Ladies and gentlemen, thank you for standing by, and welcome to today's second quarter 2020 results conference call. At this time, all participants are in a listen only I must advise you that your conference is being recorded today on Thursday 31st July 2020. I would now like to hand the conference over to your speaker today, Chris Bummerberg. Please go ahead, sir.
Thanks, Christina. Good morning, good afternoon to everyone. Listening in, and welcome to our Q2 for H1 earnings call today. As usual, we have some published our results this morning, 7 o'clock, you should have received them. If not, please refer to our website on investor relations, events and publications.
There is the the annual or the semi annual report plus, the presentations that we are going to be discussing now on the call. And with me, as usual, is Dominic Sebastian, our CEO and, Lawrence Nader, our CFO, plus Ozan from the IR team, and, we look forward to an interesting discussion after the presentation. Dominic over to you.
Chris, thanks a lot. Hello, everybody from Heidelberg. I hope you are all safe and well. I would have assume most of you in home office. So, hopefully, you are all well.
I've preached that. We welcome you to our Q2 call, and I would like to take you through the key operational topics and then Louis Negra will take over for the financial side. If we go to the first page of the key messages, clear message, from our perspective, personalizing business and very solid results, in a unprecedented challenging quarter. You know, this was a roller coaster, April volumes significantly down in most parts of our countries. In June, we were clearly above prior year and operating plan in our volume performance in most markets.
So really a rollercoaster, and I think we have a team in Oliver here has done an excellent job, in that respect. In a very balanced portfolio. I will come back to you. I will come back to that point in a minute. As an effect, the margin has significantly improved this bite all the demand pressure, which I think is one of the clear indicators that this was an excellent performance in Q2.
Also, the co action plan that we announced earlier this year has worked very well, and I will share the details with you in a minute. Linda Owens Negra will explain to you the background of a 1,400,000,000 net debt reduction. You know, this is a very big focus topic for us. And on the back of strong free cash flow, we were able to pull down the net debt in a very meaningful way. And then looking into the future, the start into Q3 was good.
I will come to the details about July but it's also fair to say that the visibility overall remains low. That's true both on the infection case side. And also on the business side, and I think the key point from our side is we have clearly shown in Q2 that, we can we can be very flexible and quick on our feet if things change. That's true for the upside, but it's also true for flat or down, development. So I'm absolutely not concerned about the future.
The company will react super strong, whenever necessary. And as I said, start and then the Q3 was good in July. With that, we go into page for with the margin improvement, but let's start on the revenue side, whether you look Q2 or the half year, revenue came down 10, you expect to see 13%, but you have to take into account that this, has a 4 to 5 percentage points decline of a deliberately drawn down HD trading business in there. So the the operational decline in revenues was more in the high single digit figures. On the operating EBITDA side, you see that we were basically flat, to the first half of last year.
And I have to say, this it's something we are proud of, that's that's well managed and to create 1,400,000,000 after a a rollercoaster due to, I think, excellent job, of the team. Operating EBITDA margin and look at this development, how year, 11.4% up, 2nd quarter, even more than 2% up. That's obviously on the back of very strict cost measures, helping energy prices in most markets and also good pricing. So that then turns into a very strong operating EBITDA margin of 23.1 percent. If you go to the operating EBIT or how we call it RCO you see also there, single digit, low single digit declines for both the half year and Q2.
I'm being very honest with you. If you would have asked me whether we can pull this off in March, I probably would have been very cautious So in that respect, I think, that's a very good development. If you go to the next page, should we typically share with you the bridges between the different EBITDA developments both for the quarter 2 and then also for the first half. You see here the 4% that I noted earlier for the quarter and to see also that there is no hardly any currency impact I think the quarter was basically flat compared to last year in terms of currency development, but then you see the big swing in net volume on the one side and then price of what goes on the other side. So volume effect on the results and the EBITDA was almost 200,000,000, coming from, basically many different, markets across the world.
Notably best in Southern Europe, then also, Asia Pacific, with heavy lockdown in India, Malaysia, Bangladesh, Western summer Europe, I don't have to tell you. You know the story, Italy, France, Spain, Belgium, UK, or partially under lockdown, also the U. S. I think I'll come to that in a minute in more detail. Clearly, we are skewed with our with our assets to the northeast, New York, Pennsylvania, that there was a bad hit up there early on.
We have done a strong footnotes in California that they are obviously also a significant drop down in both big cities. And then the Canadian situation was settled. That's part of our region in Canada. With heavy lockdowns and then also, the Prairie provinces that have been hit by the oil price shop. Price of our costs, are, is very favorable from our perspective, almost 116,000,000 cost savings, that that are in there, including, the price depot, the positive price development and some smaller other items.
It adds then up, to a 1,000,000,000, EBITDA like for like, in Q2. No scope changes, right? If you basically go to the next page and look at it from the, first half perspective, almost flat, to prior year. I think that it's, kudos again to the team. 1,400,000,000.
Again, no currency impact, and the net volume is even more pronounced with minus almost 240,000,000 down but more than $200,000,000 compensated, with price over cost with 100, more than 1 of 80,000,000 cost savings, 183,000,000 cost savings in there. So I think that is actually, okay.
If you go
to the next page, you'll see the co action plan. And, this is the, figure on the 1,000,000,000 target. We announced the target in March to say we want to save $1,000,000,000 on the back of fixed costs, CapEx and other cash savings. And here is the results today, 354,000,000, and the more than 50% of this are at this point. Fixed cost savings, 183.
You saw the number already earlier, and then also more than 100,000,000 CapEx containment and, more than 50 or even 60,000,000 cash savings, on strictly receivable and management and also cautious, tax prepayments. If you go to the next page, you see the volume development each of our business lines. And you see that, the development in Q2 and, half year is very comparable in Aggregates and Cement. So half year, we are basically 6% to 7% down Q2 around 10% down. And then in ready mix and Ashfires, the situation is a little bit more, down, especially ready mix, Q2 and half year, more than 10% down Why?
Because in some of the markets, obviously, things switched also to bags, bigger projects were on hold. Or there were no construction workers available. So that's why ready mix a decline a little bit more than the cement side of things. I won't go into the details on the right side because let's, take you to the next page, when we talk about the EBITDA, growth in Mecca, Africa, and other 3 countries, other 3 areas. You know, for us, we are standing on five legs and there was a lot of discussions in the past about the portfolio, yes, you can always do better, but one thing is also clear to have a balanced portfolio in a global pandemic situation.
I'm not saying it's a hedge, but it's clearly a good balance, as you can see here, North, and Eastern Europe, even 30,000,000 than prior year quarter, plus 14% in our nickel market. Also, I am very strong plus 9, 1,000,000, 10% up despite a significant drop down and, volume decrease in Morocco. Which is, as you all know, one of our key markets, very strong performance in all sub Saharan, markets, Then also, Asia Pacific, okay, we are minus 80, 38,000,000 dollars, 20%. That is quite substantial. But if you go into the different markets, as I said earlier, India, Malaysia, Bangladesh, almost completely locked down, parts of Australia under lockdown, Indonesia with obviously some COVID, uncertainty.
And then also the headwind a little bit in the Australian market that we talked about, for a couple of quarters now. But overall, the team in APAC from our perspective has done a very good job and also Thailand, for example, was going very well. So that was in the past discussion around Thailand. But if you look at the development in Thailand, just as one example, I think There are quite some few bright spots in the portfolio as well. Then I think it's, it is must be noted, the performance in Western Southern Europe.
Firstly, I think that it's probably one of the most outstanding jobs. We have pulled off there. With all the volume declines that we talked about, -80-90 percent continental Europe, minus 50 percent, 60 percent in the UK and April. And in June, past the double digit be above prior year and operating plan. So that is a very strong, performance in WSE and it basically then adds up to a decline of only 10% on an EBITDA basis.
North America, if you look at the portfolio here, you could say, well, the minus $26,000,000 8 percent down is, we're actually okay. From our perspective, we are open enough to say we are not happy with the, American performance, we can still still do better. There's from our perspective and upside in there. Clearly, we have a little bit of a disadvantage on the footprint side. We have, as I said, earlier, in the northeast and skewed footprints.
We have the northwest in there. We have the Western Canadian footprint that we have California in there, but I don't want to put this as an excuse. It clearly contributes, to that But, as we said in the past and as we also see here, there is, there is clear upside from my perspective in North America. I've already discussed it overnight with Chris Ward, our new colleague, in the US. And rest assured, you know, I know the place quite well.
I've been I've been over there 8 years. And after the last three sessions. So I know the place quite well, and, we have clear ideas how to improve, and we will address, the upside potential that we clearly see in our North American result. If we just look at 1 quarter, okay, 1 quarter, it's only 1 quarter. That's the year is long and let's wait and see how that plays out.
But overall, I think it's fair to say that we see some upside potential in North America. Last but not least, I will then go into the sustainability side of things. That you know that this is for me personally a very important topic indeed. And, I just wanna remind everybody that we have, published our sustainability report, that we do for many years already in June, end of June. And this obviously includes a good transparency on the whole climate issue on the CO2 issue on water management on all the ESP topics necessary.
I think it lays a good foundation for us to, substantially accelerate our efforts in that respect but I just wanted to note this point that this is something that we are working on as a team. And I see very strong momentum in the company, in all our 55,000 employees carrying that, that topic on their shoulders. And clearly see the upside for the future for investment in that respect. With I would hand over to Lou Gensmegha and maybe you share the financial side of things.
Okay. Thank you very much. Welcome from my side for this call. Good morning, and good afternoon. Ladies and gentlemen, I will lead you to the key financial messages for June, June 2020.
The result overall is a twofold one on the one high hand side. We have seen a negative, impact of the revaluation of our asset portfolio. And secondly, I think we have a quite good financial performance. If we look to the details behind it. So the evaluation of the asset swap for your, or and after the coronavirus, it's it's a tricky moment, like, to an impairment, of 3,400,000,000, which we have booked mainly in the additional ordinary results.
If you adjust for the group share of profit has increased by 5% to EUR 356,000,000 as of June 2020. We have a remarkably strong free cash flow generation, we have a cash conversion rate of 53 percent, which means that 53% of our RCM BD ends up at net free cash flow. And this brought our free cash flow over the last 12 months mainly between 29 2019 and June 2020 to 1,900,000,000, which is probably the highest value we ever saw here. And that's a clear outcome of the co action plan, which did not only focus on cost savings, but also on a very tight CapEx spending and the very steep lane. Working capital while maintaining our stock levels.
So we think that we did acquire good performance here in, the first half year. For balance, this led to a reduction. Of our debt by 1,400,000,000. And currently, we are significantly ahead of our plan. That was the annual plan, for 2020, but also our mid term plan, which we communicated in the Capital Market Day 2000 and 17 for the years 2018 to 2020.
If you go to Slide 12, you can see the PNLs around to the good share of profit. As you can see, we booked, the, impairment in the additional ordinary result, which probably sounds close to minus CHF 3,500,000,000 europe, if we if we looked at each thing glass of position, then we see quite a nice positive development, financial results improved by 19,000,000 on the back of, improved at lower spending for interest, but, we have to keep in mind that barely has a second effect, which is a negative accounting effect from the change in discount rate for long term provisions. You know, on IFRS, we did count long term provisions for us. These are mainly asset retirement obligation or, for our quarries. And that had the negative 50,000,000 book impact out of which 40,000,000 fits in the financial results.
Yeah. So Without the change in discounting rates, our financial results have improved by an upper 40,000,000. The up of $10,000,000 is down in the net result from discontinued operations. Income taxes are lower, of course, and lower result expectation. Then we have, the net result from discontinued operations, which, increased to minus 20,000,000.
And as I say, out of accept this accounting effect for, long term provisions that would have been on the same level of previous year. Non controlling interest improved by 40,000,000. So for balance, we achieved to our balance slightly lower results from current operations by an improved performance in the lower half of the P and L, and that led them to a group share of profit adjusted for ARR of 356,000,000, which is an improvement of $60,000,000 compared to previous year. Let me talk a little bit on page 13 about the goodwill impairment at asset impairment, which we face, tricks is normally, as you know, will be reevaluated our assets on an annual basis, but the corona pandemic is a triggering event on the IFRS circulation. And the Chairman association of auditors has declared this to be a triggering event.
They have to review that. So we did And, the outcome of that was that, the original business expectations have decreased and that's important in the specific planning period. Our expectation is that, the business development in 2021, 2022 will be below our initial expectations as the recovery from the coronavirus will be, will be relatively slow. And this pushed our initial profitability expectation long term beyond the planning period of 5 years, which is regulated under IFRS and here, it's 35. So this led that in the specific bank period, which is 5 years, our profitability expectation dropped and that led to a reduction of the net present value of our businesses.
We had the second impact, which was, the Brexit, on the business expectations in UK, which, you know, our expectation also pushed on profitability expectation. Then the terminal institutions of auditors increase their market risk premium and also the rate there is free debt spread, went up. So, that led to a situation because the discount factor increased and, of course, that reduces the present value of our business. Importantly, to reiterate that our long term business products continue to be good. And as you see from our short term results that the impairment does not affect the cash generation, the short term operational development of our business.
50% of the asset valuation comes from UK. Yeah. And you came to release this appointment. We have quite utmost of the Ukraine systems, from Hankson, in 2007. So it's a good deal.
Pretty old, a good one. And the, the case is that the volumes in Ukraine is still today pre corner, they are 30% below the volumes we saw in 2004, 2005 and 2000 6 that the whole market in Ukraine did not lift up, to our, actions. Yeah. And we do not believe that this will come back in the foreseeable future, meaning our 5 year plan horizon. And that cost, the major part of our journey to be come from UK.
The other 2 major countries are France and Belgium and France and Belgium are badly needed by the, corona crisis and that led to the decrease here. I mean, that's it for the impairment that I think we have to focus now on the short term. And for me, that's predominantly the cash flow generation. And you see on Slide 14, that our free cash flow generation was very strong. The chart on the left hand side of page 4 is a big the development of the last 12 months, so including July 2019 through June 2020, and we had the last 12 months EBITDA of 3,500,000,000 Euro.
And you think see our interest plans and experiment, etcetera, and at least I'll spend this free cash flow of 1,000,000,000 close to 1,900,000,000 which, as I said earlier, is probably the highest amount, which we saw until now, and the cash conversion rate of 53% is quite high value. Going into July now, the, in the, in the third fall of 2020, this trend continued and even accelerated we are very confident, in this very moment that, we will at least bring the trend over the finishing line by end of the end of the year. And as a consequence, our net debt development was outstanding, a large year, it has net debt including IFRS 16 of 10,400,000,000 at the end of June. And this dropped to 9,000,000,000. Mainly driven by the free cash flow, but also by lower dividends compared to last year.
As you know, we paid $300,000,000 less dividends This we have to keep in mind if we look to this outstanding, a development is not only the company as such with its financing power, but also the shareholders' capability of the 300,000,000 to this development. And the 8.9 as a business close to 9,000,000,000 debt also includes debt from leasing obligations, according to IFRS 16, the magnitude of 1,250,000,000 euro. And if we look at last year, we saw this between end of June and end of the year, 31st December,
we saw
the decrease in net debt of close to EUR 2,000,000,000 difference that went down between June and the end of December by EUR 2,000,000,000. And, currently, we are confident that we could achieve a figure, which is too not not too much too far away from this last year's figures of our financial side. We are relatively confident in that respect. Especially as our cost programs, we continue to push light health, to get the cash in Okay. I mean, that's it from, the finance side and we expect to communicate soon for the for the, continued message.
Thanks, Laurence. Just to add on his point on the UK, I think that's the balancing act. The impairment in the UK is a medium, long term perspective also in the light of the history, where the UK is coming from history history. But, you know, I remember well, there are a couple of, the quarters where we underperformed in the UK. If I go and you can, you can rest assured that we were the situation, I personally watch the situation very closely.
And if I take the latest indication, at least the transparency that I can see, I would say It can always be better, but the last quarter in the UK, compared to what we can see elsewhere I think we don't have to shy away that was much improved, in relative terms, to, to the past obviously, we can always do better. That's clear also 2 for the UK, but I think it's important to see, one is the impairment discussion, the other one is the operational development and the improvement that we do towards past performance or compared to past performance. With that, I would just close on the key messages again and then we are more than happy to take all of your questions. So as I said, it was a rollercoast, quarter with minus 80, minus 90 percent down in April. Then we have recovery, strong recovery all the way, to June.
And as I said earlier, June in many markets, clearly above, prior year and also, in against operating plan, on the volume side. And then, margins on the back of that significantly improved. We explained that cope, we explained in detail, 1,400,000,000 net cash reduction. And I think it's important to note that for the way going forward, our portfolio is well balanced for global pandemic. I think that's that's that's important to note.
It's important to note that we have reacted super quickly and the EBITDA performance in Q2 from our perspective is to be fair and more superior, and the, staff into Q3 was also good, with July volumes holding up well, also pricing holding up well. So in that respect, we are very well equipped with our flexibility to react whatever is necessary to tackle the future. So in that respect, we I'm happy now to take your questions. Chris, over to you.
Yes, thanks Dominic Lawrence. Christina, you want to explain the for the Q and
Please stand by whilst you compare the Q and A queue. This will only take a few moments. So we
have many people on the line.
The first
one will come from Yaseem Pori from On Field Investment.
Yes, good afternoon, Mr. Ram. I would Couple of questions on fixed costs, you managed to cut fixed costs by 183,000,000 in the first half. What could be the target for the second half? And then a second question would be on the trend that you're seeing at the beginning of July.
On your order book. Could you give a little bit more color about what you're seeing on the divisional market in July? You say that volume are holding up well. Does it mean that they're up? And do you have any indication in terms of order books in terms of your business about where the your activity could go in the next a few months or quarters.
Yasin, thanks a lot for your 2 questions. Fixed cost, I think what we have, we have 183 is not bad, to assume that we can exactly do the same in the second half. I think again, it's not, it's not clear. It very much depends on the development because let's be also realistic. We, know, we haven't shared that with you, but, you know, the the the the fixed cost savings came in on plan that we did he is together in March, April, with our team, but the contribution margin was 1,000,000,000 higher than the than the original plan.
And so let's let's also be, realistic. That was a pretty, pretty good exercise. It was also helped by, by by the fellow teams that we get from, from, from some of the, from some of the government. But you know, for us, it's important to reach to 1,000,000,000 whether we can have the same, the same, split between fixed cost CapEx and other cash savings is very hard for us to say, because, as I said, some of them, those cost reductions are not permanent. And in that respect, we stay very focused to get close to the 1,000,000,000, but whether the split will be exactly the same, let's let's wait and see.
Now beginning of July, you know, if I would know the order book until December precisely, I could give you a guidance, you know, but that in these days, the things move fast, and, we have we we are optimistic on what will be on the basis of what we see, in July, but we also are fair enough guys to to say visibility until December. It's just not there. Somebody tells you that, then that's fine. Send them to us, but, we don't have the visibility, I'd say. I'll clearly send out to give you a precise guidance.
I think that's also fair to say. There's nothing to do with the negative or positive. I'm just trying to be realistic, And, July was good in terms of volume. It was good in terms of pricing. It was good in terms of cost development.
And the order books that we see in in in in our markets, obviously, very, very much because order books in some countries say something in others, they don't say anything. You know? And order order books can change. You know, I have been through the recession in in in 2007 2009. You can brag about great order books but it also can change overnight.
A, there comes an infrastructure project along. There is a significant jump in the order book. B, people start cancel cancellations. Which we don't see at this point. So, so, that's that can vary pretty quickly.
And I'm trying to give you a realistic picture And all I can say, we are planning for Q3 on the basis of a good, development, in July, And then, as I said, we have everything on board to react as quickly as possible to whatever happens. So I'm absolutely confident on the back of a strong performance in Q2 that we expect in the future, in a very strong fashion. Thank you, Thomas.
Thanks, Yasin. Next one comes from Paul Wathell from Exane BNP Paribas. And, and can I remind everyone? I mean, you did well, you have seen, but please stick to two questions because we have a lot of people on the line.
Yeah. Hi. So I'll I'll speak to 2. So good afternoon, Dominic. Hi, Doctor Nega.
So the first one is on is on North America. Dominic you referenced, perceived underperformance in that particular division. Can you talk a bit more about what's behind that? I mean, are you are you tight in terms of capacity, are the plans sold or or something like that? And and and basically how how are you thinking about fixing it?
And the second one, which is probably more for Doctor. Nager, cash conversion is obviously very strong. Is there further to go? And how sustainable is CapEx for these levels?
Okay, Paul. Thanks a lot for your 2 questions. Very difficult. Paul. Thanks a lot.
So on North America. Yeah, the picture is, you know, if you go through the details I think 1st and foremost, and very importantly, pricing is not the problem. Pricing actually, it actually works from our perspective across all the new clients, that's that is good. On the volume side, we look a little bit to our cement volumes that are, down and, that that, it could be a temporary issue. To a large extent, we have to close and have closed, generally some of our capacities in the northeast, also in California, also for loans in in Canada.
You can always, you know, balance in our timing of that and what's the inventory impact. So that's why I think we have to be careful not to overdo it on 1 quarter because this is this is a longer term game throughout the year. You know, the seasonality issue and everything. So, let's wait and see. We are not tied on the capacity, Paul.
To be very clear. We have we have the inventories available to serve the market, but the volume development in the U. S, especially in the cement division was not where we hoped it to be. Partially footprint driven, and partially, you know, timing on the, on the asset ramp up and run, and ramp down. In aggregate and ready mix, I don't see any issue on the volume development side.
That was actually fine. And then obviously we had, we have reacted very early and keep on furloughing in, on the cost side. And but, but there are some, you know, operational topics that we've talked about in the that we need to get our arms around in terms of transferring material from E2B, was it really necessary? So there are a couple of points operationally that we are will discuss with the with the team. When it comes to fixing it, maybe we'll take also, I can give you a starting mark on the upcoming upcoming capital market days around that.
I'm in constant discussion with Chris Bottled. Let's also be fair to him. He is also fairly new in his job. He lost the business, obviously, very well. You can, you know, that I've discussed with him over the last 24 hours and before, quite in-depth already what we can do.
I ask for your understanding that we don't go into into details, but it's always not one measure that will fix it. It will be, a a few flowers that will need to contribute, and it will be, partly short term. It will be partly, partly, midterm, So there will be a combination of a couple of measures that we will pull in order to get it done. And as I said, Paul, you know, that, I've seen in the U. S.
88, 8 years myself. I immediately through and after the last recession. So, as I said in earlier calls, we are very experienced war has been with us for a long time. He knows the business very well indeed, so do I. So in that respect, I have no doubt that we are, we'll be addressing the key points.
As I said, some short term, some mid term. And then I would hand over to conversion
for questions.
Yeah. Yeah. For Roger, yes, we really had a good and very nice cash conversion. And from, as I said earlier, that the trend of good cash in continued and even accelerated, towards the end of this month. So our cash conversion now in the beginning of Q3 was even than before.
The protest will hold, throughout the year over the finishing line. I wouldn't hard to predict because it obviously depends on the operating business. But the underlying trend in, spending, let's say, beyond EBITDA, as I'm talking cash as well, CapEx, I come back on that tax interest, you know, we spent the money payout on provision, things like that. We we are extremely disciplined, and we really see this cash out reducing. So I am pretty sure in this very moment, provided for any unexpected change, which could happen in years that that we can bring this over the finishing line and that you will see a really, really good cash flow development and de leveraging over the rest of the year.
When it comes to sustaining CapEx, first of all, the spending mainly takes place in Q1 and Q4 because this is our goal of where we do annual shutdowns of the cement plant, and that's where the predominant and major part of the maintenance CapEx is spent especially in q3. Sorry. Q4. Until now, we did not have any business disruption due to understanding the maintenance CapEx, which really shows us that the level of a CapEx we spend for maintenance and environmental and things like that are, are on the right level. We do we spend enough money on that.
Me now, if you will also do a bit lower production, if you'll earn less volume, there are a bit less spending needs, and we will see, housings come along in Q4. I would say that they are moderately below previous figures. They should, but it should not exceed previous figures, and, a few goals or not be, let's say, a substantial below. So I think that current trend to have a spending just below previous year's level that is a, that is an assumption which probably will will go on through the year. If you look down our cash flow statement, we spent 1st half year of 5 0 6 see a premium of 500 in this tangible asset, aside.
And I think, this trend slightly below previously should pretty valuable for the second half of the year.
Yes, Paul, I think it's always a balancing act in these days. You know, it's clear that with the visibility in large, We had to put our foot on both brakes, but it's also clear with the improved, contribution margin development and also good cash flow and everything. We have to, we will take it again step by step. We are very conscious of the fact that we don't wanna ruin our 2021 or 2022 results. And so we go very diligently to our project is And if there is a need to support the business in 20212022, rest assured we will have the money available and we will spend it, and I'd rather come in at 995, 100,000,000, 909195 1,000,000,000 and not 1,000,000,000, but to make sure that we support our business in 20212022, we go very diligently area by area business line by business line through the topic.
And if there are good, payback projects that that are happening in bottleneck markets, in bottleneck assets, rest assured, we will do them even under a tight CapEx scenario to give you also support the business going forward. Thanks, Paul.
Thanks, Paul. Next one is from L. B. Ross from JP Morgan.
Hi, and thank you for taking my questions. So I'll keep it to 2 then. First of all, on the net debt. So, you've explained to us the 1.4 beginning reduction. Do you have a view about where you want to land, at the end of this year, consensus is at 7,600,000,000.
Are you basically comfortable with this figure? Second on capital allocation now that, the operational side is improving a bit. Do you feel a bit more comfortable about a return on dividend as soon as next year? And would you consider doing a bit more bolt on acquisition at this stage?
I would start with an asset. That's what I said concerning. On Slide 14, right hand side, currently stands at EUR 8.99 at the EUR 9,000,000,000, including EUR 1,250,000,000 leasing obligations, and as I previously said last year from June to December, we deleveraged by 2,000,000,000. As I said earlier, I expect the cash flow to continue to be strong, at least on the level of previous year. Providers business continues to be Let's say, what are the, if you want also in the range of what ammo you can expect now from this time?
So it's you know, that we are expecting that over the finishing line, I think the 7 points, it would be a very conservative figure. I thought the consensus currently says that 7.2, yeah, and 7 point 2 does not make me sleepy bed in the night. So clear vision to go below that. I'll be the I mean, we have kept our stopping of the small life on the same level, 2,100,000,000 more than the level of previous years. So have full continued production.
So we have not, gone and and shut down because to reduce our stocks. And I think I think that makes me confident that if you continue production levels in line with the consumption level, the base level, then we will not have a major impact on on on the working capital from that side. So, yes, if college. I would say it's ambitious. Yeah.
And that's what we have to achieve. And if you like to go on my coats savings. I am I am not so much EBITDA is important, but there is a life beyond EBITDA and cash scheme. And we look for tax. We look for CapEx.
We look for, for working capital management. We have collected quite a bit of our overdue receivables have been very strong in this, in this point. So, yes, that's the addition below this consensus side.
Okay, Andrew. Then I'll take the next one, the second one of your questions, capital allocation. As I indicated to Paul earlier, you know, for us, also capital allocation is a moving is a moving element. You know, yes, we haven't we had my idea in March and now we reconvene a little bit, you know, because, we have to see how we allocate our, our capital wisely and we do this with a clear spirit to support also the business beyond 2020, right? Because there is a life after 2020, even if we get through this COVID.
And do you know that we are in an industry that needs, that that needs capital to support, cash flow and also operational development. We do this with very stringent financial discipline. But even in these days, we will support the business where necessary. And if the, as I said before, if the business needs the CapEx, we will spend it, we expect respectfully, but, but didn't really be, controlling the cash flow in this scenario. And that also includes if there are small, bolt on acquisitions that we, we can do in single market, very small, bolt on here and there.
Obviously, if they fit in there, if they have a high synergy level, under very strict financial discipline, we are also, happy to do that. If necessary, Yeah. It's all who would like to support the business beyond 2020.
Okay. Thanks. Thanks, Olivia. The next question comes from Pierre Hossell from Barclays.
Good afternoon. It's actually Nadil Annette from lowercase. So my two questions. First one, I was wondering if you could help to us to quantify the, the energy cost tailwind in H1. I think that's what I've been the energy cost per tonne.
And and if you got a guidance for, the full year of 2020, what what do you see in terms of energy costs? And this one question, I'm sorry if you already answered I was a bit confused. I mean, did you provide the numbers? Did you have, how much government temporary measures fuel accounted for, image from Twin Learning? Okay, Navios.
Thanks for your maybe I take the government's follow on, and then I would hand over to Lawrence Mega for the energy cost side, because he is also leading the energy cost department. And we had yesterday a discussion around the energy cost development. On the government, measures, you know, this is always a balancing act and it's a market by market discussion, we have, we have taken, some advantages of these government measures, notably in Continental Europe, than also in the UK. And in that respect, you would say it is a double digit million figure in the fixed cost side, maybe, you know, in the bank, this bonus don't mainly on 1,000,000 or 2,000,000, but, But in the magnitude of around 1,000,000, I would say, euros, in Continental Europe, I think that's a fair that's a fair assumption, more 5, 5, 5, 5, 5,000, but just to give you an indication. And again, you want to take
the energy because you all need to cost me do we publish energy costs? No. So the energy cost, we had a very favorable development in the first half. Year, the NLP cost price effect was close to 20%. So it's your price effect and then on top of that, we had, a volume impact into lower production in those levels of costs, and the because the price inflation effect of this 80,000,000, comes almost entirely from the fuel side, their power cost remained, power went down so that the levels are also on an, honestly, the levels are focused second half year, the future is always difficult to predict.
We expect the 1st or savings in that respect, but it's very difficult to say how much. We are covered about 80% in the second half of the year as far as contracts. They should go into the P and L and then we are we have 20% which is open and are currently spot prices are below, our plan. I would, therefore, we expect the support for our operations from the energy and power side also in the second half the magnitude of this effect is difficult to to forecast, but I would get, can I see this? I would get in the magnitude of, let's say, about 50% of what the sale involves in the, in the first half, that would be a little bit higher.
My expectation, as I said, he's a very volatile, very volatile, a story in this in this very moment. Okay. Sorry, that's not very precise, but the I think the indication, Javier,
I think it's it's clear that this remains an up and down. But for the time being, I think there is some savings, on the energy, especially the fuel side. So for us roughly 50% of each one.
Yes. On the price side, and the volume comes in parallel with the volume not Yes.
Okay, thanks.
Okay. Thanks. The next question comes from Tobias Ronald from MainFirst.
Yes, hello. Good afternoon, gentlemen. Thanks for taking the questions. Number 1, with regards to pricing, can you give us a flavor across your markets and possibly, give us an idea where they were strong and where they were not so helpful. And would you expect that the second half?
And then with regard to the working capital movement, in a volume down market, when would expect cash to flow in, how do you expect that to move in the second half as the recovery builds and how much will that take off your cash generation? Do I will take the first one and then, I, I asked you a little nigga to take the cash flow 1 As you know, you know, pricing is, a very different, across market. And I'll just give you, you know, overall, if I take the total picture, we are quite, happy with the pricing development and that's true for all three key business lines, Finland, Emirates, and, also ready made So overall pricing, just to give you a flavor, right, pricing in the U. S. And Canada already indicated was good from our perspective.
There was a recent, price increase things done in May, June, in most of the markets, that went okay. So overall, from my perspective, pricing in U. S. And Canada. Okay.
So any food for Western Southern Europe, across all market we were able to pull price increases, so in that respect, that was, that was fine. I'm always talking June over June last year, right? So just to give you just to give you, so for the first half, last year versus first half of this year, so you know where we are. Eastern Europe, also most markets, with book development, the Northern European market, a little bit, or flat, or or even slightly down, but that's more a mixed effect. That's not a that's not a message, a point on our perspective.
And then, if you go to APAC, Australia was okay, India, Indonesia was okay, Bangladesh slightly down, Thailand, slightly down, but that's the mix effect in Thailand, because there is a lot of import export going on. So we have to be careful, to, to not over, over, make too much out of that point and sign up more or less less slightly down, but again, there's also a mix for us between the 2 geosers joint ventures, in the north and in the south. And then if you take, APAC, so, sorry, AM, a very strong development in the most part of sales. That's our for our participation plan at all in Tanzania, and then, difficulty with the government immediately continues to be difficult. That the result is under control, but the pricing was significant again.
And as I said, Morocco also on a very, stable level slightly down, but that's also more a mixed effect overall. I think, that's that's the thing with the picture of
Yes. If I'm working capital, that's the higher difficulty, either. All the statements I will make now are in the light of a moderate ease of the overall coronavirus situation. I think she's There are always statements if I look to US, to India, and to and to Indonesia, for example, because that's an early assumption. But if I take this, then I would say on the on the inventory side, we are very well underway.
So we are stable on that, and we will not need to put too much inventory for end of the year. To come to the shutdown period as a vis a vis the shutdown period of our film. They are last year roughly 2,200,000,000 stock during the year 2,100,000,000. So we are pretty well on that level. It should allow us to, stock level of just moderately increases to, the kiln winter shutdown period in early years or yearly hours on the way.
Now the big challenge for us, if I may tell you, what though that our accounts payable, the higher than our accounts. So even before the coronavirus, which would imply that if our volume goes down, our working capital would shoot up. Yeah. That was the situation we had to turn around. That's what we successfully did.
If you look to the balance sheet, you can see that it's by the turnover of 9%. We we reduced our track record by 13%, yeah, whereas we succeeded to keep our accounts payable constant, a mild and constant travel, it it it it it decreased only by 10%. So that the 3% great. Yeah. And that's the challenge which we have to carry through the second half.
We have very much tightened our health the management, and we have really worked on the supplier side to keep our, say, these DPOs such a think that it's outstanding. We have done successfully counter. I do not have any indication, but that would change, anyway, half towards end the yield, so we are pretty confident that we can keep our working capital level on the same level, which we finished the year. Previous deal. So, that's the challenge.
That's what we worked on. And in the past, we have pretty successful in that respect. And I would I would think that, that we are on, able to to bring that over the finishing line also this year. So that's part of this assumption for the, for my statement, I earlier on the debt position at the end of the year.
Yes, very well. Thank you.
Thank you. Next question comes from Ava Lehman from Bank of America Merrill Lynch.
Thank you very much. Good afternoon, gentlemen. My first question is just coming back on the 3,400,000,000 write down of impairment of goodwill, is that a preliminary step before doing incremental restructuring including plant closures or headcount reduction. If you think the medium term outlook for some markets, which wasn't expected, is that something that, that we should now expect maybe for the UK or other parts as well. That's my first question.
And my second question is around CO2. You've made a few announcements in the last months, we've been talking about tier 2 separation, tier 2 capture, and I apologize. I'm not really an expert of this topic. So would you mind just clarifying what these are about and if it could be meaningful at the time.
Thank you. Okay, Anur. Thanks a lot for your two questions. Maybe jump first on the, on the impairment in the West Navy, I can maybe add to that. I, very clear answer from our perspective, nothing to do with any restructuring coming up or not.
This is as Lewan was explaining treatment related COVID, and he can maybe just reiterate and add to this but no, you should not take this as an indication of any restructuring or something that we have planned in that respect as we a promise, to the capital market, we will give our update, in, in September. I'm afraid you should not expect the move to come on them. I think the industry states initially, but no answer to your question in benefit lines with any restructuring plans, no one
nothing to add from my side. That's correct. It's a accounting exercise, on Facebook 330 link.
And then on all the the question on CO2, I think that's that, that, that's telling our lengthy statements, because this is, a, a difficult topic, in, in a complex topic, to be fair. Maybe just to highlight and then we should also, we will also cover some of that in the Capital Markets Day. You know, we left the I'm capturing on the one hand and then it's always a question. Is it a you or an s? So you have to either the utilization, where we have a pilot project here in one of our German clients or you have the storage questions where we have, for example, the Northern Life projects in, in Northern Europe and our British plan, and we have a quite a few other topics where we are experiencing on the question of carbon capturing.
The purpose of the whole exercise, just to clarify short, is obviously to capture the CO2 that is that is created in the cleanup production process and then utilize it for storage and storage is in some, country, okay, in order. They don't like it. No problem in, in the horror, in the, in the North Sea, no problem in Norway, in other parts the world, people see that differently. So we are deliberately flexible, on what is the right car in capture technology. We are basically working on 4 or 5 different technologies across the world, and, the same improvement for either utilization or storage.
That's just the overall picture on that one.
Thank you very much.
Thanks, Pavel. The next question comes from Glenn Illifel from ODDO.
Yes, sir. Thank you for taking my question. You said that the last time that having a balanced portfolio is hedged. And there has been some question about your port for you. Does that mean that you are happy with your footprint today on that you won't go for massive disposal, search one of your bigger competitor.
That's the first question. And the second one, I think you closed recently the acquisition of Xinhud on Atlantic Cement in Morocco. Can you tell us all on if if you should change the dynamic there?
Thanks, Sven.
On the two questions, you know, yes, there was a discussion in the past about, the portfolio and the balance of the portfolio all I said, you know, looking at our Q2 performance and this is what we talked about today, you can see, from our perspective, the benefits of this portfolio. As you saw, Northern Eastern Europe, strong Northern America is strong. You know, markets that are typically not, you know, there's a lot of light on this, but, they they prove that they are currently living in some of these, in in difficult times. So yes, we are reviewing of the portfolio, that is going towards the capital market and I will postpone that part of the answer to, to the capital market. But as I said, guys, we do not expect, the moon comes down and we serve 2 thirds of our company that's the idea to run the business, we will, we will, look very closely at the portfolio and then I will share with you our ideas, for the short term, in September.
I think that's the fair to say. And then since that's the consolidation move in the south of, Morocco or formally not even Morocco. I think that there was a that was a clear consolidation move in the local market in south in the southern part of Malco and through the border down there. And, we basically took our own competitor and consolidated with our grinding wheel down there. So, personally, I think that's a good move in order to improve our market position and the resilience of our market position in Morocco.
The next one comes from Gregor Kuglitsch from UBS.
Good afternoon. Thanks for taking my question. Can I come back to the sustainability point and perhaps kind of prod you a bit on the products that you're developing, if you are developing a new low carbon, and it's all your competitors have been quite kind of vocal around low carbon concrete recycled aggregate, put that together? So can you just maybe give us a view where you are and if that's perhaps a priority for you going forward to develop that part of the, portfolio, if if you can. And the second question is maybe one just specifically on the Northern European performance and the in quarter where I think you had a maybe 400 or over 400 basis point margin expansion, which is obviously extremely strong, I I believe, on basically flat revenue.
So if you just maybe flesh out what's going on there and maybe more broadly, if you wanna comment perhaps on Europe as a whole, that margin spread improving was pretty impressive. So the question, I guess, is how sustainable do you think this is? I think, well, thanks a lot for the 2 and a half questions, then that's fine, even the tailwinds. That's it. Yeah.
I I that's okay. That's okay. So and all the sustainability. You know, you said, I, you know, is this the priority to develop these things going forward? I would say, this has been, yes, if you, if you, there is this whole topic process, for quality, I think, absolutely, but we need to start to develop it low.
We are in fact doing this, quite immediately already for a couple of month years in many of our markets, but we have not yet absolutely fair, that we will be making a global market push out of this. But in our local markets, we do a very diligent effort and I would say we don't have to hide between you know, compared to other offerings, in terms of our CO2 system for specific, topic, That's true first amendment. It's also true for concrete. But for us, it's a local market by market issue. And again, later, we will come back to the topic, on the capital market in more depth, but we it's a priority for us.
So, there's no question, I think, We have not only the green color in our logo, as a company, or we carried our order in our house. And I can tell you it's clearly in my heart, And don't worry, this will this will get a significant push going forward. On Northern Europe, basically, the development. Are you specifically talking about Northern Europe? Are you talking about nickel?
You're talking about nickel as a as a reaching. Uh-uh. I can't see the details. I'm working at the region. No.
No. No. No. No. That's fine.
As I said, the development in each of these markets was most of these markets was very strong. And that's on the back of a good, volume development. So positive volume development. Strong pricing and very strict cost development. You know that our new board member and it's too little, who came in, basically at the end of last year.
He knows the market very well. He is a Polish physicist. He has very successfully managed the Polish market for quite a few years. And on the back of that, he has also worked on this development in other parts of Eastern Europe. And as I said, it's really a combination of good volume, good pricing and strong cost management that leads to the superior margin developments.
Thank you very much. And then on value of images from the similar story, yes, volume was down in many markets. Other than in the Eastern Europe. So on the volume side, clearly different, pricing side, as well, in all of the markets in positive territory, and then, very strict and very early cost management, and that led them to that margin increase in most of the markets.
Okay. It was slowly but surely wrapping up. The second last question comes from Stephan Boonharder from Bankhaus Midland.
Yes. Good afternoon from Frankfurt, and thanks for taking my questions. Two questions. First one, So regarding your, Asia business, you mentioned that you had a good June, but, you were on a pier if this was an effect of the shifted run are done. So my question would be, has this positive momentum continued over the past weeks?
And my second question is regarding economic stimulus packages, around the world and interactive in a very many markets. And generally in which country or region do you see the most potential to benefit from such, economic stimulus packages over the, yeah, 6
months or years. Yeah. Thanks a lot for your question. I think, on the, on the APAC side, it's really market by market. I think that, that's not, that's not an APAC answer.
And now we see quite a rebound in in some markets that's even that's even better than in June. There are markets, as I said, you know, Thailand for us, it's a good market in that respect, and, and others as well. And there are markets where you may have a shift between May June July where you have to really take the whole Ramadan team last year that was a shift between the 2 months. Now you have a, shift between working days there, late to June. So for us, it's really in most of the Asian countries, you have to really look for 2 or 3 months together before you over, I estimate 1 month's performance.
So when it comes to, you know, those are both much specifically Bangladesh, also Indonesia for Ramadan, obviously create a significant role. You then have to look a little bit where we are, but we are clearly away from the from the low peak, in, in, from the low from the the loan development in, in April, May, we are, also in July, clearly, about, that development in, in, in April, in April, May. And then, on the civil infrastructure project, I would say there are globally 2 big discussions. 1 is obviously in Europe. You will like seen the recovery plan that you had green lighted, where I personally think we should profit from because we had a strong presence in Italy.
We had a strong presence in France. Both countries, you could see infrastructure are coming. UK is separate now from the issue. So there there is a discussion, with those jointly in the team, but to be fair, HS 2, for example, the last infrastructure project where you're connecting between London and Birmingham, though the new presence in the UK and all that, that is after many years of discussion actually, accelerated. And it's it's freezing.
And there are a couple of more projects to come, I think, in the UK. And then the U. S. Goes up and down and up and down. You see now today they have really bad figures in the VIP development in the last quarter.
Tram will say, no, I've already spent $2,000,000,000,000, then the demo cards say no, but we will go once you say it goes back and forth, So clearly, if there is an infrastructure topic, a program coming in the US that would help us, but you have to be You have to separate between the national discussion and then it's really a state by state discussion, DOT, dash text. So that's the complex issue, but clearly, if the economy in the U. S. Take would take a dive, I would clearly expect that there is reaction on the political side by any government in power to try and mitigate the effect and traditionally be as profited from these from these programs.
Okay. Thanks.
Thanks, Stephan. And the last one comes from Fokash Stork from LBBW. Yeah.
I have a question on the cost flexibility, especially the energy costs. They're the, coverage ratios and then heading into q 2 on a normal level of for example, 80% or are they above, normal levels of the lower normal levels.
Okay. I would hand that a question over to Lou Hance Mega because you answered also the first one on this.
Yeah. Good. Hi, Doctor. So it is our our policy that we have brackets, for each quarter, then how much our operations can buy, the prices are relatively wide. So there's a, decrease in, for the countries to buy this in the, such market.
The volumes went down, you know, and I think naturally through increase in the coverage. So if you if you if you calculate related to the new, volume, of the lower volumes, after after Kawana. So, the coverage, as I earlier, especially if you are 80% that's a bit higher than we experienced in the, in the past, but that doesn't come that we have bought more. It comes from the fact that the volumes down the line will I expect to go down a little bit, which is not a surprise taking, the co owner into account. So that's a little bit the point.
And now we we stopped the the, we had we had abandoned. We have been put a banner in, in March when we didn't when we felt very uncomfortable on how volume could develop. They are, as you know, they have covered in May June, not to the full extent, but to a certain extent. So now we have opened up, for the countries, and they can decide to purchase on the, on the latest production level estimations so we think, you know, come back on next level on our old policy, which is on average, Concala side is overall business lines and all types of energy roughly 6 months. So it's our actual cost, in energy following the spot prices and with the delay of roughly 6 months.
Okay. Thank you very much.
Okay. With that, I think, Chris, we are, we are fine. I think that was the end of the Q and A. And as I said, thank you very much for your participation. We see most of you back in our Capital Markets Day, in September where we give you an update of things on September 16.
So that's, and obviously, this will be done for industrial, no physical, no physical meetings possible, and we'll we'll see, how we get that one done. We are really looking forward to see you there. Thanks a lot. Thanks.
We will come back to you with regard to registration and stuff, by the second half of August. And, we hopefully you know, have a good vacation if you haven't, had it. It would be normal then. Okay. Thanks a lot for calling in.
Bye bye.
This does conclude our conference for today. Thank you for participating. You may all Hi.