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Ladies and gentlemen, thank you for standing by. Thank you for joining the call on Third Quarter 2020 Results of HeidelbergCement AG. [Operator Instructions]I would now like to turn the call over to Christoph Beumelburg. Please go ahead.
Thanks, Anna, and welcome, everyone, to our third quarter conference call. It's 7 weeks since we got together on a CMD. A lot has happened since then. And we will present to you the third quarter. As usual, Dominik von Achten will start, followed by Lorenz Nager, and we will then have ample time for [indiscernible]. With that, over to you, Dominik.
Thanks, Chris. And thanks, ladies and gentlemen. Great that you join our Q3 call. Welcome to all of you. Now, Lorenz and myself would like to share with you our Q3 results. And I think it's fair to say we have pulled off a strong operational performance. Like-for-like EBITDA goes up significantly, 17%, on nearly flat revenues. And we have put a significant emphasis on margin improvement, and we have seen a significant one in Q3. You know that in March I communicated the COPE action plan of EUR 1 billion cash saving. At that point, to be fair, under the assumption that the market would not perform like in Q3, and we would not perform like in Q3. Nevertheless,[indiscernible] well against this EUR 1 billion target, more than EUR 720 million cash savings already achieved in the first 9 months. We'll come back to the details in a minute. Then also on the financial side, I think excellent outcome. LTM FCF cash flow by 50%, almost 50%, 49.5% to EUR 2.3 billion in the last 12 months. That has enabled us to reduce our net debt by EUR 1.8 billion [indiscernible] at end of September last year. So as you know, we've been a little bit careful with guidance this year. The guide is still fairly low, but we are confident to give you the guidance that we [ expect ] increase in 2020 of our EBITDA versus 2019. And we reiterate our guidance that we gave earlier this year about a [indiscernible] to be at or below 2.0x net debt/EBITDA. Going to the presentation and lead you through some of the key points before [indiscernible] the significant margin improvement. Revenue on the left side was basically, as I said, flat, minus 1% like-for-like. And on the 9 month [indiscernible] 7% like-for-like. Bear in mind that there is quite a significant contribution from our pulled-back HC Trading business, so [indiscernible] out the decline on the revenue side is about minus 3%, minus 4%. Operating EBITDA side, as I said, plus 17%, so that's significant, reported plus 13%; and the 9-month basis, plus 6% [indiscernible]. Operating EBITDA margin, a significant jump in Q3 by almost 400 basis points to more than 27% and also on a 9-month basis, now almost 250 basis points up to more than 20.5%, specifically 20.8%. On the RCO side, operating EBIT at [indiscernible] ever as a company that we have reached in 1 quarter, more than EUR 1 billion RCO, and that's in the midst [indiscernible] pandemic, I think that shows that the team has done a fabulous 3 months to end [indiscernible] brought to you this result. If you look at 9 months, more than EUR 1.7 billion, plus 10% like-for-like. If you go into the next chart, you see that all areas have basically contributed to this good development. And it's very important for me, as much as I was skeptical about our performance in -- over the past couple of years and also in this year, we have to say that the team in the U.S. and in Canada have turned around the negative trend from our perspective. And that [indiscernible] action plan that I have discussed with Chris Ward and his team is getting traction. And that's early, it's early days, but we -- clearly, from our perspective, [indiscernible] and that also means that even North America, the EBITDA has gone up by almost 5% compared to Q3 [indiscernible], basically on the back of very disciplined cost management and margin improvement, I'll come to that in a minute. Europe continues [indiscernible] to rise on the back of very strict cost discipline, demand [indiscernible] and also solid pricing. Asia Pacific, or as we call it, APAC, with mixed pictures with a difficult market situation in Australia, but the team has [indiscernible] and Indonesia getting headwinds on the volume side with the pandemic. But pricing is [indiscernible] inflation has been well managed. Africa continues its good rise. Also important markets like Morocco, Tanzania and especially Ghana [indiscernible] . But Egypt, you know that this is probably the only real problematic country from the result perspective, has turned the corner a little bit, and hopefully, we'll be able to [indiscernible] the road. If you go to the next page, you see the details a little bit reported with like-for-like on the Q3 EBITDA performance. So last year, EUR 1.17 billion. Then you see [indiscernible] of about EUR 55 million, that's mainly North America, Russia, partially Turkey, India, a little bit Indonesia. That's the impact on the currency side, plus 15 -- plus 17%; and on EBITDA, up to EUR 1.33 billion. And you see in Q3, basically flat volume developments here [indiscernible] impact [indiscernible] resilient and good positive gap with price over costs. So [indiscernible] better than fixed cost and fixed cost and variable cost development together with a positive delta of almost EUR 200 million. If you go to the next page, you see the development for the first 9 months. So you see that the currency impact is mainly coming from Q3 because the 9-month number has not changed much. But you see the very different picture in the middle, where the big volume hit on the results out of almost EUR 240 million basically coming all from Q2. But still on the 9-month basis, this is in [indiscernible] million to an EBITDA for the first 9 months of more than EUR 2.7 billion. If you go to the next page, you'll see the details on the COPE plan. As I mentioned already, this was -- this COPE plan was initiated under different assumptions, and the Q3 market has been -- has shown to be more resilient [indiscernible] correct. We still chase the COPE plan. We are now at more than EUR 720 million, almost EUR 300 million more than [indiscernible] savings because of [indiscernible] contribution on the tech side because, obviously, the results are better than expected. The important next page from our perspective, we are very much focusing our margin performance. And I think in that respect, it has been a good quarter. Even North America, as I said earlier, has contributed significantly. Margin now above 30%, so almost 300 basis [indiscernible] and Europe with a very strong and resilient performance to more than 24%, plus 500 basis points. North and Eastern Europe, on a very high level with an even better performance, plus 220 basis points to more than 31% margin. Asia Pacific, also good cost and good pricing, especially in India, Indonesia but also partially in [indiscernible]. And then Africa, Eastern Mediterranean, on a very good level, almost 29%, up almost 360 or more than [indiscernible] points. I think that [indiscernible] and shows you a little bit the rollercoaster that we have gone through. January very strong then, I would say, very weak March, April and also May. But since then, a strong catch up, that leads us to the plus 6% like-for-like for the first 9 months. With that, I will hand over to Lorenz, and he will share with you the financial side of things.
Yes. Thank you very much, Dominik. Thank you for joining us. Good afternoon, good morning, wherever you are. So I would like to lead you through the financial messages, and I will start on Page 10 with that. I think the most significant development is that we have generated EUR 2.3 billion free cash flow over the last 12 months. This is a historic high figure, and it is up EUR 0.8 billion from previous 12-month period. This is 12 months including the Q4 2019. So the cash conversion rate has achieved 63%, cash conversion rate defined as free cash flow over EBITDA. And this free cash flow generation shows our ability to manage costs and especially spending cash out in a very flexible way. We are in a position to react quickly on the cash side on any changes on the volume side or profitability side. This, the company has shown in many crisis earlier, 2009, 2012, the Fukushima crisis; '13-'14, the oil crisis; and now 2020, the COVID crisis. We always -- we are able, we are in a position to react quickly with our spending behavior and get the cash flow right even if volumes drop or result goes down due to increasing energy cost or whatever it is. The company, despite its heavy asset base, the company has a high degree of agility and flexibility. Flexibility also means going both sides. So we can cut CapEx, and you will see that later. We have spent EUR 840 million for CapEx against announcement EUR 1,200 million going forward, and EUR 300 million spending -- EUR 300 million savings. So that adds up exactly or very close to this EUR 1,200 million. And the EUR 300 million of CapEx savings, that showed the flexibility. That means also that we will have to spend a bit more in the coming months to catch this up in the financial situation continues to be as favorable as it is today. The company has to breathe this -- its development. On the back of that cash flow generation, we have reduced net debt by EUR 1.8 billion year-over-year as compared to September 2019. Currently, our leverage ratio stands at 2.1x. And we expect it to reduce further towards the end of the year to 2.0x or maybe heading to 1.9x, something like that. This favorable development has been honored by Standard & Poors. They upgraded our rating outlook to BBB- positive [indiscernible] Standard & Poors to up our rating to BBB [indiscernible] EUR 3.7 billion. Then you see interest payment and tax payments to be deducted. And this brings me then to the change in working capital. Here, we have an inflow of EUR 322 million, and this is part of the flexibility I was talking about. We have collected EUR 322 million. In the beginning, we were a little bit skeptical on the cash flow because over the last couple of years, we turned our DSO DPO balance to be positive, meaning we have more accounts payable than accounts receivable on the working capital. And we thought if volume and turnover goes down, this would lead to an increase in working capital. But we were in a position to act very quickly, changed that, and now we see here an inflow of EUR 322 million on the base of lower volumes. And if I talk about flexibility, then it's clear that we should keep in mind that if in case volumes do increase, we would also see an outflow of working capital, and we would need to put money in that. And that's also part of that [ flexibility ]. CapEx net, I was talking about EUR 842 million over the last 12 months. Typically, we need EUR 1,200 million. Yes, we have COPE savings, EUR 300 million. So if you add it up, we are pretty close to our target figure of EUR 1,200 million in that respect. Now keep in mind -- please keep in mind, as we announced at the Capital Markets Day, that we changed the definition of CapEx. Historically, the industry used to have sustaining CapEx, but the definition wasn't always very clear in that respect. So we announced in the Capital Market to change the definition to tangible fixed asset CapEx net, meaning investment as a cash outflow against divestment cash inflow, and that's the net figure. So that brings us then to this EUR 2,315 million. And I can tell you that the change has a very marginal influence on the numbers. The old definition and the new definition have a difference of less than EUR 50 million on this 12-month period, so the figures are pretty much the same. On the free cash flow generation, what you see here on the right-hand side, 2019, EUR 1,557 million, that's also new definition. And you see like-for-like, we have then increased our free cash flow by EUR 758 million, 49%, and that's a really, really good development. We are proud of that. Then on Slide 12, you see the net debt development. We come from EUR 9.7 billion, including IFRS 16 debt. We then have a free cash flow EUR 2.3 billion. Our gross CapEx, which is M&A and financial assets, is flat 0 over the last 12 months. Dividend, EUR 299 million. You know we have cut dividend by roughly EUR 300 million compared to previous year, and that's a real contribution from the shareholders to reduce our net debt figure. Currency and other also includes newly signed leasing contracts after -- under IFRS 16, roughly EUR 150 million, brings it up by EUR 198 million. So our net debt position by September 2020 stands at EUR 7.9 billion, which is composed out of EUR 1.1 billion IFRS 16 leasing liabilities on roughly EUR 6.8 billion, I would say, real financial debt. Our target is to bring that down towards the year-end to achieve a net debt figure which is below EUR 7 billion. Again, IFRS 16 will stand at EUR 1.1 billion roughly, so the real financial debt would be EUR 5.9 billion. And with the EUR 5.9 billion, we are significantly below our target for 2020 which we announced in our 2018 Capital [ Markets Day ]. So here, we also have achieved this target. The leverage should be 2.0x or below, as I stated earlier. Also, this in line with our financial announcement for capital -- from Capital Markets Day 2018, just to finish this chapter then. Okay. I mean, that's it from the financial side, and I would give back to Dominik for the sustainability messages.
Thanks, Lorenz. Then before we come to your questions, just 3 points from our side on our core topic of sustainability. You know that we've put beyond 2020 an increasing emphasis on [ sustainability ] and want to clearly take a leadership role in this respect in our industry. We are working on a lot of fronts internally, and it also nice if that is externally recognized. MSCI, in their ESG Ratings, have recently reconfirmed our AA rating in the category of industry leader. You see the -- on Page 14, you see the different criteria that they are applying. And obviously, we can get better in all of them. We are working especially on health and safety to continue to increase and improve our performance. But overall, we are satisfied with this. We are never satisfied unless we have reached AAA. That's also clear. We'll work on that, but I think this is a nice reconfirmation of our efforts in the field of ESG. Then as you know, to reduce our CO2 footprint but also to step up our R&D and innovation efforts, recently, I'm not sure how many of you have picked this up, there has been the first 3D printed house that has been officially approved through a permitting process in Germany. And this has been done in the cooperation with PERI and COBOD. And we are basically delivering the concrete. It's a product called i.tech 3D that's been developed by our colleagues and friends from Italcementi. And it's basically like a toothpaste or like a coffee capsule when you take your coffee machine. It's basically our paste that is in different layers placed by the printer and then builds that house layer by layer. And the advantages are clear. And you see the hollow walls. There is significantly less material and therefore a significantly lower CO2 footprint but not only because of the lower amount of material but also because of the lower CO2 content of the paste. Now you can say, oh, got -- your materials go down. That's not the key point. We follow this approach very closely because the material, the paste is much more -- it has a much higher value than our normal concrete. The whole construction has a lower -- much lower labor cost and very high flexibility. And this structural integrity is without question so, in that respect, I think a significant step forward. Before we come to the wrap-up of the key messages, just one slide on the beyond 2020 target. To reiterate that, we shared with you that we are following those targets diligently in our day-to-day business. I think you have seen that we are putting a lot of focus on margin and also leverage improvement. After year-end, we'll also disclose the performance on the ROIC, where we are confident that we are getting closer to the 8% already this year. And then we will also share the exact targets on sustainability and digital transformation. So we have clearly kept that in mind. And as we said in the Capital Markets Day, we come back to you in the disclosure of the full year results with the performance against those targets. Before we get to your questions, let me just wrap up. Strong operational performance, we are quite satisfied with that, not to say very satisfied, 17% up on flat revenues, good margin improvement, cost savings in line with our plan despite the fact that the business is growing much better than expected. Financial side, Lorenz has shared with you, very strong free cash flow of EUR 3.3 billion over last 12 months. Net debt reduced by EUR 1.8 billion, and we are confident with that to deliver a result that is above 2019 on the EBITDA side and a leverage ratio that is at or most probably below 2.0x. That's it from my side, Chris. Let's go to the questions.
Yes. Thank you, Dominik. Thank you, Lorenz. Operator, you can start the process for the call, please.
[Operator Instructions]
[Operator Instructions] And we kick it off with Arnaud Lehmann from Bank of America Merrill Lynch.
My first question, I'll start with the easy one. On your guidance for full year EBITDA to be up, I mean you already delivered that in the third quarter and also for the first 9 months. So I guess any color that you could give us on business trends in October and if you're confident that you can sustain the strong growth in profits into Q4 would be helpful. That's my first question. And secondly, I guess stepping back, you delivered fairly impressive margin improvements both in the third quarter and over the first 9 months. And I guess, I think it's 250 basis points year-to-date. Could you please give us an indication of where you think -- which part of that is sustainable related to ongoing cost-cutting efforts on your side and which side might be less sustainable, any cost that may have to come back with the volumes or, let's say, maybe less favorable price cost dynamics into next year.
Thank you, Arnaud. I would take the first one on the guidance and the business trends, and then Lorenz will take your margin impact of 250 basis points and its sustainability. Thanks for your questions. On the guidance side, you know that with COVID, things go up and down, sideways, and it's very difficult to predict. Visibility remains low. We are now in the midst of a second lockdown in Europe. Nevertheless, we are confident enough to give you that guidance. Also on the back of a good October, we have no results yet, but overall, we are satisfied with the development in October. And if I look out the window here in Heidelberg, the sun is shining, 15 to 20 degrees. This time of year is also a weather game, so let's wait and see how that plays out. But we are confident that we will have a good Q4 with all the compression mark that you know yourself. But we are feeling confident with the guidance we've given out. Lorenz?
Yes, Arnaud, on the margin improvement, we are proud of this margin improvement. Sure. You have to keep in mind that the part from the margin improvement comes from -- at least if you look on the group level, from our reduction of the business in the trading. We have reduced turnover by roughly EUR 1 billion. And this turnover comes with a very low margin, and this technically improved the margin. So that you have to keep in the mind. Then if we look forward, the other question is how do we expect the margin to develop over the coming quarters. First of all, we think that the energy cost remains low, so that will give us support on the variable cost. And then when it comes to the fixed cost, that's a tricky one. In the staff cost, definitely, we will not see this one-off savings which come from furlough in U.S. or German [indiscernible] or things like that, where we have been supported by government regulations in the COVID crisis, which really reduced our staff costs. And it's hard to predict from our side how much of that cost would come back. So that's a bit a tricky one. Then on the -- on other costs, definitely, we will see reduced travel costs also next year. There might be a small reincrease, but this will be very limited as we will contain our travel activities to the bare minimum. So how that will all work out -- those are the main drivers of our fixed and variable costs and how that will work out, finally, that's a bit the tricky thing. And we will have our budget meetings in November to discuss really country by country, area by area how that will work out, and we will see how that's going on. I just got a figure, sorry, I said EUR 1 billion on trading. It's EUR 500 million? Yes, it's EUR 500 million, it's not EUR 1 billion. Sorry for that, it was a wrong figure in my mind. Okay. That's the drivers. And how they come across then for balance, it's really country by country, and we have to go through that, but we are pretty confident that we will also have good outlook for next year.
I think it's clear. I know -- we have given out the guidance and the targets in our Capital Market Day. Of course, maybe Q3 was already very strong for us. We are in there for the long run. And I think the trick is that we get this to a more stable and sustainable level. That's what we are fighting for. That's what Lorenz has shared with you. But there will be ups and downs in quarter-over-quarter. Q3, at least, was strong, and we are fighting to make it another good Q4. But whether it's going to be as good as Q3, who knows, but whether -- it's certainly not going to be as bad as Q2, that we already know.
The next question comes from Cedar Ekblom from Morgan Stanley.
I've got 2 follow-ups. You spoke about the furlough benefits in the fixed cost savings. Can you give us a number? Of the EUR 283 million, how much of that relates to those furlough benefits? And then can you please talk about how we should think about working capital trends into the fourth quarter? With demand improving and seeing, obviously, there's uncertainty, but things looking generally better, should we think about less working capital benefits for free cash flow in the fourth quarter?
Cedar, thanks a lot for your questions. I will take the first one, and Lorenz will take the second one. On the furlough benefits, the EUR 283 million is a significant number. We have double digit but low double-digit million benefits in that. That is obviously not sustainable, but it's fair to assume it's not the majority or even a significant part of the EUR 283 million is coming from that furloughing exercise. So as I said, double -- low double-digit million figures, that's a little bit to just give you an idea.
Yes, when it comes to working capital, we typically see a working capital inflow in the fourth quarter. We do expect this also in Q4 2020, of course. But as we go into Q4 2020, we come in with significantly lower working capital levels compared to previous year, so we will see how much that will be. I am not entirely sure that we will collect as much cash as we collected in the previous year. But as I said, the guidance is that the leverage will go to 2.0, 1.9. So the total cash inflow should be significant in the fourth quarter to bring us to that target. In the past, it was always EUR 1 billion in the last quarter, will be a bit less this time.
Okay?
The next one comes from Robert Gardiner from Davy.
Well, so I'll ask 2 as well. So one, I get that you don't have huge visibility even for Q4. But I was wondering if you could give us some indication of how you're thinking about next year, 2021. It seems to [indiscernible].
Nice try.
Yes, we have to ask, so --
That's fine.
No problem.
Do you have a second question or is that it?
No, no, we have -- obviously, people seem to fear the price environment is going to be good. The demand environment, I don't know. I don't know what you guys think. And then secondly, maybe on North America, obviously, the margin improvement you're seeing there, and you've talked about the action plan that you have. Is that -- I'm just wondering, is that part of the measures you kind of talked about at the Capital Markets Day, the 400 to 500 basis points? Or are we going to see that in the next couple of years? I'm just wondering on that margin improvement there.
Yes. Thanks, Robert. I'll take your 2 questions. I think that's why we said, okay, if we have no visibility in Q4 or limited visibility, the visibility does, unfortunately, not suddenly increase in the beginning of 2021. But to be fair and straightforward, as you know, this time of year, we are going through our budgeting process that is just about to start in the next 2 weeks. Actually, the process has started, but we'll do our quarterly management meetings for the remainder of November and beginning of December. Then we should have some more clarity around 2021. But we already hear from the countries that the visibility into next year is very different. And it's not only very different in terms of visibility, but it's also very different in terms of outcomes. So bear with us, we need to go through that exercise. And then we'll probably also need to scratch our heads here internally with all the question marks and exclamation marks that we hear from different areas and see what we can do in 2021. I think what's very important is what Lorenz has pointed out, and I think what the group has really proven to do in the roller coaster ride in 2020. I think despite a dramatic drop-off in turnover, we've pulled up a good result in the Q2. Let's keep that in mind. That was a strong performance on the results side despite a dramatic drop on the volume side. And secondly, we've been able to flip things quickly in Q3. And even if it rains, we have the bucket out. So in that respect, I think I'm very confident that whatever comes in 2021, we will be on our toes to pull off and retain performance. And then on North America, absolutely, this development is the first contribution to our 400 to 500 basis points improvement on North American side. You know and I shared with you last time that I have diligently worked with our American colleagues under the leadership of Chris Ward and all the regional presidents, the 5, on specific action plans for their regions and also specific action plans for specific assets on the cement side, on the aggregate side and on the ready-mix side and asphalt side. And we are following up this plan very diligently, and we see that some of the measures are already showing some traction. I think that's early. We cannot expect miracles. That's what I said in the Capital Markets Day. So bear with us, but we are chasing the target. It will be up and down, up and down, but our midterm target, as we disclosed, is 400 to 500 basis points increase. And we'll see that we pull that off, I think. But got out of the gate, I think it's fair to say in an okay way.
The next question comes from [ Tibu Bae ] from On Field. Is it Tibu or Yassine? Okay. Let's skip that one, then we go directly to Elodie Rall from JPMorgan.
First of all, to stay on the U.S., do you have a view on the U.S. election or results or lack of results, actually, if I can say, and how it could impact the cement sector in Heidelberg, in particular, in the U.S. from here? And second, I think you've mentioned CapEx is going to rise, so can you give us an updated guidance on what you see for CapEx this year and going forward, please?
Yes. Let me take the first one, and then, Lorenz, maybe you take the second one on the CapEx, on the CapEx question. Elodie, yes, on the U.S. results, we've been operating in the U.S. now since the '70s under the brand Lehigh Hanson, and that's more than 50 years. We've seen ups and downs. We've seen many presidential elections. We source locally. We sell locally. We produce locally. We sell locally. And I think in that respect, we absolutely respect whatever the American voters decide on. I think we will work with any government that is coming out of that democratic election. And in that respect, we are fine. Whether the one government is more generous on infrastructure spending or not, I think it's difficult to tell. Both of them -- both of the candidates have clearly said they want to push things. So in that respect, let's wait and see where things come out. I had to put a smile on my face when I read a U.K. tabloid earlier this -- today where they, I think, said let's make America wait again. So this is how we feel the same. Let's wait for the U.S. to decide, and then we'll take it as it comes.
Okay. On the CapEx, we have announced our target to do EUR 1.2 billion on the net CapEx of tangible fixed assets. That's what we are going to stick to. In the last 12 months, we had no more than EUR 840 million, so we have saved this EUR 300 million. The question for us is what we debate currently on the Board level is whether we should do a little catch-up exercise on the CapEx in order to avoid backlog in CapEx. That's not what we want to have. So what I said earlier, flexibility, means give and take. So we have taken out a lot in the -- now in the last 12 months to manage and to master the COVID crisis, what we think we have done quite well. And other question is on the flex, whether we do a little bit this year, and put a little bit more in the CapEx for 2021 in order to make sure that we do not under invest in our cement plants because our first target is have a constant and reliable production, good asset quality in our asset base. That's very important. And we need that to be competitive. So maybe we go a little bit above the EUR 1,200 million next year, but overall, EUR 1,200 million over a prolonged period of time, over a couple of years on average, that's the right figure, we believe.
The next question comes from Christian Kolb from HSBC.
I would like to ask one question about North America and the volume performance there a little bit. Maybe you could compare your performance in the market a little bit to the market development we saw in Q3 and maybe whether that is a little bit different from the market or how you see that. And then the second question I have is a little bit on the financial costs for 2020. Maybe what kind of level of financial result would you roughly expect for this year? Or if you do not want to answer this, maybe then just how much financial costs should we expect for this year?
Yes, thanks for your question. I will take the first one on North America, and then Lorenz will answer the other one on the financial side. From our perspective, also my earlier remark to North America is true for the volume development. In the past couple of years, we were not happy with our volume development also compared to the competition, what we can see. That's a fairly transparent market. I think as much as we can see right now in Q3, we are okay. There are competitors that are better and others that are worse. So in that respect, we are in the middle of the pack from our perspective. It has also to do a little bit with footprint again. But from our perspective, I think we are okay. Are we yet super satisfied with that respect? No. We need to continue to work on that. There is still room for improvement, but I think we've closed the gap a little bit and are moving in the right direction. Lorenz, do you want to take the -- on the financial?
Yes, on the financial, you see that currently stand in the -- so the financial result, we see a consistent reduction of our financial costs as we have paid down the last expensive bond last year. So that was, I think, a 5-point-something percent bond, which we repaid earlier this year. And by that, our financial results will continue to reduce at the pace of EUR 50 million per year. So if we expect for the full year roughly EUR 300 million finance cost, more or less, so that should go down EUR 30 million, EUR 40 million by next year. But you have to keep in mind that the finance cost always includes this discounted interest for long-term provisions and IFRS 16. This always brings a high degree of volatility, which is a noncash item, which we cannot influence. So that may fluctuate year-over-year by EUR 30 million to EUR 50 million. That makes the forecast very difficult. But if I come to those interest which are, let's say, on a real interest basis, which comes with a cash-out, they should go down by EUR 30 million to EUR 40 million year-over-year. That's a little bit the trend which we have here. And then to say, in 2021, we will reach a certain bottom after 2021. We do not expect a significant reduction in finance costs anymore because we have reached average interest on our debt of 1.5% to 2%. And that's the level which we think will continue to prevail in our figures.
Next question comes from Gregor Kuglitsch from UBS.
My question is on energy costs. I mean I presume it was a big tailwind in the third quarter. What I'm really interested in is, based on your modeling, at what stage do you kind of -- does the year-over-year basically flatline? I want to understand, is that in Q4? Is it in Q1, in Q2 next year based on kind of the current prices, I guess? That would be really interesting. And maybe if you could quantify what percentage reduction you actually got, either in Q3 or at 9 months in terms of sort of unit cost from energy, that would be highly appreciated. And then the other slide I'm looking at is -- I'm looking at Slide 9, where you give us monthly figures. It actually shows an acceleration or actually a pretty -- the strongest of the 3 months being September in terms of earnings, if I read the slide correctly. I know you kind of alluded to October earlier. Is there anything that changed particularly in October versus September? I know you don't have the precise figure yet, but directionally, I would be interested in that.
Okay. Gregor, thanks a lot. I would say that, Lorenz, take the first one. On the energy costs, your question around energy cost inflation for this year, I think that we can give you some good idea. On the other one, I think if we could predict the commodities, I think that would be great. It would be fantastic. And then I will take the question on the monthly figure of October. Maybe, Lorenz, you can take it from here.
Yes. If you look to the energy price, which we saw right now, so if you analyze our figure properly, then you can see that the price reduction which we had in our figures is roughly 12% of our energy costs. Year-to-date, it's more like EUR 150 million what we say from the cost effect, yes. But then we still have the volume impact, and we have the FX impact. And on top of that, we have the fuel mix. Yes, our fuel mix is quite volatile, so we have a good ability to adjust our energy mix to the cost of each item but also on the CO2 emission. So natural gas could be more expensive than coal but could give us better CO2 emission values, so we may even substitute coal by natural gas in order to reduce emissions even if that costs a little bit more. So this mix, we will discuss with our CO2 target in mind in the upcoming budget meetings here. So you have to keep in mind 4 types of fuels, which is power, coal, pet coke, alternative fuel. What we see is that power prices are going up. They also have not contributed much to the energy cost reduction year-to-date. Then we think coal will be relatively, fairly stable on low level. Pet coke, we think, has already increased, will continue to increase, yes. And then alternative fuels is the other question, very difficult to predict because everybody is focusing on alternative fuel. So here, the cost could also increase. What we think actually is that overall, we will see a moderate rebound of energy cost in 2021 compared to 2020. But how this will be composed, it's difficult to predict. Clear is power will be up, but the mix of coal, pet coke, alternative fuel is -- and gas is a very, very volatile and flexible thing. We think that this will be going up in a moderate way. We do not believe that we will be able to keep the current cost per unit level in the fuel side. Our strategy is unchanged. Yes, we have a forward buying policy for each of these commodities which focuses, on average, very average on a 6 months -- 4 to 6 months forward buying. So we try to follow the market trends with the reduced amplitude. So that is our strategy. And what comes out of that, okay, let's wait and see. It's difficult to predict, and we have to discuss it country by country in the upcoming budget meetings. But these are the underlying trends.
Okay, Gregor, then on the monthly figures, as I said -- indicated earlier, we have no monthly results for October yet. But I would say it's fair to say, October is not going to fall off the cliff, if that is your underlying assumption. Whether it's going to be as strong as September or lower or higher, it's not yet clear, so bear with us. We are -- based on the volume performance and on the general performance that we see in other indicators, we are confident to give you the guidance that the full year result is going to be above prior year. So that's where we stand at this point.
The next question comes from Nabil Ahmed from Barclays.
The first question is that I wanted to get your perspective on the lockdown in Europe. How do you see this second lockdown and how is it different than the first? It looks to me the entire industry seems much better prepared. But are there specific reasons you want to fly behind your optimism in Q4 and we're not looking for a repeat of the second quarter? My second question was on 2020 dividends. Given the much stronger free cash flow that I believe even yourself envisaged back in April. How should we think about the dividend this year? Would you consider maybe partly offset the dividend reduction decided in May on top of the regular dividend for the year?
Okay. Thanks for your 2 questions. Let me take the first one, and then Lorenz and I take -- give you jointly the answer on the 2020 dividend. Now lockdown in Europe, you're right, many countries are going into a softer or harder lockdown. That's absolutely clear. Two ideas to contribute to that. One, most of the governments through the first lockdown have understood and realized that construction seems to be a fairly safe thing to play, meaning that we have not had any larger outbreak on the construction side. So that's fair to assume that that's, under the circumstances, fairly safe work, which means given the economic implications, if you would lock this down as well, we see not yet at this point any closures of construction sites in a meaningful way. Maybe here and there, small local ones, but not in a meaningful way. Let's also keep in mind that the governments have realized, at least in Europe, that there are 2 other effects that hit also our industry. One is labor migration. As you know, for larger projects, there is a lot of migrating labor. And you probably realize that the closure of the -- of the border has not reoccurred yet, so there is open borders especially for work-related travel. So that I think is good news in that respect. And also, I would assume that the logistics, if the borders are not close, the logistics flows are still intact. So in that respect, to answer your question with these 3 arguments, I'm fairly confident that we will not see a comparable drop of Q2 again in Q4. So that's also why we were confident with our guidance in Q4. And we have decided deliberately not to give you 55 disclaimers on this guidance, that under many circumstances, something could have gone different. If something becomes different, we have to tell you. But for now, we have no visibility that something falls off the cliff in our business, and that's why we are confident with our guidance that we've given you, also on the back of the fact that I think the countries have learned a little bit the lesson how to deal with this pandemic a little bit better. If it becomes worse on the pandemic numbers, we have to reconvene. But for the time being, that's not visible for us. And then on the dividend, just in general, before Lorenz gives you a little bit the details. Dividend decisions in our company is the following. We do the full result, and then we sit in February, March in the Board and see a little bit what is that -- what does that set up in terms of dividend ability. Then we go to our Supervisory Board and propose that. Then the Supervisory Board goes to the General Assembly, and then the General Assembly decided beginning of May, about the dividend. So bear with us that we cannot give you any exact number or not even indication where we are in the beginning of November before the year has even closed. Lorenz, maybe some additional ideas from your perspective.
Yes. I mean, Dominik stole what I wanted to say. But to be more precise, I think we made a clear statement in the Capital Markets Day that we want to return to progressive dividends after the COVID crisis. That's our commitment. That's what we are going to do. Currently, we are very well underway on the cash flow side, although the COVID crisis is not over. We are in the second wave. And hopefully, we will not see a third wave then in springtime. Now whether in '21 we can pay a dividend which is a partly rebound or maybe even a full rebound, that's as Dominik said, still not decided. We have to wait for the full year results. But I can tell you that both of us, Dominik and myself, we work hard to achieve at least, at least, partly a rebound of the dividend and to go back to progressive dividend as soon as we can. That's our ambition. And here, we are pretty pushy for that, yes.
Next question comes from Tobias Woerner from MainFirst. I think you just rebranded your bank name as of next week.
Yes, last time as MainFirst. Number one, just getting a sense of your pricing level across the group and whether there have been any midyear increases over and above the ones in the U.S. and how you see that developing into next year. And then secondly, on a more strategic follow-up, your divestment strategy, how is that evolving at the moment? And what sort of time horizon do you see for this? I understand that obviously you want to get the best price, but some assets can sell better than others. What is your thinking there?
Thanks a lot for the 2 questions. I will take the first one, and then Lorenz Nager will take the divestment one. On the pricing level, it's early in the season. You know that market by market, the colleagues go through the pricing decisions for next year. In some markets, the decisions have been taken, and we started to communicate to customers; in others, not yet. You know that we've not gone through our operating plan 2021 session yet, so bear with us in that respect. You know that the pricing decisions in our company are done locally. It's not like we decide here in Heidelberg on the pricing in Brisbane or in Seattle. So we will go through our operating plan meeting in 20 -- at the, in the -- couple of weeks. And then hear from the countries what they are planning on the pricing side. And then obviously, as you all know, always a function of pricing and volume and cost development and market dynamics, so bear with us in that respect. We don't have the details on that yet.
Okay. On the divestment strategy, as we said, we have selected a number of assets for disposal, and we are currently preparing such assets for the disposal process. This requires some internal work and also some communication. As we have told you and as we want to practice it, we do not disclose what assets they are unless we really publicly put them for disposal. So please, I would ask you for your understanding to avoid in terms of communication issues when we take that decision now. The process progresses according to our plan and expectations. So currently, and that's, I mean, a good news. We do not see pushback from the markets. We do -- we think the markets have reopened in that respect. And we think the liquidity in the market is available, and we think that we will be able to proceed and execute such disposals in line with our plan. There are some more, how should I say, more exotic destinations involved in that, which is also natural, and that may be a bit more difficult to do that. But to be honest, that has nothing to do with COVID. That's very typical for such assets which are in more remote geographies. So good progress in the moment but nothing what we could report to the capital market right now.
And Tobias, to be clear, we said that in the Capital Markets, the analysis has been done, as Lorenz said. Internally, we've taken the decision. We've shared with you the 3 buckets that we look at in terms of future growth markets. To speak with the U.S. election word, swing states, so the countries that can move to the left and to the right, the disposal decisions, that decision has been taken internally, but we cannot disclose the details also for competitive reasons. So in that respect, Lorenz was absolutely right. Let's bear with us, and we will disclose as appropriate.
The next question comes from David O'Brien from Goodbody.
Firstly, just on Western Europe, look, we've seen a nice recovery in the third quarter in terms of top line trends in volume. Could you give us a sense of how those volume trends evolved kind of monthly through the period? And specifically, could you maybe give us some guidance on where the U.K. is trading now relative to 2019 levels? Secondly, an awful lot of talk at fiscal stimulus and across all of your geographies really. When do you guys expect that we're going to see on-the-ground activity start to be impacted by any programs that are being talked about?
Yes, David, thanks a lot for your questions. I take both of them. I think the first one WE and Southern Europe, you're absolutely right, it's been a resilient, to say the least, performance in Q3. It's really contributed from all markets across Europe. So I think all the markets have improved their performance in that respect. And notably, and that's important for us, also the U.K., you remember in our Capital Markets Day, we had 2 specific focused countries in terms of action plan. One was North America, and the other one was the U.K. where compared to the competition we were underperforming in the past years, and we are taking these points very serious. So in that respect, we are clearly pushing ahead also in the U.K. And also in the U.K., the business has seen a nice change versus Q3 last year. You can always dream of more, that's clear. We are never satisfied. That's our job, and that's what we have paid for. But the U.K. has also turned the negative trend in a difficult market situation because the market from all what we see in the U.K. continues to be not easy. London is clearly down. But overall, I think the guys have done a good job overall. And then the second -- your second question was on fiscal stimulus. You're right. The fiscal stimulus is announced or about to be announced or on the horizon. That's true for many different and also important geographies. We talked about the [indiscernible] already. U.K. has seen stimulus. H -- HS2 has started, which is a significant stimulus. You will see the first movement on the Green Deal and the stimulus program in Europe, notably in Italy, partially in France and other countries. Eastern Europe, a little bit. Also Australia has decided on a significant stimulus. So I think it's fair to say that of the stimulus money, this doesn't go overnight. This money is not like they decide, and then next month, you see it in your results. It's a midterm game. So it's fair to say that in the Q3 results, this year, we do not expect any significant contribution from the stimulus programs yet. But this is something that we expect to kick in more in 2021 and onwards.
We have time for 3 more questions. There are many more in the line, which we will take then later on an IR basis. I ask for your understanding. So the next one comes from Stephan Bonhage from Bank of Metzler.
I have one question on the market development in North America in Q3. From my point of view, the recovery was less pronounced with regard to volumes and revenues. Can you maybe give some details on this development and, yes, potential -- give a potential Q3 outlook for the North America business?
Stephan Bonhage, thanks a lot. I think on North America, I'm not sure what you mean when you say less pronounced compared to what -- what does that mean, less pronounced? Obviously, you seem to compare it to something. Would you share that with us what you mean by that?
If I compare the recovery with Europe, so from my point of view, the sales recovery and the volume recovery was less pronounced compared to Europe. And I just want to know if there are specific reasons for this development in Q3.
Yes. Okay. Thanks a lot for the clarification. I think if you compare especially to WSE, you have to, I think, firstly, you have to keep in mind that there is some sort of a catch-up effect in WSE because Q2 was -- I know we compare to Q3 last year, but Q2 in North America has not seen such a steep drop like WSE has seen. So in that respect, while there were a lot of half-finished construction sites in WSE, in West and Southern Europe, coming to an instant halt in Q2, obviously, there is also a catch-up effect that has contributed to the strong, very strong performance in WSE in Q3. I think that's fair to say. And then the other point in North America, as I said, our action plan is seeing some first traction, I think we said in the wording, but it's not yet fully there. So I think personally, we still have some additional upside. We also said we target 400 to 500 basis points improvement. And in that respect, bear with us, we have, as I said earlier, the detailed action plan in place by region, by business line, by asset in order to improve the situation. And for us, it was important to turn the trend into the positive, and that has materialized. And if there is still upside potential in North America, absolutely.
And the last question for today comes from Yassine Touahri from On Field Research.
Yes, so just 2 questions. First, could you give us an update on your discussion with Brussels regarding a carbon border adjustment mechanism in Europe? And then my second question would be, on the long term, how do you see the portfolio of hydro detriment in 5 to 10 years? Do you see -- would you like to be more exposed to mature market, energy market? Would you like to be more exposed to the downstream of the cement?
Yes. Yassine, thanks a lot. I'll take the first one, and then Lorenz and I share the second one. We have all pronounced opinions on all of the points. But let me just hit the first one on the EU policy. That's a complex issue, and it's not also only on a company issue. And you know that also [ symbureau ] the association is [ not ] on the policy shaping in Europe. Carbon border adjustment is only one piece of that. It's EU ETS, it's carbon contracts for difference. There are so many things that are currently discussed on the EU level that I think it's unfair to just boil it down to carbon border adjustment. Absolutely, that topic is also on the agenda, and we are pushing for it. But we also have to be realistic. Not every topic that is pushed, and that includes carbon border adjustment, materializes tomorrow. Whether it ever materializes, whether it materializes to X amount, we don't know yet. You know that there are pluses and minuses for carbon border adjustment. And for us, it's a clear push that we try to do whatever we can contribute as a company. But you know that's a multidimensional decision between all the different countries, EU Commission, EU Parliament. Everybody has a say in that, and then we'll see what is possible. On the portfolio investments, we've tried to take a view for the next 5 years. Some feedback was, oh, 5 years is a long time. Now you ask us for 10 years. That's good as a last question. But if the visibility into Q1 2021 is already difficult, then we have to be careful to jump too far ahead. As we disclosed in our Capital Markets Day, I think it is clear we are comfortable with somewhat balanced portfolio between emerging markets and developed markets. At this point, having the majority of our EBITDA contribution coming from developed market, but we a nice spread of additional emerging market. We are working on all of our portfolio as disclosed and -- but to the overall balance. For now, we are quite comfortable and then bear with us how that develops. This is not put in stone and concrete. We watch the situation. And if appropriate, we need to make change. But for the time being, it's to what we've communicated in the Capital Market Day. Lorenz I don't know if you have any comment.
Yes, I think that's perfectly okay. Currently, we have have a portfolio, one serves North America, one serves Europe, one serves the Emerging Market, in Africa and Asia. And we think this is a very good mix which has shown a very good performance over the recent years, very stable development through crisis, allowing us for flexible reaction. Now does it mean that we do not change the portfolio, no, because during the acquisitions of the last year, we had quite some, so to say, buy catch. And not each and every investment which we have there is really what we want. So I think the basic of our portfolio, the structural setup, one for North Am, one for Europe, one for emerging market with our presence in cement, aggregates, ready mix and asphalt is a really good and convincing setup. But inside this, there we have quite some work to do and improve our position in prosperous markets where you have good market positions, which we want to develop further, intensify vertical integration in Europe, expand and strengthen our position in them. I think that's a very good strategy and that's what we are going to implement over the foreseeable future. Whether that's in 10 years or 5, let's wait and see. That's also -- strategy is always a little bit opportunistic.
Okay. I think that's all we have time for. Thank you very much for your questions. Apologies for -- to those questioners that are still in the line. We get back to you on an IR [indiscernible], as I promised. Let me invite you to a couple of conferences that we are going to participate in over the next coming days and weeks. It's on November 12, we are going to participate in the UBS Conference; November 17, the SocGen conference; November 19, Barclays conference; November 25, UBS German Day; December 1, Bank of America; December 2, fireside chat, Bank of America; December 2, SocGen; December 8, Exane BNP New York Day; and December 9, Hyundai ESG Conference. So you see, a lot on our agenda. We hope that we see you around at one of these conferences. And we wish you a good day. Stay healthy. Bye-bye.
Thank you.
Bye. Thanks.
Ladies and gentlemen, the conference has now concluded and you may disconnect your telephone. Thank you for joining and have a pleasant day. Goodbye.