Hello, everyone, and welcome to the Capital Markets Day of Heidelberg cement. My name is Kresponderberg, I'm heading the IR and communications function at Heidelberg Cement, and I have the pleasure of leading you through the day. You know, this is the first for us in many ways. The first time we are hosting 100% virtual CMD. The first time we do this from our new headquarters in Heidelberg, the first time we have our entire Board of Managing Directors with us at a CMD.
And of course, the first time a Capital Markets Day is hosted by Dominic Van Afton, who took over as CEO in February 2020. Knowing that a virtual event can be sometimes quite hard to follow, we will try to make the event as engaging as possible for you. We have a mix of live and prerecorded content and a live Q and A session at the end. As a side note, some of the videos contain content that was recorded prior to the outbreak of COVID-nineteen and therefore, prior to the need for wearing a mask or social distancing. Beyond 2020, this is the strategy that we will present to you today.
Let me give you a We start with the keynote speech from our CEO, Dominic Van Afton. This will be followed by a short film on our operations and a panel discussion with our board members, Kevin Gloski, Ernest Yoledo and Chris Ward on operational excellence. Dominic Vonaften follows on with a short presentation on portfolio management. We will then take a deeper dive into our key transformational topics, sustainability and digitalization. John Morrish will present on CO2 reduction and Hakan Gouda on our alternative fuels strategy.
Dominik Van Afton will provide you with the insights into our digital transformation strategy. And finally, our CFO, Lawrence Naga, pulled it all together in his financial update. Following the formal presentations, we will have a short break in order to set up the Q And A session. Please note that there are 3 options to participate in the in the Q and during the break after the main presentations. You will get more instructions on that later second, There's also a chance to ask questions via the chat function on the landing page.
3rd, for those participants who do not want to actively ask questions you just, stay in live stream. You don't have to do anything. You can watch the Q and A session with no need to enter Zoom. With that, I wish us all an entertaining and insightful few hours. Let's open the door for beyond 2020.
Please welcome with me our CEO, Dominic Van Afton. You excited to be here, Dominic?
Chris, absolutely. Thanks so much for the warm welcome. Thank you very much, Chris. Thank you very much, Chris, and welcome to all of you around the world, to our Capital Market Day 2020. We before we explain to you why our Heidelberg cement materials are indeed material for our future.
Let me just make 2 opening quick remarks. 1st of all, Our day to day business does not stop. And that's why I think it's fair if we see each other even if it's only virtually that we keep you up to speed how is our business running. So we had a very good July August, And we are indeed very optimistic for a good Q3. I think that's important for you to know And secondly, it is, the capital market day Chris was already alluding to it that is done fully virtual.
And I personally stick to what I promised. You know, there was a little bit of a discussion, you know, Dominic, pull this forward. It's too late in September. Do it much later. With COVID, you cannot do it.
Here we are. We promised to you, we are going to come back with our new strategy to you end of the summer. And I would say middle of September, that's end of the summer. So I stick to what I promise With that, let's get into the details. What we want to achieve today is pretty simple We want to how we drive value.
We want to explain how we unlock further optimization potential. We obviously want to highlight, you saw it already in our first video, our COD reduction targets and our road map. John is going to take you through that. We are going to describe to you why we are convinced that digital transformation is a step change indeed for Hydrogenicement. And last but not least, very important for me, I and we all want to also introduce to you, all our acting hardware cement board members in action.
With that, let's look at that they are still very much intact. The market dynamics fall a little bit into 2 different elements. We see good trajectory in the growth markets where the emerging markets are driven by population growth and also urbanization. On the other side, we have our mature markets that are very much driven by infrastructure stimulus You have heard the discussion about U. S.
Infrastructure builds. You know the discussion about the EU green deal. In fact, was LaFonda line this morning made her speech in Brussels again on this green deal. Secondly, very important climate change, you know that our society is more and more pressing for sustainable and low carbon construction They are pushing and we are pushing indeed for a circular economy, different models to get there. We'll take you through some ideas later on.
And there's also the regulator who tries to push in that direction. Thirdly, very important from our perspective technology. You can argue, oh, building materials, that's a fairly old product. Why the hell do they need technology? We are very convinced that there are 3 elements that will drive growth and profitability down the road.
A, there are new business models, digitalization and automation will drive efficiency. There is also innovation coming when it comes to sustainable building materials. And sustainable building construction. And last but not least, there is carbon reduction technologies, whether we use them for utilization or for storage. Let's just take one step back and ask ourselves and look at the analysis about per capita cement consumption compared to the GDP.
We deliberately looked over a long period of 40 years, and we were quite surprised even to see this very interesting pattern. You see growth mainly coming from the emerging market. Which for us is obviously very important when we talk about countries like Indonesia, India, sub Saharan Africa, where we continue to see good growth potential going forward. And then on the other side, you have to develop markets. Where this event consumption is actually been fairly stable over the last 35 years, and the drivers are now, from our perspective, more sustainability and digitalization.
And that will also decommoditize our industry from our perspective. Just a very quick snapshot on hydroverse cement, especially for those who are following us today for the first time. We are the leader in aggregates. We are the leader in ready mix concretes, and we are number 2 in Cement. We run more than 3000 production sites globally in more than 50 countries.
Our cement capacity is close to 200,000,000 tons. And our aggregates, very importantly, our aggregates, resources and reserves are almost up to 20,000,000,000 tons. And last but not least very importantly, we employ more than 50,000 people around the world. We are starting from our perspective from a very good base and we are happy with our balanced asset base. In both developed markets and emerging markets.
Those of you who follow us in more detail or have followed us in more detail in the past, you know that we have a very strong North America, but also Australia. In those markets, we are in many cases vertically integrated in ready mix. And we have in our major metropolitan areas, some significant growth drivers that also support our margins. On the other hand, we are very well positioned in our growing emerging markets. For example, Indonesia, Morocco, Tanzania, I would also add, for example, Ghana.
Was mentioning already the high quality reserve position in both aggregates and Cement. And last but not least, Also important for today, we already have a good track record in sustainability. Turning the current challenges into opportunities is very important going forward. That is the You see the track record over the past 10 years, both in terms of turnover and in terms of EBITDA growth roughly 5.5% per year. That's not a bad springboard to get going.
And then we have the challenges that we will tackle. 1st of all, from our perspective, to be also very open, you know that our industry in general has not the best track record when it comes to return on invested capital. Personally, I'm convinced that we will face commoditization on the production technology While 10, 15, 20 years back, some of our companies, especially also Hidalverse Cement, were the leaders in Cement Production Technologies, other nations, other competitors have caught up, and there is, from our perspective, commoditization going on in that field. Climate change, I was already mentioning that needs increased need for action. Digitalization and automation is at this point from our perspective still a small element, but it has the power to deconstruct many other many industries look at, for example, the automotive industry.
And very important for me don't forget the cultural change. We work with more than 50,000 people around the world. And as we've learned now through COVID altogether, there are a lot of new ways of working that are from our perspective required to attract the younger generation. Here we are with our new framework beyond 2020. For me we have 2 targets that we want to fulfill here.
1, the simplify and improve 3 key elements, I will lead you through them. And second target, we also need and want To innovate, you already saw it in the opening video. Let's get into simplify and improve. Business Excellence is at the core of what we've done in the past, but we strongly believe there is clear significant improvement potential that we can capture both on the commercial side but also on the operational side. 2nd, portfolio management.
We have done some portfolio management in the past, but we clearly want to shift gears here. We want to shift our focus Then thirdly, people in organization. My clear goal, our clear goal is to simplify business processes and, in general, our setup. Then 4, we have sustainability. We want to lead the way to calm neutrality.
We want we carry the color green and now we live it. Digital transformation last but not least, the 5th pillar we are convinced that there that digital transformation enables a step change in business excellence. And I will give you some examples. Now all of this needs to come together and with very strict capital allocation that Lewins Nega will share the details with you later. We will deliver sustainable shareholder value that is our clear target with our new strategy.
We want to deliver sustainable shareholder value for you. First, before we dream about all the other pillars, we need to get the basics right again. And in that respect, we aspect. We will empower our local countries our local country management teams and want to foster local entrepreneurship. By doing It's not just growth for the sake of growth.
It needs to come with a clear target of margin improvements, with new products and As I said, we believe this becomes more and more a commodity. But what is important in commoditization you need to be the cost leader. You need to be the best operator. So in that respect, we are really targeting rigid performance management. We are fair to say in the last 2 or 3 years, we have lagged a little bit in that respect.
So we will revive rigid performance management, we will focus on asset optimization, but with the clear, target in mind to have the financial targets that we communicate to you in a minute, clearly in mind in doing so. And Because of the commoditization, we want to push a global operating model to standardize also in this respect processes and assets. There is one piece I want to address specifically one geography I want to address specifically in this business excellent topics. North America. Close to my heart, many of you know that I have spent quite some time in my to reestablish cement in North America between 20092016.
And we have to note that our operational performance, our business performance in North America over the past years has lagged a little bit behind the market. So in that respect, we want to share very clearly with you that we have set an internal target that is above the group average improvement target of 400 to 500 basis points margin improvement for North America. Where does it come from? There are 3 buckets, commercial, operational and SG And A, and obviously, we will cover all 3 business lines. We want to focus more on the markets and product and customer segment development in all three business lines.
Clearly, we want to be selective in our pricing efforts. And operationally, we want we must improve our reliability of the assets and we will do so Obviously, we also will continue to work on our SG and A. In order to turn that into action, Chris Ward and his team have already started to carve out an action plan with all of the regional presidents in North America that will then be executed as we speak. Secondly, we will shift gears what does that mean? We will stay balanced in our portfolio between mature markets and emerging markets, but we have set ourselves very clear portfolio criterias that differ from the past.
A, we want a attractive market position that we can defend B, we want clear and strict financial returns from these investments into these markets and C, we have only a right to be in this market from our perspective if Highle Vercement is the best owner. So we have the maximum amount of synergies to manage these assets. And also, we want to reiterate our strategic focus. We must reduce the complexity of our portfolio We want to do innovation focused improvements also clear, we want to expand and grow in our focus markets. All of that comes together when we have reassessed our core asset portfolio, and we will take you through the details in a minute.
3rd bucket, people and organization. As I said before, very important to simplify business processes and the general setup. Let's not forget, Chris has mentioned it before, wearing mask, COVID restrictions, our clear committed focus on safety is 0 harm. That's very important under COVID-nineteen Corona, but it continues to be our core target before we get going on anything else. All of the targets we will commit to you and share with you today will be based in our incentive schemes.
If they are not based in those already, we will have them be being based in those as of 2021. It is very important from my perspective that the change starts at the top. So we implement a very clear logic also on the board structure. So each board member will only have 1 global function per board member going forward. And if you mean change, you have to walk the talk.
And in that respect, We have decided to, to allocate board members to the 2 transformational topics. That's why John Morrish will lead you through the ESG CO2 topic, and that's why I personally will lead the digital side. We will also combine Global And Area functions to simplify the business setup And as I said earlier, we will continue to reduce SG and A, both in the countries and also on group level. I only go very shortly, through the sustainability topic, not because it's not close to my heart, but John will lead you through that in very good detail. CO2 reduction targets, both for 2025 and for 2030.
And very important they are thoroughly underpinned by a clear roadmap per country. With that, we want to leverage our strong local, local, low carbon product portfolio that is already existing, but that we are going to build out further. And obviously, we want to drive critical breakthrough technologies on CO2 reduction to become carbon neutral by 2050. Digital Transformation 2nd transformation topic. We want to share with you our approach.
We have basically 3 pillars: Age Connect that will cover the customer interaction side age produce that will cover our production assets and age service that will cover our back office. On the production side, we have basically started with significant efficiency gains. The same is true on the service side. For Edge Connect. So the customer side, we target to get to more than 75 percent of our global sales volume going through this digital product, more than 75% of the global sales volume.
Last but not least, very important our financials. 3 clear leaders: capital efficiency, cash generation and cash allocation. When it comes to capital efficiency, we want to do the active core portfolio management going forward. We will focus on strategic initiatives for business excellence. I was describing some of them already when it comes to North and our CapEx will focus on asset based improvements with good financial returns.
And last but not least, on the cash allocation, we have a clear deleveraging target. We will be disciplined in our use of excess cash, And we Here are the financial targets that we want to communicate and share with you. 5 of them EBITDA margin improvement versus 2019 of 300 basis points. We want with a leverage ratio between 1.52 net debt EBITDA. On sustainability, we have pulled forward our original target of 2030 to 2025, and we want to be in 2025, easy to remember, below 5 25.
Digital transformation, as I already mentioned before, more than 75 of our 75% of our global sales volume needs to be covered. By H. Connect. So going forward to make that very clear, we will track ourselves against these targets. So we will come back to you, Capital Market after Capital Market Day, update calls after update call and share with you whether they go up or whether they go down in terms of performance against them.
We will share with you our performance against these 5 targets. Before we get into the details, Let me just wrap it up at the beginning what are our commitments to you. Going forward, we will prioritize over growing the top line. We shift our portfolio focus to the optimization of We will ensure strict capital discipline. CapEx spending will be done with a focus on asset based improvement and financial returns.
Very importantly, larger bolt on M and A needs to be funded through portfolio in CO2 and digital as the front runner in the Building Materials Industry. And last but not least, by doing so, we offer attractive returns to you our shareholders by giving you a progressive dividend and also leave open the option for share buybacks. With that I thank you for listening to my opening keynote and I would hand over to my first three operational colleagues, Kevin Blasky, Chris Ward, and Ernest Dietitou, who will share with you in a small video what they do day in, day out. And then you will see them in action in a Q And A with Chris Bolingbrook.
Heidelberg Cement is the leading vertically integrated building materials manufacturer worldwide. With the number one position in aggregates and ready mix and the number 2 position in Cement, we benefit from our strong positions in many key global markets and metropolitan areas as well as from our knowhow across the entire value chain. While Cement is in our name, Aggregates are a key pillar of our global strategy for both growth but our expertise is steadily growing. Our experienced local leadership teams partner with our global competence center to drive continuous improvements in both operations and sales to further expand margins.
Heidelberg cement is committed to growing our aggregates business. We encourage our leaders to be entrepreneurial and seek opportunities to further develop their local market positions through efficient and targeted capital deployment. In addition to organic growth, We aim to further develop our aggregates business through acquisitions, brownfield expansions, and via new sources of value. Like recycling as we seek to support the circular economy.
Across our global network of cement plants, We have introduced a unique plant operational model. Based on this approach, we evaluate our cement plants globally in a uniform and efficient way. Our skilled engineers at Heidelberg Cement Technology Center roll out our know how to the operations, identify and share best practice, and train our local engineers. They track big data in real time and remotely support our operations to optimize production processes and boost asset utilization.
We have defined a set of coherent objectives procedures and management tools for all plant employees, from the blue collar workers to the plant manager. This reduces our operating cost, ensures a better use of our assets and helps responding faster to climate and market challenges. Going forward, we will strongly focus on automation and digitization. We'll develop a fully digitalized cement plant equipped with an expert system based on artificial intelligence, which will be fully operated remotely.
Our ready mix concrete operations provide a protective distribution channel to support our leading positions in aggregates and cement. Ready Mix Concrete is a very local business, We operate through strong local brands run by experienced local management, overlaying this with our unique and proprietary global operating model ensures we always run at best practice level.
We have developed a capability to have central trans of all key data from our ready mix plants worldwide. Using big data analytical principles we can continually optimize and realize cost savings. By adopting a vertical integration strategy in key markets, we can directly reach the end user customer through the ready mix channel and avoid commoditization of our upstream cement and aggregate products Therefore, we can control the entire value chain in key markets. And so Mac optimize margins on an integrated basis.
Our future is very promising. Through our unique technology platform and expertise, Heidelberg Cement will continue to improve and drive further efficiencies and margin improvement throughout our cement, aggregates, and ready mix business lines.
Welcome back after this sneak preview into our operations. Let's hear it directly from the 3 board members who run our business lines how they are tackling operational excellence. And since we are in quite some unusual times, we will do a little experiment. We have one gentleman in the room with me here in Heidelberg and the 2 other gentlemen will join us live by video from opposite parts of the world. With me in the room today is Ernest Yoledo, Ernest has spent an unbelievable 38 years with Heidelberg Cement.
He's responsible for our business lines Cement, as well as our area, Northern And Eastern Europe And Central Asia. He's a board member since 2019 and privately, he runs a pretty successful Honeybee business producing 35 liters of Honey every year. Chris Ward joins us from Texas, Dallas. He's been with the group for 24 years, He's responsible for our Aggregates business line as well as our North America business. He's also a board member since 2019.
And Chris is a fan of American Football. He played in university and still enjoys watching. And finally, Kevin Glosske from Sydney, Australia. Kevin oversees our competence center ready mix and the Asia Pacific area He's got 30 years experience with Hansen and, Heidelberg Cement, and he's board member since 2016. Kevin's major interest outside work is flying.
His pilots, he's got a pilot license for many years. And recently, here's been rated to fly a jet, which he thinks is pretty cool. So let's get right into it. In the video, we heard you talking about portfolio management and asset optimization. Ernest, your cement portfolio is relatively broad.
Do you see a need for further change here and how do you want to further improve your asset base?
Will concentrate on high margin markets, having high quality assets. How we'll do it We'll dispose assets where do not expect a sufficient margin improvement in near term. Will, enhance our, assets based in the attractive market with bolt on acquisitions. We have conducted a detailed study on Cement Plant Portfolio And Market Conditions. We may reduce number of our plants.
For example, such project grants in U. S, Last week, we have decided to shut down one of our cement plant in, Germany. We will also invest in our high margin assets to ensure extending quality of assets and further reduction in cost production. As an example, we'll invest in a cement plan, 1 of our core market in Western Europe.
Thanks, Ernest. And Chris, over to you. You mentioned your footprint in Aggregates in key markets like the U. S, UK, Australia. What is your strategy going forward regarded asset optimization?
Yes. Okay, Chris. We see many opportunities across the portfolio to further grow our existing positions. We'll continue to prioritize high synergy tuck in acquisitions in our existing markets, but also where platform acquisitions into new aggregate markets will really only be considered as part of our overarching area level strategy in close coordination with our cement business and other potential downstream opportunities. But even more importantly, We'll aim to further leverage our global know how to efficiently modernize our aggregate plants where we see significant cost improvements or long term capacity constraints to meet expected market growth.
Kevin, Your ready mix portfolio seems to be well integrated into our core business lines in most of our key markets. Do you see any need for further adjustments here?
Well, in terms of our ready mix portfolio, you're absolutely correct. We currently have a very good vertically integrated position in many important and profitable key markets around the world. Now it's important to reiterate the logic behind our ready mixed strategy. By being, an anchor customer for our upstream cement and agris business, our ready mix operations protect against to monetization, and therefore, protect margins of these upstream products. In terms of potential adjustments to our portfolio, there's two areas that we always look out for.
The first is those for those few areas where we have standalone ratings positions, we must make sure that they always remain profitable in their own right. And the second area of focus, Russ, is, those emerging markets where urbanization is driving a shift away from manual construction techniques where cement's distributed mainly in bags to where, building construction is done in more sophisticated way that requires the availability of quality, readiness concrete. And what we see is this transition can happen very quickly. For example, in Bangkok, it was was less than 10 years. So we must be ready to move at the right time and build our ready to position.
For example, very important market for us, which is currently experiencing this transition as Jakarta, where in recent times we've developed a very, professional ready mix setup.
Okay. At the end of the day, operational excellence is all about performance improvement and thus margin increase So, Chris, the aggregates business generates the highest margins in the group, arguably also in the sector. Is there a chance to improve margins even further Or do you want to focus on top line growth and keeping margins stable?
Sure. Well, as I think about Aggregate specifically in North America and across the globe. We must focus on operational improvement, but equally on pricing performance. Let me start with operations. We have built remarkable visibility into our operational performance across our portfolio.
And while I'm convinced that we have outstanding local leadership teams, this visibility really helps quickly identify where additional support may be necessary. Our performance teams will shift from broad reaching continuous improvement initiatives to focusing on key sites where measurable improvement will result in noticeable profitability gains. We'll be leveraging best practices from our more mature cement business line. To improve our maintenance and automation practices to drive asset utilization higher, but margin improvement clearly must also come from the commercial side of the business. We're investing in training and improved tools to help our, well, to help optimize our commercial teams find the best value in these finite resources.
I'm confident in our ability to pull both these commercial and operational levers and deliver on our aggressive margin targets.
Kevin, over to you, we heard in the video to increase margins. You need to ensure it to be the lowest cost producer. How do you achieve that?
Yes, exactly. And on the cost side, we've got a number of really clever initiatives And at the core of this is our capability to extract a key operational data from, from all of our ready mix operations worldwide and to analyze cost improvement opportunities using big data techniques. For ready mix, the big cost items are raw materials and logistics So it's here that we put the majority of our focus. All raw materials in ready mix are different by local market, And this, together with the myriad of different customer end use requirements, results in, in literally hundreds of thousands of different mixed recipes, being in use across our business at any one time, and having the technology to, and the expertise to, to, to centrally analyze and optimize every one of these mixes on a continual basis is a unique ability that enables Heidelberg cement to deliver a product that meets customer requirements whilst at the same time, minimizing our raw material costs. And similarly on the logistics side, we've got a sophisticated digital platform unique to Hoderbug cement that's been installed in a number of major metropolitan markets, and that optimizes, deliveries in real time.
And this ensures that our customer needs are met whilst at the same time in achieving the maximum utilization of delivery vehicles and therefore, the lowest, possible logistics costs. And because of the large scale of our ready mix business across the world, we've got enormous cost leverage from these programs. So even a saving of just $1 per cubic meter, is substantial when it's multiplied across the 55,000,000 cubic meters that we produce annually.
Absolutely. About Cement Ernest, what will be the next steps to further improve the business performance in Cement?
We always focus on margin improvement. But now we want to put our operational excellence in a new level, high level. First 4, we are implementing a unique plant operating model in all our cement plants. Based on this, with intensified best practice and improved measures, for production cost reduction. We will benefit from a, circular economy by using more waste material for clinker production and, for cement production.
We'll increase biomass, in alternative fuels. My base will not only reduce the CO2 reduction, but we will also reduce production costs. Lastly, and we see a production process automation and digitization as a key driver to reduce, production failures and human errors. For 1st, we will ensure continuous production and cost reduction.
And you mentioned some of the mega trends already. We also heard them in the keynote speech, of Dominic. I mean, they are the key drivers for our businesses. So Kevin, you're closest to the end customer with your business line. Which of the mega trends are important to you and where do your priorities lie in this respect?
For me, I would highlight 3 relevant megatrends. The first, as mentioned previously, is increasing urbanization. And this is particularly relevant for us in the high growth emerging markets. The 2nd relevant megatrend is growing awareness worldwide on carbon emissions, and this is a tremendous opportunity for harder books for me. Because concrete is a fully recyclable building material, and it's by far the best construction choice for energy efficient buildings.
And going forward, we're doing, we're putting a lot of focus on the, on many opportunities to further improve the embodied carbon in our concrete mixes and working closely with our customers to realize a low carbon future. And for me, the 3rd, key megatrend digitalization. And again, this gives us opportunities, both in the way that we interact with our customers, but in also, making our opportunities or our manufacturer operations, are more efficient. And on this topic, harder book cements very much on the front foot.
Yeah, you mentioned digitization, you also mentioned digitization, Ernest. Can you elaborate a little bit more about that?
We are using digitization as a powerful tool, for margin improvement. Group wide, we are implementing an advanced process control system, which allowed us to reduce production on costs. And, thanks to the system, we can, for example, expect, by 3% power reduction from, cement grinding process. We are implementing movable maintenance apps to, to control, technical conditions of our key equipment in real time. I guess we can expect our maintenance costs reduction and the reduction in, production failures.
We also want to analyze big data, which will be used for special, KPIs, which allowed us, to define the improvement measures for plants and identify focus when we can achieve the highest cost reduction. By achieving a certain level of automation and digitalization, we can remotely run our operation and control the process system. As an example, how did we go for automation and digitalization, we ran a project in Germany, to develop fully digitalized cement plan. And after them, we roll it out to our summit plan. By digitization, we are expecting not only to reduce, production costs, improve margin, but also to make our cement plants more flexible and open for changes coming from environmental protection, market demand, or management challenges.
Thanks.
Chris, what are the business trends driving your business?
Yes. So I would say Our aggregates business will certainly be impacted by the broader company push towards digitalization. But as I think, again, more specifically around aggregate, three main trends stand out. First, I would say it would be reserves scarcity. Challenges to find and develop local resources which again speaks to the value of our existing positions.
We have strong internal expertise to secure and permit future reserves. And to optimize long haul distribution logistics, like marine and rail as distances to markets inevitably increase. Second, I would say it's the growing importance of the circular economy. We're putting additional emphasis here and have extensive global expertise to further grow in this area. It's a natural extension of our business and supports our strategic target of being the most sustainable company in the sector And finally, and what I hope to be the most impactful trend is the growing desire to invest in public infrastructure to stimulate national economies.
We not only hear this loudly in the U S, but across many of our other major markets. So I think, Chris, the aggregates businesses are well positioned to benefit from these three trends.
Thank you, Chris. Thank you, Kevin. Thank you, Ernest. That concludes our panel discussion. I hope we could give you some insight into our businesses and how we are tackling the topic of operational excellence.
Now over to me in the live stream. As you've noticed, we caught it this session last week. Back again in the live stream. Next topic is portfolio management. We already heard from our board members in a panel discussion that active management of our portfolio will be a key aspect of our strategy going forward.
They also talked about how they want to improve margins in their business lines. So let's hear it directly from Dominic Van Afton what will be different in our portfolio approach going forward. Dominic, please come on stage.
Thank you, Chris.
Before we talk about portfolio, Can you elaborate a little bit about our 300 basis point margin target?
Absolutely, Chris. I think it's a very important topic
for us.
As I said, we need to get the basics, right? And I'm more than happy to share now with the audience how we get there. Thanks so much, Chris. I think this I really enjoyed this Q And A and the videos I have to say because it really also gives us a good flavor. How doesn't global company like Heidelberg Cement operate under COVID.
You may have noticed, it was a different daytime for Kevin sitting in Sydney, It was a different daytime for Chris sitting in Dallas, and it was a different daytime for, Ernest sitting in Heidelberg. I think all of them have done a fantastic job, great teamwork globally. And we will also have great teamwork to get to the 300 basis points. Let me share with you the 5 buckets that will comprise the way to these 300 basis points improvement. 1st and foremost, and I'll come to that in a minute, portfolio management.
Not only, and I will talk today, mainly about the group level, but also on country level. I was indicating to you that we will put a significant focus on commercial and sales in our countries. Organic growth. I've shared with you our margin improvement action plan as an example for North America. 4 to 500 basis points.
So clearly above the group average target of 300 basis points. Significant upside potential from our perspective, also in the UK. 4th bucket master plan execution, Many of you know that we are about to revamp our big plant in Mitch, Indiana in the U. S. So there is a master plan execution in the U.
S. We've just done one in Germany, where we are now in the final stages. Yesterday, we announced the Kin closure in our very historic plant near to Heidelberg in Lyman. And we will also embark on a master plan to improve our asset base in France. Last but not least, digital transformation.
I shared with you the 3 pillars: H Connect, H. Produce, and H. Service All of these five buckets need to ensure and will ensure that not only Chris, Kevin, and Ernest, but also John and Hakan, Lewins and myself will organize the way to 300 basis points together with our more than 50,000 employees That's our clear target. Let's talk about shifting gears shifting gears in the new asset portfolio management, where we will focus on our core assets simplifying them and prioritizing them. We have decided internally on 3 simple steps.
First step, we're going to right size in order to reduce complexity. In doing so, we will shift from noncore to core asset disposals. Secondly, we will strengthen the remaining portfolio especially through innovation focused asset based improvement. And we have allocated Lawrence will go through the details 1,000,000,000 per year net CapEx. Thirdly, we will obviously grow our remaining portfolio.
We will only do this if the leverage commitment is intact and also our dividend not at risk. Let me share with you some of the details. Here we are with our portfolio. Schematically, we show you competitive position and capital efficiency. Those are 2 key drivers.
Our clear focus is that we will have strong competitive positions in defendable markets We need to have financial returns, exceeding cost of capital over the cycle. And I shared with you earlier, Heidelberg cement clearly needs to be the best owner of these assets. That's very much targeting toward the synergy aspect. If you take all that together, you see here that we will end up with a portfolio of 3 buckets. We will have our focus positions.
We will have our weak spots that are going to divest and we have our watchlist. Divesting is basically done out of the following 4 criterias. If the markets do not offer an adequate return over the cycle, the asset or the market will be divested. If there is in the footprint, No clear path If it is not a position with sufficient synergies, especially in a downstream side, we will divest. And we will continue very important, again, simplification, we will reduce the number of management units.
We have introduced the watch list, and we will obviously continue to or continuously monitor all assets against these targets. Now if you look at this from a divestment perspective, We will shift our focus from non core asset disposals to a much larger chunk This is driven by our new divest non core assets on normalized levels. The last 2 or 3 years, we were a little bit above, but we will continue to do this going forward on normalized levels And obviously, our disposal criteria need to be fully supported by our financial targets. How are we going to strengthen our portfolio? Clear focus on 3 topics: regular CapEx.
Our colleagues around the world have me already heard saying every euro every dollar, every local currency we invest must create a return. So that's very important. Our significant regular CapEx even if it stay in business must deliver onto any of those 5 targets we have communicated to you. We have our improvement CapEx that we will focus on the innovative part, the transformational part of CO2 and digitalization, And in our master plans, we have our major plant overhauls, where we clearly want to increase the quality of our assets the efficiency of our assets and therefore, the margin in our profitable markets. By doing so, we obviously want to increase the competitiveness of our assets and our markets.
We will shift gears a little bit more towards innovation, We shared with you the key points. You heard them also from Ernest and we will spend about 1,000,000,000 per annum net CapEx to improve our asset base and competitiveness. Thirdly, very important how do we grow the remaining portfolio. We will focus on market consolidation with selective bolt ons to improve the existing positions in profitable markets. We will stay focused to drive vertical integration, especially to help our cement and Aggregates business.
And as I said, we will focus on growing our markets by further investing into these markets with bolt on acquisitions In doing so, we will develop even stronger market positions. And it's also very important for us to say that very clearly to you, we will not do transformational new market entries. We will stay very focused to deliver a ROIC well above 8%. And we also need to make sure that we invested acquisitions will meet this ROIC target after full integration, and they need to contribute to the net profit in year 1 after the acquisition. Shifting gears in portfolio management means means for us we rightsize, we strengthen, and we Thank you.
Thank you, Dominic. This is indeed Oops. Thanks a bit of a question. Stay on stage. Yes, this was indeed a change in the way we manage our portfolio going forward.
You mentioned the word watch list in the beginning. Can you elaborate, on that word? What do you mean by watch list?
Yes, I think that's a very important point, Chris. I said we have exit candidates and we have obviously those clear markets where we want to focus, but we have also some markets in the middle where we still have the opportunity to to develop them into future growth markets. And watchlist basically means that we have given them and we'll give them some time in order to ideally develop into the growth future markets. If they don't, we exit.
Okay. Okay. Thank you. Thank you. Thank you.
Now let's switch gears to our first transformational topic, sustainability. We have been very active with reducing our CO2 footprint in the past years, but it's clear to everyone within Huddlburg Cement that we will have to accelerate even further our efforts going forward. How we will do that? We will hear from John Morrish, John heads our region, Western And Southern Europe as well as our sustainability activities. Before John explains to you how we want to lead the way to carbon neutrality, let's watch a short film that explains some of our initiatives.
Sustainability has been an integral part We are determined to lead transformation and shape our industry in Vets Direct. Together, we need to break out of our silos to unleash innovation deeply partnerships with our stakeholders and communities and push together for even better and greener solutions. Our clear goal is to offer carbon neutral concrete by 2050.
AlbertCement is building carbon neutrality on that, what we have already achieved. Since 1990, we have been reducing the CO2 footprint by 22%. We have done globally that we are now using as a base for developing the new technologies and for pioneering new business solutions. Lilac is a technology to reduce the energy needs and therefore, the costs of carbon capture, which we implement on one of our hire books cement plans in Belgium. It is a process integrated measure.
When the CO2 is released from the limestone, we immediately separate it. And this avoids the additional energy to separate the CO2 from the stack as the traditional technologies are doing. So this is a very innovative approach.
Alex Fraser became part of Huddlberg's cement in 2018. Through decades of innovation and persistence, we've grown to be a is leading recycler and producer of sustainable construction material. In our industry, the Circular Economy has a potential to reserve available natural resources and extend the life of our quarries. It reduces truck movements. It reduces costs.
It minimizes landfill, and it reduces carbon emissions. This doesn't just make environmental sense, makes economic sense for the business and for the community. Hardware Cement will become neutral in concrete by 25
For that, we set sail to progress day by day month by month and year by year.
I hope you found that video useful. I'm pleased to be here today to be able to outline how we will how we will, take this forward and how we will lead the way to carbon neutrality. I'll outline 5 key areas. The first is our strong track record already in reducing CO2 emissions. The second is our new industry leading targets that we're setting today for 2025 2030.
The third is how these targets are underpinned by our bottom up, a very clear roadmap. 4, I will cover how our strong local, sustainable and low carbon product range will help us get to our emissions targets. And 5, I will cover the numerous critical breakthrough technology projects that give us great confidence that we will be able to reach our carbon neutral target by 2050 at the latest. Taking the first of these, we're proud of our strong track record of reducing CO2 emissions, As you can see here, we've taken it down from 22% since 1990. And CO2 reduction is embedded in the culture of how we do things in Heidelberg cement.
Indeed, we're being recognized by our efforts The CDP has recently rated Heidelberg with an A score in 2020 and that has gradually increased over recent years. We're also proud of the fact that we're the 1st cement company to receive confirmation from the SPTI that RCO2 targets are fully in line with the goals of the Paris agreement. We also have a clear commitment to CCFD compliant reporting and we'll start that in 2021. All of these therefore gives us really good foundations to build upon. And it leads us to have real ambitious industry leading emission targets, the first of which is our ambition to pull forward from our previously stated 2030 date that we'll hit in 2025, 525 kilos by that date and then continue to reach less than 500 kilos per tonne of Cement by 2030.
Those are ambitious, but we're very, very confident that we can achieve it. Why? They've been underpinned by a very detailed bottom up carbon roadmap, where all measures are agreed with local managers, at plant level in each country and then put together across the globe. These carbon roadmaps are embedded in local and international management incentive schemes. And these carbon robots are not just within the EU.
They've been rolled out globally across all our countries. Importantly, this is not gonna cost the earth either. It's gonna cost us in specific CO2 related CapEx, approximately 1,000,000 per year for each of the next 10 years to get to where we need to go 500 kilos per ton of cement by 2030. So how will we get there? We'll pull 5 main levers.
The first in our product mix, where we'll drive down clinkering Corporation from 75% last year to 70% by 2030. And we know this is against the difficult backdrop of lower coal fired power stations and less fly ash. Unless blast furnaces around for lower amounts of slag, we know those challenges exist and we're still very confident of hitting the 70%. The 2nd major lever is alternative fuels, where we're very well progressed in many places, and we'll move that from 24% overall to 43% by 2030. That's a significant change in places like the US and in Asia.
And more relevantly, we'll more than double our biomass within those alternative fuels from 9% to 19%. If we can't burn alternative fuels, we'll burn low emission fuels, and we'll switch from coal to gas everywhere that we can, which has got a 40% lower CO2 emission footprint. Then as has previously been stated, we're changing our footprint and modernizing our plants in numerous places, and particularly we've outlined in the EU and also in the U. S. This has this has another major impact on our CO2 footprint.
And we'll also be using all the commercial levers at our disposal to increase the use of sustainable and low carbon concrete. My colleague Hakan Goodall has made a short video to outline how we manage alternative fuels.
Using alternative fuels, as an energy source for the clinker production has been instrumental in reducing our CO2 emissions in the past. Going forward, alternative fuels will continue to be one of the main contributors to achieve our ambitious CO2 target of less than 500 kilograms CO2 per ton of cementitious materials by 2030. We have a successful track record of implementing alternative fuels projects in a safe and environmentally sound way over the past 40 years. In addition to reducing the CO2 emissions, these projects help to minimize the need for further landfills. Two examples.
At our Langford cement plant in Germany, around 90% of our fuel use comes from alternative fuels, the highest level globally. Langford is using high quality alternative fuels from commercial industrial waste solvents, as well as biomass waste. In total, this accounts for a carbon neutral biomass utilization rate of around 5%. In Indonesia, we have more than doubled our waste and biomass usage over the last 2 years. Now, we plan to extend this approach to other growth markets, such as the Democratic Republic of Congo, togo, and others.
In line with our global sustainability criteria, we focus on various levels like local waste and biomass there. In order to make this possible on a global scale, we have secured waste, biomass, and other alternative fuel streams In every country, by teaming up with municipalities, as well as local and international waste management companies, according to regulations. Sewitching from fossil fuels to alternative fuels is not only beneficial ecologically, but also economically. In 2019 alone, we saved around 400,000 tons of CO2 and generated cost savings of more than €20,000,000 by leveraging from fossil fuels to alternative fuels. Our goal is to nearly double our alternative fuel rate in the fuel mix over the next 10 years.
By 2030, we target an alternative fuel rate of approximately 40% Globally.
I hope that shows you how alternative fuel management is absolutely embedded in the way we do things in Heidelberg cement. Switching now to products, But heidelberg cement, we don't take a centralized global product marketing approach to low carbon and sustainable products. Instead, we do what we do best, which is focused on country based customer solutions. Across our sustainable and low carbon products. And we've got a wide range and a strong range of low carbon and sustainable products already in place.
In 4 key, categories. The first is low carbon concrete products where we mix low carbon cement with typically fly ash and slag products. There are two examples here from the UK and Norway. The second is where we blend, concrete mixes with recycled aggregates. I have a slide in the minute that takes you through one example in the Netherlands and green concrete here in Australia.
The 3rd bucket is our innovative low carbon sustainable construction solutions, and there are 2 Italian examples here on the slide. And then the 4th is where we provide solutions for energy transition and clean air, and there are 2 product examples here from our German business. In the Netherlands, Eco Creek is a great example of a growing sales in, construct in in eco friendly low carbon concrete. This is a product that when blended with low carbon cement can have up to 100% recycled aggregates in It's very flexible, is used for a variety of end uses, as you can see here, a, an apartment building in the Netherlands, And the advantages are obvious. 70% lower CO2 per cubic meter compared with a normal concrete mix.
Reduces the need for primary aggregates, promotes the circular economy, very flexible application. One of the key reasons this is already a success in the Netherlands is a very proactive public policy within the Netherlands where the government will ban all construction waste going into landfill from 2030. For us, we see that as a great market opportunity and not a threat. Another exciting product that we're really getting good traction on now is ITech 3 d, this is shown in Italy. This is really high-tech concrete that is used in construction solutions through 3 d printing.
Very, very flexible product, for buildings, different precast elements, stairways and different urban furniture. Because of its high-tech nature, you only need 50% of it compared with a normal concrete mix. It's quick, highly productive, you less waste and lower labor costs, and we're gaining real traction in this product. So hopefully from the last few slides, you can see exactly how the levers that we will pull, give us great confidence that we'll be able to hit our medium term target. Of less than 500 kilos per tonne of cement by 2030.
Moving now to the longer term. It's clear across the world that carbon emission regulations are tightening. This map here shows in orange the various emission trading schemes that we operate under today, obviously the EU ETFs, but across in Canada as well, in California and Guangdong in China. In black and numerous ETS schemes, that are in final preparation, and we would expect these to come on board in the next few years in Turkey, Kazakhstan, Thailand, China, and even Indonesia, which happens to be the world's largest coal producer. So over time, we definitely see carbon emission regulations tightening, and we would expect this map to be filled out over the next 10 to 15 years.
The EU ETS system is the most established system, and most of the ETS systems use this as a global blueprint. This schematic shows the basics. An emissions cap is set below which companies like ours receive free allowances. And over time, the emissions cat reduces. Depending on how much we produce, we either have surpluses or deficits.
Now within the EU ETFs, the price this week is around And we're preparing ourselves to where we move from phase 3 at the end of this year to phase 4 in next year with a further reduction in the emission cap. And if you're wondering, we're, long on EU ETS certificates from our calculations until about mid-twenty 23. So this is the backdrop within which we're operating, and this will get tighter with carbon emissions getting tighter in the in the in the longer term. What are we doing about that? Well, we're actively engaging policy makers at the National Regional EU level.
I'm directly involved in that. And we're driving 6 key things. 1st, we need a global level playing field. We're not naive about that. We don't see, global carbon pricing.
So what that means in the short term is that we need a carbon border adjustment. In the EU, we need that by 2025 latest. We need governments to enable secondly, we need governments to enable the transportation infrastructure to move the CO2 from plants to where it can be used or stored. We need the pipelines. 3rd, we need predictable and reliable legislation so that we can plan and invest for the long term.
We think we're getting that in the EU. Other countries are perhaps less predictable at the moment. We'll see what happens in November in the US. Then we need specific government funding in the development of early stage technology in carbon capture, usage and storage, for example, where in preproduction level, these technologies need specific investment. We need governments to help.
5, we also need policy to promote sustainable construction solutions. Like some of the examples I showed in the earlier slide, we need governments to get on board to help us switch the demand so that we can foster a market for low carbon products. And then 6, we also need governments to help us establish the conditions for the circular economy. The Dutch example of banning landfill of of construction waste in landfill is a great example, and we need many governments to get on board with that type of approach. So by driving these policy principles, by pulling the levers that we've already showed you, we're absolutely confident that we'll be able to realize our goal of carbon neutral concrete by 2050 at the latest.
We've done our homework in this area. And so as you can see here, we need to pull on 3 different key areas. This is a graph closely related to the earlier one, but it sets out carbon per cubic meter of concrete. You'll see in green the conventional measures that I outlined before: alternative fuels, clinker incorporation, product portfolio, energy efficiency. And that will by pulling all of those levers I outlined, will take us a considerable way between 2020 2030.
But after that, from 2030 to 2050, we need 2 other key areas. In orange, The first is the circular economy. This is much more significant involvement and use of recycled materials, recycled aggregates, recycled concrete pastes, new cementitious materials such as calcined clay. These materials will play a significant role to get us to our goal of carbon neutral concrete. The other area is shown in blue on this graph.
And those are all the pieces of the jigsaw that goes go to carbon capture. It's use and storage. And in addition, kiln electrification. As you can see from this, those 2 orange and blue areas will really be needed from 2030 to 2050. I've outlined how we're pulling all the levers in our conventional measures already.
But we can't wait till 2030 to get going on the circular economy and carbon capture and usage. So we already have well established businesses within the circular economy. Numerous recycled aggregate businesses that are successful within our portfolio exist around the world. A number of them are on this on this slide here. You saw in the video the example we showed of our Alex Fraser business in Australia, very well established an expert in their field.
We also have strong businesses in the U S on the West Coast in California and Washington State. In numerous sites in Northern Germany and also in the Netherlands and other locations around the world. Our teams in these businesses know what works. They know what doesn't work in recycled aggregates. They also talk to each other.
We're very good at sharing best practices in the business. And therefore, we are confident that we can further develop these businesses, expand them, and go into new parts of our business around the world so that we can really use the circular economy to get where we need to go. Moving to carbon capture use and storage. We have many projects on the go at the moment. From early stage to quite advanced stages as this, slide shows.
In post combustion amine technology, we have a number of projects 4, in Europe, one in Canada at a pre industrial stage, and the most advanced that I'll show a separate slide on in Norway. In our oxy fuel technology, this is where we burn oxygen instead of air. We're an anchor partner in the Catch for Climate project here in Germany. The video shows you how we've learnt a lot from our Belgium project in lilac Direct Separation project, and we feel confident enough with that project to now take it to pre industrial level at a plant in Germany. In usage, we have numerous micro algae projects where this material is being used for animal feed across Sweden, Turkey and France.
And we're at a commercial level at our our business in Morocco. We also have other usage projects that will be able to announce in the next 6 to 12 months. We're combining hydrogen with carbon dioxide, at 2 plants, 1 in the UK and 1 in France. And we're also driving forward on- with a numerous kiln electrification projects in different countries. Our most advanced CCS project in our Northern Lights Consortium project in Norway.
This is an outbreak cement plant. And we will take about half the CO2 that is, produced at the plant about 400,000 tons using post combustion amine technology will clean, purify, then liquefied the CO2. Put it onto ships, and then take it into the middle of the North Sea where it'll be stored in the exhausted oil wells of the North Sea. We're really excited about this project And it gives a really good example of the partnership between ourselves and the Norwegian government, where the Norwegian government are investing more than 80% of this project with us less than 20%. So this is a good example of one of those early stage technology partnerships with government.
We expect to get full Norwegian parliamentary approval by December this year, which will fully enable us to be, commissioning and running by 2024. This is the most advanced CCS project in Cement and we're really excited about where this is going. So do a recap. We already are proud of our strong track record of reducing CO2 emissions by 22% from 1990. Today, that gives us our strong foundations to launch our new industry leading targets of 525 tons by 2025, 5 years earlier than first planned, and then to move on to less than 500 kilos per tonne by 2030.
These targets have been built from the bottom up, and they're underpinned by a very clear plant level country and global roadmap. And we'll leverage our strong existing, local, sustainable and low carbon product portfolio to drive down emissions. And get the progress we need. And finally, we're driving numerous critical breakthrough CO2 technologies that give us great confidence we will be able to reach carbon neutrality by 2050 at the latest. Thank you.
Thank you, John. Very impressive. We showed an impressive number of projects that will get us a long way on our way to reduce our CO2 emissions, but it's still a very, very ambitious goal that we set ourselves. What makes you so confident that we will achieve it?
I think two things: If we look at our medium term target of 500 kilos by 2030, we've built this up from the bottom up. So there's real detail there already. And when we put our shoulders or something, we've shown it time and time again, we can get there. So very confident in the medium term. In the long term, we've done our homework.
We know exactly what we need to be doing in standard measures, in circular economy, and in carbon capture. And we're already there. We're already there with various projects and in business in, the circular economy. So it gives us great confidence to be able to get there.
Okay. Thank you.
Thanks, Chris.
Okay. We now come to our second transformational topic, digitalization, sometimes hard to connect to a traditional building materials producer, but make no mistake. Digitalization will be an enabler for our growth and profitability in the future. How so? Let's hear it from Dominic Van Aften, who heads up our digital transformation efforts.
Dominic, please come back on stage.
Thank you very much, Chris. Thank you very much. And I would lead you through the Second transformational topic of the day. But first of all, I would like to thank John and Hakan for their great job on the sustainability topic. As we said all along today, very important for us.
So I think a great teamwork also in that respect and the full board is clearly behind those sustainability targets going forward. And now I would like to get into the second transformational topic digital. And as I said in my keynote in the beginning, we are absolutely convinced that this will enable us to take a step change in business excellence. And why that is the case I will explain to you in the following minutes. I already mentioned But if you wrap it all up into one sentence, it is our clear target to become the first industrial tech company in our sector.
We're not going to become a tech company, but we are real tech company in our sector. That is built on 3 pillars: H. Connect for the customer side age produce for the asset and production site and age service for the back office site. Let's talk about the effects of those 3 pillars. These are effects we already see couple of years that we've embarked on this journey.
So let's start with Age Connect. From our perspective, very importantly, it needs to be end to end, fully integrated, end to end experience for our customers. Otherwise, we cannot compare ourselves with the pure digital players. All of us have these user experiences from home. With those end to end setups, we want to grab additional service revenues or in general revenues.
We want to open up new customer segments. We want to clearly lower our logistics costs. And we also want to reduce our back office workload. You go to the next one, age produce, key lever for us to drive more throughput through our existing assets. And you can imagine that that is a key, margin improvement lever.
We want to reduce our energy costs. And we want to also reduce our maintenance costs. Next one, last one, age service. We want to really leverage our existing good country footprint with going beyond countries into areas, region and the globe in order to expand that idea. We want to in doing so, use fewer back office resources, and we also want to lower our service costs.
Let's get into these 3 pillars each for a moment. H Connect. I would love to let the team talk what they are all about.
Today, we have 20 sites being
built with multiple cores on.
A 180 in trucks our servicing sites from 10 plants, and we have sixty people using the on-site app to track the truck's movements and ensure our building projects go to plan. We are optimizing cost and delivering efficiency. I've been using the on-site app 6 months now. It's an absolute game changer. It saves me time time, allows me to be more efficient with my resources and makes life much easier.
We've made it on-site 9 months ago. During this time, many customers provide us feedback similar to that at Hutchison. On-site is making life easier, but us and our customers, as we are solving a number of their key pain points. We have nearly 500 week active users currently using on-site, and we continue to talk to customers about what else we can do to make working the last easier.
We're currently working on things like last truck orders in on-site back office service function and digital maturity testing. We're working closely with the global digital team to ensure we deliver exactly what's required in a quick turnaround time. We're also defining real business cases to ensure that we're commercializing and making money from either cost save things for organic revenue growth. Our digital agenda is exciting, and the Australian business is committed to introducing new digital products to make it easy and efficient for our customers to deal with us.
Thank you to Peter, Ricky and Cathy for producing this video to give you some more insight into our efforts notably in Australia. If you go to the facts of H Connect up until now, we are covering 20 percent of our global sales volume to date. You remember from our earlier keynote speech, Our target is 75% coverage of this global sales volume. We are already getting into transactional use cases I'll come back to that in a minute. And with a pilot in Australia that you heard also Kathy talking about, we have created additional revenues of $20,000,000 Aussie dollars, we have reduced the call volume into our customer service center by using the on-site app of more than 10% And by doing that, we've also created some free room to do additional sales for our sales reps.
As I said, our target is to get to more than 75% of global sales volume through these Edge Connect products. One key point you heard Kathy saying already in the video is what we call the last truck adjustment. Basically, one of the key pain points for our ready mix customers. Why is that so tricky? It will reduce material waste.
It will solve recycling issues, especially in urban sites. Do self save money for our customers. And it was, as I said, already reduced calls into our customer service center and Also CO2 related, it will reduce the number of diverted trucks. Let's talk about age produce, so the asset and production side of things. Here, we will focus on real time insights.
We will continue to build on our immediate remote support that has already been very useful indeed, especially in our emerging market assets during COVID. And we will do that also in order to advance our analytics around the data we produce. Where are we? We are well on our way in ready mix and aggregates. About 60% of our plants are already having access to these efficient tools.
And we are also pushing forward on our Cement assets where we've done already very successful pilots. If you take on the right, here, the pilot we have done in our German in one of our German plants for the cement milling, especially the planning of volumes in cement mills, If you take just this one single pilot, we have reduced our annual power costs by Now you might say EUR 200,000,000, guys, is that enough? Well, if you add that all up, and this has been the first pilot only you add that all up across our asset base, it does contribute significantly to our 300 basis points margin improvement. We have targeted to reduce, to basically have 50% of our operational excellence savings digitally supported. And then I would like to get into the example that you heard already from Kevin.
He was talking about the Jakarta business ready mix. Here we are. You may say, oh, this is emerging market, Jakarta. Why are you operating in Jakarta with the ready mix business? Well, there urbanization, there is population growth, and also the market develops further and further into ready mix.
But we're not standing still and just rolling out a ready mix business in Jakarta, look at what the Indonesian colleagues have done. They have basically worked on the optimization of the batch control center in Jakarta. They have actually consolidated all the batching all the transport, all the dispatching, all the call centers, all the quality control, into one single central location. And very importantly with digital, they have started on real time coordination. And that is obviously the big value for the customer.
And last but not least, let's not forget our employees, very importantly, This consolidation also helps significantly on money in monitoring and training of employees in order to improve further our customer service. And from your shareholder perspective, we have reduced our operators by the small amount This is why we have embarked to become age service. Heidelberg cement has a longstanding tradition on shared service center operations. We've done this country by country so far, but year over year, we have advanced significantly in our efficiency. We strongly believe with this excellent So where are we?
We are currently running in every country, highly automated shared service centers that are already operating on the back of a standardized ERP system and also using robotic process automation. If you go to the right side of this chart, you see we are working on a couple of additional pilots to unlock further efficiency potential. Accounts payable, we run a pilot now across John's region, WSE, where we cut across countries to, on a functional process basis, work on accounts payables and unlock further optimization potential. And then the difficult word of robotics process automation, we have already quite a few use cases that have a significant impact on the mandates that you can basically automate. With that, we are clearly targeting also a significant efficiency gain.
So to wrap it up, I hope you understand why our 3 pillars on digital will have a significant contribution to our 300 basis point margin target. We will with those become the 1st industrial tech company in our sector, and we are convinced that we are going to deliver the targets for H connect, H produce and H service going forward. Thank you.
Thank you, Dominic. Once again. Thank you, Chris. You mentioned, a quick question. You mentioned our 3 pillars, and I know you're demanding CO.
Are you satisfied with the speed of the progress that we made?
You know, I think there is a, there's something I learned from my grandfather, never be, happy with what you have achieved. So this is also true for our digital efforts. I think we have come a long way, absolutely, as I was describing, but clearly, we connect further accelerate. So that's also why we have changed the organization now a little bit to enable us to go even faster And as you have mentioned and I have mentioned, I will try to push that myself. So in that respect, let's get going, even, even quicker.
Thank you. Okay, ladies and gentlemen. We now come to our final presentation of the day. How do we focus on efficient cash generation and allocation? Who could present this better than our long standing CFO, Lawrence Nager?
Lawrence. Please come on stage.
Hello, Chris. Good afternoon, ladies and gentlemen. I will present to you the impact of all the great topics we have heard earlier in our financial strategy. And I think all what we do here will be reflected and you will see it, in our financial statements, And I will lead you through what do we expect on the financial targets and how do we define it and how we will follow-up on this. So here, you can see our main, our main topics, which are capital efficiency, cash generation and cash allocation.
Our cash efficiency will be driven by active portfolio management and strategic initiatives for our business excellence. And this and I will explain you how we are going to do that. This will lead to a ROIC clearly above 8%. 2nd point, cash generation, we have a very strong focus on generating cash from our operating results, yes? And this focus brings us to a cash conversion rate of around 45%.
This is a very important target for us 45% of the EBITDA has to come into our cash position of the company. And last but not least, cash allocation, that's a very important topic, yes, we have and we want to reach and keep triple pay flat rating, we will make very disciplined use of cash in our growth complex, in our acquisitions, and we want to maintain sufficient room for considerable shareholder returns. So let's have a look on our targets. Let's start with the ROIC. The ROIC is our dominant financial target.
However, Heidelberg Cement has introduced ROIC definition quite a long time ago. Now the world has moved and the definition in the market has changed. So we will adjust our rawic definition to the market standard. And that has 2 main topics. The one point is the taxes.
Traditionally, we had a cash tag payments to be deducted from the operating result to a RIAF at the no Pad. Now we will change and use the current tax expense rate, which is, in line with the market. However, this has a significant impact. It will bring down our ROIC on the basis of 2019 by 0.7%. So that is a major impact, yes?
The second impact, which has an opposite effect is invested capital. In the past, we have used a 4 quarter rolling average for that. And as you know, the quarters, 1, 2, and 3 have a significantly higher use of capital. So we will go to the market standard use the average of the beginning of the year and of the end of the year and calculate it from this. All these will bring our ROIC from 6.9% as we have calculated and reported it for 2019, down to 6.5% all future targets, especially the 8% and clearly above 8% target, will be measured and achieved are on the basis of the new, the whole week definition.
Important for us is comparability with competition, but also transparency And you will be able to calculate this, the ROIC definition from published financial statements. What are the key drivers to develop and to, increase the ROIC from 6.5 to This is, 1st of all, the impairments, which will reduce our capital and hence also increase our a whole week by pure accounting mechanics. That's the technical part, let's say, but then we have to do, and we have you have heard about it significant management action to bring that up. This is firstly portfolio management on the group and country level. As we have said, we are going to sell assets which do not live up to our return expectations and replace it by acquisitions, gross CapEx which meets the requirement.
This shift will have an impact, a positive impact, a significant positive impact on our OID. Secondly, of course, organic growth in the company, if that's clear, then what Dominic explained, our, margin targets, especially in North America and UK, we have then our targets from the master plan execution where we up grade existing plants, which are not up to date to the current technical standard with very, modern technology where we talk about, mainly about U. S. And about France. Last but not least, Dick digital transformation, H connect, H produce and the production side and H service, on the administrative side, will improve our operation excellence and contribute to that target.
Our second very important target is the cash conversion, cash generation and cash conversion. Heidelberg Cement has a strong history of cash generation. But also here, we will change the definition to go to market standard, yes? And this is mainly on the CapEx. In the past, the industry used to, use sustainable CapEx to calculate the free cash flow and hence the cash conversion rate by setting the free cash flow in relation to the EBITDA Yes.
In the last year, that was always a bit difficult, because the industry has changed and it wasn't very clear what actually is meant by sustaining CapEx and also sustaining CapEx cannot be read from the, legal financial statement. So we decided in line with the market of change to CapEx net This means, CapEx from plant, and equipment, yes, so detained triple fixed asset CapEx. That means minus the, the cash in, which comes from such asset disposals. The whole impact on that is not so big. You can see it.
2019 adjusted figures in the CapEx net is $9.60 compared to sustaining capital $900.11. So this, is not so much in difference. The CapEx target, as Dominic explained earlier, will be net 1,000,000,000, and that's exactly this figure, which is part of the free cash successfully increased its cash conversion rate from around 30% up to 40%, 45% and in 2019, we even reached 48%. So the question is, why do you go down with the cash conversion target from 48, which you reach in 2019 down to 45 as a target. The reason is simple.
As you have heard, We want to invest additional means into new technologies, into digitalization, into CO2 reduction So this will gradually increase our CapEx net. At the same time, we have executed a great program of asset disposals, which were predominantly idle assets. And of course, this program comes to an end, so my disposals go down. The second reason is, that we have cash tax payments increasing as we run out of usable carry forward losses where the carry forward losses mainly stem from 2009 World Financial Crisis. So a bit higher cash payments and higher CapEx will bring our cash conversion rate down.
I think 45% is a very good target and a very ambitious target over a prolonged period of time. What is included in this net CapEx 1,000,000,000, I want to make it very clear. In the past, it was more or less only what you see here under the label maintenance CapEx that was more or less the same like sustaining CapEx, but now we have quite a significant number of additional CapEx items which come on top of this. These are the major plant overhauls to bring our assets to state of the art. And I think that's, was explained by Dominic earlier.
Secondly, CO2 reduction, environmental improvement. There is a clear need to speed that up and to do more in this respect. This will add to this Then digital transformation projects, as we have heard from Dominic earlier, Edge Connect for the customer side, edge produce for the production side and edge service for automation in the service part. And last but not least, greenfield and brownfield projects, which are also included in that. And these are all the CapEx items, which form part of this CapEx net, which is targeted to be 1,000,000,000 per year on average Beyond this, of course, we want to grow the company.
And that comes on top, but that is not part of the free cash flow. That is usage of free cash flow. And our target is to acquire businesses, which are bold on in our existing markets and in our existing market positions. Typically, there's our midsized acquisitions and I want to clearly state this, I'll know what I would call mega deals. No mega deals are on the agenda.
And this vendor talk about mega deals, I mean, multibillion acquisitions, multi country and multi business line M and A This is not on the agenda. Let me be clear, smaller sized of such bolt on acquisitions we will fund from the free cash flow larger bolt on acquisitions and larger M and A in single business lines, single country This will be funded by disposals from our portfolio disposal program. For this, CapEx, we have very strict criteria. 1st of all, strategic fit, yes? The new acquisition must be aligned with the portfolio strategy.
Secondly, it has to contribute to net profit in the 1st year after acquisition. That's a relatively big criteria, it just means that we do not intend to buy any loss making business from the beginning, even if there is a strategic or could be a strategic background for that. And then the real target is the ROIC must be clearly above 8% after the full integration. And that's a real challenge. We have to find a really good acquisition targets.
That's especially the challenge for our operating businesses who are asked to be entrepreneurial and to find acquisitions, which do meet that target. For all major, investments, we have a strict approach, very consistent approach, which focus on this 4 items, which you can see on this chart. 1st of all, strategic fit, yes, we need to see attractive market positions. We have to have invest in attractive markets, which are growing, which have a good profit pool, yes? They have to be in a good fit as a current footprint and they need to generate synergies.
Secondly, we have a technology due diligence, with all pickup projects, which make sure that they project is technically that they are not technically feasible because the ground was not good towards the halt. And here, we have to make sure that we have the right geological environment that their reserves, which are claimed, are really there, that the engineering requirements are done and that they have no supply constraints, access to roads, things like that, access to coal, access to electricity, things like that. The 3rd point is clearly becoming more and more important. We have to make sure that all our investments, all our major investments fully comply with our sustainability targets. We have talked a lot about CO2.
The easy formula is 525 in 2025. You can easily remember this. And each and every single project will be checked whether it contributes to this target or not. Beyond that, of course, general environmental, we are an extracting industry We have to make sure that we get the social acceptance to do what we do, to produce the products we produce. We have to respect the human rights.
We are in many countries well, this is not self understood. And last but not least, we have to protect the reputation of the company. All that then flows into our finance system, where we analyze the cash flow, we analyze the balance sheet, we analyze the P and L account, and we use Monte Carlo simulation for the risk assessment or for the assessment of the risk structure And then from this, we calculate ROIC, we calculate earnings per share and the other financial targets. After this strict rules, yes, of course, we will not use all of our free cash flow for that. That's for sure.
So there will be enough money left. For considerable shareholder returns, yes? Sorry. 1st, for achieving our financial and leverage targets. The company has a significant history of really consistent deleveraging And this trend has really accelerated over the last year.
We came from 3.1 Yes. And in 2019, we reached 2.2 after pre IFRS 16. Then IFRS 16, the leasing gave us a certain setback, brought us back to 2.4%. But this year, we have a very good cash flow generation until now, and I think it will continue. So we will reach our target of 2.5 2.0 times and we will reach the target of 2.0 times, even including IFRS 16, yes?
So when we announced our leverage target for the year 2020, we, this was a target pre IFRS 16. And if you compare to this, Then we will have exceeded this target. Clearly, we will reach pre IFRS 16, something between around 1.8 times. So here, we have a very good history. And now we think that the right corridor will be 1.5 to 2 times including IFRS 16, of course.
And we believe that we will, clearly reach that corridor by end of 2020. And as we understand the rating agencies, this then will allow us to achieve a BBB flat rating. So Even if we achieve our or after achieving our leverage target, there will be enough money and enough cash flow available to, generate shareholder returns. And the first point in the shareholder returns, that's what you see here. That is our dividend policy.
We will continue with our progressive dividend policy after the COVID crisis is over. You see here in this chart, that since 2019, we have consistently and dynamically increased our dividends. And this year, in 2020, we reduced the payout for the year 2019 because there was a real lack of visibility on the COVID crisis and we really could not say how it will end. Now we come out probably better than we expected. Early.
And there is a certain chance that the COVID crisis is over next year, and then we have the opportunity to go back to our progressive dividend as we have it announced it in our last statement. To wrap it up here, you see the total picture here, yes, we generate cash flow from our operating cash flow we have then cash in from our portfolio disposals, what was explained by Dominic earlier, we then have our CapEx as I have explained earlier, we have we will have achieved our leverage target by end of this year. And then we have the committed dividends, as I have outlined before. This gives us a significant amount of excess cash where we want to fund our growth CapEx from. And as I have said, we have very consistent and very tight criteria for that So this will leave us with share buybacks as a flexible option for additional shareholder return in a stable environment.
That's it in substance. This chart recaps what I have said very early. Roy clearly above 8% Cash conversion rate consistently around 45 percent leverage ratio 1.5 to 2 times. And importantly, this leaves us with enough cash flow for considerable share how it all returns. Thank you very much for your attention.
Very comprehensive presentation as always.
Yes.
You mentioned shareholder returns. We mentioned capital allocation. Of course, for a shareholder that's probably one of the most important things. To put it in a nutshell, what has changed with regard to capital allocation at Hydro Works in it?
Yes. You look, Chris. Since I was a company, which is now a very long time, we were always pushing on de leveraging. And I think now we really have the portfolio, which we need, yes, we will further improve it, but As we have reached this portfolio, we have reached, especially our deleveraging target. And that's a completely new situation which leaves us with quite a significant amount of excess cash, which we can use either for profitable growth or for significant shareholder returns.
I think that's really new.
Thank you. We will now have a short 5 minute break before we come to our live Q and A session. Let me explain one more time how we will do this technically. You will have 3 options. First, for those participants, want to actively participate in the Q And A with live questions, you will have to switch over from live stream to a Zoom session now.
Find the link on the landing page. You've installed if you have installed the Zoom app, just open the link in the app. And if you haven't installed the Zoom app, you can also join with your browser. Very importantly, for technical reasons, it's not possible to have both the Zoom and the live stream running in parallel at your computer. So please, if you switch over to Zoom, you must just continue the live stream.
2nd, if you want to participate in the Q And A, but cannot access Zoom for whatever reason, there's also the chance to ask questions via the chat function on the landing page. And third, for those participants who do not want to actively ask questions, You don't have to do anything, just continue watch watching the Q And A session via the live stream with no need to enter Zoom. So enjoy the break, and don't forget to come back in 5 minutes for the Q And A session. Welcome back after the short break. Without further review, we will jump right into the Q And A.
If you would like to ask a question, you will need to virtually raise your hand by clicking on the raise hand tab at the bottom of the Zoom page. You will then enter the question queue. And upon your approval, your line will be unmuted and we will see you on the video when you ask your question. I would like you to limit your questions to one at a time, please? Maybe a follow-up question.
Thank you for your understanding. And we look forward to a lively discussion. So, and usually not Paul this time, but the first question comes from Annu Lehman from the Bank of America Merrill Lynch. Arno, please go ahead.
Hello. Good afternoon. Thank you very much. Hope you can hear me and see me well.
Everything is good.
Excellent. Excellent. So firstly, thanks a lot for for a detailed presentation. That was very helpful. I guess, if I may, on the, on the disposal plans, if I look at one of the slides, I think it's slide 5 from Doctor.
Van Aptan presentation. It looks like the, the plan is to sell assets about 2 to 3 times more than what you've done during the 2018, 2020 period. So a quick, calculation would imply around 1 to €2,000,000,000 per annum. Is that something that you would be happy to, to confirm in terms of size? Related to that, would, Indonesia fit, in the, in the kind of, under review or at risk markets, and, lastly, in terms of executing these disposals, I appreciate you want them to be, accretive to, to margins and returns.
But in which case, that means there will be kind of possibly poorly performing assets. So are you confident that you can execute these disposals, at a good valuation?
Thanks, Anno.
Okay, Anno. Thank you very much for your, very interesting question. Let me get to the 3 sub bullets of your question on the portfolio management. First of all, and maybe let me, let me start with your last point because it also reflects then, over 2 point, number 2 and 1 on the execution. You know that we are in COVID times.
We are in a very, rocky water globally, on, right now, in general. And that means that there is a significant, transaction risk in terms of when do you get these things done? We are very committed to, embark on the journey that we've explained to you, but we also have to be realistic in terms of timeline when we can execute. That's why we deliberately said, we will do what we have promised but we are not committing to a crazy timeline that we cannot fulfill. And that's why we said, we are not going to go for fire sales, Lawrence was sharing with you that we are currently good on our cash position.
We are good on our deleveraging. So there is no need at all. To do any fire sales. So we are ruling out the fire sales. Obviously, we'll move as quickly as possible on the targets we've set ourselves, but, it is not easy for us and not useful for us to give you a timeline.
That also then goes back to your first question. What are we doing in terms of divestment size. I know many of you are sitting in front of the television and taking the ruler and trying to calculate how much are they implying by the bars that they're showing. To be very honest, the only message from that slide was it's going to be above the past, but please respect that for the time being, we do not give any specific, divestment target in terms of size That also includes the question around Indonesia. I think it's absolutely clear, and you will very well understand that we are not in a position to give you any country specific details.
I think it's, that's a little bit our secret how we go down that route, we need to we need to keep some of the secrets to us. So in that respect, bear with us, but I'm sure you understand that.
Absolutely. Absolutely. Am I allowed the second one?
Please go back in the queue since we have quite a number of questioners. If you don't mind, Arnaud.
Of course. No problem. Thank you very much.
Okay. Then the next question comes from L. O. D. Raul from JP Morgan.
Hi, everyone, and thank you very much for your presentation indeed. I hope you can hear me well as well. Alright. Thanks. I just was wondering if you could come back, into your 2025 EBITDA margin target, improvement of 300 basis points.
I think in the graph there's a large part that is coming from organic growth. And so I was looking, to see what your thoughts are on that, basically, on what assumptions you're making on volume and think an energy cost, from here to 25 and how much of that is supporting that impact improvement?
Henrik Wangzil, Lourich? Yes. So okay. As we shared with you, we have EBITDA margin improvement of 300 basis points as our target. And, we showed you it's, as comprised of 5 buckets.
Again, of course, one of the buckets is organic growth. And coming back to my earlier remark to Arnaud, I think it is very difficult for us to predict, you know, developments until 2025 when it comes to volume pricing and also costs. But let's, take what we have said in our operational excellence and sales excellence topic. Clearly, we want to, country by country, especially in those focus markets, we want to advance our market position. And that obviously should also come about with volume growth and also, selected advanced pricing as I was sharing with you.
Obviously, we are in a cyclical industry, so that's also why I think a 5 year target makes a lot of sense. Because we do not exactly know how that plays out. On the energy cost side, you have seen the developments, 2 or 3 years back, we had a explosion on the energy cost side. Now we are facing a little bit more relaxed situation, but how that plays out, it's very difficult for us to say. The other big cost item for us is obviously staff costs, and we're trying to manage it in a very responsible way.
On the energy side, Lawrence Negra has shared in the past. We have a pretty sophisticated system how we manage our energy cost base, commodity by commodity, and we continue to do so in order to improve the cost position next to volume development and also pricing.
All right. Okay, fair enough. Thanks. I'll go back in the queue then for my next question.
All well behaved. Thank you very much. So the next question comes from Paul Roger from Exxon BNP.
Hi guys. Can you hear me?
Yes. Absolutely.
Yeah. Hi. Thanks. Nice presentation. Obviously, a bit disappointed not to get the first question, but is it okay?
So I guess my question would be on EM Cement. If you think about some of your competitors, clearly there's a view that the structural challenges are quite significant and maybe it's time to pull back a bit from EM. I think it's fair to say we all see the growth opportunity But when you've got new capacity coming to many of your markets, I think there's a I think there's 6,000,000 tons, for example, Indonesia in the next 18 months, guess my question is, how how can you not only grow, but grow profitably and defend your market positions?
Yes. Thanks Paul for your question. And your cheeks are still red, if I may say so. So your disappointment is not that big. We take your question as serious as the other ones.
So thank you.
It's my complexion, Dominic.
Thanks so much for your question. Clearly, that's something that we have looked at very much in detail, Paul, during our analysis before we decided on the portfolio question, we've actually started the analysis beginning of this year. And obviously, we were looking especially at the emerging markets. Now emerging markets is a large, scope. There are emerging markets in Asia, there are emerging markets in Africa.
There are some emerging markets in Eastern Europe. We are not in South America. We know that the investor community has some doubts about the Cement performance in emerging markets down the road. But I think we also have to respect the fact that look at the results in 2020, we shared with you our first half year results, and they are very much driven by strong performance, especially in the emerging markets, Sub Saharan Africa, parts of Asia, especially also parts of Eastern Europe. In that respect, we need to, we need to stick to the facts and look at the facts.
I respect your point on Indonesia, but let remember Indonesia is a fast growing market and it's not so easy to keep pace with that growth. So there's ample room for additional capacity but as you all know, also our participation in Indocement is very much focused to expand their footprint growing with the market if need be. And that obviously falls into different parts of Indonesia that we have to look market by market I think to give a general answer on the Indonesian market in general is a little bit too broad. We look at it really, you know, what does the West Western Java market do? What does the central Java market do?
What does the Eastern Java market do? What does the Sumatra market do? So, I think we have to go market by market. In that respect, we are pretty confident that we will be able to defend our good market position that we have built in Western Java and also expanded into other parts of Indonesia. Laurence has additional point.
Maybe one comment from my side, Ms. Orchard, The during the analysis, which we did on our portfolio, it clearly showed that many of the emerging markets have a the biggest growth rate. And B, the biggest return on capital, just to mention markets like Morocco also Indonesia, maybe there was 1 year, 1.5 year where it was more difficult, but through the cycle, the Indonesian market had a very nice growth at very limited capital investment and easily earned its cost of capital. Sub Saharan Africa, excellent market position, excellent returns wonderful growth rates. And last but not least, China, where we have policy patients, 50% in HIV, but all those really make it very easily.
And there would be many others to name, but overall, the emerging market position of Heidelberg cement considerably contributes, as well to ROIC performance and to growth.
And obviously, Paul, also, we will review during the portfolio exercise, we have reviewed and will also act on some emerging market position. But I think the answer that Lawrence was giving, I think, is an important one are significant contributions also coming, to our financial targets from emerging markets.
Yes, absolutely.
That's great. Thanks. I've got a question on digital, but I'll keep Chris happy and go back in the queue.
That's very helpful, Paul, that we can stick in our time frame. So the next question comes from,
Robert?
Good afternoon. Thanks for the presentation. It's very interesting stuff. But I go back maybe on the, on the 300 basis points, you you pointed out a lot of improvements in North America. So I'm wondering where those you're upset within the 300 base, specifically in markets like, UK and they're going to improve up to group average, or, or are they sitting within a, a, a, what's to call it, watching this, a root spot?
Thanks a lot, Robert. It was a little bit hard to understand, but I I the if I get your if I've got your question, right? You were asking about the 300 basis point margin improvement with a focus on Europe, that I would basically head off and then pass it over to also to John who obviously manages WSE, Western Southern Europe, You saw in our five buckets for the 300 basis points, not only North America where I went in detail, but also the UK as one of the key countries for us in Europe, but we still see ample room for improvement and Trond will go into details. You know that for quite some time, We have had a lagging performance against some of our key competitors in the UK. I think first half of this year, under John's management, things have significantly improved and we will continue to do that.
You know, to say whether we are going to be it's really a country by country exercise. So I think in the UK, you'll probably sit a little bit above the 300, but in other markets we'll sit a little bit below 300. So it's a market by market exercise. What drives really the contribution from a group perspective from Europe is also the work on SG And A and the work on the master plan. So I was sharing with you the master plan, Germany, and I was sharing with you the master plan, France, All of these elements have big contributions coming from Europe.
So I would say we expect all overall, I would say, on average, contribution coming from Europe. But John, maybe you have something to add.
Okay. Yeah. Hi, Robert. Yeah. Managing these countries day to day, week to week, I just echo what was said there.
We're really focusing country by country on, on, type fixed cost, variable cost, pricing management, and really seeing strong successes in that. During this year, and our teams have really performed well, during the, COVID crisis, to hold their cough and continue down with, fixed cost reduction. So I'm encouraged so far by progress And that, in particular, is, is the case for the UK where they see month on month improvements in recent months.
Absolutely.
Okay, Robert. I hope that answers your question.
Great, Chad. Thank you. Yeah. I've jumped back in the queue the same as everyone else.
Excellent. We come to the next question from Yassine Thore from On Field Research.
Yes. Can you hear me well?
Yeah. Perfect.
So I think, my question is mostly on the carbon, Catcher. So regarding in your project, that's a brevic, could you give us, an estimate of the investment cost we've done for high development after the subsidies from the Northern Virginia government, because we understand that the total costs including transportation and storage is close to €1,000,000,000. How much would the hydroxyments contribute? And also it's like related to this question is, once the project is running, what kind of additional operational cost per ton would you have, to capture CO2? And, and, and, and the last one is, as you run a sensitivity analysis of how much additional investments would be needed between 202520 60 for, either maximum to become carbon neutral.
Thank you, Yasin.
Thank you. I will we'll pass that on to John. I think
Oh, yeah.
Thanks a lot for that. Hi, Yassine. Okay. Let's first of all focus specifically on the, the Brevig project. So to answer your question, The scope of our scope that we are directly involved in is the CAPTURE, purification and liquefaction scope.
That scope is 1,000,000, and our piece of that is 17%. So about 1,000,000. We will capture 400,000 tons of, of cement of CO2 per year, which you can calculate back what the payback of that will be. So at a per ton, current price, that's somewhere in the region of 3.5 year payback. In terms of the operating costs after that, that is the whole purpose of the exercise.
We're working hard on really understanding what that is. Per ton, not quite finalized yet, that's why we're doing this exercise at the pre industrial scale. So we'll have to come back
to you with what that's
those specific are, but it's looking promising so far. Then the wider question, how much CapEx do we need to invest in carbon capture from 2025 to 2050. We just don't know yet. That's why we have all of these projects running in different technologies to really understand what works best, both at an OpEx cost and a CapEx cost to, make the most efficient investments. And that's why we're focusing on the, the preproduction and, development level, on using, go on partnering with governments, like the Norwegian government, but also using, access to funds from the EU, such as the Horizon Fund, and also the Innovation Fund, where from the EU Green deal, we're, pleased with with the fact that those, those, funds are, opening their doors to new projects.
So we have a series of these projects that we're, currently putting together our applications, and we'll learn a lot more over the next few years in order to really pin down what those costs will be in the longer term.
Just to understand on the 47,000,000 versus the 300,000,000. The 300,000,000 is a cost, for the cabin catcher. But you would have to pay only 47,000,000, which means that, you would have subsidies from the Norwegian government, that approximately 85% of the first. Is that correct?
Yes.
Thank you.
Thank you, Yasin. We now come to the next question from, Gregor Kuglitsch from UBS.
Rodrigo. Hello.
Nice. How are you? Can
you hear us? We still have Yassine.
Can you hear me?
We can
hear you.
We can't see you yet. I'll not Ah, here we go. Very good.
Very good. Okay.
Excellent. Thanks for taking my questions. So I've got 1 I've got a
few as well, but I'll stick to the the the the the rules.
So the first one is really on on trading and and your implied outlook for this year. So you're telling us 2 things. 1 is July August, has been really strong. Can you just quantify what you mean by significant increase. And then secondly, on your leverage target of, 2 or below, you were, I think, at the last conference call, guiding us to, 7,200,000,000 of debt, I believe, obviously, if if that's maybe a bit lower, we divide by 2.
We're talking about 3 and a half 1000000000 plus of EBITDA. Is is that the right math? I appreciate you you have some, obviously, limited visibility into the 4th quarter, but but just just to be clear that we're on the same page with with that, please.
Okay, Gregor. Shall I take the first one and then Louvency, you take the second one. As I said, Gregor, when I look under our performance in July and always do see me smiling. So I think it could have gone worse. I would say, we are in the lowest double digit growth figures when it comes to our CLBD for those 2 months So I think the quarter 3 is off to a very good start, more than halfway down the road.
We are pretty confident on that one.
Yes. And on the leverage, you're right. I guided 7.2. And as things currently stand, we will clearly end up below the 7.2, okay, it's still early times. It's mid of September.
You know, December is a crucial month on cash flow. And the mechanics are so that if volumes go down, cash flow goes up at least in the year where this appeals. So what I can guide, we do not guide on APTA, but if we look on the net debt by end of the year as things look today, we will be, visibly below the 7.2.
Thank you. That's really clear.
Thanks. Including IFRS 16, including IFRS 16, that's very important.
Thank you for your question, Gregor. We come to the next one from Cedar Ekholm from Morgan Stanley.
Hi, guys. Can you hear me?
We can hear you, and we can see Sorry.
Perfect. Sorry about that. I thought I got kicked out of the the webcast. I just got one follow-up question on your portfolio, optimization plan as it relates to asset sales. I know that you don't want to give any specifics around which assets may or may not be up for sale.
So maybe I could ask a question a different way. If you look at the total assets of the business today, how do we think about what we could reasonably expect to be divested by 2025? Are we looking at 10% of the total assets, or are we looking at more just to try and get some understanding on the materiality? Of that portfolio divestment program?
Cedar, thanks a lot. I know that's that's the $100,000,000 or $1,000,000,000 question. So I fully respect that you are stubborn all of you, on this one. And I think to give you a little bit more flavor, I think it's important to understand that we are looking at our global footprint. This is not a, we're not going to divest of a single area or a single region.
I think that's we want to stay in our balanced portfolio. But in all of our areas, we've looked at divestment targets. And I think I was trying to indicate this at least not immaterial, right? That's why we showed you this one slide comparing the recent 3 years to the next 5 years, to say it is, from our perspective, targeted to be higher than in the past and not in material.
Okay. And then one last question on this. So you said that you want assets to, you know, be given an opportunity to meet the margin and return targets that they need to get to before you divest them. What what is a reasonable time frame? Are we looking at giving assets the full you know, scoped to 2025 to be turned around, or are we looking at, you know, moving on asset sales in a wind to your view maximum?
Yes, Cedar, I think, as I said earlier, I think it's clear from our perspective, you know, we are not in a position that we have to sell. It is a strategic decision to do so, but we are not in a need for any fire sale. So yes, we will start to embark on this exercise, right away, but you also, you all know that there is a transaction risks involved in there, but we're not going to push it out to 2024 before we get going, and the same is true for the watch list candidate. We typically look at a time frame of 2 to 3 years max and then we need to take a decision whether it goes one way or the other.
Thank you, Cedar, for your question. The next in line is Tobias Werner from MainFirst. Please go ahead, Tobias.
Yes, hello.
Yes. Thanks for this very comprehensive presentation. Very impressive. My question relates to your comment that, you know, you prioritize the improvement in margins and ROIC over the top line, which obviously makes sense. But at the same time, how would you square a situation where you have, an opportunity in front of you, which requires about 1,000,000,000 or let's say 1,000,000,000 in capital, which on day 1 would generate, let's say, 8 or 8% ROIC and and and enhance your margins as well.
How would you look at that? You've said you wouldn't make any large scale acquisitions, unless you sell something. Is that the way to think about it, or Will you not make any large scale acquisitions full stop?
Yes, Mr. Bona, thank you very much for your question. Let me start off with, and then I hand it over also to Lawrence I who will chip in. 1st, before I start, I congratulate you on your great background, of your, of your participation video, I think we know this plan. So I think that's a great background.
Thanks for that contribution. Now, it's very clear that from our perspective and Lawrence said that we are ruling out multi country acquisitions where we enter into significant new territories. I think that's an important message to all of you on the analyst side, but also to our investors. We are ruling out these multi country new geography, acquisitions. But as we said, we're going to prioritize and simplify our portfolio to focus key markets.
And obviously, If in these focus key markets, there are larger acquisitions that need to happen, I think we should be targeting these acquisitions but very rigidly stick to the prioritization that Lawrence has shared with you. Maybe Lawrence, you repeat the prioritization before we come to these both on acquisitions, for growth?
Yes, I mean, thanks, Dominic. I mean, if you look to pick acquisitions several billions of euro, it's very unlikely. And I do not see such acquisition, which makes then an 8% on an ROIC of clearly above 8% right out of the box. That's not very realistic. All these acquisitions which are out there currently are pretty highly priced and you need to add a significant part of the value by synergies.
So I do very hard in this very moment to see any acquisition of several billions. So even if it's 1,000,000,000 or 1,000,000,000, euro, which would return an OI target of clearly above 8% right out of the box. So that's not a realistic scenario, which I have in mind now. What we what we think is that we can find acquisitions do that in smaller scale, yes? And if that exceeds, let's say, a significant, couple of 1,000,000 And then we would accelerate our disposal program to refund such acquisitions by portfolio disposal proceeds.
Yes, that is our clear intention to do. But Mr. Werner, if you have such acquisition, a couple of 1,000,000,000 dollars, 2,000,000,000 dollars, 8% out of the Plastics, just tell me, I would look at that.
Yes, thank you very much.
Excellent. So we come to the next question, from Sven Ilvelt from ODDO. Please go ahead. Yes.
Good afternoon, John Tremand. I have a question about India. I believe Swari Cement is still operating as an independent company versus idledarcement in India. You mentioned Doctor. Vonerton's structure simplification.
Does this mean that you, implied you want to merge this 2 entity together? Or, the if not, does that mean you want purely to exit this country?
Yes, Sven, thanks a lot. I would hand that over to, Lorenz Nager because we have looked at this question of potentially simplifying our setup in India.
Yes, absolutely. Absolutely, we would appreciate very much to merge these 2 companies with these 2 legal entities. However, as you may know, the Indian regulatory environment is extremely cumbersome. These are 2 stock listed companies to merge them is a major exercise. The exercise would not be the problem.
The problem is the tremendous cost that comes with. We talk about high double digit €1,000,000 figure. What would be the cost for that merger? And currently, we do not have any problem with the setup of the 2 separate legal entities, except there's certain increase in underlying admin costs, but this amount is absolutely insignificant compared to the cost of merging those 2 companies. So currently, we still seek for a better way of doing that, however, will be very difficult.
One of the problems just to name it is that, raw materialize census are linked to the legal entity. And if you merge it, you have, I do not know years years of uncertainty until you get the permit or into the new entity. And that's a risk which is not worthwhile to take. We come along very well with our Indian minority shareholders, and we have no problems with that. So that's in this very moment, not the ideal, but the right way of operating.
And, Sven just to add on what Lawrence was saying because you asked also, you know, what are we, are we trying to divest India I said, we are not going to comment on specific countries, but I just want to take the opportunity to, add one additional twist to the portfolio management. I said it earlier in my presentation, this is not only about, deciding on group level, are we going to stay in one country or are we going to exit one country? It's also for the country management to decide, are we going to operate in Central India? Are we going to cooperate in Southern India? Are we going to go to Western India?
Are we going to go Eastern India. So we will now also work on the portfolios within each country, right? Because this portfolio management has really 2 dimensions So whether we exit India or not, regardless of any question that I'm not going to comment on, you know, every country management team is going to work on this portfolio optimization within their specific country. Just for clarification.
Okay. Thanks, Sven. We now have a question by the chat function from Uvishneider from Intesa Sanpaolo. Question is, how do you see COVID impacting urbanization as more and more people working from home? Probably for you.
Yeah, Shneida, thanks a lot for that question. That obviously is also an interesting one for us. Because we are watching the situation, which is pretty fluid. And I will also maybe let John Chip in second because we've discussed this quite substantially, especially in those countries, we also, the COVID hit us very badly in Europe. Not because of urbanization necessarily, but because of home working, how do we do that?
So and you may also know that we've just moved into a new headquarter Obviously, we see the impacts of this, also in our own day to day lives. Personally, I think there is maybe an impact on urbanization down the road, but I think it's also fair to say this is far too early to really adjust the magnitude all the timeline of this. And it's also, I think, a very country specific situation. While I think the emerging markets will still see some significant step up in urbanization because their urbanization rate is still much lower than what the ones in the developed markets. In the developed markets, it very much depends on another transformational topic, digitalization, if the, the governments do not push for digitization of non urban areas I think the urbanizations trend will not stop because people need to, learn.
They need to work. They need to connect with others. And if you don't have a digital infrastructure that supports that, I think there is no way, no chance that you can stop organization. So in that respect, I think this is not an effect that will happen. Over night, but there is clearly a trend in some countries that go down, that, that may accelerate down the road.
Ron, do you want to chip in?
Yes. Okay. Thanks, Dominic. I would agree with what you said in emerging markets that it really is going to continue in, developed markets like we have in, Europe. Yes, early days, but what we do see is, potentially a slowdown in, in, in some of our biggest cities but also we see already strength in growth in the more regional towns, and cities and the smaller cities.
So it's early days in a real mixed picture. You might have less commuting, for example, into Paris and Milan in London. The regional towns and cities are already, investing and flourishing. That, as well, added is added to by the, infrastructure investments that are being pushed forward that we're already seeing in Italy, and in the UK and France announced the same over the last 3 weeks. So a bit of a mixed picture, really.
Okay. We go back to the Zoom session. Thank you very much. The next question comes from Efrain Ravi from Citi.
And from?
Okay, let's move on to another shed question before we get to get back to the Zoom. Session, we have a question from Anoop Pinatel from Anfield Research Hold on. Now now he's on. Efraim. We saw you.
We can't hear you. Can I just have an indication whether we should go on zoom or on the chat, please? Okay, let's do the chat first. Anno Pinatel, he asks, your competitors are all communicating on moving on to the downstream and outside the 3 historical businesses, cement, ag and ready mix concrete by creating new divisions with in their respective organizations. They took a look, or they look for products or services or solutions targeting mortars, construction chemicals, or modular construction, you are involved into prefabrication, notably in the Nordics, And the question is, is it a core asset?
And could you explain why you do, why you do seem to differ from your competition by focusing only on your 3 historical businesses.
Yeah, Anur, thank you very much for that interesting question. And you may rest assure that we did look at this topic and we are continuously looking at that topic. But as I said in my earlier keynote, we only like to go and tell you about something that we really are about to embark on, because all these topics may be relevant, but I think John has also shared in his presentation that we are keeping these little flowers moving in some of in all of these dimensions. You know that we have the prefab business in Northern Europe and not only in Northern Europe, You know that we have a construction chemical business, for example, in a joint venture in the Netherlands. We were talking about the recycling business Alex Fraser.
So during the portfolio exercise and also during the whole question, where does the growth come from in the future? We have obviously designed a couple of pilots to follow all of these developments that you have described. And as you indicated in your question, quite right. So, as we said, we're not going to comment on what is core and what is known for the time being. We're going to watch these developments clearly going forward, but we're not embarking on any significant movement at this point.
Okay. Let's try Zoom again. We have a question from David O'Brien from Goodbody.
Hey, guys. Question for me is just on your ROIC target first. You know, I can understand why you're targeting above 8% on your existing business given Historical M and A, etcetera. But, but for new capital deployment, you know, this doesn't allow, you know, much of a margin of error if the environment worsens I guess the question is, what's prohibiting a higher ROIC target on either organic and expansion capital deployment or M and A? And also, could you just technically just clarify what cost of capital you're using as well, please?
As I said, the ROE target, as you see, we have a new, definition on that. And currently, we stand at 0.5%. And we have to move that up to 8%. If you look into typical prices for decision, we talk about 911 to a 9 to 11 times EBITDA. And if you take that, that translates into ROIC of 5% to 6%.
So you need to top up the remainder by synergies by integrating the business. If you do that for bigger business, you really have to generate a big chunk of additional EBITDA, and it is relatively difficult to look to find such investments. If you look to the past, It was always the certain criticism from investors in this industry that many of the acquisitions, especially the bigger ones did not reach such targets. So that's the side on the growth and acquisition side, On the internal side, it depends very much on the portfolio. That's what we have said, what Dominik has outlined in detail.
We have a combination of lens, etcetera, and the target is clearly above 8%, yes, and that can be a target depending on how successful we are, which goes beyond clearly beyond 8%, which can be 9% or even more%. And that's what we push for. Yes, but it depends not only from our side, it depends from many external factors, such as raw material prices, competition in certain markets, etcetera, etcetera, you have seen how, for example, in Indonesia, margins were dropping from a very, very high level down to a very low level and now recovering and they are now continuing to deliver returns clearly above 8%. So we have to say realistic and I think the target, of clearly above 8% leaves enough room to go above that and to go from 6.5 to clearly above 8% is already a major step. And we put a lot of effort in to get that.
And in case we would exceed that, in 2 or 3 years' time. We still have the opportunity to be more even more ambitious, than you are today.
Okay, John. The next question comes from Mark Gabriel via zoom from Bankhaus Lampe.
Hi there. Can you see me?
We can hear you and Hopefully, we can see you in a minute or in a second.
On the question, for having me here, today and, good presentation. I have one question regarding this YouTube, issue. When I look at the steel industry, steel industry is also one of the biggest, issuer of, CO2, and they got support from, from governments to, start hydrogen, solutions, etcetera. Looking to the cement industry, I miss a really, government support, for your industry. To storage or to, get rid of the CO2 issue.
Is you do you have a, weaker logging system, or, what could we expect going forward? Because When I look at the figures, it will increase the cost per ton by at least 13 to 15 euros when the predictions or the forecast for the CO2 price for 20.25 of €55 is right. So, big burden for you, a huge investment And just a question was, what is, what what are the governments doing for you, industry? In this case.
Thanks. Thanks, Mark. Yeah, I'll try to answer that. In my presentation, I outlined that that's what we're trying to push in our, policy requirements. We need, government support in the early stage in the, what we call, breakthrough technologies.
So capturing the carbon at the plant level, and we're already getting that. The Norwegian example was a very good example where the government's paying 80 something percent and a number of those other projects that are put on that board, they also have significant government support where we're, involved in just a small percentage. Two funds, I did mention there that we're getting success with. The Horizon Fund is, for smaller scale, early stage projects. And then the Innovation Fund for the larger projects.
And we've had direct conversations in the last few months, with the European Commission. Encouraging conversations at the highest level with, Fran Simmons, for example, where they fully get that they need to specifically help in these early stages of specific carbon capture. If you then take that to the pipelines in the infrastructure, our other big ask, and push in pub public policy is to put those pipelines in. And again, the the European Commission level, they they really understand that. And that is an industrial consortium approach that needs to involve steelmakers, chemical companies and cement makers, and we are pushing forward with our industry association out of Brussels and working closely, already with those other, industries.
So think I'm quite encouraged in particular over the last 6 months by what I've heard and the money flowing into our specific projects, and we're pushing that, too. Just a broader picture, you mentioned that these operating costs are going to improve increase and how are we going to deal with that. That also comes back into the, carbon pricing and the border adjustment mechanism. If you paint a picture where the carbon price increases, over time, And that goes hand in glove with a border adjustment mechanism. That's a world, that we think we can operate in very well.
Because we we do feel positive that we'll be able to pass on those prices, to the market. And be able to operate and get government support in those early stage investments. Gavin, maybe from my side, just one additional point to what John has said.
I think we are traditionally quite good on our work in Brussels. So John has alluded to it. I think that's a strong track record for Marlborough Cement in that respect. You know that many, many years back, we acquired CBR as a strong proud Belgian company, and we have very good relationships in Brussels. Now adding on top of what John was saying, John is heading WSE, but also Ernest De Lito in Northern Europe And Eastern Europe, He's joining myself, in Europe and in Germany.
We're not only working on the EU level, but we're also working on that country level because there are fundings, a fund available not only on EU level, but also on country level.
Thank you. We have another chat question from Martin Hoosla from Zed KB. Question is looking at your business lines, I was just wondering whether you do see the biggest or where do you see the biggest margin potentials and do you have any margin targets for the business lines?
Yes, Jose. Thank you very much for your questions. We did obviously look at the different business lines and you've heard both Chris Ward Ernest Elito speaking about, cement and aggregates in that respect. We then needed to break that down into specific markets. So in the end, yes, we have an indication on the business line, especially coming from the operational improvement that's driven through our competence center HD CCM and also CCR, but they then need to be implemented in the specific countries.
So we are really going country by country and then business line by business line And I shared with you, I think the details on the North American example, where we basically focus on improvements both in cement and also, in aggregates. So that's the market by market answer. In general, I would say, we are focusing more on cement and aggregates. Not so much in ready mix because in ready mix, you also have to be careful. We could shift easily margin from cement into ready mix or aggregates into ready mix that's not our target.
You know, we want to improve or roll 300 basis points. So yes, all three business lines are involved, but if you talk about magnitude of the involvement, I would argue probably Cement in aggregate sits a little bit ahead of ready mix.
You alluded to in North America. There's another question from Stefan Vonhager, just just alluding to America as well, he's from Metzla. Can you give more details on how to achieve higher margin improvement target in North America, any specific regional measures compared to other markets.
Yeah. Mr. Boonsaga, I think I would, as you know, we are, that's, we are targeting, market by market. Really, that's, That's a very micro market by micro market exercise. But to give you a couple of examples, I think it's clear that for example, one of the buckets was the master plan U.
S. So take the example of our Mitchell Indiana plant that will consolidate 5 kilns into basically 1 new one and that obviously, needs to contribute significantly to our margin improvement. You know that we are working on it on the consolidation and the replacement of our evens will plant in the northeast, of the U. S. We are also working on an optimization of our northeast setup up the Hudson River in the Upstate, New York.
Those are all projects that we've talked about in the past and that obviously will contribute to these efforts And then there's also no secret that in our H1 call, we talked about the lagging aggregates performance in North America and we will obviously also address those micro markets where we have analyzed and come out with a result that we are not happy with our performance that we are lagging behind the competition But I think you do respect if I don't name any very specific micro markets in that respect.
Thank you, Dominic. So we have a couple more questions in the Zoom session. Let's, do one from Mike Bets before we move on to Nabil, and then we take the follow on question from Eledi and Arnaud And I think that's all we have time for today. So four more questions via the Zoom function. First one comes from Mike Bets from data based analysis.
Thank you very much. Can you hear me?
Yes. We can.
Thank you. Hi. My question is on digitalization. Could you do you have an idea of where your progress stands relative to your major competitors? People like CEMEX and Lafash Holsim.
And would you share my view that maybe this is for against those companies if it's the kind of a stay in business investment, but the real advantage is against the smaller companies who don't have the financial resources to invest in that, or do you believe that you can actually get out in terms of that IT investment ahead of those major competitors as well? Thank you.
Mike, thank you very much for your question. Let me take that one because I presented the topic on digitalization. I know you know a little bit myself and you know also the history of the company, but especially knowing myself, you know, I'm not it's not my target and not my platform to talk about and comment about the competition. Everybody works on their own. We do our homework, whatever our competitors do, that's their decision.
That's true for the larger ones, and it's also true for the smaller ones. For us, we have decided that this is a topic where we want to put significant effort into going forward because we strongly believe, with the 3 pillars that we described, that, we can drive shareholder value. We can improve our margin. We can improve our customer interaction we can improve our asset quality and efficiency. So I went through all these levers, but that's a very company by company, decision, everybody has their own setup.
And with that, also a different starting point and a different, target, So, hopefully, we made clear what our targets are. And now it's about chasing them, and the strategy is only as good as the execution is in the end.
Understood. Thank you.
Thank you, Mike. Now we tried another time with Nabil Ahmed from Barclays. We seem to have connecting problems. So why don't we move on to LOD that worked the last time should work this time. LOD Roll from JP Morgan.
Hi. Begin. If I can then come back to, a CapEx question, you give us an amount of 1,200,000,000 per annum. I think you mentioned 50,000,000 of that is going into, CO2, investment, but there's a whole bunch of other investments you're making including innovation. So could you give us a bit more breakdown between what's maintenance CapEx with the absolute minimum and then the rest of the boxes that you had on that slide 6, I believe, Doctor Nagel.
Thank you very much.
Hi, Phil. If I may ask your question, Elodie, so one of the reasons that we have change the definition and I have outlined this ease, that we want to have a greater, a level of flexibility here. And the question is, that's also what I said, that the border lines between what is sustaining CapEx, what is maintenance CapEx, what is major plant overhaul. What is CO2? This limits are very much subject to interpretation.
There will be no more major CapEx for a plant, which does not have an impact on CO2. Now you have a discretion that's why you want to classify this as bare minimum stay in business, always you qualify that as CO2. So we want to keep hear the flexibility and remain with the 1,200,000,000 for all of that. I think that's a very reasonable, that's a very reasonable approach. The 50,000,000 churn was talking about for CO2.
These are for innovative additional CO2 pure CO2 investments, what he has outlined such as lilac as carbon capture and usage carbon capture storage. Such type of investments. That's the 1,000,000 per year, which we are heading for. And they form a part of the 1,000,000,000
Thank you, Cedar. I see Nabil's name. I'm not sure whether we go to Nabil or to Arno Neiman now.
Can you hear me?
Now we can, yes, Nabil?
Yes. Please go ahead.
Hi, it's Nabil. Sorry, unfortunately, I don't have a function in webcam currently, so I'm afraid it will be only only. I hope that's okay. I have a question about sustainability and the impact it could have on the industry dynamics. I think you talked a lot about recycling.
Why this is a good thing for the industry? I can see the benefits for the society, but aren't recycled materials, ultimately implying less material consumptions. And possibly the entry of the type of competitors into the market.
Hi, no, Bill. I think we're, it's hard to how to outline that in the in the long term future. I think, good for society, but also good for the CO2 footprint. Think it's going to be a combination of both. If you look at our aggregate businesses, we'll still need plenty of, primary aggregate material as we recycle far more.
I think if you overall, if we don't put things back into landfill, we use all the materials that are available to us, we'll both grow, and be able to grow the infrastructure that's needed, but also reduce our CO2 footprint. I don't really see it as, killing our existing business.
Yeah. And I believe it's also not never black or white. I think it's, you also, co mingle both products, you know, you recycled and, and I think that's an important piece. So you can also have in new terms, you could call them hybrid aggregates products. I think there is quite a potential in that respect.
And as you all know, our natural resources are also not indefinite. So again, it's a market by market decision where this makes sense So in that respect, I do not see this as a significant threat to our existing and existing aggregates business.
Thanks, Namil. So we have, 3 gentlemen still in the line, with their second round. We will take, all of you's first one comes from Ana Leiman from the Bank of America. Please, Arno, go ahead.
Thank you very much. I guess my question is regarding, the cash conversion target. Doctor Von Afton, how why did you, let, Doctor. Nagel get away with a target that is actually below what was already achieved in 2019. Are you implying, I mean, obviously 45%, 50% is already a very, reasonable level, especially compared to some of your, competitors.
But are you implying that you, you see going forward? Let's meet the gains on working capital or financing cost or or cash tax.
Okay. I know. I I'm gonna I thanks for the try to put a page between the CEO and the CEO fall, but that's not going to work. So rest assured, we are aligned on this one, but let me start and then obviously I will hand over to Lawrence on one. You know, we have looked in-depth before we came out with this decision on our own performance over the past 10 years or more.
And we've also looked at other available data from the industry on this. And this cash conversion rate, you know, you can always, you know, I can drive up the cash conversion rate, to a much higher level for a couple of quarters. That's not a problem. What Lawrence has explained to you is that we really want to get some consistency also into our financial performance. And that is especially true also for the cash conversion rate.
And we assume that the cash conversion rate of around, 45% is a pretty strong one within our competition on a sustainable level, but also compared to other, industries. So in that that's why we are fully aligned on this. And it's not, you know, I don't think we have to, it was not our target to set simple target. I think our targets are pretty aggressive. And I think, Lawrence will elaborate a little bit why this 45% stability is quite an, a good set an ambitious target.
Yeah. Dominique, thanks. 1st of all, as I outlined, Heidelberg Cement was working on the free cash flow for years at Yale. So the company shows over quite some years, significant increase in cash conversion rate. And that brought us from around 30% in earlier years, not on to 40%, 45%, in 2019, even to 48%.
Yeah. And as I said, we had a very favorable, cash tax environment where we were able to push out cash tax payments down the road also now in the COVID crisis. Which will give us a payout next year, which is significantly higher on the tax side, most likely than it is today. Yes. Secondly, we have worked for years over years over working capital and that is pretty much in good shape.
Of course, we could drive down our stocks in cement, clinker and aggregates, but we do not think that is helpful for the business. I can quite a significant amount of cash by pushing down our operational stock, but that's exactly not what we want. We want to be able deliver each and every single product on each and every, all of which we get and we would never, I would never take as a CFO, the risk or the current responsibility to push operations underwater. I do not know what the competitors have done here. But if you look, they have a big, reductions in their stock and the COVID crisis.
I do not know why We have kept our stock levels and we are ready to deliver each and every single order. That's a major point. And we are looking for that foreseeable future. Secondly, disposals, which are part of the new free cash flow definition, have been strong in the last years after the types of into acquisition. There were so many fixed assets, fix tangible assets, any types of inventory sold down, a significant number.
And this program, we have I have aggressively or we have aggressively pushed forward. And this comes to an end, so my disposals go up. And on the other hand, we have took us all decided to invest more in this major plant overhauls where we want to bring up our relatively old assets in some of our countries to state of the art level and that takes a little bit more of, that takes a little bit more of our free cash flow. So overall, I think this is a very ambitious target. This is a very good overall factor over a longer period of time.
And, I am always ready to fight with Dominic. What is really the right one? And if we achieve 40 percent, 49% or 49.5 percent, then I will be very lucky to put that as a future target. And you will be happy to see how we, how we push up our targets in the future, yes? And, that's it from my side on that point.
Thank you, Lawrence. We have the second question now from Tobias Werner. Let's see your lovely background again, Tobias?
Hi, thanks. Just on simplification, accountability and responsibility, I think you are a key factor to drive your workforce or your, you know, your colleagues forward and also deliver returns for a company. I see you're talking about combining global and area functions, but, how will you ensure accountability and responsibility and Will the managers have, country responsibility? How do we have to imagine this in a practical way. So will a manager of a certain asset base be the only responsible for that a base, or will there be any cross functional responsibility or accountability?
Yes, Ivan, I think that's a very important question And in fact, it's one that we have discussed intensively in the board. Let me come to your point and give you a specific example because we have, I talked in the business excellence piece about both commercial and operations. And on the commercial side, we have really empowered the countries to push the organic growth and the commercial excellence on the country, level. They will be fully supported by the area board members like John, and they will obviously also be supported form a with a light support on area level, but that's a very light support. If you take the flip side, on the operational side, we've gone a little bit of a different way that we have our technical directors in each country.
And then we have a we have basically pulled the operation support with rigid performance management down from the global level closer to the operations, on area level. So each, again, each area board member has the tools in hand in order to drive their operational performance in each of their, in each of their countries. And when it comes to the first part of your question, combining group and area functions, the way we do this is that we have a coherent group functions for specific topics but we have within those group functions, business partners for each area board member to ensure that there is a seamless link between the group functions and the area management on a day to day basis.
So just to get this right is at the end of the day, you know, let's say a senior manager, is being assessed. Are there any factors which he can sort of point to other parties to, or is he specifically responsible for an asset base and that's it
for peak.
I can maybe help that and come in from the perspective of, running one of our five areas. I can tell you the accountability is very clean and clear. Each of our countries has a country manager, with, their operational team they're specifically, accountable and responsible for their results, from bottom line cash flow and their CO2 results. Then I have a very small light touch set of business partners that with a direct line, yes, they report to global function, so legal, business development, HR, for example, and those guys simply support me in, improving the processes in those countries. And then we have in ready mix, cement, an aggregates, a performance guy who works directly for me, that, essentially goes into the countries and helps improve things.
But that doesn't take away any responsibility or accountability from the country teams. That's crystal clear.
Thank you. Now we come to the last question, Paul Roger, Exane BNP.
Hi, again. Thanks for taking the follow-up. Just maybe to conclude back on digital. I mean clearly the plan sounds quite sight in, and really my question is, you know, how how do you actually go about getting the skills to do this? Do you do you have them in house?
Do you have to look at things like, I don't know, acquiring startups? And really, how how do you go about encouraging a tech whisky as it were? To join the cement industry?
Paul, you, that's a good question. I, by the way, you couldn't be the first and the last. So I think we make up for taking as the final question. I think that's a very interesting question. It's obviously something that we have learned our lessons over the past, 2 years, you know, that I, we have embarked a little bit on the digital side on a small scale.
And that really evolved over the years. I think we have now found a pretty good setup in terms of what do we need to do internally. And there are some specific skills that are crucial for the digital, for the digital success from our perspective. That we have internalized, and we will keep internalized. Obviously, and that's the nature of the whole digital setup it's more also sometimes a network approach, right?
So you need to also work with universities with startups with funds, with other, experts outside of your own scope in order to get to the result as quickly as possible. And that's, I think, from a, when we talk about new ways of working, you saw the video at the very beginning I think it's clear that for all of us, you know, it's not about silos anymore. It's very important to work together in teams and make sure that we have a project driven approach to solve the customer's problem. That's a little bit our approach to digital I think you do fully respect that I don't go into much, more detail, but I think we're on a good way, on that one. Great.
Thank you.
Thanks, Paul. That concludes our Q And A session. Before we close our Capital Markets Day, let me hand back to Dominic with some final remarks.
Thanks a lot, Chris. Guys, thank you so much for joining us today. It's now been more than 3 hours. I think, it's been an interesting journey for all of us, to prepare this hopefully, it wasn't entertaining and content driven, afternoon or morning or night for all of you who have listened in. Let me just summarize why we believe that going forward, hydro by cement is an attractive investment, inside and outside of our sector.
I think we made it very clear that our portfolio is very well positioned to benefit both from growth trends in emerging markets, but also from a good asset base in mature markets, representing a very strong global footprint. I think both myself and Lawrence have shared with you that we want to go forward with very clear and measurable financial targets. RoeIC, clearly above 8%. EBITDA margins going up by 300 basis points by 2025. And as I said, and as Lawrence said, we're going to come back to you and measure against those targets.
We are convinced that we can unlock further significant further value potential by shifting the portfolio focus. I was talking about shifting gears, to core markets rather than just going for noncore markets. And by doing so, we should also be able to improve the operational performance across the value chain That's basically, get the basics right. And then we have the innovation part that breaks down into what John has shared with you on CO2 and ESG and what I've shared with you on digital. And in those 2 transformational topics, we clearly want to be different from our in our industry.
If you wrap it all up, clear target is to offer attractive returns to our shareholders And as Lawrence was sharing with you, that includes both progressive dividends returns once COVID is over, and, also the possibility if there is a stable environment to, come to share buybacks. With that, I thank you all for your participation, Chris. You have something to say as a closing remark.
I think that's the closing remark. I couldn't have said it better.
Okay. I thank you very much to John and also Lawrence Chris for your moderation. Thank you very much, and stay tuned. We'll keep you updated about the further developments. Thanks a lot.
Thank you.