Heidelberg Materials AG (HEI) Earnings Call Transcript & Summary

[Presentation] Hello, everyone, and welcome to the Capital Markets Day of HeidelbergCement. My name is Chris Beumelburg. I'm heading the IR and communications function at HeidelbergCement. And I have the pleasure of leading you through the day. This is a first for us in many ways: the first time we are hosting 100% virtual CMD; the first time we do this from our new headquarters in Heidelberg; the first time we have our entire Board of Managing Directors with us at a CMD; and of course, the first time a Capital Markets Day is hosted by Dominik von Achten, who took over as CEO in February 2020. Knowing that a virtual event can be sometimes quite hard to follow, we will try to make the event as engaging as possible for you. We have a mix of live and prerecorded content and a live Q&A session at the end. As a side note, some of the videos contain content that was recorded prior to the outbreak of COVID-19 and therefore prior to the need for wearing a mask or social distancing. Beyond 2020. This is the strategy that we will present to you today. Let me give you a sneak preview of what we have prepared for you over the next 3 hours. We start with the keynote speech from our CEO, Dominik von Achten. This will be followed by a short film on our operations and a panel discussion with our Board members, Kevin Gluskie; Ernest Jelito; and Chris Ward on operational excellence. Dominik von Achten follows on with a short presentation on portfolio management. We will then take a deeper dive into our key transformational topics: sustainability and digitalization. Jon Morrish will present on CO2 reduction; and Hakan Gurdal, on our alternative fuels strategy. Dominik von Achten will provide you with the insights into our digital transformation strategy. And finally, our CFO, Lorenz Näger, pulls it all together in his financial update. Following the formal presentations, we will have a short break in order to set up the Q&A session. [Operator Instructions] With that, I wish us all an entertaining and insightful few hours. Let's open the door for Beyond 2020. Please welcome with me our CEO, Dominik von Achten. Are you excited to be here, Dominik?

Chris, absolutely. Thanks so much for the warm welcome. Thank you very much, Chris.

Yes.

Thank you very much, Chris, and welcome to all of you around the world to our Capital Market Day 2020. We -- before we explain to you why our HeidelbergCement materials are indeed material for our future, let me just make 2 opening quick remarks. First of all, our day-to-day business does not stop. And that's why I think it's fair if we see each other, even if it's only virtually, that we keep you up to speed, how is our business running. So we had a very good July and August, and we are indeed very optimistic for a good Q3. I think that's important for you to know. And secondly, it is the Capital Market Day, Chris was already alluding to it, that is done fully virtual, and I personally stick to what I promised. You know there was a little bit of a discussion, Dominik pull this forward; it's too late in September; do it much later; with COVID, you cannot do it. Here we are. We promised to you we were going to come back with our new strategy to you end of the summer. And I would say, middle of September, that's end of the summer. So I stick to what I promised. With that, let's get into the details. What we want to achieve today is pretty simple. We want to show you what we do differently compared to the past. We want to also demonstrate to you how we drive value. We want to explain how we unlock further optimization potential. We obviously want to highlight, you saw it already in our first video, our CO2 reduction targets and our road map. Jon is going to take you through that. We are going to describe to you why we are convinced that digital transformation is a step change indeed for HeidelbergCement. And last but not least, very important for me, I and we all want to also introduce to you all our acting HeidelbergCement Board members in action. With that, let's look at the fundamentals of our industry, from which we are convinced that they are still very much intact. The market dynamics fall a little bit into 2 different elements. We see good trajectory in the growth markets, where the emerging markets are driven by population growth and also urbanization. On the other side, we have our mature markets that are very much driven by infrastructure stimulus. You have heard the discussion about U.S. infrastructure builds. You know the discussion about the EU Green Deal. In fact, Ursula von der Leyen, this morning, made her speech in Brussels again on this Green Deal. Secondly, very important, climate change. You know that our society is more and more pressing for sustainable and low carbon construction. They are pushing and we are pushing indeed for a circular economy, different models to get there. We'll take you through some ideas later on. And there's also the regulator who tries to push in that direction. Thirdly, very important from our perspective, technology. You can argue, building materials, that's a fairly old product, why the hell do they need technology. We are very convinced that there are 3 elements that will drive growth and profitability down the road. A, there are new business models. Digitalization and automation will drive efficiency. There is also innovation coming when it comes to sustainable building materials and sustainable building construction. And last but not least, there is carbon reduction technologies, whether we use them for utilization or for storage. Let's just take one step back and ask ourselves and look at the analysis about per capita cement consumption compared to the GDP. We deliberately looked over a long period of 40 years, and we were quite surprised even to see this very interesting pattern. You see growth mainly coming from the emerging markets, which for us is obviously very important whenever we talk about countries like Indonesia, India, Sub-Sahara Africa, where we continue to see good growth potential going forward. And then, on the other side, you have the developed markets, where the cement consumption has actually been fairly stable over the last 35 years. And the drivers are now, from our perspective, more sustainability and digitalization. And that will also decommoditize our industry from our perspective. Just a very quick snapshot on HeidelbergCement, especially for those who are following us today for the first time. We are the leader in aggregates, we are the leader in ready-mixed concrete, and we are #2 in cement. We run more than 3,000 production sites globally in more than 50 countries. Our cement capacity is close to 200 million tonnes. And our aggregates, very importantly, our aggregates, resources and reserves are almost up to 20 billion tonnes. And last but not least, very importantly, we employ more than 50,000 people around the world. We are starting, from our perspective, from a very good base, and we are happy with our balanced asset base in both developed markets and emerging markets. Those of you who follow us in more detail or have followed us in more detail in the past, you know that we have a very strong EBITDA exposure to developed countries, notably Europe, North America, but also Australia. In those markets, we are, in many cases, vertically integrated in ready-mixed, and we have in our major metropolitan areas some significant growth drivers that also support our margins. On the other hand, we are very well-positioned in our growing emerging markets, for example, Indonesia, Morocco, Tanzania, I would also add, for example, Ghana. I was mentioning already the high-quality reserve position in both aggregates and cement. And last but not least, also important for today, we already have a good track record in sustainability. Turning the current challenges into opportunities is very important going forward. That is the target of Beyond 2020. The importance, however, is that we are starting from a very solid base. You see the track record over the past 10 years, both in terms of turnover and in terms of EBITDA growth, roughly 5.5% per year. That's not a bad springboard to get going. And then we have the challenges that we will tackle. First of all, from our perspective, to be also very open, you know that our industry in general has not the best track record when it comes to return on invested capital. Personally, I'm convinced that we will face commoditization on the production technology. While 10, 15, 20 years back, some of our companies, especially also HeidelbergCement, were the leaders in cement production technologies. Other nations, other competitors have caught up, and there is, from our perspective, a commoditization going on in that field. Climate change, I was already mentioning that it needs increased need for action. Digitalization and automation is, at this point, from our perspective, still a small element, but it has the power to deconstruct many other -- many industries, look at, for example, the automotive industry. And very important for me, don't forget the cultural change. We work with more than 50,000 people around the world. And as we've learned now through COVID altogether, there are a lot of new ways of working that are, from our perspective, required to attract the younger generation. Here we are with our new framework, Beyond 2020. For me, we have 2 targets that we want to fulfill here. One, the simplify and improve. 3 key elements, I will lead you through them. And second target, we also need and want to innovate. You already saw it in the opening video. Let's get into simplify and improve. Business excellence is at the core of what we've done in the past, but we strongly believe there is clear significant improvement potential that we can capture, both on the commercial side, but also on the operational side. Second, portfolio management. We have done some portfolio management in the past, but we clearly want to shift gears here. We want to shift our focus to core markets. I will get into that later on in a more detailed presentation. Then thirdly, people and organization. My clear goal, our clear goal is to simplify business processes and in general, our setup. Then four, we have sustainability. We want to lead the way to carbon neutrality. We want to lead the way to carbon neutrality. That's very important for us. We carried the color green and now, we live it. Digital transformation, last but not least, the fifth pillar. We are convinced that there -- that digital transformation enables a step change in business excellence, and I will give you some examples. Now all of this needs to come together, and with very strict capital allocation that Lorenz Näger will share the details with you later, we will deliver sustainable shareholder value. That is our clear target with our new strategy. We want to deliver sustainable shareholder value for you. Let's get through the 6 pillars. First, before we dream about all the other pillars, we need to get the basics right again. And in that respect, we target both a commercial aspect and also an operational aspect. We will empower our local countries, our local country management teams, and want to foster local entrepreneurship. By doing that, we want to drive organic growth. It's not just growth for the sake of growth. It needs to come with the clear target of margin improvements with new products and new services. Secondly, we have our operations. As I said, we believe this becomes more and more a commodity. But what is important in commoditization, you need to be the cost leader. You need to be the best operator. So in that respect, we are really targeting rigid performance management. We are fair to say, in the last 2 or 3 years, we have lagged a little bit in that respect. So we will revise rigid performance management. We will focus on asset optimization, but with the clear target in mind to have the financial targets that we communicate to you in a minute clearly in mind in doing so. And because of the commoditization, we want to push a global operating model to standardize, also in this respect, processes and assets. There is one piece I want to address specifically, one geography I want to address specifically in this business excellence topics, North America. Close to my heart, many of you know that I have spent quite some time in my career at HeidelbergCement in North America between 2009 and 2016. And we have to note that our operational performance, our business performance in North America over the past years has lagged a little bit behind the market. So in that respect, we want to share up very clearly with you that we have set an internal target that is above the group average improvement target of 400 to 500 basis point margin improvement for North America. Where does it come from? There are 3 buckets: commercial, operational and SG&A. And obviously, we will cover all 3 business lines. We want to focus more on the markets and product and customer segment development in all 3 business lines. Clearly, we want to be selective in our pricing efforts. And operationally, we must improve our reliability of the assets, and we will do so by targeted cost-effective investments. And last but not least, obviously, we also will continue to work on our SG&A. In order to turn that into action, Chris Ward and his team have already started to carve out an action plan with all of the regional presidents in North America that will then be executed as we speak. Secondly, we will shift gears on portfolio management. What does that mean? We will stay balanced in our portfolio between mature markets and emerging markets. But we have set ourselves very clear portfolio criteria that differ from the past: a, we want an attractive market position that we can defend; b, we want clear and strict financial returns from these investments into these markets; and c, we have only arrived to be in this market, from our perspective, if HeidelbergCement is the best owner, so we have the maximum amount of synergies to manage these assets. And also, we want to reiterate our strategic focus. We must reduce the complexity of our portfolio. We want to do innovation-focused improvements of our asset base and that's also clear. We want to expand and grow in our focus markets. All of that comes together when we have reassessed our core asset portfolio, and we will take you through the details in a minute. Third bucket, people and organization. As I said before, very important to simplify business processes and the general setup. Let's not forget, Chris has mentioned it before, wearing masks, COVID restrictions. Our clear, committed focus on safety is 0 harm. That's very important under COVID-19, corona, but it continues to be our core target before we get going on anything else. All of the targets we will commit to you and share with you today will be based in our incentive schemes. If they are not based in those already, we will have them be based in those as of 2021. It is very important, from my perspective, that the change starts at the top. So we implement a very clear logic also on the Board structure. So each Board member will only have one global function per Board member going forward. And if you mean change, you have to walk the talk. And in that respect, we have decided to allocate Board members to the 2 transformational topics. That's why Jon Morrish will lead you through the ESG, CO2 topic, and that's why I personally will lead the digital side. We will also combine global and area functions to simplify the business setup. And as I said earlier, we will continue to reduce SG&A both in the countries and also on group level. I only go very shortly through the sustainability topic, not because it's not close to my heart, but Jon will lead you through that in very good detail. As of today, we have set new industry-leading CO2 reduction targets, both for 2025 and for 2030. And very important, they are thoroughly underpinned by a clear road map per country. With that, we want to leverage our strong local low carbon product portfolio that is already existing, but that we are going to build out further. And obviously, we want to drive critical breakthrough technologies on CO2 reduction to become carbon neutral by 2050. Digital transformation, second transformation topic. We want to share with you our approach. We have basically 3 pillars: HConnect, that will cover the customer interaction side; HProduce, that will cover our production assets; and HService, that will cover our back office. On the production side, we have basically started with significant efficiency gains. The same is true on the service side. For HConnect, so the customer side, we target to get to more than 75% of our global sales volume going through this digital product, more than 75% of the global sales volume. Last but not least, very important, our financials, 3 clear levers: capital efficiency, cash generation and cash allocation. When it comes to capital efficiency, we want to do the active core portfolio management going forward. We will focus on strategic initiatives for business excellence. I was describing some of them already when it comes to North America. On the cash generation, our strong focus on free cash flow will even intensify, and our CapEx will focus on asset-based improvements with good financial returns. And last but not least, on the cash allocation, we have a clear deleveraging target. We will be disciplined in our use of excess cash. And we are clearly, we are clearly committed to shareholder returns. Here are the financial targets that we want to communicate and share with you. 5 of them: EBITDA margin improvement versus 2019 of 300 basis points; we want to have a ROIC clearly above 8%; we want to operate with a leverage ratio between 1.5 and 2x net debt EBITDA; on sustainability, we have pulled forward our original target of 2030 to 2025; and we want to be in 2025, easy to remember, below 525 kg; digital transformation, as I already mentioned before, more than 75 of -- 75% of our global sales volume needs to be covered by HConnect. So going forward, to make that very clear, we will track ourselves against these targets. So we will come back to you Capital Market after Capital Market Day, update calls after update call, and share with you whether they go up or whether they go down in terms of performance against them. We will share with you our performance against these 5 targets. Before we get into the details, let me just wrap it up, at the beginning, what are our commitments to you. Going forward, we will prioritize the improvement in margins and ROIC over growing the top line. We shift our portfolio focus to the optimization of core assets, while we stay committed to our balanced global footprint. We will ensure strict capital discipline. CapEx spending will be done with a focus on asset-based improvement and financial returns. Very importantly, larger bolt-on M&A needs to be funded through portfolio disposals. We will accelerate our innovation in CO2 and digital as the frontrunner in the building materials industry. And last but not least, by doing so, we offer attractive returns to you, our shareholders, by giving you a progressive dividend and also leave open the option for share buybacks. With that, I thank you for listening to my opening keynote, and I would hand over to my first 3 operational colleagues, Kevin Gluskie, Chris Ward and Ernest Jelito, who will share with you in a small video what they do day in, day out. And then you will see them in action in a Q&A with Chris Beumelburg. Thanks so much, and enjoy the further program. [Presentation]

Welcome back after the sneak preview into our operations. Let's hear it directly from the 3 Board members who run our business lines how they are tackling operational excellence. And since we are in quite some unusual times, we will do a little experiment. We have 1 gentleman in the room with me here in Heidelberg, and the 2 other gentlemen will join us live by video from opposite parts of the world. With me in the room today is Ernest Jelito. Ernest has spent an unbelievable 38 years with HeidelbergCement. He's responsible for our business line, cement, as well as our area, Northern and Eastern Europe and Central Asia. He's a Board member since 2019. And privately, he runs a pretty successful honeybee business, producing 35 liters of honey every year. Chris Ward joins us from Texas, Dallas. He's been with the group for 24 years. He is responsible for our aggregates business line as well as our North America business. He's also a Board member since 2019. And Chris is a fan of American football. He played in university and still enjoys watching. And finally, Kevin Gluskie from Sydney, Australia. Kevin oversees our competence center, ready-mixed, and the Asia-Pacific area. He's got 30 years experience with Hanson and HeidelbergCement. And he is a Board members since 2016. Kevin's major interest outside work is flying. He's a pilot. He's got a pilot license for many years, and recently, he has been rated to fly a jet, which he thinks is pretty cool. So let's get right into it. In the video, we heard you talking about portfolio management and asset optimization. Ernest, your cement portfolio is relatively broad. Do you see a need for further change here? And how do you want to further improve your asset base?

We'll concentrate on high-margin markets, having high-quality assets. How will we do it? We'll dispose assets we do not expect a sufficient margin improvement in the near term. We'll enhance our assets based in the attractive markets with bolt-on acquisitions. We have conducted a detailed study on the cement plant portfolio and market conditions. We may reduce a number of our plants. For example, such a project runs in the U.S. Last week, we have decided to shut down one of our cement plants in Germany. We will also invest in our high-margin assets to ensure extending quality of assets and further reduction in cost production. As an example, we'll invest in a cement plant at one of our core markets in Western Europe.

Thanks, Ernest. And Chris, over to you. You mentioned your footprint in aggregates in key markets like the U.S., U.K., Australia. What is your strategy going forward regarding asset optimization?

Yes. Well, okay, Chris. We see many opportunities across the portfolio to further grow our existing positions. We'll continue to prioritize high-synergy tuck-in acquisitions in our existing markets, but also where platform acquisitions into new aggregate markets will really only be considered as part of our overarching area-level strategy in close coordination with our cement business and other potential downstream opportunities. But even more importantly, we'll aim to further leverage our global knowhow to efficiently modernize our aggregate plans where we see significant cost improvements or long-term capacity constraints to meet expected market growth.

Kevin, your ready-mixed portfolio seems to be well integrated into our core business lines in most of our key markets. Do you see any need for further adjustments here?

Well, in terms of our ready-mixed portfolio, you're absolutely correct. We currently have a very good vertically integrated position in many important and profitable key markets around the world. Yes, it's important to reiterate the logic behind our ready-mixed strategy. While being an anchor customer for our upstream cement and aggregates business, our ready-mixed operations protect against commoditization and therefore protect margins of these upstream products. In terms of potential adjustments to our portfolio, there's 2 areas that we always look out for. The first is those -- for those few areas where we have stand-alone ready-mixed positions, we must make sure that they always remain profitable in their own right. And the second area of focus for us is those emerging markets where urbanization is driving a shift away from manual construction techniques, where cement is distributed mainly in bags, to where building instruction is done in a more sophisticated way that requires the availability of quality ready-mixed concrete. And what we see is this transition can happen very quickly. For example, in Bangkok, it was less than 10 years. So we must be ready to move at the right time and build our ready-mix position. For example, a very important market for us, which is currently experiencing this transition is Jakarta, where in recent times, we have developed a very professional ready-mix setup.

Okay. At the end of the day, operational excellence is all about performance improvement and thus, margin increase. So Chris, the aggregates business generates the highest margins in the group. Arguably also in the sector. Is there a chance to improve margins even further? Or do you want to focus on top line growth and keeping margins stable?

Sure. Well, as I think about aggregates specifically in North America and across the globe, we must focus on operational improvement, but equally on pricing performance. Let me start with operations. We have built remarkable visibility into our operational performance across our portfolio. And while I'm convinced that we have outstanding local leadership teams, this visibility really helps quickly identify where additional support may be necessary. Our performance teams will shift from broad-reaching continuous improvement initiatives to focusing on key sites where measurable improvement will result in noticeable profitability gains. We'll be leveraging best practices from our more mature cement business line to improve our maintenance and automation practices to drive asset utilization higher, but margin improvement clearly must also come from the commercial side of the business. We're investing in training and improved tools to help our -- well, to help optimize our commercial teams find the best value in these finite resources. I'm confident in our ability to pull both these commercial and operational levers and deliver on our aggressive margin targets.

Kevin, over to you. We heard in the video, to increase margins, you need to ensure to be the lowest cost producer. How do you achieve that?

Yes. Exactly. And on the cost side, we've got a number of really clever initiatives. And at the core of this is our capability to extract key operational data from all of our ready-mix operations worldwide and to analyze cost improvement opportunities using big data techniques. For ready-mix, the big cost items or raw materials and logistics, so it was here that we put the majority of our focus. All raw materials in ready-mix are different by local market. And this, together with the myriad of different customer end-use requirements, results in literally hundreds of thousands of different mix recipes being in use across our business at any one time. And having the technology to -- and the expertise to centrally analyze and optimize every one of these mixes on a continual basis is a unique ability that enables HeidelbergCement to deliver a product that meets customer requirements, whilst at the same time, minimizing our raw material costs. And similarly, on the logistics side, we've got a sophisticated digital platform unique to HeidelbergCement that's been installed in a number of major metropolitan markets and optimizes deliveries in real time. And this ensures that our customer needs are met, whilst at the same time achieving the maximum utilization of delivery vehicles and therefore, the lowest possible logistics costs. And because of the large-scale of our ready-mix business across the world, we've got enormous cost leverage from these programs. So even a saving of just $1 per cubic meter is substantial when it's multiplied across the 55 million cubic meters that we produce annually.

Absolutely. About cement, Ernest, what will be the next steps to further improve the business performance in cement?

We always focus on margin improvement. But now we want to put our operational excellence in a new level, high level. Therefore, we are implementing a unique plant operating model in all our cement plants. Based on this, we've identified best practice and improved measures for production cost reduction. We'll benefit from circular economy by using more waste material for clinker production and for cement production. We've increased biomass in alternative fuels. This will not only reduce the CO2 reduction, but we will also reduce production costs. Lastly, we see a production process automation and digitalization as a key driver to reduce production failures and human error. For first, we will ensure continuous production and cost reduction.

You mentioned some of the mega trends already. We also heard them in the keynote speech of Dominik. I mean, they are the key drivers for our businesses. So Kevin, you're closest to the end customer with your business line. Which of the mega trends are important to you? And where do your priorities lie in this respect?

For me, I would highlight 3 relevant mega trends. The first, as mentioned previously, is increasing urbanization. And this is particularly relevant for us in the high-growth emerging markets. The second relevant mega trend is growing awareness worldwide on carbon emissions. And this is a tremendous opportunity for HeidelbergCement because concrete is a fully recyclable building material and is by far the best construction choice for energy-efficient buildings. And going forward, we're doing -- we're putting a lot of focus on many opportunities to further improve the embodied carbon in our concrete mixes and working closely with our customers to realize a low-carbon future. And for me, the third key mega trend is digitalization. And again, this gives us opportunities both in the way that we interact with our customers but in also making our manufacturing opportunities -- or our manufacturing operations are more efficient. And on this topic, HeidelbergCement is very much on the front foot.

Yes. You mentioned digitalization. You also mentioned digitalization, Ernest. Can you elaborate a little bit more about that?

We are using digitalization as a powerful tool for margin improvement. Group wide, we are implementing an advanced process control system, which allowed us to reduce production costs. And thanks to this system, we can, for example, expect by 3% power reduction from cement grinding process. We are implementing moveable maintenance apps to control technical conditions of our key equipment in real time. By this, we can expect our maintenance cost reduction and reduction in production failures. We also want to analyze big data, which will be used for special KPIs, which allowed us to define the improvement measures for plants and identify the focus when we can achieve the highest cost reduction. By achieving a certain level of automation and digitalization, we can remotely run our operation and control the process system. As an example, how deep we go for automation and digitalization, we run a project in Germany to develop fully digitalized cement plant. And after them, we'll roll it out to other cements plants. By digitalization, we are expecting not only to reduce production costs, improve margin, but also to make our cement plants more flexible and open for changes coming from environmental protection, market demand or management challenges.

Thanks. Chris, what are the business trends driving your business?

Yes. So I would say our aggregates business will certainly be impacted by the broader company push towards digitalization. But as I think, again, more specifically around aggregates, 3 main trends stand out. First, I would say it would be reserve scarcity, challenges to find and develop local resources, which, again, speaks to the value of our existing positions. We have strong internal expertise to secure and permit future reserves and to optimize long-haul distribution logistics like marine and rail as distances to markets inevitably increase. Second, I would say, it's the growing importance of the circular economy. We're putting additional emphasis here and have extensive global expertise to further grow in this area. It's a natural extension of our business and supports our strategic target of being the most sustainable company in the sector. And finally, and what I hope to be the most impactful trend is the growing desire to invest in public infrastructure to stimulate national economies. We not only hear this loudly in the U.S., but across many of our other major markets. So I think, Chris, the aggregates businesses are well positioned to benefit from these 3 trends.

Thank you, Chris. Thank you, Kevin. Thank you, Ernest. That concludes our panel discussion. I hope we could give you some insight into our businesses and how we are tackling the topic of operational excellence. Now over to me in the live stream. As you've noticed, we recorded this session last week. Back again in the live stream. Next topic is portfolio management. We already heard from our Board members in a panel discussion that active management of our portfolio will be a key aspect of our strategy going forward. They also talked about how they want to improve margins in their business lines. So let's hear it directly from Dominik von Achten, what will be different in our portfolio approach going forward? Dominik, please come on stage.

Thank you, Chris.

Before we talk about portfolio, can you elaborate a little bit about our 300 basis point margin target?

Absolutely, Chris. I think it's a very important topic for us. As I said, we need to get the basics right. And I'm more than happy to share now with the audience how we get there. Thanks so much, Chris. I think this -- I really enjoyed this Q&A and the videos, I have to say, because it really also gives us a good flavor how doesn't global company like HeidelbergCement operate under COVID. You may have noticed, it was a different daytime for Kevin sitting in Sydney. It was a different daytime for Chris sitting in Dallas, and it was a different daytime for Ernest sitting in Heidelberg. I think all of them have done a fantastic job, great teamwork globally. And we will also have great teamwork to get to the 300 basis points. Let me share with you the 5 buckets that will comprise these -- the way to these 300 basis points improvement. First and foremost, and I'll come to that in a minute, portfolio management. Not only, and I will talk today mainly about the group level, but also on country level. I was indicating to you that we will put a significant focus on commercial and sales in our countries, organic growth. I've shared with you our margin improvement action plan, as an example, for North America, 400 to 500 basis points. So clearly above the group average target of 300 basis points, significant upside potential from our perspective, also in the U.K. Fourth bucket, master plan execution. Many of you know that we are about to revamp our big plant in Mitchell, Indiana in the U.S. So there is a master plan execution in the U.S. We've just done one in Germany, where we are now in the final stages. Yesterday, we announced the kiln closure in our very historic plant near to Heidelberg in Leimen, and we will also embark on a master plan to improve our asset base in France. Last but not least, digital transformation. I shared with you the 3 pillars: HConnect, HProduce and HService. All of these 5 buckets need to ensure and will ensure that not only Chris, Kevin and Ernest, but also Jon and Hakan, Lorenz and myself, we'll organize the way to 300 basis points together with our more than 50,000 employees. That's our clear target. Let's talk about shifting gears, shifting gears in the new asset portfolio management, where we will focus on our core assets, simplifying them and prioritizing them. We have decided internally on 3 simple steps. First step, we are going to rightsize in order to reduce complexity. In doing so, we will shift from non-core to core asset disposals. Secondly, we will strengthen the remaining portfolio, especially through innovation-focused asset base improvement, and we have allocated, Lorenz will go through the details, EUR 1.2 billion per year net CapEx. Thirdly, we will obviously grow our remaining portfolio. We will expand in focused markets, but we will only do this if the leverage commitment is intact and also our dividend not at risk. Let me share with you some of the details. Here we are with our portfolio. Schematically, we show you competitive position and capital efficiency. Those are 2 key drivers. Our clear focus is that we will have strong competitive positions in defendable markets. We need to have financial returns exceeding cost of capital over the cycle. And I shared with you earlier, HeidelbergCement clearly needs to be the best owner of these assets. That's very much targeting towards the synergy aspect. If you take all that together, you see here that we will end up with a portfolio of 3 buckets. We will have our focused positions, we will have our weak spots that we're going to divest and we have our watch list. Divesting is basically done out of the following 4 criteria. If the market do not offer an adequate return over the cycle, the asset or the market will be divested. If there is, in the footprint, no clear path to a defendable market position, we will divest. If it is not a position with efficient synergies, especially in the downstream side, we will divest. And we will continue to divest all type of non-core assets. In doing so, very important, again, simplification, we will reduce the number of management units. We have introduced the watch list. And we will obviously continue to -- or continuously monitor all assets against these targets. Now if you look at this from a divestment perspective, we will shift our focus from non-core asset disposals to a much larger chunk of core asset disposals. This is driven by our new active core portfolio management strategy. We will continue to divest non-core assets on normalized levels. The last 2 or 3 years, we were a little bit above, but we will continue to do this going forward on normalized levels. And obviously, our disposal criteria need to fully support -- need to be fully supported by our financial targets. How are we going to strengthen our portfolio? Clear focus on 3 topics. Regular CapEx. Our colleagues around the world have me already heard saying every, every dollar, every local currency we invest must create a return. So that's very important. Our significant regular CapEx, even if it stay in business, must deliver onto any of those 5 targets we have communicated to you. We have our improvement CapEx that will focus on the innovative part, the transformational part of CO2 and digitalization. And in our master plans, we have our major plant overhauls, where we clearly want to increase the quality of our assets, the efficiency of our assets, and therefore, the margin in our profitable markets. By doing so, we obviously want to increase the competitiveness of our assets and our markets. We will shift gears a little bit more towards innovation. We shared with you the key points. You heard them also from Ernest. And we will spend about EUR 1.2 billion per annum net CapEx to improve our asset base and competitiveness. Thirdly, very important, how do we grow the remaining portfolio? We will focus on market consolidation with selective bolt-ons to improve the existing positions in profitable markets. We will stay focused to drive vertical integration, especially to help our cement and aggregates business. And as I said, we will focus on growing our markets by further investing into these markets with bolt-on acquisitions. In doing so, we will develop even stronger market positions. And it's also very important for us to say that very clearly to you, we will not do transformational new market entries. We will stay very focused to deliver a ROIC well above 8%. And we also need to make sure that the invested acquisitions will meet these ROIC target after full integration. And they need to contribute to the net profit in year 1 after the acquisition. Let me wrap it up again. Shifting gears in portfolio management means, for us, we rightsize, we strengthen and we grow our portfolio going forward in order to drive additional shareholder value. Thank you.

Thank you, Dominik. This is indeed a -- stay on stage. Yes, this is indeed a change in the way we manage our portfolio going forward. You mentioned the word watch list in the beginning. Can you elaborate on that word? What do you mean by watch list?

Yes. I think that's a very important point, Chris. I said we have exit candidates, and we have obviously those clear markets where we want to focus. But we have also some markets in the middle, where we still have the opportunity to develop them into future growth markets. And watch list basically means that we have given them and we'll give them some time in order to ideally develop into the growth future markets. If they don't, we exit. Thank you.

Okay. Okay. Very clear. Now let's switch gears to our first transformational topic, sustainability. We have been very active with reducing our CO2 footprint in the past years. But it's clear to everyone within HeidelbergCement that we will have to accelerate even further our efforts going forward. How we will do that. We will hear from Jon Morrish. Jon heads our region, Western and Southern Europe as well as our sustainability activities. Before Jon explains to you how we want to lead the way to carbon neutrality, let's watch a short film that explains some of our initiatives. [Presentation]