our network, which now stands at more than 2,460 stores. Also, alternative fuel substitution is increasing in the region, reducing our exposure to energy price volatility. For example, our thermal substitution rate in Costa Rica is now above 60%. For the outlook, there is a strong backlog of infrastructure projects across the whole region, and Pacasmayo integration is in full execution with synergies of $40 million in year 3 confirmed. Going to Asia, Middle East and Africa. Here, net sales were up nearly 8% and recurring EBIT up more than 22% organically. We also saw the margin rose 100 basis points from a year ago to above 26% with positive price over cost. In our Fujairah Cement Plant in the UAE, we successfully launched a pilot project that is now safely and successfully capturing CO2 and transforming it into solid rock using natural processes and breakthrough technology developed by one of our value chain partners. This is really the first live condition carbon capture and underground mineralization pilot in our industry. The positive outlook in this region is supported indeed by robust government funding for infrastructure construction across North Africa all the way to Australia. We are also seeing investments picking up in Morocco as the country looks ahead to co-hosting the 2030 Football World Cup. With that, I would like to hand it over to Steffen to talk through the financial details. Steffen, to you.

Thank you, Miljan, and a warm welcome to you all also from my side. It's always a pleasure to be here with you. Turning first to the net sales bridge. You can see that we had strong organic growth of 5.2% in the first 9 months, representing almost CHF 590 million. Total sales in Swiss francs were up even more strongly as the positive net M&A contribution offset a small foreign exchange translation effect of 1.4% or CHF 170 million. The impact from Forex translation has softened significantly throughout 2026, and it actually turned into a tailwind in Q3. Now although we do not guide on FX, I always get this question, so I anticipate your question now, and I'm going to try to tell that FX is expected to remain flat to slightly positive in Q4. Next, for recurring EBIT, we delivered double-digit organic growth of 11.8%. There was FX translation effect of CHF 16 million or 0.7% and the CHF 91 million impact from divestments, mainly driven by Nigeria and partially offset by Pacasmayo, Xella, and our bolt-ons. EBIT growth was driven by strong commercial execution, as always, accompanied by operational excellence and disciplined cost management in the countries and at corporate level. Once again, we delivered positive price over cost in all our regions. And as a reminder, this is the 18th quarter with positive price over cost for the group. Next, let's look at the progression of our recurring EBIT and recurring EBIT margin. The graph you see here shows a continuing margin expansion, again, driven by strong commercial execution, operational excellence and disciplined cost management. As mentioned on several occasions before, we expect margin expansion on a full-year basis as well. On the next chart, let's look at the regional performance. Organic growth in net sales was strong in each of LatAm and AMEA in the first 9 months and remained at a good level in Europe in Q3. In Asia, Middle East and Africa, there was excellent organic growth in recurring EBIT in the 9 months to end September. The margin was 26.1% with 100 basis points increase, while we remain at a recurring EBIT margin of 30% in Latin America. The margin in Q3 in LatAm is actually up by 90 basis points year-over-year, showing a progressive increase. And with that, I'm pleased to hand it back over to you, Miljan.

Thank you, Steffen. Well, in August, we announced that we have signed the strategic value-accretive acquisition of Fermacell, which is an established European provider of walling and flooring solutions with projected net sales in '26 of around EUR 430 million. This is fully in line with our NextGen Growth 2030 strategy to invest in the most attractive markets. The company's premium brands will expand our high-value Building Solutions, and we do anticipate that run rate EBITDA synergies of around EUR 22 million will be achieved in year 3. Fermacell's net sales are well balanced between new builds and energy-efficient repair and refurbishment market, which is already worth approximately EUR 250 billion in Europe. Closing is expected in the first half of next year and of course, is subject to customary condition and clearances. Let's take a closer look at the business now. The headquarter is in Düsseldorf, Germany. The Fermacell business has around 1,000 employees, of which more than 250 are in sales, which is adding to our specification and cross-selling capabilities. It is present in 13 of Europe's most attractive markets with 6 state-of-the-art production sites and R&D center. The acquisition expands Holcim's offering in European walling, flooring and fire protection markets. On the next slide, you can see how the addition of premium Fermacell brand enhances our integrated end-to-end Building Solutions offering from foundation and flooring to walling and roofing. Together, the combination of these brands amount to our genuine building systems for our core customers. For the NextGen Growth 2030, we are delivering superior performance and margin expansion focused on the 5 key drivers. We are scaling up our sustainable offering powered by premium brands. We are accelerating initiatives for decarbonization and circular construction, which is driving profitable growth for Holcim. A key part of NextGen Growth 2030 is expanding high-value Building Solutions and with our impeccable track record of value-accretive M&A to focus on the most attractive markets. All of this is driven by our deeply embedded performance culture. Now let's look at this more in details. Our sustainable offering driven by our premium brands, ECOPact, ECOPlanet and ECOCycle continues to be in demand. These premium brands are being used at the scale on large-scale projects. One example shown here is the National Athletics Center in Hungary. The revamped stadium deep foundation and underground structures were all built with ECOPlanet to ensure stability, durability and a long lifespan. During the first 9 months of the year, we increased the volume of recycled construction and demolition materials by 1/3, accelerating our circular construction technology ECOCycle. Our number of circular construction hubs stands at 136 globally. This footprint now stretches well beyond Europe with hubs in countries like Australia and China and evolving frameworks in Mexico, Morocco and Ecuador. Let's turn to a couple of slides on our growth-focused capital allocation, which is well balanced between organic and inorganic investments, and this helped us to advance our sustainable offering for our customers. On the organic side, I'll take you to these 2 recent CapEx projects. The one on the left is our calcined clay production line, which is the first of its kind in Czech Republic and which we launched in September and for which we have received funding from modernization fund of the Czech Republic's Ministry of Environment. On the right-hand side is our new state-of-the-art cement production facility in the U.K., which will enable Holcim from early next year to offer the first cement with recycled construction demolition materials inside for the U.K. market. Both projects enhance our customer offering with a very attractive paybacks of around 5.5 and 7.5 years, respectively. On both of these projects, we will utilize Holcim's PREDICT family of algorithms to optimize maintenance, quality and also the whole manufacturing process. In M&A, we closed 11 value-accretive transactions in the first 9 months of the year, of which 10 were acquisitions and 1 was a divestment. To strengthen Building Materials, Holcim made 4 acquisitions in France, Romania and Peru, Cementos Pacasmayo. Building Solutions expanded with 6 acquisitions in Belgium, France, Germany and New Zealand as well as the acquisition of Xella. During the third quarter, we also entered, as you know, into the agreement to acquire Fermacell, and we also signed an agreement to divest our business in the Philippines. Now turning to the rest of the year. We are once again upgrading our 2026 full year guidance for organic growth in recurring EBIT after a strong first 9 months of the year. We see net sales at the high end of our NextGen growth target at around 5% organic growth. We are upgrading our recurring EBIT guidance and now expect to grow organically by 10% to 12%, which is up from around 10% previously in H1. This will be accompanied by a further increase of our recurring EBIT margin, free cash flow before leases of around CHF 2 billion, and we continue to grow in recycled construction demolition materials by more than 20%. Bernd, you can now open it for questions.

Thank you, Miljan. We now turn to our Q&A and open the lines for questions. Moriya, can you please again share the instructions with us? Thank you.

[Operator Instructions]

Thank you so much, Moriya. The first question comes from the line from Julian Radlinger from UBS.

So a couple of questions from me. The first one is a short-term one. So 10% to 12% organic EBIT growth for the full year. Can you talk a little bit about what factors would lead you to achieving either the upper or the lower end of that range with only a couple of months left in the year? Second question, more on 2027. So based on everything you're seeing at the moment and knowing how much you're hedged and so on, what kind of cost inflation would you expect for 2027, thinking about diesel prices, gas, power, et cetera, what kind of cost inflation would you expect? And what kind of price increase would you need to be able to offset that next year? And then maybe just a third one on LatAm. So it looks like you had slightly negative volumes there once again in Q3 after the same in Q2 already. So it seems a bit like in Mexico, particularly this kind of construction recovery that we've been talking about last year hasn't really materialized properly yet this year. Is -- I'd love to get an update from you guys on whether you expect that to come in the next few quarters or what the status is there?

Julian, thank you for your question, and thank you for joining us. Look, I will -- Steffen can tackle energy question. I'll go with your first and last question. So on the short-term guidance, the only risk is weather in December. We really don't know if the winter will come early this year. But October, November, I'm confident that we are on the track as we -- what we have seen in the first 9 months. So if you're asking on the lower side or higher side, it's simply 1 month, half a month in December. On the LatAm volumes, well, Mexico had a really strong quarter. Projects are coming. We are securing, we are tendering, and we are seeing more and more of these projects, rail, road, water, energy. So maybe the speed, I would expect actually speed to significantly accelerate in next year. The 2 countries where we have seen softer market conditions in LatAm is Argentina and Colombia. I am more optimistic on Colombia. We are -- now the elections are over. The new government is already very aggressively announcing the new infra spend. They want to address residential shortage. And if you remember, we did sign the agreement to acquire CEMEX assets in Colombia, where we will increase our market share significantly. So I am very optimistic about Colombia in 2027. I will stay conservative on Argentina. Fiscal policy seems to be in a better shape, but I'm not sure when all this infra, residential spend will come. So Colombia probably could be significant upside for 2027.

A few items on costs. So I would say raw material quarry, distribution, we're probably going to look at an inflation of mid-single-digit. Energy, mid to high single-digit next year. Hedging ratio currently above 70%. And I would also say that fixed cost is going to be a tailwind like we've done. We are very focused on that headquarter as well as operations. So that should be a low single-digit tailwind. And if you put all of that together, a mid-single-digit price increase is sufficient for significant price over cost because the price increase is, of course, on a very different basis than the individual cost increases. So that gives you the formula pretty much going into next year.

I'll just add on Steffen's comment on the pricing. Look, we have demonstrated that we have best-in-class pricing discipline at Holcim. However, pricing is one component. What has been driving margin expansion, and we have shown this in Europe in the full year results, is other things than pricing. Our cost discipline, our operational excellence, scaling up sustainable offering where we do have a modest price premium, but we do have a cost upside. Then every investment we make in decarbonization and also circular construction, this is driving profitable growth. On top of that, M&A, in the last 5 years, we did more than 100-plus value-accretive deals where we are investing in the companies with the high synergies, and we are divesting less attractive markets. So all of that plus pricing will help us overcome whatever we will face in the future. So just to summarize it, once again, what you saw this morning, the results that we published, it clearly demonstrates that Holcim's business model is really resilient across all market conditions and economical cycles.

Thanks very much, Miljan. And I was going to say to Steffen, that sounds like a pretty good formula to have in mind for 2027.

Thank you, Julian. The next question comes from [indiscernible] from JPMorgan.

The first one is just on the Europe margin decline that we've seen in the 9 months in Q3. Could you maybe split out how much of that was due to scope and like-for-like? And then a word on Latin America. I think you mentioned that the alternative fuels rate is increasing. Maybe just within this division, where are you now? Where can you get to and how much savings you think that will provide? And lastly, if I could squeeze in one on the Philippines divestment, if there's any updates you could provide there.

Thank you for your questions, and thank you for joining us. So on the EU margins, well, basically, it's part of this integration of Xella. This is an outstanding company. We are now in full execution of integration, and we want to do more in a shorter period of time. Company is doing well. So why spread this integration costs over a year, 1.5 years? We want to do it as soon as possible. Steffen, you can elaborate on that later on. On LatAm and alternative fuels, look, just 1 example, I was recently in Costa Rica. Alternative fuel story was for Europe, and this is where we -- September was the best month I have seen ever when it comes to alternative fuels in Europe. I mean, we are achieving really next level of usage of alternative fuels. But even in developing markets like Costa Rica, we are 60%-plus. We can probably go to closer to 80% in the next 2 years. And alternative fuel in this country in Costa Rica is between 30% and 40% lower than traditional fossil fuel they use, which is a pet coke. So potential upside is indeed significant. And the last on the Philippines, we expect nothing has changed. We are progressing. We are getting all the regulatory approvals. So H1 is the closing. Maybe if you want to expand on the margins in EU.

Thanks, Miljan. Good morning from my side as well. So Europe margin would have been slightly up by probably 2 percentage points. And as you mentioned, you're absolutely right. It has to do with scope M&A. The biggest one here being Xella, who, as Miljan completely correctly said, we're anticipating integration costs. We're accelerating the integration. We're pulling a lot of things forward. This is going extremely well. Also very encouraging, the margin in the third quarter of Xella, the profit margin are now already coming up to a business plan level. So this is all very encouraging and it's basically what we expected it to be at this point in time or slightly better even.

The next question comes from the line from Benjamin Rada Martin from Goldman Sachs.

I just had 2 questions, please. Maybe the first on pricing into 2027, those mid-single-digit comments that you made previously. Are there any geographies which you think will contribute more in 2027 from pricing relative to that target? I'm not sure if there's geographies with greater energy inflation or maybe more of a focus on value over volume worth highlighting? And then the second question would just be on solutions M&A. I guess with both Fermacell and Xella now announced, I'd be interested if the Europe solutions strategy is broadly complete and whether when we're thinking about the progress towards the 50% of sales from solutions, which geographies we should keep in mind to make up the rest of that kind of growth?

Ben, thank you for joining, and thank you for the question. On pricing, yes, we will have some geographies. I would just maybe Egypt or Argentina, where will see overproportional price increases. But Ben, value over volume remains our key priority. I think mid-single-digit, the aim is good. We have proven in the past that when it comes to pricing discipline, we have -- we are the best-in-class. So I'm confident that pricing increases planned for 2027 will offset everything else, cost inflation and so on. On Xella and Fermacell, well, I think now we are -- we do see a few white spots in Europe where we can build up on this walling offering. We are looking into it. But for me now, it's going to be about LatAm. It's going to be about the expansion of Disensa, where we will be bringing Holcim in-house produced products from flooring, walling, sealant adhesives, waterproofing, roofing. Ben, remember, our goal is to reach 5,000 stores by 2030. We are now slightly below 2,500. So this will drive the momentum in Building Solutions in LatAm.

The next question comes from the line of Cedar Ekblom from Morgan Stanley.

I wanted to ask a little bit about growth and capital allocation in the medium term. So last year at your Capital Markets event, you spoke about potentially CHF 4 billion to CHF 6 billion, which you could allocate to sort of strategic M&A or buybacks. And by my count, you've done about half of that. And if I look at the markets that you're in now, if we're thinking about sort of larger, bigger deals, it's not obvious to me that there's anything left for you to acquire in LatAm and in Europe. You've done a lot on the light side of things, but I don't know if there's anything big you can do on heavy sides. And so my question is, when we think about where your multiple is relative to other heavy side Building Materials businesses, not just in Europe, but also on a global basis, and we think about the cash generation and we think about the flexibility on the balance sheet, is there any reason why you wouldn't go and step into a market that you're currently not present in, say, for example, the North American market, which I know we obviously had the separation of the business last year, but the North American market remains a very attractive market, high margins, long-term structural growth drivers? And it doesn't sort of escape me that you're not in that market anymore, and your multiples in a position today where maybe stepping back into that market is an opportunity. I'd just like to hear your perspective sort of on where you allocate strategically going forward?

Cedar, thank you for your question. So I'll start on M&A front. What do we have on heavy side in Europe? I'm still very excited about the opportunities we have in aggregates and recycling of construction and demolition materials. We talked about this many times. The number of deals that we did in aggregates in Eastern Europe, where we have consolidated our position in Greece, Bulgaria, Serbia, Croatia, Romania, even in Poland. Now these businesses are generating overproportional EBIT margins, and they are growing. So I do see many, many opportunities for further consolidation in aggregates. West Europe, it's going to be more into the recycling of construction demolition materials, and that's Belgium, U.K., Germany, France. We have established ourselves Switzerland. We have already established ourselves as a market leader, but it's a highly fragmented market, and we see great potential for consolidation and also for synergies. So in addition, I like a part of the whole offering. We have expanded in insulation with acquisition in Poland and previously in France. So this is the area in Building Solutions where we still can grow. At the moment, no plans to go back to North America. All valid points, I fully agree with you, but there are so many opportunities in Europe, in LatAm that I would like to focus our efforts, our capital allocation on these priorities where we can see very high synergies, high ROIC and relatively attractive paybacks.

And the next question comes from the line from Martin Hüsler from ZKB.