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 time, all participants are in a listen-only mode. There will be a presentation followed by a question- and- answer session. At which time, if you wish to ask a question, you will need to press star one on your telephone and wait for your name to be announced. I would now like to turn the conference over to your speaker today, Christoph Beumelburg. Please go ahead, sir.
Hello, ladies and gentlemen. Good afternoon to our European participants, and a warm good morning to everyone listening in from the U.S. My name is Christoph Beumelburg, and I welcome you to today's analyst and investor call on the HeidelbergCement Q2 results. As always, we will start with the presentation from Dr. Scheifele and Dr. Näger, and we then have ample time for Q&A. With that short introduction, I hand over to you, Dr. Scheifele.
Okay, Mr. Beumelburg, thanks a lot. Hello to everybody. Good afternoon from HeidelbergCement. Thanks a lot for joining us in the call before the summer break here in Europe. As usual, I'll lead you through operations. Tonight I will follow on the financial part. I start with chart three 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. Last year, Q2 was relatively strong, where then the market slowed down significantly in Q3 due to weather impacts. On the top line, I think we see a growth rate of 7%. That's good. The company is growing also without M&A. The underlying growth potential of the company is good.
EBITDA went up by 6% and earnings per share are neutralized by the one-off impact of the divestment of Ukraine is up by 38%. If you look to the numbers, it is very clear that we had a significant margin recovery in Asia and Europe. In Asia, the market recovery is driven by strong pricing in our core markets like Indonesia, India, and China, and also Thailand. At the same time, clearly lower input costs, meaning the coal, Newcastle coal, is clearly lower than last year. Our Asian operations consume a lot of coal due to the fact that the isolated fuel rate there is significantly lower than in Europe.
In Europe, margin 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, 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 weather. I think you saw it also from the calls from the competitors, which already reported. There were about three hotspots. One was northern Texas. Dallas area was very wet in May and June. That's a major area of our operations. The second one, Midwest, had very strong rain. Also the whole supply chain of the Mississippi was a little bit interrupted.
California, especially the Bay Area, had a weak first half-year. I think PCA came out on Friday, and if I recall it well, California cement consumption first six months were down 8% to 8.8%. In Africa, the result is down versus last year. That is 100% due to the market situation in Egypt and Turkey. SG&A's cost-saving program, our target of EUR 100 million, we are well on track. We have already secured about EUR 80 million, so we are one year ahead of our savings. I think results are characterized by strong cash flow, good cash conversion rate, and this trend will continue. Deleveraging took place with about EUR 800 million. I think this is okay. Our portfolio optimization program is also running according to schedule. You know that we have a disposal proceeds target of about $1.5 billion per 2020.
We have by now executed about 940. Further deals to come in the second half. We are confident then that we are going to hit these numbers. On chart four, that's just the overview. You see the volumes operating, EBITDA, and you see also that 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%. On chart five, it shows you a little bit the EBITDA development first half year and Q2, and you see obviously, that the growth was 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 six. Volume effect, cost impact, and then we have an EBITDA growth of about 5.7%.
If you look to the same on Q2, the result is up by about 0.2, you see we had a negative volume impact of about EUR 38 million. Energy cost first half year, more or less flattish. There are two different trends in it. You know that our energy bill totally is about EUR 2.1 billion. The two biggest pieces is, one, electricity with about EUR 960 million and then coal with about EUR 560 million. Coal went down compared to last year in absolute numbers by about EUR 60 million and on the other side, electricity went up by about EUR 60 million due to CO2 pricing and that was offsetting, 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 really committed to the CO2 targets as laid down in the Paris Agreement, and it's our vision that we can produce, on the latest, by 2050, a CO2 neutral concrete, mainly by reducing the CO2 emissions by about 30% by 2030, and also investing in technology for carbon capture, storage, and especially recycling. If I go to the regions, chart 12, let's talk about North America. Let's look first to the volumes. 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 prairies, and a little bit of slow stop in the yield in Seattle, where residential is down. California was down by about close to 60,000, 70,000 tons, and that was compensated by positive market growth, especially in the south, but also in the region north.
If we look to the results, we see RCO 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 about EUR 20 million, which is split EUR 10 million in aggregates, mainly in the south or in our Texas operations, and the other EUR 10 million is 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 where 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 aggregates.
If you go to Western, Southern Europe, if you look to the volumes are down in absolute terms by about 400,000 tons. Mainly three countries. Spain is down by about 200,000. That's just a cut of exports due to CO2 prices. Italy is down by about 80,000 to 100,000 tons. That has to do with deconsolidation. We have U.K., where the market was weak in Q2, which was down about 40,000 tons. Germany, BeNe, and France were okay. Recycled development in Southern Western Europe, you see very strong also in the second quarter, up EUR 24 million like for like 11.5%. Main contributors, Italy, Germany, BeNe, and France. The only country which had a negative recycled development versus last year was U.K. Margins, I think, are clearly recovering okay. Northern and Eastern Europe, next chart.
If you look to the volumes are down by about 600,000 tons, out of which 150 is the deconsolidation of Ukraine, which we deconsolidated by 1st of May, if I recall it well. We're lagging about two months. We have about 200,000 tons less in Norway and Sweden due to a 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 tons against the market growth of about 2%. In Poland, we focus very much on pricing. Pricing is up EUR 9. The focus was on pricing first. Recycled development in the region, positive, clearly driven by Eastern Europe.
The Nordics are down in the quarter, clearly about EUR 50 million, whereas the Eastern European countries like Poland, Hungary, Romania, Russia are all up. Eastern Europe is back. Volumes are good, pricing is strong, coal costs are down. We have also a good outlook for the second half. If you go to Asia, chart 15, you see also in Asia, volumes in the Q2 down 300,000 tons. That comes more or less 100% in harbor from India, where we had 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 first seven months, I talked to our guys yesterday, is about flat. Normally, India grows between 6% and 7%, due to the election and whatever, market is flat.
We expect now the market to grow in the second half with a total growth maybe of 2% or 3%. The market in Indonesia first half year was down -2.3%. We had clearly negative market growth in April, May. June came back quite strongly with about 20%, but the whole quarter was still negative. First half year, -2.3%. Indocement was more or less flat. Also July market is still more or less flattish. We expect Indonesia now in the second half to pick up. If we look to the results in the quarter up 22%, EUR 25 million, mainly three countries. Indonesia clearly up. If you look to the first half numbers, I don't know whether Indocement has already published the result today? Okay, sorry. Thank you. You see that our result in Indonesia, Indocement, total is about 40% up versus last year.
That has continued in the second quarter. The other piece comes from China, where result is strong and also India result is really strong. Good pricing, lower input cost from coal and petcoke has been driving up the result. If you look to the cement margin, the increase comes to a very large extent from Indocement. If you look to the EBITDA margin of Indocement, you will see in the first half year, we have improved the margin by more than three percentage points compared to last year. We expect this Indocement cement margin, EBITDA, to go in the second half in the direction of 25% and ahead. That's the target which we see also midterm as realistic for Indonesia. 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 -6%. Also Turkey, the market in the first six months, domestic, was down 40%, which are Akçansa market leader. We have pushed export as much as possible. Our volumes were down by about 110,000 tons. The positive growth for the quarter comes from the other African countries, namely Togo, but also Tanzania and then Israel, where we started our cement operations, have contributed positively to the growth. If you look to the results in the quarter, down EUR 20 million. That comes more or less all from Egypt and Turkey. They are about EUR 17 million-EUR 18 million 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%-9%, inflation in the country is running at 20%-21%, and that obviously exercises significant margin pressure. If you look to the trading activities, maybe three points. First of all, as always, clinker pricing is important. Two markets, Mediterranean and Asia. Mediterranean clinker prices are further dropping. Turkish exports will double this year to 20 million tons, the price has started to come down. Beginning of the year, we were talking $31-$32. We are now down at $26-$27. In Singapore, also the price comes down. Beginning of the year, $35-$36, is now down to $31. What we see also, China is interesting. China will become now the second largest, or maybe even the largest importer of cement and clinker.
They're going to hit this year about imports from about 18 million tons because pricing in China is very attractive. Summary, we think the figures are okay, are solid. Strong cash generation and portfolio optimization will continue. With that, I hand over to Dr. Näger for the financial part.
Thank you, Dr. Scheifele. Good afternoon, ladies and gentlemen. Thank you for your attention. I will go forward with the financial messages for first half year 2019. 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 headline. If we adjust it for AOR, the adjustment comes from the deconsolidation of the Ukraine business. This is the currency loss in the Ukraine, Kryvyi Rih, since the point in time of acquisition and the deconsolidation of the business. This we can book under IFRS rules only now. For all other losses, we had already provided in previous year, 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 further reduced, but financial results became more negative, mainly due to reclassification of the interest on the lease expense. That makes EUR 22 million of the cost increase on the financial result. Tax expense further improve in H1. [audio distortion] , below previous year of EUR 171, and we can confirm here the guidance of 20%-25% of current taxes. The company shows a pretty strong free cash flow generation, and in the last 12 months, this has translated into significant de-leveraging. The free cash flow of the last 12 months increases to EUR 1.3 billion. In this figure, we have already deducted the leasing payment. We have not booked this as repayment of debt, but we have booked it as part of the free cash flow as we think it's a permanent cash out.
The debt goes down by EUR 800 million year-over-year and we have applied a very strict CapEx discipline, as you will see on the coming slides further down in the deck. Portfolio optimization has further progressed. We have disposal proceeds of EUR 290 million with very limited impact on the operating result. In the last quarter, we had a very successful emission of Eurobond, volume of EUR 750 million at historically low rates. In this respect, we are very confident that we can reach our net debt target of EUR 7.7 billion without the leasing obligations by end of 2019. You can see the income statement on page 21. You can see below the Result from Current Operations that the Additional Ordinary Result stands at EUR -128. This includes EUR 140 million loss from deconsolidation of the Ukraine business.
You see the financial result going down to EUR 184 and income taxes to EUR 150. Adjusted group profit is EUR 340, 38% up from previous years. Cash flow statement on slide 22. The gross cash flow is up EUR 300 million based on good performance. We have invested a bit more in working capital compared to previous year on strong business development and strong turnover, up EUR 64 million. The cash from operating activities is up EUR 217 million. Investments are down by EUR 470 million, down to EUR 501, and our proceeds from fixed asset disposals are EUR 150 million up, and this does not include the disposal of part of our participation in Morocco of EUR 136 million. I will come back to that on the next page.
There you can see it on slide 23, our portfolio optimization. In 2018, we have disposed EUR 568. First half year 2019, EUR 290. On the 1st of July, early of the Q3, we have disposed another EUR 80 million for our Italian cement plant. On the right-hand side, you can see the single items, which are the shares in Ciments du Maroc, the cement plant in El Minya , ships in U.K., the Ukraine business, et cetera. We are very confident that we can reach our target of $1.5 billion from 2018 to 2020, and I would like to reiterate that this has very limited impact on our operating results. 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 EUR 1.3 billion.
If you go down to the horizontal blue bar, you can see on the very left a very small segment of this bar, which is only EUR 18 million. That is the balance between our growth CapEx and our disposals over the last 12 months. What you see is exactly what we announced, that we will have a net growth spend of close to zero because we have made as many disposals as we have acquired new businesses. On the right-hand side, you can see the dividends, EUR 417 million to HeidelbergCement shareholders, up from EUR 377 in 2018 and from EUR 204 in 2017. We have really increased our dividend payments. On the very right, you can see EUR 169 in dividends to minority shareholders of not fully owned subsidiaries. Here, we fully repatriate the cash from our subsidiaries. That is mainly Indonesia, Thailand, Bangladesh, Ghana, and a number of others. We do not pile up cash in those entities. We repatriate it even if this increases our net debt position, but we think that is the right policy.
Below, you can see the net debt development. The like-for-like net debt goes from EUR 9,956 down to EUR 9,216. This is a deleverage of close to EUR 700 million. You have to see, and take into account that we have shifted, in many cases, from leasing to direct purchase and acquisition, mainly on yellow trucks and yellow equipment. This, of course, has increased our CapEx spending against the like-for-like net debt. The figure is even better. If you see it here in the chart, we have also reduced the lease liabilities by EUR 129. In total, we bring it down to EUR 697 million. On slide 25, we see the balance sheet. This only shows a moderate increase of the balance sheet total of EUR 1.7 billion.
The overwhelming amount of this is the newly consolidated leasing assets and leasing obligations, which account for roughly EUR 1.3 billion, and all other positions are more or less stable. I think that's it from the financial side, and I would give back to Dr. Scheifele for the outlook. Thank you very much.
Okay. The outlook is no use. We confirmed really the outlook volume increase. I think growth is not a problem. We expect margin recovery, especially in North America, in aggregates and cement in the second half. On the risk side, I think the guidance at the moment is at about 6% EBITDA growth. What I see, I think we feel comfortable with that. We have a Q3 ahead of us, which is a relatively low benchmark for us, because last year was exceptionally weak. On the portfolio, the target is to have about EUR 500 million disposal proceeds. That means net gross CapEx. Gross CapEx against disposals would be zero or below net debt. The target is to hit the number of EUR 7.7 billion. Overall, we think we are well on track.
That's it from our side, and I'll hand over again, and we're happy to answer any questions which you might have. Thanks a lot.
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. As a reminder, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the hash key. Once again, if you wish to ask a question, please press star one on your telephone. Your first question comes from the line of Arnaud Pinatel from On Field Investment Research. Please ask your question.
Yes. Good afternoon, gentlemen. It's Arnaud Pinatel from On Field Research. I have two questions, if I may. The first one is on just to understand the energy bill in H2. We can see probably coal and petcoke energy cost deflation in H2. We have seen in July the CO2 price in Europe increasing. All in all, is it fair to believe that in H2 you will capture more of the energy cost deflation at the group level, even if you see some inflation on the electricity price in Europe? Especially as last year, if I remember well, part of the profit warning in Q3 was linked to the power price in Germany, and there is a more easy base of comparison. That would be my first question. My second question is on the acquisition side.
We have seen yesterday that your subsidiary in Morocco, Ciments du Maroc, was announcing the acquisition of a grinding station and a project of greenfield cement plant from a competitor. Is it integrated in your EUR 7.7 billion net debt target, or do we have to consider to add something for this acquisition?
Pinatel, hello. Of course, it is included. 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, which we think is a very attractive one. We buy an existing grinding unit in the south that's a newcomer. You know that we typically used to have a market share close to 100% in the south, with cement pricing above EUR 140 per ton. That's a very profitable market, and that's why we made this protective move.
That's why the payback to take over this project is very attractive, because it already pays without this potential project, which is in the greater Casablanca area, where we have now acquired a limestone deposit, which is fully permitted, and which gives us mid-term, next maybe five to seven years, the possibility to replace our Marrakesh operation, which is running out of limestone. I think this acquisition with a very humble price is fully justified. We had two or three times to look at it, 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.
At the moment, I would agree with you that normally in the second half, we should see more benefit than in the first half from lower coal costs and lower pet coke costs, because in the first quarter, or until May, we were still stuck with relatively highly priced coal and pet coke. That has really changed. That's on the one side. On the other side, we see electricity pricing still going up. We're a little bit careful on Europe. We are in Europe now to a very large extent hedged for the second half. I would think we are probably hedged to 80% or whatever. The risk is much smaller than last year. In Europe, with the CO2, you never know.
What we also saw, what was last year a problem were the bushfires in California, which were caused by the electricity plants, 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 cuts in the second half. Overall, normally, savings on energy in the second half should be against last year, maybe EUR 50 million-EUR 60 million, whereas in absolute terms, whereas we have been flat overall in the first half year. That's our best estimate at the moment, but you know what I mean? I do not control the coal price. Let's wait and see. As a guidance, that's why.
Yeah. I understand perfectly. Do you see any other, what I will call, as you said, attractive opportunities to consolidate your market in Morocco? We were reading that Indocement would be perhaps interest consolidating Indonesia. We see also your issue in Egypt. Would you participate to some deals there to fix the issues?
Yeah. Mr. Pinatel, I think we should not have now a philosophical discussion about the opportunities in the market. As you know, I think a lot of markets offer 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.
Thank you very much.
Thank you. Your next question comes from the line of Paul Roger from Exane BNP Paribas. Please ask your question.
Yeah. Good afternoon, everybody. I'll just have two questions, please. The first one is on the phasing of like EBITDA growth. You obviously did nearly 6% in the first half. Looking at all your comments for the second half and the easy base, and particularly your comments on price cost dynamic, is it realistic to assume you should be able to do a lot better than that in the second half? Obviously, I'm asking because if we look at what consensus and your guidance is suggesting, it didn't look that demanding for the second half. The second question is on capital allocation. I think around Q3 last year, you talked about the potential of considering share buybacks from around the middle of 2019, and obviously we're in the middle of 2019 now.
Just wondering, given the strong cash generation, whether that's something you're still thinking about or whether you're very much focusing on deleveraging at the minute.
Okay. Mr. Roger, hello. First of all, share buyback. We have discussed that issue internally. At 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. The second one is the question on the second half. To forecast the future is always difficult, you know that. I think you are right. The question is, where is upside, where is downside? I would say I see clearly upside in Indonesia. That's difficult to forecast because this is not a country like Switzerland or Germany, so it changes every two or three months. It's clear that in Indonesia, we have, at the moment, clearly tailwind. The currency is strong. Two-thirds of our costs are dollar-denominated, so that helps us. Secondly, coal, Newcastle is 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 bag cement. We have already started in some regions in July with a price increase of about $1.50 per ton of bag cement. Last year, we increased the price in total by about $ 6-$7. 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, there's also some pricing potential. Secondly, I would also expect that the market in the second half should have a really stronger run, the first seven months, the market is slightly negative. That is, for Indonesia, very unusual. In Indonesia, I would say I see upside. That should help us also in Europe.
I would expect Germany, Eastern Europe, also France and BeNe to go well. The question, what is the risk? The risk is a little bit U.K. Brexit. Volumes were particularly weak in the U.K. in May, June. We have been fully on track until April. May, June, volumes were down double-digits. We are now back again in July. July, the market in U.K. is much better. I talked to our guy yesterday. I see also risks in Australia. In Australia, the housing downturn, especially in Sydney, but also in Brisbane and Melbourne, is more steeper and more significant than what we would have expected. The infrastructure projects are coming in a little bit delayed. I think that's a little bit how that plays out, let's wait and see. Okay, thank you.
Thank you.
Thank you. Your next question comes from the line of Gregor Kuglitsch from UBS. Please ask your question.
Well, hi. I've got two questions. The first one is just to come back on this leasing point, Dr. Näger, I think you mentioned on the call that there was some dilution from effectively taking on balance sheet some yellow kit. Can you give us a sense how much that was? One point, I'm talking about slide 24, roughly how much that diluted the cash flow in the half or I guess it was only in H1. That's question one. Question two 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 in terms of the sort of core markets in terms of, I don't know, percentage change? That would be helpful. Thanks.
Okay. Could we try to start a bit with the pricing? I think pricing climate overall in Europe is very good. I think it's clearly ahead of inflation. We see price increases in BeNe, France, and Germany around EUR 3.50, which is obviously in percentage different from country to country. You know that in France, the pricing is still close to EUR 100, EUR 97. In Germany, we are about EUR 70, and in BeNe maybe EUR 62, EUR 63. You can calculate the percentage points, but their pricing is clearly up in around EUR 3.50, EUR 0.50 up and downward compared to the countries.
We see also good pricing. Italy is up by about EUR 8. Poland, I explained you, we pushed EUR 9. We are now at about EUR 8. Czech Republic is also up by about EUR 3.50. Hungary, EUR 4.50. Whatever, also Norway, Sweden up, Spain up EUR 3.50. Overall, Europe pricing, I would say the best price increases we have seen for a couple of years. That works well. In the 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, northeast Boston, upstate New York, Massachusetts market, there is still price pressure due to spec in it and still capacity from a competitor.
The prices are there about $3-$4, whereas in the Midwest, we see price increases of about $4. California is up $7-$8. Texas is also up. That's okay. Overall, in the U.S., I would expect price increases maybe for the full $1.50, maybe $2, mainly due to the fact that pricing in New York and Boston, prices are clearly down $4-$5.
That obviously puts a certain ceiling on the price increase in the North America.
Thank you.
Okay. On leasing, Mr. Kuglitsch, if you have a look there on the slide 24, you can see it. We have an increase in H1, EUR 1,363 million. If you look to the quarterly report, you see that on the 1st of January, the amount has been EUR 1,311. We have invested roughly EUR 60 million, EUR 70 million in the replacement CapEx, stay in business CapEx, which had been leasing before, what we call bank leasing. Our total budget for the year is roughly EUR 200 million. We will not need this in total. You can see on the figure here that it goes down over the half year from EUR 1,363, reduces by EUR 129 down to EUR 1,267. 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 financing cost for leasing is in the leasing more expensive than if we refinance in the capital market. If you do leasing and leasing stays off 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. As a consequence, we shift it out of leasing and bring it into stay in business CapEx. We think that for balance, the invested capital will go down. That's the story about leasing.
Thank you.
Your next question comes from Arnaud Lehmann 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 exports, and I think you're doing some export as well, but the fact that they've overall doubled. Could you elaborate a little bit on that? Where are these exports going, and have they been disruptive in some of your Mediterranean markets? That's my first question. Also, you mentioned on your Nordic exports that you are reducing these exports out of Norway, I guess, into some African markets related to CO2. Are you making an arbitrage based on the cost of production in Norway and the fact that CO2 have moved up? Does this mean that these exports now are not profitable?
Lehmann, thanks a lot. On the exports, it's very similar. 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 EUR 4 per ton, it was a relatively minor amount. Now it moved up to close to EUR 30, obviously the picture changes. Just to give you an example, to be clear, overall, on group level, HeidelbergCement is long until, what is it, end 2022. 2022. We're having bought a lot of CO2 rights, especially for the Italcementi acquisition. When we made the acquisition, we valued them at EUR 4, they have now a much higher value. That's also clear. We are overall, as a group, we have not a problem.
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. Meaning, for their current production level, they have to buy CO2 rights beyond the allocated rights of 400,000 tons. If the price was EUR 4, that was a cost item of EUR 1.6, not a big problem. If the price is EUR 30, that's a cost item of EUR 12 million, which you will fully see in the balance in the P&L of the country. That's the problem.
That's why it's clear, at such a CO2 price level, exports no longer make any sense, because you have to calculate the CO2 cost on the last ton, and then the costs go to higher, because you have about an emission of, what, 700 kilo per ton, so you have 30, you can imagine, so you have to add about EUR 24, EUR 25 per ton, and our variable cement production costs are maybe EUR 24, EUR 25. 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, that's why they have low CO2 costs, that's why we have shifted now the African exports from Norway or Sweden, we have shifted them to Turkey, to Akçansa, 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 dollar-long, meaning we have more export in dollar income than dollar cost if we buy oil or coal. That's why we are in a very good position in Turkey, because our competitors in Turkey are all dollar-long, so if the currency goes down, it becomes for them much more expensive to buy coal and whatever. Whereas we, if the currency goes down, we make a gain because we are dollar-long. That's the whole strategy behind that.
Okay.
The Turkish Sorry. Yeah?
Yeah. Sure, please go ahead.
The Turkish exports, I think for the whole market, they double to more than 20 million tons. Yeah. They go to Africa, they go to North America, they go partially to Europe, they go to Romania, and you see the Turks all over the place. South America as well.
Yep. Total CO2 emission will remain 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 scheme doesn't make a lot of sense.
That's great. Thank you very much.
Thank you. Your next question comes from the line of Robert Gardiner from Davy. Please ask your question.
Good afternoon. Two from me, please. Both related to North America. One, I was just wondering if you go back on 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. Secondly, again, in North America, in your H2 comments, you talked about potential upside in Europe, Indonesia. I'm wondering how you feel about North America in the second half of the year. Thanks.
Yeah. As for North America, the 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. I think especially the region South should recover because the point on the margin in aggregate is mainly related to the region South, where we have that inventory issue and we think we're going to do better and we have also stronger pricing. In the second half, we had for us a certain market weakness in Dallas, which is for us an important market, where we had a customer loss, which we're going to compensate now in the second half, which has impacted our profitability a little bit. In the cement sector, you have to see, Mr. Gardiner , it's a little bit of a mixed impact. The margin slowdown has to do that.
We have relatively strong volumes in the Georgia, Florida market. We are sold out in our Leeds plant in Birmingham, Alabama, and that's why we had to buy clinker and cement from competitors, and we had also in Florida imported more. If you buy cement clinker from a competitor or you import, at least the local business, the margin is lower. That's why you have a good revenue growth, but the contribution to earnings is relatively weak. That's what you see exactly in the second quarter in North America, that we had a relatively good volume growth, but there was no operational leverage. The result went down. That's very different from Asia, where, for example, the top line was negative, but the bottom line was significantly up. That has to do in North America also with the product mix in cement.
I explained it also, and the other point was our ready mix volumes, especially in the Houston area, are growing significantly. Houston is in a much better shape than last year. As you know, the ready mix margins are much lower, and that's why we had a good top-line development versus we had a relatively weak, or you could also say disappointing, bottom-line development. We think that this will even out in the second half.
Okay. Thank you very much.
Thank you.
Your next question comes from the line of Tobias Weimann from Morgan Stanley. Please ask your question.
Hello, gentlemen. Thanks for taking the questions. Two 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%. If I look overall in countries like Germany, volumes are tracking at sort of mid-single digit levels for Q2. Of course, you mentioned already there was a bit of a negative calendar effect, even if I had to spec, I think volumes are still down. Maybe you could elaborate a little bit there, whether you have lost some volumes, maybe due to strong pricing. Then the second one on volumes in the U.S., you mentioned demand in California was relatively weak. Could you elaborate a bit what was the driver there and what do you expect for the year as a whole? Thank you very much.
Okay. California, large state. California, you have also in our business that we separate between Northern California and the south, meaning the Bay Area, San Francisco, which is north, and south, that's L.A. and San Diego. What we see clearly is that the north, the Bay Area, was clearly weak. Clearly residential is weak. That's where we have a strong position. Our market share in the Bay Area, we're the only cement producer, about 40, 45%. We over proportionally suffer in the northern part of California. Also Central Valley, Sacramento, Reno is weak. L.A. is doing better. That's what we see.
What we would expect, which was disappointing also for me, if you go in the macroeconomic numbers which are available on a state level in the U.S., you will see that the infrastructure spending in California in the first half year was relatively weak. I don't know whether you know that California last year passed a big infrastructure bill, I think for the next 5 to 10 years, which provides additional spending of about EUR 5 billion per year. 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 projects coming from that infrastructure spending. We expect more to come in the second half, which should help us, especially also in our asphalt division.
There's a certain, if you want, certain timing delay because California should really grow in infrastructure because the money which is there is very significant, and that's normally the market outlook should be good. What's your question about Western Europe? I try to be very specific. That's no longer the rule in the industry. Normally, we are very vague. I told you we are down 400,000 tons, and I told you that Spain is down 200,000 because we stopped export. Main same reasons I explained I think to Mr. Lehmann on the Swedish and Norway side, due to CO2 pricing. Italy, volumes are down by about 100,000 tons due to deconsolidation impact in Italy, and the rest was okay. Yeah?
Thank you.
Okay, thanks a lot.
Once again, if you wish to ask a question, please press star one on your telephone. Your next question comes from the line of Rajesh Patki from JP Morgan. Please ask your question.
Yes. Hi, good afternoon. I've got two 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? The second question is on the financial expenses. You mentioned application of IFRS 16 amounted to EUR 22 million higher impact on financial expenses. Does that represent a fair underlying run rate for the year? Thank you.
Okay. On Indonesia, we talk now not Indonesia, consolidated Indonesia, we talk about cement division, Indonesia. That's where the music is on. The point is, last year, just to give you an idea, we had an EBITDA margin in the cement division of about 19%, which was coming down from the good old days of 40, 45 or 42. We had a certain drop. The EUR 100 million question or even more on the market was, what is the normalized EBITDA margin in the cement in Indonesia? If you check the notes or the elements who participate longer on the call, I said to the market, we would expect Indonesia to go for 25%. I think that is achievable. We think this is realistic.
If you look now to the first half year, 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%, then you can calculate, which will give you for the full year, maybe 22%, 23%, but the second half, we should reach a level of 25%. On pricing, just to be clear on Indonesia, it's a complex market. In Indonesia, just to give you an idea, Heidelberg sells about, or Indocement sells about 18.3 million tons of cement, out of which 15 million tons are bagged cement, where we have a brand premium with our Tiga Roda brand. We sell about 3 million in bulk. In bulk, forget about price increase. This is a crazy market that is all about competition.
The Chinese are in and whatever. On price increases, we talk about bagged cement. What we have done last year in the second half, we have increased the bagged cement prices 4 x in total by about EUR 6-7, which was a price increase of about more than 10%. That price in bagged cement remained unchanged. That's why our bagged cement price is up versus first half year, I don't know what, 10% and, or 14%, and the average price, meaning bagged and bulk, is up 6%, 7%. These are the numbers that you just understand the exercise. 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 bagged cement prices.
What I told you that our Indonesian management, Christian, has already started price increases in July by about 20,000 or 20 million rupiah, whatever the currency is. That's about $1.50. Last year, we did that four times in a row. I told you, we watch a little bit how the volumes are going, what the rest of the market is doing, whether we do one price increase or a second or a third, that is a little bit the question on Indonesia, then you can calculate on your own in the second half. We're going to sell about 7.5 million tons bagged cement, then you can multiply it, obviously, $1.50 or $3, whatever you want. That's where we are.
Okay.
Okay, then there was the question for the financial expenses.
We have counted in the first half year, EUR 22 million for interest on leases, and that's about the amount we also expect for the second half. We'll go up to EUR 45 million, EUR 44 million. The other, just check the other points which increase the financial cost, where financial hedges on intercompany financing where we cannot buy a hedge in the markets, mainly Eastern European currencies like Georgia or Kazakhstani tenge. That's why the financial result is a bit higher than last year and beyond the IFRS 16 interest expense, we think it will go down.
Okay. Thank you.
Thanks. No question.
Your next question comes from the line of Josep Pujal, from Kepler. Please ask your question.
Yes, hello. Two questions from me, please. The first one is on the SG&A. You say that you have secured already EUR 80 million of cost reductions for the full year. How much has already impacted the H1, and how do they split between geographies? 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? What are the drivers here, and also how do you want to use these proceeds? Thank you.
On the SG&A, the measure is that we are well on our way, and we have cut, especially on country overhead, quite significantly. There we have a run rate of about EUR 61 million or EUR 62 million, which we have already done by taking the measures. What are the countries? A big contributor is Australia. In Australia, we have cut down by about EUR 16.5 million, and then also over EUR 18 million, then we have Germany, with about EUR 6 million, France, 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 year's without big sales off by about 1,150 people.
Volumes are significantly up, a ton of result that shows you productivity is up. Just to give an example, in Germany, in the headquarters, we have reduced by 100 people, out of which 60 are already out. You know what I mean. We are playing tough ball on cost. That's where we are on our way, the message is we're going to be one year ahead of our saving targets because we have the EUR 100 million, the 50/50 over three years, and we're going to hit this year probably already 80. We are well on our way. On the disposals, disposal strategy is relatively simple. We believe that you have to manage your asset base in the same way as you have to manage your P&L.
As you reduce unnecessary costs, you also have to reduce your asset base by unnecessary assets. For us, all assets which are not used for the cement business, aggregates business, ready-mix business, and asphalt business, we try to clean it up and try to dispose of it. That's exactly what you see. It's idle land, it's participations which we do not need, whether it's a participation in Syria or the excess shares we have in Morocco or a terminal in Sri Lanka, which doesn't contribute to value or now the old headquarter of Italcementi in Bologna or whatever it is. That's what we put on the list, and that's what we sell. 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 EBITDA.
That's the strategy, and we think that the largest part of this program, we will have to have completed by end of 2020, and the proceeds are used to reduce debt. All finance growth covers, currently more for reduce debt. Yeah?
Okay, guys. Thank you.
One last question.
Your next question comes from the line of John Fraser-Andrews. Please ask your question.
Thanks for squeezing me in. My two questions are firstly, the U.S. volumes. Given what's happened in the second quarter, that there was no volume growth and weather disruption, 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? How's July been in the country? The second question is, Dr. Scheifele, your list of upsides and downsides to the guidance was heavily weighted to the upside potential. It seems that the U.K. 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. You forgot about Australia, great continent. We talked about the market situation in Australia, where the market is clearly down. The key question is whether our big infrastructure project, the two 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 two very big, large infrastructure projects where HeidelbergCement Australia is heavily involved. One is the new airport. There is a new airport built in Sydney, where we have a significant part of the work. The second, there is a significant ring road with lots of tunnels around Sydney being built, where also we have significant work. These two infrastructure projects, we expect it to compensate the drop in residential, which is in Sydney, very significant.
As typical with the public administration, there is a little bit a certain delay, and the key question is whether these projects kick in. What we have done in Australia is we have cut the workforce now significantly. I would say by September, just to give you an idea, our workforce in Australia totally will be down by 10%, just to give an idea. Let's wait and see. Australia is, at the moment, an issue where we have to watch the market. We will still deliver a good result because profitability is high, but it's a clear challenge. I talked to our guys just yesterday, especially with the management of the New South Wales, Sydney area.
Sydney, again, in July is weak, whereas the West Perth and also Adelaide, the south are coming back, but Sydney, in the months of July, for example, 20% on concrete volumes down versus last year. That's why we have taken measures. 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. Houston is back. We think we have things sorted out in Dallas. The Carolinas are very strong. Georgia, Greater Atlanta is booming. The region North looks good. Canada, we expect BC, Vancouver, to deliver also a very strong second half.
On volumes, I would expect for North America, for the full year, I would still expect a volume growth of, let's say, 4%, whereas in year to date, we are more or less flattish. On volumes, we expect a clear recovery, and we would expect pricing, as I said, to go up by, let's say, in cement, maybe EUR 1.50, EUR 2.00. That's impacted by New York and Boston, whereas in Canada, for example, pricing is up by about EUR 8.00. Also in the region West, we are up average EUR 4.00-EUR 5.00. That differs very much from region.
Order books in U.S. overall are okay. Let's keep our fingers crossed.
Thank you.
Okay? Okay. Thanks a lot for your interest. Have a great summer. Thank you. Bye-bye.
That does conclude our conference call today. Thank Thank you for participating. You may all disconnect.