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 mode. After the speaker presentation, there will be a question answer session. If you wish to ask a question, please press star one on your telephone keypad. I must advise you that your conference is being recorded today on Thursday, July 30, 2020. I would now like to hand the conference over to your speaker today, Chris Beumelburg. 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, you know, published our results this morning, 7:00 A.M., you should have received them. If not, please refer to our website on investor relations, events and publications. There is the annual or the semi-annual report, plus the presentations that we are going to be discussing now in the call. With me, as usual, is Dominik von Achten, our CEO and Lorenz Näger, our CFO, plus Ozan from the IR team. We look forward to an interesting discussion after the presentation. Dominik, over to you.
Chris, thanks a lot. Hello, everybody from Heidelberg. I hope you are all safe and well. I would assume most of you in home office. Hopefully you are all well. As Chris said, we welcome you to our Q2 call. I would like to take you through the key operational topics. Lorenz Näger will take over for the financial side. If we go to the first page of the key messages, clear message from our perspective. Personally, I think this is a very solid result in an unprecedented challenging quarter. You know, this was a roller coaster. April volume significantly down in most parts of our countries. In June, we were clearly above prior year end operating plan in our volume performance in most markets.
Really a roller coaster, and I think the team in Heidelberg here has done an excellent job in that respect, in a very balanced portfolio. I will come back to that point in a minute. As an effect, the margin has significantly improved despite all the demand pressure, which I think is one of the clear indicators that this was an excellent performance in Q2. Also, the COPE action plan that we announced earlier this year has worked very well, and I will share the details with you in a minute. Lorenz Näger will explain to you the background of a EUR 1.4 billion net debt reduction. You know this is a very big focus topic for us.
On the back of strong free cash flow, we were able to pull down the net debt in a very meaningful way. We're looking into the future, the start into Q3 was good. I will come to the details about July. 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. I think the key point from our side is we have clearly shown in Q2 that 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. I'm absolutely not concerned about the future.
The company will react super strong whenever necessary. As I said, start into the Q3 was good in July. With that, we go into page four with the margin improvement, let's start on the revenue side. Whether you look at Q2 or the half year, revenue came down 10, respectively 13%. You have to take into account that this has a 4 percentage points-5 percentage points decline of a deliberately drawn down HC Trading business in there. 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.
I have to say, this is something we are proud of, that's well managed and to create EUR 1.4 billion after a roller coaster of Q2, I think, excellent job of the team. Operating EBITDA margin, look at this development. Half year, 1.4% up. Second 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. That then turns into a very strong Operating EBITDA margin of 23.1%. 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. In that respect, I think that's a very good development. If you go to the next page, we typically share with you the bridges between the different EBITDA developments, both for Q2 and also for the first half. You see here the 4% that I noted earlier for the quarter. You see also that there is hardly any currency impact. I think the quarter was basically flat compared to last year in terms of currency development. You see the big swings in net volume on the one side and price over costs on the other side.
Volume effect on the results on the EBITDA side was almost EUR 200 million, coming from basically many different markets across the world, notably West and Southern Europe. Then also Asia Pacific, with heavy lockdowns in India, Malaysia, Bangladesh. Western and Southern Europe, I don't have to tell you know the story. Italy, France, Spain, Belgium, U.K., all 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 assets to the Northeast, New York, Pennsylvania. There was a bad hit up there early on. We have then a strong footprint also in California, that there obviously also a significant lockdown in those big cities.
The Canadian situation with Seattle, you know that's part of our region, Canada, with heavy lockdowns, and also the prairie provinces that have been hit by the oil price shock. Price over costs is very favorable from our perspective. Almost EUR 160 million cost savings that are in there, including the positive price development in some smaller other items. It adds then up to a EUR 1 billion EBITDA like for like in Q2. No scope changes. 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 is kudos again to the team.
EUR 1.4 billion, again, no currency impact. The net volume is even more pronounced with minus almost 240 million down, but more than EUR 200 million compensated with price over cost, with more than EUR 180 million cost savings, EUR 183 million cost savings in there. I think that is actually okay. If you go to the next page, you see the COPE action plan. This is the figure on the EUR 1 billion target. You know, we announced the target in March to say we wanna save EUR 1 billion on the back of fixed costs, CapEx and other cash savings. Here is the results today, EUR 354 million.
The more than 60% of this are at this point fixed cost savings, EUR 183 million. You saw the number already earlier. More than EUR 100 million CapEx containment and more than EUR 50 million or even EUR 60 million cash savings on strict receivable management and also cautious tax prepayments. If you go to the next page, you see the volume development in each of our business lines, and you see that the development in Q2 and half year is very comparable in aggregate and cement. Half year we are basically 67% down, Q2 around 10% down. In ready-mix and asphalt, the situation is a little bit more down, especially ready-mix Q2 and half year more than 10% down. Why?
In some of the markets, obviously, things switched also to bags. Bigger projects were on hold or there were no construction workers available. That's why ready-mix is declined 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, where we talk about the EBITDA growth in AEM, Africa, and other three countries, other three areas. You know, for us, we are standing on five legs, 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 EUR 30 million better than prior year quarter, plus 14% in our AEM markets. Also, I am very strong, plus EUR 9 million, 10% up, despite a significant lockdown and volume decrease in Morocco, which is, as you all know, one of our key markets, very strong performance in all sub-Saharan markets. Asia Pacific, we are minus EUR 38 million down, 20%. That is quite substantial. 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. The headwind a little bit in the Australian market that we talked about for a couple of quarters now.
Overall, the team in APAC from our perspective has done a very good job. Also Thailand, for example, was going very well. There was in the past a 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. I think it is must be noted the performance in Western and Southern Europe. Personally, I think that is probably one of the most outstanding jobs we have pulled off there.
With all the volume declines that we talked about, -80%, -90% Continental Europe, -50%, -60% in the U.K. in April, and in June, partly double digit above prior year and operating plan. 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 EUR -26 million and 8% down is actually okay." From our perspective, we are not happy with the American performance. We can still do better. There is, from our perspective, an upside in there. Clearly, we have a little bit of a disadvantage on the footprint side.
We have, as I said earlier, a northeastern skewed footprint. We have the Northwest in there. We have the Western Canadian footprint in there. We have California in there. I don't wanna put this as an excuse. This clearly contributes to that. As we said in the past, and as we also see here, there is clear upside from my perspective in North America. I've already discussed it overnight with Chris Ward, our new colleague in the U.S. Rest assured, you know, I know the place quite well. I've been over there eight years after the last recession, so I know the place quite well. We have clear ideas how to improve, and we will address the upside potential that we clearly see in our North American results.
If we just look at one quarter, okay, one quarter is only one quarter. The year is long, and let's wait and see how that plays out. Overall, I think it's fair to say that we see some upside potential in North America. Last but not least, I would then go into the sustainability side of things. You know that this is, for me personally, a very important topic indeed. I just wanna remind everybody that we have published our sustainability report that we do for many years already in June, end of June. This obviously includes a good transparency on the whole climate issue, on the CO2 issue, on water management, on all the ESG topics necessary.
I think it lays a good foundation for us to substantially accelerate our efforts in that respect. 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 topic on their shoulders, and clearly see the upside for the future, for our investment in that respect. With that, I would hand over to Lorenz Näger, 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 through the key financial messages for June 2020. The results overall is a twofold one. On the one half hand side, we have the negative impact of the revaluation of our asset portfolio. Secondly, I think we have a quite good financial performance if you look to the details behind it. The revaluation of the asset portfolio after the COVID crisis as a triggering event led to an impairment of EUR 3.4 billion, which we have booked mainly in the additional ordinary results.
If you adjust for this, the group share of profit has increased by 5% to EUR 356 million as of June 2020. We have a remarkably strong free cash flow generation. We have a cash conversion rate of 53%, which means that 53% of our RCOBD ends up at net free cash flow. This brought our free cash flow over the last 12 months, meaning between June 2019 and June 2020 to EUR 1.9 billion, which is probably the highest value we ever saw here. That's a clear outcome of the COPE action plan, which did not only focus on cost savings, but also on a very tight CapEx spending and a very disciplined working capital while maintaining our stock levels.
We think that we did a quite good performance here in the first half year. Per balance, this led to reduction of our net debt by EUR 1.4 billion, and currently we are significantly ahead of our plan, whether it's the annual plan for 2020, but also our midterm plan, which we communicated in the capital market day 2017 for the years 2018 to 2020. If you go to slide 12, you can see the P&L down to the group share of profit. As you can see, we booked the impairment in the additional ordinary result, which brought it down to close to minus EUR 3.5 billion.
If we look to each singular position, we see quite a nice positive development. Financial result improved by EUR 19 million on the back of improved and lower spending for interest. We have to keep in mind that there we have a second effect, which is a negative accounting effect from the change in discount rates for long-term provisions. You know, on IFRS, we discount long-term provisions. For us, these are mainly asset retirement obligation for our quarries. That had a negative EUR 50 million book impact, out of which EUR 40 million fits in the financial result. Without the change in discounting rates, our financial results have improved by another EUR 40 million. The other EUR 10 million sits down in the net result from discontinued operations.
Income taxes are lower, of course, on lower result expectations. The net result from discontinued operations, which increased to minus EUR 20 million. Out of, except this accounting effect for long-term provisions, that would have been on the same level of previous years. Non-controlling interest improved by EUR 40 million. Per se, we achieved to our standards slightly lower results from current operations by an improved performance in the lower half of the P&L. That led to a group share of profit adjusted for AOR of EUR 356 million, which is an improvement of EUR 60 million compared to previous years. Let me talk a little bit on page 13 about the goodwill impairment and asset impairment which we faced.
Trick is normally, as you know, we reevaluate our assets on an annual basis. The COVID pandemic is a triggering event on the IFRS regulations, and the German Association of Auditors has declared this to be a triggering event that you have to review that. We did. 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 and 2022 will be below our initial expectations as the recovery from the COVID crisis will be relatively slow. This pushed our initial profitability expectation long-term beyond the planning period of five years, which is regulated under IFRS and IAS 35.
This led that in the specific planning period, which is five years, our profitability expectation dropped, and that led to a reduction of the net present value of our businesses. We had a second impact, which was the Brexit on the business expectations in U.K., which in our expectation also pushed down profitability expectation. The German Association of Auditors increased the market risk premium and also the risk-free rate. The risk-free debt spread went up, so that led to a situation where the discount factor increased and of course that reduces the net present value of our business. Importantly is to reiterate that our long-term business prospects continue to be good.
As you see from our short-term results, that the impairment does not affect the cash generation and the short-term operational development of our business. 50% of the asset revaluation comes from U.K. Yeah. U.K. is really a disappointment. We acquired most of the U.K. business from Hanson in 2007, so it's pretty old goodwill. The case is that the volumes in U.K. still today, pre-COVID, they are 30% below the volumes we saw in 2004, 2005 and 2006. The whole market in U.K. did not live up to our expectations here. We do not believe that this will come back in the foreseeable future, meaning our five-year planning horizon.
That caused the major part of our impairment to come from U.K. The other two major countries are France and Belgium, France and Belgium are badly hit by the COVID crisis and that led to the decrease here. I mean, that's it for the impairment, I think we have to focus now on the short term. For me, that's predominantly the cash flow generation. You see on slide 14 that our free cash flow generation was very strong. The chart on the left-hand side of page four depicts the development of the last 12 months, so including July 2019 through June 2020. We had a last 12 months EBITDA of EUR 3.5 billion.
You can see our interest payment, tax payment, et cetera. That leaves us then with free cash flow of EUR 1.9 billion, close to EUR 1.9 billion, which as I said earlier, is probably the highest amount which we saw until now. The cash conversion rate of 53% is a quite high value. Going into July now in the third quarter of 2020, this trend continued and even accelerated. We are very confident in this very moment that we will at least bring this trend over the finishing line by end of the year. As a consequence, our net debt development was outstanding.
Last year we had net debt, including IFRS 16 of EUR 10.4 billion at the end of June. This dropped to EUR 9 billion, mainly driven by the free cash flow, but also by lower dividends compared to last year. As you know, we paid EUR 300 million less dividends. This we have to keep in mind if we look to this outstanding development. It's not only the company as such with its financing power, but also the shareholders contributed here the EUR 300 million to this development. The EUR 8.9 billion as a business, close to EUR 9 billion debt also includes debt from leasing obligations according to IFRS 16 in the magnitude of EUR 1.25 billion.
If we look at last year, we saw that between end of June and end of the year, so the close of December, we saw the decrease in the debt of close to EUR 2 billion, difference that went down between June and the end of December by EUR 2 billion. Currently we are confident that we could achieve a figure which is not too far away from this last year's figures. From a financial side, we are relatively confident in that respect. Especially as our COPE program, we continue to push like hell to get the cash in. Okay, I mean, that's it from the finance side. I would give back to Dominik for asking for the continued message.
Thanks, Lorenz. Just to add on his point on the U.K., I think that's a balancing act. The impairment in the U.K. is a medium, long-term perspective also in the light of the history where the U.K. is coming from. History is history. You know, I remember well there are a couple of quarters where we underperformed in the U.K. If I go and you can rest assured that we watch the situation. I personally watch the situation very closely. If I take the latest indication, at least the transparency that I can see, I would say, it can always be better. The last quarter in the U.K., 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 true for the UK. I think it's, 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. As I said, it was a roller coaster quarter with with -80%, -90% down in April, then clear recovery, strong recovery all the way to June.
As I said earlier, June in many markets, clearly above prior year and also against operating plan on the volume side. Margins on the back of that significantly improved. We explained that COPE, we explained in detail, EUR 1.4 billion net cash reduction. I think it's important to note that for the way going forward, our portfolio is well balanced for a global pandemic. I think 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 modest superior. Yeah. The start into Q3 was also good with July volumes holding up well, also pricing holding up well.
In that respect, we are very well equipped with our flexibility to react, whatever is necessary, to tackle the future. In that respect, we are happy now to take your questions. Chris, over to you.
Yeah. Thanks, Dominik, Lorenz. Christina, you wanna explain the procedure for the Q&A, please?
Of course. Ladies and gentlemen, if you wish to ask a question, please press star one on your telephone keypad and wait for your name to be announced. Please stand by whilst you compile the Q&A queue. This will only take a few moments. If you wish to cancel your request, please press the hash key. Once again, that is star one if you wish to ask a question.
Great. We have many people on the line. The first one would come from Yassine Touahri from On Field Investment Research.
Yes, sir. Good afternoon, gentlemen. I would have a couple of questions on fixed costs. You managed to cut fixed costs by EUR 183 million in the first half. What would be the target for the second half? Then a second question maybe on the trend that you're seeing at the beginning of July and on your order book. Could you give a little bit more color about what you're seeing on the division market in July? You say that volume are holding up well. Does it mean that they're up? Do you have any indication in terms of order book in some of your business about where your activity could go in the next few months or quarters?
Yassine, thanks a lot for your for your two questions. Fixed costs, I think what we have, we have EUR 183 millionis 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, and we haven't shared that with you, but, you know, the, the, the fixed cost savings came in on plan that we did here together in March, April with our team, but the contribution margin was EUR 1 billion higher than the, than the original plan. Let's, let's also be realistic. That was a pretty good exercise.
It was also helped by the furlough fees that we get from some of the governments. You know, for us, it's important to reach to EUR 1 billion. Whether we can have the same split between fixed cost CapEx and other cash savings is very hard for us to say, because as I said, some of those cost reductions are not permanent. In that respect, we stay very focused to get close to EUR 1 billion. Whether the split will be exactly the same, 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?
In these days, things move fast. We are optimistic, on the basis of what we see, in July. We also are fair enough, guys, to say visibility until December is just not there. If somebody tells you that, then that's fine, send them to us. We don't have the visibility until December to give you a precise guidance. I think that's also fair to say. It's nothing to do be negative or positive. I'm just trying to be realistic. July was good in terms of volume. It was good in terms of pricing. It was good in terms of cost development.
The order books that we see in our markets obviously vary very much because order books in some countries say something, in others, they don't say anything. You know. Order books can change. You know, I have been through the recession in 2007 and 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 cancellations, which we don't see at this point. So that can vary pretty quickly. I'm trying to give you a realistic picture and all I can say we are fairly positive for Q3 on the basis of a good development in July.
As I said, we have everything on board to react as quickly as possible to whatever happens. I'm absolutely confident on the back of a strong performance in Q2 that we will tackle the future in a very strong fashion.
Thank you, Achten .
Thanks, Yassine. Next one comes from Paul Roger from Exane BNP Paribas. Can I remind everyone, I mean, you did well Yassine, but still please stick to two questions because we have a lot of people on the line.
Yeah. Hi. I'll stick to two. Good afternoon, Dominik. Hi, Dr. Näger.
Hi.
The first one is on North America. Dominik, you referenced perceived underperformance in that particular division. Can you talk a bit more about what's behind that? I mean, are you tight in terms of capacity? Are the plants out or something like that? Basically, how are you thinking about fixing it? The second one, which is probably more for Dr. Näger, cash conversion is obviously very strong. Is there further to go? How sustainable is CapEx at these levels?
Okay, Paul. Thanks a lot for your two questions. Very disciplined. Two only. That's good. Paul, thanks a lot. On North America, yeah, the picture is, you know, if you go through the details, I think first and foremost and very importantly, pricing is not the problem. Pricing actually is actually good from our perspective across all business lines. That's that is good. On the volume side, we look a little bit to our cement volumes that are down and that could be a footprint issue to a large extent. We had to close and have closed temporarily some of our capacities in the Northeast, also in California, also prolonged in Canada.
You can always you know, balance then our timing of that and what's the inventory impact. That's why I think we have to be careful not to overdo it on one quarter because this is a longer term gain throughout the year. You know, the seasonality issue and everything. Let's wait and see. We are not tight on the capacity, Paul, to be very clear. We have the inventories available to serve the market. The volume development in the U.S., especially in this in the cement division, was not where we hoped it to be. Partly footprint driven and partly, you know, timing on the asset ramp up and ramp down.
In aggregate and ready-mix, I don't see any issue on the volume development side. That was actually fine. Obviously, we have reacted very early and quick on sterling and on the cost side. But there are some, you know, operational topics that we've talked about in the past that we now need to get our arms around in terms of transferring material from A to B. Was it really necessary? There are a couple of points operationally that we will discuss with the team when it comes to fixing it. Maybe we'll take, also I can give you a starting mark on the upcoming capital market days around that. I'm in constant discussion with Chris Ward. Let's also be fair to him.
He is also fairly new in his job. He knows the business obviously very well. 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 details, but it's, as always, not one measure that will fix it. It will be a few flowers that will need to contribute, and it will be partly short term, it will be partly midterm. So there will be a combination of a couple of measures that we will pull in order to get it done. As I said, Paul, you know that I've been in the U.S. eight years myself.
I immediately through and after the last recession. As I said in earlier calls, we are very experienced. Chris Ward has been with us for a long time. He knows the business very well indeed. So do I. In that respect, I have no doubt that we will be addressing the key points. As I said, some short term, some midterm. I would hand over to Lorenz for the cash conversion question.
Yeah. Yeah. For us so far, we really had a good and very nice cash conversion. From, as I just said earlier, that the trend of good cash in continued and even accelerated towards the end of this month. Our cash conversion now in the beginning of Q3 was even stronger than before. Whether that will hold throughout the year over the finishing line, I wouldn't, it's hard to predict because it obviously depends on the operating business. The underlying trend in spending, let's say, beyond EBITDA, as involving capital CapEx, I come back on that, tax, interest, you know, wherever we spend the money, payout on provision, things like that. We are extremely disciplined, and we really see this cash out reducing.
I am pretty sure in this very moment, provided for any unexpected change which could happen any year, that we can bring this over the finishing line, and that we 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 these are the quarters where we do the annual shutdowns of the cement plants, and that's where the predominant and major part of the maintenance CapEx is spent, especially in Q4.
Until now, we did not have any business disruption due to under spending in maintenance CapEx, which clearly shows us that the level of CapEx we spend for maintenance and environmental and things like that are on the right level, yeah. We spend enough money on that. We now, if you also do a bit lower production, if you run less volume, there are a bit less spending needs, and we will see how things come along in Q4. I would say that they are moderately below previous year's figures. We should not exceed previous year figures. We should also not be, let's say, substantially below.
I think that the current trend to have the spending just below previous year's level, that is an assumption which probably will go on through the year. If you looked on our cash flow statement, leading cash flow statement, we spent so far EUR 560 million, previous year EUR 500 million in this tangible asset side. I think this trend, slightly below previous year should prevail for the second half of the year.
Yeah, Paul, I think it's always a balancing act these days. You know, it's clear that with the visibility in March, we had to put our foot on both brakes. 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. We go very diligently through our project list. If there is a need to support the business in 2021 and 2022, rest assured we will have the money available, and we will spend it.
I'd rather come in at EUR 995 million and not EUR 1 billion but to make sure that we support our business in 2021 and 2022. We go very diligently area by area, business line by business line through the topic. If there are good payback projects that are happening in bottleneck markets, in bottleneck assets, rest assured we will do them even under a tight CapEx scenario to clearly also support the business going forward.
Makes sense. Thank you very much.
Thanks, Paul.
Thanks, Paul. Next one is from Elodie Rall from JPMorgan.
Hi, thank you for taking my questions. I'll keep it to two. First of all, on net debt. You've explained to us the EUR 1.4 billion reduction. Do you have a view about where you want to land at the end of this year? Consensus is at EUR 7.6 billion. 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? Would you consider doing a bit more bolt-on acquisition at this stage? Thank you.
Lorenz, you want to start?
I would start with the net debt. That's what I said concerning the slide 14 right-hand side. Currently we stand at EUR 8.99 billion, at a EUR 9 billion, including EUR 1.25 billion leasing obligations. As I previously said, last year, from June to December, we deleveraged by EUR 2 billion. As I said earlier, I expect the cash flow to continue to be strong, at least on the levels of previous year, provided business continues to be, let's say, corona stable, if you want. In the range of whatever you can expect now from this time. If you assume that we are successfully heading over the finishing line, I think the EUR 7.6 billion would be a very conservative figure.
The consensus currently stands at EUR 7.2 billion. EUR 7.2 billion does not make me sleeping bad in the night. Clear ambition to go below that.
Now we have a bullish CFO.
Yeah, very-
One more point, which I forgot in the other question. I mean, we have kept our stock levels more or less on the same level, EUR 2.1 billion, more or less on the level of previous year. We have full continued production. We have not gone and shut down the kilns to reduce our stocks. I think that makes me confident that if we continue production levels in line with the consumption level and pace level, then we will not have a major impact on the working capital from that side. Yes, call it bullish, call it realistic, call it ambitious. I would say it's ambitious, [audio distortion], and that's what we have to achieve.
If you like, to all my cost savings, I am not so much. EBITDA is important, but there is a life beyond EBITDA, and cash is king. We look for tax, we look for CapEx, we look for working capital management. We have collected quite a bit of our overdue receivables. We have been very strong in this point. Yes, that's the ambition below this consensus stuff.
Okay, Elodie, I 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 element, you know? Yes, we had an idea in March. Now we reconvene a little bit, you know, because we have to see how we allocate our capital wisely, and we do this with a clear spirit to support also the business beyond 2020, yeah. There is a life after 2020, even if we get through this COVID. We know that we are in an industry that needs capital to support cash flow and also operational development. We do this with very stringent financial discipline.
Even in these days, we will support the business where necessary. If, as I said to Paul, if the business needs the CapEx, we will spend it respectfully, but diligently, controlling the cash flow in this scenario. That also includes if there are small bolt-on acquisitions that we can do in single markets, very small bolt-ons 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. It's all with the light to support the business beyond 2020.
Okay. Thanks.
Thanks, Elodie. The next question comes from [audio distortion] from Barclays.
Good afternoon. It's actually Nabil Ahmed from Barclays. My two questions. First one, I was wondering if you could help to us to quantify the energy cost tailwind in H1, what has been the energy cost per ton, and if you got a guidance for the full year of 2020, what do you see in terms of energy cost? The second question, I'm sorry if you already answered, but I was a bit confused. I mean, did you provide the numbers behind how much government temporary measures, furlough, accounted for in H1 earnings?
Okay, Nabil. Thanks for your questions. Maybe I take the government furlough one, then I would hand over to Lorenz Näger 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 taken some advantages of these government measures, notably in continental Europe, then also in the U.K.. In that respect, you know, you would say it is a EUR double-digit million figure in the fixed cost side.
Maybe, you know, this don't nail me on EUR 1 million or EUR 2 million, but in the magnitude of around EUR 25 million, I would say, euros, in continental Europe. I think that's a fair assumption. More EUR 5 million up, EUR 5 million down. Just to give you an indication. Näger, you wanna take the energy cost?
No, on the energy cost, Do we publish the energy cost as well?
No.
The energy cost, we had a very favorable development in the first half year. Energy cost price effect was close to 20%, so the pure price effect. On top of that, we had a volume impact due to lower production and lower sales, of course. The cost, the price inflation effect of this EUR 80 million comes almost entirely from the fuel side. Our power costs remained stable as fuel went up, and fuel inside at the coal side of power went down. That levels out on a on a stable level. For the second half year, the future is always difficult to predict.
We expect the first of 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, this forward contract. They should go into the P&L. We have 20% which is open, and currently the spot prices are below our plan. Therefore, we expect support for our operations from the energy and power side also in the second half. The magnitude of this effect is difficult to forecast, but I would guess, can I see the first slide? I would guess in the magnitude of, let's say about 50% of what the saving was in the first half.
That would be a little bit my expectation, but that is a very volatile, a very volatile story in this, in this very moment. Okay. Is that it? Okay. Sorry, that's not very precise, but.
I think it's an indication, Nabil. I think 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.
Roughly 50% of each one.
Yeah. That's on the bright side. The volume goes in parallel with the, with the volume now.
Yeah. Okay, thanks.
Okay.
Thanks. The next question comes from Tobias Woerner from MainFirst.
Yes. Hello. Good afternoon, gentlemen. Thanks for taking the questions. Number one , 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 what you expect of the second half? With regard to the working capital movement, you know, in a volume down market, one 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?
Tobias Woerner, thank you for your question. I will take the first one, and then I'll ask Lorenz Näger to take the cash flow one. As you know, you know, pricing is very different across markets. And I'll just give you know, overall, if I take the total picture, we are quite happy with the with the pricing development, and that's true for all three key business lines, cement, aggregates, and also ready-mix. Overall pricing, just to give you a flavor. Pricing in the U.S. and Canada, I already indicated was good from our perspective. There was a recent price increase, I think done in June in most of the markets, that went okay.
Overall, from my perspective, pricing in U.S. and Canada, okay. Same is true for Western and Southern Europe. Across all markets, we were able to pull price increases. In that respect, that was done. I'm always talking June over June last year, right? Just to give you. For the first half, last year versus first half this year, so you know where we are. Eastern Europe, also most markets.
With good development. The Northern European market a little bit flat, or even slightly down, that's more a mixed effect. That's not a massive point from our perspective. If you go to APAC, Australia was okay. India, Indonesia was okay. Bangladesh slightly down. Thailand slightly down. That's a mixed effect in Thailand because there is a lot of import-export going on. We have to be careful not to over make too much out of that point. China, more or less slightly down. Again, that's also a mix for us between the two joint ventures in the north and in the south.
If you take AEM, a very strong development in most parts of Sub-Sahara, so for especially Ghana, Tanzania. Then difficult development in Egypt, continues to be difficult. That the result is under control, but the pricing was difficult again. 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 a little bit the picture, Woerner.
Yeah. If I'm working capital, that's the highest difficulty. I know. All the statements I will make now are in the light of a moderate ease of the overall corona situation, which is a heroic statement, if I look to the U.S., to India, and to Indonesia, for example, because that's a heroic assumption. If I take this, then I would say on the inventory side, we are very well on the way. We are stable on that, and we will not need to build too much inventory for end of the year to come to the shutdown period, the winter shutdown period of our kilns. Yeah, last year we had roughly EUR 2.2 billion stock during the year, EUR 2.1.
We are pretty well on that level, which would allow us to keep the stock level or just moderately increase it to cover the kiln winter shutdown period in early next year. The big challenge for us, if I may tell you, was so that our accounts payable were higher than our accounts receivable before the corona crisis, which would imply that if our volume goes down, our working capital would shoot up. That was the situation we had to turn around, and that's what we successfully did. If you look to the balance sheet, you can see that despite a turnover reduction of 9%, we reduced our trade receivables by 13%.
Whereas we succeeded to keep our accounts payable on constant, more or less constant level. It decreased only by 10%. It's a 3% spread here, yeah. That's the challenge which we have to carry through the second half. We have to have a very much tightened our accounts receivable management, and we have really worked on the supplier side to keep our days DPO, like the purchasing days outstanding. We have done successfully. Currently, I do not have any indication that that would change any way half towards end of the year. We are pretty confident that we can keep our working capital level on the same level which we finished the year, previous year. That's the challenge. That's what we work on.
In the past, we are pretty successful in that respect. I would think that we are able to bring that over the finishing line, also, this year. That's part of this assumption for the net debt position at the end of the year.
Thank you, Woerner. Thank you very much.
Okay.
Thank you. Paying us very well. Thank you.
Thank you. Thank you. Next question comes from Arnaud Lehmann from Bank of America Merrill Lynch.
Thank you very much. Good afternoon, gentlemen. My first question is just coming back on the EUR 3.4 billion write down of impairment of goodwill. Is that a preliminary step before doing incremental, let's say, restructuring, including plant closures or headcount reduction? If you think the medium-term outlook for some markets is weaker than expected, is that something that we should now expect maybe for the U.K. or other parts of the world? That's my first question. My second question is around CO₂. You've made a few announcements in the last months. You've been talking about CO₂ separation, CO₂ capture. I apologize, I'm not really an expert of these topics. Would you mind just clarifying what these are about and if it could be meaningful over time? Thank you.
Okay, Arnaud. Thanks a lot for your two questions. Maybe let me jump first on the impairment, and Lorenz Näger can maybe add to that. I very clearly answer from our perspective, nothing to do with any restructuring coming up or not. This is, as Lorenz was explaining, triggering the CO2, and he can maybe just reiterate and add to this. No, you should not take this as an indication of any restructuring or something that we have planned in that respect. As we promised to the capital markets, we will give our update in September. On the 30, you should not expect the moon to come down then, yeah. I think the industry takes the news, please. You know, no answer to your question. The impairment has nothing to do with any restructuring plans. Lorenz, you wanna.
Nothing to add from my side. That's correct. It's a accounting exercise, on based on the triggering event.
And then, Arnaud, the question on CO2, I think that can be our lengthy statement, because this is a difficult topic and a complex topic, to be fair. Maybe just two highlights, and then we should also, we will also cover some of that in the capital market day. You know, we have the carbon capturing on the one end, and then it's always the question, is it a U or an S? You have to either the utilization, where we have a pilot project here in one of our German plants, or you have the storage question where we have, for example, the Northern Lights project in Northern Europe, in our British plant.
We have quite a few other topics where we are experimenting on the question of carbon capturing. The purpose of the whole exercise, just to cut it short, is obviously to capture the CO2 that is created in the clinker production process and then utilize it for storage. Storage is in some countries okay. In others, they don't like it. No problem in Holland, in the North Sea. No problem in Norway. In other parts of the world, people see that differently. We are deliberately flexible on what is the right carbon capture technology. We are basically working on four or five different technologies across the world. The same is true then for either utilization or storage, huh? That's just the overall picture on that one, Arno.
Thank you very much.
Thanks, Mano. The next question comes from Sven Edelfelt from ODDO.
Yes. Thank you for taking my question. You said, Dominik von Achten, that having a balanced portfolio is a edge, and there have been some question about your portfolio. Does that mean that you are happy with your footprint today, and that you won't go for massive disposal such one of your bigger competitor? That's the first question. On the second one, I think you closed recently the acquisition of CIMSUD and Atlantic Cement in Morocco. Can you tell us how and if it should change the dynamic there?
Thanks, Sven. On your 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 talk about today, you can see from our perspective the benefits of this portfolio. As you saw, you know, Northern and Eastern Europe, strong. Northern South Africa, strong. You know, markets that are typically not where there's a little light on this, but they prove that they are fairly resilient in some of these in difficult times. Yes, we are reviewing our portfolio, going towards the capital market, and I will postpone that part of the answer to the capital market.
As I said, guys, let's not expect the moon comes down, and we sell two-thirds of our company. That's we are still here to run the business. We will look very closely at the portfolio, and then I will share with you our ideas for the short and midterm in September. I think that's fair to say. On CIMAT, that's a consolidation move in the south of Morocco, or formally it's not even Morocco. I think there's a, there was a, that was a clear consolidation move in the local market in South- In the southern part of Morocco and through the border down there. We basically took our one competitor and consolidated with our grinding mill down there. Personally, I think that's a good move in order to improve our market position and the resilience of our market position in Morocco.
Thank you.
Thank you, Sven. The next one comes from Gregor Kuglitsch from UBS.
Hi there. Hi. Good afternoon. Thanks for taking my question. Can I come back to the sustainability point and perhaps kind of probe you a bit on the products that you're developing, if you are developing any low carbon? I know some of your competitors have been quite kind of vocal around, you know, low carbon concrete, recycled aggregate, this, that, and the other. 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 you can?
The second question is maybe want to just say specifically on the Northern European performance in the quarter where I think you had a maybe 400 or over 400 basis point margin expansion, which is obviously extremely strong, I believe on basically flat revenues. 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 improvement was pretty impressive. The question, I guess, is how sustainable do you think this is? Thank you.
Gregor, thanks a lot for your two and a half questions. That's fine.
Excuse me.
Yeah, yeah. That's okay. That's okay. On the sustainability, you know, you said I, you know, is this a priority to develop these things going forward? I would say first this has been, yes, if you, if you, if you raise this whole topic for us with, top priority, I think absolutely. We need to start to develop it. No, we are in fact doing this, quite diligently already for a couple of, months, years, in many of our markets. We have not yet, that's absolutely fair, that we're making a global marketing push, out of this.
In our local markets, we do a very diligent effort, and I would say we don't have to hide compared to other offerings in terms of our CO₂ footprint for specific topics. That's true for cement, it's also true for concrete. For us, it's a local market by market issue. Again, later we will come back to this topic on the capital markets in more depth. Clearly it's a priority for us. There's no question. I think we have not only the green color in our logo as a company, we carry it also in our heart, and I can tell you it's clearly in my heart. Don't worry, this will get a significant push going forward.
Are you specifically talking about Northern Europe? Are you talking about NEECA? You're talking about NEECA as a, as a region?
No, the region. I can't see the details. I'm looking at the region.
No, no, that's fine. That's fine. Yeah.
Yeah.
No, no, no, that's fine. As I said, you know, the development in each of these markets was, in most of these markets was very strong, and that's on the back of good volume development, so positive volume development, strong pricing, and very strict cost development. You know that our new board member, Ernest Jelito, who came in basically end of last year, he knows the market very well. He is a Polish citizen. He has very successfully managed the Polish market for quite a few years. On the back of that, he has also worked on this development in other parts of Eastern Europe.
As I said, it's really a combination of good volume, good pricing, and strong cost management that leads to this superior margin development story.
Thank you very much.
On WE just from the, you know, it's a similar story. Yeah. The volume was down in many markets, other than in Eastern Europe. On the volume side, clearly different. Pricing side, strong, huh? In all of the markets in positive territory. Very strict and very early cost management, and that led then to that margin increase in most of the markets. Yeah.
Thanks for the sample. Thank you.
Okay. We're slowly but surely wrapping up. The second last question comes from Stephan Bonhage from Bankhaus Metzler.
Yes. Good afternoon from Frankfurt, thanks for taking my questions. Two questions. First one is regarding your Asia business. You mentioned that you had a good June, you were not clear if this was an effect of the shifted Ramadan. My question would be, has this positive momentum continued over the past weeks? My second question is regarding economic stimulus packages around the world. I mean, you are active in very many markets, generally in which country or region do you see the most potential to benefit from such economic stimulus packages over the next months or years?
Thanks a lot for your question. I think on the APAC side, it's really market by market. I think that's not an APAC answer. You know, we see quite a rebound in some markets that is even better than in June. There are markets, as I said, you know, Thailand for us is a good market in that respect, and others as well. There are markets where you may have a shift between May, June and July, where you have to really take the whole Ramadan theme. Last year there was a shift between the two months. Now you have a shift between working days there, May to June.
For us, it really in most of the Asian countries, you have to really look for two or three months together before you over estimate one month's performance. When it comes to, you know, those markets, specifically Bangladesh, also Indonesia, where Ramadan obviously plays a significant role, you then have to look a little bit where we are, but we are clearly away from the low peak in from the low development in April, May. We are also in July clearly above that development in April, May. On the stimulus infrastructure projects, I would say there are globally two big discussions. One is obviously in Europe.
You will have seen the recovery plan that the EU has green-lighted, where I personally think we should profit from because, you know, we have a strong presence in Italy, we have a strong presence in France. Both countries you could see infrastructure coming. U.K. is separate now from the EU, so there is a discussion with Boris Johnson and his team. To be fair, HS2, for example, the large infrastructure project rail connection between London and Birmingham, those of you present in the U.K. know that. That is after many years of discussion now, actually accelerated and it's full steam. There are a couple of more projects to come I think in the U.K. The U.S. goes up and down and up and down.
You see now today they have really bad figures in the GDP development in the last quarter. Trump was saying, "No, I wanna spend EUR 2 trillion." The Democrats say, "No, but we don't want to." It goes back and forth. Clearly if there is an infrastructure project program coming in the U.S., 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, gas tax. That's a complex issue. Clearly if the economy in the U.S. 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.
Traditionally we have profited from these programs.
Okay, thanks.
Thanks, Stefan. The last one comes from Volker Stoll from LBBW.
I have a question on the cost flexibility, especially the energy costs. Were the coverage ratios when heading into Q2 on a normal level of, for example, 80% or were they above normal levels or below normal levels?
Okay. I would hand that question over to Lorenz Näger because he answered also the first one on this.
Hi, Mr. Stoll. Our policy is that we have brackets for each quarter, how much our operations can buy. The brackets are relatively wide, there is a big discretion for the countries to buy within the such bracket. The volumes went down, that leads naturally to increase in the coverage if you calculate related to the new volumes or the lower volumes after Corona. The coverage, as I earlier said, is relatively high, 80%. That's a bit higher than we experienced in the past, that doesn't come that we have bought more.
It comes from the fact that the volumes, the underlying volumes are expected to go down a little bit, which is not a surprise, taking the Corona into account. That's a little bit the point. Now we have then put a ban on it in March when we didn't, when we felt very uncomfortable on how volumes could develop. Yeah. As you know, they have recovered in May and June, not to the full extent, but to a certain extent. Now we have opened up for the countries and they can decide to purchase on the latest production level estimation.
We think we will come back on this level on our old policy, which is on average cum grano salis over all business lines and all types of energy, roughly six months ahead. Our actual cost in energy follow the spot prices in with a delay of roughly six months.
Okay. Thank you very much.
No.
You're welcome. Okay. With that, I think, Chris, we are fine. I think that was the end of the Q&A. 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 16th. With that, and obviously this will be done fully virtual, no physical meetings possible and we'll see how we get that 1 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 such by the second half of August. We hopefully, you know, have a good vacation if you haven't had it.
Have a nice time. You will be in Ramadan.
You will be in Ramadan. Okay. Thanks a lot for calling in. Bye-bye.
This does conclude our conference for today. Thank you for participating. You may all disconnect.