Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to Javier Financial Results 2018 Conference you. Only ask 2 question per participant. I must advise you that this conference is being recorded today. Tuesday, 31st July 2018.
I would like to hand the conference over to your first speaker today, Brent Sharpelli. Please go ahead, sir.
Yes. Hello. Good afternoon. Here from Heidelberg. Welcome to our conference call to our Q2 results.
To all of you, I am sitting here as usual together with Doctor. Nagel, CFO of the company and our investor relations team team with Mr. Schaller, and Mr. Caslar. And I hope you have less heat in your home places than we do here in Huddlburg.
It's supposed to be the hottest day of the year in Germany. Now I start with the outlook. I'll be the overview on Chart 3. You have seen our numbers. We had solid volume growth in the first quarter in our 3 core business line between 3% and 5%.
Revenue is up by about 9% and operating our EBITDA is up by about 3% operating income, plus 5%. In the first in the second quarter, we had mainly headwind from 2 issues, one is currency, which was clearly negative compared to last year. We saw that that's about $50,000,000, and we see also energy costs which are about 1,000,000 up versus last year, mainly due to a clear improvement in the financial result, which improved by about 20 percent group share and solid tax performance, group share profit is up 11% to share is also up. Free cash flows generation was very strong in the 2nd quarter. Free cash is up by more than $100,000,000.
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 will bear is already bearing fruits in our numbers. The outlook, we confirm, we see continuing strong demand flows in our core markets. The 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, UK, and also California and in Eastern Europe. If you look to the numbers more in detail on Chart 4, you look to the Q2 result, you see the volume between 3% 5% and then you see operating EBITDA up 3.4% and operating income up by about 4.8%, another figure of 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 product 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 1500 FTE. I think it's 1490, yes, out of which consolidation effect are about fire bundles. So we have a net reduction of about 1000 at a workforce, which is around 59 or 60000. That means a reduction of close to 2%. At the same time, volumes are up in the first half year around 3%.
So we had 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 5 gives you the bridge from the result, you see the currency impact deconsolidation. That's mainly the German Sandline Brick business and the U. S.
White cement business, then you see the pricing impact volume and cost. And costs, as I said, do to a large extent, to a very large extent driven by NLG. And even with that, we still achieve, organic growth You see now on Chart 6, a little bit the turnaround, in the various areas. We had a very a bad start into the year due to a strong winter in North America and Western Southern Europe. And 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's only Indocement. All other markets are up there. And Africa made it turn investment up 20% solid performance in our core markets, Egypt, Morocco, Ghana, Tanzania, Chart 7 gives more transparency to the development in, I think, 2 core regions, which is on the one side, Asia Pacific on the other side, Western Southern Europe. In each area, we have one travel country, it's Indonesia. And on the other side, it's UK.
The chart shows you that if you eliminate Indonesia or UK, we have a very solid underlying a profit close in the both areas, which is double digit, yes? And you see also clearly that in Indonesia, obviously, the pricing, yes, has reached our floor, but the pricing is now in a range between 42 to $43.44. And we are coming down from a price level of $75 or $78, yes. And in UK, we had market weakness mainly in London. We had also in house problems, which we solve this management change.
We had then 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 quarter for the second half. And 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, yes, that's a clear issue for our energy intense industry, this price price, significant price increases in energy are a problem. It typically takes the industry a certain while to recover that we are price increases in our markets. We show you on the left side, the chart for new car coal, which is the key indicator for coal in the Pacific in Asia.
And you see really how this went up yes, that is for us a problem in Indonesia and Thailand then to a certain extent or in a certain extent also in India, and you see how the price really went up. And when we made the it in Indonesia in November, beginning December 2017, the price was at around maybe $88,000,000, and now the price actual is about 123 in U. S. Dollars. You see really the major movement and the co consumption in Indonesia for the full year is about 2,400,000 tons.
And then you see also the price of oil, yes, which went up significantly since December, yes, and that's obviously a cost item, which hits typically the aggregates division, yeah, the, petrol price in U. S. Is up and that cost us typically hits us in the aggravate, division. And you see then on the right chart, how we have managed the fuel cost increase per tonne 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 switch a lot of our plants to gas, yes, the shake has is definitely cheaper than coal and shake has had even a negative price point in the U. S. And the other point is in other markets, we try to shift to local code, which has typically lower quality standards, meaning the caloric value is lower and also the fruitful content is significantly higher.
However, the price difference between local coal And for example, international co newcastle or API in Europe is between $30 to up to $50. Per ton. That's what we have done to a large extent, what you see, for example, in Indonesia. On chart, on the next chart, we see then the volume development, yes, in our area, in different areas. You see North America in the second quarter, still slightly negative, yes, that's only the region north, which was down again by about 7%.
It's a mixture of 3 factors. First of all, in the north, we still had winter weather in April, So April volumes per week may in tune, they're 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. And thirdly, we see also a higher installed capacity from our competitors. And, Albert, we lost a little bit shale 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%. So 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 5%. Italy was also slightly up 2% Spain, 16%, 17% even UK. UK was slightly negative. So overall picture, okay, Asia Pacific, up 6%, a faster stone 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 fifty-fifty joint venture with the Georgetown 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. And Africa, Eastern Europe, we saw a growth rate of about 1% Q2, clearly slower than Q1, mainly related to Egypt, Egypt, own slightly up. Morocco, more or less flattish, Ghana, Togo, Tanzania, up between 5% to 14%. So relatively strong growth in Africa.
If you go now to the reporting to region, North America, Chart 11. And 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, yes, 50% of the ForEx loss in Hardelberg cement goes to the U. S. Dollar.
And the other point was the deconsolidation of our solid white cement business. If we look to the areas, the picture is a quite different in the regionals. As I told you, in the first half year, we are still down. We are down 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 Coppeltino, Silicon Valley where we overspent by about $6,000,000 to $7,000,000. That's a timing effect. But 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. And we expect a very solid production performance in permanente in the second half with clearly improved contribution margins. If we look to the SARS, the SARS 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 at Lambda is booming. The Carolinas are very solid. Pricing is good. And for the south, we expect a normal hurricane season for the second half.
Last year, we had 2 hurricanes, which have negatively impacted our results by about US20 million dollars to US25 million dollars. So we are relatively confident on the outlook for North America. In Canada, Our business in the Paris in Calgary, Edmonton, the market is flattish. The market has reached the bottom, and whereas BC and Washington are very strong. We start a digit growth in these areas.
And, we see for the second half, mainly 2 positive aspects. We hope that we will see in the Peru provinces a recovery on the oil well cement, the oil drilling typically takes place in Q4, yes? And we have budgeted for flat volumes. We see now an upside because the oil price is up. So it's attractive again for oil drilling, And the second point is in British Columbia, we have done a second price increase of $10 by 1st July.
Because the market is very strong. If you go to Western, Southern Europe and look to the results, you see Q2 operationally up 4.5%. U. K. 1st 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. Yes, and we expect a strong run. We have also done some price increases now mid half year, especially in aggregates, and also in as far as in order to compensate for the increased input costs. Germany is strong.
Market is more or less, so without pricing is up about that looks okay. Yeah. And we expect a strong clinker production in the second half. Penny Luxe, we had a weak first half year. We had some housemate problems with our looks system, which we think we have solved now by management changes, yes?
And we expect based on good order books, and good pricing, pricing is up between CHF3.15 Cement, a strong second half. Italy market was weak in the first half year, but maybe minus 2%. The south, especially in Sicily, is down double digit. Also Southern Italy, retro decalapia, south of Rome, Latina is negative, whereas the north, especially supported by some infrastructure project is relatively positive. We have the high speed train of between Milan and Genoa.
We have the Brenna Hole Tuniu project, which we have So the north was clearly better. Pricing in Italy is up versus December last year by about we will we will execute a second price increase in Italy by 1st August by another in order to get a good price level the beginning next year, where we will then have the full impact on an annualized basis of the Cementillo acquisition. In France, market is okay. Growth is good for 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. And we will catch up yes, and, where we have a swing factor of about close to double digit €1,000,000 in the results. So we are confident on France that we will hit our targets. Spain, the market is okay.
Williams are up by about 18%. Pricing is up. Spain is clearly recovering. If you look to the next chart, chart furthering on reaching Nika, then I think the figures speak for themselves we had in Q2, result is up 11.8% for the first half year, like for like 12% yeah, all markets are okay, very strong in Poland. We have done a good price increase in Poland by about a 4 to 5 slotty market is strong.
Check market is good. We have enterprise increase. Also, 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% to 14% outlook for the whole region. Is pretty good. Chart forwarding is Asia Pacific. And you see for the first half year, we show a negative result in absolute term of about $44,000,000 like for like 14.4 that's all due to Indocement.
In Indocement, we had 3 main issues. First of all, the market was strong in April, May. Then in June, due to very few working days, the market was clearly slower. Good news is intercement has kept or even slightly improved its market position compared to last year in both segments, back and bulk, And that's the first message. The second point is obviously the price inflation in coal was a significant hit on the March I mentioned that earlier.
The 3rd point is the Indonesian Rupya similar to other emerging market countries was weakening that has hit our results because about 50% of the cost in Indonesia, our dollar base, yes, And then we had a homemade problem. Our power plant in Topshunya in Kalimantown had a breakdown And we have been to serve the market via C2R, which has increased significantly logistic costs. So that is a one time effect, which is around maybe 100,000,000 rupee, which will not come back in the second half. In Indonesia, if you look to pricing, bulk price is flattish in 3 or 4 months. In the back segment, we see a slight upward trend in the months of June by about 1%.
The pricing is now at around RUB600,000 per tonne, 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, a dollar per ton in the coming 6 months. Australia a strong first half year, especially Sydney is strong. Melbourne is strong.
Brisbane multi residential is weakening, country side still relatively flattish. The real problem is Perth, Western Australia. Perth is still negative. Also, the iron ore business, north of Perth, is is weak. But overall, we expect a solid, the herbicide development in Australia solid volumes in our 2 core area, 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. In 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, so 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 of the, let's say the supply of cement is limited. Pricing in China went up in the first half year by about 30 1 or 32%. The average price in China is now somewhere between $42.43 per ton $2.48 per tonne. And China at the moment is obviously one of the most profitable, if not the most profitable cement market globally.
Now if you look to Africa and Eastern Mediterranean also 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 call markets, Tanzania and Ghana, Morocco were solid, Egypt benefited from a 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, yes? And the same applies a little bit for Egypt.
In Egypt, obviously, the government cut the subsidies on electricity which has led to price increases by about 40%. Last chart, Chart 60 looks to trading. We are on record level volume and profitability. I can hear 3 core messages. China increases its clinker import.
Yeah. I think that the first time in the history of the cement industry that China is, increasing, it's a clinical import. I think it goes now to close to 10,000,000 tons. What's the reason is that the people are 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 $8.
So if you want to buy a phone of clicker now in Shanghai, FOB, you have to pay between $36,000,000, $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 clingo is due to the weakness of the Turkish lira are more attractive than to sell domestically, yes, and that shows you that the domestic markets are strong. And there's a deal demand for clinker on the clonal seaborne market. And the last point is freight rates are up between 20% to 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 informal, it's much more difficult than a year ago.
So, and I hand over to Doctor. Mehta for the financial report. Thanks a lot.
Thank you, Doctor. Jacqueline. Good afternoon, ladies and gentlemen also from my side. Let me lead you through the highlights of the financials. And you can start on Slide 18.
You can see that the group share of profit is clearly up 1,000,000 to 1,000,000 in Q2. So despite a still a relatively trend on the operating results, we can see that the group share of profit went up and also the earnings of per share went clearly up from to in the quarter. This was supported by more or less flat ordinary additional ordinary results, $30,000,000 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 1,300,000,000 over the last 12 months.
And our net debt is also down now below 1,000,000,000. In the last 12 months, we saw good cash conversion, and 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 improvement in the operating cash flow. We think that this principle go on during the year as we will see a further normalization of working capital towards E. And we will continue to see lower interest payment and lower tax payments.
If you have a closer look to the income statement on Slide 19, what's going on below the results from the current operations, And I will focus on the figures of the quarter. We can see that the additional ordinary result is slightly positive with plus 10,000,000 coming from some one off income and release of provisions, which was on the on the negative side, we have impairment on our activities in the Ukraine. Aside from participation slightly down to 10,000,000 as well as the timing issue coming from U. S. And we will catch up towards the end of the year.
Financial results down on a lower financing cost and also lower other financial costs, as expected and guided income taxes IFRS 172, almost on last year's level. But if we distinguish between current tax and deferred tax, then we can see that the current tax is significantly down as guided and, but, out balance by a little bit higher before tax mainly coming from U. S. Tax reform. Then as I said, minorities down CHF 31,000,000 in the quarter, 39,000,000 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 buildup of working capital. In the Q1, the buildup on working capital was mainly driven by U. S.
Was driven by the consolidation, mainly of our of Cementia, our new Italian acquisition. And this levered out now in the second quarter, and we see a clear switch and the operating cash flow has improved compared to last year by 100,000,001 1,000,000 and partly compensating the high cash out in the first quarter. In the investment, we see a trend in the industry that, acquisitions are done in the first quarter that exactly what we saw in hydrophils as well. We acquired in the first quarter of Cement here and, as far as here in Australia, but there were no further M and A activity in the second quarter. So what you can see in the second quarter total investments.
The $258,000,000 cash out is almost only stay in business, CapEx, And you see that that went down by $68,000,000 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 SEK 200,000,000 in the quarter compared to previous year, in the half year, it's still down 3 12, which comes from the M and A activity, mainly in the first quarter. We will we expect to see similar trends as in the second quarter to continue in built and probably also the 4th quarter. You can see the analysis of the free cash flow on slide 21, free cash flow went up by a significant $300,000,000, $400,000,000 compared to last year. Now up to 1,000,000,000, but see from the horizontal green bar.
I mean, that's a typical pattern what you see after an acquisition as we acquired detachment in July 2016. Then you have a lot of operational cash out, restructuring for integration, etcetera, and that levies 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, then also net debt reduced from 10.1to9.9 1,000,000,000. 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 remarkably out of the accounts receivable. Up 587 coming from strong business activity, mainly in U.
S. And from consolidated in Italy, Italy is typically a country with relatively high amount of receivable and cementier, which contributed mainly that has not yet been fully integrated after the in the first 6 months of ownership. So we expect this to further improve over the remainder of the year. Slide 23, a little recap of the target. We announced that Capital Markets Day with respect to financial targets.
We are PC in active portfolio management. We have already reached, $294,000,000 of the total proceeds in the 1st 6 months of this year, mainly coming from, dispose of white cement. Assets and, limestone bricks in Germany. We still have a quite comprehensive list of assets to dispose off dispose off. 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 idled assets, which are for disposal, such as unused land, depleted quarries and things like that. And certainly, 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. So, we expect 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 46 percent of depreciation, we are quite confident that we can reach, the target.
The main season for same business CapEx or maintenance CapEx is towards endoftheyear. So we are confident that you reach our target. Financial cost goes down as expected. You can see this and we see a continued improvement on the tax side, cash tax rate, what is targeted to be at 22. Currently, we stand at 18%.
This may still level out towards the end of the year. But also we know I'm very confident that we can reach our target. So on the financial side, I would say we are well on track and we will see continued strong cash flows over the second half of 2018. So based on that, I would go back to get back to Doctor. Schafer 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 had backwinds 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 apply since 1st April 1st May now in the in Q3 and, Q4, yeah, and, that's where we are. I think I leave it that way and we open the question session. Okay.
Thanks a lot.
And we can start with the Q And A session, please.
Okay, sir. Oh, ladies and gentlemen, we will now begin the question as question and answer And please be advised that we only limit over 2 questions per participant. Okay. Your first question comes from the line Aper Paul Roger. Please ask your question.
Hi, good afternoon, everybody. So 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 load double digit organic EBITDA increase in the second half. You've obviously talked to through the Easy Bay from the price rise and energy costs getting easier as well. But even so, it looks it looks relatively ambitious given the the out the outcome in sort of H1.
I wonder if you could just talk a bit about this key upside and downside risk and the swing factors that will determine whether that's achieved or not. And then secondly, just on on Europe, just looking at slide which is slide 29. So the the volume and price development, obviously, the momentum on the pricing side is very strong. Unless 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?
And overall, do you think European margin should improve compared to last year in the second half?
Okay. That's also low. Now on waiting on the swing factor, Let's talk a little bit about the markets. I think when swing factors, 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 in polyps cement, which has a 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 administration has proposed that Chinese imported cement will also have a tariff, about $6 to $7 per ton, which gives us more pricing power. And California, obviously, is the strongest, I think, the strongest U. S. Market.
At the moment, So we are more confident on that. Secondly, in Texas, our other strong market, we hope that we will have a normal hurricane season year, we had 2 hurricanes in the summer, which has cost us at least about USD 25,000,000, a result, which we do not hope that we that this will come back. And then finally, we have also quite a couple of will be realized and closed in the second half. On Western And Southern Europe, you have to see that and what you're referring also to the margin side, partially, you're 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.
And this alone is a result between 1,000,001,000,000. And that applies to France, to UK. We had production problem in our plant in Captain, which is the closest to London. We had production problems in France, also in Germany, and these things are now fixed. And that's why you see it also in the in the report about the charts.
I inserted that that strong clinker production, which is a signal that there were negative inventory impacts on that. And that has obviously, cost us margin, which will not happen again in the second half. And then finally on Indonesia, as I told you, I think we have reached nearly reached button on pricing. I think, the rest of the market is, especially the new comers, yeah, or on a cash loss situation that is not sustainable. That's why we have started to increase prices selectively.
And 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, but I would say for the next 6 to 12 months, I would say price increase in cementing Indonesia between $3 $5 think this is realistic. You can say this is not a lot of money. If you sell more than 18,000,000 tons in this country, that is a swing factor for us between $50,000,000 $100,000,000 only on the price swing.
You have to see that. And I think that's the level of price, which is at least needed in order to give everybody oxygen to Breeze. And so there is, on that side. I think that's a little bit On the swing factors, I think Western SaaS on Europe, I explained, it's mainly related to production, lower flowlower clinker production, and, then anticipated.
And, actually, just on on north on sort of North And Eastern well. I mean, I think you had, like, 12 a half percent like for like in Q2, in terms of sales, but margins went down in this division as well on a like for like basis. Is that cost inflation? I mean, 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 have We had an issue on a variable cost, which you see on the cement side And we had in Russia, in our largest plant in Tula, we had a stop because our gas conditioning power had a problem, had some cracks. We had to fix that. So we had to stop production in Russia, which has also cost us margin, quite significantly. So I think overall, the region a car does not keep me awake at night.
So that is if everything runs like that, I think we are on good shape.
All right. Thank you.
Okay. Thanks.
Our next question comes from the line of Elaine Gabriel. Please ask your question. June.
Yes, good afternoon, gentlemen. Just two questions from my side. Firstly, on the Vision 2020 and your ambition for disposal slash 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? And the second question is on the U.
S. You mentioned McEnnis 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 Huddl board, we told you already in the last call that they had or in last year, they had opened a providence terminal, which is Boston. Where they had some volumes, Boston is not the core market for us, but for another European competitor. And then they have opened now. They are Bronx terminal in New York just about 2 weeks ago when they start to ship from Braun and they are also entering the Ontario Toronto market, yes?
And, at the moment, our guys the first in the second quarter were very, margin 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 born more precise. Maximus is selling in New York at the moment at a price mill net of about USD 93.00. The market price is at $95,000,000, you know what I mean?
So they are still also very cash oriented because McInnis, in my opinion, under the water. They are clearly cash negative. So they also try to maximize the cash situation, but it's clear in New York compared to last year. Pricing is down by about $5 per tonne. That's on McInnis and disposals.
Okay. We are doing we are in the process divesting, for example, our white cement plant in Egypt. We are divesting our paperback cement plant in Egypt. We have starting we have started the divestment process for our pipe business in Western Canada. We are selling our 2 buy it import terminal, including ready mix operations, etcetera.
We are in the process of selling our Sri Lanka business, etcetera. So we have a lot of, smaller operations, which are clearly noncore, yeah, which we think are not necessary. And then, obviously, we have a typical yearly run rate of real estate sales, which are typically depleted quarries are, which we sell. And 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 part of them in the second half. And obviously, on the interactivity of the market, there are markets which where we will reconsider whether we're going to stay in for the long run.
That's typically grain. We also are looking analyzing the situation in Kazakhstan and also Egypt the question is whether on the long run, you need to be there.
Next question comes from the line of Robert
Hi, good afternoon. It's Robert Gardiner, Davy. Two questions for me. 1, maybe if you could just come back in North America, your aggregate and ready mix margins under pressure with increased fuel costs. So I'm just wondering to the extent you push through price to try and offset that in H2.
And in Africa, Mid Basin, just on the cement margin there, you've got that improved pretty significantly. Is that or prices of capacity or what's making it that improvements? Thanks.
The last question, so maybe it was on Africa on the cement margin or what?
Yes, in Africa, yes.
Obviously, in Africa, the cement margin improvement is to a large extent driven by the result improvement in Egypt, yes, Egypt, the result is clearly better. And in Q1, we had better pricing And, the full effect of the coal mill in Helwan comes into play, then also we had a very good run-in Tanzania. We could increase prices. We could increase prices. The kiln was running well.
We had less imports and then also Morocco we are doing well prices. We are up. I don't think the fuel rate is up. So margins also in Morocco developed quite well And, 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% to 4%. We have clearly an upside we believe in California.
And on pricing, we think we reach a 4% also, California is pretty strong. And so on aggregates, we are overall, we are confident.
Okay, thank you.
Thank you.
Another question comes from the line of Phil Bernstein. Please ask your question.
Hi, Phil Rosenberg from Bernstein here. Good afternoon, gentlemen. Just a couple of questions. One on the UK. We had problems of the UK it seems last year.
Now it's another year of falling EBITDA. What did I know you mentioned homemade problems but what exactly is going on? And in particular, when will it be fixed? Can we expect to an improvement year on 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 $6 to $7 per ton. I know you mentioned FOB prices up in Shanghai. But there's a shipping rate effect there too. I mean, how should we see that sort of chain?
Because I guess it sort of relieves the import threat in a lot of markets.
Yes, Mr. Rosebeck, hello. That's right. The what we see is that clearly the situation for the imports gets more difficult, meaning domestic production gains significantly in competitiveness. Due to 3 effects.
First of all, the clinker price is up globally between $4.8. That's not only in Asia. That's also in the Mediterranean. Yeah. That's what we see very clearly, yes?
And that's the one thing. The second is the freight rates are also up between 20% to 40% and then the fuel costs start to run the ship. So, that's clear, that helps on, domestic pricing. That is especially true for Western Africa, for the whole African continent, which, has a sea border line. But that's also true if you want for U.
S. Coastline. That's the one thing. On the UK, You're right. We have a very close management attention on the UK.
I think we'll adjust through that. We have seen our Q2 clearly improving Q1 was very bad really to the weather. And don't forget this what was it in February when London was closed down or when the snow came and nothing went through. So So we had really, we had a nasty coupon in UK. That's for sure.
I think in Q2, we are doing okay. We expect now, a strong run-in the second half. And we have finished our management changes, yes, on ready mix, but now also on aggregates So we think we should see a clear improvement of results in the second half. In UK, but don't fool ourselves. It must be clear in the UK, the, the import inflation especially in energy is a problem.
I haven't checked now all the numbers from the UK, which are already published, but that should be clearly visible. The 2 month price, which is dollar denominated in UK, significantly up. Yeah. That's very clear electricity price. I don't know why in the UK went to hell in Q2.
It went up significantly by 2025%. So we have a significant cost inflation in the UK, which is not fully offset by price increases. That's fact. And the market, the construction market, Mr. Rosebelle, Google all is flat It's very different.
Residential is slow, in London, so it's still a lot of cranes. I agree, but no new project. And the market is driven stronger in the second half. For example, the first jobs have been allocated for the high speed train between London and Birmingham. That's a mega project for the next 3 or 4 years.
And we expect to start shipping for that project already in Q4 this year. Also, Hinkley is now running better. We are seeing increasing volume, significantly increasing volumes to Hinkley power plants, So I think the infrastructure is the light in the tunnel, okay?
Okay. Thank you.
Thank you.
Another question comes from the line of Gregor Kudlitz Please ask your question.
Hi, good afternoon. I've got two questions as well, please. So the first one is just I think you flagged may have lost count, I don't know, 5, 6, 7 production issues in various countries. And is there something that's worrying you, or do you think it's a little bit of just unfortunate timing as to what happened? Because obviously, it kind of raises the question mark there's some maybe an underlying issue in the plant network.
So for question 1 and question 2 is just some property gains. Obviously, last year, you had a big one in the 4th 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 profit against do you have in mind, perhaps for the second half? I don't believe you had any material ones in H1.
Okay. No, I think on the production side, that's a typical, for end, which comes from time to time. We have this time in Western Southern Union. We had some issues, as especially in France due to the newly acquired Italian cement plants where we had pushed last year, we took talked about that very much on alternative fuel. Yeah, we brought the alternative fuel rate up from I don't know what 18% to 35%.
And 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 a blockage in the kiln yard because I don't know if you will have a lot of sulfur and whatever. So you get cyclone blockage, sure. So we had problems with that.
It's also more stress on the 3 factories, And 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 costs, In Germany, we are doing a historical revamp of our cement plants with compliant 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 1,000,000. And we started the new kiln in both Lagerfeld in Bavaria in end of March. And typically in a startup phase of a kiln, you have some problems.
So we have not reached the stability, which we normally have, and we have not reached the full daily output of about 4000 tons, yes? And then the problem is, what you do not produce in Valeria, you have to get it down from the north, you produce in Barton Gudenberg, meaning your logistic costs go up and etcetera. Now the killing is running stable, so we expect typically for a better run-in, in the, in the second half. And, U. S.
Silicon Valley is a challenging place for product not only in cement, also in car industry. If I read the newspaper wall, it's difficult to find in Cupertino qualified people, and the permanent kill is always has always been a problem. We have reinforced the plant management now down there. And we all we have a we have a good plant manager in. So I think, we should see a yearly better rent in the second half.
And, the average on the property sales and gains, we will see, I think, in the U. S. At least, so that's only the U. S. We have an upside of maybe $60,000,000 to $100,000,000 were a dollar, which we haven't seen in the first half, which will come in the second half.
And then the other countries, I don't have an overview, but we have a couple of probabilities, obviously, in the pipeline.
Another question comes from the line of Mike Betts. So 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. I mean, on the bridge, you show, 91 positive pricing, which offsets about 2 thirds of the cost increase. Would I be right in thinking that if prices hadn't declined in Indonesia, it would have pretty much offset the cost increases And could you talk about if prices remain where they are currently, what the price hit in Indonesia might be in the second half?
And my second question, which is a good briefer. Western And Southern Europe, the EBITDA for 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 minus 48 to plus 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.
No, yeah, Mike, that's I have done. I have done all my Q2 management meetings. So I know my numbers, yeah, a question on Southern Europe has full management attention, yes? But, you can be assured, yes, the results being we talk, in UK, And in Bene and in France is, exactly what you talked about, yeah, that's what we, what we are looking forward to. You're right, yes?
And, I think this is, ambitious path, realistic, yes? And then on Indonesia, now I'm always 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 And if prices remained where they are, what would be the hit in H2?
Indonese, the price impact in the second quarter was relatively minor. In my opinion, it's about you can check that it's all done again. It's about $10,000,000 to $11,000,000, whatever it's dollars or euro. And the main hits, that's what I said. Came 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 car for, prices, coal price assumption for 2018.
And I think I said finally, we go for $80, yes? And the spot price today is $123,000,000. 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, and we thought it would come down. And we typically base our price assumption, not on the spot price, but on the forward curve, yes? And now the price went up and our coal price in Indonesia is to 90% index or to the, to that coal.
So, that has been a significant hit, and I can only repeat myself. Sorry, we consumed 2,400,000 tonnes. And if the price goes up by that much, that has a significantly some of the results. And you have seen how much we have been working, yes, the local management to decrease the coal impact by shifting to local coal, etcetera, because otherwise the impact it has been, even bigger.
Understood. Thank you very
much. Okay.
We got another question comes from the line of Nabil Ahmed Please ask your question.
I've got 2 actually. First one on Indonesia again. Clearly, unique 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, relatively we could expect consolidation. So I was wondering how strongly do you think in the cement and Samanian Indonesia are pushing for price hikes right now. The second question, would you be able to clarify your statements about considering parts of Lafarge asset for sale?
Was that specifically referring to Seminonesia as well? Thank you.
No, to the second one, you should go back to social now too, but what we hear, what we understand is that Indonesia is the Indonesian position is for sale. And if I really derive what I hear from the bankers, the offers are sector to come in now. I think by mid August, yeah, let's wait and see. And, that's the wind fund. And the, the, what was the other one on Indonesia?
What do you want to know? The market's the
best one to try to push
The strong question. Yeah, obviously, you know what I mean, that's typically in management. In management, you have always to, to hit 2 talks. Because to push price in Indonesia, I don't need Indonesian management. I can do that by a phone in instructing our distributors.
That's easy, but I would lose my browsers and market share. So they have to balance the market position and the price increase. And obviously, we do not want to give up our market positions in our core markets in Central Charah and Shakapa and also in West Charah. I know what I mean? Because that's the long run, yes?
And obviously, we have some trouble in Indonesia, but from a growth perspective, this is still to India, the 2nd largest growth market globally, yes, and the market will come back sooner or later. So it's a balance between market share and price. But if we read the market, right, I would say most of our competitors also need more pricing. And that's why the first price increases on the backside have been successful. And now we're going to continue, step by step.
Sorry, on the Latage assets, were you mentioning specific assets or was that a sort of a broad statement on I'm actually looking into some asset sales?
Well, we are well, I was asked by the journalists whether we understand, okay, we always We are interested in everything in our industry. So you always learn from these exercises. For us, it's clear already for antitrust reasons, we could not buy the assets in total because Holzsim has its plan for central Java, Chicago just opposite of our city or plant, but that's within, you can look at it from the tower. You see, it is maybe 2 or 3 kilometers away. So forget it.
We would have a monopoly in Jacoba, this will never work. So for us, the turbine plant or in the Western java, or Western Java could be of, could be of central Java could be of interest, yes? And now we'll have to see whether that works out or not. I think we are early in the process. You.
Another question comes from the line of Rajesh Patki. Please ask your question.
Hello?
Hello. Can you hear me now? Yes. Yes. Thank you.
Two questions from me. On the outlook statement, there is a comment about comparison based earning 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 minus 1% in the first half. So can you please help us understand, that part a bit better? And my second one is, if you can give an update on synergies from the Itaugment transaction, I think you mentioned earlier about $50,000,000 to $60,000,000 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 and L effective. You should check with Mr. Kala I'm now at the moment, they're fully on the on the screen. I think, we are well on our track with the time for this year was 500,000,000 dollars, $550,000,000 or $500,000,000, yeah, about $550,000,000.
We're going to deliver that As I told you earlier, that's very important about the synergies always body count, yes. In our industry, if you talk about cost management, watch the staff in. And I told you like for like, we are down 1000 FTE, which is about 2% of our workforce. And the volumes increased by 3%. So we have not been sleeping at least.
And that comes mainly, that's again Egypt with about 250 We are bound in India. We are bound in France. We're also bound in Italy. So that's ongoing. And we have another about a million synergies to come from the Centimeters transaction where we have closed down the quarter in Rome now in July.
We have finished the negotiations with the Italian unions, and we have about eighty people to leave, the Italian organization by that, yes? And then 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 a weather situation, especially in North America with no 2 hurricanes. And secondly, we have taken the hit from 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. And finally, the energy, we expect that pricing, for coal in Newcastle and also Europe will slowly come down. We'll not robot WACC needs to slow down.
And we also expect that our price peaks, which we have seen in electricity in Europe, which were a real problem in Germany in UK, but also in Northern Europe, will ease during the summer break.
Great. Thank you.
Okay, thanks.
I'm listening to you for answering us. We'll take the last follow-up.
Another question comes from the line of Joseph Fujal. Please ask your question.
Yes, hello. 2 for me too. The first one is on Indonesia. You are talking about the price increases of 1% now, if I understand when. 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 button, 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. And my second question is on U. S. Aggregate.
What was the price increase for you, please?
U. S. Aggregate, our price increase at the moment is close to, $0.40. It's up by about 3.5% or 4%, yeah, I think, yeah, and, we are, confident especially on pricing, though, for the second half, especially on in California. So we are now about 3, 3.5.
We think we will hit about 3.5 for the full for the full year. On Indonesia, to be crystal clear, the average price, and if I talk average price, it's the mixture of back and bulk. At the moment, it's around 600,000, 605,000 rupee per tonne, and it's flattish since 3 months. That's what Mr. Bets was referring to in his question.
And what I told you in Bergamo, if I'm right, we think or Christian Karajevaya told you, we think that we can push the price up maybe be about by 5%. That's 30,000 rupee. That would be an average price of about 630 rupee. Or if you calculate that in dollar, that would be between 2 and if we are optimistic, $3 protonka, 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, then we have to look how we're doing this market share. And volume. And what I said mid term, yes, when's the wholesale of Tahoszim and whatever is clarified.
I think the market realistically, we should see, relatively soon a price increase of at least $3 to $5 per tonne. 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 leverage level China now, yes? And that would bring us to, from a high level point of view already between $50,000,000 to $100,000,000 more income And also, the new castle cement price will not stay forever, above 90 if that comes down to 70, 75, which is a historical average, that would bring us another 50,000,000 tons because, we believe we consume about 2,400,000 to 2,500,000 tons. That shows you a little bit the swing factor 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 the line of John Messenger. Please ask your question.
Hi, Doctor. Schaeffler. I'm sorry if I can ask you again. One is is just going back on Greg's question earlier around the production kind of issues that you've 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 in that, you know, we've had this week Sangaban had some issues with its production facilities.
We had a profit warning from a UK brick manufacturer who admitted they'd not invested enough to allow their plan to run as effectively as it might do. Is there anything where you look around the group and it's totality and they can actually we should maybe be spending a little bit more in certain places to ensure that we don't have the production hiccups, and we don't get caught with further kind of EBITDA 1 offs. And the second question was just going back to Egypt. You mentioned, obviously, you had a very good Q1. By default, you kind of didn't mention what happened in Q2.
And can we just understand what is the quantum impact of the 35% energy increase. And and do you also bear a clay tax increase as well in that I understand that's coming through as well from the 1st July?
Thank you.
Mr. Messenger, on the maintenance repair course, I firmly believe in that we can maybe discuss country per country, Well, if you would have participated in our management meeting in Dallas last week, 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 $6,000,000 or $7,000,000 and I don't 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. So I don't share that view. Maybe I'm wrong, but I think, it's not a question on sending it's the question more on management. It's a question on qualification on the second level. Yes, and whatever, especially if you look, for example, in the UK, in the UK, sorry to say, impacts with our plan, 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 in order to stabilize the situation. It's a question of level of know how and, commitment, just what you understand, you have to understand, if you look to the parents, the question is how often do they stop. That's one thing. And then the question is, what's the NTPAS? In the meantime, they need in order to get the kiln started again.
And if you look at the meantime between a swabian cement, a kiln, and the meantime between failure, between British, California 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, in some other countries. You know what I mean? And that applies.
That's a fundamental management issue, which we have to do, and it's less, a question of money in my opinion. So it is about focus on our core business and knowing what needs to be done. So I think that's on that side. On Egypt, also Egypt, Mr. Messenger, the cut off subsidies in electricity and gas happened in June, if I'm right?
So 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 7 20 Egyptian pound. That's still up by about 35% compared to, last year.
The army has already with their 6 skills, they have in operation. They already closed 2 or 3 because they have produced cement, but they cannot sell. You know, whether it's a crazy situation, And we are lobbying now heavily with the Cement Association and also on government level, that they introduce a kind of water system in Egypt, yes, similar to the Chinese version because otherwise, the cement industry will have a very we have overcapacity, we 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. So the outlook for the second half.
We think we are still fairly fairly positive, but it remains. And part of the challenging win thing, 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. Yes, thanks a lot.
This concludes our conference for today. Thank you for participating. You may now all disconnect.