Earnings Transcript for HDELY - Q4 Fiscal Year 2020

Operator: Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the call on the Full Year 2020 Results of HeidelbergCement. [Operator Instructions]. I would now like to turn the conference over to Christoph Beumelburg. Please go ahead.

Christoph Beumelburg: Thank you, Operator. Good afternoon to everyone. Good morning to everyone listening in from the U.S. Very pleased to have you all today at our full year 2020 results conference. We have been together -- we were together 4 weeks ago already for our trading statement. So we will concentrate with our remarks on what happened since. And with me in the room, as always, Dominik von Achten, our CEO; and Lorenz Nager, our CFO; and Ozan from the IR team. And with that, I hand over to you, Dominik.

Dominik von Achten: Yes, Chris. Thanks a lot. Welcome, everybody, from my side. Great to have you and yet another nice day here in Heidelberg. I would love to share with you and Lorenz Nager together, the full year results. As Chris said, some of it has already been released, but we've also focused on the key messages that are new today because the rest, we don't need to repeat. So I think I really want to make sure that we bring across the additional information that we've got for you. And first and foremost, I think the ROIC performance. Just to remind everybody, last year, we changed our ROIC definition to the, let's say, capital market accepted definition. And with that, our ROIC last year stood at 6.5%. Here, we are just 12 months later and ROIC shoots up to 7.9%. That's well on track, I would say, if not better, to reach our Beyond 2020 target of clearly above 8%. We'll come to the details later on. There's also a lot of operational self-help in that jump. EPS going up almost €0.50 to almost €7 per share and net debt clearly down with much better cash flow development and now the leverage is at 1.86%, so clearly below the 2.0% that Lorenz Nager guided in September, I think, August, September last year. And I think also that is tick in the box. On the back of all of that, we decided to, for a faster-than-expected return to progressive dividend. I think that is a clear sign of our confidence, dividend proposal to €2.20 per share. And I think, a very attractive proposition also for our shareholders. You know that for us, the road to sustainability and significantly reduced -- reduction of our CO2 footprint is absolutely key. And I think in 3 dimensions, we've made here significant progress. Also new today is the final CO2 emission number for 2020, reduction of 2.3%, which is a very good performance. And we are now well on track to deliver our 2025 and 2020 -- 2030 target. We've also made some very good progress on the industrial scaling of CCU/S. I'll come back to that later. And last but not least, I'll also come back to the details we are not only in our industry, but I would argue in many other industries, linking our remuneration in a large scale to our CO2 reduction targets. And last but not least, I know very important for many of you, good start into the year. And we have an optimistic view on 2021, and we'll carry you through some of the details of that later on. Wrapping it up Beyond 2020, I think we've clearly left now Phase 1, we call it internally and will now enter into Phase 2 of Beyond 2020 execution. And we are generally on track or even slightly ahead of track. That shows also the next chart, where you see the 2020 achievements versus 2025 targets. We promised you, as a management board and also as an IR team, September last year that we're going to very consistently come back to always the same target setting and then try to deliver as good as we can against these targets. This is not -- every quarter will not work out always. But I think, in general, the trend line from us is very encouraging on all 5 dimensions that we have shared with you as our key targets. We've delivered well in 2020. EBITDA margin going up significantly by 206 basis points versus the target of 300 from 19% to 21.1%. ROIC, again, I think this is a major achievement from our perspective from 6.5% to 7.9% under the new definition. So very well on track for clearly above 8% by 2025. Leverage ratio down already in the corridor of 1.5 to 2 with 1.86. Reduction of CO2, minus 2.3%. And also on the digital side, significant progress already in terms of coverage with the -- with HConnect already 30% in 2020. I think the next one we can do fairly quickly because that's not new. You've seen this. You know that we've over-delivered in Western Southern Europe, Northern Eastern Europe, Africa. And on the right trend line in North America, but clearly not at our expectation level. Yet, we see some significant upside in North America, but Q3 and also Q4 was sitting on the right trend line. With the next chart, I would hand over to Lorenz, who will share with you the free cash flow generation, net debt reduction also leverage. Lorenz, do you want to...

Lorenz Nager: Yes. Thanks, Dominik. Good afternoon from my side as well. And I would like to lead you through a few financial charts. The first you find on Slide 6. You see that we had a record high free cash flow generation. Let me come back on that at the latest chart. And secondly, this then results into significant net debt improvement of €1.5 billion. And by that, we also reduced our leverage by -- organic performance by 0.49 turns, down to now 1.86, well inside our target range of 1.5 to 2.0x EBITDA. If we turn page to Slide 7, you can see the development of our return on invested capital. We have achieved a value of 7.92%, 1.4 percentage points above previous years. Now that includes a number of elements. One element, important -- one important element is invested capital. And this, you see depicted at the lower part of this chart. If you look on, we currently stand at €21.2 billion capital employed, and we come from 2016 with €26.2 billion. And then we managed it down in 2017 to €24.2 billion. The main impact here was that we managed and cleaned up the ex Italcementi Group balance sheet and reduced the capital employed roughly purely on Italcementi side by €1.5 billion. And then you see a jump up 2019 that came from the IFRS 16 regulation, which came with capitalization of leases and this contributed to an increase in working capital. Now right now, we managed it down to €21 billion, a part of this is the impairment, which we did. The €3.5 billion, but the remainder is operational management. We had a good run in reducing our working capital requirements and also with limited CapEx, we reduced our capital employed. The impairment effect is, of course, accounting effect. And if you look to the increase, which I was talking about of 1.4 percentage points in total, about 0.6 percentage points is the effect of impairment and 0.8% is the operational effect. So still we contribute significantly from the operational side. As you may remember from our Capital Markets Day, we have adjusted the definition of ROIC to market standards to avoid any irritation. Just for your information, if we kept the old definition, the ROIC would have jumped above 9%, mainly due to lower tax payments. Okay. That's from my side to the ROIC, and I come back on you later on and would go on -- give on to Dominik.

Dominik von Achten: Thanks, Lorenz. Then I would just quickly take you through the CO2 topic. As I said earlier, 2.3% down, 589 to 576. Well on track with 23% reduced versus the baseline now to the 30% reduction of our 525 by 2025 and also well on track with the target to be below 500 by 2030. Driving that is not only the share of alternative fuels that has gone up to 26%, but also the reduction of the clinker factor down to 74%. If you turn the page then the dividend proposal, you see the development in the past. We have cut the dividend in light of the corona pandemic last year down to €0.60. And then obviously, I shared this very openly. That was the internal debate. How big are the steps that we want to take? And we discussed all sorts of different options and finally decided for the, I would say, one of the more bolder ones and say, come on. We feel very confident, and we are happy to go up to €2.20 that sits even above the dividend of 2018, 5%. So I would say this is a strong signal to our shareholder base that we are in good shape in order to justify that dividend. If you go to the next page, just a quick progress on the digital side, good progress on HConnect, which is, for us, key on customer interaction. Sales coverage in the countries that we've developed there is above 30%. So that's good. And also the monthly active users are having -- showing a good growth rate with high user retention. So in that respect, on track from our perspective. Also on the production side, HProduce, we have a couple of good tools implemented now, one of which we rolled out very quickly, which very swiftly helps us to react to volatility in energy markets, which obviously, for us, is a big lever. Needless to say, in the scenario of volatile energy costs. And then HService, that's our back-office shared service center function that is now also going down the automation road with a significant lever on customer satisfaction and also cost reduction. We have the first robotic use case in place that really drive the performance on that end. So from the digital side also well on track. Then I would hand back to Lorenz, he will take you through the -- he would say the life below RCO.

Lorenz Nager: There is a life below RCO and the life below RCOBD, and sometimes it's even interesting. So if we look at the additional ordinary result, we see here a spend of €2.7 billion, and that mainly comes from the revaluation of the asset portfolio. As a result of the COVID crisis in the second quarter, business expectations went down significantly and it was pretty unclear whether or not or at what point in time, economy will recover. And in the finance world, this was to be -- considered to be so-called triggering event under IFRS, which requires a revaluation of the asset portfolio. So we did as many in the industry and not only in our industry, did this use or had to do a asset revaluation on the base of that triggering event. And with a low surprise, at that point in time, the business expectations were low. So our business plans reduced and this led then to an expense of €3.4 billion, which is booked here in the additional ordinary result. So in this revaluation a triggering event replaces the regular impairment test at the end of the year. So the next impairment test will be done in the end of the year 2021. So there was no review of that at the year-end. Then next slide, the financial result developed according to expectations, improvement €88 million. The finance cost reduces as we have paid down all our old high yield bonds from the HeidelbergCement history, but also acquired by Italcementi, and that brings down our financial result. And that means that in future, this financial result will continue to reduce, but at a significantly lower pace than in the last year. Taxation €335 million, previous year, €358 million, so we are more or less on the same level, but this is a bit misleading if you look only on that figure because it includes the deferred tax income due to the revaluation of the asset portfolio. So as we have impaired many assets, this impairment is not tax deductible. And therefore, we have to create a corresponding deferred tax asset to outbalance this tax effect, and this has an amount of €174 million, I will come back on that very soon again. The discontinued operation are more or less in line with previous year, €72 million, €32 million. They vary from time to time here. The minorities, €130 million compared to €150 million previous year. This shows that our subsidiaries, where we have significant minority stakes in they had a lower net profit than previous year. This is mainly Indonesia, Morocco and Thailand. This brings us to a group share of profit or this year group share of loss of €2.1 billion, whereas previous year, we stood at €1.1 million profit. If we adjust the group share of profit, then we reached €1.365 billion, which is an improvement of €96 million or 8% compared to last year. Let me shortly comment on that because typically, we only deduct the additional ordinary result. If you run the figures here, you will see that we have added back the deferred tax income, €174 million, that's close to €0.90 per share. And we thought we must not keep that out of scope because it's directly linked to the impairment. So this time and that's exceptionally, we adjusted the group share of profit, not only for the additional ordinary results but also with a corresponding deferred tax effect because otherwise, it would be misleading. Just keep that in mind. Otherwise, we had shown a figure above €1.5 billion, and this would not have been a fair figure. So the earnings per share adjusted €6.88, €0.48, up from previous year. Let's turn to Page 13, where we have the free cash flow. And you see from the horizontal green bar on the very top that we have a free cash flow of €2.2 billion. Our free cash flow figure is calculated as operating cash flow minus CapEx for -- net CapEx for tangible financial assets. So that's what we need in CapEx to stay in business and to continue to run our business. And you see that, that is significantly up to previous -- compared to previous year of €1.7 billion. We have to keep in mind, 2 main effects here, which contributed to that increase, which is

Dominik von Achten: Thank you, Lorenz. Thanks a lot. And then we'll turn to sustainability and show you first what can all be done during a corona year. So this is 12 months, and it was also interesting for us to see in preparation for today, how much we have advanced with many different projects. So up in Canada, CO2 capture and storage project in our plant in Edmonton, then good progress on LEILAC 1 and then LEILAC 2 later on in Hanover. So LEILAC 1 was Lixhe in Belgium, then LEILAC 2 now at industrial scale in our Hanover plant in Germany. Significant progress also in Brevik. We shared that with you with the green lighting of the Norwegian government and parliament. Then also lately, the CCU project in Redding that is targeting a reduction of 60% of CO2 and basically its utilization in our own cementitious products. And then also the HyNet project up in the northwest of England. Again, here, we talk large quantities. And this is mainly driven by a fact that we can transport the captured CO2 with a nearby pipeline -- to the pipeline network and then its storage in the Irish Sea. So that is clearly a large scale project. And that's also, I think, a message we want to bring across because if I listen left and right and everywhere, my understanding is that I -- this carbon capture, technology stuff is something beyond 2030. This is clearly not our mindset. This is absolutely not our mindset. We are going for industrial scale at the latest by 2025, because Brevik is 400,000 tonnes, minus 50%. This is clearly industrial scale. LEILAC 2 is clearly industrial scale. If HyNet North West England gets to work, we target this to be '25, '26, that is clearly industrial scale. So we may have some different opinion here, but I'm openly sharing with you that from our perspective, this is not a post-2030 topic, just to share with you our thoughts on that. If you look at the sustainability road map and our CO2 road map and our advancement there, we just wanted to make to you very transparent. The emission reduction from 589 to 576. The clinker factor or clinker incorporation factor reduction and also a clear increase on alternative fuels. All 3 are well on track to reach the 2030 targets. Yes, we want to do good work, but obviously, we want also the agencies -- the rating agencies to understand and be transparent to them -- for them to do their ratings. I think we're well advanced in that respect. For us, as I said, first, we do the work, and then we get the good marks for it, not the other way around. So our room for improvement is still there. We've identified this just recently together with the IR team and our ESG team. There are in all 4 ratings still room for improvements, and we will target them as we go along. And obviously, one of the levers is to also work consistently on our carbon capture projects, both storage and utilization. I've shared with you some of the details in the earlier slide. So rest assured that we continue not only on these communicated projects, but also some additional ideas we have in the pipeline. And then for us, I would say, one other exclamation mark we are behind our front runner is duration. I think we are clearly the first in our industry, but I would argue probably across the globe that is heavily tying the CO2 reduction target to the variable compensation in the company, not only in the management board, but also in the levels below every employee that is eligible for variable comp will be targeted with this retrospectively, first of January 2021. This is not by '25 or 2030. This is for this year in action. And how does it work? You basically have a financial target. And if you reach your CO2 reduction target, then you get the payout on the financial target because that is multiplied with one. If you miss your CO2 reduction target, then you get a heavy hit potentially because you will lose 30%, 3-0 percent, of your variable comp and that really you feel in your pocket. And then it also goes to the other side. If you overperform on the CO2 reduction target, you can also mitigate a slightly lower financial performance to also increase your variable comp by a maximum of 30%. The overall bonus pool for the variable comp will stay unchanged. So the clear message is no maximum payout of bonuses anymore without reaching at least 100% of your CO2 reduction targets. With that, I would go to the outlook and guidance for 2021. We've tried to give you some color here on the left going through some of our key countries. And I would argue the U.S., you saw overnight, the Fed even increased their GDP growth expectation to 6.5%, up from, I think, what was 4.2% or something in December. So, I would say the outlook for the U.S. is clearly positive. We see some recovery in the construction activity. You heard about the €1.9 trillion program. There is another, I think, €2 trillion apparently in the pipeline on the targeted infrastructure and programs. Let's wait and see how far that will get, but clearly tailwind. And on the back of that and on the back also of on rising input costs, a positive pricing environment we see in our markets in the U.S. Germany will continue its stable business environment also in -- during 2021. U.K., okay? Yes, there is some post-Brexit economic uncertainty, but I just talked this morning again with our U.K. management, and they were quite positive for 2021, also on the back of good infrastructure investment proceedings, but especially also general sentiment in the U.K. seems to go up. Poland, anyway, on a high level for us, still driven by strong housing, which is expected to continue and also some additional demand for infrastructure projects. Australia was a little bit tough for the last 1 or 2 years. Started quite well into this year. And from our perspective, solid expectations for the second half. Indonesia, difficult COVID situation, difficult weather situation right now. They are in rainy season, but a clear target to improve the profitability on the back of better volumes and also some good pricing. Morocco, important for us. Heavy rain and snow in Europe means also some rain in Morocco, and that helps because that's an agricultural country, very much depending on agriculture. So it looks very green right now. I've not been there myself. Unfortunately, due to corona, but that's what I hear from our management. And that means good prospects for Morocco. So we see some demand growth also coming out of Morocco. Wrapping it up, we expect a slight increase in like-for-like revenues, operating EBITDA and operating EBIT. We stay course on the CapEx net, €1.2 billion. Obviously, as we always said, this is before any growth CapEx and/or M&A. ROIC is targeted to go above 8%. Our leverage will stay in the targeted range and the guided range of €1.5 billion to €2 billion. That is, I think, the message from the outlook and guidance perspective. And then just to wrap it up, 2 quick reminders. We are clearly prioritizing the improvement of ROIC and margins overgrowing the top line. And just to make that also clear, our ROIC jumped from 6.5% to 7.9% was to the majority self-helped. So it's not in the majority driven by the impairment that Lorenz was sharing with you. It is by the majority driven by self-help. And the same is true for margins. So we stay focused on that. We work on our portfolio. So stay tuned on that. We focus on strengthening our core markets as we communicated. We ensure strict capital discipline. So CapEx is very much -- CapEx spending is very much focused, especially in the core business on creating even better returns on the asset-based improvements. And with any smaller and larger or midsized bolt-ons, we try to do the same. And if they are -- if they would be larger, we would clearly, as we committed in September, go for cofoundation through portfolio disposals. We accelerate our front-runner ambition and good position in terms of both CO2 and digital. And obviously, all of this should lead to attractive returns for our shareholders. I think the progressive -- the much earlier-than-planned return to progressive dividend is one of the first exclamation marks on that and on share buybacks, I would argue, stay tuned. We still have some way to go. So one step after the other. I think on the key messages, I don't need to repeat that. I think all has been said. I would say, I would turn it back to Chris, and we would love to get your questions.

Christoph Beumelburg: Thank you, Dominik. Thank you, Lorenz. Operator, would you like to start the Q&A, please.

Operator: [Operator Instructions].

Christoph Beumelburg: The first question comes from Matthias Pfeifenberger. Before you get on, Matthias, let me remind you that please do not ask more than two questions at a time to allow everyone the chance to ask their question as it is and was good practice in our call. Matthias, the floor is yours.

Matthias Pfeifenberger: Two questions from my side. So the first is really on margins. You gave an outlook of slight revenue and operating profit increase, but I think there's 3 factors, the -- basically, your ambition in the U.S. to increase the margins. Then also you elaborated on the 1% to 5% price increases across the board. I think if you land at the midpoint of that, it's more than -- it's going to cover more than well the potential cost increases you're seeing? And then also, if you continue with disposals, it's probably on the low-margin side in terms of these assets. I think there is lots of scope to improve the margins further. Can you elaborate a bit on that? And then on the CO2, I think you raised a very fair point. You are basically launching industrial scale carbon capture projects earlier than '25, and they probably will become fully effective in '25. So when I look at the CO2 emission targets, basically incremental 7 percentage points to 2025, but then only more than 3 percentage points incremental reduction from '25 to '30. So is there a point where you will raise the 2030 target to, I don't know, below 450 or even more ambitious?

Dominik von Achten: Yes. Matthias Pfeifenberger, thanks a lot. Both good questions. So thanks very much. I think let me get to both of them. On the margin, as you've heard me say before, Rome was not built in 1 year. So I think you're right. We've made significant progress on our margin development, 206 basis points up. 300 was the original target. But as I always said, this may go up and down quarter-over-quarter a little bit. Let's reach the target of 300 basis points improvement first, and then we'll reconvene. One thing I really wanted to make sure is that we set ambitious targets, but then also reach these ambitious targets. We can obviously not give you a guarantee on anything, but I think it's our clear dedication that we reach those targets. And that means also in '21, you've indicated that we face increasing input costs. But even in '21, it's our core focus that we defend wherever we can and even build on additional margins where possible, and we'll do that. Obviously, then with price increases that I've already indicated last time from our perspective are going well across the board. And in that respect, we are confident that our 300 basis point target that we set out, we should be well on our way. And I would not promise too much if we try, obviously, to be there maybe even slightly before 2025. So absolutely, to your first question, margin remains our focus. On CO2, interesting viewpoint. You have done your math well, congratulations. I think you are right. But here, it's the same, Matthias. I think it's -- let's reach the target that we've given out for 2025. So the 525 first. The trend line is intact with the 576 that we have reached now in 2020, but it's also not, at this point, early enough to say, okay, guys, we're going to be much, much better than the 525 or even the 500 at this point. So we'll come back to you, if that's the case. But let's first make sure that we deliver what we have promised. And what we also don't want to get into is into a race of announcement. I'm always a fan of ambitious targets, but we are more -- we want to be the front runner in delivery. And then I'll leave it to you to speculate and announce, but we want to -- yes, we are focused on the delivery of our targets and hopefully, that's also in your interest and in the interest of our shareholders.

Christoph Beumelburg: The next question comes from Arnaud Lehmann from Bank of America.

Arnaud Lehmann: First question on your -- just a follow-up on your guidance. I mean I understand the EBITDA guidance, you had a fantastic margin in 2020. So a bit of a challenge to stay there or maybe improve. But on the sales guidance, considering you had, I think, about 10% decline in the top line in the first half and then it was more or less stable in the second half, we could have hoped for a bit of a bigger rebound in 2021. So could you elaborate why you only think you can slightly increase the sales in 2021 with the base effect? That's my first question. And my second question is on carbon capture. I mean, you're making more or less one announcement every month. So that's why it feels and you seem to be looking at various ways to -- in terms of process and technologies. Will you eventually focus on 1 or 2 technologies that will roll into all your plants? Or is the medium-term plans to continue to try -- test and try and maybe go for 5 or 6 different technologies across the world?

Dominik von Achten: Yes. Great question, Arnaud. Let me answer that and maybe Lorenz chips in on the first one as well on our guidance. I understand that you're all focused on the guidance. And obviously, we've also looked at that very intensively. Flashback 12 months, when we also listened to our investors and also to you as our analysts base in many cases, the feedback was, this is not an industry where you can go into footnotes and all details of guidance. This is a volatile industry. It is not -- it doesn't really -- it's not treat to very detailed guidances. Nevertheless, obviously, we want to guide wherever possible. And as with all guidance, there is upside potential, but there's also downside risk. We want to do -- we want to stay focused, Arnaud, on being able to deliver what we are guiding. As I said, there is no guarantee on this, but we are trying to keep course in that respect. And in that light, you should also see the message, slight increase in the revenue, slight increase in EBITDA and a slight increase in RCO. Let the year progress. It's early in the year. Now we look at the first quarter, and then we'll go quarter-after-quarter, and then we'll take you along on that way, and then we'll see what is possible. On the carbon capture technology, you're right, absolutely. We are currently testing 4 or 5 different carbon capture technologies. It is too early to say whether it's going to be one technology that we are going to roll out or whether it's different one. Eventually, I'm not a big fan of putting bets on 4 or 5 different technologies. Once they are really proven technologies, able to be industrially scaled on a different asset base, I would be more in favor to put the bet on 1, 2 or maximum 3 different technologies. That is a general mark. And obviously, we're not going to disclose this at this point. But if you look at the 4 different -- 4 or 5 different technologies, they are very different in terms of technical readiness, and they are also very different in terms of industrial scalability. And with that we keep a little bit for us. But the clear target is obviously, at some point to scale this not only in one plant, but to scale it across more than one plant and eventually our plant network. That's clearly obviously the focus going forward, but that will take some time because we don't want to bet on the wrong horse.

Christoph Beumelburg: The next question comes from Yuri Serov from Redburn.

Yuri Serov: Two questions. One, so your leverage is now within your target range and you are talking about disposals, which may end up being fairly substantial. Can you please give us an update on your current thinking about the use of funds? Your business is producing cash disposals. So what are you thinking about doing? During your conversation, you mentioned share buybacks, made the dividends, you're talking about bolt-ons, which are usually fairly small. So what's your current -- what are your current plans for at least ideas as to how to deploy the cash? And then secondly, on the energy cost. I don't know whether you can give us any guidance as to by how much as a percentage do you think your total energy bill is going to rise next year? Also, curiously, I'm seeing that you're mentioning cost increases in electricity, diesel, pet coke, but you're not mentioning coal. What is the reason for that or am I just reading it incorrectly?

Dominik von Achten: Thank you, Yuri, for your question. I will take the first one and then Lorenz will take the second one on the energy bill and the energy cost. Let me get into the deleveraging and the use of funds. And again, here, Yuri, we try to stay course. That's -- we have communicated the logic in the Capital Market Day during our Beyond 2020 new strategy disclosure and exactly that we will do. We said we go for disposals on our portfolio restructuring. We then stay course on the CapEx net that I was -- that I disclosed earlier, €1.2 billion net. We then make sure that we reach BBB flat investment grade. I think there, we're also well on our way, then we commit the dividends. There, we have clearly accelerated. That's what we shared. We have turned -- returned earlier than we originally thought to the progressive dividend of €2.20 also as a strong sign to our shareholder and make some use of our funds also for shareholder return. And then the excess cash goes into 2 potential buckets. Growth CapEx, including smaller or larger bolt-ons in our core markets. So clearly, no multinational, multi-business lines -- more than €1 billion acquisition that, that is clearly off the table. That's what I said earlier, and that remains off the table. But in our core markets, where we are operating geographically, then we obviously also need to do and want to do some growth CapEx and bolt-ons because as -- we are not here to shrink the company. We are here to, on a very profitable structure, grow the company in the interest of our shareholders with the financial parameters that we have shared with you. And then the second bucket remains, obviously, the share buyback, but not that. One step after the other. We cannot, again, build Rome in one day. We have taken one significant step in the interest of our shareholders now with a progressive dividend return to €2.20 and then bear with us on the share buyback. We still have some time until 2025, but we are ambitious. And also, we keep that option on -- clearly on our desk. And Näger, you want to do the energy cost?

Lorenz Nager: Okay. On the energy cost side, the situation is so that currently, on spot prices and on forward prices, energy cost is raising across the board with different emphasis and more or less in all energies. Power, pet coke, coal, to a lesser extent, yes, oil, either gas oil, diesel, et cetera, also freight costs, Supramax cross Atlantic, cross Pacific. You have seen it has doubled or tripled. So we see a broad increase in energy cost right now. Now we noticed this already in Q4 and end of last year. And so we encouraged our country management to increase the forward buying right to the limits of our forward buying policy. As you may know, we have forward buying policy in place for each and every commodity where we are going to do forward buying. We do not hedging. We do forward buying in a certain framework, which we fixed. So we went fairly long in our accounts. Typically, we are a bit shorter than the average of the industry. But right now, in autumn, we went long inside the boundaries of our buying policy. So that leads to a situation where in H1 of this year, in the first and the second quarter, we are pretty safe. We have, to a large extent, not totally, of course, but to a large extent secured commodity price levels as they prevail in Q4 of the previous year. So that does not make any concern to us. Now looking forward, we will have to have a fresh look into that at towards the end of the second quarter, see where prices are there. And then we have to look at that again, typically, especially in the power side, which makes 50% of our energy budget. Prices go down in summertime, and we will see where we are. And of course, what we see across the board, we have to reconsider price increase during the year to compensate for that. That's where we currently stand, and we are pretty optimistic and pretty confident that we are able to compensate this inflationary trend on the top line.

Christoph Beumelburg: Next in line is Gregor Kuglitsch from UBS.

Gregor Kuglitsch: Can you hear me?

Christoph Beumelburg: Yes.

Dominik von Achten: Yes, Gregor.

Gregor Kuglitsch: So I have two questions. So the first one is on -- going back to carbon capture. And I was intrigued by the announcement the other day of the California plant, where I think the idea is to solidify carbon somehow and then added into the cement mix. So if you could just elaborate on that and how realistic do you think that is a successful strategy? And maybe more broadly, and maybe you don't want to share this, but I'm going to ask it anyway. What the sort of cost to mitigate is the range of the, whatever, 7, 8 technologies or projects that you've put on Slide 18, what kind of range you're seeing in terms of cost, so we can compare that to, say, the carbon price, right? And then the second question is maybe for Dr. Näger, which I think was a comment around the free cash you effectively guided, if I -- maybe that wasn't intentional, but you basically said, I think in your speech that you expect to go back to €1.7 billion of free cash, having done, I think, €2.2 billion or whatever this year. Can you just confirm that's really what you're saying? It seems to me, with some of the unwind of tax, maybe working capital and higher CapEx, a little bit ambitious. But maybe it is what you're saying. So I just want to confirm that is indeed the case?

Dominik von Achten: Yes, Gregor. Thanks a lot for your good questions, as always. Let me just elaborate on the two questions or the question 1a and b that you...

Gregor Kuglitsch: Sorry, I broke the rules a bit.

Dominik von Achten: Yes. Yes. That's okay. That's okay. That's no problem. It's no problem. Okay. I think on the project in Redding, again, this is a plant north of San Francisco, in the northern part of California. We have partnered with a company called Forterra. That's a company that's been around for a while, and they have actually worked on that technology for quite some time. And we have now advanced the state that we are going to build a -- or they are going to build a plant right on our Campbell star on our plant in order to capture the CO2 and then use it basically for cementitious material. So it's basically in itself loop that we are trying to create and the targeted amount is that we -- by that capture 60% of the produced CO2. I think that's an ambitious target. This is a technology that's not proven yet to be fair on an industrial scale. It's proven in a lab scenario, but it's not proven on an industrial scale yet. But Forterra would not make that investment, and we would not do this if we do not -- if we would not see significant potential in this project. But to be very fair, Gregor, this is not something that will come in a large scale on stream in 2024. This is probably more between '25 and '30 in terms of a larger scale, larger -- but well, from our perspective, nothing that we talk of 2050. We'll really try to hit projects that have a shorter time horizon. When it comes to the cost and carbon price, I know this is obviously, the calculation that we always try to do. And I think you have to keep 2 dimensions in mind

Lorenz Nager: Yes. Gregor, thanks for the question. The free cash flow, cash flow is much more volatile than EBITDA or RCOBD or whatever. So it's always a bit difficult to forecast. And if you took the €2.1 billion or €2.2 billion, and you deducted, what I said, the cash tax postponement is €150 million and the working capital of €240 million, which I told you, if you deduct those, you end up at the €1.7 billion. And now the key question is -- the key question is, does this have a reverse effect? So meaning, do we have to pay the €150 million on top of our tax bill in 2021 and the same is working capital. Will the €240 million, which we had cash in this year, need to be a reinvestment into working capital in the next year? So that depends on a lot of -- let's say, for that of difficult factors which are difficult to forecast like FX rate, how December is on turnover. Do we have a dry December, then the working capital requirements are higher at the end. So that's a bit difficult to forecast. And there is one more element, which are disposals. Last year, we had very little disposal because the market for this type of asset was de facto close. Now we hope that this year, it reopens up and that could give us a little bit more oxygen here, meaning a little bit better free cash flow on that level. I guided 40%, if I'm not mistaken, 40% cash conversion rate sustaining.

Dominik von Achten: 45%.

Lorenz Nager: Or 45%, that's right. And if you take that 45% based on the CapEx forecast, that would bring you somewhat in that area. I have to be a little bit careful here. The variability of cash conversion rate, 45%. I think that's a realistic rate over a number of periods. So that's an average for 2 or 3 years, and that will bring you pretty close to the figure you mentioned. I was a bit -- look it's difficult. Cash flow is difficult to forecast because the rules change by the year-end. But I mean the 45% average over a couple of years is a very reasonable assumption and a very good figure.

Christoph Beumelburg: The next question comes from Yassine Touahri from On Field Research.

Yassine Touahri: So yes, two questions. First, could you quantify the price increase that you have announced in your key bulk markets like the U.S., United Kingdom, Germany, France, the Nordics, Italy and Australia? And then the second question is, could you quantify the year-on-year energy inflation that you're expecting in H1 2021, if you assume that it's at the same level as in Q4 2020?

Dominik von Achten: Yassine, thank you very much. I will take the first one and then Lorenz will take the second one. No, Yassine, we feel very confident on the price increases that we have in our plan on the back of rising input costs. That's, I think, also prudent to do from our perspective. You know we want to safeguard our margins. But please understand that we are not commenting on any specific price increases in any of the specific markets. It's also not good practice from a competition law perspective. So in that respect, we actually focused on our price increases. I gave you the information in the last call that we are well on track to achieve the targeted price increases, and we see good pricing momentum in the -- for us relevant markets, but we're not commenting on any specific countries in terms of price increases. Lorenz, do you want to...

Lorenz Nager: Yes. Forecasting the future is always difficult, especially when it confirms the future. So the same is true for energy price increase. As I said, we have locked in or we went pretty much to the limits of our forward-buying policy recently. So I would say, double-digit increase in percentage on that, but double-digit is from 10% to 99%. Is it closer to 10% than to 99%? Yes, it's pretty closer to 10%, but that's very difficult to forecast right now because the last forecast we did late last year and the situation was pretty much different from today. We really have to assess the situation from time to time. Our target is to keep the margin and displays on the energy build but also on the top line, on the price. So that's the element, sorry, to be -- not to be more precise because currently, the things develop very dynamically.

Christoph Beumelburg: Next in line is Sven Edelfelt from ODDO BHF.

Sven Edelfelt: Could you hear me?

Christoph Beumelburg: Yes, we can.

Dominik von Achten: Yes.

Sven Edelfelt: Hello?

Christoph Beumelburg: Yes, we can.

Sven Edelfelt: Okay. So just wanted to come back on Gregor's question on the CO2 project. I believe LEILAC project is one of the most advanced you had, you're passing to LEILAC 2. Can you maybe give us some metric on this specific project for 1 million tonne production, how much CO2 you're saving? And how much does it cost just to help us better understand the CapEx that need to be put on the table? And maybe the second question. I have a second question. You mentioned the additional €2 trillion plan to come in the U.S. How realistic do you believe this plan is? Do you -- is it more like a politic noise rather than anything else? I mean, Trump at the same scale of program on the table before. And finally, it end up with €500 billion, but did not even come through? These are my 2 questions.

Dominik von Achten: Yes. Sven, thanks a lot. Let me answer your two questions. LEILAC 2, it is basically targeted to -- and that's why I said its industrial scale, anything between 70,000 and 100,000 tonnes. That's basically 20% of the plant's emission. Costs overall, €25 million, but our own share €3 million. That gives you also a little bit of indication. I know you guys are all worried. We are going to spend the -- half the company on this. This is not what we see right now. And I think it should really give you more comfort that this is a serious topic for us, no question. I don't want to play it down, but we are also very targeted to make this a success for our shareholders, rest assured. So in that respect, LEILAC 2 industrial scale up to 100,000 tonnes, €25 million. Our own share, €3 million. And then on the €2 trillion, Sven, I -- the sky is the limit in the U.S. I know that €1.9 trillion already announced on corona. But all I'm saying is, he's promised it during his campaign. So do all campaign promises come 100% true? Potentially not. Is -- do they have the clear majority now in both houses in the U.S.? Yes. So if he wants to get something done, he needs to get it probably done in the next 2 years. So I'm personally hopeful that there will be something coming. Typically, you know, democratic governments lean more towards government spending. So if you put all that together, I remain positive, but we can only -- also here, it's true. Announcement is nice. But once it's fixed and the decision is done, that's where things then count. So yes, we are hopeful, but no guarantees on that.

Christoph Beumelburg: The next question comes from Glynis Johnson from Jefferies.

Glynis Johnson: Hello?

Christoph Beumelburg: Yes. We can hear you.

Glynis Johnson: Perfect. So the first question, I just wonder if you can give us an update on the master plans that you've been rolling out across the organization? And then second of all, the disposals. I wonder if there's anything you can tell us in terms of any update on the timing of disposals? And also just anything in terms of that watch list of other regions, countries that you were evaluating? I'm wondering if any have moved from watch list to actually on your disposal list now.

Christoph Beumelburg: You're talking about any specific master plants, Glynis or...

Glynis Johnson: I'm thinking the U.S., I'm thinking the U.K., I'm thinking Germany. So just anything that's different from what you talked us over the summer, really, if there's any reason?

Dominik von Achten: Yes. Glynis, thanks a lot. Maybe start with your first piece, the master plan, obviously, U.S. We shared the action plan that we wanted to increase the margin in the U.S. within the Beyond 2020 scope by 500 basis points. We've seen the first traction in the second half especially of 2020. It comprises of a couple of significant asset upgrades, but also some more focused work around customers and markets, asset uptimes. So that master plan is absolutely on track. That we have one acquisition still pending in the Northeast of the U.S. Our plant project in Mitchell is on track. We have reaccelerated it already in 2020. So that's well on track to get executed. The other big master plan is France. We've announced the €400 million investment into France. We are currently in the final stages of negotiations with the unions and the employee representatives. Overall situation looks promising. So we just -- we are just about to finish this year, a plant upgrade in our plant in the Champagne in Couvrot that will come on stream during 2021. So that one is on track. U.K., you are right. That was not necessarily a master plan, but also an action plan. If I look at the most recent results out of our U.K. business and also compare it with what is visible for us from the competition, my understanding is that we are on the right trend line. We were underperforming in the U.K. for quite a while. I think the trend has clearly changed, and we are really turning the wheels in the right direction. German master plan is basically done in its current communicated phase, which was the upgrade of the 2 big German master -- 2 cement plants. Those 2 investments are fully done and operational. On the disposals, I understand all of your curiosity on these, but I've asked for your patience. As I said earlier, we are working on 5 specific projects, smaller and bigger ones. That is on track, but this does take some time. And for transaction tranquility reasons, I ask for your understanding that we are not speculating around either specific countries and/or specific sizes. I said that we are going to continue also to work on bolt-on M&As in our core markets. So that basically runs in parallel. And when it comes to the watch list, yes, we've said some markets are set to be core. Others are set to be disposed and others are on the watch list. And those countries that are on the watch list, I see some good progress in some -- in 2 or 3 countries that we have put on the watch list. That's an interesting dynamic. Once -- you may say, once you put them on the watch list, they really get going. That's what we see in 2 or 3 countries. So that's an interesting dynamic. So the methodology, from my perspective, works, and we'll continue and stay course with that.

Christoph Beumelburg: There are four more gentlemen in the queue. So the next one -- next question comes from Tobias Woerner from Stifel.

Tobias Woerner: Yes. The first one is a quick one. The significant increase in ROIC above 8%, have you factored in any disposals into that improvement? That's the first one. The second one relates to CO2 certificates now priced at €42, €43. What's the impact on your costs and are your clients -- are your customers open to accept supplements on that basis?

Dominik von Achten: Do you want to start that Lorenz?

Lorenz Nager: Yes.

Dominik von Achten: Lorenz Nager will start and maybe I'll chip on the cost side of CO2 certificates one season.

Lorenz Nager: Yes. Yes. Mr. Woerner, thanks for the question. The ROIC above 8%, of course, as that is the result of the strategy includes each and every action we take, whether that's internal improvement program, master plans or portfolio policy. And portfolio policy should also contribute to further increase of the ROIC. So the answer clear, yes. On the CO2 certificate, as you know, we are long on the CO2 certificates, yes, as a group. So we trade CO2 certificates inside the group as long as we are in a long position, which will prevail for a couple of years. And therefore, we may have costs inside a single country, but we outbalance this on area level. So on the area level, what we will -- what you will not see an impact of the cost of CO2 certificates. As I say, as long as we are long in a long position. And as we made good progress in CO2 reductions, our position improves currently over time. So that's from my side. Maybe you comment Dominik on the customer side.

Dominik von Achten: Yes. Mr. Woerner, maybe just one additional point to what Lorenz Nager has shared with you. Exactly right. We are long -- and while we are long, we don't sit on our hands, but we are working, obviously, intensively to reduce the carbon footprint of our products. And obviously, we are also working with the customers on the relevant pricing for that. It is clear that over time, our customers -- our customer base needs to understand that especially those products that carry a significant CO2 footprint need to come at a different cost. That's something that we have started to educate the customer base and that education needs to go on. It's not an education one way. This is obviously also in the interest of our customers. If they receive low carbon products then it comes at one price. If they receive high carbon products, it comes at a different price and they need to also factor that into their own calculations. That's something we do in full transparency with our customer base and that's an effort that has already started despite the fact what Lorenz Nager was saying, and we will continue diligently in order to make sure that even if there is the EU commission that will change down the road, the rules on this, we are well prepared to counteract that.

Tobias Woerner: Just to clarify, are you already translating this into pricing as of now?

Dominik von Achten: Yes, in single markets, absolutely. We are translating that into pricing. As I said, this is not across the world, but in core markets, absolutely, we are doing that because we need to raise the facts. So do our customers, nothing we do against our customers, but very much also transparent to our customers. It's in everybody's interest and it's clear that, that is already ongoing.

Christoph Beumelburg: The next question comes from Nabil Ahmed from Barclays.

Nabil Ahmed: I had two actually. First one is on the U.S. tax rate. I was wondering if you could help us understand what will be the impact for the group if U.S. corporate tax rate would go to, say, 28%? Or if you don't want to go into prospective specific details, maybe just remind us what was the gain when the U.S. tax rate was lower a few years ago? And the second question was on Australia. Could you elaborate a little bit on the outlook you're mentioning in the press release? What's the basis for the more positive comments for the second part of 2021? And I was also wondering if you could comment about a possible evolution of your stake in Cement Australia. Is it selling to your partner or buying their stake?

Dominik von Achten: Yes, Nabil. Thank you very much. I will take the second question, and then Lorenz will take the first one on the U.S. tax rate. On Australia, I think Australia is an important market for us that -- you know that we have a very strong business down there, highly vertically integrated and that includes Cement Australia. From our perspective, that partnership works well. And I think that's -- for us, no need to touch this at this point. If there is some change necessary from our partners' perspective, then we'll reconvene. But from our perspective right now, we are happy with the setup. Australia, in general, I was indicating that the last 1 or 2 years in Australia were not easy. They were, for a long time, very much dependent on the commodity boom that has then come to a clear end in 2020. They are a little bit of an insight in some of the commodities with China and also the Chinese not being able to travel to Australia and the slight decrease in Chinese effect of Australian economy may have had an impact on that. But in general, I have to say commodity prices are now up again, which then should also help in a commodity-driven nation like Australia and also sentiment in Australia. COVID is basically over. The life is fully back to normal. Okay, they cannot internationally travel, but the life is fully back to normal in Australia. So that's why we are pretty optimistic for, at least, the second half in Australia. I know that our competitors in Australia may have -- based on their communicated guidance, may have a little bit of a different view on this. But from what we see, also on the back of good infrastructure pipelines, there's also a significant infrastructure programs -- there are significant infrastructure programs locally by state and nationally in place. We are optimistic for Australia. With that, I would hand over Lorenz to the U.S. tax rate.

Lorenz Nager: Yes, U.S. tax rate, currently, is 21% plus the state tax, that brings us to combined tax rate in the U.S. of roughly 24%, 25% in Heidelberg. And if you increase the tax rate to 28%, okay, that increases the tax rate. Currently, we are still in a carryforward loss position. So we have a capitalized deferred tax asset. And if they -- which still covers at least '21 and a part of 2022. So if they increase the tax rate right now, the value of my deferred tax goes up, and I will show a nice profit on that. Long term, of course, if the tax rate is higher, we have to pay more taxes, that's simple.

Christoph Beumelburg: Second last question comes from Christian Korth from HSBC.

Christian Korth: My first question deals with the growth CapEx. I appreciate you gave us a number for the maintenance. I just wanted to ask how we should think about growth CapEx in 2021 and '22? And if that is somehow comparable with the number in 2020 or not? The second question deals with capacity utilization in North America. Your annual report shows cement capacity in North America of 17 million tonnes, is based on an 80% calendar time utilization. And last year, you sold 15.5 million tonnes of cement in North America. So when I compare these numbers, they indicate the utilization rate of 91%. But my question is, is this a fair comparison given that we do not know if you did any imports and maybe you can run your plants at more than 80%? So said in a different way, how much headroom do you think you have to grow organically in North America because -- before you have to turn to imports or invest in new capacities?

Dominik von Achten: Yes. Christian, let me take the second question and then Lorenz Nager will take the one on the growth CapEx. Capacity utilization in the U.S., yes, our capacity utilization in the U.S. is above 50%. That's right. It's clearly up there. That's historically always been the case. We are one of the players historically. I know the business quite well myself, ideas. We are historically a player that has a more balanced share between local production and in peaks also imports. That plays, I think, to our strength. We have a large HC Trading business. We have offshore -- not offshore, but onshore plants on the coast, basically across our network where we can basically supply also via imports. You know that we have switched our strategy already in parts of the U.S. and notably up on the West Coast with the current mothballing of the permanent plant, where we switched imports. If I look at our results, that has not hurt the results. It has rather improved quite significantly. So we are happy that's the background of your question with the balance between imports and local capacity. And we do have, if that's the question, also some room for additional local production. And keep in mind, we still build out Mitchell that comes with a capacity increase. Once it's on stream, we still have this one acquisition pending in the Northeast. We have a couple of smaller capacity addition brownfield projects in our action plan in North America also in our just concluded strategic plan. There is, in the existing footprint, quite some room for a small capacity additions here and there, everywhere, a small one also makes a summer. And that is typically for our shareholders the best return you can get, if you do small capacity expansions in your existing footprint. So we are not up for a large new plant outside of Mitchell for the time being, and we do not see any need to do so in the coming years in order to capture the growth. With that, I would hand over to Lorenz on the growth CapEx.

Lorenz Nager: Yes, on the growth CapEx, Mr. Korth, we saw that we changed the definition on the CapEx side. We do not distinguish anymore between maintenance CapEx and growth CapEx or sustaining CapEx and growth CapEx because there is no generally accepted definition of that, and the industry has changed here and does not use that anymore with the exception of cement space to do it that way, but the big part of the industry distinguish now between the CapEx on tangible fixed assets and also disposals on tangible fixed assets on the one hand side, that's hand lag for more in German language and M&A CapEx on the other hand side. And we have followed that definition. We have also -- maybe if you look into our annual report, we have changed the presentation of the cash flow statement -- of the legal cash flow statement in that respect so that you can calculate this easily. For example, you see it when we talk about free cash flow then this is operating cash flow minus investment in tangible fixed assets plus proceeds from divestment of tangible fixed assets. So that's a change in definition, and we stick to that because that's transparent and that's visible and that's clearly defined by IFRS, how we should read that. Coming from that, our net CapEx, the plan is €1,200 million, and that is our target for 2021 and ongoing. We think we are very confident that we can stay inside this frame.

Dominik von Achten: And with respect to today, I think we made it clear that a larger M&A would be co-funded by divestments. Just to make sure that we are not up for a multibillion standalone M&A that basically brings leverage back up to 2.5 or 3. That's not on the agenda.

Christoph Beumelburg: And the last question comes from Harry Goad from Berenberg.

Harry Goad: Just on -- coming back to the guidance and you talked about the slight increase in revenue in the year and you've obviously talked about some of the contributing factors to that, whether it's positive U.S. markets or the tailwind from infrastructure programs or housing. But I guess given a lower base effect in 2020, they must also be implied in that some more challenging end markets that you're seeing. So it'd be useful to get some color whether it's by end market or by geography where you anticipate slightly more challenging or are seeing already more challenging start to the year in 2021?

Dominik von Achten: Well, I think -- thanks for your question. As we said earlier, Harry, I think from our perspective, we feel, at this point, comfortable with the guidance that we've given about the slight increase in revenue, EBITDA or RCOBD and EBIT or RCO. We've indicated on our slide to give you some color on some of the core markets. And in general, we -- in our broad portfolio of countries and areas, we do not see -- and that's the positive news from our perspective, we do not see a market that is falling off the cliff in a negative way. Let's start with that. I think that's always in a large portfolio, the risk that you have that a market basically completely collapses or there is a significant decrease in double-digit terms. I think that's not what we see in the current development, the first 2 months happening. And on the flip side, there is not one pronounced market where, I would say, things go through the roof. I think it's clear that if you read the chart that we have given at the end of our presentation that on the core markets that we have shared with you, we are quite confident about the development this year. And on the back of good infrastructure money coming in, North America, partially U.K., partially Australia, they are going in the right direction. Other end markets, for us, important are Indonesia and Morocco. And as I said, the year has started well for us. And now let's wait for Q1 results that will be out in April, May -- beginning of May. May 6. So we'll fight hard to make that a good Q1, which goes against a very good Q1 last year because Q1 2020 was still strong. It was one of the strongest ones that we had ever. And in that respect, we are fighting against a significant comp, but we are still hopeful that we'll be able to pull off a good Q1 2021.

Christoph Beumelburg: Thanks, Harry. Good coincidence that you are the last speaker since you are also organizing you and your bank, the roadshow that we are doing tomorrow. There's a fireside chat at 2

Dominik von Achten: Thanks, guys. Thank you.

Christoph Beumelburg: Bye.

Lorenz Nager: Thanks.

Operator: Ladies and gentlemen, this conference is now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.