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Edited Transcript of HEI.DE earnings conference call or presentation 21-Mar-19 1:00pm GMT

Full Year 2018 HeidelbergCement AG Earnings Call

Heidelberg Apr 10, 2019 (Thomson StreetEvents) -- Edited Transcript of Heidelbergcement AG earnings conference call or presentation Thursday, March 21, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Andreas Schaller

HeidelbergCement AG - Group Spokesman, Director Group Communication & IR

* Bernd Scheifele

HeidelbergCement AG - Chairman of Managing Board & CEO

* Lorenz Näger

HeidelbergCement AG - CFO, Head of Finance, Accounting, Controlling, IT & Logistics and Managing Board Member

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Conference Call Participants

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* Alain Gabriel

Morgan Stanley, Research Division - Equity Analyst

* Arnaud Lehmann

BofA Merrill Lynch, Research Division - Head of the European Construction & Building Materials and Director

* Arnaud Jacques Michel Pinatel

On Field Investment Research LLP - Founding Partner

* Gregor Kuglitsch

UBS Investment Bank, Research Division - Executive Director, Head of European Building & Construction Research and Equity Research Analyst

* John Messenger

Redburn (Europe) Limited, Research Division - Partner of Construction & Building Materials Research

* Paul Barry Roger

Exane BNP Paribas, Research Division - Sector Head of the Building Materials Team & Analyst of Building Materials

* Philip Anthony Roseberg

Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst

* Rajesh Patki

JP Morgan Chase & Co, Research Division - Analyst

* Robert Gardiner

Davy, Research Division - Industrials Analyst

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to Business Year 2018 Conference Call. (Operator Instructions) I must advise you that this conference is being recorded today, Thursday, 21st of March 2019.

I would like to hand the conference over to your first speaker today, Dr. Bernd Scheifele. Please go ahead, sir.

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Bernd Scheifele, HeidelbergCement AG - Chairman of Managing Board & CEO [2]

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Okay. Hello to everybody. Good afternoon here from a very sunny Heidelberg. It's the first warm spring day, so it's an excellent day to sell cement and aggregates, at least here in Germany and I think in most of -- the most parts of Western Europe. I sit together with Dr. Näger and our Investor Relation team, with Mr. Schaller and Ozan Kacar and Mr. Jelitto. As usual, I will lead you through the operational results. I will keep that very short because we have reported until the line of RCO already in our trading statement, and Dr. Näger will concentrate on the nitty-gritty details of our items below RCO.

Chart 3, overview. Okay, revenue overall was up 8%, first time Heidelberg exceeds EUR 18 billion sales. So we had overall a very good, strong growth in our -- on the top line. If you look to the EBITDA later, we are more or less flat if you take out Carroll Canyon and the ForEx and the consolidation compared to last year. 2018, I think was the most challenging year in the industry after the financial crisis. So we had a lot of headwinds from high energy cost inflation, exceptionally bad weather, partially at the beginning of the year in Europe and in U.S. and then also in September again, very wet weather in the [U. S.A] (corrected by company after the call), especially in the south in Texas. I think if you look to our Q4 numbers, we had overall a good run in Q4. Especially our cost/price relationship has improved. Cash generation in Q4 was very strong, was close to EUR 1 billion. I think that was okay.

If you look to the final numbers, which are important to shareholders, earnings per share was up 25%. And that's why we want to increase dividends by about 11%. The cash conversion rate is at 42%. I think this is, in our industry, a very good number. So Heidelberg could afford to increase dividends, at the same time invest significantly in the market position and also reducing bank debt by about EUR 350 million. That shows that we had a very strong cash generation.

Portfolio optimization continued, I think, with good speed. We had overall about EUR 600 million disposals in 2018. We have already done in 2019 EUR 200 million. So we are confident that we can continue this trend in 2019 in order to reach our target, which we communicated to you, of EUR 1.5 billion over the next 3 years.

The outlook for 2019 is unchanged. But I think there was some confusion about the German term "moderate". yes, under German definition, this means between 3% and 9% growth. There is no change. I think overall, we had a good start in the year. I think we might talk about that later.

If you talk -- if you look to Chart 4 and you look to the margins, the cement margin drop is mainly due to Indonesia and partially U.S. aggregates. If you take -- if you eliminate Carroll Canyon, I think then the margin is okay.

If we look to Chart 5, operating EBITDA bridge, that's what you see. ForEx, down versus last year, EUR 130 million. Just to remind you, it's the third year in a row that we had a negative ForEx impact over the last 3 years. Total impact is close to EUR 300 million. We expect to swing that back sooner or later. Deconsolidation, EUR 53 million. And then on the right side, you see the Carroll Canyon impact of about net EUR 61 million.

What's interesting to see and that is very consistent what we have seen from our competitors, which have already published their results, that the price/cost component was negative, meaning the industry was not in a position by price increases to compensate the significant increase in energy costs. We had last year an increase. For example, if you take the New Castle average price was up 17%. Oil was up by about 30%. And for example, in Germany, electricity, which is a benchmark market for the energy in -- for electricity in Western Europe, electricity was up by about 30%.

Chart 6 shows you the key financial metrics. You see revenue -- very solid revenue growth over the last 3 years. Earnings per share clearly up. Net debt continues to trend downwards.

Chart 7 shows the cash conversion rate of 42%, I think, which is pretty strong. You see that working capital has increased by about EUR 107 million. That's a clear indication that we had, at least in some countries a little bit strong activities in December.

We continue to earn a premium on our cost of capital. We see that the -- we are at 6.9%, 6.3%. The methodology for the WACC has not changed. The WACC goes down due to the Italcementi countries. Dr. Näger can explain that in more detail.

We continue with the action plan which we presented in November. Strict cost management, we want to save on SG&A about EUR 100 million. Margin improvement, we have started aggressive commercial action on pricing. That looks pretty promising this year. Cash generation remains high on the agenda. You have seen -- I believe we told you last year that we have introduced in 2018 for the first time for our country managers free cash flow targets. And that has obviously worked, yes. I think part of the strong cash generation has also to do that the line management remuneration has been partially changed to free cash flow. And we want to limit the gross CapEx to about EUR 700 million over the next 2 years.

SG&A initiative has been launched. Out of the EUR 100 million we have budgeted, we see the savings of about EUR 53 million in 2019, out of which more than EUR 30 million come from overhead in countries. So we are well on our way. Portfolio optimization remains high on the agenda. The target is EUR 1.5 billion. Per today, we have already done EUR 800 million, EUR 600 million last year, EUR 200 million this year. Three areas: noncore business; weak market positions; and idle assets. Idle assets come, to a large extent, also from the Italcementi transactions where we acquired a lot of assets, which are not necessary to run the business. We underline again that the disposals will have more or less no impact on EBITDA. You saw that from the disposals we did already this year, that was a reduction of the stake in Morocco and also Ukraine, respectively, 0 impact on EBITDA. And we plan to do that.

On the areas, I keep it very short. I jump shortly to North America and just limit my comments on 2 points per area. In North America, if you look now to year-to-date results, it's clearly down. EBITDA like-for-like was about 10%. Okay, there is Carroll Canyon we have to take out, so this was slightly negative. Positive highlights were, from a volume growth, obviously Canada, including the region Oregon, meaning Seattle, Portland, Vancouver, where we had closed to double-digit growth also in the south, and whereas we had negative growth in our Region North of minus 2%, partially due to the market. The market there was down about 3%, and we lost a little bit of share due to McInnis.

From a result point of view, Canada was strongly up by around EUR 40 million, whereas the region North was down by about EUR 50 million, EUR 54 million.

If you look to Western and Southern Europe, weak result in the U.K., yes. London market was weak. Our result was down by about EUR 45 million, EUR 46 million. And that was more than compensated by a strong run in Italy, Germany and France, where all the results, were up double digit.

North and Eastern Europe, we had a good development. You see that on EBITDA, up 11.4%. Czech Republic was up. Poland, more significantly up. Czech Republic and Poland, all up double digit. Russia was better. Kazakhstan was better. Only Ukraine was weaker.

And in Asia Pacific, the result reduction is only due to Indonesia. Indocement was down in euro terms about EUR 47 million. And that was, to a large extent, compensated by a good result development in China and also in Thailand.

In Africa, I think we did a good job. The margins went up. The result is up like-for-like 4.7%. Weak spot was Turkey, which had obviously a very difficult second half. And also, our result in Israel was hit by the stop of one quarry due to end of license. Whereas result development in Tanzania, Morocco, Egypt was all okay.

And I think from Group Services, we had a very good year. Operating income, EUR 31 million, that was a new record. And also, revenues were significantly up.

And I think that's it from the operational business. And I hand over to Dr. Näger.

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Lorenz Näger, HeidelbergCement AG - CFO, Head of Finance, Accounting, Controlling, IT & Logistics and Managing Board Member [3]

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OK. Good morning and good afternoon, ladies and gentlemen.

I would like to lead you through the financial report, which starts off on Slide 21 with a summary. This year, the headline was "there is a life beyond RCO" or "beyond operational results". There, we are a little bit weaker on the operational results but with a view on the group share of profit, we were able to overcompensate this in 3 major areas, which is, first of all, our additional ordinary result shifted from negative to positive and improved by EUR 241 million. Secondly, we, HeidelbergCement, enjoyed good refinancing condition, and based on favorable refinancing terms, we were able to decrease and improve our financial results by more than EUR 50 million. And likewise, we benefited from tax rate decreases in many countries. And tax expense decreased to EUR 460 million, and also, cash tax payments decreased.

So based on that, we achieved the group share of profit to increase by 25%. And likewise also, earnings per share increased by the same percentage.

Also, we generated positive cash flow. We generated -- we have a cash conversion from EBITDA to free cash flow, 42%, best value in the industry. And this allows us to finance our growth CapEx, to pay an increased dividend and to pay down debt from our operational business. So both sides, capital and earnings, lead to a situation where we achieved a return on invested capital of 6.9%, 0.6 percentage points ahead of our average cost of capital.

You can see this on Slide 22 in the income statement. Additional ordinary result moved from minus EUR 133 million to plus EUR 108 million, contributing to the profitability. Financial result improved from a cost of EUR 418 million to EUR 367 million. And income taxes improved from EUR 579 million to EUR 464 million, which leads us to a net result from continued operations of EUR 1.3 billion compared to previous year, EUR 1.1 billion. I mean, this is the highest value in the history of HeidelbergCement from ongoing operations. Only in 2007 and '08 we had higher results when we sold big businesses from our -- in preparation of the Hanson acquisition.

So then if you look to Slide 23, you can see a split-up of the additional ordinary result. Notably here is that the restructuring expenses drastically reduced in 2017. These were mainly the restructuring costs for Italcementi. As you know, Italcementi integration is completed, and therefore, we do not see any significant amount in restructuring expense. On the other hand, from our disposal program and portfolio optimization program, we have quite a significant amount of gain, EUR 125 million, mainly coming from the sale of the German limestone brick business and the U.S. white cement business.

If you then move to Slide 24, you can see further improvement in -- on our net financial result. This is mainly driven by reduced interest expense. And the reduced interest expense comes from the maturing of high-interest bonds, which we issued after the financial crisis, and now we replace it with low-cost bonds. And this reduces our financial expense. We do expect this development to continue in 2019, 2020 and 2021 as we have the last high-yield bond maturing in 2020. So midterm, we expect the cashout and the financial result to be in the range between EUR 250 million and EUR 300 million.

Tax expense and tax cash payments (sic) [cash tax payments] continue to develop favorably, as you can see from Slide 25. You know that I focus on cash tax payments on -- and on current tax but not on deferred tax because deferred tax is very difficult to predict and to plan because it depends from a lot of external influences. So you can see here on the chart the cash tax payments from HeidelbergCement. You can see that in year 2009 during the financial crisis and in 2012, it reached an amount of 50% or higher. And since then, this consistently trends down into a range of about 20% to 25%. That's exactly what we guided.

There are 2 main drivers for a fairly favorable tax rate in HeidelbergCement. The one is that we observe globally a reduction of income tax rates, the most significant being probably U.S., moving from 39% effective to 24% effective, which is 21% federal plus 3 percentage points of state tax. But also other countries like U.K. moved significantly down. U.K. goes from historically 27%, 28% in 2008 now down to 18%, if I'm not mistaken. Eastern European countries are typically around 15% to 20%, and also, other countries like Canada trend down. This is one driver.

The second driver is that HeidelbergCement in virtually all countries has a tax-positive result. So there are no losses, which do not have a tax shield in the group, and that leads to a very even spread globally of profitability, which then makes the country -- the company benefit from this low tax rate environment. We also expect this trend to continue and the tax rate to stabilize in the range of 20% to 25%.

As I've previously stated, we come to the cash flow on Slide 26. HeidelbergCement is a cash machine. We had a cash conversion rate of 42%, which is clearly ahead of the average of the industry and leading in the industry at least on the multi-country, multi-business line level. You can see this on Slide 26 on our cash flow statement. Cash flow from operating activities stays on the level of EUR 2 billion. We had a little increase in working capital by EUR 100 million because the Q4 was very, very strong. You can also see this in the balance sheet. We were producing and selling high quantities of our product in the Q4, which then led to higher stocks and higher accounts receivable because these high sales were backed up also by a favorable production environment. So this contributed towards an increase in the core working capital.

We had in 2018 high investments in our business. You can see it, EUR 1.7 billion. And this includes significant parts of growth CapEx, namely the 2 big acquisitions in the beginning of 2018, which was Cementir in Italy for market consolidation with EUR 317 million and Fraser in Australia sand and aggregates business for EUR 200 million. And this drove up the investments compared to previous years.

As a consequence of lower operational results, we compensated the lack of cash flow from that... so... by an acceleration and intensifation (sic) [intensification] of our disposal program. So we have successfully disposed of some noncore assets, noncore being defined, as Dr. Scheifele outlined, as being outside of cement, aggregates, ready-mix and asphalt, all being in geographies that we do, in the long term, not expect to have reasonable profitability or market position. And we continue to intensify our program to dispose of idle assets, which mainly stems from the Italcementi environment. So this led to a disposal in the range of EUR 600 million. And as we have outlined earlier, we expect another EUR 500 million in 2019 and another [EUR 500 million] (corrected by company after the call) in 2020.

So overall, we enjoy a very strong cash flow generation. This is depicted then on Slide 27. You can see the horizontal green bar, EUR 1.3 billion of free cash flow. That's what the company is able to generate from its existing business scope. And then below in the blue bar, you can see how the money is allocated. On the right-hand side, dividends, EUR 377 million for the HeidelbergCement shareholders and EUR 188 million paid to minority. You can see, if you look left to compare it to 2016 and '17, how we have increased the share which we pay to our shareholders over time and following our strategy to share more and more of our free cash flow with our shareholders. On the back of this, then we reduced net debt by EUR 328 million. And I mean, this is remarkable that we have a cash flow generation, which allows us to pay full dividend, to fully develop our portfolio and, at the same time, pay down debt.

Slide 28 then shows you the balance sheet. Nothing specific. Here, you see a little bit increase in the intangible assets. That's equivalent from Cementir and Fraser. You -- secondly can see an increase in working capital. Receivables go up by EUR 388 million. Inventories go up by EUR 154 million. And that's the consequence of strong business activity and high production levels in the fourth quarter of 2018.

Maybe on Slide 29, the impact of IFRS 16. Leases, yes, you know in our business, we used to lease assets. If we look to the leased assets, this is predominantly yellow machines, which we use in our quarries, and therefore, it's also predominantly in the aggregates business. It's, to a smaller part, in ready-mix where we lease mixer trucks, and it's, to a small extent, in the cement business.

The -- as you know, IFRS 16 requires leases to be reclassified into depreciation and into interest rate. And by that, the leasing payments will be reclassified out of EBITDA into depreciation and into finance costs. So as a consequence, EBITDA will go up between EUR 250 million and EUR 300 million. On the other side, sustaining CapEx will go up for more or less the same amount, EUR 260 million to EUR 320 million. Therefore, the free cash flow will not be impacted. There is just the shift from leasing payments into stay-in-business CapEx.

On the other side, in the balance sheet, you have to capitalize the discounted leasing payment. And this will lead to an amount between EUR 1 billion and EUR 1.2 billion discounted leasing payment, which will be shown in the balance sheet as financial liability. Now as a consequence of this, we have decided in the board to not continue leasing, especially for yellow machines, and to buy this equipment in future. That's why for us, the sustaining CapEx will then go up, yes. The reason is that we will not enjoy the benefit of a lighter balance sheet, which was, until 2018, the case. Secondly, finance costs will decrease because our bank and capital markets -- the debt capital market margins are lower than in the leasing contracts. And thirdly, we gain more control over our assets because we then can decide how long we want to run such yellow machines or whether we sell them off earlier. So it gives us a higher degree of flexibility. That's why we are not going to continue with leasing but go for direct purchase. Exception of that is company cars, which normally come with a package, and office space. It doesn't makes sense to buy everything. You only need the core assets in the office space, but the remainder remains with normal leasing contracts. So that's what we expect in -- as a consequence from IFRS 16, which will then roll into the balance sheet over 2019 and in the following years.

Net debt/EBITDA will go up by 0.1 to 0.2 out of the box, meaning in 2019 like-for-like compared to 2018. And then we will see over the coming years how that will develop. I think midterm, net debt will go up due to this by EUR 0.5 billion once the newly acquired yellow trucks and yellow equipment will be written off over time. It takes 5 or 6 years before we will see steady state here.

Then on Slide 30. I mean, in terms of important pension provisions, you can see that the pension obligation has been systematically managed over the last 5 years by closing down our pension schemes and by reducing the benefits from those schemes and mainly moving from defined benefit to defined contribution, we were able to substantially decrease our obligations out of that from 2013 of EUR 5.9 billion to 2018, EUR 4.8 billion. We achieved to reduce this by more than EUR 1 billion. That's a remarkable achievement in my eyes from a financial perspective.

Then the 2 sides, meaning the result and the management of the assets. The results in the cost of -- in the return on cost of capital, we achieved 6.9%, which is 0.6 percentage points above our WACC. We had some comments that our WACC appears to be low, but I can confirm to you that the calculation is unchanged for more than 10 years. So we haven't changed it anything in a real comparable basis. The main reason for the reduction is the change in our portfolio. We have an increasing part of our assets in mature countries after the Italcementi acquisition. And secondly, the beta factor is reduced significantly over the last 2 years and is down from roughly 1.3 to 0.8. And that technically leads to a decrease in our WACC.

The second comment which I would like to make is on the invested capital. This is a 4-quarter average. You know that in our business, the fourth quarter end of December has a very low capital employed due to the stop of activities in December and just before Christmastime, whereas in summer and spring, the capital invested is significantly higher. The swing is roughly EUR 1.5 billion. And we show in this chart the 4-quarter average, whereas I have seen that in the market, some companies tend to show the year-end value, which then gives, of course, a higher -- a higher return on capital and a much lower capital employed.

You can also see the effects of our initiative for portfolio optimization and streamlining from 2017 to 2018. The capital employed decreases by more than EUR 500 million. That's significant. And also, if we look -- compare pre-Italcementi, which was until 2015 to 2018, today, we have an increase in the capital employed of roughly EUR 4 billion, whereas Italcementi came on to the balance sheet with a total value of EUR 5.5 billion. So we achieved to manage down by EUR 1.5 billion, and this predominantly comes from the sale and streamlining of the Italcementi assets. So that gives us finally a much lower invested capital for Italcementi assets compared to what we started initially with.

Then Slide 32, you see the dividend development over 10 years, 37% combined average growth rate. We now achieve our target range of 40% of our adjusted group net profit. And by that, we have now reached the target range 1 year earlier than initially expected.

I mean, that's it from the financial side, and I would like to give it back to Dr. Scheifele for the outlook.

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Bernd Scheifele, HeidelbergCement AG - Chairman of Managing Board & CEO [4]

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Okay. So on the outlook, chart 32, from the volume that's unchanged compared to February, we expect the growth in U.S. of about 3% to -- 3%. Would expect stronger growth especially in the southern markets, so Texas, Georgia, North Carolina, South Carolina, I think the markets are pretty strong. We -- what we see, that the market in the north, northeast, New York, Upstate New York, Boston have been weaker, have been disappointing last year. We see clearly better signs this year, first two months. So, the volumes are clearly there. The order book seems to be okay. We expect a good volume growth especially in California. The California infrastructure program, which provides USD 5 billion additional for infrastructure on a yearly basis, will have a clear impact. And we see also Oregon, so the whole Seattle, Portland market, to be very strong.

Europe overall grows between 1% and 2%. The first two, two and a half months, look pretty good. That's partly weather-driven. So France volumes are good. Grand Paris -- the Grand Paris project is progressing. Also, Italy in the north is okay, 4%, 5% up. Germany is okay. Eastern Europe remains strong, so we expect another strong year, especially in Czech Republic but also in Poland and in Hungary.

Russia, overall flattish. Turkey, obviously double-digit negative growth. India should have a good year. We would expect 7%, 8%. Indonesia, our forecast was about 4%. That looks good at the moment, the first weeks of the year have been better than we expected. They have the election coming now in mid-April. Market has been okay with a growth between 3% and 5% in January, February. March is now a little bit slower, slightly negative, but that's mainly due to the election. Australia, solid. And in sub-Saharan Africa, overall good growth. Egypt is going to be weak.

We look to our markets in Chart 35. We would expect a solid result improvement in North America. What we see in quite a couple of key states, state infrastructure spending, up, spending is up. That's, for example, in Pennsylvania, which is an important state for us. California, I mentioned. Texas is strong. Georgia is okay. Indiana is good. South Carolina, North Carolina, state infrastructure spending is up. Oregon is strong. And we would expect, in U.S. in cement, price increases of about between $5 and $10 depending on the state and, in aggregates, also between $3 and $5.

Europe overall is doing growth. I would expect a slow growth but growing. Pricing in Europe, overall what we see is going up. That was -- it's one of the key targets for this year. And for example, in Germany, we are now up maybe EUR 2, EUR 2.50. We are pricing first time above EUR 70 --per tonne in Germany at the moment. Italy, prices are clearly up. We are above EUR 70 now at the moment in March, which is up by about EUR 11 per tonne compared to last year. France is also pricing up by about EUR 4.40. So that looks good. In Poland, we have increased successfully prices by EUR 8 per tonne, so -- and in Czech Republic by about EUR 4. So overall, price momentum at the moment looks pretty promising.

Asia Pacific, maybe one remark on China. Growth in China in our industry until now has been good, between 2% and 3%. We have to see now after the Chinese New Year how things are continuing. Volume grows 2%, 3%. Pricing has been stable. However, there's a certain caveat. The Chinese government has started now a price investigation in the cement sector in China, yes. That's not a surprise because pricing in China went up over the last 2 years by about 40% or 50%, yes. There's also a limit to that.

Indonesia is doing better what we expected, mainly driven by 3 reasons. First of all, volume was okay. As you know, we have budgeted for volume growth of 4% in Indonesia for 2019. Last year's market growth was 5.2%, 5.3%. Our budget assumption was 0 growth in the first half year due to the election and about 8% in the second half. However, we see now in the first quarter that already until now, growth has been slightly positive. So volume is okay. Pricing is also good. In bag cement, we are up by about 10%. Bulk is flat, yes. We had assumed a certain drop of bag cement price in the first half year due to the consolidation not being finished yet and then have assumed a price increase in bag cement, I think, starting from 1st of July or 1st of August. At the moment, bag cement price is stable. That's good news. Other good news is that coal price is clearly down. You know that Indonesia is one of the large coal consumers in our group with about 2.6 million tonnes. The Newcastle Index is clearly down, so we have also support from lower energy cost. And finally, the Indonesian rupiah has clearly gained strength. It's much better performing against the U.S. dollar compared to last year. Last year, we lost about 10%. As most of you know, 2/3 of our cost base in Indonesia is dollar based. So if the currency is weakening, that hits us also on our operational result. So Indonesia, at the moment, things look good.

Australia is doing okay. The market -- residential sector is weak, especially in Sydney and Brisbane. However, the Region West, Perth, is coming back step by step. We gained some good growth [some good projects] (corrected by company after the call) in Perth, with shopping centers but also in the mining sector. Melbourne is strong. And also in Australia, obviously, the lower coal price helps us in Cement Australia, which is quite significant. And the other point is the fuel, the diesel cost is down in Indonesia -- in Australia. At the moment, diesel in Australia is down by about 10 cents per liter. And this gives us against last year, for example, a saving of about AUD 7 million because 1 cent is about AUD 700,000. So that is quite significant because we run a big aggregates and ready-mix business over there.

Okay, Africa. Egypt remains troublesome. The army has started to increase prices now. That's a surprise in a way. The market there remains weak. Morocco is okay. The rest of -- Tanzania is okay. Weak currency in Ghana is a little bit an issue, whereas Tanzania, Burkina Faso and whatever is overall okay. So that's the message.

And maybe a last point is, on the volume side, we think we are okay. Pricing at the moment, Europe, North America, looks okay. Also, Indonesia is okay. And then what I already said in February, energy should be our friend this year. We see clearly lower energy costs in coal. Even CO2 price in Europe is down, so electricity is cheaper than anticipated. We see diesel also down. So compared to our budget, we assume that probably on the energy costs, we had an upside of about EUR 60 million as we speak today.

Okay, that's it from us. And now obviously, we're happy to answer any questions you might have. Thanks a lot.

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Andreas Schaller, HeidelbergCement AG - Group Spokesman, Director Group Communication & IR [5]

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We can start the Q&A session, please.

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Questions and Answers

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Operator [1]

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(Operator Instructions) First question comes from the line of Paul Roger.

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Paul Barry Roger, Exane BNP Paribas, Research Division - Sector Head of the Building Materials Team & Analyst of Building Materials [2]

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So I just have a couple then. So maybe firstly, start on European price increases. I mean, you very kindly quantified the magnitude. I guess the question really is, I think this is probably like the third or the fourth year in a row where we start in the year quite positively. Big increases have been announced. But I think if you look at what's actually been achieved in recent years, maybe with the exception of a few markets like Italy, generally, it feels like they've been a little bit disappointing. So the question is really, what is different in 2019? And what sort of magnitude of those increases do you think will actually stick this year? And then the second question is on CO2. You've recently announced, I think, a plant -- that you closed one of your plants in the Nordics, in Sweden, I think, but will leave a terminal open. And my question is really, to what extent is that decision linked to CO2 and whether it's a sign of things to come for Heidelberg basically as we approach Phase 4 of the ETS.

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Bernd Scheifele, HeidelbergCement AG - Chairman of Managing Board & CEO [3]

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Okay. Maybe we -- I'll start with just with the CO2 issue, yes. You know that we have this carbon -- new trading scheme starting in 2021. And it is our assumption -- the final points have not all been agreed yet, that the CO2 allocation will be reduced about 20% to 25% for the whole industry. And that leads to a cost increase, cement production cost increase of about EUR 4, EUR 4.50. For us, however, we are long until end of 2022, yes. So that's the one point. But it's clear -- if you take CO2 costs into account, then you have to watch very carefully what will you do with your clinker production. And that's why, for example, a relatively small and inefficient plant like Degerham we have decided to close down capacity. And I think there is one issue on the CO2 reform which has to be understood. The old system gave you -- the old system was not very flexible. First of all, it was not possible to transfer CO2 rights in case of plant closures. That was difficult or not allowed. And secondly, you got all CO2 certificates. If you were exceeding 51% of your clinker production target, then you've got 100% CO2 rights. The new regulation is in 2 ways different. First of all, it allows us the transfer of CO2 rights from one plant to the other in case of significant production changes, meaning in case of closure. And secondly, in future, you get only CO2 rights according to production and not to the 51%, and then you-get--everything-rule. And that will lead, in our opinion, to a clear capacity closure scenario. And we have done that. And we think that in Europe, probably around 40 million tonnes of capacity will go away with a clear focus on the southern part of Europe, meaning Spain, Italy, France, yes, where quite significant capacity closure can midterm be expected, yes. And obviously, we are watching that very carefully. On the long run, we believe the big players will benefit, yes, because the market will further consolidate. And at the end of the day, the capacity closure will lead to a higher capacity utilization. And in our industry, you know capacity utilization drives pricing. So there will be maybe some short-term pain for some players, but on the long run, I think the big ones will fare better. On the European pricing, I think maybe -- I think we have seen some progress over the last years, maybe not as much as we had hoped for, but this year is, in a way, different for 2 reasons. First of all, the energy price hike last year was, for everybody, a shock because we all could not compensate cost inflation with price increases. So we want to recover margin. That's what you see in the margins --- in the market. And in Europe, I think, everybody has now understood the implication of high CO2 prices, yes. And that's why I think the pricing environment at the moment in Europe is, I think, very good. And if you look to France, what I told you about France that the triple net is up EUR 4.40. If I recall it well, over the last 6, 7 years in France, the price could -- saw only one trend going down. So we see a clear trend change. In Italy, when we bought Italcementi, I think the pricing was at EUR 55, EUR 56. Now we talk EUR 70. Maybe you had hoped for EUR 90, but I think EUR 70 is already not too bad. We still want to go up another EUR 5 next year, but we are on our way. And also, Germany, that's why I mentioned we have a first time above EUR 70, yes, and that is also significant. So I am -- on pricing in Europe, I think CO2 is helping in that respect and also the consolidation of the industry. But you are right, the year is still very young. I agree with that, okay.

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Operator [4]

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We got another question comes from the line of Phil Roseberg.

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Philip Anthony Roseberg, Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst [5]

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My 2 questions, please, for Dr. Näger. The first one is about cash conversion rates. First time, we see those numbers, I think. And I'd like to see they're best in the industry if we're comparing. But can you tell us what the cash conversion rate was, for instance, for last year -- sorry, 2017 therefore, so we can compare to the 42%. And what is your target for that? And linked to that question, therefore is, we had a free cash flow before growth CapEx and disposals of about EUR 1.3 billion in 2018. I recall the sort of the vision 2020 target where I think you've said you're aiming for EUR 6 billion of cumulative free cash flow over the next 3 years. Can you give us comfort that with that slightly lower figure, we are still on target for that vision 2020 target?

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Lorenz Näger, HeidelbergCement AG - CFO, Head of Finance, Accounting, Controlling, IT & Logistics and Managing Board Member [6]

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Very nice. Very nice way of questioning. Cash conversion rate, the calculation is free cash flow after maintenance, also, operating cash flow minus maintenance CapEx or stay-in-business CapEx over EBITDA or RCOBD, as we call it. And this rate is 42% in 2018. It was also 42% in 2017. If you go to slide, which one is it? Here. Slide 20 -- okay, if you go to Slide 27, you can see, previously, we had EUR 1,403. And if you divide it to the EBITDA of EUR 3,297 EBITDA previous year, then you get more or less the same figure. If you exclude the last figures after the comma, in 2016, it was in a similar area. So we consistently have this figure. I now expect it to go up a little bit in 2019. Maybe towards 45% as tax payment and interest payments go down. And we will not have an impact on free cash flow from the IFRS 16. So that should remain in that range. Yes, you are right. We expected a higher free cash flow in the vision 2020 when we announced it 2 years ago. The 2 main impacts, which have pushed us back on that is the exchange rate where we lost an EBITDA EUR 300 million on an annual basis; and secondly, the development in Indonesia where we expect a stable result development for Indonesia. And we also lost equally EUR 250 million in cash flow that makes the main difference to the figure. If you look to the vision 2020, it is so that the underlying target, meaning, our dividend policy, return cash to shareholders, disciplined CapEx policy, efficiency gains in the operational levels -- in the operational management and also, portfolio management. Then, we fully stick to the strategic elements. In order to outbalance the lower free cash flow. We then have focused more, and we have generated much more cash out of disposal of idle assets, of noncore businesses and of non-sustainable market positions. If you look in 2017, we started the debt with disposals of close to EUR 500 million. We reached EUR 600 million this year, clearly, ahead of our expectation of roughly EUR 300 million. And we will again, have a good run from this in 2019. So a good part of that was free cash flow before we now can see in our portfolio program. By the way, most of this assets stem from Italcementi. I would get out of the total program of about EUR 1.5 billion. EUR 1 billion is idle assets from Italcementi, which virtually, we didn't pay for it because we didn't have it on the screen as our evaluation. Nevertheless, we'll make the cash out of it, but it doesn't appear as a free cash flow, but it does appear in the growth CapEx net in our financial statement. So I think, we are well on track here, we do the best we can. And I think we are -- this allows us still to achieve our target of a net debt of EUR 7 billion by end of 2020 based on pre-IFRS 16 accounting rules because that's the benchmark. So I think we are well underway on the cash flow generation. No problem there.

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Philip Anthony Roseberg, Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst [7]

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Just to follow up very quickly on that. The -- does that imply that growth CapEx and disposals sort of should even out over time?

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Lorenz Näger, HeidelbergCement AG - CFO, Head of Finance, Accounting, Controlling, IT & Logistics and Managing Board Member [8]

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In 2019, yes. In 2020 also probably, yes.

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Bernd Scheifele, HeidelbergCement AG - Chairman of Managing Board & CEO [9]

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Yes. Net number 0, Mr. Roseberg.

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Philip Anthony Roseberg, Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst [10]

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Right, I've understood that.

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Lorenz Näger, HeidelbergCement AG - CFO, Head of Finance, Accounting, Controlling, IT & Logistics and Managing Board Member [11]

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But it's a high disposal side, high figure on the disposals. So we are not inactive. We just work on the portfolio.

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Operator [12]

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We got another question comes from the line of Rajesh Patki.

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Rajesh Patki, JP Morgan Chase & Co, Research Division - Analyst [13]

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I've got 2 questions as well. First one is on energy cost. You mentioned in the call that you see a benefit of EUR 60 million this year. The annual report says energy cost will see a slight increase. If you can provide some color on the differing message here. And the second one is on interest costs, where in the annual report again, it says excluding IFRS 16 impact, do you expect a slight decline in financial expenses, but after incorporating IFRS 16, you expect slight to moderate increase. Can you please provide some color as, I think, consensus is expecting a double-digit decline in the net financial expense in 2019?

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Bernd Scheifele, HeidelbergCement AG - Chairman of Managing Board & CEO [14]

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Okay. As on energy. Hello, on energy, if you are long with the company know the number for last year was about EUR 2.1 billion energy cost all-in where we stand. And what we are saying now, out of which about EUR 900 million is only electricity, just to give an idea. And now we have about EUR 550 million on coal. And we had budgeted volume increase or in pricing maybe for EUR 2.160 billion or a slight increase. And what I see now, my latest estimate is maybe EUR 2.090 billion, yes. So meaning, we go down compared to plan EUR 60 million to EUR 70 million and would be flat versus last year or even slightly down versus last year. That's the message. And the business report has been written in February, and my latest update comes for Monday when I had a meeting with our energy guys. Because in order to prepare for our calls and meeting with the investors, I just want to have a good updated information on one of my key cost drivers and that is energy which is more than EUR 2 billion, okay?

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Lorenz Näger, HeidelbergCement AG - CFO, Head of Finance, Accounting, Controlling, IT & Logistics and Managing Board Member [15]

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Yes. Okay, on the finance costs, to your question, as I say, we think that the interest cost from our external financing will go down roughly on a rate between EUR 30 million, EUR 40 million per year for the year 2019, 2020, 2021 -- always compared with the previous year. And this then will be a little bit diluted by the IFRS 16 interest. Yes, that is not an interest to be paid. Yes, it is a calculation. It depends very much on the calculation method, and we do not really expect the -- and we really have an estimate on that. So based on that, we expect the overall financial results as reported there to be fairly stable, it may vary because there's a relatively high degree of uncertainty in the calculation of this leasing interest or however you call it, because this is a very artificial figure. And it is only accounting. This is just pure accounting. No cash item. We know our payout for our leasing rate. And then whether you reclassify this payment as depreciation, okay, you would see it's a bit arbitrary and the split depends on external factors, which we cannot predict. So it's a bit strange this IFRS 16.

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Operator [16]

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We got another question comes from the line of Alain Gabriel.

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Alain Gabriel, Morgan Stanley, Research Division - Equity Analyst [17]

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Two questions from my side. Firstly, on the electricity exposure. Can you remind us what your hedging policy is given that we've seen a big spike in electricity prices in the second half of last year? How quickly do you think that should hit the P&L? And the second question is on your capital recycling. How's -- do you mind sharing with us how your thinking is evolving on where the capital is going of the asset that you're selling? So part of it will be going toward deleveraging, which areas or segments or products are you becoming more interested in?

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Bernd Scheifele, HeidelbergCement AG - Chairman of Managing Board & CEO [18]

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No, on the capital allocation, it is clear, as we've discussed though with Mr. Roseberg, we have a free cash flow after maintenance, sustaining CapEx of about EUR 1.3 billion this year, last year, EUR 1.4 billion. And we're going to continue to pay dividends. We paid overall dividends last year EUR 550 million, so that will continue to go up a little bit. And then last year, we spent net growth CapEx EUR 500 million. That was a big gross number of more than [EUR 1.1 billion] (corrected by company after the call), which came down due to high disposals, what Dr. Näger explained and what we said to Phil Roseberg this number should go direction 0 and that would leave the bank finance, the bank debt going down. It's very simple. EUR 500 million you can see the deleveraging from paying down was about EUR 240 million. If the assumption would be 0 then net would be EUR 700 million. Our net debt at the moment is EUR 8,350 million. If you go down EUR 700 million, it would be EUR 7,600 million. Next year, the same story again then we are at EUR 7 billion. So I'm not an accountant, but it's very simple. Very simple to calculate, must just be done. So this is simple. And if we have a capital -- if you talk about gross growth CapEx, it's what we said, it's not empire building. It's bolt-on acquisition in existing markets where synergies are the value driver because we think the company and the management team has a clear record on integrating companies and businesses. And that's what we are looking for. So it's not about going, or dreaming about South America, yes, to be clear. And what was the other one? Energy, the hedging policy is known on the energy side. The message is very simple. I am personally convinced that you will see a clear improvement in the margin development, especially in Q2 because at the moment, we are still stocked in our plants, with relatively highly paid coal and pet coke and also, relatively highly hedged electricity prices. Obviously, we have undertaken coverage now for the remainder of the year also on electricity, especially in Europe, which is clearly below our budgeted number. So you will see the margin expansion driven by lower energy cost and better pricing, especially in Q2, yes? That -- there you will see already is -- you should see a significant impact because most of the price increases in our industry, especially in North America, they start from 1st of April. In Europe, for example, Germany, we have done 1st of January. Also, Poland is 1st of January. So it depends, I believe. Italy, we have done 1st of January instead of 1st of March, so the EUR 70 apply already since January normally that was always 1st of March. So in some countries, we have to move earlier on. The main impact comes to be due when the season starts 1st of April.

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Operator [19]

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We got another question comes from the line of Robert Gardiner.

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Robert Gardiner, Davy, Research Division - Industrials Analyst [20]

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I follow the energy question one, maybe on transport and freight. So similarly a large bill, about EUR 1.9 billion in 2018 and with freight rates on the floor, dollar moving in your favor. I am just wondering are there any potential tailwinds there? And secondly, I might just go back on Australia. You mentioned a weaker resi-side on the Gold Coast. So that what's driving potential cement price fights down there between Boral and Wagners. Is that a function of a weaker construction market or are prices declining there?

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Bernd Scheifele, HeidelbergCement AG - Chairman of Managing Board & CEO [21]

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Cement Australia is a JV... I'm not so -- let's maybe freight, you're right. Freight is also our friend. Freight rates are clearly coming down, and freight plays an important role as part of energy. That's what I mentioned also for Asia. That's why in Asia, energy is clearly coming down because freight rates are also down. And that's why I said at the beginning, energy should be our friend. Because first of all, coal, pet coke is coming down and also freight is coming down so that should be helpful. You are totally right. And then the question Australia with what you say. As I -- what I'm informed, I think, Cement Australia price increase is up AUD 3 to AUD 4. AUD 4, that's what I know. And we have a certain market weakness, you're right, in Brisbane, especially on the Sunshine Coast area. Brisbane has been a little bit overbuilt. The market is slowing down. At the same time, we have new competitors coming in, coming into the ready-mix. And we have also 2 independent ready-mix players in Brisbane opening a cement terminal, which starts, I think, 1st of July. But that's only 1 market. In Sydney, we see also residential clearly slowing. However, we have big infrastructure projects in Sydney. Sydney is building a new airport where we got a big job. Sydney is building a huge turnpike around the city where we have works, which are -- we are already supplying. So we think that for the full year, infrastructure in Sydney will compensate a weaker residential market. And the infrastructure work is very well priced. I personally was in Australia 4 weeks ago, and I was on the site at the airport but also at the turnpike, and that looks pretty good. It's very difficult. And in Australia, it differs always area for area is a very different drivers to the market. Okay?

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Operator [22]

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We got another question comes from the line of Arnaud Lehmann.

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Arnaud Lehmann, BofA Merrill Lynch, Research Division - Head of the European Construction & Building Materials and Director [23]

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Two questions, if I may. Firstly, just regarding a comment you made about the start of the year being strong. Could you maybe define that a little bit? Is it better than the moderate growth that you mentioned in January call? So are you already ahead of your full year guidance? That's my first question. The second question is regarding Italy. You have a medium-term objective to get back EUR to 150 million of EBITDA. Do you think it's achievable for 2019? Or should we wait for next year with further increasing prices?

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Bernd Scheifele, HeidelbergCement AG - Chairman of Managing Board & CEO [24]

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Mr. Lehmann, in Italy, miracles take also a little bit of time. I know a lot of people have been very critical about the Italcementi acquisition. And whatever, I told them, we need a bit of time. We are about now to consolidate the market. There are still some 1 or 2 pending smaller deals with the other 2 big players, which should come through in the very foreseeable future. And I think our EBITDA in Italy last year was about EUR 70 million EUR 75 million. We want to go up again. So we are on our way. I think the midterm target for Mr. Callieri, who is our country manager was 2020, or whatever, 2019. So -- and we are on our way. We will broadly hit his bonus. That's the message. Italy, last year, like-for-like was for us, up on -- was up by about EUR 25 million. And now we have the full year synergy effect of Cementir in, so we are on our way. And I'm not going to speculate about March now. I think you should expect a solid Q1, meaning Q1 should be result-wise, above last year. And let's wait, the month is not over yet. So what we only see at the moment, I think we are -- we do not see any major problem coming up in the core markets. Okay.

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Operator [25]

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We got another question comes from the line of John Messenger.

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John Messenger, Redburn (Europe) Limited, Research Division - Partner of Construction & Building Materials Research [26]

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Two, if I could, please. Maybe to Dr. Scheifele. Just on the slide on the outlook, Dr. Scheifele, you talked about the U.S. and solid -- I think, a solid result expected, whereas places like Europe, it's about solid growth. Can I just ask when you look at the North America business, should we take anything from that in terms of there has been industry talk about pricing in cement maybe not moving an awful lot this year because of part of the currency making it more attractive for imports, partly obviously, for yourself and McInnis and that accelerating pressure at the back end of last year. Is that a determinant in terms of what may put pressure on this year? Just a little bit of a feel as to whether we should be taking a more cautious view on the U.S.? Or is that completely the wrong kind of message to take? And within that U.S. guidance, obviously, 2017 had Carroll Canyon. Is there anything in the pipeline that is going to blow the numbers around this year in terms of sizable disposals that may come through? And is that in or outside of your guidance right now? And the second question for Dr. Näger. I just wanted to go back on this free cash flow point because, I think, you described it as kind of best in the industry. But if I just take your CapEx, the pure spend on expansion out, you're down, at about 22% free cash flow conversion, which sounds unbelievable because LafargeHolcim are around the 28% mark. When we look at it behind that, the biggest thing that you could probably change is the cash spend on provisions, which I thought would have come down as Italcementi's restructuring kind of washes through the system. Are you still incurring about EUR 324 million there? Is that a number that is embedded? Or should that number drop? Or is it really asbestos and all the other things that continue and will continue to be a cash flow drain? Just so we can understand a little bit, what are the other big levers behind that free cash flow conversion?

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Bernd Scheifele, HeidelbergCement AG - Chairman of Managing Board & CEO [27]

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Mr. Messenger, so on the U.S., there will be some real estate transaction in the U.S., we have not all budgeted. But I think probably, this year, not a transaction from a P&L impact of the size of Carroll Canyon, might be different from a cash impact. Because as you recall, you're a close follower of the industry. We bought the assets of Cemex in Seattle, which are performing very nicely. And there, we bought also 2 or 3, more or less, closely -- close to being exhausted quarries, which are now on the pipeline to sell and which are in the Redmond region. Redmond is Microsoft so that's a booming area. And there, we are about to turn the one or other property from commercial to residential, and that's going to be a significant double-digit dollar issue. However, this has a relatively high book value. So the transaction amount might be close to the amount for Carroll Canyon, but it's not the P&L impact. That's what I'm telling you. But cash-wise, we have some nice -- we still have some nice pieces of property -- especially in the whole Seattle, Redmond area. We have excess property, which we try to bring to the market over the next 2 years. Now on the U.S. market, I think, as you know, U.S. pretty well, it's a very regional issue. The most difficult to understand is the region north that has to do with McInnis and that has to do that also one of our competitors in Europe has expanded and modernize its plant in upstate New York at the Hudson River. And there seems to be still some capacity not utilized. That's what we see. And that's why the pricing in that area differs very much. If we start with the bad news, if you look to New York, for example, in New York, the New York metro prices are at the moment, about $92, $93. If you recall what I told you 1 or 2 years ago, we were at around $100, $102. So pricing went down $8. And our assumption is that we will keep that pricing around that level. But there will be no price increase in the region on New York, Boston and Northeast region because McInnis is still around. And I think they still have a capacity about 1 million to sell. You know they have 2 million tonnes capacity. Our market intelligence tells us, they sold about 400,000, 500,000 in the Canadian market. They sold about 500,000 along the East Coast. So they still have 1 million to go. It was helpful that they had some production problems in February, which was published. So let's wait and see. Whereas if I look now to mid-Atlantic, so I move south, that's Baltimore, Washington, Virginia. We think we will get a price increase of about $4 to $5. So pricing should -- is at the moment, $105, $106, so we expect it to be $109, $110. If we go to the Midwest, yes, so if we talk about Indiana, Ohio or then also Minneapolis and whatever, there, we expect price increases between $5 and $6. Pricing should end up in this region. So after you get a feeling about the difference is the same U.S. is about $125, $126 just that. So this region really has a huge variety. And then if you look to the Lake Ontario, pricing should -- due to McInnis again, be flat and in Ontario, Greater Toronto region. The price maybe about $104. So that's why in the region north, average price increase, Mr. Messenger, maybe $1, $1.50 as last year, whereas the years before, if you go back to the notes, you will see I told you $4 to $5. That's not possible because we have the impact of McInnis. If we go to the South, Texas and whatever, we think, we will see a solid pricing between $5 to $8 and we are also pretty confident on California that we will get about $8 to $10 in California, especially Los Angeles market is sold out. Typically in Los Angeles, we always have overcapacity. So we expect now the L.A. price to go beyond $100 and San Francisco should go to $110, $115. So in California, we are pretty bullish. And also, in Florida, North Carolina, South Carolina, Alabama, we would expect $5 to $8. So as I told you, it is -- it varies very much per region. And another message is at the moment, we do not see new import activities. No new terminals being built. The only terminal, which is being built, I think, at the moment is by OYAK Cimpor in the Houston market. Where they've built 1, but otherwise, there is no new terminal activity. I was in the U.S. for 1 week last -- 2 weeks ago. And obviously, we discussed the whole import situation on the region East Coast, but also especially Houston. At the moment, import activity especially also in California is quiet.

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Operator [28]

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Okay. Sir, we got another question.

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Lorenz Näger, HeidelbergCement AG - CFO, Head of Finance, Accounting, Controlling, IT & Logistics and Managing Board Member [29]

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Yes, but I want to give the final answer to the question, the cash flow question. And if I refer to the economic analysis of the cash flow, I refer to Slide 27. And there, we have a free cash flow definition, which is commonly used in the industry, which is the operating cash flow minus stay-in-business CapEx, which is equal to maintenance CapEx. So this gives you the cash flow or the amount of cash which the company is generating if it stays in its existing business scope so without consolidation, deconsolidation. And here, we have generated a free cash flow of EUR 1.296 billion against an EBITDA of EUR 3,074 million which is that 42%, which we are talking about. Previous year was 42.6%. And 2016, as far as I can see, was also in the range of 42%. So this is a pretty stable figure. Cemex uses the same exactly the same definition. And Lafarge, in the past, has used the same definition. Now they have changed and give a free cash flow figure, which also includes growth CapEx into fixed asset but not M&A. So they have a slightly different message. But if you look in their business report on Page 250, then you can calculate exactly the same figures as we have. And then they get a cash conversion of [32%] (corrected by company after the call). If you look to the figures, cash flow decrease in provision to cash payment on Slide 26, which is sometimes is a question. Then, we have -- we show this as an explicit question, as explicit figure. The provision, the other -- the increase in provision during the business year comes inside the RCO, we believe it's EUR 125 million. And typically, in the additional ordinary results is another EUR 100 million to EUR 125 million per year. And the remainder comes in discontinued operations or in OCI. So that's how the mechanics work. If I look to the competitor's accounts, this figure appears in their working capital. I found that a bit strange. But that's as it is, they show you the change of working capital. It's one of the reasons I do not want to comment on the other companies, but that's one of the reasons why LafargeHolcim has such a high, what they call a change in working capital, but the [CHF 700 million] (corrected by the company after the call) they show there, they include roughly CHF 500 million of payout from provision for restructuring costs. And then it makes it very consistent. So I mean, the presentation as I show it on Slide 27 is a very valid and economically very sound provision. Then you can look into our account and you can then split the growth CapEx net the EUR 501 million into our disposal which is close to EUR 600 million and the gross strategic CapEx, which is roughly EUR 1.1 billion. And then it gives you a fully consistent figure. If you need more information about that, just call Mr. Kacar or Mr. Jelitto, they can give you each and every detail on this figure. I think our statement is very sound.

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Operator [30]

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And sir, we got another question comes from the line of Arnaud Pinatel.

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Arnaud Jacques Michel Pinatel, On Field Investment Research LLP - Founding Partner [31]

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I'm Arnaud Pinatel from On Field Research. I will ask a question of India. When I look at the recent news flow we heard on pricing, it looks like the industry is pushing price quite significantly in the south and in the central regions of India. And if I'm right, you are extremely well positioned because these 2 regions are the largest for HeidelbergCement. So could you please update us on the reason why India is pushing such prices? And if we can be relatively optimistic for a margin expansion in this country in 2019?

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Bernd Scheifele, HeidelbergCement AG - Chairman of Managing Board & CEO [32]

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Okay, Mr. Pinatel. As you know, India, again, the market is very regional. The south in India has 2 aspects, which are different. One is positive, one is negative. The positive one there's a lot of limestone that's a big reserve position in India for limestone. And the negative one, there's too much cement capacity due to the limestone. So we have a capacity utilization in India in the south, which is typically very low, which leads from time-to-time to kind of price fights. That's what happened last year. That's why, if you look to the results of the Indian cement players, which are all published and you put them together in some baskets according to the footprint, you will see the south and the southern companies had lousy numbers, whereas the companies which were more in the center of the south like the former old HeidelbergCement operations they had pretty good numbers. And what we see now, there seems to be some rationality back to the south. You are totally correctly informed. What we see now, also in our numbers, we see clear results in --- result improvements driven by significant price improvements in southern India. And just to give you an idea, in the north and in central India, last year, the pricing was maybe about INR 3,350 per tonne, whereas in the south, price was maybe INR 2,800 per tonne. That gives you about the difference. And now the south is trying to catch up. And we had to see -- we will have our Q1 discussions with them in the first half of April, and then we will see where this goes.

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Operator [33]

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Sir, your last question comes from the line of Gregor Kuglitsch.

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Gregor Kuglitsch, UBS Investment Bank, Research Division - Executive Director, Head of European Building & Construction Research and Equity Research Analyst [34]

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So I have a question just on the net debt because obviously, you've commented on pre-IFRS 16, but the reality is we're now with IFRS 16 and obviously, you're changing your CapEx a little bit. So can you just give us your target for 2019 and 2020 as you will actually report it? So including IFRS 16, please, on net debt? And then the final maybe follow-up question on your EBITDA guidance, which I think there isn't actually one, if I'm not mistaken. But just to be crystal clear. When you're talking 3% to 9%, that is also in reference to EBITDA and I presume on a like-for-like basis, just as a point of clarification. And if you sit here today, I think on the last call, 6 weeks ago or so, you were saying you're comfortable with 5.5%. Would you say your confidence increased or decreased compared to then or perhaps, it's unchanged?

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Bernd Scheifele, HeidelbergCement AG - Chairman of Managing Board & CEO [35]

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Mr. Kuglitsch, first of all, it's like-for-like. It's clear, I do not see the increase of EBITDA due to IFRS, whatever the number is. I think it's EUR 200 million, EUR 250 million. We do not regard this as a management performance. So I mustn't get any bonus on that. So it's obviously, like-for-like. And secondly, today, the sun is out. So today, I'm a little bit more optimistic maybe than in the gray time of February. I think that's a little bit the message from the call. What I am trying to make clear on pricing, I think I was very detailed on energy. Volume for the time being, also partially weather-related is okay. So in our major markets in North America, in Europe and especially also in Asia, at the moment, we see that our budget, which we have put together looks feasible. And compared to last year, we have clearly tailwind from energy and I think also from pricing, especially also in Europe.

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Lorenz Näger, HeidelbergCement AG - CFO, Head of Finance, Accounting, Controlling, IT & Logistics and Managing Board Member [36]

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Okay. And when it comes to net debt, you can run the figures. I think we have guided to go down on a like-for-like basis without IFRS 16 from the current EUR 8.35 billion down to whatever EUR 7.6 billion something, EUR 7.6 billion to EUR 7.7 billion. And then it will go up with IFRS 16 by EUR 1 billion, roughly by end of the year. And then we have to see how this is going to develop because, as I said, we've switched from leasing to ownership to direct equity -- direct purchase of such assets. And this will again then influence the balance sheet, but that's very difficult to predict and we will come out with the new guidance as soon as we know how the figure will develop from there.

So I think it depends on the time of use for life of such assets. And we currently do not know at what point on time we would sell that yellow machine if we have them in direct ownership as compared to an obligation to return them because we see in a leasing arrangement, that's a bit the point. And that's give a certain uncertainty in this figure. And then you have this IFRS 16. You know I don't like it very much because again it depends on the discount rate for those things, so that may fluctuate a major amount, depending on the macroeconomic environment. That's not -- for me, that's not a very helpful information. You say we have to live with it, you are definitely right in that respect. So whether it makes a lot of sense or not is a different question.

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Bernd Scheifele, HeidelbergCement AG - Chairman of Managing Board & CEO [37]

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Okay. Thank you very much for the interest in our numbers. Thanks a lot. We're going to see some of you in the next days. Thanks a lot. Bye-bye.

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Operator [38]

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This concludes our conference for today. Thank you for participating. You may now all disconnect.