Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome, and thank you for joining the Heidelberg Materials Analyst Call Q3 2022. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question-and-answer session. If you would like to ask a question, you may press star followed by one. Press the star key followed by zero for operator assistance. It's my pleasure, and I would now like to turn the conference over to Christoph Beumelburg. Please go ahead, sir.
Thank you, operator. Welcome, and good morning, good afternoon to everyone listening in at our Q3 results call. Pleased to have you all on the line. We have, as usual, Dominik von Achten, our CEO, René Aldach, our CFO, and Ozan and Katarina and myself from the IR team. Looking forward to your question later, but for now, I hand over to Dominik for some prepared remarks.
Chris, thanks a lot. Hello, everybody, also from my side, great to be with you, at least on the call. I can make this fairly quick. We've shared the presentation. Let me just lead you through the key points. Good quarter for us, huh. I would even say strong quarter. Revenue grows 14% like-for-like. The main driver is pricing. As a consequence of that, the commercial excellence program reaches unprecedented heights. We come to that later. Q3 results was even on prior year level. I think that's a good achievement because the energy prices were, especially in Europe when it comes to electricity, sky-high and very volatile.
The pricing and our costs, which was and we acknowledged that in the first half, a challenging topic for us. The gap has been closed. We are basically on the zero line after all costs. In that respect, the positive trend continues. Pricing basically compensated all cost inflation in the quarter, which for me is a very important point because it shows also the resilience of the company in very volatile times. You know that we have rebranded for a good reason, also to accelerate our journey towards the most sustainable company in the sector. In that respect, we've also set ourselves the most ambitious target when it comes to CO₂ emission reduction.
Exactly those targets we have now submitted together with Scope two and three to the SBTi for their validation, because we know that they are on the path of 1.5-degree scenario. You know, we had an outlook out there that was worded on the point of the result, and we specified this now because we get closer to the finish line, so we stick with strong revenue growth. I think that's absolutely clear. We have come up with, to give you a little bit more flavor with ranges on EBITDA, EUR 3.625-EUR 3.825, and RCO 2.35%. 3% would be great, huh?
2.35%-2.55% on the back of remaining very volatile. As you know, you guys see this all day in, day out. If you go to the next page three, you see revenue clearly up 14%, almost EUR 6 billion in just one quarter. EBITDA basically on last year's level, like for like, slightly down, reported slightly up. Operating margin, okay, fair, still under pressure. We always accept that with the rising costs and increasing revenues, the fuel inflation that the margin comes down at this point. Operating EBIT also on prior year level, more or less similar to the EBITDA development.
If you go to the nine month operational view, then it's interesting to see that if you compare the year-to-date development versus the Q3 development, we have clearly improved. That's why also I think the trend is the important piece from our perspective because look, top line was 12.3% like for like nine months year-to-date. Now it's 13.7% on the revenue side. EBITDA, like for like, -7.8% in the quarter, -2.1%. Operating EBIT in the year-to-date, 9.4% decline, but in the quarter only 1.9% decline. I think things from our perspective have gone in the right direction in Q3.
If you go to the next page, five on the EBIT leverage, that's actually an interesting picture for many reasons. A, you see that there is heavy volatility on the currency side, EUR 75 in just one quarter. That's basically above the line, if you wish to say so. You see that the volumes are coming down more so in cement, not so much in aggregates and ready-mix. They're basically flat. Actually, this is a little bit up. Volumes down a little bit in cement. The rest is good or even slightly up. Price over cost, that's the key point. After variable costs, after fixed costs and after financial, we are basically flat with - 4, which is improved.
We'll come back to that, in a minute versus Q2. You have the scope change, for the waste cost disposal and some other stuff, on the right side. If you turn to page six, you see the difficult couple of quarters that we went through. We were very transparent about that Q2, Q1, and then since then, we have really caught up, in terms of cost management, but especially in terms of pricing, not only in cement but also in aggregate and ready mix and asphalt.
Q2 was already closer to the zero line, and now Q3 is even improved over that despite the fact I urge you to look a little bit at the electricity prices Q2 on average versus Q3 on average, and you will see the homework that we have done, because you will find that the Q3 electricity prices was significantly above the Q2 electricity prices. Nevertheless, we have closed the gap. I think that is the message that I think is for me, if you write one note of today, that's the note you should take, because that I think is a management task to be done in very volatile times. We've done this excellently in most of our areas, notably especially in Europe.
I think that's an important point because everybody is bashing and saying Europe is gonna go under. We can manage the business in Europe, and we've proven this in Q3, and we will prove this down the road. Commercial excellence program, next page. I go back specifically 12 months ago. I think I remember in our one of René's first calls, we had said, "Hey guys, you are coming up with a commercial excellence program. What are you doing? Why that?" We said, "Okay, EUR 350 million, above 2% inflation is our target." Now, nine months later, not 12 months later, we have secured already EUR 1.6 billion of additional price increases.
With the confidence of today, we will raise our expectations to clearly above EUR 2 billion by the end of the year. That is massively improved, not only on cement, you see on the left side, but now also on aggregate. There's this steep increase between Q2 and Q3. We are doing our homework, and we are reacting fast, and that's what you can really, really see here. On page eight, you see the nine-month picture. Again, big currency swings, volume decline. Here you see the lagging point of H1 with a negative price over cost in a negative figure. Again, the additional contribution out of Q3 to this EUR -184 was basically zero.
In that respect, I think we are getting in much better shape. If you then go to the regions quickly, page nine, you see, cement volumes down. That's reported like for like, they are positive in cement, aggregate and ready-mix. Well, ready-mix slightly down, but basically flat.
North America.
North America, page nine, huh. Operating results is like for like up quite a bit. Revenues up quite a bit by 13%. Results up quite a bit, 4.3%. Margin declined basically 0%. The American team has been able to hold the margin, which I think is a good achievement in a high-cost inflation scenario. Next, page 10, WSE, West and Southern Europe for us. Sales volume down in cement. That's what we said across a few markets, not all markets, but a few markets. Aggregates slightly down by 6% and also ready-mix slightly down by 6%-7%. On the results side, revenue is up 15%. That's a strong improvement.
Despite the fact that the energy prices are so volatile and very high electricity costs in the summer now, the EBITDA was basically flat in WSE, which from our perspective is a good achievement. Margins obviously under pressure with the rising revenues and the result being flat, it's mathematics that the margins for now are under pressure. NECA, page 11, you see that the volumes are coming down fairly comparable to WSE in cement, a little bit more than in aggregate and ready-mix. However, the revenues are still steeply rising 15.2%, and the result is down 6.5%. Yes, it's down, but it's not dramatically down. Margins similar to WSE, a little bit under pressure. Asia Pacific, page 12.
Basically volumes are not so bad, huh, but they go also to be fair against the comps last year. That is from our perspective not overly ambitious because there was a lot of lockdown effects in some of the key markets. We are not over celebrating the volume development in Asia, but it tells you also that there may be different cycles around the world coming up because there is a lot of catch-up effects from our perspective to come in Asia. It may have been a little bit difficult for the last two-three years, and we clearly see some positive momentum in some of the markets, notably especially in Indonesia, which is an important market for us.
Operating results, again, revenues up, but results clearly under pressure, and that's coming mainly from markets like India, but also Australia. Those there were unprecedented floods, but there is also a rocky markets because of the floods this year. The underlying demand from our expectation is clearly there. There are a lot of infrastructure projects there, but they were just not able to deliver. Commodity prices are very high, which also helps the government budget in Australia. The odds are out that Asia is more on the rising trend and not on the falling trend. Africa under very difficult scenarios, some markets are under pressure, others are going very well. Talking about currency pressures coming from the appreciated dollar, but also food supply, energy supply.
Typically, emerging market issues. We have a very experienced team in place in order to manage that. You see here the effect, revenues up, result even up margins basically flat, and I would argue a very difficult quarter for Africa. Well done. The team has done an excellent job in that respect. With that, René, I'll turn over to you.
Thanks, Dominik von Achten. Hello everyone. Let's shortly go on slide 14 regarding the financial highlights. Free cash flow for the quarter now has improved compared to the quarters before against the quarter last year. Our free cash flow is up for the quarter despite let's say outflow of working capital. That means our gross cash flow went up, and then in financial result and taxes, we did a pretty good job to turn the free cash flow into a positive variance versus prior year quarter. The leverage went down by 0.7, or the net debt went down by EUR 0.7 billion. As you know, we got the proceeds from the U.S. West disposal last year in Q4. I think it was in Q4.
and then we have to compensate a little bit the disposal too with the share buyback. We paid in total EUR 1.2 billion back to the shareholders with a normal dividend in May, which is the last bullet point. as you know, the second tranche of the share buyback is finished ahead of schedule, and then regarding the third tranche, we will look and see what is hard to get when we wanna launch this. Dominik, I hand over to you regarding the SBTi commitments.
Yeah, thanks, René. As you know, we have rebranded for many reasons, but one of which is to accelerate our transformation journey along what we have communicated in the Capital Markets Day this year. One key point for us is to get the most ambitious target in the industry when it comes to CO₂ reduction accredited by SBTi. We have basically put in our application, and there will be an answer, I understand, in the next couple of months. In that respect, we are very confident that will happen.
On page 16, you see that we are continuing to push very hard on the reduction of specific CO₂ emissions, and obviously also absolute CO₂ emissions, with traditional levers, when it comes to alternative fuels, when it comes to clinker cooperation, that's a must to do anyway. We wanna differentiate from the competition also, with a target to have the most sustainable product portfolio down the road. CCS is not for us, CCUS, not for us just to be a CCUS player. That's not the point. We use and leverage the CCUS to be able to offer a differentiating, a unique, most sustainable product portfolio in the industry by far.
That's why we have pushed now also Mitchell, which is our plant that will come online, revamped, after a $750 million investment, in the next two quarters. With that, on the back of that, we will also do a carbon capture and storage project where we just got the grant from the DOE in North America. That is a very specific project. You saw probably the press release also on Leilac, where we have signed a global agreement, on the back of our experience in our Hanover plant, where we have currently the Leilac-2 phase running. We're on our way. Last but not least, very importantly in terms of sustainability, we are also pushing the circular idea by scaling it up.
You saw we've done a couple of acquisitions, one in the UK, another one now in the Seattle area. We've mentioned here in our divestment in Spain that we have started recycling business in Bilbao, Northern Spain, Basque Country. In that respect, here and there and everywhere, we push ahead on the circular topic, which we strongly believe will also be a differentiating factor going forward. With that, on page 18, maybe, René, I do the left, and then you do the right. Just in terms of business outlook, we still see demand growth in North America on the back of difficult residential markets, okay commercial markets, but strong infrastructure markets, which helps both cement, but especially also the aggregate business. We do see clearly some weakness in Europe.
I alluded to that, residential clearly down, infrastructure kicking in some, but not substantially. Again, the markets are a little bit different. UK with strong infrastructure projects, Italy with strong infrastructure projects, France a little bit less so, Germany a little bit less so. So the picture is a little bit mixed, in Europe. Africa, markets are very different. I think, Morocco a little bit slower, for the time being, but I think that will come back. Egypt, okay. Tanzania strong, which is an important market for us. Ghana a little bit under pressure given their currency situation. So, good and bad, but it's the whole portfolio in Africa balances itself out well. I already indicated that for APAC, we are actually, quite positive.
You saw the results publication of Indocement. They are, do I say bullish? Probably not, but positive on the development both in terms of volume and pricing going into 2023. I mentioned the comments about Australia that have gone through a rough year, which is an important market for us, but we have high expectations for Australia in 2023. Then India, we'll wait and see. Not a super important market for us. Thailand, similar. Malaysia, I think will come back to some extent. Overall, we are quite positive in the scheme of things for North America. We are positive for APAC.
We are actually not so negative on Europe, and we are also okay, on balance, in Africa, in terms of business outlook for the rest of the year.
Yeah. Let's shortly talk about the guidance. Dominik already said at the beginning, we confirm our strong revenue growth, and we have given a range for EBITDA and RCO. As you can see here, wide range. Firstly, I guess it's a more precise statement than we had with our little slight decrease. Now we have a feeling where we gonna probably end. Then as you all know, the energy costs are very volatile. That's why we have given that range. The leverage between 1.5 and two probably will come out should come out at the lower end of that range. I guess that's no surprises here. Now, Chris, I can hand over to you.
Thanks, René Aldach. Thanks, Dominik von Achten. Frank, you wanna open up the Q&A, please?
Sure, I'll do that. Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one. If you wish to remove yourself from the question queue, you may press star followed by two. Anyone who has a question may press star followed by one at this time. One moment for the first question, please.
Okay. The questions in line are, you know, they're lining up by the second, so please restrict yourselves to two questions at a time, otherwise we won't get through. We will start with Yuri Serov from Redburn.
Hey, Yuri.
Hi, Yuri.
Hi, good afternoon. Listen, I want to ask you about your volumes. I'm just curious if you can give us some better understanding of what you mean when you say that you anticipate a slight weakening in demand. Your European volumes are down by 12%. That doesn't look like slight weakening. What do you mean by this? What sort of numbers should we expect in 2023 if we take everything together and you're positive for some reason, also positive for others?
Yeah. We are, Yuri, not yet talking about 2023. We talked about 2022 at this point. You know, to give you an exact volume number for expectation of 2023, I think given the visibility last, I wouldn't do that. I gave you a little bit the flavor and that's what I said. That's probably also true going into 2023. The volume decline in Europe will be a little bit more pronounced than it is in maybe Africa.
To the positive, I would say there could even be positive volume development in North America, depending on how things go over there during 2023, and then the same is true for Asia Pacific and Australia.
North America, given what's happening with housing and some forecasts are suggesting 30% drop in housing volumes, you still think that you can come out positive?
Yuri Serov, that's why I said it's a little bit early. We have not done, and I ask for your understanding, we've not done our, you know, we do these quarterly management meetings, and we start them next week, and go through all the countries. I ask for your understanding. It would be not professional if I comment now from the group's perspective on some of these details.
Yeah.
We've always not done the local discussions then.
I understand. That's fair enough. Can I ask another question on volumes, please?
Sure.
Your volumes in Europe are down -12%. The data that we're seeing from some markets which report the data does not suggest that the markets are falling by that much. Can you give us some idea, maybe some quantification as to how much of that volume loss comes from the market versus your pricing behavior? Because price is going up 30%, I can imagine that that is causing you to lose some volumes.
Fair enough, Yuri. I think you are right. Again, market by market, the answer is different. I don't think there is a flat-out answer for Europe. The markets that we see and are for competitive reasons, I cannot go into more details. In general, you are right. My answer to your question would be there is more; the -12% is related to markets, but there is some element in there that is related to deliberate loss of market share. You know, if you wanna be the price leader, well, that's the way it goes. We are doing this very selectively customer by customer, market by market, in a very defined strategy to ensure the longevity of our business beyond this cyclical scenario right now.
Okay, I understand. I don't know whether I'm allowed to.
Sorry. Sir, please allow others to. Maybe you can jump back on the line later on. We have so many questions, questioners.
Yeah. Yeah. Fine.
Thank you.
Thank you, Yuri.
We have Matthias Pfeifenberger next, from Deutsche Bank.
Yes, good afternoon, gents, and thanks for taking my questions. First thing on pricing, we're looking at 27% and 20% on average. Clearly nothing we've seen in the last several decades. What's your view on risk of pricing reversals with weaker demand, recessionary environment? We're hearing from a couple of your comps that they are launching price increases selectively into 2023, and also some of the smaller comps are not hedged as well, so there's obviously ongoing energy cost pressure. Would you stick to that? Maybe also at higher carbon costs, or is there clearly risk of, I don't know, 50% reversal of that price increase?
Matthias, we are, you know, we are not commenting on our specific pricing behavior.
Yeah.
In general, I would argue, you know, we are just on a good trend to continue to push our pricing and we do our homework, but obviously we cannot comment on. Clearly our strategy will be to get the fair value for the products we deliver, and as we decarbonize the products, there will anyway be a good argument far beyond the energy costs to ask for the fair pricing for that. We are actually for our company at least, quite confident that we can defend our pricing, if not even further expanded.
Okay. Secondly, on Q4, quite a wide range in terms of the margin range, EBIT range. Can you maybe give some color on the driving factors for the low end and the high end? Also, what you expect in price costs in Q4. Thanks.
Hi Matthias, René speaking here. That is purely driven by mainly the electricity in Europe.
Yeah.
If you look at Germany yesterday and the day before, it was between EUR 70 and EUR 100 per MWh.
Yeah.
Today it's 200, huh?
Yeah. Yeah. Fair enough.
EUR 100 means EUR 10 per ton of cement. You know, right now, the forward has come in very low compared to two months ago. The forward has come down as well by EUR 200, roughly for Q4. That gives a little bit of a hint. If the prices go sour, yeah, we can only maybe reach the lower end. If the prices are, let's say, in the mid-range, we will go into the mid-range.
Mm-hmm.
If the prices stay where they are right now, which are pretty okay, they're below EUR 200, then we can reach the top end. So that's probably a little bit the explanation, and that has massive swings day by day, as I alluded to. We are selling 60 million tons in cement in Europe, and in a quarter we sell whatever, 15, and then EUR 10 is some EUR 50 million, no?
Yeah.
Just to give you a little bit how I read this, and that's maybe the explanation to your question.
Yeah. Okay. Fair enough. Thanks.
Thanks, Matthias.
Thanks, Matthias.
Next question comes from Brijesh Siya from HSBC.
Hi, Brijesh.
Hi, Brijesh.
Hi. Good afternoon. I have two questions as well. The first one is on Europe volume. If you could give a little more color about I mean, the few markets you mentioned, can you, I mean, maybe quantify those volumes for how that fared in those key markets? Just give us a little more flavor about how that has translated over Q3 and into October. The second one is on the rebranding of the company. Apart from a sustainability focus, is there anything which you read into how you are going to have your footprint or rather, the expansion strategy of the company. Earlier you have kind of alluded to stay within the cement vertical or the concrete vertical per se.
Yeah. You know, Brijesh, I think as I said earlier, for competitive reasons, we are not commenting on single markets and pricing. You know the situation is very competitive. It is very sensitive now when it comes also compared to competitive behavior. I really ask for your understanding that we are not commenting on single markets developments, nor on volumes, nor on pricing. The only thing I can say is that minus 12% is not on average minus 12%. It is on average minus 12%, but it doesn't mean in every country it's 12%. There are countries below 10% decline, and there are countries above the 12% decline.
It's also different from business line to business line. You know, the -12% is the cement number. But as we said, aggregates and ready-mix is by far less. So the picture is mixed, and then we have the price effect that we discussed with the question of Matthias earlier on. October trends, I think the weather is good. There is not a significant change in trend at this point, as far as we've seen the numbers so far on the volume side. So I think that should be okay. When it comes to your second question on the rebranding, there are 5 or 6 different reasons to do the rebranding.
One, the old name did not reflect our business portfolio because we have less than 50% of revenues in cement. I think it would have been completely unfair not to, you know, change the name when you look at aggregate and concrete and asphalt. The second point is in looking forward, and that's what a brand should also reflect. We are pushing significantly on our transformation both in terms of sustainability and in terms of digital. And that transformation plays very much also on concrete and aggregates. In the future, the importance of those businesses, also when it's coming to recycling, for example, circular economy is very much tied to materials and not to cement.
That is one of the key reasons. Then there are a couple of other reasons. You know, in the past, we had all been local. We have a lot of local brands, and we wanna speak in one voice because we have a very firm strategy defined on group level. We had very positive feedback from the countries that in the past always said, "Oh, the group, you know, what's the contribution of the group?" Here they see clearly the contribution of the group, both in terms of sustainability and digital, and they are basically rushing now to make sure that they can reap that benefit by moving under that brand umbrella. In that respect, it's also about employer branding and many other things.
I think also we got the timing quite well because even especially going into a recession, potentially I think that it's important, that the employees have a clear anchor that they can hook onto. The feedback we got once we've launched the brand was very positive indeed.
Thanks, Brijesh. Thank you very much. Good question. Thank you. Next one comes from Luis Prieto from Kepler Cheuvreux. Hey, Luis. Hi, Luis.
Thanks a lot for taking my questions. The first one is, if I recall correctly, you expected about 60%-65% energy cost inflation in the second half of this year. What is your thinking on this front after what you have seen in Q3 regarding Q4 and what we could see sort of cost inflation for the second half or the year as a whole? My second question, would you be able to shed some light on the differences in volume behavior by product, for example, in Europe? Given the aggregates and ready-mix concrete could potentially be less inflationary and therefore you have to increase prices by less. Do those volume declines reflect more the underlying situation of the market versus what we're seeing in cement or am I seeing it completely wrong? Thank you.
Okay, Luis. I take the first one regarding energy. You're right. Q3 cost inflation for energy in cement was roughly 65%. July, August, you have seen was very high. Now we're talking about 70s, and then September dropped by 15%. September was only 56%. That means you see, October should be okay as well because as you all knew or know, the spot prices were quite low. That's why, Luis, we have given that range. With that trend continuing, we will come out okay. Full year. Sorry.
Full year cost inflation will be still around 60% because we are seeing year to date we are around 65%. If that comes down a little bit, we are coming to 60% for the full year. But as I said, it's massive volatility. If winter comes, something happens in Russia, Ukraine, you know, then energy prices will go up again. But that I can't predict. I don't have the crystal ball. That's why we have given that range. I hope that answers your energy question. Then, Luis, on your second question in the volume behavior. A good question. I think it's an interesting thought. If I look at the details, again, without being able to give you the full detail, I think the answer to your question is 50/50.
Because I would argue the better holding up of aggregate is very much also driven by more infrastructure and less housing, because typically that carries more aggregate. Because our price realization in ready-mix was actually by far not worse than in cement. So that indicates, yes, maybe there is, as we discussed earlier, a little bit of market share discussion on the cement side. But as I said earlier, not the full effect as a delta between the three business lines.
Thank you, Luis. Great questions. Next question comes from Sven Edelfelt from Oddo BHF. Hey, Sven. Sven.
Hey, good afternoon, gentlemen, and thank you for taking my question. Two for me. I would like to better assess your pricing. In case of a lower cost environment next year, you say that you would share benefit lower, cost environment with customer and therefore maybe take it back half of your pricing benefits that you had this year. That's the first question. Then second one would be California. I read that the Santa Clara County is considering the acquisition of your quarry and cement plant in Cupertino, or you see a real estate. If I'm not mistaken, this could be worth valued maybe $500 million considering the land price in the area. So can you maybe elaborate a bit on this?
As well, could you talk about the costs for rehabilitation for the quarry, which obviously will lower the price where you will sell the asset?
Yeah. Sven, on your first question, we are not quite sure. Maybe we have not communicated precisely, but nobody said that we are really sitting here to give up pricing or share anything. I said the value of the product will go up. That's how we deliver additional value to the customer, but we will ask better pricing for that because we deliver a better product, especially when it comes to the carbon footprint. You have not heard from anyone from us that we are giving up pricing or sharing anything. There is. For me, there is no ground for that, just to be clear.
Then on the Cupertino plant, I give you a directional answer because again, we need to be a little bit careful. This is a sensitive subject in California. Can I take you back, what is it now, 15 years, to the acquisition when we acquired Hanson. There was a speculation that the land value of the plant is $2 billion. That's 15 years ago. You know, careful with too much math around this. We consider this to be an opportunity and not a liability. There is the reclamation plan, the formal process in California, very formal process that we are following. Let's wait and see. If there are already some birds above the quarry who wanna buy it, that's great.
That tells us we are sitting more on an asset than a liability. In that respect, that's all I can say in that one.
Thank you for the answers.
Thanks, Sven.
Next question comes from Paul Roger from BNP Paribas.
Paul.
Hello.
Hello, guys. Thanks a lot for taking the questions. Maybe I'll focus on capital allocation. I guess the first question would be whether the macro uncertainty that's obviously out there have any influence at all. I mean, does it, for example, make you a bit more reluctant to do M&A, maybe even think about the timing of the buyback? Then the second question, if you are still looking at M&A, what's the pipeline look like? If I can cheekily also ask whether you'd be interested in new verticals, maybe like specialty chemicals.
Well, thanks for the question. We've given the clear indication how we think about the capital allocation waterfall. There is no fundamental change to that. René has commented on the fact that we've done our share buyback. Now we hold our breath on that a little bit because there are such ways to come. That's one. On M&A, we always said, you know, the pipeline needs to be always filling up. If you ask me, it's probably filling up more now than it did three years ago or two years ago. Why? Because we expect valuations to come down at some point, and we want to be clearly in a position to take advantage of that.
Not to make a crazy acquisition across 20 countries, but clearly to be in a position where we do strong bolt-ons and maybe also a bigger one here, a bigger one there, but in very specific markets, not in new or across 20 markets. We stick to what we have promised and no comment on any other specific deals. We said everything is in line with what we have communicated in the capital markets. Everything that supports heavy building materials is in scope. Everything that doesn't is not.
That's great. Thank you very much.
Thank you, Paul.
Next question comes from Elodie Rall from J.P. Morgan.
Hey, Elodie.
Elodie, hi.
Hey. Hi. How are you? Thanks for taking my questions. The first one will be on the German gas price hike that you know there's a lot of news flow around that. I was wondering if you could give us a little bit of your thoughts with regard to the potential restrictions for companies for paying out bonuses or dividends if they benefit from the cap. That would be my first question. My second question is on potentially on CO₂ prices. We've seen them coming down EUR 75-76 recently. I think that's below your price assumption for next year. I was wondering if you were considering to buy more credits by using your balance sheet at this stage. Thanks.
Elodie, let me take the first one, and then René maybe goes to the second one. Now, I think it's complicated, and I try to make the answer fairly short, but there is not a short answer on the gas. There are a couple of thoughts I wanna share with you. One, yes, there will be a gas and electricity cap coming to Germany. One more driven by the EU, the other one driven by the German government. We fully support that, whether it's applicable for us or not. It also hits our customers. In that respect, we fully support it. In fact, we were pushing for it in the background. Point number two, does it profit us directly? I would argue most potentially not.
If it would lead to a situation where we would spread all our dividends, don't get overly excited, we would probably not do this, because we cannot penalize the rest of the world just because the German government has put something in their footnotes. We should not get overly excited about it. Third point, whether we are eligible for it or not, there will be a secondary effect coming out of it, because if the market gets a capped price at a certain point, what do you expect the remaining market to do? They will not try to sell their energy for double the price. They will need to somehow come down to that level because otherwise, it will not be an interesting game for anybody.
That's the answer on that one. The jury is still out. The final legislation is not there, but that's dealing with my current reading of what we see.
Elodie, regarding CO₂, you have seen it the last two months, I think. Last week was super volatile. CO₂ price went from EUR 65 to even EUR 80. Now it's again EUR 75. You have seen our volumes a little bit dropping in Europe. As you all know, we are long. We said in the capital markets that we are long, probably until end 2023, beginning 2024. That will obviously be extended with certain volumes come off. Let's see what the CO₂ price does. Right now we are sitting on the side and watch this. If there's a very opportunistic thing to do, we are looking at this. Right now we are, let's say, sitting on the sidelines.
Okay, very clear. Thanks very much.
Thank you, Elodie Rall. Next in line is Arnaud Lehmann, Bank of America.
Hey, Arnaud.
All right.
Hello. Good afternoon, gentlemen. Thank you for taking my questions. My first question was just a follow-up on your share buyback program. Have you completed your current buyback? Considering the outlook on the macro side, do you feel that you need to move maybe into cash preservation mode into next year, therefore, you know, not necessarily starting the buyback again? That's my first question. My second question is just coming back on your commercial excellence program, slide seven. So is it 27.4%? Is that for domestic cement price year-on-year? Is that at group level?
I guess the follow-up to that would be, I mean, this is probably more than we've seen in the industry in the history of the industry forever, and more than many price increase over the combined over the last several years. Are you confident you can keep that, let's say, in the bank if and when energy costs are coming back down? Thank you.
Okay. Maybe you say you wanna take the first one on the share buyback.
The share buyback, Arnaud, we have, as you know, finalized the second tranche. As we said when we announced it, we want to finalize the program, I think it was mid or Q3 2023. Now we just keep a little bit hold our breath, see what Europe does or the energy in Europe and the war in Ukraine and recession. Let's wait and see the next few months, and then we will decide when and how we do the third tranche of the share buyback.
I know it's always a competition. Again, we said, coming back to our communicated waterfall on capital allocation, Paul was asking the question earlier. I know it's always a competition between different things, you know? As René was saying, you know, you saw that working capital was up basically during the year. We are fighting against that, and we're making some progress. I think it's true to say, hey, guys, we never know how volatile these things are. I think that's also in the best interest of our shareholders, that we don't run into unprecedented territory in that respect and overstretch the cash position doesn't make any sense.
As we also discussed earlier with Paul, there may also be a couple of bolt-on opportunities coming up, where the cash is probably even may even be better spent than. Let's wait and see to strike the right balance. We are still in line with what we have communicated, and that's what we will stick to. When it comes to the commercial excellence program, I think we said already earlier, you know, yes, it's unprecedented. 12 months back, nobody on the call here was believing that we were trying. Well, to be honest, I also did not know that it's gonna go up 27%. I say this openly, but I think we've taken the opportunity and used the momentum.
I did say that it's not only on the back of energy costs, but it's also on the back of superior product development when it comes to sustainable footprint in terms of CO₂ emissions and circularity. That's also why we are fighting as long as we even can to hold the pricing or even to extend the pricing. I cannot guarantee you for any volatility that may come up at some point. We are in a cyclical industry, but it's not our duty to push that. We have a clear strategy that we will defend. As we increase the value of our products to our customers, we will also ask them for a higher price.
Very clear. Thank you so much.
Thank you, Arnaud.
Next question comes from Gregor Kuglitsch from UBS.
Gregor, hey.
Hi, good afternoon. Got a couple of questions, please. The first one is on net debt. I appreciate you give a sort of leverage range, but could you help us out a little bit with the absolute level that you see right now? I mean, I guess the underlying question is, even at the low end of that range, I kinda reckon maybe you're talking about EUR 600 million-EUR 700 million of working capital outflows. Is that the right ballpark? First one. Second question is on hedging. It sounds like you're relatively short for Q4, given your comments earlier. But my question is how covered are you now for next year given the change in hedging strategy earlier this year? Thank you.
Gregor, let me do the second one first and then the first. Regarding Q4, we are open with roughly 40%, which is right now, I guess it can't be better with such pricing. For next year we are roughly sitting at 40%-45% if you look at the full year. What we always said is, or in the last call said with elevated prices of forwards of 300, 400, 500, we are not locking in even though we have the new policy. That's what we always said. Now when prices are coming off, I just tell you we had a discussion yesterday that was my energy guys.
2024 prices for Germany are a little bit above EUR 200, 2025 is EUR 150. Maybe we look at this and do very small tranches if there's an opportunity. But as I said, with these elevated prices for Germany next year is EUR 380 or something, we are not locking in, because today you have EUR 100 and the average for is roughly EUR 270 for the year. Why should it be EUR 100 more expensive next year? I think it's not a bad thing to be 50% or 55% open for next year.
For me right now, it's rather a chance than a risk because, you know, supply of energy will increase over Europe with solar, with wind, with LNG terminals, which, well, you name it. If recession comes, demand will drop, and then imagine what will happen, the energy prices will not go up, they will rather go down. Yeah, that's a little bit around energy. Now your net debt question. Yeah, as I said, we will be at the lower range of the leverage. Yeah, last year we had a net debt of what did we have exactly, EUR 4.999 billion.
We will be probably a little bit above 5 billion net debt, I think. Working capital outflow, what did you say? EUR 600-700 million right now. That's probably right. Right now, it's roughly right that we will come out with 600-700, so hopefully by the end of the year, a minus this working capital.
Thank you.
Good. Thank you, Gregor.
Next question comes from Nabil Ahmed from Barclays.
Hey, Nabil.
Hi, Nabil.
Hey, good afternoon. Thanks for taking my question. I actually had one. It's not that much a question on Q3 numbers or the very short term. I was curious on the carbon capture and storage investment and updates that you communicated during the capital market days. Do you think these numbers are also impacted by the crazy inflation we've seen in the last few months? In other words, do you need to revise these numbers at some point?
Nabil, I think you know, we have these 8-9 projects currently under project sanction, if you wish to say so. Not all of them are under construction or the budget are already locked in. We understand that if you on the peak levels go out now and ask for quotations, you know, there may be a risk that the numbers go up. Rest assured, René and myself are watching this very carefully. I mean, this is for me, this is nothing different from any CapEx you spend right now, so there is not an extraordinary effect on carbon capture utilization. Maybe it's even to the opposite.
just as tight as we manage all CapEx projects right now, that is also true for carbon capture utilization and storage. There will be volatility, like there is in every CapEx project, but we safeguard that as good as we can.
Thanks, Nabil.
Okay.
for asking only one question. It saves us a little bit of time. For the next one, Yassine Touahri from On Field Investment Research.
Hey, Yassine.
Hi, Yassine.
Hi. Couple of questions. My first question would be on what you're expecting in your guidance. Could you confirm that you're suggesting that if energy prices or electricity prices in Europe are approximately at today's level, which is like slightly below EUR 200, you could reach the high end of the guidance, which is EUR 3.8 billion. I just wanted to understand, does it mean that you're not hedged, that you're buying electricity in Europe on a day-to-day basis in the first quarter. That if prices for electricity go to, let's say, EUR 400, then you would do the lower end of your guidance.
That would be just a little bit of precision around the sensitivity of your guidance to power prices.
Yeah.
Last, I'm so sorry.
Yeah, okay. Go ahead with your second question.
The second question is a bit more simple. It's just, I understand that you've got large price increase that have been announced in Europe in November and January. And you're probably negotiating with your clients, at that time. Could you give us a bit of color on your confidence on getting those additional price increase through?
Okay, Yassine, let me take that. The first one regarding electricity, I guess I said it all already. You know, October is already gone. As I said, for Q4, we were open 40%. For October, 40% of our electricity need in Europe, let's say, came with spot pricing. Yeah, that's absolutely right. For November, December, yeah, we obviously we're not stupid. There were little windows when electricity was cheaper. For November, we increased a little bit the hedging levels. As I said, the electricity can move between EUR 100, EUR 400, EUR 500, and that is what our guidance is.
That depends mainly on the swings on electricity, because it can swing every day by EUR 20 million-EUR 30 million. That's the answer to your question.
100-500 is the range that you have in mind.
What I would do, I remember, you know, in Germany two months ago, there was a forward at EUR 1,000. That was just picking a number. The 100 is probably the lower range, what we see right now. It can go up to 500 or 1,000, I can't tell you, I don't have the crystal ball. But maybe the top number is probably 300-400 EUR, and the lower is probably 100. That will determine a little bit where we come out at the end.
Thank you.
The pricing question. On the pricing on the
Price increases?
Yeah, yeah.
in November.
I think, as I said, you know, we need to be a little bit careful on that because that's now looking forward to on pricing. I cannot and I don't want to comment. It is a very sensitive subject. I gave you the indication that for us as a company, you know, and not for the industry, we have clear targets to get the right value for our products. René just gave you the indication that energy cost is obviously one of the driving factors. But there are others, you know, when we discussed the CO₂ situation, we discussed the normal cost inflation. Careful, we should not center everything around now.
Can you link our performance solely to the electricity cost in Europe? I said, guys, no. It's also not true. There are many other, you know, weather effect and everything. So, we will continue to drive value for our customers, and that means we will also continue to ask the customers for the right prices for that value. The trend, I think we have already commented on, for us, that's the strategy, yeah.
Thank you very much.
Okay. Three more on the line. Next one comes from Cedar Ekblom, from Morgan Stanley.
Hey, Cedar.
Hi, Cedar Ekblom.
Hi. Hi, René. I've got a question for you just on the energy hedging that you're undertaking. It sounds like you're being quite opportunistic, which is obviously a good thing, considering how volatile the energy markets are. Considering the opportunistic nature, can we just confirm who your counterparties are when you are doing this energy hedging or entering into contracts? Are you doing this directly with the utility or is there a third party involved? Thank you.
Okay, Cedar Ekblom. Okay. Let's
Important question. Cedar Ekblom, we need to clarify.
Let's get as well the wording right, yeah? For electricity, we are talking about forward buying, yeah, not financial hedging. Yeah. Let's talk about forward buying. Obviously, you have the big utility electricity companies where we have contracts with, and then we do forward buying. If we see a big, good moment, we do that with these big companies, huh?
It's important to understand, Cedar, it's not financial hedging, so there's not a cash call coming every day or every week if we don't hit A, B, or C. We have had this discussion in the past, and for us, we do only forward buying, no financial hedging.
Okay. One quick follow-up. On the 45% that you are hedged for 2023, could you give us a little bit of guidance on at what pricing that's been done at? I don't know if that's something you'd share.
No, no. This is very sensitive, Cedar Ekblom, so this we don't want to give away, let's say.
Okay. Thank you so much.
Thanks, Cedar Ekblom.
Maybe Cedar Ekblom, just one final comment on this. You, because you said it's opportunistic. That's one way of looking at it. You know, we have been hit in the last 3-4 quarters by our open strategy. As you know, having been long in the industry, there is sometimes payment time, and then there is payback time. I leave it with that, no?
Okay. Next question comes from Tobias Werner from D.A.
Hi, Tobias.
Yeah. Hi. Good afternoon, gentlemen. Thanks for taking my two questions. Number two, just a very simple numbers question. The additional energy costs in Q3 split into electricity and gas, sorry, electricity and solid fuels, if you have that available, please. Number two, one of your competitors is reducing their CO₂ emissions also by divestment. I know you're focused on a different strategy, but looking at your portfolio, couldn't you combine further portfolio optimization with looking at CO₂ emissions by assets as well? Thank you.
First one, Tobias, very simple. It's EUR 320 million higher costs, EUR 180 million fuel, EUR 140 million electricity.
On the second one, Tobias, thanks for the question. Important one, obviously. You've alluded to it in your question a little bit. Yes, our strategy is not to address the issue. Our strategy is to solve the issue. We will not divest cement assets or clinker assets just in massive terms just because we wanna halve our absolute CO₂ emissions. Why? Because we know the answer. We know exactly how to solve the problem to its very root. So why should we give up that opportunity? Because once the problem is solved, you will see interesting developments in the value of clinker and cement assets? That's the one point. Can we play with this in our portfolio strategy a little bit here and there?
Yes, that's true for geographical balance, but that's also true for balance between clinker and cement assets versus aggregate asset and ready-mix asset and recycling asset. That is ongoing, as you have already noticed, and that one is gonna continue.
Thank you very much.
Thanks, Tobias. Now the last question comes again from Yuri Serov. Thanks, Yuri, for stepping back in line.
Hey, Yuri.
Hi, Yuri.
Yeah. Hi. Well, thanks for speaking to me again. Actually, my question is not related to current trading, and it's related to sustainability again. You have submitted your targets to SBTi, and you have a slide on this.
Now as SBTi's guidance to the cement industry says that they will not accept targets for CO₂ reduction on a net basis. They want them on a gross basis, and net basis meaning excluding the emissions from alternative fuels. Cement companies have all declared their targets on the net basis. Now, given that you have submitted to SBTi and they want a gross, does that mean that you will disclose your gross targets to the market as well at some point?
Yuri, we are in constructive discussions with SBTi. They have a framework that they have put out. Now we have given our application, and now there are constructive discussions to match one with the other. I won't comment on the details because it is an ongoing process. I ask for your understanding. The process has just started basically. As much as we have learned through the decarbonization discussions, I'm sure also the SBTi will learn a lot of things during that application process, and let's see where they finally come out. That's difficult for all of us to predict. We are very confident that we are on the 1.5-degree path with our Scope 1 emissions, with the 400, we are even surpassing that.
In that respect, we have nothing to hide. We work with them in full transparency, and take this in a very proactive approach to find the right solution for the company, but obviously also for SBTi.
Thank you, Europe. I think that concludes our conference call for today. Thank you for the interesting questions. We'll be on the road now in London, Dublin, in New York, Toronto, and a couple of European cities next week. If you have, you know, a chance to visit us there, we appreciate it. Thanks for dialing in. Bye-bye.
Thanks, everybody. Thank you.
Bye.
Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you very much for joining, and have a pleasant day. Goodbye.