Ladies and gentlemen, welcome to the Holcim India Transaction Call. I am Sandra, the Chorus Call operator. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Swetlana Iodko, Head of Investor Relations. Please go ahead, madam.
Good morning, everybody, and thank you very much for joining us on such short notice. Today we are going to hold a brief 30-minute call to discuss our Indian transaction. With me in the room are our CEO, Jan Jenisch, and our CFO, Géraldine Picaud. For the sake of time, please limit yourself in the Q&A session to one question only. Shouldn't you get an opportunity to ask your question directly, we'll take a note, and we'll connect to each of you individually right away after the call. Right now I'm pleased to hand over to our CEO, Jan. Go ahead, please.
Yes, good morning, everyone, and, thank you for joining the call. I'm very excited to give you some more background, on the transaction, and then also very happy to discuss certain details with you. We have announced, the transaction yesterday on Sunday at 6:00 P.M., in order to be not only ahead of the Swiss stock market, but also ahead of the Mumbai stock market, where we have three and a half hours time difference. I hope you had some time to review the material. Besides the press release, we have put together a fact sheet for you, which is available under the Investor Relations section. I think it was a bit rumored in the press already.
We were busy the last three months or so to negotiate with various parties to try if we can find a win-win solution. Win-win, on the one hand, of course, to get a superior valuation for our Indian assets. On the other hand, to find the right owner who is respectful to our employees, customers, and who takes the business to the next era of growth. I think we have done this. We have found a fantastic new buyer, the Adani Group, who will be safeguarding a great future for the business. For us at Holcim, we are very happy with the valuation and this gives us now a lot of room to continue to develop Holcim into the future. We'll accelerate our strategy.
If you recall, we just spent more than CHF 5 billion in the last 15 months only to expand into solutions and products with various acquisitions. Now we are very confident that we can continue that also here in the coming months and years. I think with this, I'm very happy to have your questions and comments.
The first question comes from Cedar Ekblom from Morgan Stanley. Please go ahead.
Thanks very much. Morning, everyone. My question relates to any approvals needed for the deal to close, risks around it not closing. I know that in your report you say that you need Competition Commission of India approval. I'd like to understand why that is, considering that Adani doesn't seem to be a large player in the cement industry at all. Does that relate to previous investigations around price fixing? I believe that there's some issues there that need to be resolved before you can exit. Thank you.
Hey, good morning. Good morning, Cedar, and, yeah, thank you for your question. We have quite a simple contract, so basically the only condition precedent is the approval of the Competition Commission of India. This has nothing to do with any potential litigation. This is a standard process. You have that in the EU, you have that in the US. As you mentioned already, as Adani doesn't have building materials in its portfolio today, it is expected that this will be a very fast approval. Besides, this is a simple contract. We are basically even selling our company holding the shares of the two businesses. Very straightforward and no further conditions, no further due diligence or anything involved here in the transaction. I cross fingers this should go quite smooth over the next 2-3 months.
Thank you.
The next question comes from Lars Kjellberg from Credit Suisse. Please go ahead.
Thank you, and good morning. Just a quick question on the CHF 6.4 billion in cash proceeds. Is there any tax implications from this? Also, of course, the importance here is to allocate that capital. What is your urgency to do that, and what is your pipeline you can do that?
Okay. Lars, good morning. According to our analysis, this is a tax-free transaction. You never know if any complication arises, but we assume that we will get CHF 6.4 billion as net proceeds. It's very good from that perspective as well. Again, we have just spent over CHF 5 billion in the last 15 months, and we hope we can keep a similar pace, so we will put this money to work very fast.
Thank you.
The next question comes from Gregor Kuglitsch from UBS. Please go ahead.
Hi, good morning. Thanks. Quick question just on whether you're assuming or sort of giving any kind of guarantees or whether it's just very simple, you're selling your shareholding and that's it. I mean, I'm thinking for instance about the outcome of the antitrust investigation. Are you just selling without any sort of guarantees or liabilities that you're retaining?
Hi, Gregor. Yeah, that's correct. We have a simple share deal and even selling this within the holding company, so there's no reps, warranties or indemnifications from our side.
Thank you.
The next question come from Arnaud Lehmann from Bank of America. Please go ahead.
Thank you. Good morning to everybody. My question is regarding CO2 emissions on Ambuja and ACC are quite large in terms of cement capacity for you. What is the implications on your CO2 emissions per ton of cement produced? I think the Indian companies historically have had quite a good performance on this topic, does that make your CO2 targets more challenging to achieve? Thank you.
Good morning, Arnaud. I think there are two sides to this. I think more important is that we have around one quarter of our total CO2 emission is in India. We reduce our CO2 footprint quite significantly. You are also correct that the clinker factor is one of the lowest globally in India. This is not due to sustainability, this is simply due to a lot of minerals being available in the Indian market. For us, again, I think it's good that we reduce our CO2 exposures overall so significantly and, for our ambition per ton or something, we will make a precise calculation, but it doesn't really change much for us.
We have our sustainability footprint here to move into circular construction, complete all the alternative fuel projects we are having, and drive all our new eco-friendly products out there. That doesn't change. I think it's rather supportive, yeah.
Thank you very much.
The next question comes from Yassine Touahri from On Field Investment Research. Please go ahead.
Yes, good morning. A few questions. You're mentioning a tax-free transaction. Does it mean that there will be no capital gain on transaction, and that you're expecting no tax on capital gain? The second question, on the process. Will the purchase of the offshore holding company, which owns Holcim Indian business, avoid the need for Adani Group to make an offer on Ambuja's minority? The last question. After selling your Indian asset, what do you expect will be the solution and products division as a percentage of your revenue, and as a percentage of your operating income?
Okay. Hey, good morning. I think first, the capital gains tax is also included in my previous answer. We expect that we have no taxes to be paid for the CHF 6.4 billion of the proceeds. The offer has to be made. According to my information, the Adani Group has to make also an offer for all the other shareholders. This is, I think, properly planned. The last question was around.
Percentage on.
The percentage, how it changes. I think we are on the right track here to transform Holcim into a balanced portfolio. We will always do cements. We will decarbonize cement, that's our DNA, that's big part of our future. We are happy to build up the other segments, most prominently solutions and products, and of course, this transaction helps. I'm not sure, we don't have it in the fact sheet yet, the effect, but I think Swetlana will provide you soon with the exact numbers, how much cement exposure is reduced now from this transaction.
Thank you very much.
The next question comes from Martin Hüsler from ZKB. Please go ahead.
Yes, good morning, and thank you for taking my question. First of all, according to my calculation, the solutions and products will be roughly 20% of overall sales after the divestment in India. I was just wondering how should we think about the cake in size in 2025? So far, I think, you know, we were assuming kind of a growing group. Now after this divestment, obviously the cake in size is becoming much smaller. Should we think in 2025 that net sales will be below the level, let's say we were in 2021? Good morning, Martin. I think the opposite is true. When you saw our start of the year where we had sales growth of 20%, you can expect a very healthy 2022.
You also saw how much now the new segment is contributing, but also how healthy our traditional segments are, also driven by significant price increases. We have not the target to shrink the group. Our target and our mandate is to grow Holcim profitably. You have to expect for 2025, I think, as you mentioned, maybe, solutions products is now around 20% of group sales, and we expect this to go to 30% for 2025. That's our target. For the group size, I very much believe that the group will be bigger than today. We closed last year at CHF 26.8 billion in sales. I think this year will be even if we have a smooth process and India goes out, I think we will close the year above that number.
For the coming year, I think my mandate is to grow the company and not to shrink it.
Okay. Thank you. Maybe the second question, just to make sure again, if any of the investigations still pending in India would lead to a fine for Ambuja or ACC or other Ambuja, who would have to pay for it, you or the new owner then?
I think that would be the new owner, Martin. We sold the company with no indemnification and no warranties. It's a straightforward sales of the shares with no further indemnification from our side.
Okay. Thank you.
The next question comes from Brijesh Siya from HSBC. Please go ahead.
Hi. Good morning. I have one as well. Just wanted to understand what's the main driver of the deal. Is it the pressure to cut carbon or you thought that there's a better owner who could grow this business where the local management failed to do in India?
I think, you know, it's a combination. I think we made it clear that we want to grow the company also with this transformation portfolio. We want to bring solutions and products to 30% of group sales already in the very near future. In order to do that, we also need to shift a bit the portfolio. We need to divest a bit to raise money and to have money to invest through acquisitions. This is what we are doing. Keep in mind, the last 50 months alone, we spent over CHF 5 billion to buy Firestone Building Products, to buy Malarkey Roofing Products, to buy PRB Group in France, but also to buy the other mortar companies in Poland and in Belgium. I think we have a very good transformation progress here.
When I look at our M&A pipeline, this is quite well filled. I think at the moment we are working on around 10 transactions. This ranks from the usual bolt-on acquisitions we do for aggregates and ready-mix concrete, but also to some exciting projects for solutions and products. We're very optimistic that we will now further accelerate here the transformation. The combination what I maybe also want to add is to divest something that only works for us if you also get a superior value. We are not divesting just to divest. You have seen that from us in the past that we are well in the double digit EBITDA multiples for all our divestments in Brazil, in Indonesia, Malaysia, also the smaller markets in Africa.
This is also what we did here for the transaction in India.
Okay. If I just ask a supplementary on the last part of your answer. Clearly India was kind of the highest valued market at this point in time in terms of cement. All other emerging markets, you would probably get a lower multiple. Does this mean that you're finding it difficult to exit other markets at this point in time?
No, no. It's when you look how we do the divestments, we make it very responsibly and in very proper steps. In India was something we were thinking, if we can get a win-win, and win-win means we have a proper, responsible new owner who takes care of our people, who takes care of our customers, and then, of course, also who pays us a proper value. That's what we achieved in the negotiations with the Adani Group.
Thank you. Thank you very much.
The next question comes from Tobias Woerner from Stifel. Please go ahead.
Yes. Good morning, Jan and the Holcim team. Thanks for taking my questions. I have three if I may, cheekily. You're clearly reducing your emerging market exposure with this divestment. India has cement consumption per capita well below 250, still below 250. China, above 1,500, well above 1,500 kgs. What is your view on Huaxin on the back of that in this context? It's also only a you know. You don't have full control. The second question is, there was some commentary around FEMA, i.e., the foreign exchange authority in India, that they could limit the amount of cash they take out. Is that an issue?
Then thirdly, just quickly, the valuation when you compare it to Lafarge India, sort of comes out at $160-$180 a ton, so Lafarge India being higher. Did you purposely not engage in any transactions where synergies could have been an issue or a cartel authority intervention? Thank you.
Look, to your last question, I think we did a very proper process. You are right, we talked about this before. To make such a transaction, you have many dimensions to consider. We talked about valuation, we talked about the new owner, and of course, we talk about the smoothness of the execution of such a transaction. This goes from indemnifications all the way, of course, to a approval process by the Competition Commission of India, which is a very proper commission, of course. It is not in our interest here to engage maybe with very competitive companies, and then you are hanging in there, and you have a very lengthy process. That was, of course, another consideration for us.
That we are happy that we found a solution where we could get the smoothest possible execution of this agreement. I think your question is for the emerging market. I think while we talk a lot about the portfolio transformation when it comes to our four business segments, cement, aggregates, ready-mix concrete, and solutions and products, and this goes, of course, in line with emerging markets versus mature markets. This goes hand in hand. Our solutions products business is mostly focused on the mature construction markets, so meaning North America and Europe. We have a natural shift in the portfolio also, less emerging, more mature markets.
With regard to FEMA, is there any issues around potentially taking the money out of India for a time?
Pharma?
No, no, it's Tobias, it's an offshore deal, so there's no issues about getting the cash out of India.
Okay. Okay, thank you.
The next question comes from Yuri Serov from Redburn. Please go ahead.
Yes. Hi. It's a dramatic move, but can you please explain to us why now? What's your reason behind the timing? Thank you.
Yeah, why now? You know, and we talked about it. We have multiple dimensions for such a transaction. From valuation to new owner and also smoothness of the transaction.
Hello?
We just had the right.
Can you hear me?
We can hear and see you. Fire away.
Yeah, the whole same call.
Are we all good?
Indian operation. It's quite a dramatic move. There were rumors flying around, so it was quite obvious that it was going to happen.
Yuri.
Holcim in India have been associated with the.
What was that?
We take the next question from Yassine Touahri, from On Field Investment Research. Please go ahead.
Just a follow-up question. When I look at the calculation that you provided on your slide, I don't see any taxes and any capital gain. Can you confirm that there is no capital gain and that there is no taxes in the transaction? Is it because it's an offshore vehicle?
Yes.
Just need the confirmation there.
Yes, that's correct. Our analysis comes to the conclusion there's no capital gains tax or any other tax to be paid for this transaction.
Maybe a second one, if I can. You mentioned that, investments into solutions and products, but would you consider a share buyback, if you don't find the right assets?
Well, you know, again, we have quite a good pipeline in M&A, so our job at the moment is to check all the transactions, and hopefully we come up with some very attractive ones, if this is not possible, you know. I think if we could do no transactions now on the M&A side, I think the balance sheet might be a bit too healthy. Of course, we can think about all sorts of things to give back money to the shareholders. We are not against it. You know, we are very shareholder-focused management here. Our number one priority here at the moment is, of course, to put the money back to work.
Yeah. Very clear. Thank you very much.
The next question comes from Steffen Orlowski from ODDO. Please go ahead.
Yes, good morning. Thank you for taking my question. Just one for me. When looking at the press release from Adani, the valuation from their point of view is said to be $10.5 billion. Can you explain the difference with your CHF 11.3 billion? I guess it's not Forex related.
Thank you for the question. Happy to explain that. This is simply based on the fact that the Adani Group has also to make an offer to the other shareholders. While we own 63% of Ambuja and Ambuja owns 50.5% of ACC, there's a lot of other shareholders, minority shareholders, and he has to make proper offers to all of them. That's why he is assuming that his deal transaction size is beyond our $6.4 billion and $10-point something.
They have to do a mandatory open offer of a minimum of 26% on the floating. That's what they're gonna do. If you take that, you will find that $10.5 billion.
Okay. Very clear. Thank you.
Very good. I think this was our last question, and thank you so much for joining us today. This was all very short notice, but I very much appreciate the opportunity. We can talk a bit about the background and give you some more information here. Swetlana and her team is, of course, available for you throughout the week to give you more data if you need that. Other than that, I hope to see you all soon, and I wish you a very good week. Thank you very much, and bye-bye.