Good evening and good afternoon, everyone. Welcome to our Q1 results conference call. It's been a busy day for us so far. As you know, we will host our annual general meeting tomorrow. The AGM will be yet another fully virtual event, and we have received several hundred of questions actually, that we will answer during the event. Since we could not anticipate how long this will take, we decided to push forward our Q1 earnings call by 12 hours or so to this unusual time. We do hope for your understanding, and thanks for your flexibility. As always, you'll find the press release and the Q1 trading update presentation on our IR website. Dominik von Achten will quickly go through some prepared remarks before he and Lorenz Näger will be happy to answer your questions. Over to you, Dominik.
Yeah, Chris, thanks a lot, and good evening from all of us here in Heidelberg. I hope you are all well. Let us go through some of the key points. the sales volumes and also the operating EBITDA and EBIT are well-known figures, so we would not spend a lot of time on that. We would rather focus on some of the other points that we have released in our press message today. Just to recap, sales volume up reported 1%, like-for-like 4% differences, mainly currency and the Kuwait divestment. like-for-like operating EBITDA is up 40%, and operating EBIT almost 300%. Okay, careful with the percentages, that's obviously on lower absolute numbers, but I think it's fair to say that from an operational perspective, we are very satisfied with the start into the year.
What is very important for us to highlight is the fact that EBITDA margins, you know that is one of the targets in Beyond 2020, that we increase our structural profitability, have significantly gone up in all regions. I will share with you the details. We have just today made another portfolio move in our portfolio exercise, also that is part of Beyond 2020, by selling and readjusting our Greece footprint. We will focus, as we said, a lot of exercises in the portfolio topic also center around the question, make it simpler, focus on your core strengths. In that respect, we will exit the aggregates business and the ready-mix business in Greece. As we have already communicated earlier, have also simplified our shareholder structure in Egypt. One of the key goals in Beyond 2020 was the solid investment-grade rating.
As you know, we have achieved now the upgrade from both Standard & Poor's and Moody's and are in very safe waters in that respect, we can tick the box on that target. Last but not least, obviously the strong Q1 results clearly reassure our full year outlook. April is going well so far so, i n that respect, we clearly reassure our full year outlook for the year 2021. I will come back to that later. Strong operation. If you go to the next page three. The operational metrics in all dimensions going in the right direction. As I said, revenue up like-for-like 4%, EBITDA up to EUR 540 million. Operating EBITDA margin up to almost 14%, up 330 basis points, and operating EBIT up to EUR 223 million.
If you then go to the next page on the margin breakdown, where we have the different regional areas. For us, the very important message here is that also, and especially North America, has significantly improved its structural profitability, almost up 400 basis points to now almost 10%. That is a good performance and a strong performance from our perspective on the margin side. There are still things that we obviously can do better, especially when it comes to the top-line development volume. I think we are not fully satisfied yet. Pricing is going in the right direction. Structural profitability is going in the right direction. Cost management is absolutely good. In that respect, we are on our way to the 500 basis point margin improvement that we promised during the Beyond 2020 exercise.
Also very strong indeed, Africa, Eastern Mediterranean, up to almost 26% margin in Q1, up more than 400 basis points. West and Southern Europe, I think that's very well noted on an okay level already, almost more than 400 basis points up. That is a very strong performance to also almost 10%. That has not been seen before in the group in a Q1 quarter. Asia Pacific, with a mixed performance in the different countries, almost up 300 basis points to more than 20%. NECA on an already good level, up to almost 12%. Now, remember that's always winter in Q1 in Northern and Eastern Europe, so in that respect, I think improved on an okay level already. If you go to page five. You see those volume developments, the revenue developments, and the operating EBITDA in the different areas.
North America, from our perspective, as I said, EBITDA margin cost management going well, despite some weather-related issues, in Texas, you know that, but we should not overplay that. I think it's clear that structurally, the performances has improved, and that's important for us. As I said, on the top line, especially the volume development, I think we still have, from our perspective, still some further upside potential, and we've identified clearly the business units and areas that we talk about, and we will continue to work on that going forward. Not unimportant for us, Canada, also a very solid pickup in demand in all business lines up in Canada. A satisfying start into 2021, also for an important region for us, in Canada. Europe, demand and pricing are going in the right direction. We are very disciplined on costs.
That, again, in the combination, leads to a super strong performance in Europe. Margin development, as I shared with you earlier, has been improved on an already strong comparison base. In that respect, I think absolutely the right trend. Asia Pacific, we have good margin development and also solid growth in most countries. There are some COVID-related uncertainties. You have seen in the last days the situation in India. I'm quite concerned personally about the health development in India. That is something that we watch very carefully and let's wait and see how this develops over the next days and weeks and months. Africa continues its strong growth, especially also in Sub-Saharan Africa. I think it's fair to note that also for us, important Morocco, Israel, and also Egypt has stabilized now and has turned a little bit of a corner.
In that respect, also the situation in Egypt is on a not so good level now, gradually improving. If you go to page six, you see the structural development of the EBITDA, operating EBITDA. You see that the currency impact was fairly limited with EUR 13 million, a very good volume development across the group. I think we haven't seen that for three, four quarters. In that respect, that's an important trend change that the volume has now really kicked in. The price over cost, meaning price minus variable cost, is also very positive on the back of very rigid price management, and also rigid cost management, both on variable but also on fixed cost. Here we clearly also still profited from our good forward buying situation. Sorry? Yeah. Okay. From our good pricing and cost development, also on the variable and fixed cost situation.
I would hand over to Lorenz Näger for the next two pages on the profitability and also on the capital allocation. Lorenz?
Yeah. Dominik, thank you very much. I'm flipping to page seven, where we have put together a chart, I think very enlightening chart on our turnover profit development and the EBITDA development over the last couple of quarters. On the left side of the chart, you can see our turnover development. As we have reported between December and June 2020, December 2019 and June 2020. The turnover reduced. That has to do with two factors. The one was that we curtailed our trading business, and we cut out unprofitable parts of our trading business. That contributed to a significant reduction in turnover. As you see in the green line, which depicts the EBITDA development, it had almost no impact on the EBITDA.
The reduction, though, in the green line to June 2020 comes mainly from the second quarter of previous year, where we got a full hit from the COVID crisis. You can see how the turnover stabilizes. That's very important, the profitability really goes up quarter by quarter. We had a very strong third quarter 2020 and then a good fourth quarter. Right now, the profitability continued to increase. This has a significant and visible impact on our EBITDA margin, which is an important target for us to improve the structural profitability. You can see how the margin improves from 19% in December 2019 up to 21.8% right now in the first quarter. We are pretty confident that we are able to further improve the margin and reach our Beyond 2020 target and probably reach it earlier than initially expected.
I think this chart seven does very nicely depict this underlying dynamics. We come to page eight, where we have shown and reiterated our cash generation. In the first quarter, our good cash flow situation continued and confirmed trend from the previous quarters. It's mainly driven by good result development, and they are again driven by good cost development by our scope savings, combined with disciplined working capital development, as well as very well-controlled CapEx in that area. On the disposal side, which you see in the next column, we have made further progress. Kuwait and Greece assets are now disposed. We are working on further improvement. Our overall strategy here is mainly to get rid of unprofitable or undefendable market positions.
Secondly, very important for us also to simplify the overall corporate structure, which is still relatively complex, and we need to get that curtailed in the sense that we get an efficient overall corporate structure. CapEx, I spoke about. CapEx last year was below EUR 1 billion, and we limited it to EUR 1.2 billion in 2021. Right now, if I look to the first quarter, I think we are on a good way to achieve this figure or even stay a little bit below the EUR 1.2 billion. Just for clarification, what's called CapEx net here in this chart is CapEx net in tangible fixed assets. It does not include any M&A. The fourth block shows the rating side of what we need for further debt reduction.
We do not need anything more for debt reduction because we have right now reached our leverage between 1.5 and/or two times EBITDA currently in the first quarter compared to previous year. The net debt has further reduced, and this has led then also to this rating upgrade that we were speaking about earlier. We are now BBB flat in S&P and Baa2 in Moody's, and we are well positioned inside this rating position. Currently we think that we are in very safe waters here. That's a very important target we have achieved right now. Next point on the financial side, our dividends. You have seen that we have increased dividend back to progressive dividend, EUR 2.20 per share, which is the level which we announced last year, and then we postponed for last year, which was one of the contributions.
Each interested party in Heidelberg Materials had a contribution, that was for the shareholders. Now, due to the good cash flow, we were able to go back to our progressive dividend, we will follow this from now on. That's a very good signal to our shareholders. We have now to stabilize the situation post-COVID, if things continue as they do today, we will come up with a certain amount of excess cash later this year, we will need to make decisions on board level, what amount to allocate for growth CapEx, bolt- on M&A or share buybacks. That's where we stand right now. We have ticked the box of many of our important targets, we are a bit proud of that. We will take further decisions in capital allocation later this year.
By that, I would like to give back to Dominik for some information about the markets.
Thanks, Lorenz. I think that really shows that on the financial side, I think we are now in very safe waters, and have reached phase one of Beyond 2020 to solidify that position, and then we move into the next phase from here on, as I already said in our last call. Looking forward into 2021, if you go to page nine, we just wanted to share with you our view on the different markets. I think the U.S., very transparent market for you. Order backlogs are strong from our perspective. Economic conditions in general are solid in almost all markets in, I would say even North America, including Canada. We have very favorable volume development, especially in Canada, and we are working on even improving that in the U.S.
In general, the government stimulus is significant, especially in the U.S., and that really underlines and underpins the opportunities going forward in terms of future growth potential. U.K. continues to recover, really goes in the right direction. There is strong demand growth in all business lines at this point, and that is really also driven by an increase in infrastructure activity. From our perspective, strong sentiment in the U.K., and we are clearly taking advantage of that. Australia, as we already indicated last time, after two or three slower years in Australia, has now seen an uptick in demand. We also saw that in April. We are looking forward to a good second half or three quarters to come in Australia. Europe, you saw the recovery plan, you know the details about it.
One noticeable result is we already see now in Italy, you probably followed the news that they have allocated more than EUR 260 billion alone for the redesign of the Italian economy, and almost EUR 100 billion, EUR 83 billion are dedicated to the infrastructure projects. You know that we have a market-leading position in Italy. From our perspective, that is very good news that we should see some clear pickup of activities in Italy. Also Poland, important market for us, continues to go strong. First quarter was good, April continues to be good. Overall, also Poland moves in the right direction. India, the market is, from our perspective, intact. We should see some help from government stimulus also in the second half. Let's wait and see how this develops after the holiday season.
You know that this is now Ramadan since middle of April, and they come back to work beginning middle of May, and then it's always interesting to see how the markets develop. Overall, and that's summarized on the key message slides, I think we tick the box on a good quarter one for 2021. Important for us that in all markets, our EBITDA margins have significantly gone up. We have made the next portfolio move by readjusting our Greece footprint and focus it on our cement performance. We have achieved the key goal of solid investment-grade rating, and we clearly reassure our Q1 guidance that we have out there in order to slightly increase revenue, operating EBITDA, and RCO like-for-like versus prior year. In that respect, I think from our perspective, you see a lot of smiles on our faces if we would have the video on.
A good start into the year, and we are more than looking forward to your questions now.
Operator, you want to start the Q&A, please?
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 on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. If you are using speaker equipment today, please lift the handset before making your selections. Anyone who has a question may press star followed by one at this time. One moment for the first question, please.
Thank you. In the interest of time, as always, and as it's good practice, please limit your questions to two at a time. The first one or two questions come from Elodie Rall from J.P. Morgan.
Oh, hi. Good evening. Thanks for taking my questions. Could you please start to give us a bit more color about what has happened on a monthly basis in January, February, and then March, how the second quarter revenue and EBITDA growth have been? You gave us some color about April trends going well, so can you give us a bit more color about how that compares to the monthly trends that you've seen in Q1? Just in general, your slide seven, we saw a decrease in like-for-like revenues. If I understand correctly, that's because of the scope of your trading business that you have kept. Where are we today in volumes versus Q1, and in pricing versus Q1 last year and versus Q1 2019? I'll stop here. Thanks.
Okay, Elodie. Thanks a lot for your questions. Maybe on the first one, the monthly trend, January, February, March, and then April, from our perspective, an okay start in January, a dip in February because of the winter both in Europe and also in the U.S. Clearly we saw that in our numbers. I would say super strong development in March, and that then led to the good Q1. The April too is more like the March than the February or January in terms of development. I think that's fair to say. The trend is still okay, and from our perspective, strong against prior year. Now on the revenue side, I'm not sure whether I got your question fully right. You were alluding to the revenue development, I guess, on page five, Elodie. Is that right?
No, it was on page seven, the like-for-like growth that shows a decline in revenue for the last 12 months. if you exclude the restructuring that you've done in the trading business, where are we today in terms of volumes and prices versus 2019, really? Because I guess March and April last year don't really mean a lot.
Elodie, we've done a very rough calculation, or you can maybe also come back to Ozan to clarify the details if you want. From our very rough first calculation, it's about 1% up versus what you see here.
Five instead of four.
Yeah. It's about a delta of 1%. That's the message. In that respect, I think it is a contributor, but there are some other effects also. As I said, from our perspective, as much as we have structurally improved the profitability on the back of very good cost management, both on variable cost and fixed cost management, that's what you see in the green line. Also, very strong pricing. We clearly have a pricing before volume strategy. We made that very clear, and we are not going to change that in essence. Obviously, we check market by market, how is our development also on the volume side, and that's why I made my remarks concerning North America. As much as we are satisfied with the overall profitability, volume and pricing, and cost development, I'm personally not fully satisfied with our volume development in all markets.
That's especially true for some sub-regions in North America, where we have, from our perspective, in some specific business units and local markets, still some potential for better growth. we have put the magnifying glass on that, and we'll continue to manage it just as much as we have now improved and closed the profitability disadvantage that we had in Q1, Q2 last year.
Okay. just to make sure, I understood, What was the 1% again?
It's probably easier, Elodie, if you check directly with Ozan, because let's be fair from our side, we would rather not shoot from the hip now a number. For that question, I think it's better if you don't.
Mr. Beumelburg, your line is still open. Ladies and gentlemen, looks like we have a technical issue. Please stay on the line. Ladies and gentlemen, we have a technical problem. We connect the speakers. Please stay on the line. You are now back online.
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All right, good. The next question comes from Paul Roger. Paul, are you on the line?
Yes, I am. Hi, team. Welcome. I guess it's late, so I'll keep it quite short. Can you quantify the magnitude of the sequential price increase that stuck in Europe and the U.S. in Q1? Also, do you think that pricing power is strong enough to post a second increase later in the year in those regions? I think that's something that one or two of your competitors have been talking about.
Paul, thanks a lot for your question. Of course, from our perspective, an important one. I cannot comment on the competition. That's a decision we purely take on our side. That's also why I will not comment, and I ask for your understanding on very specific markets for antitrust reasons. I think from our perspective, it is very clear that the pricing continues to be a key focus for us. If I look at my charts country by country, there is a lot of green in terms of price development already in Q1. Keep in mind, normally, we typically go, especially on the cement more in April on pricing, but in some markets, in fact, in many markets, we already try to move in January 1 and pull it forward. Also in ready-mix and concrete, we've already started the pricing momentum in January, February.
From our perspective, Paul, pricing stays a core focus for us, because we know that there is cost inflation, and we have made that very transparent. It's coming, and that also answers the second part of your question. Absolutely, wherever possible, we will go for additional price increases. Whether this is a mid-year price increase or even earlier or later, we reserve all rights with our customers to discuss the pricing because the situation is very dynamic, and we have prepared our customer base that they need to be prepared, that there will be some significant price increases in some markets coming. Either they have already started, or they will continue to accelerate for the remainder of the year. From our perspective, pricing is the core focus for us next to the good cost management.
Yeah, that's very clear. Thank you. Congratulations again.
Thanks, Paul. Next one comes from Tobias Werner from Stifel Europe.
Yes, good afternoon. Thanks for taking my questions too, if I may. Number one, you announced the divestment of the Greek aggregates and RMC businesses. If I look at my spreadsheet, I think the overall revenues out of are well below the 50 million marks, and aggregates and RMC probably amount to 10 million of that or even less, more like five to 10 million of revenues. Very small. The question is, was Greece one of those five projects you mentioned earlier in the year? Related to that is, this must be at the small end of the scale. The second question is around the price over costs, maybe pointed at Lorenz Näger. If you were to take today's energy prices, the 86 million benefit on a quarterly basis, where would you see that? Thank you.
Okay, Werner, thanks for your questions. I'll take the first one on Greece quickly, and then Lorenz Näger will answer the second one because you mentioned. We're not going to disclose any specific values on the Greek transaction. From your perspective, is this the biggest M&A transaction that we have targeted in being one of the five? No. Are there additional ones to come? Absolutely. In that respect, yes, this is one of the transactions that we were targeting. Each transaction is very different in terms of timing, complexity, revenues involved, EBITDA involved, and also gross proceeds and net proceeds. In that respect, this is one of the transactions, but agreed, probably one of the smaller ones. Okay?
Nevertheless, Werner, it's a contribution to simplification of the business. We want to streamline our business, focus on attractive markets, and we think the aggregates business and the ready-mix business increase now has a better owner who can make better use of that assets, and for us, it simplifies our corporate structures in a significant way. That's the one hand side. The second is on your other question was on the energy bill. Previous year, we saw a reduction in energy costs. You know that Heidelberg's forward buying strategy is a bit shorter than the average of the industry. We buy forward roughly by six months, roughly more or less. Yeah. Now, the situation previous year was so that the energy prices were really falling off the cliff when the Corona crisis really started in March, April, May, and our cost structure followed relatively quickly to that, yeah.
We were buying later in 2020, the forward positions. We built that up in autumn when we saw that energy prices are coming back big time. We went more to the higher levels of our corridors overall, and now we benefit from that. Normally we try to refill our forward buying pipeline in summertime, because typically energy prices are lower then, and that's what we wait for. That's the big issue in the current year, whether or not we will be able to fill up our pipeline in summertime at good levels. That's a little bit the open question right now.
We are still nicely covered in the second quarter, but in the third quarter, we will see a situation where we are more on the shorter side and we wait for opportunities to, as I say, to fill the pipeline on coal, pet coke, power, whatever, fuel, diesel, whatever we need. That's the situation, and this situation includes a certain degree of uncertainty. We talk about overall magnitude, up or down EUR 100 million to give you a feeling for the magnitude of this issue.
Thank you. That's very helpful.
Thanks, Werner.
Thanks. Yes, the next one comes from Harry Goad from Berenberg.
Yeah. Hi, good evening. Thanks very much for taking my questions. Two, please. Just firstly, I guess coming back to your comment on the guidance, which I guess is unchanged, and I do appreciate it's obviously very early in the year. is that how we should interpret it, on the back of a very strong Q1, that it is just still too early in the year to review that? is there anything out there in the second half of the year and maybe that point you just alluded to on energy cost and margin, that gets incorporated in some of your thinking on that guidance for full year?
My second question please is, you talked a little bit earlier about European pricing trends. Can you just, I guess, add on to that any commentary around the impact or not that higher carbon costs in Europe are now feeding into that pricing dynamic? Thank you.
Yeah, Harry. Thanks a lot for your two questions and absolutely to your first one, you got it spot on. There is nothing to add from my side. It's early in the year, guys. I think we are just three to four months down the road. The year is still 12 months long. You all know you can make the calculation. We talk about 10% to 15% of the way in Q1 for our business. In that respect, bear with us. We are very confident from what we see today. That's why we clearly reassure our guidance and then we reconvene in the summer and see what we can do once we have more clarity halfway. It's clearly that leads to the fact that we leave our guidance where it is. In terms of pricing, interesting question, Harry. I think, yes, absolutely.
CO2 ETS prices move up quite substantially. You know that we have no short-term need to buy additional CO2 certificates. We allocate within the group. We are long until minimum 2023, 2024. in that respect, for us, at this point, the carbon price does not have an immediate P&L effect, but that may be different player by player. Some are long, some are short. that clearly also adds to the pricing situation because we all realize in the industry, that at least my understanding, if I read the newspapers, and if I read our politicians, and if I read market research institutes, then I clearly understand that the structural costs increase with the rise of CO2 prices. That's why we work on two fronts, Harry. One is clearly to reduce our CO2 emissions. That is the best fight against rising CO2 costs.
secondly, we obviously educate our customers that the structural price development of our products may need to change in the future in order to reflect our additional ambition and our additional contribution to a greener and more sustainable environment. In that respect, we are clearly on the move. Hope that answers your questions.
It does. Thank you.
Thanks, Harry. Next in line is Sven Edelfelt from Oddo BHF.
Yes, good evening, and thank you for taking my question. I had two question. The first one is again on the CO2. You mentioned your long CO2 until 2023 or 2024, depending on the volume, I guess. I guess you would need to buy some CO2 certificate on the market, all things being equal. I saw you recently invested EUR 40 million in Bussac-Forêt in France to increase alternative fuel. How much you need to invest on plant modernization not to buy CO2 on the market until 2030? That would be the question. presumably these are already included in your traditional CapEx standing. On the second question that I have, you just mentioned some information about capital allocation later this year. What exactly are you talking about there? Is it a capital market there that you're planning? Would it be included in your upcoming release?
Is it just that you're waiting for some disposal to give some money back to shareholders, for instance?
Let me take the last one, and then I hand over to Lorenz. Capital allocation, you listened well. We are not surprised. I think, guys, one step after the other. We, first of all, now wanted to conclude phase one. From our perspective of Beyond 2020, which is very solid ground on the financial side. Lorenz has shared with you all the different elements that have come together, that in the end culminated in the solid investment grade rating by both key agencies. Now we take it from here. Let's see how the cash development will continue during the next quarters. Then we will stick to exactly what we have promised in the Beyond 2020 strategy in terms of capital allocation. There is a competition between bolt-on and M&A acquisitions and a share buyback option.
Exactly that framework that we've communicated, we stick to, and once we have more clarity, then we will obviously come back to you and share our actions in that respect. Lorenz, you want to-
Yes, I can make a comment on CO2 and CapEx. You said the main CO2, how long we are depends on the volume. Yes, that's correct, but it depends at least to the same extent on how successful we are in reducing CO2 in our cement plant. That's why we have also decided to put the CO2 emission as a connection to the financial bonus scheme. That will drive the development. Here we talk easily 10% of reduced CO2 emissions compared to 10% volume increase. It's probably much easier to achieve the 10% CO2 reduction rather than the 10% volume increase. What I want to say is that the management factor of reducing CO2 probably has an even bigger impact on how long we are compared to the volume development.
Now, what we see going forward is that these targets in CO2 reduction are only factored to a small extent into our forecast of 2023 or even 2024. That's actually the situation where we are. If we are really successful in CO2 reduction, then we would be even longer than 2024. That's the one point. The other point is the CapEx. You can be ensured that there is no single investment in the cement operation that has no CO2 impact. Each and every single investment goes into that. Now the question is how much of such investment goes into CO2 reduction or not? I give you an example. In our new plant in the Midwest U.S., in Mitchell. Our new plant. There we will not have a coal mill, so the invest is even less.
Instead of that, we connect the plant to the gas grid, which also costs something, but less than a grinding mill, and that reduces the CO2 emissions roughly by 30% in that plant. Now, if we want to add alternative fuel, okay, that's then again CapEx on top. What I want to say is, it is very difficult to split an investment like the new plant in Mitchell, like the master plan in France or others, into investments which are really CO2 investments and which are not. We are currently working on that because you know the European taxonomy system, which has been approved by the EU very recently, and unfortunately, we do not know the precise criteria right now. They exactly ask that question. We will have to report, I think, by end of 2021, the investment which exactly go into this CO2 reduction investment.
currently we are working on a structure inside our company to be able to report that on a reliable basis, but that will still take until end of the year. Thanks.
Very useful. Thank you.
Thanks, Sven. Next in line is Yassine Touahri from On Field Research.
Yes. Two questions. First, on the slide six, you are mentioning a price over cost dynamic of EUR 86 million. Could you quantify the level of cost savings in this EUR 86 million? My second question is, you were mentioning that there will be a competition between bolt-ons and M&A acquisition and share buyback. Do you have a threshold in terms of return on capital employed for bolt-on acquisition or M&A? Any sort of a threshold in terms of multiple to decide whether you do M&A or share buyback?
Let me answer the second one and then maybe Lorenz Näger can ask on the first one. Yassine, we stick to the, again, there to what we have communicated in the capital markets in September 2020. There we indicated the criteria that we put onto M&A and bolt-ons. I reiterate the fact that we do not go for multi-billion, cross-country, cross-continent M&A. That's clearly not in our focus and that has, again, stayed that way. We said we are chasing both our EBITDA margins. We are also chasing a ROIC performance well above 8%. Also, the bolt-on and M&As need, in the full portfolio, make at some point that contribution. It's a portfolio approach, so we do not have a rigid threshold for each of the M&As. That would be unrealistic.
Let's be fair, because markets are different, business lines are different, structural profitabilities are different, growth expectations are different. We look to transaction and transaction, but we stick to our overall target that we have communicated in our Beyond 2020 strategy. Excluding, I say that once again, multi-billion, cross-continent, big M&As, that's currently not our focus. Lorenz Näger, you want to take the first one?
Yeah. Yassine, could you just repeat your question number one? Price over cost. The question was price over cost. How much is price, how much is cost, right?
No. How much is cost savings? Because you've got a path which is a price increase, a path which is the cost inflation, and a path which is your cost savings, which is your cost reduction action. I would like to understand, if you can split those three, that would be fantastic if you can just give us the cost savings, that would be great as well.
The biggest part on price over cost comes from price increase. Our cost inflation in the first quarter was pretty limited. The second part, which is probably also price, comes from the JVs. That's the main drivers, whereas our cost base variable and also fixed cost is pretty stable, and we have not seen a lot of price cost inflation. Cost inflation in the Q1, we think that that will prevail to certainly extend in Q2. In Q3, as I outlined earlier, we will see significant inflationary pressure on the cost side. That makes also our forecast a little bit more difficult.
Thank you.
There's no specific savings number that you can point to?
Numbers?
No numbers. No.
Okay. Thank you very much.
Okay. The next question comes from Arnaud Leymarie from Bank of America.
Thank you very much. Good evening, gentlemen. My first question, probably a follow-up on Yassine's question on the cost side. Beyond energy, could you remind us how much savings you had last year in terms of, let's say, furlough, Kurzarbeit, marketing expenses, et cetera, and how much of this cost you expect to come back this year? My second question is on your trading business, the group services. What would be the new run rate? I guess could you elaborate a little bit on the business that you shut down? I guess you could argue that you could shut down the business completely and gain about 100 basis points of margin. How does that fit with your 100 basis points margin improvement target for the mid-term?
Arnaud, thanks a lot for your question. We are still here to run a business. We're not going to close everything down. That's easy. That everybody can do. That's not what we are paid for. I'll let Lorenz comment on that in a minute, on your second question. First one, we made that comment earlier. Last year, we got a low double-digit million figure that basically cutting across the business is related to what you are indicated to, furlough, Kurzarbeit. If you add that all up, in all markets, it's low double digits, millions, and that obviously will not come back. As we said, we are not sitting on our hands. We are continuing our strict cost management, both in terms of fixed costs and also in terms of variable costs, wherever we can achieve savings.
For me, the way it's looking forward, year back, we cannot get back to. It's important that we continue our strict cost management, and I'm not so much, very honestly, looking back at what happened last year. We'll take it from here. I think Q1 has shown that we keep the eye on the ball in that respect. I hand over to Lorenz for the trading question.
Yeah. On the trading, the situation is so that before 2020, we were expanding the business a lot and there was predominantly third party. Either we purchase from third party, we sell to third party. Fuel trading, including coal, et cetera. This turned out to be a business with low margin, high risk, and also including a significant debt risk. We achieved to manage that down without doing any damage, but we do not re-enter into this business. However, the trading business in its entirety is a very important business for Heidelberg, because we are balancing a good part of the global cement trade in the global markets, in the Pacific area, also in the Atlantic area, and the Mediterranean area.
By that, we also have a third-party trade, partly where we sell from third-party and where we buy from third-party and sell to our own subsidiaries. The other way around, where we buy with our own subsidiaries, sell to third-party, and also third-party transaction, as I said, to balance the market globally. That's a business which has a major strategic impact on us. It is low-margin, but that's a business we want to continue for significant strategic reasons. That's absolutely clear. Would be complete nonsense to stop that business.
Okay. You can also, to add on what Lorenz has said, you can almost see this also as an import service also for our importing countries. Absolutely, I reassure what Lorenz was saying. For us, this has a key strategic importance. However, we only do the necessary business there. We do not try to grow this business like hell. That's not the purpose of this exercise. In that respect, it is not core. In its core, what it does in terms of trading our materials globally, it absolutely has a high strategic importance and will remain in its place in that respect.
Thank you very much.
Okay. We have four more gentlemen on the line, then we will close the call with Cedar. The next question comes from Yuri Serov from Redburn.
Yes. Good afternoon, gentlemen. The first question. Last year, as you were managing your business through the pandemic, there were various things that you did. Some of the things were postponing maintenance, shifting costs around, and reducing the costs that you were going to incur later. As a result of that, some of us would have been expecting that those costs would start coming back now in Q1, but that didn't seem to happen. The cost performance was very good, and the margin performance was fantastic. Can you please just give us some sense as to what has been going on with those changes in timing of maintenance and stuff like that, whether everything is behind us, those shifts happened last year, and it's not going to happen again, and then it's business as usual, or will we see any more such shifts in your cost management?
The second question that I wanted to ask, and I feel a bit silly, maybe I'm not seeing something here, and it's very obvious, but I wonder whether you can help me here. It's really an arithmetic question. look, your volume has gone up in this quarter like for like by about 2% to 3%. when I look at your chart six and I look at the volume impact on EBITDA, the number here, EUR 63 million, implies a 16% increase in like for like EBITDA. Can you just explain to me how 2% to 3% can translate into a 16% impact on EBITDA? Thank you.
Yuri, we are not quite sure that we've understood the second part of your question, but while we try to figure it out, and then maybe we have to verify with you, let me take the first one. We split this because it's relating a little bit to our CO2 program. I will comment on cost and CapEx, and then Lorenz should maybe comment on the tax situation because that was also a significant contribution. To the cost, I think we've made the comments earlier, low double digit will not return. Other than that, fixed cost management will stay intact. Is there a big catch-up effect that is still in front of us? No. From our perspective, the only catch-up is the relief we got last year in terms of furlough money and everything. Remember that happened in Q2 and partially in Q3.
That will obviously not come back. In terms of shift of maintenance costs, there is the usual shift between timing of winter repairs, but nothing out of the extraordinary that you need to take into account in that respect. On CapEx, Lorenz was saying we started fairly cautious in Q1, but we clearly will see catch-up effects during the year, but we're still committed to stay within the EUR 1.2 billion guidance that we have given. Maybe Lorenz, you comment a little bit on the tax situation, because last year there were a couple of tax postponements. I'll let you comment on that.
Yeah. The tax, that was predominantly a cash issue, not so much expense issue. That means many countries allowed for postponement of tax prepayment, mainly prepayments. We were able to push out roughly EUR 150 million of cash tax payments out of 2021, and that contributed to EUR 150 million in cash compared to our initial plan in 2020. A part of them will come back early in 2021, and the second part will come later in 2021. That's a cost saving which is only a timing effect. If it comes on the volume side, as we said, the volumes are more or less up like for like between 2% and 3%, aggregates 2%, cement 3%. That has a direct impact on the contribution margin, which is roughly our contribution margin is roughly around 50%, 52%. That then goes into the result improvement, yeah.
That's what you see under net volume. That contributes roughly 50% of the top line. Whereas on the cost side, as I said earlier, cost inflation in Q1 was very low. The main contribution in the volume comes directly from price minus variable cost times volume. That's the effect which we see here. Now, if we go on the fixed cost side, what is recurring, what is sticking? Definitely labor cost will come back, yeah, because labor cost we will not have this short work pay, in German language or this corona help which we received in France, U.K., Italy, and other countries. This we will continue to pay in full on our own side. That will lead to certain staff cost inflation.
What will stick definitely is what we call new way of working, so that we have a lot more remote work, which will on a permanent basis reduce all our attached entertainment departments, our hotel cost, travel cost, flight cost, all that will go down significantly. That's a significant amount. That's a significant amount, significant double digit million on an annual basis. That's a bit the structure. Thanks.
Next question comes from Gregor Kuglitsch from UBS.
Hi, can you hear me?
Yep.
Hi. Good afternoon or good evening. I've got two questions. One is on margins. If I look at your chart that you gave us, I think it was page seven, you basically already achieved your, I think it's a 2025 target, if I'm not mistaken, of 22%. In your prepared remarks, I think you were saying you expect further improvements. Can you just reconcile that with your comments, I guess, of perhaps a more difficult second half? I appreciate these things are not linear, but just want to understand what the message here is. The second question is on carbon again, sorry to come back to this.
Just so I understand how you're doing this, I appreciate you giving your senior managers a bonus, but when your country operations, do they essentially have to purchase carbon from the center in order to incentivize them to really price this on to the market? Because obviously there's this issue around everybody knows you're long, so it's not a true cost, but it is kind of a true cost, or it is in the marketplace, obviously an internal pricing mechanism. I want to understand how you deal with that in order to max out the pricing and really push that into cement pricing. Thank you.
Yeah. Okay Gregor, let me answer the first round, and then I'll hand over on the second one to Lorenz, who will explain to you how we technically do it. To comment on page seven, just to be clear, the 21.8 does not mean that we've reached 21.8 in the first quarter. That's not the message of-
No.
That's not the message of the slide. It's a rolling average 12 months. That would assume that the margin development stays quarter by quarter on the level from the past 12 months for the future 12 months. That was Lorenz's point. I think to beat last year's Q2 in margin will probably not be overly ambitious, to be clear. That's what his comment was relating to. Indeed, the question is that Q3 and Q4 last year was already very good and let's wait and see how this develops this year. I think from our perspective, demand is good, as I said always, probably stronger than we expected in November, December last year for the time being. Pricing is also intact.
the wild card is a little bit the cost development, not so much the fixed cost development that I think we have under good control, but the variable cost development is very volatile as many of you know and we work on our pricing. Before I hand over to the technicalities of CO2, just one general comment from my perspective. We do not pay a carbon bonus. It's rather a malus if they don't reach the communicated carbon reduction targets. Absolutely, that should incentivize them to work very hard and that's what Lorenz said earlier. The biggest lever for us is the reduction in carbon emissions. We can play on the volume side. That's what he said earlier. If we miss our carbon reduction targets, we will get hit badly in our P&L. I think that's the idea. hindsight, that was a pretty wise decision.
we see already the good effects and absolutely structurally, it is absolutely clear that the countries need to take, I don't accept any arguments from a GM who tells me, "You know, I'm low on carbon, so I don't care about my emission. Just to be very frank, that GM gets fired". It's very easy. This I will not accept. In that respect, I hand over to Lorenz Näger. He will explain to you a little bit how we work with the carbon certificates, okay?
Thank you.
Great. As you know, the carbon credits are allocated on country levels. We have countries which are long and countries which are short. Now the question is how do we transfer the CO2 rights inside the group? That works so that the short company can claim on group level that they want to cover right now. It's their decision at what point in time they do that. Yeah. We take a central decision, how to cover this from what side. That's the basic mechanism, and that worked pretty well in the past. It's so that all countries which are long, they do not want to sell the rights because they expect the price to go up. They were right, as I have to say, from today's perspective, so nobody wants to sell.
somebody wants to buy, and they have to decide on what point in time they are going to buy. That's their decision on the timing side. That's the underlying mechanism, and until now that has worked pretty well.
Gregor, maybe just one thing to add. I made that comment earlier. I think I made a harsh one just a couple of minutes ago. the point is, the philosophy also of the Beyond 2020 exercise in that respect is we have fundamentally changed our approach on the CO2 side. whatever we have in the bank on carbon credits, for me, mentally, is the contribution to our CapEx that we need to do and want to continue to do in order to reduce our carbon footprint. That's a little bit how we think about it technically. It's exactly how Lorenz explained it to you. from a general thinking, it is important for us that we do not take these CO2 credits lightly. It's rather an investment in our future.
Okay. Thank you. That's helpful. Thanks.
Okay, three last questions. The next question is Christian Korth from HSBC.
Thank you, and good evening. My first question is about the German government's new carbon emission reduction targets. I understand they now target a 65% decline by 2030, versus 55% before, and then target to be carbon neutral by 2045, which is five years earlier than so far planned. I appreciate it's early days, but I would like to ask if you could let us know your thoughts on this. Does it, for example, change anything with regards to your own sustainability targets or your CapEx plans, or could it maybe even lead to capacity closures of older plants in the country? The second question is about cement trading.
In the current environment, where the transportation costs on land and on sea are more expensive than in the recent past, I would like to ask if this has an impact on reduced volumes, for example, or if it just pushes up prices to cover for the higher transportation costs. Thank you very much.
Christian, I'll take the first one and Lorenz takes the second one on the trading and transportation costs. In general, you are right. Governments are currently racing for I would say it's a competition almost who is announcing the stiffest targets. We continuously watch that situation. We have, I would say, jumped early, and said we pulled our target forward almost when nobody talked about that already last year. We have the clear position that we, day by day, hour by hour, we work on our CO2 emission reduction. I'm not a big fan of chasing every four weeks a new target. We are, as a group, so much expert in target marketing. We are more focused on delivering what we have promised, and that's our DNA in the group. Rest assured, Christian, we will stay focused on that.
Clearly, we will continuously watch the situation, and if there is a need to readjust our targets, we will absolutely do so. I would say the situation is very fluid right now, and we are comfortable with what we have communicated in September last year for the time being, and now it's delivery time. We really need to make sure that we clearly reduce our CO2 emissions. I think we've come a good way already last year, where we have beaten even slightly our target setting in 2020 on CO2 emission reduction, and we will continue our efforts in 2021 and beyond. Clearly in the group, everybody has understood that that is a top priority from our perspective. With that, I would hand over to Lorenz on the trading side.
Yeah. On the trading side, the situation is so that not only the freight cost goes up, but also the raw material cost goes up as the clinker and cement cost goes up. That has now a couple of impacts. The first impact is that, of course, the landed cost for cement or clinker increases, and that hurts enterprises who import in markets where there is enough supply. Where there are too much supply, then the domestic production becomes relatively cheaper and more competitive. it's a winner for those who have domestic production in such markets. It's completely different in markets where there is a shortage of local production. for example, in Africa, what we see there, then this increased landed cost of the cement or clinker directly leads to significant price increase in the whole local market around that landed situation.
That's what we see partly in Africa, partly also in East Coast US, where we will see shortages in cement now as the season goes towards the top and local production capacities are not sufficient, and then increased freight costs and increased landed costs for cement lead to a general good price development in such markets. That's the situation. It has not a direct impact on the volume. The impact on the volume comes mainly from lack of ship capacity. Right now, there are not enough ships in place. There is a supply chain squeeze, not only due to this big freight ship now in the Suez Canal, but also generally in the market. That has a negative impact on the transported volumes to a certain shortage of cement on the water. That's the situation right now.
Thank you.
Excellent. Thank you very much for the comprehensive answers.
Thanks, Christian. The next question comes from Stefan Bauknecht from Bankhaus Metzler.
Good afternoon, gentlemen. I would keep it short and ask just one question. It is regarding the cement division volume and revenue development in Western Southern Europe, which have been very strong in my opinion. Can you give more light on the country-specific revenue and volume development in Western Southern Europe? Which markets were in particular strong and weak?
Yeah. Absolutely. As it's good practice now, we can't give you very specific numbers, but I will give you an indication. A clear message, all markets are going in the right direction. There is not a market that falls off the cliff or is significantly behind. It is really a good momentum and to be also very clear, strong management performance of our country managers in Western Southern Europe. I already indicated that specifically satisfied with our performance in the U.K. You remember that for quite some years we have now bragged a little bit about our not sufficient performance in the U.K. We have, for two or three years, significantly restructured and changed our market approach in the U.K., and we now see the clear first fruits of that development.
I'm very satisfied with the trend that we see coming out of the U.K. from our own performance, but also the demand momentum that we see in the market in the U.K. Also continental Europe, as I indicated already, I think Italy, France, Germany, Benelux, going in the right direction. From our perspective, there is more to come in WSE. The momentum looks good. Demand is intact. Infrastructure programs are coming. Pricing, we push as we indicated earlier. We need to see a little bit the cost development, not so much the fixed cost, but the variable cost development. That's a little bit the game in Western Southern Europe. Overall, we are very satisfied with our performance.
Okay, great.
Okay. Thanks, Stefan, for asking only one question. Now it's the time for Cedar Ekblom from Morgan Stanley to finish the Q&A session.
Thanks, Christoph. Two questions from me. Is there any way that you can quantify what percentage of your margin improvement is controllable versus uncontrollable cost improvement? Secondly, you touched on some of the supply chain issues that you're experiencing. I wonder if you could give us a little bit more color, to understand where there may be some bottlenecks on the supply chain side of things so that we can get an understanding of really how tight the markets actually are at the moment. Thank you.
Yeah, Cedar. Thank you so much for your two questions. I would give the first one to Lorenz on the margin development. How much of that is basically, if I understood you right, controllable from our perspective and what is not so much controllable. We ask for your understanding. That will be a difficult one. You give us a difficult nut to crack as always. We will work on that. Lorenz will give you a first indication, and then if you want to follow up with Ozan on that, I think that's fine. Overall, from our perspective, Lorenz will give you the answer on the structural components of the margin development. I think in that respect. Do you want to take that?
Yeah, I will take that because we have discussed it repeatedly.
The main cost driver is on the one hand side, the fuel cost, energy cost, yeah? We control it by giving corridors for each single commodity, in what corridors we are going to forward buy. In this mechanism, we do not try to beat the market. We just try to create a reduction of the volatility of that forward buying product. That I have explained it earlier. We go long for up to six months and try to keep that corridor, prolong or shorten it, depending on what we think about the current market. Again, it's not to beat the market, it's just to reduce the volatility in this input cost. Second point is on the labor cost. Of course, that's a controllable cost. At least the efficiency. We go for efficiency gains every single year.
I mean, the biggest contribution in that respect right now is the fact that we have asked each single department, technical or administrative or sales wise or IT, to do its job from its desk. That's a fundamental change compared to the past, when everybody was traveling for each meeting and for each negotiation with a lawyer, flying around the world or the half world. Now we have changed this process in the COVID crisis in a way that we can see that our others can do it from home. That has a significant productivity increase in the admin work overall and also in the operative work. We have done recently the biggest deployment of IT system in U.S. without one single person traveling. That's a big efficiency gain and that's managed by us, and that stays on the P&L. That's a rough snapshot on what we do here.
Yeah, Cedar, maybe just to add on what Lorenz has said. A flashback to last year, September, when we said, where does the margin improvement come from? It comes from the fact that Lorenz was sharing. It also comes from the portfolio management. I think that it also comes from the fact that we are focusing on our core markets, on our strength. That helps our pricing ability. It also comes from the clear focus on pricing discussions. It also comes from the CO2 question that we discussed earlier. There are a lot of, if you wish to say so, self-help issues that we continue. Obviously, it also comes from the variable cost development, and that's what Lorenz was sharing with you. On your final question, supply chain issues.
We are not yet the automotive industry, where you see plants being down for weeks because there are no chips. That's currently not what we do see. yes, there is volatility in the supply chain more than in the past. Lorenz was sharing that with you on the freight side. there are markets where there are sometimes ship shortages, but nothing from our perspective, where we basically run dry in any of our core markets. That's not currently foreseeable and that's not what we have put into our current thinking. obviously we stay on our toes. If something would appear like this, we react quickly, but that's not what we see at this point.
Okay. Thanks, Cedar, for your questions. Thank you everybody for dialing in that late today. We now conclude the call. We have a couple of IR roadshows planned in the next couple of days and weeks, so stay tuned. We are also participating at some of the conferences, and we look forward to talking to you all then. With that, have a nice day. Goodbye.
Thanks everybody. Thank you.
Thank you.