Ladies and gentlemen, thank you for standing by and welcome to the Full Year 2019 Results Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. Also, I must advise that the call is being recorded today, Thursday, 19th March 2020. And without any further delay, I would now like to hand over the call to your first speak with today, Chris Buehleberg.
Thank you. Please go ahead.
Thank you, operator. Good afternoon, ladies and gentlemen. My name is Chris Bohmberg. I'm heading the IR and communications function at Heidelberg Cement. Thank you for joining our full year 2019 earnings call.
Especially at these challenging times. And with me today, as always, Doctor. Dominik Van Afton, our CEO and Joyce Miga, our CFO. As well as Ozan from the IR team. As always, we have made available the presentation for this call on the IR section of our website.
And without reading it aloud, I would like to draw your attention to the disclaimer language on the last page of the presentation. That very short introduction, I hand over to you, Dominic.
Okay, Chris. Thanks so much. So also, hello, from my side, welcome to our full year result call 2019. And Chris was mentioning it, I would say, interesting times. They are challenging as well, but they are interesting.
So, welcome, to everybody on the line from my side, and, we'll do it in a way that I just briefly do the overview then I hand it over to Lawrence Nager, our CFO, as we are mainly talking about the reach it's below the line because the ones above, we basically shared already with you in the trading statement, in February. So I will go through the overview and then loan NEGA will take over, for the rest of the results of 2019. And then I will lead you through the current business update and also our sustainability efforts. In that respect, I'll turn to the first key message page And I think it's fair to say that the performance was very solid in 2019. Good improvements around most of the key financial matrices.
We'll go through details, in a minute. We also had a very good business start in 2020 despite a strong comparison, of the Q1 2019. So the 1st 2 months of the year actually were very strong. Obviously, in these times, everybody asks about liquidity, Lawrence Nega will share with you the details on that. But from our perspective, we have a significant liquidity headroom from today's perspective.
It is absolutely clear that, as a company, we are absolutely determined to take all necessary measures to mitigate the impact of the Corina COVID-nineteen or coronavirus situation. I just want to make one general remark for Fluent and myself, have already been at the table, in 2000 and 8, 2009. I myself was managing the rather volatile business in North America those days. So rest assured that we know what we need to do, both in terms of content and in terms of speed So I have no doubt that we will weather this in a very strong fashion. On the back of a local decision here in Barton Hoodenbeck, we are headed back is based.
We had to postpone our general assembly because the, country of Barton Wittenberg has decided to, not allow any assemblies, regardless how big they are, until June 15th. And that's why we had to our general assembly beyond June 15th and we'll come back to you with a new day launch. We'll share with you some of the details and backgrounds around that. And last but not least, although the service may have may have been pushed back a little bit, given the current, crisis situation. We want to also share with you our progress on CO2 because we are absolutely convinced this is a short term a clear dip, but the midterm and long term sustainability targets will come back eventually.
That's why we want to stay focused on what we have achieved there and will continue to push. With that, I would ask you to turn to page 4. And I just go through, some of the, key items. So revenues up 2.1% like for like, EBITDA operating wise, also up 2.5%. EPS, before, adjustments up 23% to 6040.
The cost saving continues even before COVID-nineteen, 135 was the achievement on the SG and A savings that we have already communicated, I think, in the trading statement. And as you all know, from that call, we have another minimum 15,000,000 to go, but that's before COVID. So I'm absolutely convinced that we need to further tighten the belt once this is over. But for the time being, we continue to work on the already agreed savings. We have also optimized the portfolio.
As you well know, the disposal amounts to 6 1,000,000 without any major EBITDA impact. The debt in these days, quite important, came down on a net debt basis by 1,000,000,000 to a net debt EBITDA ratio of two point three times. Last but not least, we had a return both the board and the supervisor growth this week decided to raise the dividend to two point to euros per share. That would be in 5% increase in a payout ratio of 40%. Obviously, the payout only happens, once the general assembly has been, has been taken.
With that, I would hand over to Louren Sneggar to share with you the details of the financial results.
Okay. Thank you, Dominic, for this introduction. So I would very briefly lead you through the, financial, and, to start the phase 5. That's our return on invested capital. Our main measure to measure the efficiency of the use of capital in the company on a like for like basis.
Pre IFRS, we have reached 7.1 percent, and against the weighted average cost of capital of 6.6. So again, we have, on our cost of capital. After, ifrs 6 see this reduces by 0.2 percentage points down to 6.9. You can see that we have been very disciplined on the capital. We come from 25,500,000,000 capital.
It went up, pre IFRS 16 to 26.2. And, IFRS 16, that's another 1,300,000,000 in financial debt to the capital. The return on invested capital continues to benefit from a low level of tax cash payments you know that we use cash tax payments to reflect the, the tax factoring in that And, that's a little bit away from the stand up, which has established been established in the meanwhile. We use the same definition since 2005. And now we consider to, redo the, the calculation mechanism and the definition, for 2020 that shuts for your information.
And we will, inform you about the impact and in the, when we publish our new strategy in, in autumn. On slide 6, you see the development of the dividend the situation is so that we had to declare a dividend, for, to finish the year and closing under German law. Now, we have, we cannot hold the AGM, the shareholders meeting due to the legal restrictions in Germany, around the coronavirus as the authorities have closed down any event on 15th June. As a consequence of that, the payout of this dividend is not possible now. So we will need to find a new meeting date for the shareholders meeting, and we will publish this as soon as we know how things are going on Under German law, we have 8 months of time.
And, so we need to have it done by end of August. And we will see how we can do that. And we will inform you as soon as possible, if we know when the shareholders meeting will take place. On Slide 7, you can find the number of financial key information. The turnover is up 4% like for like 2% that has been broadly communicated in the in the trading statement earlier this year, RCOBD, up 16% reported, 5% and 2% like for like RCO up 9% like for like 5%.
If it comes to what we call below the line, meaning below the operating income, we have, we had a net, expense of 143,000,000 noncash effect from the deconsolidation of the Ukraine business, which is included in the, additional ordinary results. This is a pure non cash accounting effect And it's required by IFRS standards, to clean up the exchange rate differences in the equity. Pure accounting effect. Our adjusted earnings per share increased by 23 percent dividend per share, I just explained, to euro, we had a year with excellent cash flow. I will come to that later on.
Operating cash flow as reported up by 700,000,000. This 700,000,000 do include 285,000,000 from IFRS 6 team. So on a like for like basis, up 411,000,000, this is we see this as a achievement, the company has a very strong liability, to create cash. And this is also due to the fact that we have a very disciplined investment, 1,300,000,000 compared to 1,700,000,000 previous year. Finally, on a like for like phase, BrayerIFRS.
This led to reduction of net debt of 1,200,000,000 products down to, 107 point $1,000,000,000 pretty close to our midterm target of $7,000,000,000 pre IFRS. On the slide 8, you can you then can see, the income statement, just again, your attention to the additional ordinary result 1 minute minus 100 and 78. And this includes the 143 from the deconsolidation of the UK in it, business. Financial result, I may, explain a bit because it's counterintuitive. It goes up to 375 against previous year 353.
We had 49,000,000 peak increase in interest expense, but this was offset by negative accounting effects from IFRS 16, which which came with an expense of 45. And the change in the discount rate for the measurement of provisions, which came to 28,000,000, both Q2 accounting effect. So, that explains why the financial result went up a little. Bit income taxes, 3.58 against 4.64. We have higher current tax expense, which is an underlying trend.
Our tax expense and also tax payments, increased, but that was in the current year, fully compensated by lower deferred tax expense, which was 264,000,000, less expense than previous year. Previously, you may remember that we had to, to make an allowance to our carried forward losses in U. S. Due to the reduction of the, tax rate in U. S.
After the trump tax reform. But also from, allowance, which we had on the deferred tax asset because it was unclear what part of our interest carry forward. We can use in future. So that had, now reversed effect a little bit and, we came down with, tax rate, as you can see it here. Slide 9, again, the cash conversion rate, we are now pre IFRS cash conversion rate is 45%.
This are pre IFRS 16 figures on the left hand side, EBITDA $3,000,000 to $50,000,000, and then tax interest payment working capital sustaining CapEx brings us to a free cash flow after sustaining CapEx of 1468 cash conversion rate 45%. If you calculate the same after IFRS, the cash conversion rate is 49%. On the right hand side, you then can see that the debt development $8,300,000,000 at the end of 2018 and then strong free cash flow generation, very disciplined net growth CapEx where the disposals exceed the net growth, the gross growth CapEx by 125,000,000 dividend payout and currency comes to EUR 7,100,000,000 and IFRS 16 brings it up by another EUR 1,300,000,000 So that's a very good start now for 2020. By the end of the year 2019, we couldn't foresee the coronavirus, but the very stable, cash generation and the low net debt helps us now. Going forward.
So that will, by that, I give back to Dominic, to lead you through the current business.
Okay. Thanks, Lawrence. We'll move then to page, 11. And, you see on page 11 that we have started very strongly into, 2020. 1st 2 months, volumes were clearly up in, in cement, also aggregates and, basically flat in ready mix.
But overall, a very strong start, especially if you keep in mind that we're going against a good, good comparative, last year. We thought it would be interesting you to understand the latest, the very latest developments. So we basically pulled everything together last night to try and give you a a brief glimpse where we are in the different areas. So U. S, 1st 2 months, volumes up, clearly up in all regions including Canada.
You know that Canada was a little bit of a problem in terms of volume development last year, but Canada for the 1st 2 months, potentially also helped a little bit by weather was good, in the 1st 2 months. Now those of you who are listening in from the U. S, know that also the U. S. Right now is slowing down a little bit.
Some of the bigger cities have already, stopped or put on hold the public works. So Boston, I think, San Francisco, so Pennsylvania, Pendot is going down with their public works. And we assume that some of some more of that will come in other states and cities of the U S during this week and next week. In Europe, the picture looks a little bit different and also varying over for the different, for the different countries. In fact, UK and being a little bit slow for the 1st 2 months in terms of volume development.
While Germany continues to be very strong even into this week. And Italy was good until 2 weeks ago. And then since the COVID-nineteen development accelerated in Italy volumes were also coming down this week a further reduction in Italy, Eastern Europe, actually, very strong. I just talked to my colleague in the board about Eastern Europe last night. Poland is still very strong in development.
But let's wait and see how that moved down the line for the remainder of March. You know that most of the countries have now closed their borders and we'll have to see how that what that impacts the local construction development. In Asia, again, a mixed picture, Thailand and India volumes were actually pretty good for the 1st 2 months, China, as you all well know, also Australia and Indonesia somewhat lower than prior year and our expectations in the operating plan. Africa, a mixed picture again, a slowdown in Israel and also partially in Egypt, not so much because of corona, but more because the hurricanes were here first time, for a long time. So Egypt and Israel were a little bit slow.
Marco and and Sabahara are still going, okay. So in that respect, the global picture is very mixed at this point. But clearly, as you see in the U. S. And also partially Europe, the COVID developments are still unfold.
So that's the current situation for you to understand If you go to the next page, we just wanted to, explain to you how we have, how we are seeing the world from a plant production perspective and also what we have done in terms of reaction to this situation. First of all, from a plant perspective, up until yesterday, our plants in Lombardy were down not so much because of volume decline, but because the local governments of Lombardia has basically ordered us to take down the plants for safety reasons. And that's why we took out took down our 3 cement plants a coordinated fashion to avoid any damages for the midterm. So in that respect that has taken place, the rest of the country is actually running for now as planned. In France, we see now the first developments that the government is trying to put the country on hold to some extent.
Let's wait and see how that plays out. I had a call with Kevin Gluskey, our colleague in APAC, Malaysia has obviously also now, ordered that all plants must, must stop. So there is a mixed picture here and there. But for now, most of our markets are still, are still running, and we do not have a material impact, yet. Based on the COVID-nineteen developments.
Now, it is clear, and I mentioned that at the very beginning, we need to be quick on our toes here and we are rest assured. We have taken as one of the first public listed company in Germany drastic actions already in February when we put on hold completely international travel hindsight that was quite smart decision. We have put in place, crisis teams, not only on group level, but in all key countries, On the back of that, we have then gone down to national travel bans and also, changed the working patterns for most of the administrative functions we've moved into smart working, basically working from home, in most of the critical areas, we have really introduced safety measures in terms of, let's say, a fifty-fifty shift pattern or we have taken teams from larger rooms part into other rooms to mitigate any risk on the business critical functions And we have also, looked at our IT department to ensure that we are able to continue deliver IT services, which become more and more important in these days. And we have also, obviously, for our plants, clear contingency plans in place, how can we ensure that the business continues?
Because one thing is very clear, while the measures look swift and strict, our overall target. 1st of all, safety for our employees, that's clear. And secondly, keep the business going as good as we can, and serve our customers as good as we can. That's our those are the two top priorities. Then on the back of that, if we see demand declining, we react immediately appropriately.
So If you could go to the next page, page 13, you see, basically, the key points that we have addressed, also having in mind our key, cost items. So if you look at to the people and personnel, cost side, We have moved, as I mentioned earlier, to smart working wherever possible. We have put in place a clear hiring freeze that includes open positions we will strictly limit 3rd party providers to the business critical issues only. As I mentioned before, mainly with a focus to the plants running. And we, have already started, to reduce, over time, make sure that vacation days are taken And we also start to, consider and partially introduce short pay and also unpaid leaves on a voluntary basis at this point.
From a business perspective, we are working obviously now in different scenario, situations. That is especially true for our plants, so production planning, but also for the relating energy demand, you could argue, well, don't you take advantage massively of lower oil prices or lower coal prices or lower petrol prices. We, yes, we clearly get a tailwind there, but we also want to be a little bit cautious not to overdo it in order to be, to not get into a take or pay situation on some of these forward buying topics. So in that respect, we we watched the situation on a basically hourly basis. But, I think that's also a good proven practice that we have done in the past and we have discussed this intensity also in the board.
So, well prepared in that respect. And then last but not least, also very importantly, cash conservation. We stop all non essential CapEx, also with a focus on non on rolling stock because the trucks you can run for 1 or 2 more years if necessary. But as I said before, and no one's explained it to you, cash is king right now to make sure that we also, manage that in a professional manner. So overall, message on the COVID 19 issue, From a company perspective, we are absolutely well prepared to, handle the topic.
We have to, we have low visibility. I think that's true for most companies, at this point, but we are the good news is we are a management team is used to low visibility from the past. So in that respect, I'm very confident indeed that we will weather the situation in a strong fashion. Maybe, Lawrence, you explained once more a little bit the situation around liquidity and our headroom.
Yeah. I will do, Tony. Will come back to the 2019 2009 jobs. So we talk about liquidity, headroom, etcetera. There's big differences that the company is in a, a really strong situation and far away from any situation as we saw it in 2009.
Our available liquidity is $500,000,000. This consists of $3,600,000,000 cash in hand at the end of 2019 as well as a 1,000,000,000 undrawn committed confirmed credit line. So total liquidity available is 1,000,000,000 We, as you may know, we have done a lot of financing in the Q3 and Q4 of last year and have covered all maturities at that time when the conditions are quite favorable. So in 2020, we expect, 3 maturities. 2 of them, pretty close to now.
One point, we repaid Chuck today, the cash in hand of $750,000,000, and there is another $750,000,000 coming due on, in 2 weeks time on 3rd April. For this, we also do have the cash in hand already now. And then there are 2 smaller maturities during the course of the year. So, we have ample headroom more than 4,000,000,000 currently. Our committed to confirmed credit line is a syndicated loan.
And, this indicated loan matures, I think, in 3 years or so. And lastly, 2025, Okay. 5 years time. And, there are covenants in there are no covenants in the bonds. And there are covenants in the syndicated loan, in case EBITDA over the full year would drop by more than 25% end debt would go up by 25 plus more than 25%, which is a very unlikely scenario.
In that case, we still would have ample headroom under our covenants. So the company is very safe on the liquidity side. We checked our cash position every single week. We exactly know where we stand. And, we always have a lot of time to react in case things would really come bad.
So on liquidity side, we have no headache at all. And with comfortable space and That's a part of our strength to manage us through the crisis. So many
Okay. Thanks a lot, Lewans. Then we would continue, with sustainability. Okay. We've talked about the short term issues.
Now this is clearly a mid and long term issue, which is absolutely relevant for us as a company, but also for us industry. In this respect, Page 16, you see that we have made we have put significantly more focus as of 2019 on this topic and move quickly to also see the first result. You see that we are now down 22% versus the original baseline of 749. This is specific net CO2 emissions in kilogram per of CO2 per ton. So, in 29 18, we came down to 590,590 kilogram of CO2 per tonne of cementitious material.
You know that our target sits at minus 30%. So while we were down 20% in 2018, we did another 2 percentage points between 2018 2019. So I think we should be well on our way to, clearly meet our targets in 2030. The key levers are you see here, maybe alternative fuels energy efficiency and also the clinker cement factor, which by the end of 2019 was at 74.5 percent. Clear target is here to get towards 70 or even below.
Those of you who followed us in the past on this topic know that we are the 1st company in the cement industry with science based emission reduction targets, you know, that there is initiative and they gave us the certificates as a certificate around that. Not that we need this to get going, but I think it's also important for you to understand that this is done in a very professional manner. If you turn to page 17, you see the key, projects that, some of you already know the 2 carbon capture projects on the left top left and top right side, basically, the one in Canada that we are doing together with CCS knowledge and also the one in Norway that we do together with the Norway government and Equinor. Both are in a industrials, targeting to C02 in a big fashion, for example, the Norwegian 1 wants to capture 400,000 tons of CO2 per year. Our bread plant that's, more than 50% of our annual, of our annual production.
Then we have the catch for climate initiative that we do together with 3 of our industry partners in Germany. It's also known as the Oxy Fuel project. Where we have already signed the NDAs and are currently negotiating with the technology suppliers. Then we have the omega green project in with our colleagues in Morocco where we basically capture CO2 through an algae project. And then we have the lilac project, then if you skip to page 18, shows you a little bit the scope of this project.
This is a project we do with together with some of our industry partners and other industrial companies. This is funded also through EU money. We have successfully completed pilot phase 1 that has proven the technology and now we need to scale it up and we are negotiations with you to go to pay to pilot phase 3. And beyond we are very hopeful that this will happen. It should come in the coming weeks, the okay to go ahead.
In that respect, And again, I said, as I said, this is based in our licks plant, on the border between Belgium and Holland. So to sum it up, I think the focus areas for 2020 are clear. COVID 19 back or forth. Clearly operational excellence will remain our clear focus. We continue to focus on driving the top line as we have started already last year in a very successful fashion.
Let's wait and see how that works out during the year 2020. We will continue and potentially even increase our cost focus and cost management in a tight fashion, and we will remain focused also on margin development. As I shared with you, the coronavirus mitigations, we are well on our way well prepared. And you have this design here also in close contact with our Italian colleagues who are hit the worst right now in this difficult situation. Cash is king, and we are watching our cash generation and allocation, as well as our sustainable growth.
I shared the detailed with you. And as you know, we have worked on carbon neutrality in our carbon neutral concrete for 2050. But we use the strategy update to review whether we can tighten those targets end, whether we can, basically break them down into, annual or semi annual or 5 year targets in order to make more tangible notes of for us to increase even further the focus on this topic. With this, I just sum it up with the key takeaways, again, strong cash flow generation that continues into the beginning of 2020. Fluent was explained up until now the cash flow generation remained strong.
We are absolutely well prepared to fight the potential impacts of this COVID-nineteen or coronavirus situation, we will continue to work on our carbon footprint. We've progressed well 18 over 2019. And as we, communicated before, we stick with the idea to give you a strategy update in the late summer 2020 targeted dated around September. With that, I hand it back to Chris and we're looking forward to your questions.
Thank you, Lawrence. Thank you, Dominic. We'll now embark on the Q and A session. We have, as always scheduled roughly 1 hour. So, we do have ample time.
I'm not sure whether the Q And A session has worked, ideally last time, so may I please remind you to limit your questions to 2 at a time and really 2 at a time and not embed any other questions in those two questions, to get everybody the chance to, post the question. So if you all stick to this procedure, yes, everybody will get a chance to ask, and let's get started now. Operator?
Yes. Yeah, this is gentleman. We will now begin the question. Yes. It comes from the line of Paul Rogers, sir.
Yes. Yeah. Good afternoon, everyone. So can you can you hear me okay on this line?
Perfect. Thanks. Welcome.
Yeah. So, yeah, hi, Dominic. Artenega and team. So, okay, so I'll just have two questions then to start off with. So you've mentioned, obviously, our previous experience in being ready to act in response to the virus if needed.
Could I ask you specifically how much scope there is to cut working capital and how much of that 300,000,000 growth CapEx that was planned, is actually discretionary versus committed. And then just secondly, what impacts you think the virus, and presumably weaker demands could have on pricing, especially in markets where utilization rates are quite low like Europe
Yes. Okay, Paul, thanks for your question. Let me, answer it. And then if if Lawrence has something to, chip in, maybe we'll do, I'll pass the working capital piece to Lawrence and he can comment on the working capital situation. I would take the growth CapEx and the pricing piece of your question.
We have, clearly stopped the non essential CapEx and we are on our way to also review the growth, CapEx, bucket. We have, I have not got the final number for you now. What exactly is committed in a way that we could not stop it at all. We have reviewed the big ticket items. And obviously in each of these projects, you then get into a discussion is it wise now to fully stop it because that would come at additional costs and a midterm damage, or do we need to it wiser to continue.
And we basically have done this for the key, large projects. And those who are business critical also from a midterm perspective, we will continue also on the basis of what, Lawrence has shared with you on the on the overall liquidity situation. But those who are not business critical, we will put on hold for now. On the pricing side, we have started well, into the 1st, 2 a half months. So for now, we do not see across the board big negative pricing impacts, volume are long enough around the block to know that the year has 12 months.
And with a situation like this, it is very difficult to assume what is the impact on pricing. I think what is from our perspective was a little bit helpful is that last year, as we have shared with you, we have switched in some key countries to price increases as of January and not like in the past as of April. So in that respect, some of the price increases that we have planned have already taken place. Whether they hold fully for the next 12 years 12 months under this scenario, Paul, difficult to say, but we clearly stay focused on pricing as long as we can.
When it comes to working capital, you know that in 2009, when the financial crisis came, the working capital dropped sharply off And, we had, a quite strong cash flow just from reduction of working capital. Now we have worked on that item and our working capital since 2009 has reduced by more than 1,000,000,000 in absolute terms. So, today already the working capital is much tighter. Then it ever was, 2009 early on. So, that will lead to a situation where we will not see such high working capital backflow as we saw in 2009.
So, I would see that rather on the, on the stock side, currently, we have full stocks. We have, we had a good production run, end of the year 2019. We went into the year with good production, we're still holding up production. We see, some countries where demand has a little bit lower. So, I would more see this effect if you really see a shutdown in the operation.
Come from the stock side. And I would get to 1,000,000, but we could, get in on that side. So that's my, that's my guess on the accounts receivable accounts payable side. It's a bit difficult to forecast as our EPO DSO balance close to 0, close to 0. So, that's my best estimate.
We, as I said earlier, we, we checked the cash position of the company and we single week, very close, very precise, and any, deterioration of the financial situation, we could immediately identify
That's great. Thanks guys. Stay well.
All right. Thanks, Paul. Next question comes from Arnold Pimenter from On Field Research.
Yes. Good afternoon, gentlemen. I would have two questions. First one, just to try to understand the situation, you mentioned that, there is an inflection currently, obviously, in terms of volumes, I guess, in terms of demand in your market. If we take Italy as a leading indicator of what could happen to Europe, Could you please quantify the drop of volume you have seen in the recent week, in the recent days?
We have seen in China that January, February production was down 30%. Are we talking about, this type of order of magnitude or should we read the newspaper when they are mentioning that most of the construction sites are closing in Italy as, you know, leading indicator that the drop of volume could be much more than what we have seen in China. That will be my first question. And if you can help us to quantify it, obviously, very helpful. The second question will be on your dividend.
I was surprised that you increased it. I understand that the assembly will have to the general assembly will have to
finalize and approve it.
But is it really signals that you are so confident on your cash flow and on Also, you're so comfortable on your covered governance. I know that you helped us during the call and give us a little more flavor on your covenants. But based on our calculation, it would imply a 3.5 net debt on EBITDA. Covenants, could you also confirm that, please?
Okay, Arnaud. Thanks very much Mr. Pinahatieri for your question. Let me take the first one and one 0.5 questions and the 0.5 question, I give to Lou Vance on the covenants. So I'll get to your volume and your dividend question, and then, Lawrence will go to the covenant point.
On Italy, Mr. Pinotel, the volume development up until 2 weeks ago was actually good. We had we were basically on our plan. And then for the 1st week, we saw a drop of about 10%, roughly, both in ready mix and in in Cement while ready mix held up actually a little bit longer than Cement, which also tells you a little bit about the supply chain. Now in the last week when the shutdown came across all of Italy, the volume drops were more pronounced.
I think more in the magnitude of 25% to 30% that you mentioned. And now it remains to be seen. We know how this unfolds, how many construction sites are still going to continue. You know, I think I'm not the government, but you can different make different arguments around there is, obviously, the argument you have to be careful and safeguard also the people on the construction side. There could also be the argument take down all the business in a country because I would I'm not a medical guy, but the question is whether you the infection risk on large construction sites is actually a very increased.
So there are different arguments. I think that are also discussed in the associations and in the government. I think for now, the governments, at least some of them have started to reduce public work. Whether that's going to continue or not, it's very difficult for us to say, that opinion also may turn. So that's the magnitude.
But we are working with worst case in best case and middle case scenarios. And there may also be small parts of the world or regions of of a country where the construction sites come to a bigger stop. So very difficult to, to, argue what is the right, what is the right number, but there will be good path and not so good path because let's also, you know, the the word is big. We I know that many of you in the past have argued, are you in 55 countries? In this crisis, this also may be an advantage to be in countries because we already see some countries are hit worse than others.
So let's wait and see how this plays out. You know that I'm, by nature, a positive guy, I'm trying to be realistic, and capital, but I'm in essence, I'm positive. And I think there are there are also, some positive signs around the world, but there may also be some negative ones and so negative surprises, that's clear. On the dividend, obviously, we had a discussion around the dividend, how to how to handle that. And yes, you are right, from today's perspective, we also with the current cash position also with the current development of the volumes.
There was no real reason for us to say we scrap the dividend or we even reduce it because, for now, there and then I think it was absolutely fair to say also to the capital market guide based on the current knowledge. There is no reason to prep the dividend. Now formally, yes, we there is a chance that that we need to adjust, I can adjust it and potentially need adjusted. But from our perspective, as Lawrence and I sit here today, there is no reason to believe that That's why we said, we don't panic. We don't now take crazy decisions on just speculation.
So based on the current knowledge
that we stick to our dividend of 20. Dominic, let me add. We have, under chairman law, the board has to take a decision about dividend if he wants to close the annual accounts and we wanted to close the accounts. And as we didn't have better knowledge, we decided for that dividend, which we think is appropriate in the light of the business year 2019 and our current knowledge about the year 2020, including what we see from corona today as of today. Now finally, the board has to decide about the dividend once we call for the share this meeting.
Yeah. And then we still have a couple of months to go. And we believe that, over that 3 months, we will we will gain much a better knowledge about key parameters. So if things really went sour, we have still have the possibility, to correct the decision and do whatever is needed to keep the company safe. Yeah.
So that's, this point. So, it's in a way a decision, but as I say, if things go badly wrong, really badly wrong, we even have the possibility to still change that proposed covenant Mr. Pinah, we are far away from where we were in 2009. The headroom is ample. Yeah.
And you know, we do not want to disclose the covenant. Yeah. That they only get even more questions, which do not help. Yeah. And therefore, we can tell you there is so much headroom in the moment, we cannot even see to come in the worst case scenario, even close, take the cases in China, the price has been 2 to 3 months with a drop of 34% 50%, yes, and that's what we can vessel.
Easily, And if in Europe, things went even worse, I thought for more than 4, 5 months of the whole production, we feel, so let's safe side. So, safe for this moment, and, we just, take it from here, things evolve day by day, and we take the decision as they are needed. All right.
Thank you very much.
Thanks, Ano. Of
course, we're actually three questions on Next one comes from L. D. Raul from JP Morgan.
Yes. Hi. Good morning. Can you hear me? Good afternoon.
Sorry. Yeah. Okay. Hi. Sorry.
So Can I first ask on plant closures? You mentioned that you've closed 3 in Lombardy. Do you have any more plans to multiple some plants now that other countries in your power are going in full lockdown. And can you explain to us the costs associated with closing and then reopening those plants. And my second question is on cost flexibility in general.
I mean, I understand it's difficult to answer this question, depending on whether you think it's going to be a short term impact or longer term impact. But if we assume it's a longer term impact, what do you think is the the right, I mean, the cost flexibility that you see in your business? Internal? Thank you.
Yes. I will gladly answer your questions. Thanks so much. First point on the plant closures. As I shared with you, the current plant closures, And the better word is mothballing, right?
So because we don't close the plant for good, it's what we call mothballing. So we basically temporary close parts of the plant. So even when we talk about the plant closure, then it can also be a that we stopped running the kiln or we continue to ship because let's not forget, the one when we talk about a plant being affected, that's the the production of clinker, in parts, we even continue to produce cement. So we use the run emails to produce cement. And we, as Lawrence was saying, we still have ample stocks and we continue to ship for quite, quite a while.
So typically, that's 2 to 3 weeks of stock that we can still use in order to ship. The costs of up and downing of plant is minimal, because let's not forget, you know, we do winter repairs where the plant are taking down also So it's a well, I think it's still well established process, you know, running up and down kills. You cannot compare this with closing a full automotive factory for 4 weeks. We do we do these, if you wish to say so plant, mossballing, on a routine way basically every year for each of the plants during the winter shutdowns as we call them. So in that respect, there is it's not at no cost, but it's not a huge number to, to postpone the plant and bring it back up and, back up and running.
Obviously, the question, of course, flexibility, you're absolutely right. That's exactly what we have studied over the last 2 to 3 weeks in a very intense fashion. And if you look at our big cost items, I'll just share with you some of the 2 a couple of the big tickets the biggest cost item for us is 1,000,000,000 or 1,000,000,000 of personnel costs. And then we have another 1,000,000,000 dollars, $1,850,000,000, $1,900,000,000 of energy related costs. Those are the big cost items in general costs are around 50% variable, and the remainder is more or less fixed.
But will I'll come to also to the fixed part. Now on the arrival cost part, main part being energy and also repair maintenance material, on the energy. Obviously, we have some tailwinds. You know, the developments of the energy costs, oil, on the back of that beet human, pet coke, coal, all coming down significantly. So in that respect, we see a clear tailwind that will go into our cost base over time because we do have some hedges in place So but we will clearly get some tailwind on that.
We cannot take them down fully to 0, but that those should drop drastically if we take down plants, obviously, the variable costs go away on that end. When it comes to the personal cost side, I think there will 1st of all, we do have some flexibility in there when it comes to the measures that I shared with you before on reducing overtime on getting the, on getting the vacation days out. That's not cash. Conservation, but it clearly helps you on the cost base. And then as you may have followed over the past couple of days, Most of the governments that are infected heavily by COVID-nineteen have put in place or are putting in place now significant measures to support companies on things like short pay.
And obviously, we follow that situation country by country also very closely, and it's very clear if we have to temporarily close certain locations or part of the business in certain countries, we will obviously also go for these elements will conserve our cash out and also reduce our cost base. So the personnel cost obviously is not fully flexible but there is a part of it that we can still flex. And let's also be clear. These are unprecedented events and we may have also to take unprecedented measures even also on the cost side. There are now people coming to say, can we go on voluntary leave?
We know this is a difficult situation. I only work for 2 days because I have my family at home, I'm fine with a 2 day pay, per week. And then so we'll look at every possibility in every corner. And as always, you are typically taken by surprise to the positive if you really ask rigidly what is possible and what people are also flexible to do. And I have to share with you, I see big solidarity in our workforce across the globe on this topic.
That doesn't mean we can completely go crazy on these things, but we will find a way to navigate through this.
Thanks, Lucy. Next one comes from Robert Gardiner from Davy.
Good afternoon. Yeah, Robert Gardiner from Davy here in Dublin. Well, most mine already answered, I guess. In terms of your customers, can you give us some sense of what your customers are saying to you in terms of projects going ahead or being delayed deferred. And you talked about a couple of countries as well where the government or local authorities are restricting construction activity.
I wonder could you add some color on that in terms of who exactly is stopping construction work. Obviously, it's happening in Italy, in Boston and San Francisco. It'd be helpful if you give us some indication of who else is stopping work. Thank you.
Yeah, Robert, thanks for your thanks for your question. On the customer side, the picture really looks very, very different country by country and even city by city as I was sharing you the events of Northern Italy. Also the events in the U. S. Partially.
But to give you the opposite call, I'm not sure, but I'll just share that with you. Yesterday was the strongest shipping day ever in Germany. I think things are pretty. So in that respect, we see everything from the very left to the very right. So it's not all doom and bust.
There are also positive parts in a large company. That's the beauty. So We do know that some of the governments are thinking about closing some of their public construction sites the public construction sites are also not 100% of the business in a country, yes? I mean, some of the private companies do keep going. In Austria, one of the big customers has now announced that they will close nationwide their their, size, but we are not big in Austria.
Austria is for us a minimal country. Let's wait and see what other countries do. We are looking obviously to the U. S. We're looking to France.
We will eventually also look to Germany But for now, you know, there is, early indications that this could be a measure, but I would be surprised if this goes across the world and it's happening in all countries, you will see a very, very in picture across many countries.
Thank you.
Okay. Thanks Robert. The next question comes from Nabil Ahmed from Barclays. Great. Good afternoon.
Can you hear me well? Yes, we can. Yes. Thanks for taking my questions. So my two questions actually, thanks for sharing with us.
The last few days events and talking through what you're seeing on the demand side and also on your manufacturing capabilities. I was wondering also if you could update on potential disruption you're seeing across the supply chain, in terms of workforce, do you see workers no longer willing to come inside? Have you seen disruption related to that logistics, third party contractors, Is that having an impact at this stage or not really? And my second question was on the strategic review that you mentioned during the last call, I think on 18 Feb, does the COVID situation changing in a way or another the way you approach this review, is it accelerating as well the process? Thank you.
Fabriz, thanks for your questions. Let me answer the first one disruption in the supply chain or work hours showing up or not. We are monitoring low and actually overseeing the purchasing piece. Very closely, the global supply chain, we do not yet see any major disruptions when it comes to our necessary of all materials. Now keep in mind that's the beauty of our business.
We are producing locally and we are selling locally. So this is we are not very significantly depending on supply change. There is minimal trade going on between the countries. The one piece that obviously we are watching is the repair and maintenance piece. So you know that for the winter repair of our plants, we do need some refractories.
We do need some spare parts. Some of those spare parts are coming out of China. And other parts of Asia. We are very in very close contact with our colleagues in China. As some of you know, the business has actually come back a little bit in China already.
So for now, we have identified alternative sources in cases where China not able to deliver. So we have not yet seen any significant impact on any supply chain issues, across the globe. When it comes to workers showing up in our own workforce, we have not seen any significant problems as you know, in France, there's always a discussion that's very much union driven, but that's more a French specific issue in Germany and other parts of the world. We do not see a significant impact in that respect. We have pulled down the plants in Italy, as I shared with you already.
Order to make sure that we don't get into a situation where we risk an infection outbreak in our plants in the of larger scale in Northern Italy. On the strategic review, we have deliberately decided to stick to the date So yes, obviously, as you as we go along, we get more clever. So whatever we learn out of this situation now in COVID will also go to some extent into the strategy review. This has not been decided last year and then we just keep going. Without looking left and right.
So clear question to the answer. We stick to the date and give you, in any case, an update in September. And obviously, clearly, we also need to take into account what we learn through this COVID-nineteen developments. But We are not going to pull anything upfront just because of COVID. If you not take the measures that we have disclosed to you now, as such.
So, Gilly, if you want to talk about cash conservation being part of the strategy or specific demand management, then yes, this has been pulled forward. And there may be other things that we need to do in order to mitigate the coronavirus impact, but in general, we stick to the timeline of the strategy update.
Let me add from a supply chain side. First of all, we have, high manufacturing depths. In our, we have no supplier to who bring, pre products to our main product that comes out of limestone, which comes out of the ground. So there's very little The second point are spare parts which come, from abroad. You know, our main need of spare parts is over now in springtime.
The Kinstops with the main repairs are in, late autumn, as in December, January, February. And here we have done most of our jobs. So here, we also do not see major issue. And, we see China already selling production again, and we get 1st, products again from China. So for the next season starting in December, we already start sourcing and we we do not see any lockdown in this respect.
Next one comes from Tobias Werner from MainFirst.
Yes, thank you for taking my two questions. Number 1, I just want to understand the pattern in China a little bit better. Could you, from your partners, do you hear that the recovery or that there's a recovery ongoing as we speak. I have seen some numbers where actually there were some good numbers. And whether that, that recovery is sort of, matching what is happening in Italy, again, I saw some numbers neatly down this week somewhere around 40% to 45% in terms of volumes.
And then just the second question, fiscal spending, I. E, infrastructure programs. What sort of feedback do you get from your markets on those? Germany is obviously the most discussed one around the world, whether this will come fiscal spending, what's your sense?
Okay, Ivana. Thanks a lot for the questions on China. I had a call with our Asian colleague, was currently based in Australia, because he traveling to Singapore is also restricted. Yes, indeed, the you know, we have 2 joint ventures, in China, 1 more in the south and 1 more in the center in the northwest. So in that respect, yes, what we hear from there, the business is coming back to some extent, but it's not yet at least to the best of our knowledge on the old on the old level, right?
There is still room for improvement. Let's also, keep in mind that the lockdown that the Chinese government has put in place end of January, is basically was coming to us in a delayed fashion because we are we are taking a lot of sewage sludge in our, cement kilns in China. And in fact, the government actually asked us to continue to run our plants in order to be able to take that sewage large in that respect, you know, you have low country by country, Kern by Kyung, again, a different answer to your question, but in overall, and China is a huge is a huge country. We see a rebound, but we are not back to old levels. In Italy, there are pockets.
I I do not disagree. There may be pockets where the business is down 40, 40 to 45% that potentially is the case. But again, Italy is a large country. In Lombardy, we do see these drop offs, but in other parts of the country. They are less pronounced.
But had we seen the worst initially yet? The infection numbers are not materially coming down at this point. So very difficult to predict. On the infrastructure programs, again, when if this ends up to be a recession, in in countries or, around the globe, the historical answer of governments was to push infrastructure programs. So yes, there is clearly a chance to, to, to, hope for infrastructure programs.
But I'm, at this point, seeing governments more trying to tackle the problem of potential unemployment and not ending up with a huge amount of that. So that I think has the 1st priority. And then, I think we'll come to the question of infrastructure program, but yes, the historical answer to these recessionary issues was typically infrastructure.
Okay. Thanks, Lucas. Thank you very
much. 5 more people on the line. Next one comes from John Messenger from Redburn.
John?
John, you're still here?
Yes. Can you
hear me okay?
Now we can. Yep.
Oh, brilliant. 2, if I could. One is just if it's above the line, but could we just understand around other income? Because obviously the group historically a lot of volatility just so we understand where our base EBITDA pre COVID sits as we go into 2020. I'm just looking and, obviously, your other income fell to about 431 from 5 24 in 2018.
Is that level something that we should take as the new normal, or is that elevated or depressed? And I'm just thinking of things like the Stockholm property transaction. Is that something that will happen in 2020 or does COVID make that unlikely? So is the base EBITDA one that you're comfortable for us to take as the like for like base? And then the second question was just coming back on covenants.
And just reading page 41 of the the full annual report so we're all totally clear. I understand if you're not going to give us the the covenant on the the main credit line, but could we understand is it an old IFRS pre IFRS 16 or post? Does it include the JV income? Or does it exclude that? And for the bonds, which I think Doctor Naghi said have no covenants, is that correct if you were to lose your investment grade rating and that the wording in the report suggests that some covenants would kick back in if you were not investment grade.
Just to understand the mechanics so we can all think around the balance sheet and and clearly it's the big issue for everybody right now.
John, thanks for your question. If you don't mind also in interest of time, let's have the next question already in the line and then we'll answer them in a package, okay? We'll come back
to your point, John. Thanks.
The next one comes from Arnaud Lehman, Bank of America.
Thank you. Can you
hear me well?
Yes, we can.
Okay. I'll just stick with one question, please. Could you give us an indication of what might happen to your pension liabilities, interest rates are going lower. Financial markets are also going lower. So you could have an increase in your liabilities and and your asset base could decline.
So, have you an estimate of potential increase in the pension deficit?
I think we should pass that as well.
We will take the questions now that are in the line then we'll come we will take them as a package.
Answer some time. And then, so we move on to set a backlog for Morgan Stanley.
Hi, everyone. I've just got one question. Can you tell us how much it would cost you to draw down your credit line today if you decided to do that? Thank you.
Okay. Another financial question. It's again, part. We want to say, it's just that we'll answer those questions. Don't worry.
Then we'll go down to Svein, Eilofelt, from from auto.
Yes, thank you very much
for taking my question. So I understood, union or putting pressure to stop production in France. Can you tell us if it's the case as well for you? That's the first question. On the second one, you commented about the volume development until March.
Can you as well comment about pricing, please?
Yes. I'll come back to that. And then is there another one?
On the credit card?
The last one, and I think we are through the Q and A, from greater credit for UBS.
Via email address.
Hello? Can you hear me?
Yes. We can.
Okay. Great. So I got, 2 questions and a slight follow-up questions. The first one is on the CapEx, kind of if you take it all in, how low could you go? I think last year you had just looking at the pure CapEx and the cash flow, like $1,200,000,000, if you really had to pull all levers, how low can that number reduced to?
And then the second question is, and it's kind of tying up on the cost and flexibility and all that sort of stuff. But if you maybe simplify it for us, In your own scenario analysis, if you're going to say $1,000,000,000 of sales, how do you think that would convert into EBITDA? So a 1,000,000,000 of sales lost because of coronavirus volume lost, how many million EBITDA do you think you will lose? Obviously including your mitigation and everything that you've talked about. So just sort of for us to get a sense.
Okay. Let me answer that maybe the one of Spenitelpate. And the first one, Mr. Kuglitsch, they go on on the on the CapEx piece. And then I would hand back the questions to Lou and Snegg on the financial side about other income and the covenants on page 41.
The pension liability whether it's impacted by the pension by the change in interest rates and the costs of drawing down the credit line. And then last but not least, the question of cost impact, 1,000,000,000 sales, what's the roughly the impact, 1,000,000,000 sale loss what's roughly the impact on EBITDA loss. Let me answer the ones, Ms. Edelfelt on the union pressure. You know the situation in France very well.
The French are, in essence, very much intertwined with their unions when it comes to industrial production I had a long call with our French management last night, also around this. You know that Mr. La Prasadon has chosen to use very drastic words when it comes to this crisis, France Olger, this is, quite dramatic. And he is on the flip side, given a very, very generous way of handling this because, he is basically told everybody, don't worry. You can go home and the government will pay.
You are now paying, giving you a little bit the black or white picture. And now the unions, are saying, but when you would go home, we don't only want 84%, but 100% of our pay. And we argue, sorry, guys. What's this? If you don't work, then we're not going to pay you with the remaining 16%.
So there is a nice discussion with the unions in France and we'll still need to find a settlement with them. We are very experienced in having this, the union situation, but let's wait and see how that plays out. It very much also depends on the further movements of the government because what I hear last night, the government has woken up also a little bit and started to make a calculation if really everybody in France goes home and the government is paying that, then you have a different problem in France. So, I think they are they probably will come back during this week to put some more precision on how to end the situation from a government perspective. On the volume development, I think I've commented already quite well.
I think there is, from my perspective, not much, not much to add in that respect. On the CapEx side, 1,200,000,000 on average, You know, we take it there from day to day. That was the earlier question. How much do we have already committed? I I now make a wild guess, but it's it's it's not 500,000,000, that we have committed.
We have gone through our wintery us, that is typically the most costly exercise. But beyond that, there is a lot of flexibility and everything. So if if the moon comes down rest assured, we'll address that and we can clearly, in a crisis scenario, pull our CapEx below 1,000,000,000 easily if that is necessary. But from today's perspective, we do not have a, a worry around not being able to conserve our cash through drastic CapEx measures. With that, I would hand over to Lewans to answer the other open questions on the finance side.
Yeah, okay. Let me go through some financial, single Hugues in the same channel exercise. First, if we lose 1,000,000,000 turnover, what would happen to the EBITDA. So typically, we lose 50% on gross margin at the meaning of arrival cost so that we would, we would lose 500,000,000 on variety because. And with our measure, typically, we cover 30% to 50% of the compensated early to 50% of that loss.
So, the loss in EBITDA would be in the range of 300,000,000, 200,000,000, 300,000,000, euro, that would be my best, guess Then the second is, on the, on the bonds, you are right, Sean. Sorry for that. I forgot about it. In case we were not investment grade, there is a very high level interest expense covenant, which is more than five times away from our current, level. So, that means that, interest cost, mid boot, Win Tupelo, before we come close to that, covenant, and we needed to be non investment grade.
So this a very, remote, scenario. When it comes to the Syn loan, the Syn loan matures in 20 25, so the 5 years ahead. The, the covenant was adjusted by the IFRS, IFRS 16 effect. So it is, like, it was, it was agreed in 2007 team. And then, coming up with the IFRS 16 in application, it was a chance to do that.
So there is no impact from this accounting change to the covenant. And as I said, and the calculation of EBITDA is pretty much as it is, as you can find it in the, as you can find it in, in the reports, We have a slight adjustment in the debt position where we exclude the obligations from, putable minorities. So that's a little bit So it's top balance a little bit better than what we report as a leverage covenant. The JV result is included in the EBITDA So that's a pretty standard situation. Then the cost of this in loan are very limited, currently significantly below market rates.
The interest is still below 50 basis points in the moment, it's variable and depending on our leverage, not underwriting, if I not mistaken, it's on the leverage. And, this is a very efficient way of filing in case we needed. It's currently We plan our financing so that we do not really need to draw the syndicated loan. Oh, pension, yes, pension liability you have seen, we have reduced the pension liability on a like for like basis significantly. And our pension funds.
So the financing side, to about 70% is by what we've formally called 0 bonds. So if, the interest rates change, the discount rate change, and the, our funds do actually breathe, in parallel to the pension obligation. So the gap should be either the change in the gap should be very, very limited amount compared to size of the, of the pension fund. Currently, it is 450,000,000. And this should not, if we consider 1 or 2% points in change of discount rate.
So the change should not be more than 1000000 or 1000000 in the net open position.
Okay. If you answer all your questions, anything open?
Okay. Then, thanks a lot to everybody. Thanks for being on the call and, we'll talk next, with the Q1 results I think on May 7th, that's what we have published. And despite the fact that we have pushed the AGM, We obviously, get back to you on May 7th on the with the Q1 results. So, stay tuned.
Okay. Thanks so much.
So that does conclude our conference for today. Thank you all for participating. You may all disconnect.