Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to half-year financial results 2018 conference call. At this time, all participants are in listen only mode. There will be a presentation followed by the question and answer session. If you wish to ask a question, you need to press star one on your telephone and wait for your name to be announced. Please advise that you can only ask two question per participant. I must advise you that this conference is being recorded today, Tuesday, 31st of July, 2018. I would like to hand the conference over to our first speaker today, Bernd Scheifele. Please go ahead, sir.
Yes. Hello. Good afternoon. Here from Heidelberg. Welcome to our conference call to our Q2 result. To all of you, I'm sitting here as usual together with Dr. Näger, CFO of the company, and our investor relation team with Mr. Schaller and Mr. Kacar. I hope you have less heat in your home places than we do here in Heidelberg. It's supposed to be the hottest day of the year in Germany. Now, I start with the outlook, with the overview on Chart three. You have seen our numbers. We had solid volume growth in the first quarter in our three core business line between 2%, 3% and 5%. Revenue is up by about nine and operating EBITDA is up by about 3%, operating income plus 5%. In the second quarter, we had mainly headwind from two issues. One is currency, which was clearly negative compared to last year.
We saw that that's about $50 million, and we see also energy costs, which are about 30 million up versus last year. Mainly due to clear improvement in the financial result, which improved by about 20%. Group share and solid tax performance. Group share profit is up 11%. Earnings per share is also up. Free cash flows generation was very strong in the second quarter. Free cash is up by more than EUR 200 million. We expect that this trend will continue in the second half. As we told you earlier, we have focused the country management very much on free cash generation, and we see this is already bearing fruit in our numbers. The outlook we confirm, we see continuing strong demand growth in our core markets. A limiting factor will be the shortage of qualified workforce, especially of truck drivers.
We plan further price increases in core markets in the second half in order to match cost inflation. That applies especially to Indonesia, British Columbia, Italy, U.K., and also California and in Eastern Europe. If you look to the numbers more in detail on Chart four, if you look to the Q2 result, you see the volume between 3% and 5%, and then you see operating EBITDA up 3.4% and operating income up by about 4.8%. Another figure which I always look at in detail is the productivity. I think that's a key performance indicator for a company. If a company stagnates in productivity or even loses productivity, midterm, you are in clear trouble. If you go in our detailed financial reporting, you will see that our workforce is down versus last year by about 1,500 FTE. I think it's 1,490, out of which consolidation effects are about 500.
We have a net reduction of about 1,000 at a workforce which is around 59,000 or 60,000. That means a reduction of close to 2%. At the same time, volumes are up in the first half year around 3%. We have a productivity increase, which is clearly north of 4% or close to 5%. That shows that we still focus very much on cost management and efficiency. Chart five gives you the bridge from the result. You see the currency impact, the consolidation that is mainly the German sand-lime brick business and the U.S. white cement business. You see the pricing impact volume and cost. Cost, as I said, to a very large extent, driven by energy. Even with that, we still achieve organic growth. You see now on Chart six a little bit the turnaround in the various areas.
We had a very bad start into the year due to strong winter in North America and Western Southern Europe. You see now the swing of the results compared to last year in the second quarter. Strong markets, namely in Northern and Eastern Europe and in Africa. Asia, minus 9. That is only in the cement. All other markets are up. Africa, Mediterranean Basin, up 20%. Solid performance in our core markets, Egypt, Morocco, Ghana, Tanzania. Chart seven gives more transparency to the development in, I think, two core regions. Which is on the one side, Asia-Pacific, on the other side, Western Southern Europe. In each area, we have one trouble country. It is Indonesia, and on the other side is U.K. The chart shows you that if you eliminate Indonesia or U.K., we have a very solid underlying profit growth in the both areas, which is double digit.
You see also clearly that in Indonesia, obviously the pricing has reached now a floor, but the pricing is now in a range between $42-$44, and we are coming down from a price level of $75 or $78. In U.K., we had market weakness, mainly in London. We had also in-house problems, which we solved with management change. We had a very weak first quarter, but in the second quarter we are back in the market and we are optimistic with the outlook for the second half. You see also for Western Southern Europe that the underlying trend in the other countries like Italy, Spain, France, Germany, is clearly positive. On energy, that is a clear issue for our energy intense industry. These significant price increases in energy are a problem.
It typically takes the industry a certain while to recover that via price increases in our markets. We show you on the left side, the chart for Newcastle coal, which is the key indicator for coal in the Pacific, in Asia. You see really how this went up. That is for us, a problem in Indonesia and Thailand, and to a certain extent also, in India. You see how the price really went up. When we made the budget in Indonesia in November, beginning December 2017, the price was at around maybe $88, and now the price actual is about $123. You see really the major movement and the coal consumption in Indonesia for the full year is about 2.4 million tons. You see also the price of oil, which went up significantly since December.
That's obviously a cost item which hits typically the aggregates division. The petrol price in U.S. is up, and that cost hits us in the aggregates division. You see then on the right chart how we have managed the fuel cost increase per ton of cement. You see, compared to the increase of the key indices, our price increase is limited. How do we achieve that? Typically what we do, we change fuel. For example, in U.S., we switched a lot of our plants to gas. The shale gas is definitely cheaper than coal, and shale gas had even a negative price trend in the U.S. The other point is, in other markets, we try to shift to local coal, which has typically lower quality standards, meaning the caloric value is lower and also the sulfur content is significantly higher.
However, the price difference between local coal and, for example, international coal, Newcastle or API in Europe is between EUR 30 to up to EUR 50 per ton. That's what we have done to a large extent, what you see, for example, in Indonesia. On the next chart, we see then the volume development in our different areas. You see North America, in the second quarter, still slightly negative. That's only the region north, which was down again by about 7%. It's the mixture of three factors. First of all, in the north, we still had winter weather in April. April volumes were weak, May and June were clearly better. Secondly, you see here also the impact of McInnis, which is penetrating the markets in New York, New Jersey, Connecticut and New England.
Thirdly, we see also higher installed capacity from our competitors, and Heidelberg, we lost a little bit share in that segment. The other regions are all up. Canada was up by about 8%, south, slightly up, and the region West California was clearly up with more than 20%. Quite a diverse picture. In Western Southern Europe, you see the volumes were up by about 7%. We have healthy growth in Germany and France with about 5%. Italy was also slightly up 2%, Spain 16%, 17%, even U.K. was slightly negative. Overall picture okay. Asia Pacific up 6%, fastest growing country for us was India, double digit. Indonesia was up about 6%, also Australia was up by about 5%.
Northern Eastern Europe, like for like, if you neutralize the deconsolidation of our business in Georgia, where we entered into a 50/50 joint venture with a Georgian fund, we are up by about 6%. Good markets in Northern Europe, in Sweden, Norway with 5%. Poland up close to 20%, Russia down about 4%, Czech Republic up double digit, Kazakhstan, more or less flat. Africa, Eastern Europe, we saw a growth rate of about 1%, Q2 clearly slower than Q1, mainly related to Egypt. Egypt only slightly up. Morocco, more or less flattish. Ghana, Togo, Tanzania, up between 5%-14%, so relatively strong growth in Africa. If you go now to the reporting region, North America, chart 11. If you look to the numbers, then you see in the second quarter, like for like, we are up by about 4.8%, like for like.
We have a clear significant impact on the Forex. 50% of the Forex loss in HeidelbergCement goes to the U.S. dollar. The other point was the deconsolidation of our solid white cement business. We look to the areas, the picture is quite different. In the region North, as I told you, in the first half-year, we are still down. We are down versus last year around 400,000 tons due to market weakness and also a certain loss of market share. Whereas in California, our volumes are up by about 300,000 tons. We had a very long winter repair in our core cement plant in Cupertino, Silicon Valley, where we overspent by about $6 million-$7 million. That's a timing effect.
Due to that and some ongoing production problems, we had also production issues with the consequence that a big portion of the increased volume in California had to be done through imports, through our Stockton terminal, where obviously on imports, we have a clearly lower margin than on the own-produced cement. We expect a very solid production performance in Permanente in the second half with clearly improved contribution margins. We look to the South, the South overall now, volumes for half-year more or less flattish. Northern Texas remains strong. Houston had a difficult first half-year, but is now recovering. Florida is okay. Georgia, Atlanta is booming. The Carolinas are very solid. Pricing is good. For the South, we expect a normal hurricane season for the second half.
Last year, we had two hurricanes, which have negatively impacted our results by about $20 million-$25 million. We are relatively confident on the outlook for North America. In Canada, our business in the Prairies, in Calgary, Edmonton, the market is flattish. The market has reached the bottom. Whereas B.C. and Washington are very strong, with double-digit growth in these areas. We see for the second half, mainly two positive aspects. We hope that we will see in the Prairie provinces a recovery on the oil well cement. The oil drilling typically takes place in Q4. We have budgeted for flat volumes. We see now an upside because the oil price is up, so it is attractive again for oil drilling. The second point is in British Columbia, we have done a second price increase of $10 by 1st of July, because the market is very strong.
You go to Western, Southern Europe, and look to the results, you see Q2 operationally up 4.5%. U.K., first half-year was difficult. Market is more or less flattish. We had a significant inflation-related price increase in energy, especially in bitumen. Order books are good for the second half. We expect a strong run. We have also done some price increases now mid-half-year, especially in aggregates, also in asphalt in order to compensate for the increased input costs. Germany is strong. Market is more or less sold out. Pricing is up by about EUR 2.50. That looks okay. We expect a strong clinker production in the second half. Benelux, we had a weak first half-year. We had some homemade problems with our logistics system, which we think we have solved now by management changes.
We expect, based on good order books and good pricing is up between EUR 3 and EUR 3.50 in cement, a strong second half. Italy, market was weak in the first half year, maybe -2%. The South, especially Sicily, is down double digits. Also, Southern Italy, Reggio di Calabria, south of Rome, Latina, is negative. The North, especially supported by some infrastructure projects, is relatively positive. We have the high-speed train between Milan and Genoa. We have the Brenner tunnel project, which we have. The North was clearly better. Pricing in Italy is up versus December last year by about EUR 7. We will execute a second price increase in Italy by 1st of August by another EUR 3, in order to get a good price level for the beginning next year, where we will then have the full impact on an annualized basis of the Cementir acquisition.
In France, market is okay. Growth is good, 4%, 5%. Grand Paris project is taking off. Pricing is slightly up. We had a production shortfall in clinker, quite significantly in France in the first half year. We will catch up. There we have a swing factor of about close to double-digit million EUR in the results. We are confident on France that we will hit our targets. Spain, the market is okay. Volumes are up by about 18%. Pricing is up. Spain is clearly recovering. If you look to the next chart 13 on region ACA, then I think the figures speak for themselves. We had in Q2, results up 11.8% for the first half year, like for like 12%. All markets are okay. Very strong in Poland. We have done a good price increase in Poland by about 4 to 5 PLN. Market is strong.
Czech market is good. We have done a price increase. Hungary is coming back. Market weakness still in Russia. The market overall down maybe 4%. Pricing is up by about close to 10%. Market in Kazakhstan, probably flattish. Pricing is up by about 13%-14%. Outlook for the whole region is pretty good. Chart 14 is Asia Pacific, you see for the first half year, we show a negative result in absolute terms, about EUR 44 million, like for like 14.4%. That's all due to Indocement. In Indocement, we had three main issues. First of all, the market was strong in April, May. In June, due to very few working days, the market was clearly slower. Good news is Indocement has kept or even slightly improved its market position compared to last year in both segments, bag and bulk. That's the first message.
The second point is obviously the price inflation in coal was a significant hit on the margin. I mentioned that earlier. The third point is the Indonesian rupiah, similar to other emerging market countries, was weakening. That has hit our results because about 60% of the cost in Indonesia are USD-based. Then we had a homemade problem. Our power plant in Tarjun, in Kalimantan, had a breakdown, and we had then to serve the market via Citeureup, which has increased significantly logistic costs. That is a one-time effect, which is around maybe [IDR 100 million], which will not come back in the second half. In Indonesia, if you look to pricing, bulk price is flattish since 3 or 4 months. In the bag segment, we see a slight upward trend in the month of June by about 1%.
The pricing is now at around IDR 600,000 per ton, which is about $41 or $42. We have started to do price increases by 1% already in July, which were successful, the target is now to continue with these price increases for the coming months in order to get prices up by maybe $2 or $3 per ton in the coming six months. Australia, strong first half year, especially Sydney is strong, Melbourne is strong. Brisbane, multi-residential is weakening. Countryside still relatively flattish. The real problem is Perth, Western Australia. Perth is still negative. The iron ore business north of Perth is weak, overall, we expect a solid result development in Australia, solid volumes in our two core areas, Sydney and Melbourne, and good pricing. India, overall, the market is okay. Pricing was weak in the south, was strong in the center. Result is up.
We would expect a better second half. Thailand, we see now a change in the market. Finally, the new king has settled down, and we see big infrastructure projects coming through in the second half. We have permanently increased prices in the first half, we expect a better second half. China, that's the bright spot of the world at the moment. Due to the production quota system of the Chinese government, the demand or, let's say, the supply of cement is limited. Pricing in China went up in the first half year by about 31% or 32%. The average price in China is now somewhere between $42, $43 per ton, up to $48 per ton. China, at the moment, is obviously one of the most profitable, if not the most profitable cement market globally.
If you look to Africa and Eastern Mediterranean, here you see the numbers speak for themselves. In the second quarter, result is up like for like by about 24%, 25%, for the full year, 17.8%. We had a good run in our core markets, Tanzania and Ghana. Morocco was solid. Egypt benefited from a very strong Q1. Turkey also had a very strong first half year. Good volumes, good pricing. Question mark now for the second half after the election. The same applies a little bit for Egypt. Egypt, obviously, the government cut the subsidies on electricity and fuel, which has led to price increases by about 40%. Last chart 16, looks to trading. We are on record level on volume and profitability. I think here, three core messages. China increases its clinker import.
I think that's the first time in the history of the cement industry that China is increasing its clinker import. I think it goes now to close to 10 million tons. What the reason is that the people thought the guys from Vietnam, they can make better margins on export than in the domestic market because, as I told you, the pricing in China went up significantly. The second message is the price for seaborne clinker in Asia, but also in the Mediterranean, is clearly up between $4 and $8. If you want to buy a ton of clinker now in Shanghai, FOB, you have to pay between $36, $37, up to $38 per ton. It's the similar thing in the Mediterranean.
That's why for the Turkish guys, for example, now exporting clinker is, due to the weakness of the Turkish lira, more attractive than to sell domestically. That shows you that the domestic markets are strong, and there's a clear demand for clinker on the global seaborne market. The last point is freight rates are up between 20%-40%, which gives a good base for strong domestic pricing, because clinker is up. Fuel cost freight is up, fuel is up. That means for importers, it's much more difficult than a year ago. I hand over to Dr. Näger for the financial report. Thanks a lot.
Okay. Thank you, Dr. Scheifele. Good afternoon, ladies and gentlemen. Also from my side, let me lead you through the highlights of the financials. We can start on slide nineteen. You can see that the group share of profit is clearly up EUR 14 million to EUR 398 million in Q2. Despite a still relatively weak trend on the operating result, we can see that the group share of profit went up and also the earnings per share went clearly up from EUR 1.80 to EUR 2.01 in the quarter. This was supported by more or less flat ordinary additional results, EUR 13 million better than previous year. Financial result is improving and the share of the minority goes down as the profitability of our subsidiaries with minority shareholders have reduced, mainly coming from Indocement.
Cash flow was strong in the last quarter, improved to EUR 1.3 billion over the last 12 months. Net debt is also down, now below EUR 10 billion. In the last 12 months, we saw a good cash conversion. That's a trend which is ongoing. One of the drivers for the good cash flow, besides the good cash conversion, is a very disciplined investment approach and improvements in the operating cash flow. We think that this trend will go on during the year as we will see a further normalization of working capital towards year end. We will continue to see lower interest payment and lower tax payments. If you have a closer look to the income statement on slide nineteen, what's going on below the result from the current operations, I will focus on the figures of the quarter.
We can see that the additional ordinary result is slightly positive with plus EUR 10 million coming from some one-off income and release of provisions, which was on the negative side, we have impairment on our activities in the Ukraine. Aside from participation slightly down to EUR 10 million as well, that's a timing issue coming from U.S. We will catch up towards the end of the year. Financial result down on lower financing costs and also lower other financial costs, as expected and guided. Income taxes are at EUR 172, almost on last year's level. If we distinguish between current tax and deferred tax, we can see that the current tax is significantly down as guided, but outbalanced by a little bit higher deferred tax, mainly coming from U.S. tax reform.
As I said, minorities down EUR 31 million in the quarter, EUR 39 million previous year, mainly on a reduction of the result of Indocement. Cash flow statement, slide 20. You can see that the trend really changed. In the first quarter, we had a significant cash out, mainly coming from a build-up of working capital. In the Q1, the build-up on working capital was mainly driven by U.S., was driven by the consolidation mainly of Cementir, our new Italian acquisition. This leveled out now in the second quarter and we see a clear switch, and the operating cash flow has improved compared to last year by EUR 100 million, EUR 111 million and partly compensating the high cash out in the first quarter. In investment, we see a trend in the industry that acquisitions are done in the first quarter. That's exactly what we saw in Heidelberg as well.
We acquired in the first quarter, Cementir and asphalt business Alex Fraser in Australia. There were no further M&A activity in the second quarter. What you can see in the second quarter in the total investment, the EUR 258 million cash out is almost only stay in business CapEx. You see that that went down by EUR 68 million compared to previous year, which again shows that we apply a very strict criteria in doing and using our CapEx. As a consequence, free cash flow was up EUR 200 million in the quarter compared to previous year. In the half year, it's still down EUR 312 million, which comes from the M&A activity, mainly in the first quarter. We expect to see similar trends as in the second quarter to continue in the third and probably also in the fourth quarter. You can see the analysis of the free cash flow on slide 21.
Free cash flow went up by a significant EUR 300 million-EUR 400 million compared to last year, now up to EUR 1.3 billion, what you can see from the horizontal green bar. That's a typical pattern, what you see after an acquisition, as we acquired Italcementi in July 2016. You have a lot of operational cash out for restructuring, for integration, et cetera, and that leveled out now, and we can now see a strong cash flow generation coming in, and we expect this trend to accelerate in the second half of 2018. On the back of this, net debt reduced from EUR 10.1 billion to EUR 9.9 billion, and of course, this will significantly go down towards end of the year. Balance sheet on slide 22 doesn't show any particular things. We can see that the balance sheet total goes down mainly on currency changes.
The only position which is remarkable is the accounts receivable, up EUR 587 million, coming from strong business activity, mainly in U.S. and from consolidation in Italy. Italy is typically a country with relatively high amount of receivables, and Cementir, which contributed mainly to that, has not yet been fully integrated in the first six months of ownership. We expect this to further improve over the remainder of the year. Slide 23, a little recap of the targets we announced at the capital markets day with respect to financial targets. We are busy in active portfolio management. We have already reached EUR 294 million of disposal proceeds in the first six months of this year, mainly coming from disposal of white cement assets and limestone bricks in Germany. We still have a quite comprehensive list of assets to dispose of.
These are mainly non-core assets, like white cement activities, or we still have a paper pack factory on sale and some other of that type. We have a significant number of idle assets which are for disposal, such as unused land, depleted quarries, and things like that. Thirdly, we have a number of what I would call irrelevant market positions, terminals in Sri Lanka, for example, or in very small countries which we have on the list. We expect the disposal proceeds to continue to grow during the second half of the current year. Secondly, we have strictly managed maintenance CapEx. As I have said, the target was 55% in the first half year. We are at 46% of depreciation. We are quite confident that we can reach that target.
You know, the main season for the same business CapEx or maintenance CapEx is towards end of the year. We are confident that we reach our target. Financial cost goes down as expected. You can see this. We see a continued improvement on the tax side. Cash tax rate, its target could be at 22. Currently, we stand at 18%. This may still level out towards end of the year, also here, I'm very confident that we can reach our target. On the financial side, I would say we are well on track, and you will see continued strong cash flows over the second half of 2018. Based on that, I would give back to Dr. Scheifele for the outlook.
Yes. Okay. The outlook is simple. It's unchanged. Yeah. We stick to our outlook, to our guidance, which we gave at the beginning of the year. I think we have backwind from the volume side. I think we have seen the worst on the energy side because we're running now against higher energy cost level in the second half. I think you will see more benefit coming from the price increases, which typically applied since 1st of April, 1st of May, now in Q3 and Q4. That's where we are. I think I leave it that way. We open now the question session. Okay, thanks a lot.
We can start with the Q&A session, please.
Okay, sure. Ladies and gentlemen, we will now begin a question and answer session. As a reminder, if you want to ask a question, just press star one on your cell phone and wait for your name to be announced. Please be advised that we only limit over two questions per participant. Okay, your first question comes from the line of Paul Roger. Please ask your question.
Hi. Yeah, good afternoon, everybody. Just two questions then. I guess I'll start with the obvious one. On 2018 guidance, just doing the math, it looks like the bottom end implies a low double-digit organic EBITDA increase in the second half. You've obviously talked us through the easy base and the price rise and energy costs getting easier as well. Even so, it looks relatively ambitious given the outcome in H1. I wonder if you could just talk a bit about the key upside and downside risk and the swing factors that will determine whether that's achieved or not? Then secondly, just on Europe, just looking at slide 29, the volume and price developments. Obviously, the momentum on the pricing side is very strong.
Yet when we look at the sort of margin progression in both your European divisions, obviously it was a bit weak even in Q2. Is that just cost inflation, or are there any one-offs in those European divisions? Overall, do you think European margins should improve compared to last year in the second half?
Okay. Richard, now on waiting on the swing factor. Let's talk a little bit about the markets. I think one swing factor is obviously North America, where we would expect that in the second half we will have clearly backwind from the volume from the pricing side. As I told you, we have special effects, for example, California, that we're going to sell own produced cement and not selling mainly the increase of volumes imported cement, which has quite a nice impact. We are also looking to a second round of price increases in California because I don't know whether you have seen that the Trump administration has proposed that Chinese imported cement will also have a tariff of about $6-$7 per ton, which gives us more pricing power. California obviously is the strongest U.S. market at the moment. We are more confident on that.
Secondly, in Texas, our other strong market, we hope that we will have a normal hurricane season. Last year we had two hurricanes in the summer, which has cost us at least about $25 million U.S. dollar result, which we do not hope that this will come back. Finally, we have also will be realized and closed in the second half. Western and Southern Europe, you have to see that, and what you're referring also to the margin side, partially you are right. We had some clear production drawbacks in Western, Southern Europe. Our clinker production is in total about 200,000 to 250,000 tons down versus plan. This alone is a result swing between EUR 12 million and EUR 14 million. That applies to France, to U.K. We had production problem in our plant in Ketton, which is the closest to London.
We had production problems in France, also in Germany. These things are now fixed, and that's why you see it also in the report about the charts. I inserted that strong clinker production, which is a signal that there were negative inventory impacts on that. That has obviously cost us margin, which will not happen again in the second half. Finally on Indonesia, as I told you, I think we have really reached bottom on pricing. I think the rest of the market is, especially the newcomers are on a cash loss situation that is not sustainable. That's why we have started to increase prices selectively. You have to see, if you ask me, what's your outlook for Indonesia? I would say it's always difficult. It's always changing.
I would say for the next 6 to 12 months, I would say price increase in cement in Indonesia between $3 and $5. I think this is realistic. You can say this is not a lot of money. If you sell more than 80 million tons in this country, that is a swing factor for us between $50 million-$100 million U.S. dollars only on the price swing. You have to see that. I think that's the level of price which is at least needed in order to give everybody oxygen to breathe. There is on that side. I think that's a little bit on the swing factors. I think Western, Southern Europe, I explained, it's mainly related to lower clinker production than anticipated.
Actually just on sort of Northern and Eastern Europe as well. I think you had like 12.5% like-for-like in Q2, in terms of sales, margins went down in this division as well on a like-for-like basis. Is that cost inflation? You mentioned production issues in Russia as well.
That's mainly cost inflation, for example, in Sweden and Norway, especially Sweden, which is a major production hub for us, electricity costs went up significantly. We had an issue on variable cost, which you see on the cement side. We had in Russia, in our largest plant in Tula, we had a stop because our gas conditioning tower had a problem, had some cracks. We had to fix that, we had to stop production in Russia, which has also cost us margin quite significantly. I think overall, the region NEK does not keep me awake at night. If everything runs like that, I think we're in good shape.
All right. Thank you.
Okay, thanks.
Our next question comes from the line of Alain Gabriel. Please ask your question.
Yes, good afternoon, gentlemen. Just two questions from my side. Firstly, on the Vision 2020 and your ambition for disposal/capital recycling. You made some comments to the press in the morning about some regions. Do you mind elaborating a little bit more which regions you are the most excited about, and you see the biggest opportunities and the regions that you are least excited about? The second question is on the U.S., you mentioned McInnis in the Northeast, which is pressuring prices and you are losing market share. What is your strategy to fight back in that region? Thank you.
Okay. On McInnis, it's very simple. McInnis, they have opened their second terminal in the region Northeast. If you follow Heidelberg, we told you already in the last call, or last year, they had opened Providence Terminal, which is Boston, where they had some volumes. Boston is not a core market for us, but for another European competitor. Then they have opened now their Bronx terminal in New York just about two weeks ago, and they are starting to ship from Bronx, and they are also entering the Ontario, Toronto market. At the moment, our guys in the second quarter were very marginal and price-oriented. We had a very open and frank discussion about the situation last week in Dallas, and we will make sure that we get the fair share of the market growth in Q3 and Q4.
To be more precise, McInnis is selling in New York at the moment at a price mill net of about $93. The market price is at $95, you know what I mean? They are still also very cash-oriented because McInnis, in my opinion, is under the water. They are clearly cash negative. They also try to maximize the cash situation. It's clear in New York, compared to last year, pricing is down by about 5%. That's on McInnis. Disposals. Okay. We are in the process of divesting, for example, our white cement plant in Egypt. We are divesting our paper bag cement plant in Egypt. We have started the divestment process for our pipe business in Western Canada. We are selling our Dubai import terminal, including ready-mix operations, et cetera. We are in the process of selling our Sri Lanka business, et cetera.
We have a lot of smaller operations which are clearly non-core, which we think are not necessary. Then obviously, we have a typical yearly run rate of real estate sales, which are typically depleted quarries, which we sell. We have some interesting transactions going on, mainly in North America, mainly in Western Canada and in Seattle, which we think we will close at least a part of them in the second half. Obviously, on the attractivity of the market, there are markets where we will reconsider whether we're going to stay in for the long run. That's typically Ukraine. We also are looking, analyzing the situation in Kazakhstan and also Egypt is a market which is very interesting intellectually, and the question is whether in the long run, you need to be there. Okay. Thank you.
Next question comes from the line of Robert Gardiner. Please ask your question.
Hi, good afternoon. It's Robert Gardiner. Two questions from me. One, maybe if you could just come back on North America, your aggregates and ready-mix margins under pressure with increased fuel costs. I'm just wondering to the extent you've pushed through price to try and offset that in H2. In Africa and Middle East, and just on the cement margin there, that improved pretty significantly. Is that all price? Is it capacity, or what's making up that improvement? Thanks.
The last question, Mr. Davy, was on Africa on the cement margin, or what?
Yeah, in Africa. Yeah.
Obviously in Africa, the cement margin improvement is to a large extent driven by the result improvement in Egypt. In Q1, we had better pricing and the full effect of the coal mill in Helwan comes into play. Also we had a very good run in Tanzania. We could increase prices. The kiln was running well. We had less imports. Also Morocco, we are doing well. Prices were up. Alternative fuel rate is up, so margins also in Morocco developed quite well. In North America on aggregates, I would say our forecast internally for the year is that I think we will get a volume growth of about 3%-4%. We have clearly an upside we believe in California, and on pricing, we think we will reach 4%. Also, California is pretty strong.
On aggregates, overall, we are confident.
Okay. Thank you.
Thank you.
Another question comes from the line of Phil Rosenberg. Please ask your question.
Hi, Phil Rosenberg from Bernstein here. Good afternoon, gentlemen. Just a couple of questions. One on the U.K. We had problems with the U.K. it seems last year. Now it's another year of falling EBITDA. I know you mentioned homemade problems, et cetera, but what exactly is going on, and in particular, when will it be fixed? Can we expect an improvement year-over-year in the second half of the year? The other one was just, I was curious, you talked about Chinese cement imported into the U.S. being up $67 per ton. I know you mentioned FOB prices up in Shanghai, but there's a shipping rate effect there, too. How should we see that sort of chain? Because I guess it sort of relieves the import threat in a lot of markets.
Yeah. Mr. Rosenberg, hello. That's right. What we see is that clearly the situation for the importers gets more difficult, meaning domestic production gains significantly in competitiveness due to three effects. First of all, the clinker price is up globally between $4 and $8. That's not only in Asia, that's also in the Mediterranean. That's what we see very clearly. That's the one thing. The second is the freight rates are also up between 20%-40%. The fuel costs are up to run the ship. That's clear. That helps on domestic pricing. That is especially true for Western Africa, for the whole African continent, which has a sea borderline. That's also true, if you want, for U.S. coastline. That's the one thing. On the U.K., you're right, we have a very close management attention on the U.K.
I think we are just through that. We have seen our Q2 clearly improving. Q1 was very bad really to the weather. Don't forget this, what was it, in February when London was closed down, or when the snow came and nothing went through. We had a nasty Q1 in U.K., that's for sure. I think in Q2 we're doing okay. We expect now a strong run in the second half and we have finished our management changes on ready-mix, but now also on aggregates. We think we should see a clear improvement of results in the second half in U.K. Don't fool ourselves, it must be clear, in the U.K., the import inflation, especially in energy, is a problem. I haven't checked now all the numbers from the U.K. which are already published, but that should be clearly visible.
Bitumen price, which is dollar-denominated in U.K., is significantly up. That's very clear. Electricity price, I don't know why, in the U.K. went to hell in the Q2. It went up significantly, by 20%-25%. We have a significant cost inflation in the U.K., which is not fully offset by price increases. That's fact. The market, the construction market, Mr. Rosenberg, overall is flat. It's very different. Residential is slow. In London, still a lot of cranes, I agree, but no new projects. The market is driven by infrastructure, where we expect now infrastructure will come stronger in the second half. For example, the first chops have been allocated for the high-speed train between London and Birmingham. That's a mega project for the next three or four years. We expect to start shipping for that project already in Q4 this year.
Also, Hinkley is now running better. We are seeing significant increasing volumes to Hinkley power plant. I think the infrastructure is the light in the tunnel. Okay?
Okay. Thank you.
Thank you.
Another question comes from the line of Gregor Kuglitsch. Please ask your question.
Hi, good afternoon. I've got two questions as well, please. The first one is just, I think you flagged, may have lost count, I don't know, five, six, seven production issues in various countries. Is this something that's worrying you, or do you think it's a little bit of just unfortunate timing as to what happened? Because obviously, kind of raises the question mark whether there's maybe an underlying issue in your plant network. That's question one, and question two is just on property gains. Obviously last year had a big one in the fourth quarter. Can you give us a little bit of color what you're baking in when you're talking about your guidance of mid to high single-digit EBITDA growth? What kind of property gains do you have in mind, perhaps for the second half? I don't believe you had any material ones in H1.
Thank you.
Okay. No, I think on the production side, that's a typical point which comes from time to time. We have this time in Western Southern Europe, we had some issues, especially in France, due to the newly acquired Italcementi cement plants where we had pushed last year, we talked about that very much on alternative fuel. We brought the alternative fuel rate up from, I don't know what, 18% to 35%. There is no free lunch in cement production. If you push alternative fuel and your plant management is not experienced enough to handle that, you can create blockage in the kiln, because alternative fuel has a lot of sulfur and whatever, so you get cyclone blockage. We had problems with that. It's also more stress on the three factories.
We have reduced now the alternative fuel rate a little bit in France in order to give preference to the production and that then on the other side increases our fuel cost. In Germany, we are doing a historical revamp of our cement plants with the Master Plan Germany in order to get them fit for the new EU emission law on NOx. That's a total investment which is finished this year of about EUR 300 million. We started the new kiln in Burglengenfeld in Bavaria in end of March. Typically in a startup phase of a kiln, you have some problems. We have not reached the stability which we normally have, and we have not reached the full daily output of about 4,000 tons.
The problem is what you do not produce in Bavaria, you have to get it down from the north, you produce it in Baden-Württemberg, meaning your logistic costs go up, et cetera. Now the kiln is running stable, so we expect typically for a better run in the second half. U.S. Silicon Valley is a challenging place for production, not only in cement, also in car industry, if I read the newspaper well. It's difficult to find in Cupertino qualified people. The Permanente kiln has always been a problem. We have reinforced the plant management now down there, and we have a good plant manager in. I think we should see a clearly better run in the second half. The average on the property sales and gains we will see, I think in the U.S.
at least, that's only the U.S., we have an upside of maybe $60 million-$100 million, which we haven't seen in the first half, which will come in the second half. The other countries, I don't have an overview, but we have a couple of property deals obviously, in the pipeline.
Okay. Thank you.
Thank you.
Another question comes from the line of Mike Betts. Please ask your question.
Thank you very much. My two questions please. First one, I guess really is the impact of Indonesian pricing in Q2. On the bridge you show EUR 91 positive pricing, which offsets about two-thirds of the cost increase. Would I be right in thinking that if prices hadn't declined in Indonesia, you'd have pretty much offset the cost increases? Could you talk about if prices remain where they are currently, what the price hit in Indonesia might be in the second half? My second question, which is a bit briefer, Western and Southern Europe, the EBIT after the first half is down about 48%. Consensus is for an increase of over 80% in the second half. Do you think that's realistic to have a switch from -48% to +130% in the second half?
I know you've talked about 40% for production problems, but I'm wondering where the rest might come from. Thank you.
Mike Betts, I have done all my Q2 management meetings, so I know my numbers. Western and Southern Europe has my full management attention. You can be assured, the results swing we talk, in U.K. and in Benelux and in France is exactly what you talked about. That's what we are looking forward to. You're right. I think this is ambitious, but realistic. On Indonesia is always difficult. Now, what was your question? What the price-
The question, to simplify it, how much did the price decline in Indonesia hit EBITDA in Q2? If prices remained where they are, what would be the hit in H2?
The price impact in the second quarter was relatively minor. In my opinion, you can check that with Ozan again, it's about EUR 10 million to EUR 11 million, whatever it's dollars or euro. The main hit, that's what I said, comes from the coal price, because I think I told you earlier, we had budgeted right or wrong in the last week of November, sitting in Singapore, we were saying, "What's the new coal price assumption for 2018?" I think I said, "Finally, we go for $80." The spot price today is $123. Sorry, maybe you would have had a better figure. At that time when we discussed it, the forward curve, you can check it again, was about $85, $86. We thought it would come down. We typically base our price assumption not on the spot price, but on the forward curve.
Now the price went up, our coal price in Indonesia is to 90% indexed to that coal. That has been a significant hit, I can only repeat myself. Sorry, we consume 2.4 million tons, if the price goes up by that much, that has a significant hit on the results. You have seen how much we have been working, the local management to decrease the coal impact, by shifting to local coal, et cetera, because otherwise the impact would have been even bigger.
Understood. Thank you very much.
Okay.
We got another question, comes from the line of Nabil Ahmed. Please ask your question.
Yeah, good afternoon. Thanks for taking my questions. I got two, actually. First one on Indonesia again. Clearly you need price hikes to cover and start to recoup the significant cost inflation. You mentioned that at the same time, the longer you put the market and some of the competitors on the water, realistically, we could expect consolidation. I was wondering how strongly do you think Indocement and Semen Indonesia are pushing for price hikes right now? The second question, would you be able to clarify your statement about considering parts of Lafarge asset for sale? Was that specifically referring to Holcim Indonesia as well? Thank you.
No, to the second one, what we hear, what we understand is that the Indonesian position is for sale. If I read it right, what I hear from the bankers, the offers are expected to come in, I think, by mid-August. Let's wait and see. That's the one thing. What was the other one on Indonesia? What do you want to know? The markets?
The strong price push.
The strong push. Obviously, you know what I mean. That is typically in management. In management, you have always to hit two targets, because to push price in Indonesia, I do not need Indonesian management. I can do that by phone and instructing our distributors. That is easy, but I would lose my buyers and market shares. They have to balance the market position and the price increase. Obviously, we do not want to give up our market positions in our core markets in Central Java and Jakarta and also in West Java. You know what I mean? Because that is the long run. Obviously, we have some trouble in Indonesia, but from a growth perspective, this is still, after India, the second-largest growth market globally, and the market will come back sooner or later. It is a balance between market share and price.
If we read the market right, I would say most of our competitors also need more pricing, and that is why the first price increases on the backside have been successful, and we are going to continue step by step.
Sorry. On the Lafarge asset sale, were you mentioning specific assets, or was that a broad statement on potentially looking into some asset sales?
No. I was asked by the journalist whether we're interested. I said, okay, we are interested in everything in our industry, you always learn from these exercises. For us, it's clear already for antitrust reasons, we could not buy the assets in total because Holcim has its plant for Central Java, Jakarta, just opposite of our Citeureup plant. You can look at it from the tower. You see it is maybe two or three kilometers away, forget it. We would have a monopoly in Jakarta. This will never work. For us, the Tuban plant in East Java, Central Java could be of interest. We'll have to see whether that works out or not. I think we are early in the process.
All right. That's very clear. Thanks a lot, Dr. Scheifele.
Thank you.
Another question comes from the line of Rajesh Patki. Please ask your question.
Hello?
Hello, can you hear me now?
Yes, of course.
Yes. Thank you. Two questions from me. On the outlook statement, there is a comment about comparison base turning easier in the second half, but if you look at the like-for-like EBITDA changes last year, you reported 10% growth in the second half versus -1% in the first half. Can you please help us understand that part a bit better? My second one is, if you can give an update on synergies from the Italcementi transaction. I think you mentioned earlier about EUR 50 million to EUR 60 million synergies expected in 2018. Is that all completed and achieved now? Thanks.
Okay. I think on the synergies, we are on track. Whether they are all already realized P&L effective, you should check with Mr. Kacar. I am now at the moment not fully on the screen. I think we are well on our track with the target for this year was.
500.
550 or 500. Yeah.
Yeah, we are on track.
550. We're going to deliver that. As I told you earlier, that's very important about the synergies always body count. In our industry, if you talk about cost management, watch the staffing. I told you like for like, we are down 1,000 FTE, which is about 2% of our workforce, and the volumes increased by 3%. We have not been sleeping, at least. Again, Egypt with about 250. We are down in India, we are down in France, we're also down in Italy. That's ongoing. We have another about EUR 30 million synergies to come from the Cementir transaction, where we have closed down the headquarter in Rome now in July. We have finished the negotiations with the Italian unions, and we have about 80 people to leave the Italian organization by that.
The outlook on the second half, we think the comparison base is easier because, first of all, we expect that we will have a more benign weather situation, especially in North America, with no two hurricanes. Secondly, we have taken the hit on the energy cost to a very large extent in the first half, whereas in the second half, we run against energy costs, which were already on a very high level. Finally, with energy, we expect that pricing for coal in Newcastle and also Europe will slowly come down. Will not further go up, will slow down. We also expect that the price peaks, which we have seen in electricity in Europe, which were a real problem in Germany, in U.K., but also in Northern Europe, will ease during the summer break.
Great. Thank you.
Okay, thanks.
Another question comes from the line of Josep Pujal. Please ask your question.
Yes. Hello. Two for me, too. The first one is on Indonesia. You are talking about price increases of 1% now, if I understand well. I think that in June you were commenting a plus 4%. Are we talking about the same base? The plus 4% was, if I recall well, compared to a bottom. Is it that the plus 4% did not stick fully, or the plus 1% you mentioned today, it compares to another figure, probably Q2 2017? My second question is on U.S. aggregate. What was the price increase for you, please? Thank you.
U.S. aggregate, our price increase at the moment is close to $0.40. It's up by about 3.5% or 4%, I think. We are confident, especially on pricing for the second half, especially in California. We are up now about 3.5. We think we will hit about 3.5 for the full year. On Indonesia, to be crystal clear, the average price, and if I talk average price, it's the mixture of bag and bulk. At the moment, is around IDR 600,000-IDR 605,000 per ton, and it's flattish since 3 months. That's what Mr. Betts Was referring to in his question. What I told you in Bergamo, if I'm right, we think, or [Christian Caracciolo] told you, we think that we can push the price up maybe about by 5%, that's IDR 30,000.
That would be an average price of about IDR 630,000. If you calculate that in dollar, that would be between $2 and, if we are optimistic, $3 per ton. That's what we think, what we want to do now. That's our target in the second half. If we can do more, we do more. If the competitors get crazy, we have to look how we're doing with market share and volume. What I said midterm, once the whole sale of LafargeHolcim and whatever is clarified, I think the market, realistically, we should see relatively soon a price increase of at least $3-$5 per ton. That's not crazy. It would be far away from our former level, but we would come back at least to a level which is the average level in China now.
That would bring us to, from a HeidelbergCement point of view, already between $50 million to $100 million more income. Also the Newcastle cement price will not stay forever above $90. If that comes down to $70, $75, which is the historical average, that would bring us another 50 million tons because we consume about 2.4, 2.5 million tons. That shows you a little bit the swing factor in the Indonesian result. These are not crazy numbers. These are very realistic numbers, and that shows you the swing factor in the operation. Okay, last question.
Okay, sir, for the last question we got on the line John Messenger. Please ask your question.
Hi, Dr. Scheifele. Sorry if I can ask two again. One is, just going back on Gregor's question earlier around the production kind of issues that you have had this year and some of them last year. Have you actually gone out to the management teams or in your budget meetings, has there been a push to actually maybe release a little bit more funding to make sure maintenance CapEx covers all the bases? This week, Saint-Gobain had some issues with its production facilities. We have had a profit warning from a U.K. brick manufacturer who admitted they had not invested enough to allow their plant to run as effectively as it might do.
Is there anything where you look around the group in its totality and think actually we should maybe be spending a little bit more in certain places to ensure that we do not have the production hiccups, and we do not get caught with further kind of EBITDA one-offs? The second question was just going back to Egypt. You mentioned, obviously, it had a very good Q1. By default, you kind of did not mention what happened in Q2. Can we just understand what is the quantum impact of the 35% energy increase? Do you also bear a clay tax increase as well in that I understand that is coming through as well from the 1st of July?
Yeah.
Thank you.
Mr. Messenger, on the maintenance repair cost, I firmly believe in that we can maybe discuss country per country. If you would have participated in our management meeting in Dallas last week, you know what I told our guys from California? I said, "You know, guys, we have given you a lot of money. You have exceeded your maintenance repair CapEx by EUR 6 million or EUR 7 million, and I do not see any returns." We have a demand which goes up by 20%, and to 50% of the increased demand we have to cover by bloody imports. You know what I mean? This was a very interesting discussion.
Yeah.
I don't share that view. Maybe I'm wrong, but I think it's not a question on spending, it's a question more on management. It's a question on qualification on the second level, and whatever. Especially if you look, for example, in the U.K., sorry to say, in Padeswood, our plant, we had always management quality issues, because to find good cement engineers in California, education of easy, we got now a Turkish plant manager in, we got a Turkish maintenance repair manager in order to stabilize the situation. It's a question of level of knowhow and commitment. Just what you understand. You have to understand, if you look to the kilns, the question is, how often do they stop? That's one thing. The question is, what's the MTBF, the meantime they need in order to get the kiln started again?
If you look the meantime between a Swabian cement kiln, and the meantime between failure between a British, a Californian, or Indonesian cement kiln, you know what I mean? The message is very simple. The alarm bells, if the kiln is down in Germany, seem to be much more louder than in some other countries. You know what I mean? That's a fundamental management issue which we have to do, and it's less a question of money, in my opinion. It is about focus on our core business and knowing what needs to be done. I think that's on that side. On Egypt, Mr. Messenger, the cut of subsidies in electricity and gas happened in June, if I'm right. We haven't seen the full impact in the second quarter. The second quarter was still okay. The volume was okay.
Pricing slowed down because the army started with their production, but it's still okay. I think we are at 720 Egyptian pound. That's still up by about 35% compared to last year. The army has already, with their six kilns they have in operation, they already closed two or three because they have produced cement, but they cannot sell. You know what, it's a crazy situation. We are lobbying now heavily with the Cement Association and also on government level, that they introduce a kind of quota system in Egypt, similar to the Chinese one. Otherwise, the cement industry, we have overcapacity, we have the army now around, and we have to see how we solve the situation. I think we have a very good management team, very committed in Egypt.
The outlook for the second half, we think we are still fairly positive, but it remains undoubtedly challenging. One good thing is that at least the currency is stable, because the currency hit was last year, the big problem.
Thank you.
Okay. Thanks a lot. Okay. Thanks a lot for your interest and attention. We wish you all a nice summer break and hope to see some of you on the latest in September. Yep. Thanks a lot.
This concludes our conference for today. Thank you for participating. You might now all disconnect.