Good morning, welcome to our Analyst Conference on the Results 2019. I'm happy to take the first part for introduction highlights, and then Géraldine will go into the details of the regions and the financial results. We come to the outlook on 2020. Very happy to see you, and I'm a little bit proud that we had record results in 2019. If you look at our profit and loss statement, we have basically improved every single line in 2019. More importantly, we have all taken that to the cash, and we had a record cash flow of more than CHF 3 billion, which is an increase of 79%, and a cash conversion, which I believe is far above anyone's expectation at almost 50% for last year.
Happy to fulfill all the guidance and all the targets we gave for 2019, starting with the sales growth, going to the EBITDA level, where we are also beating our guidance. We had this overproportional development to the bottom line with 32% net income growth, and then accordingly, earnings per share growth of 29%. Also, what was very important for us, with the new strategy, is to reduce our debt and become a much stronger company when it comes to multiple debt level. You see, we almost reduced the net debt by CHF 5 billion last year and achieved a completely new financial strength level with a net debt to EBITDA multiple of 1.5x compared to 2.2 the year before. I'm extremely happy. That gives us the strength for going forward and also the financial freedom to invest or do smart moves when the opportunity comes up.
I think fair to say that in 2019, I think we put the company on a new performance level, and I'm very happy we could achieve this chapter, and now the future, we can focus more on innovation, on growth, and on sustainability. On the next chart, we see our strategy with our four drivers, and you see some of the key achievements and initiatives we have accomplished in 2019. To start with the growth, we have had eight bolt-on acquisitions, which is double the number of 2018, and good to see that our countries are filling not only the bolt-on pipeline but also executing here. We have, if you noticed, even we had a record free cash flow.
We spent a bit more money on investments because we see quite some opportunities in our market of building materials, which is substantially growing based on the global mega trends of population growth, urbanization, but also on the demand of higher living standards and also of more sustainable solutions. We have on simplification and performance, I'm happy to report our operating model is fully established. We have promised and we have delivered on the SG&A cost-saving program from the corporate centers we have, but also from the countries, and achieved here a saving of above 400 million CHF. We said we're going to empower and grow not only in cement, but also in the other segments, aggregates, ready-mix concrete, and solutions and products. We delivered growth and especially growing profitability in all four business segments. Financial strength, I mentioned already.
I'm very happy we have now such a new level of financial strength with this significantly lower debt level. Keep in mind, we have not closed the Philippine deal yet, which is a significant deal for us, we are in the final stages of the local approval process, this will come on top of this. On the people side, also here, our new operating model with very strong profit and loss leadership is fully established. We came from an organization where we only had 100 profit and loss leaders, basically the country heads, now we have a very clear one responsibility for all the businesses, including aggregates, ready-mix concrete, solutions and products, we have now more than 400 fully responsible leaders. Here's the overview of the bolt-on acquisitions. You will notice that they are all in mature markets.
This is the nature of these bolt-on acquisitions. They are happening in markets which are established. They are not happening in cement. They are happening in ready-mix, in aggregates, and solutions and products. We have eight deals we have done in 2019, and they are from Australia, Europe to North America. We will continue this. We have a target of increasing the number of deals for 2020, and maybe one deal per month is a good run rate for our company. Sustainability. I think it's fair to say that 2019 was the year of sustainability. There was not one single day where we didn't have articles. I think it's a call for all companies for action, because this demand is broad-based. It's not just Fridays for Future or governments. It's from the investor side, it's from our own children, and maybe not to forget, it's from our own employees.
Our employees, they ask to be a more sustainable company and have a real purpose, to be there also in the future, and be part of the solution and not part of the problem when it comes to sustainability, no matter if it's global warming or if it's air pollution, or if it's other aspects of the environment. I think we were always a very solid engineering-driven, sustainable company, improving our footprint year on year. I think we realized last year this is not good enough. We have to accelerate our efforts. You can see on the charts that we really, I think, accelerated from mid-2019, not only with creating the position of a Chief Sustainability Officer, but engaging in carbon capture projects and launching the first carbon reduced or carbon neutral products in cement and concrete.
Very exciting, the opportunities we have to be here, part of the solution for building products and building solutions in the future going forward. I'm proud that we could join the Science Based Targets initiative. That's, for me, one of the key initiatives, not only to certify that your goals have a roadmap behind and actions behind. It's really a good thing to do for a company like ours. I'm very happy that we could join here the team also in 2019. A lot more will come here. I think we have also the roadmap in the presentation. First, we have the results last year. You see we have these four pillars, as part of our target framework. We have the CO2 per ton of cement. We have the waste reused in our factories, in our products, or for energy. You see this is up more than 4% last year.
Water saving, also something we want to accelerate in our plants. We made already quite a step last year with more than 5% less water used compared to the year before. We operate a lot of community projects where we try to be closer to the communities, especially in emerging markets. We do a lot education. We are building nurseries in India. We are operating some of the hospitals or clinics in India to help the people we are basically living with. We make quite some progress, but I think you can expect much more from us in the future. This is illustrated in the next chart, where we show a little bit the roadmap. One part is getting our factories more efficient. You see this here.
We still have a lot of projects to do for waste heat recovery, automation, but also for less clinker in the cement. We go into much more aggressive things like carbon capture or new products, carbon neutral products, but also more alternative fuel in our factories. Very exciting. That's part of our Science Based Targets initiative, and you can expect from us that you will see much more action and much more progress in this year and the years to come. We have on health and safety, it's a bit concern for us, and we have here made big improvements. You see here that one of the top KPIs for us is lost time injury frequency rate, and you see how much we progress here year-over-year, as safety is key for us, for our employees and their families.
Here we also improving here year on year. Brings me on my last slide, I think we made two years ago. I was meeting with most of you when we launched Strategy 2022. That was a new strategy for us, maybe a bit of a new strategy for the industry. We had a lot of discussions since then. I think we can see now we progress in the right directions. You see that we are already achieving or are close to the targets we set for 2022. On net sales, we are in the window for the growth. Same on the EBITDA. On the cash flow, I would say we are clearly above. We have now the confidence to say this is not a one-timer.
We have now created a new performance level, you can expect cash flow generation within the targets already for 2020 and for the years to come. Return on invested capital, you were always very concerned we don't earn the cost of capital. Well, we do this now for the first year. We did it in 2019. You see also the progress we make, you can also expect here that we will not stay still at 7.6%, but we want to go, of course, ahead of 8%, as we promised two years ago. I think with this introduction, I'm very happy to turn over to Géraldine, She will give you more details on the results.
Thank you, Jan. Good morning, everyone. We will now go into more details on these excellent results that the group has achieved for 2019. Our net sales growth reached 3.1% on a like-for-like basis, mainly driven by the good focus on prices. In line with our commitment, our recurring EBITDA was overproportionate at 6.5% like-for-like, reflecting here the overachievement of our SG&A cost-saving plan and also the good monitoring of our operating cost. Bottom line, we are very proud to report a total growth of 29% of our earnings per share before impairment, divestment and IFRS 16, which amounts to CHF 3.4 per share. Let me remind you that we use this adjusted KPI in order to ensure full comparability and to better reflect the economic performance.
The strong result has been achieved not only thanks to the recurring EBITDA growth, but also thanks to the strong improvement on our restructuring, financial, and tax expenses. On a full IFRS-reported basis, our earnings per share is higher at CHF 3.69 per share, that is coming mainly from the capital gain on the divestments that we've made. In terms of free cash flow generation, you can see here all the very positive effects of the actions that we've implemented in terms of monitoring the working capital, but also reducing the financial and the tax expenses. All these actions have allowed us to overachieve the 2022 cash conversion target of 40%, as we are now close to 50%, or generated more than CHF 3 billion of free cash flow, up 79% compared to last year.
Let's now move on to our global footprint and to the volume performance per business line. In cement, our volume grew 0.5% on a like-for-like basis. Europe recorded a strong volume growth, notably fueled by Eastern Europe market trend. North America recorded an excellent volume growth of 5.3%, driven by the very favorable trend in the U.S. Latin America recorded a decline by -1.5% in the volume cements due to the soft market in Ecuador and Mexico, that was partially offset by strong demand in Brazil. APAC delivered flat volume with a good contribution of India that was offset by the difficult environment in Malaysia and in the Philippines. In Middle East Africa, we recorded a slight decline in volume cements at -0.8%. This is a contrasted situation between countries where we are in an oversupply situation and countries where we recorded strong demand, conversely, like in Iraq.
Our aggregates business segment recorded actually flat volumes at -0.3%, with a very good trend in the U.S. and Canada East, and also in countries such as Brazil or China. India offset the shortfalls of Australia in aggregates. In the end, MEA also had a soft environment in some countries for the aggregates. Our ready-mix concrete business line recorded a decline at -2%. This is mainly attributable to Mexico's soft environment. We had a very good trend in North America, which continued to grow while Europe remained flat. Let's now turn on to our net sales. Our net sales stood at CHF 26.7 billion. The organic growth of 3.1% represent CHF 832 million of additional revenues that are mainly attributable to the good focus on prices.
The negative scope effect that you see here is mainly driven by the divestment of Indonesia and Malaysia that we completed in H1 2019. The negative FX impact that you see here is coming from the Argentinian peso, the Indian rupee, the euro, and the British pound that all depreciated against the Swiss francs in 2019. Let's now move on to our recurring EBITDA. In total, our recurring EBITDA has increased by 2.3%. This is composed by a negative scope effect of -1.4%, a positive organic growth of 6.5%, and a negative translation effect of -2.8%. The negative scope impact of -CHF 84 million is mainly attributable to Indonesia that we sold in January 2019. The negative FX impact of -CHF 165 million is also attributable to the Argentinian peso, the Indian rupee, the euro, and the British pound.
The organic growth of 6.5% represents, in value, CHF 386 million, this is almost attributable to price over cost for CHF 398 million. It's stemming from several factors. The first one is our SG&A cost-saving plan. We achieved CHF 217 million of SG&A cost saving in 2019. Let me remind you that in 2018, we already achieved CHF 186 million of cost savings. Of course, all these amounts are net of inflation. All in all, we generated CHF 421 million of SG&A cost savings compared to 2017 at constant scope and constant rate. Secondly, despite inflation, our average price increase of 2.8% and the good monitoring of operating cost leaves us with a positive CHF 116 million of price over cost in our majority-owned businesses. The JVs are adding on top CHF 65 million.
Let's now move on to the performance per business line, and let's start with Cement. Cement recorded net sales up 4% on a like-for-like basis, driven by the volume growth of 0.5% and price increases of about 3.2%. The Aggregates business line recorded net sales up 3.5%, with volumes that were flat but with price increases up to 2.7% and other revenues of 1% up. Ready-Mixed Concrete business line had flat sales with a decline in volumes of minus 2% and price increase of 1%, plus a geographical favorable mix of 0.7%. Solutions and Products record a strong recurring EBITDA growth here at plus 20%, and this is mainly stemming from the turnaround of our Precast business in Australia. Let's now go directly to the regions, and I would start with North America that delivered a strong set of results for 2019.
You can see here net sales were up 4.9% and recurring EBITDA up 4.4%, with volume that grew in all segments, especially in the U.S. The macro environment actually was quite favorable in the U.S. and in Canada East, while Canada West was softer on the back of the economic slowdown in the prairies. I think very good to note is the Q4, as we are here showing a return to over-proportional growth of our recurring EBITDA over net sales. Let's now turn on to Latin America that delivered a resilient performance in a context of soft markets in Ecuador and Mexico, which you know are key markets for Latin America. Here we are showing sales growth of 2.6% for the year and a recurring EBITDA decline of -1.7%.
As I said, the markets were softer in Mexico and Ecuador, but that was partially offset by a very good performance in Colombia and in El Salvador. We constantly did an effective cost and price management in all the markets of the regions. Let's now move on to Europe, and Europe has an excellent set of results with a very strong growth of the recurring EBITDA of the region at +10.2%, almost more than double the growth of the net sales. The growth and the strong activity of the region has been fueled also by Eastern Europe and Central Europe that has quite a lot of infrastructure spending. We had also large projects in France and higher prices in Germany, while the U.K. proved to be resilient. Strong margin improvement driven by operational efficiency contributed to that great performance for Europe.
Let's move to Middle East Africa, where the markets were more challenging. As I said, there are some markets that are oversupply, as Algeria, as Egypt. Nonetheless, we noted some fairly strong demand in countries such as Iraq and Eastern African countries. All the good progress we made in turning around have actually partially offset all these challenging market conditions. I would like you to note that we are ending the year for Middle East Africa with a stable recurring EBITDA. Asia Pacific, a very good and strong improvement here in our profitability. As you can see, net sales up 2.5% and like-for-like growth of recurring EBITDA is up 14.2%. Large contribution of India in the increase of profitability of the region to be noted. Also, all the turnaround actions that we initiated in Australia paid off and partially mitigated the economic slowdown of the country.
We continued to benefit from a solid contribution from China. Let's now go to our full P&L here. As usual, we present our P&L before IFRS 16, excluding impairment and excluding the capital gain on the divestments. For IFRS 16, we have elected to adopt the modified retrospective approach, which means that 2018 numbers are not comparable to the 2019 published reported numbers. This is why in all this document, you see the 2019 numbers pre IFRS 16. If we look at our net income, pre IFRS 16, before impairment and divestment, it is up CHF 569 million. This is coming from several factors. First one is, of course, the increase in recurring EBITDA by CHF 137 million that we've already commented.
Second one is the decrease in depreciation and amortization of CHF 139 million, that mainly stems from the scope effect or the divestments that we've done. You can see also the very strong progress on the restructuring, litigation, and others. Actually, restructuring costs have decreased by CHF 200 million as our SG&A cost-saving plan is now over. The net financial expense have also reduced by CHF 240 million, and this is coming thanks to the deleveraging, but also thanks to the refinancing transactions that we have made for the last two years. Tax or effective tax rate is down 26%. This is mainly attributable to the decrease in the income tax rate of India by 10 percentage points. Let's now go to our record free cash flow. Free cash flow has a record ratio of being half the recurring EBITDA.
This record performance has also been achieved thanks to better working capital and better inventory management. Compared to 2018, for instance, on the inventories, we have managed to reduce our inventories by more than six days of sales, down to 36 days of sales. This is our new standard. You know this was also one of our priorities. Let's look at our income tax paid. They've also reduced by CHF 76 million. This despite the fact that the underlying result is higher. Actually, some exceptional refunds and also use of tax losses have allowed us to present here a cash tax rate that is lower than the effective tax rate in the P&L. If we now look to our net financial expenses, you can see also that they are down CHF 375 million.
That is even higher than in the P&L, mainly thanks to some exceptional refunds. All in all, we generated more than CHF 3 billion of free cash flow. That is 79% up compared to last year, or CHF 1.3 billion higher. Let's now look at our net debt. Our net debt amounted to CHF 8.8 billion as at end of 2019. That corresponds to a leverage of 1.4 x, which is much lower and better than two times. This is also a reduction of CHF 4.7 billion, and it's stemming from, firstly, the free cash flow that we've already commented for more than CHF 3 billion. Let's get it that our free cash flow is with everything, all CapEx, just to remind you to be clear. We had benefited from the divestment we made for about CHF 1.8 billion debt reduction.
You can see on the dividends, we have paid out CHF 444 million. That's about CHF 900 million lower than the years before, thanks to the huge success of the scrip dividend. We have done another hybrid bond, in 2019 for EUR 500 million. That puts our hybrid debt up to CHF 755 million, which is recorded as equity under IFRS. Let's now move on to our leverage. We have reached a new level of leverage. We have fully executed under the financial strength pillar of the Strategy 2022 and restored our firepower. This has been achieved in a record time. As you can see that in 2017, we were one time higher. Let's now move on to our return on invested capital. You can see here also the strong progress as we are now at 7.6% above our weighted average cost of capital.
This has been achieved thanks to higher return on our assets. Driven by higher profitability, lower tax rate, and also thanks to the CapEx discipline we have instilled in our group. This leads me to be very happy to propose to the AGM a dividend of CHF 2 per share. That's a cash dividend, and please note that it will be fully paid out of the foreign capital contribution reserve, and that means it's not subject to Swiss withholding tax, so gross equal net. Before handing over to Jan for the outlook, let me introduce you to our new profitability metric. You know that recurring EBITDA was historically our profitability KPI, but this KPI was not including all the efforts we made to optimize our CapEx, which for us is an issue. Moreover, under IFRS, does not account the operating lease cost, not in EBITDA.
We believe that we need to manage our country leaders or P&L leaders with all the costs that are relevant to their activities. This is why we have decided to switch from recurring EBITDA to recurring EBIT, and that is to report our performance, but it is also to incentivize our management going forward. We of course keep the guidance of our Strategy 2022, which was at least 5% recurring EBITDA growth per annum. We add to this a target of having an increase of depreciation and amortization limited to only 1%. That means that it's far below the sales growth and far below the recurring EBITDA growth. This is equivalent to guide for recurring EBIT growth target of at least 7% like-for-like basis per annum. Thank you. Jan?
Yeah. Thank you, Géraldine. I like to conclude with the outlook and the targets for this year. We expect solid markets for 2020. I speak about the coronavirus in a moment. We see at the moment in Europe, we have a very good demand in Europe. We have started the year well and have very good order books. We also have no slowdown yet. We have to see if the corona becomes more serious or will develop in parallel with the situation in China. At the moment, we are running at full speed and Europe have started very well. It's a similar situation as in North America, where we also have a strong demand and very healthy markets starting the year. We expect this to continue throughout 2020. In Latin America, we had not an easy year last year.
Of course, we have a fantastic companies in Latin America, great management. Even in difficult environment, they bring very resilient returns, as you have seen before in the regional overview. For this year, we expect better markets in Latin America. We have some infrastructure projects have kicked off, and we expect here a more favorable market environment and also then better results for LafargeHolcim. A bit similar, the Middle East, Africa, we had a very tough 2019. Nevertheless, you have seen before, quarter four was already, I think, a turning point. We have great action plans in place to turn around the situations. Also here, I think you can expect good results or improving results from Middle East, Africa. In Asia Pacific, we have in India, I would say, very favorable market. We will see good demand growth in 2020.
You have seen Géraldine mentioned, we made a good progress on profitability in India, and we have the same in the plans for 2020. Australia is a bit in, I would say, in a soft recession in construction. Nevertheless, we also here have a very resilient organization, and also here we expect a good contribution in 2020. A bit more difficult is the situation in China, and maybe I just share with you how the situation is. For us, first of all, China is a local market. We don't have a cross-country supply chain issues or something. The slowdown we have in China construction due to the coronavirus is for us a local market issue. Our situation at the moment is that we are operating most of our cement plants again. Government is trying to support or encourage the companies to go back to business.
However, we have still a big slowdown on the construction site, where the workers are only coming back very slowly. I honestly expect that we have a stable, normal situation back in May this year. This is also, I think, the forecast we see from the World Health Organization at this point in time. We are very happy that we put our own measures in place since January 3rd already, where we have central guidelines, how to travel, how to do hygiene, and how to prevent any infection for our own employees and families. We have until today, no reported corona case at LafargeHolcim. We're talking about 72,000 people. We don't have any case as of today in the company, and we want to keep it this way. What are we doing going forward?
I think a global company like us has to be responsible for traveling, because the virus is actually only traveling with human beings. A global company would be the prime source for spreading it. We have now very strict travel regulations. We do a lot of video conferencing the next couple of weeks and not try to act not responsible. Here, that works, again, very well at this point in time. We have no reported infection. We are very proud, our employees are very proud we take those actions at such an early time, and that is how it is. We don't see any slowdown in the other regions outside of China. We have good order books, and we can say we had a very good start of the year, and that is still ongoing.
All construction sites are operating in Europe, in North America, in Latin America, in India, in Middle East, Africa. I have nothing controversial to report to you today. However, we will update you any time in the future if this will be changing. For the impact on our local business in China, I think it's not the right time to put any financials on it. If the forecast becomes true that we have a normal build environment in China again in May, we can debate if we lost two or three months of sales or something. We don't know yet how much the catch-up will be. We have to also see that January, February are very slow months in construction in China due to the weather, but especially due to the Chinese New Year.
We have not lost much volume at this point, and we will see probably in May how the effect is. I'm quite confident if we don't get a pandemic crisis globally. We have very strong markets outside of China, and I'm very positive on 2020. With this, I come to the guidance. For us, I think we have set the targets, first of all, according to Strategy 2022. You see the net sales growth 3%-5% according to the strategy. Also, the recurring EBIT now stepped up to a minimum of 7%. You remember the EBITDA target in the strategy was a minimum of 5%. Now, fortunately, that translates to a higher growth on operating profit, and if Géraldine works well, also over proportionally on the net profit. We are then very happy to see this new performance level, especially on the cash flow side.
This is not a one-time effect. We had a huge contribution to the cash flow from 90% of our countries and companies, and we see this continuing also in 2020. We see a cash conversion of 40% as a target for now and also for the years to come. On the balance sheet, especially the debt leverage, we want to stay strong. We want to stay clearly below two times net debt to EBITDA and not go back to any other result. To do this, we can also confirm that CapEx and bolt-on acquisitions will stay somewhere below CHF 2 billion for 2020. I think with this, we can close the formal presentation, and I'm very happy to have your questions and comments. Yes.
Thank you so much. Arnaud Pinatel from On Field Investment Research. First of all, congratulations for the free cash flow generation. It was a good surprise and impressive. It's also obviously raising the question of the cash allocation. I guess the market has expectation about LafargeHolcim repositioning, at least partly. You had a vision for the group to marry cement and construction chemicals with a potential bid on BASF. It has not been achieved. The question is, what are the alternatives? We can see more and more focus on new concrete, carbon-neutral concrete.
Do you need construction chemicals to achieve carbon-neutral concrete? Do you need to marry cement and chemicals? What are the alternatives? Could you consider JVs with some of the chemicals companies? Do you really need to be integrated fully? It's all the question, I guess, I have in mind regarding the construction chemicals. Beyond that, could you share with us what is the number of targets currently under review at LafargeHolcim, the size of a similar size of what was BASF Construction Chemicals?
Very
The repositioning, obviously. Thank you.
Very good. I'm on the same side. I'm also impatient to see. Just to put a bit in perspective, I'm very happy now we have a new performance level, and we can prove to you that the Strategy we presented exactly two years ago was not something for the gallery, but we really delivered now a new performance level on margins, on cash, on debt. This is done, and now we have to come to the next chapter for the company, which has to be closer to the customer, more solutions, more products. We will do that. We are looking actively under solutions and products.
That's quite a wide range of possibilities, and you can expect from us some move there in the future. However, you have to give us some time. We are not doing silly deals, so we are very financially disciplined. Every deal we make has to create a value immediately for our shareholders. This is why sometimes we say no to a deal. We are actively looking for segment. The build-ons, they are more in the traditional segments of ready mix and aggregates. Here we did eight deals last year. I think for this year, we try to do one deal a month. Maybe you can expect that we do 12 build-ons for 2020.
Sorry, to what extent do you need construction chemicals to provide new solution on the carbon neutral concrete or on any solution and innovation that could reposition LafargeHolcim?
That's a bit a secret, but.
That's the reason I'm asking you, obviously.
It's obviously the case that in construction chemicals, the companies have been very successful in the last years. We should not forget that the construction market, the building material market, is a growing market. We have from the world population growth, urbanization, more sustainable solutions are demanded, and the people want to have higher standard of living. Construction is actually a great business and a great market, and we have to position LafargeHolcim in a way that we can better benefit from this natural structural growth we have in our industry. That's our main task. I don't want to directly answer your question, if this has to be construction chemicals or it can be other areas of products. There are quite a few application areas we are looking at.
Like, for example, modular construction or prefabrication, that could be also.
There's so many.
This type of solution
We have to have a private conversation.
Okay.
It's clear, and we said this in the Strategy two years ago, we want to go solutions and products, and this is something we will deliver. However, realize we just took the first one and a half years of the Strategy to come to a different performance level, and now we have the freedom to do something.
Thank you very much.
Remo Rosenau, Helvetische Bank. Focusing on the very important line of work of Géraldine, which is, of course, a driver for future EPS growth on the financial side. Looking at the significantly reduced debt levels, number one, and number two, on the continuously decreasing average cost of debt. You still have a lot of old debt with very high costs. Where do you think that the financial result could go over the next two to three years? We've seen about CHF 150 million-CHF 200 million less financial costs this year versus the prior year, but there is much more to come, I guess. Could you share that with us?
Sure. We will definitely continue to improve on this line, on the financial expenses. We are targeting another strong progress for 2020, not to the magnitude of CHF 240, but we will progress, we continue. You're right, that will continue beyond 2020.
What is your average cost of debt right now?
It's around 3.2%.
3.2. If you do a new refinancing now, what do you pay? Oh point something.
Well, I'm not refinancing every day. We have a plan. We have a roadmap. Just believe me when I tell you, we will get down on financial expenses again this year. You'll be happy about it, and the years to come.
Okay. Do you have meetings with rating agencies in order to? Te ll them that now you could probably get an upgrade?
Absolutely. You're totally right. I don't want to speak on behalf of rating agencies, but we will certainly make them note that we have a super new level, as Jan mentioned, new level of financial performance, including a new level of debt, a new level of leverage, and they should take note of it.
Great. Thank you.
I'll just go ahead. I don't have the overview. Yeah.
Jean-Christophe Lefèvre-Moulenq, CIC Market Solutions. I have two questions about, and the best for the end. The difficult question, this is what you told us about Middle East and Africa for 2020, an improvement. How can you improve with such a competitive situation, first in Egypt with the army plans, secondly, BUA in Nigeria, and the third difficult subject, ARM in Eastern Africa, Tanzania and Uganda, et cetera. How can you manage this? I think you tried to pass 80 Egyptian pound price hike some months ago, but it was not apparent due to the difficult situation. How can you do this year? Secondly, India, could we have more flavor in terms of price hikes announcement for this year, as 2019 was a relatively good year. Thank you so much.
Yeah. No, thank you. I think on Middle East Africa, you are correct with your observation on the markets. You have to see that we went down quite a bit in the last two years. I think it's fair to say we are now at the bottom of the results. We have already started with the turnaround plan in 2018. We see now strong results. We see that in the Q4 results already for Middle East Africa, where we had a stable result. We expect a lot from the management in Middle East Africa to show above-market performance in 2020.
India is a great market. I think we were very unhappy to be in 2017, 2018, when we had cost inflation, mainly from energy, where a lot is imported, the weaker rupee and so on. We had a strong recovery plan, which came into 2019, with some overproportional increase in profit. This will, I believe, strongly continue into 2020. I think we have just started to go to an acceptable profitability level in India.
Tobias Woerner from Mainfirst, a Stifel company. Two questions, if I may. Number one, obviously the free cash flow generation was very good, so congratulations. Having said that, looking at the structure of your company, how the cash flow flows to the top, how do you intend to manage that? Because a lot of these companies have dividend payouts rather than full cash control. You've done a great job in Nigeria in turning or restructuring it there. How do you think about it? What are you going to do about it? The second question is a more general question. You've looked at BASF Construction Chemicals, which was already quite a sizable capital outlay if it had happened. Do you feel comfortable to do deals of that size and possibly even bigger at this point in time?
I take the last question, and then maybe Géraldine can tell us.
Sure
About the cash flow more in detail. I think we are happy with the bolt-on acquisitions when we talk about the traditional fields of aggregates and ready-mix concrete. It's also fair to say that for cement, we have a great footprint. You don't have to expect that we make any big movement in cement M&A. When it comes to solutions and products, we are very excited if the right opportunity comes up. Some people say we looked at BASF Construction Chemicals, but it has to be the right fit. We have to be convinced the payback is on the right level and the integration plan is feasible. Then we decide, and we are very excited. We have a few companies we like to look at, and hopefully we can report something. Obviously, we have now the financial strength to do something which we didn't have maybe two years ago.
I think your point was on how we managed to repatriate all this cash. We have repatriated more than CHF 2.9 billion of cash from the countries to the group to corporate. That is done through effectively dividends, also through group charges or repayment of internal loans. That is done with a maximum optimization from an earning per share standpoint.
I think if I can add, I think on the cash flow, we had a fantastic 2019, almost 50% cash conversion. If you look at the details, we basically improved every line of the cash flow definition. You can now say, okay, networking capital, the countries did very well on inventory management, maybe you don't get that delta again in the coming years. On the other aspects, less tax, less finance expenses, less restructuring, that will continue. That's why we are confident to now change the target for cash conversion already for 2020.
Thank you. Martin Hüsler, Zürcher Kantonalbank. My two questions. First, can you give maybe a high-level answer about the CO2 impact for the European landscape? What do you see for the whole industry, closing down of plants, price developments, and what do you see for Lafarge? Do you have to close down plants as well?
On CO2, it's an exciting opportunity. We had a situation where the CO2 price was only six, seven EUR for many years, only two years ago it changed, it stepped up to 25 EUR, which enabled us to do investments. You will see this in the price of cement, we saw already in 2019, very good pricing in the core markets in Europe. We have launched the new CO2 reduction investment program last year of CHF 160 million to further reduce CO2. At 25 EUR per ton of certificate price, these are very good investments. At seven EUR, there's no short payback time.
The CO2, the regulation we have at the moment, is very good for the industry. I even prefer that the CO2 price comes further up to give us enough incentive to innovate and for price increases. I think the game is really to have the right footprint and the right innovation to be ahead of the competition, then you can benefit from CO2, whatever direction it goes. This is what we try to do.
Okay, you announced some CapEx there, but do you only need to improve some plants, or do you also might have to close plants?
At the moment, we have 35 plants in that regulation map, which is a big advantage because we can now optimize the network compared to maybe other companies who have less network. That's one thing. We have the investment program to bring down the CO2 emission per ton. Of course, we have other activities like to make fundamentally lower carbon cement and lower carbon concrete. We have a lot of measures in place. We need a CO2 pricing and the regulation to make this attractive for the returns. Whatever happens, we have a very strong game plan to play.
Okay, thank you. The second question, you were showing this price over cost chart, and I was just wondering for this year, and then looking at oil prices, energy prices coming down, if we can even see a higher contribution for this kind of improvement in this year?
Well, shall I take it?
Oh, yeah, please.
Yeah. On the energy price, we think it's probably going to be a tailwind, but there is electricity as well that matters in our energy cost. Overall, I would stay flat for 2020.
Flat cost flat.
Flat energy cost.
Okay.
That's, yeah.
I think overall, the CFO is always a bit conservative, but when you look at our guidance, we guide for over proportional EBIT growth, which indicates that we have quite some action plan for a few efficiencies, for some good pricing, and at this point in the year, we are quite confident that we will deliver this.
Absolutely.
There you go. Then out there.
Bernd Pomrehn from Vontobel. You mentioned net working capital as a main, or as one of the main drivers of your excellent free cash flow generation last year. You had a positive cash inflow from inventories, receivables, and payables. How should we think about net working capital development going forward? Is it now as good as it can get, or do you see further potential to improve?
I personally see that there is a little bit of potential to improve. We've done, as you noted, a lot. We've done a lot. It's 10 days, and it mainly comes from inventories and receivables. There's always way to improve. Not in this magnitude, as Jan mentioned, but of course, this is our new level of standard for working capital, for our organizations, our financial performance. I guess we will slightly improve.
Excellent. Thank you, Géraldine.
We have behind.
Thank you. Morning, it is Cedar Ekblom from Morgan Stanley. I have got two questions. Can you talk about the potential for further asset sales? In the past, you have alluded to other parts of your portfolio which you would potentially consider non-core. The second question again to CO2. The CHF 2 billion of CapEx that you have guided to in the near term, that encompasses your CO2 mitigation strategies. Can you talk about on a more medium-term view, where you think CapEx needs to go to actually make a step change in your CO2 emissions, because ultimately that 550 number that you have put out there is still pretty high.
Can you also talk about how you think about the return on these investments, because you say that a high CO2 price incentivize investments, which is a good thing, but at the end of the day, the investments that you're making are simply offsetting a cost. They're not actually adding to the potential earnings power of the business. We have an inflated capital base, but not necessarily a larger earnings line going forward, and so it's potentially negative for the return profile of the business on a long-term view. How do we see the price of cement go up to offset that investment, not just the cost?
That's the key principle, I think. I think any CO2 view you have has to have incentives or regulation, which has to be compensated by pricing. If you are, as a company, are you a front runner, you will always benefit. At the moment, we are engaged, for example, in five carbon capture projects to be on the very step changer, as you said. We're starting pilots to do that. With the technical solutions we have at the moment, we would talk about significant price increase. Cement will maybe double or triple in price in the market. We have to not only view investment, we have to also view then the return, and all these investments will have a proper payback. Otherwise, you wouldn't do that.
We have to keep in mind that there is the growing demand for building materials and solutions. It's nice to say we don't want to have CO2 from cement, but at the end, it's the most sustainable building material. It's not the final product. It gets final in concrete, and then the CO2 emission is on a much lower level, and we will first of all work on solutions to reduce that footprint drastically. The most massive step would be if you do a full carbon capture, but also carbon use, and that will trigger tremendous cement price increases. We will see what happens.
At the moment, I think it's important. 2019, I think, was the year of sustainability, and the pressure we have now, let's say the demand is not only limited to Fridays for Future. It goes from government to investors to your own children, to your own employees. I think there's no point for us to deny this. We take this now to accelerate our efforts, like I described a bit in my presentation. You can expect from us a lot of initiatives now to be ready for different steps. We have to see how regulation, how that all will play to enable us to do it.
On the asset sales potential?
On the asset sales. First of all, I'm really very happy. When Géraldine and me arrived in the company, we were a negative credit outlook. That was not a very good position to be in. Then we started a number of actions from hybrid bonds to stop the share buybacks, scrip dividend, and also the asset sale. It all works out together to much better than we expected in the beginning. We are now in a very strong situation. The 35% reduction in net debt does not include the Philippines yet because that deal is not closed, so we're still working here on the final steps. If that will be closed, we are even another two-tenths lower in debt multiples. Very strong situation.
That also means we have no pressure to sell anything, which is always important because what we did in Southeast Asia, I think was very much appreciated by you and, of course, by us that we're getting very rich multiples, and that's the kind of deal we want to do. We don't want to make any desperate deals, and we are now in the position to fully follow up. That's why, at the moment, you cannot expect any major deals besides closing the Philippines. Any more questions? No more? I have one more question here.
At the analyst conference of Sika, they made comments about new products being introduced, reducing the CO2 content of concrete and mortars. Also by replacing the cement content or reducing the cement content in a given square cubic meter of concrete and also in mortars. Wouldn't that be negative for you?
Not really. That's the same direction we are going with the innovation. I think as us, cement is still a significant part of our profit. We have to get away from the pure produced clinker cement. The original cement produced, we have no interest to grow that. That is the wrong direction. Also our efforts for solutions products, but also for our own ready mix, is, of course, to reduce the original clinker content in the final product. And at the end of the day, you get with a much more high value-added product at a much higher price and margin than just to reduce yourself to be a simple provider of original cement. Give you one example. When you look now in Switzerland, we launched a fantastic product, Susteno Cement. That's the first cement using recycled material inside.
We have a product where 19% is recycled concrete. Concrete can be fully recycled, that will be grinded and mixed with our product. We mix some other minerals inside, we only have 52% of original fresh cement clinker in that product. 48% is CO2 neutral byproduct. Amazing product. Switzerland is very ahead in sustainable construction, actually globally, they gave us the full approval for that product to launch in the market, also for structural applications. Very exciting. We love to work on this and maybe we even find some projects we work with Sika or other companies, or maybe, as the colleague proposes, we do some chemicals ourselves. That's the direction we will go as a company.
Thank you.
Sorry, just to follow up on the certification and the norm. Do you see European Union promoting the solution quickly? It looks like at the national level you have some enthusiasm. At the European level, it's not as convincing as what it should be, in my view. How fast do you think you can promote the carbon neutral concrete?
No, it has to come, right? You cannot just talk about CO2 reduction in buildings, and then you don't allow the building codes to be changed. Switzerland is very fast, so we have very good experience here to approve our new product. Then also the cities here are very active to only use our Susteno, use our recycled concrete, our ECOPact solution. You are right, other countries are not that fast, but they have to come. Important for us is that we are ready. We are ready with the product and the solution, and then comes back to the CO2 question we had before. Once the regulation is there, we are ready to play.
I guess you are lobbying actively to promote a new certification, new norm, yeah?
Yes. Yeah.
You cannot help us to understand the timeframe of when things should move quicker, I would say.
I cannot speak on behalf of the government. I can just say we have a lot of demands popped up in 2019. When I look at the CO2 regulation we have today, works very well for our company. I think it should be tightened for the future to really reduce carbon, and we are ready to go there, but the governments have to play their roles.
Thank you.
You have two more questions over there.
Sorry, just to follow up on your comment that pricing needs to go up in order to justify these investments that need to be made. Can you talk about what % of your clients are actually looking for these more carbon neutral, carbon friendly products? At the end of the day, cement is still quite a commoditized product, and the industry in Europe has low utilization rates. While you can talk about potentially some products seeing price increases and that offsetting the investments and justifying returns, et cetera, the bulk of your business is still commoditized run-of-the-mill cement.
When do we get to a situation where significant investments that need to be made actually create a payback where you actually get a return that goes up? Are we talking about 10 years from now when the industry's actually gone through a normalization process and the weak hands have been flushed out, et cetera? The bull argument that everyone's pushing is that CO2 is going to push the weak hands out. I just wonder how long that actually takes. Lafarge will be there in the end. Is there a period of, say, three to five or even longer years where the industry normalization actually needs to happen? How hard is it going to be before it gets better?
Depends on the regulation and the incentive framework put in place by the governments. At the moment, with the framework they have now, not much will happen, to be honest, because the consumer, what you mentioned, to select our new Susteno product or our ECOPact concrete, and then it costs 10% extra. There are not so many house builders, for example, willing to pay that. We have to have a proper regulation. Like we now, for example, Switzerland made a big step. This will come. It will take time, and I cannot say if it takes two years or five years or 10 years, but we will move there, and we will be ready to play. You had a question there?
Thank you. Just a question for clarification for modeling. Recurring EBIT, which is now the new measure, is it correct that starting EBIT 2019 post-IFRS 16 is CHF 4.012 million?
Yes.
Yeah.
You've got a minor difference with the EBIT pre and post. That's why also we elected EBIT. It's around CHF 40 million, yes. Yes.
What would have been the growth in recurring EBIT for 2019?
I cannot tell you that information because it's just mean that we have done or 2018, they are pre-IFRS 16. We cannot restate 2018 on something post. We've done it for 2019 to set the base, and now it's about looking 2020 and onwards.
From quarter one, you will only show recurring EBIT for regions as well?
Absolutely.
Okay.
Any more questions at this point? If not, we like to invite you for lunch. We also brought our region heads with us. We have Miljan from Middle East Africa with us. We have Marcel for Europe. We have Oliver Osswald for Latin America, René Thibault for North America, Martin Kriegner for India, Pacific. Myself, I do China, and we also have our Chief Sustainability Officer, Magali Anderson, over there. They will all be there at lunch, so feel free to approach for any questions. Thank you very much for joining in person this time. Fantastic to see you all, and let's have a great year together. Thank you.
Thank you.