Ladies and gentlemen, welcome to the Laphkars Holdings Q3 2019 Trading Update Conference Call. I would like to remind you that all participants are in listen only mode and the conference is being recorded. The presentation will be followed by a Q and A session. Conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Jan Janisch, Chief Executive Officer.
Please go ahead, sir.
Yes. Good morning, everyone, and thank you for joining our call on the Q3 trading update. I'm very excited to talk to you this morning, especially with the results, which I think are above our expectations. We have a continuation of not only the growth momentum, but also of the overproportionate increase in profitability. I think it will be good to see that volumes in Q3 were also good, even slightly ahead of the first half volumes.
And then all our measures in pricing, in cost brought, I think, a very, very healthy result. We have before we go into details, we have then also on the financial discipline side, I think we make a lot of progress. Even we don't have it in the trading update, but I like to also confirm that we continue to make significant progress in the cash conversion and then also in the deleveraging of our debt ratio and significantly strengthening our balance sheet. So very excited. Also, I was excited that we made some key steps forward in sustainability.
We are among the first companies who have a dedicated Chief Sustainability Officer in the management team now with Margalie Anderson, and she has just started this month, and that's good. We realized that we have to further accelerate here not only our efforts, also our communication. And this is what you can expect from us now going forward. You saw maybe our media release how we want to improve the carbon efficiency in Europe with investment program, and we have a very good action plan here to reduce the CO2 emissions by another 15% in the next 3 years. I think with this, I would hand over to Geraldine, who goes a little bit through volumes, region and the results before I talk about the outlook, and then we all have our usual discussion, comments and Q and A.
Thank you, Jan. Good morning, ladies and gentlemen. We will now look at the prices of Q3 sales and EBITDA that Jan mentioned at the beginning of our presentation. If we start with the volumes by segment on Slide 4, we can see that after a decline in Q2, Q3 returned back to positive growth, mainly thanks to our strong performance in North America. In North America, U.
S. Cement volumes growth has been driven by favorable weather and gained share on infrastructure projects. In Europe, cement volumes increase has been mainly driven by ongoing demand in Eastern countries. In aggregates and ready mix, the end of some big projects in France and in Poland impacted the comparison with previous year. In Asia Pacific, cement volumes are almost stable due to India's market softness.
At the opposite, aggregate sales volumes were strong in China, benefiting from enforcement of mining regulation. Latin America, cement volumes have been up by 4% like for like in average, driven especially by the strong performance in Brazil. In Middle East Africa, cement volumes were down by minus 1%, reflecting a contrasted performance from difficult markets such as Nigeria impacted by political instability and on the contrary, home market demand in several Middle East countries. If we now look at our bridge of the net sales in Q3, We incurred a ForEx effect negative 1 of minus CHF283 1,000,000 attributable to Argentinean pesos, Zim Dollar, Euro, British Pound and RC Dollar. The scope impact mainly relates to the scale of Indonesia and Malaysia.
Like for like growth was up 4.9%, driven by both volumes and price. The effect of price increase was close to 3% on the quarter. If we now move on to our recurring EBITDA bridge on Slide 6. The like for like growth amounted to 6.4% for the Q3. It included a volume effect of CHF 55,000,000, representing 3% of growth, mainly coming from the U.
S. The price of our cost amounted to plus CHF63 million, demonstrating that, in average, the price increases had more than offset the cost inflation. There was still an effect coming from our CHF400 1,000,000 of G and A plan of CHF14 1,000,000 in Q3, which have flattened due to high levels in Q3 2018 as anticipated. If you look at the same bridge over the 9 months, volume effect is smaller. Price over cost mainly results from Oya's G and A savings plan realized under the €400,000,000 savings plan, which had reached a significant amount as promised of CHF 213 1,000,000.
Let's now move on to the quarter and or business lines performance. You can see here that all business lines have recorded growth. Cement has recorded over proportionate growth, in line with the global EBITDA trend. For Aggregated Ready Mix, quarterly numbers are not representative. Some delay of phasing in a few projects may create an unfair view of the situation.
Therefore, we prefer to analyze the segments over the 9 months. So let's move on to that analysis. You can see here that cement growth of 5.5 percent results mainly from volumes of 4.7% and price increase of 3.8 percent. Over the 9 months, aggregate revenue growth recorded 3.1 percent of total growth, resulting primarily from flat volumes and price increase by 2.5%. Ready mix net sales have been slightly positive, resulting from slightly declining volumes offset by a price increase of 1.1%.
For both segments, we had over proportional recurring EBITDA growth. On Solutions and Products, the strong recurring EBITDA growth is mainly driven by turnaround initiatives in Australia and positive market development in North America. Let's move on to the regions. On a regional basis, we recorded very strong results in some regions, especially Europe, which benefited from good market trends in several countries and recorded operational efficiencies. In North America, U.
S. Recorded an excellent growth, which has been partly offset by soft environment in Canada. Latin America had good growth, especially in Colombia, while also markets such as Mexico and Ecuador have been also the good recovery of Iraq and Jordan, together with strict cost control measures, immediately started to benefit from Algeria's fuel market and the low demand in Egypt. In Asia Pacific, sales growth has been limited to 0.6% with higher proportionate EBITDA growth, thanks to our cost measures and China Group performance. If we now start with North America.
Operations delivered a strong set of results in Q3, with net sales up 9.6% by July, recurring EBITDA up 6.9% like to like, or volume grew in all business segments, primarily driven by solid demand growth in the U. S. And Eastern Canada. This quarter, we experienced a catch up in the U. S.
After a weaker Q2 that has been impacted by weather issues. Canada West, on the other hand, softened a bit on the back of softer economic demand and environment in the Prairies. Positive price momentum, although, further supported performance improvement in the region. In Latin America now, our net sales were up 7% like for like and our recurring EBITDA was up 3% like for like despite softer environment notably in Mexico and Ecuador, our segment volume grew by 4% in the region. Volume growth was primarily coming from Brazil and Colombia.
Effective cost and price management across the region allowed us to mitigate challenges in key markets. In Europe now, with further continuation of momentum with good market demand in most countries, the region delivered another quarter of overall proportional growth, with net loss up 5% like for like and recurring EBITDA up 7.1% like for like. Cement volumes grew by 2% in the quarter. Aggregate and ready mix had been temporarily impacted by completion of large infrastructure projects, which have not been replaced yet and some ongoing uncertainty in the UK. The effective price management, improved operational efficiency and easing cost pressure further supported margin expansion in Europe.
If we now move to Middle East Africa, we have been able to partially offset difficult trading environment in all key markets by good progress in turnaround initiatives. Our head sales were up 2.2% like for like, and our recurring EBITDA is down minus 6.6% like for like. Opel Holdings in Algeria, our biggest contributor in the region, has been impacted by persistent uncertainty in the country. Environment remained challenging in Egypt, too, and was a bit more competitive in Nigeria in the quarter. Performance further improved in South Africa as a result of all FXTA restructuring initiatives, and it improved as well in Iraq on the back of increased cement demand.
If we now turn to Asia Pacific, it again contributed strongly to the group's results. Net sales were up 0.6% like for like and recurring EBITDA up 17.6% like for like in Q3. Net sales growth has been impacted by softer cement demand in India and market slowdown in Australia. Cement volumes in India were slightly behind last year, impacted by exceptionally long monsoons. However, good progress was made on cost savings and price management, resulting in significant margin expansion in the country.
Our turnaround initiative in Australia more than offset the weakness of the local market and supported our margin expansion. China, again, positively contributed thanks to higher cement prices and aggregate business, which is gaining traction. But with this, I now hand over to Jan.
Yes. Thank you, Geraldine. I think for the outlook, we are positive. We don't see a slowdown in our markets. We believe that we have a solid global market demand also for the 4th quarter, good order books.
And especially in North America, we expect another good quarter in the volumes at the America. I think we had now a good turnaround in Q3. Europe, also good demand in the last quarter. And Middle East, Africa, we have some challenges still to cope with. But here also, the trend will be, I think, more positive.
In Asia Pacific, also we believe we have a strong closing of the year. In total, we can fully confirm the targets for 2019 for the growth, for the EBITDA, then we will overachieve our deleveraging target, and we will be well below 2x net debt to recurring EBITDA. And we will do that even without closing of the Philippines, which is expected to take place the next couple of months, but we are not sure if it will be already for this year or beginning of next. And then we will have a strong cash flow for 2019 and all this here from investments in bolt on acquisitions below CHF2 1,000,000,000. I think with this, I'm happy to turn over to you and happy to have your comments and questions.
The first question comes from Elodie Rall, JPMorgan. Please go ahead.
Hi, good morning, Jan and Jialin. Okay, I have just
2 questions.
First of all, on Middle East Africa, the trends have deteriorated further from Q2 and the guidance is significantly more cautious in the region. So can you give us a bit more color what has changed in Q3 versus Q2? And does it mean that we should no longer expect stable EBITDA this year for the region? And the second, then a question on capital allocation. You will be reducing net debt quite strongly this year with or without the Philippines, as you said.
So can you give us a bit more color on your priorities in terms of capital allocation? And can you confirm that you will revert to a full cash dividend as soon as this year? Thanks.
So Elodie, thank you for your questions. I think Middle East, Africa, and thanks for taking this one as the first question. Because I have to admit, I we thought we bottomed out a little bit earlier and as we previously communicated. And obviously, market conditions in Algeria, in Egypt, they have not improved. And we have strong turnarounds in place, but the market is not really in our favor.
And also, other markets like Nigeria, it's not that pretty at the moment. So, let's say, concretely to your question, I think it will be now more difficult to have a stable EBITDA for the full year. I think this we probably will not be able to achieve. I would be very happy to see that for the Q4. That's maybe our new forecast regarding Middle East and Africa.
Yes. And Elodie, on your second question about the capital allocation, we continue to allocate our capital to strategic CapEx. We continue to have capital allocated to any acquisition that makes sense with the financial discipline that we've already talked about several times. And it's far too early to talk about dividend at this stage.
Okay. The next question comes from Tobias Ryman, Morgan Stanley. Please go ahead.
Hi, good morning, Geraldine, Jan. Thanks for taking the question. I have 3, if I may. Maybe we can both swim 1 by 1. The first one on the Americas region on both pricing and margins.
Could you maybe give us a little bit more detail on what's happened in the region? Because firstly, if I look on the pricing side, I think 7% like for like revenue growth and volumes up 11% in cement. It seems like pricing has been a little bit slower. Is this correct? Or are you still seeing a sort of pre and occupancy that you saw in the first half?
And maybe related to that, you could also comment on the margins in North America because I was a little bit surprised seeing them down by really very strong compliance growth and also more favorable raw material environment. So maybe what's the mix effect, but could you maybe give us a little bit more detail on that?
Thank you. Yes. So North America, I mean, first, we were very excited to have almost 10% growth in Q3. We were the first half of the year, we had a few hiccups in logistics, in flooding and so on. So, very happy that the backlog we always report has really finally arrived in the books.
And that's very, very positive. On the pricing, you will see we have the calculation for cement pricing, most importantly in the U. S, is up almost 2%, which is good. And in the Q3, you realize that the probability didn't fully follow the volume growth or the sales growth. That's just an effect because were a bit surprised with the big jump in volumes, and we have a few extra costs in logistics to satisfy the customer demand.
So this is something we don't expect to happen in the Q4.
Okay. Thank you. And the second one on cash conversion. So you slightly changed the wording from continued improvement in the first half 2019 to significantly higher cash conversion. Jan, you also mentioned earlier that you are very satisfied with the improvement.
With that in mind, I wonder if there is a potential to hit the 40% cash conversion target potentially early?
Yes. I wish we can share more details, but Geraldine told me I cannot talk about it because it's a trading update. But I put that's why I put it in my quote. She couldn't control my quote. So I put in the quote that we have a significant progress in cash conversion.
You have seen that in the first half of the year, how much we are ahead of last year. And let me say we see the same trend for Q3. So all the measures we are making will come to a very positive year end result. You will see we are in much better control of the net working capital. You also will see we have reduced the restructuring cost of something significantly.
That's very clear. And then just the final one on Asia Pacific.
That's very clear. And then just a final one on Asia Pacific. Clearly, the performance was, I think, much better than what you were initially expecting, especially in China. We saw Hoeghs in, I think, 25% profit growth versus your initial guidance of no incremental growth contribution. So with that in mind, are you also a little bit more optimistic in the Q4 given the trends you saw in Q3?
Yes. So in Asia, we have an interesting development that our 3 main countries in Asia Pacific are India, of course, but China and Australia. And we have for the Q3 in all three markets, there's no volume growth in the market, right? And there's a slight decrease in Australia and like China, India is flat. Nevertheless, we have very good programs in place with a strong focus on pricing, of course, but also some restructuring in Australia.
And all of that is showing results. And this is why we have, I think, a 17% increase in operating profit in those markets. So mean very well done from the teams. We told them for this year, we do impress us with volume growth. We want to see bottom line from you this year.
And I'm happy to see that that's coming through. And
a quick follow-up on this because you mentioned pricing, so you had volumes roughly flat, but then you had I think 0.6% like for like status growth, which tells me there wasn't so much pricing in Q3. Is this correct?
It's China is on a high level. That's we just keep it. Australia is pricing difficult because the market is up there. We did it on the cost side. We have significant pricing in India.
The next question comes from Lars Kjellberg from Credit Suisse.
Just staying with Asia Pacific for a while. I mean, India has been slow and you called out in the Q2 election related sluggishness and Q3 was monsoon. What can you tell us about the outlook for Q4 and in terms of new infrastructure and house building programs that is coming through? Also on you mentioned in the prepared notes that aggregates and ready mix wasn't 3% in the quarter. If you want to elaborate on that and the small decline we saw in aggregate margins, if there's just a dip on a continuation of an improvement that you're aiming for?
Okay. So I think, yes, India is an interesting thing. I think maybe the last 10 years, you haven't seen the Indian market stagnating in volumes for 4 to 5 months. So that's however, that's not a concern I have. For us, India is a long term growth market.
I mean, when you're in the market and the per capita consumption of cement is still around 200 kilos and you see all that infrastructure, but also all the housing needs of this growing population. So the market is in super shape and I'm only concerned about the margins. We really have to bring the margins up And we made the 1st big step this year. We were the last 2 years. I was very unhappy.
We grow the volume 7%, 8% or something, and then we don't get the pricing through and we have some cost inflation from fuel. And so this is now coming to a better picture this year. So for us, for LASCAR SHOLSELL SIM, I don't need volume growth in India. I have so much self help now that we will have a good 2019 and a better 2020. But the market is interesting to come to the macros.
So the market, we had a big debate the other day what's going to happen. Our Indian our Indian leadership team is rather optimistic that there will be now a volume growth again in Q4. But for me, let's see. Let's see. We don't need volume growth in India for this year.
You had a question on ready mix and aggregates. I'm not sure we really got that question.
You said on the quarter, the relative softness performance wasn't representative of the fund from ARK you made. And then I just wanted to query about the bit of a dip you have in that against margin specifically in the quarter, if that's just a
temporary issue and you would resume
the margin expansion in that business. The first
question was
Yes. No, no, we do expect margin expansion, of course, in 9 months, which is the relevant period to look at it because the magnitude of numbers is smaller than 10 months, if you will. So you have to look at it in the 9 months, that's right. And you see that we had over proportionate recurring EBITDA growth, and we are expanding our margins, and that should carry on.
And why again wasn't Q3 representative?
Because you have some timing of some projects.
The next question comes from Arnaud Lehmann, Bank of America.
Arnaud Lehmann from Bank of America. Two questions, if I may. Firstly, regarding your announcement on Europe and the CHF 160,000,000 of extra CapEx to reduce CO2 emissions. I'm trying to understand how this fits with the upcoming Phase 4 of the European trading scheme, the 2021 to 2,030 period, where you expected to reduce your emissions by 22% per annum. Are these CapEx needed to comply with the Phase 4?
Or are you already, let's say, in line with Phase 4 or you want to go further than that? That's my first question. And my second question is around acquisition. I think you've been on the press call this morning talking about BASF Construction Chemicals, I think you were saying on the wires that it was a good business, but you didn't want to overpay for it. Would you mind repeating this comment for us, please?
Yes. Thanks, I was just getting excited about the second question. So the CO2 so to be precise, we have business year 2019. We have enough CO2 certificates also for next year. And now we're trying to reach the next level.
So for 2021, we have a 15% lower certificate what we receive, and we get ready for that stage. So we're very confident we have 35 plants in this European regulation scheme, and we now get ready to be also self sufficient with the certificates in 2021 and ongoing from there. On the BASF, so also I was told that I cannot speak freely about it because we never made any press release. If we are interested, if we are in the process, if we stop the process. I try to answer your question a bit differently.
I think BASF Construction Chemicals is a a very good business. It's in a very attractive market segment. The business is based on good technology, good brands, good market position. So I think anyone who tries to maybe be in Building Materials should maybe have a look, right? At the same time, we have this financial discipline here at LafargeHolcim.
And I think in the last 2 years, you have seen from refinancing to acquisitions to divestments that we make deals that make sense for the company in a very brutal way. And that's why you cannot always do what maybe is exciting in life. And when I look at the process from the outside, I think we have announced the divestment exactly a year ago, and nothing has happened so far. Maybe shows a bit that it's a bit complicated how things are. So that's I'm not allowed to share any more details, but you have to make your own conclusions.
But you can just expect one thing from us. We are financially disciplined in any deal, and that also applies to such deals.
So maybe just to follow-up on that, you're talking about BASF specifically. But in general, I think historically the trend was for more of a separation between cement, the mix concrete companies from construction chemical businesses. It used to be integrated and maybe it was disintegrated if I may say. So do you think now it makes sense from a strategic standpoint to have in the same company a large Chemix Concrete business and a construction Chemix business?
I can imagine many things. I think when you look at the cement companies, maybe in the last decade, they were rather keen to have a pure play cement strategy. And I think going into the future, you better be involved in innovation and developing the new generation of drilling materials. If that includes chemicals necessarily, I don't know, maybe not. But you need to be closer to the customer in the future.
And this is something we said in our strategy that we want to be closer to the customer with solutions, with products. And many things are possible. So we are not construction chemicals is not a must. It's just one option you have, I think.
That's great. Thank you very much.
The next question comes from Paul Roger from Exane BNP. Please go ahead.
Hi, hello. This is this afternoon Robert Whitworth on for Paul. I had a question, a couple of questions. My first one was, margins were generally stronger than expected in most emerging markets. I thought your self help was now completed.
So could you just say a bit more about how margins were so resilient? Is this mostly about better price cost dynamics? Or is there actually more you're doing over and above the original CHF 400,000,000 cost cutting plan? Thank
you. Yes. Hi. We are constantly monitoring our costs, as we said. So I think this is the discipline that we've put on our cost.
We also improve in terms of industrial efficiencies and operational efficiencies, so more on the variable part of our cost. And all of this effectively with good pricing drives the improvement of the margin that you've seen.
And sorry, just one other one, if I may. Just on the capital allocation, is it likely to focus on gold funds sort of only in the coming years? Or could we still expect a more transformative deal during your plan to 2022?
I think it's the bolt ons are for me are they have to be an ongoing part of our strategy execution. So I'm happy we could start now doing that. I think for the future, we can do around 10 bolt ons every year. That's, I think, a good that's a good frequency for me. And we are adding 1%, 1.5% growth to the company.
And these bolt ons are very value adding to us because we buy for reasonable valuation, and we have very significant synergies in those local markets. So that's a little bit at core for our strategy. Bigger acquisitions, we will be very careful because historically the big acquisitions have quite high multiples or high sales prices. And then compared to that, synergy realization tends to be rather lengthy and maybe less strong. So we are very careful with bigger acquisitions.
I think that's fair to say.
Thank you.
The next question comes from Jean Christophe Lefebvre Moulin from TD
I have personally one follow-up question regarding year to date Middle East, Africa. Can we get some more flavor notably on volumes and pricing. Are volume in Egypt and Algeria up or down? Are pricing in both countries up or down? And in terms of contribution, can we assume maybe a loss for Egypt, which is in a very tense situation?
Many thanks.
Yes. So unfortunately, both countries have another positive to have a negative pricing in 2019. So that's I think we can we have to confirm that. So that's one of these challenging market conditions we have. We have in Egypt, we have probably the best operation compared to anyone else in Egypt.
So we have a very high quality, low cost quarry and one of the most efficient factories worldwide. So I don't think we are going to run into a loss there. We are probably the most resilient from all market participants. And in Algeria, we still have, I would say, good margins, however, under big pressure from this price decreases. So we have this demand supply disbalance in these two markets, which I think we have to well out and that will be better times coming, but probably not in Q4.
Doctor. Yanis, also a follow-up question regarding the CO2 certificate. Today, you are in excess inventories. But what did you say about 20 21? It is 15% in terms of new allocation or in terms of inventories?
I think, Jean Christophe, the answer on CO2 is really that we're going to go beyond the reduction of rights. And actually, we are going to go beyond and improve sustainability in all our plants and anticipate that. Okay. Thanks.
The next question comes from Bernd Pomrehn from St. Paulides. Please go
ahead. Yes. Good morning, Geraldine. Good morning, Jan. Two questions, if I may.
Firstly, could you kindly elaborate a bit on a high level how we should think about the development of the price of a cost ratio in the quarters ahead, especially what do you see in terms of cost inflation? And secondly, you mentioned the completion of several large infrastructure projects. How does your pipeline look like for these large projects, especially maybe in France, U. K. And maybe also Mexico?
Yes. Thank you. I think, Bernd, when we look at the demand, we have good order books. And you can see from Q3, I think we have to realize that while the world economy, many industrial segments are under pressure now from automotive to other sectors to chemicals, while maybe Construction and Building Materials is the one of the most resilient segments, and we see that in our business. So we have no reason to believe that there will be something that we fall off the cliff.
We have a good order book for Q4. And also, we go quite confident into 2020 from a market perspective. So nothing spectacular or negative to report. Even in the UK, you will be surprised we have slightly positive volumes. It's not an easy market, but we are not datapiv in the UK.
And so we go quite confident here into the future. With the price over cost, that's going to be the one simple leadership message we have across all our countries. That's key for the people here also. You can imagine pricing. We have a better pricing this year than last year.
And at the same time, we have much less cost inflation mainly coming from energy. When you see how the crude oil price dropped, we have here also a positive situation, I would say.
Okay. Excellent. Thank you, Jan.
The next question comes from John Fraser Andrews from HSBC. Please go ahead.
Good morning. My two questions. First one, please, the pace of cost reductions and turnarounds are clearly having a big impact in your emerging regions. Could you give a comment on how the pace of that looks going forward? How does it compare?
I realize you don't deliver numbers on cost saving targets, but how does the pace of activity of cost reductions and turnarounds compare going forward 2020 with 2019? And then the second question, in the Solutions and Products, you clearly had a very strong increase in EBITDA over the 9 months of quite a small rise in sales. What's going on there? And are you planning now to boost the sales once it seems you've got the profitability in order?
Okay. So I'll take the first question on the cost reduction. You know cost saving plan is completed. It's been completed end of Q1. So have some cash impact due to restructuring of such program this year.
But on a cost standpoint, this is completed. And now we have a lot, as I mentioned, measures that is that are really helping us in effectively regions such as EMEA and regions such as LatAm, which consists of improving or improving our purchasing costs permanently or variable costs. And we are, as Jan mentioned, also helped by lower energy inflation.
On the Solutions Products, thank you for noticing. We want to develop that segment, like we said last year, in the new strategy. And we have quite some exciting businesses in Concrete Products, in Mortar, in Asphalt, and we have some strong plans. We also have some efficiency issues there, namely in Australia. This, we have successfully tackled.
And this is why you see now that the margin has improved so significantly in 2019. So we bring the business in order, and then we want to grow here preferably, ahead of the other segments.
Thank you for those answers. Can I just follow-up on the cost reduction? Are these costs being reduced to react to markets? Or is this part of a program that you've identified? And my specific question was, how does the cost reduction pipeline, if we can put it that way, look for 2020 versus 2019?
Yes. We don't have but be assured that we have program in place to follow all our cost buckets, variable and fixed.
Thank you.
The next question comes from John Messenger from Redburn Europe. Please go ahead.
Hi, good morning, Jan and Geraldine. 2, if I could as well, please, from me. First one was, and sorry to come back to Jan, but more as a generality in terms of M and A activity. Can I just ask in relation to hurdles for things like BASF and the other larger deals, would it be fair, while we're sitting on our side of the fence, to assume that a 2022 target of making at least an 8% return post tax on SEK buy, given that's kind of 3 years from here, is that a key kind of nonnegotiable line, I guess, that would apply for some of the large deals? And you mentioned earlier, they obviously can come with rather higher price tag, synergies can be a more sticky and longer term lock.
Is that the percent hurdle effectively something that we can use to change? Because I take away from your comments that possibly if the ASS came back at a sensible price or a different price, maybe it wouldn't be ruled out. So just as a generality, but that's kind of just where I'm coming from. And the second question was just on the last quarter of the year. Are there any particular factors that we should all be bearing in mind in terms of obviously, the guidance has remained is for the year, you're up 9% year to date.
If we just understand, obviously, comparatives are one issue, but were there some one offs last year that we all need to bear in mind in terms of extrapolating what the full year should hold for us in terms of EBITDA growth? Thank you.
Yes. I think on the M and A front, you really have to be disciplined. And every deal we do, if it's buying or selling, we're sitting together and we take our walk away prices both ways. Only this way you because otherwise people get excited or something. And it's good to be excited, but it comes to deals.
It has to come down to a disciplined valuation, and that's what we're doing. And you talked about this 8% return on invested capital target for 2022. That's nonnegotiable. That's already a minimum target for us. So we will either achieve this early or get above it.
And on your question about Q4, I think we are positive, as Jan said. So of course, we don't change our guidance.
I mean, I was just digging slightly there, Geraldine, in that I think last year, there were some quite useful one off gains in the Q4 in terms of combined pensions. Is that something that doesn't repeat? So we just need to think about how we temper our views on what should be delivered for the Q4.
Yes, sure. We factored that in. But we're very confident about Q4, And that's something we are expected we are effectively taking into account, John.
The next question comes from Josep Pujal from Kepler Cheuvreux. Please go ahead.
Yes, hello. 2 for me, please. The first one is on the price increases that you are expecting for next year. I guess that the negotiations will start in a few weeks. Do you think that you can achieve the same kind of price increase in for 2020 than you got for 2019, given that the inflation environment is very different today?
And my second question is on this 15% target reduction on emissions for the next 3 years in Europe. This achievement of this target of 15% over 3 years, how does it compare to the last 3 years?
Thank you.
Okay. Yes. Good question. So on 302, we have made how do I say this? We made a little progress in recent years.
We made the big jump from the 90s when we shut down all the wet processes and so on. So we reduced the CO2 by, I think, 25%, something like that. But in recent years, we didn't move that much. And the reason is I mean, we had an improvement of 1% or 2% per year, so not nothing. But the reason is that the CO2 pricing was not really supportive.
When the pricing was at €6, €7, €8, €8,000 a tonne, that doesn't really motivate you to do more. Now we have a different picture, and this is why we made now the new program to significantly improve. And we have a lot in the pipeline to do that. It's just you need a certain C2 price to be incentivized to do that, and that's what we're going to do. On the pricing, we don't give a guidance today on the pricing, but as you are asking, we have the focus on pricing and the company has significantly increased.
And we will see I think we have quite a good pricing environment for next year. So our teams are preparing the pricing. We just had a call this morning to review and remind everyone that now is the time to prepare for 2020 pricing and that's the number one priority for all markets. Thank you.
The next question comes from Gregor Kugli from UBS. Please go ahead.
Hi, good morning. A couple of
questions from me. I'd appreciate if you could update us on net debt, what you think we kind
of end up with. I appreciate the Philippines is kind of a variable, but perhaps
let's assume it doesn't happen this year. I think you had given the guidance before of €10,000,000,000 I think it's kind of a
little bit out of date. So if you could just refresh that for us, I think that would be quite helpful. And then the second question is on Latin America. Just wanted to get a sense
of the performance. We just thought it was very strong actually considering what some of your peers have reported, particularly in Mexico, but also some of the Central American countries. So if you could elaborate if you think you can sustain it going forward or if we should expect somewhat softer trends considering some of the data we've been seeing?
Thank you.
All right. Thank you, Gregor. So I'll start with the first question. And then at that, respectively, we gave you the guidance of EUR 10,000,000,000. I think CHF 10,000,000,000, you'll be probably disappointed, but I'm going to keep that guidance.
So it's CHF 10,000,000,000 without Philippines, without receiving the hesitancy and pre IFRS 16 will be effectively around €10,000,000,000 and significantly below the 2x leverage, which was also our guidance. So I think it's quite good. And if I now go to your question about LATAM, you're right. We really increased our profitability, and we expect that to carry on.
It's maybe if I can add for Latin America. You I mean, I'm glad we have now the first we had like 4 quarters of a soft decline. And now you can see also in the key markets, future is changing. We have the most prominent in Mexico where the new President came. And then usually in Latin America, you have a period of 12, 15, 18 months when a new party comes into power, where there's a slowdown in the projects until they are probably selected and reorganized and everything.
And we believe this is happening now. So our people are rather optimistic now with the trends, with maybe Brazil being the biggest challenge for us in terms of market pricing, that's not good. But for the other markets, we are a bit more confident going forward. Thank you very much.
The next question comes from Yassine Touhary from LafargeHolcim. Please go ahead.
Yes, good morning. Yassine Fourie from Ontelles Investment Research. Just a couple of questions. First, you talked about the next generation of product and investment in innovative product and solution. Could you tell us within your portfolio which kind of product do you like and want to develop?
And could you tell us which kind of new next generation products could you look at outside of your current portfolio? And then my second question would be on innovative process. You issued a couple of press release on digitalization with some cost reduction potential and some profitability as well on capital structure. Could you give us could you quantify the impact of digitalization and capital structure on your selling program, on your cost and CapEx?
Okay. So the first one, innovation is clear. I think concrete or cement, for me, cementitious product is are the most sustainable building products. They are affordable. They have a huge range of design opportunities.
They are the longest lasting, the strongest, and they can be fully recycled. So however, now with the CO2 challenge we all have, we have to develop now the next generation of lower CO2 cement, but especially also lower CO2 concrete. And this is something where we invest now heavily to come out with the next generation of products, which we want to introduce into the market. On the digital, we don't have a mathematics today on this. We are in the fortunate position that our business is not for Amazon or for Uber.
So, we can take in the advantages of the digitalization, and we have now our projects to fully digitalize the factories from the quarries to distributing the cement. On the one side, we have potential for efficiency increase to basically get big data. So, we'll have everywhere sensors from temperature vibration, noise, filling levels and then transfer that into a meaningful tether operation of our whole supply chain. Then plus the customer side, where we make big efforts now to digitalize the interface to the customer, and that's a big potential
for us because you can
imagine that all these we have on an average working day, we have more than 100,000 full truckloads delivered to the customer. You can imagine if you are able now to optimize this interface of the customer for better timing, but also better cost, better loading, better planning of the routes and all of that. There's a quite a big potential for us. And we don't quantify that at this point in time, but we have a big action plan and many projects in the pipeline.
And carbon, Hetzer?
I mean, that's oh, that's something also that's something we elaborate and we follow and let's see where that gets to. There is some interesting projects to catch a CO2 and then transfer it into fuel, for example. So we are working on that too.
The next question comes from Sadia Verner from MainFirst.
Two questions, if I may. Firstly, having done the benchmarking exercise with your Indian peers, Ultratech and Tree Cement, It seems that you're lagging somewhat behind and that there could be some cash. To give you an idea in terms of EBITDA margins, Ostrutec improved up to 20% in euro and 16.7% in Ambuja. Your per tonne EBITDA is probably 20% below 25% below what ultra tax is. Why do you think that is?
And what are you doing to catch up here? That's the first question. The second question is a more general one, but I think an important one. At least you made, Maher Li, your Chief Sustainability Officer with her mandate. I think health and safety is a very important hallmark of a best in class industrial but also commodities company.
On that note, will you in future publish within the Capital Markets Day, the health and safety KPIs such as on-site facilities and LCIFRs Because I think seeing that on a monthly basis would give us a sense and also drive the company forward.
Yes. Thank you. No, it's we will we realize that we are having a lot in the pipeline in sustainability. Even so, we can accelerate that. But at the same time, we realize that our communication is not good at all in sustainability.
So we have the mandate of Magalie is clearly accelerate our actions and at the same time very much improve the communication and engagement with all these increasingly important stakeholders like NGOs, but government agencies and so on. And you can expect from us that we will have now a much more intense frequency of both actions and communication and engagement. On India, you have you are correct. We are not happy with this performance gap to drive the pack, which for me is always is a great opportunity. It's a great potential.
So we have our people under how do we say this? They are highly motivated to close the performance gap. It's kind of a there's a couple of things there. We have some efficiency potential in the factories. We have some pricing potential in the markets.
And all that has to come together, and we want to close that gap.
Thank you very much. I mean, as a matter of feedback, I understand that you as a group
in India leaked quite a
bit of pricing through your distribution network.
Thanks, Yuri. I'm happy to sit together with you and the Indian team and go into the details.
The next question comes from Raimo Rosenau from Helvetisch Bank. Please go ahead.
Yes, thank you. Hi, Geraldine. Hi, Jan. Just one question left for me. On the bolt on acquisition side, you mentioned to go for around 10 volt ondies per year more or less.
If I'm not mistaken, however, this year you are so far at around 16% if that is correct. Is it due to the fact that you were basically looking at
other things, which caused your focus to shift a bit? Or should
you still expect a few more deals in the last 2 months of this year?
It's remember, it's both actually. So we just started last year to do the bolt on strategy. And for the bolt on strategy, it comes from the countries. So we introduced an easy process, our criteria, how to do the valuation. But the countries have to start doing approaching the targets, filling up the pipeline, and this is all happening.
So the 10% is maybe we can make the 10% this year, but that would be my target to have 10% per year. If not this year, maybe next year, we will come into that level of deals. Okay. Fair enough.
The last question for today is from Ahmed Nabil from Barclays. Please go ahead.
Good morning. Thanks for taking my questions. I actually got 2. First one on India. I think there's been corporate tax reduction that have been announced over there as well as the waiving of some fresh socials.
I was wondering if you made a calculation of how much benefits you would expect from those and whether this is the reason behind your increased optimism on cash conversion or is there something else we should think about? The second question, I'm sorry to cut back on the CO2 because it's an important topic. Could you let us know in practical terms what exactly you're going to spend CHF 160,000,000 on? Is it additional equipment you're putting to in the plants? Does it include some capacity shutdown maybe in some countries and some plants where you got a lower capacity utilization rate?
And also the 15% reduction, does it include some of the certified installation you were mentioning in Europe being a linked time managed decision there?
All right. I think the last one on Tier 2, Geraldine, and then Geraldine will go into the tax equation in India. Yes, the SEK170,000,000 we still have a lot of potential for the for our waste recycling, so what we call geocycle. So most of the investment is for using more alternative fuel in our factories. And this is and then besides that, we also have some investments into the production process like the heat recovery or something.
So we're going to optimize every plant. And the biggest investment is used for the Geocycle, so to use more or recycle more waste in our production process, which has proven to be very attractive for the recent years, and we want to go now on the next level. So there's no
sorry, go ahead.
No, go ahead.
So there's no at this point, there's no intention to shut down the capacity in Europe?
No. You see the demand is very healthy in Europe. So we have 35 plants in this regulatory region of the European Union. So at the moment, we have a good demand as no plans for any shutting down any capacity. There's no need for it, no need for it.
We are running at very good capacity utilization in Europe and this continues into next year.
Yes. So on your question about Indian tax, Javier, so you're right. The Finance Minister of India announced a reduction in an operating tax rate from 35% to 25%. That also may result into an elimination of certain incentives. So we have to make our own application.
And let me tell you that when we speak about 27% of ETR, this capture effectively all of India tax reduction in it. And it effectively helps in terms of cash conversion optimization.
Good. I think at this point, we have no more questions. So if that's the case, I thank you again very much for joining the call, and I very much look forward to seeing all of you in person in the near future. Thank you very much, and have a good Friday. Thank you, and bye bye.
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