Earnings Transcript for HDELY - Q4 Fiscal Year 2022

Christoph Beumelburg: Thank you, operator. Good morning and good afternoon, everyone. Welcome to our full year 2022 earnings call. I'm pleased to say that in the room, we have Dominik von Achten, our CEO; René Aldach, our CFO, Ozan and the IR team, myself. Welcome to the call, and you've all seen the presentation that we uploaded on our IR website, 7

Dominik von Achten: Chris, thanks a lot. Hello, everybody. Great that you join us for our call. René and myself will take you through the key points of the presentation, but we're trying to keep that short, so we have enough time for your questions. Let's start with the first key messages of Q4. I think it was a roller coaster year for us. If you follow it in detail, we finished on a very high note, which is important for us because that gives us some tailwind also for 2023. So we ended the year with the highest quarter ever in Heidelberg Materials. Revenue is up 11%, and the EBITDA, leading up 3%, respectively, 4%. So EBITDA surpassed €1 billion in just 1 quarter, and the RCO came in close to €700 million. So that is a very, very strong performance, driven by a very positive parts of our cost development. I will come to that detail in a minute. We have continued our sustainability journey with another 2% reduction of CO2 emissions. So fully on track with what we have communicated. We have started to scale substantially our circularity effort with three consecutive acquisitions that I will go through in a little bit more detail. And then obviously, for you also, important, our outlook. We are confident that we will grow our revenue by -- as we grow our revenue, driven by strong pricing, and then we have our RCO guidance sitting between €2.35 billion and €2.65 billion. If we go to the next page, we have the full year overview. Revenue is up, surpassing for the first time ever in our company's history, the €21 billion mark. EBITDA, only slightly down, absolutely in line with what we have indicated earlier. But -- and that's important with a 3% growth in Q4. And I'll come to the details in the regions because also structurally, there is an important shift in that result, which I think is important for you to understand. René will go through the key EPS development, only the highlight is €9.5 plus 20%. ROIC, that's a big focus for us to earn more than our cost of capital. We are now at 9.1%, so only slightly down from prior year. I think given all the circumstances, that's a very strong performance. Free cash flow at €1.3 billion. René will take you through the details. Second year in a row, shareholder return at around €1 billion. And last, but not least, as I said, CO2 reduction by another 2%. If we go to the operational detail, I think it's noteworthy that most of things have gone well, €1 billion, surpassing EBITDA, that close to [Indiscernible]. EBITDA development is not yet where we want to see. The good news is the decline is slowing down. We see, in some regions, already a stabilization or clawback. So I'll come to that in a minute. So I think we've seen the worst here. But obviously, there's still some room for maneuver coming back to almost 22% in [2023]. Rest assured, this remains our target. Full year, next page, you see the surpassing of the €21 billion. You see the EBITDA being below the record year '21, but still the strong year of ['22]. The same is true for RCO, on the right side. And then the margin, as I said earlier, we'll have some room for improvements to come back. Important charts are now, the next ones, because you see, in Q4, that was the first time this year or last year, I have to say now, this green bar is bigger than the red bar, which means price over cost is positively to volume. So I think in that respect, it's going in the right direction, and we have a significant positive price over cost effect of almost €130 million, we'll come to the calibration for the full year 2022 in just a second. That is actually driven, on the next Page 8, by a very solid pricing performance. So the cement price increased year-over-year in December, up 22% almost. And on aggregates, also with a steep increase throughout the year at a strong 16.5%. And that also leads then to the situation that you find in the bar on the bottom, that the original target, okay, maybe that was modest, but we are more modest sometimes with €350 million. We basically -- what we announced on the commercial excellence program. We discussed this, I think, in October '21. And we've now achieved €2.4 billion on that line. So I think that is not such a bad performance. The important page is then the next one, Page 9, where you see the roller coaster, not a great quarter for us given the short forward coverage and the energy cost explosion in Q1 of '22. Then two more stable quarters in Q2 and Q3. And then I would say, a very noteworthy performance in Q4 with not only turning -- price of our cost turning positive for the quarter, but you see it on the remarks on the right. Also, excluding JVs, and that's a little bit the competitor comparison. We are clearly positive for the full year with almost €50 million. So you know that we have -- we sit around the table a couple of quarters ago, and the question was always, are you going to turn price over cost positive by year-end? We always said we can't promise anything, but we're going to fight hard. And here we are. I think the last quarter brought it well into the finish line for the year, which has led to the full year performance of EBITDA. I think I can skip. That's something we already discussed in earlier slides. And then let me go through the regions because I think that's important now. The good performance [Indiscernible] in Q4 was very much driven also by North America, as strong EBITDA against a book comparison in Q4 '21, which was a good quarter for North America. So on top of that, they took another 6% increase, and that is really noteworthy. I know the North American performance maybe in the first 2 quarters was not where I want it to be really, and I wanted it to be, but I think based on a fabulous stop in H2 and then especially in Q4, I think they really got traction now with all the measures that we have taken throughout the year. So I'm really happy for our North American team. And I think what's important to point out, not only that they surpassed the EBITDA of €300 million for, I think, the first time in Q4, that's very strong. But also, the margin is above the '22 -- the 2020 margin and on the level of last year's performance. So I have to say, guys, this is -- for me, this is nice territory to maneuver and we will build on that. I think that, I think, is, for me, from the most noteworthy points in the Q4 performance. Then West and Southern Europe, stable on a good level. You see strong EBITDA development. Price of our costs fully intact, great contribution from WSE. Margin, we can still continue to improve. But okay, they have a very superior revenue development. And then obviously, that also drives down the margin if the EBITDA [down] absolute level doesn't move much more. So in that respect, there is still room for maneuver in WSE on the margin side. But I think overall, a strong performance of the team in that area. NEECA, a very good performance. Again, I have to say, margin, okay, again, on last year's level, slightly below 2020. But overall, I think we should be satisfied with the development in NEECA. Almost 200 million results coming out of NEECA on an EBITDA level in Q4, which is a quarter which is not so easy for NEECA given the Northern Hemisphere. So I think in that respect, strong performance, good price over cost development, that is, I think, again, a strong performance. Reason for hope is also -- hope is not a strategy, but a reason for hope is also APAC. And they had a tough 2 years, I would say. But now, I look at the result rebound, they are coming back. Q4 is moving in the right direction and some of the problem countries are stabilizing on a lower level, talking about China, talking about India, talking about Australia. Indonesia continues to run well. So I think there is good traction in APAC, which is an important region for us. So that gives us real good a tailwind for next year. Africa, I am coming from a very high level. I think they took a hit in especially 2 countries [Indiscernible]. Egypt and Ghana, the currencies collapsed, you may want to look at that. So that's mainly the reason why they're not -- some of the results, and this is not operationally driven. This is basically I would hope a one-off where the currency collapsed -- both Egypt and Ghana have since then, got in some agreement with the IMF. So we see the currency stabilizing. So we would hope that the result will rebound. First time of that indications are going in the right direction. With that, I will hand over to René for the financial side. René?

Rene Aldach: Thanks, Dominik. Hello, everyone, from my side. Let me just take you through the financials. Here, the key message is -- our earnings per share are 20% up versus the year before. [Indiscernible] we take out our additional ordinary result and in '21, the tax payment, we needed to do for the U.S. West disposal. So it's like-for-like, it's, I think, a remarkable increase of 20% up. Then from a cash flow perspective, we did €1.3 billion, which is 36% cash conversion rate. And our business heavily influenced from the working capital based up, or outflow of €800 million, which I'll go into a more detail in a second, which leads us to a leverage which is below -- or slightly below our [Indiscernible], which I said in the Q3 and this call, we will be around that number, and we exactly hit that. So that's good. And then ROIC, even with the decrease in our operational results, we kept the ROIC nearly flat on prior year's record level, which is a good thing. Our invested capital went up and the tax rate was very favorable. So that's why we were able to do this. And then as Dominik already alluded to another [€1 billion] with the shareholder returns with share buybacks and dividend payments. And then, as you have seen, we are transforming our financing into sustainability linked volumes, that's where the commercial [Indiscernible], and our syndicated loan any house already so I'll go into a few more details in a moment. Let's take a look on the next slide, Slide 18, on our P&L. Until RCO, Dominik, has explained everything. So let's go through. Below RCO, we have the AOR where you see in '21, you see €481 million where of [€456 million] is again from the sale of the U.S. West Coast. So that's I guess 2021 explained. '22 [Indiscernible] two major items. One, [Indiscernible] impairment in Russia because the average cost of capital was north of 20%. So we have to do an impairment for our Russian business. And then the second item is €80 million in restructuring in our U.S. cement business because our [mutual] plant is coming online, and we are closing a facility in the U.S. so that we have payment of some assets in the U.S. So that's €193 million. Then if you go to the financial results, that looks very, very strong. You see minus €65 million. I guess that's the lowest number we have ever seen. And this is driven by two facts. Number one, our interest expense went down by [€72 million]. We bought back a bond in Q4 '21. And the bond in 2022, so that reduces, obviously, our interest rate payments. And then we had an accounting change, let's say, which is changing a discount rate for our provisions, mainly weaker convention in the U.S., that's €127 million positive. Yes, it's just an accounting effect, that leads to a nice financial that is only €65 million. When it come to income taxes, you see an improvement of €462 million. But as I said already earlier, there's €283 million tax payment -- or taxes in the U.S. for our West Coast disposal, which we need to take out. And then in '21, we had [€50 million] impact due to a change in the U.K. tax rate. But even if you take these two items out, yes, we are still €130 million better than in prior year, which is, I guess, a pretty good result. Yes, we have a little bit lower RCO, but it's not explaining purely [€170 million] better. As you know, probably, there was a lot of things on the tax side to improve our tax efficiency. Then we go net results from discontinued operations. Yes, that' again, €36 million better than last year, but purely driven by the change in this conference in the U.S. So that's again, accounting effect. And then you come to a group share profit reported of €1.6 billion. But if you take the AOR and the tax payment, -- taxes out from the U.S. West Coast, we are at [1.8 versus 1.56], which I guess is a very solid result in this difficult environment. If we go to the next page, yes, this is a free cash flow, Slide 19, free cash flow and net debt. Let's go into the free cash flow. You see we have a positive result from interest because we've done some things here on group level to cover the interest rates going forward. So that leads to a cash inflow and now that we are cash positive for '22, which is obviously a good thing for me. Then tax payments is [€360 million]. And the big one is in the middle, you see the minus €805 million with a change in working capital and €600 million out of this is inventory. Now of the €600 million that's probably €500 million is price-related regarding our inventory. You have all seen COVID -- everything went up, and then obviously then hitting our inventory and leading to a cash outflow for our inventory. And then there's another €200 million for receivables going out on working capital negative because, as you know, there's a price decrease of about 20%. Our bills to the customer are much higher and obviously, than the absolute amount of receivables goes up and this explains the €805 million. CapEx, net €1,080 million, I guess, it's pretty solid. We guided below €1.2 billion. And as I said, we will be close to €1.1 billion or even below. And I think that's, again, we've delivered what we promised. €1,080 million is a pretty good number, leading to a cash conversion of 36% with a cash flow of €1.34 billion. And let you now say, okay, the working capital is minus €805 million and '23, year-the-year '23 should be better. Obviously, I don't want to see a lot of cash outflow from working capital in '23 then you can -- we think we can be close to our target what we announced the cash conversion of [Indiscernible]. And if you go to the right chart, the net debt development, yes, where -- how did we spend our free cash flow? Obviously, in M&A, we did €478 million M&A. What is behind this? [Indiscernible] that is the CDI project in Ghana, that's in A1 recycling in the U.K. and some smaller items set in the U.S. And then dividends to our mother company HeidelbergCement and the minorities like [Indiscernible]. Share buyback, €350 million. And then currency other, is a leasing and currency movements on our cash positions in some countries so that leads to increase in debt of €0.5 billion. If we go to the leverage I think, I said it already, 1.48 below our corridor so that's a good result and that shows we still have a good strong balance sheet. That's also -- invested capital, Slide 21. You see our invested capital went up by [€1.5 billion]. Now it's two effects, very simple. Our net debt went up by €500 million, and then we did group share profit of €1.6 billion. We paid dividend, [€600 million] so that the equity goes up by €1 billion. So these are the two effects, leading to an increase [Indiscernible] capital. Our RCO went a little bit down, but our tax rate was very good. So that is why [8.8%] for this calculation [Indiscernible] stable around [9%]. If we then go to return to the shareholders, yes, it's a similar number than we have done in '21. We've done the second tranche of the share of that [€350 million] of the dividends. So again, a second year in a row is around €1 billion return. Next slide. You've seen in January, we put out a sustainability bond, which was, I think, a good success. We picked a good day where we launched the bond of €350 million. And now our refinancing is 44% of our total, which is a good thing. And then we ddi €2 billion commercial paper [Indiscernible] let's say, which I think as well not many do this. I think we are the only one right now having done this for the commercial paper program. So that's as well a right step towards our targets. And I think that's it, Dominik, I will hand over to you for the sustainability part.

Dominik von Achten: Thanks, René. And you know that we, for the first time, this year, also will combine full year annual report, the 2 topics, financials and sustainability. And I've kept one surprise for you to just make sure that everybody follows the full presentation because we've got the SBTi approval now on the 1.5-degree path. We have been in intense discussions with SBTi [Indiscernible] very constructive and detailed discussion [Indiscernible] the value chain. And that's why it took a couple of days to get that done, but we're happy that, that has now finally been concluded and will make a separate announcement there during the day, but just for your upfront information on that. On the back of the financing side, we have to make it more sustainable. We've also done a lot of, of course, sustainability pushes. We've further accelerated our CO2 reduction by another 2%. So we are fully on track with what we communicated in the Capital Market Day on the back of very good increase in alternative fuels, almost to 30%, 28.7%. So I think that is really going in the right direction. Also, clinker factor came down. So overall, clearly, the right part in that respect. Very important, I'll come to that in a minute, it's our CCUS journey. I will take you through the details of that. And then second, you remember from the Capital Market Day, we said we have two core sustainability targets when it comes to our Scope 1 and 2. That's basically CO2 reduction and circularity. And we have, since then, in a very, I think, good speeds, accelerated our journey to build circularity platforms in our core markets, Germany, U.K., U.S. Next to the one we have already in Australia. That's why we have now month after month 3 acquisitions done in the -- in Germany and in the U.K. And then, last but not least, this morning in our press conference, we also, together with Nicola Kimm, upgraded our overall sustainability commitment. I'll take you through some of the details in just a second. Next page, you see the typical graph that we have shown you and we kept it exactly in the same way. So specific CO2 emissions come down by another 2%. The target remains the most ambitious in the industry with 400 towards 2030. Clinker factor came down nicely by 130 basis points to 71.6. And the alternative fuel rate went up to a strong 28.7%. Now this only makes sense if in the end, we also are able to sell the sustainable products to our customers. And we have taken a very local approach up until now on this one. You see here that all of our key countries are driving down their CO2 footprint significantly. That's the likely piece with the products that we have on offer. And then the dark green piece is the circularity approach. So again, here, we focus on CO2 reduction and also on circularity in the product offering to our customers and the acceptance is very good. Significant progress we have made on carbon reduction projects CCUS, because we all know, we've said this, I think, 2 years back, that we strongly believe that to fully decarbonize our product is technically possible, but nobody is doing it. So we basically endeavored, I think, both at the time to push heavily on our carbon capture projects. We have come to a CCS in Brevik and that will be the first one coming and next year with 400 kilograms -- 400,000 tonnes of CO2 capture at large scale. And that's really strong in that -- in action has been up there many times now, and that will come on stream already next year with the full supply chain of carbon capture, transportation and storage. So that's a significant also partnership effort. We have then further projects in the pipeline that we have communicated here and there and everywhere. The ones to know I think is the one in Bulgaria, Devnya where we got another project where we got the significant funding also out of the EU green yield funds. And then the one in Indiana, it's going to be the largest one in the group with 2 million tonnes capture units. That's a very, very interesting one because we also have a grip on the transportation and storage there. So I think in that respect, that's exactly what we want to see. So it's not a one after the other. It's development and learning curve from one project to the next, when it comes to speed, cost, technology, partnership setup. That's exactly why we are pushing this pipeline, but it's not about the number of projects in the cemented, the number of things that happen on the round and capture being done what -- that's also why we said we want to a cumulative capture 10 million tonnes by 2030. Brevik, that's under construction, we see here a picture of the construction site. So this is not early stages. This is actually far down the road on the construction side. So there are a lot of preassembly done because we have the advantage to be on the water side. So you see it there on the water where the previous stuff comes in. Erection is fairly quick, risk, that something goes, power is limited despite the fact that it's winter. Okay. Startup will then be interesting next year, but we are very confident that we will get this one on stream as we promised in 2024. Last, but not least, the circularity platforms, U.S., U.K. and Germany, I think with good traction now. U.S. focused around Seattle. Germany focused around Berlin and the Southwest. And the U.K. focused around London and Manchester. So I think that is really moving in the right -- that's really moving in the right direction. And we are very happy with what we have been able to pull off there. That should really help our circular approach down the road. And then last but not least, our new Butterfly, as we call it internally. The left side, you already know the carbon zero products and the circular approach. That is basically the ones that we have communicated already, but we'll continue to upgrade the ambitions there. And then on the right side, you know that we are very focused on health and safety, but we're sticking the tide on reduction on LTI frequency rate and also on diversity and inclusion because that's an important topic for us. And last, but not least to the bottom right, we have done in the past, you have followed a lot of things on biodiversity. There, I think we have a good track record of fixing the target there. And then we up our efforts on water management because we view this to be a very important contribution. Also, two, very nature-positive targets. So in essence, this is the framework that we will report against going forward. We'll also be transparent about the performance in that respect. And I'm happy that we have now, not only covered our most prominent and seems to be mainly in focus with CO2 and circularity, but also a comprehensive sustainability commitment to our stakeholders and society. Last, but not least, when we come to our outlook. From our perspective, yes, there is volume [Indiscernible] in residential. [Steep] in some markets. Germany, Europe. Also, the U.S. 20%, 30%, 40% down when it comes to permit, how we start in all of that. So a steep decline, no question. And I don't think we're going to rebound super quickly during 2023. But the good thing is it's compensated, to a large extent, by nonresidential projects, chip factories, battery factories, data centers and then also the infrastructure projects. We clearly see the first traction of the IRA funds in the U.S. with also being the first infrastructure project being released so that put on the back of that stable demand. I think we will see continuous focus on very strong pricing. We will stay focused on that topic. So in that respect, that's our clear target. And we do have our CFO and strong cash generation that starts with the top line. So in that respect, to bring both things home, is clear that is our balanced target. That turns then into a formal guidance for 2023. We believe that we are able to continue our revenue growth. Also, organically, that's why it's like-for-like. RCO, we see between €2.35 billion and €2.65 billion. That's the RCO guidance. Just one remark on that one. We -- you noticed, we've switched from EBITDA to RCO. We've discussed this internally quite a lot, the company very much on RCO level. We think it was easier for you to compare within the industry on RCO level, but we will keep the EBITDA. So there's no secret on EBITDA. But just in terms of guidance, we're going to switch to RCO. CapEx, really made the point. We're going to be stingy on CapEx, €1.1 billion. And within that €1.1 billion, we also shift to a larger extent on green CapEx, as we would call it, renewable alternative fuels and other cement issues, secondary materials. And capital discipline will stay, work around 9%, leverage between 1.5 and 2x. I would say, I don't need to repeat the key messages. You've heard those loud and clear. I think we'd rather go back to your questions. Thanks a lot.

Christoph Beumelburg: Thanks, operator. We would like to start the Q&A process, please?

A -: [Operator Instructions] First question comes from Matthias Pfeifenberger from Deutsche Bank.

Christoph Beumelburg: [Operator Instructions] First question comes from Matthias Pfeifenberger from Deutsche Bank.

Matthias Pfeifenberger: A couple of questions from my side. So firstly, I guess, the usual suspects. What do you see on incremental pricing? I think some of your competitors have been quite local. You have been the price lever last year. So do you see a lot of necessity to raise prices further? On that front, how much is the spillover from 2022? And also, what is the cost inflation you expect in '23? And then a second one on the nonresidential part, we have heard that from several players in the building materials industry -- new manufacturing plants being built, especially also in the U.S. Is that something you're seeing on the front in terms of incremental activity, recent pickup there? Or is there a risk that, let's say, this longer and higher rate cycle will also affect the nonresidential commercial part, let's say, towards the second half?

Dominik von Achten: Okay, Matthias, thanks a lot for your question. Let me take the second one and maybe make a broader remark on the pricing and then René maybe can chip in or spillover effect and cost inflation. I think let's kick back at that a little bit. On incremental pricing, there will be incremental price increases year-over-year. We have increased in most jurisdictions of prices by January 1. A couple of them will cover later, but it's clearly moving already as of January 1. So yes, there will be incremental pricing out there, partially also substantially. So it's not like we are done. Why, also? Take the absolute amount of energy costs. While energy costs have declined from a super high level, they are still, compared to 2019, on a very high absolute level. We want to come back to our original margin. So I think there is still room for improvement when it comes to that. So yes, clear answer, there will be incremental pricing. When it comes to the nonresidential piece, absolutely. There are a couple of effects that we see when it comes to your question about the U.S., but I would say similar things maybe on the smaller scale for Europe. There are a couple of effects. There are European companies shifting investments from Asia to Europe or even into the U.S. There are U.S. companies shifting their investments from Asia to Europe and/or back home to the U.S. And both of these effects drive nonresidential demand. We actually fully see the first project happening. So it's not like COE. We have a couple of projects, especially in the U.S. where plants are doing this as we speak. So yes, there is significant demand out there. Does the interest rate hike stopped that demand? I'm pretty committed we are not stopping. It fully may slow down here and we had a little bit. I don't know, but it's not -- it will [Indiscernible] also the political will and the company rules that we hear to be sure and fall back to the home companies and so with the cost. I'm not saying those are -- not important, but they are not the first item. So for the spillover of pricing, obviously, you've seen in the document, cement price, year-to-date, is I think [71.8%] up. So in many cases, imagine that in January, if you then compare January with January, there's a material price data in January '22, which is double digits. So that's, I guess, what we see. Net cost inflation, you know this. You see general inflation is pretty high. Then now we have stopped inflation as well. And then the big question is energy cost. And obviously, there will be inflation for all these three items. What I can tell you is that we are assuming that there is, as well energy cost inflation, and -- but obviously, not in the magnitude we have seen in 2022, yes. And the message here is as well that we want to continue our price of our costs with positive, let's say, trends, what you have seen here from Q2, Q3, Q4, that was pretty solid performance, and we see this continuing in January.

Matthias Pfeifenberger: Can I just chip in one more.

Christoph Beumelburg: Let's go back a -- I forgot to say -- thanks for your question, Matthias. But I forget to say we have so many questions on the line. Let's really restrict the questions to two at a time, if you may. Next one is Elodie Rall from JPMorgan.

Elodie Rall: The first one is very straightforward. You have a switch to EBIT and become EBITDA, but could you give us the corresponding EBITDA guidance for that RCO guidance? The second one is on pricing. I understand that you are still looking for incremental price increases, but I was wondering if there are markets where you see risk of price decreases following the unprecedented price increase from '22 and some indeed, easing on energy costs? And if you can, just for the last question would be whether you're expecting flat volume overall, given you said infra and nonresi should offset resi? Does that mean you expect slight volume growth for '23?

Dominik von Achten: Okay, Elodie, I think you've been smart enough to combine. I'm not sure, well, I counted right, but we'll take that two-point as one question, pricing and volume. So I'll start with that and then maybe the question, if I -- the Nordic was not great, Elodie, but I understood you. You're asking for the EBITDA guidance with the RCO guidance, so René will take that one. Now on pricing, we do not see any substantial decline in certain markets where our prices dropped significantly from prior year. That's not what we see at this point. Volume decline -- volume development, we have assumed a slight decline in volumes overall. So volumes, we have not assumed that volumes will increase globally. Markets are different. One market is different from the other. But on a global level, we have not assumed the volume increase, or rather a slight decrease in volumes across the business lines.

Rene Aldach: So the rough guidance, I don't say guidance because we [Indiscernible] should just have a depreciation. So it's around [Indiscernible] so if you then take the middle [Indiscernible].

Christoph Beumelburg: Okay. The next question comes from Luis Prieto from Kepler Cheuvreux.

Luis Prieto: The first one is -- and I know it's difficult, but coming back to 2022, would it be possible to get an idea of the split between how much cement volume decline was the result of sacrificing volumes for pricing? And how much would be attributable to a generally weak market in Europe and the U.S., basically in Europe? And the second question is, given what you said about the expectation for volumes this year, is it fair to assume that you expect -- I mean, the higher end of your guidance range would be basically through exclusively price over cost?

Dominik von Achten: I think on the cement decline, the large vast, majority of business market driven only in very single cases, in specific markets where we took a data delivery decision may be a market share topic, but the vast majority of this is market driven. On volumes, I think that in the end, we are going to be, what's your view, René? Let's say, we're going to be fine on that.

Rene Aldach: We should be okay on volumes, Luis. And as you outlined, the price over cost, that's the key factor. Pricing should remain very solid, yes. And then let's see what the cost -- or the energy cost base start but it doesn't look too bad currently.

Dominik von Achten: Yes. Volume, to your question specifically, we are -- is there an upside? That -- I think that was behind your question. Is there an upside on volume development? I would be cautious at this point. As I said, I don't expect a quick rebound on the residential side. I do not see that there's a massive upside on volume runoff. I agree with you the [Indiscernible] is probably in the pricing side. So I would concur with your assumption.

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

Yassine Touahri: So a couple of questions. My first question is, at the beginning of 2023, you said you had a good beginning of the year. So what does it mean you've got -- are the volume declining less than what you've seen in Q4? Do you see a better price cost dynamic that you've seen in Q4? If you can -- I understand the prices are of double digit, but if you can help us understand a little bit what you mean by good start of the year, that would be very helpful. And then the second question, approximately €0.5 billion acquisition, including a lot of small investments in recycling businesses. What kind of returns do you expect on those acquisitions? And what kind of contribution could we expect in 2023 in terms of operating income and medium-term?

Dominik von Achten: Thanks, Yassine. Let me take the first one, and then René will take the second one on the acquisitions. Where we mean good beginning, it's a combination of price, volume, cost and also bottom line. That's, for us, the equation when we talk about a good beginning. Overall, I think, last year, we had significant headwind on all -- most of these dimensions. And this year, we have a tailwind -- or at least on most of those dimensions.

Rene Aldach: So Yassine, regarding -- sorry?

Yassine Touahri: On the volume side, does it mean that the volume decline in the first -- at the beginning of the year is not as bad as the volume decline that we've seen in the last quarter of 2022?

Rene Aldach: That is a very different market by market. This is not one -- the picture in pricing probably more homogeneous than in volume development. Then you have segments. You have winter. So let's not overestimate. You see, I'm not getting -- to be very specific, Yassine, we're not getting -- to the one or to the other side because January is, guys, it's early days. We did not have winter in some jurisdictions. Other, we did have. And otherwise, we had weather events on low volume in terms of capital. I am -- we don't look at volumes that much in January to be very over.

Dominik von Achten: Yassine, regarding your M&A question, the €0.5 billion. The majority of the €0.5 billion, we spend for [Indiscernible]. And then we did CBI in Ghana. We did one in Manchester, and we did something in Indonesia. So that's good profitability in Indonesia [Indiscernible] equity, let's say, shareholding in the diluted result because we've only 45% on net income basis. So that's the message for [Indiscernible]. But there will be proper results contribution from Indonesia and then U.K. And then the two '23 acquisitions, what we have announced also recycling ones, yes, they are not yet covered by this €500 million we have in '22, because they will be all closed or are in the process of closing for '23. And there, you could -- if they close and we get all the approvals we need from the authorities they will reach the proper EBITDA contribution.

Yassine Touahri: And could you -- do you have another...

Dominik von Achten: Do you have a follow-up question on that one?

Yassine Touahri: Yes. I just wanted to get a sense of the order of magnitude of the EBITDA contribution or the sales contribution that we could expect from all those acquisitions. If you were [Indiscernible].

Dominik von Achten: It's difficult for the '23 ones when they are closed. We don't know that yet. So I can't give you a number because it is close in Q1 or Q4, that's obviously going to decrease to contribution. And as I said, for the 2022 ones, we don't go into such detail, what we provide for each acquisition.

Rene Aldach: And you see, the one thing we should be assured, we are doing a very detailed review also what the impact on our balance sheet before we do these acquisitions. So we do all of this, obviously, with a clear view on contribution to the bottom line. Some are more strategic than others where we make a little bit more sacrifices, that's a very specific one that we've always communicated. But the others, more and more in the core, core business, they obviously did contribute to the bottom line significantly. Also, including the synergies that we obviously get from those. So we will be the financial discipline also on that one.

Christoph Beumelburg: The next question comes from Brijesh Siya from HSBC.

Brijesh Siya: I have two as well. The first one is on the net debt EBITDA guidance of 1.5 to 2x. If you look at the EBITDA guidance you're giving the cash conversion certainly expected to be moving up towards the 40%, at least. And if you could just give me the -- what the items behind in that 1.5 to 2x, does that include more buybacks, I mean, in this year? Or any other things you are kind of planning in that 1.5 because the range seems to be pretty big 1.5 and when we see the free cash flow, which is coming for this year? That's the first one. And the second one is you talked about in Slide 27 about all those lower CO2 products, which you have introduced across the globe and the circularity products. If you could just give us what proportion of your sales, at this point, is coming from those type of products? And then what kind of margin you're generating? That will be great.

Dominik von Achten: Okay. Let's take the first one, yes. And we just talked about our M&A activities. We have still to close [Indiscernible]. That was a recent acquisition. We have the two German acquisitions we have to close and pay as well. So if you put those together, there is already usage of our free cash flow for M&A activities, and similar magnitude, what we spend in 2022. And then you say, okay, we have our dividends to our mother company, we have dividends to the minorities. And then what we have said is still the space of the share back obviously is time until September. And if you add all this up -- all this together, there's no deleveraging -- not leveraging happening that we got €0.5 billion at least for M&A and the dividend share back, I guess, [Indiscernible] '22.

Rene Aldach: And then on the products on Page 27, we've communicated on the Capital Markets that we will tie this together is what we call sustainable revenues. We make that transparent throughout the year. So I think we've taken a local approach in that respect. But you should assume that this is a significant double-digit percentage point of our volume already. Margins, we do not disclose. That's a competitive set up. And in that respect, we do not disclose margins on these projects. General remark, we don't give them away, but we try to -- we can target not try to, but we realize in most cases also margin superior recovery versus the traditional commodity products.

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

Arnaud Lehmann: My first question is just coming back on your 2023 guidance. And I'm trying to understand why you would take the risk of giving a guidance in euros considering we live in a volatile world? Currencies are moving around. Energy has been very volatile. And also, what's your currency assumption included in the guidance? That's my first question. My second question is just coming back on Q4, if I may. Eastern Europe -- or North and Eastern Europe, a lot better in the fourth quarter. However, we're hearing not so great feedback on levels of activities in places, like Sweden or Poland, for example, at least on the volume side. Do you think the rebound in the fourth quarter in North and Eastern Europe is sustainable into 2023?

Dominik von Achten: Let me take Arnaud, the second one, and then René will take the first one on the 2023 guidance. Honestly, that's -- capital, whether there's not one general deal, there's not one general tolling. As I said, yes, there is the decline in residential in Chile. That's clear. There's also maybe some snow and in residential in Poland. But overall, I think from our perspective volume may be a little bit under pressure, but we are very satisfied with our overall performance. That's a very strong team we have in makeup. We do not see a significant decline versus our planning or our current performance so in that respect for us [Indiscernible].

Rene Aldach: So Arnaud, regarding your question regarding the guidance, our assumption is roughly -- that guidance includes the negative [Indiscernible] from currency, which means like [Indiscernible] it looks better. And why did we choose to, let's say, do a range? Let's say, we clearly said we want to be on 2022 level reported or even better -- above. And if you look at the range, it's gone to minus 5% to plus 7%, yes. And that should cover your, let's say, argument very volatile, as we all know. And we wanted to go away from this -- want to be able to [Indiscernible]. So during the year, get that range a little bit more the size like we've done last year, and that's why we have chosen to take a range, which are [Indiscernible].

Christoph Beumelburg: Next question from Redburn, Yuri Serov.

Yuri Serov: I want to talk again, obviously, about volume and about prices. So on volumes, can I just clarify, you say that you think for the full year, in 2023, for the four companies, you're expecting a slight volume decline, right? So when I look at the number for '22, you had volume declines between 6% and 7% across all regions. Is that slight in your definition? Or do you expect a lower decline in '23?

Dominik von Achten: Sure about your 2022 assumption, you talk about -- let me just clarify your question. So you're saying the 2022 volume decline?

Yuri Serov: Yes, sorry, on the quarter. So yes, the total volume decline in cement for 2022 like-for-like was 1.4%, right? Do you call that slight? Or do you think that the decline in '23 will be lower than that?

Rene Aldach: So I think it's early days on the volume, but you will see it somewhat in single digit percentage decline. So there is no fall of the cliff. High double digits, that's not what -- that's not what we see, but it's somewhat [three] digit percentages.

Yuri Serov: So it can be more than 4% decline or...

Rene Aldach: I'm not going to -- sorry, Yuri, but what you want me to say, 3.5% or 4.5% this doesn't make -- it's somewhat single digits. It's early in the year. So single-digit decline.

Yuri Serov: I understand. On prices, it's a trickier question, but let me probe on that. So we are hearing from other producers and other products that they are starting to expect price to fall. We're not hearing that from cement producers, and that's really unusual. If you look back on history, cement has always been a very competitive product. And last year, the industry seems to have forgotten about the competition. So what gives you confidence that this can continue, that prices can continue rising rather than start falling from here?

Dominik von Achten: I hear what to say, but that I have not experienced the competition in cement. But sorry, we are very competitive. But some of the input factors for decision at least in our company have changed. Energy cost are completely different. René has talked about the pricing cost inflation on many other things. We talked about the CO2. I just point your view to the [Indiscernible] price. We hit first half ever 100 this week. So it doesn't become any cheaper. And on the -- and certificate -- three certificates are being made down. So I think that's another effect. And then last one but not least, this is also much different from the last decade. This is, as I said, numerous times before the end of commodity. The decarbonization will be -- will give you the ability to differentiate your product offering and service offering at the customer front and that has not happened with equal fighting. And that the -- at least we would receive that if we do that and certainly, we are not doing that.

Christoph Beumelburg: The next question is from Tobias Woerner, Stifel.

Tobias Woerner: So two questions, if I may. Number one, just to get a little bit more clarity or granularity on price cost. I see that in Germany, in January, month-on-month price, up 10%. In the U.S., 8%. Is that sort of the magnitude we're shooting for this year in terms of incremental? At the same time, just to get a -- remind from you where we are in terms of hedging, how much is open around the electricity cost and the sensitivity around that as a reminder, again as well? That's part of the price cost question. And then secondly, if I may, Brevik comes on stream next year. A world first, so to speak. Congrats on that to start off with. But can you just update us on the capital cost? And how much the Norwegian state contributes here for you?

Dominik von Achten: Yes. Let me take -- first of all, I ask on that price cost. Generally, price in specific countries, we cannot comment. That's a highly competitive setup. As I said earlier, which is competitive sensitive combination. So we will not comment on any price development in specific countries I ask for your understanding. So that René may take the second question on the energy hedging. And then on Brevik, capital costs on the projects, the projects is not yet finalized. We will come out, but there is Ukraine and [Indiscernible], there may be a slight increase on the original budget. But let's not forget, the budget will take [Indiscernible] CO2. Now they're [€19.95] per CO2. So it's difficult. So that's just one valuation. The percentage coverage of the government is [Indiscernible] 85%. So that is the agreement below reaching government.

Rene Aldach: So we are an electricity, overall, across the whole group, we are roughly 50% covered for the full year and are obviously more for Q1 to Q3 and then a little bit more open in Q4. And we will not -- now start to lock in a major volume start for Q4 because of these premiums are still too high. The power cost is still high. So we enjoy right now. Let's contests the reduction of the electricity cost across Europe or the world with 50% open. I guess we have a reasonable approach here. But as you may recall, I said we now -- we've changed our hedging in electricity, but I said credit prices, we are not locking in. But what we are doing, if you look at '24, '25, '26, electricity prices are coming off materially. And here, we already have taken the decision already to lock in some minor volumes for the outer years because the prices are, in our view, okay-ish. So that's probably my remark for activity.

Christoph Beumelburg: The next question comes from Goodbody, David O'Brien.

David O’Brien: First one on North America. You described the order book as healthy. I wonder could you quantify what that looks like year-on-year and maybe how your expectation for infrastructure growth in 2023 is shaping up? And then secondly, just to build on -- to David's question. I think back in May, you gave us the operating cost for carbon capture and storage. I think it was about €60 a tonne. Has that changed materially over the last 7, 8 months?

Dominik von Achten: Thank you, David. The answer is no, it has not changed. The next -- the second point, is fine. And then in North America, there is, as I indicated earlier, a shift between the [Indiscernible]. So that turnover and also in the profit will come more from nonresi and infrastructure projects, less so in residential. And when I talk about the healthiness of the other book, I prudently talk about nonresidential and infrastructure, not so much residential, as I said, there, our order book does decline. But our segment focus, historically, in the U.S. compared to the global group is anyway more cheap to nonresi and infrastructure work. Also, there will be aggregate footprint. So in that respect, we feel very well positioned for rebounds in North America. Also, we go, again a, I would say, not superb, the first half of the year in 2022. So all effects combined, give us some good optimism on our North American performance for 2023.

Christoph Beumelburg: There's three more people on the Q&A queue. So let's carry on with Harry Goad, Berenberg.

Harry Goad: I've got two for you. Can I just follow up a little bit on the previous question with regard to U.S. infrastructure and specifically sort of federal road building. We talked a little bit about it in the last year in terms of the increase in the federal funding package. Is there any evidence you're seeing that, that funding is now beginning to flow? So that's question number one, please. And then question number two, can you just give us an update on from the buyback? Is it sensible to assume a run rate of about €350 million again this year? Or could that number be bigger?

Dominik von Achten: Thank you, Harry. I leave the second one to our CFO, René, and I'll give the answer on the first one U.S. infrastructure. I've been around the block as you have been quite a while, and I was there in North America of our operations in 2007 to 2009. And at the time, I know there was a big infrastructure program, but it was basically coming down on state budgets and [Indiscernible] basically entered. So what happened and is why it took so long to get on the ground is that the base basically filled up their pocket first before it it's a go. Now it's time around, this is significantly different. There is fundamental money coming from the federal side, particularly big pockets on the DOT because keep in mind, the spike in oil prices and gas prices has really spilled a lot of money into the pocket of the DOT. So both pockets are full and then also now we see already any traction now. And that's why I'm also quite optimistic that this will not be a firework on last [Indiscernible] a little bit longer because if you add all numbers up, this is not a small amount.

Rene Aldach: Okay. For the buyback, Harry, as we said, let's finish our first share buyback program first. We said we do €1 billion. We've done now €700 million. And we have at the time, we said communicated until September, we plan to do the third tranche. And let us finish the first and then we see how we go.

Christoph Beumelburg: Next one is from Ross Harvey from Davy.

Ross Harvey: Two very simple ones. First is price of a class trajectory that you've alluded to already and the pricing that you're pushing through. Can you just make any comment on the product lines? Is there any product line, be it aggregates or ready mix or cement that's completely out of whack at the moment that you're looking to, correct? And secondly, can you just clarify why you're dropping the EBITDA guidance and revert it just to EBIT? Just any thoughts on that?

Dominik von Achten: Yes. Let me make a couple of general comments and then René, you can chip in. On the price over cost, it's not likely as a preference for the one, the other or the other. So we keep focused on all product lines. So all of our lines need to move, cement aggregates, and concrete, and also asphalt. There is no exception to anybody. And then it's a market-by-market, customer by customer decision in what magnitude retail. You saw on the earlier slide that from a sheer percentage perspective, the cement is probably leading the pack a little bit, but we clearly are very focused to also move the other business line. Because in the end, it's a vertical integration. So if you try to push your cement pricing and the [Indiscernible] you don't move your concrete pricing, then you get into a margin [Indiscernible]. So from our perspective, no exception in the rule. Everybody has to move.

Rene Aldach: So Ross, regarding your second question. So we have chosen to -- guide for [Indiscernible] because that's our, let's say, internal, how we see the company, KPIs. So that's what we use here. And it shouldn't be a big problem because between EBITDA and you're not going to just one number, which is depreciation, which doesn't calculate up everything. So you can do the math by yourself. I think and also the most important KPI where we see the company here internally.

Christoph Beumelburg: And Greg, [Indiscernible] of the Q&A session today. [Indiscernible].

Gregor Kuglitsch: That's an honor. I'll ask in that case, I'll be a bit -- and ask 2 to 3, if that's okay.

Christoph Beumelburg: You're allowed to do that.

Gregor Kuglitsch: All right. So the first one is on energy. Can you just actually tell us what the bill was in '22? And kind of -- I was a little bit confused from the last call kind of what your sort of realized power costs within Europe. So is it a rough number, I don't know if it was €200 or more or less than that? So that's the first question. The second question is, I think you mentioned it 3x or something like that. Do you want to go back to the margin target of 20% and obviously, very arithmetically that implies €500 million, €600 million extra EBITDA or EBIT I guess on the '22, '23 revenues? So the question is, do you really think global with the current nominal cement pricing? And if so, why? And sorry, one follow-up on the M&A. Did you say you basically spent €0.5 billion on these recycling businesses? If you could just share with us roughly what the multiple you pay for recycling business, please?

Dominik von Achten: Let me in with your -- the first part on energy build over the energy side, the margin target [Indiscernible] outstanding. On the margin target [Indiscernible] right is impossible to recover the full margin in '23 for [Indiscernible] what we are trying to say. Remember, going back to the Capital Markets Day on the [2020] strategy, we gave margin targets for 2025. We were very good by already in '20 in 2021. But we are -- continue our efforts to be regain and the margin targets that we communicated in '25 for the [Indiscernible]. Keep in mind that the last contribution from the margin [Indiscernible] from North America because it's coming online now during this year, and we will close down a significant number of very efficient, very costly operation. And there will be a significant margin improvement coming out of North America alone. So that is probably also a large chunk of that contribution. So [Indiscernible] on 2025 target. On M&A, I think the way we do it, we spent this €0.5 billion includes the [Indiscernible]. I think M&A -- and that's we communicated that number, I think. It's more than €300 million. So in that respect, the large chunk of it. And then on recycling, I ask your understanding that we do not disclose specific multiples we have paid. Again, that's very competitive. And on the other hand, [Indiscernible]. So we are not doing crazy acquisitions with [Indiscernible]. And that's the reason we're not disclosing them. In this case is clearly the reason that [Indiscernible] on the [Indiscernible] side, we want to disclose in most cases. So we have to expect [Indiscernible].

Ross Harvey: [Indiscernible] did I understand correctly on deals that you've done...

Dominik von Achten: [Indiscernible] Sorry. So if you take -- put all the deals together, and we have announced the German two ones, as you know, we have done €0.5 billion as a rough figure. It's a [Indiscernible].

Christoph Beumelburg: Thank you. [Indiscernible] earnings call today. Thanks for listening just to allude to roadshows. We are on the road in Europe and in the U.S. at the end of the month, then we are attending on 21st of March, [Indiscernible] conference in London. We have our announcement on our Q1 earnings on the 10th of March, which is then followed the next day of our AGM that just lead to the upcoming event. With that, have a nice day. Bye-bye.

Rene Aldach: Thanks a lot.

Dominik von Achten: Thanks, everybody. Thanks a lot.

Operator: Ladies and gentlemen, the conference has now concluded, and you may disconnect telephone. Thank you very much for joining, and have a pleasant day.