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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome, and thank you for joining the Heidelberg Materials Analyst Call Q 2022. [Operator Instructions] It's my pleasure. And I would now like to turn the conference over to Christoph Beumelburg. Please go ahead, sir.
Thank you, operator. Welcome, and good morning, good afternoon to everyone listening in at our Q3 results call. Pleased to have you all on the line. We have, as usual, Dominik von Achten, our CEO; René Aldach, our CFO; and Ozan and Catarina, and myself from the IR team looking forward to your question later. But for now, I hand over to Dominik for some prepared remarks.
Chris, thanks a lot. Hello, everybody. Also from my side, great to be with you at least on the call. I can make this fairly quick. We've shared the presentation. Let me just lead you through the key points.
Good quarter for us, I would even say strong quarter. Revenue growth, 14% up like-for-like. The main driver is pricing. And as a consequence of that, the commercial excellence program reaches unprecedented heights, we come to that later.
Q3 result was even on prior year level. I think that's a good achievement because the energy prices were, especially in Europe when it comes to electricity, sky high and very volatile. The price over cost, which was, and we acknowledge that in the first half, a challenging topic for us. Gap the has been close to where we are basically on the zero line after all costs. So in that respect, the positive trend continues. Pricing basically compensated all cost inflation in the quarter, which for me is a very important point because it shows also the resilience of the company in very volatile time.
You know that we have rebranded for a good reason also to accelerate our journey towards the most sustainable company in the sector. And in that respect, we've also set ourselves the most ambitious target when it comes to CO2 emission reduction. And exactly those targets, we have now submitted together with Scope 2 and 3 to the SBTi for their validation because we know that they are on the path -- sitting on the path of 1.5 -- of the 1.5-degree scenario.
And then you know we had an outlook out there that was worthy on the point of the result, and we've specified this now because we get closer to the finish line. So we stick with strong revenue growth. I think that's absolutely clear. And we have come up with -- to give you a little bit more flavor with ranges on EBITDA, EUR 3.625 billion to EUR 3.825 billion and RCO of 3 point -- EUR 2.35 billion, EUR 3 billion would be great, but EUR 2.35 billion to EUR 2.55 billion, on the back of remaining very volatile energy costs. You guys see this all day in, day out.
If you go to next page, Page 3, you see revenue clearly up 14%, almost EUR 6 billion in just 1 quarter. EBITDA, basically on last year's level. Like-for-like, slightly down, reported, slightly up. So operating margin, okay, fair. Still under pressure. We always said that with the rising costs and increasing revenues. It's a pure equation that the margin comes down at this point. And then operating EBIT also on prior year level, more or less similar to the EBITDA development.
If you go to the 9-month operational view, then it's interesting to see that if you compare the year-to-date development versus the Q3 development, we have clearly improved. That's why also I think the trend is the important piece from our perspective because, look, top line was 12.3$ like-for-like, 9 months year-to-date. Now it's 13.7% on the revenue side. EBITDA like-for-like, minus 7.8%. In the quarter, minus, 2.1%. Operating EBIT in year-to-date, 9.4% decline, but in the quarter, only 1.9% decline. So I think things from our perspective have gone in the right direction in Q3.
If you go to the next, Page 5, on the EBITDA bridge, that's actually an interesting picture for many reasons. A, you see that there is heavy volatility on the currency side, 75 in just 1 quarter. That's basically above the line, if you wish to say so. Then you see that the volumes are coming down more so in cement, not so much in aggregates and ready-mix. That's basically fair, asphalt is even a little bit up. So volumes, down a little bit in cement. The rest is good or even slightly up.
And price over cost, that's the key point. After arrive at costs, after fixed cost and after joint ventures, we are basically flat with minus 4, which has improved. I will come back to that in a minute versus Q2. And then you have the scope change with [ waste cost ], the disposal and some other stuff on the right side.
If you turn to Page 6, you see the difficult a couple of quarters that we went through. We were very transparent about that, Q2, Q1. And then since then, we have recall up in terms of cost management, but especially in terms of pricing, not only in cement, but also in aggregates and ready-mix and asphalt. So Q2 was already closer to the zero line, and now Q3 has even improved over that despite the fact, I urge you to look a little bit at the electricity prices Q2 on average versus Q3 on average and you will see the homework that we have done because you will find that the Q3 electricity prices was significantly above the Q2 electricity prices. So nevertheless, we have closed the gap.
So I think that is the message. And I think for me, if you write one note of today, that's the note you should take because that, I think, is a management task to be done in very volatile times. And we've done this excellently in most of our areas, notably, especially in Europe. So I think that's an important point because everybody is especially and say, hey, Europe is going to go under. We can manage the business in Europe, and we've proven this in Q3, and we will move this down the road.
Commercial excellence program, next page. I go back it's exactly 12 months ago. I think I remember in our -- one of René's first calls -- guys, you are coming up with commercial excellence program, what are you doing? Why that? And we said, okay, EUR 350 million above 2% inflation is our target. Now 9 months later, not 12 months later, 9 months later, we have secured already EUR 1.6 billion of additional price increases. And with the confidence of today, we will raise our expectations to clearly above EUR 2 billion by the end of the year. So that is massively improved. Not only on cement, you see on the left side, but now also on aggregates. So the steep increase between Q2 and Q3, so we are doing our homework, and we are reacting fast and that's what you can really, clearly, see here.
Then on Page 8, you see the 9-month picture. Again, big currency swings, volume decline. And here you see the lagging point of H1 with a negative price over cost in a negative figure. But again, the additional contribution out of Q3 to this minus 184 million (sic) [ EUR 181 million] was basically 0. So in that respect, I think we are getting in much better water.
If you then go to the region quickly, Page 9, you see cement volumes down, that's reported. Like-for-like, they are positive in cement, aggregates and ready-mix, where ready mix slightly down, but basically flat.
North America.
North America, Page 9. And operating result is like-for-like up quite -- sorry, revenue is up quite a bit by 13%. Results up quite a bit, 4.3% and margin declined basically 0. So the American team has been able to hold the margin, which I think is a good achievement in a high-cost inflation scenario.
Next, Page 10, WSE, Western, Southern Europe for us. Sales volume down in cement. That's what we said across a few markets, not all markets, but a few markets. Aggregates, slightly down by 6% and also ready mix slightly down by 6% to 7%.
The result -- on the results side, revenue is up 15%. That's a strong improvement. And despite the fact that the energy prices are so volatile and very high electricity costs in the summer now, the EBITDA was basically flat in WSE, which from our perspective, is a good achievement. Margins obviously under pressure with the rising revenues and the results being said, it's mathematics that the margins for now are under pressure.
NECA, Page 11, you see that the volumes are coming down fairly comparable to WSE in cement a little bit more than in aggregates and ready-mix. However, the revenues are steeply running, 15.2%, and the result is down 6.5%. So yes, it's down, but it's not dramatically down. Margins similar to WSE, a little bit under pressure.
Then Asia Pacific, Page 12. Basically, volumes are not so bad, but they go also to be fair against the comp last year. That is, from our perspective, not very -- not overly ambitious because there was a lot of lockdown effect in some of the key markets. So we are over celebrating the volume development in Asia, but it tells you also that there may be different cycles around the world coming up because there is a lot of catch-up effects from our perspective to come in Asia. It's been a little bit difficult for the last 2 to 3 years, and we clearly see some positive momentum in some of the markets, notably especially in Indonesia, which is an important market for us.
Operating results, again, revenue is up but results clearly under pressure and that's coming mainly from markets like India, but also Australia. So those -- there were unprecedented floods, but there is also rocky markets because of the floods this year. The underlying demand from our expectation is clearly there. There are a lot of infrastructure projects there, but they were just not able to deliver. Commodity prices are very high, which also helps the government budget in Australia. So [ odds are ] out that Asia is more on the rising trends and not on the falling trend.
Africa, under very difficult scenarios. Some markets are under pressure. Others are going very well. Talking about currency pressures coming from the appreciated dollar, but also by energy supply. So a typical emerging market issues. We have a very experienced team in place in order to manage that. And you see here the effect. Revenues, up results even up, margins basically flat. And I would argue, a very difficult quarter for Africa.
So well done. The team has done an excellent job in that respect.
With that, René, I'll turn over to you.
Thanks, Dominik. Hello, everyone. Let's shortly go on Slide 14 regarding the financial highlights. So our free cash flow for the quarter has improved compared to the quarters before against the quarter last year. So our free cash flow is up for the quarter despite, let's say, back swing of working capital. So that means our gross cash flow went up. And then in financial result in Texas, we did a pretty good job to turn the free cash flow in a positive variance versus prior year quarter.
So the leverage went down by 0.7 -- or the net debt went down by EUR 0.7 billion. As you know, we got the proceeds from the waste disposal last year in Q4 in -- I think, it was in Q4. And then we have to compensate a little bit the disposals through -- we did the share buyback. We paid in total EUR 1.2 billion to the shareholders with a normal dividend in May, which is the last bullet point. And then, as you know, the second tranche of the share buyback is finished. And then ahead of -- as we said, ahead of schedule and then regarding the third tranche, we will look and see, it's not decided yet when we want to launch this.
And then Dominik, I hand over to you regarding the SBTi commitments.
Thanks, René. As you know, we have rebranded for many reasons, but one of which is to accelerate our transformation journey along what we have communicated in the Capital Markets Day this year. And one key point for us is to get the most ambitious target in the industry when it comes to CO2 reduction accredited by SBTi. So we have basically put in our application and there will be an answer -- in the next couple of months. So in that respect, we are very confident that, that will happen.
And then on Page 16, you see that we are continuing to push very hard on the reduction of specific CO2 emissions and obviously also absolute CO2 emissions with 2 additional levers when it comes to alternative fuels, when it comes to clinker incorporation, that's a must to do anyway. But then on top, we want to differentiate from the competition also with a target to have most sustainable product portfolio down the road. So CCUS is not for us. Just to be a CCUS player, that's not the point, we want to -- we use and leverage the CCUS to be able to offer a differentiating -- a unique, most sustainable product portfolio in the industry by far.
And that's why we have pushed now also in Mitchell, which is our plant that will come online -- revamp after a $750 million investment in the next 2 quarters. And with that -- on the back of that, we will also do a carbon capture storage project, where we've just got the grant from the DOE in North America. So that is a very specific project.
And then you saw probably the press release also on LEILAC, where we have signed a global agreement on the back of our experience in our Hanover plant where we have currently the LEILAC II phase running. So well on our way.
And then last but not least, very importantly, in terms of sustainability, we are also pushing it the circular idea by scaling it up. You saw we've done a couple of acquisitions, one in the U.K. Another one now in the Seattle area. We've mentioned here in our divestment in Spain that we have started recycling business in Bilbao, Northern Spain, Basque Country. So in that respect, here and there and everywhere, we push ahead on the circular topic, which we strongly believe will also be a differentiating factor going forward.
With that, on Page 18, maybe René, I do the left and then you do the right. Just in terms of business outlook, we still see demand growth in North America on the back of difficult residential markets, okay commercial markets but strong infrastructure markets, which helps most cement, but especially also the aggregates business.
We do see clearly some weakness in Europe. I alluded to that, residential clearly down. Infrastructure kicking in some, but not substantially. Again, the markets are a little bit different. U.K. with strong infrastructure project, Italy with strong infrastructure projects, France a little bit less so, Germany a little bit less. So the picture is a little bit mixed in Europe.
Africa market are very different. I think -- a little bit slower for the time being, but I think that will come back. Egypt, okay. Tanzania, strong, which is an important market for us. Ghana, a little bit under pressure, given their currency situation. So good and bad, but the whole portfolio in Africa balances itself out well.
And I already indicated that for APAC, we are actually quite positive. You saw the result publication of Indocement. So they are, do I say bullish, probably not, but positive on the development both in terms of volume and pricing going into 2023.
I mentioned a comment about Australia that have gone through a rough year, which is an important market for us, but we have high expectations for Australia in 2023.
And then India, we let -- wait and see, not a super important market for us. And Thailand, similar. Malaysia, I think, will come back to some extent. So overall, we are quite positive in the scheme of things for North America. We are positive for APAC. We are actually not so negative on Europe, and we are also okay on balance in Africa in terms of business outlook for the rest of the year.
Shortly talk about the guidance, as Dominik already said at the beginning, we confirm our strong revenue growth and we've given a range for EBITDA and RCO. What you can see here, why that range? Firstly, I guess it's more precise statement that we have with our slight decrease, now you have a feeling where we will be going to probably end. And then as you all know, the energy costs are very, very volatile. So that's why we have given that range. And the leverage between 1.5 and 2 probably will come out -- should come out at the lower end of that range. So I guess that's no surprises here.
Now Chris, I can hand over to you.
Thanks, René. Thanks, Dominik. France, you want to open up the Q&A, please?
[Operator Instructions]
[Operator Instructions] So we will start with Yuri Serov from Redburn.
So listen, I want to ask you about your volumes. And I'm just curious if you can give us some better understanding of what you mean when you say that you anticipate a slight weakening in demand. Your European volumes are down by 12%. That doesn't look like slight weakening. So why do you mean by this? What sort of number should we expect in 2023 if we take everything together, and you're positive on some others, not so positive on others?
Yes. Yuri, we are not yet talking about 2023. We talked about 2022 at this point. And to give you an exact volume number for expectation of 2023, I think given the visibility, but I wouldn't do that. I gave you a little bit of flavor and that's what I said, and that's probably also true going into 2023. The volume decline in Europe will be a little bit more pronounced than it is in maybe Africa.
And then to the positive, I would say there could even be positive volume developments in North America, depending on how things go over there during 2023. And then the same is true for Asia Pacific and in Australia.
But North America, given what's happening with housing and some forecasts are suggesting 30% drop in housing volumes, do you still think that you can come out positive?
Yuri, that's why I said it's a little bit early. We have not done, and I ask for your understanding, we've not done our -- we do these quarterly management meetings, and we start them next week and go through all the countries. I ask for your understanding. It would be not professional, if I comment now from the group's perspective on some of these details before we've not done the local discussion, so.
I understand. That's fair enough. But can I ask another question on volumes, please? Your volumes in Europe are down minus 12%. The data that we're seeing from some markets, which report the data does not suggest that the markets are falling by that much. Can you give us some idea, maybe some quantification as to how much of that volume loss comes from the market versus your pricing behavior because price is going up 30%. I can imagine that is causing you to lose some volumes?
Fair enough, Yuri. I think you are right. We are not -- and again, market by market, the answer is different. I don't think there is a flat out answer for Europe. The markets that we see and for competitive reasons, I cannot go into more details. But in general, you are right. And my answer to your question would be there is more. The minus 12% is related to markets, but there is some element in there that is related to deliberate loss of market share because if you want to be the price leader, well, that's the way it goes. And we were -- we are doing this very selectively, customer by customer, market by market in a very defined strategy to ensure the longevity of our business beyond this cyclical scenario right now.
Okay. I understand. And I don't know whether I'm allowed to...
Please allow others to -- maybe you can jump back on the line later on. We have so many questions. So we have Matthias Pfeifenberger next from Deutsche Bank.
Firstly, on pricing. I'm looking at 27% and 20% on average. Clearly, nothing we've seen in the last several decades. So what's your view on risk of pricing reversals with weaker demand, recessionary environment? We're hearing from a couple of your comps that the launch and price increases selectively into 2023 and also some of the smaller comps are not hedged as well. So there's obviously ongoing energy cost pressure. Would you stick to that? And maybe also at higher carbon costs? Or is there clearly a risk of, I don't know, 50% reversal of that price increase?
Matthias, we are not commenting on our specific pricing behavior. But in general, I would argue, we are just on a good trend to continue to push our pricing, and we do our homework, about we cannot comment on. But clearly, our strategy will be to get the fair value for the products we deliver. And as we decarbonize the products, there will anyway, be a good argument far beyond the energy costs to ask for the fair pricing for that. So we are actually -- for our company, at least quite confident that we can defend our pricing, if not even further expand it.
Okay. And then secondly, on Q4, quite a wide range in terms of the margin range, EBIT range. Can you maybe give some color on the driving factors for the low end and the high end? And then also what do you expect in price cost in Q4?
Matthias, René speaking here. So that is purely driven by mainly the electricity in Europe. If you look at Germany yesterday and the day before, it was between EUR 70 and EUR 100 per megawatt hour. Today, it's EUR 200. And the EUR 100 means EUR 10 per tonne of cement -- and right now, the forwards came as well compared to 2 months ago, forwards came as well down EUR 200 roughly for Q4.
And that gives a little bit hint, if the prices go sour, we can only be maybe reach the lower end. If the prices are, let's say, in the mid-range, we will go into the midrange, and it should prices stay where they are right now, which are pretty okay, yes, they are below EUR 200, then we can reach the top end. So that's probably a little bit the explanation and that has massive swings day by day. As I alluded to, we are selling 50 million tonnes in cement in Europe in a quarter, we sell, whatever, 15, and then EUR 10 is EUR 150 million. So just to give you a little bit how I read this and that's maybe the explanation to your question.
Next question comes from Brijesh Siya from HSBC.
I have two questions as well. So the first one is on Europe volume. If you could give a little more color about how that in a few markets, you mentioned, can you maybe quantify those volumes for how that fared in those key markets and just give us a little more flavor about how that has translated over Q3 and into October? And the second one is on the rebranding of the company. Apart from a sustainability focus, is there anything we should read into how you are going to have your footprint or rather expansion strategy of the company, which we -- earlier, you have kind of alluded to stay within the cement vertical or the concrete vertical per se?
Yes. Whereas I think, as said earlier, for competitive reasons, we are not commenting on singular markets and pricing. You know that the situation is very competitive. It is very sensitive now when it comes also compared to competitive behavior. So I really ask for your understanding that we are not commenting on single market developments, not on volumes nor on pricing.
The only thing I can say, that's minus 12% is -- goes -- is not on average, minus 12%. It is on average minus 12%, but it doesn't mean in every country is 12%. There is -- there are countries below 10% decline, and there are countries above the 12% decline. And it's also different from business line to business line. The minus 12% is the cement number but as we said, aggregates and ready mix are by far less. So the picture is mixed. And then we have the price effects that we discussed with the question of Matthias earlier on.
October trends, I think the weather is good. There is not a significant change in trend at this point as long as we -- as far as you've seen the numbers so far on the volume side. So I think that should be okay.
When it comes to your second question on the rebranding, there are 5 or 6 different reasons to do the rebranding. One, the old name did not reflect our business portfolio because it has less -- we have less of 50% of revenues in cement. So I think it would have been completely unfair not to change the name when you look at aggregates and concrete and asphalt.
The second point is, and looking forward, that's what a brand should also reflect. We are pushing significantly on our transformation, both in terms of sustainability and in terms of digital. And that transformation plays very much also on concrete and aggregates. So in the future, the importance of those businesses also when it comes to recycling, for example, a circular economy is very much tweaked to materials not to cement. That is one of the key reasons.
And then there are a couple of other reasons. In the past, we had all business locally. We have a lot of local brands and we want to be speak in one voice because we have a very firm strategy defined on group level. We have very, very positive feedback from the countries that in the past always say, the group, what's the contribution of the group? Here, they see clearly the contribution of the group, both in terms of sustainability and [ digital ] and they are basically rushing now to make sure that they can reap that benefit by moving under that brand umbrella. So in that respect, and then it's also about employer branding and many other things.
And I think also we got the timing quite well because even especially going into a recession, potentially, I think that it's important that the employees have a clear anchor that they can hook on to. And the feedback we got once we've launched the brand was very positive indeed.
Next one comes from Luis Prieto from Kepler Cheuvreux.
The first one is, if I recall correctly, you expected about 60% to 65% energy cost inflation in the second half of this year. What is your thinking on this front after what you have seen in Q3 regarding Q4 and what we could see sort of cost inflation for the second half or the year as a whole? And my second question, would you be able to shed some light on the differences in volume behavior black product, for example, in Europe given the aggregates and ready mix concrete -- could potentially be less inflationary and therefore, you have to increase prices by less? Do those volume declines reflect more the underlying situation of the market versus what we're seeing in cement? Or am I seeing it completely wrong?
Okay, Luis, I'll take the first one regarding energy. So you're right, Q3, the cost inflation for energy was roughly in cement was 65%. But now the -- but July, August, you have seen was very high. We're talking above 70s, and then September dropped by 15%. So September was only 56%. So that means you see -- October should be okay as well because as you all know, the spot prices were quite low. So -- and that's why, Luis, we have given that range. With that trend continuing, we will come out okay.
And full year -- sorry, full year cost inflation will be still around 60% because I think year-to-date, we are as well around 65%. So if that comes down a little bit, we are coming to 60% for the full year, but as I said, this massive volatility. If winter comes, something happens in Russia, Ukraine, then energy prices will go up again. So -- but that I can't predict. I don't have the crystal ball. So that's why we haven't given that range. I hope that answers your energy question.
And then Luis, on your second question in the volume behavior, good question. I think it's an interesting thought. If I look at the details again, without being able to give you the full details. I think the answer to your question is 50-50 because I would argue the better holding up of aggregates is very much also driven by more infrastructure and less housing because -- that carries more aggregates because our price realization in ready mix was actually by far not worse than in cement. So that indicates -- yes, maybe there is, as we discussed earlier, a little bit of market share discussion on the cement side. But as I said earlier, not the full effect as a delta between the three business lines.
Next question comes from Sven Edelfelt from ODDO BHF.
Two for me. I would like to better assess your pricing case of a lower cost environment next year. You say that you would share benefit of lower cost environment with customer and therefore, maybe say, give back maybe half of your pricing benefits that you had this year? That's the first question.
And then second one would be California, I read that the Santa Clara County is considering the acquisition of your quarry and cement plant in Cupertino, for [ obviously ] real estate. If I'm not mistaken, this could be valued maybe $500 million, considering the loan price in the area. So can you maybe elaborate a bit on this? And as well, could you talk about the cost for rehabilitation for the quarry, which obviously will lower the price, where you will sell the asset?
Yes. Sven, on your first question, we are not quite sure. Maybe we have not communicated precisely but nobody said that we are really sitting here to give up pricing or share anything. I said the value of the product will go up. That's how we deliver additional value to the customer, but we will ask better pricing for that because we deliver a better product, especially when it comes to the carbon footprint. So you have not heard from anyone from us that we are giving up pricing or sharing anything. There is -- for me, there is no ground for that, just to be clear.
And then on the Cupertino plant, I'll give you a directional answer because, again, we need to be a little bit careful. This is a sensitive subject in California. And I'll take you back, what is it now, 15 years to the acquisition when we acquired Hanson. There was a speculation that the land value of the plant is $2 billion, that's 15 years ago. So careful with too much math around this.
We consider this to be an opportunity and not a liability. There is a reclamation plan. There's a formal process in California, a very formal process that we are following. So let's wait and see. If there are already some [ birds ] above the quarry who want buy it, that's great that tells us we are sitting more on an asset than a liability. So in that respect, that's all I can say on that one.
Next question comes from Paul Roger from BNP Paribas.
Maybe I'll focus on capital allocation. I guess the first question would be whether the macro uncertainty that's obviously out there have any influence at all? I mean does it, for example, make you a bit more reluctant to do M&A, maybe even think about the timing of the buyback?
And then the second question, if you are still looking at M&A, what's the pipeline look like? And if I can cheaply also ask whether you'd be interested in new verticals, maybe like specialty chemicals?
Paul, we've given the clear indication how we think about the capital allocation waterfall. There is no fundamental change to that. René has commented on the fact of when we've done our share buyback, now we hold our breath on that a little bit because there's a third wave to come. So that's that one.
And then on M&A, we always said the pipeline needs to be always filling up. And if you ask me, it's probably filling up more now than it did 3 years ago or 2 years ago. Why? Because we expect valuations to come down at some point. And we want to be clearly in a position to take advantage of that, not to make a crazy acquisition around -- across 20 countries. But clearly, to be in a position where we do strong bolt-ons and maybe also a bigger one here, a bigger one there, but in very specific markets, not in new or across 20 markets. So we speak to what we promised and no comment on any other specific deals.
We said everything is in line with what we have communicated in the capital market. Everything that supports, heavy building materials is in scope. Everything that doesn't is not.
Next question comes from Elodie Rall from JPMorgan.
So the first one will be on the German gas price hike that there's a lot of news flow around that. And I was wondering if you could give us a little bit of your thoughts with regard to the potential restrictions for companies for paying out bonuses or dividends, if they benefit from the cap? That would be my first question.
And my second question is on potentially on CO2 prices. We've seen them coming down to 75, 76 recently. I think that's below your price assumptions for next year. So I was wondering if you were considering to buy more credits by using your balance sheet at this stage?
Elodie, let me take the first one and then René maybe go to the second one. Now, I think it's a complicated, and I try to make the answer fairly short, but there is not a short answer I'm guessing and there are a couple of thoughts I want to share with you. One, yes, there will be a gas and electricity cap coming to Germany. One more driven by the EU, the other one driven by the German government. We fully support that, whether it's applicable for us or not. That also hits our customers. So in that respect, we fully support it. In fact, we were pushing for it in the background.
Now point number two, does it profit us directly? I would argue most potentially not. If it would lead to a situation where we would spread all our dividends, don't get overly excited, we would probably not do it because we cannot penalize the rest of the world just because the German government has put something in their footnotes. So we should not get overly excited about it.
Third point, whether we are eligible for it or not, there will be a secondary effect coming out of it because if the market gets a capped price at a certain point, what do you expect the remaining market to do? They will not try to sell the energy for double the price. They will need to somehow come down to that level because otherwise, it will not be an interesting game for anybody. So that's the answer on that one.
The jury is still out. The final legislation is not there, but that's a little bit my current reading of what we see.
Elodie, regarding CO2, you have seen in the last, I think, it was the last 2 months. Last week was super volatile. So the CO2 price from 65 to even to 80. Now it's again 75, yes. And you see -- you have seen our volumes a little bit dropping in Europe. And as you all know, we are long. And we said in the Capital Markets that we are long -- '23, beginning '24 that will obviously be extended when volumes come off. And let's see what the CO2 price does.
Right now, we are sitting on the side and watch this. And if there's very opportunistic thing to do, we are looking at this. But right now, we are, let's say, sitting on sidelines.
Next line is Arnaud Lehmann, Bank of America.
My first question was just a follow-up on your share buyback program. Have you completed your current buyback and considering the -- on the macro side? Do you feel that you need to move maybe into cash preservation mode into next year, therefore, not necessarily starting the buyback again? That's my first question.
And my second question is just coming back on your commercial excellence program, Slide 7. So is the 27.4%, is that for domestic cement price year-on-year? Is that at group level? And I guess the follow-up to that would be -- I mean, this is probably more than we've seen in the history of the industry for ever and more than any price increase or the combined over the last several years. Are you -- you can keep that, let's say, in the bank if and when energy costs are coming back down?
Okay. Maybe, you want to take the first one on the share buyback, René.
On the share buyback, Arnaud. Yes, we have -- as you know, we have finalized the second one -- the second tranche. And as we said, when we announced it, we want to finalize the program, I think it was mid of Q3 '23. And now we just keep a little bit hold our breath, see what Europe does on the energy in Europe and the war in the Ukraine and recession. So let's wait and see the next few months and then we will decide when and how we do the sort of tranche of the share buyback.
And Arnaud, it's always the competition as again, we said, coming back to our communicated waterfall on capital allocation. Paul was asking the question earlier. I know it's always a competition between different things. And as René was saying, you saw that working capital was up basically during the year. We are fighting against that and we're making some progress, but I think it's too early to say, hey, guys, we never know how volatile these things are. I think that's the best interest of our shareholders that we don't run unprecedented territory in that respect and overstretch the cash position. It doesn't make any sense.
And then as we also discussed earlier with Paul, there may also be a couple of bolt-on opportunities coming up where the cash is probably even -- may even mean better spend. And so let's wait and see to strike the right balance. We are still in line with what we have communicated and that's what we will speak to.
When it comes to the commercial excellence program, I think we said already earlier. Yes, it's unprecedented, 12 months back, nobody on the call here was believing that we were trying -- well, to be honest, I also did not know that it's going to go up 27%, I say this openly. But I think we've taken the opportunity and used the momentum. I did say that it's not only on the back of energy cost, but it's also on the back of superior product development when it comes to sustainable footprint, in terms of CO2 emissions and circularity. And that's also why we are fighting as long as we even can to hold the pricing or even extend the pricing.
I cannot guarantee you of any volatility that may come up at some point. We are in a cyclical industry, but it's not our duty to push that. We have a clear strategy that we will defend. And as we increase the value of our product to our customers, we will also ask them for a higher price.
Next question comes from Gregor Kuglitsch from UBS.
Got a couple of questions, please. So the first one is on net debt. So I appreciate you give a sort of leverage range, but could you help us out a little bit with the absolute level that you see right now? I mean, I guess the underlying question is, I mean, even at the low end of that range, I kind of reckon maybe you need -- you're talking about EUR 600 million, EUR 700 million of working capital outflow. Is that the right ballpark? First question.
Second question is on hedging. So it sounds like you're relatively short for Q4, given your comments earlier. But my question is how covered are you now for next year given the change in hedging strategy earlier this year?
Gregor, let me do the second one first and then -- the first. So regarding Q4, we are open with roughly 40% which is right now, I guess, it can't be better with such pricing. And for next year, we are roughly sitting at 40% to 45%, if you look at the full year. And what we always said is in the last call we said which was elevated prices of forward of 300, 400, 500, we are not locking in, even though we have the new policy. That's what we always said. And now when prices are coming off, I just tell you, we had the discussion yesterday that was some energy guys, '24 prices for Germany are a little bit above 200. '25 is 150. So maybe we look at this, and do very small tranches if there's an opportunity.
But as I said, with these elevated prices for Germany next year, 380 or something, we are not locking in there because today you have 100 and the average for -- it's roughly 270 for the year. Why should it be EUR 100 more expensive next year? So I think it's not a bad thing to be 50% or 55% open for next year. For me right now, it's rather a chance than a risk, because supply of energy will increase over Europe with solar, with wind, with LNG terminals, which -- you name it. And if recession comes, demand will drop and then imagine what will happen? The energy prices will not go up. They will rather go down. So that's a little bit around energy.
And now your net debt question. As I said, we will be at the lower range of the leverage. Last year, we had a net debt of what we have exactly, EUR 4.999 billion. And we will be probably a little bit above. We will be above EUR 5 billion net debt, I think. And working capital outflow, what did you say, EUR 600 million, EUR 700 million. Right now, that's probably -- right now, it's roughly right that we will come out with EUR 600 million, EUR 700 million, hopefully, by the end of the year, minus working capital.
Next question comes from Nabil Ahmed from Barclays.
I actually had one, not that much a question on Q3 numbers or the very short term. I was curious, on the carbon capture and storage investment annotate that you communicated during the Capital Market Day, do you think these numbers are also impacted by the credit inflation we've seen in the last few months? In other words, do you need to revise these numbers at some point?
Nabil, I think we have these 8 to 9 projects currently under projection, if you wish to say so, but not all of them are under construction or the budget are already locked in. So we understand that if you -- on the peak levels go out now and ask for quotations, there may be a risk that the numbers go up. But rest assured, René and myself are watching this very carefully.
I mean this is -- for me, this is nothing different from any CapEx you spend right now. So there's no extraordinary effect on carbon capture utilization, maybe even to the opposite. But just as tight as we manage all CapEx projects right now, that is also true for carbon capital utilization and storage. So there will be volatility like there is in every CapEx project, but we safeguard that as much we can.
Only one question. I take for a little bit of time for the next one. Yassine Touahri from On Field Investment Research.
So a couple of questions. My first question would be on what you're expecting in your guidance. Could you confirm that you're suggesting that if energy prices or if electricity prices in Europe are approximately at today level, which is slightly below EUR 200, you could reach the high end of the guidance, which is EUR 3.8 billion?
And I just wanted to understand, does it mean that you're not hedged, that you're buying electricity in Europe on a day-to-day basis in the fourth quarter? And that if prices for electricity go to, let's say, EUR 400 then you would do the lower end of your guidance? That would be just a little bit of precision around the sensitivity of your guidance to power prices.
Yes. Sorry?
Go ahead, go ahead with your second question.
And the second question is a bit more simple. It's just on -- I understand that you've got large price increases that have been announced in Europe in November and January and you're probably negotiating with your clients at that time. Could you give us a bit of color on your confidence in getting those additional price increase through?
Yassine, let me take the first one regarding electricity. I guess, I said it all already, that October is already gone. And as I said, for Q4, we will open 40%. So for October, 40% of our electricity needs in Europe, let's say, came with, let's say, spot pricing, that's absolutely right. And for November, December, we obviously were not stupid. And when there were a little windows when electricity was cheaper for November, we increased a little bit, the hedging levels.
And as I said, the electricity can move between EUR 100, EUR 400 and EUR 500, and that is what our guidance is. And that depends mainly on the swings on electricity because it can swing the every day by EUR 20 million, EUR 30 million. So that's the answer to your question.
EUR 100 to EUR 500 is the range that you have in mind?
Yes, we do. I remind in Germany, 2 months ago, it was a focus at EUR 1,000. So that was just by picking a number. The EUR 100 is probably the lower range, what we see right now. And it can go up to EUR 500, EUR 1,000. I can't tell you. I don't have the crystal ball, yes. But maybe the top number is probably EUR 300, EUR 400 and the lower is probably EUR 100. And that will determine a little bit where we come out in that yet. Dominik, the pricing question, the second one.
The pricing on the...
Price increases for [ September ].
Yes, yes.
The negotiation in November and...
I think as I said, we are a little bit careful on that because that's now looking forward on pricing. I cannot, and I don't want to comment. It's a very sensitive subject. I gave you the indication that for us, as a company and not for the industry, we have a clear targets to get the right value for our products. And René just gave you the indication that energy cost is obviously one of the driving factors. But there are others that we discussed the CO2 situation, we discussed the normal cost inflation. So careful, we should not center everything around now.
Can you link our performance solely to the electricity cost in Europe? I said guys, no. This is also not true there are many other weather effect and everything. So we will continue to drive value for our customers, and that means we will also continue to ask the customers for the right prices for that value. And the trend, I think we have already commented on for us, that's the strategy.
Three more on the line. Next one comes from Cedar from Morgan Stanley.
I've got a question for you just on the NG hedging that you're undertaking. It sounds like you're being quite opportunistic, which is obviously a good thing considering how volatile the energy markets are. Considering the opportunistic nature, can we just confirm who your counterparties are when you are doing this energy hedging or entering into contracts? Or are you doing this directly with the utility? Or is there a third party involved?
Okay. Cedar, so...
Before these questions, I think we need to clarify.
Let's get as well the wording right, yes. So for electricity, we are talking about forward buying, not financial hedging, yes. So let's talk about forward buying. And obviously, you have the big utility or electricity companies where we have contracts with, and then we do forward buying if there's a -- if we see a good moment, we do that with these big companies.
It's important to understand, Cedar, it's not financial hedging. So there's not a cash call coming every day or every week if we don't hit A, B or C. We have had this discussion in the past. And for us, we do only forward buying, no financial hedging.
Okay. And then one quick follow-up. On the 45% that you are hedged for 2023, could you give us a little bit of guidance on at what pricing that's being done at? I don't know if that's something you'd share?
No, no, no. This is a little bit -- this is a very sensitive, Cedar. So this, we don't want to give away, let's say.
Maybe, Cedar just one -- sorry, one final comment on this, because you said it's opportunistic. That's one way of looking at it. But we have been hit in the last 3 to 4 quarters by our open strategy. And as you know, having been long in the industry, there are sometimes -- there's payment time and then there's payback time. I'll leave you with that.
Okay. Next question comes from Tobias Woerner from Stifel.
Thanks for taking my two questions. Number two, just a very simple numbers question. The additional energy costs in Q3 split into electricity and gas -- sorry, electricity and solid fuels, if you have that available, please?
And number two, one of your competitors is reducing their CO2 emissions also by divestment. I know you're focused on a different strategy. But looking at your portfolio, could you combine further portfolio optimization with looking at CO2 emissions by assets as well?
Okay. First one, Tobias, very simple, it's EUR 320 million higher costs, EUR 180 million fuel, EUR 140 million electricity.
And then on the second one, Tobias, thanks for the question. Important one, obviously, you've alluded to it in your question a little bit. Yes, our strategy is not to divest the issue. Our strategy is to solve the issue. So we will not divest cement assets or clinker assets just in massive terms just because we want to [ halve ] our absolute CO2 emissions.
Why? Because we know the answer. We know exactly how to solve the problem to its very roots, so why should we give up that opportunity? Because once the problem is solved, you would see interesting developments in the value of clinker and cement assets. That's the one point.
Can we play with this in our portfolio strategy a little bit here and there? Yes, that's true for geographical balance, but that's also true for balance between clinker and cement assets versus aggregate asset and ready-mix assets and recycling assets. And that is ongoing as you have already noticed, and that one is going to continue.
Now the last question comes again from Yuri Serov.
Actually, my question is not related to current trading, and it's related to sustainability again. So you have submitted, and you have a slide on this, you have submitted your targets towards BTi. Now is BTi guidance to the cement industry says that they will not accept targets for CO2 reduction on a net basis. They want them on a gross basis. And net basis, meaning excluding the emissions from alternative fuels. And 20 companies have all declared their targets on the net basis. Now given that you have submitted to SBTi and they want to gross, does that mean that you will disclose your gross targets for the market as well at point?
Yuri, we are in constructive discussions with SBTi. They have a framework that they have put out. Now we had given our application and now there are constructive discussions to match one with the other. I won't comment on the details because it is an ongoing process. I ask for your understanding. The process has just started basically. So as much as we have learned through the decarbonization discussions, I'm sure also the SBTi will learn a lot of things during that application process. And let's see where they finally come out. That's difficult for all of us to predict.
We are very confident that we are on the 1.5 degree path with our Scope 1 emissions with the 400. We are even surpassing that. So in that respect, we have nothing to hide. We work with them in full transparency and take this in a very proactive approach to find the right solution for the company, but obviously also for SBTi.
Thank you. I think that concludes our conference call for today. Thank you for the interesting questions. We'll be on the road now in London, Dublin, and New York, Toronto and a couple of European cities next week. So if you have another chance to visit us there, we appreciate it. Thanks for dialing in. Bye-bye. Thanks.
Thanks, everybody. Thank you.
Bye.
Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you very much for joining, and have a pleasant day. Goodbye.