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Ladies and gentlemen, welcome to the LafargeHolcim Q1 2020 Trading Update Conference Call. I'm Alessandro, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Jan Jenisch, CEO. Please go ahead.
Yes, good morning, everyone, and welcome to our Q1 trading update. Thank you for joining. I know it's a busy day with a lot of companies with results today. And also, we have very special times with the COVID-19 crisis. And I'm happy to start today to give you an overview of the key developments and then we will have more details from Géraldine, our CFO, on the results overall and especially then for the regions and the countries. And after the outlook for the year, we have then time to talk and answer your questions. I think under the circumstances, we had a very resilient first quarter results. If you recall, we have a significant operation in China. So we were already impacted by COVID-19 from January onwards. However, we had a very good start of the year in all other regions, and we were well ahead of last year until mid-March, even considering the negative impact we had to balance off from China. Then we have more countries being locked down or had some disruptions in the construction activity. And therefore, we had a negative development in the second half of March. However, overall, I think we are ahead of expectations. We have a small sales decline for the quarter of minus 3.3% and operating profit decline of 2.6%. So I would say, solid results for now. I'm very happy that we have reacted very fast to the crisis. First, regarding the health of our employees but also for our partners and for the communities. So we had very strong measures in place to keep our people healthy and safe. That has worked extremely well. Our -- we only have a few COVID-19 cases within our employees, far lower than any statistics you see from the countries. So I'm very happy that we have this under control as good as it gets. Then from a business side, we also -- we started our very strong actions to preserve our cash already 6 weeks ago. So this is a special crisis with a tsunami type of impact. The impact comes from one day to another. And you have to then react accordingly, and cash flow is king, and we have now a strong program in place to not only reduce the cash at the cost, but especially to reduce the cash out, and that looks very, very positive. And we believe we are in a very strong position to weather the crisis from our balance sheet, our liquidity we have in hand, but also from our ability of cash conversion and cash preservation. I think with this, Géraldine, if you'll give us the highlights from the results and the regions.
Yes. Thank you, Jan. So we are going to start with our Q1 2020 volumes development. In cement, we have recorded a global volume decline of minus 5.2% like-for-like. Europe recorded cement volume decline of minus 2.3%. Lockdown measures implemented starting mid-March negatively impacted some countries, primarily France and Spain, while Germany and Switzerland remained resilient. In North America, we had strong cement volume growth of 8%, driven by U.S. Cement and Canada East. Asia Pac was significantly impacted by the outbreak, which triggered volumes decline in our Chinese operations and in India with lockdown measures starting last week of March. Philippines were also down following the shutdown of our main plant in Luzon mid-March. Overall, the region was down by minus 12.3%. In Latin America, strong growth of Mexico has been more than offset by the lockdown measures in Ecuador, Argentina and São Paulo area in Brazil. This resulted in a decline by 5.9% in the region. In Middle East Africa, cement volumes declined by 4.8% as most markets contracted with the exception of Nigeria and Algeria; while aggregates volumes were slightly increasing at plus 0.5% like-for-like, mainly driven by strong results in North America. Ready-mix volumes declined by 8.5% like-for-like, impacted by COVID-19 lockdowns in many markets. If we now look at our net sales for the quarter, our net sales stood at CHF 5.3 billion. On a like-for-like basis, sales reduced by minus 3.3%, driven by the volume decline and -- that we just commented. That was partly offset by price increase, the negative scope effect results from the divestment of Indonesia and Malaysia that we closed in H1 2019. ForEx, as you can see, has a negative impact of minus 5.1%. This effect comes from several currencies, which depreciated compared to Swiss francs, primarily euro, Indian rupee, Argentinian peso, Australian dollar and U.S. dollar. If we now look at our profitability for the quarter. Our recurring EBIT is down by CHF 43 million in total. The negative ForEx, mainly driven by Argentinian peso and Indian rupee, explains more than half of this decrease. Like-for-like decline has been limited to CHF 6 million or minus 2.6%. The negative volume effect and the decline in the results coming from our JV, especially Huaxin, have been largely offset by price -- positive price over cost, which stems from price increase, energy savings and continuous reduction of SG&A. We now start with North America. Our operations delivered excellent growth in the first quarter. Positive trends in the U.S. market continued and were further supported by [ mild ] weather conditions. Our volumes grew in all business segments. As a result, net sales were up 10% like-for-like and recurring EBIT was up 31.5% like-for-like. Solid prices in all business segments and strong operational performance resulted in significant over-proportional improvement of recurring EBIT over net sales. The region has almost not been affected by COVID-19 in the quarter. Construction has been deemed as essential in large majority of our markets. And our customer backlog remains strong without project cancellations. Latin America. There was a resilient performance delivered by Latin America and this despite the outbreak of COVID-19 as of mid-March in most countries. Net sales declined by minus 0.5% like-for-like. Recurring EBIT was down minus 2.7% like-for-like. We experienced positive volume growth in Mexico on the back of better cement demand and new infrastructure projects allocated to our local business. While Mexico was not so much impacted by COVID-19 in Q1, the virus outbreak started to affect our business in Brazil, Ecuador, Argentina and Colombia in the second half of March. Strict lockdown measures were implemented in the majority of those countries, forcing construction sites to shut down. Let's now move on to Europe. In Europe, we had a very good start of the year, which was supported again by favorable weather conditions and continuing demand growth in Eastern Europe. Net sales declined by minus 3.9% like-for-like and recurring EBIT was up 9.3%. As of mid-March, our operations in Europe were impacted by some shutdowns implemented in the Western European countries such as France, U.K. and Spain. As a result, our volumes significantly dropped in those countries in the last 2 weeks of March. While lockdowns have been implemented in 22 countries, construction has been considered essential in most of our markets. For Middle East Africa, the region here delivered good results in the quarter, with net sales down 7.2% like-for-like, but recurring EBIT up 3.3% like-for-like. This over-proportional increase of the recurring EBIT reflects the tremendous work delivered by our local teams to turn around the businesses, notably in Nigeria, Algeria and Iraq. The impact of COVID-19 progressing more rapidly in the second half of March has not been uniform across the region. While strict lockdown measures have been implemented in South Africa and Lebanon, other countries such as Egypt or Nigeria have been less disrupted in the first quarter. Let's now move on to our APAC, Asia Pac performance, which has been largely impacted by the outbreak of COVID-19 in China. Here, our net sales were down 9.2% like-for-like and our recurring EBIT was down 20.7% like-for-like. China reported the largest decline in profitability due to COVID-19. Our JV Huaxin, with a large exposure to Hubei province, contributed CHF 21 million in Q1 2020 for EBIT, compared to CHF 62 million in Q1 2019. However, China began recovering towards the end of the quarter as different provinces progressively resumed activity. Today, we are back to normalized production levels in most of the provinces where we operate. And in Hubei province, plants are operating above 90% of normal production levels. While China was ending the quarter with encouraging signs of recovery, strict government restrictions in India and the Philippines started to affect the demand. Even though not impacted by the COVID-19, the Australian market continued to slow down. India, impacted only in the last week of March, recorded a strong recurring EBIT and a strong margin progression in the quarter supported by cost savings initiatives and favorable market environment. Well, after this business review, we felt -- and this is Slide #11, we felt that it was important in the current environment to touch on the strength of our balance sheet and liquidity position. We are a resilient business which has demonstrated its ability to generate cash. We have around CHF 8 billion of liquidity as of March 31, which is comprised on the one hand of cash and deposits and on the other hand of committed facilities. These committed lines are currently undrawn and have no restrictions attached. We have reached an attractive level of financial strength with a debt-to-EBITDA ratio of 1.5x at the end of 2019. Despite the current background, our 2 rating agencies, S&P and Moody's, have recently confirmed our investment-grade rating at, respectively, BBB and Baa2 with a stable outlook. The attractiveness of our company has allowed us to successfully continue our refinancing transactions. We have issued 2 bonds amounting to more than CHF 700 million at attractive interest rates and maturities just recently. We believe our strong balance sheet is a significant asset to weather the crisis. Now moving to our action plan, health, cost and cash. This slide, as you can see, is a summary of our top priorities. There are 3 pillars. The first one is ensuring that all our employees can work safely. In parallel, we care about protecting the long-term relationship with our partners and with the communities in which we operate. For this objective, we have mobilized, as early as January, our business resilience teams at group and country levels. They put in place their expertise in all areas to provide monitoring on the readiness of our country organizations. The second pillar is to partly mitigate the consequences of the outbreak on our volumes by adapting all fixed costs to the production level. We are committed to achieve a minimum of CHF 300 million fixed cost savings. On top of this, we are executing all necessary actions to lower variable production cost as much as possible. Finally, cash protection measures are key in our plan. We are keeping a constant focus on cash management in order to safely navigate through these uncertain times and to maintain our level of financial strength. In particular, we apply strict discipline in our resource allocation to make sure we invest in the projects which will support the resilience of the business. As a consequence, for 2020, we will reduce our CapEx spending to a maximum of CHF 1 billion. Similarly, net working capital management is at the heart of the cash protection measures. With this, I hand over to Jan.
Thank you, Géraldine. I think what is important in this tsunami type of crisis is to focus on cash, liquidity, a strong balance sheet and fast actions. I think you saw from our actions in the last couple of weeks, we are well prepared to weather the crisis. We have a very strong action plan, health, cost and cash in place with a stronger focus on cash than on cost. We don't want to start any restructuring program right now because we need to limit the cash now for the next -- for this quarter and not have restructuring costs as we see rather a good recovery based on the experience we made in China and also what we see in a couple of other markets that there will be quite a strong rebound after this virus curve is flattened. You see we are well prepared. We have a clear action plan how to reduce the fixed cost, how to reduce the CapEx, how to reduce the net working capital. I think we established a very good new strength of cash conversion, which will also help us now in the crisis to be cash flow positive even with a decline in volumes. Our balance sheet, I think, has never been stronger. We have -- our debt ratio is at 1.5x at the end of 2019. And then I think Géraldine has piled up a lot of liquidity here with over CHF 8 billion as of today. So we are well prepared here to weather the crisis and come out of the crisis stronger than before. Before we go to the Q&A, on the market outlook, I'm positive. What we see in China now with the rebound in April, will probably be around last year's level already back in quarter 2. So I think that's a little bit much better than we expected and gives us this encouraging for other markets. When I look at the other markets, we don't see any cancellation of projects. They are -- continue to run even so if they are interrupted or something. So we expect to be the projects and the construction sites all be back in operation after the government decide to do so. We don't see a cancellation in projects. So we believe that you're going to see a positive second half of the year. And then we don't know yet what's going to happen with the global economy. But we see also here very encouraging signs from the governments, like in the U.S., signing big bills and big budgets for infrastructure and to support construction. I think with this, I'm happy to start the Q&A. Swetlana, can I hand over to you?
Yes. Thank you very much, Jan. Right now, we'll start with our Q&A session. [Operator Instructions]
[Operator Instructions] The first question comes from Elodie Rall from JPMorgan.
So if I'm limited to 2 questions, then maybe I'll start with 1 on the U.S. Can you give us a bit of color about the current trading there in the U.S.? How much deterioration you've seen in April versus March? And in which states, like, how much are you operating at the moment versus a normalized basis? And in terms of pricing, we've seen some peers talking about delaying price increases in the U.S. that were due in April. So is it also what you're seeing and what your outlook on prices? So that's my first question. And second, on your capital allocation, how do you see this crisis impacting your strategy? I mean you talked about targeting 1 deal a month at the last results presentation across the major markets in aggregates and ready-mix. Do you see more opportunities at this moment given this crisis? How is this impacting your M&A strategy? And indeed, as well, how is that impacting your divestment strategy as well?
Elodie, thank you for your questions. I think on the U.S., we have quite strong demand in the markets. Even all the negative news you have from lockdowns or certain things in certain states, even in March, we had positive volumes compared to last year. And you see for the full quarter, we had a very, very good quarter in the U.S. or in the North American markets. So now going forward, we have full order books in North America. We see certain -- wouldn't even say delays at the moment. We see certain disruptions like in Boston or other parts. But overall, we believe we're going to have a good year in North America. And let us see how -- on the health side, I'm not really qualified to comment, if it -- if we have reached the peak or not in the U.S. and in Canada, but it looks for me rather positive. And from a business perspective, we have a very strong demand and good order books also going forward. Now the second question was regarding?
The bolt-ons.
The bolt-ons. Yes, that's of course, we believe we are -- maybe in our sector, we are the strongest from the balance sheet, from the liquidity. But also, I think from the speed, we are executing now our cash focus program. So I think we will be in a good position in the second half of the year or ongoing, maybe to benefit from some good M&A. Just one small remark here. I think we need to wait for the visibility, which probably we have in June on how these markets play out in order to be ready here to make something good.
Okay. But just in the U.S. to come back, so what would you say the activity level is at the moment versus your normalized level?
We are today in the last day of April. I don't want to comment today on any percentage numbers because it was -- it would not be serious because I'm positive for North America, but you don't know what's happening next week. We have a situation. The markets change every day. I think to be fair, at the moment, they rather change to the positive, so we rather have softening of lockdowns and basically construction sites everywhere go back to normal business. So I have nothing negative to say. I'm positive for North America.
Okay. And then my second question was also on divestments. Can you confirm the Philippines, for example, is going to close and this is...
We are [ behind this better ] stage. I think there was a bit of slowdown due to the COVID-19 situation. So the Philippines has one of the strongest lockdowns you have -- you see globally. They basically locked down the country and also the government agencies were affected. So we expect a decision there in the next few weeks.
The next question comes from Yassine Touahri from On Field Investment Research.
Yes, my first question would be on the price-over-cost benefit that you had in the first quarter. Could you give a little bit more color on this? Which part was related to lower energy costs? It would be great if you can quantify it. And which part was related to your cost savings measures? Then my second question is on oil price. So oil price has never been so low. So what does it mean for your business in 2020, first, in terms of potential benefits from a cost perspective, and second, what risk do you see for regions which are depending on oil such as Ecuador, Texas, Algeria, Nigeria?
Let me answer the second question. And then Géraldine gives us a bit more detail on the price over cost. I think when we look at the oil price, I think in our business, we always have to react to the oil price if it's up or if it's down. At the moment, we have quite a beneficial situation with lower energy costs quite significantly. I prefer this. Of course, we can talk now about Ecuador or Nigeria and what lower oil price -- what effect that might have on the country. But I'm always a bit -- don't like to go too much on speculation. You can also have a situation if the government goes more into infrastructure or into construction if oil industry is not running as profitable as it could be. So -- but the view of the company is we feel very comfortable with the oil price trend.
Yes. And if I can complete on your first question. So effectively, you can see a price-over-cost of CHF 136 million. That is primarily driven by price for CHF 60 million. Then you have energy that is also here helping with around CHF 45 million. And the rest is our SG&A savings.
What I like about this price over cost is that it doesn't rely on one thing. We have positive cost effect, positive energy and positive pricing, and this is how we like to run the business. So was a very good start to the year.
The next question comes from Arnaud Lehmann from Bank of America.
My first question is regarding the pricing outlook. I mean we would expect significant volume decline into Q2, depending of the country. Would you expect pricing to be resilient in this environment? And in particular, historically, cement prices can be more volatile than aggregate prices? Or would you see specifically for cement prices downside risk in the coming months also with lower energy costs? That's my first question. My second question is regarding your reporting currency, the Swiss francs. Like in previous crisis, including in 2008 and '09, Swiss franc has gone up a lot relative to the euro but also relative to emerging currencies. In the medium term, would you consider changing your reporting currency? We've seen one of your sector peers moving to the U.S. dollar. Is it something that you would consider as well?
Arnaud, I think regarding the pricing, this is always our top priority. And we also make it clear now that in our countries, we will not produce into the warehouse, into the silos. We have a very strict instruction to stay or be lean on net working capital, especially on inventories because we don't need to have any pricing effect in the market. We are positive on the pricing. You have seen we had a positive pricing in Q1, and we expect to continue with that pricing throughout the year.
On the reporting currency, it's not on the agenda. You're right that in crisis time, Swiss francs is often considered as a safe-haven currency, but that's not as a priority today.
The next question comes from Gregor Kuglitsch from UBS.
I've got 2 kind of follow-up questions. Firstly, on price over cost. So you had a relatively substantial positive spread in the first quarter. Can you just give us a bit of a picture of what you see right now? I appreciate pricing is maybe a bit difficult to predict, but perhaps on the energy cost side and the SG&A cost savings side, what do you expect for the next few quarters, perhaps sort of at least directionally, if we can sort of think about whether some of that can be extrapolated or not? And then secondly, back to sort of the capital allocation side. Do you think the current situation for the next 6 to 12 months gives you an opportunity to buy perhaps something larger in the downstream, which obviously you've been trying to get into, but so far, you haven't really done anything material? I appreciate you were close to something. Or do you think it's not the right time to do something larger considering the wider risk?
Thank you, Gregor. I think on the -- on your last question, it's clear that we will be fully financially disciplined. And we talked about it in the past, how -- for what multiples we do the bolt-on acquisitions. There were some rumors in the market. We looked at a bigger target last year. But also, even so we had a big interest, we kept fully financially disciplined to that maybe bigger opportunity, which was around last year. And this is what you can expect from us, we will be very not driven by big desires and passion, we will do this with the right financial smartness. And this is what you also can expect from us. So of course, we are happy to see that we might be in a position in the second half of the year, in a better position than many others to do deals. But we will do that only if it's really value creating. And then secondly, I'd just like to remind that we have to get the visibility for the second half of the year, which I think will come as soon as in June, where we really have a good feeling how the COVID-19 curves in all our key markets. I think it looks good for the moment. But nevertheless, before we do any deals, I think we need to have that confirmation.
And on your first question, Gregor, I think on the price over cost for the year, as Jan said, we are confident on the price. And on the pricing, on the energy, it will constitute a tailwind, even though we don't forecast anything in terms of what the energy price is going to be. And for SG&A, yes, you can project these savings for the rest of the year, I confirm.
The next question comes from Jean-Christophe Lefèvre-Moulenq, the CIC Market Solutions.
I have 2 questions from my side. The first one, for the slag supply, as you know, there are some capacity closures in Germany and in France, in Dunkirk in [ force ], [ Qatar ] and probably in Bremen. How will you manage your slag supply? Will you find alternative sources, maybe in Japan or in Turkey as it could be a critical situation for cement makers? Second issue, apart from Italy, have you [ must borrowed ] some cement capacities in France and in Belgium and if yes, in which plants?
Thank you for your questions. And the last one is the cement capacity in Belgium and France, you want to know what plants are closed. So was that the question?
Yes, that's the question. That's easy target.
Okay. Super, super. Yes, let me start, I think, your question around the slag, which is very exciting mineral we like to blend our cement with, same as the fly ash, but also same as other minerals. I think the market turns very positive for us. Even so there might be some steel plants which are close to something we see a positive market trend for us at the moment in all our key markets. So -- which is good. Besides that, we also have now introduced the latest cements, which rather use minerals -- rock minerals to mix our cement with. So this is, I would say something positive, which we'll also hear in the crisis be rather positive for us going forward. On the capacity thing is, I don't want to give you the precise data because it's only the data of today. So we have a situation, for example, in India, where we had a super lockdown of the country ordered by the government. And then all our plants were closed. And now at the moment, we are opening up 70% of our plants already again this week based on the government decision to open up rural areas first. So that is -- it's very difficult to try to make any conclusion on the plant status at the moment. But as you have asked regarding Italy, France and Belgium, these are the 3 markets together with Spain which are maybe quite hard hit by the lockdown procedures of the government. So we have a situation that a lot of construction sites were stopped. And then, of course, we immediately stop our cement production. Not like in the past, you look at past crisis, sometimes this cement plant managers, they like to operate the plant. And then they make some artificial calculation. Oh, it's good for the cost, but it's the opposite. Horrible for the cash and horrible for the inventory and net working capital. So we avoided this mistake this time, and we are sitting on rather slim inventories. And therefore, we are closing down the kiln as soon as the market has a disruption. Having said that, in Italy, we only have 1 plant in Italy in the north. We had quite good volumes even in the tough last couple of weeks. And we go now back into operation this next week in Italy, so also there looks like the curve is rather encouraging. I hope the same will happen in France. They are, I would say, 2 weeks later than that. And then we also plan here to ramp up our business accordingly. Contrary to that, you have a situation in Germany, Switzerland and Eastern Europe, where we have the construction sites fully operating. Also, Austria went back with the construction side. So this is such a fluid dynamic development and very important to follow up here on a daily and weekly basis in each market, and this is what we try to do.
Jan, follow-up question. In France, do you have the full agreement of the trade unions for reopening the plants in terms of health condition and security?
If I may, Jean-Christophe, of course, we follow strictly the rules here, and we open only if we have all the agreements in place, including the one with union, of course.
The next question comes from Cedar Ekblom from Morgan Stanley.
I've got a question on the fixed cost savings that you're targeting for the year. Can you please confirm that none or very little of that fixed cost-saving benefit was actually evident in the Q1 results? And can you give us a bit of color on how we think about the benefits of that fixed cost savings program actually coming through over the year? Is it more second half weighted? And then I've got a question on Asia as well. Even if we exclude the year-on-year decline in the contribution from Huaxin, Asia Pacific still looks pretty weak. Can you give us some color on how much of the recurring EBITDA plan ex Huaxin is related to FX? And then also just talk about what you're actually seeing in your Asia Pac business ex what's actually happening in China. It looks like one of the weaker performances even excluding Huaxin.
Okay. So maybe to start with the cost reduction program. So in the cost reduction program, we are committed to, as you know, to deliver at least CHF 300 million. And as long as the volume have not recovered, we are monitoring all production cost and/or SG&A very carefully. So this means maintenance, all teams are mobilized to offset what we see in terms of decrease in revenues. I would say that, yes, you're right, very little savings for Q1. It's really starting and will be really impacting Q2 and in H2. I would say half-half, that's about the proportion you can count on. We are full speed mobilized to deliver as much as possible fixed cost savings for Q2. Your question on APAC now. I think it's fair to say that APAC has been quite impacted by Huaxin, as I said. Huaxin represents CHF 40 million drop in EBIT in the APAC performance. So that's, I think, important to note. Our own operation as well has been also -- or 2 plants we have in Sichuan have also impacted the APAC region. So all in all, China in terms of impacting the EBIT results account for a bit more than CHF 60 million. So I think it's fair to say that without this impact, actually, we've done quite well in APAC.
The next question comes from Ahmed, Nabil from Barclays.
I had 2. The first one, maybe if you could help us to understand the drop-through on EBIT because we used to focus so much on EBITDA in the past and also taking into account the cost initiative, is it fair to assume around 30%? And the second question is a follow-up on the CHF 300 million fixed cost reduction. It looks like it's mostly coming from procurement, but is there an implementation cost that is associated? And also, is the CHF 300 million net of inflation or deflation in the case of energy?
Yes, thank you. I think on the fixed cost savings, we don't plan to make a restructuring with big one-offs. This crisis is about cash. So we do -- all the measures we are taking, they basically have no one-offs. So we have a lot of third-party contracts for maintenance or for operating the quarry. We have many of those things where we are -- have already started 6 weeks ago to cut them and reduce all the cash out. And this, you can expect from us. I think the CHF 300 million, they are, of course, not a constructive number with some inflation insight. We do the same as with our CHF 400 million SG&A cost saving. We deliver that fully into the bottom line. And maybe I can tell you that we are very confident because we have started with the program couple of weeks ago that we will fully achieve that number or maybe beyond. Géraldine, do you want to answer the first question?
Yes. I think you had a question on EBITDA and then EBIT. You have the full reconciliation in the press release and also as an appendix to the slides there. Is there something specific about this you would like to know...
No, I guess the question was on revenue drop through. So if you take revenues at 100, they dropped like 20%, what's the drop-through on EBIT?
Most of our cost -- majority of our costs are variable cost. That's how I would answer to this. So we adjust our cost to the volumes drop.
The last question comes from Lars Kjellberg from Crédit Suisse.
Just a couple of questions from me. The -- one of the [ drivers ] have been closing the gap to your peers in aggregates and ready-mix. You did not disclose any details on that business in the first quarter. So if you can give us an update on your performance how you're improving in that business, that would be helpful. And again, on the fixed cost component, I appreciate the -- you doing this, of course, as volumes are down. Should we expect some of these costs coming back if and when volumes improve? And just a very quick one also when you talked about your prepared remarks, China is one topic, production coming back. What about demand? And you also mentioned some other positive sort of spots of business. If you can put any color to that, that would be helpful.
Last -- what was the last point? I didn't fully understand the last question.
So you, of course, mentioned China is obviously showing taking a lead in the recovery, right? But you also mentioned some positive signs in other markets. And if you can put any color to that. What that -- what market that would be.
All right. Let me start with that. Yes, this crisis, every country is in a different phase, and it's very important to learn the curve. At the moment, the curve looks quite alike. So we have China, I think, surprisingly for many people with like almost a full recovery already now end of April, our factories are all back not only to work but the important demand level is back. So our people expect a volume in Q2 around last year, which I don't think many people expect this to happen. And I don't want to speculate now what can happen with the virus or if there's a double dip. But just from a business side, I can just confirm the curve is a very strong rebound in China. If I look then into other markets, here, Switzerland, who has taken very strong measures, who was also influenced strongly by Italy on the Italian side. And nevertheless, they managed to keep the construction sites running. There were some temporary closures in the Italian part, in the French part. And it all has been reopening. Even in Ticino, the construction sites are back this week. So also here, we can confirm for this point in time a positive curve. In Italy, we see the same. Construction business is coming back now. I think a lot of the other factories, which is important for supplying the construction sites for other products and cement are also coming back this and next week. So that's why I'm quite positive here with the curve. In North America, we have an interesting curve because not much was really shut down, nevertheless, so things moved ahead. And we had ongoing very good demand in -- with a few exceptions like Boston or like with the terrible situation we have in New York, of course, with New York. So that's why we are quite positive now on the curve and on the recovery, which we will see now in May and June. On the cost side, you have an interesting question, if the costs are coming back. And what we believe is that actually, we will come back with a lower cost base. We have received -- the world economy was running at quite high-speed over the last 10 years. And so many of our suppliers have confronted us with ongoing price increases year-on-year. And I think this comes now to an abrupt stop, and we will operate now on reduced rates and prices, especially from the suppliers. And as Géraldine has mentioned, most of our costs are variable. So you will see -- we will -- we're working hard now to come back with the reduced price levels and therefore, cost levels.
And maybe on your question about aggregate and ready-mix margins, you will find that in H1 presentation. Q1, very small quarter.
But I think, Lars, overall, our strategy stands there. So we are now -- we have this very tsunami type of disruption. We are in a very good situation to handle it with our balance sheet, our liquidity, our cash conversion discipline. The strategy might be even more beautiful if in the second half of the year maybe we are in a position to make some good deals. And the strategy stands there with exciting opportunities in aggregates, in ready-mix and then also solutions and products, our fourth segment.
Just if I can have a quick follow-up. The turnaround that you're seeing and clearly driving strong business performance in the Africa, Middle East, what can we learn from that? What exactly is going on? Is there more upside to that?
Thank you. Thank you for recognizing. Yes, I mean we were promising that to you that we believe the Middle East Africa was not -- maybe not as good led as it should be. So we have changed the leadership a bit more than 1.5 years ago, and they put a strong program in place to have this profit and loss ownership and operate more entrepreneurial and more tougher in the markets. And even under these very difficult situations, and we had a sales drop of 7% in the first quarter, we were able to even increase the operating profit. So this comes a little bit for me, leadership, operational efficiency what we have now implemented in Middle East and Africa. Do we have any more questions, Swetlana?
I think we don't have any more questions [ for me to have them. ]
All right. Then thank you, again. I know you're very busy in the reporting season. I really appreciate you took the time. And let's go to COVID-19 together, and I think we're going to see a strong second half of the year for building materials. Thank you very much, and have a good day.
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