Ladies and gentlemen, good afternoon. Welcome to the half-year 2018 results conference call. I'm Ora, 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. After the presentation, there will be a Q&A session. You can raise it for questions at any time by pressing star and one on your telephone. Should you need assistance, please press star and zero to call an operator. The conference must now be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Ms. Alessandra Girolami, Head of IR. Please go ahead, madam.
Good morning, everyone, and thank you for joining the call this morning for our half-year results. I'm Alessandra Girolami, Head of Investor Relations. I'm joined by our Group CEO, Jan Jenisch, and our Group CFO, Géraldine Picaud. Just as a reminder, thank you for limiting the number of questions so that everyone has the opportunity to ask questions. I will now hand over to Jan Jenisch.
Thank you, Alessandra. Good morning to everyone. Thank you for joining the call. I'm very excited to share with you some more insights on our results, and then also to have some discussions based on your questions later. I think for me, the second quarter was an extremely good one, and I'm very satisfied with the momentum we gained in many, many aspects. First of all, the growth. I think it is one of the key priorities of our strategy to be a growth company. With more than 6% sales growth in quarter two, I think we gained momentum faster than anticipated. The momentum is very broad-based, comes from maybe all our key markets, with a few exceptions, mainly in Africa.
All the other markets were strong from the demand side, but also our people were able to shift gears into growth very fast in the first half of the year. It's not only broad-based from the country mix, it's also very broad-based from our segments and from the bolt-on acquisitions. You will notice that we not only grow in cement, but we had the same positive momentum in aggregates and ready-mix concrete. Extremely important to me that these two segments, which make up close to 40% of our sales, they were not in the prime focus in the past. It's key for our new strategy to go downwards closer to the customer, benefit much more from vertical integration, and simply grow aggregates and ready-mix concrete again.
I'm extremely happy to see that the momentum in growth is not limited to cement, but also includes these very two important business segments of concrete and aggregates. At the same time, we finished or we closed the three bolt-on acquisitions. This is maybe for me even a bigger positive momentum that we could change gears. We have not done any bolt-on acquisitions the last five years, and as part of the new strategy, we want to benefit here from the very fast value creation through bolt-ons. Bolt-ons have to come from the countries, so I was extremely pleased that we have already three closed deals in the U.K., in France, and the last one in the U.S.
You will see that we will continue with that kind of speed also in the second half of the year, where you can expect that we close another two to three bolt-on deals and already creating quite some momentum for the top, but also for the bottom line. I think if I may quickly comment on the markets, for the second half of the year, we are very confident based on our order books, based on the momentum we showed in the last three months. We are very confident that the momentum will be continuing for the second half of the year, and that we will achieve or maybe already slightly overachieve our growth targets for 2018. On the bottom line, you notice that we gained momentum. The second quarter, we could close with an EBITDA growth.
However, it's not in the magnitude what we target to do for the year. Nevertheless, I'm very positive about the momentum we have created, and we will see very good margins for the second half of the year. This is based on the fact that we had very steep cost inflation first half of the year. We come back with a strong pricing. We have very good pricing environment, but we have the usual time lag of two to three months. I'm confident that we will see a different cost mitigation in the second half of the year. Also, you see the other parts of our Strategy 2022 with the restructuring are very well on track. You could say that we are ahead of schedule. We took out one layer of management. We have a full direct reporting to the countries now.
Our people are now fully empowered but accountable to profit and loss. Our CHF 400 million cost-saving program is well on track. We have already closed down Singapore and Miami last month. We have announced the closing of Paris and Zurich, and this will be happening in the near future, and also further cost saving from the country side. We can confirm again that the CHF 400 million are well on track and will be delivered as promised. I think overall I'm really pleased that while we have a fantastic top-line momentum which will continue, the bottom-line momentum will come. We have I think fine-tuned the company, and we will deliver here a good second half. I think with this, I would love to hand over to Géraldine who can give us a bit more insights on the results by region and also by cash flow and the financing.
Thank you, Jan. Good morning, everyone. Let's go to our half year 2018 performance highlights. We are happy to report a second quarter of strong growth. After Q1 impacted by bad weather, we are back to solid results. Our net sales have increased by 4.8% over the half year, and as you can see, 6.2% over the second quarter on a like-for-like basis. In terms of EBITDA, Q2 has been the quarter of going back to growth, almost offsetting Q1 decline of 7.7%, allowing us to reach a limited decrease of minus 1.4% over the H1. We are now benefiting from the positive market trends in which we will bring you in more details in the coming minutes.
In terms of cash generation, as you can see, our free cash flow stands at minus CHF 473 million, negative as expected, due to seasonality, but strongly improving under the effects of a closer monitoring of our net working capital. If we go in the details by segment. Let's go on the slide half year 2018 total net sales by segment. You can note that most business lines improved top line in the first half. Cement recorded a 5.6% rise in net sales, reflecting strong volume growth of 4.4%. Our aggregate business also recorded healthy growth in net sales, up 4.6%, reflecting a slight rise in volumes and a higher pricing contribution. Volume were marked by a healthy growth in Europe at plus 3.7% like-for-like that strongly accelerated throughout H1.
Aggregates volume were broadly flat in North America, catching up after a soft start to the year in the U.S. because of the unfavorable weather. Our ready-mix concrete business recorded net sales of CHF 2.7 billion, up 5% on a like-for-like basis. Volumes in ready-mix were up in H1 for the group, driven there again by an improved momentum within Q2. Volumes were up in Europe, plus 3.7% in H1 like-for-like, strongly accelerating in Q2 with a growth of 6.3% like-for-like. Our ready-mix volumes also strongly recovered in North America, up 6.3% in Q2 like-for-like. Our solutions and product segments reported broadly flat net sales. If we now go to our recurring EBITDA bridge and look at our EBITDA into more details. You can see recurring EBITDA amounted to CHF 2,484 million for the first half, down 1.4% like-for-like compared to the first half of last year.
Q2 recurring EBITDA at CHF 1,784 million was up 1.5% like-for-like. This was the first quarter of growth, reversing the trend after two quarters of decline. The strong volume growth in many regions allowed the EBITDA back to growth in Q2. However, H1 remained negatively impacted by a difficult market trend in Middle East, Africa, and some industrial issues in Western Europe. Overall, price increase contributed positively, did not fully offset the cost increase, particularly on energy and distribution costs. As Jan mentioned, price increases are now gradually passing through. Let's now turn to our performance per region. In the first half, you can see here all regions, with the exception of Middle East, Africa, reported growth in net sales and in the recurring EBITDA. Let's start with North America.
North America delivered another solid contribution in the first half, supported by a good level of activity across the region. The first half increase in profits was, however, constrained by higher logistic costs and maintenance activities to cope with high demand growth and preparing ourselves for the high season. Net sales up 2.3% like-for-like in H1. 3.4% growth in cement volume in the first half. Cement volume trends accelerated in Canada over the first half and strongly rebounded in the U.S. in the second quarter. Recurring EBITDA is up 2% in the first half, implying broadly flat margin. This improvement in our Recurring EBITDA reflects mainly higher sales volumes and cost focus. It is worth mentioning a strong performance from the aggregates business over the first half in North America.
The underlying trends for construction in the U.S. are very solid. The increase in prices started to come through in April as anticipated. If I now move on to Latin America. Latin America recorded another very strong semester despite economic uncertainty in some countries and to a lesser extent, the impact of the transport strike in Brazil. Net sales in the first half were up 12.9% like-for-like. They included a rise in cement volumes of 12.1%, boosted by growth in our main countries, Argentina, Ecuador, Colombia, Brazil, Mexico. Very good performance of our ready-mix business, with volumes up 15.9%, thanks to our new project, the new airport project in Mexico. A number of countries continued to be close to a sold-out situation. Argentina, El Salvador, Costa Rica.
Recurring EBITDA was up 5.2% like-for-like in the first half, with notably improved contribution with Mexico coming from Mexico and coming from Colombia. This includes an increase in variable costs in Argentina to serve the market in a sold-out situation and a decline in results in Brazil, mostly reflecting the 11-day transporter strike. I now invite you to go to Europe, where we had growth in volumes in top line, in Recurring EBITDA in the first half, all this in acceleration in Q2, as we already said. Net sales here are up 3.4% like-for-like, with cement volumes up 5.5%, aggregate 3.7%, ready-mix 3.7%. Q2 net sales grew actually twice as fast as Q1. You can note the strong acceleration. Eastern Europe overall delivered a strong performance. Momentum improved in France, Switzerland, and Germany throughout H1. Underlying trends in most markets are encouraging.
Pricing is supportive. The industrial performance improved compared to the beginning of the year. Overall, in the first half, the rising cost and production constraints temporarily affected the profit improvement. Recurring EBITDA is up on a like-for-like basis, plus 1.2%, again, with a strong Q2 at 9.3%. Let's move on now to Middle East Africa. In Middle East Africa, the performance has been negatively impacted by unfavorable market conditions in several markets, with a volume decline, minus 2.5% in cement volumes, price reduction or increased competition, combined with cost increase and sometimes political instability. As a result, you can see a decline of 33.5% like-for-like of our Recurring EBITDA. Algeria still suffers from low demand combined with increased capacity. At the opposite, Egypt delivered excellent results in terms of both sales and EBITDA, this in a volatile environment. We have initiated action plans in the region.
Let's move on to Asia Pacific. Asia Pacific, you can see growth in volumes, top line and recurring EBITDA, which was driven by China and India. H1 net sales up 9.4% like-for-like, with cement volumes up 5.1%, aggregate up 1.4%, ready-mix plus 0.8% like-for-like. Cement volumes accelerated in Q2 over Q1, notably in India, Indonesia, and the Philippines. Recurring EBITDA up on a like-for-like basis at plus 17.1%. In Asia, we have globally a very good performance, there has been a good volume trend in most markets. Southeast Asia remains challenging, even if the situation improved in Indonesia and Philippines in Q2. India showed a solid growth with a strong volume effect. Our business here has, however, suffered a bit from high cost inflation, including energy. Our activities in China performed strongly. Specifically for Huaxin, the strong growth in contribution was actually driven by 3 factors.
First one is the supply-side structural reforms pushed by the government that led to an improvement in the supply-demand balance and to a rise in prices. 2, our unique waste treatment solutions that support municipalities in their efforts to reduce pollution. 3rd, the improvement in operation management with eco-disposal and fuel substitution. Let's now move on to the update on the CHF 400 million fixed cost-saving program. In parallel with the business, we have achieved significant steps in the implementation of a lighter operating model. Transformation of the corporate is now in full execution mode. Regional HQ of Miami and Singapore are now closed. Actually, Paris and Zurich corporate office reorganization have been announced and are ongoing, including the closure of historical locations and a headcount downsizing, both in France and in Switzerland.
In parallel, the countries have initiated extensive fixed cost restructuring with some major plans announced in H1. Third-party contract renegotiations are ongoing as well. Consistently with these actions, we incurred increased restructuring costs over H1. For a total amount of a little bit more than CHF 200 million, with the major part coming from the CHF 400 million plan. As previously announced, all actions are expected to be completed by Q1 2019, delivering the cost savings of CHF 400 million per year, measured at 2017 currency exchange rates. If we now turn to the full P&L, I remind you that we used to look at earnings per share before impairment and divestment, which we believe gives a better view of the operational performance. The first change to be noted is the decline of the operating profit by CHF 338 million.
It relates primarily to the recurring EBITDA, which we have already reviewed in detail, and to the restructuring litigation and non-recurring costs, which have increased by CHF 262 million. This increase is mainly due to the restructuring cost incurred in connection with the fixed cost-saving plan. The first half of 2017 also included a significant positive impact coming from reversal of provisions, CHF 436 million. Below operating profit, the net financial expenses stood at CHF 455 million in H1 2018, compared to CHF 398 million in H1 2017. The increase versus last year is mainly driven by financial expenses related to legal cases. The group's effective tax rates amount to 29.5%, compared to an effective tax rate of 30.5% before impairment and divestment in full year 2017.
As a result, earnings per share, excluding impairment and divestment, amounts to CHF 0.62 for the first half of 2018, compared to CHF 1.07 per share for the same period last year. On a reported basis, earnings per share was CHF 0.53 for this half year. Let's go to our half-year free cash flow bridge. Our free cash flow stands at minus CHF 473 million, reflecting the seasonality of our activity. The improvement mainly came from improved net working capital for CHF 312 million. Share of our joint venture increased, reflecting the success of our JV, Huaxin, where we have concentrated over the past two years a significant part of our business in China. The improvement in the bucket other is mainly attributable to the reduction of our financial expenses paid.
Our CapEx was broadly stable year-on-year at CHF 526 million CapEx to maintain and to develop. If I now turn on to the debt, our net debt was at CHF 16,127 million at the end of June 2018, up from CHF 14,346 million in December. This takes into account the settlement of some legal cases, the negative free cash flow movement of CHF 473 million that reflects the typical seasonality of the activity just described, and of course, the dividends of CHF 1,270 million. We remain committed to a solid investment-grade rating and to keep the CapEx below CHF 2 billion. However, we see this year as a year of going back to sustainable growth, meaning that we need to invest in restructuring actions and expansions such as bolt-on acquisitions that Jan presented.
Therefore, unless we can achieve some divestment before year-end, we don't expect a material delivery in 2018. With this, I now hand over to Jan for the outlook.
Yeah. Thanks, Géraldine, for the information more in detail. I think I touched on the outlook already at the beginning. We are very confident the momentum in Q2 will be continuing into the second half of the year. We believe from the pricing, the margin side, but also from our cost mitigation action plans, we are confident that we will see the right level of margins in the second half, and also we will see our restructuring and strategy execution well on plan. I think with this, maybe I would like to give you the opportunity to ask more questions on any areas of interest.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. You will hear a tone to confirm that you've 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 is from Alain Gabriel from Morgan Stanley. Please go ahead.
Yes. Good morning, ladies and gentlemen. Just two questions from my side. Firstly, on the guidance for this year. Clearly, you've stood by your at least 5% organic growth in EBITDA, which implies high single-digit growth like-for-like in the second half. Do you mind giving us a sense of the bridge that we should be expecting? Is it more price versus raw material spread widening, or is it more restructuring? If you can give us a bit more numbers around that and, in particular, what's your view on the Middle East and North Africa region, which continues to lag? How does it stack in that bridge? The second question is on the disposal program, the CHF 2 billion. I think you've set a timeline to be achieved or to be at least agreed by Q1 2019, which gives you six to nine months to go.
How confident are you in that timeline, and how is the pace going? Is it in line with what you expected, or is there some slippage on that timeline? Thank you.
Yeah. Thank you. I think on the guidance, we expect, first of all, that our margins will be in the right window. While the restructuring is in full implementation, and maybe we will see even some tailwind from there, the main driver will be our sales price adjustments and our growth momentum in the second half of the year, where we have no reason to-- We don't believe in our full-year guidance. As you said, this will require us to perform very nicely in the second half. We are confident that we will be in the right window for this. Maybe one more comment on the regions. When we talk about a strong second half, I think we will see that in Europe. Good markets, good margins for the second half. We also see that in North America, also in Latin America.
We will see that also in Asia. The one region where we have a headwind is Middle East Africa. You saw the rather disappointing numbers we had for the first half of the year. I think we are reacting very fast. We have a new leader for the region. We have done our reviews already with the key countries, key markets. You can trust we have some action plans in place already to stop here the downturn. However, second half will also be very challenging in Middle East Africa, but I think we are addressing the topic with very high speed. On the divestment side, we can fully confirm promise to have at least CHF 2 billion in divestments. This is in the making. Hopefully, we will have in the next three months or so, you will hear some announcements, some more details from us.
Thank you.
The next question is from Yassine Touahri from Exane BNP Paribas. Please go ahead.
Good morning. Thank you for taking my questions. I have two questions. The first one is on the U.S., where it seems that you've been gaining a bit of market share, probably next to the Ravena plant. Is this the reason why the margin were a bit diluted, and is this expected to continue into H2? My second question is on Southeast Asia, where you mentioned stabilization. Is this across the board or relating specific to some markets? Can you please give a bit more outlook on Indonesia, Philippines, and Malaysia? Thank you.
Okay. I think on North America, the trend is what we have seen for the company. We will see some good momentum on the margins in the second half. We will see some more growth in the second half. We were a bit capped at around 2% sales growth in the first half, and you can expect more from us in the second half. We have a very good order book, and the people had to fine-tune supply chain, certain areas of the company. Also, of course, high cost inflation in the U.S. You hear that everywhere, not only energy, but you have, of course, the logistics with a very tight truck or transport forwarding market. We have addressed this. We expect here to be in the right window for the second half. Southeast Asia, as you know, we are mainly active in the Philippines, Malaysia, Indonesia.
I think we see better trends there in all three markets, especially Indonesia had a good momentum towards in the half year, and we expect a good second half in Indonesia, better than last year. For the Philippines also, we believe we will have some positive momentum. In Malaysia, it's a bit more difficult market. We believe we have seen the bottom, but maybe this will require a little bit more time. Overall, Southeast Asia will have a positive contribution already in the second half of the year.
Okay. Thank you. Just on the U.S., if I may. When you mentioned that you have got a very tight transport market and higher energy costs. At the current pricing level, do you expect to pass on those extra costs, or do you require sequential price hikes in the different regions?
I think the market environment we have in the U.S., but also in other, especially in the mature markets, are very good for price adaptations. We have not only high demand, we have a construction market, which is maybe close to capacity levels at the moment. This is in principle, very good markets for pricing power. You see the reports about rising construction costs everywhere, and of course, we are in that business, so we should fully participate.
Thank you very much.
The next question is from Phil Roseberg, from Bernstein. Please go ahead.
Hi. Good morning, Jan. Good morning, Géraldine. Congrats on the good clean numbers. Just on that point, I noticed that in your description, there is some talk of production constraints in France and Germany and North America maintenance activities to cope with higher demand. My question, and especially for North America, which I think was a little bit disappointing, at least in our view, because the growth in operating profit in Q2 was well below the growth in sales is, are these issues sorted, and could they not have been a little bit foreseen? What do you think the impact of those numbers could be if you could quantify it? My second question is just on Asia Pacific. I noticed that Huaxin, I think, the net income contribution from the JVs into your operating EBITDA line takes up most of the growth, I think that you programmed for H1.
I think there's almost CHF 100 million increase in net income from Huaxin in H1. How sustainable is that growth? It's a very big increase year-on-year. Can you explain a little bit more what's going on? I know Géraldine explained the structure in supply and so forth, but can you keep growing Huaxin at that rate?
Phil, thank you. Very good questions. I think on the factory side, we were in a situation where we experienced a little bit too much maintenance work when the high season has already started. To give maybe a small excuse for this, we have these harsh winter conditions in the West in March and April. Then we switched to the traditional higher season months, April and May, very abruptly. Then we had in a few factories, we had issues to produce enough cement. We have addressed it, and it's a nice problem to have, actually, but we weren't fully happy that, especially in the U.S., but also in Europe, we had a couple factories not putting out enough volumes. We had, of course, we addressed the issue, and it was holding us back a little bit.
We had some cost overruns in these plants, and at the same time, we missed some volumes in the market. I think without these various factory issues, our growth would be even a bit higher and the cost base a bit lower. I see this positively. We have addressed the issues. We have solved the issues. This is why we are confident with the momentum for the second half of the year. On Huaxin, well noted, we have a very good development in China overall. There are a couple reports in the market about the recovery in China, or let's say, how efficiently the consolidation works in the Chinese cement market. Well done, how they take capacity out, and very well done. We are fully benefiting.
We have 42% of Huaxin, the fifth largest cement producer of China, and we're very happy to be part of this successful company. What the future brings, I think this is just the start of a very good cycle for Chinese cement companies. You have in China, a further development into aggregates, which is now very much pushed by many of the markets to have higher standards in aggregates. Also you have a big technical development, to have cleaner cement production and also to have waste co-processing. We have in our plans, huge initiatives at the moment to introduce the waste co-processing. We work very closely with the local governments, with the local cities. We burn a lot of the municipal waste in China already. We have plans to go up to 50% of co-processing in our key factories in China.
We expect that we will have a very strong performance of Huaxin also for the years to come.
Thank you very much.
The next question is from John Messenger, from Redburn. Please go ahead.
Hi. Good morning. If I could just follow up on China, just so we could understand as well, just the other part of it, and that obviously there were assets that were available for sale. Am I right in thinking that you had CHF 117 million that you had come in terms of that unwinding the Shuangma transaction, and you had a CHF 214 million outflow? Just to understand where you are in China. Are all transactions now completed? On that, there was a CHF 16 million impairment that has been reversed. Can we understand, is that in the operating EBITDA, or is that something that is a credit against your restructuring costs? Was that taken in EBITDA, or does it mean the restructuring was CHF 360, less CHF 60 to the CHF 300 we see reported? The second question was just on financial expenses.
Obviously, can we just understand what are the nature of the costs that are going through the interest line in relation to legal charges? Is this related to Syria? Are you required to fund, obviously, the cases for management team? Is this purely around fines? The ongoing cases that are detailed at the back of the accounts there. That'd be great. Sorry, just one disclosure point as well. Obviously, you've given the new segments by product area. Are you intending to introduce profit numbers alongside sales at the end of the year just to understand what we'll be given?
Okay, I'll take your question. With regard the last one, we intend to stay as we are for the moment. Okay. The net sales and the activity with regards our business lines. If I take your question about China and our own operations. You're right, we are actually unwinding, you're perfectly right, what we call the Shuangma assets, which were previously Lafarge plants. This is in process. We've got two plants out of the four. Remaining two plants are going on, and effectively, the fair value of the two plants that we got back actually at the beginning of the year, during the first quarter, generated the CHF 60 million you've seen. That's correct. You had a question on the financial expenses. You're right.
We have an increase, if you look at it before impairment and divestments of CHF 57 million, that is mainly due actually to some legal interest expenses arising from old cases, actually Brazilian cases, that we have to bear. There was also some little reversal last year, that makes a difference, if you will, the CHF 57 million that you can see.
Géraldine, sorry, just to come back. The CHF 60 million, is that in inside recurring EBITDA, that reversal? Or is it excluded?
No. No, it's excluding. It's not in there.
It's not in there. Brilliant.
Sure. No.
The next question is from Robert Gardiner, from Davy. Please go ahead.
Good morning. Thanks for taking my questions. Two for me. One, just to come back on Europe where the like-for-like EBITDA picked up pretty significantly in Q2 even with the U.K. declining. Just wondering if you could give us some more color on what's driving that improvement, any particular regions or product? Two then I just wanted to ask on cost inflation, especially energy and fuel, which appears to have accelerated into the end of the quarter. I'm just wondering, in as much as that you're increasing prices to offset, how you expect to manage through the rest of the year and the extent to which you're also hedged. Thank you.
I think on Europe, happy to give a bit more color. Europe has been overall a very good market demand, with the exception of the U.K. In the U.K., we are resilient. We are around last year's volumes, maybe a bit fighting in the second half for volume. We have a bit of pressure in the U.K., as I think anticipated by most of you. I was always of the view that construction will be resilient in the U.K. Let's see with all the Brexit talks and how the infrastructure projects will be continuing in the U.K. I'm still slightly optimistic. The other markets are, I think, in a condition, I don't know if you can ask for much more. We have a fantastic high demand in Germany.
We were also able, for a long time, to have significant price increases in the German market, which was important. We have the French market is running after the cold first quarter. It's running at very, very good growth rates with icing on the cake are the Grand Paris projects. Also the rest of the market segments are in very good condition in France. We have other markets, namely Spain or Italy, where we have growth again, very good market conditions. Maybe worth to mention Eastern Europe, where we are in some markets, we are sold out. We have a lot of activities. Romania, Poland are running at very high capacity levels, and we're very, very happy about it.
We see also this continuing in the second half, if you remember, we said this beginning of the year already, that Europe will be a good market for us in this year, we made sure that our people are also fully alert to follow up with the customers to make sure we participate in the growth opportunities.
On your question about inflation that of costs that effectively are coming from the energy prices, that have been actually very volatile anyway in the last two years. If you look at energy prices, it's been very volatile. Yes, it has increased during the first half, you're right. We of course passing all this into our pricing gradually. That's done effectively. About hedging, there's limited hedging for solid fuels. Of course we have secured a large part of our volumes already.
Okay. That's helpful. Thank you very much.
The next question is from Bernd Pomrehn from Baader Helvea. Please go ahead.
Yes, good morning. Two questions if I may. Firstly, in your half year report, you mentioned production constraints in Europe, operational issues in South Africa, and increased maintenance activities in North America. Did this have an impact on your assessment of the condition of LafargeHolcim's assets and the requirements for further CapEx? That's the first question. The second one, you mentioned that you initiated action plans for the ailing Middle East Africa region. Can you become a little bit more specific what kind of actions you have taken, and especially when you expect to see results from these actions? Thank you.
Yes, Bernd, thank you. I think production constraints, as Phil already a bit about it, this is nothing serious. This is just the normal operations in cement where you have to fine-tune from the quarry to the production to the silo warehousing according to customer demand. It's a bit tricky beginning of the year to do the maintenance when you basically don't need to produce, and then still be ready for the full season. This year, we had a very swiftly shift from low demand to high demand due to the weather, and that was a bit stressful for some of our factories. I needed to mention this in the report to be fully transparent with all of you. This is something which cost us a bit of volumes, but also a bit of cost overrun.
This happened in the first half of the year, but nothing serious, nothing where we see any big investment needs or something. This is just run the plant, have your normal maintenance, and especially make sure you run this supply chain, this high volume supply chain, in the most efficient way throughout the seasonality. Middle East, Africa, you see the results, you can imagine we have a high sense of urgency. We do not want to have another drop of 30% in profitability. We took actions. We have new leadership in place, and we have reviewed the candidacy of action plans on all important aspects. From pricing to the supply chain, and there is a little bit of a list to work through.
Okay. Thank you, Jan.
The next question is from Arnaud Lehmann from Bank of America. Please go ahead.
Thank you very much. Good morning, Jan and Géraldine. Maybe one question for me and just two follow-ups. The question is regarding your balance sheet. On the one hand, you say you are committed to your investment-grade rating, and I think you said in the past you wanted to get rid of the negative outlook at the rating agencies. On the other hand, you are committed to your dividends. We know what you are doing in terms of CapEx. You talk about bolt-ons, and I think Géraldine mentioned that the net debt is probably not going to decline this year. How do we reconcile these two? That is my question. The two follow-ups. Firstly, do you see potential for a second price increase in U.S. cement by the end of the year or in H2? Secondly, would it be possible to get the EBITDA of Huaxin?
I know you report the net profit. Could we have the EBITDA for Huaxin, please?
All right. I take the last correction. The EBITDA in Huaxin will be reported when it's publicly reported. I cannot give you. Phil was already digging into the issue smartly, and it's obvious there is significant increase, very good numbers, but the details, we have to wait for the official publication. This is this. I think for the price increase, we see the U.S. market. The beautiful thing about the U.S. market is that it's not one market. It's various geographic pockets, market segments, and metropolitan areas. We plan strong pricing for the second half. However, it will vary, of course, to be smart within these different pockets.
For your comment about the debt and the level of the debt, it's really difficult to give any forecast really. Probably same order of magnitude than last year. We have restructuring project, we have acquisitions, and we have a divestment program. There are always timing effects on all of these factors. Really, I cannot give any precise information at this stage other than we are fully committed with Jan to a strong balance sheet and a strong, of course, rating.
To be a bit more optimistic, here, I think we are fully committed. Géraldine works here on all the important levels, and I think for me, one key trigger will be our divestment program, so we can just reconfirm we have CHF 2 billion divestment planned . We are working on it, and I think in a few months, we have a much better view, and we will get more comfort from the divestment program.
Okay. Thank you very much.
The next question is from Gregor Kuglitsch, from UBS. Please go ahead.
Hi. I've got a few questions. Firstly, can you update us on what you plan for restructurings? Obviously, a very big charge there of CHF 300 million in the first half. How you see that shaking out for this year and maybe also into next? The link to that, obviously you gave guidance there on debt being broadly flat or modestly down. I can't remember exactly how you phrased it, which basically implies pretty poor or low free cash flow conversion. I want to understand when that normalizes and how quickly it does. I know you've got obviously targets in place for free cash flow conversion in the medium term, but obviously, there's been restructuring costs and legacy issues that have been impacting your cash flow last year in 2017 and also this year. A question on sort of the cost price dynamics.
If I look at your slides that you provided, slide 10, it's CHF 177 million negative. I think you put in the benefit of Huaxin in there as well. Add that back, it's around CHF 100 million. Nearly call it CHF 300 million negative. I want to understand what gives you the confidence that can turn positive, and I think that's what you were suggesting in the second half. I guess you have some view of pricing levels that lead you to conclude that, but I want to understand a little bit more granularity, if you can. Thank you.
Yeah. Let me maybe start with the first part before Géraldine goes into more detail. I think what you're asking about the timing of restructuring and debt and so on is an important question. I think our target is to really do everything this year. I'm extremely positive. We announced the new strategy March 2nd, and we basically want to do the restructuring, get the comfort zone for the investment-grade rating, and do all this by year-end. We said by Q1, but this is really our target. This is not a never-ending story, and we come with the next round, the next round. This is really something which will be delivered.
You can see also from the restructuring started, that Géraldine also made sure to put a big portion right away in the half year report, which just to demonstrate this is how we're going to do it. We do it fast, and we do it in a very transparent way. For the cost price, your observation is right. We have a lot of headwind on the cost, on energy, but also on logistics. You see as we are very happy with the high demand in the construction markets. At the same time, we are operating at full capacity levels, for example, in transportation in many markets. This brings a lot of cost inflation for us, and it's our task, a number one priority to do this in our pricing. There is a time lag, this is a bit always the case.
When you have now this number for the first half, you can be more confident that this will be not the case for the second half of the year. Géraldine, you want to talk a bit about.
Yes, maybe.
restructuring
Gregor, you mentioned a bit about the restructuring, the CHF 300 million of restructuring litigation and other non-recurring costs. It's important to mention the three elements that are in this CHF 300 million. You can see actually you've got a little bit more than CHF 200 that are directly linked to restructuring, and part of it, you're right, is also coming from legacy. Actually, yes, CHF 200 million of restructuring costs out of the CHF 300, and the rest is really coming from some litigation that we are providing for, and you have the full detail in the half year report about this. On the free cash flow, the cash conversion, of course, we have to do the restructuring. We have the growth to continue. You well got the point.
We are doing all our efforts to, of course, not be at the same level at least of last year in terms of cash conversion. I think I answered your questions right, Gregor?
Just to be clear, can you help us a little bit if there's more non-recurring charges of that magnitude or
No, on the restructuring, I said maximum, we're expecting much below, but maximum CHF 150 more for the second half. On the restructuring, I cannot guide on the other items as you can imagine.
Okay. Understood. Thanks.
The next question is from Elodie Rall from JPMorgan. Please go ahead.
Hi. Good morning, everyone. Thanks for taking my questions. Just to start with a follow-up on your vision or how you see inflationary trend evolving through this year. You have a competitor that has raised the guidance for energy cost per ton of cement produced to 6%. Is that also what you're seeing at the moment? A little bit more color on that, please. Second, at Q1 results, you had mentioned that Europe and North America were going to be the key contributors to your 5% like-for-like EBITDA growth target. Do you still continue to believe this despite the 1%-2% growth in these markets so far, whereas we're seeing a maybe more positive momentum in Asia? Lastly, if I may, I'm not sure you answer that, but there are news reports saying you're looking to sell Indonesia. Would you be able to comment on that?
Thank you.
Okay. Yeah. Thank you. I think on Indonesia, we don't comment at the moment. We have our investment program is well laid out. Very important for us. We're not selling because we want to sell. We are selling for high valuations only. We are in the process with a couple assets, and hopefully we can report something to you in the next 3 months. I think on the markets, if I give you an outlook for the second half, we expect stronger results in North America compared to the first half. I mean, to be fair, North America, the result is done in 3 quarters only, and the next quarter is highest volume one. We are very excited to make our run rates work now in Q3 in North America. Europe is also the biggest quarter of the year. We are also excited here to perform.
You're right, I think in Asia, you will probably expect from us that we will see rather a good second half, better than the first. We are positive for India. Very high growth rates in India. We have, in Southeast Asia, I think, positive momentum in Indonesia and in the Philippines, while Malaysia maybe has reached the bottom a bit. We are confident for Southeast Asia. Australia is running at high steam. China, I commented earlier, will be a beautiful second half. We have not only 2 regions. Latin America also, you see the growth numbers, double-digit growth in volumes in the first half. We had a couple issues. Géraldine was touching on it, a strike here and other things there. We are quite optimistic into the second half. Also Latin America will contribute.
Middle East, Africa is the one region we have headwind. We are fighting now and doing everything that we will not see another decline in such a magnitude of 30%.
The next question is from John Fraser-Andrews from HSBC. Please go ahead.
Thank you. Good morning. My two questions are firstly, in North America, where you've reported like-for-like sales growth of 5.5%. Could you split that, please, between price and volume? You talk about good volume growth across certainly two of the products. It doesn't seem, if that's the case, there's much price growth. I wonder what's going on there. Is it that it's the Q2 price announcements, or have you seen some weakness in the Northeast from the big competitor there? That's the first question. The second question is around the Middle East, Africa region. Could we have some more granularity, please, about some of the problem countries? What you're doing to rectify and the timing of when we'll see this region stabilize. I'm referring particularly to Algeria, to the volume falls in Iraq, and the losses in South Africa that Lafarge Africa has reported.
Thank you.
I think you touched the points. Middle East, Africa. I think the Algerian market story is well-known. We have a drop in market demand. We have a bit more capacity, bringing us in a bit a spot you don't like to be necessarily. We have a good action plan in place, how to mitigate the tough markets. As you mentioned, it's not only Algeria. We're also not happy with Sub-Saharan Africa down to South Africa, where we have a couple of potentials to improve the business significantly. We have addressed all this. I don't want to comment much more, but we will see better performance, I think, from now going forward. North America pricing, I think we shouldn't analyze too much. It was basically North American market just started in the second quarter.
We have the pricing, the margin mix varies quite a bit from the different geographic areas. I wouldn't read too much into it. We are confident. We believe we have the right pricing in place. As you said, we have the price increases just basically came out in Q2. We are confident we have a good situation. We have a significant aggregate and ready-mix business, which is very nicely developing also now with the big quarter coming, and here we have price increases maybe in the magnitude of 3% effective. For North America, we are very positive, and I would be surprised if we don't follow your expectations in Q3.
Iraq in the Middle East?
Well, Iraq, we have a good position there. We have a good plant there. The market is tough at the moment with the demand and so on. It's not a market which makes us very happy at the moment. It's part of the region, and we have a good plan going forward.
Okay. In that region, apart from those countries, are there any others that are significantly had reductions which have contributed to that 30% EBITDA contraction?
We have two or three positive markets, we have six, seven disappointing markets, to give you a bit an overview. While Algeria was the biggest drop from percentage, but especially from the volumes, we had also some other markets where I turn it around where I say we have a big potential to improve the situation. Can I have maybe two more questions? I have to run. It's 11:00, I'm happy for two more questions.
Today's last question is from Nabil Naouath from Barclays. Please go ahead.
Good morning. Thanks for taking my question. It's actually three follow-ups from me, if I may. First one, maybe more follow-up about China. You mentioned this positive cycle that you're experiencing over there, the significant rise in profit of Huaxin. Could you please update on what's the strategy of LafargeHolcim in China? It's obviously a big market. You are pretty small in a big market. How relevant is China for the group? The second question is on the solutions and products. If I recall your March 2nd announcement, I think it was a key part of your growth strategy. It's the only business line that is barely, I mean, that is not growing in the first half. Could you explain why and what would be your expectation for the remainder of the year for that division? Finally, maybe more question on the reorganization.
If I recall well, you mentioned that you wanted to give back more power to the countries. Is that done? I'm not sure you're going to be able to answer the second one, are you happy with the managers you have, or should we expect more changes in terms of the country head or the key management roles? Thank you.
I think we have changed a lot. I'm very happy. We really went very fast with the reorganization. We have now all key markets directly reporting to group management. We have full empowerment for profit and loss. This means empowerment, full accountability. We have really simplified, as promised, the whole company, only focusing on the four KPIs of growth, EBITDA, return on invested capital, and cash conversion. Very simple. People know what they are responsible for. I couldn't ask for a better speed. This is all well done. I think, on your question for solutions and products, it's a part of our growth strategy. First of all, I'm really happy that our direction to go closer to the customer already shows results in aggregates and in ready-mix concrete. Solution products will be the icing on the cake, you have to give us a bit more time.
This is nothing I can turn around in a few weeks or months. This is still a key part of our future, and I will be excited to develop this in due course. On China is again great. We have 42% of Huaxin, which is a $3.5 billion company, plus we still have two factories run by ourselves. I'm very happy. You will see from us that we fully support even an acceleration of Huaxin also into other markets, and you will also see much closer cooperation in the future from LafargeHolcim to use turnkey equipment from our partner. Good. With this, I have to run. Thank you so much for your interest and participation. I look very much forward to see you all in the near future, and I look forward to a fantastic Q3. Thank you very much.
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