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Edited Transcript of HEI.DE earnings conference call or presentation 9-May-19 2:00pm GMT

Q1 2019 HeidelbergCement AG Earnings Call

Heidelberg May 13, 2019 (Thomson StreetEvents) -- Edited Transcript of Heidelbergcement AG earnings conference call or presentation Thursday, May 9, 2019 at 2:00:00pm 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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* John Fraser

HSBC, Research Division - Global Equity Head of Building Materials and European Building Materials Analyst

* Josep Pujal

Kepler Cheuvreux, Research Division - Head of Building Materials & Construction Sector

* 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 Muir

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Robert Gardiner

Davy, Research Division - Industrials Analyst

* Yassine Touahri

On Field Investment Research LLP - Founding Partner

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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 interim financial report January to March 2019 conference call. (Operator Instructions)

I must advise you that this conference is being recorded today, Thursday, 9th of May 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. Good afternoon or good evening or good morning to everybody from Heidelberg. Thanks a lot for joining us for our Q1 call, which I will present to you the figures together with Dr. Näger and our Investor Relations team with Andreas Schaller and Mr. Kacar.

I think you have seen our numbers. I think we have finally delivered a very reassuring Q1 result. I would say this is maybe one of the rare Q1 results in which, well, more or less all financial metrics have moved in the right directions.

Sales are up 15%. So we are growing strongly. EBITDA up, it's 26%. Pricing is strong, is better than cost inflation. Volumes are up except for Asia. Margins are improving. Cash generation has been strong. Net debt is, on a like-for-like basis, down by EUR 800 million, and we are well on track to deliver on our disposal targets.

If you look to the areas, then I think the core message is Europe and Asia are back. We are seeing a clear recovery in Western and Southern Europe, and Northern and Eastern Europe continues its strong result trend from last year.

And we have turned the curve or the wave in Asia. Asia over the last 2 or 3 years was always negative compared to the year before driven by the difficult market situation in Indonesia. And now we see a clear turnaround in Indonesia and also in Thailand, which has obviously supported our result in Asia. In Indonesia, pricing is up by about 9% or 10%. And so we also have a good outlook for the coming month.

So the first quarter increases our confidence to reach full year targets. That's also underlying. We just got yesterday evening the preliminary April figures. And also, April was a good month for us. We are, on RCO level, about 10% up versus last year. That is very significant because last year, we had Easter in March. This year, we had Easter in April. So in our core markets, Europe and U.S., we are missing about 2 working days. And all areas are up except for Africa-Eastern Mediterranean, where the trouble in Egypt continues.

On Q1 overview Chart 4, I think the numbers speak for themselves. We are on track to deliver our EUR 50 million SG&A saving target for this year.

If you look to the cement volumes, you see we grew, we would say, only 1.6%, whereas aggregates and ready-mix is significantly higher, the growth rate. What's the reason? If you look later to the region Asia, our volumes are down by about 1 million tonnes. That has to do that in 2 core countries, we had elections. One is India. That's why market growth was weaker. And also, our focus was more on pricing, especially in the region South. And in Indonesia, which is our core market, they had also elections. And in the first quarter, market growth was slightly negative with, I think, a minus 0.3% or minus 0.4%.

Chart 5 shows you a little bit the bridge. And here, the message is pricing is up, better than cost. Main driver is Europe. In Europe, in quite a lot of countries, we have started with price increases, not as usual, 1st of April, but we started 1st of January, for example, in Germany but also in France, also in U.K. and also in Belgium. That has helped us quite a bit, yes? And pricing is clearly stronger than last year. That's what I said to the capital market also in conferences during the first quarter, that we will see good pricing in Europe. And then you see the [negative] (corrected by company after the call) impact of IFRS 16 on -- or the positive impact on EBITDA level.

Chart 6 gives you the split-up by area. And you see in -- we are only down in the region Africa-Eastern Mediterranean. That's mainly Egypt and Turkey, yes?

Chart 7, that gives you a little bit an idea about the energy cost development. The message is coal is clearly down. It's about 20% down versus last year. That trend will continue and even increase now in the Q2 and Q3.

Pet coke is still flat and up. Pet coke will come down, in our opinion, in the coming month.

And the only area where we're up is power. That's mainly in Europe. But we are now very much hedged in Europe, and we expect power prices in Q2 to come down versus last year because in last year, we had in Europe some extraordinary price peaks. Core message here, energy should be our friend in Q2, Q3 and should support further market -- margin expansion.

And I hand over for Chart 8 and 9 on the financial messages 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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Yes. Good afternoon also from my side. I -- let me shortly report on the financial situation at the end of Q1.

So we see significant improvements in both net debt position and free cash flow. And so -- and the -- our portfolio review went on quite successful. So we had some disposals, especially from the white cement plant in Egypt. And on the other side, we had some restructuring costs.

For the full year, let me say that we have closed the Ukraine disposal, and we will see a significant negative impact on the P&L, not on the cash position as the Ukraine position will be recycled. The currency position from the Ukraine will be recycled to the P&L in Q2. So you will see that. But we are very confident that we can compensate that loss to a large extent by a positive income from other disposals. I will come back on that.

Net financial results. The expense increased against our expectation as the -- part of the leasing payments have been reclassified to financial costs, and that overcompensates the effect from the reducing interest payments.

Income taxes are in line.

Share of minority profit goes up as the profitability in Indonesia goes up. Also, Thailand goes up. And in Egypt, we had a one-off profit from the sale of El Minya. So all those positions are going up. Therefore, the minority share goes up.

Free cash flow in our functional cash flow statement goes up to EUR 1.3 billion, roughly EUR 100 million up compared to Q1. We have to see in Q1 that our funds from operations, so the operational cash flow before changes in working capital, was significantly up, EUR 200 million, based on a significantly better result. But March was a very strong month. So at the same time, we saw corresponding increase in working capital. The point is that we think that the working capital for end of the year will normalize. So this EUR 200 million will come back into the cash. So currently, we see a very good cash flow generation, and this is also reflected in the net debt position, which, before IFRS, improved by EUR 800 million. And therefore, we are quite confident that we will reach our target of EUR 7.7 billion net debt position without IFRS.

Now on to Slide 9. You can see the guidance. We -- had at end of March, EUR 9.1 billion pre-IFRS 16. On the IFRS 16, EUR 1.3 billion came on the balance sheet. There is still a relatively high degree of uncertainty, how this will continue to develop throughout the year as we are changing the policy and we are not fully sure how that will -- the effect will go through the balance sheet. Therefore, we had to a little bit increase our guidance for the net debt position from IFRS 16 towards year-end, which we estimate to be at the maximum value of EUR 1.3 billion. So that would give us, after IFRS 16 implementation, total net debt position at year-end of EUR 9 billion. So that's our current understanding.

On Slide 9, on the right-hand side, you can see how our portfolio optimization continues. As you know, in 2018, disposals reached EUR 600 million. In Q1, we are, again, up to EUR 220 million. So we are very well ahead of our phasing which we initially contemplated. We have now closed a number and contracted a number of transactions as the Spoleto cement plant, Ukraine, as I said. Sri Lanka, we closed a cement terminal. We signed a number -- an agreement to sell a cement plant in Italy and have come up -- and so we are very confident to achieve or overachieve our target of EUR 500 million of disposals, whereas on the investment side, we keep our discipline. So currently, portfolio optimization, we are very, very well on track. So we are confident to achieve our financial targets in 2019.

That's all from my side, on the financial side, and I hand back to Dr. Scheifele to talk about the areas.

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

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Okay. Chart 11 gives you an overview about our areas. North America, maybe a general remark. When we had our budget discussions late November or December last year and when I was in the U.S. in January, outlook for the industry was positive, but there were some concerns about the macroeconomic situation, et cetera.

If you talk now to our people from the sales force and if you talk to our key customers, I'm confident that we will have a good year and the market is solid and the order book is really coming through. It's clearly up, yes? So the feedback from the market -- for the U.S. markets are very solid. That applies especially for the region North, which is our core region, as you know, which does about 40% to 45% of our volumes. So core markets like Mid-Atlantic and also New York, New York City, but also Upstate New York are clearly in a better shape than last year volume-wise, yes?

And in the U.S. numbers, we come to that in a minute in more detail, it is also so that due to a very good weather situation in the second half of March, we had a relatively strong draw on our inventories, which led to a negative result -- effect on RCO level of about EUR 10 million. So the, let's say, the operational results is even better, as shown.

In Western and Southern Europe, I think it is -- volumes were good. Weather was normal. And we had a significant push from pricing, yes? We had strong pricing all over the area. So in Italy, prices are up now versus last year about EUR 7. The actual cement price in Italy, domestic, is above EUR 70. It's about EUR 70.5, yes? That's very significant.

France is even up close to EUR 3. That's the first time since a long time that in France, the cement prices are moving up again. Also, ready-mix is up in France. Germany is also up by about EUR 3. Belgium, Holland is up by EUR 3, EUR 3.50. That looks pretty good.

Northern-Eastern Europe -- also here -- good result development. Especially, Eastern Europe is clearly coming back. We have significant volume increases in Hungary, Czech Republic and Romania, partially weather, partially also due to production shortages in the market where we had to step in. Pricing is strong. In Poland, prices are up close to EUR 9 per tonne, yes? Czech Republic, Hungary are up by about EUR 4. Also, Romania is up by about EUR 2.50. So very solid development.

In Asia, turnaround is supported by Indocement. Indocement has already published their Q1 result a week ago, at end of April. I think the market reaction was very positive. We were clearly leading the sector in Q1. Our sales price was up by about 9%. Energy cost inflation, clearly slowing down. Distribution costs, more or less flat. So Indocement is back on track. And we had also a very good run in Thailand and also in China.

In Africa, the key challenges are mainly Egypt and Turkey. In Egypt, the market is down, minus 5%. And at the same time, the Army has started to pump cement from the new plant into the market.

If you go to Chart 12 and you look to North America, look to RCO, then you'll see like-for-like is up 7.3% if you take the deconsolidation of white cement out and also dollar -- ForEx. But the increase in RCO is rather low, but, as I told you, we have about close to EUR 11 million or EUR 10 million -- we have on inventory -- impact because we had a significant draw on our inventories.

If we look to the subregions in U.S., region North is very strong where the RCO is significantly up versus last year about, EUR 20 million, EUR 21 million, yes? Whereas in -- whereas the region West had a difficult first quarter for us. Volumes were down double digit due to very wet weather, yes? And here, the result is down versus last year by about EUR 10 million or EUR 11 million. South was okay. Canada was a little bit weaker but only due to weather.

Outlook for the U.S. is good. April was, in U.S., a good month. Especially, region North did very well. Canada is coming back. So outlook is okay.

Western-Southern Europe, we have explained the result. I think the result is driven by improvement, more or less, in all countries. A strong improvement in France and Bene, both up versus last year by about EUR 14 million on RCO level driven by better volumes, better pricing and especially no hiccup in production, which has kept down the result last year a little bit. Italy is also up. U.K. is up. Germany is also up. Outlook also is good. April was again, in that region, was very solid taking into account the Easter effect.

Then Northern-Eastern Europe-Central Asia, result is clearly up. Also here, negative inventory impact of about EUR 3 million, especially in the Nordics, yes, because we had winter repair in Norway and Sweden, yes? And result is very much up-- in Romania, Bulgaria, Poland, result all up about EUR 5 million versus last year. Outlook remains strong. Volumes are good. Pricing is strong.

Asia-Pacific also clearly up. All markets were growing -- profitability in all countries is up, except for Brunei, yes? Brunei is suffering from the introduction of the Sharia law, yes, which did not -- which wasn't very well received by foreign investors, yes? And also, Bangladesh was a little bit down, yes, due to increased input cost, higher clinker price and lower sales price, whereas the other markets financially are all up and -- mainly Indonesia with about EUR 9 million but also Thailand significantly up, China up, India up. So overall, Asia Pacific outlook is okay, confirmed by a good, solid April result.

The only area where we are down is Eastern Mediterranean-Africa. And here, we are down about 12 million, out of which 11 million comes from Egypt. The rest of the countries are okay. Morocco, Togo are okay. Ghana, we have more competitive pressure due to new market entrants.

If we look to Group Services, mainly 3 messages. First of all, clinker free-on-board Shanghai is moving upwards because China has stopped exporting. China is importing clinker, and that has limited the surplus in Asia.

And then we have a totally different development in the Mediterranean. In the Mediterranean, there is more clinker available due to the market collapse in Turkey where the market is down in the first 3 or 4 months by about 40%. And also, Algeria became a cement exporter. So we talk now about clinker prices below $30 per tonne.

And on the energy side, coal is down 20%, 25%, especially New Castle but also South African coal for Europe. Pet coke will follow in the coming months.

Outlook, Chart 19. We have not changed any guidance. You know, we said -- what is it? A modest or whatever...

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

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Moderate.

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Bernd Scheifele, HeidelbergCement AG - Chairman of Managing Board & CEO [6]

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Moderate increase in profitability. Under German definition, that's between 3% and 9%. I'm told by Investor Relations that the consensus is at 5.5%. We feel confident at the moment or even more confident that we are in line with that consensus. Maybe we are even a little bit -- are seeing an upside to that.

Message for the next quarter should be... 2 things should play in our favor. Energy is our friend, yes? That should help in the margin. And the second one is the pricing trend is good in Europe and, we expect, also in North America and in core markets in Asia. So we should see -- from the margin side, we should see a good development. And we will continue to have strong free cash generation, and we're going to stay disciplined on CapEx, yes?

So that's it from our side. And obviously, we are now happy to answer any questions which you might have. Thanks a lot.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question coming from Rajesh Patki.

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Rajesh Patki, JP Morgan Chase & Co, Research Division - Analyst [2]

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Yes. It's Rajesh Patki from JPMorgan. Couple of questions from me. On the previous conference call, you said that you expect energy costs to decline by EUR 60 million this year. Do you still think that is the case? Or how has this situation evolved since? And second question is on pricing in Indonesia, which you said was up 9% in the first quarter on year-on-year basis. And given prices have moved sequentially through last year, where do you see the year-on-year price trend for the full year of 2019?

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

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Okay. So in Indonesia, it is so that in the first quarter, pricing was up 9%., and that is mainly driven by bag cement. Bag is, I think, up 11%, and bulk was more or less flat. That's a little bit the message, yes? And what we plan to do -- or that's what -- that's not how we have guided the market in the conference call of Indocement -- from a volume side point of view, the first quarter confirmed our view. I told you the market should be flat first half year because we have election then we have Ramadan, blah, blah. So -- and then we expect the market to grow 6% to 8% in the second half. And we confirm that outlook.

And on pricing, we expect that we will -- that we can carry out a similar pricing strategy as last year, meaning after Ramadan to do 2 -- maybe 2 or 3 price increases in bag cement, increasing bag cement prices by another 5% to 6%. What is then the average price increase for the full year? I have not calculated, but that's our pricing strategy. And that would lead us, from a margin point of view, in the direction of about 2017, yes? We are on our way back. We discussed it also in one of the last calls, EBITDA cement margin, and we said we should come back to about 25% this year. I would say 21%, 22%, maybe 23% depending on energy price and whatever, yes? But that would be clearly up. I think last year, we ended up in the cement division only with 18% or 19%. So we are on our way back on margin recovery, yes?

And on energy, I think Mr. Patki you got me wrong. I think we might be about EUR 50 million, EUR 60 million below budget, yes? If I compare it to last year, the numbers are very simple. At the moment, our estimate is that energy all in, including volume and ForEx impact. The weaker euro doesn't help us because energy typically priced in dollars will remain flat. So we would expect it to be at about EUR 2.100 million, EUR 2.110 million, and that would be spot on compared to our energy bill -- about last year, our budget was about EUR 2.160 million, yes? And there might be a little bit... even more upside because, at the moment, pet coke has not moved yet, yes, and we would expect pet coke to come down and to follow a little bit the trend of coal. Okay? Thank you.

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Operator [4]

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Your next question comes from the line of Phil Roseberg from Bernstein.

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

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Congratulations on the good results. Just going back to the question on energy cost in your Slide 7. I just wanted to know how to interpret this slide because you talk about forward rates. Are those rates that you have locked in both from coal and on power? Or are they just forward rates that's out there? I just want to sort of understand how secure these sort of benefits that you might get across the next few quarters would be.

The second question. Again, we saw margins improve in the first quarter. I think if you correct for IFRS, I think they go up from 6.9% in Q1 '18 to 7.5% in Q1 '19. Correct me if I'm wrong. But this compares to a sort of a 10.1% that you had in Q1 '17. So my question is as we progress through the year, and obviously Q1 is a volatile quarter, but can we -- is the target to get back to 2017 margins. Or is this something that will take more time?

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Bernd Scheifele, HeidelbergCement AG - Chairman of Managing Board & CEO [6]

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Yes. Mr. Roseberg, I saw your note already. We had our general assembly --- you know -- where we had to deal with all this environmental things and so on, or whatever. I had to come back to the real world now, and I saw your note when I was coming back in the car to the headquarter. Sorry, I just shortly checked. It is always the -- the Q1 is always very difficult, as you know. You're in the industry, inside. Q1 is about 10% of our results, so let's be reasonable. That's why we also didn't want to change our guidance, yes, because that's too early. And the point is Q1 weather is always the key. 2017, there was no winter at all. That's why the result exploded, if you want. 2018 was a disaster, and 2019 is somewhere in between. You know what I mean? So it's reasonable. We have not checked again. You can go back to Ozan and whatever, but that's the main message. So 2017, no winter and so on. And also then, what you have to see on our margin, if you look to our group margin, you have to be a little bit careful, yes? We have a very strong trading business, yes? And if our trading boys, yes, sell fuel like hell in the rest of the world at a margin of, I don't know what, EUR 0.30 per tonne, yes? That is maybe nice for volume and sales, but whether that helps our margin on group level, that's a different story. So we have to see a little bit also the sales mix and trading plays from a sales point of view in Q1 and overproportionally big role compared to the full year. So that's a little bit the point.

On the coal side, what you're seeing is, I think, what we show now are not the secured but the actual forward rates. But it's also clear we are clearly longer in our coal and energy position this year than we have been last year. We changed a little bit the guideline. We introduced a minimum long position, yes? And that's why we expect a clear tailwind from Q2 onwards because as you know, typically in Q1, we are stocked. We are stocking for the winter in October, November where prices were still relatively high. And we are now securing new volumes. And at the moment, the spot prices are even below the forward prices at the moment. So I would be -- so you should see a clear margin support in Q2, especially in Asia and in Europe from the energy side. Okay. Thank you. Yes.

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

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Just on that question. I mean how far are you hedged forward or on what sort of percentage just as a sort of an understanding of what is locked in and not?

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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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So it depends on what commodities you look at. Certain commodities we cannot really hedge. So we do not do -- as we do not do financial hedges. So this is mainly on fuel for our yellow machinery mainly in the aggregates business. There, the markets do not allow to do it on a forward buying basis. And also, for example, in Indonesia, we cannot contract -- or we can contract forward, but it won't help us because if our contracts are favorable for us, then we do not -- then our supplier won't deliver for us, yes? And we have no way to enforce such things in Indonesia.

So to put it together on the power side, we are pretty long, meaning at least 80% of volumes are covered for the remainder of the year. And in the fuel side, it's maybe around 70%, and in the -- as in coal and pet coke, around 70%. On diesel, it may be 20% to 30% very roughly, yes?

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Operator [9]

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The -- your next question is come from the line of Paul Roger from Exane BNP Paribas.

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Paul Barry Roger, Exane BNP Paribas, Research Division - Sector Head of the Building Materials Team & Analyst of Building Materials [10]

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Yes. It's Paul Roger from Exane. Just a couple of questions, I guess. The first is actually on net debt. You're obviously sticking to your target of EUR 7.7 billion for the year-end. On my calculations, I think you can get there actually without any further divestments. And unless I'm missing anything, I mean, is that something you agree with? And given what your comment's about these divestment pipeline, but... is there any reason why you can't do much better than that and maybe hit the EUR 7 billion, which is obviously the 2020 target, maybe a year early?

And the second one is on Western and Southern European margin. I think in 2018, you lost about 110 basis points. Given what we see in Q1, accepting what you said about it being a small quarter but also the price/cost trend, is there any reason why we can't get back to that 110 basis points margin in Western and Southern Europe in 2019?

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Bernd Scheifele, HeidelbergCement AG - Chairman of Managing Board & CEO [11]

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Yes, Mr. Roger, on the margins in Western and Southern Europe, I -- you look on the region, and I look, obviously, always on country level, I would say margins should be okay. Germany, we will see margin improvement. In Italy, I would expect also. Spain, France as well. I would still make a little bit of question mark on the U.K. where the volumes are comme ci, comme ça. Pricing was okay, yes? So I would be reasonable. I would expect maybe 2/3 we should recover. I'm not sure whether we're going to do 100%. But obviously, a key target of the stronger price increase is to recoup of the margin as much as possible, yes? And on the net debt, I leave that to Dr. Näger, but I think overall, your direction is not totally wrong, if I -- in my basic understanding...

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Lorenz Näger, HeidelbergCement AG - CFO, Head of Finance, Accounting, Controlling, IT & Logistics and Managing Board Member [12]

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Yes. You see...You're right to the extent if I say the net growth CapEx would stay on the level where it is, yes? As I said, our disposals are a bit front-loaded, so --we have done very much in the first quarter. And there's something coming in the second quarter, and we do not yet have a full visibility for quarter 3 and 4. So, this is the framework. On the other hand, our growth CapEx, we had very limited expense in the first quarter. Now, that's a bit back-loaded, so we will get something on the growth CapEx back. And how that balances out, let's have a look. But, per balance at year-end, --as you said, it should be close to 0, as we are -- and there, in the moment, we are a little bit ahead with the disposals. On the other hand, as I said, we have invested in the first quarter much more into working capital than in previous year. So, we think that we will get back a bit more money in the remainder the year. And how that balances out at the end, as you know, depends on FX, --depends when the winter comes. When winter comes earlier, we have higher flowback. If winter comes later, flowback is lower, yes? Compared end of last year, it's more like a normal year. So there are quite a number of components. I think we are pretty confident to reach the EUR 7.7 billion, and there is a certain potential that we will be able to go even below that.

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Paul Barry Roger, Exane BNP Paribas, Research Division - Sector Head of the Building Materials Team & Analyst of Building Materials [13]

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Yes. Again, just -- so a follow-up on Western and Southern Europe. Interesting because you haven't really flagged the U.K. that much this quarter in the slides and everything. And I think, to memory, it's now only doing about EUR 40 million on OI a year. So presumably it's not a massive headwind anymore that, that will pull back your margin performance.

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

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Oh. No, no, no. In absolute terms, we have suffered a lot into the -- in the U.K. So I think we have reached a certain floor level. But obviously, the whole Brexit discussion remains a concern and the London market remains weak, yes? Pricing overall in the U.K. has been relatively good. So I would say the weak spot or the critical point in Western-Southern Europe at the moment is mainly in U.K., whereas the other markets, in our opinion, are in pretty good shape.

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Operator [15]

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

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Robert Gardiner, Davy, Research Division - Industrials Analyst [16]

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So 2 for me. So when -- you mentioned the strength of your order books in the U.S. and your increasing confidence among your team there. Is that helping you on pricing? You mentioned the North was -- in previous calls, the North was difficult on price because of imports. Is that order book helping you there in terms of price? And one clarification maybe. You mentioned the strength of April. You mentioned 10% up year-over-year. Was that an EBITDA number like-for-like? Or -- I'm just wondering what number that was.

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Bernd Scheifele, HeidelbergCement AG - Chairman of Managing Board & CEO [17]

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Okay. Last one, that's RCO like-for-like, yes without ForEx and IFRS, yes? And the other one -- and on the U.S., it is so that if you look to pricing, yes, in the region North, we would expect for the full year maybe pricing up $0.50 or whatever. So not that much. That has to do mainly with the effect that in the region Northeast and then in the region New York, Boston, we still see clearly pricing pressure from McInnis and also from competitors which have not -- which have still capacity left, yes? And that is then compensated by relatively strong price increases, especially in the Midwest of about USD 5 to USD 6. Also, if you look to the region Mid-Atlantic, well, that's Virginia and Washington, where also we think we will get USD 3 to USD 4 to USD 5, so that differs really little bit. And the impact of McInnis in the Northeast obviously flattens a little bit the pricing development in that area. And in the rest of the region in the other, it's different, yes? We see -- or we think we will get good pricing in the region West of $6 to $7 maybe up versus last year. Also, the region South should be up maybe $2 or $3. And in Canada, we also think we will get -- Canada, including Washington, we will get maybe $6 to $7. I think that's a little bit where we are on cement. And on aggregates overall in North America, we expect for us a volume growth between 5% to 6%. And on pricing, we would say around 4% up. That should work. Okay?

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Operator [18]

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We got another question, comes from the line of Josep Pujal from Kepler.

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Josep Pujal, Kepler Cheuvreux, Research Division - Head of Building Materials & Construction Sector [19]

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So 2 for me. The first one is on the cement price increases in Europe in Q1, please. Could you quantify the increase? And how much do you think it will be left in Q2 when the base effect plays into account? Because you said that you increased the prices in January instead of in April as traditionally. And by the way, do you expect other price increases going forward in the year? That's my first question. And my second one is on disposals. You announced EUR 880 million of disposals between last year and Q1. And you say in the slide that you expect practically no impact on EBITDA. What were the entities which were losing money to get to this neutral impact on EBITDA, please?

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Bernd Scheifele, HeidelbergCement AG - Chairman of Managing Board & CEO [20]

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Okay. On the cement price, as I said, we have in Europe all over good price increasing, see, of, ranging from maximum in Poland of close to EUR 9 to Germany maybe EUR 3, France EUR 3. We had about EUR 7 in Italy. We do not foresee, except maybe for the U.K., a second round of price increases during the year. So pricing overall, I would say, very solid. And I cannot give you an average number for Europe. Sorry, that does not work. We have 2 areas in Europe. We include Hungary, that's forint currency, with British pound, then you can divide it. That doesn't make sense. We have to go country-by-country. It's a local business. There are local currencies. That's why I cannot give you an average number. I know that makes your work difficult because you have European volumes and you want to calculate what's the margin impact. But sorry, our business is more complex than your Excel sheet, and that's why we can only talk country-by-country. It's about, what do you say, 8%. So I just get from controlling, those are smart guys. They tell me average 8%, yes? But I don't give you a guarantee on that because that includes local currencies which move around between, PLN, CZK, GBP and whatever. I thought about 8%. It's clearly about inflation. That's the message, yes? And the disposal side I leave to Dr. Näger to explain.

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Lorenz Näger, HeidelbergCement AG - CFO, Head of Finance, Accounting, Controlling, IT & Logistics and Managing Board Member [21]

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Yes. On the disposals, there is actually a very limited impact on EBITDA as there are still quite a number of loss-making operations, which is -- especially Ukraine, is probably the highest, yes? But also, the disposal of Morocco minority shares has no impact on that... has only a little bit impact on bottom line. El Minya in Egypt has no EBITDA. The other idle assets, which we sold, like unused plant, et cetera, they have no positive impact. Syria was nothing, yes? Ciment Québec very limited. Saudi Arabia, nothing. So if you take all that together, I mean, it simplifies the organization, reduces admin costs. And on the EBITDA level, we have a very, very limited impact.

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Operator [22]

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Another question comes from the line of Yassine Touahri from On Field Investments.

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Yassine Touahri, On Field Investment Research LLP - Founding Partner [23]

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Yes. A couple of questions on my side. First, could you comment on the latest volume trend that you've seen in April and maybe at the beginning of May in Europe and the U.S.? I know that the base effect is a little bit more normal. So have you been notably impacted by the flooding in the U.S.? And then my second question is more on capital allocation. You've been very proactive and successful with the disposals of noncore assets, and you might be in a good position to redeploy capital in the next few years. Could you tell us how will you choose between investments in mature markets, emerging markets and maybe some return to shareholders? And regarding emerging markets, it seems that local players are gaining market share through acquisition and new investments. What is your position on emerging market? Do you want to keep the leadership? Or are you happy with the new landscape?

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

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Yes. And so emerging markets, that differs from company to company. I think we are -- with our portfolio, principally we are fine. That's why we do not plan any major disposals. So for example, we do not plan an exit now from, let's say, from Indonesia, from India or whatever, or from Ghana or from Tanzania. There are smaller markets which we think -- which are not so attractive like Gambia, Mauritania, Sri Lanka and Ukraine, yes, where we have questions what's the outlook midterm. And that's where we say we want to get out. That includes also Kuwait and Saudi Arabia and all these more or less attractive countries, yes? But in the core emerging markets, we obviously want to keep our positions, yes? And because we have to be careful that -- the capital market moves its opinion regularly. Sometimes, the emerging markets are really the song to sing, and then for 1 year it's only mature markets and we cannot adopt our portfolio always to the songs -- to the newest song in the markets, yes? And that's why we think we are, well, relatively well positioned, yes?

And on the volume side in April compared to last year we are on cement, more or less flattish. And in ready-mix, slightly up, but let us see. We have about 2 working days less. That's very significant. And what we see is that in Western-Southern Europe overall, the positive trend has clearly continued, yes? And also in Northern and Eastern Europe, overall, the trend is clearly good. Eastern Europe and Central Asia is even in the -- in April about 10% -- or close to 10% up versus last year. And also, North America was relatively strongly up overall about 8.5%. We have been down in Asia a little bit. But overall, especially in North America and Europe, the trend is very, very good. And in Asia, it's mainly the impact of the elections in India and Indonesia. And now, Ramadan is starting, so we expect a little bit of slowdown. But we expect a strong one in the second half of the year. Okay. Thank you.

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Operator [25]

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Your next question comes from the line of Robert Muir from Berenberg.

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Robert Muir, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [26]

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I had a -- my first question is on Poland and the price increase of EUR 9 that you have recovered in that market. I just wanted to understand what's driving that increase. Is there any impact from, for example, having players having to buy carbon so near to market there? And then are there any regions across your European portfolio where you're moving carbon to? So I know you've got -- I assume you've got surplus in places like Italy. Are there places like maybe the U.K. or France which are in deficit and you're supporting carbon to those markets? And is that affecting people's thinking of pricing?

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

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Okay. I think, Mr. Muir, I think that's what we said earlier we see already last year. Or -- it is clear that the development of the carbon CO2 price has obviously disciplined the market and changed a little bit the attitude versus price increases. That's what we see now happening in Europe because people start to calculate into their calculation also the increase of the CO2 price, and that's obviously helpful.

In Poland, I think pricing is ... compared to Germany and also Czech Republic ... still lower, and there is a certain catch-up exercise which needs to be done. At the same time, the market in Poland is relatively strong. Residential is coming back. The government has done a lot for increasing the purchasing power of the local people. And at the same time, infrastructure projects continue to run at relatively high speed. And then overall in Eastern Europe, as I mentioned earlier, a little bit the situation in Czech Republic, Hungary and also Austria and Poland is also helped by the fact that there are some production shortages in the market, which means that the product is short or the markets are partially sold out, and that obviously makes price increases definitely easier when -- if -- than if we have overcapacity in the market. Okay. Thanks a lot.

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Andreas Schaller, HeidelbergCement AG - Group Spokesman, Director Group Communication & IR [28]

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We take one more.

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Bernd Scheifele, HeidelbergCement AG - Chairman of Managing Board & CEO [29]

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We take one more, yes, okay, Mr. Schaller.

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Operator [30]

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Okay, sir. Your last question comes from the line of John Fraser-Andrews from HSBC.

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John Fraser, HSBC, Research Division - Global Equity Head of Building Materials and European Building Materials Analyst [31]

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My 2 questions, please. Firstly, in Indonesia. Behind the 9% sales price rise, can you sort of say what's happened -- what's behind that? Is there a driver from the consolidation there between #1 and #3 players? And can you also comment on what's happening to some of the smaller companies that were underwater and where they stand and whether that's impacting prices? And then the second question is in Africa-Middle East. I see that Egypt and Turkey accounted for almost all of the decline. So the rest was flat. But can you give a little bit more detail? Is that sort of Morocco up and Sub-Saharan Africa down? Or what was going on in the key countries, please?

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

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No. Mr. Fraser, as I said, we are down in -- by heart -- are down in Egypt by about EUR 11 million, I think. No, in Egypt, EUR 11 million and Turkey is about EUR 2 million or EUR 3 million. In Turkey, it's mainly currency driven. In Turkish lira, we are even flat. So our guys are doing a really good job. But just to be clear that we have a certain feeling in Turkey, what's happening, the volumes are down, I think, 40%, 45%. We have now led a price increase in the market. We are the market leader with about 15%. Just to give an idea of how the market is, if you borrow -- if you put -- if you change your British pound or whatever your currency is in Turkish lira and you put in a deposit, choose a good bank. Then you get 25% interest, yes? If you go to a Turkish bank and you want to borrow Turkish lira, then you pay 41%. And if you know our industry a little bit, with interest 41%, construction market is dead. Forget it, yes? And that's a little bit the situation, yes? And that's not very nice.

And in Egypt, the message is a good general is maybe a good general. Whether he's a good politician is another question. But it's clearly he's not a good businessman. So the Army is behaving in the market not in a very responsible way. They are pushing -- pumping all their volumes now on the market. They have put down prices. And that is not very helpful.

On the other hand, yes, the other markets like Morocco, Morocco is up and also Tanzania is up. The other smaller markets, Togo is up, Ghana is about flattish. So the other countries are okay. The main point is Egypt and Turkey, I think, we'll see -- we are doing a good job. We are well positioned. Our company is debt free. We will see banks taking over Turkish cement companies now in the coming months because a lot of players are already under the water, and they cannot finance the business anymore. So that offers for us rather opportunities, but -- so the real trouble for us is Egypt. The rest of Africa is okay.

On Indonesia, the price increase which we have seen in our Q1 numbers is only a timing effect. As you know, we have done price increases starting from September last year, whereas last year, in the first quarter, prices were still going down. And what is important is that in the first quarter where the market was flat or slightly negative -- Market growth in Indonesia, first quarter, according to the data of the cement industry, if I recall, the level was about minus 0.4%, yes? So the market was, as we expected, flat due to the election campaign, and the pricing remains stable. That was the good news because our concern was that pricing would go down and we had budgeted internally for decrease of prices in the first quarter of about 2% or 3% and then recoup in the second half with stronger volumes. And what I told you is that -- and as Christian said to the market, "We will try to repeat the pricing policy of last year." That's starting after Ramadan. We will increase bag cement price in 2 or 3 steps with a target to increase by another 5% to 6% from the level where we are at the moment. And that should be supported from a margin point of view by lower distribution cost and also energy coming down. And that's why I think midterm, from our point of view, we should move back -- we should be on our way to come back to EBITDA margins in cement of 2017. That's a little bit the message, yes?

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John Fraser, HSBC, Research Division - Global Equity Head of Building Materials and European Building Materials Analyst [33]

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And your competitors, the #1 player, is he leading from cement? And the smaller competitors, what are they up to?

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Bernd Scheifele, HeidelbergCement AG - Chairman of Managing Board & CEO [34]

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You better ask them yourself. These are very good, responsible companies. But, in the market, especially if you talk about pricing to get it right, yes, as you know -- if you know Indonesia, the market is about 2/3 -- or 80% is bag and 20% is bulk. And we are clearly the market leader in bag cement with our premium brand, Tiga Roda, where we do the TV ads and whatever. And when we talk about price increases, we lead price increases typically in the bag cement. And the whole question in the market: What is our premium, yes, in pricing versus the next competitor, you know, because we get a brand premium. And the key question is -- if we increase our price, then the question is do the competitors follow in order to keep a price distance between our premium brand and their brand at the same level. Or do they not follow? And then if we go too far, then the consumer says, okay, forget about the brand, I buy the cheaper product. That's the whole game. So if you talk about price increase, it's all about bag, yes, whereas bulk remains flattish, yes?

Okay. Thanks a lot. That's it. Thanks a lot for your interest. Have a good day. See you on the latest at our Q2 call in July. Thank you.

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Operator [35]

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