HeidelbergCement AG

XETRA:HEI

Earnings Call Analysis

Heidelberg Materials Sees Margins Improve Amid Transformation Plans

In its Q3 2024 earnings call, Heidelberg Materials reported a 3% increase in EBITDA with margins exceeding 25%. Revenue remained flat but improvements were driven by North America and recent acquisitions. The company is optimistic, raising its 2024 revenue guidance from €3 billion to €3.1–3.3 billion and projecting a return on invested capital (ROIC) of 10%. A transformation initiative aims to achieve €500 million in annual savings by 2026. Free cash flow reached €2 billion, which will be crucial in managing an expected rise in net debt due to acquisitions. Overall, Heidelberg remains confident as it heads into 2025 with upcoming project completions.

Positive Trends Amid Challenges

In the latest earnings call, the company revealed a resilient performance despite ongoing market challenges. The adjusted earnings per share increased by 14%, indicating strong operational performance beneath the surface, even as revenues remained flat. This upward trajectory in earnings reflects effective cost management and strategic pricing, providing confidence to stakeholders as the year progresses.

Revised Guidance Sparks Optimism

The company has raised its financial guidance, shifting the lower end of its expected operating earnings from EUR 3 billion to EUR 3.1 billion, with an upper range now set at EUR 3.3 billion. This adjustment suggests management's confidence in achieving 10% ROIC while navigating relatively stable volume slides across regions.

Aggressive Transformation Initiatives

Management announced the launch of a 'transformation accelerator' aimed at generating an annual impact of EUR 500 million by 2026. This ambitious program focuses on optimizing production and cutting costs, which would bolster margins. Specific actions include anticipated savings of up to EUR 10 million per plant from closures in Western Europe, directly addressing overcapacity issues.

Strong North American Performance

In North America, the firm reported healthy growth with revenues rising slightly and an increase in margins by approximately 300 basis points in the third quarter, a contrast to competitors facing margin pressures. This success is attributed to resilient pricing strategies and effective cost management, reinforcing the importance of North America in the company's overall strategy moving forward.

Encouraging Signs from Asia and Africa

While Asia has shown sluggish performance, particularly in India and Indonesia, there are emerging signs of recovery. Similarly, the company has successfully navigated challenging circumstances in Africa, achieving improved results despite a difficult market environment.

Looking Ahead: Q4 Prospects

The company expressed optimism for Q4, expecting organic EBIT growth to accelerate significantly—a forecast of 10% to 15% compared to mere 3% in the year-to-date. Strong October performance has provided a foundation for this confidence, although management remains cautious about projecting long-term trends.

Financial Robustness through Cash Flow

With a consistent free cash flow generation of EUR 2 billion over the last year, the company maintains a robust foundation. Despite some increase in leverage to 1.5, primarily due to share buybacks and acquisitions, the financial positioning remains within comfortable ranges, giving room for further investments and strategic maneuvers.

Conclusion: Positioned for Future Growth

Overall, the company's strategic initiatives, reinforced by a proactive approach to managing costs and enhancing operational efficiency, position it well for continued growth. The adjusted guidance and transformation plans may not only stabilize performance but also optimize returns, making it a compelling consideration for investors keen on sustainability and efficiency in the sector.

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, welcome to the Heidelberg Materials First Quarter Results 2024 Conference Call. I'm Sandra, the Chorus Call operator. [Operations Instructions] The conference is being recorded. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Christoph Beumelburg. Please go ahead, sir.

[Christoph Beumelburg, executive]

Thank you, operator. Welcome to our Q3 conference call. As always, we have management in the room, Dominik, Rene, Roberto--. We look forward to a lively discussion after our presentation. And with that, over to you, Dominik.

[Dominik von Achten, executive]

Chris. Thanks. Thanks, everybody, for joining. Welcome to our Q3 results call. You've seen the presentation, so I can go through this fairly quickly, and then we go into the Q&A. I think it's been a good quarter. Results are up 3% on EBITDA and RCO level. Also margin is up beyond 25% -- 25% EBITDA margin. Revenues flat. I think in this environment, this is a good development. The performance has been carried by many parts of the organization, but especially by North America, also through the highly accretive M&A deals. I'm sure we'll go into some more details there.

Going also into the next years, we have decided to launch the transformation accelerator initiative, where we will chase EUR 500 million result contributions by end of '26 on a yearly run rate. And that will be -- we'll go into the details in just a minute. Rene will then cover the free cash flow discussion, good performance, EUR 2 billion over the last 12 months. And then everybody is here working vividly on getting Brevik up and running. That looks really promising and will come on stream then in the first half of 2025. On the back of all of that, we have -- we are confident for the remainder of the year. That's why we have raised our outlook by lifting the lower barrier of the bandwidth from EUR 3 billion to EUR 3.1 billion. So the new guidance on the RCO side sits between 3.1% and 3.3% and ROIC should be around 10%.

Then next page, Page 3, you see the development. So overall, flat like-for-like on the revenue side. As I said, EBITDA and EBIT up 3% and the operating EBITDA margin at above 25%. You see also if you look at the 9 months, Page 1, that the quarter is important for us when it comes to the trajectory and the trend line because you see that the quarter performance of Q3 compared to the 9-month performance, respectively, the first half is significantly better. 9 months is now down 3% like-for-like on revenues, 2% up on EBITDA and EBIT, but the Q3 performance is in all dimensions better than that. So you see that the trend line goes in the right direction.

If you then look at the bridge, I think what's encouraging to see, okay, we lose a little bit on currency. We win on scope. I think the scope adds almost EUR 30 million. And then what's important for us to see the negative impact from volume has slowed down in the Q3 versus the first half. So I think that's also encouraging. While the price of our cost is still holding up very well with good pricing and also a little bit of relief on the energy side of things. But overall, I think that's an encouraging picture and important for us to track that as we go into the remainder of the year.

You see this now also compare to Page 6, there you see that the volume block is much bigger compared to the -- despite the fact that in absolute terms, the third quarter is obviously much bigger than the first and the second quarter. So in that respect, really, you see the machine is running in the right direction. And you also see on the scope effect, the 9 months is EUR 49 million, while alone for the Q3 quarter, we have EUR 29 million. So you also see the ship is sitting right in the water, and I think that looks encouraging also going into the remainder of the year and going into 2025.

If you then look at Europe, I think holding up on a high level, basically flat on the RCO line. And I think the demand recovery continues in Eastern Europe. I think Eastern Europe continues to be very strong from our perspective. While Western Europe is still a little bit sluggish volume-wise. I think that's not where it used to be that clear, far off its peak. But the good news is also there on the volume side, we see some flattening out in most markets, and that should give us clearly help going into the remainder of the year, but then also going into 2025. It's no secret that the transformation Accelerator is a global program, but it's also tweaked towards the European asset base. We have already announced the 4 clinker plant closures in Hanover and Lora in 2 French plants. That result contribution obviously flows into the transformation accelerator as one of the core pieces, but by far not the only piece.

When you go to North America, we're happy, very happy with the performance in North America. Also relatively, I think this is a very good performance. Revenues even up. RCO clearly up like-for-like 1% and also the margin clearly improving in a combination of volumes still being sluggish also because of the weather events, especially in the South of the Carolinas and Florida, but results being driven by good resilient pricing performance and very disciplined cost management. So I think in that respect, it goes in the right direction. And a significant amount of that EUR 29 million in the scope effect comes already from North America. You know that we've done 3 acquisitions in this quarter in North America alone, and that really is a significant improvement also when I look towards the remainder of the year and going into 2025.

Asia is maybe the one point where we are still waiting for a better dynamic in the -- to the upside. I think it's holding up well despite sluggish performances on the volume side and partially also on the pricing side in some of the core markets. That's true for India. It's true partially for Indonesia and Thailand. But also there, we now see at the latest development, quite some hope at the end of the tunnel. That's true, especially for Thailand and Indonesia, which are important markets for us.

Africa, I've been traveling, as you may have followed on again in Tanzania and great job by the local team, I would say, latest acquisition of grow in the right direction. And to deliver these results in a very difficult market environment in Africa, I think it's Al. The team is doing an excellent job. The results are basically flat and even -- sorry, up by a notch and also the RCO margin goes up. So in that respect, I think the local team has, despite very difficult general circumstances in these markets has done an excellent job.

Then just briefly on the transformation accelerator. We basically target the EUR 500 million that I already said by the end of 2026 in a yearly run rate. It does mean optimization of clinker and cement assets with a clear focus on clinker with a clear focus on Western Europe. You know that there is overcapacity in the market. It always has been. You know that we are clearly targeting to be the undisputed cost leader also when it comes to fully loaded costs, including CO2 footprint. So in that respect, it's clear that we do our homework in Europe with a very targeted program. And for the first 2 years, this program is now back into this transformation accelerator.

Next to that, we continue to work on the procurement side, clean further the back office and also some overhead topics. There's always room for improvement. And then obviously, also with the new addition in the management team with Axel Conrads now, we put a significant focus on asset productivity and asset performance, and we chase some significant potential on technical KPIs and obviously try to also improve our alternative fuel position and our SCM position, so secondary cementitious materials.

If you go to the sustainability side of things, as I said, we are working super hard. I came a couple of weeks ago. Everything looks very good. Mechanical completion will be done by December 1. That's our ambitious fighting target this year, so not by end of the year, but even a month earlier. And we then go into what we call the hot commissioning that will be an exciting moment for the team and for all of us. And then we hope to see you also for the Capital Market Day in the first half of next year, and we are planning to do that in Brevik. So that would give all of you a chance also to take a look what we are doing up there live.

I can tell you from my own experience, it is really a fundamental milestone not only for the company, but also for the industry. On the back of that, we are launching also the decarbonization project in Italy. There were a lot of discussions about carbon capture work in Italy, just the government supported. I think it's moving in the right direction. We are taking a cluster approach in Italy, similar to the one in paper. So I think in that respect in the U.K. So I think in that respect, things are moving in the right direction, but it's early days on that one.

We work diligently on circularity and also low-carbon product solutions. We've made an interesting investment into one of the key tech start-ups Nicor in Canada that has a very interesting reprocessing of recycled construction demolition waste. That is really a very interesting setup. It's one of many, but that's just one that we are -- that we chased in this quarter. And then we talked about the project in Poland that is now fully up and running and it's producing very encouraging results. We have a couple of technical optimizations going on, and we are working also on replacing aggregates and sand up to 100% in fresh concrete. That is technically looking very encouraging. So we have a lot of hopes in that project down the road and it's scaling up, obviously. With that, I'll leave it to Rene to go through the financial highlights.

[René Aldach, executive]

Thanks, Dominik. Hello, everyone, as well from my side. So the top one is our adjusted earnings per share, which is without AOR increased in the quarter by 14%, which tells you if RCO goes up 3% and our earnings per share 14 that below RCO, the performance is really good. There are no big AOR items. Financial result, very good, tax result, very good. And we had last year in the discontinued operation, we had an increase of a provision, which affected last year negatively. But overall, the performance below RCO is very good. Last 12 months free cash flow at EUR 2 billion. That confirms what we said in the H1 call, we are traveling around the EUR 2 billion and should hit that number as well for year-end.

Leverage at 1.5 is a little bit up compared to September '23. Why? We've done again a share buyback and Dominik mentioned some acquisitions in Europe and in the U.S. And this confirms that we are at the lower end of our corridor, and I think that we are well placed. We have issued a second green bond with EUR 500 million. The interest was very high. And the timing was very good. If you look now at the interest, I think we did a good job. And then in the next few weeks, the first tranche of our second share buyback will be also finalized. So overall, all financials are trending into the right direction. Dominik, over to you.

[Dominik von Achten, executive]

Yes. And on the back of that, it's clear that we look optimistically towards year-end. That's why we were confident enough to raise our guidance by lifting the lower band of the bandwidth that we gave you. So it's now the EUR 3 billion is replaced by EUR 3.1 billion to EUR 3.3 billion. And also the ROIC will come in around 10%. I think that we are very comfortable around that. The same is true for CO2 emissions. The numbers we will then show you again as our normal rhythm on a half yearly basis. So with that, I'll give it back to you, Chris, and we're looking forward to your questions.

[Christoph Beumelburg, executive]

Thanks, Dominik. Thanks, Rene. Operator, you may now start the Q&A.

[Operator]

[Operator Instructions] So we have many people on the line. First one comes from Elodie Yvonne Rall from JPMorgan.

[Elodie Rall, analyst]

So the first question I have is on the cost savings plan that you have announced. So you're talking about EUR 500 million impact annualized by 2026. Is it all incremental versus '24? And how should we think about the ramp-up and the phasing in '25? And then related to that, in 2025, you had an EBITDA target, I think, margin of 22%. Does that mean that with that plan, you get there? Did you need that plan to get to that 22% margin? So that's a long question. I don't know if I'm allowed to a second one. So maybe you want to answer that one first.

[Operator]

Let's leave it there and let me see.

[Dominik von Achten, executive]

Okay. Let me do the second one and then maybe go to the first one. So on the 2025 margin, we have our strategy running. This program is not being initiated to try and get to the 22% margin. That's not the point to be precise on that. And we'll see where we exactly get in 2025. But this program is not launched just because to get to the 2022 margin.

[René Aldach, executive]

So Elodie, then the other 2 questions you have raised to first the split, there should be roughly 40-60 there should be 40% coming in '25 and 60% in the year after to come to a full run rate for '27. And then your first one, can you just add the EUR 500 million to our results? That is obviously the inflation and this EUR 500 million will take, let's say, a big part of the inflation hopefully away. So don't just add the EUR 500 million to the result because there will be staff cost inflation next year and so forth.

[Dominik von Achten, executive]

But Elodie is clear. Our ambitious target is to get as much of the EUR 500 million to be additional to 2024. But I think it's fair to say to point to take 100% would be an aggressive approach.

[Operator]

The next question comes from Luis Prieto...

[Luis Prieto, analyst]

Luis Prieto here. I had a couple of questions. The first one, if I recall correctly, in Q2, you highlighted that India and Indonesia were the only markets under price pressure. Does this still remain the case? And are we seeing any other countries joining the list? And the second question is a bit more of a general one on sustainability. Could you shed light on the current pricing differences between Berger Cement and Evo build? Is it fair to assume that the margin is currently higher for these products than the standard offering?

[Dominik von Achten, executive]

Yes. Luis, first question, no, we don't see any major countries being added to the list of India and Indonesia when it comes to general price pressure. That's not the case. And I think we also see some uplift now, especially in Indonesia on that pricing side. So I think we are working rather to get off that list with India and Indonesia rather than adding people -- adding countries to the list, right?

Secondly, cement and evo build, absolutely, we are trying to get better margins from the sustainable products. That's clearly our ambition. We'll be a little bit careful with the absolute price point because margin is, in that case, not necessarily meaning that you get an absolutely higher price point. There can be a difference between the 2, just to give you that clarity. But absolutely, from a margin perspective, the target is clearly to get more margin with the lower carbon products than with the normal ones.

[Operator]

The next question comes from Paul Roger from BNP Paribas.

[Paul Roger, analyst]

Congratulations on the results. So I've got a few questions on transformation Accelerator as well, if I may. So firstly, can you quantify the magnitude of capacity closures you are assuming? You've obviously already announced 4, but I wonder what the total might be in that plan? And then secondly, how will you actually track the progress? Will it be I don't know, benchmarking? Or is there some other method? And will management incentives be changed to align with it?

[Dominik von Achten, executive]

Okay. Let me do the first and then Rene will talk about the tracking, and then I can come back to the incentives. Now I think the -- on the capacity closures very specifically, Paul, we just have included the 4 plants that we have announced. So that's Hanover Alora and 2 plants in France. We have a longer-term asset plan in Europe. But for this program, it's running until '26. We only have sliced out these clinker capacity closures for now. So down the road, there will be -- there could be potentially additional things. But for this program, we have included the ones that I have mentioned that have already been communicated. But you remember in the first -- in the -- in the earlier calls this year, we promised you to come back with specific numbers. And this is why we have now also came up with a EUR 500 million that includes those 4 plant. And as I said, there we take the clinker capacity out, and that is a significant cost relief by plant that sits anywhere between EUR 7 million to EUR 10 million per plant alone, plus all the auxiliary costs that come with it. So I think that is a significant contribution to that transformation accelerator.

[René Aldach, executive]

So Paul, regarding reporting and every country, let's say, has a target for each of the 3 pillars we have presented to you. And then we come to provide the measures on business line level and even on plant level, how do we come to that EUR 500 million. And that will be then tracked on a monthly basis and as well will be put obviously that into the respective budgets because otherwise, it's difficult to track and to incentivize. And for the -- regarding incentivized incentivation, obviously, our countries and will get a part of their bonus will be need to hit their targets.

[Dominik von Achten, executive]

It's very simple in our company. That's why the timing of this program is now you may ask why do this? Well, we want to make it into the operating plan 2025 already, and that means also that it is incentivized because to E's question earlier on, this is not this is put on top of the normal stuff. That's why it is absolutely incentivized country by country, function by function to get to the contribution to the EUR 500 million already in 2025.

[Operator]

The next question comes from Stephan from...

[Stephan Bonhage, analyst]

Sorry, another question on the savings or optimization plan. So of the EUR 500 million, you just said that you think the assets that you're closing will save sort of EUR 7 million to EUR 10 million each. I assume that, that's a fixed cost number. So it would be really helpful to try and understand how much of this EUR 500 million is a fixed cost saving? And how much of it is sort of more of a variable cost saving, you're buying less coal, you're buying less raw mats, et cetera, because you're closing assets? Because I think that will be much -- I think it will be helpful then to actually understand what the impact is to numbers. So could you quantify fixed cost benefit of that EUR 500 million?

[Dominik von Achten, executive]

Tina, this is a tricky one. Quite honestly, out of competitive reasons, we cannot and don't want to disclose the split between variable cost and fixed costs. I think it's clear that it's a contribution of both -- but just to be very clear, there is also a significant fixed cost component in there because variable costs, as the name says, they come and go. And if you want to make this sticky, you obviously also need to get after the fixed cost. So it's a combination of the 2, but we are not going to be super precise about where the contribution exactly comes from when it comes to fixed and variable split. The same is true for specific KPIs that we chase. I ask for your understanding. But we're going to be transparent about the progress of the program. So we will come back to you exactly where are we. And so you will have the transparency around it.

[René Aldach, executive]

When you look at the slide in the pack, Pillars 1, 2 and 3, if you look at Pillar 3, alternative fuel, tinker cooperation, that all obviously goes into variable. Then on the left, you have the plant crawlers, which Dominick said, that's a big part of fixed. Then we do, let's say, productivity, obviously, as well fixed. And then we tackle this procurement, especially third-party services, we will tackle as well, and that is obviously variable. So as Dominik said, there's a fair mix, but you can assume that there's fixed costs in there.

[Stephan Bonhage, analyst]

Okay. And I don't know if you'd give it to us, but would you put any sort of broad brush numbers around how much each of those buckets would contribute, like even if it's a range, 20% to 30%...

[René Aldach, executive]

No, we don't give that. We have it, but we don't -- obviously, we need to have it internally, but we don't give that.

[Operator]

Next one comes from Berenberg, Harry Goad.

[Harry Goad, analyst]

Two, please. Just -- sorry, another one on the transformation program. I think you indicated most of it is in Europe, but can you give us any guide on how it breaks down across, I guess, your global operating divisions? And then secondly, just separately, any update, please, on trends in European volumes, what you've been seeing in recent months? And then is there any sort of cause for optimism in Western European pattern?

[Dominik von Achten, executive]

Yes. again, here, we will give you a tracking on the EUR 500 million, but we will not break it down into areas. You will see in the area performance in the end, whether there is a contribution or not indirectly, we're not going to break the program down into areas for the same reason that I said earlier. Now I give you -- I do give you the indicator that, yes, there is a large chunk coming out of Europe, but it is deliberately a global program. So there is also a significant contribution coming from all other areas, all other areas that includes North America, that includes Asia, that includes Australia, that includes Africa. So this is, yes, when it comes to the asset clinker closures, that's where it's focused on Western Southern Europe. So the fixed cost element to the earlier discussion with Peter, the fixed cost element is also mainly coming from Europe because there we always said there's overcapacity, we need -- we want to come down with our fixed cost asset heaviness in Europe. So that in to Europe. But other than that, it is clearly a global program. So there is a procurement program that cuts across all of our areas. So in that respect, fine.

On the Europe demand side, I said Eastern Europe is bumping along in a very strong fashion. And in those markets that have been difficult in the last, let's say, 15, 18, 24 months. So mainly Northern Europe and Western Southern Europe that are traditionally very important markets for us. We do see some bottoming out. It may be a little bit too early to celebrate that things are going up. and through the roof again. That's clearly not what we see. However, we do see bottoming out. Volumes also very recently have been very encouraging. So in that respect, we are moving in the right direction. Now do we expect a volume explosion in those markets in 2025? No. Do we expect some more stability? Yes. But the full rebound, it's very hard to predict. So let's wait to get to 2025, and we keep you posted on that.

But it's clear for us with a large European footprint, there's a massive upside if that volume rebound comes, especially once we work on our transformation accelerator. And that's the purpose of the exercise.

[Operator]

Next question comes from Tom Zhang.

[Tom Zhang, analyst]

Two for me, please. Sorry, the first one is on the transformation plan as well. It's a sort of a cheeky one really. So you mentioned EUR 7 million to EUR 10 million for each of the site closures, and those feel like big actions taking down kilns. But then it does suggest a lot of the other EUR 500 million is still procurement and the technical initiatives. On those things that you were kind of doing already, what is really different, I suppose, with this transformation accelerator versus, as you mentioned, a lot of this is incremental to what you're doing in business as usual cost reduction. What's really different? And then the other one is just any idea on restructuring costs and any cash out that you would actually need to put in, in order to realize this EUR 500 million over the next 2 years?

[Dominik von Achten, executive]

Tom, I'll take the first one, what's different and then Rene will take the second one on the restructuring costs and the cash out. What's different is that if you look at our -- not our, but in the industry's fixed and variable cost development over the last, let's say, 3 to 5 years, that's transparent. You can see it in our reports. You can see it in everybody's report. I would say the increase sits around 15% to 20%. Okay, there was inflation out there, but we are ambitious guys, and we want to roll that back. And that's what makes this program different to really alert everybody that there is something we need to roll back and make sure that we really are as a company based in Europe, very, very competitive. And that's what we are -- we want to make another step change on asset heaviness on competitiveness with this program. That's also why to the earlier question of Elodie, we are trying to get as much of the EUR 500 million on top of the 2024 results and not just compensate other potential cost.

[René Aldach, executive]

Let's talk about how much does it, let's say, cost. If you have followed our H1 results, we have presented an AOR already nearly EUR 200 million impairment and restructuring costs for the plant in Europe, and this is exactly for the 4 plants Dominick has mentioned and the 2 French ones. So there this EUR 200 million are already in our H1 P&L. And then obviously, from a cash flow perspective, when the plants are closed, they need to pay restructuring. But for the rest, to be honest, to deliver the rest, I would not think there are big material results or, let's say, AOR or cash outflows of the company. It would be middle digits, middle double-digit millions, which is not material for this..

[Dominik von Achten, executive]

This is not a mass layoff program that creates restructuring costs. The ones that have significant impact on that, Rene has just shared with you, and that we is already baked into our 2024 numbers.

[Operator]

Next question comes from Tobias Woerner from Stephens.

[Tobias Woerner, analyst]

Two, if I may. Number one, when we look at North America in terms of like-for-like at the revenue and the EBITDA level, 0.9% and 11%, respectively. How much of that is -- or I take it, Mitchell is part of that like-for-like and how much of that is related to it, just roughly to give us a sense? And then secondly, in the past, you talked about trying to crystallize the value in your North American assets, which have significant aggregates exposure and we know what that is value. Any further thoughts on those?

[Dominik von Achten, executive]

Tobias, I think on the first one, again, there, I think we indicated in the past, we can also for competitive reason, not disclose exactly how much Mitchell impact is there. But one thing is clear, it is a significant contribution for Mitchell, but by far not the only one, right? So if I look internally, it really comes from all parts of the U.S., maybe less so even from the southern part because you know that the southern parts have been heavy impacted by weather, especially in September. So it's maybe a little bit more from the northern part than from the southern part. But that's -- I think I hope that answers your question.

And then on the U.S. assets, we stick to what we have said. We don't take anything off the table. We continue to watch the developments. You saw the recent news in the last couple of days again. There is a lot of movement, a lot of either speculation or specific plans that have been disclosed. Very interesting for us to watch that situation. We sit on a very, very valuable asset base in the U.S. that is performing at very competitive levels, and we continue to watch what's the best way to valu-ize that. And as we go along, we then take the right decision that is in the interest of our...

[Tobias Woerner, analyst]

And sorry, if I may follow up, Quick. Any thoughts on that? They tend to be known as shrewd M&A people not willing to give up quickly. would you reconsider your position there?

[Dominik von Achten, executive]

We don't comment on any speculation on the competition. We -- it's nothing for us to -- if you ask us whether we are playing in that rumor there, no.

[Operator]

The next question comes from Citigroup Ephrem Ravi.

[Ephrem Ravi, analyst]

Just 2 questions. Firstly, on the sustainability side, obviously, you have a new demolition center in Poland. One of your competitors clearly has much bigger plans. They already have apparently about 100 demolition centers or recycling centers already. Is this a business that you are looking to grow very fast? Or is this going to be very selective and one-off? And secondly, just a clarification on your transformation program. The 4 plants that you mentioned, which obviously the French plant closes next year, but the other 2 and Speed also has closed. Is that included in the EUR 500 million 500 million is incremental to these 4 plants that have already had restructuring costs taken?

[Dominik von Achten, executive]

Okay. Rene will talk to the second one. And I will -- it's good to raise the one in Poland because one has nothing to do with the other. We have hundreds of sites that do demolition of concrete waste. There's nothing specific. Sorry that we didn't be transparent about this, but there is nothing -- hundreds of our aggregate sites do recycling of concrete. The Polish one is a completely different approach because it's not demolishing concrete and then using that as sub base somewhere in road construction or anything. This is targeted to get high-level sand, first A class sand and A class rock that can eventually to 100% replace technically fresh sand and fresh natural stone. So I think in that respect, that has a completely different ambition level. And I don't know that there are any project like this going. If you have knowledge about it, let us know. We are always willing to learn. That would be fantastic to share ideas. But from our perspective, we are really trying to lead back there.

[René Aldach, executive]

And the 4 plant closures we are talking here right now, they are included in the EUR 500 million target, the sales of.

[Operator]

The next question comes from Brijesh Siya from HSBC.

[Brijesh Siya, analyst]

So I have two as well. Firstly, on the EM portfolio, obviously, Asia has not probably performed to your liking and Africa, Middle East is coming back. But looking just on the asset base on return and returns, what do you think is the optimal return and where those assets are kind of currently generating those SSC versus what it is for the group? So that's my first one. And just on the technical one on the scope effect, if you could just give us what's kind of the scope effect you are looking for Q4 and into 2025 based upon your acquisitions in '24? And what's kind of the -- what the cash flow impact for '24 as such?

[Dominik von Achten, executive]

Okay. Brijesh, let me do the first one, and then Rene will take the scope effect for the remainder of Q4 or for Q4 and then going into 2025, although it's not a discussion about the 2025 number yet. But nice Friday let's get to the Q4 number and when he will give you some transparency around that. On the emerging market portfolio, if I understood your question right, -- we are going to continue to optimize the asset base. There are still a couple of countries that we have on our list that could potentially be either or divested more the latter than the first. So bear with us. I think there are a couple of things in the pipeline, but we have no way whatsoever to execute. We do this only if we drive shareholder value and if we increase the focus on our emerging market and performance of our emerging market portfolio as a whole. So that exercise is not finished, but we communicate always when we have results, not just. So in that respect, bear with us. And as the pipeline turns into a reality, we'll come back to you and let you know, but it's an ongoing effort.

[René Aldach, executive]

What I said already in the H1 call, year-to-date now the scope EBITDA is EUR 76 million. And I said it will be north of EUR 100 million, and that will be north of EUR 100 million end of the year. And for '25, we have not yet have our budget discussions, so I cannot give you an answer. Obviously, for '25, we have the full effect of the U.S. acquisitions. So that is some contribution, obviously, but I cannot tell you a number right now.

[Operator]

Next question comes from Gregor Kuglitsch from UBS.

[Gregor Kuglitsch, analyst]

So a couple of questions. Sorry to come back to this saving program. I know that there's been sort of 15 questions already on that. But just sort of so we can get a picture kind of what's incremental to what you would have done anyways because I appreciate the plant closures, that's sort of idiosyncratic, but things like back-office procurement gains, optimization, fuel substitution, all that sort of stuff, I think you do -- you've always been doing. So just to give us an idea sort of compared to, I don't know, the last 2, 3 years, how much of that is really additional or incremental to what the company would have done anyways. And then the second question is, can you provide us with an updated guidance for this year for year-end net debt? I think you're saying the cash flow is EUR 2 billion from memory, which I think last year was EUR 2.2 billion or EUR 2.3 billion, remind me. And I guess within that, what's sort of the delta between last year's and this year's cash flow? Or do you think it's kind of similar?

[Dominik von Achten, executive]

You know that we don't formally guide on net debt, but maybe Rene can give you an indication of where we think, at least from a corridor perspective, we land. On the program, I think the incremental discussion we had already a little bit earlier. I think it's clear we continue to optimize as we go along. But as you probably well know, a, the asset footprint optimization in Europe is nothing you can do as you go that's a major effort. You know all the frameworks and the boundaries you have in place also to get that executed in Europe. So that's absolutely an extra effort with a significant contribution to the EUR 500 million that goes on top of normal business, at least also if I compare it a little bit what I see elsewhere. So I think in that respect, that's absolutely incremental. And then we have a significant procurement element in there that's also incremental with a deliberate focus and also extra resources and efforts to put a significant focus. And the same is true for the technical side of things.

You can argue we obviously also -- we obviously always watch these KPIs and also our variable and fixed cost. And I think we've done an excellent job also during this year. However, as I said, we have a new CTO in place -- and it's clear that he has additional ideas, additional focus. And that additional ideas and focus, that's why we bring this new Board member to the table that we create additional results. This would just be administering the normal staff Gregor, that would be not enough return on additional Board member, if I may say so. So, there must be additional returns coming. So, my clear ambition is that the vast majority of this is clearly additional to what we do anyway. Otherwise, we don't need to launch any initiative.

[René Aldach, executive]

The second question, the free cash flow for last year was EUR 2.163 billion. And we should be -- as I said, we should be around that 2 or 2.1, 2.15, that's dependent on working capital at the end. So that's difficult to predict, but that should be the number. And regarding a net debt position, last year, we were at 5.3. The net debt position will be probably a little bit higher than this because we had the acquisitions, we had the share buyback with increased dividend. So our net debt will be higher than last year, obviously.

[Operator]

And the last question comes from Yassine Touahri.

[Yassine Touahri, analyst]

So maybe first a question on your guidance. I think the mid-range of your guidance implies a growth in operating earnings of something like 15%, 16% in the fourth quarter. So it's a big acceleration versus what we've seen so far. And even if I take out the acquisition and FX, it looks like you would be expecting an organic EBIT growth maybe 10%, 15% in Q3 -- in Q4 compared to only 3% year-to-date. So what is driving that? Is it because you're expecting better volume? Is it because you're expecting better price cost? And do you have any evidence of this acceleration in earnings growth in October?

And the second question would be on the -- your margin in the U.S. It looks like your aggregate margin went up quite a lot in the third quarter by approximately 300 basis points. It's a little bit surprising when I'm looking at the results compared to all the other companies that published margin either stable or under pressure in aggregate because of the weather. So what is driving that? Is it cost? Is it a better volume performance? It would be great to get a bit of color on that.

[Dominik von Achten, executive]

Yes, let me start and then if Rene wants to jump in, I think let me know. You have done your own work, if I may so, Yassine, I think you've done a good calculation. Indeed, this would mean that the growth in the Q4 is substantial. We are confident that we can pull this off. It goes back to our earlier discussion about the trend line, Q1, Q2, Q3 and what we see now in Q4, also what Rene indicated on the scope effect, I think there is a good momentum and this good momentum is also supported by what we have seen in October now in terms of performance. So we sit very confident here. It's ambitious, fair enough, but we are an ambitious company. And we are confident that we can deliver this. Otherwise, we would not have shared this with you in that matter. So that's the answer to that.

And then the second one, margin in the U.S. I cannot comment on the competition. But from our perspective, sometimes you lose with the footprint in brackets Europe, sometimes maybe also you helped a little bit by the footprint. You remember that our business in the U.S. is not 100% in the South. We have a significant business in the Northeast, in the Midwest and also in the Northwest. And I think overall, you should assume that some of the margin improvement not only comes from the South, but also from the other parts of the U.S. where in all fairness, the weather events were less pronounced than in the South. But overall, structurally, we see good margin improvement in all of our North American business, and we are confident that, that will continue also going into the end of the year.

[Yassine Touahri, analyst]

Maybe just a follow-up on the fourth quarter. I see that the fourth quarter last year was very weak. You had a decline in EBITDA growth, while the other quarter were better. Is there any one-off? Or did you have any lack of land sale, for example, in the fourth quarter of 2023? Or are you expecting an acceleration of land sale in the Q4 of 2024?

[René Aldach, executive]

No. Q4, no big land sales missing last year or coming this year. So that will be operational. And if you look, 50% was EUR 700 million, EUR 800 million is just let me talk EUR 100 million improvement. And as you have said, Q4 last year was not great. Volumes were not good. So as Tom said, looking at the recent trends, we are very confident with our Q4 forecast.

[Yassine Touahri, analyst]

Do you see volume growth in October?

[Dominik von Achten, executive]

I think we need to be a little bit careful with what -- but we are very satisfied with what we have seen in October.

[Operator]

I don't have any more questions on the line, but maybe some closing remarks from you, Dominik, before we go.

[Dominik von Achten, executive]

No, I think a big thank you to all of you. Thanks for joining. I think we moved the side a little bit to accommodate your schedules. Thanks for making it possible. From our perspective, I think you've seen we go with all confidence into the remainder of the year, and that also should then set a great base for an interest in 2025, which will be super exciting for us with the opening of Brevik, but you probably also understood that it's not all about Brevik. That's a major milestone for us, but it's clearly also our ambition to overall continue to grow the company in a very profitable manner also in 2025. So let's stay on top of that. And then... Thanks for joining.

[Christoph Beumelburg, executive]

Thanks for joining. We see some of you at the analyst dinner tonight. So looking forward to it. And then we are on the road in the next couple of days also in London. So we see you all there. Thanks a lot. Bye.

[Operator]

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Goodbye.