Earnings Transcript for HCMLY - Q2 Fiscal Year 2020

Unknown Company Speaker: Good morning, ladies and gentlemen. Very warm welcome on behalf of LafargeHolcim to our First Half Results Analyst and Investors Call. With me in the room are Mr. Jan Jenisch, the CEO of LafargeHolcim; and Mrs. Geraldine Picaud, the CFO of LafargeHolcim. Now it's my pleasure to hand over to you, Jan.

Jan Jenisch: Yes. Good morning, everyone, and a special welcome from my side. I maybe more than usual, appreciate the opportunity to talk with you today in these very extraordinary times of COVID-19 pandemic, which can impact your business on different ways and sectors are influenced differently from impact size, from timing. And I think it's a great time to talk. And I will give you a bit of an intro how the COVID-19 has impacted the business. And then, I will hand over to Geraldine for more details on the performance before we go to the outlook and to the Q&A. When you look at our monthly sales volumes, which we provided to you to explain a bit what has happened, you see that we had an excellent start to the year, we're ahead of last year in sales volume both in January and February. And this was despite the fact that we already had COVID-19 disruptions in China, which we could not only counterbalance, but also China gave us a good early start into the crisis management globally. We were already then the beginning of January going into global health measurement and crisis management and we also started to develop our crisis action plan, health, cost and cash, which is showing now very strong results in Q2 already and you can expect here much more from us. So you see our sector, the most heavily hit in April, we have a sales decline of 37%. I think this has never happened before in a single month. I think the very positive news is here that how the crisis has curved. You see in June, even we were 5% ahead of previous year and this not only in a few of our markets, but we basically had all regions above last year, only Asia Pacific was slightly below last year level. So this is very good news. We saw that curve already in China, we're already in April, we were reaching last year volumes. So we had kind of an opinion that how fast the rebound can be here in our industry. Now I think we handled this as rapid and as good as we could. We have our action plan in place. You see the results, not so much in Q2. You will see it much stronger in the months to come. We had already in May and June, a cost development under proportional to sales. So that is very excellent and both on fixed and on variable costs, so very happy to see that. And also at the same time, we are really focused on the cash and you see the result, we almost tripled the cash flow in the first half of the year. And you can expect from us that we will continue here with this very strong cash focus which is key in the crisis but even so in a crisis with such a fast and early peak, it's important to focus on cash and keep your resources intact for a faster rebound in the recovery phase. I think you see from the slides also here, we go forward very strongly. I'm very happy we have as a company well under control from a health side. We started in January. There was a big learning, I think in the entire construction industry to make the construction sites safe or let's say to adapt to COVID-19. And I think that was well done. This also makes us confident for the upcoming months that I think while we will see maybe waves or hot spots coming up. I think our customers in LafargeHolcim is now well-prepared with all the precautions and the measures that we will not run into major lockdowns or major disruptions. Okay. I think with this, I'm happy to turn over to or hand over to Geraldine and she will give us a bit more insight in the financials of the second half of 2020.

Geraldine Picaud: Thank you, Jan. Good morning, ladies and gentlemen. I'm happy to take you through our H1 results in more detail. We are proud of the figures you can see here on Slide 9. Of course, lockdowns at construction sites in some of our larger countries impacted our sales and profits, but we finally report a sales decline of only 10.8% like-for-like. This translates into a decline of 12.8% like-for-like of the recurring EBITDA after leases. We will dig into this later but this reflects that we have been able to reduce our operating cost by 10.8%, fully in line with the decline in sales. Recurring EBIT was mechanically more impacted due to the depreciation and amortization, on which there is no immediate flexibility. We have continued to reduce our tax and financial expenses and as a result, the earnings per share reached CHF 0.80. On top of the strong cost savings achievement, we have also been very successful in implementing the cash protection measures, the third element of our health, cost and cash program. In the context of the crisis and despite negative currency translation effect on our business, on which I will comment later, the free cash flow reached CHF 749 million, which is almost 3x as much as we achieved in H1 2019. This comes mainly from intense focus on our working capital and close management of our CapEx. Let's now move on and look at the chart, Slide 10. This chart shows how all regions have been affected by the lockdowns which were implemented by governments in response to the pandemic. You can clearly see that the maximum impact were felt by our business in April for all of our regions. In total, our sales in April decreased organically by 37%, with cement volumes down by 44%. North America has been less impacted, while Asia Pac sales were down by 62% in April as a result of very strict and sudden lockdowns in India and in the Philippines. In June, almost all regions had recorded positive net sales growth like-for-like compared to June last year and our business fully recovered its normal level of activity. Group sales growth in June is close to 5% like-for-like, with underlying growth of cement volumes above 2%. We will now look at the volume trends by region. Cement volumes declined by 13% like-for-like on average at the group level over the half year. Europe recorded minus 7%. This reflects highly contrasting situations between the countries. In France, the U.K., Spain and Italy, the lockdowns have been severe. On the contrary, Germany, Romania, Russia, which has maintained construction activities, showed positive growth. In North America, cement volumes fell slightly by 1%. U.S. activities were only very lightly impacted by COVID-19. Canada faced local lockdowns and an unfavorable market in the West. In Asia Pac, cement volumes declined by 21% due to the heavy and sustained lockdowns in India and in the Philippines. Latin's America cement volumes were globally down by 14%. Lockdown heavily impacted some key markets, including Brazil, Ecuador and Argentina. But at the same time, Mexico, Costa Rica and Nicaragua recorded growth. In Middle East Africa, cement volumes declined by 12%, impacted in all markets except Nigeria. Globally, aggregate volumes declined by 6%, mainly attributable to the U.K. and France. Ready-mix volumes declined by 16% like-for-like mainly due to the lockdowns in India and in Europe and more specifically in the U.K. and in France. If we now move on to our sales waterfall, our H1 2020 net sales stood at CHF 10.7 billion, down 18.1% compared to H1 2019. On a like-for-like basis, sales reduced by 10.8%, driven by the volume decline on which I just commented and that was partly offset by the price increases. The negative scope effect derived from the divestment of Indonesia and Malaysia, which closed in H1 2019. The Forex has a negative impact of 6.2% and this stems from all currencies, which have depreciated compared to the Swiss francs, primarily the Indian rupee, the euro, Mexican peso and the U.S. dollar. If we now go to our recurring EBIT waterfall, we see here that our recurring EBIT has declined by 28% in total, of which the like-for-like decline is 22%. The currency translation effect of minus 6% is consistent with the impact on the net sales. And as you can see, the scope effect is negligible. The volume effect is calculated based on the margin on variable costs achieved in 2019. It explains the decline of 41% of the EBIT. However, our health cost and cash program has led to strong fixed cost savings of CHF 275 million, with reduction mainly in maintenance, third-party services and SG&A. We have also benefited from a favorable market price for energy and have increased our average selling price by 1.3%. All these actions have allowed us to significantly mitigate the impact of the volume loss. In total, over H1, operating costs declined by 10.8% like-for-like, exactly the same proportion as the decline in net sales. The contribution of our JVs declined by CHF 82 million, mainly due to Huaxin impacted by the COVID-19 lockdowns that we've seen in China. Let's now turn to the results by segment. For all 3 main segments, sales have declined less than volumes, benefiting from an average price increases of 1.3% in cement, 1.2% in ready-mix and aggregates. Thanks to the cost savings mentioned earlier, the decline in recurring EBITDA in cement has been lower than the decrease in sales. Aggregates and ready-mix margin have not yet fully benefited from the reduction of the operating cost. For ready-mix, the lockdowns have been more severe in the big cities and in the countries where the margin are higher, which impacted the profitability of this segment. Our solutions and products business line declined mainly due to precast, paving and asphalt business in the U.K. After the segments, the Slide 15 provides an overview of the results by region, on which I will now comment in detail. So let's start with North America. Operations delivered strong performance in the quarter. North America showed the most resilience of all regions despite the prevalence of COVID-19 cases and restrictions in some U.S. states and Canadian provinces. Construction has been deemed as essential in the large majority of our markets. Our customer order backlog remained strong without cancellation of major projects. Volumes impacted by COVID-19 were slightly negative in the quarter. Nevertheless, thanks to effective price and cost management, the region managed to deliver an over-proportional growth of recurring EBIT and recurring EBITDA over net sales. The Latin America region showed a mixed performance in Q2 with severe COVID-19 lockdowns in some markets. You can see our net sales are down 23% like-for-like in Q2, and recurring EBIT down 21% like-for-like in Q2. On one hand, Mexico delivered particularly strong results. Our participation in key infrastructure projects helped to partially compensate the negative impact on demand at urban job sites in the country. On the other hand, strict government lockdown measures imposed in Ecuador, Argentina, Colombia and El Salvador affected our business. Excellent execution, however, of our health cost and cash action plan allowed us to expand the recurring EBIT margin in the region from 26% in Q2 last year to 28% in Q2 2020. Let's now move to Europe. The second quarter in Europe has seen abrupt impact from COVID-19 lockdown, in particular in Western Europe. Net sales down 14% like-for-like in Q2, our recurring EBIT down 28% in Q2. Some major markets such as France, the U.K., Spain and Italy were heavily impacted by strict lockdowns. The markets in Central Europe, such as Germany, Switzerland and Austria proved resilient as construction activities continued during the crisis. In Eastern European countries, demand remained solid and contributed positively to the quarter. After sharp drop of volumes in April, healthy signs of recovery in demand have been visible in May and June. In the majority of our markets in Europe, we are very pleased to report that we have been able to exit Q2 with volumes above the level of last year. Let's now look at Middle East, Africa. COVID-19 lockdowns also took their toll on the Middle East, Africa region with a steep volume drop in April. As a result, net sales were down 22% like-for-like in Q2 and the recurring EBIT down, 46% like-for-like in Q2. Cement volumes declined by 18% in the quarter compared to last year. The decline has been mainly driven by heavy restriction placed on construction activities in certain markets such as Algeria, Egypt, Lebanon, South Africa and Iraq. Nigeria, on the other hand, recorded resilient performance supported by cost-saving initiatives. And with Ramadan in May, the first signs of recovery in the region were witnessed mainly in June. The APAC region experienced the most adverse impact from COVID-19 in the group, with net sales down 26% like-for-like in Q2 and recurring EBIT down 34% like-for-like in Q2. The volumes dropped drastically in India due to a heavy and sudden lockdown from late March, which was more than offset by effective price management, agile execution of cost saving action plan and lower input cost. The swift response allowed the recurring EBIT margin to expand in the country. China recovered from its lockdown and experienced a rebound with monthly sales volumes exceeding the prior year's reference in the second quarter. Australia suffered relatively minor impact from COVID-19 as construction sites remained open. However, the overall economy remained slow. After sharp volume decline in April in the region, with net debt down by more than 60%, we have seen an encouraging recovery in May and June, with volumes nearly back at last year's level. Let's now move on to our P&L, Slide 21. As usual, we present here the P&L excluding impairment and excluding the capital gain realized on the divestments. The reconciliation table with reported numbers is available in the press release and the half year report. The net income before impairment and divestment has decreased by CHF 268 million. The decline of the recurring EBIT has amounted to CHF 473 million, as presented to you in Slide 13. Below this line, there has been an improvement in all major categories of expenses. We have further reduced the restructuring expenses in H1 2019, this line was slightly impacted by our CHF 400 million cost saving plan. Then we have managed to reduce our financial expenses by CHF 51 million, thanks to deleveraging and refinancing. Finally, our effective tax rate has further reduced to 26%. These savings have partly mitigated the impact of the crisis on the earnings per share which amounts to CHF 0.80. Let's go to free cash flow. The free cash flow has almost tripled compared to H1 2019 and increased by CHF 498 million, despite the decline in the recurring EBITDA after leases by CHF 522 million. This record performance has been primarily achieved thanks to the strong improvement in our management of inventories, which was already reflected in our December 2019 free cash flow. Compared to June 2019, inventories have reduced by 7 days of sales to reach 35 days, one day below December 2019. Compared to June 2019, we also reduced our receivables in terms of days of sales by 8 days. This reflects the strong focus we have on cash collection at this time of crisis and as part of our health cost and cash action plan. In total, the net change in working capital improved by CHF 653 million versus the half year 2019. Income tax paid reduced in value by CHF 91 million, almost proportional to the net profit before tax decline, although a part of the cash out is related to the results of last year. Finally, in line with our health, cost and cash program, our CapEx reduced by close to CHF 200 million. That leads me to the net financial debt you can see on Slide 23. This chart shows that our net debt has reduced by CHF 2 billion over the last 12 months. The free cash flow generated over the last 12 months amounted to CHF 3.5 billion, 57% of which has been used to deleverage, which has been a priority in the current context. Consequently, despite the crisis and the seasonality in our business, we ended the half year with a leverage below 1.8x. And before handing back to Jan for the outlook, let me give you a few words on the liquidity and balance sheets trends, as this is obviously key in the current environment. We have around CHF 8 billion of liquidity, which results from cash and deposits on the one side and on the other from secured committed facilities. These committed lines are currently undrawn and have no restrictions attached to them. Thanks to the level of financial strength that we have reached since 2019 our 2 rating agencies have confirmed our strong investment-grade rating at BBB, Baa2 with stable outlook despite the crisis. The attractiveness of our debt has allowed us to successfully continue our refinancing transactions with the issuance of 2 bonds amounting to more than CHF 750 million at attractive interest rates and maturities. Ladies and gentlemen, I now pass you back to Jan. Thank you.

Jan Jenisch: Thank you, Geraldine. So we come to the outlook, and I think you understand that compared to usual, we will not be able to give you precise percentage figure on the volumes on the sales for the second half of the year. We don't know what volatility might be down the road. But I can give you some guidelines, how we see the second half of the year working for us. And to start with, I think we expect a solid demand for our products globally in the second half of the year, after the recovery we saw already in June. We expect that we have solid demand. Our order books are good. And also we are now very much focusing on all these infrastructure programs which have been initiated in Europe, in the U.K., in the U.S., in China, in India and we are very keen here to be in the front row of benefiting from those infrastructure programs. I told you, we are in full operation with very few exceptions, our cement plants, our ready-mix operations, our quarries are all in operations, so are the construction sites of our customers. So for the moment, this looks solid and quite encouraging for the second half of the year. We talked about our crisis management. Our action plan health cost and cash has just started to make impact. We expect this to continue into the second half of the year, safeguarding our strong earnings and strong cash flow also for the second half of the year. Regarding the balance sheet, we are very happy that we could strengthen it so significantly over the last 2 years. And we will also end this year on a strong balance sheet. We will be above 2 billion in free cash flow and in the debt leverage, we will be below 2x. So we will continue here to have maybe one of the best balance sheets in our industry. This crisis, we will use it to accelerate some important strategies of the group. One is digital. So the crisis here has helped us to convince more and more customers to go digital with us, which is very good in COVID-19 times, but of course, also very good to increase our efficiencies and a significant part of our cost improvements are coming actually from our new digital tools, which we are rolling out. The most important area I see for us is sustainability. I think we are taking here the leadership role. We had number one 1 place in ESG ratings from Sustainalytics. And also more important, we continue now to roll out our new green cement and concrete products. We are the biggest user of recycling material worldwide. And with this new ECOPact concrete range we are rolling out globally, we will here be in a strong leadership position. And this is one of our main focus points here into the future to be sustainable and be part of a more sustainable and greener building environment in the future. I think with this, I would say a bit confident and positive outlook, I'm happy to start the Q&A session.

Operator: The first question comes from Elodie Rall from JPMorgan. Please go ahead.

Elodie Rall: So I'll limit them to 2. First of all, you've indicated sales were up 5% in June. Could you speak about the recent trends in July? Did this recur, did it continue? And if it did, how much of that do you think is attributable to the pent-up demand due to the lockdown in April, May? And how much would be underlying growth that you think is sustainable going forward? And my second question, please, on free cash flow. The bottom end of your guidance suggests 2 billion. You've delivered 3 billion last year. You've delivered a very strong performance in H1, almost triple the performance from H1 last year. So that would imply basically a lower -- a weaker performance in H2. So why is that? Is this coming from a potential reversal in working capital trends after the strict control in H1 or is there something else that we need to think about? Thank you.

Jan Jenisch: Good morning, Elodie, and thank you to starting with such tough questions. So you're asking the questions we tried not to answer in the outlook. So let me try to answer that. So I'll start with the cash flow. Of course, you made the right observation. We were above CHF 3 billion in 2019 of cash flow. If you take the last 12 months, we were above 3.5 billion cash flow and now you're suggesting that the cash flow might be weaker for the second half. Well, I don't like weaker performance. So let's see, we just gave a bottom guidance for now because we just want to be a bit professional about this COVID-19 pandemic, which is in no one's control and we don't want to give too much precise guidance at this point, just out of a professional view, yes. But your observation is totally correct. And also the ambition, I think, you ask us to follow is well understood on the cash flow. Good. Now that was a good answer. And then regarding July, I don't think we published the July results yet. But let's say, the outlook I have given indicates that we don't see really now a weak demand in July, to say maybe something about it. So we see this recovery trend. And you were asking if this is kind of how to say, a backup or maybe some storage purchases or something. You could think so. But if you look at the demand curve coming out of April, you see already this catch-up in May, where basically, the negative trend was already broken and then you see the positive June. This is a development over the last 2, 3 months where we are rather confident about the second half year supply. I give you maybe another indication. I think that China was 2 to 3 months early into COVID-19 crisis actually, that helped us a lot to prepare for the other markets. And in China, when the crisis was very new, you remember that all started in January and we had the biggest impact in China was in February, yes, so about 2 months, 2.5 months before the rest of the world, and then we saw the same recovery in China we see now in the rest of the world. So already in April, we were back on last year's level in China, and this trend was confirmed in May and in June. And our Chinese team believes, what the second half of the year are going to be anywhere last year level or plus. So we have a bit of a -- even this crisis is unique to all of us, we have quite some learning from all the curves. And the last comment is Geraldine was talking about the different curves in our 5 regions. And you will realize that the curve itself has the same shape, the same timing for all 5 regions, only the impact size is different. So we had huge impact in India or Philippines, where we had almost a total lockdown. However, the recovery was almost as fast as in the other markets who didn't have such a big impact. We saw the same in Europe, happening big, largely impacted in Spain and France and the U.K. compared to Germany or Switzerland or Austria. However, the recovery path from the timing was exactly the same. And so that makes us a bit confident plus then the visibility on the activity in the sector out with the customers. That makes us as confident as we can be at this point in time.

Operator: The next question comes from Cedar Ekblom from Morgan Stanley. Please go ahead.

Cedar Ekblom: I've got one question on M&A. Can you give us a little bit of color on where you stand with your bolt-on acquisition strategy? How many deals you've done this year? And how you see the landscape for M&A developing in the second half? And then secondly, on M&A, obviously, the second part of that strategy is more transformational deals. Can you give us a little bit of an update in terms of where you see targets? Do you think that the crisis has made it more difficult or easier to potentially roll out your M&A strategy? Thank you.

Jan Jenisch: I think in principle, we are in a good position to do M&A right now. We conserved all the liquidity, the balance sheet strength. So I think we're in a good position to continue with the bolt-ons and continue to look for a more transformational, maybe one, for the fourth segment. However, we have, at the moment, a time where it's very difficult to make deals because you cannot make site visits, you cannot physically meet. So we were, for the last 4.5 months, we were kind of sidetracked. We have a full pipeline of targets we like to talk to, but it was simply not possible to talk, to visit or to do due diligence. So we are a bit sidetracked. And I expect this now to pick up, let's say, maybe from September on. So we made a plan that we need to accelerate this back, but I think it's not possible to start before September, before we can really actually meet the people and also do due diligence. Geraldine, do you want to add the number of deals we have done in the beginning of the year before COVID came?

Geraldine Picaud: Yes. We've done 3 bolt-ons. And yes, we expect to double, let's say, to be around 6 for this year. But let's see, as Jan said, how practical it is to do the due diligence.

Operator: The next question comes from Roger Paul from Exane BNP Paribas. Please go ahead.

Paul Roger: Yes, so it's Paul Roger, actually from Exane. Congratulations on the Q2. Just a couple of questions then. Some of your competitors have expressed some concerns about the outlook for U.S. volumes in the second half, if we don't get any fiscal stimulus, talk in particular about the impact that state budgets could have on demand. Is that a concern that you might share? And then secondly, you've obviously done a great job in cost-cutting in H1. You've done 275 million of the 300 million already. So I guess the obvious question is, could there be a lot more to go and how much upside might there be to that initial target?

Jan Jenisch: Maybe to start with the last one. So on the costs, I think we have just started. So we had rolled out this action plan, how to really lower now the logistic cost, logistic rates, how to handle third parties, how to introduce the digital tools to get the cost saving out. And I was personally surprised that we already had such a reaction in May, but this program is rather steered to show maybe a bigger impact in the second half of the year. So quite confident how it has started, and you can expect a bit more to come in the second half of the year. Then maybe related to this, because a question will come on the energy side, we had a bit of tailwind in H1, helping us with the cost, of course. We believe there's a small tailwind still to come in the second half of the year. Yes, the business in the U.S., and that's a interesting question. So we have at this point in time, we have a good order book for this month and the month to come. So we don't see now any disruption. I know there was maybe a negative comment from, I think the U.S. bank or something tonight. But we don't see that hasn't hit our market in the U.S. So our people, we just had a video with them couple of days ago, they are quite confident going forward with our footprint, with where our customers are at. And again, this is just our view. I don't want to talk too much about the possible economic scenarios in the U.S. but again, I think construction will be rather resilient. We have our sites are full in operations in the U.S. at this point in time. So also here, we don't see any downturn at the moment. And then as you say, the infrastructure will hopefully come then for 2021. And this is, of course, very rewarding for us as infrastructure needs a lot of cement, concrete and aggregates, but let's see that. I'm not pessimistic for the U.S. Then for Canada, which is a big part of our North American business, I think here, we even have a bit of a catch-up because Canada was going in much more lockdown. So while we had -- you can see from the numbers. I think while in the first half of the year, we had we were on last year's volumes in the U.S. So Canada was a bit impacted from certain disruptions or lockdowns. So here, even Canada, I expect a little bit of catch-up in the second half of the year.

Operator: The next question comes from Lars Kjellberg from Credit Suisse. Please go ahead.

Lars Kjellberg: Just to come back to the outlook a bit. You, of course, have seen a recovery in June and which seems to continue in July. But again, a bit of catch-up, I would assume, is in there. But can you give any comments about sort of new orders, bidding pipeline and new projects? Any color you can give on that to see the sustainability beyond the next couple of months? And also if you can comment, Geraldine, a bit on the operating leverage that you saw to your earnings on that 5% revenue growth, big resumption, of course, from a negative 37% in April. If you can give us any sense of the operating leverage you now have, given the cost takeout, et cetera, into a possible recovery in H2.

Jan Jenisch: All right. Yes. I think on the markets, if you look at them -- how I look at the construction markets is classical. We have 3 segments. We have infrastructure, we have commercial and we have residential. And I think when I look at our main markets, no projects have been canceled, some are maybe delayed or something. So basically, we enter now this recovery phase with quite a good order book because the projects running now, they are not being canceled in general. So we have that good. And then I think for next year, and today, it's too early for me to really give you a precise outlook, I will be happy to do that maybe in our Q3 call. But just as you asked the question, I think then for 2021, the question will be, we have some delay in new projects in commercial and residential in the mature markets, so just by maybe not being able to release the permit or maybe by postponing the start of a project. So I think there will be an effect. And at the same time, we have infrastructure kicking in. So if you see the list of announcements of the countries, this is going to be very significant. And so for 2021, for me is a bit of a timing question, when do we feel a slowdown or a slowdown in new projects for residential and commercial and when is infrastructure kicking in? And I cannot answer that question at the moment. I think we are prepared for all cases. If we have especially now with this new action plan, we will have a significant lower cost structure going into 2021. So I'm actually not so worried with volumes in 2021. I think we do now everything to make this company more efficient to also be able to handle maybe certain delays in new projects for 2021. And Geraldine, do you want to talk about the leverage going forward?

Geraldine Picaud: Yes. Your question was about the operating leverage and the ability to continue to improve our margins, right?

Lars Kjellberg: Correct. I mean, you obviously had detrimental margins around 25% in Q2. Should we expect a sort of say incremental as you start to get revenue growth coming?

Geraldine Picaud: Yes, absolutely. That's a constant focus and that's the second element of our health, cost and cash. So yes, I confirm.

Jan Jenisch: Maybe if I can add to this. When you saw when we made this 400 million cost saving on SG&A, you remember we did this with no inflation, so really hitting the bottom-line. This is what we did. We are still on the same level as of today and we do exactly what you are asking, that we make our programs are sustainable. So we are not making any shortcuts and let's say we don't do a maintenance now and report it as a cost saving. We do really structural things, better rates with the suppliers, better logistics, better digital tools. So I really expect that this new efficiency base we achieved throughout the crisis, we will also have for next year.

Operator: The next question comes from Martin Hüsler from ZKB. Please go ahead.

Martin Hüsler: First of all, a bit a top level question. I'm interested about your view on TransAtlantic exports, bearing in mind that in some countries' export markets, you have low utilizations. Do you see any import risks to countries such as France or the U.S. and what's your expectation for the second half? That's the first question. And the second question is about two important markets in Europe, France and U.K. I was wondering whether you can give us some more detail about their trends monthly and the coming out of crisis, how do you see France and U.K. at this level and what do you expect for second half?

Jan Jenisch: I think on this import/export question you have, as you know cement doesn't travel well. And the crisis doesn't change much here because the cost is not only the shipping rates, which might be lower now, but this whole cost of loading and unloading the ship is just -- usually only very special cases this is a profitable business. If you have efficient cement plants in a country, that's the most efficient way to supply the market. This is the reason why there's actually not a significant trading volume in cement and I don't expect this to be there in the future. Then to your question specifically on France and the U.K. These markets in Europe, it's fair to say, have been probably with the biggest impact in April. So as you can -- if you follow-up with all the lockdowns and so on, we have France and U.K., are the biggest impact. Now the positive thing is that in all our key markets, there was the recovery in June. We only had a handful of markets where the recovery was let's say 5% below last year or something. So we really were on last year level or above last year in all key markets. This is also true for France. The U.K. is delayed and I think you are all very affiliated with London and the U.K. So you can see that the U.K. seems to be coming out of the crisis a little bit delayed. So what we see from the construction side, the delay is maybe 6 weeks or something like that compared to France. So we expect now the recovery to be there July, August, so a little bit later than the other markets but the curve is everywhere the same, Martin. This is amazing. So the curve we learned from China first, we see in every market this 3 months impact zone and then the recovery.

Operator: The next question comes from Moulenq Lefèvre from CIC. Please go ahead.

Moulenq Lefèvre: I have 2 questions, if you don't mind. First, can we assume it's the same tax rate of 26% for this year or all this year? Secondly, could we get more flavor on the market outlook in the difficult area of Middle East, Africa and in particular, in Iraq, in Egypt and in the Algeria? Many thanks.

Jan Jenisch: I start with the second one, and then Geraldine excites us with the tax rate which is improving, as we planned, as we announced. So overall, I'm quite confident, but Geraldine gives us the details. If you look into Middle East, Africa, and again, I think it's probably the region. I think we are above expectations in all 5 regions, but maybe Middle East, Africa, it's a single region. We have a positive surprise. As you know, we started to go back on track with that region with management changes 2 years ago. And we see now the fruits of the changes and we handle the region and much, much better than in the past. You see from the curve Geraldine has provided on Slide number 10, you see that Middle East Africa had kind of the biggest plus in June, the biggest recovery and we see that ongoing. You mentioned Iraq. Iraq is hard-hit. However, we are operating. So you see in those markets it's a bit unclear what will happen. But in principle, the governments and the construction industry, our company had a very fast learning on how to adapt our business to COVID-19 to make sure we are safe and we take all the precautions. This is why I don't expect a major longer lockdowns in our markets but expect that we can keep operating. So for Middle East, Africa, I include in my positive outlook for the second half of the year.

Geraldine Picaud: Thank you, Jan. Jean-Christophe, on the effective tax rate. Yes, I confirm that we can maintain 26% for the full year. And as you have noted, now also the cash tax paid is also at the same rate, which is also very good news in terms of free cash flow.

Operator: The next question comes from Robert Gardiner from Davy. Please go ahead.

Robert Gardiner: Two for me as well. Just I'd like to just go back on M&A and capital allocation. I'm just wondering, Jan, does the pandemic change how you think about the portfolio, not just in terms of acquisitions but also disposals, I don't know, between maybe emerging, developed? And is the appetite still the same to do something pretty material in products and solutions? And then on trading, just wondering how much of the 5% increase in sales in June, how much of that is price? And likewise surprised then in Latin America, by the plus 4% is that all price, because I presume that's got to be a tough place to be at the moment.

Jan Jenisch: I think on capital allocation, I think we did a good job in the last 2 years, first of all, with the debt reduction and then with the significant increase of cash flow. So I really look forward for the next key decision. You mentioned on M&A, we are happy to do something, but you have to get the right opportunity. We will keep full disciplined on the financial side. So we will not buy something if the numbers don't make sense and we have done this also in recent years. So I hope we can present something to you. But in the near future, but we don't know, we need the opportunity. Even so, we want to maintain this financial strength. So even we do deals, I think it's our long-term commitment to stay below 2x net debt to EBITDA. So don't expect us to go back to any higher number just because to make something happen. We will make sure that we generate enough cash to finance also our expansion here. On the pricing, Geraldine, do you want to comment on our positive price effect for the first half?

Geraldine Picaud: Yes, I did. I think your question was more on the month of June. And you're right, we had sales increase of 5%, for volume globally, increase of 2%. So you have effectively the benefit of price increases. We were slightly above 2% in North America and also globally positive in all the rest of the region. So a very positive trend seen in June.

Operator: The next question comes from Ahmed Nabil from Barclays. Please go ahead.

Nabil Ahmed: And again, congratulations for the good numbers, considering the circumstances. The first question I had was on pricing, what are the cement markets where you have ongoing or planned price increase in the second half? Maybe specifically, some competitors mentioned price increase being delayed in some U.S. states. So could you please comment on that, also in Mexico, do you have a planned price increase? And finally, if you can provide an idea on India as well? And my second question was on CapEx. I was wondering how long you think you could sustain this CapEx level? Is this the absolute minimum of pure maintenance or do you think this is a level that the company could potentially sustain over the coming years?

Geraldine Picaud: Right. So on the price increases, we're quite happy and we have put all our price increases in place. So you mentioned the U.S., yes, there was a little bit of delay, but most price increases were effective June 1. This is why I mentioned the sales growth being above the volume growth for June. And you're right, traditionally it's April 1, but everything has been effective June 1. For Latam, you're right as well. We increased the prices in almost all markets and especially where you have some inflation. So Brazil, we were above 5% price increases; Mexico, a little increase. So all over the place, we're taking care at price increases, Colombia as well so across the Latin America region. So that will have positive effects for H2.

Jan Jenisch: I think on the CapEx side, we are not taking any shortcuts here. We have, in general, and we talked about this in previous calls that we are significantly lowering the CapEx per unit. So we have with all these new equipment or the new equipment suppliers coming up, we have some big opportunity to significantly lower our CapEx and our maintenance cost, plus all the digital tools we put in place. So we have a very positive outlook on the CapEx because we had the question in the past, 1.4 billion CapEx, is that too little? That's absolutely not little. I think that's even too high as a general level. So now what happened, of course, now in the crisis, we put a very strict review in place to check simply some of the CapEx simply cannot be done at the moment. It's a bit like the M&A project because you cannot meet the people or maybe the equipment company is not fully operational. You cannot install on the ground because of COVID-19 precautions, measurement. So we have a bit of delay in CapEx and we make sure that we do this in a smart way, that also we renegotiate or we right-size some of the investments. So of course, you cannot take the Q2 CapEx as the new normal for our company. That's clear. But you can expect from us that we will have lower CapEx levels also into the future.

Nabil Ahmed: Okay. Maybe as a follow-up, any view on pricing in India for the second part of the year?

Geraldine Picaud: Yes. It's positive as well. In Q2, we increased our prices by low single-digit, and we expect to continue with this price increases effort in H2, Nabil.

Operator: The next question comes from Yassine Touahri from On Field Investment Research. Please go ahead.

Yassine Touahri: So two questions. My first question would be on green concrete. Could you give a little bit more color on your green concrete initiative? How much does it represent as a percentage of concrete sales today? Do you have any medium-term target? And is there any difference in terms of margin versus your legacy concrete business that you could quantify? And then my second question would be on the month of July, I think you were kind enough to give a bit of color about on July in the U.S. Could you give us a bit of color on the other regions, especially in Asia and in Latin America, where June was a little bit slower than elsewhere, have you seen any improvement in July?

Jan Jenisch: Yes. Thank you for the question and especially for regarding our green concrete initiative, that's excellent new products we have developed. In principle, you will find that this concrete is using a CO2 reduced cement to start with, and then about 30% of the product is recycled material. So these are, at the moment, our Champion League products, so very exciting. And depending on the local regulations, we try to introduce that in all markets. That product is not only more sustainable and has a significantly reduced CO2 footprint, at the same time we are very price competitive because we have a very good operations to recycle old aggregates, old concrete and so on. So we are very competitive on the recycling part that's why this will not be a niche product. This will be a major product for us. And I cannot give you the exact split, but we can do that at one of the future sessions. You will be surprised on what double-digit percentage this can be a part of our overall product range. On the regional outlook, I would not like to give you a split at the moment, how is the U.S. compared to Latin America. I can just reconfirm to you that basically all our key markets came back in June and have a solid outlook for July. This includes the U.S., this includes Latin America, this includes Europe. So at the moment, we are in a good situation.

Operator: The next question comes from Tobias Woerner from MainFirst. Please go ahead.

Tobias Woerner: Two questions, if I may. Number one, do you have an idea how much benefit you saw from furloughing schemes around the world, on your results in Q2? That's the first question. The second question is when you look at implied pricing by segment or division, it seems that aggregates has been quite a bit weaker than one would have assumed. Why is that? I follow data in the U.K., which seems to show some really strong aberrations, is there anything going on there? Many thanks.

Geraldine Picaud: So on the first question, what are the schemes we benefited from? It mainly deals with France and the U.K., it's quite not material to answer your question. So we have had below CHF 30 million equivalent. The second question about the aggregates and the aggregates development. So first, aggregates have been able to do price increases for the first 6 months, which is a good thing. Now the impact on the margin that you can see on the Slide 14, also come from the fact there was -- you had some level of inventories prior to the crisis, which mechanically delayed the recognitions of the saving. Hope I'm clear.

Tobias Woerner: It seems, I'm not totally clear. I mean, it seems to me that the pricing impact in aggregates is significantly less and that it's still to follow. Is that the way to see it?

Geraldine Picaud: No, it's not true. The aggregate pricing is fairly in line with what we've seen globally in cement and ready-mix. So we are at 1.2% compared to 1.3% in cement. So it's fairly in line.

Operator: The next is a question from Gregor Kuglitsch from UBS. Please go ahead.

Gregor Kuglitsch: Can I kind of push on two points, please. So firstly, on guidance for the second half, obviously, you're kind of saying you're optimistic, but obviously, you don't want to quantify. But in a scenario where, I don't know, sales are down a little bit, do you think you can hold profit once you think about cost savings and all the initiatives that you're taking. I'm obviously not asking you to make a top line forecast, but I want to understand if, say, I don't know, sales are down 5%, could you hold profit? And then secondly, on cash. So obviously, you flagged there's a 3.5 billion trailing 12 months cash and you're guiding us for 2 billion. So obviously, by definition, I think it was an earlier question, you're kind of unwinding some of the benefits perhaps in working capital in H2. Is there anything else that we need to think about? I don't know, did you have things like temporary tax deferrals, the VAT? I mean there's all sort of things I think one could have done to save cash up in the short-term. So just so we know if we have to actually explicitly think about anything other than perhaps working capital, when we do our own forecast for free cash. Thanks.

Geraldine Picaud: So on your first question, obviously, if we've put in place an action plan such as health cost and cash, it's to strengthen our ability to reduce further our fixed cost in case sales would decline further, so we are prepared. Your second question about the cash. I think we've been clear this is a floor. We are guiding on our free cash flow to be above CHF 2 billion. So that means we'll be above CHF 2 billion. It is also important to note that there's no tricks, no tax, no VAT, no whatever. This is based on the health cost and cash action plan.

Operator: The next question comes from Arnaud Lehmann from Bank of America. Please go ahead.

Arnaud Lehmann: My first question is regarding potential for restructuring initiatives going forward. I mean some markets, I guess, are still going to be at lower levels with probably a bit of an impaired outlook even for the medium term. Shall we start to anticipate some restructuring charges into H2 or next year? That's my first question. My second question is around goodwill. We saw one of your large competitors announcing a fairly large goodwill impairment. I believe you still have about CHF 12 billion or CHF 13 billion of goodwill in LafargeHolcim balance sheet. Would you expect a similar move as your competitor? Thank you.

Jan Jenisch: Yes. I think Geraldine will take the second question.

Geraldine Picaud: Yes. So on the goodwill, you're right, we've seen some peers having quite an important impairment. You probably recall that we have done one, actually. And I confirm that we have no problems, so there is no such need in our case to do such massive impairments.

Jan Jenisch: Yes. And Arnaud, on your first question regarding the restructuring, you saw we had a relatively small restructuring amount in the first half of the year. And we don't expect this -- to see a bigger number for the second half of the year. I think when we set up our first cost saving, our new strategy, we made it clear that it's about cash flow and we don't want to have a significant restructuring charges. So we will also keep it in this crisis. So what we foresee at the moment is a bit, as you suggest, that we take it on a country-by-country approach. So for sure, we have certain markets where the resources are maybe not in line with the demand, but this is not a general conclusion. So we will not make a general restructuring, we will make it only focused on certain markets. And you can expect from us that we keep the discipline here in restructuring charges hitting our P&L.

Operator: The next is a follow-up question from Cedar Ekblom from Morgan Stanley. Please go ahead.

Cedar Ekblom: Just one follow-up question on the cost savings. So you said that there were about CHF 30 million of savings related to temporary salary subsidies. In your release, you also alluded to some other benefits related to COVID-19, like tax deductions, rental reductions, et cetera. Can you please give us the total number that you saw in the first half related to those support schemes for COVID-19? And then can we assume that, that is in addition to the 300 million savings that you're targeting for the full year because it's not really something that you are doing, it's rather just temporary benefits that governments have provided.

Geraldine Picaud: Yes. Absolutely, Cedar. We would not factor that as cost savings. You're totally right, it's temporary. And all in all, if you take the tax deferment, all the measures that we have benefited from, from a cash delay or effectively the temporary unemployment. All in all, if you take, it's below 70 million, it's around that number. But again, as far as the EBIT or EBITDA is concerned, we're talking about CHF 30 million, a bit less, yes.

Operator: The last question comes from Remo Rosenau from Helvetische Bank. Please go ahead.

Remo Rosenau: I would like to ask Geraldine about the very impressive improvement on the net working capital side, which was the main contributor to the strong free cash flow in the first half, with 653 million positive change in the net working capital. In the first half, it usually sees increasing levels here. Now you reduced days sales outstanding and days inventory outstanding quite significantly. I mean, is that it now or do you see further improvement potential and if so, what would be the target there in days outstanding? And the second question would be, could you remind us where the average cost of debt is at the moment? And where would you expect this number to be, more or less, in let's say, 2 years' time, assuming that you would have the same refinancing conditions as now? Thank you.

Geraldine Picaud: Yes. So as I said when I explained the working the net working cap improvement that we've seen for the first half, we are actually much better in terms of days of sales, as you've noted, for inventory and receivable compared to June 2019. We're slightly better or aligned with what we achieved in December. So when you were asking in December, in February when we were presenting the December performance, is that sustainable? But you see it, it is fully sustainable. We are at the same level or even better. So you can expect that to continue for end of December 2020. On the average cost of debt, I'm proud to report that we are now below 3%. We are on average at 2.8%. And yes, we should continue the trend, but I would not guide precisely. But now that's the new norm below 3% and we are at 2.8% for 2020, okay?

Remo Rosenau: Yes. But is it fair to assume that this number is most likely going to decrease further in the next few years, right?

Geraldine Picaud: We'll do everything we can to make it happen.

Operator: Ladies and gentlemen, this was the last question. I would now like to turn the conference back over to LafargeHolcim.

Jan Jenisch: Yes. I like to thank you all again for participating. It has been a pleasure to discuss in these extraordinary times. And I look forward to catch up with you latest after Q3 and hopefully soon in person again. Thank you very much for joining and I wish you a good Thursday. Bye-bye.