Holcim Ltd (SIX:HOLN.SW), a leading global building materials company, reported a robust third quarter in 2024, with CEO Miljan Gutovic announcing record recurring EBIT and EBIT margin, driven by strategic initiatives and market demand, particularly in North America. The company is on track for a record year with strong sales growth and margin projections, complemented by a share buyback program and strategic acquisitions. Holcim also plans to list its North America business in the U.S. in the first half of 2025.
Key Takeaways
- Record recurring EBIT of CHF 1.67 billion and a record EBIT margin of 23.5% for Q3 2024.
- Strong market demand in North America, supported by federal investments and infrastructure projects.
- Completion of six value-accretive acquisitions and a 23% increase in recycling of construction and demolition materials.
- On track for a record year with net sales increase in local currency and an EBIT margin above 18.5%.
- Planned listing of North America business in the U.S. to enhance stakeholder value.
- Share buyback program in progress, with CHF 833 million repurchased by September 2024.
- Significant margin expansion in Asia, the Middle East, and Africa, with the Solutions & Products segment leading in net sales and recurring EBIT growth.
Company Outlook
- Low single-digit net sales growth in local currency projected for the full year.
- EBIT margin expected to remain above 18.5%.
- Strong cash generation anticipated, exceeding CHF 3 billion.
- Aiming for 10 million tonnes of recycled construction materials, a 20% increase from the previous year.
- Plans for a slight recovery in the residential market in 2025, supported by expected interest rate cuts.
Bearish Highlights
- Organic growth remained flat, with local currency net sales growth primarily driven by net acquisitions.
- Free cash flow target set conservatively at $3 billion, below the previous year's $3.7 billion.
Bullish Highlights
- Strong demand in North America with over CHF 4 billion in federal investments and infrastructure projects.
- Solutions & Products segment noted for double-digit EBIT growth, particularly in roofing systems.
- OX Engineering Products acquisition expected to contribute to further growth.
Misses
- Despite record results, organic growth has not increased.
Q&A Highlights
- ECOPact and ECOPlanet initiatives are gaining momentum, with a target of over 55% of total sales in Europe by 2030.
- CapEx for CCUS projects to be spread over the next six years, with significant EU funding.
- M&A activity continues, with a focus on green roofing and recycling businesses.
- Strong margins in North America expected to continue, with robust pricing.
Holcim's strategic focus on sustainable solutions such as ECOPact and ECOPlanet, and its commitment to recycling and value-accretive acquisitions, position the company for continued growth and margin expansion. With plans to list its North America business and a conservative yet optimistic financial outlook, Holcim demonstrates a balanced approach toward capitalizing on market opportunities and enhancing shareholder value.
Full transcript - None (HCMLF) Q3 2024:
Unidentified Company Representative: Good morning, and welcome to the analyst and investor webcast for Holcim's Third Quarter 24 Trading Update. My name is [Bernd Pomerin] and I'm pleased to welcome Miljan Gutovic, our CEO; and Steffen Kindler, our CFO, who are with me in the room today. After their financial presentations, you will have the opportunity to ask your questions. [Operator Instructions]. And with this short intro, I hand directly over to Miljan. Miljan, please?
Miljan Gutovic: Good morning. Thank you, Bernd. Good morning to all of you, and a warm welcome to Holcim's trading update. Stephane and I are pleased to be with you today to present our results, and we will turn it over to you afterwards for your questions. Once again, we have achieved an industry-leading earnings profile with a broad-based growth drivers and our resilient business model delivering a record recurring EBIT and record EBIT margin. To start with -- let me take you through the key highlights. In the third quarter, we delivered record recurring EBIT of CHF 1.67 billion with a record margin of 23.5%. This outstanding performance is driven by strict focus and strategic priorities combined with impeccable execution delivered by Holcim 64,000 employees. Our value strategy with our high-value solutions is playing out perfectly in this environment and continues to deliver industry-leading performance. Our industry-leading performance in EBIT growth and EBIT margin expansion clearly demonstrate that our business model is resilient in all market conditions and economic cycles. In Q3, Holcim disciplined M&A execution continued with another 6 million value-accretive acquisitions in the most attractive markets. And in circular Construction, we accelerated our expansion of our technology ECOCycle with a 23% increase in recycling of construction and demolition materials. Finally, a few words about the market dynamics, fundamental demand across all our key markets remains positive despite some challenging weather conditions in Q3 in U.S., Mexico and Europe. When it comes to North America, the outlook is robust with demand in U.S., driven by continued federal and state investment program, reindustrialization and reshoring. Just this week, there was another announcement by the U.S. Department of Transportation of more than CHF 4 billion in additional infrastructure investments. We also see increasing demand in reroofing, particularly as a result of adverse weather events. With our strong North American footprint of over 850 operational sites and with our leading market positions we spend to benefit disproportionally. Similarly in Europe as well as in other regions, we expect robust demand in infrastructure activity to continue industrial facilities, data centers, transportation and energy transition projects. These are supported by significant investments from government funding programs, reshoring and also nearshoring. Executing on our strategic priorities, we are committed to delivering another record year of results in 2024. Now let's look at these highlights in more details. First, let's look at our record Q3 EBIT, which was an increase of 9.1% in local currency and 4.6% in Swiss francs. Next, our EBIT margin, which we increased by 160 basis points over the first 9 months to a record 19.5%. You can see the excellent progression there, and we are well on track to deliver industry-leading margins again for the full year. This reflects our focus on our differentiated value strategy from continued to advance sustainable building solutions with growing multibillion brands like ECOPact, ECOPlanet, Elevate and all the way to report leadership with its strong performance culture. We also continued our M&A execution in Q3 with 6 value-accretive acquisitions, strengthening our geographical footprint. Holcim has now completed more than 100 transactions in the last 5 years, fundamentally transforming our portfolio to allow us to capture growth opportunities in the most attractive markets and offer our customers the most innovative and sustainable building solutions. We will remain disciplined and focus allocating our capital to maximize value for shareholders. As you can see, we are active in Latin America in Q3, where we bought 3 businesses. LATAM is a very attractive region for Holcim, with the highest EBIT margin of our regions at about 35%, strong cash generation and excellent growth potential. Its performance is driven by the long-term trends of population growth, urbanization, government spending and shoring. In Europe, we continue to invest in aggregates and ready-mix with another two highly synergetic acquisitions. In circular construction, we have a strong pipeline of acquisition to increase capabilities in this attractive market. We also continue to expand solutions and products and with OX-engineering products, we are making a great acquisition one that complements Holcim range of building envelope solutions for our customers in North America, across residential and commercial application. The company has a trusted brands and technologies that had excellent fit with our existing businesses, Elevate, Malarkey and Duro-Last. Synergetic and EPS accretive from year 1, the acquisition continues the expansion of Holcim Solutions and Products business into the most attractive construction segment from roofing and installation to repair and refurbishment. Switching now to our 1 billion brands. Overall, customer demand from Holcim ECOPact and ECOPlanet continues to grow, and we are significantly up versus last year. And it's our sustainability building solutions like ECOPact and ECOPlanet that make Holcim partner of choice for our customers. Take a look at these projects where we add value to our customers with our sustainable circular durable and also energy-efficient building solutions. To lose Metro driving sustainable transportation, [Gold Hovi International] bridge connecting the U.S. and Canada and very impressive building, they have a building in Dubai. Another highlight is circular construction, which we are advancing as a driver of profitable growth. Here, our unique geographical footprint and strong logistics network give us access to construction and demolition materials in key metropolitan areas where we operate. We have the largest footprint in Europe, urbans mine with 100 recycling centers. We have made this year for highly value-accretive acquisitions. And we are -- we have increased our recycling of construction and demolition materials by more than 1/5 in the first 9 months to try to give you some sense of how much that is it's more than 1,500 truckloads per day. As you can see on the slide, we have already built many concentrated clusters around the U.K. capital, London in Paris to lose and Lyon in France and of course, across Switzerland, which is a regional leader in circular construction innovation. Circular construction is indeed a highly profitable business model. We can recycle up to 100% of construction and demolition materials back into solutions ranging from highest quality aggregates to recovered cement pace using our ECOCycle technology. Finally, let's look at our sustainability highlights. As you have been seeing, Holcim is making excellent progress on scale up its sustainable building solutions from ECOPact to ECOPlanet to ECOCycle. And we are on course to deliver a 20% increase in recycling of construction and demolition materials to 10 million tonnes by the end of this year. Just a couple of days ago, we were awarded another grant from the EU innovation fund for a carbon capture project. This time in France, bringing the total number of Holcim's large-scale EU-supported projects to 7. And through Holcim Maker Ventures, our venture capital arm, we are investing in start-ups scale up the most innovative technologies in the built environment. And with that, I would like to hand it over to CFO, Steffen, who will take you through some of the financial highlights. Steffen?
Steffen Kindler: Thank you, Miljan, and a warm welcome to you all also from my side. It's a pleasure to be here with you today. Turning first to the net sales bridge for the first 9 months, you can see that net acquisitions have provided the bulk of our local currency net sales increase with our organic growth broadly flat. The FX effect, foreign exchange effect is minus 3.5% or CHF 715 million. Over the same period, we reached an absolute record in recurring EBIT for the first 9 months of the year with a double-digit percentage increase in local currency. This is a very strong performance driven by organic growth. Recurring EBIT is also up 6.6% in Swiss francs. It's worth noting that this result comes in spite of the continued appreciation of the Swiss franc through the period, impacting EBIT by minus 4.5%. Looking at the next slide, I'm also pleased to say that our broad-based growth drivers delivered over proportional EBIT growth in all of our business areas and regions for the first 9 months. As you can see here, there are some very strong growth numbers here from our five segments. We will now review each of the five performance segments in turn, and I'm going to start with North America. North America is reaching a new level of profitability with a significant expansion of recurring EBIT margin. There are strong market fundamentals, and this is just -- just this week, as Miljan was saying earlier, there was a U.S. Department of Transportation announcement of more than CHF 4.2 billion investment from bipartisan infrastructure law international infrastructure projects. That's in addition to projects coming from the pike, from the infrastructure investment and Jobs Act and the inflation reduction act and so on. As we said, at the time of our spin-off announcement with our leading positions and expansive footprint, we are best positioned to capitalize on the strong construction spend and once in a generation infrastructure investment across the region. And we have now secured more than 150 infrastructure projects. Looking ahead, North America will continue to drive margin expansion for the full year. Next, let's go to Latin America. There was another excellent performance in this high-growth region, where we delivered the 17th consecutive quarter of profitable growth. At some point, we may have to stop counting these consecutive quarters, I think, but as they are going, they are going. There were three more highly synergetic acquisitions in Q3, meaning we've now made four in the first 9 months, and nearshoring is continuing to drive commercial and infrastructure investment. In Europe, Sustainability continues to be a key driver of profitable growth. We reached a milestone in the first 9 months of the year, crossing CHF 1 billion in recurring EBIT. To put that in a bit of context, 6 years ago, we would just have that. So this really speaks to how we delivered growing profitability in the region, reflected, of course, by the substantial increase in our 9-month EBIT margin. We've also made 8 bolt-on acquisitions so far this year, including four in the attractive market for recycling, construction demolition materials or as we all call it CD. We expect a strong earnings momentum here to continue. Strong margin expansion has been the story in Asia, Middle East and Africa, led by good market dynamics in Australia and North Africa. We continue to manage our portfolio proactively, and we expect the strong earnings momentum to continue in this region as well. Our final business segment, Solutions & Products has produced the largest percentage increase in both net sales and recurring EBIT driven by our roofing systems. The double-digit EBIT growth and strong margin expansions are notable. Miljan has mentioned the signing of the OX Engineering Products acquisition, which will drive more growth in the future. And the outlook for the year is positive. Now as you know, we're continually looking to deploy our capital to create value for our shareholders. including through share buybacks. Our latest share buyback program, which launched on the 18th of March this year, is well on track. As of the end of September, we had purchased 3 quarter of the total CHF 1 billion in shares we were targeting by year-end. By the close of yesterday, we had increased that to CHF 833 million, representing roughly 1.8% of total shares outstanding. And with that, I'm pleased to hand it back to Miljan now to talk you through our outlook and guidance as we commit to delivering another year of record results.
Miljan Gutovic: Thank you, Steffen. So as you can see from our results, Holcim is a growth company with a resilient business model across all market conditions and economic cycles, and we are confirming our full year guidance. Net sales, low single digit in local currency, EBIT margin greater than 18.5%, strong cash generation, more than CHF 3 billion. And of course, we are on track to reach 10 million tonnes of recycled construction and demolition materials, which is up 20% versus previous year. Regarding the intended listing of Holcim's North America business in the U.S., I confirm we are on track to complete it in the first half of 2025, with the aim of unlocking a new era of value creation for our stakeholders. In the last month, we have made significant progress on all aspects of the planned listing. Now we will open the Q&A. Bernd?
Operator: Thank you, Miljan. Thank you, Steffen. [Operator Instructions]. The first question comes from Cedar Ekblom from Morgan Stanley.
Cedar Ekblom: I have got two questions. One is on the Solutions & Products business. We had a flat organic performance year-on-year in the third quarter at the top line. And I wonder if you could give us a little bit of color on what the components were of that growth, what the roofing business in the U.S. delivered and what the rest of the business, the concrete products business delivered. You've spoken about double-digit EBIT growth for that business in the second half, and it hasn't been delivered. So how do -- in the third quarter, how do we think about that? And then the second question, can you give us the margin of your cement and aggregates business in North America? I see that you give it at a group level, but it would be interesting to understand how the margins of those businesses look considering that business that you'll be calling out.
Miljan Gutovic: Good morning, Cedar, and thanks for joining us this morning. In the past, we have not been disclosing cement margins per region. So you will have to wait for our Capital Market Day is for full disclosure. Regarding your first questions on solutions and products, and I'll ask Steffen to give more details. Roofing is still significant, more significant part of this business greater than 50%. We still see strong demand. As you know, our roofing business is mainly focused on reroofing. And unfortunately, due to these bad weather conditions in U.S., the demand for reroofing is increasing and also pricing seems to stay resilient. On the rest of the solutions and products, it's a mixed bag. But maybe, Steffen, would you like to expand on this?
Steffen Kindler: Yes. Thanks, Miljan. Of course, Cedar, we elaborated on that before. The majority of our solutions products is roofing and roofing North America, but there are some other product categories, for example, mortars. And some of these categories, especially in the U.K., were affected by weather, and this is how you are seeing a bit of a bit of a mix in here with roofing in North America doing quite well. And some of the other businesses being affected by the same effect that we're also seeing some cement and ready-mix businesses, the weather and -- and well, basically, the storms that we had that were at a negative impact. I would say this sums it up. Also, Q3 last year for some of these businesses very strong.
Cedar Ekblom: Okay. I'm going to push a little bit because it would be helpful to actually get a number for how that roofing business is performing. Obviously, we want to understand your performance relative to peers and I understand that it's a mix of things, but I don't know if you could give us a little bit more visibility on what's actually happening on the roofing side of things? And then my question on double-digit growth at EBIT I didn't hear an answer to that. I don't know how you guys are thinking about that guidance that you gave at H1.
Miljan Gutovic: So, Cedar, please be patient with us. We will disclose all of this in due course. Of course, I would like to confirm that our roofing business this year will achieve double-digit growth in EBIT. So if you stay with us for a few more months, you will see more fragmentation.
Operator: The next question comes from the line of Elodie Rall from JPMorgan.
Elodie Rall: So the first one is with regard to the preliminary expectations on 2025, how we could think about volume trends given the easy comp from the weather impact this year and whether you have already started discussion on price increases next year by region. And my second question is also looking ahead on margin with your guidance of being for above 18.5%, where do you think this could go in a volume recovery environment?
Miljan Gutovic: Good morning, Elodie, and thank you for your question. Thanks for joining us. Regarding 2025. So to give you a little bit of split, this year, we have seen a softer residential market. It's been soft now for more than a year. We are expecting slight recovery in 2025 as a result of the interest cuts I'm confident that North America will continue to be robust, driven by all these federal and state investments. As Steffen mentioned in one of the slides, we have already secured 150 mid- to large-scale projects in U.S. that are related to inflation reduction act, IIJ, chipset and so on. On Europe, we would expect resilience with possible residential recovery in H2 next year. LatAm and EMEA will remain strong, LatAm driven by Mexico and Central America, and I expect good demand in North Africa, Australia and some other markets. Regarding pricing, it's a bit too early to comment on this. There won't be any price deviation till the end of the year. And then we start in January, and it will be gradual price increases until April next year. So probably next time when we get together, I'll be able to give you more flavor on the pricing for 2025.
Operator: And the next question comes from Yassine Touahri from Onfield.
Yassine Touahri: Quick question. First, on your Capital Market Day in Europe and the U.S., I think it might have been delayed a little bit. Have you a timing in mind even if it's not very precise. And on the capital allocation strategy, what do you think would be the priority? And how do you see the group in Europe and the U.S. in the next 10 years? Could you see -- if we look at the European business, could you see split, which is the same as in North America with a much bigger solution and product business? And if so, what kind of assets would you be looking at?
Miljan Gutovic: Thank you for your question. Regarding -- I'll start with Capital Market Day, then maybe I'll hand it over to Steffen. Yes, at the beginning of the year on 28th of January, we did say communicated, we expect Capital Markets Day later in the year. We decided to postpone that. And the main reason is we would like to finalize Seiling, and then we will go out with the Capital Market Day. Steffen, would you like to elaborate on the SEC filing?
Steffen Kindler: Yes. Thanks, Miljan. Of course, Yassin. So look, since we announced the spin end of January, we made really, really good progress. on all kinds of aspects, technical aspects like accounting, but also governance and everything in between. So really pleased with the progress. It's been well received also the announcement by the investors, I think the strategy and the reason behind it is well understood. Now having made great progress. We understand that investors want to have reliable numbers to take investment decisions, which we will share at our CMD. We will share everything that we've worked on at CMD. But we also want to do that with the adequate proximity to the actual listing date. So we should -- we're working between having numbers that are really final that have been also vetted with the authorities but close enough to the Capital Markets Day. I think that is our intention here. But again, the project is progressing extremely well.
Miljan Gutovic: Thank you, Steffen. Just to add, maybe, we have -- obviously, we are in constant communications with all our shareholders. And we are all equally excited about this project which will open unleash a new era of growth for both businesses on both sides of Atlantic. Regarding capital allocation, we have seen bear with us. Obviously, during the Capital Market Day, we will present a new strategy for both businesses. But just to give you the flavor, we will continue to grow on both sides of Atlantic, and at the same time, we will continue to reward loyalty of our shareholders Okay.
Operator: [Operator Instructions]. The next question comes from the line of Arnaud Lehmann, Bank of America.
Arnaud Lehmann: I have two, if I may. Firstly, if I could push you a little bit on the 2025 outlook. You mentioned I guess, optimism on volumes and a gradual progressive increase in prices. Could you comment on the cost outlook as well and where you are overall confident that you can improve margins further into 2025, and I'm considering excluding the spinoff right at group level as it's come today. My second question is on bolt-on acquisitions. You've done quite a lot of deals in the linked recycling of materials. How does it impact the business model? I'm assuming this these targets at lower margins and lower capital intensity, maybe also good returns. Can you -- if you continue with this, could you explain us how this will impact overall the financial profile of Holcim.
Miljan Gutovic: Arnaud, thank you for the question. Regarding 2025, as I said, I am optimistic. Infrastructure will remain strong, and we should expect logically as a result of the interest rate cuts, we should expect recovery in residential segment. On question on the bolt-ons. Yes, impressive record. Last year, 28. We continue with another 17 year-to-date in 2024. And we will continue to do this. Just to correct you on construction and demolition materials, actually, the companies we bought this year, these four companies, U.K., Germany, Belgium and Switzerland. EBITDA margins are ranging between 25% to 35%. And these businesses are highly, highly synergetic to our existing business. So on the margin for next year, pricing is one aspect, and we will continue to push on the pricing. But our margin expansion, margin improvement, and you've seen in Q3, just in North America, it was 320 basis points. This is driven by our scaling up sustainable building solutions, ECOPact, ECOPlanet, where we are getting premium. We also have proven over and over that decarbonization and circularity are drivers of profitable growth, we can make money on the commonization and we can make money on circular construction. And we will continue to expand our solutions and products. When it comes to M&A, as I said, we had a great momentum this year and also in the last 5 years, we have completed more than 100 acquisitions. And we are focusing on the most attractive markets and most attractive business segments.
Operator: So the next one on the line is Gregor Kuglitsch, UBS.
Gregor Kuglitsch: I've got a few questions. Can I start maybe because you mentioned it on the carbon capture side, I think you won your seventh project, and I appreciate you had a CMD on this not too long ago. But I guess I just wanted to get your thoughts sort of on the bigger picture of carbon capture, in particular in the light of I guess, the carbon price being sort of around the 70 mark. And the big picture question is, at what point does it really become sort of attractive to you financially? On those projects and particularly, I guess, the last one that you announced yesterday, I think. Second question is -- just to be clear, you said you're going to complete the buyback billion this year. And I guess what you're saying is you'll let us know what you're going to do with the CMD? Or can you just give us an update what your thinking is in terms of communication or communication regarding that I'm going to have your full year results before the CMD, but not entirely sure. And then finally, on margins. So you had a very strong performance across the business, and particularly North America, and you sort of mentioned it there in your last answer. But can I probe a little bit more? It does look very strong, particularly I think your volumes rate were down, I don't know, double digit or something like that in North America in Q3, how that was achieved and whether you think that's a sustainable performance.
Miljan Gutovic: Good morning, Gregor, and thank you for being here this morning. I'll start with CCUS, then Steffen, you can mention talk about buyback and CMD and then I'll discuss on the margins. First of all, we are very proud that we have been awarded the funding for our seventh project in Europe. So now we have projects in Poland, Germany, Belgium, Croatia, Greece, and two in France. So yes, Gregor, we discussed this in the past. At the moment, CO2 price is 70. But these projects will kick off in 2028, '29, '30. And then we believe that as a result of the changes in ETS in 2026, this will logically drive carbon price up. And as I told you in the past, I think by the time these projects will be commissioned carbon. I guess carbon price will be above CHF 100. Steffen, buybacks?
Steffen Kindler: Yes, the share buyback is I think last night, we stood at 83% of the total amount we want to spend on the share buyback, which was CHF 1 billion, as you remember. We expect to close the share buyback in December. So we will finalize the CHF 1 billion this year. And this was also what we announced in February when we announced the share buyback. So this is well on track. And for the CMD, as I explained before, we're making such good progress with our filing process and with all the other processes with our North American listing also in the cooperation with the authorities there that we want to conclude that, then we give all the data to the investors, but we're going to put as the CMDs in a good proximity to the final listing date, which will be in this first half of year. So I would like to ask your patience for a little longer to get the final dates, but you can probably guess where that's going to be.
Miljan Gutovic: Back to me? On the margins, Gregor, once again, I'm very pleased with our Q3 performance, especially North America. U.S. and Canada, we expect this trend to continue I would expect that this will be driven by these mega projects. The best is yet to come. I mean we are monitoring these mid- to large-scale projects for the past 15 years. And we are seeing that each quarter Holcim is getting involved or starting to supply on these projects. Steffen mentioned in one of his slides that we currently are working on 150 projects that had direct result of inflation reduction at IIJ, chipset and so on. So I am confident that U.S. will remain strong. It's a sold-out market. Pricing dynamic was always strong. So as I said, very confident about U.S. in the long term.
Operator: Thank you, Miljan. So the next question comes from Luis Prieto from Kepler Chevron (NYSE:CVX).
Luis Prieto: Q - Luis Prieto. Thanks a lot for your time this morning. I had a couple of questions. The first one, I agree that the U.S. market fundamentals seem sound, but obviously, weather has taken a very heavy toll and heavy building materials volume performance in the first 9 months and Q3 was no different. Should we expect a rapid volume catch-up in Q4 weather allows in line with what you just said about the best is yet to come and into next year? Or will it take longer to normalize next year and waiting for the residential recovery? And then my second question is, if I recall correctly, in the half year results conference call, you commented that the yes, active cost management have come back on the agenda. Any update on what sort of actions you're taking and in what order of magnitude just to complement the pricing and the cost inflation picture in terms of margin evolution?
Miljan Gutovic: Good morning, Luis, and thank you for joining us. Just a small comment on the cost. This is DNA of this company. Cost is always our focus. We have a strict cost discipline in place when it comes to the purchases when it comes to M&A. So for us, this is day-to-day business. And all our people are trained and fully focused on the cost initiatives. So nothing special. We maintain this to be our key focus for the past few years and also in the future. Regarding U.S. recovery, Luis, what I can share with you is simply we are monitoring all these big projects. And we are closely watching the future tenders that are coming. As I said, best is yet to come. At last, at the beginning of the year, we had around 100 of these projects already secured or we started supplying. Now we're up to 150 . This time next year, I would expect 200, 300. So I honestly believe that fundamentals are so strong and the best is yet to come. U.S. has entered into the golden age of construction for the next decade. That's the fact. And all these billions and trillions will fuel that not only in 2025 but for the next 5, 10 years.
Operator: Okay. So the next question comes from Martin Huesler from ZKB.
Martin Huesler: Thank you for letting have me some questions. So the first of all is you didn't increase your margin guidance for this year. Obviously, you are very cautious here. But to be honest, what are the biggest risks that you foresee that you didn't like kind of mention a 19% EBIT margin for the full year? That's the first question. And the second question is you showed on this slide about the circular construction is a very nice map and it looks like that in Germany, even though it's a very important market for you, it's rather a bit on the penetrated. Why is this the case? And what would you say we can expect over the next couple of years in Germany?
Miljan Gutovic: Good morning, Martin, and thank you for joining us. Regarding EBIT margin, we did upgrade it above 18.5. So you can say we are cautious, so we are conservative, but we are seeing strong margin expansion I already mentioned U.S., but this is across all our graphical footprint. And what's driving this margin expansion is our strict focus on our strategic priorities combined with impeccable execution by 64,000 of committed Holcim employees. So I'm expecting really to have to finish this year with industry-leading EBIT margins improved from last year. On the circular construction, good pickup. What we highlighted in this quarter is Switzerland, which is probably the most innovative market when it comes to circular construction. Remember, already 5 years ago, Switzerland was the first country that introduce Susteno, cement that contains 20% of the construction and demolition fines. We have a strong focus on this quarter, which also focused on U.K. and France. And good observation. Germany more will come. So probably in Q4, we will -- you will see something from us when it comes to construction demolition materials recycling specifically related to Germany. Germany is one of our key focus markets for CDN.
Operator: Thank you, Martin. And the next one is Ross. Ross Harvey from Davy.
Ross Harvey: Thank you very much. I have one question are, if that's okay. So I'm just looking at the ECOPact and the ECOPlanet progress. I mean, ECOPact up to 29% of ready mix and ECOPlanet is 25% met. What is the optimal figure for each of those? Or could they continue to increase very much in the next couple of years? And I'm wondering separately, what is the proportion of sales by region? Is there a large differential between Europe and other regions at the moment?
Miljan Gutovic: Ross, and thank you for the question. Yes, in November last year, we did have what we call Europe's decarbonization date was in November, 11th of November. We do have a presentation available on the website. So you can have a look at that. In that day, we have committed that Europe has to be above 55% of the total sales in ECOPact and ECOPlanet by 2030. We are seeing a great momentum across all our geographies, probably some markets like U.K., Germany, they are well above the average. But in U.S., we are making great inroads and we are on the average on the group level in U.S.
Ross Harvey: And just as a quick follow-up, has the pricing dynamics being similar in the ECOPact and the ECOPlanet product that they have been in the traditional product? Have you seen similar pricing over the course of this year in both of those?
Miljan Gutovic: Yes, pretty much very similar pricing dynamic as I've told you last time when we met, we do have a small pricing premium on all our ECO products, but also we do benefit for some cost reduction, thanks to our expertise in formulation of these products where we are substituting traditional raw materials with more advanced solutions.
Operator: Thank you, Ross. And the next question comes from Ephrem Ravi from Citi.
Ephrem Ravi: Just two questions. Firstly, on the cash flow. I know this is an interim result and you don't go into the debt on it, but your recurring EBIT is up 6%, but your free cash flow target about $3 billion is still sort of well below $3.7 billion that you did last year. So the question is, why haven't you upgraded your target. There was an expectation that it would be close to $4 billion this year, is it because the cash conversion ratio has kind of fallen or are there any other factors? Or is it just pure conservatism? And secondly, can you also remind us on the CCUS projects what's the total amount of funding that has been seen from the EU. I think at the 5 CCS project stage was around $800 million, including the two recent ones, would it be about $1 billion?
Miljan Gutovic: Good morning from I will tackle second question on CCUS and then I'll hand it over to Steffen to discuss cash flow. Actually, it was 6 projects that made more than 800. So with the additional one, we are talking about 1 billion more or less. Steffen?
Steffen Kindler: Yes. Look, thanks, Ephrem, for the question. As you know, our free cash flow over the last 5 years has been consistently above 3 billion. So Holcim has become very, very reliable in our free cash flow generation. In 2022, it was 3.5%. Last year, it was 3.7%. But as you also see, when you look at our half year report, our cash flow is very much back end time. So we create most of our free cash flow towards the end of the year. And therefore, we leave ourselves some flexibility to the exact number. We guarantee above CHF 3 billion. And I'm sure we're going to reach that absolute confidence there. But the exact number, we also have to see and cash flow also has some components with cutoff dates. And so on and so on. So this is why we don't want to commit too narrowly on this number. I hope this is okay.
Operator: And the next one on the line is Tobias Woerner from Stifel.
Tobias Woerner: Three questions, if I may, mainly around decarbonization. And number one, when we look at the CTS (NYSE:CTS) project you've got now and the grants you received, how do you perceive your CapEx trajectory? And should we assume, and if so that this is going to increase in the future? That's number one. Number two, when your recycling business is doing really well. But what I'd like to understand is what sort of fine production you can get out of it if you hit the CHF 10 million target or the CHF 20 million target by 2030. And then thirdly, you've acquired cementers -- sorry, COMESA in Peru. If I'm not mistaken, it's got a wide cement business, which tend to be extremely high in terms of carbon footprint. Can you give us a rationale for this unless I'm mistaken.
Miljan Gutovic: Good morning, Tobias, and thank you for your question. Yes. I'll start with the CCUS projects. So now, of course, in -- once again in November last year, when we had our decarbonization they we have given a trajectory on CapEx requirement for these projects. It is all in line. All of these projects have a high return on investment and they are not happening all at once. They will be spread over the next 6 years. So I guess, what we need to do, given the recent development 2 days ago, we need to update this and we have received funding for another project. So in all, this is will not affect our cash generation in the long term. Regarding recycling, as I said, highly profitable business. It's actually a new business for us, and we are making great progress. You have seen that we are pushing more for M&A because this is a quick win. We can absorb these companies easily, and we can achieve synergies actually from day one. I mean recycling of construction demolition materials, we are using these materials at the end of recycling into our own operations. So -- and we are increasing our profitability as a result of that. So we will continue to do so. What I would like to see more in the future is more organic investments. We won a new recycling plants. We want to build them across all the metropolitan areas where Holcim operates. And yes, today, these businesses, you see it's mainly concentrated in Europe. But there are opportunities outside Europe. There are opportunities in U.S., Mexico, Australia, I believe this could be a very lucrative business. And on the recent acquisitions in Central America, in Peru, yes, you are right. It does have a wide production line. but there are some other businesses. We need white cement for vertical integration. In the whole LatAm, we are increasing our portion in solutions and products, where we are specifically targeting dry motor. This is a very profitable business in LatAm. We did some acquisitions in Mexico, Argentina and Central America, and this will be our focus for the years to come. On the -- we also just to mention since we are talking about LatAm, we did another acquisition in Guatemala, it's a very attractive market for us. As I said before, LatAm has the highest EBIT margin in the group around 35%. And we see that this market will continue to grow in the years to come.
Tobias Woerner: Okay. If I may just follow up -- on the second question, what are the fines that you're producing out of recycling at the moment, which can be used as SCMs for your clinker business, so your cement business. And then also, what sort of grants a cumulative -- on a cumulative basis have you received so far from the EU and its innovation fund.
Miljan Gutovic: I already answered a question on EUV. It's slightly less than CHF 1 billion, if I calculate quickly. So we did receive funding for partial funding for 7 projects in Europe. Regarding recycling, so we can recycle an up cycle up to 100% of construction demolition materials. We can use this as a result of our advanced technology platforms. And this is where we are really showing innovation in this field. We are recycling more of premium products. And we can get 20% to 30% of the fines out of the ton of construction and demolition materials.
Operator: And the next one is Jon Bell from Deutsche Bank.
Jon Bell: I think I've got 3 outlets who are [indiscernible]. so the first one, are there any distinctions to be made between the commercial and residential segments when we think about roofing in the U.S. maybe in terms of pricing and stock levels Second related question there is in terms of your kind of medium-term aspirations in the area. Might we expect great M&A focus on roofing in Europe going forward. And the third question is actually in relation to your proposed U.S. listing. How do you feel about the secondary list in Europe?
Miljan Gutovic: Good morning, Jon, and thank you for your questions. Regarding commercial and residential in roofing in U.S. residential has been subdued in the last 12 months. So as I said, I hope that the latest news on interest rate cuts will -- we will see a strong recovery in 2025 in roofing business. Most of our business, Jon, is actually in reroofing. And this is where you really can gain premium pricing. And the reroofing market has been growing strongly as a result of this unfortunate weather patterns in U.S., we have seen this year and last year. On the M&A front, yes, we are open in Europe for all the opportunities. If you can -- in the last 3 years in Europe alone, we have done 45 acquisitions and we are looking into solutions and products. If you recall, Jon, a few years, we started investing heavily in dry motor, we bought PRB business in France, Compaktuna, Cantillana, we bought businesses in U.K. and Poland. This is a highly synergistic market for us. and we will continue to focus this in the -- on this in the years to come. On the roofing side, we did have a nice acquisition at the beginning of the year in roofing in Europe, Zinco, which focuses on green roof I see a great opportunity to build up on this business in Europe, but also probably outside Europe. And the last on listing.
Steffen Kindler: Look, I mean, this spinoff will create value for shareholders, and it will be a fantastic opportunity to invest in. But as we said before, we want to give you all the information in due time in a combined fashion. So I would prefer to ask you for a bit more patience also the deal structure is part of that information that will be -- and so your question will also be answered in due time.
Operator: John. And the next one is Ebrahim Homani from CMCIC.
Ebrahim Homani: [indiscernible] Latin America and Mexico, especially in this level of margin repeatable in Q4. And could you maybe give us more detail on [indiscernible] is the mostly soft in these countries.
Miljan Gutovic: Sorry, I didn't get the second question, but -- regarding margins, as you have seen, we are very proud of our margin expansion in Q3 in North America. I mean more than 300 basis points I think fundamentals are there. We will continue to -- with the strong margin expansion in Q4, but more importantly, in 2025. Second question, Ebrahim, if you can repeat, please.
Ebrahim Homani: Yes, sure. It's about the pricing demand is the demand still soft [indiscernible], and we will see maybe an [indiscernible].
Miljan Gutovic: Pricing demand regarding U.S., we have seen throughout the year, pricing is robust in U.S. we have not seen -- and we are not probably expecting any significant deviation till the end of this year.
Ebrahim Homani: Okay. Thank you very much. And maybe last question on the sales prices. in Europe, do you -- is the price effect positive also in Western Europe or it's only in Eastern Europe?
Miljan Gutovic: I guess the question is about Europe and the market dynamics in the East and West. We are seeing good market dynamics in all our key markets in Europe, probably still the only soft market is Germany and especially on residential sector. Residential sector was softer across the whole Europe in the last 1.5 years, especially more in Germany. So with the latest interest cuts I am optimistic that in 2025, we will see recovery.
Operator: And the next one is Harry Dow from Redburn Atlantic.
Harry Dow: Just two questions. I think, firstly, on just European like-for-like profit growth in a relatively robust in the third quarter. Just a bit more color on the bridge, I suppose, is that still sort of favorable sort of volume mix or maybe some higher sort of cost hedges that are still rolling off or maybe even the kind of sustainable products mix coming through, but just a bit more color on kind of the profit bridge and ever what we should expect for the fourth quarter in terms of profit growth there? And then secondly, just on some of the sustainable cement and concrete. How much is regulation now the main barrier in terms of sort of strength to pushing the penetration higher? And has this changed?
Miljan Gutovic: To start with the sustainability question. Yes, there are regulations can prevent scaling up of these products. And I can give you a concrete example. Five years ago, we have introduced in Switzerland product called Sustain, which is the first-ever product that contains up to 20% of construction demolition materials. Switzerland was the only -- first and only country with such a product for 4 years. Now EU has adopted the force, and we can scale it up across the whole EU similar product, of course. Regarding Europe, our margin expansion, I have not to say it's driven by some hedging or by some cost benefit. We still see a significant inflation in Europe in our business, especially in logistics, in raw materials, third-party services. What is driving margin expansion in Europe is our strategy, value over volume. Europe is best-in-class when it comes to sustainability. And we have proven over and over that decarbonization and circle construction are drivers of profitable growth. We continue to invest in highly synergetic M&A. As I said previously, in the last 3 years, we had 4 acquisitions in Europe alone. And the example is construction and demolition materials recycling. This year, we have bought 4 businesses with EBITDA margin varying between 25% and 35%. So the focus will remain for Europe. Value over volume. We will continue to invest in decarbonization and clarity as a driver of profitable growth. We will continue to scale up our ECOSolutions, and of course, we will invest in the highly synergetic M&As in the years to come.
Operator: Thank you, Harry. And our last question comes from Brijesh Siya from HSBC.
Brijesh Siya: I have two questions. The first one is on the CCUS. Miljan, you talked about 1 billion of funding you received to date. Could you tell us what's kind of the total CapEx, i.e., I'm trying to understand kind of the level of funding you get it from states. The second one is on the construction demolition material. Quite exciting that you kind of continue to expand and broaden our horizon. Can you just give us an understanding why you are going for acquisitions, given you have a technology to recycle so you can pretty well put organic plans wherever you want. Is that to gain rapid scale or anything behind that? And within that, if you could just give us -- if you were to put the organic plant, what kind of CapEx you are looking for maybe 1 million tonne or one recycling fund?
Miljan Gutovic: Thank you for your question. I will start with CDM. So we have a very well advanced geographical footprint, let's say, in Europe, where we have a strong presence in all metropolitan areas. The catch when it comes to recycling of CDM you want to be in the city. You want to be close to the market. I'll give you an example. 2.5 years ago, we have bought a company in London event, which is located in London CBD. Imagine today, London is the biggest turbine mine in Europe with tens of millions of tons of construction and demolition materials generated per year. And instead of taking this outside the city, we are able to absorb it in the city and to do -- recycle it into the new building materials. So it's about location, and we are lucky that thanks to our strong geographical footprint, as I said, we are well located in the key metropolitan areas. So we have existing operation CapEx to build 100,000 tons of processing plant, which is using the most advanced technologies would be measured in a few million. So it's not significant. Regarding your CCUS question, so yes, we did once again this card in November last year we did give full disclosure on the CapEx for these 6 projects. We got additional one, 2 days ago. So obviously, we will update that. So the total for 6 projects we talk about 800 million plus is coming from EU and the rest we will fund.
Operator: So this was our last question for today. Thank you so much for the very active discussion. If there are any further open questions, please contact the Wholesome Investor Relations team. We are more than happy to help. And with this, I hand back to Milan for some closing remarks.
Miljan Gutovic: Thank you, Bernd. First of all, thank you all for joining us this morning. As you can see, we are very proud of our achievements and I would like to thank my team, 64,000 of Holcim employees for making it happen. Our commitment stays the same. We will commit on our strategic priorities, we will execute this fast, and we will -- and this will deliver industry-leading margins in 2024. Once again, thank you very much for joining us this morning.
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