Hello everyone, welcome to the Capital Markets Day of Heidelberg Cement. My name is Chris Beumelburg. I'm heading the IR and Communications function at Heidelberg Cement. I have the pleasure of leading you through the day. This is a first for us in many ways. The first time we are hosting a 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. Of course, the first time a Capital Markets Day is hosted by Dominik von Achten, 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&A session at the end. As a side note, some of the videos contain content that was recorded prior to the outbreak of COVID-19, 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 sneak preview of what we have prepared for you over the next three hours. We start with the keynote speech from our CEO, Dominik von Achten. This will be followed by a short film on our operations, and a panel discussion with our board members, Kevin Gluskie, Ernest Jelito, and Chris Ward on operational excellence. Dominik von Achten follows on with a short presentation on portfolio management. We will then take a deeper dive into our key transformational topics, sustainability and digitalization.
Jon Morrish will present on CO2 reduction, and Hakan Gurdal on our alternative fuels strategy. Dominik von Achten will provide you with the insights into our digital transformation strategy. Finally, our CFO, Lorenz Näger, pulls it all together in his financial update. Following the formal presentations, we will have a short break in order to set up the Q&A session. Please note that there are three options to participate in the Q&A session. First, for those participants who want to actively participate in the Q&A session with live questions, you will have to switch over from the live stream into a Zoom session 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.
For those participants who do not want to actively ask questions, you just stay in the live stream. You don't have to do anything. You can watch the Q&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, Dominik von Achten. You excited to be here, Dominik?
Chris, absolutely. Thanks so much for the warm welcome. Thank you very much, Chris.
Yeah.
Thank you very much, Chris, and welcome to all of you around the world to our Capital Market Day 2020. Before we explain to you why our HeidelbergCement materials are indeed material for our future, let me just make two opening quick remarks. First of all, our day-to-day business does not stop. 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. We had a very good July and August. We are indeed very optimistic for a good Q3. I think that's important for you to know. Secondly, it is the Capital Market Day, Chris was already alluding to it, that is done fully virtual. I personally stick to what I promised. You know there was a little bit of a discussion, "Dominik, 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, I would say middle of September, that's end of the summer. I stick to what I promised. With that, let's get into the details. What we want to achieve today is pretty simple. We want to show you what we do differently compared to the past. We want to also demonstrate to you 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 CO2 reduction targets and our roadmap. Jon is going to take you through that.
We're going to describe to you why we are convinced that digital transformation is a step change indeed for HeidelbergCement. Last but not least, very important for me, I and we all want to also introduce to you all our acting HeidelbergCement board members in action. Let's look at the fundamentals of our industry from which we are convinced that they are still very much intact. The market dynamics fall a little bit into two 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 European Green Deal.
In fact, Ursula von der Leyen 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. There's also the regulator who tries to push in that direction. Thirdly, very important from our perspective, technology. You can argue, building materials, that's a fairly old product. Why the hell do they need technology? We are very convinced that there are three 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.
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. We were quite surprised even to see this very interesting pattern. You see growth mainly coming from the emerging markets, which for us is obviously very important when we talk about countries like Indonesia, India, sub-Sahara Africa, where we continue to see good growth potential going forward. Then on the other side, you have the developed markets, where the cement consumption is actually been fairly stable over the last 35 years, and the drivers are now, from our perspective, more sustainability and digitalization. That will also decommoditize our industry from our perspective.
Just a very quick snapshot on HeidelbergCement, 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 concrete, and we are number two in cement. We run more than 3,000 production sites globally in more than 50 countries. Our cement capacity is close to 200 million tons, and our aggregates, very importantly, our aggregates resources and reserves are almost up to 20 billion tons. 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 EBITDA exposure to developed countries, notably Europe, 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. I was mentioning already the high-quality reserve position in both aggregates and cement. 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 target of Beyond 2020.
The importance, however, is that we are starting from a very solid base. 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. We have the challenges that we will tackle. First 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 HeidelbergCement, were the leaders in cement production technologies.
Other nations, other competitors have caught up, and there is, from our perspective, a commoditization going on in that field. Climate change, I was already mentioning that, 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 industries. Look at, for example, the automotive industry. Very important for me, don't forget the cultural change. We work with more than 50,000 people around the world. As we've learned now through COVID-19 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 two targets that we want to fulfill here. One, the simplify and improve. Three key elements. I will lead you through them.
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. Second, 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 to core markets. I will get into that later on in a more detailed presentation. Thirdly, people and organization. My clear goal, our clear goal is to simplify business processes and in general, our setup. Four, we have sustainability. We want to lead the way to carbon neutrality. We want to lead the way to carbon neutrality.
That's very important for us. We carry the color green, and now we live it. Digital transformation, last but not least, the fifth pillar. We are convinced that digital transformation enables a step change in business excellence, and I will give you some examples. All of this needs to come together, and with very strict capital allocation that Lorenz Näger 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. Let's get through the six pillars. First, before we dream about all the other pillars, we need to get the basics right again. In that respect, we target both a commercial aspect and also an operational aspect. We will empower our local countries, our local country management teams, and want to foster local entrepreneurship.
By doing that, we want to drive organic growth. 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 new services. Secondly, we have our operations. As I said, we believe this becomes more and more a commodity. What is important in commoditization? You need to be the cost leader. You need to be the best operator. In that respect, we are really targeting rigid performance management. We are fair to say in the last two or three years, we have lacked a little bit in that respect. 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.
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 excellence topics. North America. Close to my heart. Many of you know that I have spent quite some time in my career at HeidelbergCement in North America between 2009 and 2016. 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. 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 three buckets, commercial, operational, and SG&A, and obviously we will cover all three 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 must improve our reliability of the assets, and we will do so by targeted cost-effective investments. Last but not least, obviously, we also will continue to work on our SG&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 on portfolio management. What does that mean? We will stay balanced in our portfolio between mature markets and emerging markets.
We have set ourselves very clear portfolio criteria that differ from the past. A, we want an attractive market position that we can defend. B, we want clear and strict financial returns from these investments into these markets. C, we have only a right to be in this market from our perspective if HeidelbergCement is the best owner, we have the maximum amount of synergies to manage these assets. Also, we want to reiterate our strategic focus. We must reduce the complexity of our portfolio. We want to do innovation-focused improvements of our asset base, that's 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, we will take you through the details in a minute. Third 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 zero harm. That is very important under COVID-19, 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 being based in those as of 2021. It is very important from my perspective that the change starts at the top. We implement a very clear logic also on the board structure. Each board member will only have one global function per board member going forward.
If you mean change, you have to walk the talk, and in that respect, we have decided to allocate board members to the two transformational topics. That's why Jon 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. As I said earlier, we will continue to reduce SG&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 Jon will lead you through that in very good detail. As of today, we have set new industry-leading CO2 reduction targets, both for 2025 and for 2030. Very important, they are thoroughly underpinned by a clear roadmap per country.
With that, we want to leverage our strong local low carbon product portfolio that is already existing, but that we are going to build out further. Obviously, we want to drive critical breakthrough technologies on CO2 reduction to become carbon neutral by 2050. Digital transformation, second transformation topic. We want to share with you our approach. We have basically three pillars. HConnect, that will cover the customer interaction side. H Produce, that will cover our production assets. HService, 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 HConnect, so the customer side, we target to get to more than 75% 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.
Three clear levers. 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 America. On this cash generation, our strong focus on free cash flow will even intensify, and our CapEx will focus on asset-based improvements with good financial returns. 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 are clearly committed to shareholder returns. Here are the financial targets that we want to communicate and share with you. Five of them. EBITDA margin improvement versus 2019 of 300 basis points. We want to have a ROIC clearly above 8%.
We want to operate with a leverage ratio between 1.5 :2 , 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 525. Digital transformation, as I already mentioned before, more than 75% of our global sales volume needs to be covered by HConnect. Going forward, to make that very clear, we will track ourselves against these targets. 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 five 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 the improvement in margins and ROIC over growing the top line. We shift our portfolio focus to the optimization of core assets, while we stay committed to our balanced global footprint. 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&A needs to be funded through portfolio disposals. We will accelerate our innovation in CO2 and digital as the frontrunner in the building materials industry. 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 Gluskie, Chris Ward, and Ernest Jelito, 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&A with Chris Beumelburg. Thanks so much, and enjoy the further program.
[Presentation] .
HeidelbergCement 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.
[Presentation].
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 strongly focus on automation and digitalization. We'll develop a fully digitalized cement plant equipped with an expert system based on artificial intelligence, which will be fully operated remotely.
[Presentation] .
We have developed a capability to have central transparency 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. Thereby, we can control the entire value chain in key markets, and so maximize margins on an integrated basis.
[Presentation] .
Welcome back after this sneak preview into our operations. Let's hear it directly from the three board members who run our business lines, how they are tackling operational excellence. 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 two other gentlemen will join us live by video from opposite parts of the world. With me in the room today is Ernest Jelito. Ernest has spent an unbelievable 38 years with HeidelbergCement. He's responsible for our business line 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. Chris is a fan of American football. He played in university and still enjoys watching. Finally, Kevin Gluskie from Sydney, Australia. Kevin oversees our competence center ready-mix and the Asia-Pacific area. He's got 30 years experience with Hanson and HeidelbergCement, and he's a board member since 2016. Kevin's major interest outside work is flying. He's a pilot. He's got a pilot license for many years, and recently he has been rated to fly a jet, which he thinks is pretty cool. 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?
How do you want to further improve your asset base?
We concentrate on high margin markets, having high quality assets. How we'll do it, we'll dispose assets we do not expect sufficient margin improvement in near term. We'll 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 runs in the 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 plant, one of our core market in Western Europe.
Thanks, Ernest. Chris, over to you. You mentioned your footprint in aggregates in key markets like the U.S., U.K., Australia. What is your strategy going forward regarding asset optimization?
Yeah. Well, 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, 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. 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. It's important to reiterate the logic behind our ready-mix strategy. By being an anchor customer for our upstream cement and aggregates business, our ready-mix operations protect against commoditization, 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 for those few areas where we have standalone ready-mix positions, we must make sure that they always remain profitable in their own right.
The second area of focus for us is those emerging markets where urbanization is driving a shift away from manual construction techniques, where cement is distributed mainly in bags, to where building construction is done in a more sophisticated way that requires the availability of quality ready-mix concrete. What we see is this transition can happen very quickly. For example, in Bangkok, it was less than 10 years. We must be ready to move at the right time and build our ready-mix position. For example, very important market for us, which is currently experiencing this transition, is 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. 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. As I think about aggregates, 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. 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. Margin improvement clearly must also come from the commercial side of the business. We're investing in training and improved tools 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 to be the lowest cost producer. How do you achieve that?
Yeah, exactly. On the cost side, we've got a number of really clever initiatives. At the core of this is our capability to extract key operational data 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. It's here that we put the majority of our focus. All raw materials in ready-mix are different by local market. This, together with the myriad of different customer end-use requirements, results in literally hundreds of thousands of different mix recipes being in use across our business at any one time.
Having the technology and the expertise 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, while at the same time minimizing our raw material costs. Similarly, on the logistics side, we've got a sophisticated digital platform unique to Heidelberg Cement that's been installed in a number of major metropolitan markets, that optimizes deliveries in real time. This ensures that our customer needs are met while at the same time achieving the maximum utilization of delivery vehicles, and therefore the lowest possible logistics costs. Because of the large scale of our ready-mix business across the world, we've got enormous cost leverage from these programs.
Even a saving of just EUR 1 per cubic meter is substantial when it's multiplied across the 55 million cubic meters that we produce annually.
Absolutely. How 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. Therefore, we are implementing a unique plant operating model in all our cement plants. Based on this, we'll identify 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 include biomass in alternative fuels. By this, we'll not only reduce the CO2 reduction, but we will also reduce production cost. Lastly, we see production process automation and digitalization as a key driver to reduce production failures and human errors. For first, we will ensure continuous production and cost reduction.
You mentioned some of the mega trends already. We also heard them in the keynote speech of Dominik. They are the key drivers for our businesses. 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 three relevant mega trends. The first, as mentioned previously, is increasing urbanization. This is particularly relevant for us in the high-growth emerging markets. The second relevant mega trend is growing awareness worldwide on carbon emissions. This is a tremendous opportunity for Heidelberg Cement, because concrete is a fully recyclable building material, and it's by far the best construction choice for energy-efficient buildings. Going forward, we're putting a lot of focus 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. For me, the third key mega trend is digitalization. Again, this gives us opportunities both in the way that we interact with our customers, but in also making our manufacturing opportunities or our manufacturing operations more efficient.
On this topic, HeidelbergCement's very much on the front foot.
Yeah, you mentioned digitalization. You also mentioned digitalization, Ernest. Can you elaborate a little bit more about that?
We are using digitalization as a powerful tool for margin improvement. Group-wide, we are implementing an advanced process control system, which allowed us to reduce production cost. Thanks to the system, we can, for example, expect by 3% power reduction from cement grinding process. We are implementing movable maintenance apps to control technical conditions of our key equipment in real time. By this, we can expect a maintenance cost reduction and a 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 measure for plans and identify the 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 deep we go for automation and digitalization, we run a project in Germany to develop fully digitalized cement plant, and after them, we roll it out to other cement plants. By digitalization, we are expecting not only to reduce production cost, 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?
Yeah. I would say our aggregates business will certainly be impacted by the broader company push towards digitalization. As I think again, more specifically around aggregates, three main trends stand out. First, I would say it would be reserve scarcity. Challenge is 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.
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. 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 recorded 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. Let's hear it directly from Dominik von Achten what will be different in our portfolio approach going forward. Dominik, please come on stage.
Thank you, Chris.
Before we talk about portfolio, can you elaborate a little bit about our 300 basis points 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 really enjoyed this Q&A and the videos, I have to say, because it really also gives us a good flavor how does a global company like HeidelbergCement operate under COVID-19. 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. We will also have great teamwork to get to the 300 basis points.
Let me share with you the five buckets that will comprise the way to these 300 basis points improvement. First and foremost, I'll come to that in a minute, portfolio management. Not only, 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, 400 to 500 basis points. Clearly above the group average target of 300 basis points. Significant upside potential from our perspective, also in the U.K. Fourth bucket, master plan execution. Many of you know that we are about to revamp our big plant in Mitchell, Indiana, in the U.S. 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 kiln closure in our very historic plant near to Heidelberg in Leimen, 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 three pillars, HConnect, H Produce, and HService. All of these five buckets need to ensure and will ensure that not only Chris, Kevin, and Ernest, but also Jon and Hakan, Lorenz, 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 three simple steps.
First step, we are going to rightsize in order to reduce complexity. In doing so, we will shift from non-core to core asset disposals. Secondly, we will strengthen the remaining portfolio, especially through innovation-focused asset-based improvement. We have allocated, Lorenz will go through the details, EUR 1.2 billion per year net CapEx. Thirdly, we will obviously grow our remaining portfolio. We will expand in focus markets, 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 two 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.
I shared with you earlier, HeidelbergCement clearly needs to be the best owner of these assets. That's very much targeting towards the synergy aspect. If you take all that together, you see here that we will end up with a portfolio of three buckets. We will have our focus positions. We will have our weak spots that we're going to divest. We have our watchlist. Divesting is basically done out of the following four criteria. 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 to a defendable market position, we will divest. If it is not a position with sufficient synergies, especially in the downstream side, we will divest. We will continue to divest all type of non-core assets.
In doing so, very important, again, simplification, we will reduce the number of management units. We have introduced the watchlist, and we will obviously continue to 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 of core asset disposals. This is driven by our new active core portfolio management strategy. We will continue to divest non-core assets on normalized levels. The last two or three years, we were a little bit above, but we will continue to do this going forward on normalized levels. Obviously, our disposal criteria need to be fully supported by our financial targets. How are we going to strengthen our portfolio? Clear focus on three 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. That's very important. Our significant regular CapEx, even if it's stay in business, must deliver onto any of those five 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. 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.
We will spend about EUR 1.2 billion 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. 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. 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%.
We also need to make sure that the invested acquisitions will meet this ROIC target after full integration, and they need to contribute to the net profit in year one after the acquisition. Let me wrap it up again. Shifting gears in portfolio management means for us we rightsize, we strengthen, and we grow our portfolio going forward in order to drive additional shareholder value. Thank you.
Thank you, Dominik. This is indeed.
It's been a question.
Stay on stage. Yeah. This is indeed a change in the way we manage our portfolio going forward. You mentioned the word watchlist in the beginning. Can you elaborate on that word? What do you mean by watchlist?
Yeah. 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 develop them into future growth markets. Watchlist basically means that we have given them and will 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.
Very clear.
Thank you.
Let's switch gears to our first transformational topic, sustainability. We have been very active with reducing our CO2 footprint in the past years. It's clear to everyone within HeidelbergCement that we will have to accelerate even further our efforts going forward. How we will do that, we will hear from Jon Morrish. Jon heads our region Western and Southern Europe, as well as our sustainability activities. Before Jon 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.
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I hope you found that video useful. I'm pleased to be here today to be able to outline how we will take this forward and how we will lead the way to carbon neutrality. I'll outline five 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 and 2030. The third is how these targets are underpinned by a bottom-up, a very clear roadmap. Four, I will cover how our strong, local, sustainable, and low-carbon product range will help us get to our emissions targets. Five, 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. CO2 reduction is embedded in the culture of how we do things in HeidelbergCement. Indeed, we're being recognized by our efforts. The CDP has recently rated Heidelberg with an A score in 2020, that has gradually increased over recent years. We're also proud of the fact that we're the first cement company to receive confirmation from the SBTi that our CO2 targets are fully in line with the goals of the Paris Agreement. We also have a clear commitment to TCFD compliant reporting, we'll start that in 2021. All of these therefore gives us really good foundations to build upon, 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 kg per ton of cement by 2030. Those are ambitious. We're 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. These carbon roadmaps are not just within the EU, they've been rolled out globally across all our countries. Importantly, this is not going to cost the earth either.
It's going to cost us in specific CO2 related CapEx approximately EUR 50 million per year for each of the next 10 years to get to where we need to go, 500 kg per ton of cement by 2030. How will we get there? We'll pull five main levers. The first is our product mix, where we'll drive down clinker incorporation from 75% last year to 70% by 2030. We know this is against a difficult backdrop of lower coal-fired power stations, less fly ash, less blast furnaces around for lower amounts of slag. We know those challenges exist, we're still very confident of hitting the 70%. The second major lever is alternative fuels, where we're very well progressed in many places, we'll move that from 24% overall to 43% by 2030.
That's a significant change in places like the U.S. and in Asia. More relevantly, we'll more than double our biomass within those alternative fuels from 9%- 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. As has previously been stated, we're changing our footprint and modernizing our plants in numerous places, particularly we've outlined in the EU and also in the U.S. This has another major impact on our CO2 footprint. 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 Gurdal, 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 Lengfurt cement plant in Germany, around 90% of our fuel use comes from alternative fuels, the highest level globally. Lengfurt 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 25%.
In Indonesia, we have more than doubled our waste and biomass usage over the last two years. 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. Switching 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 EUR 20 million by switching 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. At Heidelberg Cement, we don't take a centralized global product marketing approach to low carbon and sustainable products. We do what we do best, which is focus on country-based customer solutions across our sustainable and low carbon products. We've got a wide range and a strong range of low carbon and sustainable products already in place in four 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 U.K. and Norway. The second is where we blend our concrete mixes with recycled aggregates.
I have a slide in a minute that takes you through one example in the Netherlands and green concrete here in Australia. The third bucket is our innovative low carbon sustainable construction solutions, there are two Italian examples here on the slide. The fourth is where we provide solutions for energy transition and clean air, there are two product examples here from our German business. In the Netherlands, EcoCrete is a great example of a growing sales 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. It's very flexible, it's used for a variety of end uses, as you can see here, an apartment building in the Netherlands. The advantages are obvious. 70% lower CO2 per cubic meter compared with a normal concrete mix.
It reduces the need for primary aggregates, promotes the circular economy, and 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 i.tech 3D. This is shown in Italy. This is really high-tech concrete that is used in construction solutions through 3D printing. 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, less waste and lower labor costs, and we're gaining real traction in this product.
Hopefully from the last few slides, you can see exactly how the levers that we will pull give us great confidence that we will be able to hit our medium-term target of less than 500 kg per ton of cement by 2030. Moving now to the longer term, it is 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 ETS, but across in Canada as well, in California, and Guangdong in China. In black are 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.
Over time, we definitely see carbon emission regulations tightening, and we would expect this map to be filled out over the next 10-15 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 cap reduces. Depending on how much we produce, we either have surpluses or deficits. Within the EU ETS, the price this week is around EUR 30, and we're preparing ourselves for where we move from phase III at the end of this year to phase IV in next year with a further reduction in the emission cap. If you're wondering, we're long on EU ETS certificates from our calculations until about mid-2023.
This is the backdrop within which we're operating, and this will get tighter with carbon emissions getting tighter in the longer term. What are we doing about that? We're actively engaging policymakers at the national, regional, EU level. I'm directly involved in that. We're driving six key things. First, we need a global level playing field. We're not naive about that. We don't see global carbon pricing. What that means in the short term is that we need a carbon border adjustment. In the EU, we need that by 2025 latest. 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. Third, 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 U.S. We need specific government funding in the development of early-stage technology in carbon capture usage and storage, for example, where in pre-production level, these technologies need specific investment. We need governments to help. Five, 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. Six, we also need governments to help us establish the conditions for the circular economy. The Dutch example of banning construction waste in landfill is a great example, and we need many governments to get on board with that type of approach.
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, as you can see here, we need to pull on three 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. By pulling all of those levers I outlined, will take us a considerable way between 2020 and 2030. After that, from 2030 to 2050, we need two 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. Those are all the pieces of the jigsaw that go to carbon capture, its use and storage. In addition, kiln electrification. As you can see from this, those two 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. We can't wait till 2030 to get going on the circular economy and carbon capture and usage. 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 slide here. You saw in the video the example we showed of our Alex Fraser business in Australia, very well established and 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. 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. Four 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 catch4climate project here in Germany. The video showed you how we've learnt a lot from our Belgium project in the LEILAC 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 microalgae projects where this material is being used for animal feed across Sweden, Turkey, and France.
We're at a commercial level at our business in Morocco. We also have other usage projects that we'll be able to announce in the next 6- 12 months. We're combining hydrogen with carbon dioxide at two plants, one in the U.K. and one in France. We're also driving forward with numerous kiln electrification projects in different countries. Our most advanced CCS project is our Northern Lights consortium project in Norway. This is at our Brevik cement plant. We will take about half the CO2 that is produced at the plant, about 400,000 tons. Using post-combustion amine technology, we'll clean, purify, then liquefy the CO2, put it onto ships. 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. 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%. 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. We're really excited about where this is going. To recap, we already are proud of our strong track record of reducing CO2 emissions by 22% from 1990.
Today, that gives us strong foundations to launch our new industry-leading targets of 525 kg by 2025, five years earlier than first planned, and then to move on to less than 500 kg per ton 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 leverage our strong existing local, sustainable, and low-carbon product portfolio to drive down emissions and get the progress we need. Finally, we're driving numerous critical breakthrough CO2 technologies that give us great confidence that we will be able to reach carbon neutrality by 2050 at the latest. Thank you.
Thank you, Jon. Very impressive. You showed an impressive number of projects that will get us a long way on our way to reduce our CO2 emissions. It's still a 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. There's real detail there already. When we put our shoulders to something, we've shown it time and time again, we can get there. 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. We're already there with various projects and in business in the circular economy. This 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 Dominik von Achten, who heads up our digital transformation efforts. Dominik, please come back on stage.
Thank you very much, Chris. Thank you very much. I would lead you through the second transformational topic of the day. First of all, I would like to thank Jon and Hakan for their great job on the sustainability topic. As we said all along today, very important for us, so I think great teamwork also in that respect, and the full board is clearly behind those sustainability targets going forward. Now I would like to get into the second transformational topic, digital. 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. Why that is the case, I will explain to you in the following minutes.
I already mentioned some of the key pillars, 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 going to be the first industrial tech company in our sector. That is built on three pillars, HConnect for the customer side, H Produce for the asset and production side, and HService for the back office side. Let's talk about the effects of those three pillars. These are effects we already see in the first couple of years that we've embarked on this journey. Let's start with HConnect. 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. If you go to the next one, H 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, HService. We want to really leverage our existing good country footprint with going beyond countries into areas, regions, 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 three pillars each for a moment. HConnect. I would love to let the team talk what they are all about.
Today, we have 20 sites being built with multiple pours on. 118 trucks are servicing sites from 10 plants, and we have 60 people using the OnSite app to track the trucks' movements and ensure our building projects go to plan. We are optimizing costs and delivering efficiency. I've been using the OnSite app for six months now. It's an absolute game changer. It saves me time, allows me to be more efficient with my resources, and makes life much easier.
We implemented OnSite nine months ago. During this time, many of our customers provided feedback similar to that of Hutchinson. OnSite is making life easier for both us and our customers, as we are solving a number of their key pain points. We have nearly 500 weekly active users currently using OnSite, and we continue to talk to customers about what else we can do to make working with us easier.
We're currently working on things like last truck orders in OnSite, back office service functionality, 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 savings or 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.
Big 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 HConnect up until now, we are covering 20% 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. With a pilot in Australia that you heard also Cathy talking about, we have created additional revenues of AUD 20 million. We have reduced the call volume into our customer service center by using the OnSite app of more than 10%. 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 HConnect products. One key point you heard Cathy 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. It will save money for our customers. It will, as I said already, reduce calls into our customer service center. Also, CO2 related, it will reduce the number of diverted trucks. Let's talk about H 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.
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. 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 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 EUR 200,000. Now you may say EUR 200,000, guys, is that enough?
Well, if you add that all up, and this has been the first pilot only, if you add that all up across our asset base, it does contribute significantly to our 300 basis points margin improvement. We have targeted to basically have 50% of our operational excellence savings digitally supported. 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 is urbanization, there is population growth, and also the market develops further and further into ready mix. 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. Very importantly with digital, they have started on real-time coordination. That is obviously the big value for the customer. Last but not least, let's not forget our employees. Very importantly, this consolidation also helps significantly in monitoring and training of our employees in order to improve further our customer service. From your shareholder perspective, we have reduced our operators by the small amount of 60%. I would argue this is quite a significant benefit. This is why we have embarked to become the first industrial tech company in our sector. HService. HeidelbergCement has a long-standing 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 team that we are able to unlock further efficiency potential. 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 Jon's region, WSE, where we cut across countries to, on a functional process basis, work on accounts payables and unlock further optimization potential. 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. To wrap it up, I hope you understand why our three pillars on digital will have a significant contribution to our 300 basis point margin target. We will, with those, become the first industrial tech company in our sector, and we are convinced that we are going to deliver the targets for HConnect, H Produce, and HService going forward. Thank you.
Thank you, Dominik. Once again.
Thank you, Chris.
Oh.
You want me again?
You want to go off stage? That's okay.
That's okay.
Quick question. You mentioned our three pillars, and I know you're a demanding CEO. Are you satisfied with the speed of the progress that we made?
I think there is something I learned from my grandfather, never be happy with what you have achieved. This is also true for our digital efforts. I think we have come a long way, absolutely, as I was describing, but clearly, we can further accelerate. That's also why we have changed the organization now a little bit to enable us to go even faster. As you have mentioned, and I have mentioned, I will try to push that myself. In that respect, let's get going even quicker.
I'm sure of that.
Thanks, Chris.
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, Lorenz Näger? Lorenz, please come on stage.
Hello, Chris.
Hello.
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. I think all what we do here will be reflected, and you will see it in our financial statements. 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. Here you can see 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. I will explain to you how we are going to do that. This will lead to a ROIC clearly above 8%. Second point, cash generation. We have a very strong focus on generating cash from our operating results.
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. Last but not least, cash allocation. That's a very important topic. We have and we want to reach and keep a triple B flat rating. We will make very disciplined use of cash in our growth CapEx, in our acquisitions, and we want to maintain a leverage of 1.5 x- 2x EBITDA, that will give us sufficient room for considerable shareholder returns. Let's have a look on our targets. Let's start with the ROIC. The ROIC is our dominant financial target. However, HeidelbergCement has introduced a ROIC definition quite a long time ago. The world has moved, the definition in the market has changed.
We will adjust our ROIC definition to the market standard. That has two main topics. The one point is the taxes. Traditionally, we had cash tax payments to be deducted from the operating result to arrive at the NOPAT. We will change and use the current tax expense rate, which is in line with the market. This has a significant impact. It will bring down our ROIC on the basis of 2019 by 0.7%. That is a major impact. The second impact, which has an opposite effect, is invested capital. In the past, we have used a four-quarter rolling average for that. As you know, the quarters one, two, and three have a significantly higher use of capital.
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 this 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 on the basis of the new definition, ROIC definition. Important for us is comparability with competition, but also transparency. You will be able to calculate this ROIC definition from the published financial statements. What are the key drivers to develop and to increase the ROIC from 6.5% to clearly above 8%? This is, first of all, the impairments, which will reduce our capital and hence also increase our ROIC by pure accounting mechanics. That's the technical part, let's say.
We have to do, and 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, growth, CapEx, which meets the requirement. This shift will have an impact, a positive impact, a significant positive impact on our ROIC. Secondly, of course, organic growth in the company. That's clear. What Dominik explained, our margin targets, especially in North America and U.K. We have then our targets from the Master Plan execution, where we upgrade existing plants which are not up to date to the current technical standard with very modern technology. There we talk mainly about U.S. and about France.
Last but not least, digital transformation, H Connect, H Produce on the production side, and HService 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. HeidelbergCement has a strong history of cash generation, but also here we will change the definition to go to market standard. 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. In the last years, 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.
We decided, in line with the market, to change to CapEx net. This means CapEx from plant and equipment. The tangible fixed asset CapEx net means minus 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 960 compared to sustaining capital 911. This is not so much in difference. The CapEx target, as Dominik explained earlier, will be net EUR 1.2 billion, and that's exactly this figure, which is part of the free cash flow definition. Over the last years, HeidelbergCement had very, very successfully increased its cash conversion rate from around 30% up to 40%, 45%, and in 2019, we even reached 48%.
The question is, why do you go down with a 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. 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. 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. 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 EUR 1.2 billion? 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. 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 was explained by Dominik 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. Digital transformation projects.
As we have heard from Dominik earlier, HConnect for the customer side, H Produce for the production side, and HService for automation in the service part. Last but not least, greenfield and brownfield projects, which are also included in that. These are all the CapEx items which form part of this CapEx net, which is targeted to be EUR 1.2 billion 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. Our target is to acquire businesses which are bolt-on in our existing markets and in our existing market positions. Typically, these are mid-sized acquisitions. I want to clearly state, these are not what I would call mega deals. No mega deals are on the agenda.
When I talk about mega deals, I mean multi-billion acquisitions, multi-country and multi-business line M&A. This is not on the agenda. Let me be clear. Smaller size of such bolt-on acquisitions we will fund from the free cash flow. Larger bolt-on acquisitions and larger M&A in single business line, single country, this will be funded by disposals from our portfolio disposal program. For this CapEx, we have very strict criteria. First of all, strategic fit. The new acquisition must be aligned with the portfolio strategy. Secondly, it has to contribute to net profit in the first year after acquisition. That's a relatively weak 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.
Then the real target is the ROIC must be clearly above 8% after the full integration. That's a real challenge. We have to find the really good acquisition targets. That's especially a 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 these four items, which you can see on this chart. First of all, strategic fit. We need to see attractive market positions. We have to invest in attractive markets which are growing, which have a good profit pool. They have to be in a good fit with the current footprint, and they need to generate synergies. Secondly, we have a technical due diligence with all big CapEx projects which make sure that the project is technically feasible.
We have seen globally, mainly in other industries, quite some projects which turned out during the construction that they are not technically feasible because the ground was not good or whatsoever else. Here we have to make sure that we have the right geological environment, that the 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 third 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. 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 where this is not self-understood. 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&L account, and we use Monte Carlo simulation for the risk assessment or for the assessment of the risk structure. From this, we calculate ROIC, we calculate earnings per share, and the other financial targets. After these strict rules, of course, we will not use all of our free cash flow for that. That's for sure.
There will be enough money left for considerable shareholder returns. Sorry, first 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 3.1x, and in 2019 we reached 2.2x after pre-IFRS 16. IFRS 16, the leasing gave us a certain setback, brought us back to 2.4x. This year we have a very good cash flow generation until now, and I think it will continue. We will reach our target of 2.0 x, and we will reach the target of 2.0 x even including IFRS 16. When we announced our leverage target for the year 2020, this was a target pre-IFRS 16. If we compare to this, we will have exceeded this target. Clearly, we will reach pre-IFRS 16 something between around 1.8 x here we have a very good history.
Now we think that the right corridor will be 1.5x- 2x , including IFRS 16, of course, and we believe that we will clearly reach that corridor by end of 2020. as we understand the rating agencies, this then will allow us to achieve a triple B flat rating. even if we achieve our leverage target, there will be enough money and enough cash flow available to generate shareholder returns. 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.
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. We come out probably better than we expected early. 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 announced it in our last statement. To wrap it up here, you see the total picture here. We generate cash flow from our operating cash flow. We have then cash in from our portfolio disposals, what was explained by Dominik earlier. We then have our CapEx, as I have explained earlier. 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. As I have said, we have very consistent, very tight criteria for that. 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. ROIC clearly above 8%, cash conversion rate consistently around 45%, leverage ratio 1.5x-2 x. Importantly, this leaves us with enough cash flow for considerable shareholder returns. Thank you very much for your attention.
Thank you, Lorenz. Very comprehensive presentation, as always.
Yeah.
You mentioned shareholder returns, you 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 HeidelbergCement?
Yeah. You look, Chris, since I'm with the company, which is now a very long time, we were always pushing on deleveraging. I think now we really have the portfolio which we need. We will further improve it. As we have reached this portfolio, we have reached especially our deleveraging target. 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.
Okay. Thank you.
Chris, thanks.
Okay. Thank you. We will now have a short five-minute break before we come to our live Q&A session. Let me explain one more time how we will do this technically. You will have three options. First, for those participants who want to actively participate in the Q&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. If you have installed the Zoom app, just open the link in the app. 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. Please, if you switch over to Zoom, you must discontinue the live stream.
If you want to participate in the Q&A but cannot access Zoom for whatever reason, there's also the chance to ask questions via the chat function on the landing page. For those participants who do not want to actively ask questions, you don't have to do anything. Just continue watching the Q&A session via the live stream with no need to enter Zoom. Enjoy the break and don't forget to come back in five minutes for the Q&A session. Welcome back after the short break. Without further ado, we will jump right into the Q&A. If you would like to ask the 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. Unusually, not Paul this time, the first question comes from Arnaud Lehmann from the Bank of America Merrill Lynch. Arnaud, please go ahead.
Hello. Good afternoon. Thank you very much. Hope you can hear me and see me well.
Absolutely, Arnaud. Everything is good.
Excellent. Firstly, thanks a lot for a detailed presentation. That was very helpful. I guess, if I may, on the disposal plans, if I look at one of the slides, I think it's slide five from Dr. von Achten presentation. It looks like the plan is to sell assets about two to three times more than what you've done during the 2018-2020 period. A quick calculation would imply around EUR 1 billion-EUR 2 billion per annum. Is that something that you would be happy to confirm in terms of size? Related to that, would Indonesia fit under review or at-risk markets? Lastly, in terms of executing these disposals, I appreciate you want them to be accretive to margins and returns. In which case that means there will be possibly poorly performing assets. Are you confident that you can execute these disposals at a good valuation?
Thanks, Arnaud.
Okay, Arnaud. Thank you very much for your very interesting question. Let me get to the three sub-bullets of your question on the portfolio management. First of all, and maybe let me start with your last point, because it also reflects then over to point number two and one. On the execution. You know that we are in COVID times. We are in very rocky water globally right now in general. 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.
That's why we said we are not going to go for fire sales. Lorenz was sharing with you that we are currently good on our cash position. We are good on our deleveraging, there is no need at all to do any fire sales. We are ruling out the fire sales. Obviously, we'll move as quickly as possible on the targets we've set ourselves. 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? Arnaud, 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. 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 that's a little bit our secret, how we go down that route. We need to keep some of the secrets to us. In that respect, bear with us, but I'm sure you understand that.
Absolutely. Am I allowed a 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, the next question comes from Elodie Rall from JPMorgan.
Hi, everyone, and thank you very much for your presentation indeed. I hope you can hear me well as well.
We can.
Absolutely, Elodie.
All right, 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. I was looking to see what your thoughts are on that, basically on what assumptions you're making on volume and pricing and energy cost from here to 2025, and how much of that is falling in EBITDA improvement.
Okay. Elodie, thanks so much for your question. As we shared with you, we have EBITDA margin improvement of 300 basis point as our target. We showed you it's comprised of five buckets. Again, of course, one of the buckets is organic growth. Coming back to my earlier remark to Arnaud, I think it is very difficult for us to predict developments until 2025 when it comes to volume pricing and also costs. 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. That's also why I think a five-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. Two or three years back, we had a sheer explosion on the energy cost side. Now we are facing a little bit more relaxed situation, but how that plays out is very difficult for us to say. The other big cost item for us is obviously staff costs, and we are trying to manage it in a very responsible way. On the energy side, Lorenz Näger 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.
Thanks. All well-behaved. Thank you very much. The next question comes from Paul Roger from Exane BNP.
Hi, guys. Can you hear me?
Yes.
Absolutely.
Perfectly.
Yeah. Hi. Sounds nice. Nice presentation. Obviously a bit disappointed not to get the first question, but it's okay. 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 have new capacity coming to many of your markets, I think there's 6 million tons, for example, in Indonesia in the next 18 months. I guess my question is how can you not only grow, but grow profitably and defend your market positions?
Yeah.
Thanks, Paul, for your question, and your cheeks are still red, if I may say so. Your disappointment is not that big. We take your question as serious as the other ones. Thank you much.
It's my complexion, Dominik.
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. Obviously, we were looking especially at the emerging markets. 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. 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. They are very much driven by strong performance, especially in the emerging markets.
Sub-Sahara Africa, parts of Asia, especially also parts of Eastern Europe. In that respect, we need to stick to the facts and look at the facts. I respect your point on Indonesia, but let's remember, Indonesia is a fast-growing market, and it's not so easy to keep pace with that growth. There's ample room for additional capacity. As you all know, also our participation in cement is very much focused to expand their footprint growing with the market if need be. 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, what does the Western Java market do? What does the Central Java market do? What does the Eastern Java market do?
What does the Sumatra market do? 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 up in Western Java and also expand it into other parts of Indonesia. Lorenz, is there additional point?
Maybe one comment from my side, Paul Roger. 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 one year or one and a half year where it was more difficult, but through the cyclic, the Indonesian market had a very nice growth at very limited capital invest and easily earned its cost of capital. Sub-Sahara Africa, excellent market position, excellent returns, wonderful growth rates. Last but not least, China, where we have participation 50% in the JV. All those really make it very easily. There would be many others to name. Overall, the emerging market position of Heidelberg Cement considerably contributes as well to ROIC performance and to growth.
Obviously, Paul, also we will review during the portfolio exercise, we have reviewed and will also act on some emerging market position. I think the answer that Lorenz was giving, I think, is an important one. There are significant contributions also coming to our financial targets from emerging markets.
Yep, 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. The next question comes from Robert Gardiner from Davy.
Robert?
Good afternoon. Thanks for the presentations. Very interesting stuff. I go back maybe on the 300 basis points. You pointed out a lot of improvement in North America. I'm wondering, where does Europe sit within your 300 basis points? Specifically markets like U.K. and Italy. They're going to improve at the group average, or are they sitting within a, what you call it, a watch list or loop spot?
Thanks a lot, Robert. It was a little bit hard to understand. If I got your question right, you were asking about the 300 basis point margin improvement with a focus on Europe, huh? I would basically hand off and then pass it over also to Jon, 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 U.K. as one of the key countries for us in Europe, where we still see ample room for improvement, and Jon 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 U.K. I think first half of this year, under Jon's management, things have significantly improved, and we will continue to do that.
It's really a country-by-country exercise. I think in the U.K., you probably sit a little bit above the 300, but in other markets, we'll sit a little bit below 300. It's a market-by-market exercise. What drives really the contribution from a group perspective from Europe is also the work on SG&A and the work on the master plan. 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. I would say we expect all overall, I would say on average, contribution coming from Europe. Jon, maybe you have something to add.
Okay. Yeah. Hi, Robert. Managing these countries day- to- day, week- to- week, I just echo what was said there. We're really focusing country by country on tight fixed cost, variable cost, pricing management, and really seeing strong successes in that during this year. Our teams have really performed well during the COVID crisis to hold their costs and continue down with fixed cost reduction. I'm encouraged so far by progress. That, in particular, is the case for the U.K., where they've seen month-on-month improvements in recent months.
Absolutely.
Okay, Robert, I hope that answers the question.
Great, yeah. Thank you. Yeah. I'll jump back in the queue the same as everyone else.
Excellent. We come to the next question from Yassine Touahri from On Field Investment Research.
Yes, can you hear me well?
Yeah, perfect.
I think my question is mostly on the carbon capture. Regarding your project at Brevik, could you give us an estimate of the investment cost per ton for Heidelberg Cement after the subsidies from the Norwegian government? We understand that the total cost, including transportation and storage, is close to EUR 1 billion. How much would Heidelberg Cement contribute? Related to this question is once the project is running, what kind of additional operational cost per ton would you have to capture CO2? The last one is, have you run a sensitivity analysis of how much additional investment would be needed between 2025 and 2050 for Heidelberg Cement to become carbon neutral?
Thank you, Yassine.
Thank you. I will pass that on to Jon.
Oh, yeah. Thanks a lot for that. Hi, Yassine. Let's first of all focus specifically on the Brevik project. To answer your question, our scope that we are directly involved in is the capture, purification, and liquefaction scope. That scope is EUR 300 million. Our piece of that is 17%. About EUR 47 million. We will capture 400,000 tons of CO2 per year, which you can calculate back what the payback of that will be. At a EUR 30 per ton current price, that's somewhere in the region of three and a half year payback. In terms of the operating cost after 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.
We'll have to come back to you with what those specifics are, but it's looking promising so far. 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 investment. That's why we're focusing on the pre-production and development level on partnering with governments like the Norwegian government, but also using our access to funds from the EU, such as the Horizon Fund and also the Innovation Fund, where from the European Green Deal, we're pleased with the fact that those funds are opening their doors to new projects.
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 EUR 47 million versus the EUR 300 million, the EUR 300 million is a cost for the carbon capture, but you would have to pay only EUR 47 million, which means that you would have subsidies from the Norwegian government that are approximately 85% of the cost. Is that correct?
Yes.
Thank you very much.
Pleasure.
Thank you, Yassine. We now come to the next question from Gregor Kuglitsch from UBS. Gregor, hello?
Hey. How are you?
Can you hear us? Do we still have Yassine?
I'm good. Can you hear me? Sorry.
We can hear you. We can see you. Yeah. Oh, now.
Here we go. Very good.
Here we go. Very good.
Okay, excellent. Thanks for taking my question. I've got one, I've got a few as well, but I'll stick to the rules. The first one is really on current trading and your implied outlook for this year. You're telling us two things. One is July and August has been really strong. Can you just quantify what you mean by significant increase? Then secondly, on your leverage target of two or below, you were, I think, at the last conference call guiding us to EUR 7.2 billion of debt, I believe. Obviously, if that's maybe a bit lower, you would divide by two, we're talking about EUR 3.5 billion plus of EBITDA. Is that the right math? I appreciate you have some obviously limited visibility into the fourth quarter, but just to be clear that we're on the same page with that, please.
Okay, Gregor. Shall I take the first one and, Lorenz you take the second one? As I said, Gregor, when I look on our performance in July and August, you see me smiling, I think it could have gone worse. I would say we are in the lower double-digit growth figures when it comes to our COBD for those two months. I think the quarter three is off to a very good start, more than halfway down the road. We are pretty confident on that one.
Yeah.
Thank you.
On 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-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 appears. What I can guide, we do not guide on EBITDA, but if you 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.
Yes. Absolutely.
Thank you for your question, Gregor. We come to the next one from Cedar Ekblom from Morgan Stanley.
Hi, guys. Can you hear me?
We can hear you and we can see you.
Sorry. Perfect. Sorry about that. I thought I got kicked out of the webcast. I've 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. Maybe I can ask the 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. Thank you.
Cedar, thanks a lot. I know that's the EUR 100 million or billion question, so I fully respect that you are stubborn, all of you, on this one. 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. We're not going to divest of a single area or a single region. I think that 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 that it is at least not immaterial. That's why we showed you this one slide comparing the recent three years to the next five years to say it is, from our perspective, targeted to be higher than in the past and not immaterial.
Okay. One last question on this. You said that you want assets to be given an opportunity to meet the margin and return targets that they need to get to before you divest them. What is a reasonable timeframe? Are we looking at giving assets the full scope to 2025 to be turned around, or are we looking at moving on asset sales in a one to two year view maximum?
Yeah, Cedar, as I said earlier, I think it is clear from our perspective, 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. Yes, we will start to embark on this exercise right away. You all know that there is transaction risks involved in there. We are not going to push it out to 2024, before we get going, huh? The same is true for the watchlist candidates. We typically look at a timeframe of two to three years max, and then we need to take a decision whether it goes one way or the other.
Perfect. Thank you.
Thank you, Cedar, for your question. The next in line is Tobias Woerner from MainFirst. Please go ahead, Tobias.
Yes, hello. Good afternoon, gentlemen. Can you hear me?
Yes. We can.
Yeah. Thanks for this very comprehensive presentation. Very impressive. My question relates to your comment that you prioritize the improvement in margins and ROIC over the top line, which obviously makes sense. At the same time, how would you square a situation where you have an opportunity in front of you which requires about EUR 5 billion, or let's say EUR 5 billion in capital, which on day one would generate, let's say 8% ROIC 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?
Yeah. Mr. Woerner, thank you very much for your question. Let me start off with, and then I hand it over also to Lorenz, who will chip in. First before I start, I congratulate you on your great background, of your participation video. I think we know this plant, so I think that's a great background. Thanks for that contribution. Now, it's very clear that from our perspective, and Lorenz 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. As we said, we are going to prioritize and simplify our portfolio to focus key markets.
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 Lorenz has shared with you. Maybe Lorenz, you repeat the prioritization before we come to these bolt-on acquisitions for growth.
Yeah. Thanks, Dominik. If you look to big acquisitions of several billions of EUR, it's very unlikely, and I do not see such acquisition, which makes then an 8% or 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 prized, and you need to add a significant part of the value by synergies. I do very hard in this very moment to see any acquisition of several billions of EUR, even if it's two or EUR 3 billion, which would return an ROIC target of clearly above 8% right out of the box. Yeah. That's not a realistic scenario, which I have in mind. What we think is that we can find acquisitions which do that in smaller scale. Yeah.
If that exceeds, let's say a significant couple of hundred million EUR, then we would accelerate our disposal program to refund such acquisitions by portfolio disposal proceeds. That is our clear intention to do. Mr. Woerner, if you have such acquisition. A couple of billion EUR, 2 billion EUR, 8% out of the box plus X, just tell me. I would look at that.
Okay.
Sure.
Satisfied, Tobias?
Yes, thank you very much.
That's all okay.
Excellent. We come to the next question, from Sven Edelfelt from Oddo. Please, Sven, go ahead.
Yes. Good afternoon, gentlemen. I have a question about India. I believe Zuari Cement is still operating as an independent company versus HeidelbergCement India. You mentioned, Dr. von Achten, structure simplification. Does this mean that you implied you want to merge these two entity together? If not, does that mean you want purely to exit this country?
Yeah, Sven, thanks a lot. I would hand that over to Lorenz Näger because we have looked at this question of potentially simplifying our setup in India.
Yes, absolutely. We would appreciate very much to merge these two companies, these two legal entities. As you may know, the Indian regulatory environment is extremely cumbersome. These are two 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 million EUR figure, what would be the cost for that merger. Currently, we do not have any problem with the setup of the two separate legal entities, except a certain increase in underlying admin costs. This amount is absolutely insignificant compared to the cost of merging those two companies. Currently, we still seek for a better way of doing that. However, it will be very difficult.
One of the problems, just to name it, is that raw material licenses are linked to the legal entity, and if you merge it, you have, I do not know, years and 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. We have no problems with that. That's, in this very moment, not the ideal, but the right way of operating.
Sven, just to add on what Lorenz was saying, because you asked also, are we trying to divest India? I said, we are not going to comment on specific countries. 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 operate in southern India? Are we going to go to western India? Are we going to go to eastern India? We will now also work on the portfolios within each country. This portfolio management has really two dimensions.
Whether we exit India or not, regardless of any question that I'm not going to comment on, every country management team is going to work on this portfolio optimization within their specific country. Just for clarification.
Thank you very much.
Okay, thanks, Sven. We now have a question via the chat function from Uwe Schneider from Intesa Sanpaolo. Question is: how do you see COVID impacting urbanization as more and more people working from home? Probably for you.
Yeah, Uwe Schneider, 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. I will also maybe let Jon chip in in a second because we've discussed this quite substantially, especially in those countries where also the COVID-19 hit us very badly in Europe. Not because of urbanization necessarily, but because of home working, how do we do that? 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 or the timeline of this. 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 the ones in the developed markets. In the developed markets, it very much depends on another transformation topic, digitalization. If the governments do not push for digitalization of non-urban areas, I think the urbanization trend will not stop because people need to learn, they need to work, they need to connect with others. If you don't have a digital infrastructure that supports that, I think there is no way, no chance that you can stop urbanization. In that respect, I think this is not an effect that will happen overnight, but there is clearly a trend in some countries that may accelerate down the road. Jon, you want to chip in?
Yes. Okay. Thanks, Dominik. 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. What we do see is potentially a slowdown in some of our biggest cities, but also we see already strength and growth in the more regional towns and cities and the smaller cities. It's early days and a real mixed picture. You might have less commuting, for example, into Paris and Milan and London. The regional towns and cities are already investing and flourishing. That as well is added to by the infrastructure investments that are being pushed forward, that we're already seeing in Italy and in the U.K., and France announced the same over the last three weeks. A bit of a mixed picture, really.
Okay. We go back to the Zoom session. Thank you very much. The next question comes from Ephrem Ravi from Citi. Ephrem? Okay, let's move on to another chat question before we get back to the Zoom session. We have a question from Arnaud Pinatel from On Field Research. Hold on. Now he's on. Ephrem? We saw you. We can't hear you.
I think you got to see your question first.
Can I just have an indication whether we should go on Zoom or on the chat, please?
Ask the chat to speak up.
Okay. Let's do the chat first. Arnaud Pinatel, he asks: your competitors are all communicating on moving on to the downstream and outside the three historical businesses, cement, ag, and ready-mix concrete, by creating new divisions within their respective organizations. They look for products or services or solutions targeting mortars, construction chemicals, or modular construction. You are involved into prefabrication, notably in the Nordics. The question is: Is it a core asset, and could you explain why you do seem to differ from your competition by focusing only on your three historical businesses?
Arnaud, thank you very much for that interesting question. You may rest assured that we did look at this topic, and we are continuously looking at that topic. 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. I think Jon has also shared in his presentation that we are keeping these little flowers moving 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. 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. 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 non-core for the time being. We're going to watch these developments clearly going forward. 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 from me is just on your ROIC target first. I can understand why you're targeting above 8% on your existing business given historical M&A, etc . For new capital deployment, this doesn't allow 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&A? Could you just technically just clarify what cost of capital you're using as well, please?
The ROIC target, as you see, we have a new definition on that. Currently we stand at 6.5%. We have to move that up to 8%. If you look into typical prices for acquisition, we talk about 9x- 11 x EBITDA. If you take that translates into a ROIC of 5%- 6%. 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. 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. 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 portfolio cleanup. We have operational excellence, et cetera, and the target is clearly above 8%. That can be a target depending on how successful we are, which goes clearly beyond 8%, which can be 9% or even more percent. That's what we push for. It depends not only from our side, it depends from many external factors such as raw material prices, competition in certain markets, etc . You have seen how, for example, in Indonesia, margins were dropping from a very high level down to a very low level and now are recovering, and they are now continuing to deliver returns clearly above 8%.
We have to stay 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. We put a lot of effort in to get that. In case we would exceed that in two or three years' time, we still have the opportunity to be even more ambitious than we are today.
Okay, Jon. 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, thanks for having me here today and good presentation. I have one question regarding this CO2 issue. When I look at the steel industry, steel industry is also one of the biggest issuer of CO2, and they got support from government to start hydrogen solutions, etc . Looking to the cement industry, I miss really government support for your industry to storage or to get rid of the CO2 issue. Do you have a weaker lobbying system, or what could we expect going forward? When I look at the figures, it will increase the cost per ton by at least EUR 13-EUR 15 when the predictions or the forecast for the CO2 price for 2025 of EUR 55 is right. A big burden for you, a huge investment. Just a question was, what are the governments doing for your industry in this case? Thanks.
Thank you. Jon, you want to.
Hey. Thanks, Mark. Yeah, I'll try to answer that. In my presentation, I outlined 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. We're already getting that. The Norwegian example was a very good example, where the government's paying 80% something. A number of those other projects that I 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.
We've had direct conversations in the last few months with the European Commission, encouraging conversations at the highest level with Frans Timmermans, for example, where they fully get that they need to specifically help in these early stages of specific carbon capture. If you take that to the pipelines and the infrastructure, our other big ask and push in public policy is to put those pipelines in. Again, the European Commission level, they really understand that. That is an industrial consortium approach that needs to involve steelmakers, chemical companies, and cement makers. We are pushing forward with our industry association out of Brussels and working closely already with those other industries. I think I'm quite encouraged, in particular over the last six 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 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 the border adjustment mechanism, that's a world that we think we can operate in very well. 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.
Gabriel, maybe from my side, just one additional point to what Jon has said. I think we are traditionally quite good on our work in Brussels, so Jon has alluded to it. I think that's a strong track record for HeidelbergCement 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 Jon was saying, Jon as heading WSE, but also Ernest Jelito in Northern Europe and Eastern Europe, including myself in Europe and in Germany. We are not only working on the EU level, but we are also working on the country level because there are funds available, not only on EU level but also on country level.
Thank you.
Thank you.
Thank you. We have another chat question from Martin Hüsler from ZKB. Question is, looking at your business lines, I was just wondering where do you see the biggest margin potentials, and do you have any margin targets for the business lines?
Hüsler, thank you very much for your questions. We did obviously look at the different business lines, and you've heard both Chris Ward, Ernest Jelito speaking about cement and aggregates in that respect. We've needed to break that down into specific markets. In the end, yes, we have an indication on the business line, especially coming from the operation improvement that's driven through our competence center, HTC, CCM, and also CCR. They then need to be implemented in the specific countries. We are really going country by country and then business line by business line. 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. That's a market-by-market answer.
In general, I would say we are focusing more on cement and aggregates, not so much in ready-mix. In ready-mix, you also have to be careful. We could shift easily margin from cement into ready-mix or aggregates into ready-mix, but that's not our target. We want to improve overall 300 basis points. Yes, all three business lines are involved. If you talk about magnitude of the involvement, I would argue probably cement and aggregate sits a little bit ahead of ready-mix.
Yeah. You alluded to in North America. There is another question from Stefan Bornhage, just alluding to America as well. He is from Metzler. Can you give more details on how to achieve the higher margin improvement target in North America? Any specific regional measures compared to other markets?
Yeah. Mr. Bornhage, as you know, we are targeting market by market. That's a very micro market by micro market exercise. 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. Take the example of our Mitchell, Indiana plant that will consolidate five kilns into basically one new one, and that obviously needs to contribute significantly to our margin improvement. You know that we are working on the consolidation and the replacement of our Evansville 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.
It's also no secret that in our H1 call, we talked about the lagging aggregates performance in North America. 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. I think you do respect if I don't name any very specific micro markets in that respect.
Thank you, Dominik. We have a couple more questions in the Zoom session. Let's do one from Mike Betts before we move on to Nabil, then we take the follow-on question from Elodie and Arnaud. I think that's all we have time for today. Four more questions via the Zoom function. First one comes from Mike Betts from Data Based Analysis.
Thank you very much. Can you hear me?
Yes, we can.
Hi, Mike.
Thank you. Hi. My question is on digitalization. Do you have an idea of where your progress stands relative to your major competitors, people like Cemex and LafargeHolcim? Would you share my view that maybe this is for, against those companies, this is a kind of a stay in business investment? The real advantage is against the smaller companies who don't have the financial resources to invest in that? 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. I presented the topic on digitalization. I know you know a little bit myself, you know also the history of the company, especially knowing myself, 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, 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. We strongly believe, with the three 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. I went through all these levers.
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. Hopefully we made clear what our targets are, and now it's about chasing them. The strategy is only as good as the execution is in the end.
Understood. Thank you.
Thank you, Mike. We try it another time with Nabil Ahmed from Barclays. We seem to have connecting problems, why don't we move on to Elodie? That worked the last time, should work this time. Elodie Rall from JP Morgan.
One second.
Hi again. If I can come back to a CapEx question. You give us an amount of EUR 1.2 billion per annum. I think you mentioned EUR 50 million of that is going into CO2 investment. There's a whole bunch of other investments you're making, including innovation. Could you give us a bit more breakdown between what's maintenance CapEx, be the absolute minimum, and then the rest of the boxes that you had on that slide six, I believe, Dr. Näger? Thank you very much.
If I may ask you a question, Elodie. One of the reasons that we have changed the definition, and I have outlined this, is that we want to have a greater level of flexibility here. The question is, that's also what I said, that the borderlines between what is sustaining CapEx, what is maintenance CapEx, what is major plant overhaul, what is CO2? These 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 whether you want to classify this as bare minimum stay in business, or whether you qualify that as CO2. We want to keep here the flexibility and remain with the EUR 1.2 billion for all of that. I think that's very reasonable. That's a very reasonable approach.
The EUR 50 million Jon was talking about for CO2, these are for innovative additional pure CO2 investments, what he has outlined, such as LEILAC, as carbon capture and usage, carbon capture storage, such type of investments. That's the EUR 50 million per year which we are heading for, and they form a part of the EUR 1.2 billion.
Okay, thanks.
Thank you, Elodie. I see Nabil's name. I'm not sure whether we go to Nabil or to Arnaud Lehmann now.
Can you hear me?
Now we can, yep. Nabil.
Yes.
Please go ahead.
Hi, it's Nabil. Sorry. Unfortunately, I don't have a functioning webcam currently, so I'm afraid it will be audio 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 talk a lot about recycling. Why this is a good thing for the industry? I can see the benefits for the society. Aren't recycled materials ultimately implying less material consumptions and possibly the entry of new type of competitors into the market?
You want to take that?
Hi, Nabil. I think it's hard to outline that in the long-term future. I think good for society, but also good for the CO2 footprint. I 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 overall, if we don't put things back into landfill, and 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.
Nabil, it's also never black or white. I think you also co-mingle both products. You recycle, I think that's an important piece. You can also have, in new terms, you could call them hybrid aggregates products. I think there is quite a potential in that respect. As you all know, our natural resources are also not indefinite. Again, it's a market-by-market decision where this makes sense. In that respect, I do not see this as a significant threat to our existing aggregates business.
Thanks, Nabil. We have three gentlemen still in the line with their second round. We will take all of you. First one comes from Arnaud Lehmann from the Bank of America. Please, Arnaud, go ahead.
Thank you very much. I guess my question is regarding the cash conversion target. Dr. von Achten, why did you let Dr. Näger get away with a target that is actually below what was already achieved in 2019? Obviously, 45%, 50% is already a very reasonable level, especially compared to some of your competitors. Are you implying that you see going forward less limited gains on working capital or financing cost or cash tax?
Okay, Arnaud. Thanks for the try to put a page between the CEO and the CFO, that's not going to work. Rest assured, we are aligned on this one. Let me start, and then obviously I will hand over to Lorenz on this one. 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. This cash conversion rate, I can drive up the cash conversion rate to a much higher level for a couple of quarters. That's not a problem. What Lorenz 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.
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. In that respect, that's why we are fully aligned on this. It was not our target to set simple targets. I think our targets are pretty aggressive, and I think Lorenz will elaborate a little bit why this 45% stability is quite a good set and ambitious target.
Dominik, thanks. First of all, as I outlined, HeidelbergCement was working on the free cash flow for years and years. The company shows over quite some years a significant increase in cash conversion rate. That brought us from around 30% in earlier years, now up to 40%, 45%, in 2019, even to 48%. 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-19 crisis, which will give us a payout next year, which is significantly higher on the tax side, most likely, than it is today. Secondly, we have worked for years over years over working capital, and that is pretty much in good shape.
We could drive down our stocks in cement, clinker, and aggregates. We do not think that is helpful for the business. I can generate quite a significant amount of cash by pushing down our operational stock. That's exactly not what we want. We want to be able to deliver each and every single product on each and every order which we get. I would never take, as a CFO, the risk or the responsibility to push operations underwater. I do not know what the competitors have done here. If you look, they have big reductions in their stock in the COVID-19 crisis. I do not know why. We have kept our stock levels. We are ready to deliver each and every single order. That's a major point. We are looking for that for the foreseeable future.
Disposals, which are part of the new free cash flow definition, have been strong in the last years. After the Italcementi acquisition, there were so many fixed assets, fixed tangible assets in Italcementi, which we sold on, a significant number. This program I have aggressively, or we have aggressively pushed forward, this comes to an end, my disposals go up. On the other hand, we have together 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, that takes a little bit more of our free cash flow. Overall, I think this is a very ambitious target. This is a very good overall factor over a longer period of time.
I am always ready to fight with Dominik what is really the right one, and if we achieve 48%, 49%, or 49.5%, then I will be very lucky to put that as a future target. You will be happy to see how we push up our targets in the future. Yeah. That's it from my side on that point.
Thank you, Lorenz. We have the second question now from Tobias Woerner. Let's see your lovely background again, Tobias.
Hey, thanks. Just on simplification. Accountability and responsibility, I think are key factors to drive your workforce or your colleagues forward, and also deliver returns for a company. I see you're talking about combining global and area functions, 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? Will a manager of a certain asset base be the only responsible for that asset base, or will there be any cross-functional responsibility or accountability?
Yeah, Woerner, I think that's a very important question. In fact, it's one that we have discussed intensively in the board. Let me come to your point and give you specific examples. I talked in the business excellence piece about both commercial and operations. 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 Jon, and they will obviously also be supported with a light support on area level. 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, then we have basically pulled the operation support with rigid performance management down from the global level closer to the operations on area level. Again, each area board member has the tools in hand in order to drive their operational performance in each of their countries. 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.
Just to get this right. If at the end of the day, 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?
I can maybe help there 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. I have a very small light touch set of business partners that with a direct line, yes, they report to global functions, so legal, business development, HR, for example. Those guys simply support me in improving the processes in those countries. We have in ready-mix cement and aggregates, a performance guy who works directly for me that essentially goes into the countries and helps improve things. That doesn't take away any responsibility or accountability from the country teams. That's crystal clear.
That's very helpful. Thank you.
Thank you. We come to the last question. Paul Roger, Exane BNP.
Hi again. Thanks for taking the follow-up. Maybe to conclude back on digital. Clearly, the plan sounds quite exciting and really my question is, how do you actually go about getting the skills to do this? Do you have them in-house? Do you have to look at things like, I don't know, acquiring startups? Really, how do you go about encouraging a tech whiz kid, as it were, to join the cement industry?
Paul, that's a good question. By the way, you couldn't be the first and the last, so I think we make up for taking you 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 two years. You know that 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. There are some specific skills that are crucial 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.
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. That's, I think 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, 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&A session. Before we close our capital markets day, let me hand back to Dominik with some final remarks.
Thanks a lot, Chris. Guys, thank you so much for joining us today. It's now been more than three hours. I think it's been an interesting journey for all of us to prepare this. Hopefully it was an 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, HeidelbergCement 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 Lorenz have shared with you that we want to go forward with very clear and measurable financial targets.
ROIC clearly above 8%, EBITDA margins going up by 300 basis points by 2025. As I said, and as Lorenz said, we're going to come back to you and measure against those targets. We are convinced that we can unlock significant further value potential by shifting the portfolio focus. I was talking about shifting gears to core markets rather than just going for non-core markets. 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 Jon has shared with you on CO2 and ESG, and what I have shared with you on digital. In those two transformational topics, we clearly want to be the front runner in our industry.
If you wrap it all up, clear target is to offer attractive returns to our shareholders. As Lorenz 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?
No. I think that's the closing remark.
Okay.
I couldn't have said it better.
Okay. I thank very much to Jon and also Lorenz. 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.