Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome and thank you for joining the Heidelberg Materials first quarter 2023 results. 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 do so by pressing star and one. Press the star key followed by zero for operator assistance. It is my pleasure. I would now like to turn the conference over to Christoph Beumelburg. Please go ahead, sir.
Thank you, operator. Good morning. Good afternoon, everyone listening to the call. It's our Q1 call, in 2023. We're excited to be here with, René, our CFO, and Dominik, our CEO, and the IR team. Without further ado, I hand over to Dominik for some prepared remarks. We have ample time to go into the Q&A session thereafter.
Christoph, thanks a lot and hello to all of you. I hope you're all well. I think the start, if you go to the key messages, was a very good one for us. I think much better than prior year, even better than our record year in Q1 2021. Overall the lights are on green. Revenue up 13%, RCO up almost EUR 170 million over prior year. I think I would say even in Sweden, here is not too bad, huh? This is driven by strong pricing, disciplined cost management and somewhat declining volumes. We gave you the reasons for that, but I'm sure some of you will come back with their questions on that.
Anyway, what's important for us is the market development that is clearly recovering after a hit last year. We are moving now towards the levels of 21, which is our next midterm point where we want to get to. We are partly experiencing our sustainable growth, and we also not only organically, but also through M&A, and that's very important for us. That's also why we have started now for the first time to focus as we have internally done for a while now, also in our external communication on sustainable revenues. You will remember the discussion we had at the market day, and I will come back to that. Our second business alone has already reached 37% of their revenue being sustainable. A CO2 reduction of more than 30%.
We have a very strict barrier in there. I'm sure some of you might may ask around that anyway. Then last but not least, we are very optimistic for the remainder of the year. We have upgraded, although it's early in the year, we upgraded our guidance for the full year and now are confident to deliver EUR 2.5-2.65 RCO from the previous EUR 2.35-2.65. If we go to the chart on page three, you see that revenue is strongly up 13%. I think that's a very strong performance. EBITDA is significantly up 50%, in a percentage terms, metric terms, EUR 163 million.
Operating EBITDA margin, that's important, crawling back towards the 13.6, which is the next midterm point that we want to reach from Q1 2021, significantly improved over prior year and consequently also the EBIT up a still EUR 170 million and even above the record year of 2021. If you go to page 4, you see some of the drivers. There is a hit on the currency side. If you look at the reported ones, I think the Euro has strengthened, so some of the other currencies are clearly weakening. We have a volume decline effect that's basically going across all business lines, a little bit more in cement than in aggregates.
That's clearly driven from our perspective, like we said earlier, by a sharp decline in housing in almost all key mature markets, so Europe, U.S., and Australia. It's very much outbalanced to a large extent, not to all extent, otherwise this would not be negative. Both in terms of commercial, I would rather say industrial, and then also infrastructure. You know, offices are maybe a little bit on the decline, but all the industrial stuff that has to do with transformation is clearly on the rise and also on the infrastructure side. Net volumes are down, but you see the price over cost worked very well.
We have managed our costs very tight, also helped by a little bit, coming down energy costs, but not only and then obviously also the price realization was again good. All in all, I think a very satisfying coverage. If you then go to North America, we said this very openly last year, we were not satisfied with our performance in North America, but this year the team has even delivered above the good 21 performance. We are clearly back in North America. The sky is always the limit. I think we have still more room for maneuver, result-wise, but strong performance in Q1 from the team in the U.S. on the back of very good volume developments. I think that is really strong in North America and good momentum there.
We have solid pricing. The momentum is there to additionally move the pricing in almost all business lines in almost all markets. Order books are still healthy. In that respect, we stay very positive North America. Remember, in North America, our big cement plants come on stream right now, the one in Indiana, which obviously brings us an additional margin opportunity. Western and Southern Europe, I think the numbers speak for themselves. Strong performance on the top line, a very strong performance on the RCO line, much above the good Q1 2021. As you see, WSE is the only region where the margin sits in Q1 above even the strong margin in Q1 2021. I think very strong performance from WSE. Overall, I think, not much to say.
I think the numbers speak for themselves. This is, just to be clear, carries the whole market in WSE. This is not a one-off, with one market. This is carrying the whole market. Overall, a strong performance from WSE. NEECA, Northern and Eastern Europe on page 7, stabilizing on a high level, I would say. Beating their strong results 21 in RCO levels and clawing back on their margins, almost back to 3% RCO margin, versus 3.6 from 21. The demand is lower in most of those countries. That's true for Northern Europe, it's true for most countries in Eastern Europe. We are working hard on the costs, we are also obviously working on the pricing and the combination there.
Also price over cost continues to work well, that obviously then also leads to improved margins. APAC is coming back. You know, last year we were disappointed with APAC. Some of the countries did not really come back after the COVID lockdown. You see there is now, although not a steep turnaround, but I think there is a significant turnaround. RCO clearly improved on the back of a much better performance also in Australia. Indonesia running well. I would say China and India add to some significant upside potential. There we cannot be satisfied. Thailand is actually moving in the right direction again. Overall, I think the APAC, we have fairly high hopes that this will come back much better throughout the year. That same is true also for Africa.
You know that Africa had a tough end of last year already. Q4 was not easy for Africa. Q1 was also not easy, but I think they have stabilized now a little bit. Currently, Egypt and Ghana were heavy under pressure. They have stabilized a little bit on a lower level. Overall, we are optimistic for the remainder of the year in Africa, more optimistic than we were probably at the end of last year. The emerging markets, we see clearly light at the end of the tunnel. In that respect, the train is moving in the right direction. Yeah.
Very importantly, as you know, for us, to be the global leader on sustainability in heavy building materials, SBTI has validated our ambitious targets to be in line with the 1.5 degree target from Paris. I think that's good. On the back obviously also of our very ambitious roadmap that is not carried by dreams and hopes and projects only, but actions. The start-up date coming closer in Brevik next year. Lengfurt, the CCU project that we've communicated in 2025. Edmonton, we've made the communication in 2026 and then Padeswood in the UK in 2028. You see year-over-year, we are really pushing a step change in terms of decarbonization of the industry. In that respect, we are well on track. The same is true for Circular.
We've made a couple of acquisitions in Circular, in the U.S., the U.K., and also lately in Germany. We are very happy with the progress there. Also organically, I think we build really momentum on the recycling discussion. The same is then obviously true for the SEPA. That's, if you wish to say so, also some sort of a recycling and decarbonization at the same time. That's also why things go hand in hand, because they basically recycle old fly ash and pond ash and use it again in fresh concrete. I think that's a very interesting acquisition I think a little bit underestimated by the capital markets at this point. Let's wait and see. We'll prove you that this will be a great addition to the group.
Last but not least, a very interesting project in Europe, here in our home town in Heidelberg, Europe's largest 3D printed building. I tell you, this is an exciting endeavor and this will be more, there will be more to come. This will be something that we can clearly build on. We go to page 11. On the SEPA discussion, we communicated most of those details, so I won't go into all corners of this deal. Clearly for us, it will reduce our carbon footprint overall in North America.
I think that's significant because the material is decarbonized, and it will be a significant help also for the supply chain of the value chain of cement and concrete to decarbonize because you know that they are supplying 800 concrete plants, 800, you know, concrete plants in the U.S., and there is more potential going forward. In that respect, I think a great platform to make a step change, not only for Heidelberg Materials in North America, but also for the industry in North America. Remember, we don't wanna only work within our own company. We also want to drive the value chain to decarbonize. That's the purpose here. You know, that's also the discussion around carbon outcome and other things.
In that respect, I think we are well on track. Portfolio optimization page 12. Sometimes it still gets a little bit unnoticed. There is heavy movement in our portfolio. You see here, you know, if you wish to say so, a little bit of move towards the west, strengthening of the U.S., strengthening of Europe, and also parts of Africa. Then, you know, maybe going a little more on the east side of the globe, with the latest divestment also from our Georgia joint venture. In that respect, I think portfolio optimization continues absolutely in line with our rigid financial metrics that we set, because remember, we don't do this just to do a portfolio reorganization. We do this to further grow and to further optimize our financial performance.
Last but not least, the upgraded guidance, where the RCO has now moved to 2.5 to 2.65. The rest remain unchanged. Clear message from our side, this is early in the year, it's a small quarter, but for us the lights are on green. In that respect, we look very optimistic into the next three quarters of the year. That's it from my side. I would say let's go to the questions. We are looking forward to your questions.
Absolutely. We can start the Q&A now.
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.
First question is from Elodie Rall from J.P. Morgan.
Hi, Elodie.
Hello.
Hi. Hi. Good morning, or afternoon. Thanks for taking my questions. I'll start with your guidance. You have upgraded it, but obviously you haven't upgraded the top end of the guidance. You have narrowed the range. If we look at Q1 trends and assume a continuation of these trends, given the comps, I think year to year and given the seasonality, we would be expecting the top end of the guidance to be upgraded as well. My question is, why didn't you upgrade that top end of the range? Is it because you expect pricing to decrease from here or cost to increase? That's my first question on guidance.
Second, as well on guidance as well, you expect like-for-like revenue growth for the year, but we started with 13% in Q1. The comps will get easier on volume, harder on pricing. Overall, what kind of like for like growth do you expect for 2023? Thank you.
Okay. Maybe Elodie, to you. Thanks for your question first of all. I think you're not surprising. I think your analysis, I'm not pushing back on that. I think you're right. If the trend continues, you can exactly make that point, which I don't push back on. However, as I said, it's early in the year. I think you know the year is long. We ask for your understanding that we are a humble company. You know, we are paid for actions. I think we've fulfilled most of the stuff that we've promised. In that respect, that's what we're trying to continue to do.
Clearly from our side, we do not expect a massive change in years, especially we don't expect any reduction in pricing. That clearly not baked into any of our discussions. That's not what we see. In that respect, we will continue to price for the right value for our products. We are going against a decline in demand. That we may confirm. That will be also one of the unknowns that we don't know exactly, but that's a market by market question. I think I foreshadowed a little bit by area how the volume demand looks. Then on the cost side, you know, I think things are improving on the energy side, continue to improve if it holds at the current level.
Fixed cost management will become a key focus topic, going forward, because you know there is further inflation. René, anything to add? On the revenue side maybe.
Yeah, on the revenue side, Elodie, you are right. Q1 is 13% up. As you know that's a slow quarter, slow absolute number. When the percentage, you know, increases always easy to achieve. We stick to what we said and as Dominik said, the year is long and you can expect when we come out with our Q2 numbers, we will see if we need to change something in our guidance or not.
I agree with you, Elodie, also where your analysis is right. This is probably a very strong performance on the top line, in Q1. I agree with you.
Great. Thanks very much.
Thanks, Elodie. Next question comes from Paul Roger on Exane BNP Paribas.
Hey, Paul. Hello.
Hey, team. Hey, hope you're well, thanks for taking the questions. Maybe I can the first one try and ask if you can be a bit more specific on price costs. I mean, clearly we saw a very strong spread in Q1, EUR 250 million. You go through 2023, costs ease the base becomes tougher for pricing. What's your view on how that will evolve throughout the rest of the year? I guess I'm really trying to understand whether Q1 was a bit of a peak when it comes to a spread. That's the first question. The second question's on carbon capture. I mean, you've clearly shown on slide 10, this is not all talk. You've obviously got, you know, schemes that are going ahead.
I was just wondering if there's potential to capture more than 10 million tons by 2030, or whether that target or whether you assume that all that projects would go ahead?
Okay. Thanks, Paul, for your questions. Interesting. I think on the price over cost, let's wait and see, you know how price over cost works. You know, you have to realize the price. You heard my earlier remark on Elodie's question. We are confident on the pricing. Cost is always variable cost and fixed costs, you know. I think, that's why I also said, you know, I think last year was a very much a variable cost game. I think the variable cost game, the energy stabilized a little bit more. We are a little bit getting more into stabilized water, but maybe can comment on that a little bit. Fixed cost management will become key, especially if volumes decline. I think that's clear.
The shift within this price over cost will shift between variable costs and fixed costs in a little bit in our management focus. The top line will be continue to be defended. Now are we gonna see another 20% price increase? No, I don't think that's realistic. I'm also being very transparent with you, but I think there are markets where we still have pricing upsides for me, especially in North America. There is clearly pricing upside in North America, especially in aggregates. The same I would say is partly true for other markets like Australia. As I said, emerging markets, we have to watch market by market. There the picture looks different.
We'll need to see how it will work out in Europe. You won't see another 20% price increase in Europe in the short term. That is not what I expect. That's my personal view, if you ask me specifically around that. On carbon capture, let's do one step after the other. You know, we are paid for delivery, not for announcements. I think in that respect, our ambition is high. We first of all need to be very clear, and you need to understand and trust into those announcements, you know, a couple of years back to say we wanna capture 10 million tons. I remember very well that moment you said, "Guys, are you crazy?
What are you gonna do? Now we can't run fast enough before even the first project is online. Let us get Brevik online. We will be the first ones globally that will prove this can be done on large scale. We have all the know-how, the experience, the data point in-house to be able to accelerate. I think that's the message, and then the sky will be the limit.
Perfect. Thank you very much.
Thanks, Roger . Next question comes from Luis Prieto from Kepler Cheuvreux. Luis, line is yours.
Hey, Norbert. Hello, good afternoon. Thanks for taking my questions. I had a couple of questions very briefly. The first one is you seem to have stopped providing volume detail like some of your competitors. Could you give us an idea of what the actual volume and price performance would have been in the quarter at group, at European levels? I'm particularly curious on that volume front. The second question. I apologize for completely changing the subject here. Regarding working capital, we saw a tough year for the industry in 2022. What can we expect for this year? Have you seen any major damage in Q1, and what could we expect going forward? Thanks.
Okay, let me take the first one, and then René will take the second one, Luis. As I said, I think on the volumes, it's not to the... It's more a matter of how we steer the company internally. We also want to evolve externally. That's the only reason why we changed with it. I shared it openly with you. Well, we had a vivid discussion around this internally, what we do here. You know, also with our clear focus on sustainability, you know, we have Nicola on board. We really want to make sure we communicate in the capital markets, that we want to go for sustainable revenues, very strict hurdle rates on 30% reduction on CO2. I think we set very high bars for that.
We feel now very confident that we did win against that bar, and that we can also be very transparent with you around that delivery. That's why we decided to switch the focus from pure straight-up volumes, because that doesn't say much. For us, the value in the future is both for our customers and for our financial performance in the acceleration of sustainable products. That's why we want to also externally put the focus on the sustainable product development and progress. That's the reason we switched here to the 37% cement sustainable revenues. On the volume itself, single-digit % declines on sales volumes on average. I think nothing dramatic.
With a deeper decline in Western and Southern Europe, that's very low double digits. That gives you a little bit, I think, a range and a significant increase in North America. I think that's a little bit the picture, Luis, that gives you a good idea where the volume sits.
Luis, in terms of working capital, as you rightly pointed out, the industry had a tough year last year with obviously working capital outflow. We have seen our numbers. This year it's very clear there is no further cash outflow on working capital. I imagine it's very tight. In Q1, we have already seen this. Obviously the industry as in Q1 working capital outflow is clear. That number is significantly lower than we had last year in Q1. Last year, end of last year, we said we have cash outflow of EUR 800 million. Do we have this every select? No. Do we want to recover hopefully a few hundred million EUR? Yes. Right now the trend is good. Let's wait and see. For sure no further outflow, rather cash inflow.
Super clear.
Thanks, Luis.
Thanks, Luis.
The next one comes from Rajesh Jaiswal from HSBC.
Hi, Rajesh. Hi, Rajesh.
Hi. Hi, good morning. A couple from me as well. Just starting with on buyback. You haven't announced anything yet, and I understand there's EUR 300 million left to do. If you could comment or update on that, when it's coming? The second one is on the SEFA acquisition in U.S., the fly ash one. My understanding is that probably fly ash is not going to be there forever, given the power plants that are coming to an end, the coal-fired ones. What is the rationale behind getting that, is that because they have certain reserves in place which you want to utilize or, what's the rationale going forward for that?
Rajesh, I think, thank you very much for, especially for your second question. I think, that will be an interesting one. On the first one, and René can also comment, buyback, you know, we've communicated we want to, we want to do the EUR 1 billion. We still have time until September. There's no final decision made on the timing yet. I think, there's not much more to say on that. On SEFA, it's interesting, actually, that's how internally the discussion started, you know. All coal-fired power plants come to an end, why do we buy into a re-reducing market? Well, this sounds globally on pond ash. Quite frankly, I also didn't know for a couple of years back.
Basically, old fly ash that was not used in the past, but basically put into dumps. Half of the U.S. sits on these dumps of old fly ash. Not only the U.S., but also parts of Europe, where old fire power plants dump their material. That becomes more and more an environmental problem, because, you know, it potentially pollutes groundwater. There are more and more rigid legislations coming to force the energy companies to pull this out of the ground. Obviously they want to commercialize this, and that is exactly the idea of SEPA.
They have basically teamed up with a couple of the larger power plants producers in the US and basically developed equipment and the technology to recycle that pond ash and basically use it within the standards in the fresh concrete production as a fully decarbonized product. I don't have to say more than that. That's the magic about it.
Just a quick follow-up on that. Does that require any more chemical addition when you kind of extract from ground and try to use it in concrete, fresh concrete? I mean, my question is whether that does have the same characteristics compared to the fresh pulp from a coal-fired power plant.
Nothing is exactly the same, but there is not, you know, a massive difference between. You know, ash and ash is very co-different. Every coal-fired power plant produce in the end a different ash, whether it's fresh or ponded. You always have to check a little bit there. There is always optimization that you need to do, but it's not like you suddenly need something completely different. You know, we are already using in other parts of the world where we buy it and not produce ourselves, like in beta, pond ash to small volumes. It's not like we don't have any experience how to use pond ash, and there's nothing...
There's experience in-house how we do this, and it's nothing magic in terms of other additions you have to do, in order to become a fresh concrete product.
Got it. Thank you.
Thank you.
Next question is from Yuri Gerald, from Goldman Sachs.
Hey, Yuri.
Hi. Good morning. Good afternoon. Two questions. I'll ask them 1 by 1. The first one, I'm sorry, it's going to sound a bit provocative, on prices, you say that you don't see prices falling anywhere. Recently there was a data point from the U.K. showing that in March, it's from the ONS, so I don't know how reflective it is from your prices, nonetheless for the full market. It showed that prices in cement in March actually fell month by month over month, by a fairly sizable amount. What, are you truly not seeing any price declines? Are you... We're sitting in May now, so it's quarter two. I mean, what is going on around the world? Can you just give us an overview, please?
Yuri, I can only repeat what I said before. We don't see on a broad level of pricing coming down. You know, especially in the UK, you have to be very careful. You know, there is cement, and then we are a big GGBS provider. I think, you know, there is always the question for us it's ton and inches in the end. Careful, yeah. I think the statistics are. I know everybody's watching this closely. As I said in WEC, I don't see significant pricing upsides. That's what I said. That means in pockets you can still improve your pricing, but in other pockets it may come back here and there. That's not on a broad level what we see, and that's also not what we expect from our perspective.
Let's wait and see how this... There's nothing to add what I said before.
You had a second question, Yuri? Yeah. Second question is actually well, not immediately concerning Q1. I'm curious, I mean, can you please give us some better idea as to the schedule of your launch in the US? What exactly your new plant coming on, and when will you finish the optimization of the plants around it? Similarly, it's further away, but I'm curious, you know, about the same thing in France, when your project there finishes?
You're curious about what?
Your project in France also.
I think you got cut off.
That's good.
Is just you cut out or is...
Can you hear me now?
I think we're good. You've been cut out.
Let me take the next question. I'll come back to him when he's-
Okay.
back on.
Okay. Next question is from Arnaud Lehmann from Bank of America.
Thank you. Good morning. Two questions. The first one is just coming back on, let's say, pricing.
Yes.
I'm sorry about that. Yes. Can you hear me?
Operator?
Hello, can you hear me? Hello, can you hear me?
This is the operator, and we can hear the questioners. I'm hearing them. The participant. Please bear with us. One moment, please.
Sure.
Ladies and gentlemen, we apologize for the interruption. Please hold the line. Conference will continue shortly.
I think, yes.
Okay, perfect. We'll continue. Yuri, sorry for the technical glitch here. Continue with your question on Mitchell. Actually the plan is running. It is producing the clinker already. It's producing also cement. The startup is actually going as planned in that respect, moving in the right direction. Most of the optimization around it, you will be surprised to be done by the end of this year. We are very pleased in ahead with this. We have all the trust that we get and we push as hard as we can. Obviously, a plant startup is always a plant startup. There will be surprises X, Y, Z, but we have a very strong team in place to handle that. We're in constant contact with them.
Overall, as I said, the plant startup goes as planned, and we expect a significant value to be driven from that.
Sorry, Yuri, for the technical glitch. I think we have Gregor now online, Gregor Kuglitsch from UBS, and the next one after him would be Arnaud Lehmann from Bank of America. Gregor.
Yeah, Gregor.
Hi, good afternoon. A couple of questions. You mentioned, I think 5 times roughly that you want to recover the 21% margins, which were I think nearly 21%. Last year you did a bit under 18% and obviously kind of arithmetically it means very significant EBIT upside. I just want to understand your timeline, what you need to get there, or is it sort of just a medium-term ambition? Maybe sort of a quick question on the M&A slide. There's lots of deals in and out. Can you just give us a sense what sort of the net cost of all of this stuff is? Basically the deals that you've done, the acquisitions minus the disposals, but basically the cost and roughly the EBITDA effect. Sorry if I can squeeze in a third.
The 37%, can you just remind us how you actually defined it? What, what qualifies as being sustainable? Is it, what's the definition basically of that 37%? Thank you.
Yeah. Let us take one after way. You are a little bit.
A bit.
Okay. We'll take it from here. Let me do the margin one. Then we will do the M&A one. Then I'll come back to the sustainable revenue one. On the margin one very simple short answer. Target remains to be there by 25. Let's take one step after the other. You know, at the end of last year everybody thought, you know, you're never gonna come back to that margin. Now I think we are climbing our way back up. How this plays out on revenues and top line and bottom line, let's wait and see. Our target remains to get to the 21% at the latest by 2025.
let's go through this year and see how much we can regain from last year. Okay? Ramy, maybe you wanna work on-
Oh, Leo, you always have nice questions. Let me just come a little bit up. I will sum up now the recycling deals. With George, and the two German ones, Svea and RWE, and then Free Farm. These are the recycling ones. Then I will meet up with the Georgian business. If you put these one, two, three, four, a few together, the next M&A CapEx for this is roughly 420 million EUR. The EBITDA contribution is roughly, let me just, we have probably six units. Yes. 60, 50, 60 million and 60 million other EBITDA contribution net. You can make the multiple. I think that's all well done. That is why we do portfolio.
You know, we frame this using the prices, it's using the multiples, we buy this, that's, it's using the multiples. Don't worry, we have it under control.
Yeah. EBITDA. I think it's clear that we do these deals to increase our EBITDA, not to just increase the revenues. We pay financial discipline in those metrics that we've communicated, and that also applies to those transactions. Huh? On your last question on the 37% revenue, I think, thank you for that question because it is, I think, a little bit difficult to grasp for all of you now what's happening here. I think we have been very transparent with you in our capital market day, and I think it's good that you come back to that point because we have said we are not gonna not every small reduction of CO2 leads to this sustainable revenue here. We said we have a very strict hurdle rate.
You need to at least in your product that you offer, in this case, cement, needs to have at least a 30% reduced CO2 footprint against the global average of the GCCA. That's a transparent figure. You can look at that. The global average of the GCCA is the baseline, if it's the same. From there, you need to reduce 30% your CO2 footprint in order to reach that sustainable revenue. Just as 1 interesting story around that, you know that the US is decarbonizing fast, but the sustainable revenue hurdle that we have put in here does not even hit some of the, most of the US volumes. In that respect, there is more opportunity to come, very strict hurdle with the 30%.
Even with that strict hurdle, we get to 37% of the portfolio. This is, I think, in the, in the flip side of the good carbon reduction because, you know, we are globally leading on the, on the, on the kilograms, per ton of cement produced. This is a reflection of this. This doesn't come from heaven. This is hard work to reduce to 1 ton after 1 ton, push beyond the, 30% hurdle.
Brilliant. Thank you. Very clear.
Thanks, Trevor. Next question comes from Yassine Tori from Onfield. Hey, Yassine. Yassine.
Hey, good afternoon. A couple of questions. I think first, you mentioned that this acquisition in the U.S., in fly ash supplies was potentially underestimated by the financial market. What do you think that the financial market is missing? The second question is on volume. You had a single digit volume decline in Q1. Can you give us a bit of color on what do you see for the rest of the year? Have you seen any change in April and early May? Do you feel that the Q1 was the bottom or do you feel we could see some sort of deterioration?
Yassine, thanks a lot.
Let me do some on price and then maybe René and I have brought some videos later on the, on the volume development. Now on fly ash. I think the one question that we had earlier from Luis, I think is the one piece. I think that more the perception fly ash becoming scarce and then, you know, but the price becoming scarce is fresh fly ash, not pond ash, huh? That's the first underestimation, the large volumes of available pond ash. Secondly, I think mostly in our industry, you find a lot of fly ash freighters, huh? A very limited fly ash producers. SEPA is not a freighter, they are a producer of fly ash.
They also have developed a specific technology how to reclaim and recycle this pond ash to be in the norms of fresh concrete. Those two arguments are the ones that I think are not yet understood. When you look at the economics of... What, Yaseen?
The only question I have is, I understand that reclaiming fly ash can be expensive. When you look at the economics of the business, are you excited?
Yes. Thank you. Yaseen, regarding the volume question, I can accept Q1 was down single digits %. If I look at my numbers here, you know, last year Q1, we haven't seen any drop in volumes, it started only starting April 2022 that volumes were a little bit going down.
We don't say that the volumes will now increase, but the downward spiral should hopefully come to an end, because we in the last 9 months in 2022, we're already going down. The comparison base from Q2 to Q4 should be easier, yeah, than the Q1. That's all speculation I know, but it should not be as fast as we have seen. Yeah. Yassine, I think from my side again, I think that's why also, you know, for me, this is not a volume game to drive value for our shareholders. We don't drive the maximum value for our shareholders by maximizing volumes.
We say it very clearly, That's why we also don't want to send the wrong message into the, into our analyst groups, to understand, "Hey, we are driving the value by making a difference on decarbonization, on circular, and getting the right margins for those products." That's what, how we drive value going forward. The pure safe volume alone, I know changes back in the steel industry. Everybody was trying to chase the sun. This is not the game that we think is the biggest value driver for our company. That's why volume we keep an eye on, but we don't get overly excited by X, Y, Z. The trend is what really shall be done.
Okay. Thanks, Yaseen. Now we have Arnold back in line.
Arnaud Lehmann from Bank of America. Sorry for the glitch.
Hi, Arnaud. Hey, Arnaud.
Hello, guys. Thank you for taking my questions. No problem at all. Two questions please. One is probably a follow-up on European cement prices. I try to keep things simple. I guess, post-COVID, demand was strong, energy was up, and therefore, prices went up. Now demand is down, energy is down. Still you're optimistic to keep prices at the same level after the increase at the beginning of the year. I guess my question is, what am I missing? Is CO2 marginal cost now the only driver or the main driver of pricing in Europe? That's my first question. My second question is regarding a potential US listing.
One of your competitors, you know, is making the case that having a U.S. primary listing will give them some operational, commercial synergies and maybe also in terms of making future acquisitions, that there was meaningful upside from that. I guess it raises a question of, you know, is there a downside of being a German-listed company operating in the U.S. when the U.S. is going, you know, pro America. Thank you.
Yeah. Thanks, Arnaud. Let me start with the first one, and then maybe René can also chip in on the dynamics on European cement pricing. You know, going back to a decade, I wouldn't push back on your assumption that you are adding, but I think times have changed from our perspective. Let's not underestimate there's still significant energy cost inflation in the system, guys. You know, I think there's this assumption that the energy costs are now low as before the crisis in Ukraine. Sorry, we have to do all our math, and I'm sure everybody needs to make that math because there's cash out of the door.
The electricity prices are coming off their peaks, guys, the forward in electricity in Europe are still between 100 and 150 EUR per megawatt hour. This is still much elevated from the level of 30, 40, 50 megawatts that we saw before. Somebody needs to pay for that, huh? Energy, you cannot say, "Hey, can I pay you next year?" You have to pay now. I think that that's the point. You have inflation on staff costs. That's also clear. You see all the wage increases that are coming. You have increases on services. You have scarcity on labor availability. All that drives broader, you heard my comment on the fixed costs. Last but not least, CO2, absolutely, with the CO2 certificate price hovering around 90 EUR.
Some of the players have already communicated being short. I think while that's, that all needs to be paid by somebody. That's why, firstly, and that's only our assumption, huh. That's not. I cannot really speak for others. That's also not our legally not possible anyway, and it's also not our duty. For us, we want to drive value for our customers. You know, that's also why we push the point, we will invest into this industry, into this business. We have a very compelling story to tell on decarbonization and circular. We make the investments, but we also wanna be paid for those.
The last point is there will be differentiation in the market on the product side, and that will be also a driver why there will be a wider price spread and also, less of a broader decline that you, assume. Anything to add, René?
Nothing to add.
Okay. On the US listing. I cannot comment on what others do. We are a proud German and European company. You know, last year, four months back, everybody said, "Let's go west. Europe is gonna die." Now the rest, the crowd comes already back. The currency is strengthening, everybody is. I think this comes and goes. We are, again, focused on decarbonizing the industry the fastest, being the global leader in circularity, and making an even greater product out of a 4.5 billion ton product per year. I think the market is huge, and something to grab is huge. Why should we endeavor on XYZ? I think we can make this a very compelling story out of Europe.
Okay.
Thank you very much.
Thanks, Arnaud Lehmann. Next question comes from Cedar Ekblom from Morgan Stanley.
Thank you.
Sheila.
Hello. Thanks very much, guys. Two questions. The first one is on Brevik. We're about a year away, hopefully, from the assets being turned on. Have there been any delays, any curveballs that have come about with that asset? Because I know the history of the asset has been quite delayed, just wanna check that we're still on time and on budget in terms of ramp-up. The second question is around how you approach your CO2 credits position in Europe. We've had very good supply or pricing discipline from players in the market. Most companies point towards high CO2 prices as being a real motivating factor for why companies now seem to have got religion on value over volume. I'd like to understand a little bit about how you approach it internally.
When you have an asset that is potentially long credit, is there a decision taken to transfer those credits to an asset that might be short? Do you actually re-require that those assets that are short credits are fully loaded with that cost of CO2 and how that might motivate the commercial approach? Just a little bit more on sort of the approach to credit within the organization. I know that you're net long, but are you still buying credits in the market today? Just to understand more around that sort of value over volume discipline that has arrived in the industry as a result of the credit situation. Thank you.
Maybe, Yuri, thanks a lot for your question and both René and I will answer. Let's start with the second point because on the CO2 project, I think it's a good question that I, for me, the medal has two sides? One is what you really do is the commercial approach. It, for me, it is very clear. If I see somebody in our company who cross-subsidizes, that's how I read this, just because he is a net long, he starts, you know, baking this into the price and say, "Hey, I can give a discount of EUR 10 because I'm still short," then that will have disciplinary consequences, I think they will.
This is not how we take the commercial approach. Clear answer to your question, fully loaded. Then maybe, René, you describe the other side of the medal in terms of how we accounting-wise work.
Yuri, accounting-wise, I think what we all know that we can move the credits here to sell them in Germany up to countries which we are short. If we are in a country long, we can sell it to a country which is short. This is obviously as tax efficient as you can imagine. As Dominik said, we are reporting, the people have their fully loaded costs, which is, which we divide here too, so that they make the right decisions in terms of selling price and when. The clear incentive, because, you know, it's coming in two years, that we will significantly take away, and that they need to act on it anyhow.
As Dominik said, we will push this through to the organization, and that's fully loaded costs in countries.
Cedar, also we have the discussion with our customers, you know, what is CO2 certificate P is there to also invest into the transformation. We also need that margin and want that margin in order to finance the transformation that we have outlined to you. I think in that respect, I think that's a little bit the story around the CO2 side. To your last question, in that point, I think you asked about whether we are buying only very opportunistically. If the price drops like a stone overnight, we jump into the market, but we don't see any need to buy. We are also not selling, huh?
I think there is no trading going on a significant volume in, either buying or selling. On Brevik. You know, this is a massive undertaking, globally the first, project, so everybody's holding their breath, quite so. This is a very complex project set up because it has three dimensions: carbon capture, transport and storage, and everything needs to work hand in hand. The project was disrupted, as you know, by COVID, by also the Ukraine, war. I think nevertheless, the project, I think from our perspective is going okay. For a large project of this dimension, we are not, surprised by anything, by any stretch of the imagination.
Both in terms of timing and also in terms of budget, there are deviations, but nothing dramatic that gets us to a lost sleep at night. This will come, this project, and we hold our date of 2024. That's what we have communicated. Let's wait and see. I tell you this is a magic happening. It works.
Great. That's very helpful. Thank you.
Thank you, Cedar. We have four more questioners in the queue, and, I think we need to wrap up after that. The next one comes from Tobias Leonne from Citigroup.
Hey, Tobias Leonne, hi.
Yes, hi, everyone. Thanks for taking my questions. Two plus a cheeky one, if I may. In the EBITDA bridge, we see the volume effect of minus EUR 66 million. This is compared to the previous quarter, minus EUR 98 million. Can you sort of interpret that move or that change? Should that continue going forward? Secondly, when, you know, you talk about fly ash GGBS, and when I compare those two businesses with Cement, if you look pari passu at those businesses, i.e. assume the same price and level, what sort of return profiles do they have? Do you feel comfortable that you can actually, because you, as you said, you're a big GGBS producer in the U.K. and in the Benelux, can you actually expand this business going forward?
Just lastly, CO2, you know, volumes falling. Should that mean that your life of the bank is extending? If so, by what? Thank you.
He's always tricky. Taking a tricky question. Thank you. Maybe on the CO2 certificates, obviously with volume decline, there is potentially also an upside on the length of CO2 certificates. We're watching this very closely. Again, Tobias, this doesn't cost me minimal sleep, because in the end, that helps going forward. We are not gonna subsidize the market short term for that. I think there are always fluctuations. It's a complex system up and down, I think that's fine. On the fly ash and GGBS, and then René will take the EBITDA question on fly ash and GGBS. From our perspective, we are very happy with those businesses.
They are absolutely fitting in our financial metrics very well. Growth opportunities in these markets not so easy. As you can buy trade everywhere, trading doesn't give you the trading margin. The question is both in terms of business model but also in terms of know-how, I think this is only then very interesting if you have a producing elements. By the way, also from a CO2 regime, the producing element gives you the CO2 advantage, not the trading element. Again, you know, we are a large group. If you have a technology somewhere in the group, it's our duty to apply this technology also to other parts of the group.
In the past, if I was operating in the southeast of North America, our group is a little bit bigger than the southeast of the US, you know?
Tobias, we got in the volume, minus 66 in Q1. You know, that is driven mainly by Europe. You know, we have 2 areas which are even positive in volume, Q1 versus Q1. As I said, will this turn positive? No. The question is how deep is it? As I said, H2, should be a little bit better because the comparison that, is, will be better. Let's wait and see. Yes, it is not turn positive, but we hope to stop, or to reduce the negative trends.
Could I just follow up?
Hmm? Yeah.
Could I just follow up on the return profile? You know, are the other two better than cement? That's the question. They are not worse.
Great. Thanks, Tobias, for your question, your third question.
By the way, if you bake in CO2, then we are even more differently.
Next question comes from Yves Bomele from Société.
Great.
Is it on or not? Yves, can you hear us?
Hi. Sorry. Good morning. Thank you for taking my question. I'll be quick. My first one is on Turkey. Just want to get your view post the earthquake. What's the potential, has the construction potential actually already sort of fallen already as the construction season is underway? Also any color on the impact that could have on the export market and potentially US pricing? That's my first question. My second one is can you remind us what's the group exposure to the non-residential markets? Can you actually sort of split that between the sort of high-rise with the office type of buildings versus the other type of buildings? Thank you very much.
Hi, Yves. Well, I think Uzan is, he's with us in the room. He can probably tell you better about, you should call him later and ask him about Turkey. Let me give you my perspective on this. First of all, this is a massive human tragedy. We are not here to profit from human tragedies, huh? I think let me say that remark first. You know, if you see the pictures, if you hear what we hear from Turkey, this is dramatic in terms of in short term and also the term consequences. In that respect, before we think about business, I think that's the first very important point. I think midterm, and also short term, you may be right.
There is a volume effect coming, obviously in the health, to rebuild that part of Turkey. It's overlaid right now with the presidential elections coming up. There is a lot of moving parts in terms of Turkish economy going forward. We know they're fighting with massive inflation, currency fluctuation. The whole situation in Turkey is for now very well managed with our Turkish team. We know that we have one board member even coming from Turkey. I think the we are pretty well few and many. Overall the situation is very much under control and very well managed. The volatility in Turkey given all those data points is gonna continue to remain high. I'm looking a bit to Uzan. Do you have anything to add?
No. I fully agree.
Uzan is fine with that. On the group exposure, it's normally one-third, one-third, one-third. We are obviously shifting. We saw it coming. We are shifting more towards the infrastructure and commercial slash industrial piece and reducing the exposure to housing for the time being. We don't publish any further breakdowns.
Okay. Let me talk to Jean-Christophe Lefèvre-Moulenq on the line from CIC.
Hey, Jean-Christophe. Good morning. Good morning. I have two questions, two technical questions. First one is, the coming CBAM, thanks Steuer. CBAM certificates which will come in force probably after 2026. How will they be calculated plant by plant or globally? That's an important question given some efficient plants in Morocco, Turkey, and Egypt, which could be a very big danger for European cement players. Second issue, you have a lot of CCUS projects, in majority, CCS. Only one in CCU. Why this? Is that due to technical issues? Many thanks for your answers.
Well, first of all, thank you very much. First of all, CBAM, I think very short, 28, 26. The important piece is that the European position has decided they wanna push CBAM. The details are not out yet. I think there are still negotiations going on, how we exactly do it, in terms of the point that you are trying to get to, so I'm not gonna start to speculate and preempt the description there. I think the important point is the politicians understood that they need to defend the transformation efforts in Europe, and not cross-subsidize others on the, on the outside of Europe. I think that's, we are a global company, but we need to obviously make sure that at some point, you know, we have a better trade deal. That's all that CBAM wants.
CCUS, I think simple answer, the technology is not a significant difference, but it's a different value and supply chain. I think that's one piece. Secondly, the economics obviously are also different. CCUS, you get full credit as a cement company for what you do with carbon capture and storage, because it's permanently bound. That's the definition in the legislation when it comes to EU ETS regime. The EU is not permanently bound necessarily, and currently, the politicians in Europe are trying to get their arms around how are they working with this in certain scenarios to synthetic fuels, you know, all of those discussions. In that respect, in many of the EU projects, the economics don't work. This one does. That's why we did it.
I think that's a good case on our perspective. That's an art and a science at the same time to bring this to the starting point. This project behind the scenes has taken years to get there, also to get your arms around the economics. We're finally there, and now we have to execute on it, and then again, learn data point by data point how to improve. One thing we see already with all of these projects coming closer to the starting point, the learning curve is fast.
See, Dominik, will you receive subsidies for the EU?
For the EU, yes. We get EUR 50 million subsidy from the German government, 15, on that project. That's, yes, there is a subsidy from the German government.
Excellent. Many thanks. See you then. Bye.
Thank you.
Let's wrap it up with Yuri Gerald again from Metzler Bank. I think the question on mix has been unanswered. Please.
Yuri, I think that we answered your question on mix, no? I think the mix one, we said, we are currently, we're introducing our cement. The plan is to ramp up. We are optimizing the network during the year. That's the message.
Okay, well, can I finish asking my question, please?
Sure, go ahead.
Yeah. So you answered on mix. When you say optimizing this year, you mean that the capacity that you're planning to take out will be completed by the end of the year only, not immediately, right?
No, no, there is a phasing plan. There is detailed phasing plan in terms of which capacity will come out, which capacity will come on. Obviously, this will also depend then on the market development. We have some room to breathe, and for us this may not be a stupid idea because we are a net importer into the U.S., as you know, typically local production is more attractive than import. In that respect, there is also some room for optimization around how we play that, taking out capacity versus bringing up a new capacity. When it comes to the net-net total effect, I think that's the purpose of your question.
Yeah, I understand. My question had the second part, which you couldn't hear, which was, can you tell us also what the plan is for your French project, when that one will come on board?
You are talking about Ervot?
Yeah.
Ervot, the construction has started. The project is moving, but, you know, there's no change from the original discussion. I think it's more 2025, that will come. But, you know, let's do 1 step after the other now. The project is in construction. I think that's important. It's gonna come, and then we will need to see how things progress. We keep you updated on this. Okay?
Okay. The preliminary plan is 2025?
Yes.
Okay, thank you.
Okay. I think, we're about to wrap up. Any final comments, Dominik?
I think, thanks for your participation. From our perspective, very satisfying start, and I think it goes across, we optimistic, for the remainder of the year.
Thanks for listening. Maybe just to let you know, we are preparing for the AGM tomorrow, taking place live and in color again after two years of virtual event. Obviously, we are proposing a dividend increase tomorrow from EUR 2.40 to EUR 2.60 per share. Also a change of the legal name of Heidelberg Cement AG to Heidelberg Materials AG. That will be done. Exciting. We are off to some conferences. The next one would be the May 16 conference for Morgan Stanley, it will be a conference, a virtual one, the week after, on May 23, the J.P. Morgan conference in London. Looking forward to seeing you all there. Thanks for listening. Bye-bye.
Thank you, everyone. Bye.
Bye.
Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephones. Thank you very much for joining, and have a pleasant day. Goodbye.