Ladies and gentlemen, thank you for standing by. Thank you for joining the call on 3rd Quarter 2020 Results of Heidelberg, Samantha AGI. Throughout today's recorded presentation, all participants will be in a listen only mode. We presentation will be followed I would now like to turn the call over to Mr.
Thanks, Emma, and welcome everyone to our third quarter conference call. It's been 7 weeks since we got together on a CND, a lot has happened since then. And, we will present to you the 3rd quarter, as usual, Dominic, for Austin will start followed by, Lawrence Nigger, and we will then have ample time for Q And A later on. So with that, over to you, Dominik.
Thanks, Fritz. And thanks, ladies and gentlemen. Great that you join our Q3 call. Welcome to all of you wherever you sit right now. Lawrence 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. And 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 co action plan of $1,000,000,000 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 $1,000,000,000 target more than $720,000,000 cash savings already achieved in the 1st 9 months. We'll come back to the details in a minute.
Then also on the financial side, I think excellent outcome, LTM free cash flow, up by 50 percent, almost 50 percent, 49.5 percent to 1000000000. In the last 12 months. That has enabled us to reduce our net debt by 1,000,000,000 versus September end of September last year. We know it's been, you know, we've been a little bit careful with, guidance this year, the visibility is still fairly low, but we are confident to give you the guidance that we expect a increase in 2020 of our EBITDA versus 2019. And we reiterate our guidance that we gave earlier this year about a year end leverage, to be atorbelow2.0 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 Lawrence 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 minus 1% like for like. And on the 9 month basis, 7% like for like, bear in mind that there is a quite a significant contribution from our pullback H. C. Trading business.
So if you take that out, decline on the revenue side is about -3-4 percent. On the operating EBITDA side, as I said, plus 17%. So, that's significant, reported plus 13% And then on a 9 month basis, plus 6% reported 5%. Operating EBITDA margin a significant jump in Q3 by almost 400 basis points to more than 27% and also on a 9 month basis now almost 250 basis points. 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 1 quarter more than €1,000,000,000 RCO and 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 9 months, more than 1,700,000,000, plus 10% like for like, If you go into on the next chart, if you go into the areas or regions, you see that all areas have basically contributed to this good development. And it's very important for me as much as I was skeptical about our performance in Nam for over the past couple of years. And 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 and that really shows that the action plan that I have discussed with Chris Ward and his team is getting traction And that's early, early days, but 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. And then 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 right 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 Austria Australia, but the team has pulled off a good result. And 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 right also important markets like Morocco, Tanzania and especially Ghana are doing a very good job.
And also 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, we'll be able to continue that trend down the road. If you go to the next page, you'll see the details a little bit reported versus like for like on the Q3 EBITDA performance. So last year, $1,170,000,000, then you see the currency impact of about $35,000,000. That's mainly North America. Russia, largely Turkey, India, a little bit Indonesia.
That's the, impact on the currency side plus 15 plus 17 percent and on EBITDA up to SEK 1,330,000,000. And 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. So price development better than fixed cost and fixed cost and variable cost development together with a positive delta of almost 1,000,000. If you go to the next page, you see the development for the 1st 9 months.
So you see that the currency impact is mainly coming from Q3 because the 9 month number has not changed much, but you'll see the, very different picture in the middle where the big, volume hit on the result side of almost 1,000,000, basically coming all from Q2. But still on the 9 month basis, an outperformance on the price of a cost side of almost $400,000,000 to an EBITDA for the 1st 9 months of more than two point 1,000,000,000. If you go to the next page, you'll see the details on the co plan. As I mentioned already, This was this co plan was initiated under different assumptions, and the Q3 market has has shown to be more resilient, plus our performance has been better than originally assumed. So in that respect, we still chase chase the coal plan.
We are now at more than 1,000,000, almost 1,000,000 fixed cost savings. More than $300,000,000 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 then go
to the important next page from our perspective, are very much focusing also to improve our margin performance. And I think in that respect, it has been a good quarter. Even North America, as I said earlier, has contributed significantly marginal above 30%. So almost 300 basis points up. Western Europe with a very strong and resilient performance to more than 24% plus 500 basis points, Northern Eastern Europe on a very high level with an even better performance plus 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. And then Africa, Eastern Mediterranean on a very good level, almost 29%, up almost 300 and 60 or more than 360 basis points. I think the next chart is interesting to see and shows you a little bit the rollercoaster that we have gone through January, February, very strong, then I would say a very weak, March, April, and also May. But since then, a very strong catch up that leads us to the plus 6% like for like for the 1st 9 months. With that, I would hand over to Lawrence and he will share with you the financial side of this.
Yes. Thank you very much, Dominik. Thank you for joining us. Good afternoon. Good morning wherever you are.
So 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 billion free cash flow over the last 12 months. This is a historic high figure and it is up 1,000,000,000 from a previous 12 months period. This is 12 months, including the Q4 twenty nineteen.
So the cash conversion rate has achieved 63%. Cash conversion rate defined as free cash flow over EBITDA. Yeah. And this free cash flow generation shows our ability to manage costs and especially spending cash 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 crisis earlier 2009, 2012, the Fukushima crisis 13, 14, the oil crisis and now 2020, the COVID crisis, we always were able to be in a position to react quickly with our spending behavior and get the cash flow right, even if volumes drop, our result goes down to increasing energy costs or whatever it is the company, despite its heavy asset base, the company has a high degree of agility, agility and flexibility.
Flexibility also means going both sides. So we can cut CapEx and you will see that later. We have spent $840,000,000 for CapEx against the announcement $1200,000,000 going forward, yes, $300,000,000 spending, $300,000,000 So that adds up exactly or very close to the funnel than the 300 of CapEx savings. That showed the flexibility That means also that we will have to spend a bit more, in the coming to catch this up when the financial situation continues to as favorable as it is today, their company has to breathe with its development. On the back of that, can flow generation, we have reduced net debt by 1,800,000,000 year over year as compared to September 2019.
Currently our leverage ratio stands at 2.1 times 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 Sanderson Pool they upgraded our rating outlook to BBB minus positive, yes, and we expect that those will pull 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 a in that bond conditions that we can pre pay it already in quarter 4 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 3.7 1,000,000,000 and then you see interest payment and tax payments to be deducted. And this brings me then to the change in working capital. Here we have an inflow 122,000,000.
And this is part of the flexibility I was talking about. We have collected 322 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. And we thought if volume internal goes down, this would lead to an increase in working capital, but we were in a position to act very quickly, change that and And now we see here an inflow of $322,000,000 on the base of lower volumes. And if I talk about flexibility, then 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, and I was talking about 8.42 over the last 12 months typically, we need, typically, we need, 1200.
Yeah, we have Cope savings, 300. So if you add it up, we are pretty close to our, target figure of 1200 1,000,000 in that respect. Now, keep in mind, please keep in mind, as we announced at the Capital Market Day that we changed the definition of CapEx. Historically, the industry used, to have sustaining CapEx, but the definition will always very clear in that respect. So 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 next figure. So that brings us then to this 2, 3, 15. 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 has a difference of less than 50,000,000 on this 12 month period. So the figures are pretty much the same. On the brief cash flow generation.
What you see here on the right hand side, 2019, 1557, that's also new definition. And you see like for like, we have then increased our free cash flow by 758000000 49% and that's a really, really good development, we are proud of that. Then on Slide 12, you see the net debt development. We come from 1,000,000,000, including IFRS 16 debt. We then have a free cash flow 2.3 our growth CapEx, which is M And A And Financial Assets is flat 0 over the last 12 months.
Dividend $2.99, you know, we have cut dividend by roughly $300,000,000 compared to previous year, and that's a real contribution from the shareholders to reduce our net debt figure. Currency and others and this other also includes newly signed leasing contracts after under IFRS 16 roughly under $50,000,000 brings it up by $198,000,000. So our net debt position by September 2020 stands at 7,900,000,000, which is composed out of 1,100,000,000 IFRS 16 leasing liabilities on, there are roughly 6,800,000,000, I would say, real financial debt, Our target is to bring that down towards the year end to achieve a net debt figure, which below 1,000,000,000. Again, IFRS 16 will stand at 1.1 roughly. So the real financial debt would be 5.9 and with the 5.9, we are significantly below our target for 2020, which we announced in our 2018 Capital Market Day.
So 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 for Capital from Capital Market Day 2018 just to finish, this chapter. Then Okay. I mean, that's it from the financial side, and I will give back to Dominic for the sustainability messages.
Thanks, Lauren. Then, before we come to your questions, just three points from our side on our core topic of sustainability. You know that we've put beyond 2020. The increase in 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 will be also nice if that is externally recognized MSCI in their ears G ratings have recently reconfirmed our AA rating in the category of industry leader you see the, 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.
But overall, we are satisfied with this. We are never satisfied unless we have reached AAA. That's also clear. We are working on that, but I think this is a nice reconfirmation of our efforts in the field of ESG. Then, as you know, to reduce our CO2 footprint, but also to step up our R and D and innovation efforts, And recently, I'm not sure how many of you have picked this up.
There has been the 1st 3 d printed house that has officially approved through a permitting process in Germany. And, this has been done in the cooperation with Peri and Cobalt. And we are basically delivering the concrete paste. It's a product called ITech 3 d. It's been developed by our colleagues and friends from Itau cementi.
And it's basically like a food base or like a coffee cut to, when you take your coffee machine, it's basically our paste that is in different layers placed by the, by the printer and then build that house layer by layer. And the advantages are clear and 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, we've got your materials. Go down. That's not the key point.
We follow this approach very closely because obviously the material of the paste is much more it has a much higher value than our normal concrete, it, the whole construction has a lower, much lower labor cost and very high flexibility and is a structural integrity as well at question. So 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'll also close the performance on Norway where we are confident that we are getting closer to the 8% already this year. And then we will also share the exact targets on sustainability and digital transformation.
So we have clearly kept that in mind. And as we said in the Capital Market 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. Not to say very satisfied, 17 percent up on flat revenues, good margin improvements, cost savings in line with our plan, plan despite the fact that the business is going much better than expected.
Financial side Lawrence has shared with you very strong free cash flow of 1,000,000,000 over last 12 months. Net debt reduced by 1,000,000,000 and we are confident with that to deliver a result that is above 2019 on the EBITDA side and a leverage ratio that is at almost probably below 2.0. That's it from my side, Chris. Let's go to the question.
You, Dominique. Thank you, Lawrence, operator. You can start the process for the customer.
Time. One moment for the first question, please.
Question queue already. So let's stick to our, procedure that we used the past couple of times to stick to two questions per person, please. And we kick it off with Arnold Lehman 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. I mean, you already delivered that in the third quarter and also for the 1st 9 months. So 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. And secondly, I guess stepping back to deliver fairly impressive margin improvements both in the third quarter and over the 1st 9 months. And I guess, I think 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 pricecost dynamics into next year.
Thank you, Arnold. I would take the first one on the guidance and the business trends and then Lawrence will your margin impact of 250 basis points and its sustainability. Thanks for your questions. On the guidance side, you know, you know that with COVID, things go up and down sideways, and it's very difficult to predict visibility remains low. We're 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, but overall, are satisfied with the development in October. And if I look out the window here in Heidelberg, the sun is shining 15 to 20 degrees. You know, this time of year is also a weather game. So let's wait and see how that plays out.
But we are confident that we will have a good Q4 with all the question marks that you know yourself, but we are feeling confident with the guidance given out.
Yes, Arnold. On the margin improvement, we are proud on this margin improvement. Sure. You have to keep in mind that the part 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 1,000,000,000.
And this turnover comes is a very low margin and this technically improves the margin. So that you have to keep in the mind. Then if we look if we look forward, the other question is, how do we expect the margin to be, to develop over the coming quarters? First of all, we think that the energy cost remains low, so that will give us a support on the on the variable cost, and then when it comes to 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 Kutsal buy it or things like as where we have been supported by government regulations in the COVID crisis, which really reduced our staff costs. And it's hard to predict from our side. It's hard to predict from our side how much of that cost would come back. So that's a bit tricky one.
Then on the on other cost, definitely, we will see reduced travel costs also next year. There might be a small, a small re increase, but the will be very limited as we will contain our travel activities to the bare minimum. So how that will all work out. That's are the main trials of our fixed and variable costs and how that, how that will work out. Finally, that's a bit tricky thing.
And we will have our budget meetings in November to discuss really concentrated by the area by area, how that will work out. And we will see how that's going on. I just got figure, sorry, I said $1,000,000,000 on trading. It's $500,000,000. Yes, it's $500,000,000, it's not $1,000,000,000.
Sorry for that. I had the wrong figure in my mind. Okay, that's the drivers and how they, how they come across and, top balance it's really country by country and we have to go through that. But we are we are pretty confident that we will also have good outlook for next year.
I don't want, I think it's clear on the word. We have given out the guidance and the targets in our Capital Market Day occurred. Maybe Q3 was already very strong for us. It's we're in there for the long run. And 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 Lawrence has shared with you, but there will be ups and downs in a quarter over quarter. Q3 at least was strong and we are fighting to make it another good Q4 or whether it's going to be as good as Q3. Who knows. But whether it's certainly not going to be as bad as Q2 that we, that we already know.
Okay. Thank you very much.
Thank you.
Thanks, Arnaud. The next question comes from Sarah Exxon from Morgan Stanley.
I've got 2 follow ups. You spoke about the furlough benefits in the fixed cost savings. Can you give us a number of the 283,000,000 how much of that relates to those furlough benefits? And then 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.
Peter, thanks a lot for your questions. I will take the first one and Lawrence will take the second one. On the total benefits, you know, with the 283 is a significant number, we have double digit but low double digit million 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 2.83 is coming from that furloughing exercise.
So as I said, double,
double, low double digit million figures
that's a little bit to just give you an idea, right?
Yes. When it comes to working capital, we typically see in working capital inflow in the fourth quarter, we do expect this also in Q4 2020, of course, But 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. But as I said, the guidance is that the, leverage will go to 2.01.9. So the total cash inflow should be significant in the 4th quarter to bring us to that target.
Thank you. Thank you, Sierra.
In the past, it was always EUR 1,000,000,000 in the last quarter. It will be a bit less this time now. Okay.
Thank you. The next one comes from Robert Gardiner from Davy. Hi,
good afternoon. Hope all is well. So I'll ask 2 as well. So 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,
Yes. We have to ask. So
That's fine. No, no, no. We have, obviously,
people seem
to fear the price environment is gonna
god, the demand environment, I don't know, I don't know what you guys think. And then secondly, maybe on North America, obviously, the margin improvement you're seeing there and you've talked about the action plan that you have, is that I'm just wondering, is that part of the measures you kind of talked about at the capital say the $400,000,000 to $500,000,000 to 500,000,000 basis points or are we going to see that in the next couple of years. I'm just wondering on that margin improvement there.
Yes. Thanks, Robert. I'll take your two questions. I think that's why we said, okay, you know, if we have low visibility in Q4 on limited visibility, you know, the visibility does unfortunately, not suddenly increases the union of 2021, but to be, to be, to be fair and straightforward, as you know, this time of year, we are going through all our budgeting process that is just about to start in the next 2 weeks. Actually, the project process has started, but we'll, we'll do our quarterly management meetings, for the remainder of November beginning of December.
Then we should have some more clarity around 2021, but we already hear from the countries that the visibility into next year is very different, in its it's not a very only very different in terms of visibility, but it's also very different in terms of outcome. So bear with us. We need to go through that exercise then we'll probably also need to scratch our head here internally with all the fashion 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 Lawrence has pointed out.
And I think what the group has as really proven to do in a rollercoaster, right, in 2020. I think despite a dramatic drop off in turnover, we've pulled out a good result in the Q2, then let's keep that in mind. That was a strong performance on the results side. Despite a dramatic swap on the volume side. And secondly, we've been able to flip things quickly in Q3 and even if it rains up the bucket out.
So in that respect, I think I'm very confident that whatever comes in 2021 we will be, on our unfolds to pull off an organic performance. And then on North America, absolutely, this development is the first contribution to our our 400 to 500 basis points improvement on the American side. You know, and 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 5 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 Ashphalt side. And 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, right? We cannot expect miracles. That's what I said in the Capital Market Day.
So bear with us, but we are chasing the target it will be up and down, up and down. But our midterm target as we disclosed is 4 to 500 basis points increase. And we'll see, the people that off. I think, but out of the gate, I think it's fair to say in an okay way.
That's great. Thank you. I'll come back and ask him, sir.
Okay. The next question comes from Thiago Baier from Enfield. Is it Thibault or Yasin? Okay. Let's skip that one.
Then, we go directly to L And D Roll from JP Morgan.
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? And second, I think you've mentioned CapEx is going to rise. So can you give us an updated guidance on what you see for CapEx this year?
And going forward, please? Thanks.
Yes, let me take the first one and then, Lars, maybe you take the second one on the CapEx, on the on the CapEx question. LOD, yeah, on the U. S. Results, you know, we've been operating in the U. S.
Now since the 70s under the brand, Eli Henson. And that's more than 50 years. We've seen ups and downs. We've seen many presidential elections. We saw it locally.
We we sell locally, we produce locally, we sell locally. And, I think in that respect, we absolutely respect whatever the American voters despite on. I think we will work with any government that is coming out of that democratic election. And in that respect, we are fine. Whether the one government is more, generous on infrastructure spending or not, it's difficult to tell both of the candidates have clearly said they want to push things So 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 UK tabloid earlier this today, where it's where they, I think that, let's, make America wait again So I think this is how we feel the same.
Let's wait for the U. S. To decide and then we'll take it. As it comes.
Okay. On the CapEx, we have announced our target to do $1,200,000,000 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 8:40, So, we have saved the CHF 300,000,000. 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 we want to have. So what I said earlier, flexibility means, give and take. So we have taken out a lot, yeah, in the, in the, now in the last 12 months to manage and to master the COVID crisis, what we think we have done quite well. And all the question is on deflect unless we do a little bit gifts, yes, 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 quality in our, in our, in our asset base. That's very important.
And we need that to be competitive. So maybe we go a little bit above the 12 100 next year, but overall 12 100 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, Olivia. Next question comes from Christian Clark from HSBC.
Hello?
Yes, sorry.
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 bit different from the market or how you see that? And then 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 that's just how much financial costs should we expect for this year?
Thank you very much.
Yes, of course. Thanks for your question. I will take the first one on North America and then Lawrence will answer the one on the financial side. From our perspective, also the my earlier remark to North America, is true for the volume development. You know, 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, you know, we are okay. There are, there are competitors, that are better and others that are worse. So in that respect, 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. But I think we've closed the gap a little bit and moving and are moving in the right direction. Lawrence, do you want to take the, on the financials?
Yes, on the financials, you see that currently stand in the financials. So in the financial results, we see a consistent reduction of our financial costs as we had paid down. The last expensive bond, last year. So that was, I think, a 5 point something percent bond. Which we repaid earlier this year and by that, our financial results will continue to reduce at the pace of 1,000,000 per year.
So if we expect for the full year roughly 1,000,000, finance costs more or less. So that should go down $30,000,000, $40,000,000 by next year. What you have to keep in mind that the finance costs always includes this discounted interest for long term provisions and IFRS 16. This always brings a high degree of volatility, which is non cash item which we cannot influence. So that may fluctuate year over year by $30,000,000 to $50,000,000.
That makes the forecast very difficult. But 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 1,000,000 to 1,000,000 year over year. Now that's a little bit the trend which we have here. And then to say in 2021, we will reach a certain bottom after 2021. We do not expect a significant reduction finance costs anymore because we have reached average interest on our debt of 1.5% to 2%.
And that's the level which we think will continue to prevail in our figures. Okay. Great.
Thank you very much.
Nope. Thanks.
Next question comes from Gregor Kuglitsch from UBS.
Hi, good afternoon. Thanks for taking my question. My question is on energy costs. I mean, I'd presume it was a big tailwind in the third quarter. What I'm really interested in is, based on your modeling at what stage do you kind of does the year over year basically flat line?
I want to understand is that in Q4, is that in Q1 and Q2 next year based on kind of the current prices, I guess, That would be really interesting. And maybe if you could quantify, what percentage reduction you actually got, I think, 3 at a 9 months in terms of sort of unit cost, from energy, that would be highly appreciated. And then the other slide I'm looking at is, I'm looking at Slide 9 where you give us monthly figures. It actually shows an acceleration or actually pretty the strongest of the 3 months being September in terms of earnings if I read this 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 figure yet, but directionally, I would be interested in that.
Okay. Thanks a lot. I would say that Lauren 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.
And then, I would take, the, the question on the monthly, on the monthly figure of October. Maybe, Lawrence, you can bear.
Yeah. If you look to the energy, a price, which we saw right now. So if you analyze our figure properly, then you can see that the price reduction, which we had in our figures is roughly 12% of our, energy cost. So year to date, it's more or less 1,000,000, what we say from the cost effect, yes, but then we still have the volume impact and we have the FX impact and on top that we have the fuel mix, yeah, our fuel mix is quite, volatile. So we have a good ability to adjust our energy mix to, to the cost of each item, but also on the CO2 emission.
So natural gas could be more expensive than coal, but could give us better CO2 emission values. So we may even substitute coal by natural gas in order to reduce emissions even if that costs a little bit more. So this mix, we will discuss with the with our CO2 target in mind, in the coming, in the coming, upcoming budget meetings here. So you have to keep in mind for types of fuels, which is power coal, pet coke alternative fuel. What we see is that power prices are going up there.
They also have not contributed much to the, energy cost reduction year to date, then we think coal will be relatively fairly stable on a lower level pet coke. We think has already increased. We'll continue to increase, yes, and then alternative fuels is the other question, very difficult to predict there are we because everybody is focusing on our alternative fuel. So, here, the cost could rather increase So what we think actually is that, overall, we will see a moderate rebound of energy costs in 2021 compared to, 2020. But how this will be composed, yeah, is difficult to predict clearly if power will be up.
But the mix of cold pet coke alternative fuel is a and gas is a very, very volatile and flat simple thing. We think that this will be, will be going up in a moderate by any do not believe we will be able to keep the current cost per unit level in, 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 6 months, 4 to 6 months, forward buying.
So we try to follow the market trends with the reduced amplitude. So that is our strategy and what comes out of that Okay. Let's wait and see, it's difficult to predict, and we have to discuss it country by country in the upcoming budget meetings. But these are the underlying trends.
Okay, great. And then on the monthly figures, you know, as I said indicated earlier, we have no monthly results for to, yet. But 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, we we it's not yet, it's yet not yet clear. So bear with us we are 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.
So 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. Good
afternoon. Thanks for taking my question. 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 are you different than the first It looks to me the entire industry seems much better quicker. But are there specific reasons you want to fly behind your optimism in to call and we're not looking into a repeat of the second quarter.
My second question was on 2020 dividends. Given the stronger free cash flow that I believe, even yourself, on this age 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?
Okay. Thanks for your two questions. Let me take the first one and then Lawrence and I take you to give you jointly down on the 2020 dividend. Now, lockdown in Europe. You're right.
Many countries are going into a softer or harder lockdown. That's absolutely clear. 2 ideas to contribute to that. 1, you know, most of the governments through the first knockdown have understood and realized that construction seems to be a fairly safe, thing to play, meaning that we have not had any larger outbreak on construction sites. So, that's fair to assume that that's under the circumstances fairly safe work, which means given the economic implications, if you would lock this down as well, we see not yet at this point any closures of of construction site in a meaningful way, maybe here and there are small local ones, but not in a meaningful way.
Also keep in mind that the government has realized that in Europe that, there are 2 other effects that hit also our industry. 1 is labor migration. As you know, for larger projects, there's a lot of migrating labor and you've probably realized that the closure of the, of the, border has not reoccurred yet. So there is open borders, especially for work related travel. So that uptick is good news in that respect.
And also, I'm, I would assume that the logistics, you know, if the board doesn't close, the logistics flows are set intact. So in that respect, to answer your question with these 3 arguments, I'm fairly confident that we will not see a comparable Q2 again in Q4. So 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's under many circumstances. This is something could come different.
If something comes different, we have to tell you, but for now, we have no visibility that something part of the clip 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. It comes worse on the pandemic numbers, we have to reconvene, but for the time being, that's not visible for us. And then on the dividends, John, general before Lawrence gives you a little bit the detail, you know, dividend decisions in our company is the following. We do the full result and then we sit in, in February, March, in the board and see a little bit what is that, what does that tell us in terms of dividend ability Then we go to our supervisory part and propose that. Then the supervisory board goes to the general assembly and then the general assembly decides beginning of May.
About the dividends. So bear with us that we cannot give you any exact number or not even indication, where we are, you know, in the beginning of November before the year said, you can close that, Lawrence, maybe some additional ideas from your perspective. Yes, I mean, don't we need to
go on a store, but I wanted to say, but to be more precise, I think we made a clear statement in the Capital Market Day, that we want to return to Progressive dividends after the COVID crisis, yeah, 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 behind the 2nd wave. And hopefully, we will not see a survey then in springtime. Now, whether in 2021, we can pay a dividend, which is a partly rebound or maybe even a full rebound, as Dominic said, are still not decided.
We have to wait for the full year result, but I can tell you that both of us, Dominica and myself, we work hard to achieve at least at least roughly 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, we are pretty pushing for that,
Okay.
Next question comes from Tobias Werner from MainFirst. I think you just rebranded your bank name as of next week. Go ahead.
Yes, last time as a reminder. Thank you for any other questions. Number 1, 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?
And then secondly, on a more strategic follow-up your divestment strategy, how is that evolving at the moment and what sort of time horizon you see for them to understand that obviously you want to get a better price, but some assets can help better than others. What is your thinking there?
Thanks a lot for the two questions. I will take the first one and then, Lawrence Nager will take the divestment 1. On the pricing level, you know, 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, and others not yet.
You know, that we've not gone through our operating plan 2021 session yet. So bear with us on that, in that respect, you know that the pricing decisions in our in our company are done locally. It's not like, we decide here in Heidelberg on the pricing in Brisbane or in a, so we will go through our operating plan, meeting in 20 at the end of the coming couple of weeks. And then, hear from the countries what they are planning on the pricing side. And then, obviously, as you all know, always a function pricing and volume and cost development, and market dynamics.
So 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 current preparing such assets, for the disposal process. This requires some internal work and also some communication As we have told you, as we want to practice it, we do not disclose what assets they are unless we really publicly put them, for disposals. So, please, I would ask you for your understanding to avoid in terms of communication issues when we take that decision. Now the process, progresses according to our plan and expectations.
So, currently, and that's, I mean, a good news, we do not see a push back from the markets. We do we think the markets have re opened in that respect. And we think the liquidity is available and we think that we will be able, to proceed and execute such disposals, in line with our with our, plan. There are some more, or should I say more exotic destinations involved in that, which is also natural and that may be a bit more difficult to do that. But to be honest, that has nothing to do with COVID.
That's very typical for such, assets which are in more remote, geographies. So good progress, in the moment, but nothing what we could report to the capital market right now.
And then on that, it's clear, you know, when we said that in the capital market, the analysis has been done, as Lawrence said, you know, internally we've taken the decision, you know, we've shared with you the 3 buckets that we look at. In terms of future growth markets, you know, to speak with the U. S. Election words, swing states. So countries that can move to the left do the right and then dispose a decision.
That decision has been taken internally, but we cannot disclose the details also for competitive reasons. So in that respect, Laurence was absolutely right. Let's bear with us and we'll disclose as appropriate. Thank you. Thank you
very much.
The next 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? And specifically, Could you maybe give us some guidance on where the UK is trading now relative to 2019 levels? Secondly, a lot of talk, you know, fiscal stimulus and 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?
Yes, David. Thanks a lot for your question. I think both of them, I think the first one on WSE Western Southern Europe. You're absolutely right. It's been a resilient, to say, the lease performance in Q3.
It's really contributed from all, markets across Europe. So I think, all the markets have improved their performance in that respect. And notably, and that's important for us Also, the UK, you remember in our Capital Market Day, we had 2 specific, focused countries in terms of action plan. 1 was North America and the other was the UK where compared to the competition we were underperforming in the past years. And we are taking these points very serious So in that respect, we are clearly pushing ahead also in the UK and also in the UK, the business has seen a nice change, versus Q3 last year.
You can always dream of more and that's clear. We are never satisfied that our job as it's we have paid for, but, the UK has also turned the negative trend in a difficult market situation because the market from all more we see in the UK continues to be, continues to be not easy. London is clearly down. But overall, I think the guys done a, a good job overall. And then the second, your second question was on physical stimulus.
You're right. The physical 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 yes already. UK has seen stimulus.
Hs2 has started, which is a significant stimulus you will see, the first movement on the green deal and the stimulus program in Europe, notably in Italy, partially in France, in other, in other countries, Eastern Europe, a little bit, also Australia has decided on significant stimulus So, 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 they months you see in your results. It's a more term gain. So it's fair to say that in the Q3 results this year, we do not expect any significant to kick in more in 2021 and onwards. That's
great. Thanks very much.
Thanks, David. We have time for 3 more questions. There are many more in the line, which we will take them later on on an IR basis. I ask for your understanding. The next one comes from Stephan Bornhager from Bankhaus Metler.
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, yeah, potential, give a potential Q3 outlook on the North America business?
Finnaga Vonage. Thanks a lot. I think on North America, I'm not sure what you mean when you say let's pronounced compared to, compared to watch? What does that mean less pronounced? Obviously, you seem to compare it to something you share that with us?
What do you mean by that?
If I compare the recovery with Europe, so, from my point of view, the said recovery and the volume recovery was less pronounced compared to Europe. And I just want to know if there are specific reasons for this development in Q3.
Yes. Okay. Thanks a lot for the clarification. I think, if you compare it especially to WSE, you have to, I think personally, I think you have to keep in mind that, there is some sort of a catch up effect in WSE because, Q2 was a significant know we compared to Q3 last year, but Q2 in North America has not seen such a steep drop like WSE has seen. So in that respect, you know, while there were a lot of half finished construction sites in WSE, Western Southern Europe, coming to an instant halt in Q2.
Obviously, there is also a catch up effect that has contributed to the strong, very strong performance in WSE in Q3. I think that's fair to say. And then the other point in North America, as I said, action plan is seeing some first traction, I think we said in the wording, but it's not yet fully there. So, I think personally, we still have some additional upside. We also said, we target 400 to 500 basis points improvement.
And in that respect, bear with us. You know, we, as I said earlier, the detailed action plan in place by region, by business line, by asset, order to improve the situation. And for us, it was important to turn the trend into the positive, and that has, materialized And if there is an upside potential in North America, absolutely.
And the last question for today comes from Yassine Thore from On Field Research.
Yes, good afternoon, gentlemen. So just two questions. First, could you give us an update on your discussion with Brussels regarding a carbon bother, adjustments, mechanism in Europe. And then my second question would be, on the long term how do you see the portfolio of hydro debt payments in 5 to 10 years?
Do you see would you like to be more exposed to mature market energy market, would you like to be more exposed to downstream of the cement? Including the question. Yes, Yatin, thanks a lot. I'll take the first one and then Lawrence and I share the second one. We have all pronounced opinions on all of the points, but let me, let me just, let me just hit the first one on the EU policy.
And that's a complex issue, and it's not also only a company issue that you know that also Symbiro, the association is up on the policy shaping, in, Europe. Carbon border adjustment is only 1 piece of that, you know, it's AEs, it's common contracts for difference. There are so many things that are currently discussed on the U 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. You know, not every topic that is pushed, and that includes carbon water 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. And for us, it's a clear push that we try to, that try to do whatever we can contribute as a company. But, you know, that's the multidimensional decision with between all the different countries, au, commission, au Parliament, everybody has to say in that.
And then we'll see, what is possible. On the portfolio investments, you know, We've tried to take a view for the next 5 years. Some feedback was all 5 years is long time. Now you asked us for 10 years. That's, you know, that's good as a last question.
But, you know, if the visibility into Q 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 develop at this point, having the majority of our EBITDA contribution coming from the developed market, but we have a nice spread of additional emerging market. We are working on our portfolio as disclosed. And, but with the overall balance for now, we are quite comfortable, and then bear with us how that develops. You know, this is not put in stone and concrete, we will watch the situation.
And if appropriate, we need to, we need to make changes. But for the time being, it's true what we've communicated in the capital market Laurence, I'm not sure.
I think that's perfectly okay. Currently, we have a portfolio of 1 serve North America, 1 third Europe, 1 third emerging market in the kind of Asia. And we think this is a very good mix, which has shown, which has shown a very good over the recent years, very stable development through crisis, allowing us for flexible reaction. Now does it mean if we do not change the portfolio? No, because during the acquisitions of the last year, we had quite some, so to say, by catch, share and not each and every investment, which we have there is really what we want.
So I think the basic of our portfolio, the structural setup, once of numbers of Europe, once of emerging market with our presence in Cement, Aggregate, ready mix and asphalt is a really good and convincing, setup. But inside this blocks, there we have quite some work to do and improve our position invest in, gross markets where we have good market positions, which we want to develop further, intensify vertical integration in Europe, expand and strengthen our policy position in AM, I think that's a very good strategy and that's what we are going to implement over the foreseeable future. But that's been 10 years or 5 Let's wait and see, that's also a bit strategy. It's always a little bit opportunistic.
Okay. I think that's all we have time for. Thank you very much for your questions. Apologies for, to those questioners that are still in the line. We 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 weeks. It's on November 12th, we are going to participate in the UBS Conference November 17, the SocGen, November 19, Barclays Conference, November 25, UBS, German Day December 1st, Bank of America, December 2nd, fireside chat Bank of America, December 2nd, SocGen, December 8, Exane BNP, New York Day, and December 9, Morgan Stanley ESG Conference. So you see, a lot of 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.
Thank you. Bye. Thanks.
Ladies and gentlemen, the conference is now concluded and you may disconnect your telephone. You for joining and have a pleasant day. Goodbye.