Ladies and gentlemen, thank you for your attention and welcome to HeidelbergCement Interim Financial Report January to September 2019 conference call. At this time, all participants are in listen only mode. After the speaker's presentation, there will be a question and answer session. To ask questions during the session, you should press star one on your telephone. I must advise you that this conference is being recorded today, Thursday, seventh of November 2019. I would like to hand the conference over to our first speaker today, Chris. Please go ahead.
Thanks, operator. Good morning, everyone, and welcome to Heidelberg Materials Q3 earnings call. Thanks for joining us a little earlier today than in our previous calls just due to the schedule we have today meeting investors in London. As usual, we have Dr. Scheifele and Dr. Näger as our speakers today. They will both guide us through the presentation. Also in the room, we have Dr. von Achten, our Deputy CEO, and the IR team with Ozan and Parker. With that little introduction, I hand over to you, Dr. Scheifele.
Okay. Thanks a lot. Hello, good morning here from London. Thanks a lot for joining us for our Q3 call. As usual, I lead you through the operational results, and Dr. Näger will concentrate on the financial report. I start with the overview on chart three. If you look to Q3, what are the key issues? I think that business continues to grow. Top line growth of Heidelberg is strong. That is good. Operational result is up. If you look to the regions, obviously, it's a little bit of a mixed picture. I think we have done very well in Western Europe. You have seen the good stuff in Northern Europe and Eastern Europe. Also Asia was good. Africa, clearly improving. We know the short in North America for good reasons. I will explain that.
For us, important is that the quality of earnings has clearly improved and continues to improve. Our cash conversion is significantly up versus last year. The operating cash flow has been significantly up, that's why we have upgraded our net debt target. Before, it was 16, it will come down to a level of 10.4. The company is well on track to reach its target, which we announced at the last Capital Market Date. We want to hit our net debt level by 2020, between 2020 going to EUR 7 billion. We are clearly, in that respect, ahead of our schedule. If you look then to chart four, that shows you the key messages. On the disposals, we are on our way. We have reached about EUR 400 million in Q3.
We sold off cement plants in Italy to Buzzi, and also we sold various cement plants in Germany. We are going to continue with the disposal strategy in Q4 and also next year. Chart five gives you the overall overview on our key numbers, and maybe I spend shortly a little bit time on the volumes to then also finally the results. If you look to cement volume, what we see in absolute numbers, our volumes are down by about 2.7 million tons for September versus last year. The question is, where does that come from? Perhaps the reasons. About 900,000 tons comes from disposals. As you know, we have sold our grain business, and we have also sold cement plants. It should be that in terms of September is about 900,000 tons.
In Europe, we stopped exporting in Europe, mainly from Spain and Northern Europe, which is a loss of about 500,000 tons. We stopped exports due to the CO2 pricing. Another key issue is Egypt. As you all know, in Egypt, our market is negative this year for September, about minus 6%. Our volumes are down by about 700,000 tons. In Asia, we are down by more than 1 million ton, mainly in two countries. First of all, India, the market was weak due to the election campaign, heavy rain. We focused really on price increase, especially in the region south. Our prices in India are up more than 10%.
India, we lost about 700,000 tons volume, and the other one is Indonesia, where the market was also for September, still negative, and where our volumes are down by about 300,000 tons. If you look to the second business line, aggregates, you see that in aggregate volumes are more or less flattish in total systems of maybe 350,000 tons. What is that? If you look to the big aggregate countries of Heidelberg, we talk about four countries. Two are down, one is up, one is flat. Flat is U.K. U.S. is up by about 3.5 million tons. Australia is down due to the drop in residential in Sydney and in Brisbane, especially by about 2.2 million tons. Also Canada.
West from Canada is down due to the downturn in three provinces by about 2.2 million tons. The rest is more or less a washout. You see future profit is down. That has to do with the sale of our Ukraine business, which triggered a loss, mainly accounting-driven, due to IFRS of about EUR 240 million. That is the main item. The profit pictures of charts six and seven, I think, are more or less self-explanatory. You see that prices, especially if you look at chart seven, are clearly up. Here you see prices, especially in Europe, are up by and large between 5% to 15%. There you see the real impact of the increased CO2 price, which is now reflected also in the prices in the market. All European countries have more or less increased prices quite significantly.
Chart eight shows you the profit picture for QG. You see that for us, the comparison base was especially in North America difficult, because in North America it was included last year the sale of a quarry for about EUR 25 million. In the Nordics, we have sold land in our Kunda plant, which we are about to close now in Q1 toward 2020. That's the best plant in Estonia. That was about EUR 15 million. Energy is down. You see that from Chart nine. That shows you the energy mix of our cement division, where we have two different developments. Coal and petrol are clearly down, whereas electricity is up. Interestingly, we see a positive reduction of about EUR 29 million.
We expect this trend to continue in Q4, because we are using in Q4 now the coal and petrol, which we have typically bought in May until July, August, and we made purchases at a very low level. On CO2, obviously, a key issue now for the industry. You see on chart 10 our reduction target on the CO2 emissions in terms of tons of CO2 and what's the message. If you know, we are part of the European trading scheme, and the current trading period ends 2020. By the end of that period, Heidelberg will be long, roughly around close to 5 million tons, and we are covered until mid or end 2022.
We have set up now a master plan for CO2 reduction at plant level with very detailed measures, clear responsibility, and have incentivized plant management incrementally and also the board to get CO2 emissions down after 2022 with the target that the allocations which we will get in the next trading period are sufficient to cover our CO2 emissions so that we do not have to buy additional certificates. We think we are well on track with that target. We concentrate mainly on three areas. Decrease of specific fuel rate, decrease of clinker content. There we had stagnation, especially in Europe, over the last years. We can do better. Thirdly, that we use more and more carbon-free raw material in order to avoid process emissions in the kiln. Chart 11 shows you the price of the CO2 price development.
We think we will benefit from that development because we are long until 2022. Some competitors are already short nowadays, others were now earlier. Secondly, what we see is that pricing, especially in Europe, is clearly influenced by the rising CO2 price. Furthermore, we expect capacity consolidation. If we go now to the area, let's look to chart 13. If you look to chart 13 on the volumes in North America, you see volume was growing slightly. For us, we had two areas which went low. Growth rate around 5%, our region North and South. South especially Texas, Alabama, Florida. Canada, Western Canada, and especially also California, were very weak. Especially California, which is an important market, for the first time in size went down 6%. Western Canada is also down at least 3%-5%, and especially overall to a small increase.
If you look now to the operational result, you see the result is slightly down, and that has mainly a few reasons. Canada, which is for us a very profitable region with very high margins, volumes were clearly weaker, and there the result is clearly negative. The same applies to the region West. California, the result is clearly down, whereas the result is up mainly in the region North and slightly down in the South. That has more to do with production scheduling, which we will recoup by inventory gains in Q4. The main message is Canada was weak, particularly in the prairie provinces. California was weak. If you look to the volumes there, you see the volumes are up 6.5%, and then the result is down. What's the problem? The problem is that the mix of our business has changed.
We lost our business and volumes in markets with high margins, like especially in Western Canada, whereas the growth was typically in the South of the U.S. and in the North, where the margins are smaller. In the South, also partially the cement sales are covered by imports into Florida, where obviously the margin is significantly lower than on our cement sales in Edmonton or Calgary. The mix effect plays quite a significant role. If you look to margin on aggregate, you see very clearly last year the margin was obviously influenced by a land sale, 17.2%. This year we are 35.4%, which is still a very good one, that explains the numbers. If we go to Western and Southern Europe, let's start falling. That's just even between the volumes. If you look to cement, you see volumes are slightly down. What's the reason?
One is export stopped in Spain from our Málaga plant, about 300,000 tons. Secondly, we sold in Italy a cement plant, [Ceccopizzi], which is about 400,000 tons. We see that the other markets that are all positive. From a results point of view, results is significantly up. All countries except U.K. have done clearly better. Germany is clearly up. Italy is clearly up. France is clearly up. All countries are relatively solid volume growth, especially France was 50 more than 4%. Pricing in all countries was strong and energy costs were flattish or down. The only problem, U.K. was a little bit down, about EUR 95 million against last year. All countries have been okay. That what you see also in the cement margin. The cement margin went up close to 5% point. There you see the clear impact of pricing.
If you look to Northern and Eastern Europe, let's first have a look on the volumes. We see the cement volumes are also down by close to 700,000 tons. What is the reason? First of all, deconsolidation of Ukraine, about 200,000 tons. We stopped also in Sweden, we stopped exports due to CO2 costs, which is about 200,000 tons. We lost also volumes in the Polish market. The market was relatively flat or weak. The main reason is that we have a later price increase in Poland this year of about 15% and have had a clear pricing first policy measure cost us some volume. The other markets in Eastern Europe are very strong. Romania is good, Czech Republic is good, Hungary is good, Kazakhstan is good, even Russia is coming back.
If you look to the results, EBITDA is slightly down, that is explained by the missing sale of land in Kunda last year, which had an impact of about EUR 50 million. If you take that, then it's overall flattish on a high level. We have a market weakness in Norway and Sweden. In Norway, it's mainly the big contract, the big tunnel contract in Oslo that has finished, and we are getting a new road infrastructure, stone pipe contract in Oslo next year. In Sweden, residential is weak and that slow down on the side in the market is compensating quite clear result improvements in Eastern Europe. If you look Asia Pacific, let's look volumes are 16 also. You see volumes are down close to 700,000 tons. That has mainly to do with capacity. As I mentioned earlier, India is down and also Indonesia is down.
The volumes for China are okay and Thailand is close to be flattish. If we look to the results and we see results are up in Asia. We have one country where results are clearly down. That's Australia. In Australia, the residential sector, especially in Brisbane, but mainly also in Sydney, is clearly negative with volume growth of -17%, -15%. That has impact the results negatively, whereas we have a significant result improvement, especially in Indonesia. If you look to the first nine months, our results in EUR terms in Indonesia have more than doubled. Very clear pricing is up 10%. India is also clearly up, pricing up 10%. China is strong and also Thailand has a very strong recovery and all this more than overcompensates the market weakness in Australia.
If we go to East Africa, Eastern Mediterranean, also here you see the cement volumes are slightly down. That's driven by the Egyptian market, which is weak. Also Ghana, the market is down 5%. Those markets are in total down by about 1 million tons. Whereas the other markets, especially Togo, but also Benin, Burkina Faso, Congo, and whatever Tanzania are good, growing. From a result point of view, you see, I think it's a very good result for Africa. Our result is up by EUR 20 million, even when the market was very negative in Egypt and Turkey, where our results are significantly down versus last year. A good performance in our other African countries has more than compensated the result weakness in Turkey and Egypt. You see also in cement that the margin is clearly up.
That has to do with a good market in Togo and also our new kiln line in Congo clearly contributes now to a very positive result development. On group services trading, what you see is the result is broadly zero. Why? We have taken a precautionary position on a doubtful receivable from a trading business, which has cost us about EUR 7 million. If you look to the normal activity, what we see, that trading activity is overall going down. If we look to clinker, and we see that clinker prices in the Mediterranean, due to the overcapacity and weak market in Turkey, are coming down to low EUR 30 a ton. Whereas at the same time, the clinker price ex Shanghai, or Shanghai, goes clearly up because China is importing this year about 14 million tons-15 million tons.
That's why clinker in Asia is short and clinker prices in Asia are up, whereas in Europe they are under significant pressure. Chart 19 sums it up. We stick to our guidance. We are happily pleased. Our saving target for H1 to EUR 150 million. We have already achieved our EUR 100 million, strong cash flow is very strong, and that's why the net debt guidance has been reduced to EUR 7.4 billion. That means we will fully reach our EUR 7 billion target, which we announced in the last capital markets day ahead of schedule. With that, I hand over to Dr. Näger for financial report.
Thank you very much, Dr. Scheifele. Good morning from my side to all participants. I will lead you through the financial messages, and we will cover slide 10 too. If you look to our group self profit, if you adjusted for the additional ordinary result, we are in line with the prior year. We will reach EUR 827 million in September. We have below the operating results some accounting effects, which play on the results. The additional ordinary result, which is the foreign exchange rate loss from the sale of the Ukraine business, is EUR 140 million. Besides exchange rate losses during our operation of the Ukraine business between 2005 and 2019. This can only be deconsolidated when the whole business is deconsolidated, and that's now playing into our accounts.
The financial result is hit by decrease of discount rates for provisions and potentially which makes up our EUR 20 million in reclassification of the interest portion of lease under IFRS 16. That makes up EUR 23 million. This explains the increase on our financial result upon this financial expense by roughly EUR 40 million. Fewer interest payments. As you know, they went down by roughly EUR 30 million due to a reduction in the interest rates of our new bonds and the maturity of our expensive group bonds. Tax expense increased to EUR 340 million in the first nine months, which is up roughly EUR 80 million. This is primarily due to a higher tax base in current year and the release of tax provision in the previous years. That makes around EUR 80. We maintain our guidance towards tax rate by end of the year of 25%.
If you look to the cash flow, we see a significant deleveraging. The free cash flow increased significantly to EUR 1.7 billion. Net debt on the other hand reduced by EUR 1.1 billion, which is a great achievement. Based on this strong free cash flow, a higher cash conversion rate and a very strict CapEx discipline, especially in the area of growth CapEx, that constituted a very favorable development of our net debt position. Our portfolio optimization continues. We have done another EUR 103 million in the third quarter, we are well on the way to reach our target of EUR 1.5 billion over the three years 2018, 2019, and 2020. Based on this favorable development, we have taken down our net debt target from EUR 7.7 billion down to EUR 7.4 billion by end of this year, this is before IFRS 16. On slide 22, you can see the income statement.
This is up low result from current operation. You see additional ordinary result terms from a positive EUR 94 to a negative EUR 74. Identical effects. Financial results, EUR 289 coming from EUR 244. Dominant deconsolidation effects and income tax effect. Higher sectors in terms. A release of provision previous year, I think from the U.S. American, term form. This brings us group to book share of profit of EUR 752 compared to EUR 953 this year, adjusted for additional ordinary results, EUR 822 compared to EUR 821, an increase of 1%. If you look at the cash flow statement on slide 23, you can see that we have two main areas of improvement. This is the operating cash flow, which is up roughly EUR 400 million. This benefits by roughly EUR 200 million by IFRS 16.
This is because we do not show in 2019 these payments as part of the operating cash flow, but it's now in the financial cash flow. That has a certain contribution, but even if you take that out, we have a very, very favorable development. Year cash conversion rate has really increased. Second main element is the capital. 2016, we spent EUR 752,000 cash investment compared to EUR 1.2 million in the same period of the previous year. You remember that previous year included two major acquisitions, which was Cementir Italia and Alex Fraser, a asphalt and construction business in Australia. That's why the development in the cash flow. Slide 24 reviews the portfolio optimization. We have now reached EUR 961 from our target of EUR 1.5 billion.
We are down 21 months from the 36th, we are well on the way, and we are very confident to achieve our target of EUR 1.5 billion by next lender. Just for your memories, I'd like to remind you that almost all of this actually has no impact on the EBITDA operating results because it's predominantly assets which are not required to do our business. My computer Sorry, I have a problem with my computer. Okay. We can move to slide 25. On slide 25, you can see the net debt bridge. You can see on the horizon, the green line, the development of the cash flow. This is operating cash flow minus spending in business CapEx. This goes up, yeah, EUR 1.65 billion coming from EUR 1.1 billion. As you assessed earlier, the IFRS 16 effect had this roughly EUR 200 million.
Still taking that out, you will have a very nice improvement and of our free cash flow. On the growth CapEx, we have spent very small amounts, very disciplined out here. Our disposals in the last 12 months exceeds our total CapEx spend. This is a positive balance of EUR 62, and this allowed us to pay down EUR 1.1 billion in debt in the first month for dividends and EUR 417 million for HeidelbergCement and EUR 174 to control interest payments of our subsidiaries. Slide 26 shows you the net debt bridge. We started in the account with last year in the first quarter, EUR 9.518 billion. IFRS 16, EUR 1.3 billion, slightly more than we initially expected. We thought it should be EUR 1.1-EUR 1.2.
The reason to predominantly is interest rates have dropped and are now lower, we activated an increased net present value of our lease entitlement, it came out at EUR 1.3 billion, bringing the total net debt like-for-like post IFRS 16 in September to EUR 10.30 billion. We have added in the last 12 months EUR 120 million new leasing contracts to bring down the free cash flow EUR 1,651, we have dividends, net proceeds, CapEx and the small accounting item, which brings us now down to EUR 9.8 billion. If we are here ahead, roughly EUR 300 million ahead of our plan, we do not believe that this will change until end of the year.
This brings us to tighten the target for our net debt position end of the year to EUR 8.6, as you can see on slide 27. Our midterm target, which we announced in the last capital market day two years ago, EUR 7 billion at the IFRS 16 translation, EUR 8.2 post IFRS 16. We are very confident we will complete our journey to reach this target and solid leverage ratio earlier than initially expected, as you can see. Slide 28 then shows the balance sheet. I mean, it's more straightforward. We got the 3,016 assets go up by EUR 2.1 billion. This includes the EUR 1.3 billion out of 16 large lease assets that remains. However, the remaining EUR 700 million are pretty permanently exchange rate changes.
Overall, it strengthened its dominance against the U.S. dollar. That is reflected in another $700 million of increase in fixed assets. That's it in terms from the financial part. I would like to-
Okay. Thanks a lot. The outlook will be keep very short. Also, we can change these tips to our targets. We have upgraded our net debt target. From a result point of view, we are okay with the contributors, and we are going to keep also our results target this year. Okay. That's it from my side, and I hand back to Mr. Heidelberg in order to manage now the Q&A session. Thanks a lot.
Thank you. That's Näger. That's a pleasure. Operator, you want to start the Q&A session?
No problems. Ladies and gentlemen, we will now begin the question and answer session. As a reminder, if you wish to ask questions, you need to press star 1 on your telephone and wait for your name to be announced. If you want to cancel your request, just press the hash key. Once again, please press star 1 for a question and hash key to cancel it. Our first question comes from the line of Paul Roger from Exane BNP Paribas. Please go ahead. Your line is open.
Yes. Good morning, everybody. Just two questions to start, please. The first one is on Western European volumes. You mentioned that you are basically exporting less due to CO2. Could you remind us how much you still export from Europe and whether those exports that you are still doing, whether they'll fall further? That's the first question. The second question is more specifically on CO2. If we look at slide 10, you very helpfully provided a emissions reduction bridge. That bridge doesn't seem to include things like new products such as green cement or carbon capture. Could either of those help you contribute further or is their potential quite limited?
Also, hello. Thanks a lot. As a general policy, we have stopped exporting from Europe because the CO2 price is too high, and our two export plants was mainly the hub in Málaga, so in the south. Then from the Nordics, you know that typically traditionally, Cementa, they have always supplied North America for us, our pipeline terminal in New York and also in Florida. We have stopped these exports, and we have switched them to our Turkish operation in Canakkale. At the moment, no exports from Europe. For Western Europe, you know that from our competitors, we have Western Southern Europe, that's same 300,000 tons. In the Nordics, it's 200,000 tons from Norway and Sweden. Europe in total is about 4.5 million tons. That's the message.
The second one on CO2, you're right. The picture on, say, chart 10 shows you only the messages that short term, Heidelberg, it's not a problem. Second message is we think we can manage the next trading scheme and series into 2030, with a clear target to come more or less to a zero position as far as purchase allocation, additional allocations is concerned. You have to bear in mind that the numbers which are flying around, there was also a report out last week or yesterday from UBS, it assumes always that the economy in Europe continues like it is.
If there is a recession, the positions on CO2 allocations for the industry, not for Heidelberg, would again obviously improve because we are long in quite a lot of countries which we acquire from Italcementi, because there the recession was very deep and they have not recovered yet, like Italy or like Spain, partially also Eastern Europe, where we have allocated. In the northern countries, where the economy is already back, like in Germany or now Poland or Nordics, we are short. Overall, we are long. Now the question is, beyond 2030, what can we do in order to reduce CO2 emissions further? Here we have clearly said out in public that we at Heidelberg, we have the vision of a carbon-free concrete by 2050. We are working mainly in two areas. One area is called carbon capture storage.
That means we separate and capture the CO2 which is created in the process of cement production, and then we can either reuse the CO2, for example, in order to press oil out of oil fields. That's a project which we do in Switzerland. The other one is the famous Northern Lights project in Brevik, where we are with our cement plant trading together with Statoil and ArcelorMittal, where we want to set up an amine project and where we're going to capture 50% of the CO2 emissions of our trading plant, which is about 400,000 tons. That's the carbon capture exercise. We are running also two projects in Germany, one in [Lengfurt] in our plant together with Linde, where we do a carbon capture trial project with a target to capture about 80,000 tons.
We have a different technology, which is oxyfuel, where we have set up a joint venture together with Schwenk, WIKA, and Gucci in order to test that technology. The other area where we are working is by using in future more CO2-free raw material in the production process. That has to do with recycling, meaning we want to recycle concrete, and if you recycle concrete, you get gravel, stone, you get sand, and if you recycle very fine, you have as a first product, you have what we call cement paste. That's a mixture of cement, obviously, chemicals, and some very fine sand. This cement paste, yeah, is chemically only CaO, with lot CO2. We can use this material, we can use in the kiln again instead of limestone, and then in the process itself, there would be no CO2 created anymore.
We are working also on this recycling piece. Long-term, we think we can produce concrete in a carbon neutral way. That's the game. Yeah. At some CO2 level. I think it's important to understand, between the trading scheme and what we are doing on research beyond, in order to realize the vision of a carbon-free concrete.
Thank you.
Great. Thank you.
We get another question, comes from the line of Sven Edelfelt from Oddo BHF. Please go ahead, your line is open.
Yes. Hello. Thank you for taking my question. The first one is on Europe. I would like to better understand the cost dynamic between north and south. Looking at cement volume, it seems that the cost inflation has been lower in south than it has been in the north. Is this a fair assessment? Is it linked to price mix effect or to the export volume? Especially, I think you closed down a plant in Sweden. Has there been any cost that you might have incurred? On the second one is on Indonesia. The local press has been reporting a fire at your Citeureup plant early October. Can you confirm this is only to conveyor and therefore your production has not been impacted?
On Indonesia, I was there with Dr. Masano, October. There was a fire on our conveyor belt from the quarry to our plant. We solved this issue immediately. We did not stop production. We could handle that within one or two days. It was not a problem. In the North, you are talking about the cost structure. You are right. We have booked all Degerhamn closure costs already in the first nine months. That effect will help us now in Q4. The cost base will come down. I think we had an additional burden of Degerhamn closure of cost between EUR 8 million-EUR 10 million, which we have booked already because Degerhamn closed about in April. That will phase out now in the next quarter.
Okay. Thank you very much.
Thank you.
Our next question comes from the line of Tobias Woerner from MainFirst. Please go ahead, your line is open.
Yes. Good morning, gentlemen. Thanks for taking the question. Two questions if I may. Number one, you kindly showed this year in your presentation in the Q3, which is average breakdown between costs and minus EUR 70 and minus EUR 76 respectively. Probably a question for Dr. Näge r. Could you kindly also break that down for previous year, Q3? The last year you've put them together into a minus EUR 165 just to see the respective impacts, how they diverge. That's number one. Number two, please, with regard to Canada, Western Canada, just remind us and California of their respective exposures or % profit contribution in North America and what you expect from those two regions going forward into 2023.
Mr. Woerner, hello. On Canada and California, just to give you an idea, our Canadian result per September on RCO level in EUR terms is down close to EUR 28 million. Yeah. That's quite significant. Also, Western region is down around EUR 12 million-13 million. Yeah. That has been compensated by better performance in the region North and okay in the region South. Yeah. That shows you a little bit that our number result is significantly impacted by Canada and by our exposure in California. If you compare our numbers to our competitors, which we obviously also do, you have to look at the footprint. Yeah. We have a little bit of a unique position with three cement plants in California where others are not present. Yeah. Our Western Canadian position is also very significant. Yeah. What's the way forward? California, I personally was disappointed.
Everybody who knows the North American market, it was clear that residential in California are under pressure. Housing starts are on a few thousand trend. I would have expected that the infrastructure program of the State of California would have a much bigger impact. That rollout turned a little bit slower than expected. For Western Canada, I would expect that also next year, the market in the prairie provinces of Saskatchewan will not really turn positive. I would expect that to stay sluggish.
Yeah. Okay. I have checked it. I think we have the same here with us. With this year figure, I would guess that the business, I just really expect it's completely different because last year we faced a strong energy cost inflation in two, three, but I really have to check it and come back to you.
Thank you very much.
Okay. Thank you.
Next question comes from the line of Arnaud Lehmann from Bank of America. Please go ahead. Your line is open.
Thank you very much. Good morning, gentlemen. I have three questions, if I may. The first one is on your debt target. As you said, you targeted EUR 7 billion of net debt a couple of years ago. On the other hand, since the last couple of years, you could argue the macro risks have gone up. You had war, the Brexit situation, et cetera, and maybe in the meantime, your EBITDA didn't grow as much as you hoped two years ago. Are you happy with this EUR 7 billion target or would you consider pushing it a little bit lower? That's my first question. My second question is just a follow-up on CO2. You mentioned that you expected some capacity closure from some of the smaller competitors. Maybe can you be a bit more specific about in which countries you expect that to happen? Maybe Spain or Germany.
On your side, would you also consider closing capacity or just not produce if the cost of CO2 goes up too much? That's my second question. Lastly, could you give us a feel for your pricing outlook for 2023, especially for Europe? I have seen, as you mentioned, more stable trends on the cost side. CO2 prices have been more or less stable in the last month. Is that good enough to support further price increases in Europe next year? Thank you.
Okay. Mr. Lehmann, to talk about pricing next is a little bit early for two reasons. First of all, we haven't had our budget meetings yet. Secondly, I could put out now a very steep number and look to my colleague, Mr. Karnath, and say, "Hey, now you have to deliver." We do not work that way in Heidelberg. What I would say on Europe, what you see, what is really positive, and you see that clearly in our numbers, that price trend in Europe this year was really good. If you look now, first quarter, for example, prices in Germany are up close to 5%, Spain more than 5%. Even France, which has seen downward trend in cement prices over last years, is up by more than 4%. Italy is up close to 10%. Even U.K. in a difficult market is up.
Pricing was really strong in Poland. We are up 15% year over Romania, 8%. Czech Republic, 8%. We had a very strong pricing momentum, and I do not see that we will change this push and strategy in our budget meetings. Our message is clear. CO2 prices probably will go up and cement prices have to stay ahead of the game, and that's why we will continue to push those. I personally would expect, I just looked at Dr. Karnath, and he nods also. We would expect a positive pricing trend in Europe clearly to continue. Heidelberg will work very hard on in that respect and we have again said our special training in Europe for our sales force to make sure that we get a very good execution. On the reduction, rationalization of the cement plants, I would go with that.
Closed already a small plant in Degerhamn. We are about to close, we want to close the Kunda plant in Estonia. That's still a wet plant, which costs us a lot on CO2 emissions. Then we have done a little bit of outjob. We obviously have still a little bit restructuring to be done in Italy. We will have a look, close up to central Italy. Then France is for us also an issue, because in France we have two, three plants with a relatively old production technology. We are working on that. I would expect that smaller independents will also follow. If you ask the countries where I would see consolidation of those, it's especially Italy, it's also Spain is under heavy pressure. These are the two countries which I think you will see movement.
On the debt target, 7 billion, we feel very happy with that because that's the target which we had explained at our capital market day in Heidelberg, and I think on our way and the 7 billion is of a company the size of Heidelberg, I think is a very good number and that would mean that and also down to an effective DPR of, we said around 2%, ±0.2. You know what I mean? That is a leverage where we think we can comfortably live with. If we look to our entire portfolio, which is more on the mature market side, we are less exposed to emerging market risk than on the product portfolio where we have this aggregate, a very stable and price resilient business. That's why with such a leverage, I think we feel very confident.
We think the rating agencies also feel comfortable with that level of debt. We think that's the right level of debt.
Okay.
Thank you very much.
Another question comes from the line of Elodie Rall, that's from [UBS]. I'm sorry. Please go ahead, your line is open.
Hi, good morning. Just a few questions. Can you just remind us sort of what changed in the cash, and maybe if you could just update kind of all-in CapEx guidance, I guess, from where I'm seeing that probably the biggest difference. Perhaps a point of detail, I think you've done two deals in the second half. I think one is in the U.S. the other one is in Morocco. Are these in the numbers this year, or did they fall into next year's? A little bit of a detail point. Just coming back on CO2. Can you just confirm how you think about in terms of the shortfall you estimate, everything else equal, I'd say it's actually 2,200 on a scope basis.
The kind of reduction that implies is around 15% to 15%-20% of European carbon emissions per ton that you need to reduce by. In that regard, can you also just update us on your latest thinking on import rules into the EU, if you have any? Thanks.
As [inaudible] , we are not doing any deals in Morocco. In Morocco, we reduced our stake in our public listed company, in the Q1. We bought Ocean. We made an investment in Ocean there that in the south, it goes to Laâyoune. You are really following the market. That's a lot of praise, I tell you. I've been there. That deal is supposed to be executed in December. In Morocco, you never know whether it happens in December or in January. Normally, that's in our plan that it will come into December, whereas the other transaction with [Amica], that's the cement plant in the Lehigh Valley, that's the $150 acquisition that will come into Q1 or maybe even Q2, depending on the Federal Trade Commission decision. That's within our guidance. On CO2, I'm a simple man. I can tell you only the following.
That's correlated, and that's always the assumption I told you earlier, and that's also in your report, that's obviously which you wrote. The assumptions I give you now is the assumption that there is no cyclical economy anymore, meaning Europe runs economically on the same speed as it does at the moment, whether that's gains, if we trade into social recession, the whole thing possibly looks again different than more positively for the industry. As we said, we want to be carbon neutral 2022. Without management action, our deficit, our yearly deficit, would go up over the years to maybe three, maximum 3.5 million tons. We have set up now an action plan on plant level, where we think we will reduce emissions by about two, 2.5.
If I add my carbon capture storage in Brevik is about 400,000 tons, you see we can reduce by about 3 million tons. Our target is, for the management target is to come into the next planning period also to be positioned where we do not have to buy additional CO2 allocations. The three main levels are alternative fuels, the second one is a reduction of clinker content, the third one, as I explained earlier to Mr. Rothschild , is the use of carbon-free raw material. Just to say that we are not only talking about that, you know that in Germany we have just modernized our cement plants in Bavaria, in Forchheim and in Schöningen. In these two plants, we go from an alternative fuel rate of 40%, we go now up to 80% or even 90%.
That is a significant emission reduction, what we can do. Okay.
The import rules, please. Any comments?
About import rules. That's very difficult. The new commissioner, Ms. von der Leyen, is not in yet. I think this is like reading your coffee cup and expecting what will happen tomorrow. I think that's very unclear at the moment. Finally, we expect that the European Commission is very open to CO2 border adjustment. That's very clear. They have understood that if they allow non-CO2 trading countries to import into Europe, and we have to carry the heavy CO2 price, that is not fair competition they have understood. I would expect on the long run that there will be a CO2 border adjustment. Ms. von der Leyen is clearly open to that. As you know, the French, for example, are also rather competitive. Germany and France are politically clearly in favor of border protection on CO2. Also, the German Greens, by the way, are in favor.
Thank you.
Okay, thanks.
Gentlemen, we have quite a number of questioners on the line, so can I just ask you to limit your questions to one at a time, please?
Would that be our question.
Another question comes from the line of Arnold Bennett from Auriga Investment. Please go ahead, your line is open.
Yes. Hello. This is Arnold Bennett from Auriga. As I'm just referring to one question, I will ask the other ones at the hope tonight. Just on Canada, can you share with us a little bit the pricing outlook for Canada? Because you are clear on the fact that CO2 prices and regulation are driving the pricing for cement in Europe. Is it happening also in Canada at the moment when the Canadian government has also implemented the ETS? Could you share with us a little bit more flavor on what was the pricing trend in Q3 in Canada and in the U.S.?
Yeah. In Canada, we have to be very clear, becoming more detailed. In Western Canada, we have two different markets which are very different. We are very strong in the Vancouver, BC market. Vancouver and BC are still running very strongly. No problem. The problem is in the Prairie provinces with oil sands businesses, et cetera. That's where the market is weak. That means Alberta, Calgary, Edmonton, Saskatchewan, Regina, and also Winnipeg. That's what we call the Prairie provinces. This is a raw material, a resource-driven business which has suffered a lot under Mr. Trudeau, and they are at the moment under pressure. Pricing overall in Canada has been stable. We have only been impacted by lower volumes. Just to be precise for you, for example, our supplies to the oil patch industry this year are about 180,000 tons down versus last year.
Normally, in a normal year, we supply about 300,000-350,000 tons to the oil patch. This year, this is down to 120. 120, that is a very high margin, contribution margin there with maybe EUR 60, EUR 70, EUR 80 per ton. That has a clear impact on the business, just to give an idea. Pricing is not down. Pricing in Canada overall is about CAD 4, CAD 4.50 up. It's about CAD 182. It's not a price factor, it's a volume impact. Okay.
You don't see CO2, the future cost in Canada, driving the pricing in between a, I don't know, year.
Yeah, I see that Canada has a very similar regulation. As in Europe, we have CO2 tax, especially also in carbon, which drives electricity up, et cetera. That has obviously impact on the market and on pricing. I think Canada, you asked specifically, Canada, the Western Canadian are now at the moment in a downturn, but this is still highly profitable and cash generative business. I would say we complain on a relatively high level, but it disturbs a little our numbers, because in Canada, our numbers are clearly down, and they have clear impact on the total North American results. Okay?
The utilization rate in the U.S., just to get an idea of, you mentioned you have to supply your own growth partly with imports. From your integrated plants, as an average, you are already very high, I suppose.
We can discuss it. I would say we are around 80% potential in the loop. We still have some capacity left in the Midwest and in our plant close to Toronto, whereas in the South, in Leeds, we are sold out, and that's why due to the growing market in Florida and Alabama, we had increased imports and you know what I mean. That's why the revenue in our North American business is high, you know what I mean? The mix changed. We have good volumes in Florida and whatever, but the margin is very low and the volumes are low in the oil patch, which has a very high margin. That explains a little bit the difference between sales development and result development. That's the message.
Okay. Thank you very much.
Okay. Bye.
We got another question just on the line. It's John Fraser-Andrews from HSBC. Please go ahead. Your line is open.
Thank you. My question is North America and this issue you're having in California. Can you talk about the infrastructure there? You also mentioned in your presentation you've got a good order book. You've been expecting catch-up of delayed projects in Q4. Also in Q4 in North America, where are you with quarry sales? You've indicated that's going to reverse in Q4. We know that Carroll Canyon was the big profit in Q4 2017. Where are we 2018, 2019 Q4 on quarry sales?
Mr. Fraser-Andrews, Carroll Canyon, a long time ago, That is really industry history.
Oh, okay.
Gee, that's industry history. You know that we have always a program where we sell our exhausted quarries, that has to do then also with permitting. With zoning regulation, that's always a little bit difficult to predict. That's why we have a significant, let's say, excess land still in Washington and also in the Oregon area. We talk about Seattle and Portland. We have one transaction we are working at the moment, which is close to Redmond. Redmond is where the Microsoft headquarter is, it's a little of these, but there was some delay. For us, always the price is important and not that we hit your expectation on land sales on a company visit. That's why that will come. We think it will come in Q4, but it could also be that it comes then next year.
On California, obviously the fire in September is also not helpful. You saw the fires again, very strong in California. We can see in California, and I've spoken to our people, what we see is all of the special asphalt aggregate is better. What was markedly just for us also, what was reaching in the best performance was for us also the Seattle market. In Seattle, we had clearly delaying projects in a very big work. We have a big job in the new Microsoft campus. That's a multi-billion dollar project in Redmond, Seattle, where we are the prime supplier. There was a delay in that project, but what I understand from our management, talking to them, in October, our volumes are clearly increasing. It's not that the work is not there. It's more timing issues.
If the weather is okay, we should have a strong finish in that aspect.
Just quickly, the Q4 2018 quarry sale profits in the region or what, please?
I don't know. We cannot tell you tonight. I don't know by how. 18? 18. Totally. Totally full, but about EUR 25 million.
Thank you.
You're welcome.
We've got time for two more questions, please.
Another question comes from the line of John Messenger from Redburn. Go ahead. Your line is open.
Hi there. Maybe just on that last comment made, can I just confirm that the five was in the fourth quarter? It seems a surprisingly large number, just so we're all clear in that I can't think.
I'm sorry, yes. I'm sorry, where?
Fourth quarter.
Okay.
Yeah. In terms of just Middle East Africa, obviously, when you think about year-to-date or for the quarter, could you just give us? Obviously, you mentioned Egypt is a negatively dark producer, or was. Can we just have an idea of how that has evolved in the third quarter? What is your kind of prognosis for both Egypt and for Turkey thinking of next year for the MA?
Yeah. Mr. Messenger, I think I mentioned, I think we can be really proud of our results in Africa in Q3. If you look also for the full year, we are just a couple of million EUR below last year. That shows you even with the two very bad markets in Egypt and Turkey, we can compensate by better results in other African countries. Just to be very clear, our Egyptian results on RCO levels is down versus last year, EUR 40 million. That's a lot of money. Turkey is also down close to EUR 9 million or EUR 10 million. These EUR 40 million for the first nine months, we have more or less compensated by better results in Morocco, better results in Tanzania, Ghana, Togo, et cetera.
That shows you that our portfolio is quite balanced, and we can compensate even big problems in this market by good performance in other markets. The outlook for Egypt is for the Q4 better for two reasons. First of all, we have dramatically cut the cost structure in Egypt, and we have totally closed the famous Torah plant. Torah plant was set up by Holcim, the grandfather of Heidelberg Materials. That's a very old, traditional plant. We have closed it down significantly, and we have closed it down temporarily. We have also closed one line in our Suez plant, close to the Red Sea, and we have already laid off 700, 750 full-time employees again in Egypt. Since Heidelberg took over Italcementi, we have laid off in Egypt 3,500 people. That's what we do. That's why the cost base is significantly down.
What we see now in October, that the market came back quite. The market was until September negatively -6%, -7%. In October, volumes are very strong, and we have also led a price increase in Egypt in October by about 15%, which seems to stick. Let's wait and see, but at the moment, the outlook trend is our friend, let's put it that way. That's it. Okay.
Could I have all the write-offs for Torah, has that all been taken or that hit in the?
Yes. Yeah. That's all in our cost base, obviously. Yes, of course. That's why for next year, our result improvement for Egypt will be significant with a target to be RCO breakeven, because we have a cost saving, volumes and pricings unchanged, of about EUR 15 million on an annual basis and EUR 5 million. That's a lot.
Okay.
We are taking it during this year. Okay? Thanks a lot.
Great. Thank you.
Next one. Last question, please.
Okay, last question comes from the line of Reza Sabatski from JP Morgan. Please go ahead. Your line is open.
Good morning, everyone. Just one question then on Indonesia. Results very strong in Q3. Do you see room for further improvement in pricing in the market? Also volumes were a bit soft in the third quarter. Are you already seeing a pickup this quarter?
Yeah. Indonesia, I have to say, our market assessment for this full year was too positive. If you recall, we said into election, first half was flat. We said second half, we would expect the revenue for about 50%, and then we would see 4% for over three year. That is not realized. It was much, much more. If you check with other cover, I think totally Indonesian market, according to publications, was down 2% to negative even more. October was again not complete from start. October was better for us, especially as we are in October, more or less on last year's volume. You know what I mean? It's not boom. The problem is that the commercial part is still relatively weak, or they wait a little bit half of the new government.
All the ministers haven't been appointed yet, the administration is not still settled in, that's why also infrastructure at the moment is relatively slow. For next year, we would expect Indonesia really to grow again 4% to 5%. On the pricing side, that needs to be watched on the market. What we see now, pricing is up 10%. We have been not very pushy on price increases in bag cement for some strategic reasons. We will see next year the market will be busy because Semen Gresik is switching from the Holcim brand to their own brand. That will create some trends in the market, we will see.
Are you happy with the current level of margins in Indonesia?
Not fully yet. We gave guidance that we want to go back in cement to a EBITDA margin of 25. If you look to our numbers in Indonesia, I told you to go up. We are at the moment at 23 point something, there is still a little bit off guide. In the first Q, we were down to 19%. We have significantly improved the margin this year by 4% or 5% this time.
Great. Thank you.
Thank you.
Thank you for asking. I'm sorry to cut the rest of the question was asked. We are out of time again tonight at the analyst dinner. We will also be on the road today in London, tomorrow in Dublin, next week in the U.S. Thereafter, we are going to attend the Americas Merrill Lynch conference in December. There's ample room for meetings with us. Thanks for joining in today, and see you all later. Thank you very much.
That's it for the conference for today. Thank you for participating, and we hope all this connects.