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 hundreds 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. So 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 via our website. Dominik van Aften will quickly go through some prepared remarks before he and Lorenz Nager will be happy to answer your questions. So over to you, Dominik.
Yes, 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 And 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 us.
On some of the other points that we have released in our press message us today. So just to recap, sales volume up reported 1% like for like 4% difference is mainly currency and the Kuwait divestment. Then 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 us. 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 increased our structural profitability, have significantly gone up in all regions. I'll 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. So 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 strength.
So in that respect, we will exit the aggregates business and the ready mix business in Greece. And we, as we already communicated earlier, have also simplified our shareholder structure in Egypt. Us. One of the key goals in 'twenty beyond 2020 was the solid investment grade rating. And we, as you know, we have achieved now the upgrade from both Standard and Poor's and Moody's and are in very safe waters In that respect, so we can tick the box on that target.
Last but not least, obviously, the strong Q1 results clearly reassure our full year outlook. Also April is going well so far. So in that respect, we clearly reassure our full year outlook for the year 2021. Us. I'll come back to that later.
So strong operation, if you go to the next page, Page 3, us. The operational metrics in all dimensions is going in the right direction. As I said, revenue up like for like 4%, us. EBITDA up to €540,000,000 operating EBITDA margin up to almost 14%, Up 3.30 basis points and operating EBIT up to 223 us. €1,000,000 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 us. 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 We are not fully satisfied yet, but pricing is going in the right direction.
Structural profitability is going in the right direction. Cost management is absolutely good. So in that respect, we are on our way to the 500 basis point margin improvement that we promised us 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. Also, Western 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 us. Q1 quarter. Also Asia Pacific with a mixed performance in the different countries, Almost up 300 basis points to more than 20% and then 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, us. I think improved on an okay level already.
If you go to Page 5, You see the volume developments, the revenue developments and the operating EBITDA in the different areas. Us. North America, from our perspective, as I said, EBITDA margin, cost management going well despite us. Some weather related issues in Texas, you know that, but we should not overplay that. I think it's clear that Structurally, the performance 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 In Canada, so 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 And 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 phase. So in that respect, I think absolutely the right trend. Asia Pacific, we have Group 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 weeks months. Africa continues its Strong growth, especially also in Sub Saharan Africa, but I think it's fair to note that also for us important Morocco, Israel and also Egypt It has stabilized now and has turned a little bit the corner. So in that respect, also the situation in Egypt us.
It's on a not so good level now, gradually improving. If you go to Page 6, you see the structural development of the EBITDA, operating EBITDA. You see the currency impact Fairly limited with €13,000,000 but then a very good volume development across the group. And I think we haven't seen that for 3, 4 quarters. So 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. Us. Yes, okay. From our good pricing and cost us.
Developments also on the variable and fixed cost situation. Then I would hand over to Laurence Nega for the next two pages on the profitability and also On the capital allocation, Laurence?
Yes, yes. Dominik, thank you very much. I'm flipping to Page 7, Then we have put together a chart, a very, I think, very enlightening chart on our turnover profit development and us. 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 June 2020 as of December 2019 June 2020, The turnover reduced that has to do with 2 factors.
The one was that we curtailed our trading business And we cut out unprofitable parts of our trading business. So that contributed to a significant reduction in us. But as you see in the green line, which depicts the EBITDA development, it had almost no us. Impact on the EBITDA, the reduction in the green line to June 2020 comes mainly from the Q2 of Previous year where we got a full hit from the COVID crisis. And then you can see how the turnover stabilizes.
But And that's very important. The profitability really goes up quarter by quarter. We had a very strong Q3 2020 and then a good Good Q4 and then again now right now the profitability continued to Increase and this then has a significant and visible impact on our EBITDA margin, which is an important target for us to Improve the structural profitability. And you can see how the margin improved from 19% In December 2019, up to 21.8%, right now in the Q1. And we are pretty confident That we are able to further improve the margin and reach our beyond 2020 target and probably reach it us.
Earlier than initially expected. I think this chart 7 does very nicely depict this us. Underlying dynamics. Then we come to Page 8, where we have shown and reiterated us. Our cash generation in the Q1, our good cash flow situation A 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 cope savings combined with A disciplined working capital development as well as very, very well controlled CapEx In that area. On the disposal side, which you see in the next column, we have made further progress. Kuwait increased. Assets are Now this post we are working on further improvement. Our overall strategy here is mainly to get rid of unprofitable or undefendable market positions.
And 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 corporate, overall corporate Structure. CapEx, I spoke about CapEx is last year was Below SEK1 1,000,000,000 and we limited it to SEK1 200,000,000 in 2021. And right now, if I look to the Q1, I think we are on a good way us. To achieve this figure or even stay a little bit below the €1,200,000,000 net, just for clarification, what's called CapEx net here in this chart us. It's CapEx net intangible fixed assets.
It does not include any M and A. Then the 4th block shows us. The rating side or what we need for further debt reduction, we do not need anything more for debt reduction because we have Right now, reached our leverage below 1.5 between 1.5 and or 2 times EBITDA is currently in the Q1 compared to previous year. And the net debt has further reduced. And this has led then also to this rating upgrade where we were speaking above earlier.
We are now triple flat. Us. BBB Flat in SAP and BAA2 in Moody's. And we are Well positioned inside this rating position. So that currently we think that We are in very safe waters here.
So 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 the dividend back 2 progressive dividend, €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 interest Part in hydrobond cement had a contribution and that was for the shareholders. And now due to the good cash flow, we were able to go back To our progressive dividend and we will follow this from now on. So I mean that's a very good signal to our shareholders. Us.
We have now to stabilize the situation post COVID. And if things continue as they do today, We will come up with certain amount of excess cash later this year. And then we will need to make decisions on board level What amount to allocate for growth CapEx, bolt on M and A or share buybacks? So that's where we stand right now. We have ticked the box of many of our important targets and we are a bit proud of that.
And we will take then further decisions us. In capital allocation later this year and by that I would like to give back to Dominik for some information about the markets.
Us. Thanks, Laurence. I think that really shows that on the financial side, I think we are now in very safe waters and have reached really Phase 1 of beyond 2020 to solidify that position and then we move into the next phase from here on, as I already said in our The last call. Looking forward into 2021, if you go to Page 9, 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 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 us.
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.
So 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 2 or 3 slower years in Australia, has now seen An uptick in demand. We also saw that in April.
And so we are looking forward to a good second half us. It was 3 quarters to come in Australia. Europe, you saw the recovery plan. You know 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 €260,000,000,000 alone for the redesign of the Italian economy at At almost €100,000,000,000, 83,000,000,000 are dedicated to the infrastructure projects. So 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 grow strong. 1st quarter was good. April continues to be good.
So Overall, also Poland moves in the right direction. India, the market is from our perspective intact. Us. We should see some help from government stimulus also in the second half. And then 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 slide. I think we ticked 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 us.
We're adjusting our grease 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. And in that respect, I think from our perspective, we see a lot of smiles on our faces if we would have the video on. Us. Good start into the year and we are more than looking forward to your questions now.
Us. Operator, you want to start the Q and A, please?
Us. Us.
Us. Thank you. In the interest of time, as always and as it's good practice, please limit your Two questions to 2 at a time. And the first one or two questions come from Elvira Raul from JPMorgan.
Us.
Could you please start us. To give us a bit more color about what has happened on a monthly basis in January, February and then March, how the second floor revenue and EBITDA Growth has been, and you gave us some color about April trends going well. So can you Can you give us a bit more color about how that compares to the monthly trends that you've seen in Q1? And just in general, your Slide 7, we saw a decrease in like for like revenues. But If I understand correctly, that's because of the scope of your trading business that you have cut.
So where are we today in volumes I think Q1 and in pricing versus Q1 last year and this is Q1 'nineteen. I'll stop here.
Us. Okay, Elodie. Thanks a lot for your questions. Maybe on the first one, us. 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. But then a, I would say, super strong development in March and that then led to the Good Q1. And the April is more like the March than the February or January In terms of development, I think that's fair to say. So the trend is still okay. Us.
And from our perspective, strong against prior year. Now on the revenue side, us. I'm not sure whether I got your questions fully right. You were alluding to the revenue development, I guess, on Page us. 5 LODs, is that right?
No, it was on Page 7, the like for like growth that shows a decline in revenue for the last 12 months. But If you exclude the restructuring that you've done in the business in the trading business, where are we today in terms of volumes and prices versus us. 2019 really, because I guess March April last year don't really mean a lot.
Us? Yes. Lody, we do we've done a very rough calculation. You can maybe also come back to Ozan to clarify the details if you want. But it's from our very rough calculation, it's about 1% up versus what you see here.
So 5% instead of 4%. Yes. Us. So it's about a delta of 1%. That's the message.
So in that respect, us. 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 the arrival cost and fixed cost management, that's what you see in the green line. Also very strong pricing. We clearly have pricing before volume strategy.
We made that very clear. And we are not going to change that in essence. Us. But 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 pricing and cost development, I'm personally not fully satisfied with our volume development in all markets. Us. That's not that's especially true for some subregions in North America where we have, From our perspective, in some specific business units and local markets, still some potential for better growth. And 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 us in Q1, Q2 last year.
Okay. And just to make sure I understood, you said plus 1% us. Would have been the what was the 1% again?
I wouldn't probably it's easier if you check directly with Ozan Because let's be fair from all to say, we would rather not shoot from the hit now a number. We should for that question, I think it's better if you don't
us.
Us. Us. Us. Ladies and gentlemen, looks like we have a technical issue. Please stay on the line.
Us. Ladies and gentlemen, we have a technical problem. We'll reconnect the speakers. Please stay on the line. Us.
Us. All right, are we back on now?
Yes, you are back online. Please go ahead.
Us. All right, good. So the next question comes from Paul Roger. Paul, are you on the line? Yes, I am.
Us.
I guess it's Leys, so I'll keep it quite short. Can you quantify the magnitude of us. Sequential price increase that stuck in Europe and the U. S. In Q1.
And also, do you think that pricing power is To post a second increase later in the year in those regions, I think that's something that 1 or 2 of your competitors have been talking about.
Paul, thanks a lot for your question. Of course, from our Effective and 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 ask for your understanding on very specific markets for antitrust us. So I think from our perspective, it is very clear that the pricing continues to be a Key focus for us. And if I look at my charts country by country, there is a lot of green in terms of Price development already in Q1.
And 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 tried to move In January 1 and pulled it forward. And also in ready mix and concrete, we've already started the pricing momentum in January, February. And from our perspective, Paul, pricing stays a core focus for us 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, wherever possible, we will go for Additional price increases, whether this is a midyear 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 we 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. So from our perspective, pricing is The core focus for us next to the good cost management.
Us.
Thanks, Paul. Next one comes from Tobias Werner from Stifel
us. Questions, 2, if I may. Number 1, you announced the divestment of the Greek aggregates and RMC businesses. If I look at my spreadsheet, I think the overall revenues out of Kurdistan after you are well below the 50,000,000 mark. And aggregates and RMC probably amounted to €10,000,000 of that or even less, more like €5,000,000 to €10,000,000 of us.
Revenues, so very small. The question is, was Greece one of those 5 projects you mentioned earlier in the year? Us. And 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 Doctor.
Nager. If you were to take today's Energy prices, the 86,000,000 benefit on a quarterly basis, where would you see that?
Us. Okay, Werner. Thanks for your questions. I'll take the first one on Greece quickly and then Laurence Nagel will answer the second one because you mentioned. We're not going to disclose any specific values on the us.
But from your perspective, is this the biggest M and A transaction that we have targeted in being one of the 5? No. Us. Are there additional ones to come? Absolutely.
So in that respect, yes, this is one of us. That we were targeting, but each transaction is very different in terms of timing, complexity, Revenues involved, EBITDA involved and also gross proceeds and net proceeds. So in that respect, this is one us of the transaction, but agreed probably one of the smaller ones. Okay?
Us. Nevertheless, Soren, it's a contribution to simplification of the business. We want to streamline our business, Focused on attractive markets and we think the aggregates business and the ready mix business increase now Has a better order, 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. So previous year we saw a reduction in energy Of course, you know that Heidelberg's forward buying strategy is a bit shorter than the average of the industry. We buy forward roughly us. By 6 months, roughly more or less. And now the situation previously 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. Then 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 us. Overall and now we have this, we benefit from that. And normally we try to refill our forward buying pipeline us.
In summertime because typically energy prices are lower then and that's what we wait for. And 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. Us. That's a little bit the open question right now. We are still nicely covered in the Q2.
But in the Q3, 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 or whatever, fuel, diesel, whatever we need. So that's the situation. And this situation includes a certain degree of Uncertainty, we talk about overall magnitude up or down 100,000,000 us. Euro to give you a feeling for the magnitude of these issues.
Thank you. That's very helpful.
Us. Thanks, Savona.
Thanks. Tobias, the next one comes from Harry Gaut from Berenberg.
Us. 2, please. Just firstly, I guess, coming back to us. Your comment on the guidance, which I guess is unchanged, and I do appreciate it's obviously very early in the year. But is that how we should interpret it On the back of a very strong Q1 that it is just too early in the year to review that.
Or is there anything out there In the second half of the year and maybe that point you just alluded to on energy costs and margin, that gets incorporated in some of your thinking on that us. And then 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.
Yes, Harry, thanks a lot for your two questions. And absolutely to your first Sven, 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 3 to 4 months down the road.
The year is still 12 months long. So and you all know, you Make the calculation, we talk about 10% to 15% of the way in Q1 for our business. So 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.
So 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. And in that respect, for us, At this point, the carbon price does not have an immediate P and L effect, but that may be different us. You know, player by player, some are long, some are short. So that clearly also adds To the pricing situation because we all realize in the industry that at least my understanding, if I I read the newspapers and if I read our politicians and if I read us. Market Research Institute, then I clearly understand that the structural cost us.
Increase with the rise of CO2 prices. That's why we work on 2 fronts, Harry. 1 is Clearly, to reduce our CO2 emissions, that is the best fight against rising CO2 costs. And then 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. So in that respect, we are clearly on the move.
Hope that answers your questions.
Us. Thanks, Harry. Next, the line is Van Edelfeld from ODDO
So I had two questions. The first one is again on the CO2. You mentioned your long CO2 until 2023 or 2024, depending on the volume, I guess. Us. And then, I guess, you would be you would need to buy some CO2 certificate on the market, all thing being equal.
I saw you recently invested €40,000,000 in Bussac in France to increase alternative fuel. How much You need to invest on plant modernization not to buy CO2 on the market until 2,030. That would be the question. And presumably, these are already included in your traditional CapEx spending. 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 Day that you're Planning or would it be included in your upcoming release? Or is it just that you're waiting for some disposal to give us some Money back to shareholder, for instance.
Let me take the last one and then I hand over to Laurence, Capital allocation, you listened well. We are not surprised. I think, guys, one step after the other. We, first of all, Now I wanted to conclude Phase 1 from our perspective of beyond 2020, which is very solid ground On the financial side, Laurence 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 us. And now we take it from here.
Let's see how the cash development will continue during the next us. And 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 and 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 us. And to you and share our actions in that respect.
And then Laurence, you want to Yes, I
can make 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. So that's why we have also decided to put the CO2 emission as A connection to the financial bonus scheme, yes.
And that drives that will drive the development. So I mean, here we talk easily 10% of reduced CO2 emissions Compared to CO2 percent 10% volume increase. So it's probably much easier to achieve the 10% CO2 reduction rather So then the 10% volume increase. So 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 This targets in CO2 reduction are only factored to a small extent into our forecast of 'twenty three or even 'twenty four.
So that's actually the situation where we are. So if we are really successful in CO2 reduction, us. Then we would be even longer than 2024. So 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 us. Has no CO2 impact. Each and every single investment goes into that. Us. So and now the question is how much of such investment goes into CO2 reduction or not?
I give you an example in us. Our new plant in the Midwest U. S, yes, in Mitchell, our new plant. So there we will not have a coal mill. So the invest is even less, yes.
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. Yes. Now if we want to add alternative fuel, okay, that's then again CapEx on top. It is very difficult. What I want to say is it is very difficult to split an investment like the new plant in Mitchell, like the master plant in France us.
Or others into investments which are really CO2 investments and which are not here. We are currently working on that Because you know the European taxonomy system, which has been approved by the U. S. Recently and unfortunately, Bernd, we do not No, the precise criteria right now. They exactly asked that question.
We will have to report, I think, by end of us. 2021, the investment which exactly go into this CO2 reduction us. Investments. And 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 Yacine Touareff from On Field Research.
Yes. Two questions. First, On the Slide 6, you're mentioning a price over cost dynamic of 86,000,000. Could you quantify the level of cost savings in this EUR86 1,000,000? And then my second question us.
You were mentioning that you will there will be a competition between bolt ons and M and A acquisition and share buyback. Us. And do you have a threshold in terms of return on capital employed for bolt on acquisition or M and A Or any sort of threshold in terms of multiple to decide whether you do M and A or share buyback? Us.
Let me answer the second one, and then maybe Laurence can ask on the first one. Jatin, we stick to the again there to what we have communicated in the capital market In September 2020, there we indicated the criteria that we put onto M and A and bolt ons. I reiterate the fact that we do not go for multibillion cross country, cross Continent M and A, that's clearly not in our focus and that has again State that way, we said we are chasing both our EBITDA margins, we are also chasing a ROIC Performance well above 8%. So also the bolt on and M and As need in the full portfolio make at At some point, that contribution, but it's a portfolio approach. So, we do not have a rigid Threshold for each of the M and As, that would be unrealistic.
Let's be fair Because markets are different, business lines are different, structural profitability are different, growth us. Expectations are different. So, we look to transaction and transaction, but we stick to our overall Targets that we have communicated in our beyond 2020 strategy. And excluding, I say that once Again, a multibillion cross continent, big M and A that's currently not Our focus, Laurence, you want to take the first one?
Yes. I think could you just repeat your question number 1? So Price over cost, the question was price over cost, how much is price, how much is cost, right?
No, no. How much is savings, cost savings us? Like your because you got a path which is a price increase, a path which is the cost inflation and a path which It's your cost savings, which is your cost reduction action. I would like to understand, if you can Split those 3, that would be fantastic. Or if you can just give us the cost savings, that would
be great as well. Yes. The biggest part us. On price, our cost comes from price increase. Yes.
Our cost inflation in the Q1 It was pretty limited, yes. And the second part, which is probably also price comes from the JVs. So 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 us. Price cost inflation in the Q1, we think that that will prevail to a certain extent in Q2.
But in Q3, as I outlined earlier, we will see inflationary significant inflationary pressure on the cost side. That makes also our Forecast a little bit more difficult. Yes. Thank you, Noren. And there
is no specific savings number that you can point to?
Us. Numbers.
No numbers. No, no, no.
Us. Okay. The next question comes from Arnaud Lehmann from Bank of America.
Thank you very much and good evening gentlemen. Us. 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, core terabyte, us. Marketing expenses, etcetera, and how much of this cost you expect to come back this year?
And my second question is on your Trading business, the group services, what would be the new run rate? And 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 margins. So how does that fit with your 200 basis point margin improvement target for the midterm? Us.
Anur, thanks a lot for your question. We are still here to run the business. We're not going to close everything down. That's easy. That's everybody can do.
That's not what we are paid for. But I'll let Laurence 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 out that basically cutting across the business is related to what you indicated to furlough, Coetzalbeid. If you add that all up in all markets, it's low double digits, millions and that obviously will not come back.
But 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 varietal costs, wherever we can achieve savings, that's For me the way, it's looking forward. A 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 what happened last year.
And we'll take it from here. And I think Q1 has shown Let me keep the eye on the ball in that respect. I hand over to Laurence for the trading question.
Yes. The trading situation is so us. Before 2020, we were expanding the business a lot. And there was predominantly 3rd party, 3rd party, either we purchased from 3rd party, we sell to 3rd party, fuel trading including coal, etcetera. And 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 reenter into this business.
Now 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. And by that we also have 3rd party trades partly where we sell from 3rd party us. And where we buy from 3rd party and sell to our own subsidiaries. The other way around where we buy with our own subsidiaries, sell to 3rd party And also third party transaction to, as I say, to balance the market globally. And that's a business which has a major Strategic impact on us and it is low margin.
But that's a business we want to continue For significant strategic reasons. That's absolutely clear. It would be complete nonsense to stop that business.
Yes. But and you can also to add on what Laurence has said, let's you can almost see this also as an import Service also for our importing countries. So absolutely, I reassure what Laurence 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, but 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.
Us. Okay. We have 4 more gentlemen on the line, and then we will close the call with Sida. The next question comes from Yuri Seyvorov from Redburn. Us.
So the first question, So last year, as you were managing your business through the pandemic, there have been various things that you There were various things that you did. And some of the things were like postponing maintenance, shifting costs around us. And reducing the costs that you were going to incur later. And as a result of that, some of us We've been expecting that those costs would come back, would start coming back now in Q1, but that didn't seem to happen. Yes, the cost performance was very good and the margin performance was fantastic.
So 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, us. Whether everything is behind us, those shifts happened last year and it's not going to happen again and then Is business as usual or will we see any more such shifts in your cost management? Us. 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, us. But I wonder whether you can help me here.
It's really an arithmetic question. But look, your volume has gone up in this quarter like for like us. By about 2% to 3%. But when I look at your chart 6 and I look at the volume impact on EBITDA, us. The number here, dollars 63,000,000 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. Us.
Jorg, 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 clarify with you. Let me take the first one. And we split this because It's relating a little bit to our core program. So I will comment on cost and CapEx and then Lauren should maybe comment on the tech situation because that was also a significant contribution.
So 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. But 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, Laurence was saying, we started fairly cautious in Q1, but we clearly will see catch up effects during the year, but we are still committed to stay within the €1,200,000,000 guidance That we have given. And then maybe, Laurence, 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.
Yes. And the tax debt was predominantly cash issue, not so much expense issue. That means many countries allowed For postponement of tax prepayment, mainly prepayments. So we were able to push out roughly CHF 150,000,000 of cash tax payments us. Out of 2021, that contributed €150,000,000 in cash compared to our initial plan in 2020.
And apart from us. We'll come back early in 2021 and the second part will come later in 2021. So So that's a cope saving in which is only a timing effect. And now if it comes us. On the volume side, as we said, the volumes are more or less up Like for like between 2% 3%, aggregate to cement 3%.
And that It's a direct impact on the contribution margin, which is roughly our contribution margin, roughly around 50%, 52 us. And that then goes into the result improvement. And that's what you see under net volume. So that Conference was roughly 50% of the top line. Whereas on the cost side, as I said earlier, cost inflation in Q1 was very low.
Yes. And so the main contribution in the volume comes directly from fixed cost sorry, from Price minus the variable cost times volume. So that's the effect which we see here. Now if we go on the fixed cost side, what is recurring, what is sticking, us. So definitely, the labor cost will come back because labor cost, we will not have the us.
Short work pay, Kurzarbeit and German language for this corona which we received in France, UK, Italy and other countries. So this we will continue to pay in full on our own side. So 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. And that's a significant amount.
That's a significant amount, Significant double digit million on an annual basis. That's been the structure. Thanks.
Us. Your next question comes from Gregor Kuglitsch from UBS.
Us. Hi. Good afternoon or good evening. I've got 2 questions. So one is on margins.
So if I look at your chart that you gave us, I think it was us. Page 7, you basically already achieved your, I think it's a 2025 target, if I'm not mistaken, of 22 us. And then in your prepared remarks, I think you were saying you expect further improvements. So can you just reconcile that us. With your comments, I guess, of perhaps a more difficult second half.
I mean, I appreciate these things are not linear. Us. But just want to understand what the message here is. And then the second question is on carbon again. Sorry to come back to this.
Just so we understand how you're doing this, I appreciate you giving your senior managers a bonus. But when your country us. Operations, do they essentially have to purchase carbon from the center in order to incentivize and to really price this on to the market? Because obviously, there's us. Issue around everybody knows you're longs.
It's not a true cost, but it is kind of a true cost or us. It is in the marketplace, so obviously, internal pricing mechanism. So I want to understand how you deal with that in order to max out the pricing and really push that into the Into cement pricing. Thank you.
Yes. Okay, Gregor, let me answer the first round and then I'll hand over on the second one to Laurence. He will Explain to you how we technically do it. To comment on Page 7, just to be clear, the 21.8 It does not mean that we've reached 21.8% in the Q1. That's not the message of this slide.
It's a low it's a rolling average 12 months. And that would assume that the margin development stays quarter by quarter on the level over the past From the past 12 months for the future 12 months. And that was Laurence's point. I think last year, to beat last year's Q2 in margin will probably not be overly ambitious to be clear. So that's What his comment was relating to and then indeed the question is you know 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. And then the wildcard 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. That's not what It's rather a marvelous if they don't reach the communicated carbon reduction targets. Absolutely, that should incentivize them to work very hard.
And that's what Laurence 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. It doesn't Again, if we do not if we miss our carbon reduction targets, we will get hit badly in our P and L. I think that's the idea.
So us. Hindsight, that was a pretty wise decision. And we see already the good effects. And absolutely, structurally, it is absolutely us. That the countries need to take I don't accept any arguments from a GM who tells me, us.
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. Us. This I will not accept.
So in that respect, I hand over to Lorenz. He will explain to you a little bit how we work with With the carbon certificates, okay?
Thank you. Great. As you know, the Carbon credits are allocated on country levels. So we have countries which are long and countries which are short. And now the question is how do we transfer the CO2 rights inside the group.
And that works so that the short company us. Can claim on group level that they want to cover right now. It's their decision at what point in time they do that. Yes. And then we take a central decision how to cover this from what side.
That's the basic mechanism and that's worked pretty well us. In the past, it's so that all countries which are long, they all do not want to sell To sell the ride because you know they expect the price to go up, which and they were right, as I have to say, From today's perspective, nobody wants to sell. But everybody somebody wants to buy and they have to decide at what point in time they are going us. To buy, that's their decision on the timing side. That's the underlying mechanism.
And until now, that has worked pretty well.
And 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. But the point is, us. The philosophy also of the beyond 2020 exercise in that respect is we have fundamentally changed our approach On the CO2 side and whatever we have in the bank on carbon credits, for me mentally It's 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 us. How we think about it, technically, it's exactly what Laurence explained it to you. But 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.
Us. Okay. Three last questions. The next questioner is Christian Kort from HSBC. Us.
Thank you and good evening. My first question is about the German government's us. New carbon emission reduction targets, I understand they now target a 65% decline by 2,030 versus 55% before. And then target to be carbon neutral by 2,045, which is 5 years earlier than so far planned.
Us. 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, us. I would like to ask if this has an impact on reduced volumes, for example, or if it just pushes up
us. 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 raising for it's a rate I would say it's a competition almost who is announcing the stiffest targets. Us. 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. So we have The clear position that we day by day, hour by hour, we work on our CO2 emission reduction. Us. But I'm not a big fan of chasing every 4 weeks new targets. We are as a group us.
So much expert in target marketing. We are more focused On delivering what we have promised and that's our DNA in the Group. And rest assured, Christian, we will Stay focused on that. But clearly, we will continuously watch the situation. And if there is a need to readjust Our targets, we will absolutely do so.
But 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 had beaten even slightly our target setting in 2020 on CO2 emission reduction, And we will continue our efforts in 2021 and beyond. And clearly in the Group, everybody has understood that that is A top priority from our perspective.
With that, I would hand over to Lauren on the trading side.
Yes. On the trading side, the situation is so good. Not only the freight cost goes up, but also the raw material cost goes up as a 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 helps enterprises who import in markets where there is Enough supply, yes, or too much supply.
Then the domestic production becomes relatively cheaper and more competitive. And 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. Us. So for example, in Africa, what we see there, then this increased land cost of 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 in Also in East Coast U. S. Where we will see shortages in cement now as the season goes towards The top end local production capacities are not sufficient and then increased freight costs and increased us. Land cost, fundamentally, 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. There are right now, there are not enough ships In place, there is a supply chain squeeze, not only due to this big freight ship during the Suez Canal, But also generally in the market and that has an impact on a negative impact on the transported volumes to a certain shortage of us? Cement on the water, that's the situation right now.
Us. Thanks, Christian. The next question comes from Stefan Bonhagen from Bankhausenetlu.
Good afternoon, gentlemen. I would keep it short and ask just one question. It is regarding the Cement, DD us. Volume and revenue development in Western and 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 and Southern Europe, which markets We're in particular strong and weak.
Yes. Absolutely, us. 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. So there is not a market that falls off the cliff or is significantly behind.
So it is really a good momentum And to be also very clear, strong management performance of our country managers in Western and Southern Europe. Us. I already indicated that specifically satisfied with our performance in the UK. You remember that for quite some years, we have now bragged a little bit about our not sufficient performance in the UK. We have For 2 or 3 years, significantly restructured and changed our market approach in the UK And we now see the clear first fruits of that development.
And I'm Very satisfied with the trend that we see coming out of the U. K. From our own performance, but also us. The demand momentum that we see in the market in the UK. Also Continental Europe, as I indicated already, I think Italy, France, Germany, Benelux us, going in the right direction.
So 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.
And then we need to see a little bit the cost development, not so much the fixed cost, but the variable cost development. That's It will be the game in Western and Southern Europe. But overall, we are very satisfied with our performance.
Us. Okay, great. Okay. Thanks, Stefan, for asking only one question. And now is It's time for Sida Ekholm from Morgan Stanley to finish the Q and A session.
Two questions from me. Is there any way that you can quantify what percentage of your margin improvement is controllable versus uncontrollable cost improvement? Us. And 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 us 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.
Yes, Sida. Thank you so much for your two questions. I would give the first one to Laurence us. On the margin development, how much of that is basically, us. Yes.
If I understood you right, controllable from our perspective and what is not so much controllable, We asked for Johannes, and that will be a difficult one. You give us a difficult enough to crack as always. And we will work on that, Laurence. We will give you a first indication. And then if you want to follow-up with Ozan on that, I think that's fine.
But overall from our perspective, us. Laurence will give you the answer on the structural components of the margin development. I think in that respect, do you want to take that, Bert? Yes, I
will take that because we have the the main cost driver is [SPEAKER DOCTOR. PAVEL MASLOVSKIY:] Pavel Maslovskiy:] It's on the one hand side the fuel cost, energy cost, yes, and we control it by giving corridors for each single commodity In what corridors we are going to forward buy this. In this mechanism, we do not try to beat the market. We just try to create a reduction And of the volatility of that forward buying product that I have explained it earlier, we go along for roughly 6 months and try to us. Keep that call in all prolong or short, Nick, depending on what we think about the current market.
But again, it's not to beat the market. [SPEAKER DOCTOR. BURKHARD LOHR:] Burkhard Lohr:] It's just to reduce the volatility in this input cost. 2nd point is on the labor cost. Of Of course, that's a controllable cost.
At least the efficiency, we go for efficiency gains every single year. And 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 side Or IT to do its job from its desk. That's a fundamental change compared to the past. I mean, everybody was traveling for each meeting and for each Negotiation with a lawyer. We are flying around the world or the half world.
And now we have changed these processes in the COVID crisis in a way that we can see that our Can do it from home. And 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.
And that's a big efficiency gain and that's managed by us and that stays On the P and L, that's a rough snapshot on what we do here.
Yes. And Peter, maybe just to add on what Laurence has said. I flashed back to last year September when you said, Where does the margin improvement come from? It comes from the fact that Laurence 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 Scott earlier, so 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 Laurence was sharing with you. On your final question, supply chain issues, us.
We are not yet the automotive industry where you see plants being down for weeks because there is there are no chips. Us? That's currently not what we do see. So yes, there is volatility in the Supply chain more than in the past. Laurence was sharing that with you on the freight side.
So there are markets where they are And 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. But obviously, we stay on our toes. If something would appear like this, us. We react quickly, but that's not what we see at this point.
Us. Okay. Thanks, Kjell, for your questions. Thank you, everybody, for dialing in that late today. Us.
We now conclude the call. We have a couple of IR roadshows planned in the next couple of days weeks. So stay tuned. We are also participating in some of the conferences, and we look forward to talking to you all then. And with that, Have a nice day.
Goodbye.
Thanks, everybody. Thank you.