Welcome and
thank you for joining the call on the Full Year 2020 Results of Heidelberg Cement. Throughout today's recorded presentation, all participants will be in a listen only mode. The presentation will be followed by a question and answer session. I would now like to turn the conference over to Christoph Beumelburg. Please go ahead.
Thank you, operator. Good afternoon to everyone. Good morning to everyone listening in from the U. S. Very pleased to have you all today At our full year 2020 results conference, we have been together we were together 4 weeks ago already For our trading statement, so we will concentrate with our remarks on what happened since.
And with me in the room as always, Wernicke Van Aften, our CEO and Lorenz Meager, our CFO And Ozan from the IR team. And with that, I hand over to you, Dominik.
Yes, great. Thanks a lot. Welcome, everybody, from my side. Great to have you and yet another nice day here in Heidelberg. I would love to share with you and Laurence and Agar together the full year results.
As Chris said, some of it has already been released, but we've also focused on the key messages That are new today because the rest we don't need to repeat. So I think I really want to make sure that we bring across The additional information that we've got for you. And 1st and foremost, I think the RUV performance. And just to remind everybody, last year, we changed our ROIC definition to the, let's say, capital market accepted definition. And with that, our ROIC last year stood at 6.5%.
Here we are, just 12 months later, and the ROIC shoots up to 7.9%. That's well on track, I would say, if not better, to reach our beyond 2020 target of clearly above 8%. We'll come to the details later on. There's also a lot of operational self help in that jump. EPS going up almost €0.50 to almost €7 per share and net debt Clearly down with much better cash flow development and now the leverage is At 1.86, so clearly below the 2.0 that Lawrence Mega guided In September, I think August September last year, and I think also that is a tick in the box.
On the back of all of that, We decided to for a start an expected return to progressive dividends. I think that is a Clear sign of our confidence, dividend proposal €2.20 per share, And I think a very attractive proposition also for our shareholders. You know that for us, the Road to sustainability and significant reduction of our CO2 footprint is absolutely key. And I think as Frieda mentioned, we've made here significant progress. Also new today is the final CO2 emission number for 2020, reduction of 2.3%, which is A very good performance, and we are now well on track to deliver our 20252020 to 2030 targets.
We've also made some very progress on the industrial scaling of CCUS. I'll come back to that later. And last but not least, I'll also come back to the details we are Not only in our industry, but I would argue in many other industries, linking our remuneration in a Large scale to our CO2 reduction targets. And last but not least, I know very important For many of you, good start to the year, and we have an optimistic view on 20 And we'll carry you through some of the details of that later on. Wrapping it up, Beyond 2020, I think we've clearly left now Phase 1, how we call it internally, and will now enter into Phase 2 Beyond 2020 execution, and we are generally on track or even slightly ahead of track.
That shows also the next chart Where you see the 2020 achievements versus 2025 targets, we promised you as a management board and also as an IR September last year that we're going to very consistently come back to always the same target setting And then try to deliver as good as we can against these targets. This is not every quarter will not work out Always, but I think in general, the trend line for us is very encouraging on all five dimensions that we have shared with you as our key targets. We've delivered well in 2020. EBITDA margin going up significantly by 2 0 6 basis points versus the target of 300 From 19 to 21.1. Roy, again, I think this is a major achievement from our perspective From 6.5% to 7.9% under the new definition, so very well on track for clearly above 8% By 2025, leverage ratio down already in the corridor of 1.5 to 2 with 1.86.
Reduction of CO2, minus 2.3 percent. And also on the digital side, significant progress already In terms of coverage with the with H Connect, already 30% in 2020. I think the next one we can do fairly quickly because that's not new. You've seen this. You know that we've over delivered in Western and Southern Europe, Northern Eastern Europe, Africa and on the right trend line in North America, but clearly not at our expectation level.
Yet we see some significant upside in North America, But Q3 and also Q4 was sitting on the right trend line. With the next Sure. I would hand over to Laurence. I will share with you the free cash flow generation, net debt reduction and also leverage. Laurence, do you want to?
Yes. Good morning, Nick. Hello. Good afternoon from my side as well. I would like to lead you through a few Financial chart, the first you find on Slide 6, you see that we had record high free cash flow generation.
Let me come back on that at the latest Chart. And secondly, this then results into significant net debt improvement Of €1,500,000,000 And by that, we also reduced our leverage by organic performance by 0.49 turns down to now 1.86, well inside our target range Of 1.5 to 2 times EBITDA. If you turn to Page 2, Slide 7, you can see the Development of our return on invested capital, we have achieved a value of 7.92%, 1.4 percentage points above previous years. Now That includes a number of elements. One element important one important element is invested capital.
And this you see depicted at the lower part of this chart. If you look on we currently stand at EUR 21,200,000,000 employed and we come from 2016 with 26.2 and then we managed it down in 2017 to 24.2. The main impact here was that we managed and cleaned up the ex Ital Cementi Group balance sheet and reduced the capital employed, employed roughly purely on Ital Cementi side by SEK 1,500,000,000 And then you see a jump up 2019 that came from the IFRS 16 regulation, Which came with capitalization of leases and this contributed to an increase in working capital. Now right now, we managed it down to €21,000,000 A part of this is the impairment, which we did, the EUR 3 point €5,000,000,000 but the remainder is operational management. We had a good run-in reducing our working capital requirements.
And also with limited CapEx, we reduced our capital employed. The impairment effect is, of course, accounting effect. And if you look to the increase, which I was talking about of 1.4 percentage points in total, about 0.6 percentage points It's the effect of impairment and 0.8% is the operational effect. So still, We contribute significantly from the operational side. As you may remember from our Capital Markets Day, we have adjusted the Definition of ROIC to market standard to avoid any irritation.
Just for your information, if we kept the old definition, The ROIC would have jumped above 9% mainly due to lower tax payments. Okay. That's from my side to the Roeg, and I come back on you later on and would go on give on to Dominik. Thanks, Laurence. Then I would
just quickly take you through the CO2 topic. As I said earlier, 2.3 And down, dollars 589,000,000 to $576,000,000 Well on track with 23 Percent reduced versus the baseline now to the 30% reduction of our 525 by 2025 and also well on track With the target to be below 500 by 2,030. Driving that It's not only the share of alternative fuels that has gone up to 26%, but also the reduction of the clinker factor Down to 74%. If you turn the page, then The dividend proposal, you see the development in the past. We have cut the dividend in light of the corona pandemic last year down to $0.60 And then obviously, I shared this very openly.
There was the internal debate, how big are the steps that we want to take. And we discussed all sorts of different options and finally decided for the I would say, one of the more bolder ones and say, come on, We feel very confident, and we are happy to go up to €2.20 That sits even above the dividend of 20 18%, 5%. So I would say this is a strong signal to our shareholder base That we are in good shape in order to justify that dividend. If you go to the next page, just a quick progress on the digital side. Good progress on NetConnect, which is for me for us, key on customer interaction.
Sales coverage in the countries that we've developed there is above 13%, so that's good. And also the monthly active users Are having are showing a good growth rate with high user retention. So in that respect, on track from our perspective. Also on the production side, HProduce, we have a couple of good tools implemented now, one of which we roll out very quickly, Which very swiftly helps us to react to volatility in energy markets, which obviously for us is a big Lever, needless to say, in the scenario of volatile energy costs. And then H Service, that's our back office, shared service center function that is now also going down the automation road with a significant lever On customer satisfaction and also cost reduction, we have the 1st robotic use case in place that really drives the performance On that end, so from the digital side also well on track.
Then I will hand back to Laurence. He will take you through the He would say the life below RCO.
There is a life below RCO and the life below RCO will be So if we look at the additional ordinary result, we see here Expense of SEK 2,700,000,000 and that mainly comes from the revaluation of the asset portfolio as a result of The COVID crisis in the 2nd quarter business expectations went down significantly, and it was pretty unclear whether or not at what point in Time, economy will recover. And in the finance world, this was to be considered to be a so called triggering event under IFRS, Which requires a revaluation of the asset portfolio. So we did, as many in the industry and Only in our industry did this news had to do a asset revaluation on the base Of that triggering event and with a low surprise, at that point in time, the Business expectations were low, so our business plans reduced and this led then to an Expense of €3,400,000,000 which is booked here in the additional ordinary results. So in this revaluation, a triggering event replaced with the regular impairment test at the end of the year. So the next impairment test will be done In the end of the year 2021, so there was no review of that at the year end.
Then next line, the financial results developed according to expectations, improvement, euros 88,000,000. The finance cost And the reduces as we have paid down all our old high yield bonds from the high yield cement history, but also acquired by It's also meant to end that brings down our financial results. And that means that in future, this financial result will Continue to reduce, but at a significantly lower pace than in the last year. Taxation, dollars 3.35 Previous year, EUR 358,000,000, so we are more or less on the same level. But this is a bit misleading if you look only on that figure Because it includes deferred tax income due to the revaluation of the asset portfolio.
So as we have impaired many assets, this impairment is not tax deductible, And therefore, we have to create a corresponding deferred tax asset to do to outbalance this tax effect, and this has an amount of SEK 1 €74,000,000 I will come back on that very soon again. The discontinued operation are more or less in line with previous year, dollars 72,000,000, dollars 32,000,000 they vary from time to time here. The minorities, dollars 100 €30,000,000 compared to €150,000,000 previous year. This shows that our subsidiaries where we have significant minority stakes in, They had a lower net profit than previous year. This is mainly Indonesia, Morocco and Thailand.
This leads brings us to a group share of profit or this year group share of loss of €2,100,000,000 Whereas previous year, we stood at €1,100,000 profit. If we adjust the group share of profit, Then we reached €1,365,000,000 which is an improvement of €96,000,000 or 8% Let me shortly comment on that because typically we only deduct the additional ordinary result. If you run the figures here, you will see that we have at the back the deferred tax income, EUR 174,000,000 that's Close to $0.90 per share, and we thought we must not keep that out of scope because it's directly linked to the impairment. So this time, that's exceptional. We adjusted the group share of profit not only for the additional ordinary results, But also the corresponding deferred tax effect because otherwise it would be misleading.
Just keep that in mind. Otherwise, we had shown a figure above €1,500,000,000 and this would not have been a fair figure. So the earnings per share adjusted 6.88 €0.48 up from previous year. Let's turn to Page 13, Then we have the free cash flow. And you see from the horizontal green bar on the very top that we have a free cash flow of EUR 2.2 €1,000,000,000 our free cash flow figure is calculated as operating cash flow minus CapEx For net CapEx for tangible financial assets, so that's what we need in CapEx to stay in business and To continue to run our business and you see that, that is significantly up to previous compared to previously of EUR 1 point EUR 7,000,000,000.
We have to keep in mind 2 main effects here, which contributed to that increase, which is first, tax Payments. In the COVID crisis, many governments allowed to postpone tax payments or tax prepayments. Of course, we have used this opportunity to push out our payments and protect our liquidity. This is an amount of roughly €150,000,000 but this is a one off effect. And next year in 2021, Of course, we have to pay these taxes.
So this will come back as a tax payment. It's only a postponement. The second main effect is coming from working capital. We have achieved to reduce working capital requirements by 2.30 €6,000,000 that is typical for the industry. When volumes go down, then working capital requirements goes As well, as we expect recovery on volumes in 2021, we would also expect working capital to come back, and We would need to invest a little bit more into working capital in this year.
So this top figure of SEK 2,200,000,000 will not be able to repeat. We will drop back Very strong level, but more or less in the range of 2019 figures. As you can see from the bar, the horizontal bar below, the free cash flow figure, we have used most of this cash flow to pay down debt €1,700,000,000 and that's what brought then our net debt from €8,400,000,000 to 6.9x and by that we are comfortably into our target zone of 1.5x to 2x Leverage activity, we stand at 1.86, and we believe that's a great achievement. Okay. Thank you for your attention.
That's it from the finance side. And I'd
Thank you, Laurence. Thanks a lot. Then we'll turn to sustainability And show you first what can all be done during a corona year. So this is 12 months, And it was also interesting for us to see in preparation for today how much we have Advanced with many different projects. So up in Canada, CO2 capture and storage project In our plant in Edmonton, then a good progress on Lilac 1 and then Lilac 2 later on In Hanover, so Lilac 1 was Elixir in Belgium, then Lilac 2 now at industrial scale In our Hanover plant in Germany, significant progress also in Bredig.
We shared that with you With the green lighting of the Norwegian government and parliament, then also lately, the CCU project in Reading that is targeting a reduction of 60% of CO2 and basically its utilization in our own Cementitious products and then also the high net project up in the northwest of England. Again, here we talk large quantities, and this is mainly driven by a fact that We can transport the captured C02 with a nearby pipeline to the pipeline network and then its storage in the Irish Sea. So that is clearly a large scale project. And It's also, I think, a message we want to bring across because if I listen left and right and everywhere, my understanding is that This carbon capture technology stuff is something beyond 2,030. This is clearly not our mindset.
This is absolutely not our mindset. We are going for industrial scale at the latest by 2025, Because Brevik is 400,000 tonnes minus 50%. This is clearly industrial scale. Lilac 2 It's clearly industrial scale. If Hynet Northwest England gets to work, we target this to be 25, 26, that is clearly industrial So we may have some different opinion here, but I'm openly sharing with you that from our perspective, This is not a post-two thousand and thirty topic, just to share with you our thoughts on that.
If you look at the sustainability road map and our CO2 road map and our advancement there, We just wanted to make to you very transparent the emission reduction from 589 to 576, the clinker factor or clinker incorporation factor reduction And also the clear increase on alternative fuels, all 3 are well on track to reach the 2,030 Target. Yes, we want to do good work, but obviously, we want also the agencies, the rating agencies to understand and Be transparent to them for them to do their ratings. I think we've well advanced in that respect. For us, as I said, first, we do the work and then we get the good marks for it, not the other way around. So our room for improvement is still There, we've identified this just recently, together with the IR team and our ESG team.
There are in all four Ratings still room for improvements, and we will target them as we go along. And obviously, one of the levers is to Also, we work consistently on our carbon capture projects, both storage and utilization. I've shared with you some of the details in the earlier slide. So rest assured that we continue not only on these communicated projects, I would say one other exclamation mark behind our front runner aspiration. I think we are clearly the first in our industry, but I Argue probably across the globe that is heavily tying the CO2 reduction target to The variable compensation in the company, not only in the management board, but also in the levels below, every employee It is eligible for variable comp.
We'll be targeted with this retrospectively 1st January 2021. This is not by 2025 or 2030. This is for this year in action. And how does it work? You basically have a financial target.
And if you reach your CO2 reduction target, then you get The payout on the financial target because that is multiplied with 1. If you miss your CO2 reduction target, Then you get a heavy hit potentially because you will lose 30%, three-zero percent of your variable comp And that's really you feel in your pocket. And then it also goes to the other side. If you over perform on the CO2 reduction target, you can also mitigate a slightly lower financial You can also mitigate a slightly lower financial performance and to also increase your variable comp by A maximum of 30%. The overall bonus pool for the veray dotcom will stay unchanged.
So the clear message is And no maximum payout of bonuses anymore without reaching at least 100% of your CO2 reduction targets. With that, I would go to the outlook and guidance for 2021. We've tried to give you some color here on the left Going through some of our key countries. And I would argue the U. S, you saw overnight, the Fed even increased their GDP growth expectation to 6 0.5%, up from, I think, what is it, 4.2% or something in December.
So I would say the outlook for the U. S. Is Clearly positive. We see some recovery in the construction activity. You heard about the SEK 1,900,000,000,000 program.
There is another, I think $2,000,000,000,000 apparently in the pipeline on the targeted infrastructure and programs. Let's wait and see how far that will get, but clearly tailwinds. And on the back of that and on the back also on rising input costs, A positive pricing environment we see in our markets in the U. S. Germany will continue its stable business environment also During 2021, UK, okay, yes, there is some post Brexit economic uncertainty, but I just talked This morning, again, with our U.
K. Management, and they were quite positive for 2021, also on the back of good infrastructure Investment proceedings, but especially also general sentiment in the UK seems to go. Poland, anyway, on a high level for us, still driven by strong housing, which is expected to continue and also some additional demand For infrastructure projects, Australia was a little bit tough for the last 1 or 2 years, started quite well into this year. And From our perspective, solid expectations for the second half. Indonesia, difficult COVID situation, difficult weather situation right Now they are in rainy season, but clear target to improve the profitability on the back of better volumes and also some good pricing.
Morocco, important for us. Heavy rain and snow in Europe means also some rain in Morocco, and that helps Because that's an agricultural country, very much depending on agriculture. So it looks very green right now. I've not been there myself, unfortunately, due to corona, That's what I hear from our management, and that means good prospects for Morocco. So we see some demand growth also coming Out of Morocco.
Wrapping it up, we expect a slight increase in like for like revenues, operating EBITDA and operating EBIT. We stay course on the CapEx net, €1,200,000,000 Obviously, as we always said, this is before any growth CapEx and or M and A. ROIC is targeted to go above 8%. Our leverage will stay In the targeted range and guided range of €1,500,000,000 to €2,000,000,000 That is, I think, the message from the outlook and guidance perspective. And then just To wrap it up, to a quick reminder, we are clearly prioritizing the improvement of ROIC and margins over growing The top line?
And just to make that also clear, our ROIC jump from 6.5 to 7.9 Was to the majority self help. So it's not in the majority driven by the impairment that Laurence was sharing with you. It is by the majority driven by self help, and the same is true for margins. So we stay focused on that. We work on our portfolio, So stay tuned on that.
We focus on strengthening our core markets as we communicated. We ensure strict capital discipline. So CapEx is very much CapEx spending is very much focused, especially in the core business, on Creating even better returns on the asset based improvements and with any smaller, larger or midsize Bold ons. We try to do the same. And if they are if they would be larger, we would Clearly, as we committed in September, go for a co foundation through portfolio disposals.
We accelerate our frontrunner ambition and good position in terms of both CO2 and digital. And obviously, all of this should lead to attractive returns for our shareholders. I think the Progressive, the much earlier than planned return to Progressive dividends is one of the first exclamation marks on that. And on share buybacks, I would argue stay tuned. We still have some way to go.
So one step after the other. I think on the key messages, I don't need to repeat that. I think all has been said. I would say I would turn it back to Chris, And we would love to get your questions.
Thank you, Dominik. Thank you, Lawrence. Bradley, would you like to start the Q and A, please?
Ladies and gentlemen, at this time, we will begin the Q and A
Thank you, operator. The first question comes from Matthias Breisenberger. Before When you get on, Matthias, let me remind you that please do not ask more than 2 questions at a time to allow everyone the chance to ask their question As it is and was good practice in our calls. Matthias, the floor is yours.
Thanks a lot, Censk. Two questions from my side. So the first is really on margins. You gave an outlook of slight revenue and operating profit increase. But I think there's 3 factors, the basically your ambition in the U.
S. To increase the margins. Then also you elaborated on the 1% to 5% price increases across the board. I think if you land at the midpoint of that, it's more than It's going to cover more than well the potential cost increases you're seeing. And then also if you continue with disposals, it's probably on the low margin In terms of these assets, I think there is lots of scope to improve the margins further.
Can you elaborate a bit on that? And then On the CO2, I think you raised a very fair point. You are basically launching industrial scale carbon capture projects Earlier than 2025, and they probably will become fully effective in 2025. So when I look at the CO2 emission targets, Basically incremental 7 percentage points to 2025, but then only more than 3 percentage points incremental reduction from 25 to 30. So is there a point where you will raise the 2,030 target to, I don't know, below 450 or even more ambitious.
Thanks a lot.
Yes, Matthias or Hafenberger, thanks a lot. Both good questions. Thanks very much. I think let me get to both of them. On the margins, As you've heard me say before, Rome was not built in 1 year.
So I think you're right, we've made significant progress on our margin development, 206 basis points up, 300 was the original target. But as I always said, this may go up and down quarter over quarter a little bit. Let's reach the target of 300 basis points improvement first, and then we'll reconvene. One thing I really wanted to make sure is that we set ambitious targets, but then also reach these ambitious targets. We can obviously not give you a guarantee on anything, but I think It's our clear dedication that we reach those targets.
And that means also in 2021, you've indicated that we Phase increasing input costs, but even in 2021, it's our core focus That we defend wherever we can and even build on additional margins where possible, and we'll do that Obviously, then with price increases that I've already indicated last time from our perspective are going well across the board. And in that respect, we are confident that our 300 basis points target that we set out, We should be well on our way, and I would not promise too much if we try, obviously, To be there, maybe even slightly before 2025. So absolutely, to your first question, margin remains our focus. On CO2, interesting viewpoints. You have done your math well.
Congratulations. I think you are right. But here, it's the same, Matthias. I think it's let's reach the target that we've given out for 2025, so the 525 first. The trend line is intact with the 576 that we have reached now in 2020.
But it's also not, at this point, early enough to say, okay, guys, we are going to be much, much better than the 525 or even The 500 at this point, so we'll come back to you if that's the case. But let's first make sure that we deliver what we have promised. And What we also don't want to get into is into a rate of announcement. I'm all fan of ambitious targets, but we are more We want to be the front runner in delivery. And then I leave it to you to speculate and announce.
But we want Yes. We are focused on the delivery of our targets, and hopefully, that's also in your interest and in the interest of our shareholders. Thanks.
Yes. Great, Great. Thanks a lot and congrats to the release. Thank you.
Thanks, Matthias. And the next question comes from Arnaud Lehmann from Bank of
Thank you. Good afternoon, gentlemen. First question on your just a follow-up on your guidance. I mean, I understand the EBITDA guidance. You had a fantastic margin in 2020.
So a bit of a challenge To stay there or maybe improve, but on the sales guidance, considering you had, I think, about 10% decline In the top line in the first half and then it was more or less stable in the second half. We could have hoped for a bit of a bigger Rebound in 2021. So could you elaborate for you only things you can slightly increase the sales in 2021 with a base effect? That's my first question. And my second question is on carbon capture.
I mean, you're making more or less one announcement every month, so that's how it feels. And you seem to be looking at various ways to in terms of process and technologies. Will you eventually focus on 1 or 2 technologies that will roll into all your plants? Or is the medium term plans to
Yes, great question, Anno. Let me answer this and maybe Laurence chips in on the first one as well On our guidance, I understand that you're all focused on the guidance. And obviously, we've also Looked at that very intensely. Flashback 12 months, when we also listened to our investors and also to you as our analyst base in many cases, The feedback was, this is not an industry where you can go into footnotes and all details of guidance. It's Volatile industry, it is not it doesn't really it is not weak to very detailed guidances.
Nevertheless, obviously, we want to guide wherever possible. And as with all guidance, there is upside potential, but there is also downside risk. We want to do we want to stay focused, Arnaud, on being able to deliver What we are guiding, as I said, there is no guarantee on this, but we are trying to keep course in that respect. And In that slide, you should also see the message slight increase in revenue, slight increase in EBITDA and slight increase in RCO, let the year progress. It's early in the year.
Now we look at the Q1, and then we'll go quarter And then we'll take you along on that way, and then we'll see what is possible. On the carbon capture technology, you're right. Absolutely. We are currently testing 4, 5 different carbon capture technologies. It is too early to say whether it's going to be one technology that we are going to roll out or whether it's different ones.
Eventually, I'm not a big fan of putting bets on 4 or 5 different technologies. Once they are really Improvement Technologies able to be industrially scaled on a different asset base. I would be more in favor to put the bet on 1, 2 or maximum 3 different technologies. That is a general remark. And obviously, we're not going to disclose this at this point.
But if you look at the 4 different 4 or 5 different technologies, They are very different in terms of technical readiness, and they are also very different in terms of industrial scalability. And that we keep a little bit for us. But the clear target is obviously at some point to scale this not only in one plant, But to scale it across more than one plant and eventually our plant network, that's clearly, obviously, The focus going forward, but that will take some time because we don't want to bet on the wrong horse, right?
Very clear. Thank you very
much. Thank you. Thank you, Alon. The next question comes from Yuri Serra from Redburn.
Yes. Hi, good afternoon. Two questions. One, so your leverage is now within your target range. And you are talking about disposals, which may end up being fairly substantial.
Can you please give us an update on your current thinking about the use Funds, your business is producing cash disposals. So what are you thinking about doing? During your conversation, you mentioned share buybacks, Maybe dividends. You're talking about bolt ons, which are usually fairly small. So what's your current what are your current plans for at least Ideas as to how to deploy the cash in it.
And then secondly, on the energy costs, I don't know if you can give us any guidance By how much as a percentage you think your total energy bill is going to rise next year. Also, curiously, I'm seeing that you're mentioning cost increases in electricity, diesel, pet coal, but you're not mentioning coal. What is the reason for that? Or am I just reading it incorrectly? Thank you.
Thank you, Yuri, for your question.
I will take the first one, and then Laurence will take the second one on the energy bill and the energy on the energy costs. Let me get into the Deleveraging and the use of funds. And again, here, Yuri, we try to stay course that we have communicated The logic in the Capital Market Day during our beyond 2020 new strategy disclosure and exactly that we will do, We said, we go for disposals on our portfolio restructuring. We then take calls on the CapEx net that I disclosed earlier, EUR 1,200,000,000 net. We then make sure that we reach BBB flat investment grade.
I think there we are also well on our way. Then we commit the dividends. There we have clearly accelerated. That's what we shared. We have returned earlier than we originally thought to the progressive dividend of €2.20 also as a strong sign to our shareholder And make some use of our funds also for shareholder return.
And then the excess cash goes into 2 potential buckets: Growth CapEx, including smaller or larger bolt ons in our core markets. So clearly, No multinational, multi business lines, more than 1,000,000,000 acquisitions, That is clearly off the table. That's what I said earlier, and that remains off the table. But in our core markets, Where we are operating geographically, then we obviously also need to do and want to do some growth CapEx And bolt ons because as you know, we are not here to shrink the company. We are here to, on a very profitable structure, Grow the company in the interest of our shareholders with the financial parameters that we have shared with you.
And then the second bucket remains, Obviously, the share buyback, but not that one step after the other. We cannot, Again, this is Rome in one day. We have taken one significant step in the interest of our shareholders now with the progressive dividend return to €2.20 And then bear with us on the share buyback. We still have some time until 2025, but we are ambitious. And also, we keep that option clearly on our desk.
Okay. On the energy cost side, the situation is so that currently on spot prices and on forward prices, Energy cost is raising across the board with different emphasis and more or less in all energies. Power, Petco coal to a lesser extent, yes, oil, either gas oil, diesel, etcetera, also freight Costs, supermarkets, cross Atlantic, cross Pacific, you have seen it has doubled All triplets. So we see a broad increase in energy cost right now. Now We noticed this already in Q4 and end of last year.
And so we encouraged Our country management to increase the forward buying right to the limits of our forward buying policy. As you may know, we have forward buying policy in place for each and every commodity where we are going to do forward buying. We do not hedging. We do forward buying in a certain framework, which we fixed. So we went fairly long In our accounts, typically, we are a bit shorter than the average of the industry.
But right now, in autumn, we went long Inside the boundaries of our buying policy. So that leads to a situation where in H 1 of this year, in the first and the second quarter, we are pretty safe. We have to a large extent, not totally, of course, but to a large extent, secured Commodity price levels as they prevailed in Q4 of the previous year, so that does not make any concern to us. Now looking forward, we will have to have a fresh look into that towards the end of the second quarter, see where prices are there, and then we have To look at that, again, typically, especially in the power side, which makes 50% of Our energy budget prices go down in summertime, and we will see where we are. And of course, what we see across the board, we have to reconsider price increase during the year to compensate For that, that's where we currently stand, and we are pretty optimistic and pretty confident that we are able to compensate this Inflationary trend on the top line.
Thanks.
Thank you, Yuri. Next in line is Greg Kuklitsch from UBS.
Hi, good afternoon. Can you hear me?
Yes. Yes. Yes. So I have Two questions. So the first one is on going back to carbon capture, and
I was intrigued by the announcement the other day of the California plant where I think the idea is to solidify carbon somehow and then Added into the cement mix. So if you can just elaborate on that and how realistic you think that is a successful Strategy and maybe more broadly, and maybe you don't want to share this, but I'm going to ask it anyways. What the sort of cost to mitigate is The range of the whatever 7, 8 technologies or projects that you put on Slide 18, what kind of range you're seeing into the cost so we can compare that to say the carbon price, right? Then the second question is maybe for Doctor. Nagel, which I think was a comment around the free cash.
You effectively guided, if I Maybe that wasn't intentional, but you basically said, I think, in your speech that you expect to go back to EUR 1,700,000,000 Of free cash having done, I think, 2.2 or whatever this year. Can you just confirm that's really what you're saying? It seems to me With some of the unwind of tax, maybe working capital and higher CapEx, a little bit ambitious, but Maybe it is what you're saying. So I just want to confirm that is indeed the case. Thank you.
Yes, Gregor. Thanks a lot for your good questions as always. Let me just Elaborate on the 2 questions or the question 1a and b that you Sorry.
I broke the rules a bit.
Yes, yes, yes, that's okay.
That's no problem. Okay. I think on the Project in Reading, again, this is a plant north of San Francisco in the northern part of California, we have partnered with a company called Fortera. That's a company that's been around for a while, and they have We've worked on this technology for quite some time, and we have now advanced the state that we are going to build a or they are going to build a plant right On our Camposar, on our plant, in order to capture the CO2 and then use it Basically, for a cementitious material, so it's basically a in itself loop that we are trying to create. And the targeted amount is that we
buy that capital
50% of the produced CO2. I think That's an ambitious target. This is a technology that's not proven yet to be On an industrial scale, it's proven in the left scenario, but it's not proven on an industrial scale yet. But for Terra, I would not make that investment, and we will not do this if we do not if we would not see significant potential in this Project. But to be very fair, Gregor, this is not something that will come in a large on stream in 2024.
This is probably more between 25% and 30% in terms of larger scale Lajos, but well, from our perspective, nothing that we talk of 2,050, we will really try to hit projects that have a Shorter time horizon. When it comes to the cost and carbon price, I know this is Obviously, the calculation that we always try to do, and I think you have to keep 2 dimensions in mind. 1 is what is the full for doing this carbon capture play, both on the storage and on the utilization and then what is the cost to us because in None of the projects that I shared with you in terms of industrial scaling, we are on our own. We basically do this together With governments in order to support our transformation in that respect, so both the Brevik project is heavily Subsidized by the Norwegian government and the project in Germany, lilac2 is Subsidized by EU and German funds. So in that respect, we are trying for our shareholders to mitigate as good as we can the costs Of these projects, so every project, Gregor, had a different CapEx amount per tonne and a different OpEx amount per tonne.
So it's not like you can basically give out one specific number, but it is not yet That's cheap. That's also clear. So I said it already last time. From our perspective, it is It's super critical that we scale this up quickly because with that, only costs of Both carbon capturing and also storage utilization and the OpEx side will come down significantly. So That's a little bit the long answer on this topic.
Dorrance, you want to
Yes. Gregor, thanks for the question. The free cash flow, you know cash flow is much more volatile than EBITDA or RPOBD or whatever. It's always a bit difficult to forecast unless you took the €2,100,000 or €2,200,000 and you deducted what I said the cash tax Postponement was €150,000,000 and the working capital of €240,000,000 which I told you, if you deduct those, you end up at the €1,700,000,000 And now The key question is, does this have a reverse effect? So meaning, do we have to pay the €150,000,000 on top of our tax bill in 2021, and the main working capital, will the EUR 240,000,000, which we had cash in this You need to be reinvested into working capital in the next year.
So that depends on a lot of let's say, of Sorry for that. Of factors which are difficult to forecast, yes, like FX Great. How December is on turnover? Do we have a dry December when the working capital requirements are higher at the end? So that's specifically to forecast.
And there is one more element, which are disposal. Last year, we had very little disposals because the market for This type of asset was de facto closed. Now we hope that this year it reopens up and that could give us a little bit more Oxygen here, meaning a little bit better free cash flow on that level. I guided 40%, if I'm not mistaken, 40% cash conversion rate sustaining or 45% is right. And if you take that 45% based on your CapEx Forecast that would bring you somewhat in that area.
I have to be a little bit careful here. The variability of Cash conversion rate, 45%. I think that's a realistic rate over a number of periods. So that's an average for 2 or 3 years. And that will bring you pretty close to the figure you mentioned.
Okay. Thank you very much.
I was a bit glibbly, but it's difficult. Cash flow is difficult to forecast because the reason is that you mentioned I mean the 45% average Over a couple of years is a very reasonable assumption and a very good figure.
Okay. Thank you. That's helpful.
Thanks, Gregor.
All right. The next question comes from Yassine Touare from On Field Research.
So just two questions. First, Could you quantify the price increase that you have announced in your key bulk markets Like the U. S, United Kingdom, Germany, France, the Nordics, Italy and Australia? And then the second question is, could you quantify the year on year energy inflation that you're expecting in H1 2021, if you assume that it's at the same level as in Q4 2020.
Jatin, thank you very much. I will take the first one and then Laurence will take the second one. No, Jatin, we feel very confident on the price increases that we have in our plan On the back of rising input costs, that's I think also prudent to do from our perspective. You know we want to safeguard our margins. But please understand that we are not commenting on any specific price increases in any of the specific markets.
That's also not good Practice from a competition law perspective. So in that respect, we are absolutely focused on our price increases. I Gave you the information in the last call that we are well on track to achieve. The target is price increases, And we see good pricing momentum in the for us, the relevant markets, but we're not commenting on any specific countries in terms of price increases. Laurence, do you want to?
Yes. Forecasting the future is always difficult, especially when it comes to The future, so the same is true for energy price increase. As I said, we have locked in or we went Pretty much to the limits of our forward buying policy recently. So I would say double digit increase in percentage On that, the double digit is from 10% to 99%. Is it close to 10% to 99%?
Yes. It's pretty closer to 10%, but That's very difficult to forecast right now because the last forecast We did late last year, and there is situation was pretty much different from today. We really have to assess the situation from time to time. Our target is to keep the margin and displays On the energy bill, but also on the top line on the price. So that's the element.
Sorry to be not to be more precise because Currently, things develop very dynamically.
That will be very helpful. Thank you very much.
Thanks, Hassane. Next in line is Sven Edelfelt from ODDO BHF.
Yes. Good afternoon. Thank you. Yes,
could you
hear me?
Yes, we can.
Hello?
Yes, we can.
So thank you very much for taking my question and good afternoon everybody. So just wanted Come back on Gregor's question on the CO2 project. I believe Leilac project is one of the most advanced you had. You're passing to Lelac 2. Can you maybe give us some metric on this project for 1,000,000 tonne production, how much CO2 you're saving and how much does it cost?
Just to help us to better understand the CapEx that need to be put on the table?
Yes. Sven, I'll And maybe
the second question, you mentioned the additional €2,000,000,000,000 Plan to come in the U. S, how realistic do you believe this plan is? Do you is it more like a political noise Rather than anything else, I mean, Trump has the same scale of program on the table before. And finally, it ends up With €500,000,000,000 that did not even come through. These are my two questions.
Thank you.
Jasmine, thanks a lot. Let me answer your 2 questions. Lilac 2, it is basically targeted And that's why I said, it's industrial scale. Anything between 70,001,000 tonnes, that's Basically 20% of the plants that's 20 percent of the plants initial. Cost overall, euros 25,000,000 But our own share, dollars 3,000,000 That gives you also a little bit of indication.
I know you guys are all worried we are going to spend The half the company on this, this is not what we see right now. And I think it should really I give you more comfort that this is a serious topic for us, no question. I don't want to play it down, But we are also very targeted to make this a success for our shareholders, rest assured. So in that respect, Lyda 2 industrial scale up to 100,000 tonnes, 25,000,000 our own share, 3,000,000 And then on the $2,000,000,000,000, so I the sky is the limit in the U. S.
I know that 1,900,000,000,000 already announced on corona, but all I'm saying is he has promised it during his campaign. So do all campaign promises come 100% true? Potentially not. Do they have the clear majority now in both houses In the U. S, yes.
So if he wants to get something done, he needs to get it probably done in the next 2 years. So I'm personally hopeful that there will be Something coming. Typically, you know, democratic governments lean more towards government spending. So if you put all that together, I remain positive. But we can only also hear, it's Sure.
Announcement is nice, but once it's fixed and the decision is done, that's where things then count. So Yes, we are hopeful, but no guarantees on that.
Okay. The next question comes from Glynis Johnson from Jefferies. Glynis?
Hello. Thank you. Hello.
Yes, we can hear you.
Perfect. Thank you. So the third question, I just wonder if you can give us an update on the master plans that you've been building out across the organization. And then second of all, the disposals. I wonder if there's anything you can tell us in terms of any update on the timing of disposals.
And also just anything in terms of that watch list of other Regions, countries that you were evaluating. I'm wondering if any have moved from watch list to actually on your disposal list now.
You're talking about any specific master plans, Quinnies or?
I'm thinking the U. S, I'm I'm thinking the UK, I'm thinking Germany. So just anything that's different from what you told us over the summer really, if there's any reason?
Yes. Glynis, thanks a lot. Maybe start with your first piece. The master plan, obviously, U. S, We shared the action plan that we wanted to increase the margin in the U.
S. Within the beyond 2020 score by 500 basis points. We've seen first traction in the second half, especially of 2020. It comprises of a couple of significant asset Upgrades, but also some more focused work around customers And markets, asset uptime, so that master plan is absolutely on track. You know that we have one Project in Mitchell is on track.
We have reaccelerated it already in 2020. So that's Well on track to get executed. The other big master plan is France. We've announced the €400,000,000 investment into France. We are currently in the final stages of negotiations with the unions and the employee representatives.
Overall, situation looks promising. We've just we are just about to finish this year a plant upgrade in our plant in the Champagne in Cubro. That will come on stream during 2021. So that one is on track. U.
K, you are right, that was not necessarily a master plan, but also an action plan. If I look at the most recent results out of our UK business and also compare it with What is visible for us from the competition? My understanding is that we are on the right trend line. We were underperforming in the UK for quite a while. I think the trend has clearly changed, and we are really turning the wheels in the right direction.
German master plan is basically done in its current communicated phase, which was the upgrade of the 2 big German master 2 cement plants. On these, but I ask for your patience. As I said earlier, we are working on 5 specific projects, smaller and bigger ones. That is on track, but this does take some time. And for transaction Tranquility reasons, I ask for your understanding that we are not speculating around either specific countries and or specific sizes.
I said that we are going to continue also to work on bolt on M and As in our core markets, so that basically Runs in parallel. And when it comes to the watch list, yes, we've said some markets are set to be core, others are set to be disposed and others are on the watch list. And those countries that are on the watch list, I See some good progress in some in 2 or 3 countries that we have put on the watch list. That's an interesting dynamic. Once you may say once you put them on the watch list, they really get going.
That's what we see in 2 or 3 countries. So that's an interesting dynamic. So the methodology from my perspective works, and we'll continue and stay course with that.
Thank you, Glynis. There are 4 more gentlemen in the queue. So the next one next question comes from Tobias Werner from Stifel.
Yes. Thanks for taking the questions. Good afternoon, gentlemen. The first one is a quick one. The Significant increase in ROIC above 8%.
Have you factored in any disposals into that improvement? That's the first one. The second one It relates to CO2 certificates now priced at €42, €43, what's the impact On your costs and are your customers open To accept supplements on that basis.
You want to start? Yes.
Question is Roig above 8%. Of course, as that is the result of the strategy includes each and every action we take, whether that's Internal improvement program, master plans or portfolio policy and portfolio policy I should also contribute to further increase of the ROIC, so the answer is clear, yes. On the CO2 certificate, As you know, we are long on the CO2 certificates as a group. So we trade CO2 certificates inside the group as long as we are in a long position, which will prevail For a couple of years. And therefore, we may have caused inside I think country, but we out balance this on area level.
So on the On area level, what we report, you will not see any impact of the cost of CO2 certificates, As I say, as long as we are in a long position and as we make good progress in CO2 reductions, our position improves currently Over time, so that's from my side. Maybe you comment on the customer side.
Yes, Mr. Ronnert, maybe just one additional point to what Laurence Nagel has Shared with you exactly right. We are long and while we are long, we don't sit On our hands, but we are working obviously intensively to reduce the carbon footprint of our products. And obviously, we are also working with the customers on the relevant pricing for that. It is clear that over time, our customer CO2 footprint need to come at different costs.
That's something that we have started to educate The customer base and that education needs to go on. It's not an education one way. This is obviously also in the interest of our customers. If they receive low carbon products, then it comes at one price. If they receive high carbon products, It comes at a different price, and they need to also factor that into their own calculations.
That's something we do in full transparency with our customer base, and that's an effort that has already started despite the fact what Laurence Nagar was saying. And we will continue diligently in order to make sure that even if there is the EU Commission That will change down the road. The rules on this, we are well prepared to counteract that.
Thank you. Just to clarify, are you already translating this into pricing as of now?
Yes. In single markets, absolutely. We are translating that into pricing. As I said, Not across the world, but in core markets, absolutely, we are doing that because we need to face the facts, so do our Customers, nothing we do against our customers, but very much also transparent to our customers. It's in everybody's interest, and it's clear that, that is already ongoing.
Thanks, Tobias.
Thank you very much.
The next question comes from Nabil Ahmed from Barclays.
Yes, good afternoon. Thanks for taking my questions. I had 2 actually. First one is on the U. S.
Tax rate. I was wondering if you could help us understand What will be the impact for the group if U. S. Corporate tax rate would grow to say 28% or if you don't want to go into prospective Specific details, maybe just remind us what was the gain when the U. S.
Tax rate was lower a few years ago? And the second question was on Australia. Could you elaborate a little bit on the outlook you're mentioning in the press release? What's the basis For the more positive comments for the 2nd part of 2021. And I was also wondering if you could comment about Evolution of your stake in Cement Australia, either selling to your partner or buying their stake.
Thank you. Yes, Nabil, thank you very much. I will take the second question, and then Laurence will take the first one On the U. S. Tax rate, on Australia, I think Australia is an important market for us that You know that we have a very strong business down there, highly vertically integrated,
and that
includes Cement Australia. From our perspective, that partnership works well. And I think that's For us, no need to touch this at this point. If there is some change Necessary from our partners' perspective, then we'll reconvene. But from our perspective right now, we are happy with the setup.
Australia, in general, I was indicating that the last 1 or 2 years in Australia were not easy. They were, for a long time, very much dependent on the commodity boom that has then come to a clear end in 2020. There are a little bit of an insight in some of the commodities with China and also the Chinese not being able to travel to Australia And the slight decrease in Chinese updates of the trading economy They may have had an impact on that. But in general, I have to say commodity prices are now up Again, which then should also help in a commodity driven nation like Australia And also, a sentiment in Australia, COVID is basically over. The life is fully back to normal.
Okay, they cannot internationally travel, But the life is fully back to normal in Australia. So that's why we are pretty optimistic for the second half in Australia. I know Our competitors in Australia may have based on their communicated guidances, may have a little bit of a different view on this. But from what we see also on the back of good infrastructure pipelines, There's also a significant infrastructure program there are significant infrastructure programs locally by state and nationally in place. We are optimistic for Australia.
With that, I would hand over, Laurence, to the U. S. Tax rate.
Yes. U. S. Tax rate, currently, it's 21% plus the state tax. That brings us to combined tax rate in U.
S. Of Roughly 24%, 25% in Heidelberg. And if you increase the tax rate to 28%, okay, that Increases in tax rate. Currently, we are still in a carry forward loss position. So we have capitalized deferred tax As such, and if they which still covers at least 2021 and a part of 2022, So if they increase the tax rate right now, the value of my deferred tax debt goes up, and I will show a nice Profit on that.
Long term, of course, if the tax rate is higher, you have to pay more taxes, that's simply. Okay. Thank you.
Thank you. 2nd last question comes from Christian Kort from HSBC.
Thank you very much.
My first question deals with the growth CapEx. I appreciate you gave us a number for the maintenance. I just wanted to ask how we should think about growth CapEx in 2021 2022 and if that is somehow comparable with a number in 2020 or not. The second question deals with capacity utilization in North America. Your annual report shows in North America of 17,000,000 tons, which is based on an 80% calendar time utilization.
And last year, you sold 15,500,000 tons of cement in North America. So when I compare these numbers, they indicate the utilization rate of 91%. But my question is, is this a fair comparison given that we do not know if you did any imports and maybe you can run your plants at
more than
80%. So said in a different way, how much headwind do you think you have to grow organically in North America before you have to turn to Import or invest in new capacities. Thank you very much.
Yes, Christian. Let me take the Second question and then Laurence Nega will take the one on the growth CapEx. Capacity utilization in the U. S, yes. Our capacity utilization in the U.
S. Is above 50%. That's right. It's clearly up there. That's historically always been the case.
We are one of the players. Historically, I know the business quite well. I mentioned myself 8 years. We are historically a player that has a more balanced share between local production And in Pete also imports, that plays, I think, to our strength. We have a large H3 trading business.
We have Offshore not offshore, but onshore plants on the coast basically across our network where we can basically supply So via imports, you know that we have switched our strategy already in parts of the U. S. And notably up on the West Coast With the current mothballing of the permanent plant where we switched imports, if I look at our results, this has not hurt That's right. It's rather improved quite significantly. So we are happy.
That's the background of your question with the balance between Import and local capacity. And we have, if that's the question, also some room For additional local production, and keep in mind, we still build out Mitchell, that comes with the capacity increase once it's on the screen. We still have this one acquisition pending in the Northeast. We have a couple of smaller capacity addition brownfield projects in our action plan in North America. Also, now I'll just conclude the strategic plan.
There is in the existing footprint quite some room for small Capacity additions here and there and everywhere, a small one also makes summer. And that is typically for our shareholders the best return you can get if you do Small capacity expansions in your existing footprint. So we are not up for a large new plant outside of Mitchell, for the time being, we do not see any need to do so in the coming years in order to capture the growth. With that, I would hand over to Laurence on the growth CapEx.
Yes. On the growth CapEx, Mr. Kopf, it is so that we change the definition on the CapEx side. We do not distinguish anymore between maintenance CapEx and growth CapEx Sustaining CapEx and Growth CapEx because there is no generally accepted definition of that and the industry Has changed here and does not use that anymore, with Objection of the next day to do it that way, but the big part of the industry distinguish now between the CapEx Tangible fixed assets and also disposals on tangible fixed assets on the one hand side, as a Sahanlage from the German language And M and A CapEx on the upper hand side. And we have followed that definition.
We have also maybe if you look into our Annual report, we have changed the presentation of the cash flow statement, of the legal cash flow statement In that respect, so that you can calculate this easily. For example, you see it when we talk about free cash flow, then this is operating cash Flow minus investment in tangible fixed assets plus proceeds from divestment of tangible fixed assets. So that's A change in definition, and we stick to that because that's transparent and that's visible, and that's Clearly defined by IFRS how we should read that. Coming from that, our net KFA CapEx, the plan is EUR 12 100,000,000, EUR 12 100 €1,000,000 and that is our target for 2021 and ongoing. And we think we are very And
with respect to M and A, I think we made it clear That larger M and A would be co funded by divestments just to make sure that we are not For a multi $1,000,000,000 stand alone M and A that basically brings leverage back up to 2.5 3 that's not on the agenda.
Thank you very much. I appreciate your answers.
Thank you, Christian. And the last question comes from Harry Gold from Berenberg.
Yes. Good afternoon. Thank you very much Thank you for taking my question. It's just on it's coming back to the guidance. And you talk about the slight increase In revenue in the year and you've obviously talked about some of the contributing factors to that, whether it's positive U.
S. Markets or the tailwind from Infrastructure programs or housing, but I guess given lower base effects in 2020, there must also be implied in that Some more challenging end markets that you're seeing. So it'd be useful to get some color, whether it's by end market Or by geography where you anticipate slightly more challenging or are seeing already more challenging starts for the year in 2021? Thanks.
Well, I think thanks for your question. As we said earlier, Harry, I think From our perspective, we feel at this point comfortable with the guidance that we've given about the slight increase in revenue, EBITDA or RCOBD and EBITDA or RCO, we've indicated on our slide To give you some color on some of the core markets. And in general, We in our broad portfolio of countries and areas, We do not see that's the positive news from our perspective. We do not see a market that is falling off the cliff In a negative way, yes, let's start with that. I think that's always in the large portfolio, the risk that you have That a market basically completely collapses or there is a significant decrease In double digit terms, I think that's not what we seek in the current development, the 1st 2 months Happening.
And on the flip side, there is not one pronounced market where I would say Things go through the roof. I think it's clear that if you read the chart that we have given at The end of our presentation that on the core markets that we have shared with you, we are quite confident about the Development this year and on the back of good infrastructure money coming in, North America, partially U. K, partially Australia, they are going in the right direction. Other end markets for us important are Indonesia and Morocco. And as I said, the year has started well for us.
And now let's wait for Q1 results that will be out in April, May, beginning of May 6. So we'll fight hard to make that a good Q1, which goes against a very good Q1 last year, because Q1 2020 was still strong, it was one of the strongest ones that we had Ever. And in that respect, we are fighting against a significant comp, but we are Still hopeful that we'll be able to pull off a good Q1 2021.
Great. Thank you.
Thanks, Harry. Good coincidence that you are the last speaker since you are also organizing you and your bank. The roadshow that we are doing tomorrow, there's a fireside chat at 2 CET in the afternoon. So everyone who is Please reach out to Harry and his team. And then we continue on Monday with the roadshow.
And on Tuesday, We are at Exane BNP Sector Conference, and there was a fireside chat at 2 o'clock in the afternoon. So we would love you to take part in these discussions. Thanks for dialing in. See you soon.
Thanks guys. Thank you.
Bye.
Thanks.