Ladies and gentlemen, thank you for standing by, and welcome to First Quarter 2020 Results Call. At this time, all participants are in listen only mode. After the speaker presentation, there will be a question and answer session. I would now like to end the conference over your speaker today.
Thank you, operator. Good morning, good afternoon to everybody who's on the call. We welcome you to the Q1 2020 trading statement an earnings call, for Hydro XMN. As always, in the room, Dominic Vanaston, our CEO, Lawrence Meager, our CFO, and the IR team with Ozan Chopra and, new to the team Samuel, and myself. We do have to set up presentation, that you all received in the morning or at least could look up on the web.
And we go through the presentation thereafter we go, to Q And A and we have to go time for Q And A. I hand over to you.
Hello from my side. First of all, I hope you are all well in these interesting times. You're healthy and well. And that's the most important thing. So Lawrence Nager, myself, would like to welcome you to our Q1 call and would love to take you through our, core messages first before we then open up for Q And A.
First of all, if you go through the key messages on the first slide, a clear point from our side very strong operational performance in Q1, in many dimensions, and we were going against a fairly good Q1 already last year. So, from our perspective, the year for us has started very well indeed. Second point also to be realistic, I'm I'm optimistic, from a personality, but I'm a realistic optimist. So in that respect, the outlook for 2020 remains uncertain. I've already said that in the call mid March, and we do expect negative on our expected operating results for this year.
We have to be clear on that. Because of that, we have reacted very early on, basically middle of February to start our COVID action plan, we call it co basically for COVID contingency plan execution. So very important for us is also the execution, not only the plan, but more importantly, the execution where we basically target to save 1,000,000,000 of cash for the year of 2020. So this year, 1,000,000,000 of cash savings. I'll come to some of the details in a minute.
We have continued to work on our liquidity situation as we have disclosed in our last call mid March. And things have further improved since then, no one's negative will go through that, but the overall liquidity position is now a 5,700,000,000 in March. I think we were at 5,400,000,000. So we've continued to work even through ROCE days on this situation because perhaps, as you all know, our solid investment grade rating is absolute key On the back of that, the board, the management board yesterday afternoon and the supervisory board last night, have decided independently to propose to our general assembly, in June 4th to adjust the original dividend proposal to per share. And that is done, from the clear position of strength, as we will explain you in the next couple of minutes.
But it is also based on the, on the outlook uncertainty, we do not exactly know, what is coming. And obviously, that would preserve liquidity of another EUR 300,000,000 that would go on top of the EUR 1,000,000,000 that I was explaining earlier. So in that respect, that would be a further strengthening of our liquidity position. Last but not least, personally, as I said, we are very optimistic. As a company, we are optimistic, we will weather this storm very well.
I said that already in March. And in fact, we will use this crisis as an opportunity because we strongly believe that the mid and long term prospects for our industry are absolutely intact. In fact, they are very well intact because what we all expect is that at some point, there will be significant government stimulus coming you already heard last night, 1,000,000,000 in, in Europe that will come as a stimulus for major European countries where we have a significant footprint. There will be something coming in the U. S, let's wait and see how that works with all the, preparations for the elections in November, but we are confident that there will be something coming and in some other countries, there are similar discussions.
So clear message from our perspective, we are very confident on the mid long term prospects for our industry, but especially also for hydrovary cement. With that, I will turn to page for and lead you through some of the details.
I know that some
of you had questions around the turnover development like for like minus 8 percent doesn't look that good. Why does he tell me now that, operational performance was strong? Well, the key point is that the decline in revenue is on the back of the restructuring that we disclosed already earlier of H. C. Trading in our large trading business, where we have basically deliberately closed a couple of contracts that we didn't want to continue.
And that has basically hit the turnover in this quarter by 1,000,000 roughly 1,000,000 alone. So in that respect, if you take that out, it's about a 2% like for like, decline. On the operating EBITDA and operating EBIT performance, I think, we are satisfied both in a in a quarter that, as of middle of March was in some of our core markets already very difficult. In light of that, we are very satisfied with our performance on the operating EBITDA and on the EBIT level. I will go through some of the details, in a minute, but you can also see here on Slide 4 that, that also has led to a margin increase quarter over quarter to prior year from 9.2% to 10.3%.
On the operating EBITDA. If you then go to page 5, you'll see our usual bridge you first point is that no big distortions are coming from currencies or the scope topic. So we will center on the middle of the slide. Where we basically see that we have again delivered on our core target to, outperform any cost and volume development with our pricing development. And also to be very clear, the turnover hits that I was talking about earlier did not have a material impact on this, slide here.
It's very minimal and we'll come to that later on. If you wish to have the details, but TMS is here, pricing was very good, especially in North America and especially in Europe, but also in other parts of the world on the back of our strategy that we have already disclosed, last year that we set price over volumes and we continue to push price over volume and we have also decided to, go for price increases in January rather than in the past in March or April. And that obviously, the city situation was a very positive development. Basically, we had all our price increases done in the major markets by January and now are working, of those price increases. If you then go to Page 6, you see the split of the business line.
So basically cement, like for like, minus 2%, aggregate a little bit weaker and ready mix, again, a little bit weaker why that. First of all, on the percentage side, first of all, Q1 for us is a low volume quarter. So in that respect, any move in absolute numbers has a significant impact on percentages. And the reason that aggregates and ready mix declined a little bit more then cement is basically on the back of a difficult situation with a close down in Europe, where obviously we have a significant agriath and ready mix footprint, also some lockdown in Morocco that's a smaller impact. But also some weather impacts and partly market impacts in Indonesia, but also in Australia.
That's basically the reason for the development on the volume side. Then when you go to the areas on the right side, you see very strong performance in the U. S. I'll come to that in a minute on a profit. Level, but clearly strong pricing, good demand growth in most regions.
Actually, all of our regions in the U. S, including Canada, contributed to the positive development. So I know last year, we discussed a little bit about the Q1 performance 2019 in the U. S. And overall in 2019.
So at least the first quarter has picked up in that respect. And we are back on track, our U. S. Performance in Q1. Also Europe, a strong despite the strict lockdown in Italy, Spain, France, after Belgium and also the UK, So in that respect, also driven by strong pricing, across all business lines, while the biggest in Northern Europe was surprisingly resilient despite already lockdowns in Norway, and the towards the end of last year, we had a little bit of question whether Northern Europe would come off its good peaks No, at this point, it's holding up well.
The same is true for Eastern Europe. Again, Poland, very strong stable strong demand coming off out of Eastern Europe. Asia, the next phase is,
did not meet our expectations.
There were significant weather effects, both in Indonesia with flooding and also the bush fire topic in Australia, but there's also a little bit market pressure in Brisbane, Sydney, where the market has peaked and where there is some market pressure, volume pressure that we are mitigating. Africa, again, another good performance overall stable demand despite an aggressive lockdown by the government in Morocco. Also, our problem child Egypt stabilizing on a lower level, no further deterioration. If you go to Page 7, You see the results performance on EBITDA level. You see what I said.
The results in North America almost doubled on a, on a absolute, fairly low level. And the contribution is that, that earlier, it comes from all regions, in the U. S. So it's not likely overshotting 1, and then it's coming from nowhere else. It's really across the board including Canada positive performance from the U.
S. And Canada. Western Europe, you see the same development, very good, clearly above prior year, but very mixed contributions from different markets. Difficult market development, especially because of the lockdown coming from Benelux and France, but very strong development coming from Germany. Again, very strong performance and also the UK was pretty good on its way as well as Italy.
Northern and Eastern Europe, the basically strong are Poland and Romania also seen Norway strong despite the lockdown in Norway. So overall satisfying performance coming from our Nika area, Asia Pacific, as I said earlier, Australia down that's certainly, something we can also talk about data. Of course, obviously, the market is coming down that we had to the weather issues, then also, Indonesia, India, China, coming down, we would say may be COVID related. Channel, you know, that they locked out the country earlier on. We were either not based in Guam, but obviously that had an impact on the total Chinese market, but very encouraging signs to see in China.
Things are moving back up into the right direction. So overall, we hope the best is still to come in China and the worst is passed up. Then go to Africa. As I said, a good performance in Sabahara, mainly Ghana, also Tanzania or a strong country. Going very well.
Mahocco with a clear hit from the lockdown and then Egypt is stabilizing on a low level. If you then turn to Page paid to give you a little bit of a feel how are things going since mid of March? We have developed what we call this COVID clock, where we basically, on a daily basis, follow now our markets across the world's according to their volume developments and we thought it would be a good idea for you to understand where are we, in terms of basically know a little impact with our key markets. Where is the demand declining somewhat? Where did we have complete lockdowns by the government?
So basically, where we were pushed to take our production down and where are we already, in a recovery, coming from, for worst situation. So you see basically in some core countries, that are very important for us. No or very little impact like Germany, Australia, Poland, Tanzania, also Sweden, Denmark based in Northern Europe for us. So there are some key markets in there that are very important for us. Some decline in U.
S. And Canada comes to volumes also Indonesia, then also in Morocco, as I said earlier, so some significant countries with demand decline, complete knockdowns may vary, mainly coming from Italy, India, Malaysia, and also Bangladesh, that since that complete lockdown have all tried to climb back up, but on a fairly low level, And then those who have recovered already better is what I said earlier, China probably the best recovery so far and then also Belgium Spain, UK, France, coming back from its lows. Because of the uncertainty that it's very hard to read in terms of visibility down the line for 2020. We have decided already in February on our coke action plan, and we wanted to also disclose that, to you. So basically, the idea is to save EUR 1,000,000,000 cash in 2020.
That's against our operating plan, and it basically is comprised of 3 core elements. That is one, the cost side, although this is a cash saving program, but it's very clear that we put a very close focus on cost. Minimizing all non essential expenses, by getting contributions from the personnel cost side, you know, that is typically fixed But as the supervisory board and the management board has decided to reduce temporarily their fixed salaries. Also, we had broad support from our, global management teams in most of the countries and also life quarter functions in Hardiver. So that is really a very strong sign to the rest of that organization that we are all sitting in the same boat.
And we are going to weather the situation in a very strong fashion. We do have some countries where we have what we call short time pay, that's basically Europe. And then we also have some countries where we have already significant furloughing that's mainly, North America and the UK. On the CapEx side, as we disclosed earlier, strict reduction, of CapEx wherever possible without destroying the midterm positive dynamics for us as a company. We just give you one example.
For example, you know, that we are rebuilding our plant in which in Gena, which has a CapEx of well north of USD 500,000,000. There would have been a significant cash out this year. We have reduced this cash out by SEK 75,000,000 but only slightly postponed the startup of the operations, And in that respect, we think that's an important contribution also on the CapEx side. When you come to tax and working capital, I leave it to, Lou Genssegha to explain a little bit what we do on the taxing working capital side. Is there any way he explains then also the next chart on the liquidity and dividends, and then we'll see you back for the questions.
Ladies and gentlemen, also from my side, I would like to take you through the right hand side of Slide 9. And then through the Slide 10 and 11. When it comes to SUFC from our program, we are working on all in all terms, especially with the orientation to cash. So our main target is protecting the cash position and the financial metrics of the company. On the working capital types, the as an active management of all such items, such as accounts receivable, yes, where we have implemented even more strict credit control.
And as before, we try to collect the receivables as consistent GST launch. We try to further improve our payment terms to our suppliers. And, of course, we try to manage our stock and current situation. The things that our stock levels will increase a little bit. And therefore, we also think especially for a couple of months, we also expect our working capital increase a little bit and I give you take action to keep that in the limits.
Many tax authorities have announced to support companies, not only in Germany, but also in the U. S. And in France and in many other countries, and this allows us to a large extent to suspend tech repayments for the current year, as we expect reduced net profit or taxable profits in many countries. And this directly goes into retail payments. Some countries, especially U.
S, also allow to use loss carryback. So that means that the expected losses in 2020 can be offset against the profit and taxes paid in and for 2019. And this helps us significantly. So we think we will have cash tax savings in a couple of 100,000,000 magnitude in 2020 compared to our expectations. When it comes to financing and liquidity, you can see the actual situation on Slide 10, we have, liquidity in the magnitude of EUR 5,700,000,000, which consists of EUR 2,400,000,000 cash in hand and EUR 3,300,000,000 free credit lines, which consists of our syndicated loan was roughly 1,000,000,000 and newly decreased, bilateral traced lines in the magnitude of EUR 425,000,000.
High device cement has a very very flat maturity profile. We have maturities of 1.2 up to 1.4 1,000,000,000 per year. The upcoming maturities are 2.1 or 300,000,000 in October. It's not 750,000,000 in the first quarter in 2021. And this maturities and our financial needs are easily covered by our available liquidity.
The company has very much reinforced its access to financial sources. Maybe you have noted that we have issued a CHF 650,000,000 Europe on late March, which was then issued on 2nd April with a 4.5 years maturity, a 2.5% coupon As I earlier said, we have, concluded by natural credit lines with our core banks of 425 1,000,000 and we have a lease to gain access to the pet program of the European Central Bank, where you can, give commercial paper, you can issue commercial paper, which is then bought by the European Central Bank. The total program has of EUR 750,000,000,000. So on the liquidity side, the fees quite comfortable in this very moment. On Slide 11, you then can see the reasoning for our decision on the proposal of the dividend to the shareholders meeting.
The board and the, supervisory board have proposed an amount of $0.60 per share for the financial year of 2020. We have considered the scope and hand of the corona crisis and the very high levels of uncertainty. And therefore, we have made a judgment on our side to balance our announcement on the dividend on the one hand side and our commitment to solid investment fundraising, credit rating on the upper hand side. And there we have made a decision to reduce the dividend and to to spend our progressive dividend policy for the time being with the target to maintain our investment a great financial profile. This excellent offer of EUR 317,000,000 compared to our initial planning and the announcement to our cash saving program under the condition of course that is that the Shell's meeting will approve this proposed.
In substance, we do reaffirm our fundamental position that we will return back to the previous dividend policy to the Progressive's dividend policy after overcoming the corona crisis. As you may remember, that was the commitment to FX stabilizing dividend with a payout ratio of around 40% of our adjusted net profit. Then, we have decided that the SNR's last time in addition to postpone our shareholders. And meeting in the meanwhile, German legislation has access and has allowed for the tool shareholder meetings, which we appreciate very much. And we will make use of that opportunity and flexibility and we'll do our annual general meeting via live stream on 4th June at 10,000,000 from our new headquarters, voting will be electronically or by postal vote, and we will have electronic proxy authorities for that.
Questions can be submitted until 2nd June 20 24 pm, and they will
be answered comprehensively
in the meeting. The formal objection against such resolutions possible, all with an online tool, which we are going to install hunters and talk to the meeting. So we will we are quite happy that this tool exists as opposed pone the shareholders meetings to an indefinite day. So we do that at the earliest stage can do that. And, we will do that as good as we can.
And, I mean, some term corporates have done really really good meetings in that way as we will try to do that as good as we can. That's it from my side. And I really some companies on the outlook.
Okay. Then just from my side to quickly wrap it up again, I think we are going into this crisis on the back of a very strong Q1 performance. And we are absolutely with us for this storm. I've already mentioned last time, we are a very experienced management team, both Louis and Aga and myself have been around the block already in 2000 and 8, 2009. So in that light, also the fact that the outlook is uncertain doesn't scare us a bit, in essence, it has gotten us going proactively and decisively.
So that's where the EUR 1,000,000,000 cash savings is coming from. That's where the improve financial position is coming from that low on mega share. That's also where the dividend discussion is coming from. And as I said earlier, we are very positive on the midterm outlook, although 2020 may be a little bit rocky and a clear, conviction on our side here is that as a company, hydrothercement will use this crisis as an opportunity. Okay?
That's it from my side. And then we'll hand it back to Chris and thank all of you for questions.
Thank you, Dominic. Thank you, Lawrence. So we embark on the Q And A section of the operator. You want to explain the procedure on that?
Yes, Ladies and gentlemen, we now begin the question and answer session. A way for your name to be answered. Your first question came from the line of Paul Roger from
before we do that, what, if you allow, you have the first in line that's, that's true, but let's take another one then after you, and we will collect the questions. Maybe just two questions at a time, per person, because there are so many people on the line to make it more efficient now.
Yes. Okay. Thank you, Christy. Good afternoon, everyone. Congratulations and I hope you're all keeping well.
So just two questions then. Maybe the first one to kick off on the 27th April. I mean, obviously, you've given a bit of color with the COVID clock Is it possible to put a few numbers behind that just to give us a sense of how quickly it severely things deteriorate in the key markets? I think the second one is on the variable cost outlook. I think you experienced something like a 300,000,000 reduction in raw materials in Q1, Obviously, since then oil's come down further, so if you would stick at current spot rates for oil and other raw materials, how would be could that benefit to come later on it, Leah?
Okay. Let's take, the next one, from JPMorgan?
If I have 2, then Please, could you provide a split for the €1,000,000,000 of of savings between the CapEx, working capital, tax and fixed costs. So that would be my first question. And second question, if I can ask on capital allocation, on the one hand, are you still looking to do some some bolt on acquisitions, or is it something that you would consider, I guess, not because you want to protect the balance sheet that some of your peers are looking to buy maybe if, opportunities are there. So just wanted to touch, see what you think of that And, what do you think as well in terms of disposals given you have completed 1,200,000,000 I think you have posted last year out of your plan of 1,500,000,000. So this is still on track.
Thank you.
Okay. Thanks to both of you, Paul Nelly, for your questions. I would suggest that Paul, I will take your first questions or a question on the April development and then Louren Snegga will take the one on the, on the variable costs development. And, Eli, I'm, I will take this, the first question on the split of the 1,000,000,000 And then Laurence will talk about the capital allocation on bolt on and disposals. So if that's okay for you, Paul, just to give you a little bit of color on April, the big lockdowns all came already mid March.
And, I think there are countries that you all know that went into a very aggressive lockdown like countries, in India, and also Italy. And obviously, in those countries, you go all the way down to basically 0 or very very small amounts of sales for that period of very strict lockdown. But what you also see when those countries come back, you climb up fairly quickly, not obviously to old levels, but you leave the 100% line quite quickly, that is also true for those countries. Then you have other countries that are where the government has actually executed quite strict lockdowns and the public perceives it as that way. But the business is actually running still in a quite sound way.
That is actually true for parts of Europe, especially Holland, is actually running completely. There is hardly any loss of business Holland versus the expectations when you're in the UK, you have a little bit of a bigger loss, but, and then it goes all the way to France and Spain. And to Italy in terms of magnitude of losses. And then, if you go to North America, it's It's a very mixed picture. You have parts of North America that are absolutely on operating plan level or even better.
And there are others that are quite below on the volume side. But as we said earlier, volume is one thing. We're obviously working intensively on our programs to mitigate it on the, on the real life impact. And last but not least, there are other countries like Germany that are I'm not saying booming, but that are going very well indeed. So in that respect, it's a very mixed picture.
That's why we try to give you the COVID drop to explain to you a little bit. It's now a very colorful portfolio in that respect. Noren, do you want to
take this? Okay. Let's go for your question, Paul, on the raw materials. First of all, I have to clarify that, as a stumbling cascade blame that our trading business was very much down. This has 2 reasons.
First of all, they have restructured the business last year as we have announced. And as a consequence of that, we have not done anymore, so party energy trading that has brought down the turnover significantly. Second point was that in the month of March, many countries and harbors locked down, so that even our normal business went down as well. So in total, we had more than 1,000,000 less turnover in the trading business and, hence, also, the purchased materials, which goes into that, into that business also went down. So that's why our cost for material went down significantly because we did not buy the trading products like coal, pet coke, also clinker cement, and this went on.
That's the overwhelming effect in that if you take that effect out, then the material development of our cost for materials is almost in line with the decline of our volumes in the second half of March. So there is no visible or significant March effect in. Now if you look to the future so that the, as all of you have seen, that the oil prices, but also other energy prices went down, the different energies, which we have had different forward buying characteristics. So this, what is dominant used in Jackerica's business for the for operating queries, that's predominantly on spot. So here, we will see an immediate reduction on cars in the months of April and in the second quarter.
Whereas, if you look to coal, PVC and power, which is roughly 80%, I would say 80% or also gas, 80% of our energy bill there we have our normal purchasing forward purchasing power project sorry, forward purchasing policies So this, which is more or less roughly 6 months ahead. So here, the reduced cost will roll into our energy bill just, there's a certain time lag in line with our energy processing policy. So that's what we can back from that side.
Okay. Then earlier, I would take your first question and maybe also an indication of the bolt on acquisitions before law enforcement talks about the disposal side, when it comes to the split of the EUR 1,000,000,000, let me say the least that more than 50% of that $1,000,000,000 will be cost savings. Although this is, predominantly a cash exercise, because of the crisis situation, we are focused to, in Germany, we would say kill 2 flies at the same time. So it's very we are very focused also to make this a cost saving exercise for 2020. With immediate effect.
And that means more than 50% of that EUR 1,000,000,000 will be cost savings. We will also track this, obviously, and we are prepared to also, as we go along with you on these calls during the year disclose of see how we are performing against that 1,000,000,000. Maybe just one quick remark before I hand it back to, Lewins on the capital allocation on the bolt on acquisitions. So we try to hold the line even in a crisis situation. So I said earlier in the year, that we are not going to make, acquisition, it's a minty like or anything, you know, about 1,000,000,000, that's still out of scope, that's clearly not what we will do just to be also very clear on that.
And it's also clear that, you know, during Q2, as there is very, very low visibility. We will be very restrictive on any cash out and that also includes any rapid acquisitions But as the year goes along, it is that absolutely clear in the forklift a little bit, we will be prepared to also sneak around for good opportunities. Having said that, we will also, during our strategy, review that we are currently doing, clearly commits to a strict matrix of under what circumstances and what financial matrices we are doing these acquisition even the smaller ones, the bolt on tuck in acquisitions going forward. And in that respect, stay tuned, but clear messages, we're not going to give up our business building. So just because the crisis came along, one reason of getting prepared also on the financial side is to be sure that there is a time after corona, and we will clearly, keep that also in mind.
Maybe you want to say something to the targets.
So the acquisition cash is king, it protects your money that's, what we have learned in 2009 and that's what we had implemented even before the German politicians noted that there is a crisis coming along and we have to have to lock down the country. So we were very early on that and we do it very consistently. So we are very careful in spending any cash flow acquisitions, right? Now only if you posal type, unfortunately, on the cargo parts in the same, that's the problem with our proposal. And so, most of the projects, which we there on the in the pipeline after all, as I have reported earlier, quite some of those assets are actually Italy down.
So these deals are blocked in the very moment. That's why on Slide 8, we have, unpulled 0.3 on the right hand side. Let's post proceeds. So that's one of the negative impacts, which we expect, and which we try to counterbalance with our aforementioned sales. So what comes back during the year is difficult to forecast.
But, as things stand today, we would we would rather believe that it will not reach our, the target of totally CHF 1500,000,000 over the last 3 years, including 2020 due to Corona, but I think that we will catch up then as soon as possible.
2, more in line with the Navil Afnett from Barclays and then Arnaud Lehman from Bank of America Merrill Lynch. Over to you, Nabil?
Yes, good afternoon. Thanks for taking my questions. My first question is on the United state public side of things. So this year, we have the fast expiry. We had in the past talks around the highway bill.
Now we share a lot about local state funding shortfall to declining gas tax. How does the management provided their things about all these do you think there are higher chances given the situation to see any fraud package later this year, or that conversely political priorities are shifting towards health care. And therefore, there is maybe a struggle environment for me for spending. My second question is maybe just a point of clarification on what you said earlier regarding working capital. I think at some point in the presentation, you mentioned that the severe drop in volumes related to the COVID-nineteen disruption is linked to a temporary increase of working capital that's a bit of counterintuitive.
So could you please elaborate on that? Is that related to inventory buildup or maybe an increase in receivables?
Okay. I'll know you want to just add on
to that.
The next question, operator, you want to put Arnaud Lehman through?
Can you hear me? [SPEAKER
UNIDENTIFIED COMPANY
REPRESENTATIVE:] Excellent. Thank you for taking my questions. Maybe two and a half from my side, if that's okay. Firstly, could you be a bit more specific about the CapEx reduction that you are planning? Or is it, is it for you to hyper port maintenance amounts of some of the growth CapEx.
Secondly, as you started thinking about any medium term implication from this crisis. Either when things go back progressively to normal, maybe slower pace of construction because of social distancing. On the other hand, maybe any acceleration of automation of building sites that actually could improve productivity. Did you give any thoughts about this? And lastly, are you still planning a strategic update phase of this year?
Yes. Navin and all, thank you very much for your questions. Very good ones. Again, I would suggest that I take your first one, Nabil, on the U. S.
Infrastructure and then Laurence would take the working capital question and Anwar will try to answer your questions then. So, Navil, from a U. S. Infrastructure perspective, we give you our best view right now. But you know, things are fluid.
Personally, I believe there will be something coming. The question is when and in both magnitude, you know that there is elections coming up in November. You know, one theory says, the Democrats will not allow Donald Trump to do a big infrastructure there, but there's also another theory that they probably need to do something because otherwise, Trump will blame them for blocking everything. So that's a little bit, our perspective would be more in the latter camp. So potentially there will be something coming that may take a little while, but there will be something coming and the magnitude is difficult to say.
But typically these bills need to be somewhat meaningful in order to have an impact because, otherwise, you might as well leave it. So we are more in the second campaign if there's something coming, it should be a meaningful impact. And then there's a second point that I remember very well from my North American times when we were hit in the last crisis You know, the government's topics is one thing, but the municipal and the state programs is another thing. And what I found very encouraging that I understand that as a municipality in the U. S, you can now actually issue bonds if you want, and they are actually fed backed.
So that means that, that the municipalities and partially also the state are able to finance their own programs as they go, to this crisis, with the backing of the set. And then you asked on top of that, the DOT discussions on state level, but you know that probably better than hydro. So in that respect, these are the thoughts on the U. S. Infrastructure.
Lawrence, do you want to take the working capital question?
On working capital, so on Slide 8, we expect temporary increase in working capital and then on the on the Slide 9, we say we try to get it down. How does that fit together? It's relatively easy. What we face currently is that our base volume slowdown, yes, especially as you know, in the second half of March, 8% also May to a certain extent, we on our side, we have filled up our stocks to and continue to produce as much as we can in the existing plant, even if the front end markets were down so that our stock levels will be increased. The second effect which will kick in now in the second quarter is that As I say, we will have weeks we had weeks.
So in the second half of March, we had weeks sales in April. And so we will have a low cash collections in June July 2nd half of May. So this will then, but nevertheless, we have to pay the bills of our supplier So this will lead to, as I said, on Slide 8, a temporary increase of our working capital. And then in the second half of the year, we have to manage that down. We have to make sure that our customers really pay.
That's why we have implemented even stricter credit controls. We collect the receivables, as much as we can, and we try to manage our accounts payable on the upper hand side and go out of the year with a recent resulting capital level as we kicked in the past years. So that's about our working capital management
Okay. I know I'm going to take your questions knowing that you are a very strategy focused colleague. We like that. So let me just try to answer your core questions. Just the most important one for you upfront, yes, we are sticking to our September review of the strategy that might slightly look different after the crisis, but we stick to the date and give you obviously an update.
As we go along in the already communicated September days. On the CapEx reduction, the timing of this program, we said we started basically in February and towards the mid February date, we had completed most of our winter repairs already. You know that in the cement industry, most of the maintenance CapEx is actually coming from the winter side. And we want to keep our assets fit. That's very clear.
There will be a time after the crisis. So in that respect, we don't want to save on maintenance. We want to make sure that, you know, the things are in good shape and are fit for purpose as we come out of this crisis. So there, we deliberately did not destroy anything on our asset base. When it comes to the growth, obviously, we are pushing out some of the growth CapEx.
That's clear, but some of the very strategic growth CapEx that we need to do also to stay ahead midterm. We will still be able to do towards a later stage in the year and make sure that we don't miss the frame on some of the very core pieces we've postponed it for now, but are able to bring it back up as the situation clarifies towards the second half of the year. And there is a third element that you have not mentioned in your question to be also fair. We obviously have some let's say, carryover from last year or some of the bigger projects that's still in there. One is the elementary project that you all know about.
Where we acquired a cement plant in the Northeast, of the U. S. That has not closed yet, but that's a substantial amount that also sits still in that in that CapEx number. That's also one of the reasons why our in our billion program, the majority of that is basically cost not CapEx. Then last point, your medium term question, we will try to address that in our strategy review are low in September to get our arms around what is the impact of automation and I agree with you.
And I can read a little bit between the lines even over the phone. Absolutely. That's also our experience now during the COVID crisis. There will be a different perspective on some of these things also in our industry, when it comes to automation, digitalization, and also the business cases of these topics may change a little bit the same as to for CO2 and other topics. So in that respect, stay tuned, but I would agree with you.
Certainly, the crisis may have accelerated or slowed down certain of these, these topics.
Thanks, Brandon.
Thank you, both. Thank you. Next two questions come from Yassine Jewelry from On Field. And then this one from Gregor Kuklitsch from UBS.
So yes, sir, good afternoon. So two questions for me. First, could you explain the dynamics of the EBITDA increase in Western And South Europe, despite the volume declines. How much cost did you cost? Is it mostly savings?
Is it mostly because you are price increase in energy depletion? Or is it because you benefited from the help from the government when your employees are to leave the plants would be very helpful to understand quite impressive. And the second question would be on the overall pricing outlook for 2020. Have you seen some price increases that have been canceled or are you confident, especially in a lucky market like U. S, UK, France, Australia?
That would be helpful.
Okay. Thanks Yatin. Thank you.
Can you hear me?
Yes. I was here.
Okay. Good. Thank you. I guess to kind of two and a half follow ups, if I may, on some of the questions. Are you, I mean, it's the 7th May.
Are you prepared to give us kind of directionally in what kind of ban the volume decline was in April? I mean, are we talking kind of 20, 30% or is it is that aftermarket? First question, second question. Now I think in the last call, if I remember correctly, you were kind of talking about a drop through that you're able to broadly mitigate half of the normal drop through obviously, you've announced lots
of cost
savings today. Can you give us an update, how you think about the the operational leverage, in this current year. So if we lose a bit in the sales, how much would you expect that to translate into lost earnings or EBITDA? And then finally, I I I know you gave lots of detail on the CapEx, but are you just prepared to give us how much you actually is? Is it what what are you actually talking about in terms of absolute number, including the element today?
Are we talking about Vidyard or just just to give
us some some numbers to work with? Thank you.
Okay. Thanks a lot guys. Yasina will then ask that with your question on the EBITDA development WSD is actually on the back of a superior price performance. Volume was suppressed, as of mid March, but until then, it was actually actually good. Costs are actually also favorable.
But overall, a very strong pricing performance. So we continued with our strategy that I disclosed earlier on this year and also at the back end of last year. And so overall development on WSE was very much on the back strong pricing. That also leads to your second question. How are the price developments going?
I said already earlier that globally, we are targeting in most markets to go for price increases as of January and not in March, April, that has also been our strategy this year. And that means that in most markets, we have a exited our planned price increases, and they also materialized in most of our markets. Currently, pricing, the allotment that we see is obviously, as you indicated, market by market issue, But in general, we see our core markets being, quite price resilient. And, we will do, from our side that remains our strategy to, to also continue, that focus on pricing. There is uncertainty in the markets that's clear, but in our core markets, like in the U.
S, like in WSE, even in, in the core part of Australia, we do not see any significant price duration at this point. So in that respect, we are optimistic, on the pricing developments as we go through this prices, that's our current perspective. Graor, on your questions, on the, May 7th. And then what's the volume development? I'm not, as you know, we don't we don't disclose any specific numbers, but it is clear.
I think your indications are probably not way off, but we do not disclose any specifics around volumes. It will on the numbers from a number perspective. What I can tell you is your second question on the 50% rule. Yes, we are very focused on this 50% rule. You remember that very well, and we have also remembered that very well.
And I can tell you, we have countries, large countries that actually beat that. Rural. In fact, they have been able to beat that role. We to also to our surprise, to be honest. So that, that is actually an interesting internal competition.
Obviously, there are countries that stay below that, but in general, on average, we are we are very focused on that rule and are not far off in that respect, And then on CapEx, I think most of that has been a certain, as we said, it's part of the 1,000,000,000, and we will track the 1,000,000,000 we go along and disclose that. You know that our original plan for 2020 was one point 7,000,000,000 and that we are obviously taking down as we have discussed.
Thank you. The next two questions,
and I think we have 2 more rounds now. So the 2nd last round will come from Robert Gardiner from Davy and then Kristin Court from HSBC. Robert.
Hi. Hi, afternoon. So, yeah, 2 quick ones for me. 1 on Asia Pacific, just in green, when you had a positive performance in Sales West Europe, it's quite negative in Asia Pacific, specifically the negative leveraging there. So is that solely what's behind terms of margin, is it one particular country doing all the damage there or why that kind of negative leverage is so damaging in the first quarter?
And then 2, just to go back on some of the countries where we've had very strict lockdowns, the likes of the UK, Italy, France, Spain, I'm just wondering what they look like in recent weeks as you talked about them reopening. Have they gone from, I don't know, 20% of normal to 40%, 50%. Just moving on those particular wins that were locked down. Thank you.
If you could maybe shed some light in your discussions about the dividend. I mean, I think you you're committed to paying the dividend. Did you also take it through consideration to potentially cut this entirely and maybe give us an idea of how you claim or what you claim to to this amount now. And secondly, let me get the confirmation of the explanations we did on the web capital development. So it is fair to assume that the higher amount of stock is also going to optimize production costs so that you don't have to restart and then stop production again so that you can reduced for some time then stock up and then potentially stop production.
Thank you very much.
So, Robert, I would take your questions and then Lawrence takes your questions, Christian, I think that's a good split up. But on APAC, if I knew, unfortunately, not easy to hear, but I understood that you wanted to understand a bit more what's going on in APAC. And as we said earlier, the major decline is basically coming from Australia. On the back of a slow start in Australia into the year. You know, that's the upside down seasonality to Europe based typically had a very low season at the beginning of the year.
And as I said in my right around the globe on the pricing side, price is resilient, in some areas of, of, APAC and in others, you have been affected. You typically see on pricing as well, especially in aggregates where you have the mix effect where then the volumes go up significantly because you have large projects of lower value materials. So the it's hard to read the average pricing in some of the, in some of the elements, especially in aggregate. But overall, pricing was resilient across Australia and the volumes were somewhat down, and that was driving then also the EBITDA declined that I disclosed earlier in China, clearly driven by volumes. Pricing is resilient.
Clear volume drop, that you've also seen in some of the publicly listed companies in China, you know that the volumes were were down in the magnitude of 30%, 40% in China in the first quarter. India, as I said earlier, pricing resilience, but volumes are down somewhat, but not in a massive magnitude. And then the same is true for Indonesia and Thailand in a smaller scale. I think it's very important to understand that is while the warnings down are in Indonesia and India, our margins are actually resilient. So in that respect, it also indicates that there is not an effect on the pricing side to be seen.
When it comes to the rebound in Europe, it is a very market by market driven answer. As I said, the, unfortunately, the drop to 100% is very quickly because if the government say this is it, then they ask you, you have 2 days to close down the plant. We make sure that we do it in a professional manner and then basically it goes down to 0. But, in all the markets that you have mentioned, you then also climb up a fairly quickly. But as I said, not necessarily to 50% or even better than the old level, and it takes a little bit more time.
But it really is a day by day exercise. I give you the example in Spain, for example, you know, why do you come from a locksmith and they say, it's opening up and it jumps immediately up 30%, 40% from the bottom and that can change day over day. So a very dynamic situation. That's why Lawrence and I sit here and watch the developments market by market daily. We have a very transparent cockpit here where we can see our business on a daily basis.
And we then take the appropriate decisions together with our country managers, and our area board members and follow this situation on a in a very dynamic pattern because it actually changes so quickly day over day. Hope that answers your question, Robert, and then we'll move to, the low ones on the other.
Yeah. Okay. Thank you very much for the question. So the first question went on the dividends. As you can imagine, it was a lengthy discussion.
Before we tend to that conclusion, we have to keep quite some, arguments in mind if you take a decision on the dividend. First of all, it's, our announcement from the Capital Market Day, 2015, that is that we commit to to a progressive dividend, but also we commit to a solid investment grade rating. So we had these two points when we announced that policy, we were asked from quite a number of investors and analysts. What would we do in a case when the when we faced a crisis like 2009, which of course was not visible in 2015, but then we clearly said such a case for you to spend the progressive dividend policy. The second one, we did pause that we had quite a comprehensive sounding during our road show in March.
And during that, the road show turned out that there is a significant number of big shareholders who would accept a full, slashing the dividend that we go down to the minimum dividend or even go down to 0. But we also learned that there is an important part of our investor base where the dividend is, it's an important part of their investment rationale. So as usual, we try to keep our boat in the middle of the channel or someone on the channel and don't touch the call off. And taking all that into account financial metrics, announcement, progressive dividend, investment solid solid investment grade rating, the board and also our Supervisory Board became to the conclusion that the is the right figure. It's a clear signal for financial stability and stabilization of the financial metrics.
As we said, the management part, our top management, our big part of our employees, contributed part to shareholders now contribute an important part of GBP 3 17,000,000. And, therefore, we think that's the right figure. It's a clear signal to support our financial strength and it is a clear signal anyway that we want to continue with our dividend policy, and we do not forget those shareholders who have invested in our share with you on the announced dividend policy. So we think it's the right it's the right balance. Working capital, but in capital is so, in some of our countries, we had to shut down of the markets on the front end, but we're still very able to operate our plants.
And in those plants, of course, we produce as much as we could, in order to have full stocks. And then at the later stage, for example, in France, in Italy, also our production sites were closed down. And we are very happy now to have good stocks as markets come back. So that's on the one hand side. On the other side, it's the upper way around.
Where we have now produced to full stop. And, the market now open up, but our plants still close. So there we still have product to deliver. The main rationale in that respect is that we want to keep our ability to supply. That's the most expensive if you run out of stock.
So that's the 1st rationale. And then there's and rational is to keep production costs low and stop the kilns as rarely as possible. And out of that, we expect, as I said, at the end of the second quarter, we will see elevated level of working capital coming from higher stocks, but lower proceeds from the month of April and May, but still these have to pay our accounts payable. So what we will probably see is higher, higher level of docking capital by end of Q2. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:]
All right.
And let's finish off with a round of 3 We have Tobias Werner from MainFirst, then Cedar Eglom from Morgan Stanley. And last not least Pablo in Kumtor from Pregate Capital, to be honest.
Hi, yes, hello. Thanks for taking my questions. 2, 2, is on a number 1, up to 1,000,000,000. If you were to assume going into next year, theoretically, that we were rebounding the full 100%. So just theoretically, how much of the 1,000,000,000 would you have to get back in terms of cost and cash savings?
That's number 1, number 2. You've obviously done very well since the global financial crisis to improve your balance sheet and also your liquidity. Having said that in relative terms, compared to some others, it's a little bit behind. The question here really is, Mr. Vanasen Dominik, if you look to your strategic review, would you take this crisis as a catalyst for change?
And as far as you say, there are some companies in the sector which have actually a single A rating not necessarily in the cement sector, but in the building materials sector, that you would want to pursue such a strategy that you're always well positioned in any kind of downturn, I. E, that your net debt EBITDA moves close to one rather than 2.
Okay. Thanks, Tobias.
You guys reported 0 like for like, volume growth in the aggregates business in North America in Q1. And most of your peers have reported double digit aggregate volume growth. Can you give us a little bit of color on what's going on in in North America, specifically in the aggregates business. And then could similar to your supervisor's question. I'd like try and understand of the $500,000,000 cost cutting program, which is about 3% of last year's OpEx before D and A, which is a very sizable number.
How much of that is actually permanent savings, that you retain should we get a demand recovery versus simply temporary maintenance reductions, raw material cost reductions that actually reverse in full. If demand comes back. Thank
you.
A pretty good quarter vis a vis your EBITDA performance given the context. Most of my questions have been answered, but just at a high level, it seems like an EBITDA went up year over year while your like for like sales were down 8% in your OpEx seems to be relatively unchanged. So that's just some of surprising. I know that you're, goods purchase for lease sale went down massively, but it almost implies that you had a, kind of, negative margin in your trading business. Okay, just speak a little bit about, is that sort of a lag effect?
You know, what kind of drove, your, increase the EBITDA given the decline in sales and why why did your, good purchase lease that went down so significantly and what's the, matching percentage decline of sales of that business?
Okay. Sorry, I did not see if you were broke off here. What was the can you repeat your line? Your second question, Pablo?
Yeah. I mean, just at
a high level, trying to understand what really drives, in the context of flattish OpEx, what drives an improvement in EBA margin if sales are going down by 8%. Seems like it's largely driven by, the significantly higher reduction in good purchase for resale and other raw materials. And what I understand is that sort of a permanent decline, or is that sort of a time lag effect? And what was the decline in sales of the trading business? And is that a positive or a negative EBITDA margin, today?
Thank you.
Yes. I mean, I would say that we'll ask those 2 questions. So I'll leave to Lohrandslager. And then to be as consider, I would address your questions. If I understood them right, there is an overlap on one of the questions around the resilience and question around permanent saving of this 1,000,000,000, euro.
So in that respect, from our side, the clear message one step after the other, you know, for us, at this point, cash is king, and we are trying to push down the cost for 2020, yes? That's our core task for the time being. And that's why we deliberately said, we're going to target this 1,000,000,000 and get it in 2020. And that also leads then into a second question, but that's, again, to be done in a second question, how much of these costs are just going to be pushed out, how much of the CapEx is just going to be pushed out, and, how much is it going to be a traction effect in terms of reduced cost base or reduced CapEx base. And we deliberately do it in those two steps because as we said earlier, the visibility is low.
No one of us knows whether the business comes back in June or July to 100% globally or whether it's going to stay depressed for a while. So we need to, and want to have that flexibility that why we have reduced our spend and on the cost side and on the CapEx side drastically, but we then bring back these costs and or CapEx as the situation moves along. That's basically the very simple answer to that. On to be as your second question on the catalyst for change. Bear with us, we are getting our arms arms around the strategic review at this point and we'll answer that question then in the Capital Market Day.
In September. And then, Peter, you had a question around, aggregates. Our aggregates performance in North America was, positive in terms of volumes, but very mixed in terms of local and regional setup. You have parts that are very strong, so for example, the rest region was very strong Also, the Midwest, the Northeast was very strong while the south, for example, was, more depressed. Canada was also okay.
So just to give you a picture, this is not one figure for all of North America. So it's a very mixed portfolio of local areas. And you see very mixed volume performance in North America. But overall, slightly positive development on volumes in Aggregates in North America. And once you want to answer the question of Fabrin, Yes.
I think the mechanics, which you see here that turnover was down by 8% high provider at the RCLBD and the RTO show an increase comes from the impact of the trading business. The trading business has turnover roughly 200 or 200 more than 1,000,000. And this trading business included a lot of energy are fuel trading as coke, etcetera, etcetera, partly third party, which we decided to stop last year. Because it has a ham risk, but doesn't really contribute to the margin. So stopped this.
So there's the turnover moving down by more than $200,000,000 due to that. And this is associated with, as a March of very low single digit €1,000,000 or 1,000,000. So that's why you see a substantial decrease in the turnover, but this has no impact on the no visible impact on the EBITDA. If you take that out from the If you take that out from the turnover, the turnover decrease from second half of March without this trailing season is no more than 2% on the whole quarter. So and if you take that out and run the figures, you see that we still have a moderate increase in margin, but that's a quite limited plan.
Yes, let me just come back to the question on the Aggregates on North America just to be very specific here because you also have the numbers. So I think in that respect, our aggregates performance is from on the volume side. It's not overly satisfactory for us, although the overall result in North America is good. From a volume perspective, on aggregates, we are slightly down. I think it's a couple of, it's a couple of 100,000 tons.
So no massive, basically flat to very slightly down. You've seen the numbers but the pricing is very strong. So again, it's a balance. It's a balancing act. So in that respect, it's you know, while the volume may be a little bit depressed, the, the pricing is very strong, I would be very concerns if I have a bad volume performance and then also my prices are sluggish, then I have a clear concern.
But while in Cement, we very much watch our, watch our market share development in aggregate this market discussion is a little bit difficult, because, it's a local by local, a market decision. In the end, you can only sell your stone once So to set it for unsuperior pricings from our perspective does not make sense. So in that respect, again, what I explained earlier, clear price over volume strategy, and that's also true for our colleagues in North America. And that's what you see here also a little bit in our numbers in North America Aggregates. Hopefully, hopefully, is that a little more precise than my earlier earlier one, Ciela, sorry.
Okay. That concludes our call. Any last words for Tony?
Chris, I think, thanks very much for all your questions. That was very interesting discussion like always. Happy to continue the discussions of our IR team around Ozan and Chris and the others is happy to follow-up if there is any follow-up need from your side, from Lawrence and myself. So thank you for joining. And then again, keep safe and healthy.
Thanks a lot. Yeah, we meet you over
the next couple of days weeks, at least virtually, and then we see each other latest on July 30th for our Q2 call. And then don't forget, Capital Markets Day in September, we scheduled it for September 16. Thank you, and goodbye.