Heidelberg Materials Ag

Good morning, good afternoon, everyone listening into our Q1, sorry, Q2 call, H1 call. We're here in a room with Dominik von Achten, our CEO, Rene Aldach, CFO, and the IR team. Looking forward to your questions later on, but before we have some prepared remarks, and without losing time, over to you, Dominik.

Thanks, Chris, and welcome everybody from my side, including Rene Aldach, our CFO, and Let me just go through the presentation that I think many of you have in front of you. In general, a strong quarter for us, and we are accelerating the growth, so a couple of good news to share. First of all, operational performance, 6% up on revenues and 4% up on RCO. I think that moves in the right direction. What is very important for us is to see that for more than four years, since Q1 2022, this is the first quarter with a positive volume impact. Okay, I think that's one quarter, but I think that's very important to note from our side that this is since more than four years, the first quarter with positive volume impact. We are accelerating also the unorganic growth with a couple of M&A transactions that either closed or have been done in the second quarter. So Mars Australia will try to close during this year. Ameritex in the US has been signed and closed, a very important strategic position in the fastest growing concrete pipe provider in Texas. Axancha Turkey, transaction has been closed end of June, very good strong platform for the Mediterranean both for the Turkish local market but also export hubs to Africa, US and other parts of the world. Transaction finally closed at the beginning of Q2. That's a strong market position in the prairie market in Western Canada. Very important also is what we would call the self-help. So we really continue to work on all cylinders when it comes to pricing and surcharges, mitigating the effects that are absolutely there from the Iran situation that we have increasing energy prices along the full supply chain, and that's why we are working diligently on pricing and surcharges, and that work continues. As much as the work on our own cost position, especially the fixed cost side, continues with the TAI program, Transformation Accelerator program, where we are now at 440 million euros, so we're moving in the right direction. The third tranche of the share buyback, 1.2 billion, has been started and is running well, up to 450 million. And then we've specified our outlook to the range of 3.4 to 3.65 billion euros. The ROIC will be slightly above 10% and the CO2 emissions will be around the previous year level. That's mainly due to the Accenture acquisitions in Turkey. With that, I turn to page 3. You see the numbers, plus 7% like for like, plus 6% revenue. That's very good. Strong growth on the top line. Operating EBITDA also moving in the right direction, like for like 4%, reported 3. Operating margin more or less flat, slightly down. and then operating EBIT also up like for like 5% and reported 4%. So I think that's a good set of numbers for Q2. And that also gets us well into the water for H1 with basically a flat performance year over year on the profit numbers and a slight growth on the top line. So in that respect, moving in the right direction. If you go to the Q2 profit, you see that things are shifting a little bit, which is important to see. One is the net volume effect increases, so that's good news. As I said, the volumes are coming back. Price over cost is around the zero mark, slightly negative. We'll get into the details, I'm pretty sure, in your questions. and then we also see a scope effect coming from the acquisitions down the road. You will see more coming, so I think that moves in the right direction. H1, and you see when you flip the page six and five back and forth, you see the difference there. Net volume impact in H1 was noticeably smaller. Price over cost was again around the zero line. I think you see the shift especially on the net volume side that is important to note. Then, important for us to work on those two legs, as I said earlier, pricing. Significant pushes around the globe. We've just finished our quarterly management meetings. So, significant push around the globe with a big focus continues to be Europe and North America when it both comes to top-line price increases but also surcharges. So that work continues as we speak. We'll go into the details when we go through the regions. And then on the right side, the Transformation Accelerator, the 440 million. And we are very confident here that we will surpass the 500 million saving target that we originally set. Then on page 8, we go to Europe. You see here, I would say, a very good performance in Europe. Revenues up, EBITDA up, RCO up, and margins up on CEMENT, slightly around the zero line on aggregates in terms of changes, and slightly up in the total region if you combine everything. So, a resilient performance in Europe. Based on good pricing, NRC charges are in place and we are very focused on price over cost, which is positive in the region. That is very important to note. Then the volume development on the total group development is supported by also Europe. There are recovery signs in our sluggish markets around Germany, Binnen, France, UK but only very limited. Bigger increases now come from Scandinavia. I think the markets in Sweden and Norway have really rebounded quite a bit and Italy and most parts of Eastern Europe stay strong and obviously for us also importantly the situation in Hungary has turned around so we continue to climb back up in Hungary which is an important joint venture that contributes also to the European results. and then the team is also doing an excellent job on fixed cost savings. You know that we have worked on our plant network in Europe and we're going to continue to see the lower cost base coming into the results as we speak. Then North America, I think strong performance on the top line and also the bottom line. Top line up like for like seven and reported five. Operating EBITDA almost double digit like for like plus 9% and 4% on reported and RCO like for like double digit plus 11 and reported 5%. EBITDA margins come and go in the quarters. We've seen this in the past. So cement down, aggregates up, total region basically flat. So that's the picture in North America. It's clear that there is good volume developments driven mainly also by a couple of very big projects. Not so much a rebound in housing at this point, but it's also fair to say that there is inflationary cost pressure in the US and then ways on the margin developments. We are continuing to work on pricing. We have announced July, August, September price increases So I think we are continuing to move on the top line in North America to mitigate the underlying inflation. If we then go to Asia Pacific, page 10, I would say a very mixed picture, very strong rebounding in Australia. The market is very resilient. The team does an excellent job there. Good volume development. Pricing is moving in the right direction. Cost management is moving in the right direction. So overall, I'm very positive that we will see good performance out of Australia also for the full year. Asia, I think, is probably one of the weakest link at this point when it comes to profit development. I think the volumes are actually moving in the right direction, but there is clear underlying inflation and cost pressure. and pricing clearly has upside potential in our key markets, Indonesia and also in India. I would say across the board in Asia, that's something that needs to rebound. Then if you go to page 11, AMBA, I think again, a very strong performance from AMBA, top line growth, bottom line growth and look at the margin development. Margin now in AMBA, Cement, more than 30%, another 300 basis points. I think, guys, this really moves in the right direction. The region is now almost at 28%, so very, very strong performance on the top line and also on the bottom line coming out of AMBA, and that moves really in the right direction. Good on AMBA. Then when we come to unorganic growth, I think the pipeline is absolutely intact and we are executing the deals, the mass transaction I mentioned in Australia. We expect news in the coming weeks here how this will close. So let's wait and see. On this one would be an important contribution potentially also to this year's results or then at the latest to next year's results. We have already the contribution from Ameritech. The same is true for Accenture as of July, so there is no impact in Q2, but there will be from Q3 going forward. Bernco did close the beginning of Q2, and then things come and go. You know that we are actively not only acquiring, but also Disposing the most underperforming assets, and this is the reason why we have sold the position in eastern Kazakhstan, Bukdama, a very old plant, wet kiln, very difficult in profitability, and also in terms of CO2 footprint. So in that combination, we decided to exit during the quarter. The deal is signed and closed. So in that respect, that's it. Sustainability. There was a lot of discussion around the EU ATS. I think the water has been cleared to a large extent. The EU Commission has made their proposal how to proceed. We broadly support that proposal and I think it sends a clear signal that the EU ATS is here to stay. and yes there are some minor adjustments around the linear reduction factor of the benchmark more or less expected and from our perspective we can live with it. We may adjust here and there the one or the other investment but overall I think that moves in the right direction. We have set a completely different tone in terms of CO2 footprint in France to the opening of the new kiln in Ervaux, reducing the CO2 footprint by nearly 30%, 3-0% of the significant progress in the right direction, let alone that this is also financially a very attractive investment. Advancing the technology on carbon capture at smaller scale in this point, but it's a completely new technology, oxy-fuel plants together with three competitors in a plant in southern Germany. The plant is now up and running capturing the first CO2, so we are moving also to advance The technology on carbon capture. And then last but not least, but importantly, you know, when we talk about Dow Jones and FTSE, we are moving further ahead in the indices to underline our sustainability leadership. If you talk about that, you look at the performance of the KPIs, the broadly move in the right direction, alternative fuel rate up, clinking corporations down. Thank you very much. That's it for me then, René. Maybe you take the financial side.

Yes, thanks, Dominik. Hello, everyone from my side. We are on slide 15. Quickly, the highlights from the financials of the first six months of the year. Our adjusted earnings per share, which means excluding AOR, are up 2%, which shows you already, highlights you that below RCO, the P&L is also in very good shape. and even on a reported basis our earnings per share is up 7.5% or our net income of the group is up 7.5%. If we go to the cash flow, you see here last 12 months rolling is 1.9 billion. It's down driven by working capital and capex and I think we will go through the cash flow in a few minutes also year-to-date and I explain you the details. The leverage is around 1.6, 1.7 for H1 similar to prior year, so no No big movements over here. And then as part of our strategy, what we have always announced, we increase our M&A, let's say, emissions, which we have seen in the first six months. Dominik has explained what we have done, and we hope to close, let's say, the mass acquisition also this year. And what we also promised is we increase the share of the return. You see it also here, plus 13%, which is driven by higher share of our bank plus higher dividend. Let's go on slide 16. What I said, you see our AOR is 50 million better than last year, which has also to do with revaluating our current Akchansa share because we have now changed from ad equity account to consolidation, and then we need to revalue based on the purchase price we have done. So here there's an accounting effect in there. And what you have read, and Dominik has also alluded to, The Buchtama Cement Plant, as we mentioned in our report, there will be an impairment coming of a material amount, but it's not cash relevant, so it's a clean-up of the past, so there's a $100 million impairment. It will be in the full-year books, but again, non-cash item. Financial results, I think, very good, flat in increasing interest in the environment, I think good results here also. and from the income tax perspectives you see here 40 million improvement which is based on a let's say provision release of a tax case we have won which is a good thing and is also contributing to our increased net profit. Let's go then to slide 17, the free cash flow. I think there are only two items I want to mention. Number one, The working capital you see here was minus $99 million, and there's two things. The $60 million of this is timing of with our trading business increased, let's say, the revenue, and then that money will come back. We've discussed it with them two days ago, so there's no problem about the $60 of the $100. And then the rest is inventory built up, you know. We have taken opportunistic approaches when coal was cheap during the quarter we have probably bought more than we really need but that will benefit us obviously from a cost perspective in H2 then compared to spot plus you know with all the price increases and surcharges obviously the receivables are going up but the promise is it's clear the clear target for us there will be no cash outflow for Merkin Capital by end of the year so the 99 million should go away in terms of free cash flow import from working capital. Again, that interest, I say that's probably flat. Tax is flat. And then you have one negative with CapEx net minus 115. And it's also mentioned here in the comments. Two items contribute to this. First of all, this is a net number. We had 44 million lower divestments. And you see here 30 million higher CapEx spent for the CCUS project in Payswood. and here I guess it's very important to note that it's the capex we spend to build that plant is shared with the UK government and the part we have let's say financed of this we will get this back during the first five years of operation of the plant which is a very good thing because you know we do it now the pre-financing that is a fact but then Thank you very much. Thank you very much. Thanks a lot.

Final pitch then from me before we get into your questions and our answers. We have specified our guidance going down the road during a year. We try to narrow the range that we give you at the beginning. So we're now at 3.4 to 3.6 The return on invested capital will slightly be above the 10%. CO2 emissions, as I mentioned earlier, will be around previous levels. mainly driven by the fact that Accenture comes with a higher CO2 footprint for now. So that's the one driver. And then CapExNet 1.2 to 1.3. This includes the Pateswood topic that Rene was just alluding to. So overall, I think if you put that also with cash conversion into the right dynamics and look at it over many years, I think we are moving in the right direction. and then leverage, as Rene alluded to, will be in line with the midterm target around 1.5 times. And then it's clear we continue to increase our shareholder return with dividends and sharebacks. And I think you see here in the Q2, plus 13%. I think that's a very fair return to shareholders. So that's it from our side. We move to Q&A. Thanks.

Thanks, Dominik. Operator, you want to start the Q&A, please?

Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to disable the loudspeaker mode while asking a question. In the interest of time, please limit yourself to two questions. Anyone who has a question may press star and one at this time. One moment for the first question, please.

All right, the first question comes from Ben Radamati from Goldman Sachs. Hi, Ben. Hi, Ben.

Excellent. Good afternoon, Dominik, Rene, and Chris. Thanks for the questions today. My two questions, my first today was on price-cost. It's worth noting price-cost turned negative for the first time in a few years. We've obviously got a backdrop of transport and energy pressure, but do you expect this to turn positive as we go into the second half and I guess which regions in particular do you expect to see sequential improvement in, if any? And then the second question would just be on carbon and I guess your comments around the ETS. We've seen more clarity around the structure of the system. Could you provide an update on when you expect some of the carbon costs to come through your European cement business when it comes to which years you expect to start incurring those costs? Thanks very much.

Thanks, Ben. Maybe let me do the second one and then Rene does the price over cost one. So on the carbon costs, I think you saw the revision of the scheme. We are long until 2028 minimum. So I think that's the answer to that question. Overall, comfortable for the next couple of years. But then, obviously, we need to cover the increasing carbon costs.

Okay, then let's talk about price over cost. Yes, you are right. The price over cost in the quarter was negative of minus 19 million euros. But half of it, it comes from our, let's say, joint ventures, especially China. You know that the China economy is pretty weak. So half of it comes from joint ventures. So then there's the remaining 10%. and to tell you it's clearly not Europe Europe is very positive for Q2 plus also for H1 so this is very good news and then as Dominik alluded to it also I think APEC the pricing was not covering the higher variable cost that's probably the answer to that one and to your further question how do we see this going forward it's clear that The Iran war has a certain impact on a lot of companies, including us. And this we see in higher distribution costs, which we get, let's say, surcharged from our suppliers. And that is, if you look at the margins and our price over cost, this is the only one where we have margin dilution. So that means that our own efforts to increase price to cover variable fixed costs are very well intact because that covers our own costs, additional costs, especially from energy and inflation. We will cover by ourselves and just the ones from suppliers we need to push further. So we are very confident with further price increases to come that we try to be positive in price over cost. You see it for H1. Even with H1, we are already plus 2 million, and again, joint ventures is minus 20, so take the joint ventures out, we are plus 22 for H1, and we are confident that we will be positive for the full year.

Excellent.

Thanks, Ben. Thanks, Ben.

Next one comes from Citigroup, Efrem Ravid.

Hey, Efrem. Efrem, hello. Hi. Hi. Hello. Thank you for the time. Two questions for me as well. Firstly, on North America, you called out inflationary pressures. But if I look at the margin, aggregate margins are up about two percentage points. Cement margins are down about three percentage points. So can you pinpoint which are the cost inflationary pressures, especially in cement, that is causing that big diversion in margins? and secondly on Asia Pacific, you know, very strong performance there. Any countries, sorry, AMWA, any countries in AMWA you would call out, is it Egypt, is it Turkey, is it Morocco, is it sub-Saharan Africa, which is contributing to the strong growth over there? Thank you.

Yeah, let me do those two and then, Rene, if you want to jump in, I think that's fine. I think North America, it's clear, you know, as I said earlier, Ephraim, margins come and go. I think what is the reason for the good margin development in aggregates? It's mainly large projects. That's what I indicated. I think there is a lot of large project work in the U.S., and then it depends a little bit, quarter over quarter, how this balances out. And on cement, I think Rene has indicated that That pricing, you know, underlying inflation is significant. It's a very energy intensive business, cement much more than aggregates. And then if pricing doesn't kick in as much as it probably should, then you see the margin squeeze. And I think that we are on it. We are fighting in both dimensions and we are very confident that we fix this in the second half. And then AMWA, to be honest, as I said, it's a portfolio approach frame. Things come and go in AMWA. There are countries in there that are really strong and that there are countries that are a little bit more weak in this quarter. But overall, again, quarter over quarter, year over year, AMWA is going in the right direction. Sub-Sahara is going well, especially if you go to the east side of the Sub-Sahara. The north side of the Sub-Sahara is also going strong. And then we'll get Turkey coming into this picture also as we go into H2. So overall, we are confident for AMBA for good performance for H2.

Thank you. Thanks, Stefan. Next question comes from Julian Rottlinger from UBS.

Hey, Julian. Julian. Hey guys, thanks very much. So I've got, I'll start maybe with, I've got two questions. I'll start with the one first. So North America was really quite strong in Q2 and especially in aggregates where your margins went up quite substantially. I just wanted to check, is there anything, there's nothing in there that was kind of specific? That's just price and cost and operating, sorry, price, cost, volume and operating leverage?

Nothing out of the ordinary that we need to note. Things come and go in aggregates. I think that's it. Nothing super material that needs to be noted.

Okay. My second question is a bit of a bigger picture one. So if we take a step back, you originally gave a full year guide of organic EBIT growth of something around, I think it was 7% or so. You're now down slightly in H1. Obviously, we know the story. Q1, weather, etc. Q2 was better, but you're basically down slightly in H1. There are some international heavy side companies with similar regional exposures that have done a little bit better. I think what investors would really love to understand here is what exactly drove this H1 underperformance versus your own expectations. And And really big picture. And when and how will this turn around? Is that something we should already see in the second half of the year? Or is it something that will take a little bit longer? Thank you.

Julian, do you want to take the North America? I've already answered that. That's fine. The EBIT minus seven, I'll go first and then Rene can jump in. I don't want to correct you, but I would say, you know, when is it going to turn around? I would say we are actually well on track. I think don't underestimate, Julian, we said that the first quarter was below our expectations. That's fine. Nobody has doubted that, but it was a weather-related impact to a large extent. and we've always said there's nothing structurally going in the wrong direction. We are very confident that we will deliver the guidance that we are giving today. And so from our perspective, it can always be better, but there is nothing structurally that holds us back from operating on a very high level.

Just to add, yes, Q1 was below expectation. We all know this and admit this, but that was mainly driven by North America. And we said we will come back with North America. And you see, I guess we don't need to hide with our Q2 numbers for North America. Top line, good. Margins, good. Aggregates result, good. Thank you, Julian. Thank you.

Next question comes from Sida Ekblom from Morgan Stanley. Hey Sida.

Hi guys. So just can we go back to the North American market? Pricing in that region I think has been one of the negatives that we've heard from companies in the last two or three weeks. Most businesses are reporting that pricing is sort of flat in the quarter. Can you talk to us about the landscape in the US? It is your single largest region. How we should think about the momentum on pricing as we move into the second half? Because I think that that's important in terms of reaching the guide. And then the second question relates to your Asia-Pac business. Another quarter, I would say, of subpar performance, not much organic growth there at EBITDA. Thank you. Yeah.

Thanks, Cedar. Let me maybe do the first half of the first answer, and Rene chips in on the pricing, and then I'll give you the APAC answer. So on the pricing in North America, you're right, Cedar, it was below our expectation, mainly in cement, not so much in aggregates. and the reason I think is there is import going into the US. I think that is slowing down now, but there is import pressure in the US and the market structure has also changed a little bit. But overall, as I said, we are going to continue to be pushing prices in the US and we are positive for the pricing development going into H2 because as I mentioned on the page earlier, Sida, we are implementing price increases as we speak and the management was very confident that this will also work. So in that respect, okay. Anything to add from your side there? Okay, then on APEC. Careful with APEC, I would really split into two parts. APEC for us includes Australia, so I think let's take Australia out because this is a very meaningful business, especially with the mass acquisition that we now get very significant in Australia. So in that respect, Australia is actually on a very good track and that will drive the APAC performance forward. Then you have the remaining part of APAC, which is basically Asia, and that also splits in a couple of maybe more sluggish markets that include especially China, which is super sluggish, maybe also Hong Kong, as Rene was mentioned earlier. But I think what has changed to the positive, Sida, to your point, India and Indonesia, at least on volumes, are coming back now quite significantly. And we all know there is a lot of capacity in those markets. If there is no volume, then it's also difficult to move pricing. So my expectation is that that part of Asia will come back, but it needs the volume to come up to then also move on pricing eventually. and from a portfolio perspective, there is no change to what we said. Indonesia is an important part of the group. India, we continue to develop, but it's going to be opportunistic. If at some point there is an exit trigger, we may think about this. But for the time being, we develop India and just to be clear, we earn money in India.

Can I just follow up? I get your point, but I mean, we had 11%. Organic in AsiaPAC in Q2 and we had no organic at EBITDA so like how much growth do we actually need at the top line before we're going to start seeing some positive contribution and I understand the points around cost inflation and AsiaPAC is probably more exposed to that energy risk but like we've been hearing the story on AsiaPAC for a number of quarters and fine maybe Australia is a different part of the portfolio but the rest of it is It's just a constant drag on the group, right? So how much growth do we need at the top line before we can see positive organic at EBITDA? Do we need 20% growth at the top line? Like, what's the number?

So I don't think you need much more growth than the current run rate. Sida, you gave the answer yourself. It's probably the region in the world that is mostly exposed to what happens in Iran. and that's why on quarter over quarter you will see that there is not much EBITDA contribution, but I don't think you can read too much out of this in terms of general trend. and I think, Sida, if I may say, you've been long enough around the block to know that things come and go. You know, you have also enjoyed days with the group where we were making super profits in Asia. So let's see how we navigate through this. But I fully agree, and I don't want to play it down, because the current performance is clearly below our expectations.

Okay, thanks, Sida. Kepa, Shabru, Luis Vieto is next in line. Hey, Luis.

Thank you, Dominik, Rene, rest of the team for taking my questions. I had two. I'm sorry for the change in subject. With regards to the EU ETS overhaul and in the context of the proposed delay in the phase out of free allowances that we know of and the MSR changes, Could the industrial decarbonization banks' subsidies for decar projects in the tune of €100 billion save the day regarding the incentive to invest in a low-carbon price environment if these measures go through? My second question is more detailed than anything else, but along the same lines. What is the current brevity situation in terms of production of E40 and its profitability? Thank you.

Luis, I just want to make sure I've understood your first question right. Can you just repeat the essence of that question because I'm not 100% sure whether I got the key point of your first question.

Basically, we've seen measures within the ETS overhaul proposal that I would assume tend to or would like to see the price of CO2 being relatively low or moderation in order not to bankrupt anybody, you know. In other industries. But at the same time, the measure also implements the Industrial Decarbonization Bank, which proposes subsidies that are huge, 100 billion euro or whatever for decarbonization projects. So I just want to know if you have a feeling that those subsidies fix the low potential carbon price environment, if you see what I mean, in terms of how incentivized you are to do CCUS projects going forward.

First of all, the price of CO2, I mean, let's not play it down too much because the price of CO2 sits around 80, 80, 82 euros. So that's not such a bad price level of the CO2. That was the original idea. This would go down to 30, 40, 50, has not happened. So I think it's been fairly resilient around the 75, 80, 85 mark. So I think we are fine with that price level. Now on the marginal fall in terms of specific investments, does that need us to revisit them? Absolutely. And that's what we will do. On the subsidy scheme that you are talking about early days, I think this is not yet specified. It's not in a legal framework yet. So I ask for your understanding that we don't want to speculate on this. Honestly, I've also not understood the full details of it at this point. So let us go work through it. You know that it will take probably until the beginning of next year before all of this discussion becomes the legal framework. And Breivik production, on the capturing of CO2, we are absolutely on track. We are exactly in line with what we planned for 2026. So all our eyes on green. And with EvoZero sales, you know that we are very selective In terms of creating the right returns, and the discussions keep going very well, and we are taking that opportunity by opportunity. But importantly, the CO2 capturing works technically, and it works also in the volumes we have assumed.

That's great. Very clear. Thank you.

Thank you, Luis.

Next one is from Puccherini Ghosh from Bernstein. Hi, Puccherini.

Hi, thanks for taking my questions. So my first question is on Germany, your home market, where you highlighted that because of the war, the recovery signs seem to have stalled somewhat. And from what we are hearing from some of your peers, they seem to highlight that trends are improving. So could you provide some color on what you are seeing exactly on the ground in Germany both in terms of volumes as well as pricing and how do you expect the rest of the year to progress? And any signs of the funds from the infrastructure budget coming through? What is the expectation for that? When can we expect to see some movement? My second question is on the exit rates going into Q3, both in terms of volumes, pricing, and price cost across the different regions. My expectation had been that with costs coming down at the end of June, early July, and you having already passed through some pricing, the pressure on the price cost spread would ease. Thanks a lot.

Let me take the first one and then Rene will take the second one. On the German recovery, yes, it's not gone as fast as we thought. Let's go through the segments. I think housing continues to be sluggish, but there are First Science, you know that the permits have gone up now for a couple of quarters. So there are first projects coming out of the ground. So I think we've seen the bottom there. But obviously this is also interest rate sensitive. You saw what the ECB has decided. So let's wait and see. But I think we've hopefully seen the bottom there. I think the commercial segment continues to be sluggish. and the infrastructure needs the pipeline. The money is there, as I said before. The pipeline now needs to come. You see that the government themselves seem to have realized that something needs to accelerate. They've made a change in their government setup that's also very much centered around the infrastructure question. So we are hopeful for H2 and especially also 2027 that The infrastructure money that is there in billions will actually hit the ground anytime soon. So that's why I would support your point that Germany has seen the worst and we are seeing the first sign of recovery.

So to your second question regarding volumes, I think July will be an okay month. Our June end of the quarter was very good and July we see is going from a volume perspective okay. From a price over cost perspective you know you are working assumption that the cost pressure eases is probably with the current let's say restart of the conflict probably not correct. So we assume In our guidance also that the costs will stay for energy and probably also surcharges we get. And what Dominik also explained, we will push further price increases to the market. And as I said already, our own costs we are very well managing. Our pricing is covering our own costs without any problem. Now we just need a little bit more to cover as well. The overhang of distribution costs we get charged by our suppliers. So as I said before, we are positive to reach also price over cost positive for the full year.

And just to add, you know, we have baked in this increase in energy cost that Rene has mentioned between H1 and H2 into the forecast and then also into this guidance. So this is assumed. If it comes better, that would be an upside, but let's not hope on this for this, given the volatility. It's based into the guidance around the current levels. Yeah.

Okay, next question comes from... Thanks, Pachoni. Next question comes from CIC, Ibrahim Homani.

Hi, Ibrahim. Hi, Ibrahim. Hi, Guy. Thank you for taking my questions. I have two, if I may. The first one is about AMVA. Is there room for further development in terms of margin, which is quite high? And my second question is about the working cap also. Do you expect any improvement on the working cap in H2?

Okay, let's see. Okay, let me do the first and then Rene does the second. AMBA margin, in AMBA the sky is always the limit. You know, as I said, for many years now they have moved in the right direction. We continue to develop the region, so absolutely I think there is room for further improvement, even if we are already on a very good level, but the team is doing an excellent job. We are positive for AMBA.

Thank you very much. And then the last question comes from Bank of America, Arno Lehmann. Arno Lehmann

Hello, thank you for taking my questions. A couple, if I may. Firstly, just coming back on Europe, you mentioned a positive price cost. However, the margin is a little bit down. The results are broadly stable. So clearly, there are some pressure there. Is it all UK-related? And looking forward, you talk about incremental price increase, but there's probably also incremental cost inflation. Do you expect the margin to potentially start expanding in Europe for the second half. And my second question, probably maybe a bit more for Rene. There was 33 million scope impact in the first half from acquisitions, I think. There's a lot of deals coming through and close at different dates. Could you help us a little bit understand the Potential scope effect on EBITDA for the full year or for the second half? Thank you.

Okay, let me take the first one I know and then Rene does the scope one. On the margins in Europe, I think the first message is price over cost is positive and we continue to be positive that price over cost will continue to be positive in Europe. I think that's very important. Then also margin expansion in Europe. I think that's also good news. And we continue to believe that that margin expansion will continue. And that's it. I think, as I said, the costs are coming up, but prices continue to be moving in the right direction. So that's it on Europe. I think we will get it done.

Okay, I know. Let's talk about scope. And I give you the year-to-date RCO scope. H1 is plus 17, when I have it right here on the chart, plus 17. Our guidance obviously includes now also Akchansa because the deal is closed. And here we think we have 65 million scope in the guidance. and that does not include MaaS, for example, and any further acquisition, but includes what we have on the chart. We have Akchamsa, we have Amedetex, we have Bernco, these three are all included, but MaaS not yet, but I can't tell you because I don't know if it closes or not, but the full year number in the guidance is 65 million RCO. Perfect, thank you.

Okay. I know, thanks a lot. That concludes, I think, the call. Let me just quickly summarize. Good quarter. Growth is moving in the right direction with the first quarter since four years of organic volume growth. The pipeline is executing well on the M&A and you should expect more deals in the coming months out of that pipeline. Self-help is going on all over the place with pricing surcharges and diligent cost management. The third tranche of the Scherberbeck continues to run and we've specified our guidance to 3.4 to 3.65 and are very confident to reach this.

Thanks guys. Thanks everyone. Thanks everyone. Thanks for listening and enjoy the summer break. We will see each other in the September conferences in New York, London, Toronto and Munich. Thanks so much. Bye-bye.