Ladies and gentlemen, welcome to the LafargeHolcim half-year Results 2019 conference call. I'm Sandra, the conference call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for question at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Jan Jenisch, CEO, and Ms. Géraldine Picaud, CFO. Please go ahead.
Yes, good morning, everyone. This is Jan. Thank you for joining the call. I'm very excited to talk to you about our strong first half of the year, also later to answer your questions or respond to your comments. Let me give you an introduction of the key highlights before Géraldine will go into more details of the results. First of all, I'm very excited we have such a strong half year. You will find throughout the entire profit and loss statement; we improved basically every number. We have now the fourth consecutive quarter where we have an over-proportional growth of EBITDA compared to net sales, we are in good shape to continue with this speed. I think on the growth side, we talk in the outlook a little bit about the markets.
I think we're also going to see solid demand in the second half of the year. We had a small hiccup in Q2 due to different things or events, but I will address that later, maybe in the outlook, when we talk more specifically about the regions. Other than that, I'm happy we have all four business segments contributed to the growth, but also to the over-proportional profitability increase. We accelerated our bolt-on acquisitions. We did six bolt-ons in the first half of the year compared to four in the entire year of last year. That was very good. You also see then with Aggregates and Ready-Mix, we improved now. We continue our catch-up to best demonstrate practice in both of these business segments, and I think that's very promising also for the years to come.
I think the company is now fully set up to the new strategy, to the new operating model. You will find that we have finished our SG&A cost-saving program as promised in time, and also as promised in magnitude, with CHF 400 million of saving, which you also will find in our profit and loss statement. We have restructured the business at the headquarter, successfully closed down all the big legacy offices we had in Paris, but also in Zurich. The company is really set up now to run with our Strategy 2022. I'm very excited to see the improvements we made also below operating profit. Some fantastic measures, initiatives by our finance people with Géraldine on top to reduce the interest paid, to reduce the other costs, and she will talk about that shortly. Very successful.
You see our net profit more than doubled, earnings per share more than doubled, and also in the cash flow, we pushed the right buttons, and the cash flow has now started to improve significantly, and we hear more about that later. On the debt, we merely reduced the debt by CHF 5 billion, not only through divesting Southeast Asia, but also through more cash flow, some smart refinancing, some hybrid bond, but also some scrip dividends. Altogether, we are well ahead of our plan to deleverage and strengthen the balance sheet. I think with this, let's hear more details from Géraldine on the details of the results, and then I'm happy to come back with the outlooks.
Thank you, Jan. Good morning, ladies and gentlemen. We will now look into more details at the financial results. Before we review the numbers, I would like to clarify that all the KPI presented here are before IFRS 16. The detailed impacts are presented in appendix, and I'm of course, happy to answer any questions you may have on this accounting topic. The H1 2019 operating performance is very solid, which is reflected in the strong metrics that you can see on these slides, with slide number nine. The net sales increased by 3.5% like-for-like, mainly driven by price increase. The recurring EBITDA improved by 10.8% like-for-like on the half year. This strong number results from a good pricing monitoring and from the full achievement of a CHF 400 million SG&A cost-saving program.
The earnings per share before impairment and divestment amount to CHF 1.3 per share, up 108% compared to H1 2018. This growth is reflecting a good improvement of the cost below recurring EBITDA. The free cash flow, as you can see, stood at CHF 262 million, a large increase by CHF 735 million from a -CHF 473 million in H1 2018. If we now move on to our performance per quarter, for the fourth consecutive quarter, the profitability has increased. This is in line with the objective that we have set in our Strategy 2022 and results from a good cost monitoring. After an excellent Q1, Q2 was a quarter of more limited sales growth with soft volume trend. It is also a quarter marked by a good pricing trend, good operational efficiency, as well as the full delivery of our SG&A cost-saving program.
All these elements have resulted in a strong over-proportional EBITDA growth in Q2 at 7.1% like-for-like. Let's now look at our volumes. If we look at the volumes like-for-like in H1, Cement volumes have increased by 0.7% as a result of an increase by 4.6% in Q1 and a decline by -2.3% in Q2. This decline is partly attributable to less working days in H1 2019 than in 2018. On a regional basis, Cement volumes have been pushed by Europe, which records a 5.5% increase like-for-like, with Q2 a bit lower than Q1 in countries such as France, Germany, and Russia. North America has reached 2.9%. That's reflective of the U.S. trend. In Latin America, volumes declined by -4.2%, primarily due to continued infrastructure project delays in Mexico. Middle East, Africa was slightly negative at -0.5% as a result of contrasted situations.
We saw positive trends in Nigeria and Algeria, while Egypt suffered from domestic oversupply. Asia Pacific lost -2.7% on the back of a negative trend in the Philippines and general elections in India. The Aggregates volumes went down by -2.4%, largely attributable to a weak Q2 in European countries. Ready-mix volumes went down by 2%, driven by several countries, mainly the U.S. If I now move on to our net sales. On H1, net sales have overall declined by -1.6% to reach CHF 13,0 59,000 . There is a negative scope effect of -2.3% following the closing of Indonesia and Malaysia transactions, slightly offset by a positive impact of the bolt-on acquisitions. The forex is negative at -2.8%. This is mainly due to a weaker Argentinian peso, weaker euro, and Indian rupee, however, partly offset by a stronger U.S. dollar.
This like-for-like growth of 3.5% benefited from a good price increase across all segments. We will review the regional and business line trends in the coming minutes.
Let's now look at our recurring EBITDA. At recurring EBITDA level, the scope impact is limited to -CHF 19 million. Out of this -CHF 19 million, Indonesia accounts for -CHF 33 million, reflecting the strong seasonality of the Indonesian results. Forex accounts for almost -3% due to the currencies I already mentioned. The like-for-like growth of 10.8% is driven by various effects. Firstly, a negative volume effect by -CHF 48 million due to unfavorable regional mix. Secondly, price over cost, which is positive by CHF 315 million, includes strong savings in our SG&A that we will detail later for CHF 200 million approximately. Beyond this, the average price increase across all segments has more than offset the cost inflation.
If we now move on to our business segments, the EBITDA has grown over-proportionally on all business segments. On a regional view, North America, as you can see, has been impacted by bad weather and Mississippi flooding, but the impact was mitigated by good cost monitoring. Latin America recorded a good sales growth due to price increase, but a decline in EBITDA due to soft market, especially Mexico. Europe trend remained good with high EBITDA growth of 17% like-for-like after an excellent Q1 and good Q2, driven by cost efficiency and a favorable pricing. Middle East, Africa is still challenging on several markets, but the situation is improving in several countries. The region achieved a positive EBITDA growth in Q2 by + 1.9%. Asia Pac registered a record growth of 17.4% like-for-like in recurring EBITDA.
Let's start with North America. After an excellent start of the year in Q1, performance in Q2 has been impacted by weather. However, we managed to grow Cement and Aggregates volumes in Q2 in the U.S. which also further progressed on cost savings, and we recorded a good price momentum in North America. Our Canadian operations did very well during H1. All in all, the region recorded growth of net sales 2.8% like-for-like, and growth of a recurring EBITDA by 1% in H1. The strong order book and further pricing traction should support improvement in the second half of the year. Latin America region had a mixed first half. After a resilient Q1, the performance in Q2 has been more impacted by further Cement volumes drop, notably in Mexico and Ecuador.
Nevertheless, our net sales were up 3.1% like-for-like, supported by effective price management, and our recurring EBITDA was down 4.1% like-for-like following the market decline in Mexico since presidential elections in July last year, and the cancellation of major infrastructure projects. At the opposite, Brazil and Colombia experienced a positive market trend with favorable volumes and price effects. Let's go to Europe, which delivered strong results in H1, supported by good market dynamics across the region. Net sales up 7.2% like-for-like, recurring EBITDA up 17.1% like-for-like. After an exceptionally good Q1 and early start of construction activities, cement demand normalized in Q2. Additionally, volumes have been impacted by fewer working days. Successful price increases continued to support revenue growth in all countries and segments. The over proportional growth of recurring EBITDA delivered both in Q2 and H1 was further driven by improved operational efficiency and positive price momentum.
This resulted in recurring EBITDA margin improvement in all segments in Europe. If we go to Middle East/Africa, we see that after a difficult 2018 and a third quarter 2019, Middle East/Africa region delivered positive recurring EBITDA growth in the second quarter of 1.9% like-for-like. This is a result of our restructuring initiative and turnaround plans across the region. Performance is also stabilizing in Algeria, while Nigeria continued to contribute positively to the results. Cement demand in most countries is flat or slightly positive. Our net sales were slightly up like-for-like in H1. Recurring EBITDA was down around 7% like-for-like, still impacted by the challenging Q1. In general, the region has bottomed out, and we have more confidence in the stabilization of the performance by year-end.
Let's now turn to Asia Pac, which continued to show solid profitability growth with our net sales up 2.1% like-for-like and our recurring EBITDA up 17.4% like-for-like in H1. The net sales growth has been impacted by softer demand in the Philippines, Australia, and lower volumes in India. Cement volumes in India reached prior year level, but have been affected by national elections. Recurring EBITDA growth was driven by good price development and good cost control across the region. To be noted, the cost savings in India, the higher profitability in Australia, and the strong growth in China on the back of positive pricing. Let's now follow up on the execution of our CHF 400 million SG&A cost-saving plan, where we have, as announced, completed the program end of Q1 and have now the full benefit of the savings.
The CHF 400 million saving per year, measured at 2017 currency exchange rate, will reduce the SG&A cost base from CHF 2.7 billion in 2017 to CHF 2.3 billion on a running rate basis. The plan has consisted in the downsizing of the group and regional headquarters as far as optimizing country organizations. We completed the program in Q1 this year, the full-year impact of CHF 400 million will be effective in 2020. As of now, we already see a visible impact of 391 million ahead of the 300 million we announced for the full year 2019. We are expecting this positive effect to flatten a bit in H2 2019. You may remember, we already had a strong contribution in H2 2018. Let's now look at our full P&L.
EPS is up 108% before IFRS 16 impairment and divestment, corresponding to an increase of CHF 409 million of the net income group share. This increase has been driven by the recurring EBITDA increase by 7.2% that we already commented, or CHF 178 million. In non-recurring EBITDA, the depreciation and amortization have decreased by CHF 86 million following divestments in Southeast Asia. Restructuring, litigation, and other costs have strongly decreased by CHF 229 million due to high restructuring costs incurred in 2018 on the implementation of the CHF 400 million SG&A saving plan. Our net financial expenses have improved by CHF 126 million, mainly due to lower interest, as expected, following all our refinancing operations. In H1 2018, the financial expenses were also impacted by a negative forex. Effective tax rate of 27% is based on our assumption for this year.
It's down from the 29.5% last year in June, down from the 27.7% for the full year of 2018. If I now look at the free cash flow generation. Before IFRS 16, the free cash flow for the half year amounts to a positive CHF 262 million, which is an improvement of CHF 735 million. This is the combination of several effects. Firstly, the recurring EBITDA growth by CHF 178 million, already commented. Secondly, the change in the net working capital has been CHF 230 million better than last year due, in particular, to strict inventory monitoring. Thirdly, the improvement of the net financial expenses paid by CHF 128 million is consistent with the P&L reduction of costs.
Finally, cash tax has been lower than H1 2018 by CHF 216 million due to one-time payments in 2018, favorable timing effect, but also thanks to global effective tax rate improvement. CapEx are still monitored on a disciplined way and stand slightly above 2018, where they were especially low. Let's now turn to our net debt. The net debt as at end of June amounted to CHF 11.3 billion. This is before IFRS 16, a decrease by CHF 2.2 billion since December 31, 2018. I remind you that the hybrid bonds amounting to CHF 760 million are excluded from the net debt as classified in the equity. The main points to be noted are the impact of the divestments. Firstly, CHF 1.1 billion for Indonesia in 2019, after CHF 0.4 billion were already accounted in 2018.
Secondly, CHF 0.66 billion for Malaysia and Singapore. Philippines transaction is not closed yet, therefore, the impact on net debt is limited to the classification as held for sale of the local external debt that you can see on the chart, for CHF 57 million. The success of the scrip dividend has generated a cash saving by CHF 0.9 billion compared to a 100% cash payment. With this, I'm ending my explanation of the financial results, and I'm handing over to Jan.
Thank you, Géraldine. Let's have a look at the outlook. We are quite positive looking to the second half of the year. We think we're going to have a good cement demand. In North America, we were not happy with the volumes in quarter two, which simply came from the fact that we ship a lot of our cement over the river system, mostly the Mississippi, and we could half of the second quarter, couldn't use the rivers due to flooding. We have quite a backlog in orders. We were not able to deliver as much cement as was demanded by the customers. We expect here a good second half of the year with full capability to deliver. We have in Latin America, this is a softer market. We have mostly Mexico with a typical political cycle we have there.
We have softer demand, which we also expect going into the second half of the year. However, the effect for the group will be limited. As you can see in the half year result, this will not hold us back for the group, but the markets, we don't expect to come back to growth in the second half of the year. I think this is something we see for 2020. In Europe, we also were not fully happy with the volumes in quarter two. You see this mainly by the calendar days, but also by the heat wave towards the end of the quarter, where many construction projects couldn't commence as expected. We have here also good order books, solid demand from our big markets, Germany, France, but also a very high demands from Eastern Europe, and from South Europe.
With the only exception in the U.K., where we have a light softening of the demand. Nevertheless, for Europe, we expect good volumes for the second half of the year. We have in the Middle East, Africa, we made the turnaround here in the second quarter. As promised, we reached the bottom somewhere in March, April, and now already we show some growth in the Q2, and we expect this to continue into the second half of the year. We have done our homework with couple of turnaround situations. The markets are challenging but we have done the homework, and we expect a positive contribution from Middle East Africa already second half of the year. In Asia Pacific, we had a good situation the first half of the year. From India to China, we had a big contribution to our results.
We also see that going into the second half, especially also on the pricing side. We believe we are on good run rates, and we see that we have a very solid second half of the year in Asia Pacific. Overall, there is a lot of talk of cooling down of certain industry segments. I think most prominently, the automotive sector had quite a bad first half of the year with, I think, a reduction in production units around 5%, and this is affecting a lot of connected industrial segments. We don't see this coming to the construction sector at this point. We see that the demand and the projects for infrastructure, but also for residential housing, are very much intact. Also considering our order books, we don't see here a slowdown in the second half of the year.
When you look at our targets, we are, of course, after we have had proven that our strategy works, we are on very good run rates basically from the cost side, but also from the pricing side. We look forward to also very healthy results in the second half of the year. Therefore, we can fully confirm our guidance, which we have given for the sales growth of 3%-5% and an EBITDA growth of at least 5% for the full year. When you look at our deleveraging target, where we said we want to be at least at 2 x or less net debt to EBITDA. You can see that we are already middle of the year below CHF 12 billion net debt. I would say we are well ahead of this target and confident to confirm this also for the closing of the year.
On the cash conversion, you have seen the improvement of more than CHF 700 million in the first half. We expect this also to continue into the second half, and that we can show some strong improvement in our cash conversion. CapEx and bolt-on acquisitions, we set less than CHF 2 billion, and also here we are well on track to keep our promises. I think with this, I am very happy to turn over to you, and Géraldine and me are excited to have your questions and comments.
We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and one at this time. The first question comes from Elodie Rall, JPM organ. Please go ahead.
Hi. Good morning, thank you, Jan and Géraldine. I'll have two questions, if I may. The first one on guidance. I see that you're comfortably confirming that. Why not changing that? I mean, your guidance is for at least 5% of EBITDA like-for-like growth for this year. You've already done 10.8%. The bottom end of your guidance implies 2% like-for-like growth for H2. I know comps get harder, but your comments seems to be rather positive for H2. Is it just to be conservative that you're keeping that 5% plus? The second question is on cost inflation. I think you had said energy costs were up 5% in Q1. What did you see in Q2, and what's your view for H2? Most peers are expecting a bigger tailwind in H2 versus H1 from lower energy costs.
Wanted to see what your view is on that specifically. Thank you.
Hey, good morning, Elodie, and thank you for your question. It's a tricky one. You ask me to put the guidance up, and then you ask me to have more tailwind from energy. I think at this time of the year, I think we give quite a precise guidance on the deleveraging, on the profit, and I think we do this to our best knowledge. As you pointed out, it's a minimum target on the +5% on the EBITDA. We don't see now a reason to be more precise. I think it's also a little bit up to you how you see the dynamics going forward. As you mentioned, nevertheless, for 5%, we still have to make a positive EBITDA contribution into the second half of the year.
I think I'm very comfortable with the guidance at this point and don't want to make it more precise at this point. For the energy, you are right. We see a lowering in energy prices. I think if you look at the crude oil, the pet coke or the coal prices, I think the spot pricing is maybe at this point 20% or a little bit over, below last year's level. Of course, I'm asking my people to have a stronger tailwind here from energy. I think on power energy, you see a little bit a different scenario. Here we have rather some price increases. Overall, personally, we target to have more tailwind in the second half of the year compared to the first half. I'm not sure, Géraldine, do you give any closer information on this?
No, I think we all know that effectively power has been quite strong. We have 7% increase in power on opposite. When we look at solid fuel, we are also confident that there will be at least flat for second half, I would say. Yes, that should help us.
Okay, thanks.
The next question comes from Josep Pujal, Kepler Cheuvreux. Please go ahead.
Good morning. Two from me also. The first one is on an eventual leakage that you would expect from the disposals. You have disclosed having sold CHF 4.9 billion of EV in Southeast Asia. Do you think that you will be able to repatriate the totality of these amounts? Well, maybe you want to disclose what is equity, what is debt. My second question is on the SG&A cost reductions you have delivered. Is there more to come? If yes, maybe not under, I would say, precise program, but would you have an order of magnitude or any comment on that side? Thank you.
Yes. Maybe to start with your questions on the disposal. You're right, we have signed and closed for most of it, transactions for EV of close to CHF 5 billion. As you know, we've already closed and cashed in Indonesia, Malaysia and Singapore. The remaining one is effectively the Philippines that we're expecting for this year half to happen. That's correct.
The money is coming in, and I think you can see from the debt reduction of almost CHF 5 billion in the first half, and this is without the Philippines. The finance department does a very good job here to work with a very high discipline and with very good results. The SG&A, we have completed our program. It was very important to do this in a fast manner. The closing down of the offices to have the people fully focusing on the business and not on the restructuring. That is well done. I think we just had a press release two weeks ago regarding the future of our factories. We see quite some potential with further digitalization of our whole supply chain and also with predictive maintenance. We see quite some potential for the future.
We are not in a position at the moment to give any numbers or any targets. We have started this program now and shared it in the press release with you. This is something we focus now very strongly on.
Thank you. Sorry. On the first question, the question was more on eventual, I would say, losses or frictions that you could have in some areas where it is more difficult to repatriate money or you get an extra tax on the proceeds or the dividends or things like that. Is there something to be commented on that area, or we can consider that the CHF 4.9 billion are okay net for you?
First of all, the CHF 4.9 billion are 100% basis easy. You have to take our share percentage of ownership, and you'll get to something closer to CHF 4 billion. As I mentioned, we have successfully closed, actually, Indonesia, Malaysia, and Singapore. If you look in detail to our P&L, you will see that we had no tax leakage at all. We're very proud of having repatriated the net amount corresponding to what we've announced.
Excellent. Thank you.
The next question comes from Arnaud Pinatel, On Field Investment Research. Please go ahead.
Yes, good morning. Thank you for taking my question. Just to understand something on your acquisition policy, because you mentioned during the last call that you will focus much more on bolt-on, accelerating the number of bolt-on acquisitions, and you have no large acquisitions in the pipeline. We have seen reports in the press that LafargeHolcim could be interested by the BASF chemical construction assets. Just wanted to understand if there is any change in your strategy regarding acquisitions? The second question would be on clarification. You mentioned that you are more confident on the performance of the Middle East, Africa by the year-end. I think it's a comment from Géraldine. Does it mean that you could do better than your previous guidance, which was about a stable EBITDA contribution for 2019? My last question will be on India.
We have seen also that after the strong price increase implemented by the industry in H1, that the government is now investigating about this price increase. Is there a risk to see a change in the pricing momentum in the second half of the year in India, according to you?
Yeah. Thank you for your questions. I think on the acquisitions, as you said, the bolt-on acquisitions are one of the drivers of our growth strategy. We did six of those bolt-ons in the first half of the year, compared to four for the full 2018. You see, we do our homework, we work our target list, and this is showing results. We will continue to do that. For the larger acquisitions, I think, you said we will be very financially disciplined, so we will not, like in the past, overpay acquisitions with higher multiples or something like this, and that's something we will continue to do. Like everything you see now from us, from the refinancing, from the debt restructuring, also from the M&A, we are very value-disciplined and clearly make sure we don't make any mistakes or overpay anything.
For your specific question regarding BASF, I have also heard that BASF is divesting the construction chemicals. I think it's a very credible, very sound business. At this point, I have no further information or cannot provide any further comment on this. For Middle East, Africa, to your question, if I understand correctly, we still guide that we believe we're going to have a stable result for 2019. Including the decline we saw in the first quarter, we believe that we're going to have an EBITDA on the same level as last year, or we can say at least the same level. That's our outlook. We are quite positive. Our people have done a super job in the bigger markets of Algeria, of Nigeria, but also the smaller markets. They have really taken good care of the cost and also of the commercial initiatives.
On India, I think I'm not worried about India for this year. We said we were not happy with the margins in the past two years. The cost inflation was bigger than the price inflation. I think that most players in the industry have done the right thing and adjusted the pricing to the cost situation, which was especially negatively influenced by the currency and the imported energy. I think it's a necessary step. I don't think there's anything going against it. We're going to see a good second half and a good 2020 from India.
Thank you very much.
The next question comes from Tobias Weimann, Morgan Stanley. Please go ahead.
Hi, Géraldine and Jan, thanks for taking the question and congratulations to the strong results. Three from my side, if I may. Firstly, on LATAM, clearly the situation there remained difficult in the second quarter, which I believe was mainly driven by Mexico. Can you give us a bit of an outlook, what to expect there in the second half? I guess you have firstly a bit of an easier comp, do you expect the situation to improve a little bit as well? That's the first one. Secondly, I guess this one is for Géraldine on the finance cost. I think we were all quite happy to see the progress there and I personally believe we can continue to see it with the decline there, given the pace of deleveraging and also the focus on cheaper refinancing.
Can you give us a bit of an outlook, how far you think finance costs can still decline from here? The final one on the cash conversion was very strong in the first half, and I think the improvement, you talked about it before, was driven sort of half by working capital and the other half by a combination of lower financing costs, lower tax, and stronger EBITDA as well. Can you give us a bit of an outlook how sustainable this is, how we should think about the cash conversion going forward? For instance, will there be a catch-up in working capital? Thank you very much.
Thank you for the questions. I think on finance and cash conversion, we are just seeing the start of a new level and I'm happy that Géraldine, I think, will go a bit into the details on these questions. On Latin America, long term, I'm always positive. Latin America has above-average margins. What you have to always realize is that you have a volatility in Latin America, not only by the economy, also by the political situation and by the currencies. We try to prepare ourselves for these three cycles, which can have quite micro cycles, depending on the elections, depending on various things. Latin America, we have to be always prepared. You see from the first half year that we had a volume decline of about 4%, but the profit decline was, let's say, only 8%.
You see that our people are able to kind of mitigate the volume decline in a good fashion by cost and by pricing. This is what we're going to do going forward. For the second half of the year, we don't count for any recovery in Latin America. We believe that Mexico will bottom out in the second half of the year, but will not grow again. Brazil will have some recovery. Overall, we believe in our plans, we see the same second half as the first half for Latin America. We don't count on, or we don't need in our numbers, a recovery. We are quite positive for 2020 on Latin America that we go out into a better cycle.
If I carry on with the financing expenses. Yes, you will certainly remember that I guided on CHF 100 million improvement for the full year in March, last March. We see here an improvement of CHF 126 million, which is even better for six months. That's great. As I mentioned, the improvement is also due to a negative effect we had last year. You can also note that for the full year, we will incur coupons on our hybrids that are actually recorded as dividends, but on the free cash flow, that will be fully recorded as a finance expense paid. All in all, if I have to guide for the full year of financing expenses on the P&L, I would stick between CHF 130 million-CHF 140 million.
With the cash, about the cash conversion and the improvement we made, I think you're right, we've done a lot of improvements. On the working capital, this is the beginning. We will continue and maintain this. Please bear in mind that with this restructuring, you have a timing effect. You have some spending this year, but I think the improvement is going to continue. As Jan said, we are now on another level, and we are going to continue to improve, we maintain the objective of the 2022, which is to be at 40%.
That's very clear. Thank you very much.
The next question comes from Arnaud Lehmann, Bank of America. Please go ahead.
Thank you. Good morning, Géraldine and Jan. Maybe two and a half questions, if I may. The first one, just to follow up on working capital, I guess for us from the outside is a metric where we have slightly less visibility on how much improvement you can achieve. Are there any way to give us, let's say, some KPIs in terms of number of days for inventories, for receivables, where they are today, where they could go tomorrow, to assess the potential improvement in working capital in the medium term? My second question is around disposals. You've been very busy, obviously, in Asia Pacific this year. There were, let's say, price discussion in the past about potential trimming of assets or disposals in Middle East Africa. Where do you stand on this? Lastly, on CO₂ moving up in Europe, how does it impact your trading strategy?
We heard yesterday from your competitor, we're starting to reduce some exports out of the Nordics. I believe you are historically exporting cement out of Greece. Do higher CO₂ prices have an influence on your export strategy outside of Europe? Thank you.
Good morning, thank you for your question. I maybe start with the CO₂. It's clear when you have a CO₂ price above EUR 20 or something, exporting from Europe into non-CO₂ taxed countries is not a good idea. We also, of course, have already done, since the last 12 months, we have already corrected here some of the trading flows. This is not material for us. This is something where you have to optimize the plant level, the European footprint level. We have 35 cement plants into that European CO₂ trading scheme, we have a precise roadmap and action plan on how to further reduce the CO₂ footprint.
We have for this year enough CO₂ certificates, of course, with the prices now, the CO₂ price on this level, we are very, how to say, encouraged to save as much as possible to benefit from the CO₂ price, but also to meet the new targets, which will be in place in 2021. I think on the net working capital, maybe Géraldine has a bit more detail. From my side, just for me, it's important the overall target. We promised last year that we will go from 28% cash conversion on the EBITDA to at least 40% over the years to come and on a sustainable level. We have, of course, a precise calculation action plan how to achieve this. You will obviously see, I think, a big improvement this year from us.
We will not achieve the 40% this year, but we're going to make a step, and it's clear that we have an overall plan how to do it. Net working capital, we have quite some potential to cover. Géraldine, you want to say more?
Yeah, I can just add a bit of color on the performance of this H1 working capital. We gain in terms of numbers of days. In the inventory, we gain two days less. Receivables June to June, so comparing same period. Actually, we are getting better on receivables as well. It's a lot of efforts, and the organization is really moving towards it. It's completely mobilized to increase and improve its working capital.
Your question on disposals, let me say, obviously, we are very happy to have such a, how to say, limited scope exit in Southeast Asia with mainly the three countries, Indonesia, Malaysia, Philippines. To exit for such a valuation, I think we are very happy, and you see now from our balance sheet that we are now in a very good position to have a full freedom of action and have delivered the strength and balance sheet, what we promised. At this point, we have no further information to share on potential disposals. Just fair to say that we only disposed three countries. Sometimes, I don't know who gives the information. People talk about we are selling. It's actually not the case. We made a very focused approach to achieve the maximum impact with, let's say, the least assets to give in.
That's great. Thank you very much.
The next question comes from Robert Gardiner, Davy. Please go ahead.
Good morning. Two quick ones from me. One, I just wonder how you think about the profit trend like-for-like in Asia Pacific in the second half of the year, just as the comparison base in China becomes a little bit more challenging and given updated commentary around Australia, which appears to be softening. One quick one for Géraldine then on the restructuring and litigation costs, CHF 71 million in H1. Just wondering where you see that for the full year. Thank you.
Well, thank you. I take Asia Pacific, Géraldine.
Yeah.
I think you have a good observation that obviously, China has been very beneficial for us. We also did a great job there. We went into Geocycle, we went into Aggregates. We have some of the most efficient plants in China. Together with a strong pricing increase, we have achieved very good results, still contributing a lot to the half year result. We also going to have a positive contribution in the second half from China. As you well observed, it will be probably not in the same high magnitude as maybe the last 18 months, but it will be a positive one. In Australia, the market is maybe going a little bit soft in some of the segments. Nevertheless, we have quite some potential on efficiency, so we see a contribution from Pacific also in the second half.
To round Asia up, we see a strong contribution from India into our Asia Pacific results for the second half, bigger than for the first half.
Jan, for your question on the restructuring and litigation and others line that effectively amounts to CHF 71 million for this H1 compared to CHF 300 million last year. You're right, mainly for this H1 coming from the restructuring. That was the end of the CHF 400 million SG&A program. Now, as we said, it's completed in Q1. You're right, we should not expect a big amount for H2. I would guide around CHF 100 million actually for the full year. Having in mind that the CHF 30 million that I'm talking about that could potentially come would be related to the divestments that we have made and in order to reorganize our group following this divestment. We don't see the restructuring going above CHF 100 million for the full year. Litigation, of course, we don't guide on that.
All in all, if you're very conservative, you could put CHF 200 million, but there's no specific guidance to do on litigation. Restructuring cost, no more than CHF 100 million.
Okay. Very clear. Thank you.
The next question comes from Gregor Kuglitsch, UBS. Please go ahead.
Hi. Good morning. I have three questions. The first one is just sort of midterm strategy. You disposed of Southeast Asia Cement. I think you've talked before about more downstream product and solutions. I guess the question is, maybe not so much on this year, but perhaps over the next three, four, five years, how you see the mix of the business shifting. To achieve that, do you think you need to do a larger transaction? Obviously, BASF is being in the press, but I suspect there's many other things you could do. It's not necessarily constrained to that one. The second question is just on coming back to CO₂, and can you just remind us your position as you go into phase four in 2021 and how you see the impact on the industry?
I appreciate it's a little bit difficult to tell given the absence of specific tariffs or import tariffs, I guess with carbon import tax. If you could just give us your view how that would impact the European cement industry. Then one quick one on cash. I think the cash flow in the first half was indeed quite impressive. You mentioned a few timing points. If you kind of had to summarize, of the CHF 700 million improvement, how much you think is kind of timing and how much is sort of underlying, perhaps you've done the exercise on things like working capital restructuring, financial expense, whatever it is, or tax, to see if we can get a feel for the underlying improvement that we can extrapolate. Thank you.
Thank you for the question. Yes, I think mid, long term, I think our Strategy, we have just started the Strategy March last year, and I'm happy it's well now implemented in the company. It was consisting of various aspects from basically a new operating model, focus more on the countries, again, taking management layers out. We have done a lot of things, and we also discovered that we have a lot of potential to capture beyond Cement. You see our race to catch up the performance in Aggregates and Ready-Mix Concrete, and this is something which excites me very much. We have improved last year.
You see now in the half year, we will see another strong improvement in this year, and I think this is something which will continue to excite us to become more of a concrete company, more of an aggregate company, and that's something very exciting that will continue. Going forward, we have also our fourth segment, Solutions and Products, and we also will grow that segment. If you put it all together, we have Seoul, Southeast Asia, which is an emerging market, cement play, and we do the bolt-on acquisitions downstream in the mature market. You see a little bit where we are going. However, consider that we are fully financially disciplined. On the one hand, we have a lot of potential to significantly improve the operations as it is today.
Secondly, we want to move more downstream and maybe a bit more into mature markets, this you will also see from us, but not for any price. We will do that step by step, fully financially disciplined, and we will continue like this. On the CO₂, for the industry, I think it's like everything. It's a race. We have to run a bit faster than the competition, and we will be successful. Whatever they decide going forward with CO₂ or with fragmentation or regulation or something, basically it will be good for the industry. It will be especially good for the pricing. It will be good for new product introduction. I'm a little bit excited to go into that phase.
If you look a little bit more short term, we have in the new scheme in 2021, we have a plan to reduce our CO₂ footprint by around 15%. As I mentioned before, we have a strong roadmap and action plan how to get there. This is very exciting because it will create a lot of value for the company and going forward. Géraldine, you want to excite us with the cash?
Yeah. We had a strong cash flow, free cash flow generation from the business that you've noted. If we look at what is a bit more timing, we could maybe round it between CHF 150 million-CHF 200 million, more on CHF 150 million. That is timing or effects that we not reiterate in H2, coming from the tax, especially and the financing expenses.
Got it. Thank you very much.
The next question comes from Sven Edelfelt, ODDO. Please go ahead.
Yes, thanks. Good morning. Two for me. In the U.S., Oregon lawmaker are working on a cap- and- trade program that would result in charging companies for CO₂ emission. I know you are not in Oregon, but to what extent do you believe other state could follow and pass such a law? Do you believe it's a threat for the industry on LafargeHolcim? The second one, could we have a guidance for forex at the current spot rate on a full year basis?
On Oregon, I think we have the strictest CO₂ regulation we have as it stands in Europe. Actually, let's not forget that China has really cleaned up the cement industry and has taken out a lot of no efficient production lines very successfully. In both cases, what we experience usually is that we get an improvement in pricing, and we get an improvement for the industry leader. This happened in Canada. This happened in China. I'm not really worried about regulation. We just need to work fast enough to adapt the company to the regulation, and we will see a rather a positive effect. I say that for Europe, but also if Oregon goes with a CO₂ tax, I think it's not a bad thing for the industry.
If you do this right, you have increasing prices, and you can have much more value-added and differentiated products in Cement and in Concrete going forward.
On the forex that you're asking, we don't have a crystal ball about forex, so we don't know, and we are always reluctant to guide on that. If we were continuing with the same trend, we would say around -CHF 200 million. -CHF 150 million to -CHF 200 million, around these territories.
Very clear. Thank you very much.
The next question comes from Paul Roger, Exane BNP Paribas. Please go ahead.
Hi. Good morning, everyone. Congratulations also on the results. Just a few questions. Firstly, on the U.S., has there been any change in your pricing strategy this year, and what magnitude of increases do you expect in Aggregates and Cement? Also just coming back to Asia, obviously you pre-report China, ACC, and Ambuja. If we take those out, it looks like the rest of it has had a significant jump, and presumably that is Australia. Can you maybe say a bit more about what you're doing in Australia? When we think about the full year and the Asian margin, that increased by about 300 basis points in the first half, excluding JVs. Is it possible to do something similar in the second half as well? Thank you.
All right. Let me start with Asia. I'm not sure only because we are reporting, maybe Géraldine can answer that in more detail with the margin jump. I think as I reported before, we have Australia, we have quite some potential. We were not happy with the margins in Australia. We have a very solid business there focusing on Ready-Mix Concrete , on Aggregates, but also on products. Solutions and Products is a big segment. We had some restructuring, which we initiated last year, and we see now the positive results. In Australia, we also had the leadership change. So, we expect Australia to also have a good contribution to our operating profit growth in the second half of the year and going forward, even so the market seems to be a little bit softer.
On China, India, I think I commented before, we had of course a super improvement in China for various reasons. That will of course, with the last year comparison getting tougher, that will be on a smaller level for the second half of the year. We believe that India will kick in to close that gap. You want to comment on the margin, the 300 basis points, is that coming from the?
Yeah, no. I think you said it, that we had a very strong profitability increase in Australia, as you noted, Paul. This is driven by the turnaround of the Solutions and Products business we've fully achieved, as Jan mentioned. The rest of Asia is doing extremely well.
On your question for the U.S., for the volumes, we are positive. We were a bit sorry about the flooding and the disruption in our supply chain in Q2. Nevertheless, the market is intact, and we have good order books. On the pricing, we see much better pricing this year in the U.S. compared to last year. I don't know, Géraldine, did we give a guidance on the pricing?
Not really, but that was more than offsetting the inflation, obviously. That's what we can say.
Yeah. No. The reason I was asking that is one of your competitors yesterday was talking about $1.50 on cement, which was probably a little bit light compared to what we expected. They were citing issues specifically in the Northeast, which I appreciate you are there as well, and then you have the Mississippi. Do you see something completely different from that, or is that spot on?
I don't know who does. I think $1.50 is on the low side. I think when I talk to the people, I think we have a discussion usually about $3- $5 per ton.
Okay.
The Northeast is a little bit softer for reasons known. However, I think it's a little bit exaggerated, the Northeast, because the market is good, and we have a little bit of extra capacity which went on the market, but I think that's well absorbed. Overall, the U.S. should be strong, and you should see it when you look at our volumes and the sales in US dollar. I think you already for the first half you will see some pricing.
Right. Thank you.
The next question comes from John Fraser-Andrews, HSBC. Please go ahead.
Thank you and good morning. Two for me, please. First one, in the margins in Aggregates and Concrete, the improvement. I'm assuming that the Aggregates increase quite slightly in the first half was held back by the volume decline. Absent that, do you think after the big increase last year that perhaps, by the end of this year or even into next year, you might be where you want to be on Aggregates margin? Concrete margin looks to have made good progress, so perhaps if you could give a timescale on that as well. The second question. Jan, you mentioned in the Middle East, Africa, stabilization by the year end. I'm assuming then that in Q3, there's still possibly some negative impact in Algeria and Egypt, and perhaps you could just elaborate on how that plays out. Thank you.
Okay. Thank you. Maybe I start with the Middle East, Africa. We already showed a positive result in the Q2 for Middle East, Africa, and we expect this to continue for Q3 and Q4. We don't believe that the result will go backwards in Q3. We think we have bottomed out, done the homework. Algeria has nicely stabilized. Algeria, Nigeria is running, all the smaller countries are in good shape. Egypt is, to be honest, the comparison base is so low, there is not much to decline from where we are. Middle East, Africa, we are in good shape, and we are very confident for the second half and for the full year guidance we gave. When we look at the Aggregates, I think your comment is fair that we were missing a bit the volumes for a few reasons.
That's a pity, but nevertheless, even with this, we could improve the margins further. When we started to launch the program in 2017 to catch up the margins, we were at 19% EBITDA margins in Aggregates, and then we improved to above 21% in 2018. Where's the end to this? If you benchmark, and we have looked at the business, there's no structural reason why I should have a lower margin than any other major competitor. Now you can make the math. Does that bring me to 25% EBITDA margin or maybe to 30%? It has to be in that range. I think you will see from us this year, hopefully better volumes in the second half so that we can make another 200 basis point jump for the margins, and then also the year to come.
I think we have just started to recover or to close the gap to best performance in Aggregates. Same for Ready-Mix, of course. Ready-Mix on the one hand, it's very beautiful. It's very low capital intensity. We have already, with the improved performance in some of the top countries, we have already a return on invested capital, which is 20%-40%, in some cases 100%. We're very confident we don't need a double-digit EBITDA margin to be very capital friendly in Ready-Mix. You will see also here the next improvements coming.
Thank you.
The next question comes from Bernd Pomrehn, Vontobel . Please go ahead.
Yes. Good morning, Géraldine. Good morning, Jan. One question left, please. You completed your SG&A cost savings program ahead of schedule. Is there now more to come? Do you expect to launch another cost savings program, or is it now rather the right time to reinvest again in growth? Thank you.
Yeah, thank you, Bernd, for the question. I think it's important when you make restructuring to make it fast and to make it in one shot. With SG&A, we have exactly done that. We were cutting the cost by more than 20%, and this in a very short period of time. You followed all the office closing. On corporate, we did quite a reset, also in the countries, we asked for quite a lot. Now we run this very disciplined, we're not going to rehire now. We run it very disciplined, we don't make the next exercise for SG&A. We want to focus on growing the business, that's key. On the cost side, I think we have potential to further improve the cost in the factories, especially through digitalization, through predictive maintenance.
I think we have quite a potential to gain here from further cost improvements. SG&A is done for the moment. Yeah.
Okay. Excellent. Thank you, Jan.
The next question comes from Yassine Touahri, On Field Investment. Please go ahead.
Good morning. Just a quick follow-up question on your capital allocation strategy. Could you give us a bit more color on what you see in terms of precast concrete, ready-mix concrete, chemical additives, or value-added products? How would you like the group to be positioned in the next five years?
Capital allocation, you say that?
Yeah. Well, the capital allocation, I think for the moment it's been clear that we're deleveraging. That was the big priority that we have achieved and even overachieved, if I may say. We will turn now to continue our Strategy 2022, which comprises of growth. As we said, we'll continue the bolt-on acquisitions and continue to develop our business.
Is there any specific product that you would be looking at? You mentioned you would make a little bit more effort in vertical integration in the developed market. Is it a fair assumption that this might be the area where you would be looking to develop the group?
I think we talked about this before a little bit. I think when you see our actions, we do now 6 bolt-on acquisitions in the first half. They are all in mature markets. They are all focused on Aggregates and Ready-Mix, but also on Solutions and Products. On the same side, we divested Southeast Asia, which is an emerging market and a cement market. You see a bit where the group is directing towards. Nevertheless, also in 10 years, we will be a major cement player. We shouldn't be wrong about this, but this is at the moment where we steer the company towards, but in small steps and also to say again, very financially disciplined. We buy low, we sell high.
Thank you so much.
The last question comes from Tobias Woerner, MainFirst. Please go ahead.
Yes. Good morning. Two questions from my side. Number one, just to get a little bit of a better sense on Solutions and Products, and more specifically, the question there is building chemicals. Do you see this as a fit? If so, why? The second question is relating to your minority structures. You had 15 listed subsidiaries, you now have 12. As a matter of fact, a lot of the cash generated sits in some of them, and particularly in Asia. What are you going to do about capturing and controlling that cash fully in the future? You've done a good move with Lafarge Africa. Could we expect further such moves in the future? Thank you.
Yes. Let me take the question on Solutions and Products. Again, we are excited to be closer to the customer to develop the next generation of building materials, which will certainly be the next generation of concrete products, concrete mixes. We already have a business, partly, we have some mortar sales in some countries. We are active in the field, which is, let's say, close to a construction chemical company. Doesn't mean now we are buying the BASF business. That just means this is all segments where we are active and which are obviously attractive segments of the market. Other than this, we have no new information or no really comment to make at this point.
On your question about the listed subsidiaries, you're right, the group is fairly complex with its listed subsidiaries. We have undertaken to simplify it, and you've noted that we've already simplified it quite a lot. We're not talking about huge dividend anyhow, so that's not really a big matter. We are restructuring all, you've seen it and noted it rightfully for Lafarge Africa. Of course, there's more to come. This is a permanent job that we're doing to simplify, to make sure we get the value accretion each time we are looking at the capital structure of one of our subsidiaries. That's a permanent job and there's more to come.
Thank you very much.
If there is no more question at this point, I'd like to thank you for attending the call, and I wish you a very good analysis and writing, and I very much look forward to meet you in person in the very near future. Thank you very much, and goodbye.
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