Ladies and gentlemen, thank you for standing by. Welcome for joining the call on third quarter 2020 results of HeidelbergCement AG. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question answer session. If you would like to ask a question, you may press star followed by one. Please press the star key followed by zero for operator assistance. I would now like to turn the call over to Chris. Please go ahead.
Thanks, Emma, and welcome everyone to our third quarter conference call. It's been seven weeks since we got together on our CMD. A lot has happened since then, and we will present to you the third quarter as usual. Dominik von Achten will start, followed by Lorenz Näger, and we will then have ample time for Q&A later on. With that, over to you, Dominik.
Thanks, Chris, and thanks ladies and gentlemen. Great that you join our Q3 call. Welcome to all of you, wherever you sit right now. Lorenz, and myself would like to share with you our Q3 results, and I think it's fair to say, we have pulled off a strong operational performance. Like for like, EBITDA goes up significantly by 17% on nearly flat revenues. We have also put a significant emphasis on margin improvement and we have seen a significant one in Q3.
You know that in March we communicated the COPE action plan of EUR 1 billion cash savings. At that point, to be fair, under the assumption that the market would not perform like in Q3, and we would not perform like in Q3. Nevertheless, we are performing well against this EUR 1 billion target, more than EUR 720 million cash savings already achieved in the first nine months.
We'll come back to the details in a minute. Also on the financial side, I think excellent outcome. LTM free cashflow, up by 50%, almost 50%, 49.5% to EUR 2.3 billion in the last 12 months. That has enabled us to reduce our net debt by EUR 1.8 billion versus end of September last year. You know we've been a little bit careful with guidances this year. The visibility is still fairly low, but we are confident to give you the guidance that we expect an increase in 2020 of our EBITDA versus 2019. We reiterate our guidance that we gave earlier this year about a year-end leverage to be at or below 2.0 net debt EBITDA. With that, I would go into the presentation and lead you through some of the key points, before I hand over then to Lorenz to cover the financial side.
If you go to the next page, you see the significant margin improvement. Revenue on the left side was basically, as I said, in Q3, flat -1%, like -for -like, and on the nine-month basis, 7%, like -for -like. Bear in mind that there is quite a significant contribution from our pulled back HC Trading business. If you take that out, the decline on the revenue side is about -3%, -4%. On the operating EBITDA side, as I said, +17%. That's significant, reported +13%, and then on a nine-month basis, +6%, reported +5%. Operating EBITDA margin, a significant jump in Q3 by almost 400 basis points to more than 27%, and also on the nine-month basis now almost 250 basis points up to more than 20.5%, specifically 20.8%.
On the RCO side, operating EBIT, the result, I think this is the first time ever as a company that we have reached in one quarter more than EUR 1 billion RCO. That's in the midst of the pandemic. I think that shows that the team has done a fabulous job in the last three months, to enable us to report to you this result. If you look at nine -months, more than EUR 1.7 billion, + 10%, like -for -like. On the next chart, if you go into the areas or regions, you see that all areas have basically contributed to this good development. It's very important for me as much as I was skeptical about our performance in NAM over the past couple of years.
Also in the first half of this year, we have to say that the team in the U.S. and in Canada have turned around the negative trend from our perspective. That really shows that the action plan that I have discussed with Chris Ward and his team is getting traction. That's early. It's early days. We clearly from our perspective, see traction, and that also means that even North America, the EBITDA has gone up by almost 5% compared to Q3 2019. That is basically on the back of very disciplined cost management, and also margin improvement, I will come to that in a minute. Europe continues its good rise on the back of very strict cost discipline, demand coming back in some of the key markets and also solid pricing.
Asia -Pacific, or as we call it, APAC, with mixed pictures, with a difficult market situation in Australia, but the team has pulled off a good result. Indonesia and India getting headwinds on the volume side with the pandemic, but pricing is resilient and also cost inflation has been well managed. Africa continues its good rise. Important markets like Morocco, Tanzania, and especially Ghana are doing a very good job. Egypt, you know that this is probably the only real problematic country from the result perspective, has turned the corner a little bit, and hopefully will be able to continue that trend down the road. If you go to the next page, you see the details that have been reported versus like-for-like on the Q3 EBITDAR performance. Last year, EUR 1.17 billion. You see the currency impact of about EUR 35 million.
That's mainly North America, Russia, partially Turkey, India, a little bit Indonesia. That's the impact on the currency side, +17% on EBITDAR up to EUR 1.33 billion. You see in Q3, basically flat volume developments here. No impact, basically, on the volume side. Again, a very resilient and good positive gap with price over costs. Price development better than fixed cost. Fixed cost and variable cost development together with a positive delta of almost EUR 200 million. If you go to the next page, you see the development for the first nine months. You see that the currency impact is mainly coming from Q3, because the nine-month number has not changed much. You see the very different picture in the middle, where the big volume hit on the result side of almost EUR 240 million, basically coming all from Q2.
Still on the nine-month basis, an outperformance on the price over cost side of almost EUR 400 million to an EBITDA for the first nine months of more than EUR 2.7 billion. If you go to the next page, you see the details on the COPE plan, as I mentioned already. This COPE plan was initiated under different assumptions, and the Q3 market has shown to be more resilient, plus our performance has been better than originally assumed. In that respect, we still chase the COPE plan. We are now at more than EUR 720 million, almost EUR 300 million fixed cost savings, more than EUR 300 million CapEx savings, and also a little bit lower than assumed contribution on the tech side, because obviously the results are better than expected.
If you go to the important next page from our perspective, we are very much focusing also to improve our margin performance. I think in that respect, it has been a good quarter. Even North America, as I said earlier, has contributed significantly. Margin now above 30%, almost 300 basis points up. Western Europe with a very strong and resilient performance to more than 24%, +500 basis points. Northern Eastern Europe on a very high level with an even better performance, +220 basis points to more than 31% margin. Asia Pacific, also very strong on the back of good cost and good pricing, especially in India, Indonesia, but also partially in Australia. Africa, Eastern Mediterranean on a very good level, almost 29%, up almost 360 or more than 360 basis points.
I think the next chart is interesting to see and shows you a little bit the roller coaster that we have gone through. January, February, very strong. I would say very weak March, April, and also May. Since then, a very strong catch-up that leads us to the +6% like -for -like for the first nine months. With that, I would hand over to Lorenz and he will share with you the financial side of things.
Yep. Thank you very much, Dominik. Thank you for joining us. Good afternoon, good morning, wherever you are. I would like to lead you through the financial messages, and I will start on page 10 with that. I think the most significant development is that we have generated EUR 2.3 billion free cash flow over the last 12 months. This is a historic high figure, and it is up EUR 0.8 billion from previous 12 months period. This is 12 months, including the Q4 2019. The cash conversion rate has achieved 63%. Cash conversion rate defined as free cash flow over EBITDA. This free cash flow generation shows our ability to manage costs and especially spending cash out in a very flexible way. We are in a position to react quickly on the cash side on any changes on the volume side or profitability side.
This the company has shown in many crises earlier, 2009, 2012, the Fukushima crisis. 2013, 2014, the oil crisis, and now 2020, the COVID crisis, we always were in a position to react quickly with our spending behavior and get the cash flow right, even if volumes drop or result goes down due to increasing energy costs or whatever it is. The company, despite its heavy asset base, the company has a high degree of agility and flexibility. Flexibility also means going both sides. We can cut CapEx and you will see that later. We have spent EUR 840 million for CapEx against the announcement EUR 1,200 going forward. EUR 300 saving, so that adds up exactly or very close to this EUR 1,200 and the EUR 300 of CapEx saving, that showed the flexibility.
That means also that we will have to spend a bit more, in the coming months to catch this up when the financial situation continues to be as favorable as it is today. The company has to breathe with its development. On the back of that cash flow generation, we have reduced net debt by EUR 1.8 billion year-over-year as compared to September 2019. Currently, our leverage ratio stands at 2.1 x, and we expect it to reduce further towards the end of the year, to 2.0 or maybe heading to 1.9, something like that. This favorable development has been honored by Standard & Poor's. They upgraded our rating outlook to BBB- positive. We expect Standard & Poor's to upgrade our rating to BBB flat, after the full year figures, when we have shown that we will deliver what we announce right now.
Financial strength also includes the repayment of our bond, which matures in January 2021. There is an option in that bond conditions that we can prepay it already in quarter four now, and we will do so. On slide 11, you then see the bridge for the free cash flow. We have a last 12 months EBITDA of EUR 3.7 billion, then you see interest payment and tax payments to be deducted. This brings me then to the change in working capital. Here we have an inflow of EUR 322 million, and this is part of the flexibility I was talking about. We have collected EUR 322. In the beginning, we were a little bit skeptical on the cash flow because over the last couple of years, we turned our DSO/DPO balance to be positive, meaning we have more accounts payable than accounts receivable on the working capital.
We thought if volume and turnover goes down, this would lead to an increase in working capital. We were in a position to act very quickly, change that, and now we see here an inflow of EUR 322 million on the base of lower volumes. If I talk about flexibility, it's clear that we should keep in mind that if in case volumes do increase, we would also see an outflow of working capital, and we would need to put money in that, and that's also part of that flexibility. CapEx net, I was talking about EUR 842 over the last 12 months. Typically, we need EUR 1,200. We have scope savings, EUR 300. If you add it up, we are pretty close to our target figure of EUR 1,200 million in that respect.
Now, please keep in mind, as we announced at the Capital Markets Day, that we changed the definition of CapEx. Historically, the industry used to have sustaining CapEx. The definition wasn't always very clear in that respect. We announced in the capital market to change the definition to tangible fixed asset CapEx net, meaning investment as a cash outflow against divestment cash inflow, and that's the net figure. That brings us then to this EUR 2,315, and I can tell you that the change in definition has a very marginal influence on the number. The old definition and the new definition have a difference of less than EUR 50 million on this 12-month period. The figures are pretty much the same. On the free cash flow generation, what you see here on the right-hand side, 2019, EUR 1,557, that's also new definition.
You see like -for -like, we have then increased our free cash flow by EUR 758 million, 49%, That's a really, really good development. We are proud of that. On slide 12, you see the net debt development. We come from EUR 9.7 billion, including IFRS 16 debt. We then have a free cash flow, EUR 2.3. Our growth CapEx, which is M&A and financial assets, is flat zero over the last 12 months. Dividend EUR 299. You know we have cut dividend by roughly EUR 300 million compared to previous year, That's a real contribution from the shareholders to reduce our net debt figure. Currency and others, this other also includes newly signed leasing contracts after, under IFRS 16, roughly EUR 150 million, brings it up by EUR 198.
Our net debt position by September 2020 stands at EUR 7.9 billion, which is composed out of EUR 1.1 billion IFRS 16 leasing liabilities and roughly EUR 6.8 billion , I would say real financial debt. Our target is to bring that down towards the year-end to achieve a net debt figure which is below EUR 7 billion. Again, IFRS 16 will stand at EUR 1.1 billion roughly. The real financial debt would be EUR 5.9 billion, and with the EUR 5.9 billion, we are significantly below our target for 2020, which we announced in our 2018 Capital Markets Day.
Here we also have achieved this target. The leverage should be 2.0 or below, as I stated earlier. Also, this in line with our financial announcement from Capital Markets Day 2018. Just to finish this chapter then. Okay. That's it from the financial side, and I would give back to Dominik for the sustainability messages.
Thanks, Lorenz. Before we come to your questions, just three points from our side on our core topic of sustainability. You know that we've put with Beyond 2020 an increased emphasis on sustainability and want to clearly take a leadership role in this respect in our industry. We are working on a lot of fronts internally, and it would be also nice if that is externally recognized. MSCI, in their ESG ratings, have recently reconfirmed our AA rating in the category of industry leader. On page 14, you see the different criteria that they are applying, and obviously, we can get better in all of them. We are working especially on health and safety to continue to increase and improve our performance. Overall, we are satisfied with this. We are never satisfied unless we have reached AAA. That's also clear.
We'll work on that, but I think this is a nice reconfirmation of our efforts in the field of ESG. As you know, to reduce our CO2 footprint, but also to step up our R&D and innovation efforts. Recently, I'm not sure how many of you have picked this up. There has been the first 3D-printed house that has been officially approved through a permitting process in Germany, and this has been done in the cooperation with PERI and COBOD. We are basically delivering the concrete paste. It's a product called i.tech 3D that's been developed by our colleagues and friends from Italcementi. It's basically like a toothpaste or like a coffee capsule when you take your coffee machine. It's basically our paste that is in different layers placed by the printer and then builds that house layer by layer, and the advantages are clear.
You see the hollow walls. There is significantly less material and therefore a significantly lower CO2 footprint, but not only because of the lower amount of material, but also because of the lower CO2 content of the paste. Now you can say, "Oh, good. Your materials go down." That's not the key point. We follow this approach very closely because the material, the paste, has a much higher value than our normal concrete. The whole construction has a much lower labor cost, a very high flexibility, and its structural integrity is without question. In that respect, I think a significant step forward. Before we come to the wrap-up of the key messages, just one slide on the Beyond 2020 targets to reiterate that. We shared with you that we are following those targets diligently in our day-to-day business.
I think you have seen that we are putting a lot of focus on margin and also leverage improvement. After year-end, we will also disclose the performance on ROIC, where we are confident that we are getting closer to the 8% already this year. Then we will also share the exact targets on sustainability and digital transformation. We have clearly kept that in mind. As we said in the Capital Markets Day, we come back to you in the disclosure of the full year results with the performance against those targets. Before we get to your questions, let me just wrap up. A strong operational performance. We are quite satisfied with that, if not to say very satisfied. 17% up on flat revenues. Good margin improvements. COPE savings in line with our plan, despite the fact that the business is going much better than expected.
Financial side, Lorenz has shared with you, very strong free cash flow of EUR 3.3 billion over last 12 months. Net debt reduced by EUR 1.8 billion. We are confident with that to deliver a result that is above 2019 on the EBITDA side and a leverage ratio that is at or most probably below 2.0. That's it from my side, Chris.
Yep.
Let's go to the questions.
Thank you, Dominik. Thank you, Lorenz. Operator, you can start the process for the Q&A, please.
Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. If you are using speaker equipment today, please lift the handset before making your selections. Anyone who has a question may press star followed by one at this time. One moment for the first question, please.
All right. I see a long question queue already. Let's stick to our procedure that we used the past couple of times to stick to two questions per person, please. We kick it off with Arnaud Lehmann from Bank of America Merrill Lynch.
Thank you very much. Good afternoon, gentlemen. My first question, I'll start with the easy one, on your guidance for full year EBITDA to be up. You already delivered that in the third quarter, and also for the first nine months. I guess any color that you could give us on business trends, in October, and if you're confident that you can sustain the strong growth, in profits into Q4 would be helpful. That's my first question. Secondly, I guess stepping back, you deliver very impressive margin improvements both in the third quarter and over the first nine months, and I guess it's 250 basis points year to date. Could you please give us an indication of where you think which part of that is sustainable related to ongoing cost-cutting efforts on your side, and which side might be less sustainable?
Any cost that may have to come back, with the volumes or, let's say maybe less favorable price cost dynamics into next year. Thank you.
Thank you, Arnaud. I would take the first one, on the guidance and the business trends. Then, Lorenz will take your margin impact of 250 basis points and its sustainability. Thanks for your questions. On the guidance side, you know that with COVID, things go up and down sideways, and it's very difficult to predict. Visibility remains low. We are now in the midst of a second lockdown in Europe. Nevertheless, we are confident enough to give you that guidance. Also on the back of a good October, we have no results yet. Overall, we are satisfied with the development in October. If I look out the window here in Heidelberg, the sun is shining 15- 20 degrees. This time of year is also a weather game, so let's wait and see how that plays out.
We are confident that we will have a good Q4 with all the question marks that you know yourself. We are feeling confident with the guidance we've given out. Lorenz.
Yeah, Arnaud. On the margin improvement, we are proud on this margin improvement, sure. You have to keep in mind that apart from the margin improvement comes from, at least if you look on the group level, from our reduction of the business in the trading. We have reduced turnover by roughly EUR 1 billion. This turnover comes with a very low margin, and this technically improves the margin. That you have to keep in mind. If we look forward, the other question is how do we expect the margin to develop over the coming quarters? First of all, we think that the energy cost remains low, so that will give us support on the variable cost. When it comes to the fixed cost, that's a tricky one.
In the staff cost, definitely we will not see this one-off savings which come from furlough in U.S. or German Kurzarbeit or things like that, where we have been supported by government regulations in the COVID crisis, which really reduced our staff costs. It's hard to predict from our side how much of that cost would come back. That's a bit of a tricky one. On other costs, definitely we will see reduced travel costs also next year. There might be a small re-increase, but this will be very limited as we will contain our travel activities to the bare minimum. How that will all work out, that are the main trials of our fixed and variable costs, and how that will work out finally, that's a bit a tricky thing.
We will have our budget meetings in November to discuss really country by country, area by area, how that will work out, and we will see how that's going on. I just got a figure. Sorry, I said EUR 1 billion on trading. It's EUR 500 million? Yeah. It's EUR 500 million, it's not EUR 1 billion. Sorry for that. I had the wrong figure in my mind. Okay, that's the drivers, and how they come across then per balance, it's really country by country, and we have to go through that. We are pretty confident that we will also have good outlook for next year.
Arnaud, I think it's clear, Arnaud, we have given out the guidance and the targets in our Capital Markets Day for current. Maybe Q3 was already very strong for us. We are in there for the long run. I think the trick is that we get this into a more stable and sustainable level. That's what we are fighting for. That's what Lorenz has shared with you. There will be ups and downs in quarter-over-quarter. Q3 at least was strong, and we are fighting to make it another good Q4. Whether it's going to be as good as Q3, who knows? It's certainly not going to be as bad as Q2. That we already know.
Okay.
Thanks. Thank you very much.
Thank you.
Thanks, Arnaud. The next question comes from Cedar Ekblom from Morgan Stanley.
Thanks. I've got two follow-ups. You spoke about the furlough benefits in the fixed cost savings. Can you give us a number of the EUR 283 million? How much of that relates to those furlough benefits? Can you please talk about how we should think about working capital trends into the fourth quarter with demand improving and then obviously there's uncertainty, but things looking generally better. Should we think about less working capital benefits for free cash flow in the fourth quarter? Thank you.
Cedar, thanks a lot for your questions. I will take the first one and Lorenz will take the second one. On the furlough benefits, with the EUR 283 is a significant number. We have double digit, but low double digit million EUR benefits in that. That is obviously not sustainable, but it's fair to assume it's not the majority or even a significant part of the EUR 283 is coming from that furloughing exercise. As I said, low double digit million figures. That's a little bit to just give you an idea.
Yeah. When it comes to working capital, we typically see a working capital inflow in the fourth quarter. We do expect this, also in Q4 2020 of course. As we go into Q4 2020, we come in with significantly lower working capital levels, compared to previous year. We will see how much that will be. I am not entirely sure whether we will collect as much cash as we collected in the previous year. As I said, the guidance is that the leverage will go to 2.0, 1.9. The total cash inflow should be significant in the fourth quarter to bring us to that target. Yeah.
Thank you.
Thank you, Cedar. In the past, it was always EUR 1 billion in the last quarter. Will be a bit less this time. Okay.
Thank you. The next one comes from Robert Gardiner from Davy.
Good afternoon. Hope all well. I'll ask two as well. One, I get that you don't have huge visibility even for Q4, but I was wondering if you could give us some indication of how you're thinking about next year, 2021.
That is fine.
Yeah.
You go ahead.
We have to ask.
That's fine. No. Do you have a second question or is that it?
No, no. We have obviously, people seem to fear the price environment is gonna be good. The demand environment, I don't know. I don't know what you guys think. Secondly, maybe on North America, obviously the margin improvements you're seeing there, and you've talked about the action plan that you have. I'm just wondering, is that part of the measures you talked about at the Capital Markets Day, the 400- 500 basis points, or are we gonna see that in the next couple of years? I'm just wondering on that margin improvement there.
Yeah. Thanks, Robert. I'll take your two questions. I think that's why we said, okay, if we have low visibility in Q4 or limited visibility, the visibility does unfortunately not suddenly increase at the beginning of 2021. To be fair and straightforward, as you know, this time of year, we are going through our budgeting process that is just about to start in the next two weeks. Actually, the process has started, but we'll do our quarterly management meetings for the remainder of November and beginning of December. We should have some more clarity around 2021. We already hear from the countries that the visibility into next year is very different. It's not only very different in terms of visibility, but it's also very different in terms of outcomes. Bear with us.
We need to go through that exercise, and then we'll probably also need to scratch our heads here internally, with all the question marks and exclamation marks that we hear from different areas and see what we can do in 2021. I think what's very important is what Lorenz has pointed out, and I think what the group has really proven to do in the rollercoaster ride in 2020. I think despite a dramatic drop-off in turnover, we've pulled off a good result in the Q2. Let's keep that in mind. That was a strong performance on the result side, despite a dramatic drop on the volume side. Secondly, we've been able to flip things quickly in Q3 and, even if it rains, have the bucket out.
In that respect, I think I'm very confident that whatever comes in 2021, we will be on our toes to pull off an okay performance. On North America, absolutely, this development is the first contribution to our 400-500 basis points improvement on North American side. You know, I shared with you last time that I've diligently worked with our American colleagues, under the leadership of Chris Ward and all the regional presidents, the five, on specific action plans for their regions and also specific action plans for specific assets on the cement side, on the aggregate side, and on the ready-mix side and asphalt side. We are following up this plan very diligently, and we see that some of the measures are already showing some traction. I think that's early. We cannot expect miracles. That's what I said in the Capital Markets Day.
Bear with us. We are chasing the target. It will be up and down, up and down, but our midterm target, as we disclosed, is 400-500 basis points increase. We'll see that we pull that off. I think out of the gate, I think it's fair to say in an okay way.
That's great. Thank you.
Okay. Thanks .
I'll come back and ask you too.
All right. Good. The next question comes from Thibault Bailliet from On Field. Is it Thibault or Yassine? Okay, let's skip that one. We go directly to Elodie Rall from JPMorgan.
Hi. Good afternoon. Thanks for taking my questions. First of all, to stay on the U.S., do you have a view on the U.S. election or results or lack of results, actually, if I can say, and how it could impact the cement sector and Heidelberg in particular in the U.S. from here? Second, I think you've mentioned CapEx is going to rise. Can you give us an updated guidance on what you see for CapEx this year, and going forward, please? Thanks.
Yeah. Let me take the first one and then Lorenz, maybe you take the second one on the CapEx question. Elodie, on the U.S. results, we've been operating in the U.S. now since the '1970s, under the brand Lehigh Hanson. That's more than 50 years. We've seen ups and downs. We've seen many presidential elections. We source locally. We produce locally, we sell locally. I think in that respect, we absolutely respect whatever the American voters decide on. I think we will work with any government that is coming out of that democratic election. In that respect, we are fine. Whether the one government is more generous on infrastructure spending or not, I think it's difficult to tell. Both of the candidates have clearly said they want to push things. In that respect, let's wait and see where things come out.
I had to put a smile on my face when I read a U.K. tabloid earlier this today, where they, I think, said, "Let's make America wait again." I think that is how we feel the same. Let's wait for the U.S. to decide, we'll take it as it comes.
Lorenz.
On the CapEx, we have announced our target to do EUR 1.2 billion on the net CapEx of tangible fixed assets. That's what we are going to stick to. In the last 12 months, we had no more than EUR 840 million. We have saved the EUR 300 million. The question for us is what we debate currently on the board level is whether we should do a little catch-up exercise on the CapEx in order to avoid backlog in CapEx. That's not what we want to have. What I said earlier, flexibility means give and take. We have taken out a lot now in the last 12 months to manage and to master the COVID crisis, what we think we have done quite well.
Now the question is on the flex, whether we do a little bit give here and put a little bit more in the CapEx for 2021 in order to make sure that we do not under-invest in our cement plants. Because our first target is to have a constant and reliable production, good asset quality in our asset base. That's very important. We need that to be competitive. Maybe we go a little bit above the EUR 1,200 next year, but overall, EUR 1,200 over a prolonged period of time, over a couple of years on average, that's the right figure we believe.
Okay. Thanks very much.
Thank you.
Thanks, Elodie. Next question comes from Christian Kolb from HSBC.
Hello?
Yes. Sorry.
Okay.
Thank you very much for taking my question. I would like to ask one question about North America and the volume performance there a little bit. Maybe you could compare your performance in the market a little bit to the market development we saw in Q3, and maybe where that is a little different from the market or how you see that. The second question I have is a little bit on the financial costs for 2020. Maybe what kind of level of financial result would you roughly expect for this year? Or if you do not want to answer this, maybe then just how much financial costs should we expect for this year? Thank you very much.
Kolb. Thanks for your question. I will take the first one on North America, and then Lorenz will answer the one on the financial side. From our perspective, also my earlier remark to North America, is true for the volume development. In the past couple of years, we were not happy with our volume development also compared to the competition. What we can see, that's a fairly transparent market. I think as much as we can see right now in Q3, we are okay. There are competitors that are better and others that are worse. In that respect, we are in the middle of the pack from our perspective. It has also to do a little bit with footprint again. From our perspective, I think we are okay. Are we yet super satisfied with that respect? No. We need to continue to work on that.
There is still room for improvement. I think we've closed the gap a little bit and are moving in the right direction.
Lorenz, you want to take on the financial?
On the financial view, you see that currently it stands in the financial result, we see a consistent reduction of our financial cost as we have paid down the last expensive bond last year. That was, I think, a five point something percent bond, which we repaid earlier this year. By that, our financial result will continue to reduce at a pace of EUR 50 million per year. If we expect for the full year, roughly EUR 300 million finance cost, more or less. That should go down EUR 30 million-EUR 40 million by next year. What you have to keep in mind that the finance cost always includes this discounted interest for long-term provisions and IFRS 16. This always brings a high degree of volatility, which is a non-cash item, which we cannot influence. That may fluctuate year-over-year by EUR 30 million-EUR 50 million.
That makes the forecast very difficult. If I come to those interests, which are, let's say, on a real interest basis, which come with a cash out, they should go down by EUR 30 million-EUR 40 million year-over-year. That's a little bit the trend which we have here. Then to say in 2021, we will reach a certain bottom. After 2021, we do not expect a significant reduction in finance cost anymore because we have reached average interest on our debt of 1.5%-2%. That's the level which we think will continue to prevail in our figures.
Okay. Great. Thank you very much.
Yep. Thank you. Yeah, Kolb.
Next question comes from Gregor Kuglitsch from UBS.
Hi. Good afternoon. Thanks for taking my question. My question is on energy costs. I presume it was a big tailwind in the third quarter. What I'm really interested in is, based on your modeling, at what stage does the year-over-year basically flatline? I want to understand, is that in Q4? Is that in Q1, in Q2 next year? Based on the current prices, I guess. That would be really interesting, and maybe if you could quantify what percentage reduction you actually got by then Q3 or the nine months in terms of unit cost from energy, that would be highly appreciated. Then the other slide I'm looking at is I'm looking at slide nine, where you give us monthly figures. It actually shows an acceleration or actually the strongest of the three months being September in terms of earnings, if I read the slide correctly.
I know you kind of alluded to October earlier. Is there anything that changed, particularly in October versus September? I know you don't have the precise figures yet, but directionally, I would be interested in that. Thank you.
Okay, Gregor, thanks a lot. I would say that Lorenz takes the first one on the energy costs. Your question around energy cost inflation for this year, I think that we can give you some good idea. On the other one, I think, if we could predict the commodities, I think that would be great.
That would be really great. It would be fantastic. I would take the question on the monthly figure of October. Maybe Lorenz, you can take that.
If you look to the energy price, which we saw right now. If you analyze our figure properly, you can see that the price reduction, which we had in our figures, is roughly 12% of our energy cost. Year to date, it's more or less EUR 150 million, what we save from the cost effect. We still have the volume impact, we have the FX impact. On top of that, we have the fuel mix. Our fuel mix is quite volatile, we have a good ability to adjust our energy mix to the cost of each item, but also on the CO2 emission. Natural gas could be more expensive than coal, but could give us better CO2 emission values. We may even substitute coal by natural gas in order to reduce emissions, even if that costs a little bit more.
This mix, we will discuss with our CO2 target in mind in the upcoming budget meetings here. You have to keep in mind four types of fuels, which is power, coal, petcoke, alternative fuel. What we see is that power prices are going up. They also have not contributed much to the energy cost reduction year to date. We think coal will be fairly stable on a low level. petcoke, we think has already increased, will continue to increase. Alternative fuels is the other question. Very difficult to predict there because everybody's focusing on alternative fuel. Here the cost could rather increase. What we think actually is that overall, we will see a moderate rebound of energy cost in 2021 compared to 2020. How this will be composed is difficult to predict.
Clearly, power will be up, but the mix of coal, petcoke, alternative fuel and gas is a very, very volatile and flexible thing. We think that this will be going up in a moderate way. We do not believe that we will be able to keep the current cost per unit level in the fuel side. Our strategy is unchanged. We have a forward buying policy for each of these commodities which focuses on average, very average, on a four to six months forward buying. We try to follow the market trends with a reduced amplitude. That is our strategy, and what comes out of that, let's wait and see, is difficult to predict, and we have to discuss it country by country in the upcoming budget meetings. These are the underlying trends.
Okay, Gregor, on the monthly figures, as I said, indicated earlier, we have no monthly results for October yet. I would say it's fair to say, October is not going to fall off the cliff, if that is your underlying assumption. Whether it's going to be as strong as September or lower or higher, it's not yet clear, bear with us. Based on the volume performance and on the general performance that we see in other indicators, we are confident to give you the guidance that the full year result is going to be above prior year. That's where we stand at this point.
Thank you very much.
You're welcome.
Thanks, Gregor. The next question comes from Nabil Ahmed from Barclays.
Yeah. Good afternoon. Thanks for taking my questions. The first question is that I wanted to get your perspective on the lockdown in Europe. How do you see this second lockdown, and how is it different than the first? It looks to me the entire industry seems much better prepared, but are there specific reasons you want to flag behind your optimism into Q4 and we are not looking into a repeat of the second quarter? My second question was on 2020 dividends. Given the much stronger free cash flow that I believe even yourselves envisaged back in April, how should we think about the dividend this year? Would you consider maybe partly offset the dividend reduction decided in May on top of the regular dividend for the year?
Thanks for your two questions. Let me take the first one, and then Lorenz and I give you jointly the answer on the 2020 dividend. Lockdown in Europe. You're right, many countries are going into a softer or harder lockdown. That's absolutely clear. Two ideas to contribute to that. One, I think most of the governments through the first lockdown have understood and realized that construction seems to be a fairly safe thing to play. Meaning that we have not had any larger outbreaks on construction sites. That's fair to assume that that's under the circumstances, fairly safe work. Given the economic implications, if you would lock this down as well, we see not yet at this point, any closures of construction site in a meaningful way. Maybe here and there are small local ones, but not in a meaningful way.
Let's also keep in mind that the government has realized, at least in Europe, that there are two other effects that hit also our industry. One is labor migration. As you know, for larger projects, there is a lot of migrating labor, and you probably realize that the closure of the border has not reoccurred yet. There is open borders, especially for work-related travel. That I think is good news in that respect, and also I would assume that the logistics, if the borders are not closed, the logistics flows are still intact. In that respect, to answer your question with these three arguments, I'm fairly confident that we will not see a comparable drop of Q2 again in Q4. That's also why we were confident with our guidance in Q4, and we have decided deliberately not to give you 55 disclaimers on this guidance.
That under many circumstances, something could come different. If something comes different, we have to tell you. For now, we have no visibility that something falls off the cliff in our business, and that's why we are confident with our guidance that we've given you. Also on the back of the fact that I think the countries have learned a little bit the lesson how to deal with this pandemic a little bit better. If it comes worse on the pandemic numbers, we have to reconvene, but for the time being, that's not visible for us. On the dividends, just in general, before Lorenz gives you a little bit the details. Dividend decisions in our company is the following.
We do the full result. Then we sit in February, March in the Board and see a little bit what does that tell us in terms of dividend ability. We go to our Supervisory Board and propose that. The Supervisory Board goes to the General Assembly, and then the General Assembly decides beginning of May about the dividend. Bear with us that we cannot give you any exact number or not even indication where we are in the beginning of November before the year has even closed. Lorenz, maybe some additional ideas from your perspective.
Yeah, I mean, Dominik took all what I wanted to say. To be more precise.
I think we made a clear statement in the Capital Markets Day that we want to return to progressive dividend after the COVID crisis. That's our commitment. That's what we are going to do. Currently, we are very well underway on the cash flow side, although the COVID crisis is not over. We are in the second wave, and hopefully we will not see a third wave then in springtime. Whether in 2021 we can pay a dividend, which is a partly rebound or maybe even a full rebound, that's, as Dominik said, still not decided. We have to wait for the full year result. I can tell you that both of us, Dominik and myself, we work hard to achieve at least partly rebound of the dividend and to go back to progressive dividend as soon as we can.
That's our ambition, and here we are pretty pushy for that, yeah. Okay.
Okay.
Thanks.
Next question comes from Tobias Wörner from MainFirst. I think you just rebranded your bank name as of next week.
Yes.
Tobias, go ahead.
Yes. Last time as the MainFirst. Thank you for bringing up the questions. Number one, just getting a sense of your pricing level across the group and whether there have been any mid-year increases over and above the ones in the U.S., and how you see that developing into next year. Then secondly, on a more strategic follow-up, your divestment strategy, how is that evolving at the moment and what sort of time horizon do you see for this? I understand that obviously you want to get best price. Some assets can sell better than others. What is your thinking there?
Yeah, Wörner, thanks a lot for the two questions. I will take the first one. Then Lorenz Näger will take the divestment one. On the pricing level, it's early in the season.
You know that market by market, the colleagues go through the pricing decisions for next year. In some markets the decisions have been taken and we started to communicate to customers, in others, not yet. You know that we've not gone through our operating plan 2021 session yet. Bear with us in that respect. You know that the pricing decisions in our company are done locally. It's not like we decide here in Heidelberg on the pricing in Brisbane or in Seattle. We will go through our operating plan meetings in the coming couple of weeks and then hear from the countries what they are planning on the pricing side. Obviously, as you all know, always a function of pricing and volume and cost development, and market dynamics. Bear with us in that respect. We don't have the details on that yet.
Okay, on the divestment strategy, as we said, we have selected a number of assets for disposal, and we are currently preparing such assets for the disposal process. This requires some internal work and also some communication. As we have told you, and as we want to practice it, we do not disclose what assets they are unless we really publicly put them for disposal. Please, I would ask you for your understanding to avoid internal communication issues when we take that decision now. The process progresses according to our plan and expectations. Currently, and that's good news, we do not see pushback from the markets. We think the markets have reopened in that respect. We think the liquidity in the market is available, and we think that we will be able to proceed and execute such disposals in line with our plan.
There are some more, how should I say, more exotic destinations involved in that, which is also natural, and that may be a bit more difficult to do that. To be honest, that has nothing to do with COVID. That's very typical for such assets which are in more remote geographies. Good progress in the moment, but nothing what we could report to the Capital Market right now.
No. Again, it's clear, we said that in the Capital Market. The analysis has been done, as Lorenz said. Internally we've taken the decision. We've shared with you the three buckets that we look at in terms of future growth markets, to speak with the U.S. election words, swing states. Countries that can move to the left and to the right and disposal decisions.
That decision has been taken internally, but we cannot disclose the details also for competitive reasons. In that respect, Lorenz was absolutely right. Let's bear with us and we'll disclose as appropriate. Thank you.
Thank you.
Thank you very much.
The next question comes from David O'Brien from Goodbody.
Good afternoon, gents. Firstly, just on Western Europe, look, we've seen a nice recovery in the third quarter in terms of top line trends and volume. Could you give us a sense of how those volume trends evolved kind of monthly through the period? Specifically, could you maybe give us some guidance on where the U.K. is trading now relative to 2019 levels? Secondly, a lot of talk about fiscal stimulus across all of your geographies really. When do you guys expect that we're going to see on-the-ground activity start to be impacted by any programs that are being talked about?
David. Thanks a lot for your question. I'll take both of them. I think the first one on WSE, West and Southern Europe, you're absolutely right. It's been a resilient, to say the least, performance in Q3 that's really contributed from all markets across Europe. I think all the markets have improved their performance in that respect. Notably, and that's important for us, also the U.K. You remember in our Capital Markets Day, we had two specific focus countries in terms of action plan. One was North America and the other one was the U.K., where compared to the competition, we were underperforming in the past years. We are taking these points very serious. In that respect, we are clearly pushing ahead also in the U.K. Also in the U.K., the business has seen a nice change versus Q3 last year.
You can always dream of more. That's clear. We are never satisfied. That's our job. That's what we are paid for. The U.K. has also turned the negative trend in a difficult market situation because the market from all we see in the U.K. continues to be not easy. London is clearly down. Overall, I think the guys have done a good job overall. Your second question was on fiscal stimulus. You're right. The fiscal stimulus is announced or about to be announced or on the horizon. That's true for many different and also important geographies. We talked about the U.S. already. U.K. has seen stimulus. HS2 has started, which is a significant stimulus. You will see the first movements on the Green Deal and the stimulus program in Europe, notably in Italy, partially in France and in other countries. Eastern Europe a little bit.
Australia has decided on a significant stimulus. I think it's fair to say that of the stimulus money, this doesn't go overnight. This money is not like they decide and then next month you see it in your results. It's a more midterm game. It's fair to say that in the Q3 results this year, we do not expect any significant contribution from the stimulus programs yet. This is something that we expect to kick in more in 2021 and onwards.
That's great. Thanks very much.
Thanks, David. We have time for three more questions. There are many more in the line, which we will take then later on an IR basis. I ask for your understanding. The next one comes from Stephan Bauer from Bankhaus Metzler.
Good afternoon, gentlemen, and thanks for taking my question. I have one question on the market development in North America in Q3. From my point of view, the recovery was less pronounced with regard to volumes and revenues. Can you maybe give some details on this development and give a potential Q3 outlook on the North America business?
Thanks a lot. I think on North America, I'm not sure what you mean when you say less pronounced compared to what? What does that mean, less pronounced? Obviously, you seem to compare it to something. Could you share that with us?
If I compare the recovery with Europe. From my point of view, the sales recovery and the volume recovery was less pronounced compared to Europe. I just want to know if there are specific reasons for this development in Q3.
Thanks a lot for the clarification. If you compare it, especially to WSE, personally, you have to keep in mind that there is some sort of a catch-up effect in WSE because Q2 was I know we compare to Q3 last year, but Q2 in North America has not seen such a steep drop like WSE has seen. In that respect, while there were a lot of half-finished construction sites in WSE, West and Southern Europe, coming to an instant halt in Q2, obviously there is also a catch-up effect that has contributed to the very strong performance in WSE in Q3. That's fair to say. The other point in North America, as I said, our action plan is seeing some first traction, we said in the wording, but it's not yet fully there.
I think personally, we still have some additional upside. We also said we target 400- 500 basis points improvement. In that respect, bear with us. We have, as I said earlier, the detailed action plan in place by region, by business line, by asset, in order to improve the situation. For us, it was important to turn the trend into the positive, and that has materialized, and if there is still upside potential in North America, absolutely.
Okay. Thanks.
Thanks, Stephan. The last question for today comes from Yassine Touahri from On Field Research.
Yes. Good afternoon, gentlemen. Just two question. First, could you give us an update on your discussion with Brussels regarding a Carbon Border Adjustment Mechanism in Europe? My second question would be, on the long term, how do you see the portfolio of HeidelbergCement in 5-10 years? Would you like to be more exposed to mature markets, energy markets? Would you like to be more exposed to downstream cements?
Yeah. Yassine, thanks a lot. I'll take the first one, and then Lorenz and I share the second one. We have all pronounced opinions on all of the points, but let me just hit the first one on the EU policy. That's a complex issue, and it's not also only a company issue, that you know that also CEMBUREAU, the association, is working hard on the policy shaping in Europe. Carbon Border Adjustment is only one piece of that. It's EU ETS, it's Carbon Contracts for Difference. There are so many things that are currently discussed on the EU level that I think it's unfair to just boil it down to Carbon Border Adjustment. Absolutely, that topic is also on the agenda, and we are pushing for it, but we also have to be realistic. Not every topic that is pushed, and that includes Carbon Border Adjustment, materializes tomorrow.
Whether it ever materializes, whether it materializes to X amount, we don't know yet. You know that there are pluses and minuses for Carbon Border Adjustment. For us, it's a clear push that we try to do whatever we can contribute as a company. You know that the multi-dimensional decision between all the different countries, European Commission, European Parliament, everybody has a say in that, then we'll see what is possible. On the portfolio investments, we've tried to take a view for the next five years. Some feedback was, "Oh, five years is a long time." Now you ask us for 10 years. That's good as a last question. If the visibility into Q1 2021 is already difficult, then we have to be careful to jump too far ahead.
As we disclosed in our Capital Markets Day, Yassine, I think it's clear that we are comfortable with a somewhat balanced portfolio between emerging markets and developed markets. At this point, having the majority of our EBITDA contribution coming from developed markets, but we have a nice spread of additional emerging markets. We are working on our portfolio, as disclosed. With the overall balance for now, we are quite comfortable. Bear with us how that develops. This is not put in stone and concrete. We will watch the situation, and if appropriate, we need to make changes, but for the time being, it's to what we've communicated in the Capital Markets Day. Lorenz, I'm not sure anything.
Yeah, I think that's perfectly okay. Currently we have a portfolio, one-third North America, one-third Europe, one-third emerging market in Africa and Asia. We think this is a very good mix, which has shown a very good performance over the recent years. Very stable development through crisis, allowing us for flexible reaction. Now, does it mean that we do not change the portfolio? No, because during the acquisitions of the last year, we had quite some, so to say, by catch, yeah. Not each and every investment which we have there is really what we want. I think the basic of our portfolio, the structural setup, one-third NAM, one-third Europe, one-third emerging market with our presence in cement aggregates, ready-mix, and asphalt, is a really good and convincing setup.
Inside these blocks, there we have quite some work to do and improve our position, invest in prosperous markets where we have good market positions which we want to develop further, intensify vertical integration in Europe, expand and strengthen our position in NAM. I think that's a very good strategy, and that's what we are going to implement over the foreseeable future, whether that's then 10 years or five, let's wait and see. That also a bit strategy is always a little bit opportunistic.
Thank you.
Yassine.
Okay. I think that's all we have time for. Thank you very much for your questions. Apologies to those questioners that are still in the line. We'll get back to you on an IR level, as I promised. Let me just allude you to a couple of conferences that we are going to participate in over the next coming days and weeks. On November 12th, we are going to participate in the UBS Conference. November 17, the Soc Gen ESG Conference. November 19, Barclays Conference. November 25, UBS German Day. December 1st, Bank of America. December 2nd, Fireside Chat Bank of America. December 2nd, Soc Gen. December 8th, Exane BNP New York Day. And December 9, Morgan Stanley ESG Conference. You see a lot on our agenda. We hope that we see you around at one of these conferences, and we wish you a good day. Stay healthy. Bye-bye.
Bye. Thank you.
Bye. Thanks.
Thank you.
Bye. Thanks.
Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.