Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to today's Half Year Financial Report January to June 2019. At this I'd now like to turn the conference over to your speaker today, Christophe Beaumberg. Please go ahead, sir.
Good afternoon to our European participants, and a warm good morning to everyone listening in from the My name is Christoph Dunlberg, and I welcome you to today's Analyst and investor call on the Hydro Director and Q2 results. As always, we'll start with the presentation from, Doctor. Scheifele and Doctor. Nigga, and we then have ample time for Q And A. In that short introduction, I hand over to you, Doctor.
Shafran.
Okay, Mr. Butler. Thanks a lot. Hello to everybody. Good afternoon from Heidelberg.
Thanks a lot for joining us in the call before the summer break here in Europe. As usual, I lead you through operations, but then I will follow on the financial part. I'll start this Chart 3 overview. I think overall, we have delivered solid numbers, which are very broadly in line what the market had expected. I think it's also fair to say that Q2 is the most difficult comparison for us this year or last year Q2 was relatively strong, where then the market slowed down significantly in Q3 due to weather impacts.
So on
the top line, I think we see a
growth rate of 7%. That's good. The company is growing also without M and A. So the underlying gross potential of the company is good. EBITDA went up by 6% and earnings per share are neutralized by the 1 off impact of the divestment of Grain is up by 38%.
If you look to the numbers, it is very clear that we had significant margin recovery in Asia and Europe. In Asia, the market recovery is driven by a strong pricing in our core markets like Indonesia, India, and China and also Thailand and at the same time, clearly lower input costs, meaning, the coal, new car, the coal, is clearly lower than last year. And our Asian operations consume a lot of coal due to the fact that the sort of the cumulative rate vary significantly, the lower than in Europe. In Europe, marginal recovery is very much driven by pricing, yeah, and also lower fuel costs, but that is more or less to a large extent compensated by higher electricity pricing, which has to do that the CO2 price in Europe went up and that had also an input and that had also an impact on the electricity prices. North America, I think, results are a bit, slow.
That has to do, one effect is obviously a weather. I think you saw it also, from the calls, from the competitors, which already reported, they were about 3 hotspots one was Northern Texas, Dallas area was very bad in May June. That's a major area of our operations. The second one, Midwest had very strong rain, and also the whole supply chain of the Mississippi was a little bit interrupted. And then California, especially the Bay Area had a weak first half year I think PCA came out on Friday.
And if I recall, the well california cement consumption 1st 6 months were down 8 to AR8.8.8% Yeah. And then in Africa, the result is down versus last year, that is 100% due to the market situation in Egypt and Turkey. SG and A's cost saving program are a target of 1000000, we are well on track we had already secured about 80,000,000. So we are 1 year ahead of our savings. I think results are characterized by strong cash flow, good cash conversion rate, And this trend will continue deleveraging to place with about 800,000,000.
I think this is okay. Our portfolio optimization program is also running according to schedule. You know that we have a disposal target, a disposal proceeds target of about 1,000,000,000 for 2020. We have, by now, executed about 940s, further deals to come in the second half. So we are confident that we are going to hit these numbers.
On Chart 4, that's just the overview. You see the volumes operating if they are. And you see also that in In Q2, we had a clear slowdown in volumes, mainly due to Europe, U. S. Was more or less flattish.
Earnings per share up adjusted 37.9 percent and on Chart 5 it shows you a little bit the EBITDA development, 1st half year in Q2. And you see, obviously, that the growth spots, good over the first half year, especially in Western Southern Europe, Northern Europe, and Asia and with a negative in Africa and Mediterranean Pacific. If you look to the bridge, you see solid pricing on Chart 6, a volume effect, cost impact and then we have an EBITDA close of about 5.7%. And if you look to the same, on Q2, the result is up by about 0.2 and you see we had a negative volume impact of about 38,000,000. And energy costs 1st half yield more or less flattish, there are 2 different trends in it.
You know that our energy bill totally is about the 900,000,000 is about 1,000,000,000. The 2 biggest pieces is 1 electricity with about 900 60 and then coal with about 5 60 and coal went down compared to last year in absolute numbers by about 1,000,000 and on the other side, electricity went up by about 1,000,000 in Europe due to CO2 pricing and that has that was upsetting. So more or less, it's flattish. Sustainability Report. Just to inform you, we have published our Sustainability Report.
It's available online. We are clearly committed to the CO2 targets as an asset laid down in the Paris treaty. And it's our vision that we can produce by, on the latest by 2050 as CO2 neutral concrete by, maybe by reducing the CO2 emissions by about 30% by 2030 and also thing in technology for carbon capture storage and especially recycling. If I go to the regions, yes, chart 12. Let's talk about, North America.
Let's look, let's look first to the volumes. Do you see volumes in the second quarter? In Cement more or less flattish. We had different developments. Canada was slightly down by ongoing market weakness, especially in the Paris and a little bit of slow start in the yield in Seattle, where residential is down, Jac, then California was down by about close to 60,000, 70,000 tons.
And that was compensated by positive market growth, especially in south, but also in the region, north.
If you look to the, results, then
we see SEO is down by about 4.7%. You have to see that in North America, We had a negative inventory impact in total for the half year of our 20,000,000, which is split 10,000,000 in aggregates, mainly in the south or in our Texas operations, and the other 10,000,000 in cement, and that goes mainly in the region north where we had relatively strong volumes and where we were selling off stock and the same was in Texas that were due to weather we could not produce as much as expected. We're going to recover this in the second half. And that to a certain extent explains also the drop in margin in Cement and aggregate. Then, if you go to Western Southern Europe, if you look to the volumes, Williams are down in absolute terms by about 400,000 tons, mainly 3 Countries Spain is down by about 200,000.
That's just a cut of exports due to CO2 prices. Italy is down by about 80 to 120. That has to do with deconsolidation. And then we have UK where the market was weak in Q2, which was down about 40,000 40,000 tons, Germany, being in France, way of okay. Resize development in travel Western Europe, you see very strong also in the second quarter, up 24,000,000 like for like 11.5 percent.
Main contributors Italy, Germany, Spain, and France. The only country which had a negative result development versus last year was U. K. Margins, I think, are clearly recovering okay. Northwell And Eastern Europe
next chart, if you look to the volumes, volumes are
bound by about 600,000 tons out of which 150 is the deconsolidation of Ukraine, which we deconsolidated by 1st May, if I from the 1000 tons less in Norway and Sweden due to reduction of exports to Africa, because also due to CO2 pricing and market weakness in Oslo and in Stockholm in residential. We expect to recover this to a large extent in the second half by big infrastructure projects the ring road around Stockholm in Poland, our volumes are also down by about 150,000 points against the market growth of about 2%. In Poland, we focused very much on pricing. Pricing is up and the focus was on pricing. First, result development in the region, positive, clearly driven by Eastern Europe, the Nordics are down in the quarter, clearly about 1,000,000, whereas the Europe in countries like Poland, Hungary, Romania, Russia are all up.
Eastern Europe is spec. Volumes are good. Pricing is strong. Could cost our balance. So, we had also a good outlook for the second half.
If you go to Asia, chart 15, you see also in Asia Williams in the crude tool down 300,000 tons. That comes more or less 100% in Hamburg from India, where we have in the south of India, a clear price first strategy where we lost volumes against the market, which is flat. It's a little bit surprising. To see that the Indian cement market in the 1st 7 months, I talked to our guys yesterday, is about flat. Normally, India both between 6% 7%, but due to the election and whatever market is flat, we expect now the market to grow in the second half with a total closure of 2% or 3%.
The market in Indonesia, 1st half year was down minus 2.3%. We had clearly negative market growth in April, May. June came back quite strongly with about 90%, but the whole quarter was still negative 1st half year minus 2.3%. Indocement was more or less flat. And also, July market is still more or less flattish.
We expect Indonesia now in the second half to pick to pick up. And then if you look to the results, results in the quarter up, a 22 percent, 25,000,000, mainly 3 countries. Indonesia are clearly up. If you look
to the first half numbers, I don't know
if that Indocement has already published on this today? Okay, sorry. Thank you. So you see that our result in Indonesia, intercementals is about 40% up versus last year. That has continued in the 2nd quarter and the other piece comes from China, well, result is strong and also India result is really strong, good pricing, lower input costs from coal and pet coke has been, finding out the result.
If you look to the cement margin, cement margin, the increase comes to a very large extent from intercement. If you look to the EBITDA margin of intercement, you will see in the first half year, we have improved the margin by more than 3% points compared to last year, and we effect, this Indocement Cement margin EBITDA to go in the second half in the direction of 25% ahead. That's the target, which we see also midterm as realistic for Indonesia. And that has been driving the margin expansion. If you look now to Africa to the numbers, volumes are slightly up, what's the message Egypt is down in the quarter by about 50,000 tons.
The market in Egypt was in the first half year about minus 6%. And then also Turkey, the market in the 1st 6 months domestic was down 40% which are concise market leader. We have pushed export export as much as possible. Our volumes were down by about 110,000 tons And the positive growth for the quarter comes from the other African countries namely toobou, but also Tanzania and then all Israel where we started our cement operations have contributed positively to the growth. If you look to the result in the quarter down 20,000,000, that comes more or less all from Egypt and Turkey, they are about $17,000,000 or $18,000,000 down, result wise, that explains the development and the cement margin drop is explained by Egypt.
In Egypt, the problem is that cement pricing is down by about 8% to 9% and inflation in the country is running at 20%, 21%. And that obviously exercises significant milestone pressure. If you look to the trading activities, maybe three points, First of all, is always clinker pricing is important. 2 markets, Mediterranean and Asia, Mediterranean clinker prices are further propping, Turkish spots will double this year to 20,000,000 tons and the price has started to come beginning of the year, we were talking $31.32 we are now down at $26,000,000,000, yes, and in Singapore or So, the price comes down beginning of the year, 30five-thirty 6 is now down to the 31. And, what we see also, China is interesting.
China will become now the 2nd largest or not even the largest importer of cement and clingo. They're going to hit this year about imports from about 18,000,000 tons. Because pricing in China is very attractive. So similarly, we think we have done the figures out okay, our solid, strong cash generation and portfolio optimization will continue With that, I hand over to Doctor. Majer for the financial part.
Yes, thank you, precisely. Good afternoon, ladies and gentlemen. Thank you for attention. I will go forward to the financial messages for first half year twenty nineteen. If we look to the profit, we can see that the adjusted group share of profit rises by 38% in the first half year sorry for the typo here in the in the headline, if we adjusted for AOR, the adjustment comes from the deconsolidation of the Ukra in business.
This is the currency loss in the Ukraine does not have been the point in time of acquisition and the deconsolidation of the bitterness. And this, we can book under IFRS rules only now for all other a lot that we had already provided in previous year and you may remember that I was guiding this already in the previous quarters when we announced the sale of this business.
Interest expense
are also server reduced but financial results became more negative mainly due to the reclassification of the interest on the leasing spend. Yeah. That makes 1,000,000 of the cost increase on the financial results. Tax expense further improved in H1 expense by 1,000,000 below previous year of 171 and that we can confirm here the guidance of 20% to 25% of current Texas. The company then shows a pretty strong free cash flow generation.
And in the last 12 months, this has translated into significant deleveraging free cash flow over the last 12 months increases to 1,000,000,000 And in this figure, we have already deducted the leasing payment. We have not booked this as repayment of debt, but we have to put it as part of the free cash flow as we think it's a permanent cash out here. The net debt goes down by 1,000,000 year over year. We have applied a very quick cash CapEx discipline as you will see on the next on the coming slides further down in the deck. Our portfolio optimization has further progress We have total proceeds of 1,000,000 with very limited impact on the operating results.
And in the last one, we had a very successful emission of Eurobond volume was 1,000,000 at Detroit low rate. So in this respect, we are very confident that we can reach our net debt target of 7.7 1,000,000,000 without the leasing, without the leasing obligations by end of 20 19, you can see that the income statement on page 21, you can see below the results from current operations that the additional ordinary results stands at -1128. This includes the 1,000,000 loss from the consolidation of the Ukraine business. You see the financial results going down to 184 and the income taxes to 150. So, adjusted retail profit is 3.48 percent up from previous years.
Cash flow statement on slide 22, the gross cash flow is up 300,000,000 based on good performance. We have invested a bit more in larger capital compared to previous year on strong business development and strong turnover, up 64,000,000 tons of cash from operating activities is up 217,000,000 investments are down by 470,000,000 down to 501 and all proceeds from fixed asset disposals are 150,000,000 up and this does not include the disposal of our part of our participation in Morocco of 136,000,000 now to come back to that on the next page. There you can see it on slide 23, our portfolio optimization in 2018, we have post 568 first half year twenty nineteen, two ninety and on the 1st July of the Q3 we have disposed another 80,000,000 for our Italian cement plant. On the right hand side, you can see that the single items, which are the shelves in Simone tomorrow, the cement volume, Armenia ships in UK, the Chinese business, etcetera. So we are very confident that we can reach our target of 1.5 period from 2018 to 2020.
And I would like to reiterate that this has very limited impact on our operating results. Then the chart 24 of page 24 on the right hand side, the horizontal green bar shows you the free cash flow after leasing payments of 1,000,000,000. And then if you go down to the horizontal blue bar, you can see a the very left, very small segment of this bar, which is only 18,000,000. That's the balance between our growth CapEx and all of these policies over the last 12 months. So what we see is exactly what we announced, that we will have a net growth spends of close to 0 because we have made as many disposals as we have acquired new businesses.
And on the right hand side, you can see the dividend $417,000,000 to high defrost Cement shareholders up from $3.77 in 2018 and from $2.04 in 20.70. So we have released our dividend payment And on the very right, we can see 169 in dividends to minority shareholders of not fully owned subsidiaries via the fully repatriate the cash from our subsidiaries. That's mainly Indonesia, Thailand, Bangladesh, Ghana, and the number of others. So we do not tie it up cash in those entities to repatriate it even if this increases our debt position, but we think that's the right policy. Below you can then see the net debt, as development, the like for like net debt goes from my mind 56 down to 9,216.
This is a deleverage of close to 700,000,000 and you have to see and take into account that we have shifted in many cases from leasing 2 direct purchase and acquisition mainly on yellow trucks and yellow equipment and this of course has increased our CapEx spending, against the like for like net debt, yes? So, the figure is even better if you see it here in the chart, we've also reduced the lease liabilities by 129. So in total, we bring it down to 690,000,000 So on Slide 25, we see the balance sheet So this only shows a moderate increase of the balance sheet total of 1,700,000,000 overwhelming amount of this is the newly consolidated leasing assets and leasing obligations to account for 1.3 or roughly 1,300,000,000 and all other positions are more or less stable. I think that's it from the financial side and I would get back to Doctor. Schaejoli for the outlook.
Thank you very much. Okay, the outlook is, no, usually confirmed really the outlook volume increase.
I think growth is not problem. We expect margin recovery, especially in North America and aggregates and cement in the second half. On the result. I think the guidance at the moment is at about 6% EBITDA growth. What I see, I think we will comparable with that, we have, a close 3 ahead of us, which is a relatively low benchmark for us, because last year was was exceptionally weak.
And on the portfolio, the target is to have about $500,000,000 disposal proceeds, that means net close CapEx, yes, cross CapEx against disposals would be 0 or below net debt. The target to hit the number of 1,000,000,000. Overall, we think we are well on track So that's it from our side and I'll hand over again and we're happy to answer any questions which you might set. Thanks a lot.
Thank And your first question comes from the line of Arnold Pinnettau from Unfield Investment. Please ask your question.
I have two questions if I may. The first one is on just to understand the energy bin in H2 because we can see probably more coal and pet coke energy cost deflation in H2. We have seen in July, CO2 price in Europe increasing. So all in all, is it fair to believe that in H2, you will capture more of the energy cost deflation and the group level, even if you see, some inflation on the electricity pricing. In Europe, especially as last year, if I remember well, part of the profit running in Q3 was linked to the price in Germany and there is a more easy basis comparison.
That will be my first question. My second question is on the acquisition side. We have seen yesterday that your subsidiary in Morocco Simone was announcing the acquisition of a grinding station and project of greenfield cement plants from a competitor. Is it integrated in your 7.7 1,000,000,000 net debt targets, or do we have to consider to add something for this acquisition?
Hello. Of course, it is included.
And that's included. We're going
to have to offset that from other gross CapEx and we think this is a good investment in the Moroccan market. We think is a very attractive one. And we buy an existing grinding unit in the south. That's a newcomer. You know, that we typically used to have a market share films 200 percent in the flowers with cement pricing above 1,000,000 per tonne.
So that's a very problemable market. And that's why we made this, positive move. And that's why the payback to take over this project is very attractive because it already pace without this potential project, which is in the flavor asablanca area where we have now acquired a limestone deposit, which is fully permitted and which gives us mid term next maybe 5 to 7 years, the possibility to replace our Malakash operation, which is running out of limestone. So this, I think this acquisition with a very humble price is fully justified. We had 2 or 3 times to look at it and I think that works.
And it's included in our CapEx and net debt guidance. On the energy bill, You're right. Last year, we had this increase in electricity costs in Europe. Now, at the moment, I would agree with you that normally in the second half, we should see more fit then in the first half from lower coal costs and lower pet coal costs because in the first quarter or until maybe there's still stock relatively highly priced code and pet code. Now that has really changed, yes, that's on the website, but on the other side, we see electricity pricing still going up.
We're a little bit now, we are a little bit careful in Europe. We are in Europe now to a very large expense hedge for the second half. I would think we are probably hedged to 80% or whatever. So the risk is much smaller than last year, starting with the CO2, you'll never know, and what we also saw was last year, a problem where the push files in current homeyards, where which were caused by the electricity blocks. And then the plants were stopped and the price went through the roof.
I keep my fingers crossed that this does not happen again this year because that might even lead to shortcomings to power cut in the, in the second half. So overall, normally savings on energy in the second half should be against last year, maybe 1000000 to 1000000 whereas in absolute terms, whereas we have been flat overall in the first half year. That's our best estimate at
the moment. But any, you know what I mean, you never,
I do not control the COVID points. So, let's wait and see. But, it's a guidance. That's why.
Yes, I understand, George. Do you see any of the, what I will call, as you said, attractive opportunities to consolidate zone market and lower coal. We were reading that in this event would be perhaps interest, consolidating Indonesia. We see also your issue in Egypt. Would you participate to some, deal there, to to.
Yes.
Mr. Pinedale, I think we should not have now a philosophical discussion about the opportunities in the markets. As you know, I think a lot of markets above great opportunities. We have disciplines. And in Indonesia, we have to see how things, develop at the moment, I think there are no opportunities that might change and then, we will start thinking again.
Okay, thank you.
Your next question comes from the line of Paul Majer from Exane BNP Paribas. Please ask your question.
So, the first one is on the the phasing of like like EBITDA growth. You obviously did nearly 6% in the first half. I'm looking at all your comments for the second half and the user base and particularly your comments on price cost dynamic is it realistic or something you should be able to do a lot better than that in the second half? And obviously I'm asking because if we look at what content of your guidance is suggesting, it didn't look that demanding for the second half. And the same question is on capital allocation.
I think around Q3 last year, talked about the potential of considering share buybacks from around the middle of 2019 and obviously we're in the middle of 2019 now. So, just wondering given the strong cash generation and that's something you're still thinking about whether you're very much focusing on deleverage in a minute.
Okay. And also hello, I, first of all, share buyback, we have discussed an issue internally the current price level, we think that is not really an attractive opportunity for us. So we keep that a little bit in the back. And the second one is the question on the second half to forecast the future. It's always difficult.
You know that, I think you are right. There is the question is where is upside, where is downside. And I would say I see clearly upside in Indonesia. That's difficult to forecast because this is not our country likes Switzerland or Germany. So it's changes every 2 or 3 months, but it's clear that in Indonesia, we have,
at the
moment, clearly tailwind, the currency is strong twothree of our costs are both denominated. So that helps us. Secondly, coal new cars will be down and stays low. So input costs are relatively low. We pricing, as you know, we have started last year, as we did this year to increase prices in bagged cement.
We have already started in some regions in July with a price increase of about $1.50 back cement, yes? And, last year, we increased the price in total by about 6 to 7 dollars, yes, whether we're going to do that. Also this year, I don't know yet, that depends a bit on the market flows and competitive behavior in the market. But there's also some pricing, potential. And secondly, I would also expect that the market in the second half should have a clearly stronger run because the first seven months here, the market is slightly negative.
That is for Indonesia, very unusual. So Indonesia, I would say I see upside, that should help us also in Europe. I would expect Germany, Eastern Europe, also France, pioneered to do go well. And then the question what is the risk. The risk is a little bit UK.
Brexit volumes were particularly weak in the K. In May, June. We have been fully on track until April. May, June volumes were down double digit. We are now back again.
July, July, the marketing case is much better. I talked to our guy yesterday. I see also risks, you know, Australia, in Australia, the housing downturn, especially in Sydney, but also in Brisbane and Melbourne is more stable and more significant than what we would have expected. And the infrastructure projects are coming in a little bit delayed. And I think that's a little bit the, and how that plays out, let's rate and see.
Thank you. Your next question comes from the line of Gregor Kirklitz from UBS. Please ask your question.
Hi. I've got two questions. So, the first one is just to come back on this leasing point that I think you mentioned on the call that there was some dilution from effectively taking on balance sheet, some yellow kit. So can you give us a sense how much that was? And one point I'm talking about Slide 24, roughly how much that diluted the cash flow in the half wherein I guess it was only in H1.
That's question 1 and question 2 is, can you give us an update on European pricing trends. I think you mentioned a few numbers like in Poland, but where is pricing now settled in July? Core market in terms of, I don't know, percentage change would be helpful. Thanks. Okay.
Could you just start with the pricing as a pricing climate overall in Europe is, very good, is good. I think it's clearly ahead of inflation, so we have done, we see price increases in France in Germany around, which is obviously in percentage different from country to country, you know that in France, the pricing is still close to 1,000,000 in Germany. We are about 70 and in maybe 6263, so you can calculate the percentage parts, but their pricing is really up in around $0.50 up and not compared to the countries. And then we see also good pricing. Italy is up by about perform Poland.
I explained to you, we push 9. We are now at about Czech Republic is also up by about 1,000,000, Hungary for 1,000,000 and whatever also Norway, Sweden, up, Spain, up 1,000,000. So overall, Europe, pricing, I would say the best price increases we have seen for a couple of years. That works well. In U.
S, the picture is a little bit different. It depends on region, for us, the biggest challenge remains the region north, where especially in Greater New York, more East Boston Upstate New York, Massachusetts market, there is clear price pressure due to, back in us and still, capacity from a compatible. So the prices are there down $3 to $4 whereas in the Midwest we see price increases of about $4.00. California is up $7 to $8. Texas is also up So that's okay.
But overall, in the U. S, I would expect price increases maybe for the food to be up to even $1.50 maybe $2, mainly due to the fact that pricing in New York and Boston prices are clearly down. $5 and that obviously puts a certain ceiling on the price increase in the North America.
Okay. Okay. On leasing, Mr. Muklitsch, if you have a look on the slide 24, you can see it. We have increase in age 1363000000 Yeah.
And if you look to this quarterly report, you see that on the 1st January, the amount has been 13,11. So we have invested roughly 6 1,000,000 in the, replacement CapEx, the in business CapEx which has been leasing before what we call bank leasing. Our total budget for the year is roughly 200,000,000. We will not need this in total. And you can see on the figure that it goes down over the half year from 29 down to 1,000,000,000 dollars, $267,000,000.
So that's exactly the effect which we expect that over the year, the capitalized leases go down as we shift it from leasing into CapEx, Why do we do this? Why have we not done this in the past? The leasing cost is, the financing costs for leasing is in the leasing more expensive than if we're refinancing the capital market. However, if you do leasing and leasing stays balance sheet as it was in the past as the leasing cost is higher than the cost of debt, but lower than the cost of capital it improves the return on invested capital. This advantage now is gone.
So as a consequence, we shifted out of leasing and bring it into, say, business CapEx and we think that for balance, then the invested capital will go down. That's the story about leasing.
Your next question comes from anorde Lehman from Bank of America. Please ask your question.
Thank you very much. Good afternoon, gentlemen. I have two questions, if I may. Firstly, you mentioned a couple of times the Turkish export And I think you're doing some exports as well, but the fact that they've overall doubled. So could you elaborate a little bit on that?
Where are these export going and have they been disruptive in some of your Mediterranean markets? That's my first question. And also, you mentioned on your Nordic exports that you were reducing this export out of Norway, I guess, into some African markets related to CO2. Are you making an arbitrage based on the cost of production in no way and the fact that you 2 have moved up and does this mean that these exports now are not profitable?
Yes. So, Lehman, thanks a lot.
On the export, it's very similar. If you are if you look now to the CO2 price development over the last 15, 16 months, about 15, 16 months ago, CO2 price was still at only 4 total tons. So it was a relatively minor amount. Now it moved up to close to 30. And then, obviously, the picture changes, to give you an example, like for, an overall to be clear overall on group level, hydroxide cement is long until what is it end in 2022.
So we're not, we're having bought a lot of CO2 rights, especially for tail selling the acquisition. When we made the acquisition before you then at 4 Euro, they are now much, they have now a much higher value. So that's also clear. We are overall as a group, we have not a problem. But if you look from a single country, take, for example, Norway, Sweden, I think they are short.
Both countries together, let's say, 400,000 tons that meaning for their current production, whether they have to buy CO2 rights beyond the allocate rides of about 400,000 tons. If the price was for euro, that was a cost time of 1.6, not a big problem. Survival is €30 that's across the item of 1,000,000, which you will fully see in the balance in the P and L of the country, right? And, that's the problem. And that's why it's clear as such a CO2 price level exports, are no longer, it doesn't make any sense because you have to calculate the CO2 cost on the last front and then the costs go to go through earlier because we you have about the emission of what seven hundred kilo tons.
So you have 30 you can imagine. So you have to add about per tonne and our variable cement production costs are maybe 24, 25. So you double the variable cost. You know what I mean? That's why it doesn't make sense.
That's a different story. If you talk about Turkey, Turkey has no European trading scheme and that's why they have low CO2 costs and that's why we have shifted now the African exports from Norway of Sweden. We have shifted them to Turkey to Arkansas. And that's the reason why we have doubled our exports in Turkey. Which helps us in the current currency crisis in Turkey because our company in Turkey is still alone, meaning we have more export in dollar income than dollar costs if we buy oil or coal and that's why we are in a very good position in Turkey because our competitors in Turkey are all go along.
So if the currency goes down, it becomes for them much more expensive to buy code and whatever whereas we need the currency goes down. We made a gain because we all go along. So that's the, that's the strategy behind that. And the Turkish export, I think for the whole market, the data to more than 20,000,000 points, yes? And, they go to, boss, they go to Africa, they go to North America, they go partially to Europe, they go to Romania, and we see the trucks all over the place.
South America as well.
Yes. And go to CL2 emission remained the same.
As long as there is no
border protection, no border exchange for CO2 rights, you see the global CO2 emission remains unchanged unless there is a mechanism, which outbalances this important export issue. Otherwise, the whole CO2 trading team doesn't make a lot of sense.
Thank you. Your next question comes from the line of Robert Gardiner from Davy. Please ask your question.
Good afternoon. 2 for me, please, both related to North America. So, one, I was just wondering if you go back on the margin development in North America in Q2, I know you mentioned inventory impacts, but it seems like some very large margin declines in the quarter. Just wondering, looking for some more detail on that. And secondly, again, in North America, in H2, in your H2 comments, you talked about potential upside in Europe Indonesia, I wondered how you feel about North America in the second half of the year?
Thanks.
Yeah. As a North America, second half of the year, I would
expect that especially in the region south and also in the region north. We should have a good run-in, I think, especially the reaching towers, should recover because beyond The point on the margin in aggregate is mainly related to the region of stars. So we have that inventory issue. And, we think we're going to do a better. I mean, also stronger pricing in the in the second half.
We had for us to serve the market weakness in Dallas, which is for us in the important market, where we had some we had a customer loss, which we're going to compensate now in the second half, which has impacted our profitability a little bit. And in the cement sector, you have to see Mr. Garland, a little bit of mix impact yes, the marginal slowdown has to do that. We have relatively strong volumes in short, Florida market. And we are still without, you know, our lead plant in Birmingham, Alabama.
And that's why we had to buy clinical and cement from competitors. And we had also in Florida in all the floor And if you buy a cement single from a competitor volume in pork, that means the local business, the margin is lower. That's why you have a good revenue growth, but your the contribution to earnings is relatively weak And that's what you see exactly in the 2nd quarter in North America that we had a relatively good volume growth but there was no operational leverage. So we saw it's weighted down, yes, that's very different from Asia. Well, for example, the the top line was negative, but the bottom line was significantly up.
And that has to do in North America. Also with the, for that mix, Fernando explained it also. And the other point was our ready mix volumes, especially in the Houston area, are growing significantly. Houston is much in a much better shape than last year. But as you know, the ready mix margins are much little more, and that's why we have a good top line development because we have a relatively need all the good also, a disappointing bottom line development.
And we think that this will even out in the second half. Thank you.
Your next question comes from the line of Tobias Raymond from Morgan Stanley. Please ask your question.
Hello, San Juan. Thanks for taking the questions. 2 from my side, if I may. Firstly, on the volumes in Western Europe, I was a bit surprised, like for like cement volumes were down 2.5 And if I look overall in country sector, many volumes are tracking at sort of mid single digit levels for Q2, Of course, you mentioned already about a bit of a negative kind of effect, but even if I had to spec, I think volumes are still down. Maybe you could elaborate a little bit there, whether you have some volumes maybe due to strong pricing.
And then the second one also on volumes in the U. S, you mentioned demand in California, but relatively weak. Could you elaborate a bit what was the driver there and what do you expect for the region for the year as a whole?
Okay. Kind of coming off the upstate California, you're at home, so in all business that we separate, we see more from kind of coming off like the south meaning the Bay Area San Francisco, which is North And South, that's then LE and San Diego. And what we see clearly is that the north, the bay area was clearly weak. There are clearly residential is week, yes, and that's where we have a strong position. So our market share in the Bay area is similar to the only cement producer, but 40, 45 percent.
So we overproportionally suffered in, in the northern part of California. Also Central Valley is so sacramindroreno is weak. LA is doing a better. That's what we see. And what we would expect, which was disappointing also for me.
And if you go into macroeconomic numbers, which are available on a state level in U. S, then you will see that the infra structural spending in California in the first time here was relatively weak. I don't know whether you know that California the past big infrastructure highlighting for the next 5 to 10 years, which provides additional spending of about 1,000,000,000 per year. And we had I would have expected that this kicks in pretty much now in this year. What we see now in May, June, we see the first project coming from that infrastructure spending and we expect, more to come in the second half, which should help us, especially also in our status division, yes?
So there's a certain, if you want certain timing delay because California should really grow in interest because the money which is there is very significant, and that's normally the market outlook should be, should be good. Then what's your question about Western Antonio? I try to be very specific. That's no longer the rule in the industry. Normally, we are now very vague.
I told you we are about 400,000 tons And I told you that state is down $200,000 because we stopped export. Made same reason as I explained, to, I think to Mr. Lehman on the, on the Swedish and Norway, site, yeah, due to CO2 pricing, Italy volumes down by about 100,000 tons due to deconsolidation impact of, the, in Italy and the rest was okay.
Your next question comes from the line of Rajesh Patki from JP Morgan. Please ask your question. Yes.
Hi, good afternoon. I've got 2 questions as well. First one is on Indonesia. With the strong pricing trend during the first half, how do you see margin develop in the second half, particularly as you expect a pickup in demand? And the second question is on the financial expenses.
You mentioned application of IFR 16 amounted to 22,000,000 higher impact on financial expenses. Does that represent a fair underlying run rate for the year?
Okay. Yeah. I also on Indonesia, we talk now not Indonesia consolidating Indonesia talk about cement division Indonesia, that's where the new thing is on now. And the point is last year, just to be my idea, we had a EBITDA margin in the cement division of about 19%, which was coming down the good old days of 40, 45,000,000 or 42,000,000. So we had a certain drop, yes?
And the $100,000,000 question or even more on the market was what is the normalized, EBITDA margin in the Cement in Indonesia? And if you check the notes of the other participate longer in the call, but until I said to the market, we would expect Indonesia to go for 25%. I think that is achievable. We think is realistic. If you look now to the first half, your, our EBITDA margin, that's what I said earlier in the call.
Went up by 3% points to 20%. And I expect for the second half that we hit a number of 25% or even above 25%. And then you can calculate, which will give you for the full year, maybe 22, 23. But Second half, we should reach a level of 25 percent. And, on pricing, just to be clear on Indonesia, It's a complex market in Indonesia, just to give you an idea, Hyperboard sells about or Indocement sells about 18,300,000 tons of cement.
Out of which 15,000,000 tons are bagged cement, where we have a brand premium with our Tiga OOTA brand, we sell about 3,000,000 in bulk. In bulk, forget about price increase, yes, this is a crazy market that is all about competition. The Chinese are in and moreover. So on price increases, we talk about Baximin. And what we have done last year the second half, we have increased the bagged cement prices 4 times in total by about $6 to $7, which was a price increase of about more than 10% and that price in bagged cement remains unchanged.
That's why our bagged cement price is up versus first half year. I don't know what 10% or 14% and the average price, meaning back end buy is up 6%, 7%. These are the numbers that you just understand the exercise. And the point is what we can do now on the second half. We want to play a little bit in the market.
We could think about increasing back cement prices. And what I told you that our Indonesian Management Christian has already started price increases in July by about 20,000 20,000,000 rupee out of whatever the currency is. That's about $1.50. And last year, we did that four times in a row I thought you will be watching a little bit how the volumes are going, what the rest of the market is doing, whether we do price increase or a second or a third. That is a little bit the question on Indonesia.
And then you can calculate on your own in the second half. We're going to sell about 7,500,000 cement and then you can multiply it. Obviously, you're below $50 or $3, whatever you want. Now that's a little bit there. That's where we are, okay?
Okay. And then what's the question for the financial expenses? We have counted in the first half year twenty for interest on leases. And that's about the amount. We also expect for the second half, it will go up to 45 1,000,000.
And the other just checked the other points, which increased the financial cost where financial hedges on on in the company financing where we cannot buy a hedge in the market, mainly European currencies like, like, culture or, Qatar. That's why the finance result is a bit higher than last year. And beyond the, IFRS 16 interest expense, we seem to go down.
Your next question comes from the line of Joseph Pujal from Kepler. Please ask your question.
Yes, hello. Two questions for me, please. The first one is on the SG and A. You say that you have secured already 1,000,000 of cost reductions for the full year how much has already impacted the H1 and how do they split between geographies? And my second question is on your disposals.
Could you explain a little bit the, I would say, strategy behind these disposals? Is it to capture value? Is it to clean the portfolio of underperforming businesses? Okay. What are the drivers here?
And also how do you want to use these proceeds?
Okay. On the SG and A, the measure is that, we are well on our way. And, we have cut, especially on country overhead quite significantly where we had a run rate of about the almost 62,000,000, which we have already done by taking the measures, what other countries contributor is Australia. In Australia, we have cut down by about 16,500,000 and then also over 18,000,000. Then we have Germany, around, maybe about 6,000,000 farms Italy, just to give an idea, we are very much focused on productivity, I think, in a Me too business like cement and aggregates, if you are losing on productivity on the long run, you're going to run-in trouble.
If you compare our numbers, you will see that we have reduced the workforce compared to last years without big sales off by about 11 fifty people that shows you volumes are significantly up. We have a total resource that shows you productivity is up. And just to give an example, in Germany, in the head quarter, we have reduced by 100 people out of which 60 are already out. So you know what I mean? We are playing out ball on call Yeah.
So, and that's where we are on our way. And the message is we're going to be 1 year ahead of our savings targets because we have the 100,000,000 the fifty-fifty over 3 years and we're going to hit this year probably already 80. So, we are well on our
way. And on the disposals, disposals strategy is relatively simpler. We believe that you have to manage your asset base in the same way as you have to manage your P and L, yes? So as you reduce unnecessary costs, you also have to reduce your asset base by unnecessary assets, and for us, all assets which are not used for the cement business, aggregates business, ready mix business and ushbite business, we try to clean it up and try to dispose of it. So that's exactly what we see.
It's idled it's published in patients, which we do not need, whether it's a published in patients in Cilia or the excess shells we have in Maropo or a terminal in Sri Lanka, which doesn't contribute to value, on our audio. We'll hit more of the entire germanium by the number of whatever it is. That's what we put on the list and that's what we what we saw and these are as I say assets which do not contribute to our core business. And hence they also do not have a significant contribution to APPA now that the strategy and we think that the largest part of this program, we will have to have completed by endof20 20 and the proceeds are used to reduce debt. All finance growth CapEx are currently more for reduce that 4.
Okay. Thank you.
Your next question comes from the line of
firstly, the U. S. Volumes. Given what's happened in the second quarter, that there was no volume growth and weather disrupt given the base last year, Q3 is quite weak with all the bad weather. Do you think you can have a catch up in the second half on U.
S. Volumes and how is, how's July been in the country? The second question is, Doctor. Shise, your list of upsides and downsides to the guidance, was heavily weighted the upside potential, it seems that the UK is the only downside you're looking at currently Would it be fair to say that the very top end of your guidance would be the least of your expectations from here?
No, no, no, no, no, no, no, no, no, no, no, no, no, no,
no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no,
no, no, no, no, no, no, no,
you forgot about Australia, no, no, no, no, no,
no, no, no, no, no, no, no, no, no, no, no, really done. The key question is whether our big infrastructure projects, the 2 big projects in the Sydney market, whether they will now kick in in September. I don't know whether you have been in Sydney, recent times. You see, there are 2 very big large infrastructure projects Hensson, Australia is heavily involved. When is the new airport, there's a new airport built in Sydney, where we have a significant part of the work.
And the second, there is a significant ring road with lots of tunnels around Sydney being built where also we have significant work. And these two infrastructures are projects. We expect it to compensate the drop in residential, which is in Sydney very significant but as typical with the public administration, there is a little bit, a certain delay. And the key question is whether we can whether these projects kick in. What we have done in Australia is we have cut the workforce now significantly.
And I would say, by September, just to give you an idea, our work course in Australia, totally will be down by 10% just to give an idea. So let's wait and see. So Australia is, at the moment, an issue where we have to watch the market. We will still deliver a very good result because profitability is high, but it's a clear a clear challenge. And I talked to our guys just yesterday, especially with the management of the awesome Northhouse Wales, Sydney area.
So, Sydney, again, in July is weak, whereas the West Coast and also Adelaide south are coming back, but certainly in the months of July, for example, 20% of the concrete volumes down versus last year. That's why we have taken measures, yes? So, look, and in U. S. Outlook, I think, in U.
S, the outlook for the full year is in our opinion on volumes. It is okay. We will be below our expectation in the West. We believe that the south should have a strong run, So, Houston is back. We think we have things sorted out in Dallas.
The Carolinas are very strong, short Atlanta is booming. The region north looks good in Canada. We expect D. C. When Cuba to deliver also a very strong second half.
So on Williams, I would expect for North America for the full year, I would still expect the volume growth of, let's say, 4% whereas in year to date, we are more or less flattish. So we expect, on Williams, we expect a clear recovery. And we would expect pricing, as I said, to go up by, let's say, in cement, maybe $1.52. We have a clearly, and that's impacted New York and Boston whereas in Canada, for example, pricing is up by about $8 so, in the region west, we are up average 4 to 5 stores. So that took us very much from reaching.
Autobooks in U. S. Overall are okay. So, let's keep our fingers crossed. Tom?
Thank you.
Okay. Okay. Thanks a lot for your interest. Have a great summer. Thank you.
Bye bye.
That does conclude our conference for today. Thanks for participating. You may all disconnect.